AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
REGISTRATION NO. 333-51127
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MONARCH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 52-2086276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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8889 PELICAN BAY BOULEVARD, NAPLES, FLORIDA 34108, (941) 597-9505
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
--------------
JOHN B. POOLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MONARCH PROPERTIES, INC.
8889 PELICAN BAY BOULEVARD, SUITE 501, NAPLES, FLORIDA 34108, (941) 598-5605,
(941) 566-6082 (FAX)
(Name, address, including zip code, and telephone, including area code, of
agent for service)
--------------
COPIES TO:
JOHN R. FALLON, JR. BRAD S. MARKOFF
THOMAS L. FAIRFIELD Alston & Bird LLP
LeBoeuf, Lamb, Greene & MacRae, L.L.P. 3605 Glenwood Avenue, Suite 310
125 West 55th Street Raleigh, North Carolina 27622
New York, New York 10019-5389 (919) 420-2200
(212) 424-8000 (919) 881-3175 (Fax)
(212) 424-8500 (Fax)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 29, 1998
PROSPECTUS
[GRAPHIC OMITTED]
, 1998 17,450,000 SHARES
MONARCH PROPERTIES, INC.
COMMON STOCK
Monarch Properties, Inc., a Maryland corporation (together with its
subsidiaries, "Monarch" or the "Company"), was formed in February 1998 to invest
in healthcare related real estate assets by utilizing flexible and innovative
financing structures. Proceeds from the Offering (the "Offering") will be used
to finance a portion of the $382.4 million purchase price of Monarch's initial
portfolio of 47 healthcare facilities located in 15 states (the "Initial
Properties"). Of the Initial Properties, 44 will be purchased from Integrated
Health Services, Inc. ("IHS"), a leading national provider of post-acute care
services. Forty-two of the properties to be acquired from IHS will be leased to
Lyric Health Care Holdings III, Inc. ("Lyric III") and managed by IHS. The
Company will be self-administered, self-managed and expects to qualify as a real
estate investment trust ("REIT") for federal income tax purposes. Robert N.
Elkins, M.D., Chairman of the Company, is also Chairman, Chief Executive Officer
and President of IHS and will continue to hold such positions after the
Offering.
All of the 16,500,000 shares of the Company's common stock, $.001 par
value, (the "Common Stock") offered hereby to the public are being sold by the
Company. Concurrently with such sale, certain directors, executive officers and
employees of the Company and certain other individuals, will purchase 950,000
shares of Common Stock directly from the Company at a price equal to the price
to the public less the underwriting discounts and commissions (the "Concurrent
Offering"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently anticipated that the initial public offering price
will be between $17.50 and $19.50 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company intends to apply for the listing of the Common Stock on the
New York Stock Exchange under the symbol "MPZ."
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN MATERIAL RISK FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING:
o Dependence of the Company's revenues and ability to make distributions on
Lyric III as lessee and IHS as manager of substantially all of the Initial
Properties may adversely affect the Company's ability to make
distributions;
o Conflicts of interest between the Company, its affiliated directors, IHS
and Lyric Health Care LLC, including lack of arm's length negotiations and
benefits to IHS, may cause the consideration for the Initial Properties
acquired from IHS to exceed fair market value and the master lease with
Lyric III to not reflect market terms;
o The Company's customized investment or financing structures include
products that limit recourse to the operator which may adversely affect the
Company's ability to collect rent or interest income;
o Management's lack of experience in operating a REIT may affect the
Company's qualification as a REIT;
o Taxation of the Company as a regular corporation if it fails to qualify or
maintain its qualification as a REIT;
o Operating risks in the highly regulated healthcare industry may affect the
ability of lessees and borrowers to make payments to the Company when due
and may adversely affect the value of the Company's investments;
o Lack of limitations on its debt level could adversely affect the Company's
cash flow and ability to make distributions; and
o Limitations on ability to change control of the Company, including a
prohibition on actual or constructive ownership by individual stockholders
in excess of 9.9% of the Company's outstanding stock.
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 THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
----------- ---------------- -------------
<S> <C> <C> <C>
Per Share
Public Offering ............. $ $ $
Concurrent Offering ......... $ $ $
Total(3) ...................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at approximately
$3,250,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 2,475,000 additional shares of Common Stock, solely to
cover overallotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions, and
Proceeds to the Company will be $ , $ , and $ , respectively. See
"Underwriting."
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to reject orders in whole or in
part. It is expected that delivery of the shares of Common Stock will be made
against payment therefor in New York, New York on or about , 1998.
Joint Book-Running Managers
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
SECURITIES CORPORATION
BT ALEX. BROWN A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER MORGAN STANLEY DEAN WITTER
Incorporated
PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED
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.
<PAGE>
[INSERT MAP AND TABLE]
- Skilled Nursing Facilities
- Specialty Hospital
- Option Properties1
INITIAL NUMBER
PROPERTIES OF BEDS
------------ --------
Arkansas .............. 3 303
Colorado .............. 1 155
Florida ............... 10 1,200
Georgia ............... 1 128
Idaho ................. 2 224
Illinois .............. 1 165
Iowa .................. 1 93
Michigan .............. 1 99
Missouri .............. 1 176
New Hampshire ......... 1 68
New Mexico ............ 1 85
Ohio .................. 2 196
Oklahoma .............. 2 136
Pennsylvania .......... 2 553
Texas ................. 18 2,446
-- -----
TOTAL ................. 47 6,027
== =====
1 No assurance can be given that the Company will exercise its right to
acquire any or all of the Option Properties.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
PAGE
---------
PROSPECTUS SUMMARY ........................................... 1
The Company ................................................ 1
Summary Risk Factors ....................................... 3
Business and Growth Strategies ............................. 4
The Initial Properties ..................................... 8
Company Structure .......................................... 10
Transactions With and Benefits to Related Parties .......... 14
The Offering ............................................... 15
Distributions .............................................. 15
Tax Status of the Company .................................. 16
Selected Historical and Pro Forma Financial Information..... 17
RISK FACTORS ................................................. 18
Dependence on Lyric III, Lyric and IHS for the Compa-
ny's Revenues May Adversely Affect the Company's
Ability to Make Distributions ........................... 18
Conflicts of Interest with Affiliated Directors in the For-
mation Transactions and the Business of the Company
Could Adversely Affect the Company's Dealings with
IHS and Lyric ........................................... 18
The Company's Limited Recourse to Operators and
Funding of Early Stage Providers May Adversely Af-
fect the Company's Ability to Receive Rent and Inter-
est Income .............................................. 20
Inexperience of Management in Operating a REIT Could
Affect REIT Qualification ............................... 20
Lack of Operating History May Adversely Affect the
Company's Ability to Make Distributions ................. 20
There Can Be No Assurance that the Company Will Be
Able to Effectively Manage Its Intended Rapid Growth..... 20
Failure to Qualify as a REIT Would Cause the Company
to be Taxed as a Corporation ............................ 20
Certain Aspects of Owning Healthcare Facilities May Ad-
versely Affect the Ability of the Company's Lessees and
Borrowers to Make Payments to the Company and May
Adversely Affect the Value of the Company's Invest-
ments ................................................... 22
The Company's Use of Debt Financing, Absence of Lim-
itation on Debt and Increases in Interest Rates Could
Adversely Affect the Company ............................ 25
Certain Factors Relating to the Real Estate Industry
Could Adversely Affect the Company ...................... 26
The Ability of Stockholders to Effect a Change in Con-
trol of the Company is Limited .......................... 27
Liability for Environmental Matters Could Adversely Af-
fect the Company's Financial Condition .................. 29
Competition Could Have an Adverse Impact on the
Company's Financial Condition ........................... 30
The Company Relies on Key Personnel Whose Contin-
ued Service Cannot be Assured ........................... 31
Purchasers in the Offering Will Experience Immediate
Dilution ................................................ 31
Future Equity Offerings by the Company May Have a
Dilutive Effect on Purchasers in the Offering ........... 31
There Can Be No Assurance the Valuation of the Com-
pany Reflects Fair Market Value ......................... 31
Other Risks of Ownership of Common Stock Could Ad-
versely Affect the Trading Price of the Common Stock. 31
Failure to Obtain Required Consents and Waivers Could
Delay or Prevent the Acquisition of One or More of
the Initial Properties .................................. 33
Investment in the Common Stock by an ERISA Plan May
Not be Appropriate ...................................... 33
THE COMPANY .................................................. 34
Industry Overview .......................................... 35
<PAGE>
PAGE
---------
BUSINESS AND GROWTH STRATEGIES ............................... 37
Customer Segments .......................................... 38
Growth Strategies .......................................... 38
Financial Products ......................................... 40
CONFLICTS OF INTEREST ........................................ 42
Affiliated Directors ....................................... 42
Facilities Purchase Agreement and Master Lease ............. 42
Future Purchases or Financings of IHS Owned or
Managed Properties ...................................... 42
Competition from IHS ....................................... 43
Executive Officers of the Company Will Have Substan-
tial Influence .......................................... 43
Conflict of Interest Policies .............................. 43
USE OF PROCEEDS .............................................. 44
DISTRIBUTIONS ................................................ 45
CAPITALIZATION ............................................... 48
DILUTION ..................................................... 49
SELECTED HISTORICAL AND PRO FORMA FINAN-
CIAL INFORMATION ........................................... 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS ................................................... 52
Overview ................................................... 52
Results of Operations ...................................... 52
Pro Forma Results of Operations for the Three Months
Ended March 31, 1998 .................................... 52
Pro Forma Results of Operations For the Year Ended
December 31, 1997 ....................................... 52
Liquidity and Capital Resources ............................ 52
Non-Cash Compensation Expense .............................. 53
Funds from Operations ...................................... 53
Year 2000 Compliance ....................................... 54
SUMMARY CONSOLIDATED FINANCIAL
DATA OF IHS ................................................ 55
BUSINESS OF THE COMPANY AND
ITS PROPERTIES ............................................. 57
General .................................................... 57
Skilled Nursing Facilities ................................. 57
Specialty Hospitals ........................................ 58
Lyric Transaction .......................................... 59
Trans Health Transaction ................................... 60
Peak Medical Transaction ................................... 60
The Initial Properties ..................................... 62
Option Properties .......................................... 64
Additional Information Regarding Description
of Significant Initial Properties ....................... 65
Potential Investments ...................................... 67
Right of First Offer Agreement ............................. 68
Government Regulation ...................................... 68
Competition ................................................ 72
Legal Proceedings .......................................... 72
Office Lease ............................................... 72
Employees .................................................. 72
KEY AGREEMENTS ............................................... 73
Facilities Purchase Agreement .............................. 73
Master Lease ............................................... 73
Lyric Guaranty ............................................. 75
Master Management Agreement and Facility
Management Agreements ................................... 75
Master Franchise Agreement and Facility
Franchise Agreements .................................... 76
Pledge Agreements .......................................... 77
i
<PAGE>
PAGE
---------
Security Agreement ......................................... 77
Escrow Agreement ........................................... 77
Consent and Subordination Agreement ........................ 77
Purchase Option Agreement .................................. 78
Right of First Offer Agreement ............................. 78
MANAGEMENT ................................................... 79
Directors, Director Nominees and Executive Officers ........ 79
Committees of the Board of Directors ....................... 81
Compensation of the Board of Directors ..................... 81
Executive Compensation ..................................... 82
1998 Omnibus Securities and Incentive Plan ................. 82
Employment and Non-Competition Agreements .................. 84
Incentive Compensation ..................................... 85
Limitation of Liability and Indemnification ................ 85
Indemnification Agreements ................................. 86
STRUCTURE AND FORMATION OF THE
COMPANY .................................................... 87
The Operating Entities of the Company ...................... 87
Formation Transactions ..................................... 87
TRANSACTIONS WITH AND BENEFITS TO RE-
LATED PARTIES .............................................. 89
VALUATION OF INITIAL PROPERTIES .............................. 90
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES ................................................. 91
Investment Policies ........................................ 91
Financing Policies ......................................... 92
Lending Policies ........................................... 92
Conflict of Interest Policies .............................. 93
Policies With Respect to Other Activities .................. 93
OPERATING PARTNERSHIP AGREEMENT .............................. 94
Management ................................................. 94
Removal of the General Partner; Transfer of the General
Partner's Interest ...................................... 94
Amendments to the Operating Partnership
Agreement ............................................... 94
Transfer of Units; Substitute Limited Partners ............. 95
Redemption of Units ........................................ 95
Issuance of Additional Limited Partnership
Interests ............................................... 95
Extraordinary Transactions ................................. 95
Exculpation and Indemnification of the General Partner. 96
Tax Matters ................................................ 96
Term ....................................................... 96
<PAGE>
PAGE
---------
PRINCIPAL STOCKHOLDERS ....................................... 97
DESCRIPTION OF CAPITAL STOCK OF THE COM-
PANY ....................................................... 98
General .................................................... 98
Common Stock ............................................... 98
Preferred Stock ............................................ 99
Restrictions on Transfers .................................. 99
Transfer Agent and Registrar ............................... 100
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS ........................ 101
Business Combinations ...................................... 101
Control Share Acquisitions ................................. 101
Amendment of Charter and Bylaws ............................ 102
Dissolution of the Company ................................. 102
Meetings of Stockholders ................................... 102
The Board of Directors ..................................... 103
Limitation of Liability and Indemnification ................ 103
SHARES ELIGIBLE FOR FUTURE SALE .............................. 105
FEDERAL INCOME TAX CONSEQUENCES .............................. 107
Taxation of the Company .................................... 107
Requirements for Qualification as a REIT ................... 108
Failure of the Company to Qualify as a REIT ................ 114
Taxation of Taxable U.S. Stockholders of the
Company Generally ....................................... 114
Backup Withholding for Company Distributions ............... 116
Taxation of Tax-Exempt Stockholders of the
Company ................................................. 116
Taxation of Non-U.S. Stockholders of the
Company ................................................. 118
Tax Risks Associated with Partnerships ..................... 120
Other Tax Consequences for the Company and Its Stock-
holders ................................................. 121
ERISA CONSIDERATIONS ......................................... 122
Employment Benefit Plans, Tax-Qualified Pension, Profit
Sharing or Stock Bonus Plans and IRAs ................... 122
Status of the Company and the Operating Partnership
Under ERISA ............................................. 122
UNDERWRITING ................................................. 124
EXPERTS ...................................................... 126
LEGAL MATTERS ................................................ 126
ADDITIONAL INFORMATION ....................................... 126
GLOSSARY ..................................................... 127
INDEX TO FINANCIAL STATEMENTS ................................ F-1
FORWARD-LOOKING STATEMENTS
Information contained in or delivered in connection with this Prospectus
contains "forward-looking statements" relating to, without limitation, future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items, which can be identified by
the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. These forward-looking
statements are based on a number of assumptions and estimates which are subject
to significant risks and uncertainties, many of which are beyond the control of
the Company and reflect future business decisions which are subject to change.
The cautionary statements set forth under the caption "Risk Factors" and
elsewhere in the Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements. The Company undertakes no obligation to publicly
release the results of any revisions to such forward-looking statements that may
be made to reflect events or circumstances after the date hereof, or thereof, as
the case may be, or to reflect the occurrence of unanticipated events.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements included elsewhere in this Prospectus.
Unless otherwise indicated, the information contained in this Prospectus assumes
that: (i) the initial public offering price is $18.50 per share (the midpoint of
the price range set forth on the cover page of this Prospectus); (ii) the
transactions described under "Structure and Formation of the Company" are
consummated; and (iii) the Underwriters' overallotment option is not exercised.
As used herein, the "Company" and "Monarch" mean Monarch Properties, Inc., a
Maryland corporation incorporated on February 20, 1998, and one or more of its
subsidiaries (including: (a) Monarch Properties, LP, a Delaware limited
partnership, and one or more of its subsidiaries (the "Operating Partnership");
(b) MP Operating, Inc., a Delaware corporation ("MP Operating"), which will be
the General Partner of the Operating Partnership; and (c) MP Properties LP,
Inc., a Delaware corporation ("MP LP"), which will be the Limited Partner of the
Operating Partnership), or, as the context may require, the Company or Monarch
only or the Operating Partnership only. See "Glossary" at page 127 for the
meanings of other terms used herein. Upon completion of the Offering, the
Company will initially own 100% of the limited partnership interests in the
Operating Partnership through MP Operating and MP LP, and the Company will
conduct all of its operations through the Operating Partnership. An investment
in the Common Stock offered hereby is not an investment in Lyric Health Care LLC
("Lyric"), Integrated Health Services, Inc. ("IHS") or any of their respective
subsidiaries.
THE COMPANY
Monarch was formed to capitalize on the growing demand from providers of
facility-based healthcare services for flexible and innovative real estate
financing structures. Monarch's strategy is to offer traditional and customized
sale and leaseback structures and other financing products that address the
differing needs of both established and emerging operators of skilled nursing,
specialty hospital, assisted living and other healthcare facilities. The Company
believes that the customized products it has developed offer operators
significant advantages over traditional sale and leaseback structures and will
generate sufficient customer demand to justify premium yields. The Company will
be self-administered and self-managed and expects to qualify as a real estate
investment trust ("REIT") for federal income tax purposes.
Monarch will focus primarily on meeting the needs of two primary customer
segments: (i) large, established operators of facility-based healthcare
services, which are typically publicly traded corporations; and (ii) emerging
operators with strong growth prospects run by experienced and entrepreneurial
management teams with proven track records. While Monarch will offer traditional
REIT investment products (such as sale and leaseback structures and, to a lesser
extent, mortgage financing), it will focus on offering innovative products which
are customized for individual operators. Monarch's products are generally
structured to enhance the financial flexibility of the operator while providing
enhanced yields and appropriate security to the Company. Monarch believes that
its focus on providing customized products will differentiate it from many of
its REIT competitors who are focused on more traditional investment products.
The Company's initial portfolio will consist of 47 healthcare facilities
located in 15 states (the "Initial Properties") and will be purchased for an
aggregate purchase price of approximately $382.4 million. Forty-four of the
Initial Properties will be purchased from IHS for approximately $371.0 million
and the remaining three properties will be purchased from an unaffiliated third
party for approximately $11.5 million. IHS is a New York Stock Exchange ("NYSE")
listed, leading national provider of post-acute healthcare services, operating
or managing approximately 300 geriatric care facilities across the United
States. Forty-two of the Initial Properties are skilled nursing facilities with
a total of approximately 5,846 beds and five are specialty hospitals with a
total of approximately 181 beds. In addition, the Company will have options to
purchase up to 10 additional skilled nursing facilities with a total of
approximately 1,683 beds from IHS for an aggregate purchase price of
approximately $104.7 million, and will have a right of first offer during the
next four years to purchase or finance any
1
<PAGE>
healthcare facilities IHS acquires or develops and elects to either sell and
leaseback or to finance in a transaction of the type normally engaged in by the
Company. Forty-two of the Initial Properties (the "Lyric Properties") will be
leased on a portfolio basis to Lyric Health Care Holdings III, Inc. ("Lyric
III") pursuant to a master lease (the "Master Lease"). A master lease is a
single lease which covers a portfolio of properties rather than a single
property. Lyric III will sublease the Lyric Properties to separate wholly owned
subsidiaries of Lyric III (collectively, the "Facility Subtenants") pursuant to
individual subleases (collectively, the "Facility Subleases"). The remaining
five Initial Properties will be leased to two independent healthcare facility
operators.
The Lyric Properties will be leased on a triple net basis (which means that
the lessee pays in addition to base rent, all taxes, insurance, utilities and
other charges incurred in the operation of the property) with initial terms
ranging from nine to thirteen years, subject to certain renewal options. The
initial annual base portfolio rent for the Lyric Properties will be $36.4
million. The initial base rent was determined by multiplying the purchase price
by 10.125%, which was based on the average yield on the 10-year U.S. Treasury
Note over the 20 trading days ending on June 8, 1998 (5.625%) plus 450 basis
points. The base portfolio rent will be increased annually commencing on January
1, 1999, at a rate equal to the lesser of two times the increase in the Consumer
Price Index ("CPI") or 3%, subject to certain conditions. In addition, Lyric III
or the Facility Subtenants are required to make minimum annual capital
expenditures of $300 per bed (as increased annually by the CPI) in each facility
covered by the Master Lease to maintain the property. Lyric III will enter into
a management agreement and a franchise agreement with IHS subject to the Master
Lease under which all management and franchise fees payable to IHS will be
subordinated to payments under the Master Lease. The aggregate rent payments of
all of the Facility Subtenants will be available to satisfy the obligations of
Lyric III under the Master Lease and Lyric III will be obligated to pay the rent
due under the Master Lease whether or not any Facility Subtenant fails to pay
any rent due under any Facility Sublease. In addition, Lyric III will deposit
with the Company as a security deposit a letter of credit in an amount equal to
six months of the estimated rents payable with respect to the Master Lease. Rent
payments and the performance of Lyric III under the Master Lease and the
Facility Subtenants under the Facility Subleases will be guaranteed by Lyric
(the "Lyric Guaranty"). IHS will not guarantee or have any other obligation to
Monarch with respect to the payment or performance obligations of Lyric III
under the Master Lease.
Monarch will focus its investment efforts on the long-term care sector of
the healthcare industry and on healthcare operators who service residents
needing higher levels of care. Long-term care encompasses a broad range of
specialty services for elderly and other patients with medically complex needs
who do not require acute care services but are unable to be cared for at home.
Services provided by long-term care facility operators range from meals and
transportation to assistance with activities of daily living such as eating,
dressing and medication reminders to intensive medical care. The real estate
asset types in this sector include nursing, subacute care and assisted living
facilities and specialty hospitals.
There is a significant market for the financing of healthcare facilities.
The U.S. Census Bureau estimates that total healthcare construction expenditures
are approximately $14 billion per year. A study conducted by Price Waterhouse
estimates that the gross capital size of the senior living and long-term care
market will grow from $86 billion in 1996 to $126 billion in 2005 and $490
billion in 2030. Despite the strong projected growth in demand for healthcare
facilities, the Company believes that licensure requirements in many markets,
including certain laws which require a determination by a regulatory authority
that there is a need for the facility will prevent overbuilding, thereby
preserving the value of its portfolio of properties.
2
<PAGE>
SUMMARY RISK FACTORS
An investment in the shares of Common Stock involves various risks, and
prospective investors should carefully consider these and other matters
discussed under "Risk Factors" prior to making an investment in the Company.
Such risks include:
o The dependence of the Company's revenues and ability to make
distributions on Lyric III as lessee and IHS as manager of the Lyric
Properties and the lack of a guaranty from IHS of the payments due
under the Master Lease may adversely affect the Company's revenues and
ability to make distributions;
o Conflicts of interest between the Company, its affiliated directors,
IHS and Lyric, including: (i) the role of Dr. Elkins as Chairman of
the Board, Chief Executive Officer and President of IHS and Chairman
of the Board of the Company; (ii) IHS' 50% ownership interest in
Lyric; (iii) the 50% beneficial ownership of Lyric by Timothy F.
Nicholson, a director of IHS; (iv) the lack of arm's length
negotiations in connection with the acquisition of 44 of the Initial
Properties from IHS and the leasing of the 42 Lyric Properties to
Lyric III; and (v) the benefits to be derived by IHS from such
transactions may cause the consideration to be paid for the Initial
Properties acquired from IHS, to exceed their fair market value and
the Master Lease of the Lyric Properties to Lyric III not to reflect
market terms;
o The Company's customized investment or financing structures include
products that limit recourse to the operator and provide funding to
early stage facility-based healthcare service providers which may
adversely affect the Company's ability to collect rent or interest
income;
o The Company's lack of operating history may adversely affect the
Company's revenues and ability to make distributions;
o Management's lack of experience in operating a REIT may affect the
Company's qualification as a REIT;
o Taxation of the Company as a regular corporation if it fails to
qualify or maintain its qualification as a REIT;
o Operating risks inherent in the highly regulated healthcare industry
may affect the ability of lessees and borrowers to make payments to
the Company when due and may adversely affect the value of the
Company's investments;
o Lack of limitations on its debt level could adversely affect the
Company's cash flow and ability to make distributions; and
o Provisions in the Company's Charter and Bylaws and certain provisions
of Maryland law, including a prohibition on actual or constructive
ownership by individual stockholders of 9.9% or more of the Company's
outstanding stock may have the effect of delaying, deferring or
preventing a change of control of the Company.
3
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's principal objectives are to maximize total stockholder
returns through a combination of growth in funds from operations per share and
enhancement of the value of its investment portfolio. To achieve these
objectives, Monarch intends to offer a broad mix of traditional and innovative
financing products to meet the specific needs of its primary customer segments.
The Company believes that its success in acquiring properties will be based on
its ability to successfully market to its primary customer segments and its
ability to provide tailored financial products which meet the needs of
individual operators. Monarch intends to continue to develop and expand strong
relationships with established or emerging healthcare providers that will enable
it to diversify its portfolio of properties and lessees and achieve continued
asset growth. The Company intends to access this customer base through the use
of senior management's and the Chairman's extensive network of relationships
with healthcare facility operators and healthcare industry financing sources, as
well as through various marketing efforts, such as participation in trade
conferences and other industry meetings and electronic and print advertising.
As experienced operators of facilities similar to those to be acquired by
Monarch, management has recognized the significant demand for financing which
provides flexibility currently unavailable in the market. To respond to this
underserved need for flexible financing, the Company has developed several
financing alternatives that can be customized to meet the specific demands of
individual customers, including the structure being used to acquire the Lyric
Properties from IHS and the subsequent lease of such properties to Lyric III,
with IHS providing management services. In this type of transaction, the Company
will offer a sale and leaseback structure where the lessee is not majority-owned
by the seller/manager and the lease is not guaranteed by the seller/manager (the
"Intermediate Lessee Structure"). This structure may allow large established
operators to improve financial flexibility and operating profit margins and
reduce leverage through the realization of substantial proceeds from the sale of
facilities and the elimination of obligations for future lease payments. In
addition, this structure enables the seller to generate revenues from the
operation of the facilities through the provision of fee-based management
services and franchising fees. For a more detailed description of the Company's
product offerings, see "Business and Growth Strategies."
The Company intends to manage credit risks associated with its investment
and financing activities on both a transaction-specific and on a portfolio
basis. The Company's risk management program will include:
o Utilizing credit evaluation criteria which emphasize the operator's
management capabilities and track record, the historical and projected
operating results and cash flows of the facility, facility appraisals,
competitive position within the market and demographics;
o Subordinating management and franchise fees to lease payments,
utilizing cross collateralization (which means the use of the same
collateral as security for multiple obligations) and cross default
(which means a default under one obligation is also a default under
another obligation) provisions, employing master lease structures that
effectively make all of the revenues from the facilities under the
master lease available to support the master lease obligation, stock
pledges, financial covenants and regular financial reporting; and
o Diversifying the Company's asset base by operator, geographic
location, investment type and healthcare sector.
4
<PAGE>
CUSTOMER SEGMENTS
The Company will target the following two primary customer segments:
ESTABLISHED PUBLIC OPERATORS. Monarch believes that large established
operators of healthcare facilities, such as IHS, will be a major source of
ongoing investment opportunities because traditional as well as customized sale
and leaseback structures (including the Intermediate Lessee Structure) allow
these operators to focus on optimizing the performance of the facilities they
operate without evaluating or being subject to real estate risks.
EMERGING OPERATORS. Based on management's experience as facility operators,
the Company believes that there is a substantial opportunity to provide
financing for select emerging operators who often have limited access to
attractive capital sources despite having extensive experience and
well-developed growth strategies. Monarch intends to utilize the operating
expertise and relationships of its senior management team to identify and target
quality operators with the goal of providing financing to these customers
throughout their growth cycles. The Company also believes that this customer
segment is presently underserved by existing public healthcare REITs, whose
primary focus is to provide facility-based financing to large operators on a
secured basis utilizing the corporate guarantees of the operators.
Monarch has developed several products tailored to target the capital needs
of emerging operators that may provide long-term cost savings to the operator as
compared with venture capital or other financing alternatives. The Company's
innovative lease or financing structures for such operators may not require a
personal guaranty from the owner and may include agreements to purchase
facilities upon completion of their construction at a predetermined purchase
price and to leaseback such facilities to the operator. The Company may also
enter into agreements to provide limited short-term working capital financing
and offer financing at higher loan to value ratios (which means the ratio of the
principal amount of the loan to the fair market value of the property used as
collateral for the loan) than may be available from traditional mortgage
lenders. In return for this flexibility, the Company expects to obtain higher
returns through premium yields, stock warrants or other instruments which
provide the Company with an opportunity to share in the growth of the emerging
operator's enterprise value, subject to compliance with applicable REIT rules.
GROWTH STRATEGIES
The Company intends to achieve its principal growth objectives through: (i)
the acquisition of high quality healthcare properties operated by experienced
management teams; (ii) the generation of internal growth in rental and other
income; and (iii) the employment of a conservative and flexible capital
structure.
INVEST IN HIGH QUALITY HEALTHCARE PROPERTIES OPERATED BY EXPERIENCED
MANAGEMENT TEAMS. Monarch's strategy is to invest in or finance quality
healthcare properties operated or managed by experienced operators. In addition
to skilled nursing facilities, which comprise substantially all of the Company's
initial portfolio, the Company intends to invest in other healthcare delivery
facilities across the United States. Senior management believes its experience
operating and growing start-up healthcare ventures positions it to target and
evaluate quality emerging operators who will benefit from the Company's product
offerings.
5
<PAGE>
INTERNAL GROWTH. The Company's strategy is to achieve internal growth
through increased income from: (i) increases to base rent under leases with
provisions for annual fixed rate or CPI rent increases; (ii) increased interest
income from participating mortgage loans (which means loans that pay to the
lender a share of facility revenues or income); (iii) subject to applicable REIT
rules, gains from stock warrants, shared appreciation mortgages (which means
loans that permit the lender to share in increases in the value of the facility
financed) or other instruments related to the operator's enterprise value or the
underlying asset value; and (iv) increases in rental income payable under any
leases that it may enter into having a rent component based on a percentage of
facility revenues.
EMPLOY CONSERVATIVE AND FLEXIBLE CAPITAL STRUCTURE. The Company's strategy
is to employ a conservative and flexible capital structure that will allow it to
aggressively pursue desirable investment opportunities. The Company's strategy
is to employ a capital structure that keeps the amount of its outstanding debt
within conservative limits as the Company intends to maintain a debt to total
market capitalization (i.e. total debt of the Company as a percentage of its
equity market capitalization plus total debt) of less than 50%. Upon completion
of the Offering, the Company's pro forma debt to total market capitalization
ratio is expected to be 20.3%. The Company believes that this conservative
capital structure will provide it with flexibility in satisfying its capital
needs. As a publicly traded REIT with a relatively low leveraged capital
structure and expected initial pro forma total market capitalization of $416.9
million, management believes it will have access to a variety of sources of
capital, currently available to similarly situated REITs, such as: (i)
additional public and private common and preferred equity; (ii) public and
private debt instruments; and (iii) more traditional commercial borrowings from
banks and other financial institutions. In addition, the Company will be
structured as an umbrella partnership REIT ("UPREIT") in order to permit the use
of limited partnership units in the Operating Partnership ("Units") as currency
to make acquisitions of properties and to enable the Company to offer certain
tax advantages to real estate sellers.
GROWTH OPPORTUNITIES
The Company's ability to implement its growth strategies will depend upon
its ability to identify and consummate additional acquisition and investment
opportunities. The following highlights some of the potential sources of future
investment by the Company.
IHS OPTION PROPERTIES. The Company will have options to acquire up to 10
additional skilled nursing facilities with 1,683 beds from IHS with an aggregate
purchase price of approximately $104.7 million, subject to adjustment. The
purchase option will have an initial term of two years, with the Company granted
three successive renewal options of one year each. The initial annual base rent
for any of the properties purchased by the Company would be equal to the
purchase price multiplied by the greater of: (i) 10.0% or (ii) the average yield
on the 10-year U.S. Treasury Note over the 20 trading days preceding the date of
purchase plus 450 basis points. The base rent would be subject to annual
increases equal to the lesser of two times the increase in the Consumer Price
Index ("CPI") or 3%, subject to certain conditions. There can be no assurance
that the Company will exercise the purchase options for all or any of these
properties.
POTENTIAL INVESTMENTS. The Company is currently engaged in discussions or
negotiations with several healthcare facility operators with respect to possible
acquisition or financing transactions. The Company has entered into relationship
commitment letters with four healthcare facility operators, which in the
aggregate represent conditional commitments for up to approximately $200 million
for the acquisition from and leaseback to the operator of skilled nursing,
sub-acute care, senior housing or other long-term care facilities to be
identified by such operator in the future.
In addition, the Company has entered into conditional commitment letters
for the following transactions: (i) the acquisition of a 122 bed skilled nursing
facility located in Granite City, Illinois for a price of approximately $7.5
million payable in cash or Units in the Operating Partnership and the lease of
such facility to the operator; (ii) the acquisition of an approximately 300 bed
continu-
6
<PAGE>
ing care retirement center located in High Point, North Carolina for a purchase
price of approximately $11.0 million in cash and the lease of such facility to
the operator; and (iii) the provision of second mortgage financing in the amount
of approximately $1.5 million for a 141 bed assisted living and Alzheimer's
facility to be constructed in Rancho Mirage, California.
The consummation of any potential acquisition or financing transaction,
including transactions under the commitment letters which the Company has
entered into, are subject to various significant conditions, including, but not
limited to, the identification of facilities to be acquired or financed, the
Company's approval of the underwriting of any facility to be acquired or
financed, completion of due diligence, negotiation of terms for specific
facilities and execution of definitive agreements. Accordingly, there can be no
assurance that any such potential transactions will be completed, or, if
completed, what the terms or timing of any such transactions will be.
RIGHT OF FIRST OFFER. IHS has granted the Company, for a period of four
years from the closing of the Offering (subject to automatic annual renewals
thereafter unless terminated by either party), the opportunity to purchase or
finance each facility IHS decides to sell and lease back or finance in a
transaction of the type normally engaged in by the Company on terms to be
offered to a third party. It is currently anticipated that some of the IHS
facilities that may be acquired by the Company under this right may involve
Lyric and its consolidated subsidiaries as lessee and IHS as manager.
7
<PAGE>
THE INITIAL PROPERTIES
The following tables set forth certain information regarding the Initial
Properties. The Initial Properties are comprised of 42 skilled nursing
facilities with 5,846 beds and five specialty hospitals with 181 beds. The
aggregate purchase price of the Initial Properties is approximately $382.4
million. The Company has a purchase option to acquire 10 additional skilled
nursing facilities from IHS for an aggregate purchase price of approximately
$104.7 million. See "Business of the Company and its Properties" for a
description of the Initial Properties and "Selected Historical and Pro Forma
Financial Information" for a quantification of the base rents for the Initial
Properties.
<TABLE>
<CAPTION>
YEAR NUMBER
BUILT/ OF 1998
PROPERTY (LOCATION) RENOVATED BEDS(1) OCCUPANCY(2)
- ----------------------------------------------------- ----------- --------- --------------
<S> <C> <C> <C>
SKILLED NURSING FACILITIES (FORTY-TWO):
IHS HISTORICAL PROPERTIES (4)
IHS of Colorado Springs
(Colorado Springs, CO) ............................. 1986 155 71%
IHS of Brandon (Brandon, FL) ........................ 1990 120 95
IHS at Central Park Village (Orlando, FL) ........... 1984 120 82
IHS at Vero Beach (Vero Beach, FL) .................. 1980 110 92
IHS of Florida at Auburndale
(Auburndale, FL) ................................... 1983 120 95
IHS of Florida at Clearwater (Clearwater, FL) ....... 1983 150 93
IHS of Florida at Fort Pierce (Fort Pierce, FL) ..... 1980 107 92
IHS of Atlanta at Briarcliff Haven (Atlanta, GA)..... 1972 128 91
IHS of Lakeland at Oakbridge (Lakeland, FL) ......... 1991 120 97
IHS of Sarasota at Beneva (Sarasota, FL) ............ 1982 120 95
IHS of Iowa at Des Moines (Des Moines, IA) .......... 1965 93 78
IHS at Brentwood (Burbank, IL) ...................... 1962 165 76
IHS of St. Louis at Big Bend Woods
(Valley Park, MO) .................................. 1958 176 71
IHS of New Hampshire at Manchester
(Manchester, NH) ................................... 1978 68 86
IHS at Whitemarsh (Whitemarsh, PA) .................. 1971 247 95
IHS of Pennsylvania at Broomall
(Broomall, PA) ..................................... 1958 306 95
IHS of Amarillo (Amarillo, TX) (5) .................. 1985 153 63
IHS of Texoma at Sherman (Sherman, TX) .............. 1980 179 84
IHS of Florida at West Palm Beach
(West Palm Beach, FL) .............................. 1993 120 90
Vintage Health Care Center (Denton, TX) ............. 1985 110 97
----- --
SUBTOTAL/ WEIGHTED AVERAGE ........................ 2,867 87
----- --
HHC PROPERTIES (6)
Horizon Healthcare & Specialty Center
(Daytona Beach, FL) ................................ 1967 113 89
Meadowview Care Center (Seville, OH) ................ 1980 100 92
Washington Square Nursing Center (Warren, OH)........ 1975 96 91
Midwest City Nursing Center (Midwest City, OK)....... 1987 106 96
Lynwood Manor (Adrian, MI) .......................... 1969 99 92
Ruidoso Care Center (Ruidoso, NM) ................... 1975 85 95
Doctors Healthcare Center (Dallas, TX) .............. 1964 325 72
Harbor View Care Center
(Corpus Christi, TX) ............................... 1968 116 88
Heritage Estates (Ft. Worth, TX) .................... 1977 149 93
Heritage Gardens (Carrollton, TX) ................... 1973 152 94
Heritage Manor Longview (Longview, TX) .............. 1979 150 77
Heritage Manor Plano (Plano, TX) .................... 1976 188 84
Heritage Place of Grand Prairie
(Grand Prairie, TX) ................................ 1985 164 90
Horizon Healthcare-El Paso (El Paso, TX) ............ 1970 182 91
Longmeadow Care Center (Justin, TX) ................. 1988 120 88
Parkwood Place (Lufkin, TX) ......................... 1919/1985 157 86
Silver Springs Nursing and Rehabilitation
Center (Houston, TX) ............................... 1974 150 83
----- --
SUBTOTAL/WEIGHTED AVERAGE ......................... 2,452 87
----- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INITIAL
PURCHASE PERCENTAGE LEASE
PRICE OF INITIAL TERM
PROPERTY (LOCATION) ($ IN THOUSANDS) PROPERTIES (YEARS)(3)
- ----------------------------------------------------- ------------------ ------------ -----------
<S> <C> <C> <C>
SKILLED NURSING FACILITIES (FORTY-TWO):
IHS HISTORICAL PROPERTIES (4)
IHS of Colorado Springs
(Colorado Springs, CO) ............................. $ 9,129 2.4% 9
IHS of Brandon (Brandon, FL) ........................ 9,563 2.5 10
IHS at Central Park Village (Orlando, FL) ........... 7,297 1.9 10
IHS at Vero Beach (Vero Beach, FL) .................. 7,821 2.0 10
IHS of Florida at Auburndale
(Auburndale, FL) ................................... 8,535 2.2 11
IHS of Florida at Clearwater (Clearwater, FL) ....... 11,482 3.0 10
IHS of Florida at Fort Pierce (Fort Pierce, FL) ..... 5,922 1.5 9
IHS of Atlanta at Briarcliff Haven (Atlanta, GA)..... 9,944 2.6 13
IHS of Lakeland at Oakbridge (Lakeland, FL) ......... 9,843 2.6 11
IHS of Sarasota at Beneva (Sarasota, FL) ............ 8,939 2.3 13
IHS of Iowa at Des Moines (Des Moines, IA) .......... 3,787 1.0 11
IHS at Brentwood (Burbank, IL) ...................... 43,692 11.4 11
IHS of St. Louis at Big Bend Woods
(Valley Park, MO) .................................. 6,713 1.9 10
IHS of New Hampshire at Manchester
(Manchester, NH) ................................... 6,569 1.7 9
IHS at Whitemarsh (Whitemarsh, PA) .................. 21,192 5.5 12
IHS of Pennsylvania at Broomall
(Broomall, PA) ..................................... 35,923 9.4 11
IHS of Amarillo (Amarillo, TX) (5) .................. 9,720 2.5 13
IHS of Texoma at Sherman (Sherman, TX) .............. 8,358 2.2 13
IHS of Florida at West Palm Beach
(West Palm Beach, FL) .............................. 13,200 3.5 13
Vintage Health Care Center (Denton, TX) ............. 4,839 1.3 12
-------- ---- --
SUBTOTAL/ WEIGHTED AVERAGE ........................ 242,468 63.4 11.2
-------- ---- ----
HHC PROPERTIES (6)
Horizon Healthcare & Specialty Center
(Daytona Beach, FL) ................................ 4,385 1.1 9
Meadowview Care Center (Seville, OH) ................ 2,923 0.8 9
Washington Square Nursing Center (Warren, OH) 4,038 1.1 10
Midwest City Nursing Center (Midwest City, OK). 3,921 1.0 11
Lynwood Manor (Adrian, MI) .......................... 6,008 1.6 12
Ruidoso Care Center (Ruidoso, NM) ................... 2,657 0.7 10
Doctors Healthcare Center (Dallas, TX) .............. 7,537 2.0 11
Harbor View Care Center
(Corpus Christi, TX) ............................... 3,963 1.0 13
Heritage Estates (Ft. Worth, TX) .................... 6,889 1.8 13
Heritage Gardens (Carrollton, TX) ................... 6,856 1.8 12
Heritage Manor Longview (Longview, TX) .............. 8,315 2.2 10
Heritage Manor Plano (Plano, TX) .................... 12,676 3.3 9
Heritage Place of Grand Prairie
(Grand Prairie, TX) ................................ 5,107 1.3 12
Horizon Healthcare-El Paso (El Paso, TX) ............ 3,055 0.8 12
Longmeadow Care Center (Justin, TX) ................. 2,677 0.7 13
Parkwood Place (Lufkin, TX) ......................... 3,519 0.9 12
Silver Springs Nursing and Rehabilitation
Center (Houston, TX) ............................... 7,451 1.9 13
-------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE ......................... 91,977 24.0 11.1
-------- ---- ----
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INITIAL
YEAR NUMBER PURCHASE PERCENTAGE LEASE
BUILT/ OF 1998 PRICE OF INITIAL TERM
PROPERTY (LOCATION) RENOVATED BEDS(1) OCCUPANCY(2) ($ IN THOUSANDS) PROPERTIES (YEARS)(3)
- ----------------------------------------------- ----------- --------- -------------- ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PEAK MEDICAL PROPERTIES (7)
Idaho Falls Care Center (Idaho Falls, ID) ..... 1988 108 93% $ 6,500 1.7% 12
Twin Falls Care Center (Twin Falls, ID) ....... 1987 116 72 4,800 1.3 12
----- -- -------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE ................... 224 82 11,300 3.0 12
----- -- -------- ---- ----
TRANS HEALTH PROPERTIES (8)
Fulton County Nursing and Rehab Center
(Salem, AR) .................................. 1963/1991 125 73 3,343 0.9 11
Lakeland Lodge Nursing Center
(Heber Springs, AR) .......................... 1962 102 67 2,957 0.8 11
Pioneer Nursing and Rehab Center
(Melbourne, AR) .............................. 1996 76 98 5,175 1.3 11
----- -- -------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE ................... 303 77 11,475 3.0 11
----- -- -------- ---- ----
TOTAL/WEIGHTED AVERAGE SKILLED NURSING
FACILITIES ................................. 5,846 86 357,220 93.4 11.2
----- -- -------- ---- ----
SPECIALTY HOSPITALS (FIVE):
IHS HISTORICAL PROPERTIES (4)
IHS Hospital at Houston (Houston, TX) ......... 1963 59 82 19,679 5.1 9
----- -- -------- ---- ----
HHC PROPERTIES (6)
HSH-Midwest City (Midwest City, OK) ........... 1987 30 81 354 0.1 11
HSH-El Paso (El Paso, TX) ..................... 1970 31 86 1,227 0.3 12
HSH-Plano (Plano Specialty Hospital)
(Plano, TX) .................................. 1976 30 52 2,255 0.6 9
HSH-Corpus Christi (Corpus Christi, TX) ....... 1968 31 68 1,704 0.5 13
----- -- -------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE ................... 122 72 5,540 1.5 11.0
----- -- -------- ---- ----
TOTAL/WEIGHTED AVERAGE SPECIALTY
HOSPITALS ................................. 181 75 25,219 6.6 9.4
----- -- -------- ---- ----
TOTAL INITIAL PROPERTIES ................... 6,027 86% $382,439 100% 11.1
===== == ======== ==== ====
</TABLE>
- ----------
(1) Based on the number of private and semi-private beds currently in use which
may be lower than the number of licensed beds.
(2) Based on weighted average occupancy for the 3 months ended March 31, 1998.
(3) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering and excludes all renewal options.
(4) "IHS Historical Properties" means the Initial Properties which have been
owned and managed by IHS for more than one year. All of the IHS Historical
Properties will be leased to Lyric III, pursuant to the Master Lease, and
subleased to wholly owned subsidiaries of Lyric III.
(5) Facility also includes a specialty hospital consisting of 33 beds.
(6) "HHC Properties" means the Initial Properties which were owned and managed
by Horizon/CMS Healthcare Corporation ("HHC") prior to December 31, 1997
and were acquired by IHS effective December 31, 1997, and will be leased to
Lyric III, pursuant to the Master Lease and subleased to wholly owned
subsidiaries of Lyric III.
(7) "Peak Medical Properties" means the Initial Properties which were owned and
managed by HHC prior to December 31, 1997, and were acquired by IHS
effective December 31, 1997, and will be leased to and managed by Peak
Medical of Idaho, Inc. ("Peak Medical Tenant"), a wholly owned subsidiary
of Peak Medical Corporation ("Peak Medical").
(8) "Trans Health Properties" means the Initial Properties to be acquired from
an unaffiliated third party. The Trans Health Properties will be leased to
a subsidiary of Trans Healthcare, Inc. ("Trans Health").
9
<PAGE>
COMPANY STRUCTURE
The Company will be structured as an UPREIT, which means that at the
completion of the Offering, substantially all of the Company's assets will be
owned by, and its operations conducted through, the Operating Partnership. The
Company will contribute the net proceeds of the Offering to the Operating
Partnership in exchange for a number of Units equal to the number of shares of
Common Stock sold by the Company in the Offering. Following the Offering, the
Operating Partnership may issue Units to third parties who will contribute
properties in exchange for Units. Pursuant to the Operating Partnership
Agreement, the General Partner will have full, exclusive and complete
responsibility and discretion in the management, operation and control of the
Operating Partnership, including the ability to cause the Operating Partnership
to enter into certain major transactions, including acquisitions, developments,
and dispositions of properties and refinancings of existing and future
indebtedness. The Company will manage the business and affairs of the Operating
Partnership through its control of the board of directors of the General
Partner, which will be comprised of the same members as the board of directors
of the Company. Because of limitations imposed by the rules applicable to REITs,
the Company is not permitted to operate its own facilities. The Company's
activities will consist of monitoring its investments, developing investment and
lending opportunities, performing underwriting, analysis, negotiating and
closing activities with respect to future investment or financing transactions
and performing administrative functions.
FORMATION TRANSACTIONS. The formation transactions (the "Formation
Transactions") include the following transactions which have occurred or will
occur prior to or concurrent with the consummation of the Offering:
o The Company was incorporated in Maryland in February 1998 at which
time the Company issued 100 shares to Dr. Elkins which was all of the
outstanding shares of Common Stock. The Operating Partnership was
formed as a Delaware limited partnership in April 1998 as a wholly
owned subsidiary of the Company, with MP Operating as the general
partner and MP LP as the limited partner. Lyric was previously formed
in May 1997 as a Delaware limited liability company.
o The Company has received a commitment for and anticipates entering
into a three-year unsecured revolving credit facility for $150 million
from SouthTrust Bank, National Association, as agent for a group of
lenders (the "Credit Facility"). The Credit Facility will be used to:
(i) finance a portion of the purchase price and acquisition costs of
the Initial Properties; (ii) facilitate future acquisitions or
financings; and (iii) for working capital and other general corporate
purposes. No assurance can be given that the Company will enter into
the Credit Facility.
o The Company will acquire the Lyric Properties from IHS for
approximately $359.7 million. The Company will lease all of the Lyric
Properties to Lyric III pursuant to the Master Lease. Lyric III will
sublease the Lyric Properties to the Facility Subtenants pursuant to
the individual Facility Subleases. Rent payments and the performance
of Lyric III under the Master Lease and the Facility Subtenants under
the Facility Subleases will be guaranteed by Lyric. IHS will manage
all of the Lyric Properties under a management agreement with Lyric.
See "Risk Factors -- Dependence on Lyric III, Lyric and IHS for the
Company's Revenues May Adversely Affect the Company's Ability to Make
Distributions," "-- Certain Aspects of Owning Healthcare Facilities
May Adversely Affect the Ability of the Company's Lessees and
Borrowers to Make Payments to the Company" and "Business of the
Company and its Properties."
o The Company will acquire the Peak Medical Properties from IHS for
approximately $11.3 million, subject to existing leases at each
facility with the Peak Medical Tenant. The leases are substantially
similar to the Master Lease and are cross defaulted. Peak Medical will
guaranty the payment and performance of the Peak Medical Tenant under
the leases.
10
<PAGE>
o The Company will acquire the Trans Health Properties from an
unaffiliated third party for approximately $11.5 million and lease the
Trans Health Properties to wholly owned subsidiaries of Trans Health
under a master lease substantially similar to the Master Lease. Trans
Health will guaranty the payment and performance of all obligations
under the master lease for the Trans Health Properties.
o As the sole stockholder of the General Partner and the Limited
Partner, the Company will initially indirectly own 100% of the
ownership interests in the Operating Partnership through its wholly
owned subsidiaries, MP Operating and MP LP, and the Operating
Partnership will own the Initial Properties. Following the Offering,
the Operating Partnership may issue Units to third parties who will
contribute properties in exchange for Units.
o The Company and IHS will enter into an option agreement pursuant to
which the Company will be granted purchase options to purchase up to
10 skilled nursing facilities (the "Option Properties") currently
owned or leased (with a purchase option) by IHS for a total purchase
price of approximately $104.7 million (the "Purchase Option
Agreement"). The Purchase Option Agreement will have an initial term
of two years, with the Company granted three successive renewal
options of one year each. It is currently anticipated that all
facilities acquired by the Company under the Purchase Option Agreement
will be leased to Lyric III and its consolidated subsidiaries and
managed by a subsidiary of IHS. See "Business of the Company and its
Properties" and "Risk Factors -- Conflicts of Interest with Affiliated
Directors in the Formation Transactions and the Business of the
Company Could Adversely Affect the Company's Dealings with IHS and
Lyric."
o In addition to the Purchase Option Agreement, the Company and IHS will
enter into a right of first offer agreement for a period of four years
from the closing of the Offering (subject to annual renewals
thereafter), pursuant to which IHS must offer the Company the
opportunity to purchase or finance any healthcare facilities IHS
acquires or develops and elects to sell and lease back or finance in a
transaction of the type normally engaged in by the Company (the "Right
of First Offer Agreement"). The Company will be offered the
opportunity to acquire or finance the IHS facility on terms and
conditions that, should the Company decline to pursue the proposed
transaction, must be offered to any other third parties by IHS. If IHS
is only able to sell and lease back or finance the IHS facility on
better terms with a third party than previously offered to the
Company, then the Company must again be offered those new terms and
conditions for consideration prior to IHS finalizing a transaction
with the third party. See "Risk Factors -- Conflicts of Interest with
Affiliated Directors in the Formation Transactions and the Business of
the Company Could Adversely Affect the Company's Dealings with IHS and
Lyric" and "Business of the Company and its Properties -- Right of
First Offer Agreement."
o Following the completion of the Offering and the purchase of the
Initial Properties, the Company will have approximately $65.4 million
available under the Credit Facility for general corporate purposes,
including acquisitions of additional properties.
o Upon completion of the Offering, the purchasers of the shares of
Common Stock sold in the Offering (other than directors and executive
officers of the Company) will own 95.3% of the issued and outstanding
shares of Common Stock or 92.7% assuming the exercise of all
outstanding stock options granted to directors and executive officers
pursuant to the 1998 Omnibus Securities and Incentive Plan. Upon
completion of the Offering, directors and executive officers of the
Company will own 4.7% of the issued and outstanding shares of Common
Stock or 7.3% assuming the exercise of all outstanding stock options
held by such individuals.
11
<PAGE>
The following diagram depicts the beneficial ownership of the Company and
the Initial Properties following the completion of the Offering:
[GRAPHIC OMITTED]
- ----------
(1) Assumes 818,674 shares of Common Stock are purchased by directors and
executive officers in the Concurrent Offering. Excludes shares of Common
Stock issuable pursuant to stock options to be granted prior to or
contemporaneously with the Offering. If all such options were exercised as
of the date of the Offering, the Company's executive officers and directors
would own 7.3% of the Common Stock and the public stockholders would own
92.7% of the Common Stock.
(2) 100% of the economic interest in all of the Properties will be owned
through the Operating Partnership.
12
<PAGE>
LYRIC STRUCTURE. Lyric was formed in May 1997 as a Delaware limited
liability company and is presently owned 50% by IHS and 50% by TFN Healthcare
Investors, LLC ("TFN"), a Delaware limited liability company, which is 100%
beneficially owned by Timothy F. Nicholson, a director of IHS. Through other of
its consolidated subsidiaries, Lyric currently leases 10 healthcare facilities
from an unaffiliated publicly traded healthcare REIT. After the sale of the
Lyric Properties, IHS will contribute the shares of stock in Lyric III to Lyric
and the shares of stock in the Facility Subtenants to Lyric III. Thereafter,
Lyric will own 100% of the stock of Lyric III and Lyric III will own 100% of the
stock of each of the Facility Subtenants. IHS will manage all of the Lyric
Properties.
[GRAPHIC OMITTED]
- ----------
(1) The properties are leased pursuant to a master lease and subleased to
wholly owned subsidiaries.
13
<PAGE>
TRANSACTIONS WITH AND BENEFITS TO RELATED PARTIES
In connection with the Formation Transactions and the Offering, the Company
will enter into transactions with Dr. Elkins, IHS and Lyric, which transactions
may benefit Dr. Elkins, IHS and Lyric or result in conflicts of interest between
the Company and Dr. Elkins, IHS or Lyric, including the following:
o Dr. Elkins will simultaneously serve as Chairman of the Board of
Directors of the Company and Chairman of the Board of Directors, Chief
Executive Officer and President of IHS. See "Risk Factors -- Conflicts
of Interest with Affiliated Directors in the Formation Transactions
and the Business of the Company Could Adversely Affect the Company's
Dealings with IHS and Lyric," "Conflicts of Interest," "Management"
and "Transactions With and Benefits to Related Parties."
o IHS and TFN will each beneficially own 50% of Lyric. Timothy F.
Nicholson, a director of IHS, beneficially owns 100% of TFN.
o The Company will: (i) grant to Dr. Elkins options to purchase 315,681
shares of Common Stock; (ii) grant to its executive officers and
certain other employees options to purchase an aggregate of 112,361
shares of Common Stock; and (iii) grant to each of the four
non-employee director nominees, at the time they become directors,
options to purchase 21,402 shares of Common Stock, all under the
Company's 1998 Omnibus Securities and Incentive Plan. All such options
will have an exercise price of $.001 per share and will be exercisable
immediately. Assuming an initial public offering price of $18.50 per
share, the value of the shares issuable upon exercise of the options
at the date of the Offering will be: $5.8 million (Dr. Elkins), $2.1
million (Company executive officers and employees as a group) and $.4
million (each non-employee director other than Dr. Elkins),
respectively. See "Management -- 1998 Omnibus Securities and Incentive
Plan."
o Upon completion of the Offering, the purchasers of the shares of
Common Stock sold in the Offering (other than directors and executive
officers of the Company) will own 95.3% of the issued and outstanding
shares of Common Stock or 92.7% assuming the exercise of all
outstanding stock options granted to directors and executive officers
pursuant to the 1998 Omnibus Securities and Incentive Plan. Upon
completion of the Offering, directors and executive officers of the
Company will own 4.7% of the issued and outstanding shares of Common
Stock or 7.3% assuming the exercise of all outstanding stock options
held by such individuals.
o The Company will pay to IHS approximately $371.0 million as the
purchase price for the Lyric Properties and the Peak Medical
Properties, plus approximately $1.0 million as repayment of advances
made by IHS to the Company in connection with the Formation
Transactions and the Company's operations prior to the Offering.
o Lyric and the Facility Subtenants will enter into management
agreements with IHS under which IHS will have the exclusive right to
manage the Lyric Properties and IHS will receive (i) a base management
fee equal to (a) 3% of the gross revenues of all facilities covered by
the master management agreement or (b) 4% of the gross revenues of all
facilities covered by the master management agreement if annual gross
revenues for all facilities owned by Lyric and managed by IHS exceed
$350 million and (ii) an annual incentive fee equal to 70% of the
annual net cash flow of all facilities covered by the management
agreements. See "Key Agreements -- Master Management Agreement and
Facility Management Agreements."
o Lyric and the Facility Subtenants will enter into franchise agreements
with IHS under which IHS will grant to Lyric and the Facility
Subtenants the right to use certain proprietary materials developed
and used by IHS in its operation of healthcare facilities. IHS will
receive an annual franchising fee under the agreements equal to 1% of
the gross revenues of all facilities covered by the franchise
agreements. See "Key Agreements -- Master Franchise Agreement and
Facility Franchise Agreements."
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<PAGE>
Following the Offering, the Company will be prohibited by the terms of its
Bylaws from acquiring additional properties from, or providing financing on
properties involving, IHS or the Company's directors and officers or affiliates
thereof without the approval of a majority of the Company's disinterested
directors, including any properties to be acquired pursuant to the Right of
First Offer Agreement, and any properties to be acquired pursuant to the
Purchase Option Agreement.
THE OFFERING
All of the shares of Common Stock offered hereby are being offered by the
Company.
COMMON STOCK OFFERED(1)... 16,500,000 shares
COMMON STOCK OUTSTANDING
AFTER THE OFFERING(2).... 17,963,650 shares
USE OF PROCEEDS......... The net proceeds of the Offering will be used by
the Company to acquire the Initial Properties, to
pay formation expenses and for general corporate
purposes. See "Use of Proceeds" and "Structure and
Formation of the Company."
PROPOSED NYSE SYMBOL...... "MPZ"
- ----------
(1) Excludes 950,000 shares of Common Stock to be sold to certain directors,
executive officers and employees of the Company and certain officers of IHS
in the Concurrent Offering.
(2) Includes: (i) the 950,000 shares to be sold in the Concurrent Offering; and
(ii) 513,650 shares of Common Stock issuable pursuant to stock options that
will be exercisable immediately at a price per share of $.001.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to holders of
its Common Stock. The initial distribution, covering a partial quarter
commencing on the date of the closing of the Offering and ending on September
30, 1998, is expected to be $ per share, which represents a pro rata
distribution based upon a full quarterly distribution of $.393125 per share and
an annual distribution of $1.5725 per share (or an annual distribution rate of
approximately 8.5% based on the initial public offering price). See
"Distributions."
The Company intends initially to distribute annually approximately 82.9% of
estimated cash available for distribution. The Company's estimate of cash
available for distribution ("Cash Available for Distribution") for the twelve
months following the closing of the Offering is based upon pro forma funds from
operations ("Funds from Operations") for the 12 months ended March 31, 1998,
with certain adjustments as described in "Distributions." Because of the effects
of a one-time compensation expense related to the granting of stock options to
directors, officers and employees, the Company anticipates that approximately
69.0% (or $1.086 per share) of the distributions intended to be paid by the
Company for the 12-month period following the completion of the Offering will
represent a return of capital for federal income tax purposes and in such event
will not be subject to federal income tax under current law to the extent such
distributions do not exceed a stockholder's basis in the Common Stock. Without
giving effect to this one-time charge, approximately 34.4% (or $0.541 per share)
of the distributions anticipated for such period would constitute a non-taxable
return of capital. The Company intends to maintain its initial distribution rate
for the 12-month period following the completion of the Offering unless actual
results of operations, economic conditions or other factors differ materially
from the assumptions used in its estimate. Distributions by the Company will be
determined by the Board of Directors and will be dependent upon a number of
factors, including revenue received from the Company's properties, the operating
expenses of the Company, interest expense, the ability of tenants at the
Company's properties to meet their financial obligations and unanticipated
capital expenditures. The Company believes that its estimate of Cash Available
for Distribution is reasonable; however, no assurance can be given that the
estimate will prove accurate, and actual distributions may therefore be
significantly different from expected distributions. The Company does not intend
to reduce the expected distribution per share if the Underwriters' overallotment
option is exercised. See "Distributions."
15
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998, and believes its
organization and proposed method of operation will enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements. In order to
maintain its qualification as a REIT under the Code, the Company generally will
be required each year to distribute at least 95% of its net taxable income. As a
REIT, the Company generally will not be subject to federal income tax on net
income it distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
at regular corporate rates. Even if the Company qualifies for taxation as a
REIT, the Company will be subject to certain federal, state and local taxes on
its income and property. In the opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., commencing with the Company's taxable year ending December 31, 1998, the
Company will be organized in conformity with the requirements for qualification
as a REIT, and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. See "Risk
Factors -- Failure to Qualify as a REIT Would Cause the Company to be Taxed as a
Corporation" and "Federal Income Tax Consequences -- Failure of the Company to
Qualify as a REIT."
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth financial information for the Company which
is derived from the Balance Sheet and Pro Forma Balance Sheet and Statement of
Operations included elsewhere in this Prospectus. The adjustments for the
Offering assume an initial public offering price of $18.50 per share of Common
Stock and that the Underwriters' overallotment option is not exercised.
Pro forma operating data are presented for the three months ended March 31,
1998 and for the year ended December 31, 1997 as if the Offering, the
acquisitions of the Initial Properties and the Formation Transactions had
occurred, and as if the respective leases were in effect, on January 1, 1998 and
January 1, 1997, respectively. The pro forma balance sheet is presented as of
March 31, 1998 as if the Offering and the acquisitions of the Initial Properties
and related transactions had occurred at that date.
<TABLE>
<CAPTION>
PRO FORMA AT OR
FOR THE THREE PRO FORMA FOR
MONTHS ENDED THE YEAR ENDED
AT MARCH 31, 1998(1) MARCH 31, 1998 DECEMBER 31, 1997
---------------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Revenues ......................................... $ -- $ 9,690 $ 38,757
Net income ....................................... -- 5,551 22,200
Earnings per share - diluted ..................... -- 0.31 1.24
BALANCE SHEET DATA:
Properties ....................................... -- 382,439 --
Other assets ..................................... -- 528 --
Total assets ..................................... -- 382,967 --
Credit Facility .................................. -- 84,582 --
Other liabilities ................................ -- 2,026 --
Total stockholders' equity ....................... -- 296,359 --
OTHER DATA:
Funds from Operations (2) ........................ -- 7,774 31,092
Cash provided by operating activities(3) ......... -- 7,765 33,087
Cash used by investing activities(3) ............. -- -- (382,592)
Cash provided by financing activities(3) ......... -- -- 380,566
Weighted average number of shares of
common stock outstanding - diluted(4) .......... 100 17,963,650 17,963,650
</TABLE>
- ----------
(1) The Company was formed on February 20, 1998 and was capitalized with the
issuance of 100 shares of Common Stock for an aggregate purchase price of
$100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and after adjustments for
unconsolidated partnerships and joint ventures. The White Paper also
provides for other adjustments to net income in deriving Funds from
Operations, including adjustments for extraordinary, unusual, or
non-recurring items. Accordingly, the Company intends to adjust net income
in computing Funds from Operations by the amount of non-recurring non-cash
compensation expense. The Company believes that Funds from Operations is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. The Company computes
Funds from Operations in accordance with standards established by NAREIT
which may not be comparable to Funds from Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current definition differently than the
Company. Funds from Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make cash distributions.
(3) Amounts are presented on a pro forma basis assuming the Offering and the
related transactions occurred on January 1, 1997 and computed in accordance
with GAAP, except that cash provided by operating activities excludes the
effect on cash resulting from changes in current assets and current
liabilities. The Company does not believe that these excluded items are
material to net cash provided by operating activities. Also, no
unconditional commitments exist for investing or financing activities.
(4) Includes shares of Common Stock issuable upon exercise of stock options to
be granted contemporaneously with the Offering.
17
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock involves various risks.
Prospective investors should carefully consider the following information before
making a decision to purchase Common Stock in the Offering. See "Forward-Looking
Statements."
DEPENDENCE ON LYRIC III, LYRIC AND IHS FOR THE COMPANY'S REVENUES MAY ADVERSELY
AFFECT THE COMPANY'S ABILITY TO MAKE DISTRIBUTIONS
The Company's revenues and ability to make expected distributions to
stockholders will depend in significant part upon rental payments received from
Lyric III under the Master Lease and, in the event of a default by Lyric III,
from Lyric pursuant to its guaranty of Lyric III's obligations under the Master
Lease. Lyric III will be the lessee of 42 of the Initial Properties, which
account for approximately 94% of the aggregate purchase price of the Initial
Properties, and if acquired, all of the Option Properties. Lyric III's ability
to make rental payments depends on the revenues derived from IHS' successful
management of the facilities leased by Lyric III. IHS has not guaranteed Lyric
III's obligations under the Master Lease. Accordingly, there can be no assurance
that Lyric III will be able to meet its obligations under the Master Lease in
the event that IHS fails to successfully manage the Lyric Properties.
Additionally, if IHS is unable to successfully manage the Lyric Properties,
there can be no assurance that Lyric will not experience delays in substituting
a manager for the Lyric Properties. Any such delay could adversely affect Lyric
III's ability to make rental payments under the Master Lease.
Due to the Company's initial dependence on Lyric III's rental payments as
the principal source of the Company's revenues, the Company may be limited in
its ability to fully enforce its rights under the Master Lease or to terminate
the Master Lease. Failure by Lyric III to materially comply with the terms of
the Master Lease could require the Company to identify another lessee to which
to lease such properties since, as a REIT, the Company is generally precluded
from operating its properties. In the event of a default by Lyric III, Lyric or
any Facility Subtenants, the Company could be materially and adversely affected
by a decrease or cessation of rental payments under the Master Lease. The
Company has no recourse against IHS, and can look for payment only from Lyric,
Lyric III or any relevant Facility Subtenants. Additionally, there can be no
assurance that Lyric III will elect to renew the Master Lease upon the
expiration of its initial term, which would also force the Company to identify a
suitable replacement lessee. In either circumstance, due to the nature of the
facility-based healthcare service industry, the Company may be unable to
identify a suitable lessee or to attract such a lessee, and may, therefore, be
required to reduce the rent, which would have the effect of reducing the
Company's Cash Available for Distribution. See "Key Agreements -- Master Lease."
CONFLICTS OF INTEREST WITH AFFILIATED DIRECTORS IN THE FORMATION TRANSACTIONS
AND THE BUSINESS OF THE COMPANY COULD ADVERSELY AFFECT THE COMPANY'S DEALINGS
WITH IHS AND LYRIC
Several conflicts of interest exist between the Company and its directors
and officers, IHS and its directors and officers and Lyric and its directors and
officers. The following description sets forth the principal conflicts of
interest and the relationships through which they arise.
THE COMPANY MAY PURSUE LESS VIGOROUS ENFORCEMENT OF TERMS OF AGREEMENTS
BECAUSE OF CONFLICTS OF INTEREST WITH AFFILIATED DIRECTORS. The presence of
affiliated directors may deter the Company from vigorously enforcing the terms
of the IHS Agreements, the Master Lease and the Lyric Guaranty, which could
adversely affect the Company's financial condition and results of operations.
Dr. Elkins, the Company's Chairman of the Board, is Chairman of the Board, Chief
Executive Officer and President of IHS and will continue to serve in such
capacity following completion of the Offering. In addition, each of the
Company's executive officers was formerly associated with IHS, including John B.
Poole, President and Chief Executive Officer and a director of the Company, who
previously served as Executive Vice President and Special Assistant to the Chief
Executive Officer of IHS. Lyric is owned 50% by IHS and 50% by TFN, which is
100% beneficially owned by Timothy F. Nicholson, a member of IHS' Board of
Directors. At March 1, 1998, Dr. Elkins beneficially owned approximately 7.6% of
the outstanding common stock of IHS and, upon consummation of the Offering, he
will beneficially own 5.7% of the outstanding Common Stock of the Company.
Because he serves as Chairman of the Boards of both IHS
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<PAGE>
and the Company, Dr. Elkins will have a conflict of interest with respect to his
obligations as a director of the Company with respect to enforcing: (i) the
terms of the Facilities Purchase Agreement, the Purchase Option Agreement and
the Right of First Offer Agreement (collectively, the "IHS Agreements") as they
relate to the various IHS properties being acquired by the Company or that may
be acquired or financed by the Company in the future; (ii) the Master Lease to
be entered into by the Company and Lyric III; and (iii) the Lyric Guaranty from
Lyric to the Company.
THERE CAN BE NO ASSURANCE THAT THE COMPANY IS PAYING FAIR MARKET VALUE FOR
THE INITIAL PROPERTIES. There can be no assurance that the consideration to be
paid by the Company for the Initial Properties represents the fair market value
thereof and it is possible that the market value of the Common Stock may exceed
stockholders' proportionate share of the aggregate fair market value of such
properties. The purchase price to be paid to IHS by the Company for the Initial
Properties was not determined as a result of arm's length negotiations. The
purchase price was determined on the basis of negotiations between the Company
and IHS based on a variety of factors, including, but not limited to,
independent appraisals, comparable transactions, historical and projected
operating results and industry cash flow coverage ratios. Although it is
intended that the Company pay fair market value for the Initial Properties,
there can be no assurance that the appraisers have accurately determined the
fair market value of the Initial Properties. IHS will receive substantial
economic benefits as a result of consummation of the Formation Transactions and
the Offering. See "Conflicts of Interest," "Transactions with and Benefits to
Related Parties" and "Valuation of Initial Properties."
THERE CAN BE NO ASSURANCE THAT THE TERMS AND CONDITIONS OF THE MASTER LEASE
REFLECT FAIR MARKET TERMS. Failure of the terms and conditions of the Master
Lease to reflect fair market terms could adversely affect the Company's
financial condition and results of operations. Lyric will receive substantial
economic benefits as a result of entering the Master Lease. The terms and
conditions of the Master Lease to be entered into by the Operating Partnership
and Lyric III were determined by negotiations between the Company and Lyric and
were not negotiated on an arm's length basis. The rental rate under the Master
Lease was based on an agreed upon yield intended to be competitive in the
marketplace. No independent valuation or assessment of the terms and conditions
of the Master Lease was obtained by the Company. Accordingly, there can be no
assurance that the Master Lease reflects market terms. See "Conflicts of
Interest" and "Transactions with and Benefits to Related Parties."
THE COMPANY WILL EXPERIENCE COMPETITION FROM IHS. Competition from IHS
could adversely affect the Company's financial condition and results of
operations. The Company will experience ongoing competition from and conflicts
with IHS. The Company's healthcare facilities (whether or not managed by IHS)
may compete with healthcare facilities owned, leased or managed by IHS in
certain markets. As a result, IHS will have a conflict of interest due to the
operation of certain competing healthcare facilities and its management of a
substantial portion of the facilities owned by the Company. See "Conflicts of
Interest."
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY WILL HAVE SUBSTANTIAL
INFLUENCE AND COULD HAVE OUTSIDE INTERESTS THAT CONFLICT WITH THE COMPANY'S
INTERESTS. Failure of the Company's executive officers to act in accordance with
the Company's interests could adversely affect the Company's financial condition
and results of operations. Certain of the directors and executive officers of
the Company are purchasing shares of Common Stock in the Concurrent Offering and
will be granted stock options which will be exercisable at the time of the
Offering. Upon completion of the Offering, directors and executive officers of
the Company will own approximately 7.3% of the total issued and outstanding
shares of Common Stock (including shares issuable pursuant to exercisable stock
options). Accordingly, such persons will have substantial influence on the
Company, which influence may not be consistent with the interests of other
stockholders. See "Principal Stockholders."
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<PAGE>
THE COMPANY'S LIMITED RECOURSE TO OPERATORS AND FUNDING OF EARLY STAGE
PROVIDERS MAY ADVERSELY AFFECT THE COMPANY'S ABILITY TO RECEIVE RENT AND
INTEREST INCOME
The Company's customized investment or financing structures include
products that limit recourse to the operator and provide funding to early stage
facility-based healthcare service providers, which may affect the ability of the
Company to receive rent and interest income. As part of the Intermediate Lessee
Structure utilized with IHS, the Company has no recourse against IHS, and can
look for payment only from Lyric, Lyric III or any relevant Facility Subtenants.
See "Business and Growth Strategies."
INEXPERIENCE OF MANAGEMENT IN OPERATING A REIT COULD AFFECT REIT QUALIFICATION
Failure of the Company to qualify or maintain its qualification as a REIT
could adversely affect the Company's financial condition and results of
operations. The Company will be self-administered and self-managed and expects
to qualify as a REIT for federal income tax purposes. The Company's Board of
Directors and executive officers will have overall responsibility for management
of the Company. Although certain of the Company's executive officers and
directors have extensive experience in the acquisition, development and
financing of real properties and in the operation of healthcare facilities and
publicly owned corporations, none of the management of the Company has prior
experience in operating a business in accordance with the Code requirements for
maintaining REIT qualification. Failure to maintain REIT status would have an
adverse effect on the Company's ability to make anticipated distributions to
stockholders. There can be no assurance that the past experience of management
will be appropriate to qualify and maintain the Company as a REIT. See
"Management."
LACK OF OPERATING HISTORY MAY ADVERSELY AFFECT THE COMPANY'S ABILITY TO MAKE
DISTRIBUTIONS
There can be no assurance that the Company will be able to generate
sufficient revenue from operations to make anticipated distributions to its
stockholders. The Company was recently organized and has no operating history.
The Company also will be subject to the risks generally associated with the
formation of any new business and specifically to the risks associated with the
formation and operation of a REIT.
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO EFFECTIVELY MANAGE
ITS INTENDED RAPID GROWTH
Failure of the Company to grow or effectively manage its growth could
adversely affect its financial condition and results of operations. The Company
intends to grow rapidly. The Company's ability to manage its growth effectively
will require it to successfully identify, structure and manage new investments.
Other than the Initial Properties (which will be purchased using the net
proceeds from the Offering concurrently with or within a short time following
the closing of the Offering), the Company has not completed any acquisitions or
dispositions. Although the Company has options to purchase the Option
Properties, there can be no assurances that the Company will be successful in
consummating the acquisition of any such properties. Furthermore, there can be
no assurances that additional acquisition and development opportunities on terms
that meet the Company's investment criteria will be available to the Company or
that the Company will be successful in capitalizing on such opportunities.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A
CORPORATION
The Company will be treated as a regular corporation for tax purposes if it
fails to qualify as a REIT and such taxation could adversely affect the
Company's financial condition and results of operations. The Company intends to
operate so as to qualify as a REIT under the Code, commencing with its taxable
year ending December 31, 1998 but there can be no assurance that the Company
will be organized or will be able to operate in a manner so as to qualify as a
REIT or remain so qualified. Qualification as a REIT involves the satisfaction
of numerous requirements (some on an annual and some on a quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. For example, in order to qualify as a REIT, at least 95%
of the Company's gross income in any year must be derived from qualifying
sources, and the Company must pay distributions to stockholders aggregating
annually at least 95% of its REIT taxable income
20
<PAGE>
(excluding capital gains and certain non-cash income). No assurance can be given
that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.
LeBoeuf, Lamb, Greene & MacRae, L.L.P., tax counsel to the Company, has
rendered an opinion to the effect that the Company is organized in conformity
with the requirements for qualification as a REIT and its proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT. Such legal opinion, however, is based on various assumptions and
factual representations by the Company regarding the Company's business and
assets and the Company's ability to meet the various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. Such legal opinion is not binding on the
Internal Revenue Service (the "IRS") or any court. Moreover, the Company's
qualification and taxation as a REIT will depend upon the Company's ability to
meet (through actual annual operating results, distribution levels and diversity
of stock ownership) the various qualification tests imposed under the Code, the
results of which will not be reviewed by tax counsel to the Company. See
"Federal Income Tax Consequences -- Taxation of the Company."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the net earnings of the Company available for
investment or distribution to stockholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
stockholders would no longer be required to be made. See "Federal Income Tax
Consequences -- Failure of the Company to Qualify as a REIT."
Certain special considerations will apply due to the nature of the
Company's assets. The manner in which the Company will derive income from the
skilled nursing facilities and other healthcare facilities will be governed by
special considerations in satisfying the requirements for REIT qualification.
Because the Company would not qualify as a REIT if it directly operated a
skilled nursing facility or other healthcare facility, the Company will lease
such facilities to a healthcare provider, such as the subsidiaries of Lyric,
that will operate the facilities. It is essential to the Company's qualification
as a REIT that these arrangements be respected as leases for federal income tax
purposes and that the lessees (including the subsidiaries of Lyric and IHS) not
be regarded as "related parties" of the Company (as determined under the
applicable Code provisions). In the event the leases expire and are not renewed,
the Company will have to find a new "unrelated" lessee to lease and operate the
properties in order to continue to qualify as a REIT. In the event of a default
on either a lease of, or a mortgage secured by, a skilled nursing facility or
other healthcare facility, the Company, to maintain its REIT qualification,
would have to engage a new healthcare provider (which could not include Lyric or
its subsidiaries or IHS) to operate the facility after the Company takes
possession of the facility. This requirement could deter the Company from
exercising its remedies in the event of a default even though such exercise
otherwise would be in the Company's best interests. Although the Company would
be permitted to operate the facility for 90 days after taking possession of the
facility pursuant to applicable Treasury Regulations without jeopardizing its
REIT status, the fact that the facility licenses will be held by lessees or
borrowers may preclude the Company from doing so under applicable healthcare
regulatory requirements. See "Federal Income Tax Consequences -- Requirements
for Qualification as a REIT."
Other tax liabilities could adversely affect the Company's cash flows. Even
if the Company qualifies as a REIT, it will be subject to certain federal, state
and local taxes on its income and property. See "Federal Income Tax Consequences
- -- Other Tax Consequences for the Company and its Stockholders."
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CERTAIN ASPECTS OF OWNING HEALTHCARE FACILITIES MAY ADVERSELY AFFECT THE ABILITY
OF THE COMPANY'S LESSEES AND BORROWERS TO MAKE PAYMENTS TO THE COMPANY AND MAY
ADVERSELY AFFECT THE VALUE OF THE COMPANY'S INVESTMENTS
LESSEES AND BORROWERS' OPERATION IN THE HIGHLY REGULATED HEALTHCARE
INDUSTRY MAY AFFECT THEIR ABILITY TO MAKE LEASE OR LOAN PAYMENTS TO THE COMPANY.
Any failure by the Company's lessees or borrowers or their managers, to comply
with applicable government regulations in the highly regulated healthcare
industry could adversely affect lessees or borrowers' ability to make lease or
loan payments to the Company. The long-term care segment of the healthcare
industry is highly regulated. Operators of skilled nursing facilities and other
healthcare facilities are subject to federal, state and local laws relating to
the delivery and adequacy of medical and nursing care, nutrition, condition of
the physical facility, residents' rights, distribution of pharmaceuticals,
personnel, operating policies, fire prevention, rate-setting and compliance with
building and safety codes and environmental laws. The failure to obtain or
maintain any required regulatory approvals or licenses or the failure to comply
with various licensure standards and Medicare and Medicaid conditions of
participation could prevent an operator from offering services or adversely
affect its ability to receive reimbursement for services and could result in the
denial of reimbursement, suspension of admission of new patients, suspension or
decertification from the Medicaid or Medicare programs, restrictions on the
ability to acquire new facilities or expand existing facilities and, in extreme
cases, revocation of the facility's license, significant civil and monetary
penalties, closure of the facility and criminal sanctions. Separate civil law
claims brought by the states against skilled nursing facilities for alleged
threats to skilled nursing facility residents' health and safety, alleged abuse
or neglect, or consumer-type actions for alleged violations of regulatory
standards interpreted to be deceptive trade practices could also result in fines
or damage awards against any lessee. There can be no assurance that lessees of
healthcare facilities owned by the Company, or the provision of services and
supplies by such lessees, will meet or continue to meet the requirements for
participation in the Medicaid or Medicare programs or the requirements of state
licensing authorities or that regulatory authorities will not adopt changes, new
laws or new interpretations of existing regulations that would adversely affect
the ability of lessees or borrowers to make rental or loan payments to the
Company.
LESSEES AND BORROWERS' RELIANCE ON GOVERNMENT AND THIRD PARTY REIMBURSEMENT
PROGRAMS AND POLICIES COULD AFFECT THEIR ABILITY TO MAKE LEASE OR LOAN PAYMENTS
TO THE COMPANY. Changes in government and third-party reimbursement programs and
policies could adversely affect the Company's financial condition and results of
operations. A significant portion of the revenue derived from the 42 skilled
nursing facilities included in the Initial Properties is attributable to
government reimbursement programs such as Medicare and Medicaid. The Medicaid
program is a federally-mandated, state-run program providing benefits to low
income and other eligible persons and is funded through a combination of state
and federal funding. The method of reimbursement for facility-based nursing care
under Medicaid varies from state to state, but is typically based either on
rates set by the state or on costs reported by the facility. Under Medicare, as
it exists prior to the phase-in of the prospective payment system, and many
state Medicaid programs, rates for skilled nursing facilities are based on
facilities' costs as reported to the applicable federal or state agency.
However, there is a trend toward converting such reimbursement systems to a
prospective rate system, as will be phased in for Medicare over four years
beginning July 1, 1998. Medicare's prospective payment system is anticipated to
significantly reduce reimbursement payments and there can be no assurance that
future rates will be sufficient to cover the costs of provider services to
residents of such facilities. The facilities' costs for services purchased from
an organization related by ownership or control are limited to the costs (not
charges) of the related organization. Any failure to comply with these
requirements could have a variety of adverse consequences on the nursing
facility, including recoupment of amounts overpaid and other sanctions under
false claim laws. Future budget reductions in government-financed programs could
significantly reduce reimbursement payments, and there can be no assurance that
future rates will be sufficient to cover the costs of providing services to
residents of such facilities. The Medicare and Medicaid programs are highly
regulated and subject to frequent and substantial changes. In recent years,
changes in the Medicare and Medicaid programs have resulted in reduced levels of
payment and reimbursement for a substantial portion of healthcare services.
Although lease and loan payments to the Company are not directly linked to the
level of government and private reimbursement, to the extent that changes in
these programs have a material adverse effect on the revenues from such
facilities, such changes could have a material adverse impact on the ability of
lessees and borrowers to make lease and loan payments. Healthcare facilities
also
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have experienced increasing pressures from private payors attempting to control
healthcare costs that in some instances have reduced reimbursement to levels
approaching that of government payors. There can be no assurance that future
actions by private third party payors, including cost control measures adopted
by managed care organizations, will not result in further reductions in payment
and reimbursement levels, or that future payment and reimbursements from any
payor will be sufficient to cover the costs of the facilities' operations. There
can be no assurance that reimbursement levels will not be further reduced in
future periods, which could adversely affect the ability of lessees and
borrowers to make rental or loan payments to the Company. See "Business of the
Company and its Properties -- Government Regulation."
FAILURE TO COMPLY WITH ANTI-KICKBACK LAWS AND SELF-REFERRAL PROHIBITIONS
COULD ADVERSELY AFFECT THE ABILITY OF LESSEES AND BORROWERS TO MAKE RENTAL OR
LOAN PAYMENTS TO THE COMPANY. Healthcare operators are subject to federal and
state anti-remuneration laws and regulations, such as the federal
Medicare/Medicaid anti-kickback law (the "Anti-Kickback Law") and the federal
"Stark Law" which govern certain financial arrangements among healthcare
providers and others who may be in a position to refer or recommend business or
patients to such providers. The Anti-Kickback Law prohibits, among other things,
the offer, payment, solicitation or receipt of any form of remuneration in
return for the referral of Medicare and Medicaid patients or the purchasing,
leasing, ordering or arranging for any goods, facilities, services or items for
which payment can be made under Medicare or Medicaid. A violation of the federal
Anti-Kickback Law could result in the loss of eligibility to participate in
Medicare or Medicaid, or in civil or criminal penalties. The Stark Law restricts
a physician or other practitioner from making a referral of a Medicare or
Medicaid patient to any entity with which such physician or practitioner (or an
immediate family member) has a financial relationship for certain designated
health services. Any entity which accepts a referral prohibited by the Stark Law
may not bill for the service provided pursuant to such prohibited referral. A
violation of the Stark Law could result in civil monetary penalties and
exclusion from Medicare and Medicaid. The grounds for exclusion were expanded
significantly in the federal Balanced Budget Act of 1997 (the "Balanced Budget
Act"). The federal False Claims Act has been used widely by the federal
government, civilly and criminally, to prosecute fraud in areas such as coding
errors, billing for services not rendered, submitting false cost reports, or
billing for care which is not medically necessary. In addition, many states have
passed laws similar to the Anti-Kickback Law and the Stark Law, and such state
laws may apply regardless of the source of payment for the healthcare services.
The federal Health Insurance Portability and Accountability Act of 1996
("HIPAA"), among other things, amends existing crimes and criminal penalties for
Medicare fraud, creates new federal healthcare fraud crimes, expands the
Anti-Kickback Law to apply to all federal healthcare programs, and prohibits any
person or entity from knowingly and willfully committing a federal healthcare
offense relating to a healthcare benefit program. Penalties for violation of
HIPAA include civil and criminal sanctions. The federal government, private
insurers and various state enforcement agencies have increased their scrutiny of
providers, business practices and claims in an effort to identify and prosecute
fraudulent and abusive practices. In addition, the federal government has issued
fraud alerts concerning matters including nursing services, double billing, home
health services, nursing facility arrangements with hospices, and the provision
of medical supplies to nursing facilities; accordingly, these areas are under
closer scrutiny by the government. Possible sanctions for violation of any of
these restrictions or prohibitions include loss of licensure, exclusion from
participating in governmental payor programs and civil and criminal penalties.
State laws vary from state to state, are often vague and have seldom been
interpreted by the courts or regulatory agencies. There can be no assurance that
these federal and state laws will ultimately be interpreted in a manner
consistent with the practices of the Company's lessees or borrowers or their
managers. Violation of the Anti-Kickback Law or self-referral prohibitions could
adversely affect the ability of lessees and borrowers to make rental or loan
payments to the Company. See "Business of the Company and its Properties --
Government Regulation."
THE COMPANY COULD EXPERIENCE POTENTIAL DELAYS IN SUBSTITUTING LESSEES
BECAUSE LICENSES WILL BE HELD BY LESSEES. Delays in substituting lessees could
adversely affect the Company's financial condition and results of operations.
Potential delays may be encountered in substituting lessees due to the fact that
licenses will be held by lessees and not by the Company. A loss of license or
Medicare/Medicaid certification by a lessee of the Company, or a default by
lessees under leases with the Company, could result in the Company having to
obtain another lessee or substitute operator for the affected facility or
facilities. Because the facility licenses for the Initial Properties will be
held by lessees and not the Company and because under the REIT tax rules
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the Company would have to find a new "unrelated" lessee to operate the
properties, the Company may encounter delays in exercising its remedies under
leases and loans made by the Company or substituting a new lessee in the event
of any loss of licensure or Medicare/Medicaid certification by a prior lessee.
No assurances can be given that the Company could contract with a new lessee on
a timely basis or on acceptable terms and a failure of the Company to do so
could have a material adverse effect on the Company's financial condition and
results of operations.
SHORTAGES OF QUALIFIED HEALTHCARE PERSONNEL COULD ADVERSELY AFFECT THE
OPERATION OF FACILITIES. A shortage of qualified healthcare personnel to provide
services at the healthcare facilities could result in significant increases in
labor costs or otherwise adversely affect the facilities' operations and
licensure or certification status. Based upon a review of current facility
staffing, the Company believes that its lessees and borrowers have been able to
adequately staff the healthcare facilities, but any shortage of qualified
healthcare personnel in the future could adversely affect the ability of lessees
or borrowers to operate the facilities and in turn to make required lease or
loan payments to the Company.
LESSEES AND BORROWERS' EXPOSURE TO GOVERNMENT INVESTIGATIONS MAY AFFECT
THEIR ABILITY TO MAKE PAYMENTS TO THE COMPANY. If governmental investigators
take positions that are inconsistent with the lessees, borrowers or their
managers' practices, lessees and borrowers' ability to make lease or loan
payments to the Company may be adversely affected. Significant media and public
attention has recently been focused on the healthcare industry due to ongoing
federal and state investigations reportedly related to referral and billing
practices, laboratory services and physician ownership and joint ventures. These
increased enforcement actions increase the likelihood of governmental
investigations of all healthcare facilities.
REGULATORY REQUIREMENTS MAY CAUSE DELAYS IN TRANSFERRING HEALTHCARE
FACILITIES. Delays in transferring healthcare facilities due to regulatory
requirements could reduce the Company's income and adversely affect the
Company's financial condition and results of operations. Transfers of certain
healthcare facilities require regulatory notices, approvals, and/or applications
not required for transfers of other types of commercial operations or real
estate. In addition, many states have adopted Certificate of Need programs or
similar laws which generally require the appropriate state agency's prior
approval for the establishment of or acquisitions of healthcare facilities and
its prior determination that a need exists for certain bed additions, new
services and capital expenditures. Failure to secure such approval or
determination could prevent an operator from offering services or receiving
reimbursements and could result in the denial of reimbursement, suspension of
admission of new patients, suspension or decertification from the Medicare or
Medicaid program, restrictions on its ability to acquire new facilities or
expand existing facilities and, in extreme cases, revocation of the facility's
license or closure of the facility. Alternative uses of healthcare facilities
are limited, and substantially all of the healthcare facilities included in the
Initial Properties are special purpose facilities that may not be easily adapted
for non-healthcare related uses.
RELOCATION OR CLOSURE OF A NEARBY HOSPITAL OR HEALTHCARE FACILITY COULD
AFFECT THE OPERATION OF FACILITIES AND MAY AFFECT THE COMPANY'S ABILITY TO RENEW
LEASES AND ATTRACT NEW TENANTS. Relocation or closure of a nearby hospital could
reduce the number of patients utilizing a facility and, as a result, adversely
affect the operation of the facility and affect lessees or borrowers' ability to
make lease or loan payments to the Company. Many of the skilled nursing
facilities included in the Initial Properties are in close proximity to one or
more hospitals. Additionally, the relocation or closure of a hospital could make
the Company's skilled nursing facilities in such area less desirable and affect
the Company's ability to renew leases and attract new tenants. See "Business of
the Company and its Properties."
SUBSIDIARIES OF LYRIC III AND OTHER LESSEES MAY BE SUBJECT TO REPAYMENT AND
INDEMNITY LIABILITIES WHICH MAY ADVERSELY AFFECT THEIR ABILITY TO MAKE PAYMENTS
TO THE COMPANY. Lyric III's subsidiaries may be subject to repayment and
indemnity liabilities as a result of their continuing use of provider numbers
that were utilized when such entities were subsidiaries of IHS, which may affect
their ability to make lease payments to the Company. In certain instances,
indemnity insurers and other non-governmental payors have sought repayment from
providers for alleged overpayments. Other lessees who acquire provider numbers
may also assume such liabilities.
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LIMITATIONS IMPOSED ON ENFORCEABILITY OF REMEDIES MAY ADVERSELY AFFECT THE
COMPANY'S ABILITY TO ENFORCE AGREEMENTS. The enforceability of and the various
remedies available to the Company pursuant to its agreements with Lyric,
including the Master Lease, the Security Agreement and the Lyric Guaranty are
subject to various limitations imposed by state and federal laws, rulings and
decisions affecting remedies and by bankruptcy, reorganization, insolvency,
receivership and other laws affecting the enforcement of lessors' and creditors'
rights generally. Among other things, the provisions of the Security Agreement
purporting to grant a security interest in Lyric's licenses, permits and
certificates of need may not be enforceable. Further, the Company will not be
able to garnish amounts owed by third party payors under the Medicare and
Medicaid programs because of provisions of federal laws making the assignment of
Medicaid or Medicare revenues ineffective against such payors.
THE COMPANY'S USE OF DEBT FINANCING, ABSENCE OF LIMITATION ON DEBT AND
INCREASES IN INTEREST RATES COULD ADVERSELY AFFECT THE COMPANY
THE REQUIRED REPAYMENT OF DEBT OR INTEREST THEREON COULD ADVERSELY AFFECT
THE COMPANY'S FINANCIAL CONDITION. Upon consummation of the Offering, the
Company expects to have $84.6 million outstanding under its unsecured Credit
Facility. If principal payments due at maturity cannot be refinanced, extended
or paid with proceeds of other capital transactions, such as new equity capital,
the Company expects that its cash flow will not be sufficient in all years to
pay distributions at expected levels and to repay such maturing debt.
Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to such refinanced indebtedness would increase, which would adversely
affect the Company's cash flow and the amount of distributions it can make to
investors. In the future, the Company may mortgage a property or properties to
secure payment of indebtedness and if the Company is unable to meet mortgage
payments, the property could be foreclosed upon by or otherwise transferred to
the mortgagee with a consequent loss of income and asset value to the Company.
THE ABSENCE OF A LIMITATION ON DEBT COULD RESULT IN THE COMPANY BECOMING
HIGHLY LEVERAGED AND ADVERSELY AFFECT THE COMPANY'S CASH FLOW. Upon completion
of the Offering, the Company's debt to market capitalization ratio including
amounts expected to be drawn under the Credit Facility is expected to be
approximately 20.3% (10.0% if the Underwriters' overallotment option is
exercised in full). The Company currently intends to maintain a debt to total
market capitalization ratio (i.e., total debt of the Company as a percentage of
equity market value plus total debt) of less than 50%. The Board of Directors of
the Company may, however, from time to time reevaluate this policy and decrease
or increase this ratio accordingly. The Company will determine its financing
policies in light of then current economic conditions, relative costs of debt
and equity capital, market values of properties, growth and acquisition
opportunities and other factors. The Company may change its financing policies
without stockholder approval. Following the Offering, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's cash flow and, consequently, the amount available
for distribution to stockholders, and could increase the risk of default on the
Company's indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RISING INTEREST RATES AND VARIABLE RATE DEBT COULD ADVERSELY AFFECT THE
COMPANY'S CASH FLOW. Upon consummation of the Offering, the Company, through the
Operating Partnership, expects to enter into the Credit Facility. Advances under
the Credit Facility totaling $84.6 million at the closing of the Offering and
draws in the future are expected to bear interest at variable rates based upon a
specified spread over the one month London Interbank Offered Rate ("LIBOR"). The
Company, through the Operating Partnership, may incur other variable rate
indebtedness in the future. Increases in interest rates on such indebtedness
could increase the Company's interest expense, which would adversely affect the
Company's cash flow and its ability to pay expected distributions to investors.
Accordingly, the Company may in the future engage in other transactions, such as
interest rate swaps, caps or other hedging arrangements, to further limit its
exposure to rising interest rates as appropriate and cost effective. These
financial instruments will not be used for trading purposes and therefore the
Company anticipates the use of such instruments will not materially increase its
exposure to changes in interest rates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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CERTAIN FACTORS RELATING TO THE REAL ESTATE INDUSTRY COULD ADVERSELY AFFECT THE
COMPANY
THE INITIAL PROPERTIES, OPTION PROPERTIES AND SUBSEQUENTLY ACQUIRED
PROPERTIES WILL BE SUBJECT TO VARIOUS REAL ESTATE-RELATED RISKS. Risks inherent
to an investment in real estate could adversely affect the Company's financial
condition and results of operations. The acquisition of additional properties
may be subject to the ability of the Company to borrow amounts sufficient to pay
the purchase price therefor. There can be no assurance that the value of any
property acquired by the Company will appreciate or that the value of properties
securing mortgage loans will not depreciate. Additional risks of investing in
real estate include the possibilities that the real estate will not generate
income sufficient to meet operating expenses, will generate income and capital
appreciation, if any, at rates lower than those anticipated or will yield
returns lower than those available through investment in comparable real estate
or other investments. Income from properties and yields from investments in such
properties may be affected by many factors, including changes in government
regulation (such as zoning laws), general or local economic conditions (such as
fluctuations in interest rates and employment conditions), the available local
supply of and demand for improved real estate, a reduction in rental income as
the result of the inability to maintain occupancy levels, natural disasters
(such as earthquakes and floods) or similar factors. Further, equity investments
in real estate are relatively illiquid, and, therefore, the ability of the
Company to vary its portfolio in response to changed conditions will be limited.
UNINSURED LOSSES COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL CONDITION.
It is the intention of the Company to secure, or to require the Lyric
subsidiaries and other lessees, tenants and borrowers to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the lessee, tenant or borrower. Certain risks may, however, be uninsurable or
not economically insurable, and there can be no assurance that the Company or a
lessee, tenant or borrower will have adequate funds to cover all contingencies
itself. If an uninsurable loss occurs, the Company could lose both its invested
capital, including its equity interests, and any anticipated profits relating to
such property.
LEASE AND LOAN DEFAULTS AND NON-RENEWAL OF LEASES COULD ADVERSELY AFFECT
THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Any lease
arrangement, such as the Master Lease between the Company and Lyric III for the
Lyric Properties and leases involving subsequently acquired properties, creates
the possibility that a lessee may either default on the lease or fail to
exercise an option to renew the lease, and, in such event, the Company may be
unable to lease such property to another lessee on a timely basis or at all.
Even if the Company could lease such property to another lessee, any such
replacement lease may be on less favorable terms than those of the original
lease. In such an instance, the Company would continue to be responsible for
payment of any indebtedness it had incurred with respect to such property. Any
default or non-renewal under the Master Lease or other lease arrangements could
result in a reduction in revenue derived from the affected lease and defaults or
non-renewals under several leases at the same time or defaults under one or more
of any mortgage loans made by the Company in the future could have a material
adverse effect on the Company's financial condition and results of operations.
THE COMPANY'S DEPENDENCE ON A SINGLE INDUSTRY COULD ADVERSELY AFFECT THE
COMPANY'S FINANCIAL PERFORMANCE. Lack of industry diversification will subject
the Company to the risks associated with investments in a single industry. While
the Company is authorized to invest in various types of income-producing real
estate, its current strategy is to acquire and hold, for long-term investment,
healthcare related properties only. Consequently, the Company currently has
chosen not to include in the Initial Properties any non-healthcare related real
estate assets, and, therefore, will be subject to industry downturns or other
adverse events that affect the healthcare industry.
TENANT DEFAULTS OR BANKRUPTCIES IN THE SALE AND LEASEBACK TRANSACTIONS
COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW. The Company intends to engage in
sale and leaseback transactions. In the event of a default under a lease, the
Company will have no practical recourse other than regaining possession of the
property. In addition, the financial failure of a tenant could cause the tenant
to become the subject of bankruptcy proceedings. Under bankruptcy law, a tenant
has the option of assuming (continuing) or rejecting (terminating) an unexpired
lease. If the tenant assumes its lease with the Company, the tenant must cure
all defaults under the lease and provide the Company with adequate assurance of
its
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future performance under the lease. If the tenant rejects the lease, the
Company's claim for breach of the lease would (absent collateral securing the
claim) be treated as a general unsecured claim. The amount of the claim would be
capped at the amount owed for unpaid pre-petition lease payments unrelated to
the rejection, plus the greater of one year's lease payments or 15% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments). Although the Company believes that each of its
sale and leaseback transactions will result in a "true lease" for purposes of
bankruptcy law, depending on the terms of the sale and leaseback transaction,
including the length of the lease and terms providing for the repurchase of a
property by the seller/tenant, it is possible that a bankruptcy court could
re-characterize a sale and leaseback transaction as a secured lending
transaction. If a transaction were re-characterized as a secured lending
transaction, the Company would not be treated as the owner of the property, but
might have certain additional rights as a secured creditor.
INVESTMENTS IN CONSTRUCTION FINANCING COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION. Although the Company will not initially offer construction
financing, it may make construction loans in the future. Lending on development
projects is generally considered to involve greater risks than financing
operating properties. Risks associated with such lending activities include that
development activities may be abandoned, construction costs of a facility may
exceed original estimates possibly making the facility uneconomical, occupancy
rates and rents at a completed facility may not be sufficient to cover loan or
lease payments, permanent financing may not be available on favorable terms and
construction and lease-up may not be completed on schedule resulting in
increased debt service expense and construction costs. In addition, construction
lending activities typically will require a substantial portion of management's
time and attention. Such activities also are subject to risks relating to the
borrower's inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations. Further, there can be no assurance that the construction loans
(once funded) will be repaid.
INVESTMENTS IN WORKING CAPITAL FINANCING COULD ADVERSELY AFFECT THE
COMPANY'S FINANCIAL CONDITION. Subject to applicable REIT income tax rules, the
Company intends to offer working capital financing in limited circumstances to
operators of healthcare facilities, which may include some of the Initial
Properties subject to the Master Lease with Lyric III. Working capital loans
will be secured primarily by secured mortgages on healthcare facilities and
their accounts receivable. Risks associated with such lending activities include
that the borrower may be unable to generate sufficient funds to repay the loans,
that such loans are not repaid, and that any security for such loans may not be
sufficient to cover the Company's losses.
THE ABILITY OF STOCKHOLDERS TO EFFECT A CHANGE IN CONTROL OF THE COMPANY IS
LIMITED
PROVISIONS IN THE COMPANY'S CHARTER AND BYLAWS COULD INHIBIT CHANGES IN
CONTROL. Certain provisions of the Company's charter ("Charter") and bylaws
("Bylaws") may have the effect of delaying, deferring or preventing a change in
control of the Company or other transaction that could provide the holders of
Common Stock with the opportunity to realize a premium over the then-prevailing
market price of such Common Stock. The Ownership Limit described under "--
Possible Adverse Consequences of Ownership Limit for Federal Income Tax Purposes
Could Inhibit Changes in Control" also may have the effect of delaying,
deferring or preventing a change in control of the Company or other transaction
even if such a change in control or transaction were in the best interests of
some, or a majority, of the Company's stockholders. The Board of Directors will
consist of six members immediately following the closing of the Offering who
will be classified into three classes with each class serving a three-year term.
The staggered terms of the members of the Board of Directors may adversely
affect the stockholders' ability to effect a change in control of the Company,
even if a change in control were in the best interests of some, or a majority,
of the Company's stockholders. The Charter authorizes the Board of Directors to
cause the Company to issue up to 20,000,000 preferred shares of stock, $.001 par
value per share ("Preferred Stock"), in series, and to establish the
preferences, rights and other terms of any series of Preferred Stock so issued.
Such Preferred Stock may be issued by the Board of Directors without stockholder
approval, and the preferences, rights and other terms of any such Preferred
Stock may adversely affect the stockholders' ability to effect a change in
control of the Company, even if a change in control were in the best interests
of some, or a majority, of the
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Company's stockholders. See "Management -- Directors, Director Nominees and
Executive Officers" and "Description of Capital Stock of the Company --
Restrictions on Transfers."
CERTAIN PROVISIONS OF MARYLAND LAW COULD INHIBIT CHANGES IN CONTROL.
Certain provisions of the Maryland General Corporation Law, as amended ("MGCL"),
may have the effect of delaying, deferring or preventing a change in control of
the Company or other transaction that could provide the holders of Common Stock
with the opportunity to realize a premium over the then-prevailing market price
of such Common Stock. Under provisions of the MGCL, certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the corporation's then outstanding stock or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting shares of stock (an "Interested Stockholder") or an
affiliate of the Interested Stockholder are prohibited for five years after the
most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be approved by the
affirmative vote of at least: (i) 80% of all the votes entitled to be cast by
holders of the outstanding voting shares; and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares other than shares held by the
Interested Stockholder who is (or whose affiliate is) a party to the business
combination unless, among other conditions, the corporation's common
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its common stock. The Board of Directors of
the Company has not opted out of the business combination provisions of the MGCL
(except with respect to business combinations involving Dr. Robert Elkins, or
current or future affiliates, associates or other persons acting in concert as a
group with any of them). Consequently, the five-year prohibition and the
super-majority vote requirements will apply to a business combination involving
the Company (except as provided in the preceding sentence).
POSSIBLE ADVERSE CONSEQUENCES OF OWNERSHIP LIMIT FOR FEDERAL INCOME TAX
PURPOSES COULD INHIBIT CHANGES IN CONTROL. Certain provisions of the federal tax
laws may have the effect of delaying, deferring or preventing a change in
control and, therefore, could adversely affect the stockholders' ability to
realize a premium over the then-prevailing market price for the Common Stock in
connection with such a transaction. To maintain its qualification as a REIT for
federal income tax purposes, not more than 50% in value of the outstanding
shares of stock of the Company may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code, to include certain entities). In
addition, for the Company to maintain REIT status, neither Lyric nor any entity
which constructively owns 9.9% or more of the outstanding stock of Lyric or any
other lessee entity may own actually or constructively 9.9% or more, in value or
voting rights, of the outstanding shares of stock of the Company. The Charter
generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single stockholder of 9.9% or more of the issued
and outstanding Common Stock and generally will prohibit ownership, directly or
by virtue of the attribution provisions of the Code, by any single stockholder
of 9.9% or more of the issued and outstanding shares of any class or series of
the Company's Preferred Stock (collectively, the "Ownership Limit"). The Board
of Directors, in its sole discretion, may waive the ownership limitations with
respect to a holder if the Board is satisfied, based on the advice of counsel or
a ruling from the Internal Revenue Service, that such holder's ownership will
not then or in the future jeopardize the Company's status as a REIT. In view,
however, of the potential risks posed to the Company if a stockholder who owned
9.9% or more of the Company also were considered to own 9.9% or more of Lyric or
any other tenant entity, the Board of Directors will have less flexibility, as a
practical matter, to grant waivers and exemptions than would be the case if a
substantial portion of the Company's properties were not leased to a single
tenant. Absent any such exemption or waiver, Common Stock acquired or held in
violation of the Ownership Limit will be transferred to a trust for the benefit
of transferees to whom such Common Stock ultimately may be transferred without
violating the Ownership Limit, with the person who acquired such Common Stock in
violation of the Ownership Limit not entitled to receive any distributions
thereon, to vote such Common Stock, or to receive any proceeds from the
subsequent sale thereof in excess of: (i) the lesser of (a) the price paid
therefor or (b) if no consideration was paid for such Common Stock by the
original transferee stockholder, the average closing price for the Common Stock
for the ten days immediately preceding such sale or gift or (ii) if the
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Company exercises its option to purchase such Common Stock, the average closing
price for an equal number of shares of Common Stock for the ten days immediately
preceding the date the Company exercises its options. A transfer of Common Stock
to a person who, as a result of the transfer, violates the Ownership Limit may
be void under certain circumstances. See "Federal Income Tax Consequences --
Requirements for Qualification as a REIT" and "Description of Capital Stock of
the Company -- Restrictions on Transfers."
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION
Failure to comply with federal, state and local laws and regulations
relating to protection of the environment and workplace health and safety
("Environmental Laws") could adversely affect the Company's financial condition
and results of operations. Under the Environmental Laws, a current or previous
owner or operator of real estate or a facility may be required to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property or facility and may be held liable to a governmental entity or to third
parties for personal injury, property damage and/or for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such Environmental Laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be strict, joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. In addition, the owner or
operator of real estate or a facility may be subject to claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site.
The Company is subject to a variety of Environmental Laws relating to land
use and development and to environmental, health and safety compliance and
permitting (including those related to the use, storage, discharge, emission and
disposal of hazardous materials and hazardous and non-hazardous wastes). Failure
to comply with these Environmental Laws could result in the need for capital
expenditures and/or the imposition of severe penalties or restrictions on
operations that could adversely affect the present or future liquidity, results
of operations, or business or financial condition of the Company. In addition,
such Environmental Laws could change or new Environmental Laws could be enacted
in a manner that adversely affects the Company's ability to conduct its business
or to implement desired expansions and improvements at its facilities.
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). Such laws require that ACMs be properly
managed and maintained, that those who conduct certain activities that could
disturb ACMs be adequately apprised or trained and that special precautions,
including removal or other abatement, be undertaken in the event ACMs would be
disturbed during renovation or demolition of a building. Such Environmental Laws
may impose fines and penalties on building owners or operators for failure to
comply with these requirements and may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers. ACMs have been identified in 29 of the Initial Properties based on
visual inspection and isolated sampling during OSHA-compliant asbestos surveys.
Most of these buildings contain only minor amounts of ACMs in good to fair
condition and nearly all of it is non-friable (which means that, when dry, it
will not be crumbled, pulverized, or reduced to powder by hand pressure).
Applicable Environmental Laws may require that damaged/friable asbestos be
abated (removed or encapsulated). The Company is in the process of instituting
an asbestos operation and management program at each of the Initial Properties
where asbestos was identified to ensure that all ACMs are currently being
properly managed and maintained and that other requirements relating to ACMs are
being followed. However, there can be no assurance that the Company's asbestos
operations and management program will be successful or that the Company's
business, financial condition or results of operations will not be materially
and adversely affected as a result of: (i) further discovery of ACMs in the
Initial Properties, the Option Properties or other properties acquired by the
Company; or (ii) the Company's failure to comply with all applicable
Environmental Laws relating to the presence, maintenance and abatement of ACMs.
Underground storage tanks ("USTs") have been identified at eight of the
Initial Properties based upon Phase I Environmental Site Assessments conducted
in April 1998. A Phase I Environmental Site Assessment, generally, involves a
walk-through investigation of a facility and a search of readily acces-
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sible historical and regulatory records in order to identify potential on-site
or off-site sources. Based on the results of the Phase I Environmental Site
Assessments, the Company believes that most of the USTs identified were in good
condition and present no material risks or liabilities. However, USTs identified
at a few of the Initial Properties (Harborview Care, Corpus Christi, TX; Vintage
Health Care Center, Denton, TX; and Parkwood Place, Lufkin, TX) may require
additional investigation to ensure that they are properly registered and do not
present an environmental threat. In addition, the Phase I Environmental Site
Assessment prepared for Integrated Health Services of Des Moines in Des Moines,
Iowa, recommended that the records documenting the 1989 UST removal be reviewed
to ensure compliance with all regulatory requirements. There can be no assurance
that the Phase I Environmental Site Assessments identified all USTs at the
Initial Properties or that the Company's evaluation of the condition of such
USTs is complete and accurate. Should the Company's evaluation of the condition
of such USTs prove incomplete or inaccurate or should the Company discover
additional USTs at the Initial Properties, the Option Properties or other
properties acquired by the Company, the Company's business, financial condition
and results of operations could be materially and adversely affected.
At seven of the Initial Properties, potential off-site sources of
contamination, such as USTs (near Harbor View Care Center, Corpus Christi, TX;
Horizon Healthcare, El Paso, TX; Horizon Specialty Hospital, El Paso, TX; and
Heritage Place, Grand Prairie, TX), a junk/used car dealer (near Integrated
Health Services of Auburndale, Auburndale, FL), a closed municipal solid waste
landfill (near Integrated Health Services of Lakeland at Oakbridge, Lakeland,
FL) and an industrial site (near Integrated Health Services of St. Louis at Big
Bend, Valley Park, MO) were identified in the Phase I Environmental Site
Assessments. Based on the results of the Phase I Environmental Site Assessments,
the Company does not believe that such off-site sources of contamination should
present material risks or liabilities. However, should the Company's evaluation
of such off-site sources of contamination prove inaccurate or should there be
additional sources of off-site contamination at the Initial Properties, the
Option Properties or other properties acquired by the Company, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
Ancillary to the operation of healthcare facilities are, in various
combinations, the handling, use, storage, transportation, disposal and/or
discharge of hazardous, infectious, toxic, radioactive, flammable and other
hazardous materials, wastes, pollutants or contaminants. Such activities may
result in damage to individuals, property or the environment; may interrupt
operations and/or increase their costs; may result in legal liability, damages,
injunctions or fines; may result in administrative, civil or criminal
investigations, proceedings, penalties or other governmental agency actions; and
may not be covered by insurance. There can be no assurance that lessees or
borrowers of the Company will not encounter such risks, and such risks may have
a material adverse effect on their ability to make lease or loan payments to the
Company.
COMPETITION COULD HAVE AN ADVERSE IMPACT ON THE COMPANY'S FINANCIAL CONDITION
Competition with other healthcare REITs, non-healthcare REITs, real estate
partnerships, healthcare providers and other investors, including, but not
limited to, banks and insurance companies, in the acquisition, leasing, managing
and financing of healthcare facilities could adversely affect the Company's
financial condition and results of operations. Certain of these competitors may
have greater resources than the Company. IHS and other lessees or managers
operating properties that the Company will own or that secure loans to be made
by the Company compete on a local and regional basis with operators of other
facilities that provide comparable services. Operators or managers compete for
residents based on quality of care, reputation, physical appearance of
facilities, services offered, family preferences, physicians, staff and price.
In general, regulatory and other barriers to competitive entry in the skilled
nursing, geriatric care industry and assisted living industry are not
substantial. Moreover, if the development of new skilled nursing facilities or
other healthcare facilities outpaces demand for these facilities in certain
markets, including markets in which the Company may acquire or build (develop)
properties, such markets may become over built and saturated. Such an oversupply
of facilities could cause operators of Company-owned facilities to experience
decreased occupancy, depressed margins and lower operating results, which could
have a material adverse effect on their ability to make lease or loan payments
to the Company.
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THE COMPANY RELIES ON KEY PERSONNEL WHOSE CONTINUED SERVICE CANNOT BE ASSURED
The loss of the services of the Company's Chairman or any of its executive
officers could have an adverse effect on the Company's financial condition and
results of operations. The Company is dependent on the efforts of its Chairman,
Dr. Elkins, and its executive officers, Messrs. Poole and Listman. Dr. Elkins
will spend such amount of time as is necessary to carry out his duties and
presently expects to devote an average of two to four days per month to the
business of the Company, but will not have an employment agreement and will have
no specific obligations to do so. In addition, Dr. Elkins' responsibilities as
Chairman, Chief Executive Officer and President of IHS will require most of Dr.
Elkins' working time and may prevent him from devoting the expected amount of
time to the Company. To the extent Dr. Elkins is unwilling or unable to devote a
certain amount of time to the Company, the Company could be adversely affected.
Each of the executive officers will enter into Employment Agreements with the
Company and Dr. Elkins will enter into a Non-Competition Agreement with the
Company. See "Management -- Employment and Non-Competition Agreements."
PURCHASERS IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION
As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be less
than the estimated initial public offering price per share of Common Stock in
the Offering. Accordingly, purchasers of shares of Common Stock offered hereby
will experience immediate dilution of $2.00 in the net tangible book value of
the shares of Common Stock from the estimated initial public offering price. See
"Dilution."
FUTURE EQUITY OFFERINGS BY THE COMPANY MAY HAVE A DILUTIVE EFFECT ON PURCHASERS
IN THE OFFERING
Future equity offerings may have a dilutive effect on the interests of
purchasers in the Offering. The Company may from time to time sell additional
shares of Common Stock or shares of Preferred Stock in public or private
offerings to fund acquisitions, development activities, pay down indebtedness
and for general working capital purposes. Although at this time the Company has
no specific plans concerning future equity offerings, no assurances can be given
that the Company will not undertake any material public or private offerings of
equity securities in the near future.
THERE CAN BE NO ASSURANCE THE VALUATION OF THE COMPANY REFLECTS FAIR MARKET
VALUE
There can be no assurance that the prices paid by the Company for the
Initial Properties and other assets being acquired by the Company will not
exceed their respective fair market values, and it is possible that the market
value of the Common Stock may exceed the stockholders' proportionate share of
the aggregate fair market value of such assets. The valuation of the Company has
not been determined by a valuation of its assets, but instead has been
determined based upon a capitalization of the Company's pro forma Funds from
Operations, estimated cash available for distribution and potential for growth
and the other factors discussed under "Underwriting." In determining the
estimated initial public offering price, certain assumptions were made
concerning the estimate of revenue to be derived from the Initial Properties and
other assets being acquired by the Company. This methodology has been used
because management believes that it is appropriate to value the Company as an
ongoing business, rather than with a view to values that could be obtained from
a liquidation of the Company or of individual assets owned by the Company. See
"Distributions."
OTHER RISKS OF OWNERSHIP OF COMMON STOCK COULD ADVERSELY AFFECT THE TRADING
PRICE OF THE COMMON STOCK
ABSENCE OF A PRIOR PUBLIC MARKET FOR THE COMMON STOCK COULD ADVERSELY
AFFECT THE PRICE OF THE COMMON STOCK. Prior to the completion of the Offering,
there has been no public market for the Common Stock and there can be no
assurance that an active trading market will develop or be sustained or that
shares of the Common Stock will be resold at or above the assumed initial public
offering price. The offering price of the Common Stock will be determined by
agreement among the Company and the Underwriters and may not be indicative of
the market price for shares of the Common Stock after the completion of the
Offering. The market value of shares of the Common Stock could be substantially
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affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as governmental regulatory action and
changes in tax laws, could have a significant impact on the future market price
of shares of the Common Stock.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK, OR THE PERCEPTION
THAT SUCH SALES COULD OCCUR, COULD ADVERSELY AFFECT THE PRICE OF THE COMMON
STOCK. The Company intends to reserve a total number of shares of Common Stock
equal to 5.0% of the Common Stock and Units outstanding from time to time for
issuance pursuant to the Company's 1998 Omnibus Securities and Incentive Plan,
and these shares of Common Stock will be available for sale from time to time
pursuant to exemptions from registration requirements or upon registration.
Options to purchase a total of 513,650 shares of Common Stock are expected to be
granted to the Company's executive officers, employees and directors on or about
the date of the Offering, subject to certain restrictions on transfer. No
prediction can be made about the effect that future sales of shares of Common
Stock will have on the market prices of the Common Stock. See "Management" and
"Shares Eligible for Future Sale."
CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE PRICE OF THE COMMON
STOCK. As with other publicly traded equity securities, the value of the shares
of Common Stock will depend upon various market conditions, which may change
from time to time. Among the market conditions that may affect the value of the
shares of Common Stock are the following: (i) the extent to which a secondary
market develops for the Common Stock following the completion of the Offering;
(ii) the extent of institutional investor interest in the Company; (iii) the
general reputation of healthcare REITs and the attractiveness of their equity
securities in comparison to other equity securities (including securities issued
by other real estate-based companies); (iv) the Company's financial performance;
(v) the financial performance of Lyric, IHS and other lessees and managers of
the Company's healthcare facilities; and (vi) general stock and bond market
conditions. Although the offering price of the shares of Common Stock will be
determined by the Company in consultation with the Underwriters, there can be no
assurance that the Common Stock will not trade below the offering price
following the completion of the Offering.
CHANGES IN CURRENT AND POTENTIAL FUTURE EARNINGS AND CASH DISTRIBUTIONS
COULD ADVERSELY AFFECT THE PRICE OF THE COMMON STOCK. The market's valuation of
the equity securities of a REIT includes not only the value of the underlying
assets, but also the market's perception of the REIT's growth potential and its
current and potential future cash distributions, whether from operations, sales
or refinancings. For that reason, shares of Common Stock may trade at prices
that are higher or lower than the net asset value per share of Common Stock. To
the extent the Company retains operating cash flow for investment purposes,
working capital reserves or other purposes, these retained funds, while
increasing the value of the Company's underlying assets, may not correspondingly
increase the market price of the Common Stock. The failure of the Company to
meet the market's expectation with regard to future earnings and cash
distributions would likely adversely affect the market price of the Common
Stock.
CHANGES IN MARKET INTEREST RATES COULD ADVERSELY AFFECT THE PRICE OF THE
COMMON STOCK. One of the factors that will influence the price of the Common
Stock will be the dividend yield on the Common Stock (as a percentage of the
price of the Common Stock) relative to market interest rates. Thus, an increase
in market interest rates may lead prospective purchasers of shares of Common
Stock to expect a higher dividend yield, which would adversely affect the market
price of the Common Stock.
DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL COULD ADVERSELY AFFECT THE PRICE
OF THE COMMON STOCK. In order to qualify as a REIT under the Code, the Company
generally is required each year to distribute to its stockholders at least 95%
of its net taxable income (excluding any net capital gain). Because of these
distribution requirements, it is unlikely that the Company will be able to fund
all future capital needs, including capital needs in connection with financing
of additional acquisitions, from cash retained from operations. As a result, to
fund future capital needs, the Company likely will have to rely on third-party
sources of capital, which may or may not be available on favorable terms or at
all. The Company's access to third-party sources of capital will depend upon a
number of factors, including the market's perception of the Company's growth
potential and its current and potential future earnings and cash distributions
and the market price of the Common Stock. Moreover, additional equity offerings
may result in substantial dilution of stockholders' interests in the Company,
and additional debt financing
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may substantially increase the Company's leverage. See "Federal Income Tax
Consequences -- Requirements for Qualification as a REIT" and "Policies with
Respect to Certain Activities -- Financing Policies."
FAILURE TO OBTAIN REQUIRED CONSENTS AND WAIVERS COULD DELAY OR PREVENT THE
ACQUISITION OF ONE OR MORE OF THE INITIAL PROPERTIES
The sale of all of the Initial Properties to the Company is subject to the
closing of the Offering as well as normal and customary conditions to the
closing of real estate transactions, including the receipt of required consents,
waivers or regulatory approvals. There can be no assurance that all such
consents, waivers or regulatory approvals will be obtained prior to the closing
of the Offering. Failure to obtain such consents, waivers or regulatory
approvals could delay or prevent the acquisition of one or more of the Initial
Properties. In such event, the funds intended for the purchase of such Initial
Property or Initial Properties whose acquisition is delayed or prevented will be
invested as described under "Use of Proceeds." The yield on any such investments
may be lower than the expected return on the Initial Properties not acquired or
whose acquisition is delayed and could affect the Company's ability to make
anticipated distributions.
INVESTMENT IN THE COMMON STOCK BY AN ERISA PLAN MAY NOT BE APPROPRIATE
Depending upon the particular circumstances of an ERISA Plan (as
hereinafter defined), an investment by an ERISA Plan in shares of Common Stock
may not be appropriate under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). In deciding whether to purchase shares of Common
Stock on behalf of an ERISA Plan, a fiduciary of an ERISA Plan, in consultation
with its advisors, should carefully consider its responsibilities under ERISA,
the prohibited transaction rules of ERISA and the Code and the effect of
regulations issued by the U.S. Department of Labor defining what constitutes
assets of an ERISA Plan. See "ERISA Considerations."
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THE COMPANY
Monarch was formed to capitalize on the growing demand from providers of
facility-based healthcare services for flexible and innovative real estate
financing structures. Monarch's strategy is to offer traditional and customized
sale and leaseback structures and other financing products that address the
differing needs of both established and emerging operators of skilled nursing,
specialty hospital, assisted living and other healthcare facilities. Based upon
management's experience as operators and acquirors of healthcare facilities, the
Company believes that the customized products it has developed offer operators
significant advantages over traditional sale and leaseback structures and will
generate sufficient customer demand to justify premium yields. The Company will
be self-administered and self-managed and expects to qualify as a REIT for
federal income tax purposes.
Monarch will focus primarily on meeting the needs of two primary customer
segments: (i) large, established operators of facility-based healthcare
services, which are typically publicly traded corporations; and (ii) emerging
operators with strong growth prospects run by experienced and entrepreneurial
management teams with proven track records. While Monarch will offer traditional
REIT investment products (such as sale and leaseback structures and, to a lesser
extent, mortgage financing), management expects that a majority of its revenues
will initially be derived from innovative products which include sale and
leaseback structures that are customized for individual operators. Monarch's
products are generally structured to enhance the financial flexibility of the
operator while providing enhanced yields and appropriate security to the
Company. Monarch believes that its focus on providing customized products will
differentiate it from many of its REIT competitors who are focused on more
traditional investment products. Monarch believes this strategy will enable it
to grow its asset base through investments that will increase earnings from
operations per share and earn premium yields.
The Company's initial portfolio will consist of 47 healthcare facilities
located in 15 states, 44 of which will be purchased from IHS. The aggregate
purchase price of the Initial Properties is approximately $382.4 million, of
which approximately $371.0 million will be paid to IHS. The three other Initial
Properties will be purchased from an unaffiliated third party for an aggregate
purchase price of approximately $11.5 million. IHS is a NYSE listed, leading
national provider of post-acute healthcare services, operating or managing
approximately 300 geriatric care facilities across the United States. Of the 47
Initial Properties, 42 are skilled nursing facilities with a total of
approximately 5,846 beds and five are specialty hospitals with a total of
approximately 181 beds. In addition, the Company will have options to purchase
up to 10 additional skilled nursing facilities with a total of approximately
1,683 beds from IHS for an aggregate purchase price of approximately $104.7
million, and will have a right of first offer during the next four years to
purchase or finance any healthcare facilities IHS acquires or develops and
elects to either sell and leaseback or to finance in a transaction of the type
normally engaged in by the Company. Forty-two of the properties to be acquired
from IHS, with an aggregate purchase price of approximately $359.7 million, will
be leased on a portfolio basis to Lyric III pursuant to the Master Lease. The
Company will lease all of the Lyric Properties to Lyric III pursuant to the
Master Lease. Lyric III will sublease the Lyric Properties to the Facility
Subtenants pursuant to the individual Facility Subleases. The remaining Initial
Properties will be leased to two independent healthcare facility operators.
The Lyric Properties will be leased on a triple net basis with initial
terms ranging from nine to thirteen years. The initial annual base portfolio
rent for the Lyric Properties will be $36.4 million. The initial base rent was
determined by multiplying the purchase price by 10.125%, which was based on the
average yield on the 10-year U.S. Treasury Note over the 20 trading days ending
on June 8, 1998 (5.625%) plus 450 basis points. The base portfolio rent will be
increased annually commencing on January 1, 1999, at a rate equal to the lesser
of two times the increase in the CPI or 3%, subject to certain conditions. The
Master Lease and the Facility Subleases require Lyric III or the Facility
Subtenants, during each lease year during the term of the Master Lease, to make
minimum annual capital expenditures of $300 (as increased annually by the CPI)
per bed in each facility covered by the Master Lease to maintain the property.
The Company may declare an event of default in the event that Lyric III or the
Facility Subtenants fail to make the required capital expenditures. The Master
Lease may be renewed by the Company for up to three renewal periods of 10 years
each. Lyric III will enter
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into a management agreement and a franchise agreement with IHS subject to the
Master Lease. All management and franchise fees payable to IHS will be
subordinated to payments under the Master Lease. The aggregate rent payments of
all of the Facility Subtenants will be available to satisfy the obligations of
Lyric III under the Master Lease and Lyric III will be obligated to pay the rent
due under the Master Lease whether or not any Facility Subtenant fails to pay
any rent under any Facility Sublease. In addition, Lyric III will deposit with
the Company as a security deposit a letter of credit in an amount equal to six
months of the estimated rents payable with respect to the Master Lease. Rent
payments and the performance of Lyric III under the Master Lease and the
Facility Subtenants under the Facility Subleases will be guaranteed by Lyric.
IHS will not guarantee or have any other obligation to Monarch with respect to
the payment or performance obligations of Lyric III under the Master Lease.
The other five Initial Properties will be leased to unaffiliated parties on
a triple net basis with initial terms ranging from 11 to 12 years. The initial
base portfolio rents for these five properties equal the purchase price
multiplied by a specified percentage. Each of the base rents is subject to
annual increases equal to the lesser of the increase in the CPI or 5%, but
subject to a minimum annual increase of 2%.
The Company will be self-administered and self-managed. The Company will
initially employ five persons, including the Company's two executive officers,
and intends to hire additional employees as necessary to support its anticipated
growth. The Company will monitor its investments, develop investment and lending
opportunities, perform analysis, underwriting, negotiating and closing
activities with respect to future investment or financing transactions and
perform administrative functions.
As the sole stockholder of the General Partner and the Limited Partner, the
Company will initially own through its wholly owned subsidiaries 100% of the
ownership interests in the Operating Partnership and the Operating Partnership
will own the Initial Properties. Following the Offering, the Operating
Partnership may issue Units to third parties who will contribute properties in
exchange for Units. The ownership and management structure of the Company is
intended to enable the Company to acquire assets in transactions that may defer
some or all of a seller's tax consequences.
The principal executive offices of the Company and the Operating
Partnership are located at 8889 Pelican Bay Boulevard, Suite 501, Naples,
Florida 34108 and its general telephone number is (941) 597-9505.
INDUSTRY OVERVIEW
Monarch will focus its investment efforts on the long-term care sector of
the healthcare industry and on healthcare operators who service residents
needing higher levels of care. Long-term care encompasses a broad range of
specialty services for elderly and other patients with medically complex needs
who do not require acute care services but are unable to be cared for at home.
Services provided by long-term care facility operators range from meals and
transportation to assistance with activities of daily living such as eating,
dressing and medication reminders to intensive medical care. The real estate
asset types in this sector include nursing, subacute care and assisted living
facilities and specialty hospitals.
Demand for assisted living and long-term care services is partially driven
by growth in the elderly population. According to the U.S. Census Bureau in
1997, there were 34.1 million elderly Americans, over the age of 65, comprising
13% of the total population. The elderly population is expected to double by
2030 to 69.4 million, comprising 20% of the total population. Elderly adults are
not only growing in numbers, but are living longer. Medical technology has
reduced the mortality rate in the U.S. and increased longevity. The average life
expectancy of Americans has increased from 68 years in 1950 to 76 years in 1996.
Prolonged life expectancy impacts the needs of the elderly and increases the
probability of chronic illness and disabilities, thus increasing the need for
services and care. The U.S. Census Bureau estimates that 50% of the population
over the age of 85 requires assistance with everyday activities. The population
over 85 is also the fastest growing segment of the elderly population, and this
segment is expected to grow from 3.9 million in 1997 to 8.5 million by 2030.
According to the General Accounting Office, the number of elderly Americans
requiring long-term care is expected to increase by up to 100% over the next 25
years, rising from 7 million to between 10 million and 14 million by 2020.
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The pending implementation of Medicare's prospective payment system and
private managed care plans have slowed growth in healthcare expenditures by
creating incentive for hospitals and physicians to lower the cost of healthcare
delivery by moving patients to low-cost-of-care settings. This has created
opportunities for long-term care providers which are generally lower cost than
acute care hospitals. Cost containment pressures have also led to the
consolidation of the long-term care sector as providers seek to leverage costs
and services across a larger base of facilities. This has increased the demand
for flexible financing. Moreover, changes in healthcare delivery have shifted
the focus of providers' capital resources from real estate to investments in
information systems and the consolidation and integration of healthcare
networks. Healthcare facility REITs, such as Monarch, are positioned to fill the
gap created by this shift.
There is a significant market for the financing of healthcare facilities.
The U.S. Census Bureau estimates that total healthcare construction expenditures
are approximately $14 billion per year. A study conducted by Price Waterhouse
estimates that the gross capital size of the senior living and long-term care
market will grow from $86 billion in 1996 to $126 billion in 2005 and $490
billion in 2030. Despite the strong projected growth in demand for healthcare
facilities, the Company believes that Certificate of Need Statutes and other
licensure requirements in many markets will prevent overbuilding, thereby
preserving the value of its portfolio of properties. The Company evaluates local
markets for healthcare facilities in connection with its evaluation of
acquisition or financing opportunities and assesses the effect of any over-
building in the local market on the facility's business and prospects. In
addition, the Company believes that consolidation in the industry will increase
the demand for flexible financing which the Company will offer in order to
finance the acquisitions associated with such consolidation.
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BUSINESS AND GROWTH STRATEGIES
The Company's principal objectives are to maximize total stockholder
returns through a combination of growth in funds from operations per share and
enhancement of the value of its investment portfolio. To achieve these
objectives, Monarch intends to offer a broad mix of traditional and innovative
financing products to meet the specific needs of its primary customer segments.
The Company believes that its success in acquiring properties will be based on
its ability to successfully market to its primary customer segments and its
ability to provide tailored financial products which meet the needs of
individual operators. Monarch intends to continue to develop and expand strong
relationships with established or emerging healthcare providers that will enable
it to diversify its portfolio of properties and lessees and achieve continued
asset growth. The Company intends to access this customer base through the use
of senior management's and the Chairman's extensive network of relationships
with healthcare facility operators and healthcare industry financing services,
as well as through various marketing efforts such as participation in trade
conferences and other industry meetings and electronic and print advertising.
The Company's business and growth strategy is based on management's
experience as operators and acquirors of long-term care facilities, including
structuring and negotiating numerous financial transactions on behalf of both
emerging and established companies. Management has no prior experience, however,
managing a REIT. As operators of facilities similar to those to be acquired by
Monarch, management has recognized the significant demand for financing which
provides flexibility currently unavailable in the market. To respond to this
underserved need for flexible financing, the Company has developed several
financing alternatives that can be customized to meet the specific demands of
individual customers.
The acquisition of the Lyric Properties from IHS and the lease of such
properties to Lyric III, with IHS providing management services, is
representative of the Company's innovative financing structures. In this type of
transaction, which the Company refers to as the Intermediate Lessee Structure,
the Company will offer a sale and leaseback structure where the lessee is not
majority-owned by the seller/manager and the lease is not guaranteed by the
seller/manager. This structure may allow large established operators to improve
financial flexibility and operating profit margins and reduce leverage through
the realization of substantial proceeds from the sale of facilities and the
elimination of obligations for future lease payments. In addition, this
structure enables the seller to generate revenues from the operation of the
facilities through the provision of fee-based management services and
franchising fees.
The Company has also developed a customized pre-construction purchase
commitment financing structure where the operator may be able to minimize the
losses incurred during the construction phase of new facilities. The Company's
customized pre-construction purchase commitment structure will typically be used
to "take-out" traditional bank construction facilities for the period from
certification of a new facility through break-even occupancy of the facility.
This product will provide operators with enhanced financing flexibility during
the "fill-up" period of a new facility in exchange for premium yields compared
to traditional construction take-out financing.
The Company believes the Intermediate Lessee Structure and the customized
pre-construction purchase commitment financing structure, along with other
innovative product offerings, will enable the Company to realize premium yields
on those offerings compared to traditional product offerings and to compete
favorably for investment and financing opportunities among its target operators.
The Company intends to manage credit risks associated with its investment
and financing activities on both a transaction-specific and on a portfolio
basis. The Company's risk management program will include:
o Utilizing credit evaluation criteria which emphasize the operator's
management capabilities and track record, the historical and projected
operating results and cash flows of the facility, facility appraisals,
competitive position within the market and demographics;
o Subordinating management and franchise fees to lease payments,
utilizing cross collateralization and cross default provisions,
employing master lease structures that effectively make all of the
revenues from the facilities under the master lease available to
support the master lease obligation, stock pledges, financial
covenants and regular financial reporting; and
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o Diversifying the Company's asset base by operator, geographic
location, investment type and healthcare sector. In transactions where
the Company does not obtain a financial guaranty from the operator, it
will secure the lessee's obligations with the value of all of the
leased facilities, including obtaining pledges of the stock of the
lessees or other appropriate security.
CUSTOMER SEGMENTS
The Company will target two primary customer segments which it believes
currently have significant unmet needs for flexible and innovative financing:
ESTABLISHED PUBLIC OPERATORS. Monarch believes that large established
operators of healthcare facilities, such as IHS, will be a major source of
ongoing investment opportunities. Traditional as well as customized sale and
leaseback structures (including the Intermediate Lessee Structure) allow these
operators to focus on optimizing the performance of the facilities they operate
without evaluating or being subject to real estate risks. Sale and leaseback
structures can have benefits, including reduced leverage and depreciation
charges. Based upon management's experience as operators and acquirors of
healthcare facilities, the Company believes there is significant demand in this
market for customized lease structures, such as the Intermediate Lessee
Structure, that will justify premium yields. These products offer the operator
significantly greater financial flexibility by eliminating the operator's
obligations for future lease payments and improving operating profit margins.
EMERGING OPERATORS. The Company believes that there is a substantial
opportunity to provide financing for select emerging operators run by strong
management teams with extensive experience operating healthcare facilities.
These operators often have limited access to attractive capital sources despite
having extensive experience and well-developed growth strategies. Monarch
intends to utilize the operating expertise and relationships of its senior
management team to identify and target quality operators with the goal of
providing financing to these select customers throughout their growth cycles.
The Company also believes that this customer segment is presently underserved by
existing public healthcare REITs, whose primary focus is to provide
facility-based financing to large operators on a secured basis utilizing the
corporate guarantees of the operators.
Monarch has developed several products tailored to target the capital needs
of emerging operators that may provide long-term cost savings to the operator as
compared with venture capital or other financing alternatives. The Company's
innovative lease or financing structures for such operators may not require a
personal guaranty from the owner and may include agreements to purchase
facilities upon completion of their construction at a predetermined purchase
price and to leaseback such facilities to the operator. The Company may also
enter into agreements to provide limited short-term working capital financing
and offer financing at higher loan to value ratios than may be available from
traditional mortgage lenders. In return for this flexibility, the Company
expects to obtain higher returns through premium yields, stock warrants or other
instruments which provide the Company with an opportunity to share in the growth
of the emerging operator's enterprise value, subject to compliance with
applicable REIT rules.
GROWTH STRATEGIES
The Company intends to achieve its principal growth objectives through: (i)
the acquisition of high quality healthcare properties operated by experienced
management teams; (ii) the generation of internal growth in rental and other
income; and (iii) the employment of a conservative and flexible capital
structure.
INVEST IN HIGH QUALITY HEALTHCARE PROPERTIES OPERATED BY EXPERIENCED
MANAGEMENT TEAMS. Monarch's strategy is to invest in or finance quality
healthcare properties operated or managed by experienced operators in order to
achieve attractive investment returns. The Company's initial portfolio will
consist primarily of skilled nursing facilities. In addition to skilled nursing
facilities, the Company also intends to invest in other healthcare delivery
facilities across the United States. Monarch intends to offer a mix of
traditional and innovative financing products to both large established
operators and to select emerging operators. Senior management believes its
experience operating and growing start-up healthcare
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ventures positions it to target and evaluate quality emerging operators who will
benefit from the Company's product offerings. Senior management's and the
Chairman's extensive network of relationships with healthcare facility operators
and the Company's ability to provide flexible financing will be instrumental in
developing a series of important operator/lessee relationships. Finally, the
Company has developed specific investment evaluation criteria and a disciplined
underwriting process to analyze historical and projected performance of
potential investments as well as competitive positioning and market
demographics.
When evaluating potential healthcare assets for investment, the Company
performs substantial property level and market analysis and due diligence to
arrive at its valuation estimate, including: (i) analysis of historical property
financial performance and historical and implied cash flow coverages; (ii)
analysis of projected financial performance and implied cash flow coverages,
including the anticipated impact of the implementation of a prospective payment
system; (iii) trends analysis of key operating statistics such as reimbursement
received per patient per day, revenue mix, occupancy levels and payor quality
mix; (iv) review of regulatory surveys and resulting actions; (v) review of the
quality of the facility's construction and the commissioning of engineering
reports and environmental reviews; (vi) assessment of the competitive
positioning of the asset in its local market based on its historical financial
performance, services offered and recent comparable transactions in the market;
(vii) review of the regulatory and reimbursement environment in the state; and
(viii) a strategic assessment of the property's fit within the Company's overall
portfolio.
The Company also evaluates potential new lessee/operators utilizing several
qualitative and quantitative factors. Monarch interviews members of senior
management and frequently visits existing lessee/operator facilities prior to
entering into a new relationship. The Company also analyzes the lessee/
operator's financial statements to assess their profitability and financial
resources. In addition to direct contact with the management and a review of
their financial status, the Company utilizes its network of relationships within
the industry to conduct multiple reference checks on each potential new lessee/
operator.
When evaluating relationships with emerging lessee/operators, the Company
considers additional factors in evaluating whether to provide financing,
including: (i) senior management's performance track record in their prior
operating positions; (ii) senior management's specific operating expertise in
the facility setting in which Monarch is considering investing or financing;
(iii) assessment of the business and geographic strategy of the lessee/operator;
(iv) financial condition of the lessee/operator; (v) the financial commitment
that the senior management has made to the lessee/operator including an
assessment of the percentage of net worth that each member has invested in the
company; (vi) the number of facilities to be initially financed by Monarch; and
(vii) the potential to provide additional financing in the future.
INTERNAL GROWTH. The Company's strategy is to achieve internal growth
through increased income from: (i) increases to base rent under leases with
provisions for annual fixed rate or CPI rent increases; (ii) increased interest
income from participating mortgage loans; (iii) subject to applicable REIT
rules, gains from stock warrants, shared appreciation mortgages or other
instruments related to the operator's enterprise value or the underlying asset
value; and (iv) increases in rental income payable under any leases that it may
enter into having a rent component based on a percentage of facility revenues.
EMPLOY CONSERVATIVE AND FLEXIBLE CAPITAL STRUCTURE. The Company's strategy
is to employ a conservative and flexible capital structure that will allow it to
aggressively pursue investment opportunities. The Company's strategy is to
employ a capital structure that keeps the amount of its outstanding debt within
conservative limits as the Company intends to maintain a debt to total market
capitalization (i.e. total debt of the Company as a percentage of its equity
market capitalization plus total debt) of less than 50%. Upon completion of the
Offering, the Company's pro forma debt to total market capitalization ratio is
expected to be 20.3%. The Company believes that this conservative capital
structure will provide it with flexibility in satisfying its capital needs
because, as a publicly traded REIT with a relatively low leveraged capital
structure and expected total market capitalization of $416.9 million, management
believes it will have access to a variety of sources of capital currently
available to similarly situated REITs,
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such as: (i) additional public and private common and preferred equity; (ii)
public and private debt instruments; and (iii) more traditional commercial
borrowings from banks and other financial institutions. In addition, the Company
will be structured as an UPREIT in order to permit the use of limited
partnership units in the Operating Partnership ("Units") as currency to make
acquisitions of properties and to enable the Company to offer certain tax
advantages to real estate sellers.
FINANCIAL PRODUCTS
The Company intends to offer a variety of traditional and customized lease
and financing products to both established and emerging operators of skilled
nursing facilities, specialty hospitals and other healthcare delivery
facilities. The Company's planned product offerings include: (i) sale and
leaseback structures; (ii) customized sale and leaseback structures; (iii)
pre-construction purchase commitment financing structures; (iv) customized
pre-construction purchase commitment financing structures; (v) shared
appreciation and increasing rate mortgage financing; (vi) limited working
capital financing; and (vii) fixed rate mortgage financing. Initially, all of
the Company's business will consist of sale and leaseback structures, including
customized sale and leaseback structures such as the acquisition of the Lyric
Properties from IHS and the leasing of the Lyric Properties to Lyric III. The
Company currently expects that for the next twelve months sale and leaseback
structures will continue to comprise the majority of its business and that
pre-construction purchase commitment financing and increasing rate mortgage
financing will be its most significant other product offerings, provided,
however, that changes in customer demand, interest rates, and other market
conditions will affect the portion of the Company's business derived from the
different products it offers. The Company seeks to enhance its effective yields
and reduce its credit risk by: (i) charging commitment fees equal to a
percentage of its investment or financing commitments, which may include
up-front fees and fees based upon the unfunded portion of the commitment; and
(ii) obtaining security deposits, requiring minimum capital expenditures on a
per bed basis and utilizing rent escalation provisions. In addition, the seller
or borrower will pay all legal and other transaction costs such as appraisal,
environmental reports and property condition reports.
SALE AND LEASEBACK STRUCTURES. The Company anticipates that its primary
product offering will be sale and leaseback structures, including the customized
sale and leaseback structures described below. The Company intends to lease
healthcare facilities on a long-term basis with terms generally ranging from 8
to 15 years with renewal terms available at the lessee's option. The leases
originated by the Company generally will provide for minimum annual rentals
which are subject to annual formula increases (e.g., based upon such factors as
increases in the CPI or increases in the gross revenues of the underlying
properties, subject to applicable REIT rules), with certain fixed minimum and
maximum levels. In general, the Company intends to pursue fixed CPI increases on
mature, lower risk, fully occupied properties where cash flows are stable. The
Company intends to pursue additional rent escalation provisions on facilities
with identified potential for revenue growth or a less mature cash flow history.
CUSTOMIZED SALE AND LEASEBACK STRUCTURES. The Company has developed sale
and leaseback structures which offer considerable flexibility relative to
traditional sale and leaseback structures. The Company believes that this
flexibility will enable these structures to command premium yields through
higher lease or interest rates or equity interests and enable the Company to
develop market leadership in this new segment of healthcare financing and expand
its overall market share of sale and leaseback financing. For example, the
Company has developed the Intermediate Lessee Structure for a sale and leaseback
transaction with an operator where the lessee would be a newly formed entity
which is not majority owned by the seller/ manager and where the seller/manager
does not guarantee the lease. The purchase of the Lyric Properties from IHS, the
lease of the Lyric Properties to Lyric III and the management of the Lyric
Properties by IHS utilize this structure. Such a transaction may allow operators
to reduce leverage by selling facilities while continuing to generate revenues
through the provision of fee-based management services.
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PRE-CONSTRUCTION PURCHASE COMMITMENT FINANCING STRUCTURES. The Company will
consider entering into agreements to purchase facilities upon completion of
their construction at a pre-determined purchase price and to leaseback such
facilities to the operator. These agreements will involve a qualified
construction lender as well as the developer. The Company's funding obligation
will be contingent upon the project being delivered in accordance with
pre-determined requirements such as cost, compliance with building codes,
approved plans and specifications and receipt of all applicable licenses.
CUSTOMIZED PRE-CONSTRUCTION PURCHASE COMMITMENT FINANCING STRUCTURES. The
Company has developed customized pre-construction purchase commitment financing
structures which offer considerable flexibility relative to traditional
construction loan "take-out" financing. For example, the Company's
pre-construction purchase commitment structure will typically be used to
"take-out" traditional bank construction facilities for the period from
certification of a new facility through break-even occupancy of the facility.
The Company believes that this product will provide operators with enhanced
financing flexibility during the "fill-up" period of a new facility in exchange
for premium yields compared to traditional pre-construction purchase commitment
financing.
SHARED APPRECIATION AND INCREASING RATE MORTGAGE FINANCING. The Company may
make shared appreciation mortgage loans which will be secured by first mortgage
liens on the underlying real estate and personal property of the mortgagor with
provisions that enable the Company to participate in the future appreciation of
the collateral. Interest rates will usually be subject to annual increases based
upon increases in the CPI or increases in gross revenues of the underlying
facilities, with certain maximum limits. The mortgages will contain prepayment
fees to protect the Company's yield.
WORKING CAPITAL FINANCING. To the extent permitted under the REIT rules,
the Company intends to offer limited working capital financing primarily to
emerging facility lessees/operators. The Company believes that such financing
will allow the Company to compete favorably with respect to its target operators
for opportunities relating to newly developed facilities or those in which
change of ownership puts a temporary strain on cash resources. Due to the nature
of this product, the Company intends to assess an interest rate premium for
working capital financing. The working capital loans will be secured primarily
by excess real estate value and facility accounts receivable. Working capital
financing will be made available on a short-term basis and will generally
require a commitment for permanent working capital financing from another
source. The Company intends to limit its working capital financing product
offerings in accordance with applicable REIT rules and regulations.
FIXED RATE MORTGAGE FINANCING. The Company anticipates making fixed
interest rate mortgage loans on a selective basis secured by first mortgage
liens on the underlying real estate and personal property of the mortgagor. The
Company currently intends to limit the amount of fixed rate mortgage financing
which it provides to healthcare facility operators to not more than 5.0% of its
assets because of interest rate and inflation risks associated with fixed rate
loans, provided that the Company's intention is subject to change based on
customer demand, interest rates and other market conditions.
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CONFLICTS OF INTEREST
Conflicts of interest exist between the Company and its directors and
officers, IHS and its directors and officers and Lyric and its directors and
officers. The following description sets forth the principal conflicts of
interest, the relationships through which they arise and the methods to be
employed, if any, to address such conflicts.
AFFILIATED DIRECTORS
Dr. Elkins, the Company's Chairman of the Board, is also Chairman of the
Board, Chief Executive Officer and President of IHS and will continue to serve
in such positions following completion of the Offering. In addition, Mr. Poole,
President and Chief Executive Officer and a director of the Company, previously
served as Executive Vice President and Special Assistant to the Chief Executive
Officer of IHS. Lyric is owned 50% by IHS and 50% by TFN, which is 100%
beneficially owned by Mr. Nicholson, a member of IHS' Board of Directors. At
March 1, 1998, Dr. Elkins beneficially owned approximately 7.6% of the
outstanding common stock of IHS and, upon consummation of the Offering, he will
beneficially own 5.7% of the outstanding Common Stock of the Company. Because he
serves as Chairman of the Boards of both IHS and the Company, Dr. Elkins will
have a conflict of interest with respect to his obligations as a director of the
Company with respect to enforcing: (i) the terms of the IHS Agreements as they
relate to the various IHS properties being acquired by the Company or that may
be acquired or financed by the Company in the future; (ii) the Master Lease to
be entered into by the Company and Lyric III; and (iii) the Lyric Guaranty from
Lyric to the Company. The failure to enforce material terms of the IHS
Agreements, the Master Lease and the Lyric Guaranty could result in a monetary
loss to the Company, which loss could have a material adverse effect on the
Company's financial condition and results of operations. The presence of
affiliated directors may deter the Company from vigorously enforcing the terms
of the IHS Agreements, the Master Lease and the Lyric Guaranty.
FACILITIES PURCHASE AGREEMENT AND MASTER LEASE
The purchase price to be paid to IHS for the 44 Initial Properties to be
acquired from IHS under the Facilities Purchase Agreement was not determined as
a result of arm's length negotiations. The purchase price was determined on the
basis of negotiations between the Company and IHS based on a variety of factors,
including, but not limited to, independent appraisals, comparable transactions,
historical and projected operating results and industry cash flow coverage
ratios. Although it is intended that the Company pay fair market value for the
Initial Properties, there can be no assurance that the appraisers have
accurately determined the fair market value of the Initial Properties. IHS will
receive substantial economic benefits as a result of consummation of the
Formation Transactions and the Offering. See "Transactions with and Benefits to
Related Parties" and "Valuation of Initial Properties."
FUTURE PURCHASES OR FINANCINGS OF IHS OWNED OR MANAGED PROPERTIES
Although no specific properties (other than the Option Properties) have
been identified, it is anticipated that the Company may, in the future, purchase
or finance additional properties owned or managed by IHS or its affiliates. As a
result of the conflicts of interest identified above, the purchase price or
financing terms given to IHS or its affiliates by the Company in such
transactions may not be determined as a result of arm's length negotiations.
Although it is anticipated that any such transactions will be based on a variety
of factors, including, but not limited to, independent appraisals, comparable
transactions, historical and projected operating results and industry cash flow
coverage ratios, there can be no assurance that the terms of such transactions
will be as favorable as terms achieved in purely third-party transactions. To
help address this conflict of interest the Company will be prohibited by the
terms of its Bylaws from acquiring additional properties from, or providing
financing on properties involving, IHS or the Company's directors and officers
or affiliates thereof without the approval or a majority of the disinterested
directors of the Company, including any properties to be acquired pursuant to
the Purchase Option Agreement or the Right of First Offer Agreement. See
"Policies With Respect to Certain Activities -- Conflict of Interest Policies."
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COMPETITION FROM IHS
The Company will experience ongoing competition from and conflicts with
IHS. The Company's healthcare facilities (whether or not managed by IHS) may
compete with healthcare facilities owned, leased or managed by IHS in certain
markets. As a result, IHS will have a conflict of interest due to the operation
of certain competing healthcare facilities and its management of a substantial
portion of the facilities owned by the Company.
EXECUTIVE OFFICERS OF THE COMPANY WILL HAVE SUBSTANTIAL INFLUENCE
Certain of the directors, director nominees, executive officers and
employees of the Company are purchasing shares of Common Stock in the Concurrent
Offering and will be granted stock options which will be exercisable at the time
of the Offering. Upon completion of the Offering, directors and executive
officers of the Company will own approximately 7.3% of the total issued and
outstanding shares of Common Stock (including shares issuable pursuant to
exercisable stock options). Accordingly, such persons will have substantial
influence on the Company, which influence may not be consistent with the
interests of other stockholders. See "Principal Stockholders."
CONFLICT OF INTEREST POLICIES
The Company believes that a requirement of Disinterested Director approval
of transactions between the Company and any of its directors or any other
corporation, firm or other entity in which any of its directors is a director or
has a material financial interest, including transactions with IHS, will help to
eliminate or minimize certain potential conflicts of interest. Therefore,
pursuant to the Bylaws, without the approval of a majority of the Disinterested
Directors, the Company may not engage in any transaction: (i) involving IHS, any
director, officer, or employee of the Company or any affiliate of IHS or the
Company; (ii) involving any partnership or limited liability company of which
any director or officer may be a partner or member; (iii) involving any
corporation or association of which any director or officer may be a director or
officer; (iv) involving any corporation or association of which any director or
officer of the Company may be interested as the holder of any amount of its
stock (or, in the case of a publicly traded corporation, the holder of five
percent or more of its common stock or five percent or more of the voting power
outstanding of such corporation); or (v) in which IHS, any director, officer or
employee otherwise may be a party, or may be pecuniarily or otherwise
interested. Any director who does not have an interest described in the
preceding sentence shall be deemed a "Disinterested Director" with respect to
such matter. See "Risk Factors -- Conflicts of Interest with Affiliated
Directors in the Formation Transactions and the Business of the Company Could
Adversely Affect the Company's Dealings with IHS and Lyric" and "Policies with
Respect to Certain Activities -- Conflict of Interest Policies."
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USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and estimated Offering expenses
of approximately $25.4 million, are estimated to be approximately $296.4 million
(approximately $338.9 million if the Underwriters' overallotment option is
exercised in full), based upon the assumed initial public offering price of
$18.50 per share.
The net cash proceeds of the Offering, together with approximately $84.6
million of borrowings under the Credit Facility and $2.0 million in up-front
commitment fees on the Initial Properties, will be contributed by the Company to
the Operating Partnership in exchange for Units in the Operating Partnership.
Thereafter, through the Operating Partnership, the Company will utilize the
funds as follows: (i) approximately $382.4 million to acquire the Initial
Properties; (ii) approximately $375,000 for costs associated with entering into
the Credit Facility; (iii) approximately $25,000 for organizational expenses;
and (iv) approximately $128,000 for general corporate purposes.
If the Underwriters' overallotment option is exercised in full, the Company
expects to use the additional net proceeds (which will be approximately $42.5
million) to reduce amounts outstanding under the Credit Facility, to fund
additional acquisitions and for general corporate purposes.
Pending the application of the net proceeds of the Offering, the Company
will invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities, which are consistent with the Company's
intention to qualify as a REIT.
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DISTRIBUTIONS
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Stock. The initial
distribution, covering a partial quarter commencing on the date of completion of
the Offering and ending on September 30, 1998, is expected to be $ per
share, which represents a pro rata distribution based on a full quarterly
distribution of $0.393125 per share and an annual distribution of $1.5725 per
share (or an annual distribution rate of approximately 8.5%). The Company does
not intend to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the information
set forth in the table and footnotes below should be read in conjunction with
the financial statements and notes thereto, the pro forma financial information
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" included
elsewhere in this Prospectus.
The Company intends initially to distribute annually approximately 82.9% of
estimated Cash Available for Distribution. The estimate of Cash Available for
Distribution for the 12 months following the closing of the Offering is based
upon pro forma Funds from Operations for the twelve months ended March 31, 1998,
reconciled for certain adjustments not in conformity with generally accepted
accounting principles ("GAAP") consisting of: (i) pro forma amortization of
financing costs; (ii) non-real estate depreciation and amortization; and (iii)
amortization of commitment fees. No effect was given to any changes in working
capital resulting from changes in current assets and current liabilities (which
changes are not anticipated to be material) or the amount of cash estimated to
be used for: (i) investing activities for acquisitions, development, tenant
improvement and leasing costs; and (ii) financing activities. The estimate of
Cash Available for Distribution is being made solely for the purpose of setting
the initial distribution and is not intended to be a projection or forecast of
the Company's results of operations or its liquidity, nor is the methodology
upon which such adjustments were made necessarily intended to be a basis for
determining future distributions. Future distributions by the Company will be at
the discretion of the Board of Directors. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.
The Company anticipates that its distributions will generally exceed
earnings and profits for federal income tax reporting purposes due to non-cash
expenses, primarily depreciation and amortization, to be incurred by the
Company. Because of the effects of a one-time compensation expense related to
the granting of stock options to officers and directors, it is expected that
approximately 69.0% (or $1.086 per share) of the distributions anticipated to be
paid by the Company for the 12-month period following the completion of the
Offering will represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to the
extent such distributions do not exceed a stockholder's basis in his Common
Stock. Without giving effect to the one-time charge, approximately 34.4% (or
$0.541 per share) of the distributions anticipated for such period would
constitute a non-taxable return of capital. The nontaxable distributions will
reduce the stockholder's tax basis in the Common Stock and, therefore, the gain
(or loss) recognized on the sale of such Common Stock or upon liquidation of the
Company will be increased (or decreased) accordingly. The percentage of
stockholder distributions that represents a nontaxable return of capital may
vary substantially from year to year.
The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). The estimated Cash
Available for Distribution is anticipated to be in excess of the annual
distribution requirements applicable to REITs under the Code. Under certain
circumstances, the Company may be required to make distributions in excess of
Cash Available for Distribution in order to meet such distribution requirements.
For a discussion of the tax treatment of distributions to holders of Common
Stock, see "Federal Income Tax Consequences -- Requirements for Qualification as
a REIT."
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The
45
<PAGE>
Company's actual results of operations will be affected by a number of factors,
including the revenue received from its properties, the operating expenses of
the Company, interest expense, the ability of tenants of the Company's
properties to meet their financial obligations and unanticipated capital
expenditures. Variations in the net proceeds from the Offering as a result of a
change in the initial public offering price or the exercise of the Underwriters'
overallotment option may affect Cash Available for Distribution, the payout
ratio based on Cash Available for Distribution and available reserves. No
assurance can be given that the Company's estimate will prove accurate. Actual
results may vary substantially from the estimate.
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended March 31, 1998 and the adjustments to pro
forma Funds from Operations for the 12 months ended March 31, 1998 in estimating
initial Cash Available for Distribution for the 12 months following the closing
of the Offering:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma net income for the year ended December 31, 1997 excluding non-
recurring non-cash compensation expense ...................................... $ 22,200
Plus: pro forma net income for the three months ended March 31, 1998 excluding
non-recurring non-cash compensation expense .................................. 5,551
Less: pro forma net income for the three months ended March 31, 1997 excluding
non-recurring non-cash compensation expense .................................. (5,551)
--------
Pro forma net income for the twelve months ended March 31, 1998 excluding
non-recurring non-cash compensation expense .................................. 22,200
Plus: pro forma real estate related depreciation for the 12 months ended March
31, 1998 ..................................................................... 8,892
--------
Pro forma Funds from Operations for the 12 months ended March 31, 1998(1) ..... 31,092
Adjustments(2) ................................................................ --
--------
Estimated adjusted pro forma Funds from Operations for the 12 months follow-
ing the completion of the Offering ........................................... 31,092
Pro forma amortization of financing costs for the 12 months ended March 31,
1998(3) ...................................................................... 125
Non-real estate depreciation and amortization(4) .............................. 26
Amortization of commitment fees(5) ............................................ (182)
Commitment fees ............................................................... 2,026
Estimated pro forma Cash Flows provided by operating activities for the 12 --------
months following the Offering ................................................ 33,087
--------
Investing and financing activities(6) ......................................... --
Pro forma estimated Cash Available for Distribution for the 12 months following
the closing of the Offering .................................................. $ 33,087
========
Total estimated annual cash distributions ..................................... $ 27,440
========
Estimated annual distribution per share(7) .................................... $ 1.5725
========
Payout ratio based on estimated
Cash Available for Distribution(8) ........................................... 82.9%
</TABLE>
- ----------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures, and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current definition differently than the
46
<PAGE>
Company. Funds from Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make cash distributions.
(2) No adjustments are made as all of the Company's contractual arrangements
have been reflected in the pro forma results.
(3) Represents the amortization of the commitment fee related to the Credit
Facility. The commitment fee of $375 is amortized over the 3 year term of
the Credit Facility.
(4) Represents the following:
<TABLE>
<S> <C> <C>
Organization costs ....................... $ 25
Life (Years) ............................. 5
----
$ 5
Corporate furniture and fixtures ......... $128
Life (Years) ............................. 6
----
21
----
Adjustment ............................... $ 26
====
</TABLE>
(5) Represents the revenue recognized from amortization of the lease commitment
fees related to the Initial Properties. The lease commitment fees are
amortized over the initial term of the related leases.
(6) No unconditional commitments exist for investing or financing activities.
(7) Based on total shares outstanding of 17,450,000 to be outstanding after the
Offering assuming no exercise of the Underwriters' overallotment option.
(8) Calculated as total estimated annual cash distribution divided by pro forma
estimated Cash Available for Distribution for the 12 months following the
closing of the Offering.
47
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of March 31, 1998, and on a pro forma basis, as adjusted to give effect to
the Formation Transactions, the Offering and use of the net proceeds from the
Offering as set forth under "Use of Proceeds." The information set forth in the
table should be read in conjunction with the financial statements and notes
thereto, the pro forma financial information and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Credit Facility (1) ....................................... $-- $ 84,582
Stockholders' equity:
Preferred Stock $.001 par value per share 20,000,000
shares authorized; none issued and outstanding ......... -- --
Common Stock $.001 par value per share 100,000,000
shares authorized, 100 shares issued and outstanding
(historical), 17,450,000 shares issued and outstanding
(pro forma) (2) ........................................ -- 17
Additional paid-in capital ............................... -- 296,342
--- --------
Total stockholders' equity ............................. -- 296,359
--- --------
Total capitalization ...................................... $-- $380,941
=== ========
</TABLE>
- ----------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
(2) Includes 950,000 shares of Common Stock to be issued in the Concurrent
Offering. Does not include 513,650 shares issuable upon exercise of stock
options to be granted under the Company's 1998 Omnibus Securities and
Incentive Plan at an exercise price of $.001 per share. The 100 shares of
Common Stock issued at the time of the Company's formation will be
cancelled upon consummation of the Offering.
48
<PAGE>
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value per share from
the initial public offering price. As of March 31, 1998, the Company had 100
shares of Common Stock issued and outstanding. After giving effect to the sale
of the Common Stock offered hereby (at an assumed initial public offering price
of $18.50 per share of Common Stock) and the receipt by the Company of
approximately $296.4 million in net proceeds from the Offering (after deducting
the underwriting discounts and commissions and other estimated expenses of the
Offering), the pro forma net tangible book value at March 31, 1998 would have
been approximately $296.4 million, or $16.50 per share of Common Stock. This
amount represents an immediate increase in net tangible book value of $16.50 per
share of Common Stock to the holders of the Common Stock issued in connection
with the Formation Transactions and an immediate dilution in pro forma net
tangible book value of $2.00 per share of Common Stock to new investors. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share .......................... $ 18.50
Net tangible book value per share prior to Offering (1) .......... $ 0.00
Increase in net tangible book value per share attributable to
the Offering (2) ................................................ 16.50
-------
Pro forma net tangible book value after the Offering (3) ......... 16.50
--------
Dilution in net tangible book value per share of Common
Stock to the purchasers in the Offering (4) ..................... $ 2.00
========
</TABLE>
- ----------
(1) Includes 513,650 shares of Common Stock issuable to the Company's executive
officers, employees and directors at a price of $.001 per share upon
exercise of stock options to be granted under the Company's 1998 Omnibus
Securities and Incentive Plan.
(2) Based upon the assumed initial public offering price of $18.50 per share of
Common Stock and after deducting underwriting discounts and commissions and
estimated expenses of the Offering.
(3) Based on total pro forma tangible book value of $296.4 million divided by
total number of shares outstanding after the completion of the Offering and
the Concurrent Offering of 17,450,000 shares of Common Stock and 513,650
shares of Common Stock issuable to the Company's executive officers,
employees and directors upon exercise of stock options to be granted under
the Company's 1998 Omnibus Securities and Incentive Plan.
(4) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price of $18.50 per share of Common Stock.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock to
be sold by the Company in the Offering, the net tangible book value as of March
31, 1998 of the assets contributed by the Chairman of the Board and the option
holders and the net tangible book value of the average contribution per share
based on total contributions.
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK ISSUED CASH CONTRIBUTED
------------------------ -----------------------------------
AVERAGE
SHARES PERCENT AMOUNT PERCENT BOOK VALUE
<S> <C> <C> <C> <C> <C>
Purchasers in the Offering .......... 16,500,000 91.9% $ 305,250,000 (1) 94.9% $ 18.50
Common Stock purchased in the
Concurrent Offering ................ 950,000 5.3 16,476,563 5.1 17.34
Common Stock issued in the
Formation Transactions (2) ......... 513,650 2.8 514 0.0 0.00
---------- ----- -------------- ----- --------
Total (2) .......................... 17,963,650 100.0% $ 321,727,077 100.0% $ 17.91
========== ===== ============== ===== ========
</TABLE>
- ----------
(1) Before deducting underwriting discounts and commissions and other estimated
expenses of the Offering.
(2) Assumes the issuance of 513,650 shares of Common Stock to the Company's
executive officers, employees and directors upon exercise of stock options
to be granted under the Company's 1998 Omnibus Securities and Incentive
Plan.
49
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Balance Sheet and Statements
of Operations included elsewhere in this Prospectus. The adjustments for the
Offering assume an initial public offering price of $18.50 per share of Common
Stock and that the Underwriters' overallotment option is not exercised.
Pro forma operating data are presented for the three months ended March 31,
1998, and for the year ended December 31, 1997 as if the Offering, the
acquisitions of the Initial Properties and the Formation Transactions had
occurred, and as if the respective leases had been in effect at January 1, 1998
and January 1, 1997, respectively. The pro forma balance sheet data is presented
as of March 31, 1998, as if the Offering and the acquisitions of the Initial
Properties and related transactions had occurred, and as if the respective
leases had been in effect at that date. The unaudited pro forma financial
information set forth below is not necessarily indicative of the Company's
financial position or the results of operations that actually would have
occurred if the transactions had been consummated on the dates shown. In
addition, it is not intended to be a projection of results of operations that
may be obtained by the Company in the future. The unaudited pro forma combined
financial information should be read in conjunction with the Balance Sheet and
Pro Forma Balance Sheet and Statements of Operations and related notes thereto
included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
PRO FORMA AT OR
FOR THE THREE PRO FORMA FOR
MONTHS ENDED THE YEAR ENDED
AT MARCH 31, 1998(1) MARCH 31, 1998 DECEMBER 31, 1997
---------------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Revenues .............................................. $ -- $ 9,690 $ 38,757
Net income ............................................ -- 5,551 22,200
Earnings per share-diluted ............................ -- 0.31 1.24
BALANCE SHEET DATA:
Properties ............................................ -- 382,439 --
Other assets .......................................... -- 528 --
Total assets .......................................... -- 382,967 --
Credit Facility ....................................... -- 84,582 --
Other liabilities ..................................... -- 2,026 --
Total stockholders' equity ............................ -- 296,359 --
OTHER DATA:
Funds from Operations (2) ............................. -- 7,774 31,092
Cash flow provided by operating activities(3) ......... -- 7,765 33,087
Cash used by investing activities(3) .................. -- -- (382,592)
Cash provided by financing activities(3) .............. -- -- 380,566
Weighted average number of shares of Common
Stock outstanding-diluted (4) ....................... 100 17,963,650 17,963,650
</TABLE>
- ----------
(1) The Company was formed on February 20, 1998 and was capitalized with the
issuance of 100 shares of Common Stock for an aggregate purchase price of
$100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT, in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and after adjustments for unconsolidated partnerships and
joint ventures. The White Paper also provides for other adjustments to net
income in deriving Funds from Operations, including adjustments for
extraordinary, unusual, or non-recurring items. Accordingly, the Company
intends to adjust net income in computing Funds from Operations by the
amount of non-recurring non-cash compensation expense. The Company believes
that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of
50
<PAGE>
the ability of the Company to incur and service debt, to make capital
expenditures, and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
(3) Amounts are presented on a pro forma basis assuming the Offering and
related transactions occurred on January 1, 1997, and computed in
accordance with GAAP, except that cash provided by operating activities
excludes the effect on cash resulting from changes in current assets and
current liabilities. The Company does not believe that these excluded items
are material to net cash provided by operating activities. Also, no
unconditional commitments exist for investing or financing activities.
(4) Includes shares of Common Stock issuable upon exercise of stock options to
be granted contemporaneously with the Offering.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in Maryland on February 20, 1998, and intends
to make an election and qualify under the Code as a REIT commencing with its
taxable year ended December 31, 1998. Substantially all of the Company's
revenues are expected to be derived from: (i) rental revenue received under
triple net leases of healthcare related real property facilities; (ii)
amortization of fees received in connection with property acquisitions and
leasing transactions; (iii) interest earned from mortgages secured by healthcare
facilities; and (iv) interest earned from the temporary investment of funds in
short term investments.
The Company will incur operating and administrative expenses including
principally, compensation expense for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional properties. The Company will not
engage a separate advisor or pay an advisory fee for administrative services.
The Company also expects to engage in some debt financing and incur the
related interest expense and other financing costs. The Company intends to
declare dividends to its stockholders in amounts generally exceeding taxable
income.
RESULTS OF OPERATIONS
The Company has had no operations from the date of its incorporation to the
date of this Prospectus.
PRO FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Properties and the Formation Transactions, revenues
would have been $9.7 million and net income would have been $5.6 million or
$0.31 per share, diluted. Funds from Operations would have been $7.8 million.
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Properties and the Formation Transactions, revenues
would have been $38.8 million and net income would have been $22.2 million or
$1.24 per share, diluted. Funds from Operations would have been $31.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the net proceeds of this Offering, together with
the Credit Facility will be sufficient to consummate the purchase of the Initial
Properties. Management believes the Company will have adequate remaining credit
under the Credit Facility to meet its liquidity needs for the twelve-month
period following the Offering.
The Company may, under certain circumstances, borrow additional amounts in
connection with the acquisition of additional properties, funding of additional
loans, or as necessary, to meet certain distribution requirements imposed on
REITs under the Code. The Company may raise additional capital by issuing, in
private and public transactions, equity or debt securities, but the availability
and terms of any such issuance will depend upon market and other conditions.
There can be no assurance that the Company will be able to obtain additional
capital or financing on acceptable terms or at all.
Under the terms of the leases for the Initial Properties, the lessees are
responsible for all operating expenses, taxes, property and casualty insurance,
other costs, and all capital expenditures. All of the leases have a minimum
capital expenditure requirement per year. The Company may declare an event of
default in the event that Lyric III or the Facility Subtenants fail to make the
required capital expen-
52
<PAGE>
ditures. As a result of these arrangements, the Company does not believe it will
be responsible for any major expenses in connection with the Initial Properties
during the terms of the respective leases. After the expiration or termination
of the respective leases, or in the event a lessee is unable to meet its
obligations, the Company anticipates that any expenditures it might become
responsible for in maintaining the Initial Properties will be funded by cash
from operations and, in the case of major expenditures, from borrowings. Any
unanticipated expenditures or significant borrowings may adversely affect the
Company's Cash Available for Distribution and liquidity.
The Company has received a commitment from SouthTrust Bank, National
Association for, and anticipates entering into, a three-year unsecured revolving
credit facility, which would be used to pay a portion of the purchase price of
the Initial Properties, to facilitate future acquisitions, for working capital
needs, or for other general corporate purposes. The Credit Facility will provide
$150 million at a floating rate of LIBOR plus a margin ranging from 100 to 150
basis points depending on the overall debt to book capitalization of the Company
ranging from less than 30% to greater than 50%, provided that, the commitment is
limited to $100 million in the event the bank is unable to syndicate at least
$50 million of the credit facility. The Credit Facility will also have an unused
commitment fee ranging from 20 to 37.5 basis points on the unused portion of the
Credit Facility. The Company will pay an up-front commitment fee equal to 25
basis points multiplied by the final Credit Facility amount. The Credit Facility
will have a term of three years with optional renewal periods thereafter. In
certain instances, the terms of the Credit Facility may require the Company to
enter into interest rate swaps, caps, or other hedging arrangements in order to
reduce the risk of rising interest rates. The Credit Facility will have
covenants on net worth, leverage, interest coverage and fixed charge coverage.
It will also include a negative pledge on all property included in the borrowing
base.
In addition to the Initial Properties, the Company has options to purchase
10 properties from IHS for an aggregate purchase price of approximately $104.7
million. The options will be separately exercisable for each property at the
Company's election for a term of two years subject to three successive one-year
renewal options. In addition, the Company is currently engaged in discussions or
negotiations with several healthcare facility operators with respect to possible
acquisition or financing transactions, the consummation of which is subject to
various significant conditions. IHS has also granted the Company, for a period
of four years from the closing of the Offering (subject to automatic renewals
thereafter unless terminated by either party), the opportunity to purchase or
finance each facility IHS decides to sell and lease back or finance in a
transaction of the type normally engaged in by the Company on terms to be
offered to a third party. There can be no assurance that any such potential
transactions will be completed, or, if completed, what the terms or timing of
any such transactions will be. The Company may acquire or finance additional
properties by drawing on the Credit Facility, issuing additional equity or debt,
using the proceeds of the Underwriters' overallotment option, or not at all. See
"Business and Properties of the Company."
NON-CASH COMPENSATION EXPENSE
Concurrent with the Offering, the Company intends to grant options to
purchase an aggregate of 513,650 shares of Common Stock to directors, executive
officers and employees of the Company. The options will have an exercise price
of $.001 per share and will become exercisable immediately. Accordingly, the
Company will recognize compensation expense equal to approximately $9.5 million
(the difference between the Offering price and the exercise price of the
options). This expense will be recognized in the fiscal quarter in which the
options are granted. As the grant of these options is directly attributable to
the Offering transaction and management expects that grants of this nature
(i.e., with significant intrinsic value at the date of grant and immediate
vesting) will be unusual in periods after completion of the Offering, the
estimated expense of approximately $9.5 million is considered non-recurring.
Accordingly, it has not been reflected in the pro forma statements of operations
or in the pro forma Funds from Operations.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT, in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related de-
53
<PAGE>
preciation and after adjustments for unconsolidated partnerships and joint
ventures. The White Paper also provides for other adjustments to net income in
deriving Funds from Operations, including adjustments for extraordinary,
unusual, or non-recurring items. Accordingly, the Company intends to adjust net
income in computing Funds from Operations by the amount of the non-cash
compensation expense discussed above. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures, and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not be
comparable to Funds from Operations reported by other REITs that do not define
the term in accordance with the current NAREIT definition or that interpret the
current definition differently than the Company. Funds from Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
YEAR 2000 COMPLIANCE
The year 2000 compliance issue relates to whether computer systems will
properly recognize date sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. Systems that do not
properly recognize such information could generate erroneous data or fail. The
Company has established or will establish computer hardware and software systems
that it believes will be able to accurately process transactions and data
relating to the year 2000 without any material adverse effect. However, this
issue is expected to affect the systems of various entities with which the
Company interacts, including payors, suppliers and vendors. There can be no
assurance that the systems of other entities on which the Company's systems rely
will be timely converted, or that a failure by another entity's systems to be
year 2000 compliant would not have a material adverse effect on the Company's
business, financial condition and results of operations.
54
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF IHS
The following table presents certain summary consolidated financial data of
IHS, who will act as the manager of the Lyric Properties. IHS is subject to the
reporting requirements of the Securities and Exchange Commission (the "SEC") and
files annual reports containing audited financial information and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information with the SEC. The information provided with respect to IHS
is derived, for the limited purposes of this Prospectus, from filings made with
the SEC. Prospective investors should note that an investment in the Common
Stock offered hereby is not an investment in IHS or any of its subsidiaries. IHS
has not guaranteed any of the obligations of Lyric III under the Master Lease.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -----------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Total Revenues ....................................... $1,178,888 $1,434,695 $1,993,197 $460,943 $854,880
Costs and expenses:
Operating, general and administrative ............... 944,567 1,154,924 1,555,830 370,428 650,137
Depreciation and amortization ....................... 39,961 41,681 70,750 15,030 38,591
Rent ................................................ 66,125 77,785 105,136 24,009 35,414
Interest, net ....................................... 38,977 64,110 115,201 21,421 66,465
Loss from impairment of long-lived assets and other
non-recurring charges (income)(2) .................. 132,960 (14,457) 133,042 (1,025) --
---------- ---------- ---------- -------- --------
Earnings (loss) before equity in earnings of affi-
liates, income taxes, extraordinary items and cumu-
lative effect of accounting change ................ (43,702) 110,652 13,238 31,080 64,273
Equity in earnings of affiliates ..................... 1,443 828 88 181 270
---------- ---------- ---------- -------- --------
Earnings (loss) before income taxes, extraordinary
items and cumulative effect of accounting change. (42,259) 111,480 13,326 31,261 64,543
Income tax provision (benefit) ....................... (16,270) 63,715 24,449 12,192 26,463
---------- ---------- ---------- -------- --------
Earnings (loss) before extraordinary items and cu-
mulative effect of accounting change .............. (25,989) 47,765 (11,123) 19,069 38,080
Extraordinary items(3) ............................... 1,013 1,431 20,552 -- --
---------- ---------- ---------- -------- --------
Earnings (loss) before cumulative effect of account-
ing change ........................................ (27,002) 46,334 (31,675) 19,069 38,080
Cumulative effect of accounting change(4) ............ -- -- 1,830 -- --
---------- ---------- ---------- -------- --------
Net earnings (loss) ................................ $ (27,002) $ 46,334 $ (33,505) $ 19,069 $ 38,080
========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ ------------
1995 1996 1997 1998
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and temporary investments .................... $ 41,304 $ 41,072 $ 61,007 $ 112,406
Working capital ................................... 136,315 57,549 63,117 224,240
Total assets ...................................... 1,433,730 1,993,107 5,063,144 5,246,908
Long-term debt, including current portion ......... 770,661 1,054,747 3,238,233 3,302,875
Stockholders' equity .............................. 431,528 534,865 1,088,161 1,201,570
</TABLE>
- ----------------
(1) IHS has grown substantially through acquisitions and the opening of medical
specialty units ("MSUs"), which acquisitions and MSUs openings materially
affect the comparability of the financial data reflected herein. In
addition, IHS sold its pharmacy division in July 1996, a majority interest
in its assisted living services subsidiary ("ILC") in October 1996 and the
remaining interest in ILC in July 1997 (the "ILC Sale"). In addition, the
sale of 44 of the Initial Properties by IHS will significantly reduce IHS'
revenues and expenses.
(2) In 1995, consists of (i) expenses of $1,939,000 related to the merger with
IntegraCare, Inc. (ii) a $21,915,000 loss on the write-off of accrued
management fees ($8,496,000), loans ($11,097,000) and contract acquisition
costs ($2,322,000) related to IHS' termination of its agreement, entered
into in January 1994, to manage 23 long-term care and psychiatric
facilities owned by Crestwood Hospital, (iii) the write-off of $25,785,000
of deferred pre-opening costs resulting from a change in accounting
estimate regarding the future benefit of deferred pre-opening costs and
(iv) a loss of $83,321,000 resulting from IHS' election in December 1995 of
early implementation of Statement of Financing Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. In 1996, consists primarily of (i) a gain of
$34,298,000 from the sale of its pharmacy division, (ii) a loss of
$8,497,000 from its sale of shares in its assisted living services
subsidiary, (iii) a $7,825,000 loss on write-off of accrued management fees
and loans resulting from the IHS' termination of its ten year management
contract with All Seasons, originally entered into during September 1994
and (iv) a $3,519,000 exit cost resulting from the closure of redundant
home healthcare agencies. Because IHS' investment in the Capstone common
stock received in the sale of its pharmacy division had a very small tax
basis, the taxable gain on the sale significantly exceeded the gain for
financial reporting purposes, thereby resulting in a disproportionately
higher income tax provision related to the sale. In 1997, consists
primarily of (i) a gain of $7,580,000 realized on the shares of Capstone
common stock received in the sale of its pharmacy division in the first
quarter, (ii) the write-off of $6,555,000 of accounting, legal and other
costs resulting from the proposed merger transaction with Coram Healthcare
Corporation ("Coram") in
55
<PAGE>
the first quarter, (iii) the payment to Coram of $21,000,000 in connection
with the termination of the proposed merger transaction with Coram, (iv) a
gain of $3,914,000 from the ILC Sale, (v) a loss of $4,750,000 resulting
from termination payments in connection with the acquisition of RoTech
Medical Corporation and (vi) a loss of $112,231,000 resulting from its plan
to dispose of certain non-strategic assets to allow IHS to focus on its
core operations.
(3) In 1995, IHS recorded a loss on extinguishment of debt of $1,647,000
relating primarily to prepayment charges and the write-off of deferred
financing costs. Such loss, reduced by the related income tax effect of
$634,000, is presented for the year ended December 31, 1995 as an
extraordinary loss of $1,013,000. In 1996, IHS recorded a loss on
extinguishment of debt of $2,327,000, relating primarily to the write-off
of deferred financing costs. Such loss, reduced by the related income tax
effect of $896,000, is presented in the statement of operations for the
year ended December 31, 1996 as an extraordinary loss of $1,431,000. In
1997, IHS recorded a loss on extinguishment of debt of $33,692,000,
representing approximately (i) $23,554,000 of cash payments for premium and
consent fees relating to the early extinguishment of $214,868,000 aggregate
principal amount of IHS' senior subordinated notes and (ii) $10,138,000 of
deferred financing costs written off in connection with the early
extinguishment of such debt and IHS' revolving credit facility. Such loss,
reduced by the related income tax effect of $13,140,000, is presented in
the statement of operations for the year ended December 31, 1997 as an
extraordinary loss of $20,552,000.
(4) Represents the write-off, net of income tax benefit, of the unamortized
balance of costs of business process reengineering and information
technology projects.
56
<PAGE>
BUSINESS OF THE COMPANY AND ITS PROPERTIES
The following discussion of the Initial Properties includes a description
of the lessees of the Initial Properties to be acquired by the Company. Unless
otherwise indicated, all information is given as of December 31, 1997. The
financial and operating data relating to the Lyric Properties is presented
herein only for the periods during which such properties were managed by IHS.
IHS is subject to the reporting requirements of the SEC and files annual reports
containing audited financial information and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information
with the SEC. The information provided with respect to IHS is derived, for the
limited purposes of this Prospectus, from filings made with the SEC or has been
furnished to the Company by IHS.
GENERAL
The Company has been formed to invest in a diversified portfolio of
healthcare properties. Initially, the Company will own fee interests in 47
properties in 15 states, primarily in the southern and southeastern United
States. Upon completion of the Formation Transactions, the Company will own 42
skilled nursing facilities with a total of approximately 5,846 beds and five
specialty hospitals with a total of approximately 181 beds. The Company will
purchase 44 of the Initial Properties from IHS and the other three Initial
Properties will be purchased from an unaffiliated third party. The Company
intends to expand its geographic base by making investments in diverse
geographic markets that satisfy the Company's demographic and economic
underwriting criteria. In addition, the Company intends to diversify its
facility operator base by entering into relationships with a number of leading
or emerging healthcare providers throughout the United States.
The Lyric Properties, which are comprised of the 21 IHS Historical
Properties and the 21 HHC Properties, will each be leased to Lyric III on a
triple net basis, pursuant to the Master Lease and subleased to the Facility
Subtenants pursuant to the Facility Subleases. Lyric III will enter into a
management agreement and a franchise agreement with IHS subject to the Master
Lease. All management and franchise fees payable to IHS will be subordinated to
payments under the Master Lease. Monarch will have the benefits of cross default
provisions and effective cross collateralization protection under the Master
Lease by virtue of the availability of the aggregate rent payments of all of the
Facility Subtenants to satisfy the obligations of Lyric III under the Master
Lease. In addition, Lyric III will deposit with the Company as a security
deposit a Letter of Credit in an amount equal to six months of the estimated
rents payable with respect to the Master Lease. Rent payments and the
performance of Lyric III under the Master Lease and the Facility Subtenants
under the Facility Subleases will be guaranteed by Lyric. IHS will manage all of
the Lyric Properties under a management agreement with Lyric.
The Company will acquire the three Trans Health Properties from an
unaffiliated third party. The Trans Health Properties will each be leased,
pursuant to a long-term, triple net lease, to wholly owned subsidiaries of Trans
Health. Rent payments and performance of the Trans Health subsidiaries under the
leases will be unconditionally guaranteed by Trans Health. See "-- Trans Health
Transaction."
The Company will acquire the two Peak Medical Properties from IHS. The Peak
Medical Properties will each be leased, pursuant to a long-term, triple net
lease, to wholly owned subsidiaries of Peak Medical. Rent payments and
performance of the Peak Medical subsidiaries under the leases will be
unconditionally guaranteed by Peak Medical. See "-- Peak Medical Transaction."
SKILLED NURSING FACILITIES
Forty-two of the Initial Properties will be skilled nursing facilities
("SNFs") with a total of approximately 5,846 beds. Services provided in the
skilled nursing facilities include required nursing care, room and board,
special diets, and other services such as rehabilitative therapy, ventilator
therapy and pharmaceuticals which may be specified by a patient's physician who
directs the admission, treatment and discharge of the patient. In addition, the
skilled nursing facilities to be acquired from IHS provide subacute medical and
rehabilitative care services which have traditionally been delivered in the
acute care hospital setting.
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<PAGE>
IHS SKILLED NURSING FACILITIES. Twenty of the skilled nursing facilities to
be purchased by Monarch from IHS, located in nine states with a total of
approximately 2,867 beds, were operated by IHS prior to December 31, 1997. For
the year ended December 31, 1997, these facilities generated aggregate revenues
of $174.7 million and had aggregate EBITDARM (as defined below) of $35.5
million, resulting in an EBITDARM margin of 20.3%. For 1997, the aggregate payor
mix for these facilities was 39.4% Medicare, 30.4% Medicaid and 30.2% private
and other. The aggregate average revenue per patient day for the same period was
$193, ranging from $105 to $447 per facility, and the aggregate occupancy was
86%, ranging from 62% to 98% per facility. For the three months ended March 31,
1998, these facilities generated aggregate revenues of $43.2 million and had
aggregate EBITDARM of $8.5 million, resulting in an EBITDARM margin of 19.6%.
For the three months ended March 31, 1998, the aggregate payor mix for these
facilities was 38.8% Medicare, 32.0% Medicaid and 29.2% private and other. The
aggregate average revenue per patient day for the same period was $193, ranging
from $115 to $377 per facility, and the average occupancy was 87%, ranging from
63% to 97% per facility. Revenues per patient day and occupancy varies by the
services offered by the facility, the competitive and reimbursement environment,
the patient care level and the competitive position of the facility.
HHC SKILLED NURSING FACILITIES. Seventeen of the skilled nursing facilities
to be purchased by Monarch from IHS, located in six states with a total of
approximately 2,452 beds, were acquired by IHS on December 31, 1997. For the
three months ended March 31, 1998, these facilities generated aggregate revenues
of $25.2 million and had aggregate EBITDARM of $4.5 million, resulting in an
EBITDARM margin of 17.8%. For the three month period ended March 31, 1998, the
aggregate payor mix for these facilities was 41.0% Medicare, 37.8% Medicaid and
21.2% private and other. The aggregate average revenue per patient day for the
same period was $132, ranging from $105 to $176 per facility, and the average
occupancy was 87%, ranging from 72% to 96% per facility. On an annualized basis,
which would represent a full year of operations under the management of IHS,
these facilities would have generated aggregate revenues of $100.6 million.
However, annualized revenues may not necessarily be meaningful and should not be
relied upon as indications of future performance.
OTHER SKILLED NURSING FACILITIES. The Company will purchase an additional
two skilled nursing facilities from IHS, located in Idaho with a total of
approximately 224 beds, which will be leased to a subsidiary of Peak Medical
and three skilled nursing facilities from a third party, located in Arkansas
with a total of approximately 303 beds, which will be leased to a subsidiary of
Trans Health. See "-- Peak Medical Transaction" and "-- Trans Health
Transaction."
"EBITDARM" means the sum of: (i) net income exclusive of extraordinary
gains and extraordinary losses; (ii) interest expense, net of interest income,
determined in conformity with GAAP; (iii) all charges for taxes counted in
determining the consolidated net income of such facility for such period; (iv)
depreciation; (v) amortization; (vi) lease payments, payable during such period
by the facilities under all leases and rental agreements, other than capital
leases and healthcare facility leases; (vii) any management fee and franchise
fee used to calculate the facility's net income for the period; and (viii) other
non-cash charges deducted in determining net income. EBITDARM is not a
measurement calculated in accordance with GAAP and should not be considered as
an alternative to operating or net income as an indicator of operating
performance, cash flows as a measure of liquidity or any other GAAP determined
measurement. Certain items excluded from EBITDARM, such as depreciation,
amortization, rent and management and franchise fees are significant components
in understanding and assessing financial performance. Other companies may define
EBITDARM differently, and as a result, such measures may not be comparable to
the definition of EBITDARM used by the Company. The Company has included
information regarding EBITDARM because management believes they are indicative
measures of liquidity and financial performance, and are generally used by
investors to evaluate the operating results of healthcare facilities.
SPECIALTY HOSPITALS
Five of the Initial Properties will be specialty hospitals with a total of
approximately 181 beds. Each of the specialty hospitals, with the exception of
IHS Hospital of Houston, are connected to or adjacent to a skilled nursing
facility included in the Initial Properties and are situated on a single parcel
of land.
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<PAGE>
Specialty hospitals treat patients requiring a higher level of care than skilled
nursing facilities. These facilities receive a higher percentage of net revenues
from the Medicare program. They also tend to have higher revenues per patient
day. The facilities use state-of-the-art technology and a highly trained staff
of licensed and experienced professionals. Patients are medically stable, but
still need extended hospitalization, including 24-hour professional nursing
care, daily visits by a physician, critical care services and rehabilitation
services. Specific services provided in the specialty hospitals include complex
care programs, ventilation weaning and management, wound management programs,
cardiac care programs, pre- and post-surgical rehabilitation and patient/family
teaching programs. These facilities fill a higher level care model in the
post-acute continuum of care.
IHS SPECIALTY HOSPITAL. The Company will purchase one specialty hospital
(IHS Hospital at Houston) with approximately 59 beds, which was operated by IHS
prior to December 31, 1997. This specialty hospital provides medically complex
care such as wound care, ventilation, cardiac care, post surgical rehabilitation
and spinal cord injuries. For the year ended December 31, 1997, this facility
generated revenues of $13.7 million and had EBITDARM of $2.7 million, resulting
in an EBITDARM margin of 19.9%. For 1997, the payor mix was 81.4% Medicare,
0.5%, Medicaid, and 18.1% private and other. The average revenue per patient day
for the same period was $787 and the average occupancy was 81%. For the three
months ended March 31, 1998, this facility generated revenues of $3.2 million
and had EBITDARM of $0.6 million, resulting in an EBITDARM margin of 17.5%. For
the three months ended March 31, 1998, the payor mix was 88.4% Medicare, 3.4%
Medicaid and 8.3% private and other. The aggregate average revenue per patient
day for the same period was $746 and the average occupancy was 82%.
HHC SPECIALTY HOSPITALS. Four of the specialty hospitals to be purchased by
Monarch from IHS, located in two states with a total of approximately 122 beds,
were acquired by IHS on December 31, 1997. For the three months ended March 31,
1998, these facilities generated aggregate revenues of $5.8 million and had
aggregate EBITDARM of $0.6 million, resulting in an EBITDARM margin of 11.0%.
For the three month period ended March 31, 1998, the aggregate payor mix for
these facilities was 86.2% Medicare, 0.0% Medicaid and 13.8% private and other.
The aggregate average revenue per patient day for the same period was $740,
ranging from $605 to $935 per facility, and the average occupancy was 72%,
ranging from 52% to 86% per facility. On an annualized basis, which would
represent a full year of operations under the management of IHS, these
facilities would have generated aggregate revenues of $23.4 million. However,
annualized revenues may not necessarily be meaningful and should not be relied
upon as indications of future performance.
LYRIC TRANSACTION
The Company will acquire the 21 IHS Historical Properties and the 21 HHC
Properties which comprise the Lyric Properties from IHS for a purchase price of
approximately $359.7 million. The Lyric Properties will be leased to Lyric III
pursuant to the Master Lease and subleased to the Facility Subtenants pursuant
to the Facility Subleases. Lyric III is a recently formed Delaware corporation
whose sole assets will be the stock of the Facility Subtenants. The Facility
Subtenants are all former IHS subsidiaries whose stock will be transferred to
Lyric III contemporaneously with the date of the transfer of the Initial
Properties by IHS to the Company.
Lyric is the sole stockholder of Lyric III. Pursuant to the Lyric Guaranty,
Lyric will unconditionally guarantee the performance and payment obligations of
Lyric III and the Facility Subtenants for the term of the Master Lease and the
Facility Subleases. Lyric is owned 50% by IHS and 50% by TFN which is 100%
beneficially owned by Timothy F. Nicholson, a director of IHS. Consolidated
subsidiaries of Lyric currently lease ten healthcare facilities from an
unaffiliated publicly traded healthcare REIT. Lyric unconditionally guarantees
the payment and performance obligations of the Lyric subsidiaries under the
leases. The consolidated financial statements and notes thereto of Lyric for the
three years ended December 31, 1997 and the three months ended March 31, 1998
are included elsewhere in this Prospectus.
All of the Initial Properties leased to Lyric III under the Master Lease
and subleased to the Facility Subtenants under the Facility Subleases will be
managed by IHS Facility Management, Inc., a wholly owned subsidiary of IHS. IHS,
headquartered in Owings Mills, Maryland, is one of the nation's leading
providers of post-acute healthcare services. IHS was founded in 1986. IHS'
post-acute care services
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<PAGE>
include subacute care, skilled nursing facility care, home respiratory care,
home health nursing care, other home care services and contract rehabilitation,
hospice, lithotripsy and diagnostic services. The various geriatric care
facilities currently owned, leased or managed by IHS offer extended care to
elderly and other patients not able to live independently. Since 1993, IHS has
focused on the development of a post-acute care network to provide a
continuation of care to patients following discharge from an acute care
hospital. IHS' post-acute care network currently consists of approximately 2,000
service locations in 48 states and the District of Columbia, including 300
geriatric care facilities in 35 states (excluding facilities currently being
held for sale).
TRANS HEALTH TRANSACTION
The Company has entered into a commitment letter with Trans Health to
finance the acquisition of three skilled nursing facilities located in Arkansas
with a total of approximately 303 beds, comprising the Trans Health Properties
and lease the facilities back to a wholly owned subsidiary of Trans Health (the
"Trans Health Tenant"). The total purchase price of the Trans Health Properties
is approximately $11.5 million. Trans Health was recently formed by several
former executives of HHC and intends to offer post-acute services focusing on
specialty hospitals and developing a continuum of care. Trans Health also
intends to operate outpatient clinics in its market area. Trans Health's
chairman, president and CEO is Anthony Misitano. Prior to forming Trans Health,
Mr. Misitano was president and chief executive officer of Continental Medical
Systems, Inc., a subsidiary of HHC, and senior vice president of HHC.
The Trans Health Tenant will lease the Trans Health Properties from the
Company for an initial term of 11 years with two successive options to renew for
additional periods of five years each, pursuant to a master lease substantially
similar to the Master Lease (the "Trans Health Lease"). The Trans Health Lease
will provide for a minimum base rent equal to the purchase price multiplied by
400 basis points over the current yield on U.S. Treasury debt securities of the
same maturity as the term of the Trans Health Lease (subject to a minimum of
9.56%) with annual base rent increases equal to the change in the CPI, with a
minimum base rent increase of 2% and a maximum base rent increase of 5% (subject
to certain conditions set forth in the lease). Trans Health will guarantee the
payment and performance obligations of the Trans Health Tenant under the Trans
Health Lease. The Trans Health Lease will be a triple net lease that requires
the Trans Health Tenant to pay all operating expenses, taxes, insurance and
other costs associated with the Trans Health Properties, including annual
required capital expenditures equal to at least $250 per bed, the amount to be
increased annually by the change in the CPI. The Trans Health Tenant will be
required to maintain a security deposit with the Company ranging in amount from
three months of base rent to up to nine months of base rent, the size of the
security deposit depending on the Trans Health Properties' attaining certain
financial covenants. The Trans Health Lease will provide the Company with broad
indemnification protection for past or present liabilities at the Trans Health
Properties.
PEAK MEDICAL TRANSACTION
The Company will also acquire from IHS two skilled nursing facilities
located in Idaho with a total of approximately 224 beds comprising the Peak
Medical Properties and lease the facilities back to a wholly owned subsidiary of
Peak Medical (the "Peak Medical Tenant"). The total purchase price for the Peak
Medical Properties will be approximately $11.3 million. The Peak Medical
Properties will be acquired subject to existing leases with the Peak Medical
Tenant. Peak Medical was formed by former executive officers of HHC. Peak
Medical will acquire and utilize skilled nursing facilities to develop community
and regionally concentrated post-acute healthcare networks. At the time the
Company acquires the Peak Medical Properties, Peak Medical will be operating 10
skilled nursing facilities with a total of 1,176 beds and one assisted living
facility with a total of 250 beds. The founding stockholders have over 65 years
of healthcare experience with strength in the long-term care and assisted living
segments. Peak Medical's president and chief executive officer is Charles H.
Gonzales who last served as a director and senior vice president of subsidiary
operations for HHC.
The Peak Medical Tenant currently leases the Peak Medical Properties for an
initial term of 12 years, with two successive options to renew for additional
periods of 10 years each. The leases are substantially similar to the Master
Lease (the "Peak Medical Leases"). The Peak Medical Leases pro-
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vide for a minimum base rent equal to the purchase price multiplied by 9.4%,
with annual base rent increases equal to the change in the CPI, with a minimum
base rent increase of 2% and a maximum base rent increase of 5% (subject to
certain conditions set forth in the leases). Peak Medical guarantees the payment
and performance obligations of the Peak Medical Tenant under the Peak Medical
Leases. The Peak Medical Leases are triple net leases that require the Peak
Medical Tenant to pay all operating expenses, taxes, insurance and other costs
associated with the Peak Medical Properties, including annual required capital
expenditures equal to at least $300 per bed, the amount to be increased annually
by the change in the CPI. The Peak Medical Tenant will be required to maintain a
security deposit with the Company equal to a maximum of nine months of base
rent, with the amount to be determined every six months based upon a cash flow
coverage ratio. Pursuant to the Peak Medical Leases, the Peak Medical Tenant
will provide the Company with broad indemnification protection for past or
present liabilities at the Peak Medical Properties including, but not limited
to, any accidents occurring on or about the leased property; the use, condition
or repair of the leased property; the Peak Medical Tenant's failure to perform
or comply with the terms of the leases; the Peak Medical Tenant's breach of any
representation or warranty in the leases; certain employment related claims; and
certain other claims and obligations.
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THE INITIAL PROPERTIES
The table below sets forth certain information regarding the Initial
Properties. The Initial Properties are comprised of 42 skilled nursing
facilities with 5,846 beds and five specialty hospitals with 181 beds. The
aggregate purchase price of the Initial Properties is approximately $382.4
million. The Company has a purchase option to acquire 10 additional skilled
nursing facilities from IHS for an aggregate purchase price of approximately
$104.7 million. See "Selected Historical and Pro Forma Financial Information"
for a quantification of the base rents for the Initial Properties.
<TABLE>
<CAPTION>
YEAR NUMBER
BUILT/ OF 1998
PROPERTY (LOCATION) RENOVATED BEDS(1) OCCUPANCY(2)
- ------------------------------------------------------ ----------- --------- --------------
<S> <C> <C> <C>
SKILLED NURSING FACILITIES (FORTY-TWO):
IHS HISTORICAL PROPERTIES (4)
IHS of Colorado Springs (Colorado Springs, CO). 1986 155 71%
IHS of Brandon (Brandon, FL) ......................... 1990 120 95
IHS at Central Park Village (Orlando, FL) ............ 1984 120 82
IHS at Vero Beach (Vero Beach, FL) ................... 1980 110 92
IHS of Florida at Auburndale (Auburndale, FL)......... 1983 120 95
IHS of Florida at Clearwater (Clearwater, FL) ........ 1983 150 93
IHS of Florida at Fort Pierce (Fort Pierce, FL) ...... 1980 107 92
IHS of Atlanta at Briarcliff Haven (Atlanta, GA). 1972 128 91
IHS of Lakeland at Oakbridge (Lakeland, FL) .......... 1991 120 97
IHS of Sarasota at Beneva (Sarasota, FL) ............. 1982 120 95
IHS of Iowa at Des Moines (Des Moines, IA) ........... 1965 93 78
IHS at Brentwood (Burbank, IL) ....................... 1962 165 76
IHS of St. Louis at Big Bend Woods
(Valley Park, MO) ................................... 1958 176 71
IHS of New Hampshire at Manchester
(Manchester, NH) .................................... 1978 68 86
IHS at Whitemarsh (Whitemarsh, PA) ................... 1971 247 95
IHS of Pennsylvania at Broomall (Broomall, PA). 1958 306 95
IHS of Amarillo (Amarillo, TX) (5) ................... 1985 153 63
IHS of Texoma at Sherman (Sherman, TX) ............... 1980 179 84
IHS of Florida West Palm Beach (West Palm
Beach, FL) .......................................... 1993 120 90
Vintage Health Care Center (Denton, TX) .............. 1985 110 97
----- --
SUBTOTAL/WEIGHTED AVERAGE .......................... 2,867 87
----- --
HHC PROPERTIES (6)
Horizon Healthcare & Specialty Center
(Daytona Beach, FL) ................................. 1967 113 89
Meadowview Care Center (Seville, OH) ................. 1980 100 92
Washington Square Nursing Center (Warren, OH) 1975 96 91
Midwest City Nursing Center (Midwest City, OK). 1987 106 96
Lynwood Manor (Adrian, MI) ........................... 1969 99 92
Ruidoso Care Center (Ruidoso, NM) .................... 1975 85 95
Doctors Healthcare Center (Dallas, TX) ............... 1964 325 72
Harbor View Care Center (Corpus Christi, TX) ......... 1968 116 88
Heritage Estates (Ft. Worth, TX) ..................... 1977 149 93
Heritage Gardens (Carrollton, TX) .................... 1973 152 94
Heritage Manor Longview (Longview, TX) ............... 1979 150 77
Heritage Manor Plano (Plano, TX) ..................... 1976 188 84
Heritage Place of Grand Prairie (Grand Prairie, TX) 1985 164 90
Horizon Healthcare-El Paso (El Paso, TX) ............. 1970 182 91
Longmeadow Care Center (Justin, TX) .................. 1988 120 88
Parkwood Place (Lufkin, TX) .......................... 1919/1985 157 86
Silver Springs Nursing and Rehabilitation
Center (Houston, TX) ................................ 1974 150 83
----- --
SUBTOTAL/WEIGHTED AVERAGE .......................... 2,452 87
----- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INITIAL
PURCHASE PERCENTAGE LEASE
PRICE OF INITIAL TERM
PROPERTY (LOCATION) ($ IN THOUSANDS) PROPERTIES (YEARS)(3)
- ------------------------------------------------------ ------------------ ------------ -----------
<S> <C> <C> <C>
SKILLED NURSING FACILITIES (FORTY-TWO):
IHS HISTORICAL PROPERTIES (4)
IHS of Colorado Springs (Colorado Springs, CO). $ 9,129 2.4% 9
IHS of Brandon (Brandon, FL) ......................... 9,563 2.5 10
IHS at Central Park Village (Orlando, FL) ............ 7,297 1.9 10
IHS at Vero Beach (Vero Beach, FL) ................... 7,821 2.0 10
IHS of Florida at Auburndale (Auburndale, FL)......... 8,535 2.2 11
IHS of Florida at Clearwater (Clearwater, FL) ........ 11,482 3.0 10
IHS of Florida at Fort Pierce (Fort Pierce, FL) ...... 5,922 1.5 9
IHS of Atlanta at Briarcliff Haven (Atlanta, GA). 9,944 2.6 13
IHS of Lakeland at Oakbridge (Lakeland, FL) .......... 9,843 2.6 11
IHS of Sarasota at Beneva (Sarasota, FL) ............. 8,939 2.3 13
IHS of Iowa at Des Moines (Des Moines, IA) ........... 3,787 1.0 11
IHS at Brentwood (Burbank, IL) ....................... 43,692 11.4 11
IHS of St. Louis at Big Bend Woods
(Valley Park, MO) ................................... 6,713 1.9 10
IHS of New Hampshire at Manchester
(Manchester, NH) .................................... 6,569 1.7 9
IHS at Whitemarsh (Whitemarsh, PA) ................... 21,192 5.5 12
IHS of Pennsylvania at Broomall (Broomall, PA). 35,923 9.4 11
IHS of Amarillo (Amarillo, TX) (5) ................... 9,720 2.5 13
IHS of Texoma at Sherman (Sherman, TX) ............... 8,358 2.2 13
IHS of Florida West Palm Beach (West Palm
Beach, FL) .......................................... 13,200 3.5 13
Vintage Health Care Center (Denton, TX) .............. 4,839 1.3 12
-------- ---- --
SUBTOTAL/WEIGHTED AVERAGE .......................... 242,468 63.4 11.2
-------- ---- ----
HHC PROPERTIES (6)
Horizon Healthcare & Specialty Center
(Daytona Beach, FL) ................................. 4,385 1.1 9
Meadowview Care Center (Seville, OH) ................. 2,923 0.8 9
Washington Square Nursing Center (Warren, OH) 4,038 1.1 10
Midwest City Nursing Center (Midwest City, OK). 3,921 1.0 11
Lynwood Manor (Adrian, MI) ........................... 6,008 1.6 12
Ruidoso Care Center (Ruidoso, NM) .................... 2,657 0.7 10
Doctors Healthcare Center (Dallas, TX) ............... 7,537 2.0 11
Harbor View Care Center (Corpus Christi, TX) ......... 3,963 1.0 13
Heritage Estates (Ft. Worth, TX) ..................... 6,889 1.8 13
Heritage Gardens (Carrollton, TX) .................... 6,856 1.8 12
Heritage Manor Longview (Longview, TX) ............... 8,315 2.2 10
Heritage Manor Plano (Plano, TX) ..................... 12,676 3.3 9
Heritage Place of Grand Prairie (Grand Prairie, TX) 5,107 1.3 12
Horizon Healthcare-El Paso (El Paso, TX) ............. 3,055 0.8 12
Longmeadow Care Center (Justin, TX) .................. 2,677 0.7 13
Parkwood Place (Lufkin, TX) .......................... 3,519 0.9 12
Silver Springs Nursing and Rehabilitation
Center (Houston, TX) ................................ 7,451 1.9 13
-------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE .......................... 91,977 24.0 11.1
-------- ---- ----
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
YEAR NUMBER
BUILT/ OF 1998
PROPERTY (LOCATION) RENOVATED BEDS(1) OCCUPANCY(2)
- ----------------------------------------------------- ----------- --------- --------------
<S> <C> <C> <C>
PEAK MEDICAL PROPERTIES (7)
Idaho Falls Care Center (Idaho Falls, ID) ........... 1988 108 93%
Twin Falls Care Center (Twin Falls, ID) ............. 1987 116 72
--- --
SUBTOTAL/WEIGHTED AVERAGE ......................... 224 82
--- --
TRANS HEALTH PROPERTIES (8)
Fulton County Nursing and Rehab Center
(Salem, AR) ........................................ 1963/1991 125 73
Lakeland Lodge Nursing Center
(Heber Springs, AR) ................................ 1962 102 67
Pioneer Nursing and Rehab Center
(Melbourne, AR) .................................... 1996 76 98
--- --
SUBTOTAL/WEIGHTED AVERAGE ......................... 303 77
--- --
TOTAL/WEIGHTED AVERAGE SKILLED NURSING
FACILITIES ....................................... 5,846 86
----- --
SPECIALTY HOSPITALS (FIVE):
IHS HISTORICAL PROPERTIES (4)
IHS Hospital at Houston (Houston, TX) ............... 1963 59 82
HHC PROPERTIES (6)
HSH-Midwest City (Midwest City, OK) ................. 1987 30 81
HSH-El Paso (El Paso, TX) ........................... 1970 31 86
HSH-Plano (Plano Specialty Hospital) (Plano, TX) 1976 30 52
HSH-Corpus Christi (Corpus Christi, TX) ............. 1968 31 68
SUBTOTAL/WEIGHTED AVERAGE ......................... 122 72
----- --
TOTAL/WEIGHTED AVERAGE SPECIALTY
HOSPITALS ....................................... 181 75
----- --
TOTAL INITIAL PROPERTIES ......................... 6,027 86%
===== ==
<CAPTION>
INITIAL
PURCHASE PERCENTAGE LEASE
PRICE OF INITIAL TERM
PROPERTY (LOCATION) ($ IN THOUSANDS) PROPERTIES (YEARS)(3)
- ----------------------------------------------------- ------------------ ------------ -----------
<S> <C> <C> <C>
PEAK MEDICAL PROPERTIES (7)
Idaho Falls Care Center (Idaho Falls, ID) ........... $ 6,500 1.7% 12
Twin Falls Care Center (Twin Falls, ID) ............. 4,800 1.3 12
-------- ---- --
SUBTOTAL/WEIGHTED AVERAGE ......................... 11,300 3.0 12
-------- ---- --
TRANS HEALTH PROPERTIES (8)
Fulton County Nursing and Rehab Center
(Salem, AR) ........................................ 3,343 0.9 11
Lakeland Lodge Nursing Center
(Heber Springs, AR) ................................ 2,957 0.8 11
Pioneer Nursing and Rehab Center
(Melbourne, AR) .................................... 5,175 1.3 11
-------- ---- --
SUBTOTAL/WEIGHTED AVERAGE ......................... 11,475 3.0 11
-------- ---- --
TOTAL/WEIGHTED AVERAGE SKILLED NURSING
FACILITIES ....................................... 357,220 93.4 11.2
-------- ---- ----
SPECIALTY HOSPITALS (FIVE):
IHS HISTORICAL PROPERTIES (4)
IHS Hospital at Houston (Houston, TX) ............... 19,679 5.1 9
-------- ---- ----
HHC PROPERTIES (6)
HSH-Midwest City (Midwest City, OK) ................. 354 0.1 11
HSH-El Paso (El Paso, TX) ........................... 1,227 0.3 12
HSH-Plano (Plano Specialty Hospital) (Plano, TX) 2,255 0.6 9
HSH-Corpus Christi (Corpus Christi, TX) ............. 1,704 0.5 13
-------- ---- ----
SUBTOTAL/WEIGHTED AVERAGE ......................... 5,540 1.5 11.0
-------- ---- ----
TOTAL/WEIGHTED AVERAGE SPECIALTY
HOSPITALS ....................................... 25,219 6.6 9.4
-------- ---- ----
TOTAL INITIAL PROPERTIES ......................... $382,439 100% 11.1
======== ==== ====
</TABLE>
- ----------
(1) Based on the number of private and semi-private beds currently in use which
may be lower than the number of licensed beds.
(2) Based on weighted average occupancy for the 3 months ended March 31, 1998.
(3) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering and excludes all renewal options.
(4) "IHS Historical Properties" means the Initial Properties which have been
owned and managed by IHS for more than one year. All of the IHS Historical
Properties will be leased to Lyric III, pursuant to the Master Lease, and
subleased to wholly owned subsidiaries of Lyric III.
(5) Facility also includes a specialty hospital consisting of 33 beds.
(6) "HHC Properties" means the Initial Properties which were owned and managed
by Horizon/CMS Healthcare Corporation, ("HHC") prior to December 31, 1997
and were acquired by IHS effective December 31, 1997, and will be leased to
Lyric III, pursuant to the Master Lease and subleased to wholly owned
subsidiaries of Lyric III.
(7) "Peak Medical Properties" means the Initial Properties which were owned and
managed by HHC prior to December 31, 1997, and were acquired by IHS
effective December 31, 1997, and will be leased to and managed by Peak
Medical of Idaho, Inc., ("Peak Medical Tenant") a wholly owned subsidiary
of Peak Medical Corporation ("Peak Medical").
(8) "Trans Health Properties" means the Initial Properties to be acquired from
an unaffiliated third party. The Trans Health Properties will be leased to
a subsidiary of Trans Healthcare, Inc. ("Trans Health").
63
<PAGE>
OPTION PROPERTIES
The Company will have options under the Purchase Option Agreement to
acquire up to 10 additional skilled nursing facilities with 1,683 beds from IHS
with an aggregate purchase price of approximately $104.7 million. One of the
skilled nursing facilities contains a subacute care unit, with 183 beds,
designated for treating patients needing a higher level of care. For the three
months ended March 31, 1998, the 10 skilled nursing facilities had a weighted
average occupancy of 90%, while individual facilities ranged from 64% to 97%.
Weighted aggregate revenue per patient day was $147, while individual facilities
ranged from $104 to $385. The aggregate payor mix was 39.0% Medicare, 38.2%
Medicaid and 22.8% private and other.
The Purchase Option Agreement will have an initial term of two years, with
the Company granted three successive renewal options of one year each. For the
first six months of the term of the Purchase Option Agreement, each facility
will have a fixed purchase price described in the Purchase Option Agreement,
which purchase price was based on current appraisals. For the remaining term of
the Purchase Option Agreement, including renewals, the purchase price will be
the greater of the fixed price or a multiple of the facility's EBITDARM for the
prior 12 months. The Company will pay non-refundable purchase option deposits to
IHS in the amount of 0.5% of an applicable facility's purchase price for each
facility as to which a renewal option is exercised, with the amount of such
deposits to be credited against the purchase price for any facility for which
the Company subsequently exercises its option. Each exercise of the Purchase
Option Agreement will be approved by a majority of the Company's Disinterested
Directors.
The following table sets forth certain information regarding the properties
included in the Purchase Option Agreement between the Company and IHS. It is
expected that should the Company acquire any of the properties under the
Purchase Option Agreement, they will be leased to Lyric III pursuant to the
Master Lease, subleased to each of the current IHS subsidiary owners pursuant to
subleases substantially similar to the Facility Subleases and managed by IHS.
The initial annual base rent for any of the properties purchased by the Company
would be equal to the purchase price multiplied by the greater of: (i) 10.0% or
(ii) the average yield on the 10-year U.S. Treasury Note over the 20 trading
days preceding the date of purchase plus 450 basis points. The base rent would
be subject to annual increases equal to the lesser of two times the increase in
the CPI or 3%, subject to certain conditions. The Operating Partnership will
hold a fee interest in any properties acquired in the future under the Purchase
Option Agreement.
There can be no assurance that the Company will exercise the purchase
options for all or any of the properties described below. In addition, if the
Company does exercise its purchase options, it is uncertain as to when such
option may be exercised and what method of financing it will use or if the
Company will be able to obtain financing on reasonable terms, if at all.
Finally, based on the floating nature of the option purchase price, the final
purchase price for any property may differ substantially from the purchase
prices listed below.
<TABLE>
<CAPTION>
YEAR BUILT/ NUMBER OF PURCHASE PRICE
PROPERTY LOCATION RENOVATED BEDS (1) OCCUPANCY(2) (IN THOUSANDS)
- ---------------------------- ---------------- ------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING FACILITIES:
Henderson SNF #1 Henderson, NV 1985/1991 140 97% $ 6,198
Henderson SNF #2 Henderson, NV 1985/1991 124 97 5,490
Heritage Forest Lane Dallas, TX 1975 120 93 4,357
Heritage Manor Canton Canton, TX 1974 110 96 7,644
Heritage Oaks Arlington, TX 1968 204 96 13,868
Heritage Place Mesquite, TX 1972 149 94 9,635
Heritage Village Richardson, TX 1978 280 92 12,559
IHS at Greenbriar Miami, FL 1968 203 64 23,342
Mountain View Place El Paso, TX 1969 193 90 8,708
Winterhaven Nursing Home Houston, TX 1969 160 90 12,925
--- -- --------
TOTAL/WEIGHTED AVERAGE 1,683 90% $104,726
===== == ========
</TABLE>
- ----------
(1) Based on the number of private and semi-private beds available as of
December 31, 1997, such number of beds may be lower than the number of
licensed beds.
(2) Based on total weighted average occupancy for the 3 months ended March 31,
1998.
64
<PAGE>
ADDITIONAL INFORMATION REGARDING DESCRIPTION OF SIGNIFICANT INITIAL PROPERTIES
Set forth below is a description of the four largest Initial Properties
(based on the facility purchase price).
INTEGRATED HEALTH SERVICES AT BRENTWOOD ("BRENTWOOD"). Brentwood is a
two-story, 44,356 square foot skilled nursing facility comprised of two
buildings located on 1.86 acres of land in Burbank, Illinois. This facility was
built in 1962 and has 165 beds, including a 101-bed sub-acute unit. Special
medical equipment such as built-in oxygen and suction is provided for the
sub-acute beds. The facility has five patient dining rooms and a gymnasium for
rehabilitation services. For the year ended December 31, 1997, the payor mix for
Brentwood was approximately 35% Medicare, 0% Medicaid and 65% private pay and
other. The Company will acquire Brentwood from IHS for approximately $43.7
million in cash. Average occupancy and average revenue per patient day of
Brentwood is set forth in the table below:
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE
OCCUPANCY PER PATIENT DAY
----------- ----------------
<S> <C> <C>
Three months ended March 31, 1998 ......... 76% $377
Years ended December 31,
1997 ..................................... 69 447
1996 ..................................... 67 411
1995 ..................................... 72 420
1994 ..................................... 72 447
1993 ..................................... 70 387
</TABLE>
The principal referral sources for Brentwood include six area hospitals and
various managed care companies. The Brentwood facility competes for patients
with several other skilled nursing and sub-acute care facilities in its market
area.
Brentwood provides long-term care services for a mix of residents,
including those who are alert and need minimal assistance, those whose mental
state is considered lower than alert and those with early Alzheimer's. The
subacute beds are for oncology, cardiac or other critically ill patients, for
whom the facility can provide a variety of treatments, including chemotherapy,
tracheotomy/ventilation weaning, peritoneal dialysis, wound care, cardiac
monitoring, infectious disease management, diabetic monitoring and teaching and
neurological disorder services.
The Company will lease Brentwood to Lyric III pursuant to the Master Lease
and Lyric III will sublease Brentwood to a wholly owned subsidiary. The
undepreciated tax basis of Brentwood for federal income tax purposes will be
$43.7 million as of the date of purchase. Depreciation and amortization will be
computed on the straight-line method over 27.5 years. The current real estate
tax rate for Brentwood is $19.81 per $100 of assessed value. The total annual
tax for Brentwood at this rate for the 1997-1998 tax year is $258,241 (at a
taxable assessed value of $1,303,400). For a description of the terms of the
Master Lease see "Key Agreements -- Master Lease."
INTEGRATED HEALTH SERVICES OF PENNSYLVANIA AT BROOMALL ("BROOMALL").
Broomall is a three-story, 76,772 square foot skilled nursing facility comprised
of two buildings located on 5 acres of land in Broomall, Pennsylvania. This
facility was built in 1958 and has 306 beds, including a 28-bed subacute unit.
Special medical equipment such as built-in oxygen and suction is provided for
the subacute beds. For the year ended December 31, 1997, the payor mix for
Broomall was approximately 24% Medicare, 57% Medicaid and 19% private pay and
other. The Company will acquire Broomall from IHS for approximately $35.9
million in cash. Average occupancy and average revenue per patient day of
Broomall is set forth in the table below:
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE
OCCUPANCY PER PATIENT DAY
----------- ----------------
<S> <C> <C>
Three months ended March 31, 1998 ......... 95% $171
Years ended December 31,
1997 ..................................... 93 170
1996 ..................................... 93 155
1995 ..................................... 94 142
1994 ..................................... 94 124
1993 ..................................... 87 112
</TABLE>
65
<PAGE>
Referral sources for Broomall include 14 area hospitals, various home care
agencies, adult day care centers, churches and community organizations. Broomall
competes for patients with several other skilled nursing facilities in its
market area.
Broomall provides long-term care services for a mix of residents, including
those who are alert and need minimal assistance, those whose mental state is
considered lower than alert and those with early Alzheimer's. The subacute beds
are for oncology or critically ill patients, for whom the facility can provide a
variety of treatments, including chemotherapy, blood transfusions, IV antibiotic
therapy, wound care, subacute rehabilitation services, respiratory therapy, pain
management and psychiatric services.
The Company will lease Broomall to Lyric III pursuant to the Master Lease
and Lyric III will sublease Broomall to a wholly owned subsidiary. The
undepreciated tax basis of Broomall for federal income tax purposes will be
$35.9 million as of the date of purchase. Depreciation and amortization will be
computed on the straight-line method over 27.5 years. The current real estate
tax rate for Broomall is $591.54 per $1,000 of assessed value. The total annual
tax for Broomall at this rate for the 1997-1998 tax year is $202,898 (at a
taxable assessed value of $343,000). For a description of the terms of the
Master Lease see "Key Agreements -- Master Lease."
INTEGRATED HEALTH SERVICES AT WHITEMARSH ("WHITEMARSH"). Whitemarsh is a
2-story, 77,758 square foot skilled nursing facility comprised of two buildings
located on 5 acres of land in Whitemarsh, Pennsylvania. This facility was built
in 1971 and has 247 beds, including an Alzheimer's wing with 44 beds. For the
year ended December 31, 1997, the payor mix for Whitemarsh was approximately 11%
Medicare, 69% Medicaid and 20% private pay and other. The Company will acquire
Whitemarsh from IHS for approximately $21.2 million in cash. Average occupancy
and average revenue per patient day of Whitemarsh is set forth in the table
below:
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE
OCCUPANCY PER PATIENT DAY
----------- ----------------
<S> <C> <C>
Three months ended March 31, 1998 ......... 95% $146
Years ended December 31,
1997 ..................................... 97 141
1996 ..................................... 96 126
1995 ..................................... 94 136
1994 ..................................... 93 122
1993 ..................................... 94 109
</TABLE>
Referral sources for Whitemarsh include six area hospitals, various
assisted living and personal care facilities and the Alzheimer's unit of three
psychiatric hospitals. The Whitemarsh facility competes for patients with
several other skilled nursing and assisted living facilities in its market area
including three other facilities operated by IHS and not owned by the Company.
Whitemarsh provides long-term care services for a mix of residents,
including those who are alert and need minimal assistance, those whose mental
state is considered lower than alert and those with early Alzheimer's. These
services include physical therapy, occupational therapy, speech therapies,
respiratory therapies and restorative nursing programs.
The Company will lease Whitemarsh to Lyric III pursuant to the Master Lease
and Lyric III will sublease Whitemarsh to a wholly owned subsidiary. The
undepreciated tax basis of Whitemarsh for federal income tax purposes will be
$21.2 million as of the date of purchase. Depreciation and amortization will be
computed on the straight-line method over 27.5 years. The current real estate
tax rate for Whitemarsh is $364.21 per $1,000 of assessed value. The total
annual tax for Whitemarsh at this rate for the 1997-1998 tax year is $123,358
(at a taxable assessed value of $338,700). For a description of the terms of the
Master Lease see "Key Agreements -- Master Lease."
66
<PAGE>
INTEGRATED HEALTH SERVICES HOSPITAL OF HOUSTON ("HOUSTON HOSPITAL").
Houston Hospital is a single story, 38,000 square foot specialty hospital
located on 10 acres of land in Houston, Texas. This facility was built in 1963
and has 59 beds. For the year ended December 31, 1997, the payor mix for Houston
Hospital was approximately 81% Medicare, 1% Medicaid and 18% private pay and
other. The Company will acquire Houston Hospital from IHS for approximately
$19.7 million in cash. Average occupancy and average revenue per patient day of
Houston Hospital is set forth in the table below:
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE
OCCUPANCY PER PATIENT DAY
----------- ----------------
<S> <C> <C>
Three months ended March 31, 1998 ......... 82% $746
Years ended December 31,
1997 ..................................... 81 787
1996 ..................................... 81 791
1995 ..................................... 54 791
1994 ..................................... 27 99
1993 ..................................... -- --
</TABLE>
The principal referral sources for Houston Hospital are five area
hospitals. Houston Hospital competes for patients with several other specialty
hospitals in its market area.
Houston Hospital provides specialized medically complex care services for
patients, including ventilation weaning and management, wound care, airway
management, cardiopulmonary rehabilitation, cardiac care, pre- and post-surgical
rehabilitation, care for head and spinal cord injuries and HIV/AIDS management.
The Company will lease Houston Hospital to Lyric III pursuant to the Master
Lease and Lyric III will sublease Houston Hospital to a wholly owned subsidiary.
The undepreciated tax basis of Houston Hospital for federal income tax purposes
will be $19.7 million as of the date of purchase. Depreciation and amortization
will be computed on the straight-line method over 27.5 years. The current real
estate tax rate for Houston Hospital is $2.76 per $100 of assessed value. The
total annual tax for Houston Hospital at this rate for the 1997-1998 tax year is
$101,294 (at a taxable assessed value of $3,666,120). For a description of the
terms of the Master Lease see "Key Agreements -- Master Lease."
POTENTIAL INVESTMENTS
The Company is currently engaged in discussions or negotiations with
several healthcare facility operators with respect to possible acquisition or
financing transactions. The Company has entered into relationship commitment
letters with four healthcare facility operators, which in the aggregate
represent conditional commitments for up to approximately $200 million for the
acquisition from and lease back to the operator of skilled nursing, sub-acute
care, senior housing or other long-term care facilities to be identified by such
operator in the future.
In addition, the Company has entered into conditional commitment letters
for the following transactions: (i) the acquisition of a 122 bed skilled nursing
facility located in Granite City, Illinois for a price of approximately $7.5
million payable in cash or Units in the Operating Partnership and the lease of
such facility to the operator; (ii) the acquisition of an approximately 300 bed
continuing care retirement center located in High Point, North Carolina for a
purchase price of approximately $11.0 million in cash and the lease of such
facility to the operator; and (iii) the provision of second mortgage financing
in the amount of approximately $1.5 million for a 141 bed assisted living and
Alzheimer's facility to be constructed in Rancho Mirage, California.
The consummation of any potential acquisition or financing transaction
described above, including transactions under the commitment letters which the
Company has entered into, are subject to various significant conditions,
including, but not limited to, the identification of facilities to be acquired
or financed, the Company's approval of the underwriting of any facility to be
acquired or financed, completion of due diligence, negotiation of terms for
specific facilities and execution of definitive agreements. Accordingly, there
can be no assurance that any such potential transactions will be completed, or,
if completed, what the terms or timing of any such transactions will be.
67
<PAGE>
RIGHT OF FIRST OFFER AGREEMENT
The Company and IHS will enter into the Right of First Offer Agreement for
a period of four years from the closing of the Offering (subject to automatic
annual renewals thereafter unless terminated by either party), pursuant to which
IHS must offer the Company the opportunity to purchase or finance each IHS
facility to be sold and leased back or financed in a transaction of the type
normally engaged in by the Company. The Company will be offered the opportunity
to acquire or finance the IHS facility on terms and conditions that, should the
Company decline to pursue the proposed transaction, must be offered to any other
third party by IHS. If IHS is only able to sell and leaseback or finance the IHS
facility on better terms than previously offered to the Company, then the
Company must again be offered those new terms and conditions for consideration
prior to IHS finalizing a transaction with the third party. It is currently
anticipated that some of the IHS facilities that may be acquired by the Company
under the Right of First Offer Agreement may involve Lyric and its consolidated
subsidiaries as lessee and IHS as manager. IHS will also agree not to construct
any competing healthcare facilities within 10 miles of any healthcare facility
owned by the Company. The Company believes that the Right of First Offer
Agreement will provide it with opportunities to acquire and finance healthcare
facilities that complement its existing portfolio of facilities.
GOVERNMENT REGULATION
GOVERNMENT REGULATION OF THE HEALTHCARE INDUSTRY. The long-term care
segment of the healthcare industry is highly regulated. Operators of healthcare
facilities of the kind to be acquired as the Initial Properties and expected to
be acquired by the Company in the future are subject to federal, state and local
laws relating to the delivery and adequacy of medical and nursing care,
nutrition, condition of the physical facility, residents' rights, distribution
of pharmaceuticals, equipment, personnel, operating policies, fire prevention,
rate-setting, compliance with building and safety codes and environmental,
health and safety issues. Operators of healthcare facilities are also subject to
periodic inspection by governmental and other authorities to assure continued
compliance with various standards, the continued licensing of the facility under
state law, certification under the Medicare and Medicaid programs and the
ability to participate in other third party payment programs. Many states have
adopted Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of healthcare facilities
and determine that a need exists for new facilities, certain bed additions, new
services and capital expenditures or other changes prior to new facilities being
established, beds and/or new services being added or capital expenditures being
undertaken. The failure to obtain or maintain any required regulatory approvals
or licenses could prevent a healthcare facility operator from offering services
or adversely affect its ability to receive reimbursement for services and could
result in fines, the denial of reimbursement, suspension of admission of new
patients, suspension or decertification from the Medicaid or Medicare programs,
restrictions on the ability to acquire new facilities or expand existing
facilities and, in extreme cases, revocation of the facility's license, closure
of a facility and civil, monetary and criminal penalties. Separate civil law
claims brought by the states against healthcare facilities for alleged threats
to healthcare facility resident health and safety, alleged abuse or neglect, or
consumer-type actions for alleged violations of regulatory standards interpreted
to be deceptive trade practices could also result in fines or damage awards
against any lessee. Healthcare facilities that are certified under the Medicare
and/or Medicaid programs must satisfy conditions of participation to qualify for
certification, recertification, and reimbursement under such programs. Any
suspension or revocation of a required license or failure to continue to satisfy
the conditions of participation could result in suspension or termination of
certification under the Medicare and Medicaid programs. There can be no
assurance that lessees of healthcare facilities owned by the Company, or the
provision of services and supplies by such lessees or managers retained by such
lessees, will meet or continue to meet the requirements for participation in the
Medicaid or Medicare programs (if applicable) or the requirements of state
licensing authorities or that regulatory authorities will not adopt changes or
new interpretations of existing regulations that would adversely affect the
ability of lessees or borrowers to make rental or loan payments to the Company.
Federal and state anti-remuneration laws and regulations, such as the
Medicare/Medicaid Anti-Kickback Law, govern certain financial arrangements among
healthcare providers and others who may be in a position to refer or recommend
patients to such providers. Under the Medicare and Medicaid programs, the
federal and state governments enforce the federal Anti-Kickback Law which
prohibits the
68
<PAGE>
offer, payment, solicitation or receipt of any remuneration, directly or
indirectly, overtly or covertly, in cash or in kind to induce or in exchange
for: (i) the referral of patients covered by the programs; or (ii) the leasing,
purchasing, ordering or arranging for or recommending the lease, purchase or
order of any item, good, facility or service covered by the programs. Pursuant
to the Anti-Kickback Law, the federal government has announced a policy of
increased scrutiny of joint ventures and other transactions among healthcare
providers in an effort to reduce potential fraud and abuse relating to Medicare
costs. The applicability of these provisions to many business transactions in
the healthcare industry has not yet been subject to judicial and regulatory
interpretation. Penalties for violation of the Anti-Kickback Law include civil
and criminal sanctions and exclusion from the Medicare and Medicaid programs.
Significant prohibitions against physician and other practitioners
referrals have been enacted by Congress. These prohibitions are commonly known
as the "Stark Law." As originally enacted, the Stark Law restricted physician
and other practitioners investments in, and referrals to, clinical laboratory
services provided after January 1, 1992 to Medicare patients. Effective January
1, 1995, the Stark Law was expanded to include, among other restricted services:
(i) physical/occupational therapy; (ii) radiology services and supplies,
including magnetic resonance imaging, computerized axial tomography scans,
radiation therapy and ultrasound scans; (iii) durable medical equipment and
supplies; (iv) prosthetics, orthotics, and prosthetic devices and supplies; (v)
home health services and supplies; and (vi) outpatient prescription drugs.
Unless excepted, a physician or certain other practitioners may not make a
referral of a Medicaid or Medicare patient to any entity with whom he or she has
a financial relationship (either investment and/or compensation) for the above
enumerated services, and any entity which accepts such a prohibited referral may
not bill for the service provided pursuant to the referral. Sanctions for
violation of the Stark Law include civil, monetary and criminal penalties and
exclusion from the Medicare and Medicaid programs.
In an effort to combat healthcare fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996. HIPAA, among other things, amends existing crimes and criminal
penalties for Medicare fraud and enacts new federal healthcare fraud crimes.
HIPAA also expands the Anti-Kickback Law to apply to all federal healthcare
programs, defined to include any plan or program that provides health benefits
through insurance that is funded by the federal government. Under HIPAA, the
Secretary of Health and Human Services may exclude from the Medicare program any
individual who has a direct or indirect ownership or control interest in a
healthcare entity that has been convicted of a healthcare fraud crime or that
has been excluded from the Medicare program, if the individual knew or should
have known of the action constituting the basis for the conviction or exclusion
of the entity.
HIPAA prohibits any person or entity from knowingly and willfully
committing a federal healthcare offense relating to a healthcare benefit
program. Under HIPAA, any person or entity that knowingly and willfully defrauds
or attempts to defraud a healthcare benefit program or obtains by means of false
or fraudulent pretenses, representations, or promises, any of the money or
property of any healthcare benefit program in connection with the delivery of
healthcare services is subject to a fine and/or imprisonment.
The False Claims Act is an additional means of policing false bills or
requests for payment in the healthcare delivery system. In part, the False
Claims Act imposes a civil penalty on any person who: (i) knowingly presents, or
causes to be presented, to the federal government a false or fraudulent claim
for payment or approval; (ii) knowingly makes, uses, or causes to be made or
used, a false record or statement to get a false or fraudulent claim paid or
approved by the federal government; (iii) conspires to defraud the federal
government by getting a false or fraudulent claim allowed or paid; or (iv)
knowingly makes, uses or causes to be made or used, a false record or statement
to conceal, avoid or decrease an obligation to pay or transmit money or property
to the federal government. The penalty for a violation of the False Claims Act
ranges from $5,000 to $10,000 for each fraudulent claim plus three times the
amount of damages caused by each such claim.
The False Claims Act has been used widely by the federal government to
prosecute Medicare fraud in areas such as coding errors, billing for services
not rendered, submitting false cost reports, billing services at a higher
reimbursement rate than is appropriate, billing services under a comprehensive
code
69
<PAGE>
as well as under one or more component codes, and billing for care which is not
medically necessary. The federal government, private insurers and various state
enforcement agencies have increased their scrutiny of providers, business
practices and claims in an effort to identify and prosecute fraudulent and
abusive practices. In addition, the federal government has issued fraud alerts
concerning nursing services, double billing, home health services, nursing
facility arrangements with hospices, and the provision of medical supplies to
healthcare facilities; accordingly, these areas may come under closer scrutiny
by the government. Many states have laws that prohibit payment in cash, in kind,
or in exchange for the referral of patients, certain physician referrals, and
false claims. Some of these laws apply only to services reimbursable under state
Medicaid programs. However, a number of these laws apply to all healthcare
services in the state, regardless of the source of payment for such services.
These state laws regarding referrals, kickbacks, and false claims have been
subjected to limited judicial and regulatory interpretation. Furthermore, some
states restrict certain business corporations from providing, or holding
themselves out as a provider of, medical care. Possible sanctions for violation
of any of these restrictions or prohibitions include loss of licensure or
eligibility to participate in reimbursement programs and civil and criminal
penalties. State laws vary from state to state, are often vague and have seldom
been interpreted by the courts or regulatory agencies. There can be no assurance
that these federal and state laws will ultimately be interpreted in a manner
consistent with the practices of the Company's lessees or borrowers.
Noncompliance with such state and federal laws could have a material adverse
effect on the ability of lessees or borrowers to make rental or loan payments to
the Company.
Medicare and the Pennsylvania, Michigan and Iowa Medicaid programs (which
constituted 44.4%, 5.6%, 0.6% and 0.4% of the revenues for the three months
ended March 31, 1998, respectively, of the 47 healthcare facilities included in
the Initial Properties) each impose certain limitations on the amount of
reimbursement available for capital-related costs, such as depreciation,
interest and rental expenses, following a change of ownership, including a sale
and leaseback transaction. Under currently applicable Medicare reimbursement
policies, the amount of Medicare reimbursement available to a skilled nursing
facility for rental expenses following a sale and leaseback transaction may not
exceed the amount that would have been reimbursed as capital costs had the
provider retained legal title to the facility. The Pennsylvania, Michigan and
Iowa Medicaid programs each impose similar limitations. Pennsylvania bases
reimbursement for capital-related costs for new owners (including rent paid by
lessees) on the appraised fair rental value of the facility to the prior owner
as determined by the Pennsylvania Department of Public Welfare. Michigan limits
reimbursement for capital-related costs for new owners (including lease
agreements) to an allowance for a return on ownership and interest established
by the previous owner or to the new owner's actual rate of interest expense, but
in each case, reimbursement is limited to the amount that would be allowed under
Medicare's principles of reimbursement. Iowa limits reimbursement for
capital-related costs for new owners (including lease agreements) to the
schedule of depreciation and interest established by the previous owner or to
the new owner's actual rate of interest expense but, in each case, reimbursement
is limited to the amount that would be allowed under Medicare's principles of
reimbursement. Thus, in each case, if rental expenses are greater than the
allowable capital cost reimbursement a skilled nursing facility would have
received had the sale and leaseback transaction not occurred and the provider
retained legal title, the amount of Medicare reimbursement received by the
provider will be limited. Similarly, in Missouri, where Medicaid reimbursement
for skilled nursing care is prospective and based on rates established on the
basis of reported facility costs, increased capital costs resulting from changes
in ownership or leasehold interest are not recognized for purposes of
reimbursement. Medicare will begin a four-year phase out of separate capital
cost reimbursement for skilled nursing facilities beginning July 1, 1998 under
provisions of the Balanced Budget Act of 1997, which establish a prospective
payment system for skilled nursing facilities. The Balanced Budget Act of 1997
also instructs the Health Care Financing Administration to design and implement
a prospective payment system for specialty hospitals to be effective on or after
2000. There can be no assurance that reimbursement of the costs of facilities
included in the Initial Properties under current or future reimbursement
methodologies will be adequate to cover the rental payments owed to the Company.
The IHS of Iowa at Des Moines skilled nursing facility has received notice
from the Department of Inspections and Appeals of the State of Iowa (the "Iowa
Department") that it was not in substantial com-
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pliance with certain state licensure requirements and certain participation
requirements of the federal Medicare program as a result of certain operational
problems, such as failure to respond to patient call signals in a timely manner.
The Iowa Department has issued a conditional license for the facility. In
addition, it has recommended to the Health Care Financing Administration, and
the Health Care Financing Administration has accepted such recommendations, that
if the facility is not in substantial compliance by August 5, 1998, that certain
remedies be imposed, including a civil monetary penalty of $500 per day starting
on April 15, 1998; termination of the facility's Medicare provider agreement;
and denial of Medicare payments. Additionally, the Health Care Financing
Administration notified the facility that payments for new Medicare and Medicaid
admissions would be denied effective May 29, 1998. The Company has been informed
by IHS that a plan of correction has been filed, that it believes that all
matters raised in the notice will be remedied within the required time and that
the facility will not be materially adversely affected. The Company is not
obligated to purchase the IHS of Iowa at Des Moines facility unless the
outstanding deficiencies are remedied.
RELIANCE ON GOVERNMENT AND OTHER THIRD PARTY REIMBURSEMENT. A significant
portion of the revenue derived from the healthcare facilities included in the
Initial Properties is attributable to government reimbursement programs such as
Medicare and Medicaid. Future budget reductions or other changes in
government-financed programs could significantly reduce reimbursement payments,
and there can be no assurance that future payment rates will be sufficient to
cover the costs of providing services to residents of such facilities. The
Medicare program is highly regulated and subject to frequent and substantial
changes. In recent years, changes in the Medicare program have resulted in
reduced levels of payment for a substantial portion of healthcare services. The
Health Care Financing Administration has recently released regulations
establishing a prospective payment system for inpatient services provided by
skilled nursing facilities, as required by the Balanced Budget Act of 1997. The
new reimbursement system will be phased in over four years, beginning on July 1,
1998, replacing the present cost-based reimbursement system. There can be no
assurance that reimbursement levels will not be further reduced in future
periods. The Medicaid program is a federally-mandated, state-run program
providing benefits to low income and other eligible persons and is funded
through a combination of state and federal funding. The method of reimbursement
for nursing care under Medicaid varies from state to state, but is typically
based on rates set by the state. Under Medicare, as it exists prior to the
phase-in of the prospective payment system, and many state Medicaid programs,
rates for skilled nursing facilities are based on the facility's costs as
reported to the applicable federal or state agency. The facility's costs for
services purchased from an organization related by ownership or control are
limited to the costs (not charges) of the related organization. Any failure to
comply with these requirements could have a variety of adverse consequences on
the operator of the healthcare facility, including recoupment of amounts
overpaid and other sanctions under false claim laws. Although lease and loan
payments to the Company are not directly linked to the level of government
reimbursement, to the extent that changes in these programs have a material
adverse effect on the revenues from such healthcare facilities, such changes
could have a material adverse impact on the ability of the lessees of the
healthcare facilities included in the Initial Properties to make lease and loan
payments. Healthcare facilities also have experienced increasing pressures from
private payors attempting to control healthcare costs that, in some instances,
have reduced reimbursement to levels approaching that of government payors.
There can be no assurance that future actions by private third party payors,
including cost control measures adopted by managed care organizations, will not
result in further reductions in reimbursement levels, or that future
reimbursements from any payor will be sufficient to cover the costs of the
facilities' healthcare operations.
POTENTIAL DELAYS IN SUBSTITUTING LESSEES OR OPERATORS. A loss of license or
Medicare/Medicaid certification by a lessee of the Company or a default by
lessees or borrowers under loans made by the Company, could result in the
Company having to obtain another lessee or substitute operator for the affected
facility or facilities. Because the facility licenses for the Initial Properties
will be held by lessees and not the Company and because under the REIT tax rules
the Company would have to find a new "unrelated" lessee to operate the
properties, the Company may encounter delays in exercising its remedies under
leases and loans made by the Company or substituting a new lessee or operator in
the event of any loss of licensure or Medicare/Medicaid certification by a prior
lessee or operator. No assurances can be given that the Company could contract
with a new lessee or successor operator on a timely basis or on acceptable terms
and a failure of the Company to do so could have a material adverse effect on
the Company's financial condition and results of operations.
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LIMITATION ON TRANSFERS AND ALTERNATIVE USES OF HEALTHCARE FACILITIES.
Transfers of operations of certain healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and other types of real estate. In addition, substantially all of the
Initial Properties are special purpose facilities that may not be easily
adaptable to non-healthcare related uses.
COMPETITION
The Company will compete against other REITs for new investments. There are
currently 14 other public healthcare REITs. In addition to the other healthcare
REITs, the Company will compete with other more traditional sources of real
estate financing such as healthcare providers, private real estate partnerships,
insurance companies and banks. The vast majority of healthcare real estate
investments are held by these more traditional capital sources. These financing
sources compete for new investments based on a number of factors including
pricing, duration of financing, risk profile, healthcare industry segment and
transaction structure. Nearly all of the healthcare real estate financing
activity by both REITs and traditional financing sources occurs in the lower
risk market segment.
Lyric III and IHS (and other lessees and managers of the Company's
properties) will compete on a local and regional basis with operators of other
facilities that provide comparable services. Operators compete for residents
based on quality of care, reputation, physical appearance of facilities,
services offered, family preferences, physicians, staff and price. The Company's
purchase of the Initial Properties represents only approximately 14% of the
total number of healthcare facilities owned, leased or managed by IHS. The
Company also will enter into the Purchase Option Agreement and the Right of
First Offer Agreement with IHS. See "Risk Factors -- Conflicts of Interest with
Affiliated Directors in the Formation Transactions and the Business of the
Company Could Adversely Affect the Company's Dealings with IHS and Lyric."
LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company. The
Facility Subtenants are subject to routine litigation and threatened litigation
arising in the ordinary course of business relating to events which occurred
prior to the transfer of the stock of the Facility Subtenants to Lyric. IHS has
indemnified Lyric and the Company against liabilities arising from, and agreed
to pay all costs and expenses, as incurred, relating to all such litigation and
threatened litigation. Such litigation, collectively, is not expected to have a
material adverse effect on the liquidity, results of operations, or business or
financial condition of the Company. See "-- Government Regulation" for a
description of a notice of noncompliance received by the IHS of Iowa at Des
Moines skilled nursing facility.
OFFICE LEASE
The Company has entered into a sublease with IHS with respect to certain
office space occupied by the Company as its headquarters in Naples, Florida.
This sublease has an initial term of three years and provides for a total annual
lease payment in the amount of $42,543, plus sales tax of $2,547, payable in
advance, in installments of $3,750 per month, with annual rent adjustments tied
to the CPI. The sublease provides that IHS, the Company's landlord, is
responsible for all taxes, utilities and other charges associated with the
leased property, and the sublease contains certain other provisions which are
standard for subleases of its type.
EMPLOYEES
The Company will initially employ five persons, including the Company's two
executive officers, and intends to hire additional employees as necessary to
support its anticipated growth. The Company's employees will monitor its
investments, develop investment and lending opportunities, perform analysis,
underwriting, negotiating and closing activities with respect to future
investment or financing transactions and perform administrative functions.
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KEY AGREEMENTS
The following summaries of the material provisions of the Facilities
Purchase Agreement, Master Lease, Lyric Guaranty, Master Management Agreement
and Facility Management Agreements, Master Franchise Agreement and Facility
Franchise Agreements, Pledge Agreements, Security Agreement, Escrow Agreement,
Consent and Subordination Agreement, Purchase Option Agreement and Right of
First Offer Agreement (collectively the "Key Agreements") do not purport to be
complete and are qualified in their entirety by reference to such agreements.
Copies of the forms of the Key Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
FACILITIES PURCHASE AGREEMENT
The Company, through the Operating Partnership, will acquire 44 of the
Initial Properties from IHS (the "44 IHS Properties") and the Facility
Subtenants pursuant to a Facilities Purchase Agreement among the Operating
Partnership, IHS and each of the Facility Subtenants, as the current owners of
each Initial Property (the "Facilities Purchase Agreement"). The total purchase
price for the 44 IHS Properties to be acquired by the Company from IHS is
approximately $371.0 million. The agreement contains terms and conditions
representative of similar acquisition transactions by large institutions and
other real estate investment trusts. For example, the Facilities Purchase
Agreement contains representations, warranties and indemnities from IHS and each
of the Facility Subtenants as the transferors of the 44 IHS Properties regarding
matters such as title to the 44 IHS Properties, the absence of liens and
encumbrances thereon, the accuracy of historical financial statements for the 44
IHS Properties, title to personal property utilized at the 44 IHS Properties,
existing leases or other occupancy or third party agreements and the rents
payable thereunder, environmental matters and other representations, warranties
and indemnities from the Facility Subtenants and IHS customarily found in
similar documents. The Facilities Purchase Agreement will also provide the
Company with broad indemnification protection regarding past liabilities
involving the 44 IHS Properties, including, but not limited to, environmental
matters. These representations, warranties and indemnities will survive the
closing of the acquisition of the 44 IHS Properties. IHS will also be
responsible for all fees and expenses associated with the acquisition of the 44
IHS Properties, including, but not limited to, title costs, appraisal fees,
certain environmental report fees, transfer taxes and the reasonable legal fees
and expenses of counsel to the Company. Copies of the form of the Facilities
Purchase Agreement to be entered into with the various parties has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The transfer of the ownership of the Initial Properties is subject to the
completion of the Offering, as well as the normal and customary conditions to
the closing of real estate transactions, including the receipt of any required
consents, waivers or regulatory approvals.
MASTER LEASE
TERM. The initial lease terms of the Lyric Properties divided into
Subleases under the Master Lease with Lyric III will be staggered over 9, 10,
11, 12 and 13 years for the Lyric Properties, with three successive options to
extend these terms for additional periods of 10 years each, provided that Lyric
III must exercise its options to extend with respect to all, but not less than
all, of the facilities which are then subject to renewal under the Master Lease.
No assurance can be given that the options to extend the lease terms will be
exercised by Lyric III. The staggered lease terms for groups of Lyric Properties
will limit the effect of any non-renewal and afford the Company an opportunity
to locate a new lessee, if necessary.
USE OF THE FACILITIES. The Master Lease permits Lyric III to operate the
facilities as a licensed healthcare facility unless otherwise consented to by
the Company. Lyric III has the responsibility to procure, maintain and comply
with all licenses, certificates of need, provider agreements and other
authorizations required for the use of the Facilities.
RENT. The Master Lease with Lyric III will provide for the payment of
initial base portfolio rent for the Lyric Properties of $36.4 million. The base
portfolio rent will be subject to annual increases commencing on January 1,
1999, equal to the lesser of: (i) two times the CPI (but in no case less than
zero)
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or (ii) a fixed percentage of 3% over the rent for the previous year, provided
however, that the rent will not increase if the average occupancy of the entire
portfolio of Lyric Properties was less than 70% for the twelve months preceding
the rent adjustment date.
TRIPLE NET. The Master Lease will be a "triple net" lease that requires
Lyric III or the Facility Subtenants to pay base rent without offset, deduction,
abatement or counterclaim and all additional charges, including all taxes,
assessments, levies, fees, water and sewer rents and charges, all governmental
charges with respect to the applicable property and all utility and other
charges incurred in the operation of the applicable property including, but not
limited to, every fine, penalty, interest and cost which may be added for
non-payment or late payment thereof.
INSURANCE. The Master Lease provides that Lyric III will maintain insurance
on all the Lyric Properties for the following coverages: (i) fire, vandalism,
earthquake (if available at commercially reasonable rates), extended coverage
perils and all physical loss perils; (ii) loss by explosion of steam boilers and
pressure vessels; (iii) loss of rental value or business interruption; (iv)
comprehensive general public liability (including personal injury and property
damage); (v) professional malpractice; (vi) flood, if required; (vii) workers'
compensation; and (viii) automobile liability. The Company is expected to be
named on such policies as an additional insured or loss payee as the case may
be.
DAMAGE OR CONDEMNATION. In the event of any damage or destruction to any
Lyric Property, Lyric III or the Facility Subtenants have the obligation to
fully repair or restore the same at Lyric III's or the Facility Subtenants'
expense, with no abatement of rent during such restoration. If any facility is
damaged to such an extent that Lyric III or the Facility Subtenants cannot
obtain all necessary government approvals, permits and certificates of need
required for use, Lyric III or the Facility Subtenants shall purchase such
facility. In the event of a partial taking of any Lyric Property which does not
render it unsuitable for Lyric III's or the Facility Subtenants' use and
occupancy, Lyric III or the Facility Subtenants are obligated to repair the
portion not taken. In the event the partial taking does render such property
unsuitable for Lyric III's or the Facility Subtenants' use and occupancy, Lyric
III or the Facility Subtenant shall have the obligation to purchase the
facility. In the event of a total taking, the Master Lease shall terminate with
respect to the taken property.
INDEMNIFICATION. The Master Lease requires Lyric III and the Facility
Subtenants to indemnify the Company against certain liabilities in connection
with the applicable Lyric Property.
MAINTENANCE; ADDITIONAL COVENANTS. Lyric III or the Facility Subtenants are
required, at their expense, to maintain each property in good order and repair,
in accordance with standards promulgated in the Master Lease and all applicable
legal and insurance requirements. In addition, during each lease year of the
term (as extended, if applicable), Lyric III or the Facility Subtenants are
required to expend a minimum of $300 (as increased annually by the CPI) per bed
in each facility covered by the Master Lease as capital expenditures to maintain
the applicable property. The Master Lease contains additional financial
covenants covering permitted debt and minimum cash flow from facilities. The
Company is not required to repair, rebuild or maintain any Lyric Property or to
pay for any addition, modification or improvement.
GUARANTY; SECURITY DEPOSIT. The payment and performance obligations of
Lyric III under the Master Lease and the Facility Subtenants under the Facility
Subleases are unconditionally guaranteed by Lyric under the Lyric Guaranty. Any
assignment of the Master Lease would require the consent of the Company. The
Lyric Guaranty is unsecured and may be structurally subordinated to the secured
indebtedness of Lyric. The Lyric Guaranty does not limit Lyric's ability to
incur additional secured indebtedness. In addition, Lyric III will deposit with
the Company as a security deposit a letter of credit in an amount equal to six
months of the estimated base rent payable with respect to the Master Lease.
EVENTS OF DEFAULT. An event of default will be deemed to have occurred
under the Master Lease and any Facility Sublease if: (i) Lyric III or the
Facility Subtenants fail (a) to pay base rent within the earlier of (1) five
business days after notice or (2) 10 business days after the base rent is due,
(b) to restore the security deposit within five business days after notice, or
(c) to pay any additional charges within 10 business days after notice; (ii) any
bankruptcy proceedings are instituted by or against Lyric III
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or the Facility Subtenants and, if against Lyric III or the Facility Subtenants,
such bankruptcy proceedings are not dismissed within 90 days; (iii) Lyric III or
the Facility Subtenants is liquidated or dissolved; (iv) any material property
of Lyric III or the Facility Subtenants is levied upon or attached in any
proceeding and not discharged within 60 days; (v) Lyric III or the Facility
Subtenants ceases operation for a period in excess of five business days; if the
license to operate any Facility is revoked, allowed to lapse, suspended or
transferred and Lyric III or the Facility Subtenants do not take reasonable
steps to cure and cause such license to be reinstated within 60 days; (vi) Lyric
III or the Facility Subtenants defaults in any payment of any obligations for
borrowed money having a principal balance in excess of three million dollars;
(vii) Lyric III or the Facility Subtenants fail to perform any covenant and does
not diligently undertake to cure the same within 30 days after notice from the
Company; (viii) any representation or warranty of the Facility Subtenants in the
Facilities Purchase Agreement proves to be untrue and the Facility Subtenants do
not diligently undertake to cure the same within 20 days after notice from the
Company; or (ix) there is a default under any guaranty of the Lease, the Master
Management Agreement, Facility Management Agreement, Master Franchise Agreement,
Facility Franchise Agreement, any Facility Sublease, the Escrow Agreement,
Letter of Credit or the Security Agreement which is not cured within any
applicable grace or cure period.
Upon the occurrence of any event of default referable to a specific Lyric
Property, the Company may evict Lyric III or the Facility Subtenants from such
Lyric Properties, terminate the Lease and/or re-let the Lyric Property. In all
events, Lyric III or the Facility Subtenants shall remain responsible for the
rental value of such Lyric Property for the remainder of the period of the term
in excess of rents received by the Company from any successor occupant.
Alternatively, at the Company's option, the Company will be entitled to recover
all unpaid rent then due plus the present value of the rent for the unexpired
term at the time of the award, subject to a credit for any net rentals or
proceeds actually received from the lease, sale or other disposition of the
Lyric Property thereafter. In addition, the Company may exercise any other
rights that it may have under law. In the event the Company evicts Lyric III or
the Facility Subtenants from a Lyric Property, the Master Lease will remain in
full force and effect for all other Lyric Properties. With respect to Lyric
III's or the Facility Subtenants' failure to timely pay rent and with respect to
certain nonmonetary events of default under the Master Lease, the Company shall
have all of the foregoing rights, remedies and obligations with respect to all
of the Lyric Properties.
The leases will be governed by and construed in accordance with New York
law except for certain procedural laws which must be governed by the laws of the
location of each Lyric Property. Because the facilities are located in various
states, the Leases may be subject to restrictions imposed by applicable local
law. Neither the Master Lease nor any of the other agreements entered into by
Lyric III in connection with the Formation Transactions prohibits or otherwise
restricts the Company's ability to lease properties to parties (domestic or
foreign) other than Lyric III or the Facility Subtenants.
LYRIC GUARANTY
Pursuant to a guaranty (the "Lyric Guaranty") by Lyric in favor of the
Operating Partnership, Lyric will unconditionally guarantee the payment and
performance of all rent and other obligations of Lyric III and the Facility
Subtenants under the Master Lease and the Facility Subleases. The obligations of
Lyric under the Lyric Guaranty are not subordinated to any indebtedness of
Lyric, but the Lyric Guaranty is unsecured and may be structurally subordinated
to secured indebtedness of Lyric to the extent of the assets securing such
indebtedness. In addition, the Lyric Guaranty does not limit Lyric's ability to
incur additional secured indebtedness. The Lyric Guaranty provides for certain
financial covenants by Lyric, including a provision which will limit the amount
of dividends which Lyric may pay when Lyric's tangible net worth is below $2.5
million. After an Event of Default under the Master Lease, the Operating
Partnership may proceed directly against Lyric prior to or in lieu of proceeding
against Lyric III or the Facility Subtenants.
MASTER MANAGEMENT AGREEMENT AND FACILITY MANAGEMENT AGREEMENTS
Pursuant to an Amended and Restated Master Management Agreement (the
"Master Management Agreement") between Lyric and IHS Facility Management, Inc.
("IHS Management") and the Facility Management Agreements between IHS Management
and each of the Facility Subtenants, IHS Manage-
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ment will manage all of the Lyric Properties (the Master Management Agreement
and the Facility Management Agreements, collectively, the "Management
Agreements"). Under the Management Agreements, IHS Management will be granted
the sole and exclusive right to manage the Lyric Properties and IHS Management
will agree to provide the Lyric Properties with all management services and
techniques customarily provided by IHS Management. Annual operating and capital
budgets for each of the Lyric Properties will be submitted by IHS Management to
the Facility Subtenants for their review and approval. All licenses and permits
will be arranged for by IHS Management on behalf of, and held in the name of,
the Facility Subtenants. All facility employees will be hired and discharged by
IHS Management and will be employees of the applicable Facility Subtenant (with
the exception of the administrator and director of nursing for each facility who
will be employed by IHS Management, but whose salaries will be a facility
expense).
IHS Management will receive: (i) a base management fee equal to (a) 3% of
the gross revenues of all facilities covered by the Master Management Agreement
or (b) 4% of the gross revenues of all facilities covered by the Master
Management Agreement if annual gross revenues for all facilities owned by Lyric
and managed by IHS Management exceeds $350 million; and (ii) an annual incentive
fee equal to 70% of the annual net cash flow of all facilities covered by the
Master Management Agreement. IHS Management may, but is not obligated to,
advance funds for working capital (including payment of management fees) and
capital investment purposes. Any such funds advanced and not reimbursed by the
applicable Facility Subtenant within 30 days shall accrue interest at Citibank
N.A.'s prime rate plus 2%.
The term of the Management Agreements will be coterminous with that of the
applicable Facility Sublease, including any applicable renewal period; provided,
however, that IHS Management may elect not to extend a Facility Management
Agreement for any particular Facility Sublease renewal term by giving six
months' prior notice. The Facility Subtenants may terminate their respective
Facility Management Agreements in the event of, among other things: (i) certain
insolvency related actions taken by or against IHS Management; (ii) a material
default by IHS Management under the Management Agreements continuing for 60 days
after written notice; or (iii) fraud or self-dealing by IHS Management not cured
within 60 days after written notice. IHS Management may terminate any Facility
Management Agreement in the event of, among other things: (i) certain insolvency
related actions taken by or against the applicable Facility Subtenant; (ii) a
default by the Facility Subtenant (including a payment default) under its
Facility Management Agreement which continues for 60 days after written notice;
(iii) certain casualty events; (iv) certain loss of license or Facility Sublease
termination events; or (v) the insufficiency of cash flow to pay base management
fees for two consecutive fiscal quarters. The Master Management Agreement may be
terminated by either Lyric or IHS Management in the event of: (i) certain
insolvency related actions taken by or against the other party or (ii)
termination of all of the Facility Management Agreements.
MASTER FRANCHISE AGREEMENT AND FACILITY FRANCHISE AGREEMENTS
Integrated Health Services Franchising Co., Inc. ("IHS Franchising") will
grant to Lyric and each of the Facility Subtenants the right to use certain
proprietary materials developed and used by IHS in its operation of healthcare
facilities by entering into an Amended and Restated Master Franchise Agreement
with Lyric (the "Master Franchise Agreement") and Facility Franchise Agreements
with each of the Facility Subtenants. Pursuant to the Master Franchise Agreement
and the Facility Franchise Agreements, IHS Franchising will agree not to compete
with Lyric or any of the Facility Subtenants within a 15 mile radius of any
facility they are operating. IHS Franchising will receive an annual franchise
fee equal to 1% of the gross revenues for all facilities covered by the Master
Franchise Agreement. In the event any portion of the franchise fee goes unpaid
for 120 days after notice, IHS Franchising may require reconsideration and
revision of Lyric's then current annual and capital budgets and require Lyric to
comply with certain negative covenants with regard to capital and debt
transactions which otherwise would be applicable only in the event of a sale of
IHS' membership interest in Lyric. Past due franchise fees will, in certain
circumstances, accrue interest at Citibank N.A.'s prime rate plus 2%.
The initial term of the Master Franchise Agreement will be coterminous with
that of the Master Lease. The term of the Master Franchise Agreement will be
automatically extended for two consecutive 13 year renewal terms; provided,
however, that IHS Franchising may elect not to extend for either of the renewal
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terms by giving six months prior notice. IHS Franchising may terminate the
Master Franchise Agreement and the Facility Franchise Agreements in the event
of, among other things: (i) certain prohibited transfers by Lyric or the
Facility Subtenants; (ii) certain insolvency related actions taken by or against
Lyric; (iii) violation by Lyric or the Facility Subtenants of certain
confidentiality and non-disclosure covenants; (iv) a default by Lyric (including
the payment of fees) under the Master Franchise Agreement which continues for 60
days after written notice; or (v) commencement of legal proceedings by the
lessor or mortgagee of any Facility Subtenant. The Master Franchise Agreement
may be not be terminated by Lyric under any circumstances without the prior
written consent of IHS Franchising.
PLEDGE AGREEMENTS
Pursuant to Pledge Agreements (the "Pledge Agreements") between the
Operating Partnership and Lyric and the Operating Partnership and Lyric III,
Lyric will pledge 100% of the stock of Lyric III and Lyric III will pledge 100%
of the stock of each of the Facility Subtenants to the Operating Partnership to
secure the rental obligations of Lyric III under the Master Lease and the
Facility Subtenants under the Facility Subleases. During the term of the Pledge
Agreement, Lyric and Lyric III may not sell, convey or dispose of the pledged
stock without prior written approval of the Operating Partnership. An event of
default under the Master Lease and the Facility Subleases will be an event of
default under the Pledge Agreement entitling the Operating Partnership to
realize upon the pledged stock in accordance with applicable state law.
SECURITY AGREEMENT
Pursuant to a Security Agreement (the "Security Agreement") between the
Operating Partnership and the Facility Subtenants, each of the Facility
Subtenants will grant first priority security interests, in favor of the
Operating Partnership, in certain personal property of the Facility Subtenants
located at the properties to secure the rental obligations and any other amounts
due from the Facility Subtenants under the Facility Subleases. The personal
property subject to security interests will include, to the extent permitted by
law, all present and after-acquired inventory, equipment, licenses and permits,
certificates of need, proceeds arising out of the operation of the facilities,
insurance rights and all other tangible property of the Facility Subtenants. An
event of default under the Facility Sublease will be an event of default under
the Security Agreement entitling the Operating Partnership to realize upon the
collateral in accordance with applicable state law. See "Risk Factors --
Dependence on Lyric III, Lyric and IHS for the Company's Revenues May Adversely
Affect the Company's Ability to Make Distributions."
ESCROW AGREEMENT
Pursuant to an Escrow Agreement (the "Escrow Agreement") among the
Operating Partnership, Lyric III, the Facility Subtenants and Fidelity National
Title Insurance Company of New York, as escrow agent, Lyric III and each of the
Facility Subtenants agree to complete within one year certain capital repairs
and improvements identified by the Operating Partnership as required in
connection with the purchase of the Initial Properties. All escrowed funds will
be held in a separate bank account and, subject to the Operating Partnership's
approval, will be disbursed from time to time to cover the costs of such repairs
and improvements. In the event all of the work is not completed within one year,
the Operating Partnership may complete the work at Lyric III's expense or
declare an event of default under the Master Lease and the Facility Subleases.
Upon satisfactory completion of all of the work described in the Escrow
Agreement, any remaining escrowed funds will be disbursed to the Facility
Subtenants.
CONSENT AND SUBORDINATION AGREEMENT
Pursuant to a Consent and Subordination Agreement (the "Subordination
Agreement") among the Operating Partnership, IHS Management, IHS Franchising,
Lyric III and each of the Facility Subtenants, the rights of IHS Management
under the Master Management Agreement (including IHS Management's rights to all
management and incentive fees) and the rights of IHS Franchising under the
Master Franchise Agree-
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<PAGE>
ment (including IHS Franchising's rights to all franchise fees) will be
subordinated to the rights of the Operating Partnership under the Master Lease.
If an event of default occurs under the Master Lease, the Facility Subleases,
the Lyric Guaranty or the Subordination Agreement, no management fees or
incentive fees may be paid to IHS Management and no franchise fees may be paid
to IHS Franchising unless, in each case, the Operating Partnership shall have
first consented to such payments. In the event that the Operating Partnership
terminates the Master Lease or recovers possession of any facility, the
Operating Partnership will have the right to terminate the respective Facility
Management Agreements and the Facility Franchising Agreements.
PURCHASE OPTION AGREEMENT
The Company will have options under the Purchase Option Agreement to
acquire up to 10 additional skilled nursing facilities with 1,683 beds from IHS
with an aggregate purchase price of approximately $104.7 million.
The Purchase Option Agreement will have an initial term of two years, with
the Company granted three successive renewal options of one year each. For the
first six months of the term of the Purchase Option Agreement, each facility
will have a fixed purchase price described in the Purchase Option Agreement,
which purchase price was based on negotiations between the Company and IHS based
on a variety of factors, including, but not limited to, independent appraisals,
comparable transactions, historical and projected operating results and industry
cash flow coverage ratios. For the remaining term of the Purchase Option
Agreement, including renewals, the purchase price will be the greater of the
fixed price or a multiple of the facility's EBITDARM for the prior 12 months.
The Company will pay non-refundable purchase option deposits to IHS in the
amount of 0.5% of an applicable facility's purchase price for each facility as
to which a renewal option is exercised, with the amount of such deposits to be
credited against the purchase price for any facility for which the Company
subsequently exercises its option. All facilities acquired by the Company under
the Purchase Option Agreement will be leased to Lyric III and its consolidated
subsidiaries and managed by IHS. The initial annual base rent for any of the
properties purchased by the Company would be equal to the purchase price
multiplied by the greater of: (i) 10.0% or (ii) the average yield on the 10-year
U.S. Treasury Note over the 20 trading days preceding the date of purchase plus
450 basis points. The base rent would be subject to annual increases equal to
the lesser of: (i) two times the CPI (but in no case less than zero) or (ii) a
fixed percentage of 3% over the rent for the previous year; provided however,
that the rent will not increase if the average occupancy of the combined
portfolio of the Lyric Properties and the acquired Option Properties was less
than 70% for the twelve months preceding the rent adjustment date. Each exercise
of the Purchase Option Agreement will be approved by a majority of the Company's
Disinterested Directors.
RIGHT OF FIRST OFFER AGREEMENT
The Company and IHS will enter into the Right of First Offer Agreement for
a period of four years from the closing of the Offering (subject to automatic
annual renewals thereafter unless terminated by either party), pursuant to which
IHS must offer the Company the opportunity to purchase or finance each IHS
facility to be sold and leased back or financed in a transaction of the type
normally engaged in by the Company. The Company will be offered the opportunity
to acquire or finance the IHS facility on terms and conditions that, should the
Company decline to pursue the proposed transaction, must be offered to any other
third party by IHS. If IHS is only able to sell and leaseback or finance the IHS
facility on better terms than previously offered to the Company, then the
Company must again be offered those new terms and conditions for consideration
prior to IHS finalizing a transaction with the third party. It is currently
anticipated that some of the IHS facilities that may be acquired by the Company
under the Right of First Offer Agreement may involve Lyric and its consolidated
subsidiaries as lessee and IHS as manager. IHS will also agree not to construct
any competing healthcare facilities within 10 miles of any healthcare facility
owned by the Company. The Company believes that the Right of First Offer
Agreement will provide it with opportunities to acquire and finance healthcare
facilities that complement its existing portfolio of facilities.
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MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
Pursuant to amendments to the Charter and Bylaws to be adopted immediately
prior to the completion of the Offering, the Board of Directors of the Company
will be modified effective immediately following the completion of the Offering
to increase the size of the Board to six directors and include the director
nominees named below, each of whom has been nominated for election and has
consented to serve. Upon election of the director nominees, a majority of
directors will not be employees or affiliates of the Company, Lyric or IHS. In
connection with the expansion of the Board of Directors, and upon completion of
the Offering, the Board of Directors will be divided into three classes of
directors. The initial terms of the first, second, and third classes will expire
in 1999, 2000 and 2001, respectively. Beginning in 1999, directors of each class
will be chosen for three-year terms upon the expiration of their current terms
and each year one class of directors will be elected by the stockholders. The
Company believes that classification of the Board of Directors will help to
enhance the continuity and stability of the Company's business strategies and
policies as determined by the Board of Directors. Holders of Common Stock will
have no right to cumulative voting in the election of directors. Consequently,
at each annual meeting of stockholders, the holders of a majority of the shares
of Common Stock will be able to elect all of the successors of the class of
directors whose term expires at that meeting.
Information concerning the current directors, director nominees and
executive officers of the Company is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION TERM
<S> <C> <C> <C>
Robert N. Elkins, M.D. 55 Chairman of the Board of Directors 2001
John B. Poole 46 President, Chief Executive Officer 2000
and Director
Donald Tomlin 50 Director Nominee 2000
Lisa K. Merritt 38 Director Nominee 1999
William McBride, III 38 Director Nominee 1999
Brian E. Cobb 53 Director Nominee 2001
Douglas Listman 27 Chief Financial Officer, Treasurer and Secretary
</TABLE>
ROBERT N. ELKINS, M.D. is the Chairman of the Board of Directors of the
Company. Dr. Elkins is a co-founder and has served as Chairman of the Board,
and Chief Executive Officer of IHS, a NYSE-traded, national provider of
post-acute care, since 1986 and President since March 1998 and also served as
President from March 1986 to July 1994. Dr. Elkins and IHS were among the first
to introduce subacute care to the industry in 1989. Dr. Elkins has thus
established himself as a leader in the new generation of healthcare providers.
IHS was listed in America's New Blue Chips: An Investment Guide to the Hottest
Growth Stocks and in Quantum Companies. Prior to founding IHS, Dr. Elkins was a
founder and Vice President of Continental Care Centers, Inc., an owner and
operator of long-term healthcare facilities, from 1980 to 1986. From 1976
through 1980, Dr. Elkins was a practicing physician. Dr. Elkins, a graduate of
the University of Pennsylvania, received his M.D. degree from the Upstate
Medical Center, State University of New York, and completed his residency at
Harvard University Medical Center. Dr. Elkins was named a recipient of the 1991
Maryland Entrepreneur of the Year Award and is National Co-Chairman of the
American Entrepreneurs for Economic Growth, an organization representing over
4,500 venture-financed emerging growth companies. From May 8, 1995 through
October 16, 1996, Dr. Elkins served as Co-Chairman of the Governors Council on
Management and Productivity.
JOHN B. POOLE is the President and Chief Executive Officer and a member of
the Board of Directors of the Company. Mr. Poole has over 19 years experience
in the healthcare industry. From July 1997 until joining the Company he was an
Executive Vice President and Special Assistant to the CEO of IHS. While at IHS,
Mr. Poole was responsible for various acquisition, divestiture, and financial
projects. He served as Chief Financial Officer of Integrated Living
Communities, Inc. ("ILC"), a publicly traded senior housing, assisted living
and Alzheimer's care company from March 1996 until its sale in July 1997
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that was spun off from IHS in an initial public offering. From November 1995
until March 1996 he was an independent consultant to the long-term care
industry. From July 1994 through October 1995 he served as Chief Financial
Officer of American Care Communities, Inc., an owner and operator of assisted
living residences. From March 1993 through June 1994 he served as Chief
Financial Officer of Medifit of America, Inc., an owner and operator of
outpatient physical therapy centers and corporate fitness centers. From October
1990 to February 1993 he served as Chief Financial Officer of Frankwood
Holdings, Ltd., an owner and operator of a third-party administrator of health
claims. From 1979 to August 1990 he served in various positions at Beverly
Enterprises, Inc., an owner and operator of long-term healthcare facilities,
retirement living facilities and pharmacies, including Senior Vice President and
Chief Accounting Officer, where he had responsibility for all accounting and
data processing for the entire company.
DONALD R. TOMLIN, JR. has been the Chairman, President and Chief Executive
Officer of Tomlin & Company, Inc. since its formation in 1986. Tomlin &
Company, Inc. is an integrated investment advisory, financial services and
capital investment firm. In his position with Tomlin & Company, Inc., Mr.
Tomlin has initiated, structured or advised on over $3 billion of merger,
acquisition and financing transactions for middle-market companies during the
last five years. Mr. Tomlin's experience includes structuring and arranging
financing for the acquisition of a $711 million diversified media company with
radio stations, television stations and newspapers, involvement in developing
over 6,000 multi-family housing units and involvement in the issuance of some
of the first investment grade mortgage-backed securities.
LISA K. MERRITT has served as the Vice President and Managing Officer of
the Naples office of The Chase Manhattan Private Bank since May 1996. Prior to
joining The Chase Manhattan Private Bank, from 1991 to 1996 Ms. Merritt was Vice
President and District Manager of Chase Manhattan Personal Financial Services
with responsibility for Southwest, Central and Northern Florida. Ms. Merritt has
also held officer positions with Chase Manhattan Bank of Florida and Chase
Manhattan Mortgage Corporation serving in various capacities including
commercial real estate, residential real estate and consumer lending. Ms.
Merritt served as a Director of ILC until its sale in July 1997. Ms. Merritt is
a State of Florida registered residential contractor and has held real estate
licenses in Florida and Michigan.
WILLIAM MCBRIDE III is Chairman of the Board, Chief Executive Officer and
one of the founders of Assisted Living Concepts, Inc., an AMEX listed
owner/operator of assisted living facilities based in Portland, Oregon. He has
served as Chairman of the Board since August 1994 and CEO since October 1997. He
is a member of the Board of Directors for Malan Realty Investors, a NYSE listed
REIT based in Birmingham, Michigan and Newcare Health Corporation, a nursing
home operating company listed on NASDAQ out of Atlanta, Georgia. Mr. McBride
co-founded LTC Properties, Inc., a REIT, where he was President, Chief Operating
Officer and Board member from August 1992 to October 1997. Prior to co-founding
LTC Properties, Mr. McBride was employed by Beverly Enterprises, Inc., from
April 1988 to July 1992, where he served as Vice President, Controller and Chief
Accounting Officer.
BRIAN E. COBB is the Managing Director and founder of Media Venture
Partners, a mergers and acquisitions firm formed in 1987 which specializes in
media transactions. During the last ten years, in his position with Media
Venture Partners, Mr. Cobb has arranged numerous transactions relating to
television licenses, real estate and other related assets. He also serves as
president of Media Venture Management, Inc. and Biltmore Broadcasting, LLC,
entities that own television stations in Florida and California. Prior to
founding Media Venture Partners, Mr. Cobb was Vice-President of Television with
Chapman from 1981 to 1987. From 1967 to 1981, Mr. Cobb held various management
positions with General Electric Broadcasting Company including Vice President
and General Manager of their broadcasting properties in Denver, Colorado and
Nashville, Tennessee.
DOUGLAS LISTMAN is the Chief Financial Officer, Treasurer and Secretary of
the Company. From July 1997 to March 1998, Mr. Listman served as Chief Financial
Officer of Senior Lifestyle Corporation, a nationwide developer, owner and
operator of senior housing and assisted living facilities. Senior Lifestyle
operated over 50 facilities totaling over 7,000 units. As Chief Financial
Officer, his duties included arranging significant acquisition capital,
overseeing the accounting function and structuring and evaluating potential
acquisitions. Mr. Listman served as Controller of ILC from May 1996 until its
sale in July
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1997. Mr. Listman was instrumental in ILC's successful initial public offering
and its subsequent acquisitions. From June 1995 to May 1996, he served as
Assistant Corporate Controller of IHS. From September 1992 to June 1995, he
served in various positions for KPMG Peat Marwick LLP, a public accounting firm,
including Supervising Senior Accountant.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review the
independence of the independent public accountants, consider the range of audit
and non-audit fees and review the adequacy of the Company's internal accounting
controls. The membership of the Audit Committee will consist of only Independent
Directors. Further, a majority of the Audit Committee shall consist of directors
who were not formerly officers of the Company or any of its subsidiaries; and a
director who represents or is a close relative of a person who would not
otherwise qualify as a member of the Audit Committee shall not be a member on
the Audit Committee. An individual is deemed an "Independent Director" if such
individual is not an affiliate of the Company and is not an officer or employee
of the Company or any of its subsidiaries. Upon completion of the Offering, and
election of the director nominees, the members of the Audit Committee will be
Messrs. Cobb and McBride.
EXECUTIVE COMMITTEE. The Executive Committee will have the authority
within certain parameters to acquire, dispose of and finance investments for
the Company (including the issuance by the Operating Partnership of additional
Units or other equity interests) and approve the execution of contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Directors except as
prohibited by law. Upon completion of the Offering, and election of the
director nominees, the members of the Executive Committee will be Dr. Elkins,
Mr. Poole and Ms. Merritt.
COMPENSATION COMMITTEE. The Compensation Committee will determine
compensation for the Company's executive officers. The Compensation Committee
will review and make recommendations concerning proposals by management with
respect to compensation, bonus, employment agreements and other benefits and
policies respecting such matters for the executive officers of the Company.
Membership of the Compensation Committee shall consist only of Independent
Directors. Upon completion of the Offering and election of the director
nominees, the members of the Compensation Committee will be Dr. Elkins, Mr. Cobb
and Ms. Merritt.
INCENTIVE PLAN COMMITTEE. The Incentive Plan Committee will administer the
1998 Omnibus Securities and Incentive Plan, including the grant of options and
bonus shares thereunder. Membership of the Incentive Plan Committee shall
consist only of Independent Directors. Upon completion of the Offering, and
election of the director nominees, the members of the Incentive Plan Committee
will be Dr. Elkins, Mr. Cobb and Ms. Merritt.
The Board of Directors will not have a nominating committee and the entire
Board of Directors will perform the function of such a committee.
COMPENSATION OF THE BOARD OF DIRECTORS
The Company will compensate non-employee directors at the rate of $100 per
meeting and will reimburse the directors for travel expenses incurred in
connection with attending meetings of the Board of Directors and committee
meetings. Each of the non-employee directors of the Company (other than the
Chairman of the Board) will be granted stock options for 21,402 shares of Common
Stock with an aggregate value of $.4 million, assuming an initial offering price
of $18.50 per share at a per share option exercise price equal to $.001,
effective upon joining the Board. These options will become exercisable on the
date of grant. The Chairman of the Board will be granted a ten-year stock option
for 315,681 shares of Common Stock with an aggregate value of $5.8 million,
assuming an initial public offering price of $18.50 per share at a per share
option exercise price equal to $.001, on or prior to the date of the
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<PAGE>
Offering. The options granted to the Company's Chairman and the other directors
will become exercisable upon the completion of the Offering, but any shares of
Common Stock received upon exercise will be subject to transfer restrictions
pursuant to a two-year lock-up agreement. Dr. Elkins will enter into a
Non-Competition Agreement with the Company. See "-- Employment and
Non-Competition Agreements."
EXECUTIVE COMPENSATION
The following table sets forth the annual base salary levels and other
compensation expected to be paid in 1998 to the Company's President and Chief
Executive Officer and to the Company's other executive officer (the "Named
Executive Officers"). In addition, the Named Executive Officers will be eligible
to receive bonuses and to participate in the Company's 1998 Omnibus Securities
and Incentive Plan, with any awards or grants being made at the discretion of
the Compensation Committee. See "-- Incentive Compensation."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME PRINCIPAL POSITION(S) SALARY($)
<S> <C> <C>
John B. Poole ........... President, Chief Executive Officer $220,000
and Director
Douglas Listman ......... Chief Financial Officer 120,000
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF SHARE PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION PERIOD
--------------------------------------------------------------------- ---------------------------
SHARES OF PERCENT OF TOTAL
COMMON STOCK STOCK OPTIONS TO BE EXERCISE OR
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME TO BE GRANTED(1) IN FISCAL YEAR (PER SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John B. Poole ........... 80,258 71% $ 0.001 (2) $2,418,495 $3,851,020
Douglas Listman ......... 10,701 10 0.001 (2) 322,464 513,466
</TABLE>
- ----------
(1) The options granted will become exercisable on the date of the Offering.
(2) The expiration date of the options is the tenth year anniversary of the
closing date of the Offering.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
Prior to the completion of the Offering, the Company will adopt the 1998
Omnibus Securities and Incentive Plan (the "Plan") to provide incentives to
attract and retain executive officers, directors, employees and other key
personnel. The Plan will be administered by the Incentive Plan Committee of the
Board of Directors (the "Committee"). The maximum number of shares of Common
Stock available for issuance under the Plan will be 5.0% of the total number of
shares of Common Stock and Units outstanding from time to time. The Company
initially intends to grant stock options for an aggregate of approximately
513,650 shares.
STOCK OPTIONS. The Plan permits the granting of: (i) options to purchase
shares of Common Stock intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Code; and (ii) options that do
not so qualify ("Non-Qualified Options"). The option exercise price of each
option will be determined by the Committee but may not be less than 100% of the
fair market value of the Common Stock on the date of grant in the case of
Incentive Options.
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The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised and,
subject to the provisions of the Plan, the period of time, if any, after
retirement, death, disability or termination of employment or director status
during which options may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
RESTRICTED SHARES. The Committee may also award shares of Common Stock to
participants, subject to such conditions and restrictions as the Committee may
determine through a specified period. No dividends will be paid on restricted
shares during the restricted period. Upon a breach of the terms and conditions
established by the Committee, the participant would forfeit his restricted
Common Stock.
DEFERRED COMMON STOCK. The Committee may also award bookkeeping units which
are ultimately payable in the form of unrestricted shares of Common Stock upon
the satisfaction of such conditions and restrictions as the Committee may
determine. These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through a
specified restriction period. If the performance goals and other restrictions
are not attained, the participant would forfeit his right to the deferred Common
Stock units. During the period of employment or membership on the Board of
Directors performance measurement period, subject to terms and conditions
imposed by the Committee, the deferred Common Stock units may be credited with
distribution equivalent rights.
UNRESTRICTED COMMON STOCK. The Committee may also grant shares of Common
Stock (at no cost or for a purchase price determined by the Committee) which are
free from any restrictions under the Plan. Unrestricted Common Stock may be
issued to participants in recognition of past services or for other valid
consideration.
PERFORMANCE SHARE AWARDS. The Committee may also grant performance shares
awards to participants entitling the participants to receive shares of Common
Stock upon the achievement of individual or Company performance goals and such
other conditions as the Committee shall determine.
DISTRIBUTION EQUIVALENT RIGHTS. The Committee may grant distribution
equivalent rights, which entitle the recipient to receive credits for
distributions that would be paid if the recipient had held a specified number of
shares of Common Stock. Distribution equivalent rights may be granted as a
component of another award or as a freestanding award. Distribution equivalent
rights may be settled in cash, shares or a combination thereof, in a single
installment or installments, as specified in the award. Awards payable in cash
on a deferred basis may provide for crediting and payment of interest
equivalents.
ADJUSTMENTS FOR SHARE DIVIDENDS, MERGERS AND SIMILAR EVENTS. The Committee
will make appropriate adjustments in outstanding awards to reflect Common Stock
dividends, splits and similar events. In the event of a merger, liquidation,
sale of the Company or similar event, the Committee, in its discretion, may
provide for substitution or adjustment of outstanding awards, or may terminate
all awards with payment of cash or in-kind consideration.
CHANGE OF CONTROL. Except as the Committee may otherwise provide in an
award agreement, the award becomes fully vested and non-forfeitable, all
employment or membership on the Board of Directors requirements are deemed to
have been satisfied and all performance goals and objectives are deemed to have
been fully met upon the occurrence of a "Change of Control" (as defined in the
Plan or as otherwise defined in the award agreement).
AMENDMENTS AND TERMINATION. The Board of Directors may at any time amend or
discontinue the Plan and the Committee may at any time amend or cancel
outstanding awards; however, no such action may be taken which adversely affects
any rights under an outstanding award without the holder's con-
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sent. Further, Plan amendments may be subject to approval by the Company's
stockholders if and to the extent required by the Code to preserve the qualified
status of Incentive Options or to preserve the tax deductibility of compensation
earned under the Plan.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
The Company has entered into an Employment Agreement with John B. Poole, as
its President and Chief Executive Officer, that will continue in effect until
the third anniversary of the effective date of the agreement and will be
automatically renewed each January 1 for one additional year, unless otherwise
terminated. Mr. Poole's annual base salary will be $220,000, subject to increase
by the Board of Directors. Mr. Poole's Employment Agreement entitles him to
receive additional bonus compensation as may be determined by the Company's
Board of Directors in its sole discretion, based upon the Company's budgeted
Funds from Operations per share. In addition, Mr. Poole will receive options to
purchase 80,258 shares of Common Stock. Mr. Poole's Employment Agreement may be
terminated by the Company at any time for Cause which is defined in his
Employment Agreement to include his material failure to perform his duties under
his Employment Agreement, his material breach of his confidentiality and
non-competition covenants or his conviction of any felony involving moral
turpitude. Mr. Poole may terminate his Employment Agreement upon the occurrence
of certain events described in the Employment Agreement, including any
diminution in his job responsibilities, reduction in salary or benefits of more
than 5% or a change in control. In the event that the Company terminates Mr.
Poole's Employment Agreement without Cause, or Mr. Poole terminates his
Employment Agreement as described in the preceding sentence, Mr. Poole is
entitled to severance compensation equal to three times his then current annual
base salary and bonus. All existing stock options also will vest. If Mr. Poole
becomes disabled, he will continue to receive all of his compensation and
benefits for six months, less any amounts received under any disability
insurance provided by the Company. If the disability continues for six months,
the Company may terminate Mr. Poole's employment, with a thirty-six month payout
of salary and bonus, less any amounts received under any disability insurance
provided by the Company. Mr. Poole's Employment Agreement also contains
provisions which are intended to limit him from competing with the Company
throughout the term of the agreement and for a period of 18 months thereafter.
In particular, Mr. Poole may not establish, engage in, own, manage, operate,
join or control or participate in the establishment, ownership (other than as
the owner of less than 10% of the stock of a corporation whose shares are
publicly traded), management, operation or control of, or be a director,
officer, employee, salesman, agent or representative of, or be a consultant to,
any person or entity in any healthcare REIT in competition with the Company.
The Company has entered into an Employment Agreement with Douglas Listman,
as its Chief Financial Officer, that will continue until the third anniversary
of the effective date of the agreement and will be automatically renewed each
January 1 for one additional year, unless otherwise terminated. Mr. Listman's
annual base salary will be $120,000, subject to discretionary annual
adjustments. Mr. Listman's Employment Agreement also entitles him to receive a
discretionary cash bonus within 90 days of the end of the calendar year. In
addition, Mr. Listman will receive options to purchase 10,701 shares of Common
Stock. Mr. Listman's Employment Agreement may be terminated by the Company at
any time for Cause which is defined in his Employment Agreement to include his
failure to perform his duties under his Employment Agreement, his disability or
inability to perform his duties, or his conviction of a felony or his conviction
of theft, larceny or embezzlement of the Company's property. Mr. Listman may
terminate his Employment Agreement upon the occurrence of certain events
described in the Employment Agreement, including any material diminution in his
job responsibilities or a change in control. In the event the Company terminates
Mr. Listman's Employment Agreement without Cause, or Mr. Listman terminates his
Employment Agreement as described in the preceding sentence, Mr. Listman is
entitled to severance equal to one year of salary. Mr. Listman's Employment
Agreement also contains provisions which are intended to limit him from
competing with the Company throughout the term of the agreement and for a period
of up to 12 months thereafter. As is the case with Mr. Poole's Employment
Agreement, Mr. Listman may not compete with the Company and join or invest in
any healthcare REIT in competition with the Company.
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Dr. Elkins will enter into a Non-Competition Agreement with the Company
restricting activities by Dr. Elkins in his individual capacity at any location
within 10 miles of any office or facility owned, leased or operated by the
Company during the period that Dr. Elkins serves as Chairman or as a director of
the Company, provided that any activity engaged in by Dr. Elkins as an officer,
director or employee of, or any interest of Dr. Elkins as a stockholder in, IHS
will not in any way be limited by such provisions. Dr. Elkins' Non-Competition
Agreement also will provide that he may retain his current board positions and
that he may develop office and similar development projects not related to the
healthcare business.
INCENTIVE COMPENSATION
The Company intends to establish an incentive compensation plan for
executive officers of the Company. This plan will provide for payment of cash
bonuses to participating executive officers after evaluating the employee's
performance and the overall performance of the Company. The President and Chief
Executive Officer will make recommendations to the Compensation Committee of the
Board of Directors, which will make the final determination of the award of
bonuses. The Compensation Committee will determine such bonuses, if any, for the
President and Chief Executive Officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from: (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL. This provision has no effect on the availability of equitable
remedies, such as injunctive relief and rescissionary relief. The Charter also
provides that no amendment thereto may limit or eliminate this limitation of
liability with respect to events occurring prior to the effective date of such
amendment.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to: (i) any present or
former director or officer or (ii) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his or her status as a present or former director or
officer of the Company. The Bylaws obligate the Company, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to: (i) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (ii) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or
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other capacities unless it is established that: (i) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(a) was committed in bad faith or (b) was the result of active and deliberate
dishonesty; (ii) the director or officer actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of: (i) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (ii) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and directors to the same extent that
indemnification is provided under the Charter and Bylaws.
INDEMNIFICATION AGREEMENTS
The Company will enter into indemnification agreements with each of its
executive officers and directors. The indemnification agreements will require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, the Company must also indemnify and advance all expenses incurred by
executive officers and directors seeking to enforce their rights under the
indemnification agreements and shall cover executive officers and directors
under any directors' and officers' liability insurance that the Company may
maintain. Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by law, it provides greater assurance to
directors and executive officers that indemnification will be available because,
as a contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.
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STRUCTURE AND FORMATION OF THE COMPANY
THE OPERATING ENTITIES OF THE COMPANY
The Formation Transactions were designed to: (i) enable the Company to
raise the necessary capital to acquire the Initial Properties; (ii) provide a
vehicle for future acquisitions; and (iii) enable the Company to comply with
certain requirements under the Code (and the regulations promulgated by the IRS
thereunder (the "Treasury Regulations") relating to REITs.
The Company will be structured as an UPREIT, which means that following the
completion of the Offering and the Formation Transactions, substantially all of
the Company's assets will be held by, and its operations conducted through, the
Operating Partnership. Through MP Operating, Inc. (the "General Partner"), which
will be the sole general partner of the Operating Partnership, the Company will
control the Operating Partnership. The board of directors of the General
Partner, the members of which will be the same as the members of the Board of
Directors of the Company, will manage the affairs of the Operating Partnership
by directing the affairs of the General Partner. The Operating Partnership will
continue in full force and effect until December 31, 2098, or until sooner
dissolved pursuant to the terms of the Operating Partnership Agreement. Pursuant
to the Operating Partnership Agreement, the General Partner has full, exclusive
and complete responsibility and discretion in the management, operation and
control of the Operating Partnership, including the ability to cause the
Operating Partnership to enter into certain major transactions, including
acquisitions, developments, and dispositions of properties and refinancings of
existing indebtedness. No limited partner may take part in the operation,
management or control of the Operating Partnership by virtue of being a holder
of Units. The Company will contribute the net proceeds of the Offering to the
Operating Partnership in exchange for a number of Units equal to the amount of
Common Stock sold in the Offering. Initially, MP LP will be the sole limited
partner of the Operating Partnership.
FORMATION TRANSACTIONS
The Formation Transactions include the following transactions which have
occurred or will have occurred prior to or concurrent with the consummation of
the Offering:
o The Company was incorporated in Maryland in February 1998 at which
time the Company issued 100 shares of Common Stock to Dr. Elkins,
which was all of the outstanding shares of Common Stock. The Operating
Partnership was formed as a Delaware limited partnership in April 1998
as a wholly owned subsidiary of the Company, with MP Operating as the
general partner and MP LP as the limited partner. Lyric was previously
formed in May 1997 as a Delaware limited liability company.
o The Company has received a commitment for and anticipates entering
into the Credit Facility. The Credit Facility will be used to: (i)
finance a portion of the purchase price and acquisition costs of the
Initial Properties; (ii) facilitate future acquisitions or financings;
and (iii) for working capital and other general corporate purposes. No
assurance can be given that the Company will enter into the Credit
Facility.
o The Company will acquire the Lyric Properties from IHS for
approximately $359.7 million. The Company will lease all of the Lyric
Properties to Lyric III pursuant to the Master Lease. Lyric III will
sublease the Lyric Properties to the Facility Subtenants pursuant to
individual Facility Subleases. Rent payments and the performance of
Lyric III under the Master Lease and the Facility Subtenants under the
Facility Subleases will be guaranteed by Lyric. IHS will manage all of
the Lyric Properties under a management agreement with Lyric. The
Master Lease will provide for a minimum base rent of $36.4 million,
and, subject to certain conditions, for annual base rent increases,
commencing January 1, 1999, equal to the lesser of: (i) two times the
increase in the CPI; or (ii) a 3%, over the rent in the base lease
year, provided that in no event shall the base rent decrease from the
prior year. As a "triple net lease," the Master Lease requires that
Lyric III or the Facility Subtenants pay all operating expenses,
taxes, insurance and other costs. The Lyric Properties were divided
into five groups whose initial lease terms under the Facility
Subleases will be staggered over 9, 10, 11, 12 and 13 years, with
three successive options to extend these terms for additional periods
of 10 years
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each provided that Lyric III must exercise its options to extend with
respect to all, but not less than all, of the Facility Subleases which
are then subject to renewal under the Master Lease. See "Risk Factors
-- Dependence on Lyric III, Lyric and IHS for the Company's Revenues
May Adversely Affect the Company's Ability to Make Distributions," "--
Certain Aspects of Owning Healthcare Facilities May Adversely Affect
the Ability of the Company's Lessees and Borrowers to Make Payments to
the Company" and "Business of the Company and its Properties."
o The Company will acquire the Peak Medical Properties from IHS for
approximately $11.3 million, subject to existing leases at each
facility with the Peak Medical Tenant. The leases are substantially
similar to the Master Lease and are cross defaulted. Peak Medical will
guarantee the payment and performance of Peak Medical Tenant under the
leases.
o The Company will acquire the Trans Health Properties from an
unaffiliated third party for approximately $11.5 million and lease the
Trans Health Properties to wholly owned subsidiaries of Trans Health
under a master lease substantially similar to the Master Lease. Trans
Health will guarantee the payment and performance of all obligations
under the master lease for the Trans Health Properties.
o As the sole stockholder of the General Partner and the Limited
Partner, the Company will initially indirectly own 100% of the
ownership interests in the Operating Partnership and the Operating
Partnership will own the Initial Properties. Following the Offering,
the Operating Partnership may issue Units to third parties who
contribute properties in exchange for Units.
o The Company and IHS will enter into the Purchase Option Agreement
pursuant to which the Company will be granted options to purchase the
Option Properties for a total purchase price of approximately $104.7
million. The Purchase Option Agreement will have an initial term of
two years, with the Company granted three successive renewal options
of one year each. It is currently anticipated that all facilities
acquired by the Company under the Purchase Option Agreement will be
leased to Lyric III and its consolidated subsidiaries and managed by a
subsidiary of IHS. See "Key Agreements -- Purchase Option Agreement,"
and "Risk Factors -- Conflicts of Interest with Affiliated Directors
in the Formation Transactions and the Business of the Company Could
Adversely Affect the Company's Dealings with IHS and Lyric."
o In addition to the Purchase Option Agreement, the Company and IHS will
enter into the Right of First Offer Agreement for a period of four
years from the closing of the Offering (subject to annual renewals
thereafter), pursuant to which IHS must offer the Company the
opportunity to purchase or finance any healthcare facility IHS
acquires or develops and elects to sell and leaseback or finance in a
transaction of the type normally engaged in by the Company. The
Company will be offered the opportunity to acquire or finance the IHS
facility on terms and conditions that, should the Company decline to
pursue the proposed transaction, must be offered to any other third
parties by IHS. If IHS is only able to sell and leaseback or finance
the IHS facility on better terms with a third party than previously
offered to the Company, then the Company must again be offered those
new terms and conditions for consideration prior to IHS finalizing a
transaction with the third party. It is currently anticipated that
some of the IHS facilities that may be acquired by the Company under
the Right of First Offer Agreement may involve Lyric and its
consolidated subsidiaries as lessee and a subsidiary of IHS as
manager. The Company believes that the Right of First Offer Agreement
will provide it with opportunities to acquire and finance healthcare
facilities that complement its existing portfolio of facilities. See
"Risk Factors -- Conflicts of Interest with Affiliated Directors in
the Formation Transactions and the Business of the Company Could
Adversely Affect the Company's Dealings with IHS and Lyric" and "Key
Agreements -- Right of First Offer Agreement."
o Following the completion of the Offering and the purchase of the
Initial Properties, the Company will have approximately $65.4 million
available under the Credit Facility for general corporate purposes,
including acquisitions of additional properties.
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o Upon completion of the Offering, the purchasers of the shares of
Common Stock sold in the Offering (other than directors and executive
officers of the Company) will own 95.3% of the issued and outstanding
shares of Common Stock, or 92.7% assuming the exercise of all
outstanding stock options granted to directors and executive officers
pursuant to the 1998 Omnibus Securities and Incentive Plan. Upon
completion of the Offering, directors and executive officers of the
Company will own 4.7% of the issued and outstanding shares of Common
Stock or 7.3% assuming the exercise of all outstanding stock options
held by such individuals.
TRANSACTIONS WITH AND BENEFITS TO RELATED PARTIES
In connection with the Formation Transactions and the Offering, the Company
will enter into transactions with Dr. Elkins, IHS and Lyric, which transactions
may benefit Dr. Elkins, IHS and Lyric or result in conflicts of interest between
the Company and Dr. Elkins, IHS or Lyric, including the following:
o All of the Lyric Properties will be purchased from IHS and leased to
Lyric III pursuant to the Master Lease. The Company will obtain third
party appraisals of the values of the Lyric Properties. However, the
purchase price for the Lyric Properties and the terms and conditions
of the Master Lease, the Purchase Option Agreement and the Right of
First Offer Agreement will be negotiated between the Company, IHS and
Lyric and, as a result of the lack of an arm's length relationship
between the Company, IHS and Lyric, may not reflect market prices or
market terms. Additionally, future conflicts of interest may arise as
a result of any failure by the Company to enforce the Master Lease,
the Purchase Option Agreement, the Right of First Offer Agreement and
other agreements to be entered into by and among the Company, IHS and
Lyric. See "Risk Factors -- Conflicts of Interest with Affiliated
Directors in the Formation Transactions and the Business of the
Company Could Adversely Affect the Company's Dealings with IHS and
Lyric," "Conflicts of Interest," and "Structure and Formation of the
Company."
o Following the Offering, the Company may acquire additional properties
from IHS pursuant to the Purchase Option Agreement or the Right of
First Offer Agreement. As a result of the lack of an arm's length
relationship between the Company, IHS and Lyric, the price to be paid
for such properties may not reflect market prices or market terms.
Following the Offering, the Company will be prohibited by the terms of
its Bylaws from acquiring additional properties from, or providing
financing on properties involving, IHS or the Company's directors and
officers or affiliates thereof without the approval of a majority of
the Disinterested Directors including any properties to be acquired
pursuant to the Right of First Offer Agreement and any properties to
be acquired pursuant to the Purchase Option Agreement.
o Dr. Elkins will simultaneously serve as Chairman of the Board of
Directors of the Company and Chairman of the Board of Directors, Chief
Executive Officer and President of IHS. See "Conflicts of Interest"
and "Management."
o IHS and TFN Healthcare each will beneficially own 50% of Lyric.
Timothy F. Nicholson, a director of IHS, beneficially owns 100% of TFN
Healthcare. At March 1, 1998 Dr. Elkins owned approximately 7.6% of
the outstanding common stock of IHS.
o The Company will: (i) grant to Dr. Elkins options to purchase 315,681
shares of Common Stock; (ii) grant to its executive officers and
certain other employees options to purchase an aggregate of 112,361
shares of Common Stock; and (iii) grant to each of the four
non-employee director nominees at the time they become directors
options to purchase 21,402 shares of Common Stock, all under the
Company's 1998 Omnibus Securities and Incentive Plan. All such options
will have an exercise price of $.001 per share and will become
exercisable on the date of the Offering, subject to certain
restrictions on transfer. Assuming an initial public offering price of
$18.50 per share, the value of the shares issuable upon exercise of
the options at the date of the Offering will be $5.8 million (Dr.
Elkins), $2.1 million (Company executive officers and employees as a
group), and $.4 million (each non-employee director other than Dr.
Elkins), respectively. See "Management -- 1998 Omnibus Securities and
Incentive Plan."
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o Upon completion of the Offering, the purchasers of the shares of
Common Stock sold in the Offering (other than directors and executive
officers of the Company) will own 95.3% of the issued and outstanding
shares of Common Stock or 92.7% assuming the exercise of all
outstanding stock options granted to directors and executive officers
pursuant to the 1998 Omnibus Securities and Incentive Plan. Upon
completion of the Offering, directors and executive officers of the
Company will own 4.7% of the issued and outstanding shares of Common
Stock or 7.3% assuming the exercise of all outstanding stock options
held by such individuals.
o The Company will pay to IHS approximately $371.0 million as the
purchase price for the Lyric Properties and the Peak Medical
Properties plus approximately $1.0 million as repayment of a loan made
by IHS to the Company in connection with the Formation Transactions
and the Company's operations prior to the Offering.
o The Company will sublease its headquarters office space from IHS.
o Lyric and the Facility Subtenants will enter into management
agreements with IHS under which IHS will have the exclusive right to
manage the Lyric Properties and IHS will receive (i) a base management
fee equal to (a) 3% of the gross revenues of all facilities covered by
the master management agreement or (b) 4% of the gross revenues of all
facilities covered by the master management agreement if annual gross
revenues for all facilities owned by Lyric and managed by IHS exceed
$350 million and (ii) an annual incentive fee equal to 70% of the
annual net cash flow of all facilities covered by the management
agreements. See "Key Agreements -- Master Management Agreement and
Facility Management Agreements."
o Lyric and the Facility Subtenants will enter into franchise agreements
with IHS under which IHS will grant to Lyric and the Facility
Subtenants the right to use certain proprietary materials developed
and used by IHS in its operation of healthcare facilities. IHS will
receive an annual franchising fee under the agreements equal to 1% of
the gross revenues of all facilities covered by the franchise
agreements. See "Key Agreements -- Master Franchise Agreement and
Facility Franchise Agreements."
VALUATION OF INITIAL PROPERTIES
The valuation of the Initial Properties has been made based on a number of
factors, including: (i) independent appraisals of each of the Lyric Properties
and the Peak Medical Properties; (ii) analysis of historical operating results
and corresponding industry cash flow coverage ratios of the Initial Properties;
(iii) analysis of projected operating results and corresponding industry cash
flow coverage ratios of the Initial Properties for the twelve months ending
December 31, 1998; (iv) comparable sale and leaseback transactions in this
sector; (v) qualitative assessments of the competitive position and business
strategy of the operator; and (vi) inquiries of management concerning historical
and projected operating results and the physical condition of assets.
The appraisals of the Lyric Properties and the Peak Medical Properties were
obtained by Monarch and paid for by IHS: provided, however, that Peak Medical
will reimburse IHS for the appraisals of the Peak Medical Properties. The
appraisals were prepared by Valuation Counselors Group, Inc. ("Valuation
Counselors") a large, full service independent valuation firm and Member,
Appraisal Institute ("M.A.I."), founded in 1970, and headquartered in Chicago
with offices in several other cities in the United States. Valuation Counselors
is not affiliated with either Monarch, IHS or any of the lessees. The appraisals
indicated that the Lyric Properties on an aggregate portfolio basis have a fair
market value of $364.9 million and the two Peak Medical Properties have an
aggregate fair market value of $11.6 million. The appraised values were
developed based on a correlation of income, sales comparison and cost
approaches. The income approach recognizes that the underlying value of
operating assets can be represented by a discounted stream of earnings. The
sales comparison approach assumes that when a facility is replaceable in the
market its value tends to be set at the cost of acquiring a comparable
substitute facility. The cost approach indicates the value of tangible assets as
established by the cost of replacement less depreciation plus land value. The
appraisers based their valuations primarily on the income approach, which, in
their opinion is the most reliable method of valuation. Because the apprais-
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als represent only an estimate of value, and are subject to numerous
assumptions, the appraisals do not purport to represent precise measures of
realizable value and should not be relied upon for purposes of determining such
value at any particular time. In addition, the estimate does not reflect any
benefits to the Company of owning the facilities on a portfolio basis.
The purchase price of the Initial Properties was determined through
negotiations between the Company and the respective sellers based on the factors
discussed above and after taking into account the proposed lease terms.
Furthermore, the properties to be acquired from IHS were valued based on a
portfolio basis rather than on an individual property-by-property basis. As a
result, the purchase price for an individual property may be higher or lower
than its M.A.I. appraised value.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the anticipated policies with respect to
investments, financing and certain other activities of the Operating Partnership
and the Company. Upon consummation of the Offering, these policies will be
determined by the Board of Directors of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors without
notice to or a vote of the stockholders of the Company, or the partners of the
Operating Partnership, except that changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE AND INVESTMENTS IN
MORTGAGES. The Company currently plans to conduct all of its investment
activities through the Operating Partnership and subsidiary entities. The
Company's principal business objectives are to maximize total stockholder
returns through a combination of growth in Funds from Operations per share and
enhancement of the value of its investment portfolio. The Company intends to
achieve its principal growth objectives through: (i) the acquisition of high
quality healthcare properties operated by experienced management teams; (ii) the
generation of internal growth in rental and other income; and (iii) the
employment of a conservative and flexible capital structure. In general, it is
the Company's policy to acquire assets primarily for income. There can be no
assurance, however, that the Company's strategies will be implemented
successfully or that its business objectives will be realized. See "Business and
Growth Strategies."
The Company intends to acquire a diversified portfolio of income-producing
healthcare facilities or mortgages thereon, with an initial focus on facilities
located primarily in the southeastern and southwestern United States. When
evaluating potential healthcare assets for investments, the Company performs
substantial property level and market analysis and due diligence to arrive at
its valuation estimate, including: (i) analysis of historical property financial
performance and historical and implied cash flow coverages; (ii) analysis of
projected financial performance and implied cash flow coverages, including the
anticipated impact of the implementation of a prospective payment system; (iii)
trends analysis of key operating statistics such as reimbursement received per
patient per day, revenue mix, occupancy levels and payor quality mix; (iv)
review of regulatory surveys and resulting actions; (v) review of the quality of
the facility's construction and the commissioning of engineering reports and
environmental reviews; (vi) assessment of the competitive positioning of the
asset in its local market based on its historical financial performance,
services offered and recent comparable transactions in the market; (vii) review
of regulatory and reimbursement environment in the state; and (viii) a strategic
assessment of the property's fit within the Company's overall portfolio.
The Company also evaluates potential new lessee/operators utilizing several
qualitative and quantitative factors. Monarch interviews members of senior
management and frequently visits existing lessee/ operator facilities prior to
entering into a new relationship. The Company also analyzes the lessee/
operator's financial statements to assess their profitability and financial
resources. In addition to direct contact with the management and a review of
their financial status, the Company utilizes its network of relationships within
the industry to conduct multiple reference checks on each potential new lessee/
operator. Although the Company initially will emphasize investments in skilled
nursing facilities, specialty hospitals, assisted living and geriatric care
facilities, and, to a lesser extent, medical and other
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office buildings, it may seek to diversify into other types of healthcare
facilities, such as retirement facilities, congregate care facilities and
continuing care retirement communities. The Company also may seek to diversify
its investments in terms of geographic location, operators and, subject to the
foregoing, facility types. Nonetheless, substantially all of the Initial
Properties will be leased to subsidiaries of Lyric and managed by a subsidiary
of IHS, and it is anticipated that a significant portion of new investments also
will involve subsidiaries of Lyric as tenant and a subsidiary of IHS as manager.
There are no limitations on the amount or percentage of the Company's total
assets that may be invested in any one property. The Company has not established
any limit on the number or amount of mortgages which may be placed on any one
piece of property. Furthermore, no limits have been set on the concentration of
investments in any one location, operator or facility type. Where appropriate,
subject to the best interests of the Company and subject to the REIT
qualification rules, the Operating Partnership may sell certain of its
properties.
The Company may participate with other entities in property ownership
through joint ventures or other types of co-ownership in accordance with the
Company's investment policies. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, there are
no limitations on the amount or percentage of the Company's total assets that
may be invested in such security or interest.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring investments. Any such financing or indebtedness will have
priority over the Company's equity interest in such property.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of other REITs, securities of other entities engaged in
real estate activities or securities of other issuers. The Company does not
currently intend to invest in securities of other entities for the purpose of
exercising control. No such investment will be made, however, unless the Board
of Directors determines that the proposed investment would not cause the Company
or the Operating Partnership to be an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
FINANCING POLICIES
To the extent that the Company's Board of Directors determines to obtain
additional capital, the Company may raise such capital through debt financing,
additional equity offerings (including shares of Preferred Stock and other
securities senior to the Common Stock), or retention of cash flow (subject to
provisions of the Code concerning the taxability of undistributed income of
"real estate investment trusts") or a combination of these methods.
The Company currently intends to maintain a debt to total market
capitalization ratio (i.e., total debt of the Company as a percentage of equity
market value plus total debt) of less than 50%. The Board of Directors of the
Company may, however, from time to time reevaluate this policy and decrease or
increase this ratio accordingly. The Company has not established any limit on
the number or amount of mortgages which may be placed on any one piece of
property. The Company will determine its financing policies in light of then
current economic conditions, relative costs of debt and equity capital, market
values of properties, growth and acquisition opportunities and other factors.
See "Risk Factors -- The Company's Use of Debt Financing, Absence of Limitation
on Debt and Increases in Interest Rates Could Adversely Affect the Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LENDING POLICIES
The Company may consider offering financing secured by the property sold in
connection with the sale of properties where the provision of such financing
will increase the value received by the Company for the property sold.
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CONFLICT OF INTEREST POLICIES
Dr. Elkins, the Chairman of the Board of Directors, also serves as Chairman
of the Board of Directors and President and Chief Executive Officer of IHS. At
March 1, 1998, Dr. Elkins beneficially owned approximately 7.6% of the
outstanding common stock of IHS. Because he serves as Chairman of both IHS and
the Company, Dr. Elkins may be subject to certain conflicts of interest in
fulfilling his responsibilities to the Company and its stockholders. Under
Maryland law, any contract or other transaction between a corporation and any of
its directors or any other corporation, firm or other entity in which any of its
directors is a director or has a material financial interest may be void or
voidable. However, the MGCL provides that any such contract or transaction will
not be void or voidable solely because of the common directorship or interest
if: (i) the contract or transaction is authorized, approved or ratified, after
disclosure of, or with knowledge of, the common directorship or interest, by the
affirmative vote of a majority of Disinterested Directors (even if the
Disinterested Directors constitute less than a quorum) or by the affirmative
vote of a majority of the votes cast by disinterested stockholders; or (ii) it
is fair and reasonable to the corporation. The Company believes that a
requirement of Disinterested Director approval of such transactions, including
transactions with IHS, will help to eliminate or minimize certain potential
conflicts of interest. Therefore, pursuant to the Bylaws, without the approval
of a majority of the Disinterested Directors, the Company may not engage in any
transaction: (i) involving IHS, any director, officer, or employee of the
Company or any affiliate of IHS or the Company; (ii) involving any partnership
or limited liability company of which any director or officer may be a partner
or member; (iii) involving any corporation or association of which any director
or officer may be a director or officer; (iv) involving any corporation or
association of which any director or officer of the Company may be interested as
the holder of any amount of its stock (or, in the case of a publicly traded
corporation, the holder of five percent or more of its common stock or five
percent or more of the voting power outstanding of such corporation); or (v) in
which IHS, any director, officer or employee otherwise may be a party, or may be
pecuniarily or otherwise interested. Any director who does not have an interest
described in the preceding sentence shall be deemed a "Disinterested Director"
with respect to such matter. See "Risk Factors -- Conflicts of Interest with
Affiliated Directors in the Formation Transactions and the Business of the
Company Could Adversely Affect the Company's Dealings with IHS and Lyric."
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company may, but does not presently intend to, make investments other
than as previously described. The Company will make investments only through the
Operating Partnership or a subsidiary of the Operating Partnership. The Company
will have authority to offer shares of its Common Stock or other equity or debt
securities in exchange for property and to repurchase or otherwise reacquire its
Common Stock or any other securities and may engage in such activities in the
future. Similarly, the Operating Partnership may offer additional Units or other
equity interests in the Operating Partnership that are exchangeable into shares
of Common Stock, in exchange for property. The Operating Partnership also may
make loans to joint ventures in which it may participate in the future. The
Company has not engaged in trading, underwriting or agency distribution or sale
of securities of other issuers. At all times, the Company intends to cause the
Operating Partnership to make investments in such a manner as to be consistent
with the requirements of the Code to qualify as a REIT unless, because of
circumstances or changes in the Code (or the regulations promulgated
thereunder), the Board of Directors determines that it is no longer in the best
interests of the Company to continue to qualify as a REIT. The Company's
policies with respect to such activities may be reviewed and modified from time
to time by the Company's directors without notice to or the vote of its
stockholders.
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OPERATING PARTNERSHIP AGREEMENT
The following summary of the Operating Partnership Agreement describes the
material provisions of such agreement. This summary is qualified in its entirety
by reference to the Operating Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership was organized as a Delaware limited partnership
on April 17, 1998. The Operating Partnership will be the entity through which
the Company conducts its business and owns all of its assets (either directly or
through subsidiaries). The Company through MP Operating and MP LP initially will
hold all of the Operating Partnership Units. Through MP Operating, which will be
the sole general partner of the Operating Partnership, the Company will control
the Operating Partnership. The board of directors of the General Partner, the
members of which will be the same as the members of the Board of Directors of
the Company, will manage the affairs of the Operating Partnership by directing
the affairs of the General Partner. The Company's indirect limited and general
partner interests in the Operating Partnership will entitle it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to the percentage interests of the General Partner and MP LP
therein and will entitle the Company (through MP LP) to vote on all matters
requiring a vote of the limited partners.
Pursuant to the Operating Partnership Agreement, the General Partner has
full, exclusive and complete responsibility and discretion in the management,
operation and control of the Operating Partnership, including the ability to
cause the Operating Partnership to enter into certain major transactions,
including acquisitions, developments and dispositions of properties and
refinancings of existing indebtedness. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units. Certain restrictions apply to the Company's
ability to engage in a Business Combination, as described more fully under "--
Extraordinary Transactions" below.
The Operating Partnership Agreement provides that all business activities
of the Company, including all activities pertaining to the acquisition and
operating of properties, will be conducted through the Operating Partnership,
and that the Operating Partnership must be operated in a manner that will enable
the Company to satisfy the requirements for being classified as a REIT.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Operating Partnership provides that neither MP LP nor the General
Partner may transfer its interests in the Operating Partnership or withdraw as a
partner, and the Company may not transfer any of its interests in MP LP or the
General Partner except: (i) in connection with a merger or sale of all or
substantially all of the assets of the Company pursuant to a transaction for
which the Company has obtained the requisite approval in accordance with the
terms of the Operating Partnership Agreement; (ii) if the limited partners
holding at least three-fourths of the Units (excluding Units owned by the
Company or its affiliates) consent to such transfer; (iii) if such transfer is
to an entity that is wholly owned by the Company and is a qualified REIT
subsidiary under Section 856(i) of the Code; and (iv) the Company may liquidate
MP LP and the General Partner.
AMENDMENTS TO THE OPERATING PARTNERSHIP AGREEMENT
Amendments to the Operating Partnership Agreement may be proposed by the
Company or by limited partners owning at least 20% of the Units.
Generally, the Operating Partnership Agreement may be amended with the
approval of the General Partner and limited partners (including the Company)
holding a majority of the Units. Certain amendments that would, among other
things, convert a limited partner's interest into a general partner's interest,
modify the limited liability of a limited partner, alter the interest of a
partner in profits or losses or the right to receive any distribution, alter or
modify the redemption right described below, or cause
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the termination of the Operating Partnership at a time or on terms inconsistent
with those set forth in the Operating Partnership Agreement must be approved by
the General Partner and each limited partner that would be adversely affected by
such amendment. Notwithstanding the foregoing, the General Partner will have the
power, without the consent of the limited partners, to amend the Operating
Partnership Agreement as may be required to: (i) add to the obligations of the
General Partner or surrender any right or power granted to the General Partner;
(ii) reflect the admission, substitution, termination or withdrawal of partners
in accordance with the terms of the Operating Partnership Agreement; (iii)
establish the rights, powers, and duties of any additional partnership interests
issued in accordance with the terms of the Operating Partnership Agreement; (iv)
reflect a change of an inconsequential nature that does not materially adversely
affect the limited partners, or cure any ambiguity, correct or supplement any
provisions of the Operating Partnership Agreement, or make other changes
concerning matters under the Operating Partnership Agreement that are not
otherwise inconsistent with the Operating Partnership Agreement or law; or (v)
satisfy any requirements of federal or state law. Certain provisions affecting
the rights and duties of the General Partner (e.g., restrictions on the General
Partner's power to conduct businesses other than owning Units; restrictions
relating to the issuance of additional Units of the Company and related capital
contributions to the Operating Partnership; restrictions relating to certain
extraordinary transactions involving the Company; restrictions relating to
transactions with affiliates of the Operating Partnership; and rules relating to
meetings of the partners) may not be amended without the approval of a majority
or, in certain instances, a super majority of the Units not held by the Company.
TRANSFER OF UNITS; SUBSTITUTE LIMITED PARTNERS
The Operating Partnership Agreement provides that limited partners
generally may transfer their Units without the consent of any other person, but
may substitute a transferee as a limited partner only with the prior written
consent of the General Partner of the Operating Partnership. In addition,
limited partners may not transfer Units in any event in violation of certain
regulatory and other restrictions set forth in the Operating Partnership
Agreement.
REDEMPTION OF UNITS
The Operating Partnership will be obligated to redeem each Unit at the
request of the holder thereof for cash equal to the fair market value of one
share of Common Stock at the time of such redemption, provided that the Company
may elect to acquire any such Unit presented for redemption for one share of
Common Stock or an amount of cash of the same value. The Company presently
anticipates that it will elect to issue Common Stock in connection with each
such redemption, rather than having the Operating Partnership pay cash. With
each such redemption, the Company's wholly owned subsidiaries' percentage
ownership interest in the Operating Partnership will increase. If Units are
redeemed for cash, such redemption will be recorded at the fair market value of
the Units.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The General Partner is authorized, without the consent of the limited
partners, to cause the Operating Partnership to issue additional Units to the
Company, to the limited partners or to other persons for such consideration and
on such terms and conditions as the General Partner deems appropriate. If
additional Units are issued to the Company, unless such Units are issued upon
the conversion, redemption or exchange of indebtedness, Units or other
securities, then the Company must: (i) issue additional shares of Common Stock
or other securities or interests of the Company and must contribute to the
Operating Partnership the entire proceeds received by the Company from such
issuances or (ii) issue additional Units to all partners in proportion to their
respective interests in the Operating Partnership. Consideration for additional
partnership interests may be cash or other property or assets. No limited
partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that the Company may not
generally engage in any merger, consolidation or other combination with or into
another person or sale of all or substantially all of its assets or any
reclassification, or any recapitalization or change of outstanding shares of
Common
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Stock (a "Business Combination"), unless the holders of Units will receive, or
have the opportunity to receive, the same consideration per Unit as holders of
shares of Common Stock receive per share of Common Stock in the transaction if
holders of Units will not be treated in such manner in connection with a
proposed Business Combination, the Company may not engage in such transaction
unless limited partners (other than the Company) holding at least 75% of the
Units held by limited partners vote to approve the Business Combination. In
addition, the General Partner has agreed in the Operating Partnership Agreement
with the limited partners that the Company will not consummate a Business
Combination in which the Company conducted a vote of the stockholders unless the
matter would have been approved had holders of Units been able to vote together
with the stockholders on the transaction. The foregoing provision of the
Operating Partnership Agreement would under no circumstances enable or require
the Company to engage in a Business Combination which required the approval of
the Company's stockholders if the Company's stockholders did not in fact give
the requisite approval. Rather, if the Company's stockholders did approve a
Business Combination, the Company would not consummate the transaction unless:
(i) the General Partner first conducts a vote of holders of Units (including the
Company) on the matter; (ii) the Company votes the Units held by it in the same
proportion as the stockholders of the Company voted on the matter at the
stockholder vote; and (iii) the result of such vote of the Unit holders
(including the proportionate vote of the Company's Units) is that had such vote
been a vote of stockholders, the Business Combination would have been approved
by the stockholders. As a result of these provisions of the Operating
Partnership, a third party may be inhibited from making an acquisition proposal
that it would otherwise make, or the Company, despite having the requisite
authority under its Charter, may not be authorized to engage in a proposed
Business Combination.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Operating Partnership Agreement generally provides that the General
Partner will incur no liability to the Operating Partnership or any limited
partner for losses sustained or liabilities incurred as a result of errors in
judgment, or mistakes of fact or law, or of any act or omission if the General
Partner carried out its duties in good faith. In addition, the General Partner
is not responsible for any misconduct or negligence on the part of its agents,
provided the General Partner appointed such agents in good faith. The General
Partner may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors, and any
action it takes or omits to take in reliance upon the opinion of such persons,
as to matters that the General Partner reasonably believes to be within their
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
The Operating Partnership Agreement also provides for indemnification of
the General Partner, the directors and officers of the General Partner, and such
other persons as the General Partner may from time to time designate against any
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by such person in connection with the preceding unless it is
established that: (i) the act or omission of the indemnified person was material
to the matter giving rise to the proceeding and was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the indemnified person
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful.
TAX MATTERS
The General Partner will be the tax matters partner of the Operating
Partnership and, as such, will have the authority to make tax elections under
the Code on behalf of the Operating Partnership.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2098 or until sooner dissolved pursuant to the terms of the
Operating Partnership Agreement.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock by: (i) each director (and director nominee) of the Company;
(ii) each executive officer of the Company; (iii) all directors, director
nominees and executive officers of the Company as a group; and (iv) each person
or entity which is expected to be the owner of 5% or more of the outstanding
shares of Common Stock immediately following completion of the Offering. Except
as indicated below, all of such shares of Common Stock are owned directly, and
the indicated person or entity has sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OF ALL
NUMBER OF SHARES COMMON STOCK
BENEFICIALLY OUTSTANDING
NAME OF STOCKHOLDER(1) OWNED FOLLOWING THE OFFERING FOLLOWING THE OFFERING
- ---------------------------------------------- ------------------------------ -----------------------
<S> <C> <C>
Robert N. Elkins, M.D. ....................... 1,007,573(2)(3) 5.7%
John B. Poole ................................ 88,907(2)(3) *
Donald Tomlin ................................ 136,717(2)(3) *
Lisa K. Merritt .............................. 22,202(2)(3) *
William McBride III .......................... 21,402(2)(3) *
Brian E. Cobb ................................ 21,402(2)(3) *
Douglas Listman .............................. 12,719(2)(3) *
All directors, director nominees and executive
officers as a group (7 persons) ............. 1,310,922(2)(3) 7.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Address: c/o Monarch Properties, Inc., 8889 Pelican Bay Boulevard, Naples,
Florida 34108.
(2) Includes 691,892, 8,649, 115,315 800, 0, 0, and 2,018 shares of Common
Stock, respectively, that Dr. Elkins, Mr. Poole, Mr. Tomlin, Ms. Merritt,
Mr. McBride, Mr. Cobb, and Mr. Listman have indicated they expect to
purchase in the Concurrent Offering.
(3) Includes 315,681, 80,258, 21,402, 21,402, 21,402, 21,402, and 10,701 shares
issuable pursuant to stock options to be granted at the time of the
Offering to Dr. Elkins, Mr. Poole, Mr. Tomlin, Ms. Merritt, Mr. McBride,
Mr. Cobb, and Mr. Listman, respectively, which options become exercisable
on the date of the Offering subject to certain transfer restrictions.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The following summary of the terms of the Company's stock does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Charter and Bylaws, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
GENERAL
Under the Charter, the Company has authority to issue up to 180 million
shares of stock, consisting of 100 million shares of Common Stock, par value
$.001 per share, 60 million shares of excess stock, par value $.001 per share
("Excess Stock") (as described below), and 20 million shares of Preferred Stock,
par value $.001 per share. Under Maryland law, stockholders generally are not
responsible for the corporation's debts or obligations. Upon completion of the
Offering and the Formation Transactions, there will be 17,450,000 shares of
Common Stock issued and outstanding (19,925,000 shares if the Underwriters'
overallotment option is exercised in full), excluding shares that may be issued
upon the redemption of outstanding Units, and no Preferred Stock will be issued
or outstanding.
The Charter authorizes the Board of Directors to classify or reclassify any
unissued shares of stock by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions,
qualifications or terms or conditions of redemption of such stock.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other class or
series of stock and to the provisions of the Charter regarding Excess Stock,
holders of shares of Common Stock will be entitled to receive dividends on
Common Stock if, as and when authorized and declared by the Board of Directors
of the Company out of assets legally available therefor and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of or
adequate provision for all known debts and liabilities of the Company. The
Company intends to pay quarterly dividends beginning with a dividend for the
period ending September 30, 1998. See "Distributions."
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of shares, the
holders of Common Stock will possess exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election, and the holders of the remaining shares of
Common Stock will not be able to elect any director.
Holders of shares of Common Stock have no conversion, sinking fund or
redemption rights. Subject to the provisions of the Charter regarding Excess
Stock, all Common Stock will have equal dividend, distribution, liquidation and
other rights, and will have no appraisal or exchange rights. No holder of any
stock or other securities of the Company will have any preferential or
preemptive rights to subscribe for or purchase any stock or other securities of
the Company, except as otherwise provided by the Board of Directors in setting
the terms of classified or reclassified shares of stock or as may be provided
otherwise by contract.
Under the MGCL, a corporation generally cannot dissolve, amend its charter,
merge, sell all or substantially all of its assets, engage in a share exchange
or engage in simultaneous transactions outside the ordinary course of business
unless approved by the affirmative vote of stockholders holding at least
two-thirds of the shares entitled to vote on the matter, unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter does not
provide for a lesser percentage in such situations. In addition, the Operating
Partnership Agreement provides, with certain exceptions, that the Operating
Partnership may not dissolve and wind up its affairs without the consent of the
holders of 85% of all outstanding Units. See "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws."
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PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes or
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board of Directors is required by the MGCL and the Charter to
fix for each class or series, subject to the provisions of the Charter regarding
Excess Stock, the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. Such
rights, powers, restrictions and limitations could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of the Common Stock. The Board of Directors
could authorize the issuance of Preferred Stock with terms and conditions that
could have the effect of delaying, deferring or preventing a change in control
or other transaction that holders of Common Stock might believe to be in their
best interests or in which holders of some, or a majority, of the Common Stock
might receive a premium for their shares over the then-current market price of
such shares. As of the date hereof, no shares of Preferred Stock are
outstanding, and the Company has no present plans to issue any Preferred Stock.
See "Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws."
RESTRICTIONS ON TRANSFERS
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding shares of stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year (other than the
first year) (the "Five or Fewer Requirement"), and such shares of stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shortable taxable year. The Charter subject to certain exceptions provides
that no holder who is an individual may own, or be deemed to own by virtue of
the attribution provisions of the Code, 9.9% or more of the aggregate value of
the Common Stock. Pursuant to the Code, Common Stock held by certain types of
entities, such as pension trusts qualifying under Section 401(a) of the Code,
United States investment companies registered under the Investment Company Act
of 1940, partnerships, trusts and corporations will be attributed to the
beneficial owners of such entities for purposes of the Five or Fewer Requirement
(i.e., the beneficial owners of such entities will be counted as holders). The
Charter provides that no such entity may own 9.9% or more of the aggregate value
of the Company's shares of stock (the "Look-Through Ownership Limit"). Any
transfer of shares of stock or any security convertible into shares of stock
that would create a direct or indirect ownership of shares of stock in excess of
the Ownership Limit or the Look-Through Ownership Limit or that would result in
the disqualification of the Company as a REIT, including any transfer that
results in the shares of stock being owned by fewer than 100 persons or results
in the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the shares of stock. The foregoing restrictions on transferability and
ownership will not apply if the Board of Directors determines that it is no
longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. The Board of Directors may, in its sole
discretion, waive the Ownership Limit and the Look-Through Ownership Limit if
evidence satisfactory to the Board of Directors and the Company's tax counsel is
presented that the changes in ownership will not then or in the future
jeopardize the Company's REIT status and the Board of Directors otherwise
decides that such action is in the best interest of the Company. See "Federal
Income Tax Consequences."
Shares of stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit or the Look-Through Ownership Limit
will automatically be converted into shares of Excess Stock that will be
transferred, by operation of law, to the Company as trustee of a trust for the
exclusive benefit of the transferees to whom such shares of stock may be
ultimately transferred without violating the Ownership Limit or the Look-Through
Ownership Limit. Common Stock that is converted shall be Excess Common Stock and
Preferred Stock that is converted shall be Excess Preferred Stock. While the
Excess Stock is held in trust, it will not be entitled to vote, it will not be
considered for purposes of any stockholder vote or the determination of a quorum
for such vote, and, except upon liquidation, it will not be entitled to
participate in dividends or other distributions. Any distribution paid to a
proposed transferee of Excess Stock prior to the discovery by the Company that
capital stock has
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been transferred in violation of the provisions of the Charter shall be repaid
to the Company upon demand. The Excess Common Stock and Excess Preferred Stock
constitute separate classes of authorized stock of the Company. The original
transferee-stockholder may, at any time the Excess Stock is held by the Company
in trust, transfer the interest in the trust representing the Excess Stock to
any person whose ownership of the shares of stock exchanged for such Excess
Stock would be permitted under the Ownership Limit or the Look-Through Ownership
Limit, at a price not in excess of: (i) the price paid by the original
transferee-stockholder for the shares of stock that were exchanged into Excess
Stock; or (ii) if the original transferee-stockholder did not give value for
such shares (e.g., the Excess Stock was received through a gift, devise or other
transaction), the average closing price for the class of shares from which such
shares of Excess Stock were converted for the ten days immediately preceding
such sale or gift. Immediately upon the transfer to the permitted transferee,
the Excess Stock will automatically be converted back into shares of stock of
the class from which it was converted. If the foregoing transfer restrictions
are determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any shares of Excess Stock
may be deemed, at the option of the Company, to have acted as an agent on behalf
of the Company in acquiring the Excess Stock and to hold the Excess Stock on
behalf of the Company.
In addition, the Company will have the right, for a period of 90 days
during the time any shares of Excess Stock are held by the Company in trust, to
purchase all or any portion of the Excess Stock from the original
transferee-stockholder at the lesser of: (i) the price initially paid for such
shares by the original transferee-stockholder, or if the original
transferee-stockholder did not give value for such shares (e.g., the shares were
received through a gift, devise or other transaction), the average closing price
for the class of Stock from which such shares of Excess Stock were converted for
the ten days immediately preceding such sale or gift; and (ii) the average
closing price for the class of shares from which such shares of Excess Stock
were converted for the ten trading days immediately preceding the date the
Company elects to purchase such shares. The 90-day period begins on the date
notice is received of the violative transfer if the original
transferee-stockholder gives notice to the Company of the transfer or, if no
such notice is given, the date the Board of Directors determines that a
violative transfer has been made.
These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
Each stockholder shall upon demand be required to disclose to the Company
in writing any information with respect to the direct, indirect and beneficial
ownership of stock as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to REITs, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of precluding acquisition of
control of the Company unless the Board of Directors determines that maintenance
of REIT status is no longer in the best interests of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to the Charter and
Bylaws, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part. See "Additional Information."
BUSINESS COMBINATIONS
Under the MGCL certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation or an affiliate or associate thereof are prohibited for five
years after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least: (i) 80% of the votes entitled to be cast by
holders of outstanding voting shares of the corporation; and (ii) two-thirds of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation other than shares held by the Interested Stockholder with whom (or
with whose affiliate) the business combination is to be effected, unless, among
other conditions, the corporation's common stockholders receive a minimum price
(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares.
These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Charter exempts from the Maryland statute any
business combination with Dr. Elkins, or current or future affiliates,
associates or other persons acting in concert as a group with Dr. Elkins.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control Shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third; (ii) one-third or more but less than a majority; or (iii) a majority
of all voting power. Control Shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition of Control Shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the Control Shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights, as of the date of the last control share acquisition by the
acquiror or of any meeting of stockholders at
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which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply: (i) to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction; or (ii) to acquisitions approved or exempted by the
charter or bylaws of the corporation.
The Bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any person of the Company's shares of stock.
There can be no assurance that such provision will not be amended or eliminated
at any time in the future.
AMENDMENT OF CHARTER AND BYLAWS
The Charter may be amended only by the affirmative vote of the holders of
not less than two-thirds of all of the votes entitled to be cast on the matter.
The Board of Directors has the exclusive right to amend the Bylaws without a
vote of the stockholders.
DISSOLUTION OF THE COMPANY
The MGCL permits the dissolution of the Company by: (i) the affirmative
vote of a majority of the entire Board of Directors declaring such dissolution
to be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders and (ii) upon
proper notice, stockholder approval by the affirmative vote of at least
two-thirds of the votes entitled to be cast on the matter.
MEETINGS OF STOCKHOLDERS
The Bylaws provide for annual meetings of stockholders to be held on the
second Wednesday of May of each year or on any other day in the month of May as
may be established from time to time by the Board of Directors. Special meetings
of stockholders may be called by: (i) the Chairman of the Board or the President
or (ii) a majority of the Board of Directors and must be called by the Secretary
of the Company on written request by holders of shares entitled to cast a
majority of all the votes entitled to be cast at the meeting.
The Bylaws provide that any stockholder of record wishing to nominate a
director or have a stockholder proposal considered at an annual meeting (except
for stockholder proposals included in the Company proxy materials pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended) must provide
written notice and certain supporting documentation to the Company relating to
the nomination or proposal not less than 75 days nor more than 180 days prior to
the anniversary date of the prior year's annual meeting or special meeting in
lieu thereof the ("Anniversary Date"). In the event that the annual meeting is
called for a date more than seven calendar days before the Anniversary Date,
stockholders generally must provide written notice within 20 calendar days after
the date on which notice of the meeting is mailed to stockholders.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders and make
recommendations about the qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of stockholders. Although the
Company's Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third
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party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of the nominees or proposals might be harmful or beneficial to the
Company and its stockholders.
THE BOARD OF DIRECTORS
The Charter provides that the number of Directors of the Company may be
established by the Board of Directors but may not be fewer than the minimum
number required by Maryland law nor more than twelve. Any vacancy will be filled
by the vote of the stockholders or a majority of the remaining Directors, except
that a vacancy resulting from an increase in the number of Directors must be
filled by the vote of the stockholders or a majority of the entire Board of
Directors. Pursuant to the terms of the Bylaws, the Directors are divided into
three classes. One class will hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1999, the second class will hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 2000, and the third class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 2001. As the term of each
class expires, Directors in that class will be elected for a term of three years
and until their successors are duly elected and qualified. The use of a
staggered board may render more difficult a change in control of the Company or
removal of incumbent management.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of directors and officers to the corporation
and its stockholders for money damages except for liability resulting from: (i)
actual receipt of an improper benefit or profit in money, property or services
or (ii) active and deliberate dishonesty established by a final judgment as
being material to the cause of action. The Charter contains such a provision
which eliminates such liability to the maximum extent permitted by the MGCL.
This provision has no effect on the availability of equitable remedies, such as
injunctive relief and rescissionary relief. The Charter also provides that no
amendment thereto may limit or eliminate this limitation of liability with
respect to events occurring prior to the effective date of such amendment.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his or her status as a present or former director or
officer of the Company. The Bylaws of the Company obligate it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his service in that capacity.
The Charter and Bylaws also permit the Company to indemnify and advance expenses
to any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others,
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against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty; (b) the
director or officer actually received an improper personal benefit in money,
property or services; or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL permits a corporation to advance reasonable
expenses to a director or officer upon the corporation's receipt of (i) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (ii) a written undertaking by him or on his behalf to repay the amount paid
or reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Trading of the shares of Common Stock on the New York Stock Exchange is
expected to commence immediately following completion of the Offering. No
prediction can be made as to the effect, if any, that future sales or shares of
the availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock
(including Common Stock issued upon the exercise of options), or the perception
that such sales could occur, could adversely affect prevailing market prices of
the shares of Common Stock.
Upon the completion of the Offering, the Company will have outstanding
17,450,000 shares of Common Stock (19,925,000 shares if the Underwriters'
overallotment option is exercised in full). The shares of Common Stock issued in
the Offering will be freely tradable by persons other than "affiliates" of the
Company without restriction under the Securities Act, subject to the limitations
on ownership set forth in this Prospectus. See "Description of Capital Stock of
the Company."
Shares acquired by "affiliates" in the Concurrent Offering, pursuant to the
exercise of stock options or otherwise, may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144. As defined in Rule 144,
an "affiliate" of an issuer is a person that directly or indirectly, through the
use of one or more intermediaries, controls, is controlled by, or is under
common control with, such issuer. Upon completion of the Offering, there will be
no outstanding shares of Common Stock which are deemed "restricted securities"
under Rule 144 (assuming no exercise of stock options for 513,650 shares of
Common Stock to be granted at the time of the Offering). In general, under Rule
144 as currently in effect, if one year has elapsed since the later of the date
of acquisition of "restricted securities" from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof,including any such persons who may be deemed
"affiliates" of the Company, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
Common Stock (approximately 174,500 shares after the completion of the Offering)
or the average weekly trading volume of the shares of Common Stock during the
four calendar weeks immediately preceding the date on which notice of the sale
is filed with the SEC. Sales under Rule 144 also are subject to certain manner
of sales provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of "restricted securities" from the Company or from any "affiliate"
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an "affiliate" of the Company at any time during the 90 days
immediately preceding a sale, such person is entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
Sales of shares by "affiliates" will continue to be subject to the volume
limitations.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to:
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") on behalf of the
Underwriters. In addition, during such period, the Company has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of the Company has agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent provided that
the Company may file an S-8 registration statement covering shares under the
Company's 1998 Omnibus Securities and Incentive Plan.
The Company has established the 1998 Omnibus Securities and Incentive Plan
for the purpose of attracting and retaining executive officers, directors,
employees and other key personnel. See "Management -- Compensation of the Board
of Directors" and "--1998 Omnibus Securities and Incentive Plan." The Company
intends to issue options to purchase approximately 513,650 shares of Common
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Stock to executive officers, directors and employees prior to the completion of
the Offering and under the 1998 Omnibus Securities and Incentive Plan will
reserve additional shares for future issuance under the Plan for a total equal
to 5% of the issued and outstanding Common Stock and Units. On or prior to the
expiration of the initial 12-month period following the completion of the
Offering, the Company expects to file a registration statement with the
Commission with respect to the shares of Common Stock issuable under the Plan,
which shares may be resold without restriction, unless held by affiliates. In
addition, each director and executive officer of the Company who is to receive
options to purchase shares of Common Stock at an exercise price of $.001 per
share has agreed, solely with respect to shares of Common Stock issuable upon
exercise of such options, not to enter into any of the transactions described in
clauses (i) or (ii) of the preceding paragraph for a period of two years after
the date of the Prospectus without the prior written consent of DLJ. Such
restrictions shall lapse under certain circumstances, including death or
disability of the option holder.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the applicable federal income tax
consequences anticipated to be material to a prospective stockholder in the
Company in connection with the ownership of Common Stock. LeBoeuf, Lamb, Greene
& MacRae, L.L.P., counsel to the Company, has reviewed the following discussion
and is of the opinion that it fairly summarizes the federal income tax
consequences that are likely to be material to a holder of Common Stock. The
following discussion is for general information only, is not exhaustive of all
possible tax considerations, and is not intended to be (and should not be
construed as) tax advice. For example, this summary does not give a detailed
discussion of any state, local or foreign tax consequences. In addition, the
discussion is intended to address only those federal income tax consequences
that are generally applicable to all stockholders in the Company. It does not
discuss all aspects of federal income taxation that might be relevant to a
specific stockholder in light of its particular investment or tax circumstances.
The description does not purport to deal with all aspects of taxation that may
be relevant to stockholders subject to special treatment under the federal
income tax laws, including, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Stockholders of the
Company") or foreign corporations and persons who are not citizens or residents
of the United States (except to the extent discussed under the heading "--
Taxation of Non-U.S. Stockholders of the Company").
The information in this section is based on the Code, final, temporary and
proposed Treasury Regulations thereunder, the legislative history of the Code,
current administrative interpretations and practices of the IRS (including its
practices and policies as endorsed in private letter rulings, which are not
binding on the IRS except with respect to a taxpayer that receives such a
ruling), and court decisions, all as of the date hereof. No assurance can be
given that future legislation, Treasury Regulations, administrative
interpretations and practices and court decisions will not significantly change
the current law or adversely affect existing interpretations of current law. Any
such change could apply retroactively to transactions preceding the date of the
change. The Company has not requested, and does not plan to request, any rulings
from the IRS concerning the tax treatment of the Company or the Operating
Partnership. Thus, no assurance can be provided that the statements set forth
herein (which do not bind the IRS or the courts) will not be challenged by the
IRS or will be sustained by a court if so challenged.
As used in this section, the term "Company" refers solely to Monarch
Properties, Inc.
EACH PROSPECTIVE PURCHASER OF SHARES OF COMMON STOCK IS URGED TO CONSULT
WITH ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE
OWNERSHIP AND DISPOSITION OF SHARES OF COMMON STOCK OF AN ENTITY ELECTING TO BE
TAXED AS A REIT IN LIGHT OF ITS SPECIFIC TAX AND INVESTMENT CIRCUMSTANCES AND
THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.
TAXATION OF THE COMPANY
GENERAL. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ending
December 31, 1998. The Company believes that, commencing with its taxable year
ending December 31, 1998, it will be organized and will operate in such a manner
as to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it will
qualify or remain qualified.
These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. This summary is qualified in its entirety by the
applicable Code provisions, Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. has acted as tax counsel to the
Company in connection with the Company's planned election to be taxed as a REIT.
In the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., commencing with the
Company's taxable year ending December 31, 1998, the Company will be organized
in conformity with the requirements for qualification as a REIT, and its
proposed
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method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is conditioned upon certain representations made by the Company as to factual
matters relating to the organization and operation of the Company and the
Operating Partnership. In addition, this opinion is based upon the factual
representations of the Company concerning its business and properties as set
forth in this Prospectus and will assume that the actions described in this
Prospectus are completed in a timely manner as described herein. LeBoeuf, Lamb,
Greene & MacRae, L.L.P. is not aware of any facts or circumstances that are
inconsistent with these assumptions and representations. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet
on an ongoing basis (through actual annual operating results, distribution
levels and diversity of share ownership) the various qualification tests imposed
under the Code discussed below, the results of which will not be reviewed by
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Accordingly, no assurance can be given
that the actual results of the Company's operations for any particular taxable
year will satisfy such requirements. Further, the anticipated income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "-- Failure of
the Company to Qualify as a REIT."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal income tax on its net income that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a regular corporation. However, the Company will be subject to federal income
tax as follows. First, the Company will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax." Third, if the Company has: (i) net income from the
sale or other disposition of "foreclosure property" (i.e., generally, property
acquired by the Company by foreclosure or otherwise upon default of a loan
secured by the property) which is held primarily for sale to customers in the
ordinary course of business; or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property, other
than foreclosure property, held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy the 75% gross income test or the 95% gross income
test (as discussed below), but has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount by which the Company fails the 75% or 95% test multiplied by (b) a
fraction intended to reflect the Company's profitability. Sixth, if the Company
should fail to distribute during each calendar year at least the sum of: (i) 85%
of its REIT ordinary income for such year; (ii) 95% of its REIT capital gain net
income for such year; and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% nondeductible excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to any asset (a "Built-In Gain Asset") acquired by the
Company from a corporation which is or has been a C corporation (i.e., generally
a corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of the Company is determined by
reference to the basis of the Built-In Gain Asset in the hands of the C
corporation and such basis is less than the fair market value of such asset at
the time of such acquisition (with the excess of such fair market value over
such basis amount being referred to as the "Built-In Gain"), if the Company
recognizes any Built-In Gain on the disposition of such Built-In Gain Asset
during the ten-year period (the "Recognition Period") beginning on the date on
which such asset was acquired by the Company, then, such Built-In Gain will be
subject to tax at the highest regular corporate rate applicable pursuant to
Treasury Regulations that have not yet been promulgated. The results described
above with respect to the recognition of Built-In Gain assume that the Company
will make an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION AS A REIT
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be
taxable as
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a domestic corporation, but for Sections 856 through 859 of the Code; (iv) that
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year not more than 50%
in value of the outstanding shares of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); (vii) that makes an election to be a REIT (or has made such
an election for a previous taxable year which has not been terminated or
revoked) and satisfies all relevant filing and other administrative requirements
established by the IRS that must be met in order to elect and maintain REIT
status; (viii) that uses a calendar year for federal income tax purposes and
complies with the record keeping requirements of the Code and Treasury
Regulations promulgated thereunder; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of twelve months, or during a proportionate part of a taxable year
of less than twelve months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made to be taxed as a REIT. For
purposes of conditions (v) and (vi), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (vi).
Under the "look-through" exception, any REIT shares held by a trust
described in Section 401(a) of the Code and exempt from tax under Section 501(a)
of the Code (a "qualified trust") will be treated as held directly by its
beneficiaries (and not treated as held by the qualified trust) in proportion to
their actuarial interest in such qualified trust. In the event that condition
(vi) cannot be satisfied because an investor or a group of five or fewer
investors will own more than 50% in value of the Common Stock of the Company,
such investor or group of investors may be required to purchase Units of the
Operating Partnership. Such Units will be convertible into Common Stock of the
Company at such time when condition (vi) may be satisfied if such investor or
group of investors were to own Common Stock of the Company. An investor
converting Units into Common Stock of the Company may realize gain on the
conversion subject to federal income tax.
The Company believes that it will have issued sufficient Common Stock with
sufficient diversity of ownership in the Offering to allow it to satisfy
conditions (v) and (vi) above. In addition, the Company's Charter provides for
restrictions regarding the transfer and ownership of Common Stock, which
restrictions are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (v) and (vi) above. Such ownership and
transfer restrictions are described in "Description of Capital Stock of the
Company -- Restrictions on Transfers." No assurance can be given that these
stockholder conditions can or will be satisfied. If the Company fails to satisfy
such share ownership requirements, the Company's status as a REIT will
terminate. See "-- Failure of the Company to Qualify as a REIT." Treasury
Regulations require that the Company each year demand from certain record owners
of its shares certain information in order to assist the Company in ascertaining
that the share ownership requirements described above are satisfied. If the
Company were to fail to comply with these Treasury Regulation requirements for
any year, it would be subject to a $25,000 penalty. If the Company's failure to
comply were due to intentional disregard of the requirements, the penalty would
be increased to $50,000. However, if the Company's failure to comply were due to
reasonable cause and not willful neglect, no penalty would be imposed. If the
Company complies with the regulatory rules on ascertaining its actual owners but
does not know, or would not have known by exercising reasonable diligence,
whether it failed to meet the requirement that it not be closely held, the
Company will be treated as having met the requirement.
The Company will use a calendar year for federal income tax purposes and
intends to comply with the record keeping requirements of the Code and Treasury
Regulations.
OWNERSHIP OF OPERATING PARTNERSHIP UNITS. It is intended that the Company
will own and operate properties through the Operating Partnership. During the
period that MP LP and MP Operating are the sole members of the Operating
Partnership, the Operating Partnership will be disregarded as an entity separate
from the Company and treated as a branch or division of the Company for federal
income tax purposes. It is expected that the Operating Partnership will have
other members in the future, at which time the Operating Partnership will be
treated as a partnership for federal income tax purposes. In the
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case of a REIT which is a partner in a partnership, Treasury Regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share of assets. In addition, the character of the assets
and gross income of the partnership shall retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including satisfying the
gross income tests and the asset tests. Thus, the Company's proportionate share
of the assets and items of income of the Operating Partnership (including the
Operating Partnership's share of such items of any subsidiaries that are
partnerships or limited liability companies ("LLCs")) will be treated as assets
and items of income of the Company for purposes of applying the requirements
described herein. A summary of the rules governing the federal income taxation
of partnerships and their partners is provided below in "-- Tax Risks Associated
with Partnerships." The Company will have direct control of the Operating
Partnership and intends to operate the Operating Partnership in a manner
consistent with the requirements for qualification as a REIT.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if such
rent is derived from leases which qualify as true leases for federal income tax
purposes. Such rents also must satisfy several conditions required by the Code.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Second, rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property" (the "15% Personal Property Test"). Finally, for rents received to
qualify as "rents from real property," a REIT generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an independent contractor from whom the REIT
derives no revenue (except to the extent that the Impermissible Tenant Service
Income would not exceed the 1% threshold described below). A REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. Additionally, due to
changes in this requirement enacted as part of the 1997 Act for taxable years
beginning on or after January 1, 1998, a REIT may provide de minimis services
directly to the tenants of a property; provided, however, that if: (i) the REIT
operates or manages a property or furnishes or renders services to the tenants
at the property other than through an independent contractor from whom the REIT
derives no revenue (not including services "usually or customarily rendered" in
connection with the rental of real property and not otherwise considered
"rendered to the occupant"); and (ii) the amount received for so doing (the
"Impermissible Tenant Service Income") exceeds 1% of the total amount of rent
received by the REIT with respect to the property, then no amount of rent
received by the REIT with respect to the property will qualify as "rents from
real property." If the Impermissible Tenant Service Income is one percent or
less of the total amount of rent received by the REIT with respect to the
property, then only the Impermissible Tenant Service Income will not qualify as
"rents from real property." The amount treated as received by the REIT for such
impermissible services may not be less than 150% of the REIT's direct cost in
generating such income. To the extent that services (other than those
customarily furnished or rendered in connection with the rental of real
property) are rendered to the tenants of the property by the independent
contractor, the cost of the services must be borne by the independent
contractor.
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In order for rent to constitute "rents from real property," the leases must
be respected as true leases for federal income tax purposes and not treated as
some other type of arrangement. The determination of whether the leases are true
leases depends on an analysis of all the surrounding facts and circumstances. In
making such a determination, courts have considered a variety of factors,
including the following: (i) the intent of the parties; (ii) the form of the
agreement; (iii) the length of the lease term; (iv) the degree of control over
the property that is retained by the property owner (e.g., whether the lessee
has substantial control over the operation of the property or whether the lessee
was required simply to use its best efforts to perform its obligations under the
agreement); and (v) the extent to which the property owner retains the risk of
loss with respect to the property (e.g., whether the lessee bears the risk of
increases in operating expenses or the risk of damage to the property) or the
potential for economic gain (e.g., appreciation) with respect to the property.
The Company believes that all of its leases have been structured so as to
qualify as true leases for federal income tax purposes.
It is possible that the Company may provide working capital financing to
unrelated persons. Any working capital financing to be provided by the Company
will be structured as a debt obligation for federal income tax purposes, and
such obligations may or may not be secured by mortgages on real property. If
such debt obligations are not secured by mortgages on real property, the income
thereon will qualify under the 95% test as interest but will not qualify under
the 75% test, which requires that the debt obligation be secured by mortgages on
real property or on interests in real property. If such debt obligations are
secured by mortgages on real property, the income thereon will qualify under
both the 95% test and the 75% test. The Company does not expect that, for any
taxable year, income derived from working capital financing will exceed 5% of
its gross income.
The Company will not: (i) charge rent for any property that is based in
whole or in part on the income or profits of any person; (ii) rent any property
to a Related Party Tenant; (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease), or; (iv) provide any services with respect to the Properties
other than certain administrative services and other than through an independent
contractor from whom the Company derives no revenue (except to the extent that
the Impermissible Tenant Service Income would not exceed the 1% threshold
described above). Notwithstanding the foregoing, the Company may take one or
more of the actions described in the preceding sentence if, based on the advice
of counsel, the Company determines that such action or actions will not have an
adverse effect on the Company's status as a REIT.
The Company may lease certain items of personal property in connection with
the lease of an assisted living facility, a skilled nursing facility or an
independent living facility property. The 15% Personal Property Test provides
that if a lease provides for the rental of both real and personal property and
the portion of the rent attributable to personal property is 15% or less of the
total rent due under the lease, then all rent paid pursuant to such lease
qualifies as "rent from real property." If, however, a lease provides for the
rental of both real and personal property, and the portion of the rent
attributable to personal property exceeds 15% of the total rent due under the
lease, then the portion of the rent that is attributable to personal property
does not qualify as "rent from real property." The amount of rent attributable
to personal property is that amount which bears the same ratio to total rent for
the taxable year as the average of the adjusted tax bases of the personal
property at the beginning and end of the year bears to the average of the
aggregate adjusted tax bases of both the real and personal property at the
beginning and end of such year. The Company has represented that with respect to
each lease that includes a lease of items of personal property, the amount of
rent attributable to personal property with respect to such lease, determined as
set forth above, will not exceed 15% of the total rent due under the lease.
If any of the Company's properties were to be operated directly by the
Operating Partnership or its subsidiary partnership or LLC as a result of a
default by the lessee under the applicable lease, such property would constitute
foreclosure property for three years following its acquisition (or for up to an
additional three years if an extension is granted by the IRS), provided that:
(i) the Operating Partnership or its subsidiary partnership or LLC conducts
operations through an independent contractor within 90 days after the date the
property is acquired; (ii) the Operating Partnership or its subsidiary
partnership or LLC does not undertake any construction on the foreclosed
property other than completion of
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improvements that were more than 10% complete before default became imminent;
and (iii) foreclosure was not regarded as foreseeable at the time the Company
entered into such leases. For as long as any of these properties constitute
foreclosure property, the income from the properties would be subject to tax at
the maximum corporate rates, but it would qualify under the 75% and 95% gross
income tests. However, if any of these properties does not constitute
foreclosure property at any time in the future, income earned from the
disposition or operation of such property will not qualify under the 75% and 95%
gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if: (i) the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect; and (ii)
the Company attaches a schedule of the sources of its income to its federal
income tax return and any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because non-qualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above under "-- Taxation of the
Company," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
Any gain realized by the Company on the sale of any property (other than
foreclosure property) held as inventory or other property held primarily for
sale to customers in the ordinary course of business (including the Company's
share of any such gain realized by any partnership in which the Company is a
partner) will be treated as income from a prohibited transaction that is subject
to a 100% tax. Such prohibited transaction income may also have an adverse
effect upon the Company's ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction. It is intended that the properties the Operating
Partnership will own or acquire will be held for investment with a view to
long-term appreciation, and that the Operating Partnership will engage in the
business of acquiring, developing, owning, and operating such properties (and
other properties) and will make such occasional sales of such properties as are
consistent with the Company's investment objectives.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including assets held by
the Company's qualified REIT subsidiaries and the Company's allocable share of
the assets held by partnerships in which the Company owns an interest) must be
represented by real estate assets, cash, cash items (including receivables) and
government securities. Second, not more than 25% of the Company's total assets
(including assets held by the Company's qualified REIT subsidiaries and the
Company's allocable share of the assets held by partnerships in which the
Company owns an interest) may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets (including assets held by the
Company's qualified REIT subsidiaries and the Company's allocable share of the
assets held by partnerships in which the Company owns an interest) and the
Company may not own more than 10% of any one issuers outstanding voting
securities (excluding securities of a qualified REIT subsidiary or another
REIT). For purposes of applying the 5% test and the 10% test, warrants or
options to acquire voting securities of another corporation are treated as
nonvoting securities of such corporation and are not treated as exercised.
Accordingly, warrants or options to acquire voting securities of another
corporation are treated as voting securities subject to the 5% test based on
their fair market value.
It is possible that the Company may provide working capital financing to
unrelated persons. Any working capital financing to be provided by the Company
will be structured as a debt obligation for federal income tax purposes, and
such obligation may or may not be secured by mortgages on real
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property. If such debt obligations are not secured by mortgages on real
property, they would not qualify as real estate assets, which must constitute at
least 75% of the value of the Company's assets. However, they would constitute
securities included in the 25% asset class, but the value of the debt
obligations of any one issuer, together with any other securities of the same
issuer owned by the Company, could not exceed 5% of the value of the Company's
total assets. The Company expects that the working capital obligations of any
one issuer would be less than 2.5% of its total assets at the closing of each
quarter of the taxable year.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including, for example, as a
result of the Company increasing its interest in the Operating Partnership as a
result of the exercise of a Unit redemption right or an additional capital
contribution of proceeds of an offering of Common Stock by the Company), the
failure can be cured by disposition of sufficient non-qualifying assets within
30 days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance. If the Company fails to
cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to make distributions (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of non-cash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to Treasury regulations which have not yet been promulgated, to distribute at
least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate. Dividends paid in the subsequent year, however, will be
treated as if paid in the prior year for purposes of such prior year's 95%
distribution requirement if one of the following two sets of criteria are
satisfied: (i) the dividends were declared in October, November, or December of
any year and are payable to stockholders of record on a specified date in such a
month, and the dividends were actually paid before January 31 of the following
calendar year or (ii) the dividends were declared before the Company timely
files its federal income tax return for such year, the dividends were
distributed in the twelve-month period following the close of the prior year and
not later than the first regular dividend payment after such declaration, and
the Company elected on its federal income tax return for the prior year to have
a specified amount of the subsequent dividend treated as if paid in the prior
year.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax on the undistributed amount at
regular ordinary and capital gain corporate tax rates. The Company, however, may
designate some or all of its retained net capital gain, so that, although the
designated amount will not be treated as distributed for purposes of this tax, a
stockholder would include its proportionate share of such amount in income, as
long-term capital gain, and would be treated as having paid its proportionate
share of the tax paid by the Company with respect to such amount. The
stockholder's basis in its shares would be increased by the amount the
stockholder included in income and decreased by the amount of the tax the
stockholder is treated as having paid. The Company would make an appropriate
adjustment to its earnings and profits. For a more detailed description of the
tax consequences to a stockholder of such a designation, see "-- Taxation of
Taxable U.S. Stockholders of the Company Generally."
The Company intends to make timely distributions sufficient to satisfy
these annual distribution requirements. In this regard, the Operating
Partnership Agreement authorizes the Company to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
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It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance for depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
generally will have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between: (i)
the actual receipt of income and actual payment of deductible expenses; and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. If such timing differences occur, in order to
meet the distribution requirements, the Company may find it necessary to arrange
for short-term, or possibly long-term, borrowings or to pay dividends in the
form of taxable share dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of: (i) 85% of its REIT ordinary income for such year;
(ii) 95% of its REIT capital gain income for such year; and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% nondeductible excise tax on the excess of such required distribution over
the amounts actually distributed.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and if the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company to
its stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS OF THE COMPANY GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
who (for United States federal income tax purposes): (i) is a citizen or
resident of the United States; (ii) is a corporation, partnership or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof; (iii) is an estate, the income of which is
subject to United States federal income taxation regardless of its source; or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who would
have the authority to control all substantial decisions of the trust.
DISTRIBUTIONS GENERALLY. As long as the Company qualifies as a REIT,
distributions made by the Company out of its current or accumulated earnings and
profits (and not designated as capital gain dividends) will constitute dividends
taxable to its taxable U.S. Stockholders as ordinary income. These distributions
are not eligible for the dividends received deduction for corporations. U.S.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against future income (subject
to certain limitations). The Company will notify U.S. Stockholders after the
close of the Company's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
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To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in its Common Stock for federal income tax purposes by the
amount of such distribution (but not below zero), with distributions in excess
of a U.S. Stockholder's adjusted basis in its Common Stock taxable as capital
gains (provided that the Common Stock have been held as a capital asset).
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Stockholders
that are individuals, estates or trusts as gain from the sale or exchange of a
capital asset held for more than one year (to the extent such capital gain
dividends do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which such U.S. Stockholder has held the
Common Stock with respect to which any such distribution is made.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital gain
dividend as: (i) a 20% rate gain distribution (which would be taxed as long-term
capital gain in the 20% group); (ii) an unrecaptured Section 1250 gain
distribution (which would be taxed as long-term capital gain in the 25% group);
or (iii) a 28% rate gain distribution (which would be taxed as long-term capital
gain in the 28% group). (If no designation is made, the entire designated
capital gain dividend will be treated as a 28% rate gain distribution. For a
discussion of the 20%, 25% and 28% tax rates applicable to individuals, estates
and trusts, see "-- 1997 Act Changes to Capital Gain Taxation" below.) IRS
Notice 97-64 also provides that the Company must determine the maximum amounts
that it may designate as 20% and 25% rate capital gain dividends by performing
the computation required by the Code as if the Company were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. The Notice
further provides that designations made by the Company only will be effective to
the extent that they comply with Revenue Ruling 89-81, which requires that
distributions made with respect to different classes of shares be composed
proportionately of dividends of a particular type.
Distributions that are properly designated by the Company as capital gain
dividends will be taxable to taxable corporate U.S. Stockholders as long-term
capital gain (to the extent that such capital gain dividends do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which such corporate U.S. Stockholder has held the Common Stock with
respect to which any such distribution is made. The tax rate designations
described in the preceding paragraph do not apply to corporate stockholders.
Such corporate U.S. Stockholders may, however, be required to treat up to 20% of
certain capital gain dividends as ordinary income.
The Company may designate by written notice to its U.S. Stockholders its
net capital gain so that, with respect to any retained net capital gains, a U.S.
Stockholder would include its proportionate share of such retained net capital
gains in income as long-term capital gain and would be treated as having paid
its proportionate share of the tax paid by the Company with respect to such
retained net capital gains. The U.S. Stockholder's basis in its shares would be
increased by its share of such retained net capital gains and decreased by its
share of such tax. With respect to such long-term capital gain of a U.S.
Stockholder that is an individual or an estate or trust, the IRS, as described
above in this section, has authority to issue regulations that should apply to
such long-term capital gain the special tax rate applicable generally to the
portion of the long-term capital gains of an individual or an estate or trust
attributable to deductions for depreciation taken with respect to depreciable
real property.
PASSIVE ACTIVITY LOSS AND INVESTMENT LIMITATIONS. Distributions made by the
Company and gain arising from the sale or exchange by a U.S. Stockholder of
Common Stock will not be treated as passive activity income, and, as a result,
U.S. Stockholders generally will not be able to apply any "passive losses"
against such income or gain. Dividends from the Company (to the extent they do
not constitute a return of capital) generally will be treated as investment
income for purposes of the investment income limitation. Net capital gain from
the disposition of Common Stock and capital gain dividends generally will be
excluded from investment income unless the U.S. Stockholder makes an election to
the contrary.
CERTAIN DISPOSITIONS OF STOCK. In general, upon any sale or other
disposition of Common Stock, a U.S. Stockholder will recognize gain or loss for
federal income tax purposes in an amount equal to the
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difference between: (i) the amount of cash and the fair market value of any
property received on such sale or other disposition; and (ii) the holder's
adjusted basis in such Common Stock for federal income tax purposes. Such gain
or loss will be capital gain or loss if the Common Stock have been held by the
U.S. Stockholder as a capital asset, and such gain or loss will be long-term
capital gain or loss if such Common Stock have been held for more than one year.
In general, any loss recognized by a U.S. Stockholder upon the sale or other
disposition of Common Stock that have been held for six months or less (after
applying certain holding period rules) will be treated as long-term capital loss
to the extent of distributions received by such U.S. Stockholder from the
Company which were required to be treated as long-term capital gains. For a U.S.
Stockholder that is an individual, trust or estate, the long-term capital loss
will be apportioned among the applicable long-term capital gain groups to the
extent that distributions received by such U.S. Stockholder were previously so
treated.
1997 ACT CHANGES TO CAPITAL GAIN TAXATION. The 1997 Act alters the taxation
of capital gain income. Under the 1997 Act, individuals, trusts and estates that
hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than one year
but no more than 18 months may be taxed at a maximum long-term capital gain rate
of 28% on the sale or exchange of those investments. The 1997 Act also provides
for a maximum rate of 25% for "unrecaptured section 1250 gain" for individuals,
trusts and estates, special rules for "qualified 5-year gain" and certain other
changes to prior law. The 1997 Act allows the IRS to prescribe regulations on
how the 1997 Act's new capital gain rates will apply to sales of capital assets
by "pass-through entities." To date such regulations have not been prescribed.
For a discussion of new rules under the 1997 Act that apply to the taxation of
distributions by the Company to its U.S. Stockholders that are designated by the
Company as "capital gain dividends." U.S. Stockholders are urged to consult with
their own tax advisors with respect to the new rules contained in the 1997 Act.
BACKUP WITHHOLDING FOR COMPANY DISTRIBUTIONS
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
holder: (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact; or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Stockholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any stockholders who fail to
certify their non-foreign status to the Company. See "-- Taxation of Non-U.S.
Stockholders of the Company."
TAXATION OF TAX-EXEMPT STOCKHOLDERS OF THE COMPANY
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by
certain tax-exempt entities. Based on that ruling, provided that a tax-exempt
stockholder (except certain tax-exempt stockholders described below) has not
held its shares of Common Stock of the Company as "debt financed property"
within the meaning of the Code (generally shares of Common Stock of the Company,
the acquisition of which was financed through a borrowing by the tax-exempt
stockholder) and such shares are not otherwise used in a trade or business, the
dividend income from the Company and gain on the sales of shares of Common Stock
of the Company will not be UBTI to such tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct
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amounts set aside or placed in reserve for certain purposes so as to offset the
income generated by its investment in the Company. Such prospective investors
should consult their own tax advisors concerning these "set aside" and reserve
requirements.
If the Company must rely on the "look-through" exception with respect to
qualified trusts in order to satisfy the "not closely held" requirement, then
all or a portion of the Company's distributions could be UBTI. Section
856(h)(3)(C) of the Code provides that a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any qualified trust holding
more than 10% (by value) of the interests in the REIT. The Company will be a
"pension held REIT" if: (i) at least one qualified trust holds more than 25% (by
value) of the interests in the REIT; or (ii) one or more qualified trusts, each
of which owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the gross UBTI
earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (ii) the total gross income of the REIT. A
de minimis exception applies if the percentage determined according to the
preceding sentence is less than 5% for any year.
If the Company must rely on the "look through" exception to qualify as a
REIT and it is a "pension held REIT," a qualified trust could be required to
treat a portion of its dividends from the Company as unrelated debt-financed
income subject to tax as UBTI under Section 514 of the Code if any of the real
property held by the Company is "debt-financed property." Section 514 of the
Code requires a tax-exempt organization (i.e., a qualified trust) to take into
account a portion of its income and deductions from any debt financed property
in determining UBTI. Notwithstanding the above, if the property is held through
an entity treated as a partnership for federal income tax purposes and such
entity meets certain requirements of Section 514(c)(9) of the Code, then a
qualified trust will not be required to treat a portion of its dividends from
the Company as unrelated debt-financed income subject to tax as UBTI. The
exception under Section 514(c)(9) of the Code is for indebtedness incurred in
acquiring or improving any real property. However, this exception for real
estate will not apply if such real property is held through an entity treated as
a partnership for federal income tax purposes, unless, among other things: (i)
the qualified trust's highest percentage of partnership income over the entire
life of the partnership does not exceed its partnership losses over the entire
life of the partnership (the "fractions rule"); and (ii) every allocation under
the partnership agreement has substantial economic effect within the meaning of
Treasury Regulations Section 1.704-1(b)(2). Accordingly, if the fractions rule
is satisfied, a qualified trust will not be required to treat a portion of its
dividends from the Company as unrelated debt-financed income subject to tax as
UBTI even if the Company must rely on the "look through" exception to qualify as
a REIT.
Under the fractions rule, the allocation of partnership items to a
tax-exempt entity cannot result in that tax-exempt entity having a percentage
share of overall partnership income for any partnership taxable year greater
than that tax-exempt entity's share of overall partnership loss for the
partnership taxable year for which that tax-exempt entity's percentage share of
overall partnership loss will be the smallest. The fractions rule must be
satisfied both on a prospective and actual basis for each taxable year of the
partnership, commencing with the first taxable year in which the partnership
holds debt-financed real property and has a tax-exempt entity as a partner.
Generally, a partnership will not qualify for the UBTI exception for real
property for any taxable year of its existence unless it satisfies the fractions
rule for every year the fractions rule applies. Reasonable preferred returns are
disregarded in computing overall partnership income or loss for purposes of the
fraction rule provided the income allocation generally does not precede the
making of the related cash payment. A preferred return is considered reasonable
to the extent it is computed based on unreturned capital at a rate that is
commercially reasonable. A rate is considered commercially reasonable if it is
no greater than either: (i) four percentage points more than or (ii) 150% of,
the highest long-term applicable federal rate within the meaning of Section
1274(d) of the Code, for the month the partner's right to a preferred return is
first established or for any month in the partnership taxable year for which the
return on capital is computed. The fractions rule can create significant complex
restrictions in the establishment and operation of an entity treated as a
partnership for federal income tax purposes and the admission of new investors.
Failure to satisfy the fractions rule for any year for which the "look through"
exception must be relied upon could cause all
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qualified trusts to be required to treat a portion of their dividends from the
Company as unrelated debt-financed income subject to tax as UBTI. Nevertheless,
it is intended that the Company will use its best efforts to cause the Operating
Partnership or its subsidiary partnership or LLC to satisfy the fractions rule
in all events, however, no assurance can be given that it will be able to do so.
TAXATION OF NON-U.S. STOCKHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of the ownership
and disposition of Common Stock by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Stockholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income taxation that may be applicable to
Non-U.S. Stockholders and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Stockholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
DISTRIBUTIONS BY THE COMPANY. Distributions by the Company to a Non-U.S.
Stockholder that are neither attributable to gain from sales or exchanges by the
Company of United States real property interests nor designated by the Company
as capital gains dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
for deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance for
deductions) at graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The Company expects to withhold United States income tax at the rate of 30% on
the gross amount of any such distributions made to a Non-U.S. Stockholder
unless: (i) a lower treaty rate applies and any required form or certification
evidencing eligibility for that reduced rate is filed with the Company; or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's Common Stock, but
rather will reduce the adjusted basis of such Common Stock. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to gain from the sale or exchange of its Common
Stock, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate) will
nevertheless be subject to withholding at a rate of 10%. However, the Non-U.S.
Stockholder may seek a refund of such amounts from the IRS if it subsequently
determined that such distribution was, in fact, in excess of current or
accumulated earnings and profits of the Company and that the amount withheld
exceeded the Non-U.S. Stockholder's United States tax liability, if any, with
respect to the distribution.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless: (i)
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investment in the Common Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic stockholders with
respect to such gain (except that a stockholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed above); or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA")
distributions to a Non-U.S. Stockholder that are attributable to gain from sales
or exchanges by the Company of United States real property interests will cause
the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of a Non-U.S. Stockholder's Common Stock (see "--
Requirements for Qualification as a REIT -- Annual Distribution Requirements"
above) would be treated with respect to Non-U.S. Stockholders in the manner
outlined in the preceding two paragraphs for actual distributions by the Company
of capital gain dividends. Under that approach, Non-U.S. Stockholders would be
able to offset as a credit against their United States federal income tax
liability resulting therefrom their proportionate share of the tax paid by the
Company on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by the Company
exceeds their actual United States federal income tax liability).
SALE OF COMMON STOCK. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of Common Stock generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of FIRPTA. The Common Stock will not constitute a "United
States real property interest" as long as the Company is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its shares is
held directly or indirectly by Non-U.S. Stockholders. The Company believes that
at the closing of the Offering it will be a "domestically controlled REIT," and
therefore that the sale of Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock are expected to become publicly
traded, no assurance can be given that the Company will continue to be a
"domestically controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of Common Stock not otherwise subject to FIRPTA will be taxable
to a Non-U.S. Stockholder if the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
Even if the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Stockholder of Common Stock would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if
(i) the Common Stock are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and (ii) such Non-U.S. Stockholder owned 5% or less of the value of
the Common Stock throughout the five-year period ending on the date of the sale
or exchange. If gain on the sale or exchange of Common Stock were subject to
taxation under FIRPTA, the Non-U.S. Stockholder would be subject to regular
United States federal income tax with respect to such gain in the same manner as
a U.S. Stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of the Common Stock could be required to withhold and remit to
the IRS 10% of the purchase price.
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting generally
will not apply to distributions paid to Non-U.S. Stockholders outside the United
States that are treated as: (i) dividends subject to the 30% (or lower treaty
rate) withholding tax discussed above; (ii) capital gains dividends; or (iii)
distributions attributable to gain from the sale or exchange by the Company of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Common Stock by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Common Stock by a foreign office of a broker that: (i) is
a United States person; (ii) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States; or (iii)
is a "controlled foreign corporation" (generally, a foreign corporation
controlled by United States stockholders) for United States tax purposes, unless
the broker has documentary evidence in its records that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the stockholder certifies under
penalty of perjury that the stockholder is a Non-U.S. Stockholder, or otherwise
establishes an exemption. A Non-U.S. Stockholder may obtain a refund of any
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS.
FINAL TREASURY REGULATIONS. The United States Treasury has recently issued
final Treasury Regulations (the "Final Regulations") regarding the withholding
and information reporting rules discussed above. In general, these Final
Regulations do not alter the substantive withholding and information reporting
requirements but unify certification procedures and forms and clarify and modify
reliance standards. These regulations generally are effective for payments made
after December 31, 1998, subject to certain transition rules. Valid withholding
certificates that are held on December 31, 1998, will remain valid until the
earlier of December 31, 1999 or the date of expiration of the certificate under
rules currently in effect (unless otherwise invalidated due to changes in the
circumstances of the person whose name is on such certificate). A Non-U.S.
Stockholder should consult its own advisor regarding the effect of the Final
Regulations.
TAX RISKS ASSOCIATED WITH PARTNERSHIPS
The Company, through MP Operating and MP LP, will own an interest in the
Operating Partnership following the Offering, and may own interests in
additional partnerships in the future. The ownership of an interest in a
partnership involves special tax risks, including the possible challenge by the
IRS of: (i) allocations of income and expense items, which could affect the
computation of taxable income of the Company; and (ii) the status of a
partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If a partnership were deemed to be
an association taxable as a corporation for federal income tax purposes, it
would be treated as a taxable entity. In such a situation, if the Company owned
more than 10% of the outstanding voting securities of such partnership, or if
the value of such securities exceeded 5% of the value of the Company's assets,
the Company would fail to satisfy the asset tests described above, and would
therefore fail to qualify as a REIT. Further, distributions from such
partnership to the Company would be treated as dividends that are not taken into
account in satisfying the 75% gross income test described above, which would
make it more difficult for the Company to satisfy that test. Moreover, the
interest in any such partnership held by the Company would not qualify as a
"real estate asset," which would make it more difficult for the Company to meet
the 75% asset test described above. In addition, the Company would not be able
to deduct its share of any losses generated by such a partnership in computing
its taxable income, which might adversely affect the Company's ability to comply
with the REIT distribution requirements. See "--Failure of the Company to
Qualify as a REIT" for a discussion of the effect of the Company's failure to
meet any one or more of these tests for a taxable year.
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OTHER TAX CONSEQUENCES FOR THE COMPANY AND ITS STOCKHOLDERS
The Company and its stockholders and the Operating Partnership may be
subject to state or local taxation in various state or local jurisdictions,
including those in which it or they transact business or reside. The state and
local tax treatment of the Company and its stockholders may not conform to the
federal income tax consequences discussed above. Accordingly, the state and
local income taxes of the Company and its stockholders and the Operating
Partnership could reduce the amount of cash distributable by the Company to its
stockholders. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
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ERISA CONSIDERATIONS
EMPLOYMENT BENEFIT PLANS, TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS
PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the shares of Common
Stock is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require an
ERISA Plan's investment, inter alia, to be: (i) for the exclusive purpose of
providing benefits to the ERISA Plan's participants and their beneficiaries and
defraying reasonable expenses of administering the ERISA Plans; (ii) prudent and
solely in the interests of the participants and beneficiaries of the ERISA
Plans; (iii) diversified in order to minimize the risk of large losses, unless
it is clearly prudent not to do so; and (iv) authorized under the terms of the
governing documents of the ERISA Plan. In addition, a fiduciary of an ERISA Plan
should not cause or permit such ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA or Section 4975 of the Code. In determining whether
an investment in the shares of Common Stock is prudent for purposes of ERISA,
the appropriate fiduciary of an ERISA Plan should consider whether such
investment is reasonably designed, as part of an ERISA Plan's investment
portfolio for which the fiduciary has responsibility, to further the purposes of
the ERISA Plan, taking into consideration the risk of loss and opportunity for
gain (or other return) associated with the investment, the diversification, cash
flow and funding requirements of the ERISA Plan and the liquidity and current
return of the ERISA Plan's investment portfolio. A fiduciary should also take
into account the nature of the Company's business, the length of the Company's
operating history, the terms of the management agreements, the fact that certain
investment properties may not have been identified yet, other matters described
under "Risk Factors" and the possibility of UBTI.
The fiduciary of an ERISA Plan, or of an IRA or a qualified pension, profit
sharing or stock bonus plan, or medical savings account which is not subject to
ERISA but is subject to Section 4975 of the Code ("Other Plans"), should ensure
that the purchase of Common Stock will not constitute a prohibited transaction
under ERISA or the Code.
To the extent that a fiduciary of an ERISA Plan or other Plan is not
familiar with the foregoing requirements they should consult with legal counsel.
STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA
The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the entity's equity interests is an ERISA Plan or Other Plan.
The fiduciary of an ERISA Plan should also consider the relevance of these
principles to ERISA's prohibition on improper delegation of control over or
responsibility for Plan assets and ERISA's imposition of co-fiduciary liability
on a fiduciary who participates in, permits (by action or inaction) the
occurrence of or fails to remedy a known breach by another fiduciary.
If the underlying assets of the Company are deemed to be assets of an ERISA
Plan ("Plan Assets"): (i) the prudence standards and other provisions of Part 4
of Title I of ERISA and the prohibited transaction provisions of ERISA and the
Code would be applicable to any transactions involving the Company's assets; and
(ii) persons who exercise any authority or control over the Company's assets, or
who provide investment advice for a fee or other compensation to the Company,
would be (for purposes of ERISA and the Code) fiduciaries of ERISA Plans and
Other Plans that acquire Common Stock. The United States Department of Labor
(the "DOL"), which has administrative responsibility over ERISA Plans and
certain Other Plans, has issued a regulation defining plan assets for certain
purposes (the "DOL Regulation"). The DOL Regulation generally provides that when
an ERISA Plan acquires a security that is an equity interest in an entity and
that security is neither a "publicly-offered security" nor a security issued by
an investment company registered under the 1940 Act, the assets of the ERISA
Plan include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an "operating company" (as defined in the DOL Regulation) or that equity
participation in the entity by "benefit plan investors" is not significant.
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The Company believes that, under the DOL Regulation, the shares of Common
Stock should be considered "publicly-offered securities" and, therefore, that
the underlying assets of the Company should not be deemed to be plan assets of
any ERISA Plan or Other Plan that invests in the shares of Common Stock.
In addition, the Charter provides that if, in the future, the Board of
Directors authorizes the creation of any class of equity interests other than
Common Stock, and such class of equity interests will not be "publicly-offered
securities," the Board of Directors will limit the equity participation in such
class by "benefit plan investors" so that their participation will not become
"significant." For these purposes, the DOL Regulation provides that equity
participation becomes "significant" once 25% or more of the value of the class
is held by "benefit plan investors," and the term "benefit plan investors" means
any employee benefit plan (as defined in ERISA section 3(3)) whether or not such
plan is subject to Title I of ERISA or any plan described in section 4975(e) of
the Code, or any entity whose underlying assets include benefit plan
investments.
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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below, who
are represented by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
Smith Barney Inc., BT Alex. Brown Incorporated, A.G. Edwards & Sons, Inc., Legg
Mason Wood Walker, Incorporated, Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated and Prudential Securities Incorporated (the "Representatives"),
have severally agreed to purchase from the Company the respective number of
shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- -------------------------------------------------------------------- -----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation .........
Smith Barney Inc. ...........................................
BT Alex. Brown Incorporated .................................
A.G. Edwards & Sons, Inc. ...................................
Legg Mason Wood Walker, Incorporated ........................
Morgan Stanley & Co. Incorporated ...........................
PaineWebber Incorporated ....................................
Prudential Securities Incorporated ..........................
-----------------
Total .......................................................
=================
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the overallotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ . The
Underwriters may allow, and such dealers may re-allow, to certain other dealers
a concession not in excess of $ per share. After the initial offering of the
Common Stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
At the request of the Company, approximately 5.0% of the shares offered
hereby have been reserved for sale at the public offering price to certain
employees of the Company and other persons designated by the Company. The
maximum investment of any such person may be limited by the Company in its sole
discretion. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby. This
program will be administered by DLJ. In addition to the shares of Common Stock
to be sold to the Underwriters in the Public Offering, the Company is offering a
portion of the 17,450,000 shares of Common Stock offered hereby directly to
Robert N. Elkins, M.D., certain executive officers and employees of the Company
and certain officers of IHS.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 2,475,000 additional shares of Common
Stock at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the Offering. To the extent that
the Underwriters exercise such option, each Underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of such
additional shares based on such Underwriter's percentage underwriting commitment
as indicated in the preceding table.
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The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ on
behalf of the Underwriters. In addition, during such period, the Company has
also agreed not to file any registration statement with respect to, and each of
its executive officers, directors and certain stockholders of the Company has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written consent
on behalf of the Underwriters provided that the Company may file an S-8
registration statement covering shares under the Company's 1998 Omnibus
Securities and Incentive Plan. In addition, each director and executive officer
of the Company who is to receive options to purchase shares of Common Stock at
an exercise price of $.001 per share has agreed, solely with respect to shares
of Common Stock issuable upon exercise of such options, not to enter into any of
the transactions described in the foregoing clauses (i) or (ii) for a period of
two years after the date of the Prospectus without the prior written consent of
DLJ on behalf of the Underwriters. Such restrictions shall lapse under certain
circumstances, including death or disability of the option holder.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiations between the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the Offering.
Application will be made to list the Common Stock on the NYSE. In order to
meet the requirements for listing the Common Stock on the NYSE, the Underwriters
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial owners.
Other than in the United States, no action has been taken by the Company,
or the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
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The Company will pay an advisory fee equal to 0.75% of the gross proceeds
of the Offering (including any exercise of the Underwriters' overallotment
option) plus $750,000 to DLJ for advisory services in connection with the
evaluation, analysis and structuring of the Company as a REIT.
EXPERTS
The balance sheet of Monarch Properties, Inc. as of March 31, 1998 and the
financial statements of Lyric Health Care LLC as of December 31, 1996 and 1997
and for each of the years in the three-year period ended December 31, 1997, have
been included herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
included herein and in the registration statement, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP covering the financial statements of Lyric Health Care LLC refers to a
change in accounting method, effective January 1, 1996, from deferring and
amortizing pre-opening costs of medical specialty units to recording them as
expenses when incurred.
LEGAL MATTERS
Certain matters with respect to the shares of Common Stock offered hereby
will be passed upon for the Company by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a
limited liability partnership including professional corporations, New York, New
York and Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, Maryland
counsel to the Company. In addition, the description of federal income tax
consequences under the heading "Federal Income Tax Consequences" is based upon
the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. Certain legal matters will
be passed upon for the Underwriters by Alston & Bird LLP, Raleigh, North
Carolina. In addition to providing services to the Company, LeBoeuf, Lamb,
Greene & MacRae, L.L.P. also provides legal services to IHS, including in
connection with certain of the Formation Transactions.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-11
under the Securities Act with respect to the shares of Common Stock offered
hereby (the "Registration Statement"). This Prospectus, which is part of the
Registration Statement, does not contain all information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the SEC. Statements contained in this Prospectus
as to the content of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by such reference and the exhibits and
schedules hereto. For further information regarding the Company, and the shares
of Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be obtained from the SEC at
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the SEC. The SEC maintains a website at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the SEC. In addition, the Company intends to apply for
listing of the shares of Common Stock on the NYSE and, upon official notice of
issuance, similar information concerning the Company, when filed, can be
inspected and copied at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and a report thereon by independent
certified public auditors.
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GLOSSARY
The following are definitions of certain terms used in this Prospectus.
Unless the context otherwise requires, the following terms shall have the
meanings set forth below for purposes of this Prospectus.
"15% Personal Property Test" means the test under the Code to determine
whether rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the lease.
"44 IHS Properties" means the Lyric Properties and the Peak Medical
Properties.
"ACMs" means asbestos-containing materials.
"Anti-Kickback Law" means the federal Medical/Medicaid law codified in 42
U.S.C. 1320a-7b(b).
"Brentwood" means Integrated Health Services at Brentwood, a skilled
nursing facility located in Burbank, Illinois included in the IHS Historical
Properties.
"Broomall" means Integrated Health Services of Pennsylvania at Broomall, a
skilled nursing facility located in Broomall, Pennsylvania included in the IHS
Historical Properties.
"Budget Proposal" means the President's Budget Proposal for Fiscal Year
1999.
"Built-In Gain" means the excess of the fair market value of an asset as of
the beginning applicable Recognition Period over the Company's adjusted basis in
such assets as of the beginning of such Recognition Period.
"Built-In Gain Asset" means any asset acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax).
"Business Combination" means any merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets or
any reclassification, or any recapitalization or change of outstanding shares of
Common Stock.
"Bylaws" means the Bylaws of the Company, as amended from time to time.
"Change of Control of the Company," for purposes of the Plan, means such
term as defined in the Plan or as otherwise defined in the applicable award
agreement. As defined in the Plan, a "Change of Control of the Company" means
the occurrence of any one of the following events: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding securities;
(ii) during any two (2) year period, individuals who at the beginning of such
period constitute the Board of Directors, including for this purpose any new
director whose election resulted from a vacancy on the Board of Directors caused
by the mandatory retirement, death, or disability of a director and was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period, cease for any reason to constitute a
majority thereof; (iii) notwithstanding clauses (i) or (v), the Company
consummates a merger or consolidation of the Company with or into another
corporation, the result of which is that the stockholders of the Company at the
time of the execution of the agreement to merge or consolidate own less than
eighty percent (80%) of the total equity of the entity surviving or resulting
from the merger or consolidation or of an entity owning, directly or indirectly,
one hundred percent (100%) of the total equity of such surviving or resulting
entity; (iv) the sale in one or a series of transactions of all or substantially
all of the assets of the Company; (v) any person, has commenced a tender or
exchange offer, or entered into an agreement or received an option to acquire
beneficial ownership of fifty percent (50%) or more of the total number of
voting shares of the Company unless the Board of Directors has made a
determination that such action does not constitute and will not constitute a
change in the persons in control of the Company; or (vi) there is a change of
control in the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act other than in circumstances specifically covered by clauses (i)-(v)
above.
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"Charter" means the charter of the Company, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Stock Option Committee of the Company's Board of
Directors.
"Common Stock" means the common stock, $.001 par value per share, of the
Company.
"Company" means Monarch Properties, Inc., a Maryland corporation, and one
or more of its subsidiaries (including MP Operating, MP LP, the Operating
Partnership and the Operating Partnership's subsidiaries), or, as the context
may require, Monarch Properties, Inc. only or each of the Operating Partnership,
MP Operating and MP LP only.
"Concurrent Offering" means shares of Common Stock offered by the Company
that will be purchased by Robert N. Elkins, M.D., certain executive officers and
employees of the Company and certain officers of IHS directly from the Company
at a price equal to the price to the public less the underwriting discount.
"Control Shares" means voting shares of stock that, if aggregated with all
other shares of stock previously acquired by that person or in respect of which
the acquiror is able to exercise or direct the exercise voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing directors within a certain range of voting power.
"CPI" means the Consumer Price Index.
"Credit Facility" means the Company's proposed credit facility in the
amount of up to $150 million.
"Disinterested Directors" means, with respect to any transaction involving
the Company, a director who: (i) does not have any interest in the transaction
in its capacity: (a) individually or as an affiliate of IHS or the Company, (b)
as a partner or member of a partnership or limited liability company, (c) as a
director or officer of a corporation or association, or (d) as the holder of any
amount of the stock (or, in the case of a publicly traded corporation, the
holder of five percent or more of the common stock or five percent or more of
the voting power outstanding) of a corporation or association; and (ii) is not
otherwise a party to or pecuniarily or otherwise interested in the transaction.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"DOL" means the United States Department of Labor.
"DOL Regulation" means a regulation, issued by the DOL, defining plan
assets for certain purposes under ERISA.
"EBITDARM" means the sum of: (i) net income exclusive of extraordinary
gains and extraordinary losses; (ii) interest expense, net of income, determined
in conformity with GAAP; (iii) all charges for taxes counted in determining the
consolidated net income of such facility for such period; (iv) depreciation; (v)
amortization; (vi) lease payments, payable during such period by the facilities
under all leases and rental agreements, other than capital leases and healthcare
facility leases; (vii) any management fee and franchise fee used to calculate
the facility's net income for the period; and (viii) other non-cash charges
deducted in determining net income. EBITDARM is not a measurement calculated in
accordance with GAAP and should not be considered as an alternative to operating
or net income as an indicator of operating performance, cash flows as a measure
of liquidity or any other GAAP determined measurement. Certain items excluded
from EBITDARM, such as depreciation, amortization, rent and management and
franchise fees are significant components in understanding and assessing
financial performance. Other companies may define EBITDARM differently, and as a
result, such measures may not be comparable to the definition of EBITDARM used
by the Company. The Company has included information regarding EBITDARM because
management believes they are indicative measures of liquidity and financial
performance, and are generally used by investors to evaluate the operating
results of healthcare facilities.
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"Environmental Laws" means the federal, state and local laws and
regulations relating to protection of the environment and workplace health and
safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means an employee benefit plan subject to ERISA.
"Escrow Agreement" means the agreement between Operating Partnership, Lyric
III, the Facility Subtenants and Fidelity National Title Insurance Company of
New York, as escrow agent, pursuant to which Lyric III and each of the Facility
Subtenants agrees to complete within one year certain capital repairs and
improvements identified by the Operating Partnership as required in connection
with the purchase of the Initial Properties.
"Excess Stock" means the separate class of shares of stock of the Company
into which shares of stock of the Company owned, or deemed to be owned, or
transferred to a stockholder in excess of the Ownership Limit or the
Look-Through Ownership Limit will automatically be converted.
"Facilities Purchase Agreement" means the agreement by and between the
Operating Partnership and IHS pursuant to which the Operating Partnership will
purchase 44 of the Initial Properties from IHS.
"Facility Subleases" means the leases pursuant to which Lyric III will
sublease each of the Lyric Properties to the Lyric Subtenants.
"Facility Subtenants" means the separate wholly owned subsidiaries of Lyric
III which will directly own the Lyric Properties.
"Final Regulations" means the final Treasury Regulations regarding
withholding and information reporting rules, recently issued by the United
States Treasury.
"FIRPTA" means the Foreign Investment in Real Property Tax Act.
"Five or Fewer Requirement" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of Stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code) during the last half of a taxable year (other than the first year).
"Formation Transactions" means all of the transactions described under
"Structure and Formation of the Company -- Formation Transactions."
"Fractions Rule" means the qualified trust's highest percentage of
partnership income over the entire life of the partnership cannot exceed its
partnership losses over the entire life of the partnership.
"Funds from Operations" means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company computes
Funds from Operations in accordance with standards established by NAREIT which
may not be comparable to Funds from Operations reported by other REITs that do
not define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions.
"GAAP" means Generally Accepted Accounting Principles.
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"General Partner" means MP Operating, Inc.
"HHC" means Horizon/CMS Healthcare Corporation.
"HHC Properties" means the Initial Properties which were owned and managed
by Horizon/CMS Healthcare Corporation prior to December 31, 1997 and were
acquired by IHS effective December 31, 1997; and will be leased to Lyric III,
pursuant to the Master Lease and subleased to wholly owned subsidiaries of Lyric
III.
"HIPAA" means the federal Health Insurance Portability Act and
Accountability Act of 1996.
"Houston Hospital" means Integrated Health Services Hospital of Houston, a
specialty hospital located in Houston, Texas included in the IHS Historical
Properties.
"IHS" means Integrated Health Services, Inc.
"IHS Agreements" means the Facilities Purchase Agreement, the Purchase
Option Agreement and the Right of First Offer Agreement, collectively.
"IHS Franchising" means Integrated Health Services Franchising Co., Inc.
"IHS Historical Properties" means the Initial Properties which have been
owned and managed by IHS for more than one year and will be leased to Lyric III
pursuant to the Master Lease.
"IHS Management" means IHS Facility Management, Inc.
"ILC" means Integrated Living Communities, Inc.
"Impermissible Tenant Service Income" means the amounts received by a REIT
for operating or managing a property or furnishing or rendering services to a
tenant at a property other than through an independent contractor from whom the
REIT derives no revenue (not including services "usually or customarily
rendered" in connection with the rental of real property and not otherwise
considered "rendered to the occupant").
"Incentive Options" means options to purchase shares of Common Stock which
are granted under the Plan and which are intended to qualify as incentive
options under Section 422 of the Code.
"Independent Director" means an individual who is not an affiliate of the
Company and is not an officer or employee of the Company or any of its
subsidiaries.
"Initial Properties" means the Company's initial portfolio consisting of 47
healthcare facilities located in 15 states, 44 of which will be purchased from
IHS.
"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of the Company's then outstanding shares or an affiliate of
the Company who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting shares of stock of the Company.
"Intermediate Lessee Structure" means the structure utilized in connection
with the purchase and sale and leaseback of the Lyric Properties.
"IRS" means the Internal Revenue Service.
"LIBOR" means the London Interbank Offered Rate.
"Limited Partner" means MP LP
"LLCs" means limited liability companies.
"Look-Through Ownership Limit" means the ownership limit applicable to
entities which are looked through for purposes of Five or Fewer Requirement
restricting such entities to holding less than 9.9% of the aggregate value of
the Company's outstanding shares of Common Stock.
"Lyric" means Lyric Health Care LLC, a Delaware limited liability company,
which is 50% owned by IHS and 50% owned by TFN.
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"Lyric III" means Lyric Health Care Holdings III, Inc., a Delaware
corporation and a wholly owned subsidiary of Lyric.
"Lyric Guaranty" means the agreement pursuant to which Lyric will
unconditionally guarantee payment and performance of all rent and other
obligations of Lyric III and the Facility Subtenants under the Master Lease and
the Facility Subleases.
"Lyric Properties" means 42 of the Initial Properties to be acquired from
IHS which are to be leased to Lyric Health Care Holdings III, Inc.
"M.A.I." means Member, Appraisal Institute.
"Management Agreements" means the Master Management Agreement and the
Facility Management Agreements, collectively.
"Master Franchise Agreement" means the agreement between Lyric and IHS
Franchising pursuant to which IHS Franchising will grant to Lyric and its
subtenants the right to use certain proprietary materials developed and used by
IHS in its operation of healthcare facilities.
"Master Lease" means the lease pursuant to which the Lyric Properties will
be leased to Lyric III.
"Master Management Agreement" means the agreement between Lyric III and IHS
pursuant to which IHS, through its subsidiaries, will manage the Lyric
Properties.
"MSUs" means medical specialty units.
"MGCL" means the Maryland General Corporation Law.
"Monarch" means Monarch Properties, Inc., a Maryland corporation, and one
or more of its subsidiaries (including MP Operating, MP LP, the Operating
Partnership and the Operating Partnership's subsidiaries), or, as the context
may require, Monarch Properties, Inc. only or each of the Operating Partnership,
MP Operating and MP LP only.
"MP Operating" means MP Operating, Inc., a Delaware corporation, which will
be the general partner of the Operating Partnership.
"MP LP" means MP Properties LP, Inc., a Delaware corporation, which will be
the limited partner of the Operating Partnership.
"Named Executive Officers" means the Company's President and Chief
Executive Officer and the Company's other executive officers.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"1997 Act" means the Taxpayer Relief Act of 1997.
"Non-Qualified Options" means options to purchase shares of Common Stock
which are granted under the Plan and which are not intended to qualify as
incentive options under Section 422 of the Code.
"Non-U.S. Stockholders" means holders of Common Stock that are, for United
States federal income taxation purposes, nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts.
"Notice" means IRS Notice 97-64 issued November 10, 1997.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.
"Operating Partnership" means Monarch Properties, LP, a Delaware limited
partnership.
"Operating Partnership Agreement" means the Operating Partnership Agreement
of the Operating Partnership, as amended from time to time.
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"Option Properties" means the ten properties owned by IHS on which the
Company will have an option to purchase.
"OSHA" means the Occupational Safety and Health Act as provided at 29
U.S.C. (section) 650 et seq.
"Other Plans" means an IRA or a qualified pension, profit sharing or stock
bonus plan, or medical savings account which is not subject to ERISA but is
subject to Section 4975 of the Code.
"Ownership Limit" means the restrictions in the Charter which generally
will prohibit ownership, directly or by virtue of the attribution provisions of
the Code, by any single stockholder of 9.9% or more of the issued and
outstanding shares of Common Stock and generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
stockholder of 9.9% or more of the issued and outstanding shares of any class or
series of the Company's Preferred Stock.
"Peak Medical" means Peak Medical Corporation.
"Peak Medical Leases" means the leases pursuant to which the Peak Medical
Properties will be leased to the Peak Medical Tenant.
"Peak Medical Properties" means the two Initial Properties which will be
purchased from IHS and leased to the Peak Medical Tenant.
"Peak Medical Tenant" means Peak Medical of Idaho, Inc., a wholly owned
subsidiary of Peak Medical Corporation.
"Plan" means the 1998 Omnibus Securities and Incentive Plan.
"Plan Assets" means assets of an ERISA Plan.
"Pledge Agreements" means the agreements between the Operating Partnership
and Lyric and the Operating Partnership and Lyric III, whereby Lyric will pledge
100% of the stock of Lyric III and Lyric III will pledge 100% of the stock of
the Facility Subtenants to the Operating Partnership to secure the obligations
of Lyric III under the Master Lease and the obligations of the Facility
Subtenants under the Facility Subleases.
"Preferred Stock" means the preferred stock, $.001 par value per share, of
the Company.
"Prospectus" means this prospectus, as the same may be amended.
"Purchase Option Agreement" means the agreement between the Company and IHS
pursuant to which the Company is granted options to acquire up to 10 healthcare
facilities from IHS.
"Recognition Period" means the ten-year period beginning on the date on
which the Company acquires a Built-In Gain Asset.
"Registration Statement" means the Company's Registration Statement on
Form S-11, Registration Number 333-51127.
"REIT" means a real estate investment trust as defined under Sections 856
through 860 of the Code and applicable Treasury Regulations.
"Related Party Tenant" means a tenant of the Company which also is an
actual or constructive owner of 10% or more of the Company, or of which the
Company actually or constructively owns 10% or more.
"Representatives" means Donaldson, Lufkin & Jenrette Securities
Corporation; Smith Barney Inc.; BT Alex. Brown Incorporated; A.G. Edwards &
Sons, Inc.; Legg Mason Wood Walker, Incorporated; Morgan Stanley & Co.
Incorporated; PaineWebber Incorporated and Prudential Securities Incorporated.
"Restricted Common Stock" means shares of Common Stock which are
"restricted" securities under the meaning of Rule 144 or any shares of Common
Stock acquired in redemption of Units.
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"Right of First Offer Agreement" means the agreement between the Company
and IHS pursuant to which IHS must, for a period of four years, offer the
Company the opportunity to purchase or finance each IHS facility to be sold and
leased back or financed in a transaction of the type normally engaged in by the
Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the agreement between the Operating Partnership
and the Facility Subtenants pursuant to which each of the Facility Subtenants
will grant first priority security interests, in favor of the Operating
Partnership, in certain personal property of the Facility Subtenants located at
the properties to secure the obligations of the Facility Subtenants under the
Facility Subleases.
"SNFs" means skilled nursing facilities.
"Stabilized Occupancy" means average monthly occupancy for a facility of at
least 90% for three consecutive months.
"Stark Law" means the federal statute codified in 42 U.S.C. 1395nn, as
amended, and the regulations promulgated thereunder.
"Subordination Agreement" means the Consent and Subordination Agreement
among the Operating Partnership, IHS Management, IHS Franchising, Lyric III and
each of the Facility Subtenants pursuant to which the rights of IHS Management
and IHS Franchising under the Master Management Agreement and the Master
Franchise Agreement are subordinated to the rights of the Operating Partnership
under the Master Lease.
"TFN" means TFN Healthcare Investors, LLC, a Delaware limited liability
company, which is 100% beneficially owned by Timothy F. Nicholson.
"Trans Health" means Trans Healthcare, Inc.
"Trans Health Lease" means the lease pursuant to which the Trans Health
Properties will be leased to Trans Health.
"Trans Health Properties" means the three Initial Properties to be acquired
from an unrelated third party and will be leased to and managed by a subsidiary
of Trans Healthcare, Inc.
"Trans Health Tenant" means the wholly owned subsidiary of Trans
Healthcare, Inc. which will lease the Trans Health Properties from the
Operating Partnership.
"Treasury Regulations" means the applicable regulations of the U.S.
Department of Treasury that have been promulgated under the Code.
"U.S. Stockholder" means a holder of Common Stock who (for United States
federal income tax purposes): (i) is a citizen or resident of the United States;
(ii) is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof; or
(iii) is an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
"Underwriters" means the underwriters in this Prospectus for whom the
Representatives are acting as representatives.
"Underwriting Agreement" means the underwriting agreement among the
Company and the Underwriters.
"Unit(s)" means a unit(s) of partnership interest in the Operating
Partnership.
"UPREIT" means a REIT conducting business through a partnership.
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"U.S. or United States" means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.
"USTs" means underground storage tanks.
"Valuation Counselors" means Valuation Counselors Group, Inc.
"Whitemarsh" means Integrated Health Services at Whitemarsh, a skilled
nursing facility located in Whitemarsh, Pennsylvania included in the IHS
Historical Properties.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MONARCH PROPERTIES, INC.
Independent Auditors' Report ........................................................ F-2
Balance Sheet as of March 31, 1998 .................................................. F-3
Notes to Balance Sheet .............................................................. F-4
Pro Forma Balance Sheet and Statements of Operations ................................ F-6
Pro Forma Balance Sheet as of March 31, 1998 ........................................ F-7
Pro Forma Statement of Operations for the Three Months Ended March 31, 1998 ......... F-8
Pro Forma Statement of Operations for the Year Ended December 31, 1997 .............. F-9
Notes to Pro Forma Balance Sheet and Statements of Operations ....................... F-10
LYRIC HEALTH CARE LLC
Independent Auditors' Report ........................................................ F-16
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (Unaudited) ...... F-17
Statements of Earnings for the Years Ended December 31, 1995, 1996 and 1997 and the
Three Months Ended March 31, 1997 and 1998 (Unaudited) ............................ F-18
Statements of Changes in Net Equity for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1998 (Unaudited) ........................ F-19
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and
the Three Months Ended March 31, 1997 and 1998 (Unaudited) ........................ F-20
Notes to Financial Statements ....................................................... F-21
Pro Forma Statements of Operations .................................................. F-31
Pro Forma Statements of Operations for the Year Ended December 31, 1997 and the
Three Months Ended March 31, 1998 ................................................. F-32
Notes to Pro Forma Statements of Operations ......................................... F-33
</TABLE>
Note:No financial statements have been included herein for Monarch Properties,
LP as it is inactive and will have no operations prior to consummation of
the Offering. The financial statements of Lyric Health Care LLC have been
included herein in compliance with requirements to provide financial
statements of significant lessees or guarantors (i.e., any lessee of
properties or guarantor of leases of properties with a purchase price in
excess of 20% of the total assets of Monarch Properties, Inc.). These
financial statements provide information that may be relevant to investors
in Monarch Properties, Inc. The Company believes that the financial
statements included herein are more meaningful to the investors than the
financial statements of the individual healthcare facilities, which reflect
the results of nursuing home operations and not their intended future use
as rental real estate operations. Purchasers of shares in the Offering will
obtain no ownership or other interest in Lyric Health Care LLC or any of
its subsidiaries. Further, the properties included in the financial
statements of Lyric Health Care LLC are not, and will not be, owned by the
Company and the subsidiaries of Lyric Health Care LLC which own such
properties will not guarantee Lyric III's obligations to the Company.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Monarch Properties, Inc.:
We have audited the accompanying balance sheet of Monarch Properties, Inc.
(the Company) as of March 31, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement 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 balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company as of March 31, 1998,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
April 27, 1998
F-2
<PAGE>
MONARCH PROPERTIES, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS:
Cash ........................................................................ $100
====
STOCKHOLDER'S EQUITY:
Preferred stock, $.001 par value; 20,000,000 shares authorized; none issued
or outstanding ........................................................... $ --
Common stock, $.001 par value; 100,000,000 shares authorized; 100 shares
issued and outstanding ................................................... --
Additional paid-in capital ................................................ 100
----
Total stockholder's equity ............................................... $100
====
</TABLE>
----------
See accompanying notes to balance sheet.
F-3
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO BALANCE SHEET
MARCH 31, 1998
(1) ORGANIZATION
Monarch Properties, Inc. (Monarch or the Company) was formed in the State
of Maryland on February 20, 1998 and issued 100 shares of common stock to Dr.
Robert N. Elkins, the Chairman of the Board, for a total consideration of $100.
The Company is in the process of an initial public offering pursuant to which it
plans to issue approximately 17.5 million additional shares of common stock (the
Offering). The Company intends to file a registration statement on Form S-11
with the Securities and Exchange Commission in connection with the proposed
Offering.
The Company has had no operations. Upon consummation of the Offering, the
Company intends to begin operations by purchasing 47 healthcare facilities
located in 15 states (the Initial Properties). The Initial Properties will
consist of: (i) a portfolio of 37 skilled nursing facilities and five specialty
hospitals (the Lyric Properties) to be purchased from Integrated Health
Services, Inc. (IHS) for an aggregate purchase price of approximately $359.7
million and leased to Lyric Health Care Holdings III, Inc., (Lyric III), a
subsidiary of Lyric Health Care LLC (Lyric); (ii) a portfolio of two skilled
nursing facilities to be purchased from IHS (the Peak Medical Properties) for an
aggregate purchase price of approximately $11.3 million and leased to Peak
Medical of Idaho, Inc.; and (iii) a portfolio of three skilled nursing
facilities (the Trans Health Properties) to be purchased from an unaffiliated
third party for a purchase price of approximately $11.5 million and leased to
Trans Healthcare, Inc.
(2) FEDERAL INCOME TAXES
The Company intends to qualify as a real estate investment trust (REIT)
under the Internal Revenue Code of 1986, as amended. Accordingly, assuming such
qualification, it will not be subject to federal income taxes on amounts
distributed to stockholders provided it distributes at least 95% of its REIT
taxable income and meets certain other conditions. The Company may, however, be
subject to state or local taxation in various jurisdictions.
(3) PLANNED TRANSACTIONS
The Company intends to contribute the proceeds of the Offering to Monarch
Properties, LP (the Operating Partnership) in exchange for the sole general and
the initial limited partner interests in the form of units (Units). The
Company's percentage ownership in the Operating Partnership may vary if the
Operating Partnership admits new limited partners in connection with future
property acquisitions. The Operating Partnership will use the contributions from
the Company and borrowings under a proposed credit facility to purchase the
Initial Properties.
The Operating Partnership has agreements to purchase the properties subject
to certain terms and conditions, including, among other things, successful
completion of the Offering and obtaining a credit facility. The Company has
received a commitment for and anticipates entering into an unsecured credit
facility in the amount of $150 million. This facility would be used to fund a
portion of the purchase price and acquisition costs of the Initial Properties,
to facilitate future acquisitions and for working capital and other general
corporate purposes. Management believes that the Company will be able to obtain
additional credit on acceptable terms, if necessary.
The Company has agreed to reimburse actual costs incurred on its behalf by
IHS upon consummation of the Offering. These costs relate to organizing the
Company and other work performed in contemplation of the Offering.
The Company and IHS will enter into a purchase option agreement pursuant to
which the Company will be granted purchase options to acquire up to 10
healthcare facilities currently operated by IHS for a total purchase price of
$104.7 million. The purchase option agreement will have an initial term of two
years with three one-year renewals. If the Company exercises the purchase
options on these facilities, the facilities will be leased to Lyric.
F-4
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO BALANCE SHEET- (CONTINUED)
In addition to the purchase option agreement, the Company and IHS will
enter into a right of first offer agreement during the next four years pursuant
to which IHS must offer the Company the opportunity to purchase and leaseback or
finance any healthcare facilities IHS acquires or develops and elects to either
sell and leaseback or to finance in a transaction of the type normally engaged
in by the Company. The Company will be offered the opportunity to acquire or
finance the IHS facility on terms and conditions that, should the Company
decline to pursue the proposed transaction, must be offered to any other third
parties by IHS. If IHS is only able to sell or finance the facility on better
terms with a third party than previously offered to the Company, then the
Company must again be offered those new terms and conditions for consideration
prior to IHS finalizing a transaction with the third party.
(4) EMPLOYEE RELATED MATTERS
Prior to the completion of the Offering, the Company's Board of Directors
intends to adopt a 1998 Omnibus Securities and Incentive Plan (the Plan). On or
prior to the date of the Offering the Company initially intends to grant to
directors and executive officers options to purchase 513,650 shares of common
stock at an exercise price of $.001 per share. These options will be exercisable
upon completion of the Offering. The Company intends to adopt the intrinsic
value method to account for share-based compensation to employees and
accordingly, will recognize compensation expense equal to the excess of the
market value of the stock over the exercise price during the fiscal quarter in
which the Offering is consummated. The maximum number of shares of common stock
available for issuance under the Plan will be 5.0% of the total number of shares
of common stock and Units outstanding from time to time.
The Company will enter into an employment agreement with its President and
Chief Executive Officer upon consummation of the Offering. The agreement will
have an initial term of three years. The agreement will contain provisions,
which are intended to limit the President from competing with the Company
throughout the term of the agreement.
The Company will also enter into a non-competition agreement with the
Chairman of the Board. The agreement will be in effect during the term he serves
as Chairman.
(5) MASTER LEASE
Immediately subsequent to the completion of the Offering, the Company will
enter into a master lease with Lyric III (a wholly owned subsidiary of Lyric)
with respect to the Lyric Properties. Lyric III will sublease the individual
properties to certain subsidiaries (Facility Subtenants). Rent payments and the
performance of Lyric III under the master lease and the Facility Subtenants
under the subleases will be guaranteed by Lyric. The master lease will provide
for a minimum base rent, plus annual base rent increases equal to the lesser of:
(i) two times the increase in the consumer price index; or (ii) 3% over the rent
in the preceding lease year, provided that in no event shall the rent decrease
from the prior year. The master lease will be a triple net lease and require
Lyric III or the Facility Subtenants to pay all operating expenses, capital
expenditures, taxes, insurance and other costs. The Lyric Properties will have
staggered initial terms of 9, 10, 11, 12, and 13 years with each subject to
three successive 10 year renewal periods.
The following table summarizes the unaudited results of the Lyric
Properties for the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
Total revenues ........................................................ $ 241,504 $285,868 $306,684
Operating expenses .................................................... 194,964 233,592 251,707
Management fee ........................................................ 14,465 15,651 15,524
Depreciation .......................................................... 10,371 10,183 11,939
Rent .................................................................. 3,973 4,609 4,505
Interest .............................................................. 14,685 14,254 13,367
Loss on impairment of long-lived assets and other non-recurring charges 33,992 -- --
--------- -------- --------
Income (loss) before income taxes ..................................... $ (30,946) $ 7,579 $ 9,642
========= ======== ========
</TABLE>
F-5
<PAGE>
MONARCH PROPERTIES, INC.
PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS
(UNAUDITED)
The unaudited pro forma balance sheet is based on the balance sheet
included elsewhere in the Prospectus and has been prepared as if the Company
were formed on March 31, 1998 and gives effect to the Offering, the investment
in the Operating Partnership and the acquisition of the Initial Properties as if
they had occurred on March 31, 1998. The unaudited pro forma statement of
operations for the year ended December 31, 1997 gives effect to the Offering,
the investment in the Operating Partnership and the acquisition of the Initial
Properties as if they had occurred on January 1, 1997. The unaudited pro forma
statement of operations for the three months ended March 31, 1998 gives effect
to the Offering, the investment in the Operating Partnership and the acquisition
of the Initial Properties as if they occurred on January 1, 1998. The pro forma
adjustments are based upon available information and certain estimates and
assumptions that management of the Company believes are reasonable. As all of
the Initial Properties were available for occupancy at January 1, 1997, (i.e.,
all development and construction work was completed at that date), the unaudited
pro forma statements of operations include rental revenue under the leases for
all of the Initial Properties for the full periods presented. The unaudited pro
forma financial information set forth below is not necessarily indicative of the
Company's financial position or the results of operations that actually would
have occurred if the transactions had been consummated on the dates indicated.
In addition, it is not intended to be a projection of results of operations that
may be obtained by the Company in the future.
The unaudited pro forma balance sheet and statements of operations should
be read in conjunction with the balance sheet of the Company and the related
notes thereto, and other financial information pertaining to the Company,
including such information contained under the sections captioned
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in the Prospectus.
Capitalized terms used herein and not defined herein have the respective
meanings given to them in the Prospectus.
F-6
<PAGE>
MONARCH PROPERTIES, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------------- ----------
<S> <C> <C> <C>
ASSETS:
Initial properties ...................................... $ -- $ 382,439(1) $382,439
Other assets ............................................ -- 528(2) 528
----- ------------ --------
Total assets ........................................... $ -- $ 382,967 $382,967
===== ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Credit facility ......................................... $ -- $ 84,582(3) $ 84,582
Deferred income ......................................... -- 2,026(4) 2,026
Preferred stock $.001 par value; 20,000,000 shares autho-
rized; none issued or outstanding ...................... -- -- --
Common stock $.001 par value; 100,000,000 shares autho-
rized, 100 shares outstanding (historical), 17,450,000
shares outstanding (pro forma) ......................... -- 17(5) 17
Additional paid-in capital .............................. -- 296,342(5) 296,342
----- ------------ --------
Total liabilities and stockholders' equity ............. $ -- $ 382,967 $382,967
===== ============ ========
</TABLE>
- ----------
See accompanying notes to unaudited pro forma balance sheet and statements of
operations.
F-7
<PAGE>
MONARCH PROPERTIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ --------------- --------------
<S> <C> <C> <C>
Revenues:
Rental revenues ............................. $-- $ 9,644(6) $ 9,644
Other income ................................ -- 46(7) 46
--- ---------- -----------
Total revenues ............................... -- 9,690 9,690
--- ---------- -----------
Expenses (note 11):
Administrative expenses ..................... -- 438(8) 438
Interest .................................... -- 1,472(9) 1,472
Depreciation and amortization ............... -- 2,229(10) 2,229
--- ----------- -----------
Total expenses ............................... -- 4,139 4,139
--- ----------- -----------
Net income ................................... $-- $ 5,551 $ 5,551
=== =========== ===========
Earnings per share of common stock (note 12):
Basic ....................................... $ 0.32
===========
Diluted ..................................... $ 0.31
===========
Weighted average shares outstanding (note 12):
Basic ....................................... 17,450,000
===========
Diluted ..................................... 17,963,650
===========
</TABLE>
- ----------
See accompanying notes to unaudited pro forma balance sheet and statements of
operations.
F-8
<PAGE>
MONARCH PROPERTIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------------ --------------
<S> <C> <C> <C>
Revenues:
Rental revenues ............................. $-- $ 38,575(13) $ 38,575
Other income ................................ -- 182(14) 182
--- ------------ -----------
Total revenues ............................... -- 38,757 38,757
--- ------------ -----------
Expenses (note 11):
Administrative expenses ..................... -- 1,750(15) 1,750
Interest .................................... -- 5,889(16) 5,889
Depreciation and amortization ............... -- 8,918(17) 8,918
--- ------------ -----------
Total expenses ............................... -- 16,557 16,557
--- ------------ -----------
Net income ................................... $-- $ 22,200 $ 22,200
=== ============ ===========
Earnings per share of common stock (note 12):
Basic ....................................... $ 1.27
===========
Diluted ..................................... $ 1.24
===========
Weighted average shares outstanding (note 12):
Basic ....................................... 17,450,000
===========
Diluted ..................................... 17,963,650
===========
</TABLE>
- ----------
See accompanying notes to unaudited pro forma balance sheet and statements of
operations.
F-9
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) BACKGROUND AND BASIS OF PRESENTATION
Monarch Properties, Inc. (the Company) has been formed to invest in a
diversified portfolio of healthcare related real estate and mortgages. The
Company will be self-administered and self-managed and expects to qualify as a
real estate investment trust (REIT) for federal income tax purposes. Upon
completion of the Offering, the Company intends to purchase 47 healthcare
facilities located in 15 states (the Initial Properties). The Initial Properties
will consist of: (i) a portfolio of 37 skilled nursing facilities and five
specialty hospitals (the Lyric Properties) to be purchased from Integrated
Health Services, Inc. (IHS) for an aggregate purchase price of approximately
$359.7 million and leased to Lyric Health Care Holdings III, Inc. (Lyric III), a
subsidiary of Lyric Health Care LLC (Lyric); (ii) a portfolio of two skilled
nursing facilities to be purchased from IHS (the Peak Medical Properties) for an
aggregate purchase price of $11.3 million and leased to Peak Medical of Idaho,
Inc.; and (iii) a portfolio of three skilled nursing facilities (the Trans
Health Properties) to be purchased from an unaffiliated third party for a
purchase price of $11.5 million and leased to Trans Healthcare, Inc.
The leases for the Initial Properties will be long-term operating leases.
The initial rental terms will be a fixed amount based on the purchase price of
the facilities multiplied by specified rates. For the Lyric Properties, the rate
is 10.125%. For the Peak Medical Properties, the rate is 9.4%. For the Trans
Health Properties, the rate is the greater of: (i) 9.56%; or (ii) 400 basis
points over the U.S. Treasury Note yield. The rental amounts will increase each
year by the lesser of a fixed amount or an amount based on the CPI, but shall in
no event be lower than the prior year's rent. The rental amounts will have no
additional rent clauses that are based on a percentage of the facilities'
operating revenues. All of the leases will be triple net leases that will
require the lessees to pay all operating expenses, capital expenditures, taxes,
insurance and other costs. As all of the Initial Properties were available for
occupancy at January 1, 1997 (i.e., all development and construction work was
completed at that date), the unaudited pro forma statements of operations
include rental revenues under leases for all of the Initial Properties for the
full periods presented.
The accompanying unaudited pro forma balance sheet is provided to
illustrate the effects of the Offering, the acquisition of the Initial
Properties and the related transactions on the Company. It reflects how the
balance sheet might have appeared if the Company had been formed and the Initial
Properties had been purchased on December 31, 1997. The accompanying pro forma
statement of operations for the year ended December 31, 1997 gives effect to the
Offering, the acquisition of the Initial Properties, and the related
transactions as if they had been in effect on January 1, 1997.
The unaudited pro forma financial statements are not necessarily indicative
of the Company's financial position or the results of operations that actually
would have occurred if the transactions had been consummated on the dates shown.
In addition, they are not intended to be a projection of results of operations
that may be obtained in the future.
F-10
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS- (CONTINUED)
(B) PRO FORMA ADJUSTMENTS
(1) To record the acquisition of the Initial Properties, as follows:
Purchase price of Lyric Properties ................. $359,663
Purchase price of Peak Medical Properties .......... 11,300
Purchase price of Trans Health Properties .......... 11,476
--------
$382,439
========
The aggregate cost of the Initial Properties is allocated as follows:
Land ....................... $ 38,244
Buildings .................. 325,073
Land improvements .......... 19,122
--------
$382,439
========
(2) To record other assets, as follows:
Credit Facility commitment fee .......... $375
Office furniture and equipment .......... 128
Other organization costs ................ 25
----
$528
====
(3) To record the initial draw on the Credit Facility.
(4) To record unearned commitment fees received, as follows:
Lyric Properties ................. $1,798
Peak Medical Properties .......... 113
Trans Health Properties .......... 115
------
$2,026
======
(5) To record the redemption and cancellation of 100 outstanding shares of
Common Stock and the issuance of shares of Common Stock in the
Offering, as follows:
Gross proceeds from the Offering .......... $ 321,727
Underwriter's discount .................... (19,078)
Structuring fee ........................... (3,040)
Other offering costs ...................... (3,250)
---------
$ 296,359
=========
(6) To record rental revenue, assuming the average yield on the 10-year
U.S. Treasury Note over the 20 trading days preceding June 8, 1998 was
5.625% and the yield on the 10-year U.S. Treasury Note on the day of
the offering is 5.45%, as follows:
<TABLE>
<S> <C> <C>
Purchase price of Lyric Properties ................. $ 359,663
Rental rate ........................................ 10.125%
Portion of the year ................................ 25%
=========
$9,104
Purchase price of Peak Medical Properties .......... $ 11,300
Rental rate ........................................ 9.40%
Portion of the year ................................ 25%
=========
266
Purchase price of Trans Health Properties .......... $ 11,476
Rental rate ........................................ 9.56%
Portion of the year ................................ 25%
=========
274
------
$9,644
======
</TABLE>
F-11
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS- (CONTINUED )
The lease rate of the Lyric Properties is 450 basis points over the
average yield on the 10-year U.S. Treasury Note over the 20 days
preceding June 8, 1998 per the proposed lease agreement. The lease
rate of the Peak Medical Properties is fixed at 9.4% per the signed
lease agreement. The lease rate of the Trans Health properties is 400
basis points over the yield of the 10-year U.S. Treasury Note at the
date of closing (with a minimum lease rate of 9.56%). The Company has
signed a binding term sheet with Trans Health in regards to the Trans
Health Properties with the terms described above. The Company is
currently in the final stages of documentation of this transaction and
expects to complete documentation prior or immediately subsequent to
the effective date of the Offering.
(7) To record amortization of commitment fees received, as follows:
Lyric Properties ................... $ 1,798
Average lease life (years) ......... 11
Portion of the year ................ 25%
=======
$41
Peak Medical Properties ............ $ 113
Lease life (years) ................. 12
Portion of the year ................ 25%
=======
2
Trans Health Properties ............ $ 115
Lease life (years) ................. 11
Portion of the year ................ 25%
=======
3
---
$46
===
(8) To record estimated administrative expenses as follows:
Salaries .......... $ 136
Benefits .......... 25
Insurance ......... 38
Other ............. 239
=====
$ 438
=====
These costs were estimated as follows:
o Salaries are based on existing salaries and Employment
Agreements, where applicable, of the employees of Monarch.
o Benefits are based on employees' salaries and statutory rates for
payroll taxes and the Company's internal budget for health and
other benefits.
o Insurance includes directors and officers, commercial property,
general liability, auto, umbrella, and crime coverage and is
based on quotations from vendors.
o Other costs include the corporate office lease, directors' fees,
accounting, legal, investor relations and NYSE fees, supplies,
telephone, travel, postage, utilities, marketing, equipment
rents, cash management fees and Credit Facility administration
fees. The corporate office lease, directors' fees, NYSE fees,
cash management fees and Credit Facility administration fees are
based on signed or draft agreements. The remaining items are
estimated based on the Company's internal budgets, and no single
item in this category exceeds 15% of total other administrative
expenses.
F-12
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS- (CONTINUED)
(9) To record interest expense (including the unused commitment and
amortization of deferred financing costs) related to the Credit
Facility, as follows:
<TABLE>
<S> <C> <C>
Credit Facility balance ................... $ 84,582
Applicable rate ........................... 6.66%
Portion of the year ....................... 25%
========
$1,408
Unused portion of Credit Facility ......... $ 65,418
Applicable rate ........................... 0.20%
Portion of the year ....................... 25%
========
33
Credit facility commitment fee ............ $ 375
Amortization period (years) ............... 3
Portion of the year ....................... 25%
========
31
------
$1,472
======
</TABLE>
Borrowings on the Credit Facility are assumed to bear interest at a
variable rate based on a specified margin (100 basis points) over
LIBOR and is based on LIBOR as of June 8, 1998. A 1/8% fluctuation in
the assumed interest rate would change interest expense by $26.
(10) To record depreciation and amortization, as follows:
<TABLE>
<CAPTION>
PORTION
ON THE
ASSET AMOUNT LIFE (YEARS) YEAR EXPENSE
-------------------------------------------------------------------- -------- -------------- -------- --------
<S> <C> <C> <C> <C>
Organization costs .......................................... $ 25 5 25% $ 1
Office furniture and equipment .............................. 128 6 25% 5
Total non-real estate depreciation and amortization ......... 6
Depreciation of properties .................................. 2,223
------
$2,229
======
</TABLE>
Depreciation of properties is computed using the straight-line method
over estimated useful lives of 40 years for buildings and 25 years for
land improvements.
(11) Upon and subject to completion of the Offering, the Company intends to
grant to directors and executive officers options to purchase a total
of 513,650 shares of Common Stock at a price per share of $.001. These
options will be exercisable immediately. Accordingly, the Company will
recognize compensation expense equal to the excess of the market value
of the shares of Common Stock over the exercise price during the
fiscal quarter in which the Offering is consummated. As the grant of
these options is directly attributable to the Offering transaction and
management expects that grants of this nature (i.e., with significant
intrinsic value at the date of grant and immediate vesting) will be
unusual in periods after completion of the Offering, the estimated
expense of approximately $9.5 million is considered nonrecurring and,
accordingly, is not included in the pro forma statement of operations.
(12) Weighted average shares of common stock outstanding includes the
shares of common stock issued in the Offering for both the basic and
diluted earnings per share calculations. For the diluted earnings per
share calculation, weighted average shares of common stock outstanding
also includes the effect of dilutive potential common stock (i.e., the
options granted to directors and executive officers).
F-13
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS- (CONTINUED)
(13) To record rental revenue, assuming the average yield on the 10-year
U.S. Treasury Note over the 20 trading days preceding June 8, 1998 was
5.62% and the yield on the 10-year U.S. Treasury Note on the day of
the offering is 5.45%, as follows:
<TABLE>
<S> <C> <C>
Purchase price of Lyric Properties ................ $ 359,663
Rental rate ....................................... 10.125%
=========
$36,416
Purchase price of Peak Medical Properties ......... $ 11,300
Rental rate ....................................... 9.40%
=========
1,062
Purchase price of Trans Health Properties ......... $ 11,476
Rental rate ....................................... 9.56%
=========
1,097
-------
$38,575
=======
</TABLE>
The lease rate of the Lyric Properties is 450 basis points over the
average yield on the 10-year U.S. Treasury Note over the 20 days
preceding June 8, 1998 per the proposed lease agreement. The lease
rate of the Peak Medical Properties is fixed at 9.4% per the signed
lease agreement. The lease rate of the TransHealth Properties is 400
basis points over the yield of the 10-year U.S. Treasury Note at the
date of closing (with a minimum lease rate of 9.56%). The Company has
a signed binding term sheet with Trans Health in regards to the Trans
Health Properties with the terms described above. The Company is
currently in the final stages of documentation with Trans Health and
expects to complete documentation prior, or immediately subsequent to,
the effective date of the Offering.
(14) To record amortization of commitment fees received, as follows:
Lyric Properties ................... $1,798
Average lease life (years) ......... 11
======
$163
Peak Medical Properties ............ $ 113
Lease life (years) ................. 12
======
9
Trans Health Properties ............ $ 115
Lease life (years) ................. 11
======
10
----
$182
====
(15) To record estimated administrative expenses as follows:
Salaries .......... $ 545
Benefits .......... 98
Insurance ......... 150
Other ............. 957
======
$1,750
======
These costs were estimated as follows:
o Salaries are based on existing salaries and Employment
Agreements, where applicable, of the employees of Monarch.
o Benefits are based on employees' salaries and statutory rates for
payroll taxes and the Company's internal budget for health and
other benefits.
F-14
<PAGE>
MONARCH PROPERTIES, INC.
NOTES TO PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS- (CONTINUED)
o Insurance includes directors and officers, commercial property,
general liability, auto, umbrella, and crime coverage and is
based on quotations from vendors.
o Other costs include the corporate office lease, directors' fees,
accounting, legal, investor relations and NYSE fees, supplies,
telephone, travel, postage, utilities, marketing, equipment
rents, cash management fees and Credit Facility administration
fees. The corporate office lease, directors' fees, NYSE fees,
cash management fees and Credit Facility administration fees are
based on signed or draft agreements. The remaining items are
estimated based on the Company's internal budgets, and no single
item in this category exceeds 15% of total other administrative
expenses.
(16) To record interest expense (including the unused commitment fee and
amortization of deferred financing costs) related to the Credit
Facility, as follows:
<TABLE>
<S> <C> <C>
Credit Facility balance ................... $ 84,582
Applicable rate ........................... 6.66%
========
$5,633
Unused portion of Credit Facility ......... $ 65,418
Applicable rate ........................... 0.20%
========
131
Credit Facility commitment fee ............ $ 375
Amortization period (years) ............... 3
========
125
------
$5,889
======
</TABLE>
Borrowings on the Credit Facility are assumed to bear interest at a
variable rate based on a specified margin (100 basis points) over
LIBOR and is based on LIBOR as of June 8, 1998. A 1/8% fluctuation in
the assumed interest rate would change interest expense by $106.
(17) To record depreciation and amortization, as follows:
<TABLE>
<CAPTION>
ASSET AMOUNT LIFE (YEARS) EXPENSE
- --------------------------------------------------------------------- -------- -------------- --------
<S> <C> <C> <C>
Organization costs ........................................... $ 25 5 $ 5
Office furniture and equipment ............................... 128 6 21
------
Total non-real estate depreciation and amortization .......... 26
Depreciation of properties ................................... 8,892
------
$8,918
======
</TABLE>
Depreciation of properties is computed using the straight-line method
over estimated useful lives of 40 years for buildings and related
equipment and 25 years for land improvements.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members
Lyric Health Care LLC:
We have audited the accompanying balance sheets of Lyric Health Care LLC
(the Company) as of December 31, 1996 and 1997 and the related statements of
earnings, changes in net equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1997 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 9 to the financial statements, in connection
with the adoption of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, effective January 1, 1996
the Company changed its accounting method from deferring and amortizing
pre-opening costs of medical specialty units to recording them as expenses when
incurred.
KPMG Peat Marwick LLP
Baltimore, Maryland
April 22, 1998
F-16
<PAGE>
LYRIC HEALTH CARE LLC
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 418 $ 229 $ 1,951
Patient accounts and third-party payor settlements
receivable (note 3) ................................... 5,051 4,420 10,741
Supplies, prepaid expenses and other current assets..... 182 319 335
------- ------- -------
Total current assets ..................................... 5,651 4,968 13,027
Property, plant and equipment, net (note 4) .............. 44,621 41,764 641
Other assets ............................................. 34 40 --
------- ------- -------
$50,306 $46,772 $13,668
======= ======= =======
LIABILITIES AND NET EQUITY
Current liabilities:
Current maturities of long-term debt (note 6) .......... $ 189 $ 180 $ --
Accounts payable and accrued expenses (note 5) ......... 3,153 3,931 9,541
Due to Integrated Health Services, Inc. ................ -- -- 1,362
------- ------- -------
Total current liabilities ................................ 3,342 4,111 10,903
Long-term debt less current maturities (note 6) .......... 1,114 947 811
Deferred income taxes (note 7) ........................... 6,492 6,047 --
Net equity:
Net equity of parent company ........................... 39,358 35,667 --
Members' equity ........................................ -- -- 2,100
Deficit ................................................ -- -- (146)
------- ------- -------
Net equity ............................................... 39,358 35,667 1,954
------- ------- -------
$50,306 $46,772 $13,668
======= ======= =======
</TABLE>
- ----------
See accompanying notes to financial statements.
F-17
<PAGE>
LYRIC HEALTH CARE LLC
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues:
Basic medical services ......................... $15,028 $20,913 $19,493 $4,346 $4,800
Specialty medical services ..................... 10,088 13,430 17,782 4,554 4,460
Other .......................................... 300 303 358 157 76
------- ------- ------- ------ ------
Total revenues .................................. 25,416 34,646 37,633 9,057 9,336
------- ------- ------- ------ ------
Costs and expenses:
Facility operating expenses:
Salaries, wages and benefits .................. 12,569 16,601 17,482 4,182 4,397
Other operating expenses ...................... 8,125 12,945 12,411 3,375 3,343
Corporate administrative and general expenses
(note 8) ...................................... 1,542 2,081 2,186 548 442
Rent ........................................... 332 545 621 153 878
Interest, net .................................. 170 143 106 31 26
Depreciation and amortization .................. 1,440 1,289 1,527 402 156
Non-recurring charges, net (note 9) ............ 1,041 -- 2,500 -- --
------- ------- ------- ------ ------
Total costs and expenses ........................ 25,219 33,604 36,833 8,691 9,242
------- ------- ------- ------ ------
Earnings before income taxes .................... 197 1,042 800 366 94
Federal and state income taxes (note 7) ......... 76 401 312 139 36
------- ------- ------- ------ ------
Net earnings .................................... $ 121 $ 641 $ 488 $ 227 $ 58
======= ======= ======= ====== ======
</TABLE>
- ----------
See accompanying notes to financial statements.
F-18
<PAGE>
LYRIC HEALTH CARE LLC
STATEMENTS OF CHANGES IN NET EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET EQUITY
OF PARENT MEMBERS'
COMPANY CAPITAL DEFICIT TOTAL
----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ...................... $ 31,711 $ -- $ -- $ 31,711
Net earnings .................................... 121 -- -- 121
Net activity with parent -- capital contribu-
tion ........................................... 12,041 -- -- 12,041
--------- ------ ------ ---------
Balance at December 31, 1995 ...................... 43,873 -- -- 43,873
Net earnings .................................... 641 -- -- 641
Net activity with parent -- capital distribution. (5,156) -- -- (5,156)
--------- ------ ------ ---------
Balance at December 31, 1996 ...................... 39,358 -- -- 39,358
Net earnings .................................... 488 -- -- 488
Net activity with parent -- capital distribution. (4,179) -- -- (4,179)
--------- ------ ------ ---------
Balance at December 31, 1997 ...................... 35,667 -- -- 35,667
Contribution to capital upon formation of
Lyric Health Care LLC .......................... (500) 2,100 -- 1,600
Net earnings (loss) ............................. 204 -- (146) 58
Income taxes payable to parent company in
connection with sale leaseback transaction...... 6,047 -- -- 6,047
Other net activity with parent -- capital distri-
bution ......................................... (41,418) -- -- (41,418)
--------- ------ ------ ---------
Balance at March 31, 1998 (unaudited) ............. $ -- $2,100 $ (146) $ 1,954
========= ====== ====== =========
</TABLE>
- ----------
See accompanying notes to financial statements.
F-19
<PAGE>
LYRIC HEALTH CARE LLC
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH
YEARS ENDED DECEMBER 31, 31,
----------------------------------------- ----------------------
1995 1996 1997 1997 1998
------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings ....................................... $ 121 $ 641 $ 488 $ 227 $ 58
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Non-recurring charges, net ....................... 1,041 -- 2,500 -- --
Depreciation and amortization .................... 1,440 1,289 1,527 402 156
Deferred income taxes ............................ (67) 557 (445) 152 --
Decrease (increase) in patient accounts and
third-party payor settlements receivable,
net ............................................. (1,491) 2,248 631 85 17
Decrease (increase) in other current assets....... (83) 52 (137) (524) 15
Increase in accounts payable, accrued ex-
penses and other current liabilities ............ 556 774 778 (59) 54
-------- -------- -------- ------ ---------
Net cash provided by operating activities ........... 1,517 5,561 5,342 283 300
-------- -------- -------- ------ ---------
Cash flows from financing activities:
Proceeds from sale-leaseback ....................... -- -- -- -- 42,163
Capital contribution from members .................. -- -- -- -- 1,600
Proceeds of debt ................................... -- -- -- -- 811
Payment of debt .................................... (31) (157) (176) (26) (1,127)
Capital contribution from parent company
(distribution), net .............................. 2,006 (5,156) (4,179) (169) (41,418)
-------- -------- -------- ------ ---------
Net cash provided (used) by financing activities..... 1,975 (5,313) (4,355) (195) 2,029
-------- -------- -------- ------ ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ......... (1,806) (876) (1,149) (187) (647)
Deferred pre-opening costs ......................... (706) -- -- -- --
Decrease (increase) in other assets ................ (1) (33) (27) 1 40
---------- -------- -------- ------ ---------
Net cash used by investing activities ............... (2,513) (909) (1,176) (186) (607)
--------- -------- -------- ------ ---------
Increase (decrease) in cash and cash equivalents. 979 (661) (189) (98) 1,722
Cash and cash equivalents, beginning of period....... 100 1,079 418 418 229
--------- -------- -------- ------ ---------
Cash and cash equivalents, end of period ............ $ 1,079 $ 418 $ 229 $ 320 $ 1,951
========= ======== ======== ====== =========
Cash payments for interest .......................... $ 161 $ 143 $ 106 $ 31 $ 26
========= ======== ======== ====== =========
</TABLE>
- ----------
See accompanying notes to financial statements.
F-20
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Lyric Health Care LLC (Lyric or the Company) is a limited liability company
organized pursuant to the Delaware Limited Liability Company Act and a wholly
owned subsidiary of Integrated Health Services, Inc. (IHS or the Parent Company)
during the three year period ended December 31, 1997. IHS became Lyric's sole
member when Lyric was formed in May 1997 and the stock of certain IHS wholly
owned operating subsidiaries was subsequently transferred to a subsidiary of
Lyric. This has been accounted for as a reorganization of entities under common
control. Intercompany balances with IHS are treated as net equity of the Parent
Company.
The financial statements of Lyric represent the combined financial
statements of the aforementioned subsidiaries as if the reorganization had been
effected during the three-year period. The subsidiaries of IHS operate the
following skilled nursing facilities:
<TABLE>
<CAPTION>
OWNER AND IHS
FACILITY AND LOCATION DATE OF ACQUISITION BY IHS OPERATING ENTITY
- ----------------------------------- ---------------------------- ---------------------------------
<S> <C> <C>
Governors Park, a 150-bed facility Integrated Management-Governor's
Barrington, IL ................... November 1, 1995 Park, Inc.
Chestnut Hill, a 200-bed facility Rest Haven Nursing Center
Philadelphia, PA ................. December 1, 1993 (Chestnut Hill), Inc.
Gainesville, a 120-bed facility Gainesville HealthCare
Gainesville, FL .................. December 1, 1993 Center, Inc.
Claremont, a 68-bed facility Claremont Integrated
Claremont, NH .................... March 5, 1993 Health, Inc.
William and Mary, a 92-bed facility
St. Petersburg, FL ............... September 1, 1987 Rikad Properties, Inc.
</TABLE>
The financial statements reflect the historical accounts of the skilled
nursing facilities, including allocations of general and administrative expenses
from the IHS corporate office to the individual facilities. Such corporate
office allocations, calculated as a percentage of revenue, are based on
determinations that management believes to be reasonable. However, IHS has
operated certain other businesses and has provided certain services to the
Company, including financial, legal, accounting, human resources and information
systems services. Accordingly, expense allocations to the Company may not be
representative of costs of such services to be incurred in the future (see note
8).
As discussed in note 12, during the three months ended March 31, 1998, the
real estate assets of the aforementioned facilities were sold in a
sale-leaseback transaction, the proceeds thereof were distributed to IHS, IHS'
interest in Lyric was reduced to 50% upon the admission of a new member and the
net operating assets (excluding real estate) of five additional facilities were
contributed by IHS, among other things. The statements of earnings and cash
flows for the three months ended March 31, 1998 do not include the operating
results of the five additional facilities because the contribution of the net
operating assets of these facilities did not occur until March 31, 1998.
MEDICAL SERVICE REVENUES
Medical service revenues are recorded at established rates and adjusted for
differences between such rates and estimated amounts reimbursable by third-party
payors. Estimated settlements under third-party payor retrospective rate setting
programs (primarily Medicare and Medicaid) are accrued in
F-21
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
the period the related services are rendered. Settlements receivable and related
revenues under such programs are based on annual cost reports prepared in
accordance with Federal and state regulations, which reports are subject to
audit and retroactive adjustment in future periods. In the opinion of
management, adequate provision has been made for such adjustments and final
settlements will not have a material effect on financial position or results of
operations. Basic medical service revenues represent routine service (room and
board) charges of geriatric facilities, exclusive of medical specialty units
(MSUs). Specialty medical service revenues represent ancillary service charges
of geriatric facilities and revenues generated by MSUs.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid instruments with an
original maturity of three months or less. Under a cash management facility
provided by the Parent Company, the Company's operating cash balances of the
facilities are generally transferred to a centralized account and applied to
reduce the IHS intercompany account which is treated as net equity of the Parent
Company. The Company's cash needs for operating and other purposes are similarly
provided through an increase to net equity of the Parent Company.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are computed using the straight-line method over the
estimated useful lives of the assets as follows:
Building and improvements ......... 40 years
Land improvements ................. 25 years
Equipment ......................... 10 years
DEFERRED PRE-OPENING COSTS
Through December 31, 1995 direct costs incurred to initiate and implement
new MSUs at nursing facilities (e.g., respiratory therapy, rehabilitation and
Alzheimer units) were deferred during the pre-opening period and amortized on a
straight-line basis over five years, which generally corresponds to the period
over which the Company receives reimbursement from Medicare. Effective January
1, 1996, the Company changed its policy to expense such costs when incurred (see
note 9).
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
Company was not a separate taxable entity during the three years ended December
31, 1997; however, under SFAS 109 the current and deferred tax expense has been
allocated among the members of the IHS controlled corporate group, including the
operating subsidiaries which comprise Lyric.
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are recorded for deferred tax
assets when it is more likely than not that such deferred tax assets will not be
realized.
F-22
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
BUSINESS AND CREDIT CONCENTRATIONS
The Company's medical service revenues are provided through five owned
facilities located in four states. The Company generally does not require
collateral or other security in extending credit to patients; however, the
Company routinely obtains assignments of (or is otherwise entitled to receive)
benefits receivable under the health insurance programs, plans or policies of
patients (e.g., Medicare, Medicaid, commercial insurance and managed care
organizations) (see note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates (see note
10).
IMPAIRMENT OF LONG-LIVED ASSETS AND CHANGES IN ACCOUNTING
Management regularly evaluates whether events or changes in circumstances
have occurred that could indicate an impairment in the value of long-lived
assets. In December 1995, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS No. 121). In accordance with the provisions of SFAS No. 121, if there is
an indication that the carrying value of an asset is not recoverable, the
Company estimates the projected undiscounted cash flows, excluding interest, of
the related individual facilities (the lowest level for which there are
identifiable cash flows independent of the other groups of assets) to determine
if an impairment loss should be recognized. The amount of impairment loss is
determined by comparing the historical carrying value of the asset to its
estimated fair value. Estimated fair value is determined through an evaluation
of recent financial performance and projected discounted cash flows of its
facilities using standard industry valuation techniques, including the use of
independent appraisals when considered necessary.
In addition to consideration of impairment upon the events or changes in
circumstances described above, management regularly evaluates the remaining
lives of its long-lived assets. If estimates are changed, the carrying value of
affected assets is allocated over the remaining lives.
Adoption of SFAS No. 121 had no effect on the Company's financial
statements; however, see note 9 for the effect of the change in accounting
estimate in 1995 related to the write-off of deferred pre-opening costs and the
change in accounting method in 1996 to expense pre-opening costs as incurred.
INTERIM FINANCIAL INFORMATION
The unaudited financial information as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 has been prepared in conformity with the
accounting principles and practices reflected in the audited financial
statements. In the opinion of the Company, the unaudited financial information
contains all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the Company's financial position, results of
operations and cash flows for the period indicated.
RECLASSIFICATIONS
Certain amounts presented in 1995 and 1996 have been reclassified to
conform with the presentation for 1997.
(2) BUSINESS ACQUISITIONS
In November 1995, IHS acquired the Governor's Park facility. The
acquisition was accounted for by the purchase method; accordingly, the total
cost of the acquisition has been allocated to the assets and liabilities of the
acquired facility based on their estimated fair values. The results of
operations of the acquired facility have been included in the financial
statements from the date of acquisition.
F-23
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
The total cost of the Governor's Park acquisition has been allocated as
follows:
<TABLE>
<S> <C>
Current assets, less current liabilities ................. $ 832
Property, plant and equipment ............................ 9,203
-------
Total, representing capital contributed by the Parent Com-
pany ................................................... $10,035
=======
</TABLE>
(3) PATIENT ACCOUNTS AND THIRD-PARTY PAYOR SETTLEMENTS RECEIVABLE
Patient accounts and third-party payor settlements receivable consist of
the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
--------------------- ------------
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
Patient accounts ................................ $4,153 $4,640 $11,312
Allowance for doubtful accounts ................. 427 535 1,189
------ ------ -------
3,726 4,105 10,123
Third party payor settlements, less allowance for
contractual adjustments of $1,007, $1,585 and
$3,003......................................... 1,325 315 618
------ ------ -------
$5,051 $4,420 $10,741
====== ====== =======
</TABLE>
The Company's provision for bad debts was $84, $323 and $361 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Amounts receivable from the Federal government (Medicare) and various
states (Medicaid), primarily the Commonwealth of Pennsylvania, are summarized as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
------------------- ------------
1996 1997 1998
-------- -------- ------------
<S> <C> <C> <C>
Patient accounts:
Medicare ................... $ 198 $ 542 $1,147
Medicaid ................... 1,471 1,569 2,946
------ ------ ------
1,669 2,111 4,093
Third-party payor settlements:
Medicare ................... 1,292 1,280 2,910
Medicaid ................... 1,040 620 711
------ ------ ------
$2,332 $1,900 $3,621
====== ====== ======
</TABLE>
Certain Medicare and Medicaid cost reports for prior years were settled
during 1995, 1996 and 1997, the impact of which was not material. At December
31, 1997, the Company had open cost reports for the 1994, 1995, 1996 and 1997
years which, after related allowances, are recorded at estimated net realizable
value.
F-24
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
--------------------- ------------
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
Land and improvements ......................... $ 4,925 $ 4,925 $ --
Building and improvements ..................... 40,171 37,934 --
Equipment ..................................... 2,906 3,250 647
Construction in progress ...................... 798 1,339 --
------- ------- ----
48,800 47,448 647
Less accumulated depreciation and amortization. 4,179 5,684 6
------- ------- ----
Net property, plant and equipment ............. $44,621 $41,764 $641
======= ======= ====
</TABLE>
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
--------------------- ------------
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
Accounts payable ................... $1,163 $1,908 $5,237
Accrued salaries and wages ......... 958 901 1,649
Other accrued expenses ............ 1,032 1,122 2,655
------ ------ ------
$3,153 $3,931 $9,541
====== ====== ======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
------------------- ------------
1996 1997 1998
-------- -------- ------------
<S> <C> <C> <C>
Revolving credit facility notes due January 2001..... $ -- $ -- $ 811
10.5% mortgage note payable due in monthly
installments of $8, including interest, with final
payment due May 1999. ............................. 491 414 --
8.0% mortgage note payable due in monthly in-
stallments of $15, including interest, with final
payment due December 2001. ........................ 812 713 --
------ ------ -----
1,303 1,127 811
Less current portion ................................ 189 180 --
------ ------ -----
Total long-term debt, less current portion .......... $1,114 $ 947 $ 811
====== ====== =====
</TABLE>
F-25
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
(7) INCOME TAXES
The Company is included in IHS' consolidated Federal income tax return. The
allocated provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ---------
<S> <C> <C> <C>
Federal ........... $ 64 $ 337 $ 263
State ............. 12 64 49
----- ------ ------
$ 76 $ 401 $ 312
===== ====== ======
Current ........... $ 143 $ (156) $ 757
Deferred .......... (67) 557 (445)
----- ------ ------
$ 76 $ 401 $ 312
===== ====== ======
</TABLE>
The amount computed by applying the Federal corporate tax rate of 35% in
1995, 1996 and 1997 to earnings before income taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- -------
<S> <C> <C> <C>
Income tax computed at statutory rates .............. $69 $365 $280
State income taxes, net of Federal tax benefit ...... 8 42 32
Other ............................................... (1) (6) --
------ ------ ----
$76 $401 $312
===== ===== ====
</TABLE>
Deferred income tax (assets) liabilities at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Excess of book over tax basis of assets .......... $7,030 $6,842
Allowance for doubtful accounts .................. (538) (795)
------ ------
$6,492 $6,047
====== ======
</TABLE>
The provision for Federal and state income taxes is recorded using the
overall effective tax rate of the consolidated group applied to the Company's
taxable income computed on a stand-alone basis. Provisions for current income
taxes have been applied to the IHS intercompany account which is treated as net
equity of the Parent Company. Deferred income tax (assets) liabilities are
recorded for the Company's temporary differences using the same effective tax
rate. The provision for income taxes, deferred income taxes, and income taxes
currently payable may have been different had Lyric operated as an unaffiliated
entity.
(8) OTHER RELATED PARTY TRANSACTIONS
Corporate administrative and general expenses represent management fees for
certain services, including financial, legal, accounting, human resources and
information systems services provided by IHS pursuant to a management services
agreement. Management fees have been charged by IHS at approximately 6% of total
revenues of each facility.
Management fees charged by IHS and certain other expenses (primarily
related to insurance) have been determined based on an allocation of IHS'
corporate general and administrative expenses, which apply to all IHS divisions,
including Lyric. Such allocation has been made because specific identification
of expenses is not practicable. Management believes that this allocation method
is reasonable. However, management believes that the Company's corporate
administrative and general expenses on a stand alone basis may have been
different had Lyric operated as an unaffiliated entity.
F-26
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
(9) LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER NON-RECURRING CHARGES
In 1995, the Company, as well as industry analysts, believed that Medicare
and Medicaid reform was imminent. Both the House and Senate balanced budget
proposals proposed a reduction in future growth in Medicare and Medicaid
spending from 10% a year to approximately 4-6% a year. While Medicare and
Medicaid reform had been previously discussed, the Company came to believe that
a future reduction in the growth of Medicare and Medicaid spending was now
virtually a certainty. Such reforms include, in the near term, a continued
freeze in the Medicare routine cost limit (RCL), followed by reduced increases
in later years, more stringent documentation requirements for Medicare RCL
exception requests, reduction in the growth in Medicaid reimbursement in most
states, as well as salary equivalency in rehabilitative services and, in the
longer term (2-3 years), a switch to a prospective payment system for nursing
homes. The Company estimated the effect of the aforementioned reforms on each
nursing and subacute facility, by reducing (or in some cases increasing) the
future revenues and expense growth rates for the impact of each of the
aforementioned factors. Accordingly, these events and circumstances triggered
the early adoption of Statement of Financial Accounting Standards No. 121 in the
fourth quarter of 1995. In accordance with SFAS No. 121, the Company estimated
the future cash flows expected to result from those assets to be held and used.
In estimating the future cash flows for determining whether an asset is
impaired, and if expected future cash flows used in measuring assets are
impaired, the Company grouped its assets at the lowest level for which there are
identifiable cash flows independent of other groups of assets (i.e., by
individual facilities). The results of comparing future undiscounted cash flows
to historical carrying value were that none of the Lyric nursing facilities were
identified for an impairment charge since only those facilities where the
carrying value exceeded the undiscounted cash flows are considered impaired.
Prior to adoption of SFAS No. 121, the Company evaluated impairment on the
entity level, and such evaluation had yielded no impairment in prior years.
In connection with the adoption of SFAS No. 121 described above, the
Company adopted a change in accounting estimate to write-off in 1995 all
deferred pre-opening costs of MSUs. This change was made in recognition of the
circumstances, discussed above, which raised doubt about and thereby triggered
the assessment of recoverability of long-lived assets in 1995. These
circumstances also raised doubt as to the estimated future benefit and
recoverability of deferred pre-opening costs, resulting in the Company's
decision to write-off $1,678 of deferred pre-opening costs and $637 of related
deferred revenue. Such deferred revenue resulted from the timing differences in
accounting for deferred pre-opening costs for third party payor reimbursement
and financial reporting purposes. In connection with the change in accounting
estimate regarding the future benefits and recoverability of deferred
pre-opening costs, the Company has changed its accounting method beginning in
1996 from deferring and amortizing pre-opening costs to recording them as an
expense when incurred. The effect of this change in 1996 was to decrease
amortization expense by approximately $363 and to increase operating expenses by
approximately $525.
In 1997, the Company recorded a loss of $2,500 in anticipation of the loss
incurred on the sale-leaseback transaction discussed in note 12.
(10) CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The following information is provided in accordance with the AICPA
Statement of Position No. 94-6, Disclosure of Certain Significant Risks and
Uncertainties.
F-27
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
The Company and others in the healthcare business are subject to certain
inherent risks, including the following:
o Substantial dependence on revenues derived from reimbursement by the
Federal Medicare and state Medicaid programs;
o Ability to obtain per diem rate approvals for costs which exceed the
Federal Medicare established per diem rates (routine cost limits);
o Government regulations, government budgetary constraints and proposed
legislative and regulatory changes; and
o Lawsuits alleging malpractice and related claims.
Such inherent risks require the use of certain management estimates in the
preparation of the Company's financial statements and it is reasonably possible
that a change in such estimates may occur.
The Company receives payment for a significant portion of services rendered
to patients from the Federal government under Medicare and from the states in
which its facilities are located under Medicaid. Revenue derived from Medicare
and various state Medicaid reimbursement programs represented 34% and 38%,
respectively, of the Company's total revenue for the year ended December 31,
1997. The Company's operations are subject to a variety of other Federal, state
and local regulatory requirements, and failure to maintain required regulatory
approvals and licenses and/or changes in such regulatory requirements could have
a significant adverse effect on the Company. Changes in Federal and state
reimbursement funding mechanisms, related government budgetary constraints and
differences between final settlements and estimated settlements receivable under
Medicare and Medicaid retrospective reimbursement programs, which are subject to
audit and retroactive adjustment, could have a significant adverse effect on the
Company. In addition, the Company's cost of care for its MSU patients generally
exceeds regional reimbursement limits established under Medicare. The success of
the Company's MSU strategy will depend in part on its ability to obtain per diem
rate approvals for costs which exceed the Medicare established per diem rate
limits.
The Company is from time to time subject to malpractice and related claims
and lawsuits, which arise in the normal course of business and which could have
a significant effect on the Company. The Parent Company maintains occurrence
basis professional and general liability insurance with coverage and deductibles
which management believes to be appropriate with respect to such claims.
The Company believes that adequate provision for the aforementioned items
has been made in the accompanying financial statements and that their ultimate
resolution will not have a material effect on the financial statements.
(11) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The term "comprehensive earnings" is
defined as the change in members' equity from transactions and other events and
circumstances from non-member sources. Comprehensive earnings include earnings
as reported in the Statement of Earnings and other comprehensive earnings.
"Other Comprehensive Earnings" refers to revenues, expenses, gains and losses
that are included in comprehensive earnings but excluded from net earnings
under current accounting standards. SFAS No. 130 is effective for both interim
and annual periods beginning in 1998. Comparative financial statements provided
for earlier periods are required to be reclassified to reflect the provisions
of SFAS No. 130.
F-28
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
During the three year period ended December 31, 1997 and the three months
ended March 31, 1998 there were no items of "Other Comprehensive Earnings" and,
therefore, no difference between net earnings, as reported, and comprehensive
earnings.
(12) EVENTS SUBSEQUENT TO DECEMBER 31, 1997
On January 13, 1998 the real estate assets of the operating subsidiaries of
Lyric were sold to an unaffiliated, publicly traded healthcare for $44.5 million
and leased back to subsidiaries of Lyric at an annual rent of $4.5 million
subject to certain increases as defined by the lease agreement. The Company
incurred a loss of $2,500 in connection with the sale of these facilities which
was recorded in 1997. The net proceeds from the sale of approximately $42.2
million were used to repay the balance of the mortgages payable described in
note 6 and the remaining balance was distributed to the Parent Company. The
lease has an initial term of 13 years and provides for two renewal option
periods of 13 years each. In addition, the lease requires that the lessee
subsidiaries of Lyric maintain a minimum cash flow to debt service ratio as well
as other prescribed financial covenants.
Also on January 13, 1998, the Company entered into management and franchise
agreements with subsidiaries of IHS. The management and franchise agreements'
initial terms are 13 years with two renewal option periods of 13 years each. The
base management fee is 3% of gross revenues, subject to increase to 4% if gross
revenues exceed $350 million. In addition, the management agreement provides for
an incentive management fee equal to 70% of the annual net cash flow as defined
by the management agreement. The duties of the manager under the management
agreement include the following functions: accounting, legal, human resources,
operations, materials and facilities management and regulatory compliance. The
annual franchise fee is 1% of gross revenues and grants Lyric and the lessee
subsidiaries of Lyric the authority to use IHS' trade names and proprietary
materials.
On January 21, 1998 the Company's subsidiaries obtained a $10.0 million
revolving credit facility from Copelco/American Healthfund, Inc. The initial
term of the credit facility expires on January 21, 2001 and the interest rate is
equal to the LIBOR rate plus 2.75%. The aggregate principal amount outstanding
under the credit facility shall not exceed certain base borrowing amounts as
defined by the agreement. In addition, the agreement requires maintenance of a
debt service coverage ratio of at least 1.0. The amounts outstanding under the
revolving credit facility are secured by a first priority security interest in
the accounts receivable of the subsidiaries. As of March 31, 1998, the Company
had borrowings of $811 under such credit facility. The interest rate was 8.4% at
March 31, 1998.
In a related transaction, TFN Healthcare Investors, LLC (TFN) invested
$1,000 for a 50% interest in the Company. Accordingly, IHS' interest in the
Company was reduced to 50% and the group of corporations contributed to the
Company by IHS were no longer members of the IHS consolidated group. In
connection with the analysis of the income tax effects of the transaction, the
Company evaluated the realizability of the remaining net deferred tax asset and
determined that a valuation allowance was necessary. This valuation allowance
was reflected as a reduction of the equity contribution of IHS. The amended
operating agreement provides that the Company will dissolve on December 31, 2047
unless extended for an additional 12 months. On February 1, 1998, the Company
also entered into a five-year employment agreement with Timothy F. Nicholson,
the principal member of TFN and a director of the Parent Company. Pursuant to
the amended operating agreement, Mr. Nicholson will serve as the Managing
Director of the Company, will have the day-to-day authority for the management
and operation of the Company and will initiate policy proposals for business
plans, acquisitions, employment policy, approval of budgets, adoption of
insurance programs, additional service offerings, financing strategy, ancillary
service usage, change in material terms of any lease and adoption/amendment of
employee health, benefit and compensation plans.
The balance due to IHS of $1,362 at March 31, 1998 represents the excess of
the net equity of the parent company over the initial non-cash capital
contribution upon the capitalization of the Company in February 1998 as well as
amounts payable to IHS for certain operating expenses. Such amount is currently
payable.
F-29
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO FINANCIAL STATEMENTS- (CONTINUED )
On March 31, 1998, the real estate assets (the New Facilities) of five
additional wholly owned subsidiaries of IHS were sold to an unaffiliated,
publicly traded healthcare REIT for $50.5 million and leased back to a
subsidiary of the Company at an annual rent of $4.9 million, subject to certain
increases as defined by the lease agreement. Concurrent with the transaction,
IHS contributed the shares of the subsidiaries to Lyric. The lease has an
initial term of 13 years and provides for two additional option periods of 13
years. In addition, the lease requires that the lessee subsidiaries of Lyric
maintain a minimum cash flow to debt service ratio as well as other prescribed
covenants. In addition, Lyric amended its existing management and franchise
agreements with IHS, as discussed more fully above, to include the New
Facilities. As a result of this transaction, TFN contributed an additional $50
to Lyric which amount equaled the value of shares of stock in the lessee
subsidiaries contributed by IHS to Lyric.
IHS' contribution of $50 consists of the following assets and liabilities:
Cash and cash equivalents ..................... $ 114
Accounts receivable ........................... 6,338
Other current assets .......................... 31
--------
6,483
Accounts payable and accrued expenses ......... (6,433)
--------
Capital contribution .......................... $ 50
========
Cash flow deficiencies, if any, of Lyric may be satisfied by (1) available
working capital loans under a $10.0 million revolving credit facility from
Copelco/American Healthfund, Inc., (2) obtaining additional borrowings under new
debt arrangements, (3) obtaining additional capital contributions from IHS and
TFN, the existing members of Lyric, although such contributions are not
required, and (4) admission of new members of Lyric.
F-30
<PAGE>
LYRIC HEALTH CARE LLC
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
No pro forma balance sheet as of March 31, 1998 is presented as the lease
of the Lyric III Properties and related transactions with Monarch and IHS would
have no effect on the balance sheet of Lyric as of that date.
The unaudited pro forma statement of operations for the year ended December
31, 1997 was prepared as if Lyric had entered into: (i) the January 1998 lease
with an unaffiliated, publicly traded healthcare real estate investment trust
(REIT); (ii) the April 1998 lease with the aforementioned REIT; and (iii) the
lease with Monarch Properties LP effective January 1, 1997. The necessary
adjustments have been reflected to eliminate depreciation and interest, as Lyric
obtained only an operating leasehold interest in the facilities, and to reflect
rent expense per the related lease agreements. In addition, the management fees,
franchise fees and incentive fees have been adjusted to reflect the management
and franchise agreements with IHS as if those agreements were effective January
1, 1997.
The unaudited pro forma statement of operations for the three months ended
March 31, 1998 was prepared as if Lyric had entered into: (i) the January 1998
lease with an unaffiliated, publicly traded healthcare REIT; (ii) the April 1998
lease with the aforementioned REIT; and (iii) the lease with Monarch effective
January 1, 1998. The necessary adjustments have been reflected to eliminate
depreciation and interest, as Lyric obtained only an operating leasehold
interest in the facilities, and to reflect rent expense per the related lease
agreements. In addition, the management fees, franchise fees and incentive fees
have been adjusted to reflect the management and franchise agreements with IHS
as if those agreements were effective January 1, 1998.
The unaudited pro forma financial information set forth below is not
necessarily indicative of the results of operations that actually would have
occurred if the transactions had been consummated on the dates shown. In
addition, it is not intended to be a projection of results of operations that
may be obtained by Lyric in the future.
The unaudited pro forma statements of operations should be read in
conjunction with the financial statements of Lyric and the related notes thereto
contained elsewhere in this prospectus. Capitalized terms used herein but not
defined herein have the respective meanings given to them in the Prospectus.
F-31
<PAGE>
LYRIC HEALTH CARE LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORIGINAL LYRIC PROPERTIES LYRIC II PROPERTIES
----------------------------- ----------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS ACTUAL ADJUSTMENTS
---------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
Revenue ................................ $37,633 $ -- $46,391 $ --
Costs and expenses:
Operating expense ..................... 29,893 288 (17) 38,067 --
Base Management and Franchise Fee...... 2,186 (304)(1) 2,692 (372)(7)
Incentive Management Fee .............. -- 321 (2) -- 235 (8)
Depreciation and amortization ......... 1,527 (1,527)(3) 1,482 (1,482)(3)
Facility rent ......................... -- 5,394 (4) -- 5,946 (4)
Equipment rent ........................ 621 -- 719 --
Interest .............................. 106 (106)(5) 2,239 (2,239)(5)
Non-recurring charges ................. 2,500 -- -- --
------- ---------- ------- ----------
Total costs and expenses .............. 36,833 4,066 45,199 2,088
------- ---------- ------- ----------
Earnings (loss) before income taxes ... 800 (4,066) 1,192 (2,088)
------- ---------- ------- ----------
Federal and state income taxes ........ 312 (312)(6) 464 (464)(6)
------- ---------- ------- ----------
Net income (loss) ..................... $ 488 $ (3,754) $ 728 $ (1,624)
======= ========== ======= ==========
<CAPTION>
LYRIC III PROPERTIES
------------------------------
PRO FORMA LYRIC
ACTUAL ADJUSTMENTS PRO FORMA
----------- ------------------ ------------
<S> <C> <C> <C>
Revenue ................................ $306,684 $ -- $390,708
Costs and expenses:
Operating expense ..................... 251,707 -- 319,955
Base Management and Franchise Fee...... 15,524 (190)(9) 19,536
Incentive Management Fee .............. -- 2,259 (10) 2,815
Depreciation and amortization ......... 11,939 (11,939)(3) --
Facility rent ......................... -- 36,416 (4) 47,756
Equipment rent ........................ 4,505 (4,505)(18) 1,340
Interest .............................. 13,367 (13,367)(5) --
Non-recurring charges ................. -- -- 2,500
-------- ----------- --------
Total costs and expenses .............. 297,042 8,674 393,902
-------- ----------- --------
Earnings (loss) before income taxes ... 9,642 (8,674) (3,194)
-------- ----------- --------
Federal and state income taxes ........ 3,760 (3,760)(6) --
-------- ----------- --------
Net income (loss) ..................... $ 5,882 $ (4,914) $ (3,194)
======== =========== ========
</TABLE>
LYRIC HEALTH CARE LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORIGINAL LYRIC PROPERTIES LYRIC II PROPERTIES
-------------------------- ----------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS ACTUAL ADJUSTMENTS
-------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Revenue ................................ $9,336 $ -- $12,119 $ --
Costs and expenses:
Operating expense ..................... 7,740 24 (17) 10,290 --
Base Management and Franchise Fee...... 442 25 (11) 720 (114)(13)
Incentive Management Fee .............. -- (102)(12) -- (148)(14)
Depreciation and amortization ......... 156 (150)(3) 526 (526)(3)
Facility rent ......................... 750 599 (4) -- 1,486 (4)
Equipment rent ........................ 128 -- 197 --
Interest .............................. 26 (4)(5) 32 (32)(5)
------ --------- ------- ---------
Total costs and expenses .............. 9,242 392 11,765 666
------ --------- ------- ---------
Earnings (loss) before income taxes ... 94 (392) 354 (666)
------ --------- ------- ---------
Federal and state income taxes ........ 36 (36)(6) 135 (135)(6)
------ --------- ------- ---------
Net income (loss) ..................... $ 58 $ (356) $ 219 $ (531)
====== ========= ======= =========
<CAPTION>
LYRIC III PROPERTIES
-------------------------------
PRO FORMA LYRIC
ACTUAL ADJUSTMENTS PRO FORMA
----------- ------------------- ----------
<S> <C> <C> <C>
Revenue ................................ $ 77,446 $ -- $98,901
Costs and expenses:
Operating expense ..................... 63,296 -- 81,350
Base Management and Franchise Fee...... 4,528 (656)(15) 4,945
Incentive Management Fee .............. -- 822 (16) 572
Depreciation and amortization ......... 3,468 (3,468)(3) 6
Facility rent ......................... -- 9,104 (4) 11,939
Equipment rent ........................ 1,045 (1,045)(18) 325
Interest .............................. 3,438 (3,438)(5) 22
-------- ----------- -------
Total costs and expenses .............. 75,775 1,319 99,159
-------- ----------- -------
Earnings (loss) before income taxes ... 1,671 (1,319) (258)
-------- ----------- -------
Federal and state income taxes ........ 635 (635)(6) --
-------- ----------- -------
Net income (loss) ..................... $ 1,036 $ (684) $ (258)
======== =========== =======
</TABLE>
- ----------
See accompanying notes to unaudited pro forma statements of operations.
F-32
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
(A) BACKGROUND AND BASIS OF PRESENTATION
Lyric was formed in May 1997. In January 1998, the stock of certain IHS
wholly owned operating subsidiaries was transferred to a subsidiary of Lyric.
This has been accounted for as a reorganization of entities under common
control. The five subsidiaries included in Lyric at the time of formation
included the following operating facilities (the Original Lyric Properties):
<TABLE>
<CAPTION>
DATE OF ACQUISITION OWNER AND IHS
FACILITY AND LOCATION BY IHS OPERATING ENTITY
- ----------------------------------- --------------------- ---------------------------------
<S> <C> <C>
Governors Park, a 150-bed facility Integrated Management-Governor's
Barrington, IL ................... November 1, 1995 Park, Inc.
Chestnut Hill, a 200-bed facility Rest Haven Nursing Center
Philadelphia, PA ................. December 1, 1993 (Chestnut Hill), Inc.
Gainesville, a 120-bed facility Gainesville HealthCare
Gainesville, FL .................. December 1, 1993 Center, Inc.
Claremont, a 68-bed facility Claremont Integrated
Claremont, NH .................... March 5, 1993 Health, Inc.
William and Mary, a 92-bed facility
St. Petersburg, FL ............... September 1, 1987 Rikad Properties, Inc.
</TABLE>
In January 1998, Lyric sold these facilities to an unaffiliated, publicly
traded healthcare REIT for $44.5 million and leased back the facilities for an
annual rental of $4.5 million, subject to certain increases, as defined by the
lease agreement. The lease is a triple net lease with a wholly owned subsidiary
of Lyric, Lyric Health Care Holdings, Inc. At that time, Lyric entered into a
management agreement with IHS that provided for a base management fee of 3%
which increases to 4% if and when Lyric attains consolidated total revenues in
excess of $350.0 million. In addition, IHS entered into a franchise agreement
with Lyric that grants Lyric the authority to use IHS trade names and
proprietary materials for a fee of 1% of revenue.
In February 1998, TFN Healthcare Investors acquired a 50% interest in Lyric
from IHS.
On March 31, 1998, a wholly owned subsidiary of Lyric, Lyric Health Care
Holdings II, Inc., entered into a lease with an unaffiliated, publicly traded
healthcare REIT for five facilities for an annual rental of $4.9 million,
subject to certain increases, as defined by the lease agreement (the Lyric II
Properties). This lease is a triple net lease separate from the aforementioned
January 1998 lease. The two leases have no cross-collateralization or
cross-default provisions. The following are the five facilities that were leased
in this transaction:
FACILITY NAME BEDS LOCATION
--------------------------- ------ -------------------
Sarasota Nursing Pavilion 180 Sarasota, FL
Pinellas Park 120 Pinellas Park, FL
Tarpon Springs 120 Tarpon Springs, FL
Waterford Commons 101 Toledo, OH
Hershey at Woodlands 213 Hershey, PA
Immediately subsequent to Monarch's initial public offering, Lyric Health
Care Holdings III, Inc. (a wholly owned subsidiary of Lyric) will enter into a
lease agreement with Monarch with respect to the 37 skilled nursing facilities
and five specialty hospitals (the Lyric III Properties). The lease will provide
for a minimum base rent, plus annual base rent step-ups equal to the lesser of:
(i) two times the increase in the consumer price index (but in no case less than
zero); or (ii) a fixed percentage of three percent.
F-33
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS- (CONTINUED)
The accompanying unaudited pro forma financial statements have been
prepared based on the audited consolidated financial statements of Lyric for the
year ended December 31, 1997 and the unaudited consolidated financial statements
of Lyric for the three months ended March 31, 1998. The following statements
were also used:
1) The unaudited combined financial statements of the Lyric III
Properties for the year ended December 31, 1997 and the three months
ended March 31, 1998.
2) The unaudited combined financial statements of the Lyric II Properties
for the year ended December 31, 1997 and the three months ended March
31, 1998.
The pro forma statements of operations for the year ended December 31, 1997
and the three months ended March 31, 1998 were prepared as if Lyric had entered
into: (i) the aforementioned January 1998 lease; (ii) the aforementioned April
1998 lease; and (iii) the lease with Monarch effective January 1, 1997 and
January 1, 1998, respectively. The necessary adjustments have been reflected to
eliminate depreciation and interest, as Lyric obtained only an operating
leasehold interest in the facilities, and to reflect rent expense per the
related lease agreements. In addition, the management fees, franchise fees, and
incentive fees have been adjusted to reflect the management and franchise
agreements with IHS as if those agreements were effective January 1, 1997 and
January 1, 1998, respectively.
No pro forma balance sheet as of March 31, 1998 is presented as the lease
of the Lyric III properties and related transactions with Monarch and IHS would
have no effect on the balance sheet of Lyric as of that date. See the Lyric
financial statements and the notes thereto presented elsewhere in the
Prospectus.
The unaudited pro forma statements of operations are not necessarily
indicative of the results of operations that actually would have occurred if the
transactions had been consummated on the dates shown. In addition, they are not
intended to be a projection of results of operations that may be obtained in the
future.
(B) PRO FORMA ADJUSTMENTS
(1) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 37,633
Management and franchise fee percentage ............. 5.00%
---------
Pro forma base management and franchise fee ......... 1,882
Actual fee .......................................... (2,186)
---------
Adjustment .......................................... $ (304)
=========
(2) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 37,633
Pro forma operating expense ......................... (30,181)
Pro forma base management and franchise fee ......... (1,882)
Pro forma cash paid for rent ........................ (5,111)
---------
Subtotal ............................................ 459
Incentive fee percentage ............................ 70.00%
---------
Adjustment .......................................... $ 321
=========
F-34
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS- (CONTINUED)
(3) To eliminate depreciation as Lyric holds only a leasehold interest in
the facilities.
(4) To reflect rent expense per the applicable lease agreement.
(5) To eliminate interest on debt not assumed by Lyric.
(6) For the year ended December 31, 1997 and the three months ended March
31, 1998, the pro forma income tax benefit of $1,244 and $97,
respectively (applying an effective tax rate of 39% and 38%,
respectively) is reduced to zero by a corresponding increase in the
valuation allowance.
(7) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 46,391
Management and franchise fee percentage ............. 5.00%
---------
Pro forma base management and franchise fee ......... 2,320
Actual fee .......................................... (2,692)
---------
Adjustment .......................................... $ (372)
=========
(8) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 46,391
Pro forma operating expense ......................... (38,067)
Pro forma base management and franchise fee ......... (2,320)
Pro forma cash paid for rent ........................ (5,668)
---------
Subtotal ............................................ 336
Incentive fee percentage ............................ 70.00%
---------
Adjustment .......................................... $ 235
=========
(9) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 306,684
Management and franchise fee percentage ............. 5.00%
----------
Pro forma base management and franchise fee ......... 15,334
Actual fee .......................................... (15,524)
----------
Adjustment .......................................... $ (190)
==========
F-35
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS- (CONTINUED)
(10) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 306,684
Pro forma operating expense ......................... (251,707)
Pro forma base management and franchise fee ......... (15,334)
Pro forma cash paid for rent ........................ (36,416)
----------
Subtotal ............................................ 3,227
Incentive fee percentage ............................ 70.00%
----------
Adjustment .......................................... $ 2,259
==========
(11) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 9,336
Management and franchise fee percentage ............. 5.00%
-------
Pro forma base management and franchise fee ......... 467
Actual fee .......................................... (442)
-------
Adjustment .......................................... $ 25
=======
(12) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 9,336
Pro forma operating expense ......................... (7,764)
Pro forma base management and franchise fee ......... (467)
Pro forma cash paid for rent ........................ (1,251)
--------
Subtotal ............................................ (146)
Incentive fee percentage ............................ 70.00%
--------
Adjustment .......................................... $ (102)
========
(13) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 12,119
Management and franchise fee percentage ............. 5.00%
---------
Pro forma base management and franchise fee ......... 606
Actual fee .......................................... (720)
---------
Adjustment .......................................... $ (114)
=========
(14) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 12,119
Pro forma operating expense ......................... (10,290)
Pro forma base management and franchise fee ......... (606)
Pro forma cash paid for rent ........................ (1,434)
---------
Subtotal ............................................ (211)
Incentive fee percentage ............................ 70.00%
---------
Adjustment .......................................... $ (148)
=========
F-36
<PAGE>
LYRIC HEALTH CARE LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS- (CONTINUED)
(15) To adjust the base management fee to the terms of the management and
franchise agreements between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 77,446
Management and franchise fee percentage ............. 5.00%
---------
Pro forma base management and franchise fee ......... 3,872
Actual fee .......................................... (4,528)
---------
Adjustment .......................................... $ (656)
=========
(16) To record the incentive management fee as per the terms of the
management agreement between IHS and Lyric, as follows:
Pro forma revenues .................................. $ 77,446
Pro forma operating expense ......................... (63,296)
Pro forma base management and franchise fee ......... (3,872)
Pro forma cash paid for rent ........................ (9,104)
---------
Subtotal ............................................ 1,174
Incentive fee percentage ............................ 70.00%
---------
Adjustment .......................................... $ 822
=========
(17) To record the salary and benefit expense as per the employment
agreement between Timothy F. Nicholson and Lyric.
(18) To eliminate rent on medical and other equipment which will be
provided by IHS pursuant to terms of the management agreement.
F-37
<PAGE>
======================================== =======================================
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO 17,450,000 SHARES
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN
THE COMMON STOCK OFFERED HEREBY. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE [GRAPHIC OMITTED]
DATE HEREOF.
---------------------------
TABLE OF CONTENTS
MONARCH PROPERTIES, INC.
PAGE
Prospectus Summary ................. 1
Risk Factors ....................... 18
The Company ........................ 34
Business and Growth Strategies ..... 37 COMMON STOCK
Conflicts of Interest .............. 42
Use of Proceeds .................... 44
Distributions ...................... 45
Capitalization ..................... 48
Dilution ........................... 49
Selected Historical and Pro Forma
Financial Information............. 50
Management's Discussion and -----------------------------------
Analysis of Financial Condition PROSPECTUS
and Results of Operations....... 52 -----------------------------------
Summary Consolidated Financial Data
of IHS ........................... 55
Business of the Company and Its
Properties ....................... 57
Key Agreements ..................... 73
Management ......................... 79
Structure and Formation of the
Company .......................... 87 DONALDSON, LUFKIN & JENRETTE
Transactions With and Benefits to SECURITIES CORPORATION
Related Parties................... 89
Valuation of Initial Properties .... 90
Policies With Respect to Certain SALOMON SMITH BARNEY
Activities ....................... 91
Operating Partnership Agreement .... 94
Principal Stockholders ............. 97
Description of Capital Stock of the
Company .......................... 98 BT ALEX. BROWN
Certain Provisions of Maryland Law
and of the Company's Charter and
Bylaws ........................... 101 A.G. EDWARDS & SONS, INC.
Shares Eligible for Future Sale .... 105
Federal Income Tax Consequences .... 107
ERISA Considerations ............... 122 LEGG MASON WOOD WALKER
Underwriting ....................... 124 INCORPORATED
Experts ............................ 126
Legal Matters ...................... 126
Additional Information ............. 126 MORGAN STANLEY DEAN WITTER
Glossary ........................... 127
Index to Financial Statements ...... F-1
PAINEWEBBER INCORPORATED
---------------------------
UNTIL , 1998 (25 DAYS AFTER THE
COMMENCEMENT OF THIS OFFERING), ALL PRUDENTIAL SECURITIES INCORPORATED
DEALERS EFFECTING TRANSACTIONS IN THE
SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION , 1998
TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================== =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.
Registration Fee ............................ $ 117,041
NASD Fee .................................... 30,500
New York Stock Exchange Listing Fee ......... 129,400
Printing and Engraving Expenses ............. 400,000
Legal Fees and Expenses ..................... 1,500,000
Accounting Fees and Expenses ................ 400,000
Blue Sky Fees and Expenses .................. 5,000
Other ....................................... 668,059
----------
TOTAL ....................................... $3,250,000
==========
- ----------
* To be completed by amendment.
ITEM 32. SALES TO SPECIAL PARTIES
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
On February 20, 1998, the Company issued 100 shares of Common Stock to
Robert N. Elkins, M.D. at a purchase price of $1.00 per share. Such shares were
issued in a transaction exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 as they were issued in a transaction not involving any
public offering.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his or her status as a present or former director or
officer of the Company. The Bylaws obligate the Company, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
II-1
<PAGE>
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty; (b) the director or officer actually received an improper personal
benefit in money, property or services; or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Company will enter into indemnification agreements with each of its
executive officers and directors. The indemnification agreements will require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, the Company must also indemnify and advance all expenses incurred by
executive officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors under
the Company's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides greater assurance to directors and executive
officers that indemnification will be available because, as a contract, it
cannot be modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights it provides.
ITEM 35. TREATMENT OF PROCEEDS FROM COMMON STOCK BEING REGISTERED
The consideration to be received by the Company for the shares registered
will be credited to the appropriate capital account.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
See Index to Financial Statements and Index to Exhibits.
(ii) Exhibits
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------
1.1** Form of Underwriting Agreement
3.1** Form of Charter of Monarch Properties, Inc.
3.2** Form of Bylaws of Monarch Properties, Inc.
4.1** Form of Stock Certificate
5.1** Form of Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to
Validity of Shares Registered
8.1** Form of Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. as to
certain Tax Matters
10.1** Agreement of Limited Partnership of Monarch Properties, LP
II-2
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------
10.2** Form of Indemnification Agreement between the Registrant and each
of its Officers and each of its Directors
10.3** Form of Incentive Stock Option Agreement
10.4** Form of 1998 Omnibus Securities and Incentive Plan
10.5** Form of Non-Competition Agreement between the Registrant and
Robert N. Elkins
10.6** Form of Facilities Purchase Agreement between Monarch Properties,
LP, Integrated Health Services, Inc. and the entities listed
therein
10.7** Form of Master Lease between Monarch Properties, LP and Lyric
Health Care Holdings III, Inc.
10.8** Form of Facility Sublease between Lyric Health Care Holdings III,
Inc. and each of the Facility Subtenants
10.9** Form of Consent and Subordination Agreement between IHS Facility
Management, Inc., IHS Franchising Co., Inc., all Facility
Subtenants, Lyric Health Care Holdings III, Inc. and Monarch
Properties, LP
10.10** Form of Indemnity Agreement between the Registrant and Integrated
Health Services, Inc.
10.11** Form of Right of First Offer Agreement among the Registrant,
Integrated Health Services, Inc. and Monarch Properties, LP
10.12** Form of Purchase Option Agreement between Monarch Properties, LP,
and Integrated Health Services, Inc.
10.13** Form of Guaranty by Lyric Health Care LLC in favor of Monarch
Properties, LP
10.14** Form of Security Agreement between Monarch Properties, LP, all
Facility Subtenants, and Lyric Health Care Holdings III, Inc.
10.15** Form of Escrow Agreement among Monarch Properties, LP, Lyric
Health Care Holdings III, Inc. and the entities listed therein
10.16** Form of Letter of Credit Agreement between Monarch Properties, LP,
Lyric Health Care Holdings III, Inc. and all subsidiaries of Lyric
Health Care Holdings III, Inc.
10.17** Form of Employee Non-Qualified Stock Option Agreement
10.18** Form of Pledge Agreement between Monarch Properties, LP and Lyric
Health Care Holdings III, Inc.
10.19** Form of Pledge Agreement between Lyric Health Care LLC and the
Registrant
10.20*** Form of Revolving Credit Agreement between South Trust Bank,
National Association, Monarch Properties, LP and the other lenders
listed therein
10.21*** Form of Revolving Promissory Note
10.22** Commitment Letter between SouthTrust Bank, National Association
and Monarch Properties LP
10.23** Lease between IHS Acquisition No. 104, Inc. and Peak Medical of
Idaho, Inc.
10.24** Security Agreement between Peak Medical of Idaho, Inc. and IHS
Acquisition No. 104, Inc.
10.25** Pledge Agreement between Peak Medical Corporation and Integrated
Health Services, Inc.
10.26** Form of Escrow Agreement among Monarch Properties, LP, Peak
Medical of Idaho, Inc. and Fidelity National Title Insurance
Company of New York
10.27** Guaranty by Peak Medical Corporation in favor of IHS Acquisition
No. 104, Inc.
II-3
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------
10.28** Facilities Purchase Agreement among Monarch Properties, LP,
Integrated Health Services, Inc., IHS Acquisition No. 104, Inc.,
IHS Acquisition No. 105, Inc., Peak Medical Corporation and Peak
Medical of Idaho, Inc.
10.29** Security Agreement between Peak Medical of Idaho, Inc. and IHS
Acquisition No. 105, Inc.
10.30** Guaranty by Peak Medical Corporation in favor of IHS Acquisition
No. 105 Inc.
10.31** Lease between IHS Acquisition No. 105, Inc. and Peak Medical of
Idaho, Inc.
10.32** Form of Facilities Purchase Agreement among Monarch Properties,
LP, Trans Healthcare, Inc., Cooper Management Corporation, Cooper,
Cooper & Hargis, Lakeland Management, L.L.C., and Pioneer Nursing
Center, Inc.
10.33** Form of Master Lease between Monarch Properties, LP and [THI
Lessee Subsidiary]
10.34** Form of Security Agreement between [THI Lessee Subsidiary] and the
Registrant
10.35** Form of Escrow Agreement among [THI Lessee Subsidiary], Monarch
Properties, LP and Fidelity National Title Insurance Company of
New York
10.36** Form of Guaranty by Trans Healthcare, Inc. in favor of the
Registrant
10.37** Form of Pledge Agreement between Trans Healthcare, Inc. and
Monarch Properties, LP
10.38** Form of Amended and Restated Master Management Agreement between
Lyric Healthcare LLC and IHS Facility Management, Inc.
10.39** Form of Amended and Restated Master Franchise Agreement between
Integrated Health Services Franchising Co., Inc. and Lyric Health
Care LLC
10.40** Form of Facility Management Agreement between [subsidiary] and IHS
Facility Management, Inc.
10.41** Form of Facility Franchise Agreement among Lyric Health Care LLC,
[subsidiary] and Integrated Health Services Franchising Co., Inc.
10.42** Form of Director Non-Qualified Stock Option Agreement
10.43** Form of Employment Agreement of John B. Poole
10.44** Form of Employment Agreement of Douglas Listman
21.1** List of Subsidiaries
23.1** Consent of KPMG Peat Marwick LLP
23.2** Consent of KPMG Peat Marwick LLP
23.3*** Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as
part of Exhibit 5.1)
23.4*** Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included as
part of Exhibit 8.1)
23.5* Consent of Donald Tomlin
23.6* Consent of Lisa K. Merritt
23.7* Consent of William McBride, III
23.8* Consent of Brian E. Cobb
23.9** Consent of Valuation Counselors Group, Inc.
24.1* Power of Attorney (Included in Signatures Section of this
Registration Statement)
27.1* Financial Data Schedule
- ----------
* Previously filed
** Filed herewith.
*** To be filed by amendment
II-4
<PAGE>
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(a) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the 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.
(c) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused Amendment No. 1 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Naples, State of Florida on this 29th day of
June, 1998.
MONARCH PROPERTIES, INC.
By: /s/ John B. Poole
---------------------------------
John B. Poole
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 1 to this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ John B. Poole President, Chief Executive Officer June 29, 1998
- ------------------------- and Director (Principal Executive
John B. Poole Officer)
/s/ Douglas Listman Chief Financial Officer June 29, 1998
- ------------------------- (Principal Financial and
Douglas Listman Accounting Officer)
/s/ Robert N. Elkins Chairman of the Board of Directors June 29, 1998
- ------------------------- and Director
Robert N. Elkins
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------
1.1** Form of Underwriting Agreement
3.1** Form of Charter of Monarch Properties, Inc.
3.2** Form of Bylaws of Monarch Properties, Inc.
4.1** Form of Stock Certificate
5.1** Form of Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to
Validity of Shares Registered
8.1** Form of Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. as to
certain Tax Matters
10.1** Agreement of Limited Partnership of Monarch Properties, LP
10.2** Form of Indemnification Agreement between the Registrant and each
of its Officers and each of its Directors
10.3** Form of Incentive Stock Option Agreement
10.4** Form of 1998 Omnibus Securities and Incentive Plan
10.5** Form of Non-Competition Agreement between the Registrant and
Robert N. Elkins
10.6** Form of Facilities Purchase Agreement between Monarch Properties,
LP, Integrated Health Services, Inc. and the entities listed
therein
10.7** Form of Master Lease between Monarch Properties, LP and Lyric
Health Care Holdings III, Inc.
10.8** Form of Facility Sublease between Lyric Health Care Holdings III,
Inc. and each of the Facility Subtenants
10.9** Form of Consent and Subordination Agreement between IHS Facility
Management, Inc., IHS Franchising Co., Inc., all Facility
Subtenants, Lyric Health Care Holdings III, Inc. and Monarch
Properties, LP
10.10** Form of Indemnity Agreement between the Registrant and Integrated
Health Services, Inc.
10.11** Form of Right of First Offer Agreement among the Registrant,
Integrated Health Services, Inc. and Monarch Properties, LP
10.12** Form of Purchase Option Agreement between Monarch Properties, LP,
and Integrated Health Services, Inc.
10.13** Form of Guaranty by Lyric Health Care LLC in favor of Monarch
Properties, LP
10.14** Form of Security Agreement between Monarch Properties, LP, all
Facility Subtenants, and Lyric Health Care Holdings III, Inc.
10.15** Form of Escrow Agreement among Monarch Properties, LP, Lyric
Health Care Holdings III, Inc. and the entities listed therein
10.16** Form of Letter of Credit Agreement between Monarch Properties, LP,
Lyric Health Care Holdings III, Inc. and all subsidiaries of Lyric
Health Care Holdings III, Inc.
10.17** Form of Employee Non-Qualified Stock Option Agreement
10.18** Form of Pledge Agreement between Monarch Properties, LP and Lyric
Health Care Holdings III, Inc.
10.19** Form of Pledge Agreement between Lyric Health Care LLC and the
Registrant
10.20*** Form of Revolving Credit Agreement between South Trust Bank,
National Association, Monarch Properties, LP and the other lenders
listed therein
10.21*** Form of Revolving Promissory Note
10.22** Commitment Letter between SouthTrust Bank, National Association
and Monarch Properties LP
10.23** Lease between IHS Acquisition No. 104, Inc. and Peak Medical of
Idaho, Inc.
10.24** Security Agreement between Peak Medical of Idaho, Inc. and IHS
Acquisition No. 104, Inc.
10.25** Pledge Agreement between Peak Medical Corporation and Integrated
Health Services, Inc.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------
10.26** Form of Escrow Agreement among Monarch Properties, LP, Peak
Medical of Idaho, Inc. and Fidelity National Title Insurance
Company of New York
10.27** Guaranty by Peak Medical Corporation in favor of IHS Acquisition
No. 104, Inc.
10.28** Facilities Purchase Agreement among Monarch Properties, LP,
Integrated Health Services, Inc., IHS Acquisition No. 104, Inc.,
IHS Acquisition No. 105, Inc., Peak Medical Corporation and Peak
Medical of Idaho, Inc.
10.29** Security Agreement between Peak Medical of Idaho, Inc. and IHS
Acquisition No. 105, Inc.
10.30** Guaranty by Peak Medical Corporation in favor of IHS Acquisition
No. 105 Inc.
10.31** Lease between IHS Acquisition No. 105, Inc. and Peak Medical of
Idaho, Inc.
10.32** Form of Facilities Purchase Agreement among Monarch Properties,
LP, Trans Healthcare, Inc., Cooper Management Corporation, Cooper,
Cooper & Hargis, Lakeland Management, L.L.C., and Pioneer Nursing
Center, Inc.
10.33** Form of Master Lease between Monarch Properties, LP and [THI
Lessee Subsidiary]
10.34** Form of Security Agreement between [THI Lessee Subsidiary] and the
Registrant
10.35** Form of Escrow Agreement among [THI Lessee Subsidiary], Monarch
Properties, LP and Fidelity National Title Insurance Company of
New York
10.36** Form of Guaranty by Trans Healthcare, Inc. in favor of the
Registrant
10.37** Form of Pledge Agreement between Trans Healthcare, Inc. and
Monarch Properties, LP
10.38** Form of Amended and Restated Master Management Agreement between
Lyric Healthcare LLC and IHS Facility Management, Inc.
10.39** Form of Amended and Restated Master Franchise Agreement between
Integrated Health Services Franchising Co., Inc. and Lyric Health
Care LLC
10.40** Form of Facility Management Agreement between [subsidiary] and IHS
Facility Management, Inc.
10.41** Form of Facility Franchise Agreement among Lyric Health Care LLC,
[subsidiary] and Integrated Health Services Franchising Co., Inc.
10.42** Form of Director Non-Qualified Stock Option Agreement
10.43** Form of Employment Agreement of John B. Poole
10.44** Form of Employment Agreement of Douglas Listman
21.1** List of Subsidiaries
23.1** Consent of KPMG Peat Marwick LLP
23.2** Consent of KPMG Peat Marwick LLP
23.3*** Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as
part of Exhibit 5.1)
23.4*** Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included as
part of Exhibit 8.1)
23.5* Consent of Donald Tomlin
23.6* Consent of Lisa K. Merritt
23.7* Consent of William McBride, III
23.8* Consent of Brian E. Cobb
23.9** Consent of Valuation Counselors Group, Inc.
24.1* Power of Attorney (Included in Signatures Section of this
Registration Statement)
27.1* Financial Data Schedule
- ----------
* Previously filed
** Filed herewith.
*** To be filed by amendment
EXHIBIT 1.1
__________ Shares
MONARCH PROPERTIES, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY, INC.
BT ALEX. BROWN INCORPORATED
LEGG MASON WOOD WALKER, INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Monarch Properties, Inc., a Maryland corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS") _______________ shares of the common stock, $.001
par value per share of the Company (the "FIRM SHARES") all of which shares are
to be issued and sold by the Company. The Company also proposes to issue and
sell to the several Underwriters not more than an additional _______ shares of
its common stock, $.001 par value per share (the "ADDITIONAL SHARES") if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
and the Additional Shares are hereinafter referred to collectively as the
"SHARES." The shares of common stock of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "COMMON STOCK."
As part of the offering of the ___________ Firm Shares contemplated by
this Agreement, Donaldson, Lufkin & Jenrette Securities Corporation has agreed
to reserve, out of the Firm Shares set forth opposite its name on Schedule I
hereto, up to ________ Shares for sale to the Company's employees, officers and
directors (collectively, the "Participants"), as set forth in the Prospectus in
the section entitled "Underwriting" (the "DIRECTED SHARE PROGRAM").
<PAGE>
SECTION 1. Registration Statement and Prospectus.
The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "ACT"), a registration statement on
Form S-11, including a prospectus, relating to the Shares. The registration
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "REGISTRATION STATEMENT," and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "PROSPECTUS." If the
Company has filed or is required pursuant to the terms hereof to file a
registration statement pursuant to Rule 462(b) under the Act registering
additional shares of Common Stock (a "RULE 462(B) REGISTRATION STATEMENT"),
then, unless otherwise specified, any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell ______________ Firm Shares and (ii) each Underwriter agrees,
severally and not jointly, to purchase from the Company at a price per Share of
$______ (the "PURCHASE PRICE") the Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the total number of Firm Shares to be sold by the Company as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto
bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and
-2-
<PAGE>
not jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan, (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and (iii) the Company
may issue and sell shares of Common Stock in the Concurrent Offering (as defined
in the Prospectus). The Company also agrees not to file any registration
statement with respect to any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock for a period of
180 days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. The Company shall, prior to
or concurrently with the execution of this Agreement, deliver an agreement
executed by (i) each of the directors and officers of the Company and (ii) each
stockholder listed on Annex I hereto to the effect that such person will not,
during the period commencing on the date such person signs such agreement and
ending 180 days after the date of the Prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in any of the
transactions described in the first sentence of this paragraph or (B) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
SECTION 3. Terms of Public Offering.
The Company is advised by you that the Underwriters propose (i) to make
a public offering of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
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SECTION 4. Delivery and Payment.
The Shares shall be represented by definitive certificates and shall be
issued in such authorized denominations and registered in such names as
Donaldson, Lufkin & Jenrette Securities Corporation shall request no later than
two business days prior to the Closing Date or the applicable Option Closing
Date (as defined below), as the case may be. The Shares shall be delivered by or
on behalf of the Company, with any transfer taxes thereon duly paid by the
Company, to Donaldson, Lufkin & Jenrette Securities Corporation through the
facilities of The Depository Trust Company ("DTC"), for the respective accounts
of the several Underwriters, against payment to the Company of the Purchase
Price therefore by wire transfer of Federal or other funds immediately available
in New York City. The certificates representing the Shares shall be made
available for inspection not later than 9:30 A.M., New York City time, on the
business day prior to the Closing Date or the applicable Option Closing Date (as
defined below), as the case may be, at the office of DTC or its designated
custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., New York City time, on ________, 1998 or
such other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and date
of delivery and payment for the Firm Shares are hereinafter referred to as the
"CLOSING DATE." The time and date of delivery and payment for any Additional
Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City
time, on the date specified in the applicable exercise notice given by you
pursuant to Section 2 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery and payment for any Additional Shares
are hereinafter referred to as the "OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this Agreement
shall be delivered at the offices of Alston & Bird LLP, 1201 W. Peachtree
Street, Atlanta, Georgia 30309-3424 and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
SECTION 5. Agreements of the Company.
The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of
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qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you six (6) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the
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Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the statements in
the Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with applicable law, and to furnish to each Underwriter and to any
dealer as many copies thereof as such Underwriter or dealer may reasonably
request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending June
30, 1998 that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Company's obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to
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the Underwriters, including any transfer or other taxes payable thereon, (iii)
all costs of printing or producing this Agreement and any other agreements or
documents in connection with the offering, purchase, sale or delivery of the
Shares, (iv) all expenses in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Underwriters in connection
with such registration or qualification and memoranda relating thereto), (v) the
filing fees and disbursements of counsel for the Underwriters in connection with
the review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of the registration statement on Form
8-A relating to the Common Stock and all costs and expenses incident to the
listing of the Shares on the New York Stock Exchange (the "NYSE"), (vii) the
cost of printing certificates representing the Shares, (viii) the costs and
charges of any transfer agent, registrar and/or depository, and (ix) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section.
(j) To use its best efforts to list, subject to notice of issuance, the
Shares on the NYSE and to maintain the listing of the Shares on the NYSE for a
period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted, to the extent required by
the NASD or the NASD rules and regulations, including but not limited to the
"Free-Riding and Withholding" Interpretation, from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Donaldson, Lufkin & Jenrette
Securities Corporation will notify the Company as to which Participants will
need to be so restricted. At the request of Donaldson, Lufkin & Jenrette
Securities Corporation, the Company will direct the
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transfer agent to place stop transfer restrictions upon such securities for such
period of time.
SECTION 6. Representations and Warranties of the Company, the General Partner
and the Operating Partner.
The Company, MP Operating, Inc. (the "General Partner") and Monarch
Properties, LP (the "Operating Partner"), jointly and severally, represent and
warrant to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) will comply in all material respects with the Act and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in the Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light
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of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(d) The Company and each of its subsidiaries that is a corporation has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and to
own, lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole. The partnership agreement of each of the Company's subsidiaries that is
a partnership has been duly and validly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company enforceable in
accordance with its terms. Each of the Company's subsidiaries that is a
partnership has been duly organized, is validly existing as a partnership in
good standing under the laws of its jurisdiction of formation and has the
partnership power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign partnership authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares to be issued and
sold by the Company have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries that is a corporation have been duly authorized and
validly issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of any
nature. All of the outstanding partnership interests of each of the Company's
subsidiaries that is a partnership have been duly authorized and validly issued
and are
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fully paid and non-assessable, and are owned by the Company, directly or
indirectly, through one or more subsidiaries, free and clear of any security
interest, claim, lien encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter, by-laws or partnership agreement or in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter, by-laws or partnership agreement of the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries or their
respective property or (iv) result in the suspension, termination or revocation
of any Authorization (as defined below) of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of any such
Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus and
are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
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(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
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(p) KPMG Peat Marwick LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company. The accounts receivable of the Company and its subsidiaries have been
and will continue to be adjusted to reflect reimbursement policies of third
party payors such as Medicare, Medicaid, MediCal, Blue Cross/Blue Shield,
private insurance companies, health maintenance organizations, preferred
provider organizations, managed care systems and other third party payors. The
accounts receivable relating to such third party payors do not and shall not
exceed amounts the Company and its subsidiaries are entitled to receive, subject
to adjustments to reflect reimbursement policies of third party payors and
normal discounts in the ordinary course of business. The adjustments made to the
Company's pro forma funds from operations for the 12 months ended December 31,
1997, set forth in the Prospectus under the caption "Distributions" accurately
reflect in all material respects (i) certain known events and/or contractual
commitments that either have occurred or will occur subsequent to December 31,
1997 or during the year ended December 31, 1997, but were not effective for the
full year and (ii) certain non-GAAP adjustments consisting of (a) deferred
financing costs paid, (b) pro forma amortization of financing costs, (c) pro
forma amortization of organization costs, (d) non-real estate depreciation, (e)
actual commitment fees received and (f) amortization of commitment fees. No
effect was given to any changes in working capital resulting from changes in
current assets or current liabilities (which changes are not anticipated to be
material) or the amount of cash estimated to be used for (i) investing
activities for acquisitions, development, tenant improvement and leasing costs
and (ii) financing activities (other than scheduled mortgage loan principal
payments on existing mortgage indebtedness).
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
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(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(w) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at
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a cost that would not have a material adverse effect on the business, prospects,
financial conditions or results of operations of the Company and its
subsidiaries, taken as a whole.
(x) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(y) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(z) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) The Company's and each of its subsidiaries' computer hardware and
software systems include design, performance and functionality so that neither
the Company nor any of its subsidiaries reasonably expects to experience invalid
or incorrect results or abnormal hardware or software operation related to
calendar year 2000. The Company's and each of its subsidiaries' computer
hardware and software systems include calendar year 2000 date conversion and
compatibility capabilities, including, but not limited to, date data century
recognition, same century and multiple century formula and date value
calculations, and user interface date data values that reflect the century.
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(bb) The business conducted by the Company and its subsidiaries and the
contractual relationships between (i) the Company or any of its subsidiaries and
the health care payors with which it contracts and (ii) the Company or any of
its subsidiaries and the health care providers with which it contracts, do not
violate any federal or state health care laws and regulations, or any federal or
state patient confidentiality laws and regulations or any federal or state
insurance laws and regulations (including but not limited to those governing
health maintenance organizations and preferred provider organizations) in such
jurisdictions in which the Company and any of its subsidiaries are operating
that are applicable to such business and such relationships, including those
laws governing insurance risk and risk allocation, corporate practice of
medicine, medical practices, professional corporations, fee splitting, fraud and
abuse and self-referral, except for violations that would not have a material
adverse effect on the conditions (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise and except as disclosed in the Prospectus.
(cc) To the best of the Company's knowledge after due inquiry, the
business conducted by each of Lyric Health Care LLC ("Lyric") and its
subsidiaries and the contractual relationships between (i) Lyric or any of its
subsidiaries and the health care payors with which it contracts and (ii) Lyric
or any of its subsidiaries and the health care providers with which it
contracts, do not violate any federal or state health care laws and regulations,
or any federal or state patient confidentiality laws and regulations or any
federal or state insurance laws and regulations (including but not limited to
those governing health maintenance organizations and preferred provider
organizations) in such jurisdictions in which Lyric and any of its subsidiaries
are operating that are applicable to such business and such relationships,
including those laws governing insurance risk and risk allocation, corporate
practice of medicine, medical practices, professional corporations, fee
splitting, fraud and abuse and self-referral, except for violations that would
not have a material adverse effect on the conditions (financial or otherwise),
earnings, operations, business or business prospects of Lyric and its
subsidiaries considered as one enterprise and except as disclosed in the
Prospectus.
(dd) All Participants in the Directed Share Program are United States
residents. The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the intent to
unlawfully influence (i) a customer or supplier of the Company or any subsidiary
or to alter the customer's or supplier's level or type of business with the
Company or any subsidiary or (ii) a trade journal or publication to issue or
publish favorable information about the Company, any subsidiary or any of their
products or services.
(ee) The Company is organized in conformity with the requirements for
qualification as a real estate investment trust under the Internal Revenue Code
of 1986, as amended (the "CODE"), and its proposed method of operation will
enable it
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to meet the requirements for taxation as a real estate investment trust under
the Code commencing with the Company's taxable year ending December 31, 1998.
(ff) The Company or its subsidiaries have title insurance on all
properties and assets described in the Prospectus as owned by the Company or any
of its subsidiaries in an amount at least equal to the greater of (i) the cost
of acquisition of such property or asset or (ii) the cost of construction of the
improvements located on such properties.
(gg) ______________, which prepared environmental inspection reports
with respect to the Initial Properties (as defined in the Prospectus), was
neither employed for such purpose on a contingent basis nor has any substantial
interest in the Company or any of its subsidiaries. Neither _________ nor any of
its directors, officers or employees is connected with the Company or any of its
subsidiaries as a promoter, selling agent, voting trustee, director, officer or
employee.
SECTION 7. Indemnification.
(a) The Company, the General Partner and the Operating Partner, jointly
and severally, agree to indemnify and hold harmless each Underwriter, its
directors, its officers and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and against any and
all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in writing
to the Company by such Underwriter through you expressly for use therein
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter who
failed to deliver a Prospectus (as then amended or supplemented, provided by the
Company to the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages and liabilities and judgments caused by
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such material misstatement or omission
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or alleged material misstatement or omission was cured in such Prospectus and
such Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such Underwriter but only
with reference to information relating to such Underwriter furnished in writing
to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act and
(ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel)
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for the Company, its directors, its officers who sign the Registration Statement
and all persons, if any, who control the Company within the meaning of either
such Section and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall indemnify and
hold harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the
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total price to the public of the Shares, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 8. Conditions of Underwriters' Obligations.
The several obligations of the Underwriters to purchase the Firm Shares
under this Agreement are subject to the satisfaction of each of the following
conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
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(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by John B. Poole and Douglas Listman in their respective
capacities as the President and Chief Executive Officer and Chief Financial
Officer and Controller of the Company, confirming the matters set forth in
Sections 6(t), 8(a) and 8(b) and that the Company has complied with all of the
agreements and satisfied all of the conditions herein contained and required to
be complied with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(d)(i),
8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of LeBouf, Lamb, Greene & MacRae, L.L.P. counsel for the Company to the effect
that:
(i) the Company and each of its subsidiaries that is a corporation has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and to
own, lease and operate its properties Each of the Company's subsidiaries that is
a partnership has been duly organized, is validly existing as a partnership in
good standing under the laws of its jurisdiction of formation and has the
partnership power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;
(ii) the Company and each of its subsidiaries that is a corporation is
duly qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of
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property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each of the Company's subsidiaries that is a
partnership is duly qualified and is in good standing as a foreign partnership
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries that is a corporation have been duly authorized and
validly issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of any
nature. All of the outstanding partnership interests of each of the Company's
subsidiaries that is a partnership have been duly authorized and validly issued
in accordance with the terms of such subsidiary's partnership agreement and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered by
the Company;
(vii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after due inquiry,
pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors - Failure to
Qualify as a REIT Would Cause the Company to be Taxed as a Corporation," "Risk
Factors - Risks Associated With Owning Healthcare Facilities in the Highly
Regulated
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Healthcare Industry," "Risk Factors - Liability for Environmental Matters Could
Adversely Affect the Company's Financial Condition," "Risk Factors - ERISA
Risks," "Business of the Company and its Properties - Lyric Transaction,"
"Business of the Company and its Properties - Trans Healthcare Transaction,"
Business of the Company and its Properties - Peak Medical Transaction,"
"Business of the Company and its Properties - In-House Rehab Transaction,"
"Business of the Company and its Properties - Government Regulation," "Business
of the Company and its Properties - Facilities Purchase Agreement," "Business of
the Company and its Properties - Master Lease," "Business of the Company and its
Properties - Lyric Guaranty," "Business of the Company and its Properties -
Master Management Agreement," "Business of the Company and its Properties -
Master Franchise Agreement," "Pledge Agreements," "Business of the Company and
its Properties - Security Agreements" "Business of the Company and its
Properties Escrow Agreement," "Business of the Company and its Properties -
Consent and Subordination Agreement," "Management - 1998 Omnibus Securities and
Incentive Plan," "Structure and Formation of the Company," "Operating
Partnership Agreement," "Description of Capital Stock of the Company," "Certain
Provisions of Maryland Law and the Company's Articles of Incorporation and
Bylaws," "Shares Eligible for Future Sale," "Federal Income Tax Considerations,"
"ERISA Considerations" and "Underwriting" in the Prospectus and Items 33 and 34
of Part II of the Registration Statement, insofar as such statements constitute
a summary of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal matters,
documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in violation of
its respective charter, by-laws or partnership agreement and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or their
respective property is bound;
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (A) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (C) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree of
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any court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result in
the suspension, termination or revocation of any Authorization of the Company or
any of its subsidiaries or any other impairment of the rights of the holder of
any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required;
(xiii) neither the Company nor any of its subsidiaries has violated any
Environmental Law, any provisions of the Employee Retirement Income Security Act
of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act or
the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a material adverse effect on
the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such Authorizations
of, and has made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial
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condition or results of operations of the Company and its subsidiaries, taken as
a whole;
(xv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement;
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial data included therein as to which no opinion need be expressed) comply
as to form with the Act, (B) such counsel has no reason to believe that at the
time the Registration Statement became effective or on the date of this
Agreement, the Registration Statement and the prospectus included therein
(except for the financial statements and other financial data as to which such
counsel need not express any belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (C) such counsel
has no reason to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xviii) the business conducted by the Company and its subsidiaries and
the material contractual relationships between (A) the Company or any of its
subsidiaries and the health care payors with which it contracts and (B) the
Company or any of its subsidiaries and the health care providers with which it
contracts do not violate any federal, state or local health care laws or
regulations in the jurisdictions in which the Company or any of its subsidiaries
is doing business that are applicable to such business and such relationships,
including those laws governing insurance risk, risk allocation, corporate
practice of medicine, professional corporations, fee splitting, client
confidentiality, self-referral and fraud and abuse;
(xix) the business conducted by the Lyric and its subsidiaries and the
material contractual relationships between (A) Lyric or any of its subsidiaries
and the health care payors with which it contracts and (B) Lyric or any of its
subsidiaries and the health care providers with which it contracts do not
violate any federal, state or local health care laws or regulations in the
jurisdictions in which Lyric or any of its
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subsidiaries is doing business that are applicable to such business and such
relationships, including those laws governing insurance risk, risk allocation,
corporate practice of medicine, professional corporations, fee splitting, client
confidentiality, self-referral and fraud and abuse;
(xx) the Company has all legal right, power and authority necessary to
qualify as a "real estate investment trust" under the Code; and the Company is
organized in conformity with the requirements for qualification and taxation as
a "real estate investment trust" under the Code and its proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a "real estate investment trust" under the Code; and
(xxi) that certain Guaranty, dated _____________, between the Company
and Lyric is enforceable in accordance with its terms against each of the
Company and Lyric.
The opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. described in
Section 8(e) above shall be rendered to you at the request of the Company and
shall so state therein.
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Alston & Bird LLP counsel for the Underwriters, as to the
matters referred to in Sections 8(e)(iv), 8(e)(vi) (but only with respect to the
Company), 8(e)(ix) (but only with respect to the statements under the caption
"Description of Capital Stock" and "Underwriting") and 8(e)(xvii).
In giving such opinions with respect to the matters covered by Section
8(e)(xvii), counsel for the Company and counsel for the Underwriters may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from KMPG Peat Marwick LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
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<PAGE>
(i) The Shares shall have been duly listed, subject to notice of
issuance, on the NYSE.
(j) The Company, Integrated Health Services, Inc. ("IHS") and certain
subsidiaries of IHS will have consummated the series of transactions described
in the Prospectus under the caption "Structure and Formation of the Company."
(k) The Company shall not have failed on or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company, on or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 9. Effectiveness of Agreement and Termination.
This Agreement shall become effective upon the execution and delivery
of this Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
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<PAGE>
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 10. Miscellaneous.
Notices given pursuant to any provision of this Agreement shall be
addressed as follows: (i) if to the Company, to Monarch Properties, Inc., 8889
Pelican Bay Boulevard, Naples, Florida 34108 if to any Underwriter or to you, to
you c/o
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<PAGE>
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers and any persons controlling
any of the Underwriters for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
MONARCH PROPERTIES, INC.
By:
-------------------------------------
John B. Poole
President and Chief Executive Officer
MP OPERATING, INC.
By:
---------------------------------
Name:
---------------------------------
MONARCH PROPERTIES, LP
By:
---------------------------------
Name:
---------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY, INC.
BT ALEX. BROWN INCORPORATED
LEGG MASON WOOD WALKER,
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
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SCHEDULE I
Underwriter Number of Firm Shares to be
Purchased
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney, Inc.
BT Alex. Brown Incorporated
Legg Mason Wood Walker,
Incorporated
Morgan Stanley & Co.
Incorporated
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Annex I
Robert N. Elkins, M.D.
John B. Poole
Donald Tomlin
Lisa K. Merritt
William McBride, III
Brian E. Cobb
Douglas Listman
-31-
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
MONARCH PROPERTIES, INC.
<PAGE>
FIRST: Monarch Properties, Inc., a Maryland corporation (the
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE 1. INCORPORATION
The Corporation was formed as a corporation under the Maryland General
Corporation Law (the "Maryland Corporation Law") on February 20, 1998.
ARTICLE 2. NAME
The name of the Corporation is: Monarch Properties, Inc.
ARTICLE 3. PURPOSES
Section 3.1. Purpose and Powers.
The Corporation has been formed to engage in the real estate business
and to engage in any other lawful act or activity for which corporations may be
organized under the Maryland Corporation Law. The foregoing purposes shall be in
no way limited or restricted by reference to, or inference from, the terms of
any other clause of these Articles of Amendment and Restatement (as amended or
supplemented from time to time, the "Charter"), and each shall be regarded as
independent. The foregoing purposes are also to be construed as powers of the
Corporation, and shall be in addition to and not in limitation of the general
powers of corporations under the laws of the State of Maryland.
Section 3.2. Real Estate Investment Trust.
Without limiting the generality of the foregoing purpose, business and
objects, at such time or times as the Board of Directors of the Corporation
determines that it is in the interest of the Corporation and its Stockholders
that the Corporation engage in the business of, and conduct its business and
affairs so as to qualify as, a real estate investment trust (as that phrase is
defined under Section 856 of the Internal Revenue Code of 1986, as amended (the
"Code")), the purpose of the Corporation shall include engaging in the business
of a real estate investment trust ("REIT"). This reference to such purpose shall
not make unlawful or unauthorized any otherwise lawful act or activity that the
Corporation may take that is inconsistent with such purpose.
<PAGE>
ARTICLE 4. PRINCIPAL OFFICE ADDRESS
The address of the principal office of the Corporation is c/o Ballard
Spahr Andrews & Ingersoll, LLP, 300 East Lombard Street, Suite 1900, Baltimore,
Maryland 21202-3268, Attention: James J. Hanks, Jr.
ARTICLE 5. THE RESIDENT AGENT
The Resident Agent of the Corporation is The Corporation Trust, Inc.,
whose address is 300 East Lombard Street, Baltimore, Maryland 21202. The
Resident Agent is a Maryland corporation.
ARTICLE 6. BOARD OF DIRECTORS
Section 6.1. Number.
The number of Directors of the Corporation shall be two, which number
may be increased or decreased pursuant to the Bylaws; provided, however, that
the number of Directors shall never be more than twelve (12) nor less than the
number required by the Maryland Corporation Law, as amended from time to time,
and further provided that the tenure of office of a Director shall not be
affected by any decrease in the number of Directors. Each Director shall serve
until the next annual meeting of Stockholders and until his or her successor is
elected and qualifies. The names of the Directors who shall serve until the
first annual meeting of Stockholders and until their successors are duly elected
and qualify are: John B. Poole and Robert N. Elkins. These Directors may
increase the number of Directors and may fill any vacancy, whether resulting
from an increase in the number of Directors or otherwise, on the Board of
Directors occurring before the first annual meeting of stockholders in the
manner provided in the Bylaws.
Section 6.2. Election.
Beginning with the annual meeting of Stockholders in 1999 and at each
succeeding annual meeting of Stockholders, the Director(s) will be elected to
hold office for a term expiring at the next annual meeting by a vote of a
plurality of all the votes cast on the matter at a meeting of Stockholders at
which a quorum is present. No cumulative voting in the election of Directors is
permitted. Each Director will hold office until the next annual meeting of
Stockholders and until his successor is duly elected and qualifies. Subject to
the rights of the holders of any class of Preferred Stock then outstanding, any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office, an increase in the authorized
number of Directors or other cause shall be filled by the affirmative vote of a
plurality of all the votes cast on the matter at a meeting of Stockholders or by
a majority of the remaining Directors then in office (except that a vacancy
resulting from an increase in the number of Directors shall be filled by a
majority of the entire Board of Directors).
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<PAGE>
Section 6.3. Resignation, Removal or Death.
Any Director may resign from the Board of Directors or any committee
thereof at any time by written notice to the Board of Directors, effective upon
execution and delivery to the Corporation of such notice or upon any future date
specified in the notice. A Director may be removed from office, but only for
cause and only at a meeting of the Stockholders called for that purpose, by the
affirmative vote of the holders of not less than a majority of the Stock then
outstanding and entitled to vote generally in the election of Directors,
provided, however, that in the case of any Directors elected solely by holders
of a series of Preferred Stock, such Director may be removed only by the
affirmative vote of holders of a majority of the outstanding shares of the Stock
of that series then outstanding and entitled to vote in the election of
Directors, voting together as a single class.
Section 6.4. Powers.
Subject to the express limitations herein or in the Bylaws, the
business and affairs of the Corporation shall be managed under the direction of
the Board of Directors. The Board of Directors shall have and may exercise all
the rights, powers and privileges of the Corporation except those that are, by
law, this Charter or the Bylaws of the Corporation, conferred upon or reserved
to the Stockholders.
ARTICLE 7. STOCK
Section 7.1. Authorized Stock.
(a) The total number of shares of Stock which the Corporation has
authority to issue pursuant to these Articles of Amendment and Restatement is
one hundred eighty million (180,000,000) shares, initially consisting of (a)
twenty million (20,000,000) shares of preferred Stock, par value $.00l per share
("Preferred Stock"); (b) one hundred million (100,000,000) shares of common
Stock, par value $.001 per share ("Common Stock"); and (c) sixty million
(60,000,000) shares of excess Stock, par value $.001 per share ("Excess Stock").
The aggregate par value of all the Shares of all classes of Stock is $180,000.
If shares of one class of Stock are classified or reclassified into shares of
another class of Stock pursuant to this Article 7, the number of authorized
shares of the former class shall be automatically decreased and the number of
authorized shares of the latter class shall be automatically increased, in each
case by the number of authorized shares so classified or reclassified, so that
the aggregate number of shares of Stock of all classes that the Corporation has
authority to issue shall not be more than the total number of shares of Stock
set forth in the first sentence of this paragraph. To the extent permitted by
Maryland law, the Board of Directors, without any action by the Stockholders of
the Corporation, may amend the Charter from time to time to increase or decrease
the aggregate number of shares of Stock or the number of shares of Stock of any
class or series that the Corporation has authority to issue.
3
<PAGE>
(b) If the Board of Directors authorizes the creation of any class of
equity interests other than Common Stock, and such class of equity interests
will not be "publicly-offered securities" (as defined in Section 2510.3-101 of
the U.S. Department of Labor Regulations (the "DOL Regulation")), the Board of
Directors will limit the equity participation in such class by "benefit plan
investors" (which means any employee benefit plan as defined in section 3(3) of
the Employees Retirement Income Security Act of 1974, as amended, or any plan
described in section 4975(c) of the Internal Revenue Code of 1986, as amended),
so that their participation will not become "significant" (as defined in the DOL
Regulation).
Section 7.2. Preferred Stock.
Preferred Stock may be issued in one or more classes or series
consisting of such numbers of shares and having such preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption of Stock as
the Board of Directors may from time to time determine when designating such
series.
Section 7.3. Common Stock.
(a) Dividend Rights. Subject to the preferential dividend rights of
Preferred Stock, if any, as may be determined by the Board of Directors, the
holders of shares of Common Stock shall be entitled to receive such dividends as
may be authorized by the Board of Directors out of assets legally available
therefor.
(b) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of shares of Common Stock shall be
entitled to receive, ratably with each other holder of shares of Common Stock or
Excess Stock resulting from the exchange of Common Stock ("Excess Common
Stock"), that portion of the assets of the Corporation available for
distribution to the holders of its Common Stock and Excess Common Stock as the
number of shares of Common Stock and/or Excess Common Stock held by such holders
bears to the total number of shares of Common Stock and Excess Common Stock then
outstanding.
(c) Voting Rights. The holders of shares of Common Stock shall be
entitled to vote on all matters submitted to the holders of Common Stock for a
vote, at all meetings of the Stockholders, and each holder of shares of Common
Stock shall be entitled to one vote for each share of Common Stock held by such
Stockholder.
(d) Exchange. Shares of Common Stock shall automatically and without
further action be exchanged for shares of Excess Stock, and shares of Excess
Stock shall be exchanged for shares of Common Stock, at the times and in the
manner provided in Section 9.5 hereof. Such exchanges shall not require the
tender, cancellation or issuance of any certificate representing such shares of
Excess Stock or Common Stock.
4
<PAGE>
Section 7.4. Excess Stock.
The voting, distribution, redemption and certain other rights,
qualifications and limitations of shares of Excess Stock are set forth in
Section 9.5 hereof. Excess Stock resulting from the exchange of Preferred Stock
("Excess Preferred Stock") and Excess Common Stock are intended to be treated as
separate classes of Stock for purposes of applying Section 562(c) of the Code
relating to preferential dividends.
Section 7.5. Classification of Stock.
The Board of Directors may classify any unissued shares of Stock or
reclassify any previously classified but unissued shares of Stock from time to
time, into one or more classes or series of Stock, by setting or changing the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications, and terms
and conditions of redemption of those shares of Stock, including, but not
limited to, the reclassification of unissued shares of Common Stock to shares of
Preferred Stock or unissued shares of Preferred Stock to shares of Common Stock
or the issuance of any rights plan or similar plan. Prior to issuance of
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of Stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set or change, subject to
the provisions of Article 9 and subject to the express terms of any class or
series of Stock of the Corporation outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Corporation to file
articles supplementary with the State Department of Assessments and Taxation of
Maryland ("SDAT"). Any of the terms of any class or series of Stock set or
changed pursuant to clause (c) of this Section 7.5 may be made dependent upon
facts or events ascertainable outside the Charter (including determinations by
the Board of Directors or other facts or events within the control of the
Corporation) provided that the manner in which such facts or events shall
operate upon the terms of such class or series of Stock is clearly and expressly
set forth in the articles supplementary filed with the SDAT.
Section 7.6. Issuance of Stock.
The Board of Directors may authorize the issuance from time to time of
shares of Stock of any class, whether now or hereafter authorized, or securities
or rights convertible into shares of Stock, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a share
split or dividend), subject to such restrictions or limitations, if any, as may
be set forth in the Bylaws of the Corporation.
5
<PAGE>
Section 7.7. Dividends or Distributions.
The Directors may from time to time authorize the payment to
Stockholders of such dividends or distributions in cash, property or other
assets of the Corporation or in securities of the Corporation or from any other
source as the Directors in their discretion shall determine.
ARTICLE 8. NO PREEMPTIVE RIGHTS
No holder of any Stock or any other securities of the Corporation
whether now or hereafter authorized, shall have any preferential or preemptive
rights to subscribe for or purchase any Stock or any other securities of the
Corporation, except as otherwise provided by the Board of Directors in setting
the terms of classified or reclassified shares of Stock pursuant to Section 7.5
hereof or as may be provided otherwise by contract.
ARTICLE 9. LIMITATIONS ON TRANSFER AND OWNERSHIP
Section 9.1. Limitations on Transfer.
Stock (other than Excess Stock) shall be freely transferable by the
record owner thereof, subject to the provisions of Section 9.2 and provided that
any purported acquisition or transfer of Stock that would result in the
disqualification of the Corporation as a REIT shall be void ab initio, except to
the extent necessary to give effect to Section 9.10 hereof. Any purported
transfer of Stock that, if effective, would result in a violation of Section 9.2
(unless excepted from the application of Section 9.2 pursuant to Section 9.6)
shall be void ab initio as to the transfer of that number of shares of Stock
that would otherwise be beneficially owned by a Stockholder in violation of
Section 9.2, the intended transferee of such shares shall acquire no rights
therein and the transfer of such shares will not be reflected on the
Corporation's Stock record books. For purposes of this Article 9, a "transfer"
of shares of Stock shall mean any sale, transfer, gift, hypothecation, pledge,
assignment, or other disposition, whether voluntary or involuntary, by operation
of law or otherwise.
Section 9.2. Limitations on Ownership.
Except as provided in Section 9.6, no person except as described below
shall at any time directly or indirectly acquire or hold beneficial ownership of
shares of any class or series of Stock with an aggregate value of 9.9% or of the
aggregate value of all outstanding Stock of the Corporation (the "Ownership
Limit"). In determining the beneficial ownership of any person, the constructive
ownership rules of Section 544 of the Code, as modified by Section 856(h) of the
Code, shall apply. Notwithstanding the foregoing, the Board of Directors may, in
its sole discretion, waive the Ownership Limit with respect to any transaction
if it is satisfied, based on the advice of tax counsel, that ownership in excess
of this limit will not jeopardize the Corporation's status as a REIT and it
otherwise decides that such action is in the best interests of the Corporation.
6
<PAGE>
For purposes of this Article 9, (a) the value of any shares of Stock
shall be determined in the manner established by the Board of Directors, and (b)
a person (which includes natural persons, corporations, trusts, partnerships,
and other entities) shall be deemed to be the beneficial owner of the Stock that
such person (i) actually owns, (ii) constructively owns after applying the rules
of Section 544 of the Code as modified in the case of a REIT by Section 856(h)
of the Code, or (iii) has the right to acquire upon exercise of outstanding
rights, options and warrants, and upon conversion of any securities convertible
into Stock, if any.
Section 9.3. Stockholder Information.
Each Stockholder shall, upon demand of the Corporation disclose to the
Corporation in writing such information with respect to his or its direct and
indirect beneficial ownership of the Stock as the Board of Directors in its
discretion deems necessary or appropriate in order that the Corporation may
fully comply with all provisions of the Code relating to REITs and all
regulations, rulings and cases promulgated or decided thereunder (the "REIT
Provisions") and to comply with the requirements of any taxing authority or
governmental agency.
Section 9.4. Transferee Information.
Whenever the Board of Directors deems it reasonably necessary to
protect the tax status of the Corporation as a REIT under the REIT Provisions,
the Board of Directors may require a statement or affidavit from each
Stockholder or proposed transferee of Stock setting forth the number of shares
of Stock already beneficially owned by such proposed transferee and any related
person specified by the Board of Directors. If, in the opinion of the Board of
Directors, any proposed transfer may jeopardize the qualification of the
Corporation as a REIT, the Board of Directors shall have the right, but not the
duty, to refuse to permit the transfer of such Stock to the proposed transferee.
All contracts for the sale or other transfer of Stock shall be subject to this
Section 9.4.
Section 9.5. Excess Stock.
(a) Exchange for Excess Stock. If, notwithstanding the other provisions
contained in this Article 9, at any time there is a purported transfer of Stock
or a change in the capital structure of the Corporation (including any
redemption of Excess Stock pursuant to Subsection 9.5(g)) as a result of which
any person would beneficially own Stock in excess of the Ownership Limit, then,
except as otherwise provided in Section 9.6, such shares of Stock in excess of
the Ownership Limit (rounded up to the nearest whole share) shall automatically
and without further action be exchanged for an equal number of shares of Excess
Stock. Such exchange shall be effective as of the close of business on the
business day prior to the date of the purported transfer of Stock or the change
in capital structure. The shares of Stock which were exchanged for shares of
Excess Stock shall revert to the Corporation, subject to the provisions of
Subsection 9.5(b).
7
<PAGE>
(b) Ownership in Trust. Upon any purported transfer of Stock that
results in an exchange for Excess Stock pursuant to Subsection 9.5(a), such
shares of Excess Stock shall be deemed to have been transferred to the
Corporation as trustee of a separate trust for the exclusive benefit of the
person or persons to whom such Excess Stock can ultimately be transferred
without violating the Ownership Limit. Shares of Excess Stock so held in trust
shall be issued and outstanding Stock of the Corporation. The purported
transferee of Excess Stock shall have no rights in such Excess Stock, except the
right to designate a transferee of its interest in the trust created under this
Subsection 9.5(b) upon the terms specified in Subsection 9.5(e). If any of the
restrictions on transfer set forth in this Article 9 are determined to be void,
invalid or unenforceable by virtue of any legal decision, statute, rule or
regulation, then the intended transferee of any Excess Stock may be deemed, at
the option of the Corporation, to have acted as an agent on behalf of the
Corporation in acquiring the Excess Stock and to hold the Excess Stock on behalf
of the Corporation.
(c) Dividend Rights. Excess Stock shall not be entitled to any
dividends. Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Stock have been exchanged for Excess Stock shall be
repaid to the Corporation upon demand, and any dividend or distribution declared
but unpaid shall be rescinded as void ab initio with respect to such shares of
Excess Stock.
(d) Rights Upon Liquidation. Subject to the preferential rights of
Preferred Stock, if any, as may be determined by the Board of Directors and the
preferential rights of Excess Preferred Stock, if any, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, the trustee holding any shares
of Excess Common Stock shall be entitled to receive, ratably with each other
holder of shares of Common Stock or Excess Common Stock, that portion of the
assets of the Corporation available for distribution to the holders of Common
Stock and Excess Common Stock as the number of shares of Excess Common Stock
held by such holder bears to the total number of shares of Common Stock and
Excess Common Stock then outstanding. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, the trustee holding any shares of Excess
Preferred Stock shall be entitled to receive the pro rata share of the assets of
the Corporation available for distribution to the holders of Preferred Stock of
the series from which such Excess Stock was exchanged which such holder of
Excess Preferred Stock would be entitled to receive if such shares of Excess
Preferred Stock were shares of Preferred Stock of the series from which such
Excess Preferred Stock was exchanged. The Corporation, as the holder of all
Excess Stock in one or more trusts, or, if the Corporation shall have been
dissolved, any trustee appointed by the Corporation prior to its dissolution,
shall distribute to each transferee of an interest in such a trust pursuant to
Subsection 9.5(b) hereof, when determined, any assets received in any
liquidation, dissolution or winding up of, or any distribution of the assets of,
the Corporation in respect of the Excess Stock held in such trust and
represented by the trust interest transferred to such transferee.
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<PAGE>
(e) Voting Rights. Holders of shares of Excess Stock shall not be
entitled to any voting rights with respect to such shares. The shares of Excess
Stock will not be considered to be issued or outstanding for purposes of any
Stockholder vote or for purposes of determining a quorum for such a vote.
Subject to Maryland law, effective as of the date of any transfer of Stock (or
any change in the capital structure of the Corporation) that results in an
exchange for Excess Stock pursuant to Subsection 9.5(a), any vote cast by the
transferee of Excess Stock prior to the discovery by the Corporation that the
shares of Stock are held in violation of the Ownership Limit shall be rescinded
as void; provided, however, that if the Corporation has already taken
irreversible corporate action, then such vote shall not be deemed rescinded.
Notwithstanding the provisions of this Article Nine, until the Corporation has
received notification that shares of Stock are held in violation of the
Ownership Limit, the Corporation shall be entitled to rely on its share transfer
and other Stockholder records for purposes of preparing lists of Stockholders
entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of Stockholders.
(f) Restrictions on Transfer. Excess Stock shall not be transferable.
The purported transferee of any shares of Stock that are exchanged for Excess
Stock pursuant to Section 9.5(a) may freely designate a transferee of the
interest in the trust that represents such shares of Excess Stock, if (i) the
shares of Excess Stock held in the trust and represented by the trust interest
to be transferred would not be Excess Stock in the hands of the designated
transferee of the trust interest and (ii) the transferor of the trust interest
does not receive a price for the trust interest in excess of (A) the price such
transferor paid for the Stock in the purported transfer of Stock that resulted
in the Excess Stock represented by the trust interest, or (B) if such transferor
did not give value for such Stock (e.g., the shares were received through a
gift, devise or other transaction) a price equal to the aggregate Market Price
(as defined in Subsection 9.5(g)) for all shares of the Stock that were
exchanged for Excess Stock on the date of the purported transfer that resulted
in the Excess Stock. No interest in a trust may be transferred unless the
transferor of such interest has given advance notice to the Corporation of the
intended transferee and the Corporation has agreed in writing to waive its
redemption rights under Subsection 9.5(g). Upon the transfer of an interest in a
trust in compliance with this Subsection 9.5(f), the corresponding shares of
Excess Stock that are represented by the transferred interest in the trust shall
be automatically exchanged for an equal number of Shares of Stock of the same
class and series from which they were originally exchanged and such shares of
Stock shall be transferred of record to the transferee of the interest in the
trust. Upon any exchange of Excess Stock for Stock of another class, the
interest in the trust representing such Excess Stock shall automatically
terminate.
(g) Corporation's Redemption Right. All shares of Excess Stock shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price per share of Stock in the
transaction that created such Excess Stock (or, in the case of devise or gift,
the Market Price per share of such Stock at the time of such devise or gift) or
(ii) the Market Price per share of Stock of the class of Stock from which such
Excess Stock was converted on the date the Corporation, or its designee, accepts
such offer. The Corporation shall have the right to accept such offer at any
time until the date ninety (90) days
9
<PAGE>
after the date on which the purported owner or transferee gives written notice
to the Corporation of any event (including, without limitation, redemptions or
repurchases of Stock by the Corporation) or any purported transfer that results
in the exchange of Stock for Excess Stock and the nature and amount of all
ownership interests, direct or indirect, of record or beneficial of such
purported owner or transferee, or, if no such notice is given, the date the
Board of Directors determines that a purported transfer resulting in the
conversion of Stock into Excess Stock has been made. For purposes of this
Article 9, "Market Price" means for any share of Stock, the average daily per
share closing sale price of a share of such Stock if shares of such Stock are
listed on a national securities exchange or quoted on the National Association
of Securities Dealers Automated Quotation National Market System (the "NASDAQ
NMS"), and if such shares are not so listed or quoted, the Market Price shall be
the mean between the average per share closing bid prices and the average per
share closing asked prices, in each case during the 10-day period ending on the
business day prior to the redemption date, or if there have been no sales on a
national securities exchange or on the NASDAQ NMS and no published bid and asked
quotations with respect to shares of such Stock during such 10-day period, the
Market Price shall be the price determined by the Board of Directors in good
faith. The redemption payment (determined pursuant to the first sentence of this
Subsection 9.5(g)) shall be paid to the transferee of the trust interest
representing the redeemed Excess Stock on the date the Corporation elects to
purchase the Excess Stock.
Section 9.6. Exceptions to Certain Ownership and Transfer Limitations.
The Ownership Limit set forth in Section 9.2 shall not apply to the
following shares of Stock and such shares shall not be deemed to be Excess Stock
at the times and subject to the terms and conditions sct forth in this Section
9.5:
(a) Subject to the provisions of Section 9.7, shares of Stock which the
Board of Directors in its sole discretion may exempt from the Ownership Limit
while owned by a person who has provided the Corporation with evidence and
assurances acceptable to the Board of Directors that the qualification of the
Corporation as a REIT would not be jeopardized thereby.
(b) Subject to the provisions of Section 9.7, shares of Stock acquired
and held by an underwriter in a public offering of Stock, or in any transaction
involving the issuance of Stock by the Corporation in which the Board of
Directors determines that the underwriter or other person or party initially
acquiring such Stock will make a timely distribution of such Stock to or among
other holders such that, following such distribution, the Corporation will
continue to be in compliance with the REIT Provisions.
(c) Shares of Stock acquired pursuant to an all-cash tender offer made
for all outstanding shares of Stock of the Corporation in conformity with
applicable federal and state securities laws where not less than two-thirds of
the outstanding Stock (not including Stock or securities convertible into Stock
held by the tender offeror and/or any "affiliates" or "associates" thereof
within the meaning of the Securities Exchange Act of 1934, as amended) are duly
tendered
10
<PAGE>
and accepted pursuant to the cash tender offer and where the tender offeror
commits in such tender offer, if the tender offer is so accepted by the holders
of such two-thirds of the Outstanding Stock, as promptly as practicable
thereafter to give any holders who did not accept such tender offer a reasonable
opportunity to put their Stock to the tender offeror at a price not less than
the price per Share paid for Stock tendered pursuant to the tender offer.
Section 9.7. Authority to Revoke Exceptions to Limitations.
The Board of Directors, in its sole discretion may at any time revoke
any exception pursuant to Subsections 9.6(a) or 9.6(b) in the case of any
Stockholder, and upon such revocation, the provisions of Sections 9.2 and 9.5
shall immediately become applicable to such Stockholder and all Stock of which
such Stockholder may be the beneficial owner. A decision to exempt or refuse to
exempt from the Ownership Limit the ownership of certain designated shares of
Stock or to revoke an exemption previously granted shall be made by the Board of
Directors in its sole discretion, based on any reason whatsoever, including, but
not limited to, the preservation of the Corporation's qualification as a REIT.
Section 9.8. Controlling Provision.
Except as provided in Article 14, to the extent this Article 9 may be
inconsistent with any other provision of this Charter, this Article 9 shall be
controlling.
Section 9.9. Authority of the Board of Directors.
Subject to Section 9.10 hereof, nothing else contained in this Article
9 or in any other provision of this Charter shall limit the authority of the
Board of Directors to take such action as it deems necessary or advisable to
protect the Corporation and the interests of the Stockholders by preservation of
the Corporation's qualification as a REIT under the REIT Provisions. In applying
the provisions of this Article 9, the Board of Directors may take into account
the lack of certainty in the REIT Provisions relating to the ownership of Stock
that may prevent a corporation from qualifying as a REIT and may make
interpretations concerning the Ownership Limit, Excess Stock, beneficial
ownership and related matters on as conservative a basis as the Board of
Directors deems advisable to minimize or eliminate uncertainty as to the
Corporation's continued qualification as a REIT. Notwithstanding any other
provision of these Articles of Incorporation, if the Board of Directors
determines that it is no longer in the best interests of the Corporation and the
Stockholders for the Corporation to continue to qualify as a REIT, the Board of
Directors may revoke or otherwise terminate the Corporation's REIT election
pursuant to Section 856(g) of the Code.
11
<PAGE>
Section 9.10. New York Stock Exchange.
Nothing in this Charter shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock Exchange.
The fact that the settlement of any transaction occurs shall not negate the
effect of any other provision of this Article 9 and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Article 9.
Section 9.11. Enforcement.
The Corporation is authorized specifically to seek equitable relief,
including injunctive relief, to enforce the provisions of this Article 9.
Section 9.12. Non-Waiver.
No delay or failure on the part of the Corporation or the Board of
Directors in exercising any right hereunder shall operate as a waiver of any
right of the Corporation or the Board of Directors, as the case may be, except
to the extent specifically waived in writing.
Section 9.13. Legend.
Each certificate for shares of Stock shall be endorsed with a legend
summarizing the restrictions on ownership and transfer contained in this Article
9 or stating that the Corporation will furnish a full statement about certain
restrictions on transferability to a Stockholder on request and without charge.
ARTICLE 10. RIGHTS AND POWERS OF CORPORATION, BOARD OF DIRECTORS AND
OFFICERS
In carrying on its business, or for the purpose of attaining or
furthering any of its objectives, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by statute, the powers of the Corporation and
of the Directors and Stockholders shall include the following:
Section 10.1. Amendment.
The Corporation reserves the right, from time to time, to make any
amendment of this Charter now or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in this
Charter, of any outstanding Stock.
12
<PAGE>
Section 10.2. Determinations by Board.
The determination as to any of the following matters, made in good
faith by or pursuant to the direction of the Board of Directors consistent with
the Charter and in the absence of actual receipt of an improper benefit in
money, property or services or active and deliberate dishonesty established by a
court, shall be final and conclusive and shall be binding upon the Corporation
and every holder of shares of its Stock: the amount of the net income of the
Corporation for any period and the amount of assets at any time legally
available for the payment of dividends, redemption of its Stock or the payment
of other distributions on its Stock; the amount of paid-in surplus, net assets,
other surplus, annual or other net profit, net assets in excess of capital,
undivided profits or excess of profits over losses on sales of assets; the
amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset
owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter
relating to the business and affairs of the Corporation.
ARTICLE 11. INDEMNIFICATION
The Corporation shall have the power, to the maximum extent permitted
by Maryland law in effect from time to time, to obligate itself to indemnify,
and to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, (a) any individual who is a present or former Director or officer
of the Corporation or (b) any individual who, while a Director of the
Corporation and at the request of the Corporation, serves or has served as a
Director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former Director or officer of the Corporation. The Corporation
shall have the power, with the approval of the Board of Directors, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation.
ARTICLE 12. LIMITATION OF LIABILITY
To the fullest extent permitted under the Maryland Corporation Law as
in effect on the date of filing these Articles of Amendment and Restatement or
as the Maryland Corporation Law is thereafter amended from time to time, no
Director or officer of the Corporation shall be liable to the Corporation or its
Stockholders for money damages. Neither the amendment or the repeal of this
Article, nor the adoption of any other provision in this Charter inconsistent
with this Article, shall eliminate or reduce the protection afforded by this
Article to a Director or officer of the
13
<PAGE>
Corporation with respect to any matter which occurred, or any cause of action,
suit or claim which but for this Article would have accrued or arisen, prior to
such amendment, repeal or adoption.
ARTICLE 13. EXEMPTION FROM BUSINESS COMBINATION STATUTE
Pursuant to Section 3-603(e)(1)(iii) of the Maryland Corporation Law,
the Corporation expressly elects not to be governed by the provisions of Section
3-602 of the Maryland Corporation Law with respect to any business combination
(as defined in Section 3-601(e) of the Maryland Corporation Law) involving Dr.
Robert Elkins, or current or future affiliates, associates (as such terms as
defined in Section 3-601 of the Maryland Corporation Law) or other persons
acting in concert as a group with any of the foregoing persons.
ARTICLE 14. MISCELLANEOUS
The provisions of this Charter are severable, and if the Directors
shall determine that any one or more of such provisions are in conflict with the
REIT Provisions, or other applicable federal or state laws, the conflicting
provisions shall be deemed never to have constituted a part of this Charter,
even without any amendment of this Charter pursuant to Section 10.1 hereof;
provided, however, that such determination by the Directors shall not affect or
impair any of the remaining provisions of this Charter or render invalid or
improper any action taken or omitted prior to such determination. No Director
shall be liable for making or failing to make such a determination. If any
provision of this Charter or any application of such provision shall be held
invalid or unenforceable by any federal or state court having jurisdiction, such
holding shall not in any manner affect or render invalid or unenforceable such
provision in any other jurisdiction, and the validity of the remaining
provisions of this Charter shall not be affected. Other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
THIRD: The amendment to and restatement of the charter as hereinabove
set forth have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation
is as set forth in Article 4 of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article 5 of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of
those currently in office are as set forth in Article 6, Section 6.1 of the
foregoing amendment and restatement of the charter.
14
<PAGE>
SEVENTH: The total number of shares of Stock which the Corporation had
authority to issue immediately prior to this amendment was 50,000,000 shares of
Common Stock, $.001 par value per share, and 10,000,000 shares of Preferred
Stock, $.001 par value per share, having an aggregate par value of $60,000.
EIGHTH: The total number of shares of Stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter is one hundred eighty million (180,000,000) shares, initially consisting
of (a) twenty million (20,000,000) shares of Preferred Stock, par value $.00l
per share; (b) one hundred million (100,000,000) shares of Common Stock, par
value $.001 per share; and (c) sixty million (60,000,000) shares of Excess
Stock, par value $.001 per share. The aggregate par value of all the Shares of
all classes of Stock is $180,000.
NINTH: The undersigned President acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation and, as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its President and attested to by its
Secretary on this ___ day of ________, 1998.
ATTEST: Monarch Properties, Inc.
_____________________
Douglas Listman By: ______________________________
Secretary John B. Poole
President
15
<PAGE>
ARTICLES OF AMENDMENT
OF
MONARCH PROPERTIES, INC.
<PAGE>
FIRST: Monarch Properties, Inc., a Maryland corporation (the
"Corporation") desires to amend its charter as currently in effect. The charter
of the Corporation was filed with the State Department of Assessments and
Taxation of Maryland (the "SDAT") on February 20, 1998, and Articles of
Amendment and Restatement of the Corporation were filed with the SDAT on June
___, 1998 (the charter, as amended by the Articles of Amendment and Restatement,
is referred to as the "Charter").
SECOND: Sections 6.1 and 6.2 of Article 6 of the Charter are hereby
deleted in their entirety and replaced with the following:
Section 6.1 Number and Classification of Directors. The number
of Directors of the Corporation initially shall be six, which number
may be increased or decreased pursuant to the Bylaws, but shall never
be less than the minimum number required by the Maryland General
Corporation Law, as amended from time to time. The names of the
Directors who shall serve until their successors are duly elected and
qualify and the class of Directors to which each is assigned are:
Name Class
---- -----
Robert N. Elkins Class III
John B. Poole Class II
Donald Tomlin Class II
Lisa K. Merritt Class I
William McBride III Class I
Brian E. Cobb Class III
The Directors (other than any Director elected solely by holders of
one or more classes or series of Preferred Stock) shall be classified,
with respect to the terms for which they severally hold office, into
three classes, the Class I Directors to hold office initially for a
term expiring at the annual meeting of Stockholders in 1999, the Class
II Directors to hold office initially for a term expiring at the
annual meeting of Stockholders in 2000 and the Class III Directors to
hold office initially for a term expiring at the annual meeting of
Stockholders in 2001, with the members of each class to hold office
until their successors are duly elected and qualify.
Section 6.2 Election. At each annual meeting of the
Stockholders, the successors to the class of Directors whose term
expires at such meeting shall be elected to hold office for a term
expiring at the annual meeting of Stockholders held in the third year
following the year of their election by a vote of a plurality of all
the votes cast on the matter at a meeting of Stockholders at which a
<PAGE>
quorum is present. No cumulative voting in the election of Directors
is permitted. Each Director will hold office for the term for which he
is elected and until his successor is duly elected and qualifies.
Subject to the rights of holders of any class of Preferred Stock then
outstanding, any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office,
an increase in the authorized number of Directors, or other cause,
shall be filled by the affirmative vote of a plurality of all the
votes cast on the matter at a meeting of Stockholders or by a majority
of the remaining Directors then in office (except that a vacancy
resulting from an increase in the number of Directors shall be filled
by a majority of the entire Board of Directors).
THIRD: The amendment set forth above has been duly advised by the Board
of Directors and approved by the Stockholders of the Corporation as required by
law.
FOURTH: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and, as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its President and attested to by its
Secretary on this ____ day of _______ , 1998.
ATTEST: Monarch Properties, Inc.
__________________________ By: __________________________
Douglas Listman John B. Poole
Secretary President
AMENDED AND RESTATED
BYLAWS
OF
MONARCH PROPERTIES, INC.
_____________________ , 1998
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
MONARCH PROPERTIES, INC.
TABLE OF CONTENTS
ARTICLE 1...................................................................1
MEETINGS OF STOCKHOLDERS...........................................1
1.1 PLACE.....................................................1
1.2 ORGANIZATIONAL MEETING; ANNUAL MEETING....................1
1.3 MATTERS TO BE CONSIDERED AT ANNUAL MEETING................1
1.4 SPECIAL MEETINGS..........................................3
1.5 NOTICE....................................................3
1.6 SCOPE OF NOTICE...........................................3
1.7 QUORUM....................................................3
1.8 VOTING....................................................4
1.9 PROXIES...................................................4
1.10 CONDUCT OF MEETINGS.......................................4
1.11 TABULATION OF VOTES.......................................4
1.12 VOTING BY BALLOT..........................................5
ARTICLE 2...................................................................5
DIRECTORS..........................................................5
2.1 GENERAL POWERS............................................5
2.2 OUTSIDE ACTIVITIES........................................5
2.3 NUMBER, TENURE AND QUALIFICATION..........................6
2.4 NOMINATION OF DIRECTORS...................................7
2.5 ANNUAL AND REGULAR MEETINGS...............................9
2.6 SPECIAL MEETINGS..........................................9
2.7 NOTICE....................................................9
2.8 QUORUM....................................................9
2.9 VOTING....................................................9
2.10 CONDUCT OF MEETINGS.......................................9
2.11 RESIGNATIONS.............................................10
2.12 VACANCIES................................................10
2.13 INFORMAL ACTION BY DIRECTORS.............................10
2.14 COMPENSATION.............................................10
(i)
<PAGE>
2.15 CHAIRMAN OF THE BOARD....................................10
ARTICLE 3..................................................................11
COMMITTEES........................................................11
3.1 NUMBER, TENURE AND QUALIFICATION.........................11
3.2 DELEGATION OF POWER......................................11
3.3 QUORUM AND VOTING........................................11
3.4 CONDUCT OF MEETINGS......................................11
3.5 INFORMAL ACTION BY COMMITTEES............................11
ARTICLE 4..................................................................12
OFFICERS .........................................................12
4.1 ELECTION; POWERS AND DUTIES..............................12
4.2 REMOVAL..................................................12
4.3 VACANCIES................................................12
4.4 PRESIDENT................................................12
4.5 CHIEF FINANCIAL OFFICER..................................13
4.6 SECRETARY................................................13
4.7 TREASURER................................................13
4.8 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS...........13
4.9 SUBORDINATE OFFICERS.....................................13
4.10 SALARIES.................................................14
ARTICLE 5..................................................................14
SHARES OF STOCK...................................................14
5.1 NO CERTIFICATES FOR STOCK................................14
5.2 ELECTION TO ISSUE CERTIFICATES...........................14
5.3 STOCK LEDGER.............................................14
5.4 RECORDING TRANSFERS OF STOCK.............................15
5.5 LOST CERTIFICATE.........................................15
5.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.......15
ARTICLE 6..................................................................16
DIVIDENDS AND DISTRIBUTIONS.......................................16
6.1 AUTHORIZATION............................................16
6.2 CONTINGENCIES............................................16
ARTICLE 7..................................................................16
INDEMNIFICATION...................................................16
7.1 INDEMNIFICATION..........................................16
7.2 SUCCESSORS AND ASSIGNS...................................17
(ii)
<PAGE>
ARTICLE 8..................................................................17
NOTICES .........................................................17
8.1 NOTICES..................................................17
8.2 SECRETARY TO GIVE NOTICE.................................17
8.3 WAIVER OF NOTICE.........................................18
ARTICLE 9..................................................................18
MISCELLANEOUS.....................................................18
9.1 BOOKS AND RECORDS........................................18
9.2 CONTRACTS................................................18
9.3 CHECKS, DRAFTS, ETC......................................18
9.4 LOANS....................................................18
9.5 FISCAL YEAR..............................................19
9.6 BYLAWS SEVERABLE.........................................19
ARTICLE 10.................................................................19
AMENDMENT OF BYLAWS...............................................19
(iii)
<PAGE>
ARTICLE 1
MEETINGS OF STOCKHOLDERS
1.1 PLACE. All meetings of the holders of the issued and outstanding
common stock and preferred stock (the "Stockholders") of Monarch Properties,
Inc. (the "Corporation") shall be held at the principal executive office of the
Corporation or such other place within the United States as shall be stated in
the notice of the meeting.
1.2 ORGANIZATIONAL MEETING; ANNUAL MEETING. An annual meeting of the
Stockholders for the election of Directors and the transaction of such other
business as properly may be brought before the meeting shall be held on the
second Wednesday in May of each year or at such other date and time within the
month of May as may be fixed by the Board of Directors. If the date fixed for
the annual meeting shall be a legal holiday, such meeting shall be held on the
next succeeding business day. Any and all references hereafter in these Bylaws
to an annual meeting or to annual meetings shall be deemed to refer also to any
special meeting(s) in lieu thereof.
1.3 MATTERS TO BE CONSIDERED AT ANNUAL MEETING.
(a) At an annual meeting of Stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before the annual meeting (i) by, or
at the direction of, a majority of the Board of Directors, or (ii) by
any holder of record (both as of the time notice of such proposal is
given by the Stockholder as set forth below and as of the record date
for the annual meeting in question) of any shares of the Corporation's
stock entitled to vote at such annual meeting who complies with the
procedures set forth in this Section 1.3. For a proposal to be properly
brought before an annual meeting by a Stockholder, the Stockholder must
have given timely notice thereof in writing to the Secretary of the
Corporation (other than a stockholder proposal included in the
Corporation's proxy statement pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934, as amended), and such Stockholder or his
representative must be present in person at the annual meeting. For the
first annual meeting following the initial public offering of common
stock of the Corporation, a Stockholder's notice shall be timely if
delivered to, or mailed and received at, the principal executive office
of the Corporation not later than the close of business on the 20th
calendar day (or if that day is not a business day for the Corporation,
on the next business day) following the date on which notice of the
date of the first annual meeting is mailed or otherwise transmitted to
Stockholders. For all subsequent annual meetings, a Stockholder's
notice shall be timely if delivered to, or mailed and received at, the
principal executive offices of the Corporation (A) not less than 75
days nor more than 180 days prior to the anniversary date of the
immediately preceding annual meeting of Stockholders or special meeting
in lieu thereof (the "Anniversary Date") or (B) in the event that the
annual meeting of Stockholders is called for a date more than 7
calendar days prior to the
1
<PAGE>
Anniversary Date, not later than the close of business on (1) the 20th
calendar day (or if that day is not a business day for the Corporation,
on the next succeeding business day) following the earlier of (x) the
date on which notice of the date of such meeting was mailed to
Stockholders, or (y) the date on which the date of such meeting was
publicly disclosed, or (2) if such date of notice or public disclosure
occurs more than 75 calendar days prior to the scheduled date of such
meeting, then the later of (x) the 20th calendar day (or if that day is
not a business day for the Corporation, on the next succeeding business
day) following the date of the first to occur of such notice or public
disclosure or (y) the 75th calendar day prior to such scheduled date of
such meeting (or if that day is not a business day for the Corporation,
on the next succeeding business day).
(b) A Stockholder's notice to the Secretary shall set forth as
to each matter the Stockholder proposes to bring before the annual
meeting (i) a brief description of the proposal desired to be brought
before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's stock transfer books, of the Stockholder proposing such
business and of the beneficial owners (if any) of the stock registered
in such Stockholder's name and the name and address of other
Stockholders known by such Stockholder to be supporting such proposal
on the date of such Stockholder's notice, (iii) the class and number of
shares of the Corporation's stock which are beneficially owned by the
Stockholder and such beneficial owners (if any) on the date of such
Stockholder's notice and by any other Stockholders known by such
Stockholder to be supporting such proposal on the date of such
Stockholder's notice, and (iv) any financial interest of the
Stockholder or of any such beneficial owner in such proposal.
(c) If the Board of Directors, or a committee thereof,
determines that any Stockholder proposal was not timely made in
accordance with the terms of this Section 1.3, such proposal shall not
be presented for action at the annual meeting in question. If the Board
of Directors, or a committee thereof, determines that the information
provided in a Stockholder's notice does not satisfy the informational
requirements of this section in any material respect, the Secretary of
the Corporation shall promptly notify such Stockholder of the
deficiency in the notice. Such Stockholder shall have an opportunity to
cure the deficiency by providing additional information to the
Secretary within the period of time, not to exceed five (5) days from
the date such deficiency notice is given to the Stockholder, determined
by the Board of Directors or such committee. If the deficiency is not
cured within such period, or if the Board of Directors or such
committee determines that the additional information provided by the
Stockholder, together with the information previously provided, does
not satisfy the requirements of this Section 1.3 in any material
respect, then such proposal shall not be presented for action at the
annual meeting in question.
(d) Notwithstanding the procedure set forth in the preceding
paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity
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of any Stockholder proposal as set forth above, the presiding Officer
of the annual meeting shall determine and declare at the annual meeting
whether the Stockholder proposal was made in accordance with the terms
of this Section 1.3. If the presiding Officer determines that a
Stockholder proposal was made in accordance with the terms of this
Section 1.3, the presiding Officer shall so declare at the annual
meeting. If the presiding Officer determines that a Stockholder
proposal was not made in accordance with the provisions of this Section
1.3, the presiding Officer shall so declare at the annual meeting and
such proposal shall not be acted upon at the annual meeting.
(e) This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of Officers,
Directors and committees of the Board of Directors, but in connection
with such reports, no new business shall be acted upon at such annual
meeting except in accordance with the provisions of this Section 1.3.
1.4 SPECIAL MEETINGS. The Chairman of the Board, the President or a
majority of the Board of Directors may call special meetings of the
Stockholders. Special meetings of Stockholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast at
least a majority of the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed to
be acted on thereat. The date, time, place and record date for any special
meeting, including a special meeting called at the request of Stockholders,
shall be established by the Board of Directors or Officer calling the same.
1.5 NOTICE. Not less than ten (10) nor more than ninety (90) days
before the date of every meeting of Stockholders, written or printed notice of
such meeting shall be given, in accordance with Article 8, to each Stockholder
entitled to vote or entitled to notice by statute, stating the time and place of
the meeting and, in the case of a special meeting or as otherwise may be
required by statute, the purpose or purposes for which the meeting is called.
1.6 SCOPE OF NOTICE. No business shall be transacted at a special
meeting of Stockholders except that specifically designated in the notice of the
meeting. Any business of the Corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business as is
required by statute to be stated in such notice.
1.7 QUORUM. At any meeting of Stockholders, the presence in person or
by proxy of Stockholders entitled to cast a majority of the votes shall
constitute a quorum; but this Section shall not affect any requirement under any
statute or the charter of the Corporation, as amended (the "Charter"), for the
vote necessary for the adoption of any measure. If, however, a quorum is not
present at any meeting of the Stockholders, the chairman of the meeting or the
Stockholders present in person or by proxy shall have the power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until a quorum is present and the meeting so adjourned may be reconvened without
further notice. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted at the meeting
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as originally notified. The Stockholders present at a meeting which has been
duly called and convened and at which a quorum is present at the time counted
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Stockholders to leave less than a quorum.
1.8 VOTING.
(a) A plurality of all the votes cast at a meeting of
Stockholders at which a quorum is present is sufficient to elect a
Director, and a majority of the votes cast at a meeting of Stockholders
at which a quorum is present shall be sufficient to take or authorize
action upon any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is specifically
required by statute or the Charter. Unless otherwise provided by
statute or the Charter, each outstanding share (a "Share") of stock of
the Corporation (the "Stock"), regardless of class, shall be entitled
to one vote upon each matter submitted to a vote at a meeting of
Stockholders. Shares of its own Stock directly or indirectly owned by
the Corporation shall not be voted in any meeting and shall not be
counted in determining the total number of outstanding Shares entitled
to vote at any given time, but Shares of its own voting Stock held by
it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding Shares at any given time.
Notwithstanding anything else contained in these Bylaws, the rights of
Excess Stock (as defined in the Charter) and the holders of Excess
Stock shall be limited to the rights provided in the Charter, as
amended from time to time.
(b) The provisions of Title 3, Subtitle 7 of the Maryland
General Corporation Law (or any successor statute) shall not apply to
any acquisition by any person of Stock of the Corporation. This Section
1.8(b) may be repealed in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may to
the extent provided by any successor provision of these Bylaws, apply
to any prior or subsequent control share acquisition.
1.9 PROXIES. A Stockholder may vote the Shares owned of record by him
or her, either in person or by proxy executed in writing by the Stockholder or
by his or her duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy.
1.10 CONDUCT OF MEETINGS. The Chairman of the Board or, in the absence
of the Chairman, the President, or, in the absence of the Chairman and the
President, a presiding Officer elected at the meeting, shall preside over
meetings of the Stockholders. The Secretary of the Corporation, or, in the
absence of the Secretary and Assistant Secretaries, the person appointed by the
presiding Officer of the meeting, shall act as secretary of such meeting.
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1.11 TABULATION OF VOTES. At any annual or special meeting of
Stockholders, the presiding Officer shall be authorized to appoint a teller for
such meeting (the "Teller"). The Teller may, but need not, be an Officer or
employee of the Corporation. The Teller shall be responsible for tabulating or
causing to be tabulated shares voted at the meeting and reviewing or causing to
be reviewed all proxies. In tabulating votes, the Teller shall be entitled to
rely in whole or in part on tabulations and analyses made by personnel of the
Corporation, its counsel, its transfer agent, its registrar or such other
organizations that are customarily employed to provide such services. The Teller
shall be authorized to determine the legality and sufficiency of all votes cast
and proxies delivered under the Corporation's Charter, Bylaws and applicable
law. The presiding Officer may review all determinations made by the Teller
hereunder, and in doing so the presiding Officer shall be entitled to exercise
his or her sole judgment and discretion and he or she shall not be bound by any
determinations made by the Teller.
1.12 VOTING BY BALLOT. Voting on any question or in any election may be
viva voce unless the presiding Officer shall order or any Stockholder shall
demand that voting be by ballot.
ARTICLE 2
DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the Corporation shall
be managed under the direction of its Board of Directors.
2.2 OUTSIDE ACTIVITIES. The Board of Directors and its members are
required to spend only such time directing the management of the business and
affairs of the Corporation as is necessary to carry out their duties in
accordance with Section 2-405.1 of the Maryland General Corporation Law. Except
as set forth by separate agreement, the Board of Directors, each Director, and
the agents, Officers and employees of the Corporation or of the Board of
Directors or of any Director may engage with or for others in business
activities of the types conducted by the Corporation. Any transaction presented
to the Corporation: (a) involving Integrated Health Services, Inc. ("IHS"), any
Director, Officer or employee of the Corporation, or any Affiliate of IHS or the
Corporation; (b) involving any partnership or limited liability company of which
any Director or Officer of the Corporation may be a partner or member; (c)
involving any corporation or association of which any Director or Officer of the
Corporation may be a director or officer; (d) involving any corporation or
association of which any Director or Officer of the Corporation may be
interested as the holder of any amount of its stock (or, in the case of a
publicly traded corporation, the holder of 5% or more of its common stock or 5%
or more of the voting power outstanding of such corporation); or (e) in which
IHS, any Director, Officer or employee of the Corporation, or any Affiliate of
IHS or the Corporation otherwise may be a party or may be pecuniarily or
otherwise interested, must be disclosed by any Director having knowledge of any
such interest to the Board of Directors (and, if voting thereon, to the
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Stockholders or to any committee of the Board of Directors) within ten (10) days
after the later of the date upon which such Director becomes aware of such
interest or the date upon which such Director becomes aware that the Corporation
is considering such investment opportunity. (Any Director who has any interest
described in the preceding sentence shall be deemed an "interested Director"
with respect to any matter involving such interest, and any Director who does
not have such an interest shall be deemed an "independent Director" with respect
to such matter.) If such interest comes to the interested Director's attention
after a vote to take such investment opportunity, the voting body shall be
notified of such interest and shall reconsider such investment opportunity if
not already consummated or implemented. For purposes of these Bylaws,
"Affiliate" shall mean any person or entity controlling, controlled by or under
common control with another person or entity, and "control" (or in context,
"controlling" or "controlled by") shall mean the ownership of more than 30% of
(i) the common stock of a corporation, or (ii) the beneficial ownership of any
other entity or enterprise.
2.3 NUMBER, TENURE AND QUALIFICATION.
(a) The number of Directors initially shall be two (2). The
names of the initial Directors (the "Initial Directors") are Robert N.
Elkins and John B. Poole. The number of Directors may be increased or
decreased from time to time by an amendment of the Charter or a vote of
the majority of the Directors then in office, but the number of
Directors shall never be less than the number of Directors required by
the Maryland General Corporation Law, as amended from time to time.
(b) Whenever the holders of any one or more series of
Preferred Stock of the Corporation shall have the right, voting
separately as a class, to elect one or more Directors of the
Corporation, the Board of Directors shall consist of said Directors so
elected in addition to the number of Directors fixed as provided in
this Section 2.3. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or
more series of Preferred Stock shall have the right voting separately
as a class to elect one or more Directors of the Corporation, the terms
of the Director or Directors elected by such holders shall expire at
the next succeeding annual meeting of Stockholders.
2.4 NOMINATION OF DIRECTORS.
(a) Nominations of candidates for election as Directors of the
Corporation at any annual meeting of Stockholders may be made (i) by,
or at the direction of, a majority of the Board of Directors or (ii) by
any holder of record (both as of the time notice of such nomination is
given by the Stockholder as set forth below and as of the record date
for the annual meeting in question) of any shares of the Corporation's
stock entitled to vote at such meeting who complies with the procedures
set forth in this Section 2.4. Any Stockholder who seeks to make such a
nomination, or his representative, must be present in person at the
annual meeting. Only persons nominated in accordance with the
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procedures set forth in this Section 2.4 shall be eligible for election
as Directors at an annual meeting of Stockholders.
(b) Nominations, other than those made by, or at the direction
of, the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation as set forth in this
Section 2.4. For the first annual meeting of the Corporation following
the date of the sale of Common Stock pursuant to the Corporation's
first effective registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Initial Public Offering"), notice shall be timely if delivered to, or
mailed and received at, the principal executive office of the
Corporation not later than the close of business on the 20th calendar
day (or if that day is not a business day for the Corporation, the next
business day) following the date on which notice of the first annual
meeting is mailed or otherwise transmitted to Stockholders. For all
subsequent annual meetings of the Corporation, a Stockholder's notice
shall be timely if delivered to, or mailed and received at, the
principal executive offices of the corporation (i) not less than 75
days nor more than 180 days prior to the Anniversary Date or (ii) in
the event that the annual meeting of Stockholders is called for a date
more than 7 calendar days prior to the Anniversary Date, not later than
the close of business on (A) the 20th calendar day (or if that day is
not a business day for the Corporation, on the next succeeding business
day) following the earlier of (1) the date on which notice of the date
of such meeting was mailed to Stockholders, or (2) the date on which
the date of such meeting was publicly disclosed, or (B) if such date of
notice or public disclosure occurs more than 75 calendar days prior to
the scheduled date of such meeting, then the later of (1) the 20th
calendar day (or if that day is not a business day for the Corporation,
on the next succeeding business day) following the date of the first to
occur of such notice or public disclosure or (2) the 75th calendar day
prior to such scheduled date of such meeting (or if that day is not a
business day for the Corporation, on the next succeeding business day).
(c) A Stockholder's notice of nomination shall set forth as to
each person the Stockholder proposes to nominate for election as a
Director (i) the name, age, business address and residence address of
such person, (ii) the principal occupation or employment of such person
for the past five years; (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by such person on the
date of such notice; (iv) such nominee's written consent to be named in
the proxy statement as a nominee and to serve as a Director if elected,
and (v) any other information relating to such person that is required
to be disclosed in solicitations of proxies with respect to nominees
for election as may be deemed necessary or desirable by the
Corporation's counsel, in the exercise of his or her discretion. Notice
by a Stockholder shall, in addition to the above-referenced
information, set forth as to the Stockholder giving the notice (A) the
name and address, as they appear on the Corporation's stock transfer
books, of such Stockholder and of the beneficial owners (if any) of the
stock registered in such Stockholder's name; (B) the name and address
of other Stockholders known by such
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Stockholder to be supporting such nominees on the date of such
Stockholder's notice; (C) the class and number of shares of the
Corporation's stock which are beneficially owned by such Stockholder
and such beneficial owners (if any) on the date of such Stockholder
notice; and (D) the class and number of shares of the Corporation's
stock which are beneficially owned by any other Stockholders known by
such Stockholder to be supporting such nominees on the date of such
Stockholder notice. At the request of the Board of Directors, any
person nominated by or at the direction of the Board of Directors for
election as a Director at an annual meeting shall furnish to the
Secretary of the Corporation that information which would be required
to be set forth in a Stockholder's notice of nomination of such
nominee.
(d) No person shall be qualified for election by the
Stockholders as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.4. If the
Board of Directors, or a committee thereof, determines that a
nomination made by any Stockholder was not timely made in accordance
with the terms of this Section, such nomination shall not be considered
at the annual meeting in question. If the Board of Directors, or a
committee thereof, determines that the information provided in a
Stockholder's notice does not satisfy the informational requirements of
this Section 2.4 in any material respect, the Secretary of the
Corporation shall promptly notify such Stockholder of the deficiency in
the notice. Such Stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within
the period of time, not to exceed 5 days from the date such deficiency
notice is given to such Stockholder, determined by the Board of
Directors or such committee. If the deficiency is not cured within such
period, or if the Board of Directors or such committee determines that
the additional information provided by such Stockholder, together with
the information previously provided, does not satisfy the requirements
of this Section 2.4 in any material respect, such nomination shall not
be considered at the annual meeting in question.
(e) Notwithstanding the procedures set forth in the preceding
paragraph, if neither the Board of Directors nor a committee thereof
makes a determination as to the validity of any nominations by any
Stockholder as set forth above, the presiding Officer of the
Stockholders meeting shall determine and declare at the Stockholders
meeting whether a nomination was made in accordance with the terms of
this Section 2.4. If the presiding Officer determines that a nomination
was not made in accordance with the terms of this Section 2.4, such
nomination shall be disregarded.
2.5 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors may be held immediately after and at the same place as the annual
meeting of Stockholders, or at such other time and place, either within or
without the State of Maryland, as is selected by resolution of the Board of
Directors, and no notice other than this Bylaw or such resolution shall be
necessary. The Board of Directors may provide, by resolution, the time and
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place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice than such
resolutions.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the President or a
majority of the Directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
2.7 NOTICE. Notice of any special meeting to be provided herein shall
be given by telephone or by written notice delivered personally, telegraphed or
telecopied at least twenty-four (24) hours prior to the meeting, or by mail at
least five (5) days prior to the meeting, to each Director at his or her
business or residence. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Board of Directors need be
specified in the notice, unless specifically required by statute, the Charter or
these Bylaws.
2.8 QUORUM. A majority of the Board of Directors then in office shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors; provided, however, that a quorum for the transaction of business
with respect to any matter in which any Director is an interested Director shall
consist of a majority of the Directors that includes a majority of the
independent Directors then in office. If less than a majority of the Board of
Directors is present at said meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
2.9 VOTING. The act of a majority of the Directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors, unless
the concurrence of a greater proportion is required for such action by
applicable statute, the Charter or these Bylaws; provided, however, that no act
relating to a matter involving an interested Director shall be the act of the
Board of Directors unless such act has been approved by a majority of the
independent Directors.
2.10 CONDUCT OF MEETINGS. All meetings of the Board of Directors shall
be called to order and presided over by the Chairman of the Board, or in the
absence of the Chairman of the Board, by the President (if a member of the Board
of Directors) or, in the absence of the Chairman of the Board and the President,
by a member of the Board of Directors selected by the members present. The
Secretary of the Corporation, or in the absence of the Secretary, any Assistant
Secretary, shall act as secretary at all meetings of the Board of Directors, and
in the absence of the Secretary and Assistant Secretaries, the presiding Officer
of the meeting shall designate any person to act as secretary of the meeting.
Members of the Board of Directors may participate in meetings of the Board of
Directors by conference telephone or similar communications equipment by means
of which all Directors participating in the meeting can hear each other at the
same time, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for all purposes of these Bylaws.
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2.11 RESIGNATIONS. Any Director may resign from the Board of Directors
or any committee thereof at any time. Such resignation shall be made in writing
and shall take effect at the time specified therein, or if no time be specified,
at the time of the receipt of notice of such resignation by the President or the
Secretary.
2.12 VACANCIES. Subject to the rights of holders of any class of
Preferred Stock then outstanding, any vacancy occurring in the Board of
Directors for any cause may be filled by the affirmative vote of a plurality of
all of the votes cast on the matter at a meeting of Stockholders or by a
majority of the remaining Directors (except that a vacancy occurring in the
Board of Directors by reason of an increase in the number of Directors shall be
filled, by the affirmative vote of a plurality of all of the votes cast on the
matter at a meeting of Stockholders or by a majority of the entire Board of
Directors). Each Director will hold office for the term for which he or she is
elected and until his or her successor is duly elected and qualifies.
2.13 INFORMAL ACTION BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by all of the
Directors and such written consent is filed with the minutes of the Board of
Directors. Consents may be signed by different Directors on separate
counterparts.
2.14 COMPENSATION. An annual fee for services and payment for expenses
of attendance at each meeting of the Board of Directors, or of any committee
thereof, may be allowed to any Director by resolution of the Board of Directors.
2.15 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the Stockholders and of the Board of Directors. The Chairman of
the Board shall not be an Officer of the Corporation and shall have no
day-to-day authority to supervise, direct or control the business or affairs of
the Corporation. Subject to the foregoing, the Chairman of the Board shall
perform all duties incident to the office of Chairman of the Board and such
other duties as may be prescribed by the Board of Directors from time to time.
ARTICLE 3
COMMITTEES
3.1 NUMBER, TENURE AND QUALIFICATION. The Board of Directors may
appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee, and an Incentive Plan Committee, each composed of two or
more Directors, to serve at the pleasure of the Board of Directors. In addition,
the Board of Directors may appoint from among its members such other committees,
each composed of one or more Directors, as the Board deems advisable, to serve
at the pleasure of the Board of Directors. If any committee takes or
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authorizes any act as to any matter in which any Director (or affiliate of such
Director) is an interested Director, a majority of the members of such committee
shall be independent Directors, except that any such committee consisting of
only two Directors may have one independent Director and one interested
Director, and any such committee consisting of only one Director shall have only
an independent Director. Notwithstanding the foregoing, the Audit Committee and
the Compensation Committee shall consist only of Directors who are not
Affiliates, officers or employees of the Corporation. Further, a majority of the
Audit Committee shall be Directors who were not formerly officers of the
Corporation or any of its subsidiaries, and a Director who represents or is a
close relative of a person who would not qualify as a member of the Audit
Committee shall not be a member of the Audit Committee.
3.2 DELEGATION OF POWER. The Board of Directors may delegate to these
committees in the intervals between meetings of the Board of Directors any of
the powers of the Board of Directors, except those powers which the Board of
Directors is specifically prohibited from delegating pursuant to Section 2-411
of the Maryland General Corporation Law.
3.3 QUORUM AND VOTING. A majority of the members of any committee shall
constitute a quorum for the transaction of business by such committee, and the
act of a majority of the quorum shall constitute the act of the committee,
except that no act relating to any matter in which any Director (or affiliate of
such Director) who is an interested Director shall be the act of any committee
unless a majority of the independent Directors on the committee vote for such
act.
3.4 CONDUCT OF MEETINGS. Each committee shall designate a presiding
Officer of such committee, and if not present at a particular meeting, the
committee shall select a presiding Officer for such meeting. Members of any
committee may participate in meetings of such committee by conference telephone
or similar communications equipment by means of which all Directors
participating in the meeting can hear each other at the same time, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting for all purposes of these Bylaws. Each committee shall
keep minutes of its meetings, and report the results of any proceedings at the
next succeeding annual or regular meeting of the Board of Directors.
3.5 INFORMAL ACTION BY COMMITTEES. Any action required or permitted to
be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of
proceedings of such committee. Consents may be signed by different members on
separate counterparts.
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ARTICLE 4
OFFICERS
4.1 ELECTION; POWERS AND DUTIES.
(a) The officers of the Corporation shall be elected annually
by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of Stockholders. If the
election of Officers shall not be held at such meeting, such election
shall be held as soon thereafter as may be convenient. Each Officer
shall hold office until his successor is duly elected and qualifies or
until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except President and Vice President
may be held by the same person. Election or appointment of an Officer
or agent shall not of itself create contract rights between the
Corporation and such Officer or agent.
(b) The officers of the Corporation shall have the powers and
duties provided in these Bylaws and by the laws of the State of
Maryland and such further powers as may be incidental thereto or
necessary in connection therewith.
4.2 REMOVAL. Any Officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. The fact that a person is elected to an office, whether or not for a
specified term, shall not by itself constitute any undertaking or evidence of
any employment obligation of the Corporation to that person.
4.3 VACANCIES. A vacancy in any office may be filled by the Board of
Directors for the unexpired portion of the term.
4.4 PRESIDENT. Unless the Board of Directors shall otherwise determine,
the President shall be the Chief Executive Officer of the Corporation. In the
absence of the Chairman of the Board, the President shall preside at all
meetings of the Stockholders and of the Board of Directors (if a member of the
Board of Directors). The President may sign, acting singly, any deeds,
mortgages, bonds, contracts or other obligations or instruments on behalf of the
Corporation except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other Officer or
agent of the Corporation or shall be required by law to be otherwise signed or
executed. In general, the President shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.5 CHIEF FINANCIAL OFFICER. The Board of Directors may appoint one
Chief Financial Officer. In the absence of the President or in the event of a
vacancy in such office, the
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Chief Financial Officer shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. The Chief Financial Officer shall perform such other duties as
from time to time may be assigned to him or her by the President or the Board of
Directors.
4.6 SECRETARY. The Secretary shall (i) keep the minutes of the
proceedings of the Stockholders and Board of Directors in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate records of the Corporation; (iv) unless a transfer
agent is appointed, keep a register of the post office address of each
Stockholder that shall be furnished to the Secretary by such Stockholder and
have general charge of the Stock Ledger of the Corporation; (v) when authorized
by the Board of Directors or the President, attest to or witness all documents
requiring the same; (vi) perform all duties as from time to time may be assigned
to him or her by the President or by the Board of Directors; and (vii) perform
all the duties generally incident to the office of secretary of a corporation.
4.7 TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositaries as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at the regular meetings of the Board
of Directors or whenever they may require it, an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation. The
Board of Directors may engage a Custodian to perform some or all of the duties
of the Treasurer, and if a Custodian is so engaged then the Treasurer shall be
relieved of the responsibilities set forth herein to the extent delegated to
such Custodian and, unless the Board of Directors otherwise determines, shall
have general supervision over the activities of such Custodian. The Custodian
shall not be an Officer of the Corporation.
4.8 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Board of
Directors may appoint one or more Assistant Secretaries or Assistant Treasurers.
The Assistant Secretaries and Assistant Treasurers (i) shall have the power to
perform and shall perform all the duties of the Secretary and the Treasurer,
respectively, in such respective Officer's absence and (ii) shall perform such
duties as shall be assigned to him or her by the Secretary or Treasurer,
respectively, or by the President or the Board of Directors.
4.9 SUBORDINATE OFFICERS. The Corporation shall have such subordinate
Officers as the Board of Directors may from time to time elect, including but
not limited to one or more Vice Presidents. Each such Officer shall hold office
for such period and perform such duties as the Board of Directors, the President
or any designated committee or Officer may prescribe.
13
<PAGE>
4.10 SALARIES. The salaries, if any, of the Officers shall be fixed
from time to time by the Board of Directors. No Officer shall be prevented from
receiving such salary, if any, by reason of the fact that he or she is also a
Director of the Corporation.
ARTICLE 5
SHARES OF STOCK
5.1 NO CERTIFICATES FOR STOCK. Unless the Board of Directors authorizes
the issuance of certificates pursuant to Section 5.2, none of the Stock shall be
represented by certificates.
5.2 ELECTION TO ISSUE CERTIFICATES. The Board of Directors may
authorize the issuance of certificates representing some or all of the Shares of
any or all of the classes or series of Stock. If the Board of Directors so
authorizes certificates, such certificates shall be of such form, not
inconsistent with the Charter, as shall be approved by the Board of Directors.
All certificates, if issued, shall be signed by the President or Chief Financial
Officer and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary. Any signature or countersignature may be
either a manual or facsimile signature. All certificates, if issued, for each
class of Stock shall be consecutively numbered.
5.3 STOCK LEDGER. The Corporation shall maintain at its principal
executive office, at the office of its counsel, accountants or transfer agent or
at such other place designated by the Board of Directors an original or
duplicate Stock Ledger containing the names and addresses of all the
Stockholders and the number of shares of each class held by each Stockholder.
The Stock Ledger shall be maintained pursuant to a system that the Corporation
shall adopt allowing for the issuance, recordation and transfer of its Stock by
electronic or other means that can be readily converted into written form for
visual inspection and not involving any issuance of certificates. Such system
shall include provisions for notice to acquirors of Stock (whether upon issuance
or transfer of Stock) in accordance with Sections 2-210 and 2-211 of the
Maryland General Corporation Law, and Section 8-408 of the Commercial Law
Article of the State of Maryland. The Corporation shall be entitled to treat the
holder of record of any Share or Shares as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Maryland. Until a transfer is duly effected on the Stock Ledger,
the Corporation shall not be affected by any notice of such transfer, either
actual or constructive. Nothing herein shall impose upon the Corporation, the
Board of Directors or Officers or their agents and representatives a duty or
limit their rights to inquire as to the actual ownership of Shares.
5.4 RECORDING TRANSFERS OF STOCK. If transferred in accordance with any
restrictions on transfer contained in the Charter, these Bylaws or otherwise,
Shares shall be
14
<PAGE>
recorded as transferred in the Stock Ledger upon provision to the Corporation or
the transfer agent of the Corporation of an executed stock power duly guaranteed
and any other documents reasonably requested by the Corporation, and the
surrender of the certificate or certificates, if any, representing such Shares.
Upon receipt of such documents, the Corporation shall issue the statements
required by Sections 2-210 and 2-211 of the Maryland General Corporation Law and
Section 8-408 of the Commercial Law Article of the State of Maryland, issue as
needed a new certificate or certificates (if the transferred Shares were
certificated) to the persons entitled thereto, cancel any old certificates and
record the transaction upon its books.
5.5 LOST CERTIFICATE. The Board of Directors may direct a new
certificate to be issued in the place of any certificate theretofore issued by
the Corporation alleged to have been stolen, lost or destroyed upon the making
of an affidavit of that fact by the person claiming the certificate of Stock to
be stolen, lost or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such stolen, lost or destroyed
certificate or his legal representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to the Corporation
to indemnify it against any loss or claim which may arise by reason of the
issuance of a new certificate.
5.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
(a) The Board of Directors may fix, in advance, a date as the
record date for the purpose of determining Stockholders entitled to
notice of, or to vote at, any meeting of Stockholders, or Stockholders
entitled to receive payment of any dividend or the allotment of any
rights, or in order to make a determination of Stockholders for any
other proper purpose. Such date, in any case, shall not be prior to the
close of business on the day the record date is fixed and shall be not
more than ninety (90) days, and in case of a meeting of Stockholders
not less than ten (10) days, prior to the date on which the meeting or
particular action requiring such determination of Stockholders is to be
held or taken.
(b) In lieu of fixing a record date, the stock transfer books
may be closed by the Board of Directors in accordance with Section
2-511 of the Maryland General Corporation Law for the purpose of
determining Stockholders entitled to notice of or to vote at a meeting
of Stockholders.
(c) If no record date is fixed and the stock transfer books
are not closed for the determination of Stockholders, (i) the record
date for the determination of Stockholders entitled to notice of, or to
vote at, a meeting of Stockholders shall be at the close of business on
the day on which the notice of meeting is mailed or the 30th day before
the meeting, whichever is the closer date to the meeting; and (ii) the
record date for the determination of Stockholders entitled to receive
payment of a dividend or an allotment of any rights shall be at the
close of business on the day on which the resolution of the Board of
Directors, authorizing the dividend or allotment of rights, is adopted,
but the
15
<PAGE>
payment or allotment may not be made more than 60 days after the date
on which the resolution is adopted.
(d) When a determination of Stockholders entitled to vote at
any meeting of Stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof, except where
the determination has been made through the closing of the stock
transfer books and the stated period of closing has expired.
ARTICLE 6
DIVIDENDS AND DISTRIBUTIONS
6.1 AUTHORIZATION. Dividends and other distributions upon the Stock may
be authorized by the Board of Directors as set forth in the applicable
provisions of the Charter and any applicable law, at any meeting, limited only
to the extent of Section 2-311 of the Maryland General Corporation Law.
Dividends and other distributions upon the Stock may be paid in cash, property
or Stock of the Corporation, subject to the provisions of law and of the
Charter.
6.2 CONTINGENCIES. Before payment of any dividends or other
distributions upon the Stock, there may be set aside (but there is no duty to
set aside) out of any funds of the Corporation available for dividends or other
distributions such sum or sums as the Board of Directors may from time to time,
in its absolute discretion, think proper as a reserve fund to meet
contingencies, for maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interests of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created. Notwithstanding the foregoing,
however, in no event shall the Corporation maintain any reserves if such
reserves would jeopardize the qualification of the Corporation as a real estate
investment trust.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION. To the maximum extent permitted by Maryland law in
effect from time to time, the Corporation shall indemnify and, without requiring
a preliminary determination of the ultimate entitlement to indemnification,
shall pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former Director or Officer
of the Corporation and who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a Director of the
Corporation and at the request of the Corporation, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party
16
<PAGE>
to the proceeding by reason of his service in that capacity (each person
described in (a) or (b), an "Indemnitee"). The Corporation may, with the
approval of its Board of Directors, provide such indemnification and advance for
expenses to a person who served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or Charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
7.2 SUCCESSORS AND ASSIGNS. These Bylaws shall be binding upon the
Corporation and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
ARTICLE 8
NOTICES
8.1 NOTICES. Except as provided in Section 1.5 and Section 2.7,
whenever notice is required to be given pursuant to these Bylaws, it shall be
construed to mean either written notice personally served against written
receipt, or notice in writing transmitted by mail, by depositing the same in a
post office or letter box, in a post-paid sealed wrapper, addressed, if to the
Corporation, 8889 Pelican Bay Boulevard, Suite 501, Naples, Florida 34108 (or
any subsequent address selected by the Board of Directors), Attention:
President, or if to a Stockholder, Director or Officer, at the address of such
person as it appears on the books of the Corporation or in default of any other
address at the general post office situated in the city or county of his or her
residence. Unless otherwise specified, notice sent by mail shall be deemed to be
given at the time mailed.
8.2 SECRETARY TO GIVE NOTICE. All notices required by law or these
Bylaws to be given by the Corporation shall be given by the Secretary or any
other officer of the Corporation designated by the President. If the Secretary
and Assistant Secretary are absent or refuse or neglect to act, the notice may
be given by any person directed to do so by the President or, with respect to
any meeting called pursuant to these Bylaws upon the request of any Stockholders
or Directors, by any person directed to do so by the Stockholders or Directors
upon whose request the meeting is called.
8.3 WAIVER OF NOTICE. Whenever any notice is required to be given
pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at nor
17
<PAGE>
the purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE 9
MISCELLANEOUS
9.1 BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of its accounts and transactions and minutes of the
proceedings of its Stockholders and Board of Directors meetings and of its
executive or other committees when exercising any of the powers or authority of
the Board of Directors. The books and records of the Corporation may be in
written form or in any other form that can be converted within a reasonable time
into written form for visual inspection. Minutes shall be recorded in written
form, but may be maintained in the form of a reproduction.
9.2 CONTRACTS. The Board of Directors may authorize any Officer(s) or
agent(s) to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
9.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such Officers or agents of the Corporation
and in such manner as shall from time to time be determined by resolution of the
Board of Directors.
9.4 LOANS.
(a) Such Officers or agents of the Corporation as from time to
time have been designated by the Board of Directors shall have authority (i) to
effect loans, advances, or other forms of credit at any time or times for the
Corporation, from such banks, trust companies, institutions, corporations,
firms, or persons, in such amounts and subject to such terms and conditions, as
the Board of Directors from time to time has designated; (ii) as security for
the repayment of any loans, advances, or other forms of credit so authorized, to
assign, transfer, endorse, and deliver, either originally or in addition or
substitution, any or all personal property, real property, stocks, bonds,
deposits, accounts, documents, bills, accounts receivable, and other commercial
paper and evidences of debt or other securities, or any rights or interests at
any time held by the Corporation; (iii) in connection with any loans, advances,
or other forms of credit so authorized, to make, execute, and deliver one or
more notes, mortgages, deeds of trust, financing statements, security
agreements, acceptances, or written obligations of the Corporation, on such
terms and with such provisions as to the security or sale or disposition of them
as those Officers or agents deem proper; and (iv) to sell to, or discount or
rediscount with, the banks, trust companies, institutions, corporations, firms
or persons making those loans, advances, or other
18
<PAGE>
forms of credit, any and all commercial paper, bills, accounts receivable,
acceptances, and other instruments and evidences of debt at any time held by the
Corporation, and, to that end, to endorse, transfer, and deliver the same.
(b) From time to time the Corporation shall certify to each
bank, trust company, institution, corporation, firm or person so designated, the
signatures of the Officers or agents so authorized. Each bank, trust company,
institution, corporation, firm or person so designated is authorized to rely
upon such certification until it has received written notice that the Board of
Directors has revoked the authority of those Officers or agents.
9.5 FISCAL YEAR. The Board of Directors shall have the power, from time
to time, to fix the fiscal year of the Corporation by a duly adopted resolution,
and, in the absence of such resolution, the fiscal year shall be the period
ending December 31.
9.6 BYLAWS SEVERABLE. The provisions of these Bylaws are severable, and
if any provision shall be held invalid or unenforceable, that invalidity or
unenforceability shall attach only to that provision and shall not in any manner
affect or render invalid or unenforceable any other provision of these Bylaws,
and these Bylaws shall be carried out as if the invalid or unenforceable
provision were not contained herein.
ARTICLE 10
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power, at any annual or
regular meeting, or at any special meeting if notice thereof is included in the
notice of such special meeting, to alter or repeal any Bylaws of the Corporation
and to make new Bylaws.
The foregoing are certified as the Amended and Restated Bylaws of the
Corporation adopted by the Board of Directors as of ________, 1998.
19
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY
MONARCH PROPERTIES, INC.
C
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR LEGEND
NEW YORK, NY
CUSIP 609166 10 3
SEE REVERSE FOR IMPORTANT NOTICE ON TRANSFER
RESTRICTIONS AND OTHER INFORMATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK WITH THE PAR
VALUE OF $0.001 EACH OF
Monarch Properties, Inc. (the "Corporation") transferable on the books of the
Corporation by the holder in person or by its duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are subject in all respects to the laws of the State of
Maryland and to the Charter and Bylaws of the Corporation and any amendments
thereto, copies of which are on file with the Corporation. The designations,
preferences and relative rights of each class of stock of the Corporation and
each series thereof and the restrictions, limitations and qualifications thereof
are set forth in the Charter. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers. Dated:
/s/ /s/
PRESIDENT SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
IMPORTANT NOTICE
----------------
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 2-211(b) OF THE
CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH
RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS, AND
TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE, THE DIFFERENCES IN THE RELATIVE RIGHTS AND
PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF A PREFERRED OR SPECIAL CLASS IN
SERIES WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, TO THE EXTENT THEY HAVE
BEEN SET, AND OF THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET THE RELATIVE
RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OF A PREFERRED OR SPECIAL CLASS OF
STOCK. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION AT ITS
PRINCIPAL OFFICE OR TO ITS TRANSFER AGENT.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED,
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS
STATUS AS A "REAL ESTATE INVESTMENT TRUST" UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE
CORPORATION, NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN EQUITY STOCK
IN EXCESS OF 9.9 (IN VALUE OR IN NUMBER OF SHARES OF EQUITY STOCK WHICHEVER IS
MORE RESTRICTIVE) OF THE OUTSTANDING EQUITY STOCK OF THE CORPORATION WITH
FURTHER RESTRICTIONS AND EXCEPTIONS SET FORTH IN THE CHARTER OF THE CORPORATION.
ANY PERSON WHO ATTEMPTS OR PROPOSES TO OWN, BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN EQUITY STOCK IN EXCESS OF THE ABOVE LIMITATION MUST NOTIFY THE CORPORATION
IN WRITING AT LEAST 15 DAYS PRIOR TO SUCH PROPOSED OR ATTEMPTED TRANSFER TO SUCH
PERSON. IF ATTEMPT IS MADE TO VIOLATE THESE RESTRICTIONS ON TRANSFERS, (i) ANY
PURPORTED TRANSFER WILL BE VOID AND WILL NOT BE RECOGNIZED BY THE CORPORATION,
(ii) THE CORPORATION WILL HAVE THE RIGHT TO REDEEM THE STOCK PROPOSED TO BE
TRANSFERRED AND (iii) THE STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY
CONVERTED INTO AND EXCHANGED FOR EXCESS STOCK (HAVING NO DIVIDEND OR VOTING
RIGHTS), WHICH WILL BE HELD IN TRUST BY THE CORPORATION. ALL TERMS NOT OTHERWISE
DEFINED IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE
CORPORATION, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON OWNERSHIP AND
TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH STOCKHOLDER WHO DIRECTS A REQUEST
TO THE SECRETARY OF THE CORPORATION AT THE CORPORATION'S ADDRESS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ----------------------------------------
JT TEN -- as joint tenants with right of (Cus) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common
Act
----------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
| |
---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
--------------
X ----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:----------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
DRAFT
[BSAI LETTERHEAD]
FILE NUMBER
866604
June , 1998
Monarch Properties, Inc.
8889 Pelican Bay Boulevard, Suite 501
Naples, Florida 34108
Re: Monarch Properties, Inc.
Registration Statement on Form S-11
(Registration No. 333- )
-------------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Monarch Properties, Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of up to ________ shares (including
an option to purchase up to an additional ________ shares) (the "Shares") of
common stock, $.01 par value per share, of the Company ("Common Stock"), as
described in the above-referenced Registration Statement, under the Securities
Act of 1933, as amended (the "1933 Act"). Capitalized terms used but not defined
herein shall have the meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement, including the related form of prospectus
included therein, in the form in which it was transmitted to the Commission
under the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of the date hereof by an
officer of the Company;
<PAGE>
Monarch Properties, Inc.
June , 1998
Page 2
4. Resolutions adopted by the Board of Directors, or a duly
authorized committee thereof, of the Company relating to the authorization,
sale, issuance and registration of the Shares (the "Resolutions"), certified as
of the date hereof by an officer of the Company;
5. A certificate of the SDAT, as of a recent date, as to the
good standing of the Company;
6. A certificate executed by an officer of the Company, dated
the date hereof;
7. The form of certificate representing a share of Common
Stock, certified as of the date hereof by an officer of the Company; and
8. Such other documents and matters as we have deemed
necessary or appropriate to express the opinion set forth in this letter,
subject to the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed,
and so far as is known to us there are no facts inconsistent with, the
following:
1. Each of the parties (other than the Company) executing any
of the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations set
forth therein are legal, valid and binding and are enforceable in accordance
with all stated terms.
2. Each individual executing any of the Documents on behalf of
a party (other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on
behalf of such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic.
The form and content of the Documents submitted to us as unexecuted drafts do
not differ in any respect relevant to this opinion from the form and content of
such Documents as executed and delivered. All Documents submitted to us as
certified or photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records reviewed or
relied upon by us or on our behalf
<PAGE>
Monarch Properties, Inc.
June , 1998
Page 3
are true and complete. All statements and information contained in the Documents
are true and complete. There has been no oral or written modification or
amendment to any of the Documents, and there has been no waiver of any provision
of any of the Documents, by action or omission of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing
under and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
2. The Shares have been duly authorized and, when and if
issued in accordance with the Resolutions, will be duly and validly issued,
fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of
the State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to compliance with the securities (or "blue
sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for your submission to
the Commission as an exhibit to the Registration Statement and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other person
or entity (other than LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to the
Company) without, in each instance, our prior written consent.
<PAGE>
Monarch Properties, Inc.
June , 1998
Page 4
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our firm in the
section entitled "Legal Matters" in the Registration Statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
[LETTERHEAD LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.]
June ___, 1998
Monarch Properties, Inc.
8889 Pelican Bay Boulevard
Suite 501
Naples, Florida 34108
Ladies and Gentlemen:
We have acted as tax counsel to Monarch Properties, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of a
Form S-11 registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission on April 27, 1998 (No. 333-51127) with
respect to the offering and sale (the "Offering") of up to ____________ shares
of common stock, par value $0.001 per share, of the Company (the "Common
Stock"). You have requested our opinion regarding certain U.S. Federal income
tax matters in connection with the Offering.
In giving this opinion letter, we have examined (i) the
Company's Articles of Incorporation, as duly filed with the Secretary of State
of Maryland on February 20, 1998; (ii) the Company's Articles of Amendment and
Restatement, a form of which is filed as an exhibit to the Registration
Statement; (iii) the Company's Bylaws; (iv) the Registration Statement,
including the prospectus contained as part of the Registration Statement (the
"Prospectus"); and such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have
assumed, that (i) each of the documents referred to above has been duly
authorized, executed, and delivered; (ii) each of the documents referred to
above is authentic, if an original, or is accurate, if a copy, and has not been
amended; (iii) during its taxable year ending December 31, 1998, and future
taxable years, the Company will operate in a manner consistent with the
representations contained in the certificate, dated June 1998 and executed by a
duly appointed officer of the Company (the "Officer's Certificate"); (iv) the
Company will not make any amendments to its organizational documents after the
date of this opinion that
<PAGE>
would affect its qualification as a real estate investment trust (a "REIT") for
any taxable year; and (v) no action will be taken by the Company, after the date
hereof, that would have the effect of altering the facts upon which we have
based the opinions set forth below.
In connection with the opinions rendered below, we also have
relied upon the correctness of the representations contained in the Officer's
Certificate. No facts have come to our attention, however, that would cause us
to question the accuracy and completeness of the facts contained in the
documents and assumptions set forth above, the representations set forth in the
Officer's Certificate, or the Prospectus in a material way.
Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussion in
the Prospectus under the caption "Federal Income Tax Consequences" (which is
incorporated herein by reference), we are of the opinion that:
(a) Commencing with the Company's taxable year ending December 31,
1998, the Company will be organized in conformity with the requirements for
qualification as a REIT pursuant to sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code"), and its proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT under the Code.
(b) Subject to the conditions and qualifications contained therein, the
descriptions of the law and the legal conclusions contained in the Prospectus
under the caption "Federal Income Tax Consequences" are correct in all material
respects, and the discussion therein fairly summarizes the Federal income tax
consequences that are likely to be material to a holder of the Common Stock.
We will not review on a continuing basis the Company's
compliance with the documents or assumptions set forth above, or the
representations set forth in the Officer's Certificate. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any given taxable year will satisfy the requirements for qualification and
taxation as a REIT.
We note that our opinion expressed herein is based on our
examination of the law, our review of the documents described above, the
statements and representations referred to above, the provisions of the Code,
the Treasury regulations, published rulings and announcements thereunder, and
the judicial interpretations thereof currently in effect. This opinion will not
be binding on the Internal Revenue Service (the "Service"), and there can be no
assurance that the Service will not challenge the conclusion stated herein or
that, if the issue were decided in court, such a challenge would not ultimately
succeed. Further,
<PAGE>
there can be no assurance that future legislative or administrative changes or
future court decisions or the inaccuracy of any statements or representations on
which we have relied may not significantly affect the continuing validity of
this opinion.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the references to LeBoeuf,
Lamb, Greene & MacRae, L.L.P. under the caption "Federal Income Tax
Consequences" in the Prospectus. In giving this consent, we do not admit that we
are in the category of persons whose consent is required by Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
The foregoing opinion is limited to the U.S. Federal income
tax matters addressed herein, and no other opinions are rendered with respect to
other Federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinion expressed herein after the date of this letter.
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
AGREEMENT OF LIMITED PARTNERSHIP
OF
MONARCH PROPERTIES, LP
AS OF APRIL 17, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTORY STATEMENT..................................................................................1
ARTICLE 1. DEFINED TERMS.........................................................................1
ARTICLE 2. ORGANIZATIONAL MATTERS...............................................................13
Section 2.1. Formation...................................................................13
Section 2.2. Name........................................................................14
Section 2.3. Registered Office and Agent; Principal Office...............................14
Section 2.4. Term........................................................................14
ARTICLE 3. PURPOSE..............................................................................14
Section 3.1. Purpose and Business........................................................14
Section 3.2. Powers......................................................................15
Section 3.3. Representations and Warranties by the Parties...............................15
ARTICLE 4. CAPITAL CONTRIBUTIONS................................................................16
Section 4.1. Capital Contributions of the Partners.......................................16
Section 4.2. Issuances of Additional Partnership Interests...............................17
Section 4.3. Additional Funds and Capital Contributions..................................19
Section 4.4. Stock Plans.................................................................21
Section 4.5. No Preemptive Rights........................................................22
Section 4.6. Other Contribution Provisions...............................................22
ARTICLE 5. DISTRIBUTIONS........................................................................22
Section 5.1. Requirement and Characterization of Distributions...........................22
Section 5.2. Amounts Withheld............................................................23
Section 5.3. Distributions Upon Liquidation..............................................23
Section 5.4. Revisions to Reflect Issuance of Additional Partnership Interests...........23
ARTICLE 6. ALLOCATIONS..........................................................................23
Section 6.1. Allocations For Capital Account Purposes....................................23
Section 6.2. Revisions to Allocations to Reflect Issuance of Partnership Interests.......24
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS................................................24
Section 7.1. Management..................................................................24
Section 7.2. Certificate of Limited Partnership..........................................28
Section 7.3. Restrictions on General Partner Authority...................................29
Section 7.4. Reimbursement of the General Partner and the Company........................29
Section 7.5. Outside Activities of the General Partner...................................30
Section 7.6. Contracts with Affiliates...................................................31
Section 7.7. Indemnification.............................................................31
Section 7.8. Liability of the General Partner............................................33
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Section 7.9. Other Matters Concerning the General Partner................................34
Section 7.10. Title to Partnership Assets.................................................34
Section 7.11. Reliance by Third Parties...................................................35
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...........................................35
Section 8.1. Limitation of Liability.....................................................35
Section 8.2. Management of Business......................................................35
Section 8.3. Outside Activities of Limited Partners......................................36
Section 8.4. Return of Capital...........................................................36
Section 8.5. Rights of Limited Partners Relating to the Partnership......................36
Section 8.6. Conversion Right............................................................37
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS...............................................38
Section 9.1. Records and Accounting......................................................38
Section 9.2. Fiscal Year.................................................................39
Section 9.3. Reports.....................................................................39
ARTICLE 10. TAX MATTERS...............................................................................39
Section 10.1. Preparation of Tax Returns..................................................39
Section 10.2. Tax Elections...............................................................39
Section 10.3. Tax Matters Partner.........................................................40
Section 10.4. Organizational Expenses.....................................................41
Section 10.5. Withholding.................................................................41
ARTICLE 11. TRANSFERS AND WITHDRAWALS.................................................................42
Section 11.1. Transfer....................................................................42
Section 11.2. Transfer of the Partnership Interests of General Partner and MP:
Extraordinary Transactions..................................................43
--------------------------
Section 11.3. Limited Partners' Rights to Transfer........................................45
------------------------------------
Section 11.4. Substituted Limited Partners................................................47
----------------------------
Section 11.5. Assignees...................................................................47
---------
Section 11.6. General Provisions..........................................................48
------------------
ARTICLE 12. ADMISSION OF PARTNERS.....................................................................49
Section 12.1. Admission of Successor General Partner......................................49
Section 12.2. Admission of Additional Limited Partners....................................49
Section 12.3. Amendment of Agreement and Certificate of Limited Partnership...............50
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION..................................................50
Section 13.1. Dissolution.................................................................50
Section 13.2. Winding Up..................................................................51
Section 13.3. Compliance with Timing Requirements of Regulations..........................52
Section 13.4. Deemed Distribution and Recontribution......................................53
Section 13.5. Rights of Limited Partners..................................................53
Section 13.6. Notice of Dissolution.......................................................53
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Section 13.7. Termination of Partnership and Cancellation of Certificate of Limited
Partnership.................................................................53
Section 13.8. Reasonable Time for Winding-Up..............................................53
Section 13.9. Waiver of Partition.........................................................54
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..............................................54
Section 14.1. Amendments..................................................................54
Section 14.2. Meetings of the Partners....................................................55
ARTICLE 15. GENERAL PROVISIONS........................................................................56
Section 15.1. Addresses and Notice.......................................................56
Section 15.2. Titles and Captions........................................................56
Section 15.3. Pronouns and Plurals.......................................................57
Section 15.4. Further Action.............................................................57
Section 15.5. Binding Effect.............................................................57
Section 15.6. Creditors..................................................................57
Section 15.7. Waiver.....................................................................57
Section 15.8. Counterparts...............................................................57
Section 15.9. Applicable Law.............................................................57
Section 15.10. Invalidity of Provisions...................................................58
Section 15.11. Power of Attorney..........................................................58
Section 15.12. Entire Agreement...........................................................59
</TABLE>
EXHIBITS
Exhibit A - Partner Contributions and Partnership Interests
Exhibit B - Capital Account Maintenance
Exhibit C - Special Allocation Rules
Exhibit D - Notice of Conversion
Exhibit E - Value of Contributed Property
Exhibit F - Recourse Debt Level Schedule
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<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
MONARCH PROPERTIES, LP
THIS AGREEMENT OF LIMITED PARTNERSHIP OF MONARCH PROPERTIES, L.P. (this
"Agreement"), dated as of __________ ___, 1998, is entered into among MP
OPERATING INC., a Delaware corporation ("General Partner"), as General Partner
of the Partnership, MP PROPERTIES LP, INC., a Delaware corporation ("MP"), a
Limited Partner, and the Persons whose names are set forth on Exhibit A hereto,
as Limited Partners, together with any other Persons who become Partners in the
Partnership as provided herein.
INTRODUCTORY STATEMENT
General Partner and MP are wholly owned subsidiaries of Monarch
Properties, Inc. (the "Company"), a Maryland corporation, which was formed to
make equity and mortgage investments in healthcare-related real estate and
expects to qualify as a real estate investment trust for federal income tax
purposes. General Partner and MP desire to form this limited partnership (the
"Partnership") to transact the business of the Company and to own certain
properties of the Company.
General Partner shall be the sole general partner of the Partnership.
MP shall be, initially, the sole limited partner. The initial capital
contribution of MP to the Partnership shall consist of the proceeds of the
initial public offering of the shares of the Company, and the initial capital
contribution of the General Partner shall consist of a cash contribution.
The Certificate of Limited Partnership of the Partnership was filed in
the Office of the Secretary of State of Delaware on April 17, 1998. General
Partner and MP desire to enter into this Agreement to organize the Partnership
as more particularly set forth below.
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1. DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Funds" has the meaning set forth in Section 4.3(a).
<PAGE>
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Sections 4.2 and 12.2 hereof and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership taxable year (a) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and (b) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership taxable year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof.
"Affiliate" means, with respect to any Person, (a) any Person directly
or indirectly controlling, controlled by or under common control with such
Person; (b) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (c) any Person of which such Person
owns or controls ten percent (10%) or more of the voting interests; or (d) any
officer, director, general partner or trustee of such Person or of any Person
referred to in clauses (a), (b), and (c) above. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreed Value" means (a) in the case of any Contributed Property as of
the time of its contribution to the Partnership, the 704(c) Value of such
property, reduced by any liabilities either assumed by the Partnership upon such
contribution or to which such property is subject when contributed, and (b) in
the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder. The Agreed Value of each Contributed Property contributed or deemed
contributed by each Partner as of the date hereof is as set forth in Exhibit E.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
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<PAGE>
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may be)
for such period (without regard to adjustments resulting from
allocations described in Sections 1.1 through 1.5 of Exhibit
C);
(b) Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the Partnership
referred to in clause (ii)(f) below (including, without
limitation, reductions resulting because the General Partner
determines such amounts are no longer necessary);
(d) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, or refinancing of Partnership property
for such period over the gain recognized from such sale,
exchange, disposition, or refinancing during such period
(excluding Terminating Capital Transactions); and
(e) all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss
for such period (excluding the proceeds of any Capital
Contribution);
(ii) less the sum of (except to the extent made with the proceeds of any Capital
Contribution):
(a) all principal debt payments made by the Partnership during
such period;
(b) capital expenditures made by the Partnership during such
period;
(c) investments made by the Partnership during such period in any
entity (including loans made thereto) to the extent that such
investments are not otherwise described in clause (ii)(a) or
(ii)(b);
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss for
such period that was not received or disbursed by the
Partnership during such period;
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<PAGE>
(f) the amount of any increase in reserves during such period
which the General Partner determines to be necessary or
appropriate in its sole and absolute discretion; and
(g) the amount of any working capital accounts and other cash or
similar balances which the General Partner determines to be
necessary or appropriate, in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereto. The initial Capital Account balance for each
Partner who is a Partner on the Effective Date shall be the amount set forth
opposite such Partner's name on Exhibit A hereto and shall be equal to the
initial Capital Contribution of the Partner.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1, 4.2 or 4.3 hereof.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts
following the contribution of or adjustment with respect to such Property; and
(b) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereof, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
-4-
<PAGE>
"Certificate of Incorporation" means the Articles of Incorporation or
other organizational document governing the Company, as amended or restated from
time to time.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership relating to the Partnership to be filed in the office of the
Delaware Secretary of State, as amended from time to time in accordance with the
terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time or any successor statute, as interpreted by the
applicable regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Company" means Monarch Properties, Inc., a Maryland corporation.
"Company Loans" has the meaning set forth in Section 4.3(d).
"Consent" means the consent or approval of or vote in favor of a
proposed action by a Partner given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Act, but excluding cash contributed or deemed
contributed to the Partnership. Once the Carrying Value of a Contributed
Property is adjusted pursuant to Exhibit B hereof, such property shall no longer
constitute a Contributed Property for purposes of Exhibit B hereof, but shall be
deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0, provided that in the event that
(a) the Company (i) declares or pays a dividend on its outstanding REIT
Shares in REIT Shares or makes a distribution to all holders of its outstanding
REIT Shares in REIT Shares; (ii) splits or subdivides its outstanding REIT
Shares; or (iii) effects a reverse stock split or otherwise combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination;
(b) the Company distributes any rights, options or warrants to all
holders of its REIT Shares to subscribe for or to purchase or to otherwise
acquire REIT Shares (or other securities or rights convertible into,
exchangeable for or exercisable for REIT Shares) at a price per share less than
the Value of a REIT Share on the record date for such distribution (each a
"Distributed Right"), then the Conversion Factor shall be adjusted by
multiplying the Conversion Factor previously in effect by a fraction (i) the
numerator of which shall be the number of REIT Shares
-5-
<PAGE>
issued and outstanding on the record date plus the maximum number of REIT Shares
purchasable under such Distributed Rights and (ii) the denominator of which
shall be the number of REIT Shares issued and outstanding on the record date
plus a fraction (A) the numerator of which is the maximum number of REIT Shares
purchasable under such Distributed Rights times the minimum purchase price per
REIT Share under such Distributed Rights and (B) the denominator of which is the
Value of a REIT Share as of the record date; provided, however, that, if any
such Distributed Rights expire or become no longer exercisable, then the
Conversion Factor shall be adjusted, effective retroactive to the date of
distribution of the Distributed Rights, to reflect a reduced maximum number of
REIT Shares or any change in the minimum purchase price for the purposes of the
above fraction; and
(c) the Company shall, by dividend or otherwise, distribute to all
holders of its REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by the Company pursuant to a pro rata distribution by the Partnership,
then the Conversion Factor shall be adjusted to equal the amount determined by
multiplying the Conversion Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction (i) the numerator of which shall be such Value
of a REIT Share on the date fixed for such determination and (ii) the
denominator of which shall be the Value of a REIT Share on the dates fixed for
such determination less the then fair market value (as determined by the General
Partner, whose determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed applicable to one REIT Share.
Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event (provided, however, if a Notice of Conversion is
given prior to such a record date and the Specified Conversion Date is after
such a record date, then the adjustment to the Conversion Factor shall, with
respect to such Converting Partner, be retroactive to the date of such Notice of
Conversion). It is intended that adjustments to the Conversion Factor are to be
made in order to avoid unintended dilution or anti-dilution as a result of
transactions in which REIT Shares are issued, redeemed or exchanged without a
corresponding issuance, redemption or exchange of Partnership Units.
"Conversion Right" has the meaning set forth in Section 8.6.
"Converting Partner" has the meaning set forth in Section 8.6.
"Convertible Partnership Units" means Partnership Units which are
convertible into REIT Shares pursuant to Section 8.6 hereof.
"Debt" means, as to any Person, as of any date of determination, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
-6-
<PAGE>
performance of obligations by such Person; (c) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (d) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"Depreciation" means, for each taxable year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Distributed Right" has the meaning set forth in the definition of
"Conversion Factor."
"Effective Date" means the date of closing the initial issuance of
Partnership Units by the Partnership.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exempt Transaction" has the meaning set forth in Section 8.7 hereof.
"Extraordinary Transaction" means, with respect to the Company, the
occurrence of one or more of the following events: (a) a merger (including a
triangular merger), consolidation or other combination with or into another
Person; (b) the direct or indirect sale, lease, exchange or other transfer of
all or substantially all of its assets in one transaction or a series of
transactions; (c) any reclassification, recapitalization or change of its
outstanding equity interests (other than a change in par value, or from par
value to no par value, or as a result of a split, dividend or similar
subdivision); (d) any issuance of equity securities of the Company in exchange
for assets (other than an issuance of securities for cash or an issuance of
securities pursuant to an employee benefit plan); or (e) the adoption of any
plan of liquidation or dissolution of the Company (whether or not in compliance
with the provisions of this Agreement).
"Funding Debt" means any Debt incurred by or on behalf of the General
Partner for the purpose of providing funds to the Partnership.
"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of Partnership Units.
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<PAGE>
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers, and
sisters.
"Incapacity" or "Incapacitated" means, (a) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his or her Person or estate;
(b) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (c) as to any partnership or limited liability company which is a
Partner, the dissolution and commencement of winding up of the partnership or
limited liability company; (d) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (e) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (f) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (i) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (ii) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (iii) the
Partner executes and delivers a general assignment for the benefit of the
Partner's creditors; (iv) the Partner files an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against the Partner in any proceeding of the nature described in clause (ii)
above; (v) the Partner seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator for the Partner or for all or any substantial
part of the Partner's properties; (vi) any proceeding seeking liquidation,
reorganization or other relief of or against such Partner under any bankruptcy,
insolvency or other similar law now or hereafter in effect has not been
dismissed within one hundred twenty (120) days after the commencement thereof;
(vii) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment; or (viii) an appointment referred to in clause
(vii) which has been stayed is not vacated within ninety (90) days after the
expiration of any such stay.
"Indemnitee" means (a) the Company, any Person made a party to a
proceeding by reason of his status as the General Partner, a Limited Partner, or
as a partner, shareholder, member, manager, director, officer or employee of the
Company, the Partnership, the General Partner, or his or its liabilities,
pursuant to a loan guarantee or otherwise, for any indebtedness of the
Partnership or any Subsidiary of the Partnership (including, without limitation,
any indebtedness which the Partnership or any Subsidiary of the Partnership has
assumed or taken assets subject to); and (b) such other Persons (including
Affiliates of the General Partner, a Limited Partner or the Partnership) as the
General Partner may designate from time to time (whether before or after the
event giving rise to potential liability), in its sole and absolute discretion.
"Limited Partner" means any Person (including MP) named as a Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited
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Partner or Additional Limited Partner, in such Person's capacity as a Limited
Partner of the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled, as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partnership Interest may be
expressed as a number of Partnership Units.
"Limited Partner Recourse Debt Percentage" means with respect to
certain of the Limited Partners the percentage listed with respect to such
Limited Partner on the recourse debt level schedule attached hereto as Exhibit
F.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Lyric" means Lyric Health Care Holdings III, Inc., a Delaware
corporation.
"Master Lease" means that certain Master Lease, dated as of the
Effective Date, of certain properties owned by the Partnership, between the
Partnership and Lyric.
"Monarch REIT Group" means the Company, the General Partner, MP and any
wholly owned Subsidiaries of the Company, MP or the General Partner.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
"New Securities" means (a) any rights, options, warrants or convertible
or exchangeable securities having the right to subscribe for or purchase REIT
Shares, or (b) any Debt issued by the General Partner that provides any of the
rights described in clause (a).
"Non-convertible Partnership Units" means Partnership Units which may
not be converted into REIT Shares pursuant to Section 8.6 hereof.
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"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.2 of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Conversion" means the Notice of Conversion substantially in
the form of Exhibit D to this Agreement.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, as it may be amended and/or restated, and any
successor to such limited partnership.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
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"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall be the same as the record date established by
the Company for a distribution to its shareholders of some of all of its portion
of such distribution.
"Partnership Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of Partnership Units outstanding and the Percentage Interest in
the Partnership represented by such Units are set forth in Exhibit A hereto, as
such Exhibit may be amended from time to time. The ownership of Partnership
Units shall be evidenced by such form of certificate for units as the General
Partner adopts from time to time unless the General Partner determines that the
Partnership Units shall be uncertificated securities.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.
"Person" means an individual or a corporation, limited liability
company, partnership, trust, unincorporated organization, association or other
entity.
"Publicly Traded" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on The Nasdaq Stock Market, Inc. National
Market, or any successor to any of the foregoing.
"Qualified REIT Subsidiary" means any Subsidiary of the Company that is
a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code.
"Recapture Income" means any gain recognized by the Partnership upon
the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Share" means a share of common stock, par value $.01 per share,
of the Company.
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"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a
Converting Partner, multiplied by the Conversion Factor in effect on the date of
receipt by the General Partner of a Notice of Conversion, provided that in the
event the Company issues to all holders of REIT Shares rights, options, warrants
or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, "Rights"), and the Rights have not expired at the Specified
Conversion Date, then the REIT Shares Amount shall also include the Rights that
were issuable to a holder of the REIT Shares Amount of REIT Shares on the
applicable record date relating to the issuance of such Rights.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.2.A.(1) or 2.2.B.(1)(a) of Exhibit C hereto to eliminate
Book-Tax Disparities.
"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."
"Safe Harbor" has the meaning set forth in Section 11.1(g).
"704(c) Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution, as
determined by the General Partner using such reasonable method of valuation as
it may adopt; provided, however, that the 704(c) Value of any property deemed
contributed to the Partnership for federal income tax purposes upon termination
and reconstitution thereof pursuant to Section 708 of the Code shall be
determined in accordance with Exhibit B hereto. Subject to Exhibit B hereto, the
General Partner shall, in its sole and absolute discretion, use such method as
it deems reasonable and appropriate to allocate the aggregate of the 704(c)
Values of Contributed Properties in a single or integrated transaction among the
separate properties on a basis proportional to their respective fair market
values. The 704(c) Values of the Contributed Properties contributed to the
Partnership as of the Effective Date are set forth on Exhibit E hereto.
"Services Agreement" means any management, development or advisory
agreement with a property and/or asset for the provision of property management,
asset management, leasing, development and/or similar services with respect to
the properties and any agreement for the provision of services of accountants,
legal counsel, appraisers, insurers, brokers, transfer agents, registrars,
developers, financial advisors and other professional services.
"Specified Conversion Date" means the tenth (10th) Business Day after
receipt by the Company of a Notice of Conversion; provided that if the Company
combines its outstanding REIT Shares, no Specified Conversion Date shall occur
after the record date of such combination of REIT Shares and prior to the
effective date of such combination.
"Stock Plan" means the 1998 Omnibus Securities and Incentive Plan of
the Company, as amended from time to time, or any other stock incentive plan
adopted by the Company.
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"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (a) the voting power of the
voting equity securities; or (b) the outstanding equity interests, is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property (as determined in Section 4.1(e) hereto) as of
such date; over (b) the Carrying Value of such property (prior to any adjustment
to be made pursuant to Exhibit B hereto) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit B
hereto) as of such date; over (b) the fair market value of such property (as
determined in Section 4.1(e) hereto) as of such date.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Conversion or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to any outstanding REIT Shares that are
Publicly Traded, the average of the daily market price for the ten consecutive
trading days immediately preceding the date with respect to which value must be
determined. The market price for each such trading day shall be the closing
price, regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day. If the outstanding REIT
Shares are Publicly Traded and the REIT Shares Amount includes rights that a
holder of Shares would be entitled to receive, then the Value of such rights
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate.
ARTICLE 2. ORGANIZATIONAL MATTERS
Section 2.1. Formation
The Partnership is a limited partnership organized pursuant to the
provisions of the Act. The Partners hereby agree to form and operate the
Partnership upon the terms and conditions set forth in this Agreement. Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
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Section 2.2. Name
The name of the Partnership is "Monarch Properties, LP" The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "LP," "Ltd." or similar
words or letters shall be included in the Partnership's name where necessary for
the purposes of complying with the laws of any jurisdiction that so requires.
The General Partner in its sole and absolute discretion may change the name of
the Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
Section 2.3. Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is the Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The principal office of the Partnership shall be 8889 Pelican
Bay Boulevard, Suite 501, Naples, Florida 34108, or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4. Term
The term of the Partnership will commence on the date on which the
Certificate of Limited Partnership is filed in the office of the Secretary of
State of the State of Delaware, and shall continue until December 31, 2098,
unless the Partnership is dissolved sooner pursuant to the provisions of Article
13 or as otherwise provided by law.
ARTICLE 3. PURPOSE
Section 3.1. Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (a) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
Company at all times to be classified as a REIT, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Partnership; (b) to enter into any partnership, joint venture, limited liability
company or other similar arrangement to engage in any of the foregoing or to own
interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (c) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the Company's right, in its
sole discretion, to cease qualifying as a REIT, the Partners acknowledge the
Company's current status as a REIT inures to the benefit of all of the Partners
and not solely the General Partner.
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Section 3.2. Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (a) could adversely affect the ability of the Company to
continue to qualify as a REIT or could result in any adverse federal, state or
local income tax consequences to the Company or the Partnership; (b) could
subject the Company to any additional taxes under Section 857 or Section 4981 of
the Code; or (c) could violate any law or regulation of any governmental body or
agency having jurisdiction over the Company or its securities, unless such
action (or inaction) shall have been specifically consented to by the General
Partner in writing.
Section 3.3. Representations and Warranties by the Parties
(a) Each Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner) represents and
warrants to each other Partner(s) that (i) all transactions contemplated by this
Agreement to be performed by it have been duly authorized by all necessary
action, including, without limitation, that of its general partner(s),
committee(s), trustee(s), beneficiaries, directors and/or shareholder(s), as the
case may be, as required, (ii) the consummation of such transactions shall not
result in a breach or violation of, or a default under, its partnership or
operating agreement, trust agreement, articles, charter or bylaws, as the case
may be, any material agreement by which such Partner or any of such Partner's
properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or are bound, or any statute, regulation,
order or other law to which such Partner or any of its partners, members,
trustees, beneficiaries or shareholders, as the case may be, is or are subject,
(iii) subject to the last sentence of this Section 3.3(a), such Partner is
neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign person" within the meaning of Code Section 1445(f) nor a "foreign
partner" within the meaning of Code Section 1446(e), (iv) such Partner does not
own, directly or indirectly, (A) ten percent (10%) or more of the total combined
voting power of all classes of stock entitled to vote, or ten percent (10%) or
more of the total number of shares of all classes of stock, of any corporation
that is a tenant of either (1) the Company or any Qualified REIT Subsidiary, (2)
the Partnership or (3) any partnership, venture or limited liability company for
which the Company, any Qualified REIT Subsidiary or the Partnership is a member
or (B) an interest of ten percent (10%) or more in the assets of any tenant of
either (1) the Company or any Qualified REIT Subsidiary, (2) the Partnership or
(3) any partnership, venture or limited liability company for which the Company,
any Qualified REIT Subsidiary or the Partnership is a member and (v) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms. Notwithstanding anything contained herein to the contrary,
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in the event that the representation contained in clause (iii) foregoing would
be inaccurate if given by a Partner, such Partner (w) shall not be required to
make and shall not be deemed to have made such representation, (x) shall deliver
to the General Partner in connection with or prior to its execution of this
Agreement written notice that it may not truthfully make such representation,
(y) hereby agrees that it is subject to, and hereby authorizes the General
Partner to withhold, all withholdings to which such a "foreign person" or
"foreign partner", as applicable, is subject under the Code and (z) hereby
agrees to cooperate fully with the General Partner with respect to such
withholdings, including by effecting the timely completion and delivery to the
General Partner of all internal revenue forms required in connection therewith.
(b) Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner)
represents, warrants and agrees that it has acquired and continues to hold its
interest in the Partnership for its own account for investment purposes only and
not for the purpose of, or with a view toward, the resale or distribution of all
or any part thereof, and not with a view toward selling or otherwise
distributing such interest or any part thereof at any particular time or under
any predetermined circumstances. Each Partner further represents and warrants
that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds that it has invested in the Partnership in what
it understands to be a highly speculative and illiquid investment.
(c) The representations and warranties contained in Sections 3.3(a) and
3.3(b) hereto shall survive the execution and delivery of this Agreement by each
Partner (and, in the case of an Additional Limited Partner or a Substituted
Limited Partner, the admission of such Additional Limited Partner or Substituted
Limited Partner as a Limited Partner in the Partnership) and the dissolution,
liquidation and termination of the Partnership.
(d) Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner) hereby
acknowledges that no representations as to potential profit, cash flows, funds
from operations or yield, if any, in respect of the Partnership or the General
Partner have been made by any Partner or any employee or representative or
Affiliate of any Partner, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, that may have been in any manner submitted to such Partner shall
not constitute any representation or warranty of any kind or nature, express or
implied.
ARTICLE 4. CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners
(a) Initial Capital Contributions of the Partnership on the Effective
Date. On the Effective Date, the General Partner and the other Persons listed on
Exhibit A will make Capital Contributions to the Partnership as set forth
therein. On the Effective Date, the General Partner will complete Exhibit A to
reflect the Capital Contributions made by each Partner, the Partnership Units
assigned to each Partner and the Percentage Interest in the Partnership
represented by such
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Partnership Units. The Capital Accounts of the Partners and the Carrying Values
of the Partnership's Assets shall be determined as of the Effective Date
pursuant to Section I.D of Exhibit B hereto to reflect the Capital Contributions
made on the Effective Date.
(b) Partnerships Units and Percentage Interests. Each Partner shall own
the number of Partnership Units set forth for such Partner in Exhibit A and
shall have a Percentage Interest in the Partnership as set forth in Exhibit A,
which Percentage Interest shall be adjusted in Exhibit A from time to time by
the General Partner to the extent necessary to reflect accurately redemptions,
additional Capital Contributions, the issuance of additional Partnership Units
(pursuant to any merger or otherwise), or similar events having an effect on any
Partner's Percentage Interest. The number of Partnership Units held by the
General Partner (equal to one percent (1%) of all outstanding Partnership Units
from time to time) shall be deemed to be the General Partnership Interest.
(c) Capital Contributions by Merger. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in Exhibit A, as amended to reflect such deemed Capital
Contributions.
(d) No Additional Obligations. Except as provided elsewhere in this
Agreement, the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership.
(e) Method of Determining Fair Market Value of the Partnership; Value
of a Partnership Unit. For purposes of this Agreement, the fair market value of
the Partnership shall be determined by dividing the Value of all outstanding
REIT Shares as of the date of determination by the total Percentage Interests of
the General Partner and MP as of such date. The value of a Partnership Unit
shall be determined by dividing the fair market value of the Partnership as of
the date of determination by the total number of Partnership Units issued as of
such date.
Section 4.2. Issuances of Additional Partnership Interests
(a) General. The General Partner is hereby authorized to cause the
Partnership to issue additional Partnership Interests, in the form of
Partnership Units (which may be Convertible Partnership Units or Non-Convertible
Partnership Units) for any Partnership purpose, at any time or from time to
time, to the Partners (including the General Partner and MP) or to other Persons
(including the Company) and to admit such Persons as Additional Limited
Partners, for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Without limiting the foregoing,
the General Partner is expressly authorized to cause the Partnership to issue
Partnership Units (i) upon the conversion, redemption or exchange of any
indebtedness, Partnership Units or other securities issued by the Partnership,
and (ii) in connection with any
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merger of any other Person into the Partnership if the applicable merger
agreement provides that Persons are to receive Partnership Units in exchange for
their interests in the Person merging into the Partnership. The number of
Partnership Units issued to any Additional Limited Partner shall be equal to the
number of REIT Shares that could be purchased with an amount equal to the value
of such Partner's Capital Contribution on the date of admission of such
Additional Limited Partner, using the definition of Value set forth in this
Agreement to determine the value of a REIT Share as of the date of admission.
The number of Partnership Units issued to the Additional Limited Partner shall
equal, also, the quotient of such Partner's Capital Contribution divided by the
value of a Partnership Unit (as determined pursuant to Section 4.1(e)) after
such Additional Limited Partner's Capital Contribution has been made. For the
avoidance of doubt, the purpose of the calculations in the two preceding
sentences are to determine the current fair market value of the Partnership (as
described in Section 4.1(e) hereof) when additional Partnership Units are issued
so that the admission of new Partners does not unfairly increase or decrease the
value of Partnership Units or the Percentage Interests of existing Partners.
Upon the issuance of additional Partnership Units (i) the difference between (A)
the number of Partnership Units equal to 1% of all Partnership Units immediately
following the issuance of the additional Partnership Units, and (B) the number
of Partnership Units held by the General Partner immediately prior to the
issuance of the additional Partnership Units, and (ii) a corresponding
percentage of MP's capital contribution, shall be transferred automatically from
MP to the General Partner so that the General Partner holds 1% of the total
number of Partnership Units at all times. Following such issuance, the
Percentage Interest of MP shall be equal to a fraction, the numerator of which
is equal to the number of Partnership Units held by it (after the automatic
transfer of units to the General Partner described in the preceding sentence)
and the denominator of which is equal to the total number of Partnership Units
following such issuance. The Percentage Interest of each other Limited Partner
shall be equal to a fraction, the numerator of which is equal to the number of
Partnership Units held by it, and the denominator of which is equal to the total
number of Partnership Units following such issuance. The General Partner shall
be authorized on behalf of each of the Partners to amend this Agreement to
reflect the admission of any Additional Limited Partner, the increase in the
number of Partnership Units of the General Partner, and the decrease in the
number of Partnership Units of MP. The number of Partnership Units owned by the
Limited Partners (other than MP) and Assignees shall not be decreased in
connection with any admission of an Additional Limited Partner pursuant to this
Section 4.2.
(b) Issuances to the Company. No additional Partnership Units shall be
issued to the Company unless (i) the additional Partnership Interests are issued
to all Partners in proportion to their respective Percentage Interests, (ii) (A)
the additional Partnership Units are (1) Partnership Units issued in connection
with an issuance of REIT Shares, or (2) Partnership Units issued in connection
with an issuance of New Securities or other interests in the Company (other than
REIT Shares), which New Securities or other interests have designations,
preferences and other rights, terms and provisions that are substantially the
same as the designations, preferences and other rights, terms and provisions of
the additional Partnership Units issued to the Company, and (B) the General
Partner contributes to the Partnership the cash proceeds or other consideration
received in connection with the issuance of such REIT Shares, New Securities or
other interests in the Company or (iii) the additional Partnership Units are
issued upon the conversion,
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redemption or exchange of indebtedness, Partnership Units or other securities
issued by the Partnership pursuant to Section 8.6 or otherwise.
Section 4.3. Additional Funds and Capital Contributions.
(a) General. The General Partner may, at any time and from time to
time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition or development of additional Properties, for the
redemption of Partnership Units or for such other purposes as the General
Partner may determine in its sole and absolute discretion. Additional Funds may
be obtained by the Partnership, at the election of the General Partner, in any
manner provided in, and in accordance with, the terms of this Section 4.3
without the approval of any Limited Partners.
(b) Additional Capital Contributions. The General Partner, on behalf of
the Partnership, may obtain any Additional Funds by accepting Capital
Contributions from any Partners or other Persons. In connection with any such
Capital Contribution (of cash or property), the General Partner is hereby
authorized to cause the Partnership from time to time to issue additional
Partnership Units (as set forth in Section 4.2 above), in consideration therefor
and the Percentage Interests of the General Partner and the Limited Partners
shall be adjusted as provided in Section 4.3(f) to reflect the issuance of such
additional Partnership Units.
(c) Loans by Third Parties. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt to any Person upon such terms as the General Partner determines
appropriate, including making such Debt convertible, redeemable or exchangeable
for Partnership Units; provided, however, that the Partnership shall not incur
any such Debt if (i) a breach, violation or default of such Debt would be deemed
to occur by virtue of the transfer of any Partnership Interest, or (ii) such
Debt is recourse to any Partner (unless the Partner otherwise agrees).
(d) Company Loans. The General Partner, on behalf of the Partnership,
may obtain any Additional Funds by causing the Partnership to incur Debt with
the Company (each, a "Company Loan") if (i) such Debt is, to the extent
permitted by law, on substantially the same terms and conditions (including
interest rate, repayment schedule, and conversion, redemption, repurchase and
exchange rights) as Funding Debt incurred by the Company, the net proceeds of
which are loaned to the Partnership to provide such Additional Funds, or (ii)
such Debt is on terms and conditions no less favorable to the Partnership than
would be available to the Partnership from any third party; provided, however,
that the Partnership shall not incur any such Debt if (A) a breach, violation or
default of such Debt would be deemed to occur by virtue of the transfer of any
Partnership Interest, or (B) such Debt is recourse to any Partner (unless the
Partner otherwise agrees).
(e) Issuance of Securities by the Company. The Company shall not issue
any additional REIT Shares, New Securities, or other interests unless the
Company contributes the cash proceeds or other consideration received from the
issuance of such additional REIT Shares, New Securities, or other interests, as
the case may be, and from the exercise of the rights
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contained in any such additional New Securities, to the Partnership in exchange
for (i) in the case of an issuance of REIT Shares, Partnership Units, or (ii) in
the case of an issuance of New Securities or other interests, Partnership Units
with designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such New Securities or other interests; provided, however,
that notwithstanding the foregoing, the Company may issue REIT Shares, New
Securities or other interests (A) pursuant to Section 4.4 or Section 8.6 hereto,
(B) pursuant to a dividend or distribution (including any stock split) of REIT
Shares, New Securities or other interests to all of the holders of REIT Shares,
New Securities or other interests, as the case may be, (C) upon a conversion,
redemption, exchange or exercise of New Securities or (D) in connection with an
acquisition of a property or other asset to be owned, directly or indirectly, by
the Company if the General Partner determines that such acquisition is in the
best interests of the Partnership. In the event of any issuance of additional
REIT Shares, New Securities or other interests by the Company, and the
contribution to the Partnership, by the Company, of the cash proceeds or other
consideration received from such issuance, the Partnership shall pay the
Company's expenses associated with such issuance, including any underwriting
discounts or commissions.
(f) Adjustment of Percentage Interests. On the date that any Person not
a Partner contributes Additional Funds to the Partnership, such Person shall
become an Additional Limited Partner with Partnership Units and a Percentage
Interest calculated in accordance with Section 4.2 and the Percentage Interests
of the other Partners shall be adjusted as provided in Section 4.2. On the date
that any Partner contributes Additional Funds to the Partnership (each such
date, a "Contribution Date"), the contributing Partner shall receive a number of
additional Partnership Units equal to the number of REIT Shares that could be
purchased with an amount equal to the Additional Funds (or, if such Additional
Funds are in the form of Contributed Property, the Agreed Value of such
property) on the Contribution Date, using the definition of Value set forth in
this Agreement to determine the value of a REIT Share as of the Contribution
Date. The number of additional Partnership Units issued to the contributing
Partner shall equal, also, the quotient of the Additional Funds (or if such
Additional Funds are in the form of Contributed Property, the Agreed Value of
such property) divided by the value of a Partnership Unit (as determined
pursuant to Section 4.1(e)) after the Contribution Date. For the avoidance of
doubt, the purpose of the calculations in the preceding two sentences are to
determine the current fair market value to the Partnership (as described in
Section 4.1(e) hereof) when additional Partnership Units are issued so that the
issuance of additional Partnership Units does not unfairly increase or decrease
the value of Partnership Units or the Percentage Interests of the other
Partners. Upon the issuance of additional Partnership Units, (i) the difference
between (A) the number of Partnership Units equal to one percent (1%) of all
Partnership Units immediately following the issuance of the additional
Partnership Units, and (B) the number of Partnership Units held by the General
Partner immediately prior to the issuance of the additional Partnership Units,
and (ii) a corresponding percentage of MP's capital contribution, shall be
transferred automatically from MP to the General Partner so that the General
Partner holds one percent (1%) of all Partnership Units at all times. The
Percentage Interest of MP shall be equal to a fraction, the numerator of which
is equal to the number of Partnership Units held by it (after the automatic
transfer of units to the General Partner described in the preceding sentence)
and the denominator of which is equal to the total number of Partnership Units
following such issuance. The Percentage Interest of all other
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Limited Partners shall be equal to a fraction, the numerator of which is equal
to the number of Partnership Units held by it, and the denominator of which is
equal to the total number of Partnership Units following such issuance. The
General Partner shall be authorized on behalf of each of the Partners to amend
this Agreement to reflect the increase in the Partnership Units of the
contributing Partner and the General Partner, and the decrease in the number of
Partnership Units of MP. The number of Partnership Units owned by the Limited
Partners (other than MP) and Assignees shall not be decreased in connection with
any additional contribution of funds to the Partnership pursuant to this Section
4.3.
Section 4.4. Stock Plans.
(a) Grants of REIT Shares. If at any time or from time to time, in
connection with the Stock Plan, grants of REIT Shares are made:
(i) The Company shall, as soon as practicable after such
exercise, make a Capital Contribution to the Partnership in an amount
equal to the price (if any) paid to the Company by such party receiving
the grant of REIT Shares;
(ii) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.4(a)(i) hereto, the Company shall
be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional Limited Partnership
Interest (expressed in and as additional Partnership Units), an amount
equal to the Value of a REIT Share as of the date of exercise
multiplied by the number of REIT Shares then being issued to such
party; and
(iii) An equitable Percentage Interest adjustment shall be
made in which the Company shall be treated as having made a cash
contribution equal to the amount described in Section 4.4(a)(ii)
hereto.
(b) Exercise of Options. If at any time or from time to time, in
connection with the Stock Plan, a stock option granted is duly exercised:
(i) The Company shall, as soon as practicable after such
exercise, make a Capital Contribution to the Partnership in an amount
equal to the exercise price paid to the Company by such exercising
party in connection with the exercise of such stock option;
(ii) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.4(b)(i) hereto, the Company shall
be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional Limited Partnership
Interest (expressed in and as additional Partnership Units), an amount
equal to the Value of a REIT Share as of the date of exercise
multiplied by the number of REIT Shares then being issued in connection
with the exercise of such stock option; and
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(iii) An equitable Percentage Interest adjustment shall be
made in which the Company shall be treated as having made a cash
contribution equal to the amount described in Section 4.4(b)(ii)
hereto.
(c) Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the General Partner from adopting,
modifying or terminating stock incentive plans, in addition to the Stock Plan,
for the benefit of employees, directors or other business associates of the
Monarch REIT Group, the Partnership, subsidiaries of the Partnership, or any of
their Affiliates. The Limited Partners acknowledge and agree that, in the event
that any such plan is adopted, modified or terminated by the Company, amendments
to this Section 4.4 may become necessary or advisable, and that any approval or
consent to any such amendments requested by the General Partner shall not be
unreasonably withheld or delayed.
Section 4.5. No Preemptive Rights
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (a) additional Capital Contributions or loans to
the Partnership or (b) issuance or sale of any Partnership Units or other
Partnership Interests.
Section 4.6. Other Contribution Provisions
If any Partner is admitted to the Partnership and is given a Capital
Account in exchange for properties, securities or other noncash contributions or
services rendered to the Partnership, such transactions shall be treated by the
Partnership and the affected Partner as if such Partner had contributed cash to
the capital of the Partnership.
ARTICLE 5. DISTRIBUTIONS
Section 5.1. Requirement and Characterization of Distributions
(a) General. The General Partner shall distribute at least quarterly an
amount equal to one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period in accordance with their respective Percentage Interests on such
Partnership Record Date; provided that in no event may a Partner receive a
distribution of Available Cash with respect to a Partnership Unit if such
Partner has converted such Unit prior to the Partnership Record Date pursuant to
Section 8.6. The General Partner shall take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with the
Company's qualification as a REIT, to distribute Available Cash to the Limited
Partners so as to preclude any such distribution or portion thereof from being
treated as part of a sale of property to the Partnership by a Limited Partner
under Section 707 of the Code or the Regulations thereunder; provided that the
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of any distribution to a Limited
Partner being so treated. The General Partner shall take all actions necessary
to satisfy the requirements for
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qualifying the Company as a REIT under the Code and avoid any federal income tax
liability for the Company, including but not limited to making sufficient
distributions of cash to the Company to enable the Company to meet its
distribution requirements under Section 857 of the Code. Except to the extent
inconsistent with the requirement that the General Partner make distributions
sufficient for the Company to qualify as a REIT, no Partnership Interest shall
be entitled to a distribution in preference to any other Partnership Interest.
(b) Method. Each holder of a Partnership Interest shall be entitled to
a distribution from Available Cash in proportion to its Percentage Interest on
the applicable Partnership Record Date.
Section 5.2. Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereto with respect to any allocation,
payment or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Section 5.1 for all
purposes under this Agreement.
Section 5.3. Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
Section 5.4. Revisions to Reflect Issuance of Additional Partnership
Interests
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article 4 hereto, the General Partner shall make such revisions to this Article
5 as it deems necessary to reflect the issuance of such additional Partnership
Interests and any special rights, duties or powers with respect thereto.
ARTICLE 6. ALLOCATIONS
Section 6.1. Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereto) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto, Net Income shall be allocated (i) first,
to the General Partner to the extent that the Net Losses previously allocated to
the General Partner pursuant to the last sentence of Section 6.1(b) exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1(a), and (ii) second, in proportion to the respective Percentage
Interests as of the
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last day of the period for which such allocation is being made; provided
however, gain on the sale of property contributed as of the Effective Date with
respect to which the General Partner elects, the "traditional method with
cumulative allocations" described in Treasury Regulation Section
1.704-3(c)(3)(iii)(B) shall first be allocated to solely to the Partners who
contributed such Property, pro rata, in proportion to their Percentage
Interests, to the extent allocations to non-contributing Partners of
depreciation deductions with respect to such Contributed Property have been
limited by the so-called "ceiling rule".
(b) Net Losses. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto, Net Losses shall be allocated to each
Partner in proportion to the respective Percentage Interests as of the last day
of the period for which such allocation is being made; provided that Net Losses
shall not be allocated to any Partner (including the General Partner) pursuant
to this Section 6.1(b) to the extent that such allocation would cause such
Partner (including the General Partner) to have an Adjusted Capital Account
Deficit (or increase any existing Adjusted Capital Account Deficit) at the end
of such taxable year (or portion thereof). All Net Losses in excess of the
limitations set forth in this Section 6.1(b) shall be allocated to the General
Partner.
(c) Allocation of Nonrecourse Debt. For purposes of Regulation Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership
in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the
total amount of Nonrecourse Built-In-Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
(d) Recapture Income. Any gain allocated to the Partners upon the sale
or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into account other required allocations of gain pursuant
to Exhibit C, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income.
Section 6.2. Revisions to Allocations to Reflect Issuance of
Partnership Interests
In the event that the Partnership issues additional Partnership
Interests to the General Partner, or any Additional Limited Partner pursuant to
Article 4 hereto, the General Partner shall make such revisions to this Section
6.1 and Exhibit A as it determines are necessary to reflect the terms of the
issuance of such additional Partnership Interests.
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
(a) Powers of the General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
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cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Section 7.3 hereto, shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereto and to
effectuate the purposes set forth in Section 3.1 hereto, including, without
limitation:
(i) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the Company (so
long as the Company qualifies as a REIT) to avoid the
payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the
Code) and to make distributions to its shareholders in
amounts sufficient to permit the Company to maintain
REIT status), the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities,
the issuance of evidence of indebtedness (including the
securing of the same by deed, mortgage, deed of trust
or other lien or encumbrance on the Partnership's
assets) and the incurring of any obligations it deems
necessary for the conduct of the activities of the
Partnership;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental
or other agencies having jurisdiction over the business
or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of
the Partnership (including the exercise or grant of any
conversion, option, privilege, or subscription right or
other right available in connection with any assets at
any time held by the Partnership) or the merger or
other combination of the Partnership with or into
another entity (all of the foregoing subject to any
prior approval only to the extent required by Section
7.3 hereto);
(iv) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on any
terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the
Company, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Subsidiaries of the
Partnership and/or the Company) and the repayment of
obligations of the Partnership and its Subsidiaries and
any other Person in which it has an equity investment,
and the making of capital contributions to its
Subsidiaries;
(v) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owned
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by the Partnership or any Subsidiary of the Partnership
whether pursuant to the Master Lease, any Services
Agreement or otherwise;
(vi) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under
this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel,
Lyric, other professional advisors and other agents and
the payment of their expenses and compensation out of
the Partnership's assets;
(vii) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(viii) the holding, managing, investing and reinvesting cash
and other assets of the Partnership;
(ix) the collection and receipt of revenues and income of
the Partnership;
(x) the selection and dismissal of employees of the
Partnership (including, without limitation, employees
having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and
agents, outside attorneys, accountants, consultants and
contractors of the Partnership, and the determination
of their compensation and other terms of employment or
hiring;
(xi) the maintenance of such insurance for the benefit of
the Partnership, the Partners and directors and
officers thereof as it deems necessary or appropriate;
(xii) the formation of, or acquisition of an interest in, and
the contribution of property to, any further limited or
general partnerships, limited liability companies,
joint ventures or other relationships that it deems
desirable (including, without limitation, the
acquisition of interests in, and the contributions of
property to, its Qualified REIT Subsidiaries and any
other Person in which it has an equity investment from
time to time); provided that the Partnership may not
engage in any such formation, acquisition or
contribution that would cause the Company to fail to
qualify as a REIT;
(xiii) the control of any matters affecting the rights and
obligations of the Partnership, including the
settlement, compromise, submission to arbitration or
any other form of dispute resolution, or abandonment
of, any claim, cause of action, liability, debt or
damages, due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other forms
of dispute resolution,
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and the representation of the Partnership in all suits
or legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, the
incurring of legal expense, and the indemnification of
any Person against liabilities and contingencies to the
extent permitted by law;
(xiv) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Qualified REIT Subsidiaries or any other Person
(including, without limitation, the contribution or
loan of funds by the Partnership to such Persons);
(xv) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as the General Partner
may adopt;
(xvi) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right to
vote, appurtenant to any asset or investment held by
the Partnership;
(xvii) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or in
connection with any Subsidiary of the Partnership or
any other Person in which the Partnership has a direct
or indirect interest, or jointly with any such
Subsidiary or other Person;
(xviii) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have an
interest pursuant to contractual or other arrangements
with such Person;
(xix) the making, execution and delivery of any and all
deeds, leases, notes, mortgages, deeds of trust,
security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases
or legal instruments or agreements in writing necessary
or appropriate, in the judgment of the General Partner,
for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement; and
(xx) the issuance of additional Partnership Units, as
appropriate, in connection with Capital Contributions
by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereto.
(b) No Approval of the Limited Partners. Each of the Limited Partners
agrees that the General Partner is authorized to execute, deliver and perform
the above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding any
other provision of this Agreement (except as provided in Section 7.3), the Act
or any applicable law, rule or regulation, to the fullest extent permitted under
the Act or other applicable law, rule or regulation. The execution, delivery or
performance by the
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General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
(c) Working Capital and Other Reserves. At all times from and after the
date hereof, the General Partner may cause the Partnership to establish and
maintain at any and all times working capital accounts and other cash or similar
balances in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time; provided,
however, that the General Partner shall not maintain reserves unless the
Partnership can distribute sufficient amounts to enable the Company to pay
shareholder dividends that will (i) allow the Company to achieve and maintain
qualification as a REIT, and (ii) avoid the imposition of any additional taxes
under Section 857 or Section 4981 of the Code.
(d) No Obligation to Consider Tax Consequences. In exercising its
authority under this Agreement, the General Partner may, but shall be under no
obligation to, take into account the tax consequences to any Partner (other than
the General Partner and MP) of any action taken by it. The General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances, as a result of an income tax liability or loss incurred or
benefit not derived by such Limited Partner as a result of an action (or
inaction) by the General Partner taken pursuant to its authority under this
Agreement and in accordance with the terms of Section 7.3.
Section 7.2. Certificate of Limited Partnership
The Certificate of Limited Partnership has been filed with the
Secretary of State of the State of Delaware as required by the Act. To the
extent that such action is determined by the General Partner to be reasonable
and necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate of Limited Partnership and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5(a)(iv) hereto, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate of Limited
Partnership or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property.
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Section 7.3. Restrictions on General Partner Authority
The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partnership Interests held by the Company),
or such other percentage of the Limited Partners as may be specifically provided
for under a provision of this Agreement.
Section 7.4. Reimbursement of the General Partner and the Company
(a) No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles 5 and 6
regarding distributions, payments, and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership.
(b) Responsibility for Partnership Expenses. The Monarch REIT Group
shall be reimbursed on a monthly basis, or such other basis as it may determine
in its sole and absolute discretion, for all expenses that it incurs relating to
the ownership and operation of, or for the benefit of, the Partnership
(including, without limitation, (i) expenses relating to the ownership of
interests in and operation of the Partnership, (ii) compensation of the Monarch
REIT Group's officers and employees including, without limitation, payments
under the Company's Stock Incentive Plans that provides for stock units, or
other phantom stock, pursuant to which employees of the Monarch REIT Group will
receive payments based upon dividends on or the value of REIT Shares, (iii)
director fees and expenses and (iv) all costs and expenses of being a public
company, including costs of filings with the SEC, reports and other
distributions to its stockholders); provided that the amount of any such
reimbursement shall be reduced by any interest earned by the Monarch REIT Group
with respect to bank accounts or other instruments or accounts held by it on
behalf of the Partnership. The Partners acknowledge that all such expenses of
the Monarch REIT Group are deemed to be for the benefit of the Partnership. Such
reimbursement shall be in addition to any reimbursement made as a result of
indemnification pursuant to Section 7.7 hereto.
(c) Issuance Expenses. The Monarch REIT Group shall also be reimbursed
for all expenses it incurs relating to any issuance of Partnership Interests,
REIT Shares, Debt of the Partnership or the Monarch REIT Group or rights,
options, warrants or convertible or exchangeable securities pursuant to Article
IV (including, without limitation, all costs, expenses, damages and other
payments resulting from or arising in connection with litigation related to any
of the foregoing), all of which expenses are considered by the Partners to
constitute expenses of, and for the benefit of, the Partnership.
(d) Purchases of REIT Shares. In the event that the Company shall elect
to purchase from its shareholders REIT Shares for the purpose of delivering such
REIT Shares to satisfy an obligation under any dividend reinvestment program
adopted by the Company, any employee stock purchase plan adopted by the Company,
or any similar obligation or arrangement undertaken by the Company in the future
or for the purpose of retiring such REIT Shares, the purchase price
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paid by the Company for such REIT Shares and any other expenses incurred by the
Company in connection with such purchase shall be considered expenses of the
Partnership and shall be advanced to the Company or reimbursed to the Company,
subject to the condition that: (i) if such REIT Shares subsequently are sold by
the Company, the Company shall pay to the Partnership any proceeds received by
the Company for such REIT Shares (which sales proceeds shall include the amount
of dividends reinvested under any dividend reinvestment or similar program
provided that a transfer of REIT Shares for Partnership Units pursuant to
Section 8.6 would not be considered a sale for such purposes); and (ii) if such
REIT Shares are not retransferred by the Company within thirty (30) days after
the purchase thereto, or the Company otherwise determines not to retransfer such
REIT Shares, the General Partner shall cause the Partnership to redeem a number
of Partnership Units held by the Company equal to the product obtained by
dividing the number of such REIT Shares by the Conversion Factor (in which case
such advancement or reimbursement of expenses shall be treated as having been
made as a distribution in redemption of such number of Partnership Units held by
the Company).
Section 7.5. Outside Activities of the General Partner
The Monarch REIT Group shall not directly or indirectly enter into or
conduct any business, other than in connection with (a) the ownership,
acquisition and disposition of Partnership Interests of the Monarch REIT Group,
(b) the management of the business of the Partnership, (c) the operation of the
Company as a reporting company with a class (or classes) of securities
registered under the Exchange Act, (d) the Company's operations as a REIT, (e)
the offering, sale, syndication, private placement or public offering of stock,
bonds, securities or other interests, (f) financing or refinancing of any type
related to the Partnership or its assets or activities, (g) any of the foregoing
activities as they relate to a Subsidiary of the Partnership or of the Monarch
REIT Group and (h) such activities as are incidental thereto. Nothing contained
herein shall be deemed to prohibit the General Partner from executing guarantees
of Partnership debt for which it would otherwise be liable in its capacity as
General Partner. Subject to Section 7.4(b) hereto, the Monarch REIT Group shall
not own any assets or take title to assets, other than (i) temporarily in
connection with an acquisition prior to contributing such assets to the
Partnership, MP and/or the General Partner, (ii) the Partnership Interests of MP
and the General Partner, and (iii) such cash and cash equivalents, bank accounts
or similar instruments or accounts as the General Partner deems reasonably
necessary, taking into account Section 7.1(c) hereto and the requirements
necessary for the Company to carry out its responsibilities contemplated under
this Agreement and the Certificate of Incorporation and to qualify as a REIT.
Notwithstanding the foregoing, if the Monarch REIT Group acquires assets in its
own name and owns property other than through the Partnership, the Partners
agree to negotiate in good faith to amend this Agreement, including, without
limitation, the definition of "Conversion Factor," to reflect such activities
and the direct ownership of assets by the Monarch REIT Group. The Monarch REIT
Group and any Affiliates of the Monarch REIT Group may acquire Limited
Partnership Interests and shall be entitled to exercise all rights of a Limited
Partner relating to such Limited Partnership Interests.
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Section 7.6. Contracts with Affiliates
(a) Transactions with Subsidiaries and Investees. The Partnership may
lend or contribute funds or other assets to its Subsidiaries or other Persons in
which it has an equity investment and such Persons may borrow funds from the
Partnership, on terms and conditions established in the sole and absolute
discretion of the General Partner. The foregoing authority shall not create any
right or benefit in favor of any Subsidiary or any other Person.
(b) General. Except as provided in Section 7.5, the Partnership may
transfer assets to joint ventures, other partnerships, limited liability
companies, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
(c) Limitation. Except as expressly permitted by this Agreement, none
of the Partners nor any of their respective Affiliates shall sell, transfer or
convey any property to, or purchase any property from, the Partnership, directly
or indirectly, except pursuant to transactions that are determined by the
General Partner in good faith to be fair and reasonable.
(d) Benefit Plans Sponsored by the Partnership. The General Partner, in
its sole and absolute discretion and without the approval of the Limited
Partners, may propose and adopt, on behalf of the Partnership, employee benefit
plans, stock option plans, and similar plans funded by the Partnership for the
benefit of employees of the Monarch REIT Group, the Partnership, Subsidiaries of
the Partnership, or any Affiliate of any of them in respect of services
performed, directly or indirectly, for the benefit of the Monarch REIT Group,
the Partnership, any Subsidiaries of the Partnership or any Affiliate of any of
them.
(e) Conflict Avoidance. The General Partner is expressly authorized to
enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and the General Partner, on such terms as the
General Partner, in its sole and absolute discretion, believes is advisable.
Section 7.7. Indemnification
(a) General. To the fullest extent permitted by applicable law, if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Partnership) that relates to the operations of the Partnership or the Company in
which such Indemnitee may be (or may have been) involved, the Partnership shall
indemnify each Indemnitee from and against any and all expenses (including,
without limitation, attorneys fees and other legal fees and expenses),
judgments, fines, and amounts paid in settlement (if such settlement is approved
in advance by the Partnership, which approval shall not be unreasonably
withheld), actually and reasonably incurred by Indemnitee in connection with
investigating, preparing for, defending or settling such action or proceeding.
The Partnership hereby agrees to indemnify each Indemnitee's spouse (whether by
statute or at common law and without regard to
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the location of the governing jurisdiction) and children as express third party
beneficiaries hereunder to the same extent and subject to the same limitations
applicable to Indemnitee hereunder for claims arising out of the status of such
person as a spouse or child of such Indemnitee, including claims seeking damages
from marital property (including community property) or property held by the
Indemnitee and such spouse or property transferred to such spouse or child. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and neither the General Partner nor any Limited
Partner shall have any obligation to contribute to the capital of the
Partnership, or otherwise provide funds, to enable the Partnership to fund its
obligations under this Section 7.7.
(b) Advance of Expenses. Reasonable expenses incurred by an Indemnitee
who is a party to a proceeding shall be paid or reimbursed by the Partnership in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership has been met, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
(c) No Limitation of Rights. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
(d) Insurance. The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of the Indemnitees and such other
Persons as the General Partner shall determine, against any liability that may
be asserted against or expenses that may be incurred by such Person in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such Person against such liability
under the provisions of this Agreement.
(e) Benefit Plan Fiduciary. For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant to
applicable law shall constitute fines within the meaning of Section 7.7; and
actions taken or omitted by the Indemnitee with respect to an employee benefit
plan in the performance of its duties for a purpose reasonably believed by it to
be in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) No Personal Liability for Limited Partners. In no event may an
Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
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(g) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
(h) Benefit. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.7, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8. Liability of the General Partner
(a) General. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner and its partners, shareholders, members,
managers, directors and employees shall not be liable for monetary damages to
the Partnership, any Partners or any Assignees for losses sustained or
liabilities incurred or benefits denied as a result of errors in judgment or
mistakes of fact or law or of any act or omission if such Person acted in good
faith.
(b) No Obligation to Consider Separate Interests of Limited Partners.
The Limited Partners expressly acknowledge that, as stated in Section 7.1(d),
the General Partner is acting on behalf of the Partnership, that the General
Partner is under no obligation to consider the separate interests of the Limited
Partners and the shareholders of the Company (except as otherwise provided
herein) in deciding whether to cause the Partnership to take (or decline to
take) any actions, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
(c) Actions of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1(a) hereto, the General Partner may exercise any
of the powers granted to it by this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its agents. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the General Partner in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's and each other Person's
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
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Section 7.9. Other Matters Concerning the General Partner
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting, or refraining from acting, upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
(b) Reliance on Advisors. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers,
architects, engineers, environmental consultants and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert competence
shall be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
(c) Action Through Agents. The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and duly appointed attorneys-in-fact. Each such
attorney shall, to the extent provided by the General Partner in the power of
attorney, have full power and authority to do and perform all and every act and
duty which is permitted or required to be done by the General Partner hereunder.
(d) Actions to Maintain REIT Status. Notwithstanding any other
provisions of this Agreement or the Act, any action of the General Partner on
behalf of the Partnership or any decision of the General Partner to refrain from
acting on behalf of the Partnership, undertaken in the good faith belief that
such action or omission is necessary or advisable in order (i) to protect the
ability of the Company to continue to qualify as a REIT; or (ii) to avoid the
Company incurring any taxes under Section 857 or Section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
Section 7.10. Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable if failure to so vest such title would have a material
adverse effect on the Partnership. All Partnership assets shall be recorded as
the property of the Partnership in its books and records, irrespective of the
name in which legal title to such Partnership assets is held.
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Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (a) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereto,
or under the Act.
Section 8.2. Management of Business
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
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Section 8.3. Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6(e)
hereto and any other agreements entered into by a Limited Partner or its
Affiliates with the Partnership or any of its Subsidiaries, any Limited Partner
(other than the Company) and any officer, director, employee, agent, trustee,
Affiliate or shareholder of any Limited Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities that
are in direct competition with the Partnership or that are enhanced by the
activities of the Partnership. Neither the Partnership nor any Partners shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee. None of the Limited Partners (other than the
Company) nor any other Person shall have any rights by virtue of this Agreement
or the Partnership relationship established hereby in any business ventures of
any other Person and such Person shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4. Return of Capital
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by Exhibit C hereto or as otherwise expressly provided in
this Agreement, no Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee, either as to the return of Capital
Contributions or as to profits, losses, distributions or credits.
Section 8.5. Rights of Limited Partners Relating to the Partnership
(a) General. In addition to the other rights provided by this Agreement
or by the Act, and except as limited by Section 8.5(c) hereto, each Limited
Partner shall have the right, for a purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership, upon written demand
with a statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(i) to obtain, after any public offering, a copy of the
most recent annual and quarterly reports filed with
the Securities and Exchange Commission by the Company
pursuant to the Exchange Act;
(ii) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
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(iv) to obtain a copy of this Agreement and the
Certificate of Limited Partnership and all amendments
thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the
Certificate of Limited Partnership and all amendments
thereto have been executed; and
(v) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
(b) Notice of Conversion Factor. The Partnership shall notify each
Limited Partner, upon request, of the then current Conversion Factor and the
REIT Shares Amount per Partnership Unit and, with reasonable detail, how the
same was determined.
(c) Confidentiality. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information, the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business; or (ii) the Partnership is required by law or by agreements
with an unaffiliated third party to keep confidential.
Section 8.6. Conversion Right
(a) General. Each Limited Partner holding Convertible Partnership Units
shall have the right (the "Conversion Right") to require the Partnership to
purchase all or a portion of the Convertible Partnership Units held by such
Limited Partner for the Cash Amount. The Conversion Right shall be exercised
pursuant to a Notice of Conversion delivered by the Partner who is exercising
the Conversion Right (the "Converting Partner") to the Partnership (with a copy
to the Company); provided, however, that the Partnership shall not be obligated
to satisfy the Conversion Right if the Company elects to purchase the
Partnership Units pursuant to Section 8.6(b). A Limited Partner may not exercise
the Conversion Right for less than one thousand (1,000) Partnership Units or, if
such Limited Partner holds less than one thousand (1,000) Partnership Units, all
of the Partnership Units held by such Partner. The Partnership shall acquire the
number of Partnership Units specified in the Notice of Conversion by paying to
the Converting Partner the Cash Amount on the Specified Conversion Date,
whereupon the Partnership shall acquire such Partnership Units from the
Converting Partner. Immediately following acquisition by the Partnership, such
Partnership Units shall be cancelled.
(b) Company Assumption of Right. Notwithstanding the provisions of
Section 8.6(a), a Limited Partner that exercises the Conversion Right shall be
deemed to have offered to sell the Partnership Units described in the Notice of
Conversion to the Company, and the Company may, in its sole and absolute
discretion, elect to purchase directly and acquire such Partnership Units by
paying to the Converting Partner either the Cash Amount or the REIT Shares
Amount, as elected by the Company (in its sole and absolute discretion), on the
Specified Conversion Date,
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whereupon the Company shall acquire the Partnership Units offered for conversion
by the Converting Partner. Immediately following acquisition by the Company, the
Company shall contribute such Partnership Units to MP. If the Company shall
elect to exercise its right to purchase Partnership Units under this Section
8.6(b) with respect to a Notice of Conversion, it shall so notify the Converting
Partner within five (5) Business Days after the receipt by it of such Notice of
Conversion. Unless the Company (in its sole and absolute discretion) shall
exercise its right to purchase Partnership Units from the Converting Partner
pursuant to this Section 8.6(b), the Company shall not have any obligation to
the Converting Partner or the Partnership with respect to the Converting
Partner's exercise of the Conversion Right. In the event the Company shall
exercise its right to purchase Partnership Units with respect to the exercise of
a Conversion Right in the manner described in the first sentence of this Section
8.6(b), the Partnership shall have no obligation to pay any amount to the
Converting Partner with respect to such Converting Partner's exercise of such
Conversion Right, and each of the Converting Partner, the Partnership, and the
Company shall treat the transaction between the Company and the Converting
Partner, for federal income tax purposes, as a sale of the Converting Partner's
Partnership Units to the Company. Each Converting Partner agrees to execute such
documents as the Company may reasonably require in connection with the issuance
of REIT Shares upon exercise of the Conversion Right.
(c) Exceptions to Exercise of Conversion Right. Notwithstanding the
provisions of Sections 8.6(a) and 8.6(b), a Partner shall not be entitled to
exercise the Conversion Right pursuant to Section 8.6(a) if the delivery of REIT
Shares to such Partner on the Specified Conversion Date by the Company pursuant
to Section 8.6(b) (regardless of whether or not the Company would in fact
exercise its rights under Section 8.6(b)) would be prohibited under the
Certificate or Articles of Incorporation or By-laws of the Company or other
applicable federal or state securities law and regulations. Any Partnership
Units held by MP, the Company or General Partner shall be considered
Non-convertible Partnership Units (regardless of whether such Units were
originally issued as Convertible Units).
(d) No Liens on Partnership Units Delivered for Conversion. Each
Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for conversion shall be delivered to the Partnership
or the Company, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the Company
nor the Partnership shall be under any obligation to acquire Partnership Units
which are or may be subject to any liens. Each Limited Partner further agrees
that, if any state or local property transfer tax is payable as a result of the
transfer of its Partnership Units to the Partnership or the Company, such
Limited Partner shall assume and pay such transfer tax.
(e) Additional Partnership Interests. In the event that the Partnership
issues additional Partnership Interests pursuant to Section 4.2(a) hereto, the
General Partner shall make such revisions to this Section 8.6 as it determines
are necessary to reflect the issuance of such additional Partnership Interests.
(f) Adjustment of Percentage Interests following a Conversion.
Following each exercise of the Conversion Right by the Company, the Percentage
Interest of MP shall be equal
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to a fraction, the numerator of which is equal to the number of Partnership
Units held by MP (including the Partnership Units contributed to MP by the
Company pursuant to Section 8.6(b)) and the denominator of which is equal to the
total number of Partnership Units, and the Percentage Interests of the General
Partner and all other Limited Partners shall not change. Following each exercise
of the Conversion Right by the Partnership, the Percentage Interest of each
Limited Partner other than MP shall be equal to a fraction, the numerator of
which is equal to the number of Partnership Units held by such Limited Partner
and the denominator of which is the total number of Partnership Units following
the cancellation of the converted Units. Following each exercise of the
Conversion Right by the Partnership, (i) the difference between (A) the number
of Partnership Units equal to one percent (1%) of all Partnership Units
immediately following the cancellation of the converted Units, and (B) the
number of Partnership Units held by the General Partner immediately following
the cancellation of the converted Units, and (ii) a corresponding percentage of
the General Partner's capital contribution, shall be transferred automatically
from the General Partner to MP so that the General Partner holds one percent
(1%) of all Partnership Units at all times. Following each exercise of the
Conversion Right by the Partnership, the Percentage Interest of MP shall be
equal to a fraction, the numerator of which is equal to the number of
Partnership Units held by it (including the Units authomatically transferred
from the General Partner described in the preceding sentence) and the
denominator of which is equal to the total number of Partnership Units following
the cancellation of the converted Units. The General Partner shall be authorized
on behalf of each of the Partners to amend this Agreement to reflect the
increase in Partnership Units of MP, the changes in the Percentage Interests of
the Partners (as applicable), and the withdrawal of the Converting Partner from
the Partnership. The number of Partnership Units owned by the Partners and
Assignees shall not be decreased in connection with any exercise of the
Conversion Right pursuant to this Article 8.
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereto. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles.
Section 9.2. Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
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Section 9.3. Reports
(a) Annual Reports. As soon as practicable, but in no event later than
one hundred five (105) days after the close of each Partnership Year, the
General Partner shall cause to be mailed to each Limited Partner as of the close
of the Partnership Year, an annual report containing financial statements of the
Partnership, or of the Company if such statements are prepared solely on a
consolidated basis with the Company, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.
(b) Quarterly Reports. As soon as practicable, but in no event later
than one hundred five (105) days after the close of each calendar quarter
(except the last calendar quarter of each year), the General Partner shall cause
to be mailed to each Limited Partner as of the last day of the calendar quarter,
a report containing unaudited financial statements of the Partnership, or of the
Company, if such statements are prepared solely on a consolidated basis with the
Company, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE 10. TAX MATTERS
Section 10.1. Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely filing
of all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
Section 10.2. Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. The General Partner shall make such tax elections on
behalf of the Partnership as the Limited Partners holding a majority of the
Percentage Interests of the Limited Partners (excluding Limited Partnership
Interests held by the Company) request, provided that the General Partner
believes that such election is not adverse to the interests of the General
Partner, including its interest in preserving its qualification as a REIT under
the Code. The General Partner intends that Section 704(c) allocations with
respect to property contributed as of the Effective Date shall be made by the
election of the so-called "traditional method" with curative allocations limited
solely to allocations of gain on sale of such contributed property to the extent
allocations of depreciation deductions with respect to such contributed property
to non-contributing Partners have been limited by the so-called "ceiling rule",
as described in Regulations Section 1.704- 3(c)(3)(iii)(B). The General Partner
shall have the right to seek to revoke any tax election it makes (including,
without limitation, the election under Section 754 of the Code) upon the General
Partner's determination, in its sole and absolute discretion, that such
revocation is in the best interests of the Partners.
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Section 10.3. Tax Matters Partner
(a) General. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6230(e) of
the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number, and Percentage Interest each of the Limited Partners and the Assignees;
provided, however, that such information (other than the Percentage Interest) is
provided to the Partnership by the Limited Partners and the Assignees.
(b) Powers. The tax matters partner is authorized, but not required:
(i) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"),
and in the settlement agreement the tax matters
partner may expressly state that such agreement shall
bind all Partners, except that such settlement
agreement shall not bind any Partner (1) who (within
the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on
behalf of such Partner; or (2) who is a "notice
partner" (as defined in Section 6231(a)(8) of the
Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(ii) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the filing of
a complaint for refund with the United States Claims
Court or the District Court of the United States for
the district in which the Partnership's principal
place of business is located;
(iii) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment
with the IRS and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with
respect to such request;
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(v) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken account of by a Partner
for tax purposes, or an item affected by such item;
and
(vi) to take any other action on behalf of the Partners or
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, so long
as the compensation paid by the Partnership for such services is reasonable.
Section 10.4. Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
Section 10.5. Withholding
Each Limited Partner hereby authorizes the Partnership to withhold
from, or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (a) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner; or (b) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (a) or (b) shall
be treated as having been distributed to such Limited Partner. Each Limited
Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Limited Partner's Partnership Interest to secure such
Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.5. In the event that a Limited Partner
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fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner. Without limitation, in
such event the General Partner shall have the right to receive distributions
that would otherwise be distributable to such defaulting Limited Partner until
such time as such loan, together with all interest thereon, has been paid in
full, and any such distributions so received by the General Partner shall be
treated as having been distributed to the defaulting Limited Partner and
immediately paid by the defaulting Limited Partner to the General Partner in
repayment of such loan. Any amounts payable by a Limited Partner hereunder shall
bear interest at the lesser of (A) the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
The Wall Street Journal, plus four (4) percentage points, or (B) the maximum
lawful rate of interest on such obligation, such interest to accrue from the
date such amount is due (i.e., fifteen (15) days after demand) until such amount
is paid in full. Each Limited Partner shall take such actions as the Partnership
or the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11. TRANSFERS AND WITHDRAWALS
Section 11.1. Transfer
(a) Definition. The term "transfer," when used in this Article 11 with
respect to a Partnership Unit, shall be deemed to refer to a transaction by
which the General Partner purports to assign all or any part of its General
Partnership Interest to another Person or by which a Limited Partner purports to
assign all or any part of its Limited Partnership Interest to another Person,
and includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by operation of law or otherwise.
The term "transfer" when used in this Article 11 does not include any redemption
of Partnership Interests by the Partnership from a Limited Partner or any
acquisition of Partnership Units from a Limited Partner by the Company pursuant
to Section 8.6. No part of the interest of a Limited Partner shall be subject to
the claims of any creditor, any spouse for alimony or support, or to legal
process, and may not be voluntarily or involuntarily alienated or encumbered
except as may be specifically provided for in this Agreement.
(b) General. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2. Transfer of the Partnership Interests of General Partner
and MP: Extraordinary Transactions
(a) General Restrictions. Neither the General Partner nor MP may
transfer any of its Partnership Interest or withdraw as a Partner, and the
Company shall not transfer all or any of its
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ownership interest in MP or the General Partner, except, in any such case, (i)
if Limited Partners holding at least three-fourths of the Percentage Interests
of the Limited Partners (other than Limited Partnership Interests held by the
Company or its Affiliates) consent to any such transfer or withdrawal, (ii) if
such transfer is to an entity that is wholly-owned by the Company and is a
Qualified REIT Subsidiary under Section 856(i) of the Code or (iii) the Company
may liquidate MP or the General Partner.
(b) Extraordinary Transactions. The Company shall not engage in any
Extraordinary Transactions, except the Company is permitted to engage in the
following Extraordinary Transactions without the approval or vote of the Limited
Partners except as provided in Section 11.2(c):
(i) an Extraordinary Transaction in connection with which
all Limited Partners either will receive, or will
have the right to elect to receive, for each
Partnership Unit an amount of cash, securities, or
other property equal to the product of the REIT
Shares Amount and the greatest amount of cash,
securities or other property paid to a holder of one
REIT Share in consideration of one REIT Share
pursuant to the terms of the Extraordinary
Transaction; provided that, if, in connection with
the Extraordinary Transaction, a purchase, tender or
exchange offer shall have been made to and accepted
by the holders of the outstanding REIT Shares, each
holder of Partnership Units shall receive, or shall
have the right to elect to receive, the greatest
amount of cash, securities, or other property which
such holder would have received had it exercised its
Conversion Right (as set forth in Section 8.6) and
received REIT Shares in exchange for its Partnership
Units immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon
accepted such purchase, tender or exchange offer and
then such Extraordinary Transaction shall have been
consummated; and
(ii) a merger, or other combination of assets, with
another entity if: (w) immediately after such
Extraordinary Transaction, substantially all of the
assets directly or indirectly owned by the surviving
entity, other than Partnership Units held by the
Company, are owned directly or indirectly by the
Partnership or another limited partnership or limited
liability company which is the survivor of a merger,
consolidation or combination of assets with the
Partnership (in each case, the "Surviving
Partnership"); (x) the Limited Partners own a
percentage interest of the Surviving Partnership
based on the relative fair market value of the net
assets of the Partnership (as determined pursuant to
Section 11.2(e)) and the other net assets of the
Surviving Partnership (as determined pursuant to
Section 11.2(e)) immediately prior to the
consummation of such transaction; (y) the rights,
preferences and privileges of the Limited Partners in
the Surviving Partnership are at least as favorable
as those in effect immediately prior to the
consummation of such transaction and as those
applicable to any other
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limited partners or non-managing members of the
Surviving Partnership; and (z) such rights of the
Limited Partners include the right to exchange their
interests in the Surviving Partnership for at least
one of: (a) the consideration available to such
Limited Partners pursuant to Section 11.2(b)(i) or
(b) if the ultimate controlling person of the
Surviving Partnership has publicly traded common
equity securities, such common equity securities,
with an exchange ratio based on the relative fair
market value of such securities (as determined
pursuant to Section 11.2(e)) and the REIT Shares.
(c) Voting Procedures. The Company shall not consummate any
Extraordinary Transaction in connection with which it conducted a vote of its
stockholders (a "Stockholder Vote") unless the General Partner also conducts a
vote of the Partners of the Partnership (the "Partnership Vote") in which (i)
the General Partner provides the Partners with advance notice equal in time to
the advance notice given in the case of the Stockholder Vote, (ii) in connection
with such advance notice the General Partner provides the Partners with written
materials describing the proposed Extraordinary Transaction as well as the tax
effect of the consummation thereof on the Limited Partners, (iii) in such vote
of the Partners, the General Partner and MP vote their Partnership Interests in
proportion to the manner in which all outstanding shares of capital stock of the
Company were voted at the Stockholder Meeting (such votes to be "For,"
"Against," "Abstain" and "Not Present"), and (iv) the total votes of the General
and Limited Partners voted "For," "Against," "Abstain" and "Not Present" would
be sufficient, if such vote were a vote by the Company of its stockholders, to
approve the Extraordinary Transaction. For purposes of the Partnership Vote,
each holder of a Partnership Interest shall be entitled to a number of votes
equal to the total votes such holder would have been entitled to at the
Stockholder Meeting had such holder presented its Partnership Interest for
redemption and such Partnership Interest had been acquired by the Company for
the REIT Shares Amount of REIT Shares prior to the record date therefor.
(d) Tax Implications. Without in any way limiting the exculpation from
liability set forth in Section 7.1(d) and 7.8(b), in connection with any
transaction permitted by Section 11.2(b) or Section 11.2(c) hereto, the General
Partner shall use its commercially reasonable efforts to structure such
Extraordinary Transaction to avoid causing the Limited Partners to recognize
gain for federal income tax purposes by virtue of the occurrence of or their
participation in such Extraordinary Transaction.
(e) Fair Market Values. In connection with any transaction permitted by
Section 11.2(b) or 11.2(c), the relative fair market values shall be reasonably
determined by the General Partner as of the time of such transaction and, to the
extent applicable, shall be no less favorable to the Limited Partners than the
relative values reflected in the terms of such transaction.
Section 11.3. Limited Partners' Rights to Transfer
(a) General. Subject to the provisions of Sections 11.3(c), 11.3(e),
11.3(f), 11.3(g) and 11.4, a Limited Partner (other than MP) may transfer, with
or without the consent of the
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General Partner, all or any portion of its Partnership Interest, or any of such
Limited Partner's economic rights as a Limited Partner.
(b) Incorporated Limited Partners. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all of the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners, for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of his or its interest in the Partnership. The Incapacity of a Limited Partner,
in and of itself, shall not dissolve or terminate the Partnership.
(c) No Transfer Violating Securities Laws. The General Partner may
prohibit any transfer by a Limited Partner of its Partnership Units if, in the
opinion of legal counsel to the Partnership, such transfer would require filing
of a registration statement under the Securities Act of 1933 or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units.
(d) Permitted Transfers. A Limited Partner (other than MP) may
transfer, with or without the consent of the General Partner, all or a portion
of its Partnership Interest (i) in the case of a Limited Partner who is an
individual, or a member of his Immediate Family, any trust formed for the
benefit of himself and/or members of his Immediate Family, or any partnership,
limited liability company, joint venture, corporation or other business entity
comprised only of himself, and/or members of his Immediate Family and entities
the ownership interests in which are owned by or for the benefit of himself
and/or members of his Immediate Family, (ii) in the case of a Limited Partner
which is a trust, to the beneficiaries of such trust, (iii) in the case of a
Limited Partner which is a partnership, limited liability company, joint
venture, corporation or other business entity to which Partnership Units were
transferred pursuant to (i) above, to its partners, owners, or stockholders, as
the case may be, who are members of the Immediate Family of or are actually the
Person(s) who transferred Partnership Units to it pursuant to (i) above, (iv) in
the case of a Limited Partner which acquired Partnership Units as of the
Effective Date and which is a partnership, limited liability company, joint
venture, corporation or other business entity, to its partners, owners, or
stockholders, as the case may be, or the Persons owning the beneficial interests
in any of its partners, owners or stockholders which are entities, (v) pursuant
to a gift or other transfer without consideration, (vi) pursuant to applicable
laws of descent or distribution, (vii) to another Limited Partner and (viii)
pursuant to a grant of security interest or other encumbrance affected in a bona
fide transaction or as a result of the exercise of remedies related thereto,
subject to the provisions of Section 11.3(f) hereto. A trust or other entity
will be considered formed "for the benefit" of a Partner's Immediately Family
even though some other Person has a remainder interest under or with respect to
such trust or other entity.
(e) Restricted Transfers. No transfer by a Limited Partner of its
Partnership Units may be made to any Person: (i) who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such
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transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the redemption or exchange for Shares
of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 11.2); (v) if in the opinion of
counsel to the Partnership, such transfer would cause the Partnership to cease
to be classified as a partnership for federal income tax purposes (except as a
result of the redemption or exchange for Shares of all Partnership Units held by
all Limited Partners or pursuant to a transaction expressly permitted under
Section 11.2); (vi) if such transfer would cause the Partnership Interests of
"benefit plan investors" to become "significant," as those terms are used in 29
C.F.R. ss. 2510.3-101(f), or any successor regulation thereto, or would cause
the Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or, with respect to any plan defined in Section 4975(e) of the Code, a
"disqualified person" (as defined in Section 4975(e) of the Code); (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause any portion
of the assets of the Partnership to constitute assets of any ERISA Plan Investor
pursuant to 29 C.F.R. ss. 2510.3-101, or any successor regulation thereto;
(viii) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws; (ix) if such
transfer is effectuated through an "established securities market" or a
"secondary market" (or the substantial equivalent thereof) within the meaning of
Section 7704 of the Code or such transfer causes the Partnership to become a
"publicly traded partnership," as such term is defined in Section 469(k)(2) or
Section 7704(b) of the Code (provided that this clause (ix) shall not be the
basis for limiting or restricting in any manner the exercise of the Conversion
Right under Section 8.6 unless, and only to the extent that, outside tax counsel
provides to the General Partner an opinion to the effect that, in the absence of
such limitation or restriction, there is a significant risk that the Partnership
will be treated as a "publicly traded partnership" and, by reason thereof,
taxable as a corporation); (x) if such transfer subjects the Partnership or the
activities of the Partnership to regulation under the Investment Company Act of
1940, the Investment Advisors Act of 1940 or ERISA, each as amended; (xi) such
transfer could adversely affect the ability of the Company to remain qualified
as a REIT; or (xii) if in the opinion of legal counsel for the transferring
Partner (which opinion and counsel shall be reasonably satisfactory to the
Partnership) or legal counsel for the Partnership, such transfer would adversely
affect the ability of the Company to continue to qualify as a REIT or subject
the Company to any additional taxes under Section 857 or Section 4981 of the
Code.
(f) No Transfers to Holders of Nonrecourse Liabilities. No transfer of
any Partnership Units may be made to a lender to the Partnership or any Person
who is related (within the meaning of Section 1.752- 4(b) of the Regulations) to
any lender to the Partnership whose loan constitutes a Nonrecourse Liability,
without the consent of the General Partner, in its sole and absolute discretion;
provided that as a condition to such consent the lender will be required to
enter into an arrangement with the Partnership and the General Partner to redeem
for the Cash Amount any Partnership Units in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
(g) Avoidance of "Publicly Traded Partnership" Status. The General
Partner shall monitor the transfer of interests in the Partnership to determine
(i) if such interests are being
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traded on an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code
and (ii) whether additional transfers of interests would result in the
Partnership being unable to qualify for at least one of the "safe harbors" set
forth in Regulations Section 1.7704-1 (or such other guidance subsequently
published by the IRS setting forth safe harbors under which interests will not
be treated as "readily tradable on a secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code) (the "Safe
Harbors"). The General Partner shall take all steps reasonably necessary or
appropriate to prevent any trading of interests or any recognition by the
Partnership of transfers made on such markets and, except as otherwise provided
herein, to insure that at least one of the Safe Harbors is met; provided,
however, that the foregoing shall not authorize the General Partner to limit or
restrict in any manner the right of any holder of a Partnership Unit to exercise
the Conversion Right in accordance with the terms of Section 8.6 unless, and
only to the extent that, outside tax counsel provides to the General Partner an
opinion to the effect that, in the absence of such limitation or restriction,
there is a significant risk that the Partnership will be treated as a "publicly
traded partnership" and, by reason thereof, taxable as a corporation.
Section 11.4. Substituted Limited Partners
(a) Consent of General Partner. No Limited Partner shall have the right
to substitute a transferee as a Limited Partner in his place. The General
Partner shall, however, have the right to consent to the admission of a
transferee of the interest of a Limited Partner pursuant to this Section 11.4 as
a Substituted Limited Partner, which consent may be given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner.
(b) Rights of Substituted Limited Partner. A transferee who has been
admitted as a Substituted Limited Partner in accordance with this Article 11
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Limited Partner under this Agreement.
(c) Amendment of Exhibit A. Upon the admission of a Substituted Limited
Partner, the General Partner shall amend Exhibit A hereto to reflect the name,
address, number of Partnership Units, and Percentage Interest of such
Substituted Limited Partner and to eliminate or adjust, if necessary, the name,
address and interest of the predecessor of such Substituted Limited Partner.
Section 11.5. Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee as a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items of gain, loss, deduction and credit of the Partnership attributable
to the Partnership Units assigned to such transferee, but shall not be deemed to
be a holder of Partnership Units for any other
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purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all of the
provisions of this Article 11 to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Partnership Units.
Section 11.6. General Provisions
(a) Withdrawal of Limited Partner. No Limited Partner may withdraw from
the Partnership other than as a result of a permitted transfer of all of such
Limited Partner's Partnership Units in accordance with this Article 11 or
pursuant to redemption of all of its Partnership Units under Section 8.6.
(b) Termination of Status as Limited Partner. Any Limited Partner who
shall transfer all of its Partnership Units in a transfer permitted pursuant to
this Article 11 shall cease to be a Limited Partner upon the admission of all
Assignees of such Partnership Units as Substitute Limited Partners. Similarly,
any Limited Partner who shall transfer all of its Partnership Units pursuant to
a conversion of all of its Partnership Units under Section 8.6 shall cease to be
a Limited Partner.
(c) Timing of Transfers. Transfers pursuant to this Article 11 may only
be made on the first day of a fiscal quarter of the Partnership, unless the
General Partner otherwise agrees.
(d) Allocations. If any Partnership Interest is transferred or assigned
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article 11 or redeemed or transferred pursuant to Section
8.6 on any day other than the first day of a Partnership Year, then Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such Partnership Year shall be divided and allocated between the transferor
Partner and the transferee Partner by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which the
transfer or assignment occurs shall be allocated to the transferee Partner, and
none of such items for the calendar month in which a redemption occurs shall be
allocated to the Converting Partner; provided, however, that the General Partner
may adopt such other conventions relating to allocations in connection with
transfers, assignments or redemptions as it determines are necessary or
appropriate. All distributions of Available Cash attributable to such
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment, or redemption shall be made to the transferor
Partner or the Converting Partner, as the case may be, and in the case of a
transfer or assignment other than a redemption, all distributions of Available
Cash thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
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ARTICLE 12. ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereto who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6(d) hereto.
Section 12.2. Admission of Additional Limited Partners
(a) Requirements. After the admission to the Partnership of the initial
Limited Partner on the date hereof, a Person who makes a Capital Contribution to
the Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 15.11 hereto, and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
(b) General Partner Consent. Notwithstanding anything to the contrary
in this Section 12.2, no Person shall be admitted as an Additional Limited
Partner without the consent of the General Partner, which consent may be given
or withheld in the General Partner's sole and absolute discretion. The admission
of any Person as an Additional Limited Partner shall become effective on the
date upon which the name of such Person is recorded on the books and records of
the Partnership, following the consent of the General Partner to such admission.
(c) Allocations to Additional Limited Partners. If any Additional
Limited Partner is admitted to the Partnership on any day other than the first
day of a Partnership Year, then Net Income, Net Losses, each item thereof and
all other items allocable among Partners and Assignees for such Partnership Year
shall be allocated among such Additional Limited Partner and all other Partners
and Assignees by taking into account their varying interests during the
Partnership Year in accordance with Section 706(d) of the Code, using any
convention permitted by law and selected by the General Partner. Solely for
purposes of making such allocations, each such item for the calendar month in
which an admission of any Additional Limited Partner occurs shall be allocated
among all of the Partners and Assignees, including such Additional Limited
Partner; provided, however, that the General Partner may adopt such other
conventions relating to allocations to Additional Limited Partners as it
determines are necessary or appropriate. All distributions of Available Cash
with respect to which the Partnership Record Date is before the
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date of such admission shall be made solely to Partners and Assignees, other
than the Additional Limited Partner, and all distributions of Available Cash
thereafter shall be made to all of the Partners and Assignees, including such
Additional Limited Partner.
Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
of Limited Partnership and may for this purpose exercise the power of attorney
granted pursuant to Section 15.11 hereto.
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, only upon the first to occur of any of the
following ("Liquidating Events"):
(a) the expiration of its term as provided in Section 2.4 hereto;
(b) an event of withdrawal of the General Partner, as defined in
the Act (other than a liquidation of the General Partner into
the Company, in which event the Company shall become a General
Partner, or an event of bankruptcy), unless, within ninety
(90) days after such event of withdrawal a majority in
interest of the remaining Partners agree in writing to
continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a
successor General Partner;
(c) from and after the date of this Agreement through December 31,
2058, an election to dissolve the Partnership made by the
General Partner with the Consent of Partners holding
eighty-five percent (85%) of the Percentage Interests of the
Limited Partners (including Limited Partnership Interests held
by the Company);
(d) on or after January 1, 2059, an election to dissolve the
Partnership made by the General Partner, in its sole and
absolute discretion;
(e) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
(f) the sale of all or substantially all of the assets and
properties of the Partnership; or
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(g) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that either the Company or the
General Partner is bankrupt or insolvent, or a final and
non-appealable order for relief is entered by a court with
appropriate jurisdiction against either the Company or the
General Partner, in each case under any federal or state
bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the
remaining Partners agree in writing to continue the business
of the Partnership and to the appointment, effective as of a
date prior to the date of such order or judgment, of a
substitute General Partner.
Section 13.2. Winding Up
(a) General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner, or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the General Partner or such other Person being referred to
herein as the "Liquidator"), shall be responsible for overseeing the winding up
and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include shares of common stock in the Company) shall be applied and
distributed in the following order:
(i) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than
the Partners;
(ii) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;
(iii) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other Partners; and
(iv) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after
giving effect to all contributions, distributions, and
allocations for all periods.
The General Partner shall not receive any additional compensation for
any services performed pursuant to this Article 13.
(b) Deferred Liquidation. Notwithstanding the provisions of Section
13.2(a) hereto which require liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue
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loss to the Partners, the Liquidator may, in its sole and absolute discretion,
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Partnership (including to those Partners as
creditors) and/or distribute to the Partners, in lieu of cash, as tenants in
common and in accordance with the provisions of Section 13.2(a) hereto,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
(c) Liquidating Trust; Reserves. In the discretion of the Liquidator, a
pro rata portion of the distributions that would otherwise be made to the
General Partner and Limited Partners pursuant to this Article 13 may be:
(i) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the
Partnership, and paying any contingent or unforeseen
liabilities or obligations of the Partnership or the General
Partner arising out of or in connection with the Partnership.
The assets of any such trust shall be distributed to the
General Partner and Limited Partners from time to time, in the
reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the
General Partner and Limited Partners pursuant to this
Agreement; or
(ii) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld or
escrowed amounts shall be distributed to the General Partner
and Limited Partners in the manner and order of priority set
forth in Section 13.2(a) as soon as practicable.
Section 13.3. Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
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Section 13.4. Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event
the Partnership is considered "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, for federal income tax purposes and for purposes of
maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall
be deemed to have distributed the property in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such property
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
Section 13.5. Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 13.6. Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would,
but for the provisions of an election or objection by one or more Partners
pursuant to Section 13.1, result in a dissolution of the Partnership, the
General Partner shall, within thirty (30) days thereafter, provide written
notice thereof to each of the Partners.
Section 13.7. Termination of Partnership and Cancellation of
Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereto, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 13.8. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereto, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
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<PAGE>
Section 13.9. Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1. Amendments
(a) General. Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners (other than the Company) holding
twenty percent (20%) or more of the Partnership Interests. Following such
proposal, the General Partner shall submit any proposed amendment to the Limited
Partners. The General Partner shall seek the written vote of the Partners on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
13.1(c), 14.1(b), 14.1(c) or 14.1(d), a proposed amendment shall be adopted and
be effective as an amendment hereto if it is approved by the General Partner and
it receives the Consent of Partners holding a majority of the Percentage
Interests of the Limited Partners (including Limited Partnership Interests held
by the Company); provided that an action shall become effective at such time as
the requisite consents are received even if prior to such specified time.
(b) Amendments Not Requiring Limited Partner Approval. Notwithstanding
Section 14.1(a), the General Partner shall have the power, without the consent
of the Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
(i) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the
Limited Partners;
(ii) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement
(which may be effected through an amendment to Exhibit A of
this Agreement);
(iii) to set forth and reflect in the Agreement the designations,
rights, powers and duties of the holders of any additional
Partnership Interests issued pursuant to Section 4.2 hereto;
(iv) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law or with
other provisions, or make other changes with respect to
matters arising under this Agreement that will not be
inconsistent
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<PAGE>
with law or with the provisions of this Agreement; and
(v) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in
federal or state law.
The General Partner shall provide notice to the Limited Partners when
any action under this Section 14.1(b) is taken.
(c) Amendments Requiring Limited Partner Approval. Notwithstanding
Section 14.1(a) and 14.1(b) hereto, this Agreement shall not be amended without
the Consent of the General Partner and each Limited Partner adversely affected
if such amendment would (1) convert a Limited Partner's interest in the
Partnership into a General Partner Interest; (2) modify the limited liability of
a Limited Partner in a manner adverse to such Limited Partner; (3) alter rights
of the Partner (other than as a result of the issuance of Partnership Interests)
to receive distributions pursuant to Article 5 or Article 13 or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.2 and Section
14.1(b)(iii) hereto); (4) alter or modify the Conversion Right and REIT Shares
Amount as set forth in Sections 8.6 and 11.2(b), and the related definitions, in
a manner adverse to such Partner; (5) cause the termination of the Partnership
prior to the time set forth in Sections 2.4 or 13.1; or (vi) amend this Section
14.1(c). Further, no amendment may alter the restrictions on the General
Partner's authority set forth in Section 7.3 without the Consent specified in
that section.
(d) Other Amendments Requiring Limited Partner Approval.
Notwithstanding Section 14.1(a) or Section 14.1(b) hereto, the General Partner
shall not (except in connection with amendments made to reflect the issuance of
additional Partnership Interests and the relative rights, powers and duties
incident thereto) amend Sections 4.2(a), 7.5, 7.6, 11.2 or 14.2 without the
Consent of Limited Partners holding a majority of the Percentage Interests of
the Limited Partners, excluding Limited Partnership Interests held by the
Company.
Section 14.2. Meetings of the Partners
(a) General. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners (other than the Company) holding twenty percent
(20%) or more of the Partnership Interests. The request shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of the Partners is permitted or required
under this Agreement, such vote or Consent may be given at a meeting of the
Partners or may be given in accordance with the procedure prescribed in Section
14.1(a) hereto. Except as otherwise expressly provided in this Agreement, the
Consent of holders of a majority of the Percentage Interests held by Limited
Partners (including Limited Partnership Interests held by the Company) shall
control.
(b) Actions Without a Meeting. Any action required or permitted to be
taken at a
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<PAGE>
meeting of the Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by a majority of the Percentage
Interests of the Partners (or such other percentage as is expressly required by
this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
(c) Proxy. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of twelve (12)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
(d) Conduct of Meeting. Each meeting of the Partners shall be conducted
by the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deems appropriate. Without limitation, meetings of Partners
may be conducted in the same manner as meetings of the shareholders of the
Company and may be held at the same time, and as part of, meetings of the
shareholders of the Company.
ARTICLE 15. GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent by first
class United States mail, by hand, via Fedex (or other nationally recognized
overnight courier service), or via facsimile (with confirmed answer back) to the
Partner or Assignee at the address set forth in Exhibit A hereto or such other
address of which the Partner shall notify the General Partner in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles", "Sections"
and "Exhibits" are to Articles, Sections and Exhibits of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the
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corresponding masculine, feminine or neuter forms, and the singular form of
nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6. Creditors
Other than as expressly set forth herein with respect to the
Indemnitees, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7. Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8. Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10. Invalidity of Provisions
If any provision of this Agreement shall to any extent be held void or
unenforceable (as to duration, scope, activity, subject or otherwise) by a court
of competent jurisdiction, such provision shall be deemed to be modified so as
to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable. In such event, the
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remainder of this Agreement (or the application of such provision to persons or
circumstances other than those in respect of which it is deemed to be void or
unenforceable) shall not be affected thereby. Each other provision of this
Agreement, unless specifically conditioned upon the voided aspect of such
provision, shall remain valid and enforceable to the fullest extent permitted by
law; any other provisions of this Agreement that are specifically conditioned on
the voided aspect of such invalid provision shall also be deemed to be modified
so as to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable to the fullest extent
permitted by law.
Section 15.11. Power of Attorney
(a) General. Each Limited Partner and each Assignee hereby constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(i) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (A) all certificates, documents
and other instruments (including, without limitation, this
Agreement and the Certificate of Limited Partnership and all
amendments or restatements thereof) that the General Partner
or the Liquidator deems appropriate or necessary to form,
qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the
State of Delaware and in all other jurisdictions in which the
Partnership may or plans to conduct business or own property;
(B) all instruments that the General Partner deems appropriate
or necessary to reflect any amendment, change, modification or
restatement of this Agreement in accordance with its terms;
(C) all conveyances and other instruments or documents that
the General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation;
(D) all instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to, or other
events described in, Article 11, 12 or 13 hereto or the
Capital Contribution of any Partner; and (E) all certificates,
documents and other instruments relating to the determination
of the rights and privileges of Partnership Interests; and
(ii) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or any Liquidator, to make,
evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this
agreement or appropriate
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or necessary, in the sole discretion of the General Partner or
any Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereto or as may be otherwise expressly provided for in this
Agreement.
(b) Irrevocable Nature. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner and any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney, and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the General Partner or the Liquidator, within fifteen (15) days after receipt of
the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
Section 15.12. Entire Agreement
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the date first written above.
GENERAL PARTNER:
MP OPERATING, INC.
By: ________________________________
John B. Poole
President and Chief Executive Officer
LIMITED PARTNER:
MP PROPERTIES LP, INC.
By: _________________________________
John B. Poole
President and Chief Executive Officer
ACKNOWLEDGED BY AND AGREED TO:
MONARCH PROPERTIES, INC.
By: _________________________
John B. Poole
President and Chief Executive Officer
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EXHIBIT A
PARTNER CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
AGREED VALUE OF
CASH NON-CASH
PARTNERSHIP CONTRIBUTED TOTAL
NAME AND ADDRESS OF PARTNER CONTRIBUTION PROPERTY CONTRIBUTION UNITS INTEREST
--------------------------- ------------ -------- ------------ ----- --------
<S> <C>
MP Operating, Inc. 1%
8889 Pelican Bay Boulevard - General
Suite 501 Partner
Naples, Florida 34103
Attn: John B. Poole
President and CEO
MP Properties LP, Inc. 99%
8889 Pelican Bay Boulevard - Limited
Suite 501 Partner
Naples, Florida 34103
Attn: John B. Poole
President and CEO
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax or any deemed gain pursuant
to Section 1.B.(5) hereof) computed in accordance with Section 1.B. hereof and
allocated to such Partner pursuant to Section 6.1(a) of the Agreement and
Exhibit C hereof, and decreased by (x) the amount of cash or Agreed Value of all
actual and deemed distributions of cash or property made to such Partner
pursuant to this Agreement; and (y) all items of Partnership deduction and loss
(any deemed loss pursuant to Section 1.B.(5) hereof) computed in accordance with
Section 1.B. hereof and allocated to such Partner pursuant to Section 6.1(b) of
the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by
the Partnership, provided that the amounts of any adjustments
to the adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been
reflected in the Partners' Capital Accounts) shall be
reflected in the Capital Accounts of the Partners in the
manner and subject to the limitations prescribed in
Regulations Section 1.704(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described
in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such
<PAGE>
date of disposition were equal in amount to the Partnership's
Carrying Value with respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereto, the amount of any
such adjustment shall be taken into account as gain or loss
from the disposition of such asset.
C. Generally, a transferee (including an Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Partnership's properties
shall be deemed solely for federal income tax purposes, to have been distributed
in liquidation of the Partnership to the holders of Partnership Units (including
such transferee) and recontributed by such Persons in reconstitution of the
Partnership. In such event, the Carrying Values of the Partnership properties
shall be adjusted immediately prior to such deemed distribution pursuant to
Section 1.D(2) hereto. The Capital Accounts of such reconstituted Partnership
shall be maintained in accordance with the principles of this Exhibit B.
D.(1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Value of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D(2)
hereto, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the issuance of additional Partnership
Units to any new or existing Partner in exchange for more than
a de minimis Capital Contribution; (b) immediately prior to
the distribution by the Partnership to a Partner of more than
a de minimis amount of property as consideration for an
interest in the Partnership; and (c) immediately prior to the
liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g) provided, however,
that adjustments pursuant to (a) and (b) above shall be made
only if the General Partner determines that such adjustments
are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership
property, as of the time any such asset is distributed.
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<PAGE>
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market
value of all Partnership assets (including cash or cash
equivalents) shall be determined by the General Partner or
Liquidator in accordance with Section 4.1(e).
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i) make
any adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q); and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b). In
addition, the General Partner may adopt and employ such methods and procedures
for (i) the maintenance of book and tax capital accounts; (ii) the determination
and allocation of adjustments under Sections 704(c), 734 and 743 of the Code;
(iii) the determination of Net Income, Net Loss, taxable loss and items thereof
under this Agreement and pursuant to the Code; (iv) the adoption of reasonable
conventions and methods for the valuation of assets and the determination of tax
basis; (v) the allocation of asset value and tax basis; and (vi) conventions for
the determination of cost recovery, depreciation and amortization deductions, as
it determines in its sole discretion are necessary or appropriate to execute the
provisions of this Agreement, to comply with federal and state tax laws, and are
in the best interest of the Partners.
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions
or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
-3-
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
1.1. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in Partnership Minimum Gain during any Partnership taxable year,
each Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.1 is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.1, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.
1.2. Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.1 hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
taxable year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.702-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 1.2 is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of Section 1.2, each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant to
Section 6.1 of the Agreement or this Exhibit with respect to such Partnership
taxable year, other than allocations pursuant to Section 1.1 hereof.
1.3. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1.1 and 1.2 hereof such Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership taxable year) shall be specially
<PAGE>
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, its Adjusted Capital Account Deficit
created by such adjustments, allocations or distributions as quickly as
possible.
1.4. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which would satisfy
such requirements.
1.5. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
1.6. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis, and such item of gain or loss shall be specially allocated
to the Partners in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
1.7. Curative Allocations. The allocations set forth in Section 1.1
through 1.6 of this Exhibit C (the "Regulatory Allocations") are intended to
comply with certain requirements of the Regulations under Section 704(b) of the
Code. The Regulatory Allocations may not be consistent with the manner in which
the Partners intend to divide Partnership distributions. Accordingly, the
General Partner is hereby authorized to divide other allocations of income,
gain, deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that, if
necessary, this will be accomplished by specially allocating other items of
income, gain, loss and deduction among the Partners so that the net amount of
the Regulatory Allocations and such special allocations to each person is zero.
However, the General Partner will have discretion to accomplish this result in
any reasonable manner; provided, however, that no allocation pursuant to this
Section 1.7 shall cause the Partnership to fail to comply with the requirements
of Regulations Sections 1.704-1(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes.
2.1. Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same
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<PAGE>
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
2.2. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
A. (1) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners, consistent with the principles of Section
704(c) of the Code and the Regulations thereunder, to
take into account the variation between the 704(c)
Value of such property and its adjusted basis at the
time of contribution; and
(2) Any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be
allocated among the Partners in the same manner as
its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
B. (1) In the case of an Adjusted Property, such items shall
(a) first, be allocated among the Partners in a
manner consistent with the principles of
Section 704(c) of the Code and the
Regulations thereunder to take into account
the Unrealized Gain or Unrealized Loss
attributable to such property and the
allocations thereof pursuant to Exhibit B
hereof; and
(b) second, in the event such property was
originally a Contributed Property, be
allocated among the Partners in a manner
consistent with Section 2.2(A) of this
Exhibit C; and
(2) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be
allocated among the Partners in the same manner its
correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section
1 of this Exhibit C. ---------
C. all other items of income, gain, loss and deduction
shall be allocated among the Partners the same manner
as their correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
2.3. To the extent that the Treasury Regulations promulgated pursuant
to Section 704(c) of the Code permit the Partnership to utilize alternative
methods to eliminate the disparities between the Carrying Value of property and
its adjusted basis, the General Partner shall have the authority to elect the
method to be used by the Partnership and such election shall be binding on all
Partners.
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<PAGE>
3. No Withdrawal.
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
-4-
<PAGE>
EXHIBIT D
NOTICE OF CONVERSION
The undersigned Limited Partner hereby irrevocably (i) converts [Insert
Number] Limited Partnership Units in Monarch Properties, LP in accordance with
the terms of the Agreement of Limited Partnership of Monarch Properties, LP and
the Conversion Right referred to therein; (ii) surrenders such Limited
Partnership Units and all right, title and interest therein; and (iii) directs
that the Cash Amount or the REIT Shares Amount deliverable upon exercise of the
Conversion Right be delivered to the address specified below, and, if the Units
are converted for REIT Shares that such REIT Shares be registered or placed in
the name(s) and at the address(es) specified below. The undersigned hereby,
represents, warrants, and certifies that the undersigned (a) has marketable and
unencumbered title to such Limited Partnership Units, free and clear of the
rights or interests of any other person or entity; (b) has the full right,
power, and authority to redeem and surrender such Limited Partnership Units as
provided herein; and (c) has obtained the consent or approval of all person or
entities, if any, having the right to consent or approve such redemption and
surrender.
Dated:_________________________
Name of Limited Partner:____________________________________
Please Print
------------------------------------
(Signature of Limited Partner)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------------
Issue REIT Shares to:
Name:_________________________________
Please insert social security or tax identifying number:__________________
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<PAGE>
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
UNDERLYING PROPERTY 704(C) VALUE AGREED VALUE
------------------- ------------ ------------
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________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
UNDERLYING PROPERTY 704(C) VALUE AGREED VALUE
------------------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
EXHIBIT F
RECOURSE DEBT LEVEL SCHEDULE
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made this ____ day of __________, 199
("Agreement"), by and between MONARCH PROPERTIES, INC., a Maryland corporation
(the "Company"), and ________________ ("Indemnitee").
INTRODUCTORY STATEMENT
At the request of the Company, Indemnitee currently serves as a director or
officer of the Company and may, therefore, be subjected to claims, suits or
proceedings arising as a result of his service.
As an inducement to Indemnitee to continue to serve as such director or
officer, the Company has agreed to indemnify Indemnitee against expenses and
costs incurred by Indemnitee in connection with any such claims, suits or
proceedings, to the fullest extent that is lawful.
The parties by this Agreement desire to set forth their agreement regarding
indemnification.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) there occurs a proxy contest, or the
Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the Board of Directors then in office, as a
<PAGE>
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
other than as a result of an event described in clause (b)(ii) of this Section
1, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(c) "Corporate Status" means the status of a person as a director,
officer, employee or agent of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company.
(d) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification or
advance of Expenses is sought by Indemnitee.
(e) "Effective Date" means _____________, 199_.
(f) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(g) "Independent Counsel" means a law firm, or a member of a law firm,
selected by the Board of Directors by vote as set forth in Section 8(b), that is
experienced in matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent: (i) the Company or Indemnitee
in any matter material to either such party, or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
(h) "MGCL" means the Maryland General Corporation Law.
(I) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
(i) initiated by an Indemnitee
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<PAGE>
pursuant to Section 10 of this Agreement to enforce his rights under this
Agreement or (ii) pending on or before the Effective Date.
Section 2. Services by Indemnitee. Indemnitee agrees to serve as a director
of the Company and may at any time and for any reason resign from such position
(subject to any other contractual obligation or any obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in such position.
Section 3. Indemnification - General. The Company shall indemnify, and
advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) to the
fullest extent permitted by Maryland law in effect on the date hereof and as
amended from time to time; provided, however, that no change in Maryland law
shall have the effect of reducing the benefits available to Indemnitee hereunder
based on Maryland law as in effect on the date hereof. The rights of Indemnitee
provided in this Section shall include, but shall not be limited to, the rights
set forth in the other Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 4 if, by reason of his Corporate Status, he is, or is threatened
to be, made a party to any threatened, pending, or completed Proceeding, other
than a Proceeding by or in the right of the Company. Pursuant to this Section 4,
Indemnitee shall be indemnified against all Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with a Proceeding by reason of his Corporate Status
to the maximum extent permitted by Maryland law in effect at the time of the
request for indemnification.
Section 5. Proceedings by or in the Right of the Company. Indemnitee shall
be entitled to the rights of indemnification provided in this Section 5 if, by
reason of his Corporate Status, he is made a party to any threatened, pending or
completed Proceeding brought by or in the right of the Company to procure a
judgment in its favor. Pursuant to this Section 5, Indemnitee shall be
indemnified against all amounts paid in settlement and all Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
to the maximum extent permitted by Maryland law in effect at the time of the
request for indemnification.
Section 6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, made a party to and is
successful, on the merits or otherwise, in the defense of any Proceeding, he
shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith. Without limiting any other rights
of Indemnitee in this Agreement, if Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the
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<PAGE>
Company shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7. Advance of Expenses. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding to which Indemnitee is, or is threatened to be, made a party, within
ten days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by (a) a written affirmation by the Indemnitee of
the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Company as authorized by law and by this Agreement has
been met and (b) a written undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that such standard of
conduct has not been met or as required by Section 6 if Indemnitee is not wholly
successful.
Section 8. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall promptly
be made in the specific case: (i) if a Change in Control shall have occurred, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not
have occurred, (A) by the Board of Directors by a majority vote of a quorum
consisting of Disinterested Directors, or (B) if a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, such quorum of Disinterested Directors so directs, by Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee or (C) if so directed by a majority of the members of
the Board of Directors, by the stockholders of the Company. If it is determined
that Indemnitee is entitled to indemnification, payment to Indemnitee shall be
made within ten days after such determination. Indemnitee shall cooperate with
the person making such determination with respect to Indemnitee's entitlement to
indemnification, including
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<PAGE>
providing to such person upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including reasonable attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person making
such determination, in response to a request by such person, shall be borne by
the Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change in Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, (i) the
person making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement, and (ii) the
Company shall have the burden of proof to overcome that presumption in
connection with the making of any determination contrary to that presumption.
(b) The termination of any proceeding by judgment, order, settlement,
conviction, a plea of nolo contendere or its equivalent, or an entry of an order
of probation prior to judgment, does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct described in the MGCL
for indemnification.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
8 that Indemnitee is not entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to Section 8, (iii) no
determination of entitlement to indemnification shall have been made pursuant to
Section 8(b) within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
6 within ten days after receipt by the Company of a written request therefor, or
(v) payment of indemnification is not made within ten days after a determination
has been made that Indemnitee is entitled to indemnification, Indemnitee shall
be entitled to an adjudication in an appropriate court of the State of Maryland,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days after the date on which Indemnitee
first has the right to commence such proceeding pursuant to this Section 10(a).
- 5 -
<PAGE>
(b) If a Change in Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 1) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Insurance; Subrogation; Exclusions.
(a) The rights of indemnification and advance of Expenses as provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may at any time be entitled under applicable law, the charter or
Bylaws of the Company, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal.
(b) To the extent that the Company maintains liability insurance for
directors, officers, employees, or agents of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Company, Indemnitee
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including
- 6 -
<PAGE>
execution of such documents as are necessary to enable the Company to bring suit
to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) Notwithstanding any other provision of this Agreement to the
contrary, the Company shall not be liable for indemnification or advance of
Expenses in connection with any settlement or judgment for insider trading or
for disgorgement of profits pursuant to Section 16(b) of the Securities Exchange
Act of 1934.
Section 12. Duration of Agreement. This Agreement shall continue until and
terminate ten years after the date that Indemnitee shall have ceased to serve as
a director, officer, employee, or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which Indemnitee served at the request of the Company; provided, that
the rights of Indemnitee hereunder shall continue until the final termination of
any proceeding then pending in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 relating thereto. This Agreement
shall be binding upon the Company and its successors and assigns and shall inure
to the benefit of Indemnitee and his heirs, executors and administrators.
Section 13. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable that is not itself invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (b) to the fullest extent possible,
the provisions of this Agreement (including, without limitation, each portion of
any section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advance of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee (other than a
proceeding under Section 10(a) of the Agreement), unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
- 7 -
<PAGE>
Section 15. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 17. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 18. Notice by Indemnitee. Indemnitee shall promptly notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advance of Expenses covered
hereunder.
Section 19. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (I) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company to:
Monarch Properties, Inc.
8889 Pelican Bay Boulevard,
Suite 501
Naples, Florida 34108
Attn: Mr. John B. Poole
- 8 -
<PAGE>
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attn: John R. Fallon, Jr., Esq.
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Maryland.
Section 21. Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: MONARCH PROPERTIES, INC.
By: (SEAL)
- ------------------------- -------------------------
Douglas Listman John B. Poole
Secretary President
WITNESS: INDEMNITEE
- ------------------------- -----------------------------------
- 9 -
MONARCH PROPERTIES, INC.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
INCENTIVE STOCK OPTION
THIS AGREEMENT made as of _______________, 199_, by and between MONARCH
PROPERTIES, INC., a Maryland corporation (the "Company"), and
___________________ (the "Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Monarch Properties, Inc. 1998 Omnibus
Securities and Incentive Plan (the "Plan") for the benefit of its officers, key
employees and directors and the officers, key employees and directors of its
Affiliates, and
WHEREAS, the Committee has authorized the grant to the Optionee of an
Option under the Plan, on the terms and conditions set forth in the Plan and as
hereinafter provided,
NOW, THEREFORE, in consideration of the premises contained herein, the
Company and the Optionee hereby agree as follows:
1. Definitions
Terms used in this Agreement which are defined in the Plan shall have
the same meaning as set forth in the Plan.
2. Grant of Option
The Committee hereby grants to the Optionee an Option to purchase
[INSERT # OF SHARES] shares of the Company's Common Stock ("Shares"),
[exercisable in quantities of ________ (__) or more Shares,] for a price per
Share equal to [INSERT PRICE](not less than the Fair Market Value of a Share on
the date of this Agreement and not less than one hundred ten percent (110%) of
the Fair Market Value of a Share on the date of this Agreement if the Optionee
is a Ten Percent Shareholder. The Option granted under this Agreement is
intended by the Committee to be an Incentive Stock Option and the provisions of
this Agreement shall be interpreted on a basis consistent with such intent.
<PAGE>
3. Option Terms and Exercise Period
a. The Option granted to the Optionee pursuant to this Agreement shall
be exercised, and payment by the Optionee of the Option Price shall be made,
pursuant to the terms of the Plan.
b. All or any part of the Option awarded under this Agreement may be
exercised by the Optionee no later than ten (10) years (five (5) years if the
Optionee is a Ten Percent Shareholder) after the date of this Agreement.
c. This Agreement and the Option issued hereunder to the Optionee
shall terminate on the earlier of (i) the [_______ (___)] anniversary (no later
than the tenth anniversary) of the date of this Agreement, or (ii) the date on
which the Option is fully exercised.
4. Vesting
The Option to purchase the number of Shares set forth in Section 2
shall become exercisable pursuant to the following schedule:
Anniversary of Date
of this Agreement Percent
%
%
%
Notwithstanding the above schedule, the Option shall be one hundred percent
(100%) exercisable in the Option granted under this Agreement if the Optionee's
employment with the Company shall terminate on account of the Optionee's death,
Permanent and Total Disability or retirement upon or after attaining age
sixty-two (62). The Optionee shall forfeit any unexercisable Options upon
termination of employment with the Company for any reason other than the
Optionee's death, Permanent and Total Disability or retirement upon or after
attaining age sixty-two (62).
5. Termination of Employment
Section 6.2(b) of the Plan shall control.
6. Restrictions on Transfer of Option
This Agreement and the Option granted hereunder shall not be
transferable otherwise than by will or by the laws of descent and distribution,
and shall be exercisable, during the Optionee's
- 2 -
<PAGE>
lifetime, solely by the Optionee, except on account of the Optionee's Permanent
and Total Disability or death.
7. Exercise of Option
a. The Option granted hereunder shall become exercisable at such time
as shall be provided herein and shall be exercisable by written notice of such
exercise, in the form prescribed by the Committee, to the Secretary of the
Company, at the Company's principal office. The notice shall specify the number
of Shares with respect to which the Option granted hereunder is being exercised.
b. Shares purchased pursuant to this Agreement shall be paid for in
full at the time of such purchase in cash, in Shares, including Shares acquired
pursuant to the Plan, or part in cash and part in Shares. Shares transferred in
payment of the Option Price shall be valued as of the date of transfer based on
their Fair Market Value.
8. Regulation by the Committee
This Agreement and the Option granted hereunder shall be subject to
the administrative procedures and rules as the Committee shall adopt. All
decisions of the Committee upon any question arising under the Plan or under
this Agreement, shall be conclusive and binding upon the Optionee and any person
or persons to whom the Option or any part of the Option granted hereunder has
been transferred by will or by the laws of descent and distribution.
9. Rights as a Shareholder
The Optionee shall have no rights as a shareholder with respect to Shares
subject to Options granted hereunder until certificates for Shares of Common
Stock are issued to the Optionee.
10. Change of Control
Notwithstanding the vesting requirements contained in Section 4, upon a
Change of Control, the Option granted hereunder shall automatically become fully
vested and exercisable as of the date of such Change of Control.
11. Reservation of Shares
With respect to the Option granted to the Optionee hereunder, the Company
hereby agrees to at all times reserve for issuance and/or delivery upon payment
by the Optionee of the Option Price, such number of Shares as shall be required
for issuance and/or delivery upon such payment pursuant to such Option.
- 3 -
<PAGE>
12. Delivery of Share Certificates
Within a reasonable time after the exercise of the Option granted hereunder
the Company shall cause to be delivered to the Optionee, his or her legal
representative or his or her beneficiary, a certificate for the Shares purchased
pursuant to the exercise of the Option.
13. Withholding
In the event the Optionee elects to exercise the Option granted hereunder
(or any part thereof), if the Company or an Affiliate shall be required to
withhold any amounts by reason of any federal, state or local tax rules or
regulations in respect of the issuance of Shares to the Optionee, the Company or
Affiliate shall be entitled to deduct and withhold such amounts from any payment
to be made to the Optionee hereunder.
14. Amendment
The Committee may amend this Agreement at any time and from time to time;
provided, however, that no amendment of this Agreement that would impair the
Optionee's rights or entitlements with respect to the Option granted hereunder
shall be effective without the consent of the Optionee (unless such amendment is
required in order to cause the Option granted hereunder to qualify as
performance-based compensation within the meaning of Section 162(m) of the Code
and applicable interpretive authority thereunder).
15. Plan Terms
The terms of the Plan are incorporated herein by reference.
16. Effective Date of Grant
The Option granted under this Agreement shall be effective as of the date
first written above.
17. Optionee Acknowledgment
By executing this Agreement, the Optionee hereby acknowledges that he or
she has received and read the Plan and this Agreement
- 4 -
<PAGE>
and that he or she agrees to be bound by all of the terms of both the Plan and
this Agreement.
ATTEST: MONARCH PROPERTIES, INC.
By:
- --------------------------- ------------------------------------
Its:
-----------------------------------
WITNESS:
- --------------------------- ---------------------------------------
, Optionee
--------------------------------
Print name
- 5 -
MONARCH PROPERTIES, INC.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Purpose..........................................................1
ARTICLE II Definitions......................................................1
ARTICLE III Effective Date of Plan...........................................8
ARTICLE IV Administration...................................................8
Section 4.1 Composition of Committee....................................8
Section 4.2 Powers......................................................9
Section 4.3 Additional Powers...........................................9
Section 4.4 Committee Action...........................................10
ARTICLE V Stock Subject to Plan and Limitations Thereon...................10
Section 5.1 Stock Grant and Award Limits...............................10
Section 5.2 Stock Offered..............................................11
ARTICLE VI Eligibility for Awards; Termination of Employment
or Director Status....................................11
Section 6.1 Eligibility................................................11
Section 6.2 Termination of Employment or Director
Status...........................................12
ARTICLE VII Options.........................................................14
Section 7.1 Option Period..............................................14
Section 7.2 Limitations on Exercise of Option..........................14
Section 7.3 Special Limitations on Incentive Stock
Options..........................................14
Section 7.4 Option Agreement...........................................15
Section 7.5 Option Price and Payment...................................16
Section 7.6 Shareholder Rights and Privileges..........................17
Section 7.7 Options and Rights in Substitution for Stock
Options Granted by Other Corporations.................17
ARTICLE VIII Restricted Stock Awards.........................................17
Section 8.1 Restriction Period to be Established by
Committee........................................17
Section 8.2 Other Terms and Conditions.................................18
Section 8.3 Payment for Restricted Stock...............................19
Section 8.4 Restricted Stock Award Agreements..........................19
ARTICLE IX Deferred Stock Awards...........................................20
Section 9.1 Terms and Conditions.......................................20
Section 9.2 Shareholder Rights and Privileges..........................20
ARTICLE X Unrestricted Stock Awards.......................................20
ARTICLE XI Performance Share Awards........................................21
Section 11.1 Terms and Conditions......................................21
Section 11.2 Shareholder Rights and Privileges.........................21
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<PAGE>
Page
ARTICLE XII Distribution Equivalent Rights..................................21
Section 12.1 Terms and Conditions......................................21
Section 12.2 Interest Equivalents......................................22
Section 12.3 Termination of Employment or Director
Status..........................................22
ARTICLE XIII Recapitalization or Reorganization..............................22
Section 13.1 Adjustments to Common Stock...............................22
Section 13.2 Recapitalization..........................................23
Section 13.3 Change of Control.........................................23
Section 13.4 Other Events..............................................24
Section 13.5 Powers Not Affected.......................................25
Section 13.6 Required Shareholder Action...............................25
Section 13.7 No Adjustment for Certain Awards..........................25
ARTICLE XIV Amendment and Termination of Plan...............................26
ARTICLE XV Miscellaneous...................................................27
Section 15.1 No Right to Award.........................................27
Section 15.2 No Rights Conferred.......................................27
Section 15.3 Other Laws; Withholding...................................27
Section 15.4 No Restriction on Corporate Action........................28
Section 15.5 Restrictions on Transfer..................................28
Section 15.6 Rule 16b-3................................................29
Section 15.7 Section 162(m)............................................29
Section 15.8 Other Plans...............................................30
Section 15.9 Limits of Liability.......................................30
Section 15.10 Governing Law............................................30
Section 15.11 Severability of Provisions...............................30
Section 15.12 No Funding...............................................31
Section 15.13 Headings.................................................31
-ii-
<PAGE>
MONARCH PROPERTIES, INC.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of this MONARCH PROPERTIES, INC. 1998 OMNIBUS SECURITIES AND
INCENTIVE PLAN (the "Plan") is to benefit the stockholders of MONARCH
PROPERTIES, INC., a Maryland corporation (the "Company"), by assisting the
Company to attract, retain and provide incentives to key management employees
and directors of the Company and its Affiliates, and to align the interests of
such employees and directors with those of the Company's stockholders.
Accordingly, the Plan provides for the granting of Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock Awards, Deferred Stock Awards,
Unrestricted Stock Awards, Performance Share Awards, Distribution Equivalent
Rights or any combination of the foregoing, as may be best suited to the
circumstances of the particular Employee or Director as provided herein.
ARTICLE II
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
the context otherwise requires:
"Affiliate" shall mean any person or entity which, at the time of
reference, directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the Company.
<PAGE>
"Award" shall mean, individually or collectively, any Option, Restricted
Stock Award, Deferred Stock Award, Unrestricted Stock Award, Performance Share
Award or Distribution Equivalent Right Award.
"Award Agreement" shall mean a written agreement between the Company and
the Holder with respect to an Award.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, however, that
without limiting the generality of the foregoing, a "Change of Control" will in
any event be deemed to occur if and when (i) there shall be consummated (x) any
consolidation, reorganization or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the shareholders of the Company shall
approve any plan or proposal for liquidation or dissolution of the Company, or
(iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
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<PAGE>
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Holder or any group controlled by the Holder))
shall become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of twenty percent (20%) or more of the Company's outstanding
Common Stock (other than pursuant to a plan or arrangement entered into by such
person and the Company) and such person discloses its intent to effect a change
of the control or ownership of the Company in any filing with the Securities and
Exchange Commission, or (iv) within any twenty-four (24) month period beginning
on or after the Effective Date, the persons who were directors of the Company
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death, disability or retirement) to
constitute at least a majority of the Board or the board of directors of any
successor to the Company, provided that, any director who was not a director as
of the Effective Date shall be deemed to be an Incumbent Director if such
director was elected to the Board by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually or by prior operation of this definition
unless such election, recommendation or approval was the result of any actual or
threatened election contest of the type contemplated by Regulation 14a-II
promulgated under the Exchange Act or any successor provision.
"Code" shall mean the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be
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<PAGE>
deemed to include any amendments or successor provisions to any section and any
regulation under such section.
"Committee" shall mean not less than three (3) members of the Board who are
selected by the Board as provided in Section 4.1.
"Common Stock" shall mean the Common Stock, par value .001(cent) per share,
of the Company.
"Company" shall mean Monarch Properties, Inc., a Maryland corporation, and
any successor thereto.
"Deferred Stock Award" shall mean an Award granted under Article IX of the
Plan of bookkeeping units representing shares of Common Stock which, upon the
completion of predetermined employment or Director service periods with the
Company or an Affiliate and/or the satisfaction of predetermined individual or
Company performance goals and/or objectives, are converted into shares of Common
Stock for distribution to the Holder.
"Deferred Stock Award Agreement" shall mean a written agreement between the
Company and a Holder with respect to a Deferred Stock Award.
"Director" shall mean a member of the Board or a member of the Board of
Directors of an Affiliate, in either case, who is not an Employee.
"Distribution Equivalent Right" shall mean an Award granted under Article
XII of the Plan which entitles the Holder to receive bookkeeping credits, cash
payments and/or Common Stock distributions equal in amount to the distributions
that would have been made to the Holder had the Holder held a specified number
of
-4-
<PAGE>
shares of Common Stock during the period that the Holder held the Distribution
Equivalent Right.
"Distribution Equivalent Right Award Agreement" shall mean a written
agreement between the Company and a Holder with respect to a Distribution
Equivalent Right Award.
"Effective Date" shall mean June ___, 1998.
"Employee" shall mean any person employed by the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, as of any specified date, the mean of the
reported high and low sales prices of the Common Stock on the stock exchange
composite tape on that date, or if no prices are reported on that date, on the
last preceding date on which such prices of the Common Stock are so reported. If
the Common Stock is traded over-the-counter at the time a determination of its
fair market value is required to be made hereunder, its fair market value shall
be deemed to be equal to the average between the reported high and low or
closing bid and asked prices of Common Stock on the most recent date on which
Common Stock was publicly traded. In the event Common Stock is not publicly
traded at the time a determination of this value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
"Holder" shall mean an Employee or a Director who has been granted an
Award.
-5-
<PAGE>
"Incentive Stock Option" shall mean an Option which is an "incentive stock
option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" shall mean an Option which is not an Incentive
Stock Option.
"Option" shall mean an Award granted under Article VII of the Plan of an
option to purchase shares of Common Stock and includes both Incentive Stock
Options and Non-Qualified Stock Options.
"Option Agreement" shall mean a written agreement between the Company and a
Holder with respect to an Option.
"Performance Share Award" shall mean an Award granted under Article XI of
the Plan under which, upon the satisfaction of predetermined individual or
Company performance goals and/or objectives, shares of Common Stock are paid to
the Holder.
"Performance Share Award Agreement" shall mean a written agreement between
the Company and a Holder with respect to a Performance Share Award.
"Plan" shall mean this Monarch Properties, Inc. 1998 Omnibus Securities and
Incentive Plan, as amended from time to time.
"Restricted Stock Award" shall mean an Award granted under Article IX of
the Plan of shares of Common Stock, the transferability of which by the Holder
shall be subject to Transfer Restrictions.
"Restricted Stock Award Agreement" shall mean a written agreement between
the Company and a Holder with respect to a Restricted Stock Award.
-6-
<PAGE>
"Restriction Period" shall mean the period of time for which shares of
Common Stock subject to a Restricted Stock Award shall be subject to Transfer
Restrictions, as set forth in the applicable Restricted Stock Award Agreement.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, as such may be amended from time to
time, and any successor rule, regulation or statute fulfilling the same or a
substantially similar function.
"Ten Percent Shareholder" shall mean an Employee who, at the time an Option
is granted thereto, owns more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any parent corporation
or subsidiary corporation thereof (both as defined in Section 424 of the Code),
within the meaning of Section 422(b)(6) of the Code.
"Total and Permanent Disability" shall mean the inability of an individual
to provide meaningful service for the Company due to a medically determinable
physical or mental impairment, which service is reasonably consistent with the
individual's past service for the Company, training and experience. Such
determination of total and permanent disability shall be made by the Committee.
Notwithstanding the foregoing, if an individual qualifies for Federal Social
Security disability benefits or for payments under a long-term disability income
Plan of the Company or the Affiliate which employs such individual, based upon
his physical or mental condition, such individual shall be deemed to suffer from
a Total and Permanent Disability hereunder.
-7-
<PAGE>
"Transfer Restrictions" shall mean restrictions on the transferability of
shares of Common Stock awarded to an Employee or a Director under the Plan
pursuant to a Restricted Stock Award Agreement.
"Unrestricted Stock Award" shall mean an Award granted under Article X of
the Plan of shares of Common Stock which are not subject to Transfer
Restrictions.
"Unrestricted Stock Award Agreement" shall mean a written agreement between
the Company and a Holder with respect to an Unrestricted Stock Award.
ARTICLE III
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the Effective Date, provided that the
Plan is approved by the stockholders of the Company within twelve (12) months of
such date and on or prior to the date of the first annual meeting of
stockholders of the Company held subsequent to the acquisition of an equity
security by a Holder hereunder for which exemption is claimed under Rule 16b-3.
ARTICLE IV
ADMINISTRATION
Section 4.1 Composition of Committee. The Plan shall be administered by the
Committee, which shall be (i) appointed by the Board; (ii) constituted so as to
permit the Plan to comply with Rule 16b-3; and (iii) constituted solely of
"outside directors" within the meaning of Section 162(m) of the Code and
applicable interpretive authority thereunder. If a member of the Committee shall
be eligible to receive an Award under the Plan, such
-8-
<PAGE>
Committee member shall have no authority hereunder with respect to his or her
own Award.
Section 4.2 Powers. Subject to the provisions of the Plan, the Committee
shall have the sole authority, in its discretion, to determine which individuals
shall receive an Award, the time or times when such Award shall be made, what
type of Award shall be granted and the number of shares of Common Stock which
may be issued under such Award, as applicable. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective individuals, their present and potential contribution to the
Company's (or the Affiliate's) success and such other factors as the Committee
in its discretion shall deem relevant.
Section 4.3 Additional Powers. The Committee shall have such additional
powers as are delegated to it under the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective Award Agreements executed hereunder, to prescribe such
rules and regulations relating to the Plan as it may deem advisable to carry out
the intent of the Plan, and to determine the terms, restrictions and provisions
of each Award, including such terms, restrictions and provisions as shall be
requisite in the judgment of the Committee to cause designated Options to
qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any Award
Agreement in the manner and to the
-9-
<PAGE>
extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Article IV shall be conclusive.
Section 4.4 Committee Action. In the absence of specific rules to the
contrary, action by the Committee shall require the consent of a majority of the
members of the Committee, expressed either orally at a meeting of the Committee
or in writing in the absence of a meeting.
ARTICLE V
STOCK SUBJECT TO PLAN AND LIMITATIONS THEREON
Section 5.1 Stock Grant and Award Limits. The Committee may from time to
time grant Awards to one or more Employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Article VI.
Subject to Article XV, (i) the aggregate number of shares of Common Stock that
may be issued under the Plan shall not exceed Five Percent (5.0%) of the total
number of shares of issued and outstanding Common Stock, and (ii) the aggregate
number of shares of Common Stock that may be issued under the Plan as Incentive
Stock Options, shall not exceed Five Hundred Thousand (500,000) shares. Shares
shall be deemed to have been issued under the Plan solely (i) to the extent
actually issued and delivered pursuant to an Award, or (ii) to the extent an
Award granted under Article VII, VIII, IX, X or XI is settled in cash. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Common Stock subject to such Award shall again be available for the grant of a
new Award. Notwithstanding any provision in the Plan to the contrary, the
maximum number of
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<PAGE>
shares of Common Stock that may be subject to Awards of Options under Article
VII granted to any one Employee or Director during any calendar year shall be
Five Hundred Thousand (500,000) shares (subject to adjustment in the same manner
as provided in Article XIII with respect to shares of Common Stock subject to
Awards then outstanding). The limitation set forth in the preceding sentence
shall be applied in a manner which shall permit compensation generated in
connection with the exercise of Options to constitute "performance-based"
compensation for purposes of Section 162(m) of the Code, including, but not
limited to, counting against such maximum number of shares, to the extent
required under Section 162(m) of the Code and applicable interpretive authority
thereunder, any shares subject to Options that are canceled or repriced.
Section 5.2 Stock Offered. The stock to be offered pursuant to the grant of
an Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
ARTICLE VI
ELIGIBILITY FOR AWARDS; TERMINATION OF EMPLOYMENT
OR DIRECTOR STATUS
Section 6.1 Eligibility. Awards made under the Plan may be granted solely
to persons who, at the time of grant, are Employees or Directors. An Award may
be granted on more than one occasion to the same Employee or Director, and,
subject to the limitations set forth in the Plan, such Award may include, a
Non-Qualified Stock Option, a Restricted Stock Award, a Deferred Stock Award, an
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<PAGE>
Unrestricted Stock Award, a Distribution Equivalent Right Award, any combination
thereof or, solely for Employees, an Incentive Stock Option.
Section 6.2 Termination of Employment or Director Status. Except to the
extent inconsistent with the terms of the applicable Award Agreement, the
following terms and conditions shall apply with respect to the termination of a
Holder's employment with, or status as a Director of, the Company or an
Affiliate, as applicable, for any reason, including, without limitation,
retirement upon or after attaining age sixty-two (62), Total and Permanent
Disability or death:
(a) The Holder's rights, if any, to exercise any then exercisable
Non-Qualified Stock Options shall terminate:
(1) If such termination is for a reason other than the Holder's
retirement upon or after attaining age sixty-two (62), Total and
Permanent Disability or death, not more than three (3) months after
the date of such termination of employment or six (6) months after the
date of such termination Director status;
(2) If such termination is on account of the Holder's retirement
upon or after attaining age sixty-two (62) or on account of the
Holder's Total and Permanent Disability, one (1) year after the date
of such termination of employment or Director status; or
(3) If such termination is on account of the Holder's death, one
(1) year after the date of the Holder's death.
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<PAGE>
Upon such applicable date the Holder (and such Holder's estate, designated
beneficiary or other legal representative) shall forfeit any rights or
interests in or with respect to any such Non-Qualified Stock Options.
(b) The Holder's rights, if any, to exercise any then exercisable
Incentive Stock Option shall terminate:
(1) If such termination is for a reason other than the Holder's
Total and Permanent Disability or death, not more than ninety (90)
days after the date of such termination of employment;
(2) If such termination is on account of the Holder's Total and
Permanent Disability, one (1) year after the date of such termination
of employment; or
(3) If such termination is on account of the Holder's death, one
(1) year after the date of the Holder's death.
Upon such applicable date the Holder (and such Holder's estate, designated
beneficiary or other legal representative) shall forfeit any rights or
interests in or with respect to any such Incentive Stock Options.
(c) If a Holder's employment with, or status as a Director of, the
Company or an Affiliate, as applicable, terminates for any reason prior to
the actual or deemed satisfaction and/or lapse of the restrictions, terms
and conditions applicable to an Award of Restricted Stock and/or Deferred
Stock such Restricted Stock and/or Deferred Stock shall immediately be
cancelled, and the Holder (and such
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Holder's estate, designated beneficiary or other legal representative)
shall forfeit any rights or interests in and with respect to any such
Restricted Stock and/or Deferred Stock. The immediately preceding sentence
to the contrary notwithstanding, the Committee, in its sole discretion, may
determine, prior to or within thirty (30) days after the date of such
termination of employment or Director status, that all or a portion of any
such Holder's Restricted Stock and/or Deferred Stock shall not be so
cancelled and forfeited.
ARTICLE VII
OPTIONS
Section 7.1 Option Period. The term of each Option shall be as specified in
the Option Agreement.
Section 7.2 Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as specified in
the Option Agreement.
Section 7.3 Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all plans of the Company and any parent
corporation or subsidiary corporation thereof (both as defined in Section 424 of
the Code) which provide for the grant of Incentive Stock Options exceeds One
Hundred Thousand Dollars ($100,000)(or such other individual limit as may be in
effect under the Code on the date of grant), such Incentive Stock Options shall
be treated as Non-
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Qualified Stock Options. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Holder's Options, which were intended by the
Committee to be Incentive Stock Options when granted to the Holder, will not
constitute Incentive Stock Options because of such limitation and shall notify
the Holder of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an Employee if, at
the time the Option is granted, such Employee is a Ten Percent Shareholder,
unless (i) at the time such Incentive Stock Option is granted the Option price
is at least one hundred ten percent (110%) of the Fair Market Value of the
Common Stock subject to the Option, and (ii) such Incentive Stock Option by its
terms is not exercisable after the expiration of five (5) years from the date of
grant.
Section 7.4 Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, but not limited to, provisions to qualify an Option as an Incentive
Stock Option. An Option Agreement may provide for the payment of the Option
price, in whole or in part, by the delivery of a number of shares of Common
Stock (plus cash if necessary) having a Fair Market Value equal to such Option
price. Each Option Agreement shall, solely to the extent inconsistent with the
provisions of Section 6.2, specify the effect of termination of employment or
Director status on the exercisability of the Option. Moreover, an Option
Agreement may
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provide for a "cashless exercise" of the Option by establishing procedures
whereby the Holder, by a properly-executed written notice, directs (i) an
immediate market sale or margin loan respecting all or a part of the shares of
Common Stock to which he is entitled upon exercise pursuant to an extension of
credit by the Company to the Holder of the Option price, (ii) the delivery of
the shares of Common Stock from the Company directly to a brokerage firm and
(iii) the delivery of the Option price from sale or margin loan proceeds from
the brokerage firm directly to the Company. An Option Agreement may also include
provisions relating to (i) subject to the provisions hereof, accelerated vesting
of Options, including but not limited to accelerated vesting upon the occurrence
of a Change of Control, (ii) tax matters (including provisions covering any
applicable Employee wage withholding requirements and requiring additional
"gross-up" payments to Holders to meet any excise taxes or other additional
income tax liability imposed as a result of a payment upon a Change of Control
resulting from the operation of the Plan or of such Option Agreement) and (iii)
any other matters not inconsistent with the terms and provisions of the Plan
that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Option Agreements need not be identical.
Section 7.5 Option Price and Payment. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee, but such Option price (i) in the case of an Option that is an
Incentive Stock Option, shall not be less than the Fair Market Value of a share
of Common Stock on
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the date such Option is granted, and (ii) shall be subject to adjustment as
provided in Article XIII. The Option or portion thereof may be exercised by
delivery of an irrevocable notice of exercise to the Company. The Option price
for the Option or portion thereof shall be paid in full in the manner prescribed
by the Committee. Separate stock certificates shall be issued by the Company for
those shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option and for those shares of Common Stock acquired pursuant to the
exercise of a Non-Qualified Stock Option.
Section 7.6 Shareholder Rights and Privileges. The Holder of an Option
shall be entitled to all the privileges and rights of a shareholder of the
Company solely with respect to such shares of Common Stock as have been
purchased under the Option and for which certificates of stock have been
registered in the Holder's name.
Section 7.7 Options and Rights in Substitution for Stock Options Granted by
Other Corporations. Options may be granted under the Plan from time to time in
substitution for stock options held by individuals employed by entities who
become Employees as a result of a merger or consolidation of the employing
entity with the Company or any Affiliate, or the acquisition by the Company or
an Affiliate of the assets of the employing entity, or the acquisition by the
Company or an Affiliate of stock of the employing entity with the result that
such employing entity becomes an Affiliate.
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ARTICLE VIII
RESTRICTED STOCK AWARDS
Section 8.1 Restriction Period to be Established by Committee. At the time
a Restricted Stock Award is made, the Committee shall establish the Restriction
Period applicable to such Award. Each Restricted Stock Award may have a
different Restriction Period, in the discretion of the Committee. The
Restriction Period applicable to a particular Restricted Stock Award shall not
be changed except as permitted by Section 8.2 or Article XIV.
Section 8.2 Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. If provided for under the
Restricted Stock Award Agreement, the Holder shall have the right to vote Common
Stock subject thereto and to enjoy all other shareholder rights, except that (i)
the Holder shall not be entitled to delivery of the stock certificate until the
Restriction Period shall have expired, (ii) the Company shall retain custody of
the stock during the Restriction Period, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the stock during
the Restriction Period, (iv) the Holder shall not be entitled to receive
dividends on the Common Stock during the Restriction Period and (v) a breach of
the terms and conditions established by the Committee pursuant to the Restricted
Stock Award Agreement, shall cause a forfeiture of the Restricted Stock Award.
At the time of such Award, the Committee may, in its sole
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discretion, prescribe additional terms and conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining to
the effect of termination of employment or Director status prior to expiration
of the Restriction Period, solely to the extent inconsistent with the provisions
of Section 6.2. Such additional terms, conditions or restrictions shall, to the
extent inconsistent with the provisions of Section 6.2, be set forth in a
Restricted Stock Award Agreement made in conjunction with the Award. Such
Restricted Stock Award Agreement may also include provisions relating to (i)
subject to the provisions hereof, accelerated vesting of Awards, including but
not limited to accelerated vesting upon the occurrence of a Change of Control,
(ii) tax matters (including provisions covering any applicable Employee wage
withholding requirements, prohibiting an election by the Holder under Section
83(b) of the Code and requiring additional "gross-up" payments to Holders to
meet any excise taxes or other additional income tax liability imposed as a
result of a Change of Control payment resulting from the operation of the Plan
or of such Restricted Stock Award Agreement) and (iii) any other matters not
inconsistent with the terms and provisions of the Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Restricted Stock Agreements need not be identical.
Section 8.3 Payment for Restricted Stock. The Committee shall determine the
amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to
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make any payment for Common Stock received pursuant to a Restricted Stock Award,
except to the extent otherwise required by law.
Section 8.4 Restricted Stock Award Agreements. At the time any Award is
made under this Article VIII, the Company and the Holder shall enter into a
Restricted Stock Award Agreement setting forth each of the matters contemplated
hereby and such other matters as the Committee may determine to be appropriate.
ARTICLE IX
DEFERRED STOCK AWARDS
Section 9.1 Terms and Conditions. The Committee shall establish the
requirements for the Holder of a Deferred Stock Award to receive shares of
Common Stock upon satisfaction of such requirements and shall set forth such
requirements in the applicable Deferred Stock Award Agreement. At the end of the
required employment, Board membership and/or performance measurement period, to
the extent the requirements of the Deferred Stock Award have been met, the
Company shall distribute shares of Common Stock to the Holder, pursuant to the
terms of the Deferred Stock Award Agreement.
Section 9.2 Shareholder Rights and Privileges. During the period a Deferred
Stock Award is outstanding but prior to the time shares of Common Stock are
distributed pursuant thereto, the Holder shall have no rights or privileges as a
shareholder of the Company unless the Deferred Stock Award Agreement provides
for Distribution Equivalent Rights with respect to the Award.
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ARTICLE X
UNRESTRICTED STOCK AWARDS
Pursuant to the terms of the applicable Unrestricted Stock Award Agreement,
a Holder may be awarded (or sold at a discount) shares of Common Stock which are
not subject to Transfer Restrictions, in consideration for past services
rendered thereby to the Company or an Affiliate or for other valid
consideration.
ARTICLE XI
PERFORMANCE SHARE AWARDS
Section 11.1 Terms and Conditions. The Committee shall set forth in the
applicable Performance Share Award Agreement the performance goals and
objectives (and the period of time to which such goals and objectives shall
apply), which the Holder and/or the Company will be required to satisfy before
becoming entitled to the receipt of shares of Common Stock pursuant to such
Holder's Performance Share Award.
Section 11.2 Shareholder Rights and Privileges. The Holder of a Performance
Share Award shall have no rights as a shareholder of the Company until such
time, if any, as the Holder actually receives shares of Common Stock pursuant to
the Performance Share Award.
ARTICLE XII
DISTRIBUTION EQUIVALENT RIGHTS
Section 12.1 Terms and Conditions. The Committee shall set forth in the
applicable Distribution Equivalent Rights Award Agreement the terms and
conditions, if any, including whether the Holder is to receive credits currently
in cash, is to have such
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credits reinvested (at Fair Market Value determined as of the date of
reinvestment) in additional shares of Common Stock or is to be entitled to
choose among such alternatives. Distribution Equivalent Rights Awards may be
settled in cash or in shares of Common Stock, as set forth in the Applicable
Distribution Equivalent Rights Award Agreement. A Distribution Equivalent Rights
Award may, but need not be, awarded as a component of another Award, where, if
so awarded, such Distribution Equivalent Rights Award shall expire or be
forfeited by the Holder under the same conditions as under such other Award.
Section 12.2 Interest Equivalents. The Distribution Equivalent Rights Award
Agreement for a Distribution Equivalent Rights Award may provide for the
crediting of interest on a Distribution Rights Award to be settled in cash at a
future date, at a rate set forth in the applicable Distribution Equivalent
Rights Award Agreement, on the amount of cash payable thereunder.
Section 12.3 Termination of Employment or Director Status. Except to the
extent as may otherwise be set forth in the applicable Distribution Equivalent
Rights Award Agreement, a Holder's rights to a Distribution Equivalent Rights
Award and any interest equivalents thereunder shall terminate upon the Holder's
termination of employment with, or status as a Director of, the Company or an
Affiliate for any reason.
ARTICLE XIII
RECAPITALIZATION OR REORGANIZATION
Section 13.1 Adjustments to Common Stock. The shares with respect to which
Awards may be granted are shares of Common Stock
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as presently constituted; provided, however, that if, and whenever, prior to the
expiration or distribution to the Holder of an Award theretofore granted, the
Company shall effect a subdivision or consolidation of shares of Common Stock or
the payment of a stock dividend on Common Stock without receipt of consideration
by the Company, the number of shares of Common Stock with respect to which such
Award may thereafter be exercised or satisfied, as applicable, (i) in the event
of an increase in the number of outstanding shares, shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares, shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
Section 13.2 Recapitalization. If the Company recapitalizes or otherwise
changes its capital structure, thereafter upon any exercise or satisfaction, as
applicable, of a previously granted Award, the Holder shall be entitled to
receive (or entitled to purchase, if applicable) under such Award, in lieu of
the number of shares of Common Stock then covered by such Award, the number and
class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Award.
Section 13.3 Change of Control. In the event of the occurrence of a Change
of Control, except to the extent otherwise provided in the applicable Award
Agreement, all outstanding Awards
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shall immediately vest and become exercisable and/or required employment or
Board membership periods with the Company or an Affiliate and/or performance
goals and/or objectives shall be deemed to have been fully satisfied, as
applicable. The Committee, in its discretion, may determine that upon the
occurrence of a Change of Control, each Award outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Common Stock subject to such
Award, cash in an amount equal to the excess of (i) the higher of (x) the Fair
Market Value of such share of Common Stock immediately prior to the occurrence
of such Change of Control or (y) the value of the consideration to be received
in connection with such Change of Control for one share of Common Stock, over
(ii) the exercise price per share, if applicable, of one share of Common Stock.
If the consideration offered to stockholders of the Company in any transaction
described in this Section 13.3 consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
non-cash consideration offered. The provisions contained in this Section 13.3
shall not terminate any rights of the Holder to further payments pursuant to any
other agreement with the Company following the occurrence of a Change of
Control.
Section 13.4 Other Events. In the event of changes to the outstanding
Common Stock by reason of recapitalization, reorganization, mergers,
consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of the grant of any Award and not
otherwise provided for under this
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Article XIII, any outstanding Awards and any Award Agreements evidencing such
Awards shall be subject to adjustment by the Committee in its discretion as to
the number and price of shares of Common Stock or other consideration subject to
such Awards. In the event of any such change to the outstanding Common Stock,
the aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee, the determination of which shall be conclusive.
Section 13.5 Powers Not Affected. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board or
of the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change of the Company's capital
structure or business, any merger or consolidation of the Company, any issue of
debt or equity securities ahead of or affecting Common Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.
Section 13.6 Required Shareholder Action. Any adjustment provided for in
Sections 13.1, 13.2, 13.3 and 13.4 above shall be subject to any required
shareholder action.
Section 13.7 No Adjustment for Certain Awards. Except as hereinabove
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe
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therefor or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, and in any case whether or not for fair
value, shall not affect previously granted Awards, and no adjustment by reason
thereof shall be made with respect to the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
ARTICLE XIV
AMENDMENT AND TERMINATION OF PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part hereof from time to
time; provided, however, that no change in any Award theretofore granted may be
made which would impair the rights of a Holder without the consent of the Holder
(unless such change is required in order to cause the benefits under the Plan to
qualify as performance-based compensation within the meaning of Section 162(m)
of the Code and applicable interpretive authority thereunder), and, provided,
further, that the Board may not, without approval of the stockholders, amend the
Plan:
(a) to increase the maximum number of shares which may be issued upon
exercise or surrender of an Award, except as provided in Article XIII;
(b) to change the Option price;
(c) to change the class of individuals eligible to receive Awards or
materially increase the benefits accruing to Employees under the Plan;
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(d) to modify materially the requirements as to eligibility for
participation in the Plan; or
(e) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
ARTICLE XV
MISCELLANEOUS
Section 15.1 No Right to Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
Employee or Director any right to an Award except as may be evidenced by an
Award Agreement duly executed on behalf of the Company, and then solely to the
extent and on the terms and conditions expressly set forth therein.
Section 15.2 No Rights Conferred. Nothing contained in the Plan shall (i)
confer upon any Employee any right with respect to continuation of employment
with the Company or any Affiliate, (ii) interfere in any way with the right of
the Company or any Affiliate to terminate the employment of an Employee at any
time, (iii) confer upon any Director any right with respect to continuation of
such Director's membership on the Board, or (iv) interfere in any way with the
right of the Company or an Affiliate to terminate a Director's membership on the
Board at any time.
Section 15.3 Other Laws; Withholding. The Company shall not be obligated to
issue any Common Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the opinion
of
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legal counsel of the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in cash (whether under this Plan or otherwise) in connection
with all Awards any taxes required by law to be withheld and to require any
payments required to enable it to satisfy its withholding obligations. In the
case of any Award satisfied in the form of shares of Common Stock, no shares
shall be issued unless and until arrangements satisfactory to the Company shall
have been made to satisfy any tax withholding obligations applicable with
respect to such Award. Subject to such terms and conditions as the Committee may
impose, the Company shall have the right to retain, or the Committee may subject
to such terms and conditions as it may establish from time to time, permit
Holders to elect to tender Common Stock (including Common Stock issuable in
respect of an Award) to satisfy, in whole or in part, the amount required to be
withheld.
Section 15.4 No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent the Company or any Affiliate from taking any
corporate action which is deemed by the Company or such Affiliate to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No Employee,
Director, beneficiary or other person shall have any claim against the Company
or any Affiliate as a result of any such action.
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Section 15.5 Restrictions on Transfer. No Award under the Plan or any Award
Agreement and no rights or interests herein or therein, shall or may be
assigned, transferred, sold, exchanged, encumbered, pledged or otherwise
hypothecated or disposed of by a Holder except (i) by will or by the laws of
descent and distribution, or (ii) except for an Incentive Stock Option, by gift
to any member of the Holder's immediate family or to a trust for the benefit of
such immediate family member. An award may be exercisable during the lifetime of
the Holder only by such Holder or by the Holder's guardian or legal
representative unless it has been transferred by gift to a member of the
Holder's immediately family or to a trust for the benefit of such immediate
family member, in which case it shall be exercisable solely by such transferee.
For purposes of this provision, a Holder's "immediate family" shall mean the
Holder's spouse, children and grandchildren. Notwithstanding any such transfer,
the Holder will continue to be subject to the withholding requirements provided
for under Section 15.3 hereof.
Section 15.6 Rule 16b-3. It is intended that the Plan and any Award made to
a person subject to Section 16 of the Exchange Act shall meet all of the
requirements of Rule 16b-3. If any provision of the Plan or of any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed to have
been amended as necessary to conform to Rule 16b-3.
Section 15.7 Section 162(m). It is intended that the Plan shall comply
fully with and meet all the requirements of Section
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162(m) of the Code so that Awards hereunder, as applicable, shall constitute
"performance-based" compensation within the meaning of Section 162(m). If any
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m); provided, however, that no such construction or amendment shall
have an adverse effect on the economic value to a Holder of any Award previously
granted hereunder.
Section 15.8 Other Plans. No Award, payment or amount received hereunder
shall be taken into account in computing an Employee's salary or compensation
for the purposes of determining any benefits under any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate, unless such
other plan specifically provides for the inclusion of such Award, payment or
amount received.
Section 15.9 Limits of Liability. Any liability of the Company with respect
to an Award shall be based solely upon the contractual obligations created under
the Plan and the Award Agreement. Neither the Company nor any member of the
Committee shall have any liability to any party for any action taken or not
taken, in good faith, in connection with or under the Plan.
Section 15.10 Governing Law. Except as otherwise provided herein, the Plan
shall be construed in accordance with the laws of the State of Maryland.
Section 15.11 Severability of Provisions. If any provision of the Plan is
held invalid or unenforceable, such invalidity or
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unenforceability shall not affect any other provision of the Plan, and the Plan
shall be construed and enforced as if such invalid or unenforceable provision
had not been included in the Plan.
Section 15.12 No Funding.
The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of funds
or assets to ensure the payment of any Award.
Section 15.13 Headings. Headings used throughout the Plan are for
convenience only and shall not be given legal significance.
IN WITNESS WHEREOF, the Company has hereby executed this Plan, as of the
date written below.
MONARCH PROPERTIES, INC.
By: ______________________
Title: ___________________
Date: ____________________
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NON-COMPETITION AGREEMENT
BETWEEN
MONARCH PROPERTIES, INC.
AND
ROBERT N. ELKINS
DATED AS OF JUNE ___, 1998
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made as of the ____
day of June, 1998, between Monarch Properties, Inc., a Maryland corporation (the
"Company"), and Robert N. Elkins, Chairman of the Board of Directors of the
Company ("Elkins").
WHEREAS, the Company and Elkins are interested in entering into this
Agreement governing non-competition;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements of the parties contained herein and other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
Section 1. Non-competition. During the period during which Elkins serves as
a director of the Company, Elkins shall not, except with the Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
(a) Communicate with or solicit any Person who is or during such
period becomes a customer, supplier, employee, salesman, agent or
representative of the Company, in any manner which is intended to interfere
with such Person's relationship with the Company, or, which is intended to
obtain such Person as a customer, supplier, employee, salesman, agent or
representative of any business in competition with the Company within ten
(10) miles of any healthcare facility owned, leased or operated by the
Company;
(b) Establish, engage, own, manage, operate, join or control or
participate in the establishment, ownership (other than as the owner of
less than five percent (5%) of the stock of a corporation whose shares are
publicly traded), management, operation or control of, or be a director,
trustee, officer, employee, salesman, agent or representative of, or be a
consultant to, any Person in any business in competition with the Company,
at any location within ten (10) miles of any healthcare facility owned,
leased or operated by the Company;
provided, however, that any activity engaged in by Elkins as an officer,
director or employee of, or any interest of Elkins as a stockholder in
Integrated Health Services, Inc. shall not be limited in any way by this
Agreement; and, provided, further, that nothing in this Agreement shall require
Elkins to terminate any investment or contractual relationship which did not
constitute a breach of this Agreement at the time that such investment or
relationship was first entered into by Elkins.
<PAGE>
For purposes of this Agreement, the term "Person" means a natural person,
corporation, limited liability company, partnership, trust, estate, joint
venture, sole proprietorship, government (and any branch or subdivision
thereof), governmental agency, association, cooperative or other entity.
Section 2. Enforcement. Elkins acknowledges that any breach by him of any
of the covenants and agreements of this Agreement (the "Covenants") will result
in irreparable injury to the Company for which money damages could not
adequately compensate the Company, and therefore, in the event of any such
breach, the Company shall be entitled, in addition to all other rights and
remedies which the Company may have at law or in equity, to have an injunction
issued by any competent court enjoining and restraining Elkins and/or all other
Persons involved therein from continuing such breach. The existence of any claim
or cause of action which Elkins or any such other Person may have against the
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants.
Section 3. Consideration. Elkins expressly acknowledges that the Covenants
are a material part of the consideration bargained for by the Company.
Section 4. Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal, or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
Section 5. Assignment. The rights and obligations of the Company under this
Agreement shall be binding upon its successors and assigns and may be assigned
by the Company to the successors in interest of the Company. The rights and
obligations of Elkins under this Agreement shall be binding upon his heirs,
legatees, personal representatives, executors or administrators.
Section 6. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered, sent by overnight courier,
or mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:
If to the Company: Monarch Properties, Inc.
8889 Pelican Bay Boulevard - Suite 501
<PAGE>
Naples, Florida 34108
Attention: John B. Poole
Fax No.: 941-566-6082
If to Elkins: c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Robert N. Elkins
Fax No.: 410-998-8700
Section 7. Headings. Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 8. Severability. If any part of any provision of this Agreement
shall be invalid or unenforceable under applicable law, such part shall be
ineffective to the extent of such invalidity or unenforceability only, without
in any way affecting the remaining parts of such provision or the remaining
provisions of this Agreement.
Section 9. Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York (without
reference to the choice of law rules thereof).
Section 10. Amendment; Modification; Waiver. No amendment, modification or
waiver of the terms of this Agreement shall be valid unless made in writing and
duly executed by Elkins and the Company. No delay or failure at any time on the
part of the Company in exercising any right, power or privilege under this
Agreement, or in enforcing any provision of this Agreement, shall impair any
such right, power, or privilege, or be construed as a waiver of any default or
as any acquiescence therein, or shall affect the right of the Company thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
Section 11. Gender and Number. Throughout this Agreement, the masculine and
neuter genders shall be deemed to include all genders, and the singular, the
plural and vice versa, except where such construction would be unreasonable.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed and delivered this Non-
Competition Agreement as of the date first above written.
MONARCH PROPERTIES, INC.
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
--------------------------------------------
Robert N. Elkins
FACILITIES PURCHASE AGREEMENT
AMONG
MONARCH PROPERTIES, LP,
INTEGRATED HEALTH SERVICES, INC.
AND
THE ENTITIES LISTED ON ATTACHED EXHIBIT A
DATED AS OF JUNE 23, 1998
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TABLE OF CONTENTS
Section Page
ARTICLE I - DEFINITIONS........................................................2
1.1 Agreement.......................................................2
1.2 Bills of Sale...................................................2
1.3 Closing.........................................................2
1.4 Closing Date....................................................2
1.5 Closing Escrow Agreement. .....................................2
1.6 Consent and Subordination Agreement. ..........................2
1.7 Contracts.......................................................2
1.8 Deeds...........................................................3
1.9 Deferred Maintenance Adjustment.................................3
1.10 Effective Date..................................................3
1.11 Environmental Laws..............................................3
1.12 Environmental Remediation.......................................3
1.13 Escrow Agent....................................................4
1.14 Escrow Agreement................................................4
1.15 Facilities......................................................4
1.16 Facility Franchise Agreement....................................4
1.17 Facility Management Agreement...................................4
1.18 Facility Sublease...............................................4
1.19 Final Financial Statements; Final Balance Sheet.................4
1.20 Financial Statements of the Facilities..........................4
1.21 Franchisor......................................................4
1.22 Guaranty........................................................5
1.23 IHS.............................................................5
1.24 IHS Indemnity...................................................5
1.25 Improvements....................................................5
1.26 Intangible Property.............................................5
1.27 Knowledge.......................................................5
1.28 Law.............................................................5
1.29 MAI Appraisal...................................................5
1.30 Manager.........................................................6
1.31 Master Franchise Agreement......................................6
1.32 Master Lease....................................................6
1.33 Master Management Agreement.....................................6
1.34 Monarch.........................................................6
1.35 Offering........................................................6
1.36 Permits.........................................................6
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TABLE OF CONTENTS
Section Page
1.37 Permitted Liens.................................................6
1.38 Personal Property...............................................6
1.39 Pledge Agreements...............................................7
1.40 Purchase Price..................................................7
1.41 Real Property...................................................7
1.42 Release.........................................................7
1.43 Security Agreement..............................................7
1.44 Sellers' Liabilities............................................7
1.45 Seller Licenses.................................................7
1.46 Sellers' Assets.................................................7
1.47 Survey..........................................................8
1.48 Title Commitment................................................8
1.49 Title Company...................................................8
1.50 Title Insurance Policy..........................................8
1.51 Transaction Documents...........................................8
1.52 UCC Search Report...............................................8
ARTICLE II - PURCHASE AND SALE.................................................9
2.1 Agreement to Sell and Buy.......................................9
2.2 No Assumption of Liabilities....................................9
ARTICLE III - PURCHASE PRICE...................................................9
ARTICLE IV - CLOSING...........................................................9
ARTICLE V - TRANSACTION COSTS AND EXPENSES.....................................9
5.1 Transfer Taxes; Sales Taxes.....................................9
5.2 MAI Appraisals.................................................10
5.3 Title Insurance................................................10
5.4 Surveys/UCC Search Reports.....................................10
5.5 Environmental Reports/Remediation..............................10
5.6 Attorneys' Fees................................................10
5.7 Recording Costs................................................10
5.8 Releases.......................................................10
5.9 Deferred Maintenance Adjustment................................10
5.10 Fee; Commitment Fee............................................10
5.11 Other Items....................................................10
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TABLE OF CONTENTS
Section Page
ARTICLE VI - POSSESSION.......................................................11
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF SELLERS.......................11
7.1 Corporate Organization; Good Standing; Corporate Information...11
7.2 Authorization; Enforceability..................................11
7.3 No Violation or Conflict.......................................12
7.4 Assets.........................................................12
7.5 No Litigation..................................................12
7.6 Personal Property and Improvements.............................13
7.7 Real Property and Improvements.................................13
7.8 Zoning.........................................................13
7.9 Leases.........................................................13
7.10 Liabilities....................................................13
7.11 Taxes..........................................................13
7.12 Contracts......................................................14
7.13 Contracts and Leases...........................................14
7.14 Financial Statements of the Facilities.........................14
7.15 No Adverse Change..............................................14
7.16 Employment Agreements and Benefits.............................14
7.17 Insurance......................................................15
7.18 Compliance with the Law........................................15
7.19 Transactions with Affiliates...................................16
7.20 Obligations....................................................16
7.21 No Broker......................................................16
7.22 Environmental Compliance.......................................16
7.23 No Attachments.................................................17
7.24 No Options.....................................................17
7.25 Seller Licenses................................................17
7.26 Disclosure.....................................................18
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF IHS..........................18
8.1 Status of IHS.............................................18
8.2 Validity of Conflicts.....................................18
8.3 Authority.................................................18
8.4 Truth of Representations..................................18
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TABLE OF CONTENTS
Section Page
ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF PURCHASER......................19
9.1 Organization...................................................19
9.2 Authorization; Enforceability..................................19
9.3 No Violation or Conflict.......................................19
9.4 No Broker......................................................19
ARTICLE X - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER..............19
10.1 Compliance with this Agreement.................................19
10.2 Proceedings and Instruments Satisfactory.......................20
10.3 No Litigation..................................................21
10.4 Representations and Warranties.................................21
10.5 Deliveries at the Closing......................................21
10.6 Regulatory Approvals...........................................22
10.7 Default........................................................22
10.8 Approvals......................................................22
10.9 Offering.......................................................22
ARTICLE XI - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS...............23
11.1 Compliance with this Agreement.................................23
11.2 Proceedings and Instruments Satisfactory.......................23
11.3 No Litigation..................................................23
11.4 Representations and Warranties.................................23
11.5 Deliveries at the Closing......................................23
11.6 Restraints.....................................................24
11.7 Regulatory Approvals...........................................24
11.8 Approvals......................................................24
ARTICLE XII - ADDITIONAL COVENANTS AND INDEMNIFICATIONS.......................24
12.1 Transfer Taxes and Fees........................................24
12.2 Cooperation....................................................24
12.3 Additional Instruments.........................................24
12.4 Publicity......................................................25
12.5 Confidentiality................................................25
12.7 Liability for Representations and Warranties Before the
Effective Date................................................28
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TABLE OF CONTENTS
Section Page
ARTICLE XIII - MISCELLANEOUS..................................................28
13.1 Entire Agreement; Amendment....................................28
13.2 Governing Law..................................................29
13.3 Assignment.....................................................29
13.4 Notices........................................................29
13.5 Counterparts; Headings.........................................30
13.6 Interpretation.................................................30
13.7 Severability...................................................30
13.8 No Reliance....................................................30
13.9 Binding........................................................30
13.10 Survival.......................................................31
13.11 Allocation of Purchase Price...................................31
13.12 Dispute Attorneys' Fees and Expenses...........................31
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FACILITIES PURCHASE AGREEMENT
THIS FACILITIES PURCHASE AGREEMENT (this "Agreement"), is made and entered
into as of the ___ day of June, 1998, among Monarch Properties, LP, a Delaware
limited partnership, with principal offices at 8889 Pelican Bay Boulevard,
Naples, Florida 34103 ("Purchaser"), Integrated Health Services, Inc., a
Delaware corporation, with principal offices at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("IHS") and each of the entities described on attached
Exhibit A (each, a "Seller" and, collectively, "Sellers").
W I T N E S S E T H:
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Capitalized terms used but not otherwise defined herein have the
respective meanings given them in Article I herein.
B. Sellers are corporations that are each wholly owned by IHS. Sellers also
are the respective owners of Sellers' Assets. Sellers desire to sell, and
Purchaser desires to acquire, Sellers' Assets on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, and intending to
be legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified herein. The meanings specified in this Article and elsewhere in this
Agreement are for purposes of this Agreement only and do not purport to have any
significance for any other purpose, including, but not limited to, any
applicable reporting requirements under tax or securities laws, except as the
terms may be used by reference in other agreements between the parties to this
Agreement. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural and vice versa, unless this Agreement requires otherwise.
1.1 Agreement. "Agreement" shall mean this Facilities Purchase Agreement,
together with the Exhibits and Schedules attached hereto, as the same may be
amended from time to time in accordance with the terms hereof.
1.2 Bills of Sale. "Bills of Sale" shall mean, collectively, the bill of
sale to be executed by each Seller and conveying to Purchaser all of the
Personal Property for each Facility owned by such Seller.
1.3 Closing. "Closing" shall mean the closing held at 10:00 a.m., local
time, on the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York. All transactions occurring at
the Closing shall be deemed to have occurred simultaneously, and no one
transaction shall be deemed to be complete until all transactions are completed.
1.4 Closing Date. "Closing Date" shall mean June 23, 1998.
1.5 Closing Escrow Agreement. "Closing Escrow Agreement" shall mean the
escrow agreement executed by each Seller, Purchaser and IHS, concurrently with
the Closing, pursuant to which the Escrow Agent will hold in escrow certain
Transaction Documents pending the Effective Date.
1.6 Consent and Subordination Agreement. "Consent and Subordination
Agreement" shall mean the agreement to be executed among Manager, Franchisor,
Lyric Holdings, the Subsidiaries of Lyric Holdings to which the Facilities are
to be subleased and Purchaser pursuant to which certain management and franchise
fees payable under the Facility Management Agreement and Facility Franchise
Agreement are subordinated to Purchaser's rights under the Master Lease upon an
Event of Default under the Master Lease.
1.7 Contracts. "Contracts" shall mean those contracts, agreements, leases,
rights of renewal thereto and commitments with respect to each of the Facilities
or with respect to the
2
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operation of any of the Facilities (a) to which Sellers or any of the Facilities
is a party or (b) by which Sellers or any of the Facilities is bound and that
are listed on Schedule 1.7 hereto.
1.8 Deeds. "Deeds" shall mean, collectively, the general warranty deed (or
such other form of deed applicable to the state in which the Facility is
located) in recordable form, executed by each Seller and conveying to Purchaser
fee simple title to the real property owned by such Seller, free and clear of
all liens and encumbrances other than the Permitted Liens.
1.9 Deferred Maintenance Adjustment. "Deferred Maintenance Adjustment"
shall mean, with respect to each Facility, the amount set forth opposite such
Facility's name on Schedule 1.9 hereto to cover the potential costs to be
incurred after the Effective Date in making the repairs or modifications
required at such Facility and described on Schedule 1.9 hereto.
1.10 Effective Date. "Effective Date" shall mean the date that is no more
than twenty (20) days following the closing of the Offering.
1.11 Environmental Laws. "Environmental Laws" shall mean all federal,
state, and local laws, statutes, ordinances, regulations, policies, rules,
directives, guidelines, Permits, licenses, criteria and rules of common law now
or hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the regulation and protection of
human health, safety, the environment and natural resources (including, without
limitation, ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, and wildlife, aquatic species and vegetation), including,
without limitation, relating to emissions, discharges, releases or threatened
releases of Hazardous Materials (as defined in Section 7.22 hereof) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, and the Safe Drinking Water Act, and as the same may be
amended, modified or supplemented, the regulations promulgated pursuant thereto,
and their state and local counterparts or equivalents.
1.12 Environmental Remediation. "Environmental Remediation" shall mean,
with respect to each Facility, the work described opposite such Facility's name
on Schedule 1.12 hereto to be performed after the Closing for the investigation
and/or remediation of the environmental conditions at such Facility described on
Schedule 1.12 hereto.
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1.13 Escrow Agent. "Escrow Agent" shall mean Fidelity National Title
Insurance Company of New York.
1.14 Escrow Agreement. "Escrow Agreement" shall mean the agreement among
Sellers, Lyric Holdings, Purchaser and Escrow Agent pursuant to which the
Deferred Maintenance Adjustment is to be held and disbursed.
1.15 Facilities. "Facilities" shall mean the Real Property, Improvements
and Personal Property constituting the health care facilities described on
Exhibit B hereto. Reference to any one of the Facilities individually and not
specifically shall be referred to herein as a "Facility".
1.16 Facility Franchise Agreement. "Facility Franchise Agreement" shall
mean the facility franchise agreement, in form and substance satisfactory to
Purchaser, to be executed by each Seller and Franchisor, pursuant to which
Franchisor grants to such Seller the right to use Franchisor's names, marks,
systems and proprietary information.
1.17 Facility Management Agreement. "Facility Management Agreement" shall
mean the facility management agreement, in form and substance satisfactory to
Purchaser, to be executed by each Seller and Manager, pursuant to which Manager
agrees to manage the Facility leased by such Seller pursuant to the Facility
Sublease.
1.18 Facility Sublease. "Facility Sublease" shall mean the facility
sublease, in form and substance satisfactory to Purchaser, executed and
delivered by Lyric III and each Seller, concurrently with the Closing, pursuant
to which Lyric III subleases to each Seller, and each Seller subleases from
Lyric III, the respective Facilities.
1.19 Final Financial Statements; Final Balance Sheet. "Final Financial
Statements" shall mean the unaudited Financial Statements of the Facilities as
of the Effective Date, including a balance sheet for each of the Facilities as
of such date, together with the related unaudited statement of income and
statement of cash flows for the period from January 1, 1998 through the
Effective Date, and the notes thereto. "Final Balance Sheet" shall mean the
balance sheet included in the Final Financial Statements.
1.20 Financial Statements of the Facilities. "Financial Statements of the
Facilities" shall mean the unaudited Financial Statements for each of the
Facilities as of December 31, 1997, as described in Schedule 1.20 hereto.
1.21 Franchisor. "Franchisor" shall mean Integrated Health Services
Franchising Co., Inc., a Delaware corporation, with principal offices at 10065
Red Run Boulevard, Owings Mills, Maryland 21117, which is a Subsidiary of IHS.
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1.22 Guaranty. "Guaranty" shall mean the guaranty, in form and substance
satisfactory to Purchaser, executed and delivered by Lyric to Purchaser
concurrently with the execution and delivery of the Master Lease and the
Facility Subleases, pursuant to which Lyric guarantees to Purchaser the payment
and performance by Lyric Holdings and the respective Sellers of their respective
obligations under the Master Lease and the Facility Subleases.
1.23 IHS. "IHS" shall mean Integrated Health Services, Inc., a Delaware
corporation, with principal offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117.
1.24 IHS Indemnity. "IHS Indemnity" shall mean the indemnity agreement, in
form and substance satisfactory to Purchaser, to be executed by IHS and
Purchaser, pursuant to which IHS agrees to indemnify Purchaser with respect to
certain environmental matters in respect of the Facilities.
1.25 Improvements. "Improvements" shall mean, collectively, the buildings
and all attached fixtures constituting the nursing home/adult care facilities
and related improvements, Related Rights and Fixtures, constructed on each of
the Real Properties.
1.26 Intangible Property. "Intangible Property" shall mean (a) all
transferable consents, authorizations, variances or waivers, licenses, permits
and approvals given or issued by any governmental or quasi-governmental agency,
department, board, commission, bureau or other entity or instrumentality having
jurisdiction over the respective Facilities and (b) all rights to use the names
of the Facilities set forth on Schedule 1.26 hereto, but excluding any right to
use the name "Integrated" or the name "Integrated Health Services".
1.27 Knowledge. "Knowledge" of a party shall mean (a) actual knowledge of
an officer or management level employee of such party, with respect to a
corporation, (b) actual knowledge of a general partner or management level
employee of such party, with respect to a partnership, or (c) actual knowledge
of the person with respect to a natural person.
1.28 Law. "Law" shall mean any federal, state, local or other law,
ordinance, code, or governmental agency requirement of any kind, and the rules,
regulations and orders promulgated thereunder including, without limitation, the
Environmental Laws.
1.29 MAI Appraisal. "MAI Appraisal" shall mean with respect to each
Facility, an appraisal, in form and substance satisfactory to Purchaser,
prepared by an appraiser who is a Member of the Appraisal Institute and is
experienced in appraising properties of the same nature, and in the same
geographical vicinity, as each Facility.
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1.30 Manager. "Manager" shall mean IHS Facility Management, Inc., a
Delaware corporation, with principal offices at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117, which is a Subsidiary of IHS.
1.31 Master Franchise Agreement. "Master Franchise Agreement" shall mean
the master franchise agreement, in form and substance satisfactory to Purchaser,
to be executed by Franchisor and Lyric, pursuant to which Franchisor grants to
Lyric the right to use Franchisor's names, marks, systems and proprietary
information.
1.32 Master Lease. "Master Lease" shall mean the master lease, in form and
substance satisfactory to Purchaser, executed and delivered by Purchaser and
Lyric III, concurrently with the Closing, pursuant to which Purchaser leases to
Lyric III, and Lyric III leases from Purchaser, the respective Facilities.
1.33 Master Management Agreement. "Master Management Agreement" shall mean
the master management agreement, in form and substance satisfactory to
Purchaser, to be executed by Lyric and Manager, pursuant to which Manager agrees
to manage the Facilities.
1.34 Monarch. "Monarch" shall mean Monarch Properties, Inc., a Maryland
corporation, with principal offices at 8889 Pelican Bay Boulevard, Naples,
Florida 34103.
1.35 Offering. "Offering" shall mean the public offering of shares of
common stock of Monarch.
1.36 Permits. "Permits" shall mean all permits, consents, waivers,
exemptions, orders, certificates of need, licenses and governmental and agency
authorizations, registrations and approvals with respect to each of the
Facilities, as listed on Schedule 1.36 hereto. For purposes of this definition,
the term "license" shall mean the permit to own a nursing home and to operate a
nursing home issued to any operator of a nursing home upon application to, and
approval by, the health care facilities branch, pursuant to the relevant state
nursing home licensure act, as in effect on the Effective Date.
1.37 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges, security
interests, impositions and other matters affecting any of the Facilities, as
listed on Schedule 1.37 hereto.
1.38 Personal Property. "Personal Property" shall mean, collectively, the
vehicles, equipment, machinery, furniture, fixtures, furnishings, moveable walls
or partitions, computers or trade fixtures, office equipment, operating supplies
and other tangible real or personal property owned or leased by Sellers on the
Closing Date.
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1.39 Pledge Agreements. "Pledge Agreements" shall mean, collectively, (a)
the pledge agreement, executed and delivered from Lyric Health Care LLC
("Lyric") to Purchaser, pursuant to which Lyric pledged to Purchaser the stock
of Lyric Health Care Holdings III, Inc. ("Lyric III") and (b) the pledge
agreement, executed and delivered from Lyric III to Purchaser, pursuant to which
Lyric III pledged to Purchaser the stock of Sellers.
1.40 Purchase Price. "Purchase Price" shall mean the sum of
$[359,663,039.00].
1.41 Real Property. "Real Property" shall mean, collectively, all of the
land and Improvements located thereon, situated at the addresses as listed on
Exhibit B hereto, that is currently owned by Sellers.
1.42 Release. "Release" shall mean the release, deposit, disposal or
leakage of any Hazardous Material into, upon or under any land or water or air,
or otherwise into the environment, including, without limitation, by means of
burial, disposal, discharge, emission, injection, spillage, leakage, seepage,
leaching, dumping, pumping, pouring, escaping, emptying, placement and the like.
1.43 Security Agreement. "Security Agreement" shall mean the security
agreement, in form and substance satisfactory to Purchaser, pursuant to which
Sellers and Lyric Holdings grant to Purchaser a security interest in the
Personal Property and Intangible Property in order to secure the obligations of
Lyric Holdings under the Master Lease and each Seller under the Facility
Subleases.
1.44 Sellers' Liabilities. "Sellers' Liabilities" shall mean any and all
liabilities of Sellers or any of the Facilities, whether actual or contingent,
relating to each of the Facilities that are (a) reflected on the Financial
Statements of the Facilities or on Schedule 1.44 hereto or (b) except for
liabilities arising from operation of the Facilities on or prior to the Closing
Date, arising under the Contracts.
1.45 Seller Licenses. "Seller Licenses" shall mean, if and as applicable,
all material licenses, Permits and authorizations necessary for the lawful
operation of the respective Facilities, as the Facilities currently are
operated, including all licenses, Permits and authorizations necessary to (a)
lawfully operate all beds contained in the Facilities as nursing home beds, (b)
provide licensed nursing services and any other services currently provided at
the respective Facilities, and (c) receive payment under the Medicare and
applicable state Medicaid programs.
1.46 Sellers' Assets. "Sellers' Assets" shall mean, collectively, the Real
Property, the Facilities, the Personal Property and the Intangible Property.
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1.47 Survey. "Survey" shall mean, with respect to a Facility, a survey that
is (a) certified to Purchaser, the applicable Seller, Lyric III and the Title
Company, (b) prepared in accordance with the minimum standard detail
requirements and classifications for ALTA/ASCM land title surveys, as adopted in
1992 by ALTA/ASCM, including Table A responsibilities and specifications 1-4,
6-11 and 13, and (c) otherwise in form satisfactory to Purchaser.
1.48 Title Commitment. "Title Commitment" shall mean, with respect to a
Facility, a title insurance commitment, issued by the Title Company, dated after
the date of this Agreement and committing the Title Company to insure
Purchaser's fee simple title to the applicable Facility, without the so-called
"standard exceptions", in the amount of the portion of the Purchase Price
allocated to such Facility pursuant to Section 13.12 hereof, together with
legible copies of all recorded documents referred to therein.
1.49 Title Company. "Title Company" shall mean Fidelity National Title
Insurance Company of New York.
1.50 Title Insurance Policy. "Title Insurance Policy" shall mean, with
respect to a Facility, a title insurance policy, issued pursuant to the
applicable Title Commitment by the Title Company concurrently with the Closing,
that insures Purchaser's fee simple title to the applicable Facility, without
the so-called "standard exceptions", and subject only to the Permitted Liens.
Each Title Insurance Policy shall include the following endorsements, to the
extent available under the law of the state in which the applicable Facility is
located: (a) Form 3.1 completed zoning endorsement, (b) comprehensive
endorsement, (c) access endorsement, (d) survey endorsement, (e) separate tax
parcel endorsement, (f) contiguity endorsement (if the Real Property on which
the applicable Facility is located consists of more than one parcel), and (g)
such other endorsements as Purchaser reasonably may require.
1.51 Transaction Documents. "Transaction Documents" shall mean this
Agreement, the Master Lease, the Facility Subleases, the Memorandum of Lease,
the Memoranda of Sublease, the Guaranty, the Security Agreement, the Escrow
Agreement, the Closing Escrow Agreement, the IHS Indemnity, the Pledge
Agreements and all other agreements related thereto executed and delivered by
the parties to this Agreement.
1.52 UCC Search Report. "UCC Search Report" shall mean a UCC search report
in the name of the applicable Seller and Facility conducted at the state and
county level in the state in which the applicable Facility is located and, if
different, in the state in which the applicable Seller is organized and in the
state in which the applicable Seller's chief executive office is located.
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ARTICLE II
PURCHASE AND SALE
2.1 Agreement to Sell and Buy. On the terms and subject to the conditions
set forth in this Agreement, Sellers agree to sell to Purchaser, and Purchaser
agrees to acquire from Sellers, Sellers' Assets.
2.2 No Assumption of Liabilities. Except as specifically set forth in this
Agreement, Purchaser is not acquiring or assuming any liabilities of Sellers,
IHS, or the Facilities whatsoever, including, without limitation, those of
Sellers with respect to Sellers' Assets.
2.3 "As Is" Purchase. Purchaser is acquiring Sellers' Assets without any
express or implied warranties other that those specifically set forth in this
Agreement.
ARTICLE III
PURCHASE PRICE
The Purchase Price shall be payable on the Effective Date by wire transfer
in accordance with wire transfer instructions to be provided by IHS and Sellers.
The Purchase Price shall be allocated among the Facilities as set forth in
Section 13.12 hereof. Sellers and Purchaser agree that, for purposes of this
Agreement, no portion of the Purchase Price shall be allocated to the Personal
Property or the Intangible Property.
ARTICLE IV
CLOSING
On the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York 10019, the documents to be
delivered by Sellers, Purchaser, IHS, Lyric and Lyric III, pursuant to Sections
10.5 and 11.5 hereof, shall be delivered to the Escrow Agent, to be held in
escrow until the Effective Date, subject to and in accordance with the Closing
Escrow Agreement.
ARTICLE V
TRANSACTION COSTS AND EXPENSES
The costs of the transaction and the expenses related to the ownership and
operation of the Sellers' Assets shall be paid as follows:
5.1 Transfer Taxes; Sales Taxes. Sellers shall pay all state and county
transfer or excise taxes due on the transfer to Purchaser of title to the Real
Property and the respective
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Facilities and all assessments and taxes related to the recording of the
corresponding deeds. Sellers shall pay any sales tax due on the transfer to
Purchaser of title to the Personal Property, although the parties believe no
such tax is due.
5.2 MAI Appraisals. Sellers shall pay the cost of the MAI Appraisals
delivered by Sellers to Purchaser.
5.3 Title Insurance. Sellers shall pay the cost of the Title Commitments
and the premium for the Title Insurance Policies (including any leasehold
policies desired by Sellers) for the respective Facilities.
5.4 Surveys/UCC Search Reports. Sellers shall pay the cost of the Surveys
and the UCC Search Reports for the respective Facilities.
5.5 Environmental Reports/Remediation. Sellers shall pay for the cost of
Phase I environmental assessments for the respective Facilities, for any
additional assessments recommended in the original Phase I environmental
assessments, and for the cost of the Environmental Remediation agreed upon by
the parties and as described on Schedule 1.11 hereto. Sellers shall cause the
Phase I environmental assessments and any additional assessments or reports
provided by Sellers to be certified to the Purchaser for reliance by Purchaser
thereon.
5.6 Attorneys' Fees. Sellers shall pay its own attorneys' fees and the
reasonable and documented attorneys' fees, costs and disbursements of Purchaser
and Sellers.
5.7 Recording Costs. Sellers shall pay all recording fees relating to the
recording of the deeds.
5.8 Releases. Sellers shall pay the cost of obtaining and recording any
releases necessary to deliver title to Sellers' Assets in accordance with the
terms of this Agreement.
5.9 Deferred Maintenance Adjustment. At the Closing, each Seller shall
deposit into escrow with the Escrow Agent the Deferred Maintenance Adjustment
attributable to the Facility currently owned by it.
5.10 Fee; Commitment Fee. At the Closing, Sellers shall pay to Purchaser a
commitment fee equal to an aggregate of $[Insert Amount]. [TO BE 50 BASIS POINTS
TIMES PURCHASE PRICE]
5.11 Other Items. Purchaser has no duty to operate any Facility from and
after the Closing Date, such operations to be accomplished solely by the
applicable Seller, as sublessee of Lyric III under a Facility Sublease, subject
to the provisions of the Master Lease, or by
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Manager pursuant to the Facility Management Agreement. Accordingly, each Seller
shall be responsible for (a) all revenues and expenses attributable to the
Facility owned by it, where attributable to the period before or after the
Effective Date, (b) the real and personal property taxes, assessments and
similar charges that are levied against the Facility currently owned by it,
whether attributable to the period before or after the Effective Date, (c) all
utilities provided to the Facility currently owned by it, whether before or
after the Effective Date, and (d) any amounts that have been prepaid, or that
remain to be paid, under any of the Contracts affecting Sellers' Assets.
ARTICLE VI
POSSESSION
At the Effective Date, Purchaser shall be entitled to possession of
Sellers' Assets, subject only to (a) the rights of the patients and residents of
the respective Facilities, (b) any possessory rights granted to any person under
the Permitted Liens and (c) the rights of Lyric III under the Master Lease and
each Seller under the applicable Facility Sublease.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser that:
7.1 Corporate Organization; Good Standing; Corporate Information. Such
Seller is a corporation, duly organized, validly existing and in good standing
under the laws of the state set forth opposite its name on Exhibit B hereto, and
it has the corporate power and authority to develop, own, operate and lease the
Facility owned by it, to carry on its businesses as and in the places where such
businesses are now conducted and where such properties are now developed, owned,
leased or operated, and to enter into the transactions and perform its
obligations under this Agreement, the other Transaction Documents and any other
documents and instruments required to be delivered to which it is or is to
become a party and it is duly qualified as a foreign corporation to do business
in the jurisdiction in which the Facility owned by it is located or in which
failure so to qualify would impair its ability to perform its obligations under
this Agreement or any other Transaction Document.
7.2 Authorization; Enforceability. The execution, delivery and performance
by such Seller of this Agreement, the other Transaction Documents and of all of
the documents and instruments contemplated hereby to be executed and delivered
by it are within the legal and corporate power and authority of such Seller and
have been duly authorized by all necessary legal and corporate action of such
Seller. This Agreement is, the other Transaction Documents are, and the other
documents and instruments required hereby to be delivered by it will be, when
executed and delivered, the valid and binding obligations of such Seller,
enforceable against it in accordance with their respective terms.
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7.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the Transaction Documents and all of the other documents and
instruments contemplated hereby to be executed and delivered by such Seller does
not and will not conflict with or violate any material Law, judgment, or any
order or decree binding on it or the Articles of Incorporation or By-Laws of
such Seller. Except as indicated on Schedule 7.3(a) hereto, no notice to, filing
or registration with, or authorization, consent or approval of, any person,
entity or governmental or regulatory agency is necessary or required by such
Seller in connection with the execution and delivery of this Agreement, the
Transaction Documents and all of the other documents and instruments
contemplated hereby to be executed and delivered by such Seller or the
consummation by such Seller of the transactions contemplated hereby or the
performance by such Seller of its obligations hereunder. Except as indicated on
Schedule 7.3(b) hereto, since January 1, 1998, such Seller has received no
written notice from any governmental or regulatory agency having jurisdiction
over such Seller's Facility (a) claiming any violation of any Law (which
violation has not been cured or otherwise remedied), or (b) requiring or calling
attention to the need for any work, repairs, construction, alterations or
installation in connection with the Facility owned by it which is or may be
required in order to comply with any Law (which work, repairs, construction,
alterations or installation has not been completed).
7.4 Assets. The Personal Property, Real Property and Intangibles constitute
all of the assets used in the operation of the Facility owned by it. Such Seller
owns good, valid and clear title to all of the Personal Property owned by it and
to all the other assets, if any, owned by it and used in the operation of the
Facility owned by it, and also including, but not limited to, all assets owned
by such Seller that are reflected in the Financial Statements of the Facilities
related to the Facility owned by it and all assets acquired by it since the date
thereof related to the Facility owned by it (except for assets that have been
sold or otherwise disposed of in the ordinary course of business), free and
clear of any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests or impositions except Permitted Liens.
7.5 No Litigation. Except as listed on Schedule 7.5 hereto, and the matters
set forth on Schedule 7.3(b) and on Schedule 7.22 hereto, there is no material
litigation, arbitration proceeding, governmental investigation, citation, suit,
action proceeding or claim of any kind pending or threatened, against it or the
Facility owned by it that relates to such Facility or any portion thereof or the
ability of such Seller to perform its obligations under this Agreement or under
any other Transaction Documents. The matters described on Schedule 7.5 hereto,
if adversely determined, considered in the aggregate, would not have a material
adverse effect on the business or financial condition of such Seller or the
Facility or on any material portion of the assets of such Seller or the Facility
owned by it and would not preclude such Seller from performing its obligations
under this Agreement and under any other Transaction Documents.
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7.6 Personal Property and Improvements. Except as provided on Schedule 7.6
hereto, the Personal Property and Improvements used in the operation of the
Facility owned by such Seller, as of the Effective Date, are (a) in good
operating condition and in a state of good maintenance and repair, normal wear
and tear excepted, and (b) the Improvements have no structural defects and are
adequate and suitable for the purpose for which they are presently being used.
7.7 Real Property and Improvements. Such Seller owns good, indefeasible and
insurable title to the Real Property owned by it, free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security
interest or impositions except the Permitted Liens. There are no existing or
impending Improvement liens or special assessments to be made, or which have
been made, against the Real Property or Improvements owned by it by any
governmental authority. Neither the Improvements owned by it, nor the use
thereof, any Personal Property therein, nor the operation or maintenance
thereof, violate any restrictive covenant or encroach on any property owned by
others in any material respect. No condemnation or similar proceeding is
pending, nor, has such Seller or the Facility owned by it, received any written
notice of any condemnation or similar proceeding, threatened or contemplated
that would preclude or impair the use of the Real Property, the Improvements or
Personal Property owned by it or any portion thereof by Purchaser for the
purposes for which it is currently used.
7.8 Zoning. There exists no judicial, quasi-judicial, administrative or
other proceeding which might adversely affect the validity of the current zoning
of the Real Property and Improvements owned by it, nor is there any threatened
action or proceeding which could result in the modification and termination of
any such zoning.
7.9 Leases. Schedule 1.7 hereto contains an accurate and complete list of
each lease of Personal Property to which such Seller or the Facility owned by it
is a party or by which such Seller or any Facility owned by it is bound.
7.10 Liabilities. (a) The Sellers' Liabilities include all liabilities of
such Seller in connection with the Facility owned by it for money borrowed or
credit purchases, other than obligations that will be discharged prior to
Closing, (b) such Seller is not in material default under any obligation
included in the Sellers Liabilities, and no event has occurred or is
contemplated by it, that would constitute a material default, or an event that
with the giving of notice or passage of time or both would constitute a default
thereunder, and (c) such Seller has paid, and through the Effective Date shall
pay, all amounts due and payable to the Effective Date under the terms of each
obligation included in the Sellers Liabilities.
7.11 Taxes. All tax returns required under applicable Law relating to the
Facility owned by such Seller, to have been filed by or on behalf of it have
been filed. All taxes of such Seller and taxes with respect to the Facility
owned by it for all periods covered by such
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returns have been paid or adequately provided for. No unpaid deficiencies for
any such taxes have been officially asserted or assessed against such Seller or
any Facility owned by it.
7.12 Contracts. Schedule 1.7 hereto constitutes a true and complete list of
all Contracts to which such Seller or the Facility owned by it is a party or by
which such Seller or the Facility owned by it is bound.
7.13 Contracts and Leases. With respect to those Contracts and leases
listed on Schedule 1.6 hereto, such Seller shall continue such Contracts and
leases, as provided for in the Master Lease, and such Seller shall defend,
indemnity and hold harmless Purchaser from and against any and all covenants,
duties and obligations under such Contracts and leases, including, without
limitation, any and all costs and expenses arising out of or in connection with
any such covenants, duties and obligations.
7.14 Financial Statements of the Facilities. (a) The Financial Statements
of the Facilities, taken as a whole, fairly present the financial position and,
if applicable, the results of operations of the Facility owned by such Seller as
of the dates thereof and the periods then ended and were prepared in accordance
with generally accepted accounting principles consistently applied and (b) the
Final Financial Statements when delivered will present fairly the financial
position and the results of operations of the Facility owned by such Seller as
of the Closing Date and the period then ended and will be prepared in accordance
with generally accepted accounting principles consistently applied.
7.15 No Adverse Change. Except as set forth in Schedule 7.15 hereto, since
January 1, 1998 there has not been: (a) any material adverse change in the
financial condition or business of the Facility owned by such Seller, or any
material adverse change in the net operating income of the Facility owned by it,
(b) any material loss, damage, condemnation or destruction to the Facility owned
by such Seller, (c) any labor dispute or disturbance, litigation or any event or
condition that could materially adversely affect the operation of the Facility
owned by such Seller, (d) any borrowings by such Seller secured by the Facility
owned by it, or (e) any sale, transfer or other disposition of assets of the
Facility owned by such Seller other than in the ordinary course of business.
7.16 Employment Agreements and Benefits. (a) Schedule 7.16 hereto is a true
and complete list of all agreements or contracts relating to the compensation
and other benefits of present and former employees, salesmen, individual
consultants, individuals and other individual agents of such Seller relating to
the Facility owned by it, including all collective bargaining agreements and all
pension, retirement, bonus, stock option, profit sharing, health, disability,
life insurance, hospitalization, education or other similar plans or
arrangements (whether or not subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), true and complete copies of which, including
any trust, insurance or other funding agreements (or true and complete
descriptions of which, in the case of oral
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agreements) have been delivered to Purchaser, (b) such Seller has not
contributed to or maintained any "multiemployer plan", as defined in Section
3(37) of ERISA, in respect of present or former employees at the Facility owned
by it, and (c) except as set forth in Schedule 7.16 hereto, no such agreements
require Purchaser to assume or make payments with respect to any employment,
compensation, fringe benefit, pension, profit sharing or deferred compensation
plan in respect of any employee or former employee or the dependent or
beneficiary of any employee or former employee of such Seller although such
Seller will have such liabilities in accordance with the terms of such
arrangements to the extent such liabilities exist.
7.17 Insurance. (a) Schedule 7.17 hereto (i) contains an accurate and
complete list of all material policies of property, fire and casualty, product
liability, workers' compensation and other forms of insurance owned or held by
such Seller in connection with the Facility owned by it and (ii) includes for
each such policy its type, term, limits and retentions, deductibles, name of
insurer, and (b) all such policies are in full force and effect with all
premiums billed or otherwise due having been paid in full.
7.18 Compliance with the Law.
(a) Except as set forth on Schedule 7.3(b) and Schedule 7.22 hereto,
the use, maintenance and operation of the Facility owned by such Seller does not
violate or conflict in any material respect with any Law.
(b) The Permits constitute all permits, consents, waivers, exemptions,
orders, certificates of need, licenses and governmental agency authorizations,
registrations and approvals necessary for the development, construction,
ownership, licensure, use, maintenance and operation of the Facility owned by
such Seller in compliance with all applicable Laws (as such Facility is being
operated on the Effective Date). Except as shown on Schedule 1.36 hereto, all
such Permits are in full force and effect, have been duly obtained, made, given
or taken and are being complied with in all material respects, subject to
approvals required in connection with the transactions contemplated by this
Agreement and the other Transaction Documents.
(c) To the best of its Knowledge, no governmental authority having
jurisdiction over the Facility owned by such Seller has issued any citations
with respect to any deficiencies or other matters that fail to conform to any
applicable statute, regulation, ordinance or bylaw and that have not been
corrected as of the date hereof or that shall not have been corrected on or
prior to the Effective Date, except to the extent that either (i) a waiver has
been issued by the appropriate authority, in which case a copy of such waiver is
included on Schedule 7.18(c) hereto, or (ii) the deficiency or non-conformity
will not have a material and adverse effect on the financial condition or
results of the operations of the Facility owned by such Seller.
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(d) Such Seller has not received written or oral notice from any
licensing or certifying agency supervising or having authority over the Facility
owned by it, requiring such Facility to be reworked or redesigned or additional
furniture, fixtures, equipment or inventory to be provided at such Facility so
as to conform to or comply with any existing and applicable Law, code or
standard, except where the requirement either (i) has been fully satisfied prior
to the Closing Date, (ii) will, as of the Effective Date, be in the process of
being satisfied pursuant to the terms of a Plan of Correction or other
documentation submitted to and approved by the appropriate authority or (iii)
will, as of the Closing Date, be the subject of a valid written waiver issued by
the applicable licensing or certifying agency.
(e) To the best of its Knowledge, the Facility owned by it and
participating in the Medicare or Medicaid Programs is in compliance with all
Conditions and Standards of Participation in those Programs, except as set forth
on Schedule 7.18(e) hereto.
7.19 Transactions with Affiliates. Except as set forth on Schedule 7.19
hereto, as of the Effective Date, the Facility owned by such Seller shall not be
bound by and will not owe any amount or have any contractual obligation or
commitment to any Affiliate (other than compensation for current services and
reimbursement of expenses arising in the ordinary course of business).
"Affiliate" shall mean any employee of such Seller, any person, firm or
corporation that directly or indirectly controls, is controlled by or is under
common control with such Seller.
7.20 Obligations. Except as set forth on Schedule 7.20 hereto, none of the
patients at the Facility owned by it have been given any concession, rebate or
consideration for the rental of any room, which concession, rebate or other
consideration shall not have been paid or delivered prior to the Effective Date.
7.21 No Broker. Except as set forth on Schedule 7.21 hereto, such Seller
has not incurred any liability for broker's or finder's fees or commissions to
any broker, financial advisor or other intermediary in connection with the
transactions contemplated by this Agreement. Such Seller agrees to pay and to
hold Purchaser harmless from and against any amounts due and payable to any such
adviser not scheduled with respect to the transactions contemplated herein.
7.22 Environmental Compliance. "Hazardous Materials", as used herein, shall
mean, collectively, (a) any petroleum or petroleum product, explosive,
radioactive material, radon gas, asbestos, urea formaldehyde foam insulation,
and PCBs and (b) materials which are now or hereafter become defined as
"hazardous substances", "hazardous wastes", "extremely hazardous substances",
"hazardous materials", "restricted hazardous wastes", "toxic chemicals",
"pollutants", "toxic pollutants", "hazardous air pollutants", "air
contaminants", "hazardous chemicals", or words of similar import under any
applicable Environmental Laws. "Reasonable Inquiry", as used herein, shall mean
review of (i) the Phase I environmental site
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assessment reports and Phase I update reports listed on Schedule 7.22 hereto,
(ii) the asbestos survey reports listed on Schedule 7.22 hereto, and (iii) the
Phase II environmental reports listed on Schedule 7.22 hereto. Except as set
forth on Schedule 7.22 hereto, in connection with the Facility owned by such
Seller, to the best of its Knowledge, after Reasonable Inquiry, such Seller has
complied and is in compliance with all applicable Environmental Laws, and such
Seller has no Knowledge, and has not received notice, (i) that the Facility
owned by it or any property contiguous to the Facility owned by it is in
violation of any Environmental Law and (ii) of any pending or threatened claims
involving the Facility owned by it. Except as set forth on Schedule 7.5 or
Schedule 7.22 hereto, neither such Seller nor the Facility owned by it is the
subject of any administrative or judicial action or proceeding pursuant to any
Environmental Laws at the Effective Date in connection with the Facility owned
by it. Promptly upon learning thereof, at or following the Effective Date, such
Seller shall provide written notice to Purchaser of any written notification of
(i) the assertion of any claim or any threatened claim relating to the Facility
owned by it under any Environmental Law or (ii) the assertion of any claim of
non-compliance with or violation of any Environmental Law. Except as set forth
on Schedule 7.22 hereto, to the best of such Seller's Knowledge, after
Reasonable Inquiry, no Hazardous Materials have at any time been generated,
used, treated or stored at; transported to or from; or disposed of, released,
emitted, discharged or deposited at or in connection with, the Facility owned by
it in any way contrary to that which is allowed or permitted under any
Environmental Laws.
7.23 No Attachments. There are no attachments, executions, assignments for
the benefit of creditors, receiverships, conservatorship or voluntary or
involuntary proceedings in bankruptcy or pursuant to any debtor relief laws
contemplated being filed by such Seller or pending against such Seller or the
Real Property or Improvements owned by it.
7.24 No Options. As of the Effective Date, there are no options, contracts
or other obligations outstanding for the sale, exchange or transfer of any of
the Real Property, Personal Property or Improvements owned by such Seller or any
portion thereof or business operated therein.
7.25 Seller Licenses. Such Seller has all Seller Licenses applicable to the
Facility owned by it. Schedule 7.25 hereto contains true and correct copies of
the licenses issued most recently by the applicable health care authorities with
respect to the operation of the Facility owned by such Seller. Such Seller has
not received written or verbal notice (a) that any action or proceeding has been
initiated or is proposed to be initiated by the appropriate state or federal
agency having jurisdiction thereof, to revoke, withdraw or suspend any of the
Seller Licenses applicable to the Facility owned by it in either the Medicare or
Medicaid Programs or (b) of any judicial or administrative agency judgment or
decision not to renew any of the Seller Licenses applicable to the Facility
owned by it or (c) of any licensure or certification action of any other type
applicable to the Facility owned by it.
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7.26 Disclosure. Such Seller has provided to Purchaser access to all
relevant documents, materials and information in its possession or control
relative to the Facility owned by it and has not withheld any documents or
information that are material to the condition, assets, liabilities, businesses,
operations and prospects of such Seller or the Facility owned by it. Such Seller
has disclosed or provided information to Purchaser with respect to all facts
that are material to the condition, assets, liabilities, businesses, operations
and prospects of the Facility owned by it. No representation or warranty of such
Seller contained in this Agreement (which shall include any Exhibit or Schedule
hereto) and no certificate or document furnished to Purchaser pursuant to the
provisions hereof, contains any untrue statement of a material fact which is
untrue in any material respect or omits to state a material fact necessary in
order to make the statements contained therein not misleading.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF IHS
IHS represents and warrants to Purchaser that:
8.1 Status of IHS. IHS is a corporation that is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
8.2 Validity of Conflicts. This Agreement is, and all of the Transaction
Documents to be executed by IHS pursuant hereto will be, the valid obligations
of IHS, enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The execution
of this Agreement and the applicable Transaction Documents have been approved by
all required corporate action on the part of IHS and does not and will not
result in a breach of the terms and conditions of, nor constitute a default
under or violation of, the Certificate of Incorporation and By-Laws of IHS or
any Law, regulation, court order, mortgage, note, bond, indenture, agreement,
license or other instrument or obligation to which IHS is now a party or by
which any of its assets may be bound or affected.
8.3 Authority. IHS has full power and authority to execute and deliver this
Agreement and the applicable Transaction Documents to which it is a party.
8.4 Truth of Representations. The representations and warranties of each
Seller pursuant to Article VII hereof are true and complete in all material
respects.
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ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each of the other parties
hereto that:
9.1 Organization. Purchaser is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full power and authority to enter into and perform its obligations under
this Agreement, the other Transaction Documents and any other documents and
instruments required hereby to be delivered to which it is or is to become a
party.
9.2 Authorization; Enforceability. The execution, delivery and performance
by Purchaser of this Agreement, the other Transaction Documents and all of the
documents and instruments contemplated hereby are within the power of Purchaser
and have been duly authorized by all necessary action of Purchaser. This
Agreement is, the other Transaction Documents are, and the other documents and
instruments required hereby to be delivered by Purchaser will be, when executed
and delivered, the valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms.
9.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the other Transaction Documents and all of the documents and
instruments contemplated hereby to be executed and delivered by Purchaser does
not and will not conflict with or violate the Limited Partnership Agreement of
Purchaser or any material Law, judgment, order or decree binding on Purchaser.
9.4 No Broker. Except as set forth on Schedule 9.4 hereto, Purchaser has
incurred no liability for broker's or finder's fees or commissions to any broker
or other intermediary in connection with the transactions contemplated by this
Agreement. Purchaser agrees to pay and to hold Sellers, and IHS harmless from
and against any amounts due and payable to any such adviser not scheduled with
respect to the transactions contemplated herein.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser to be performed on the Effective
Date shall be subject to the satisfaction as of both the Closing Date and the
Effective Date of the following express conditions precedent (it being the
understanding of the parties that any of such condi tions may be waived by
Purchaser):
10.1 Compliance with this Agreement. Sellers shall have performed and
complied in all material respects with all of their obligations under this
Agreement that are to be performed or complied with by them prior to or on the
Closing Date, including, but not
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limited to, the payment of all costs, fees and expenses that Sellers are
required to pay pursuant to this Agreement.
10.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Sellers in connection with the transactions
contemplated by this Agreement, the other Transaction Documents and any other
documents incident thereto, shall be reasonably satisfactory in form and
substance to Purchaser and Purchaser's counsel, and Sellers shall have made
available to Purchaser and Purchaser's counsel (or Purchaser shall have obtained
itself prior to the Closing Date or waived the necessity for receipt thereof
prior to the Closing Date) for examination the originals or true and correct
copies of all documents that Purchaser and Purchaser's counsel may reasonably
request in connection with the transactions contemplated by this Agreement and
the other Transaction Documents, including, but not limited to:
(a) an MAI Appraisal for each of the Facilities;
(b) a Title Commitment for each of the Facilities;
(c) acceptable engineering, architectural and Phase I environmental site
assessments for each of the Facilities;
(d) a Survey for each of the Facilities;
(e) a UCC Search Report for each of the Facilities;
(f) the Seller's Licenses for each of the Facilities;
(g) valid permanent Certificates of Occupancy, if reasonably available and
required under the Law, for each of the Facilities as well as any
other licenses or Permits reasonably available and required to be
obtained from applicable governmental authorities with respect to the
use and occupancy of each of the Facilities;
(h) for each Seller, Articles of Incorporation, Certificates of Good
Standing and Certificates of Authority to Transact Business in the
state in which each Facility owned by such Seller is located;
(i) for IHS, Articles of Incorporation and Certificate of Good Standing;
(j) certified resolutions of the Board of Directors of each Seller and
certified resolutions of the Board of Directors of IHS, in each case
authorizing and approving the execution, delivery and performance of
Sellers and IHS's obligations under this Agreement and the other
Transaction Documents;
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(k) the opinions of IHS's and Sellers' local healthcare counsel in each
state where a Facility is located, as special healthcare counsels to
IHS and Sellers, in a form reasonably acceptable to Purchaser; and
(l) the opinion of counsel to IHS and the Sellers, in a form reasonably
acceptable to Purchaser.
10.3 No Litigation. Except as provided on Schedule 10.3 hereto, no
investigation, suit, action or other proceeding shall be instituted, threatened
or pending before any court or governmental agency or body that seeks restraint,
prohibition, damages or other relief in connection with this Agreement, the
other Transaction Documents or the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents.
10.4 Representations and Warranties. The representations and warranties
made by Sellers and IHS in this Agreement and the other Transaction Documents
shall be true and correct in all material respects at and as of the Closing Date
and the Effective Date.
10.5 Deliveries at the Closing. Sellers and IHS shall have, or shall cause
to have, delivered to Purchaser the following documents, each properly executed
and dated as of the Closing Date:
(a) this Facilities Purchase Agreement;
(b) the Deeds;
(c) the Bills of Sale;
(d) the Master Lease;
(e) a memorandum of lease in recordable form with respect to the Master
Lease;
(f) the Facility Subleases;
(g) memoranda of sublease in recordable form with respect to each of the
Facility Subleases;
(h) the Consent and Subordination Agreement;
(i) the Escrow Agreement;
(j) the Facility Franchise Agreement;
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(k) the Facility Management Agreement;
(l) the IHS Indemnity;
(m) the Guaranty;
(n) the Security Agreement;
(o) the Master Franchise Agreement;
(p) the Master Management Agreement;
(q) the Closing Escrow Agreement; and
(r) any such other documents or instruments as Purchaser and Purchaser's
counsel shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Transaction Documents.
10.6 Regulatory Approvals. All required licenses, authorizations,
registrations, Permits and approvals from federal and state regulatory agencies
with jurisdiction over each of the Facilities to permit the transactions
contemplated by this Agreement and the other Transaction Documents shall have
been obtained or completed to the reasonable satisfaction of Purchaser and any
and all conditions to the effectiveness thereof shall have been satisfied.
10.7 Default. Each Seller and IHS shall not be in default, where said
default cannot be cured by the Closing Date, under any mortgage, contract, lease
or other agreement to which such Seller and IHS is a party or by which such
Seller and IHS is bound and that materially affects of relates to the Real
Property, the Personal Property or any of the Facilities.
10.8 Approvals. The Board of Directors of Monarch shall have approved the
transactions contemplated by this Agreement and the Transaction Documents.
10.9 Offering. Monarch shall have completed the Offering.
22
<PAGE>
ARTICLE XI
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS
Each and every obligation of Sellers to be performed on the Effective Date
shall be subject to the satisfaction as of both the Closing Date and the
Effective Date of the following express conditions precedent (it being the
understanding of the parties that any of such conditions may be waived by
Sellers):
11.1 Compliance with this Agreement. Purchaser shall have performed and
complied in all material respects with all of its obligations under this
Agreement and the other Transaction Documents that are to be performed or
complied with by it prior to or on the Closing Date, including, but not limited
to, the payment of the Purchase Price by Purchaser.
11.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Purchaser in connection with the transactions
contemplated by this Agreement, the other Transaction Documents and any other
documents incident thereto, shall be reasonably satisfactory in form and
substance to Sellers and Sellers' counsel, and Purchaser shall have made
available to Sellers and Sellers' counsel (or Sellers shall have obtained
themselves prior to the Closing Date or waived the necessity for receipt thereof
prior to the Closing Date) for examination the originals or true and correct
copies of all documents that Sellers and Sellers' counsel may reasonably request
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
11.3 No Litigation. Except as provided on Schedule 11.3 hereto, no
investigation, suit, action or other proceeding shall be threatened or pending
before any court or governmental agency that seeks restraint, prohibition,
damages or other relief in connection with this Agreement, the other Transaction
Documents or the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents.
11.4 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement and the other Transaction Documents shall be
true and correct in all material respects at and as of the Closing Date and the
Effective Date.
11.5 Deliveries at the Closing. Purchaser shall have, or shall cause to
have, delivered to Sellers and IHS the following documents, each properly
executed and dated as of the Closing Date:
(a) the agreements identified in subparagraphs (a) through (r) of Section
10.5 hereof;
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<PAGE>
(b) Certificate of Formation, Certificate of Good Standing and Certificate
of Authority to Transact Business of Purchaser;
(c) certified resolutions of Monarch and Purchaser, authorizing and
approving the execution, delivery and performance of Purchaser's
obligations under this Agreement and the other Transaction Documents;
and
(d) any such other documents or instruments as Sellers and Sellers'
counsel shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Transaction Documents.
11.6 Restraints. No action or proceeding before a court or any other
governmental agency or body of or in the United States shall have been
instituted or threatened to restrain or prohibit the consummation of the
transactions contemplated by this Agreement or the other Transaction Documents.
11.7 Regulatory Approvals. All required authorizations, registrations,
Permits and approvals from federal and state regulatory agencies with
jurisdiction over each of the Facilities to permit the transactions contemplated
by this Agreement and the other Transaction Documents shall have been obtained
or completed to the reasonable satisfaction of Sellers.
11.8 Approvals. The Board of Directors of each of the Sellers and IHS and
the requisite lenders under IHS's Revolving Credit and Term Loan Agreement shall
have approved the transactions contemplated by this Agreement and the
Transaction Documents.
ARTICLE XII
ADDITIONAL COVENANTS AND INDEMNIFICATIONS
12.1 Transfer Taxes and Fees. Sellers shall pay all fees, transfer taxes or
assessments, if any, charged to grantors, lessors, sub-lessors, transferors or
assignors under applicable Law in connection with the transactions contemplated
by this Agreement and the other Transaction Documents.
12.2 Cooperation. The parties hereto shall cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents.
12.3 Additional Instruments. At any time and from time to time after the
Closing, at Purchaser's reasonable request and without further consideration,
Sellers shall execute and
24
<PAGE>
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such other action as Purchaser may reasonably deem
necessary to consummate the transactions contemplated by this Agreement and the
other Transaction Documents. At any time and from time to time after the
Closing, at the reasonable request of Sellers and without further consideration,
Purchaser shall execute and deliver such other instruments and take such other
action as Sellers may reasonably deem necessary to consummate the transactions
contemplated by this Agreement and the other Transaction Documents.
12.4 Publicity. All general notices, releases, statements and
communications to employees and patients of Purchaser, Sellers and each of the
Facilities relating to the transactions contemplated by this Agreement shall be
made only at such times and in such manner as may be mutually agreed upon by
Purchaser and Sellers. All general notices, releases, statements and
communications to the general public and the press relating to the transactions
contemplated by this Agreement shall be made only with such content and at such
times and in such manner as may be mutually agreed upon by Purchaser and
Sellers; provided, however, that each party shall be entitled to make a public
announcement of the transaction if, in the opinion of its counsel, such
announcement is required to comply with the Law.
12.5 Confidentiality. Purchaser shall not disclose to any person or company
or use for its own benefit any material information related to the ownership or
operation of the Facilities by Sellers, including customer or patient-related
information, without Sellers' express prior written permission except for
disclosure by Purchaser to its counsel, its lenders and their counsel and
appropriate regulatory agencies, except any such information that is now or
hereafter becomes available to the public without breach of any confidentiality
agreement.
12.6 Indemnifications.
(a) Sellers and IHS, jointly and severally, shall indemnify and hold
harmless Purchaser and its partners, officers, directors, shareholders,
employees, agents, and assigns (collectively, the "Purchaser Indemnified
Parties"), from any and all liabilities, obligations, losses, demands,
judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation reasonable attorneys'
and consultants' fees and expenses), whether or not subject to litigation
(hereinafter collectively referred to as the "Claims") of any kind or character
imposed upon, arising out of, in connection with, incurred or in any way
attributed or relating to the following:
(i) the ownership, use, operation, possession, or management of
each of the Facilities prior to the Effective Date;
(ii) the breach or failure of any representation, warranty or
covenant made by Sellers or IHS that is contained in this Agreement or
25
<PAGE>
contained in any other certificates, agreements or Transaction
Documents to which Sellers or IHS is a party;
(iii) any and all Claims relating to any current or former
employee, consultant or independent contractor of the Sellers or any
of the Facilities, including, but not limited to, (A) the termination
or discharge of any current or former employee, consultant, or
independent contractor of Sellers or any of the Facilities, (B) Claims
under federal, state, or local laws, rules or regulations, related to
wages, hours, fair employment practices, unfair labor practices, or
other terms and conditions of employment and claims arising under the
Worker Adjustment and Retraining Notification Act or any analogous
state statute, (C) matters arising from any severance policy, claim,
agreement or contract or (D) any and all Claims with respect to the
matters provided for in Section 7.16 herein;
(iv) any and all Claims that relate to information provided by or
on behalf of any of the Sellers or IHS concerning the Facilities,
Sellers' Assets, Sellers or IHS and their respective affiliates, to
third parties which was used or relied upon to effect the transactions
contemplated in this Agreement and by the other Transaction Documents;
(v) other than for the liens, claims or encumbrances necessary to
effect the transactions contemplated in this Agreement and the other
Transaction Documents, any mortgage, pledge, lien, or encumbrance made
before the Effective Date on any of the Sellers' Assets or the
Facilities and any claims asserted therefrom, other than and except
for the Permitted Liens;
(vi) any and all Claims with respect to any qualified or
non-qualified retirement or benefit plans or arrangements involving
any current or former employee, consultant or independent contractor
of the Sellers or any of the Facilities;
(vii) any and all Claims with respect to admission agreements,
patient contracts, or agreements entered into prior to the Effective
Date with patients or others at any of the Facilities;
(viii) any deficiencies or inaccuracies occurring prior to the
Effective Date with respect to patient funds and accounts associated
therewith at any of the Facilities;
26
<PAGE>
(ix) any Claims arising out of Sellers' failure to have kept or
maintained patient records and other related records at any of the
Facilities in accordance with applicable Law;
(x) any sums due by any Seller for Medicare and Medicaid
adjustments arising from the operation of any of the Facilities
conveyed pursuant to this Agreement;
(xi) any action or proceeding by an appropriate state or federal
agency having jurisdiction thereof, to revoke, withdraw or suspend any
of the Sellers Licenses or Permits of a Seller applicable to the
Facility owned by such Seller or to terminate the participation of the
Facility owned by any Seller in either the Medicare or Medicaid
Programs, as a result of or caused by the transactions contemplated by
this Agreement and the other Transaction Documents, including, but not
limited to, the execution and delivery of the Master Lease and each of
the Facility Subleases; or
(xii) the violation of any Environmental Law or the existence,
presence or Release of any Hazardous Material based on an event or
condition at or relating to any Facility that commenced or existed
prior to the Effective Date.
Sellers and IHS further covenant and agree to defend the Purchaser
Indemnified Parties on account of said Claims and to pay any judgment against
the Purchaser Indemnified Parties, or any other amount as indicated in this
Section 12.6(a), along with all reasonable costs and expenses relative to any
such Claims, including reasonable and documented attorneys' fees and expenses;
provided, however, that the Purchaser Indemnified Parties shall, nevertheless,
have the right, if they so elect, to participate (with counsel of their
choosing, which counsel must be approved by Sellers and IHS, which approval may
not be unreasonably withheld) in the defense of any such Claim in which they may
be a party without relieving Sellers and IHS, of the obligation to defend the
same. To the extent applicable, the Purchaser Indemnified Parties covenant not
to settle or compromise any Claim under this section without the written consent
of Sellers and IHS, which consent may not be unreasonably withheld or delayed
under the circumstances. Failure to comply with the preceding covenant shall be
deemed a complete waiver of any rights that the Purchaser Indemnified Parties
have or may have under this Section 12.6(a).
(b) Purchaser shall indemnify and hold harmless Sellers and IHS, and
their officers, directors, shareholders, employees, agents, and assigns (the
"Seller Indemnified Parties") from any and all liabilities, obligations, losses,
demands, judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation reasonable
27
<PAGE>
attorneys' and consultants' fees and expenses), whether or not subject to
litigation, (hereinafter collectively referred to as the "Claims") of any kind
or character imposed upon, arising out of, in connection with, incurred or in
any way attributed or relating to breach or failure of any representation,
warranty or covenant made by Purchaser that is contained in this Agreement or
contained in any other certificates, agreements or Transaction Documents to
which Purchaser is a party.
Purchaser further covenants and agrees to defend the Seller
Indemnified Parties on account of said Claims and to pay any judgment against
the Seller Indemnified Parties, or any other amount as indicated in this Section
12.6(b), along with all reasonable costs and expenses relative to any such
Claims, including attorneys' fees and expenses; provided, however, that the
Seller Indemnified Parties shall, nevertheless, have the right, if they so
elect, to participate (with counsel of their choosing, which counsel must be
approved by Purchaser, which approval may not be unreasonably withheld) in the
defense of any such Claim in which they may be a party without relieving
Purchaser of the obligation to defend the same. To the extent applicable, the
Seller Indemnified Parties covenant not to settle or compromise any Claim under
this section without the written consent of Purchaser, which consent may not be
unreasonably withheld or delayed under the circumstances. Failure to comply with
the preceding covenant shall be deemed a complete waiver of any rights that the
Seller Indemnified Parties have or may have under this Section 12.6(b).
(c) The indemnities set forth in this Section 12.6 shall remain
operative and in full force and shall survive the execution and performance
hereof and the execution and delivery of this Agreement and the other
Transaction Documents.
12.7 Liability for Representations and Warranties Before the Effective
Date. Until the release of the Closing documents to the parties from escrow
pursuant to the Closing Escrow Agreement on the Effective Date, Purchaser's,
Sellers' and IHS's sole remedy for any breach of Sellers', IHS's or Purchaser's
representations and warranties hereunder shall be to terminate this Agreement,
whereupon the parties hereto shall have no further obligations to each other in
respect of this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement; Amendment. This Agreement and the Transaction
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
28
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modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
13.2 Governing Law. THIS AGREEMENT AND THE TRANSACTION DOCUMENTS SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH LAWS OF THE STATE OF NEW YORK. SELLERS
AND IHS CONSENT TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS
OF THE STATE OF NEW YORK, AND AGREE THAT ALL DISPUTES CONCERNING THIS AGREEMENT
MAY BE HEARD, AT PURCHASER'S OPTION, IN THE STATE AND FEDERAL COURTS LOCATED IN
THE STATE OF NEW YORK. SELLERS AND IHS AGREE THAT SERVICE OF PROCESS MAY BE
EFFECTED UPON SELLERS AND IHS UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE
STATE OF NEW YORK AND IRREVOCABLY WAIVE ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK.
13.3 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time without the prior written consent of
the other parties hereto.
13.4 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given at the earlier of the date when actually delivered to an officer of the
other party or when deposited in the United States mail, certified or registered
mail, postage prepaid, return receipt requested, by personal delivery or by
overnight courier service with signed receipt, and addressed as follows, unless
and until either of such parties notifies the other in accordance with this
Section of a change of address:
To IHS and any Seller: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Telephone No.: 410-998-8768
Fax No.: 410-998-8695
Copy to: Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
Telephone No.: 212-447-1100
Fax No.: 212-447-5428
29
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To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attention: John B. Poole
Telephone No.: 941-566-8820
Fax No.: 941-566-6082
Copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: John R. Fallon, Jr., Esq.
Telephone No.: 212-424-8279
Fax No.: 212-424-8500
13.5 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof or be used as
interpreting the meaning of this Agreement.
13.6 Interpretation. To the extent any conflict exists between the terms
and conditions of this Agreement and the terms and conditions of any other
Transaction Documents, the terms and conditions of such other Transaction
Documents shall govern and control.
13.7 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
13.8 No Reliance. No third party, other than a successor by operation of
law or an assignee permitted by this Agreement, is entitled to rely on any of
the representations, warranties and agreements contained in this Agreement and
no party to this Agreement assumes any liability to any third party, other than
an assignee permitted by this Agreement, because of any reliance on the
representations, warranties and agreements contained in this Agreement.
13.9 Binding. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
30
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13.10 Survival. All covenants and agreements of the parties to be performed
in this Agreement and all representations, warranties, covenants and indemnities
of the parties in this Agreement shall survive the Closing Date.
13.11 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Facilities as set forth on Schedule 13.11 hereto. The parties agree
that the Personal Property has nominal value and therefore no amount of the
Purchase Price is being allocated to it. Each party agrees to timely file tax
Form 8594 in accordance with the allocations to which the parties have so
agreed.
13.12 Dispute Attorneys' Fees and Expenses. In the event of a dispute
between the parties to this Agreement with respect to the interpretation of
enforcement of the terms hereof, the prevailing party in any action resulting
therefrom shall be entitled to collect from the other its reasonable and
documented attorneys' fees and expenses, including its attorneys' fees and
expenses on appeal.
SIGNATURE PAGES FOLLOW
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Facilities Purchase
Agreement to be duly executed and delivered as a sealed instrument as of the day
and year first above written.
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
[INSERT ALL SELLERS]
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
S-1
MASTER LEASE
BETWEEN
MONARCH PROPERTIES, LP
AND
LYRIC HEALTH CARE HOLDINGS III, INC.
DATED AS OF JUNE 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
LEASE; TERM; RENEWALS..........................................................1
1.1 Lease...........................................................1
1.2 Term............................................................2
1.3 Allocation of Base Rent.........................................2
1.4 First Option to Renew...........................................2
1.5 Second Option to Renew. .......................................2
1.6 Third Option to Renew. ........................................2
1.7 Other Conditions of Renewal.....................................2
ARTICLE 2
DEFINITIONS....................................................................3
2.1 Certain Definitions.............................................3
2.2 Other Definitions..............................................19
ARTICLE 3
RENT; RELATED MATTERS.........................................................20
3.1 Rent...........................................................20
3.2 Additional Charges.............................................20
3.3 Late Charge; Interest..........................................20
3.4 Method of Payment of Rent......................................20
3.5 Net Lease; No Offset...........................................20
ARTICLE 4
IMPOSITIONS; RELATED MATTERS..................................................21
4.1 Payment of Impositions.........................................21
4.2 Adjustment of Impositions......................................21
4.3 Utility Charges................................................22
4.4 Insurance Premiums.............................................22
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC................................................22
i
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ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY...............................23
6.1 Ownership of the Leased Property...............................23
6.2 Landlord's Personal Property...................................23
6.3 Tenant's Personal Property.....................................23
6.4 Grant of Security Interest in Tenant's Personal Property;
Restriction on Other Liens.....................................24
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTIES........................................24
7.1 Condition of the Leased Properties.............................24
7.2 Use of the Leased Property.....................................25
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS..............................................26
8.1 Compliance with Legal and Insurance Requirements...............26
8.2 Legal Requirement Covenants....................................26
8.3 Certain Financial and Other Covenants..........................26
8.4 Other Businesses. ............................................27
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS.........................................28
9.1 Maintenance and Repair.........................................28
9.2 Encroachments, Restrictions, etc...............................30
ARTICLE 10
ALTERATIONS AND ADDITIONS.....................................................31
10.1 Construction of Alterations and Additions to Leased
Property.......................................................31
10.2 Asbestos Removal for Alterations and Additions.................31
ARTICLE 11
REMOVAL OF LIENS..............................................................32
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ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC............................................32
12.1 Permitted Contests.............................................32
12.2 Landlord's Requirement for Deposits............................33
ARTICLE 13
INSURANCE.....................................................................33
13.1 General Insurance Requirements.................................33
13.2 Replacement Cost...............................................35
13.3 Worker's Compensation Insurance................................35
13.4 Waiver of Liability; Waiver of Subrogation.....................36
13.5 Other Requirements.............................................36
13.6 Intentionally Omitted..........................................36
13.7 Blanket Policy.................................................36
13.8 No Separate Insurance..........................................37
ARTICLE 14
CASUALTY LOSS.................................................................37
14.1 Insurance Proceeds.............................................37
14.2 Restoration in the Event of Damage or Destruction..............37
14.3 Intentionally Omitted..........................................38
14.4 Tenant's Personal Property.....................................38
14.5 Restoration of Tenant's Property...............................38
14.6 No Abatement of Rent...........................................38
14.7 Consequences of Purchase of Damaged Leased Property............39
14.8 Damage Near End of Term........................................39
14.9 Waiver.........................................................39
14.10 Procedure for Disbursement of Insurance Proceeds...............39
ARTICLE 15
TAKINGS.......................................................................41
15.1 Total Taking...................................................41
15.2 Allocation of Portion of Award.................................41
15.3 Partial Taking.................................................41
15.4 Temporary Taking...............................................42
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ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT.............................................42
16.1 Events of Default..............................................42
16.2 Landlord's Rights Upon Tenant's Default........................42
16.3 Liability for Costs and Expenses...............................42
16.4 Certain Remedies...............................................43
16.5 Damages........................................................43
16.6 Waiver.........................................................44
16.7 Application of Funds...........................................44
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.....................................44
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS ...............................................44
18.1 Prohibition Against Use of Hazardous Substances................44
18.2 Notice of Environmental Claims, Actions or
Contaminations.................................................45
18.3 Costs of Remedial Actions with Respect to Environmental
Matters........................................................45
18.4 Delivery of Environmental Documents............................45
18.5 Environmental Audit............................................45
18.6 Entry onto Leased Property for Environmental Matters...........46
18.7 Environmental Matters Upon Termination or Expiration of
Term of This Lease.............................................46
18.8 Compliance with Environmental Laws.............................47
18.9 Environmental Related Remedies.................................48
18.10 Environmental Indemnification..................................48
18.11 Rights Cumulative and Survival.................................50
ARTICLE 19
HOLDOVER MATTERS..............................................................50
19.1 Holding Over...................................................50
19.2 Indemnity......................................................50
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ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS..........................................51
20.1 Subordination..................................................51
20.2 Attornment.....................................................51
20.3 Estoppel Certificate...........................................51
ARTICLE 21
RISK OF LOSS..................................................................52
ARTICLE 22
INDEMNIFICATION...............................................................52
22.1 Indemnification................................................52
22.2 Survival of Indemnification; Tenant Right to Defend
Landlord.......................................................54
ARTICLE 23
LIMITATIONS ON TRANSFERS......................................................54
23.1 General Prohibition against Transfer...........................54
23.2 Corporate or Partnership Transactions..........................54
23.3 Permitted Subleases............................................55
23.4 Transfers to a Controlled Entity...............................55
23.5 Subordination and Attornment...................................55
23.6 Sublease Limitation............................................55
23.7 Facility Subleases Permitted...................................56
ARTICLE 24
CERTAIN FINANCIAL MATTERS.....................................................56
24.1 Officer's Certificates and Financial Statements................56
24.2 Public Offering Information....................................58
ARTICLE 25
LANDLORD INSPECTION...........................................................58
ARTICLE 26
[INTENTIONALLY OMITTED].......................................................59
v
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ARTICLE 27
[INTENTIONALLY OMITTED].......................................................59
ARTICLE 28
ACCEPTANCE OF SURRENDER.......................................................59
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP..................................................59
29.1 No Merger of Title.............................................59
29.2 No Partnership.................................................59
ARTICLE 30
CONVEYANCE BY LANDLORD........................................................60
ARTICLE 31
QUIET ENJOYMENT...............................................................60
ARTICLE 32
[INTENTIONALLY OMITTED].......................................................60
ARTICLE 33
APPRAISERS....................................................................60
ARTICLE 34
BREACH OF LEASE BY LANDLORD...................................................61
ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL........................62
35.1 Landlord's Option to Purchase Tenant's Personal Property.......62
35.2 Facility Trade Names...........................................62
35.3 Transfer of Operational Control of the Facilities..............63
35.4 Intangibles and Personal Property..............................64
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ARTICLE 36
[INTENTIONALLY OMITTED].......................................................64
ARTICLE 37
MISCELLANEOUS.................................................................64
37.1 Notices........................................................64
37.2 Survival, Choice of Law........................................65
37.3 Limitation on Recovery.........................................65
37.4 Waivers........................................................66
37.5 Consents.......................................................66
37.6 Counterparts...................................................66
37.7 Options Follow Lease...........................................66
37.8 Rights Cumulative..............................................66
37.9 Entire Agreement...............................................66
37.10 Amendments in Writing..........................................66
37.11 Severability...................................................67
37.12 Successors.....................................................67
37.13 Time of the Essence............................................67
37.14 Late Charges...................................................67
37.15 Binding Effect.................................................67
37.16 Exhibits and Schedules.........................................67
37.17 Waiver of Jury Trial...........................................67
37.18 Memorandum of Lease............................................67
ARTICLE 38
SECURITY DEPOSIT..............................................................67
38.1 Security Deposit...............................................67
38.2 Application of Security Deposit................................68
38.3 Transfer of Security Deposit...................................68
38.4 Reduction of Security Deposit..................................68
vii
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MASTER LEASE
THIS MASTER LEASE (this "Lease") is made and entered into as of the 23rd
day of June, 1998 between MONARCH PROPERTIES, LP, a Delaware limited
partnership, with principal offices at 8889 Pelican Bay Boulevard, Naples,
Florida 34108 ("Landlord") and LYRIC HEALTH CARE HOLDINGS III, INC., a Delaware
corporation, with principal offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117 ("Tenant").
W I T N E S S E T H:
WHEREAS, pursuant to a Facilities Purchase Agreement, dated as of June 23,
1998 (the "Facilities Purchase Agreement") among Landlord, Integrated Health
Services, Inc. ("IHS") and the various wholly owned subsidiaries of Tenant
described on Exhibit A hereto (each individually, a "Facility Subtenant" and,
collectively, the "Facility Subtenants"), Landlord acquired and is the present
owner of the real property, improvements fixtures, and personal property
constituting the health care facilities described on Exhibit A hereto (each a
"Facility" or a "Leased Property"); and
WHEREAS, Landlord wishes to lease to Tenant, and Tenant wishes to lease
from Landlord, all of the Facilities;
WHEREAS, immediately prior hereto, the Facilities were operated by the
Facility Subtenants and, contemporaneously with the execution and delivery of
this Lease, Tenant and each of the Facility Subtenants will execute a Facility
Sublease (as defined below) with respect to their respective Facilities; .
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Lease, the parties agree that the use and occupancy
of the Facility demised herein shall be subject to, and be in accordance with,
the terms, conditions and provisions of this Lease, as follows:
ARTICLE 1
LEASE; TERM; RENEWALS
1.1 LEASE. Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant, and Tenant hires and takes from Landlord, all
the Leased Properties.
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1.2 TERM. The Term shall commence for all Facilities on the Commencement
Date and end for each Facility on the Expiration Date indicated for such
Facility on Exhibit B hereto, subject to the renewals described in Sections 1.4
through 1.7 hereof.
1.3 ALLOCATION OF BASE RENT. The allocation of Base Rent among the Leased
Properties (as of the Commencement Date as agreed by Landlord and Tenant solely
for purposes of this Lease), is set forth on Exhibit B hereto.
1.4 FIRST OPTION TO RENEW. Tenant is hereby granted the option to renew
this Lease for a First Renewal Term for each Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, before the Expiration Date for such
Facility specified in Exhibit B hereto; provided, however, that no Event of
Default exists either on the date on which Tenant gives such Notice to Landlord
or on the applicable Expiration Date. During the First Renewal Term, all of the
terms and conditions of this Lease shall remain in full force and effect.
1.5 SECOND OPTION TO RENEW. If the Term of this Lease has been renewed as
provided above, Tenant is hereby granted the option to renew this Lease for the
Second Renewal Term for each Facility, which option shall be exercised by Notice
to Landlord at least one hundred eighty (180) days, but not more than three
hundred sixty (360) days, prior to the expiration of the First Renewal Term for
such Facility; provided, however, that no Event of Default exists either on the
date on which Tenant gives such Notice to Landlord or on the date on which the
First Renewal Term expires. During the Second Renewal Term, all of the terms and
conditions of this Lease shall remain in full force and effect.
1.6 THIRD OPTION TO RENEW. If the Term of this Lease has been renewed as
provided above, Tenant is hereby granted the option to renew this Lease for the
Third Renewal Term for each Facility, which option shall be exercised by Notice
to Landlord at least one hundred eighty (180) days, but not more than three
hundred sixty (360) days, prior to the expiration of the Second Renewal Term;
provided, however, that no Event of Default exists either on the date on which
Tenant gives such Notice to Landlord or on the date on which the Second Renewal
Term expires. During the Third Renewal Term, all of the terms and conditions of
this Lease shall remain in full force and effect.
1.7 OTHER CONDITIONS OF RENEWAL. The options to renew granted pursuant to
Sections 1.4, 1.5 and 1.6 hereof may be exercised only with respect to all of
the Leased Properties specified in Exhibit A hereto for the exercise of such
options and the Base Rent will be computed as if the respective Renewal Term
were merely an automatic extension of the preceding Term (as specified in the
definition of Base Rent).
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ARTICLE 2
DEFINITIONS
2.1 CERTAIN DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (a) all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (b) all references to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease, and (c) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision. In addition, the following
terms shall have the following meanings:
Accounts: With respect to each Facility Subtenant, and to Tenant in
the event it should at any time operate the health care business on a
Leased Property, all accounts, accounts receivable, deposits, prepaid
items, documents, chattel paper, instruments, contract rights, general
intangibles, choses in action and rights to any refund of taxes previously
or subsequently paid to any governmental authority, in each case arising
from or in connection with such Facility Subtenant's (or Tenant's)
operation and use of the Leased Property.
Additional Charges: All Impositions and all amounts, liabilities and
obligations other than Base Rent that Tenant assumes and agrees to pay
under this Lease.
Affiliate: Any Person who, directly or indirectly, Controls or is
Controlled by or is under Common Control with another Person.
Approval Threshold: Five Hundred Thousand Dollars ($500,000).
Assessment: With respect to any Leased Property, any assessment for
public improvements or benefits commenced or completed after the date
hereof and whether or not to be completed within the Term.
Award: All compensation, sums or anything of value awarded, paid or
received in connection with a Taking or Partial Taking.
Base Rent: (a) For the first Lease Year, the sum of $[INSERT DOLLAR
AMOUNT], and (b) for each Lease Year thereafter (including each Lease Year
in any Renewal Term), the sum of (i) the Base Rent for the preceding Lease
Year plus (ii) the product of the Base Rent for the preceding Lease Year
and the lower of (x) twice the percentage increase in the Cost of Living
Index from the last month of the preceding Lease Year to the last month of
the Lease Year in question or (y) three percent (3%) (except that for
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the first Lease Year, the Cost of Living Index shall be measured from the
end of the month preceding the Commencement Date); provided, however, that
in no event shall the annual Base Rent increase be less than one percent
(1%).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.
Capital Lease: Any lease (other then this Lease) for which Tenant is
required, under GAAP, to account on its balance sheet as a capital lease.
Capitalized Lease Obligation: Any obligation of Tenant, as tenant or
guarantor, under a Capital Lease.
Cash Flow from the Facilities: The sum of (a) Net Income for the
applicable period; (b) the amount deducted by Tenant in computing Net
Income for the applicable period for (i) depreciation on any leasehold
improvements to the Facilities constructed by Tenant, (ii) amortization and
(iii) Rent; (c) interest; and (d) Fees.
Cash Flow to Debt Service Requirement: For any fiscal period, the
ratio of Cash Flow from the Facilities to Debt Service (in each case
determined on a consolidated or combined basis with all the Facility
Subtenants) set forth with respect to such period on the schedule attached
as Exhibit C hereto.
Claim(s): Any lien, attachment, levy, encumbrance, charge or claim, or
any encroachment or restriction burdening any Leased Property.
Clean-Up: The investigation, removal, restoration, remediation and/or
elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction over the
applicable Leased Property and in compliance with or as may be required by
Environmental Laws.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Commencement Date: The Effective Date, as defined in the Facilities
Purchase Agreement.
Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
Construction Funds: The Net Proceeds available for restoration or
repair work pursuant to Article 14 of this Lease.
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Contamination: The presence, Release or threatened Release of any
Hazardous Substance at a Leased Property in violation of any Environmental
Law, or in a quantity that would give rise to any affirmative Clean-Up
obligation under an Environmental Law, including, but not limited to, the
existence of any injury or potential injury to public health, safety,
natural resources or the environment associated therewith.
Control (and Controlled by and under Common Control with): possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, through the ownership of voting
securities, partnership interests or other equity interests.
Cost of Living Index: The United States Department of Labor, Bureau of
Labor Statistics Revised Consumer Price Index for All Urban Consumers
(1982-84=100), U.S. City Average, All Items, or, if such Index is not
available for the United States, an index available for the geographical
area in the United States which most closely corresponds to the entire
United States, published by such bureau or its successor, or, if none, by
any other instrumentality of the United States.
Date of Taking: The date on which the Condemnor has the right to
possession of the Leased Property that is the subject of the Taking or
Partial Taking.
Debt: As of any date, all (a) obligations, whether current or
long-term, that in accordance with GAAP would be included as liabilities on
a Person's balance sheet; (b) Capitalized Lease Obligations of such Person;
(c) obligations of others for which that Person is liable directly or
indirectly, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or
advance or keep in funds or other agreement having the effect of a
guaranty) or otherwise; (d) liabilities and obligations secured by liens on
any assets of that Person, whether or not those liabilities or obligations
are recourse to that Person; (e) liabilities and obligations of that
Person, direct or contingent, with respect to letters of credit issued for
the account of that Person or others or with respect to bankers acceptances
created for that Person; and (f) obligations resulting from a draw under
any letter of credit which may be provided pursuant to the Letter of Credit
Agreement. However, Additional Charges shall not be deemed Debt.
Debt Service: With respect to any fiscal period of a Person, the sum
of (a) all interest due on Debt during the period (other than interest
imputed, pursuant to GAAP, on any Capitalized Lease Obligations and
interest on Debt that comprises Purchase Money Financing), all payments of
principal of Debt required to be made during the period and (c) all Base
Rent due during the period.
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Encumbrance: With respect to a Leased Property, any mortgage, deed of
trust, lien, encumbrance or other matter affecting title to the Leased
Property, or any portion thereof or interest therein.
Environmental Audit: A written certificate, in form and substance
satisfactory to Landlord, from an environmental firm acceptable to
Landlord, which states that there is no evidence of Contamination on the
applicable Leased Property and that the applicable Leased Property is
otherwise in compliance with Environmental Laws.
Environmental Documents: Documents received by Tenant or any Affiliate
from, or submitted by Tenant or any Affiliate to, the United States
Environmental Protection Agency and/or any other federal, state, county or
municipal agency responsible for enforcing or implementing Environmental
Laws with respect to the condition of the Leased Property leased by Tenant
or Tenant's operations at the Leased Property; and written reviews, audits,
reports or other documents pertaining to environmental conditions,
including, but not limited to, the presence or absence of Contamination,
at, in or under or with respect to the Leased Property leased by Tenant
that have been prepared by, for or on behalf of Tenant.
Environmental Laws: All federal, state and local laws (including,
without limitation, common law), statutes, codes, ordinances, regulations,
rules, orders, permits or decrees from time to time in effect and relating
to (a) the introduction, emission, discharge or release of Hazardous
Substances into the indoor or outdoor environment (including, without
limitation, air, surface water, groundwater, land or soil); or (b) the
manufacture, processing, distribution, use, treatment, storage,
transportation or disposal of Hazardous Substances; or (c) the Cleanup of
Contamination.
Escrow Agreement: The Escrow Agreement of even date herewith between
Landlord and Tenant.
Estoppel Certificate: A statement in writing in substantially the same
form as Exhibit D hereto, with such changes thereto as reasonably may be
requested by the person relying on such certificate.
Event of Default: The occurrence of any of the following:
(a) If Tenant fails to pay Base Rent under this Lease when the
same becomes due and payable or if Tenant fails to restore the Security
Deposit if and as required by Section 38.2 hereof within five (5) Business
Days after Notice; or if Tenant fails to pay any Additional Charges within
ten (10) Business Days after Notice;
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(b) If Tenant (i) admits in writing its inability to pay its
debts generally as they become due, (ii) files a petition in bankruptcy or
a petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the
appointment of a receiver of itself or of the whole or any substantial part
of its property, or (v) files a petition or answer seeking reorganization
or arrangement under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States of America or any state thereof; or
(c) If Tenant, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered
against it, or a court of competent jurisdiction enters an order or decree
appointing a receiver of such Tenant or of the whole or substantially all
of Tenant's property, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the Federal Bankruptcy Laws
or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree is not vacated or set
aside or stayed within ninety (90) days from the date of the entry thereof;
or
(d) If Tenant is liquidated or dissolved, or begins proceedings
toward liquidation or dissolution, or has filed against it a petition or
other proceeding to cause it to be liquidated or dissolved, and the
proceeding is not dismissed within sixty (60) days thereafter, or in any
manner permits the sale or divestiture of substantially all of its assets
except in connection with a dissolution or liquidation following or related
to a merger or transfer of all or substantially all of the assets and
liabilities of Tenant with or to an Affiliate; or
(e) If the estate or interest of Tenant in the Leased Property or
any part thereof is levied upon or attached in any proceeding and the same
is not vacated or discharged within sixty (60) days after commencement
thereof (unless Tenant is in the process of contesting such lien or
attachment in good faith in accordance with Section 12.1 hereof); or
(f) If Tenant ceases operation of a Facility for a period in
excess of five (5) Business Days except upon prior written Notice to, and
with the express prior written consent of Landlord (which consent Landlord
may withhold in its absolute discretion), or as the unavoidable consequence
of damage or destruction as a result of a casualty, or a Taking or Partial
Taking, or as a result of an event described in subparagraph (g) below (as
to which the provisions of subparagraph (g) shall govern); or
(g) If the license to operate any Facility as a provider of
health care services in accordance with its Primary Intended Use is
revoked, or allowed to lapse, or, without Landlord's prior written consent,
transferred to a facility that is not one of
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the Leased Properties, or an order is imposed with respect to a Facility
suspending the right to operate or accept patients, and Tenant does not
promptly take reasonable steps to cure the condition or conditions leading
to such revocation or order and cause such license and right to operate and
accept patients to be reinstated within sixty (60) days; or
(h) If any obligation of Tenant or of Guarantor to repay borrowed
money in excess of Three Million Dollars ($3,000,000) is accelerated by a
creditor after default, unless (i) Notice of a dispute between Tenant or
Guarantor and such creditor is given to Landlord prior to such
acceleration, (ii) Tenant or Guarantor have provided Landlord with
assurance, satisfactory to Landlord in its sole discretion, that such
acceleration will not materially affect Tenant, any of the Leased
Properties or the ability of Tenant and Guarantor to perform their
obligations under this Lease and the applicable Guaranty, and (iii)
Landlord has given Notice of such satisfaction to Tenant or Guarantor; or
(i) If Tenant fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured within a
period of thirty (30) days after Notice thereof from Landlord, unless the
failure cannot with due diligence be cured within a period of thirty (30)
days, in which case the failure shall not be deemed to continue if (i)
Tenant proceeds promptly and with due diligence to cure the failure, (ii)
Tenant diligently and continuously completes the cure thereof and (iii)
such failure is cured prior to the time that the same results in civil or
criminal penalties to Landlord, Tenant or any Affiliates of either; or
(j) If any representation or warranty made by Tenant in the
Facilities Purchase Agreement or in the certificates delivered in
connection therewith proves to be untrue when made in any material respect,
and Landlord is materially and adversely affected thereby, and Tenant
fails, within twenty (20) days after Notice from Landlord thereof, to cure
such condition by terminating such adverse effect and making Landlord whole
for any damage suffered therefrom, or if with due diligence such cure
cannot be effected within twenty (20) days, if Tenant has failed to
commence to cure the same within the twenty (20) days or failed thereafter
to proceed promptly and with due diligence to cure such conditions and
prior to the time that the same results in civil or criminal penalties to
Landlord, Tenant, any Affiliates of either, or any of the Leased
Properties; or
(k) If a default occurs under any Guaranty of this Lease given to
Landlord to secure performance of any term or provision of this Lease and
is not cured within any applicable grace or cure period set forth therein;
or
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(l) Subject to Article 23, if Tenant or any Facility Subtenant
transfers the operational control or management of the Facility currently
being operated by it without Landlord's prior written consent; or
(m) If (i) a default occurs on the part of Tenant or a Facility
Subtenant under the Master Management Agreement, the Master Franchise
Agreement, a Facility Management Agreement, a Facility Franchise Agreement,
the Escrow Agreement and any Facility Sublease and is not cured within any
applicable grace or cure period set forth therein, or (ii) a default occurs
on the part of Tenant or a Facility Subtenant under any other material
contract affecting any of the Facilities, Tenant or any Affiliate of
Tenant, or any Facility Subtenant, and the default is not cured within any
applicable grace or cure period contained therein, provided, as to any such
default under such other contract, such default materially and adversely
affects, or has the reasonable potential of materially and adversely
affecting, the operation or value of the applicable Facility; or
(n) If a default occurs under the Letter of Credit Agreement or
under the Security Agreement and is not cured within any applicable grace
or cure period set forth therein; or
(o) If Tenant breaches the financial covenants set forth in
Section 8.3 hereof, or Guarantor breaches the financial covenants set forth
in its Guaranty, and such failure is not cured within thirty (30) days of
the earlier of (i) the date on which Tenant or Guarantor has actual
knowledge of such breach or (ii) Notice from Landlord.
Executive Officer: The Chairman of the Board of Directors, the
President, any Vice President and the Secretary of a corporation.
Expiration Date: The "Expiration Date" for each particular Facility
specified on Exhibit B hereto.
Facilities: The Leased Properties.
Facility: Any one of the Leased Properties.
Facility Franchise Agreement: The facility franchise agreement among
Franchisor, Tenant and a Facility Subtenant relating to such Facility
Subtenant's operations at its Facility.
Facility Management Agreement: The facility management agreement among
Manager, Tenant and a Facility Subtenant relating to the management of such
Facility Subtenant's operations at its Facility.
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Facility Purchase Price: The Purchase Price allocated to the Facility
on the Commencement Date, as set forth on Exhibit F hereto, increased by
three percent (3%) per Lease Year, compounded annually, from the
Commencement Date to the date in question and prorated for any portion of
such period that is less than a full Lease Year.
Facility Rental Value: The Base Rent (determined at the time in
question) allocable to a Facility.
Facility Sublease: The facility sublease between Tenant and the
Initial Facility Subtenant of such Facility.
Facility Subtenant: The subtenant of a Facility pursuant to a Facility
Sublease.
Facility Trade Names: The names under which the Facilities do or have
done business during the Term.
Fair Rental Value: The amount determined to be the Fair Rental Value
of the applicable Leased Property pursuant to the appraisal procedure set
forth in Article 33.
Fees: The fees payable by Tenant or a Facility Subtenant to Manager or
Franchisor pursuant to the Management Agreement or the Franchise Agreement,
as the case may be.
Financial Statement: For a fiscal year or other accounting period,
statements of earnings and retained earnings and of changes in financial
position and profit and loss for such period (for an interim period, from
the beginning of the respective fiscal year to the end of such period) and
the related balance sheet as at the end of such period, together with the
notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with GAAP and reported on
by a "Big Six" certified public accounting firm or another certified public
accounting firm approved by Landlord, which approval will not be
unreasonably withheld or delayed; provided, however, the "Big Six" or
approved Accounting Firm requirements will not apply to statements prepared
for an interim period.
First Renewal Term: The period described as such for a particular
Facility as specified in Exhibit B hereto.
Fiscal Year: The calendar year.
Fixtures: All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components
thereof, now and
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hereafter located in, on or used in connection with, and permanently
affixed to or incorporated into the Leased Improvements, including, without
limitation, any and all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus (other than individual units),
sprinkler systems and fire and theft protection equipment, and built-in
oxygen and vacuum systems, all of which to the greatest extent permitted by
law, are hereby deemed to constitute real estate, together with all
replacements, modifications, alterations and additions thereto but
specifically excluding all items included within the definition of the
"Personal Property".
Franchise Agreement: Collectively, the Master Franchise Agreement and
each Facility Franchise Agreement.
Franchisor: Integrated Health Services Franchising Co., Inc., a
Delaware corporation.
GAAP: Generally accepted accounting principles in effect from time to
time, consistently applied.
Guarantor: Lyric Health Care LLC, a Delaware limited liability
company.
Guaranty: The Lyric Guaranty.
Hazardous Substances: Any and all toxic or hazardous material,
substance, pollutant, contaminant, chemical, waste (including medical
waste) or substance, including petroleum products, asbestos and PCBs,
regulated, restricted or prohibited under any Environmental Law.
IHS: Integrated Health Services, Inc., a Delaware corporation.
IHS Indemnity: The Indemnity Agreement executed by IHS in favor of
Landlord.
Impartial Appraiser: An appraiser selected by Landlord and reasonably
acceptable to Tenant.
Impositions: Collectively, all taxes (including, without limitation,
all real property taxes, ad valorem, sales and use, single business, gross
receipts, transaction privilege, rent or similar taxes), assessments,
ground rents, water, sewer or other rents and charges, excises, tax levies,
fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in
each
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case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of any Leased Property or the
business conducted thereon by Tenant and/or the Rent (including all
interest and penalties thereon due to any failure of payment by Tenant)
applicable to periods of time within the Term hereof which at any time may
be assessed or imposed on or in respect of or be a lien upon (a) the
Facilities or any part thereof or (b) any rent therefrom or (c) any estate,
right, title or interest therein, (d) or any occupancy, operation, use or
possession of, or sales from, or activity conducted on, the applicable
Leased Property or (e) the leasing or use of the Facilities or any part
thereof or (f) the Rent. So long as the Facilities include a Facility in
New Hampshire, the term "Imposition" shall include any "enterprise tax"
imposed upon Landlord by the State of New Hampshire; provided, however,
that if and when Landlord owns property in New Hampshire in addition to the
Facility leased hereunder, such tax shall be fairly allocated among such
properties. "Imposition" shall not include: (a) any federal, state or local
tax based on gross or net income (whether denominated as an income, capital
stock or other tax) imposed on Landlord generally and not exclusively in
connection with any Leased Property, or (b) any net revenue tax of Landlord
or any other person, or (c) any tax imposed with respect to the sale,
financing, exchange or other disposition by Landlord of any Leased Property
or the proceeds thereof, or (d) any principal or interest on any
indebtedness of Landlord or (e) on any ground rent or other rent payable by
Landlord.
Initial Term:The period between, and inclusive of, the Commencement
Date and the earlier of the Expiration Date and the date upon which this
Lease terminates as provided herein.
Insurance Requirements: The terms, conditions and requirements of any
insurance policy required by this Lease.
Investigations: Soil and chemical tests or any other environmental
investigations, examinations or analyses.
Land: The real property described on attached Exhibit A hereto.
Landlord's Personal Property: All Personal Property, except Tenant's
Personal Property, that at the Commencement Date or thereafter during the
Term is located, or, but for a temporary relocation off-site on the
Commencement Date is normally located, on the Land or in the Leased
Improvements.
Lease Year: The period commencing on the first day of the calendar
month following the month in which the Commencement Date occurs and ending
on the last day of the twelfth (12th) full calendar month thereafter
(unless the Commencement Date is the first day of a month, in which event
the first Lease Year shall commence on
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such day). The period, if any, between the Commencement Date and the first
day of the following month shall be deemed to be part of the first Lease
Year. Thereafter, each Lease Year will be January 1 through December 31. If
this Lease is terminated before the end of any Lease Year, the final Lease
Year will be January 1 through the date of termination thereof.
Leased Improvements: All buildings, structures, Fixtures and other
improvements of every kind currently situated on the Land, including, but
not limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures.
Leased Properties (also "Facilities"): Collectively, the Land, Leased
Improvements, Related Rights and Landlord's Personal Property, and the
licensed nursing homes and/or other healthcare facilities being operated
thereon and therein, as identified on Exhibit A hereto.
Leased Property: Any one of the Leased Properties.
Legal Requirements: As to any Leased Property, all federal, state,
county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Leased Property or the construction, use or alteration thereof, whether now
or hereafter enacted and in force, including any which may (a) require
repairs, modifications or alterations in or to the Leased Property or (b)
in any way adversely affect the use and enjoyment thereof, and all permits,
licenses and authorizations and regulations relating thereto, including,
but not limited to, those relating to existing health care licenses, those
authorizing the current number of licensed beds and the level of services
delivered from the Leased Property, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of
record or known to Tenant at any time in force affecting the Leased
Property, other than covenants, agreements, restrictions and encumbrances
created by Landlord without the consent of Tenant.
Letter of Credit Agreement: The letter of credit agreement of even
date herewith designated as such between Landlord and Tenant.
Lyric: Lyric Health Care LLC, a Delaware limited liability company.
Lyric Guaranty: The Guaranty, dated as of the date hereof, executed by
Lyric in favor of Landlord.
Manager: IHS Facility Management, Inc., a Delaware corporation.
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Management Agreement: Collectively, the Master Management Agreement
and each Facility Management Agreement.
Master Franchise Agreement: The Amended and Restated Master Franchise
Agreement, dated as of June 23, 1998, between Lyric and Franchisor, as
amended from time to time, setting forth common terms and conditions for
the franchising of certain trade names, systems and other proprietary
materials for the Facilities.
Master Management Agreement: The Amended and Restated Master
Management Agreement, dated as of June 23, 1998, between Lyric and Manager,
as amended from time to time, setting forth common terms and conditions for
management of the Facilities.
Mechanics Liens: Liens of mechanics, laborers, materialmen, suppliers
or vendors.
Monarch: Monarch Properties, Inc., a Maryland corporation.
Net Income: The aggregate net income of the Facility Subtenants from
the operation of the Facilities, determined on an accrual basis in
accordance with GAAP, before federal, state and local income taxes, but
excluding extraordinary items.
Net Proceeds: All proceeds, net of any costs incurred by Landlord in
obtaining such proceeds, payable under any risk policy of insurance
required by Article 13 of this Lease (including proceeds with respect to
the Personal Property that Tenant elects to restore or replace pursuant to
Section 14.2 hereof).
Notice: A written notice given pursuant to Section 37.1 hereof.
Officer's Certificate: A certificate signed by any one or more of the
Executive Officers.
Overdue Rate: On any date, a rate equal to three (3) percentage points
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.
Partial Taking: A Taking of a portion of a Facility or of less than
the whole fee title to a Facility.
Payment Date: The due date for the payment of the installments of Base
Rent, Additional Charges or any other sums payable under this Lease.
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Permitted Debt: Any of the following:
(a) Debt (other than Debt as to which an Affiliate of Tenant is
the creditor) incurred by Tenant and/or the Facility Subtenants solely to
provide working capital to the respective Facilities;
(b) Debt of Tenant to Landlord;
(c) unsecured Debt of Tenant, other than for money borrowed,
incurred solely in the ordinary course of business;
(d) Debt of Tenant for taxes, assessments, governmental charges
or levies, to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of Article 4 or
Article 12 hereof;
(e) Debt of Tenant in respect of judgments or awards (i) which
have been in force for less than the applicable appeal period and in
respect of which execution thereof shall have been stayed pending such
appeal or review, or (ii) which are fully covered by insurance payable to
Tenant, or (iii) which are for an amount not in excess of One Million
Dollars ($1,000,000) in the aggregate at any one time outstanding, and (A)
which have been in force for not longer than the applicable appeal period,
so long as execution is not levied thereunder, or (B) in respect of which
an appeal or proceedings for review shall at the time be prosecuted in good
faith in accordance with the provisions of Article 12 hereof, and in
respect of which execution thereof shall have been stayed pending such
appeal or review.
(f) unsecured borrowings of Tenant from its Affiliates which are
by their terms expressly subordinate to the payment and performance of
Tenant's obligations under this Lease; or
(g) Debt incurred solely for the purchase or lease of Tenant's
Personal Property.
Permitted Encumbrances: With respect to each of the Leased Properties,
matters constituting Permitted Encumbrances under the Facilities Purchase
Agreement, including any such matters arising after the Commencement Date
which, had they existed on the Commencement Date, would have been
considered Permitted Encumbrances under the Facilities Purchase Agreement.
Permitted Environmental Conditions: The asbestos-containing materials,
underground storage tanks, and other Hazardous Substances that currently
are located in, on, under or about the Leased Properties, in each case as
disclosed in the
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Environmental Audits delivered by Tenant to Landlord prior to the date of
this Lease, except to the extent that any such conditions are required to
be remedied by Tenant under the Facilities Purchase Agreement and the
Escrow Agreement.
Person: Any natural person, trust, partnership, limited liability
company, corporation, joint venture or other legal entity.
Personal Property: All equipment, furniture, fixtures, inventory
(including linens, dietary supplies and housekeeping supplies, and
including food and other consumable inventories), furnishings, movable
walls or partitions, trade fixtures, computers, software and data
pertaining to the business of a Facility (whether such data is stored in
computers or peripheral equipment that is included within the definition of
the term "Personal Property" or is otherwise in the possession of a Tenant
or a Facility Subtenant, or in computers and equipment that is not included
within the definition of the term "Personal Property" but is either owned
by Tenant or a Facility Subtenant or as to which Tenant or a Facility
Subtenant has a right of retrieval) and other tangible personal property
used in connection with the business of a Facility, together with all
replacements, modifications, alterations and additions thereto, except (a)
items, if any, included within the definition of Fixtures or Leased
Improvements, (b) personal property leased from third parties, (c)
computers owned or leased by a Tenant or a Facility Subtenant that
customarily are not located on any of the Leased Properties, and (d)
proprietary software owned by parties other than a Tenant or a Facility
Subtenant.
Primary Intended Use: With respect to any Facility, the operation of
the Facility as a licensed health care facility.
Prime Rate: On any date, a rate equal to the annual rate on such date
publicly announced by Citibank, N.A. to be its prime rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing,
but in no event greater than the maximum rate then permitted under
applicable law.
Proceeding: Any action, proposal or investigation by any agency or
entity.
Purchase Money Financing: Any financing (whether by lease, chattel
mortgage, installment sale, or otherwise) provided by a Person to Tenant or
a Facility Subtenant in connection with the acquisition of Personal
Property used in connection with the operation of a Facility, whether by
way of installment sale or otherwise.
Purchase Price: The Purchase Price set forth in the Facilities
Purchase Agreement.
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Qualified Capital Expenditures: Expenditures capitalized on the books
of the Tenant or a Facility Subtenant for any of the following: replacement
of furniture, fixtures and equipment, including refrigerators, ranges,
major appliances, bathroom fixtures, doors (exterior and interior), central
air conditioning and heating systems (including cooling towers, water
chilling units, furnaces, boilers and fuel storage tanks) and major
replacement of siding; major roof replacements, including major
replacements of gutters, downspouts, eaves and soffits; major repairs and
replacements of plumbing and sanitary systems; overhaul of elevator
systems; major repaving, resurfacing and sealcoating of sidewalks, parking
lots and driveways; repainting of entire building exterior; but excluding
major alterations, renovations and additions.
Reconstruction Period: A period of three hundred sixty-five (365) days
following the date of any damage or destruction or the Date of Taking, as
applicable, subject to extension to the extent required by Unavoidable
Delay.
Regulatory Actions: With respect to any Leased Property, any claim,
demand, notice, action or proceeding brought or initiated by any
governmental authority in connection with any Environmental Law, including,
without limitation, civil, criminal and/or administrative proceedings, and
whether or not seeking costs, damages, equitable remedies, penalties or
expenses.
Related Rights: All easements, rights and appurtenances relating to
the Land and the Leased Improvements.
Release: The intentional or unintentional spilling, leaking, dumping,
pouring, emptying, seeping, disposing, discharging, emitting, depositing,
injecting, leaching, escaping, abandoning or other release or threatened
release, however defined, of any Hazardous Substance.
Rent: Collectively, the Base Rent and the Additional Charges.
Rental Value: (a) With respect to any Leased Property that has been
relet during the period in question, the Rent actually received by Landlord
for the period in question from the reletting, net of all reasonable
expenses, including brokerage commissions, fees of attorneys and
consultants and the cost of any repairs and alterations required to obtain
such reletting; provided, however, that Landlord shall use its reasonable
efforts to negotiate and obtain terms and conditions for any reletting of
the Leased Property that are commercially reasonable terms and conditions
under the circumstances, including, but not limited to, Rent from the
reletting that is reasonable for the Leased Property, and Landlord shall
abide by the real property laws applicable to the Leased Property in
respect of reletting the Leased Property and mitigating the liability and
obligations of Tenant and (b) with respect to any Leased Property that has
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not been relet during the period in question, the Worth at the Time of the
Award of the Rent obtainable for the applicable Leased Property for the
period in question, under a lease of the applicable Leased Property on the
same terms and conditions as are set forth in this Lease, from a Tenant
that is unrelated to Landlord and has experience and a reputation in the
health care industry and a credit standing reasonably equivalent to that of
Tenant and Guarantors.
Replaced Property: Any Fixtures or Personal Property that from time to
time are replaced, pursuant to Section 9.1.5 hereof, after the date of this
Lease.
Replacement Property: Any Fixtures or Personal Property acquired by
Tenant or a Facility Subtenant, in accordance with Section 9.1.5 hereof,
after the date of this Lease for use in connection with any Facility in
replacement of any Replaced Property.
SEC: Securities and Exchange Commission.
Second Renewal Term: The period described as such for a particular
Facility as specified in Exhibit B hereto.
Security Agreement: The security agreement of even date herewith among
Landlord, Tenant and the Facility Subtenants.
Security Deposit: The sum of $[INSERT DOLLAR AMOUNT].
State: With respect to each Facility, the state in which it is
located.
Taking: The exercise by a Condemnor of any governmental power, whether
by legal proceedings or otherwise, to acquire an interest in any Leased
Property, or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for
condemnation are pending.
Tenant's Personal Property: All Personal Property (a) which Tenant or
a Facility Subtenant owns and uses, as of the date of this Lease, in
connection with the operation of the Leased Property, but that has not been
conveyed to Landlord pursuant to the Facilities Purchase Agreement or (b)
which Tenant or a Facility Subtenant acquires after the Commencement Date
for use by it in connection with any Facility.
Term: The Initial Term and, if renewed as provided in Article 12, the
First Renewal Term and the Second Renewal Term, as applicable.
Third Party Claims: Any legal actions or proceedings (other than
Regulatory Actions but including, without limitation, those based on
negligence, trespass, strict
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liability, nuisance or toxic tort due to Contamination), and whether or not
seeking costs, damages, penalties or expenses, brought by any person or
entity other than a governmental agency.
Third Renewal Term: The period described as such for a particular
Facility as specified in Exhibit B hereto.
Transfer: The (a) assignment, mortgaging or other encumbering of all
or any part of Tenant's interest in this Lease, an Initial Facility
Subtenant's interest in a Facility Sublease or Tenant's or an Initial
Facility Subtenant's interest in the Leased Property, (b) the subletting of
the whole or any part of the Leased Property to any Person other than an
Initial Facility Subtenant or (c) the entering into of any management
agreement (other than the Management Agreement) or other arrangement under
which any Facility is operated by or licensed to be operated by an entity
other than Tenant, an Initial Facility Subtenant or the Manager.
Transferee: Any assignee, subtenant or other occupant of any Leased
Property pursuant to any Transfer.
Umbrella Policies: Policies of insurance that cover risks in excess of
the liability limits of policies required to be carried under this Lease.
Unavoidable Delays: Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes
beyond the reasonable control of the party responsible for performing an
obligation hereunder, provided that lack of funds shall not be deemed a
cause beyond the control of a party.
Unsuitable for Its Primary Intended Use: A state or condition of a
Facility such that, by reason of damage or destruction or a Partial Taking,
such Facility cannot reasonably be expected to be repaired and restored
within the Reconstruction Period to a condition in which it may be operated
on a commercially practicable basis for its Primary Intended Use, taking
into account, among other relevant factors, the number of useable beds, the
amount of square footage and the estimated revenue affected by such damage
or destruction or Partial Taking.
Worth at the Time of the Award: The present value of the applicable
amount, determined at the time required in Section 16.5 hereof, by
discounting the applicable amount by the Prime Rate.
2.2 OTHER DEFINITIONS. Other words and phrases are defined elsewhere in
this Lease and in the Exhibits and Schedules hereto.
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ARTICLE 3
RENT; RELATED MATTERS
3.1 RENT. Tenant shall pay the Rent in lawful money of the United States of
America and legal tender for the payment of public and private debts. The first
payment of Base Rent shall be due on the Commencement Date, prorated for the
period from the Commencement Date until the last day of the first full calendar
month of the Term. After the first payment, Tenant shall pay the Base Rent in
equal, consecutive monthly installments in advance on the first day of each
calendar month of the Term. Unless otherwise agreed by the parties, Rent shall
be prorated as to any partial month at the end of the Term.
3.2 ADDITIONAL CHARGES. In addition to the Base Rent, Tenant will also pay
and discharge as and when due and payable all Additional Charges. If Tenant
fails to pay any Additional Charges as and when due, Tenant will also promptly
pay and discharge as Additional Charges every fine, penalty, interest and cost
which may be added for non-payment or late payment.
3.3 LATE CHARGE; INTEREST. If any installment of Base Rent, or any
Additional Charges payable by Tenant to Landlord hereunder is not paid within
five (5) Business Days of the due date, Tenant shall pay Landlord on demand, as
an Additional Charge, (a) a late charge of five percent (5%) of the amount due
and unpaid and (b) if such payment is not made within thirty (30) days of the
date due, interest thereon at the Overdue Rate from such thirtieth (30th) day
until the date on which such payment plus such late charge and interest is paid
in full.
3.4 METHOD OF PAYMENT OF RENT. All Rent to be paid to Landlord shall be
paid by electronic funds transfer debit transactions through wire transfer of
immediately available funds to Landlord per the wiring instructions set forth on
Exhibit I hereto (as from time to time be changed by Landlord by Notice to
Tenant) and shall be initiated by Tenant for settlement on or before the due
date each calendar month; provided, however, if the due date is not a Business
Day, then settlement shall be made on the next succeeding day which is a
Business Day. Tenant shall inform Landlord of each payment by sending a
facsimile transmission of Tenant's wire transfer confirmation not later than
noon, eastern standard or daylight time, on the Business Day immediately
following the applicable payment date.
3.5 NET LEASE; NO OFFSET. The Rent shall be paid absolutely net to
Landlord, so that this Lease shall yield to Landlord the full amount of the
installments of Base Rent and Additional Charges payable hereunder throughout
the Term, subject to the terms and conditions hereof. This Lease is and shall be
a "pure-net" or "triple-net" lease, as such terms are commonly used in the real
estate industry, it being intended that Tenant shall pay all costs,
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expenses and charges arising out of the use, occupancy and operation of the
Leased Properties, without any offset, deduction, abatement, or counterclaim
whatsoever. Landlord shall not be required to furnish any services whatsoever to
any Facilities or to make any payment of any kind whatsoever; and Landlord shall
not be responsible for any loss or damage to any property of Tenant, or a
Facility Subtenant or any other user or occupant of any part of any Facility,
absent the gross negligence or willful misconduct of Landlord, its employees or
agents.
ARTICLE 4
IMPOSITIONS; RELATED MATTERS
4.1 PAYMENT OF IMPOSITIONS. Subject to the provisions of Article 12, Tenant
will pay or cause to be paid all Impositions before any fine, penalty, interest
or cost may be added for non-payment, and Tenant will promptly, upon request,
furnish to Landlord copies of official receipts or other satisfactory proof
evidencing such payments. If any such Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Tenant may exercise the option to pay
the same (and any accrued interest on the unpaid balance of such Imposition) in
installments and, in such event, Tenant shall pay such installments during the
Term hereof as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Refunds of Impositions
paid by Tenant shall be paid to or retained by Tenant. Landlord shall remit
promptly to Tenant any refunds of Impositions received by Landlord. Landlord and
Tenant shall, upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to each Leased Property as
may be necessary to prepare any required returns and reports. Tenant will
provide Landlord, upon request, with cost and depreciation records in its
possession that are reasonably necessary for filing returns for any property
classified as personal property. Tenant may, at Tenant's sole cost and expense,
protest, appeal or institute such other proceedings as Tenant may deem
appropriate to effect a reduction of Impositions, and Landlord shall cooperate
with Tenant in such protest, appeal or other action. Tenant shall reimburse
Landlord for Landlord's direct costs of cooperating with Tenant with respect to
such protest, appeal or other action and shall indemnify, defend and hold
Landlord harmless against any expense or loss as a result thereof. The foregoing
shall not be construed as indemnifying Landlord against its own grossly
negligent acts or omissions or willful misconduct.
4.2 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
tax-fiscal period during which the Term ends shall be adjusted and prorated
between Landlord and Tenant, whether or not such Imposition is imposed before or
after termination or expiration, and Tenant's obligation to pay their prorated
share thereof, if the same becomes due after such termination or expiration,
shall survive such termination or expiration.
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4.3 UTILITY CHARGES. Tenant will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities used in the
respective Leased Properties during the Term.
4.4 INSURANCE PREMIUMS. Tenant will pay or cause to be paid when due all
premiums for the insurance coverage required to be maintained pursuant to
Article 13 during the Term.
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC.
Except as otherwise specifically provided in this Lease, Tenant shall
remain bound by this Lease in accordance with its terms and shall not take any
action without the consent of Landlord to modify, surrender or terminate the
same, and shall not seek or be entitled to any offset, deduction abatement, or
counterclaim, or any deferral or reduction of Rent . The respective obligations
of Landlord and Tenant shall not be affected by reason of (a) any damage to, or
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of any Leased Property or any portion thereof, except as expressly
set forth herein; (b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of any Leased Property, or any portion thereof, or the
interference with such use by any Person (other than Landlord or its employees
or agents) or by reason of eviction by paramount title; (c) any claim which
Tenant has or might have against Landlord or by reason of any default or breach
of any warranty by Landlord under this Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties, (d) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Landlord or any assignee
or transferee of Landlord, or (e) any other cause whether similar or dissimilar
to any of the foregoing other than a discharge of Tenant from any such
obligations as a matter of law. Tenant hereby specifically waives all rights,
arising from any occurrence whatsoever, which may now or hereafter be conferred
upon it by law to (i) modify, surrender or terminate this Lease or quit or
surrender any Leased Property or any portion thereof, or (ii) except as
otherwise specifically provided in this Lease, entitle Tenant to any reduction,
suspension or deferral of the Rent or other sums payable by Tenant hereunder
except and unless as otherwise specifically provided in this Lease.
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ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY
6.1 OWNERSHIP OF THE LEASED PROPERTY. Tenant acknowledges that the Leased
Properties are the property of Landlord and that Tenant has only the right to
the possession and use of the Leased Property leased by it upon the terms and
conditions of this Lease. Tenant will not (a) file any income tax return or
other associated documents; (b) file any other document with or submit any
document to any governmental body or authority; (c) enter into any written
contractual arrangement with any Person; or (d) release any financial statements
of Tenant, in each case that takes any position other than that, throughout the
Term, Landlord is the owner of the Leased Properties for federal, state and
local income tax purposes and that this Lease is a "true lease".
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall, during the entire Term,
maintain all of Landlord's Personal Property in good order, condition and repair
as shall be necessary in order to operate the Facilities for the Primary
Intended Use in compliance with applicable licensure and certification
requirements, applicable Legal Requirements and Insurance Requirements, and
customary industry practice for the Primary Intended Use. If any of Landlord's
Personal Property requires replacement in order to comply with the foregoing,
Tenant shall replace it with other similar property of the same or better
quality at Tenant's sole cost and expense; the Replaced Property shall no longer
be Landlord's Personal Property; and the Replacement Property shall become part
of Landlord's Personal Property. Tenant shall not permit or suffer Landlord's
Personal Property to be subject to any lien, charge, encumbrance, financing
statement or contract of sale or the like, except for any purchase money
security interest or equipment or Landlord's interest expressly approved in
advance, in writing, by Landlord. At the expiration or earlier termination of
this Lease, all of Landlord's Personal Property shall be surrendered to Landlord
with the Leased Property in the condition required by Section 9.1.6 hereof.
6.2.1 Motor Vehicles. Tenant acknowledges that the motor vehicles
described in the Bill of Sale were purchased by Landlord pursuant to
the Facilities Purchase Agreement, are the property of Landlord, and
are leased to Tenant hereunder, notwithstanding the fact that for the
convenience of the parties record title to such vehicles has not
changed and the interest of Landlord is not reflected on the
certificates of title of such vehicles. Upon demand of Landlord,
Tenant shall deliver to Landlord, and cause the Facility Subtenants to
deliver to Landlord, the certificates of title to any such vehicles.
6.3 TENANT'S PERSONAL PROPERTY. Tenant shall provide and maintain, during
the entire Term, such Personal Property, in addition to Landlord's Personal
Property, as shall be necessary and appropriate in order to operate each
Facility for its Primary Intended Use in
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compliance with all licensure and certification requirements, in compliance with
all applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for the Primary Intended Use.
Upon the expiration or earlier termination of this Lease, without the payment of
any additional consideration by Landlord, Tenant shall be deemed to have sold,
assigned, transferred and conveyed to Landlord all of Tenant's right, title and
interest in and to any of the respective Tenant's Personal Property that is
integral to the use of the respective Facilities for their Primary Intended Use,
and shall, upon Landlord's request, execute and deliver to Landlord a bill of
sale with respect thereto, and without Landlord's prior written consent Tenant
shall not remove the same from the respective Leased Properties. Any of Tenant's
Personal Property that is not integral to the use of the respective Facilities
at such time may be removed by Tenant, and, if not removed within thirty (30)
days following the expiration or earlier termination of this Lease, shall be
considered abandoned by Tenant and may be appropriated, sold, destroyed or
otherwise disposed of by Landlord without giving notice thereof to Tenant and
without any payment to Tenant or any obligation to account therefor. Tenant
will, at its expense, repair all damage to the Leased Properties that is caused
by the removal of any of Tenant's Personal Property, whether effected by Tenant
or Landlord.
6.4 GRANT OF SECURITY INTEREST IN TENANT'S PERSONAL PROPERTY; RESTRICTION
ON OTHER LIENS. Tenant and each Facility Subtenant have concurrently granted to
Landlord a security interest in Tenant's Personal Property upon the terms set
forth in the Security Agreement. Without Landlord's consent, Tenant shall not
permit or suffer Tenant's Personal Property to be subject to any lien, charge,
encumbrance, financing statement or contract of sale other than to secure
Permitted Debt.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTIES
7.1 CONDITION OF THE LEASED PROPERTIES. Tenant acknowledges that Tenant has
examined and otherwise has knowledge of the condition of the Leased Property
leased by it prior to the execution and delivery of this Lease and has found the
same to be in good order and repair and satisfactory for its purposes hereunder.
Tenant is leasing the applicable Leased Property "as is" in its condition on the
Commencement Date. Tenant waives any claim or action against Landlord in respect
of the condition of the Leased Property being leased by it. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF ANY LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, OR OTHERWISE AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT
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ACKNOWLEDGES THAT THE LEASED PROPERTY LEASED BY IT HAS BEEN INSPECTED BY TENANT
AND IS SATISFACTORY TO TENANT. TENANT FURTHER ACKNOWLEDGES THAT, ON AND AFTER
THE COMMENCEMENT DATE AND THROUGHOUT THE TERM, TENANT IS SOLELY RESPONSIBLE FOR
THE CONDITION OF THE LEASED PROPERTY LEASED BY IT. TO THE EXTENT PERMITTED BY
LAW, HOWEVER, LANDLORD HEREBY ASSIGNS TO TENANT ALL OF LANDLORD'S RIGHTS TO
PROCEED AGAINST ANY PREDECESSOR IN TITLE FOR BREACHES OF WARRANTIES OR
REPRESENTATIONS OR FOR LATENT DEFECTS IN THE APPLICABLE LEASED PROPERTY.
LANDLORD SHALL FULLY COOPERATE WITH TENANT IN THE PROSECUTION OF ANY SUCH
CLAIMS, IN LANDLORD'S OR TENANT'S NAME, ALL AT TENANT'S SOLE COST AND EXPENSE.
TENANT SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS LANDLORD FROM AND AGAINST ANY
LOSS, COST, DAMAGE OR LIABILITY (INCLUDING REASONABLE ATTORNEYS' FEES, COSTS AND
DISBURSEMENTS) INCURRED BY LANDLORD IN CONNECTION WITH SUCH COOPERATION.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Subject to the exceptions in clause (f) of the definition of
"Event of Default" in Article 2 hereof, throughout the Term, Tenant shall
continuously use the Leased Property leased by it for the Primary Intended Use
and for such other uses as may be necessary or incidental thereto, and no Tenant
shall use any Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or permitted to be
made of, or allowed in, any Leased Property, and no acts shall be done, which
will cause the cancellation of, or be prohibited by, any insurance policy
covering any Leased Property or any part thereof.
7.2.2 Tenant agrees that the Leased Property and Tenant's Personal
Property shall not be used for any unlawful purpose, nor shall Tenant commit or
suffer any waste on the Leased Property or cause or permit any nuisance thereon.
7.2.3 Tenant shall not suffer or permit the Leased Property, or any
portion thereof, or Tenant's Personal Property to be used in such a manner as
(i) might reasonably tend to impair Landlord's (or Tenant's, as the case may be)
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public or of
implied dedication of the applicable Leased Property or any portion thereof.
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ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. Subject to Article
12, Tenant, at its expense, will promptly (i) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property and Tenant's Personal
Property, whether or not compliance therewith requires structural changes in any
of the Leased Improvements (which structural changes shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed) or interferes with or prevents the use and enjoyment of the
Leased Property, and (ii) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
the use of the Leased Property and Tenant's Personal Property then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Tenant's use, maintenance, operation and
any alteration of the Leased Property shall at all times conform to all
applicable local, state, and federal laws, ordinances, rules, and regulations
(including but not limited to the Americans with Disabilities Act). The judgment
of any court or administrative body of competent jurisdiction, or the decision
of any arbitrator (final beyond any appeal) that Tenant has violated any such
Legal Requirements or Insurance Requirements, shall be conclusive of that fact
as between Landlord and Tenant.
8.3 CERTAIN FINANCIAL AND OTHER COVENANTS.
8.3.1 Certain Financial Covenants.
8.3.1.1 Minimum Capital Expenditures. During the second Lease
Year, Tenant shall make at least Three Hundred Dollars ($300) per-licensed-bed
of Qualified Capital Expenditures, and thereafter throughout the Term, Tenant
shall in each Lease Year make Qualified Capital Expenditures in an amount equal
to the amount of such expenditures required for the immediately preceding Lease
Year, multiplied by the percentage increase in the Cost of Living Index from the
first day of the prior Lease Year to the first day of the current Lease Year.
The amount of Qualified Capital Expenditures per-licensed-bed may never be less
in any Lease Year than the amount established in the prior Lease Year.
8.3.1.2 Permitted Debt. Except for Permitted Debt, Tenant shall
not incur or permit any Facility Subtenant to incur any Debt without the prior
written consent of Landlord, which Landlord may withhold in its discretion;
provided, however, that Landlord agrees that for a period of ninety (90) days
from the date hereof, Permitted Debt shall include the obligations of Tenant and
the Facility Subtenants arising out of the Guaranty and the
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Pledge and Security Agreement pursuant to which obligations of IHS are
guaranteed under IHS's Revolving Credit and Term Loan Agreement, dated as of
September 15, 1997, as amended, provided further, however, that upon the
expiration of such ninety (90) day period, such obligations shall no longer be
deemed Permitted Debt and the existence of such obligations thereafter shall
constitute an Event of Default hereunder.
8.3.1.3 Cash Flow to Debt Service Requirement. At all times
during the Term, Tenant shall maintain a ratio of Cash Flow from the Facilities
to Debt Service at least equal to the Cash Flow to Debt Service Requirement.
8.3.2 Management; Franchise.
8.3.2.1 Management Agreements. With respect to any of the Leased
Properties, Tenant shall not enter into, or permit any Facility Subtenant to
enter into, any management agreement other than the Management Agreement without
Landlord's consent, which consent Landlord may withhold or condition in its sole
discretion, and in no event without a satisfactory subordination by the manager
of its right to receive any management fees to the obligation of Tenant to pay
the Base Rent and Additional Charges to Landlord. As long as Manager is owned or
controlled by IHS, in the ordinary course of business Tenant shall have the
right to amend, modify or otherwise change the terms of the Management Agreement
without the prior written consent of Landlord; provided, however, that any such
amendments, modifications or other changes that are material shall require the
prior written consent of Landlord, which consent shall not unreasonably be
withheld.
8.3.2.2 Franchise Agreements. With the approval of Landlord,
Tenant has entered into the Franchise Agreement. As long as Franchisor is owned
or controlled by IHS, in the ordinary course of business Tenant shall have the
right to amend, modify or otherwise change the terms of the Franchise Agreement
without the prior written consent of Landlord; provided, however, that any such
amendments, modifications or other changes that are material shall require the
prior written consent of Landlord, which consent shall not unreasonably be
withheld.
8.4 OTHER BUSINESSES. During the Term of this Lease, Tenant shall not,
directly or indirectly, own, operate or manage any businesses other than health
care businesses.
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ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS
9.1 MAINTENANCE AND REPAIR.
9.1.1 Tenant, at its expense, shall keep the Leased Property and all
fixtures thereon and all landscaping, private roadways, sidewalks and curbs
appurtenant thereto and which are under Tenant's control and Tenant's Personal
Property that is integral to the use of the respective Facilities for their
Primary Intended Use, in good order and repair (whether or not the need for such
repairs occurs as a result of Tenant's use, any prior use, the elements or the
age of the applicable Leased Property or any portion thereof, or any cause
whatever except the failure of Landlord to make any payment or to perform any
act expressly required under the Lease or the negligence or willful misconduct
of Landlord), and, except as may be provided to the contrary in Article 14, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise).
9.1.2 Tenant shall do or cause others to do all shoring of the Leased
Property leased by it or adjoining property (whether or not owned by Landlord)
or of the foundations and walls of the Leased Improvements, and every other act
necessary or appropriate for the preservation and safety thereof, by reason of
or in connection with any subsidence, settling or excavation or other building
operation upon the Leased Property leased by it or adjoining property, whether
or not Tenant or Landlord shall, by any Legal Requirements, be required to take
such action or be liable for the failure to do so; provided, however, that such
shoring and any other material acts shall be subject to the prior written
consent of Landlord, which shall not unreasonably be withheld or delayed. All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work, and, subject to the provisions of paragraph 9.1.6,
where, by reason of age or condition, such repairs cannot be made to the quality
of the original work, the property to be repaired shall be replaced.
9.1.3 Landlord shall not under any circumstances be required to build
or rebuild any improvements on any Leased Property or on any property
appurtenant thereto, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to any Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or upon any adjoining property, whether to provide lateral or other
support for any Leased Property or abate a nuisance affecting any Leased
Property, or otherwise, or to make any expenditure whatsoever with respect
thereto, in connection with the Lease, or to maintain any Leased Property in any
way. Tenant hereby
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waives, to the extent permitted by law, any right provided by law, but not
provided by the terms of this Lease, to make repairs at the expense of Landlord.
9.1.4 Nothing contained in this Lease shall be construed as (a)
constituting the consent or request of Landlord, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to any Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Landlord in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Landlord in
any Leased Property or any portion thereof. Landlord shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanics' and construction lien laws now or hereafter existing.
9.1.5 Tenant shall, from time to time as and when needed, replace with
Replacement Property any of the Fixtures or Personal Property (except Tenant's
Personal Property that is not integral to the use of the respective Facilities
for their Primary Intended Use) which shall have (a) become worn out, obsolete
or unusable for the purpose for which it is intended (if such Fixtures or
Personal Property continues to be necessary), (b) been the subject of a Taking
(in which event Tenant shall be entitled to that portion of any Award made
therefor), or (c) been lost, stolen or damaged or destroyed; provided, however,
that the Replacement Property shall (i) be in good operating condition, (ii) be
of a quality reasonably equivalent to that of the Replaced Property and (iii) be
suitable for a use which is the same or similar to that of the Replaced
Property. Tenant shall repair at its sole cost and expense all damage to the
applicable Leased Property caused by the removal of Replaced Property or other
personal property of Tenant or the installation of Replacement Property. All
Replacement Property shall become the property of Landlord and shall become
Fixtures or Landlord's Personal Property, as the case may be, to the same extent
as the Replaced Property had been. Upon Landlord's written request Tenant shall
with reasonable promptness cause to be executed and delivered to Landlord an
invoice, bill of sale or other appropriate instrument evidencing the transfer or
assignment to Landlord of all estate, right, title and interest (other than the
leasehold estate created hereby) of Tenant or any other Person in and to any
Replacement Property which, by operation of this Section 9.1.5, constitutes
Fixtures or Landlord's Personal Property, and the cost of which exceeds Twenty
Five Thousand Dollars ($25,000), free from all liens and other exceptions to
title, and Tenant shall pay all taxes, fees, costs and other expenses that may
become payable as a result thereof.
9.1.6 Upon the expiration or earlier termination of the Term, Tenant
shall vacate and surrender the Leased Property leased by it to Landlord as a
fully equipped, licensed health care facility, with all equipment required by
the laws of the State to maintain its then
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current license, and shall assign and transfer to Landlord (or to another Person
designated by Landlord) the Facility Trade Names (excluding the words
"Integrated," "IHS" and any variants thereof from such trade names), local
telephone numbers, local electronic mail and "Internet" addresses, if any, under
which the Facilities are then conducting business, and all Facility-specific
licenses, permits and rights to do business of every kind (subject to such
governmental approvals as may be required), patient admission agreements and
records, supplier and operator contracts, a copy of all then-current data
maintained by Tenant in writing or recorded on computer media with respect to
the business of the applicable Facility and all computer software necessary to
access and manipulate such data. Tenant shall not be required to transfer
proprietary software to Landlord, but shall cause the data it is to transfer to
Landlord to be transferred to Landlord, without charge. At the expiration of the
Term or the sooner termination of this Lease, the Leased Properties, including
all Leased Improvements, Fixtures and Landlord's Personal Property, shall be
returned to Landlord in good operating condition, ordinary wear and tear, Taking
and casualty damage that Tenant is not required by this Lease to repair or
restore, excepted, and except as repaired, rebuilt, restored, altered or added
to as permitted or required by the provisions of this Lease. Notwithstanding
anything to the contrary in this Lease, not more than fifty percent (50%) of the
value of the Personal Property returned to Landlord as required herein may at
the time of such return be subject to Purchase Money Financing, and at the time
of such return Tenant shall assign to Landlord all of its right, title and
interest in and to such any and all documents evidencing such Purchase Money
Financing.
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. Except in the case of Permitted
Encumbrances, if any of the Leased Improvements (other than as existing on the
Commencement Date), at any time encroaches in a material adverse manner upon any
property, street or right-of-way adjacent to any Leased Property, or materially
violates the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting any Leased Property or any part thereof,
or materially impairs the rights of others under any easement or right-of-way to
which any Leased Property is subject, then promptly upon the request of Landlord
or at the behest of any person legitimately affected by any such encroachment,
violation or impairment, Tenant shall, at its expense, either (a) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, or (b) make such
changes to the Leased Improvements, and take such other actions, as are
reasonably practicable, to remove such encroachment, and to end such violation
or impairment, including, if necessary, the alteration of any of the applicable
Leased Improvements, and in any event take all such actions as may be necessary
in order to be able to continue the operation of the applicable Leased Property
for the Primary Intended Use substantially in the manner and to the extent the
applicable Leased Property was operated prior to the assertion of such
violation, impairment or encroachment.
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ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 CONSTRUCTION OF ALTERATIONS AND ADDITIONS TO LEASED PROPERTY. Tenant
shall not make or permit to be made any alterations, improvements or additions
of or to the Leased Property leased by it or any part thereof, other than
non-structural alterations having no material effect on the roof, foundation,
utility systems or structure, unless and until Tenant has caused plans and
specifications therefor to have been prepared, at Tenant's expense, by a
licensed architect and submitted to Landlord at least thirty (30) days (ninety
(90) days, if such alterations, improvements or additions are reasonably
estimated to cost more than the Approval Threshold) in advance of the
commencement of construction, and has obtained Landlord's written approval
thereof. Landlord shall have the right to require that, prior to the
commencement of construction of any alterations, improvements or additions as to
which its approval is required hereunder, Tenant also provide Landlord with
reasonable assurance of the payment of the cost thereof and, if the cost thereof
is in excess of the Approval Threshold, Tenant shall comply with Landlord's
requirements with respect to the periodic delivery of lien waivers and evidence
of payment for such cost. If such approval is granted, Tenant shall cause the
work described in such approved plans and specifications to be performed, at its
expense, promptly, and in a good, workerlike manner by licensed contractors and
in compliance with applicable governmental and Insurance Requirements and Legal
Requirements and the standards set forth in this Lease, which improvements shall
in any event constitute a complete architectural unit (if applicable) in keeping
with the character of the applicable Leased Property and the area in which the
applicable Leased Property is located and which will not diminish the value of
the applicable Leased Property or change the Primary Intended Use of the
applicable Leased Property. Tenant shall be responsible for the completion of
such improvements in accordance with the plans and specifications approved by
Landlord, and shall promptly correct any failure with respect thereto. Each and
every such improvement, alteration or addition shall immediately become a part
of the applicable Leased Property and shall belong to Landlord subject to the
terms and conditions of this Lease. Tenant shall not have any claim against
Landlord at any time in respect of the cost or value of any such improvement,
alteration or addition. There shall be no adjustment in the Base Rent by reason
of any such improvement, alteration or addition, unless such improvement,
alteration or addition is financed by Landlord. With Landlord's consent,
expenditures made by a Tenant pursuant to this Article 10 may be included as
capital expenditures for purposes of inclusion in the capital expenditures
budget for the applicable Facility and for measuring compliance with the
obligations of Tenant set forth in Section 8.3.1.1 hereof.
10.2 ASBESTOS REMOVAL FOR ALTERATIONS AND ADDITIONS. In connection with any
alteration other than removal pursuant to the Escrow Agreement which involves
the removal, demolition or disturbance of any asbestos-containing material,
Tenant shall cause to be prepared at its expense a full asbestos assessment
applicable to such alteration, and shall carry
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out such asbestos monitoring and maintenance program as shall reasonably be
required thereafter in light of the results of such assessment.
ARTICLE 11
REMOVAL OF LIENS
Without the consent of Landlord, and except as expressly provided elsewhere
herein, Tenant shall not directly or indirectly create or allow to remain, and
within thirty (30) business days after notice thereof shall promptly discharge
at its expense, any lien, encumbrance, attachment, title retention agreement or
claim upon the Leased Property, and any attachment, levy, claim or encumbrance
in respect of the Rent, excluding (a) Permitted Encumbrances, (b) Mechanics
Liens for sums not yet due, (c) liens created by the acts or omissions of
Landlord, and (d) Mechanics Liens which Tenant is contesting (provided that the
aggregate amount of such contested liens shall not exceed one months' Base Rent
allocable to the Facility in question).
ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC.
12.1 PERMITTED CONTESTS. Tenant, on its own or on Landlord's behalf (or in
Landlord's name), but at Tenant's sole cost and expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity of any Imposition, Legal Requirement, Insurance
Requirement or Claim not otherwise permitted by Article 11, but this shall not
be deemed or construed in any way as relieving, modifying or extending Tenant's
covenants to pay or to cause to be paid any such charges at the time and in the
manner as in this Lease provided, nor shall any such legal proceedings operate
to relieve Tenant from its obligations hereunder and or cause the sale of any
Leased Property, or any part thereof, to satisfy the same or cause Landlord or
Tenant to be in default under any Encumbrance or in violation of any Legal
Requirements or Insurance Requirements upon any Leased Property or any interest
therein. Upon request of Landlord, if the claim exceeds the Approval Threshold,
Tenant shall either (a) provide a bond, letter of credit or other assurance
reasonably satisfactory to Landlord that all Claims, together with interest and
penalties, if any, thereon, will be paid, or (b) deposit within the time
otherwise required for payment with a bank or trust company selected by Landlord
as trustee, as security for the payment of such Claims, money in an amount
sufficient to pay the same, together with interest and penalties in connection
therewith, and all Claims which may be assessed against or become a Claim on the
applicable Leased Property, or any part thereof, in said legal proceedings.
Tenant shall furnish Landlord and any lender to Landlord and any other party
entitled to assert or enforce
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any Legal Requirements or Insurance Requirements with evidence of such deposit
within five (5) days of the same. Landlord agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Landlord shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings; and Tenant covenants to indemnify and save
harmless Landlord from any such costs or expenses, including but not limited to
attorney's fees incurred in any arbitration proceeding, trial, appeal and
post-judgment enforcement proceedings. Tenant shall be entitled to any refund of
any Claims and such charges and penalties or interest thereon which have been
paid by Tenant or paid by Landlord and for which Landlord has been fully
reimbursed. If Tenant fails to pay or satisfy the requirements or conditions of
any Claims when finally determined to be due or to provide the security therefor
as provided in this paragraph and to diligently prosecute any contest of the
same, Landlord may, upon thirty (30) days advance written Notice to Tenant, pay
such charges or satisfy such claims together with any interest and penalties and
the same (or the cost thereof) shall be repayable by Tenant to Landlord
forthwith as Additional Charges. If Landlord reasonably determines that a
shorter period is necessary in order to prevent loss to the applicable Leased
Property or avoid damage to Landlord, then Landlord shall give such written
Notice as is practical under the circumstances.
12.2 LANDLORD'S REQUIREMENT FOR DEPOSITS. Upon and at any time after an
Event of Default, and regardless of whether or not Tenant subsequently cures
such Event of Default, Landlord, in its sole discretion, shall be entitled to
require Tenant to pay monthly a pro rata portion of the amounts required to
comply with the Insurance Requirements, any Imposition and any Legal
Requirements, and when such obligations become due, Landlord shall pay them (to
the extent of the deposit). If sufficient funds have not been deposited to cover
the amount of the obligations due at least thirty (30) days in advance of the
due date, Tenant shall forthwith deposit the same with Landlord upon written
request from Landlord. Landlord shall deposit such funds in a separate
interest-bearing account and shall not commingle such deposited funds with its
other funds, and Tenant shall be entitled to all interest paid on any deposit so
held by Landlord unless and except to the extent that Landlord, having the right
to do so by the terms of this Lease, applies such interest to Tenant's
obligations hereunder. Upon an Event of Default under this Lease, any of the
funds remaining on deposit may be applied under this Lease, in any manner and on
such priority as is determined by Landlord and after five (5) days Notice to
Tenant.
ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term, Tenant shall at all
times keep the Leased Property, and all property located in or on the applicable
Leased Property,
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including all Personal Property, insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the State. All such policies provided and maintained
during the Term shall be written by companies having a rating classification of
not less than "A-VI" and a financial size category of "Class X," according to
the then most recent issue of Best's Key Rating Guide. The policies (other than
Workers' Compensation policies) shall name Landlord as an additional insured.
Losses shall be payable to Landlord and Tenant and disbursed as provided in
Article 14. Tenant shall pay when due all of the premiums for the insurance
required hereunder, and deliver certificates thereof (in form and substance
reasonably satisfactory to Landlord) to Landlord prior to their effective date,
or, with respect to any renewal policy, prior to the expiration of the existing
policy. In the event of the failure of Tenant either to effect such insurance as
herein called for or to pay the premiums therefor, or to deliver such
certificates thereof to Landlord at the times required, Landlord shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor when due, which premiums shall be repayable to Landlord upon
written demand therefor as Rent, and failure to repay the same within thirty
(30) days after Notice shall constitute an Event of Default. The policies on
each Leased Property, including the Leased Improvements and Fixtures, and on the
Personal Property, shall insure against the following risks:
13.1.1 Loss or damage by fire, vandalism and malicious mischief,
earthquake (if available at commercially reasonable rates) and extended coverage
perils commonly known as "Special Risk," and all physical loss perils normally
included in such Special Risk insurance, including but not limited to sprinkler
leakage, in an amount not less than ninety percent (90%) of the then full
replacement cost thereof (as defined in Section 13.2 hereof);
13.1.2 Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the applicable Facility;
13.1.3 Loss of rental included in a business income or rental value
insurance policy covering risk of loss during reconstruction necessitated by the
occurrence of any of the hazards described in Sections 13.1.1 or 13.1.2 hereof
(but in no event for a period of less than twelve (12) months) in an amount
sufficient to prevent either Landlord or Tenant from becoming a co-insurer;
13.1.4 Claims for personal injury or property damage under a policy of
commercial general public liability insurance with a combined single limit per
occurrence in respect of bodily injury and death and property damage of One
Million Dollars ($1,000,000), and an aggregate limitation of Three Million
Dollars ($3,000,000), which insurance shall include contractual liability
insurance;
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13.1.5 Claims arising out of professional malpractice in an amount not
less than One Million Dollars ($1,000,000) for each occurrence and an aggregate
limit of Three Million Dollars ($3,000,000);
13.1.6 Flood (when the applicable Leased Property is located in whole
or in part within a designated flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the area;
13.1.7 During such time as Tenant is constructing any improvements,
Tenant, at its sole cost and expense, shall carry or cause to be carried (a)
workers' compensation insurance and employers' liability insurance covering all
persons employed in connection with the improvements in statutory limits, (b) a
completed operations endorsement to the commercial general liability insurance
policy referred to above, and (c) builder's risk insurance, completed value
form, covering all physical loss, in an amount and subject to policy conditions
reasonably satisfactory to Landlord;
13.1.8 Tenant shall procure, and at all times during the Term of this
Lease shall maintain, a policy of primary automobile liability insurance with
limits of One Million Dollars ($1,000,000) per occurrence for owned and
non-owned and hired vehicles; and
13.1.9 If Tenant chooses to carry umbrella liability coverage to
obtain the limits of liability required hereunder, all such policies must cover
in the same manner as the primary commercial general liability policy and must
contain no additional exclusions or limitations materially different from those
of the primary policy.
13.2 REPLACEMENT COST. The term "full replacement cost" means the actual
replacement cost of the applicable Leased Improvements, Fixtures and Landlord's
Personal Property, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In all
events, full replacement cost shall be an amount sufficient that neither
Landlord nor Tenant is deemed to be a co-insurer of the applicable Leased
Property. If Landlord in good faith believes that full replacement cost (the
then replacement cost less such exclusions) of any Leased Property has increased
at any time during the Term, it shall have the right, upon Notice to Tenant, to
have such full replacement cost reasonably redetermined by an Impartial
Appraiser. The determination of the Impartial Appraiser shall be final and
binding on Landlord and Tenant, and Tenant shall forthwith adjust the amount of
the insurance carried pursuant to this Section, as the case may be, to the
amount so determined by the Impartial Appraiser. Landlord and Tenant shall each
pay one-half of the fee, if any, of the Impartial Appraiser.
13.3 WORKER'S COMPENSATION INSURANCE. Tenant shall at all times maintain
workers' compensation insurance coverage for all persons employed by Tenant on
the applicable Leased Property to the extent required under and in accordance
with applicable law.
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13.4 WAIVER OF LIABILITY; WAIVER OF SUBROGATION. Landlord shall have no
liability to Tenant, and, provided Tenant carries the insurance required by this
Lease, Tenant shall have no liability to Landlord, regardless of the cause, for
any loss or expense resulting from or in connection with damage to or the
destruction or other loss of any Leased Property or Tenant's Personal Property,
and no party will have any right or claim against the other for any such loss or
expense by way of subrogation. Each insurance policy carried by Landlord or
Tenant covering any Leased Property and Tenant's Personal Property, including
without limitation, contents, fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the insurer, if such a waiver is
commercially available. Tenant shall pay any additional costs or charges for
obtaining such waivers.
13.5 OTHER REQUIREMENTS. The form of all of the policies of insurance
referred to in this Article shall be the standard forms issued by the respective
insurers meeting the specific requirements of this Lease. The property loss
insurance policy shall contain a Replacement Cost Endorsement. If Tenant obtains
and maintains the professional malpractice insurance described in Section 13.1.5
hereof on a "claims-made" basis, Tenant shall provide continuous liability
coverage for claims arising during the Term either by obtaining an endorsement
providing for an extended reporting period reasonably acceptable to Landlord in
the event such policy is canceled or not renewed for any reason whatsoever, or
by obtaining "tail" insurance coverage converting the policies to "occurrence"
basis policies providing coverage for a period of at least three (3) years
beyond the expiration of the Term. Tenant shall cause each insurer mentioned in
this Article 13 to agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Landlord, that it will give to
Landlord at least thirty (30) days' written notice before the policy or policies
in question shall be materially altered or canceled. If requested by Landlord,
and if available at a commercially reasonable cost, all public liability and
property damage insurance shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recovery under said
policies for any loss, damage, or injury to Landlord, its servants, agents and
employees by reason of the negligence of Tenant or Landlord.
13.6 INTENTIONALLY OMITTED.
13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained in
this Article 13, Tenant'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 Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article 13 are otherwise satisfied, and
provided further that Tenant maintain specific allocations acceptable to
Landlord.
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13.8 NO SEPARATE INSURANCE.
13.8.1 Tenant shall not, on its own initiative or pursuant to the
request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article, to be furnished by, or which may reasonably be required to be
furnished by, Tenant, or increase the amount of any then existing insurance by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including in all
cases Landlord, are included therein as additional insureds, and the loss is
payable under said insurance in the same manner as losses are payable under this
Lease.
13.8.2 Nothing herein shall prohibit Tenant from (a) securing
insurance required to be carried hereby with higher limits of liability than
required in this Lease, (b) securing umbrella policies or (c) insuring against
risks not required to be insured pursuant to this Lease, and as to such
insurance, Landlord need not be included therein as an additional insured, nor
must the loss thereunder be payable in the same manner as losses are payable
under this Lease. Tenant shall immediately notify Landlord of the taking out of
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.
ARTICLE 14
CASUALTY LOSS
14.1 INSURANCE PROCEEDS. All Net Proceeds payable under any risk policy of
insurance required by Article 13 of this Lease, whether or not paid directly to
Landlord and/or Tenant, shall promptly be deposited with or paid over to an
insurance company, title insurance company or other financial institution
reasonably selected by Landlord and disbursed as provided in this Lease. If no
Event of Default has occurred and is continuing, the Net Proceeds shall be made
available for restoration or repair, as the case may be, of any damage to or
destruction of the applicable Leased Property or any portion thereof as provided
in Section 14.10 hereof; provided, however, that, within fifteen (15) days of
the receipt of the Net Proceeds, Landlord and Tenant shall agree as to the
portion thereof attributable to the Tenant's Personal Property (and failing such
shall submit the matter to arbitration pursuant to the provisions of this Lease)
and those Net Proceeds which the parties agree are payable by reason of any loss
or damage to any of Tenant's Personal Property shall be disbursed to Tenant.
14.2 RESTORATION IN THE EVENT OF DAMAGE OR DESTRUCTION.
14.2.1 If any Leased Improvements are totally or partially damaged or
destroyed and the Facility thereon is thereby rendered Unsuitable for its
Primary Intended Use,
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Tenant shall give Landlord Notice of such damage or destruction within fifteen
(15) Business Days of the occurrence thereof. Within ninety (90) days of such
occurrence, Tenant shall commence and thereafter diligently proceed to complete
the restoration of the damaged or destroyed Leased Improvements to substantially
the same (or better) condition as that which existed immediately prior to such
damage or destruction.
14.2.2 If any Leased Improvements are totally or partially damaged or
destroyed, but the Facility thereon is not thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof, and,
within ninety (90) days of the occurrence, Tenant shall commence and thereafter
diligently proceed to restore the Leased Improvements within the Reconstruction
Period to substantially the same (or better) condition as that which existed
immediately prior to such damage or destruction.
14.2.3 No such damage or destruction shall terminate this Lease as to
the affected Facility; provided, however, that if Tenant, after diligent effort,
cannot within a reasonable time obtain all necessary government approvals,
including building permits, licenses, conditional use permits and any
certificates of need, in order to be able to perform all required repair and
restoration work and thereafter to operate the Leased Improvements for the
Primary Intended Use thereof in substantially the same manner as that existing
immediately prior to such damage or destruction, Tenant shall purchase the
Facility of Leased Property on which the damaged or destroyed Leased
Improvements are located for the Facility Purchase Price, which shall be
determined as of the day of the damage or destruction.
14.3 INTENTIONALLY OMITTED.
14.4 TENANT'S PERSONAL PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant.
14.5 RESTORATION OF TENANT'S PROPERTY. If Tenant is required to restore the
Leased Property as provided in Section 14.2 hereof, Tenant shall also restore or
replace all alterations and improvements made by Tenant and all of the Personal
Property, to the extent required to maintain the then current license of the
applicable Leased Property.
14.6 NO ABATEMENT OF RENT. Except as to any Facility or Leased Property
purchased by Tenant pursuant to this Article 14, as to which this Lease shall
terminate upon the closing of such purchase, this Lease shall remain in full
force and effect and Tenant's obligation to pay Rent shall continue without
abatement during any period required for repair and restoration (except to the
extent that any insurance proceeds for loss of rental shall have been paid
directly to Landlord).
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14.7 CONSEQUENCES OF PURCHASE OF DAMAGED LEASED PROPERTY. If Tenant
purchases a damaged Facility or Leased Property pursuant to the provisions of
this Article 14, this Lease shall terminate as to such Facility upon payment of
the price set forth herein, Landlord shall remit to Tenant any and all Net
Proceeds pertaining to the purchased Facility or Leased Property, and the Base
Rent shall be reduced by the Facility Rental Value of the purchased Facility or
Leased Property, determined as of the day prior to the date of the damage or
destruction to such Facility.
14.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2 hereof, if damage to or destruction of any Leased Improvements occurs
during the last twelve (12) months of the Term of this Lease, and if, as
reasonably estimated by a qualified construction consultant selected by Tenant
and approved by Landlord (which approval shall not unreasonably be withheld),
such damage or destruction cannot be fully repaired and restored within six (6)
months immediately following the date of loss, then Tenant shall have the
option, which Tenant shall exercise by written notice to Landlord within thirty
(30) days of such damage or destruction, to (a) restore the damaged Facility or
Leased Property within the remaining twelve (12) months of the Term of this
Lease, or (b) to purchase the Facility or Leased Property on which the damaged
or destroyed Leased Improvements are located from Landlord, within sixty (60)
days following the date of the damage or destruction, for the Facility Purchase
Price, which shall be determined as of the day prior to the date of the damage
or destruction.
14.9 WAIVER. Except as specifically provided elsewhere herein, Tenant
hereby waives any statutory or common law rights of termination which may arise
by reason of any damage to or destruction of any Facility.
14.10 PROCEDURE FOR DISBURSEMENT OF INSURANCE PROCEEDS. If Tenant restores
or repairs the damaged Facility or Leased Property pursuant to any Subsection of
this Article 14, the restoration or repair shall be performed in accordance with
the following procedures:
(a) If the Net Proceeds exceed the Approval Threshold, the restoration
or repair work shall be done pursuant to plans and specifications approved
by Landlord (not to be unreasonably withheld or delayed), and Tenant shall
cause to be prepared and presented to Landlord a certified construction
statement, reasonably acceptable to Landlord, showing the total estimated
cost of the restoration or repair.
(b) The Construction Funds shall be made available to Tenant as the
restoration and repair work progresses. If the Net Proceeds exceed the
Approved Threshold, such funds shall be made available pursuant to
certificates of an architect selected by Tenant that in the reasonable
judgment of Landlord is qualified in the design and construction of health
care facilities, or of the type of property for which the repair work is
being done.
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(c) If the Net Proceeds exceed the Approval Threshold, there shall be
delivered to Landlord, with such certificates, sworn statements and lien
waivers from the general contractor and major subcontractors (i.e., those
having contracts of One Hundred Thousand Dollars ($100,000) or more), in
the form customary for the applicable State, in an amount at least equal to
the amount of Construction Funds to be paid out to Tenant pursuant to each
architect's certificate and dated as of the date of the disbursement to
which they relate.
(d) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, during the restoration
and repair, as to the progress of the work, compliance with the approved
plans and specifications, the cost of restoration and repair and the total
amount needed to complete the restoration and repair.
(e) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, showing that there are
no liens against the applicable Leased Property arising in connection with
the restoration and repair and that the cost of the restoration and repair
at least equals the total amount of Construction Funds then disbursed to
Tenant hereunder.
(f) If the Construction Funds are at any time determined by Landlord
not to be adequate for completion of the restoration and repair, Tenant
shall demonstrate to Landlord, upon request, that Tenant has sufficient
funds available to cover the difference, and shall disburse such funds pari
passu with the Construction Funds.
(g) The Construction Funds may be disbursed by the depository thereof
to Tenant or, at Tenant's direction, to the persons entitled to receive
payment thereof from Tenant, and such disbursement in either case may, at
Landlord's discretion, reasonably exercised, be made directly or through a
third party escrow agent, such as, but not limited to, a title insurance
company, or its agent. Provided no Event of Default has occurred and is
continuing, any excess Construction Funds shall be paid to Tenant upon
completion of the restoration or repair.
(h) If Tenant at any time fails to promptly and fully perform the
conditions and covenants set out in subparagraphs (a) through (f) hereof,
and the failure is not corrected within thirty (30) days of written Notice
thereof, or if during the restoration or repair an Event of Default occurs
hereunder, Landlord may, at its option, immediately cease making any
further payments to Tenant for the restoration and repair.
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(i) Landlord may reimburse itself out of the Construction Fund for its
reasonable and documented expenses of consultants, attorneys and its
employee- inspectors incurred in administering the Construction Funds as
hereinbefore provided.
ARTICLE 15
TAKINGS
15.1 TOTAL TAKING. If title to the fee of the whole of any Facility or
Leased Property shall be acquired by any Condemnor as the result of a Taking,
this Lease shall cease and terminate as to such Facility or Leased Property as
of the Date of Taking by said Condemnor, and the Base Rent payable by Tenant
hereunder shall be reduced, as of the date the Lease shall have been so
terminated as to such Facility or Leased Property, by the Facility Rental Value
of the Facility taken.
15.2 ALLOCATION OF PORTION OF AWARD. The Award made with respect to the
Taking of all or any portion of any Leased Property or for loss of rent shall be
the property of and payable to Landlord up to the sum of (a) all costs and
expenses reasonably incurred and documented by Landlord in connection with the
Taking, (b) any loss of Rent suffered by Landlord as a result of the Taking
(except for any Rent accruing after the completion of a purchase by Tenant of
the affected Facility upon a Partial Taking as hereinafter provided) and (c) in
the case of a Taking of the entire Facility, the Facility Purchase Price as of
the time possession is delivered to the Condemnor. To the extent that the laws
of the State in which the applicable Facility is located permit Tenant to make a
claim for Tenant's leasehold interest, moving expenses, loss of goodwill or
business, and Tenant's claim does not have the effect, directly or indirectly,
of reducing Landlord's claim, Tenant shall have the right to pursue such claim
in the Taking proceeding and shall be entitled to the Award therefor. In any
Taking proceedings, Landlord and Tenant shall each seek its own Award, at its
own expense.
15.3 PARTIAL TAKING. In the event of a Partial Taking of a Facility, Tenant
shall commence and diligently proceed to restore the untaken portion of the
Leased Improvements on the applicable Leased Property so that such Leased
Improvements shall constitute a complete architectural unit (if applicable) of
the same general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to such
Partial Taking; provided, however, that if a Partial Taking renders a Facility
Unsuitable for Its Primary Intended Use, Tenant shall have the right,
exercisable by written notice to Landlord within thirty (30) days after such
Partial Taking is final without appeal permitted, and before the Condemnor takes
possession, to purchase the affected Facility for the Facility Purchase Price,
which purchase shall be completed within sixty (60) days of such notice.
Landlord shall contribute to the cost of restoration, or if Tenant elects to
purchase the affected Facility, Landlord shall pay over to Tenant, any Award
payable to Landlord for
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such Partial Taking; provided, however, that the amount of such contribution
shall not exceed the cost of restoration. If (a) Tenant elects to restore the
Facility and (b) no Event of Default is then continuing, then Landlord shall
make the Award available to Tenant in the manner provided in Section 14.10
hereof. The Base Rent shall be reduced by reason of such Partial Taking to an
amount agreed upon by Landlord and Tenant, and if Landlord and Tenant cannot
agree upon a new Base Rent, the new Base Rent amount shall be equal to the Base
Rent prior to the Partial Taking, reduced in proportion to the reduction in the
Fair Rental Value of the affected Facility of Leased Property resulting from the
Partial Taking.
15.4 TEMPORARY TAKING. In the event of a temporary Taking of the Leased
Property or any part thereof that is for a period of less than six (6) months,
this Lease shall not terminate with respect to the affected Leased Property, and
the entire amount of any Award therefor shall be paid to Tenant. Upon the
cessation of any such Taking of less than six (6) months, Tenant shall restore
the Leased Property as nearly as may be reasonably possible to the condition
existing immediately prior to such Taking. If any such Taking continues for six
(6) months or more, such Taking shall be considered a Taking governed by
Sections 15.1 through 15.3 hereof, and the parties shall have the rights
provided thereunder.
ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. Upon the occurrence of an Event of Default,
Landlord shall have the rights and remedies hereinafter provided (provided,
however, that if an Event of Default is cured prior to the exercise of any
remedies by Landlord, it shall cease to be such for purposes of this Lease).
16.2 LANDLORD'S RIGHTS UPON TENANT'S DEFAULT. If an Event of Default occurs
with respect to this Lease, Landlord may terminate this Lease by giving Tenant
Notice, whereupon as provided herein, the Term of this Lease shall terminate and
all rights of Tenant hereunder shall cease. The Notice provided for herein shall
be in lieu of, and not in addition to, any notice required by the laws of the
respective States in which the Leased Properties are located as a condition to
bringing an action for possession of any of the Leased Properties or to recover
damages under this Lease. In addition thereto, Landlord shall have all rights at
law and in equity available as a result of Tenant's breach.
16.3 LIABILITY FOR COSTS AND EXPENSES. Tenant will, to the extent permitted
by law, be liable for the payment, as Additional Charges, of reasonable and
documented costs of and expenses incurred by or on behalf of Landlord as a
consequence of an Event of Default, including, without limitation, reasonable
attorneys' fees (whether or not litigation is
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commenced, and if litigation is commenced, including fees and expenses incurred
in appeals and post-judgment proceedings).
16.4 CERTAIN REMEDIES. If an Event of Default has occurred, and whether or
not this Lease has been terminated, Tenant shall, to the extent permitted by
law, if required by Landlord so to do, immediately surrender to Landlord the
Leased Properties and quit the same, and Landlord may enter upon and repossess
the respective Leased Properties by legal process, and may remove Tenant and all
other persons and any and all Personal Property from the respective Leased
Properties, subject to rights of any residents or patients and to any
requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to Section
16.1 hereof, (b) the repossession of any Leased Property, (c) the failure of
Landlord to relet any Leased Property, (d) the reletting of all or any portion
thereof or (e) the failure of Landlord to collect or receive any rentals due
upon any reletting shall relieve Tenant of its liability and obligations
hereunder, all of which shall survive such termination, repossession or
reletting. In the event of any termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the Leased Properties to and
including the date of the termination. At Landlord's option, as and for
liquidated and agreed current damages for Tenant's default, Tenant shall also
forthwith pay to Landlord:
(i) the sum of:
(A) the Worth at the Time of the Award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of the award exceeds the aggregate Rental Value of the Leased Properties
for such period, and
(B) the Worth at the Time of the Award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds
the aggregate Rental Value of the Leased Properties for such period, and
(C) any other amount necessary to compensate Landlord for all the
damage proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom; or
(ii) without termination of Tenant's right to possession of the respective
Leased Properties, each installment of the Rent and other sums payable
by Tenant to Landlord under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
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16.6 WAIVER. If this Lease is terminated pursuant to Section 16.2 hereof,
Tenant waives the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
16.7 APPLICATION OF FUNDS. Any payments received by Landlord during the
existence or continuance of any Event of Default (and any payment made to
Landlord rather than Tenant due to the existence of an Event of Default),
including rentals received upon any reletting, shall be applied to Tenant's
obligations in the order which Landlord may determine or as may be prescribed by
the laws of the respective States in which the Leased Properties are located.
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant fails to make any payment or to perform any act required to be
made or performed under this Lease, and fails to cure the same within the
relevant time periods provided in the definition of Event of Default in Section
2.1 hereof or elsewhere in this Lease, Landlord may (but shall not be obligated
to), after five (5) days' prior Notice to Tenant (except in an emergency), and
without waiving or releasing any obligation of Tenant or any Event of Default,
at any time thereafter make such payment or perform such act for the account and
at the expense of Tenant, and may, to the extent permitted by law, enter upon
the respective Facilities for such purpose and take all such action thereon as,
in Landlord's sole opinion, may be necessary or appropriate therefor. However,
if Landlord reasonably determines that the giving of such Notice as is provided
for in this Article or elsewhere in this Lease would risk loss to any Leased
Property or cause damage to Landlord, then Landlord will give such Notice as is
practical under the circumstances. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) so
incurred, together with the interest provided for in Section 3.3 thereon from
the date on which such sums or expenses are paid or incurred by Landlord, shall
be paid by Tenant to Landlord on demand and shall constitute Additional Charges.
The obligations of Tenant and rights of Landlord contained in this Article shall
survive the expiration or earlier termination of this Lease.
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS
18.1 PROHIBITION AGAINST USE OF HAZARDOUS SUBSTANCES. Tenant shall not
permit, conduct or allow on any of the Leased Properties the generation,
introduction, presence,
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maintenance, use, receipt, acceptance, treatment, manufacture, production,
installation, management, storage, disposal or release of any Hazardous
Substance, except for those types and quantities of Hazardous Substances
ordinarily associated with the operation of the Leased Property as it is being
conducted on the date of this Lease and except in compliance with Environmental
Laws; provided, however, that the Permitted Environmental Conditions shall be
permitted to remain in place.
18.2 NOTICE OF ENVIRONMENTAL CLAIMS, ACTIONS OR CONTAMINATIONS. Tenant will
notify Landlord, in writing, promptly upon learning of any existing, pending or
threatened: (a) Regulatory Actions, (b) Contamination of any Leased Property,
(c) Third Party Claims or (d) violation of Environmental Law.
18.3 COSTS OF REMEDIAL ACTIONS WITH RESPECT TO ENVIRONMENTAL MATTERS. If
any investigation and/or Clean-Up of any Hazardous Substance or other
environmental condition on, under, about or with respect to any Leased Property
is required by any Environmental Law and by the terms of this Lease is within
the scope of Tenant's responsibility, then Tenant shall complete, at its own
expense, such investigation and/or Clean-Up or cause each person responsible for
any of the foregoing to conduct such investigation and/or Clean-Up.
18.4 DELIVERY OF ENVIRONMENTAL DOCUMENTS. If and to the extent not
delivered to Landlord prior to the date of this Lease, Tenant shall deliver to
Landlord complete copies of any and all Environmental Documents that may now be
in, or at any time hereafter come into, the possession of Tenant.
18.5 ENVIRONMENTAL AUDIT. At Landlord's expense, Tenant shall from time to
time, but in no case more often than annually, after Landlord's request
therefor, provide to Landlord an Environmental Audit with respect to each of the
Leased Properties. All tests and samplings in connection with an Environmental
Audit shall be conducted using generally accepted and scientifically valid
technology and methodologies. Tenant shall give the engineer or environmental
consultant conducting the Environmental Audit reasonable access to the
applicable Leased Property and to all records in the possession of Tenant that
may indicate the presence (whether current or past) or a Release or threatened
Release of any Hazardous Substances on, in, under or about the applicable Leased
Property. Tenant shall also provide the engineer or environmental consultant an
opportunity to interview such persons employed in connection with the applicable
Leased Property as the engineer or consultant deems appropriate. However,
Landlord shall not be entitled to request such Environmental Audit from Tenant
unless (a) there have been any material changes, modifications or additions to
any Environmental Laws as applied to or affecting the applicable Leased
Property; (b) a significant change in the condition of the applicable Leased
Property has occurred; or (c) Landlord has another reasonable basis for
requesting such certificate or certificates. If an Environmental Audit discloses
the presence of Contamination at, or any noncompliance with Environmental
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Laws by, any Leased Property, Tenant shall immediately perform all of Tenant's
obligations hereunder with respect to such Hazardous Substances or
noncompliance.
18.6 ENTRY ONTO LEASED PROPERTY FOR ENVIRONMENTAL MATTERS. If Tenant fails
to provide to Landlord an Environmental Audit as contemplated by Section 18.5
hereof, Tenant shall permit Landlord from time to time, by its employees,
agents, contractors or representatives, to enter upon the applicable Leased
Property for the purposes of conducting such Investigations as Landlord may
desire. Landlord and its employees, agents, contractors, consultants and/or
representatives shall conduct any such Investigation in a manner which does not
unreasonably interfere with Tenant's use of and operations on the applicable
Leased Property (however, reasonable temporary interference with such use and
operations is permissible if the Investigation cannot otherwise be reasonably
and inexpensively conducted). Other than in an emergency, Landlord shall provide
Tenant with prior notice before entering the applicable Leased Property to
conduct such Investigation, and shall provide copies of any reports or results
to Tenant, and Tenant shall cooperate fully in such Investigation.
18.7 ENVIRONMENTAL MATTERS UPON TERMINATION OR EXPIRATION OF TERM OF THIS
LEASE. Upon the termination or expiration of the Term of this Lease, Tenant
shall cause the Leased Properties to be delivered to Landlord free of all
Contamination the removal of which is recommended by the Phase I Environmental
Survey (or the equivalent at the time) completed by the engineering firm chosen
by the parties or otherwise selected as provided below, and in compliance with
all Environmental Laws with respect thereto, except for those Permitted
Environmental Conditions that are in compliance with all Environmental Laws in
effect at the time of the termination of expiration of the Term of this Lease.
At any time during (a) the three hundred sixty-five (365) days prior to, or the
sixty (60) days subsequent to, the expiration of the original Term hereof, if
Tenant has not given the notice required by Section 1.4 hereof in order to renew
the Term or by the terms hereof is not entitled to renew the Term, or, if the
original Term has been renewed, at any time during (b) the three hundred
sixty-five (365) days prior to, or the sixty (60) days subsequent to, the
expiration of the First Renewal Term hereof, if Tenant has not given the notice
required by Section 1.5 hereof in order to renew the Term or by the terms hereof
is not entitled to renew the Term, or, if this Lease is terminated upon the
occurrence of an Event of Default, during (c) the sixty (60) days after the
effective date of such termination, Landlord may by written notice to Tenant
specify a Cleanup to be undertaken by Tenant (but not with respect to any
Permitted Environmental Condition that is in compliance with all Environmental
Laws in effect at the time of such notice), and upon receipt of such notice
Tenant shall forthwith begin and with reasonable diligence complete such
Cleanup; provided, however, that if Tenant in good faith disputes the need for
such Cleanup on the grounds that it is not required by any then applicable
Environmental Laws, Tenant may by written notice to Landlord demand an
Environmental Audit of the Leased Property. The Environmental Audit demanded by
Tenant shall be performed by one of the engineering firms listed on Exhibit H
hereto or, if no such firms exist at the time, by an engineering firm succeeding
to the practice of one of such firms. The
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question of whether or not a Cleanup is required by an applicable Environmental
Law, and, if so, the extent of such required Cleanup, shall be determined by the
conclusions reached in the Environmental Audit conducted by the engineering firm
so selected, and such determination shall be binding upon the parties. The cost
of such Environmental Audit shall be borne by Landlord if the determination is
that no Cleanup is required, or by Tenant if the determination is that a Cleanup
is required. Tenant shall promptly at its expense complete any Cleanup
determined by such process to be necessary.
18.8 COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall comply with, and
cause its agents, servants and employees to comply with Environmental Laws
applicable to the respective Leased Properties. Specifically, but without
limitation:
(a) Maintenance of Licenses and Permits. Tenant shall obtain and
maintain all permits, certificates, licenses and other consents and
approvals required by any applicable Environmental Law from time to time
with respect to Tenant and the Leased Property leased by it;
(b) Contamination. No Tenant shall cause, suffer or permit any
Contamination in, on, under or about any Leased Property;
(c) Clean-Up. If Contamination occurs in, on, under or about any
Leased Property during the Term, Tenant promptly shall cause the Clean-Up
and the removal of any Hazardous Substance, and in any such case such
Clean-Up and removal of the Hazardous Substance shall be effected in strict
compliance with and in accordance with the provisions of the applicable
Environmental Laws;
(d) Discharge of Lien. Within forty-five (45) days of the date on
which Tenant becomes aware of any lien imposed against any Leased Property
or any part thereof under any Environmental Law (or, in the event that
under the applicable Environmental Law, Tenant is unable, acting
diligently, to do so within forty-five (45) days, then within such period
as is required for Tenant, acting diligently, to do so), Tenant shall cause
such lien to be discharged by payment, bond or otherwise;
(e) Notification of Landlord. Tenant shall notify Landlord in writing
promptly upon receipt by Tenant of notice of any breach or violation of any
environmental covenant or agreement; and
(f) Requests, Orders and Notices. Promptly upon receipt of any written
request, order or other notice relating to any Declaratory Action,
Contamination, Third Party Claims or Leased Property under any
Environmental Law concerning the Leased Property, Tenant shall forward a
copy thereof to Landlord.
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18.9 ENVIRONMENTAL RELATED REMEDIES. If, subject to Tenant's right of
contest as set forth in Section 12.1 hereof, Tenant fails to perform any of its
covenants with respect to environmental matters and if such breach is not cured
within any applicable notice and/or grace period or within an additional thirty
(30) days after Landlord gives Notice to Tenant, Landlord may do any one or more
of the following (the exercise of one right or remedy hereunder not precluding
the simultaneous or subsequent taking of any other right hereunder):
(a) Cause a Clean-Up. Cause the Clean-Up of any Contamination on or
under the applicable Leased Property, or both, at Tenant's cost and
expense; or
(b) Payment of Regulatory Damages. Pay, on behalf of Tenant, any
damages, costs, fines or penalties imposed on Tenant as a result of any
Regulatory Actions; or
(c) Payments to Discharge Liens. Make any payment on behalf of Tenant
or perform any other act or cause any act to be performed which will
prevent a lien in favor of any federal, state or local governmental
authority from attaching to the applicable Leased Property or which will
cause the discharge of any lien then attached to the applicable Leased
Property; or
(d) Payment of Third Party Damages. Pay, on behalf of Tenant, any
damages, cost, fines or penalties imposed on Tenant as a result of any
Third Party Claims; or
(e) Demand of Payment. Demand that Tenant make immediate payment of
all of the costs of such Clean-Up and/or exercise of the remedies set forth
in this Section 18.9 incurred by Landlord and not theretofore paid by
Tenant as of the date of such demand, whether or not such costs exceed the
amount of Rent and Additional Charges that are otherwise to be paid
pursuant to this Lease, and whether or not any court has ordered the
Clean-Up, and payment of said costs shall become immediately due, without
notice.
18.10 ENVIRONMENTAL INDEMNIFICATION. Tenant shall and does hereby agree to
indemnify, defend and hold harmless Landlord, its principals, officers,
directors, agents and employees from and against each and every incurred and
potential claim, cause of action, demand or proceeding, obligation, fine,
laboratory fee, liability, loss, penalty, imposition, settlement, levy, lien
removal, litigation, judgment, disbursement, expense and/or cost (including,
without limitation, the cost of each and every Clean-Up and including, but not
limited to, reasonable and documented attorneys' fees, consultants' fees,
experts' fees and related expenses, capital, operating and maintenance costs,
incurred in connection with (a) any investigation or monitoring of site
conditions at any Leased Property, (b) the presence of any asbestos-containing
materials in, on, under or about any Leased Property and (c) any Clean Up
required or performed by any federal, state or local governmental entity or
performed by any other entity or person because of the presence of any Hazardous
Substance, Release,
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threatened Release or any Contamination on, in, under or about any Leased
Property) which may be asserted against, imposed on, or suffered or incurred by
each and every Indemnitee arising out of or in any way related to, or allegedly
arising out of or due to any environmental matter, including, but not limited
to, any one or more of the following:
(i) Release Damage or Liability. The presence of Contamination in, on,
at, under or near any Leased Property or migrating to any Leased Property
from another location;
(ii) Injuries. All injuries to health or safety (including wrongful
death), or to the environment, by reason of environmental matters relating
to the condition of or activities past or present on, at, in or under any
Leased Property;
(iii) Violations of Law. All violations, and alleged violations, of
any Environmental Law by Tenant relating to any Leased Property or any
activity on, in, at, under or near any Leased Property;
(iv) Misrepresentation. All material misrepresentations relating to
environmental matters in any documents or materials furnished by Tenant to
Landlord and/or its representatives in connection with this Lease;
(v) Event of Default. Each and every Event of Default hereunder
relating to environmental matters;
(vi) Lawsuits. Any and all lawsuits brought or threatened against any
one or more of the Indemnitees, settlements reached and governmental orders
relating to any Hazardous Substances at, on, in, under or near any Leased
Property, and all demands or requirements of governmental authorities, in
each case based upon or in any way related to any Hazardous Substances at,
on, in or under any Leased Property; and
(vii) Presence of Liens. All liens imposed upon any Leased Property
and charges imposed on any Indemnitee in favor of any governmental entity
or any person as a result of the presence, disposal, release or threat of
release of Hazardous Substances at, on, in, from or under any Leased
Property.
If the matter that is the subject of a claim for indemnification by any
Indemnitee pursuant to this Section 18.10 arises or is in connection with a
claim, suit or demand filed by a third party, Tenant shall be entitled to
defend against such Claim with counsel reasonably satisfactory to the
applicable Indemnitee(s). The Indemnitee(s) may continue to employ counsel
of its own, but such costs shall be borne by the Indemnitee(s) as long as
Tenant continues to so defend. With respect to such Claims arising from
third parties (A) if an Indemnitee declines to accept a bona fide offer of
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settlement that is recommended by Tenant, which settlement includes a full
and complete release of such Indemnitee from the subject Claim, the maximum
liability of Tenant arising from such claim shall not exceed that amount
for which it would have been liable had such settlement been accepted, and
(B) if an Indemnitee settles the subject Claim without the consent of
Tenant, the maximum liability of Tenant under this Section arising from
such Claim shall not exceed the fair and reasonable settlement value of
such Claim.
18.11 RIGHTS CUMULATIVE AND SURVIVAL. The rights granted Landlord under
this Article are in addition to and not in limitation of any other rights or
remedies available to Landlord hereunder or allowed at law or in equity. The
obligations of Tenant to defend, indemnify and hold the Indemnitees harmless, as
set forth in this Article, arising as a result of an act, omission, condition or
other matter occurring or existing during the Term, whether or not the act,
omission, condition or matter as to which such obligations relate is discovered
during the Term, shall survive the expiration or earlier termination of the Term
of this Lease.
ARTICLE 19
HOLDOVER MATTERS
19.1 HOLDING OVER. If Tenant remains in possession of a Leased Property
after the expiration of the Term or earlier termination of this Lease, such
possession shall be as a month-to-month tenant during which time Tenant shall
pay as rental each month one and one-half times the aggregate of (a) one-twelfth
of the aggregate Base Rent payable with respect to the applicable Leased
Property during the last Lease Year of the preceding Term, and (b) all
Additional Charges accruing during the month with respect to the applicable
Leased Property. Any interest, however, will be payable only at the rate
provided in this Lease and shall not exceed the maximum rate allowed by law.
During such period of month-to-month tenancy, Tenant shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to month-to-month tenancies, to continue its occupancy and use of the
applicable Leased Property until the month-to-month tenancy is terminated.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over by Tenant after the expiration or earlier
termination of this Lease.
19.2 INDEMNITY. If Tenant fails to surrender a Leased Property in a timely
manner and in accordance with the provisions of Section 9.1.6 hereof upon the
expiration or termination of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall indemnify and hold Landlord, its
principals, officers, directors, agents and employees harmless from loss or
liability resulting from such failure, including, without limiting the
generality of the foregoing, loss of rental with respect to any new lease in
which
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the rental payable thereunder exceeds any rental paid by Tenant pursuant to this
Lease and any claims by any proposed new tenant founded on such failure. The
provisions of this Section 19.2 shall survive the expiration or termination of
this Lease.
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 SUBORDINATION. Upon written request of Landlord, Tenant will
subordinate its rights pursuant to this Lease in writing (a) to the lien of any
mortgage, deed of trust or the interest of any lease in which Landlord is the
Tenant and to all modifications, extensions, substitutions thereof (or, at
Landlord's option, cause the lien of said mortgage, deed of trust or the
interest of any lease in which Landlord is the Tenant to be subordinated to this
Lease), and (b) to all advances made or hereafter to be made thereunder. As a
condition to each such subordination, Landlord shall deliver to Tenant a
non-disturbance agreement providing inter alia that, if such mortgagee,
beneficiary or Landlord acquires any of the Leased Properties by way of
foreclosure or deed in lieu, such mortgagee, beneficiary or Landlord will not
disturb Tenant's possession under this Lease and will recognize Tenant's rights
hereunder provided this Lease has not been terminated under Section 16.2 hereof.
20.2 ATTORNMENT. If any proceedings are brought for foreclosure, or if the
power of sale is exercised under any mortgage or deed of trust made by Landlord
encumbering any Leased Property, or if a lease in which Landlord is the Tenant
is terminated, Tenant shall attorn to the purchaser or Landlord under such lease
upon any foreclosure or deed in lieu thereof, sale or lease termination and
recognize the purchaser or Landlord as Landlord under this Lease, provided that
the purchaser or Landlord acquires and accepts the applicable Leased Property
subject to, and upon the terms and conditions set forth in, this Lease.
20.3 ESTOPPEL CERTIFICATE. Each of Landlord and Tenant agrees, upon not
less than ten (10) days prior Notice from the other, to execute, acknowledge and
deliver to the other an Estoppel Certificate. It is intended that any Estoppel
Certificate delivered pursuant hereto may be relied upon by Landlord, Tenant,
any prospective tenant, subtenant, assignee or purchaser of the applicable
Leased Property, any mortgagee or prospective mortgagee, or by any other party
who may reasonably rely on such statement.
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ARTICLE 21
RISK OF LOSS
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of any of the Leased Properties in consequence of
the damage or destruction thereof by fire, the elements, casualties, thefts,
riots, wars or otherwise, or in consequence of foreclosures, attachments, levies
or executions (other than those caused by Landlord and those claiming from,
through or under Landlord) is assumed by Tenant, and, in the absence of gross
negligence, willful misconduct or material breach of this Lease by Landlord,
Landlord shall in no event be answerable or accountable therefor nor shall any
of the events mentioned in this Section entitle Tenant to any abatement of Rent
under this Lease.
ARTICLE 22
INDEMNIFICATION
22.1 INDEMNIFICATION. Subject to Section 13.4 hereof, notwithstanding the
existence of any insurance or self-insurance provided for in Article 13 hereof,
and without regard to the policy limits of such insurance or self-insurance,
Tenant will, subject to Section 13.4 hereof, protect, indemnify, save harmless
and defend Landlord, its principals, partners, officers, directors,
shareholders, agents, and employees from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable and documented attorneys' fees and
expenses), to the maximum extent permitted by law, whenever asserted, or
incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of any Leased Property;
(c) the failure to pay Impositions which are the obligations of Tenant
under this Lease;
(d) any failure by Tenant to perform or comply with any of the terms
of this Lease;
(e) the nonperformance of any contractual obligation, express or
implied, assumed or undertaken by Tenant or any party in privity with
Tenant with respect to
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any Leased Property or any business or other activity carried on with
respect to any Leased Property during the Term or thereafter during any
time in which Tenant or any such other party is in possession of any Leased
Property or thereafter to the extent that any conduct by Tenant or any such
person (or failure of such conduct thereby if the same should have been
undertaken during such time of possession and leads to such damage or loss)
causes such loss or claim;
(f) the use, operation, possession, or management of each of the
Facilities by Tenant before or after the Commencement Date and during the
Term of this Lease until the Lease Termination Date;
(g) the breach or by Tenant of any representation, or warranty in this
Lease;
(h) any and all Claims accruing before or after the Commencement Date
relating to any current or former employee, consultant or independent
contractor of Tenant or any of the Facilities, including, but not limited
to, the termination or discharge of any current or former employee,
consultant, or independent contractor of Tenant or any of the Facilities
before or after the Commencement Date, Claims under federal, state, or
local laws, rules or regulations, accruing before or after the Commencement
Date, related to wages, hours, fair employment practices, unfair labor
practices, or other terms and conditions of employment and claims arising
under the Worker Adjustment and Retraining Notification Act or any
analogous state statute, or matters arising from any severance policy,
claim, agreement or contract;
(i) any and all Claims with respect to any qualified or non-qualified
retirement or benefit plans or arrangements established before or after the
Commencement Date involving any employee, consultant or independent
contractor of Tenant or any of the Facilities;
(j) Facilities which were decertified by Tenant during the Term of
this Lease; and
(k) the removal of Tenant's Personal Property from any of the
Facilities.
Any amounts which become payable by Tenant under this Section shall be paid
within thirty (30) days after liability therefor on the part of Tenant is
finally determined by litigation or otherwise, and if not timely paid, shall
bear interest (to the extent permitted by law) at the Overdue Rate from the date
of such determination to the date of payment. Nothing herein shall be construed
as indemnifying Landlord against its own grossly negligent acts or omissions or
willful misconduct.
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22.2 SURVIVAL OF INDEMNIFICATION; TENANT RIGHT TO DEFEND LANDLORD. Tenant's
liability under this Article shall survive any termination of this Lease. Tenant
shall have the right (at Tenant's expense) to defend Landlord against any such
claim by counsel reasonably acceptable to Landlord (who may also act as Tenant's
counsel in the particular matter, provided Landlord's and Tenant's interests are
coincident and not adverse to one another). Tenant shall apprise Landlord
regularly as to the status of the particular matter.
ARTICLE 23
LIMITATIONS ON TRANSFERS
23.1 GENERAL PROHIBITION AGAINST TRANSFER. Tenant shall not Transfer its
interest in this Lease or any Leased Property, except as specifically permitted
by this Lease or consented to in advance by Landlord in writing. Except to the
extent otherwise specified herein, the parties agree that Landlord may
arbitrarily and unreasonably withhold its consent to any such request and no
court shall imply any agreement by Landlord to act in a reasonable fashion. Any
such attempted Transfer not specifically permitted by this Lease or otherwise
approved by Landlord shall be null and void and of no force and effect; but in
the event of any such Transfer, Landlord may collect rent and other charges from
the Transferee and apply the amounts collected to the rent and other charges
herein reserved, but no Transfer or collection of rent and other charges shall
be deemed to be a waiver of Landlord's rights to enforce Tenant's covenants or
the acceptance of the Transferee as Tenant, or a release of Tenant from the
performance of any covenants on the part of Tenant to be performed.
Notwithstanding any Transfer, Tenant and any Guarantor shall remain fully liable
for the performance of all terms, covenants and provisions of this Lease, both
before and after any such Transfer. Any violation of this Lease by any
Transferee shall be deemed to be a violation of this Lease by Tenant.
23.2 CORPORATE OR PARTNERSHIP TRANSACTIONS. If Tenant, Guarantor or the
Manager is a corporation, then the merger, consolidation or reorganization of
such corporation and/or the sale, issuance or transfer, cumulatively or in one
transaction, of any voting stock by Tenant, Guarantor or the Manager or the
stockholders of record of any of them as of the date of this Lease which results
in a change in the voting control of Tenant, Guarantor or the Manager shall
constitute a Transfer. If Tenant, Guarantor or the Manager is a joint venture,
partnership or other association, then the transfer of or change in,
cumulatively or in one transaction, voting control of or a twenty percent (20%)
or greater interest in such Tenant, Guarantor or Manager within any five-year
period, or the termination of such joint venture, partnership or other
association, shall constitute a Transfer. Notwithstanding the foregoing, if
there occurs a "change of control" with respect to Monarch, then the provisions
of this Section shall only apply to matters involving Tenant and not Guarantor
or the Manager. For purposes of this Section, a "change of control" shall mean a
transaction or series of transactions
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whereby any Person or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder acquires beneficial ownership, directly or indirectly, of securities
of Monarch (or other securities convertible into such securities) representing
over fifty percent (50%) of the combined voting power of all securities of
Monarch entitled to vote in the election of directors.
23.3 PERMITTED SUBLEASES. Subject to Section 23.4 hereof, Tenant shall have
the right to sublease up to ten percent (10%) of the floor area of a Facility in
the ordinary course of the health care business being conducted in such Facility
without Landlord's consent, and subject to Landlord's consent, which shall not
unreasonably be withheld or delayed an additional ten percent (10%) of the floor
area of such Facility.
23.4 TRANSFERS TO A CONTROLLED ENTITY. Notwithstanding anything to the
contrary herein contained, Tenant may without the prior consent of Landlord
Transfer its interest herein to an entity Controlled by Lyric upon the condition
that (a) such entity expressly and in writing assumes all of the obligations and
liability of the Tenant hereunder, (b) such Transfer has no effect on the Lyric
Guaranty and Lyric confirms in writing that the Lyric Guaranty remains unchanged
and in full force and effect, (c) the stock of such entity (if a corporation) is
at the time of the Transfer pledged to Landlord to secure performance of its
obligations under this Lease, (d) all obligations of such entity to Lyric or any
Affiliate of Lyric, and all Debt of such entity to any third party, are
subordinated to its liability and obligations as Tenant hereunder and (e)
without the consent of Landlord, no such Transfer shall release the Tenant named
herein from liability hereunder.
23.5 SUBORDINATION AND ATTORNMENT. Tenant shall insert in any sublease
permitted by Landlord provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Landlord hereunder, (b) if this Lease terminates before the expiration
of such sublease, the subtenant thereunder will, at Landlord's option, attorn to
Landlord and waive any right the subtenant may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the subtenant receives a written Notice from Landlord or Landlord's
assignee, if any, stating that an Event of Default has occurred under this
Lease, the subtenant shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice or as such party
may direct. All rentals received from the subtenant by Landlord or Landlord's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Tenant under this Lease.
23.6 SUBLEASE LIMITATION. Anything contained in this Lease to the contrary
notwithstanding, even if a sublease of a Leased Property is permitted, Tenant
shall not sublet the applicable Leased Property on any basis such that the
rental to be paid by the subtenant thereunder would be based, in whole or in
part, on either (a) the income or profits derived by the business activities of
the subtenant, or (b) any other formula such that any portion of the
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sublease rental received by Landlord would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto. The parties agree that this Section shall not be
deemed waived or modified by implication, but may be waived or modified only by
an instrument in writing explicitly referring to this Section by number.
23.7 FACILITY SUBLEASES PERMITTED. Landlord expressly consents to the
Facility Subleases to the Facility Subtenants identified in Exhibit A hereto;
provided, however, that any material modification or amendment of the terms
thereof shall require the prior written approval of Landlord.
ARTICLE 24
CERTAIN FINANCIAL MATTERS
24.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS. Tenant shall furnish
to Landlord:
(a) Quarterly Financials. As soon as available and in any event within
fifty-five (55) days after the end of each calendar quarter, an unaudited
operating statement for each of the Facilities for the period commencing at
the end of the previous quarter and ending with the end of such quarter,
together with an Officer's Certificate of Tenant stating that Tenant is not
in default of any covenant set forth in Article 8 hereof, or if Tenant is
in default, specifying all such defaults, the nature thereof and the steps
being taken to remedy the same.
(b) Annual Financials. As soon as available and in any event within
one hundred twenty (120) days after the end of each Fiscal Year, a
consolidated balance sheet of the Facility Subtenants and Tenant as at the
end of such Fiscal Year and a consolidated operating statement for the
Facilities for such Fiscal Year, in each case accompanied by (i) an opinion
acceptable to Landlord of KPMG Peat Marwick or other independent public
accountants of recognized standing reasonably acceptable to Landlord and
(ii) an Officer's Certificate of Tenant stating that Tenant is not in
default in the performance or observance of any of the terms of this Lease,
or if Tenant is in default, specifying all such defaults, the nature
thereof and the steps being taken to remedy the same.
(c) Cost Reports. Upon the request of Landlord and no more than once
in each calendar year, Tenant shall furnish to Landlord complete and
accurate copies of the most recent annual Medicaid and Medicare cost
reports for the Facilities and any and
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all amendments filed with respect to such reports and all responses, audit
reports or inquiries with respect to each such report.
(d) Licensing Agency Reports. Upon the reasonable request of Landlord
and no more than once during any calendar year, Tenant shall furnish to
Landlord a copy of the most recent federal and state agency surveys or
report and any statement of deficiencies with respect to the Facilities,
and within the time period required by the particular agency for furnishing
a plan of correction, and without the need of any request from Landlord,
Tenant shall also furnish to Landlord a copy of the plan of correction
generated from such survey or report for the Facilities, and correct or
cause to be corrected a deficiency, the curing of which is a condition of
continued licensure or for full participation in Medicare and Medicaid for
existing patients or for new patients to be admitted with Medicare or
Medicaid coverage, by the date required for cure by such agency (plus
extensions granted by such agency.)
(e) Notices. Tenant shall require that each Facility Subtenant furnish
to Landlord within ten (10) days from its receipt, and Tenant shall furnish
to Landlord within ten (10) days from its receipt, any and all notices
(regardless of form) from any licensing and/or certifying agency that a
Facility's license or Medicare or Medicaid certification of a Facility is
being revoked or suspended.
(f) Patient Data. Within fifty-five (55) days of the end of each
fiscal quarter and to the extent not included in the operating statements
delivered pursuant to subsection (i), above, a statement of the actual
patient days incurred for the quarter, together with quarterly census
information for the Facilities as of the end of such quarter by patient-
mix (i.e., private, Medicare, Medicaid and V.A.) of the Facilities.
(g) Capital Budget. As soon as it is prepared in each Lease Year, a
capital budget for the Facilities for that and the following Lease Year,
for Landlord's information and not for approval;
(h) Other Information. With reasonable promptness, such other
information respecting the financial condition and affairs of Tenant, the
Facility Subtenants and the Facilities as Landlord may reasonably request
from time to time, including, without limitation, any such other
information as may be available to the administration of the Facilities;
and
(i) At times reasonably required by Landlord, and upon request as
appropriate, audited year-end information and unaudited quarterly financial
information concerning the Leased Properties, Tenant and the Facility
Subtenants as Landlord may require for its on-going filings with the SEC,
under both the Securities Act of 1933, as amended and the Securities
Exchange Act of 1934, as amended, including, but not limited to,
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10-Q Quarterly Reports, 10-K Annual Reports, 8- and registration statements
to be filed by Landlord during the Term of this Lease.
24.2 PUBLIC OFFERING INFORMATION. Tenant specifically agrees that Landlord
may include financial information and such information concerning the operation
of the Facilities which does not violate the confidentiality of the
facility-patient relationship and the physician-patient privilege under
applicable laws, in offering memoranda or prospectuses, or similar publications
in connection with syndications or public offerings of Landlord's securities or
interests, and any other reporting requirements under applicable federal and
State laws, including those of any successor to Landlord. Tenant agrees to
provide such other reasonable information necessary with respect to Tenant and
the applicable Leased Property to facilitate a public offering or to satisfy SEC
or regulatory disclosure requirements. Landlord shall provide to Tenant a copy
of any information prepared by Landlord to be so published, and Tenant shall
have a reasonable period of time (not to exceed three (3) Business Days) after
receipt of such information to notify Landlord of any corrections. Landlord
shall protect, indemnify, save harmless and defend Tenant, its principals,
officers, directors and agents and employees from and against all liabilities,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against them by a
third party or parties as a result of the publication of any such audited
financial statements by or at the direction of Landlord, but not against any
such liabilities, claims, damages, penalties, causes of action, costs or
expenses as may be suffered by Tenant, its principals, officers, directors and
agents and employees in or as a result of any action or proceeding with respect
to any such audited financial statement (a) in which a judgment is entered
against IHS, Lyric, Tenant, any Seller ( as defined in the Facilities Purchase
Agreement) or any principal, officer, director, agent or employee thereof, or
(b) is settled in whole or in part on the basis of a payment of Ten Thousand
Dollars ($10,000) or more to the claimant or moving party in such proceeding by
IHS, Lyric, Tenant, any Seller or any principal, officer, director, agent or
employee thereof alone or in combination with any payment made by IHS, Lyric,
Tenant, any Seller or any principal, officer, director, agent or employee
thereof (and as to expenses previously paid by Landlord pursuant to the
foregoing indemnity prior to an event described in (a) or (b), hereof, Tenant
shall repay such expenses promptly after the event specified).
ARTICLE 25
LANDLORD INSPECTION
Tenant shall permit Landlord and its authorized representatives to
inspect, during normal business hours, at least once per Lease Year (a) the
respective Leased Properties and, (b) upon one Business Day's prior Notice,
which Notice shall set forth a reasonable cause
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for such inspection, Tenant's books and records pertaining thereto (provided,
however, that upon any Event of Default, such Notice need not set forth any
cause for such inspection).
ARTICLE 26
[INTENTIONALLY OMITTED]
ARTICLE 27
[INTENTIONALLY OMITTED]
ARTICLE 28
ACCEPTANCE OF SURRENDER
No surrender to Landlord of this Lease or of the Leased Property or
any part thereof, or of any interest therein, shall be valid or effective unless
specifically agreed to and accepted in writing by Landlord, and no act by
Landlord or any representative or agent of Landlord, other than such a specific
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP
29.1 NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created thereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) the Lease or the leasehold estate created hereby or any interest
in the Lease or such leasehold estate, and (b) the fee estate in any Leased
Property.
29.2 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture between Landlord and Tenant
or to cause either party to be responsible in any way for the debts or
obligations of the other or any other party, it being the intention of the
parties that the only relationship hereunder is that of Landlord and Tenant.
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ARTICLE 30
CONVEYANCE BY LANDLORD
If Landlord or any successor owner of any Leased Property conveys any
Leased Property in accordance with the terms hereof other than as security for a
debt, Landlord or such successor owner, as the case may be, 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, and all
such future liabilities and obligations shall thereupon be binding upon the new
owner, provided that the transferee gives Notice to Tenant that such transferee
has received (a) the Security Deposit and (b) any funds in the hands of Landlord
or the then grantor at the time of the transfer in which Tenant has an interest.
ARTICLE 31
QUIET ENJOYMENT
So long as Tenant pays all Rent as it becomes due and complies with
all of the terms of the Lease and performs its obligations thereunder, Tenant
shall peaceably and quietly have, hold and enjoy the respective Leased
Properties hereby leased for the Term, free of any claim or action by Landlord
or anyone claiming by, through or under Landlord.
ARTICLE 32
[INTENTIONALLY OMITTED]
ARTICLE 33
APPRAISERS
If it becomes necessary to determine the Fair Rental Value of any of
the Leased Properties for any purpose of this Lease, Landlord and Tenant shall
attempt to agree upon a single appraiser to make such determination. If Landlord
and Tenant are unable to agree upon a single appraiser within thirty (30) days
thereafter, then the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten (10) days after such Notice, Landlord (or
Tenant, as the case may be) shall by Notice to Tenant (or Landlord, as the case
may be) appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor
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organization thereto) and experienced in appraising nursing home properties,
shall, within forty-five (45) days after the date of the Notice appointing the
first appraiser, proceed to appraise the applicable Leased Property to determine
the Fair Rental Value of it as of the relevant date (giving effect to the
impact, if any, of inflation from the date of their decision to the relevant
date); provided, however, that if only one appraiser has been so appointed, or
if two appraisers have been so appointed but only one such appraiser has made
such deter mination within fifty (50) days after the making of Tenant's or
Landlord's request, then the determination of such appraiser shall be final and
binding upon the parties. If two appraisers have been appointed and have made
their determinations within the respective requisite periods set forth above and
if the difference between the amounts so determined does not exceed ten percent
(10%) of the lesser of such amounts, then the Fair Rental Value shall be an
amount equal to fifty percent (50%) of the sum of the amounts so determined. If
the difference between the amounts so determined exceeds ten percent (10%) of
the lesser of such amounts, then such two appraisers shall have twenty (20) days
to appoint a third appraiser. If no such appraiser has been appointed within
such twenty (20) day period or within ninety (90) days of the original request
for a determination of Fair Rental Value, whichever is earlier, either Landlord
or Tenant may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers or by
such court shall be instructed to determine the Fair Rental Value within
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and the average of
the sum of the remaining two determinations shall be final and binding upon
Landlord and Tenant as the Fair Rental Value of the applicable Leased Property.
Any such appraisal shall conform to FDIC or equivalent requirements and format.
This provision for determining the Fair Rental Value by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
and judgment may be entered upon such determination in any court having
jurisdiction of the matter. Landlord and Tenant shall each pay the fees and
expenses of the appraiser appointed by it, and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE 34
BREACH OF LEASE BY LANDLORD
Landlord shall not be in breach of this Lease unless Landlord fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
written Notice specifying such failure and the necessary curative action is
received by Landlord from Tenant. If the failure cannot
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with due diligence be cured within a period of thirty (30) days, the failure
shall not be deemed to continue if Landlord, within said thirty (30) day period,
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof. The time within which Landlord shall be obligated
to cure any such failure shall also be subject to extension of time due to the
occurrence of any Unavoidable Delay.
ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL
35.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY. Landlord may
purchase Tenant's Personal Property (other than proprietary software and data)
at the expiration or termination of this Lease for an amount equal to the then
fair market value thereof (determined in accordance with the appraisal
procedures set forth in Article 33 hereof), subject to, and with appropriate
credits for, any obligations owing from Tenant to Landlord and for all equipment
leases, conditional sale contracts and any other encumbrances to which Tenant's
Personal Property is subject. Landlord's option shall be exercised by Notice to
Tenant no more than one hundred eighty (180) days, nor less than ninety (90)
days, before the expiration of the Initial Term (or, before the expiration of
the First Renewal Term or the Second Renewal Term, as the case may be), unless
this Lease is terminated prior to its expiration date (a) by reason of an Event
of Default, in which event Landlord's option shall be exercised within
forty-five (45) days following the date of termination, or (b) by reason of the
exercise by a Tenant of a right to terminate provided for herein in the event of
a Taking, in which event Landlord's option shall be exercised within forty-five
(45) days following Tenant's exercise of such right. Landlord's option shall
terminate upon Tenant's purchase of the applicable Leased Property. If Landlord
exercises its option, Tenant shall, in exchange for Landlord's payment of the
purchase price, deliver Tenant's Personal Property to Landlord, together with a
bill of sale and such other documents as Landlord may reasonably request in
order to carry out the purchase of Tenant's Personal Property, and such purchase
shall be closed by such delivery and such payment on the date set by Landlord in
its Notice of exercise.
35.2 FACILITY TRADE NAMES. If this Lease is terminated by reason of an
Event of Default, or if Landlord purchases the Tenant's Personal Property with
respect to any Leased Property pursuant to Section 35.1 hereof, Landlord shall
be permitted to use the Facility Trade Names (except for the names "Integrated,"
"IHS" and variants thereof) under which the applicable Leased Property conducts
business in the market in which the applicable Facility is located, and Tenant
shall not after any such termination use the Facility Trade Names under which
the applicable Leased Property conducts business in any business that competes
with the applicable Leased Property.
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35.3 TRANSFER OF OPERATIONAL CONTROL OF THE FACILITIES. Tenant shall
cooperate in transferring operational control of the Facilities to Landlord or
Landlord's nominee if the Term expires without extension or renewal by Tenant,
or if this Lease is terminated upon the occurrence of an Event of Default or for
any other reason, and shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to accomplish such transfer
with minimal disruption of the business conducted at each Facility. To that end,
pending completion of the transfer of operational control of the Facilities to
Landlord or its nominee, Tenant agrees that during the period beginning ninety
(90) days prior to the expiration of the Term of this Lease (or at any time upon
the occurrence of an Event of Default):
(a) Tenant will not terminate the employment of any employees without
just cause, or change any salaries (other than normal merit raises and the
pre-announced wage increases of which Landlord has knowledge) or employment
agreements without Landlord's consent other than customary raises to
non-officers at regular review dates, and will not hire additional
employees except in good faith in the ordinary course of business.
(b) Tenant will provide all necessary information requested by
Landlord or its nominee for the preparation and filing of any and all
necessary applications or notifications of any federal or state
governmental authority having jurisdiction over a change in the operational
control of the applicable Facility, and Tenant will cooperate (without
incurring material cost or liability except after an Event of Default), to
cause the operating health care license to be transferred to Landlord or
Landlord's nominee.
(c) Tenant shall continue to operate the business in accordance with
reasonable and standard industry practices to keep the business and
organization of the applicable Facility intact and to preserve for Landlord
or its nominee the goodwill of the suppliers, distributors, residents and
others having business relations with Tenant with respect to the applicable
Facility.
(d) Tenant shall engage only in transactions or other activities with
respect to the applicable Facility which are in the ordinary course of its
business and shall perform all maintenance and repairs reasonably necessary
to keep the applicable Facility in satisfactory operating condition and
repair, and shall maintain the supplies and foodstuffs at levels which are
consistent and in compliance with all health care regulations, and shall
not sell or remove any personal property except in the ordinary course of
business.
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(e) Tenant shall cooperate fully with Landlord or its nominee in
supplying any information that may be reasonably required to effect an
orderly transfer of the applicable Facility.
(f) Tenant shall provide Landlord or its nominee with full and
complete information regarding the employees of the applicable Facility and
shall reimburse Landlord or its nominee for all outstanding accrued
employee benefits, including accrued vacation, sick and holiday pay
calculated on a true accrual basis, including all earned and a prorated
portion of all unearned benefits.
(g) Tenant shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to obtain the
acknowledgment and the consent of any creditor, Landlord or sublandlord,
mortgagee, beneficiary of a deed of trust or security agreement affecting
the real and personal properties of Tenant or any other party whose
acknowledgment and/or consent would be required because of a change in the
operational control of the applicable Facility and transfer of personal
property.
35.4 INTANGIBLES AND PERSONAL PROPERTY. Notwithstanding any other provision
of this Lease, but subject to Section 6.4 hereof (relating to Landlord's
security interest), Landlord's Personal Property shall not include goodwill, or
other intangible personal property severable from Landlord's "interests in real
property" within the meaning of Section 856(d) of the Code. All of Landlord's
Personal Property is leased to Tenant pursuant to the terms hereof.
ARTICLE 36
[INTENTIONALLY OMITTED]
ARTICLE 37
MISCELLANEOUS
37.1 NOTICES. All notices, consents or other communications under this
Lease must be in writing and addressed to each party at its respective Notice
Addresses (or at any other address which the respective parties may designate by
notice given to the other party from time to time). Any notice required by this
Lease to be given or made within a specified period of time, on or before a date
certain, shall be deemed given or made if sent by hand, or by registered or
certified mail (return receipt requested and postage and registry fees prepaid).
Delivery "by hand" shall include delivery by commercial express or courier
service. A notice sent by registered or certified mail shall be deemed given on
the date of receipt (or attempted
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delivery if refused) indicated on the return receipt. All other notices shall be
deemed given when actually received. A notice may be given by a party or by its
legal counsel. The Notice
Addresses of the parties are as follows:
If to Landlord: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attn: John B. Poole
Telephone No.: (941) 598-5605
Fax No.: (941) 566-6082
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: John R. Fallon, Jr., Esq.
Telephone No.: (212) 424-8279
Fax No.: (212) 424-8500
If to Tenant: Lyric Health Care Holdings III, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: (410) 998-8768
Fax No.: (410) 998-8695
37.2 SURVIVAL, CHOICE OF LAW. TENANT'S OBLIGATIONS UNDER THIS LEASE SHALL
SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THE TERM. AT LANDLORD'S OPTION,
THIS LEASE SHALL BE CONSTRUED AND ENFORCED EITHER (A) UNDER THE LAW OF THE STATE
OF NEW YORK OR, (B) IN ANY PARTICULAR CASE, THE LAW OF THE STATE IN WHICH ANY OF
THE FACILITIES IS LOCATED, IN ANY SUCH CASE WITHOUT GIVING EFFECT TO PRINCIPLES
OF CONFLICTS OF LAWS. TENANT IRREVOCABLY SUBMITS TO JURISDICTION IN ANY STATE IN
WHICH ANY FACILITY IS LOCATED (AND AGREES THAT SERVICE OF PROCESS MAY BE
EFFECTED UPON TENANT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE
RESPECTIVE STATE IN WHICH LANDLORD COMMENCES A PROCEEDING AND IRREVOCABLY WAIVES
ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF ANY SUCH STATE).
37.3 LIMITATION ON RECOVERY. Tenant specifically agrees to look solely to
Landlord's interest in the Leased Property leased by it, the net proceeds
received by Landlord
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from the sale or any financing or refinancing of the Leased Property leased by
it, the Security Deposit, any funds deposited by Tenant pursuant to Section 12.2
hereof and any Net Proceeds for recovery of any judgment against Landlord, it
being specifically agreed that no partner, manager, shareholder, officer,
director, or employee of Landlord shall ever be personally liable for any such
judgment or for the payment of any monetary obligation to Tenant. Furthermore,
Landlord (original or successor) shall not ever be liable to Tenant for any
indirect or consequential damages suffered by Tenant from whatever cause.
37.4 WAIVERS. Tenant waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of acceptance, and waives all notices of the existence, creation, or
incurring of new or additional obligations.
37.5 CONSENTS. Whenever the consent or approval of Landlord is required
hereunder, Landlord may in its sole discretion and without reason withhold that
consent or approval unless a provision of this Lease expressly requires that
Landlord be reasonable in not withholding or delaying consent or otherwise
provides to the contrary.
37.6 COUNTERPARTS. This Lease may be executed (a) in counterparts, a
complete set of which together shall constitute an original and (b) in
duplicates, each of which shall constitute an original. Copies of this Lease
showing the signatures of the respective parties, whether produced by
photographic, digital, computer, or other reproduction, may be used for all
purposes as originals.
37.7 OPTIONS FOLLOW LEASE. The renewal options and any other options
granted to Tenant in this Lease are not assignable or transferrable except in
connection with a permitted transfer or assignment of this Lease. Any attempt to
assign or transfer such options otherwise shall be void and of no force and
effect.
37.8 RIGHTS CUMULATIVE. Except as provided herein to the contrary, the
respective rights and remedies of the parties specified in this Lease shall be
cumulative and in addition to any rights and remedies not specified in this
Lease.
37.9 ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Lease. This Lease
supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Landlord and Tenant.
37.10 AMENDMENTS IN WRITING. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Landlord and Tenant
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37.11 SEVERABILITY. If any provision of this Lease or the application of
such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall not
affect the other provisions of this Lease and all other provisions of this Lease
shall be deemed valid and enforceable.
37.12 SUCCESSORS. The term "Landlord" shall mean only the owner or owners
at the time in question of fee title in the respective Leased Properties. All
rights and obligations of Landlord and Tenant under this Lease shall extend to
and bind the respective heirs, executors, administrators and the permitted
concessionaires, successors, subtenants and assignees of the parties.
37.13 TIME OF THE ESSENCE. Except for the delivery of possession of the
Facilities to Tenant, time is of the essence of all provisions of this Lease of
which time is an element.
37.14 LATE CHARGES. If any late charges provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
37.15 BINDING EFFECT. This Lease (and all terms thereof, whether so
expressed or not), shall be binding upon the respective permitted successors,
assigns and legal representatives of the parties and shall inure to the benefit
of and be enforceable by the parties and their respective permitted successors,
assigns and legal representatives.
37.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto
are (and shall be deemed) parts of this Lease.
37.17 WAIVER OF JURY TRIAL. In any action or proceeding in connection with
this Lease, each of Landlord and Tenant hereby waives the right to trial by
jury.
37.18 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form Memorandum of Lease, in form suitable
for recording under the laws of the applicable State in which reference to this
Lease, and all options contained therein, shall be made. Tenant shall pay all
costs and expenses of recording such Memorandum of Lease.
ARTICLE 38
SECURITY DEPOSIT
38.1 SECURITY DEPOSIT. Concurrent with Tenant's execution of this Lease,
Tenant shall deliver the Security Deposit to Landlord, to be held by Landlord as
security for the full
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and faithful performance by Tenant of each and every term, provision, covenant
and condition of this Lease. Tenant may satisfy the Security Deposit obligation
by providing a letter of credit pursuant to the Letter of Credit Agreement. The
Security Deposit (if at any time not a letter of credit) shall be deposited by
Landlord in an interest-bearing account in Landlord's name, separate and apart
from Landlord's general and/or other funds, which cash and interest shall remain
on deposit as security hereunder and be available to Landlord as provided in
this Article. The Security Deposit shall not be considered an advance payment of
Rent (or of any other sum payable to Tenant under this Lease) or a measure of
Landlord's damages in case of a default by Tenant. The Security Deposit shall
not be considered as a trust fund, and Tenant agrees that Landlord is not acting
as a trustee or in any fiduciary capacity in controlling or using the Security
Deposit.
38.2 APPLICATION OF SECURITY DEPOSIT. Upon the occurrence and continuation
of an Event of Default, Landlord may, but shall not be required to, in addition
to any other rights and remedies available to Landlord, use, apply or retain the
whole or any part of the Security Deposit to the payment of any sum in default,
or any other sum, including, but not limited to, any damages or deficiency in
reletting the applicable Leased Property, which Landlord may expend or be
required to expend by reason of Tenant's default. Whenever, and as often as,
Landlord has used the Security Deposit to cure Tenant's default hereunder,
Tenant shall, within ten (10) days after Notice from Landlord, deliver a new
letter of credit to Landlord (or, at Landlord's option, deposit additional money
with Landlord) sufficient to restore the Security Deposit to the full amount
originally provided or paid.
38.3 TRANSFER OF SECURITY DEPOSIT. If Landlord transfers its interest under
this Lease, Landlord shall assign the Security Deposit to the new Landlord, and,
provided that the transferee gives Notice to Tenant that such transferee has
received the Security Deposit, thereafter Landlord shall have no further
liability for the return of the Security Deposit, and Tenant agrees to look
solely to the new Landlord for the return of the Security Deposit. The
provisions of the preceding sentence shall apply to every transfer or assignment
of Landlord's interest under this Lease. Tenant agrees that it will not assign
or encumber or attempt to assign or encumber the monies deposited as security
and that Landlord, its successors and assigns may return the Security Deposit to
the last Tenant in possession at the last address for Notice given by Tenant and
that Landlord shall thereafter be relieved of any liability therefor, regardless
of one or more assignments of this Lease or any such actual or attempted
assignment or encumbrances of the monies held as the Security Deposit.
38.4 REDUCTION OF SECURITY DEPOSIT. If Tenant purchases a Facility, the
required Security Deposit shall be reduced by an amount equal to the pro rata
percentage of the Security Deposit based upon the annual Base Rent allocated to
such Facility at the Commencement Date, as set forth on Exhibit B hereto.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed this Master Lease by their
duly authorized officers as of the date first above written.
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
Its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
S-1
FACILITY SUBLEASE
BETWEEN
LYRIC HEALTH CARE HOLDINGS III, INC.
AND
[INSERT SUBSIDIARY]
DATED AS OF JUNE 23, 1998
<PAGE>
FACILITY SUBLEASE
THIS FACILITY SUBLEASE ("Sublease") is dated as of June 23, 1998 and is
entered into between LYRIC HEALTH CARE HOLDINGS III, INC., the address of which
is 10065 Red Run Boulevard, Owings Mills, Maryland 21117 ("Sublessor"), and
[INSERT SUBSIDIARY], the address of which is 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("Sublessee").
RECITALS
A. Capitalized terms used and not otherwise defined herein have the
respective meanings given them in the Master Lease, dated as of June 23, 1998
between Monarch Properties, LP ("Monarch") and Sublessor.
B. Sublessee has sold to Monarch a health care Facility located on the Land
described on Exhibit A hereto, and Monarch has leased such Facility and the
related Land, Leased Improvements, Related Rights and Sublessor's Personal
Property (the "Subleased Property") to Sublessor pursuant to the Master Lease.
C. Sublessor now wishes to sublease to Sublessee, and Sublessee wishes to
sublease from Sublessor, the Subleased Property on the following terms and
conditions:
ARTICLE I
1.01 Sublease. Upon and subject to the terms and conditions hereinafter set
forth, and subject to the terms and conditions of the Master Lease, Sublessor
subleases to Sublessee the Subleased Property.
1.02 Term. The term of this Sublease shall commence on the Commencement
Date and end on the Expiration Date, subject to (a) the automatic renewal hereof
if the Master Lease is renewed as provided in Article II of the Master Lease and
(b) Sublessor's right to terminate this Sublease pursuant to Section 2.04
hereof.
1.03 Base Rent. For the first Lease Year, the Base Rent for the Subleased
Property shall be [Insert Amount] ($__________) Dollars, and for each Lease Year
thereafter, the Base Rent for the Subleased Property shall be equal to the sum
of such Base Rent for the preceding Lease Year plus the product of (a) such Base
Rent for the preceding Lease Year multiplied by (b) the lower of (i) twice the
percentage increase in the Cost of Living Index from the last
1
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month of the preceding Lease Year to the last month of the Lease Year in
question and (ii) three percent (3%).
ARTICLE II
2.01 Subordination to Master Lease. This Sublease is and shall at all times
be subject and subordinate to the Master Lease, and notwithstanding anything
elsewhere herein to the contrary, upon the expiration or earlier termination of
the Master Lease this Sublease shall automatically and simultaneously terminate.
2.02 Incorporation of Terms of Master Lease. In addition to the terms and
conditions set forth herein, and except as expressly modified herein, the terms,
conditions and respective obligations of Sublessor and Sublessee to each other
under this Sublease shall be the terms, conditions and respective obligations of
Lessor and Lessee to each other under the Master Lease, which terms, conditions
and obligations are hereby incorporated herein. Therefore, for purposes of this
Sublease, wherever in the Master Lease the word "Lessor" is used, it shall be
deemed to mean and refer to the Sublessor herein, wherever in the Master Lease
the word "Lessee" is used, it shall be deemed to mean and refer to the Sublessee
herein, and wherever in the Master Lease the words "Facility," "Land," "Leased
Improvements," "Leased Property," "Related Rights," and "Lessor's Personal
Property" are used, they shall be deemed to mean and refer to the Subleased
Property and the components thereof.
2.03 Assumption by Sublessee. During the term of this Sublease, and
thereafter with respect to obligations which have arisen prior to the
termination or expiration of the term of this Sublease, Sublessee expressly
assumes and agrees to pay, perform and comply with for the benefit of Sublessor
and the Lessor under the Master Lease each and every payment and performance
obligation under the Master Lease with respect to Sublessee and the Subleased
Property.
2.04 Event of Default. Any Event of Default under the Master Lease shall
constitute an Event of Default under this Sublease, and upon the occurrence of
any Event of Default under the Master Lease, Sublessor shall have with respect
to Sublessee and the Subleased Property all of the remedies afforded the Lessor
with respect to the Lessee and the Leased Property under the Master Lease.
2.05 Notices. Except as required by law for the posting of notices, all
notices, requests, demands and other communications hereunder must be in writing
and shall be personally served or mailed (by registered or certified mail,
return receipt requested and postage prepaid), or delivered by a national
overnight delivery service such as Federal Express or D.H.L. addressed to the
respective parties as follows:
2
<PAGE>
If to Sublessor: Lyric Health Care Holdings III, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy: Marshall A. Elkins, Esq.
Telephone No.: (410) 998-8768
Facsimile No.: (410) 998-8695
If to Sublessee: [Insert Subsidiary]
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy: Marshall A. Elkins, Esq.
Telephone No.: (410) 998-8768
Facsimile No.: (410) 998-8695
Any such mailing, delivery or other permitted service shall be deemed to be
complete on the day of the confirmed receipt or refusal thereof.
2.06 Miscellaneous. This Section supplements (and is not intended to limit)
Section 2.02 hereof.
2.06.1 Survival, Choice of law. Anything contained in this Sublease to the
contrary notwithstanding, all claims against, and liabilities of, Sublessee or
Sublessor arising prior to any date of termination of this Sublease shall
survive such termination. If any late charges provided for in any provision of
this Sublease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate. All the terms and provisions of this Sublease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The headings in this Sublease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Sublease shall be governed by and construed in accordance with the laws of New
York, except as to matters which under the laws of a state, or under applicable
procedural conflicts of laws rules, require the application of laws of the
state.
SUBLESSEE CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL
COURTS OF THE STATES OF NEW YORK AND THE STATE IN WHICH THE SUBLEASED PROPERTY
SUBLEASED BY IT IS LOCATED, AND AGREES THAT ALL DISPUTES CONCERNING THIS
AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW
YORK OR THE STATE IN WHICH THE SUBLEASED PROPERTY SUBLEASED BY IT IS LOCATED.
SUBLESSEE AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY
METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF NEW YORK OR THE STATE IN WHICH
THE SUBLEASED PROPERTY
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SUBLEASED BY IT IS LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE
STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK OR THE STATE IN WHICH THE
SUBLEASED PROPERTY LEASED BY IT IS LOCATED.
2.06.2 Counterparts. This Sublease may be executed in separate
counterparts, each of which shall be considered as original when each party has
executed and delivered to the other one or more copies of this Sublease.
2.06.3 Entire Agreement. There are no oral or written agreements or
representations between the parties hereto affecting this Sublease. This
Sublease supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Sublessor and Sublessee.
2.06.4 Amendments in Writing. Neither this Sublease nor any provision
hereof may be changed, waived, discharged or terminated except by an instrument
in writing signed by Sublessor and Sublessee
2.06.5 Severability. If any provision of this Sublease or the application
of such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall not
affect the other provisions of this Sublease and all other provisions of this
Sublease shall be deemed valid and enforceable.
2.06.6 Successors. All rights and obligations of Sublessor and Sublessee
under this Sublease shall extent to and bind the respective heirs, executors
administrators and the permitted concessionaires, successors, subtenants and
assignees of the parties.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed this Facility Sublease by
their duly authorized signing officers as of the day and year first above
written.
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
[INSERT SUBSIDIARY]
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
5
CONSENT AND SUBORDINATION AGREEMENT
AMONG
IHS FACILITY MANAGEMENT, INC.,
INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.,
LYRIC HEALTH CARE HOLDINGS III, INC.,
LYRIC HEALTH CARE LLC,
MONARCH PROPERTIES, LP
AND
THE ENTITIES LISTED ON ATTACHED EXHIBIT A
DATED AS OF JUNE 23, 1998
<PAGE>
CONSENT AND SUBORDINATION AGREEMENT
THIS CONSENT AND SUBORDINATION AGREEMENT (this "Agreement") is made and
entered into as of June 23, 1998, by IHS FACILITY MANAGEMENT, INC., a Delaware
corporation, the address of which is 10065 Red Run Boulevard, Owings Mills,
Maryland 21117 ("Manager"), INTEGRATED HEALTH SERVICES FRANCHISING CO., INC., a
Delaware corporation, the address of which is 10065 Red Run Boulevard, Owings
Mills, MD 21117 ("Franchisor"), the entities listed on attached EXHIBIT A (each,
a "Subsidiary" and, collectively, the "Subsidiaries"), LYRIC HEALTH CARE
HOLDINGS III, INC., a Delaware corporation, the address of which is 10065 Red
Run Boulevard, Owings Mills, Maryland 21117 ("Master Lessee"), LYRIC HEALTH CARE
LLC, a Delaware limited liability company, the address of which is 10065 Red Run
Boulevard, Owings Mills, Maryland 21117 ("Lyric") and MONARCH PROPERTIES, LP, a
Delaware limited partnership, the address of which is 8889 Pelican Bay
Boulevard, Naples, Florida 34103 ("Master Lessor").
The circumstances underlying the execution of this Agreement are as
follows:
A. Capitalized terms used but not otherwise defined in this Agreement shall
have the respective meanings given them in Section 1 herein.
B. Concurrently herewith, Master Lessor has acquired from the Subsidiaries
the Facilities. Also concurrently herewith, Master Lessor and Master Lessee have
entered into the Master Lease and Master Lessee has subleased the Facilities to
the respective Subsidiaries who owned them immediately prior to Master Lessor's
acquisition of them. The obligations of Master Lessee and the respective
Subsidiaries under the Master Lease are secured by, among other things, (i) the
Lyric Guaranty and (ii) security interests in the Secured Property granted by
Master Lessee and each of the Subsidiaries to Master Lessor pursuant to the
Security Agreements.
C. Also concurrently herewith, Lyric has entered into the Master Management
Agreement with Manager, and with the consent of Master Lessee, each of the
Subsidiaries has entered into a Facility Management Agreement with Manager,
pursuant to which Manager has agreed to provide certain management services to
the respective Facilities. Lyric also has entered into a Master Franchise
Agreement with Franchisor, and with the consent of Master Lessee, each of the
Subsidiaries has entered into a Facility Franchise Agreement with Franchisor,
pursuant to which Franchisor has agreed to make available to Lyric and the
Subsidiaries certain trade names, trade marks and systems in connection with the
Subsidiaries' operation of the respective Facilities.
D. The Master Management Agreement provides for the payment to Manager of
certain Fees, including the Base Management Fee and the Incentive Management
Fee, and provides that Manager may make Manager Loans to the respective
Subsidiaries to provide working capital and/or to make capital or other
improvements to the Facilities.
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E. The Franchise Agreement also provides for the payment to Franchisor of
certain Fees, including the Franchise Fee.
F. Master Lessor is willing to consent to the Management Agreement only if
Manager agrees, among other things, that: (i) the Management Agreement,
including without limitation any provisions therein for the payment or
repayment, as the case may be, of any Fees and Manager Loans payable from time
to time, is subject and subordinate in all respects to the rights of Master
Lessor and the obligations of Lyric, Master Lessee and the Subsidiaries under
the Lease Documents; (ii) upon the occurrence of certain events as set forth in
this Agreement, Master Lessor shall have the right to terminate the respective
Facility Management Agreements; and (iii) Master Lessor, as owner of the
Facilities, will not be bound by any of the obligations of the Subsidiaries,
Master Lessee or Lyric under the Management Agreement or be responsible under
the Management Agreement in any capacity.
G. Master Lessor is willing to consent to the Franchise Agreement only if
Franchisor agrees, among other things, that: (i) the Franchise Agreement,
including without limitation any provisions therein for the payment of any Fees
payable from time to time, is subject and subordinate in all respects to the
rights of Master Lessor and the obligations of Lyric, Master Lessee and the
Subsidiaries under the Lease Documents; (ii) upon the occurrence of certain
events as set forth in this Agreement, Master Lessor shall have the right to
terminate the respective Facility Franchise Agreements; and (iii) Master Lessor,
as owner of the Facilities, will not be bound by any of the obligations of the
Subsidiaries, Master Lessee or Lyric under the Franchise Agreement or be
responsible under the Franchise Agreement in any capacity.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, each of the undersigned agrees as
follows:
1. DEFINITIONS. The following terms shall have the respective meanings
given them below:
"Annual Fee" means the "Annual Fee," as defined in the Facility Franchise
Agreement.
"Base Management Fee" means the "Base Management Fee," as defined in the
Management Agreement.
"Code" means the Federal Bankruptcy Code, 11 USC ss.101, et. seq., as the
same may be amended from time to time
"Continuing Annual Fee" means the "Continuing Annual Fee," as defined in
the Master Franchise Agreement.
"Deferred Franchise Fees" means any Franchise Fee (a) that Franchisor would
be entitled, pursuant to the Franchise Agreement, to receive during any calendar
month and (b) the payment of which is deferred for any reason, including as
required by any provision of this Agreement.
2
<PAGE>
"Deferred Management Fees" means any Base Management Fee and/or Incentive
Management Fee (a) that Manager would be entitled, pursuant to the Management
Agreement, to receive during any calendar month or fiscal quarter, as the case
may be, and (b) the payment of which is deferred for any reason, including as
required by any provision of this Agreement.
"Facilities" means the healthcare facilities described on attached EXHIBIT
A.
"Facility" means any of the Facilities.
"Facility Franchise Agreement" means each Facility Franchise Agreement
dated as of the date hereof among Franchisor, Lyric and a Subsidiary, consented
to by Master Lessee.
"Facility Funds" means the "Facility Funds," as defined in the Management
Agreement.
"Facility Management Agreement" means each Facility Management Agreement
dated as of the date hereof between Manager and a Subsidiary, consented to by
Master Lessee.
"Facility Sublease" means each Facility Sublease dated as of the date
hereof between Master Lessee and a Subsidiary.
"Fees" means any fees payable by Lyric, Master Lessee or a Subsidiary to
Manager or Franchisor pursuant to the Management Agreement or the Franchise
Agreement, including without limitation the Base Management Fee, the Incentive
Management Fee and any Franchise Fee.
"Financial Covenants" means the covenants of Lyric set forth in Section 13
of the Lyric Guaranty.
"Franchise Agreement" means, collectively, the Master Franchise Agreement
and each Facility Franchise Agreement.
"Franchise Fee" means any fee payable pursuant to the Franchise Agreement,
including without limitation the Annual Fee and the Continuing Annual Fee.
"Incentive Management Fee" means the "Incentive Management Fee," as defined
in the Management Agreement.
"Lease Documents" means, collectively, the Master Lease, the Facility
Subleases, the Lyric Guaranty and any other documents executed and/or delivered
by Master Lessee, Lyric or any of the Subsidiaries in connection with or
pursuant to the Master Lease and the Facility Subleases.
"Lyric Guaranty" means a Guaranty dated as of the date hereof executed by
Lyric and pursuant to which Lyric has guaranteed to Master Lessor the payment
and performance by Master Lessee and the Subsidiaries of their obligations under
the Master Lease and the Facility Subleases.
3
<PAGE>
"Management Agreement" means, collectively, the Management Agreement and
each Facility Management Agreement.
"Manager Loan(s)" means any loan(s) made by Manager to any of the
Subsidiaries pursuant to the Management Agreement, whether to provide working
capital or to make capital or other improvements to any of the Facilities.
"Master Franchise Agreement" means the Amended and Restated Master
Franchise Agreement dated as of the date hereof between Franchisor and Lyric.
"Master Lease" means the Master Lease dated as of the date hereof between
Master Lessor and Master Lessee.
"Master Management Agreement" means the Amended and Restated Master
Management Agreement dated as of the date hereof between Manager and Lyric.
"Owner Expenditures" means the "Owner Expenditures," as defined in Section
3.16(a) of the Master Management Agreement.
"Proprietary Materials" the trademarks, trade names, service marks,
computer software, trade dress, uniforms and copyrighted or copyrightable
manuals, contract forms and other document forms covered by the Franchise
Agreement.
"Secured Property" means the property of the Subsidiaries in which the
Subsidiaries and Master Lessee has granted to Master Lessor a security interest
pursuant to any of the Security Agreement.
"Security Agreement" means the Security Agreement dated as of the date
hereof among the respective Subsidiaries, Master Lessee and Master Lessor.
2. CONSENT. Subject to the terms and conditions of this Agreement, Master
Lessor hereby consents to the Management Agreement and the Franchise Agreement;
provided, however, that such consent shall not be deemed to be a waiver by
Master Lessor of any rights of the Master Lessor, or the duties and obligations
of the Master Lessee, under the Master Lease.
3. SUBORDINATION OF MANAGEMENT AGREEMENT.
(a) The rights of Manager and the obligations of Lyric, Master Lessee
and the Subsidiaries under the Management Agreement, and any renewals,
amendments, extensions, replacements, consolidations or substitutions thereof,
are and shall be subject and subordinate at all times and in all respects to the
rights of Master Lessor and all of the obligations of Lyric, Master Lessee and
the Subsidiaries under the Lease Documents and all amendments, extensions,
replacements, modifications, renewals or restatements thereof.
4
<PAGE>
(b) Without limiting the generality of Subsection (a) above, the
obligations of Lyric, Master Lessee and/or the Subsidiaries to pay or repay, as
the case may be, any Fees and/or Manager Loans under the Management Agreement
shall be and at all times remain subject and subordinate in all respects to all
of the obligations of Lyric, Master Lessee and the Subsidiaries to Master Lessor
under the Lease Documents.
(c) No portion of the Base Management Fee or Incentive Management Fee
or Deferred Management Fees shall be paid without the prior, written approval of
Master Lessor at any time after (i) the occurrence and continuance of an Event
of Default under the Master Lease or any Facility Sublease, or (ii) a default by
Lyric under the Lyric Guaranty that is not cured within any applicable grace or
cure period specified therein, or (iii) a default by any of the Subsidiaries,
Master Lessee, Lyric, Franchisor or Manager under this Agreement that is not
cured within any applicable grace or cure period specified herein.
(d) If (i) during the course of any fiscal year of a Subsidiary,
Manager has received any Incentive Management Fee and (ii) as of the end of such
fiscal year, Lyric is not in compliance with the Financial Covenants, then
Manager may retain such Fees only if and to the extent that the payment of such
Fees does not result in a violation by Lyric of the Financial Covenants as of
the end of such fiscal year, and Manager immediately shall repay to Master
Lessee or the applicable Subsidiary the excess. Manager shall deliver to Master
Lessor, within one hundred and twenty (120) days after the end of each fiscal
year of Master Lessee, a written reconciliation, in form and substance
satisfactory to Master Lessor, that sets forth (i) the aggregate Incentive
Management Fee actually paid to Manager during such fiscal year; (ii) the amount
of any Deferred Management Fees that have accrued during such fiscal year; and
(iii) such information as is required by Master Lessor to enable Master Lessor
to determine whether, as of the end of such fiscal year, Lyric is in compliance
with the Financial Covenants and the amount of Incentive Management Fee, if any,
that Manager is required to repay.
(e) If Manager accrues any Deferred Management Fees during any
calendar month or fiscal quarter of a Subsidiary, such Deferred Management Fees
may be paid to Manager only to the extent that the payment of such Deferred
Management Fees to Manager will not result in a violation by Lyric of the
Financial Covenants for the period during which such Deferred Management Fees
are paid to Manager.
(f) If Master Lessor terminates the Master Lease following an Event of
Default thereunder, Master Lessor shall have the right to terminate each
Facility Management Agreement pursuant to Section 8.1 of the Master Management
Agreement (which is incorporated into each Facility Management Agreement by
reference). Without limiting the generality of the foregoing, Manager, Master
Lessee and the Subsidiaries acknowledge and agree that, if Master Lessor (i)
terminates the Master Lease or (ii) recovers possession of any Facility in
accordance with the provisions of the Master Lease, then Master Lessor shall
have the right, immediately upon written notice to Manager, to terminate the
Facility Management Agreement relating to such Facility. If Master Lessor
terminates the Management Agreement in accordance with this Section, the
following provisions shall apply:
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<PAGE>
(i) Manager agrees to extend all reasonable cooperation to Master
Lessor and its nominee in order to accomplish an orderly transition of
management of the applicable Facility, and, if requested by such
party, Manager shall continue to manage the Facility on an "at will"
basis for a period not to exceed ninety (90) days from the effective
date of such termination, until such time as an orderly transfer of
management has been accomplished.
(ii) In order to further the orderly transition of management of
the applicable Facility, Manager agrees to:
(A) Promptly provide Master Lessor or its nominee with an
accounting of Manager's activities during the term of the
applicable Facility Management Agreement;
(B) Promptly turn over to Master Lessor or its nominee all
funds and other property of the applicable Subsidiary that is in
Manager's possession or under its control;
(C) Provide to Master Lessor or its nominee all information
requested by Master Lessor or its nominee and necessary for the
preparation and filing of any and all necessary applications and
notifications of any federal or state governmental authority
having jurisdiction over a change in the operational control of
the applicable Facility, and use its commercially reasonable
efforts to cause the operating health care licenses to be
transferred to Master Lessor or its nominee; and
(D) Supply to Master Lessor or its nominee any and all other
information that reasonably may be required in order to effect an
orderly transfer of the applicable Facility.
(iii) Neither Master Lessor nor its nominee shall be responsible
for the payment to Manager of any Fees payable to Manager pursuant to
the applicable Facility Management Agreement and attributable to the
period prior to the date on which Master Lessor terminates the Master
Lease with respect to the applicable Facility or recovers possession
of the applicable Facility in accordance with the provisions of the
Master Lease.
4. OTHER COVENANTS OF MANAGER. Manager hereby specifically agrees,
represents and acknowledges to Master Lessor the following.
(a) Manager has reviewed and consents to and approves the terms and
conditions of the Master Lease.
(b) Master Lessor shall not be deemed an "Operator", as that term is
normally
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<PAGE>
used in the nursing care industry, and there shall be no obligation by Master
Lessor to satisfy or perform any of the terms, conditions, obligations or duties
contained in the Management Agreement. Manager shall continue to look solely to
Master Lessee, Lyric and the Subsidiaries for all indemnifications, duties and
obligations of the "Operator" arising under the Management Agreement. Master
Lessor shall have no fiduciary duty to Manager whatsoever, and neither Master
Lessee nor the Subsidiaries shall, under any circumstance, be deemed to act as
Master Lessor's agent in the performance of the obligations of the owner under
the Management Agreement.
(c) Manager, as the Manager under the Management Agreement, shall
extend all reasonable and necessary cooperation to Master Lessor, Lyric and the
Subsidiaries, in order to permit Master Lessee, Lyric and the Subsidiaries to
provide copies to Master Lessor of all financial statements, reports or notices
required by the terms and conditions of the Master Lease.
(d) Manager shall not cause or, by failure to perform under the
Management Agreement, create a default under the Master Lease. Manager shall not
amend or modify the Management Agreement in any material respect without Master
Lessor's prior written consent, which consent shall not be unreasonably
withheld.
(e) Manager agrees that any transfer of the Master Management
Agreement other than to the transferee in a Transfer as to which Master Lessor's
approval is not required under the Master Lease, or any substitution of parties
thereunder other than the substitution of the transferee in a Transfer as to
which Master Lessor's approval is not required under the Master Lease, shall
require the prior consent of Master Lessor.
5. SUBORDINATION OF FRANCHISE AGREEMENT.
(a) The rights of Franchisor and the obligations of Lyric, Master
Lessee and the Subsidiaries under the Franchise Agreement, and any renewals,
amendments, extensions, replacements, consolidations or substitutions thereof,
are and shall be subject and subordinate at all times and in all respects to the
rights of Master Lessor and all of the obligations of Lyric, Master Lessee and
the Subsidiaries under the Lease Documents and all amendments, extensions,
replacements, modifications, renewals or restatements thereof.
(b) Without limiting the generality of Subsection (a) above, the
obligations of Lyric, Master Lessee and/or the Subsidiaries to pay or repay, as
the case may be, any Fees under the Franchise Agreement shall be and at all
times remain subject and subordinate in all respects to all of the obligations
of Lyric, Master Lessee and the Subsidiaries to Master Lessor under the Lease
Documents.
(c) No portion of any Franchise Fee or Deferred Franchise Fees shall
be paid at any time after (i) the occurrence of an Event of Default under the
Master Lease, or (ii) a default by Lyric under the Lyric Guaranty, or (iii) a
default by any of the Subsidiaries, Master Lessee, Lyric or Franchisor under
this Agreement.
7
<PAGE>
(d) If Franchisor accrues any Deferred Franchise Fees during any
calendar month or fiscal quarter of a Subsidiary, such Deferred Franchise Fees
may be paid to Franchisor only to the extent that the payment of such Deferred
Franchise Fees to Franchisor will not result in a violation by Lyric of the
Financial Covenants for the period during which such Deferred Franchise Fees are
paid to Franchisor.
(e) If Master Lessor terminates the Master Lease following an Event of
Default thereunder, Master Lessor shall have the right to terminate each
Facility Franchise Agreement pursuant to Section 8.1 of the Master Franchise
Agreement (which is incorporated into each Facility Franchise Agreement by
reference). Without limiting the generality of the foregoing, Franchisor, Master
Lessee and the Subsidiaries acknowledge and agree that, if Master Lessor (i)
terminates the Master Lease or (ii) recovers possession of any Facility in
accordance with the provisions of the Master Lease, then Master Lessor shall
have the right, immediately upon written notice to Franchisor, to terminate the
Facility Franchise Agreement relating to such Facility. If Master Lessor
terminates the Franchise Agreement in accordance with this Section, the
following provisions shall apply:
(i) Franchisor agrees to extend all reasonable cooperation to
Master Lessor and its nominee in order to accomplish an orderly
transition of Franchise of the applicable Facility.
(ii) Neither Master Lessor nor its nominee shall be responsible
for the payment to Franchisor of any Fees payable to Franchisor
pursuant to the applicable Facility Franchise Agreement and
attributable to the period prior to the date on which Master Lessor
terminates the Master Lease with respect to the applicable Facility or
recovers possession of the applicable Facility in accordance with the
provisions of the Master Lease.
(iii) Franchisor shall deliver to Master Lessor, within thirty
(30) days after Franchisor's receipt of Master Lessor's notice of
termination, written notice identifying with specificity the
Proprietary Materials covered by the Franchise Agreement. Master
Lessor and its nominee shall not be permitted the continued use of any
Proprietary Materials in connection with the operation of a Facility.
Master Lessor and its nominee shall have no liability to Franchisor as
a result of the continued use by Master Lessor or its nominee, in
connection with its operation of any of the Facilities, of any and all
other Proprietary Materials and any other protocols, methods,
procedures, systems and ideas used by Manager in connection with its
operation of any Facility prior to the date on which the applicable
Facility Management Agreement and/or Facility Franchise Agreement is
terminated.
6. OTHER COVENANTS OF FRANCHISOR.
Notwithstanding anything to the contrary set forth in the Franchise
Agreement, if and to
8
<PAGE>
the extent that a conflict exists between the obligations of Master Lessee,
Lyric and/or any of the Subsidiaries pursuant to the Master Franchise Agreement
(including without limitation pursuant to Sections 6.12 and 13.4 thereof) and
the obligations of Master Lessee, Lyric and/or any of the Subsidiaries pursuant
to the Lease Documents, the terms of the Master Lease shall govern, and neither
Master Lessee, Lyric nor any Subsidiary shall be deemed to be in default under
the Franchise Agreement as a result of such conflict.
7. BANKRUPTCY. If the Master Lessee or the Subsidiaries, or any one of
them, commences a case under any Chapter of the Code, each of Manager and
Franchisor agrees and covenants with Master Lessor as follows:
(a) Manager or Franchisor, as the case may be, will not file any
motion or other pleading seeking relief from its obligations under the
Management Agreement or the Franchise Agreement, as the case may be,
including without limitation the filing of a motion to cause such debtor to
assume or reject the Management Agreement or Franchise Agreement, as the
case may be, prior to the confirmation of a plan of reorganization.
(b) Manager or Franchisor, as the case may be, will not serve upon any
creditors' or other committee appointed in the bankruptcy case without
Master Lessor's prior written consent, which Master Lessor may withhold in
its sole and absolute discretion.
(c) Manager or Franchisor, as the case may be, will not object to the
sale of property (including all or a portion of any Facility) either
pursuant to Section 363 of the Code or a chapter 11 plan without Master
Lessor's prior written consent, which Master Lessor may withhold in its
sole and absolute discretion.
(d) Manager or Franchisor, as the case may be, will not commence, join
in or otherwise support or cooperate with, in any manner whatsoever, (i)
any objection to Master Lessor's claim; (ii) any proceeding to determine
the value of any of the assets serving as collateral security to Master
Lessor or objection to a valuation of any of the assets serving as
collateral security to Master Lessor as determined by Master Lessor, unless
compelled to do so by duly issued process; or (iii) any action to
subordinate the claims, liens and/or security interests held by Master
Lessor.
(e) Manager or Franchisor, as the case may be, will not file, join in
or otherwise support in any manner whatsoever any motion or other pleading
seeking the appointment of a trustee or examiner without Master Lessor's
prior written consent, which Master Lessor may withhold in its sole and
absolute discretion.
(f) Manager or Franchisor, as the case may be, will not file, join in
or otherwise support in any manner whatsoever any motion or other pleading
seeking (i) the conversion of the bankruptcy case to one under another
Chapter of the Code; or (ii) the
9
<PAGE>
dismissal of the case, without Master Lessor's written consent, which
Master Lessor may withhold in its sole and absolute discretion.
(g) Manager or Franchisor, as the case may be, will not object to any
disclosure statement filed in the bankruptcy case without Master Lessor's
prior written consent, which Master Lessor may withhold in its sole and
absolute discretion.
(h) Manager or Franchisor, as the case may be, will not propose any
plan (or any modifications thereof) without Master Lessor's prior written
consent, which Master Lessor may withhold in its sole and absolute
discretion.
(i) Manager or Franchisor, as the case may be, will not vote to accept
or reject any plan (or any modifications thereof) without Master Lessor's
prior written consent, which Master Lessor may withhold in its sole and
absolute discretion.
(j) Manager or Franchisor, as the case may be, shall vote in favor of
any plan proposed by Master Lessor unless Master Lessor otherwise directs
in writing.
(k) Manager or Franchisor, as the case may be, will not object to
confirmation of any plan (or any modifications thereof) without Master
Lessor's prior written consent, which Master Lessor may withhold in its
sole and absolute discretion.
(l) Manager or Franchisor, as the case may be, will not seek
revocation of an order confirming any plan without Master Lessor's prior
written consent, which Master Lessor may withhold in its sole and absolute
discretion.
8. MISCELLANEOUS.
(a) This Agreement constitutes the sole agreement between Manager,
Franchisor, Lyric, the Subsidiaries, Master Lessee and Master Lessor with
respect to the matters set forth in this Agreement. Any promise, representation,
inducement or condition concerning or respecting the matters set forth in this
Agreement that is not expressly set forth in this Agreement shall be of no force
and effect. Manager, Franchisor, Lyric, Master Lessee and the Subsidiaries
represent to Master Lessor that, except for the Management Agreement and the
Franchise Agreement and as otherwise expressly set forth herein, there are no
other oral or written agreements, promises, representations, inducements or
conditions between the parties involving, directly or indirectly, the subject
matters set forth in this Agreement.
(b) All of the covenants contained herein shall be binding upon and
shall inure to the benefit of the successors and assigns of the Manager,
Franchisor, Lyric, the Subsidiaries, Master Lessee and Master Lessor.
(c) Any Fees paid to Manager or Franchisor in violation of the
provisions of this Agreement shall be deemed to have been made or transferred in
trust for Master Lessor, and
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Manager or Franchisor, as the case may be, immediately shall pay or transfer the
same to Master Lessor, at any time that an Event of Default exists and is
continuing under the Master Lease or to Master Lessee or the applicable
Subsidiar(y)(ies) at any other time during the term of the Master Lease.
(d) This Agreement may not be amended by the conduct or further
agreement of Manager, Franchisor, Lyric, Master Lessee, the Subsidiaries or
Master Lessor, except by a written agreement that is executed by parties to be
bound and that specifically provides that it is an amendment to this Agreement.
(e) This Agreement shall be construed in each and every respect in
accordance with the laws of the State of New York. If any provision in this
Agreement is in conflict with such laws, or is otherwise unenforceable for any
reason whatsoever, such provision shall be deemed null and void to the extent of
such conflict or unenforceability, and it shall be severed from and shall not
invalidate any other provision of this Agreement.
(f) The waiver or non-enforcement by Master Lessor of any breach of
any provision of this Agreement shall not be deemed a continuing waiver or a
waiver of any subsequent breach of the same or any provision of this instrument.
(g) Each of Manager and Franchisor agrees that Master Lessor shall be
a third party beneficiary of the representations, warranties and covenants of
Manager or Franchisor, as the case may be, under the Management Agreement or the
Franchise Agreement, as the case may be.
(h) Notice to Master Lessor shall be given at substantially the same
time as notice to Manager, Franchisor, Lyric, Master Lessee or the Subsidiaries,
as applicable. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered or mailed, registered or certified mail, postage prepaid, or by
national overnight delivery service such as Federal Express or DHL, properly
addressed as follows:
If to Manager or To its address set forth on Page 1
Franchisor: of this Agreement
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: (410) 998 - 8768
Facsimile No.: (410) 998 - 8695
If to any of the To the address of the Master Lessee
Subsidiaries:
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If to Master Lessee: To its address set forth on Page 1
of this Agreement
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: (410) 998-8768
Facsimile No.: (410) 998-8695
If to Master Lessor: To its address set forth on Page 1
of this Agreement
Attn: John B. Poole
Telephone No.: (941) 598-5605
Facsimile No.: (941) 566-6082
with a copy to:
LeBoeuf, Lamb, Greene & MacRae L.L.P.
125 West 55th Street
New York, N.Y. 10019-5389
Attention: John R. Fallon, Jr., Esq.
Telephone No.: (212) 424-8279
Facsimile No.: (212) 424-8500
(i) Each of Manager and Franchisor shall furnish to Master Lessor
copies of each report that it furnishes to each Subsidiary. Such reports shall
be furnished to Master Lessor at substantially the same time as they are
furnished to the applicable Subsidiary.
(j) Each of Lyric, Master Lessee, the Subsidiaries, Manager and
Franchisor shall each furnish to Master Lessor copies of any notices of default
that one sends to the other, but inadvertent failure to do so shall not be a
default hereunder or under any other agreement in effect with Master Lessor.
SIGNATURE PAGES FOLLOW
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consent and
Subordination Agreement as of the date first above written.
MANAGER:
IHS FACILITY MANAGEMENT, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
FRANCHISOR:
INTEGRATED HEALTH SERVICES
FRANCHISING CO., INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
SUBSIDIARIES:
[INSERT SUBSIDIARIES]
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MASTER LESSEE:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
S-1
<PAGE>
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.,
its Member
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MASTER LESSOR:
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
S-2
INDEMNITY AGREEMENT
BETWEEN
INTEGRATED HEALTH SERVICES, INC.
AND
MONARCH PROPERTIES, INC.
DATED AS OF JUNE 23, 1998
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "Indemnity Agreement") is executed and
delivered as of the 23rd day of June, 1998 (the "Effective Date") between
INTEGRATED HEALTH SERVICES, INC., a Delaware corporation ("IHS") and MONARCH
PROPERTIES, LP, a Delaware limited partnership ("Monarch").
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Capitalized terms used but not otherwise defined herein have the
respective meanings given them in the Facilities Purchase Agreement, dated the
date hereof, among the entities described on attached EXHIBIT A (each a "Seller"
and, collectively, "Sellers"), IHS and Monarch (the "Purchase Agreement"), or,
if not defined in the Purchase Agreement, then the respective meanings given
them in the Master Lease, dated the date hereof, between Lyric Health Care
Holdings III, Inc. ("Lyric Holdings") and Monarch.
B. Lyric Holdings is a wholly owned subsidiary of Lyric Health Care LLC.
Sellers are corporations that are wholly owned by Lyric Holdings. IHS is a 50%
member of Lyric. Sellers also are the respective owners of Sellers' Assets.
Sellers desire to sell, and Purchaser desires to acquire and lease to Lyric
Holdings, Sellers' Assets. The purchase and lease of Seller's Assets will
benefit IHS.
C. As a condition precedent to its agreement to purchase Sellers' Assets,
Monarch has required that IHS indemnify Monarch on the terms and conditions
hereinafter set forth with respect to certain environmental matters.
NOW, THEREFORE, IHS and Monarch agree as follows:
1. INDEMNIFICATION. IHS shall indemnify and hold Monarch harmless from and
against any and all damages, losses, liabilities, costs, actions, suits,
proceedings, demands, assessments, and judgments, including, but not limited to,
reasonable and documented attorneys' fees and reasonable costs and expenses of
litigation, arising out of or in any manner related to the claims of third
parties resulting from:
(a) Any failure of Sellers and Lyric Holdings to complete as and when
required to do so by the terms of the Escrow Agreement the environmental
remediation described on Exhibit B thereof;
(b) Any failure of Sellers and Lyric Holdings to complete if, as and
when required to do so by the terms of the Master Lease such environmental
remediation as may be required by Article 18 thereof.
2. PROCEDURE. If Monarch asserts that IHS is subject to a claim for
indemnification hereunder, Monarch shall describe the claim in sufficient detail
in order to permit IHS to evaluate
1
<PAGE>
the nature and cause of the claim. If the asserted claim arises or is in
connection with a claim, suit, or demand filed by a third party, IHS shall be
entitled to defend against such claim with counsel reasonably satisfactory to
Monarch. Monarch may also employ counsel of its own, but the costs of Monarch's
separate counsel shall be borne by Monarch as long as IHS continues to so
defend. If IHS fails to respond or does not admit responsibility for
indemnification, Monarch may take such necessary steps to defend itself and any
reasonable costs associated therewith may be included as part of the asserted
claim for indemnification. If the claims do not arise from a third party, within
thirty (30) days of receipt of written notice from Monarch describing the claim
in reasonable detail, IHS shall notify Monarch as to whether or not it believes
such claim is covered by this Indemnity Agreement, and if IHS believes such
claim is not covered, including the specific reasons for its position. With
respect to claims by third parties, (a) if Monarch declines to accept a bona
fide offer of settlement that is recommended by the IHS, which settlement
without cost to Monarch releases Monarch from all liability, the maximum
liability of IHS shall not exceed that amount for which it would have been
liable had such settlement been accepted, and (b) if IHS declines to accept a
bona fide offer of settlement recommended by Monarch, IHS shall be liable for
whatever outcome results from such third party claim, provided, however, that
IHS shall not settle any claim covered by this Indemnity Agreement without
either the written consent of Monarch or a full and complete release of Monarch.
3. 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 or hand delivery to the following
address:
To IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: 410/998-8768
Facsimile No.: 410/998-8695
To Monarch: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941/598-5605
Facsimile No.: 941/566-6082
2
<PAGE>
With copy to John R. Fallon, Jr.
(which shall not LeBoeuf, Lamb, Greene & MacRae, L.L.P.
constitute notice): 125 West 55th Street
New York, New York 10019-5389
Telephone No.: 212/424-8279
Facsimile No.: 212/424-8500
Notices shall be deemed given upon actual receipt.
4. CHOICE OF LAW. This Indemnity Agreement shall be governed by and
construed in accordance with the laws of New York, except as to matters which
under the laws of the State, or under applicable procedural conflicts of laws
rules, require the application of laws of the States in which the Leased
Property is located.
IHS CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL
COURTS OF THE STATES OF NEW YORK AND THE STATES IN WHICH THE LEASED PROPERTY IS
LOCATED, AND AGREES THAT ALL DISPUTES CONCERNING THIS INDEMNITY AGREEMENT BE
HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK OR THE
STATES IN WHICH THE LEASED PROPERTY IS LOCATED. IHS AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF
THE STATE OF NEW YORK OR THE STATES IN WHICH THE LEASED PROPERTY IS LOCATED AND
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OF NEW YORK OR THE STATES IN WHICH THE LEASED PROPERTY IS LOCATED.
SIGNATURE PAGE FOLLOWS
3
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Indemnity Agreement as
of the day and year first set forth above.
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
S-1
RIGHT OF FIRST OFFER AGREEMENT
AMONG
INTEGRATED HEALTH SERVICES, INC.,
MONARCH PROPERTIES, INC.
AND
MONARCH PROPERTIES, LP
DATED AS OF JUNE __, 1998
<PAGE>
RIGHT OF FIRST OFFER AGREEMENT
THIS RIGHT OF FIRST OFFER AGREEMENT (this "Agreement") is made as of the
___ day of June, 1998, among Integrated Health Services, Inc., a Maryland
corporation, with principal offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117 ("IHS"), Monarch Properties, Inc., a Maryland corporation, with
principal offices at 8889 Pelican Bay Boulevard, Naples, Florida 34108
("Monarch") and Monarch Properties, LP, a Delaware limited partnership, with
principal offices at 8889 Pelican Bay Boulevard, Naples, Florida 34108 ("Monarch
LP") (Monarch and Monarch LP, collectively, the "REIT").
BACKGROUND:
A. The REIT has undertaken, or concurrently with the offering of shares of
common stock in Monarch (the "Offering"), will undertake, a series of
transactions involving the REIT, IHS and certain IHS healthcare properties,
including the acquisition of certain skilled nursing facilities and specialty
hospitals owned by IHS through its subsidiaries.
B. The REIT and IHS have determined that it is in their mutual best
interest for IHS to grant the REIT a right of first offer with respect to any
sale and leaseback or financing transactions involving all skilled nursing
facilities, specialty hospitals, assisted living facilities, hospitals, nursing
homes or other geriatric care or health care facilities now owned or hereafter
acquired by IHS or its subsidiaries that involve transactions of the type
normally engaged in by the REIT.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings (applicable to both the singular and plural terms of the
words defined):
1.1. "Affiliate" means: (a) any other Person (as defined below)
directly or indirectly controlling, controlled by, or under common control with
the Person to which such term applies or (b) as to any natural Person, such
Person's spouse, child, grandchild, sibling, parent, aunt, uncle or cousin as
well as the spouse of any of the foregoing. In addition, (i) as to any
corporation, real estate investment trust or business trust, any Person with any
of the foregoing relationships to any Person in control of such corporation,
real estate investment trust or business trust shall be deemed to be an
Affiliate of such corporation, real estate investment trust or business trust,
and (ii) as to any partnership or limited liability company, any Person with any
of the foregoing relationships to any Person in control of such partnership or
limited liability company as a general partner or managing member or otherwise
shall be deemed to be an Affiliate of such partnership or limited liability
company. For
-2-
<PAGE>
purposes of this Agreement, the term "control" as applied to any Person means
the possession either directly or indirectly, of the power to direct or cause
the direction of the management, policies and decision-making of such Person
whether through the ownership of voting interest, by contract or otherwise. The
term "control" also shall include, without limitation, the possession of direct
or indirect equity or beneficial interest in more than fifty percent (50%) of
the profits or voting control of any entity.
1.2. "Basic Business Terms" means, at a minimum, the following
proposed transaction terms: (a) the purchase price; (b) the amount and terms of
any assumable third party financing; (c) the state of title to be transferred;
(d) the proposed date of closing; (e) the lease term and lessee; (f) the form of
consideration; (g) the loan amount and interest rate; and (h) all other material
business terms and conditions reasonably necessary to determine acceptance of
the proposed sale and leaseback or financing transaction.
1.3. "Covered Facility" means a skilled nursing facility, speciality
hospital, assisted living facility, hospital, geriatric care facility, nursing
home or other healthcare facility of the kind normally acquired or financed by
the REIT.
1.4. "Finance" means providing the funds to finance the construction,
acquisition or refinancing of one or more Covered Facilities (whether
individually or together with one or more other Covered Facilities). The terms
"Financing" and "Financed" shall have meanings correlative to the foregoing.
1.5. "Financing Notice" means a written notice delivered to IHS by the
REIT stating that it has accepted a Financing Offer.
1.6. "Financing Offer" means a bona fide written offer delivered to
the REIT by IHS stating that IHS or an IHS Affiliate desires to obtain Financing
for one or more Covered Facility, which notice sets forth (a) the location and,
if applicable, the name of each Covered Facility, (b) the proposed use of the
Financing (e.g., construction, acquisition or refinancing), (c) the estimated
amount of such Financing, and (d) the Basic Business Terms with respect to such
proposed Financing.
1.7. "Leaseback" means the lease or sublease by lease, master lease or
sublease whereby IHS or any IHS Affiliate leases or subleases a Covered Facility
from the REIT after a Transfer.
1.8. "Person" shall mean a natural person or a corporation, real
estate investment trust, business trust, partnership, trust, limited liability
company or other entity.
-3-
<PAGE>
1.9. "Purchase and Leaseback Notice" means a written notice delivered
to IHS by the REIT stating that it has accepted Transfer Leaseback of one or
more of the Covered Facilities described in the Purchase and Leaseback Offer.
1.10. "Purchase and Leaseback Offer" shall mean a bona fide written
offer made to the REIT by IHS proposing to Transfer and Leaseback transaction
involving IHS or an IHS Affiliate and the REIT, for one or more Covered
Facilities, which Purchase and Leaseback Offer sets forth (a) the name and
location of each Covered Facility subject to the Purchase and Leaseback Offer
and (b) the Basic Business Terms of the proposed purchase and leaseback of the
Covered Facilities.
1.11. "Transfer" means the sale, transfer of control or conveyance by
deed, assignment, quitclaim or otherwise whereby IHS or any IHS Affiliate
transfers its ownership interest in a Covered Facility. The terms "Transferring"
and "Transferred" shall have meanings correlative to the foregoing.
2. Term. The term of this Agreement (the "Term") shall commence as of the
date first above written and shall continue for four (4) years. Thereafter, this
Agreement shall automatically renew for successive one-year renewal Terms unless
IHS or the REIT shall have given written notice to the other, not less than six
(6) months prior to the end of the initial Term or any such renewal Term, that
it has elected to terminate this Agreement as of the end of the then current
Term.
3. Right of First Offer and Other Rights of the REIT. IHS hereby grants to
the REIT the following rights:
3.1. If, during the Term, IHS or an IHS Affiliate desires to Transfer
and Leaseback one or more Covered Facilities owned by IHS or an IHS Affiliate in
a transaction or transactions of the type normally engaged in by the REIT, IHS
shall first offer to the REIT (or at the election of the REIT, to an Affiliate
of the REIT) the opportunity, through a Purchase and Leaseback Offer, to
purchase and leaseback to IHS or an IHS Affiliate, as designated by IHS, the
applicable Covered Facilities on the same terms and conditions as contained in
any Purchase and Leaseback Offer. The REIT may accept the Purchase and Leaseback
Offer by delivery to IHS of the Purchase and Leaseback Notice within [twenty
(20)] days of receipt of the Purchase and Leaseback Offer. Upon the written
request of the REIT, IHS shall deliver to the REIT copies of all material
financial information, documents, agreements and information on the Covered
Facilities reasonably necessary for the REIT to review and analyze the Purchase
and Leaseback Offer. The parties shall enter into a definitive Purchase
Agreement and Master Lease within [fifteen (15)] business days after the
acceptance of a Purchase and Leaseback Offer by the REIT.
3.2. If, during the Term, IHS or an IHS Affiliate determines to
Finance one or more Covered Facilities presently owned by IHS or an IHS
Affiliate in
-4-
<PAGE>
a transaction of the type normally engaged in by the REIT, IHS shall first offer
to the REIT (or at the election of the REIT, to an Affiliate of the REIT) the
opportunity through a Finance Offer, to provide Financing with respect to such
Covered Facilities on the same terms and conditions as contained in any Finance
Offer. The REIT may accept the Finance Offer by delivery to IHS of the Finance
Notice within [twenty (20)] days of receipt of the Finance Offer. Upon the
written request of the REIT, IHS shall deliver to the REIT copies of all
material financial information, documents, agreements and information on the
Covered Facilities reasonably necessary for the REIT to review and analyze the
Finance Offer. The parties shall enter into a definitive Loan Agreement within
[fifteen (15)] business days after the acceptance of a Finance Offer by the
REIT.
4. Failure to Exercise Right of First Offer. If the REIT does not elect to
exercise a right of first offer granted under this Agreement on the terms and
conditions set forth herein, then, during the six-month period ("Six-Month
Unrestricted Period") following the expiration of the right of first offer, IHS
may only Transfer and Leaseback or Finance the applicable Covered Facilities on
the same terms and conditions contained in the most recently delivered Purchase
and Leaseback Offer or Finance Offer, as the case may be. If, upon the
expiration of the Six-Month Unrestricted Period, IHS has not consummated a
Transfer or Financing with respect to the applicable Covered Facilities, then
IHS may not Transfer or lease the applicable Covered Facilities without giving a
new Purchase Offer, Lease Offer, Finance Offer or Off-Balance Sheet Financing
Offer, as the case may be, in accordance with the terms and conditions of this
Agreement.
5. Miscellaneous.
5.1. Complete Agreement; Construction. This Agreement, and the other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter thereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter.
5.2. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to the
principles of conflicts of laws thereof.
5.3. Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed to be duly given upon
actual receipt, and shall be delivered (a) in person, (b) by registered or
certified mail, postage prepaid, (c) by nationally recognized overnight delivery
service or (d) by facsimile or other generally accepted means of electronic
transmission, provided that a copy of any notice delivered pursuant to this
clause (a) shall also be sent contemporaneously pursuant to clause (b),
addressed as follows (or to such other address(es) as may be specified by like
notice to the other parties):
To IHS: Integrated Health Services, Inc.
-5-
<PAGE>
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Fax No.: 410-998-8716
Phone No.: 410-998-8768
Copy to: Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Fax No.: 212-447-5428
Phone No.: 212-447-1100
To the REIT: Monarch Properties, Inc.
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attention: John B. Poole
Fax No.: 941-566-6082
Phone No.: 941-598-5605
Copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: John R. Fallon, Jr., Esq.
Fax No.: 212-424-8500
Phone No.: 212-424-8279
5.4. Amendments. No amendment, modification or supplement to this
Agreement shall be binding on any party hereto unless it is in writing and
signed by the parties in interest.
5.5. Successors and Assigns. Neither this Agreement nor any rights or
obligations hereunder shall be assignable by a party to this Agreement without
the prior, express written consent of the other parties. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and permitted assigns.
5.6. No Third-Party Beneficiaries. This Agreement is solely for the
benefit of the parties to this Agreement and shall not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
-6-
<PAGE>
5.7. Titles and Headings. Titles and headings to paragraphs and
sections in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning of this Agreement.
5.8. Maximum Legal Enforceability; Time of Essence. The provisions
hereof shall be considered severable such that if any provision or part hereof
is ever held to be invalid, void or illegal under any law or ruling, all
remaining provisions hereof shall remain in full force and effect to the maximum
extent permitted by law. Any non-material provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction
be, ineffective to the extent of such prohibition or unenforceability without
invalidating or rendering unenforceable any of the remaining provisions hereof,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
Without prejudice to any rights or remedies otherwise available to any party to
this Agreement, each party hereto acknowledges that damages would not be an
adequate remedy for any breach of the provisions of this Agreement and agrees
that the obligations of the parties hereunder shall be specifically enforceable.
Time shall be of the essence as to each and every provision of this Agreement.
5.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
5.10. Further Assurances. The parties to this Agreement will execute
and deliver or cause the execution and delivery of such further instruments and
documents, and will take such other actions, as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
5.11. Non-Competition. During the Term of this Agreement, IHS or any
IHS Affiliate may not construct a Covered Facility in competition with the REIT
at any location within ten (10) miles of any Covered Facility owned, leased or
operated by the REIT. Nothing in this Agreement shall require IHS or any IHS
Affiliate to terminate any construction of a Covered Facility which did not
constitute a breach of this Agreement at the time construction of the Covered
Facility was first begun by IHS or any IHS Affiliate.
SIGNATURE PAGE FOLLOWS
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Right of First
Offer Agreement to be duly executed as of the day and year first written above.
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MONARCH PROPERTIES, INC.
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
-8-
PURCHASE OPTION AGREEMENT
AMONG
MONARCH PROPERTIES, LP,
INTEGRATED HEALTH SERVICES, INC.
AND
LYRIC HEALTH CARE LLC
DATED AS OF JUNE __, 1998
<PAGE>
Section Page
TABLE OF CONTENTS
Section Page
1. Grant of Option............................................................2
2. Option Period; Option Deposits.............................................2
3. Exercise of the Option.....................................................2
4. Sale and Purchase of the Properties........................................3
5. Purchase Price.............................................................3
6. Purchase Option Deposits...................................................4
7. Survey and Engineering.....................................................5
8. Examination of Title.......................................................5
9. Option Closing and Option Closing Date; Transaction Costs and Expenses.....6
10. Seller's Representations and Warranties....................................7
11. Settlement Requirements....................................................8
12. Covenants and Agreements of Seller.........................................8
13. Defaults...................................................................9
14. Notices....................................................................9
15. Assignment and Binding Effect.............................................10
16. Evidence of Title.........................................................10
17. General Provisions........................................................10
18. Survival of Provisions....................................................11
19. Severability..............................................................11
20. Governing Law.............................................................11
21. Memoranda of Purchase Option..............................................11
22. Agreements and Covenants by Lyric.........................................11
i
<PAGE>
PURCHASE OPTION AGREEMENT
THIS PURCHASE OPTION AGREEMENT (this "Option Agreement") is made and
entered into as of the ____ day of June, 1998 among Integrated Health Services,
Inc., a Delaware corporation, with principal offices at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 ("Seller"), Monarch Properties, LP, a Delaware
limited partnership, with principal offices at 8889 Pelican Bay Boulevard,
Naples, Florida 34108 ("Buyer") and Lyric Health Care LLC, a Delaware limited
liability company, with principal offices at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("Lyric").
W I T N E S S E T H:
WHEREAS, Seller is the present owner of the Properties (hereinafter
defined), including the real property, improvements and personal property
constituting each of the health care facilities (individually, the "Facility"
or, collectively, the "Facilities"), situated at the addresses described on
Exhibit A hereto; and
WHEREAS, Seller has agreed to grant Buyer options to purchase each of the
Properties on the terms and conditions of this Option Agreement in consideration
of (i) the execution and delivery of the Facilities Purchase Agreement (the
"Facilities Purchase Agreement"), dated as of June __, 1998, among Seller, Buyer
and the entities described on Exhibit A to the Facilities Purchase Agreement and
(ii) Buyer's performance of its obligations under the Facilities Purchase
Agreement; and
WHEREAS, contemporaneously with the execution and delivery of the
Facilities Purchase Agreement (i) Lyric Health Care Holdings III, Inc. ("Lyric
III"), a wholly owned subsidiary of Lyric, executed a Master Lease (the "Master
Lease"), dated as of June ___, 1998, between Buyer and Lyric III, for the
leasing of the facilities sold to Buyer by the entities described on Exhibit A
to the Facilities Purchase Agreement and (ii) each of the entities described on
Exhibit A to the Facilities Purchase Agreement (collectively, "Facility
Subtenants"), each a wholly owned subsidiary of Lyric III, executed a Facility
Sublease ("Facility Sublease"), each dated as of June ___, 1998, between each
Facility Subtenant and Buyer, for the subleasing of the facilities sold to Buyer
by the Facility Subtenants under the Facilities Purchase Agreement.
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged by the parties, Seller, Buyer and Lyric agree as follows:
<PAGE>
1. GRANT OF OPTION. Seller hereby grants and conveys to Buyer the
irrevocable and exclusive right and option (the "Option") to purchase any or all
of the Properties described on Exhibits B-1 through B-10 hereto from Seller,
upon the terms and conditions of this Option Agreement. The defined terms
"Properties" or "Property", as used in this Option Agreement, shall mean the
premises described on Exhibits B-1 through B-10 hereto, including the Facilities
located thereon. The defined term "Seller", as used in this Option Agreement,
shall include the subsidiary entities described on Exhibit A hereto.
2. OPTION PERIOD; OPTION DEPOSITS. The Option may be exercised by Buyer in
the manner specified in Section 3 hereof, at any time and from time to time
during the option period commencing on the Effective Date, as defined in the
Facilities Purchase Agreement (the "Option Date") and will contemporaneously
terminate at 12:00 midnight, Eastern Standard Time, on the date that is
twenty-four (24) months after the Option Date (the "Initial Term"). Such
expiration date of the Option is referred to herein as the "Expiration Date" and
the period from the Option Date to the Expiration Date is referred to as the
"Option Period".
Buyer is hereby granted three (3) successive options to renew the Option as
to any or all of the Properties for an additional period of one (1) year for
each such renewal option (such renewal periods are referred to, collectively, as
the "Renewal Terms", and, individually, as the "Renewal Term"), with each
Renewal Term under the same terms and conditions otherwise stated herein. Buyer
may exercise its right to exercise the aforesaid renewal options by (a)
providing written notice in each instance to Seller (in accordance with Section
15 hereof) no less than thirty (30) days prior to the Expiration Date of the
Initial Term or any Renewal Term and (b) paying to Seller, for each Renewal
Term, a deposit (a "Purchase Option Deposit") with respect to each Property as
to which Buyer wishes to extend the Option in an amount equal to one-half of one
percent (0.5%) of the Purchase Price (as described for the applicable Property
or Properties on Exhibit A hereto).
If the Option has not been exercised by Buyer prior to the Expiration Date
(subject to renewal under this Section 2 or extension under Section 8 hereof),
the Option shall automatically expire and be of no further force or effect. The
date of each such exercise of the Option by Buyer, in the manner specified in
Section 3 hereof, is referred to in this Option Agreement as an "Exercise Date".
3. EXERCISE OF THE OPTION. Buyer may exercise the Option at any time and
from time to time during the Option Period by giving written notice thereof to
Seller in the manner provided in Section 15 hereof, indicating one or more of
the Properties that Buyer wishes to acquire from Seller (the Properties so
indicated being referred to herein as the "Designated Properties"). From and
after any Exercise Date, this Option Agreement shall be deemed for all purposes
to be a legally enforceable contract between Buyer and Seller for the sale and
purchase of the Designated Properties upon the terms and conditions herein
provided. If Buyer fails to exercise the Option in the manner provided in this
Option Agreement, in respect
2
<PAGE>
of some or all of the Properties, prior to the expiration of the Option Period,
the Option shall expire with respect to those Properties as to which Buyer has
not exercised this Option (the "Unexercised Properties"), and no party hereto
shall thereafter have any rights, liabilities or obligations whatsoever under
this Option Agreement with respect to the Unexercised Properties.
4. SALE AND PURCHASE OF THE PROPERTIES.
(a) Upon each exercise of the Option by Buyer, Seller shall sell the
Designated Properties to Buyer and Buyer shall purchase the Designated
Properties from Seller in the manner and upon the terms and conditions set forth
in this Option Agreement.
(b) Buyer's decision to exercise the Option and to purchase some or
all of the Properties shall not be deemed a waiver of any breach of
representation, warranty or covenant of any of the parties hereto or, upon
execution, in the Facilities Purchase Agreement and the parties shall retain all
rights and remedies with respect thereto.
5. PURCHASE PRICE.
(a) If Buyer exercises the Option and purchases some or all of the
Properties pursuant to Section 4 hereof, then in consideration of the sale and
conveyance of the Designated Properties from Seller to Buyer, at the Option
Closing (as defined in Section 9 hereof), Buyer shall pay to Seller the amounts
designated for each of the Properties on Exhibit A hereto (the "Purchase
Price").
If Buyer exercises the Option on a date that is more than six (6) months
from the Option Date, the Purchase Price Buyer shall pay to Seller at the Option
Closing for each of the Properties shall be the greater of (i) the amounts
designated for each of the Properties on Exhibit A hereto or (ii) six and
one-half (6.5) or seven (7) (as designated for each of the Properties on Exhibit
A hereto) times the Facility's EBITDARM for the trailing twelve (12) month
period from the date the Option is exercised by Buyer.
(b) For purposes of this Section 5, the following definitions shall
apply:
(i) "EBITDARM" means, with respect to a Facility, the sum of (A)
Cash Flow from Operations of such Facility for the period, (B) all charges for
taxes counted in determining the consolidated net income of such Facility for
such period and (C) any management fee used to calculate the Facility's net
income for the period.
(ii) "Cash Flow from Operations" means, for any period, the sum
of (A) net income exclusive of extraordinary gains and extraordinary losses, (B)
depreciation, (C)
3
<PAGE>
amortization, (D) other non-cash charges deducted in determining net income, (E)
Interest Expense and (F) Lease Payments.
(iii) "Interest Expense" means, for any period, interest expense,
net of interest income, determined in conformity with GAAP.
(iv) "Lease Payments" means, for any period, the aggregate
payments payable during such period by the Facility under all leases and rental
agreements, other than capital leases and health care facility leases.
(c) The Purchase Price shall be reduced by the amount equal to the
applicable Property's Purchase Option Deposits, as defined in Section 6 hereof.
The Purchase Price shall be paid in immediately available U.S. funds at the
Option Closing.
(d) The Purchase Price for any Facility acquired by Buyer hereunder
shall be subject to adjustment on the date that is twelve (12) months after the
Option Closing (the "Purchase Price Adjustment Date") if six and one-half (6.5)
or seven (7) (as designated for each of the Properties on Exhibit A hereto)
times the Facility's EBITDARM for the trailing twelve (12) month period from the
Option Closing to the Purchase Price Adjustment Date (the "Adjusted Purchase
Price") is an amount that is more than ten percent (10%) above the actual
Purchase Price paid for the Facility at the Option Closing (the "Closing
Purchase Price"). Within thirty (30) days after the Purchase Price Adjustment
Date, Buyer shall provide Seller with the Facility's certified financial
statements for the twelve (12) month period preceding the Purchase Price
Adjustment Date and a calculation of the Facility's Adjusted Purchase Price. If
the Facility's financial statements indicate that the Adjusted Purchase Price is
more than ten percent (10%) above the Closing Purchase Price, then Buyer shall
immediately pay to Seller the full amount of the difference between the Closing
Purchase Price and the Adjusted Purchase Price (the "Purchase Price Adjustment")
by wire transfer to an account designated by Seller. If Buyer is required to pay
Seller the Purchase Price Adjustment, then Lyric shall cause the Facility
Subtenant to amend the Facility Sublease executed and delivered on the Option
Closing Date in accordance with Section 22 hereof to increase the Base Rent by
an amount equal to the Purchase Price Adjustment multiplied by the Base Rent
Factor, as defined and determined in Section 22 hereof.
6. PURCHASE OPTION DEPOSITS. (a) At the Option Closing, as defined in
Section 9 hereof, the Purchase Price for each Designated Property shall be
reduced by the amount of all Purchase Option Deposits paid by Buyer with respect
to such Property. The deduction of the Purchase Option Deposits from the
Purchase Price shall apply to the Buyer or to any assignee of Buyer.
(b) In the event that Buyer or any assignee of Buyer fails to exercise
its Option prior to the Expiration Date (subject to any extension pursuant to
Section 8 hereof) to
4
<PAGE>
purchase any of the Properties under this Purchase Option Agreement, the
applicable Purchase Option Deposits with respect to all Nonexercised Properties
shall be non-refundable to Buyer (or any assignee of Buyer) and forfeited by
Buyer (or any assignee of Buyer). Notwithstanding this provision, however, in
the event that Buyer elects to exercise its Option with respect to any of the
Properties hereunder, but (a) Buyer terminates its exercise of the Option
because it is determined that, with respect to the Designated Property, Seller
has breached any representation, warranty or covenant contained under this
Option Agreement or the Facilities Purchase Agreement or failed to comply with
or perform any of the covenants, agreements or obligations to be performed by
Seller under the terms and provisions of this Option Agreement or the Facilities
Purchase Agreement or (b) Buyer terminates its exercise of the Option with
respect to any Designated Properties pursuant to Section 8 hereof by reason of
any Objectionable Defects, then the Purchase Option Deposits with respect to
such Properties shall be fully refundable to Buyer without deduction or offset.
7. SURVEY AND ENGINEERING. Buyer shall at all times during the Option
Period and before the Option Closing have the privilege of going upon any of the
Properties with its agents or engineers as needed to inspect, examine, survey
and otherwise do what Buyer deems necessary in the engineering and planning for
development of any of the Properties. Said privilege shall include the right to
make soil tests, borings, percolation tests and tests to obtain other
information necessary to determine surface, subsurface and topographic
conditions; provided, however, that Buyer shall hold Seller harmless from any
damages incurred through the exercise of such privilege. Buyer and Seller agree
that in the event of the exercise of the Option, Buyer may obtain a survey of
any of the Properties (the "Survey") to be made by a surveyor duly licensed
within the states where each of the Properties is located, to determine the true
and accurate legal description of any of the Properties. Buyer and Seller hereby
further agree that the legal description of each of the Properties to be set
forth in the special warranty deeds from Seller referred to in Section 11 hereof
shall be based upon and shall conform to the Survey.
8. EXAMINATION OF TITLE. Buyer shall have until the applicable Option
Closing Date (as defined in Section 9 hereof) within which to examine title to
any of the Properties, and Buyer, prior to the end of such period, shall advise
Seller of any defects or objections affecting the marketability of title with
respect to any Designated Property, as represented by Seller in Section 10
hereof, disclosed by such examination (a "Defect"), other than (a) real property
ad valorem taxes and unpaid installments of assessments that are not yet due and
payable, (b) recorded utility easements which do not impose any monetary
obligation on the owner of the Property and which do not materially interfere
with the use of or access to the Property, (c) rights of the patients of the
Facility, (d) any state of facts an accurate survey would disclose, provided
that such facts do not render title unmarketable, (e) financing statements and
liens on personalty filed more than seven (7) years prior to the Option Closing
Date and not renewed, or filed against personalty no longer located on the
Property, (f) zoning regulations and ordinances that are not violated by the
existing structures or present use thereof
5
<PAGE>
and that do not render title unmarketable, (g) such other matters as the Title
Company (as defined in the Facilities Purchase Agreement) shall be willing,
without special premium, to omit as exceptions to coverage or to except with
insurance against collection out of or enforcement against the Property, and (h)
non-material encumbrances which have arisen after the Effective Date other than
by voluntary encumbrance of Seller (herein referred to collectively, as the
"Permitted Exceptions") (Defects other than Permitted Exceptions are herein
called "Objectionable Defects"). Seller shall then have a reasonable time, not
less than thirty (30) days from the date of notice of such Objectionable Defect
from Buyer, to cure such Objectionable Defect and shall in good faith exercise
reasonable diligence to cure such Objectionable Defect. If Seller fails or
refuses to cure any valid Objectionable Defect prior to the Option Closing Date
for any of the Designated Properties or the thirty (30) day cure period,
whichever is less, in addition to the other rights and remedies that Buyer may
have in law or in equity, Buyer may, at its option: (x) cure any such
Objectionable Defect, in which event the Purchase Price for the Designated
Property shall be reduced, in addition to any Purchase Option Deposits (if any),
by an amount equal to the reasonable costs and expenses incurred by Buyer in
connection with Buyer's to cure such Objectionable Defect; (y) accept title to
the Designated Property subject to such Objectionable Defect or Objectionable
Defects; or (z) any combination of the above. If Buyer elects to cure such
Objectionable Defect pursuant to subsection (x) hereof, Buyer at its option,
upon giving notice to Seller, may extend the Option Closing Date (and if
necessary, the Expiration Date) for the Designated Property for ninety (90)
days. If any Defect shall not have been cured within such period, Buyer may
exercise its option under either subsection (x) or (y) hereof.
9. OPTION CLOSING AND OPTION CLOSING DATE; TRANSACTION COSTS AND EXPENSES.
(a) Subject to extension under Section 8 hereof, the consummation of
the sale by Seller and the purchase by Buyer of any of the Designated Properties
(the "Option Closing") shall be at such offices and at such specific time and
date (the "Option Closing Date") as shall be designated by Buyer in a written
notice to Seller not less than five (5) business days prior to the Option
Closing Date. At the Option Closing, Seller shall (and shall cause the
applicable party to) execute and deliver to Buyer (i) the Joinder Agreement, in
the form of Exhibit B hereto, whereby each subsidiary of Seller that transfers
the Designated Property to Buyer under this Option Agreement will become a party
to the Facilities Purchase Agreement for purposes of the representations,
warranties and covenants contained therein, (ii) the applicable Transaction
Documents (as defined in the Facilities Purchase Agreement), (iii) a Facility
Sublease, in a form substantially similar to that executed and delivered by the
Facility Subtenants and (iv) a special warranty deed conveying good,
indefeasible and insurable title to each of the applicable Properties to Buyer,
free and clear of all liens, special assessments, easements, reservations,
restrictions and encumbrances whatsoever, excepting only the Permitted
Exceptions.
6
<PAGE>
(b) At each Option Closing and as an adjustment to the Purchase Price,
Seller shall pay all costs of the transaction and the expenses related to the
ownership and operation of the Designated Properties as described in Article V
of the Facilities Purchase Agreement, including, but not limited to, state and
county transfer or excise taxes due on the transfer of the applicable Properties
and all assessments, recording fees and taxes related to the recording of the
corresponding deeds. In addition, Seller shall also pay any and all fees, costs
and disbursements of Buyer in acquiring the applicable Properties, including,
but not limited to, a commitment fee equal to fifty (50) basis points times the
Purchase Price Buyer shall pay to Seller at the Option Closing for each of the
Properties, the costs and premiums of Buyer's title policies, the survey costs,
UCC search and termination fees, Deferred Maintenance Adjustment (as defined in
the Facilities Purchase Agreement) and Buyer's reasonable and documented
attorneys' fees, costs and disbursements.
10. SELLER'S REPRESENTATIONS AND WARRANTIES. To induce Buyer to enter into
this Option Agreement and to purchase each of the Properties as hereinafter
provided, Seller makes the following representations and warranties as of the
date hereof:
(a) Seller owns good, indefeasible and insurable title to each of the
Properties, free and clear of any and all mortgages, liens, encumbrances,
charges, claims, restrictions, pledges, security interest or impositions except
the Permitted Exceptions and ad valorem taxes for the year of the sale;
provided, however, that Seller shall defend, indemnify and hold harmless Buyer
or any assignee of Buyer from any and all liabilities, obligations, losses,
demands, judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation, reasonable and
documented attorney's fees and expenses), whether or not subject to litigation,
arising out of or in connection with, incurred or in any way attributable to any
deficiency, if any, between good, indefeasible and insurable title and
marketable title.
(b) That Seller has not received any notice that any of the Properties
or any portion or portions thereof is or will be subject to or affected by (i)
any special assessments, whether or not presently a lien thereon or (ii) any
condemnation or similar proceeding; and
(c) That there are no material actions, suits or proceedings of any
kind or nature whatsoever, legal or equitable, affecting any of the Properties
or any portion or portions thereof or relating to or arising out of the
ownership of any of the Properties, in court or by any federal, state, county,
or municipal department, commission, board or agency or other governmental
instrumentality.
7
<PAGE>
11. SETTLEMENT REQUIREMENTS.
(a) Buyer's obligation to accept title to any Designated Property
shall be subject to each of the following conditions being in effect at any
applicable Option Closing Date:
(i) there shall not be outstanding any Objectionable Defect with
respect to such Property;
(ii) a waiver of liens shall have been signed and delivered to
Seller by all parties performing work for Seller on such Designated Property up
to the Option Closing Date or, if no liens exist, a Seller's affidavit that no
such liens exist;
(iii) the satisfaction of all title requirements and conditions
set forth under the Title Commitment (as defined in the Facilities Purchase
Agreement) and this Option Agreement; and
(iv) each and every one of the representations, warranties and
covenants described in Section 10 hereof and Articles VII and VIII of the
Facilities Purchase Agreement being true and correct as of any Option Closing
Date.
(b) At any Option Closing, the Seller shall (or shall cause the
applicable party to):
(i) duly execute and deliver to Buyer the agreements described in
Section 9 hereof;
(ii) deliver possession of each of the Designated Properties to
Buyer (or any lessee of Buyer), free and clear of any indebtedness and security
liens relating thereto (other than Permitted Exceptions); and
(iii) pay all of the costs, fees and expenses associated with the
conveyance of each of the Properties to Buyer, in accordance with the terms of
Article V of the Facilities Purchase Agreement and this Option Agreement.
(c) At any Option Closing, Buyer shall deliver the Purchase Price for
each of the Designated Properties due under Section 5 hereof, subject to the
adjustment and prorations made pursuant to Sections 6 and 8 hereof, and reduced
by the costs and expenses described in Section 9 hereof.
12. COVENANTS AND AGREEMENTS OF SELLER. Seller hereby further covenants and
agrees that from and after the date hereof until any Option Closing Date, Seller
shall not grant
8
<PAGE>
or otherwise create or consent to or permit the creation of any easement,
restriction, lien, assessment or encumbrance affecting any of the Properties or
any portion or portions thereof except to the extent that same would constitute
Permitted Exceptions hereunder. Seller further covenants and agrees that from
and after the date hereof until any Option Closing Date, Seller shall not sell,
convey or transfer any of the Properties or any portion or portions thereof.
13. DEFAULTS. In the event Buyer exercises the Option to purchase any or
all of the Properties, but Seller breaches any warranty or representation as
contained in this Option Agreement or the Facilities Purchase Agreement or fails
to comply with or perform any of the covenants, agreements or obligations to be
performed by Seller under the terms and provisions of this Option Agreement or
the Facilities Purchase Agreement, Buyer shall be entitled to exercise any and
all rights and remedies available to Buyer at law or in equity. If Buyer fails
to comply with any of the covenants, agreements or obligations to be performed
by Buyer under the terms and provisions of this Option Agreement or the
Facilities Purchase Agreement, then Seller shall be entitled to exercise any and
all rights and remedies available to Seller at law or in equity.
14. NOTICES. All communications, notices and disclosures required or
permitted by this Option Agreement shall be in writing and shall be deemed to
have been given on the date when delivered personally to the other party at the
address below, or five (5) days after being deposited in the United States mail,
certified or registered mail, postage prepaid, return receipt requested or when
delivered by a nationally recognized overnight delivery service with signed
receipt, and addressed as follows, unless and until either of such parties
notifies the other in accordance with this Section of a change of address:
If to Seller Integrated Health Services, Inc.
or Lyric: 10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Telephone Number: 410-998-8768
Fax Number: 410-998-8695
Copy to: Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
Telephone Number: 212-447-1100
Fax Number: 212-447-5428
9
<PAGE>
If to Buyer: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attention: John B. Poole
Telephone Number: 941-566-8820
Fax Number: 941-566-6082
Copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: John R. Fallon, Jr., Esq.
Telephone Number: 212-424-8279
Fax Number: 212-425-8500
15. ASSIGNMENT AND BINDING EFFECT. Buyer's rights, interests and
obligations under this Option Agreement may not be sold or assigned by Buyer, in
whole or in part, without the written consent of Seller, which consent shall not
be unreasonably withheld or delayed; provided, however, Buyer may assign this
Option Agreement, in whole or in part, to an affiliate of Buyer without the
written consent of Seller. The parties to this Option Agreement mutually agree
that this Option Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
16. EVIDENCE OF TITLE. Seller agrees to deliver to Buyer, or Buyer's
counsel, as soon as reasonably possible after each exercise of the Option,
copies of all title information in possession of or available to Seller with
respect to the Designated Properties specified in such Option exercise,
including, but not limited to: title insurance policies, attorney's opinions on
title, boundary surveys, covenants, leases, easements and deeds relating
thereto.
17. GENERAL PROVISIONS. No failure of either party to exercise any power
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Option Agreement and any other written agreement
referred to herein by and between the parties hereto, contain the entire
agreement of the parties hereto, and no representations, inducements, promises
or agreements, oral or otherwise, between the parties not embodied herein shall
be of any force or effect. Any amendment to this Option Agreement shall not be
binding upon any of the parties hereto unless such amendment is in writing and
executed by all parties hereto. This Option Agreement may be executed in
multiple counterparts, each of which shall constitute an original, but all of
which taken together shall constitute one and the same agreement. Seller and
Buyer agree that such documents as may be legally necessary or otherwise
appropriate to carry out the terms of this Option Agreement shall be executed
and delivered by each party at any Option Closing.
10
<PAGE>
18. SURVIVAL OF PROVISIONS. None of the covenants, warranties or agreements
set forth in this Agreement shall survive as to any Designated Property after
the Option Closing of such Property.
19. SEVERABILITY. This Option Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Option Agreement or
the application thereof to any person or circumstance shall, for any reason and
to any extent, be invalid or unenforceable, the remainder of this Option
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby but rather shall be enforced to the
greatest extent permitted by law.
20. GOVERNING LAW. This Option Agreement shall be construed, interpreted
and enforced as to any Property in accordance with the laws of the particular
state where such Property is located, without regard to provisions governing
conflicts of law.
21. MEMORANDA OF PURCHASE OPTION. Buyer and Seller shall execute and
deliver to each other Memoranda of Option to Purchase Real Estate for recording
purposes immediately upon execution of this Option Agreement. Any party, at
Seller's expense, shall have the right to record such Memoranda of Option to
Purchase Real Estate for the purposes of giving notice of Buyer's interest in
each of the Properties.
22. AGREEMENTS AND COVENANTS BY LYRIC. Lyric covenants and agrees that at
each Option Closing, Lyric shall and shall cause Lyric III and the Facility
Subtenants to execute and deliver (a) the Joinder Agreement, in the form of
Exhibit B hereto, (b) the applicable Transaction Documents (as defined in the
Facilities Purchase Agreement) and (c) a Facility Sublease. The Base Rent (as
defined in the Master Lease) to be paid under the Facility Sublease shall be
determined based upon the greater of (i) ten percent (10%) of the Purchase Price
Buyer shall pay to Seller at the Option Closing or (ii) the Purchase Price
multiplied by the yield on the ten-year U.S. Treasury Note in effect on the
Option Closing Date plus four hundred and fifty (450) basis points (the "Base
Rent Factor"). The initial Term of the Facility Sublease shall be no less than
ten (10) years, with the First Renewal Term, the Second Renewal Term and the
Third Renewal Term (as each is defined in the Master Lease) for periods of ten
(10) years each.
SIGNATURE PAGE FOLLOWS
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Option
Agreement to be duly executed and delivered as a sealed instrument as of the day
and year first above written.
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
(Seal)
MONARCH PROPERTIES, LP
By: MP Operating, Inc.
Its: General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
(Seal)
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, the undersigned, a Notary Public in and for said County, in said State,
hereby certify that Daniel J. Booth, a Senior Vice President of Integrated
Health Services, Inc., a Delaware corporation, is signing the foregoing
instrument and who is known to me, acknowledged before me on this date that,
being informed of the contents of said instrument, he, as such officer and with
full authority, executed the same voluntarily on behalf of said corporation on
the day the same bears date.
Given under my hand and official seal, this ____ day of June, 1998.
(Seal)
-----------------------------------
Notary Public
My commission expires:
-----------------------------------
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, the undersigned, a Notary Public in and for said County, in said State,
hereby certify that John B. Poole, the President and Chief Executive Officer of
MP Operating, Inc., a Delaware corporation, which is the General Partner of
Monarch Properties, LP, a Delaware limited partnership, is signing the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of said instrument, he as such officer and with
full authority, executed the same voluntarily on behalf of said partnership on
the day the same bears date.
Given under my hand and official seal, this ____ day of June, 1998.
-----------------------------------
Notary Public
My commission expires:
(Seal)
-----------------------------------
<PAGE>
ACKNOWLEDGMENTS (CONTINUED)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, the undersigned, a Notary Public in and for said County, in said State,
hereby certify that Daniel J. Booth, a Senior Vice President of Integrated
Health Services, Inc., a Delaware corporation, which is a Member of Lyric Health
Care LLC, a Delaware limited liability company, is signing the foregoing
instrument and who is known to me, acknowledged before me on this date that,
being informed of the contents of said instrument, he, as such officer and with
full authority, executed the same voluntarily on behalf of said company on the
day the same bears date.
Given under my hand and official seal, this ____ day of June, 1998.
(Seal)
-----------------------------------
Notary Public
My commission expires:
-----------------------------------
<PAGE>
EXHIBIT A
PURCHASE OPTION AGREEMENT PROPERTIES
<TABLE>
<CAPTION>
FACILITY NAME ADDRESS BEDS SUBSIDIARY NAME STATE OF
INCORPORATION
<S> <C> <C> <C> <C>
Integrated Health Services 9820 N. Kendall Dr. 203 Integrated Health Services of Florida
at Greenbriar Miami, Florida 33176 Green Briar, Inc.
305-271-6311
305-274-5860 (fax)
Henderson SNF #1 1180 Lake Mead 140 IHS Acquisition No. 151, Delaware
Henderson, Nevada 89105 Inc.
702-565-8555
702-564-6300 (fax)
Henderson SNF #2 1180 Lake Mead 124 IHS Acquisition No. 151, Delaware
Henderson, Nevada 89105 Inc.
702-565-8555
702-564-6300 (fax)
Heritage Forest Lane 9009 Forest Lane 120 IHS Acquisition No. 151, Delaware
Dallas, Texas 75238 Inc.
214-783-1771
214-783-1774 (fax)
Heritage Manor Canton 901 West College Street 110 IHS Acquisition No. 151, Delaware
Canton, Texas 75103 Inc.
903-567-4169
903-567-2752 (fax)
Heritage Oaks 1112 Gibbons Road 204 IHS Acquisition No. 151, Delaware
Arlington, Texas 76011 Inc.
817-261-6881
817-274-5390 (fax)
<CAPTION>
FACILITY NAME IHS PURCHASE EBITDARM
OWNED/ PRICE FACTOR
<S> <C> <C> <C>
Integrated Health Services Leased $23,342,709 6.5
at Greenbriar
Henderson SNF #1 Leased $6,198,925 6.5
(Horizon)
Henderson SNF #2 Leased $5,490,476 6.5
(Horizon)
Heritage Forest Lane Leased $4,357,769* 7.0
(Horizon)
Heritage Manor Canton Leased $7,644,903* 7.0
(Horizon)
Heritage Oaks Leased $13,868,153* 7.0
(Horizon)
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
FACILITY NAME ADDRESS BEDS SUBSIDIARY NAME STATE OF
INCORPORATION
<S> <C> <C> <C> <C>
Heritage Place 825 West Kearney 149 IHS Acquisition No. 151, Delaware
Mesquite, Texas 75149 Inc.
214-288-7668
214-216-7627 (fax)
Heritage Village 1111 Rockingham Drive 280 IHS Acquisition No. 151, Delaware
Richardson, Texas 75080 Inc.
214-231-8833
214-437-5436
Mountain View Place 1600 Murchison Rd. 193 IHS Acquisition No. 151, Delaware
El Paso, Texas 79902 Inc.
915-544-2002
915-544-0696 (fax)
Winterhaven Nursing 6534 Steubner - Airline 160 IHS Acquisition No. 151, Delaware
Home Houston, Texas 77091 Inc.
713-692-5137
713-692-5155 (fax)
<CAPTION>
FACILITY NAME IHS PURCHASE EBITDARM
OWNED/ PRICE FACTOR
LEASED
<S> <C> <C> <C>
Heritage Place Leased $9,635,179* 7.0
(Horizon)
Heritage Village Leased $12,559,668 7.0
(Horizon)
Mountain View Place Leased $8,708,349 6.5
(Horizon)
Winterhaven Nursing Leased $12,925,498* 7.0
Home (Horizon)
TOTAL: $104,731,629
</TABLE>
* Purchase Price shall include any applicable pre-payment penalties under
existing facility leases.
A-2
<PAGE>
EXHIBIT B
JOINDER TO FACILITIES PURCHASE AGREEMENT
THIS JOINDER TO FACILITIES PURCHASE AGREEMENT (this "Joinder") is made as
of the ___ day of _________, 1998, among MONARCH PROPERTIES, LP ("Purchaser"), a
Delaware limited partnership, INTEGRATED HEALTH SERVICES, INC. ("IHS"), a
Delaware corporation, each of the entities described on attached Exhibit A (the
"Sellers") and [Insert New Seller] ("New Seller"), a [Insert State] corporation.
BACKGROUND
A. Sellers, IHS and Purchaser are parties to a Facilities Purchase
Agreement, dated as of June __, 1998, as amended from time to time (the
"Purchase Agreement"), whereby Sellers sold the Sellers' Assets to Purchaser.
The Purchase Agreement and all instruments, documents and agreements executed in
connection therewith, or related thereto are referred to in this Joinder,
collectively, as the "Existing Transaction Documents". All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Purchase Agreement.
B. On the date hereof, pursuant to a Purchase Option Agreement, dated as of
June ___, 1998, among Purchaser, IHS and Lyric Health Care LLC ("Lyric") (the
"Option Agreement"), New Seller has sold the Designated Property (as defined in
the Option Agreement) listed on Exhibit A hereto to Purchaser. In accordance
with Section 22 of the Option Agreement, New Seller is delivering this Joinder
to Purchaser in order for New Seller to assume, adopt and become a Seller under
the Purchase Agreement in respect of the Designated Property.
C. Contemporaneously with the sale of the Designated Property to Purchaser,
the equity ownership interest of IHS in New Seller has been transferred by IHS
to Lyric Health Care Holdings III, Inc., a wholly owned subsidiary of Lyric, and
New Seller has become affiliated with Sellers. In accordance with Section 22 of
the Option Agreement, Lyric has requested that New Seller execute and deliver
this Joinder to join into the Purchase Agreement, subject to the terms and
conditions hereof.
NOW, THEREFORE, with the foregoing Background incorporated by reference and
made a part hereof and intending to be legally bound, the parties agree as
follows:
B-1
<PAGE>
1. Joinder.
(a) As of the date hereof, New Seller joins in, assumes, adopts and
become a Seller under the Purchase Agreement. All references to Seller or
Sellers contained in the Purchase Agreement and the Existing Transaction
Documents are hereby deemed for all purposes to also refer to and include New
Seller as a Seller and New Seller hereby agrees to comply with all of the terms
and conditions of the Purchase Agreement and the Existing Transaction Documents
as if it were an original signatory thereto.
(b) Without limiting the generality of the provisions of subparagraph
(a) above, New Seller is thereby liable, on a joint and several basis, along
with all other Sellers for all existing and future obligations incurred at any
time by any one or more Sellers under the Purchase Agreement and the Existing
Transaction Documents, as they are amended hereby or as they may be hereafter
amended, modified, supplemented or replaced.
2. Representations and Warranties. New Seller, Sellers and IHS represent
and warrant to Purchaser that:
(a) As to the Designated Property, all representations and warranties
made to Purchaser under Article VII of the Purchase Agreement are true and
correct as to the date hereof.
(b) The execution and delivery by New Seller, each Seller and IHS of
this Joinder and the performance by each of the transactions herein contemplated
(i) are and will be within their powers, (ii) have been authorized by all
necessary corporate action, and (iii) are not and will not be in contravention
of any order of any court or other agency of government, of law or any other
indenture, agreement or undertaking to which such New Seller, Seller and/or IHS
is a party or by which the property of New Seller, any Seller and/or IHS is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
undertaking or result in the imposition of any lien, charge or incumbrance of
any nature on any of the properties of New Seller, any Seller and/or IHS.
(c) This Joinder and any assignment, instrument, document, or
agreement executed and delivered in connection herewith, will be valid, binding
and enforceable in accordance with its respective terms.
(d) No Event of Default has occurred under the Master Lease or any of
the other Existing Transaction Documents.
3. Effectiveness Conditions. This Joinder shall be effective and New Seller
shall be deemed a Seller under the Purchase Agreement and the Existing
Transaction
B-2
<PAGE>
Documents upon completion of the following conditions precedent (all documents
to be in form and substance satisfactory to Purchaser and Purchaser's counsel):
(a) Execution and delivery of this Joinder;
(b) Certified copies of (i) the resolutions of New Seller's board of
directors authorizing the execution of this Joinder, and each document required
to be delivered under Section 22 of the Option Agreement and (ii) New Seller's
articles of incorporation and bylaws;
(c) Incumbency Certificate for New Seller identifying all authorized
officers with specimen signatures; and
(d) All agreements, instruments and documents requested by Purchaser
to effectuate and implement the terms hereof and the Existing Transaction
Documents.
4. Ratification of Existing Transaction Documents. Except as expressly set
forth herein, all of the terms and conditions of the Purchase Agreement and the
Existing Transaction Documents are hereby ratified and confirmed and continued
unchanged and in full force and effect. All references to the Purchase Agreement
shall mean the Purchase Agreement, as modified by this Joinder.
5. Governing Law. This Joinder shall be governed by, construed and enforced
in accordance with the laws of the State of New York.
6. Counterparts. This Joinder may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same respective
agreement.
SIGNATURE PAGES FOLLOW
B-3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Joinder To Facilities
Purchase Agreement as of the day and year first above written.
SELLERS:
[INSERT SELLERS]
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
IHS:
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
NEW SELLER:
[INSERT NEW SELLER]
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
B-4
<PAGE>
PURCHASER:
MONARCH PROPERTIES, LP
By: MP Operating, Inc.
Its: General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
B-5
GUARANTY
BY
LYRIC HEALTH CARE LLC
IN FAVOR OF
MONARCH PROPERTIES, LP
DATED AS OF JUNE 23, 1998
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is given as of the 23rd day of June, 1998
("Effective Date"), by LYRIC HEALTH CARE LLC, a Delaware limited liability
company ("Guarantor"), in favor of MONARCH PROPERTIES, LP, a Delaware limited
partnership corporation ("Lessor").
RECITALS
A. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given them in Section 1 below.
B. Concurrently herewith, Lessor and Lyric Holdings have executed and
delivered the Master Lease, pursuant to which Lessor has leased to Lyric
Holdings the respective Facilities, and Lyric Holdings and the Subsidiaries have
executed and delivered the Facility Subleases. As security for the payment and
performance by Lyric Holdings of its obligations under the Master Lease, the
Subsidiaries and Lyric Holdings have (i) executed and delivered to Lessor the
L/C Agreement and delivered to Lessor a Letter of Credit pursuant thereto; and
(ii) executed and delivered to Lessor the Security Agreement, pursuant to which
Lyric Holdings and each of the Subsidiaries has granted to Lessor security
interests in certain property of the Subsidiaries.
C. Guarantor owns all of the stock of Lyric Holdings, and Lyric Holdings
owns all of the stock in each of the Subsidiaries and, accordingly, benefits
from the execution of the Master Lease.
D. As a material inducement to Lessor to enter into the Master Lease,
Guarantor has agreed to guarantee both the payment of all amounts due from, and
the performance of all obligations undertaken by, Lyric Holdings under the
Master Lease and the Subsidiaries under the Facility Subleases.
NOW, THEREFORE, Guarantor agrees as follows:
1. DEFINED TERMS. The following terms shall have the respective meanings
given them below:
"Affiliate" means any Person who, directly or indirectly, Controls or is
Controlled by or is under common Control with another Person.
"A/R Lender" means any lender to the Subsidiaries under the Line of Credit,
whereby the A/R Lender lends to the Subsidiaries based upon the accounts
receivable of the various Facilities.
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<PAGE>
"Control" (and its corollaries "Controlled by" and "under common Control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, through the ownership
of voting securities, partnership interests or other equity interests.
"Dividend" means any dividend, distribution or other payment constituting a
return of or return on capital invested in a Person.
"Escrow Agreement" means the Escrow Agreement dated as of the date hereof
among Subsidiaries, Lyric Holdings, Lessor and Fidelity National Title Insurance
Company of New York.
"Event of Default" means an "Event of Default," as defined in the Master
Lease.
"Facilities" means the healthcare facilities listed on attached EXHIBIT A.
"Facility" means any of the Facilities.
"Facility Subleases" means the Facility Subleases dated as of the date
hereof between Holdings and the Subsidiaries.
"Fees" means the fees payable by Lyric Holdings and/or the Subsidiaries to
Manager or Franchisor pursuant to each Management Agreement or Franchise
Agreement, as the case may be.
"Franchise Agreement" means, collectively, the Amended and Restated Master
Franchise Agreement dated as of the date hereof between Franchisor and Guarantor
and each Facility Franchise Agreement dated as of the date hereof between
Franchisor and a Subsidiary.
"Franchisor" means Integrated Health Services Franchising Co., Inc., a
Delaware corporation.
"GAAP" means generally accepted accounting principles.
"Guaranty Default" means any of: (a) an Event of Default; (b) Guarantor's
failure to pay any amounts as and when required under this Guaranty; (c)
Guarantor's failure to observe and perform any covenant, condition or agreement
on its part to be observed or performed under this Guaranty (other than as
referred to in clause (b) above) for a period of three (3) Business Days or more
after Lessor has given written notice of such failure to Guarantor; or (d) the
occurrence and continuation of a default by any person other than Lessor under
any of the other Transaction Documents, if the default is not cured within any
applicable grace or cure period set forth therein.
2
<PAGE>
"IHS" means Integrated Health Services, Inc., a Delaware corporation.
"Indemnity Agreement" means the Indemnity Agreement dated as of the date
hereof executed by IHS for the benefit of Lessor.
"Incentive Management Fees" means the "Incentive Management Fees," as
defined in the Management Agreement.
"Intangible Assets" means the amount of (a) all unamortized debt discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organizational and developmental
expenses, unamortized operating rights, unamortized licenses, unamortized
leasehold rights, or any write-up resulting from a reversal of a reserve for bad
debts or depreciation and any write-up resulting from a change in methods of
accounting or inventory, and (b) any investment in any Affiliate. The term
Intangible Assets does not include accounts receivable.
"L/C Agreement" means the Letter of Credit Agreement dated as of the date
hereof among the Subsidiaries, Lyric Holdings and Lessor.
"Letter of Credit" means the "Letter of Credit," as defined in the L/C
Agreement.
"Line of Credit" means the revolving line of credit to be granted to the
Subsidiaries by the A/R Lender.
"Line of Credit Commitment" means the Commitment from the A/R Lender to
Guarantor and/or the Subsidiaries to provide the Line of Credit.
"Lyric Holdings" means Lyric Health Care Holdings III, Inc., a Delaware
corporation that is wholly owned by Guarantor and that in turn owns all of the
stock of the Subsidiaries.
"Management Agreement" means, collectively, the Amended and Restated Master
Management Agreement dated as of the date hereof between Manager and Guarantor
and each Facility Management Agreement dated as of the date hereof between
Manager and a Subsidiary.
"Manager" means IHS Facility Management, Inc., a Delaware corporation.
"Master Lease" means the Master Lease dated as of the date hereof between
Lessor and Lyric Holdings.
"Minimum Tangible Net Worth" means a Tangible Net Worth equal to Two
Million Five Hundred Thousand Dollars ($2,500,000) in United States currency.
3
<PAGE>
"Net Income" means the net income of Guarantor, determined on an accrual
basis in accordance with GAAP, before federal, state and local income taxes, but
excluding extraordinary items.
"Obligations" means, collectively, all covenants and obligations contained
in the Master Lease, the Facility Subleases and the other Transaction Documents,
and any and all amendments, modifications, extensions and renewals thereof, to
be performed by the Lyric Holdings and the Subsidiaries thereunder, and all
damages that may result from the non-performance thereof to the full extent
provided under the Master Lease, the Facility Subleases and the other
Transaction Documents.
"Person" means any natural person, trust, partnership, corporation, limited
liability company, joint venture or other legal entity.
"Purchase Agreement" means the Facilities Purchase Agreement dated as of
the date hereof among Lessor, IHS, and the Subsidiaries.
"Rent" means "Rent," as defined in the Master Lease.
"Security Agreement" means the Security Agreement dated as of the date
hereof among the respective Subsidiaries, Lyric Holdings and Lessor.
"Stock Pledge Agreement" means, collectively, the Pledge Agreement dated as
of the date hereof between Lyric and Lessor and the Pledge Agreement dated as of
the date hereof between Lyric Holdings and Lessor.
"Subsidiaries" means, collectively, Lyric Holdings and the entities listed
on attached EXHIBIT A.
"Subsidiary" means any of the Subsidiaries.
"Tangible Net Worth" means, at any date, the net worth of Guarantor and all
of its subsidiaries (including, without limitation, the Subsidiaries), as
determined on a consolidated basis in accordance with GAAP, less Intangible
Assets of Guarantor and all of its subsidiaries (including, without limitation,
the Subsidiaries).
"TFN" means T.F.N. Healthcare Investors, LLC, a Delaware limited liability
company.
"Transaction Documents" means the Purchase Agreement, the Master Lease, the
Facility Subleases, the L/C Agreement, the Letter of Credit, the Escrow
Agreement, the Security Agreement, the Indemnity Agreement and any other
documents executed and/or
4
<PAGE>
delivered or caused to be executed and/or delivered by Lyric Holdings and the
Subsidiaries pursuant to or in connection with the Master Lease and the Facility
Subleases.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably guarantees to
Lessor (a) the payment when due of all Rent and other sums payable by Lyric
Holdings under the Master Lease and the Transaction Documents, (b) the payment
when due of all Rent and other sums payable by the Subsidiaries under the
Facility Subleases and the Transaction Documents and (c) the faithful and prompt
performance when due of each and every one of the Obligations. Upon the
occurrence of a Guaranty Default, Guarantor immediately shall perform or cause
to be performed the Obligations. Guarantor's liability under this Guaranty is
without limit.
3. SURVIVAL OF OBLIGATIONS. The obligations of Guarantor under this
Guaranty with respect to the Master Lease and the Transaction Documents shall
survive and continue in full force and effect notwithstanding:
(a) any amendment, modification or extension of the Master Lease, the
Facility Subleases or any of the other Transaction Documents;
(b) any compromise, release, consent, extension, indulgence or other
action or inaction in respect of any terms of the Master Lease, the
Facility Subleases or any of the other Transaction Documents or any
other guarantor;
(c) any substitution or release, in whole or in part, of any security for
this Guaranty that Lessor may hold at any time;
(d) any exercise or nonexercise by Lessor of any right, power or remedy
under or in respect of the Master Lease, the Facility Subleases or any
of the other Transaction Documents or any security held by Lessor with
respect thereto, or any waiver of any such right, power or remedy;
(e) any bankruptcy, insolvency, reorganization, arrangement, adjustment,
composition, liquidation or the like of any Subsidiary or any other
guarantor;
(f) any limitation of Lyric Holdings' or the Subsidiaries' liability under
the Master Lease, the Facility Subleases or the other Transaction
Documents or any limitation of such liability that now or hereafter
may be imposed by any statute, regulation or rule of law, or any
illegality, irregularity, invalidity or unenforceability, in whole or
in part, of the Master Lease, the Facility Subleases or the other
Transaction Documents or any term thereof;
5
<PAGE>
(g) any sale, lease or transfer of all or any part of any interest in any
Facility or any or all of the assets of Lyric Holdings or any
Subsidiary to any other person, firm or entity other than to Lessor;
(h) any act or omission by Lessor with respect to any of the security
instruments or any failure to file, record or otherwise perfect any of
the same;
(i) any extensions of time for performance under the Master Lease, the
Facility Subleases or the other Transaction Documents, whether prior
to or after maturity;
(j) the release of any collateral from the lien of any of the Security
Agreements, or the release of Lyric Holdings or any of the
Subsidiaries from performance or observation of any of the agreements,
covenants, terms or conditions contained in the Master Lease, the
Facility Subleases or any of the other Transaction Documents by
operation of law or otherwise;
(k) the fact that Lyric Holdings or any of the Subsidiaries may or may not
be personally liable, in whole or in part, under the terms of the
Master Lease, the Facility Subleases or the other Transaction
Documents to pay any money judgment;
(l) the failure to give Guarantor any notice of acceptance, default or
otherwise;
(m) any other guaranty now or hereafter executed by Guarantor or anyone
else in connection with the Master Lease or the Facility Subleases;
(n) any rights, powers or privileges that Lessor now or hereafter may have
against any other person, entity or collateral; or
(o) any other circumstances, whether or not Guarantor had notice or
knowledge thereof.
4. PRIMARY LIABILITY. The liability of Guarantor under this Guaranty is
primary, direct and immediate, and, upon the occurrence of a Guaranty Default,
Lessor may proceed against Guarantor: (a) prior to or in lieu of proceeding
against any Subsidiary, its assets, any security deposit or any other guarantor;
and (b) prior to or in lieu of pursuing any other rights or remedies available
to Lessor. All rights and remedies afforded to Lessor by reason of this Guaranty
or by law are separate, independent and cumulative, and the exercise of any
rights or remedies shall not in any way limit, restrict or prejudice the
exercise of any other rights or remedies.
6
<PAGE>
Upon the occurrence of a Guaranty Default, Lessor may bring and prosecute
against Guarantor an action or actions under this Guaranty, regardless of
whether Lyric Holdings or any Subsidiary is joined therein or a separate action
or actions are brought against any Subsidiary. Lessor may maintain successive
actions for other defaults. Lessor's rights hereunder shall not be exhausted by
its exercise of any of its rights or remedies or by any such action or by any
number of successive actions until and unless all Obligations have been paid and
fully performed.
5. OBLIGATIONS NOT AFFECTED. In such manner, upon such terms and at such
times as Lessor in its sole discretion deems necessary or expedient, and without
notice to Guarantor, Lessor may: (a) amend, alter, compromise, accelerate,
extend or change the time or manner for the payment or the performance of the
Obligations; (b) extend, amend or terminate the Master Lease or any other
Transaction Document; or (c) release Lyric Holdings and any Subsidiary by
consent to any assignment (or otherwise) as to all or any portion of the
obligations hereby guaranteed. Any exercise or non-exercise by Lessor of any
right hereby given Lessor, any dealing by Lessor with Guarantor or any other
guarantor, Lyric Holdings, any Subsidiary or other person, or any change,
impairment, release or suspension of any right or remedy of Lessor against any
person (including Lyric Holdings, any Subsidiary and any other guarantor) will
not affect any of the obligations of Guarantor hereunder or give Guarantor any
recourse or offset against Lessor.
6. WAIVER. Guarantor hereby waives and relinquishes all rights and remedies
accorded by applicable law to sureties and/or guarantors or any other
accommodation parties, under any statutory provisions, common law or any other
provision of law, custom or practice, and agrees not to assert or take advantage
of any such rights or remedies including, but not limited to:
(a) any right to require Lessor to proceed against Lyric Holdings or any
Subsidiary or any other person or to proceed against or exhaust any
security held by Lessor at any time or to pursue any other remedy in
Lessor's power before proceeding against Guarantor or to require that
Lessor cause a marshaling of the respective Subsidiaries' assets,
Lyric Holdings' assets or the assets, if any, given as collateral for
this Guaranty or to proceed against any Lyric Holdings or Subsidiary
and/or any collateral, including collateral, if any, given to secure
Guarantor's obligation under this Guaranty, held by Lessor at any time
or in any particular order;
(b) any defense that may arise by reason of the incapacity or lack of
authority of any other person or persons;
(c) notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action
on the part of Lyric
7
<PAGE>
Holdings or any Subsidiary, Lessor, any creditor of any Subsidiary or
Guarantor or on the part of any other person whomsoever under this or
any other instrument in connection with any obligation or evidence of
indebtedness held by Lessor or in connection with any obligation
hereby guaranteed;
(d) any defense based upon an election of remedies by Lessor that destroys
or otherwise impairs the subrogation rights of Guarantor or the right
of Guarantor to proceed against Lyric Holdings or any Subsidiary for
reimbursement, or both;
(e) any defense based upon any statute or rule of law that provides that
the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(f) any duty on the part of Lessor to disclose to Guarantor any facts
Lessor may now or hereafter know about Lyric Holdings or any
Subsidiary, regardless of whether Lessor has reason to believe that
any such facts materially increase the risk beyond that which
Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to
communicate such facts to Guarantor, it being understood and agreed
that Guarantor is fully responsible for being and keeping informed of
the financial condition of Lyric Holdings and the respective
Subsidiaries and of all circumstances bearing on the risk of
non-payment or non-performance of any obligations or indebtedness
hereby guaranteed;
(g) any defense arising because of Lessor's election, in any proceeding
instituted under the federal Bankruptcy Code, of the application of
Section 1111 (b)(2) of the federal Bankruptcy Code;
(h) any defense based on any borrowing or grant of a security interest
under Section 364 of the federal Bankruptcy Code; and
(i) all rights and remedies accorded by applicable law to guarantors,
including without limitation, any extension of time conferred by any
law now or hereafter in effect and any requirement or notice of
acceptance of this Guaranty or any other notice to which the
undersigned may now or hereafter be entitled to the extent such waiver
of notice is permitted by applicable law.
7. WARRANTIES. Guarantor represents and warrants to Lessor that: (a) this
Guaranty is executed at the request of Lyric Holdings and the Subsidiaries; and
(b) Guarantor has established adequate means of obtaining from Lyric Holdings
and the Subsidiaries, on a continuing basis, financial and other information
pertaining to the respective Subsidiaries'
8
<PAGE>
financial condition. Guarantor agrees to keep adequately informed from such
means of any facts, events or circumstances that might in any way affect
Guarantor's risks hereunder, and Guarantor further agrees that Lessor shall have
no obligation to disclose to Guarantor information or material acquired in the
course of Lessor's relationship with Lyric Holdings and any of the Subsidiaries.
8. SUBROGATION. Guarantor shall defer until all obligations of Lyric
Holdings and the Subsidiaries under the Master Lease, the Facility Subleases and
the other Transaction Documents have been satisfied and discharged in full for
one (1) year, its exercise of any right of subrogation it may have, and any
right to enforce any remedy that Lessor now has or hereafter may have, against
Lyric Holdings and the Subsidiaries and any benefit of, and any right to
participate in, any security now or hereafter held by Lessor with respect to the
Master Lease, the Facility Subleases and the other Transaction Documents.
9. SUBORDINATION. Following any notice from Lessor to Guarantor of an Event
of Default, and for so long as such default exists and remains uncured under the
Master Lease, the Facility Subleases or any of the other Transaction Documents,
(a) no Subsidiary or Lyric Holdings shall pay to Guarantor all or any part of
any indebtedness or obligations owing by Lyric Holdings or such Subsidiary to
Guarantor, nor will Guarantor accept any payment of or on account of any amounts
owing, without the prior written consent of Lessor and (b) Lessor's request,
Guarantor shall cause Lyric Holdings or the applicable Subsidiar(y)(ies) to pay
to Lessor all or any part of the subordinated indebtedness until the obligations
under the Master Lease, the Facility Subleases or the other Transaction
Documents have been paid in full. Any payment by Lyric Holdings or any
Subsidiary in violation of this Guaranty shall be received by Guarantor in trust
for Lessor, and Guarantor shall cause the same to be paid to Lessor immediately
on account of the amounts owing from Lyric Holdings or the applicable Subsidiary
to Lessor.
10. NO DELAY. Any payments required to be made by Guarantor hereunder
immediately shall become due on demand in accordance with the terms hereof upon
the occurrence of a Guaranty Default.
11. APPLICATION OF PAYMENTS. Lessor may, in its sole discretion, (a) apply
any or all payments or recoveries from Lyric Holdings or any Subsidiary or from
any other guarantor under any other instrument or realized from any security, in
such manner and order of priority as Lessor may determine, to any indebtedness
or other obligation of Lyric Holdings or the Subsidiaries with respect to the
Master Lease or the Facility Subleases, regardless of whether such indebtedness
or other obligation is guaranteed hereby or is otherwise secured or is due at
the time of such application, and/or (b) refund to Lyric Holdings or the
Subsidiaries any payment received by Lessor under the Master Lease or the
Facility Subleases.
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<PAGE>
12. GUARANTY DEFAULT. Upon the occurrence and continuation of a Guaranty
Default, Lessor shall have the right to bring such actions at law or in equity,
including appropriate injunctive relief, as it deems appropriate to compel
compliance, payment or deposit, and among other remedies to recover its
reasonable attorneys' fees in any proceeding, including any appeal therefrom and
any post-judgement proceedings.
13. FINANCIAL COVENANTS.
(a) Except as provided in the next sentence of this paragraph, at all times
while any Obligations remain outstanding, during any fiscal year of Guarantor
(a) Guarantor shall not pay any Dividend and (b) Guarantor shall prohibit Lyric
Holdings and the Subsidiaries from paying any Incentive Management Fees if,
following the payment of the Dividend or Incentive Management Fees, Guarantor's
Tangible Net Worth at the end of the fiscal year will be less than the Minimum
Tangible Net Worth. Notwithstanding the foregoing, regardless of the Tangible
Net Worth of Guarantor, during any fiscal year of Guarantor, (i) Guarantor may
pay to TFN Dividends not exceeding One Hundred Fifty Thousand ($150,000.00)
Dollars and (ii) Guarantor may pay Dividends, and Lyric Holdings and the
Subsidiaries may pay Incentive Management Fees accrued during the fiscal year,
as long as the aggregate amount of all Dividends and Incentive Management Fees
paid during the fiscal year (exclusive of the permitted Dividend to TFN) does
not exceed sixty-seven percent (67%) of the sum of (A) the Net Income of
Guarantor for the fiscal year and (B) the Fees paid by Lyric Holdings and the
Subsidiaries during the fiscal year, and (iii) in any fiscal year, Guarantor may
pay Dividends to TFN in such amounts which, when added to any Dividends
otherwise paid to TFN in such fiscal year, shall be equal to TFN's actual
federal, state and local income tax liability attributable to its membership
interest in the Guarantor during the immediately preceding fiscal year.
(b) At all times while any Obligations remain outstanding, Guarantor shall
not permit the Subsidiaries or Lyric Holdings to seek or accept any advances
under the Line of Credit (a) which exceed ninety percent (90%) of the borrowing
base as determined in accordance with the Line of Credit Commitment (without
regard to any amendment thereto subsequent to the date hereof), or (b) for any
purpose other than to fund the working capital requirements of the Leased
Properties (as defined in the Master Lease), nor, in the event the Line of
Credit is replaced or supplemented by any financing secured in whole or in part
by the accounts receivable of the Subsidiaries or Lyric Holdings, shall
Guarantor permit the Subsidiaries or Lyric Holdings to seek or accept any
advances pursuant to such financing which would cause the total of all
outstanding advances to the Subsidiaries or Lyric Holdings to exceed the total
of the advances which would have been obtainable by application of the terms of
the Line of Credit Commitment, or any advances for any other purpose than that
stated above in this subsection (b).
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14. FINANCIAL STATEMENTS. Within fifty (50) days after the end of each of
Guarantor's fiscal quarters, Guarantor shall deliver to Lessor quarterly
consolidated financial statements, prepared in accordance with GAAP,
consistently applied, and certified by an officer of Guarantor. Within one
hundred twenty (120) days after the end of each of Guarantor's fiscal years,
Guarantor shall deliver to Lessor a copy of its consolidated financial
statements, prepared in accordance with GAAP, consistently applied, and
certified by an officer of Guarantor and reported on by a "Big Six" certified
public accounting firm or other certified public accounting firm approved by
Lessor. Together with the Guarantor's financial statements furnished in
accordance with the preceding two (2) sentences, Guarantor shall deliver an
officer's certificate of Guarantor stating that Guarantor is not in default in
the performance or observance of any of the terms of this Guaranty, or, if
Guarantor is in default, specifying all such defaults, the nature thereof and
the steps being taken to remedy the same.
15. PLEDGE OF STOCK. On or before September 1, 1998, Guarantor shall (a)
execute and deliver the applicable Stock Pledge Agreement, (b) cause Lyric
Holdings to execute and deliver to Lessor the applicable Stock Pledge Agreement
and (c) deliver to Lessor certificates representing all of the shares of stock
in each of Lyric Holdings and the Subsidiaries, endorsed as provided for in each
Stock Pledge Agreement.
16. 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 or hand delivery to the following
address:
To Guarantor: Lyric Health Care LLC
c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: 410/998-8768
Facsimile No.: 410/998-8695
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<PAGE>
To Lessor: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941/598-5605
Facsimile No.: 941/566-6082
With copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(which shall not 125 West 55th Street
constitute notice): New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212/424-8279
Facsimile No.: 212/424-8500
Notices shall be deemed given upon actual receipt.
17. MISCELLANEOUS.
(a) No term, condition or provision of this Guaranty may be waived except
by an express written instrument to that effect signed by Lessor. No waiver of
any term, condition or provision of this Guaranty will be deemed a waiver of any
other term, condition or provision, irrespective of similarity, or constitute a
continuing waiver of the same term, condition or provision, unless otherwise
expressly provided.
(b) If any one or more of the terms, conditions or provisions contained in
this Guaranty is found in a final award or judgment rendered by any court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions of this Guaranty shall not in any way be affected or impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term, condition or provision had never been contained
in this Guaranty.
(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE LAWS OF THE STATE IN WHICH A
FACILITY IS LOCATED SHALL GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY (i) TO
OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO
SUCH FACILITY AND (ii) FOR PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH SUCH FACILITY IS LOCATED. GUARANTOR CONSENTS TO IN
PERSONAM JURISDICTION BEFORE THE STATE OR STATES AND FEDERAL COURTS OF NEW YORK
AND AGREES THAT ALL DISPUTES CONCERNING THIS GUARANTY SHALL BE HEARD IN THE
12
<PAGE>
STATE AND FEDERAL COURTS LOCATED IN THE STATE OR STATES IN WHICH THE FACILITY OR
FACILITIES ARE LOCATED OR IN NEW YORK. GUARANTOR AGREES THAT SERVICE OF PROCESS
MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE
OR STATES IN WHICH THE FACILITY OR FACILITIES ARE LOCATED OR NEW YORK AND
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OR STATES IN WHICH THE FACILITY OR FACILITIES ARE LOCATED AND OF NEW YORK.
(d) GUARANTOR AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO
IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF
OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR
ENFORCEMENT THEREOF.
(e) In the event of any suit, action, arbitration or other proceeding to
interpret this Guaranty, or to determine or enforce any right or obligation
created hereby, the prevailing party in the action shall recover such party's
actual costs and expenses reasonably incurred in connection therewith,
including, but not limited to, attorneys' fees and costs of appeal, post
judgment enforcement proceedings (if any) and bankruptcy proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action, arbitration or other proceeding, in
addition to any and all other relief awarded to such prevailing party, include
in such judgment or award such party's costs and expenses as provided in this
paragraph.
(f) Guarantor (i) represents that it has been represented and advised by
counsel in connection with the execution of this Guaranty; (ii) acknowledges
receipt of a copy of the Master Lease, the Facility Subleases and the other
Transaction Documents; and (iii) further represents that Guarantor has been
advised by counsel with respect thereto. This Guaranty shall be construed and
interpreted in accordance with the plain meaning of its language, and not for or
against Guarantor or Lessor, and as a whole, giving effect to all of the terms,
conditions and provisions hereof.
(g) Except as provided in any other written agreement now or at any time
hereafter in force between Lessor and Guarantor, this Guaranty shall constitute
the entire agreement of Guarantor with Lessor with respect to the subject matter
hereof, and no representation, understanding, promise or condition concerning
the subject matter hereof will be binding upon Lessor or Guarantor unless
expressed herein.
(h) All stipulations, obligations, liabilities and undertakings under this
Guaranty shall be binding upon Guarantor and its respective successors and
assigns and shall inure to the benefit of Lessor and to the benefit of Lessor's
successors and assigns.
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<PAGE>
(i) Whenever the singular shall be used hereunder, it shall be deemed to
include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Guaranty so requires. Section captions or headings used in the Guaranty
are for convenience and reference only, and shall not affect the construction
thereof.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
LYRIC HEALTH CARE LLC
BY: INTEGRATED HEALTH SERVICES, INC.
ITS: MEMBER
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
15
SECURITY AGREEMENT
BETWEEN
THE ENTITIES DESCRIBED ON ATTACHED EXHIBIT A
AND
MONARCH PROPERTIES, LP
DATED JUNE 23, 1998
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of June 23, 1998, by and between the entities described on attached
EXHIBIT A (each a "Debtor" and collectively, "Debtors") and MONARCH PROPERTIES,
LP, a Delaware limited partnership ("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the
meanings given them in the Master Lease between Secured Party and Lyric
Holdings, dated as of the date hereof ("Lease").
B. Pursuant to the Master Lease, Secured Party has leased to Lyric Health
Care Holdings III, Inc. ("Lyric Holdings"), for a Term commencing on the
Commencement Date, as defined in the Master Lease, all of the Leased Properties.
Lyric Holdings and the Sublessees have entered into Facility Subleases, each
dated as of the date hereof (each a "Facility Sublease" and collectively,
"Facility Subleases") pursuant to which each Sublessee has subleased from Lyric
Holdings the Leased Property located as set forth opposite such Sublessee's name
on Exhibit A hereto.
C. Each Facility Sublease contains substantially the same provisions as the
Master Lease except for provisions concerning rent and other matters specific to
the individual Facility. In this Agreement, "Lease" means the Master Lease and
the Facility Sublease, as applicable to each Facility.
D. As a condition to Secured Party's agreement to enter into the Lease,
Secured Party has required each Debtor to enter into this Security Agreement and
to grant security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to enter into the Lease,
and for other good and valuable consideration the receipt and sufficiency of
which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the
Lease. Terms defined in the Commercial Code (as hereinafter defined) and not
otherwise defined in this Security Agreement or in the Lease shall have the
meanings ascribed to those terms in the Commercial
1
<PAGE>
Code. In addition to the other definitions contained herein, when used in this
Agreement the following terms shall have the following meanings:
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in
force from time to time in the state in which the Facility is located.
"Debtor's Personal Property" means (i) any tangible personal property owned
by a Debtor and not used in connection with the operation of any Facility and
(ii) Debtor's accounts receivable.
ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Each Debtor hereby grants to Secured Party a
continuing security interest in the Collateral to secure the payment of all
amounts now or hereafter due and owing to Secured Party from such Debtor under
the Lease, or any extension or renewal thereof, and any and all other
obligations incurred in connection therewith, together with all other
obligations or indebtedness of each Debtor to Secured Party however created,
evidenced or arising, whether direct or indirect, absolute or contingent, now or
hereafter existing, due or to become due, plus all interest, costs,
out-of-pocket expenses and reasonable attorneys' fees which may be made or
incurred by Secured Party in the administration, and collection thereof (the
"Liabilities"), and in the protection, maintenance, and liquidation of the
Collateral. This Security Agreement shall be and become effective when, and
continue in effect as long as, any Liabilities of any Debtor to Secured Party
are outstanding and unpaid, and except as otherwise permitted pursuant to the
terms of this Agreement or the Lease, no Debtor will sell, assign, transfer,
pledge or otherwise dispose of or encumber any Collateral to any third party
while this Security Agreement is in effect without the prior and express written
consent of Secured Party, except for inventory and supplies sold or disposed of
in the ordinary course of business.
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the
personal property described below that each Debtor now owns or shall hereafter
acquire or create, immediately upon the acquisition or creation thereof, and
that is located at or used exclusively in connection with the Facility,
consisting of the following:
(a) Inventory. All inventory and goods, now owned or hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the ordinary course of business at the Facility (the
"Inventory"); and
2
<PAGE>
(b) Equipment. All equipment, furniture, fixtures and other personal
property used in connection with the operation of the Facility, whether now
owned or hereafter acquired by a Debtor, together with all accessions,
additions, parts, attachments, accessories, or appurtenances thereto including
but not limited to linens, motor vehicles, furniture, fixtures and movable
equipment, leasehold improvements, and all books and records now owned or
hereafter acquired pertaining to any of the above described property, including
but not limited to any computer readable memory and any computer hardware or
software necessary to process such memory, wherever located, other than Debtor's
Personal Property (the "Equipment"); and
(c) Licenses and Permits. To the extent permitted by law, all licenses
and permits now owned or hereafter acquired by a Debtor and necessary or
desirable for the contemplated use and operation of a Facility as a health care
facility (the "Licenses"); and
(d) Certificates of Need. To the extent permitted by law, all
Certificates of Need now or hereafter issued in connection with a Facility (the
"Certificates"); and
(e) Proceeds. Proceeds arising out of the operation of Facility,
including, without limitation, proceeds of hazard or other insurance policies
and eminent domain or condemnation awards, of all of the foregoing described
Inventory or Equipment, together with any and all deposits or other sums at any
time credited by or due from Secured Party to a Debtor and any and all
instruments, documents, policies and certificates of insurance, securities,
goods and the proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by a Debtor or in which a Debtor has an
interest, which are now or at any time hereafter in possession or under the
control of Secured Party or in transit by mail or carrier to or from Secured
Party or in the possession of any third party acting on behalf of Secured Party,
without regard to whether Secured Party received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise, or whether
Secured Party has conditionally released the same (the "Proceeds"); and
(f) Insurance Rights. All rights under contracts of insurance now
owned or hereafter acquired covering any of the Collateral ("Insurance Rights");
and
(g) Other Property. All other tangible and intangible property of a
Debtor now or hereinafter acquired by a Debtor and located at the Facility or
used exclusively in connection with the operation of the Facility; and
(h) Rights. All rights, remedies, powers and/or privileges of a Debtor
with respect to any of the foregoing. The form of a description of the
Collateral to be attached to financing statements to be executed by each Debtor
is attached hereto as EXHIBIT B. Except to the extent set forth above, the term
"Collateral" does not include Debtor's Personal Property.
3
<PAGE>
3. PERFECTION OF SECURITY INTEREST. Each Debtor shall execute and deliver
to Secured Party, concurrently with such Debtor's execution of this Security
Agreement and at any time or times hereafter at the request of Secured Party,
all financing statements, continuation financing statements, assignments,
affidavits, reports, notices, letters of authority, vehicle title notations and
all other documents that Secured Party may reasonably request, in a form
reasonably satisfactory to Secured Party, to perfect and maintain perfected
Secured Party's security interests in the Collateral. In order to fully
consummate all of the transactions contemplated hereunder, each Debtor shall
make appropriate entries on its books and records disclosing the security
interests created hereby in the Collateral.
4. WARRANTIES AND COVENANTS. In addition to the warranties and
representations, if any, made in the Lease, each Debtor warrants, represents and
agrees that:
(a) Debtor is and will be the lawful owner or lessee of all of the
Collateral, with the right to subject the owned or leased property to the
security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted
to Secured Party, there are no other security interests in the Collateral that
are known to Debtor, and there are no financing statements covering any of the
Collateral filed in any public office created by or known to Debtor prior to the
date hereof, except as previously disclosed by Debtor to Secured Party. Debtor
shall defend Secured Party against any claims and demands of any and all other
persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at a
Facility;
(d) Except as permitted under the Lease or hereunder, Debtor shall not
remove the Collateral from a Facility without Secured Party's prior written
consent and shall not use or permit the Collateral to be used for any unlawful
purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor
shall not remove any Collateral from the state in which the Facility is located
without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct
business under any name at a Facility other than that set forth on SCHEDULE A to
the Facilities Purchase Agreement (as defined in the Master Lease), nor will any
Debtor change or reorganize the type of business entity under which it presently
does business, except upon prior and express written approval of Secured Party,
and, if such approval is granted, Debtor agrees that all documents, instruments
and agreements reasonably requested by Secured Party and relating to such change
shall be prepared, filed and recorded at Debtor's expense before the change
occurs;
(f) Debtor shall not remove any records concerning the Collateral
located at the Facility nor keep any of its records concerning the same at any
other location (other than the
4
<PAGE>
corporate headquarters of IHS) unless written notice thereof is given to Secured
Party at least ten (10) days prior to the removal of such records to any new
addresses; and
(g) Debtor has the right and power and is duly authorized to enter
into this Security Agreement. The execution of this Security Agreement does not
and will not constitute a breach of any provision contained in any agreement or
instrument to which Debtor is or may become a party or by which Debtor is or may
be bound or affected.
5. DEFAULT/REMEDIES
(a) The occurrence and continuation of any Event of Default under the
Lease shall constitute a Security Agreement Event of Default.
(b) Whenever a Security Agreement Event of Default shall have occurred
and so long as it continues, Secured Party may exercise from time to time any
rights and remedies, including the right to immediate possession of the
Collateral, available to it under the Lease, this Security Agreement or
applicable law. Secured Party shall have the right to hold any property then in
or upon the Facility (but excluding any property belonging to patients at the
Facility) at the time of repossession not covered by this Security Agreement
until return is demanded in writing by a Debtor. Each Debtor agrees, in case of
the occurrence of a Security Agreement Event of Default that is continuing and
upon the request of Secured Party, to assemble, at its expense, all of the
Collateral under its control at a convenient place acceptable to Secured Party
and to pay all costs of Secured Party of collection of all the Liabilities, and
enforcement of rights hereunder, including reasonable attorneys' fees and legal
expenses, including participation in bankruptcy proceedings, and the expenses of
locating the Collateral and the expenses of any repairs to any realty or other
property to which any of the Collateral may be affixed or be a part. If the
Collateral is disposed of at a public sale, the parties agree that a public sale
with at least ten (10) business days prior notice to Lyric Holdings and notice
to the public by one publication in a local newspaper is commercially
reasonable. If any notification of intended disposition of any of the Collateral
is required by law, such notification, if mailed, shall be deemed reasonably and
properly given if sent at least ten (10) business days before such disposition,
by first class mail, postage prepaid, addressed to Lyric Holdings either at the
address set forth in the notice section hereof, or at any other address of Lyric
Holdings appearing on the records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, EACH DEBTOR AGREES THAT SECURED
PARTY SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT,
HAVE THE RIGHT TO PEACEFULLY RETAKE ANY OF THE COLLATERAL. DEBTOR WAIVES ANY
RIGHT IT MAY HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH
RETAKING.
(d) Notwithstanding anything elsewhere herein to the contrary, if the
existence of an Event of Default upon which Secured Party is relying in its
pursuit of the remedies provided
5
<PAGE>
for herein is being arbitrated pursuant to Article [Insert] of the Lease,
Secured Party's right to pursue such remedies on the basis of such Event of
Default shall be suspended until in such arbitration there is a final
determination that such Event of Default exists.
6. GENERAL
(a) Time shall be deemed of the essence with respect to this Security
Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if it takes
such action for that purpose as Lyric Holdings requests in writing, but failure
of Secured Party to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care. Failure of Secured Party to preserve or
protect any rights with respect to such Collateral against any prior parties
shall not be deemed a failure to exercise reasonable care in the custody and
preservation of such Collateral.
(c) Any delay on the part of Secured Party in exercising any power,
privilege or right under the Lease, this Security Agreement or under any other
instrument or document executed by a Debtor in connection herewith shall not
operate as a waiver thereof. No single or partial exercise thereof, or the
exercise of any other power, privilege or right shall preclude other or further
exercise thereof, or the exercise of any other power, privilege or right. The
waiver by Secured Party of any default by a Debtor shall not constitute a waiver
of any subsequent defaults or defaults by any other Debtor but shall be
restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in
addition to all rights, remedies and power is given by the Lease or the
Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to
include the plural (and vice-versa), and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Security Agreement so requires. Section captions or headings used in
this Security Agreement are for convenience and reference only and shall not
affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement.
6
<PAGE>
(g) This Security Agreement may be executed in multiple counterparts,
each of which shall be considered an original but all of which, when taken
together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure
to the benefit of its successors and assigns, and this Security Agreement shall
be binding on all assigns and successors of each Debtor as may be permitted
under the Lease.
(i) In the event of any action to enforce this Security Agreement or
to protect the security interest of Secured Party in the Collateral, or to
protect, preserve, maintain, process, assemble, develop, insure, market or sell
any Collateral, Debtor agrees to pay the costs owed and expenses thereof,
together with reasonable and documented attorneys' fees (including fees incurred
in appeals and post judgment enforcement proceedings).
(j) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF EACH DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE LAWS OF THE STATE WHERE
THE COLLATERAL IS LOCATED SHALL GOVERN THIS SECURITY AGREEMENT (A) TO THE EXTENT
NECESSARY TO PERFECT AND/OR ENFORCE THE LIENS CREATED BY THIS SECURITY AGREEMENT
AND TO THE EXTENT NECESSARY TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET
FORTH HEREIN WITH RESPECT TO THE COLLATERAL, AND (B) FOR PROCEDURAL REQUIREMENTS
THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS
LOCATED.
(k) EACH DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND NEW YORK
AND AGREES THAT ALL DISPUTES CONCERNING THIS SECURITY AGREEMENT BE HEARD IN THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE IN WHICH THE COLLATERAL IS LOCATED
OR IN NEW YORK. EACH DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON
IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED OR NEW YORK, AND EACH DEBTOR IRREVOCABLY WAIVES ANY
OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED AND NEW YORK.
(l) No amendment to this Security Agreement shall be effective unless
the same shall be in writing and signed by the parties.
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<PAGE>
(m) Nothing contained herein shall be construed as in any way
modifying or limiting the effect of terms or conditions set forth in the Lease,
but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be
given and deemed effective as provided in the Lease. The parties hereby agree
that a notice sent as specified in this paragraph at least ten (10) business
days before the date of any intended public sale or the date after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to be reasonable notice of such sale or other disposition.
SIGNATURE PAGES FOLLOW
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of
the date first written above.
SECURED PARTY:
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
Title: President and Chief Executive Officer
DEBTOR:
[INSERT SUBSIDIARIES]
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LYRIC HOLDINGS:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
9
ESCROW AGREEMENT
AMONG
THE ENTITIES DESCRIBED ON ATTACHED EXHIBIT A,
LYRIC HEALTH CARE HOLDINGS III, INC.,
MONARCH PROPERTIES, LP
AND
FIDELITY NATIONAL TITLE
INSURANCE COMPANY OF NEW YORK
DATED AS OF JUNE 23, 1998
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is executed and delivered as of
the 23rd day of June, 1998 (the "Effective Date") among the entities described
on attached EXHIBIT A (each a "Seller" and, collectively, "Sellers"), LYRIC
HEALTH CARE HOLDINGS III, INC., a Delaware corporation ("Lyric Holdings"),
MONARCH PROPERTIES, LP, a Delaware limited partnership ("Purchaser") and
FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK ("Escrow Agent").
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Concurrently herewith, Purchaser has purchased from Sellers and leased
to Lyric Holdings various health care facilities ("Facilities") pursuant to a
Master Lease of even date herewith ("Master Lease"). Lyric Holdings has
concurrently subleased the Facilities to Sellers pursuant to various Facility
Subleases of even date herewith.
B. A condition of Purchaser's acquisition of the Facilities is the
agreement of Sellers and Lyric Holdings to complete certain repairs and
improvements to the Facilities after the closing, and the payment to Escrow
Agent by Sellers of a portion of the Purchase Price to be held by Escrow Agent
and paid to Lyric Holdings or other payees designated by Lyric Holdings upon
completion of such repairs and improvements or paid to Purchaser in the event of
the failure of Sellers and Lyric Holdings to complete such repairs and
improvements, all in accordance with the terms and conditions set forth below.
C. Capitalized words not defined herein shall have the definitions given
them in the Master Lease.
NOW, THEREFORE, Sellers, Lyric Holdings and Purchaser agree as follows:
1. ESCROW DEPOSIT. Escrow Agent acknowledges the receipt of [Insert Amount]
($__________) and agrees to hold and deliver such sum according to the terms and
conditions hereinafter set forth.
2. CAPITAL EXPENDITURES. Sellers and Lyric Holdings jointly and severally
agree that, within three hundred and sixty-five (365) days from the date of this
Agreement, they will complete the capital repair and improvement activities
described under the heading "Action Required" and set forth opposite the name of
the applicable Facility on attached EXHIBIT B.
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<PAGE>
3. INSPECTION BY PURCHASER. Sellers and Lyric Holdings shall (i) give
Purchaser at least ten (10) Business Days' prior written notice of any request
for a disbursement of escrowed funds, which notice shall include a copy of the
certificate to be delivered to Escrow Agent as required by Section 4 hereof with
respect to such disbursement, and (b) give Purchaser's representative or
representatives access to the Leased Property at reasonable times, upon one
business day's prior notice, for the purpose of inspecting the capital repair
and improvement work.
4. REQUESTS FOR DISBURSEMENT OF ESCROWED FUNDS. Lyric Holdings shall
present each request for disbursement of escrowed funds to Purchaser in writing
for its approval, which shall not unreasonably be withheld or delayed. Each
request shall meet the requirements of Paragraph 5, below.
5. DISBURSEMENT OF ESCROWED FUNDS. Within two (2) Business Days following
receipt of Lyric Holdings' written request, Escrow Agent shall disburse to Lyric
Holdings or to such payees as may be designated by Lyric Holdings in its request
for disbursement, out of the funds held in escrow, the out-of-pocket costs and
expenses incurred by Lyric Holdings or any one or more of the Sellers in
connection with the performance by it of its obligations under Paragraph 2 (the
"Capital Expenditures"), upon presentation of a request for disbursement,
provided:
(A) No more than one (1) request for disbursement is submitted in any
calendar month;
(B) The total monthly request for disbursement is not less than
[Fifty Thousand Dollars ($50,000)], except for the final request
for disbursement which shall be in the amount of the undisbursed
balance of escrowed funds, and the requested disbursement
per-payee is not less than [Ten Thousand Dollars ($10,000)];
(C) The request for disbursement is accompanied by:
(i) a certificate of Lyric Holdings, executed by an officer of
Lyric Holdings, certifying that a portion of the work set
forth on EXHIBIT B hereto has been completed, describing
such portion of the work in detail, and stating that the
disbursement is sought for costs and expenses incurred in
completing such work;
(ii) either (x) evidence of the written approval of such
disbursement by Purchaser or (y), if Escrow Agent has not
received a Notice from Purchaser disapproving the proposed
disbursement, a statement of Lyric Holdings in the
certificate described in
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<PAGE>
subsection (i) above, to the effect that notice of the
request for disbursement, including a copy of such
certificate, was sent to Purchaser at least ten (10)
Business Days prior to the submission of the request.
(D) Overhead incurred by Lyric Holdings or any Affiliate of Lyric
Holdings shall not be deemed to be a cost or expense incurred by
Lyric Holdings or any one or more of the Sellers in connection
with the performance by it of its obligations under Paragraph 2.
6. INVESTMENT OF ESCROWED FUNDS. Escrow Agent shall invest the funds held
in escrow by it in a separate money market account at Chase Manhattan Bank.
Interest earned on such funds shall belong to Lyric Holdings and be paid to
Lyric Holdings in accordance with its instructions to Escrow Agent. Lyric
Holdings Federal Tax Identification Number is [Insert].
7. DISPUTES. In the event of any dispute between the parties hereto as to
the disposition of any funds held in escrow that is not resolved within ninety
(90) days after notice to the parties from Escrow Agent, Escrow Agent is hereby
authorized to deposit such funds with any court of competent jurisdiction and
commence an interpleader action naming the other parties hereto as defendants
with respect thereto, and upon such deposit Escrow Agent shall be relieved of
any further liability hereunder.
8. LIMITATION OF LIABILITY OF ESCROW AGENT. Escrow Agent shall have no
liability hereunder, except for damages, if any, resulting from Escrow Agent's
negligence or willful misconduct; it being understood that by its acceptance of
this escrow agency, Escrow Agent is acting in the capacity of a depositary and
is not as such responsible or liable for the sufficiency, correctness,
genuineness and/or receipt of instruments, documents or notices deposited and/or
received under this Escrow Agreement. Upon notice to the other parties hereto,
Escrow Agent shall reimburse itself for any reasonable expenses from the Escrow
Account, including attorneys fees, which Escrow Agent may incur as a result of
any legal proceedings affecting this Escrow Agreement and/or the Escrow Agent's
duties as depository hereunder.
9. FAILURE TO COMPLETE WORK. In the event the work described on EXHIBIT B
has not been completed on or before the date specified in Section 2 hereof,
Purchaser may give Lyric Holdings, Sellers and Escrow Agent written notice of
such failure, and in the event such work is not completed within twenty (20)
Business Days after such notice, Purchaser (a) shall have the right to cause its
employees, agents and contractors to enter upon the Leased Property and complete
such work at the expense of Lyric Holdings, and to demand and receive any funds
then remaining in escrow to be applied towards reimbursement or payment for such
expense, or (b) to declare such failure to be an Event of Default under the
Master Lease,
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<PAGE>
entitling Purchaser to the remedies provided in the Master Lease and by law,
including, among such remedies, the right to demand and receive any then
undisbursed funds in escrow.
10. 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 or hand delivery to the following
address:
To Sellers and Lyric Holdings:
Lyric Health Care LLC
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth and
Marshall A. Elkins, Esq.
Telephone No.: 410/998-8768
Facsimile No.: 410/998-8695
To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941/598-5605
Facsimile No.: 941/566-6082
With copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(which shall not 125 West 55th Street
constitute notice): New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212/424-8279
Facsimile No.: 212/424-8500
To Escrow Agent: Fidelity National Title Insurance Company
of New York
2 Park Avenue
New York, New York 10016
Attn: Robert Calamari
Telephone No.: 212/481-5858
Facsimile No.: 212/481-8747
Notices shall be deemed given upon actual receipt.
4
<PAGE>
11. CHOICE OF LAW; SEVERABILITY. This Agreement shall be construed in each
and every respect in accordance with the laws of the State of New York. If any
provision in this Agreement is in conflict with such laws, or is otherwise
unenforceable for any reason whatsoever, such provision shall be deemed null and
void to the extent of such conflict or unenforceability, and it shall be severed
from and shall not invalidate any other provision of this Agreement
SIGNATURE PAGES FOLLOW
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Escrow Agreement as of
the day and year first set forth therein.
SELLERS:
[INSERT EACH SELLER]
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Managing Director
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LYRIC HOLDINGS:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
6
<PAGE>
PURCHASER:
MONARCH PROPERTIES, LP
By: MP Operating, Inc.
Its: General Partner
By:
-----------------------------------------
Name: John B. Poole
Title: President and Chief Executive
Officer
ESCROW AGENT:
FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK
By:
-----------------------------------------
Name: Robert Calamari
Title: Senior Vice President
7
LETTER OF CREDIT AGREEMENT
AMONG
MONARCH PROPERTIES, LP,
LYRIC HEALTH CARE HOLDINGS III, INC.
AND
THE ENTITIES DESCRIBED ON ATTACHED EXHIBIT A
DATED AS OF JUNE 23, 1998
<PAGE>
LETTER OF CREDIT AGREEMENT
THIS LETTER OF CREDIT AGREEMENT (this "Agreement"), is made and entered
into as of June 23, 1998 among MONARCH PROPERTIES, LP, a Delaware limited
partnership ("Lessor"), LYRIC HEALTH CARE HOLDINGS III, INC., a Delaware
corporation ("Lessee") and the entities described on attached EXHIBIT A (each a
"Sublessee" and, collectively, the "Sublessees").
RECITALS:
A. Lessee owns all of the shares of each of the Sublessees. Each Sublessee
has subleased the healthcare Facility set forth opposite its name on EXHIBIT A
hereto from Lessee pursuant to a Facility Sublease dated as of the date hereof
("Facility Sublease"), which in turn leases all of the Facilities from Lessor
pursuant to a Master Lease dated as of the date hereof ("Master Lease"). Each
Facility Sublease contains substantially the same provisions as the Master Lease
except for provisions concerning rent and other matters specific to the
individual Facility. In this Agreement, "LC Lease" means the Master Lease and
the Facility Sublease as applicable to each Facility.
B. As a condition to Lessor's execution of the LC Lease, Lessee and the
Sublessees agreed to deliver the security deposit (the "Security Deposit")
referred to therein in the amounts set forth on attached EXHIBIT A.
C. Pursuant to the LC Lease, Lessee and the Sublessees have the option to
provide the Security Deposit to Lessor in the form of either cash or a letter of
credit.
D. Lessee and Sublessees have agreed to fulfill the Security Deposit
requirement of the LC Lease by delivering to Lessor a Letter of Credit (as
defined below) on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in order to induce Lessor to enter into the LC Lease and
for other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the parties agree as follows:
1. Definitions. Terms used but not otherwise defined in this Agreement
shall have the respective meanings given them in the LC Lease. In addition, the
following terms used in this Agreement shall have the meanings set forth below:
"Bank" means a commercial bank that has a rating of "A" or better by
Standard & Poor's Corporation or Moody's Investors Service, or similar,
nationally recognized, credit rating agency, and that serves as the issuer of
the Letter of Credit.
1
<PAGE>
"Letter of Credit" means an irrevocable letter of credit that (a) is issued
by a Bank in the form of attached EXHIBIT B (with such changes thereto as Lessor
may approve in its sole discretion), (b) names Lessor and its assigns as
beneficiary and (c) is delivered by Lessees to Lessor pursuant to this
Agreement, together with any and all substitutes and replacements for such
irrevocable letter of credit.
"Term of this Agreement" means the period of time commencing on the
Commencement Date of the LC Lease and ending thirty (30) business days after the
expiration or earlier termination of the term of the LC Lease.
2. Letter of Credit. Upon execution of this Agreement, Lessees shall
deliver or cause to be delivered to Lessor a Letter of Credit in the amount of
[Insert Amount] ($__________) [SIX MONTHS RENT] (the "Initial Letter of Credit
Amount"). Any replacement of the Letter of Credit in whole or in part shall be
issued by a Bank. The term of the Letter of Credit shall be for a minimum of one
(1) year. The Letter of Credit shall contain a provision providing for the
automatic renewal of the Letter of Credit for additional periods of one (1) year
in the Initial Letter of Credit Amount; however, if Lessee, before the
expiration of the Letter of Credit, provides to Lessor, pursuant to the LC
Lease, a cash Security Deposit or a separate replacement Letter of Credit in an
amount equal to all or any portion of the Initial Letter of Credit Amount, then
the automatic renewal of the Letter of Credit shall be in an amount equal to the
difference between the Initial Letter of Credit Amount and the sum of the cash
Security Deposits and/or substitute Letters of Credit provided to Lessor by
Lessee pursuant to the LC Lease.
3. Replacement or Substitution of Letter of Credit. If Lessor reasonably
determines that the credit rating of the Bank (or its holding company) has been
reduced by one or more nationally recognized credit rating agenc(y)(ies) to a
level lower than such agency's "A" rating, then at any time thereafter Lessor
may give notice of such event to Lessees. Within thirty (30) days of the
delivery of such notice by Lessor, Lessees shall deliver or cause to be
delivered to Lessor (a) a replacement Letter of Credit that has a term of at
least twelve (12) months or that otherwise is acceptable to Lessor in its sole
discretion or (b) a cash Security Deposit in the Initial Letter of Credit
Amount.
4. Drafts under the Letter of Credit. Lessor shall have the right to draw
upon any Letter of Credit provided by Lessee and the Sublessees to Lessor at any
time from and after (i) a failure by Lessee to deliver to Lessor, when and if
required by Section 3 of this Agreement, a cash Security Deposit and/or a
replacement Letter of Credit in an aggregate amount equal to the Initial Letter
of Credit Amount; or (ii) Lessor's receipt of a notice of non-renewal from the
issuer of the Letter of Credit; or (iii) the expiration or termination of the
Term of the LC Lease if any amount remains owing from Lessee under the LC Lease;
or (iv) the occurrence of an Event of Default under the LC Lease. Lessor shall
provide Lessee with notice of any drawing under a Letter of Credit promptly
after any drawing has been made, but the giving of any such notice shall not be
a condition to the making of a draw under any Letter of Credit. The Letter of
Credit shall
2
<PAGE>
permit Lessor to make multiple draws from time to time, provided that the total
of such draws shall not exceed the Initial Letter of Credit Amount .
5. Application of Amounts Drawn Under Letter of Credit. Lessor shall apply
all amounts drawn under the Letter of Credit to pay Rent, Additional Charges and
any other sums due under the LC Lease. If for any reason the amount drawn
exceeds the amount owing at the time of the drawing under the Letter of Credit,
Lessor shall retain the excess amount so drawn as a Security Deposit under the
LC Lease and shall hold such cash pursuant to the terms of the LC Lease
providing for the treatment of cash held as a Security Deposit under the LC
Lease.
6. Transferability. The Letter of Credit shall provide that it is
transferrable by Lessor in connection with any transfer by Lessor of its
interest in the LC Lease; however, if Lessor wishes to transfer the Letter of
Credit with respect to the LC Lease it shall notify Lessee, who shall, within
fifteen (15) business days of such Notice, deliver to Lessor or Lessor's
assignee one or more replacement Letters of Credit in the Initial Letter of
Credit Amount.
7. Bankruptcy or Insolvency of Lessees. None of (a) the dissolution,
insolvency or business failure of Lessee or any of the Sublessees, (b) an
assignment for the benefit of creditors of Lessee or any of the Sublessees, (c)
the commencement of any bankruptcy, reorganization, arrangement, moratorium or
other debtor relief proceeding by or against Lessee or any of the Sublessees,
(d) the appointment of a receiver for any property of Lessee or any of the
Sublessees or (e) the issuance of a writ of attachment or the enforcement of any
order of any court of legal process affecting any property of Lessee or any of
Sublessees shall in any manner affect or impair the Letter of Credit or Lessor's
rights thereunder, or under this Agreement. Lessee and the Sublessees
acknowledge and agree that (a) the Letter of Credit is a distinct and separate
contract between Lessor and the Bank, (b) the Letter of Credit is not and shall
not be deemed or construed to be an asset, property, possession or contract of
any kind whatsoever owned or held by any of Lessee or the Sublessees, (c) any
payments received by Lessor pursuant to the Letter of Credit shall not
constitute a preferential payment and (d) all funds paid by the Bank pursuant to
the Letter of Credit are the separate funds of the Bank.
8. 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 or hand delivery to the following
addresses:
To Lessee or any Sublessee:
c/o Lyric Health Care LLC
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Telephone No.: 410/998-8768
Facsimile No.: 410/998-8695
3
<PAGE>
To Lessor: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941/598-5605
Facsimile No.: 941/566-6082
With copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(which shall not 125 West 55th Street
constitute notice): New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212/424-8279
Facsimile No.: 212/424-8500
Notices shall be deemed given upon actual receipt.
9. Miscellaneous.
9.1 Except as required by law for the posting of notices, all notices,
requests, demands and other communications hereunder shall be given in
accordance with the terms of the LC Lease.
9.2 Any delay on the part of Lessor in exercising any power, privilege
or right under the LC Lease, this Agreement or any other instrument or document
executed by Lessee or the Sublessees in connection herewith shall not operate as
a waiver thereof. Neither a single or partial exercise thereof, nor the exercise
of any other power, privilege or right shall preclude other or further exercise
thereof or the exercise of any other power, privilege or right. The waiver by
Lessor of any default by Lessee or any of Sublessees shall not constitute a
waiver of any subsequent defaults or a waiver of the same or any similar default
by Lessee or such Sublessee or any of the other Sublessees but shall be
restricted to the default so waived.
9.3 All rights, remedies and powers of Lessor hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in
addition to all rights, remedies and powers given by the LC Lease, any other
document executed and/or delivered in connection therewith or any other
applicable laws now existing or hereafter enacted.
9.4 Whenever the singular shall be used hereunder, it shall be deemed
to include the plural (and vice versa), and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Agreement so requires. Section captions or headings used in this
Agreement are for convenience and reference only and shall not affect the
construction hereof.
4
<PAGE>
9.5 Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
of the remaining provisions of this Agreement.
9.6 This Agreement may be executed in separate counterparts, each of
which shall be considered an original when each party has executed and delivered
to the other one or more copies of this Agreement but all of which taken
together shall constitute one agreement.
9.7 The rights and privileges of Lessor, Lessee and Sublessees
hereunder shall inure to the benefit of their successors and assigns, and this
Agreement shall be binding on all assigns and successors of Lessee and the
Sublessees.
9.8 Lessee and Sublessees shall, at the request of Lessor, execute
such other agreement, documents or instruments in connection with this Agreement
as Lessor reasonably requires.
9.9 In the event of any action to enforce this Agreement, the party
that does not prevail agrees to pay the costs and expenses of the party that
prevails in such action, together with reasonable attorneys' fees (including
fees incurred in appeals and post-judgment enforcement proceedings).
9.10 No amendment of this Agreement shall be effective unless it is in
writing and signed by the parties.
9.11 Nothing contained in this Agreement shall be construed as in any
way modifying or limiting the effect of terms or conditions set forth in the LC
Lease, but each and every term and condition hereof shall be in addition
thereto. Lessee and each of Sublessees waives, to the fullest extent permitted
by law, any right to (i) require Lessor to proceed against or exhaust any
collateral or security held by Lessor pursuant to the LC Lease and/or any of the
other documents executed and/or delivered by Lessee or any of the Sublessees to
Lessor in connection therewith or (ii) pursue any other remedy in Lessor's
power.
9.12 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE LAWS OF THE STATE IN
WHICH A FACILITY IS LOCATED SHALL GOVERN THIS AGREEMENT (I) TO THE EXTENT
NECESSARY TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES OF LESSOR WITH
RESPECT TO SUCH FACILITY AND (II) WITH RESPECT TO PROCEDURAL REQUIREMENTS THAT
ARE GOVERNED BY THE LAWS OF SUCH STATE.
5
<PAGE>
9.13 LESSEE AND EACH OF THE SUBLESSEES CONSENTS TO IN PERSONAM
JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE RESPECTIVE STATES IN
WHICH THE FACILITIES ARE LOCATED AND IN NEW YORK AND AGREES THAT ALL DISPUTES
CONCERNING THIS AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN
THE RESPECTIVE STATES IN WHICH THE FACILITIES ARE LOCATED AND IN NEW YORK.
LESSEE AND EACH OF SUBLESSEES AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED
UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE RESPECTIVE STATES IN
WHICH THE FACILITIES ARE LOCATED OR NEW YORK AND IRREVOCABLY WAIVES ANY
OBJECTION TO VENUE IN THE STATE, AND FEDERAL COURTS OF SUCH STATES.
SIGNATURE PAGES FOLLOW
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Letter of Credit
Agreement as of the day and date first written above.
SUBLESSEES:
[INSERT SUBLESSEES]
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LESSEE:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LESSOR:
MONARCH PROPERTIES, LP
By: MP Operating, Inc.
Its: General Partner
By:
-----------------------------------------
Name: John B. Poole
Title: President and Chief Executive Officer
7
MONARCH PROPERTIES, INC.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
EMPLOYEE NON-QUALIFIED STOCK OPTION
THIS AGREEMENT made as of _______________, 199_, by and between MONARCH
PROPERTIES, INC., a Maryland corporation (the "Company"), and
___________________ (the "Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Monarch Properties, Inc. 1998 Omnibus
Securities and Incentive Plan (the "Plan") for the benefit of its officers, key
employees and directors and the officers, key employees and directors of its
Affiliates, and
WHEREAS, the Committee has authorized the grant to the Optionee of an
Option under the Plan, on the terms and conditions set forth in the Plan and as
hereinafter provided,
NOW, THEREFORE, in consideration of the premises contained herein, the
Company and the Optionee hereby agree as follows:
1. Definitions
Terms used in this Agreement which are defined in the Plan shall have
the same meaning as set forth in the Plan.
2. Grant of Option
The Committee hereby grants to the Optionee an Option to purchase
[INSERT # OF SHARES] shares of the Company's Common Stock ("Shares")[,
exercisable in quantities of _________ (___) or more Shares per Option,] for a
price per Share equal to [INSERT PRICE] (the "Option Price"). The Option granted
under this Agreement is intended by the Committee to be a Non-Qualified Stock
Option and the provisions of this Agreement shall be interpreted on a basis
consistent with such intent.
3. Option Terms and Exercise Period
a. The Option granted to the Optionee pursuant to this Agreement shall
be exercised, and payment by the Optionee of the Option Price shall be made,
pursuant to the terms of the Plan.
<PAGE>
b. All or any part of the Option awarded under this Agreement may be
exercised by the Optionee no later than ten (10) years after the date of this
Agreement.
c. This Agreement and the Option issued hereunder to the Optionee
shall terminate on the earlier of (i) the [_____] anniversary of the date of
this Agreement, or (ii) the date on which the Option is fully exercised.
4. Vesting
The Option to purchase the number of Shares set forth in Section 2
shall become exercisable pursuant to the following schedule:
Number of Complete
12-Month Periods
Since Date
of this Agreement Percent Exercisable
----------------- -------------------
Notwithstanding the above schedule, the Option shall be one hundred percent
(100%) exercisable in the Option granted under this Agreement if the Optionee's
employment with the Company shall terminate on account of the Optionee's death,
Permanent and Total Disability or retirement upon or after attaining age
sixty-two (62). The Optionee shall forfeit any unexercisable Options upon
termination of employment with the Company for any reason other than the
Optionee's death, Permanent and Total Disability or retirement upon or after
attaining age sixty-two (62).
5. Termination of Employment
Section 6.2(a) of the Plan shall control.
6. Restrictions on Transfer of Option
This Agreement and the Option granted hereunder shall not be
transferable otherwise than (a) by will or by the laws of descent and
distribution, or (b) by gift to any member of the Optionee's immediate family or
to a trust for the benefit of such an immediate family member, and shall be
exercisable, during the Optionee's lifetime, solely by the Optionee, except on
account of the Optionee's Permanent and Total Disability or death, and solely by
the transferee in the case of a transfer by gift to a member of the Optionee's
immediate family or to a trust for the benefit of such an immediate family
member.
- 2 -
<PAGE>
7. Exercise of Option
a. The Option granted hereunder shall become exercisable at such time
as shall be provided herein and shall be exercisable by written notice of such
exercise, in the form prescribed by the Committee, to the Secretary of the
Company, at the Company's principal office. The notice shall specify the number
of Shares with respect to which the Option granted hereunder is being exercised.
b. Shares purchased pursuant to this Agreement shall be paid for in
full at the time of such purchase in cash, in Shares, including Shares acquired
pursuant to the Plan, or part in cash and part in Shares. Shares transferred in
payment of the Option Price shall be valued as of the date of transfer based on
their Fair Market Value.
8. Regulation by the Committee
This Agreement and the Option granted hereunder shall be subject to
the administrative procedures and rules as the Committee shall adopt. All
decisions of the Committee upon any question arising under the Plan or under
this Agreement, shall be conclusive and binding upon the Optionee and any person
or persons to whom the Option or any part of the Option granted hereunder has
been transferred by will, by the laws of descent and distribution or by gift to
a member of the Optionee's immediate family or to a trust for the benefit of
such an immediate family member.
9. Rights as a Shareholder
The Optionee shall have no rights as a shareholder with respect to
Shares subject to the Option granted hereunder until certificates for Shares of
Common Stock are issued to the Optionee.
10. Change of Control
Notwithstanding the vesting requirements contained in Section 4, upon
a Change of Control, the Option granted hereunder shall automatically become
fully vested and exercisable as of the date of such Change of Control.
11. Reservation of Shares
With respect to the Option granted to the Optionee hereunder, the
Company hereby agrees to at all times reserve for issuance and/or delivery upon
payment by the Optionee of the Option Price, such number of Shares as shall be
required for issuance and/or delivery upon such payment pursuant to such Option.
- 3 -
<PAGE>
12. Delivery of Share Certificates
Within a reasonable time after the exercise of the Option granted
hereunder the Company shall cause to be delivered to the Optionee, his or her
legal representative or his or her beneficiary, a certificate for the Shares
purchased pursuant to the exercise of the Option.
13. Withholding
In the event the Optionee elects to exercise the Option granted
hereunder (or any part thereof), if the Company or an Affiliate shall be
required to withhold any amounts by reason of any federal, state or local tax
rules or regulations in respect of the issuance of Shares to the Optionee, the
Company or Affiliate shall be entitled to deduct and withhold such amounts from
any payment to be made to the Optionee hereunder.
14. Amendment
The Committee may amend this Agreement at any time and from time to
time; provided, however, that no amendment of this Agreement that would impair
the Optionee's rights or entitlements with respect to the Option granted
hereunder shall be effective without the consent of the Optionee (unless such
amendment is required in order to cause the Option granted hereunder to qualify
as performance-based compensation within the meaning of Section 162(m) of the
Code and applicable interpretive authority thereunder).
15. Plan Terms
The terms of the Plan are incorporated herein by reference.
16. Effective Date of Grant
The Option granted under this Agreement shall be effective as of the
date first written above.
17. Optionee Acknowledgment
By executing this Agreement, the Optionee hereby acknowledges that he
or she has received and read the Plan and this Agreement
- 4 -
<PAGE>
and that he or she agrees to be bound by all of the terms of both the Plan and
this Agreement.
ATTEST: MONARCH PROPERTIES, INC.
By:
- --------------------------- ------------------------------------
Its:
-----------------------------------
WITNESS:
- --------------------------- ---------------------------------------
, Optionee
--------------------------------
Print name
- 5 -
PLEDGE AGREEMENT
BETWEEN
LYRIC HEALTH CARE HOLDINGS III, INC.
AND
MONARCH PROPERTIES, LP
DATED AS OF JUNE 23, 1998
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") made as of June 23, 1998
between LYRIC HEALTH CARE HOLDINGS III, INC. ("Pledgor") for the benefit of
MONARCH PROPERTIES, LP ("Monarch").
The circumstances underlying the execution of this Pledge Agreement are as
follows:
A. As of June 23, 1998, Monarch purchased from the subsidiaries of Pledgor
listed on Exhibit A hereto ("Subsidiaries") and leased to Pledgor various health
care facilities ("Facilities") pursuant to a Master Lease ("Master Lease").
Pledgor has concurrently subleased the Facilities to Subsidiaries.
B. Monarch has required, as a condition to its purchase of the Facilities
and lease thereof to Pledgor, that Pledgor execute and deliver to Monarch this
Pledge Agreement, pursuant to which Pledgor pledges to Monarch, as security for
the Guaranty, all shares of common stock now or hereafter owned by Pledgor in
Subsidiaries, on the terms and conditions hereinafter set forth.
C. Capitalized words not defined herein shall have the definitions given
them in the Master Lease.
NOW, THEREFORE, in consideration of the foregoing, and other valuable
consideration, the receipt, legal adequacy and sufficiency of which hereby are
acknowledged, Pledgor agrees with Monarch as follows:
1. DEFINITION OF "PLEDGED STOCK". For purposes of this Pledge Agreement,
the term "Pledged Stock" means and includes all of the issued and outstanding
shares of the common stock or other securities of each of Subsidiaries now or
hereafter owned by Pledgor or voting trust certificates or other documents of
any kind evidencing any and all ownership or other interests of Pledgor in
Subsidiaries, including, without limitation, those listed on Exhibit B hereto
and any supplemental Exhibit B attached hereto or delivered to Monarch from time
to time.
2. PLEDGE; RIGHTS AND REMEDIES. (a) As collateral security for the due
payment and performance of all indebtedness and other liabilities and
obligations payable or due to Monarch from Pledgor under the Master Lease,
whether now existing or hereafter arising (collectively, the "Obligations"),
Pledgor hereby pledges, assigns, hypothecates, delivers and sets over to Monarch
all of Pledgor's right, title and interest in and to the Pledged Stock, and
hereby grants to Monarch a security interest in all of its right, title and
interest in and to the Pledged Stock and in the proceeds thereof. Concurrently
herewith, Pledgor has delivered to Monarch all certificates representing the
currently existing Pledged Stock, together with a Stock Assignment Separate from
Certificate ("Assignments"), substantially in the form of attached Exhibit C
hereto, for each
1
<PAGE>
certificate representing the Pledged Stock, all duly executed in blank. Monarch
shall hold such certificates and Assignments as security for performance by
Pledgor of the obligations secured hereby and shall at all times have the first
priority and only lien therein.
(b) If Pledgor becomes entitled to receive, or if Pledgor receives,
any additional stock or voting trust certificate of any of Subsidiaries
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase, or reduction
of capital), option or rights, whether as an addition to, in substitution of, or
in exchange for any Pledged Stock, or otherwise, Pledgor shall accept any such
instruments as Monarch's agent, shall hold them in trust for Monarch, and shall
deliver them forthwith to Monarch in the exact form received, with Pledgor's
endorsement when necessary, and/or appropriate stock powers duly executed in
blank, to be held by Monarch, subject to the terms hereof, as further collateral
security for the Obligations.
(c) Upon the occurrence and continuation of an Event of Default, or
the occurrence and continuation beyond any applicable cure or grace period of
any other material breach of or default under the Obligations:
(i) Any or all shares of the Pledged Stock held by Monarch hereunder
may, at the option of Monarch, be registered in the name of Monarch or its
nominee as pledgee, and Monarch or its nominee may thereafter, without
notice, exercise all available voting and corporate rights at any meetings
of Subsidiaries and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any
of the Pledged Stock as if it were the absolute owner thereof, including,
without limitation, the right to receive dividends payable thereon and the
right to exchange, at its discretion, any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing any of such securities or upon the
exercise by any such issuer of any right, privilege or option pertaining to
any of the Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it, but Monarch shall have no duty to
exercise any of the foregoing rights, privileges or options and shall not
be responsible for any failure or omission to do so or delay in so doing.
(ii) Monarch shall have the right to require that all cash dividends
payable with respect to any part of the Pledged Stock be paid to Monarch to
be held by Monarch as additional security hereunder until applied to the
Obligations.
(iii) Monarch, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
the time and place of public or private sale) to or upon Pledgor or any
other person or entity, including without limitation,
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any trustee (all and each of which demands, advertisements and/or notices
are, to the extent permitted by law, hereby expressly waived), immediately
may collect, receive, appropriate and realize upon the Pledged Stock, or
any part thereof, and/or immediately may sell, assign, give an option or
options to purchase, contract to sell or otherwise dispose of and deliver
the Pledged Stock, or any part thereof, in one or more parcels at public or
private-sale or sales, in whatever order Monarch may select, at any
exchange, broker's board or at any of Monarch's offices or elsewhere at
such prices and on such terms (including, without limitation, a requirement
that any Purchaser of all or any part of the Pledged Stock shall be
required to purchase the securities constituting the Pledged Stock for
investment and without any intention to make a distribution thereof) as it
may deem best, for cash or on credit or for future delivery without
assumption of any credit risk, with the right of Monarch or any Monarch
upon any such sale or sales, whether public or private, to purchase the
whole or any part of the Pledged Stock so sold, free of any right or equity
of redemption in Pledgor, which right or equity is hereby expressly waived
and released.
(d) The proceeds of any collection, recovery, receipt, appropriation,
realization, sale or other disposition shall be applied as follows:
(i) First, to the reasonable costs and expenses of every kind incurred
in connection therewith or incidental to the care, safekeeping, or
otherwise of any and all of the Pledged Stock or in any way relating to the
rights of Monarch hereunder, including reasonable attorneys fees and legal
expenses;
(ii) Second, to the satisfaction of the Obligations in such order as
Monarch may determine in its sole discretion;
(iii) Third, to the payment of any other amounts required by
applicable law; and
(iv) Fourth, to Pledgor, to the extent of the surplus proceeds, if
any.
(e) Monarch shall give Pledgor at least ten (10) business days'
written notice of the time and place of any public sale or of the time after
which a private sale may take place, and such notice shall be deemed to be
reasonable notification of such matters.
3. RIGHTS OF PLEDGOR UNTIL GUARANTY DEFAULT. Unless and until an Event of
Default shall have occurred and be continuing, Pledgor shall be entitled:
(a) to vote all or any part of the Pledged Stock at any and all
shareholder meetings of Subsidiaries and to execute consents in respect thereof,
and to consent to, ratify or waive notice of any or all shareholder meetings of
Subsidiaries with the same force and effect as if this Pledge Agreement had not
been made and, if necessary and upon the receipt of the written
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request from Pledgor, Monarch shall from time to time execute and deliver
appropriate proxies for that purpose provided that Pledgor covenants and agrees
not to vote the Pledged Stock in a manner that would create a Guaranty Default
or breach of or default under the Obligations or create circumstances that, with
the passage of time and/or the giving of notice, would create a Guaranty Default
or breach of or default under the Obligations, and
(b) to receive and collect or to have paid over all dividends declared
or paid on the Pledged Stock, except (i) dividends or distributions constituting
stock dividends, (ii) dividends or distributions in kind, or (iii) liquidating
dividends (either partial or complete), provided that any and all such excepted
dividends and distributions shall constitute additional collateral for the
purposes of this Pledge Agreement and shall be delivered and pledged with
Monarch in accordance with Section 2(b) hereof.
4. REPRESENTATIONS. Pledgor represents and warrants that:
(a) Pledgor is, as of the date hereof, the legal and beneficial owner
of all of the Pledged Stock.
(b) All of the shares of the Pledged Stock have been duly and validly
issued, are fully paid and non-assessable and are owned by Pledgor free and
clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance or
security interest in such shares or the proceeds thereof, except for the
security interest granted to Monarch under this Pledge Agreement.
(c) Upon delivery of the Pledged Stock to Monarch or an agent for
Monarch, this Pledge Agreement creates and grants a valid first lien on and
perfected security interest in the shares of the Pledged Stock and the proceeds
thereof, subject to no prior security interest, lien, charge or encumbrance and
subject to no other security interest, lien, charge or encumbrance or to any
agreement purporting to grant to any third party a security interest in the
property or assets of Pledgor that would include the Pledged Stock.
(d) To the best of Pledgor's knowledge, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required to be obtained or made by Pledgor either (i) for the
pledge by Pledgor of the Pledged Stock pursuant to this Pledge Agreement or for
the execution, delivery or performance of this Pledge Agreement by Pledgor, or
(ii) for the exercise by Monarch of the voting or other rights provided for in
this Pledge Agreement or the remedies in respect of the Pledged Stock pursuant
to this Pledge Agreement, subject to applicable state and federal securities
laws and subject to change of control rules applicable to the nursing home
licenses and Medicare/Medicaid certifications of the Facilities. Pledgor has the
right and power and is duly authorized to enter into this Pledge Agreement.
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<PAGE>
(e) Neither the execution or, delivery of this Pledge Agreement, nor
the consummation of the transactions contemplated hereby, nor the compliance
with or performance of the terms and conditions of this Pledge Agreement by
Pledgor is prevented by, limited by, conflicts with or will result in the breach
or violation of or a default under the terms, conditions or provisions of (i)
any mortgage, security agreement, indenture, evidence of indebtedness, loan or
financing agreement, trust agreement, stockholder agreement, or other agreement
or instrument to which Pledgor is a party or by which he is bound or (ii) any
provision of law, any order of any court or administrative agency or rule or
regulation applicable to Pledgor, subject to applicable state and federal
securities laws.
(f) Any assignee of all or any portion of the Pledged Stock is
entitled to receive payments with respect thereto without any defense,
counterclaim, set-off, abatement, reduction, recoupment or other claims arising
out of the actions of Pledgor.
(g) There are no actions, suits or proceedings (whether or not
purportedly on behalf of Pledgor) pending or, to the best knowledge of Pledgor,
threatened or affecting Pledgor that involve the Pledged Stock.
(h) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by Pledgor of this Pledge Agreement have been obtained, subject to
applicable state and federal securities laws and subject to change of control
rules applicable to the nursing home licenses and Medicare/Medicaid
certifications of the Facilities.
(i) Each of Subsidiaries is duly organized, validly existing and in
good standing under the laws of the State set forth next to such Subsidiary's
name on Exhibit A hereto.
5. COVENANTS. (a) Pledgor hereby covenants that, so long as the Obligations
shall be outstanding and unpaid, in whole or in part, Pledgor will not, without
Monarch's prior written consent, sell, convey or otherwise dispose of any shares
of the Pledged Stock or any interest therein, nor will Pledgor create, incur or
permit to exist any pledge, mortgage, lien, charge, encumbrance or any security
interest whatsoever with respect to any of the Pledged Stock or the proceeds
thereof other than that created or permitted hereby, nor shall Pledgor vote the
Pledged Stock to permit or authorize Subsidiaries to issue any new equity
securities or debt convertible into equity securities.
(b) Pledgor warrants and will defend Monarch's right, title and
security interest in and to the Pledged Stock against the claims of any person,
firm, corporation or other entity.
6. INTENTIONALLY OMITTED.
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7. COOPERATION. Pledgor shall, at any time and from time to time upon the
request of Monarch, execute and deliver such further documents and do such
further acts and things as Monarch reasonably may request in order to effectuate
the purposes of this Pledge Agreement, including, without limitation, delivering
to Monarch on the date hereof or at any time hereafter irrevocable proxies in
respect of the Pledged Stock in the form of Exhibit D hereto.
8. GENERAL. (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Stock while held hereunder, Monarch shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Stock upon surrendering it to Pledgor.
(b) No course of dealing between Pledgor and Monarch, nor any failure
to exercise, nor any delay in exercising, on the part of Monarch, any right,
power, or privilege, whether now existing or hereafter arising hereunder or
under the obligations, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power, or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege.
(c) The rights and remedies herein provided and provided in all other
agreements, instruments and documents delivered or to be delivered pursuant to
any of the foregoing or the Obligations are cumulative and are in addition to,
and not exclusive of, any rights or remedies provided by law, including, without
limitation, the rights and remedies of a secured party under the Uniform
Commercial Code.
(d) The provisions of this Pledge Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Pledge Agreement in any jurisdiction.
(e) This Pledge Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto. Notwithstanding
the foregoing, Pledgor shall not have the right to assign or delegate any of its
rights or obligations hereunder without the prior written consent of Monarch,
and any purported assignment or delegation in the absence of such consent shall
be void.
(f) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. PLEDGOR CONSENTS TO IN
PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF NEW
YORK AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. PLEDGOR AGREES THAT
SERVICE OF
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PROCESS MAY BE EFFECTED UPON PLEDGOR UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS
OF THE STATE OF NEW YORK AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE
STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK.
(g) Pledgor recognizes that Monarch has relied on the pledge and
security interest granted herein by Pledgor in extending credit and making the
financial accommodations contemplated by the Master Lease and Pledgor agrees
that such reliance by Monarch shall be sufficient consideration for this pledge.
(h) This Pledge Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(i) The section headings used herein are for convenience only and
shall not be read or construed as limiting the substance or generality of this
Pledge Agreement.
(j) Whenever the singular shall be used hereunder, it shall be deemed
to include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neither, whenever the context
of this Pledge Agreement so requires.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and delivered as of the day and first year first written above.
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
8
PLEDGE AGREEMENT
BETWEEN
LYRIC HEALTH CARE LLC
AND
MONARCH PROPERTIES, LP
DATED AS OF JUNE 23, 1998
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") made as of June 23, 1998
between LYRIC HEALTH CARE LLC ("Pledgor") for the benefit of MONARCH PROPERTIES,
LP ("Monarch").
The circumstances underlying the execution of this Pledge Agreement are as
follows:
A. As of June 23, 1998, Monarch purchased from subsidiaries of Lyric Health
Care Holdings III, Inc. ("Subsidiary") and leased to Subsidiary various health
care facilities ("Facilities") pursuant to a Master Lease, dated as of the date
hereof ("Master Lease"). Subsidiary has concurrently subleased the Facilities to
various subsidiaries of Subsidiary.
B. Monarch has required, as a condition to its purchase of the Facilities
and lease thereof to Subsidiary, that Pledgor execute and deliver to Monarch
this Pledge Agreement, pursuant to which Pledgor pledges to Monarch, as security
for the Guaranty, all shares of common stock now or hereafter owned by Pledgor
in Subsidiary, on the terms and conditions hereinafter set forth.
C. Capitalized words not defined herein shall have the definitions given
them in the Master Lease.
NOW, THEREFORE, in consideration of the foregoing, and other valuable
consideration, the receipt, legal adequacy and sufficiency of which hereby are
acknowledged, Pledgor agrees with Monarch as follows:
1. DEFINITION OF "PLEDGED STOCK". For purposes of this Pledge Agreement,
the term "Pledged Stock" means and includes all of the issued and outstanding
shares of the common stock or other securities of Subsidiary now or hereafter
owned by Pledgor or voting trust certificates or other documents of any kind
evidencing any and all ownership or other interests of Pledgor in Subsidiary,
including, without limitation, those listed on Exhibit A hereto and any
supplemental Exhibit A attached hereto or delivered to Monarch from time to
time.
2. PLEDGE; RIGHTS AND REMEDIES. (a) As collateral security for the due
payment and performance of all indebtedness and other liabilities and
obligations payable or due to Monarch from Subsidiary under the Master Lease,
whether now existing or hereafter arising (collectively, the "Obligations"),
Pledgor hereby pledges, assigns, hypothecates, delivers and sets over to Monarch
all of Pledgor's right, title and interest in and to the Pledged Stock, and
hereby grants to Monarch a security interest in all of its right, title and
interest in and to the Pledged Stock and in the proceeds thereof. Concurrently
herewith, Pledgor has delivered to Monarch the certificate representing the
currently existing Pledged Stock, together with a
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<PAGE>
Stock Assignment Separate from Certificate ("Assignment"), substantially in the
form of Exhibit B hereto, for the certificate representing the Pledged Stock,
duly executed in blank. Monarch shall hold such certificate and Assignment as
security for performance by Pledgor of the obligations secured hereby and shall
at all times have the first priority and only lien therein.
(b) If Pledgor becomes entitled to receive, or if Pledgor receives,
any additional stock or voting trust certificate of Subsidiary (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase, or reduction of
capital), option or rights, whether as an addition to, in substitution of, or in
exchange for any Pledged Stock, or otherwise, Pledgor shall accept any such
instruments as Monarch's agent, shall hold them in trust for Monarch, and shall
deliver them forthwith to Monarch in the exact form received, with Pledgor's
endorsement when necessary, and/or appropriate stock powers duly executed in
blank, to be held by Monarch, subject to the terms hereof, as further collateral
security for the Obligations.
(c) Upon the occurrence and continuation of an Event of Default, or
the occurrence and continuation beyond any applicable cure or grace period of
any other material breach of or default under the Obligations:
(i) Any or all shares of the Pledged Stock held by Monarch hereunder
may, at the option of Monarch, be registered in the name of Monarch or its
nominee as pledgee, and Monarch or its nominee may thereafter, without
notice, exercise all available voting and corporate rights at any meetings
of Subsidiary and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any
of the Pledged Stock as if it were the absolute owner thereof, including,
without limitation, the right to receive dividends payable thereon and the
right to exchange, at its discretion, any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing any of such securities or upon the
exercise by any such issuer of any right, privilege or option pertaining to
any of the Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it, but Monarch shall have no duty to
exercise any of the foregoing rights, privileges or options and shall not
be responsible for any failure or omission to do so or delay in so doing.
(ii) Monarch shall have the right to require that all cash dividends
payable with respect to any part of the Pledged Stock be paid to Monarch to
be held by Monarch as additional security hereunder until applied to the
Obligations.
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<PAGE>
(iii) Monarch, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
the time and place of public or private sale) to or upon Pledgor or any
other person or entity, including without limitation, any trustee (all and
each of which demands, advertisements and/or notices are, to the extent
permitted by law, hereby expressly waived), immediately may collect,
receive, appropriate and realize upon the Pledged Stock, or any part
thereof, and/or immediately may sell, assign, give an option or options to
purchase, contract to sell or otherwise dispose of and deliver the Pledged
Stock, or any part thereof, in one or more parcels at public or
private-sale or sales, in whatever order Monarch may select, at any
exchange, broker's board or at any of Monarch's offices or elsewhere at
such prices and on such terms (including, without limitation, a requirement
that any Purchaser of all or any part of the Pledged Stock shall be
required to purchase the securities constituting the Pledged Stock for
investment and without any intention to make a distribution thereof) as it
may deem best, for cash or on credit or for future delivery without
assumption of any credit risk, with the right of Monarch or any Monarch
upon any such sale or sales, whether public or private, to purchase the
whole or any part of the Pledged Stock so sold, free of any right or equity
of redemption in Pledgor, which right or equity is hereby expressly waived
and released.
(d) The proceeds of any collection, recovery, receipt, appropriation,
realization, sale or other disposition shall be applied as follows:
(i) First, to the reasonable costs and expenses of every kind incurred
in connection therewith or incidental to the care, safekeeping, or
otherwise of any and all of the Pledged Stock or in any way relating to the
rights of Monarch hereunder, including reasonable attorneys fees and legal
expenses;
(ii) Second, to the satisfaction of the Obligations in such order as
Monarch may determine in its sole discretion;
(iii) Third, to the payment of any other amounts required by
applicable law; and
(iv) Fourth, to Pledgor, to the extent of the surplus proceeds, if
any.
(e) Monarch shall give Pledgor at least ten (10) Business Days'
written notice of the time and place of any public sale or of the time after
which a private sale may take place, and such notice shall be deemed to be
reasonable notification of such matters.
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<PAGE>
3. RIGHTS OF PLEDGOR UNTIL GUARANTY DEFAULT. Unless and until an Event of
Default shall have occurred and be continuing, Pledgor shall be entitled:
(a) to vote all or any part of the Pledged Stock at any and all
shareholder meetings of Subsidiary and to execute consents in respect thereof,
and to consent to, ratify or waive notice of any or all shareholder meetings of
Subsidiary with the same force and effect as if this Pledge Agreement had not
been made and, if necessary and upon the receipt of the written request from
Pledgor, Monarch shall from time to time execute and deliver appropriate proxies
for that purpose provided that Pledgor covenants and agrees not to vote the
Pledged Stock in a manner that would create a Guaranty Default or breach of or
default under the Obligations or create circumstances that, with the passage of
time and/or the giving of notice, would create a Guaranty Default or breach of
or default under the Obligations, and
(b) to receive and collect or to have paid over all dividends declared
or paid on the Pledged Stock, except (i) dividends or distributions constituting
stock dividends, (ii) dividends or distributions in kind, or (iii) liquidating
dividends (either partial or complete), provided that any and all such excepted
dividends and distributions shall constitute additional collateral for the
purposes of this Pledge Agreement and shall be delivered and pledged with
Monarch in accordance with Section 2(b) hereof.
4. REPRESENTATIONS. Pledgor represents and warrants that:
(a) Pledgor is, as of the date hereof, the legal and beneficial owner
of all of the Pledged Stock.
(b) All of the shares of the Pledged Stock have been duly and validly
issued, are fully paid and non-assessable and are owned by Pledgor free and
clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance or
security interest in such shares or the proceeds thereof, except for the
security interest granted to Monarch under this Pledge Agreement.
(c) Upon delivery of the Pledged Stock to Monarch or an agent for
Monarch, this Pledge Agreement creates and grants a valid first lien on and
perfected security interest in the shares of the Pledged Stock and the proceeds
thereof, subject to no prior security interest, lien, charge or encumbrance and
subject to no other security interest, lien, charge or encumbrance or to any
agreement purporting to grant to any third party a security interest in the
property or assets of Pledgor that would include the Pledged Stock.
(d) To the best of Pledgor's knowledge, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required to be obtained or made by Pledgor either (i) for the
pledge by Pledgor of the Pledged Stock pursuant to this Pledge Agreement or for
the execution, delivery or performance of this
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<PAGE>
Pledge Agreement by Pledgor, or (ii) for the exercise by Monarch of the voting
or other rights provided for in this Pledge Agreement or the remedies in respect
of the Pledged Stock pursuant to this Pledge Agreement, subject to applicable
state and federal securities laws and subject to change of control rules
applicable to the nursing home licenses and Medicare/Medicaid certifications of
the Facilities. Pledgor has the right and power and is duly authorized to enter
into this Pledge Agreement.
(e) Neither the execution or, delivery of this Pledge Agreement, nor
the consummation of the transactions contemplated hereby, nor the compliance
with or performance of the terms and conditions of this Pledge Agreement by
Pledgor is prevented by, limited by, conflicts with or will result in the breach
or violation of or a default under the terms, conditions or provisions of (i)
any mortgage, security agreement, indenture, evidence of indebtedness, loan or
financing agreement, trust agreement, stockholder agreement, or other agreement
or instrument to which Pledgor is a party or by which he is bound or (ii) any
provision of law, any order of any court or administrative agency or rule or
regulation applicable to Pledgor, subject to applicable state and federal
securities laws.
(f) Any assignee of all or any portion of the Pledged Stock is
entitled to receive payments with respect thereto without any defense,
counterclaim, set-off, abatement, reduction, recoupment or other claims arising
out of the actions of Pledgor.
(g) There are no actions, suits or proceedings (whether or not
purportedly on behalf of Pledgor) pending or, to the best knowledge of Pledgor,
threatened or affecting Pledgor that involve the Pledged Stock.
(h) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by Pledgor of this Pledge Agreement have been obtained, subject to
applicable state and federal securities laws and subject to change of control
rules applicable to the nursing home licenses and Medicare/Medicaid
certifications of the Facilities.
(i) Subsidiary is duly organized, validly existing and in good
standing under the laws of the State of Delaware.
5. COVENANTS. (a) Pledgor hereby covenants that, so long as the Obligations
shall be outstanding and unpaid, in whole or in part, Pledgor will not, without
Monarch's prior written consent, sell, convey or otherwise dispose of any shares
of the Pledged Stock or any interest therein, nor will Pledgor create, incur or
permit to exist any pledge, mortgage, lien, charge, encumbrance or any security
interest whatsoever with respect to any of the Pledged Stock or the proceeds
thereof other than that created or permitted hereby, nor shall Pledgor vote the
Pledged Stock to permit or authorize Subsidiary to issue any new equity
securities or debt convertible into equity securities.
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<PAGE>
(b) Pledgor warrants and will defend Monarch's right, title and
security interest in and to the Pledged Stock against the claims of any person,
firm, corporation or other entity.
6. SALE OF PLEDGED STOCK. (a) If Monarch shall determine to exercise its
right to sell any part of the Pledged Stock, and if, in the opinion of counsel
for Monarch, it is necessary to have the Pledged Stock, or that portion thereof
to be sold, registered under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), Pledgor will use its best efforts to cause
Subsidiary to (i) execute and deliver, and cause the directors and officers of
Subsidiary, to execute and deliver, all at Pledgor's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things, as may be necessary to register the Pledged Stock, or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one (1) year from the date of the first public
offering of the Pledged Stock, or that portion thereof so to be sold, and to
make all amendments thereto and/or to the related prospectus which, in the
opinion of Monarch or its counsel, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereto; (ii) comply with the provisions of
the securities laws and regulations of any jurisdiction which Monarch shall
designate; and (iii) make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) covering a period
of twelve (12) months, but not more than eighteen (18) months, beginning with
the first month after the effective date of any such registration statement,
which earnings statement will satisfy the provisions of Section 11(a) of the
Securities Act.
(b) Pledgor acknowledges that a breach of any of the covenants
contained in subparagraph 6(a) above will cause irreparable injury to Monarch,
that Monarch shall have no adequate remedy at law in respect of such breach and,
as a consequence, the covenants of Pledgor contained in said subparagraph 6(a)
shall be specifically enforceable against Pledgor. Pledgor hereby waives, and
shall not assert, any defenses against an action for specific performance of
such covenants, except for a defense that no other breach of or default under
the Obligations has occurred and is continuing.
(c) Notwithstanding the foregoing, Pledgor recognizes that Monarch may
be unable to effect a public sale of all or a part of the Pledged Stock, and may
be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sales
may be at places and on terms less favorable to the seller than if sold at
public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that Monarch has no obligation to
delay sale of any such securities for
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<PAGE>
the period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act.
7. COOPERATION. Pledgor shall, at any time and from time to time upon the
request of Monarch, execute and deliver such further documents and do such
further acts and things as Monarch reasonably may request in order to effectuate
the purposes of this Pledge Agreement, including, without limitation, delivering
to Monarch on the date hereof or at any time hereafter irrevocable proxies in
respect of the Pledged Stock in the form of Exhibit C hereto.
8. GENERAL. (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Stock while held hereunder, Monarch shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Stock upon surrendering it to Pledgor.
(b) No course of dealing between Pledgor and Monarch, nor any failure
to exercise, nor any delay in exercising, on the part of Monarch, any right,
power, or privilege, whether now existing or hereafter arising hereunder or
under the obligations, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power, or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege.
(c) The rights and remedies herein provided and provided in all other
agreements, instruments and documents delivered or to be delivered pursuant to
any of the foregoing or the Obligations are cumulative and are in addition to,
and not exclusive of, any rights or remedies provided by law, including, without
limitation, the rights and remedies of a secured party under the Uniform
Commercial Code.
(d) The provisions of this Pledge Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Pledge Agreement in any jurisdiction.
(e) This Pledge Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto. Notwithstanding
the foregoing, Pledgor shall not have the right to assign or delegate any of its
rights or obligations hereunder without the prior written consent of Monarch,
and any purported assignment or delegation in the absence of such consent shall
be void.
(f) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
7
<PAGE>
PLEDGOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS
OF THE STATE OF NEW YORK AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT
BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK.
PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON PLEDGOR UNDER ANY
METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF NEW YORK AND IRREVOCABLY
WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE OF
NEW YORK.
(g) Pledgor recognizes that Monarch has relied on the pledge and
security interest granted herein by Pledgor in extending credit and making the
financial accommodations contemplated by the Master Lease and Pledgor agrees
that such reliance by Monarch shall be sufficient consideration for this pledge.
(h) This Pledge Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(i) The section headings used herein are for convenience only and
shall not be read or construed as limiting the substance or generality of this
Pledge Agreement.
(j) Whenever the singular shall be used hereunder, it shall be deemed
to include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neither, whenever the context
of this Pledge Agreement so requires.
SIGNATURE PAGE FOLLOWS
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and delivered as of the day and first year first written above.
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
9
May 7, 1998
Monarch Properties, LP
8889 Pelican Bay Boulevard, Suite 501
Naples, Florida 34108
Attention: Mr. John B. Poole
President and Chief Executive Officer
Mr. Douglas Listman
Chief Financial Officer
Gentlemen:
SouthTrust Bank, National Association ("SouthTrust"), is pleased to advise
you of its approval of the credit facilities (collectively, the "Credit
Facilities") hereinafter described to be used for the purposes hereinafter
described. SouthTrust's commitment to make the Credit Facilities is subject to
your compliance with and acceptance of the terms and conditions hereinafter set
forth. Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in Exhibit A attached hereto.
I. GENERAL PROVISIONS
A. Borrower; Guarantors
The Borrower with respect to the Credit Facilities will be Monarch
Properties, LP, a Delaware limited partnership. The Credit Facilities, and the
Borrower's obligations under this Commitment, shall be guaranteed by Monarch
Properties, Inc., a Maryland corporation ("MPI") and MP Operating, Inc., a
Delaware corporation ("MPOI") (collectively, the "Guarantors"). A copy of the
organizational documents, evidence of existence and good standing from all
relevant jurisdictions, and appropriate resolutions authorizing the Credit
Facilities for the Borrower and each Guarantor must be submitted to Lenders for
their approval.
B. Amount of Credit Facilities; Syndication
The aggregate amount of all Credit Facilities shall not exceed
$150,000,000. This commitment is subject to SouthTrust's syndication of at least
$50,000,000 of the Credit Facilities
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 2
to other financial institutions (collectively, with SouthTrust, the "Lenders"),
and the Lenders' (other than SouthTrust) approval of the terms and conditions
contained herein. SouthTrust may, in its sole discretion, elect to syndicate
more than $50,000,000. The amount syndicated shall be allocated among the
various Lenders by Agent. In the event that SouthTrust is unable to syndicate at
least $50,000,000 of the Credit Facilities, the aggregate amount of the Credit
Facilities shall be reduced to $100,000,000.
SouthTrust shall serve as agent (in such capacity, the "Agent") for the
Lenders with respect to all Credit Facilities.
C. Use of Proceeds
The proceeds of the Credit Facilities will be used by the Borrower to
finance the purchase of properties, to finance the funding of mortgage loans, to
finance the funding of working capital loans (in an aggregate amount not to
exceed five percent (5%) of Credit Parties' total assets), and for general
corporate purposes of the Borrower.
II. LINE OF CREDIT LOAN
A. Description of Facility
Lenders shall make available to Borrower a line of credit loan (the "Line
of Credit Loan") in the aggregate amount not to exceed the lesser of (i)
$150,000,000 (subject to being decreased as set forth in Section I.B. hereof)
less the Reimbursement Obligation, or (ii) the Maximum Borrowing Base less the
Reimbursement Obligation. The maximum Advance available to Borrower shall be
determined in accordance with Exhibit B attached hereto.
B. Swing Line
SouthTrust and Borrower will enter into a cash management arrangement
whereby SouthTrust will make $10,000,000 of its committed dollar amount
available to Borrower for daily reconciliations of expenses and receipts (the
"Swing Line Facility"). Any excess of receipts over expenses will be deemed a
payment on the Line of Credit Loan and applied to the Swing Line Facility prior
to distribution to the other Lenders. Any excess of expenses over receipts will
be deemed a request for an advance of the Line of Credit Loan and will be funded
from the Swing Line Facility prior to advances from the other Lenders. In
addition, advances of the Line of Credit Loan may be initiated by Borrower by
wire or transfer or as otherwise directed by Borrower, or as set forth herein.
Borrower must give Agent three (3) Business Days notice of
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 3
any anticipated advance in excess of $5,000,000 which arises outside of the
Swing Line Facility.
C. Interest Rate
(1) Each Advance shall bear interest at the LIBOR Rate or the Floating
Rate, as shall be selected by Borrower at the time of each request for an
Advance; provided, however, that Borrower shall have no more than six (6) LIBOR
Rate Loans outstanding at any one time. Advances made on the Swing Line Facility
shall bear interest at the Floating Rate. Borrower may, from time to time, elect
to convert LIBOR Rate Loans to Floating Rate Loans, and Floating Rate Loans to
LIBOR Rate Loans, on such terms and conditions to be more particularly set forth
in the Loan Documents.
(2) Borrower agrees that notwithstanding the fact that the interest rate
accruing on the Line of Credit Loan may be based upon Lenders' cost of funds in
the Eurodollar market, Lenders shall not be required to actually obtain funds
from such source at any time.
(3) All interest on the outstanding principal balance of the Line of Credit
Loan shall be calculated on the basis of a 360-day year by multiplying the
outstanding principal amount by the applicable per annum rate, multiplying the
product thereof by the actual number of days elapsed, and dividing the product
so obtained by 360.
D. Term and Payments
(1) Interest on Floating Rate Loans shall be due and payable on the first
day of each month. Interest on LIBOR Rate Loans shall be due and payable at the
end of the applicable Interest Rate Period. The outstanding principal balance of
the Line of Credit Loan, together with all accrued and unpaid interest thereon
shall be due and payable on the Commitment Termination Date.
(2) Floating Rate Loans and LIBOR Rate Loans may be prepaid, in whole or in
part, from time to time, without premium or penalty, upon irrevocable notice to
Agent at least three (3) Business Days prior thereto in the case of LIBOR Rate
Loans and one (1) Business Day prior thereto in the case of Floating Rate Loans;
provided, if a LIBOR Rate Loan is prepaid on any day other than the last day of
an Interest Period, Borrower shall also pay a break fee to Agent for the account
of Lenders.
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Monarch Properties, LP
May 7, 1998
Page 4
E. Fees
(1) A commitment fee of twenty-five (25) basis points of the aggregate
amount of the Credit Facilities committed at closing (i.e., $100,000,000 or
$150,000,000) shall be due and fully earned upon acceptance of this commitment.
Borrower shall remit with its acceptance, a non-refundable commitment fee
deposit of $100,000. The balance of the commitment fee shall be due and payable
at the earlier of closing or the date of expiration of this commitment pursuant
to Section IV.K. hereof. The commitment fee shall be split among the Lenders in
a manner determined by Agent.
(2) An unused facility fee in the amount per annum set forth in the table
below, will be payable quarterly in arrears to each Lender based on such
Lender's average unfunded portion of the Credit Facilities for the prior
quarter. For purposes of calculating the unfunded portion of the Credit
Facilities, any unexpired Letters of Credit will be considered outstanding
loans.
Ratio of Debt to Total
Capitalization Per Annum Facility Fee
-------------- ----------------------
greater than 0.50:1 0.375%
less than or equal to 0.50:1, but greater than 0.45:1 0.350%
less than or equal to 0.45:1, but greater than 0.40:1 0.300%
less than or equal to 0.40:1, but greater than 0.30:1 0.250%
less than or equal to 0.30:1 0.200%
(3) A $75,000 agent fee to SouthTrust shall be due and fully earned at
closing and each anniversary of closing. The agent fee shall be retained by
SouthTrust.
III. LETTERS OF CREDIT
A. Description of Facility
Upon Borrower's written request, and for so long as no default or event of
default exists under the loan documents, Agent agrees, from the closing date
until the Commitment Termination Date, to issue on behalf of the Lenders,
Letters of Credit for the account of the Borrower in the aggregate amount of up
to $10,000,000. All Letters of Credit will be in form and content acceptable to
Agent. Agent shall not be obligated to issue a Letter of Credit if the
expiration date thereof exceeds the Maturity Date. The maximum availability of
the Line of Credit Loan will be reduced by the Reimbursement Obligation.
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 5
B. Interest Rate
Any unreimbursed drawings or other fees due in connection with the Letters
of Credit shall bear interest at the Default Rate.
C. Payments
Payments of the Reimbursement Obligation shall be made by Agent making an
advance of the Line of Credit Loan.
D. Fees
Borrower shall pay to Agent, for the account of Lenders, a fee (the "Letter
of Credit Fee") on the available and undrawn portion of the applicable Letter of
Credit from the effective date of such Letter of Credit to the expiration of
such Letter of Credit, payable at issuance of any Letter of Credit and on each
anniversary thereof, in an amount equal to the Margin in effect at the time such
fee is due and payable. The Letter of Credit Fee for any Letter of Credit shall
be nonrefundable and shall be payable in full upon execution of the Letter of
Credit. In addition to the Letter of Credit Fee described above, Borrower shall
also pay Agent, for its own account, a fee of 1/8% per annum on the full amount
of the Letter of Credit, together with standard and customary set-up and draw
fees in such amounts as may be established by Agent from time to time.
IV. PROVISIONS APPLICABLE TO ALL FACILITIES
A. Corporate Financial Covenants
The Borrower shall not at any time permit:
(1) the ratio of EBITDA to Interest Expense to be less than 2.0x;
(2) the ratio of EBITDAR to Fixed Charges to be less than 2.0x;
(3) the ratio of Debt to Total Capitalization to exceed 0.60 to 1.0; and
(4) Tangible Net Worth to be less than $250,000,000.
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 6
B. Borrowing Base and Compliance Certificate
(1) Prior to a property's inclusion in the Pool, Borrower shall submit to
Agent a Pool Property Summary Sheet in a form to be agreed upon by Borrower and
Agent.
(2) At closing, at the time of furnishing the quarterly financial
statements required under Section IV.D. hereof, at the time of issuance of a
Letter of Credit, and within ten (10) Business Days of (i) any purchase, sale,
acquisition, merger, or similar transaction wherein the value of the transaction
equals or exceeds $25,000,000, (ii) the assumption of additional debt in excess
of $10,000,000, or (iii) the addition or removal (including removal due to a
property's failure to continue to meet all requirements for inclusion in the
Pool) of any property to or from the Pool, Borrower shall submit to Lenders a
borrowing base and compliance certificate in form and content acceptable to
Lenders, with all information completed, attached, and certified by the
treasurer or chief financial officer of Borrower as complete and correct. The
monetary threshholds set forth in (i) and (ii) above shall be subject to annual
review and adjustment by Agent, it its reasonable discretion, based on the
current financial condition of Credit Parties.
C. Other Covenants
The Loan Documents will require that Borrower comply with the following
covenants:
(1) As a condition to closing, Borrower shall covenant to cause LeBoeuf,
Lamb, Greene & MacRae, L.L.P., MPI's tax counsel, to deliver to Agent and
Lenders a letter authorizing their reliance on LeBoeuf's tax opinion to MPI's
underwriters regarding MPI's conformity with the requirements for qualification
and taxation as a real estate investment trust ("REIT"), as described in the
Internal Revenue Code of 1986, as amended. MPI's failure to qualify as a REIT
upon the filing by MPI of its 1998 federal income tax return shall constitute an
event of default under the loan documents. Once qualified, MPI must thereafter
maintain its status as a REIT.
(2) The stock of MPI must at all times remain listed with the New York
Stock Exchange.
(3) MPI shall at all times own 100% of the capital stock of MPOI, and MPOI
or MPI shall at all times be the sole general partner of Borrower.
(4) Dr. Robert Elkins must at all times remain chairman of the board of
directors of the Borrower and each Guarantor (except his removal due to death,
disability or for cause).
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 7
(5) The Borrower must maintain, or cause to be maintained, such insurance
on its properties insuring against such risks, in such amounts, and with such
carriers, as are reasonably acceptable to Agent.
(6) Borrower shall not encumber any of its assets within the Pool and shall
not encumber any of the ownership interests in Borrower, Guarantors, or any of
their subsidiaries.
(7) Borrower shall not grant to any other person, a negative pledge on the
properties in the Pool.
(8) Borrower shall not incur any contingent obligations other than those
incurred in the ordinary course of business.
(9) Borrower shall maintain sufficient hedging agreements to mitigate
exposure to interest rate fluctuations. The extent of such hedging agreements
shall be determined by Agent in its sole discretion.
D. Financial Statements
The Lenders shall receive, prior to the closing, a copy of MPI's
Registration Statement on Form S-11 filed with the Securities and Exchange
Commission, and any other such reports or information of the Borrower and
Guarantors in such form and in such detail as the Lenders shall request. The
contents of these financial statements and reports are subject to the Lenders'
review and approval.
After closing, Credit Parties shall submit, and in the case of Lyric and
IHS (as such terms are hereinafter defined) shall cause to be submitted, to
Lenders on a continuing basis during the term of the Credit Facilities, within
the times as hereinafter set forth, the following:
(1) Within one hundred twenty (120) days after the end of each fiscal year
of Borrower, Guarantors, Lyric, and IHS (as hereinafter defined) (a) audited
consolidated financial statements of the Borrower and Guarantors (with
consolidating schedules), and audited financial statements of Lyric and IHS, all
prepared by a nationally recognized accounting firm or an independent certified
public accounting firm acceptable to the Lenders, and (b) annual operating
statements of each facility included in the Pool.
(2) Within fifty-five (55) days after the end of each fiscal quarter,
unaudited financial statements of the Borrower, each Guarantor, and IHS prepared
in accordance with GAAP,
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 8
accepted accounting principles consistently applied, which such statements shall
include a balance sheet and statement of income and expenses for the quarter
then ended, all of which shall be certified by the chief financial officer of
Borrower, Guarantors, or IHS, respectively, to be true and correct.
(3) Promptly after the filing or mailing thereof, copies of any filings
made by MPI with the Securities and Exchange Commission or mailings made by MPI
to its shareholders, including, without limitation, copies of MPI's proxy
statements, annual reports, Form 10-K, Form 10-Q, and Form 8-K (if filed), and
copies of any press releases.
The Lenders reserve the right to require such other financial information
of Borrower, Guarantors, and their properties at such other times as they shall
deem reasonably necessary. All financial statements must be in such form and
detail as the Lenders shall from time to time reasonably request.
E. Appraisals
The appraisals for each facility in the Pool shall be submitted to Agent.
F. Leases and Management Agreements
The initial properties included in the Pool shall be leased by Borrower to
Lyric Health Care Holdings III, Inc. ("Lyric"), Trans Health, or Peak Medical.
The Lyric properties shall be managed by Integrated Health Services, Inc.
("IHS"). The form of lease and management agreements with such lessees and
manager shall submitted to Agent. Such agreements and any future lease and/or
management agreements with respect to properties included in the Pool shall be
in substantially the same form as the agreements submitted (except for such
variations in rates, terms, and other terms and conditions as are agreed upon by
the parties in arms-length negotiations that reflect current market conditions).
The loan documents will require that Borrower notify Lenders of any change in
the lessee or manager of a property included in the Pool.
G. Legal Opinion
Borrower will provide Lenders a legal opinion of Borrower's counsel, in
form and content satisfactory to Lenders and their counsel, which opinion shall
include, but shall not be limited to, the existence of Borrower and Guarantors,
the authorization of the borrowing, the due execution
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 9
and delivery of the Loan Documents, the enforceability of the Loan Documents
under Alabama law, and such other matters as Lenders may reasonably request.
H. Expenses
Whether or not the Credit Facilities are closed, all reasonable expenses
incurred by the Agent with respect to the Credit Facilities, including, but not
limited to, recording fees and taxes, taxes on the Credit Facilities (including
intangibles taxes and documentary stamp taxes), syndication costs, travel
expenses, and attorneys' fees and expenses of Agent's counsel, will be paid by
the Borrower.
I. Changes in Financial Condition and Adverse Occurrences
Lenders' obligation to close shall be conditioned upon the absence of any
material adverse change in the financial condition or prospects of Borrower or
Guarantors from the respective dates of the last financial information provided
to Lenders with respect to Borrower or Guarantors. Borrower agrees that all
information heretofore and hereafter supplied to Lenders in connection with the
Credit Facilities, the Borrower, or the Guarantors, whether written or
unwritten, shall be deemed material, and Lenders shall be entitled to rely
thereon. If any information which has been or is hereafter supplied to Lenders
in connection with the Credit Facilities, the Borrower, or the Guarantors
(whether or not required by this commitment) becomes false or incomplete in any
respect, Borrower will immediately notify Lenders in writing prior to closing,
and if any new information could in Lenders' opinion adversely affect the
Borrower or Guarantors, Lenders may withdraw this commitment.
J. Expiration Date
This commitment will expire if it is not accepted by the Borrower in
accordance with the terms hereof on or before May 14, 1998.
K. Closing Date
The Credit Facilities must be closed on or before September 30, 1998, at
which time SouthTrust's obligations pursuant to this commitment shall terminate
automatically and without notice.
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 10
L. Other Documents and Requirements
Borrower will furnish Lenders with any other information or documentation
as the Lenders may reasonably require as a prerequisite to closing. This
commitment is a conditional commitment and is subject to the preparation of
complete loan documentation satisfactory to Lenders and their counsel which may
contain terms in addition to those set forth herein.
M. Construction of Provisions of this Commitment
This letter shall constitute the full agreement of SouthTrust and no prior
discussions, correspondence or documents shall be considered to vary or explain
the terms hereof. In particular, SouthTrust has not agreed to make any loan
other than that specifically described herein. This commitment may not be
amended except by a written agreement signed by an authorized officer of
SouthTrust specifically addressing this commitment and any such amendment. All
requirements herein shall be deemed material to SouthTrust. Except as specified
herein, all conditions and requirements must be satisfied by Borrower prior to
closing. Whenever this commitment refers to a matter being "satisfactory" to
Lenders, subject to Lenders' "approval" or similar terminology, such
satisfaction or approval shall not be implied, but shall only be evidenced by a
written notice from Lenders specifically addressed to the particular requirement
or condition and expressing Lenders' approval or satisfaction.
N. Governing Law; Consent to Venue
The Loan Documents and this commitment will be governed by the laws of the
State of Alabama, and the Borrower and Guarantors, by their acceptance hereof,
agree that the federal and state courts of the State of Alabama shall have
jurisdiction over the Borrower and Guarantors in any matters relating to the
Credit Facilities, the Loan Documents and this commitment.
O. Offering
Provided that all terms and conditions of this commitment have been
satisfied, the Credit Facilities will be closed in escrow. Escrow will be broken
at such time as MPI has completed its offering as described in MPI's
Registration Statement on Form S-11 as filed with the Securities and Exchange
Commission on April 27, 1998, resulting in net proceeds to MPI of at least
$250,000,000. If escrow is not broken on or before the date specified in Section
IV.K. hereof, SouthTrust's obligations pursuant to this commitment shall
terminate automatically and without notice.
<PAGE>
Monarch Properties, LP
May 7, 1998
Page 11
BORROWER AND GUARANTORS WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE CREDIT
FACILITIES, THE LOAN DOCUMENTS AND THIS COMMITMENT. BORROWER AND GUARANTORS
CERTIFY THAT NO REPRESENTATIVE OR AGENT OF SOUTHTRUST OR SOUTHTRUST'S COUNSEL
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SOUTHTRUST WOULD NOT, IN THE EVENT
OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF THE JURY TRIAL PROVISION.
BORROWER ACKNOWLEDGES THAT SOUTHTRUST HAS BEEN INDUCED TO ISSUE THIS COMMITMENT
IN PART BY THE PROVISIONS OF THIS WAIVER.
Time is of the essence with respect to the provisions of this commitment.
Very truly yours,
Laura York
Vice President
<PAGE>
ACCEPTANCE
The undersigned hereby agrees to and accepts the terms and conditions of
the foregoing commitment this 8th day of May, 1998.
BORROWER:
MONARCH PROPERTIES, LP,
a Delaware limited partnership
By: MP Operating, Inc.,
a Delaware corporation
Its General Partner
By:
----------------------------------
Douglas Listman
Its Chief Financial Officer
GUARANTORS:
MONARCH PROPERTIES, INC.,
a Maryland corporation
By:
------------------------------------
Douglas Listman
Its Chief Financial Officer
MP OPERATING, INC.,
a Delaware corporation
By:
------------------------------------
Douglas Listman
Its Chief Financial Officer
LEASE
BETWEEN
IHS ACQUISITION NO. 104, INC.
AND
PEAK MEDICAL OF IDAHO, INC.
DATED AS OF MAY 29, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
LEASE; TERM; RENEWALS..........................................................1
1.1 Lease...........................................................1
1.2 Term............................................................1
1.3 Base Rent.......................................................1
1.4 First Option to Renew...........................................1
1.5 Second Option to Renew..........................................2
1.6 Other Conditions of Renewal.....................................2
ARTICLE 2
DEFINITIONS....................................................................2
2.1 Certain Definitions.............................................2
2.2 Other Definitions..............................................16
ARTICLE 3
RENT; RELATED MATTERS.........................................................16
3.1 Rent...........................................................16
3.2 Additional Charges.............................................16
3.3 Late Charge; Interest..........................................16
3.4 Method of Payment of Rent......................................17
3.5 Net Lease; No Offset...........................................17
ARTICLE 4
IMPOSITIONS; RELATED MATTERS..................................................17
4.1 Payment of Impositions.........................................17
4.2 Adjustment of Impositions......................................18
4.3 Utility Charges................................................18
4.4 Insurance Premiums.............................................18
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC................................................18
i
<PAGE>
ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY...............................19
6.1 Ownership of the Leased Property...............................19
6.2 Landlord's Personal Property...................................19
6.3 Tenant's Personal Property.....................................19
6.4 Grant of Security Interest in Tenant's Personal Property;
Restriction on Other Liens.....................................20
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY..........................................20
7.1 Condition of the Leased Property...............................20
7.2 Use of the Leased Property.....................................20
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS..............................................21
8.1 Compliance with Legal and Insurance Requirements...............21
8.2 Legal Requirement Covenants....................................21
8.3 Certain Financial and Other Covenants..........................22
8.4 Other Businesses...............................................22
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS.........................................22
9.1 Maintenance and Repair.........................................22
9.2 Encroachments, Restrictions, etc...............................24
ARTICLE 10
ALTERATIONS AND ADDITIONS.....................................................25
10.1 Construction of Alterations and Additions to the Leased
Property.......................................................25
10.2 Asbestos Removal for Alterations and Additions.................26
ARTICLE 11
REMOVAL OF LIENS..............................................................26
ii
<PAGE>
ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC............................................26
12.1 Permitted Contests.............................................26
12.2 Landlord's Requirement for Deposits............................27
ARTICLE 13
INSURANCE.....................................................................28
13.1 General Insurance Requirements.................................28
13.2 Replacement Cost...............................................29
13.3 Worker's Compensation Insurance................................30
13.4 Waiver of Liability; Waiver of Subrogation.....................30
13.5 Other Requirements.............................................30
13.6 Increase in Limits.............................................30
13.7 Blanket Policy.................................................31
13.8 No Separate Insurance..........................................31
ARTICLE 14
CASUALTY LOSS.................................................................31
14.1 Insurance Proceeds.............................................31
14.2 Restoration in the Event of Damage or Destruction..............32
14.3 Intentionally Omitted..........................................32
14.4 Tenant's Personal Property.....................................32
14.5 Restoration of Tenant's Property...............................32
14.6 No Abatement of Rent...........................................33
14.7 Consequences of Purchase of Damaged Leased Property............33
14.8 Damage Near End of Term........................................33
14.9 Waiver.........................................................33
14.10 Procedure for Disbursement of Insurance Proceeds
Greater Than The Approval Threshold............................33
ARTICLE 15
TAKINGS.......................................................................35
15.1 Total Taking...................................................35
15.2 Allocation of Portion of Award.................................35
15.3 Partial Taking.................................................35
15.4 Temporary Taking...............................................36
iii
<PAGE>
ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT.............................................36
16.1 Events of Default..............................................36
16.2 Landlord's Rights Upon Tenant's Default........................36
16.3 Liability for Costs and Expenses...............................36
16.4 Certain Remedies...............................................37
16.5 Damages........................................................37
16.6 Waiver.........................................................37
16.7 Application of Funds...........................................38
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.....................................38
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS.................................................38
18.1 Prohibition Against Use of Hazardous Substances................38
18.2 Notice of Environmental Claims, Actions or Contaminations......39
18.3 Costs of Remedial Actions with Respect to Environmental
Matters........................................................39
18.4 Delivery of Environmental Documents............................39
18.5 Environmental Audit............................................39
18.6 Entry onto Leased Property for Environmental Matters...........39
18.7 Environmental Matters Upon Termination or Expiration of
Term of This Lease ............................................40
18.8 Compliance with Environmental Laws.............................40
18.9 Environmental Related Remedies.................................41
18.10 Environmental Indemnification..................................42
18.11 Rights Cumulative and Survival.................................43
ARTICLE 19
HOLDOVER MATTERS..............................................................44
19.1 Holding Over...................................................44
19.2 Indemnity......................................................44
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS..........................................44
20.1 Subordination..................................................44
20.2 Attornment.....................................................45
20.3 Estoppel Certificate...........................................45
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ARTICLE 21
RISK OF LOSS..................................................................45
ARTICLE 22
INDEMNIFICATION...............................................................45
22.1 Indemnification................................................45
22.2 Survival of Indemnification; Tenant Right to Defend Landlord...47
ARTICLE 23
LIMITATIONS ON TRANSFERS......................................................47
23.1 General Prohibition against Transfer; Permitted Transfers......47
23.2 Corporate or Partnership Transactions..........................49
23.3 Permitted Subleases............................................49
23.4 Transfers to a Controlled Entity...............................49
23.5 Subordination and Attornment...................................50
23.6 Sublease Limitation............................................50
ARTICLE 24
CERTAIN FINANCIAL MATTERS.....................................................50
24.1 Officer's Certificates and Financial Statements................50
24.2 Public Offering Information....................................52
ARTICLE 25
LANDLORD INSPECTION...........................................................52
ARTICLE 26
[INTENTIONALLY OMITTED].......................................................53
ARTICLE 27
[INTENTIONALLY OMITTED].......................................................53
ARTICLE 28
ACCEPTANCE OF SURRENDER.......................................................53
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ARTICLE 29
MERGER OF TITLE; PARTNERSHIP..................................................53
29.1 No Merger of Title.............................................53
29.2 No Partnership.................................................53
ARTICLE 30
CONVEYANCE BY LANDLORD........................................................53
ARTICLE 31
QUIET ENJOYMENT...............................................................54
ARTICLE 32
[INTENTIONALLY OMITTED].......................................................54
ARTICLE 33
APPRAISERS....................................................................54
ARTICLE 34
BREACH OF LEASE BY LANDLORD...................................................55
ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL........................56
35.1 Landlord's Option to Purchase Tenant's Personal Property.......56
35.2 Facility Trade Names...........................................56
35.3 Transfer of Operational Control of the Facility................56
35.4 Intangibles and Personal Property..............................58
ARTICLE 36
[INTENTIONALLY OMITTED].......................................................58
ARTICLE 37
MISCELLANEOUS.................................................................58
37.1 Notices........................................................58
37.2 Survival, Choice of Law........................................59
37.3 Limitation on Recovery.........................................59
37.4 Waivers........................................................59
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37.5 Intentionally Omitted..........................................59
37.6 Counterparts...................................................59
37.7 Options Follow Lease...........................................59
37.8 Rights Cumulative..............................................59
37.9 Entire Agreement...............................................59
37.10 Amendments in Writing..........................................60
37.11 Severability...................................................60
37.12 Successors.....................................................60
37.13 Time of the Essence............................................60
37.14 Late Charges...................................................60
37.15 Binding Effect.................................................60
37.16 Exhibits and Schedules.........................................60
37.17 Waiver of Jury Trial...........................................60
37.18 Memorandum of Lease............................................60
ARTICLE 38
SECURITY DEPOSIT..............................................................61
38.1 Security Deposit...............................................61
38.2 Application of Security Deposit................................61
38.3 Transfer of Security Deposit...................................61
ARTICLE 39
TENANT PURCHASE OPTION........................................................62
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LEASE
THIS LEASE (this "Lease") is made and entered into as of the 29th day of
May, 1998 between IHS ACQUISITION NO. 104, INC., a Delaware corporation, with
principal offices at 10065 Red Run Boulevard, Owings Mills, Maryland 21117
("Landlord") and PEAK MEDICAL OF IDAHO, INC., a Delaware corporation, with
principal offices at 5635 Jefferson Boulevard, N.E., Albuquerque, New Mexico
87109 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is the present owner of the real property, improvements
fixtures, and personal property constituting the health care facility described
on Exhibit A hereto ("Facility" or "Leased Property"); and
WHEREAS, Landlord wishes to lease to Tenant, and Tenant wishes to lease
from Landlord, the Facility;
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Lease, the parties agree that the use and occupancy
of the Facility demised herein shall be subject to, and be in accordance with,
the terms, conditions and provisions of this Lease, as follows:
ARTICLE 1
LEASE; TERM; RENEWALS
1.1 LEASE. Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant, and Tenant hires term Landlord, the Leased
Property.
1.2 TERM. The Term shall commence for the Facility on the Commencement Date
and end for the Facility on the Expiration Date, subject to the renewals
described in Sections 1.4 through 1.6 hereof.
1.3 BASE RENT. The Base Rent for the Leased Property (as of the
Commencement Date as agreed by Landlord and Tenant solely for purposes of this
Lease), is defined in Section 2.1 hereof.
1.4 FIRST OPTION TO RENEW. Tenant is hereby granted the option to renew
this Lease for a First Renewal Term for the Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, before the Expiration Date; provided,
however, that no Event of Default exists either on the date on which Tenant
gives such Notice to Landlord or on the applicable Expiration Date.
<PAGE>
During the First Renewal Term, all of the terms and conditions of this Lease
shall remain in full force and effect.
1.5 SECOND OPTION TO RENEW. If the Term of this Lease has been renewed as
provided in Section 1.4 above, Tenant is hereby granted the option to renew this
Lease for the Second Renewal Term for the Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, prior to the expiration of the First
Renewal Term for the Facility; provided, however, that no Event of Default
exists either on the date on which Tenant gives such Notice to Landlord or on
the date on which the First Renewal Term expires. During the Second Renewal
Term, all of the terms and conditions of this Lease shall remain in full force
and effect.
1.6 OTHER CONDITIONS OF RENEWAL. The options to renew granted pursuant to
Sections 1.4 and 1.5 hereof may be exercised only with respect to this Leased
Property and the Tenant's Other Leased Property, unless the Other Leased
Property is acquired by Tenant by exercise of its purchase option.
ARTICLE 2
DEFINITIONS
2.1 CERTAIN DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (a) all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (b) all references to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease, and (c) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision. In addition, the following
terms shall have the following meanings:
Accounts: With respect to Tenant, all accounts, accounts receivable,
deposits, prepaid items, documents, chattel paper, instruments, contract
rights, general intangibles, choses in action and rights to any refund of
taxes previously or subsequently paid to any governmental authority, in
each case arising from or in connection with Tenant's operation and use of
the Leased Property.
Additional Charges: All Impositions and all amounts, liabilities and
obligations other than Base Rent that Tenant assumes and agrees to pay
under this Lease.
Affiliate: Any Person who, directly or indirectly, Controls or is
Controlled by or is under Common Control with another Person.
Approval Threshold: The sum of Five Hundred Thousand Dollars
($500,000).
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Assessment: With respect to the Leased Property, any assessment for
public improvements or benefits commenced or completed after the date
hereof and whether or not to be completed within the Term.
Award: All compensation, sums or anything of value awarded, paid or
received in connection with a Taking or Partial Taking.
Base Rent: (a) For the first Lease Year, the sum of SIX HUNDRED AND
ELEVEN THOUSAND DOLLARS ($611,000), and (b) for each Lease Year thereafter
(including each Lease Year in any Renewal Term), the sum of (i) the Base
Rent for the preceding Lease Year plus (ii) the percentage increase in the
Cost of Living Index from the last month of the preceding Lease Year to the
last month of the Lease Year in question; provided, however, that in no
event shall the annual Base Rent increase be less than two percent (2%) or
more than five percent (5%).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.
Capital Lease: Any lease (other then this Lease) for which Tenant is
required, under GAAP, to account on its balance sheet as a capital lease.
Capitalized Lease Obligation: Any obligation of Tenant, as tenant or
guarantor, under a Capital Lease.
Cash Flow from the Facility: The sum of (a) Net Income for the
applicable period, (b) the amount deducted by Tenant in computing Net
Income for the applicable period for (i) depreciation on any leasehold
improvements to the Facility constructed by Tenant or any depreciation on
equipment used at the Facility, (ii) amortization and (iii) Rent, and (c)
interest; minus (a) a management fee of the greater of (i) five percent
(5%) of Facility revenues or (ii) actual management fees; and (b) the sum
of Three Hundred Dollars ($300) per-licensed-bed.
Cash Flow to Debt Service Requirement: As of the relevant fiscal
period, a ratio of Tenant's Cash Flow from the Facility to its Debt Service
equal to or greater than the ratio of 1:1 from the Commencement Date
through the date that is nine (9) months from the Commencement Date and (b)
1.15:1 thereafter and for the remainder of the Term of this Lease,
including renewals of this Lease under Sections 1.4 and 1.5 hereof.
Claim(s): Any lien, attachment, levy, encumbrance, charge or claim, or
any encroachment or restriction burdening the Leased Property.
3
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Clean-Up: The investigation, removal, restoration, remediation and/or
elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction over the
Leased Property and in compliance with or as may be required by
Environmental Laws.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Commencement Date: June 1, 1998
Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
Construction Funds: The Net Proceeds available for restoration or
repair work pursuant to Article 14 of this Lease.
Contamination: The presence, Release or threatened Release of any
Hazardous Substance at the Leased Property in violation of any
Environmental Law, or in a quantity that would give rise to any affirmative
Clean-Up obligation under an Environmental Law, including, but not limited
to, the existence of any injury or potential injury to public health,
safety, natural resources or the environment associated therewith.
Control (and Controlled by and under Common Control with): possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, through the ownership of voting
securities, partnership interests or other equity interests.
Cost of Living Index: The United States Department of Labor, Bureau of
Labor Statistics Revised Consumer Price Index for All Urban Consumers
(1982-84=100), U.S. City Average, All Items, or, if such Index is not
available for the United States, an index available for the geographical
area in the United States which most closely corresponds to the entire
United States, published by such bureau or its successor, or, if none, by
any other instrumentality of the United States.
Date of Taking: The date on which the Condemnor has the right to
possession of the Leased Property that is the subject of the Taking or
Partial Taking.
Debt: As of any date, all (a) obligations of a Person, whether current
or long-term, that in accordance with GAAP would be included as liabilities
on such Person's balance sheet; (b) Capitalized Lease Obligations of such
Person; (c) obligations of others for which that Person is liable directly
or indirectly, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or
advance or keep in funds or other agreement having the effect of a
guaranty) or otherwise; (d) liabilities and obligations secured by liens on
any assets
4
<PAGE>
of that Person, whether or not those liabilities or obligations are
recourse to that Person; (e) liabilities and obligations of that Person,
direct or contingent, with respect to letters of credit issued for the
account of that Person or others or with respect to bankers acceptances
created for that Person; and (f) obligations resulting from a draw under
any letter of credit which may be provided pursuant to the Letter of Credit
Agreement. However, Additional Charges shall not be deemed Debt.
Debt Service: With respect to any fiscal period of a Person, the sum
of (a) all interest due on Debt during the period (other than interest
imputed, pursuant to GAAP, on any Capitalized Lease Obligations and
interest on Debt that comprises Purchase Money Financing), all payments of
principal of Debt required to be made during the period and (c) all Base
Rent due during the period.
Encumbrance: With respect to the Leased Property, any mortgage, deed
of trust, lien, encumbrance or other matter affecting title to the Leased
Property, or any portion thereof or interest therein.
Environmental Audit: A written certificate, in form and substance
satisfactory to Landlord, from an environmental firm acceptable to
Landlord, which states that there is no evidence of Contamination on the
Leased Property and that the Leased Property is otherwise in compliance
with Environmental Laws.
Environmental Documents: Documents received by Tenant or any Affiliate
from, or submitted by Tenant or any Affiliate to, the United States
Environmental Protection Agency and/or any other federal, state, county or
municipal agency responsible for enforcing or implementing Environmental
Laws with respect to the condition of the Leased Property leased by Tenant
or Tenant's operations at the Leased Property; and written reviews, audits,
reports or other documents pertaining to environmental conditions,
including, but not limited to, the presence or absence of Contamination,
at, in or under or with respect to the Leased Property leased by Tenant
that have been prepared by, for or on behalf of Tenant.
Environmental Laws: All federal, state and local laws (including,
without limitation, common law), statutes, codes, ordinances, regulations,
rules, orders, permits or decrees from time to time in effect and relating
to (a) the introduction, emission, discharge or release of Hazardous
Substances into the indoor or outdoor environment (including, without
limitation, air, surface water, groundwater, land or soil); or (b) the
manufacture, processing, distribution, use, treatment, storage,
transportation or disposal of Hazardous Substances; or (c) the Cleanup of
Contamination.
Escrow Agreement: The Escrow Agreement amount Tenant, Monarch LP and
Fidelity National Title Insurance Company of New York, as described in the
Monarch Purchase Agreement.
5
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Estoppel Certificate: A statement in writing in substantially the same
form as Exhibit D hereto, with such changes thereto as reasonably may be
requested by the person relying on such certificate.
Event of Default: The occurrence of any of the following:
(a) If Tenant fails to pay Base Rent under this Lease when the
same becomes due and payable; or if Tenant fails to restore the Security
Deposit if and as required by Section 38.2 hereof within five (5) Business
Days after such amount is due and owed; or if Tenant fails to pay any
Additional Charges within five (5) Business Days after such amount is due
and owed;
(b) If Tenant (i) admits in writing its inability to pay its
debts generally as they become due, (ii) files a petition in bankruptcy or
a petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the
appointment of a receiver of itself or of the whole or any substantial part
of its property, or (v) files a petition or answer seeking reorganization
or arrangement under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States of America or any state thereof; or
(c) If Tenant, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered
against it, or a court of competent jurisdiction enters an order or decree
appointing a receiver of such Tenant or of the whole or substantially all
of Tenant's property, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the Federal Bankruptcy Laws
or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree is not vacated or set
aside or stayed within one hundred and twenty (120) days from the date of
the entry thereof; or
(d) If Tenant is liquidated or dissolved, or begins proceedings
toward liquidation or dissolution, or has filed against it a petition or
other proceeding to cause it to be liquidated or dissolved, and the
proceeding is not dismissed within one hundred and twenty (120) days
thereafter, or in any manner permits the sale or divestiture of
substantially all of its assets except in connection with a dissolution or
liquidation following or related to a merger or transfer of all or
substantially all of the assets and liabilities of Tenant with or to an
Affiliate; or
(e) If the estate or interest of Tenant in the Leased Property or
any part thereof is levied upon or attached in any proceeding and the same
is not vacated or discharged within sixty (60) days after commencement
thereof (unless Tenant is in the process of contesting such lien or
attachment in good faith in accordance with Section 12.1 hereof); or
6
<PAGE>
(f) If Tenant ceases operation of the Facility for a period in
excess of five (5) Business Days except upon prior written Notice to, and
with the express prior written consent of Landlord (which consent Landlord
may withhold in its absolute discretion), or as the unavoidable consequence
of damage or destruction as a result of a casualty, or a Taking or Partial
Taking, or as a result of an event described in subparagraph (g) below (as
to which the provisions of subparagraph (g) shall govern); or
(g) If the license to operate the Facility as a provider of
health care services in accordance with its Primary Intended Use is
revoked, or allowed to lapse, or, without Landlord's prior written consent,
transferred to a facility that is not the Leased Property, or an order is
imposed with respect to the Facility suspending the right to operate or
accept patients, and Tenant does not promptly take reasonable steps to cure
the condition or conditions leading to such revocation or order and cause
such license and right to operate and accept patients to be reinstated
within sixty (60) days; or
(h) If any obligation of Tenant or of Guarantor to repay borrowed
money in excess of Five Million Dollars ($5,000,000) is accelerated by a
creditor after default; provided, however, during any period that
Guarantor's Tangible Net Worth is in excess of Twenty-Five Million Dollars
($25,000,000), then the preceding Tenant or Guarantor borrowed money
obligation amount shall be Ten Million Dollars ($10,000,000); or
(i) If Tenant fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured within a
period of thirty (30) days after Notice thereof from Landlord, unless the
failure cannot with due diligence be cured within a period of thirty (30)
days, in which case the failure shall not be deemed to continue if (i)
Tenant proceeds promptly and with due diligence to cure the failure, (ii)
Tenant diligently completes the cure thereof and (iii) such failure is
cured prior to the time that the same results in civil or criminal
penalties to Landlord, Tenant or any Affiliates of either; or
(j) If a default occurs under any Guaranty of this Lease given to
Landlord to secure performance of any term or provision of this Lease and
is not cured within any applicable grace or cure period set forth therein;
or
(k) Subject to Article 23, if Tenant transfers the operational
control or management of the Facility currently being operated by it
without Landlord's consent;
(l) If a default occurs under any other material contract
affecting the Facility, Tenant or any Affiliate of Tenant, and the default
is not cured within any applicable grace or cure period contained therein,
provided, as to any such default
7
<PAGE>
under such other contract, such default materially and adversely affects,
or has the reasonable potential of materially and adversely affecting, the
operation or value of the Facility;
(m) If a default occurs under the Security Agreement and is not
cured within any applicable grace or cure period set forth therein; or
(n) If Tenant breaches the financial covenants set forth in
Section 8.3 hereof, or Guarantor breaches the financial covenants set forth
in its Guaranty, and such failure is not cured within twenty (20) days of
the earlier of (i) the date on which Tenant or Guarantor has actual
knowledge of such breach or (ii) Notice from Landlord;
(o) Any Event of Default occurs in the Lease for Tenant's Other
Leased Property; or
(p) If Tenant breaches any of its payment obligations under
Article V of the Monarch Purchase Agreement, or fails to execute and
deliver to Monarch at or prior to the closing under the Monarch Purchase
Agreement each of the Transaction Documents (as defined in the Monarch
Purchase Agreement) to which Tenant it to be a party in accordance with the
Monarch Purchase Agreement.
Executive Officer: The Chairman of the Board of Directors, the
President, any Executive Vice President, any Senior Vice President, any
Vice President and the Secretary of a corporation.
Expiration Date: May 31, 2010.
Facility: The Leased Property.
Facility Purchase Price: The Purchase Price for the Facility on the
Commencement Date, as set forth on Exhibit F hereto, increased by three
percent (3%) per Lease Year, compounded annually, from the Commencement
Date to the date in question and prorated for any portion of such period
that is less than a full Lease Year.
Facility Rental Value: The Base Rent (determined at the time in
question) of the Facility.
Facility Trade Names: The names under which the Facility does or has
done business during the Term.
Fair Rental Value: The amount determined to be the Fair Rental Value
of the Leased Property pursuant to the appraisal procedure set forth in
Article 33.
8
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Financial Statement: For a fiscal year or other accounting period,
statements of earnings and retained earnings and of changes in financial
position and profit and loss for such period and for the period from the
beginning of the respective fiscal year to the end of such period and the
related balance sheet as at the end of such period, together with the notes
thereto, all in reasonable detail and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding fiscal
year, and prepared in accordance with GAAP.
First Renewal Term: The period of ten (10) years.
Fiscal Year: The calendar year.
Fixtures: All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, any and all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus (other
than individual units), sprinkler systems and fire and theft protection
equipment, and built-in oxygen and vacuum systems, all of which to the
greatest extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications, alterations and
additions thereto but specifically excluding all items included within the
definition of the "Personal Property".
GAAP: Generally accepted accounting principles in effect from time to
time as customarily and consistently applied.
Guarantor: Peak Medical Corporation, a Delaware corporation
Guaranty: The Peak Medical Corporation Guaranty.
Hazardous Substances: Any and all toxic or hazardous material,
substance, pollutant, contaminant, chemical, waste (including medical
waste) or substance, including petroleum products, asbestos and PCBs,
regulated, restricted or prohibited under any Environmental Law.
Impartial Appraiser: An appraiser selected by Landlord and reasonably
acceptable to Tenant.
Impositions: Collectively, all taxes (including, without limitation,
all real property taxes, ad valorem, sales and use, single business, gross
receipts, transaction privilege, rent or similar taxes), assessments,
ground rents, water, sewer or other rents and charges, excises, tax levies,
fees (including, without limitation, license, permit,
9
<PAGE>
inspection, authorization and similar fees), and all other governmental
charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of
the Leased Property or the business conducted thereon by Tenant and/or the
Rent (including all interest and penalties thereon due to any failure of
payment by Tenant) applicable to periods of time within the Term hereof
which at any time may be assessed or imposed on or in respect of or be a
lien upon (a) the Facility or any part thereof or (b) any rent therefrom or
(c) any estate, right, title or interest therein, or (d) any occupancy,
operation, use or possession of, or (e) sales from, or activity conducted
on, the Leased Property or the leasing or use of the Facility or any part
thereof or (f) the Rent. "Imposition" shall not include: (a) any federal,
state or local tax based on gross or net income (whether denominated as an
income, capital stock or other tax) imposed on Landlord generally and not
exclusively in connection with the Leased Property, or (b) any net revenue
tax of Landlord or any other person, or (c) any tax imposed with respect to
the sale, financing, exchange or other disposition by Landlord of the
Leased Property or the proceeds thereof, or (d) any principal or interest
on any indebtedness of Landlord or (e) on any ground rent or other rent
payable by Landlord.
Initial Term: The period between, and inclusive of, the Commencement
Date and the earlier of the Expiration Date and the date upon which this
Lease terminates as provided herein.
Insurance Requirements: The terms, conditions and requirements of any
insurance policy required by this Lease.
Intangible Assets: The amount of (a) all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organizational and developmental
expenses, unamortized operating rights, unamortized licenses, unamortized
leasehold rights and other intangible assets, or any write-up resulting
from a reversal of a reserve for bad debt or depreciation and any write-up
resulting from a change in method of accounting or inventory, and (b) any
investment in any Affiliate.
Investigations: Soil and chemical tests or any other environmental
investigations, examinations or analyses.
Land: The real property described on Exhibit A hereto.
Landlord's Personal Property: All Personal Property, except Tenant's
Personal Property, that at the Commencement Date or thereafter during the
Term is located, or, but for a temporary relocation off-site on the
Commencement Date is normally located, on the Land or in the Leased
Improvements.
10
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Lease Year: The period commencing on the first day of the calendar
month following the month in which the Commencement Date occurs and ending
on the last day of the twelfth (12th) full calendar month thereafter
(unless the Commencement Date is the first day of a month, in which event
the first Lease Year shall commence on such day). The period, if any,
between the Commencement Date and the first day of the following month
shall be deemed to be part of the first Lease Year. Thereafter, each Lease
Year will be January 1 through December 31. If this Lease is terminated
before the end of any Lease Year, the final Lease Year will be January 1
through the date of termination thereof.
Leased Improvements: All buildings, structures, Fixtures and other
improvements of every kind currently situated on the Land, including, but
not limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures.
Leased Property (also "Facility"): Collectively, the Land, the Leased
Improvements, the Related Rights and Landlord's Personal Property, and the
licensed nursing home or other healthcare facility being operated thereon
and therein, as identified on Exhibit A hereto.
Legal Requirements: As to the Leased Property, all federal, state,
county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Leased Property or the construction, use or alteration thereof, whether now
or hereafter enacted and in force, including any which may (a) require
repairs, modifications or alterations in or to the Leased Property or (b)
in any way adversely affect the use and enjoyment thereof, and all permits,
licenses and authorizations and regulations relating thereto, including,
but not limited to, those relating to existing health care licenses, those
authorizing the current number of licensed beds and the level of services
delivered from the Leased Property, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of
record or known to Tenant at any time in force affecting the Leased
Property, other than covenants, agreements, restrictions and encumbrances
created by Landlord without the consent of Tenant.
Mechanics Liens: Liens of mechanics, laborers, materialmen, suppliers
or vendors.
Monarch: Monarch Properties, Inc., a Maryland corporation.
Monarch LP: Monarch Properties, LP, a Delaware limited partnership and
a subsidiary of Monarch.
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Monarch Purchase Agreement: The Facilities Purchase Agreement, dated
as of May 1, 1998, among Landlord, Tenant, Integrated Health Services,
Inc., Guarantor, IHS No. 105 and Monarch pursuant to which Landlord has
agreed to sell to Monarch, and Monarch has agreed to purchase from
Landlord, the Facility and the Leased Property.
Net Income: The aggregate net income of Tenant from the operation of
the Facility, determined on an accrual basis in accordance with GAAP,
before federal, state and local income taxes, but excluding extraordinary
items.
Net Proceeds: All proceeds, net of any costs incurred by Landlord in
obtaining such proceeds, payable under any risk policy of insurance
required by Article 13 of this Lease (including proceeds with respect to
the Personal Property that Tenant elects to restore or replace pursuant to
Section 14.2 hereof).
Notice: A written notice given pursuant to Section 37.1 hereof.
Offering: The public offering of shares of common stock of Monarch.
Officer's Certificate: A certificate signed by any one or more of the
Executive Officers.
Overdue Rate: On any date, a rate equal to three (3) percentage points
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.
Partial Taking: A Taking of a portion of the Facility or of less than
the whole fee title to the Facility.
Payment Date: The due date for the payment of the installments of Base
Rent, Additional Charges or any other sums payable under this Lease.
Peak Medical Guaranty: A Guaranty executed by Guarantor in favor of
Landlord.
Permitted Debt: Debt (other than Debt as to which an Affiliate of
Tenant is the creditor) incurred by Tenant solely to provide working
capital.
Permitted Encumbrances: With respect to the Leased Property, the
matters identified on Exhibit E hereto.
Person: Any natural person, trust, partnership, limited liability
company, corporation, joint venture or other legal entity.
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Personal Property: All equipment, furniture, fixtures, inventory
(including linens, dietary supplies and housekeeping supplies, and
including food and other consumable inventories), furnishings, movable
walls or partitions, trade fixtures, computers, software and data
pertaining to the business of the Facility (whether such data is stored in
computers or peripheral equipment that is included within the definition of
the term "Personal Property" or is otherwise in the possession of a Tenant,
or in computers and equipment that is not included within the definition of
the term "Personal Property" but is either owned by Tenant as to which
Tenant has a right of retrieval) and other tangible personal property used
in connection with the business of the Facility, together with all
replacements, modifications, alterations and additions thereto, except (a)
items, if any, included within the definition of Fixtures or Leased
Improvements, (b) personal property leased from third parties, (c)
computers owned or leased by a Tenant that customarily are not located on
the Leased Property, and (d) proprietary software owned by parties other
than a Tenant.
Primary Intended Use: The operation of the Facility as a licensed
health care facility.
Prime Rate: On any date, a rate equal to the annual rate on such date
publicly announced by Citibank, N.A. to be its prime rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing,
but in no event greater than the maximum rate then permitted under
applicable law.
Proceeding: Any action, proposal or investigation by any agency or
entity, or any complaint to such agency or entity.
Purchase Money Financing: Any financing (whether by lease, chattel
mortgage, installment sale, or otherwise) provided by a Person to Tenant in
connection with the acquisition of Personal Property used in connection
with the operation of the Facility, whether by way of installment sale or
otherwise.
Purchase Price: The Purchase Price set forth on Exhibit F hereto.
Qualified Capital Expenditures: Expenditures capitalized on the books
of the Tenant for any of the following: replacement of furniture, fixtures
and equipment, including refrigerators, ranges, major appliances, bathroom
fixtures, doors (exterior and interior), central air conditioning and
heating systems (including cooling towers, water chilling units, furnaces,
boilers and fuel storage tanks) and major replacement of siding; major roof
replacements, including major replacements of gutters, downspouts, eaves
and soffits; major repairs and replacements of plumbing and sanitary
systems; overhaul of elevator systems; major repaving, resurfacing and
sealcoating of sidewalks, parking lots and driveways; repainting of entire
building exterior; but excluding major alterations, renovations and
additions.
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Reconstruction Period: A period of three hundred sixty-five (365) days
following the date of any damage or destruction or the Date of Taking, as
applicable, subject to extension to the extent required by Unavoidable
Delay.
Regulatory Actions: With respect to the Leased Property, any claim,
demand, notice, action or proceeding brought or initiated by any
governmental authority in connection with any Environmental Law, including,
without limitation, civil, criminal and/or administrative proceedings, and
whether or not seeking costs, damages, equitable remedies, penalties or
expenses.
Related Rights: All easements, rights and appurtenances relating to
the Land and the Leased Improvements.
Release: The intentional or unintentional spilling, leaking, dumping,
pouring, emptying, seeping, disposing, discharging, emitting, depositing,
injecting, leaching, escaping, abandoning or other release or threatened
release, however defined, of any Hazardous Substance.
Rent: Collectively, the Base Rent and the Additional Charges.
Rental Value: (a) With respect to the Leased Property that has been
relet during the period in question, the Rent actually received by Landlord
for the period in question from the reletting, net of all reasonable
expenses, including brokerage commissions, fees of attorneys and
consultants and the cost of any repairs and alterations required to obtain
such reletting and (b) with respect to the Leased Property that has not
been relet during the period in question, the Worth at the Time of the
Award of the Rent obtainable for the Leased Property for the period in
question, under a lease of the Leased Property on the same terms and
conditions as are set forth in this Lease, from a Tenant that is unrelated
to Landlord and has experience and a reputation in the health care industry
and a credit standing reasonably equivalent to that of Tenant and
Guarantors.
Replaced Property: Any Fixtures or Personal Property that from time to
time are replaced, pursuant to Section 9.1.5 hereof, after the date of this
Lease.
Replacement Property: Any Fixtures or Personal Property acquired by
Tenant in accordance with Section 9.1.5 hereof, after the date of this
Lease for use in connection with the Facility in replacement of any
Replaced Property.
SEC: Securities and Exchange Commission.
Second Renewal Term: The period of ten (10) years.
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Security Agreement: The security agreement of even date herewith
between Landlord and Tenant.
Security Deposit: The cash sum determined in accordance with the
schedule attached as Exhibit C hereto.
State: The State of Idaho, where the Facility is located.
Taking: The exercise by a Condemnor of any governmental power, whether
by legal proceedings or otherwise, to acquire an interest in the Leased
Property, or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for
condemnation are pending.
Tangible Net Worth: At any date, the net worth of Guarantor and all of
its subsidiaries (including, without limitation, Tenant), as determined on
a consolidated basis in accordance with GAAP, less Intangible Assets of
Guarantor and all of its subsidiaries (including, without limitation,
Tenant).
Tenant's Other Leased Property: The Twin Falls Care Center, located in
Twin Falls, Idaho, that is subject to a Lease, of even date hereof, between
IHS Acquisition No. 105, Inc. and Tenant, including all amendments,
modifications or renewals thereof.
Tenant's Personal Property: All Personal Property (a) which Tenant
owns and uses, as of the date of this Lease, in connection with the
operation of the Leased Property being leased pursuant to this Lease,
and/or (b) which Tenant acquires after the Commencement Date for use by it
in connection with the Facility.
Term: The Initial Term and, if renewed as provided in Article 12, the
First Renewal Term and/or the Second Renewal Term.
Third Party Claims: Any legal actions or proceedings (other than
Regulatory Actions but including, without limitation, those based on
negligence, trespass, strict liability, nuisance or toxic tort due to
Contamination), and whether or not seeking costs, damages, penalties or
expenses, brought by any person or entity other than a governmental agency.
Transfer: The (a) assignment, mortgaging or other encumbering of all
or any part of Tenant's interest in this Lease or Tenant's interest in the
Leased Property or (b) the entering into of any management agreement or
other arrangement under which the Facility is operated by or licensed to be
operated by an entity other than Tenant.
Transferee: Any assignee, subtenant or other occupant of the Leased
Property pursuant to any Transfer.
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Umbrella Policies: Policies of insurance that cover risks in excess of
the liability limits of policies required to be carried under this Lease.
Unavoidable Delays: Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes
beyond the reasonable control of the party responsible for performing an
obligation hereunder, provided that lack of funds shall not be deemed a
cause beyond the control of a party.
Unsuitable for Its Primary Intended Use: A state or condition of the
Facility such that, by reason of damage or destruction or a Partial Taking,
the Facility cannot reasonably be expected to be repaired and restored
within the Reconstruction Period to a condition in which it may be operated
on a commercially practicable basis for its Primary Intended Use, taking
into account, among other relevant factors, the number of useable beds, the
amount of square footage and the estimated revenue affected by such damage
or destruction or Partial Taking.
Worth at the Time of the Award: The present value of the applicable
amount, determined at the time required in Section 16.5 hereof, by
discounting the applicable amount by the Prime Rate.
2.2 OTHER DEFINITIONS. Other words and phrases are defined elsewhere in
this Lease and in the Exhibits and Schedules hereto.
ARTICLE 3
RENT; RELATED MATTERS
3.1 RENT. Tenant shall pay the Rent in lawful money of the United States of
America and legal tender for the payment of public and private debts. The first
payment of Base Rent shall be due on the Commencement Date. Tenant shall pay the
Base Rent in equal, consecutive monthly installments in advance on the first day
of each calendar month of the Term. Unless otherwise agreed by the parties, Rent
shall be prorated as to any partial month at the end of the Term.
3.2 ADDITIONAL CHARGES. In addition to the Base Rent, Tenant will also pay
and discharge as and when due and payable all Impositions as provided in Section
4.1 hereof and all Additional Charges. If Tenant fails to pay any Additional
Charges as and when due, Tenant will also promptly pay and discharge as
Additional Charges every fine, penalty, interest and cost which may be added for
non-payment or late payment.
3.3 LATE CHARGE; INTEREST. If any installment of Base Rent, or any
Additional Charges payable by Tenant to Landlord hereunder is not paid by the
due date, Tenant shall pay
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Landlord on demand, as an Additional Charge, (a) a late charge of five percent
(5%) of the amount due and unpaid and (b) if such payment is not made within
thirty (30) days of the date due, interest thereon at the Overdue Rate from such
thirtieth (30th) day until the date on which such payment plus such late charge
and interest is paid in full.
3.4 METHOD OF PAYMENT OF RENT. All Rent to be paid to Landlord shall be
paid by electronic funds transfer debit transactions through wire transfer of
immediately available funds to Landlord per the wiring instructions set forth on
Exhibit I hereto (as from time to time be changed by Landlord by Notice to
Tenant) and shall be initiated by Tenant for settlement on or before the due
date each calendar month; provided, however, if the due date is not a Business
Day, then settlement shall be made on the next succeeding day which is a
Business Day. Landlord shall provide Tenant with appropriate wire transfer
information in a Notice from Landlord to Tenant.
3.5 NET LEASE; NO OFFSET. The Rent shall be paid absolutely net to
Landlord, so that this Lease shall yield to Landlord the full amount of the
installments of Base Rent and Additional Charges payable hereunder throughout
the Term, subject to the terms and conditions hereof. This Lease is and shall be
a "pure-net" or "triple-net" lease, as such terms are commonly used in the real
estate industry, it being intended that Tenant shall pay all costs, expenses and
charges arising out of the use, occupancy and operation of the Leased Property,
without any offset, deduction, abatement, or counterclaim whatsoever. Landlord
shall not be required to furnish any services whatsoever to the Facility or to
make any payment of any kind whatsoever; and Landlord shall not be responsible
for any loss or damage to any property of Tenant, or any other user or occupant
of any part of the Facility, absent the gross negligence or willful misconduct
of Landlord, its employees or agents.
ARTICLE 4
IMPOSITIONS; RELATED MATTERS
4.1 PAYMENT OF IMPOSITIONS. Tenant will pay or cause to be paid all
Impositions before any fine, penalty, interest or cost may be added for
non-payment, and Tenant will promptly, upon request, furnish to Landlord copies
of official receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Tenant may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments and, in such
event, Tenant shall pay such installments during the Term hereof as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. Refunds of Impositions paid by Tenant shall be
paid to or retained by Tenant. Landlord shall remit promptly to Tenant any
refunds of Impositions received by Landlord. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and
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reports. Tenant will provide Landlord, upon request, with cost and depreciation
records in its possession that are reasonably necessary for filing returns for
any property classified as personal property. Tenant may, at Tenant's sole cost
and expense, protest, appeal or institute such other proceedings as Tenant may
deem appropriate to effect a reduction of Impositions, and Landlord shall
cooperate with Tenant in such protest, appeal or other action. Tenant shall
reimburse Landlord for Landlord's direct costs of cooperating with Tenant with
respect to such protest, appeal or other action and shall indemnify, defend and
hold Landlord harmless against any expense or loss as a result thereof. The
foregoing shall not be construed as indemnifying Landlord against its own
grossly negligent acts or omissions or willful misconduct.
4.2 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
tax-fiscal period during which the Term ends shall be adjusted and prorated
between Landlord and Tenant, whether or not such Imposition is imposed before or
after termination or expiration, and Tenant's obligation to pay their prorated
share thereof, if the same becomes due after such termination or expiration,
shall survive such termination or expiration.
4.3 UTILITY CHARGES. Tenant will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities used in the
Leased Property during the Term.
4.4 INSURANCE PREMIUMS. Tenant will pay or cause to be paid when due all
premiums for the insurance coverage required to be maintained pursuant to
Article 13 during the Term.
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC.
Except as otherwise specifically provided in this Lease, Tenant shall
remain bound by this Lease in accordance with its terms and shall not take any
action without the consent of Landlord to modify, surrender or terminate the
same, and shall not seek or be entitled to any offset, deduction abatement, or
counterclaim, or any deferral or reduction of Rent. The respective obligations
of Landlord and Tenant shall not be affected by reason of (a) any damage to, or
destruction of, the Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, except as expressly
set forth herein; (b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property, or any portion thereof, or the
interference with such use by any Person (other than Landlord or its employees
or agents) or by reason of eviction by paramount title; (c) any claim which
Tenant has or might have against Landlord or by reason of any default or breach
of any warranty by Landlord under this Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties, (d) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Landlord or any assignee
or transferee of Landlord, or (e) any
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other cause whether similar or dissimilar to any of the foregoing other than a
discharge of Tenant from any such obligations as a matter of law. Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to (i) modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (ii) except as otherwise specifically provided in this Lease,
entitle Tenant to any reduction, suspension or deferral of the Rent or other
sums payable by Tenant hereunder except and unless as otherwise specifically
provided in this Lease.
ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY
6.1 OWNERSHIP OF THE LEASED PROPERTY. Tenant acknowledges that the Leased
Property is the property of Landlord and that Tenant has only the right to the
possession and use of the Leased Property leased by it upon the terms and
conditions of this Lease. Tenant will not (a) file any income tax return or
other associated documents; (b) file any other document with or submit any
document to any governmental body or authority; (c) enter into any written
contractual arrangement with any Person; or (d) release any financial statements
of Tenant, in each case that takes any position other than that, throughout the
Term, Landlord is the owner of the Leased Property for federal, state and local
income tax purposes and that this Lease is a "true lease".
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall, during the entire Term,
maintain all of Landlord's Personal Property in good order, condition and repair
as shall be necessary in order to operate the Facility for the Primary Intended
Use in compliance with applicable licensure and certification requirements,
applicable Legal Requirements and Insurance Requirements, and customary industry
practice for the Primary Intended Use. If any of Landlord's Personal Property
requires replacement in order to comply with the foregoing, Tenant shall replace
it with other similar property of the same or better quality at Tenant's sole
cost and expense; the Replaced Property shall no longer be Landlord's Personal
Property; and the Replacement Property shall become part of Landlord's Personal
Property. Tenant shall not permit or suffer Landlord's Personal Property to be
subject to any lien, charge, encumbrance, financing statement or contract of
sale or the like, except for any purchase money security interest or
equipment or Landlord's interest expressly approved in advance, in writing, by
Landlord. At the expiration or earlier termination of this Lease, all of
Landlord's Personal Property shall be surrendered to Landlord with the Leased
Property in the condition required by Section 9.1.6 hereof.
6.3 TENANT'S PERSONAL PROPERTY. Tenant shall provide and maintain, during
the entire Term, such Personal Property, in addition to Landlord's Personal
Property, as shall be necessary and appropriate in order to operate the Facility
for its Primary Intended Use in compliance with all licensure and certification
requirements, in compliance with all applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary
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practice in the industry for the Primary Intended Use. Upon the expiration or
earlier termination of this Lease, without the payment of any additional
consideration by Landlord, Tenant shall be deemed to have sold, assigned,
transferred and conveyed to Landlord all of Tenant's right, title and interest
in and to any of the respective Tenant's Personal Property that is integral to
the use of the Facility for its Primary Intended Use, and shall, upon Landlord's
request, execute and deliver to Landlord a bill of sale with respect thereto,
and without Landlord's prior written consent Tenant shall not remove the same
from the Leased Property. Any of Tenant's Personal Property that is not integral
to the use of the Facility at such time may be removed by Tenant, and, if not
removed within thirty (30) days following the expiration or earlier termination
of this Lease, shall be considered abandoned by Tenant and may be appropriated,
sold, destroyed or otherwise disposed of by Landlord without giving notice
thereof to Tenant and without any payment to Tenant or any obligation to account
therefor. Tenant will, at its expense, repair all damage to the Leased Property
that is caused by the removal of any of Tenant's Personal Property, whether
effected by Tenant or Landlord.
6.4 GRANT OF SECURITY INTEREST IN TENANT'S PERSONAL PROPERTY; RESTRICTION
ON OTHER LIENS. Tenant has concurrently granted to Landlord a security interest
in Tenant's Personal Property upon the terms set forth in the Security
Agreement. Without Landlord's consent, Tenant shall not permit or suffer
Tenant's Personal Property to be subject to any lien, charge, encumbrance,
financing statement or contract of sale other than to secure Permitted Debt.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY
7.1 CONDITION OF THE LEASED PROPERTY. Tenant acknowledges that Tenant has
examined and otherwise has knowledge of the condition of the Leased Property
leased by it prior to the execution and delivery of this Lease and has found the
same to be in good order and repair and satisfactory for its purposes hereunder.
Tenant is leasing the applicable Leased Property "as is" in its condition on the
Commencement Date. Tenant waives any claim or action against Landlord in respect
of the condition of the Leased Property being leased by it. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, OR OTHERWISE AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO TENANT. TENANT
FURTHER ACKNOWLEDGES THAT, ON AND AFTER THE COMMENCEMENT DATE AND THROUGHOUT THE
TERM, TENANT IS SOLELY RESPONSIBLE FOR THE CONDITION OF THE LEASED PROPERTY.
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7.2 USE OF THE LEASED PROPERTY.
7.2.1 Subject to the exceptions in clause (f) of the definition of
"Event of Default" in Article 2 hereof, throughout the Term, Tenant shall
continuously use the Leased Property leased by it for the Primary Intended Use
and for such other uses as may be necessary or incidental thereto, and no Tenant
shall use any Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or permitted to be
made of, or allowed in, any Leased Property, and no acts shall be done, which
will cause the cancellation of, or be prohibited by, any insurance policy
covering any Leased Property or any part thereof.
7.2.2 Tenant agrees that the Leased Property leased by it and Tenant's
Personal Property shall not be used for any unlawful purpose, nor shall Tenant
commit or suffer any waste on the Leased Property leased by it or cause or
permit any nuisance thereon.
7.2.3 Tenant shall not suffer or permit the Leased Property, or any
portion thereof, or Tenant's Personal Property to be used in such a manner as
(i) might reasonably tend to impair Landlord's (or Tenant's, as the case may be)
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public or of
implied dedication of the Leased Property or any portion thereof.
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. Subject to Article
12, Tenant, at its expense, will promptly (i) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property and Tenant's Personal
Property, whether or not compliance therewith requires structural changes in any
of the Leased Improvements (which structural changes shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed) or interferes with or prevents the use and enjoyment of the
Leased Property, and (ii) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
the use of the Leased Property and Tenant's Personal Property then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Tenant's use, maintenance, operation and
any alteration of the Leased Property shall at all times conform to all
applicable local, state, and federal laws, ordinances, rules, and regulations
(including but not limited to the Americans with Disabilities Act). The judgment
of any court or administrative body of competent jurisdiction, or the decision
of any arbitrator (final beyond any appeal) that Tenant has violated
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any such Legal Requirements or Insurance Requirements, shall be conclusive of
that fact as between Landlord and Tenant.
8.3 CERTAIN FINANCIAL AND OTHER COVENANTS.
8.3.1 Certain Financial Covenants.
8.3.1.1 Minimum Capital Expenditures. During the first Lease
Year, Tenant shall make at least Three Hundred Dollars ($300.00)
per-licensed-bed of Qualified Capital Expenditures, and thereafter throughout
the Term, Tenant shall in each Lease Year make Qualified Capital Expenditures in
such amount increased annually in proportion by the increase in the Cost of
Living Index from the first day of the prior Lease Year to the first day of the
current Lease Year. The amount of Qualified Capital Expenditures
per-licensed-bed may never be less in any Lease Year than the amount established
in the prior Lease Year.
8.3.1.2 Permitted Debt. Except for Permitted Debt, Tenant shall
not incur any Debt without the prior written consent of Landlord, which Landlord
may withhold in its discretion.
8.3.1.3 Cash Flow to Debt Service Requirement. At all times
during the Term, Tenant shall maintain a ratio of Cash Flow from the Facility to
Debt Service from the Facility at least equal to the Cash Flow to Debt Service
Requirement.
8.4 OTHER BUSINESSES. During the Term of this Lease, Tenant shall not,
directly or indirectly, own, operate or manage any businesses other than health
care businesses.
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS
9.1 MAINTENANCE AND REPAIR.
9.1.1 Tenant, at its expense, shall keep the Leased Property leased by
it and all fixtures thereon and all landscaping, private roadways, sidewalks and
curbs appurtenant thereto and which are under Tenant's control and Tenant's
Personal Property in good order and repair (whether or not the need for such
repairs occurs as a result of Tenant's use, any prior use, the elements or the
age of the applicable Leased Property or any portion thereof, or any cause
whatever except the failure of Landlord to make any payment or to perform any
act expressly required under the Lease or the negligence or willful misconduct
of Landlord), and, except as may be provided to the contrary in Article 14, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or
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arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise).
9.1.2 Tenant shall do or cause others to do all shoring of the Leased
Property leased by it or adjoining property (whether or not owned by Landlord)
or of the foundations and walls of the Leased Improvements, and every other act
necessary or appropriate for the preservation and safety thereof, by reason of
or in connection with any subsidence, settling or excavation or other building
operation upon the Leased Property leased by it or adjoining property, whether
or not Tenant or Landlord shall, by any Legal Requirements, be required to take
such action or be liable for the failure to do so; provided, however, that such
shoring and any other material acts shall be subject to the prior written
consent of Landlord, which shall not unreasonably be withheld or delayed. All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work, and, subject to the provisions of paragraph 9.1.6,
where, by reason of age or condition, such repairs cannot be made to the quality
of the original work, the property to be repaired shall be replaced.
9.1.3 Landlord shall not under any circumstances be required to build
or rebuild any improvements on the Leased Property or on any property
appurtenant thereto, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or upon any adjoining property, whether to provide lateral or other
support for the Leased Property or abate a nuisance affecting the Leased
Property, or otherwise, or to make any expenditure whatsoever with respect
thereto, in connection with the Lease, or to maintain the Leased Property in any
way. Tenant hereby waives, to the extent permitted by law, any right provided by
law, but not provided by the terms of this Lease, to make repairs at the expense
of Landlord.
9.1.4 Nothing contained in this Lease shall be construed as (a)
constituting the consent or request of Landlord, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to the Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Landlord in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Landlord in
the Leased Property or any portion thereof. Landlord shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanics' and construction lien laws now or hereafter existing.
9.1.5 Tenant shall, from time to time as and when needed, replace with
Replacement Property any of the Fixtures or Personal Property which shall have
(a) become worn out, obsolete or unusable for the purpose for which it is
intended (if such Fixtures or Personal Property continues to be necessary), (b)
been the subject of a Taking (in which event
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Tenant shall be entitled to that portion of any Award made therefor), or (c)
been lost, stolen or damaged or destroyed; provided, however, that the
Replacement Property shall (i) be in good operating condition, (ii) be of a
quality reasonably equivalent to that of the Replaced Property and (iii) be
suitable for a use which is the same or similar to that of the Replaced
Property. Tenant shall repair at its sole cost and expense all damage to the
applicable Leased Property caused by the removal of Replaced Property or other
personal property of Tenant or the installation of Replacement Property. All
Replacement Property shall become the property of Landlord and shall become
Fixtures or Landlord's Personal Property, as the case may be, to the same extent
as the Replaced Property had been. Upon Landlord's written request Tenant shall
with reasonable promptness cause to be executed and delivered to Landlord an
invoice, bill of sale or other appropriate instrument evidencing the transfer or
assignment to Landlord of all estate, right, title and interest (other than the
leasehold estate created hereby) of Tenant or any other Person in and to any
Replacement Property the cost of which exceeds Twenty Five Thousand Dollars
($25,000), free from all liens and other exceptions to title, and Tenant shall
pay all taxes, fees, costs and other expenses that may become payable as a
result thereof.
9.1.6 Upon the expiration or earlier termination of the Term, Tenant
shall vacate and surrender the Leased Property leased by it to Landlord as a
fully equipped, licensed health care facility, with all equipment required by
the laws of the State of Idaho to maintain its then current license, and shall
assign and transfer to Landlord (or to another Person designated by Landlord)
the Facility Trade Names, local telephone numbers, local electronic mail and
"Internet" addresses, if any, under which the Facility is then conducting
business, and all Facility-specific licenses, permits and rights to do business
of every kind (subject to such governmental approvals as may be required),
patient admission agreements and records, supplier and operator contracts, a
copy of all then-current data maintained by Tenant in writing or recorded on
computer media with respect to the business of the Facility and all computer
software necessary to access and manipulate such data. Tenant shall not be
required to transfer proprietary software to Landlord, but shall cause the data
it is to transfer to Landlord to be transferred to Landlord, without charge. At
the expiration of the Term or the sooner termination of this Lease, the Leased
Property, including all Leased Improvements, Fixtures and Landlord's Personal
Property, shall be returned to Landlord in good operating condition, ordinary
wear and tear, Taking and casualty damage that Tenant is not required by this
Lease to repair or restore, excepted, and except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease.
Notwithstanding anything to the contrary in this Lease, not more than fifty
percent (50%) of the value of the Personal Property returned to Landlord as
required herein may at the time of such return be subject to Purchase Money
Financing, and at the time of such return Tenant shall assign to Landlord all of
its right, title and interest in and to such any and all documents evidencing
such Purchase Money Financing.
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. Except in the case of Permitted
Encumbrances, if any of the Leased Improvements (other than as existing on the
Commencement Date), at any time encroaches in a material adverse manner upon any
property, street or right-of-way adjacent to the Leased Property, or materially
violates the agreements or conditions contained in any lawful restrictive
covenant or other agreement
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affecting the Leased Property or any part thereof, or materially impairs the
rights of others under any easement or right-of-way to which the Leased Property
is subject, then promptly upon the request of Landlord or at the behest of any
person legitimately affected by any such encroachment, violation or impairment,
Tenant shall, at its expense, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, or (b) make such changes to the Leased
Improvements, and take such other actions, as are reasonably practicable, to
remove such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the applicable Leased Improvements, and in
any event take all such actions as may be necessary in order to be able to
continue the operation of the Leased Property for the Primary Intended Use
substantially in the manner and to the extent the Leased Property was operated
prior to the assertion of such violation, impairment or encroachment.
ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 CONSTRUCTION OF ALTERATIONS AND ADDITIONS TO THE LEASED PROPERTY.
Tenant shall not make or permit to be made any alterations, improvements or
additions of or to the Leased Property leased by it or any part thereof, other
than non-structural alterations having no material effect on the roof,
foundation, utility systems or structure, unless and until Tenant has caused
plans and specifications therefor to have been prepared, at Tenant's expense, by
a licensed architect and submitted to Landlord at least thirty (30) days (ninety
(90) days, if such alterations, improvements or additions are reasonably
estimated to cost more than the Approval Threshold) in advance of the
commencement of construction, and has obtained Landlord's written approval
thereof. Landlord shall have the right to require that, prior to the
commencement of construction of any alterations, improvements or additions as to
which its approval is required hereunder, Tenant also provide Landlord with
reasonable assurance of the payment of the cost thereof and, if the cost thereof
is in excess of the Approval Threshold, Tenant shall comply with Landlord's
requirements with respect to the periodic delivery of lien waivers and evidence
of payment for such cost. If such approval is granted, Tenant shall cause the
work described in such approved plans and specifications to be performed, at its
expense, promptly, and in a good, workerlike manner by licensed contractors and
in compliance with applicable governmental and Insurance Requirements and Legal
Requirements and the standards set forth in this Lease, which improvements shall
in any event constitute a complete architectural unit (if applicable) in keeping
with the character of the Leased Property and the area in which the Leased
Property is located and which will not diminish the value of the Leased Property
or change the Primary Intended Use of the Leased Property. Tenant shall be
responsible for the completion of such improvements in accordance with the plans
and specifications approved by Landlord, and shall promptly correct any failure
with respect thereto. Each and every such improvement, alteration or addition
shall immediately become a part of the Leased Property and shall belong to
Landlord subject to the terms and conditions of this Lease. Tenant shall not
have any claim against Landlord at any time in respect of the cost
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or value of any such improvement, alteration or addition. There shall be no
adjustment in the Base Rent by reason of any such improvement, alteration or
addition, unless such improvement, alteration or addition is financed by
Landlord. With Landlord's consent, expenditures made by a Tenant pursuant to
this Article 10 may be included as capital expenditures for purposes of
inclusion in the capital expenditures budget for the Facility and for measuring
compliance with the obligations of Tenant set forth in Section 8.3.1.1 hereof.
10.2 ASBESTOS REMOVAL FOR ALTERATIONS AND ADDITIONS. In connection with any
alteration other than removal pursuant to the Escrow Agreement which involves
the removal, demolition or disturbance of any asbestos-containing material,
Tenant shall cause to be prepared at its expense a full asbestos assessment
applicable to such alteration, and shall carry out such asbestos monitoring and
maintenance program as shall reasonably be required thereafter in light of the
results of such assessment.
ARTICLE 11
REMOVAL OF LIENS
Without the consent of Landlord, and except as expressly provided elsewhere
herein, Tenant shall not directly or indirectly create or allow to remain, and
within thirty (30) business days after notice thereof shall promptly discharge
at its expense, any lien, encumbrance, attachment, title retention agreement or
claim upon the Leased Property, and any attachment, levy, claim or encumbrance
in respect of the Rent, excluding (a) Permitted Encumbrances, (b) Mechanics
Liens for sums not yet due, (c) liens created by the acts or omissions of
Landlord, and (d) Mechanics Liens which Tenant is contesting (provided that the
aggregate amount of such contested liens shall not exceed one month's Base Rent.
ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC.
12.1 PERMITTED CONTESTS. Tenant, on its own or on Landlord's behalf (or in
Landlord's name), but at Tenant's sole cost and expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity of any Imposition, Legal Requirement, Insurance
Requirement or Claim not otherwise permitted by Article 11, but this shall not
be deemed or construed in any way as relieving, modifying or extending Tenant's
covenants to pay or to cause to be paid any such charges at the time and in the
manner as in this Lease provided, nor shall any such legal proceedings operate
to relieve Tenant from its obligations hereunder and or cause the sale of the
Leased Property, or any part thereof, to satisfy the same or cause Landlord or
Tenant to be in default under any Encumbrance or in violation of any Legal
Requirements or Insurance Requirements upon the Leased Property or any interest
therein. Upon request of Landlord, if the claim exceeds the
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Approval Threshold, Tenant shall either (a) provide a bond, letter of credit or
other assurance reasonably satisfactory to Landlord that all Claims, together
with interest and penalties, if any, thereon, will be paid, or (b) deposit
within the time otherwise required for payment with a bank or trust company
selected by Landlord as trustee, as security for the payment of such Claims,
money in an amount sufficient to pay the same, together with interest and
penalties in connection therewith, and all Claims which may be assessed against
or become a Claim on the Leased Property, or any part thereof, in said legal
proceedings. Tenant shall furnish Landlord and any lender to Landlord and any
other party entitled to assert or enforce any Legal Requirements or Insurance
Requirements with evidence of such deposit within five (5) days of the same.
Landlord agrees to join in any such proceedings if the same be required to
legally prosecute such contest of the validity of such Claims; provided,
however, that Landlord shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any such proceedings; and
Tenant covenants to indemnify and save harmless Landlord from any such costs or
expenses, including but not limited to attorney's fees incurred in any
arbitration proceeding, trial, appeal and post-judgment enforcement proceedings.
Tenant shall be entitled to any refund of any Claims and such charges and
penalties or interest thereon which have been paid by Tenant or paid by Landlord
and for which Landlord has been fully reimbursed. If Tenant fails to pay or
satisfy the requirements or conditions of any Claims when finally determined to
be due or to provide the security therefor as provided in this paragraph and to
diligently prosecute any contest of the same, Landlord may, upon thirty (30)
days advance written Notice to Tenant, pay such charges or satisfy such claims
together with any interest and penalties and the same (or the cost thereof)
shall be repayable by Tenant to Landlord forthwith as Additional Charges. If
Landlord reasonably determines that a shorter period is necessary in order to
prevent loss to the Leased Property or avoid damage to Landlord, then Landlord
shall give such written Notice as is practical under the circumstances.
12.2 LANDLORD'S REQUIREMENT FOR DEPOSITS. Upon and at any time after an
Event of Default, and regardless of whether or not Tenant subsequently cures
such Event of Default, Landlord, in its sole discretion, shall be entitled to
require Tenant to pay monthly a pro rata portion of the amounts required to
comply with the Insurance Requirements, any Imposition and any Legal
Requirements, and when such obligations become due, Landlord shall pay them (to
the extent of the deposit) upon Notice from Tenant requesting such payment. If
sufficient funds have not been deposited to cover the amount of the obligations
due at least thirty (30) days in advance of the due date, Tenant shall forthwith
deposit the same with Landlord upon written request from Landlord. Landlord
shall not commingle such deposited funds with its other funds, and Tenant shall
be entitled to any interest paid on any deposit so held by Landlord unless and
except to the extent that Landlord, having the right to do so by the terms of
this Lease, applies such interest to Tenant's obligations hereunder. Upon an
Event of Default under this Lease, any of the funds remaining on deposit may be
applied under this Lease, in any manner and on such priority as is determined by
Landlord and after five (5) days Notice to Tenant.
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ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term, Tenant shall at all
times keep the Leased Property leased by it, and all property located in or on
the Leased Property, including all Personal Property, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State of Idaho. All such
policies provided and maintained during the Term shall be written by companies
having a rating classification of not less than "A-" and a financial size
category of "Class X," according to the then most recent issue of Best's Key
Rating Guide. The policies (other than Workers' Compensation policies) shall
name Landlord as an additional insured. Losses shall be payable to Landlord and
Tenant and disbursed as provided in Article 14. Tenant shall pay when due all of
the premiums for the insurance required hereunder, and deliver certificates
thereof (in form and substance reasonably satisfactory to Landlord) to Landlord
prior to their effective date, or, with respect to any renewal policy, prior to
the expiration of the existing policy. In the event of the failure of Tenant
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such certificates thereof to Landlord at the times
required, Landlord shall be entitled, but shall have no obliga tion, to effect
such insurance and pay the premiums therefor when due, which premiums shall be
repayable to Landlord upon written demand therefor as Rent, and failure to repay
the same within thirty (30) days after Notice shall constitute an Event of
Default. The policies on the Leased Property, including the Leased Improvements
and Fixtures, and on the Personal Property, shall insure against the following
risks:
13.1.1 Loss or damage by fire, vandalism and malicious mischief,
earthquake (if available at commercially reasonable rates) and extended coverage
perils commonly known as "Special Risk," and all physical loss perils normally
included in such Special Risk insurance, including but not limited to sprinkler
leakage, in an amount not less than ninety percent (90%) of the then full
replacement cost thereof (as defined in Section 13.2 hereof);
13.1.2 Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the Facility;
13.1.3 Loss of rental included in a business income or rental value
insurance policy covering risk of loss during reconstruction necessitated by the
occurrence of any of the hazards described in Sections 13.1.1 or 13.1.2 hereof
(but in no event for a period of less than twelve (12) months) in an amount
sufficient to prevent either Landlord or Tenant from becoming a co-insurer;
13.1.4 Claims for personal injury or property damage under a policy of
commercial general public liability insurance with a combined single limit per
occurrence in respect of bodily injury and death and property damage of One
Million Dollars ($1,000,000),
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and an aggregate limitation of Three Million Dollars ($3,000,000), which
insurance shall include contractual liability insurance;
13.1.5 Claims arising out of professional malpractice in an amount not
less than One Million Dollars ($1,000,000) for each person and for each
occurrence and an aggregate limit of Three Million Dollars ($3,000,000);
13.1.6 Flood (if Leased Property is located in whole or in part within
a designated flood plain area) and such other hazards and in such amounts as may
be customary for comparable properties in the area;
13.1.7 During such time as Tenant is constructing any improvements,
Tenant, at its sole cost and expense, shall carry or cause to be carried (a)
workers' compensation insurance and employers' liability insurance covering all
persons employed in connection with the improvements in statutory limits, (b) a
completed operations endorsement to the commercial general liability insurance
policy referred to above, and (c) builder's risk insurance, completed value
form, covering all physical loss, in an amount and subject to policy conditions
reasonably satisfactory to Landlord;
13.1.8 Tenant shall procure, and at all times during the Term of this
Lease shall maintain, a policy of primary automobile liability insurance with
limits of One Million Dollars ($1,000,000) per occurrence for owned and
non-owned and hired vehicles; and
13.1.9 If Tenant chooses to carry umbrella liability coverage to
obtain the limits of liability required hereunder, all such policies must cover
in the same manner as the primary commercial general liability policy and must
contain no additional exclusions or limitations materially different from those
of the primary policy.
13.2 REPLACEMENT COST. The term "full replacement cost" means the actual
replacement cost of the Leased Improvements, Fixtures and Landlord's Personal
Property, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In all
events, full replacement cost shall be an amount sufficient that neither
Landlord nor Tenant is deemed to be a co-insurer of the Leased Property. If
Landlord in good faith believes that full replacement cost (the then replacement
cost less such exclusions) of the Leased Property has increased at any time
during the Term, it shall have the right, upon Notice to Tenant, to have such
full replacement cost reasonably redetermined by an Impartial Appraiser. The
determination of the Impartial Appraiser shall be final and binding on Landlord
and Tenant, and Tenant shall forthwith adjust the amount of the insurance
carried pursuant to this Section, as the case may be, to the amount so
determined by the Impartial Appraiser. Landlord and Tenant shall each pay
one-half of the fee, if any, of the Impartial Appraiser.
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13.3 WORKER'S COMPENSATION INSURANCE. Tenant shall at all times maintain
workers' compensation insurance coverage for all persons employed by Tenant on
the Leased Property to the extent required under and in accordance with
applicable law.
13.4 WAIVER OF LIABILITY; WAIVER OF SUBROGATION. Landlord shall have no
liability to Tenant, and, provided Tenant carries the insurance required by this
Lease, Tenant shall have no liability to Landlord, regardless of the cause, for
any loss or expense resulting from or in connection with damage to or the
destruction or other loss of the Leased Property or Tenant's Personal Property,
and no party will have any right or claim against the other for any such loss or
expense by way of subrogation. Each insurance policy carried by Landlord or
Tenant covering the Leased Property and Tenant's Personal Property, including
without limitation, contents, fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the insurer, if such a waiver is
commercially available. Tenant shall pay any additional costs or charges for
obtaining such waivers.
13.5 OTHER REQUIREMENTS. The form of all of the policies of insurance
referred to in this Article shall be the standard forms issued by the respective
insurers meeting the specific requirements of this Lease. The property loss
insurance policy shall contain a Replacement Cost Endorsement. If Tenant obtains
and maintains the professional malpractice insurance described in Section 13.1.5
hereof on a "claims-made" basis, Tenant shall provide continuous liability
coverage for claims arising during the Term either by obtaining an endorsement
providing for an extended reporting period reasonably acceptable to Landlord in
the event such policy is canceled or not renewed for any reason whatsoever, or
by obtaining "tail" insurance coverage converting the policies to "occurrence"
basis policies providing coverage for a period of at least three (3) years
beyond the expiration of the Term. Tenant shall cause each insurer mentioned in
this Article 13 to agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Landlord, that it will give to
Landlord at least thirty (30) days' written notice before the policy or policies
in question shall be materially altered or canceled. If requested by Landlord,
and if available at a commercially reasonable cost, all public liability and
property damage insurance shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recovery under said
policies for any loss, damage, or injury to Landlord, its servants, agents and
employees by reason of the negligence of Tenant or Landlord.
13.6 INCREASE IN LIMITS. If, from time to time after the Commencement Date,
Landlord determines in the exercise of its reasonable business judgment that the
limits of the personal injury or property damage - public liability insurance
then carried are insufficient, Landlord may give Tenant Notice of acceptable
limits for the insurance to be carried, which limits shall be reasonable in
light of the limits required by Landlord of other of its borrowers and Tenant
with respect to similar portfolios at such time; and the insurance shall
thereafter be carried with limits as prescribed by Landlord until further
increase pursuant to the provisions of this Section.
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13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained in
this Article 13, Tenant'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 Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article 13 are otherwise satisfied, and
provided further that Tenant maintain specific allocations acceptable to
Landlord.
13.8 NO SEPARATE INSURANCE.
13.8.1 Tenant shall not, on its own initiative or pursuant to the
request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article, to be furnished by, or which may reasonably be required to be
furnished by, Tenant, or increase the amount of any then existing insurance by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including in all
cases Landlord, are included therein as additional insureds, and the loss is
payable under said insurance in the same manner as losses are payable under this
Lease.
13.8.2 Nothing herein shall prohibit Tenant from (a) securing
insurance required to be carried hereby with higher limits of liability than
required in this Lease, (b) securing umbrella policies or (c) insuring against
risks not required to be insured pursuant to this Lease, and as to such
insurance, Landlord need not be included therein as an additional insured, nor
must the loss thereunder be payable in the same manner as losses are payable
under this Lease. Tenant shall immediately notify Landlord of the taking out of
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.
ARTICLE 14
CASUALTY LOSS
14.1 INSURANCE PROCEEDS. All Net Proceeds payable under any risk policy of
insurance required by Article 13 of this Lease, whether or not paid directly to
Landlord and/or Tenant, shall promptly be deposited with or paid over to an
insurance company, title insurance company or other financial institution
reasonably selected by Landlord and disbursed as provided in this Lease. If the
Net Proceeds are equal to or less than the Approval Threshold, and if no Event
of Default has occurred and is continuing, the Net Proceeds shall be paid to
Tenant promptly upon Tenant's completion of any restoration or repair, as the
case may be, of any damage to or destruction of the Leased Property or any
portion thereof. If the Net Proceeds exceed the Approval Threshold, and if no
Event of Default has occurred and is continuing, the Net Proceeds shall be made
available for restoration or repair, as the case may be, of any damage to or
destruction of the Leased Property or any portion thereof as provided
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in Section 14.10 hereof; provided, however, that, within fifteen (15) days of
the receipt of the Net Proceeds, Landlord and Tenant shall agree as to the
portion thereof attributable to the Personal Property (and failing such shall
submit the matter to arbitration pursuant to the provisions of this Lease) and
those Net Proceeds which the parties agree are payable by reason of any loss or
damage to any of Tenant's Personal Property shall be disbursed to Tenant.
14.2 RESTORATION IN THE EVENT OF DAMAGE OR DESTRUCTION.
14.2.1 If any Leased Improvements are totally or partially damaged or
destroyed and the Facility thereon is thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof. Within
ninety (90) days of such occurrence, Tenant shall commence and thereafter
diligently proceed to complete the restoration of the damaged or destroyed
Leased Improvements to substantially the same (or better) condition as that
which existed immediately prior to such damage or destruction.
14.2.2 If any Leased Improvements are totally or partially damaged or
destroyed, but the Facility thereon is not thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof, and,
within ninety (90) days of the occurrence, Tenant shall commence and thereafter
diligently proceed to restore the Leased Improvements within the Reconstruction
Period to substantially the same (or better) condition as that which existed
immediately prior to such damage or destruction.
14.2.3 No such damage or destruction shall terminate this Lease as to
the Facility; provided, however, that if Tenant, after diligent effort, cannot
within a reasonable time obtain all necessary government approvals, including
building permits, licenses, conditional use permits and any certificates of
need, in order to be able to perform all required repair and restoration work
and thereafter to operate the Leased Improvements for the Primary Intended Use
thereof in substantially the same manner as that existing immediately prior to
such damage or destruction, Tenant shall purchase the Facility or Leased
Property on which the damaged or destroyed Leased Improvements are located for
the Facility Purchase Price, which shall be determined as of the day of the
damage or destruction.
14.3 INTENTIONALLY OMITTED.
14.4 TENANT'S PERSONAL PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant.
14.5 RESTORATION OF TENANT'S PROPERTY. If Tenant is required to restore the
Leased Property as provided in Section 14.2 hereof, Tenant shall also restore or
replace all alterations and improvements made by Tenant and all of the Personal
Property, to the extent required to maintain the then current license of the
Leased Property.
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14.6 NO ABATEMENT OF RENT. Except if the Facility or Leased Property is
purchased by Tenant pursuant to this Article 14, as to which this Lease shall
terminate upon the closing of such purchase, this Lease shall remain in full
force and effect and Tenant's obligation to pay Rent shall continue without
abatement during any period required for repair and restoration.
14.7 CONSEQUENCES OF PURCHASE OF DAMAGED LEASED PROPERTY. If Tenant
purchases the damaged Facility or Leased Property pursuant to the provisions of
this Article 14, this Lease shall terminate upon payment of the price set forth
herein, Landlord shall remit to Tenant any and all Net Proceeds pertaining to
the purchased Leased Property being held by Landlord.
14.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2 hereof, if damage to or destruction of any Leased Improvements occurs
during the last twelve (12) months of the Term of this Lease, and if, as
reasonably estimated by a qualified construction consultant selected by Tenant
and approved by Landlord (which approval shall not unreasonably be withheld),
such damage or destruction cannot be fully repaired and restored within six (6)
months immediately following the date of loss, then Tenant shall have the
option, which Tenant shall exercise by written notice to Landlord within thirty
(30) days of such damage or destruction, to (a) restore the damaged Facility or
Leased Property within such six (6) month period, or (b) to purchase the
Facility or Leased Property on which the damaged or destroyed Leased
Improvements are located from Landlord, within sixty (60) days following the
date of the damage or destruction, for the Facility Purchase Price, which shall
be determined as of the day prior to the date of the damage or destruction.
14.9 WAIVER. Except as specifically provided elsewhere herein, Tenant
hereby waives any statutory or common law rights of termination which may arise
by reason of any damage to or destruction of any Facility.
14.10 PROCEDURE FOR DISBURSEMENT OF INSURANCE PROCEEDS GREATER THAN THE
APPROVAL THRESHOLD. If Tenant restores or repairs the damaged Facility or Leased
Property pursuant to any Subsection of this Article 14 and if the Net Proceeds
exceed the Approval Threshold, the restoration or repair shall be performed in
accordance with the following procedures:
(a) The restoration or repair work shall be done pursuant to
plans and specifications approved by Landlord (not to be unreasonably
withheld or delayed), and Tenant shall cause to be prepared and
presented to Landlord a certified construction statement, reasonably
acceptable to Landlord, showing the total estimated cost of the
restoration or repair.
(b) The Construction Funds shall be made available to Tenant as
the restoration and repair work progresses pursuant to certificates of
an architect selected by Tenant that in the reasonable judgment of
Landlord is qualified in the design and construction
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of health care facilities, or of the type of property for which the
repair work is being done.
(c) There shall be delivered to Landlord, with such certificates,
sworn statements and lien waivers from the general contractor and
major subcontractors (i.e., those having contracts of One Hundred
Thousand Dollars ($100,000.00) or more), in the form customary for the
State of Idaho, in an amount at least equal to the amount of
Construction Funds to be paid out to Tenant pursuant to each
architect's certificate and dated as of the date of the disbursement
to which they relate.
(d) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, during the
restoration and repair, as to the progress of the work, compliance
with the approved plans and specifications, the cost of restoration
and repair and the total amount needed to complete the restoration and
repair.
(e) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, showing that there
are no liens against the Leased Property arising in connection with
the restoration and repair and that the cost of the restoration and
repair at least equals the total amount of Construction Funds then
disbursed to Tenant hereunder.
(f) If the Construction Funds are at any time determined by
Landlord not to be adequate for completion of the restoration and
repair, Tenant shall demonstrate to Landlord, upon request, that
Tenant has sufficient funds available to cover the difference, and
shall disburse such funds pari passu with the Construction Funds.
(g) The Construction Funds may be disbursed by the depository
thereof to Tenant or, at Tenant's direction, to the persons entitled
to receive payment thereof from Tenant, and such disbursement in
either case may, at Landlord's discretion, reasonably exercised, be
made directly or through a third party escrow agent, such as, but not
limited to, a title insurance company, or its agent. Provided no Event
of Default has occurred and is continuing, any excess Construction
Funds shall be paid to Tenant upon completion of the restoration or
repair.
(h) If Tenant at any time fails to promptly and fully perform the
conditions and covenants set out in subparagraphs (a) through (f)
hereof, and the failure is not corrected within thirty (30) days of
written Notice thereof, or if during the restoration or repair an
Event of Default occurs hereunder, Landlord may, at its option,
immediately cease making any further payments to Tenant for the
restoration and repair.
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(i) Landlord may reimburse itself out of the Construction Fund
for its reasonable and documented expenses of consultants, attorneys
and its employee-inspectors incurred in administering the Construction
Funds as hereinbefore provided.
ARTICLE 15
TAKINGS
15.1 TOTAL TAKING. If title to the fee of the whole of the Facility or
Leased Property shall be acquired by any Condemnor as the result of a Taking,
this Lease shall cease and terminate as to the Facility or Leased Property as of
the Date of Taking by said Condemnor, and the Base Rent payable by Tenant
hereunder shall be reduced, as of the date the Lease shall have been so
terminated as to such Facility or Leased Property, by the Facility Rental Value
of the Facility taken.
15.2 ALLOCATION OF PORTION OF AWARD. The Award made with respect to the
Taking of all or any portion of the Leased Property or for loss of rent shall be
the property of and payable to Landlord up to the sum of (a) all costs and
expenses reasonably incurred and documented by Landlord in connection with the
Taking, (b) any loss of Rent suffered by Landlord as a result of the Taking
(except for any Rent accruing after the completion of a purchase by Tenant of
the affected Facility upon a Partial Taking as hereinafter provided) and (c) in
the case of a Taking of the entire Facility, the Facility Purchase Price as of
the time possession is delivered to the Condemnor. To the extent that the laws
of the State of Idaho permit Tenant to make a claim for Tenant's leasehold
interest, moving expenses, loss of goodwill or business, and Tenant's claim does
not have the effect, directly or indirectly, of reducing Landlord's claim,
Tenant shall have the right to pursue such claim in the Taking proceeding and
shall be entitled to the Award therefor. In any Taking proceedings, Landlord and
Tenant shall each seek its own Award, at its own expense.
15.3 PARTIAL TAKING. In the event of a Partial Taking of the Facility,
Tenant shall commence and diligently proceed to restore the untaken portion of
the Leased Improvements on the Leased Property so that such Leased Improvements
shall constitute a complete architectural unit (if applicable) of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to such
Partial Taking; provided, however, that if a Partial Taking renders the Facility
Unsuitable for Its Primary Intended Use, Tenant shall have the right,
exercisable by written notice to Landlord within thirty (30) days after such
Partial Taking is final without appeal permitted, and before the Condemnor takes
possession, to purchase the Facility for the Facility Purchase Price, which
purchase shall be completed within sixty (60) days of such notice. Landlord
shall contribute to the cost of restoration, or if Tenant elects to purchase the
Facility, Landlord shall pay over to Tenant, any Award payable to Landlord for
such Partial Taking; provided, however, that the amount of such contribution
shall not exceed the cost of restoration. If (a) Tenant elects to restore the
Facility, (b) no Event of Default is then continuing and (c) the
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Award is equal to or less than the Approval Threshold, then Landlord's
contribution shall be made to Tenant prior to the commencement of the
restoration. If (a) Tenant elects to restore the Facility, (b) no Event of
Default is then continuing and (c) the Award is more than the Approval
Threshold, then Landlord shall make the Award available to Tenant in the manner
provided in Section 14.10 hereof for insurance proceeds in excess of the
Approval Threshold. The Base Rent shall be reduced by reason of such Partial
Taking to an amount agreed upon by Landlord and Tenant, and if Landlord and
Tenant cannot agree upon a new Base Rent, the new Base Rent amount shall be
equal to the Base Rent prior to the Partial Taking, reduced in proportion to the
reduction in the Fair Rental Value of the Facility or Leased Property resulting
from the Partial Taking.
15.4 TEMPORARY TAKING. In the event of a temporary Taking of the Leased
Property or any part thereof that is for a period of less than six (6) months,
this Lease shall not terminate with respect to the Leased Property, and the
entire amount of any Award therefor shall be paid to Tenant. Upon the cessation
of any such Taking of less than six (6) months, Tenant shall restore the Leased
Property as nearly as may be reasonably possible to the condition existing
immediately prior to such Taking. If any such Taking continues for six (6)
months or more, such Taking shall be considered a Taking governed by Sections
15.1 through 15.3 hereof, and the parties shall have the rights provided
thereunder.
ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. Upon the occurrence of an Event of Default,
Landlord shall have the rights and remedies hereinafter provided (provided,
however, that if an Event of Default is cured prior to the exercise of any
remedies by Landlord, it shall cease to be such for purposes of this Lease).
16.2 LANDLORD'S RIGHTS UPON TENANT'S DEFAULT. If an Event of Default occurs
with respect to this Lease, Landlord may terminate this Lease by giving Tenant
Notice, whereupon as provided herein, the Term of this Lease shall terminate and
all rights of Tenant hereunder shall cease. The Notice provided for herein shall
be in lieu of, and not in addition to, any notice required by the laws of the
State of Idaho as a condition to bringing an action for possession of the Leased
Property or to recover damages under this Lease. In addition thereto, Landlord
shall have all rights at law and in equity available as a result of Tenant's
breach.
16.3 LIABILITY FOR COSTS AND EXPENSES. Tenant will, to the extent permitted
by law, be liable for the payment, as Additional Charges, of reasonable and
documented costs of and expenses incurred by or on behalf of Landlord as a
consequence of an Event of Default, including, without limitation, reasonable
attorneys' fees (whether or not litigation is
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commenced, and if litigation is commenced, including fees and expenses incurred
in appeals and post-judgment proceedings).
16.4 CERTAIN REMEDIES. If an Event of Default has occurred, and whether or
not this Lease has been terminated, Tenant shall, to the extent permitted by
law, if required by Landlord so to do, immediately surrender to Landlord the
Leased Property and quit the same, and Landlord may enter upon and repossess the
respective Leased Property by legal process, and may remove Tenant and all other
persons and any and all Personal Property from the Leased Property, subject to
rights of any residents or patients and to any requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to Section
16.1 hereof, (b) the repossession of the Leased Property, (c) the failure of
Landlord to relet the Leased Property, (d) the reletting of all or any portion
thereof or (e) the failure of Landlord to collect or receive any rentals due
upon any reletting shall relieve Tenant of its liability and obligations
hereunder, all of which shall survive such termination, repossession or
reletting. In the event of any termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the Leased Property to and
including the date of the termination. At Landlord's option, as and for
liquidated and agreed current damages for Tenant's default, Tenant shall also
forthwith pay to Landlord:
(i) the sum of:
(A) the Worth at the Time of the Award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of the award exceeds the aggregate Rental Value of the Leased Property for
such period, and
(B) the Worth at the Time of the Award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds
the aggregate Rental Value of the Leased Property for such period, and
(C) any other amount necessary to compensate Landlord for all the
damage proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom; or
(ii) without termination of Tenant's right to possession of the Leased
Property, each installment of the Rent and other sums payable by
Tenant to Landlord under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
16.6 WAIVER. If this Lease is terminated pursuant to Section 16.2 hereof,
Tenant waives the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
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16.7 APPLICATION OF FUNDS. Any payments received by Landlord during the
existence or continuance of any Event of Default (and any payment made to
Landlord rather than Tenant due to the existence of an Event of Default) shall
be applied to Tenant's obligations in the order which Landlord may determine or
as may be prescribed by the laws of the State of Idaho.
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant fails to make any payment or to perform any act required to be
made or performed under this Lease, and fails to cure the same within the
relevant time periods provided in the definition of Event of Default in Section
2.1 hereof or elsewhere in this Lease, Landlord may (but shall not be obligated
to), after five (5) days' prior Notice to Tenant (except in an emergency), and
without waiving or releasing any obligation of Tenant or any Event of Default,
at any time thereafter make such payment or perform such act for the account and
at the expense of Tenant, and may, to the extent permitted by law, enter upon
the Facility for such purpose and take all such action thereon as, in Landlord's
sole opinion, may be necessary or appropriate therefor. However, if Landlord
reasonably determines that the giving of such Notice as is provided for in this
Article or elsewhere in this Lease would risk loss to the Leased Property or
cause damage to Landlord, then Landlord will give such Notice as is practical
under the circumstances. No such entry shall be deemed an eviction of Tenant.
All sums so paid by Landlord and all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) so incurred,
together with the late charge and interest provided for in Section 3.3 thereon
from the date on which such sums or expenses are paid or incurred by Landlord,
shall be paid by Tenant to Landlord on demand. The obligations of Tenant and
rights of Landlord contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS
18.1 PROHIBITION AGAINST USE OF HAZARDOUS SUBSTANCES. Tenant shall not
permit, conduct or allow on the Leased Property the generation, introduction,
presence, maintenance, use, receipt, acceptance, treatment, manufacture,
production, installation, management, storage, disposal or release of any
Hazardous Substance, except for those types and quantities of Hazardous
Substances ordinarily associated with the operation of the Leased Property as it
is being conducted on the date of this Lease and except in compliance with
Environmental Laws; provided, however, that the asbestos-containing materials,
the underground storage tanks and the other Hazardous Substances that currently
are located in, on, under or about the
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Leased Property, in each case as disclosed in the Environmental Audit delivered
to Landlord prior to the date of this Lease, shall be permitted to remain in
place.
18.2 NOTICE OF ENVIRONMENTAL CLAIMS, ACTIONS OR CONTAMINATIONS. Tenant will
notify Landlord, in writing, promptly upon learning of any existing, pending or
threatened: (a) Regulatory Actions, (b) Contamination of the Leased Property,
(c) Third Party Claims or (d) violation of Environmental Law.
18.3 COSTS OF REMEDIAL ACTIONS WITH RESPECT TO ENVIRONMENTAL MATTERS. If
any investigation and/or Clean-Up of any Hazardous Substance or other
environmental condition on, under, about or with respect to the Leased Property
is required by any Environmental Law and by the terms of this Lease is within
the scope of Tenant's responsibility, then Tenant shall complete, at its own
expense, such investigation and/or Clean-Up or cause each person responsible for
any of the foregoing to conduct such investigation and/or Clean-Up.
18.4 DELIVERY OF ENVIRONMENTAL DOCUMENTS. If and to the extent not
delivered to Landlord prior to the date of this Lease, Tenant shall deliver to
Landlord complete copies of any and all Environmental Documents that may now be
in, or at any time hereafter come into, the possession of Tenant.
18.5 ENVIRONMENTAL AUDIT. At Landlord's expense, Tenant shall from time to
time, but in no case more often than annually, after Landlord's request
therefor, provide to Landlord an Environmental Audit with respect to the Leased
Property. All tests and samplings in connection with an Environmental Audit
shall be conducted using generally accepted and scientifically valid technology
and methodologies. Tenant shall give the engineer or environmental consultant
conducting the Environmental Audit reasonable access to the Leased Property and
to all records in the possession of Tenant that may indicate the presence
(whether current or past) or a Release or threatened Release of any Hazardous
Substances on, in, under or about the Leased Property. Tenant shall also provide
the engineer or environmental consultant an opportunity to interview such
persons employed in connection with the Leased Property as the engineer or
consultant deems appropriate. However, Landlord shall not be entitled to request
such Environmental Audit from Tenant unless (a) there have been any material
changes, modifications or additions to any Environmental Laws as applied to or
affecting the Leased Property; (b) a significant change in the condition of the
Leased Property has occurred; or (c) Landlord has another reasonable basis for
requesting such certificate or certificates. If an Environmental Audit discloses
the presence of Contamination at, or any noncompliance with Environmental Laws
by, the Leased Property, Tenant shall immediately perform all of Tenant's
obligations hereunder with respect to such Hazardous Substances or
noncompliance.
18.6 ENTRY ONTO LEASED PROPERTY FOR ENVIRONMENTAL MATTERS. If Tenant fails
to provide to Landlord an Environmental Audit as contemplated by Section 18.5
hereof, Tenant shall permit Landlord from time to time, by its employees,
agents, contractors or representatives, to enter upon the Leased Property for
the purposes of conducting such
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Investigations as Landlord may desire. Landlord and its employees, agents,
contractors, consultants and/or representatives shall conduct any such
Investigation in a manner which does not unreasonably interfere with Tenant's
use of and operations on the Leased Property (however, reasonable temporary
interference with such use and operations is permissible if the Investigation
cannot otherwise be reasonably and inexpensively conducted). Other than in an
emergency, Landlord shall provide Tenant with prior notice before entering the
Leased Property to conduct such Investigation, and shall provide copies of any
reports or results to Tenant, and Tenant shall cooperate fully in such
Investigation.
18.7 ENVIRONMENTAL MATTERS UPON TERMINATION OR EXPIRATION OF TERM OF THIS
LEASE. Upon the termination or expiration of the Term of this Lease, Tenant
shall cause the Leased Property to be delivered to Landlord free of all
Contamination the removal of which is recommended by the Phase I Environmental
Survey (or the equivalent at the time) completed by the engineering firm chosen
by the parties or otherwise selected as provided below, and in compliance with
all Environmental Laws with respect thereto. At any time during (a) the three
hundred sixty-five (365) days prior to, or the sixty (60) days subsequent to,
the expiration of the original Term hereof, if Tenant has not given the notice
required by Section 1.4 hereof in order to renew the Term or by the terms hereof
is not entitled to renew the Term, or, if the original Term has been renewed, at
any time during (b) the three hundred sixty-five (365) days prior to, or the
sixty (60) days subsequent to, the expiration of the First Renewal Term hereof,
if Tenant has not given the notice required by Section 1.5 hereof in order to
renew the Term or by the terms hereof is not entitled to renew the Term, or, if
this Lease is terminated upon the occurrence of an Event of Default, during (c)
the sixty (60) days after the effective date of such termination, Landlord may
by written notice to Tenant specify a Cleanup to be undertaken by Tenant, and
upon receipt of such notice Tenant shall forthwith begin and with reasonable
diligence complete such Cleanup; provided, however, that if Tenant in good faith
disputes the need for such Cleanup on the grounds that it is not required by any
then applicable Environmental Laws, Tenant may by written notice to Landlord
demand an Environmental Audit of the Leased Property. The Environmental Audit
demanded by Tenant shall be performed by one of the engineering firms listed on
Exhibit H hereto or, if no such firms exist at the time, by an engineering firm
succeeding to the practice of one of such firms. The question of whether or not
a Cleanup is required by an applicable Environmental Law, and, if so, the extent
of such required Cleanup, shall be determined by the conclusions reached in the
Environmental Audit conducted by the engineering firm so selected, and such
determination shall be binding upon the parties. The cost of such Environmental
Audit shall be borne by Landlord if the determination is that no Cleanup is
required, or by Tenant if the determination is that a Cleanup is required.
Tenant shall promptly at its expense complete any Cleanup determined by such
process to be necessary.
18.8 COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall comply with, and
cause its agents, servants and employees to comply with Environmental Laws
applicable to the Leased Property. Specifically, but without limitation:
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(a) Maintenance of Licenses and Permits. Tenant shall obtain and
maintain all permits, certificates, licenses and other consents and
approvals required by any applicable Environmental Law from time to time
with respect to Tenant and the Leased Property leased by it;
(b) Contamination. No Tenant shall cause, suffer or permit any
Contamination in, on, under or about the Leased Property;
(c) Clean-Up. If Contamination occurs in, on, under or about the
Leased Property during the Term, Tenant promptly shall cause the Clean-Up
and the removal of any Hazardous Substance, and in any such case such
Clean-Up and removal of the Hazardous Substance shall be effected in strict
compliance with and in accordance with the provisions of the applicable
Environmental Laws;
(d) Discharge of Lien. Within forty-five (45) days of the date on
which Tenant becomes aware of any lien imposed against the Leased Property
or any part thereof under any Environmental Law (or, in the event that
under the applicable Environmental Law, Tenant is unable, acting
diligently, to do so within forty-five (45) days, then within such period
as is required for Tenant, acting diligently, to do so), Tenant shall cause
such lien to be discharged by payment, bond or otherwise;
(e) Notification of Landlord. Tenant shall notify Landlord in writing
promptly upon receipt by Tenant of notice of any breach or violation of any
environmental covenant or agreement; and
(f) Requests, Orders and Notices. Promptly upon receipt of any written
request, order or other notice relating to any Declaratory Action,
Contamination, Third Party Claims or Leased Property under any
Environmental Law concerning the Leased Property, Tenant shall forward a
copy thereof to Landlord.
18.9 ENVIRONMENTAL RELATED REMEDIES. If, subject to Tenant's right of
contest as set forth in Section 12.1 hereof, Tenant fails to perform any of its
covenants with respect to environmental matters and if such breach is not cured
within any applicable notice and/or grace period or within an additional thirty
(30) days after Landlord gives Notice to Tenant, Landlord may do any one or more
of the following (the exercise of one right or remedy hereunder not precluding
the simultaneous or subsequent taking of any other right hereunder):
(a) Cause a Clean-Up. Cause the Clean-Up of any Contamination on or
under the Leased Property, or both, at Tenant's cost and expense; or
(b) Payment of Regulatory Damages. Pay, on behalf of Tenant, any
damages, costs, fines or penalties imposed on Tenant as a result of any
Regulatory Actions; or
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(c) Payments to Discharge Liens. Make any payment on behalf of Tenant
or perform any other act or cause any act to be performed which will
prevent a lien in favor of any federal, state or local governmental
authority from attaching to the Leased Property or which will cause the
discharge of any lien then attached to the Leased Property; or
(d) Payment of Third Party Damages. Pay, on behalf of Tenant, any
damages, cost, fines or penalties imposed on Tenant as a result of any
Third Party Claims; or
(e) Demand of Payment. Demand that Tenant make immediate payment of
all of the costs of such Clean-Up and/or exercise of the remedies set forth
in this Section 18.9 incurred by Landlord and not theretofore paid by
Tenant as of the date of such demand, whether or not such costs exceed the
amount of Rent and Additional Charges that are otherwise to be paid
pursuant to this Lease, and whether or not any court has ordered the
Clean-Up, and payment of said costs shall become immediately due, without
notice.
18.10 ENVIRONMENTAL INDEMNIFICATION. Tenant shall and does hereby agree to
indemnify, defend and hold harmless Landlord, its principals, officers,
directors, agents and employees from and against each and every incurred and
potential claim, cause of action, demand or proceeding, obligation, fine,
laboratory fee, liability, loss, penalty, imposition, settlement, levy, lien
removal, litigation, judgment, disbursement, expense and/or cost (including,
without limitation, the cost of each and every Clean-Up and including, but not
limited to, reasonable and documented attorneys' fees, consultants' fees,
experts' fees and related expenses, capital, operating and maintenance costs,
incurred in connection with (a) any investigation or monitoring of site
conditions at the Leased Property, (b) the presence of any asbestos-containing
materials in, on, under or about the Leased Property and (c) any Clean Up
required or performed by any federal, state or local governmental entity or
performed by any other entity or person because of the presence of any Hazardous
Substance, Release, threatened Release or any Contamination on, in, under or
about the Leased Property) which may be asserted against, imposed on, or
suffered or incurred by each and every Indemnitee arising out of or in any way
related to, or allegedly arising out of or due to any environmental matter,
including, but not limited to, any one or more of the following:
(i) Release Damage or Liability. The presence of Contamination in, on,
at, under or near the Leased Property or migrating to the Leased Property
from another location;
(ii) Injuries. All injuries to health or safety (including wrongful
death), or to the environment, by reason of environmental matters relating
to the condition of or activities past or present on, at, in or under the
Leased Property;
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(iii) Violations of Law. All violations, and alleged violations, of
any Environmental Law by Tenant relating to the Leased Property or any
activity on, in, at, under or near the Leased Property;
(iv) Misrepresentation. All material misrepresentations relating to
environmental matters in any documents or materials furnished by Tenant to
Landlord and/or its representatives in connection with this Lease;
(v) Event of Default. Each and every Event of Default hereunder
relating to environmental matters;
(vi) Lawsuits. Any and all lawsuits brought or threatened against any
one or more of the Indemnitees, settlements reached and governmental orders
relating to any Hazardous Substances at, on, in, under or near the Leased
Property, and all demands or requirements of governmental authorities, in
each case based upon or in any way related to any Hazardous Substances at,
on, in or under the Leased Property; and
(vii) Presence of Liens. All liens imposed upon the Leased Property
and charges imposed on any Indemnitee in favor of any governmental entity
or any person as a result of the presence, disposal, release or threat of
release of Hazardous Substances at, on, in, from or under the Leased
Property.
If the matter that is the subject of a claim for indemnification by any
Indemnitee pursuant to this Section 18.10 arises or is in connection with a
claim, suit or demand filed by a third party, Tenant shall be entitled to
defend against such Claim with counsel reasonably satisfactory to the
applicable Indemnitee(s). The Indemnitee(s) may continue to employ counsel
of its own, but such costs shall be borne by the Indemnitee(s) as long as
Tenant continues to so defend. With respect to such Claims arising from
third parties (A) if an Indemnitee declines to accept a bona fide offer of
settlement that is recommended by Tenant, which settlement includes a full
and complete release of such Indemnitee from the subject Claim, the maximum
liability of Tenant arising from such claim shall not exceed that amount
for which it would have been liable had such settlement been accepted, and
(B) if an Indemnitee settles the subject Claim without the consent of
Tenant, the maximum liability of Tenant under this Section arising from
such Claim shall not exceed the fair and reasonable settlement value of
such Claim.
18.11 RIGHTS CUMULATIVE AND SURVIVAL. The rights granted Landlord under
this Article are in addition to and not in limitation of any other rights or
remedies available to Landlord hereunder or allowed at law or in equity. The
obligations of Tenant to defend, indemnify and hold the Indemnitees harmless, as
set forth in this Article, arising as a result of an act, omission, condition or
other matter occurring or existing during the Term, whether or not the act,
omission, condition or matter as to which such obligations relate is discovered
during the Term, shall survive the expiration or earlier termination of the Term
of this Lease.
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ARTICLE 19
HOLDOVER MATTERS
19.1 HOLDING OVER. If Tenant remains in possession of the Leased Property
after the expiration of the Term or earlier termination of this Lease, such
possession shall be as a month-to-month tenant during which time Tenant shall
pay as rental each month one and one-half times the aggregate of (a) one-twelfth
of the aggregate Base Rent payable with respect to the Leased Property during
the last Lease Year of the preceding Term, and (b) all Additional Charges
accruing during the month with respect to the Leased Property. Any interest,
however, will be payable only at the rate provided in this Lease and shall not
exceed the maximum rate allowed by law. During such period of month-to-month
tenancy, Tenant shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Leased Property until the month-to-month
tenancy is terminated. Nothing contained herein shall constitute the consent,
express or implied, of Landlord to the holding over by Tenant after the
expiration or earlier termination of this Lease.
19.2 INDEMNITY. If Tenant fails to surrender the Leased Property in a
timely manner and in accordance with the provisions of Section 9.1.6 hereof upon
the expiration or termination of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall indemnify and hold
Landlord, its principals, officers, directors, agents and employees harmless
from loss or liability resulting from such failure, including, without limiting
the generality of the foregoing, loss of rental with respect to any new lease in
which the rental payable thereunder exceeds any rental paid by Tenant pursuant
to this Lease and any claims by any proposed new tenant founded on such failure.
The provisions of this Section 19.2 shall survive the expiration or termination
of this Lease.
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 SUBORDINATION. Upon written request of Landlord, Tenant will
subordinate its rights pursuant to this Lease in writing (a) to the lien of any
mortgage, deed of trust or the interest of any lease in which Landlord is the
Tenant and to all modifications, extensions, substitutions thereof (or, at
Landlord's option, cause the lien of said mortgage, deed of trust or the
interest of any lease in which Landlord is the Tenant to be subordinated to this
Lease), and (b) to all advances made or hereafter to be made thereunder. As a
condition to each such subordination, Landlord shall deliver to Tenant a
non-disturbance agreement providing inter alia that, if such mortgagee,
beneficiary or Landlord acquires the Leased Property by way of foreclosure or
deed in lieu, such mortgagee, beneficiary or Landlord will not disturb Tenant's
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possession under this Lease and will recognize Tenant's rights hereunder
provided this Lease has not been terminated under Section 16.2 hereof.
20.2 ATTORNMENT. If any proceedings are brought for foreclosure, or if the
power of sale is exercised under any mortgage or deed of trust made by Landlord
encumbering the Leased Property, or if a lease in which Landlord is the Tenant
is terminated, Tenant shall attorn to the purchaser or Landlord under such lease
upon any foreclosure or deed in lieu thereof, sale or lease termination and
recognize the purchaser or Landlord as Landlord under this Lease, provided that
the purchaser or Landlord acquires and accepts the Leased Property subject to,
and upon the terms and conditions set forth in, this Lease.
20.3 ESTOPPEL CERTIFICATE. Each of Landlord and Tenant agrees, upon not
less than ten (10) days prior Notice from the other, to execute, acknowledge and
deliver to the other an Estoppel Certificate. It is intended that any Estoppel
Certificate delivered pursuant hereto may be relied upon by Landlord, Tenant,
any prospective tenant, subtenant, assignee or purchaser of the Leased Property,
any mortgagee or prospective mortgagee, or by any other party who may reasonably
rely on such statement.
ARTICLE 21
RISK OF LOSS
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant, and, in the absence of gross negligence, willful
misconduct or material breach of this Lease by Landlord, Landlord shall in no
event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Tenant to any abatement of Rent under this
Lease.
ARTICLE 22
INDEMNIFICATION
22.1 INDEMNIFICATION. Subject to Section 13.4 hereof, notwithstanding the
existence of any insurance or self-insurance provided for in Article 13 hereof,
and without regard to the policy limits of such insurance or self-insurance,
Tenant will, subject to Section 13.4 hereof, protect, indemnify, save harmless
and defend Landlord, its principals, partners, officers, directors,
shareholders, agents, and employees from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation,
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reasonable and documented attorneys' fees and expenses), to the maximum extent
permitted by law, whenever asserted, or incurred by or asserted against Landlord
by reason of:
(a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
(c) the failure to pay Impositions which are the obligations of Tenant
under this Lease;
(d) any failure by Tenant to perform or comply with any of the terms
of this Lease;
(e) the nonperformance of any contractual obligation, express or
implied, assumed or undertaken by Tenant or any party in privity with
Tenant with respect to the Leased Property or any business or other
activity carried on with respect to the Leased Property during the Term or
thereafter during any time in which Tenant or any such other party is in
possession of the Leased Property or thereafter to the extent that any
conduct by Tenant or any such person (or failure of such conduct thereby if
the same should have been undertaken during such time of possession and
leads to such damage or loss) causes such loss or claim;
(f) the use, operation, possession, or management of the Facility by
Tenant before or after the Commencement Date and during the Term of this
Lease until the Lease Termination Date;
(g) the breach or by Tenant of any representation, or warranty in this
Lease;
(h) any and all Claims accruing before or after the Commencement Date
relating to any current or former employee, consultant or independent
contractor of Tenant or the Facility, including, but not limited to, the
termination or discharge of any current or former employee, consultant, or
independent contractor of Tenant or the Facility before or after the
Commencement Date, Claims under federal, state, or local laws, rules or
regulations, accruing before or after the Commencement Date, related to
wages, hours, fair employment practices, unfair labor practices, or other
terms and conditions of employment and claims arising under the Worker
Adjustment and Retraining Notification Act or any analogous state statute,
or matters arising from any severance policy, claim, agreement or contract;
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(i) any and all Claims with respect to any qualified or non-qualified
retirement or benefit plans or arrangements established before or after the
Commencement Date involving any employee, consultant or independent
contractor of Tenant or the Facility;
(j) the Facility was decertified by Tenant during the Term of this
Lease; and
(k) the removal of Tenant's Personal Property from the Facility.
Any amounts which become payable by Tenant under this Section shall be paid
within thirty (30) days after liability therefor on the part of Tenant is
finally determined by litigation or otherwise, and if not timely paid, shall
bear interest (to the extent permitted by law) at the Overdue Rate from the date
of such determination to the date of payment. Nothing herein shall be construed
as indemnifying Landlord against its own grossly negligent acts or omissions or
willful misconduct.
22.2 SURVIVAL OF INDEMNIFICATION; TENANT RIGHT TO DEFEND LANDLORD. Tenant's
liability under this Article shall survive any termination of this Lease. Tenant
shall have the right (at Tenant's expense) to defend Landlord against any such
claim by counsel reasonably acceptable to Landlord (who may also act as Tenant's
counsel in the particular matter, provided Landlord's and Tenant's interests are
coincident and not adverse to one another). Tenant shall apprise Landlord
regularly as to the status of the particular matter.
ARTICLE 23
LIMITATIONS ON TRANSFERS
23.1 GENERAL PROHIBITION AGAINST TRANSFER; PERMITTED TRANSFERS. Tenant
shall not Transfer its interest in this Lease or the Leased Property, except as
specifically permitted by this Lease or consented to in advance by Landlord in
writing. Any such attempted Transfer not specifically permitted by this Lease or
otherwise approved by Landlord shall be null and void and of no force and
effect; but in the event of any such Transfer, Landlord may collect rent and
other charges from the Transferee and apply the amounts collected to the rent
and other charges herein reserved, but no Transfer or collection of rent and
other charges shall be deemed to be a waiver of Landlord's rights to enforce
Tenant's covenants or the acceptance of the Transferee as Tenant, or a release
of Tenant from the performance of any covenants on the part of Tenant to be
performed. Notwithstanding any Transfer, Tenant and any Guarantor shall remain
fully liable for the performance of all terms, covenants and provisions of this
Lease, both before and after any such Transfer. Any violation of this Lease by
any Transferee shall be deemed to be a violation of this Lease by Tenant.
Landlord agrees that, so long as there is no Event of Default under this
Lease, Landlord shall not unreasonably withhold or delay its consent to a single
transfer, assignment or subletting of Tenant's entire interest in this Lease to
a non-Affiliated third party Transferee.
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If Tenant desires at any time to so transfer, assign or sublet its entire
interest in this Lease to such a Transferee, Tenant shall first notify Landlord
in writing of its desire to do so and shall submit in writing to Landlord (a)
the name of the proposed Transferee; (b) the historical experience of the
proposed Transferee with respect to businesses of the type and size conducted on
the Leased Property; (c) the terms and provisions of the proposed transfer,
assignment or subletting and the proposed effective date thereof, including a
copy of the agreement or other documents which contain or memorialize such terms
and provisions; and (d) such financial, operating and other information with
respect to such proposed Transferee as Landlord may request (including audited
financial statements of such Transferee). At any time within thirty (30) days
after Landlord's receipt of all the information specified in clauses (a) through
(d) above, Landlord may by written notice to Tenant (i) consent to the proposed
transfer, assignment or subletting to the proposed Transferee or (ii) refuse to
give its consent, specifying in reasonable detail the reasons therefor. In the
event that Landlord shall so consent, Tenant shall be permitted to assign or
sublet its entire interest in this Lease to such proposed Transferee, provided
that each of the following is met:
(A) The proposed Transferee shall unconditionally assume and agree to
keep, perform and observe all of the covenants, conditions, duties,
obligations and liabilities of Tenant under this Lease (whether occurring
prior to or after the effective date of such transfer or conveyance)
pursuant to a writing in form and substance acceptable to Landlord;
(B) This Lease shall remain in full force and effect;
(C) No such transfer, conveyance or subletting by Tenant to such
proposed Transferee shall relieve Tenant of its respective duties,
obligations and/or liabilities under this Lease or the other Transaction
Documents and each of such parties shall consent and/or reaffirm its
respective obligations hereunder and thereunder pursuant to a writing in
form and substance acceptable to Landlord;
(D) All reasonable costs and expenses incurred by Landlord (including
reasonable attorneys' fees and costs) incurred in connection with the
review and processing of such request and in preparation, negotiation and
execution of any documents or instruments delivered or prepared in
connection therewith shall be paid solely by Tenant and/or the proposed
Transferee.
In exercising Landlord's right of reasonable approval or disapproval
with respect to any such proposed Transferee, Landlord shall be entitled to take
into account any fact or factor which Landlord deems relevant to such decision.
Without limiting the generality of the foregoing, all of the following are
agreed to be reasonable factors for Landlord's consideration in approving any
such proposed Transferee:
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(A) The financial strength of the proposed Transferee, including the
adequacy of its working capital to pay all sums and other amounts payable
under this Lease and the Transaction Documents;
(B) The experience of the proposed Transferee with respect to
businesses of the type and size conducted on the Leased Property;
(C) The quality and nature of other businesses operated by such
proposed Transferee in comparison to the quality and nature of the business
conducted on the Leased Property;
(D) Diminution or potential diminution of Landlord's security by
reason of any such assignment or subletting on the Leased Property to such
proposed Transferee; and
(E) Any other fact or factor which Landlord would take into
consideration if such proposed Transferee were to apply directly to
Landlord for a lease of the type represented by this Lease and the
Transaction Documents.
23.2 CORPORATE OR PARTNERSHIP TRANSACTIONS. If Tenant or Guarantor is a
corporation, then the merger, consolidation or reorganization of such
corporation and/or the sale, issuance or transfer, cumulatively or in one
transaction, of any voting stock by Tenant or Guarantor or the stockholders of
record of any of them as of the date of this Lease which results in a change in
the voting control of Tenant or Guarantor shall constitute a Transfer. If Tenant
or Guarantor is a joint venture, partnership or other association, then the
transfer of or change in, cumulatively or in one transaction, voting control of
or a twenty percent (20%) or greater interest in such Tenant or Guarantor within
any five-year period, or the termination of such joint venture, partnership or
other association, shall constitute a Transfer.
23.3 PERMITTED SUBLEASES. Subject to Section 23.4 hereof, Tenant shall have
the right to sublease up to ten percent (10%) of the floor area of the Facility
in the ordinary course of the health care business being conducted in the
Facility without Landlord's consent, and subject to Landlord's consent, which
shall not unreasonably be withheld, conditioned or delayed an additional ten
percent (10%) of the floor area of the Facility.
23.4 TRANSFERS TO A CONTROLLED ENTITY. Notwithstanding anything to the
contrary herein contained, Tenant may without the prior consent of Landlord
Transfer its interest herein to an entity Controlled by Peak Medical on the
condition that (a) such entity expressly and in writing assumes all of the
obligations and liability of the Tenant hereunder, (b) such Transfer has no
effect on the Peak Medical Guaranty and Peak Medical confirms in writing that
the Peak Medical Guaranty remains unchanged and in full force and effect, (c)
the stock of such entity (if a corporation) is at the time of the Transfer
pledged to Landlord to secure performance of its obligations under this Lease,
(d) all obligations of such entity to Peak Medical or any Affiliate of Peak
Medical, and all Debt of such entity to any third party, are
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subordinated to its liability and obligations as Tenant hereunder and (e)
without the consent of Landlord, no such Transfer shall release the Tenant named
herein from liability hereunder.
23.5 SUBORDINATION AND ATTORNMENT. Tenant shall insert in any sublease
permitted by Landlord provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Landlord hereunder, (b) if this Lease terminates before the expiration
of such sublease, the subtenant thereunder will, at Landlord's option, attorn to
Landlord and waive any right the subtenant may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the subtenant receives a written Notice from Landlord or Landlord's
assignee, if any, stating that an Event of Default has occurred under this
Lease, the subtenant shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice or as such party
may direct. All rentals received from the subtenant by Landlord or Landlord's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Tenant under this Lease.
23.6 SUBLEASE LIMITATION. Anything contained in this Lease to the contrary
notwithstanding, even if a sublease of the Leased Property is permitted, Tenant
shall not sublet the Leased Property on any basis such that the rental to be
paid by the subtenant thereunder would be based, in whole or in part, on either
(a) the income or profits derived by the business activities of the subtenant,
or (b) any other formula such that any portion of the sublease rental received
by Landlord would fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Code, or any similar or successor provision
thereto. The parties agree that this Section shall not be deemed waived or
modified by implication, but may be waived or modified only by an instrument in
writing explicitly referring to this Section by number.
ARTICLE 24
CERTAIN FINANCIAL MATTERS
24.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS. Tenant shall furnish
to Landlord:
(a) Monthly Financials. As soon as available and in any event within
thirty (30) days after the end of each calendar month, an unaudited income
statement for the Facility for the period commencing at the end of the
previous month and ending with the end of such month, together with an
Officer's Certificate of Tenant stating that Tenant is not in default of
any covenant set forth in Article 8 hereof, or if Tenant is in default,
specifying all such defaults, the nature thereof and the steps being taken
to remedy the same.
(b) Quarterly Financials. As soon as available and in any event within
fifty-five (55) days after the end of each calendar quarter, an unaudited
income statement and
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balance sheet for the Facility for the period commencing at the end of the
previous quarter and ending with the end of such quarter, together with an
Officer's Certificate of Tenant stating that Tenant is not in default of
any covenant set forth in Article 8 hereof, or if Tenant is in default,
specifying all such defaults, the nature thereof and the steps being taken
to remedy the same.
(c) Annual Financials. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, a consolidated balance
sheet of the Guarantor as at the end of such Fiscal Year and an operating
statement for the Facility for such Fiscal Year, accompanied by (i) in the
case of the consolidated balance sheet of the Guarantor, an opinion
acceptable to Landlord of an independent public accountant, and (ii) in
each case, an Officer's Certificate of Tenant stating that Tenant is not in
default in the performance or observance of any of the terms of this Lease,
or if Tenant is in default, specifying all such defaults, the nature
thereof and the steps being taken to remedy the same.
(d) Cost Reports. Upon the request of Landlord and no more than once
in each calendar year, Tenant shall furnish to Landlord complete and
accurate copies of the most recent annual Medicaid and Medicare cost
reports for the Facility and any and all amendments filed with respect to
such reports and all responses, audit reports or inquiries with respect to
each such report.
(e) Licensing Agency Reports. Upon the reasonable request of Landlord
and no more than once during any calendar year, Tenant shall furnish to
Landlord a copy of the most recent federal and state agency surveys or
report and any statement of deficiencies with respect to the Facility, and
within the time period required by the particular agency for furnishing a
plan of correction, and without the need of any request from Landlord,
Tenant shall also furnish to Landlord a copy of the plan of correction
generated from such survey or report for the Facility, and correct or cause
to be corrected a deficiency, the curing of which is a condition of
continued licensure or for full participation in Medicare and Medicaid for
existing patients or for new patients to be admitted with Medicare or
Medicaid coverage, by the date required for cure by such agency (plus
extensions granted by such agency).
(f) Notices. Tenant shall furnish to Landlord within ten (10) days
from its receipt, any and all notices (regardless of form) from any
licensing and/or certifying agency that the Facility's license or Medicare
or Medicaid certification of the Facility is being revoked or suspended.
(g) Patient Data. Within fifty-five (55) days of the end of each
fiscal quarter and to the extent not included in the operating statements
delivered pursuant to subsection (i), above, a statement of the actual
patient days incurred for the quarter, together with quarterly census
information for the Facility as of the end of such quarter by patient- mix
(i.e., private, Medicare, Medicaid and V.A.) of the Facility.
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(h) Capital Budget. As soon as it is prepared in each Lease Year, a
capital budget for the Facility for that and the following Lease Year, for
Landlord's information and not for approval;
(i) Other Information. With reasonable promptness, such other
information respecting the financial condition and affairs of Tenant, and
the Facility as Landlord may reasonably request from time to time,
including, without limitation, any such other information as may be
available to the administration of the Facility; and
(j) At times reasonably required by Landlord, and upon request as
appropriate, audited year-end information and unaudited quarterly financial
information concerning the Leased Property and Tenant as Landlord may
require for its on-going filings with the SEC, under both the Securities
Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended, including, but not limited to, 10-Q Quarterly Reports, 10-K Annual
Reports, and registration statements to be filed by Landlord during the
Term of this Lease.
24.2 PUBLIC OFFERING INFORMATION. Tenant specifically agrees that Landlord
may include financial information and such information concerning the operation
of the Facility which does not violate the confidentiality of the
facility-patient relationship and the physician-patient privilege under
applicable laws, in offering memoranda or prospectuses, or similar publications
in connection with syndications or public offerings of Landlord's securities or
interests, and any other reporting requirements under applicable federal and
State laws, including those of any successor to Landlord. Tenant agrees to
provide such other reasonable information necessary with respect to Tenant and
the Leased Property to facilitate a public offering or to satisfy SEC or
regulatory disclosure requirements. Landlord shall provide to Tenant a copy of
any information prepared by Landlord to be so published, and Tenant shall have a
reasonable period of time (not to exceed three (3) days) after receipt of such
information to notify Landlord of any corrections.
ARTICLE 25
LANDLORD INSPECTION
Tenant shall permit Landlord and its authorized representatives to
inspect, during normal business hours, at least once per Lease Year (a) the
Leased Property and, (b) upon one Business Day's prior Notice, which Notice
shall set forth a reasonable cause for such inspection, Tenant's books and
records pertaining thereto (provided, however, that upon any Event of Default,
such Notice need not set forth any cause for such inspection).
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ARTICLE 26
[INTENTIONALLY OMITTED]
ARTICLE 27
[INTENTIONALLY OMITTED]
ARTICLE 28
ACCEPTANCE OF SURRENDER
No surrender to Landlord of this Lease or of the Leased Property or
any part thereof, or of any interest therein, shall be valid or effective unless
specifically agreed to and accepted in writing by Landlord, and no act by
Landlord or any representative or agent of Landlord, other than such a specific
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP
29.1 NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created thereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) the Lease or the leasehold estate created hereby or any interest
in the Lease or such leasehold estate, and (b) the fee estate in the Leased
Property.
29.2 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture between Landlord and Tenant
or to cause either party to be responsible in any way for the debts or
obligations of the other or any other party, it being the intention of the
parties that the only relationship hereunder is that of L
andlord and Tenant.
ARTICLE 30
CONVEYANCE BY LANDLORD
If Landlord or any successor owner of the Leased Property conveys the
Leased Property in accordance with the terms hereof other than as security for a
debt, Landlord or such successor owner, as the case may be, shall thereupon be
released from all future liabilities
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and obligations of Landlord under this Lease arising or accruing from and after
the date of such conveyance, and all such future liabilities and obligations
shall thereupon be binding upon the new owner, provided that the transferee
gives Notice to Tenant that such transferee has received (a) the Security
Deposit and (b) any funds in the hands of Landlord or the then grantor at the
time of the transfer in which Tenant has an interest. Tenant acknowledges and
agrees that, pursuant to the Monarch Purchase Agreement, the Facility and the
Leased Property may be sold by Landlord to Monarch LP upon the completion of the
Offering, in which case Monarch LP shall be assigned this Lease and will become
Landlord hereunder, and IHS Acquisition No. 104, Inc. will be released from all
obligations under this Lease, whether accruing prior to of after the date of
such sale.
ARTICLE 31
QUIET ENJOYMENT
So long as Tenant pays all Rent as it becomes due and complies with
all of the terms of the Lease and performs its obligations thereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Leased Property hereby
leased for the Term.
ARTICLE 32
[INTENTIONALLY OMITTED]
ARTICLE 33
APPRAISERS
If it becomes necessary to determine the Fair Rental Value of the
Leased Property for any purpose of this Lease, Landlord and Tenant shall attempt
to agree upon a single appraiser to make such determination. If Landlord and
Tenant are unable to agree upon a single appraiser within thirty (30) days
thereafter, then the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten (10) days after such Notice, Landlord (or
Tenant, as the case may be) shall by Notice to Tenant (or Landlord, as the case
may be) appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto) and experienced in
appraising nursing home properties, shall, within forty-five (45) days after the
date of the Notice appointing the first appraiser, proceed to appraise the
Leased Property to determine the Fair Rental Value of it as of the relevant date
(giving effect to the impact, if any, of inflation from the date of their
decision to the relevant date); provided, however, that if only one appraiser
has been so appointed, or if two
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appraisers have been so appointed but only one such appraiser has made such
determination within fifty (50) days after the making of Tenant's or Landlord's
request, then the determination of such appraiser shall be final and binding
upon the parties. If two appraisers have been appointed and have made their
determinations within the respective requisite periods set forth above and if
the difference between the amounts so determined does not exceed ten percent
(10%) of the lesser of such amounts, then the Fair Rental Value shall be an
amount equal to fifty percent (50%) of the sum of the amounts so determined. If
the difference between the amounts so determined exceeds ten percent (10%) of
the lesser of such amounts, then such two appraisers shall have twenty (20) days
to appoint a third appraiser. If no such appraiser has been appointed within
such twenty (20) day period or within ninety (90) days of the original request
for a determination of Fair Rental Value, whichever is earlier, either Landlord
or Tenant may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers or by
such court shall be instructed to determine the Fair Rental Value within
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and the average of
the sum of the remaining two determinations shall be final and binding upon
Landlord and Tenant as the Fair Rental Value of the Leased Property. Any such
appraisal shall conform to FDIC or equivalent requirements and format.
This provision for determining the Fair Rental Value by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
and judgment may be entered upon such determination in any court having
jurisdiction of the matter. Landlord and Tenant shall each pay the fees and
expenses of the appraiser appointed by it, and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE 34
BREACH OF LEASE BY LANDLORD
Landlord shall not be in breach of this Lease unless Landlord fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
written Notice specifying such failure and the necessary curative action is
received by Landlord from Tenant. If the failure cannot with due diligence be
cured within a period of thirty (30) days, the failure shall not be deemed to
continue if Landlord, within said thirty (30) day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
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ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL
35.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY. Landlord may
purchase Tenant's Personal Property at the expiration or termination of this
Lease for an amount equal to the then book value thereof (acquisition cost less
accumulated depreciation on the books of Tenant pertaining thereto), subject to,
and with appropriate credits for any obligations owing from Tenant to Landlord
and for all equipment leases, conditional sale contracts and any other
encumbrances to which Tenant's Personal Property is subject. Landlord's option
shall be exercised by Notice to Tenant no more than one hundred eighty (180)
days, nor less than ninety (90) days, before the expiration of the Initial Term
(or, before the expiration of the First Renewal Term or the Second Renewal Term,
as the case may be), unless this Lease is terminated prior to its expiration
date (a) by reason of an Event of Default, in which event Landlord's option
shall be exercised within ninety (90) days following the date of termination, or
(b) by reason of the exercise by a Tenant of a right to terminate provided for
herein in the event of a Taking, in which event Landlord's option shall be
exercised within forty-five (45) days following Tenant's exercise of such right.
Landlord's option shall terminate upon Tenant's purchase of the Leased Property.
If Landlord exercises its option, Tenant shall, in exchange for Landlord's
payment of the purchase price, deliver Tenant's Personal Property to Landlord,
together with a bill of sale and such other documents as Landlord may reasonably
request in order to carry out the purchase of Tenant's Personal Property, and
such purchase shall be closed by such delivery and such payment on the date set
by Landlord in its Notice of exercise.
35.2 FACILITY TRADE NAMES. If this Lease is terminated by reason of an
Event of Default, or if Landlord purchases the Tenant's Personal Property with
respect to any Leased Property pursuant to Section 35.1 hereof, Landlord shall
be permitted to use the Facility Trade Names under which the Leased Property
conducts business in the market in which the Facility is located, and Tenant
shall not after any such termination use the Facility Trade Names under which
the Leased Property conducts business in any business that competes with the
Leased Property.
35.3 TRANSFER OF OPERATIONAL CONTROL OF THE FACILITY. Tenant shall
cooperate in transferring operational control of the Facility to Landlord or
Landlord's nominee if the Term expires without extension or renewal by Tenant,
or if this Lease is terminated upon the occurrence of an Event of Default or for
any other reason, and shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to accomplish such transfer
with minimal disruption of the business conducted at the Facility. To that end,
pending completion of the transfer of operational control of the Facility to
Landlord or its nominee, Tenant agrees that:
(a) Tenant will not terminate the employment of any employees without
just cause, or change any salaries (other than normal merit raises and the
pre-announced
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wage increases of which Landlord has knowledge) or employment agreements
without Landlord's consent of Landlord other than customary raises to
non-officers at regular review dates, and will not hire additional
employees except in good faith in the ordinary course of business.
(b) Tenant will provide all necessary information requested by
Landlord or its nominee for the preparation and filing of any and all
necessary applications or notifications of any federal or state
governmental authority having jurisdiction over a change in the operational
control of the Facility, and Tenant will use its best efforts, (without
incurring material cost or liability except after an Event of Default), to
cause the operating health care license to be transferred to Landlord or
Landlord's nominee.
(c) Tenant shall continue to operate the business in accordance with
reasonable and standard industry practices to keep the business and
organization of the Facility intact and to preserve for Landlord or its
nominee the goodwill of the suppliers, distributors, residents and others
having business relations with Tenant with respect to the Facility.
(d) Tenant shall engage only in transactions or other activities with
respect to the Facility which are in the ordinary course of its business
and shall perform all maintenance and repairs reasonably necessary to keep
the Facility in satisfactory operating condition and repair, and shall
maintain the supplies and foodstuffs at levels which are consistent and in
compliance with all health care regulations, and shall not sell or remove
any personal property except in the ordinary course of business.
(e) Tenant shall cooperate fully with Landlord or its nominee in
supplying any information that may be reasonably required to effect an
orderly transfer of the Facility.
(f) Tenant shall provide Landlord or its nominee with full and
complete information regarding the employees of the Facility and shall
reimburse Landlord or its nominee for all outstanding accrued employee
benefits, including accrued vacation, sick and holiday pay calculated on a
true accrual basis, including all earned and a prorated portion of all
unearned benefits.
(g) Tenant shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to obtain the
acknowledgment and the consent of any creditor, Landlord or sublandlord,
mortgagee, beneficiary of a deed of trust or security agreement affecting
the real and personal properties of Tenant or any other party whose
acknowledgment and/or consent would be required because of a change in the
operational control of the Facility and transfer of personal property.
57
<PAGE>
35.4 INTANGIBLES AND PERSONAL PROPERTY. Notwithstanding any other provision
of this Lease, but subject to Section 6.4 hereof (relating to Landlord's
security interest), Landlord's Personal Property shall not include goodwill, or
other intangible personal property severable from Landlord's "interests in real
property" within the meaning of Section 856(d) of the Code. All of Landlord's
Personal Property is leased to Tenant pursuant to the terms hereof.
ARTICLE 36
[INTENTIONALLY OMITTED]
ARTICLE 37
MISCELLANEOUS
37.1 NOTICES. All notices, consents or other communications under this
Lease must be in writing and addressed to each party at its respective Notice
Addresses (or at any other address which the respective parties may designate by
notice given to the other party from time to time). Any notice required by this
Lease to be given or made within a specified period of time, on or before a date
certain, shall be deemed given or made if sent by hand, by fax with confirmed
answerback received, or by registered or certified mail (return receipt
requested and postage and registry fees prepaid). Delivery "by hand" shall
include delivery by commercial express or courier service. A notice sent by
registered or certified mail shall be deemed given on the date of receipt (or
attempted delivery if refused) indicated on the return receipt. All other
notices shall be deemed given when actually received. A notice may be given by a
party or by its legal counsel. The Notice Addresses of the parties are as
follows:
If to Landlord: c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Telephone No.: (410) 998-8768
Fax No.: (410) 998-8716
If to Tenant: Peak Medical of Idaho, Inc.
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87109
Attn: Charles H. Gonzales
Telephone No.: (505) 342-0235
Facsimile No.: (505) 341-2326
58
<PAGE>
37.2 SURVIVAL, CHOICE OF LAW. TENANT'S OBLIGATIONS UNDER THIS LEASE SHALL
SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THE TERM. THIS LEASE SHALL BE
CONSTRUED AND ENFORCED UNDER THE LAW OF THE STATE OF IDAHO. TENANT IRREVOCABLY
SUBMITS TO JURISDICTION IN THE STATE OF IDAHO (AND AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON TENANT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS
OF THE STATE OF IDAHO IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF ANY SUCH STATE).
37.3 LIMITATION ON RECOVERY. Tenant specifically agrees to look solely to
Landlord's interest in the Leased Property leased by it, the net proceeds
received by Landlord from the sale or any financing or refinancing of the Leased
Property leased by it, the Security Deposit, any funds deposited by Tenant
pursuant to Section 12.2 hereof and any Net Proceeds for recovery of any
judgment against Landlord, it being specifically agreed that no partner,
manager, shareholder, officer, director, or employee of Landlord shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Tenant. Furthermore, Landlord (original or successor) shall not
ever be liable to Tenant for any indirect or consequential damages suffered by
Tenant from whatever cause.
37.4 WAIVERS. Tenant waives any defense by reason of any disability of
Tenant and waives any other defense based on the termination of Tenant's
(including Tenant's successor's) liability from any cause. Tenant waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance, and waives
all notices of the existence, creation, or incurring of new or additional
obligations.
37.5 INTENTIONALLY OMITTED.
37.6 COUNTERPARTS. This Lease may be executed (a) in counterparts, a
complete set of which together shall constitute an original and (b) in
duplicates, each of which shall constitute an original. Copies of this Lease
showing the signatures of the respective parties, whether produced by
photographic, digital, computer, or other reproduction, may be used for all
purposes as originals.
37.7 OPTIONS FOLLOW LEASE. The renewal options and any other options
granted to Tenant in this Lease are not assignable or transferrable except in
connection with a permitted transfer or assignment of this Lease. Any attempt to
assign or transfer such options otherwise shall be void and of no force and
effect.
37.8 RIGHTS CUMULATIVE. Except as provided herein to the contrary, the
respective rights and remedies of the parties specified in this Lease shall be
cumulative and in addition to any rights and remedies not specified in this
Lease.
37.9 ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Lease. This Lease
supersedes and cancels any and all
59
<PAGE>
previous negotiations, arrangements, representations, brochures, agreements and
understandings, if any, between Landlord and Tenant.
37.10 AMENDMENTS IN WRITING. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Landlord and Tenant
37.11 SEVERABILITY. If any provision of this Lease or the application of
such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall not
affect the other provisions of this Lease and all other provisions of this Lease
shall be deemed valid and enforceable.
37.12 SUCCESSORS. The term "Landlord" shall mean only the owner or owners
at the time in question of fee title in the Leased Property. All rights and
obligations of Landlord and Tenant under this Lease shall extend to and bind the
respective heirs, executors, administrators and the permitted concessionaires,
successors, subtenants and assignees of the parties.
37.13 TIME OF THE ESSENCE. Except for the delivery of possession of the
Facility to Tenant, time is of the essence of all provisions of this Lease of
which time is an element.
37.14 LATE CHARGES. If any late charges provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
37.15 BINDING EFFECT. This Lease (and all terms thereof, whether so
expressed or not), shall be binding upon the respective permitted successors,
assigns and legal representatives of the parties and shall inure to the benefit
of and be enforceable by the parties and their respective permitted successors,
assigns and legal representatives.
37.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto
are (and shall be deemed) parts of this Lease.
37.17 WAIVER OF JURY TRIAL. In any action or proceeding in connection with
this Lease, each of Landlord and Tenant hereby waives the right to trial by
jury.
37.18 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form Memorandum of Lease, in form suitable
for recording under the laws of the state in which reference to this Lease, and
all options contained therein, shall be made. Tenant shall pay all costs and
expenses of recording such Memorandum of Lease.
60
<PAGE>
ARTICLE 38
SECURITY DEPOSIT
38.1 SECURITY DEPOSIT. Concurrent with Tenant's execution of this Lease,
Tenant shall deliver the Security Deposit to Landlord, to be held by Landlord as
security for the full and faithful performance by Tenant of each and every term,
provision, covenant and condition of this Lease. The Security Deposit shall be
deposited by Landlord in an interest-bearing account in Landlord's name,
separate and apart from Landlord's general and/or other funds, which cash and
interest shall remain on deposit as security hereunder and be available to
Landlord as provided in this Article. The Security Deposit shall not be
considered an advance payment of Rent (or of any other sum payable to Tenant
under this Lease) or a measure of Landlord's damages in case of a default by
Tenant. The Security Deposit shall not be considered as a trust fund, and Tenant
agrees that Landlord is not acting as a trustee or in any fiduciary capacity in
controlling or using the Security Deposit.
38.2 APPLICATION OF SECURITY DEPOSIT. Upon the occurrence and continuation
of an Event of Default, Landlord may, but shall not be required to, in addition
to any other rights and remedies available to Landlord, use, apply or retain the
whole or any part of the Security Deposit to the payment of any sum in default,
or any other sum, including, but not limited to, any damages or deficiency in
reletting the applicable Leased Property, which Landlord may expend or be
required to expend by reason of Tenant's default. Whenever, and as often as,
Landlord has used the Security Deposit to cure Tenant's default hereunder,
Tenant shall, within ten (10) days after Notice from Landlord, deposit
additional funds with Landlord sufficient to restore the Security Deposit to the
full amount originally provided or paid.
38.3 TRANSFER OF SECURITY DEPOSIT. If Landlord transfers its interest under
this Lease, Landlord shall assign the Security Deposit to the new Landlord, and,
provided that the transferee gives Notice to Tenant that such transferee has
received the Security Deposit, thereafter Landlord shall have no further
liability for the return of the Security Deposit, and Tenant agrees to look
solely to the new Landlord for the return of the Security Deposit. The
provisions of the preceding sentence shall apply to every transfer or assignment
of Landlord's interest under this Lease. Tenant agrees that it will not assign
or encumber or attempt to assign or encumber the monies deposited as security
and that Landlord, its successors and assigns may return the Security Deposit to
the last Tenant in possession at the last address for Notice given by Tenant and
that Landlord shall thereafter be relieved of any liability therefor, regardless
of one or more assignments of this Lease or any such actual or attempted
assignment or encumbrances of the monies held as the Security Deposit.
61
<PAGE>
ARTICLE 39
TENANT PURCHASE OPTION
Tenant is hereby granted the right and option to purchase the Leased
Property from Landlord. The purchase option may be exercised by Tenant during
the period commencing on the date that is one hundred eighty (180) days, and
ending on the date that is one hundred fifty (150) days, before each of (a) the
Expiration Date, (b) the expiration of the First Renewal Term and (c) the
expiration of the Second Renewal Term; provided, however, the purchase option
may only be exercised under clauses (a) and (b) hereof if Tenant has not elected
to renew this Lease for the First Renewal Term or the Second Renewal Term, as
the case may be. Tenant shall exercise the purchase option by giving written
notice thereof to Landlord either prior to or on the expiration date. Within
thirty (30) days of the date that Tenant exercises the purchase option, Landlord
shall sell the Leased Property to Tenant and Tenant shall purchase the Leased
Property from Landlord at a purchase price based upon the Leased Property's fair
market value at the time Tenant exercises the purchase option, determined in
accordance with the provisions of Article 33 hereof. At the closing of the sale
of the Leased Property to Tenant, Tenant shall convey the purchase price to
Landlord and Landlord shall convey to Tenant a special warranty deed conveying
good, indefeasible and insurable title to the Leased Property, subject to
reasonably appropriate permitted exceptions. Tenant shall pay all fees and
expenses associated with the conveyance of the Leased Property pursuant to
Tenant's exercise of the purchase option, including, but not limited to, all
transfer taxes, recording fees and Landlord's attorney's fees, costs and
disbursements. If Tenant fails to exercise the option to purchase the Leased
Property in the manner provided in this Article 39, the purchase option shall
expire and no party hereto shall thereafter have any rights, liabilities or
obligations whatsoever under this Lease.
SIGNATURE PAGE FOLLOWS
62
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
IHS ACQUISITION NO. 104, INC.
By: /s/ Daniel J. Booth
----------------------------------
Name: Daniel J. Booth
--------------------------------
Title: Senior Vice President
-------------------------------
PEAK MEDICAL OF IDAHO, INC.
By: /s/ Scot Sauder
----------------------------------
Name: Scot Sauder
--------------------------------
Title: Senior Vice President and
--------------------------------
General Counsel
--------------------------------
63
<PAGE>
LIST OF EXHIBITS TO LEASE
EXHIBIT A Facility (Leased Property); Land
EXHIBIT B [Intentionally Omitted]
EXHIBIT C Security Deposit Formula
EXHIBIT D Form of Estoppel Certificate
EXHIBIT E Permitted Encumbrances
EXHIBIT F Facility Purchase Price
EXHIBIT G [Intentionally Omitted]
EXHIBIT H List of Engineering Firms
EXHIBIT I Landlord Wiring Instructions
64
<PAGE>
EXHIBIT A
FACILITY/LEASED PROPERTY
------------------------
Idaho Falls Care Center
3111 Channing Way
Idaho Falls, Idaho 83301
208-529-0067
208-529-4013 (Fax)
Beds: 108
Owner: IHS Acquisition No. 104, Inc.
Lessee: Peak Medical of Idaho, Inc.
A-1
<PAGE>
EXHIBIT B
[INTENTIONALLY OMITTED]
B-1
<PAGE>
EXHIBIT C
SECURITY DEPOSIT FORMULA
------------------------
Security Deposit CFC(a) - Facility
- ---------------- -----------------
8 months Base Rent Less than or equal to 1.0 to 1.0
6 Months Base Rent Greater than 1.0 to 1.0
3 Months Base Rent Greater than 1.35 to 1.0
(a) CFC is defined as Facility EBITDAR less management fees (the greater of
5% of revenue or actual management fees) and capital expenditures
($300/bed/per annum) to Facility rents. CFC will be measured on a six month
trailing basis at the end of each fiscal quarter.
C-1
<PAGE>
EXHIBIT D
FORM OF ESTOPPEL CERTIFICATE
The undersigned, Peak Medical of Idaho, Inc., a Delaware corporation
("Tenant") under that certain lease (the "Lease") dated as of May 29, 1998 and
made with IHS Acquisition No. 104, Inc. ("Landlord"), hereby certifies:
1. That it is the Tenant under the Lease; that attached hereto as Exhibit A
is a true and correct copy of the Lease; that said Lease is now in full force
and effect and has not been amended, modified or assigned except as disclosed or
included in Exhibit A; and that said Lease constitutes the entire agreement
between Landlord and Tenant.
2. That to the undersigned's knowledge there exist no defenses or offsets
to enforcement of the Lease; that to the undersigned's knowledge there are, as
of the date hereof, no breaches or uncured defaults on the part of the
undersigned or, to the undersigned's knowledge, on the part of the other party
to the Lease; and that the undersigned has no notice or knowledge of any prior
assignment, hypothecation, subletting or other transfer of the other party's
interest in the Lease, except_______.
3. That the Base Rent for the current Lease Year under the Lease is
$_______. All Rent which is due prior to the date hereof has been paid, and
there are no unpaid Additional Charges owing to or by the undersigned under the
Lease as of the date hereof. No Base Rent or other items (including without
limitation security deposit and any impound account or funds) have been paid by
the undersigned in advance under the Lease except for the security deposit held
by Landlord in the amount of $_______ and the monthly installment of Base Rent
that became due on ___________.
4. That the undersigned has no claim against the other party to the Lease
for any security deposit, impound account or prepaid Rent except as provided in
paragraph 3 of this Certificate.
5. That there are no actions, whether voluntary or otherwise, pending
against the undersigned under the bankruptcy laws of the United States or any
State thereof, nor has the undersigned nor, to the best of the undersigned's
knowledge has the other party to the Lease begun any action, or given or
received any notice for the purpose of termination of the Lease.
6. That to the undersigned's knowledge, there are, as of the date hereof,
no breaches or uncured defaults on the part of the undersigned under any other
agreement executed in connection with the Lease.
7. ("Relying Party"). The Relying Party is entitled to rely on the
statements of the undersigned contained in this Certificate.
D-1
<PAGE>
8. All capitalized terms used herein and not defined herein shall have the
meanings for such terms set forth in the Lease.
Dated: _____________, 199_ PEAK MEDICAL OF IDAHO, INC.
By:
--------------------------
Name:
--------------------------
Title:
-------------------------
D-2
<PAGE>
EXHIBIT E
PERMITTED ENCUMBRANCES
1. Taxes for the year 1998 and subsequent years not yet due and payable.
2. Occupancy right of individual who, as of the date hereof, are patients
at the healthcare facility which is located on the premises.
3. Easements, reservations, restrictions and deductions as the same
appears on the recorded plat. Set back on the North and West side of
property 10 feet. Set back on the East side of property 25 feet.
4. Easement of City of Idaho Falls, recorded June 8, 1998, as Instrument
No. 750413.
5. Survey prepared by International Land Services, Inc., dated December
1, 1997, and last revised December 11, 1997, referenced as Job Order
No. 97-11-22:005 (251 ID) shows subject premises with improvements
thereon and no encroachments, overlaps or boundary line disputes
expect as follows:
(a) Electric transformer and telephone pedestal are set outside of
recorded easement in Instrument No. 750413.
(b) Fence along southerly line varies between 0.36 feet south and
0.63 feet north thereof.
E-1
<PAGE>
EXHIBIT F
PURCHASE PRICE
Purchase Price = $6,500,000
F-1
<PAGE>
EXHIBIT G
[INTENTIONALLY OMITTED]
G-1
<PAGE>
EXHIBIT H
ENGINEERING FIRMS
ATC Associates, Inc.
600 West Cummings Park
Woburn, Massachusetts 01801
781-932-9400
781-932-6211 (Fax)
H-1
<PAGE>
EXHIBIT I
LANDLORD WIRING INSTRUCTIONS
Bank: Citibank, N.A.
Account Name: Integrated Health Services, Inc.
Account #: 406330373
ABA #: 021000089
I-1
SECURITY AGREEMENT
BETWEEN
PEAK MEDICAL OF IDAHO, INC.
AND
IHS ACQUISITION NO. 104, INC.
DATED AS OF MAY 29, 1998
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of May 29, 1998, between PEAK MEDICAL OF IDAHO, INC., a Delaware
corporation ("Debtor") and IHS ACQUISITION NO. 104, INC., a Delaware corporation
("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the
meanings given them in the Lease between Secured Party and Debtor, dated as of
the date hereof ("Lease").
B. Pursuant to the Lease, Secured Party has leased to Debtor, for a Term
commencing June 1, 1998, the Leased Property.
C. As a condition to Secured Party's agreement to enter into the Lease,
Secured Party has required Debtor to enter into this Security Agreement and to
grant security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to enter into the Lease,
and for other good and valuable consideration the receipt and sufficiency of
which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the
Lease. Terms defined in the Commercial Code (as hereinafter defined) and not
otherwise defined in this Security Agreement or in the Lease shall have the
meanings ascribed to those terms in the Commercial Code. In addition to the
other definitions contained herein, when used in this Agreement the following
terms shall have the following meanings:
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in
force from time to time in the state in which the Facility is located.
"Debtor's Personal Property" means any tangible personal property owned by
a Debtor and not used in connection with the operation of the Facility.
1
<PAGE>
ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Secured Party a
continuing security interest in the Collateral to secure the payment of all
amounts now or hereafter due and owing to Secured Party from Debtor under the
Lease, or any extension or renewal thereof, and any and all other obligations
incurred in connection therewith, together with all other obligations or
indebtedness of Debtor to Secured Party however created, evidenced or arising,
whether direct or indirect, absolute or contingent, now or hereafter existing,
due or to become due, plus all interest, costs, out-of-pocket expenses and
reasonable attorneys' fees which may be made or incurred by Secured Party in the
administration, and collection thereof (the "Liabilities"), and in the
protection, maintenance, and liquidation of the Collateral. This Security
Agreement shall be and become effective when, and continue in effect as long as,
any Liabilities of Debtor to Secured Party are outstanding and unpaid, and
except as otherwise permitted pursuant to the terms of this Agreement or the
Lease, Debtor will not sell, assign, transfer, pledge or otherwise dispose of or
encumber any Collateral to any third party while this Security Agreement is in
effect without the prior and express written consent of Secured Party.
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the
personal property described below that Debtor now owns or shall hereafter
acquire or create, immediately upon the acquisition or creation thereof, and
that is located at or used exclusively in connection with the Facility,
consisting of the following:
(a) Inventory. All inventory and goods, now owned or hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the ordinary course of business at the Facility (the
"Inventory"); and
(b) Equipment. All equipment, furniture, fixtures and other personal
property used in connection with the operation of the Facility, whether now
owned or hereafter acquired by Debtor, together with all accessions, additions,
parts, attachments, accessories, or appurtenances thereto including but not
limited to linens, motor vehicles, furniture, fixtures and movable equipment,
leasehold improvements, and all books and records now owned or hereafter
acquired pertaining to any of the above described property, including but not
limited to any computer readable memory and any computer hardware or software
necessary to process such memory, wherever located, other than Debtor's Personal
Property (the "Equipment"); and
(c) Licenses and Permits. To the extent permitted by law, all licenses
and permits now owned or hereafter acquired by Debtor and necessary or desirable
for the contemplated use and operation of the Facility as a health care facility
(the "Licenses"); and
(d) Certificates of Need. To the extent permitted by law, all
Certificates of Need now or hereafter issued in connection with the Facility
(the "Certificates"); and
2
<PAGE>
(e) Proceeds. Proceeds arising out of the operation of the Facility,
including, without limitation, proceeds of hazard or other insurance policies
and eminent domain or condemnation awards, of all of the foregoing described
Inventory or Equipment, together with any and all deposits or other sums at any
time credited by or due from Secured Party to Debtor and any and all
instruments, documents, policies and certificates of insurance, securities,
goods and the proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest,
which are now or at any time hereafter in possession or under the control of
Secured Party or in transit by mail or carrier to or from Secured Party or in
the possession of any third party acting on behalf of Secured Party, without
regard to whether Secured Party received the same in pledge, for safekeeping, as
agent for collection or transmission or otherwise, or whether Secured Party has
conditionally released the same (the "Proceeds"); and
(f) Insurance Rights. All rights under contracts of insurance now
owned or hereafter acquired covering any of the Collateral ("Insurance Rights");
and
(g) Accounts Receivable. All accounts, accounts receivable and rights
to receive payment of Debtor, whether now existing or hereafter arising or
acquired, arising in connection with goods sold or leased or for services
rendered, including, without limitation, all of the third party reimbursable
portion of accounts receivable owing to Debtor arising out of the delivery by
Debtor of care or services at the Facility, including all rights to
reimbursement under any agreements with a third party payor and all accounts,
general intangibles, rights, remedies, guarantees, and security interests in
respect of the foregoing ("Accounts Receivable"); and
(h) Other Property. All other tangible and intangible property of
Debtor now or hereinafter acquired by Debtor and located at the Facility or used
exclusively in connection with the operation of the Facility; and
(i) Rights. All rights, remedies, powers and/or privileges of Debtor
with respect to any of the foregoing. The form of a description of the
Collateral to be attached to financing statements to be executed by each Debtor
is attached hereto as EXHIBIT A. Except to the extent set forth above, the term
"Collateral" does not include Debtor's Personal Property.
3. PERFECTION OF SECURITY INTEREST. Debtor shall execute and deliver to
Secured Party, concurrently with Debtor's execution of this Security Agreement
and at any time or times hereafter at the request of Secured Party, all
financing statements, continuation financing statements, assignments,
affidavits, reports, notices, letters of authority, vehicle title notations and
all other documents that Secured Party may reasonably request, in a form
reasonably satisfactory to Secured Party, to perfect and maintain perfected
Secured Party's security interests in the Collateral. In order to fully
consummate all of the transactions contemplated hereunder, Debtor shall make
appropriate entries on its books and records disclosing the security interests
created hereby in the Collateral.
3
<PAGE>
4. WARRANTIES AND COVENANTS. In addition to the warranties and
representations, if any, made in the Lease, Debtor warrants, represents and
agrees that:
(a) Debtor is and will be the lawful owner or lessee of all of the
Collateral, with the right to subject the owned or leased property to the
security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted
to Secured Party, there are no other security interests in the Collateral that
are known to Debtor, and there are no financing statements covering any of the
Collateral filed in any public office created by or known to Debtor prior to the
date hereof, except as previously disclosed by Debtor to Secured Party. Debtor
shall defend Secured Party against any claims and demands of any and all other
persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at the
Facility;
(d) Except as permitted under the Lease or hereunder, Debtor shall not
remove the Collateral from the Facility without Secured Party's prior written
consent and shall not use or permit the Collateral to be used for any unlawful
purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor
shall not remove any Collateral from the state in which the Facility is located
without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct
business under any name at the Facility other than that set forth on EXHIBIT A
to the Lease, nor will any Debtor change or reorganize the type of business
entity under which it presently does business, except upon prior and express
written approval of Secured Party, and, if such approval is granted, Debtor
agrees that all documents, instruments and agreements reasonably requested by
Secured Party and relating to such change shall be prepared, filed and recorded
at Debtor's expense before the change occurs;
(f) Debtor shall not remove any records concerning the Collateral
located at the Facility nor keep any of its records concerning the same at any
other location unless written notice thereof is given to Secured Party at least
ten (10) days prior to the removal of such records to any new addresses; and
(g) Debtor has the right and power and is duly authorized to enter
into this Security Agreement. The execution of this Security Agreement does not
and will not constitute a breach of any provision contained in any agreement or
instrument to which Debtor is or may become a party or by which Debtor is or may
be bound or affected.
4
<PAGE>
7. DEFAULT/REMEDIES
(a) The occurrence and continuation of any Event of Default under the
Lease shall constitute a Security Agreement Event of Default.
(b) Whenever a Security Agreement Event of Default shall have occurred
and so long as its continues, Secured Party may exercise from time to time any
rights and remedies, including the right to immediate possession of the
Collateral, available to it under the Lease, this Security Agreement or
applicable law. Secured Party shall have the right to hold any property then in
or upon the Facility (but excluding any property belonging to patients at the
Facility) at the time of repossession not covered by this Security Agreement
until return is demanded in writing by Debtor. Debtor agrees, in case of the
occurrence of a Security Agreement Event of Default that is continuing and upon
the request of Secured Party, to assemble, at its expense, all of the Collateral
under its control at a convenient place acceptable to Secured Party and to pay
all costs of Secured Party of collection of all the Liabilities, and enforcement
of rights hereunder, including reasonable attorneys' fees and legal expenses,
including participation in bankruptcy proceedings, and the expenses of locating
the Collateral and the expenses of any repairs to any realty or other property
to which any of the Collateral may be affixed or be a part. If the Collateral is
disposed of at a public sale, the parties agree that a public sale with at least
ten (10) business days prior notice to Debtor and notice to the public by one
publication in a local newspaper is commercially reasonable. If any notification
of intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if sent
at least ten (10) business days before such disposition, by first class mail,
postage prepaid, addressed to Debtor either at the address set forth in the
notice section hereof, or at any other address of Debtor appearing on the
records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED PARTY
SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT, HAVE THE
RIGHT TO PEACEFULLY RETAKE ANY OF THE COLLATERAL. DEBTOR WAIVES ANY RIGHT IT MAY
HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH RETAKING.
7. GENERAL
(a) Time shall be deemed of the essence with respect to this Security
Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if it takes
such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care. Failure of Secured Party to preserve or
protect any rights with respect to such Collateral against any prior parties
shall not be deemed a failure to exercise reasonable care in the custody and
preservation of such Collateral.
5
<PAGE>
(c) Any delay on the part of Secured Party in exercising any power,
privilege or right under the Lease, this Security Agreement or under any other
instrument or document executed by a Debtor in connection herewith shall not
operate as a waiver thereof. No single or partial exercise thereof, or the
exercise of any other power, privilege or right shall preclude other or further
exercise thereof, or the exercise of any other power, privilege or right. The
waiver by Secured Party of any default by Debtor shall not constitute a waiver
of any subsequent defaults or defaults by any other Debtor but shall be
restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in
addition to all rights, remedies and power is given by the Lease or the
Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to
include the plural (and vice-versa), and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Security Agreement so requires. Section captions or headings used in
this Security Agreement are for convenience and reference only and shall not
affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement.
(g) This Security Agreement may be executed in multiple counterparts,
each of which shall be considered an original but all of which, when taken
together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure
to the benefit of its successors and assigns, and this Security Agreement shall
be binding on all assigns and successors of Debtor as may be permitted under the
Lease.
(i) In the event of any action to enforce this Security Agreement or
to protect the security interest of Secured Party in the Collateral, or to
protect, preserve, maintain, process, assemble, develop, insure, market or sell
any Collateral, Debtor agrees to pay the costs owed and expenses thereof,
together with reasonable and documented attorneys' fees (including fees incurred
in appeals and post judgment enforcement proceedings).
(J) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF EACH DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE
WITH THE LAWS OF THE STATE OF IDAHO.
6
<PAGE>
(K) DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND
FEDERAL COURTS OF THE STATE OF IDAHO AND AGREES THAT ALL DISPUTES CONCERNING
THIS SECURITY AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF IDAHO. DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT
UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF IDAHO, AND DEBTOR
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OF IDAHO.
(l) No amendment to this Security Agreement shall be effective unless
the same shall be in writing and signed by the parties.
(m) Nothing contained herein shall be construed as in any way
modifying or limiting the effect of terms or conditions set forth in the Lease,
but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be
given and deemed effective as provided in the Lease. The parties hereby agree
that a notice sent as specified in this paragraph at least ten (10) business
days before the date of any intended public sale or the date after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to be reasonable notice of such sale or other disposition.
SIGNATURE PAGE FOLLOWS
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first written above.
SECURED PARTY:
IHS ACQUISITION NO. 104, INC.
By: /s/ Daniel J. Booth
--------------------------------------------
Name: Daniel J. Booth
-------------------------------------------
Title: Senior Vice President
------------------------------------------
DEBTOR:
PEAK MEDICAL OF IDAHO, INC.
By: /s/ Scot Sauder
--------------------------------------------
Name: Scot Sauder
-------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------
8
PLEDGE AGREEMENT
BETWEEN
PEAK MEDICAL CORPORATION
AND
INTEGRATED HEALTH SERVICES, INC.
DATED AS OF MAY 29, 1998
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), made as of May 29, 1998,
between PEAK MEDICAL CORPORATION ("Pledgor") for the benefit of INTEGRATED
HEALTH SERVICES, INC. ("IHS").
The circumstances underlying the execution of this Pledge Agreement are as
follows:
A. Two wholly owned subsidiaries of IHS, IHS Acquisition No. 104, Inc. and
IHS Acquisition No. 105, Inc. (collectively, the "IHS Subsidiaries") leased to
Peak Medical of Idaho, Inc. ("Subsidiary") two (2) health care facilities
(collectively, the "Facilities") pursuant to Leases (collectively, the
"Leases"), each dated as of June 1, 1998.
B. IHS has required, as a condition to the execution and delivery of the
Leases to Subsidiary, that Pledgor execute and deliver to IHS this Pledge
Agreement, pursuant to which Pledgor pledges to IHS, as security for the
Guaranty, all shares of common stock now or hereafter owned by Pledgor in the
Subsidiary, on the terms and conditions hereinafter set forth.
C. Capitalized words not defined herein shall have the definitions given
them in the Lease.
NOW, THEREFORE, in consideration of the foregoing, and other valuable
consideration, the receipt, legal adequacy and sufficiency of which hereby are
acknowledged, Pledgor agrees with IHS as follows:
1. DEFINITION OF "PLEDGED STOCK". For purposes of this Pledge Agreement,
the term "Pledged Stock" means and includes all of the issued and outstanding
shares of the common stock or other securities of the Subsidiary now or
hereafter owned by Pledgor or voting trust certificates or other documents of
any kind evidencing any and all ownership or other interests of Pledgor in the
Subsidiary, including, without limitation, those listed on Exhibit A hereto and
any supplemental Exhibit A attached hereto or delivered to IHS from time to
time.
2. PLEDGE; RIGHTS AND REMEDIES. (a) As collateral security for the due
payment and performance of all indebtedness and other liabilities and
obligations payable or due to the IHS Subsidiaries from Subsidiary under the
Lease, whether now existing or hereafter arising (collectively, the
"Obligations"), Pledgor hereby pledges, assigns, hypothecates, delivers and sets
over to IHS all of Pledgor's right, title and interest in and to the Pledged
Stock, and hereby grants to IHS a security interest in all of its right, title
and interest in and to the Pledged Stock and in the proceeds thereof.
Concurrently herewith, Pledgor has delivered to IHS all certificates
representing the currently existing Pledged Stock, together with a Stock
Assignment Separate from Certificate ("Assignments"), substantially in the form
of attached Exhibit B hereto, for each certificate representing the Pledged
Stock, all duly executed in blank. IHS shall hold such
<PAGE>
certificates and Assignments as security for performance by Pledgor of the
obligations secured hereby and shall at all times have the first priority and
only lien therein.
(b) If Pledgor becomes entitled to receive, or if Pledgor receives,
any additional stock or voting trust certificate of the Subsidiary (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase, or reduction of
capital), option or rights, whether as an addition to, in substitution of, or in
exchange for any Pledged Stock, or otherwise, Pledgor shall accept any such
instruments as IHS's agent, shall hold them in trust for IHS, and shall deliver
them forthwith to IHS in the exact form received, with Pledgor's endorsement
when necessary, and/or appropriate stock powers duly executed in blank, to be
held by IHS, subject to the terms hereof, as further collateral security for the
Obligations.
(c) Upon the occurrence and continuation of an Event of Default, or
the occurrence and continuation beyond any applicable cure or grace period of
any other material breach of or default under the Obligations:
(i) Any or all shares of the Pledged Stock held by IHS hereunder may,
at the option of IHS, be registered in the name of IHS or its nominee as
pledgee, and IHS or its nominee may thereafter, without notice, exercise
all available voting and corporate rights at any meetings of the Subsidiary
and exercise any and all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining to any of the Pledged
Stock as if it were the absolute owner thereof, including, without
limitation, the right to receive dividends payable thereon and the right to
exchange, at its discretion, any and all of the Pledged Stock upon the
merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing any of such securities or upon the
exercise by any such issuer of any right, privilege or option pertaining to
any of the Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it, but IHS shall have no duty to exercise
any of the foregoing rights, privileges or options and shall not be
responsible for any failure or omission to do so or delay in so doing.
(ii) IHS shall have the right to require that all cash dividends
payable with respect to any part of the Pledged Stock be paid to IHS to be
held by IHS as additional security hereunder until applied to the
Obligations.
(iii) IHS, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
the time and place of public or private sale) to or upon Pledgor or any
other person or entity, including without limitation, any trustee (all and
each of which demands, advertisements and/or notices are, to the extent
permitted by law, hereby expressly waived), immediately may collect,
receive, appropriate and realize upon the Pledged Stock, or any part
thereof, and/or immediately
<PAGE>
may sell, assign, give an option or options to purchase, contract to sell
or otherwise dispose of and deliver the Pledged Stock, or any part thereof,
in one or more parcels at public or private-sale or sales, in whatever
order IHS may select, at any exchange, broker's board or at any of IHS's
offices or elsewhere at such prices and on such terms (including, without
limitation, a requirement that any purchaser of all or any part of the
Pledged Stock shall be required to purchase the securities constituting the
Pledged Stock for investment and without any intention to make a
distribution thereof) as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk, with the right of
IHS or any IHS affiliate upon any such sale or sales, whether public or
private, to purchase the whole or any part of the Pledged Stock so sold,
free of any right or equity of redemption in Pledgor, which right or equity
is hereby expressly waived and released.
(f) The proceeds of any collection, recovery, receipt, appropriation,
realization, sale or other disposition shall be applied as follows:
(i) First, to the reasonable costs and expenses of every kind incurred
in connection therewith or incidental to the care, safekeeping, or
otherwise of any and all of the Pledged Stock or in any way relating to the
rights of IHS hereunder, including reasonable attorneys fees and legal
expenses;
(ii) Second, to the satisfaction of the Obligations in such order as
IHS may determine in its sole discretion;
(iii) Third, to the payment of any other amounts required by
applicable law; and
(iv) Fourth, to Pledgor, to the extent of the surplus proceeds, if
any.
IHS shall have no duty to account to Pledgor unless a surplus exists upon
liquidation of the Pledged Stock and any other collateral.
(g) IHS shall give Pledgor at least ten (10) business days' written
notice of the time and place of any public sale or of the time after which a
private sale may take place, and such notice shall be deemed to be reasonable
notification of such matters.
3. RIGHTS OF PLEDGOR UNTIL GUARANTY DEFAULT. Unless and until an Event of
Default shall have occurred and be continuing, Pledgor shall be entitled:
(a) to vote all or any part of the Pledged Stock at any and all
shareholder meetings of the Subsidiary and to execute consents in respect
thereof, and to consent to, ratify or waive notice of any or all shareholder
meetings of the Subsidiary with the same force and effect as if this Pledge
Agreement had not been made and, if necessary and upon the receipt of the
written request from the Pledgor, IHS shall from time to time execute and
deliver appropriate proxies for that purpose provided that Pledgor covenants and
agrees not to vote the Pledged Stock in a manner that would create a Guaranty
Default or breach of or default under the Obligations or
<PAGE>
create circumstances that, with the passage of time and/or the giving of notice,
would create a Guaranty Default or breach of or default under the Obligations,
and
(b) to receive and collect or to have paid over all dividends declared
or paid on the Pledged Stock, except (i) dividends or distributions constituting
stock dividends, (ii) dividends or distributions in kind, or (iii) liquidating
dividends (either partial or complete), provided that any and all such excepted
dividends and distributions shall constitute additional collateral for the
purposes of this Pledge Agreement and shall be delivered and pledged with IHS in
accordance with Section 2(b) hereof.
4. REPRESENTATIONS. Pledgor represents and warrants that:
(a) Pledgor is, as of the date hereof, the legal and beneficial owner
of all of the Pledged Stock.
(b) All of the shares of the Pledged Stock have been duly and validly
issued, are fully paid and non-assessable and are owned by Pledgor free and
clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance or
security interest in such shares or the proceeds thereof, except for the
security interest granted to IHS under this Pledge Agreement.
(c) Upon delivery of the Pledged Stock to IHS or an agent for IHS,
this Pledge Agreement creates and grants a valid first lien on and perfected
security interest in the shares of the Pledged Stock and the proceeds thereof,
subject to no prior security interest, lien, charge or encumbrance and subject
to no other security interest, lien, charge or encumbrance or to any agreement
purporting to grant to any third party a security interest in the property or
assets of Pledgor that would include the Pledged Stock.
(d) To the best of Pledgor's knowledge, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required to be obtained or made by Pledgor either (i) for the
pledge by Pledgor of the Pledged Stock pursuant to this Pledge Agreement or for
the execution, delivery or performance of this Pledge Agreement by Pledgor, or
(ii) for the exercise by IHS of the voting or other rights provided for in this
Pledge Agreement or the remedies in respect of the Pledged Stock pursuant to
this Pledge Agreement, subject to applicable state and securities laws. Pledgor
has the right and power and is duly authorized to enter into this Pledge
Agreement.
(e) Neither the execution or, delivery of this Pledge Agreement, nor
the consummation of the transactions contemplated hereby, nor the compliance
with or performance of the terms and conditions of this Pledge Agreement by
Pledgor is prevented by, limited by, conflicts with or will result in the breach
or violation of or a default under the terms, conditions or provisions of (i)
any mortgage, security agreement, indenture, evidence of indebtedness, loan or
financing agreement, trust agreement, stockholder agreement, or other agreement
or instrument to which Pledgor is a party or by which he is bound or (ii) any
provision of law, any order of any
<PAGE>
court or administrative agency or rule or regulation applicable to Pledgor,
subject to applicable state and federal securities laws.
(f) Any assignee of all or any portion of the Pledged Stock is
entitled to receive payments with respect thereto without any defense,
counterclaim, set-off, abatement, reduction, recoupment or other claims arising
out of the actions of Pledgor.
(g) There are no actions, suits or proceedings (whether or not
purportedly on behalf of Pledgor) pending or, to the best knowledge of Pledgor,
threatened or affecting Pledgor that involve the Pledged Stock.
(h) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by Pledgor of this Pledge Agreement have been obtained, subject to
applicable state and federal securities laws.
(i) The Subsidiary is duly organized, validly existing and in good
standing under the laws of the State of Delaware.
5. COVENANTS. (a) Pledgor hereby covenants that, so long as the Obligations
shall be outstanding and unpaid, in whole or in part, Pledgor will not, without
IHS's prior written consent, sell, convey or otherwise dispose of any shares of
the Pledged Stock or any interest therein, nor will Pledgor create, incur or
permit to exist any pledge, mortgage, lien, charge, encumbrance or any security
interest whatsoever with respect to any of the Pledged Stock or the proceeds
thereof other than that created or permitted hereby, nor shall Pledgor vote the
Pledged Stock to permit or authorize the Subsidiary to issue any new debt or
equity securities.
(b) Pledgor warrants and will defend IHS's right, title and security
interest in and to the Pledged Stock against the claims of any person, firm,
corporation or other entity.
6. SALE OF PLEDGED STOCK. (a) If IHS shall determine to exercise its right
to sell any part of the Pledged Stock, and if, in the opinion of counsel for
IHS, it is necessary to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act of 1933, as amended
(the "Securities Act"), Pledgor will use its best efforts to cause the
Subsidiary to (i) execute and deliver, and cause the directors and officers of
the Subsidiary, to execute and deliver, all at Pledgor's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things, as may be necessary to register the Pledged Stock, or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one (1) year from the date of the first public
offering of the Pledged Stock, or that portion thereof so to be sold, and to
make all amendments thereto and/or to the related prospectus which, in the
opinion of IHS or its counsel, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereto; (ii) comply with the provisions of
the securities laws and regulations of any jurisdiction which IHS shall
designate; and (iii) make available to its security holders, as soon as
practicable,
<PAGE>
an earnings statement (which need not be audited) covering a period of twelve
(12) months, but not more than eighteen (18) months, beginning with the first
month after the effective date of any such registration statement, which
earnings statement will satisfy the provisions of Section 11(a) of the
Securities Act.
(b) Pledgor acknowledges that a breach of any of the covenants
contained in subparagraph 6(a) above will cause irreparable injury to IHS, that
IHS shall have no adequate remedy at law in respect of such breach and, as a
consequence, the covenants of Pledgor contained in said subparagraph 6(a) shall
be specifically enforceable against Pledgor. Pledgor hereby waives, and shall
not assert, any defenses against an action for specific performance of such
covenants, except for a defense that no other breach of or default under the
Obligations has occurred and is continuing.
(c) Notwithstanding the foregoing, Pledgor recognizes that IHS may be
unable to effect a public sale of all or a part of the Pledged Stock, and may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sales
may be at places and on terms less favorable to the seller than if sold at
public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that IHS has no obligation to
delay sale of any such securities for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the
Securities Act.
7. COOPERATION. Pledgor shall, at any time and from time to time upon the
request of IHS, execute and deliver such further documents and do such further
acts and things as IHS reasonably may request in order to effectuate the
purposes of this Pledge Agreement, including, without limitation, delivering to
IHS on the date hereof or at any time hereafter irrevocable proxies in respect
of the Pledged Stock in the form of Exhibit C hereto.
8. GENERAL. (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Stock while held hereunder, IHS shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Stock upon surrendering it to Pledgor.
(b) No course of dealing between Pledgor and IHS, nor any failure to
exercise, nor any delay in exercising, on the part of IHS, any right, power, or
privilege, whether now existing or hereafter arising hereunder or under the
obligations, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power, or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.
(c) The rights and remedies herein provided and provided in all other
agreements, instruments and documents delivered or to be delivered pursuant to
any of the
<PAGE>
foregoing or the Obligations are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law, including, without
limitation, the rights and remedies of a secured party under the Uniform
Commercial Code.
(d) The provisions of this Pledge Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Pledge Agreement in any jurisdiction.
(e) This Pledge Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto. Notwithstanding
the foregoing, Pledgor shall not have the right to assign or delegate any of its
rights or obligations hereunder without the prior written consent of IHS, and
any purported assignment or delegation in the absence of such consent shall be
void.
(f) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. PLEDGOR CONSENTS TO IN
PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF IDAHO
AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE STATE AND
FEDERAL COURTS LOCATED IN THE STATE OF IDAHO. PLEDGOR AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON PLEDGOR UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS
OF THE STATE OF IDAHO AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE
AND FEDERAL COURTS OF THE STATE OF IDAHO.
(g) Pledgor recognizes that IHS has relied on the pledge and security
interest granted herein by Pledgor in permitting the IHS Subsidiaries to extend
credit and make the financial accommodations contemplated by the Lease and
Pledgor agrees that such reliance by IHS shall be sufficient consideration for
this pledge.
(h) This Pledge Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(i) The section headings used herein are for convenience only and
shall not be read or construed as limiting the substance or generality of this
Pledge Agreement.
(j) Whenever the singular shall be used hereunder, it shall be deemed
to include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neither, whenever the context
of this Pledge Agreement so requires.
SIGNATURE PAGE FOLLOWS
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and delivered as of the day and first year first written above.
PEAK MEDICAL CORPORATION
By: /s/ Scot Sauder
-----------------------------------------------
Name: Scot Sauder
-----------------------------------------------
Title: Senior Vice President and General Counsel
----------------------------------------------
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Daniel J. Booth
-----------------------------------------------
Name: Daniel J. Booth
-----------------------------------------------
Title: Senior Vice President
-----------------------------------------------
ESCROW AGREEMENT
AMONG
PEAK MEDICAL OF IDAHO, INC.,
MONARCH PROPERTIES, LP
AND
FIDELITY NATIONAL TITLE
INSURANCE COMPANY OF NEW YORK
DATED AS OF JUNE 23, 1998
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is executed and delivered as of
the 23rd day of June, 1998 (the "Effective Date") among PEAK MEDICAL OF IDAHO,
INC., a Delaware corporation ("Lessee"), MONARCH PROPERTIES, LP, a Delaware
limited partnership ("Purchaser") and FIDELITY NATIONAL TITLE INSURANCE COMPANY
OF NEW YORK ("Escrow Agent").
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Concurrently herewith, Purchaser has purchased from IHS Acquisition No.
104, Inc. ("IHS No. 104") and IHS Acquisition No. 105, Inc. ("IHS No. 105") (IHS
No. 104 and IHS No. 105, collectively, "Sellers"), subject to two (2) Leases,
each dated as of June 1, 1998, from Sellers to Lessee (collectively, the
"Leases"), two (2) health care facilities (the "Facilities") listed on attached
EXHIBIT A.
B. A condition of Purchaser's acquisition of the Facilities is the
agreement of Lessee to complete certain repairs and improvements to the
Facilities after the effective date of Purchaser's acquisition and the payment
to Escrow Agent by Lessee of a certain amount to be held by Escrow Agent and
paid to Lessee or other payees designated by Lessee upon completion of such
repairs and improvements or paid to Purchaser in the event of the failure of
Lessee to complete such repairs and improvements, all in accordance with the
terms and conditions set forth below.
C. Capitalized words not defined herein shall have the definitions given
them in the Leases.
NOW, THEREFORE, Lessee, Purchaser and Escrow Agent agree as follows:
1. ESCROW DEPOSIT. Escrow Agent acknowledges the receipt of Twenty-Five
Thousand Seven Hundred Twenty-Five Dollars ($25,725.00) and agrees to hold and
deliver such sum according to the terms and conditions hereinafter set forth.
2. CAPITAL EXPENDITURES. Lessee agrees that, within three hundred and
sixty-five (365) days from the date of this Agreement, that Lessee will complete
the capital repair and improvement activities described under the heading
"Action Required" and set forth opposite the name of the applicable Facility on
attached EXHIBIT B.
3. INSPECTION BY PURCHASER. Lessee shall (a) give Purchaser at least ten
(10) business days' prior written notice of any request for a disbursement of
escrowed funds, which notice shall include a copy of the certificate to be
delivered to Escrow Agent as required by
1
<PAGE>
Section 4 hereof with respect to such disbursement, and (b) and Lessee shall
give Purchaser's representative or representatives access to the Leased Property
at reasonable times, upon one business day's prior notice, for the purpose of
inspecting the capital repair and improvement work.
4. REQUESTS FOR DISBURSEMENT OF ESCROWED FUNDS. Lessee shall present each
request for disbursement of escrowed funds to Purchaser in writing for its
approval, which shall not unreasonably be withheld or delayed. Each request
shall meet the requirements of Paragraph 5, below.
5. DISBURSEMENT OF ESCROWED FUNDS. Within two (2) business days following
receipt of Lessee's written request, Escrow Agent shall disburse to Lessee or to
such payees as may be designated by Lessee in its request for disbursement, out
of the funds held in escrow, the out-of-pocket costs and expenses incurred by
Lessee in connection with the performance by it of its obligations under
Paragraph 2 (the "Capital Expenditures"), upon presentation of a request for
disbursement, provided:
(A) No more than one (1) request for disbursement is submitted in any
calendar month;
(B) The total monthly request for disbursement is not less than Ten
Thousand Dollars ($10,000), except for the final request for
disbursement which shall be in the amount of the undisbursed
balance of escrowed funds, and the requested disbursement
per-payee is not less than Two Thousand Dollars ($2,000);
(C) The request for disbursement is accompanied by:
(i) a certificate of Lessee executed by an officer of Lessee,
certifying that a portion of the work set forth on EXHIBIT B
has been completed, describing such portion of the work in
detail, and stating that the disbursement is sought for
costs and expenses incurred in completing such work;
(ii) either (x) evidence of the written approval of such
disbursement by Purchaser or (y) if Escrow Agent has not
received a Notice from Purchaser disapproving the proposed
disbursement, a statement of Lessee in the certificate
described in subsection (iii)(a), above to the effect that
notice of the request for disbursement, including a copy of
such certificate, was sent to Purchaser at least ten (10)
business days prior to the submission of the request.
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<PAGE>
(D) Overhead incurred by Lessee or any Affiliate of Lessee shall not
be deemed to be a cost or expense incurred by Lessee in
connection with the performance by it of its obligations under
Paragraph 2.
6. INVESTMENT OF ESCROWED FUNDS. Escrow Agent shall invest the funds held
in escrow by it in a separate money market account at Chase Manhattan Bank.
Interest earned on such funds shall belong to Lessee and be paid to Lessee in
accordance with its instructions to Escrow Agent. Lessee's Federal Tax
Identification Number is 52-2089002.
7. DISPUTES. In the event of any dispute among the parties hereto as to the
disposition of any funds held in escrow that is not resolved within ninety (90)
days after notice to the parties from Escrow Agent, Escrow Agent is hereby
authorized to deposit such funds with any court of competent jurisdiction and
commence an interpleader action naming the other parties hereto as defendants
with respect thereto, and upon such deposit Escrow Agent shall be relieved of
any further liability hereunder.
8. LIMITATION OF LIABILITY OF ESCROW AGENT. Escrow Agent shall have no
liability hereunder, except for damages, if any, resulting from Escrow Agent's
negligence or willful misconduct; it being understood that by its acceptance of
this escrow agency, Escrow Agent is acting in the capacity of a depositary and
is not as such responsible or liable for the sufficiency, correctness,
genuineness and/or receipt of instruments, documents or notices deposited and/or
received under this Escrow Agreement. Upon notice to the other parties hereto,
Escrow Agent may reimburse itself for any reasonable expenses, including
attorneys fees, which Escrow Agent may incur as a result of any legal
proceedings affecting this Escrow Agreement and/or the Escrow Agent's duties as
depository hereunder.
9. FAILURE TO COMPLETE WORK. In the event the work described on EXHIBIT B
has not been completed on or before the date specified in Section 2 hereof,
Purchaser may give Lessee and Escrow Agent written notice of such failure, and
in the event such work is not completed within fifteen (15) business days after
such notice, Purchaser (a) shall have the right to cause its employees, agents
and contractors to enter upon the Leased Property and complete such work at the
expense of Lessee, and to demand and receive any funds then remaining in escrow
to be applied towards reimbursement or payment for such expense, or (b) to
declare such failure to be an Event of Default under the Leases, entitling
Purchaser to the remedies provided in the Leases and by law, including, among
such remedies, the right to demand and receive any then undisbursed funds in
escrow.
10. 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:
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To Lessee: Peak Medical of Idaho, Inc.
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87109
Attention: Charles H. Gonzales
Copy to: Scot Sauder, Esq.
Telephone No.: 505-342-0235
Fax No.: 505-341-2326
To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941-598-5605
Fax No.: 941-566-6082
With copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212-424-8279
Fax No.: 212-424-8500
To Escrow Agent: Fidelity National Title Insurance Company
of New York
2 Park Avenue
New York, New York 10016
Attn: Robert Calamari
Telephone No.: 212-481-5858
Facsimile No.: 212-481-8747
Notices shall be deemed given upon actual receipt.
11. CHOICE OF LAW; SEVERABILITY. This Agreement shall be construed in each
and every respect in accordance with the laws of the State of New York. If any
provision in this Agreement is in conflict with such laws, or is otherwise
unenforceable for any reason whatsoever, such provision shall be deemed null and
void to the extent of such conflict or unenforceability, and it shall be severed
from and shall not invalidate any other provision of this Agreement
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties hereby execute this Escrow Agreement as of
the day and year first set forth therein.
PEAK MEDICAL OF IDAHO, INC.
By:
Name: Charles H. Gonzales
Title: President
MONARCH PROPERTIES, LP
By: MP Operating, Inc., as General Partner
By:
Name: John B. Poole
Title: President and Chief Executive Officer
FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK
By:
Name: Robert Calamari
Title: Senior Vice President
5
GUARANTY
BY
PEAK MEDICAL CORPORATION
IN FAVOR OF
IHS ACQUISITION NO. 104, INC.
DATED AS OF MAY 29, 1998
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is given as of the 29th day of May, 1998
("Effective Date"), by PEAK MEDICAL CORPORATION, a Delaware corporation
("Guarantor"), in favor of IHS ACQUISITION NO. 104, INC., a Delaware corporation
("Lessor").
RECITALS
A. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given them in Section 1 below.
B. Concurrently herewith, Lessor and Peak Medical of Idaho, Inc. ("Peak
Subsidiary") have executed and delivered the Lease, pursuant to which Lessor has
leased to Peak Subsidiary the Facility. As security for the payment and
performance by Peak Subsidiary of its respective obligations under the Lease and
the Transaction Documents, Peak Subsidiary has executed and delivered to Lessor
the Security Agreement, pursuant to which Peak Subsidiary has granted to Lessor
security interests in certain property of Peak Subsidiary.
C. Guarantor owns all of the stock of Peak Subsidiary and, accordingly,
benefits from the execution of the Lease.
D. As a material inducement to Lessor to enter into the Lease, Guarantor
has agreed to guarantee both the payment of all amounts due from, and the
performance of all obligations undertaken by, Peak Subsidiary under the Lease.
NOW, THEREFORE, Guarantor agrees as follows:
1. DEFINED TERMS. The following terms shall have the respective meanings
given them below:
"Affiliate" means any Person who, directly or indirectly, Controls or is
Controlled by or is under common Control with another Person.
"Control" (and its corollaries "Controlled by" and "under common Control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, through the ownership
of voting securities, partnership interests or other equity interests.
"Event of Default" means an "Event of Default," as defined in the Lease.
"Facility" means the facility listed on EXHIBIT A hereto.
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"GAAP" means generally accepted accounting principles.
"Guaranty Default" means any of: (a) an Event of Default; (b) Guarantor's
failure to pay any amounts as and when required under this Guaranty; (c)
Guarantor's failure to observe and perform any covenant, condition or agreement
on its part to be observed or performed under this Guaranty (other than as
referred to in clause (b) above) for a period of three (3) business days or more
after Lessor has given written notice of such failure to Guarantor; or (d) the
occurrence and continuation of a default by any person other than Lessor under
any of the other Transaction Documents, if the default is not cured within any
applicable grace or cure period set forth therein.
"Lease" means the Lease of even date herewith executed and delivered by
Lessor and Peak Subsidiary.
"Net Income" means the net income of Guarantor, determined on an accrual
basis in accordance with GAAP, before federal, state and local income taxes, but
excluding extraordinary items.
"Obligations" means, collectively, all covenants and obligations contained
in the Lease and the other Transaction Documents, and any and all amendments,
modifications, extensions and renewals thereof, to be performed by Peak
Subsidiary, and all damages that may result from the non-performance thereof to
the full extent provided under the Lease and the other Transaction Documents.
"Peak Subsidiary" means Peak Medical of Idaho, Inc., a Delaware
corporation, that is a wholly owned subsidiary of Guarantor.
"Person" means any natural person, trust, partnership, corporation, limited
liability company, joint venture or other legal entity.
"Pledge Agreement" means the Pledge Agreement of even date herewith between
Guarantor and Integrated Health Services, Inc.
"Rent" means "Rent," as defined in the Lease.
"Security Agreement" means the Security Agreement of even date herewith
executed and delivered by Peak Subsidiary and Lessor.
"Transaction Documents" means the Security Agreement, the Twin Falls Lease,
the Pledge Agreement and any other documents executed and/or delivered or caused
to be executed and/or delivered by Peak Subsidiary and Guarantor pursuant to or
in connection with the Lease.
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"Twin Falls Lease" means the Lease of even date herewith executed and
delivered by IHS Acquisition No. 105, Inc. and Peak Subsidiary, whereby Peak
Subsidiary leased the Twin Falls Care Center.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably guarantees to
Lessor (a) the payment when due of all Rent and other sums payable by Peak
Subsidiary under the Lease and the Transaction Documents, and (b) the faithful
and prompt performance when due of each and every one of the Obligations. Upon
the occurrence of a Guaranty Default, Guarantor immediately shall perform or
cause to be performed the Obligations. Guarantor's liability under this Guaranty
is without limit.
3. SURVIVAL OF OBLIGATIONS. The obligations of Guarantor under this
Guaranty with respect to the Lease and the Transaction Documents shall survive
and continue in full force and effect notwithstanding:
(a) any amendment, modification or extension of the Lease or any of the
other Transaction Documents;
(b) any compromise, release, consent, extension, indulgence or other
action or inaction in respect of any terms of the Lease or any of the
other Transaction Documents or any other guarantor;
(c) any substitution or release, in whole or in part, of any security for
this Guaranty that Lessor may hold at any time;
(d) any exercise or nonexercise by Lessor of any right, power or remedy
under or in respect of the Lease or any of the other Transaction
Documents or any security held by Lessor with respect thereto, or any
waiver of any such right, power or remedy;
(e) any bankruptcy, insolvency, reorganization, arrangement, adjustment,
composition, liquidation or the like of Peak Subsidiary or any other
guarantor;
(f) any limitation of Peak Subsidiary's liability under the Lease or the
other Transaction Documents or any limitation of such liability that
now or hereafter may be imposed by any statute, regulation or rule of
law, or any illegality, irregularity, invalidity or unenforceability,
in whole or in part, of the Lease or the other Transaction Documents
or any term thereof;
(g) any sale, lease or transfer of all or any part of any interest in the
Facility or any or all of the assets of Peak Subsidiary to any other
person, firm or entity other than to Lessor;
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<PAGE>
(h) any act or omission by Lessor with respect to any of the security
instruments or any failure to file, record or otherwise perfect any of
the same;
(i) any extensions of time for performance under the Lease or the other
Transaction Documents, whether prior to or after maturity;
(j) the release of any collateral from the lien of any of the Security
Agreement, or the release of Peak Subsidiary from performance or
observation of any of the agreements, covenants, terms or conditions
contained in the Lease or any of the other Transaction Documents by
operation of law or otherwise;
(k) the fact that Peak Subsidiary may or may not be personally liable, in
whole or in part, under the terms of the Lease or the other
Transaction Documents to pay any money judgment;
(l) the failure to give Guarantor any notice of acceptance, default or
otherwise;
(m) any other guaranty now or hereafter executed by Guarantor or anyone
else in connection with the Lease;
(n) any rights, powers or privileges that Lessor now or hereafter may have
against any other person, entity or collateral; or
(o) any other circumstances, whether or not Guarantor had notice or
knowledge thereof.
4. PRIMARY LIABILITY. The liability of Guarantor under this Guaranty is
primary, direct and immediate, and, upon the occurrence of a Guaranty Default,
Lessor may proceed against Guarantor: (a) prior to or in lieu of proceeding
against any Subsidiary, its assets, any security deposit or any other guarantor;
and (b) prior to or in lieu of pursuing any other rights or remedies available
to Lessor. All rights and remedies afforded to Lessor by reason of this Guaranty
or by law are separate, independent and cumulative, and the exercise of any
rights or remedies shall not in any way limit, restrict or prejudice the
exercise of any other rights or remedies.
Upon the occurrence of a Guaranty Default, Lessor may bring and prosecute
against Guarantor an action or actions under this Guaranty, regardless of
whether Peak Subsidiary is joined therein or a separate action or actions are
brought against Peak Subsidiary. Lessor may maintain successive actions for
other defaults. Lessor's rights hereunder shall not be exhausted by its exercise
of any of its rights or remedies or by any such action or by any number of
successive actions until and unless all Obligations have been paid and fully
performed.
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<PAGE>
5. OBLIGATIONS NOT AFFECTED. In such manner, upon such terms and at such
times as Lessor in its sole discretion deems necessary or expedient, and without
notice to Guarantor, Lessor may: (a) amend, alter, compromise, accelerate,
extend or change the time or manner for the payment or the performance of the
Obligations; (b) extend, amend or terminate the Lease or any other Transaction
Document; or (c) release Peak Subsidiary by consent to any assignment (or
otherwise) as to all or any portion of the obligations hereby guaranteed. Any
exercise or non-exercise by Lessor of any right hereby given Lessor, any dealing
by Lessor with Guarantor or any other guarantor, Peak Subsidiary or other
person, or any change, impairment, release or suspension of any right or remedy
of Lessor against any person (including Peak Subsidiary and any other guarantor)
will not affect any of the obligations of Guarantor hereunder or give Guarantor
any recourse or offset against Lessor.
6. WAIVER. Guarantor hereby waives and relinquishes all rights and remedies
accorded by applicable law to sureties and/or guarantors or any other
accommodation parties, under any statutory provisions, common law or any other
provision of law, custom or practice, and agrees not to assert or take advantage
of any such rights or remedies including, but not limited to:
(a) any right to require Lessor to proceed against Peak Subsidiary or any
other person or to proceed against or exhaust any security held by
Lessor at any time or to pursue any other remedy in Lessor's power
before proceeding against Guarantor or to require that Lessor cause a
marshaling of Peak Subsidiary's assets or the assets, if any, given as
collateral for this Guaranty or to proceed against Peak Subsidiary
and/or any collateral, including collateral, if any, given to secure
Guarantor's obligation under this Guaranty, held by Lessor at any time
or in any particular order;
(b) any defense that may arise by reason of the incapacity or lack of
authority of any other person or persons;
(c) notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action
on the part of Peak Subsidiary, Lessor, any creditor of Peak
Subsidiary or Guarantor or on the part of any other person whomsoever
under this or any other instrument in connection with any obligation
or evidence of indebtedness held by Lessor or in connection with any
obligation hereby guaranteed;
(d) any defense based upon an election of remedies by Lessor that destroys
or otherwise impairs the subrogation rights of Guarantor or the right
of Guarantor to proceed against Peak Subsidiary for reimbursement, or
both;
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<PAGE>
(e) any defense based upon any statute or rule of law that provides that
the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(f) any duty on the part of Lessor to disclose to Guarantor any facts
Lessor may now or hereafter know about Peak Subsidiary, regardless of
whether Lessor has reason to believe that any such facts materially
increase the risk beyond that which Guarantor intends to assume or has
reason to believe that such facts are unknown to Guarantor or has a
reasonable opportunity to communicate such facts to Guarantor, it
being understood and agreed that Guarantor is fully responsible for
being and keeping informed of the financial condition of Peak
Subsidiary and of all circumstances bearing on the risk of non-payment
or non- performance of any obligations or indebtedness hereby
guaranteed;
(g) any defense arising because of Lessor's election, in any proceeding
instituted under the federal Bankruptcy Code, of the application of
Section 1111 (b)(2) of the federal Bankruptcy Code;
(h) any defense based on any borrowing or grant of a security interest
under Section 364 of the federal Bankruptcy Code; and
(i) all rights and remedies accorded by applicable law to guarantors,
including without limitation, any extension of time conferred by any
law now or hereafter in effect and any requirement or notice of
acceptance of this Guaranty or any other notice to which the
undersigned may now or hereafter be entitled to the extent such waiver
of notice is permitted by applicable law.
7. WARRANTIES. Guarantor represents and warrants to Lessor that: (a) this
Guaranty is executed at the request of Peak Subsidiary; and (b) Guarantor has
established adequate means of obtaining from Peak Subsidiary, on a continuing
basis, financial and other information pertaining to financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances that might in any way affect Guarantor's risks
hereunder, and Guarantor further agrees that Lessor shall have no obligation to
disclose to Guarantor information or material acquired in the course of Lessor's
relationship with Peak Subsidiary.
8. SUBROGATION. Guarantor shall defer until all obligations of Peak
Subsidiary under the Lease and the other Transaction Documents have been
satisfied and discharged in full for one (1) year, its exercise of any right of
subrogation it may have, and any right to enforce any remedy that Lessor now has
or hereafter may have, against Peak Subsidiary and any benefit of, and any right
to participate in, any security now or hereafter held by Lessor with respect to
the ease and the other Transaction Documents.
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<PAGE>
9. SUBORDINATION. As long as an Event of Default exists and remains uncured
under the Lease or any of the other Transaction Documents, Peak Subsidiary shall
not pay to Guarantor all or any part of any indebtedness or obligations owing by
Peak Subsidiary to Guarantor, nor will Guarantor accept any payment of or on
account of any amounts owing, without the prior written consent of Lessor. At
Lessor's request, Guarantor shall cause Peak Subsidiary to pay to Lessor all or
any part of the subordinated indebtedness until the obligations under the Lease
or the other Transaction Documents have been paid in full. Any payment by Peak
Subsidiary in violation of this Guaranty shall be received by Guarantor in trust
for Lessor, and Guarantor shall cause the same to be paid to Lessor immediately
on account of the amounts owing from Peak Subsidiary to Lessor. No such payment
will reduce or affect in any manner the liability of Guarantor under this
Guaranty.
10. NO DELAY. Any payments required to be made by Guarantor hereunder
immediately shall become due on demand in accordance with the terms hereof upon
the occurrence of a Guaranty Default.
11. APPLICATION OF PAYMENTS. Lessor may, in its sole discretion, (a) apply
any or all payments or recoveries from Peak Subsidiary or from any other
guarantor under any other instrument or realized from any security, in such
manner and order of priority as Lessor may determine, to any indebtedness or
other obligation of Peak Subsidiary with respect to the Lease, regardless of
whether such indebtedness or other obligation is guaranteed hereby or is
otherwise secured or is due at the time of such application, and/or (b) refund
to Peak Subsidiary any payment received by Lessor under the Lease.
12. GUARANTY DEFAULT. Upon the occurrence and continuation of a Guaranty
Default, Lessor shall have the right to bring such actions at law or in equity,
including appropriate injunctive relief, as it deems appropriate to compel
compliance, payment or deposit, and among other remedies to recover its
reasonable attorneys' fees in any proceeding, including any appeal therefrom and
any post-judgement proceedings.
13. INTENTIONALLY OMITTED.
14. FINANCIAL STATEMENTS. Within fifty (50) days after the end of each of
Guarantor's fiscal quarters, quarterly consolidated financial statements,
prepared in accordance with GAAP, consistently applied, and certified by an
officer of Guarantor. Within ninety (90) days after the end of each of
Guarantor's fiscal years, Guarantor shall deliver to Lessor a copy of its
consolidated financial statements, prepared in accordance with GAAP,
consistently applied, and certified by an officer of Guarantor. Together with
the Guarantor's financial statements furnished in accordance with the preceding
two (2) sentences, Guarantor shall deliver an officer's certificate of Guarantor
stating that Guarantor is not in default in the performance or observance of any
of the terms of this Guaranty, or, if Guarantor is in default, specifying all
such defaults, the nature thereof and the steps being taken to remedy the same.
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<PAGE>
15. 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 Guarantor: Peak Medical Corporation
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87109
Attention: Charles H. Gonzales
Copy to: Scot Sauder, Esq.
Telephone No.: 505-342-0235
Fax No.: 505-341-2326
To Lessor: c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Telephone No.: 410-998-8768
Facsimile No.: 410-998-8716
Notices shall be deemed given upon actual receipt.
16. MISCELLANEOUS.
(a) No term, condition or provision of this Guaranty may be waived except
by an express written instrument to that effect signed by Lessor. No waiver of
any term, condition or provision of this Guaranty will be deemed a waiver of any
other term, condition or provision, irrespective of similarity, or constitute a
continuing waiver of the same term, condition or provision, unless otherwise
expressly provided.
(b) If any one or more of the terms, conditions or provisions contained in
this Guaranty is found in a final award or judgment rendered by any court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions of this Guaranty shall not in any way be affected or impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term, condition or provision had never been contained
in this Guaranty.
(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE LAWS OF THE STATE OF IDAHO SHALL
GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY (i) TO OBTAIN THE BENEFIT OF THE
RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE FACILITY AND (ii) FOR
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PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH
THE FACILITY IS LOCATED. GUARANTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE
THE STATE OR FEDERAL COURTS OF THE STATE OF IDAHO AND AGREES THAT ALL DISPUTES
CONCERNING THIS GUARANTY SHALL BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED
IN THE STATE OF IDAHO. GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED
UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF IDAHO AND
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OF IDAHO.
(d) GUARANTOR AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO
IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF
OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR
ENFORCEMENT THEREOF.
(e) In the event of any suit, action, arbitration or other proceeding to
interpret this Guaranty, or to determine or enforce any right or obligation
created hereby, the prevailing party in the action shall recover such party's
actual costs and expenses reasonably incurred in connection therewith,
including, but not limited to, attorneys' fees and costs of appeal, post
judgment enforcement proceedings (if any) and bankruptcy proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action, arbitration or other proceeding, in
addition to any and all other relief awarded to such prevailing party, include
in such-judgment or award such party's costs and expenses as provided in this
paragraph.
(f) Guarantor (i) represents that it has been represented and advised by
counsel in connection with the execution of this Guaranty; (ii) acknowledges
receipt of a copy of the Lease and the other Transaction Documents; and (iii)
further represents that Guarantor has been advised by counsel with respect
thereto. This Guaranty shall be construed and interpreted in accordance with the
plain meaning of its language, and not for or against Guarantor or Lessor, and
as a whole, giving effect to all of the terms, conditions and provisions hereof.
(g) Except as provided in any other written agreement now or at any time
hereafter in force between Lessor and Guarantor, this Guaranty shall constitute
the entire agreement of Guarantor with Lessor with respect to the subject matter
hereof, and no representation, understanding, promise or condition concerning
the subject matter hereof will be binding upon Lessor or Guarantor unless
expressed herein.
(h) All stipulations, obligations, liabilities and undertakings under this
Guaranty shall be binding upon Guarantor and its respective successors and
assigns and shall inure to the benefit of Lessor and to the benefit of Lessor's
successors and assigns.
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(i) Whenever the singular shall be used hereunder, it shall be deemed to
include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Guaranty so requires. Section captions or headings used in the Guaranty
are for convenience and reference only, and shall not affect the construction
thereof.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of
the date first written above.
GUARANTOR:
PEAK MEDICAL CORPORATION
By:
------------------------------------------------
Name: Scot Sauder
------------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------------
11
FACILITIES PURCHASE AGREEMENT
AMONG
MONARCH PROPERTIES, LP,
INTEGRATED HEALTH SERVICES, INC.,
THE ENTITIES LISTED ON ATTACHED EXHIBIT A,
PEAK MEDICAL CORPORATION
AND
PEAK MEDICAL OF IDAHO, INC.
DATED AS OF MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I - DEFINITIONS........................................................2
1.1 Agreement.......................................................2
1.2 Assignment of Leases, Guaranties, Pledge Agreement and
Security Agreements.............................................2
1.3 Bills of Sale...................................................2
1.4 Closing.........................................................2
1.5 Closing Date....................................................2
1.6 Closing Escrow Agreement........................................2
1.7 Contracts.......................................................3
1.8 Deeds...........................................................3
1.9 Deferred Maintenance Adjustment.................................3
1.10 Effective Date..................................................3
1.11 Environmental Laws..............................................3
1.12 Environmental Remediation.......................................3
1.13 Escrow Agent....................................................4
1.14 Escrow Agreement................................................4
1.15 Facilities......................................................4
1.16 Final Financial Statements; Final Balance Sheet.................4
1.17 Financial Statements of the Facilities..........................4
1.18 Guaranties......................................................4
1.19 IHS.............................................................4
1.20 Improvements....................................................4
1.21 Intangible Property.............................................4
1.22 Knowledge.......................................................5
1.23 Law.............................................................5
1.24 MAI Appraisal...................................................5
1.25 Leases..........................................................5
1.26 Monarch.........................................................5
1.27 Offering........................................................5
1.28 Peak Medical....................................................5
1.29 Peak of Idaho...................................................5
1.30 Permits.........................................................5
1.31 Permitted Liens.................................................6
1.32 Personal Property...............................................6
1.33 Pledge Agreement................................................6
1.34 Purchase Price..................................................6
1.35 Real Property...................................................6
i
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TABLE OF CONTENTS
Section Page
1.36 Release.........................................................6
1.37 Security Agreements.............................................6
1.38 Sellers' Liabilities............................................6
1.39 Seller Licenses.................................................6
1.40 Sellers' Assets.................................................7
1.41 Subsidiary......................................................7
1.42 Survey..........................................................7
1.43 Title Commitment................................................7
1.44 Title Company...................................................7
1.45 Title Insurance Policy..........................................7
1.46 Transaction Documents...........................................7
1.47 UCC Search Report...............................................8
ARTICLE II - PURCHASE AND SALE.................................................8
2.1 Agreement to Sell and Buy.......................................8
2.2 No Assumption of Liabilities....................................8
ARTICLE III - PURCHASE PRICE...................................................8
ARTICLE IV - CLOSING...........................................................8
ARTICLE V - COSTS AND PRORATIONS...............................................9
5.1 Transfer Taxes; Sales Taxes.....................................9
5.2 MAI Appraisals..................................................9
5.3 Title Insurance.................................................9
5.4 Surveys/UCC Search Reports......................................9
5.5 Environmental Reports/Remediation...............................9
5.6 Attorneys' Fees.................................................9
5.7 Recording Costs.................................................9
5.8 Releases........................................................9
5.9 Deferred Maintenance Adjustment................................10
5.10 Commitment Fee.................................................10
5.11 Other Items....................................................10
ARTICLE VI - POSSESSION ......................................................10
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TABLE OF CONTENTS
Section Page
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF SELLERS.......................10
7.1 Corporate Organization; Good Standing; Corporate Information...10
7.2 Authorization; Enforceability..................................11
7.3 No Violation or Conflict.......................................11
7.4 Assets.........................................................11
7.5 No Litigation..................................................12
7.6 Personal Property and Improvements.............................12
7.7 Real Property and Improvements.................................12
7.8 Zoning.........................................................12
7.9 Leases.........................................................13
7.10 Liabilities....................................................13
7.11 Taxes..........................................................13
7.12 Contracts......................................................13
7.13 Contracts and Leases...........................................13
7.14 Financial Statements of the Facilities.........................13
7.15 No Adverse Change..............................................14
7.16 Employment Agreements and Benefits.............................14
7.17 Insurance......................................................14
7.18 Compliance with the Law........................................14
7.19 Transactions with Affiliates...................................15
7.20 Obligations....................................................16
7.21 No Broker......................................................16
7.22 Environmental Compliance.......................................16
7.23 No Attachments.................................................16
7.24 No Options.....................................................17
7.25 Seller Licenses................................................17
7.26 Disclosure.....................................................17
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF IHS..........................17
8.1 Corporate Organization; Good Standing..........................17
8.2 Validity of Contracts..........................................18
8.3 Authority......................................................18
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TABLE OF CONTENTS
Section Page
ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF PURCHASER......................18
9.1 Organization...................................................18
9.2 Authorization; Enforceability..................................18
9.3 No Violation or Conflict.......................................18
9.4 No Broker......................................................19
ARTICLE X - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER..............19
10.1 Compliance with this Agreement.................................19
10.2 Proceedings and Instruments Satisfactory.......................19
10.3 No Litigation..................................................20
10.4 Representations and Warranties.................................21
10.5 Deliveries at the Closing......................................21
10.6 Regulatory Approvals...........................................21
10.7 Default........................................................21
10.8 Approvals......................................................22
10.9 Offering.......................................................22
ARTICLE XI - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS...............22
11.1 Compliance with this Agreement.................................22
11.2 Proceedings and Instruments Satisfactory.......................22
11.3 No Litigation..................................................22
11.4 Representations and Warranties.................................22
11.5 Deliveries at the Closing......................................23
11.6 Restraints.....................................................23
11.7 Regulatory Approvals...........................................23
11.8 Approvals......................................................23
ARTICLE XII - ADDITIONAL COVENANTS AND INDEMNIFICATIONS.......................23
12.1 Transfer Taxes and Fees........................................23
12.2 Cooperation....................................................24
12.3 Additional Instruments.........................................24
12.4 Publicity......................................................24
12.5 Confidentiality................................................24
12.6 Indemnifications...............................................24
12.7 Survival of Indemnifications...................................28
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TABLE OF CONTENTS
Section Page
12.8 Liability for Representations and Warranties...................28
12.9 Peak Medical and Peak of Idaho Liability Limitations...........29
ARTICLE XIII - MISCELLANEOUS..................................................29
13.1 Entire Agreement; Amendment....................................29
13.2 Governing Law..................................................29
13.3 Assignment.....................................................29
13.4 Notices........................................................30
13.5 Counterparts; Headings.........................................31
13.6 Interpretation.................................................31
13.7 Severability...................................................31
13.8 No Reliance....................................................31
13.9 Binding........................................................31
13.10 Survival.......................................................31
13.11 Allocation of Purchase Price...................................31
13.12 Dispute Attorneys' Fees and Expenses...........................31
EXHIBITS
Exhibit A - Sellers
Exhibit B - Facilities
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FACILITIES PURCHASE AGREEMENT
THIS FACILITIES PURCHASE AGREEMENT (this "Agreement"), is made and entered
into as of the 1st day of May, 1998, among (a) Monarch Properties, LP, a
Delaware limited partnership, with principal offices at 8889 Pelican Bay
Boulevard, Naples, Florida 34103 ("Purchaser"), (b) Integrated Health Services,
Inc., a Delaware corporation, with principal offices at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 ("IHS"), (c) each of the entities described on
attached Exhibit A (each, a "Seller" and, collectively, "Sellers"), (d) Peak
Medical Corporation, a Delaware corporation, with principal offices at 5635
Jefferson Boulevard, N.E., Albuquerque, New Mexico 87189 ("Peak Medical") and
(e) Peak Medical of Idaho, Inc., a Delaware corporation, with principal offices
at 5635 Jefferson Boulevard, N.E., Albuquerque, New Mexico 87189 ("Peak of
Idaho").
W I T N E S S E T H:
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Capitalized terms used but not otherwise defined herein have the
respective meanings given them in Article I herein.
B. Sellers are corporations that are each wholly owned by IHS. Sellers also
are the respective owners of Sellers' Assets. Sellers desire to sell, and
Purchaser desires to acquire, Sellers' Assets on the terms and conditions set
forth in this Agreement. Peak of Idaho is the current lessee of Sellers' Assets
and is wholly owned by Peak Medical.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, and intending to
be legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified herein. The meanings specified in this Article and elsewhere in this
Agreement are for purposes of this Agreement only and do not purport to have any
significance for any other purpose, including, but not limited to, any
applicable reporting requirements under tax or securities laws, except as the
terms may be used by reference in other agreements between the parties to this
Agreement. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural and vice versa, unless this Agreement requires otherwise.
1.1 Agreement. "Agreement" shall mean this Facilities Purchase Agreement,
together with the Exhibits and Schedules attached hereto, as the same may be
amended from time to time in accordance with the terms hereof.
1.2 Assignment of Leases, Guaranties, Pledge Agreement and Security
Agreements. "Assignment of Leases, Guaranties, Pledge Agreement and Security
Agreement" shall mean the agreement executed by each Seller, IHS, Purchaser,
Peak of Idaho and Peak Medical, concurrently with the Closing, whereby each
Seller and IHS assigns to Purchaser, with the acceptance and approval of Peak of
Idaho and Peak Medical, their respective rights, benefits, duties and
obligations under the Leases, the Guaranties, the Pledge Agreement and the
Security Agreements.
1.3 Bills of Sale. "Bills of Sale" shall mean, collectively, the bill of
sale to be executed by each Seller and conveying to Purchaser all of the
Personal Property for each Facility owned by such Seller.
1.4 Closing. "Closing" shall mean the closing held at 10:00 a.m., local
time, on the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York. All transactions occurring at
the Closing shall be deemed to have occurred simultaneously, and no one
transaction shall be deemed to be complete until all transactions are completed.
1.5 Closing Date. "Closing Date" shall mean the date designated by
Purchaser in a written notice to the parties hereto, which will be the date for
execution and delivery of the documents described in Article IV of this
Agreement.
1.6 Closing Escrow Agreement. "Closing Escrow Agreement" shall mean the
escrow agreement executed by each Seller, Purchaser, Peak of Idaho and Peak
Medical, concurrently with the Closing, pursuant to which the Escrow Agent will
hold in escrow certain Transaction Documents pending the Effective Date.
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1.7 Contracts. "Contracts" shall mean those contracts, agreements, leases,
rights of renewal thereto and commitments with respect to each of the Facilities
or with respect to the operation of any of the Facilities (a) to which Sellers
or any of the Facilities is a party or (b) by which Sellers or any of the
Facilities is bound and that are listed on Schedule 1.7 hereto.
1.8 Deeds. "Deeds" shall mean, collectively, the general warranty deeds (or
such other form of deed applicable to the State of Idaho) in recordable form,
executed by each Seller and conveying to Purchaser fee simple title to the real
property owned by such Seller, free and clear of all liens and encumbrances
other than the Permitted Liens.
1.9 Deferred Maintenance Adjustment. "Deferred Maintenance Adjustment"
shall mean, with respect to each Facility, the amount set forth opposite such
Facility's name on Schedule 1.9 hereto to cover the potential costs to be
incurred after the Effective Date in making the repairs or modifications
required at such Facility and described on Schedule 1.9 hereto.
1.10 Effective Date. "Effective Date" shall mean the date that is no more
than twenty (20) days following the closing of the Offering.
1.11 Environmental Laws. "Environmental Laws" shall mean all federal,
state, and local laws, statutes, ordinances, regulations, policies, rules,
directives, guidelines, Permits, licenses, criteria and rules of common law now
or hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the regulation and protection of
human health, safety, the environment and natural resources (including, without
limitation, ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, and wildlife, aquatic species and vegetation), including,
without limitation, relating to emissions, discharges, releases or threatened
releases of Hazardous Materials (as defined in Section 7.22 hereof) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, and the Safe Drinking Water Act, and as the same may be
amended, modified or supplemented, the regulations promulgated pursuant thereto,
and their state and local counterparts or equivalents.
1.12 Environmental Remediation. "Environmental Remediation" shall mean,
with respect to each Facility, the work described opposite such Facility's name
on Schedule 1.12 hereto to be performed after the Closing for the investigation
and/or remediation of the environmental conditions at such Facility described on
Schedule 1.12 hereto.
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1.13 Escrow Agent. "Escrow Agent" shall mean Fidelity National Title
Insurance Company of New York.
1.14 Escrow Agreement. "Escrow Agreement" shall mean the escrow agreement
among Purchaser, Peak of Idaho and Escrow Agent pursuant to which the Deferred
Maintenance Adjustment is to be held and disbursed.
1.15 Facilities. "Facilities" shall mean the Real Property, Improvements
and Personal Property constituting the health care facilities described on
Exhibit B hereto. Reference to any one of the Facilities individually and not
specifically shall be referred to herein as a "Facility".
1.16 Final Financial Statements; Final Balance Sheet. "Final Financial
Statements" shall mean the unaudited Financial Statements of the Facilities as
of the Effective Date, including a balance sheet for each of the Facilities as
of such date, together with the related unaudited statement of income for the
period from January 1, 1998 through the Effective Date. "Final Balance Sheet"
shall mean the balance sheet included in the Final Financial Statements.
1.17 Financial Statements of the Facilities. "Financial Statements of the
Facilities" shall mean the unaudited Financial Statements for each of the
Facilities, as of December 31, 1997, as described in Schedule 1.17 hereto.
1.18 Guaranties. "Guaranties" shall mean, collectively, the Guaranties,
executed and delivered by Peak Medical to each of the Sellers concurrently with
the execution and delivery of the Leases, pursuant to which Peak Medical
guaranteed to each of the Sellers the payment and performance by Peak of Idaho
of the obligations under each of the Leases.
1.19 IHS. "IHS" shall mean Integrated Health Services, Inc., a Delaware
corporation, with principal offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117.
1.20 Improvements. "Improvements" shall mean, collectively, the buildings
and all attached fixtures constituting the nursing home/adult care facilities
and related improvements, Related Rights and Fixtures, constructed on each of
the Real Properties.
1.21 Intangible Property. "Intangible Property" shall mean (a) all
transferable consents, authorizations, variances or waivers, licenses, permits
and approvals given or issued by any governmental or quasi-governmental agency,
department, board, commission, bureau or other entity or instrumentality having
jurisdiction over the respective Facilities and (b) all rights to use the names
of the Facilities set forth on Schedule 1.21 hereto.
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1.22 Knowledge. "Knowledge" of a party shall mean (a) actual knowledge of
an officer or management level employee of such party, with respect to a
corporation, (b) actual knowledge of a general partner or management level
employee of such party, with respect to a partnership, or (c) actual knowledge
of the person with respect to a natural person.
1.23 Law. "Law" shall mean any federal, state, local or other law,
ordinance, code, or governmental agency requirement of any kind, and the rules,
regulations and orders promulgated thereunder including, without limitation, the
Environmental Laws.
1.24 MAI Appraisal. "MAI Appraisal" shall mean, with respect to each
Facility, an appraisal, in form and substance satisfactory to Purchaser,
prepared by an appraiser who is a Member of the Appraisal Institute and is
experienced in appraising properties of the same nature, and in the same
geographical vicinity, as each Facility.
1.25 Leases. "Leases" shall mean, collectively, the leases executed and
delivered by each of the Sellers and Peak of Idaho, pursuant to which each of
the Sellers leased to Peak of Idaho, and Peak Idaho leased from each of the
Sellers, the respective Facilities.
1.26 Monarch. "Monarch" shall mean Monarch Properties, Inc., a Maryland
corporation, with principal offices at 8889 Pelican Bay Boulevard, Naples,
Florida 34103.
1.27 Offering. "Offering" shall mean the public offering of shares of
common stock of Monarch.
1.28 Peak Medical. "Peak Medical" shall mean Peak Medical Corporation, a
Delaware corporation, with principal offices at 5635 Jefferson Boulevard, N.E.,
Albuquerque, New Mexico 87189.
1.29 Peak of Idaho. "Peak of Idaho" shall mean Peak Medical of Idaho, Inc.,
a Delaware corporation, with principal offices at 5635 Jefferson Boulevard,
N.E., Albuquerque, New Mexico 87189, and a wholly owned subsidiary of Peak
Medical.
1.30 Permits. "Permits" shall mean all permits, consents, waivers,
exemptions, orders, certificates of need, licenses and governmental and agency
authorizations, registrations and approvals with respect to each of the
Facilities, as listed on Schedule 1.30 hereto. For purposes of this definition,
the term "license" shall mean the permit to own a nursing home and to operate a
nursing home issued to any operator of a nursing home upon application to, and
approval by, the health care facilities branch, pursuant to the relevant state
nursing home licensure act, as in effect on the Effective Date.
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1.31 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges, security
interests, impositions and other matters affecting any of the Facilities, as
listed on Schedule 1.31 hereto.
1.32 Personal Property. "Personal Property" shall mean, collectively, the
vehicles, equipment, machinery, furniture, fixtures, furnishings, moveable walls
or partitions, computers or trade fixtures, office equipment, operating supplies
and other tangible real or personal property owned or leased by Sellers on the
Closing Date.
1.33 Pledge Agreement. "Pledge Agreement" shall mean the pledge agreement,
executed and delivered from Peak Medical to IHS, pursuant to which Peak Medical
pledged to IHS the stock of Peak of Idaho, as security for the performance of
Peak of Idaho under the Leases.
1.34 Purchase Price. "Purchase Price" shall mean the sum of $11,300,000.
1.35 Real Property. "Real Property" shall mean, collectively, all of the
land and Improvements located thereon, situated at the addresses as listed on
Exhibit B hereto, that is currently owned by Sellers.
1.36 Release. "Release" shall mean the release, deposit, disposal or
leakage of any Hazardous Material into, upon or under any land or water or air,
or otherwise into the environment, including, without limitation, by means of
burial, disposal, discharge, emission, injection, spillage, leakage, seepage,
leaching, dumping, pumping, pouring, escaping, emptying, placement and the like.
1.37 Security Agreements. "Security Agreements" shall mean, collectively,
the security agreements, executed and delivered from Peak of Idaho to Sellers,
whereby Peak of Idaho granted to Sellers a security interest in the Personal
Property and Intangible Property in order to secure the obligations of Peak of
Idaho under each of the Leases.
1.38 Sellers' Liabilities. "Sellers' Liabilities" shall mean any and all
liabilities of Sellers or any of the Facilities, whether actual or contingent,
relating to each of the Facilities that are (a) reflected on the Financial
Statements of the Facilities or on Schedule 1.38 hereto or (b) except for
liabilities arising from operation of the Facilities on or prior to the Closing
Date, arising under the Contracts.
1.39 Seller Licenses. "Seller Licenses" shall mean, if and as applicable,
all material licenses, Permits and authorizations necessary for the lawful
operation of the respective Facilities, as the Facilities currently are
operated, including all licenses, Permits and authorizations necessary to (a)
lawfully operate all beds contained in the Facilities as nursing home beds, (b)
provide licensed nursing services and any other services currently provided at
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the respective Facilities, and (c) receive payment under the Medicare and
applicable state Medicaid programs.
1.40 Sellers' Assets. "Sellers' Assets" shall mean, collectively, the Real
Property, the Facilities, the Personal Property and the Intangible Property.
1.41 Subsidiary. "Subsidiary" shall mean a corporation that is directly or
indirectly wholly owned by IHS.
1.42 Survey. "Survey" shall mean, with respect to a Facility, a survey that
is (a) certified to Purchaser, the applicable Seller, IHS and the Title Company,
(b) prepared in accordance with the minimum standard detail requirements and
classifications for ALTA/ASCM land title surveys, as adopted in 1992 by
ALTA/ASCM, including Table A responsibilities and specifications 1-4, 6-11 and
13, and (c) otherwise in form satisfactory to Purchaser.
1.43 Title Commitment. "Title Commitment" shall mean, with respect to a
Facility, a title insurance commitment, issued by the Title Company, dated after
the date of this Agreement and committing the Title Company to insure
Purchaser's fee simple title to the applicable Facility, without the so-called
"standard exceptions", in the amount of the portion of the Purchase Price
allocated to such Facility pursuant to Section 13.12 hereof, together with
legible copies of all recorded documents referred to therein.
1.44 Title Company. "Title Company" shall mean Fidelity National Title
Insurance Company of New York.
1.45 Title Insurance Policy. "Title Insurance Policy" shall mean, with
respect to a Facility, a title insurance policy, issued pursuant to the
applicable Title Commitment by the Title Company concurrently with the Closing,
that insures Purchaser's fee simple title to the applicable Facility, without
the so-called "standard exceptions", and subject only to the Permitted Liens.
Each Title Insurance Policy shall include the following endorsements, to the
extent available under the law of the state in which the applicable Facility is
located: (a) Form 3.1 completed zoning endorsement, (b) comprehensive
endorsement, (c) access endorsement, (d) survey endorsement, (e) separate tax
parcel endorsement, (f) contiguity endorsement (if the Real Property on which
the applicable Facility is located consists of more than one parcel), and (g)
such other endorsements as Purchaser reasonably may require.
1.46 Transaction Documents. "Transaction Documents" shall mean this
Agreement, the Leases, the Memoranda of Lease, the Guaranties, the Pledge
Agreement, the Security Agreements, the Escrow Agreement, the Closing Escrow
Agreement, the Assignment of Leases, Guaranties, Pledge Agreement and Security
Agreements and all other agreements related thereto executed and delivered by
the parties to this Agreement.
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1.47 UCC Search Report. "UCC Search Report" shall mean a UCC search report
in the name of the applicable Seller and Facility conducted at the state and
county level in the state in which the applicable Facility is located and, if
different, in the state in which the applicable Seller is organized and in the
state in which the applicable Seller's chief executive office is located.
ARTICLE II
PURCHASE AND SALE
2.1 Agreement to Sell and Buy. On the terms and subject to the conditions
set forth in this Agreement, Sellers agree to sell to Purchaser, and Purchaser
agrees to acquire from Sellers, Sellers' Assets.
2.2 No Assumption of Liabilities. Except as specifically set forth in this
Agreement, Purchaser is not acquiring or assuming any liabilities of Sellers,
IHS, Peak Medical, Peak of Idaho or the Facilities whatsoever, including,
without limitation, those of Sellers or Peak of Idaho with respect to Sellers'
Assets.
2.3 "As Is" Purchase. Purchaser is acquiring Sellers' Assets without any
express or implied warranties other that those specifically set forth in this
Agreement.
ARTICLE III
PURCHASE PRICE
The Purchase Price shall be payable on the Effective Date by wire transfer
in accordance with wire transfer instructions to be provided by Sellers. The
Purchase Price shall be allocated among the Facilities as set forth in Section
13.12 hereof. Sellers and Purchaser agree that, for purposes of this Agreement,
no portion of the Purchase Price shall be allocated to the Personal Property or
the Intangible Property.
ARTICLE IV
CLOSING
On the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York 10019, the documents to be
delivered by Sellers, Purchaser, Peak of Idaho and Peak Medical, pursuant to
Sections 10.5 and 11.5 hereof, shall be delivered to the Escrow Agent, to be
held in escrow until the Effective Date, subject to and in accordance with the
Closing Escrow Agreement.
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ARTICLE V
COSTS AND PRORATIONS
The costs of the transaction and the expenses related to the ownership and
operation of the Sellers' Assets shall be paid as follows:
5.1 Transfer Taxes; Sales Taxes. Peak of Idaho shall pay all state and
county transfer or excise taxes due on the transfer to Purchaser of title to the
Real Property and the respective Facilities and all assessments and taxes
related to the recording of the corresponding deeds. Peak of Idaho shall pay any
sales tax due on the transfer to Purchaser of title to the Personal Property,
although the parties believe no such tax is due.
5.2 MAI Appraisals. Peak of Idaho shall pay the cost of the MAI Appraisals
delivered by Sellers to Purchaser.
5.3 Title Insurance. Peak of Idaho shall pay the cost of the Title
Commitments and the premium for the Title Insurance Policies (including any
leasehold policies desired by Peak of Idaho) for the respective Facilities.
5.4 Surveys/UCC Search Reports. Peak of Idaho shall pay the cost of the
Surveys and the UCC Search Reports for the respective Facilities.
5.5 Environmental Reports/Remediation. Peak of Idaho shall pay for the cost
of Phase I environmental assessments for the respective Facilities, for any
additional assessments recommended in the original Phase I environmental
assessments, and for the cost of the Environmental Remediation agreed upon by
the parties and as described on Schedule 1.9 hereto. Sellers shall cause the
Phase I environmental assessments and any additional assessments or reports
provided by Sellers to be certified to the Purchaser for reliance by Purchaser
thereon.
5.6 Attorneys' Fees. Sellers and Peak of Idaho shall pay their own
attorneys' fees and disbursements and Peak of Idaho shall pay the attorneys'
fees and disbursements of counsel to Purchaser, which attorneys' fees shall be
up to Twenty-Five Thousand Dollars ($25,000), plus all reasonable costs and
disbursements.
5.7 Recording Costs. Peak of Idaho shall pay all recording fees relating to
the recording of the deeds.
5.8 Releases. Peak of Idaho shall pay the cost of obtaining and recording
any releases necessary to deliver title to Sellers' Assets in accordance with
the terms of this Agreement.
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5.9 Deferred Maintenance Adjustment. On the Effective Date, Peak of Idaho
shall deposit into escrow with the Escrow Agent the Deferred Maintenance
Adjustment attributable to the Facilities, the total Deferred Maintenance
Adjustment to be no more than Fifty Thousand Dollars ($50,000).
5.10 Commitment Fee. On the Effective Date, Peak of Idaho shall pay to
Purchaser a commitment fee equal to an aggregate of One Hundred and Thirteen
Thousand Dollars ($113,000).
5.11 Other Items. Purchaser has no duty to operate any Facility from and
after the Effective Date, such operations to be accomplished solely by Peak of
Idaho, subject to the provisions of the Leases. Accordingly, Peak of Idaho shall
be responsible for (a) all revenues and expenses attributable to the Facilities,
where attributable to the period before or after the Effective Date, (b) the
real and personal property taxes, assessments and similar charges that are
levied against the Facilities, whether attributable to the period before or
after the Effective Date, (c) all utilities provided to the Facilities, whether
before or after the Effective Date, and (d) any amounts that have been prepaid,
or that remain to be paid, under any of the Contracts affecting Sellers' Assets.
ARTICLE VI
POSSESSION
At the Effective Date, Purchaser shall be entitled to possession of
Sellers' Assets, subject only to (a) the rights of the patients and residents of
the respective Facilities, (b) any possessory rights granted to any person under
the Permitted Liens and (c) the rights of Peak of Idaho under the Leases.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to the provisions of Section 12.8 hereto, each Seller hereby
represents and warrants to Purchaser that:
7.1 Corporate Organization; Good Standing; Corporate Information. Such
Seller is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware, and it has the corporate power and
authority to develop, own, operate and lease the Facility owned by it, to carry
on its businesses as and in the places where such businesses are now conducted
and where such properties are now developed, owned, leased or operated, and to
enter into the transactions and perform its obligations under this Agreement,
the other Transaction Documents and any other documents and instruments required
to be delivered to
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which it is or is to become a party and it is duly qualified as a foreign
corporation to do business in the jurisdiction in which the Facility owned by it
is located or in which failure so to qualify would impair its ability to perform
its obligations under this Agreement or any other Transaction Document.
7.2 Authorization; Enforceability. The execution, delivery and performance
by such Seller of this Agreement, the other Transaction Documents and of all of
the documents and instruments contemplated hereby to be executed and delivered
by it are within the legal and corporate power and authority of such Seller and
have been duly authorized by all necessary legal and corporate action of such
Seller. This Agreement is, the other Transaction Documents are, and the other
documents and instruments required hereby to be delivered by it will be, when
executed and delivered, the valid and binding obligations of such Seller,
enforceable against it in accordance with their respective terms.
7.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the Transaction Documents and all of the other documents and
instruments contemplated hereby to be executed and delivered by such Seller does
not and will not conflict with or violate any material Law, judgment, or any
order or decree binding on it or the Articles of Incorporation or By-Laws of
such Seller. Except as indicated on Schedule 7.3(a) hereto, no notice to, filing
or registration with, or authorization, consent or approval of, any person,
entity or governmental or regulatory agency is necessary or required by such
Seller in connection with the execution and delivery of this Agreement, the
Transaction Documents and all of the other documents and instruments
contemplated hereby to be executed and delivered by such Seller or the
consummation by such Seller of the transactions contemplated hereby or the
performance by such Seller of its obligations hereunder. Except as indicated on
Schedule 7.3(b) hereto, since January 1, 1998, such Seller has received no
written notice from any governmental or regulatory agency having jurisdiction
over the respective Seller's Facility (a) claiming any violation of any Law
(which violation has not been cured or otherwise remedied), or (b) requiring or
calling attention to the need for any work, repairs, construction, alterations
or installation in connection with the Facility owned by it which is or may be
required in order to comply with any Law (which work, repairs, construction,
alterations or installation has not been completed).
7.4 Assets. The Personal Property, Real Property and Intangibles constitute
all of the assets used in the operation of the Facility owned by it. Such Seller
owns good, valid and clear title to all of the Personal Property owned by it and
to all the other assets, if any, owned by it and used in the operation of the
Facility owned by it, and also including, but not limited to, all assets owned
by such Seller that are reflected in the Financial Statements of the Facilities
related to the Facility owned by it and all assets acquired by it since the date
thereof related to the Facility owned by it (except for assets that have been
sold or otherwise disposed of in the ordinary course of business), free and
clear of any and all mortgages, liens,
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encumbrances, charges, claims, restrictions, pledges, security interests or
impositions except Permitted Liens and the rights of Peak of Idaho under the
Leases.
7.5 No Litigation. Except as listed on Schedule 7.5 hereto, including
matters set forth on Schedule 7.3(b) and on Schedule 7.22 hereto, there is no
material litigation, arbitration proceeding, governmental investigation,
citation, suit, action proceeding or claim of any kind pending or threatened,
against it or the Facility owned by it that would relate to such Facility or any
portion thereof or the ability of such Seller to perform its obligations under
this Agreement or under any other Transaction Documents. The matters described
on Schedule 7.5 hereto, if adversely determined, considered in the aggregate,
would not have a material adverse effect on the business or financial condition
of such Seller or the Facility or on any material portion of the assets of such
Seller or the Facility owned by it and would not preclude such Seller from
performing its obligations under this Agreement and under any other Transaction
Documents.
7.6 Personal Property and Improvements. Except as provided on Schedule 7.6
hereto, the Personal Property and Improvements used in the operation of the
Facility owned by such Seller, as of the Effective Date, are (a) in good
operating condition and in a state of good maintenance and repair, normal wear
and tear excepted, and (b) the Improvements have no structural defects and are
adequate and suitable for the purpose for which they are presently being used.
7.7 Real Property and Improvements. Such Seller owns good, indefeasible and
insurable title to the Real Property owned by it, free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security
interest or impositions except the Permitted Liens. There are no existing or
impending Improvement liens or special assessments to be made, or which have
been made, against the Real Property or Improvements owned by it by any
governmental authority. Neither the Improvements owned by it, nor the use
thereof, any Personal Property therein, nor the operation or maintenance
thereof, violate any restrictive covenant or encroach on any property owned by
others. No condemnation or similar proceeding is pending, nor, has such Seller
or the Facility owned by it, received any written notice of any condemnation or
similar proceeding, threatened or contemplated that would preclude or impair the
use of the Real Property, the Improvements or Personal Property owned by it or
any portion thereof by Purchaser for the purposes for which it is currently
used.
7.8 Zoning. There exists no judicial, quasi-judicial, administrative or
other proceeding which might adversely affect the validity of the current zoning
of the Real Property and Improvements owned by it, nor is there any threatened
action or proceeding which could result in the modification and termination of
any such zoning.
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7.9 Leases. Schedule 1.7 hereto contains an accurate and complete list of
each lease of Personal Property to which such Seller or the Facility owned by it
is a party or by which such Seller or any Facility owned by it is bound,
including, but not limited to, the Leases with Peak of Idaho.
7.10 Liabilities. (a) The Sellers Liabilities include all liabilities of
such Seller in connection with the Facility owned by it for money borrowed or
credit purchases, other than obligations that will be discharged prior to
Closing, (b) such Seller is not in material default under any obligation
included in the Sellers Liabilities, and no event has occurred or is
contemplated by it, that would constitute a material default, or an event that
with the giving of notice or passage of time or both would constitute a default
thereunder, and (c) such Seller has paid, and through the Effective Date shall
pay, all amounts due and payable to the Effective Date under the terms of each
obligation included in the Sellers Liabilities.
7.11 Taxes. All tax returns required under applicable Law relating to the
Facility owned by such Seller, to have been filed by or on behalf of it have
been filed. All taxes of such Seller and taxes with respect to the Facility
owned by it for all periods covered by such returns have been paid or adequately
provided for. No unpaid deficiencies for any such taxes have been officially
asserted or assessed against such Seller or, any Facility owned by it.
7.12 Contracts. Schedule 1.7 hereto constitutes a true and complete list of
all Contracts to which such Seller or the Facility owned by it is a party or by
which such Seller or the Facility owned by it is bound.
7.13 Contracts and Leases. With respect to those Contracts or leases listed
on Schedule 1.6 hereto, including, but not limited to, the Leases, Peak of Idaho
shall continue such Contracts and leases, as provided for in the Leases, and
such Seller shall defend, indemnity and hold harmless Purchaser from and against
any and all covenants, duties and obligations under such Contracts and leases,
including, without limitation, any and all costs and expenses arising out of or
in connection with any such covenants, duties and obligations before the
Effective Date.
7.14 Financial Statements of the Facilities. (a) The Financial Statements
of the Facilities, taken as a whole, fairly presents the financial position and,
if applicable, the results of operations of the Facility owned by such Seller as
of the dates thereof and the periods then ended and were prepared in accordance
with generally accepted accounting principles consistently applied and (b) the
Final Financial Statements when delivered will present fairly the financial
position and the results of operations of the Facility owned by such Seller as
of the Closing Date and the period then ended and will be prepared in accordance
with generally accepted accounting principles consistently applied.
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7.15 No Adverse Change. Except as set forth in Schedule 7.15 hereto, since
January 1, 1998 there has not been: (a) any material adverse change in the
financial condition or business of the Facility owned by such Seller, or any
material adverse change in the net operating income of the Facility owned by it,
(b) any material loss, damage, condemnation or destruction to the Facility owned
by such Seller, (c) any labor dispute or disturbance, litigation or any event or
condition that could materially adversely affect the operation of the Facility
owned by such Seller, (d) any borrowings by such Seller secured by the Facility
owned by it, or (e) any sale, transfer or other disposition of assets of the
Facility owned by such Seller other than in the ordinary course of business.
7.16 Employment Agreements and Benefits. (a) Schedule 7.16 hereto is a true
and complete list of all agreements or contracts relating to the compensation
and other benefits of present and former employees, salesmen, individual
consultants, individuals and other individual agents of such Seller relating to
the Facility owned by it, including all collective bargaining agreements and all
pension, retirement, bonus, stock option, profit sharing, health, disability,
life insurance, hospitalization, education or other similar plans or
arrangements (whether or not subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), true and complete copies of which, including
any trust, insurance or other funding agreements (or true and complete
descriptions of which, in the case of oral agreements) have been delivered to
Purchaser, (b) such Seller has not contributed to or maintained any
"multiemployer plan", as defined in Section 3(37) of ERISA, in respect of
present or former employees at the Facility owned by it, and (c) except as set
forth in Schedule 7.16 hereto, no such agreements require Purchaser to assume or
make payments with respect to any employment, compensation, fringe benefit,
pension, profit sharing or deferred compensation plan in respect of any employee
or former employee or the dependent or beneficiary of any employee or former
employee of such Seller although such Seller will have such liabilities in
accordance with the terms of such arrangements to the extent such liabilities
exist.
7.17 Insurance. (a) Schedule 7.17 hereto (i) contains an accurate and
complete list of all material policies of property, fire and casualty, product
liability, workers' compensation and other forms of insurance owned or held by
such Seller in connection with the Facility owned by it and (ii) includes for
each such policy its type, term, limits and retentions, deductibles, name of
insurer, and (b) all such policies are in full force and effect with all
premiums billed or otherwise due having been paid in full.
7.18 Compliance with the Law.
(a) Except as set forth on Schedule 7.3(b) and Schedule 7.22 hereto,
the use, maintenance and operation of the Facility owned by such Seller does not
violate or conflict in any material respect with any Law.
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(b) The Permits constitute all permits, consents, waivers, exemptions,
orders, certificates of need, licenses and governmental agency authorizations,
registrations and approvals necessary for the development, construction,
ownership, licensure, use, maintenance and operation of the Facility owned by
such Seller in compliance with all applicable Laws (as such Facility is being
operated on the Effective Date). Except as shown on Schedule 1.30 hereto, all
such Permits are in full force and effect, have been duly obtained, made, given
or taken and are being complied with in all material respects, subject to
approvals required in connection with the transactions contemplated by this
Agreement and the other Transaction Documents.
(c) To the best of its Knowledge, no governmental authority having
jurisdiction over the Facility owned by such Seller has issued any citations
with respect to any deficiencies or other matters that fail to conform to any
applicable statute, regulation, ordinance or bylaw and that have not been
corrected as of the date hereof or that shall not have been corrected on or
prior to the Effective Date, except to the extent that either (i) a waiver has
been issued by the appropriate authority, in which case a copy of such waiver is
included on Schedule 7.18(c) hereto, or (ii) the deficiency or non-conformity
will not have a material and adverse effect on the financial condition or
results of the operations of the Facility owned by such Seller.
(d) Such Seller has not received written or oral notice from any
licensing or certifying agency supervising or having authority over the Facility
owned by it, requiring such Facility to be reworked or redesigned or additional
furniture, fixtures, equipment or inventory to be provided at such Facility so
as to conform to or comply with any existing and applicable Law, code or
standard, except where the requirement either (i) has been fully satisfied prior
to the Closing Date, (ii) will, as of the Effective Date, be in the process of
being satisfied in the ordinary course of Peak of Idaho's business pursuant to
the terms of a Plan of Correction or other documentation submitted to and
approved by the appropriate authority or (iii) will, as of the Closing Date, be
the subject of a valid written waiver issued by the applicable licensing or
certifying agency.
(e) To the best of its Knowledge, the Facility owned by it and
participating in the Medicare or Medicaid Programs is in compliance with all
Conditions and Standards of Participation in those Programs, except as set forth
on Schedule 7.18(e) hereto.
7.19 Transactions with Affiliates. Except as set forth on Schedule 7.19
hereto, as of the Effective Date, the Facility owned by such Seller shall not be
bound by and will not owe any amount or have any contractual obligation or
commitment to any Affiliate (other than compensation for current services not
yet due and payable and reimbursement of expenses arising in the ordinary course
of business). "Affiliate" shall mean any employee of such Seller, any person,
firm or corporation that directly or indirectly controls, is controlled by or is
under common control with such Seller.
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7.20 Obligations. To the best of its Knowledge, except as set forth on
Schedule 7.20 hereto, none of the patients at the Facility owned by it have been
given any concession, rebate or consideration for the rental of any room, which
concession, rebate or other consideration shall not have been paid or delivered
prior to the Effective Date.
7.21 No Broker. Except as set forth on Schedule 7.21 hereto, such Seller
has not incurred any liability for broker's or finder's fees or commissions to
any broker, financial advisor or other intermediary in connection with the
transactions contemplated by this Agreement. Such Seller agrees to pay and to
hold Purchaser, Peak Medical and Peak of Idaho harmless from and against any
amounts due and payable to any such adviser not scheduled with respect to the
transactions contemplated herein.
7.22 Environmental Compliance. "Hazardous Materials", as used herein, shall
mean, collectively, (a) any petroleum or petroleum product, explosive,
radioactive material, radon gas, asbestos, urea formaldehyde foam insulation,
and PCBs and (b) materials which are now or hereafter become defined as
"hazardous substances", "hazardous wastes", "extremely hazardous substances",
"hazardous materials", "restricted hazardous wastes", "toxic chemicals",
"pollutants", "toxic pollutants", "hazardous air pollutants", "air
contaminants", "hazardous chemicals", or words of similar import under any
applicable Environmental Laws. "Reasonable Inquiry", as used herein, shall mean
review of (i) the Phase I environmental site assessment reports and Phase I
update reports listed on Schedule 7.22 hereto, (ii) the asbestos survey reports
listed on Schedule 7.22 hereto, and (iii) the Phase II environmental reports
listed on Schedule 7.22 hereto. Except as set forth on Schedule 7.22 hereto, in
connection with the Facility owned by such Seller, to the best of its Knowledge,
after Reasonable Inquiry, such Seller and Peak of Idaho have complied and are in
compliance with all applicable Environmental Laws, and such Seller has no
Knowledge, and has not received notice, (i) that the Facility owned by it or any
property contiguous to the Facility owned by it is in violation of any
Environmental Law and (ii) of any pending or threatened claims involving the
Facility owned by it. Except as set forth on Schedule 7.5 or Schedule 7.22
hereto, neither such Seller nor the Facility owned by it is the subject of any
administrative or judicial action or proceeding pursuant to any Environmental
Laws at the Effective Date in connection with the Facility owned by it. Except
as set forth on Schedule 7.22 hereto, to the best of such Seller's Knowledge,
after Reasonable Inquiry, no Hazardous Materials have at any time been
generated, used, treated or stored at; transported to or from; or disposed of,
released, emitted, discharged or deposited at or in connection with, the
Facility owned by it in any way contrary to that which is allowed or permitted
under any Environmental Laws.
7.23 No Attachments. There are no attachments, executions, assignments for
the benefit of creditors, receiverships, conservatorship or voluntary or
involuntary proceedings in bankruptcy or pursuant to any debtor relief laws
contemplated being filed by such Seller or pending against such Seller or the
Real Property or Improvements owned by it.
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7.24 No Options. There are no options, contracts or other obligations
outstanding for the sale, exchange or transfer of any of the Real Property,
Personal Property or Improvements owned by such Seller or any portion thereof or
business operated therein, except in favor of Peak of Idaho as contained in the
Leases.
7.25 Seller Licenses. Such Seller or Peak of Idaho has all Seller Licenses
applicable to the Facility owned by it. Schedule 7.25 hereto contains true and
correct copies of the licenses issued most recently by the applicable health
care authorities with respect to the operation of the Facility owned by such
Seller. Such Seller has not received written or verbal notice (a) that any
action or proceeding has been initiated or is proposed to be initiated by the
appropriate state or federal agency having jurisdiction thereof, to revoke,
withdraw or suspend any of the Seller Licenses applicable to the Facility owned
by it in either the Medicare or Medicaid Programs or (b) of any judicial or
administrative agency judgment or decision not to renew any of the Seller
Licenses applicable to the Facility owned by it or (c) of any licensure or
certification action of any other type applicable to the Facility owned by it.
7.26 Disclosure. Such Seller has provided to Purchaser access to all
relevant documents, materials and information in its possession or control
relative to the Facility owned by it and has not withheld any documents or
information that are material to the condition, assets, liabilities, businesses,
operations and prospects of the Facility owned by it. Such Seller has disclosed
or provided information to Purchaser with respect to all facts that are material
to the condition, assets, liabilities, businesses, operations and prospects of
the Facility owned by it. No representation or warranty of such Seller contained
in this Agreement (which shall include any Exhibit or Schedule hereto) and no
certificate or document furnished to Purchaser pursuant to the provisions
hereof, contains any untrue statement of a material fact which is untrue in any
material respect or omits to state a material fact necessary in order to make
the statements contained therein not misleading.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF IHS,
PEAK MEDICAL AND PEAK OF IDAHO
Each of IHS, Peak Medical and Peak of Idaho represents and warrants to
Purchaser, as to itself that:
8.1 Corporate Organization; Good Standing. It is a corporation that is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. It is duly qualified as a foreign corporation to do business in the
jurisdiction in which each of the Facilities is located, where such
qualification is necessary to perform its obligations under this Agreement or
any other Transaction Document.
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8.2 Validity of Contracts. This Agreement is, and all of the Transaction
Documents to be executed by it pursuant hereto will be, the valid obligations of
it, enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The execution
of this Agreement and the applicable Transaction Documents have been approved by
all required corporate action on its part and does not and will not result in a
breach of the terms and conditions of, nor constitute a default under or
violation of, its Certificate of Incorporation or By-Laws 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 any of its
assets may be bound or affected.
8.3 Authority. It has full power and authority to execute and deliver this
Agreement and the applicable Transaction Documents to which it is a party.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each of the other parties
hereto that:
9.1 Organization. Purchaser is a limited partnership, duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full power and authority to enter into and perform its obligations under
this Agreement, the other Transaction Documents and any other documents and
instruments required hereby to be delivered to which it is or is to become a
party.
9.2 Authorization; Enforceability. The execution, delivery and performance
by Purchaser of this Agreement, the other Transaction Documents and all of the
documents and instruments contemplated hereby are within the power of Purchaser
and have been duly authorized by all necessary action of Purchaser. This
Agreement is, the other Transaction Documents are, and the other documents and
instruments required hereby to be delivered by Purchaser will be, when executed
and delivered, the valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms.
9.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the other Transaction Documents and all of the documents and
instruments contemplated hereby to be executed and delivered by Purchaser does
not and will not conflict with or violate the Limited Partnership Agreement of
Purchaser or any material Law, judgment, order or decree binding on Purchaser.
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9.4 No Broker. Except as set forth on Schedule 9.4 hereto, Purchaser has
incurred no liability for broker's or finder's fees or commissions to any broker
or other intermediary in connection with the transactions contemplated by this
Agreement. Purchaser agrees to pay and to hold Sellers, IHS, Peak Medical and
Peak of Idaho harmless from and against any amounts due and payable to any such
adviser not scheduled with respect to the transactions contemplated herein.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser to be performed on the Effective
Date shall be subject to the satisfaction as of both the Closing Date and the
Effective Date of the following express conditions precedent (it being the
understanding of the parties that any of such conditions may be waived by
Purchaser):
10.1 Compliance with this Agreement. Sellers shall have performed and
complied in all material respects with all of their obligations under this
Agreement that are to be performed or complied with by them prior to or on the
Closing Date, including, but not limited to, the payment of all costs, fees and
expenses that Sellers are required to pay pursuant to this Agreement.
10.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Sellers in connection with the transactions
contemplated by this Agreement, the other Transaction Documents and any other
documents incident thereto, shall be reasonably satisfactory in form and
substance to Purchaser and Purchaser's counsel, and Sellers shall have made
available to Purchaser and Purchaser's counsel (or Purchaser shall have obtained
itself prior to the Closing Date or waived the necessity for receipt thereof
prior to the Closing Date) for examination the originals or true and correct
copies of all documents that Purchaser and Purchaser's counsel may reasonably
request in connection with the transactions contemplated by this Agreement and
the other Transaction Documents, including, but not limited to:
(a) an MAI Appraisal for each of the Facilities;
(b) a Title Commitment for each of the Facilities;
(c) acceptable engineering, architectural and Phase I environmental site
assessments for each of the Facilities;
(d) a Survey for each of the Facilities;
(e) a UCC Search Report for each of the Facilities;
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(f) the Sellers Licenses for each of the Facilities;
(g) valid permanent Certificates of Occupancy, if reasonably available and
required under the Law, for each of the Facilities as well as any
other licenses or Permits reasonably available and required to be
obtained from applicable governmental authorities with respect to the
use and occupancy of each of the Facilities;
(h) for each Seller and Peak of Idaho, Articles of Incorporation,
Certificates of Good Standing and Certificates of Authority to
Transact Business in the State of Idaho;
(i) for IHS and Peak Medical, Articles of Incorporation and Certificates
of Good Standing;
(j) certified resolutions of the Board of Directors of each Seller, IHS,
Peak Medical and Peak of Idaho, in each case authorizing and approving
the execution, delivery and performance of Sellers', IHS's, Peak
Medical's and Peak of Idaho's obligations under this Agreement and the
other Transaction Documents;
(k) the opinion of Sellers' local healthcare counsel in the State of
Idaho, as special healthcare counsel to Sellers, in a form reasonably
acceptable to Purchaser;
(l) the opinion of counsel to Peak Medical and Peak of Idaho, in a form
reasonably acceptable to Purchaser;
(m) the Leases;
(n) the Guaranties;
(o) the Pledge Agreement;
(p) the Security Agreements; and
(q) the shares of stock in Peak of Idaho.
10.3 No Litigation. Except as provided on Schedule 10.3 hereto, no
investigation, suit, action or other proceeding shall be instituted, threatened
or pending before any court or governmental agency or body that seeks restraint,
prohibition, damages or other relief in connection with this Agreement, the
other Transaction Documents or the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents.
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10.4 Representations and Warranties. The representations and warranties
made by Sellers, IHS, Peak Medical and Peak of Idaho in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
at and as of the Closing Date and the Effective Date.
10.5 Deliveries at the Closing. Sellers, IHS, Peak Medical and Peak of
Idaho shall have delivered to Purchaser the following documents, each properly
executed and dated as of the Closing Date:
(a) this Facilities Purchase Agreement;
(b) the Deeds;
(c) the Bills of Sale;
(d) the Assignment of Leases, Guaranties, Pledge Agreement and Security
Agreements;
(e) memoranda of lease in recordable form with respect to the Leases;
(f) the Escrow Agreement;
(g) the Closing Escrow Agreement; and
(h) any such other documents or instruments as Purchaser and Purchaser's
counsel shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Transaction Documents.
10.6 Regulatory Approvals. All required licenses, authorizations,
registrations, Permits and approvals from federal and state regulatory agencies
with jurisdiction over each of the Facilities to permit the transactions
contemplated by this Agreement and the other Transaction Documents shall have
been obtained or completed to the reasonable satisfaction of Purchaser and any
and all conditions to the effectiveness thereof shall have been satisfied.
10.7 Default. Each Seller and IHS shall not be in default, where said
default cannot be cured by the Closing Date, under any mortgage, contract, lease
or other agreement to which such Seller and IHS is a party or by which such
Seller and IHS is bound and that materially affects of relates to the Real
Property, the Personal Property or any of the Facilities. No Event of Default
shall exist under the Leases, the Guaranties or any other agreements involving
Peak Medical, Peak of Idaho, the Sellers, IHS and the Facilities.
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10.8 Approvals. The Board of Directors of Monarch shall have approved the
transactions contemplated by this Agreement and the Transaction Documents.
10.9 Offering. Monarch shall have completed the Offering.
ARTICLE XI
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS
Each and every obligation of Sellers to be performed on the Effective Date
shall be subject to the satisfaction as of both the Closing Date and the
Effective Date of the following express conditions precedent (it being the
understanding of the parties that any of such conditions may be waived by
Sellers):
11.1 Compliance with this Agreement. Purchaser shall have performed and
complied in all material respects with all of its obligations under this
Agreement and the other Transaction Documents that are to be performed or
complied with by it prior to or on the Closing Date, including, but not limited
to, the payment of the Purchase Price by Purchaser.
11.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Purchaser in connection with the transactions
contemplated by this Agreement, the other Transaction Documents and any other
documents incident thereto, shall be reasonably satisfactory in form and
substance to Sellers and Sellers' counsel, and Purchaser shall have made
available to Sellers and Sellers' counsel (or Sellers shall have obtained
themselves prior to the Closing Date or waived the necessity for receipt thereof
prior to the Closing Date) for examination the originals or true and correct
copies of all documents that Sellers and Sellers' counsel may reasonably request
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
11.3 No Litigation. Except as provided on Schedule 11.3 hereto, no
investigation, suit, action or other proceeding shall be threatened or pending
before any court or governmental agency that seeks restraint, prohibition,
damages or other relief in connection with this Agreement, the other Transaction
Documents or the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents.
11.4 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement and the other Transaction Documents shall be
true and correct in all material respects at and as of the Closing Date and the
Effective Date.
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11.5 Deliveries at the Closing. Purchaser shall have delivered to Sellers,
IHS, Peak Medical and Peak of Idaho the following documents, each properly
executed and dated as of the Closing Date:
(a) the agreements identified in subparagraphs (a) through (h) of Section
10.5 hereof;
(b) Certificate of Formation, Certificate of Good Standing and Certificate
of Authority to Transact Business of Purchaser;
(c) certified resolutions of Monarch and Purchaser, authorizing and
approving the execution, delivery and performance of Purchaser's
obligations under this Agreement and the other Transaction Documents;
and
(d) any such other documents or instruments as Sellers and Sellers'
counsel shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Transaction Documents.
11.6 Restraints. No action or proceeding before a court or any other
governmental agency or body of or in the United States shall have been
instituted or threatened to restrain or prohibit the consummation of the
transactions contemplated by this Agreement or the other Transaction Documents.
11.7 Regulatory Approvals. All required authorizations, registrations,
Permits and approvals from federal and state regulatory agencies with
jurisdiction over each of the Facilities to permit the transactions contemplated
by this Agreement and the other Transaction Documents shall have been obtained
or completed to the reasonable satisfaction of Sellers.
11.8 Approvals. The Board of Directors of each of the Sellers and IHS and
the requisite lenders under IHS's Revolving Credit and Term Loan Agreement shall
have approved the transactions contemplated by this Agreement and the
Transaction Documents.
ARTICLE XII
ADDITIONAL COVENANTS AND INDEMNIFICATIONS
12.1 Transfer Taxes and Fees. Sellers shall pay all fees, transfer taxes or
assessments, if any, charged to grantors, lessors, sub-lessors, transferors or
assignors under applicable Law in connection with the transactions contemplated
by this Agreement and the other Transaction Documents.
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12.2 Cooperation. The parties hereto shall cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents.
12.3 Additional Instruments. At any time and from time to time after the
Closing, at Purchaser's reasonable request and without further consideration,
Sellers, Peak Medical and Peak of Idaho shall execute and deliver such other
instruments of sale, transfer, conveyance, assignment and confirmation and take
such other action as Purchaser may reasonably deem necessary to consummate the
transactions contemplated by this Agreement and the other Transaction Documents.
At any time and from time to time after the Closing, at the reasonable request
of Sellers, Peak Medical and Peak of Idaho and without further consider ation,
Purchaser shall execute and deliver such other instruments and take such other
action as Sellers, Peak Medical and Peak of Idaho may reasonably deem necessary
to consummate the transactions contemplated by this Agreement and the other
Transaction Documents.
12.4 Publicity. All general notices, releases, statements and
communications to employees and patients of Purchaser, Sellers, Peak of Idaho
and each of the Facilities relating to the transactions contemplated by this
Agreement shall be made only at such times and in such manner as may be mutually
agreed upon by Purchaser, Sellers and Peak of Idaho. All general notices,
releases, statements and communications to the general public and the press
relating to the transactions contemplated by this Agreement shall be made only
with such content and at such times and in such manner as may be mutually agreed
upon by Purchaser, Sellers and Peak of Idaho; provided, however, that each party
shall be entitled to make a public announcement of the transaction if, in the
opinion of its counsel, such announcement is required to comply with the Law.
12.5 Confidentiality. Purchaser shall not disclose to any person or company
or use for its own benefit any material information related to the ownership or
operation of the Facilities by Sellers and Peak of Idaho, including customer or
patient-related information, without Sellers' and Peak of Idaho's express prior
written permission except for disclosure by Purchaser to its counsel, its
lenders and their counsel and appropriate regulatory agencies, except any such
information that is now or hereafter becomes available to the public without
breach of any confidentiality agreement.
12.6 Indemnifications.
(a) Sellers and IHS, jointly and severally, shall indemnify and hold
harmless Purchaser and its partners, officers, directors, shareholders,
employees, agents, and assigns (collectively, the "Purchaser Indemnified
Parties"), from any and all liabilities, obligations, losses, demands,
judgments, actions, suits, causes of action, claims, proceedings,
24
<PAGE>
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation reasonable attorneys'
and consultants' fees and expenses), whether or not subject to litigation
(hereinafter collectively referred to as the "Claims") of any kind or character
imposed upon, arising out of, in connection with, incurred or in any way
attributed or relating to the breach or failure of any representation or
warranty made by Sellers that is contained in Sections 7.1, 7.2 and 7.3 hereof
and made by IHS that is contained in Sections 8.1, 8.2 and 8.3 hereof.
Sellers and IHS further covenant and agree to defend the Purchaser
Indemnified Parties on account of said Claims and to pay any judgment against
the Purchaser Indemnified Parties, or any other amount as indicated in this
Section 12.6(a), along with all reasonable costs and expenses relative to any
such Claims, including reasonable and documented attorneys' fees and expenses;
provided, however, that the Purchaser Indemnified Parties shall, nevertheless,
have the right, if they so elect, to participate (with counsel of their
choosing, which counsel must be approved by Sellers and IHS, which approval may
not be unreasonably withheld) in the defense of any such Claim in which they may
be a party without relieving Sellers and IHS, of the obligation to defend the
same. To the extent applicable, the Purchaser Indemnified Parties covenant not
to settle or compromise any Claim under this section without the written consent
of Sellers and IHS, which consent may not be unreasonably withheld or delayed
under the circumstances. Failure to comply with the preceding covenant shall be
deemed a complete waiver of any rights that the Purchaser Indemnified Parties
have or may have under this Section 12.6(a).
(b) Peak Medical and Peak of Idaho, jointly and severally, shall
indemnify and hold harmless Purchaser and its partners, officers, directors,
shareholders, employees, agents, and assigns (collectively, the "Purchaser
Indemnified Parties"), from any and all liabilities, obligations, losses,
demands, judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation reasonable attorneys'
and consultants' fees and expenses), whether or not subject to litigation
(hereinafter collectively referred to as the "Claims") of any kind or character
imposed upon, arising out of, in connection with, incurred or in any way
attributed or relating to the following:
(i) the ownership, use, operation, possession, or management of
each of the Facilities prior to the Effective Date;
(ii) the breach or failure of any representation or warranty made
by Sellers, IHS, Peak Medical or Peak of Idaho or the breach of any
covenant made by Peak Medical or Peak of Idaho that is contained in
this Agreement or contained in any other certificates, agreements or
Transaction Documents to which Sellers, IHS, Peak Medical or Peak of
Idaho are each a party;
25
<PAGE>
(iii) any and all Claims relating to any current or former
employee, consultant or independent contractor of the Sellers, Peak of
Idaho or any of the Facilities, including, but not limited to, (A) the
termination or discharge of any current or former employee,
consultant, or independent contractor of Sellers, Peak of Idaho or any
of the Facilities, (B) Claims under federal, state, or local laws,
rules or regulations, related to wages, hours, fair employment
practices, unfair labor practices, or other terms and conditions of
employment and claims arising under the Worker Adjustment and
Retraining Notification Act or any analogous state statute, (C)
matters arising from any severance policy, claim, agreement or
contract or (D) any and all Claims with respect to the matters
provided for in Section 7.16 hereof;
(iv) any and all Claims that relate to information provided by or
on behalf of any of the Sellers, Peak Medical or Peak of Idaho
concerning the Facilities, Sellers' Assets, Sellers, Peak Medical or
Peak of Idaho and their respective affiliates, to third parties which
was used or relied upon to effect the transactions contemplated in
this Agreement and by the other Transaction Documents;
(v) other than for the liens, claims or encumbrances necessary to
effect the transactions contemplated in this Agreement and the other
Transaction Documents, any mortgage, pledge, lien, or encumbrance made
on any of the Sellers' Assets, the Facilities or assets relating to
any of the Facilities or the Sellers' Assets, including, but not
limited to, the Leases, and any claims asserted therefrom, other than
and except for the Permitted Liens;
(vi) any and all Claims with respect to any qualified or
non-qualified retirement or benefit plans or arrangements involving
any current or former employee, consultant or independent contractor
of the Sellers, Peak of Idaho or any of the Facilities;
(vii) any and all Claims with respect to admission agreements,
patient contracts, or agreements with patients or others at any of the
Facilities;
(viii) any deficiencies or inaccuracies relating to patient funds
and accounts associated therewith at any of the Facilities;
(ix) any Claims arising out of Sellers' or Peak of Idaho's
failure to have kept or maintained (or to have caused to be kept or
maintained) patient records and other related records at any of the
Facilities in accordance with applicable Law;
26
<PAGE>
(x) any sums due by any Seller for Medicare and Medicaid
adjustments arising from the operation of any of the Facilities
conveyed pursuant to this Agreement;
(xi) any action or proceeding by an appropriate state or federal
agency having jurisdiction thereof, to revoke, withdraw or suspend any
of the Sellers Licenses or Permits of a Seller or Peak of Idaho
applicable to the Facility owned by such Seller or to terminate the
participation of the Facility owned by any Seller in either the
Medicare or Medicaid Programs, as a result of or caused by the
transactions contemplated by this Agreement and the other Transaction
Documents, including, but not limited to, the execution and delivery
of the Assignment of Leases, Guaranties, Pledge Agreement and Security
Agreements; or
(xii) the violation of any Environmental Law or the existence,
presence or Release of any Hazardous Material (collectively,
"Environmental Liability") whether or not the Environmental Liability
is based on an event or condition at or relating to any Facility that
commenced or existed prior to or after the Effective Date.
Sellers, IHS, Peak Medical and Peak of Idaho further covenant and
agree to defend the Purchaser Indemnified Parties on account of said Claims and
to pay any judgment against the Purchaser Indemnified Parties, or any other
amount as indicated in this Section 12.6(b), along with all reasonable costs and
expenses relative to any such Claims, including reasonable and documented
attorneys' fees and expenses; provided, however, that the Purchaser Indemnified
Parties shall, nevertheless, have the right, if they so elect, to participate
(with counsel of their choosing, which counsel must be approved by Sellers, IHS,
Peak Medical and Peak of Idaho, which approval may not be unreasonably withheld)
in the defense of any such Claim in which they may be a party without relieving
Sellers, IHS, Peak Medical and Peak of Idaho, of the obligation to defend the
same. To the extent applicable, the Purchaser Indemnified Parties covenant not
to settle or compromise any Claim under this section without the written consent
of Sellers, IHS, Peak Medical and Peak of Idaho, which consent may not be
unreasonably withheld or delayed under the circumstances. Failure to comply with
the preceding covenant shall be deemed a complete waiver of any rights that the
Purchaser Indemnified Parties have or may have under this Section 12.6(b).
(c) Purchaser shall indemnify and hold harmless Sellers, IHS, Peak
Medical and Peak of Idaho, and their officers, directors, shareholders,
employees, agents, and assigns (the "Seller Indemnified Parties") from any and
all liabilities, obligations, losses, demands, judgments, actions, suits, causes
of action, claims, proceedings, investigations, citations, matters, damages,
penalties, sanctions, costs, expenses, and disbursements (including, without
limitation reasonable attorneys' and consultants' fees and expenses), whether or
not subject to
27
<PAGE>
litigation, (hereinafter collectively referred to as the "Claims") of any kind
or character imposed upon, arising out of, in connection with, incurred or in
any way attributed or relating to the breach or failure of any representation or
warranty made by Purchaser that is contained in Article IX of this Agreement.
Purchaser further covenants and agrees to defend the Seller
Indemnified Parties on account of said Claims and to pay any judgment against
the Seller Indemnified Parties, or any other amount as indicated in this Section
12.6(c), along with all reasonable costs and expenses relative to any such
Claims, including attorneys' fees and expenses; provided, however, that the
Seller Indemnified Parties shall, nevertheless, have the right, if they so
elect, to participate (with counsel of their choosing, which counsel must be
approved by Purchaser, which approval may not be unreasonably withheld) in the
defense of any such Claim in which they may be a party without relieving
Purchaser of the obligation to defend the same. To the extent applicable, the
Seller Indemnified Parties covenant not to settle or compromise any Claim under
this section without the written consent of Purchaser, which consent may not be
unreasonably withheld or delayed under the circumstances. Failure to comply with
the preceding covenant shall be deemed a complete waiver of any rights that the
Seller Indemnified Parties have or may have under this Section 12.6(c).
12.7 Survival of Indemnifications. The indemnities set forth in Section
12.6 hereof shall remain operative and in full force and shall survive the
execution and performance hereof and the execution and delivery of this
Agreement and the other Transaction Documents.
12.8 Liability for Representations and Warranties.
(a) Except as set forth in Section 12.6(a) hereof, it is expressly
agreed that Sellers shall have no liability to Purchaser or any other party in
respect of any of the representations and warranties of Sellers in this
Agreement. Until the release of the Closing documents to the parties from escrow
pursuant to the Closing Escrow Agreement on the Effective Date, Purchaser's,
Sellers' and IHS's sole remedy for any breach of Sellers', IHS's or Purchaser's
representations and warranties hereunder shall be to terminate this Agreement,
whereupon the parties hereto shall have no further obligations to each other in
respect of this Agreement.
(b) Upon release of the Closing documents from escrow pursuant to the
Closing Escrow Agreement on the Effective Date, all of the representations and
warranties of Sellers set forth in Article VII hereof and of IHS set forth in
Article VIII hereof shall be deemed to be made by Peak Medical and Peak of
Idaho, jointly and severally, as of the Effective Date, and such representations
and warranties will thereafter be deemed to be the representations and
warranties of Peak Medical and Peak of Idaho for the purposes of Section
12.6(b)(ii) of this Agreement.
28
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12.9 Peak Medical and Peak of Idaho Liability Limitations. Peak Medical's
and Peak of Idaho's liability to the Purchaser Indemnified Parties under Section
12.6(b) hereof shall be an aggregate amount of not more that One Million Dollars
($1,000,000). In the event that, at any time following the Effective Date of
this Agreement, Peak Medical and/or Peak of Idaho shall have paid an aggregate
of One Million Dollars ($1,000,000) in respect of the liabilities to the
Purchaser Indemnified Parties under Section 12.6(b) hereof, then any remaining
liabilities of Peak Medical and/or Peak of Idaho under Section 12.6(b) hereof
shall be deemed to have been retained by the Purchaser Indemnified Parties and
the Purchaser Indemnified Parties, jointly and severally, shall thereafter pay,
discharge and perform all such remaining liabilities if and when due.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement; Amendment. This Agreement and the Transaction
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
13.2 Governing Law. THIS AGREEMENT AND THE TRANSACTION DOCUMENTS SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH LAWS OF THE STATE OF NEW YORK.
SELLERS, IHS, PEAK MEDICAL AND PEAK OF IDAHO CONSENT TO IN PERSONAM JURISDICTION
BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF IDAHO, AND AGREE THAT ALL
DISPUTES CONCERNING THIS AGREEMENT SHALL BE HEARD, IN THE STATE AND FEDERAL
COURTS LOCATED IN THE STATE OF IDAHO. SELLERS, IHS, PEAK MEDICAL AND PEAK OF
IDAHO AGREE THAT SERVICE OF PROCESS MAY BE EFFECTED UPON SELLERS, IHS, PEAK
MEDICAL AND PEAK OF IDAHO UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE
STATE OF IDAHO AND IRREVOCABLY WAIVE ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF THE STATE OF IDAHO.
13.3 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time without the prior written consent of
the other parties hereto.
29
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13.4 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given at the earlier of the date when actually delivered to an officer of the
other party or when deposited in the United States mail, certified or registered
mail, postage prepaid, return receipt requested, by personal delivery or by
overnight courier service with signed receipt, and addressed as follows, unless
and until either of such parties notifies the other in accordance with this
Section of a change of address:
To IHS and any Seller: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Telephone No.: 410-998-8768
Fax No.: 410-998-8716
Copy to: Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
Telephone No.: 212-447-1100
Fax No.: 212-447-5428
To Peak Medical and
Peak of Idaho: Peak Medical Corporation
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87189
Attention: Charles H. Gonzales
Copy to: Scot Sauder, Esq.
Telephone No.: 505-342-4160
Fax No.: 505-342-4198
To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attention: John B. Poole
Telephone No.: 941-566-8820
Fax No.: 941-566-6082
Copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: John R. Fallon, Jr., Esq.
30
<PAGE>
Telephone No.: 212-424-8279
Fax No.: 212-424-8500
13.5 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof or be used as
interpreting the meaning of this Agreement.
13.6 Interpretation. To the extent any conflict exists between the terms
and conditions of this Agreement and the terms and conditions of any other
Transaction Documents, the terms and conditions of such other Transaction
Documents shall govern and control.
13.7 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
13.8 No Reliance. No third party, other than a successor by operation of
law or an assignee permitted by this Agreement, is entitled to rely on any of
the representations, warranties and agreements contained in this Agreement and
no party to this Agreement assumes any liability to any third party, other than
an assignee permitted by this Agreement, because of any reliance on the
representations, warranties and agreements contained in this Agreement.
13.9 Binding. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
13.10 Survival. Except as otherwise provided for in Section 12.8 hereof,
all covenants and agreements of the parties to be performed in this Agreement
and all representations, warranties, covenants and indemnities of the parties in
this Agreement shall survive the Closing Date and the Effective Date.
13.11 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Facilities as set forth on Schedule 13.12 hereto. The parties agree
that the Personal Property has nominal value and therefore no amount of the
Purchase Price is being allocated to it. Each party agrees to timely file tax
Form 3594 in accordance with the allocations to which the parties have so
agreed.
13.12 Dispute Attorneys' Fees and Expenses. In the event of a dispute
between the parties to this Agreement with respect to the interpretation of
enforcement of the terms hereof,
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the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable and documented attorneys' fees and
expenses, including its attorneys' fees and expenses on appeal.
SIGNATURE PAGES FOLLOW
32
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IN WITNESS WHEREOF, the parties have caused this Facilities Purchase
Agreement to be duly executed and delivered as a sealed instrument as of the day
and year first above written.
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
its General Partner
By: /s/ John B. Poole
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Daniel J. Booth
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
IHS ACQUISITION NO. 104, INC.
IHS ACQUISITION NO. 105, INC.
By: /s/ Daniel J. Booth
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
PEAK MEDICAL CORPORATION
By: /s/ Charles H. Gonzales
-----------------------------------------
Name: Charles H. Gonzales
---------------------------------------
Title: President
--------------------------------------
33
<PAGE>
PEAK MEDICAL OF IDAHO, INC.
-----------------------------------------
By: /s/ Charles H. Gonzales
Name: Charles H. Gonzales
---------------------------------------
Title: President
--------------------------------------
34
<PAGE>
EXHIBIT A
SELLERS
Facility Seller
-------- ------
1. Idaho Falls Care Center IHS Acquisition No. 104, Inc.
2. Twin Falls Care Center IHS Acquisition No. 105, Inc.
A-1
<PAGE>
EXHIBIT B
FACILITIES
1. Idaho Falls Care Center
3111 Channing Way
Idaho Falls, Idaho 83301
Licensed Beds: 108
Lessee: Peak Medical of Idaho, Inc.
2. Twin Falls Care Center
674 Eastland Drive
Twin Falls, Idaho 83301
Licensed Beds: 116
Lessee: Peak Medical of Idaho, Inc.
B-1
SECURITY AGREEMENT
BETWEEN
PEAK MEDICAL OF IDAHO, INC.
AND
IHS ACQUISITION NO. 105, INC.
DATED AS OF MAY 29, 1998
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of May 29, 1998, between PEAK MEDICAL OF IDAHO, INC., a Delaware
corporation ("Debtor") and IHS ACQUISITION NO. 105, INC., a Delaware corporation
("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the
meanings given them in the Lease between Secured Party and Debtor, dated as of
the date hereof ("Lease").
B. Pursuant to the Lease, Secured Party has leased to Debtor, for a Term
commencing June 1, 1998, the Leased Property.
C. As a condition to Secured Party's agreement to enter into the Lease,
Secured Party has required Debtor to enter into this Security Agreement and to
grant security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to enter into the Lease,
and for other good and valuable consideration the receipt and sufficiency of
which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the
Lease. Terms defined in the Commercial Code (as hereinafter defined) and not
otherwise defined in this Security Agreement or in the Lease shall have the
meanings ascribed to those terms in the Commercial Code. In addition to the
other definitions contained herein, when used in this Agreement the following
terms shall have the following meanings:
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in
force from time to time in the state in which the Facility is located.
"Debtor's Personal Property" means any tangible personal property owned by
a Debtor and not used in connection with the operation of the Facility.
1
<PAGE>
ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Secured Party a
continuing security interest in the Collateral to secure the payment of all
amounts now or hereafter due and owing to Secured Party from Debtor under the
Lease, or any extension or renewal thereof, and any and all other obligations
incurred in connection therewith, together with all other obligations or
indebtedness of Debtor to Secured Party however created, evidenced or arising,
whether direct or indirect, absolute or contingent, now or hereafter existing,
due or to become due, plus all interest, costs, out-of-pocket expenses and
reasonable attorneys' fees which may be made or incurred by Secured Party in the
administration, and collection thereof (the "Liabilities"), and in the
protection, maintenance, and liquidation of the Collateral. This Security
Agreement shall be and become effective when, and continue in effect as long as,
any Liabilities of Debtor to Secured Party are outstanding and unpaid, and
except as otherwise permitted pursuant to the terms of this Agreement or the
Lease, Debtor will not sell, assign, transfer, pledge or otherwise dispose of or
encumber any Collateral to any third party while this Security Agreement is in
effect without the prior and express written consent of Secured Party.
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the
personal property described below that Debtor now owns or shall hereafter
acquire or create, immediately upon the acquisition or creation thereof, and
that is located at or used exclusively in connection with the Facility,
consisting of the following:
(a) Inventory. All inventory and goods, now owned or hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the ordinary course of business at the Facility (the
"Inventory"); and
(b) Equipment. All equipment, furniture, fixtures and other personal
property used in connection with the operation of the Facility, whether now
owned or hereafter acquired by Debtor, together with all accessions, additions,
parts, attachments, accessories, or appurtenances thereto including but not
limited to linens, motor vehicles, furniture, fixtures and movable equipment,
leasehold improvements, and all books and records now owned or hereafter
acquired pertaining to any of the above described property, including but not
limited to any computer readable memory and any computer hardware or software
necessary to process such memory, wherever located, other than Debtor's Personal
Property (the "Equipment"); and
(c) Licenses and Permits. To the extent permitted by law, all licenses
and permits now owned or hereafter acquired by Debtor and necessary or desirable
for the contemplated use and operation of the Facility as a health care facility
(the "Licenses"); and
(d) Certificates of Need. To the extent permitted by law, all
Certificates of Need now or hereafter issued in connection with the Facility
(the "Certificates"); and
2
<PAGE>
(e) Proceeds. Proceeds arising out of the operation of the Facility,
including, without limitation, proceeds of hazard or other insurance policies
and eminent domain or condemnation awards, of all of the foregoing described
Inventory or Equipment, together with any and all deposits or other sums at any
time credited by or due from Secured Party to Debtor and any and all
instruments, documents, policies and certificates of insurance, securities,
goods and the proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest,
which are now or at any time hereafter in possession or under the control of
Secured Party or in transit by mail or carrier to or from Secured Party or in
the possession of any third party acting on behalf of Secured Party, without
regard to whether Secured Party received the same in pledge, for safekeeping, as
agent for collection or transmission or otherwise, or whether Secured Party has
conditionally released the same (the "Proceeds"); and
(f) Insurance Rights. All rights under contracts of insurance now
owned or hereafter acquired covering any of the Collateral ("Insurance Rights");
and
(g) Accounts Receivable. All accounts, accounts receivable and rights
to receive payment of Debtor, whether now existing or hereafter arising or
acquired, arising in connection with goods sold or leased or for services
rendered, including, without limitation, all of the third party reimbursable
portion of accounts receivable owing to Debtor arising out of the delivery by
Debtor of care or services at the Facility, including all rights to
reimbursement under any agreements with a third party payor and all accounts,
general intangibles, rights, remedies, guarantees, and security interests in
respect of the foregoing ("Accounts Receivable"); and
(h) Other Property. All other tangible and intangible property of
Debtor now or hereinafter acquired by Debtor and located at the Facility or used
exclusively in connection with the operation of the Facility; and
(i) Rights. All rights, remedies, powers and/or privileges of Debtor
with respect to any of the foregoing. The form of a description of the
Collateral to be attached to financing statements to be executed by each Debtor
is attached hereto as EXHIBIT A. Except to the extent set forth above, the term
"Collateral" does not include Debtor's Personal Property.
3. PERFECTION OF SECURITY INTEREST. Debtor shall execute and deliver to
Secured Party, concurrently with Debtor's execution of this Security Agreement
and at any time or times hereafter at the request of Secured Party, all
financing statements, continuation financing statements, assignments,
affidavits, reports, notices, letters of authority, vehicle title notations and
all other documents that Secured Party may reasonably request, in a form
reasonably satisfactory to Secured Party, to perfect and maintain perfected
Secured Party's security interests in the Collateral. In order to fully
consummate all of the transactions contemplated hereunder, Debtor shall make
appropriate entries on its books and records disclosing the security interests
created hereby in the Collateral.
3
<PAGE>
4. WARRANTIES AND COVENANTS. In addition to the warranties and
representations, if any, made in the Lease, Debtor warrants, represents and
agrees that:
(a) Debtor is and will be the lawful owner or lessee of all of the
Collateral, with the right to subject the owned or leased property to the
security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted
to Secured Party, there are no other security interests in the Collateral that
are known to Debtor, and there are no financing statements covering any of the
Collateral filed in any public office created by or known to Debtor prior to the
date hereof, except as previously disclosed by Debtor to Secured Party. Debtor
shall defend Secured Party against any claims and demands of any and all other
persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at the
Facility;
(d) Except as permitted under the Lease or hereunder, Debtor shall not
remove the Collateral from the Facility without Secured Party's prior written
consent and shall not use or permit the Collateral to be used for any unlawful
purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor
shall not remove any Collateral from the state in which the Facility is located
without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct
business under any name at the Facility other than that set forth on EXHIBIT A
to the Lease, nor will any Debtor change or reorganize the type of business
entity under which it presently does business, except upon prior and express
written approval of Secured Party, and, if such approval is granted, Debtor
agrees that all documents, instruments and agreements reasonably requested by
Secured Party and relating to such change shall be prepared, filed and recorded
at Debtor's expense before the change occurs;
(f) Debtor shall not remove any records concerning the Collateral
located at the Facility nor keep any of its records concerning the same at any
other location unless written notice thereof is given to Secured Party at least
ten (10) days prior to the removal of such records to any new addresses; and
(g) Debtor has the right and power and is duly authorized to enter
into this Security Agreement. The execution of this Security Agreement does not
and will not constitute a breach of any provision contained in any agreement or
instrument to which Debtor is or may become a party or by which Debtor is or may
be bound or affected.
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7. DEFAULT/REMEDIES
(a) The occurrence and continuation of any Event of Default under the
Lease shall constitute a Security Agreement Event of Default.
(b) Whenever a Security Agreement Event of Default shall have occurred
and so long as its continues, Secured Party may exercise from time to time any
rights and remedies, including the right to immediate possession of the
Collateral, available to it under the Lease, this Security Agreement or
applicable law. Secured Party shall have the right to hold any property then in
or upon the Facility (but excluding any property belonging to patients at the
Facility) at the time of repossession not covered by this Security Agreement
until return is demanded in writing by Debtor. Debtor agrees, in case of the
occurrence of a Security Agreement Event of Default that is continuing and upon
the request of Secured Party, to assemble, at its expense, all of the Collateral
under its control at a convenient place acceptable to Secured Party and to pay
all costs of Secured Party of collection of all the Liabilities, and enforcement
of rights hereunder, including reasonable attorneys' fees and legal expenses,
including participation in bankruptcy proceedings, and the expenses of locating
the Collateral and the expenses of any repairs to any realty or other property
to which any of the Collateral may be affixed or be a part. If the Collateral is
disposed of at a public sale, the parties agree that a public sale with at least
ten (10) business days prior notice to Debtor and notice to the public by one
publication in a local newspaper is commercially reasonable. If any notification
of intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if sent
at least ten (10) business days before such disposition, by first class mail,
postage prepaid, addressed to Debtor either at the address set forth in the
notice section hereof, or at any other address of Debtor appearing on the
records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED PARTY
SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT, HAVE THE
RIGHT TO PEACEFULLY RETAKE ANY OF THE COLLATERAL. DEBTOR WAIVES ANY RIGHT IT MAY
HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH RETAKING.
7. GENERAL
(a) Time shall be deemed of the essence with respect to this Security
Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if it takes
such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care. Failure of Secured Party to preserve or
protect any rights with respect to such Collateral against any prior parties
shall not be deemed a failure to exercise reasonable care in the custody and
preservation of such Collateral.
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<PAGE>
(c) Any delay on the part of Secured Party in exercising any power,
privilege or right under the Lease, this Security Agreement or under any other
instrument or document executed by a Debtor in connection herewith shall not
operate as a waiver thereof. No single or partial exercise thereof, or the
exercise of any other power, privilege or right shall preclude other or further
exercise thereof, or the exercise of any other power, privilege or right. The
waiver by Secured Party of any default by Debtor shall not constitute a waiver
of any subsequent defaults or defaults by any other Debtor but shall be
restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in
addition to all rights, remedies and power is given by the Lease or the
Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to
include the plural (and vice-versa), and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Security Agreement so requires. Section captions or headings used in
this Security Agreement are for convenience and reference only and shall not
affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement.
(g) This Security Agreement may be executed in multiple counterparts,
each of which shall be considered an original but all of which, when taken
together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure
to the benefit of its successors and assigns, and this Security Agreement shall
be binding on all assigns and successors of Debtor as may be permitted under the
Lease.
(i) In the event of any action to enforce this Security Agreement or
to protect the security interest of Secured Party in the Collateral, or to
protect, preserve, maintain, process, assemble, develop, insure, market or sell
any Collateral, Debtor agrees to pay the costs owed and expenses thereof,
together with reasonable and documented attorneys' fees (including fees incurred
in appeals and post judgment enforcement proceedings).
(j) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF EACH DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE
WITH THE LAWS OF THE STATE OF IDAHO.
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<PAGE>
(k) DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND
FEDERAL COURTS OF THE STATE OF IDAHO AND AGREES THAT ALL DISPUTES CONCERNING
THIS SECURITY AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF IDAHO. DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT
UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF IDAHO, AND DEBTOR
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OF IDAHO.
(l) No amendment to this Security Agreement shall be effective unless
the same shall be in writing and signed by the parties.
(m) Nothing contained herein shall be construed as in any way
modifying or limiting the effect of terms or conditions set forth in the Lease,
but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be
given and deemed effective as provided in the Lease. The parties hereby agree
that a notice sent as specified in this paragraph at least ten (10) business
days before the date of any intended public sale or the date after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to be reasonable notice of such sale or other disposition.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first written above.
SECURED PARTY:
IHS ACQUISITION NO. 105, INC.
By: /s/ Daniel J. Booth
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
DEBTOR:
PEAK MEDICAL OF IDAHO, INC.
By: /s/ Scot Sauder
---------------------------------------------
Name: Scot Sauder
-------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------
8
GUARANTY
BY
PEAK MEDICAL CORPORATION
IN FAVOR OF
IHS ACQUISITION NO. 105, INC.
DATED AS OF MAY 29, 1998
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is given as of the 29th day of May, 1998
("Effective Date"), by PEAK MEDICAL CORPORATION, a Delaware corporation
("Guarantor"), in favor of IHS ACQUISITION NO. 105, INC., a Delaware corporation
("Lessor").
RECITALS
A. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given them in Section 1 below.
B. Concurrently herewith, Lessor and Peak Medical of Idaho, Inc. ("Peak
Subsidiary") have executed and delivered the Lease, pursuant to which Lessor has
leased to Peak Subsidiary the Facility. As security for the payment and
performance by Peak Subsidiary of its respective obligations under the Lease and
the Transaction Documents, Peak Subsidiary has executed and delivered to Lessor
the Security Agreement, pursuant to which Peak Subsidiary has granted to Lessor
security interests in certain property of Peak Subsidiary.
C. Guarantor owns all of the stock of Peak Subsidiary and, accordingly,
benefits from the execution of the Lease.
D. As a material inducement to Lessor to enter into the Lease, Guarantor
has agreed to guarantee both the payment of all amounts due from, and the
performance of all obligations undertaken by, Peak Subsidiary under the Lease.
NOW, THEREFORE, Guarantor agrees as follows:
1. DEFINED TERMS. The following terms shall have the respective meanings
given them below:
"Affiliate" means any Person who, directly or indirectly, Controls or is
Controlled by or is under common Control with another Person.
"Control" (and its corollaries "Controlled by" and "under common Control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, through the ownership
of voting securities, partnership interests or other equity interests.
"Event of Default" means an "Event of Default," as defined in the Lease.
"Facility" means the facility listed on EXHIBIT A hereto.
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<PAGE>
"GAAP" means generally accepted accounting principles.
"Guaranty Default" means any of: (a) an Event of Default; (b) Guarantor's
failure to pay any amounts as and when required under this Guaranty; (c)
Guarantor's failure to observe and perform any covenant, condition or agreement
on its part to be observed or performed under this Guaranty (other than as
referred to in clause (b) above) for a period of three (3) business days or more
after Lessor has given written notice of such failure to Guarantor; or (d) the
occurrence and continuation of a default by any person other than Lessor under
any of the other Transaction Documents, if the default is not cured within any
applicable grace or cure period set forth therein.
"Idaho Falls Lease" means the Lease of even date herewith executed and
delivered by IHS Acquisition No. 104, Inc. and Peak Subsidiary, whereby Peak
Subsidiary leased the Idaho Falls Care Center.
"Lease" means the Lease of even date herewith executed and delivered by
Lessor and Peak Subsidiary.
"Net Income" means the net income of Guarantor, determined on an accrual
basis in accordance with GAAP, before federal, state and local income taxes, but
excluding extraordinary items.
"Obligations" means, collectively, all covenants and obligations contained
in the Lease and the other Transaction Documents, and any and all amendments,
modifications, extensions and renewals thereof, to be performed by Peak
Subsidiary, and all damages that may result from the non-performance thereof to
the full extent provided under the Lease and the other Transaction Documents.
"Peak Subsidiary" means Peak Medical of Idaho, Inc., a Delaware
corporation, that is a wholly owned subsidiary of Guarantor.
"Person" means any natural person, trust, partnership, corporation, limited
liability company, joint venture or other legal entity.
"Pledge Agreement" means the Pledge Agreement of even date herewith between
Guarantor and Integrated Health Services, Inc.
"Rent" means "Rent," as defined in the Lease.
"Security Agreement" means the Security Agreement of even date herewith
executed and delivered by Peak Subsidiary and Lessor.
"Transaction Documents" means the Security Agreement, the Twin Falls Lease,
the Pledge Agreement and any other documents executed and/or delivered or caused
to be
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<PAGE>
executed and/or delivered by Peak Subsidiary and Guarantor pursuant to or in
connection with the Lease.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably guarantees to
Lessor (a) the payment when due of all Rent and other sums payable by Peak
Subsidiary under the Lease and the Transaction Documents, and (b) the faithful
and prompt performance when due of each and every one of the Obligations. Upon
the occurrence of a Guaranty Default, Guarantor immediately shall perform or
cause to be performed the Obligations. Guarantor's liability under this Guaranty
is without limit.
3. SURVIVAL OF OBLIGATIONS. The obligations of Guarantor under this
Guaranty with respect to the Lease and the Transaction Documents shall survive
and continue in full force and effect notwithstanding:
(a) any amendment, modification or extension of the Lease or any of the
other Transaction Documents;
(b) any compromise, release, consent, extension, indulgence or other
action or inaction in respect of any terms of the Lease or any of the
other Transaction Documents or any other guarantor;
(c) any substitution or release, in whole or in part, of any security for
this Guaranty that Lessor may hold at any time;
(d) any exercise or nonexercise by Lessor of any right, power or remedy
under or in respect of the Lease or any of the other Transaction
Documents or any security held by Lessor with respect thereto, or any
waiver of any such right, power or remedy;
(e) any bankruptcy, insolvency, reorganization, arrangement, adjustment,
composition, liquidation or the like of Peak Subsidiary or any other
guarantor;
(f) any limitation of Peak Subsidiary's liability under the Lease or the
other Transaction Documents or any limitation of such liability that
now or hereafter may be imposed by any statute, regulation or rule of
law, or any illegality, irregularity, invalidity or unenforceability,
in whole or in part, of the Lease or the other Transaction Documents
or any term thereof;
(g) any sale, lease or transfer of all or any part of any interest in the
Facility or any or all of the assets of Peak Subsidiary to any other
person, firm or entity other than to Lessor;
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<PAGE>
(h) any act or omission by Lessor with respect to any of the security
instruments or any failure to file, record or otherwise perfect any of
the same;
(i) any extensions of time for performance under the Lease or the other
Transaction Documents, whether prior to or after maturity;
(j) the release of any collateral from the lien of any of the Security
Agreement, or the release of Peak Subsidiary from performance or
observation of any of the agreements, covenants, terms or conditions
contained in the Lease or any of the other Transaction Documents by
operation of law or otherwise;
(k) the fact that Peak Subsidiary may or may not be personally liable, in
whole or in part, under the terms of the Lease or the other
Transaction Documents to pay any money judgment;
(l) the failure to give Guarantor any notice of acceptance, default or
otherwise;
(m) any other guaranty now or hereafter executed by Guarantor or anyone
else in connection with the Lease;
(n) any rights, powers or privileges that Lessor now or hereafter may have
against any other person, entity or collateral; or
(o) any other circumstances, whether or not Guarantor had notice or
knowledge thereof.
4. PRIMARY LIABILITY. The liability of Guarantor under this Guaranty is
primary, direct and immediate, and, upon the occurrence of a Guaranty Default,
Lessor may proceed against Guarantor: (a) prior to or in lieu of proceeding
against any Subsidiary, its assets, any security deposit or any other guarantor;
and (b) prior to or in lieu of pursuing any other rights or remedies available
to Lessor. All rights and remedies afforded to Lessor by reason of this Guaranty
or by law are separate, independent and cumulative, and the exercise of any
rights or remedies shall not in any way limit, restrict or prejudice the
exercise of any other rights or remedies.
Upon the occurrence of a Guaranty Default, Lessor may bring and prosecute
against Guarantor an action or actions under this Guaranty, regardless of
whether Peak Subsidiary is joined therein or a separate action or actions are
brought against Peak Subsidiary. Lessor may maintain successive actions for
other defaults. Lessor's rights hereunder shall not be exhausted by its exercise
of any of its rights or remedies or by any such action or by any number of
successive actions until and unless all Obligations have been paid and fully
performed.
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<PAGE>
5. OBLIGATIONS NOT AFFECTED. In such manner, upon such terms and at such
times as Lessor in its sole discretion deems necessary or expedient, and without
notice to Guarantor, Lessor may: (a) amend, alter, compromise, accelerate,
extend or change the time or manner for the payment or the performance of the
Obligations; (b) extend, amend or terminate the Lease or any other Transaction
Document; or (c) release Peak Subsidiary by consent to any assignment (or
otherwise) as to all or any portion of the obligations hereby guaranteed. Any
exercise or non-exercise by Lessor of any right hereby given Lessor, any dealing
by Lessor with Guarantor or any other guarantor, Peak Subsidiary or other
person, or any change, impairment, release or suspension of any right or remedy
of Lessor against any person (including Peak Subsidiary and any other guarantor)
will not affect any of the obligations of Guarantor hereunder or give Guarantor
any recourse or offset against Lessor.
6. WAIVER. Guarantor hereby waives and relinquishes all rights and remedies
accorded by applicable law to sureties and/or guarantors or any other
accommodation parties, under any statutory provisions, common law or any other
provision of law, custom or practice, and agrees not to assert or take advantage
of any such rights or remedies including, but not limited to:
(a) any right to require Lessor to proceed against Peak Subsidiary or any
other person or to proceed against or exhaust any security held by
Lessor at any time or to pursue any other remedy in Lessor's power
before proceeding against Guarantor or to require that Lessor cause a
marshaling of Peak Subsidiary's assets or the assets, if any, given as
collateral for this Guaranty or to proceed against Peak Subsidiary
and/or any collateral, including collateral, if any, given to secure
Guarantor's obligation under this Guaranty, held by Lessor at any time
or in any particular order;
(b) any defense that may arise by reason of the incapacity or lack of
authority of any other person or persons;
(c) notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action
on the part of Peak Subsidiary, Lessor, any creditor of Peak
Subsidiary or Guarantor or on the part of any other person whomsoever
under this or any other instrument in connection with any obligation
or evidence of indebtedness held by Lessor or in connection with any
obligation hereby guaranteed;
(d) any defense based upon an election of remedies by Lessor that destroys
or otherwise impairs the subrogation rights of Guarantor or the right
of Guarantor to proceed against Peak Subsidiary for reimbursement, or
both;
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<PAGE>
(e) any defense based upon any statute or rule of law that provides that
the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(f) any duty on the part of Lessor to disclose to Guarantor any facts
Lessor may now or hereafter know about Peak Subsidiary, regardless of
whether Lessor has reason to believe that any such facts materially
increase the risk beyond that which Guarantor intends to assume or has
reason to believe that such facts are unknown to Guarantor or has a
reasonable opportunity to communicate such facts to Guarantor, it
being understood and agreed that Guarantor is fully responsible for
being and keeping informed of the financial condition of Peak
Subsidiary and of all circumstances bearing on the risk of non-payment
or non-performance of any obligations or indebtedness hereby
guaranteed;
(g) any defense arising because of Lessor's election, in any proceeding
instituted under the federal Bankruptcy Code, of the application of
Section 1111 (b)(2) of the federal Bankruptcy Code;
(h) any defense based on any borrowing or grant of a security interest
under Section 364 of the federal Bankruptcy Code; and
(i) all rights and remedies accorded by applicable law to guarantors,
including without limitation, any extension of time conferred by any
law now or hereafter in effect and any requirement or notice of
acceptance of this Guaranty or any other notice to which the
undersigned may now or hereafter be entitled to the extent such waiver
of notice is permitted by applicable law.
7. WARRANTIES. Guarantor represents and warrants to Lessor that: (a) this
Guaranty is executed at the request of Peak Subsidiary; and (b) Guarantor has
established adequate means of obtaining from Peak Subsidiary, on a continuing
basis, financial and other information pertaining to financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances that might in any way affect Guarantor's risks
hereunder, and Guarantor further agrees that Lessor shall have no obligation to
disclose to Guarantor information or material acquired in the course of Lessor's
relationship with Peak Subsidiary.
8. SUBROGATION. Guarantor shall defer until all obligations of Peak
Subsidiary under the Lease and the other Transaction Documents have been
satisfied and discharged in full for one (1) year, its exercise of any right of
subrogation it may have, and any right to enforce any remedy that Lessor now has
or hereafter may have, against Peak Subsidiary and any benefit of, and any right
to participate in, any security now or hereafter held by Lessor with respect to
the ease and the other Transaction Documents.
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<PAGE>
9. SUBORDINATION. As long as an Event of Default exists and remains uncured
under the Lease or any of the other Transaction Documents, Peak Subsidiary shall
not pay to Guarantor all or any part of any indebtedness or obligations owing by
Peak Subsidiary to Guarantor, nor will Guarantor accept any payment of or on
account of any amounts owing, without the prior written consent of Lessor. At
Lessor's request, Guarantor shall cause Peak Subsidiary to pay to Lessor all or
any part of the subordinated indebtedness until the obligations under the Lease
or the other Transaction Documents have been paid in full. Any payment by Peak
Subsidiary in violation of this Guaranty shall be received by Guarantor in trust
for Lessor, and Guarantor shall cause the same to be paid to Lessor immediately
on account of the amounts owing from Peak Subsidiary to Lessor. No such payment
will reduce or affect in any manner the liability of Guarantor under this
Guaranty.
10. NO DELAY. Any payments required to be made by Guarantor hereunder
immediately shall become due on demand in accordance with the terms hereof upon
the occurrence of a Guaranty Default.
11. APPLICATION OF PAYMENTS. Lessor may, in its sole discretion, (a) apply
any or all payments or recoveries from Peak Subsidiary or from any other
guarantor under any other instrument or realized from any security, in such
manner and order of priority as Lessor may determine, to any indebtedness or
other obligation of Peak Subsidiary with respect to the Lease, regardless of
whether such indebtedness or other obligation is guaranteed hereby or is
otherwise secured or is due at the time of such application, and/or (b) refund
to Peak Subsidiary any payment received by Lessor under the Lease.
12. GUARANTY DEFAULT. Upon the occurrence and continuation of a Guaranty
Default, Lessor shall have the right to bring such actions at law or in equity,
including appropriate injunctive relief, as it deems appropriate to compel
compliance, payment or deposit, and among other remedies to recover its
reasonable attorneys' fees in any proceeding, including any appeal therefrom and
any post-judgement proceedings.
13. INTENTIONALLY OMITTED.
14. FINANCIAL STATEMENTS. Within fifty (50) days after the end of each of
Guarantor's fiscal quarters, quarterly consolidated financial statements,
prepared in accordance with GAAP, consistently applied, and certified by an
officer of Guarantor. Within ninety (90) days after the end of each of
Guarantor's fiscal years, Guarantor shall deliver to Lessor a copy of its
consolidated financial statements, prepared in accordance with GAAP,
consistently applied, and certified by an officer of Guarantor. Together with
the Guarantor's financial statements furnished in accordance with the preceding
two (2) sentences, Guarantor shall deliver an officer's certificate of Guarantor
stating that Guarantor is not in default in the performance or observance of any
of the terms of this Guaranty, or, if Guarantor is in default, specifying all
such defaults, the nature thereof and the steps being taken to remedy the same.
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<PAGE>
15. 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 Guarantor: Peak Medical Corporation
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87109
Attention: Charles H. Gonzales
Copy to: Scot Sauder, Esq.
Telephone No.: 505-342-0235
Fax No.: 505-341-2326
To Lessor: c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Telephone No.: 410-998-8768
Facsimile No.: 410-998-8716
Notices shall be deemed given upon actual receipt.
16. MISCELLANEOUS.
(a) No term, condition or provision of this Guaranty may be waived except
by an express written instrument to that effect signed by Lessor. No waiver of
any term, condition or provision of this Guaranty will be deemed a waiver of any
other term, condition or provision, irrespective of similarity, or constitute a
continuing waiver of the same term, condition or provision, unless otherwise
expressly provided.
(b) If any one or more of the terms, conditions or provisions contained in
this Guaranty is found in a final award or judgment rendered by any court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions of this Guaranty shall not in any way be affected or impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term, condition or provision had never been contained
in this Guaranty.
(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE LAWS OF THE STATE OF IDAHO SHALL
GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY (i) TO OBTAIN THE BENEFIT OF THE
RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE FACILITY AND (ii) FOR
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PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH
THE FACILITY IS LOCATED. GUARANTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE
THE STATE OR FEDERAL COURTS OF THE STATE OF IDAHO AND AGREES THAT ALL DISPUTES
CONCERNING THIS GUARANTY SHALL BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED
IN THE STATE OF IDAHO. GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED
UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF IDAHO AND
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OF IDAHO.
(d) GUARANTOR AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO
IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF
OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR
ENFORCEMENT THEREOF.
(e) In the event of any suit, action, arbitration or other proceeding to
interpret this Guaranty, or to determine or enforce any right or obligation
created hereby, the prevailing party in the action shall recover such party's
actual costs and expenses reasonably incurred in connection therewith,
including, but not limited to, attorneys' fees and costs of appeal, post
judgment enforcement proceedings (if any) and bankruptcy proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action, arbitration or other proceeding, in
addition to any and all other relief awarded to such prevailing party, include
in such-judgment or award such party's costs and expenses as provided in this
paragraph.
(f) Guarantor (i) represents that it has been represented and advised by
counsel in connection with the execution of this Guaranty; (ii) acknowledges
receipt of a copy of the Lease and the other Transaction Documents; and (iii)
further represents that Guarantor has been advised by counsel with respect
thereto. This Guaranty shall be construed and interpreted in accordance with the
plain meaning of its language, and not for or against Guarantor or Lessor, and
as a whole, giving effect to all of the terms, conditions and provisions hereof.
(g) Except as provided in any other written agreement now or at any time
hereafter in force between Lessor and Guarantor, this Guaranty shall constitute
the entire agreement of Guarantor with Lessor with respect to the subject matter
hereof, and no representation, understanding, promise or condition concerning
the subject matter hereof will be binding upon Lessor or Guarantor unless
expressed herein.
(h) All stipulations, obligations, liabilities and undertakings under this
Guaranty shall be binding upon Guarantor and its respective successors and
assigns and shall inure to the benefit of Lessor and to the benefit of Lessor's
successors and assigns.
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<PAGE>
(i) Whenever the singular shall be used hereunder, it shall be deemed to
include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Guaranty so requires. Section captions or headings used in the Guaranty
are for convenience and reference only, and shall not affect the construction
thereof.
SIGNATURE PAGE FOLLOWS
10
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
PEAK MEDICAL CORPORATION
By: /s/ Scot Sauder
---------------------------------------------
Name: Scot Sauder
-------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------
11
<PAGE>
EXHIBIT A
FACILITY
Twin Falls Care Center
674 Eastland Drive
Twin Falls, Idaho 83301
A-1
LEASE
BETWEEN
IHS ACQUISITION NO. 105, INC.
AND
PEAK MEDICAL OF IDAHO, INC.
DATED AS OF MAY 29, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
LEASE; TERM; RENEWALS..........................................................1
1.1 Lease...........................................................1
1.2 Term............................................................1
1.3 Base Rent.......................................................1
1.4 First Option to Renew...........................................1
1.5 Second Option to Renew..........................................2
1.6 Other Conditions of Renewal.....................................2
ARTICLE 2
DEFINITIONS....................................................................2
2.1 Certain Definitions.............................................2
2.2 Other Definitions..............................................16
ARTICLE 3
RENT; RELATED MATTERS.........................................................16
3.1 Rent...........................................................16
3.2 Additional Charges.............................................16
3.3 Late Charge; Interest..........................................16
3.4 Method of Payment of Rent......................................17
3.5 Net Lease; No Offset...........................................17
ARTICLE 4
IMPOSITIONS; RELATED MATTERS..................................................17
4.1 Payment of Impositions.........................................17
4.2 Adjustment of Impositions......................................18
4.3 Utility Charges................................................18
4.4 Insurance Premiums.............................................18
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC................................................18
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ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY...............................19
6.1 Ownership of the Leased Property...............................19
6.2 Landlord's Personal Property...................................19
6.3 Tenant's Personal Property.....................................19
6.4 Grant of Security Interest in Tenant's Personal Property;
Restriction on Other Liens.....................................20
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY..........................................20
7.1 Condition of the Leased Property...............................20
7.2 Use of the Leased Property.....................................20
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS..............................................21
8.1 Compliance with Legal and Insurance Requirements...............21
8.2 Legal Requirement Covenants....................................21
8.3 Certain Financial and Other Covenants..........................22
8.4 Other Businesses...............................................22
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS.........................................22
9.1 Maintenance and Repair.........................................22
9.2 Encroachments, Restrictions, etc...............................24
ARTICLE 10
ALTERATIONS AND ADDITIONS.....................................................25
10.1 Construction of Alterations and Additions to the Leased
Property.......................................................25
10.2 Asbestos Removal for Alterations and Additions.................26
ARTICLE 11
REMOVAL OF LIENS..............................................................26
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ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC............................................26
12.1 Permitted Contests.............................................26
12.2 Landlord's Requirement for Deposits............................27
ARTICLE 13
INSURANCE.....................................................................28
13.1 General Insurance Requirements.................................28
13.2 Replacement Cost...............................................29
13.3 Worker's Compensation Insurance................................30
13.4 Waiver of Liability; Waiver of Subrogation.....................30
13.5 Other Requirements.............................................30
13.6 Increase in Limits.............................................30
13.7 Blanket Policy.................................................31
13.8 No Separate Insurance..........................................31
ARTICLE 14
CASUALTY LOSS.................................................................31
14.1 Insurance Proceeds.............................................31
14.2 Restoration in the Event of Damage or Destruction..............32
14.3 Intentionally Omitted..........................................32
14.4 Tenant's Personal Property.....................................32
14.5 Restoration of Tenant's Property...............................32
14.6 No Abatement of Rent...........................................33
14.7 Consequences of Purchase of Damaged Leased Property............33
14.8 Damage Near End of Term........................................33
14.9 Waiver.........................................................33
14.10 Procedure for Disbursement of Insurance Proceeds
Greater Than The Approval Threshold............................33
ARTICLE 15
TAKINGS.......................................................................35
15.1 Total Taking...................................................35
15.2 Allocation of Portion of Award.................................35
15.3 Partial Taking.................................................35
15.4 Temporary Taking...............................................36
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ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT.............................................36
16.1 Events of Default..............................................36
16.2 Landlord's Rights Upon Tenant's Default........................36
16.3 Liability for Costs and Expenses...............................36
16.4 Certain Remedies...............................................37
16.5 Damages........................................................37
16.6 Waiver.........................................................37
16.7 Application of Funds...........................................38
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.....................................38
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS.................................................38
18.1 Prohibition Against Use of Hazardous Substances................38
18.2 Notice of Environmental Claims, Actions or
Contaminations.................................................39
18.3 Costs of Remedial Actions with Respect to Environmental
Matters........................................................39
18.4 Delivery of Environmental Documents............................39
18.5 Environmental Audit............................................39
18.6 Entry onto Leased Property for Environmental Matters...........39
18.7 Environmental Matters Upon Termination or Expiration of
Term of This Lease ............................................40
18.8 Compliance with Environmental Laws.............................40
18.9 Environmental Related Remedies.................................41
18.10 Environmental Indemnification..................................42
18.11 Rights Cumulative and Survival.................................43
ARTICLE 19
HOLDOVER MATTERS..............................................................44
19.1 Holding Over...................................................44
19.2 Indemnity......................................................44
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS..........................................44
20.1 Subordination..................................................44
20.2 Attornment.....................................................45
20.3 Estoppel Certificate...........................................45
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ARTICLE 21
RISK OF LOSS..................................................................45
ARTICLE 22
INDEMNIFICATION...............................................................45
22.1 Indemnification................................................45
22.2 Survival of Indemnification; Tenant Right to Defend Landlord...47
ARTICLE 23
LIMITATIONS ON TRANSFERS......................................................47
23.1 General Prohibition against Transfer; Permitted Transfers......47
23.2 Corporate or Partnership Transactions..........................49
23.3 Permitted Subleases............................................49
23.4 Transfers to a Controlled Entity...............................49
23.5 Subordination and Attornment...................................50
23.6 Sublease Limitation............................................50
ARTICLE 24
CERTAIN FINANCIAL MATTERS.....................................................50
24.1 Officer's Certificates and Financial Statements................50
24.2 Public Offering Information....................................52
ARTICLE 25
LANDLORD INSPECTION...........................................................52
ARTICLE 26
[INTENTIONALLY OMITTED].......................................................53
ARTICLE 27
[INTENTIONALLY OMITTED].......................................................53
ARTICLE 28
ACCEPTANCE OF SURRENDER.......................................................53
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ARTICLE 29
MERGER OF TITLE; PARTNERSHIP..................................................53
29.1 No Merger of Title.............................................53
29.2 No Partnership.................................................53
ARTICLE 30
CONVEYANCE BY LANDLORD........................................................53
ARTICLE 31
QUIET ENJOYMENT...............................................................54
ARTICLE 32
[INTENTIONALLY OMITTED].......................................................54
ARTICLE 33
APPRAISERS....................................................................54
ARTICLE 34
BREACH OF LEASE BY LANDLORD...................................................55
ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL........................56
35.1 Landlord's Option to Purchase Tenant's Personal Property.......56
35.2 Facility Trade Names...........................................56
35.3 Transfer of Operational Control of the Facility................56
35.4 Intangibles and Personal Property..............................58
ARTICLE 36
[INTENTIONALLY OMITTED].......................................................58
ARTICLE 37
MISCELLANEOUS.................................................................58
37.1 Notices........................................................58
37.2 Survival, Choice of Law........................................59
37.3 Limitation on Recovery.........................................59
37.4 Waivers........................................................59
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37.5 Intentionally Omitted..........................................59
37.6 Counterparts...................................................59
37.7 Options Follow Lease...........................................59
37.8 Rights Cumulative..............................................59
37.9 Entire Agreement...............................................59
37.10 Amendments in Writing..........................................60
37.11 Severability...................................................60
37.12 Successors.....................................................60
37.13 Time of the Essence............................................60
37.14 Late Charges...................................................60
37.15 Binding Effect.................................................60
37.16 Exhibits and Schedules.........................................60
37.17 Waiver of Jury Trial...........................................60
37.18 Memorandum of Lease............................................60
ARTICLE 38
SECURITY DEPOSIT..............................................................61
38.1 Security Deposit...............................................61
38.2 Application of Security Deposit................................61
38.3 Transfer of Security Deposit...................................61
ARTICLE 39
TENANT PURCHASE OPTION........................................................62
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LEASE
THIS LEASE (this "Lease") is made and entered into as of the 29th day
of May, 1998 between IHS ACQUISITION NO. 105, INC., a Delaware corporation, with
principal offices at 10065 Red Run Boulevard, Owings Mills, Maryland 21117
("Landlord") and PEAK MEDICAL OF IDAHO, INC., a Delaware corporation, with
principal offices at 5635 Jefferson Boulevard, N.E., Albuquerque, New Mexico
87109 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is the present owner of the real property, improvements
fixtures, and personal property constituting the health care facility described
on Exhibit A hereto ("Facility" or "Leased Property"); and
WHEREAS, Landlord wishes to lease to Tenant, and Tenant wishes to lease
from Landlord, the Facility;
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Lease, the parties agree that the use and occupancy
of the Facility demised herein shall be subject to, and be in accordance with,
the terms, conditions and provisions of this Lease, as follows:
ARTICLE 1
LEASE; TERM; RENEWALS
1.1 LEASE. Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant, and Tenant hires term Landlord, the Leased
Property.
1.2 TERM. The Term shall commence for the Facility on the Commencement Date
and end for the Facility on the Expiration Date, subject to the renewals
described in Sections 1.4 through 1.6 hereof.
1.3 BASE RENT. The Base Rent for the Leased Property (as of the
Commencement Date as agreed by Landlord and Tenant solely for purposes of this
Lease), is defined in Section 2.1 hereof.
1.4 FIRST OPTION TO RENEW. Tenant is hereby granted the option to renew
this Lease for a First Renewal Term for the Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, before the Expiration Date; provided,
however, that no Event of Default exists either on the date on which Tenant
gives such Notice to Landlord or on the applicable Expiration Date.
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During the First Renewal Term, all of the terms and conditions of this Lease
shall remain in full force and effect.
1.5 SECOND OPTION TO RENEW. If the Term of this Lease has been renewed as
provided in Section 1.4 above, Tenant is hereby granted the option to renew this
Lease for the Second Renewal Term for the Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, prior to the expiration of the First
Renewal Term for the Facility; provided, however, that no Event of Default
exists either on the date on which Tenant gives such Notice to Landlord or on
the date on which the First Renewal Term expires. During the Second Renewal
Term, all of the terms and conditions of this Lease shall remain in full force
and effect.
1.6 OTHER CONDITIONS OF RENEWAL. The options to renew granted pursuant to
Sections 1.4 and 1.5 hereof may be exercised only with respect to this Leased
Property and the Tenant's Other Leased Property, unless the Other Leased
Property is acquired by Tenant by exercise of its purchase option.
ARTICLE 2
DEFINITIONS
2.1 CERTAIN DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (a) all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (b) all references to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease, and (c) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision. In addition, the following
terms shall have the following meanings:
Accounts: With respect to Tenant, all accounts, accounts receivable,
deposits, prepaid items, documents, chattel paper, instruments, contract
rights, general intangibles, choses in action and rights to any refund of
taxes previously or subsequently paid to any governmental authority, in
each case arising from or in connection with Tenant's operation and use of
the Leased Property.
Additional Charges: All Impositions and all amounts, liabilities and
obligations other than Base Rent that Tenant assumes and agrees to pay
under this Lease.
Affiliate: Any Person who, directly or indirectly, Controls or is
Controlled by or is under Common Control with another Person.
Approval Threshold: The sum of Five Hundred Thousand Dollars
($500,000).
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Assessment: With respect to the Leased Property, any assessment for
public improvements or benefits commenced or completed after the date
hereof and whether or not to be completed within the Term.
Award: All compensation, sums or anything of value awarded, paid or
received in connection with a Taking or Partial Taking.
Base Rent: (a) For the first Lease Year, the sum of FOUR HUNDRED FIFTY
ONE THOUSAND TWO HUNDRED DOLLARS ($451,200), and (b) for each Lease Year
thereafter (including each Lease Year in any Renewal Term), the sum of (i)
the Base Rent for the preceding Lease Year plus (ii) the percentage
increase in the Cost of Living Index from the last month of the preceding
Lease Year to the last month of the Lease Year in question; provided,
however, that in no event shall the annual Base Rent increase be less than
two percent (2%) or more than five percent (5%).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.
Capital Lease: Any lease (other then this Lease) for which Tenant is
required, under GAAP, to account on its balance sheet as a capital lease.
Capitalized Lease Obligation: Any obligation of Tenant, as tenant or
guarantor, under a Capital Lease.
Cash Flow from the Facility: The sum of (a) Net Income for the
applicable period, (b) the amount deducted by Tenant in computing Net
Income for the applicable period for (i) depreciation on any leasehold
improvements to the Facility constructed by Tenant or any depreciation on
equipment used at the Facility, (ii) amortization and (iii) Rent, and (c)
interest; minus (a) a management fee of the greater of (i) five percent
(5%) of Facility revenues or (ii) actual management fees; and (b) the sum
of Three Hundred Dollars ($300) per-licensed-bed.
Cash Flow to Debt Service Requirement: As of the relevant fiscal
period, a ratio of Tenant's Cash Flow from the Facility to its Debt Service
equal to or greater than the ratio of 1:1 from the Commencement Date
through the date that is nine (9) months from the Commencement Date and (b)
1.15:1 thereafter and for the remainder of the Term of this Lease,
including renewals of this Lease under Sections 1.4 and 1.5 hereof.
Claim(s): Any lien, attachment, levy, encumbrance, charge or claim, or
any encroachment or restriction burdening the Leased Property.
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Clean-Up: The investigation, removal, restoration, remediation and/or
elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction over the
Leased Property and in compliance with or as may be required by
Environmental Laws.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Commencement Date: June 1, 1998
Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
Construction Funds: The Net Proceeds available for restoration or
repair work pursuant to Article 14 of this Lease.
Contamination: The presence, Release or threatened Release of any
Hazardous Substance at the Leased Property in violation of any
Environmental Law, or in a quantity that would give rise to any affirmative
Clean-Up obligation under an Environmental Law, including, but not limited
to, the existence of any injury or potential injury to public health,
safety, natural resources or the environment associated therewith.
Control (and Controlled by and under Common Control with): possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, through the ownership of voting
securities, partnership interests or other equity interests.
Cost of Living Index: The United States Department of Labor, Bureau of
Labor Statistics Revised Consumer Price Index for All Urban Consumers
(1982-84=100), U.S. City Average, All Items, or, if such Index is not
available for the United States, an index available for the geographical
area in the United States which most closely corresponds to the entire
United States, published by such bureau or its successor, or, if none, by
any other instrumentality of the United States.
Date of Taking: The date on which the Condemnor has the right to
possession of the Leased Property that is the subject of the Taking or
Partial Taking.
Debt: As of any date, all (a) obligations of a Person, whether current
or long-term, that in accordance with GAAP would be included as liabilities
on such Person's balance sheet; (b) Capitalized Lease Obligations of such
Person; (c) obligations of others for which that Person is liable directly
or indirectly, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or
advance or keep in funds or other agreement having the effect of a
guaranty) or otherwise; (d) liabilities and obligations secured by liens on
any assets
4
<PAGE>
of that Person, whether or not those liabilities or obligations are
recourse to that Person; (e) liabilities and obligations of that Person,
direct or contingent, with respect to letters of credit issued for the
account of that Person or others or with respect to bankers acceptances
created for that Person; and (f) obligations resulting from a draw under
any letter of credit which may be provided pursuant to the Letter of Credit
Agreement. However, Additional Charges shall not be deemed Debt.
Debt Service: With respect to any fiscal period of a Person, the sum
of (a) all interest due on Debt during the period (other than interest
imputed, pursuant to GAAP, on any Capitalized Lease Obligations and
interest on Debt that comprises Purchase Money Financing), all payments of
principal of Debt required to be made during the period and (c) all Base
Rent due during the period.
Encumbrance: With respect to the Leased Property, any mortgage, deed
of trust, lien, encumbrance or other matter affecting title to the Leased
Property, or any portion thereof or interest therein.
Environmental Audit: A written certificate, in form and substance
satisfactory to Landlord, from an environmental firm acceptable to
Landlord, which states that there is no evidence of Contamination on the
Leased Property and that the Leased Property is otherwise in compliance
with Environmental Laws.
Environmental Documents: Documents received by Tenant or any Affiliate
from, or submitted by Tenant or any Affiliate to, the United States
Environmental Protection Agency and/or any other federal, state, county or
municipal agency responsible for enforcing or implementing Environmental
Laws with respect to the condition of the Leased Property leased by Tenant
or Tenant's operations at the Leased Property; and written reviews, audits,
reports or other documents pertaining to environmental conditions,
including, but not limited to, the presence or absence of Contamination,
at, in or under or with respect to the Leased Property leased by Tenant
that have been prepared by, for or on behalf of Tenant.
Environmental Laws: All federal, state and local laws (including,
without limitation, common law), statutes, codes, ordinances, regulations,
rules, orders, permits or decrees from time to time in effect and relating
to (a) the introduction, emission, discharge or release of Hazardous
Substances into the indoor or outdoor environment (including, without
limitation, air, surface water, groundwater, land or soil); or (b) the
manufacture, processing, distribution, use, treatment, storage,
transportation or disposal of Hazardous Substances; or (c) the Cleanup of
Contamination.
Escrow Agreement: The Escrow Agreement amount Tenant, Monarch LP and
Fidelity National Title Insurance Company of New York, as described in the
Monarch Purchase Agreement.
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Estoppel Certificate: A statement in writing in substantially the same
form as Exhibit D hereto, with such changes thereto as reasonably may be
requested by the person relying on such certificate.
Event of Default: The occurrence of any of the following:
(a) If Tenant fails to pay Base Rent under this Lease when the
same becomes due and payable; or if Tenant fails to restore the Security
Deposit if and as required by Section 38.2 hereof within five (5) Business
Days after such amount is due and owed; or if Tenant fails to pay any
Additional Charges within five (5) Business Days after such amount is due
and owed;
(b) If Tenant (i) admits in writing its inability to pay its
debts generally as they become due, (ii) files a petition in bankruptcy or
a petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the
appointment of a receiver of itself or of the whole or any substantial part
of its property, or (v) files a petition or answer seeking reorganization
or arrangement under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States of America or any state thereof; or
(c) If Tenant, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered
against it, or a court of competent jurisdiction enters an order or decree
appointing a receiver of such Tenant or of the whole or substantially all
of Tenant's property, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the Federal Bankruptcy Laws
or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree is not vacated or set
aside or stayed within one hundred and twenty (120) days from the date of
the entry thereof; or
(d) If Tenant is liquidated or dissolved, or begins proceedings
toward liquidation or dissolution, or has filed against it a petition or
other proceeding to cause it to be liquidated or dissolved, and the
proceeding is not dismissed within one hundred and twenty (120) days
thereafter, or in any manner permits the sale or divestiture of
substantially all of its assets except in connection with a dissolution or
liquidation following or related to a merger or transfer of all or
substantially all of the assets and liabilities of Tenant with or to an
Affiliate; or
(e) If the estate or interest of Tenant in the Leased Property or
any part thereof is levied upon or attached in any proceeding and the same
is not vacated or discharged within sixty (60) days after commencement
thereof (unless Tenant is in the process of contesting such lien or
attachment in good faith in accordance with Section 12.1 hereof); or
6
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(f) If Tenant ceases operation of the Facility for a period in
excess of five (5) Business Days except upon prior written Notice to, and
with the express prior written consent of Landlord (which consent Landlord
may withhold in its absolute discretion), or as the unavoidable consequence
of damage or destruction as a result of a casualty, or a Taking or Partial
Taking, or as a result of an event described in subparagraph (g) below (as
to which the provisions of subparagraph (g) shall govern); or
(g) If the license to operate the Facility as a provider of
health care services in accordance with its Primary Intended Use is
revoked, or allowed to lapse, or, without Landlord's prior written consent,
transferred to a facility that is not the Leased Property, or an order is
imposed with respect to the Facility suspending the right to operate or
accept patients, and Tenant does not promptly take reasonable steps to cure
the condition or conditions leading to such revocation or order and cause
such license and right to operate and accept patients to be reinstated
within sixty (60) days; or
(h) If any obligation of Tenant or of Guarantor to repay borrowed
money in excess of Five Million Dollars ($5,000,000) is accelerated by a
creditor after default; provided, however, during any period that
Guarantor's Tangible Net Worth is in excess of Twenty-Five Million Dollars
($25,000,000), then the preceding Tenant or Guarantor borrowed money
obligation amount shall be Ten Million Dollars ($10,000,000); or
(i) If Tenant fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured within a
period of thirty (30) days after Notice thereof from Landlord, unless the
failure cannot with due diligence be cured within a period of thirty (30)
days, in which case the failure shall not be deemed to continue if (i)
Tenant proceeds promptly and with due diligence to cure the failure, (ii)
Tenant diligently completes the cure thereof and (iii) such failure is
cured prior to the time that the same results in civil or criminal
penalties to Landlord, Tenant or any Affiliates of either; or
(j) If a default occurs under any Guaranty of this Lease given to
Landlord to secure performance of any term or provision of this Lease and
is not cured within any applicable grace or cure period set forth therein;
or
(k) Subject to Article 23, if Tenant transfers the operational
control or management of the Facility currently being operated by it
without Landlord's consent;
(l) If a default occurs under any other material contract
affecting the Facility, Tenant or any Affiliate of Tenant, and the default
is not cured within any applicable grace or cure period contained therein,
provided, as to any such default
7
<PAGE>
under such other contract, such default materially and adversely affects,
or has the reasonable potential of materially and adversely affecting, the
operation or value of the Facility;
(m) If a default occurs under the Security Agreement and is not
cured within any applicable grace or cure period set forth therein; or
(n) If Tenant breaches the financial covenants set forth in
Section 8.3 hereof, or Guarantor breaches the financial covenants set forth
in its Guaranty, and such failure is not cured within twenty (20) days of
the earlier of (i) the date on which Tenant or Guarantor has actual
knowledge of such breach or (ii) Notice from Landlord;
(o) Any Event of Default occurs in the Lease for Tenant's Other
Leased Property; or
(p) If Tenant breaches any of its payment obligations under
Article V of the Monarch Purchase Agreement, or fails to execute and
deliver to Monarch at or prior to the closing under the Monarch Purchase
Agreement each of the Transaction Documents (as defined in the Monarch
Purchase Agreement) to which Tenant it to be a party in accordance with the
Monarch Purchase Agreement.
Executive Officer: The Chairman of the Board of Directors, the
President, any Executive Vice President, any Senior Vice President, any
Vice President and the Secretary of a corporation.
Expiration Date: May 31, 2010.
Facility: The Leased Property.
Facility Purchase Price: The Purchase Price for the Facility on the
Commencement Date, as set forth on Exhibit F hereto, increased by three
percent (3%) per Lease Year, compounded annually, from the Commencement
Date to the date in question and prorated for any portion of such period
that is less than a full Lease Year.
Facility Rental Value: The Base Rent (determined at the time in
question) of the Facility.
Facility Trade Names: The names under which the Facility does or has
done business during the Term.
Fair Rental Value: The amount determined to be the Fair Rental Value
of the Leased Property pursuant to the appraisal procedure set forth in
Article 33.
8
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Financial Statement: For a fiscal year or other accounting period,
statements of earnings and retained earnings and of changes in financial
position and profit and loss for such period and for the period from the
beginning of the respective fiscal year to the end of such period and the
related balance sheet as at the end of such period, together with the notes
thereto, all in reasonable detail and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding fiscal
year, and prepared in accordance with GAAP.
First Renewal Term: The period of ten (10) years.
Fiscal Year: The calendar year.
Fixtures: All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, any and all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus (other
than individual units), sprinkler systems and fire and theft protection
equipment, and built-in oxygen and vacuum systems, all of which to the
greatest extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications, alterations and
additions thereto but specifically excluding all items included within the
definition of the "Personal Property".
GAAP: Generally accepted accounting principles in effect from time to
time as customarily and consistently applied.
Guarantor: Peak Medical Corporation, a Delaware corporation
Guaranty: The Peak Medical Corporation Guaranty.
Hazardous Substances: Any and all toxic or hazardous material,
substance, pollutant, contaminant, chemical, waste (including medical
waste) or substance, including petroleum products, asbestos and PCBs,
regulated, restricted or prohibited under any Environmental Law.
Impartial Appraiser: An appraiser selected by Landlord and reasonably
acceptable to Tenant.
Impositions: Collectively, all taxes (including, without limitation,
all real property taxes, ad valorem, sales and use, single business, gross
receipts, transaction privilege, rent or similar taxes), assessments,
ground rents, water, sewer or other rents and charges, excises, tax levies,
fees (including, without limitation, license, permit,
9
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inspection, authorization and similar fees), and all other governmental
charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of
the Leased Property or the business conducted thereon by Tenant and/or the
Rent (including all interest and penalties thereon due to any failure of
payment by Tenant) applicable to periods of time within the Term hereof
which at any time may be assessed or imposed on or in respect of or be a
lien upon (a) the Facility or any part thereof or (b) any rent therefrom or
(c) any estate, right, title or interest therein, or (d) any occupancy,
operation, use or possession of, or (e) sales from, or activity conducted
on, the Leased Property or the leasing or use of the Facility or any part
thereof or (f) the Rent. "Imposition" shall not include: (a) any federal,
state or local tax based on gross or (b) net income (whether denominated as
an income, capital stock or other tax) imposed on Landlord generally and
not exclusively in connection with the Leased Property, or any net revenue
tax of Landlord or any other person, or (c) any tax imposed with respect to
the sale, financing, exchange or other disposition by Landlord of the
Leased Property or the proceeds thereof, or (d) any principal or interest
on any indebtedness of Landlord or (e) on any ground rent or other rent
payable by Landlord.
Initial Term: The period between, and inclusive of, the Commencement
Date and the earlier of the Expiration Date and the date upon which this
Lease terminates as provided herein.
Insurance Requirements: The terms, conditions and requirements of any
insurance policy required by this Lease.
Intangible Assets: The amount of (a) all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organizational and developmental
expenses, unamortized operating rights, unamortized licenses, unamortized
leasehold rights and other intangible assets, or any write-up resulting
from a reversal of a reserve for bad debt or depreciation and any write-up
resulting from a change in method of accounting or inventory, and (b) any
investment in any Affiliate.
Investigations: Soil and chemical tests or any other environmental
investigations, examinations or analyses.
Land: The real property described on Exhibit A hereto.
Landlord's Personal Property: All Personal Property, except Tenant's
Personal Property, that at the Commencement Date or thereafter during the
Term is located, or, but for a temporary relocation off-site on the
Commencement Date is normally located, on the Land or in the Leased
Improvements.
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Lease Year: The period commencing on the first day of the calendar
month following the month in which the Commencement Date occurs and ending
on the last day of the twelfth (12th) full calendar month thereafter
(unless the Commencement Date is the first day of a month, in which event
the first Lease Year shall commence on such day). The period, if any,
between the Commencement Date and the first day of the following month
shall be deemed to be part of the first Lease Year. Thereafter, each Lease
Year will be January 1 through December 31. If this Lease is terminated
before the end of any Lease Year, the final Lease Year will be January 1
through the date of termination thereof.
Leased Improvements: All buildings, structures, Fixtures and other
improvements of every kind currently situated on the Land, including, but
not limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures.
Leased Property (also "Facility"): Collectively, the Land, the Leased
Improvements, the Related Rights and Landlord's Personal Property, and the
licensed nursing home or other healthcare facility being operated thereon
and therein, as identified on Exhibit A hereto.
Legal Requirements: As to the Leased Property, all federal, state,
county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Leased Property or the construction, use or alteration thereof, whether now
or hereafter enacted and in force, including any which may (a) require
repairs, modifications or alterations in or to the Leased Property or (b)
in any way adversely affect the use and enjoyment thereof, and all permits,
licenses and authorizations and regulations relating thereto, including,
but not limited to, those relating to existing health care licenses, those
authorizing the current number of licensed beds and the level of services
delivered from the Leased Property, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of
record or known to Tenant at any time in force affecting the Leased
Property, other than covenants, agreements, restrictions and encumbrances
created by Landlord without the consent of Tenant.
Mechanics Liens: Liens of mechanics, laborers, materialmen, suppliers
or vendors.
Monarch: Monarch Properties, Inc., a Maryland corporation.
Monarch LP: Monarch Properties, LP, a Delaware limited partnership and
a subsidiary of Monarch.
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Monarch Purchase Agreement: The Facilities Purchase Agreement, dated
as of May 1, 1998, among Landlord, Tenant, Integrated Health Services,
Inc., Guarantor, IHS No. 104 and Monarch pursuant to which Landlord has
agreed to sell to Monarch, and Monarch has agreed to purchase from
Landlord, the Facility and the Leased Property.
Net Income: The aggregate net income of Tenant from the operation of
the Facility, determined on an accrual basis in accordance with GAAP,
before federal, state and local income taxes, but excluding extraordinary
items.
Net Proceeds: All proceeds, net of any costs incurred by Landlord in
obtaining such proceeds, payable under any risk policy of insurance
required by Article 13 of this Lease (including proceeds with respect to
the Personal Property that Tenant elects to restore or replace pursuant to
Section 14.2 hereof).
Notice: A written notice given pursuant to Section 37.1 hereof.
Offering: The public offering of shares of common stock of Monarch.
Officer's Certificate: A certificate signed by any one or more of the
Executive Officers.
Overdue Rate: On any date, a rate equal to three (3) percentage points
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.
Partial Taking: A Taking of a portion of the Facility or of less than
the whole fee title to the Facility.
Payment Date: The due date for the payment of the installments of Base
Rent, Additional Charges or any other sums payable under this Lease.
Peak Medical Guaranty: A Guaranty executed by Guarantor in favor of
Landlord.
Permitted Debt: Debt (other than Debt as to which an Affiliate of
Tenant is the creditor) incurred by Tenant solely to provide working
capital.
Permitted Encumbrances: With respect to the Leased Property, the
matters identified on Exhibit E hereto.
Person: Any natural person, trust, partnership, limited liability
company, corporation, joint venture or other legal entity.
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Personal Property: All equipment, furniture, fixtures, inventory
(including linens, dietary supplies and housekeeping supplies, and
including food and other consumable inventories), furnishings, movable
walls or partitions, trade fixtures, computers, software and data
pertaining to the business of the Facility (whether such data is stored in
computers or peripheral equipment that is included within the definition of
the term "Personal Property" or is otherwise in the possession of a Tenant,
or in computers and equipment that is not included within the definition of
the term "Personal Property" but is either owned by Tenant as to which
Tenant has a right of retrieval) and other tangible personal property used
in connection with the business of the Facility, together with all
replacements, modifications, alterations and additions thereto, except (a)
items, if any, included within the definition of Fixtures or Leased
Improvements, (b) personal property leased from third parties, (c)
computers owned or leased by a Tenant that customarily are not located on
the Leased Property, and (d) proprietary software owned by parties other
than a Tenant.
Primary Intended Use: The operation of the Facility as a licensed
health care facility.
Prime Rate: On any date, a rate equal to the annual rate on such date
publicly announced by Citibank, N.A. to be its prime rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing,
but in no event greater than the maximum rate then permitted under
applicable law.
Proceeding: Any action, proposal or investigation by any agency or
entity, or any complaint to such agency or entity.
Purchase Money Financing: Any financing (whether by lease, chattel
mortgage, installment sale, or otherwise) provided by a Person to Tenant in
connection with the acquisition of Personal Property used in connection
with the operation of the Facility, whether by way of installment sale or
otherwise.
Purchase Price: The Purchase Price set forth on Exhibit F hereto.
Qualified Capital Expenditures: Expenditures capitalized on the books
of the Tenant for any of the following: replacement of furniture, fixtures
and equipment, including refrigerators, ranges, major appliances, bathroom
fixtures, doors (exterior and interior), central air conditioning and
heating systems (including cooling towers, water chilling units, furnaces,
boilers and fuel storage tanks) and major replacement of siding; major roof
replacements, including major replacements of gutters, downspouts, eaves
and soffits; major repairs and replacements of plumbing and sanitary
systems; overhaul of elevator systems; major repaving, resurfacing and
sealcoating of sidewalks, parking lots and driveways; repainting of entire
building exterior; but excluding major alterations, renovations and
additions.
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Reconstruction Period: A period of three hundred sixty-five (365) days
following the date of any damage or destruction or the Date of Taking, as
applicable, subject to extension to the extent required by Unavoidable
Delay.
Regulatory Actions: With respect to the Leased Property, any claim,
demand, notice, action or proceeding brought or initiated by any
governmental authority in connection with any Environmental Law, including,
without limitation, civil, criminal and/or administrative proceedings, and
whether or not seeking costs, damages, equitable remedies, penalties or
expenses.
Related Rights: All easements, rights and appurtenances relating to
the Land and the Leased Improvements.
Release: The intentional or unintentional spilling, leaking, dumping,
pouring, emptying, seeping, disposing, discharging, emitting, depositing,
injecting, leaching, escaping, abandoning or other release or threatened
release, however defined, of any Hazardous Substance.
Rent: Collectively, the Base Rent and the Additional Charges.
Rental Value: (a) With respect to the Leased Property that has been
relet during the period in question, the Rent actually received by Landlord
for the period in question from the reletting, net of all reasonable
expenses, including brokerage commissions, fees of attorneys and
consultants and the cost of any repairs and alterations required to obtain
such reletting and (b) with respect to the Leased Property that has not
been relet during the period in question, the Worth at the Time of the
Award of the Rent obtainable for the Leased Property for the period in
question, under a lease of the Leased Property on the same terms and
conditions as are set forth in this Lease, from a Tenant that is unrelated
to Landlord and has experience and a reputation in the health care industry
and a credit standing reasonably equivalent to that of Tenant and
Guarantors.
Replaced Property: Any Fixtures or Personal Property that from time to
time are replaced, pursuant to Section 9.1.5 hereof, after the date of this
Lease.
Replacement Property: Any Fixtures or Personal Property acquired by
Tenant in accordance with Section 9.1.5 hereof, after the date of this
Lease for use in connection with the Facility in replacement of any
Replaced Property.
SEC: Securities and Exchange Commission.
Second Renewal Term: The period of ten (10) years.
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Security Agreement: The security agreement of even date herewith
between Landlord and Tenant.
Security Deposit: The cash sum determined in accordance with the
schedule attached as Exhibit C hereto.
State: The State of Idaho, where the Facility is located.
Taking: The exercise by a Condemnor of any governmental power, whether
by legal proceedings or otherwise, to acquire an interest in the Leased
Property, or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for
condemnation are pending.
Tangible Net Worth: At any date, the net worth of Guarantor and all of
its subsidiaries (including, without limitation, Tenant), as determined on
a consolidated basis in accordance with GAAP, less Intangible Assets of
Guarantor and all of its subsidiaries (including, without limitation,
Tenant).
Tenant's Other Leased Property: The Idaho Falls Care Center, located
in Idaho Falls, Idaho, that is subject to a Lease, of even date hereof,
between IHS Acquisition No. 104, Inc. and Tenant, including all amendments,
modifications or renewals thereof.
Tenant's Personal Property: All Personal Property (a) which Tenant
owns and uses, as of the date of this Lease, in connection with the
operation of the Leased Property being leased pursuant to this Lease,
and/or (b) which Tenant acquires after the Commencement Date for use by it
in connection with the Facility.
Term: The Initial Term and, if renewed as provided in Article 12, the
First Renewal Term and/or the Second Renewal Term.
Third Party Claims: Any legal actions or proceedings (other than
Regulatory Actions but including, without limitation, those based on
negligence, trespass, strict liability, nuisance or toxic tort due to
Contamination), and whether or not seeking costs, damages, penalties or
expenses, brought by any person or entity other than a governmental agency.
Transfer: The (a) assignment, mortgaging or other encumbering of all
or any part of Tenant's interest in this Lease or Tenant's interest in the
Leased Property or (b) the entering into of any management agreement or
other arrangement under which the Facility is operated by or licensed to be
operated by an entity other than Tenant.
Transferee: Any assignee, subtenant or other occupant of the Leased
Property pursuant to any Transfer.
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Umbrella Policies: Policies of insurance that cover risks in excess of
the liability limits of policies required to be carried under this Lease.
Unavoidable Delays: Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes
beyond the reasonable control of the party responsible for performing an
obligation hereunder, provided that lack of funds shall not be deemed a
cause beyond the control of a party.
Unsuitable for Its Primary Intended Use: A state or condition of the
Facility such that, by reason of damage or destruction or a Partial Taking,
the Facility cannot reasonably be expected to be repaired and restored
within the Reconstruction Period to a condition in which it may be operated
on a commercially practicable basis for its Primary Intended Use, taking
into account, among other relevant factors, the number of useable beds, the
amount of square footage and the estimated revenue affected by such damage
or destruction or Partial Taking.
Worth at the Time of the Award: The present value of the applicable
amount, determined at the time required in Section 16.5 hereof, by
discounting the applicable amount by the Prime Rate.
2.2 OTHER DEFINITIONS. Other words and phrases are defined elsewhere in
this Lease and in the Exhibits and Schedules hereto.
ARTICLE 3
RENT; RELATED MATTERS
3.1 RENT. Tenant shall pay the Rent in lawful money of the United States of
America and legal tender for the payment of public and private debts. The first
payment of Base Rent shall be due on the Commencement Date. Tenant shall pay the
Base Rent in equal, consecutive monthly installments in advance on the first day
of each calendar month of the Term. Unless otherwise agreed by the parties, Rent
shall be prorated as to any partial month at the end of the Term.
3.2 ADDITIONAL CHARGES. In addition to the Base Rent, Tenant will also pay
and discharge as and when due and payable all Impositions as provided in Section
4.1 hereof and all Additional Charges. If Tenant fails to pay any Additional
Charges as and when due, Tenant will also promptly pay and discharge as
Additional Charges every fine, penalty, interest and cost which may be added for
non-payment or late payment.
3.3 LATE CHARGE; INTEREST. If any installment of Base Rent, or any
Additional Charges payable by Tenant to Landlord hereunder is not paid by the
due date, Tenant shall pay
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Landlord on demand, as an Additional Charge, (a) a late charge of five percent
(5%) of the amount due and unpaid and (b) if such payment is not made within
thirty (30) days of the date due, interest thereon at the Overdue Rate from such
thirtieth (30th) day until the date on which such payment plus such late charge
and interest is paid in full.
3.4 METHOD OF PAYMENT OF RENT. All Rent to be paid to Landlord shall be
paid by electronic funds transfer debit transactions through wire transfer of
immediately available funds to Landlord per the wiring instructions set forth on
Exhibit I hereto (as from time to time be changed by Landlord by Notice to
Tenant) and shall be initiated by Tenant for settlement on or before the due
date each calendar month; provided, however, if the due date is not a Business
Day, then settlement shall be made on the next succeeding day which is a
Business Day. Landlord shall provide Tenant with appropriate wire transfer
information in a Notice from Landlord to Tenant.
3.5 NET LEASE; NO OFFSET. The Rent shall be paid absolutely net to
Landlord, so that this Lease shall yield to Landlord the full amount of the
installments of Base Rent and Additional Charges payable hereunder throughout
the Term, subject to the terms and conditions hereof. This Lease is and shall be
a "pure-net" or "triple-net" lease, as such terms are commonly used in the real
estate industry, it being intended that Tenant shall pay all costs, expenses and
charges arising out of the use, occupancy and operation of the Leased Property,
without any offset, deduction, abatement, or counterclaim whatsoever. Landlord
shall not be required to furnish any services whatsoever to the Facility or to
make any payment of any kind whatsoever; and Landlord shall not be responsible
for any loss or damage to any property of Tenant, or any other user or occupant
of any part of the Facility, absent the gross negligence or willful misconduct
of Landlord, its employees or agents.
ARTICLE 4
IMPOSITIONS; RELATED MATTERS
4.1 PAYMENT OF IMPOSITIONS. Tenant will pay or cause to be paid all
Impositions before any fine, penalty, interest or cost may be added for
non-payment, and Tenant will promptly, upon request, furnish to Landlord copies
of official receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Tenant may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments and, in such
event, Tenant shall pay such installments during the Term hereof as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. Refunds of Impositions paid by Tenant shall be
paid to or retained by Tenant. Landlord shall remit promptly to Tenant any
refunds of Impositions received by Landlord. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and
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reports. Tenant will provide Landlord, upon request, with cost and depreciation
records in its possession that are reasonably necessary for filing returns for
any property classified as personal property. Tenant may, at Tenant's sole cost
and expense, protest, appeal or institute such other proceedings as Tenant may
deem appropriate to effect a reduction of Impositions, and Landlord shall
cooperate with Tenant in such protest, appeal or other action. Tenant shall
reimburse Landlord for Landlord's direct costs of cooperating with Tenant with
respect to such protest, appeal or other action and shall indemnify, defend and
hold Landlord harmless against any expense or loss as a result thereof. The
foregoing shall not be construed as indemnifying Landlord against its own
grossly negligent acts or omissions or willful misconduct.
4.2 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
tax-fiscal period during which the Term ends shall be adjusted and prorated
between Landlord and Tenant, whether or not such Imposition is imposed before or
after termination or expiration, and Tenant's obligation to pay their prorated
share thereof, if the same becomes due after such termination or expiration,
shall survive such termination or expiration.
4.3 UTILITY CHARGES. Tenant will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities used in the
Leased Property during the Term.
4.4 INSURANCE PREMIUMS. Tenant will pay or cause to be paid when due all
premiums for the insurance coverage required to be maintained pursuant to
Article 13 during the Term.
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC.
Except as otherwise specifically provided in this Lease, Tenant shall
remain bound by this Lease in accordance with its terms and shall not take any
action without the consent of Landlord to modify, surrender or terminate the
same, and shall not seek or be entitled to any offset, deduction abatement, or
counterclaim, or any deferral or reduction of Rent. The respective obligations
of Landlord and Tenant shall not be affected by reason of (a) any damage to, or
destruction of, the Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, except as expressly
set forth herein; (b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property, or any portion thereof, or the
interference with such use by any Person (other than Landlord or its employees
or agents) or by reason of eviction by paramount title; (c) any claim which
Tenant has or might have against Landlord or by reason of any default or breach
of any warranty by Landlord under this Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties, (d) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Landlord or any assignee
or transferee of Landlord, or (e) any
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other cause whether similar or dissimilar to any of the foregoing other than a
discharge of Tenant from any such obligations as a matter of law. Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to (i) modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (ii) except as otherwise specifically provided in this Lease,
entitle Tenant to any reduction, suspension or deferral of the Rent or other
sums payable by Tenant hereunder except and unless as otherwise specifically
provided in this Lease.
ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY
6.1 OWNERSHIP OF THE LEASED PROPERTY. Tenant acknowledges that the Leased
Property is the property of Landlord and that Tenant has only the right to the
possession and use of the Leased Property leased by it upon the terms and
conditions of this Lease. Tenant will not (a) file any income tax return or
other associated documents; (b) file any other document with or submit any
document to any governmental body or authority; (c) enter into any written
contractual arrangement with any Person; or (d) release any financial statements
of Tenant, in each case that takes any position other than that, throughout the
Term, Landlord is the owner of the Leased Property for federal, state and local
income tax purposes and that this Lease is a "true lease".
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall, during the entire Term,
maintain all of Landlord's Personal Property in good order, condition and repair
as shall be necessary in order to operate the Facility for the Primary Intended
Use in compliance with applicable licensure and certification requirements,
applicable Legal Requirements and Insurance Requirements, and customary industry
practice for the Primary Intended Use. If any of Landlord's Personal Property
requires replacement in order to comply with the foregoing, Tenant shall replace
it with other similar property of the same or better quality at Tenant's sole
cost and expense; the Replaced Property shall no longer be Landlord's Personal
Property; and the Replacement Property shall become part of Landlord's Personal
Property. Tenant shall not permit or suffer Landlord's Personal Property to be
subject to any lien, charge, encumbrance, financing statement or contract of
sale or the like, except for any purchase money security interest or
equipment or Landlord's interest expressly approved in advance, n writing, by
Landlord. At the expiration or earlier termination of this Lease, all of
Landlord's Personal Property shall be surrendered to Landlord with the Leased
Property in the condition required by Section 9.1.6 hereof.
6.3 TENANT'S PERSONAL PROPERTY. Tenant shall provide and maintain, during
the entire Term, such Personal Property, in addition to Landlord's Personal
Property, as shall be necessary and appropriate in order to operate the Facility
for its Primary Intended Use in compliance with all licensure and certification
requirements, in compliance with all applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary
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practice in the industry for the Primary Intended Use. Upon the expiration or
earlier termination of this Lease, without the payment of any additional
consideration by Landlord, Tenant shall be deemed to have sold, assigned,
transferred and conveyed to Landlord all of Tenant's right, title and interest
in and to any of the respective Tenant's Personal Property that is integral to
the use of the Facility for its Primary Intended Use, and shall, upon Landlord's
request, execute and deliver to Landlord a bill of sale with respect thereto,
and without Landlord's prior written consent Tenant shall not remove the same
from the Leased Property. Any of Tenant's Personal Property that is not integral
to the use of the Facility at such time may be removed by Tenant, and, if not
removed within thirty (30) days following the expiration or earlier termination
of this Lease, shall be considered abandoned by Tenant and may be appropriated,
sold, destroyed or otherwise disposed of by Landlord without giving notice
thereof to Tenant and without any payment to Tenant or any obligation to account
therefor. Tenant will, at its expense, repair all damage to the Leased Property
that is caused by the removal of any of Tenant's Personal Property, whether
effected by Tenant or Landlord.
6.4 GRANT OF SECURITY INTEREST IN TENANT'S PERSONAL PROPERTY; RESTRICTION
ON OTHER LIENS. Tenant has concurrently granted to Landlord a security interest
in Tenant's Personal Property upon the terms set forth in the Security
Agreement. Without Landlord's consent, Tenant shall not permit or suffer
Tenant's Personal Property to be subject to any lien, charge, encumbrance,
financing statement or contract of sale other than to secure Permitted Debt.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY
7.1 CONDITION OF THE LEASED PROPERTY. Tenant acknowledges that Tenant has
examined and otherwise has knowledge of the condition of the Leased Property
leased by it prior to the execution and delivery of this Lease and has found the
same to be in good order and repair and satisfactory for its purposes hereunder.
Tenant is leasing the applicable Leased Property "as is" in its condition on the
Commencement Date. Tenant waives any claim or action against Landlord in respect
of the condition of the Leased Property being leased by it. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, OR OTHERWISE AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO TENANT. TENANT
FURTHER ACKNOWLEDGES THAT, ON AND AFTER THE COMMENCEMENT DATE AND THROUGHOUT THE
TERM, TENANT IS SOLELY RESPONSIBLE FOR THE CONDITION OF THE LEASED PROPERTY.
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7.2 USE OF THE LEASED PROPERTY.
7.2.1 Subject to the exceptions in clause (f) of the definition of
"Event of Default" in Article 2 hereof, throughout the Term, Tenant shall
continuously use the Leased Property leased by it for the Primary Intended Use
and for such other uses as may be necessary or incidental thereto, and no Tenant
shall use any Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or permitted to be
made of, or allowed in, any Leased Property, and no acts shall be done, which
will cause the cancellation of, or be prohibited by, any insurance policy
covering any Leased Property or any part thereof.
7.2.2 Tenant agrees that the Leased Property leased by it and Tenant's
Personal Property shall not be used for any unlawful purpose, nor shall Tenant
commit or suffer any waste on the Leased Property leased by it or cause or
permit any nuisance thereon.
7.2.3 Tenant shall not suffer or permit the Leased Property, or any
portion thereof, or Tenant's Personal Property to be used in such a manner as
(i) might reasonably tend to impair Landlord's (or Tenant's, as the case may be)
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public or of
implied dedication of the Leased Property or any portion thereof.
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. Subject to Article
12, Tenant, at its expense, will promptly (i) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property and Tenant's Personal
Property, whether or not compliance therewith requires structural changes in any
of the Leased Improvements (which structural changes shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed) or interferes with or prevents the use and enjoyment of the
Leased Property, and (ii) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
the use of the Leased Property and Tenant's Personal Property then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Tenant's use, maintenance, operation and
any alteration of the Leased Property shall at all times conform to all
applicable local, state, and federal laws, ordinances, rules, and regulations
(including but not limited to the Americans with Disabilities Act). The judgment
of any court or administrative body of competent jurisdiction, or the decision
of any arbitrator (final beyond any appeal) that Tenant has violated
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any such Legal Requirements or Insurance Requirements, shall be conclusive of
that fact as between Landlord and Tenant.
8.3 CERTAIN FINANCIAL AND OTHER COVENANTS.
8.3.1 Certain Financial Covenants.
8.3.1.1 Minimum Capital Expenditures. During the first Lease
Year, Tenant shall make at least Three Hundred Dollars ($300.00)
per-licensed-bed of Qualified Capital Expenditures, and thereafter throughout
the Term, Tenant shall in each Lease Year make Qualified Capital Expenditures in
such amount increased annually in proportion by the increase in the Cost of
Living Index from the first day of the prior Lease Year to the first day of the
current Lease Year. The amount of Qualified Capital Expenditures
per-licensed-bed may never be less in any Lease Year than the amount established
in the prior Lease Year.
8.3.1.2 Permitted Debt. Except for Permitted Debt, Tenant shall
not incur any Debt without the prior written consent of Landlord, which Landlord
may withhold in its discretion.
8.3.1.3 Cash Flow to Debt Service Requirement. At all times
during the Term, Tenant shall maintain a ratio of Cash Flow from the Facility to
Debt Service from the Facility at least equal to the Cash Flow to Debt Service
Requirement.
8.4 OTHER BUSINESSES. During the Term of this Lease, Tenant shall not,
directly or indirectly, own, operate or manage any businesses other than health
care businesses.
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS
9.1 MAINTENANCE AND REPAIR.
9.1.1 Tenant, at its expense, shall keep the Leased Property leased by
it and all fixtures thereon and all landscaping, private roadways, sidewalks and
curbs appurtenant thereto and which are under Tenant's control and Tenant's
Personal Property in good order and repair (whether or not the need for such
repairs occurs as a result of Tenant's use, any prior use, the elements or the
age of the applicable Leased Property or any portion thereof, or any cause
whatever except the failure of Landlord to make any payment or to perform any
act expressly required under the Lease or the negligence or willful misconduct
of Landlord), and, except as may be provided to the contrary in Article 14, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or
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arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise).
9.1.2 Tenant shall do or cause others to do all shoring of the Leased
Property leased by it or adjoining property (whether or not owned by Landlord)
or of the foundations and walls of the Leased Improvements, and every other act
necessary or appropriate for the preservation and safety thereof, by reason of
or in connection with any subsidence, settling or excavation or other building
operation upon the Leased Property leased by it or adjoining property, whether
or not Tenant or Landlord shall, by any Legal Requirements, be required to take
such action or be liable for the failure to do so; provided, however, that such
shoring and any other material acts shall be subject to the prior written
consent of Landlord, which shall not unreasonably be withheld or delayed. All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work, and, subject to the provisions of paragraph 9.1.6,
where, by reason of age or condition, such repairs cannot be made to the quality
of the original work, the property to be repaired shall be replaced.
9.1.3 Landlord shall not under any circumstances be required to build
or rebuild any improvements on the Leased Property or on any property
appurtenant thereto, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or upon any adjoining property, whether to provide lateral or other
support for the Leased Property or abate a nuisance affecting the Leased
Property, or otherwise, or to make any expenditure whatsoever with respect
thereto, in connection with the Lease, or to maintain the Leased Property in any
way. Tenant hereby waives, to the extent permitted by law, any right provided by
law, but not provided by the terms of this Lease, to make repairs at the expense
of Landlord.
9.1.4 Nothing contained in this Lease shall be construed as (a)
constituting the consent or request of Landlord, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to the Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Landlord in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Landlord in
the Leased Property or any portion thereof. Landlord shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanics' and construction lien laws now or hereafter existing.
9.1.5 Tenant shall, from time to time as and when needed, replace with
Replacement Property any of the Fixtures or Personal Property which shall have
(a) become worn out, obsolete or unusable for the purpose for which it is
intended (if such Fixtures or Personal Property continues to be necessary), (b)
been the subject of a Taking (in which event
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Tenant shall be entitled to that portion of any Award made therefor), or (c)
been lost, stolen or damaged or destroyed; provided, however, that the
Replacement Property shall (i) be in good operating condition, (ii) be of a
quality reasonably equivalent to that of the Replaced Property and (iii) be
suitable for a use which is the same or similar to that of the Replaced
Property. Tenant shall repair at its sole cost and expense all damage to the
applicable Leased Property caused by the removal of Replaced Property or other
personal property of Tenant or the installation of Replacement Property. All
Replacement Property shall become the property of Landlord and shall become
Fixtures or Landlord's Personal Property, as the case may be, to the same extent
as the Replaced Property had been. Upon Landlord's written request Tenant shall
with reasonable promptness cause to be executed and delivered to Landlord an
invoice, bill of sale or other appropriate instrument evidencing the transfer or
assignment to Landlord of all estate, right, title and interest (other than the
leasehold estate created hereby) of Tenant or any other Person in and to any
Replacement Property the cost of which exceeds Twenty Five Thousand Dollars
($25,000), free from all liens and other exceptions to title, and Tenant shall
pay all taxes, fees, costs and other expenses that may become payable as a
result thereof.
9.1.6 Upon the expiration or earlier termination of the Term, Tenant
shall vacate and surrender the Leased Property leased by it to Landlord as a
fully equipped, licensed health care facility, with all equipment required by
the laws of the State of Idaho to maintain its then current license, and shall
assign and transfer to Landlord (or to another Person designated by Landlord)
the Facility Trade Names, local telephone numbers, local electronic mail and
"Internet" addresses, if any, under which the Facility is then conducting
business, and all Facility-specific licenses, permits and rights to do business
of every kind (subject to such governmental approvals as may be required),
patient admission agreements and records, supplier and operator contracts, a
copy of all then-current data maintained by Tenant in writing or recorded on
computer media with respect to the business of the Facility and all computer
software necessary to access and manipulate such data. Tenant shall not be
required to transfer proprietary software to Landlord, but shall cause the data
it is to transfer to Landlord to be transferred to Landlord, without charge. At
the expiration of the Term or the sooner termination of this Lease, the Leased
Property, including all Leased Improvements, Fixtures and Landlord's Personal
Property, shall be returned to Landlord in good operating condition, ordinary
wear and tear, Taking and casualty damage that Tenant is not required by this
Lease to repair or restore, excepted, and except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease.
Notwithstanding anything to the contrary in this Lease, not more than fifty
percent (50%) of the value of the Personal Property returned to Landlord as
required herein may at the time of such return be subject to Purchase Money
Financing, and at the time of such return Tenant shall assign to Landlord all of
its right, title and interest in and to such any and all documents evidencing
such Purchase Money Financing.
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. Except in the case of Permitted
Encumbrances, if any of the Leased Improvements (other than as existing on the
Commencement Date), at any time encroaches in a material adverse manner upon any
property, street or right-of-way adjacent to the Leased Property, or materially
violates the agreements or conditions contained in any lawful restrictive
covenant or other agreement
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affecting the Leased Property or any part thereof, or materially impairs the
rights of others under any easement or right-of-way to which the Leased Property
is subject, then promptly upon the request of Landlord or at the behest of any
person legitimately affected by any such encroachment, violation or impairment,
Tenant shall, at its expense, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, or (b) make such changes to the Leased
Improvements, and take such other actions, as are reasonably practicable, to
remove such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the applicable Leased Improvements, and in
any event take all such actions as may be necessary in order to be able to
continue the operation of the Leased Property for the Primary Intended Use
substantially in the manner and to the extent the Leased Property was operated
prior to the assertion of such violation, impairment or encroachment.
ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 CONSTRUCTION OF ALTERATIONS AND ADDITIONS TO THE LEASED PROPERTY.
Tenant shall not make or permit to be made any alterations, improvements or
additions of or to the Leased Property leased by it or any part thereof, other
than non-structural alterations having no material effect on the roof,
foundation, utility systems or structure, unless and until Tenant has caused
plans and specifications therefor to have been prepared, at Tenant's expense, by
a licensed architect and submitted to Landlord at least thirty (30) days (ninety
(90) days, if such alterations, improvements or additions are reasonably
estimated to cost more than the Approval Threshold) in advance of the
commencement of construction, and has obtained Landlord's written approval
thereof. Landlord shall have the right to require that, prior to the
commencement of construction of any alterations, improvements or additions as to
which its approval is required hereunder, Tenant also provide Landlord with
reasonable assurance of the payment of the cost thereof and, if the cost thereof
is in excess of the Approval Threshold, Tenant shall comply with Landlord's
requirements with respect to the periodic delivery of lien waivers and evidence
of payment for such cost. If such approval is granted, Tenant shall cause the
work described in such approved plans and specifications to be performed, at its
expense, promptly, and in a good, workerlike manner by licensed contractors and
in compliance with applicable governmental and Insurance Requirements and Legal
Requirements and the standards set forth in this Lease, which improvements shall
in any event constitute a complete architectural unit (if applicable) in keeping
with the character of the Leased Property and the area in which the Leased
Property is located and which will not diminish the value of the Leased Property
or change the Primary Intended Use of the Leased Property. Tenant shall be
responsible for the completion of such improvements in accordance with the plans
and specifications approved by Landlord, and shall promptly correct any failure
with respect thereto. Each and every such improvement, alteration or addition
shall immediately become a part of the Leased Property and shall belong to
Landlord subject to the terms and conditions of this Lease. Tenant shall not
have any claim against Landlord at any time in respect of the cost
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or value of any such improvement, alteration or addition. There shall be no
adjustment in the Base Rent by reason of any such improvement, alteration or
addition, unless such improvement, alteration or addition is financed by
Landlord. With Landlord's consent, expenditures made by a Tenant pursuant to
this Article 10 may be included as capital expenditures for purposes of
inclusion in the capital expenditures budget for the Facility and for measuring
compliance with the obligations of Tenant set forth in Section 8.3.1.1 hereof.
10.2 ASBESTOS REMOVAL FOR ALTERATIONS AND ADDITIONS. In connection with any
alteration other than removal pursuant to the Escrow Agreement which involves
the removal, demolition or disturbance of any asbestos-containing material,
Tenant shall cause to be prepared at its expense a full asbestos assessment
applicable to such alteration, and shall carry out such asbestos monitoring and
maintenance program as shall reasonably be required thereafter in light of the
results of such assessment.
ARTICLE 11
REMOVAL OF LIENS
Without the consent of Landlord, and except as expressly provided
elsewhere herein, Tenant shall not directly or indirectly create or allow to
remain, and within thirty (30) business days after notice thereof shall promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property, and any attachment, levy, claim or
encumbrance in respect of the Rent, excluding (a) Permitted Encumbrances, (b)
Mechanics Liens for sums not yet due, (c) liens created by the acts or omissions
of Landlord, and (d) Mechanics Liens which Tenant is contesting (provided that
the aggregate amount of such contested liens shall not exceed one month's Base
Rent.
ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC.
12.1 PERMITTED CONTESTS. Tenant, on its own or on Landlord's behalf (or in
Landlord's name), but at Tenant's sole cost and expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity of any Imposition, Legal Requirement, Insurance
Requirement or Claim not otherwise permitted by Article 11, but this shall not
be deemed or construed in any way as relieving, modifying or extending Tenant's
covenants to pay or to cause to be paid any such charges at the time and in the
manner as in this Lease provided, nor shall any such legal proceedings operate
to relieve Tenant from its obligations hereunder and or cause the sale of the
Leased Property, or any part thereof, to satisfy the same or cause Landlord or
Tenant to be in default under any Encumbrance or in violation of any Legal
Requirements or Insurance Requirements upon the Leased Property or any interest
therein. Upon request of Landlord, if the claim exceeds the
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Approval Threshold, Tenant shall either (a) provide a bond, letter of credit or
other assurance reasonably satisfactory to Landlord that all Claims, together
with interest and penalties, if any, thereon, will be paid, or (b) deposit
within the time otherwise required for payment with a bank or trust company
selected by Landlord as trustee, as security for the payment of such Claims,
money in an amount sufficient to pay the same, together with interest and
penalties in connection therewith, and all Claims which may be assessed against
or become a Claim on the Leased Property, or any part thereof, in said legal
proceedings. Tenant shall furnish Landlord and any lender to Landlord and any
other party entitled to assert or enforce any Legal Requirements or Insurance
Requirements with evidence of such deposit within five (5) days of the same.
Landlord agrees to join in any such proceedings if the same be required to
legally prosecute such contest of the validity of such Claims; provided,
however, that Landlord shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any such proceedings; and
Tenant covenants to indemnify and save harmless Landlord from any such costs or
expenses, including but not limited to attorney's fees incurred in any
arbitration proceeding, trial, appeal and post-judgment enforcement proceedings.
Tenant shall be entitled to any refund of any Claims and such charges and
penalties or interest thereon which have been paid by Tenant or paid by Landlord
and for which Landlord has been fully reimbursed. If Tenant fails to pay or
satisfy the requirements or conditions of any Claims when finally determined to
be due or to provide the security therefor as provided in this paragraph and to
diligently prosecute any contest of the same, Landlord may, upon thirty (30)
days advance written Notice to Tenant, pay such charges or satisfy such claims
together with any interest and penalties and the same (or the cost thereof)
shall be repayable by Tenant to Landlord forthwith as Additional Charges. If
Landlord reasonably determines that a shorter period is necessary in order to
prevent loss to the Leased Property or avoid damage to Landlord, then Landlord
shall give such written Notice as is practical under the circumstances.
12.2 LANDLORD'S REQUIREMENT FOR DEPOSITS. Upon and at any time after an
Event of Default, and regardless of whether or not Tenant subsequently cures
such Event of Default, Landlord, in its sole discretion, shall be entitled to
require Tenant to pay monthly a pro rata portion of the amounts required to
comply with the Insurance Requirements, any Imposition and any Legal
Requirements, and when such obligations become due, Landlord shall pay them (to
the extent of the deposit) upon Notice from Tenant requesting such payment. If
sufficient funds have not been deposited to cover the amount of the obligations
due at least thirty (30) days in advance of the due date, Tenant shall forthwith
deposit the same with Landlord upon written request from Landlord. Landlord
shall not commingle such deposited funds with its other funds, and Tenant shall
be entitled to any interest paid on any deposit so held by Landlord unless and
except to the extent that Landlord, having the right to do so by the terms of
this Lease, applies such interest to Tenant's obligations hereunder. Upon an
Event of Default under this Lease, any of the funds remaining on deposit may be
applied under this Lease, in any manner and on such priority as is determined by
Landlord and after five (5) days Notice to Tenant.
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ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term, Tenant shall at all
times keep the Leased Property leased by it, and all property located in or on
the Leased Property, including all Personal Property, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State of Idaho. All such
policies provided and maintained during the Term shall be written by companies
having a rating classification of not less than "A-" and a financial size
category of "Class X," according to the then most recent issue of Best's Key
Rating Guide. The policies (other than Workers' Compensation policies) shall
name Landlord as an additional insured. Losses shall be payable to Landlord and
Tenant and disbursed as provided in Article 14. Tenant shall pay when due all of
the premiums for the insurance required hereunder, and deliver certificates
thereof (in form and substance reasonably satisfactory to Landlord) to Landlord
prior to their effective date, or, with respect to any renewal policy, prior to
the expiration of the existing policy. In the event of the failure of Tenant
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such certificates thereof to Landlord at the times
required, Landlord shall be entitled, but shall have no obliga tion, to effect
such insurance and pay the premiums therefor when due, which premiums shall be
repayable to Landlord upon written demand therefor as Rent, and failure to repay
the same within thirty (30) days after Notice shall constitute an Event of
Default. The policies on the Leased Property, including the Leased Improvements
and Fixtures, and on the Personal Property, shall insure against the following
risks:
13.1.1 Loss or damage by fire, vandalism and malicious mischief,
earthquake (if available at commercially reasonable rates) and extended coverage
perils commonly known as "Special Risk," and all physical loss perils normally
included in such Special Risk insurance, including but not limited to sprinkler
leakage, in an amount not less than ninety percent (90%) of the then full
replacement cost thereof (as defined in Section 13.2 hereof);
13.1.2 Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the Facility;
13.1.3 Loss of rental included in a business income or rental value
insurance policy covering risk of loss during reconstruction necessitated by the
occurrence of any of the hazards described in Sections 13.1.1 or 13.1.2 hereof
(but in no event for a period of less than twelve (12) months) in an amount
sufficient to prevent either Landlord or Tenant from becoming a co-insurer;
13.1.4 Claims for personal injury or property damage under a policy of
commercial general public liability insurance with a combined single limit per
occurrence in respect of bodily injury and death and property damage of One
Million Dollars ($1,000,000),
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and an aggregate limitation of Three Million Dollars ($3,000,000), which
insurance shall include contractual liability insurance;
13.1.5 Claims arising out of professional malpractice in an amount not
less than One Million Dollars ($1,000,000) for each person and for each
occurrence and an aggregate limit of Three Million Dollars ($3,000,000);
13.1.6 Flood (if Leased Property is located in whole or in part within
a designated flood plain area) and such other hazards and in such amounts as may
be customary for comparable properties in the area;
13.1.7 During such time as Tenant is constructing any improvements,
Tenant, at its sole cost and expense, shall carry or cause to be carried (a)
workers' compensation insurance and employers' liability insurance covering all
persons employed in connection with the improvements in statutory limits, (b) a
completed operations endorsement to the commercial general liability insurance
policy referred to above, and (c) builder's risk insurance, completed value
form, covering all physical loss, in an amount and subject to policy conditions
reasonably satisfactory to Landlord;
13.1.8 Tenant shall procure, and at all times during the Term of this
Lease shall maintain, a policy of primary automobile liability insurance with
limits of One Million Dollars ($1,000,000) per occurrence for owned and
non-owned and hired vehicles; and
13.1.9 If Tenant chooses to carry umbrella liability coverage to
obtain the limits of liability required hereunder, all such policies must cover
in the same manner as the primary commercial general liability policy and must
contain no additional exclusions or limitations materially different from those
of the primary policy.
13.2 REPLACEMENT COST. The term "full replacement cost" means the actual
replacement cost of the Leased Improvements, Fixtures and Landlord's Personal
Property, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In all
events, full replacement cost shall be an amount sufficient that neither
Landlord nor Tenant is deemed to be a co-insurer of the Leased Property. If
Landlord in good faith believes that full replacement cost (the then replacement
cost less such exclusions) of the Leased Property has increased at any time
during the Term, it shall have the right, upon Notice to Tenant, to have such
full replacement cost reasonably redetermined by an Impartial Appraiser. The
determination of the Impartial Appraiser shall be final and binding on Landlord
and Tenant, and Tenant shall forthwith adjust the amount of the insurance
carried pursuant to this Section, as the case may be, to the amount so
determined by the Impartial Appraiser. Landlord and Tenant shall each pay
one-half of the fee, if any, of the Impartial Appraiser.
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13.3 WORKER'S COMPENSATION INSURANCE. Tenant shall at all times maintain
workers' compensation insurance coverage for all persons employed by Tenant on
the Leased Property to the extent required under and in accordance with
applicable law.
13.4 WAIVER OF LIABILITY; WAIVER OF SUBROGATION. Landlord shall have no
liability to Tenant, and, provided Tenant carries the insurance required by this
Lease, Tenant shall have no liability to Landlord, regardless of the cause, for
any loss or expense resulting from or in connection with damage to or the
destruction or other loss of the Leased Property or Tenant's Personal Property,
and no party will have any right or claim against the other for any such loss or
expense by way of subrogation. Each insurance policy carried by Landlord or
Tenant covering the Leased Property and Tenant's Personal Property, including
without limitation, contents, fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the insurer, if such a waiver is
commercially available. Tenant shall pay any additional costs or charges for
obtaining such waivers.
13.5 OTHER REQUIREMENTS. The form of all of the policies of insurance
referred to in this Article shall be the standard forms issued by the respective
insurers meeting the specific requirements of this Lease. The property loss
insurance policy shall contain a Replacement Cost Endorsement. If Tenant obtains
and maintains the professional malpractice insurance described in Section 13.1.5
hereof on a "claims-made" basis, Tenant shall provide continuous liability
coverage for claims arising during the Term either by obtaining an endorsement
providing for an extended reporting period reasonably acceptable to Landlord in
the event such policy is canceled or not renewed for any reason whatsoever, or
by obtaining "tail" insurance coverage converting the policies to "occurrence"
basis policies providing coverage for a period of at least three (3) years
beyond the expiration of the Term. Tenant shall cause each insurer mentioned in
this Article 13 to agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Landlord, that it will give to
Landlord at least thirty (30) days' written notice before the policy or policies
in question shall be materially altered or canceled. If requested by Landlord,
and if available at a commercially reasonable cost, all public liability and
property damage insurance shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recovery under said
policies for any loss, damage, or injury to Landlord, its servants, agents and
employees by reason of the negligence of Tenant or Landlord.
13.6 INCREASE IN LIMITS. If, from time to time after the Commencement Date,
Landlord determines in the exercise of its reasonable business judgment that the
limits of the personal injury or property damage - public liability insurance
then carried are insufficient, Landlord may give Tenant Notice of acceptable
limits for the insurance to be carried, which limits shall be reasonable in
light of the limits required by Landlord of other of its borrowers and Tenant
with respect to similar portfolios at such time; and the insurance shall
thereafter be carried with limits as prescribed by Landlord until further
increase pursuant to the provisions of this Section.
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13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained in
this Article 13, Tenant'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 Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article 13 are otherwise satisfied, and
provided further that Tenant maintain specific allocations acceptable to
Landlord.
13.8 NO SEPARATE INSURANCE.
13.8.1 Tenant shall not, on its own initiative or pursuant to the
request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article, to be furnished by, or which may reasonably be required to be
furnished by, Tenant, or increase the amount of any then existing insurance by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including in all
cases Landlord, are included therein as additional insureds, and the loss is
payable under said insurance in the same manner as losses are payable under this
Lease.
13.8.2 Nothing herein shall prohibit Tenant from (a) securing
insurance required to be carried hereby with higher limits of liability than
required in this Lease, (b) securing umbrella policies or (c) insuring against
risks not required to be insured pursuant to this Lease, and as to such
insurance, Landlord need not be included therein as an additional insured, nor
must the loss thereunder be payable in the same manner as losses are payable
under this Lease. Tenant shall immediately notify Landlord of the taking out of
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.
ARTICLE 14
CASUALTY LOSS
14.1 INSURANCE PROCEEDS. All Net Proceeds payable under any risk policy of
insurance required by Article 13 of this Lease, whether or not paid directly to
Landlord and/or Tenant, shall promptly be deposited with or paid over to an
insurance company, title insurance company or other financial institution
reasonably selected by Landlord and disbursed as provided in this Lease. If the
Net Proceeds are equal to or less than the Approval Threshold, and if no Event
of Default has occurred and is continuing, the Net Proceeds shall be paid to
Tenant promptly upon Tenant's completion of any restoration or repair, as the
case may be, of any damage to or destruction of the Leased Property or any
portion thereof. If the Net Proceeds exceed the Approval Threshold, and if no
Event of Default has occurred and is continuing, the Net Proceeds shall be made
available for restoration or repair, as the case may be, of any damage to or
destruction of the Leased Property or any portion thereof as provided
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in Section 14.10 hereof; provided, however, that, within fifteen (15) days of
the receipt of the Net Proceeds, Landlord and Tenant shall agree as to the
portion thereof attributable to the Personal Property (and failing such shall
submit the matter to arbitration pursuant to the provisions of this Lease) and
those Net Proceeds which the parties agree are payable by reason of any loss or
damage to any of Tenant's Personal Property shall be disbursed to Tenant.
14.2 RESTORATION IN THE EVENT OF DAMAGE OR DESTRUCTION.
14.2.1 If any Leased Improvements are totally or partially damaged or
destroyed and the Facility thereon is thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof. Within
ninety (90) days of such occurrence, Tenant shall commence and thereafter
diligently proceed to complete the restoration of the damaged or destroyed
Leased Improvements to substantially the same (or better) condition as that
which existed immediately prior to such damage or destruction.
14.2.2 If any Leased Improvements are totally or partially damaged or
destroyed, but the Facility thereon is not thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof, and,
within ninety (90) days of the occurrence, Tenant shall commence and thereafter
diligently proceed to restore the Leased Improvements within the Reconstruction
Period to substantially the same (or better) condition as that which existed
immediately prior to such damage or destruction.
14.2.3 No such damage or destruction shall terminate this Lease as to
the Facility; provided, however, that if Tenant, after diligent effort, cannot
within a reasonable time obtain all necessary government approvals, including
building permits, licenses, conditional use permits and any certificates of
need, in order to be able to perform all required repair and restoration work
and thereafter to operate the Leased Improvements for the Primary Intended Use
thereof in substantially the same manner as that existing immediately prior to
such damage or destruction, Tenant shall purchase the Facility or Leased
Property on which the damaged or destroyed Leased Improvements are located for
the Facility Purchase Price, which shall be determined as of the day of the
damage or destruction.
14.3 INTENTIONALLY OMITTED.
14.4 TENANT'S PERSONAL PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant.
14.5 RESTORATION OF TENANT'S PROPERTY. If Tenant is required to restore the
Leased Property as provided in Section 14.2 hereof, Tenant shall also restore or
replace all alterations and improvements made by Tenant and all of the Personal
Property, to the extent required to maintain the then current license of the
Leased Property.
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14.6 NO ABATEMENT OF RENT. Except if the Facility or Leased Property is
purchased by Tenant pursuant to this Article 14, as to which this Lease shall
terminate upon the closing of such purchase, this Lease shall remain in full
force and effect and Tenant's obligation to pay Rent shall continue without
abatement during any period required for repair and restoration.
14.7 CONSEQUENCES OF PURCHASE OF DAMAGED LEASED PROPERTY. If Tenant
purchases the damaged Facility or Leased Property pursuant to the provisions of
this Article 14, this Lease shall terminate upon payment of the price set forth
herein, Landlord shall remit to Tenant any and all Net Proceeds pertaining to
the purchased Leased Property being held by Landlord.
14.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2 hereof, if damage to or destruction of any Leased Improvements occurs
during the last twelve (12) months of the Term of this Lease, and if, as
reasonably estimated by a qualified construction consultant selected by Tenant
and approved by Landlord (which approval shall not unreasonably be withheld),
such damage or destruction cannot be fully repaired and restored within six (6)
months immediately following the date of loss, then Tenant shall have the
option, which Tenant shall exercise by written notice to Landlord within thirty
(30) days of such damage or destruction, to (a) restore the damaged Facility or
Leased Property within such six (6) month period, or (b) to purchase the
Facility or Leased Property on which the damaged or destroyed Leased
Improvements are located from Landlord, within sixty (60) days following the
date of the damage or destruction, for the Facility Purchase Price, which shall
be determined as of the day prior to the date of the damage or destruction.
14.9 WAIVER. Except as specifically provided elsewhere herein, Tenant
hereby waives any statutory or common law rights of termination which may arise
by reason of any damage to or destruction of any Facility.
14.10 PROCEDURE FOR DISBURSEMENT OF INSURANCE PROCEEDS GREATER THAN THE
APPROVAL THRESHOLD. If Tenant restores or repairs the damaged Facility or Leased
Property pursuant to any Subsection of this Article 14 and if the Net Proceeds
exceed the Approval Threshold, the restoration or repair shall be performed in
accordance with the following procedures:
(a) The restoration or repair work shall be done pursuant to plans and
specifications approved by Landlord (not to be unreasonably withheld or
delayed), and Tenant shall cause to be prepared and presented to Landlord a
certified construction statement, reasonably acceptable to Landlord,
showing the total estimated cost of the restoration or repair.
(b) The Construction Funds shall be made available to Tenant as the
restoration and repair work progresses pursuant to certificates of an
architect selected by Tenant that in the reasonable judgment of Landlord is
qualified in the design and construction
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of health care facilities, or of the type of property for which the repair
work is being done.
(c) There shall be delivered to Landlord, with such certificates,
sworn statements and lien waivers from the general contractor and major
subcontractors (i.e., those having contracts of One Hundred Thousand
Dollars ($100,000.00) or more), in the form customary for the State of
Idaho, in an amount at least equal to the amount of Construction Funds to
be paid out to Tenant pursuant to each architect's certificate and dated as
of the date of the disbursement to which they relate.
(d) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, during the restoration
and repair, as to the progress of the work, compliance with the approved
plans and specifications, the cost of restoration and repair and the total
amount needed to complete the restoration and repair.
(e) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, showing that there are
no liens against the Leased Property arising in connection with the
restoration and repair and that the cost of the restoration and repair at
least equals the total amount of Construction Funds then disbursed to
Tenant hereunder.
(f) If the Construction Funds are at any time determined by Landlord
not to be adequate for completion of the restoration and repair, Tenant
shall demonstrate to Landlord, upon request, that Tenant has sufficient
funds available to cover the difference, and shall disburse such funds pari
passu with the Construction Funds.
(g) The Construction Funds may be disbursed by the depository thereof
to Tenant or, at Tenant's direction, to the persons entitled to receive
payment thereof from Tenant, and such disbursement in either case may, at
Landlord's discretion, reasonably exercised, be made directly or through a
third party escrow agent, such as, but not limited to, a title insurance
company, or its agent. Provided no Event of Default has occurred and is
continuing, any excess Construction Funds shall be paid to Tenant upon
completion of the restoration or repair.
(h) If Tenant at any time fails to promptly and fully perform the
conditions and covenants set out in subparagraphs (a) through (f) hereof,
and the failure is not corrected within thirty (30) days of written Notice
thereof, or if during the restoration or repair an Event of Default occurs
hereunder, Landlord may, at its option, immediately cease making any
further payments to Tenant for the restoration and repair.
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(i) Landlord may reimburse itself out of the Construction Fund for its
reasonable and documented expenses of consultants, attorneys and its
employee- inspectors incurred in administering the Construction Funds as
hereinbefore provided.
ARTICLE 15
TAKINGS
15.1 TOTAL TAKING. If title to the fee of the whole of the Facility or
Leased Property shall be acquired by any Condemnor as the result of a Taking,
this Lease shall cease and terminate as to the Facility or Leased Property as of
the Date of Taking by said Condemnor, and the Base Rent payable by Tenant
hereunder shall be reduced, as of the date the Lease shall have been so
terminated as to such Facility or Leased Property, by the Facility Rental Value
of the Facility taken.
15.2 ALLOCATION OF PORTION OF AWARD. The Award made with respect to the
Taking of all or any portion of the Leased Property or for loss of rent shall be
the property of and payable to Landlord up to the sum of (a) all costs and
expenses reasonably incurred and documented by Landlord in connection with the
Taking, (b) any loss of Rent suffered by Landlord as a result of the Taking
(except for any Rent accruing after the completion of a purchase by Tenant of
the affected Facility upon a Partial Taking as hereinafter provided) and (c) in
the case of a Taking of the entire Facility, the Facility Purchase Price as of
the time possession is delivered to the Condemnor. To the extent that the laws
of the State of Idaho permit Tenant to make a claim for Tenant's leasehold
interest, moving expenses, loss of goodwill or business, and Tenant's claim does
not have the effect, directly or indirectly, of reducing Landlord's claim,
Tenant shall have the right to pursue such claim in the Taking proceeding and
shall be entitled to the Award therefor. In any Taking proceedings, Landlord and
Tenant shall each seek its own Award, at its own expense.
15.3 PARTIAL TAKING. In the event of a Partial Taking of the Facility,
Tenant shall commence and diligently proceed to restore the untaken portion of
the Leased Improvements on the Leased Property so that such Leased Improvements
shall constitute a complete architectural unit (if applicable) of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to such
Partial Taking; provided, however, that if a Partial Taking renders the Facility
Unsuitable for Its Primary Intended Use, Tenant shall have the right,
exercisable by written notice to Landlord within thirty (30) days after such
Partial Taking is final without appeal permitted, and before the Condemnor takes
possession, to purchase the Facility for the Facility Purchase Price, which
purchase shall be completed within sixty (60) days of such notice. Landlord
shall contribute to the cost of restoration, or if Tenant elects to purchase the
Facility, Landlord shall pay over to Tenant, any Award payable to Landlord for
such Partial Taking; provided, however, that the amount of such contribution
shall not exceed the cost of restoration. If (a) Tenant elects to restore the
Facility, (b) no Event of Default is then continuing and (c) the
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Award is equal to or less than the Approval Threshold, then Landlord's
contribution shall be made to Tenant prior to the commencement of the
restoration. If (a) Tenant elects to restore the Facility, (b) no Event of
Default is then continuing and (c) the Award is more than the Approval
Threshold, then Landlord shall make the Award available to Tenant in the manner
provided in Section 14.10 hereof for insurance proceeds in excess of the
Approval Threshold. The Base Rent shall be reduced by reason of such Partial
Taking to an amount agreed upon by Landlord and Tenant, and if Landlord and
Tenant cannot agree upon a new Base Rent, the new Base Rent amount shall be
equal to the Base Rent prior to the Partial Taking, reduced in proportion to the
reduction in the Fair Rental Value of the Facility or Leased Property resulting
from the Partial Taking.
15.4 TEMPORARY TAKING. In the event of a temporary Taking of the Leased
Property or any part thereof that is for a period of less than six (6) months,
this Lease shall not terminate with respect to the Leased Property, and the
entire amount of any Award therefor shall be paid to Tenant. Upon the cessation
of any such Taking of less than six (6) months, Tenant shall restore the Leased
Property as nearly as may be reasonably possible to the condition existing
immediately prior to such Taking. If any such Taking continues for six (6)
months or more, such Taking shall be considered a Taking governed by Sections
15.1 through 15.3 hereof, and the parties shall have the rights provided
thereunder.
ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. Upon the occurrence of an Event of Default,
Landlord shall have the rights and remedies hereinafter provided (provided,
however, that if an Event of Default is cured prior to the exercise of any
remedies by Landlord, it shall cease to be such for purposes of this Lease).
16.2 LANDLORD'S RIGHTS UPON TENANT'S DEFAULT. If an Event of Default occurs
with respect to this Lease, Landlord may terminate this Lease by giving Tenant
Notice, whereupon as provided herein, the Term of this Lease shall terminate and
all rights of Tenant hereunder shall cease. The Notice provided for herein shall
be in lieu of, and not in addition to, any notice required by the laws of the
State of Idaho as a condition to bringing an action for possession of the Leased
Property or to recover damages under this Lease. In addition thereto, Landlord
shall have all rights at law and in equity available as a result of Tenant's
breach.
16.3 LIABILITY FOR COSTS AND EXPENSES. Tenant will, to the extent permitted
by law, be liable for the payment, as Additional Charges, of reasonable and
documented costs of and expenses incurred by or on behalf of Landlord as a
consequence of an Event of Default, including, without limitation, reasonable
attorneys' fees (whether or not litigation is
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commenced, and if litigation is commenced, including fees and expenses incurred
in appeals and post-judgment proceedings).
16.4 CERTAIN REMEDIES. If an Event of Default has occurred, and whether or
not this Lease has been terminated, Tenant shall, to the extent permitted by
law, if required by Landlord so to do, immediately surrender to Landlord the
Leased Property and quit the same, and Landlord may enter upon and repossess the
respective Leased Property by legal process, and may remove Tenant and all other
persons and any and all Personal Property from the Leased Property, subject to
rights of any residents or patients and to any requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to Section
16.1 hereof, (b) the repossession of the Leased Property, (c) the failure of
Landlord to relet the Leased Property, (d) the reletting of all or any portion
thereof or (e) the failure of Landlord to collect or receive any rentals due
upon any reletting shall relieve Tenant of its liability and obligations
hereunder, all of which shall survive such termination, repossession or
reletting. In the event of any termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the Leased Property to and
including the date of the termination. At Landlord's option, as and for
liquidated and agreed current damages for Tenant's default, Tenant shall also
forthwith pay to Landlord:
(i) the sum of:
(A) the Worth at the Time of the Award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of the award exceeds the aggregate Rental Value of the Leased Property for
such period, and
(B) the Worth at the Time of the Award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds
the aggregate Rental Value of the Leased Property for such period, and
(C) any other amount necessary to compensate Landlord for all the
damage proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom; or
(ii) without termination of Tenant's right to possession of the Leased
Property, each installment of the Rent and other sums payable by
Tenant to Landlord under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
16.6 WAIVER. If this Lease is terminated pursuant to Section 16.2 hereof,
Tenant waives the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
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16.7 APPLICATION OF FUNDS. Any payments received by Landlord during the
existence or continuance of any Event of Default (and any payment made to
Landlord rather than Tenant due to the existence of an Event of Default) shall
be applied to Tenant's obligations in the order which Landlord may determine or
as may be prescribed by the laws of the State of Idaho.
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant fails to make any payment or to perform any act required to
be made or performed under this Lease, and fails to cure the same within the
relevant time periods provided in the definition of Event of Default in Section
2.1 hereof or elsewhere in this Lease, Landlord may (but shall not be obligated
to), after five (5) days' prior Notice to Tenant (except in an emergency), and
without waiving or releasing any obligation of Tenant or any Event of Default,
at any time thereafter make such payment or perform such act for the account and
at the expense of Tenant, and may, to the extent permitted by law, enter upon
the Facility for such purpose and take all such action thereon as, in Landlord's
sole opinion, may be necessary or appropriate therefor. However, if Landlord
reasonably determines that the giving of such Notice as is provided for in this
Article or elsewhere in this Lease would risk loss to the Leased Property or
cause damage to Landlord, then Landlord will give such Notice as is practical
under the circumstances. No such entry shall be deemed an eviction of Tenant.
All sums so paid by Landlord and all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) so incurred,
together with the late charge and interest provided for in Section 3.3 thereon
from the date on which such sums or expenses are paid or incurred by Landlord,
shall be paid by Tenant to Landlord on demand. The obligations of Tenant and
rights of Landlord contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS
18.1 PROHIBITION AGAINST USE OF HAZARDOUS SUBSTANCES. Tenant shall not
permit, conduct or allow on the Leased Property the generation, introduction,
presence, maintenance, use, receipt, acceptance, treatment, manufacture,
production, installation, management, storage, disposal or release of any
Hazardous Substance, except for those types and quantities of Hazardous
Substances ordinarily associated with the operation of the Leased Property as it
is being conducted on the date of this Lease and except in compliance with
Environmental Laws; provided, however, that the asbestos-containing materials,
the underground storage tanks and the other Hazardous Substances that currently
are located in, on, under or about the
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Leased Property, in each case as disclosed in the Environmental Audit delivered
to Landlord prior to the date of this Lease, shall be permitted to remain in
place.
18.2 NOTICE OF ENVIRONMENTAL CLAIMS, ACTIONS OR CONTAMINATIONS. Tenant will
notify Landlord, in writing, promptly upon learning of any existing, pending or
threatened: (a) Regulatory Actions, (b) Contamination of the Leased Property,
(c) Third Party Claims or (d) violation of Environmental Law.
18.3 COSTS OF REMEDIAL ACTIONS WITH RESPECT TO ENVIRONMENTAL MATTERS. If
any investigation and/or Clean-Up of any Hazardous Substance or other
environmental condition on, under, about or with respect to the Leased Property
is required by any Environmental Law and by the terms of this Lease is within
the scope of Tenant's responsibility, then Tenant shall complete, at its own
expense, such investigation and/or Clean-Up or cause each person responsible for
any of the foregoing to conduct such investigation and/or Clean-Up.
18.4 DELIVERY OF ENVIRONMENTAL DOCUMENTS. If and to the extent not
delivered to Landlord prior to the date of this Lease, Tenant shall deliver to
Landlord complete copies of any and all Environmental Documents that may now be
in, or at any time hereafter come into, the possession of Tenant.
18.5 ENVIRONMENTAL AUDIT. At Landlord's expense, Tenant shall from time to
time, but in no case more often than annually, after Landlord's request
therefor, provide to Landlord an Environmental Audit with respect to the Leased
Property. All tests and samplings in connection with an Environmental Audit
shall be conducted using generally accepted and scientifically valid technology
and methodologies. Tenant shall give the engineer or environmental consultant
conducting the Environmental Audit reasonable access to the Leased Property and
to all records in the possession of Tenant that may indicate the presence
(whether current or past) or a Release or threatened Release of any Hazardous
Substances on, in, under or about the Leased Property. Tenant shall also provide
the engineer or environmental consultant an opportunity to interview such
persons employed in connection with the Leased Property as the engineer or
consultant deems appropriate. However, Landlord shall not be entitled to request
such Environmental Audit from Tenant unless (a) there have been any material
changes, modifications or additions to any Environmental Laws as applied to or
affecting the Leased Property; (b) a significant change in the condition of the
Leased Property has occurred; or (c) Landlord has another reasonable basis for
requesting such certificate or certificates. If an Environmental Audit discloses
the presence of Contamination at, or any noncompliance with Environmental Laws
by, the Leased Property, Tenant shall immediately perform all of Tenant's
obligations hereunder with respect to such Hazardous Substances or
noncompliance.
18.6 ENTRY ONTO LEASED PROPERTY FOR ENVIRONMENTAL MATTERS. If Tenant fails
to provide to Landlord an Environmental Audit as contemplated by Section 18.5
hereof, Tenant shall permit Landlord from time to time, by its employees,
agents, contractors or representatives, to enter upon the Leased Property for
the purposes of conducting such
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Investigations as Landlord may desire. Landlord and its employees, agents,
contractors, consultants and/or representatives shall conduct any such
Investigation in a manner which does not unreasonably interfere with Tenant's
use of and operations on the Leased Property (however, reasonable temporary
interference with such use and operations is permissible if the Investigation
cannot otherwise be reasonably and inexpensively conducted). Other than in an
emergency, Landlord shall provide Tenant with prior notice before entering the
Leased Property to conduct such Investigation, and shall provide copies of any
reports or results to Tenant, and Tenant shall cooperate fully in such
Investigation.
18.7 ENVIRONMENTAL MATTERS UPON TERMINATION OR EXPIRATION OF TERM OF THIS
LEASE. Upon the termination or expiration of the Term of this Lease, Tenant
shall cause the Leased Property to be delivered to Landlord free of all
Contamination the removal of which is recommended by the Phase I Environmental
Survey (or the equivalent at the time) completed by the engineering firm chosen
by the parties or otherwise selected as provided below, and in compliance with
all Environmental Laws with respect thereto. At any time during (a) the three
hundred sixty-five (365) days prior to, or the sixty (60) days subsequent to,
the expiration of the original Term hereof, if Tenant has not given the notice
required by Section 1.4 hereof in order to renew the Term or by the terms hereof
is not entitled to renew the Term, or, if the original Term has been renewed, at
any time during (b) the three hundred sixty-five (365) days prior to, or the
sixty (60) days subsequent to, the expiration of the First Renewal Term hereof,
if Tenant has not given the notice required by Section 1.5 hereof in order to
renew the Term or by the terms hereof is not entitled to renew the Term, or, if
this Lease is terminated upon the occurrence of an Event of Default, during (c)
the sixty (60) days after the effective date of such termination, Landlord may
by written notice to Tenant specify a Cleanup to be undertaken by Tenant, and
upon receipt of such notice Tenant shall forthwith begin and with reasonable
diligence complete such Cleanup; provided, however, that if Tenant in good faith
disputes the need for such Cleanup on the grounds that it is not required by any
then applicable Environmental Laws, Tenant may by written notice to Landlord
demand an Environmental Audit of the Leased Property. The Environmental Audit
demanded by Tenant shall be performed by one of the engineering firms listed on
Exhibit H hereto or, if no such firms exist at the time, by an engineering firm
succeeding to the practice of one of such firms. The question of whether or not
a Cleanup is required by an applicable Environmental Law, and, if so, the extent
of such required Cleanup, shall be determined by the conclusions reached in the
Environmental Audit conducted by the engineering firm so selected, and such
determination shall be binding upon the parties. The cost of such Environmental
Audit shall be borne by Landlord if the determination is that no Cleanup is
required, or by Tenant if the determination is that a Cleanup is required.
Tenant shall promptly at its expense complete any Cleanup determined by such
process to be necessary.
18.8 COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall comply with, and
cause its agents, servants and employees to comply with Environmental Laws
applicable to the Leased Property. Specifically, but without limitation:
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(a) Maintenance of Licenses and Permits. Tenant shall obtain and
maintain all permits, certificates, licenses and other consents and
approvals required by any applicable Environmental Law from time to time
with respect to Tenant and the Leased Property leased by it;
(b) Contamination. No Tenant shall cause, suffer or permit any
Contamination in, on, under or about the Leased Property;
(c) Clean-Up. If Contamination occurs in, on, under or about the
Leased Property during the Term, Tenant promptly shall cause the Clean-Up
and the removal of any Hazardous Substance, and in any such case such
Clean-Up and removal of the Hazardous Substance shall be effected in strict
compliance with and in accordance with the provisions of the applicable
Environmental Laws;
(d) Discharge of Lien. Within forty-five (45) days of the date on
which Tenant becomes aware of any lien imposed against the Leased Property
or any part thereof under any Environmental Law (or, in the event that
under the applicable Environmental Law, Tenant is unable, acting
diligently, to do so within forty-five (45) days, then within such period
as is required for Tenant, acting diligently, to do so), Tenant shall cause
such lien to be discharged by payment, bond or otherwise;
(e) Notification of Landlord. Tenant shall notify Landlord in writing
promptly upon receipt by Tenant of notice of any breach or violation of any
environmental covenant or agreement; and
(f) Requests, Orders and Notices. Promptly upon receipt of any written
request, order or other notice relating to any Declaratory Action,
Contamination, Third Party Claims or Leased Property under any
Environmental Law concerning the Leased Property, Tenant shall forward a
copy thereof to Landlord.
18.9 ENVIRONMENTAL RELATED REMEDIES. If, subject to Tenant's right of
contest as set forth in Section 12.1 hereof, Tenant fails to perform any of its
covenants with respect to environmental matters and if such breach is not cured
within any applicable notice and/or grace period or within an additional thirty
(30) days after Landlord gives Notice to Tenant, Landlord may do any one or more
of the following (the exercise of one right or remedy hereunder not precluding
the simultaneous or subsequent taking of any other right hereunder):
(a) Cause a Clean-Up. Cause the Clean-Up of any Contamination on or
under the Leased Property, or both, at Tenant's cost and expense; or
(b) Payment of Regulatory Damages. Pay, on behalf of Tenant, any
damages, costs, fines or penalties imposed on Tenant as a result of any
Regulatory Actions; or
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(c) Payments to Discharge Liens. Make any payment on behalf of Tenant
or perform any other act or cause any act to be performed which will
prevent a lien in favor of any federal, state or local governmental
authority from attaching to the Leased Property or which will cause the
discharge of any lien then attached to the Leased Property; or
(d) Payment of Third Party Damages. Pay, on behalf of Tenant, any
damages, cost, fines or penalties imposed on Tenant as a result of any
Third Party Claims; or
(e) Demand of Payment. Demand that Tenant make immediate payment of
all of the costs of such Clean-Up and/or exercise of the remedies set forth
in this Section 18.9 incurred by Landlord and not theretofore paid by
Tenant as of the date of such demand, whether or not such costs exceed the
amount of Rent and Additional Charges that are otherwise to be paid
pursuant to this Lease, and whether or not any court has ordered the
Clean-Up, and payment of said costs shall become immediately due, without
notice.
18.10 ENVIRONMENTAL INDEMNIFICATION. Tenant shall and does hereby agree to
indemnify, defend and hold harmless Landlord, its principals, officers,
directors, agents and employees from and against each and every incurred and
potential claim, cause of action, demand or proceeding, obligation, fine,
laboratory fee, liability, loss, penalty, imposition, settlement, levy, lien
removal, litigation, judgment, disbursement, expense and/or cost (including,
without limitation, the cost of each and every Clean-Up and including, but not
limited to, reasonable and documented attorneys' fees, consultants' fees,
experts' fees and related expenses, capital, operating and maintenance costs,
incurred in connection with (a) any investigation or monitoring of site
conditions at the Leased Property, (b) the presence of any asbestos-containing
materials in, on, under or about the Leased Property and (c) any Clean Up
required or performed by any federal, state or local governmental entity or
performed by any other entity or person because of the presence of any Hazardous
Substance, Release, threatened Release or any Contamination on, in, under or
about the Leased Property) which may be asserted against, imposed on, or
suffered or incurred by each and every Indemnitee arising out of or in any way
related to, or allegedly arising out of or due to any environmental matter,
including, but not limited to, any one or more of the following:
(i) Release Damage or Liability. The presence of Contamination in, on,
at, under or near the Leased Property or migrating to the Leased Property
from another location;
(ii) Injuries. All injuries to health or safety (including wrongful
death), or to the environment, by reason of environmental matters relating
to the condition of or activities past or present on, at, in or under the
Leased Property;
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(iii) Violations of Law. All violations, and alleged violations, of
any Environmental Law by Tenant relating to the Leased Property or any
activity on, in, at, under or near the Leased Property;
(iv) Misrepresentation. All material misrepresentations relating to
environmental matters in any documents or materials furnished by Tenant to
Landlord and/or its representatives in connection with this Lease;
(v) Event of Default. Each and every Event of Default hereunder
relating to environmental matters;
(vi) Lawsuits. Any and all lawsuits brought or threatened against any
one or more of the Indemnitees, settlements reached and governmental orders
relating to any Hazardous Substances at, on, in, under or near the Leased
Property, and all demands or requirements of governmental authorities, in
each case based upon or in any way related to any Hazardous Substances at,
on, in or under the Leased Property; and
(vii) Presence of Liens. All liens imposed upon the Leased Property
and charges imposed on any Indemnitee in favor of any governmental entity
or any person as a result of the presence, disposal, release or threat of
release of Hazardous Substances at, on, in, from or under the Leased
Property.
If the matter that is the subject of a claim for indemnification by any
Indemnitee pursuant to this Section 18.10 arises or is in connection with a
claim, suit or demand filed by a third party, Tenant shall be entitled to
defend against such Claim with counsel reasonably satisfactory to the
applicable Indemnitee(s). The Indemnitee(s) may continue to employ counsel
of its own, but such costs shall be borne by the Indemnitee(s) as long as
Tenant continues to so defend. With respect to such Claims arising from
third parties (A) if an Indemnitee declines to accept a bona fide offer of
settlement that is recommended by Tenant, which settlement includes a full
and complete release of such Indemnitee from the subject Claim, the maximum
liability of Tenant arising from such claim shall not exceed that amount
for which it would have been liable had such settlement been accepted, and
(B) if an Indemnitee settles the subject Claim without the consent of
Tenant, the maximum liability of Tenant under this Section arising from
such Claim shall not exceed the fair and reasonable settlement value of
such Claim.
18.11 RIGHTS CUMULATIVE AND SURVIVAL. The rights granted Landlord under
this Article are in addition to and not in limitation of any other rights or
remedies available to Landlord hereunder or allowed at law or in equity. The
obligations of Tenant to defend, indemnify and hold the Indemnitees harmless, as
set forth in this Article, arising as a result of an act, omission, condition or
other matter occurring or existing during the Term, whether or not the act,
omission, condition or matter as to which such obligations relate is discovered
during the Term, shall survive the expiration or earlier termination of the Term
of this Lease.
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ARTICLE 19
HOLDOVER MATTERS
19.1 HOLDING OVER. If Tenant remains in possession of the Leased Property
after the expiration of the Term or earlier termination of this Lease, such
possession shall be as a month-to-month tenant during which time Tenant shall
pay as rental each month one and one-half times the aggregate of (a) one-twelfth
of the aggregate Base Rent payable with respect to the Leased Property during
the last Lease Year of the preceding Term, and (b) all Additional Charges
accruing during the month with respect to the Leased Property. Any interest,
however, will be payable only at the rate provided in this Lease and shall not
exceed the maximum rate allowed by law. During such period of month-to-month
tenancy, Tenant shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Leased Property until the month-to-month
tenancy is terminated. Nothing contained herein shall constitute the consent,
express or implied, of Landlord to the holding over by Tenant after the
expiration or earlier termination of this Lease.
19.2 INDEMNITY. If Tenant fails to surrender the Leased Property in a
timely manner and in accordance with the provisions of Section 9.1.6 hereof upon
the expiration or termination of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall indemnify and hold
Landlord, its principals, officers, directors, agents and employees harmless
from loss or liability resulting from such failure, including, without limiting
the generality of the foregoing, loss of rental with respect to any new lease in
which the rental payable thereunder exceeds any rental paid by Tenant pursuant
to this Lease and any claims by any proposed new tenant founded on such failure.
The provisions of this Section 19.2 shall survive the expiration or termination
of this Lease.
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 SUBORDINATION. Upon written request of Landlord, Tenant will
subordinate its rights pursuant to this Lease in writing (a) to the lien of any
mortgage, deed of trust or the interest of any lease in which Landlord is the
Tenant and to all modifications, extensions, substitutions thereof (or, at
Landlord's option, cause the lien of said mortgage, deed of trust or the
interest of any lease in which Landlord is the Tenant to be subordinated to this
Lease), and (b) to all advances made or hereafter to be made thereunder. As a
condition to each such subordination, Landlord shall deliver to Tenant a
non-disturbance agreement providing inter alia that, if such mortgagee,
beneficiary or Landlord acquires the Leased Property by way of foreclosure or
deed in lieu, such mortgagee, beneficiary or Landlord will not disturb Tenant's
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possession under this Lease and will recognize Tenant's rights hereunder
provided this Lease has not been terminated under Section 16.2 hereof.
20.2 ATTORNMENT. If any proceedings are brought for foreclosure, or if the
power of sale is exercised under any mortgage or deed of trust made by Landlord
encumbering the Leased Property, or if a lease in which Landlord is the Tenant
is terminated, Tenant shall attorn to the purchaser or Landlord under such lease
upon any foreclosure or deed in lieu thereof, sale or lease termination and
recognize the purchaser or Landlord as Landlord under this Lease, provided that
the purchaser or Landlord acquires and accepts the Leased Property subject to,
and upon the terms and conditions set forth in, this Lease.
20.3 ESTOPPEL CERTIFICATE. Each of Landlord and Tenant agrees, upon not
less than ten (10) days prior Notice from the other, to execute, acknowledge and
deliver to the other an Estoppel Certificate. It is intended that any Estoppel
Certificate delivered pursuant hereto may be relied upon by Landlord, Tenant,
any prospective tenant, subtenant, assignee or purchaser of the Leased Property,
any mortgagee or prospective mortgagee, or by any other party who may reasonably
rely on such statement.
ARTICLE 21
RISK OF LOSS
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant, and, in the absence of gross negligence, willful
misconduct or material breach of this Lease by Landlord, Landlord shall in no
event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Tenant to any abatement of Rent under this
Lease.
ARTICLE 22
INDEMNIFICATION
22.1 INDEMNIFICATION. Subject to Section 13.4 hereof, notwithstanding the
existence of any insurance or self-insurance provided for in Article 13 hereof,
and without regard to the policy limits of such insurance or self-insurance,
Tenant will, subject to Section 13.4 hereof, protect, indemnify, save harmless
and defend Landlord, its principals, partners, officers, directors,
shareholders, agents, and employees from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation,
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reasonable and documented attorneys' fees and expenses), to the maximum extent
permitted by law, whenever asserted, or incurred by or asserted against Landlord
by reason of:
(a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
(c) the failure to pay Impositions which are the obligations of Tenant
under this Lease;
(d) any failure by Tenant to perform or comply with any of the terms
of this Lease;
(e) the nonperformance of any contractual obligation, express or
implied, assumed or undertaken by Tenant or any party in privity with
Tenant with respect to the Leased Property or any business or other
activity carried on with respect to the Leased Property during the Term or
thereafter during any time in which Tenant or any such other party is in
possession of the Leased Property or thereafter to the extent that any
conduct by Tenant or any such person (or failure of such conduct thereby if
the same should have been undertaken during such time of possession and
leads to such damage or loss) causes such loss or claim;
(f) the use, operation, possession, or management of the Facility by
Tenant before or after the Commencement Date and during the Term of this
Lease until the Lease Termination Date;
(g) the breach or by Tenant of any representation, or warranty in this
Lease;
(h) any and all Claims accruing before or after the Commencement Date
relating to any current or former employee, consultant or independent
contractor of Tenant or the Facility, including, but not limited to, the
termination or discharge of any current or former employee, consultant, or
independent contractor of Tenant or the Facility before or after the
Commencement Date, Claims under federal, state, or local laws, rules or
regulations, accruing before or after the Commencement Date, related to
wages, hours, fair employment practices, unfair labor practices, or other
terms and conditions of employment and claims arising under the Worker
Adjustment and Retraining Notification Act or any analogous state statute,
or matters arising from any severance policy, claim, agreement or contract;
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(i) any and all Claims with respect to any qualified or non-qualified
retirement or benefit plans or arrangements established before or after the
Commencement Date involving any employee, consultant or independent
contractor of Tenant or the Facility;
(j) the Facility was decertified by Tenant during the Term of this
Lease; and
(k) the removal of Tenant's Personal Property from the Facility.
Any amounts which become payable by Tenant under this Section shall be paid
within thirty (30) days after liability therefor on the part of Tenant is
finally determined by litigation or otherwise, and if not timely paid, shall
bear interest (to the extent permitted by law) at the Overdue Rate from the date
of such determination to the date of payment. Nothing herein shall be construed
as indemnifying Landlord against its own grossly negligent acts or omissions or
willful misconduct.
22.2 SURVIVAL OF INDEMNIFICATION; TENANT RIGHT TO DEFEND LANDLORD. Tenant's
liability under this Article shall survive any termination of this Lease. Tenant
shall have the right (at Tenant's expense) to defend Landlord against any such
claim by counsel reasonably acceptable to Landlord (who may also act as Tenant's
counsel in the particular matter, provided Landlord's and Tenant's interests are
coincident and not adverse to one another). Tenant shall apprise Landlord
regularly as to the status of the particular matter.
ARTICLE 23
LIMITATIONS ON TRANSFERS
23.1 GENERAL PROHIBITION AGAINST TRANSFER; PERMITTED TRANSFERS. Tenant
shall not Transfer its interest in this Lease or the Leased Property, except as
specifically permitted by this Lease or consented to in advance by Landlord in
writing. Any such attempted Transfer not specifically permitted by this Lease or
otherwise approved by Landlord shall be null and void and of no force and
effect; but in the event of any such Transfer, Landlord may collect rent and
other charges from the Transferee and apply the amounts collected to the rent
and other charges herein reserved, but no Transfer or collection of rent and
other charges shall be deemed to be a waiver of Landlord's rights to enforce
Tenant's covenants or the acceptance of the Transferee as Tenant, or a release
of Tenant from the performance of any covenants on the part of Tenant to be
performed. Notwithstanding any Transfer, Tenant and any Guarantor shall remain
fully liable for the performance of all terms, covenants and provisions of this
Lease, both before and after any such Transfer. Any violation of this Lease by
any Transferee shall be deemed to be a violation of this Lease by Tenant.
Landlord agrees that, so long as there is no Event of Default under
this Lease, Landlord shall not unreasonably withhold or delay its consent to a
single transfer, assignment or subletting of Tenant's entire interest in this
Lease to a non-Affiliated third party Transferee.
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If Tenant desires at any time to so transfer, assign or sublet its entire
interest in this Lease to such a Transferee, Tenant shall first notify Landlord
in writing of its desire to do so and shall submit in writing to Landlord (a)
the name of the proposed Transferee; (b) the historical experience of the
proposed Transferee with respect to businesses of the type and size conducted on
the Leased Property; (c) the terms and provisions of the proposed transfer,
assignment or subletting and the proposed effective date thereof, including a
copy of the agreement or other documents which contain or memorialize such terms
and provisions; and (d) such financial, operating and other information with
respect to such proposed Transferee as Landlord may request (including audited
financial statements of such Transferee). At any time within thirty (30) days
after Landlord's receipt of all the information specified in clauses (a) through
(d) above, Landlord may by written notice to Tenant (i) consent to the proposed
transfer, assignment or subletting to the proposed Transferee or (ii) refuse to
give its consent, specifying in reasonable detail the reasons therefor. In the
event that Landlord shall so consent, Tenant shall be permitted to assign or
sublet its entire interest in this Lease to such proposed Transferee, provided
that each of the following is met:
(A) The proposed Transferee shall unconditionally assume and agree to
keep, perform and observe all of the covenants, conditions, duties,
obligations and liabilities of Tenant under this Lease (whether occurring
prior to or after the effective date of such transfer or conveyance)
pursuant to a writing in form and substance acceptable to Landlord;
(B) This Lease shall remain in full force and effect;
(C) No such transfer, conveyance or subletting by Tenant to such
proposed Transferee shall relieve Tenant of its respective duties,
obligations and/or liabilities under this Lease or the other Transaction
Documents and each of such parties shall consent and/or reaffirm its
respective obligations hereunder and thereunder pursuant to a writing in
form and substance acceptable to Landlord;
(D) All reasonable costs and expenses incurred by Landlord (including
reasonable attorneys' fees and costs) incurred in connection with the
review and processing of such request and in preparation, negotiation and
execution of any documents or instruments delivered or prepared in
connection therewith shall be paid solely by Tenant and/or the proposed
Transferee.
In exercising Landlord's right of reasonable approval or disapproval
with respect to any such proposed Transferee, Landlord shall be entitled to take
into account any fact or factor which Landlord deems relevant to such decision.
Without limiting the generality of the foregoing, all of the following are
agreed to be reasonable factors for Landlord's consideration in approving any
such proposed Transferee:
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(A) The financial strength of the proposed Transferee, including the
adequacy of its working capital to pay all sums and other amounts payable
under this Lease and the Transaction Documents;
(B) The experience of the proposed Transferee with respect to
businesses of the type and size conducted on the Leased Property;
(C) The quality and nature of other businesses operated by such
proposed Transferee in comparison to the quality and nature of the business
conducted on the Leased Property;
(D) Diminution or potential diminution of Landlord's security by
reason of any such assignment or subletting on the Leased Property to such
proposed Transferee; and
(E) Any other fact or factor which Landlord would take into
consideration if such proposed Transferee were to apply directly to
Landlord for a lease of the type represented by this Lease and the
Transaction Documents.
23.2 CORPORATE OR PARTNERSHIP TRANSACTIONS. If Tenant or Guarantor is a
corporation, then the merger, consolidation or reorganization of such
corporation and/or the sale, issuance or transfer, cumulatively or in one
transaction, of any voting stock by Tenant or Guarantor or the stockholders of
record of any of them as of the date of this Lease which results in a change in
the voting control of Tenant or Guarantor shall constitute a Transfer. If Tenant
or Guarantor is a joint venture, partnership or other association, then the
transfer of or change in, cumulatively or in one transaction, voting control of
or a twenty percent (20%) or greater interest in such Tenant or Guarantor within
any five-year period, or the termination of such joint venture, partnership or
other association, shall constitute a Transfer.
23.3 PERMITTED SUBLEASES. Subject to Section 23.4 hereof, Tenant shall have
the right to sublease up to ten percent (10%) of the floor area of the Facility
in the ordinary course of the health care business being conducted in the
Facility without Landlord's consent, and subject to Landlord's consent, which
shall not unreasonably be withheld, conditioned or delayed an additional ten
percent (10%) of the floor area of the Facility.
23.4 TRANSFERS TO A CONTROLLED ENTITY. Notwithstanding anything to the
contrary herein contained, Tenant may without the prior consent of Landlord
Transfer its interest herein to an entity Controlled by Peak Medical on the
condition that (a) such entity expressly and in writing assumes all of the
obligations and liability of the Tenant hereunder, (b) such Transfer has no
effect on the Peak Medical Guaranty and Peak Medical confirms in writing that
the Peak Medical Guaranty remains unchanged and in full force and effect, (c)
the stock of such entity (if a corporation) is at the time of the Transfer
pledged to Landlord to secure performance of its obligations under this Lease,
(d) all obligations of such entity to Peak Medical or any Affiliate of Peak
Medical, and all Debt of such entity to any third party, are
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subordinated to its liability and obligations as Tenant hereunder and (e)
without the consent of Landlord, no such Transfer shall release the Tenant named
herein from liability hereunder.
23.5 SUBORDINATION AND ATTORNMENT. Tenant shall insert in any sublease
permitted by Landlord provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Landlord hereunder, (b) if this Lease terminates before the expiration
of such sublease, the subtenant thereunder will, at Landlord's option, attorn to
Landlord and waive any right the subtenant may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the subtenant receives a written Notice from Landlord or Landlord's
assignee, if any, stating that an Event of Default has occurred under this
Lease, the subtenant shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice or as such party
may direct. All rentals received from the subtenant by Landlord or Landlord's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Tenant under this Lease.
23.6 SUBLEASE LIMITATION. Anything contained in this Lease to the contrary
notwithstanding, even if a sublease of the Leased Property is permitted, Tenant
shall not sublet the Leased Property on any basis such that the rental to be
paid by the subtenant thereunder would be based, in whole or in part, on either
(a) the income or profits derived by the business activities of the subtenant,
or (b) any other formula such that any portion of the sublease rental received
by Landlord would fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Code, or any similar or successor provision
thereto. The parties agree that this Section shall not be deemed waived or
modified by implication, but may be waived or modified only by an instrument in
writing explicitly referring to this Section by number.
ARTICLE 24
CERTAIN FINANCIAL MATTERS
24.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS. Tenant shall furnish
to Landlord:
(a) Monthly Financials. As soon as available and in any event within
thirty (30) days after the end of each calendar month, an unaudited income
statement for the Facility for the period commencing at the end of the
previous month and ending with the end of such month, together with an
Officer's Certificate of Tenant stating that Tenant is not in default of
any covenant set forth in Article 8 hereof, or if Tenant is in default,
specifying all such defaults, the nature thereof and the steps being taken
to remedy the same.
(b) Quarterly Financials. As soon as available and in any event within
fifty-five (55) days after the end of each calendar quarter, an unaudited
income statement and
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balance sheet for the Facility for the period commencing at the end of
the previous quarter and ending with the end of such quarter, together
with an Officer's Certificate of Tenant stating that Tenant is not in
default of any covenant set forth in Article 8 hereof, or if Tenant is
in default, specifying all such defaults, the nature thereof and the
steps being taken to remedy the same.
(c) Annual Financials. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, a consolidated balance
sheet of the Guarantor as at the end of such Fiscal Year and an operating
statement for the Facility for such Fiscal Year, accompanied by (i) in the
case of the consolidated balance sheet of the Guarantor, an opinion
acceptable to Landlord of an independent public accountant, and (ii) in
each case, an Officer's Certificate of Tenant stating that Tenant is not in
default in the performance or observance of any of the terms of this Lease,
or if Tenant is in default, specifying all such defaults, the nature
thereof and the steps being taken to remedy the same.
(d) Cost Reports. Upon the request of Landlord and no more than once
in each calendar year, Tenant shall furnish to Landlord complete and
accurate copies of the most recent annual Medicaid and Medicare cost
reports for the Facility and any and all amendments filed with respect to
such reports and all responses, audit reports or inquiries with respect to
each such report.
(e) Licensing Agency Reports. Upon the reasonable request of Landlord
and no more than once during any calendar year, Tenant shall furnish to
Landlord a copy of the most recent federal and state agency surveys or
report and any statement of deficiencies with respect to the Facility, and
within the time period required by the particular agency for furnishing a
plan of correction, and without the need of any request from Landlord,
Tenant shall also furnish to Landlord a copy of the plan of correction
generated from such survey or report for the Facility, and correct or cause
to be corrected a deficiency, the curing of which is a condition of
continued licensure or for full participation in Medicare and Medicaid for
existing patients or for new patients to be admitted with Medicare or
Medicaid coverage, by the date required for cure by such agency (plus
extensions granted by such agency).
(f) Notices. Tenant shall furnish to Landlord within ten (10) days
from its receipt, any and all notices (regardless of form) from any
licensing and/or certifying agency that the Facility's license or Medicare
or Medicaid certification of the Facility is being revoked or suspended.
(g) Patient Data. Within fifty-five (55) days of the end of each
fiscal quarter and to the extent not included in the operating statements
delivered pursuant to subsection (i), above, a statement of the actual
patient days incurred for the quarter, together with quarterly census
information for the Facility as of the end of such quarter by patient- mix
(i.e., private, Medicare, Medicaid and V.A.) of the Facility.
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(h) Capital Budget. As soon as it is prepared in each Lease Year, a
capital budget for the Facility for that and the following Lease Year, for
Landlord's information and not for approval;
(i) Other Information. With reasonable promptness, such other
information respecting the financial condition and affairs of Tenant, and
the Facility as Landlord may reasonably request from time to time,
including, without limitation, any such other information as may be
available to the administration of the Facility; and
(j) At times reasonably required by Landlord, and upon request as
appropriate, audited year-end information and unaudited quarterly financial
information concerning the Leased Property and Tenant as Landlord may
require for its on-going filings with the SEC, under both the Securities
Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended, including, but not limited to, 10-Q Quarterly Reports, 10-K Annual
Reports, and registration statements to be filed by Landlord during the
Term of this Lease.
24.2 PUBLIC OFFERING INFORMATION. Tenant specifically agrees that Landlord
may include financial information and such information concerning the operation
of the Facility which does not violate the confidentiality of the
facility-patient relationship and the physician-patient privilege under
applicable laws, in offering memoranda or prospectuses, or similar publications
in connection with syndications or public offerings of Landlord's securities or
interests, and any other reporting requirements under applicable federal and
State laws, including those of any successor to Landlord. Tenant agrees to
provide such other reasonable information necessary with respect to Tenant and
the Leased Property to facilitate a public offering or to satisfy SEC or
regulatory disclosure requirements. Landlord shall provide to Tenant a copy of
any information prepared by Landlord to be so published, and Tenant shall have a
reasonable period of time (not to exceed three (3) days) after receipt of such
information to notify Landlord of any corrections.
ARTICLE 25
LANDLORD INSPECTION
Tenant shall permit Landlord and its authorized representatives to
inspect, during normal business hours, at least once per Lease Year (a) the
Leased Property and, (b) upon one Business Day's prior Notice, which Notice
shall set forth a reasonable cause for such inspection, Tenant's books and
records pertaining thereto (provided, however, that upon any Event of Default,
such Notice need not set forth any cause for such inspection).
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ARTICLE 26
[INTENTIONALLY OMITTED]
ARTICLE 27
[INTENTIONALLY OMITTED]
ARTICLE 28
ACCEPTANCE OF SURRENDER
No surrender to Landlord of this Lease or of the Leased Property or
any part thereof, or of any interest therein, shall be valid or effective unless
specifically agreed to and accepted in writing by Landlord, and no act by
Landlord or any representative or agent of Landlord, other than such a specific
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP
29.1 NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created thereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) the Lease or the leasehold estate created hereby or any interest
in the Lease or such leasehold estate, and (b) the fee estate in the Leased
Property.
29.2 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture between Landlord and Tenant
or to cause either party to be responsible in any way for the debts or
obligations of the other or any other party, it being the intention of the
parties that the only relationship hereunder is that of Landlord and Tenant.
ARTICLE 30
CONVEYANCE BY LANDLORD
If Landlord or any successor owner of the Leased Property conveys the
Leased Property in accordance with the terms hereof other than as security for a
debt, Landlord or such successor owner, as the case may be, shall thereupon be
released from all future liabilities
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and obligations of Landlord under this Lease arising or accruing from and after
the date of such conveyance, and all such future liabilities and obligations
shall thereupon be binding upon the new owner, provided that the transferee
gives Notice to Tenant that such transferee has received (a) the Security
Deposit and (b) any funds in the hands of Landlord or the then grantor at the
time of the transfer in which Tenant has an interest. Tenant acknowledges and
agrees that, pursuant to the Monarch Purchase Agreement, the Facility and the
Leased Property may be sold by Landlord to Monarch LP upon the completion of the
Offering, in which case Monarch LP shall be assigned this Lease and will become
Landlord hereunder, and IHS Acquisition No. 104, Inc. will be released from all
obligations under this Lease, whether accruing prior to of after the date of
such sale.
ARTICLE 31
QUIET ENJOYMENT
So long as Tenant pays all Rent as it becomes due and complies with
all of the terms of the Lease and performs its obligations thereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Leased Property hereby
leased for the Term.
ARTICLE 32
[INTENTIONALLY OMITTED]
ARTICLE 33
APPRAISERS
If it becomes necessary to determine the Fair Rental Value of the
Leased Property for any purpose of this Lease, Landlord and Tenant shall attempt
to agree upon a single appraiser to make such determination. If Landlord and
Tenant are unable to agree upon a single appraiser within thirty (30) days
thereafter, then the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten (10) days after such Notice, Landlord (or
Tenant, as the case may be) shall by Notice to Tenant (or Landlord, as the case
may be) appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto) and experienced in
appraising nursing home properties, shall, within forty-five (45) days after the
date of the Notice appointing the first appraiser, proceed to appraise the
Leased Property to determine the Fair Rental Value of it as of the relevant date
(giving effect to the impact, if any, of inflation from the date of their
decision to the relevant date); provided, however, that if only one appraiser
has been so appointed, or if two
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appraisers have been so appointed but only one such appraiser has made such
determination within fifty (50) days after the making of Tenant's or Landlord's
request, then the determination of such appraiser shall be final and binding
upon the parties. If two appraisers have been appointed and have made their
determinations within the respective requisite periods set forth above and if
the difference between the amounts so determined does not exceed ten percent
(10%) of the lesser of such amounts, then the Fair Rental Value shall be an
amount equal to fifty percent (50%) of the sum of the amounts so determined. If
the difference between the amounts so determined exceeds ten percent (10%) of
the lesser of such amounts, then such two appraisers shall have twenty (20) days
to appoint a third appraiser. If no such appraiser has been appointed within
such twenty (20) day period or within ninety (90) days of the original request
for a determination of Fair Rental Value, whichever is earlier, either Landlord
or Tenant may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers or by
such court shall be instructed to determine the Fair Rental Value within
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and the average of
the sum of the remaining two determinations shall be final and binding upon
Landlord and Tenant as the Fair Rental Value of the Leased Property. Any such
appraisal shall conform to FDIC or equivalent requirements and format.
This provision for determining the Fair Rental Value by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
and judgment may be entered upon such determination in any court having
jurisdiction of the matter. Landlord and Tenant shall each pay the fees and
expenses of the appraiser appointed by it, and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE 34
BREACH OF LEASE BY LANDLORD
Landlord shall not be in breach of this Lease unless Landlord fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
written Notice specifying such failure and the necessary curative action is
received by Landlord from Tenant. If the failure cannot with due diligence be
cured within a period of thirty (30) days, the failure shall not be deemed to
continue if Landlord, within said thirty (30) day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
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ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL
35.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY. Landlord may
purchase Tenant's Personal Property at the expiration or termination of this
Lease for an amount equal to the then book value thereof (acquisition cost less
accumulated depreciation on the books of Tenant pertaining thereto), subject to,
and with appropriate credits for any obligations owing from Tenant to Landlord
and for all equipment leases, conditional sale contracts and any other
encumbrances to which Tenant's Personal Property is subject. Landlord's option
shall be exercised by Notice to Tenant no more than one hundred eighty (180)
days, nor less than ninety (90) days, before the expiration of the Initial Term
(or, before the expiration of the First Renewal Term or the Second Renewal Term,
as the case may be), unless this Lease is terminated prior to its expiration
date (a) by reason of an Event of Default, in which event Landlord's option
shall be exercised within ninety (90) days following the date of termination, or
(b) by reason of the exercise by a Tenant of a right to terminate provided for
herein in the event of a Taking, in which event Landlord's option shall be
exercised within forty-five (45) days following Tenant's exercise of such right.
Landlord's option shall terminate upon Tenant's purchase of the Leased Property.
If Landlord exercises its option, Tenant shall, in exchange for Landlord's
payment of the purchase price, deliver Tenant's Personal Property to Landlord,
together with a bill of sale and such other documents as Landlord may reasonably
request in order to carry out the purchase of Tenant's Personal Property, and
such purchase shall be closed by such delivery and such payment on the date set
by Landlord in its Notice of exercise.
35.2 FACILITY TRADE NAMES. If this Lease is terminated by reason of an
Event of Default, or if Landlord purchases the Tenant's Personal Property with
respect to any Leased Property pursuant to Section 35.1 hereof, Landlord shall
be permitted to use the Facility Trade Names under which the Leased Property
conducts business in the market in which the Facility is located, and Tenant
shall not after any such termination use the Facility Trade Names under which
the Leased Property conducts business in any business that competes with the
Leased Property.
35.3 TRANSFER OF OPERATIONAL CONTROL OF THE FACILITY. Tenant shall
cooperate in transferring operational control of the Facility to Landlord or
Landlord's nominee if the Term expires without extension or renewal by Tenant,
or if this Lease is terminated upon the occurrence of an Event of Default or for
any other reason, and shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to accomplish such transfer
with minimal disruption of the business conducted at the Facility. To that end,
pending completion of the transfer of operational control of the Facility to
Landlord or its nominee, Tenant agrees that:
(a) Tenant will not terminate the employment of any employees without
just cause, or change any salaries (other than normal merit raises and the
pre-announced
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wage increases of which Landlord has knowledge) or employment agreements
without Landlord's consent of Landlord other than customary raises to
non-officers at regular review dates, and will not hire additional
employees except in good faith in the ordinary course of business.
(b) Tenant will provide all necessary information requested by
Landlord or its nominee for the preparation and filing of any and all
necessary applications or notifications of any federal or state
governmental authority having jurisdiction over a change in the operational
control of the Facility, and Tenant will use its best efforts, (without
incurring material cost or liability except after an Event of Default), to
cause the operating health care license to be transferred to Landlord or
Landlord's nominee.
(c) Tenant shall continue to operate the business in accordance with
reasonable and standard industry practices to keep the business and
organization of the Facility intact and to preserve for Landlord or its
nominee the goodwill of the suppliers, distributors, residents and others
having business relations with Tenant with respect to the Facility.
(d) Tenant shall engage only in transactions or other activities with
respect to the Facility which are in the ordinary course of its business
and shall perform all maintenance and repairs reasonably necessary to keep
the Facility in satisfactory operating condition and repair, and shall
maintain the supplies and foodstuffs at levels which are consistent and in
compliance with all health care regulations, and shall not sell or remove
any personal property except in the ordinary course of business.
(e) Tenant shall cooperate fully with Landlord or its nominee in
supplying any information that may be reasonably required to effect an
orderly transfer of the Facility.
(f) Tenant shall provide Landlord or its nominee with full and
complete information regarding the employees of the Facility and shall
reimburse Landlord or its nominee for all outstanding accrued employee
benefits, including accrued vacation, sick and holiday pay calculated on a
true accrual basis, including all earned and a prorated portion of all
unearned benefits.
(g) Tenant shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to obtain the
acknowledgment and the consent of any creditor, Landlord or sublandlord,
mortgagee, beneficiary of a deed of trust or security agreement affecting
the real and personal properties of Tenant or any other party whose
acknowledgment and/or consent would be required because of a change in the
operational control of the Facility and transfer of personal property.
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35.4 INTANGIBLES AND PERSONAL PROPERTY. Notwithstanding any other provision
of this Lease, but subject to Section 6.4 hereof (relating to Landlord's
security interest), Landlord's Personal Property shall not include goodwill, or
other intangible personal property severable from Landlord's "interests in real
property" within the meaning of Section 856(d) of the Code. All of Landlord's
Personal Property is leased to Tenant pursuant to the terms hereof.
ARTICLE 36
[INTENTIONALLY OMITTED]
ARTICLE 37
MISCELLANEOUS
37.1 NOTICES. All notices, consents or other communications under this
Lease must be in writing and addressed to each party at its respective Notice
Addresses (or at any other address which the respective parties may designate by
notice given to the other party from time to time). Any notice required by this
Lease to be given or made within a specified period of time, on or before a date
certain, shall be deemed given or made if sent by hand, by fax with confirmed
answerback received, or by registered or certified mail (return receipt
requested and postage and registry fees prepaid). Delivery "by hand" shall
include delivery by commercial express or courier service. A notice sent by
registered or certified mail shall be deemed given on the date of receipt (or
attempted delivery if refused) indicated on the return receipt. All other
notices shall be deemed given when actually received. A notice may be given by a
party or by its legal counsel. The Notice Addresses "of the parties are as
follows:
If to Landlord: c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Daniel J. Booth
Telephone No.: (410) 998-8768
Fax No.: (410) 998-8716
If to Tenant: Peak Medical of Idaho, Inc.
5635 Jefferson Boulevard, N.E.
Albuquerque, New Mexico 87109
Attn: Charles H. Gonzales
Telephone No.: (505) 342-0235
Facsimile No.: (505) 341-2326
58
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37.2 SURVIVAL, CHOICE OF LAW. TENANT'S OBLIGATIONS UNDER THIS LEASE SHALL
SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THE TERM. THIS LEASE SHALL BE
CONSTRUED AND ENFORCED UNDER THE LAW OF THE STATE OF IDAHO. TENANT IRREVOCABLY
SUBMITS TO JURISDICTION IN THE STATE OF IDAHO (AND AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON TENANT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS
OF THE STATE OF IDAHO IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF ANY SUCH STATE).
37.3 LIMITATION ON RECOVERY. Tenant specifically agrees to look solely to
Landlord's interest in the Leased Property leased by it, the net proceeds
received by Landlord from the sale or any financing or refinancing of the Leased
Property leased by it, the Security Deposit, any funds deposited by Tenant
pursuant to Section 12.2 hereof and any Net Proceeds for recovery of any
judgment against Landlord, it being specifically agreed that no partner,
manager, shareholder, officer, director, or employee of Landlord shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Tenant. Furthermore, Landlord (original or successor) shall not
ever be liable to Tenant for any indirect or consequential damages suffered by
Tenant from whatever cause.
37.4 WAIVERS. Tenant waives any defense by reason of any disability of
Tenant and waives any other defense based on the termination of Tenant's
(including Tenant's successor's) liability from any cause. Tenant waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance, and waives
all notices of the existence, creation, or incurring of new or additional
obligations.
37.5 INTENTIONALLY OMITTED.
37.6 COUNTERPARTS. This Lease may be executed (a) in counterparts, a
complete set of which together shall constitute an original and (b) in
duplicates, each of which shall constitute an original. Copies of this Lease
showing the signatures of the respective parties, whether produced by
photographic, digital, computer, or other reproduction, may be used for all
purposes as originals.
37.7 OPTIONS FOLLOW LEASE. The renewal options and any other options
granted to Tenant in this Lease are not assignable or transferrable except in
connection with a permitted transfer or assignment of this Lease. Any attempt to
assign or transfer such options otherwise shall be void and of no force and
effect.
37.8 RIGHTS CUMULATIVE. Except as provided herein to the contrary, the
respective rights and remedies of the parties specified in this Lease shall be
cumulative and in addition to any rights and remedies not specified in this
Lease.
37.9 ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Lease. This Lease
supersedes and cancels any and all
59
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previous negotiations, arrangements, representations, brochures, agreements and
understandings, if any, between Landlord and Tenant.
37.10 AMENDMENTS IN WRITING. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Landlord and Tenant
37.11 SEVERABILITY. If any provision of this Lease or the application of
such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall not
affect the other provisions of this Lease and all other provisions of this Lease
shall be deemed valid and enforceable.
37.12 SUCCESSORS. The term "Landlord" shall mean only the owner or owners
at the time in question of fee title in the Leased Property. All rights and
obligations of Landlord and Tenant under this Lease shall extend to and bind the
respective heirs, executors, administrators and the permitted concessionaires,
successors, subtenants and assignees of the parties.
37.13 TIME OF THE ESSENCE. Except for the delivery of possession of the
Facility to Tenant, time is of the essence of all provisions of this Lease of
which time is an element.
37.14 LATE CHARGES. If any late charges provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
37.15 BINDING EFFECT. This Lease (and all terms thereof, whether so
expressed or not), shall be binding upon the respective permitted successors,
assigns and legal representatives of the parties and shall inure to the benefit
of and be enforceable by the parties and their respective permitted successors,
assigns and legal representatives.
37.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto
are (and shall be deemed) parts of this Lease.
37.17 WAIVER OF JURY TRIAL. In any action or proceeding in connection with
this Lease, each of Landlord and Tenant hereby waives the right to trial by
jury.
37.18 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form Memorandum of Lease, in form suitable
for recording under the laws of the state in which reference to this Lease, and
all options contained therein, shall be made. Tenant shall pay all costs and
expenses of recording such Memorandum of Lease.
60
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ARTICLE 38
SECURITY DEPOSIT
38.1 SECURITY DEPOSIT. Concurrent with Tenant's execution of this Lease,
Tenant shall deliver the Security Deposit to Landlord, to be held by Landlord as
security for the full and faithful performance by Tenant of each and every term,
provision, covenant and condition of this Lease. The Security Deposit shall be
deposited by Landlord in an interest-bearing account in Landlord's name,
separate and apart from Landlord's general and/or other funds, which cash and
interest shall remain on deposit as security hereunder and be available to
Landlord as provided in this Article. The Security Deposit shall not be
considered an advance payment of Rent (or of any other sum payable to Tenant
under this Lease) or a measure of Landlord's damages in case of a default by
Tenant. The Security Deposit shall not be considered as a trust fund, and Tenant
agrees that Landlord is not acting as a trustee or in any fiduciary capacity in
controlling or using the Security Deposit.
38.2 APPLICATION OF SECURITY DEPOSIT. Upon the occurrence and continuation
of an Event of Default, Landlord may, but shall not be required to, in addition
to any other rights and remedies available to Landlord, use, apply or retain the
whole or any part of the Security Deposit to the payment of any sum in default,
or any other sum, including, but not limited to, any damages or deficiency in
reletting the applicable Leased Property, which Landlord may expend or be
required to expend by reason of Tenant's default. Whenever, and as often as,
Landlord has used the Security Deposit to cure Tenant's default hereunder,
Tenant shall, within ten (10) days after Notice from Landlord, deposit
additional funds with Landlord sufficient to restore the Security Deposit to the
full amount originally provided or paid.
38.3 TRANSFER OF SECURITY DEPOSIT. If Landlord transfers its interest under
this Lease, Landlord shall assign the Security Deposit to the new Landlord, and,
provided that the transferee gives Notice to Tenant that such transferee has
received the Security Deposit, thereafter Landlord shall have no further
liability for the return of the Security Deposit, and Tenant agrees to look
solely to the new Landlord for the return of the Security Deposit. The
provisions of the preceding sentence shall apply to every transfer or assignment
of Landlord's interest under this Lease. Tenant agrees that it will not assign
or encumber or attempt to assign or encumber the monies deposited as security
and that Landlord, its successors and assigns may return the Security Deposit to
the last Tenant in possession at the last address for Notice given by Tenant and
that Landlord shall thereafter be relieved of any liability therefor, regardless
of one or more assignments of this Lease or any such actual or attempted
assignment or encumbrances of the monies held as the Security Deposit.
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ARTICLE 39
TENANT PURCHASE OPTION
Tenant is hereby granted the right and option to purchase the Leased
Property from Landlord. The purchase option may be exercised by Tenant during
the period commencing on the date that is one hundred eighty (180) days, and
ending on the date that is one hundred fifty (150) days, before each of (a) the
Expiration Date, (b) the expiration of the First Renewal Term and (c) the
expiration of the Second Renewal Term; provided, however, the purchase option
may only be exercised under clauses (a) and (b) hereof if Tenant has not elected
to renew this Lease for the First Renewal Term or the Second Renewal Term, as
the case may be. Tenant shall exercise the purchase option by giving written
notice thereof to Landlord either prior to or on the expiration date. Within
thirty (30) days of the date that Tenant exercises the purchase option, Landlord
shall sell the Leased Property to Tenant and Tenant shall purchase the Leased
Property from Landlord at a purchase price based upon the Leased Property's fair
market value at the time Tenant exercises the purchase option, determined in
accordance with the provisions of Article 33 hereof. At the closing of the sale
of the Leased Property to Tenant, Tenant shall convey the purchase price to
Landlord and Landlord shall convey to Tenant a special warranty deed conveying
good, indefeasible and insurable title to the Leased Property, subject to
reasonably appropriate permitted exceptions. Tenant shall pay all fees and
expenses associated with the conveyance of the Leased Property pursuant to
Tenant's exercise of the purchase option, including, but not limited to, all
transfer taxes, recording fees and Landlord's attorney's fees, costs and
disbursements. If Tenant fails to exercise the option to purchase the Leased
Property in the manner provided in this Article 39, the purchase option shall
expire and no party hereto shall thereafter have any rights, liabilities or
obligations whatsoever under this Lease.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
IHS ACQUISITION NO. 105, INC.
By: /s/ Daniel J. Booth
-----------------------------------------
Name: Daniel J. Booth
---------------------------------------
Title: Senior Vice President
--------------------------------------
PEAK MEDICAL OF IDAHO, INC.
By: /s/ Scot Sauder
---------------------------------------------
Name: Scot Sauder
-------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------
63
FACILITIES PURCHASE AGREEMENT
AMONG
MONARCH PROPERTIES, LP,
TRANS HEALTHCARE, INC.,
COOPER MANAGEMENT CORPORATION
AND
THE ENTITIES LISTED ON ATTACHED EXHIBIT A
DATED AS OF JUNE __, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS....................................................................2
1.1 Affiliate.......................................................2
1.2 Agreement.......................................................2
1.3 Bills of Sale...................................................2
1.4 Claims..........................................................2
1.5 Closing.........................................................2
1.6 Closing Date....................................................2
1.7 Consent and Subordination Agreement. ..........................2
1.8 Contracts.......................................................2
1.9 Deeds...........................................................3
1.10 Deferred Maintenance Adjustment.................................3
1.11 Effective Date..................................................3
1.12 Environmental Laws..............................................3
1.13 Environmental Remediation.......................................3
1.14 Escrow Agent....................................................3
1.15 Escrow Agreement................................................4
1.16 Facilities......................................................4
1.17 Facility Management Agreement...................................4
1.18 Final Financial Statements; Final Balance Sheet.................4
1.19 Financial Statements of the Facilities..........................4
1.20 Guaranty........................................................4
1.21 Hazardous Materials.............................................4
1.22 Improvements....................................................4
1.23 Intangible Property.............................................4
1.24 Knowledge.......................................................5
1.25 Law.............................................................5
1.26 MAI Appraisal...................................................5
1.27 Manager.........................................................5
1.28 Master Lease....................................................5
1.29 Monarch.........................................................5
1.30 Non-Competition Agreement.......................................5
1.31 Permits.........................................................5
1.32 Permitted Liens.................................................6
1.33 Personal Property...............................................6
1.34 Pledge Agreement................................................6
1.35 Purchase Price..................................................6
i
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TABLE OF CONTENTS
Page
1.36 Real Property...................................................6
1.37 Release.........................................................6
1.38 Reasonable Inquiry..............................................6
1.39 Security Agreement..............................................6
1.40 Sellers' Liabilities............................................6
1.41 Seller Licenses.................................................7
1.42 Sellers' Assets.................................................7
1.43 Survey..........................................................7
1.44 Title Commitment................................................7
1.45 Title Company...................................................7
1.46 Title Insurance Policy..........................................7
1.47 Transaction Documents...........................................8
1.48 UCC Search Report...............................................8
ARTICLE II
PURCHASE AND SALE..............................................................8
2.1 Agreement to Sell and Buy.......................................8
2.2 No Assumption of Liabilities....................................8
2.3 "As Is" Purchase................................................8
ARTICLE III
PURCHASE PRICE.................................................................8
ARTICLE IV
CLOSING........................................................................9
ARTICLE V
TRANSACTION COSTS AND EXPENSES.................................................9
5.1 Transfer Taxes; Sales Taxes.....................................9
5.2 MAI Appraisals..................................................9
5.3 Title Insurance.................................................9
5.4 Surveys/UCC Search Reports......................................9
5.5 Environmental Reports/Remediation...............................9
5.6 Attorneys' Fees.................................................9
5.7 Recording Costs................................................10
5.8 Releases.......................................................10
5.9 Deferred Maintenance Adjustment................................10
5.10 Fee; Commitment Fee............................................10
5.11 Other Items....................................................10
ii
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TABLE OF CONTENTS
Page
ARTICLE VI
POSSESSION....................................................................10
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLERS.....................................11
7.1 Corporate Organization; Good Standing; Corporate Information...11
7.2 Authorization; Enforceability..................................11
7.3 No Violation or Conflict.......................................11
7.4 Assets.........................................................12
7.5 No Litigation..................................................12
7.6 Personal Property and Improvements.............................12
7.7 Real Property and Improvements.................................12
7.8 Zoning.........................................................13
7.9 Leases.........................................................13
7.10 Liabilities....................................................13
7.11 Taxes..........................................................13
7.12 Contracts......................................................13
7.13 Intentionally Omitted..........................................13
7.14 Financial Statements of the Facility owned by such Seller......14
7.15 No Adverse Change..............................................14
7.16 Employment Agreements and Benefits.............................14
7.17 Insurance......................................................14
7.18 Compliance with the Law........................................15
7.19 Transactions with Affiliates...................................16
7.20 Obligations....................................................16
7.21 No Broker......................................................16
7.22 Environmental Compliance.......................................16
7.23 No Attachments.................................................17
7.24 No Options.....................................................17
7.25 Seller Licenses................................................17
7.26 Disclosure.....................................................17
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF COOPER......................................18
8.1 Status of Cooper...............................................18
8.2 Validity of Contracts..........................................18
8.3 Authority......................................................18
8.4 No Broker......................................................18
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TABLE OF CONTENTS
Page
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF THI.........................................18
9.1 Status of THI..................................................18
9.2 Validity of Contracts..........................................18
9.3 Authority......................................................19
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................19
10.1 Organization...................................................19
10.2 Authorization; Enforceability..................................19
10.3 No Violation or Conflict.......................................19
10.4 No Broker......................................................19
ARTICLE XI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER..........................20
11.1 Compliance with this Agreement.................................20
11.2 Proceedings and Instruments Satisfactory.......................20
11.3 No Litigation..................................................21
11.4 Representations and Warranties.................................21
11.5 Deliveries at the Closing......................................21
11.6 Regulatory Approvals...........................................22
11.7 Default........................................................22
11.8 Approvals......................................................22
ARTICLE XII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS............................23
12.1 Compliance with this Agreement.................................23
12.2 Proceedings and Instruments Satisfactory.......................23
12.3 No Litigation..................................................23
12.4 Representations and Warranties.................................23
12.5 Deliveries at the Closing......................................23
12.6 Restraints.....................................................24
12.7 Regulatory Approvals...........................................24
12.8 Approvals......................................................24
ARTICLE XIII
ADDITIONAL COVENANTS AND INDEMNIFICATIONS.....................................24
13.1 Transfer Taxes and Fees........................................24
13.2 Cooperation....................................................24
13.3 Additional Instruments.........................................24
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TABLE OF CONTENTS
Page
13.4 Publicity......................................................25
13.5 Confidentiality................................................25
13.6 Indemnifications...............................................25
13.7 Liability for Representations and Warranties Before the
Closing........................................................28
ARTICLE XIV
MISCELLANEOUS.................................................................28
14.1 Entire Agreement; Amendment....................................28
14.2 Governing Law..................................................29
14.3 Assignment.....................................................29
14.4 Notices........................................................29
14.5 Counterparts; Headings.........................................30
14.6 Interpretation.................................................30
14.7 Severability...................................................30
14.8 No Reliance....................................................30
14.9 Binding........................................................31
14.10 Survival.......................................................31
14.11 Allocation of Purchase Price...................................31
14.12 Dispute Attorneys' Fees and Expenses...........................31
v
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FACILITIES PURCHASE AGREEMENT
THIS FACILITIES PURCHASE AGREEMENT (this "Agreement"), is made and entered
into as of the ___ day of June, 1998, among Monarch Properties, LP, a Delaware
limited partnership, with principal offices at 8889 Pelican Bay Boulevard,
Naples, Florida 34103 ("Purchaser"), Trans Healthcare, Inc., a Delaware
corporation, with principal offices at 4076 Carlisle Pike, Camp Hill,
Pennsylvania 17011 ("THI"), Cooper Management Corporation, a [Insert State]
corporation, with principal offices at 517 North Dixon, Melbourne, Arkansas
72556 ("Cooper") and each of the entities described on attached Exhibit A (each,
a "Seller" and, collectively, "Sellers").
W I T N E S S E T H:
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Capitalized terms used but not otherwise defined herein have the
respective meanings given them in Article I herein.
B. Sellers are the owners of Sellers' Assets. Sellers desire to sell, and
Purchaser desires to acquire, Sellers' Assets on the terms and conditions set
forth in this Agreement.
C. Upon the acquisition of Sellers' Assets by Purchaser, [THI Affiliate
Lessee] will lease Sellers' Assets from Purchaser under the Master Lease.
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified herein. The meanings specified in this Article and elsewhere in this
Agreement are for purposes of this Agreement only and do not purport to have any
significance for any other purpose, including, but not limited to, any
applicable reporting requirements under tax or securities laws, except as the
terms may be used by reference in other agreements between the parties to this
Agreement. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural and vice versa, unless this Agreement requires otherwise.
1.1 Affiliate. "Affiliate" shall have the meaning set forth in Section 7.19
hereof.
1.2 Agreement. "Agreement" shall mean this Facilities Purchase Agreement,
together with the Exhibits and Schedules attached hereto, as the same may be
amended from time to time in accordance with the terms hereof.
1.3 Bills of Sale. "Bills of Sale" shall mean, collectively, the bill of
sale to be executed by each Seller and conveying to Purchaser all of the
Personal Property for each Facility owned by such Seller.
1.4 Claims. "Claims" shall have the meaning set forth in Section 13.6
hereof.
1.5 Closing. "Closing" shall mean the closing held at 10:00 a.m., local
time, on the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York. All transactions occurring at
the Closing shall be deemed to have occurred simultaneously, and no one
transaction shall be deemed to be complete until all transactions are completed.
1.6 Closing Date. "Closing Date" shall mean the date that Purchaser
acquires Sellers' Assets from Sellers and leases Sellers' Assets to [THI
Affiliate Lessee] under the Master Lease.
1.7 Consent and Subordination Agreement. "Consent and Subordination
Agreement" shall mean the agreement to be executed among THI, Cooper and
Purchaser pursuant to which certain management fees payable under the Facility
Management Agreement are subordinated to Purchaser's rights under the Master
Lease upon an Event of Default under the Master Lease. [FOR POSSIBLE COOPER
MANAGEMENT AGREEMENT]
1.8 Contracts. "Contracts" shall mean those contracts, agreements, leases,
rights of renewal thereto and commitments with respect to each of the Facilities
or with respect to the
2
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operation of any of the Facilities (a) to which Seller or any of the Facilities
is a party or (b) by which Sellers or any of the Facilities is bound and that
are listed on Schedule 1.8 hereto.
1.9 Deeds. "Deeds" shall mean, collectively, the general warranty deed (or
such other form of deed applicable to the state in which the Facility is
located) in recordable form, executed by each Seller and conveying to Purchaser
fee simple title to the real property owned by such Seller, free and clear of
all liens and encumbrances other than the Permitted Liens.
1.10 Deferred Maintenance Adjustment. "Deferred Maintenance Adjustment"
shall mean, with respect to each Facility, the amount set forth opposite such
Facility's name on Schedule 1.10 hereto to cover the potential costs to be
incurred by THI after the Effective Date in making the repairs or modifications
required at such Facility and described on Schedule 1.10 hereto and any
Environmental Remediation described on Schedule 1.13 hereto.
1.11 Effective Date. "Effective Date" shall mean the Closing Date.
1.12 Environmental Laws. "Environmental Laws" shall mean all federal,
state, and local laws, statutes, ordinances, regulations, policies, rules,
directives, guidelines, Permits, licenses, criteria and rules of common law now
or hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the regulation and protection of
human health, safety, the environment and natural resources (including, without
limitation, ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, and wildlife, aquatic species and vegetation), including,
without limitation, relating to emissions, discharges, releases or threatened
releases of Hazardous Materials (as defined in Section 7.22 hereof) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. Environmental Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, and the Safe Drinking Water Act, and as the same may be
amended, modified or supplemented, the regulations promulgated pursuant thereto,
and their state and local counterparts or equivalents.
1.13 Environmental Remediation. "Environmental Remediation" shall mean,
with respect to each Facility, the work described opposite such Facility's name
on Schedule 1.13 hereto to be performed by THI after the Closing for the
investigation and/or remediation of the environmental conditions at such
Facility described on Schedule 1.13 hereto.
1.14 Escrow Agent. "Escrow Agent" shall mean Fidelity National Title
Insurance Company of New York.
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1.15 Escrow Agreement. "Escrow Agreement" shall mean the agreement among
THI, Purchaser and Escrow Agent pursuant to which the Deferred Maintenance
Adjustment is to be held and disbursed.
1.16 Facilities. "Facilities" shall mean the Real Property, Improvements
and Personal Property constituting the health care facilities described on
Exhibit B hereto. Reference to any one of the Facilities individually and not
specifically shall be referred to herein as a "Facility".
1.17 Facility Management Agreement. "Facility Management Agreement" shall
mean the facility management agreement, in form and substance satisfactory to
Purchaser, to be executed by Cooper and THI, pursuant to which Cooper agrees to
provide certain management services to the Facilities leased by THI, pursuant to
the Master Lease. [IF COOPER MANAGES THE FACILITIES]
1.18 Final Financial Statements; Final Balance Sheet. "Final Financial
Statements" shall mean the unaudited Financial Statements of the Facilities as
of the Effective Date, including a balance sheet for each of the Facilities as
of such date, together with the related unaudited statement of income and
statement of cash flows for the period from January 1, 1998 through the
Effective Date, and the notes thereto. "Final Balance Sheet" shall mean the
balance sheet included in the Final Financial Statements.
1.19 Financial Statements of the Facilities. "Financial Statements of the
Facilities" shall mean the unaudited Financial Statements for each of the
Facilities as of December 31, 1997, as described in Schedule 1.19 hereto.
1.20 Guaranty. "Guaranty" shall mean the guaranty, in form and substance
satisfactory to Purchaser, executed and delivered by THI to Purchaser
concurrently with the execution and delivery of the Master Lease, pursuant to
which THI guarantees to Purchaser the payment and performance by [Insert THI
Lessee Subsidiary] of its obligations under the Master Lease.
1.21 Hazardous Materials. "Hazardous Materials" shall have the meaning set
forth in Section 7.22 hereof.
1.22 Improvements. "Improvements" shall mean, collectively, the buildings
and all attached fixtures constituting the nursing home/adult care facilities
and related improvements, Related Rights and Fixtures, constructed on each of
the Real Properties.
1.23 Intangible Property. "Intangible Property" shall mean (a) all
transferable consents, authorizations, variances or waivers, licenses, permits
and approvals given or issued by any governmental or quasi-governmental agency,
department, board, commission, bureau
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or other entity or instrumentality having jurisdiction over the respective
Facilities and (b) all rights to use the names of the Facilities set forth on
Schedule 1.23 hereto.
1.24 Knowledge. "Knowledge" of a party shall mean (a) actual knowledge of
an officer or management level employee of such party, with respect to a
corporation, (b) actual knowledge of a general partner, member, managing
director or management level employee of such party, with respect to a
partnership or limited liability company, or (c) actual knowledge of the person
with respect to a natural person.
1.25 Law. "Law" shall mean any federal, state, local or other law,
ordinance, code, or governmental agency requirement of any kind, and the rules,
regulations and orders promulgated thereunder including, without limitation, the
Environmental Laws.
1.26 MAI Appraisal. "MAI Appraisal" shall mean with respect to each
Facility, an appraisal, in form and substance satisfactory to Purchaser,
prepared by an appraiser who is a Member of the Appraisal Institute and is
experienced in appraising properties of the same nature, and in the same
geographical vicinity, as each Facility.
1.27 Manager. "Manager" shall mean [Insert Cooper Subsidiary], a [Insert
State] corporation, with principal offices at 517 North Dixon, Melbourne,
Arkansas 72556, which is a subsidiary of Cooper. [IF COOPER MANAGES THE
FACILITIES]
1.28 Master Lease. "Master Lease" shall mean the master lease, in form and
substance satisfactory to Purchaser, executed and delivered by Purchaser and
[Insert THI Lessee Subsidiary], concurrently with the Closing, pursuant to which
Purchaser leases to [Insert THI Lessee Subsidiary], and [Insert THI Lessee
Subsidiary] leases from Purchaser, the respective Facilities.
1.29 Monarch. "Monarch" shall mean Monarch Properties, Inc., a Maryland
corporation, with principal offices at 8889 Pelican Bay Boulevard, Naples,
Florida 34103.
1.30 Non-Competition Agreement. "Non-Competition Agreement" shall mean the
non-competition agreement, in form and substance satisfactory to Purchaser,
executed and delivered by Purchaser, THI, Cooper and Sellers, which prohibits
Cooper and Sellers from providing healthcare services in competition with the
Facilities.
1.31 Permits. "Permits" shall mean all permits, consents, waivers,
exemptions, orders, certificates of need, licenses and governmental and agency
authorizations, registrations and approvals with respect to each of the
Facilities, as listed on Schedule 1.31 hereto. For purposes of this definition,
the term "license" shall mean the permit to own a nursing home and to operate a
nursing home issued to any operator of a nursing home upon application to,
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and approval by, the health care facilities branch, pursuant to the relevant
state nursing home licensure act, as in effect on the Effective Date.
1.32 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges, security
interests, impositions and other matters affecting any of the Facilities, as
listed on Schedule 1.32 hereto.
1.33 Personal Property. "Personal Property" shall mean, collectively, the
vehicles, equipment, machinery, furniture, fixtures, furnishings, moveable walls
or partitions, computers or trade fixtures, office equipment, operating supplies
and other tangible real or personal property owned by Sellers and leased to
[Insert THI Lessee Subsidiary] on the Closing Date.
1.34 Pledge Agreement. "Pledge Agreement" shall mean the pledge agreement,
executed and delivered from THI to Purchaser, pursuant to which THI pledges to
Purchaser the stock of [Insert THI Lessee Subsidiary].
1.35 Purchase Price. "Purchase Price" shall mean the sum of $[10,500,000].
[TO BE FINALIZED AFTER NUMBERS REVIEWED]
1.36 Real Property. "Real Property" shall mean, collectively, all of the
land and Improvements located thereon, situated at the addresses as listed on
Exhibit B hereto, that is currently owned by Sellers.
1.37 Release. "Release" shall mean the release, deposit, disposal or
leakage of any Hazardous Material into, upon or under any land or water or air,
or otherwise into the environment, including, without limitation, by means of
burial, disposal, discharge, emission, injection, spillage, leakage, seepage,
leaching, dumping, pumping, pouring, escaping, emptying, placement and the like.
1.38 Reasonable Inquiry. "Reasonable Inquiry" shall have the meaning set
forth in Section 7.22 hereof.
1.39 Security Agreement. "Security Agreement" shall mean the security
agreement, in form and substance satisfactory to Purchaser, pursuant to which
[Insert THI Lessee Subsidiary] grants to Purchaser a security interest in the
Personal Property and Intangible Property in order to secure the obligations of
[THI Subsidiary Lessee] under the Master Lease.
1.40 Sellers' Liabilities. "Sellers' Liabilities" shall mean any and all
liabilities of Sellers or any of the Facilities, whether actual or contingent,
relating to each of the Facilities that are (a) reflected on the Financial
Statements of the Facilities or on Schedule 1.40 hereto or
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(b) except for liabilities arising from operation of the Facilities on or prior
to the Closing Date, arising under the Contracts.
1.41 Seller Licenses. "Seller Licenses" shall mean, if and as applicable,
all material licenses, Permits and authorizations necessary for the lawful
operation of the respective Facilities, as the Facilities currently are
operated, including all licenses, Permits and authorizations necessary to (a)
lawfully operate all beds contained in the Facilities as nursing home beds, (b)
provide licensed nursing services and any other services currently provided at
the respective Facilities, and (c) receive payment under the Medicare and
applicable state Medicaid programs.
1.42 Sellers' Assets. "Sellers' Assets" shall mean, collectively, the Real
Property, the Facilities, the Personal Property and the Intangible Property.
1.43 Survey. "Survey" shall mean, with respect to a Facility, a survey that
is (a) certified to Purchaser, the applicable Seller, THI and the Title Company,
(b) prepared in accordance with the minimum standard detail requirements and
classifications for ALTA/ASCM land title surveys, as adopted in 1992 by
ALTA/ASCM, including Table A responsibilities and specifications 1-4, 6-11 and
13, and (c) otherwise in form satisfactory to Purchaser.
1.44 Title Commitment. "Title Commitment" shall mean, with respect to a
Facility, a title insurance commitment, issued by the Title Company, committing
the Title Company to insure Purchaser's fee simple title to the applicable
Facility, without the so-called "standard exceptions", in the amount of the
portion of the Purchase Price allocated to such Facility pursuant to Section
14.12 hereof, together with legible copies of all recorded documents referred to
therein.
1.45 Title Company. "Title Company" shall mean Fidelity National Title
Insurance Company of New York.
1.46 Title Insurance Policy. "Title Insurance Policy" shall mean, with
respect to a Facility, a title insurance policy, issued pursuant to the
applicable Title Commitment by the Title Company concurrently with the Effective
Date, that insures Purchaser's fee simple title to the applicable Facility,
without the so-called "standard exceptions", and subject only to the Permitted
Liens. Each Title Insurance Policy shall include the following endorsements, to
the extent available under the law of the state in which the applicable Facility
is located: (a) Form 3.1 completed zoning endorsement, (b) comprehensive
endorsement, (c) access endorsement, (d) survey endorsement, (e) separate tax
parcel endorsement, (f) contiguity endorsement (if the Real Property on which
the applicable Facility is located consists of more than one parcel), and (g)
such other endorsements as Purchaser reasonably may require.
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1.47 Transaction Documents. "Transaction Documents" shall mean this
Agreement, the Master Lease, the Memorandum of Lease, the Guaranty, the Security
Agreement, the Non- Competition Agreement, the Escrow Agreement, the Closing
Escrow Agreement, the Pledge Agreement and all other agreements related thereto
executed and delivered by the parties to this Agreement.
1.48 UCC Search Report. "UCC Search Report" shall mean a UCC search report
in the name of each Seller and each Facility conducted at the state and county
level in the state in which each Facility is located and, if different, in the
state in which each Seller is organized and in the state in which the Sellers'
chief executive office is located.
ARTICLE II
PURCHASE AND SALE
2.1 Agreement to Sell and Buy. On the terms and subject to the conditions
set forth in this Agreement, Sellers agree to sell to Purchaser, and Purchaser
agrees to acquire from Sellers, Sellers' Assets.
2.2 No Assumption of Liabilities. Except as specifically set forth in this
Agreement, Purchaser is not acquiring or assuming any liabilities of Sellers,
Cooper, THI, or the Facilities whatsoever, including, without limitation, those
of Seller with respect to Sellers' Assets.
2.3 "As Is" Purchase. Purchaser is acquiring Sellers' Assets without any
express or implied warranties other that those specifically set forth in this
Agreement.
ARTICLE III
PURCHASE PRICE
The Purchase Price shall be payable on the Closing Date by wire
transfer in accordance with wire transfer instructions to be provided by THI and
Sellers. The Purchase Price shall be allocated among the Facilities as set forth
in Section 14.12 herein. Sellers and Purchaser agree that, for purposes of this
Agreement, no portion of the Purchase Price shall be allocated to the Personal
Property or the Intangible Property.
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ARTICLE IV
CLOSING
On the Closing Date, at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York 10019, the documents to be
delivered by Sellers, Cooper, Purchaser, THI and [Insert THI Lessee Subsidiary],
pursuant to Sections 11.5 and 12.5 hereof, shall be delivered and Purchaser
shall deliver to Sellers the Purchase Price.
ARTICLE V
TRANSACTION COSTS AND EXPENSES
The costs of the transaction and the expenses related to the ownership and
operation of the Seller's Assets shall be paid as follows:
5.1 Transfer Taxes; Sales Taxes. [Seller or THI] shall pay all state and
county transfer or excise taxes due on the transfer to Purchaser of title to the
Real Property and the respective Facilities and all assessments and taxes
related to the recording of the corresponding deeds. [Seller or THI] shall pay
any sales tax due on the transfer to Purchaser of title to the Personal
Property, although the parties believe no such tax is due.
5.2 MAI Appraisals. THI shall pay the cost of the MAI Appraisals delivered
to Purchaser.
5.3 Title Insurance. THI shall pay the cost of the Title Commitments and
the premium for the Title Insurance Policies (including any leasehold policies
desired by THI) for the respective Facilities.
5.4 Surveys/UCC Search Reports. THI shall pay the cost of the Surveys and
the UCC Search Reports for the respective Facilities.
5.5 Environmental Reports/Remediation. THI shall pay for the cost of Phase
I environmental assessments for the respective Facilities, for any additional
assessments recommended in the original Phase I environmental assessments, and
for the cost of the Environmental Remediation agreed upon by the parties and as
described on Schedule 1.13 hereto.
5.6 Attorneys' Fees. THI shall pay the reasonable and documented attorneys'
fees, costs and disbursements of Purchaser. Sellers, Cooper and THI shall pay
their own attorneys' fees, costs and disbursements.
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5.7 Recording Costs. THI shall pay all recording fees relating to the
recording of the deeds.
5.8 Releases. [Seller or THI] shall pay the cost of obtaining and recording
any releases necessary to deliver title to Sellers' Assets in accordance with
the terms of this Agreement.
5.9 Deferred Maintenance Adjustment. At the Closing, THI shall deposit into
escrow with the Escrow Agent the Deferred Maintenance Adjustment attributable to
each of the Facilities.
5.10 Fee; Commitment Fee. At the Closing, THI shall pay to Purchaser a
commitment fee equal to an aggregate of $[Insert Amount]. [TO BE 1% OF THE
PURCHASE PRICE]
5.11 Other Items. Purchaser has no duty to operate any Facility from and
after the Effective Date, such operations to be accomplished solely by [Insert
THI Lessee Subsidiary], subject to the provisions of the Master Lease, or by
Manager pursuant to the Facility Management Agreement. Accordingly, [Insert THI
Lessee Subsidiary] shall be responsible for (a) all revenues and expenses
attributable to each of the Facilities, where attributable to the period before
or after the Effective Date, (b) the real and personal property taxes,
assessments and similar charges that are levied against the Facilities, whether
attributable to the period before or after the Effective Date, (c) all utilities
provided to the Facilities, whether before or after the Effective Date, and (d)
any amounts that have been prepaid, or that remain to be paid, under any of the
Contracts affecting Sellers' Assets.
[NOTE: IF REQUIRED -- MONARCH WILL FINANCE ALL THI EXPENSE/FEE OBLIGATIONS --
BUT WILL NOT CONTRACT TO PAY ANY OF THEM UNDER THIS AGREEMENT]
ARTICLE VI
POSSESSION
At the Effective Date, Purchaser shall be entitled to possession of
Sellers' Assets, subject only to (a) the rights of the patients and residents of
the respective Facilities, (b) any possessory rights granted to any person under
the Permitted Liens and (c) the rights of [Insert THI Lessee Subsidiary] under
the Master Lease.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser that:
7.1 Corporate Organization; Good Standing; Corporate Information. Such
Seller is a corporation, duly organized, validly existing and in good standing
under the laws of the state set forth opposite its name on Exhibit B hereto, and
it has the corporate power and authority to develop, own, operate and lease each
Facility, to carry on its businesses as and in the places where such businesses
are now conducted and where such properties are now developed, owned, leased or
operated, and to enter into the transactions and perform its obligations under
this Agreement, the other Transaction Documents and any other documents and
instruments required to be delivered to which it is or is to become a party and
it is duly qualified as a foreign corporation to do business in the jurisdiction
in which the Facilities are located or in which failure so to qualify would
impair its ability to perform its obligations under this Agreement or any other
Transaction Document.
7.2 Authorization; Enforceability. The execution, delivery and performance
by such Seller of this Agreement, the other Transaction Documents and of all of
the documents and instruments contemplated hereby to be executed and delivered
by it are within the legal and corporate power and authority of such Seller and
have been duly authorized by all necessary legal and corporate action of such
Seller. This Agreement is, the other Transaction Documents are, and the other
documents and instruments required hereby to be delivered by it will be, when
executed and delivered, the valid and binding obligations of such Seller,
enforceable against it in accordance with their respective terms.
7.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the Transaction Documents and all of the other documents and
instruments contemplated hereby to be executed and delivered by such Seller does
not and will not conflict with or violate any material Law, judgment, or any
order or decree binding on it or the Articles of Incorporation or By-Laws of
such Seller. Except as indicated on Schedule 7.3(a) hereto, no notice to, filing
or registration with, or authorization, consent or approval of, any person,
entity or governmental or regulatory agency is necessary or required by such
Seller in connection with the execution and delivery of this Agreement, the
Transaction Documents and all of the other documents and instruments
contemplated hereby to be executed and delivered by such Seller or the
consummation by such Seller of the transactions contemplated hereby or the
performance by such Seller of its obligations hereunder. Except as indicated on
Schedule 7.3(b) hereto, since January 1, 1995, such Seller has received no
written notice from any governmental or regulatory agency having jurisdiction
over such Seller's Facility (a) claiming any violation of any Law (which
violation has not been cured or otherwise remedied), or (b) requiring or calling
attention to the need for any work, repairs, construction, alterations or
installation in connection with the Facilities owned by it which is or may be
required in order
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to comply with any Law (which work, repairs, construction, alterations or
installation has not been completed).
7.4 Assets. The Personal Property, Real Property and Intangibles constitute
all of the assets used in the operation of the Facility owned by it. Such Seller
owns good, valid and clear title to all of the Personal Property owned by it and
to all the other assets, if any, owned by it and used in the operation of the
Facility owned by it, and also including, but not limited to, all assets owned
by such Seller that are reflected in the Financial Statements of the Facilities
related to the Facility owned by it and all assets acquired by it since the date
thereof related to the Facility owned by it (except for assets that have been
sold or otherwise disposed of in the ordinary course of business), free and
clear of any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests or impositions except Permitted Liens.
7.5 No Litigation. Except as listed on Schedule 7.5 hereto, and the matters
set forth on Schedule 7.3(b) and on Schedule 7.22 hereto, there is no
litigation, arbitration proceeding, governmental investigation, citation, suit,
action proceeding or claim of any kind pending or threatened, against it or the
Facility owned by it that relates to such Facility or any portion thereof or the
ability of such Seller to perform its obligations under this Agreement or under
any other Transaction Documents. The matters described on Schedule 7.5 hereto,
if adversely determined, considered in the aggregate, would not have a material
adverse effect on the business or financial condition of such Seller or the
Facility owned by it or on any material portion of the assets of such Seller or
the Facility owned by it and would not preclude such Seller from performing its
obligations under this Agreement and under any other Transaction Documents.
7.6 Personal Property and Improvements. Except as provided on Schedule 7.6
hereto, the Personal Property and Improvements used in the operation of the
Facility owned by it, as of the Effective Date, are (a) in sufficient operating
condition and in a state of maintenance and repair to support current operating
conditions at the Facility owned by it and (b) the Improvements have no
structural or other defects, including, but not limited to, defects in plumbing,
heating, air conditioning, foundation or electrical wiring and are adequate and
suitable for the purpose for which they are presently being used.
7.7 Real Property and Improvements. Such Seller owns good, indefeasible and
insurable title to the Real Property, free and clear of any and all mortgages,
liens, encumbrances, charges, claims, restrictions, pledges, security interest
or impositions except the Permitted Liens. There are no existing or impending
Improvement liens or special assessments to be made, or which have been made,
against the Real Property or Improvements by any governmental authority. Neither
the Improvements, nor the use thereof, any Personal Property therein, nor the
operation or maintenance thereof, violate any restrictive covenant or encroach
on any property owned by others. No condemnation or similar proceeding is
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pending, nor, has such Seller or the Facility, received any written notice of
any condemnation or similar proceeding, threatened or contemplated that would
preclude or impair the use of the Real Property, the Improvements or Personal
Property or any portion thereof by Purchaser for the purposes for which it is
currently used.
7.8 Zoning. There exists no judicial, quasi-judicial, administrative or
other proceeding which might adversely affect the validity of the current zoning
of the Real Property and Improvements, nor is there any threatened action or
proceeding which could result in the modification and termination of any such
zoning.
7.9 Leases. Schedule 1.7 hereto contains an accurate and complete list of
each lease of Personal Property to which such Seller or any Facility owned by it
is a party or by which such Seller or the Facility owned by it is bound.
7.10 Liabilities. (a) The Seller's Liabilities include all liabilities of
such Seller in connection with the Facility owned by it for money borrowed or
credit purchases, other than obligations that will be discharged prior to
Closing, (b) such Seller is not in material default under any obligation
included in the Sellers' Liabilities, and no event has occurred or is
contemplated by it, that would constitute a material default, or an event that
with the giving of notice or passage of time or both would constitute a default
thereunder, and (c) such Seller has paid, and through the Effective Date shall
pay, all amounts due and payable to the Effective Date under the terms of each
obligation included in the Sellers' Liabilities.
7.11 Taxes. All tax returns required under applicable Law relating to the
Facilities owned by such Seller to have been filed by or on behalf of it have
been filed. All taxes of such Seller and taxes with respect to the Facility
owned by it for all periods covered by such returns have been paid or adequately
provided for. No unpaid deficiencies for any such taxes have been officially
asserted or assessed against such Seller or the Facility owned by it.
7.12 Contracts. Schedule 1.8 hereto constitutes a true and complete list of
all Contracts to which such Seller or the Facility owned by it is a party or by
which such Seller or the Facility owned by it is bound. With respect to those
Contracts or leases listed on Schedule 1.8 hereto, [THI Lessee Subsidiary] may
continue such Contracts and leases, as provided for in the Master Lease, and
such Seller shall defend, indemnity and hold harmless Purchaser from and against
any and all covenants, duties and obligations under such Contracts and leases,
including, without limitation, any and all costs and expenses arising out of or
in connection with any such covenants, duties and obligations. [THI TO PROVIDE
ADDITIONAL LANGUAGE TO FOLLOW]
7.13 Intentionally Omitted.
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7.14 Financial Statements of the Facility owned by such Seller. (a) The
Financial Statements of the Facility owned by such Seller, taken as a whole,
fairly presents the financial position and, if applicable, the results of
operations of the Facility owned by such Seller as of the dates thereof and the
periods then ended and were prepared in accordance with generally accepted
accounting principles consistently applied and (b) the Final Financial
Statements when delivered will present fairly the financial position and the
results of operations of the Facility owned by such Seller as of the Effective
Date and the period then ended and will be prepared in accordance with generally
accepted accounting principles consistently applied.
7.15 No Adverse Change. Except as set forth in Schedule 7.15 hereto, since
January 1, 1998 there has not been: (a) any material adverse change in the
financial condition or business of the Facility owned by such Seller, or any
material adverse change in the net operating income of the Facility owned by
such Seller, (b) any material loss, damage, condemnation or destruction to the
Facility owned by such Seller, (c) any labor dispute or disturbance, litigation
or any event or condition that could materially adversely affect the operation
of the Facility owned by such Seller, (d) any borrowings by such Seller in
connection with the Facility owned by such Seller, or (e) any sale, transfer or
other disposition of assets of the Facility owned by such Seller other than in
the ordinary course of business.
7.16 Employment Agreements and Benefits. (a) Schedule 7.16 hereto is a true
and complete list of all agreements or contracts relating to the compensation
and other benefits of present and former employees, salesmen, individual
consultants, individuals and other individual agents of such Seller relating to
the Facility owned by such Seller, including all collective bargaining
agreements and all pension, retirement, bonus, stock option, profit sharing,
health, disability, life insurance, hospitalization, education or other similar
plans or arrangements (whether or not subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), true and complete copies of which,
including any trust, insurance or other funding agreements (or true and complete
descriptions of which, in the case of oral agreements) have been delivered to
Purchaser, (b) such Seller has not contributed to or maintained any
"multiemployer plan", as defined in Section 3(37) of ERISA, in respect of
present or former employees at the Facility owned by such Seller, and (c) except
as set forth in Schedule 7.16 hereto, no such agreements require Purchaser to
assume or make payments with respect to any employment, compensation, fringe
benefit, pension, profit sharing or deferred compensation plan in respect of any
employee or former employee or the dependent or beneficiary of any employee or
former employee of such Seller although such Seller will have such liabilities
in accordance with the terms of such arrangements to the extent such liabilities
exist. [THI TO PROVIDE ADDITIONAL LANGUAGE TO FOLLOW]
7.17 Insurance. (a) Schedule 7.17 hereto (i) contains an accurate and
complete list of all material policies of property, fire and casualty, product
liability, workers' compensation and other forms of insurance owned or held by
such Seller in connection with the Facility owned by such Seller and (ii)
includes for each such policy its type, term, limits and
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retentions, deductibles, name of insurer, and (b) all such policies are in full
force and effect with all premiums billed or otherwise due having been paid in
full.
7.18 Compliance with the Law.
(a) Except as set forth on Schedule 7.3(b) and Schedule 7.22 hereto,
the use, maintenance and operation of the Facility owned by such Seller does not
violate or conflict in any material respect with any Law.
(b) The Permits constitute all permits, consents, waivers, exemptions,
orders, certificates of need, licenses and governmental agency authorizations,
registrations and approvals necessary for the development, construction,
ownership, licensure, use, maintenance and operation of the Facility owned by
such Seller in compliance with all applicable Laws (as such Facility is being
operated on the Effective Date). Except as shown on Schedule 1.31 hereto, all
such Permits are in full force and effect, have been duly obtained, made, given
or taken and are being complied with in all material respects, subject to
approvals required in connection with the transactions contemplated by this
Agreement and the other Transaction Documents.
(c) No governmental authority having jurisdiction over the Facility
owned by such Seller has issued any citations with respect to any deficiencies
or other matters that fail to conform to any applicable statute, regulation,
ordinance or bylaw and that have not been corrected as of the date hereof or
that shall not have been corrected on or prior to the Effective Date, except to
the extent that either (i) a waiver has been issued by the appropriate
authority, in which case a copy of such waiver is included on Schedule 7.18(c)
hereto, or (ii) the deficiency or non-conformity will not have a material and
adverse effect on the financial condition or results of the operations of the
Facility owned by such Seller.
(d) Such Seller has not received written or oral notice from any
licensing or certifying agency supervising or having authority over the Facility
owned by such Seller, requiring the Facility to be reworked or redesigned or
additional furniture, fixtures, equipment or inventory to be provided at the
Facility owned by such Seller so as to conform to or comply with any existing
and applicable Law, code or standard, except where the requirement either (i)
has been fully satisfied prior to the Effective Date, (ii) will, as of the
Effective Date, be in the process of being satisfied in the ordinary course of
such Seller's business pursuant to the terms of a plan of correction or other
documentation submitted to and approved by the appropriate authority or (iii)
will, as of the Effective Date, be the subject of a valid written waiver issued
by the applicable licensing or certifying agency.
(e) The Facility owned by such Seller participating in the Medicare or
Medicaid Programs is in compliance with all Conditions and Standards of
Participation in those Programs, except as set forth on Schedule 7.18(e) hereto.
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7.19 Transactions with Affiliates. Except as set forth on Schedule 7.19(a)
hereto, as of the Effective Date, the Facility owned by such Seller shall not be
bound by and will not owe any amount or have any contractual obligation or
commitment to any Affiliate (other than compensation for current services not
yet due and payable and reimbursement of expenses arising in the ordinary course
of business). Schedule 7.19(b) hereto describes in reasonable detail all
Affiliate relationships in effect during the three (3) years prior to the date
of this Agreement. "Affiliate" shall mean any employee of such Seller, any
person, firm or corporation that directly or indirectly controls, is controlled
by or is under common control with such Seller.
7.20 Obligations. Except as set forth on Schedule 7.20 hereto, none of the
patients at the Facility owned by such Seller have been given any concession,
rebate or consideration for the rental of any room, which concession, rebate or
other consideration shall not have been paid or delivered prior to the Effective
Date.
7.21 No Broker. Except as set forth on Schedule 7.21 hereto, such Seller
has not incurred any liability for broker's or finder's fees or commissions to
any broker, financial advisor or other intermediary in connection with the
transactions contemplated by this Agreement. Such Seller agrees to pay and to
hold Purchaser harmless from and against any amounts due and payable to any such
adviser not scheduled with respect to the transactions contemplated herein.
7.22 Environmental Compliance. "Hazardous Materials", as used herein, shall
mean, collectively, (a) any petroleum or petroleum product, explosive,
radioactive material, radon gas, asbestos, urea formaldehyde foam insulation,
and PCBs and (b) materials which are now or hereafter become defined as
"hazardous substances", "hazardous wastes", "extremely hazardous substances",
"hazardous materials", "restricted hazardous wastes", "toxic chemicals",
"pollutants", "toxic pollutants", "hazardous air pollutants", "air
contaminants", "hazardous chemicals", or words of similar import under any
applicable Environmental Laws. "Reasonable Inquiry", as used herein, shall mean
Knowledge of environmental issues and the delivery to Purchaser of (i) the Phase
I environmental site assessment reports and Phase I update reports listed on
Schedule 7.22 hereto, (ii) the asbestos survey reports listed on Schedule 7.22
hereto, and (iii) the Phase II environmental reports listed on Schedule 7.22
hereto. Except as set forth on Schedule 7.22 hereto, in connection with the
Facilities, to the best of its Knowledge, after Reasonable Inquiry, such Seller
has complied and is in compliance with all applicable Environmental Laws, and
such Seller has no Knowledge, and has not received notice, (i) that the Facility
owned by it or any property contiguous to the Facility owned by it is in
violation of any Environmental Law and (ii) of any pending or threatened claims
involving the Facility owned by it. Except as set forth on Schedule 7.5 or
Schedule 7.22 hereto, neither such Seller nor any of the Facilities is the
subject of any administrative or judicial action or proceeding pursuant to any
Environmental Laws at the Effective Date in connection with the Facility owned
by it. Promptly upon learning thereof, at or following the
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Effective Date, such Seller shall provide written notice to Purchaser of any
written notification of (i) the assertion of any claim or any threatened claim
relating to the Facility owned by it under any Environmental Law or (ii) the
assertion of any claim of non-compliance with or violation of any Environmental
Law. Except as set forth on Schedule 7.22 hereto, to the best of such Seller's
Knowledge, after Reasonable Inquiry, no Hazardous Materials have at any time
been generated, used, treated or stored at; transported to or from; or disposed
of, released, emitted, discharged or deposited at or in connection with, the
Facility owned by it in any way contrary to that which is allowed or permitted
under any Environmental Laws.
7.23 No Attachments. There are no attachments, executions, assignments for
the benefit of creditors, receiverships, conservatorship or voluntary or
involuntary proceedings in bankruptcy or pursuant to any debtor relief laws
contemplated being filed by such Seller or pending against such Seller or the
Real Property or Improvements owned by it.
7.24 No Options. As of the Effective Date, there are no options, contracts
or other obligations outstanding for the sale, exchange or transfer of any of
the Real Property, Personal Property or Improvements owned by it or any portion
thereof or business operated therein.
7.25 Seller Licenses. Such Seller has all Seller Licenses applicable to the
Facility owned by it. Schedule 7.25 hereto contains true and correct copies of
the licenses issued most recently by the applicable health care authorities with
respect to the operation of the Facility owned by it. such Seller has not
received written or verbal notice (a) that any action or proceeding has been
initiated or is proposed to be initiated by the appropriate state or federal
agency having jurisdiction thereof, to revoke, withdraw or suspend any of the
Seller Licenses applicable to the Facility owned by it in either the Medicare or
Medicaid Programs or (b) of any judicial or administrative agency judgment or
decision not to renew any of the Seller Licenses applicable to the Facility
owned by it or (c) of any licensure or certification action of any other type
applicable to the Facility owned by it.
7.26 Disclosure. Such Seller has provided to Purchaser access to all
relevant documents, materials and information in its possession or control
relative to the Facility owned by it. Such Seller has not withheld any documents
or information that are material to the condition, assets, liabilities,
businesses, operations and prospects of such Seller or the Facility owned by it.
Such Seller has disclosed or provided information to Purchaser with respect to
all facts that are material to the condition, assets, liabilities, businesses,
operations and prospects of such Seller or the Facility owned by it. No
representation or warranty of such Seller contained in this Agreement (which
shall include any Exhibit or Schedule hereto) and no certificate or document
furnished to Purchaser pursuant to the provisions hereof, contains any untrue
statement of a material fact which is untrue in any material respect or omits to
state a material fact necessary in order to make the statements contained
therein not misleading.
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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF COOPER
Cooper represents and warrants to Purchaser that:
8.1 Status of Cooper. Cooper is a corporation that is duly organized,
validly existing and in good standing under the laws of the State of [Insert].
8.2 Validity of Contracts. This Agreement is, and all of the Transaction
Documents to be executed by Cooper pursuant hereto will be, the valid
obligations of Cooper, enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The execution of this Agreement and the applicable Transaction Documents have
been approved by all required corporate action on the part of Cooper and does
not and will not result in a breach of the terms and conditions of, nor
constitute a default under or violation of, the Certificate of Incorporation and
By-Laws of Cooper or any Law, regulation, court order, mortgage, note, bond,
indenture, agreement, license or other instrument or obligation to which Cooper
is now a party or by which any of its assets may be bound or affected.
8.3 Authority. Cooper has full power and authority to execute and deliver
this Agreement and the applicable Transaction Documents to which it is a party.
8.4 No Broker. Except as set forth on Schedule 8.4 hereto, Cooper has
incurred no liability for broker's or finder's fees or commissions to any broker
or other intermediary in connection with the transactions contemplated by this
Agreement. Cooper agrees to pay and to hold Purchaser harmless from and against
any amounts due and payable to any such adviser not scheduled with respect to
the transactions contemplated herein.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF THI
THI represents and warrants to Purchaser that:
9.1 Status of THI. THI is a corporation that is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
9.2 Validity of Contracts. This Agreement is, and all of the Transaction
Documents to be executed by THI pursuant hereto will be, the valid obligations
of THI, enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by
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bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). The execution of this Agreement and the
applicable Transaction Documents have been approved by all required corporate
action on the part of THI and does not and will not result in a breach of the
terms and conditions of, nor constitute a default under or violation of, the
Certificate of Incorporation and By-Laws of THI or any Law, regulation, court
order, mortgage, note, bond, indenture, agreement, license or other instrument
or obligation to which THI is now a party or by which any of its assets may be
bound or affected.
9.3 Authority. THI has full power and authority to execute and deliver this
Agreement and the applicable Transaction Documents to which it is a party.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each of the other parties
hereto that:
10.1 Organization. Purchaser is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full power and authority to enter into and perform its obligations under
this Agreement, the other Transaction Documents and any other documents and
instruments required hereby to be delivered to which it is or is to become a
party.
10.2 Authorization; Enforceability. The execution, delivery and performance
by Purchaser of this Agreement, the other Transaction Documents and all of the
documents and instruments contemplated hereby are within the power of Purchaser
and have been duly authorized by all necessary action of Purchaser. This
Agreement is, the other Transaction Documents are, and the other documents and
instruments required hereby to be delivered by Purchaser will be, when executed
and delivered, the valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms.
10.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement, the other Transaction Documents and all of the documents and
instruments contemplated hereby to be executed and delivered by Purchaser does
not and will not conflict with or violate the Limited Partnership Agreement of
Purchaser or any material Law, judgment, order or decree binding on Purchaser.
10.4 No Broker. Except as set forth on Schedule 10.4 hereto, Purchaser has
incurred no liability for broker's or finder's fees or commissions to any broker
or other intermediary in connection with the transactions contemplated by this
Agreement. Purchaser
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agrees to pay and to hold such Seller and THI harmless from and against any
amounts due and payable to any such adviser not scheduled with respect to the
transactions contemplated herein.
ARTICLE XI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser to be performed on the Closing Date
shall be subject to the satisfaction as of the Closing Date of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions may be waived by Purchaser):
11.1 Compliance with this Agreement. Sellers shall have performed and
complied in all material respects with all of their obligations under this
Agreement that are to be performed or complied with by it prior to or on the
Closing Date, including, but not limited to, the payment of all costs, fees and
expenses that Sellers or THI are required to pay pursuant to this Agreement.
11.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Sellers, Cooper and THI in connection with the
transactions contemplated by this Agreement, the other Transaction Documents and
any other documents incident thereto, shall be reasonably satisfactory in form
and substance to Purchaser and Purchaser's counsel, and Sellers, Cooper and THI
shall have made available to Purchaser and Purchaser's counsel (or Purchaser
shall have obtained itself prior to the Closing Date or waived the necessity for
receipt thereof prior to the Closing Date) for examination the originals or true
and correct copies of all documents that Purchaser and Purchaser's counsel may
reasonably request in connection with the transactions contemplated by this
Agreement and the other Transaction Documents, including, but not limited to:
(a) an MAI Appraisal for each of the Facilities;
(b) a Title Commitment for each of the Facilities;
(c) acceptable engineering, architectural and Phase I environmental site
assessments for each of the Facilities;
(d) a Survey for each of the Facilities;
(e) a UCC Search Report for each of the Facilities;
(f) the Seller Licenses for each of the Facilities;
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(g) valid permanent Certificates of Occupancy, if required under the Law,
for each of the Facilities, as well as any other licenses or Permits
required to be obtained from applicable governmental authorities with
respect to the use and occupancy of each of the Facilities;
(h) for each Seller and Cooper, Articles of Incorporation, Certificates of
Good Standing and, for each Seller, Certificates of Authority to
Transact Business in the state in which each Facility owned by such
Seller is located;
(i) for THI, Articles of Incorporation, Certificates of Good Standing and
Certificates of Authority to Transact Business;
(j) certified resolutions of the Board of Directors of each Seller and
Cooper and certified resolutions of the Board of Directors of THI, in
each case authorizing and approving the execution, delivery and
performance of each Seller's, Cooper's and THI's obligations under
this Agreement and the other Transaction Documents; and
(k) the opinions of THI's, Cooper's and each Seller's counsel, in a form
reasonably acceptable to Purchaser.
11.3 No Litigation. Except as provided on Schedule 11.3 hereto, no
investigation, suit, action or other proceeding shall be instituted, threatened
or pending before any court or governmental agency or body that seeks restraint,
prohibition, damages or other relief in connection with this Agreement, the
other Transaction Documents or the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents.
11.4 Representations and Warranties. The representations and warranties
made by each Seller, Cooper and THI in this Agreement and the other Transaction
Documents shall be true and correct in all material respects at and as of the
Closing Date.
11.5 Deliveries at the Closing. Seller and THI shall have, or shall cause
to have, delivered to Purchaser the following documents, each properly executed
and dated as of the Closing Date:
(a) this Facilities Purchase Agreement;
(b) the Deeds;
(c) the Bills of Sale;
(d) the Master Lease;
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(e) a memorandum of lease in recordable form with respect to the Master
Lease;
(f) the Consent and Subordination Agreement;
(g) the Escrow Agreement;
(h) the Facility Management Agreement;
(i) the Guaranty;
(j) the Security Agreement;
(k) the Non-Competition Agreement; and
(l) any such other documents, instruments or certificates as Purchaser and
Purchaser's counsel shall reasonably request in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents.
11.6 Regulatory Approvals. All required licenses, authorizations,
registrations, Permits and approvals from federal and state regulatory agencies
with jurisdiction over each of the Facilities to permit the transactions
contemplated by this Agreement and the other Transaction Documents shall have
been obtained or completed to the reasonable satisfaction of Purchaser and any
and all conditions to the effectiveness thereof shall have been satisfied.
11.7 Default. Each Seller, Cooper and THI shall not be in default, where
said default cannot be cured by the Closing Date, under any mortgage, contract,
lease or other agreement to which each Seller, Cooper and THI is a party or by
each which each Seller, Cooper and THI is bound and that materially affects of
relates to the Real Property, the Personal Property or any of the Facilities.
11.8 Approvals. The Board of Directors of Monarch and the requisite lenders
under Monarch's senior credit facility shall have approved the transactions
contemplated by this Agreement and the Transaction Documents.
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ARTICLE XII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS
Each and every obligation of Sellers to be performed on the Closing Date
shall be subject to the satisfaction as of the Closing Date of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions may be waived by Sellers):
12.1 Compliance with this Agreement. Purchaser shall have performed and
complied in all material respects with all of its obligations under this
Agreement and the other Transaction Documents that are to be performed or
complied with by it prior to or on the Closing Date, including, but not limited
to, the payment of the Purchase Price by Purchaser.
12.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Purchaser in connection with the transactions
contemplated by this Agreement, the other Transaction Documents and any other
documents incident thereto, shall be reasonably satisfactory in form and
substance to Sellers and Sellers' counsel, and Purchaser shall have made
available to Sellers and Sellers' counsel (or Sellers shall have obtained
themselves prior to the Closing Date or waived the necessity for receipt thereof
prior to the Closing Date) for examination the originals or true and correct
copies of all documents that Sellers and Sellers' counsel may reasonably request
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
12.3 No Litigation. Except as provided on Schedule 12.3 hereto, no
investigation, suit, action or other proceeding shall be threatened or pending
before any court or governmental agency that seeks restraint, prohibition,
damages or other relief in connection with this Agreement, the other Transaction
Documents or the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents.
12.4 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement and the other Transaction Documents shall be
true and correct in all material respects at and as of the Closing Date.
12.5 Deliveries at the Closing. Purchaser shall have, or shall cause to
have, delivered to Sellers, Cooper and THI the following documents, each
properly executed and dated as of the Closing Date:
(a) the agreements identified in subparagraphs (a) through (k) of Section
11.5 hereof;
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(b) Certificate of Formation, Certificate of Good Standing and Certificate
of Authority to Transact Business of Purchaser;
(c) certified resolutions of Monarch and Purchaser, authorizing and
approving the execution, delivery and performance of Purchaser's
obligations under this Agreement and the other Transaction Documents;
and
(d) any such other documents, instruments or certificates as Sellers and
Sellers' counsel shall reasonably request in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents.
12.6 Restraints. No action or proceeding before a court or any other
governmental agency or body of or in the United States shall have been
instituted or threatened to restrain or prohibit the consummation of the
transactions contemplated by this Agreement or the other Transaction Documents.
12.7 Regulatory Approvals. All required authorizations, registrations,
Permits and approvals from federal and state regulatory agencies with
jurisdiction over each of the Facilities to permit the transactions contemplated
by this Agreement and the other Transaction Documents shall have been obtained
or completed to the reasonable satisfaction of Sellers.
12.8 Approvals. The Board of Directors of Sellers, Cooper and THI shall
have approved the transactions contemplated by this Agreement and the
Transaction Documents.
ARTICLE XIII
ADDITIONAL COVENANTS AND INDEMNIFICATIONS
13.1 Transfer Taxes and Fees. [Sellers or THI] shall pay all fees, transfer
taxes or assessments, if any, charged to grantors, lessors, sub-lessors,
transferors or assignors under applicable Law in connection with the
transactions contemplated by this Agreement and the other Transaction Documents.
13.2 Cooperation. The parties hereto shall cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents.
13.3 Additional Instruments. At any time and from time to time after the
Closing, at Purchaser's reasonable request and without further consideration,
Sellers shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and
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take such other action as Purchaser may reasonably deem necessary to consummate
the transactions contemplated by this Agreement and the other Transaction
Documents. At any time and from time to time after the Closing, at the
reasonable request of Sellers and without further consideration, Purchaser shall
execute and deliver such other instruments and take such other action as Sellers
may reasonably deem necessary to consummate the transactions contemplated by
this Agreement and the other Transaction Documents.
13.4 Publicity. All general notices, releases, statements and
communications to employees and patients of Purchaser, Sellers and each of the
Facilities relating to the transactions contemplated by this Agreement shall be
made only at such times and in such manner as may be mutually agreed upon by
Purchaser, Sellers, Cooper and THI. All general notices, releases, statements
and communications to the general public and the press relating to the
transactions contemplated by this Agreement shall be made only with such content
and at such times and in such manner as may be mutually agreed upon by
Purchaser, Sellers, Cooper and THI; provided, however, that each party shall be
entitled to make a public announcement of the transaction if, in the opinion of
its counsel, such announcement is required to comply with the Law.
13.5 Confidentiality. Purchaser shall not disclose to any person or company
or use for its own benefit any material information related to the ownership or
operation of the Facilities by Sellers, including customer or patient-related
information, without Sellers' express prior written permission except for
disclosure by Purchaser to its counsel, its lenders and their counsel and
appropriate regulatory agencies, except any such information that is now or
hereafter becomes available to the public without breach of any confidentiality
agreement.
13.6 Indemnifications.
(a) Sellers, Cooper and THI, jointly and severally, shall indemnify
and hold harmless Purchaser and its partners, officers, directors, shareholders,
employees, agents, and assigns (collectively, the "Purchaser Indemnified
Parties"), from any and all liabilities, obligations, losses, demands,
judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation reasonable attorneys'
and consultants' fees and expenses), whether or not subject to litigation
(hereinafter collectively referred to as the "Claims") of any kind or character
imposed upon, arising out of, in connection with, incurred or in any way
attributed or relating to the following:
(i) the ownership, use, operation, possession, or management of each
of the Facilities prior to the Effective Date;
(ii) the breach or failure of any representation, warranty or covenant
made by Sellers, Cooper or THI that is contained in this Agreement or
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contained in any other certificates, agreements or Transaction Documents to
which Sellers, Cooper or THI is a party;
(iii) any and all Claims relating to any current or former employee,
consultant or independent contractor of the Sellers or any of the
Facilities, including, but not limited to, (A) the termination or discharge
of any current or former employee, consultant, or independent contractor of
Sellers or any of the Facilities, (B) Claims under federal, state, or local
laws, rules or regulations, related to wages, hours, fair employment
practices, unfair labor practices, or other terms and conditions of
employment and claims arising under the Worker Adjustment and Retraining
Notification Act or any analogous state statute, (C) matters arising from
any severance policy, claim, agreement or contract or (D) any and all
Claims with respect to the matters provided for in Section 7.16 herein;
(iv) any and all Claims that relate to information provided by or on
behalf of any of the Sellers, Cooper or THI concerning the Facilities,
Sellers' Assets, Sellers, Cooper or THI and their respective affiliates, to
third parties which was used or relied upon to effect the transactions
contemplated in this Agreement and by the other Transaction Documents;
(v) other than for the liens, claims or encumbrances necessary to
effect the transactions contemplated in this Agreement and the other
Transaction Documents, any mortgage, pledge, lien, or encumbrance made on
any of the Sellers' Assets, the Facilities or assets relating to any of the
Facilities or the Sellers' Assets, and any claims asserted therefrom, other
than and except for the Permitted Liens;
(vi) any and all Claims with respect to any qualified or non-qualified
retirement or benefit plans or arrangements involving any current or former
employee, consultant or independent contractor of the Sellers or any of the
Facilities;
(vii) any and all Claims with respect to admission agreements, patient
contracts, or agreements with patients or others at any of the Facilities;
(viii) any deficiencies or inaccuracies relating to patient funds and
accounts associated therewith at any of the Facilities;
(ix) any Claims arising out of Sellers' failure to have kept or
maintained patient records and other related records at any of the
Facilities in accordance with applicable Law;
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(x) any sums due by any of the Sellers for Medicare and Medicaid
adjustments arising from the operation of any of the Facilities conveyed
pursuant to this Agreement;
(xi) any action or proceeding by an appropriate state or federal
agency having jurisdiction thereof, to revoke, withdraw or suspend any of
the Seller Licenses or Permits of a Seller applicable to the Facility owned
by such Seller or to terminate the participation of the Facility owned by
such Seller in either the Medicare or Medicaid Programs, as a result of or
caused by the transactions contemplated by this Agreement and the other
Transaction Documents, including, but not limited to, the execution and
delivery of the Master Lease; or
(xii) the violation of any Environmental Law or the existence,
presence or Release of any Hazardous Material (collectively, "Environmental
Liability") whether or not the Environmental Liability is based on an event
or condition at or relating to any of the Facilities that commenced or
existed prior to or after the Effective Date.
Sellers, Cooper and THI further covenant and agree to defend the
Purchaser Indemnified Parties on account of said Claims and to pay any judgment
against the Purchaser Indemnified Parties, or any other amount as indicated in
this Section 13.6(a), along with all reasonable costs and expenses relative to
any such Claims, including reasonable and documented attorneys' fees and
expenses; provided, however, that the Purchaser Indemnified Parties shall,
nevertheless, have the right, if they so elect, to participate (with counsel of
their choosing, which counsel must be approved by Sellers, Cooper and THI, which
approval may not be unreasonably withheld) in the defense of any such Claim in
which they may be a party without relieving Sellers, Cooper and THI, of the
obligation to defend the same. To the extent applicable, the Purchaser
Indemnified Parties covenant not to settle or compromise any Claim under this
section without the written consent of Sellers, Cooper and THI, which consent
may not be unreasonably withheld or delayed under the circumstances. Failure to
comply with the preceding covenant shall be deemed a complete waiver of any
rights that the Purchaser Indemnified Parties have or may have under this
Section 13.6(a).
(b) Purchaser shall indemnify and hold harmless Sellers, Cooper and
THI, and their officers, directors, shareholders, employees, agents, and assigns
(the "Seller Indemnified Parties") from any and all liabilities, obligations,
losses, demands, judgments, actions, suits, causes of action, claims,
proceedings, investigations, citations, matters, damages, penalties, sanctions,
costs, expenses, and disbursements (including, without limitation reasonable
attorneys' and consultants' fees and expenses), whether or not subject to
litigation, (hereinafter collectively referred to as the "Claims") of any kind
or character imposed upon, arising out of, in connection with, incurred or in
any way attributed or relating
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to breach or failure of any representation, warranty or covenant made by
Purchaser that is contained in this Agreement or contained in any other
certificates, agreements or Transaction Documents to which Purchaser is a party.
Purchaser further covenants and agrees to defend the Seller
Indemnified Parties on account of said Claims and to pay any judgment against
the Seller Indemnified Parties, or any other amount as indicated in this Section
13.6(b), along with all reasonable costs and expenses relative to any such
Claims, including attorneys' fees and expenses; provided, however, that the
Seller Indemnified Parties shall, nevertheless, have the right, if they so
elect, to participate (with counsel of their choosing, which counsel must be
approved by Purchaser, which approval may not be unreasonably withheld) in the
defense of any such Claim in which they may be a party without relieving
Purchaser of the obligation to defend the same. To the extent applicable, the
Seller Indemnified Parties covenant not to settle or compromise any Claim under
this section without the written consent of Purchaser, which consent may not be
unreasonably withheld or delayed under the circumstances. Failure to comply with
the preceding covenant shall be deemed a complete waiver of any rights that the
Seller Indemnified Parties have or may have under this Section 13.6(b).
(c) The indemnities set forth in this Section 13.6 shall remain
operative and in full force and shall survive the execution and performance
hereof and the execution and delivery of this Agreement and the other
Transaction Documents.
13.7 Liability for Representations and Warranties Before the Closing. Until
the execution and delivery of the Closing documents by the parties on the
Closing Date, Purchaser's, Cooper's, Sellers' and THI's sole remedy for any
breach of Sellers', Cooper's, THI's or Purchaser's representations and
warranties hereunder shall be to terminate this Agreement, whereupon the parties
hereto shall have no further obligations to each other in respect of this
Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1 Entire Agreement; Amendment. This Agreement and the Transaction
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this
28
<PAGE>
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
14.2 Governing Law. THIS AGREEMENT AND THE TRANSACTION DOCUMENTS SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS CONFLICTS OF LAW PROVISIONS. SELLERS, COOPER AND THI CONSENT TO IN
PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF NEW
YORK, AND AGREE THAT ALL DISPUTES CONCERNING THIS AGREEMENT MAY BE HEARD, AT
PURCHASER'S OPTION, IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW
YORK. SELLERS, COOPER AND THI AGREE THAT SERVICE OF PROCESS MAY BE EFFECTED UPON
SELLERS, COOPER AND THI UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE
OF NEW YORK AND IRREVOCABLY WAIVE ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK.
14.3 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time without the prior written consent of
the other parties hereto.
14.4 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given at the earlier of the date when actually delivered to an officer of the
other party or when deposited in the United States mail, certified or registered
mail, postage prepaid, return receipt requested, by personal delivery or by
overnight courier service with signed receipt, and addressed as follows, unless
and until either of such parties notifies the other in accordance with this
Section of a change of address:
To Sellers and Cooper: Cooper Management Corporation
517 North Dixon
Melbourne, Arkansas 72556
Attention: James Cooper
Telephone No.: 870-368-4050
Fax No.: 870-368-4054
To THI: Trans Healthcare, Inc.
4076 Carlisle Pike - Suite 200
Camp Hill, Pennsylvania 17011
Attention: Anthony F. Misitano
Telephone No.: 717-730-8710
Fax No.: 717-730-8722
29
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Copy to: Kirkpatrick & Lockhart LLP
240 North Third Street
Harrisburg, Pennsylvania 17101
Attention: Dan A. Schulder, Esq.
Telephone No.: 717-231-3892
Fax No.: 717-231-4501
To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attention: John B. Poole
Telephone No.: 941-566-8820
Fax No.: 941-566-6082
Copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: John R. Fallon, Jr., Esq.
Telephone No.: 212-424-8279
Fax No.: 212-424-8500
14.5 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof or be used as
interpreting the meaning of this Agreement.
14.6 Interpretation. To the extent any conflict exists between the terms
and conditions of this Agreement and the terms and conditions of any other
Transaction Documents, the terms and conditions of such other Transaction
Documents shall govern and control.
14.7 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
14.8 No Reliance. No third party, other than a successor by operation of
law or an assignee permitted by this Agreement, is entitled to rely on any of
the representations, warranties and agreements contained in this Agreement and
no party to this Agreement assumes any liability to any third party, other than
an assignee permitted by this Agreement,
30
<PAGE>
because of any reliance on the representations, warranties and agreements
contained in this Agreement.
14.9 Binding. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
14.10 Survival. All covenants and agreements of the parties to be performed
in this Agreement and all representations, warranties, covenants and indemnities
of the parties in this Agreement shall survive the Closing Date.
14.11 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Facilities as set forth on Schedule 14.11 hereto. The parties agree
that the Personal Property has nominal value and therefore no amount of the
Purchase Price is being allocated to it. Each party agrees to timely file tax
Form 8594 in accordance with the allocations to which the parties have so
agreed.
14.12 Dispute Attorneys' Fees and Expenses. In the event of a dispute
between the parties to this Agreement with respect to the interpretation of
enforcement of the terms hereof, the prevailing party in any action resulting
therefrom shall be entitled to collect from the other its reasonable and
documented attorneys' fees and expenses, including its attorneys' fees and
expenses on appeal.
SIGNATURE PAGES FOLLOW
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Facilities Purchase
Agreement to be duly executed and delivered as a sealed instrument as of the day
and year first above written.
PURCHASER:
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
COOPER:
COOPER MANAGEMENT CORPORATION
By:
-----------------------------------------
Name: James Cooper
---------------------------------------
Title: President
--------------------------------------
SELLERS:
COOPER, COOPER & HARGIS
By:
-----------------------------------------
Name: James Cooper
---------------------------------------
Title: Partner
--------------------------------------
32
<PAGE>
LAKELAND MANAGEMENT, L.L.C.
By:
-----------------------------------------
Name: James Cooper
---------------------------------------
Title: Member - Manager
--------------------------------------
PIONEER NURSING AND REHAB CENTER, INC.
By:
-----------------------------------------
Name: James Cooper
---------------------------------------
Title: President
--------------------------------------
THI:
TRANS HEALTHCARE, INC.
By:
-----------------------------------------
Name: Anthony F. Misitano
---------------------------------------
Title: President
--------------------------------------
33
MASTER LEASE
BETWEEN
MONARCH PROPERTIES, LP
AND
[THI LESSEE SUBSIDIARY]
DATED AS OF __________, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
LEASE; TERM; RENEWALS..........................................................2
1.1 Lease...........................................................2
1.2 Term............................................................2
1.3 Allocation of Base Rent.........................................2
1.4 First Option to Renew...........................................3
1.5 Second Option to Renew. .......................................3
1.6 Other Conditions of Renewal.....................................3
ARTICLE 2
DEFINITIONS....................................................................3
2.1 Certain Definitions.............................................3
2.2 Other Definitions..............................................18
ARTICLE 3
RENT; RELATED MATTERS.........................................................18
3.1 Rent...........................................................18
3.2 Additional Charges.............................................18
3.3 Late Charge; Interest..........................................18
3.4 Method of Payment of Rent......................................19
3.5 Net Lease; No Offset...........................................19
ARTICLE 4
IMPOSITIONS; RELATED MATTERS..................................................19
4.1 Payment of Impositions.........................................19
4.2 Adjustment of Impositions......................................20
4.3 Utility Charges................................................20
4.4 Insurance Premiums.............................................20
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC................................................20
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ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY...............................21
6.1 Ownership of the Leased Property...............................21
6.2 Landlord's Personal Property...................................21
6.3 Tenant's Personal Property.....................................22
6.4 Grant of Security Interest in Tenant's Personal Property.......22
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTIES........................................22
7.1 Condition of the Leased Properties.............................22
7.2 Use of the Leased Property.....................................23
ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS..............................................24
8.1 Compliance with Legal and Insurance Requirements...............24
8.2 Legal Requirement Covenants....................................24
8.3 Certain Financial and Other Covenants..........................24
8.4 Other Businesses. ............................................25
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS.........................................25
9.1 Maintenance and Repair.........................................25
9.2 Encroachments, Restrictions, etc...............................27
ARTICLE 10
ALTERATIONS AND ADDITIONS.....................................................28
10.1 Construction of Alterations and Additions to Leased Property...28
10.2 Asbestos Removal for Alterations and Additions.................29
ARTICLE 11
REMOVAL OF LIENS..............................................................29
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ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC............................................30
12.1 Permitted Contests.............................................30
12.2 Landlord's Requirement for Deposits............................31
ARTICLE 13
INSURANCE.....................................................................31
13.1 General Insurance Requirements.................................31
13.2 Replacement Cost...............................................33
13.3 Worker's Compensation Insurance................................33
13.4 Waiver of Liability; Waiver of Subrogation.....................33
13.5 Other Requirements.............................................33
13.6 Increase in Limits.............................................34
13.7 Blanket Policy.................................................34
13.8 No Separate Insurance..........................................34
ARTICLE 14
CASUALTY LOSS.................................................................35
14.1 Insurance Proceeds.............................................35
14.2 Restoration in the Event of Damage or Destruction..............35
14.3 Intentionally Omitted..........................................36
14.4 Tenant's Personal Property.....................................36
14.5 Restoration of Tenant's Property...............................36
14.6 No Abatement of Rent...........................................36
14.7 Consequences of Purchase of Damaged Leased Property............36
14.8 Damage Near End of Term........................................37
14.9 Waiver.........................................................37
14.10 Procedure for Disbursement of Insurance Proceeds Greater
Than The Approval Threshold....................................37
ARTICLE 15
TAKINGS.......................................................................39
15.1 Total Taking...................................................39
15.2 Allocation of Portion of Award.................................39
15.3 Partial Taking.................................................39
15.4 Temporary Taking...............................................40
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ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT.............................................40
16.1 Events of Default..............................................40
16.3 Liability for Costs and Expenses...............................40
16.4 Certain Remedies...............................................41
16.5 Damages........................................................41
16.6 Waiver.........................................................41
16.7 Application of Funds...........................................42
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.....................................42
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS ...............................................42
18.1 Prohibition Against Use of Hazardous Substances................42
18.2 Notice of Environmental Claims, Actions or Contaminations......43
18.3 Costs of Remedial Actions with Respect to Environmental
Matters........................................................43
18.4 Delivery of Environmental Documents............................43
18.5 Environmental Audit............................................43
18.6 Entry onto Leased Property for Environmental Matters...........44
18.7 Environmental Matters Upon Termination or Expiration of Term
of This Lease..................................................44
18.8 Compliance with Environmental Laws.............................45
18.9 Environmental Related Remedies.................................45
18.10 Environmental Indemnification..................................46
18.11 Rights Cumulative and Survival.................................48
ARTICLE 19
HOLDOVER MATTERS..............................................................48
19.1 Holding Over...................................................48
19.2 Indemnity......................................................48
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS..........................................49
20.1 Subordination..................................................49
20.2 Attornment.....................................................49
20.3 Estoppel Certificate...........................................49
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ARTICLE 21
RISK OF LOSS..................................................................50
ARTICLE 22
INDEMNIFICATION...............................................................50
22.1 Indemnification................................................50
22.2 Survival of Indemnification; Tenant Right to Defend Landlord...52
ARTICLE 23
LIMITATIONS ON TRANSFERS......................................................52
23.1 General Prohibition against Transfer...........................52
23.2 Corporate or Partnership Transactions..........................52
23.3 Permitted Subleases............................................53
23.4 Transfers to a Controlled Entity...............................53
23.5 Subordination and Attornment...................................53
23.6 Sublease Limitation............................................53
ARTICLE 24
CERTAIN FINANCIAL MATTERS.....................................................54
24.1 Officer's Certificates and Financial Statements................54
24.2 Public Offering Information....................................55
ARTICLE 25
LANDLORD INSPECTION...........................................................56
ARTICLE 26
[INTENTIONALLY OMITTED].......................................................56
ARTICLE 27
[INTENTIONALLY OMITTED].......................................................57
ARTICLE 28
ACCEPTANCE OF SURRENDER.......................................................57
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<PAGE>
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP..................................................57
29.1 No Merger of Title.............................................57
29.2 No Partnership.................................................57
ARTICLE 30
CONVEYANCE BY LANDLORD........................................................57
ARTICLE 31
QUIET ENJOYMENT...............................................................58
ARTICLE 32
[INTENTIONALLY OMITTED].......................................................58
ARTICLE 33
APPRAISERS....................................................................58
ARTICLE 34
BREACH OF LEASE BY LANDLORD...................................................59
ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL........................60
35.1 Landlord's Option to Purchase Tenant's Personal Property.......60
35.2 Facility Trade Names...........................................60
35.3 Transfer of Operational Control of the Facilities..............60
35.4 Intangibles and Personal Property..............................62
ARTICLE 36
[INTENTIONALLY OMITTED].......................................................62
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ARTICLE 37
MISCELLANEOUS.................................................................62
37.1 Notices........................................................62
37.2 Survival, Choice of law........................................63
37.3 Limitation on Recovery.........................................63
37.4 Waivers........................................................64
37.5 Consents.......................................................64
37.6 Counterparts...................................................64
37.7 Options Follow Lease...........................................64
37.8 Rights Cumulative..............................................64
37.9 Entire Agreement...............................................64
37.10 Amendments in Writing..........................................64
37.11 Severability...................................................64
37.12 Successors.....................................................65
37.13 Time of the Essence............................................65
37.14 Late Charges...................................................65
37.15 Binding Effect.................................................65
37.16 Exhibits and Schedules.........................................65
37.17 Waiver of Jury Trial...........................................65
37.18 Memorandum of Lease............................................65
ARTICLE 38
SECURITY DEPOSIT..............................................................65
38.1 Security Deposit...............................................65
38.2 Application of Security Deposit................................66
38.3 Transfer of Security Deposit...................................66
38.4 Reduction of Security Deposit..................................66
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MASTER LEASE
THIS MASTER LEASE (this "Lease") is made and entered into as of the ___ day
of __________, 1998 between MONARCH PROPERTIES, LP, a Delaware limited
partnership, with principal offices at 8889 Pelican Bay Boulevard, Naples,
Florida 34108 ("Landlord") and [INSERT THI LESSEE SUBSIDIARY], a [Insert State]
corporation, with principal offices at 4076 Carlisle Pike, Camp Hill,
Pennsylvania 17011 ("Tenant").
W I T N E S S E T H:
WHEREAS, pursuant to a Facilities Purchase Agreement, dated as of June ___,
1998 (the "Facilities Purchase Agreement"), among Landlord, Cooper Management
Corporation, the entities listed on attached Exhibit A thereto, Trans
Healthcare, Inc. and Tenant, Landlord acquired and is the present owner of the
real property, improvements fixtures, and personal property constituting the
health care facilities described on Exhibit A hereto (each a "Facility" or a
"Leased Property"); and
WHEREAS, Landlord wishes to lease to Tenant, and Tenant wishes to lease
from Landlord, all of the Facilities;
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Lease, the parties agree that the use and occupancy
of the Facilities demised herein shall be subject to, and be in accordance with,
the terms, conditions and provisions of this Lease, as follows:
ARTICLE 1
LEASE; TERM; RENEWALS
1.1 LEASE. Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant, and Tenant hires and takes from Landlord, all
of the Leased Properties.
1.2 TERM. The Term shall commence for all Facilities on the Commencement
Date and end for each Facility on the Expiration Date, subject to the renewals
described in Sections 1.4 through 1.6 hereof. [LEASE TERM WILL BE ELEVEN YEARS]
1.3 ALLOCATION OF BASE RENT. The allocation of Base Rent among the Leased
Properties (as of the Commencement Date as agreed by Landlord and Tenant solely
for purposes of this Lease), is set forth on Exhibit B hereto.
2
<PAGE>
1.4 FIRST OPTION TO RENEW. Tenant is hereby granted the option to renew
this Lease for a First Renewal Term for each Facility, which option shall be
exercised by Notice to Landlord at least one hundred eighty (180) days, but not
more than three hundred sixty (360) days, before the Expiration Date for such
Facility specified in Exhibit B hereto; provided, however, that no Event of
Default exists either on the date on which Tenant gives such Notice to Landlord
or on the applicable Expiration Date. During the First Renewal Term, all of the
terms and conditions of this Lease shall remain in full force and effect.
1.5 SECOND OPTION TO RENEW. If the Term of this Lease has been renewed as
provided above, Tenant is hereby granted the option to renew this Lease for the
Second Renewal Term for each Facility, which option shall be exercised by Notice
to Landlord at least one hundred eighty (180) days, but not more than three
hundred sixty (360) days, prior to the expiration of the First Renewal Term for
such Facility; provided, however, that no Event of Default exists either on the
date on which Tenant gives such Notice to Landlord or on the date on which the
First Renewal Term expires. During the Second Renewal Term, all of the terms and
conditions of this Lease shall remain in full force and effect.
1.6 OTHER CONDITIONS OF RENEWAL. The options to renew granted pursuant to
Sections 1.4 and 1.5 hereof may be exercised only with respect to all of the
Leased Properties specified in Exhibit A hereto and the Base Rent will be
computed as if the respective Renewal Term were merely an automatic extension of
the preceding Term (as specified in the definition of Base Rent).
ARTICLE 2
DEFINITIONS
2.1 CERTAIN DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (a) all
accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with GAAP, (b) all references to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease, and (c) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision. In addition, the following
terms shall have the following meanings:
Accounts: With respect to Tenant, all accounts, accounts receivable,
deposits, prepaid items, documents, chattel paper, instruments, contract
rights, general intangibles, choses in action and rights to any refund of
taxes previously or subsequently paid to any governmental authority, in
each case arising from or in connection with Tenant's operation and use of
the Leased Property.
3
<PAGE>
Additional Charges: All Impositions and all amounts, liabilities and
obligations other than Rent that Tenant assumes and agrees to pay under
this Lease.
Affiliate: Any Person who, directly or indirectly, Controls or is
Controlled by or is under Common Control with another Person.
Approval Threshold: One Hundred Thousand Dollars ($100,000).
Assessment: With respect to any Leased Property, any assessment for
public improvements or benefits commenced or completed after the date
hereof and whether or not to be completed within the Term.
Award: All compensation, sums or anything of value awarded, paid or
received in connection with a Taking or Partial Taking.
Base Rent: (a) For the first Lease Year, the sum of $[Insert Dollar
Amount], and (b) for each Lease Year thereafter (including each Lease Year
in any Renewal Term), the sum of (i) the Base Rent for the preceding Lease
Year plus (ii) the percentage increase in the Cost of Living Index from the
last month of the preceding Lease Year to the last month of the Lease Year
in question; provided, however, that in no event shall the annual Base Rent
increase be less than two percent (2%) or more than five percent (5%).
[BASE RENT FORMULA = 400 BASIS POINTS OVER U.S. TREASURY RATE WITH 9.56%
MINIMUM]
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.
Capital Lease: Any lease (other then this Lease) for which tenant is
required, under GAAP, to account on its balance sheet as a capital lease.
Capitalized Lease Obligation: Any obligation of Tenant, as tenant or
guarantor, under a Capital Lease.
Cash Flow from the Facilities: The sum of (a) Net Income for the
applicable period; (b) the amount deducted by Tenant in computing Net
Income for the applicable period for (i) depreciation on any leasehold
improvements to the Facilities constructed by Tenant, (ii) amortization and
(iii) Rent; (c) interest; and (d) Fees.
Cash Flow to Debt Service Requirement: As of the relevant fiscal
period, the ratio of Tenant's Cash Flow from all the Facilities to its Debt
Service equal to or greater than the ratio of 1.25:1, from the Commencement
Date and for the remainder
4
<PAGE>
of the Term of this Lease, including renewals of this Lease under Sections
1.4 and 1.5 hereof.
Claim(s): Any lien, attachment, levy, encumbrance, charge or claim, or
any encroachment or restriction burdening any Leased Property.
Clean-Up: The investigation, removal, restoration, remediation and/or
elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction over the
applicable Leased Property and in compliance with or as may be required by
Environmental Laws.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Commencement Date: The Closing Date, as defined in the Facilities
Purchase Agreement.
Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
Construction Funds: The Net Proceeds available for restoration or
repair work pursuant to Article 14 of this Lease.
Contamination: The presence, Release or threatened Release of any
Hazardous Substance at a Leased Property in violation of any Environmental
Law, or in a quantity that would give rise to any affirmative Clean-Up
obligation under an Environmental Law, including, but not limited to, the
existence of any injury or potential injury to public health, safety,
natural resources or the environment associated therewith.
Control (and Controlled by and under Common Control with): possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, through the ownership of voting
securities, partnership interests or other equity interests.
Cost of Living Index: The United States Department of Labor, Bureau of
Labor Statistics Revised Consumer Price Index for All Urban Consumers
(1982-84=100), U.S. City Average, All Items (which shall be the non-medical
index), or, if such Index is not available for the United States, an index
(non-medical only) available for the geographical area in the United States
which most closely corresponds to the entire United States, published by
such bureau or its successor, or, if none, by any other instrumentality of
the United States.
5
<PAGE>
Date of Taking: The date on which the Condemnor has the right to
possession of the Leased Property that is the subject of the Taking or
Partial Taking.
Debt: As of any date, all (a) obligations of a Person, whether current
or long-term, that in accordance with GAAP would be included as
liabilities on such Person's balance sheet; (b) Capitalized Lease
Obligations of such Person; (c) obligations of others for which that Person
is liable directly or indirectly, by way of guaranty (whether by direct
guaranty, suretyship, discount, endorsement of guaranty, take-or- pay
agreement, agreement to purchase or advance or keep in funds or other
agreement having the effect of a guaranty) or otherwise; (d) liabilities
and obligations secured by liens on any assets of that Person, whether or
not those liabilities or obligations are recourse to that Person; and (e)
liabilities and obligations of that Person, direct or contingent, with
respect to letters of credit issued for the account of that Person or
others or with respect to bankers acceptances created for that Person.
However, Additional Charges shall not be deemed Debt.
Debt Service: With respect to any fiscal period of a Person, the sum
of (a) all interest due on Debt during the period (other than interest
imputed, pursuant to GAAP, on any Capitalized Lease Obligations and
interest on Debt that comprises Purchase Money Financing), all payments of
principal of Debt required to be made during the period and (c) all Base
Rent due during the period.
Encumbrance: With respect to a Leased Property, any mortgage, deed of
trust, lien, encumbrance or other matter affecting title to the Leased
Property, or any portion thereof or interest therein.
Environmental Audit: A written report, in form and substance
satisfactory to Landlord, from an environmental firm acceptable to
Landlord, which states that there is no evidence of Contamination on the
applicable Leased Property and that the applicable Leased Property is
otherwise in compliance with Environmental Laws.
Environmental Documents: Documents received by Tenant or any Affiliate
from, or submitted by Tenant or any Affiliate to, the United States
Environmental Protection Agency and/or any other federal, state, county or
municipal agency responsible for enforcing or implementing Environmental
Laws with respect to the condition of the Leased Property leased by Tenant
or Tenant's operations at the Leased Property; and written reviews, audits,
reports or other documents pertaining to environmental conditions,
including, but not limited to, the presence or absence of Contamination,
at, in or under or with respect to the Leased Property leased by Tenant
that have been prepared by, for or on behalf of Tenant.
6
<PAGE>
Environmental Laws: All federal, state and local laws (including,
without limitation, common law), statutes, codes, ordinances, regulations,
rules, orders, permits or decrees from time to time in effect and relating
to (a) the introduction, emission, discharge or release of Hazardous
Substances into the indoor or outdoor environment (including, without
limitation, air, surface water, groundwater, land or soil); or (b) the
manufacture, processing, distribution, use, treatment, storage,
transportation or disposal of Hazardous Substances; or (c) the Cleanup of
Contamination.
Escrow Agreement: The Escrow Agreement of even date herewith between
Landlord and Tenant.
Estoppel Certificate: A statement in writing in substantially the same
form as Exhibit D hereto, with such changes thereto as reasonably may be
requested by the person relying on such certificate.
Event of Default: The occurrence of any of the following:
(a) If Tenant fails to pay Base Rent under this Lease within two
(2) days after the same becomes due and payable; or if Tenant fails to
restore the Security Deposit if and as required by Section 38.2 hereof
within two (2) Business Days after such amount is due and owed; or if
Tenant fails to pay any Additional Charges within five (5) Business Days
after such amount is due and owed;
(b) If Tenant (i) admits in writing its inability to pay its
debts generally as they become due, (ii) files a petition in bankruptcy or
a petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the
appointment of a receiver of itself or of the whole or any substantial part
of its property, or (v) files a petition or answer seeking reorganization
or arrangement under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States of America or any state thereof; or
(c) If Tenant, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered
against it, or a court of competent jurisdiction enters an order or decree
appointing a receiver of such Tenant or of the whole or substantially all
of Tenant's property, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the Federal Bankruptcy Laws
or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree is not vacated or set
aside or stayed within ninety (90) days from the date of the entry thereof;
or
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(d) If Tenant is liquidated or dissolved, or begins proceedings
toward liquidation or dissolution, or has filed against it a petition or
other proceeding to cause it to be liquidated or dissolved, and the
proceeding is not dismissed within sixty (60) days thereafter, or in any
manner permits the sale or divestiture of substantially all of its assets
except in connection with a dissolution or liquidation following or related
to a merger or transfer of all or substantially all of the assets and
liabilities of Tenant with or to an Affiliate; or
(e) If the estate or interest of Tenant in the Leased Property or
any part thereof is levied upon or attached in any proceeding and the same
is not vacated or discharged within sixty (60) days after commencement
thereof (unless Tenant is in the process of contesting such lien or
attachment in good faith in accordance with Section 12.1 hereof); or
(f) If Tenant ceases operation of a Facility for a period in
excess of five (5) Business Days except upon prior written Notice to, and
with the express prior written consent of Landlord (which consent Landlord
may withhold in its absolute discretion), or as the unavoidable consequence
of damage or destruction as a result of a casualty, or a Taking or Partial
Taking, or as a result of an event described in subparagraph (g) below (as
to which the provisions of subparagraph (g) shall govern); or
(g) If the license to operate any Facility as a provider of
health care services in accordance with its Primary Intended Use is
revoked, or allowed to lapse, or, without Landlord's prior written consent,
transferred to a facility that is not one of the Leased Properties, or an
order is imposed with respect to a Facility suspending the right to operate
or accept patients, and Tenant does not promptly take reasonable steps to
cure the condition or conditions leading to such revocation or order and
cause such license and right to operate and accept patients to be
reinstated within sixty (60) days; or
(h) If any obligation of Tenant or of Guarantor to repay borrowed
money in excess of Five Million Dollars ($5,000,000) is accelerated by a
creditor after default, unless (i) Notice of a dispute between Tenant or
Guarantor and such creditor is given to Landlord prior to such
acceleration, (ii) Tenant or Guarantor have provided Landlord with
assurance, satisfactory to Landlord in its sole discretion, that such
acceleration will not materially affect Tenant, any of the Leased
Properties or the ability of Tenant and Guarantor to perform their
obligations under this Lease and the applicable Guaranty, and (iii)
Landlord has given Notice of such satisfaction to Tenant or Guarantor;
provided, however, this provision shall not apply so long as Guarantor's
Tangible Net Worth is in excess of Thirty Million Dollars ($30,000,000); or
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(i) If Tenant fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured within a
period of thirty (30) days after Notice thereof from Landlord, unless the
failure cannot with due diligence be cured within a period of thirty (30)
days, in which case the failure shall not be deemed to continue if (i)
Tenant proceeds promptly and with due diligence to cure the failure, (ii)
Tenant diligently completes the cure thereof and (iii) such failure is
cured prior to the time that the same results in civil penalties in excess
of Five Thousand Dollars ($5,000) or criminal penalties to Landlord, Tenant
or any Affiliates of either; or
(j) If any representation or warranty made by Tenant in the
Facilities Purchase Agreement or in the certificates delivered in
connection therewith proves to be untrue when made in any material respect,
and Landlord is materially and adversely affected thereby, and Tenant
fails, within twenty (20) days after Notice from Landlord thereof, to cure
such condition by terminating such adverse effect and making Landlord whole
for any damage suffered therefrom, or if with due diligence such cure
cannot be effected within twenty (20) days, if Tenant has failed to
commence to cure the same within the twenty (20) days or failed thereafter
to proceed promptly and with due diligence to cure such conditions and
prior to the time that the same results in civil penalties in excess of
Five Thousand Dollars ($5,000) or criminal penalties to Landlord, Tenant,
any Affiliates of either, or any of the Leased Properties; or
(k) If a default occurs under any Guaranty of this Lease given to
Landlord to secure performance of any term or provision of this Lease and
is not cured within any applicable grace or cure period set forth therein;
or
(l) Subject to Article 23, if Tenant transfers the operational
control or management of any of the Facilities without Landlord's prior
written consent; or
(m) If (i) a default occurs on the part of Tenant under a
Facility Management Agreement and is not cured within any applicable grace
or cure period set forth therein, or (ii) a default occurs on the part of
Tenant under any other material contract affecting any of the Facilities,
Tenant or any Affiliate of Tenant, and the default is not cured within any
applicable grace or cure period contained therein, provided, as to any such
default under such other contract, such default materially and adversely
affects, or has the reasonable potential of materially and adversely
affecting, the operation or value of the applicable Facility; or
(n) If a default occurs under the Security Agreement and is not
cured within any applicable grace or cure period set forth therein; or
(o) If Tenant breaches the financial covenants set forth in
Section 8.3 hereof, [or Guarantor breaches the financial covenants set
forth in its Guaranty,] and
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such failure is not cured within twenty (20) days of the earlier of (i) the
date on which Tenant or Guarantor has actual knowledge of such breach or
(ii) Notice from Landlord; or
(p) Tenant fails to repay Landlord for insurance premiums paid by
Landlord, as required and provided for in Section 13.1 hereof.
Executive Officer: The Chairman of the Board of Directors, the
President, any Vice President and the Secretary of a corporation.
Expiration Date: The "Expiration Date" for each particular Facility
shall be [Insert Date], 2009. [LEASE TERM WILL BE ELEVEN YEARS]
Facilities: The Leased Properties.
Facility: Any one of the Leased Properties.
Facility Management Agreement: The facility management agreement among
Manager and Tenant relating to the management of Tenant's operations at the
Facilities.
Facility Purchase Price: The Purchase Price allocated to each Facility
on the Commencement Date, as set forth on Exhibit F hereto; provided,
however, that after the date that is twelve (12) months from the
Commencement Date, such Facility Purchase Price shall be determined based
upon each Facility's fair market value, determined in accordance with the
provisions of Article 33 hereof.
Facility Rental Value: The Base Rent (determined at the time in
question) allocable to a Facility.
Facility Trade Names: The names under which the Facilities do or have
done business during the Term.
Fair Rental Value: The amount determined to be the Fair Rental Value
of the applicable Leased Property pursuant to the appraisal procedure set
forth in Article 33.
FDIC: Federal Deposit Insurance Corporation.
Fees: The fees payable by Tenant to Manager pursuant to the Facility
Management Agreement.
Financial Statement: For a fiscal year or other accounting period,
statements of earnings and retained earnings and of changes in financial
position and profit and loss
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for such period (for an interim period, from the beginning of the
respective fiscal year to the end of such period) and the related balance
sheet as at the end of such period, together with the notes thereto, all in
reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year, and
prepared in accordance with GAAP and reported on by (a) a "Big Six"
certified public accounting firm or another certified public accounting
firm approved by Landlord, which approval will not be unreasonably withheld
or delayed.
First Renewal Term: The period of five (5) years.
Fiscal Year: The calendar year.
Fixtures: All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with, and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, any and all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus (other
than individual units), sprinkler systems and fire and theft protection
equipment, and built-in oxygen and vacuum systems, all of which to the
greatest extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications, alterations and
additions thereto but specifically excluding all items included within the
definition of the "Personal Property".
GAAP: Generally accepted accounting principles in effect from time to
time as customarily and consistently applied.
Guarantor: Trans Healthcare, Inc. ("THI"), a Delaware corporation
Guaranty: The THI Guaranty.
Hazardous Substances: Any and all toxic or hazardous material,
substance, pollutant, contaminant, chemical, waste (including medical
waste) or substance, including petroleum products, asbestos and PCBs,
regulated, restricted or prohibited under any Environmental Law.
Impartial Appraiser: An appraiser selected by Landlord and reasonably
acceptable to Tenant.
Impositions: Collectively, all taxes (including, without limitation,
all real property taxes, ad valorem, sales and use, single business, gross
receipts, transaction
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privilege, rent or similar taxes), assessments, ground rents, water, sewer
or other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees),
and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of any Leased Property or the business conducted
thereon by Tenant and/or the Rent (including all interest and penalties
thereon due to any failure of payment by Tenant) applicable to periods of
time within the Term hereof which at any time may be assessed or imposed on
or in respect of or be a lien upon (a) the Facilities or any part thereof
or (b) any rent therefrom or (c) any estate, right, title or interest
therein, or (d) any occupancy, operation, use or possession of, or (e)
sales from, or activity conducted on, the applicable Leased Property or the
leasing or use of the Facilities or any part thereof or (f) the Rent.
"Imposition" shall not include: (a) any federal, state or local tax based
on gross or net income (whether denominated as an income, capital stock or
other tax) imposed on Landlord generally and not exclusively in connection
with any Leased Property, or (b) any net revenue tax of Landlord or any
other person, or (c) any tax imposed with respect to the sale, financing,
exchange or other disposition by Landlord of any Leased Property or the
proceeds thereof, or (d) any principal or interest on any indebtedness of
Landlord or (e) on any ground rent or other rent payable by Landlord.
Initial Term:The period between, and inclusive of, the Commencement
Date and the earlier of the Expiration Date and the date upon which this
Lease terminates as provided herein.
Insurance Requirements: The terms, conditions and requirements of any
insurance policy required by this Lease.
Investigations: Soil and chemical tests or any other environmental
investigations, examinations or analyses.
Land: The real property described on attached Exhibit A hereto.
Landlord's Personal Property: All Personal Property, except Tenant's
Personal Property, that at the Commencement Date or thereafter during the
Term is located, or, but for a temporary relocation off-site on the
Commencement Date is normally located, on the Land or in the Leased
Improvements.
Lease Year: The period commencing on the first day of the calendar
month following the month in which the Commencement Date occurs and ending
on the last day of the twelfth (12th) full calendar month thereafter
(unless the Commencement Date is the first day of a month, in which event
the first Lease Year shall commence on such day). The period, if any,
between the Commencement Date and the first day of
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the following month shall be deemed to be part of the first Lease Year.
Thereafter, each Lease Year will be January 1 through December 31. If this
Lease is terminated before the end of any Lease Year, the final Lease Year
will be January 1 through the date of termination thereof.
Leased Improvements: All buildings, structures, Fixtures and other
improvements of every kind currently situated on the Land, including, but
not limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures.
Leased Properties (also "Facilities"): Collectively, the Land, Leased
Improvements, Related Rights and Landlord's Personal Property, and the
licensed nursing homes and/or other healthcare facilities being operated
thereon and therein, as identified on Exhibit A hereto.
Leased Property: Any one of the Leased Properties.
Legal Requirements: As to any Leased Property, all federal, state,
county, municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Leased Property or the construction, use or alteration thereof, whether now
or hereafter enacted and in force, including any which may (a) require
repairs, modifications or alterations in or to the Leased Property or (b)
in any way adversely affect the use and enjoyment thereof, and all permits,
licenses and authorizations and regulations relating thereto, including,
but not limited to, those relating to existing health care licenses, those
authorizing the current number of licensed beds and the level of services
delivered from the Leased Property, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of
record or known to Tenant at any time in force affecting the Leased
Property, other than covenants, agreements, restrictions and encumbrances
created by Landlord without the consent of Tenant.
Manager: Cooper Management Corporation, a [Insert State] corporation.
Management Agreement: The Facility Management Agreement.
Mechanics Liens: Liens of mechanics, laborers, materialmen, suppliers
or vendors.
Net Income: The aggregate net income of Tenant from the operation of
the Facilities, determined on an accrual basis in accordance with GAAP,
before federal, state and local income taxes, but excluding extraordinary
items.
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Net Proceeds: All proceeds, net of any costs incurred by Landlord in
obtaining such proceeds, payable under any risk policy of insurance
required by Article 13 of this Lease (including proceeds with respect to
the Personal Property that Tenant elects to restore or replace pursuant to
Section 14.2 hereof).
Notice: A written notice given pursuant to Section 37.1 hereof.
Officer's Certificate: A certificate signed by any one or more of the
Executive Officers.
Overdue Rate: On any date, a rate equal to three (3) percentage points
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.
Partial Taking: A Taking of a portion of a Facility or of less than
the whole fee title to a Facility.
Payment Date: The due date for the payment of the installments of Base
Rent, Additional Charges or any other sums payable under this Lease.
Permitted Debt: Debt (other than Debt as to which an Affiliate of
Tenant is the creditor) incurred by Tenant solely to provide (a) working
capital to the respective Facilities, (b) Purchase Money Financing, or (c)
bonds to support the ordinary course of business and operations at the
Facilities, which amount of such bonds may not exceed one hundred thousand
dollars ($100,000) in the aggregate.
Permitted Encumbrances: With respect to each of the Leased Properties,
the matters identified on Exhibit E hereto.
Person: Any natural person, trust, partnership, limited liability
company, corporation, joint venture or other legal entity.
Personal Property: All equipment, furniture, fixtures, inventory
(including linens, dietary supplies and housekeeping supplies, and
including food and other consumable inventories), furnishings, movable
walls or partitions, trade fixtures, computers, software and data
pertaining to the business of a Facility (whether such data is stored in
computers or peripheral equipment that is included within the definition of
the term "Personal Property" or is otherwise in the possession of a Tenant,
or in computers and equipment that is not included within the definition of
the term "Personal Property" but is either owned by Tenant as to which
Tenant has a right of retrieval) and other tangible personal property used
in connection with the business of a Facility, together with all
replacements, modifications, alterations and additions
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thereto, except (a) items, if any, included within the definition of
Fixtures or Leased Improvements, (b) personal property leased from third
parties, (c) computers owned or leased by a Tenant that customarily are not
located on any of the Leased Properties, and (d) proprietary software owned
by parties other than a Tenant.
Primary Intended Use: With respect to any Facility, the operation of
the Facility as a licensed health care facility.
Prime Rate: On any date, a rate equal to the annual rate on such date
publicly announced by Citibank, N.A. to be its prime rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing,
but in no event greater than the maximum rate then permitted under
applicable law.
Proceeding: Any action, proposal or investigation by any agency or
entity, or any complaint to such agency or entity.
Purchase Money Financing: Any financing (whether by lease, chattel
mortgage, installment sale, or otherwise) provided by a Person to Tenant in
connection with the acquisition of Personal Property used in connection
with the operation of a Facility, whether by way of installment sale or
otherwise.
Purchase Price: The Purchase Price set forth on Exhibit F hereto.
Qualified Capital Expenditures: Expenditures capitalized on the books
of the Tenant for any of the following: replacement of furniture, fixtures
and equipment, including refrigerators, ranges, major appliances, bathroom
fixtures, doors (exterior and interior), central air conditioning and
heating systems (including cooling towers, water chilling units, furnaces,
boilers and fuel storage tanks) and major replacement of siding; major roof
replacements, including major replacements of gutters, downspouts, eaves
and soffits; major repairs and replacements of plumbing and sanitary
systems; overhaul of elevator systems; major repaving, resurfacing and
sealcoating of sidewalks, parking lots and driveways; repainting of entire
building exterior; but excluding major alterations, renovations and
additions.
Reconstruction Period: A period of three hundred sixty-five (365) days
following the date of any damage or destruction or the Date of Taking, as
applicable, subject to extension to the extent required by Unavoidable
Delay.
Regulatory Actions: With respect to any Leased Property, any claim,
demand, notice, action or proceeding brought or initiated by any
governmental authority in connection with any Environmental Law, including,
without limitation, civil, criminal
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and/or administrative proceedings, and whether or not seeking costs,
damages, equitable remedies, penalties or expenses.
Related Rights: All easements, rights and appurtenances relating to
the Land and the Leased Improvements.
Release: The intentional or unintentional spilling, leaking, dumping,
pouring, emptying, seeping, disposing, discharging, emitting, depositing,
injecting, leaching, escaping, abandoning or other release or threatened
release, however defined, of any Hazardous Substance.
Rent: Collectively, the Base Rent and the Additional Charges.
Rental Value: (a) With respect to any Leased Property that has been
relet during the period in question, the Rent actually received by Landlord
for the period in question from the reletting, net of all reasonable
expenses, including brokerage commissions, fees of attorneys and
consultants and the cost of any repairs and alterations required to obtain
such reletting and (b) with respect to any Leased Property that has not
been relet during the period in question, the Worth at the Time of the
Award of the Rent obtainable for the applicable Leased Property for the
period in question, under a lease of the applicable Leased Property on the
same terms and conditions as are set forth in this Lease, from a Tenant
that is unrelated to Landlord and has experience and a reputation in the
health care industry and a credit standing reasonably equivalent to that of
Tenant and Guarantor.
Replaced Property: Any Fixtures or Personal Property that from time to
time are replaced, pursuant to Section 9.1.5 hereof, after the date of this
Lease.
Replacement Property: Any Fixtures or Personal Property acquired by
Tenant in accordance with Section 9.1.5 hereof, after the date of this
Lease for use in connection with any Facility in replacement of any
Replaced Property.
SEC: Securities and Exchange Commission.
Second Renewal Term: The period of five (5) years.
Security Agreement: The security agreement of even date herewith
between Landlord and Tenant.
Security Deposit: The cash sum determined in accordance with the
schedule attached as Exhibit C hereto.
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State: With respect to each Facility, the state in which it is
located.
Taking: The exercise by a Condemnor of any governmental power, whether
by legal proceedings or otherwise, to acquire an interest in any Leased
Property, or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for
condemnation are pending.
Tangible Net Worth: The net worth of Guarantor, plus accumulated real
estate depreciation and subordinated debt (not to exceed twenty-five
percent (25%) of net worth), less related party receivables and
intangibles.
Tenant's Personal Property: All Personal Property (a) which Tenant
owns and uses, as of the date of this Lease, in connection with the
operation of the Leased Property being leased pursuant to this Lease, but
that has not been conveyed to Landlord pursuant to the Facilities Purchase
Agreement and/or (b) which Tenant acquires after the Commencement Date for
use by it in connection with any Facility.
Term: The Initial Term and, if renewed as provided in Article 12, the
First Renewal Term and the Second Renewal Term, as applicable.
THI Guaranty: A Guaranty executed by THI in favor of Landlord.
Third Party Claims: Any legal actions or proceedings (other than
Regulatory Actions but including without limitation those based on
negligence, trespass, strict liability, nuisance or toxic tort) due to
Contamination, and whether or not seeking costs, damages, penalties or
expenses, brought by any person or entity other than a governmental agency.
Transfer: The (a) assignment, mortgaging or other encumbering of all
or any part of Tenant's interest in this Lease or Tenant's interest in the
Leased Property or (b) the entering into of any management agreement (other
than the Management Agreement) or other arrangement under which any
Facility is operated by or licensed to be operated by an entity other than
Tenant or the Manager.
Transferee: Any assignee, subtenant or other occupant of any Leased
Property pursuant to any Transfer.
Umbrella Policies: Policies of insurance that cover risks in excess of
the liability limits of policies required to be carried under this Lease.
Unavoidable Delays: Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil
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commotion, fire, unavoidable casualty or other causes beyond the reasonable
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control
of a party.
Unsuitable for Its Primary Intended Use: A state or condition of a
Facility such that, by reason of damage or destruction or a Partial Taking,
such Facility cannot reasonably be expected to be repaired and restored
within the Reconstruction Period to a condition in which it may be operated
on a commercially practicable basis for its Primary Intended Use, taking
into account, among other relevant factors, the number of useable beds, the
amount of square footage and the estimated revenue affected by such damage
or destruction or Partial Taking.
Worth at the Time of the Award: The present value of the applicable
amount, determined at the time required in Section 16.5 hereof, by
discounting the applicable amount by the Prime Rate.
2.2 OTHER DEFINITIONS. Other words and phrases are defined elsewhere in
this Lease and in the Exhibits and Schedules hereto.
ARTICLE 3
RENT; RELATED MATTERS
3.1 RENT. Tenant shall pay the Rent in lawful money of the United States of
America and legal tender for the payment of public and private debts. The first
payment of Base Rent shall be due on the Commencement Date, prorated for the
period from the Commencement Date until the last day of the first full calendar
month of the Term. After the first payment, Tenant shall pay the Base Rent in
equal, consecutive monthly installments in advance on the first day of each
calendar month of the Term. Unless otherwise agreed by the parties, Rent shall
be prorated as to any partial month at the end of the Term.
3.2 ADDITIONAL CHARGES. In addition to the Base Rent, Tenant will also pay
and discharge as and when due and payable all Additional Charges. If Tenant
fails to pay any Additional Charges as and when due, Tenant will also promptly
pay and discharge as Additional Charges every fine, penalty, interest and cost
which may be added for non-payment or late payment.
3.3 LATE CHARGE; INTEREST. If any installment of Base Rent, or any
Additional Charges payable by Tenant to Landlord hereunder is not paid within
five (5) Business Days of the due date, Tenant shall pay Landlord on demand, as
an Additional Charge, (a) a late charge of five percent (5%) of the amount due
and unpaid and (b) if such payment is not made
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within thirty (30) days of the date due, interest thereon at the Overdue Rate
from such thirtieth (30th) day until the date on which such payment plus such
late charge and interest is paid in full.
3.4 METHOD OF PAYMENT OF RENT. All Rent to be paid to Landlord shall be
paid by electronic funds transfer debit transactions through wire transfer of
immediately available funds to Landlord per the wiring instructions set forth on
Exhibit I hereto (as from time to time be changed by Landlord by Notice to
Tenant) and shall be initiated by Tenant for settlement on or before the due
date each calendar month; provided, however, if the due date is not a Business
Day, then settlement shall be made on the next succeeding day which is a
Business Day.
3.5 NET LEASE; NO OFFSET. The Rent shall be paid absolutely net to
Landlord, so that this Lease shall yield to Landlord the full amount of the
installments of Base Rent and Additional Charges payable hereunder throughout
the Term, subject to the terms and conditions hereof. This Lease is and shall be
a "pure-net" or "triple-net" lease, as such terms are commonly used in the real
estate industry, it being intended that Tenant shall pay all costs, expenses and
charges arising out of the use, occupancy and operation of the Leased
Properties, without any offset, deduction, abatement, or counterclaim
whatsoever. Landlord shall not be required to furnish any services whatsoever to
any Facilities or to make any payment of any kind whatsoever; and Landlord shall
not be responsible for any loss or damage to any property of Tenant, or any
other user or occupant of any part of any Facility, absent the gross negligence
or willful misconduct of Landlord, its employees or agents.
ARTICLE 4
IMPOSITIONS; RELATED MATTERS
4.1 PAYMENT OF IMPOSITIONS. Tenant will pay or cause to be paid all
Impositions before any fine, penalty, interest or cost may be added for
non-payment, and Tenant will promptly, upon request, furnish to Landlord copies
of official receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Tenant may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments and, in such
event, Tenant shall pay such installments during the Term hereof as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. Refunds of Impositions paid by Tenant shall be
paid to or retained by Tenant. Landlord shall remit promptly to Tenant any
refunds of Impositions received by Landlord. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to each Leased Property as may be necessary to
prepare any required returns and
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reports. Tenant will provide Landlord, upon request, with cost and depreciation
records in its possession that are reasonably necessary for filing returns for
any property classified as personal property. Tenant may, at Tenant's sole cost
and expense, protest, appeal or institute such other proceedings as Tenant may
deem appropriate to effect a reduction of Impositions, and Landlord shall
cooperate with Tenant in such protest, appeal or other action. Tenant shall
reimburse Landlord for Landlord's direct costs of cooperating with Tenant with
respect to such protest, appeal or other action and shall indemnify, defend and
hold Landlord harmless against any expense or loss as a result thereof. The
foregoing shall not be construed as indemnifying Landlord against its own
grossly negligent acts or omissions or willful misconduct.
4.2 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
tax-fiscal period during which the Term ends shall be adjusted and prorated
between Landlord and Tenant, whether or not such Imposition is imposed before or
after termination or expiration, and Tenant's obligation to pay their prorated
share thereof, if the same becomes due after such termination or expiration,
shall survive such termination or expiration.
4.3 UTILITY CHARGES. Tenant will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities used in the
respective Leased Properties during the Term.
4.4 INSURANCE PREMIUMS. Tenant will pay or cause to be paid when due all
premiums for the insurance coverage required to be maintained pursuant to
Article 13 during the Term.
ARTICLE 5
NO TERMINATION, ABATEMENT, ETC.
Except as otherwise specifically provided in this Lease, Tenant shall
remain bound by this Lease in accordance with its terms and shall not take any
action without the consent of Landlord to modify, surrender or terminate the
same, and shall not seek or be entitled to any offset, deduction abatement, or
counterclaim, or any deferral or reduction of Rent . The respective obligations
of Landlord and Tenant shall not be affected by reason of (a) any damage to, or
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of any Leased Property or any portion thereof, except as expressly
set forth herein; (b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of any Leased Property, or any portion thereof, or the
interference with such use by any Person (other than Landlord or its employees
or agents) or by reason of eviction by paramount title; (c) any claim which
Tenant has or might have against Landlord or by reason of any default or breach
of any warranty by Landlord under this Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties, (d) any
bankruptcy,
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insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Landlord or any assignee or transferee
of Landlord, or (e) any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Tenant from any such obligations as a matter
of law. Unless otherwise specifically provided for in this Lease, Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to (i) modify, surrender or
terminate this Lease or quit or surrender any Leased Property or any portion
thereof, or (ii) entitle Tenant to any reduction, suspension or deferral of the
Rent or other sums payable by Tenant hereunder.
ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; PERSONAL PROPERTY
6.1 OWNERSHIP OF THE LEASED PROPERTY. Tenant acknowledges that the Leased
Properties are the property of Landlord and that Tenant has only the right to
the possession and use of the Leased Property leased by it upon the terms and
conditions of this Lease. Tenant will not (a) file any income tax return or
other associated documents; (b) file any other document with or submit any
document to any governmental body or authority; (c) enter into any written
contractual arrangement with any Person; or (d) release any financial statements
of Tenant, in each case that takes any position other than that, throughout the
Term, Landlord is the owner of the Leased Properties for federal, state and
local income tax purposes and that this Lease is a "true lease".
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall, during the entire Term,
maintain all of Landlord's Personal Property in good order, condition and repair
as shall be necessary in order to operate the Facilities for the Primary
Intended Use in compliance with applicable licensure and certification
requirements, applicable Legal Requirements and Insurance Requirements, and
customary industry practice for the Primary Intended Use. If any of Landlord's
Personal Property requires replacement in order to comply with the foregoing,
Tenant shall replace it with other similar property of the same or better
quality at Tenant's sole cost and expense; the Replaced Property shall no longer
be Landlord's Personal Property; and the Replacement Property shall become part
of Landlord's Personal Property. Tenant shall not permit or suffer Landlord's
Personal Property to be subject to any lien, charge, encumbrance, financing
statement or contract of sale or the like, except for any purchase money
security interest or equipment or Landlord's interest expressly approved in
advance, in writing, by Landlord. At the expiration or earlier termination of
this Lease, all of Landlord's Personal Property shall be surrendered to Landlord
with the Leased Property in the condition required by Section 9.1.6 hereof.
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6.2.1 Motor Vehicles. Tenant acknowledges that the motor vehicles
described in the Bill of Sale were purchased by Landlord pursuant to
the Facilities Purchase Agreement, are the property of Landlord, and
are leased to Tenant hereunder, notwithstanding the fact that for the
convenience of the parties record title to such vehicles has not
changed and the interest of Landlord is not reflected on the
certificates of title of such vehicles. Upon demand of Landlord,
Tenant shall deliver to Landlord the certificates of title to any such
vehicles.
6.3 TENANT'S PERSONAL PROPERTY. Tenant shall provide and maintain, during
the entire Term, such Personal Property, in addition to Landlord's Personal
Property, as shall be necessary and appropriate in order to operate each
Facility for its Primary Intended Use in compliance with all licensure and
certification requirements, in compliance with all applicable Legal Requirements
and Insurance Requirements and otherwise in accordance with customary practice
in the industry for the Primary Intended Use. Upon the expiration or earlier
termination of this Lease, without the payment of any additional consideration
by Landlord, Tenant shall be deemed to have sold, assigned, transferred and
conveyed to Landlord all of Tenant's right, title and interest in and to any of
the respective Tenant's Personal Property that is integral to the use of the
respective Facilities for their Primary Intended Use, and shall, upon Landlord's
request, execute and deliver to Landlord a bill of sale with respect thereto,
and without Landlord's prior written consent Tenant shall not remove the same
from the respective Leased Properties. Any of Tenant's Personal Property that is
not integral to the use of the respective Facilities at such time may be removed
by Tenant, and, if not removed within thirty (30) days following the expiration
or earlier termination of this Lease, shall be considered abandoned by Tenant
and may be appropriated, sold, destroyed or otherwise disposed of by Landlord
without giving notice thereof to Tenant and without any payment to Tenant or any
obligation to account therefor. Tenant will, at its expense, repair all damage
to the Leased Properties that is caused by the removal of any of Tenant's
Personal Property, whether effected by Tenant or Landlord.
6.4 GRANT OF SECURITY INTEREST IN TENANT'S PERSONAL PROPERTY; RESTRICTION
ON OTHER LIENS. Tenant has concurrently granted to Landlord a security interest
in Tenant's Personal Property upon the terms set forth in the Security
Agreement. Without Landlord's consent, Tenant shall not permit or suffer
Tenant's Personal Property to be subject to any lien, charge, encumbrance,
financing statement or contract of sale other than to secure Permitted Debt.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTIES
7.1 CONDITION OF THE LEASED PROPERTIES. Tenant acknowledges that Tenant has
examined and otherwise has knowledge of the condition of the Leased Property
leased by it
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prior to the execution and delivery of this Lease and has found the same to be
in good order and repair and satisfactory for its purposes hereunder. Tenant is
leasing the applicable Leased Property "as is" in its condition on the
Commencement Date. Tenant waives any claim or action against Landlord in respect
of the condition of the Leased Property being leased by it. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF ANY LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, OR OTHERWISE AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED
PROPERTY LEASED BY IT HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO
TENANT. TENANT FURTHER ACKNOWLEDGES THAT, ON AND AFTER THE COMMENCEMENT DATE AND
THROUGHOUT THE TERM, TENANT IS SOLELY RESPONSIBLE FOR THE CONDITION OF THE
LEASED PROPERTY LEASED BY IT.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Subject to the exceptions in clause (f) of the definition of
"Event of Default" in Article 2 hereof, throughout the Term, Tenant shall
continuously use the Leased Property leased by it for the Primary Intended Use
and for such other uses as may be necessary or incidental thereto, and no Tenant
shall use any Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or permitted to be
made of, or allowed in, any Leased Property, and no acts shall be done, which
will cause the cancellation of, or be prohibited by, any insurance policy
covering any Leased Property or any part thereof.
7.2.2 Tenant agrees that the Leased Property and Tenant's Personal
Property shall not be used for any unlawful purpose, nor shall Tenant commit or
suffer any waste on the Leased Property or cause or permit any nuisance thereon.
7.2.3 Tenant shall not suffer or permit the Leased Property, or any
portion thereof, or Tenant's Personal Property to be used in such a manner as
(i) might reasonably tend to impair Landlord's (or Tenant's, as the case may be)
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public or of
implied dedication of the applicable Leased Property or any portion thereof.
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ARTICLE 8
LEGAL AND INSURANCE REQUIREMENTS
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. Subject to Article
12, Tenant, at its expense, will promptly (i) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property and Tenant's Personal
Property, whether or not compliance therewith requires structural changes in any
of the Leased Improvements (which structural changes shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed) or interferes with or prevents the use and enjoyment of the
Leased Property, and (ii) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
the use of the Leased Property and Tenant's Personal Property then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Tenant's use, maintenance, operation and
any alteration of the Leased Property shall at all times conform to all
applicable local, state, and federal laws, ordinances, rules, and regulations
(including but not limited to the Americans with Disabilities Act). The judgment
of any court or administrative body of competent jurisdiction, or the decision
of any arbitrator (final beyond any appeal) that Tenant has violated any such
Legal Requirements or Insurance Requirements, shall be conclusive of that fact
as between Landlord and Tenant.
8.3 CERTAIN FINANCIAL AND OTHER COVENANTS.
8.3.1 Certain Financial Covenants.
8.3.1.1 Minimum Capital Expenditures. During the first Lease
Year, Tenant shall make at least Two Hundred and Fifty Dollars ($250.00)
per-licensed-bed of Qualified Capital Expenditures, and thereafter throughout
the Term, Tenant shall in each Lease Year make Qualified Capital Expenditures in
an amount equal to the amount of such expenditures required for the immediately
preceding Lease Year, multiplied by the percentage increase in the Cost of
Living Index from the first day of the prior Lease Year to the first day of the
current Lease Year. The amount of Qualified Capital Expenditures
per-licensed-bed may never be less in any Lease Year than the amount established
in the prior Lease Year.
8.3.1.2 Permitted Debt. Except for Permitted Debt, Tenant shall
not incur any Debt without the prior written consent of Landlord, which Landlord
may withhold in its discretion.
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8.3.1.3 Cash Flow to Debt Service Requirement. At all times
during the Term, Tenant shall maintain a ratio of Cash Flow from the Facilities
to Debt Service from the Facilities at least equal to the Cash Flow to Debt
Service Requirement.
8.3.2 Management Agreements. Tenant shall not enter into any
management agreement other than the Management Agreement without Landlord's
consent, which consent Landlord may withhold or condition in its sole
discretion, and in no event without a satisfactory subordination by the manager
of its right to receive any management fees to the obligation of Tenant to pay
the Base Rent and Additional Charges to Landlord. In the ordinary course of
business Tenant shall have the right to amend, modify or otherwise change the
terms of the Management Agreement without the prior written consent of Landlord;
provided, however, that any such amendments, modifications or other changes that
are material shall require the prior written consent of Landlord, which consent
shall not unreasonably be withheld.
8.4 OTHER BUSINESSES. During the Term of this Lease, Tenant shall not,
directly or indirectly, own, operate or manage any businesses other than health
care businesses.
ARTICLE 9
MAINTENANCE AND REPAIR; ENCROACHMENTS
9.1 MAINTENANCE AND REPAIR.
9.1.1 Tenant, at its expense, shall keep the Leased Property and all
fixtures thereon and all landscaping, private roadways, sidewalks and curbs
appurtenant thereto and which are under Tenant's control and Tenant's Personal
Property in good order and repair (whether or not the need for such repairs
occurs as a result of Tenant's use, any prior use, the elements or the age of
the applicable Leased Property or any portion thereof, or any cause whatever
except the failure of Landlord to make any payment or to perform any act
expressly required under the Lease or the negligence or willful misconduct of
Landlord), and, except as may be provided to the contrary in Article 14, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise).
9.1.2 Tenant shall do or cause others to do all shoring of the Leased
Property leased by it or adjoining property (whether or not owned by Landlord)
or of the foundations and walls of the Leased Improvements, and every other act
necessary or appropriate for the preservation and safety thereof and continued
operation of the Facilities, by reason of or in
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connection with any subsidence, settling or excavation or other building
operation upon the Leased Property leased by it or adjoining property, whether
or not Tenant or Landlord shall, by any Legal Requirements, be required to take
such action or be liable for the failure to do so; provided, however, that such
shoring and any other material acts shall be subject to the prior written
consent of Landlord, which shall not unreasonably be withheld or delayed. All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work, and, subject to the provisions of paragraph 9.1.6,
where, by reason of age or condition, such repairs cannot be made to the quality
of the original work, the property to be repaired shall be replaced.
9.1.3 Landlord shall not under any circumstances be required to build
or rebuild any improvements on any Leased Property or on any property
appurtenant thereto, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to any Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or upon any adjoining property, whether to provide lateral or other
support for any Leased Property or abate a nuisance affecting any Leased
Property, or otherwise, or to make any expenditure whatsoever with respect
thereto, in connection with the Lease, or to maintain any Leased Property in any
way. Tenant hereby waives, to the extent permitted by law, any right provided by
law, but not provided by the terms of this Lease, to make repairs at the expense
of Landlord.
9.1.4 Nothing contained in this Lease shall be construed as (a)
constituting the consent or request of Landlord, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to any Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Landlord in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Landlord in
any Leased Property or any portion thereof. Landlord shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanics' and construction lien laws now or hereafter existing.
9.1.5 Tenant shall, from time to time as and when needed, replace with
Replacement Property any of the Fixtures or Personal Property which shall have
(a) become worn out, obsolete or unusable for the purpose for which it is
intended (if such Fixtures or Personal Property continues to be necessary), (b)
been the subject of a Taking (in which event Tenant shall be entitled to that
portion of any Award made therefor), or (c) been lost, stolen or damaged or
destroyed; provided, however, that the Replacement Property shall (i) be in good
operating condition, (ii) be of a quality reasonably equivalent to that of the
Replaced Property and (iii) be suitable for a use which is the same or similar
to that of the Replaced Property.
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Tenant shall repair at its sole cost and expense all damage to the applicable
Leased Property caused by the removal of Replaced Property or other personal
property of Tenant or the installation of Replacement Property. All Replacement
Property shall become the property of Landlord and shall become Fixtures or
Landlord's Personal Property, as the case may be, to the same extent as the
Replaced Property had been. Upon Landlord's written request Tenant shall with
reasonable promptness cause to be executed and delivered to Landlord an invoice,
bill of sale or other appropriate instrument evidencing the transfer or
assignment to Landlord of all estate, right, title and interest (other than the
leasehold estate created hereby) of Tenant or any other Person in and to any
Replacement Property the cost of which exceeds Twenty Five Thousand Dollars
($25,000), free from all liens and other exceptions to title, and Tenant shall
pay all taxes, fees, costs and other expenses that may become payable as a
result thereof.
9.1.6 Upon the expiration or earlier termination of the Term, Tenant
shall vacate and surrender the Leased Property leased by it to Landlord as a
fully equipped, licensed health care facility, with all equipment required by
the laws of the State to maintain its then current license, and shall assign and
transfer to Landlord (or to another Person designated by Landlord) the Facility
Trade Names, local telephone numbers, local electronic mail and "Internet"
addresses, if any, under which the Facilities are then conducting business, and
all Facility-specific licenses, permits and rights to do business of every kind
(subject to such governmental approvals as may be required), patient admission
agreements and records, supplier and operator contracts, a copy of all
then-current data maintained by Tenant in writing or recorded on computer media
with respect to the business of the applicable Facility and all computer
software necessary to access and manipulate such data. Tenant shall not be
required to transfer proprietary software to Landlord, but shall cause the data
it is to transfer to Landlord to be transferred to Landlord, without charge. At
the expiration of the Term or the sooner termination of this Lease, the Leased
Properties, including all Leased Improvements, Fixtures and Landlord's Personal
Property, shall be returned to Landlord in good operating condition, ordinary
wear and tear, Taking and casualty damage that Tenant is not required by this
Lease to repair or restore, excepted, and except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease.
Notwithstanding anything to the contrary in this Lease, not more than fifty
percent (50%) of the value of the Personal Property returned to Landlord as
required herein may at the time of such return be subject to Purchase Money
Financing, and at the time of such return Tenant shall assign to Landlord all of
its right, title and interest in and to such any and all documents evidencing
such Purchase Money Financing.
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. Except in the case of Permitted
Encumbrances, if any of the Leased Improvements (other than as existing on the
Commencement Date), at any time encroaches in a material adverse manner upon any
property, street or right-of-way adjacent to any Leased Property, or materially
violates the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting any Leased Property or any part thereof,
or materially impairs the rights of others
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under any easement or right-of-way to which any Leased Property is subject, then
promptly upon the request of Landlord or at the behest of any person
legitimately affected by any such encroachment, violation or impairment, Tenant
shall, at its expense, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, or (b) make such changes to the Leased
Improvements, and take such other actions, as are reasonably practicable, to
remove such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the applicable Leased Improvements, and in
any event take all such actions as may be necessary in order to be able to
continue the operation of the applicable Leased Property for the Primary
Intended Use substantially in the manner and to the extent the applicable Leased
Property was operated prior to the assertion of such violation, impairment or
encroachment.
ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 CONSTRUCTION OF ALTERATIONS AND ADDITIONS TO LEASED PROPERTY. Tenant
shall not make or permit to be made any alterations, improvements or additions
of or to the Leased Property leased by it or any part thereof, other than
non-structural alterations having no material effect on the roof, foundation,
utility systems or structure, unless and until Tenant has caused plans and
specifications therefor to have been prepared, at Tenant's expense, by a
licensed architect and submitted to Landlord at least thirty (30) days (ninety
(90) days, if such alterations, improvements or additions are reasonably
estimated to cost more than the Approval Threshold) in advance of the
commencement of construction, and has obtained Landlord's written approval
thereof, which approval shall not be unreasonably withheld. Landlord shall have
the right to require that, prior to the commencement of construction of any
alterations, improvements or additions as to which its approval is required
hereunder, Tenant also provide Landlord with reasonable assurance of the payment
of the cost thereof and, if the cost thereof is in excess of the Approval
Threshold, Tenant shall comply with Landlord's requirements with respect to the
periodic delivery of lien waivers and evidence of payment for such cost. If such
approval is granted, Tenant shall cause the work described in such approved
plans and specifications to be performed, at its expense, promptly, and in a
good, workerlike, manner by licensed contractors and in compliance with
applicable governmental and Insurance Requirements and Legal Requirements and
the standards set forth in this Lease, which improvements shall in any event
constitute a complete architectural unit (if applicable) in keeping with the
character of the applicable Leased Property and the area in which the applicable
Leased Property is located and which will not diminish the value of the
applicable Leased Property or change the Primary Intended Use of the applicable
Leased Property. Tenant shall be responsible for the completion of such
improvements in accordance with the plans and specifications approved by
Landlord, and shall promptly correct any failure with respect thereto. Each and
every such improvement, alteration or addition shall immediately
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become a part of the applicable Leased Property and shall belong to Landlord
subject to the terms and conditions of this Lease. Tenant shall not have any
claim against Landlord at any time in respect of the cost or value of any such
improvement, alteration or addition. There shall be no adjustment in the Base
Rent by reason of any such improvement, alteration or addition, unless such
improvement, alteration or addition is financed by Landlord. With Landlord's
consent, which consent shall not be unreasonably withheld, expenditures made by
a Tenant pursuant to this Article 10 may be included as capital expenditures for
purposes of inclusion in the capital expenditures budget for the applicable
Facility and for measuring compliance with the obligations of Tenant set forth
in Section 8.3.1.1 hereof.
10.2 Asbestos Removal for Alterations and Additions. In connection with any
alteration other than removal pursuant to the Escrow Agreement which involves
the removal, demolition or disturbance of any asbestos-containing material,
Tenant shall cause to be prepared at its expense a full asbestos assessment
applicable to such alteration, and shall carry out such asbestos monitoring and
maintenance program as shall reasonably be required thereafter in light of the
results of such assessment.
ARTICLE 11
REMOVAL OF LIENS
Without the consent of Landlord, and except as expressly provided
elsewhere herein, Tenant shall not directly or indirectly create or allow to
remain, and within thirty (30) business days after notice thereof shall promptly
discharge at its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property, and any attachment, levy, claim or
encumbrance in respect of the Rent, excluding (a) Permitted Encumbrances, (b)
Mechanics Liens for sums not yet due, (c) liens created by the acts or omissions
of Landlord, and (d) Mechanics Liens which Tenant is contesting (provided that
the aggregate amount of such contested liens shall not exceed one months' Base
Rent allocable to the Facility in question).
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ARTICLE 12
CONTEST OF LEGAL REQUIREMENTS, ETC.
12.1 PERMITTED CONTESTS. Tenant, on its own or on Landlord's behalf (or in
Landlord's name), but at Tenant's sole cost and expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity of any Imposition, Legal Requirement, Insurance
Requirement or Claim not otherwise permitted by Article 11, but this shall not
be deemed or construed in any way as relieving, modifying or extending Tenant's
covenants to pay or to cause to be paid any such charges at the time and in the
manner as provided in this Lease, nor shall any such legal proceedings operate
to relieve Tenant from its obligations hereunder and or cause the sale of any
Leased Property, or any part thereof, to satisfy the same or cause Landlord or
Tenant to be in default under any Encumbrance or in violation of any Legal
Requirements or Insurance Requirements upon any Leased Property or any interest
therein. Upon request of Landlord, if the claim exceeds the Approval Threshold,
Tenant shall either (a) provide a bond, letter of credit or other assurance
reasonably satisfactory to Landlord that all Claims, together with interest and
penalties, if any, thereon, will be paid, or (b) deposit within the time
otherwise required for payment with a bank or trust company selected by Landlord
as trustee, as security for the payment of such Claims, money in an amount
sufficient to pay the same, together with interest and penalties in connection
therewith, and all Claims which may be assessed against or become a Claim on the
applicable Leased Property, or any part thereof, in said legal proceedings.
Tenant shall furnish Landlord and any lender to Landlord and any other party
entitled to assert or enforce any Legal Requirements or Insurance Requirements
with evidence of such deposit within fifteen (15) days of the same. Landlord
agrees to join in any such proceedings if the same be required to legally
prosecute such contest of the validity of such Claims; provided, however, that
Landlord shall not thereby be subjected to any liability for the payment of any
costs or expenses in connection with any such proceedings; and Tenant covenants
to indemnify and save harmless Landlord from any such costs or expenses,
including but not limited to attorney's fees incurred in any arbitration
proceeding, trial, appeal and post-judgment enforcement proceedings. Tenant
shall be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Tenant or paid by Landlord and for
which Landlord has been fully reimbursed. If Tenant fails to pay or satisfy the
requirements or conditions of any Claims when finally determined to be due or to
provide the security therefor as provided in this paragraph and to diligently
prosecute any contest of the same, Landlord may, upon thirty (30) days advance
written Notice to Tenant, pay such charges or satisfy such claims together with
any interest and penalties and the same (or the cost thereof) shall be repayable
by Tenant to Landlord forthwith as Additional Charges. If Landlord reasonably
determines that a shorter period is necessary in order to prevent loss to the
applicable Leased Property or avoid damage to Landlord that Landlord reasonably
believes will not be reimbursed by Tenant, then Landlord shall give such written
Notice as is practical under the circumstances.
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12.2 LANDLORD'S REQUIREMENT FOR DEPOSITS. Upon and at any time after an
Event of Default, and regardless of whether or not Tenant subsequently cures
such Event of Default, Landlord, in its sole discretion, shall be entitled to
require Tenant to pay monthly a pro rata portion of the amounts required to
comply with the Insurance Requirements, any Imposition and any Legal
Requirements, and when such obligations become due, Landlord shall pay them (to
the extent of the deposit) upon Notice from Tenant requesting such payment. If
sufficient funds have not been deposited to cover the amount of the obligations
due at least thirty (30) days in advance of the due date, Tenant shall forthwith
deposit the same with Landlord upon written request from Landlord. Landlord
shall not commingle such deposited funds with its other funds, and Tenant shall
be entitled to any interest paid on any deposit so held by Landlord unless and
except to the extent that Landlord, having the right to do so by the terms of
this Lease, applies such interest to Tenant's obligations hereunder. Upon an
Event of Default under this Lease, any of the funds remaining on deposit may be
applied under this Lease, in any manner and on such priority as is determined by
Landlord and after five (5) days Notice to Tenant.
ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term, Tenant shall at all
times keep the Leased Property and all property located in or on the applicable
Leased Property, including all Personal Property, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State. All such policies
provided and maintained during the Term shall be written by companies having a
rating classification of not less than "A-" and a financial size category of
"Class X," according to the then most recent issue of Best's Key Rating Guide.
The policies (other than Workers' Compensation policies) shall name Landlord as
an additional insured. Losses shall be payable to Landlord and Tenant and
disbursed as provided in Article 14. Tenant shall pay when due all of the
premiums for the insurance required hereunder, and deliver certificates thereof
(in form and substance reasonably satisfactory to Landlord) to Landlord prior to
their effective date, or, with respect to any renewal policy, prior to the
expiration of the existing policy. In the event of the failure of Tenant either
to effect such insurance as herein called for or to pay the premiums therefor,
or to deliver such certificates thereof to Landlord at the times required,
Landlord shall be entitled, but shall have no obliga tion, to effect such
insurance and pay the premiums therefor when due, which premiums shall be
repayable to Landlord upon written demand therefor as Rent, and failure to repay
the same within thirty (30) days after Notice shall constitute an Event of
Default. The policies on each Leased Property, including the Leased Improvements
and Fixtures, and on the Personal Property, shall insure against the following
risks:
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13.1.1 Loss or damage by fire, vandalism and malicious mischief,
earthquake (if available at commercially reasonable rates) and extended coverage
perils commonly known as "Special Risk," and all physical loss perils normally
included in such Special Risk insurance, including but not limited to sprinkler
leakage, in an amount not less than ninety percent (90%) of the then full
replacement cost thereof (as defined in Section 13.2 hereof);
13.1.2 Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the applicable Facility;
13.1.3 Loss of rental included in a business income or rental value
insurance policy covering risk of loss during reconstruction necessitated by the
occurrence of any of the hazards described in Sections 13.1.1 or 13.1.2 hereof
(but in no event for a period of less than twelve (12) months) in an amount
sufficient to prevent either Landlord or Tenant from becoming a co-insurer;
13.1.4 Claims for personal injury or property damage under a policy of
commercial general public liability insurance with a combined single limit per
occurrence in respect of bodily injury and death and property damage of One
Million Dollars ($1,000,000), and an aggregate limitation of Three Million
Dollars ($3,000,000), which insurance shall include contractual liability
insurance;
13.1.5 Claims arising out of professional malpractice in an amount not
less than One Million Dollars ($1,000,000) for each occurrence and an aggregate
limit of Three Million Dollars ($3,000,000);
13.1.6 Flood (when the applicable Leased Property is located in whole
or in part within a designated flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the area;
13.1.7 During such time as Tenant is constructing any improvements,
Tenant, at its sole cost and expense, shall carry or cause to be carried (a)
workers' compensation insurance and employers' liability insurance covering all
persons employed in connection with the improvements in statutory limits, (b) a
completed operations endorsement to the commercial general liability insurance
policy referred to above, and (c) builder's risk insurance, completed value
form, covering all physical loss, in an amount and subject to policy conditions
reasonably satisfactory to Landlord;
13.1.8 Tenant shall procure, and at all times during the Term of this
Lease shall maintain, a policy of primary automobile liability insurance with
limits of One Million Dollars ($1,000,000) per occurrence for owned and
non-owned and hired vehicles; and
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13.1.9 If Tenant chooses to carry umbrella liability coverage to
obtain the limits of liability required hereunder, all such policies must cover
in the same manner as the primary commercial general liability policy and must
contain no additional exclusions or limitations materially different from those
of the primary policy.
13.2 REPLACEMENT COST. The term "full replacement cost" means the actual
replacement cost of the applicable Leased Improvements, Fixtures and Landlord's
Personal Property, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In all
events, full replacement cost shall be an amount sufficient that neither
Landlord nor Tenant is deemed to be a co-insurer of the applicable Leased
Property. If Landlord in good faith believes that full replacement cost (the
then replacement cost less such exclusions) of any Leased Property has increased
at any time during the Term, it shall have the right, upon Notice to Tenant, to
have such full replacement cost reasonably redetermined by an Impartial
Appraiser. The determination of the Impartial Appraiser shall be final and
binding on Landlord and Tenant, and Tenant shall forthwith adjust the amount of
the insurance carried pursuant to this Section, as the case may be, to the
amount so determined by the Impartial Appraiser. Landlord and Tenant shall pay
the fee, if any, of the Impartial Appraiser.
13.3 WORKER'S COMPENSATION INSURANCE. Tenant shall at all times maintain
workers' compensation insurance coverage for all persons employed by Tenant on
the applicable Leased Property to the extent required under and in accordance
with applicable law.
13.4 WAIVER OF LIABILITY; WAIVER OF SUBROGATION. Landlord shall have no
liability to Tenant, and, provided Tenant carries the insurance required by this
Lease, Tenant shall have no liability to Landlord, regardless of the cause, for
any loss or expense resulting from or in connection with damage to or the
destruction or other loss of any Leased Property or Tenant's Personal Property,
and no party will have any right or claim against the other for any such loss or
expense by way of subrogation. Each insurance policy carried by Landlord or
Tenant covering any Leased Property and Tenant's Personal Property, including
without limitation, contents, fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the insurer, if such a waiver is
commercially available at reasonable rates. Tenant shall pay any additional
costs or charges for obtaining such waivers; provided, however, Landlord shall
pay the costs or charges for obtaining any such waivers on any insurance policy
carried by Landlord.
13.5 OTHER REQUIREMENTS. The form of all of the policies of insurance
referred to in this Article shall be the standard forms issued by the respective
insurers meeting the specific requirements of this Lease. The property loss
insurance policy shall contain a Replacement Cost Endorsement. If Tenant obtains
and maintains the professional malpractice insurance described in Section 13.1.5
hereof on a "claims-made" basis, Tenant shall provide continuous liability
coverage for claims arising during the Term either by obtaining an endorsement
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providing for an extended reporting period reasonably acceptable to Landlord in
the event such policy is canceled or not renewed for any reason whatsoever, or
by obtaining "tail" insurance coverage converting the policies to "occurrence"
basis policies providing coverage for a period of at least three (3) years
beyond the expiration of the Term. Tenant shall cause each insurer mentioned in
this Article 13 to agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Landlord, that it will give to
Landlord at least thirty (30) days' written notice before the policy or policies
in question shall be materially altered or canceled. If requested by Landlord,
and if available at a commercially reasonable cost, all public liability and
property damage insurance shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recovery under said
policies for any loss, damage, or injury to Landlord, its servants, agents and
employees by reason of the negligence of Tenant or Landlord.
13.6 INCREASE IN LIMITS. If, from time to time after the Commencement Date,
Landlord determines in the exercise of its reasonable business judgment that the
limits of the personal injury or property damage - public liability insurance
then carried are insufficient, Landlord may give Tenant Notice of acceptable
limits for the insurance to be carried, which limits shall be reasonable in
light of the limits required by Landlord of other of its borrowers and Tenant
with respect to similar portfolios at such time; and the insurance shall
thereafter be carried with limits as prescribed by Landlord until further
increase pursuant to the provisions of this Section.
13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained in
this Article 13, Tenant'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 Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article 13 are otherwise satisfied, and
provided further that Tenant maintain specific allocations acceptable to
Landlord.
13.8 NO SEPARATE INSURANCE.
13.8.1 Tenant shall not, on its own initiative or pursuant to the
request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article, to be furnished by, or which may reasonably be required to be
furnished by, Tenant, or increase the amount of any then existing insurance by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including in all
cases Landlord, are included therein as additional insureds, and the loss is
payable under said insurance in the same manner as losses are payable under this
Lease.
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13.8.2 Nothing herein shall prohibit Tenant from (a) securing
insurance required to be carried hereby with higher limits of liability than
required in this Lease, (b) securing umbrella policies or (c) insuring against
risks not required to be insured pursuant to this Lease, and as to such
insurance, Landlord need not be included therein as an additional insured, nor
must the loss thereunder be payable in the same manner as losses are payable
under this Lease. Tenant shall immediately notify Landlord of the taking out of
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.
ARTICLE 14
CASUALTY LOSS
14.1 INSURANCE PROCEEDS. All Net Proceeds payable under any risk policy of
insurance required by Article 13 of this Lease, whether or not paid directly to
Landlord and/or Tenant, shall promptly be deposited with or paid over to an
insurance company, title insurance company or other financial institution
reasonably selected by Landlord and disbursed as provided in this Lease. If the
Net Proceeds are equal to or less than the Approval Threshold, and if no Event
of Default has occurred and is continuing, the Net Proceeds shall be paid to
Tenant promptly upon Tenant's completion of any restoration or repair, as the
case may be, of any damage to or destruction of the Leased Property or any
portion thereof. If the Net Proceeds exceed the Approval Threshold, and if no
Event of Default has occurred and is continuing, the Net Proceeds shall be made
available for restoration or repair, as the case may be, of any damage to or
destruction of the applicable Leased Property or any portion thereof as provided
in Section 14.10 hereof; provided, however, that, within fifteen (15) days of
the receipt of the Net Proceeds, Landlord and Tenant shall agree as to the
portion thereof attributable to the Personal Property (and failing such shall
submit the matter to arbitration pursuant to the provisions of this Lease) and
those Net Proceeds which the parties agree are payable by reason of any loss or
damage to any of Tenant's Personal Property shall be disbursed to Tenant.
14.2 RESTORATION IN THE EVENT OF DAMAGE OR DESTRUCTION.
14.2.1 If any Leased Improvements are totally or partially damaged or
destroyed and the Facility thereon is thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof. Within
ninety (90) days of such occurrence, Tenant shall commence and thereafter
diligently proceed to complete the restoration of the damaged or destroyed
Leased Improvements to substantially the same (or better) condition as that
which existed immediately prior to such damage or destruction.
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14.2.2 If any Leased Improvements are totally or partially damaged or
destroyed, but the Facility thereon is not thereby rendered Unsuitable for its
Primary Intended Use, Tenant shall give Landlord Notice of such damage or
destruction within fifteen (15) Business Days of the occurrence thereof, and,
within ninety (90) days of the occurrence, Tenant shall commence and thereafter
diligently proceed to restore the Leased Improvements within the Reconstruction
Period to substantially the same (or better) condition as that which existed
immediately prior to such damage or destruction.
14.2.3 No such damage or destruction shall terminate this Lease as to
the affected Facility; provided, however, that if Tenant, after diligent effort,
cannot within a reasonable time obtain all necessary government approvals,
including building permits, licenses, conditional use permits and any
certificates of need, in order to be able to perform all required repair and
restoration work and thereafter to operate the Leased Improvements for the
Primary Intended Use thereof in substantially the same manner as that existing
immediately prior to such damage or destruction, Tenant shall purchase the
Facility or Leased Property on which the damaged or destroyed Leased
Improvements are located for the Facility Purchase Price, which shall be
determined as of the day of the damage or destruction.
14.3 INTENTIONALLY OMITTED.
14.4 TENANT'S PERSONAL PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant.
14.5 RESTORATION OF TENANT'S PROPERTY. If Tenant is required to restore the
Leased Property as provided in Section 14.2 hereof, Tenant shall also restore or
replace all alterations and improvements made by Tenant and all of the Personal
Property, to the extent required to maintain the then current license of the
applicable Leased Property.
14.6 NO ABATEMENT OF RENT. Except as to any Facility or Leased Property
purchased by Tenant pursuant to this Article 14, as to which this Lease shall
terminate upon the closing of such purchase, this Lease shall remain in full
force and effect and Tenant's obligation to pay Rent shall continue without
abatement during any period required for repair and restoration.
14.7 CONSEQUENCES OF PURCHASE OF DAMAGED LEASED PROPERTY. If Tenant
purchases a damaged Facility or Leased Property pursuant to the provisions of
this Article 14, this Lease shall terminate as to such Facility upon payment of
the price set forth herein, Landlord shall remit to Tenant any and all Net
Proceeds pertaining to the purchased Facility or Leased Property being held by
Landlord, and the Base Rent shall be reduced by the Facility Rental Value of the
purchased Facility or Leased Property, determined as of the day prior to the
date of the damage or destruction to such Facility.
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14.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section
14.2 hereof, if damage to or destruction of any Leased Improvements occurs
during the last twelve (12) months of the Term of this Lease, and if, as
reasonably estimated by a qualified construction consultant selected by Tenant
and approved by Landlord (which approval shall not unreasonably be withheld),
such damage or destruction cannot be fully repaired and restored within six (6)
months immediately following the date of loss, then Tenant shall have the
option, which Tenant shall exercise by written notice to Landlord within thirty
(30) days of such damage or destruction, to (a) restore the damaged Facility or
Leased Property within the remaining twelve (12) months of the Term of this
Lease, or (b) to purchase the Facility or Leased Property on which the damaged
or destroyed Leased Improvements are located from Landlord, within sixty (60)
days following the date of the damage or destruction, for the Facility Purchase
Price, which shall be determined as of the day prior to the date of the damage
or destruction.
14.9 WAIVER. Except as specifically provided elsewhere herein, Tenant
hereby waives any statutory or common law rights of termination which may arise
by reason of any damage to or destruction of any Facility.
14.10 PROCEDURE FOR DISBURSEMENT OF INSURANCE PROCEEDS GREATER THAN THE
APPROVAL THRESHOLD. If Tenant restores or repairs the damaged Facility or Leased
Property pursuant to any Subsection of this Article 14 and if the Net Proceeds
exceed the Approval Threshold, the restoration or repair shall be performed in
accordance with the following procedures:
(a) The restoration or repair work shall be done pursuant to plans and
specifications approved by Landlord (not to be unreasonably withheld or
delayed), and Tenant shall cause to be prepared and presented to Landlord a
construction statement, certified by Tenant and reasonably acceptable to
Landlord, showing the total estimated cost of the restoration or repair.
(b) The Construction Funds shall be made available to Tenant as the
restoration and repair work progresses pursuant to certificates of an
architect selected by Tenant that in the reasonable judgment of Landlord is
qualified in the design and construction of health care facilities, or of
the type of property for which the repair work is being done.
(c) There shall be delivered to Landlord, with such certificates,
sworn statements and lien waivers from the general contractor and major
subcontractors (i.e., those having contracts of Two Hundred Thousand
Dollars ($200,000.00) or more), in the form customary for the applicable
State, in an amount at least equal to the amount of Construction Funds to
be paid out to Tenant pursuant to each architect's certificate and dated as
of the date of the disbursement to which they relate.
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(d) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, during the restoration
and repair, as to the progress of the work, compliance with the approved
plans and specifications, the cost of restoration and repair and the total
amount needed to complete the restoration and repair.
(e) There shall be delivered to Landlord such other evidence as
Landlord may reasonably request, from time to time, showing that there are
no liens against the applicable Leased Property arising in connection with
the restoration and repair and that the cost of the restoration and repair
at least equals the total amount of Construction Funds then disbursed to
Tenant hereunder.
(f) If the Construction Funds are at any time determined by Landlord
not to be adequate for completion of the restoration and repair, Tenant
shall demonstrate to Landlord, upon request, that Tenant has sufficient
funds available to cover the difference, and shall disburse such funds pari
passu with the Construction Funds.
(g) The Construction Funds may be disbursed by the depository thereof
to Tenant or, at Tenant's direction, to the persons entitled to receive
payment thereof from Tenant, and such disbursement in either case may, at
Landlord's discretion, reasonably exercised, be made directly or through a
third party escrow agent, such as, but not limited to, a title insurance
company, or its agent. Provided no Event of Default has occurred and is
continuing, any excess Construction Funds shall be paid to Tenant upon
completion of the restoration or repair.
(h) If Tenant at any time fails to promptly and fully perform the
conditions and covenants set out in subparagraphs (a) through (f) hereof,
and the failure is not corrected within thirty (30) days of written Notice
thereof, or if during the restoration or repair an Event of Default occurs
hereunder, Landlord may, at its option, immediately cease making any
further payments to Tenant for the restoration and repair.
(i) Landlord may reimburse itself out of the Construction Fund for its
reasonable and documented expenses of consultants, attorneys and its
employee- inspectors incurred in administering the Construction Funds as
hereinbefore provided.
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ARTICLE 15
TAKINGS
15.1 TOTAL TAKING. If title to the fee of the whole of any Facility or
Leased Property shall be acquired by any Condemnor as the result of a Taking,
this Lease shall cease and terminate as to such Facility or Leased Property as
of the Date of Taking by said Condemnor, and the Base Rent payable by Tenant
hereunder shall be reduced, as of the date the Lease shall have been so
terminated as to such Facility or Leased Property, by the Facility Rental Value
of the Facility taken.
15.2 ALLOCATION OF PORTION OF AWARD. The Award made with respect to the
Taking of all or any portion of any Leased Property or for loss of rent shall be
the property of and payable to Landlord up to the sum of (a) all costs and
expenses reasonably incurred and documented by Landlord in connection with the
Taking, (b) any loss of Rent suffered by Landlord as a result of the Taking
(except for any Rent accruing after the completion of a purchase by Tenant of
the affected Facility upon a Partial Taking as hereinafter provided) and (c) in
the case of a Taking of the entire Facility, the Facility Purchase Price as of
the time possession is delivered to the Condemnor. To the extent that the laws
of the State in which the applicable Facility is located permit Tenant to make a
claim for Tenant's leasehold interest, moving expenses, loss of goodwill or
business, and Tenant's claim does not have the effect, directly or indirectly,
of reducing Landlord's claim, Tenant shall have the right to pursue such claim
in the Taking proceeding and shall be entitled to the Award therefor. In any
Taking proceedings, Landlord and Tenant shall each seek its own Award, at its
own expense.
15.3 PARTIAL TAKING. In the event of a Partial Taking of a Facility, Tenant
shall commence and diligently proceed to restore the untaken portion of the
Leased Improvements on the applicable Leased Property so that such Leased
Improvements shall constitute a complete architectural unit (if applicable) of
the same general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to such
Partial Taking; provided, however, that if a Partial Taking renders a Facility
Unsuitable for Its Primary Intended Use, Tenant shall have the right,
exercisable by written notice to Landlord within thirty (30) days after such
Partial Taking is final without appeal permitted, and before the Condemnor takes
possession, to purchase the affected Facility for the Facility Purchase Price,
which purchase shall be completed within ninety (90) days of such notice.
Landlord shall contribute to the cost of restoration, or if Tenant elects to
purchase the affected Facility, Landlord shall pay over to Tenant, any Award
payable to Landlord for such Partial Taking; provided, however, that the amount
of such contribution shall not exceed the cost of restoration. If (a) Tenant
elects to restore the Facility, (b) no Event of Default is then continuing and
(c) the Award is equal to or less than the Approval Threshold, then Landlord's
contribution shall be made to Tenant prior to the commencement of the
restoration. If (a) Tenant elects to restore the Facility, (b) no Event of
Default is then continuing and (c)
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the Award is more than the Approval Threshold, then Landlord shall make the
Award available to Tenant in the manner provided in Section 14.10 hereof for
insurance proceeds in excess of the Approval Threshold. The Base Rent shall be
reduced by reason of such Partial Taking to an amount agreed upon by Landlord
and Tenant, and if Landlord and Tenant cannot agree upon a new Base Rent, the
new Base Rent amount shall be equal to the Base Rent prior to the Partial
Taking, reduced in proportion to the reduction in the Fair Rental Value of the
affected Facility or Leased Property resulting from the Partial Taking.
15.4 TEMPORARY TAKING. In the event of a temporary Taking of the Leased
Property or any part thereof that is for a period of less than six (6) months,
this Lease shall not terminate with respect to the affected Leased Property, and
the entire amount of any Award therefor shall be paid to Tenant. Upon the
cessation of any such Taking of less than six (6) months, Tenant shall restore
the Leased Property as nearly as may be reasonably possible to the condition
existing immediately prior to such Taking. If any such Taking continues for six
(6) months or more, such Taking shall be considered a Taking governed by Section
15.1 through 15.3 hereof, and the parties shall have the rights provided
thereunder.
ARTICLE 16
CONSEQUENCES OF EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. Upon the occurrence of an Event of Default,
Landlord shall have the rights and remedies hereinafter provided (provided,
however, that if an Event of Default is cured prior to the exercise of any
remedies by Landlord, it shall cease to be such for purposes of this Lease).
16.2 LANDLORD'S RIGHTS UPON TENANT'S DEFAULT. If an Event of Default occurs
with respect to this Lease, Landlord may terminate this Lease by giving Tenant
Notice, whereupon as provided herein, the Term of this Lease shall terminate and
all rights of Tenant hereunder shall cease. The Notice provided for herein shall
be in lieu of, and not in addition to, any notice required by the laws of the
respective States in which the Leased Properties are located as a condition to
bringing an action for possession of any of the Leased Properties or to recover
damages under this Lease. In addition thereto, Landlord shall have all rights at
law and in equity available as a result of Tenant's breach.
16.3 LIABILITY FOR COSTS AND EXPENSES. Tenant will, to the extent permitted
by law, be liable for the payment, as Additional Charges, of reasonable and
documented costs of and expenses incurred by or on behalf of Landlord as a
consequence of an Event of Default, including, without limitation, reasonable
attorneys' fees (whether or not litigation is commenced, and if litigation is
commenced, including fees and expenses incurred in appeals and post-judgment
proceedings).
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16.4 CERTAIN REMEDIES. If an Event of Default has occurred, and whether or
not this Lease has been terminated, Tenant shall, to the extent permitted by
law, if required by Landlord so to do, immediately surrender to Landlord the
Leased Properties and quit the same, and Landlord may enter upon and repossess
the respective Leased Properties by legal process, and may remove Tenant and all
other persons and any and all Personal Property from the respective Leased
Properties, subject to rights of any residents or patients and to any
requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to Section
16.1 hereof, (b) the repossession of any Leased Property, (c) the failure of
Landlord to relet any Leased Property, (d) the reletting of all or any portion
thereof or (e) the failure of Landlord to collect or receive any rentals due
upon any reletting shall relieve Tenant of its liability and obligations
hereunder, all of which shall survive such termination, repossession or
reletting. In the event of any termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the Leased Properties to and
including the date of the termination. At Landlord's option, as and for
liquidated and agreed current damages for Tenant's default, Tenant shall also
forthwith pay to Landlord:
(i) the sum of:
(A) the Worth at the Time of the Award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of the award exceeds the aggregate Rental Value of the Leased Properties
for such period, and
(B) the Worth at the Time of the Award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds
the aggregate Rental Value of the Leased Properties for such period, and
(C) any other amount necessary to compensate Landlord for all the
damage proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom; or
(ii) without termination of Tenant's right to possession of the respective
Leased Properties, each installment of the Rent and other sums payable
by Tenant to Landlord under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
16.6 WAIVER. If this Lease is terminated pursuant to Section 16.2 hereof,
Tenant waives the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
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16.7 APPLICATION OF FUNDS. Any payments received by Landlord during the
existence or continuance of any Event of Default (and any payment made to
Landlord rather than Tenant due to the existence of an Event of Default) shall
be applied to Tenant's obligations in the order which Landlord may determine or
as may be prescribed by the laws of the respective States in which the Leased
Properties are located.
ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant fails to make any payment or to perform any act required to
be made or performed under this Lease, and fails to cure the same within the
relevant time periods provided in the definition of Event of Default in Section
2.1 hereof or elsewhere in this Lease, Landlord may (but shall not be obligated
to), after five (5) days' prior Notice to Tenant (except in an emergency), and
without waiving or releasing any obligation of Tenant or any Event of Default,
at any time thereafter make such payment or perform such act for the account and
at the expense of Tenant, and may, to the extent permitted by law, enter upon
the respective Facilities for such purpose and take all such action thereon as,
in Landlord's sole opinion, may be necessary or appropriate therefor. However,
if Landlord reasonably determines that the giving of such Notice as is provided
for in this Article or elsewhere in this Lease would risk loss to any Leased
Property or cause damage to Landlord, then Landlord will give such Notice as is
practical under the circumstances. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) so
incurred, together with the late charge and interest provided for in Section 3.3
thereon from the date on which such sums or expenses are paid or incurred by
Landlord, shall be paid by Tenant to Landlord on demand and shall constitute
Additional Charges. The obligations of Tenant and rights of Landlord contained
in this Article shall survive the expiration or earlier termination of this
Lease for a period of three (3) years thereafter.
ARTICLE 18
CERTAIN ENVIRONMENTAL MATTERS
18.1 PROHIBITION AGAINST USE OF HAZARDOUS SUBSTANCES. Tenant shall not
permit, conduct or allow on any of the Leased Properties the generation,
introduction, presence, maintenance, use, receipt, acceptance, treatment,
manufacture, production, installation, management, storage, disposal or release
of any Hazardous Substance, except for those types and quantities of Hazardous
Substances ordinarily associated with the operation of the Leased Property as it
is being conducted on the date of this Lease and except in compliance with
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Environmental Laws; provided, however, that the asbestos-containing materials,
the underground storage tanks and the other Hazardous Substances that currently
are located in, on, under or about the respective Leased Properties, in each
case as disclosed in the Environmental Audits delivered by Tenant to Landlord
prior to the date of this Lease, shall be permitted to remain in place, except
as required by the Facilities Purchase Agreement.
18.2 NOTICE OF ENVIRONMENTAL CLAIMS, ACTIONS OR CONTAMINATIONS. Tenant will
notify Landlord, in writing, promptly upon learning of any existing, pending or
threatened: (a) Regulatory Actions, (b) Contamination of any Leased Property,
(c) Third Party Claims or (d) violation of Environmental Law.
18.3 COSTS OF REMEDIAL ACTIONS WITH RESPECT TO ENVIRONMENTAL MATTERS. If
any investigation and/or Clean-Up of any Hazardous Substance or other
environmental condition on, under, about or with respect to any Leased Property
is required by any Environmental Law and by the terms of this Lease is within
the scope of Tenant's responsibility, then Tenant shall complete, at its own
expense, such investigation and/or Clean-Up or cause each person responsible for
any of the foregoing to conduct such investigation and/or Clean-Up.
18.4 DELIVERY OF ENVIRONMENTAL DOCUMENTS. If and to the extent not
delivered to Landlord prior to the date of this Lease, Tenant shall deliver to
Landlord complete copies of any and all Environmental Documents that may now be
in, or at any time hereafter come into, the possession of Tenant.
18.5 ENVIRONMENTAL AUDIT. At Landlord's expense, Tenant shall from time to
time, but in no case more often than annually, after Landlord's request
therefor, provide to Landlord an Environmental Audit with respect to each of the
Leased Properties. All tests and samplings in connection with an Environmental
Audit shall be conducted using generally accepted and scientifically valid
technology and methodologies. Tenant shall give the engineer or environmental
consultant conducting the Environmental Audit reasonable access to the
applicable Leased Property and to all records in the possession of Tenant that
may indicate the presence (whether current or past) or a Release or threatened
Release of any Hazardous Substances on, in, under or about the applicable Leased
Property. Tenant shall also provide the engineer or environmental consultant an
opportunity to interview such persons employed in connection with the applicable
Leased Property as the engineer or consultant deems reasonably appropriate.
However, Landlord shall not be entitled to request such Environmental Audit from
Tenant unless (a) there have been any material changes, modifications or
additions to any Environmental Laws as applied to or affecting the applicable
Leased Property; (b) a significant change in the condition of the applicable
Leased Property has occurred; or (c) Landlord has another reasonable basis for
requesting such certificate or certificates. If an Environmental Audit discloses
the presence of Contamination at, or any noncompliance with Environmental Laws
by, any Leased Property, Tenant shall immediately perform all of Tenant's
obligations hereunder with respect to such Hazardous Substances or
noncompliance.
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18.6 ENTRY ONTO LEASED PROPERTY FOR ENVIRONMENTAL MATTERS. If Tenant fails
to provide to Landlord an Environmental Audit as contemplated by Section 18.5
hereof, Tenant shall permit Landlord from time to time, by its employees,
agents, contractors or representatives, to enter upon the applicable Leased
Property for the purposes of conducting such Investigations as Landlord may
desire. Landlord and its employees, agents, contractors, consultants and/or
representatives shall conduct any such Investigation in a manner which does not
unreasonably interfere with Tenant's use of and operations on the applicable
Leased Property (however, reasonable temporary interference with such use and
operations is permissible if the Investigation cannot otherwise be reasonably
and inexpensively conducted). Other than in an emergency, Landlord shall provide
Tenant with prior notice before entering the applicable Leased Property to
conduct such Investigation, and shall provide copies of any reports or results
to Tenant, and Tenant shall cooperate fully in such Investigation.
18.7 ENVIRONMENTAL MATTERS UPON TERMINATION OR EXPIRATION OF TERM OF THIS
LEASE. Upon the termination or expiration of the Term of this Lease, Tenant
shall cause the Leased Properties to be delivered to Landlord free of all
Contamination the removal of which is recommended by the Phase I Environmental
Survey (or the equivalent at the time) completed by the engineering firm chosen
by the parties or otherwise selected as provided below, and in compliance with
all Environmental Laws with respect thereto. At any time during (a) the one
hundred and eighty (180) days prior to, or the sixty (60) days subsequent to,
the expiration of the original Term hereof, if Tenant has not given the notice
required by Section 18.1 hereof in order to renew the Term or by the terms
hereof is not entitled to renew the Term, or, if the original Term has been
renewed, at any time during (b) the one hundred and eighty (180) days prior to,
or the sixty (60) days subsequent to, the expiration of the First Renewal Term
hereof, if Tenant has not given the notice required by Section 1.5 hereof in
order to renew the Term or by the terms hereof is not entitled to renew the
Term, or, if this Lease is terminated upon the occurrence of an Event of
Default, during (c) the sixty (60) days after the effective date of such
termination, Landlord may by written notice to Tenant specify a Cleanup to be
undertaken by Tenant, and upon receipt of such notice Tenant shall forthwith
begin and with reasonable diligence complete such Cleanup; provided, however,
that if Tenant in good faith disputes the need for such Cleanup on the grounds
that it is not required by any then applicable Environmental Laws, Tenant may by
written notice to Landlord demand an Environmental Audit of the Leased Property.
The Environmental Audit demanded by Tenant shall be performed by one of the
engineering firms listed on Exhibit H hereto or, if no such firms exist at the
time, by an engineering firm succeeding to the practice of one of such firms.
The question of whether or not a Cleanup is required by an applicable
Environmental Law, and, if so, the extent of such required Cleanup, shall be
determined by the conclusions reached in the Environmental Audit conducted by
the engineering firm so selected, and such determination shall be binding upon
the parties. The cost of such Environmental Audit shall be borne by Landlord if
the determination is that no Cleanup is required, or by Tenant if the
determination is that a Cleanup is required. Tenant shall promptly at its
expense complete any Cleanup determined by such process to be necessary.
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18.8 COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall comply with, and
cause its agents, servants and employees to comply with Environmental Laws
applicable to the respective Leased Properties. Specifically, but without
limitation:
(a) Maintenance of Licenses and Permits. Tenant shall obtain and
maintain all permits, certificates, licenses and other consents and
approvals required by any applicable Environmental Law from time to time
with respect to Tenant and the Leased Property leased by it;
(b) Contamination. No Tenant shall cause, suffer or permit any
Contamination in, on, under or about any Leased Property;
(c) Clean-Up. If Contamination occurs in, on, under or about any
Leased Property during the Term, Tenant promptly shall cause the Clean-Up
and the removal of any Hazardous Substance, and in any such case such
Clean-Up and removal of the Hazardous Substance shall be effected in strict
compliance with and in accordance with the provisions of the applicable
Environmental Laws;
(d) Discharge of Lien. Within forty-five (45) days of the date on
which Tenant becomes aware of any lien imposed against any Leased Property
or any part thereof under any Environmental Law (or, in the event that
under the applicable Environmental Law, Tenant is unable, acting
diligently, to do so within forty-five (45) days, then within such period
as is required for Tenant, acting diligently, to do so), Tenant shall cause
such lien to be discharged by payment, bond or otherwise;
(e) Notification of Landlord. Tenant shall notify Landlord in writing
promptly upon receipt by Tenant of notice of any breach or violation of any
environmental covenant or agreement; and
(f) Requests, Orders and Notices. Promptly upon receipt of any written
request, order or other notice relating to any Declaratory Action,
Contamination, Third Party Claims or Leased Property under any
Environmental Law concerning the Leased Property, Tenant shall forward a
copy thereof to Landlord.
18.9 ENVIRONMENTAL RELATED REMEDIES. If, subject to Tenant's right of
contest as set forth in Section 12.1 hereof, Tenant fails to perform any of its
covenants with respect to environmental matters and if such breach is not cured
within any applicable notice and/or grace period or within an additional thirty
(30) days after Landlord gives Notice to Tenant, Landlord may do any one or more
of the following (the exercise of one right or remedy hereunder not precluding
the simultaneous or subsequent taking of any other right hereunder):
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(a) Cause a Clean-Up. Cause the Clean-Up of any Contamination on or
under the applicable Leased Property, or both, at Tenant's cost and
expense; or
(b) Payment of Regulatory Damages. Pay, on behalf of Tenant, any
damages, costs, fines or penalties imposed on Tenant as a result of any
Regulatory Actions; or
(c) Payments to Discharge Liens. Make any payment on behalf of Tenant
or perform any other act or cause any act to be performed which will
prevent a lien in favor of any federal, state or local governmental
authority from attaching to the applicable Leased Property or which will
cause the discharge of any lien then attached to the applicable Leased
Property; or
(d) Payment of Third Party Damages. Pay, on behalf of Tenant, any
damages, cost, fines or penalties imposed on Tenant as a result of any
Third Party Claims, unless such Third Party Claims are being contested in
good faith in accordance with procedures similar to those contained in
Article 12 hereof; or
(e) Demand of Payment. Demand that Tenant make immediate payment of
all of the costs of such Clean-Up and/or exercise of the remedies set forth
in this Section 18.9 incurred by Landlord and not theretofore paid by
Tenant as of the date of such demand, whether or not such costs exceed the
amount of Rent and Additional Charges that are otherwise to be paid
pursuant to this Lease, and whether or not any court has ordered the
Clean-Up, and payment of said costs shall become immediately due, without
notice.
18.10 ENVIRONMENTAL INDEMNIFICATION. Tenant shall and does hereby agree to
indemnify, defend and hold harmless Landlord, its principals, officers,
directors, agents and employees from and against each and every incurred and
potential claim, cause of action, demand or proceeding, obligation, fine,
laboratory fee, liability, loss, penalty, imposition, settlement, levy, lien
removal, litigation, judgment, disbursement, expense and/or cost (including,
without limitation, the cost of each and every Clean-Up and including, but not
limited to, reasonable and documented attorneys' fees, consultants' fees,
experts' fees and related expenses, capital, operating and maintenance costs,
incurred in connection with (a) any investigation or monitoring of site
conditions at any Leased Property, (b) the presence of any asbestos-containing
materials in, on, under or about any Leased Property and (c) any Clean Up
required or performed by any federal, state or local governmental entity or
performed by any other entity or person because of the presence of any Hazardous
Substance, Release, threatened Release or any Contamination on, in, under or
about any Leased Property) which may be asserted against, imposed on, or
suffered or incurred by each and every Indemnitee arising out of or in any way
related to, or allegedly arising out of or due to any environmental matter,
including, but not limited to, any one or more of the following:
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(i) Release Damage or Liability. The presence of Contamination in, on,
at, under or near any Leased Property or migrating to any Leased Property
from another location;
(ii) Injuries. All injuries to health or safety (including wrongful
death), or to the environment, by reason of environmental matters relating
to the condition of or activities past or present on, at, in or under any
Leased Property;
(iii) Violations of Law. All violations, and alleged violations, of
any Environmental Law by Tenant relating to any Leased Property or any
activity on, in, at, under or near any Leased Property;
(iv) Misrepresentation. All material misrepresentations relating to
environmental matters in any documents or materials furnished by Tenant to
Landlord and/or its representatives in connection with this Lease;
(v) Event of Default. Each and every Event of Default hereunder
relating to environmental matters;
(vi) Lawsuits. Any and all lawsuits brought or threatened against any
one or more of the Indemnitees, settlements reached and governmental orders
relating to any Hazardous Substances at, on, in, under or near any Leased
Property, and all demands or requirements of governmental authorities, in
each case based upon or in any way related to any Hazardous Substances at,
on, in or under any Leased Property; and
(vii) Presence of Liens. All liens imposed upon any Leased Property
and charges imposed on any Indemnitee in favor of any governmental entity
or any person as a result of the presence, disposal, release or threat of
release of Hazardous Substances at, on, in, from or under any Leased
Property.
If the matter that is the subject of a claim for indemnification by any
Indemnitee pursuant to this Section 18.10 arises or is in connection with a
claim, suit or demand filed by a third party, Tenant shall be entitled to
defend against such Claim with counsel reasonably satisfactory to the
applicable Indemnitee(s). The Indemnitee(s) may continue to employ counsel
of its own, but such costs shall be borne by the Indemnitee(s) as long as
Tenant continues to so defend. With respect to such Claims arising from
third parties (A) if an Indemnitee declines to accept a bona fide offer of
settlement that is recommended by Tenant, which settlement includes a full
and complete release of such Indemnitee from the subject Claim, the maximum
liability of Tenant arising from such claim shall not exceed that amount
for which it would have been liable had such settlement been accepted, and
(B) if an Indemnitee settles the subject Claim without the consent of
Tenant, the maximum liability of Tenant under
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this Section arising from such Claim shall not exceed the fair and
reasonable settlement value of such Claim, determined by a third-party
expert retained by Tenant and approved by Landlord, which approval shall
not be unreasonably withheld.
18.11 RIGHTS CUMULATIVE AND SURVIVAL. The rights granted Landlord under
this Article are in addition to and not in limitation of any other rights or
remedies available to Landlord hereunder or allowed at law or in equity. The
obligations of Tenant to defend, indemnify and hold the Indemnitees harmless, as
set forth in this Article, arising as a result of an act, omission, condition or
other matter occurring or existing during the Term, whether or not the act,
omission, condition or matter as to which such obligations relate is discovered
during the Term, shall survive the expiration or earlier termination of the Term
of this Lease for a period of three (3) years thereafter.
ARTICLE 19
HOLDOVER MATTERS
19.1 HOLDING OVER. If Tenant remains in possession of a Leased Property
after the expiration of the Term or earlier termination of this Lease, such
possession shall be as a month-to-month tenant during which time Tenant shall
pay as rental each month one and one-half times the aggregate of (a) one-twelfth
of the aggregate Base Rent payable with respect to the applicable Leased
Property during the last Lease Year of the preceding Term, and (b) all
Additional Charges accruing during the month with respect to the applicable
Leased Property. Any interest, however, will be payable only at the rate
provided in this Lease and shall not exceed the maximum rate allowed by law.
During such period of month-to-month tenancy, Tenant shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to month-to-month tenancies, to continue its occupancy and use of the
applicable Leased Property until the month-to-month tenancy is terminated.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over by Tenant after the expiration or earlier
termination of this Lease.
19.2 INDEMNITY. If Tenant fails to surrender a Leased Property in a timely
manner and in accordance with the provisions of Section 9.1.6 hereof upon the
expiration or termination of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall indemnify and hold Landlord, its
principals, officers, directors, agents and employees harmless from loss or
liability resulting from such failure, including, without limiting the
generality of the foregoing, loss of rental with respect to any new lease in
which the rental payable thereunder exceeds any rental paid by Tenant pursuant
to this Lease and any claims by any proposed new tenant founded on such failure.
The provisions of this
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Section 19.2 shall survive the expiration or termination of this Lease for a
period of three (3) years thereafter.
ARTICLE 20
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 SUBORDINATION. Upon written request of Landlord, Tenant will
subordinate its rights pursuant to this Lease in writing (a) to the lien of any
mortgage, deed of trust or the interest of any lease in which Landlord is the
tenant and to all modifications, extensions, substitutions thereof (or, at
Landlord's option, cause the lien of said mortgage, deed of trust or the
interest of any lease in which Landlord is the tenant to be subordinated to this
Lease), and (b) to all advances made or hereafter to be made thereunder. As a
condition to each such subordination, Landlord shall deliver to Tenant a
non-disturbance agreement providing inter alia that, if such mortgagee,
beneficiary or Landlord acquires any of the Leased Properties by way of
foreclosure or deed in lieu, such mortgagee, beneficiary or Landlord will not
disturb Tenant's possession under this Lease and will recognize Tenant's rights
hereunder provided this Lease has not been terminated under Section 16.2 hereof.
20.2 ATTORNMENT. If any proceedings are brought for foreclosure, or if the
power of sale is exercised under any mortgage or deed of trust made by Landlord
encumbering any Leased Property, or if a lease in which Landlord is the tenant
is terminated, Tenant shall attorn to the purchaser or Landlord under such lease
upon any foreclosure or deed in lieu thereof, sale or lease termination and
recognize the purchaser or Landlord as Landlord under this Lease, provided that
the purchaser or Landlord acquires and accepts the applicable Leased Property
subject to, and upon the terms and conditions set forth in, this Lease.
20.3 ESTOPPEL CERTIFICATE. Each of Landlord and Tenant agrees, upon not
less than ten (10) days prior Notice from the other, to execute, acknowledge and
deliver to the other an Estoppel Certificate. It is intended that any Estoppel
Certificate delivered pursuant hereto may be relied upon by Landlord, Tenant,
any prospective tenant, subtenant, assignee or purchaser of the applicable
Leased Property, any mortgagee or prospective mortgagee, or by any other party
who may reasonably rely on such statement.
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ARTICLE 21
RISK OF LOSS
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of any of the Leased Properties in consequence of
the damage or destruction thereof by fire, the elements, casualties, thefts,
riots, wars or otherwise, or in consequence of foreclosures, attachments, levies
or executions (other than those caused by Landlord and those claiming from,
through or under Landlord) is assumed by Tenant, and, in the absence of gross
negligence, willful misconduct or material breach of this Lease by Landlord,
Landlord shall in no event be answerable or accountable therefor nor shall any
of the events mentioned in this Section entitle Tenant to any abatement of Rent
under this Lease.
ARTICLE 22
INDEMNIFICATION
22.1 INDEMNIFICATION. Subject to Section 13.4 hereof, notwithstanding the
existence of any insurance or self-insurance provided for in Article 13 hereof,
and without regard to the policy limits of such insurance or self-insurance,
Tenant will, subject to Section 13.4 hereof, protect, indemnify, save harmless
and defend Landlord, its principals, partners, officers, directors,
shareholders, agents, and employees from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable and documented attorneys' fees and
expenses), to the maximum extent permitted by law, whenever asserted, or
incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of any Leased Property;
(c) the failure to pay Impositions which are the obligations of Tenant
under this Lease;
(d) any failure by Tenant to perform or comply with any of the terms
of this Lease;
(e) the nonperformance of any contractual obligation, express or
implied, assumed or undertaken by Tenant or any party in privity with
Tenant with respect to
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any Leased Property or any business or other activity carried on with
respect to any Leased Property during the Term or thereafter during any
time in which Tenant or any such other party is in possession of any Leased
Property or thereafter to the extent that any conduct by Tenant or any such
person (or failure of such conduct thereby if the same should have been
undertaken during such time of possession and leads to such damage or loss)
causes such loss or claim;
(f) the use, operation, possession, or management of each of the
Facilities by Tenant before or after the Commencement Date and during the
Term of this Lease until the Lease Termination Date;
(g) the breach or by Tenant of any representation, or warranty in this
Lease;
(h) any and all Claims accruing before or after the Commencement Date
relating to any current or former employee, consultant or independent
contractor of Tenant or any of the Facilities, including, but not limited
to, the termination or discharge of any current or former employee,
consultant, or independent contractor of Tenant or any of the Facilities
before or after the Commencement Date, Claims under federal, state, or
local laws, rules or regulations, accruing before or after the Commencement
Date, related to wages, hours, fair employment practices, unfair labor
practices, or other terms and conditions of employment and claims arising
under the Worker Adjustment and Retraining Notification Act or any
analogous state statute, or matters arising from any severance policy,
claim, agreement or contract;
(i) any and all Claims with respect to any qualified or non-qualified
retirement or benefit plans or arrangements established before or after the
Commencement Date involving any employee, consultant or independent
contractor of Tenant or any of the Facilities;
(j) Facilities which were decertified under applicable Medicare or
Medicaid statutes and regulations by Tenant during the Term of this Lease;
and
(k) the removal of Tenant's Personal Property from any of the
Facilities.
Any amounts which become payable by Tenant under this Section shall be paid
within thirty (30) days after liability therefor on the part of Tenant is
finally determined by litigation or otherwise, and if not timely paid, shall
bear interest (to the extent permitted by law) at the Overdue Rate from the date
of such determination to the date of payment. Nothing herein shall be construed
as indemnifying Landlord against its own grossly negligent acts or omissions or
willful misconduct.
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22.2 SURVIVAL OF INDEMNIFICATION; TENANT RIGHT TO DEFEND LANDLORD. Tenant's
liability under this Article shall survive any termination of this Lease for a
period of three (3) years thereafter. Tenant shall have the right (at Tenant's
expense) to defend Landlord against any such claim by counsel reasonably
acceptable to Landlord (who may also act as Tenant's counsel in the particular
matter, provided Landlord's and Tenant's interests are coincident and not
adverse to one another). Tenant shall apprise Landlord regularly as to the
status of the particular matter.
ARTICLE 23
LIMITATIONS ON TRANSFERS
23.1 GENERAL PROHIBITION AGAINST TRANSFER. Tenant shall not Transfer its
interest in this Lease or any Leased Property, except as specifically permitted
by this Lease or consented to in advance by Landlord in writing. Except to the
extent otherwise specified herein, the parties agree that Landlord may
arbitrarily and unreasonably withhold its consent to any such request and no
court shall imply any agreement by Landlord to act in a reasonable fashion. Any
such attempted Transfer not specifically permitted by this Lease or otherwise
approved by Landlord shall be null and void and of no force and effect; but in
the event of any such Transfer, Landlord may collect rent and other charges from
the Transferee and apply the amounts collected to the rent and other charges
herein reserved, but no Transfer or collection of rent and other charges shall
be deemed to be a waiver of Landlord's rights to enforce Tenant's covenants or
the acceptance of the Transferee as Tenant, or a release of Tenant from the
performance of any covenants on the part of Tenant to be performed.
Notwithstanding any Transfer, Tenant and any Guarantor shall remain fully liable
for the performance of all terms, covenants and provisions of this Lease, both
before and after any such Transfer. Any violation of this Lease by any
Transferee shall be deemed to be a violation of this Lease by Tenant.
23.2 CORPORATE OR PARTNERSHIP TRANSACTIONS. If Tenant or Guarantor is a
corporation, then the merger, consolidation or reorganization of such
corporation and/or the sale, issuance or transfer, cumulatively or in one
transaction, of any voting stock by Tenant or Guarantor or the stockholders of
record of any of them as of the date of this Lease which results in a change in
the voting control of Tenant or Guarantor shall constitute a Transfer, unless
there is no change in the senior management personnel of Tenant and Guarantor
listed on Exhibit G hereto. If Tenant or Guarantor is a joint venture,
partnership, limited liability company or other association, then the transfer
of or change in, cumulatively or in one transaction, voting control of or a
twenty percent (20%) or greater interest in such Tenant or Guarantor within any
five-year period, or the termination of such joint venture, partnership, limited
liability company or other association, shall constitute a Transfer, unless
there is no
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change in the senior management personnel of Tenant and Guarantor listed on
Exhibit G hereto.
23.3 PERMITTED SUBLEASES. Subject to Section 23.4 hereof, Tenant shall have
the right to sublease up to ten percent (10%) of the floor area of a Facility in
the ordinary course of the health care business being conducted in such Facility
without Landlord's consent, and subject to Landlord's consent, which shall not
unreasonably be withheld or delayed an additional ten percent (10%) of the floor
area of such Facility.
23.4 TRANSFERS TO A CONTROLLED ENTITY. Notwithstanding anything to the
contrary herein contained, Tenant may without the prior consent of Landlord
Transfer its interest herein to an entity Controlled by THI on the condition
that (a) such entity expressly and in writing assumes all of the obligations and
liability of the Tenant hereunder, (b) such Transfer has no effect on the THI
Guaranty and THI confirms in writing that the THI Guaranty remains unchanged and
in full force and effect, (c) the stock of such entity (if a corporation) is at
the time of the Transfer pledged to Landlord to secure performance of its
obligations under this Lease, (d) all obligations of such entity to THI or any
Affiliate of THI, and all Debt of such entity to any third party, are
subordinated to its liability and obligations as Tenant hereunder and (e)
without the consent of Landlord, no such Transfer shall release the Tenant named
herein from liability hereunder.
23.5 SUBORDINATION AND ATTORNMENT. Tenant shall insert in any sublease
permitted by Landlord provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Landlord hereunder, (b) if this Lease terminates before the expiration
of such sublease, the subtenant thereunder will, at Landlord's option, attorn to
Landlord and waive any right the subtenant may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the subtenant receives a written Notice from Landlord or Landlord's
assignee, if any, stating that an Event of Default has occurred under this
Lease, the subtenant shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice or as such party
may direct. All rentals received from the subtenant by Landlord or Landlord's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Tenant under this Lease.
23.6 SUBLEASE LIMITATION. Anything contained in this Lease to the contrary
notwithstanding, even if a sublease of a Leased Property is permitted, Tenant
shall not sublet the applicable Leased Property on any basis such that the
rental to be paid by the subtenant thereunder would be based, in whole or in
part, on either (a) the income or profits derived by the business activities of
the subtenant, or (b) any other formula such that any portion of the sublease
rental received by Landlord would fail to qualify as "rents from real property"
within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto. The parties agree that this Section shall not be deemed
waived or modified by implication, but may
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be waived or modified only by an instrument in writing explicitly referring to
this Section by number.
ARTICLE 24
CERTAIN FINANCIAL MATTERS
24.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS. Tenant shall furnish
to Landlord:
(a) Quarterly Financials. As soon as available and in any event within
fifty-five (55) days after the end of each calendar quarter, an unaudited
operating statement for each of the Facilities for the period commencing at
the end of the previous quarter and ending with the end of such quarter,
together with an Officer's Certificate of Tenant stating that Tenant is not
in default of any covenant set forth in Article 8 hereof, or if Tenant is
in default, specifying all such defaults, the nature thereof and the steps
being taken to remedy the same.
(b) Annual Financials. As soon as available and in any event within
one hundred twenty (120) days after the end of each Fiscal Year, a
consolidated balance sheet of the Tenant as at the end of such Fiscal Year
and a consolidated operating statement for the Facilities for such Fiscal
Year, in each case accompanied by (i) an opinion acceptable to Landlord of
KPMG Peat Marwick or other independent public accountants of recognized
standing reasonably acceptable to Landlord and (ii) an Officer's
Certificate of Tenant stating that Tenant is not in default in the
performance or observance of any of the terms of this Lease, or if Tenant
is in default, specifying all such defaults, the nature thereof and the
steps being taken to remedy the same.
(c) Cost Reports. Upon the request of Landlord and no more than once
in each calendar year, Tenant shall furnish to Landlord complete and
accurate copies of the most recent annual Medicaid and Medicare cost
reports for the Facilities and any and all amendments filed with respect to
such reports and all responses, audit reports or inquiries with respect to
each such report.
(d) Licensing Agency Reports. Upon the reasonable request of Landlord
and no more than once during any calendar year, Tenant shall furnish to
Landlord a copy of the most recent federal and state agency surveys or
report and any statement of deficiencies with respect to the Facilities,
and within the time period required by the particular agency for furnishing
a plan of correction, and without the need of any request from Landlord,
Tenant shall also furnish to Landlord a copy of the plan of
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correction generated from such survey or report for the Facilities, and
correct or cause to be corrected a deficiency, the curing of which is a
condition of continued licensure or for full participation in Medicare and
Medicaid for existing patients or for new patients to be admitted with
Medicare or Medicaid coverage, by the date required for cure by such agency
(plus extensions granted by such agency.)
(e) Notices. Tenant shall furnish to Landlord within ten (10) days
from its receipt, any and all notices (regardless of form) from any
licensing and/or certifying agency that a Facility's license or Medicare or
Medicaid certification of a Facility is being revoked or suspended.
(f) Patient Data. Within fifty-five (55) days of the end of each
fiscal quarter and to the extent not included in the operating statements
delivered pursuant to subsection (i), above, a statement of the actual
patient days incurred for the quarter, together with quarterly census
information for the Facilities as of the end of such quarter by patient-
mix (i.e., private, Medicare, Medicaid and V.A.) of the Facilities.
(g) Capital Budget. As soon as it is prepared in each Lease Year, a
capital budget for the Facilities for that and the following Lease Year,
for Landlord's information and not for approval;
(h) Other Information. With reasonable promptness, such other
information respecting the financial condition and affairs of Tenant, and
the Facilities as Landlord may reasonably request from time to time,
including, without limitation, any such other information as may be
available to the administration of the Facilities; and
(i) At times reasonably required by Landlord, and upon request as
appropriate, audited year-end information and unaudited quarterly financial
information concerning the Leased Properties and Tenant as Landlord may
require for its on-going filings with the SEC, under both the Securities
Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended, including, but not limited to, 10-Q Quarterly Reports, 10-K Annual
Reports, and registration statements to be filed by Landlord during the
Term of this Lease.
24.2 PUBLIC OFFERING INFORMATION. Tenant specifically agrees that Landlord
may include financial information and such other information concerning the
operation of the Facilities which does not violate the confidentiality of the
facility-patient relationship and the physician-patient privilege under
applicable laws, in offering memoranda or prospectuses, or similar publications
in connection with syndications or public offerings of Landlord's securities or
interests, and any other reporting requirements under applicable federal and
State laws, including those of any successor to Landlord. Tenant agrees to
provide such other reasonable information necessary with respect to Tenant and
the applicable Leased Property to facilitate a
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public offering or to satisfy SEC or regulatory disclosure requirements.
Landlord shall provide to Tenant a copy of any information prepared by Landlord
to be so published, and Tenant shall have a reasonable period of time (not to
exceed three (3) days) after receipt of such information to notify Landlord of
any corrections. Landlord shall protect, indemnify, save harmless and defend
Tenant, its principals, officers, directors and agents and employees from and
against all liabilities, claims, damages, penalties, causes of action, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against them by a third party or parties as a result of the publication
of any such audited financial statements by or at the direction of Landlord, but
not against any such liabilities, claims, damages, penalties, causes of action,
costs or expenses as may be suffered by Tenant, its principals, officers,
directors and agents and employees in or as a result of any action or proceeding
with respect to any such audited financial statement (a) in which a judgment is
entered against THI, Tenant, any Seller (as defined in the Facilities Purchase
Agreement) or any principal, officer, director, agent or employee thereof, or
(b) is settled in whole or in part on the basis of a payment of Ten Thousand
Dollars ($10,000.00) or more to the claimant or moving party in such proceeding
by THI, Tenant, any Seller or any principal, officer, director, agent or
employee thereof alone or in combination with any payment made by THI, Tenant,
any Seller or any principal, officer, director, agent or employee thereof (and
as to expenses previously paid by Landlord pursuant to the foregoing indemnity
prior to an event described in (a) or (b), hereof, Tenant shall repay such
expenses promptly after the event specified).
ARTICLE 25
LANDLORD INSPECTION
Tenant shall permit Landlord and its authorized representatives to
inspect, during normal business hours, at least once per Lease Year (a) the
respective Leased Properties and, (b) upon one Business Day's prior Notice,
which Notice shall set forth a reasonable cause for such inspection, Tenant's
books and records pertaining thereto (provided, however, that upon any Event of
Default, such Notice need not set forth any cause for such inspection). Tenant
shall remit to Landlord the sum of Two Thousand Dollars ($2,000.00) per Leased
Property per year as and for an inspection fee for each of the Leased
Properties, such amounts to be treated as an Additional Charge under this Lease.
ARTICLE 26
[INTENTIONALLY OMITTED]
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ARTICLE 27
[INTENTIONALLY OMITTED]
ARTICLE 28
ACCEPTANCE OF SURRENDER
No surrender to Landlord of this Lease or of the Leased Property or
any part thereof, or of any interest therein, shall be valid or effective unless
accepted in writing by Landlord, and no act by Landlord or any representative or
agent of Landlord, other than such a specific written acceptance by Landlord,
shall constitute an acceptance of any such surrender.
ARTICLE 29
MERGER OF TITLE; PARTNERSHIP
29.1 NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created thereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) the Lease or the leasehold estate created hereby or any interest
in the Lease or such leasehold estate, and (b) the fee estate in any Leased
Property.
29.2 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture between Landlord and Tenant
or to cause either party to be responsible in any way for the debts or
obligations of the other or any other party, it being the intention of the
parties that the only relationship hereunder is that of Landlord and Tenant.
ARTICLE 30
CONVEYANCE BY LANDLORD
If Landlord or any successor owner of any Leased Property conveys any
Leased Property in accordance with the terms hereof other than as security for a
debt, Landlord or such successor owner, as the case may be, 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, and all
such future liabilities and obligations shall thereupon be binding upon the new
owner, provided that the transferee gives Notice to Tenant that such transferee
(a) has
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received (i) the Security Deposit and (ii) any funds in the hands of Landlord or
the then grantor at the time of the transfer in which Tenant has an interest and
(b) specifically agrees in writing to be bound by all of the terms and
conditions under this Lease, as amended from time to time.
ARTICLE 31
QUIET ENJOYMENT
So long as Tenant pays all Rent as it becomes due and complies with
all of the terms of the Lease and performs its obligations thereunder, Tenant
shall peaceably and quietly have, hold and enjoy the respective Leased
Properties hereby leased for the Term.
ARTICLE 32
[INTENTIONALLY OMITTED]
ARTICLE 33
APPRAISERS
If it becomes necessary to determine the Fair Rental Value of any of
the Leased Properties for any purpose of this Lease, Landlord and Tenant shall
attempt to agree upon a single appraiser to make such determination. If Landlord
and Tenant are unable to agree upon a single appraiser within thirty (30) days
thereafter, then the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten (10) days after such Notice, Landlord (or
Tenant, as the case may be) shall by Notice to Tenant (or Landlord, as the case
may be) appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto) and experienced in
appraising nursing home properties, shall, within forty-five (45) days after the
date of the Notice appointing the first appraiser, proceed to appraise the
applicable Leased Property to determine the Fair Rental Value of it as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date); provided, however, that if only one
appraiser has been so appointed, then the determination of such appraiser shall
be final and binding upon the parties. If two appraisers have been appointed and
have made their determinations within the respective requisite periods set forth
above and if the difference between the amounts so determined does not exceed
ten percent (10%) of the lesser of such amounts, then the Fair Rental Value
shall be
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an amount equal to fifty percent (50%) of the sum of the amounts so determined.
If the difference between the amounts so determined exceeds ten percent (10%) of
the lesser of such amounts, then such two appraisers shall have twenty (20) days
to appoint a third appraiser. If no such appraiser has been appointed within
such twenty (20) day period or within ninety (90) days of the original request
for a determination of Fair Rental Value, whichever is earlier, either Landlord
or Tenant may apply to any court having jurisdiction to have such appointment
made by such court. Any appraiser appointed by the original appraisers or by
such court shall be instructed to determine the Fair Rental Value within
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and the average of
the sum of the remaining two determinations shall be final and binding upon
Landlord and Tenant as the Fair Rental Value of the applicable Leased Property.
Any such appraisal shall conform to FDIC or equivalent requirements and format.
This provision for determining the Fair Rental Value by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
and judgment may be entered upon such determination in any court having
jurisdiction of the matter. Landlord and Tenant shall each pay the fees and
expenses of the appraiser appointed by it, and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE 34
BREACH OF LEASE BY LANDLORD
Landlord shall not be in breach of this Lease unless Landlord fails to
observe or perform any term, covenant or condition of this Lease on its part to
be performed and such failure continues for a period of thirty (30) days after
written Notice specifying such failure and the necessary curative action is
received by Landlord from Tenant. If the failure cannot with due diligence be
cured within a period of thirty (30) days, the failure shall not be deemed to
continue if Landlord, within said thirty (30) day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
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ARTICLE 35
PERSONAL PROPERTY OPTION; TRANSFER OF FACILITY CONTROL
35.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY. Landlord may
purchase Tenant's Personal Property at the expiration or termination of this
Lease for an amount equal to the then book value thereof (acquisition cost less
accumulated depreciation on the books of Tenant pertaining thereto), subject to,
and with appropriate credits for any obligations owing from Tenant to Landlord
and for all equipment leases, conditional sale contracts and any other
encumbrances to which Tenant's Personal Property is subject. Landlord's option
shall be exercised by Notice to Tenant no more than one hundred eighty (180)
days, nor less than ninety (90) days, before the expiration of the Initial Term
(or, before the expiration of the First Renewal Term or the Second Renewal Term,
as the case may be), unless this Lease is terminated prior to its expiration
date (a) by reason of an Event of Default, in which event Landlord's option
shall be exercised within ninety (90) days following the date of termination, or
(b) by reason of the exercise by a Tenant of a right to terminate provided for
herein in the event of a Taking, in which event Landlord's option shall be
exercised within forty-five (45) days following Tenant's exercise of such right.
Landlord's option shall terminate upon Tenant's purchase of the applicable
Leased Property. If Landlord exercises its option, Tenant shall, in exchange for
Landlord's payment of the purchase price, deliver Tenant's Personal Property to
Landlord, together with a bill of sale and such other documents as Landlord may
reasonably request in order to carry out the purchase of Tenant's Personal
Property, and such purchase shall be closed by such delivery and such payment on
the date set by Landlord in its Notice of exercise.
35.2 FACILITY TRADE NAMES. If this Lease is terminated by reason of an
Event of Default, or if Landlord purchases the Tenant's Personal Property with
respect to any Leased Property pursuant to Section 35.1 hereof, Landlord shall
be permitted to use the Facility Trade Names under which the applicable Leased
Property conducts business in the market in which the applicable Facility is
located, and Tenant shall not after any such termination use the Facility Trade
Names under which the applicable Leased Property conducts business in any
business that competes with the applicable Leased Property.
35.3 TRANSFER OF OPERATIONAL CONTROL OF THE FACILITIES. Tenant shall
cooperate in transferring operational control of the Facilities to Landlord or
Landlord's nominee if the Term expires without extension or renewal by Tenant,
or if this Lease is terminated upon the occurrence of an Event of Default or for
any other reason, and shall use its best efforts, (without incurring material
cost or liability except after an Event of Default), to accomplish such transfer
with minimal disruption of the business conducted at each Facility. To that end,
pending completion of the transfer of operational control of the Facilities to
Landlord or its nominee, Tenant agrees that:
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(a) Tenant will not terminate the employment of any employees without
just cause, or change any salaries (other than normal merit raises and the
pre-announced wage increases of which Landlord has knowledge) or employment
agreements without Landlord's consent other than customary raises to
non-officers at regular review dates, and will not hire additional
employees except in good faith in the ordinary course of business.
(b) Tenant will provide all necessary information requested by
Landlord or its nominee for the preparation and filing of any and all
necessary applications or notifications of any federal or state
governmental authority having jurisdiction over a change in the operational
control of the applicable Facility, and Tenant will use its best efforts,
(without incurring material cost or liability except after an Event of
Default), to cause the operating health care license to be transferred to
Landlord or Landlord's nominee.
(c) Tenant shall continue to operate the business in accordance with
reasonable and standard industry practices to keep the business and
organization of the applicable Facility intact and to preserve for Landlord
or its nominee the goodwill of the suppliers, distributors, residents and
others having business relations with Tenant with respect to the applicable
Facility.
(d) Tenant shall engage only in transactions or other activities with
respect to the applicable Facility which are in the ordinary course of its
business and shall perform all maintenance and repairs reasonably necessary
to keep the applicable Facility in satisfactory operating condition and
repair, and shall maintain the supplies and foodstuffs at levels which are
consistent and in compliance with all health care regulations, and shall
not sell or remove any personal property except in the ordinary course of
business.
(e) Tenant shall cooperate fully with Landlord or its nominee in
supplying any information that may be reasonably required to effect an
orderly transfer of the applicable Facility.
(f) Tenant shall provide Landlord or its nominee with full and
complete information regarding the employees of the applicable Facility and
shall reimburse Landlord or its nominee for all outstanding accrued
employee benefits, including accrued vacation, sick and holiday pay
calculated on a true accrual basis, including all earned and a prorated
portion of all unearned benefits.
(g) Tenant shall use its best efforts, (without incurring material
cost or liability except after Event of Default), to obtain the
acknowledgment and the consent of any creditor, Landlord or sublandlord,
mortgagee, beneficiary of a deed of trust or security
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agreement affecting the real and personal properties of Tenant or any other
party whose acknowledgment and/or consent would be required because of a
change in the operational control of the applicable Facility and transfer
of personal property.
35.4 INTANGIBLES AND PERSONAL PROPERTY. Notwithstanding any other provision
of this Lease, but subject to Section 6.4 hereof (relating to Landlord's
security interest), Landlord's Personal Property shall not include goodwill, or
other intangible personal property severable from Landlord's "interests in real
property" within the meaning of Section 856(d) of the Code. All of Landlord's
Personal Property is leased to Tenant pursuant to the terms hereof.
ARTICLE 36
[INTENTIONALLY OMITTED]
ARTICLE 37
MISCELLANEOUS
37.1 NOTICES. All notices, consents or other communications under this
Lease must be in writing and addressed to each party at its respective Notice
Addresses (or at any other address which the respective parties may designate by
notice given to the other party from time to time). Any notice required by this
Lease to be given or made within a specified period of time, on or before a date
certain, shall be deemed given or made if sent by hand or by registered or
certified mail (return receipt requested and postage and registry fees prepaid).
Delivery "by hand" shall include delivery by commercial express or courier
service. A notice sent by registered or certified mail shall be deemed given on
the date of receipt (or attempted delivery if refused) indicated on the return
receipt. All other notices shall be deemed given when actually received. A
notice may be given by a party or by its legal counsel. The Notice Addresses of
the parties are as follows:
If to Landlord: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attn: John B. Poole
Telephone No.: (941) 598-5605
Fax No.: (941) 566-6082
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With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: John R. Fallon, Jr., Esq.
Telephone No.: (212) 424-8279
Fax No.: (212) 424-8500
If to Tenant: [INSERT THI LESSEE SUBSIDIARY]
4076 Carlisle Pike
Camp Hill, Pennsylvania 17011
Attn: Anthony F. Misitano
Telephone No.: (717) 730-8710
Fax No.: (717) 730-8722
With a copy to: Kirkpatrick & Lockhart LLP
240 North Third Street
Harrisburg, Pennsylvania 17101
Attn: Dan A. Schulder, Esq.
Telephone No.: (717) 231-2892
Fax No.: (717) 231-4501
37.2 Survival, Choice of law. TENANT'S OBLIGATIONS UNDER THIS LEASE SHALL
SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THE TERM FOR A PERIOD OF THREE
(3) YEARS THEREAFTER. AT LANDLORD'S OPTION, THIS LEASE SHALL BE CONSTRUED AND
ENFORCED EITHER (A) UNDER THE LAW OF THE STATE OF NEW YORK OR, (B) IN ANY
PARTICULAR CASE, THE LAW OF THE STATE IN WHICH ANY OF THE FACILITIES IS LOCATED,
IN ANY SUCH CASE WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
TENANT IRREVOCABLY SUBMITS TO JURISDICTION IN ANY STATE IN WHICH ANY FACILITY IS
LOCATED (AND AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON TENANT UNDER
ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE RESPECTIVE STATE IN WHICH LANDLORD
COMMENCES A PROCEEDING AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE
STATE AND FEDERAL COURTS OF ANY SUCH STATE).
37.3 LIMITATION ON RECOVERY. Tenant specifically agrees to look solely to
Landlord's interest in the Leased Property leased by it, the net proceeds
received by Landlord from the sale or any financing or refinancing of the Leased
Property leased by it, the Security Deposit, any funds deposited by Tenant
pursuant to Section 12.2 hereof and any Net Proceeds for recovery of any
judgment against Landlord, it being specifically agreed that no partner,
manager, shareholder, officer, director, or employee of Landlord shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Tenant.
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Furthermore, Landlord (original or successor) shall not ever be liable to Tenant
for any indirect or consequential damages suffered by Tenant from whatever
cause.
37.4 WAIVERS. Tenant waives any defense by reason of any disability of
Tenant and waives any other defense based on the termination of Tenant's
(including Tenant's successor's) liability from any cause. Tenant waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance, and waives
all notices of the existence, creation, or incurring of new or additional
obligations.
37.5 CONSENTS. Whenever the consent or approval of Landlord is required
hereunder, Landlord may in its sole discretion and without reason withhold that
consent or approval unless a provision of this Lease expressly requires that
Landlord be reasonable in not withholding or delaying consent or otherwise
provides to the contrary.
37.6 COUNTERPARTS. This Lease may be executed (a) in counterparts, a
complete set of which together shall constitute an original and (b) in
duplicates, each of which shall constitute an original. Copies of this Lease
showing the signatures of the respective parties, whether produced by
photographic, digital, computer, or other reproduction, may be used for all
purposes as originals.
37.7 OPTIONS FOLLOW LEASE. The renewal options and any other options
granted to Tenant in this Lease are not assignable or transferrable except in
connection with a permitted transfer or assignment of this Lease. Any attempt to
assign or transfer such options otherwise shall be void and of no force and
effect.
37.8 RIGHTS CUMULATIVE. Except as provided herein to the contrary, the
respective rights and remedies of the parties specified in this Lease shall be
cumulative and in addition to any rights and remedies not specified in this
Lease.
37.9 ENTIRE AGREEMENT. There are no oral or written agreements or
representations between the parties hereto affecting this Lease. This Lease
supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Landlord and Tenant.
37.10 AMENDMENTS IN WRITING. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Landlord and Tenant
37.11 SEVERABILITY. If any provision of this Lease or the application of
such provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such determination shall not
affect the other provisions of this Lease and all other provisions of this Lease
shall be deemed valid and enforceable.
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37.12 SUCCESSORS. The term "Landlord" shall mean only the owner or owners
at the time in question of fee title in the respective Leased Properties. All
rights and obligations of Landlord and Tenant under this Lease shall extend to
and bind the respective heirs, executors, administrators and the permitted
concessionaires, successors, subtenants and assignees of the parties.
37.13 TIME OF THE ESSENCE. Except for the delivery of possession of the
Facilities to Tenant, time is of the essence of all provisions of this Lease of
which time is an element.
37.14 LATE CHARGES. If any late charges provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
37.15 BINDING EFFECT. This Lease (and all terms thereof, whether so
expressed or not), shall be binding upon the respective permitted successors,
assigns and legal representatives of the parties and shall inure to the benefit
of and be enforceable by the parties and their respective permitted successors,
assigns and legal representatives.
37.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto
are (and shall be deemed) parts of this Lease.
37.17 WAIVER OF JURY TRIAL. In any action or proceeding in connection with
this Lease, each of Landlord and Tenant hereby waives the right to trial by
jury.
37.18 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form Memorandum of Lease, in form suitable
for recording under the laws of the applicable state in which reference to this
Lease, and all options contained therein, shall be made. Tenant shall pay all
costs and expenses of recording such Memorandum of Lease.
ARTICLE 38
SECURITY DEPOSIT
38.1 SECURITY DEPOSIT. Concurrent with Tenant's execution of this Lease,
Tenant shall deliver the Security Deposit to Landlord, to be held by Landlord as
security for the full and faithful performance by Tenant of each and every term,
provision, covenant and condition of this Lease. The Security Deposit shall be
deposited by Landlord in an interest-bearing account in Landlord's name,
separate and apart from Landlord's general and/or other funds, which cash and
interest shall remain on deposit as security hereunder and be available to
Landlord as provided in this Article. The Security Deposit shall not be
considered an advance
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payment of Rent (or of any other sum payable to Tenant under this Lease) or a
measure of Landlord's damages in case of a default by Tenant. The Security
Deposit shall not be considered as a trust fund, and Tenant agrees that Landlord
is not acting as a trustee or in any fiduciary capacity in controlling or using
the Security Deposit.
38.2 APPLICATION OF SECURITY DEPOSIT. Upon the occurrence and continuation
of an Event of Default, Landlord may, but shall not be required to, in addition
to any other rights and remedies available to Landlord, use, apply or retain the
whole or any part of the Security Deposit to the payment of any sum in default,
or any other sum, including, but not limited to, any damages or deficiency in
reletting the applicable Leased Property, which Landlord may expend or be
required to expend by reason of Tenant's default. Whenever, and as often as,
Landlord has used the Security Deposit to cure Tenant's default hereunder,
Tenant shall, within twenty (20) days after Notice from Landlord, deposit
additional funds with Landlord sufficient to restore the Security Deposit to the
full amount originally provided or paid. Upon expiration of this Lease for
reasons other than an Event of Default, Landlord shall promptly return the
Security Deposit to Tenant, including any accrued and unpaid interest thereon,
unless otherwise applied by Landlord.
38.3 TRANSFER OF SECURITY DEPOSIT. If Landlord transfers its interest under
this Lease, Landlord shall assign the Security Deposit to the new Landlord, and,
provided that the transferee gives Notice to Tenant that such transferee has
received the Security Deposit, thereafter Landlord shall have no further
liability for the return of the Security Deposit, and Tenant agrees to look
solely to the new Landlord for the return of the Security Deposit. The
provisions of the preceding sentence shall apply to every transfer or assignment
of Landlord's interest under this Lease. Tenant agrees that it will not assign
or encumber or attempt to assign or encumber the monies deposited as security
and that Landlord, its successors and assigns may return the Security Deposit to
the last Tenant in possession at the last address for Notice given by Tenant and
that Landlord shall thereafter be relieved of any liability therefor, regardless
of one or more assignments of this Lease or any such actual or attempted
assignment or encumbrances of the monies held as the Security Deposit.
38.4 REDUCTION OF SECURITY DEPOSIT. If Tenant purchases a Facility, the
required Security Deposit shall be reduced by an amount equal to thirty-three
percent (33%) of the annual Base Rent allocated to such Facility at the
Commencement Date, as set forth on Exhibit B hereto.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed this Master Lease by their
duly authorized officers as of the date first above written.
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
[INSERT THI LESSEE SUBSIDIARY]
By:
-----------------------------------------
Name: Anthony F. Misitano
---------------------------------------
Title: President
--------------------------------------
67
SECURITY AGREEMENT
BETWEEN
[INSERT THI LESSEE SUBSIDIARY]
AND
MONARCH PROPERTIES, INC.
DATED AS OF __________, 1998
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of __________, 1998, by and between [INSERT THI LESSEE SUBSIDIARY], a
[Insert State] corporation ("Debtor") and MONARCH PROPERTIES, LP, a Delaware
limited partnership ("Secured Party").
RECITALS:
A. Capitalized terms used and not otherwise defined herein shall have the
meanings given them in the Master Lease between Secured Party and Debtor, dated
as of the date hereof ("Lease").
B. Pursuant to the Master Lease, Secured Party has leased to Debtor, for a
Term commencing on the Commencement Date, as defined in the Lease, all of the
Leased Properties.
C. As a condition to Secured Party's agreement to enter into the Lease,
Secured Party has required Debtor to enter into this Security Agreement and to
grant security interests to Secured Party as herein provided.
NOW, THEREFORE, in order to induce Secured Party to enter into the Lease,
and for other good and valuable consideration the receipt and sufficiency of
which hereby are acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
This Security Agreement is executed and delivered in connection with the
Lease. Terms defined in the Commercial Code (as hereinafter defined) and not
otherwise defined in this Security Agreement or in the Lease shall have the
meanings ascribed to those terms in the Commercial Code. In addition to the
other definitions contained herein, when used in this Agreement the following
terms shall have the following meanings:
"Collateral" means the collateral described in Article II, Section 2 below.
"Commercial Code" means the Uniform Commercial Code, as enacted and in
force from time to time in the state in which the Facility is located.
"Debtor's Personal Property" means any tangible personal property owned by
a Debtor and not used in connection with the operation of any Facility.
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ARTICLE II - AGREEMENT
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Secured Party a
continuing security interest in the Collateral to secure the payment of all
amounts now or hereafter due and owing to Secured Party from Debtor under the
Lease, or any extension or renewal thereof, and any and all other obligations
incurred in connection therewith, together with all other obligations or
indebtedness of Debtor to Secured Party however created, evidenced or arising,
whether direct or indirect, absolute or contingent, now or hereafter existing,
due or to become due, plus all interest, costs, out-of-pocket expenses and
reasonable attorneys' fees which may be made or incurred by Secured Party in the
administration, and collection thereof (the "Liabilities"), and in the
protection, maintenance, and liquidation of the Collateral. This Security
Agreement shall be and become effective when, and continue in effect as long as,
any Liabilities of Debtor to Secured Party are outstanding and unpaid, and
except as otherwise permitted pursuant to the terms of this Agreement or the
Lease, Debtor will not sell, assign, transfer, pledge or otherwise dispose of or
encumber any Collateral to any third party while this Security Agreement is in
effect without the prior and express written consent of Secured Party.
2. COLLATERAL. The "Collateral" covered by this Agreement is all of the
personal property described below that Debtor now owns or shall hereafter
acquire or create, immediately upon the acquisition or creation thereof, and
that is located at or used exclusively in connection with the Facility,
consisting of the following:
(a) Inventory. All inventory and goods, now owned or hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the ordinary course of business at the Facility (the
"Inventory"); and
(b) Equipment. All equipment, furniture, fixtures and other personal
property used in connection with the operation of the Facility, whether now
owned or hereafter acquired by Debtor, together with all accessions, additions,
parts, attachments, accessories, or appurtenances thereto including but not
limited to linens, motor vehicles, furniture, fixtures and movable equipment,
leasehold improvements, and all books and records now owned or hereafter
acquired pertaining to any of the above described property, including but not
limited to any computer readable memory and any computer hardware or software
necessary to process such memory, wherever located, other than Debtor's Personal
Property (the "Equipment"); and
(c) Licenses and Permits. To the extent permitted by law, all licenses
and permits now owned or hereafter acquired by Debtor and necessary or desirable
for the contemplated use and operation of a Facility as a health care facility
(the "Licenses"); and
(d) Certificates of Need. To the extent permitted by law, all
Certificates of Need now or hereafter issued in connection with a Facility (the
"Certificates"); and
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<PAGE>
(e) Proceeds. Proceeds arising out of the operation of Facility,
including, without limitation, proceeds of hazard or other insurance policies
and eminent domain or condemnation awards, of all of the foregoing described
Inventory or Equipment, together with any and all deposits or other sums at any
time credited by or due from Secured Party to Debtor and any and all
instruments, documents, policies and certificates of insurance, securities,
goods and the proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by Debtor or in which Debtor has an interest,
which are now or at any time hereafter in possession or under the control of
Secured Party or in transit by mail or carrier to or from Secured Party or in
the possession of any third party acting on behalf of Secured Party, without
regard to whether Secured Party received the same in pledge, for safekeeping, as
agent for collection or transmission or otherwise, or whether Secured Party has
conditionally released the same (the "Proceeds"); and
(f) Insurance Rights. All rights under contracts of insurance now
owned or hereafter acquired covering any of the Collateral ("Insurance Rights");
and
(g) Accounts Receivable. All accounts, accounts receivable and rights
to receive payment of Debtor, whether now existing or hereafter arising or
acquired, arising in connection with goods sold or leased or for services
rendered, including, without limitation, all of the third party reimbursable
portion of accounts receivable owing to Debtor arising out of the delivery by
Debtor of care or services at a Facility, including all rights to reimbursement
under any agreements with a third party payor and all accounts, general
intangibles, rights, remedies, guarantees, and security interests in respect of
the foregoing ("Accounts Receivable"); and
(h) Other Property. All other tangible and intangible property of
Debtor now or hereinafter acquired by Debtor and located at the Facility or used
exclusively in connection with the operation of the Facility; and
(i) Rights. All rights, remedies, powers and/or privileges of Debtor
with respect to any of the foregoing. The form of a description of the
Collateral to be attached to financing statements to be executed by each Debtor
is attached hereto as EXHIBIT A. Except to the extent set forth above, the term
"Collateral" does not include Debtor's Personal Property.
3. PERFECTION OF SECURITY INTEREST. Debtor shall execute and deliver to
Secured Party, concurrently with Debtor's execution of this Security Agreement
and at any time or times hereafter at the request of Secured Party, all
financing statements, continuation financing statements, assignments,
affidavits, reports, notices, letters of authority, vehicle title notations and
all other documents that Secured Party may reasonably request, in a form
reasonably satisfactory to Secured Party, to perfect and maintain perfected
Secured Party's security interests in the Collateral. In order to fully
consummate all of the transactions contemplated hereunder, Debtor shall make
appropriate entries on its books and records disclosing the security interests
created hereby in the Collateral.
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<PAGE>
4. WARRANTIES AND COVENANTS. In addition to the warranties and
representations, if any, made in the Lease, Debtor warrants, represents and
agrees that:
(a) Debtor is and will be the lawful owner or lessee of all of the
Collateral, with the right to subject the owned or leased property to the
security interests of Secured Party hereunder;
(b) Except for the security interests in the Collateral herein granted
to Secured Party, there are no other security interests in the Collateral that
are known to Debtor, and there are no financing statements covering any of the
Collateral filed in any public office created by or known to Debtor prior to the
date hereof, except as previously disclosed by Debtor to Secured Party. Debtor
shall defend Secured Party against any claims and demands of any and all other
persons to the Collateral inconsistent with this Agreement;
(c) All of the Collateral is or will be (upon delivery) located at a
Facility;
(d) Except as permitted under the Lease or hereunder, Debtor shall not
remove the Collateral from a Facility without Secured Party's prior written
consent and shall not use or permit the Collateral to be used for any unlawful
purpose whatsoever. Except as permitted under the Lease or hereunder, Debtor
shall not remove any Collateral from the state in which the Facility is located
without the prior written consent of Secured Party;
(e) Except as permitted under the Lease, Debtor shall not conduct
business under any name at a Facility other than that set forth on EXHIBIT A to
the Facilities Purchase Agreement (as defined in the Master Lease), nor will any
Debtor change or reorganize the type of business entity under which it presently
does business, except upon prior and express written approval of Secured Party,
which will not be unreasonably withheld, Debtor agrees that all documents,
instruments and agreements reasonably requested by Secured Party and relating to
such change shall be prepared, filed and recorded at Debtor's expense before the
change occurs;
(f) Debtor shall not remove any records concerning the Collateral
located at the Facility nor keep any of its records concerning the same at any
other location unless written notice thereof is given to Secured Party at least
ten (10) days prior to the removal of such records to any new addresses; and
(g) Debtor has the right and power and is duly authorized to enter
into this Security Agreement. The execution of this Security Agreement does not
and will not constitute a breach of any provision contained in any agreement or
instrument to which Debtor is or may become a party or by which Debtor is or may
be bound or affected.
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<PAGE>
7. DEFAULT/REMEDIES
(a) The occurrence and continuation of any Event of Default under the
Lease shall constitute a Security Agreement Event of Default.
(b) Whenever a Security Agreement Event of Default shall have occurred
and so long as its continues, Secured Party may exercise from time to time any
rights and remedies, including the right to immediate possession of the
Collateral, available to it under the Lease, this Security Agreement or
applicable law. Secured Party shall have the right to hold any property then in
or upon the Facility (but excluding any property belonging to patients at the
Facility) at the time of repossession not covered by this Security Agreement
until return is demanded in writing by Debtor. Debtor agrees, in case of the
occurrence of a Security Agreement Event of Default that is continuing and upon
the request of Secured Party, to assemble, at its expense, all of the Collateral
under its control at a convenient place acceptable to Secured Party and to pay
all costs of Secured Party of collection of all the liabilities, and enforcement
of rights hereunder, including reasonable attorneys' fees and legal expenses,
including participation in bankruptcy proceedings, and the expenses of locating
the Collateral and the expenses of any repairs to any realty or other property
to which any of the Collateral may be affixed or be a part. If the Collateral is
disposed of at a public sale, the parties agree that a public sale with at least
ten (10) business days prior notice to Debtor and notice to the public by one
publication in a local newspaper is commercially reasonable. If any notification
of intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if sent
at least ten (10) Business Days before such disposition, by first class mail,
postage prepaid, addressed to Debtor either at the address set forth in the
notice section hereof, or at any other address of Debtor appearing on the
records of Secured Party.
(c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED PARTY
SHALL, UPON THE OCCURRENCE OF ANY SECURITY AGREEMENT EVENT OF DEFAULT AND
WITHOUT DEBTOR CURING SUCH UNDERLYING EVENT OF DEFAULT UNDER THE LEASE, HAVE THE
RIGHT TO PEACEFULLY RETAKE ANY OF THE COLLATERAL. DEBTOR WAIVES ANY RIGHT IT MAY
HAVE, IN SUCH INSTANCE, TO A JUDICIAL HEARING PRIOR TO SUCH RETAKING.
8. GENERAL
(a) Time shall be deemed of the essence with respect to this Security
Agreement.
(b) Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if it takes
such action for that purpose as Debtor reasonably requests in writing. Failure
of Secured Party to preserve or protect any
5
<PAGE>
rights with respect to such Collateral against any prior parties shall not be
deemed a failure to exercise reasonable care in the custody and preservation of
such Collateral.
(c) Any delay on the part of Secured Party in exercising any power,
privilege or right under the Lease, this Security Agreement or under any other
instrument or document executed by a Debtor in connection herewith shall not
operate as a waiver thereof. No single or partial exercise thereof, or the
exercise of any other power, privilege or right shall preclude other or further
exercise thereof, or the exercise of any other power, privilege or right. The
waiver by Secured Party of any default by Debtor shall not constitute a waiver
of any subsequent defaults or defaults by any other Debtor but shall be
restricted to the default so waived.
(d) All rights, remedies and powers of Secured Party hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in
addition to all rights, remedies and power is given by the Lease or the
Commercial Code, or any other applicable laws now existing or hereafter enacted.
(e) Whenever the singular is used hereunder, it shall be deemed to
include the plural (and vice-versa), and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Security Agreement so requires. Section captions or headings used in
this Security Agreement are for convenience and reference only and shall not
affect the construction thereof.
(f) Whenever possible each provision of this Security Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement.
(g) This Security Agreement may be executed in multiple counterparts,
each of which shall be considered an original but all of which, when taken
together, shall constitute one agreement.
(h) The rights and privileges of Secured Party hereunder shall inure
to the benefit of its successors and assigns, and this Security Agreement shall
be binding on all assigns and successors of Debtor as may be permitted under the
Lease.
(i) In the event of any action to enforce this Security Agreement or
to protect the security interest of Secured Party in the Collateral, or to
protect, preserve, maintain, process, assemble, develop, insure, market or sell
any Collateral, Debtor agrees to pay the costs owed and expenses thereof,
together with reasonable and documented attorneys' fees (including fees incurred
in appeals and post judgment enforcement proceedings).
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<PAGE>
(j) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF EACH DEBTOR AND SECURED PARTY SHALL BE DETERMINED, IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAWS
PROVISIONS, EXCEPT THAT THE LAWS OF THE STATE WHERE THE COLLATERAL IS LOCATED
SHALL GOVERN THIS SECURITY AGREEMENT (A) TO THE EXTENT NECESSARY TO PERFECT
AND/OR ENFORCE THE LIENS CREATED BY THIS SECURITY AGREEMENT AND TO THE EXTENT
NECESSARY TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH
RESPECT TO THE COLLATERAL, AND (B) FOR PROCEDURAL REQUIREMENTS THAT MUST BE
GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED.
(k) DEBTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND
FEDERAL COURTS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED AND NEW YORK AND
AGREES THAT ALL DISPUTES CONCERNING THIS SECURITY AGREEMENT BE HEARD IN THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE IN WHICH THE COLLATERAL IS LOCATED
OR IN NEW YORK. EACH DEBTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON
IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED OR NEW YORK, AND EACH DEBTOR IRREVOCABLY WAIVES ANY
OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED AND NEW YORK.
(l) No amendment to this Security Agreement shall be effective unless
the same shall be in writing and signed by the parties.
(m) Nothing contained herein shall be construed as in any way
modifying or limiting the effect of terms or conditions set forth in the Lease,
but each and every term and condition hereof shall be in addition thereto.
(n) All notices required or permitted to be given hereunder shall be
given and deemed effective as provided in the Lease. The parties hereby agree
that a notice sent as specified in this paragraph at least ten (10) business
days before the date of any intended public sale or the date after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to be reasonable notice of such sale or other disposition.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of
the date first written above.
SECURED PARTY:
MONARCH PROPERTIES, LP
By: MP Operating Inc.,
its General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
DEBTOR:
[INSERT THI LESSEE SUBSIDIARY]
By:
-----------------------------------------
Name: Anthony F. Misitano
---------------------------------------
Title: President
--------------------------------------
8
ESCROW AGREEMENT
AMONG
[INSERT THI LESSEE SUBSIDIARY],
MONARCH PROPERTIES, LP
AND
FIDELITY NATIONAL TITLE
INSURANCE COMPANY OF NEW YORK
DATED AS OF __________, 1998
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is executed and delivered as of
the ____ day of __________, 1998 (the "Effective Date") among [INSERT THI LESSEE
SUBSIDIARY], a [Insert State] corporation ("Lessee"), MONARCH PROPERTIES, LP, a
Delaware limited partnership ("Purchaser") and FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK ("Escrow Agent").
The circumstances underlying the execution and delivery of this Agreement
are as follows:
A. Concurrently herewith, Purchaser has purchased from Seller and leased to
Lessee three (3) health care facilities (the "Facilities") pursuant to a Master
Lease of even date herewith (the "Master Lease").
B. A condition of Purchaser's acquisition of the Facilities and lease to
Lessee is the agreement of Lessee to complete certain repairs and improvements
to the Facilities after the closing, and the payment to Escrow Agent by Lessee
of a certain amount to be held by Escrow Agent and paid to Lessee or other
payees designated by Lessee upon completion of such repairs and improvements or
paid to Purchaser in the event of the failure of Lessee to complete such repairs
and improvements, all in accordance with the terms and conditions set forth
below.
C. Capitalized words not defined herein shall have the definitions given
them in the Master Lease.
NOW, THEREFORE, Lessee, Purchaser and Escrow Agent agree as follows:
1. ESCROW DEPOSIT. Escrow Agent acknowledges the receipt of [Insert Amount]
($__________) and agrees to hold and deliver such sum according to the terms and
conditions hereinafter set forth.
2. CAPITAL EXPENDITURES. Lessee agrees that, within three hundred and
sixty-five (365) days from the date of this Agreement, it will complete the
capital repair and improvement activities described under the heading "Action
Required" and set forth opposite the name of the applicable Facility on attached
EXHIBIT A.
3. INSPECTION BY PURCHASER. Lessee shall (a) give Purchaser at least ten
(10) Business Days' prior written notice of any request for a disbursement of
escrowed funds, which notice shall include a copy of the certificate to be
delivered to Escrow Agent as required by Section 4 hereof with respect to such
disbursement, and (b) give Purchaser's representative
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<PAGE>
or representatives access to the Leased Property at reasonable times, upon one
Business Day's prior notice, for the purpose of inspecting the capital repair
and improvement work.
4. REQUESTS FOR DISBURSEMENT OF ESCROWED FUNDS. Lessee shall present each
request for disbursement of escrowed funds to Purchaser in writing for its
approval, which shall not unreasonably be withheld or delayed. Each request
shall meet the requirements of Paragraph 5, below.
5. DISBURSEMENT OF ESCROWED FUNDS. Within two (2) Business Days following
receipt of Lessee's written request, Escrow Agent shall disburse to Lessee or to
such payees as may be designated by Lessee in its request for disbursement, out
of the funds held in escrow, the out-of-pocket costs and expenses incurred by
Lessee in connection with the performance by it of its obligations under
Paragraph 2 (the "Capital Expenditures"), upon presentation of a request for
disbursement, provided:
(A) No more than one (1) request for disbursement is submitted in any
calendar month;
(B) The total monthly request for disbursement is not less than
[Fifty Thousand Dollars ($50,000)], except for the final request
for disbursement which shall be in the amount of the undisbursed
balance of escrowed funds, and the requested disbursement
per-payee is not less than [Ten Thousand Dollars ($10,000)];
[SUBJECT TO REVIEW OF DOLLAR AMOUNTS]
(C) The request for disbursement is accompanied by:
(i) a certificate of Lessee executed by an officer of Lessee,
certifying that a portion of the work set forth on EXHIBIT A
has been completed, describing such portion of the work in
detail, and stating that the disbursement is sought for
costs and expenses incurred in completing such work;
(ii) either (x) evidence of the written approval of such
disbursement by Purchaser or (y), if Escrow Agent has not
received a Notice from Purchaser disapproving the proposed
disbursement, a statement of Lessee in the certificate
described in subsection (i) above to the effect that notice
of the request for disbursement, including a copy of such
certificate, was sent to Purchaser at least ten (10)
Business Days prior to the submission of the request.
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<PAGE>
(D) Overhead incurred by Lessee or any Affiliate of Lessee, which is
expenses and obligations incurred by Lessee or any Affiliate of
Lessee in connection with the general operations of the
Facilities, shall not be deemed to be a cost or expense incurred
by Lessee in connection with the performance by it of its
obligations under Paragraph 2.
6. INVESTMENT OF ESCROWED FUNDS. Escrow Agent shall invest the funds held
in escrow by it in a separate money market account at Chase Manhattan Bank.
Interest earned on such funds shall belong to Lessee and be paid to Lessee in
accordance with its instructions to Escrow Agent. Lessee's Federal Tax
Identification Number is [Insert Number].
7. DISPUTES. In the event of any dispute among the parties hereto as to the
disposition of any funds held in escrow that is not resolved within ninety (90)
days after notice to the parties from Escrow Agent, Escrow Agent is hereby
authorized to deposit such funds with any court of competent jurisdiction and
commence an interpleader action naming the other parties hereto as defendants
with respect thereto, and upon such deposit Escrow Agent shall be relieved of
any further liability hereunder.
8. LIMITATION OF LIABILITY OF ESCROW AGENT. Escrow Agent shall have no
liability hereunder, except for damages, if any, resulting from Escrow Agent's
negligence or willful misconduct; it being understood that by its acceptance of
this escrow agency, Escrow Agent is acting in the capacity of a depositary and
is not as such responsible or liable for the sufficiency, correctness,
genuineness and/or receipt of instruments, documents or notices deposited and/or
received under this Escrow Agreement. Upon notice to the other parties hereto,
Escrow Agent may reimburse itself for any reasonable expenses, including
attorneys fees, which Escrow Agent may incur as a result of any legal
proceedings affecting this Escrow Agreement and/or the Escrow Agent's duties as
depository hereunder.
9. FAILURE TO COMPLETE WORK. In the event the work described on EXHIBIT A
has not been completed on or before the date specified in Section 2 hereof,
Purchaser may give Lessee and Escrow Agent written notice of such failure, and
in the event such work is not completed within fifteen (15) Business Days after
such notice, Purchaser (a) shall have the right to cause its employees, agents
and contractors to enter upon the Leased Property and complete such work at the
expense of Lessee, and to demand and receive any funds then remaining in escrow
to be applied towards reimbursement or payment for such expense, or (b) to
declare such failure to be an Event of Default under the Master Lease, entitling
Purchaser to the remedies provided in the Master Lease and by law, including,
among such remedies, the right to demand and receive any then undisbursed funds
in escrow.
10. 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:
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<PAGE>
To Lessee: [Insert THI Lessee Subsidiary]
4076 Carlisle Pike
Camp Hill, Pennsylvania 17011
Attn: Anthony F. Misitano
Telephone No.: 717-730-8710
Fax No.: 717-730-8722
With copy to: Kirkpatrick & Lockhart LLP
240 North Third Street
Harrisburg, Pennsylvania 17101
Telephone No.: 717-231-2892
Fax No.: 717-231-4501
To Purchaser: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941-598-5605
Fax No.: 941-566-6082
With copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212-424-8279
Fax No.: 212-424-8500
To Escrow Agent: Fidelity National Title Insurance Company
of New York
2 Park Avenue
New York, New York 10016
Attn: Robert Calamari
Telephone No.: 212-481-5858
Fax No.: 212-481-8747
Notices shall be deemed given upon actual receipt.
11. CHOICE OF LAW; SEVERABILITY. This Agreement shall be construed in
accordance with the laws of the State of New York, without regard to its
conflict of laws provisions. If any provision in this Agreement is in conflict
with such laws, or is otherwise unenforceable for any reason whatsoever, such
provision shall be deemed null and void to the extent of such conflict
4
<PAGE>
or unenforceability, and it shall be severed from and shall not invalidate any
other provision of this Agreement.
SIGNATURE PAGE FOLLOWS
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Escrow Agreement as of
the day and year first set forth therein.
[INSERT THI LESSEE SUBSIDIARY]
By:
-----------------------------------------
Name: Anthony F. Misitano
---------------------------------------
Title: President
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc., as General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK
By:
-----------------------------------------
Name: Robert Calamari
---------------------------------------
Title: Senior Vice President
--------------------------------------
6
GUARANTY
BY
TRANS HEALTHCARE, INC.
IN FAVOR OF
MONARCH PROPERTIES, INC.
DATED AS OF __________, 1998
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is given as of the ____ day of __________,
1998 ("Effective Date"), by TRANS HEALTHCARE, INC., a Delaware corporation
("Guarantor"), in favor of MONARCH PROPERTIES, LP, a Delaware limited
partnership ("Lessor").
RECITALS
A. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given them in Section 1 below.
B. Concurrently herewith, Lessor and [Insert THI Lessee Subsidiary] ("THI
Subsidiary") have executed and delivered the Master Lease, pursuant to which
Lessor has leased to THI Subsidiary the respective Facilities. As security for
the payment and performance by THI Subsidiary of its respective obligations
under the Master Lease and the Transaction documents, THI Subsidiary has
executed and delivered to Lessor the Security Agreement, pursuant to which THI
Subsidiary has granted to Lessor security interests in certain property of THI
Subsidiary.
C. Guarantor owns all of the stock of THI Subsidiary and, accordingly,
benefits from the execution of the Master Lease.
D. As a material inducement to Lessor to enter into the Master Lease,
Guarantor has agreed to guarantee both the payment of all amounts due from, and
the performance of all obligations undertaken by, THI Subsidiary under the
Master Lease and the Transaction Documents.
NOW, THEREFORE, Guarantor agrees as follows:
1. DEFINED TERMS. The following terms shall have the respective meanings
given them below:
"Affiliate" means any Person who, directly or indirectly, Controls or is
Controlled by or is under common Control with another Person.
"Cooper" means Cooper Management Corporation, an [Insert State]
corporation.
"Control" (and its corollaries "Controlled by" and "under common Control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, through the ownership
of voting securities, partnership interests or other equity interests.
"Event of Default" means an "Event of Default," as defined in the Master
Lease.
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<PAGE>
"Facilities" means the facilities listed on EXHIBIT A hereto.
"Facility" means any of the Facilities.
"GAAP" means generally accepted accounting principles.
"Guaranty Default" means any of: (a) an Event of Default; (b) Guarantor's
failure to pay any amounts as and when required under this Guaranty; (c)
Guarantor's failure to observe and perform any covenant, condition or agreement
on its part to be observed or performed under this Guaranty (other than as
referred to in clause (b) above) for a period of seven (7) days or more after
Lessor has given written notice of such failure to Guarantor; or (d) the
occurrence and continuation of a default by any person other than Lessor under
any of the other Transaction Documents, if the default is not cured within any
applicable grace or cure period set forth therein.
"Intangible Assets" means the amount of (a) all unamortized debt discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organizational and developmental
expenses, unamortized operating rights, unamortized licenses, unamortized
leasehold rights and other intangible assets, or any write-up resulting from a
reversal of a reserve for bad debts or depreciation and any write-up resulting
from a change in methods of accounting or inventory, and (b) any investment in
any Affiliate.
"Master Lease" means the Master Lease of even date herewith executed and
delivered by Lessor and THI Subsidiary.
"Minimum Tangible Net Worth" means a Tangible Net Worth equal to [Insert
Dollar Amount] in United States currency.
"Net Income" means the net income of Guarantor, determined on an accrual
basis in accordance with GAAP, before federal, state and local income taxes, but
excluding extraordinary items.
"Obligations" means, collectively, all covenants and obligations contained
in the Master Lease and the other Transaction Documents, and any and all
amendments, modifications, extensions and renewals thereof, to be performed by
THI Subsidiary, and all damages that may result from the non-performance thereof
to the full extent provided under the Master Lease and the other Transaction
Documents.
"Person" means any natural person, trust, partnership, corporation, limited
liability company, joint venture or other legal entity.
"Purchase Agreement" means the Facilities Purchase Agreement dated as of
the date hereof among Cooper, the entities listed on attached Exhibit A hereto,
Lessor and Guarantor.
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<PAGE>
"Rent" means "Rent," as defined in the Master Lease.
"Security Agreement" means the Security Agreement of even date herewith
executed and delivered by THI Subsidiary and Lessor.
"Tangible Net Worth" means, at any date, the net worth of Guarantor and all
of its subsidiaries (including without limitation the Subsidiaries), as
determined on a consolidated basis in accordance with GAAP, less Intangible
Assets of Guarantor and all of its subsidiaries (including without limitation
the Subsidiaries).
THI Subsidiary means [Insert THI Lessee Subsidiary], a [Insert State]
corporation, that is a wholly owned subsidiary of Guarantor.
"Transaction Documents" means the Purchase Agreement, the Security
Agreement, and any other documents defined as Transaction Documents in the
Purchase Agreement and executed and/or delivered or caused to be executed and/or
delivered by THI Subsidiary and Guarantor pursuant to or in connection with the
Master Lease.
2. GUARANTY. Guarantor hereby unconditionally and irrevocably guarantees to
Lessor (a) the payment when due of all Rent and other sums payable by THI
Subsidiary under the Master Lease and the Transaction Documents and (b) the
faithful and prompt performance when due of each and every one of the
Obligations. Upon the occurrence of a Guaranty Default, Guarantor immediately
shall perform or cause to be performed the Obligations. Guarantor's liability
under this Guaranty is without limit. Guarantor's liability under this Guaranty
will continue until all of the Obligations have been performed in full.
3. SURVIVAL OF OBLIGATIONS. The obligations of Guarantor under this
Guaranty with respect to the Master Lease and the Transaction Documents shall
survive and continue in full force and effect notwithstanding:
(a) any amendment, modification or extension of the Master Lease or
any of the other Transaction Documents;
(b) any compromise, release, consent, extension, indulgence or other
action or inaction in respect of any terms of the Master Lease or
any of the other Transaction Documents or any other guarantor;
(c) any substitution or release, in whole or in part, of any security
for this Guaranty that Lessor may hold at any time;
(d) any exercise or nonexercise by Lessor of any right, power or
remedy under or in respect of the Master Lease or any of the
other Transaction Documents or
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<PAGE>
any security held by Lessor with respect thereto, or any waiver
of any such right, power or remedy;
(e) any bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, liquidation or the like of THI
Subsidiary or any other guarantor;
(f) any limitation of THI Subsidiary's liability under the Master
Lease or the other Transaction Documents or any limitation of
such liability that now or hereafter may be imposed by any
statute, regulation or rule of law, or any illegality,
irregularity, invalidity or unenforceability, in whole or in
part, of the Master Lease or the other Transaction Documents or
any term thereof;
(g) any sale, lease or transfer of all or any part of any interest in
any Facility or any or all of the assets of THI Subsidiary to any
other person, firm or entity other than to Lessor;
(h) any act or omission by Lessor with respect to any of the security
instruments or any failure to file, record or otherwise perfect
any of the same;
(i) any extensions of time for performance under the Master Lease or
the other Transaction Documents, whether prior to or after
maturity;
(j) the release of any collateral from the lien of any of the
Security Agreements, or the release of THI Subsidiary from
performance or observation of any of the agreements, covenants,
terms or conditions contained in the Master Lease or any of the
other Transaction Documents by operation of law or otherwise;
(k) the fact that THI Subsidiary may or may not be personally liable,
in whole or in part, under the terms of the Master Lease or the
other Transaction Documents to pay any money judgment;
(l) the failure to give Guarantor any notice of acceptance, default
or otherwise;
(m) any other guaranty now or hereafter executed by Guarantor or
anyone else in connection with the Master Lease;
(n) any rights, powers or privileges that Lessor now or hereafter may
have against any other person, entity or collateral; or
(o) any other circumstances, whether or not Guarantor had notice or
knowledge thereof, which might otherwise constitute a defense
available to Guarantor.
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<PAGE>
4. PRIMARY LIABILITY. The liability of Guarantor under this Guaranty is
primary, direct and immediate, and, upon the occurrence of a Guaranty Default,
Lessor may proceed against Guarantor: (a) prior to or in lieu of proceeding
against THI Subsidiary, its assets, any security deposit or any other guarantor;
and (b) prior to or in lieu of pursuing any other rights or remedies available
to Lessor. All rights and remedies afforded to Lessor by reason of this Guaranty
or by law are separate, independent and cumulative, and the exercise of any
rights or remedies shall not in any way limit, restrict or prejudice the
exercise of any other rights or remedies.
Upon the occurrence of a Guaranty Default, Lessor may bring and prosecute
against Guarantor an action or actions under this Guaranty, regardless of
whether THI Subsidiary is joined therein or a separate action or actions are
brought against THI Subsidiary. Lessor may maintain successive actions for other
defaults. Lessor's rights hereunder shall not be exhausted by its exercise of
any of its rights or remedies or by any such action or by any number of
successive actions until and unless all Obligations have been paid and fully
performed.
5. OBLIGATIONS NOT AFFECTED. In such manner, upon such terms and at such
times as Lessor in its sole discretion deems necessary or expedient, and without
notice to Guarantor, Lessor may: (a) amend, alter, compromise, accelerate,
extend or change the time or manner for the payment or the performance of the
Obligations; (b) extend, amend or terminate the Master Lease or any other
Transaction Document; or (c) release THI Subsidiary by consent to any assignment
(or otherwise) as to all or any portion of the obligations hereby guaranteed.
Any exercise or non-exercise by Lessor of any right hereby given Lessor, any
dealing by Lessor with Guarantor or any other guarantor, THI Subsidiary or other
person, or any change, impairment, release or suspension of any right or remedy
of Lessor against any person (including THI Subsidiary and any other guarantor)
will not affect any of the obligations of Guarantor hereunder or give Guarantor
any recourse or offset against Lessor.
6. WAIVER. Guarantor hereby waives and relinquishes all rights and remedies
accorded by applicable law to sureties and/or guarantors or any other
accommodation parties, under any statutory provisions, common law or any other
provision of law, custom or practice, and agrees not to assert or take advantage
of any such rights or remedies including, but not limited to:
(a) any right to require Lessor to proceed against THI Subsidiary or any
other person or to proceed against or exhaust any security held by
Lessor at any time or to pursue any other remedy in Lessor's power
before proceeding against Guarantor or to require that Lessor cause a
marshaling of THI Subsidiary's assets or the assets, if any, given as
collateral for this Guaranty or to proceed against any THI Subsidiary
and/or any collateral, including collateral, if any, given to secure
Guarantor's obligation under this Guaranty, held by Lessor at any time
or in any particular order;
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<PAGE>
(b) any defense that may arise by reason of the incapacity or lack of
authority of any other person or persons;
(c) notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action
on the part of THI Subsidiary, Lessor, any creditor of THI Subsidiary
or Guarantor or on the part of any other person whomsoever under this
or any other instrument in connection with any obligation or evidence
of indebtedness held by Lessor or in connection with any obligation
hereby guaranteed;
(d) any defense based upon an election of remedies by Lessor that destroys
or otherwise impairs the subrogation rights of Guarantor or the right
of Guarantor to proceed against THI Subsidiary for reimbursement, or
both;
(e) any defense based upon any statute or rule of law that provides that
the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(f) any duty on the part of Lessor to disclose to Guarantor any facts
Lessor may now or hereafter know about THI Subsidiary, regardless of
whether Lessor has reason to believe that any such facts materially
increase the risk beyond that which Guarantor intends to assume or has
reason to believe that such facts are unknown to Guarantor or has a
reasonable opportunity to communicate such facts to Guarantor, it
being understood and agreed that Guarantor is fully responsible for
being and keeping informed of the financial condition of THI
Subsidiary and of all circumstances bearing on the risk of non-payment
or non-performance of any obligations or indebtedness hereby
guaranteed;
(g) any defense arising because of Lessor's election, in any proceeding
instituted under the federal Bankruptcy Code, of the application of
Section 1111 (b)(2) of the federal Bankruptcy Code;
(h) any defense based on any borrowing or grant of a security interest
under Section 364 of the federal Bankruptcy Code; and
(i) all rights and remedies accorded by applicable law to guarantors,
including without limitation, any extension of time conferred by any
law now or hereafter in effect and any requirement or notice of
acceptance of this Guaranty or any other notice to which the
undersigned may now or hereafter be entitled to the extent such waiver
of notice is permitted by applicable law.
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<PAGE>
7. WARRANTIES. Guarantor represents and warrants to Lessor that: (a) this
Guaranty is executed at the request of THI Subsidiary; and (b) Guarantor has
established adequate means of obtaining from THI Subsidiary, on a continuing
basis, financial and other information pertaining to financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances that might in any way affect Guarantor's risks
hereunder, and Guarantor further agrees that Lessor shall have no obligation to
disclose to Guarantor information or material acquired in the course of Lessor's
relationship with THI Subsidiary.
8. SUBROGATION. Guarantor shall defer until all obligations of THI
Subsidiary under the Master Lease and the other Transaction Documents have been
satisfied and discharged in full for one (1) year, its exercise of any right of
subrogation it may have, and any right to enforce any remedy that Lessor now has
or hereafter may have, against THI Subsidiary and any benefit of, and any right
to participate in, any security now or hereafter held by Lessor with respect to
the Master Lease and the other Transaction Documents.
9. SUBORDINATION. As long as a default exists and remains uncured under the
Master Lease or any of the other Transaction Documents, THI Subsidiary shall not
pay to Guarantor all or any part of any indebtedness or obligations owing by THI
Subsidiary to Guarantor, nor will Guarantor accept any payment of or on account
of any amounts owing, without the prior written consent of Lessor. Guarantor
shall cause THI Subsidiary to pay to Lessor all or any part of the subordinated
indebtedness until the obligations under the Master Lease or the other
Transaction Documents have been paid in full. Any payment by THI Subsidiary in
violation of this Guaranty shall be received by Guarantor in trust for Lessor,
and Guarantor shall cause the same to be paid to Lessor immediately on account
of the amounts owing from THI Subsidiary to Lessor. No such payment will reduce
or affect in any manner the liability of Guarantor under this Guaranty.
10. NO DELAY. Any payments required to be made by Guarantor hereunder
immediately shall become due on demand in accordance with the terms hereof upon
the occurrence of a Guaranty Default.
11. APPLICATION OF PAYMENTS. Lessor may, in its sole discretion, (a) apply
any or all payments or recoveries from THI Subsidiary or from any other
guarantor under any other instrument or realized from any security, in such
manner and order of priority as Lessor may determine, to any indebtedness or
other obligation of THI Subsidiary with respect to the Master Lease, regardless
of whether such indebtedness or other obligation is guaranteed hereby or is
otherwise secured or is due at the time of such application, and/or (b) refund
to THI Subsidiary any payment received by Lessor under the Master Lease.
12. GUARANTY DEFAULT. Upon the occurrence and continuation of a Guaranty
Default, Lessor shall have the right to bring such actions at law or in equity,
including
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<PAGE>
appropriate injunctive relief, as it deems appropriate to compel compliance,
payment or deposit, and among other remedies to recover its reasonable
attorneys' fees in any proceeding, including any appeal therefrom and any
post-judgement proceedings.
13. FINANCIAL COVENANTS.
[TO BE DISCUSSED]
14. FINANCIAL STATEMENTS. Within fifty (50) days after the end of each of
Guarantor's fiscal quarters, Guarantor shall deliver to Lessor a copy of its
quarterly consolidated financial statements, prepared in accordance with GAAP,
consistently applied, and certified by an officer of Guarantor. Within one
hundred twenty (120) days after the end of each of Guarantor's fiscal years,
Guarantor shall deliver to Lessor a copy of its consolidated financial
statements, prepared in accordance with GAAP, consistently applied, and
certified by an officer of Guarantor and reported on by a "Big Six" certified
public accounting firm or other certified public accounting firm approved by
Lessor. Together with the Guarantor's financial statements furnished in
accordance with the preceding two (2) sentences, Guarantor shall deliver an
officer's certificate of Guarantor stating that Guarantor is not in default in
the performance or observance of any of the terms of this Guaranty, or, if
Guarantor is in default, specifying all such defaults, the nature thereof and
the steps being taken to remedy the same.
15. 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 or hand delivery to the following
address:
To Guarantor: Trans Healthcare, Inc.
4076 Carlisle Pike
Camp Hill, Pennsylvania 17011
Attn: Anthony F. Misitano
Telephone No.: 717-730-8710
Fax No.: 717-730-8722
With a copy to: Kirkpatrick & Lockhart LLP
240 North Third Street
Harrisburg, Pennsylvania 17101
Attn: Dan A. Schulder, Esq.
Telephone No.: 717-231-2892
Fax No.: 717-231-4051
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To Lessor: Monarch Properties, LP
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34103
Attn: John B. Poole
Telephone No.: 941/598-5605
Fax No.: 941/566-6082
With copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attn: John R. Fallon, Jr.
Telephone No.: 212/424-8279
Facsimile No.: 212/424-8500
Notices shall be deemed given upon actual receipt.
16. MISCELLANEOUS.
(a) No term, condition or provision of this Guaranty may be waived except
by an express written instrument to that effect signed by Lessor. No waiver of
any term, condition or provision of this Guaranty will be deemed a waiver of any
other term, condition or provision, irrespective of similarity, or constitute a
continuing waiver of the same term, condition or provision, unless otherwise
expressly provided.
(b) If any one or more of the terms, conditions or provisions contained in
this Guaranty is found in a final award or judgment rendered by any court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions of this Guaranty shall not in any way be affected or impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term, condition or provision had never been contained
in this Guaranty.
(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAWS
PROVISIONS, EXCEPT THAT THE LAWS OF THE STATE IN WHICH A FACILITY IS LOCATED
SHALL GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY (i) TO OBTAIN THE BENEFIT OF
THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO SUCH FACILITY AND (ii)
FOR PROCEDURAL REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN
WHICH SUCH FACILITY IS LOCATED. GUARANTOR CONSENTS TO IN PERSONAM JURISDICTION
BEFORE THE STATE OR STATES AND FEDERAL COURTS OF NEW YORK AND AGREES THAT ALL
DISPUTES
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<PAGE>
CONCERNING THIS GUARANTY SHALL BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED
IN THE STATE OR STATES IN WHICH THE FACILITY OR FACILITIES ARE LOCATED OR IN NEW
YORK. GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY
METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OR STATES IN WHICH THE FACILITY
OR FACILITIES ARE LOCATED OR NEW YORK AND IRREVOCABLY WAIVES ANY OBJECTION TO
VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE OR STATES IN WHICH THE
FACILITY OR FACILITIES ARE LOCATED AND OF NEW YORK.
(d) GUARANTOR AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO
IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF
OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR
ENFORCEMENT THEREOF.
(e) In the event of any suit, action, arbitration or other proceeding to
interpret this Guaranty, or to determine or enforce any right or obligation
created hereby, the prevailing party in the action shall recover such party's
actual costs and expenses reasonably incurred in connection therewith,
including, but not limited to, attorneys' fees and costs of appeal, post
judgment enforcement proceedings (if any) and bankruptcy proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action, arbitration or other proceeding, in
addition to any and all other relief awarded to such prevailing party, include
in such-judgment or award such party's costs and expenses as provided in this
paragraph.
(f) Guarantor (i) represents that it has been represented and advised by
counsel in connection with the execution of this Guaranty; (ii) acknowledges
receipt of a copy of the Master Lease and the other Transaction Documents; and
(iii) further represents that Guarantor has been advised by counsel with respect
thereto. This Guaranty shall be construed and interpreted in accordance with the
plain meaning of its language, and not for or against Guarantor or Lessor, and
as a whole, giving effect to all of the terms, conditions and provisions hereof.
(g) Except as provided in any other written agreement now or at any time
hereafter in force between Lessor and Guarantor, this Guaranty shall constitute
the entire agreement of Guarantor with Lessor with respect to the subject matter
hereof, and no representation, understanding, promise or condition concerning
the subject matter hereof will be binding upon Lessor or Guarantor unless
expressed herein.
(h) All stipulations, obligations, liabilities and undertakings under this
Guaranty shall be binding upon Guarantor and its respective successors and
assigns and shall inure to the benefit of Lessor and to the benefit of Lessor's
successors and assigns.
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(i) Whenever the singular shall be used hereunder, it shall be deemed to
include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neuter, whenever the context
of this Guaranty so requires. Section captions or headings used in the Guaranty
are for convenience and reference only, and shall not affect the construction
thereof.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
TRANS HEALTHCARE, INC.
By:
------------------------
Name: Anthony F. Misitano
------------------------
Title: President
------------------------
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PLEDGE AGREEMENT
BETWEEN
TRANS HEALTHCARE, INC.
AND
MONARCH PROPERTIES, LP
DATED AS OF __________, 1998
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") made as of __________, 1998
between TRANS HEALTHCARE, INC. ("Pledgor") for the benefit of MONARCH
PROPERTIES, LP ("Monarch").
The circumstances underlying the execution of this Pledge Agreement are as
follows:
A. Monarch has purchased from Cooper Management Corporation and leased to
[Insert THI Subsidiary Lessee] ("Subsidiary") three (3) health care facilities
("Facilities") pursuant to a Master Lease ("Master Lease"), dated as of the date
hereof.
B. Monarch has required, as a condition to its purchase of the Facilities
and lease thereof to Subsidiary, that Pledgor execute and deliver to Monarch
this Pledge Agreement, pursuant to which Pledgor pledges to Monarch, as security
for the Guaranty, all shares of common stock now or hereafter owned by Pledgor
in the Subsidiary, on the terms and conditions hereinafter set forth.
C. Capitalized words not defined herein shall have the definitions given
them in the Master Lease.
NOW, THEREFORE, in consideration of the foregoing, and other valuable
consideration, the receipt, legal adequacy and sufficiency of which hereby are
acknowledged, Pledgor agrees with Monarch as follows:
1. DEFINITION OF "PLEDGED STOCK". For purposes of this Pledge Agreement,
the term "Pledged Stock" means and includes all of the issued and outstanding
shares of the common stock or other securities of the Subsidiary now or
hereafter owned by Pledgor or voting trust certificates or other documents of
any kind evidencing any and all ownership or other interests of Pledgor in the
Subsidiary, including, without limitation, those listed on Exhibit A hereto and
any supplemental Exhibit A attached hereto or delivered to Monarch from time to
time.
2. PLEDGE; RIGHTS AND REMEDIES. (a) As collateral security for the due
payment and performance of all indebtedness and other liabilities and
obligations payable or due to Monarch from Subsidiary under the Master Lease,
whether now existing or hereafter arising (collectively, the "Obligations"),
Pledgor hereby pledges, assigns, hypothecates, delivers and sets over to Monarch
all of Pledgor's right, title and interest in and to the Pledged Stock, and
hereby grants to Monarch a security interest in all of its right, title and
interest in and to the Pledged Stock and in the proceeds thereof. Concurrently
herewith, Pledgor has delivered to Monarch all certificates representing the
currently existing Pledged Stock, together with a Stock Assignment
<PAGE>
Separate from Certificate ("Assignments"), substantially in the form of attached
Exhibit B hereto, for each certificate representing the Pledged Stock, all duly
executed in blank. Monarch shall hold such certificates and Assignments as
security for performance by Pledgor of the obligations secured hereby and shall
at all times have the first priority and only lien therein.
(b) If Pledgor becomes entitled to receive, or if Pledgor receives,
any additional stock or voting trust certificate of the Subsidiary (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase, or reduction of
capital), option or rights, whether as an addition to, in substitution of, or in
exchange for any Pledged Stock, or otherwise, Pledgor shall accept any such
instruments as Monarch's agent, shall hold them in trust for Monarch, and shall
deliver them forthwith to Monarch in the exact form received, with Pledgor's
endorsement when necessary, and/or appropriate stock powers duly executed in
blank, to be held by Monarch, subject to the terms hereof, as further collateral
security for the Obligations.
(c) Upon the occurrence and continuation of an Event of Default, or
the occurrence and continuation beyond any applicable cure or grace period of
any other material breach of or default under the Obligations:
(i) Any or all shares of the Pledged Stock held by Monarch hereunder
may, at the option of Monarch, be registered in the name of Monarch or its
nominee as pledgee, and Monarch or its nominee may thereafter, without
notice, exercise all available voting and corporate rights at any meetings
of the Subsidiary and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any
of the Pledged Stock as if it were the absolute owner thereof, including,
without limitation, the right to receive dividends payable thereon and the
right to exchange, at its discretion, any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing any of such securities or upon the
exercise by any such issuer of any right, privilege or option pertaining to
any of the Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it, but Monarch shall have no duty to
exercise any of the foregoing rights, privileges or options and shall not
be responsible for any failure or omission to do so or delay in so doing.
(ii) Monarch shall have the right to require that all cash dividends
payable with respect to any part of the Pledged Stock be paid to Monarch to
be held by Monarch as additional security hereunder until applied to the
Obligations.
(iii) Monarch, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
the time and place of public or
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private sale) to or upon Pledgor or any other person or entity, including
without limitation, any trustee (all and each of which demands,
advertisements and/or notices are, to the extent permitted by law, hereby
expressly waived), immediately may collect, receive, appropriate and
realize upon the Pledged Stock, or any part thereof, and/or immediately may
sell, assign, give an option or options to purchase, contract to sell or
otherwise dispose of and deliver the Pledged Stock, or any part thereof, in
one or more parcels at public or private-sale or sales, in whatever order
Monarch may select, at any exchange, broker's board or at any of Monarch's
offices or elsewhere at such prices and on such terms (including, without
limitation, a requirement that any purchaser of all or any part of the
Pledged Stock shall be required to purchase the securities constituting the
Pledged Stock for investment and without any intention to make a
distribution thereof) as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk, with the right of
Monarch or any Monarch subsidiary upon any such sale or sales, whether
public or private, to purchase the whole or any part of the Pledged Stock
so sold, free of any right or equity of redemption in Pledgor, which right
or equity is hereby expressly waived and released.
(d) The proceeds of any collection, recovery, receipt, appropriation,
realization, sale or other disposition shall be applied as follows:
(i) First, to the reasonable costs and expenses of every kind incurred
in connection therewith or incidental to the care, safekeeping, or
otherwise of any and all of the Pledged Stock or in any way relating to the
rights of Monarch hereunder, including reasonable attorneys fees and legal
expenses;
(ii) Second, to the satisfaction of the Obligations in such order as
Monarch may determine in its sole discretion;
(iii) Third, to the payment of any other amounts required by
applicable law; and
(iv) Fourth, to Pledgor, to the extent of the surplus proceeds, if
any.
Monarch shall have no duty to account to Pledgor unless a surplus exists upon
liquidation of the Pledged Stock and any other collateral.
(e) Monarch shall give Pledgor at least ten (10) Business Days'
written notice of the time and place of any public sale or of the time after
which a private sale may take place, and such notice shall be deemed to be
reasonable notification of such matters.
3. RIGHTS OF PLEDGOR UNTIL GUARANTY DEFAULT. Unless and until an Event of
Default shall have occurred and be continuing, Pledgor shall be entitled:
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<PAGE>
(a) to vote all or any part of the Pledged Stock at any and all
shareholder meetings of the Subsidiary and to execute consents in respect
thereof, and to consent to, ratify or waive notice of any or all shareholder
meetings of the Subsidiary with the same force and effect as if this Pledge
Agreement had not been made and, if necessary and upon the receipt of the
written request from the Pledgor, Monarch shall from time to time execute and
deliver appropriate proxies for that purpose provided that Pledgor covenants and
agrees not to vote the Pledged Stock in a manner that would create a Guaranty
Default (as defined in the Guaranty) or breach of or default under the
Obligations (as defined in the Guaranty) or create circumstances that, with the
passage of time and/or the giving of notice, would create a Guaranty Default or
breach of or default under the Obligations, and
(b) to receive and collect or to have paid over all dividends declared
or paid on the Pledged Stock, except (i) dividends or distributions constituting
stock dividends, (ii) dividends or distributions in kind, or (iii) liquidating
dividends (either partial or complete), provided that any and all such excepted
dividends and distributions shall constitute additional collateral for the
purposes of this Pledge Agreement and shall be delivered and pledged with
Monarch in accordance with Section 2(b) hereof.
4. REPRESENTATIONS. Pledgor represents and warrants that:
(a) Pledgor is, as of the date hereof, the legal and beneficial owner
of all of the Pledged Stock.
(b) All of the shares of the Pledged Stock have been duly and validly
issued, are fully paid and non-assessable and are owned by Pledgor free and
clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance or
security interest in such shares or the proceeds thereof, except for the
security interest granted to Monarch under this Pledge Agreement.
(c) Upon delivery of the Pledged Stock to Monarch or an agent for
Monarch, this Pledge Agreement creates and grants a valid first lien on and
perfected security interest in the shares of the Pledged Stock and the proceeds
thereof, subject to no prior security interest, lien, charge or encumbrance and
subject to no other security interest, lien, charge or encumbrance or to any
agreement purporting to grant to any third party a security interest in the
property or assets of Pledgor that would include the Pledged Stock.
(d) To the best of Pledgor's knowledge, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required to be obtained or made by Pledgor either (i) for the
pledge by Pledgor of the Pledged Stock pursuant to this Pledge Agreement or for
the execution, delivery or performance of this Pledge Agreement by Pledgor, or
(ii) for the exercise by Monarch of the voting or other rights provided for in
this Pledge Agreement or the remedies in respect of the Pledged Stock pursuant
to
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<PAGE>
this Pledge Agreement, subject to applicable state and securities laws. Pledgor
has the right and power and is duly authorized to enter into this Pledge
Agreement.
(e) Neither the execution or, delivery of this Pledge Agreement, nor
the consummation of the transactions contemplated hereby, nor the compliance
with or performance of the terms and conditions of this Pledge Agreement by
Pledgor is prevented by, limited by, conflicts with or will result in the breach
or violation of or a default under the terms, conditions or provisions of (i)
any mortgage, security agreement, indenture, evidence of indebtedness, loan or
financing agreement, trust agreement, stockholder agreement, or other agreement
or instrument to which Pledgor is a party or by which he is bound or (ii) any
provision of law, any order of any court or administrative agency or rule or
regulation applicable to Pledgor, subject to applicable state and federal
securities laws.
(f) Any assignee of all or any portion of the Pledged Stock is
entitled to receive payments with respect thereto without any defense,
counterclaim, set-off, abatement, reduction, recoupment or other claims arising
out of the actions of Pledgor.
(g) There are no actions, suits or proceedings (whether or not
purportedly on behalf of Pledgor) pending or, to the best knowledge of Pledgor,
threatened or affecting Pledgor that involve the Pledged Stock.
(h) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by Pledgor of this Pledge Agreement have been obtained, subject to
applicable state and federal securities laws.
(i) The Subsidiary is duly organized, validly existing and in good
standing under the laws of the State of [Insert State].
5. COVENANTS. (a) Pledgor hereby covenants that, so long as the Obligations
shall be outstanding and unpaid, in whole or in part, Pledgor will not, without
Monarch's prior written consent, sell, convey or otherwise dispose of any shares
of the Pledged Stock or any interest therein, nor will Pledgor create, incur or
permit to exist any pledge, mortgage, lien, charge, encumbrance or any security
interest whatsoever with respect to any of the Pledged Stock or the proceeds
thereof other than that created or permitted hereby, nor shall Pledgor vote the
Pledged Stock to permit or authorize the Subsidiary to issue any new debt or
equity securities.
(b) Pledgor warrants and will defend Monarch's right, title and
security interest in and to the Pledged Stock against the claims of any person,
firm, corporation or other entity.
6. SALE OF PLEDGED STOCK. (a) If Monarch shall determine to exercise its
right to sell any part of the Pledged Stock, and if, in the opinion of counsel
for Monarch, it is necessary to have the Pledged Stock, or that portion thereof
to be sold, registered under the provisions of the
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Securities Act of 1933, as amended (the "Securities Act"), Pledgor will use its
best efforts to cause the Subsidiary to (i) execute and deliver, and cause the
directors and officers of the Subsidiary, to execute and deliver, all at
Pledgor's expense, all such instruments and documents, and to do or cause to be
done all such other acts and things, as may be necessary to register the Pledged
Stock, or that portion thereof to be sold, under the provisions of the
Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for a period of one (1) year from the
date of the first public offering of the Pledged Stock, or that portion thereof
so to be sold, and to make all amendments thereto and/or to the related
prospectus which, in the opinion of Monarch or its counsel, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereto; (ii)
comply with the provisions of the securities laws and regulations of any
jurisdiction which Monarch shall designate; and (iii) make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) covering a period of twelve (12) months, but not more than eighteen
(18) months, beginning with the first month after the effective date of any such
registration statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act.
(b) Pledgor acknowledges that a breach of any of the covenants
contained in subparagraph 6(a) above will cause irreparable injury to Monarch,
that Monarch shall have no adequate remedy at law in respect of such breach and,
as a consequence, the covenants of Pledgor contained in said subparagraph 6(a)
shall be specifically enforceable against Pledgor. Pledgor hereby waives, and
shall not assert, any defenses against an action for specific performance of
such covenants, except for a defense that no other breach of or default under
the Obligations has occurred and is continuing.
(c) Notwithstanding the foregoing, Pledgor recognizes that Monarch may
be unable to effect a public sale of all or a part of the Pledged Stock, and may
be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sales
may be at places and on terms less favorable to the seller than if sold at
public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that Monarch has no obligation to
delay sale of any such securities for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the
Securities Act.
7. COOPERATION. Pledgor shall, at any time and from time to time upon the
request of Monarch, execute and deliver such further documents and do such
further acts and things as Monarch reasonably may request in order to effectuate
the purposes of this Pledge Agreement, including, without limitation, delivering
to Monarch on the date hereof or at any time hereafter irrevocable proxies in
respect of the Pledged Stock in the form of Exhibit C hereto.
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8. GENERAL. (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Stock while held hereunder, Monarch shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Stock upon surrendering it to Pledgor.
(b) No course of dealing between Pledgor and Monarch, nor any failure
to exercise, nor any delay in exercising, on the part of Monarch, any right,
power, or privilege, whether now existing or hereafter arising hereunder or
under the obligations, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power, or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege.
(c) The rights and remedies herein provided and provided in all other
agreements, instruments and documents delivered or to be delivered pursuant to
any of the foregoing or the Obligations are cumulative and are in addition to,
and not exclusive of, any rights or remedies provided by law, including, without
limitation, the rights and remedies of a secured party under the Uniform
Commercial Code.
(d) The provisions of this Pledge Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Pledge Agreement in any jurisdiction.
(e) This Pledge Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto. Notwithstanding
the foregoing, Pledgor shall not have the right to assign or delegate any of its
rights or obligations hereunder without the prior written consent of Monarch,
and any purported assignment or delegation in the absence of such consent shall
be void.
(f) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS
CONFLICT OF LAW PROVISIONS. PLEDGOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE
THE STATE AND FEDERAL COURTS OF THE STATE OF NEW YORK AND AGREES THAT ALL
DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF NEW YORK. PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE
EFFECTED UPON PLEDGOR UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE
OF NEW YORK AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF THE STATE OF NEW YORK.
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(g) Pledgor recognizes that Monarch has relied on the pledge and
security interest granted herein by Pledgor in extending credit and making the
financial accommodations contemplated by the Master Lease and Pledgor agrees
that such reliance by Monarch shall be sufficient consideration for this pledge.
(h) This Pledge Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(i) The section headings used herein are for convenience only and
shall not be read or construed as limiting the substance or generality of this
Pledge Agreement.
(j) Whenever the singular shall be used hereunder, it shall be deemed
to include the plural (and vice-versa) and reference to one gender shall be
construed to include all other genders, including neither, whenever the context
of this Pledge Agreement so requires.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and delivered as of the day and first year first written above.
TRANS HEALTHCARE, INC.
By:
-----------------------------------------
Name: Anthony F. Misitano
---------------------------------------
Title: President
--------------------------------------
MONARCH PROPERTIES, LP
By: MP Operating, Inc., as General Partner
By:
-----------------------------------------
Name: John B. Poole
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
9
AMENDED AND RESTATED
MASTER MANAGEMENT AGREEMENT
BETWEEN
LYRIC HEALTH CARE LLC
AND
IHS FACILITY MANAGEMENT, INC.
DATED AS OF JUNE 23, 1998
<PAGE>
TABLE OF CONTENTS
PART I MANAGEMENT TERMS AND CONDITIONS
ARTICLE I RETENTION OF MANAGER
ARTICLE II TERM
ARTICLE III RIGHTS AND DUTIES OF MANAGER
ARTICLE IV RIGHTS AND DUTIES OF OWNER
ARTICLE V COMPENSATION AND DISTRIBUTIONS
ARTICLE VI INTENTIONALLY OMITTED
ARTICLE VII INTENTIONALLY OMITTED
ARTICLE VIII TERMINATION RIGHTS
ARTICLE IX INDEMNIFICATION
ARTICLE X CONFIDENTIALITY; NON-SOLICITATION
ARTICLE XI CONDEMNATION
ARTICLE XII SUCCESSORS AND ASSIGNS
ARTICLE XIII MISCELLANEOUS PROVISIONS
PART II OTHER TERMS AND CONDITIONS
ARTICLE I INTENTIONALLY OMITTED
ARTICLE II REPRESENTATIONS AND WARRANTIES
ARTICLE III TERMINATION RIGHTS
ARTICLE IV INSURANCE
ARTICLE V MISCELLANEOUS PROVISIONS
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AMENDED AND RESTATED
MASTER MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MASTER MANAGEMENT AGREEMENT (this "Agreement") is
made and entered into as of June 23, 1998, between LYRIC HEALTH CARE LLC, a
Delaware limited liability company, with offices at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 ("Lyric") and IHS FACILITY MANAGEMENT, INC., a
Delaware corporation, with offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117 ("Manager").
INTRODUCTORY STATEMENT
Pursuant to a Master Management Agreement, dated as of January 13, 1998, as
amended by the First Amendment to Master Management Agreement, dated as of March
31, 1998 (the "Prior Master Management Agreement"), between Lyric and Manager,
Lyric and Manager entered into an agreement whereby Lyric granted to Manager the
sole and exclusive right to supervise, manage, and operate the Facilities listed
on Schedule 1 attached thereto.
Lyric and Manager now wish to amend and restate the Prior Master Management
Agreement pursuant to the terms and conditions of this Agreement.
Lyric owns, indirectly, all of the shares of each of the corporations
listed on Schedule 1 hereto (each, an "Owner" and collectively, the "Owners").
Each Owner operates the health care facility set forth opposite its name on
Schedule 1 hereto. (Each facility and the equipment, furnishings, and other
tangible personal property to be used in connection therewith shall be referred
to as a "Facility", and they shall be referred to collectively as the
"Facilities").
The Owners sublease their Facilities pursuant to Facility Subleases from
the wholly-owned subsidiary of Lyric described on Schedule 2 hereto ("Lessor"),
which Lessor in turn leases its Facilities from the owner of the Facilities
under the specified Master Lease (the "Master Lease") described on Schedule 2
hereto. Each of the Facility Subleases contains substantially the same
provisions as the associated Master Lease except for provisions concerning rent
and other matters specific to the Facility. In this Agreement "Lease" means the
Master Lease and the Facility Sublease as applicable to each Facility.
Each Owner has entered into a Facility Franchise Agreement with Integrated
Health Services Franchising Co., Inc. (each, a "Franchise Agreement") for the
use of certain "Proprietary Information" and the "IHS Systems" (as defined
therein) and the provision of certain services in order to facilitate the
operation of its Facility.
Manager is engaged in the operation of facilities similar to the
Facilities, and is experienced in various phases of the management, operation
and ownership thereof.
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Lyric and Manager are entering into this Agreement to set forth the general
terms by which all of the Facilities shall be managed. This Agreement also sets
forth the responsibilities of Manager with respect to the Franchise Agreements.
Simultaneously herewith, Manager shall enter into a Facility Management
Agreement with the Owner of each Facility. By entering into a Facility
Management Agreement, each Owner and Manager shall adopt the terms of Part I of
this Agreement by reference (except as expressly provided therein) and agree
upon certain additional terms and conditions for the management of each
Facility.
NOW, THEREFORE, in consideration of the promises and covenants herein
contained and intending to be legally bound hereby, the parties agree as
follows:
PART I
MANAGEMENT TERMS AND CONDITIONS
Lyric and Manager hereby agree to the following terms and conditions for
the management of each Facility:
ARTICLE I
RETENTION OF MANAGER
I.1 RETENTION. For and during the term of this Agreement, Owner hereby
grants to Manager the sole and exclusive right, and employs Manager to
supervise, manage, and operate the Facility in the name and for the account of
Owner upon the terms and conditions hereinafter set forth.
I.2 ACCEPTANCE. Manager accepts such appointment and agrees that it will
(a) perform its duties and responsibilities hereunder in accordance with this
Agreement, (b) use commercially reasonable efforts to supervise and direct the
management and operation of the Facility in an efficient manner, and (c) consult
with Owner and keep Owner advised of all major policy matters relating to the
Facility. Subject to the foregoing and to the other provisions of this
Agreement, Manager, without the approval of Owner (unless such approval is
herein specifically required as to policies and manner of operation), shall have
the unrestricted control and sole discretion with regard to the operation and
management of the Facility for all customary purposes (including the exercise of
its rights and performance of its duties provided for in Article III hereof),
and the right to determine all policies affecting the appearance, maintenance,
standards of operation, quality of service, and any other matter affecting the
Facility or the operation thereof.
I.3 INDEPENDENT CONTRACTOR. It is expressly agreed by Owner and Manager
that Manager is at all times acting and performing under this Agreement as an
independent contractor, and that no act, commission or omission by either Owner
or Manager shall be construed to make
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or constitute the other its partner, member, principal, agent, joint venturer or
associate, except to the extent specified herein.
I.4 OWNERSHIP. Owner shall be the owner and/or holder of all licenses,
permits and contracts obtained with respect to the Facility (subject to Section
3.7 hereof), and shall be the "provider" within the meaning of all third-party
contracts for the Facility. Specifically, and without limitation, Owner shall
own (a) the Medicare provider number, (b) the Medicare provider agreement with
Health Care Financing Administration (HCFA), and (c) the Medicare certification.
ARTICLE II
TERM
The initial term of this Agreement began on the Commencement Date, as
defined in the Prior Master Management Agreement (the "Commencement Date") and
shall continue for the same period as the Lease Term, as defined in the Lease.
This Agreement shall automatically renew for each extension or renewal term of
the Lease (the "Renewal Terms"), should Owner renew the Lease for one or more
such terms under the Lease; provided, however, Manager may decide not to renew
in any such case by giving notice to Owner not less than six (6) months prior to
the expiration of the Initial Term or any Renewal Term.
ARTICLE III
RIGHTS AND DUTIES OF MANAGER
During the Term of this Agreement, and in the course of its management and
operation of each Facility:
III.1 EMPLOYEES. Manager, on Owner's behalf, shall hire, promote,
discharge, and supervise the work of the Facility's Administrator, Assistant
Administrator, Department Heads, and all operating and service employees
performing services in and about the Facility. All of such employees shall be
employees of Owner, except for the Administrator and the Director of Nursing,
who shall be employees of Manager, and the aggregate compensation, including
fringe benefits, with respect to such employees, including the Administrator and
the Director of Nursing, shall be charged to Owner as an expense of the
operation of the Facility. The term "fringe benefits" as used herein shall
include, but not be limited to, the employer's contribution of FICA,
unemployment compensation, and other employment taxes, retirement plan
contributions, workman's compensation, group life, accident, and health
insurance premium, profit sharing contributions, disability, and other similar
benefits paid or payable by Manager with respect to other facilities which may
be managed by Manager. All such employees of Manager shall be covered by
appropriate malpractice and/or errors and omissions insurance as approved by
Manager and Owner. The cost of same shall be charged to Owner as an expense of
the operation
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of said Facility. Manager shall be responsible, also, for coordinating health
insurance coverages (including COBRA matters) for the employees of each
Facility.
III.2 LABOR CONTRACTS. Manager, if requested by Owner, will negotiate, on
Owner's behalf and at Owner's expense, with any labor union lawfully entitled to
represent the employees at the Facility, but any collective bargaining agreement
or labor contract resulting therefrom must first be approved by Owner who shall
be the only person authorized to execute the same. Owner agrees that all fees
and costs of outside professionals in conducting and concluding such
negotiations shall be paid by Owner out of Facility Funds.
III.3 CONCESSIONAIRES, ETC. Manager shall negotiate and consummate in the
name and at the expense of Owner, contracts or arrangements with
concessionaires, licensees, tenants, and other intended users of the Facility.
Any fees and expenses incurred in connection therewith shall be charged to Owner
as an expense of the operation of the Facility.
III.4 ANCILLARY SERVICES, UTILITIES ETC. Manager shall enter into such
contracts in the name of and at the expense of Owner as may be deemed necessary
or advisable for the furnishing of all ancillary services, utilities,
concessions, supplies and other services as may be needed from time to time for
the maintenance and operation of the Facility. Manager is authorized to contract
for or provide ancillary services, including, but not limited to, pharmacy (drug
and I.V.), rehabilitation and respiratory therapy services, and mobile
diagnostic services, through providers which are affiliates of Manager, provided
that such services are rendered at levels of quality and pricing that are
competitive with those available in the community.
III.5 PURCHASES. Manager shall supervise the purchasing by Facility staff
of food, beverages, operating supplies, and other materials and supplies, in the
name of and for the account and at the expense of Owner, as may be needed from
time to time for the maintenance and operation of the Facility.
III.6 REPAIRS. Manager shall make or install or cause to be installed at
Owner's expense and in the name of Owner any proper repairs, replacements,
additions, and improvements in and to the Facility and the furnishings and
equipment in order to keep and maintain the same in good repair, working order
and condition, and outfitted and equipped for the proper operation thereof in
accordance with (a) industry standards comparable to those prevailing in other
similar facilities, (b) all applicable state or local rules, regulations, or
ordinances, and (c) the terms and conditions of the Lease.
III.7 LICENSES AND PERMITS. Manager shall apply for and use commercially
reasonable efforts to obtain and maintain in the name and at the expense of
Owner, all licenses and permits required in connection with the management and
operation of the Facility. If Manager is required by law to obtain any license
or permit in its name, Manager agrees to use commercially reasonable efforts to
obtain and maintain such license or permit in its name, at Owner's expense.
Owner agrees to cooperate with Manager in applying for, obtaining, and
maintaining such licenses and permits.
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III.8 GOVERNMENTAL REGULATION.
(a) Manager shall use commercially reasonable efforts to take such
action as shall be reasonably necessary to insure that the Facility and the
management thereof by Manager complies with all federal, state and local laws,
regulations and ordinances applicable to the Facility or the management thereof
by Manager, including the particular laws and regulations applicable to health
care facilities.
(b) Manager shall promptly provide to Owner as and when received by
Manager, all notices, reports or correspondence from governmental agencies that
assert deficiencies or charges against the Facility or that otherwise relate to
the suspension, revocation, or any other action adverse to any approval,
authorization, certificate, determination, license or permit required or
necessary to own or operate the Facility. Manager may appeal any action taken by
any governmental agency against the Facility; provided, however, that Owner
shall adequately secure and protect Manager from loss, cost, damage or expense
by bond or other means satisfactory to Manager in order to contest by proper
legal proceedings the validity of any such statute, ordinance, law, regulation
or order, provided that such contest shall not result in the suspension of
operations of the Facility; and provided, further, that Owner shall have no
obligation to secure and protect Manager from any loss, cost, damage or expense
that arises directly out of Manager's material breach of any of its covenants
under this Agreement.
III.9 TAXES. Manager shall cause all taxes, assessments, and charges of
every kind imposed upon the Facility by any governmental authority, including
interest and penalties thereon (collectively, "Taxes"), to be paid when due from
Facility Funds (as defined in Section 3.10 below), subject to the terms of the
Lease, and in accordance with the Budget (as defined in Section 3.17 hereof) and
in the order of priority set forth in Section 3.10 below. Manager shall not
cause such Taxes to be paid if (a) such Taxes are in good faith being contested
by Owner at its sole expense and without cost to Manager, (b) enforcement for
nonpayment of such Taxes is stayed, and (c) Owner shall have given Manager
written notice of such contest and stay and authorized the non-payment thereof,
not less than ten (10) days prior to the date on which such Taxes are due and
payable. Interest or penalty payments shall be reimbursed by Manager to Owner if
imposed upon Owner by reason of the gross negligence on the part of Manager in
making the payment if funds are available therefor. Manager shall notify Owner
of all Taxes assessed against the Facility other than in the normal course of
business.
III.10 DEPOSIT AND DISBURSEMENT OF FUNDS. Manager shall deposit in a
banking institution which is a member of the FDIC in accounts in Manager's name,
as agent for Owner, all monies arising from the operation of the Facility or
otherwise received by Manager for and on behalf of Owner (the "Facility Funds"),
and shall disburse and pay the same from said accounts on behalf and in the name
of Owner pursuant to the Budget, in the following order of priority, as and when
required to be made in connection with:
(A) Payment of all costs and expenses arising out of the
administration, maintenance and operation of the Facility, including, without
limitation, Taxes, reimbursable
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expenses of Manager, and all accrued and unpaid interest on any unpaid balances
thereon, as set forth in Section 3.16;
(B) Payment of the Facility Rent or debt service on a first mortgage
(if any) on the Facility;
(C) Payment of the monthly installment to the capital expense reserve
for the Facility described in the Budget;
(D) Payment of interest due on the working capital line of credit for
the Facility;
(E) Payment of the letter of credit fee (for the security deposit
under the Lease), if required;
(F) Payment of all administrative and operating costs of Lyric;
(G) Payment of the "Annual Continuing Fee" due under the Franchise
Agreement;
(H) Payment of Manager's Base Management Fee provided for in Article V
hereof (including any accrued and unpaid Base Management Fees, plus all accrued
and unpaid interest thereon, for prior periods);
(I) Payment of subordinated mortgage debt (if any) with respect to the
Facility;
(J) Payment of the monthly installments to any supplemental capital
expense and working capital escrows and reserves described in the Budget;
(K) Payment of Manager's Incentive Management Fee provided for in
Article V hereof (including any accrued and unpaid Incentive Management Fees,
plus all accrued and unpaid interest thereon, for prior periods); and
(L) The balance of such funds shall be distributed to Owner, at
Owner's request, subject to the retention of an appropriate operating reserve,
as determined in Manager's reasonable judgment. In this Agreement, the term
"Facility Rent" means the scheduled payments of Rent, as defined in the Lease,
and all other applicable costs for the maintenance or operation of the Facility
and other payments required of Owner under the Lease.
III.11 STATEMENTS. Manager shall prepare and deliver (or cause to be
prepared and delivered) to Lyric's Managing Director all monthly, quarterly and
annual financial statements and Compliance Reports (as defined in Lyric's
Operating Agreement) and other reports, in the same form, and within the same
periods, as Lyric prepares or receives under Article 12 of Lyric's Operating
Agreement.
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III.12 LEGAL ACTIONS. Manager shall institute, in its own name or in the
name of Owner, but in any event at the expense of Owner, any and all legal
actions or proceedings to collect charges, rent, or other sums due the Facility
or to lawfully oust or dispossess tenants or other persons in possession under,
or lawfully cancel, modify, or terminate any lease, license, or concession
agreement for the breach thereof or default thereunder by the tenant, licensee,
or concessionaire. Unless otherwise directed by Owner, Manager may take, at
Owner's expense, appropriate steps to protect and/or litigate to final judgment
in any appropriate court any violation or order affecting the Facility. Any
counsel to be engaged under this Section shall be approved by Owner, which
approval shall not be unreasonably withheld. Manager shall promptly notify Owner
and Lessor of all legal actions.
III.13 MANAGEMENT SERVICES. Without limitation, Manager shall provide the
Facility with all of the customary management services and techniques which it
employs in operating other facilities which it manages which may be applicable
to and beneficial to the Facility.
III.14 DATA PROCESSING. Manager shall, directly or through an affiliate,
provide the data processing required to maintain the financial, payroll, and
accounting records of the Facility; except that Manager agrees that the Facility
payroll will not be moved to Manager's central payroll administration until same
can be accomplished without a material disruption to Facility cash flow.
III.15 BOOKS AND RECORDS. Manager on behalf of Owner shall supervise and
direct the keeping of full and accurate books of account and such other records
reflecting the results of operation of the Facility as required by law.
III.16 PAYMENT OF EXPENSES.
(A) OWNER EXPENDITURES. All expenditures and advances of every kind
required or permitted of Manager under this Agreement are for Owner's account
("Owner Expenditures"), except for Manager's Staff Services (described below).
Manager is authorized to pay all Owner Expenditures from Facility Funds. Owner
shall pay directly (or reimburse Manager promptly if Manager advances funds for)
any Owner Expenditures not paid from Facility Funds. Manager's "Staff Services"
- -- not reimbursable by Owner -- means only salaries and benefits of Manager's
officers and home office staff, as well as Manager's home office overhead not
specifically allocable to the Facility.
(B) REIMBURSEMENT OF ADVANCES. Manager may from time to time (but
shall not be obligated to) advance or incur expenses in respect of the operation
or maintenance of the Facility, including, without limitation, the items listed
on Exhibit A hereto. Such expenses shall be immediately reimbursable to Manager
out of Facility Funds in the priority set forth in Section 3.10 hereof. Any such
expenses advanced from Manager and not reimbursed within thirty (30) days shall
bear interest from the date advanced until paid in full at a rate per annum
equal to the prime rate of Citibank, N.A., as then in effect, plus two percent
(2%).
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III.17 BUDGETS. Manager shall be responsible for the following budgetary
items:
(A) PREPARING BUDGETS. Manager at its sole cost shall prepare and
submit to Owner for Owner's review and approval a yearly operating budget and a
yearly capital budget in a form reasonably acceptable to Owner. Manager shall
present such budgets on a cash basis also. Manager shall submit each year's
proposed budgets to Owner no later than November 15 of the preceding year. Owner
will consider the proposed budgets and then consult with Manager in order to
finalize an approved budget on or before December 15 of the preceding year. (The
budgets for 1998 shall be presented within 60 days after the date of this
Agreement unless Owner and Manager agree otherwise.) Such budgets shall:
(i) set forth on a month to month basis all anticipated income,
operating expenses, working capital and other necessary reserves and
capital expenditures for such calendar year in connection with the
operation of the Facility;
(ii) contain all of the items referenced in the approved budget
for 1998; and
(iii) include all supporting schedules requested by Owner.
The operating budget and the capital budget, as approved by Owner,
shall be referred to herein as the "Operating Budget" and the "Capital Budget,"
respectively, and shall be referred to collectively as the "Budget."
(B) REVISED BUDGET/UNFORESEEN INCREASES. If Owner or Manager believes
that it is necessary to revise the Budget after it has been approved, Manager
shall prepare and deliver to Owner a revised budget. Any proposed changes to the
Budget shall be addressed in the revised budget and Manager shall explain such
changes. Manager shall not implement the revised budget without Owner's
approval, which may be granted or withheld in Owner's sole discretion. If Owner
approves the revised budget, the terms of such revised budget, as approved,
shall amend the Budget accordingly. During each calendar year, Manager shall
promptly inform Owner of any major increases in costs and expenses that were not
foreseen during the Budget preparation period and thus were not reflected in the
Budget.
(C) OWNER'S APPROVAL REQUIRED. If Owner shall not have approved any
proposed budgets, the Operating Budget then in effect shall continue until an
Operating Budget is agreed upon; provided, however, that until such agreement is
reached, Manager may reasonably exceed the Operating Budget for the previous
fiscal year for taxes, utility charges, costs under existing agreements which
(by the terms of such agreements) automatically increase at the beginning of the
new year, and other items not within Manager's reasonable control. There will be
no Capital Budget for any year until a Capital Budget for such year is approved
by Owner.
III.18 COMPLIANCE WITH FRANCHISE AGREEMENT. Manager shall use commercially
reasonable best efforts to cause Owner to comply with Owner's obligations as the
"Franchisee" under the Franchise Agreement to the extent that such obligations
are capable of (and appropriate
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for) performance by Manager on Owner's behalf, subject to the terms and
conditions of this Agreement, and are not personal to Owner.
III.19 COMPLIANCE PROGRAM. Manager shall implement and monitor a compliance
program designed to identify and eradicate fraud and abuse relating to the
Facility and its operation. Such program will include, among other things,
advertising the toll free "fraud and abuse" telephone line operated by
Integrated Health Services Franchising Co., Inc.
ARTICLE IV
RIGHTS AND DUTIES OF OWNER
During the term of this Agreement:
IV.1 RIGHT OF INSPECTION. Owner (and Lessor, subject to and in accordance
with the Lease) shall have the right to enter upon any part of the Facility upon
reasonable advance notice to Manager for the purpose of examining or inspecting
same or examining or making extracts of books and records of the Facility, but
the same shall be done with as little disruption to the business of the Facility
as possible. However, the books and records of the Facility shall not be removed
from the Facility without the express written consent of Manager. Owner
acknowledges that some books and records will be maintained at Manager's
principal place of business.
Owner shall direct all inquiries regarding operations, procedures,
policies, employee relations, patient care, and all other matters concerning the
Facility to the Senior Vice President of Manager's Managed Division or other
officer of Manager as it may from time to time designate in a written notice to
Owner.
IV.2 COOPERATION WITH MANAGER. Owner will fully cooperate with Manager in
operating and supervising the operations of the Facility and will reimburse
Manager for all funds expended or costs and expenses incurred to which Manager
is entitled to reimbursement hereunder.
IV.3 OPERATING CAPITAL. Owner shall provide Manager with such amount of
working capital as may be required from time to time for the operation of the
Facility on a sound financial basis (including the payment of management fees
and reimbursable expenses owed to Manager). If additional working capital is
required, Manager shall notify Owner thereof in writing and Owner shall provide
Manager with such increase in working capital within fifteen (15) days
thereafter. If Owner fails to provide such additional working capital, Manager
may, but is not obligated to, provide the same as a loan to Owner in accordance
with Section 3.16.
IV.4 CAPITAL IMPROVEMENTS. Owner shall provide Manager with such amount of
funds as may be required from time to time to make all necessary capital
improvements to the Facility in order to maintain and continue standards of
operation of the Facility as a nursing home. If additional capital improvement
funds are required, Manager shall notify Owner thereof in writing
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and Owner shall provide Manager with such additional capital improvement funds
within fifteen (15) days thereafter. If Owner fails to provide such additional
capital improvement funds, Manager may, but is not obligated to, provide the
same as a loan to Owner in accordance with Section 3.16.
ARTICLE V
COMPENSATION AND DISTRIBUTIONS
V.1 As full and exclusive compensation for all of the services to be
rendered by Manager during the Term of this Agreement, Owner shall pay to
Manager at its principal office, or at such other place as Manager may from time
to time designate in writing, and at the times hereinafter specified:
(A) A monthly fee (the "Base Management Fee") equal to three percent
(3%) of Gross Revenues derived for each calendar month of the Term; provided
that if Gross Revenues for any calendar year exceed $350 million, then the Base
Management Fee for such year shall be four percent (4%) of Gross Revenues for
such calendar year and the resulting increase shall be paid in one installment
with the last monthly payment of Base Management Fee for such year. The Base
Management Fee shall be payable five (5) days after delivery to Owner of the
monthly financial statements referred to in Section 3.11 (each such date being
hereinafter referred to as a "Payment Date") and shall be calculated based upon
the Gross Revenues of the Facilities during the preceding month as set forth in
such financial statements; and
(B) An annual fee (the "Incentive Management Fee") equal to seventy
percent (70%) of the Net Cash Flow for each calendar year during the Term of
this Agreement. The Incentive Management Fee shall be: (1) calculated and earned
on an annual basis; and (2) paid to Manager on an estimated basis in advance in
equal monthly installments on each Payment Date. The estimated Incentive
Management Fee for each year (other than the first year) shall be equal to the
actual Incentive Management Fee paid to Manager for the previous year. For the
first year, the estimated Incentive Management Fee shall be determined promptly
after the date hereof by Manager and Owner. Promptly after the annual audited
financial statements have been delivered to Owner's Managing Director, Manager
shall give notice to Owner stating whether the installments of the Incentive
Management Fee paid to Manager for such year were greater or less than the
actual Incentive Management Fee earned. If there is a deficiency, Owner shall
pay such amount to Manager within fifteen (15) days after such notice; and if
there is an overpayment, the amount of such overpayment shall be offset against
installments of the Incentive Management Fee next becoming due to Manager.
Manager shall be entitled to a pro-rata portion of the Incentive Management Fee
for any partial calendar year during the Term. If and to the extent that Owner
experiences bad debts or poor collections exceeding the amounts reserved for in
its Budget, and as a result Owner is unable to pay all or any part of the
monthly installment of the Incentive Management Fee for a particular month, the
unpaid portion of such installment shall accrue and be payable (with interest as
calculated pursuant to Section 5.3) as soon as cash flow permits but in
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no event later than at the end of the current year. The foregoing sentence shall
not apply for more than one year.
The formula for calculating the Net Cash Flow for the Facilities
shall be as follows:
From: Gross Revenues for the Facilities (calculated according
to GAAP)
Subtract: All amounts described in Sections 3.10(a), (b), (c),
(d), (e), (f), (g), (h), (i), and (j) hereof
V.2 For the purposes of determining such management fees, "Gross Revenues"
means, for any period, all revenues and income of any kind derived directly or
indirectly by the Owners during such period, including rental or other payment
from concessionaires, licensees, tenants, and other users of all Facilities
covered by this Agreement, and from the sale of products and/or the furnishing
of services (including all revenues or receipts derived from or associated with
the Proprietary Materials (as defined in the Franchise Agreement)), but
excluding therefrom all bequests, gifts, or similar donations, whether on a cash
basis or on credit, paid or unpaid, collected or uncollected, as determined in
accordance with GAAP, excluding, however:
(A) federal, state, and municipal excise, sales, and use taxes
collected directly from patients as a part of the sales prices of any goods or
services;
(B) proceeds of any life insurance policies;
(C) gains or losses arising from the sale or other disposition of
capital assets;
(D) any reversal or accrual of any contingency or tax reserve;
(E) interest earned on sinking funds, Special Security Accounts, bonds
funds, etc. originally and specifically formed as a requirement of any bond
issue (if any) utilized to finance the Facility; and
(F) bad debt expense.
The proceeds of business interruption insurance or proceeds as a result of
Medicare and Medicaid audits shall be included in Gross Revenues for the period
in which they are received. However, funds required to be repaid as a result of
Medicare and Medicaid audits shall be deducted from Gross Revenues for the
period in which they are paid.
V.3 Notwithstanding the foregoing, the Base Management Fee and the
Incentive Management Fee (including any amount carried over pursuant to the
succeeding sentence hereof) shall be payable on each Payment Date only to the
extent that the Facility Funds (as defined in Section 3.10) shall be sufficient
as of such date. In the event that any portion of the Base Management Fee and
the Incentive Management Fee is not paid due to the insufficiency of Facility
Funds, interest shall accrue on such unpaid amount at a rate per annum equal to
the prime
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rate of Citibank, N.A. then in effect, plus two percent (2%), and such total
amount shall be carried over and be payable on the immediately succeeding
Payment Date. When Facility Funds become available to pay past due Base
Management Fees and Incentive Management Fees, the fees shall be deemed to be
paid in the order in which they were earned. Any and all accrued and unpaid Base
Management Fees and Incentive Management Fees shall become immediately and fully
payable by Owner upon the expiration or any termination of this Agreement,
regardless of the availability of Facility Funds.
V.4 (A) In order to secure performance and payment of all obligations and
liabilities of Owner to Manager under this Agreement, whether now existing or
hereafter arising, including, without limiting the generality of the foregoing,
the payment of all Base Management Fees, Incentive Management Fees, and
reimbursable expenses of Manager (collectively, the "Obligations"), Owner hereby
grants to Manager a security interest in all of the assets of the Facility,
including, but not limited to, the following described property (collectively,
the "Collateral"):
(I) Owner's leasehold interest in the Facility and any and all
rights that Owner now has or may hereafter acquire to purchase the
Facility;
(II) all accounts receivable now owned or hereafter acquired by
Owner in connection with the Facility;
(III) all equipment, furniture, and fixtures now owned or
hereafter acquired by Owner and located at or used in connection with the
Facility;
(IV) all contract rights now owned or hereafter acquired by Owner
in connection with the operation of the Facility;
(V) all inventory, supplies, goods, merchandise, work in
progress, finished goods, and other personal property other than accounts
receivable now owned or hereafter acquired by Owner and located at or used
in connection with the Facility;
(VI) all licenses, permits and other intangible assets; and
(VII) any and all proceeds of any of the foregoing.
(B) Manager shall have, in any jurisdiction where enforcement of this
Agreement is sought, in addition to any and all other rights and remedies it may
have under this Agreement, or at law, in equity, by statute or otherwise, all
the rights and remedies of a secured creditor under the Uniform Commercial Code,
including, but not limited to, the right to any deficiency remaining after
disposition of the Collateral.
(C) This security interest is (and shall at all times be) subordinate
to: (i) any security interests granted (or to be granted) in connection with the
working capital line of credit
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for the Facility, (ii) any security interests granted (or to be granted) to
Lessor under the Lease, and (iii) any mortgages of the Facility.
ARTICLE VI
INTENTIONALLY OMITTED
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
TERMINATION RIGHTS
VIII.1 TERMINATION BY OWNER. If at any time or from time to time during the
Term any of the following events shall occur and not be remedied within the
applicable period of time herein specified, namely:
(A) Manager shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of Manager of all or a substantial part of its
assets, file a voluntary petition in bankruptcy, make a general assignment for
the benefit of creditors, file a petition or an answer seeking reorganization or
arrangement with creditors or take advantage of any insolvency law, or if an
order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of a creditor, adjudicating Manager as bankrupt
or insolvent or approving a petition seeking reorganization of Manager or
appointing a receiver, trustee, or liquidator of Manager or of all or
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of ninety (90) consecutive days;
or
(B) Manager shall materially fail to keep, observe, or perform any
covenant, agreement, term or provision of this Agreement to be kept, observed,
or performed by Manager, and such default shall continue for a period of sixty
(60) days after written notice thereof by Owner to Manager; or
(C) Manager shall, in the performance of its services hereunder,
engage in self-dealing, commit fraud, or act (or fail to act) in a manner which
constitutes willful misconduct or gross negligence and shall not cure or correct
such matter within sixty (60) days after written notice thereof by Owner to
Manager;
then in case of any such event and upon the expiration of the period of grace
(if any) applicable thereto, the Term of this Agreement shall expire, at Owner's
option and upon ten (10) days written notice to Manager; provided, however, that
in the case of a default as described in
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subsection (b) above, this Agreement may be terminated only as to the Facility
with respect to which such default has occurred.
VIII.2 TERMINATION BY MANAGER. If at any time or from time to time during
the Term any of the following events shall occur and not be remedied within the
applicable period of time herein specified, namely:
(A) Owner shall fail to keep, observe, or perform any covenant,
agreement, term or provision of this Agreement to be kept, observed, or
performed by Owner (except for a payment default described in Section 8.2(b)
below) and such default shall continue for a period of sixty (60) days after
written notice thereof by Owner to Manager;
(B) Owner shall fail to make any payment required hereunder and such
default shall continue for a period of sixty (60) days after written notice from
Owner to Manager;
(C) The Facility or any portion thereof shall be damaged or destroyed
by fire or other casualty and (i) Owner shall fail to undertake to repair,
restore, rebuild, or replace any such damage or destruction within forty-five
(45) days after such fire or other casualty, or shall fail to complete such work
diligently, and (ii) Owner shall fail to permit Manager to undertake to repair,
restore, rebuild, or replace, at Owner's expense, any such damage or destruction
within forty-five (45) days after such fire or other casualty;
(D) Owner shall apply for or consent to the appointment of a receiver,
trustee, or liquidator of Owner or of all or a substantial part of its assets,
file a voluntary petition in bankruptcy or admit in writing its inability to pay
its debts as they become due, make a general assignment for the benefit of
creditors, file a petition or any answer seeking reorganization or arrangement
with creditors or take advantage of any insolvency law, or if an order, judgment
or decree shall be entered by a court of competent jurisdiction, on the
application of a creditor, adjudicating Owner bankrupt or appointing a receiver,
trustee, or liquidator of Owner with respect to all or substantial part of the
assets of Owner, and such order, judgment or decree shall continue unstayed and
in effect for any period of ninety (90) consecutive days;
(E) Any license for the Facility or the Lease is at any time
suspended, terminated, or revoked and such suspension, termination, or
revocation shall continue unstayed and in effect for a period of thirty (30)
consecutive days; or
(F) Facility Funds shall be insufficient for the payment of the Base
Management Fees to Manager pursuant to Article V hereof for a period of at least
two consecutive fiscal quarters (other than as a result of the mismanagement or
other wrongful act or omission of Manager);
then in case of any such event and upon the expiration of the period of grace
(if any) applicable thereto, the term of this Agreement shall expire, at
Manager's option and upon ten (10) days written notice to Owner and Lessor.
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VIII.3 MATERIAL ADVERSE CHANGE. Manager shall be entitled to terminate this
Agreement as to any Facility in the event that any material adverse change
occurs in the financial or operating condition of such Facility, its business or
prospects. Such termination shall become effective three (3) months after
Manager delivers a termination notice to Owner and Lessor; however, if Owner and
Manager agree that Owner should sell its interest in the Facility, Manager shall
continue to manage the Facility for a period not to exceed six (6) months after
delivery of the termination notice to facilitate the sale of its interest in the
Facility. Notwithstanding the preceding sentence, Manager shall have no right to
terminate this Agreement pursuant to this Section 8.3 if the material adverse
change in the Facility is due to the mismanagement or other act or omission of
Manager.
VIII.4 SURVIVING RIGHTS UPON TERMINATION. If either party exercises its
option to terminate pursuant to this Article VIII, each party shall account for
and pay to the other all sums due and owing pursuant to the terms of this
Agreement within thirty (30) days after the effective date of termination.
Without limiting the generality of the foregoing, within thirty (30) days after
the effective date of termination of this Agreement, Owner shall be obligated to
pay to Manager all accrued and unpaid Base Management Fees, a pro-rata portion
of the Incentive Management Fees, and reimbursable expenses of Manager, together
with all accrued and unpaid interest thereon, notwithstanding that available
Facility Funds may not be sufficient for such purposes. All other rights and
obligations of the parties under this Agreement shall terminate (except as set
forth in Article IX hereof), except that Manager's security interest in the
Collateral shall not terminate until Manager has been paid in full.
VIII.5 DISPUTE RESOLUTION.
(A) In the event of any dispute or controversy arising under or in
connection with this Agreement, the parties shall attempt to resolve such
dispute or controversy by mediation as provided in this Section 8.5(a) prior to
exercising any rights under the remaining provisions of Section 8.5. Either
party may commence mediation by notice to the other party (the "Mediation
Notice"), which notice shall name a proposed Mediator (as defined below) to
resolve the dispute. The party receiving the Mediation Notice, within seven days
after receipt, shall send the other party notice accepting the proposed Mediator
(the "Acceptance Notice") or proposing an alternate Mediator (the "Alternate
Notice"). Within seven (7) days after receipt of an Alternate Notice, the
receiving party shall deliver notice accepting or rejecting the alternate
Mediator. Within five (5) days after the Mediator has been selected the dispute
shall be submitted to him or her by both parties, and the Mediator shall decide
the dispute within fourteen (14) days thereafter. The decision of the Mediator
shall not be binding upon the parties, and after the Mediator issues a decision
either party may submit the dispute to arbitration, as provided in Sections
8.5(b) and (c). If the parties fail to agree upon a Mediator within twenty (20)
days after receipt of the Mediation Notice, the dispute may be resolved as
provided in Sections 8.5(b) and (c). "Mediator" means an individual with
experience relevant to the matter in dispute who is not employed by or
affiliated with either party and who does not have (and is not an officer,
employee or director of an entity which has) significant business contacts with
either party. Each party shall pay fifty percent of the costs of the Mediator.
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(B) Subject to Section 8.5(a), any dispute between Owner and Manager
regarding a financial, tax, or accounting issue shall be resolved exclusively
through arbitration conducted by a principal of KPMG Peat Marwick (the
"Financial Arbitrator"). Either party may commence arbitration hereunder by
notice to the other party and to the Financial Arbitrator, who shall decide the
dispute. Each party shall pay fifty percent of the costs of the Financial
Arbitrator. The Financial Arbitrator shall conduct the arbitration in any manner
he or she elects; however, the Financial Arbitrator shall issue a final decision
with respect to such dispute within thirty (30) days after the dispute is
referred to him or her. The decision of such Financial Arbitrator shall be final
and binding upon the parties and shall not be subject to appeal. Judgment upon
the award rendered by the Financial Arbitrator may be entered in any court
having in personam and subject matter jurisdiction over the parties.
(C) Subject to Sections 8.5(a) and (b), any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration, conducted before a panel of three arbitrators, in accordance
with the rules of the American Arbitration Association ("AAA") then in effect,
and judgment may be entered on the arbitrators' award in any court having in
personam and subject matter jurisdiction over the parties. Each party shall pay
fifty percent of the costs of the AAA and the arbitrators. Each party shall
select one arbitrator, and the two so designated shall select a third
arbitrator. If either party shall fail to designate an arbitrator within seven
(7) days after arbitration is requested, or if the two arbitrators shall fail to
select a third arbitrator within fourteen (14) days after arbitration is
requested, then an arbitrator shall be selected by the AAA upon application of
either party. In considering any issue under this Agreement, the arbitrators
shall construe and interpret this Agreement strictly in accordance with the
specific terms and provisions hereof and in accordance with the judicial
decisions, statutes, and other indicia of the law of the state of Maryland.
ARTICLE IX
INDEMNIFICATION
IX.1 INDEMNIFICATION OF OWNER BY MANAGER. Manager shall indemnify and hold
Owner and its members, officers, directors, shareholders, employees and
affiliates harmless from any and all claims, losses, judgments, damages,
expenses and liabilities whatsoever, (including reasonable attorneys' fees),
incurred by any of them, arising out of Manager's material breach of this
Agreement or any third party claims which are caused in whole or in part by any
grossly negligent act, willful omission, fraud or self-dealing of Manager in
connection with the performance of its duties under this Agreement. However,
Manager's obligation to indemnify Owner shall not extend to any Medicare cost
disallowances, or any Medicare, Medicaid, or other governmental fines or
penalties. Manager's obligations under this Section 9.1 shall survive
termination of this Agreement.
IX.2 INDEMNIFICATION OF MANAGER BY OWNER. Owner shall indemnify and hold
Manager and Manager's officers, directors, shareholders, employees and
affiliates harmless from any and all claims, losses, judgments, damages,
expenses and liabilities whatsoever (including
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reasonable attorneys' fees) incurred by any of them in connection with, by
reason of, or arising out of: (i) Manager's performance of services, or
undertaking of responsibilities under this Agreement; (ii) Manager's status as
manager of the Facility; (iii) any default by Owner in keeping Owner's
obligations under this Agreement; (iv) any damage to property, or injury or
death to persons, occurring in or with respect to the Facility; and/or (v) any
other claim asserted against any of them in connection with the Facility or any
matter relating thereto, excluding, however, any matters covered by Manager's
indemnity under Section 9.1.
IX.3 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS. A party seeking
indemnification under this Article IX shall give the other party prompt written
notice of the claim for which it seeks indemnification. Failure of the party
seeking indemnification to give such prompt notice shall not relieve the other
party of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages suffered by such other party
resulting from a failure to give prompt notice hereunder. The party receiving
the aforementioned notice shall provide the defense of such claim, including,
without limitation, retention and payment of attorneys.
IX.4 LIMITATION OF EXPENDITURE OBLIGATION. Notwithstanding anything to the
contrary in this Agreement, Manager shall have no obligation whatsoever to make
any advance to or for the account of Owner, or to pay any amount contemplated
for, or required of, Manager under this Agreement, or to incur any expenditure
obligation--whether ordinary or capital--except to the extent that funds are
available for such purpose (in Manager's reasonable judgment), either from
working capital or capital funds provided by Owner or otherwise from the
Facility Funds. Moreover, if Manager so requests, from time to time, Owner shall
sign, as principal, any contract or agreement which Manager is authorized or
required to execute pursuant to this Agreement to evidence that Manager is
acting solely as Owner's agent and not as principal.
ARTICLE X
CONFIDENTIALITY; NON-SOLICITATION
X.1 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Owner acknowledges that
Manager's business involves the development and use of Confidential Information
(defined below) and that Manager will make available such Confidential
Information to Owner and the Facility in connection with Manager's duties under
this Agreement. Manager acknowledges that Owner and the Facility's business
involves the development and use of Confidential Information and that Owner and
the Facility will make available such Confidential Information to Manager in
connection with Manager's duties under this Agreement (subject to Owner's
obligations as Franchisee under the Franchise Agreement). Except as Owner and
Manager may disclose in fulfillment of their duties and responsibilities under
this Agreement (subject to Owner's obligations as Franchisee under the Franchise
Agreement) or as may be required to be disclosed by Owner, the Facility and
Manager by law, the parties and their respective officers, directors, employees
or agents shall not, at any time during or after the term of this Agreement,
divulge, furnish or make accessible Confidential Information to any person or
entity for any purpose whatsoever.
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"Confidential Information" means any confidential or proprietary information,
including, without limitation, manuals, forms, policies and procedures, computer
programs, system documentation and related software, patient records and patient
information, and any other information of any kind with respect to the finances,
business plans or business operations of the parties.
X.2 NON-USE AND RETURN OF MATERIALS. Effective upon a termination of this
Agreement for any reason whatsoever, the parties and their respective officers,
directors, employees and agents shall not use any Confidential Information for
any purpose whatsoever, including, but not limited to, use in connection with
the operation and management of Facility.
X.3 NON-SOLICITATION. Owner and Manager agree that, for the entire term of
this Agreement and for twelve (12) months after the date that this Agreement is
terminated, (a) Owner shall not entice or induce, directly or indirectly, any
employee to leave the employ of Manager to work with or for Owner, or to work
with any person or entity with whom Owner becomes affiliated, and (b) Manager
shall not entice or induce, directly or indirectly, any employee to leave the
employ of Owner to work with or for Manager, or to work with any other person or
entity with whom Manager is or becomes affiliated.
X.4 REMEDIES. The parties agree that an aggrieved party who is the
beneficiary of any restriction contained herein may not be adequately
compensated for damages for a breach of the covenants contained in this Article
X, and such aggrieved party shall be entitled to injunctive relief and specific
performance in addition to all other remedies. If a court of competent
jurisdiction shall finally determine that the restraints provided for in this
Article X are too broad as to the activity, geographic area or time covered,
said activity, geographic area or time covered will be reduced to whatever
extent the court deems necessary, and such covenant shall be enforced as to such
reduced activity, geographic area or time period.
ARTICLE XI
CONDEMNATION
If the whole of any Facility shall be taken or condemned in any eminent
domain, condemnation, compulsory acquisition, or like proceeding by a competent
authority for any public or quasi-public use or purpose or if such portion
thereof shall be taken or condemned as to make it unsuitable for its primary
intended use, then the Term shall cease and terminate as to such Facility on the
date on which Owner shall be required to surrender possession of the Facility.
Manager shall continue to supervise and direct the management of the Facility
until such time as Owner shall be required to surrender possession of the
Facility as a consequence of such taking or condemnation.
If only a part of a Facility shall be taken or condemned and the taking or
condemnation of such part does not make it unsuitable for its primary intended
use, this Agreement shall not terminate.
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ARTICLE XII
SUCCESSORS AND ASSIGNS
XII.1 ASSIGNMENTS BY MANAGER. Manager, without the consent of Owner or
Lessor, shall have the right to assign this Agreement to a wholly or majority
owned subsidiary of Manager or Integrated Health Services, Inc., provided, that
Manager shall not thereby be released from its obligations hereunder. In the
event that all or substantially all the assets of Manager or its capital stock
shall during the term of this Agreement be acquired by another corporation
(hereinafter referred to as the "Acquiring Corporation") as a result of a
merger, consolidation, reorganization, or other transaction, and the Acquiring
Corporation assumes all of the obligations of Manager then accrued hereunder, if
any, the Manager shall be relieved of all such obligations (and such Acquiring
Corporation shall be relieved of liability hereunder if it subsequently is
involved in such an acquisition). Except as otherwise permitted herein, Manager
shall have no right to assign this Agreement.
XII.2 SALE, ASSIGNMENT OR SUBLEASE BY OWNER; RELATED MATTERS. Any sale,
sublease, or assignment with respect to any Facility, other than to Manager,
shall be expressly subject to the terms and provisions of this Agreement and
shall not relieve Owner of its liability or obligations hereunder, and Owner
shall cause any purchaser, assignee, or sublessee to deliver to Manager written
acknowledgment of its agreement to perform hereunder including the payment of
the management fees described herein. Owner shall not sublease all or any
portion of any Facility without the prior written consent of Manager, which may
be granted or withheld in Manager's sole and absolute discretion. Except with
respect to matters involving the Lease and Lessor, Owner may not at any time,
without the prior written consent of Manager, incur any additional debt or
subject its interest in any Facility or any part thereof to the lien of one or
more deeds of trust, mortgages, or other security instruments. In the event that
such consent is given, such additional debt or security interest shall be
subordinate to Manager's rights and security interest granted pursuant to this
Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
XIII.1 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in the Agreement
shall constitute or be construed to be or create a partnership or joint venture
between Owner, its successors, or assigns on the one part and Manager, its
successors, or assigns on the other part. Notwithstanding the foregoing, the
parties hereby agree that they shall each have a duty to act in good faith and
to deal fairly with the other party hereto.
XIII.2 MODIFICATIONS AND CHANGES. This Agreement cannot be changed or
modified except by another agreement in writing signed by Owner and Manager.
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XIII.3 UNDERSTANDING AND AGREEMENTS. This Agreement and the Facilities
Management Agreements constitute the entire understanding and agreement of
whatsoever nature or kind existing between the parties with respect to Manager's
management of the Facility.
XIII.4 HEADINGS, ETC. The article and paragraph headings contained herein
are for convenience of reference only and are not intended to define, limit, or
describe the scope of intent of any provision of this Agreement. The Exhibits
and Schedules attached hereto form part of this Agreement.
XIII.5 APPROVAL OR CONSENT. Whenever under any provisions of this
Agreement, the approval or consent of either party is required, the decision
thereon shall be promptly given and such approval or consent shall not be
unreasonably withheld, unless this Agreement expressly provides that a decision
shall be made in a party's sole discretion. It is further understood and agreed
that whenever under any provisions of this Agreement the approval or consent of
Owner is required, such approval or consent may be given by Timothy F. Nicholson
or such other person designated in a notification signed by or on behalf of
Owner. For all purposes under this Agreement, Manager shall determine solely
from the latest such notification received by it the person or persons
authorized to give such approval or consent. Manager shall rely exclusively and
conclusively on the designation set forth in such notification, notwithstanding
any notice of knowledge to the contrary.
XIII.6 GOVERNING LAW. This Agreement shall be deemed to have been made
and shall be construed and interpreted in accordance with the laws of the State
of Maryland.
XIII.7 ENFORCEABILITY. Should any provision of this Agreement be
unenforceable as between the parties, such unenforceability shall not affect the
enforceability of the other provisions of this Agreement.
XIII.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20
<PAGE>
PART II
OTHER TERMS AND CONDITIONS
ARTICLE I
INTENTIONALLY OMITTED
ARTICLE II
REPRESENTATIONS AND WARRANTIES
II.1 ORGANIZATION AND STANDING OF LYRIC. Lyric represents and warrants to
Manager that Lyric is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. Copies of
the Certificate of Formation and Operating Agreement of Lyric, and all
amendments thereof to date, have been, if requested, delivered to Manager and
are complete and correct in all material respects. Lyric has the power and
authority to own the property and assets now owned by it and to conduct the
business presently being conducted by it.
II.2 ABSENCE OF CONFLICTING AGREEMENTS. Lyric represents and warrants to
Manager that neither the execution or delivery of this Agreement, including all
Exhibits and Schedules hereto, or any of the other instruments and documents
required or contemplated hereby and thereby (the "Transaction Documents") by
Lyric, nor the performance by Lyric of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default or requires the
consent of any third party under (i) the Certificate of Formation or the
Operating Agreement of Lyric; or (ii) to the best of its knowledge after due
inquiry, any applicable law, rule, judgment, order, writ, injunction, or decree
of any court, currently in effect; or (iii) to the best of its knowledge after
due inquiry, any applicable rule or regulation of any administrative agency or
other governmental authority currently in effect; or (iv) any agreement,
indenture, contract or instrument to which Lyric is now a party or by which the
assets of Lyric are bound.
II.3 ORGANIZATION AND STANDING OF MANAGER. Manager represents and warrants
to Lyric that Manager is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Copies of the Articles of
Incorporation and By-Laws of Manager, and all amendments thereof to date, have
been, if requested, delivered to Lyric and are complete and correct in all
material respects. Manager has the power and authority to own the property and
assets now owned by it and to conduct the business presently being conducted by
it.
II.4 ABSENCE OF CONFLICTING AGREEMENTS. Manager represents and warrants to
Lyric that neither the execution or delivery of this Agreement, including all
Exhibits and Schedules hereto, or any of the Transaction Documents by Manager,
nor the performance by Manager of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default or requires the
consent of any third party under (i) the Articles of Incorporation or By-Laws of
Manager, or (ii) to the best of its knowledge after due inquiry, any applicable
law, rule,
21
<PAGE>
judgment, order, writ, injunction, or decree of any court, currently in effect;
or (iii) to the best of its knowledge after due inquiry, any applicable rule or
regulation of any administrative agency or other governmental authority
currently in effect; or (iv) any agreement, indenture, contract or instrument to
which Manager is now a party or by which the assets of Manager are bound.
ARTICLE III
TERMINATION RIGHTS
This Agreement may be terminated and, except as to liabilities or claims of
either party hereto which shall have theretofore accrued or arisen, the
obligations of the parties hereto with respect to this Agreement may be
terminated, upon the happening of any of the following events:
III.1 TERMINATION BY LYRIC. If at any time or from time to time during the
term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) Manager shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of Manager of all or a substantial part of its
assets, file a voluntary petition in bankruptcy, make a general assignment for
the benefit of creditors, file a petition or an answer seeking reorganization or
arrangement with creditors or take advantage of any insolvency law, or if an
order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of a creditor, adjudicating Manager as bankrupt
or insolvent or approving a petition seeking reorganization of Manager or
appointing a receiver, trustee, or liquidator of Manager or of all or
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of ninety (90) consecutive days;
or
(B) all of the Facility Management Agreements are terminated;
then in case of any such event and upon the expiration of the period of grace
(if any) applicable thereto, the term of this Agreement shall expire, at Lyric's
option and upon ten (10) days written notice to Manager.
III.2 TERMINATION BY MANAGER. If at any time or from time to time during
the term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) Lyric shall apply for or consent to the appointment of a receiver,
trustee, or liquidator of Lyric or of all or a substantial part of its assets,
file a voluntary petition in bankruptcy or admit in writing its inability to pay
its debts as they become due, make a general assignment for the benefit of
creditors, file a petition or any answer seeking reorganization or arrangement
with creditors or take advantage of any insolvency law, or if an order, judgment
or decree shall be entered by a court of competent jurisdiction, on the
application of a creditor, adjudicating Lyric bankrupt or appointing a receiver,
trustee, or liquidator of Lyric with respect to all or substantial
22
<PAGE>
part of the assets of Lyric, and such order, judgment or decree shall continue
unstayed and in effect for any period of ninety (90) consecutive days; or
(B) all of the Facility Management Agreements are terminated;
then in case of any such event and upon the expiration of the period of grace
(if any) applicable thereto, the term of this Agreement shall expire, at
Manager's option and upon ten (10) days written notice to Lyric.
III.3 NO SURVIVING RIGHTS UPON TERMINATION. Upon termination of this
Agreement all rights and obligations of Lyric and Manager in this Agreement
shall terminate.
ARTICLE IV
INSURANCE
IV.1 POLICIES. Subject to Section 4.4 of this Part II, Lyric shall apply
for, obtain and maintain on behalf of the Owners and at its own expense at all
times during the Term, all insurance required to be maintained by the Owners
under the Leases, or if the Leases are not in effect, such insurance as Owners
shall direct Lyric to maintain.
IV.2 INSURANCE COMPANIES. All insurance provided for under the foregoing
provisions of this Section shall be effected by policies issued by insurance
companies with at least an "A-XI" rating from A.M. Best and Company, of good
reputation, of sound adequate financial responsibility, and properly licensed
and qualified to do business.
IV.3 INSURED PARTIES. Each of the polices of insurance required by Part II,
Section 4.1 shall insure each Owner and their respective members, officers,
partners, directors, shareholders, managers and employees, as well as each
Lessor and mortgage lender. Manager, its officers, partners, directors,
shareholders, managers and employees shall, to the extent permissible, be named
as additional insured under all such policies of insurance.
IV.4 MASTER POLICY. Notwithstanding the other provisions of Part II,
Article 4, Manager is authorized and directed to obtain a master policy of
insurance naming the parties described in Part II, Section 4.3 as additional or
named insureds (as specified therein), in the amounts and for the coverages
required by Part II, Section 4.1, which policy may be obtained by Integrated
Health Services, Inc. or its affiliates and which may be a policy of a so-called
"captive" insurance company.
23
<PAGE>
ARTICLE V
MISCELLANEOUS PROVISIONS
V.1 NOTICES. Any notice or other communication by either party to the other
shall be in writing and shall be given and be deemed to have been duly given,
upon the date delivered if delivered personally (including by commercial express
service) or upon the date received if mailed postage pre-paid, registered,
express, or certified mail, addressed as follows:
To Lyric: LYRIC HEALTH CARE LLC
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
To Manager: IHS FACILITY MANAGEMENT, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
With a copy to: INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
V.2 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in the Agreement
shall constitute or be construed to be or create a partnership or joint venture
between Lyric, its successors, or assigns on the one part and Manager, its
successors, or assigns on the other part. Notwithstanding the foregoing, the
parties hereby agree that they shall each have a duty to act in good faith and
to deal fairly with the other party hereto.
V.3 MODIFICATIONS AND CHANGES. This Agreement cannot be changed or modified
except by another agreement in writing signed by Lyric and Manager.
V.4 UNDERSTANDING AND AGREEMENTS. This Agreement and the Master Management
Agreement constitute the entire understanding and agreement of whatsoever nature
or kind existing between the parties with respect to Manager's management of the
Facility.
V.5 HEADINGS, ETC. The article and paragraph headings contained herein are
for convenience of reference only and are not intended to define, limit, or
describe the scope of intent
24
<PAGE>
of any provision of this Agreement. The Exhibits and Schedules attached hereto
form part of this Agreement.
V.6 APPROVAL OR CONSENT. Whenever under any provisions of this Agreement,
the approval or consent of either party is required, the decision thereon shall
be promptly given and such approval or consent shall not be unreasonably
withheld, unless this Agreement expressly provides that a decision shall be made
in a party's sole discretion. It is further understood and agreed that whenever
under any provisions of this Agreement the approval or consent of Lyric is
required, such approval or consent is given by the person or any one of the
persons, as the case may be, designated in a notification signed by or on behalf
of Lyric. For all purposes under this Agreement, Manager shall determine solely
from the latest such notification received by it the person or persons
authorized to give such approval or consent. Manager shall rely exclusively and
conclusively on the designation set forth in such notification, notwithstanding
any notice of knowledge to the contrary.
V.7 GOVERNING LAW. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
Maryland.
V.8 ENFORCEABILITY. Should any provision of this Agreement be unenforceable
as between the parties, such unenforceability shall not affect the
enforceability of the other provisions of this Agreement.
V.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SIGNATURE PAGE FOLLOWS
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amended and Restated Master Management Agreement as of the date first above
written.
MANAGER:
IHS FACILITY MANAGEMENT, INC.
By:
Name: Daniel J. Booth
Title: Senior Vice President
LYRIC
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
Name: Daniel J. Booth
Title: Senior Vice President
S-1
<PAGE>
EXHIBIT A
EXAMPLES OF REIMBURSABLE EXPENSES
The following is a list of expenses not included in the Base Management Fee or
Incentive Management Fee. These Facility-specific expenses are passed directly
to the Facility in connection with which the expense was incurred.
o Administrator wages, benefits and related travel expenses. (This
includes an annual administrator conference).
o Computer hardware and software purchased for the Facility.
o Facility-specific legal and accounting fees.
o Facility-specific fees associated with union organization attempts,
elections, etc.
o Payroll processing fee.
o Outside consultants used for Medicare or Medicaid cost reports and
Medicare exception requests.
o Travel costs for Facility personnel training.
o Other travel costs of Manager specifically allocable to the Facility.
Ex. A-1
<PAGE>
SCHEDULE 1
CURRENT OWNERS AND FACILITIES
<TABLE>
<CAPTION>
OWNER Name of Facility
<S> <C>
F. L. C. Sarasota Nursing Pavilion, Inc. Integrated Health Services of Florida at Sarasota
Nursing Pavilion
Pinellas Park Nursing Home, Inc. Integrated Health Services of Pinellas Park
Central Park Lodges (Tarpon Springs), Inc. Integrated Health Services of Tarpon Springs
Integrated Health Services at Waterford Integrated Health of Waterford Commons, Inc.
Commons
Cambridge Group of Pennsylvania, Inc. Integrated Health Services of Hershey at
Woodlands
Gainesville Health Care Center, Inc. Integrated Health Services at Gainesville
Rest Haven Nursing Center (Chestnut Hill), Inc. Integrated Health Services of Chestnut Hill
Claremont Integrated Health, Inc. Integrated Health Services of New Hampshire at
Claremont
Rikad Properties, Inc. Integrated Health Services of St. Petersburg
Integrated Management - Governor's Park, Inc. Governor's Park Nursing and Rehabilitation
Center
Integrated Health Services of Colorado Springs, Integrated Health Services of Colorado Springs
Inc.
IHS Acquisition No. 103, Inc. Horizon Healthcare & Specialty Center
(HHC- Daytona)
IHS of Brandon, Inc. Integrated Health Services of Brandon
IHS of Central Park Village, Inc. Integrated Health Services at Central Park
Village
Integrated Health Services at Central Florida, Integrated Health Services at Vero Beach
Inc.
</TABLE>
Sch. 1-1
<PAGE>
<TABLE>
<CAPTION>
OWNER Name of Facility
<S> <C>
Briar Hill, Inc. Integrated Health Services of Florida at
Auburndale
Bethamy Living Center Limited Partnership Integrated Health Services of Florida at
Clearwater
Integrated Health Services at Central Florida, Integrated Health Services of Florida at Fort
Inc. Pierce
IHS of Lakeland at Oakbridge, Inc. Integrated Health Services of Lakeland at
Oakbridge
F. L. C. Beneva Nursing Pavilion, Inc. Integrated Health Services of Sarasota at Beneva
Central Park Lodges of West Palm Beach, Inc. Integrated Health Services of West Palm Beach
Integrated Health Services at Briarcliff Haven, Integrated Health Services at Briarcliff Haven
Inc.
Integrated Health Services of Brentwood, Inc. Integrated Health Services at Brentwood
Integrated Health Services of Grandview Care Integrated Health Services of Iowa at Des
Center, Inc. Moines
IHS Acquisition No. 125, Inc. Meadowview Care Center
IHS Acquisition No. 124, Inc. Washington Square
IHS Acquisition No. 168, Inc. HSH Midwest City
IHS Acquisition No. 127, Inc. Midwest City Nursing
IHS Acquisition No. 114, Inc. Lynwood Manor
Cedarcroft Health Services, Inc. Integrated Health Services of St. Louis at Big
Bend Woods
Manchester Integrated Health, Inc. Integrated Health Services of New Hampshire at
Manchester
IHS Acquisition No. 121, Inc. Ruidoso Care Center
Rest Haven Nursing Center (Whitemarsh), Inc. Integrated Health Services at Whitemarsh
Rest Haven Nursing Centers, Inc. Integrated Health Services of Pennsylvania at
Broomall
</TABLE>
Sch. 1-2
<PAGE>
<TABLE>
<CAPTION>
OWNER Name of Facility
- ----- ----------------
<S> <C>
Integrated of Amarillo, Inc. Amarillo Specialty Hospital
IHS Acquisition No. 128, Inc. Doctors Healthcare Center
IHS Acquisition No. 140, Inc. Harbor View Care Center
IHS Acquisition No. 134, Inc. Heritage Estates
IHS Acquisition No. 132, Inc. Heritage Gardens
IHS Acquisition No. 138, Inc. Heritage Manor Longview
IHS Acquisition No. 129, Inc. Heritage Manor Plano
IHS Acquisition No. 133, Inc. Heritage Place of Grand Prarie
IHS Acquisition No. 131, Inc. Horizon Healthcare -El Paso
IHS Acquisition No. 170, Inc. HSH- Corpus Christi
IHS Acquisition No. 171, Inc. HSH- El Paso
Integrated Health Services at Houston, Inc. IHS Hospital at Houston
Integrated of Amarillo, Inc. Integrated Health Services of Amarillo
IHS Acquisition XXVIII, Inc. Integrated Health Services of Texoma at
Sherman
IHS Acquisition No. 137, Inc. Longmeadow Care Center
IHS Acquisition No. 139, Inc. Parkwood Place
IHS Acquisition No. 174, Inc. Plano Specialty Hospital (HSH- Plano)
IHS Acquisition No. 136, Inc. Silver Springs Nursing and Rehabilitation Center
Integrated Health Services at Great Bend, Inc. Vintage Health Care Center
</TABLE>
Sch. 1-3
<PAGE>
SCHEDULE 2
MASTER LEASES/FACILITY SUBLEASES
A. Master Lease, dated as of January 13, 1998, between Lyric Health Care
Holdings, Inc. and Omega Healthcare Investors, Inc.:
1. Facility Sublease, dated as of January 13, 1998, between Rest Haven
Nursing Center (Chestnut Hill), Inc. and Lyric Health Care Holdings,
Inc.
2. Facility Sublease, dated as of January 13, 1998, between Claremont
Integrated Health, Inc. and Lyric Health Care Holdings, Inc.
3. Facility Sublease, dated as of January 13, 1998, between Gainesville
Healthcare Center, Inc. and Lyric Health Care Holdings, Inc.
4. Facility Sublease, dated as of January 13, 1998, between Rikad
Properties, Inc. and Lyric Health Care Holdings, Inc.
5. Facility Sublease, dated as of January 13, 1998, between Integrated
Management- Governor's Park, Inc., and Lyric Health Care Holdings,
Inc.
B. Master Lease, dated as of March 31, 1998, between Lyric Health Care
Holdings II, Inc. and Omega Healthcare Investors, Inc.:
1. Facility Sublease, dated as of March 31, 1998, between F. L. C.
Sarasota Nursing Pavilion, Inc. and Lyric Health Care Holdings II,
Inc..
2. Facility Sublease, dated as of March 31, 1998, between Pinellas Park
Nursing Home, Inc. and Lyric Health Care Holdings II, Inc.
3. Facility Sublease, dated as of March 31, 1998, between Central Park
Lodges (Tarpon Springs), Inc. and Lyric Health Care Holdings II, Inc.
4. Facility Sublease, dated as of March 31, 1998, between Integrated
Health of Waterford Commons, Inc. and Lyric Health Care Holdings II,
Inc.
Sch. 2-1
<PAGE>
5. Facility Sublease, dated as of March 31, 1998, between Cambridge Group
of Pennsylvania, Inc. and Lyric Health Care Holdings II, Inc.
C. Master Lease, dated as of June 23, 1998, between Lyric Health Care Holdings
III, Inc. and Omega Healthcare Investors, Inc.:
1. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services of Colorado Springs, Inc. and Lyric Health Care
Holdings III, Inc.
2. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 103, Inc. and Lyric Health Care Holdings III, Inc.
3. Facility Sublease, dated as of June 23, 1998, between IHS of Brandon,
Inc. and Lyric Health Care Holdings III, Inc.
4. Facility Sublease, dated as of June 23, 1998, between IHS of Central
Park Village, Inc. and Lyric Health Care Holdings III, Inc.
5. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services at Central Florida, Inc. and Lyric Health Care
Holdings III, Inc.
6. Facility Sublease, dated as of June 23, 1998, between Briar Hill, Inc.
and Lyric Health Care Holdings III, Inc.
7. Facility Sublease, dated as of June 23, 1998, between Bethamy Living
Center Limited Partnership and Lyric Health Care Holdings III, Inc.
8. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services at Central Florida, Inc. and Lyric Health Care
Holdings III, Inc.
9. Facility Sublease, dated as of June 23, 1998, between IHS of Lakeland
at Oakbridge, Inc. and Lyric Health Care Holdings III, Inc.
10. Facility Sublease, dated as of June 23, 1998, between F. L. C. Beneva
Nursing Pavilion, Inc. and Lyric Health Care Holdings III, Inc.
11. Facility Sublease, dated as of June 23, 1998, between Central Park
Lodges of West Palm Beach, Inc. and Lyric Health Care Holdings III,
Inc.
Sch. 2-2
<PAGE>
12. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services at Briarcliff Haven, Inc. and Lyric Health Care
Holdings III, Inc.
13. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services of Brentwood, Inc. and Lyric Health Care Holdings III,
Inc.
14. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services of Grandview Care Center, Inc. and Lyric Health Care
Holdings III, Inc.
15. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 125, Inc. and Lyric Health Care Holdings III, Inc.
16. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 124, Inc. and Lyric Health Care Holdings III, Inc.
17. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 168, Inc. and Lyric Health Care Holdings III, Inc.
18. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 127, Inc. and Lyric Health Care Holdings III, Inc.
19. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 114, Inc. and Lyric Health Care Holdings III, Inc.
20. Facility Sublease, dated as of June 23, 1998, between Cedarcroft
Health Services, Inc. and Lyric Health Care Holdings III, Inc.
21. Facility Sublease, dated as of June 23, 1998, between Manchester
Integrated Health, Inc. and Lyric Health Care Holdings III, Inc.
22. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 121, Inc. and Lyric Health Care Holdings III, Inc.
23. Facility Sublease, dated as of June 23, 1998, between Rest Haven
Nursing Center (Whitemarsh), Inc. and Lyric Health Care Holdings III,
Inc.
24. Facility Sublease, dated as of June 23, 1998, between Rest Haven
Nursing Centers, Inc. and Lyric Health Care Holdings III, Inc.
Sch. 2-3
<PAGE>
25. Facility Sublease, dated as of June 23, 1998, between Integrated of
Amarillo, Inc. and Lyric Health Care Holdings III, Inc.
26. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 128, Inc. and Lyric Health Care Holdings III, Inc.
27. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 140, Inc. and Lyric Health Care Holdings III, Inc.
28. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 134, Inc. and Lyric Health Care Holdings III, Inc.
29. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 132, Inc. and Lyric Health Care Holdings III, Inc.
30. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 138, Inc. and Lyric Health Care Holdings III, Inc.
31. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 129, Inc. and Lyric Health Care Holdings III, Inc.
32. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 133, Inc. and Lyric Health Care Holdings III, Inc.
33. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 131, Inc. and Lyric Health Care Holdings III, Inc.
34. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 170, Inc. and Lyric Health Care Holdings III, Inc.
35. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 171, Inc. and Lyric Health Care Holdings III, Inc.
36. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services at Houston, Inc. and Lyric Health Care Holdings III,
Inc.
37. Facility Sublease, dated as of June 23, 1998, between Integrated of
Amarillo, Inc. and Lyric Health Care Holdings III, Inc.
Sch. 2-4
<PAGE>
38. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
XXVIII, Inc. and Lyric Health Care Holdings III, Inc.
39. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 137, Inc. and Lyric Health Care Holdings III, Inc.
40. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 139, Inc. and Lyric Health Care Holdings III, Inc.
41. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 174, Inc. and Lyric Health Care Holdings III, Inc.
42. Facility Sublease, dated as of June 23, 1998, between IHS Acquisition
No. 136, Inc. and Lyric Health Care Holdings III, Inc.
43. Facility Sublease, dated as of June 23, 1998, between Integrated
Health Services at Great Bend, Inc. and Lyric Health Care Holdings
III, Inc.
Sch. 2-5
AMENDED AND RESTATED
MASTER FRANCHISE AGREEMENT
BETWEEN
INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.
AND
LYRIC HEALTH CARE LLC
DATED AS OF JUNE 23, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLES
- ----------
ARTICLE 1. Definitions
ARTICLE 2. Grant and Acceptance of Franchise
ARTICLE 3. [Intentionally Omitted]
ARTICLE 4. Term
ARTICLE 5. Annual Continuing Fees
ARTICLE 6. Proprietary Materials; Trade Names; IHS Systems
ARTICLE 7. Preferred Provider Status
ARTICLE 8. "800" Telephone Number
ARTICLE 9. Enhancement of the IHS Systems
ARTICLE 10. Other Business
ARTICLE 11. [Intentionally Omitted]
ARTICLE 12. Statements, Records and Fee Payments
ARTICLE 13. Additional Covenants of Lyric
ARTICLE 14. Franchisor Not to Compete
ARTICLE 15. Negative Covenants of Lyric
ARTICLE 16. Transfer and Assignment
ARTICLE 17. Rights of Aggrieved Party upon Default
ARTICLE 18. [Intentionally Omitted]
ARTICLE 19. Indemnification and Independent Contractor
ARTICLE 20. Written Approvals, Waivers and Amendment
ARTICLE 21. Enforcement
ARTICLE 22. Entire Agreement
ARTICLE 23. Notices
ARTICLE 24. Governing Law and Dispute Resolution
ARTICLE 25. Severability, Construction and Other Matters
ARTICLE 26. Post Term Obligations
ARTICLE 27. Taxes, Permits and Indebtedness
ARTICLE 28. Acknowledgments
ARTICLE 29. Guaranty of Franchisee Obligations
EXHIBITS
- ---------
EXHIBIT 1 - Facility Franchise Agreement
EXHIBIT 2 - List of Facilities
EXHIBIT 3 - [Intentionally Omitted]
EXHIBIT 4 - List of Individual Franchisee Names, Names of Businesses, and
Territories
EXHIBIT 5 - Guidelines for Determining Territories
i
<PAGE>
AMENDED AND RESTATED
MASTER FRANCHISE AGREEMENT
THIS AMENDED AND RESTATED MASTER FRANCHISE AGREEMENT (this "Agreement"),
dated as of June 23, 1998, between INTEGRATED HEALTH SERVICES FRANCHISING CO.,
INC. ("Franchisor"), a Delaware corporation with its principal office at 10065
Red Run Boulevard, Owings Mills, Maryland 21117, and LYRIC HEALTH CARE LLC
("Lyric"), a Delaware limited liability company, with its principal office at
8889 Pelican Bay Boulevard, Suite 500, Naples, Florida 34103.
INTRODUCTORY STATEMENT
Integrated Health Services, Inc. ("IHS") developed valuable "Trade Names"
and "Proprietary Materials" (including the "IHS Systems"), all as defined below,
relating to businesses which IHS operates and services which IHS provides. These
have substantial value and materially enhance and facilitate IHS's business and
operations. Lyric and its subsidiaries desire to obtain the benefit of the
Proprietary Materials and the Trade Names, and Franchisor, on behalf of IHS, is
willing to grant a franchise for such purpose, subject to the terms and
conditions set forth below. Neither IHS nor Franchisor has previously franchised
to others the use of such Trade Names and Proprietary Materials, except to Lyric
pursuant to a Master Franchise Agreement, dated as of January 13, 1998, as
amended by the First Amendment to Master Franchise Agreement, dated as of March
31, 1998 (the "Prior Franchise Agreement"), between Franchisor and Lyric.
Franchisor and Lyric now wish to amend and restate the Prior Master
Franchise Agreement pursuant to the terms and conditions of this Agreement.
An affiliate of Franchisor (the "Manager") has entered into agreements (the
"Management Agreements") to manage the health care facilities which the
Franchisees (defined below) lease or own. The Manager will be responsible, to
the extent specified in the Management Agreements, for assisting the respective
Franchisees to comply with their obligations under this Agreement.
ARTICLE 1. DEFINITIONS
1.1 The following words and phrases have the following meanings in this
Agreement:
"Affiliate" means any person, corporation or other entity, which, directly
or indirectly, controls, is controlled by, or is under common control with,
another person, corporation, or other entity.
1
<PAGE>
"Business Day" means any day other than Saturday, Sunday or any other day
on which banking institutions in the State of Maryland are authorized by law or
executive action to close.
"Control" means the power, directly or indirectly, to direct or cause the
direction of the management and policies of a corporation or other entity.
"EBITDA" means earnings before interest, taxes, depreciation, and
amortization of Lyric on a consolidated basis as shown on Lyric's monthly
financial statements regularly prepared by Lyric.
"Facility" means a facility owned or leased by Lyric or a Franchisee in
which any Health Care Business is conducted.
"Facility Franchise Agreement" means the facility franchise agreement
between Franchisor and a Franchisee in the form attached as Exhibit 1 hereto.
"Franchisee" means, as of any particular date, any entity designated as
such pursuant to a Facility Franchise Agreement.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Gross Revenues" means, for any period, all revenues and income of any kind
derived directly or indirectly by the entity specified during such period
(including rental or other payment from concessionaires, licensees, tenants, and
other users of such entity's facilities and from the sale of products and/or the
furnishing of services, including all revenues or receipts derived from or
associated with the Proprietary Materials (but excluding therefrom all bequests,
gifts, or similar donations), whether on a cash basis or on credit, paid or
unpaid, collected or uncollected, as determined in accordance with GAAP,
excluding, however:
(a) federal, state, and municipal excise, sales, and use taxes
collected directly from patients as a part of the sales prices of any goods
or services;
(b) proceeds of any life insurance policies;
(c) gains or losses arising from the sale or other disposition of
capital assets;
(d) any reversal or accrual of any contingency or tax reserve;
(e) interest earned on sinking funds, Special Security Accounts, bonds
funds, etc. originally and specifically formed as a requirement of any bond
issue (if any) utilized to finance the Facility; and
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(f) bad debt expense.
The proceeds of business interruption insurance or proceeds as a result of
Medicare and Medicaid audits shall be included in Gross Revenues. However, funds
required to be repaid as a result of Medicare and Medicaid audits shall be
deducted from Gross Revenues.
"Health Care Business" means any business now or in the future operated by
IHS, Franchisor, Lyric, or any Franchisee involving the provision of health care
services of any and every kind.
"IHS Systems" means the systems, protocols, procedures, software, contracts
and contract forms and documentation, manuals, guides, instructions, forms,
employee benefit plans and programs, used and developed by IHS previously, now,
and in the future for the treatment, servicing, and processing of patients,
customers, and/or clients for the financial, administrative, human resources,
procurement, management, and other operations of IHS's businesses and
activities.
"Lease" means any net lease of a Facility.
"Lessor" means each lessor or lessors from time to time under a Lease.
"Lyric's Business" means and includes the business of Lyric and all Lyric
Franchisees on a consolidated basis.
"Operating Agreement" means the Operating Agreement of Lyric.
"Proprietary Materials" means Trade Names; trademarks; service marks;
copyrighted materials and copyrightable materials; software, manuals, protocols,
procedures, systems, documentation, methods, contracts and contract forms and
documents; trade dress; uniforms; and other materials for treatment, servicing,
and processing of patients, customers, and/or clients and for the financial,
administrative, procurement, human resources, quality control, management, and
operations of the Health Care Business (including the IHS Systems).
"Territory" means each territory within which Lyric and the Franchisees may
operate a Health Care Business. The Territories of the Franchisees are described
in the Facility Franchise Agreements. Lyric's Territory is the aggregate of the
Territories of the Franchisees (as such Territories change from time to time) as
such Territories are defined in the respective Facility Franchise Agreements.
"Trade Names" means "Integrated Health Services," "IHS" and every other
name or description previously, now, or in the future used in, or associated
with the Health Care Business, including any and all "doing-business-as" names
or trade names.
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1.2 Wherever used in this Agreement:
(a) the words "include" or "including" shall be construed as
incorporating, also, "but not limited to" or "without limitation";
(b) the word "day" means a calendar day unless otherwise specified;
(c) the word "party" means each and every person or entity whose
signature is set forth at the end of this Agreement;
(d) the word "law" (or "laws") means any law, rule, regulation, order,
statute, ordinary, resolution, regulation, order, statute, ordinance,
resolution, regulation, code, decree, judgment, injunction, mandate or
other legally binding requirement of a government entity;
(e) each reference to a Facility (or any part or component thereof)
shall be deemed to include "and/or any portion thereof";
(f) the word "notice" shall mean notice in writing (whether or not
specifically so stated);
(g) "month" means a calendar month unless otherwise specified; and
(h) the word "amended" means "amended, modified, extended, renewed,
changed, or otherwise revised"; and the word "amendment" means "amendment,
modification, extension, change, renewal, or other revision".
1.3 Certain other words and phrases are defined elsewhere in this
Agreement, including the Exhibits and Schedules hereto. Words and phrases
defined in any part of this Agreement shall have the same meaning in all parts
of this Agreement.
ARTICLE 2. GRANT AND ACCEPTANCE OF FRANCHISE
2.1 Existing and New Facilities and Businesses. Subject to Section 2.2 and
the other terms and conditions of this Agreement, Franchisor grants to Lyric and
to each Franchisee the right and franchise to use and employ the Proprietary
Materials in accordance with this Agreement. Franchisor shall enter into a
Franchise Agreement:
(a) for each facility listed on Exhibit 2 hereto with the Franchisee
specified in such Exhibit; and
(b) with Lyric or any of its subsidiaries which develop, acquire, or
lease any additional Health Care Business, provided that such additional
business meets Franchisor's standards and requirements (which shall be
consistent with those set forth in
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the Confidential Operating Manual and otherwise required of Lyric and the
Franchisees hereunder) and provided further that such additional business
is not located (i) in the Territory of any other Franchisee (or other
franchisee of Franchisor) or (ii) in a geographic area in which Franchisor
is prohibited by law or contract from granting a franchise to operate a
Health Care Business.
2.2 Condition. The grant of each franchise pursuant to Section 2.1, and
Franchisor's obligation to enter into any Franchise Agreement, shall be subject
to: (a) execution and delivery of the particular Facility Franchise Agreement to
Franchisor by the particular Franchisee; and (b) compliance by Franchisor and
the respective Franchisee with laws, rules and regulations applicable to the
creation of such Facility Franchise Agreement (and Franchisor and Lyric agree to
use commercially reasonable best efforts to comply with such laws, rules and
regulations).
ARTICLE 3. [INTENTIONALLY OMITTED]
ARTICLE 4. TERM
4.1 Initial Term. Unless sooner terminated pursuant to Article 16, this
Agreement shall extend for an initial term (the "Initial Term") commencing on
the date hereof and continuing for the same period as the Lease Term, as defined
in the Lease.
4.2 Extended Terms. This Agreement shall automatically renew for two
consecutive thirteen year renewal terms (collectively, the "Extended Terms").
Each Extended Term shall commence on the day succeeding the end of the Initial
Term or the preceding Extended Term, as applicable. All terms, covenants,
conditions, and provisions of this Agreement shall apply to each Extended Term
(except that Lyric may not extend the Term beyond the expiration of the Extended
Term). Notwithstanding the foregoing, Franchisor may decide not to renew in any
such case by giving notice to Lyric not less than six (6) months prior to the
last day of the Term or Extended Term.
4.3 Effect on Franchisees. Any extension of the Term by Lyric under this
Article shall automatically extend the Term for the same period, and upon the
same terms and conditions, of each Franchise Agreement between Franchisor and a
Franchisee.
ARTICLE 5. ANNUAL CONTINUING FEES
5.1 Annual Continuing Fee. For each "Contract Year" (as hereinafter
defined) during the Initial Term, Lyric shall pay Franchisor an annual
continuing fee (the "Annual Continuing Fee") in the amount of one percent (1%)
of the annual Lyric Gross Revenues (as defined below).
5.2 Definition of "Contract Year". In this Agreement, "Contract Year" means
any period which begins on January 1st and ends on the earlier of the following
December 31st
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or the effective date of expiration or termination of this Agreement (except
that the first Contract Year may be a partial year which commences on the date
hereof and ends on December 31st and the last Contract Year may end on a date
earlier than December 31st).
5.3 Monthly Installments. During each Contract Year, Lyric shall make
monthly installments on account of the Annual Continuing Fee for such Contract
Year. The installment for each month shall be equal to 1% of the Lyric Gross
Revenues for each month, and shall be paid on or before the 25th day of the
following calendar month, subject to Section 5.5.
5.4 Annual Continuing Fee for Short Contract Year. If the Term includes any
Contract Year of less than three hundred and sixty-five (365) days, the Annual
Continuing Fee for such Contract Year shall be equal to the product of the
Annual Continuing Fee for such Contract Year multiplied by a fraction, the
numerator of which is the number of days this Agreement was in effect during
such Contract Year and the denominator of which is 365.
5.5 Credit for Payments by Lyric Franchisees. Amounts paid directly by
Franchisees to Franchisor (if any) pursuant to the Facility Franchise Agreements
shall reduce dollar for dollar Lyric's obligation under Sections 5.1, 5.3 and
5.4. If and to the extent that Lyric and its Franchisees experience bad debts or
poor collections exceeding the amounts reserved for such items in their
respective current revenue budgets, and as a result Lyric is unable to pay all
or any part of the monthly installment of the Annual Continuing Fee for a
particular month, the unpaid portion of such installment shall accrue and be
payable as soon as cash flow permits but in no event later than at the end of
the current Contract Year. The foregoing sentence shall not apply for more than
one Contract Year.
5.6 Payment Following Contract Year End. If the aggregate dollar amount of
payments delivered by Lyric to Franchisor in payment of the Annual Continuing
Fee for any Contract Year under Section 5.3 differs from the Annual Continuing
Fee for such Contract Year, the appropriate party shall pay to the other the
amount of such overpayment or underpayment within one hundred five (105) days
after the end of such Contract Year.
5.7 Taxes. Lyric shall pay to Franchisor the amount of all sales taxes, use
taxes, and similar taxes imposed upon or required to be collected on account of
the Annual Continuing Fee and of goods or services furnished to Lyric and Lyric
Franchisees by Franchisor, whether such goods or services are furnished by sale,
lease or otherwise.
5.8 Lyric Gross Revenues. "Lyric Gross Revenues" means the sum of:
(a) the Gross Revenues of all Franchisees; plus
(b) the Gross Revenues of all the businesses which are the subject of
joint ventures to which Lyric and/or any Franchisee is a party (the "Joint
Venture Businesses") and the businesses which are the subject of management
agreements and other agreements and arrangements of Lyric or any Franchisee
pursuant to which Lyric or any
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Franchisee provides management, consulting or other services for so long as
any such agreements or arrangements are in effect (the "Managed
Businesses"); plus
(c) all other Gross Revenues of Lyric.
5.9 Additional Remedies for Past Due Annual Continuing Fees. In addition to
all other rights and remedies under this Agreement and at law or in equity, if
any Annual Continuing Fees are past due from Lyric to Franchisor (subject to
Section 5.5) for more than 120 days after notice from Franchisor, Franchisor
shall have the right, in addition to Franchisor's other rights and remedies
under this Agreement, to require reconsideration and revision of Lyric's current
annual and
capital budgets and to require Lyric to comply with the negative covenants of
Lyric under Article 15 as if Franchisor had sold its interest in Lyric. The
foregoing rights are cumulative. Lyric agrees that, upon the exercise of any
such right by Franchisor, Lyric will cease taking any prohibited action and will
take the action required by Franchisor and will otherwise cooperate with
Franchisor in carrying out the purpose and intent of this Section.
5.10 Interest. Lyric shall pay Franchisor interest on any amounts past due
at the lower of (i) the maximum rate permitted by law or (ii) the prime rate of
Citibank, N.A. plus two percent (2%) per annum (the "Prime Rate"); but interest
shall not accrue on past due amounts to the extent Lyric (or a particular
Franchisee) fails to achieve EBITDA sufficient to pay such amounts (as long as
Lyric or the applicable Franchisee is operating within its then-current budget).
5.11 Negotiation of Fees. Each party agrees that: (a) the Annual Continuing
Fee payable under this Article 5 was established by extensive, good faith,
arms-length negotiations between the parties in which each party was represented
by counsel and advised by accountants familiar with the health care industry and
franchising, and (b) each party is satisfied that the Annual Continuing Fee
payable pursuant to this Article 5 represents the present, and (as applicable)
reasonably anticipated during the Initial Term, fair market value of the
franchise.
5.12 Advances by Franchisor. Lyric shall pay to Franchisor all amounts, if
any, advanced by Franchisor or which Franchisor has paid (or for which
Franchisor has become obligated) on behalf of Lyric or any Lyric Franchisees.
ARTICLE 6. PROPRIETARY MATERIALS; TRADE NAMES; IHS SYSTEMS
6.1 Proprietary Materials. Franchisor hereby grants Lyric the right to use
the Proprietary Materials in connection with the businesses franchised by
Franchisor pursuant to Article 2, the management and administration of existing
Joint Venture Businesses, the existing Managed Businesses, and any Other
Business pursuant to Article 10. To enhance the public image and reputation of
businesses operating under the IHS Systems, to protect the goodwill associated
with the Proprietary Materials, and to increase the demand for services and
products provided by Franchisor and all Franchisees, the parties agree to the
further provisions set forth below.
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6.2 Ownership. Franchisor represents and warrants that IHS owns the
Proprietary Materials and the IHS Systems and that Franchisor is duly authorized
to grant Lyric and the Franchisees the rights in the Proprietary Materials and
the IHS Systems described in this Agreement on behalf of IHS. Lyric expressly
acknowledges IHS' and Franchisor's rights in and to the Proprietary Materials
and agrees not to represent or claim in any manner that Lyric has acquired any
ownership rights in the Proprietary Materials. Lyric agrees further that any and
all goodwill associated with the IHS Systems and identified by the Proprietary
Materials shall inure directly and exclusively to the benefit of Franchisor and
IHS.
6.3 Authorized Use. Lyric agrees that any use of the Proprietary Materials
except as expressly authorized by this Agreement may constitute an infringement
of Franchisor's and/or IHS' rights and that any right to use the Proprietary
Materials granted under this Agreement shall not
extend beyond the termination or expiration of this Agreement. Lyric agrees
that, during the term of this Agreement and thereafter, Lyric shall not,
directly or indirectly, commit any act of infringement or contest or aid others
in contesting the validity or registration of Franchisor's and/or IHS' right to
use the Proprietary Materials or take any other action in derogation thereof.
6.4 Infringement. Lyric shall notify Franchisor promptly of any claim,
demand or cause of action that Franchisor may have based upon or arising from
any unauthorized attempt by any person or legal entity to use the Proprietary
Materials, any colorable variation thereof, or any other mark, name or indicia
in which Franchisor or IHS has or claims a proprietary interest (an
"Unauthorized Third Party Use"). Lyric shall assist Franchisor, upon request and
at Franchisor's expense, in taking such action (if any) as Franchisor deems
appropriate to halt such Unauthorized Third Party Use, but shall take no action
nor incur any expense on Franchisor's behalf without Franchisor's prior written
approval. If Franchisor undertakes the defense or prosecution of any litigation
relating to the Proprietary Materials, Lyric agrees to execute any and all
documents and to do such acts and things as may, in the opinion of Franchisor's
legal counsel, be reasonably necessary to carry out such defense or prosecution.
If Franchisor does not take action to halt any Unauthorized Third Party Use,
Lyric at its expense may take action as it deems appropriate to halt such
Unauthorized Third Party Use.
6.5 Operation With Proprietary Materials. Lyric and the Franchisees further
agree to operate and advertise only under the names or marks from time to time
designated by Franchisor for use as part of the Proprietary Materials; to adopt
and use the Proprietary Materials solely in the manner prescribed by Franchisor;
to refrain from using the Proprietary Materials to perform any activity or to
incur any obligation or indebtedness in such a manner as may, in any way,
subject Franchisor or IHS to liability therefor; to observe all laws with
respect to the registration of trade names and assumed or fictitious names, to
include in any application therefor a statement that Lyric's use of the
Proprietary Materials is limited by the terms of this Agreement; to provide
Franchisor with a copy of any such application and other registration
document(s); to observe such requirements with respect to trademark and service
mark registrations and copyright notices as Franchisor may, from time to time,
require, including, without limitation, affixing "SM", "TM" or (R) adjacent to
any portions of the Proprietary Materials in any and all uses thereof
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as requested by Franchisor; and to utilize such other appropriate notice of
ownership, registration and copyright as Franchisor may require.
6.6 Modification/Replacement of Proprietary Materials. Franchisor reserves
the right, in its sole discretion, to designate one or more new, modified or
replacement Proprietary Materials for use by Lyric and/or any Franchisee and to
require the use by Lyric and/or any Franchisee of any such new, modified or
replacement Proprietary Materials in addition to or in lieu of any previously
designated Proprietary Materials. Any expenses or costs associated with the use
by Lyric and/or any Franchisee of any such new, modified or replacement
Proprietary Materials shall be the sole responsibility of Lyric and/or the
respective Franchisees.
6.7 Use of IHS Systems. Franchisor hereby grants to Lyric the right and
license to utilize the IHS Systems in connection with the management and
administration of the businesses franchised by Franchisor pursuant to Article 2,
the management and administration of existing Joint
Venture Businesses, the existing Managed Businesses and all Other Business
pursuant to Article 10. Franchisor shall establish and Lyric shall maintain
standards of quality, appearance and operation for Lyric's Business.
6.8 Compliance with IHS Systems. Lyric agrees in connection with Lyric's
business, and each Franchisee agrees for itself, to use and comply with all
treatment protocols, treatment, financial, legal and other programs and
procedures, quality standards, quality assessment methods, performance
improvement and monitoring programs and other matters which now or hereafter
comprise the IHS Systems, and to comply with the rules, regulations, policies
and standards of the IHS Systems, including all such contained in the
"Confidential Operating Manual" (as hereinafter defined).
6.9 Compliance With Law. Lyric and each Franchisee agree at all times to
operate its business, and to keep all premises at which it and each Franchisee
operates, in compliance with all applicable federal, state and local laws, rules
and regulations.
6.10 Joint Commission on Accreditation of Health Care Organizations
(JCAHO). Lyric agrees to cause any applicable Franchisee to maintain throughout
the term of this Agreement any accreditation by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") previously issued to the
particular Franchisee (and Lyric shall cause the Franchisees to use commercially
reasonable best efforts to seek and obtain such accreditation if and as
necessary or appropriate). Lyric agrees also to endeavor to obtain and maintain
accreditation by other organizations which may be necessary or desirable in a
particular case. Lyric (or the applicable Franchisee) shall pay all costs of
obtaining and maintaining any such accreditation(s).
6.11 Maintenance of Standards. Lyric and each Franchisee agree to maintain
all premises from or at which its business is conducted, and all furnishings and
equipment thereon, in conformity with Franchisor's then-current standards, at
all times during the term of this Agreement, and to make such repairs and
replacements thereto as Franchisor may require. Without limiting the generality
of the foregoing, Lyric and each Franchisee agree:
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(a) to keep all such premises at all times in a high degree of
sanitation, repair, order and condition, including such periodic repainting
of the exterior and interior of the premises, and such maintenance and
repairs to all fixtures, furnishings, signs and equipment, as Franchisor
may from time to time reasonably direct; and
(b) to meet and maintain at all times governmental standards,
certifications and ratings applicable to the operation of the premises and
such business or such higher minimum standards, certifications and ratings
as reasonably set forth by Franchisor from time to time in its Confidential
Operating Manual or otherwise in writing.
6.12 Operation in Conformity with Prescribed Methods, Standards and
Specifications. Lyric and each Franchisee agree to operate its business in
conformity with such methods, standards and specifications as Franchisor may
prescribe from time to time in its Confidential Operating Manual to insure that
Franchisor's required degree of quality, service and
image is maintained; and to refrain from deviating therefrom or otherwise
operating in any manner which adversely reflects on Franchisor's or IHS' name
and goodwill, or on the Proprietary Materials.
6.13 Printed Materials; Marketing. Lyric and each Franchisee shall use only
marketing and advertising materials which have been approved in advance by
Franchisor; and Lyric and each Franchisee shall use business stationery,
business cards, and similar materials which are consistent with the Proprietary
Materials and their obligations under this Agreement. Lyric and each Franchisee
shall not employ any person to act as a representative of Lyric or such
Franchisee in connection with local promotion of their business in any public
media without the prior written approval of Franchisor. Supplies or materials
purchased, leased or licensed by Lyric or any Franchisee shall meet the
standards reasonably specified by Franchisor from time to time.
6.14 Ownership Identification. In all advertising displays and materials
and at all premises from or at which their respective business is conducted,
Lyric and each Franchisee shall, in such form and manner as may be specified by
Franchisor in the Confidential Operating Manual, notify the public that Lyric or
the respective Franchisee is operating the business licensed hereunder as a
franchisee of Franchisor and shall identify its business location in the manner
specified by Franchisor in the Confidential Operating Manual.
6.15 Patient Relations. Lyric and each Franchisee shall respond promptly to
patient complaints and shall take such other steps as may be required to insure
positive patient relations.
6.16 Right to Inspect. Lyric and each Franchisee hereby grant to Franchisor
and its agents the right to enter upon any premises from which they conduct
their business, without notice, at any reasonable time for the purpose of
conducting inspections of the premises and their books and records; and each
agrees to render such assistance as may reasonably be requested and to take such
steps as may be necessary to correct any deficiencies upon the request of
Franchisor or its agents.
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6.17 Variation of Standards. Because complete and detailed uniformity under
many varying conditions may not be possible or practical, Franchisor
specifically reserves the right and privilege, in its sole discretion and as it
may deem in the best interests of all concerned in any specific instance, to
vary standards for any Franchisees based upon the peculiarities of a particular
circumstance, or any other conditions which Franchisor deems to be of importance
to the successful operation of the particular business. Neither Lyric nor any
Franchisee shall have recourse against Franchisor on account of any variation
from standard specifications and practices granted to Lyric or any Franchisee
and shall not be entitled to require Franchisor to grant others a like or
similar variation hereunder.
6.18 Accounting Equipment and Software. Lyric and each Franchisee agree to
maintain, develop, update and replace any equipment and software as reasonably
necessary for the purpose of recording, collecting or otherwise supporting
revenues.
6.19 Discoveries and Ideas. Lyric and each Franchisee agree to disclose
promptly to Franchisor all discoveries made or ideas conceived by Lyric or such
Franchisee, their Affiliates, or their employees, pertaining to the IHS Systems
(including any enhancements and updates). To
the fullest extent permitted by law, Lyric and each Franchisee hereby grant to
Franchisor all right, title and interest to such discoveries and ideas, and
agree to cooperate with Franchisor in securing Franchisor's rights to such
discoveries and ideas. "Discoveries" and "ideas" shall be interpreted broadly
and shall not be limited to those discoveries or ideas which are potentially
patentable or copyrightable. Franchisor shall not be obligated to compensate
Lyric or any Franchisee for any such discoveries or ideas.
6.20 Compliance with Confidential Operating Manual. In order to protect the
reputation and goodwill of the businesses operating under the IHS Systems and to
maintain standards of operation under the Proprietary Materials, Lyric and each
Franchisee shall conduct its business operated under the IHS Systems in
accordance with various written instructions and confidential manuals
(hereinafter and previously referred to as the "Confidential Operating Manual"),
including such amendments thereto as Franchisor may publish from time to time,
all of which Lyric and each Franchisee acknowledge belong solely to Franchisor
and shall be on loan from Franchisor during the term of this Agreement. When any
provision in this Agreement requires that Lyric or a Franchisee comply with any
standard, specification or requirement of Franchisor, unless otherwise
indicated, such standard, specification or requirement shall be such as is set
forth in this Agreement or as may, from time to time, be set forth by Franchisor
in the Confidential Operating Manual.
6.21 Revisions to Confidential Operating Manual. Lyric and each Franchisee
understand and acknowledge that Franchisor may, from time to time, revise the
contents of the Confidential Operating Manual to implement new or different
requirements for the operation of their business, and Lyric and each Franchisee
expressly agree to comply at their expense with all such reasonable changed
requirements which are by their terms mandatory; provided that such requirements
shall also be applied in a reasonably nondiscriminatory manner to comparable
businesses operated under the IHS Systems by other Franchisees.
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6.22 Operating Assistance. Franchisor reserves the right to require Lyric
and each Franchisee to maintain standards of quality, appearance and service at
all their Facilities, thereby maintaining the public image and reputation of the
IHS Systems and the demand for the services and products provided thereunder,
and to that end Franchisor shall provide Lyric and each Franchisee with the
following ongoing assistance:
(a) advertising and marketing assistance including consultation,
access to media buying programs and access to broadcast and other
advertising pieces and materials produced by Franchisor from time to time;
(b) risk management services, including risk financing planning, loss
control and claims management;
(c) outcomes monitoring; and
(d) consultation by telephone or at Franchisor's offices with respect
to matters relating to their business in which Franchisor has expertise,
including matters relating
to reimbursement, government relations, clinical strategies, regulatory
matters, strategic planning and business development.
ARTICLE 7. PREFERRED PROVIDER STATUS
Franchisor shall use commercially reasonable best efforts, subject to
applicable law, to cause the Franchisees to have "preferred provider" status in
connection with Franchisor's managed behavioral Health Care Business on a basis
substantially consistent with existing covenants, terms and conditions, unless
the customer directs otherwise.
ARTICLE 8. "800" TELEPHONE NUMBER
Franchisor agrees to continue to operate or will provide a toll free "800"
telephone number and related service facility (the "800 Call Center"), to
provide a telephone "Help" line and also a telephone "Fraud and Abuse" line to
the Franchisees substantially the same as those now provided by IHS' 800 Call
Center operating immediately prior to the execution of this Agreement, subject
to such modifications as Franchisor deems advisable from time to time to comply
with applicable law or subject to such restructuring as Lyric and Franchisor
shall agree. Each party agrees to use commercially reasonable best efforts to
negotiate any such restructuring to comply with applicable law. Lyric and the
Franchisees shall have the right (and Lyric agrees to cause all Franchisees) to
advertise such "800" telephone number and otherwise cooperate with Franchisor to
use the 800 Call Center for the intended purposes. Lyric and the Franchisees
shall each pay, from time to time promptly following receipt of an invoice from
Franchisor, a proportionate share of the costs of operating the 800 Call Center.
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ARTICLE 9. ENHANCEMENT OF THE IHS SYSTEMS
Franchisor, Lyric, and all Franchisees agree to cooperate in the creation,
enhancement and updating of written manuals and materials setting forth the
treatment, financial, legal and other protocols, programs and procedures,
quality standards, quality assessment methods, performance improvement and
monitoring programs and other matters comprising the IHS Systems. Such manuals
and other materials (together, the "IHS Systems Materials") shall be prepared in
a manner suitable for use by Franchisor in franchising others to use the IHS
Systems. No changes shall be made by Lyric or any Franchisee to the IHS Systems
or the IHS Systems Materials without the Franchisor's express written consent
which shall not be unreasonably withheld. All protocols, programs, procedures,
standards and methods, all IHS Systems Materials, and all upgrades,
enhancements, and modifications to same (whether developed by Franchisor, Lyric
or any Franchisee), shall be owned by Franchisor and may be used by Lyric and
the Franchisees only under and pursuant to this Agreement and the Facility
Franchise Agreements.
ARTICLE 10. OTHER BUSINESS
Lyric and each Franchisee agree not to enter into any new Joint Venture
Businesses, Managed Businesses or consulting or other agreements or arrangements
relating to a Health Care Business (collectively, "Other Business") during the
Term of this Agreement except and unless (i)
Franchisor and Lyric or the respective Franchisee enter into a Facility
Franchise Agreement with respect to such Other Business, or (ii) with
Franchisor's written consent in each instance, and in each instance in which
Franchisor has given such written consent, Franchisor and Lyric (or the
applicable Franchisee) have previously agreed (A) to pay Franchisor, in addition
to all other amounts payable pursuant to this Agreement, a percentage of the
gross receipts from such Other Business agreeable to Franchisor or (B) to the
inclusion in Gross Revenues of any such Other Business.
ARTICLE 11. [INTENTIONALLY OMITTED]
ARTICLE 12. STATEMENTS, RECORDS AND FEE PAYMENTS
12.1 Maintenance of Records; Audit Rights. Lyric and each Franchisee shall
maintain, in a manner reasonably satisfactory to Franchisor, original, full and
complete records, accounts, books, data, licenses, contracts and invoices which
accurately reflect all particulars relating to their business and such
statistical and other information or records as Franchisor may require (and
shall keep such information for not less than three years even after termination
of this Agreement). Lyric and each Franchisee shall compile and provide to
Franchisor any statistical or financial information regarding the operation of
their business, services, and products, or data of a similar nature. Franchisor
(and its agents) may examine and audit such records, accounts, books and data at
all reasonable times to monitor compliance with this Agreement. In connection
with any such examination or audit, Franchisor shall not be entitled to any
adjustment to the extent that Gross Revenues for Lyric or the applicable
Franchisee have been computed in accordance
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with Section 5.8. If such inspection discloses that Gross Revenues during any
scheduled reporting period exceeded the amount reported by Lyric by two percent
(2%) or more of the amount originally reported to Franchisor, Lyric shall bear
the cost of such inspection and audit and shall pay, on demand, any such
deficiency (with interest from the date due at the lesser of the highest rate
permitted by applicable law, or the Prime Rate plus two percent (2%) per annum).
12.2 Financial Statements. Lyric and the Franchisees shall prepare and
deliver (or cause to be prepared and delivered) to Franchisor, with respect to
each Facility and Other Business, all monthly, quarterly, and annual financial
statements and compliance reports and other reports, in the same form, and
within the same periods, as Lyric prepares or receives under Article 12 of
Lyric's Operating Agreement.
12.3 Tax Reports. Upon Franchisor's request, Lyric shall furnish Franchisor
with a copy of each of Lyric's and any or all Franchisees' reports and returns
of sales, use and gross receipt taxes and complete copies of any state or
federal income tax returns covering the operation of the businesses of Lyric and
all Franchisees.
12.4 Reports. Upon Franchisor's request, Lyric shall furnish Franchisor
with a copy of each of reports filed by Lyric and/or any Franchisees under
applicable federal and state laws, rules and regulations (including but not
limited to reports required under "Medicare" and "Medicaid" laws, rules and
regulations).
ARTICLE 13. ADDITIONAL COVENANTS OF LYRIC
13.1 Covenant During Term. During the Term of this Agreement, Lyric and
each Franchisee covenant not to engage directly or indirectly as an owner,
operator, in any managerial capacity, or otherwise in any business other than
(i) as a franchisee of the Proprietary Materials pursuant to a Facility
Franchise Agreement; (ii) Other Business (but only as permitted by Franchisor
pursuant to Article 10); or (iii) through management and administration of the
businesses franchised by Franchisor pursuant to Article 2.
13.2 Covenant Not to Compete Post-Term. For a period expiring three (3)
years after the expiration, termination or assignment of this Agreement, Lyric
and each Franchisee covenant not to engage (directly or indirectly) as an owner,
operator, franchisee, or consultant in any business which was conducted at any
of the Facilities or any Other Business on the date of expiration, termination
or assignment of this Agreement or during the two (2) years prior thereto. The
geographic area of the restrictions under this Section 13.2 shall be limited to
(i) the Territories of Lyric and all Franchisees at the date of the termination,
expiration or assignment of this Agreement and during the two years prior
thereto; and (ii) the geographic areas within a ten (10) mile radius of any
Other Business in existence at the date of the expiration, termination or
assignment of this Agreement or during the two (2) years prior thereto.
13.3 Acknowledgment of Reasonableness. The parties agree that Sections 13.1
and 13.2 have been negotiated fully and fairly by the parties, each being
represented and advised
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by counsel. Lyric and each Franchisee acknowledge that Lyric and such Franchisee
willingly and freely accept the provisions of Section 13.1 and 13.2 as
reasonable and necessary under the circumstances. One of the acknowledged
reasonable business purposes of Franchisor is to protect Franchisor's goodwill
and proprietary rights. Lyric and each Franchisee acknowledge further that
Franchisor would not enter into this Agreement without the covenants of Sections
13.1 and 13.2, and that it is fair and reasonable for Lyric and every Franchisee
to be subject to such covenants.
13.4 Confidential Information. During the Term of this Agreement and
following the expiration, termination or assignment of the Agreement, Lyric and
each Franchisee covenant not to communicate directly or indirectly, nor to
divulge to or use for its benefit or the benefit of any other person or legal
entity, any trade secrets included in the Proprietary Materials or which are
otherwise proprietary to Franchisor or IHS or any information, knowledge or
know-how otherwise deemed confidential by Franchisor except as permitted by
Franchisor (all such, "Confidential Information"). Notwithstanding the
foregoing, "Confidential Information" shall not include information: (a) which
at the time of disclosure is readily available to the trade or public; (b) which
after disclosure becomes readily available to the trade or public other than
through breach of this Agreement; (c) which is subsequently lawfully and in good
faith obtained by such party from an independent third party without breach of
this Agreement; or (d) which is disclosed to others in accordance with the terms
of a prior written authorization between the parties to this Agreement. In event
of any termination, expiration, assignment, or non-renewal of this Agreement,
Lyric and each Franchisee agree that Lyric and such Franchisee will never use
the Proprietary Materials or any other confidential information, trade secrets,
methods of operation or any proprietary components of Franchisor in the design,
development or operation of any Health Care Business. The protection
granted hereunder shall be in addition to and not in lieu of all other
protections for such trade secrets and confidential information as may otherwise
be afforded in law or in equity.
13.5 Confidential Agreements with Certain Employees. Consistent with
Franchisor's existing policies with respect to employee non-disclosure
agreements, Lyric and each Franchisee agree to maintain and cause new employees
of Lyric to execute employee non- disclosure agreements, in the form used by IHS
as of the date hereof (or such other form as reasonably requested by
Franchisor), which shall prohibit disclosure by such parties to any other person
or legal entity of any Confidential Information. Franchisor shall be a third
party beneficiary of each such agreement; and Lyric or the respective Franchisee
shall not amend, modify or terminate any such agreement without Franchisor's
prior written consent.
13.6 Severability. The parties agree that each of the foregoing covenants
shall be construed as independent of any other covenant or provision of this
Agreement. If any part of one or more of these restrictions is deemed
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and if such part is capable of enforcement by
reduction of any or all thereof, Lyric and Franchisor agree that the same shall
be enforced to the fullest extent permissible under the law. Also, Franchisor
may at any time, in its sole discretion, revise any of the covenants in this
Article 13 so as to reduce the obligations of Lyric or any one or more
Franchisees hereunder. The running of any period of time specified in this
Article 13
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shall be tolled and suspended for any period of time in which Lyric is found by
a court of competent jurisdiction to have been in violation of any covenant
under this Agreement. Lyric agrees further that the existence of any claim Lyric
may have against Franchisor (whether or not arising under this Agreement) shall
not be a defense to enforcement by Franchisor of the covenants in this Article
13.
ARTICLE 14. FRANCHISOR NOT TO COMPETE
Franchisor agrees not to compete with Lyric or the applicable Franchisee in
any business which is covered by a Facility Franchise Agreement in the Territory
covered by such Facility Franchise Agreement.
ARTICLE 15. NEGATIVE COVENANTS OF LYRIC
If Integrated Health Services, Inc. sells its entire membership interest in
Lyric pursuant to Article 16 of the Operating Agreement, Lyric shall not do any
of the following, without the prior written consent of Franchisor, if Lyric is
in default in paying any monthly installment of the Annual Continuing Fee for
(30) thirty days after written notice from Franchisor:
15.1 Restriction of Indebtedness. Create, incur or assume any indebtedness
for borrowed money or the deferred purchase price of any asset (including
obligations under capitalized leases), except indebtedness subordinated to all
debts, obligations and liabilities of Lyric to Franchisor and its Affiliates
pursuant to a subordination agreement on terms and conditions acceptable to
Franchisor.
15.2 Restrictions on Liens. Create or permit to be created any mortgage,
pledge, encumbrance or other lien or security interest in any property or
assets, except for any such that individually or in the aggregate are immaterial
to Lyric.
15.3 Dividends and Redemptions. Make any distribution to Lyric's members,
or redeem, purchase or otherwise acquire directly or indirectly, any membership
interest of Lyric's members, except that Lyric shall have the right to make cash
distributions to its members so long as no default has occurred and is
continuing in the payment of any amount due from Lyric to Franchisor pursuant to
this Agreement and so long as, after giving effect to the payment of the
distribution sufficient working capital is available to pay Annual Continuing
Fees and budgeted operating expenses for the three full calendar months
following the payment of such distribution.
15.4 Acquisitions and Investments. Acquire any material assets or any other
business or make any material loan, advance or extension of credit to, or
investment in, any other person, corporation or other entity, including
investments acquired in exchange for stock or other securities or obligations of
any nature (other than to subsidiaries or in connection with cash management
functions in the ordinary course of business), or create or participate in the
creation of any subsidiary or joint venture.
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15.5 Liquidation; Merger; Disposition of Assets. Liquidate or dissolve; or
merge with or into or consolidate with or into any corporation or other entity;
or sell, lease, transfer or otherwise dispose of all or any substantial part of
its property, assets or business (other than sales made in the ordinary course
of business).
15.6 Increases in Salaries. Increase any salaries, bonuses, profit-sharing
payments, or other compensation of any kind (including severance agreements) for
any employees receiving (or likely to receive) more than $100,000 in total
annual compensation.
15.7 Affiliates. Amend any Lease to increase the amount or accelerate the
payment of the rent under such Lease or any installment thereof or engage in any
material transaction with (i) any Affiliate, (ii) Lessor or (iii) an Affiliate
of Lessor, other than pursuant to contracts or ongoing arrangements existing at
the time Integrated Health Services, Inc. sells its membership interest in
Lyric, including amending in any material respect any such contracts or other
ongoing arrangements existing at the time of such sale.
15.8 No Bankruptcy. (i) Dissolve or liquidate, in whole or in part, or
institute proceedings to be adjudicated bankrupt or insolvent, (ii) consent to
the institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (iv) consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of Lyric or a substantial part of its property, (v) make a general
assignment for the benefit of creditors, (vi) admit in writing its inability to
pay its debts generally as they become due, or (vii) take any corporate or other
action to authorize any of the actions set forth in clauses (i) through (vi) of
this paragraph.
ARTICLE 16. TRANSFER AND ASSIGNMENT
16.1 Assignment by Franchisor. This Agreement and all rights and duties
hereunder may not be assigned or transferred by Franchisor except (i) with
Lyric's prior written consent (which shall not be unreasonably withheld,
conditioned or delayed); or (ii) to an entity which simultaneously acquires all
or substantially all of Franchisor's business and assets, provided that such
transferee/assignee assumes each and every obligation of Franchisor under this
Agreement. Franchisor may grant a security interest for collateral purposes in
Franchisor's rights and interest (but not its obligations) under this Agreement
to any of Franchisor's (or its Affiliates') lenders.
16.2 Assignment by Lyric. This Agreement and all rights and duties
hereunder may not be assigned or transferred by Lyric except (i) with the
written consent of Franchisor, or (ii) to an entity which simultaneously
acquires all or substantially all of Lyric's business and assets (including
ownership of all Franchisees), provided that such transferee/assignee assumes
each and every obligation of Lyric under this Agreement (and executes an
assumption agreement to such effect in form and substance satisfactory to
Franchisor). At the time of assignment of Lyric's rights pursuant to the
preceding sentence, Lyric may transfer simultaneously the Franchisees'
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interests in all of the Facility Franchise Agreements to the same person or
entity to whom Lyric's interest in this Agreement is assigned.
16.3 Consent Not a Waiver. Franchisor's consent (if granted) to an
assignment by Lyric shall not constitute a waiver of any claims of Franchisor
against the transferring party, nor a waiver of Franchisor's right to demand
exact compliance with all terms of this Agreement by the transferee.
16.4 Parties Bound and Benefitted. This Agreement shall be binding on the
parties and their respective successors and assigns. This Agreement shall inure
to the benefit of the parties and their respective permitted successors and
assigns.
ARTICLE 17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT
17.1 Franchisor's Right to Terminate. Franchisor may terminate this
Agreement prior to the expiration of its term for "good cause", which shall
exist, at Franchisor's election, if:
(a) Lyric or any Franchisee violates any prohibition against transfer
and assignment in Article 16;
(b) Lyric or any Franchisee violates any covenant of confidentiality
or non-disclosure contained in Section 13.4 or Section 13.5;
(c) Lyric fails to keep, observe, or perform any covenant, agreement,
term or provision of this Agreement (other than payments covered by (f)
below) and such failure continues for sixty (60) days after notice from
Franchisor, provided that if such failure can be cured but such cure cannot
be completed with due diligence within such period and if Lyric commences
to cure such failure promptly after notice thereof and thereafter
prosecutes
such cure with due diligence, such period shall be extended as necessary to
cure such failure with due diligence;
(d) Lyric shall apply for or consent to the appointment of a receiver,
trustee, or liquidator of Lyric or of all or a substantial part of its
assets, file a voluntary petition in bankruptcy or admit in writing its
inability to pay its debts as they become due, make a general assignment
for the benefit of creditors, file a petition or any answer seeking
reorganization or arrangement with creditors or take advantage of any
insolvency law, or if an order, judgment or decree shall be entered by a
court of competent jurisdiction, on the application of a creditor,
adjudicating Lyric bankrupt or appointing a receiver, trustee, or
liquidator of Lyric with respect to all or a substantial part of the assets
of Lyric, and such order, judgment or decree shall continue unstayed and in
effect for any period of ninety (90) consecutive days;
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(e) Lyric or any Franchisee defaults under any Lease or mortgage of
any Facility, and the respective Lessor or mortgagee commences legal
proceedings to enforce its rights thereunder;
(f) subject to Section 5.5 Lyric fails to pay the Annual Continuing
Fee owed to Franchisor under this Agreement when due or within sixty (60)
days thereafter, or fails to pay any other amounts owed to Franchisor under
this Agreement within sixty (60) days after notice from Franchisor of such
obligation.
Upon the happening of any of the foregoing events, Franchisor may terminate the
rights of Lyric and all Franchisees hereunder by notice to Lyric; and the rights
of Lyric and all Franchisees hereunder shall terminate automatically effective
thirty (30) days after the giving of such notice. If in any jurisdiction a
franchisee is entitled by law to notice and/or cure periods longer than those
set forth above, then with respect to any Facility Franchise Agreement (to which
Lyric or a Franchisee is a party) governed by the law of such jurisdiction, the
notice and/or cure periods, as applicable, shall be deemed to be extended
automatically to the minimum notice and/or cure periods required in such
jurisdiction.
17.2 Lyric's Right to Terminate. Lyric may not terminate this Agreement
prior to the expiration of its term (whether because of Franchisor's breach,
material or otherwise) except with the prior written consent of Franchisor.
17.3 Defaults Caused by Manager. Notwithstanding anything in this Agreement
to the contrary, during any period while an Affiliate of Franchisor is acting as
the Manager of any Facility of a Franchisee pursuant to a Management Agreement,
if and to the extent that such Manager, through its action or failure to act,
shall have caused Lyric or the respective Franchisee to be in default of their
obligations under this Agreement, then such default shall not be the basis for
Franchisor to exercise any rights under this Article or under Section 5.9;
provided, however, the foregoing sentence shall not apply if the respective
Manager is unable to act (or prevented from acting) by reason of the failure of
Lyric or the respective Franchisee to comply with its own obligation under the
particular Management Agreement (including the payment of funds to Manager to
cover necessary expenditures, the giving of required approvals or directions,
etc.).
ARTICLE 18. [INTENTIONALLY OMITTED]
ARTICLE 19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
19.1 Indemnification and Hold Harmless. Lyric agrees to protect, defend,
indemnify, and hold Franchisor, IHS and their respective directors, officers,
agents, attorneys and shareholders, harmless from and against all claims,
actions, proceedings, damages, costs, expenses and other losses and liabilities,
directly or indirectly incurred (including without limitation reasonable
attorneys' and accountants' fees) as a result of, arising out of, or connected
with the operation of Lyric's Business, except those directly resulting from
Franchisor's or IHS' willful misconduct or fraud. Franchisor agrees to protect,
defend, indemnify and hold Lyric and each
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Franchisee, and their respective directors, officers, agents, attorneys and
members, harmless from and against all claims, actions, proceedings, damages,
costs, expenses and other losses and liabilities, directly or indirectly arising
out of or connected with the operation of Lyric's Business arising directly from
Franchisor's willful misconduct or fraud.
19.2 Independent Contractor. In all dealings with third parties including
employees, suppliers and patients, Lyric shall disclose in an appropriate manner
reasonably acceptable to Franchisor that it is an independent entity. Nothing in
this Agreement is intended to create a fiduciary relationship between the
parties hereto nor to constitute Lyric an agent, legal representative,
subsidiary, joint venturer, partner, employee or servant of Franchisor for any
purpose. It is agreed that Lyric is an independent contractor and is not
authorized to make any contract, warranty or representation or to create any
obligation on behalf of Franchisor.
ARTICLE 20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT
20.1 Prior Approvals. Whenever this Agreement requires Franchisor's prior
approval, Lyric shall make a timely written request. Unless a different time
period is specified in this Agreement, Franchisor shall respond with its
approval or disapproval within fifteen (15) days of receipt of such request. If
Franchisor has not specifically approved a request within such fifteen (15) day
period, such failure to respond shall be deemed disapproval of any such request.
20.2 No Waiver. No failure of Franchisor to exercise any power reserved to
it by this Agreement and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Franchisor's right to demand exact
compliance with any of the terms herein. No waiver or approval by Franchisor of
any particular breach or default by Lyric, nor any delay, forbearance or
omission by Franchisor to act or give notice of default or to exercise any power
or right arising by reason of such default hereunder, nor acceptance by
Franchisor of any payments due hereunder shall be considered a waiver or
approval by Franchisor of any preceding or subsequent breach or default by Lyric
of any term, covenant or condition of this Agreement.
20.3 Written Amendments. Except as otherwise specifically provided in this
Agreement, no amendment, change or variance from this Agreement shall be binding
upon either Franchisor or Lyric except by mutual written agreement.
ARTICLE 21. ENFORCEMENT
21.1 Inspections. In order to ensure compliance with this Agreement and to
enable Franchisor to carry out its obligations under this Agreement, Lyric
agrees that Franchisor and its designated agents shall be permitted, with or
without notice, full and complete access during business hours to inspect all
premises at which Lyric's Business is conducted and all records thereof,
including, but not limited to, records relating to Lyric's and Lyric's
Franchisees' patients, suppliers, employees and agents. Lyric shall cooperate
fully with Franchisor and its designated agents requesting such access.
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21.2 No Right to Offset. Lyric will not, for any reason, withhold payment
of any monthly payment, fee or any other fees or payments due to the Franchisor
under this Agreement or pursuant to any other contract, agreement or obligation
to the Franchisor or any of its Affiliates. Lyric shall not have the right to
"offset" any liquidated or unliquidated amounts, damages or other funds
allegedly due to Lyric from the Franchisor against any monthly payment, fee or
any other fees or payments due to the Franchisor or any of its Affiliates under
this Agreement or otherwise.
ARTICLE 22. ENTIRE AGREEMENT
This Agreement and the Facility Franchise Agreements contain the entire
agreement of the parties. No other agreements, written or oral, shall be deemed
to exist, and all prior agreements and understandings are superseded hereby.
There are no conditions to this Agreement which are not expressed herein or in
the Facility Franchise Agreements.
ARTICLE 23. NOTICES
All notices, consents or other communications under this Agreement (any
such, a "notice") must be in writing and addressed to each party at its
respective addresses set forth above (or at any other address which the
respective party may designate by notice given to the other party). Any notice
required by this Agreement to be given or made within a specified period of
time, or on or before a date certain, shall be deemed given or made if sent by
hand, by fax with confirmed answerback received, or by registered or certified
mail (return receipt requested and postage and registry fees prepaid). Delivery
"by hand" shall include delivery by commercial express or courier service. A
notice sent by registered or certified mail shall be deemed given on the date of
receipt (or attempted delivery if refused) indicated on the return receipt. All
other notices shall be deemed given when actually received.
ARTICLE 24. GOVERNING LAW AND DISPUTE RESOLUTION
24.1 Governing Law. This Agreement shall be interpreted, construed, applied
and enforced in accordance with the laws of the State of Maryland (without
giving effect to principles
of conflicts of laws). Subject to Sections 24.2 and 24.3, any action to enforce,
arising out of, or relating in any way to, any of the provisions of this
Agreement may be brought and prosecuted in such court or courts located in the
State of Maryland, and the parties consent to the jurisdiction of said court or
courts.
24.2 In the event of any dispute or controversy arising under or in
connection with this Agreement, the parties shall attempt to resolve such
dispute or controversy by mediation as provided in this Section prior to
exercising any rights under the remaining provisions of Article 24. Either party
may commence mediation by notice to the other party (the "Mediation Notice"),
which notice shall name a proposed Mediator (as defined below) to resolve the
dispute. The party receiving the Mediation Notice, within seven days after
receipt, shall send the other party notice accepting the proposed Mediator (the
"Acceptance Notice") or proposing an alternate
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Mediator (the "Alternate Notice"). Within seven (7) days after receipt of an
Alternate Notice, the receiving party shall deliver notice accepting or
rejecting the alternate Mediator. Within five (5) days after the Mediator has
been selected the dispute shall be submitted to him or her by both parties, and
the Mediator shall decide the dispute within fourteen (14) days thereafter. The
decision of the Mediator shall not be binding upon the parties, and after the
Mediator issues a decision either party may submit the dispute to arbitration,
as provided in Section 24.3 and 24.4. If the parties fail to agree upon a
Mediator within twenty (20) days after receipt of the Mediation Notice, the
dispute may be resolved as provided in Section 24.3. "Mediator" means an
individual with experience relevant to the matter in dispute who is not employed
by or affiliated with either party and who does not have (and is not an officer,
employee or director of an entity which has) significant business contacts with
either party. Franchisor and Lyric shall share equally all costs of the
Mediator.
24.3 (a) Subject to Section 24.2, any dispute between Lyric and Franchisor
regarding a financial, tax, or accounting issue shall be resolved exclusively
through arbitration conducted by a principal of KPMG Peat Marwick (the
"Financial Arbitrator"). Either party may commence arbitration hereunder by
notice to the other party and to the Financial Arbitrator, who shall decide the
dispute. Franchisor and Lyric shall share equally all costs of the Financial
Arbitrator. The Financial Arbitrator shall conduct the arbitration in any manner
he or she elects; however, the Financial Arbitrator shall issue a final decision
with respect to such dispute within thirty (30) days after the dispute is
referred to him or her. The decision of such Financial Arbitrator shall be final
and binding upon the parties and shall not be subject to appeal. Judgment upon
the award rendered by the Financial Arbitrator may be entered in any court
having in personam and subject matter jurisdiction over the parties.
(b) Subject to Sections 24.2 and 24.3(a), any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration, conducted before a panel of three arbitrators in Baltimore,
Maryland, in accordance with the rules of the American Arbitration Association
then in effect, and judgement may be entered on the arbitrators' award in any
court having in personam and subject matter jurisdiction over the parties.
Franchisor and Lyric shall share equally the costs of the American Arbitration
Association and the arbitrators. Each party shall select one arbitrator, and the
two so designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) days after arbitration is requested, or
if the two arbitrators shall fail to select a third arbitrator within fourteen
(14) days after arbitration is requested, then an
arbitrator shall be selected by the American Arbitration Association upon
application of either party. In considering any issue under this Agreement, the
arbitrators shall construe and interpret this Agreement strictly in accordance
with the specific terms and provisions hereof and in accordance with the
judicial decisions, statutes, and other indicia of Maryland law.
ARTICLE 25. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS
25.1 Severability. Should any provision of this Agreement be for any reason
held invalid, illegal or unenforceable by a court of competent jurisdiction,
such provision shall be
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deemed restricted in application to the extent required to render it valid; and
the remainder of this Agreement shall in no way be affected and shall remain
valid and enforceable for all purposes. In the event that any provision of this
Agreement should be for any reason held invalid, illegal or unenforceable by a
court of competent jurisdiction, or in the event the performance or compliance
by any party with any provision of this Agreement shall result in such party
being in violation of any law, rule or regulation of any governmental authority,
then in any of such events the parties agree to use commercially reasonable best
efforts to amend in a manner reasonably consistent with each party's economic
interests the obligations of the parties under and pursuant to the Agreement so
as to cause the parties' obligations hereunder to be enforceable and not in
violation of any law, rule or regulation of any governmental authority. In the
event such total or partial invalidity or unenforceability of any provision of
this Agreement exists only with respect to the laws of a particular
jurisdiction, this paragraph shall operate upon such provision only to the
extent that the laws of such jurisdiction are applicable to such provision. Each
party agrees to execute and deliver to the other any further documents which may
be reasonably required to effectuate fully the provisions hereof. Lyric
understands and acknowledges that Franchisor shall have the right, in its sole
discretion, on a temporary or permanent basis, to reduce the scope of any
covenant or provision of this Agreement binding upon Lyric, or any portion
hereof, without Lyric's consent, effective immediately upon receipt by Lyric of
written notice thereof, and Lyric agrees that it will comply forthwith with any
covenant as so modified, which shall be fully enforceable.
25.2 Regulatory Reports. Each party agrees to reasonably cooperate with the
other in providing on a timely basis all documents and information in its
possession or reasonably available to it, reasonably required by the other for
reports or filings required by any governmental or other regulatory authority.
25.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute one and the same
instrument.
25.4 Table of Contents, Headings and Captions. The table of contents,
headings and captions contained herein are for the purposes of convenience and
reference only and are not to be construed as a part of this Agreement. All
terms and words used herein shall be construed to include the number and gender
as the context of this Agreement may require. The parties agree that each
section of this Agreement shall be construed independently of any other section
or provision of this Agreement.
ARTICLE 26. POST TERM OBLIGATIONS
Upon the expiration, termination or assignment of this Agreement, Lyric and
every Franchisee shall immediately:
26.1 Cease Operations. Cease to be a Franchisee of Franchisor under this
Agreement and cease to operate its business under the IHS Systems. Lyric and
each Franchisee shall not thereafter, directly or indirectly, represent to the
public that their business is or was
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operated or in any way connected with the IHS Systems or hold itself out as a
present (or, publicly, as a former) franchisee of Franchisor at or with respect
to any premises from or at which its business operated.
26.2 Pay All Sums Outstanding. Pay all sums owing to Franchisor.
26.3 Return Confidential Operating Manual. Return to Franchisor the
Confidential Operating Manual and all trade secret and other confidential
materials, equipment and other property owned by Franchisor, and all copies
thereof, including all such provided to any third party by Lyric or any
Franchisee with Franchisor's prior consent pursuant to this Agreement. Lyric and
the Franchisees shall retain no copy or record of any of the foregoing.
26.4 Cease Use of IHS Systems. Cease to use in advertising, or in any
manner whatsoever, any methods, procedures, protocols, programs, procedures or
techniques associated with the IHS Systems in which Franchisor or IHS has a
proprietary right, title or interest; cease to use the Proprietary Materials and
any other marks and indicia of operation associated with the IHS Systems and
remove all trade dress, physical characteristics, color combinations and other
indications of operation under the IHS Systems from any premises from or at
which Lyric or any Franchisee operated. Without limiting the foregoing, Lyric
and each Franchisee agree that in the event of any termination or expiration of
this Agreement, it will remove all signage bearing the Proprietary Materials,
and will remove from their respective premises any items which are
characteristic of the IHS Systems "trade dress".
ARTICLE 27. TAXES, PERMITS AND INDEBTEDNESS
27.1 Payment. Lyric and each Franchisee shall promptly pay when due any and
all federal, state and local taxes (including unemployment and sales taxes)
levied or assessed with respect to any services or products furnished, used or
licensed pursuant to this Agreement and all accounts or other indebtedness of
every kind incurred by Lyric and each Franchisee in the operation of their
business.
27.2 Compliance with all Laws and Regulations. Lyric and each Franchisee
shall comply with all federal, state and local laws, rules and regulations and
timely obtain any and all permits, certificates and licenses required for the
full and proper conduct of their business.
27.3 Full Responsibility. Lyric and each Franchisee hereby expressly
covenant and agree to accept full and sole responsibility for any and all debts
and obligations incurred in the operation of their business.
ARTICLE 28. ACKNOWLEDGMENTS
28.1 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT FRANCHISOR OR ITS AGENT HAS
PROVIDED LYRIC AND EACH FRANCHISEE WITH A FRANCHISE OFFERING CIRCULAR NOT LATER
THAN THE EARLIER OF TEN (10)
24
<PAGE>
BUSINESS DAYS BEFORE THE EXECUTION OF THIS AGREEMENT, OR TEN (10) BUSINESS DAYS
BEFORE ANY PAYMENT BY LYRIC OR A FRANCHISEE OF ANY CONSIDERATION IN CONNECTION
WITH THIS AGREEMENT. LYRIC AND EACH FRANCHISEE FURTHER ACKNOWLEDGE THAT LYRIC
AND EACH FRANCHISEE HAVE READ SUCH FRANCHISE OFFERING CIRCULAR AND UNDERSTAND
ITS CONTENTS.
28.2 LYRIC ACKNOWLEDGES THAT FRANCHISOR HAS PROVIDED LYRIC WITH A COPY OF
THIS AGREEMENT AND ALL RELATED DOCUMENTS, FULLY COMPLETED, AT LEAST FIVE (5)
BUSINESS DAYS PRIOR TO LYRIC'S EXECUTION HEREOF OR SUCH FRANCHISEE'S EXECUTION
OF ITS FACILITY FRANCHISE AGREEMENT.
28.3 LYRIC AND EACH FRANCHISEE ARE AWARE OF THE FACT THAT OTHER PRESENT OR
FUTURE FRANCHISE OWNERS OF FRANCHISOR MAY OPERATE UNDER DIFFERENT FORMS OF
AGREEMENT(S), AND CONSEQUENTLY THAT FRANCHISOR'S OBLIGATIONS AND RIGHTS WITH
RESPECT TO ITS VARIOUS FRANCHISE OWNERS MAY DIFFER MATERIALLY IN CERTAIN
CIRCUMSTANCES.
28.4 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT THIS INSTRUMENT CONSTITUTES
THE ENTIRE AGREEMENT OF THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.
EXCEPT AS SET FORTH IN THE TRANSACTION DOCUMENTS, THIS AGREEMENT TERMINATES AND
SUPERSEDES ANY PRIOR AGREEMENT BETWEEN THE PARTIES CONCERNING THE SAME SUBJECT
MATTER.
28.5 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT COMPUTER SOFTWARE LICENSED
HEREUNDER IS FURNISHED "AS IS". FRANCHISOR MAKES NO WARRANTIES, WHETHER EXPRESS
OR IMPLIED WITH RESPECT TO SUCH SOFTWARE AND DOCUMENTATION DESCRIBING SUCH
SOFTWARE, ITS QUALITY, ITS PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF
SOFTWARE AND DOCUMENTATION DESCRIBING SUCH SOFTWARE IS WITH LYRIC.
28.6 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT THIS FRANCHISE OFFER WAS
MADE TO LYRIC AND THE FRANCHISEES IN THE STATE OF FLORIDA.
ARTICLE 29. GUARANTY OF FRANCHISEE OBLIGATIONS
29.1 Definition of "Obligations". In this Article 29 "Obligations" means
any and all debts, obligations, and liabilities of every Franchisee to
Franchisor arising out of or relating to
the Franchisees' respective Facility Franchise Agreements with Franchisor,
whether such Facility Franchise Agreements and/or such debts, obligations and
liabilities are previously, now,
25
<PAGE>
or subsequently made, incurred, or created, whether voluntary or involuntary,
liquidated or unliquidated, secured or unsecured, and whether or not any or all
such debts, obligations and liabilities are or become unenforceable by operation
of bankruptcy or insolvency laws.
29.2 Guaranty. Lyric hereby (a) unconditionally guarantees the full and
prompt payment and performance of the Obligations when due, whether by
acceleration or otherwise, (b) agrees to pay all costs, expenses and reasonable
attorneys' fees incurred by Franchisor in enforcing this guaranty and the
Obligations and realizing on any collateral therefor, and (c) agrees to pay to
Franchisor the amount of any payments which were made to Franchisor or another
in full or partial satisfaction of the Obligations and which are recovered from
Franchisor by a trustee, receiver, creditor or other party pursuant to
applicable law. This is a guarantee of payment, and not of collection.
Franchisor shall not be obligated to: (i) take any steps to collect from, or to
file any claim of any kind against, any Franchisee, any guarantor, or any other
person or entity liable for payment or performance of the Obligations, or (ii)
take any steps to protect, accept, obtain, enforce, take possession of, perfect
its interest in, foreclose or realize on collateral or security (if any) for
payment or performance of any of the Obligations or any guarantee of any of the
Obligations, or (iii) in any other respect exercise any diligence in collecting
or attempting to collect any of the Obligations.
29.3 Liability Absolute. Lyric shall have the right to assert any defenses
to enforcement of the Obligations that would be available to Franchisees, other
than defenses based on bankruptcy or insolvency laws. However, except for the
preceding sentence, Lyric's liability for payment and performance of the
Obligations shall be absolute and unconditional; and Lyric unconditionally and
irrevocably waives each and every defense which, under principles of guaranty or
suretyship law, would otherwise operate to impair or diminish such liability;
and nothing except actual full payment and performance to Franchisor of the
Obligations shall operate to discharge Lyric's liability under this Article 29.
Without limiting the foregoing, Franchisor shall have the right, from time to
time and without notice, to: (a) extend any credit to any Franchisee, (b) accept
any collateral, security or guarantee for any Obligations or any other credit,
(c) determine how, when and what application of payments, credits and
collections, if any, shall be made on the Obligations and any other credit and
accept partial payments, (d) determine what (if anything) shall be done with
respect to any collateral or security, (e) subordinate, sell, transfer,
surrender, release or otherwise dispose of any such collateral or security, and
purchase or otherwise acquire any such collateral or security at foreclosure or
otherwise, and (f) with or without consideration grant, permit or enter into any
waiver, amendment, extension, modification, refinancing, indulgence, compromise,
settlement, subordination, discharge or release of any of the Obligations.
29.4 Additional Waivers. Lyric waives (a) presentment, notice of dishonor,
protest, demand for payment and all notices of any kind, including notice of
acceptance hereof, notice of the creation of any of the Obligations, notice of
nonpayment, nonperformance or other default on any of the Obligations, and
notice of any action taken to collect upon or enforce any of the Obligations,
(b) any claim for contribution against any co-guarantor, until the Obligations
have been paid or performed in full and such payments are not subject to any
right of recovery,
26
<PAGE>
and (c) any setoffs against Franchisor which would otherwise impair Franchisor's
rights against Lyric or any Franchisee hereunder.
29.5 Continuing Effect. This is a continuing guarantee which shall continue
in effect as to those of the Obligations arising out of or relating to each
Facility Franchise Agreement until the particular Facility Franchise Agreement
has terminated in accordance with its terms.
SIGNATURE PAGE FOLLOWS
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amended and Restated Master Franchise Agreement as of the date first
written above.
FRANCHISOR:
INTEGRATED HEALTH SERVICES
FRANCHISING CO., INC.
By:
------------------------------------------
Name: Daniel J. Booth
----------------------------------------
Title: Senior Vice President
---------------------------------------
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
------------------------------------------
Name: Daniel J. Booth
----------------------------------------
Title: Senior Vice President
---------------------------------------
S-1
<PAGE>
EXHIBIT 1
FACILITY FRANCHISE AGREEMENT
FACILITY FRANCHISE AGREEMENT
AMONG
LYRIC HEALTH CARE LLC,
[INSERT SUBSIDIARY]
AND
INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.
DATED AS OF JUNE 23, 1998
Exh.1-1
<PAGE>
FACILITY FRANCHISE AGREEMENT
THIS FACILITY FRANCHISE AGREEMENT (this "Agreement") made as of June 23,
1998 among LYRIC HEALTH CARE LLC, having an office at 8889 Pelican Bay
Boulevard, Suite 500, Naples, Florida 34103 ("Lyric"); [INSERT SUBSIDIARY],
having an office at [Insert Address] ("Franchisee"); and INTEGRATED HEALTH
SERVICES FRANCHISING CO., INC., having an office at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 ("Franchisor").
INTRODUCTORY STATEMENT
Pursuant to a Master Lease, dated as of the date hereof, between Monarch
Properties, LP, as lessor, and Lyric Health Care Holdings III, Inc.
("Holdings"), as lessee, and a Facility Sublease, dated as of the date hereof,
between Holdings, as sublessor, and Franchisee, as sublessee, Franchisee is the
sublessee and operator of a health care facility named [Insert Facility Name]
located at [Insert Facility Address], together with the equipment, furnishings,
and other tangible personal property to be used in connection therewith (the
"Facility"). Franchisee is wholly owned, directly or indirectly, by Lyric.
Lyric and Franchisor have entered into an Amended and Restated Master
Franchise Agreement, dated as of the date hereof (the "Master Franchise
Agreement") franchising the use of the "Trade Names" and the "Proprietary
Materials" (including the "IHS Systems") as defined therein. Franchisee desires
to obtain all the rights and benefits which are granted to "Franchisees" under
the Master Franchise Agreement; and Franchisor and Lyric are willing to accord
such rights and benefits to Franchisee, upon the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of their mutual promises, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1 Words and phrases defined in the Master Franchise Agreement shall have
the same meanings in this Agreement, unless otherwise defined herein.
1.2 In this Agreement:
(a) "Included Provisions" means all provisions of the Master Franchise
Agreement except the Excluded Provisions.
Exh.1-1
<PAGE>
(b) "Excluded Provisions" means the following Sections and/or Articles
of the Master Franchise Agreement: Section 2.1(b); Section 5.1; Section
12.2; Section 12.3; Section 12.4; Article 15; Section 16.2; Article 23; and
Article 29.
(c) "Territory" means the area within a fifteen-mile radius of the
Facility.
1.3 Other words and phrases are defined in this Agreement.
ARTICLE 2. GRANT OF FRANCHISE
2.1 Franchisor hereby grants to Franchisee, but only with respect to the
Facility described in the Introductory Statement and the Territory described in
Section 1.2(c) above, all rights and benefits granted to Lyric or a "Franchisee"
under the Master Franchise Agreement, except for any rights of Lyric under the
Excluded Provisions.
2.2 Franchisee accepts the foregoing grant and hereby assumes and agrees to
keep, observe, and perform, but only with respect to the Facility described in
the Introductory Statement and the Territory described in Section 1.2(c) above,
all obligations and responsibilities of a "Franchisee" and/or Lyric under the
Master Franchise Agreement, except for any obligations of Lyric under the
Excluded Provisions.
2.3 In furtherance (and not in limitation) of the foregoing, the Included
Provisions are incorporated by reference in this Agreement. References to
"Lyric" in the Included Provisions shall be deemed to include "Franchisee."
ARTICLE 3. ANNUAL FEE
3.1 Franchisee shall pay to Lyric an"Annual Fee" equal to one percent (1%)
of Franchisee's annual Gross Revenues. Franchisee's Annual Fee shall be paid in
installments, and otherwise upon the same terms and conditions, as Lyric's
Annual Continuing Fee under the Master Franchise Agreement; and references to
the "Annual Continuing Fee" in the Included Provisions shall be deemed to mean
the Annual Fee under this Agreement.
ARTICLE 4. TERMINATION
4.1 This Agreement may be terminated by Franchisor--even if the Master
Franchise Agreement does not terminate--upon the occurrence of a default or
other failure by Franchisee under Article 17 of the Included Provisions.
Termination of this Agreement shall not per se terminate the Master Franchise
Agreement (although such termination may otherwise result from, or allow,
termination of the Master Franchise Agreement according to its terms).
Franchisee may not terminate this Agreement prior to the expiration of its term
Exh.1-2
<PAGE>
(whether because of Franchisor's breach, material or otherwise) except with the
prior written consent of Franchisor.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Franchisee. Franchisee represents and
warrants to Franchisor that:
(a) Franchisee is a corporation duly organized, validly existing and
in good standing under the laws of the State of [Insert];
(b) Franchisee's execution and delivery of this Agreement, and
Franchisee's performance of its obligations under this Agreement, have been
duly authorized by all necessary corporate action;
(c) this Agreement is the legal, valid, and binding obligation of
Franchisee, enforceable in accordance with its terms; and
(d) Franchisee has reviewed carefully and acknowledges and accepts
Article 28 of the Included Provisions.
ARTICLE 6. NOTICES
6.1 Any notice or other communication by either party to the other shall be
in writing and shall be given and be deemed to have been duly given, upon the
date delivered if delivered personally (including by commercial express service)
or upon the date received if mailed postage pre-paid, registered, express, or
certified mail, addressed as follows:
To Franchisee: [Insert Subsidiary]
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
To Lyric: Lyric Health Care LLC
8889 Pelican Bay Boulevard, Suite 500
Naples, Florida 34103
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
Exh.1-3
<PAGE>
To Franchisor: Integrated Health Services Franchising Co., Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
ARTICLE 7. ASSIGNMENT
7.1 Assignment by Franchisee. Franchisee shall have no right to assign this
Agreement. Franchisee's interest in this Agreement may be assigned only as part
of an assignment of the interest of Lyric and all Franchisees in the Master
Franchise Agreement and all Facility Franchise Agreements pursuant to Section
16.2 of the Master Franchise Agreement.
7.2 Assignment by Franchisor. Franchisor shall have the same assignment
rights with respect to this Agreement as it does with respect to the Master
Franchise Agreement.
ARTICLE 8. WAIVER OF COVENANT NOT TO COMPETE POST-TERM
8.1 In the event that Franchisor fails to extend the term of this
Agreement, Franchisor shall be deemed to have waived section 13.2 of the Master
Franchise Agreement concerning the covenant of Lyric and Franchisee not to
compete post-term unless Franchisor provides notice to Franchisee at least six
(6) months prior to the expiration date of this Agreement that section 13.2 of
the Master Franchise Agreement is not waived.
SIGNATURE PAGE FOLLOWS
Exh.1-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Facility Franchise Agreement as of the day and year first above written.
FRANCHISEE: FRANCHISOR:
[INSERT SUBSIDIARY] INTEGRATED HEALTH
SERVICES FRANCHISING CO., INC.
By: By:
----------------------------------- ----------------------------------
Name: Daniel J. Booth Name: Daniel J. Booth
--------------------------------- --------------------------------
Title: Senior Vice President Title: Senior Vice President
-------------------------------- -------------------------------
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
-----------------------------------
Name: Daniel J. Booth
---------------------------------
Title: Senior Vice President
--------------------------------
CONSENTED TO BY:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
-----------------------------------
Name: Daniel J. Booth
---------------------------------
Title: Senior Vice President
--------------------------------
Exh.1-5
<PAGE>
EXHIBIT 2
LIST OF FACILITIES
1. Integrated Health Services at 4000 S.W. 20TH AVENUE
Gainesville GAINESVILLE, FLORIDA 32607
352-377-1981
352-377-7340 (FAX)
2. INTEGRATED HEALTH SERVICES OF 8833 STENTON AVENUE
CHESTNUT HILL WYNDMOOR, PENNSYLVANIA 19038
215-836-2100
215-233-3551 (FAX)
3. INTEGRATED HEALTH SERVICES OF NEW RFD 3 BOX 47, HANOVER STREET EXT.
HAMPSHIRE AT CLAREMONT CLAREMONT, NEW HAMPSHIRE 03743
603-452-2606
603-453-0479 (FAX)
4. INTEGRATED HEALTH SERVICES OF ST. 811 JACKSON STREET N.
PETERSBURG ST. PETERSBURG, FLORIDA 33705
813-896-3651
813-821-2453 (FAX)
5. GOVERNOR'S PARK 1420 SOUTH BARRINGTON ROAD
BARRINGTON, ILLINOIS 60010
847-382-6664
847-382-6693 (FAX)
6. INTEGRATED HEALTH SERVICES OF FLORIDA 2600 COURTLAND STREET
AT SARASOTA NURSING PAVILION SARASOTA, FLORIDA 34237
941-957-0310
941-365-7324 (FAX)
7. INTEGRATED HEALTH SERVICES OF PINELLAS 8701 49TH STREET N.
PARK PINELLAS PARK, FLORIDA 34666
813-546-4661
813-545-8783 (FAX)
8. INTEGRATED HEALTH SERVICES OF TARPON 900 BECKETT WAY
SPRINGS TARPON SPRINGS, FLORIDA 34699
813-934-0876
813-942-6790 (FAX)
9. INTEGRATED HEALTH SERVICES AT 955 GARDEN LAKE PKWY
WATERFORD COMMONS TOLEDO, OHIO 43614
419-382-2200
419-381-0188 (FAX)
Exh.2-1
<PAGE>
10. INTEGRATED HEALTH SERVICES OF 820 RHUE HAUS LANE
HERSHEY AT WOODLANDS HUMMELSTOWN, PENNSYLVANIA 17036
717-533-3351
717-533-3967 (FAX)
11. INTEGRATED HEALTH SERVICES OF 3625 PARKMOOR VILLAGE
COLORADO SPRINGS COLORADO SPRINGS, COLORADO 80917
719-550-0200
719-637-0756 (FAX)
12. HORIZON HEALTHCARE & SPECIALTY 1350 S. NOVA ROAD
CENTER DAYTONA BEACH, FLORIDA 32114
(HHC- DAYTONA) 904-258-5544
904-255-5623 (FAX)
13. INTEGRATED HEALTH SERVICES OF 702 W. KINGS AVE.
BRANDON BRANDON, FLORIDA 33511
813-651-1818
813-654-4252 (FAX)
14. INTEGRATED HEALTH SERVICES AT CENTRAL 931 S. ORANGE BLOSSOM TR.
PARK VILLAGE ORLANDO, FLORIDA 32837-8339
407-858-0455
407-850-2470 (FAX)
15. INTEGRATED HEALTH SERVICES AT VERO 3663 15TH AVE.
BEACH VERO BEACH, FLORIDA 32960
561-567-2552
561-567-8929 (FAX)
16. INTEGRATED HEALTH SERVICES OF FLORIDA 919 OLD WINTER HAVEN RD.
AT AUBURNDALE AUBURNDALE, FLORIDA 33823
941-967-4125
941-551-9407 (FAX)
17. INTEGRATED HEALTH SERVICES OF FLORIDA 2055 PALMETTO STREET
AT CLEARWATER CLEARWATER, FLORIDA 34625
813-461-6613
813-442-2839 (FAX)
18. INTEGRATED HEALTH SERVICES OF FLORIDA 703 SOUTH 29TH ST.
AT FORT PIERCE FORT PIERCE, FLORIDA 34947
561-466-3322
561-466-8057 (FAX)
Exh.2-2
<PAGE>
19. INTEGRATED HEALTH SERVICES OF 3110 OAKBRIDGE BLVD. E.
LAKELAND AT OAKBRIDGE LAKELAND, FLORIDA 33803
941-648-4800
941-646-9224 (FAX)
20. INTEGRATED HEALTH SERVICES OF 741 BENEVA ROAD
SARASOTA AT BENEVA SARASOTA, FLORIDA 34232
941-957-0310
941-365-7324 (FAX)
21. INTEGRATED HEALTH SERVICES OF WEST 2939 S. HAVERHILL RD.
PALM BEACH WEST PALM BEACH, FLORIDA 33415
561-641-3130
561-641-3167 (FAX)
22. INTEGRATED HEALTH SERVICES AT 1000 BRIARCLIFF RD.
BRIARCLIFF HAVEN ATLANTA, GEORGIA 30306
404-875-6456
404-874-4604 (FAX)
23. INTEGRATED HEALTH SERVICES AT 5400 WEST 87TH. ST.
BRENTWOOD BURBANK, ILLINOIS 60459
708-423-1200
708-794-0041 (FAX)
24. INTEGRATED HEALTH SERVICES OF IOWA AT 2348 E. 9TH STREET
DES MOINES DES MOINES, IOWA 50316
515-262-9303
515-262-2506 (FAX)
25. MEADOWVIEW CARE CENTER 76 HIGH STREET
SEVILLE, OHIO 44273
330-769-2015
330-769-3790 (FAX)
26. WASHINGTON SQUARE 202 WASHINGTON ST. NW
WARREN, OHIO 44483
330-399-8997
330-393-5889 (FAX)
27. HSH MIDWEST CITY 8200 NATIONAL AVENUE
MIDWEST CITY, OKLAHOMA 73110
405-739-0800
405-739-6480 (FAX)
Exh.2-3
<PAGE>
28. MIDWEST CITY NURSING 8200 NATIONAL AVENUE
MIDWEST CITY, OKLAHOMA 73110
405-737-8200
405-736-1227 (FAX)
29. LYNWOOD MANOR 8200 NATIONAL AVENUE
MIDWEST CITY, OKLAHOMA 73110
405-737-8200
405-736-1227 (FAX)
30. INTEGRATED HEALTH SERVICES OF ST. 110 HIGHLAND AVE.
LOUIS AT BIG BEND WOODS VALLEY PARK, MISSOURI 63088
314-225-5144
314-225-8427 (FAX)
31. INTEGRATED HEALTH SERVICES OF NEW 191 HACKETT HILL RD.
HAMPSHIRE AT MANCHESTER MANCHESTER, NEW HAMPSHIRE 03102
603-668-8161
603-622-2584 (FAX)
32. RUIDOSO CARE CENTER 5TH & D STREET
RUIDOSO, NEW MEXICO
505-257-9071
505-257-3101 (FAX)
33. INTEGRATED HEALTH SERVICES AT 9209 RIDGE PIKE
WHITEMARSH WHITEMARSH, PENNSYLVANIA 19128
610-825-6560
610-941-9524 (FAX)
34. INTEGRATED HEALTH SERVICES OF 50 NORTH MAIN RD.
PENNSYLVANIA AT BROOMALL BROOMALL, PENNSYLVANIA 19008
610-356-0800
610-325-9499 (FAX)
35. AMARILLO SPECIALTY HOSPITAL 5601 PLUM CREEK DRIVE
AMARILLO, TEXAS 74124
806-351-1000
806-355-9650 (FAX)
36. DOCTORS HEALTHCARE CENTER 9009 WHITE ROCK TRAIL
DALLAS, TEXAS
214-348-8100
214-343-3865 (FAX
Exh. 2-4
<PAGE>
37. HARBOR VIEW CARE CENTER 1314 THIRD STREET
CORPUS CHRISTI, TEXAS 78401
(NUECES COUNTY)
512-888-5511
512-888-6267 (FAX)
38. HERITAGE ESTATES 201 SYCAMORE SCHOOL RD.
FT. WORTH, TEXAS 76134
(TARRANT COUNTY)
817-293-7610
817-293-5766 (FAX)
39. HERITAGE GARDENS 2135 NORTH DENTON DRIVE
CARROLLTON, TEXAS 75006
214-242-0666
214-323-9279 (FAX)
40. HERITAGE MANOR LONGVIEW 112 RUTH LYNN DRIVE
LONGVIEW, TEXAS 75601
(GREGG COUNTY)
903-753-8611
903-758-4026 (FAX)
41. HERITAGE MANOR PLANO 1621 COIT RD.
PLANO, TEXAS 75075
214-596-7930
214-867-6798 (FAX)
42. HERITAGE PLACE GRAND PRARIE 820 SMALL STREET
GRAND PRARIE, TEXAS 75050
214-262-1351
214-642-8056 (FAX)
43. HORIZON HEALTHCARE - EL PASO 2301 N. OREGANO ST.
EL PASO, TEXAS 79902
915-532-8941
915-545-5050 (FAX)
44. HSH- CORPUS CHRISTI 1310 THIRD STREET
CORPUS CHRISTI, TEXAS 78401
(NUECES COUNTY)
512-888-5511
512-888-6267 (FAX)
Exh. 2-5
<PAGE>
45. HSH- EL PASO 2311 N. OREGANO ST.
EL PASO, TEXAS 79902
915-545-1823
915-545-6378 (FAX)
46. IHS HOSPITAL AT HOUSTON 6160 SOUTH LOOP EAST
HOUSTON, TEXAS 77087-1010
713-640-2400
713-640-2935 (FAX)
47. INTEGRATED HEALTH SERVICES OF 5601 PLUM CREEK DRIVE
AMARILLO AMARILLO, TEXAS 74124
806-351-1000
806-355-9650 (FAX)
48. INTEGRATED HEALTH SERVICES OF TEXOMA 1000 HIGHWAY 82 EAST
AT SHERMAN SHERMAN, TEXAS 75090
903-893-9636
903-893-2265 (FAX)
49. PARKWOOD PLACE 300 N. BYNUM
LUBKIN, TEXAS 75904
409-637-7215
409-637-2368 (FAX)
50. PLANO SPECIALTY HOSPITAL (HSH- 1621 COLT ROAD
PLANO) PLANO, TEXAS 75075
214-596-7930
214-867-6788 (FAX)
51. SILVER SPRINGS NURSING AND 12350 WOOD BAYOU DRIVE
REHABILITATION CENTER HOUSTON, TEXAS 77013
214-596-7930
214-867-6788 (FAX)
52. VINTAGE HEALTH CARE CENTER 205 NORTH BONNIE BRAE
DENTON, TEXAS 76201
940-383-2361
940-387-7139 (FAX)
53. LONGMEADOW CARE CENTER 120 MEADOWVIEW DRIVE
JUSTIN, TEXAS 76247
817-646-2731
817-648-3125 (FAX)
Exh. 2-6
<PAGE>
EXHIBIT 3
[INTENTIONALLY OMITTED]
Exh. 3-1
<PAGE>
EXHIBIT 4
LIST OF INDIVIDUAL FRANCHISEE NAMES,
NAMES OF BUSINESSES,
AND TERRITORIES
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
Bethamy Living Center Limited Partnership Integrated Health The area within a
Services of Florida fifteen-mile radius of
at Clearwater Integrated Health
Services of Florida
at Clearwater
Briar Hill, Inc. Integrated Health The area within a
Services of Florida fifteen-mile radius of
at Auburndale Integrated Health
Services of Florida
at Auburndale
Cambridge Group of Pennsylvania, Inc. Integrated Health The area within a
Services of Hershey fifteen-mile radius of
at Woodlands Integrated Health
Services of Hershey
at Woodlands
Cedarcroft Health Services, Inc. Integrated Health The area within a
Services of St. Louis fifteen-mile radius of
at Big Bend Woods Integrated Health
Services of St. Louis
at Big Bend Woods
Central Park Lodges of West Palm Beach, Integrated Health The area within a
Inc. Services of West fifteen-mile radius of
Palm Beach Integrated Health
Services of West
Palm Beach
Central Park Lodges (Tarpon Springs), Inc. Integrated Health The area within a
Services of Tarpon fifteen-mile radius of
Springs Integrated Health
Services of Tarpon
Springs
</TABLE>
Exh. 4-1
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
Claremont Integrated Health, Inc. Integrated Health The area within a
Services of New fifteen-mile radius of
Hampshire at Integrated Health
Claremont Services of New
Hampshire at
Claremont
F. L. C. Beneva Nursing Pavilion, Inc. Integrated Health The area within a
Services of Sarasota fifteen-mile radius of
at Beneva Integrated Health
Services of Sarasota
at Beneva
F. L. C. Sarasota Nursing Pavilion, Inc. Integrated Health The area within a
Services of Florida fifteen-mile radius of
at Sarasota Nursing Integrated Health
Pavilion Services of Florida
at Sarasota Nursing
Pavilion
Gainesville Health Care Center, Inc. Integrated Health The area within a
Services at fifteen-mile radius of
Gainesville Integrated Health
Services at
Gainesville
IHS Acquisition No. 103, Inc. Horizon Healthcare The area within a
& Specialty Center fifteen-mile radius of
(HHC - Daytona) Horizon Healthcare
& Specialty Center
(HHC - Daytona)
IHS Acquisition No. 114, Inc. Lynwood Manor The area within a
fifteen-mile radius of
Lynwood Manor
IHS Acquisition No. 121, Inc. Ruidoso Care Center The area within a
fifteen-mile radius of
Ruidoso Care Center
IHS Acquisition No. 124, Inc. Washington Square The area within a
fifteen-mile radius of
Washington Square
</TABLE>
Exh. 4-2
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
IHS Acquisition No. 125, Inc. Meadowview Care The area within a
Center fifteen-mile radius of
Meadowview Care
Center
IHS Acquisition No. 127, Inc. Midwest City The area within a
Nursing fifteen-mile radius of
Midwest City
Nursing
IHS Acquisition No. 128, Inc. Doctors Healthcare The area within a
Center fifteen-mile radius of
Doctor Healthcare
Center
IHS Acquisition No. 129, Inc. Heritage Manor The area within a
Plano fifteen-mile radius of
Heritage Manor
Plano
IHS Acquisition No. 131, Inc. Horizon Healthcare - The area within a
El Paso fifteen-mile radius of
Horizon Healthcare -
El Paso
IHS Acquisition No. 132, Inc. Heritage Gardens The area within a
fifteen-mile radius of
Heritage Gardens
IHS Acquisition No. 133, Inc. Heritage Place of The area within a
Grand Prarie fifteen-mile radius of
Heritage Place of
Grand Prarie
IHS Acquisition No. 134, Inc. Heritage Estates The area within a
fifteen-mile radius of
Heritage Estates
IHS Acquisition No. 136, Inc. Silver Springs The area within a
Nursing and fifteen-mile radius of
Rehabilitation Center Silver Springs
Nursing and
Rehabilitation Center
</TABLE>
Exh. 4-3
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
IHS Acquisition No. 137, Inc. Longmeadow Care The area within a
Center fifteen-mile radius of
Longmeadow Care
Center
IHS Acquisition No. 138, Inc. Heritage Manor The area within a
Longview fifteen-mile radius of
Heritage Manor
Longview
IHS Acquisition No. 139, Inc. Parkwood Place The area within a
fifteen-mile radius of
Parkwood Place
IHS Acquisition No. 140, Inc. Harbor View Care The area within a
Center fifteen-mile radius of
Harbor View Care
Center
IHS Acquisition No. 168, Inc. HSH Midwest City The area within a
fifteen-mile radius of
HSH Midwest City
IHS Acquisition No. 170, Inc. HSH - Corpus The area within a
Christi fifteen-mile radius of
HSH - Corpus
Christi
IHS Acquisition No. 171, Inc. HSH - El Paso The area within a
fifteen-mile radius of
HSH - El Paso
IHS Acquisition No. 174, Inc. Plano Specialty The area within a
Hospital fifteen-mile radius of
Plano Specialty
Hospital
IHS Acquisition XXVIII, Inc. Integrated Health The area within a
Services of Texoma fifteen-mile radius of
at Sherman Integrated Health
Services of Texoma
at Sherman
</TABLE>
Exh. 4-4
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
IHS of Brandon, Inc. Integrated Health The area within a
Services of Brandon fifteen-mile radius of
Integrated Health
Services of Brandon
IHS of Central Park Village, Inc. Integrated Health The area within a
Services of Central fifteen-mile radius of
Park Village Integrated Health
Services of Central
Park Village
IHS of Lakeland at Oakbridge, Inc. Integrated Health The area within a
Services of Lakeland fifteen-mile radius of
at Oakbridge Integrated Health
Services of Lakeland
at Oakbridge
Integrated Health Services at Briarcliff Integrated Health The area within a
Haven, Inc. Services at Briarcliff fifteen-mile radius of
Haven Integrated Health
Services at Briarcliff
Haven
Integrated Health Services at Central Integrated Health The area within a
Florida, Inc. Services of Florida fifteen-mile radius of
at Fort Pierce Integrated Health
Services of Florida
at Fort Pierce
Integrated Health Services at Central Integrated Health The area within a
Florida, Inc. Services at Vero fifteen-mile radius of
Beach Integrated Health
Services at Vero
Beach
Integrated Health Services at Great Bend, Vintage Health Care The area within a
Inc. Center fifteen-mile radius of
Vintage Health Care
Center
Integrated Health Services at Houston, Inc. IHS Hospital at The area within a
Houston fifteen-mile radius of
IHS Hospital at
Houston
</TABLE>
Exh. 4-5
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
Integrated Health Services of Brentwood, Integrated Health The area within a
Inc. Services at fifteen-mile radius of
Brentwood Integrated Health
Services of
Brentwood
Integrated Health Services of Colorado Integrated Health The area within a
Springs, Inc. Services of Colorado fifteen-mile radius of
Springs Integrated Health
Services of Colorado
Springs
Integrated Health Services of Grandview Integrated Health The area within a
Care Center, Inc. Services of Iowa at fifteen-mile radius of
Des Moines Integrated Health
Services of Iowa at
Des Moines
Integrated Health of Waterford Commons, Integrated Health The area within a
Inc. Services at fifteen-mile radius of
Waterford Commons Integrated Health
Services at
Waterford Commons
Integrated of Amarillo, Inc. Integrated Health The area within a
Services of Amarillo fifteen-mile radius of
Integrated Health
Services of Amarillo
Integrated of Amarillo, Inc. Amarillo Specialty The area within a
Hospital fifteen-mile radius of
Amarillo Specialty
Hospital
Integrated Management - Governor's Park, Governor's Park The area within a
Inc. Nursing and fifteen-mile radius of
Rehabilitation Center Governor's Park
Nursing and
Rehabilitation Center
</TABLE>
Exh. 4-6
<PAGE>
<TABLE>
<CAPTION>
OWNER FACILITY TERRITORY
<S> <C> <C>
Manchester Integrated Health, Inc. Integrated Health The area within a
Services of New fifteen-mile radius of
Hampshire at Integrated Health
Manchester Services of New
Hampshire at
Manchester
Pinellas Park Nursing Home, Inc. Integrated Health The area within a
Services of Pinellas fifteen-mile radius of
Park Integrated Health
Services of Pinellas
Park
Rest Haven Nursing Center (Chestnut Hill), Integrated Health The area within a
Inc. Services of Chestnut fifteen-mile radius of
Hill Integrated Health
Services of Chestnut
Hill
Rest Haven Nursing Center (Whitemarsh), Integrated Health The area within a
Inc. Services at fifteen-mile radius of
Whitemarsh Integrated Health
Services at
Whitemarsh
Rest Haven Nursing Centers, Inc. Integrated Health The area within a
Services of fifteen-mile radius of
Pennsylvania at Integrated Health
Broomall Services of
Pennsylvania at
Broomall
Rikad Properties, Inc. Integrated Health The area within a
Services of St. fifteen-mile radius of
Petersburg Integrated Health
Services of St.
Petersburg
</TABLE>
Exh. 4-7
<PAGE>
EXHIBIT 5
GUIDELINES FOR DETERMINING TERRITORIES
The "Territory" for each "Health Care Business" shall be determined on a
case-by-case basis (with the specific "Territory" for each business listed in
Exhibit 2 to the Franchise Agreement for such business) based on the following
guidelines:
o The location of a majority of the main facility's patients (based on Zip
Codes);
o The drive time to the main facility for a majority of its patients;
o The population of the relevant metropolitan area where the main facility is
located;
o The location of all competitors in the relevant market area;
o The location of ancillary services offered by the business; and
o The territorial restrictions agreed to by IHS or competitors in previous
sales of facilities in comparable geographical areas.
Based on the foregoing factors, a "Territory" will be determined for each
facility measured in miles from a radius originating at the facility's main
operation (Hospital or RTC).
Exh. 5-1
FACILITY MANAGEMENT AGREEMENT
BETWEEN
[INSERT SUBSIDIARY]
AND
IHS FACILITY MANAGEMENT, INC.
DATED AS OF JUNE 23, 1998
<PAGE>
FACILITY MANAGEMENT AGREEMENT
THIS FACILITY MANAGEMENT AGREEMENT (this "Agreement") made as of June 23,
1998 between [INSERT SUBSIDIARY] ("Owner"), having an office at 10065 Red Run
Boulevard, Owings Mills, Maryland 21117, and IHS FACILITY MANAGEMENT, INC.
("Manager"), having an office at 10065 Red Run Boulevard, Owings Mills, Maryland
21117.
INTRODUCTORY STATEMENT
Pursuant to a Master Lease, dated as of the date hereof (the "Master
Lease") between Monarch Properties, LP ("Lessor"), as lessor, and Lyric Health
Care Holdings III, Inc. ("Holdings"), as lessee, and a Sublease Agreement, dated
as of the date hereof (the "Sublease") between Holdings, as sublessor, and
Owner, as sublessee, Owner is the sublessee and operator of a health care
facility named [Insert Facility Name] located at [Insert Facility Address],
together with the equipment, furnishings, and other tangible personal property
to be used in connection therewith (the "Facility"). The Sublease contains
substantially the same provisions as the Master Lease except for provisions
concerning rent and other matters specific to the Facility. In this Agreement,
"Lease" means both the Master Lease and the Sublease as applicable to the
Facility.
As of the date hereof, Lyric Health Care LLC, the parent company of Owner
("Lyric"), and Manager have entered into an Amended and Restated Master
Management Agreement (the "Master Management Agreement") setting forth general
terms for the management of various facilities leased by Owner and its
affiliates. Owner desires to engage Manager to manage the Facility for Owner's
account pursuant to the terms of the Master Management Agreement, as modified by
this Agreement; and Manager desires to accept such engagement.
NOW, THEREFORE, in consideration of their mutual promises, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1 Words and phrases defined in the Master Management Agreement shall have
the same meanings in this Agreement, unless otherwise defined herein.
1.2 Other words and phrases are defined in this Agreement.
ARTICLE 2. RETENTION OF MANAGER
2.1 For and during the Term, Owner hereby grants to Manager the sole and
exclusive right, and employs Manager, to supervise, manage, and operate the
Facility in the name and for the account of Owner upon the terms and conditions
set forth in Part I of the Master Management Agreement, as modified by this
Agreement. Manager accepts such appointment and
1
<PAGE>
agrees to perform all duties and responsibilities of the "Manager" described in
Part I of the Master Management Agreement.
2.2 For purposes of this Agreement, Owner and Manager agree that: (a)
references in Part I of the Master Management Agreement to the "Facility" shall
be deemed references to the Facility described in the Introductory Statement;
(b) Owner shall have all of the rights, obligations and liabilities of "Owner"
described in Part I of the Master Management Agreement, and (c) Manager shall
have all of the rights, obligations and liabilities of "Manager" described in
Part I of the Master Management Agreement. Owner and Manager agree to be bound
by all of the provisions of the Master Management Agreement, to the extent not
inconsistent herewith.
2.3 For purposes of this Agreement, references in Part I of the Master
Management Agreement to the Agreement, the Lease, the Lessor, and the Franchise
Agreement, shall be deemed to be references to, respectively, this Agreement,
the Lease and the Lessor described in the Introductory Statement, and the
Franchise Agreement relating to the Facility.
ARTICLE 3. TERMINATION
The termination rights of Owner and Manager in Part I of the Master
Management Agreement shall apply to this Agreement. Termination of this
Agreement shall not per se terminate the Master Management Agreement (although
such termination may otherwise result from, or allow, termination of the Master
Management Agreement according to its terms).
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Owner. Owner represents and warrants
to Manager that Owner is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. All representations and
warranties of Lyric set forth in Part II, paragraphs 2.1 and 2.2 of the Master
Management Agreement (except for the first sentence of Part II, paragraph 2.1)
are deemed to be made by Owner (with respect to Owner, and not Lyric) and are
incorporated herein by reference (except that references therein to Lyric shall
be deemed references to Owner).
4.2 Representations and Warranties of Manager. All representations and
warranties of Manager set forth in Part II, paragraphs 2.3 and 2.4 of the Master
Management Agreement are deemed to be made by Manager and are incorporated
herein by reference.
ARTICLE 5. BUDGET
The Budget for 1998 shall be presented for approval in accordance with
paragraph 3.17 of the Master Management Agreement.
2
<PAGE>
ARTICLE 6. NOTICES
Any notice or other communication by either party to the other shall be in
writing and shall be given and be deemed to have been duly given, upon the date
delivered if
delivered personally (including by commercial express service) or upon the date
received if mailed postage pre-paid, registered, express, or certified mail,
addressed as follows:
To Owner: [Insert Subsidiary]
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
To Manager: IHS FACILITY MANAGEMENT, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
With a copy to: INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
SIGNATURE PAGE FOLLOWS
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Facility Management Agreement effective as of the day and year first above
written.
MANAGER:
IHS FACILITY MANAGEMENT, INC.
By:
---------------------------
Name: Daniel J. Booth
-------------------------
Title: Senior Vice President
------------------------
OWNER:
[INSERT SUBSIDIARY]
By:
---------------------------
Name: Daniel J. Booth
-------------------------
Title: Senior Vice President
------------------------
CONSENTED TO BY:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
---------------------------
Name: Daniel J. Booth
-------------------------
Title: Senior Vice President
------------------------
S-1
FACILITY FRANCHISE AGREEMENT
AMONG
LYRIC HEALTH CARE LLC,
[INSERT SUBSIDIARY]
AND
INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.
DATED AS OF JUNE 23, 1998
<PAGE>
FACILITY FRANCHISE AGREEMENT
THIS FACILITY FRANCHISE AGREEMENT (this "Agreement") made as of June 23,
1998 among LYRIC HEALTH CARE LLC, having an office at 8889 Pelican Bay
Boulevard, Suite 500, Naples, Florida 34103 ("Lyric"); [INSERT SUBSIDIARY],
having an office at [Insert Address] ("Franchisee"); and INTEGRATED HEALTH
SERVICES FRANCHISING CO., INC., having an office at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 ("Franchisor").
INTRODUCTORY STATEMENT
Pursuant to a Master Lease, dated as of the date hereof, between Monarch
Properties, LP, as lessor, and Lyric Health Care Holdings III, Inc.
("Holdings"), as lessee, and a Facility Sublease, dated as of the date hereof,
between Holdings, as sublessor, and Franchisee, as sublessee, Franchisee is the
sublessee and operator of a health care facility named [Insert Facility Name]
located at [Insert Facility Address], together with the equipment, furnishings,
and other tangible personal property to be used in connection therewith (the
"Facility"). Franchisee is wholly owned, directly or indirectly, by Lyric.
Lyric and Franchisor have entered into an Amended and Restated Master
Franchise Agreement, dated as of the date hereof (the "Master Franchise
Agreement") franchising the use of the "Trade Names" and the "Proprietary
Materials" (including the "IHS Systems") as defined therein. Franchisee desires
to obtain all the rights and benefits which are granted to "Franchisees" under
the Master Franchise Agreement; and Franchisor and Lyric are willing to accord
such rights and benefits to Franchisee, upon the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of their mutual promises, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1 Words and phrases defined in the Master Franchise Agreement shall have
the same meanings in this Agreement, unless otherwise defined herein.
1.2 In this Agreement:
(a) "Included Provisions" means all provisions of the Master Franchise
Agreement except the Excluded Provisions.
(b) "Excluded Provisions" means the following Sections and/or Articles
of the Master Franchise Agreement: Section 2.1(b); Section 5.1; Section
12.2; Section 12.3; Section 12.4; Article 15; Section 16.2; Article 23; and
Article 29.
1
<PAGE>
(c) "Territory" means the area within a fifteen-mile radius of the
Facility.
1.
Other words and phrases are defined in this Agreement.
ARTICLE 2. GRANT OF FRANCHISE
2.1 Franchisor hereby grants to Franchisee, but only with respect to the
Facility described in the Introductory Statement and the Territory described in
Section 1.2(c) above, all rights and benefits granted to Lyric or a "Franchisee"
under the Master Franchise Agreement, except for any rights of Lyric under the
Excluded Provisions.
2.2 Franchisee accepts the foregoing grant and hereby assumes and agrees to
keep, observe, and perform, but only with respect to the Facility described in
the Introductory Statement and the Territory described in Section 1.2(c) above,
all obligations and responsibilities of a "Franchisee" and/or Lyric under the
Master Franchise Agreement, except for any obligations of Lyric under the
Excluded Provisions.
2.3 In furtherance (and not in limitation) of the foregoing, the Included
Provisions are incorporated by reference in this Agreement. References to
"Lyric" in the Included Provisions shall be deemed to include "Franchisee."
ARTICLE 3. ANNUAL FEE
3.1 Franchisee shall pay to Lyric an"Annual Fee" equal to one percent (1%)
of Franchisee's annual Gross Revenues. Franchisee's Annual Fee shall be paid in
installments, and otherwise upon the same terms and conditions, as Lyric's
Annual Continuing Fee under the Master Franchise Agreement; and references to
the "Annual Continuing Fee" in the Included Provisions shall be deemed to mean
the Annual Fee under this Agreement.
ARTICLE 4. TERMINATION
4.1 This Agreement may be terminated by Franchisor--even if the Master
Franchise Agreement does not terminate--upon the occurrence of a default or
other failure by Franchisee under Article 17 of the Included Provisions.
Termination of this Agreement shall not per se terminate the Master Franchise
Agreement (although such termination may otherwise result from, or allow,
termination of the Master Franchise Agreement according to its terms).
Franchisee may not terminate this Agreement prior to the expiration of its term
(whether because of Franchisor's breach, material or otherwise) except with the
prior written consent of Franchisor.
2
<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Franchisee. Franchisee represents and
warrants to Franchisor that:
(a) Franchisee is a corporation duly organized, validly existing and
in good standing under the laws of the State of [Insert];
(b) Franchisee's execution and delivery of this Agreement, and
Franchisee's performance of its obligations under this Agreement, have been
duly authorized by all necessary corporate action;
(c) this Agreement is the legal, valid, and binding obligation of
Franchisee, enforceable in accordance with its terms; and
(d) Franchisee has reviewed carefully and acknowledges and accepts
Article 28 of the Included Provisions.
ARTICLE 6. NOTICES
6.1 Any notice or other communication by either party to the other shall be
in writing and shall be given and be deemed to have been duly given, upon the
date delivered if delivered personally (including by commercial express service)
or upon the date received if mailed postage pre-paid, registered, express, or
certified mail, addressed as follows:
To Franchisee: [Insert Subsidiary]
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
To Lyric: Lyric Health Care LLC
8889 Pelican Bay Boulevard, Suite 500
Naples, Florida 34103
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
To Franchisor: Integrated Health Services Franchising Co., Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Daniel J. Booth
Copy to: Marshall A. Elkins, Esq.
3
<PAGE>
ARTICLE 7. ASSIGNMENT
7.1 Assignment by Franchisee. Franchisee shall have no right to assign this
Agreement. Franchisee's interest in this Agreement may be assigned only as part
of an assignment of the interest of Lyric and all Franchisees in the Master
Franchise Agreement and all Facility Franchise Agreements pursuant to Section
16.2 of the Master Franchise Agreement.
7.2 Assignment by Franchisor. Franchisor shall have the same assignment
rights with respect to this Agreement as it does with respect to the Master
Franchise Agreement.
ARTICLE 8. WAIVER OF COVENANT NOT TO COMPETE POST-TERM
8.1 In the event that Franchisor fails to extend the term of this
Agreement, Franchisor shall be deemed to have waived section 13.2 of the Master
Franchise Agreement concerning the covenant of Lyric and Franchisee not to
compete post-term unless Franchisor provides notice to Franchisee at least six
(6) months prior to the expiration date of this Agreement that section 13.2 of
the Master Franchise Agreement is not waived.
SIGNATURE PAGE FOLLOWS
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Facility Franchise Agreement as of the day and year first above written.
FRANCHISEE: FRANCHISOR:
[INSERT SUBSIDIARY] INTEGRATED HEALTH
SERVICES FRANCHISING CO., INC.
By: By:
--------------------------- ---------------------------
Name: Daniel J. Booth Name: Daniel J. Booth
------------------------- -------------------------
Title: Senior Vice President Title: Senior Vice President
------------------------ ------------------------
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Member
By:
---------------------------
Name: Daniel J. Booth
-------------------------
Title: Senior Vice President
------------------------
CONSENTED TO BY:
LYRIC HEALTH CARE HOLDINGS III, INC.
By:
---------------------------
Name: Daniel J. Booth
-------------------------
Title: Senior Vice President
------------------------
S-1
MONARCH PROPERTIES, INC.
1998 OMNIBUS SECURITIES AND INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
DIRECTOR NON-QUALIFIED STOCK OPTION
THIS AGREEMENT made as of _______________, 199_, by and between MONARCH
PROPERTIES, INC., a Maryland corporation (the "Company"), and
___________________ (the "Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Monarch Properties, Inc. 1998 Omnibus
Securities and Incentive Plan (the "Plan") for the benefit of its officers, key
employees and directors and the officers, key employees and directors of its
Affiliates, and
WHEREAS, the Committee has authorized the grant to the Optionee of an
Option under the Plan, on the terms and conditions set forth in the Plan and as
hereinafter provided,
NOW, THEREFORE, in consideration of the premises contained herein, the
Company and the Optionee hereby agree as follows:
1. Definitions
Terms used in this Agreement which are defined in the Plan shall have
the same meaning as set forth in the Plan.
2. Grant of Option
The Committee hereby grants to the Optionee an Option to purchase
[INSERT # OF SHARES] shares of the Company's Common Stock ("Shares")[,
exercisable in quantities of _________ (___) or more Shares per Option,] for a
price per Share equal to [INSERT PRICE] (the "Option Price"). The Option granted
under this Agreement is intended by the Committee to be a Non-Qualified Stock
Option and the provisions of this Agreement shall be interpreted on a basis
consistent with such intent.
3. Option Terms and Exercise Period
a. The Option granted to the Optionee pursuant to this Agreement shall
be exercised, and payment by the Optionee of the Option Price shall be made,
pursuant to the terms of the Plan.
<PAGE>
b. All or any part of the Option awarded under this Agreement may be
exercised by the Optionee no later than ten (10) years after the date of this
Agreement.
c. This Agreement and the Option issued hereunder to the Optionee
shall terminate on the earlier of (i) the tenth (10th) anniversary of the date
of this Agreement, or (ii) the date on which the Option is fully exercised.
4. Vesting
The Option to purchase the number of Shares set forth in Section 2
shall become exercisable pursuant to the following schedule:
Number of Complete
12-Month Periods
Since Date
of this Agreement Percent Exercisable
----------------- -------------------
Notwithstanding the above schedule, the Options shall be one hundred percent
(100%) exercisable in the Option granted under this Agreement if the Optionee's
status as a Director shall terminate on account of the Optionee's death,
Permanent and Total Disability or retirement upon or after attaining age
sixty-two (62). The Optionee shall forfeit any unexercisable Options upon
termination of the Optionee's status as a Director for any reason other than the
Optionee's death, Permanent and Total Disability or retirement upon or after
attaining age sixty-two (62). Notwithstanding anything to the contrary contained
in this Agreement, including but not limited to the above provisions of this
Section 4, the Option granted hereunder shall terminate regardless of the
exercisability o the Option having served as a Director for more than one (1)
year from the date of this Agreement, if the Optionee shall fail to attend more
than one (1) regularly scheduled meeting of the Board in person, for any period
during which the Optionee is a Director; provided, however, that the Chairman of
the Board shall have the sole discretion to forgive the Optionee's failure to
attend a meeting of the Board in person upon the Optionee's presentation of
evidence to the reasonable satisfaction of the Chairman of the Board that such
absence was due to the Optionee's illness.
- 2 -
<PAGE>
5. Termination of Director Status
Except as otherwise provided in Section 4 hereof, Section 6.2(a) of
the Plan shall control; provided, however, that notwithstanding anything to the
contrary contained in Section 6.2(a) of the Plan, upon the termination of the
Optionee's status as a Director, the Optionee shall be entitled to exercise the
Option granted under this Agreement, to the extent such Option is vested and
exercisable pursuant to the above exercisable schedule, for a period of six (6)
months from the date of termination of the Optionee's status as a director.
6. Restrictions on Transfer of Option
This Agreement and the Option granted hereunder shall not be
transferable otherwise than (a) by will or by the laws of descent and
distribution, or (b) by gift to any member of the Optionee's immediate family or
to a trust for the benefit of such an immediate family member, and shall be
exercisable, during the Optionee's lifetime, solely by the Optionee, except on
account of the Optionee's Permanent and Total Disability or death, and solely by
the transferee in the case of a transfer by gift to a member of the Optionee's
immediate family or to a trust for the benefit of such an immediate family
member.
7. Exercise of Option
a. The Option granted hereunder shall become exercisable at such time
as shall be provided herein and shall be exercisable by written notice of such
exercise, in the form prescribed by the Committee, to the Secretary of the
Company, at the Company's principal office. The notice shall specify the number
of Shares with respect to which the Option granted hereunder is being exercised.
b. Shares purchased pursuant to this Agreement shall be paid for in
full at the time of such purchase in cash, in Shares, including Shares acquired
pursuant to the Plan, or part in cash and part in Shares. Shares transferred in
payment of the Option Price shall be valued as of the date of transfer based on
their Fair Market Value.
8. Regulation by the Committee
This Agreement and the Option granted hereunder shall be subject to
the administrative procedures and rules as the Committee shall adopt. All
decisions of the Committee upon any question arising under the Plan or under
this Agreement, shall be conclusive and binding upon the Optionee and any person
or persons to whom the Option or any part of the Option granted hereunder has
been
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<PAGE>
transferred by will, by the laws of descent and distribution or by gift to a
member of the Optionee's immediate family or to a trust for the benefit of such
an immediate family member.
9. Rights as a Shareholder
The Optionee shall have no rights as a shareholder with respect to
Shares subject to the Option granted hereunder until certificates for Shares of
Common Stock are issued to the Optionee.
10. Change of Control
Notwithstanding the vesting requirements contained in Section 4, upon
a Change of Control, the Option granted hereunder shall automatically become
fully vested and exercisable as of the date of such Change of Control.
11. Reservation of Shares
With respect to the Option granted to the Optionee hereunder, the
Company hereby agrees to at all times reserve for issuance and/or delivery upon
payment by the Optionee of the Option Price, such number of Shares as shall be
required for issuance and/or delivery upon such payment pursuant to such Option.
12. Delivery of Share Certificates
Within a reasonable time after the exercise of the Option granted
hereunder the Company shall cause to be delivered to the Optionee, his or her
legal representative or his or her beneficiary, a certificate for the Shares
purchased pursuant to the exercise of the Option.
13. Withholding
In the event the Optionee elects to exercise the Option granted
hereunder (or any part thereof), if the Company or an Affiliate shall be
required to withhold any amounts by reason of any federal, state or local tax
rules or regulations in respect of the issuance of Shares to the Optionee, the
Company or Affiliate shall be entitled to deduct and withhold such amounts from
any payment to be made to the Optionee hereunder.
14. Amendment
The Committee may amend this Agreement at any time and from time to
time; provided, however, that no amendment of this Agreement that would impair
the Optionee's rights or entitlements with respect to the Option granted
hereunder shall be effective without the consent of the Optionee (unless such
amendment is required in order to cause the Option granted hereunder to qualify
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as performance-based compensation within the meaning of Section 162(m) of the
Code and applicable interpretive authority thereunder).
15. Plan Terms
The terms of the Plan are incorporated herein by reference.
16. Effective Date of Grant
The Option granted under this Agreement shall be effective as of the date
first written above.
17. Optionee Acknowledgment
By executing this Agreement, the Optionee hereby acknowledges that he or
she has received and read the Plan and this Agreement and that he or she agrees
to be bound by all of the terms of both the Plan and this Agreement.
ATTEST: MONARCH PROPERTIES, INC.
By:
- --------------------------- ------------------------------------
Its:
-----------------------------------
WITNESS:
- --------------------------- ---------------------------------------
, Optionee
--------------------------------
Print name
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EXHIBIT 10.43
EMPLOYMENT AGREEMENT
BETWEEN
MONARCH PROPERTIES, INC.
AND
JOHN B. POOLE
DATED AS OF FEBRUARY 20, 1998
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made effective as of
February 20, 1998 (the "Effective Date"), between MONARCH PROPERTIES, INC., a
Maryland corporation, with principal offices at 8889 Pelican Bay Boulevard,
Naples, Florida 34103 (the "Company") and JOHN B. POOLE, whose address is 12190
Wellesley Court, Ft. Meyers, Florida 33913 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and to ensure the
continued services of the Executive for the Term (as hereinafter defined), and
the Executive desires to be employed by the Company for such Term, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual agreements herein contained, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Employment. The Company hereby employs the Executive in the
position of President and Chief Executive Officer of the Company, and for all of
its subsidiaries and those subsidiaries over which the Company or its
subsidiaries exert management control, with such responsibilities as may be
assigned to Executive from time to time by Robert N. Elkins as the Company's
Chairman of the Board. Executive shall report to and be responsible to Robert N.
Elkins as the Chairman of the Board of the Company as of the Effective Date of
this Agreement for the period hereinafter set forth, and the Executive hereby
accepts such employment.
<PAGE>
During the Term, the Executive agrees to devote all such working
time as is reasonably required for the discharge of his duties hereunder and to
perform such services faithfully and to the best of his ability. Notwithstanding
the foregoing, nothing in this Agreement shall preclude the Executive from (a)
engaging in charitable and community affairs, so long as they are consistent
with his duties and responsibilities under this Agreement, (b) managing his
personal investments, and (c) serving on or advising the boards of directors of
other companies.
1.2 Term. Unless sooner terminated pursuant to Article III below, the
term of this Agreement (the "Term") shall commence on the Effective Date, and be
in effect for three (3) years; provided, however, that on each January 1st after
the date of this Agreement (an "Anniversary Date"), the then current term of
this Agreement automatically shall be extended by an additional period of twelve
(12) months, so that, as of each Anniversary Date, this Agreement shall have an
unexpired Term of three (3) years. Notwithstanding the foregoing, either party
hereto may elect not to so extend this Agreement by giving written notice of his
or its election to the other party hereto at least one hundred twenty (120) days
prior to any Anniversary Date. In the event the Company elects not to renew this
Agreement with appropriate notice as provided herein, the Company may buy out
the remaining Term of the Agreement through the payment of severance to the
Executive as provided in Section 3.4.
ARTICLE II
COMPENSATION
2.1 Salary. The Executive shall receive a base salary at an initial
rate of Two Hundred and Twenty Thousand Dollars ($220,000) per year (the
"Salary"), payable in
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substantially equal installments in accordance with the pay policy established
by the Company from time to time, but not less frequently than monthly. On each
Anniversary Date, the Salary shall be increased or decreased (but not below Two
Hundred Twenty Thousand Dollars ($220,000)) by a percentage which is equal to
the percentage increase or decrease, as applicable, in the "Consumer Price Index
for All Urban Consumers" published by the United States Department of Labor's
Bureau of Labor Statistics for the then most recently ended twelve (12) month
period as of the date of such adjustment, and increased by such additional
amounts as may be determined at the discretion of the Board of Directors of the
Company. Once adjusted, such adjusted amount shall constitute Salary for
purposes of this Agreement.
2.2 Bonuses. If the Company's FFO per share equals or exceeds the FFO
goal set by the Board (the "Target"), then no more than ten (10) days following
the date the Company publicly announces its earnings, the Company shall pay the
Executive a discretionary bonus ("Bonus") based on the Executive's performance,
benefit to the Company at large, and the extent to which the Company equals or
exceeds the Target. Such Bonus shall be discretionary except that if the
Company's FFO per share equals or exceeds the Target then the Executive shall
receive a bonus of not less than the Executive's budgeted bonus cap, in the
approved budget for the current fiscal year.
2.3 Executive Benefits and Perquisites. During the Term, the Company
shall provide and/or pay for employee benefits and perquisites that are, in the
aggregate, no less favorable than the employee benefits and perquisites that the
Executive enjoys as an employee of Integrated
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Health Services, Inc. as of the Effective Date, as increased from time to time,
including, without limitation:
(a) comprehensive individual health insurance, including dependent
coverage;
(b) life insurance coverage in the amount of One Million Dollars
($1,000,000) any proceeds of which shall be payable to the Executive's
designated beneficiary or his estate;
(c) four (4) weeks paid vacation annually;
(d) disability insurance coverage in a monthly benefit amount
equal to the sum of 100% of Executive's Salary plus "Bonus Amount" (as
defined in Section 3.4(a)); and
(e) participation in the Company's 1998 Omnibus Securities and
Incentive Plan and, if established, any 401(k) Retirement Savings Plan.
Once increased, the level of benefits and perquisites shall not be
decreased without the Executive's consent.
2.4 Equity-based Compensation. During the Term, the Compensation
Committee or the Stock Option Committee, as applicable, in its complete
discretion, may select the Executive to participate in programs or enter into
agreements which provide for the grant of certain equity-based compensation or
rights to the Executive.
ARTICLE III
TERMINATION AND SEVERANCE
3.1 Termination; Nonrenewal. The Company shall have the right to
terminate the Executive's employment, and the Executive shall have the right to
resign his employment with the Company, at any time during the Term, for any
reason or for no stated reason, upon no less than ninety (90) days prior written
notice (or such shorter notice to the extend provided for
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<PAGE>
herein). Upon the Executive's termination without "Cause" (as defined in Section
3.2) or resignation for "Good Reason" (as defined in Section 3.3) or upon the
expiration of the Term following the Company's election not to renew this
Agreement (in accordance with Section 1.3), the Executive shall be entitled to
severance as set forth in Section 3.4. Upon the Executive's termination for
Cause, the Executive shall be entitled to severance as set forth in Section 3.7.
Upon the Executive's resignation without Good Reason, the Executive shall not be
entitled to severance. Upon the expiry of the term hereof, the Executive shall
be entitled to severance as set forth in Section 3.4. If the Executive
employment is terminated because of a Permanent Disability (as defined in
Section 3.5), the Executive shall receive the benefits and payments described in
Section 3.5.
3.2 Termination for Cause.
(a) The Company may terminate this Agreement for Cause following a
determination by the Chairman of the Board that Cause exists. For purposes of
this Agreement, Cause shall mean any or all of the following:
(i) the Executive materially fails to perform his duties
hereunder;
(ii) a material breach by the Executive of his covenants under
Sections 4.1 or 4.2; or
(iii) Executive is convicted of any felony involving moral
turpitude.
(b) Notwithstanding anything in Section 3.2(a) to the contrary, a
termination shall not be for Cause unless (i) the party to whom the Executive
reports notifies the Executive, in writing, of his intention to terminate the
Executive for Cause (which notice shall set forth the
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<PAGE>
conduct alleged to constitute Cause) (the "Cause Notice"); and (ii) the
Executive does not cure his conduct within ten (10) days after the receipt of
the Cause Notice.
3.3 Termination for Good Reason. (a) The Executive may terminate this
Agreement for Good Reason, provided he gives the Company prior written notice
that Good Reason exists (the "Good Reason Notice"). For purposes of this
Agreement, Good Reason shall mean one or both of the following:
(i) a material breach of this Agreement by the Company, including,
without limitation, one or more of the following without the
Executive's prior written consent:
(A) a material diminution in the Executive's responsibilities,
title, authority or status,
(B) the failure of the Company to pay the Executive amounts
when due under this Agreement,
(C) the Executive's removal or dismissal from, the position of
President and Chief Executive Officer;
(D) the Executive no longer is assigned responsibilities by
and reports directly to Robert N. Elkins; or
(E) a reduction in Salary or a material reduction in benefits
(other than a reduction in Salary permitted by Section 2.1).
(ii) the resignation by the Executive within one (1) year of one
or both of the following:
(A) a "Change of Control," as defined in Section 3.3(b);
and/or
(B) the date the individual who is Chairman of the Board of
the Company as of the Effective Date ceases to hold such position.
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<PAGE>
Notwithstanding the foregoing, a termination on account of a reason described in
paragraph (i), shall be deemed not to be for Good Reason unless the Executive
(1) gives the Company the opportunity to cure the condition that purports to be
Good Reason, and (2) the Company fails to cure that condition within sixty (60)
days after the receipt of the Good Reason Notice (or, with respect to the
failure to make any payment when due to the Executive within ten (10) days after
the receipt of such notice).
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) there shall be consummated (x) any
consolidation, reorganization or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving coloration immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company shall
approve any plan or proposal for liquidation or dissolution of the Company, or
(iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Executive or any group controlled by the
Executive)) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) or more of the Company's
outstanding common stock (other than pursuant to a plan or arrangement entered
into by such person and the Company) and
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<PAGE>
such person discloses its intent to effect a change in the control or ownership
of the Company in any filing with the Securities and Exchange Commission, or
(iv) within any twenty-four (24) month period beginning on or after the
Effective Date, the persons who were directors of the Company immediately before
the beginning of such period (the "incumbent Directors") shall cease (for any
reason other than death, disability or retirement) to constitute at least a
majority of the Board or the board of directors of any successor to the Company,
provided that, any director who was not a director as of the Effective Date
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this Section 3.3(b)(iv) unless such election,
recommendation or approval was the result of any actual or threatened election
contest of the type contemplated by Regulation 14a-II promulgated under the
Exchange Act or any successor provision.
3.4 Severance. (a) If the Executive resigns for Good Reason, or is
terminated without Cause or at the end of the term hereof, or if the Company
gives the Executive notice of its intention not to extend the Term, in
accordance with Article II: (i) the Company shall cause the Executive's
outstanding options which are not immediately exercisable to vest and become
immediately exercisable and the restrictions on equity held by the Executive
which are scheduled to lapse solely through the passage of time to lapse (such
events collectively referred to as "Acceleration of Equity Rights") and
Executive shall have twenty-four (24) months from the date of termination to
exercise any vested options; and (ii) the Salary amount for purposes of the
calculating Salary and Bonus for the Severance Amount shall be the greater of
Executive's
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<PAGE>
current Salary or Two Hundred Twenty Thousand Dollars ($220,000). On each
Anniversary Date, the adjusted Salary for purposes of this paragraph shall be
increased or decreased (but not below Two Hundred Twenty Thousand Dollars
($220,000)) by a percentage which is equal to the percentage increase or
decrease, as applicable, in the "Consumer Price Index for All Urban Consumers"
published by the United States Department of Labor's Bureau of Labor Statistics
for the then most recently ended twelve (12) month period as of the date of such
adjustment Once adjusted, such adjusted amount shall constitute Salary for
purposes of this paragraph.
In addition, the Company shall pay the Executive an amount (the
"Severance Amount") equal to three (3) times the sum of (1) his Salary in the
year of Termination or the immediately preceding year, whichever is greater and
(2) the Bonus Amount which shall be the greater of (A) the Executive's Bonus
Amount in the year of termination; (B) in the immediately preceding calendar
year, whichever is greater; or (C) fifty percent (50%) of the Salary amount used
for severance calculations, whichever is greater. Such Severance Amount shall be
payable in cash as follows:
(x) no later than ten (10) days after the effective date of
Executive's termination, the Company shall pay the Executive fifty
percent (50%) of the Severance Amount in a lump sum;
(y) commencing on the first day of the month following the
effective date of Executive's termination and on the first day of the
month thereafter for a period of thirty-six (36) months, the Company
shall pay the remaining fifty percent (50%) of the Severance Amount to
the Executive in equal monthly installments;
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<PAGE>
provided, however, that if the Executive's employment terminates other than for
Cause within one (1) year following a Change of Control, the Company shall, in
lieu of the making the payments described in (x) and (y), pay the Executive the
Severance Amount in one lump sum payment within ten (10) days after the
effective date of Executive's termination.
In addition, for a period of three (3) years following the effective
date of the Executive's termination, the Company shall provide continued
employee benefits and coverage for the Executive and his dependents of the type
and at a level of coverage comparable to the coverage in effect at the time of
termination or the preceding year, whichever is greater ("Continued Benefits"),
including, but not limited, to those benefits and perquisites set forth in
Section 2.3 hereof. Such allowances, benefits and coverages, etc., to be not
less than those in effect on the Effective Date of Executive's termination or
the preceding year, whichever is greater. Notwithstanding the foregoing, if any
of the Continued Benefits or other benefits to be provided hereunder have been
decreased or otherwise negatively affected within twelve (12) months prior to
the effective date of the Executive's termination, the reference for measuring
such benefit shall be the date prior to such reduction rather than the date of
such termination.
(b) If the Executive is required, pursuant to Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") to pay (through
withholding or otherwise) an excise tax on "excess parachute payments" as
defined in Section 280G of the Code, as amended, the Company shall pay the
Executive the full amount or amounts that are necessary to place the Executive
in the same after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
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<PAGE>
3.5 Termination for Disability. (a) The Company may terminate the
Executive following a determination by the Chairman of the Board that the
Executive has a Permanent Disability; provided, however, that no such
termination shall be effective (i) prior to the expiration of the six (6) month
period following the date the Executive first incurred the condition which is
the basis for the Permanent Disability or (ii) if the Executive begins to
substantially perform the significant aspects of his regular duties prior to the
proposed effective date of such termination. For purposes of this Agreement,
"Permanent Disability" shall mean the Executive's inability, by reason of any
physical or mental impairment, to substantially perform the significant aspects
of his regular duties, as contemplated by this Agreement, which inability is
reasonably contemplated to continue for at least one (1) year from its
incurrence and at least ninety (90) days from the effective date of the
Executive's termination. Any question as to the existence, extent, or
potentiality of the Executive's Permanent Disability shall be determined by a
qualified independent physician selected by the Executive (or, if the Executive
is unable to make such selection, by the person designated in writing by
Executive prior to his inability to make such selection, and in the absence of
such designation by an adult member of the Executive's immediate family) and
reasonably acceptable to the Company.
(b) If the Executive is terminated because of his Permanent
Disability, the Company shall provide for the Acceleration of Equity Rights and,
the Company shall, (i) for a period of thirty-six (36) months following the
effective date of such termination (the "Disability Period") pay the Executive
one hundred percent (100%) of his Salary plus Bonus Amount, offset by the
amount, if any, paid to the Executive under the salary replacement portion of
disability
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benefits paid under a disability plan or policy paid for by the Company; and
(ii) provide him with Continued Benefits during the Disability Period.
3.6 Death or Disability after Termination. Should the Executive die or
become disabled before receipt of any or all payments to which the Executive is
entitled to under Section 3.4 (or in the case of the Executive's death following
his termination on account of Permanent Disability, before receipt of all
payments under Section 3.5) then the balance of the payments to which the
Executive is entitled shall continue to be paid to the Executive (in the case of
his disability) or to the executors or administrators of the Executive's estate
(in the event of the Executive's death); provided, however, that the Company
may, at any time within its discretion, accelerate any payments and pay the
Executive or his estate the present value of such payments in a lump sum cash
payment. For purposes of determining the present value under this Section 3.6,
the interest rate shall be the Prime Rate of Citibank, N.A.
3.7 Termination for Cause. If the Executive is terminated for Cause
during the Term of this Agreement or within one (1) year of a Change of Control
or thereafter, the Company shall pay the Executive a severance amount equal to
the sum of (a) his Salary in the year of Termination or the immediately
preceding year, whichever is greater and (b) the Bonus Amount which shall be the
greater of (i) the Executive's Bonus in the year of termination or (ii) in the
immediately preceding calendar year, whichever is greater, payable in equal
monthly installments for twelve (12) months. The Executive shall also receive
Continued Benefits for a period of twelve (12) months.
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<PAGE>
ARTICLE IV
COVENANTS OF THE EXECUTIVE
4.1 Confidential Information. In connection with his employment at the
Company, the Executive will have access to confidential information consisting
of some or all of the following categories of information:
(a) Financial Information, including, but not limited to,
information relating to the Company's earnings, assets, debts, prices,
pricing structure, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and Service Information, including, but not limited
to, information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular
transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and
the extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages to the
Company, details of which are not generally known;
(c) Marketing Information, including, but not limited to,
information relating to details about ongoing or proposed marketing
programs or agreements by or on behalf of the Company, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel Information, including, but not limited to,
information relating to employees' personnel or medical histories,
compensation or other terms of employment, actual or proposed
promotions, hirings, resignation, disciplinary actions, terminations or
reasons therefor, training methods, performance, or other employee
information; and
(e) Customer Information, including, but not limited to,
information relating to past, existing or prospective customers' names,
addresses or backgrounds, records of agreements and prices, proposals
or agreements between customers and the Company, status of customers'
accounts or credit, or related information about actual or prospective
customers as well as customer lists.
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<PAGE>
All of the foregoing are hereinafter referred to as "Trade Secrets."
The Company and the Executive consider their relation one of confidence with
respect to Trade Secrets. Therefore, during and after the employment by the
Company, regardless of the reasons that such employment ends, the Executive
agrees:
(i) To hold all Trade Secrets in confidence and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business except as it directly relates to the
Executive's employment by the Company;
(ii) To use the Trade Secrets only in furtherance of
proper employment related reasons of the Company to further
the interests of the Company;
(iii) To take all reasonable actions that the Company
deems necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Company's interest in the
Trade Secrets; and
(iv) That any of the Trade Secrets, whether prepared
by the Executive or which may come into the Executive's
possession during the Executive's employment hereunder, are
and remain the property of the Company and its affiliates, and
all such Trade Secrets, including copies thereof, together
with all other property belonging to the Company or its
affiliates, or used in their respective businesses, shall be
delivered to or left with the Company.
This Agreement does not apply to (A) information that by means other
than the Executive's deliberate or inadvertent disclosure becomes known to the
public; (B) disclosure compelled by judicial or administrative proceedings
provided the Executive affords the Company the opportunity to obtain assurance
that compelled disclosures will receive confidential treatment; and (C)
information independently developed by the Executive, the development of which
was not a breach of this Agreement.
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4.2 Non-Competition. (a) During the Term and for a period of eighteen
(l8) months thereafter (or in the event of the termination of Executive's
employment under any provision herein within one (1) year after a Change of
Control or Executive's termination for Cause, for a period of one (1) year
thereafter), the Executive agrees that he will not, without the express written
consent of the Company, for the Executive or on behalf of any other person,
firm, entity or other enterprise (i) directly or indirectly solicit for
employment or recommend to any subsequent employer of the Executive the
solicitation for employment of any person who, at the time of such solicitation
is employed by Company or any affiliate thereof, (ii) directly or indirectly
solicit, divert, or endeavor to entice away any customer of the Company or any
affiliate thereof or otherwise engage in any activity intended to terminate,
disrupt, or interfere with the Company's or any affiliate's relationship with a
customer, supplier, lessee or other person, or (iii) be employed by, be a
director, officer or manager of, act as a consultant for, be a partner in, have
a proprietary inters in, give advice to, loan money to or otherwise associate
with, any person, enterprise, partnership association, corporation, joint
venture or other entity which is directly or indirectly in the business of
owning, operating, managing or providing consulting services to a real estate
investment trust ("REIT) primarily engaged in owning or lending to healthcare -
related facilities, properties and entities. This provision shall not be
construed to prohibit the Executive from owning up to ten percent (10%) of the
outstanding voting shares of the equity securities of any company whose common
stock is listed for trading on any national securities exchange or on the NASDAQ
System or serving as a director or advisor to the board of directors
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of any company. The provisions of this Section 4.2 shall only apply to
businesses and operations located in, or otherwise conducted in, the United
States.
4.3 Remedies for Breach of Article IV. In the event that the Executive
materially violates the covenants containing in this Article IV, after his
termination of employment under circumstances which entitle him to payments or
benefits under Section 3.4, the Company may, at its election, upon ten (10)
days' prior notice, terminate the Severance Period and cease providing the
Executive with such payments and benefits. In addition, the Executive
acknowledges and agrees that the amount of damages in the event of the
Executive's breach of this Article IV will be difficult, if not impossible, to
ascertain. The Executive therefore agrees that the Company, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining any breach of the covenants made by the Executive in
this Article IV.
ARTICLE V
AMENDMENT AND ASSIGNMENT
5.1 Right of the Executive to Assign. The Executive may not assign,
transfer, pledge or hypothecate or otherwise transfer his rights, obligations,
interests and benefits under this Agreement and any attempt to do so shall be
null and void.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company and any such assignment or transfer shall inure to
the benefit of and be binding upon the Executive, the Executive's heirs and
personal representatives, and the Company and its successors and assigns. The
Executive agrees to execute all documents
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necessary to ratify and effectuate such assignment. An assignment of this
Agreement by the Company shall not release the Company from its monetary
obligations under this Agreement.
5.3 Amendment/Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by both parties hereto. No waiver of
any provisions of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
ARTICLE VI
GENERAL
6.1 Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Florida.
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Executive and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes the Prior Agreement and all other prior
agreements, either oral or written, between the parties hereto; provided,
however, that this Agreement does not supersede any agreements pertaining to
stock options which have been granted as of the Effective Date, except to the
extent that any such option agreement contains provisions which are contrary to
the provisions of this Agreement (including provisions regarding the
Acceleration of Equity Rights).
6.4 Mitigation. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or
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otherwise nor may any payments provided for under this Section be reduced by any
amounts earned by the Executive, except as provided in Article IV.
6.5 Survivorship. The respective rights and obligations of the parties
hereunder shall survive the termination of this Agreement to the extent
necessary to preserve the rights and obligations of the parties under this
Agreement.
6.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, registered or certified mail with return receipt
requested or by a nationally recognized overnight delivery service, in each case
with all postage or other delivery charges prepaid, and to the address of the
party to whom it is directed as indicated below, or to such other address as
such party may specify by giving notice to the other in accordance with the
terms hereof. Any such notice shall be deemed to be received (a) when delivered,
if by hand, (b) on the next business day following timely deposit with a
nationally recognized overnight delivery service or (c) on the date shown on the
return receipt as received or refused or on the date the postal authorities
state that delivery cannot be accomplished, if sent by registered of certified
mail, return receipt requested.
If to the Company: Monarch Properties, Inc.
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attention: Robert N. Elkins
If to the Executive: John B. Poole
12190 Wellesley Court
Ft. Myers, Florida 33913
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<PAGE>
6.7 Indemnification. The Company agrees to maintain Director's and
Officer's liability insurance at a level not less than the level in effect on
the date of the public offering of the Company, or to the extent such level is
increased during the Term, at such increased level; provided, however, that the
level of insurance may be decreased with the Executive's written consent. To the
extent not covered by such liability insurance, the Company shall indemnify and
hold the Executive harmless to the fullest extent permitted by Maryland law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including reasonable and documented attorneys' fees), and advance amounts
necessary to pay the foregoing at the earliest time and to the fullest extent
permitted by law, in connection with any claim, action or proceeding (whether
civil or criminal) against the Executive as a result of his serving as an
officer or director of the Company or in any capacity at the request of the
Company in or with regard to any other entity, employee benefit plan or
enterprise. This indemnification shall be in effect during the Term and
thereafter and shall be in addition to and not in lieu of any other
indemnification rights the Executive may otherwise have.
6.8 Attorneys' Fees. Upon presentation of an invoice, the Company shall
pay directly or reimburse the Executive for all reasonable and documented
attorneys' fees and costs incurred by the Executive:
(a) in connection with the negotiation, preparation and execution
of this Agreement;
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(b) in connection with any dispute brought by the Executive over
the terms of this Agreement unless there is a determination that the
Executive had no reasonable basis for his claim; and
(c) in connection with any other event indemnifiable by the
Company pursuant to insurance coverage or Maryland law in which the
Executive engages separate representation.
6.9 Arbitration. Except as otherwise provided in Section 4.3, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Naples, Florida, in accordance with the rules of the American
Arbitration Association their in effect, and judgement may be entered on the
arbitrators' award in any court having jurisdiction. The Company shall pay all
costs of the American Arbitration Association and the arbitrator. Each party
shall select one (1) arbitrator, and the two (2) so designated shall select a
third arbitrator. If either party shall fail to designate an arbitrator within
seven (7) days after arbitration is requested, or if the two (2) arbitrators
shall fail to select a third arbitrator within fourteen (14) days after
arbitration is requested, then an arbitrator shall be selected by the American
Arbitration Association upon application of either party. Notwithstanding the
foregoing, the Executive shall be entitled to seek specific performance from a
court of the Executive's right to be paid until the date of termination during
the pendency of any dispute or controversy arising under or in connection with
this Agreement and the Company shall have the night to obtain injunctive relief
from a court.
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6.10 Severability. No provision in this Agreement if held unenforceable
shall in any way invalidate any other provisions of this Agreement, all of which
shall remain in full force and effect.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have caused this
Employment Agreement to be signed and delivered as of the day and year first
above written.
COMPANY EXECUTIVE
MONARCH PROPERTIES, INC.
By:
------------------------------ -------------------------
Name: Robert N. Elkins John B. Poole
---------------------------
Title: Chairman of the Board
---------------------------
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EMPLOYMENT AGREEMENT
BETWEEN
MONARCH PROPERTIES, INC.
AND
DOUGLAS LISTMAN
DATED AS OF MARCH 2, 1998
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March 2, 1998, between MONARCH PROPERTIES, INC., a Maryland corporation, with
principal offices at 8889 Pelican Bay Boulevard, Naples, Florida 34103 (the
"Employer") and DOUGLAS LISTMAN, whose address is 26392 Clarkston Drive, Bonita
Springs, Florida 34135 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employer wishes to employ the Employee, and the Employee
wishes to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premise, the mutual
agreements herein contained, as well as the agreement to employ the Employee
under the terms and conditions contained herein, and intending to be legally
bound hereby, it is agreed between the parties hereto as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 EMPLOYMENT. The Employer hereby employs the Employee in the position of
Chief Financial Officer, with such responsibilities as may be assigned to the
Employee from time to time by John B. Poole, President and Chief Executive
Officer of the Employer. The Employee shall
<PAGE>
report to and be responsible to John B. Poole, President and Chief Executive
Officer, for the period hereinafter set forth, and the Employee hereby accepts
such employment.
1.2 EXCLUSIVE EMPLOYMENT. During the continuation of the Employee's
employment by the Employer hereunder, the Employee will, unless the Employee has
first received the prior written consent of the Employer, devote the Employee's
entire business time, energy, attention, and skill to the services of the
Employer and to the promotion of its interests, and covenants that during such
time the Employee will neither: (a) engage in, be employed by, be a director of
or be otherwise directly or indirectly interested in (i) any business or
activity competing with or of a nature similar to the businesses of the
Employer, or (ii) any business or activity engaged in the owning, operation or
management of business or activity competing with or of a nature similar to the
businesses of the Employer, nor (b) take any part in any activities detrimental
to the best interests of the Employer.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 TERM. The term of employment under this Agreement shall begin as of the
date hereof, and shall end on that date which is three (3) years following the
date hereof, unless sooner terminated pursuant to the terms of this Agreement.
The obligations of the Employee under Section 4.4 shall only be enforceable by
Employer in the event (a) the Employee terminates this Agreement for Good
Reason, as defined below and the Employer pays Noncompetition Severance Pay as
set forth below, (b) the Employer terminates this Agreement for cause, as
defined below and the Employer pays the Noncompetition Severance pay, as set
forth below, (c) this Agreement terminates on its natural expiration date and
the Employer pays the Noncompetition Severance Pay as set forth
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below, (d) the Employer terminates this Agreement without cause and pays the
Noncompetition Severance Pay as set forth below, or (e) the Employee terminates
this Agreement without Good Reason.
2.2 TERMINATION FOR CAUSE. The Employer may terminate this Agreement with
cause and without any obligation to pay the Employee further compensation upon
the occurrence of any one or more of the following events:
(a) Employee fails to perform any of the Employee's duties of
employment or ceases to perform the full scope of the Employee's
professional responsibilities and all assignments in accordance with the
highest professional standards or breaches any material term of this
Agreement, which failure, non-performance or event is not corrected within
fifteen (15) days after written notice is delivered by the Employer to the
Employee specifying said failure, non-performance or breach;
(b) Employee becomes disabled or is unable to perform the Employee's
normal duties, which condition persists for a period of sixty (60) days or
more, and the Employer has provided the Employee with disability insurance
which shall begin to pay after said sixty (60) day period expires;
(c) Employee is convicted of a felony; or
(d) Employee is convicted of theft, larceny or embezzlement of the
Employer's tangible or intangible property.
2.3 TERMINATION WITHOUT CAUSE. The Employer may terminate this Agreement
without cause at any time prior to this Agreement's natural expiration and
without any further obligation to pay the Employee further compensation;
provided, however, that the Employer shall pay to the Employee Noncompetition
Severance Pay, in accordance with Section 3.4 hereof.
2.4 TERMINATION FOR GOOD REASON. (a) The Employee may terminate this
Agreement for Good Reason, provided the Employee gives the Employer prior
written notice that Good Reason exists (the "Good Reason Notice"), upon which
termination the Employer shall have no further
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obligation to pay the Employee further compensation; provided, however, that the
Employer shall pay to the Employee Noncompetition Severance Pay in accordance
with Section 3.4. For purposes of this Agreement, Good Reason shall mean (i) the
resignation of the Employee within one (l) year of a "Change of Control," as
defined in Section 2.4(b) and (ii) a material diminution in the Employee's
responsibilities, title, authority or status.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to occur if (i) there shall be consummated (x) any consolidation,
reorganization or merger of the Employer in which the Employer is not the
continuing or surviving corporation or pursuant to which shares of the
Employer's common stock would be converted into cash, securities or other
property, other than a merger of the Employer in which the holders of the
Employer's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Employer, or (ii) the stockholders of the Employer shall
approve any plan or proposal for liquidation or dissolution of the Employer, or
(iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Employee or any group controlled by the Employee))
shall become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of twenty percent (20%) or more of the Employer's outstanding
common stock (other than pursuant to a plan or arrangement entered into by such
person and the Employer) and such person discloses its intent to effect a change
in the control or ownership of the Employer in any filing with the Securities
and Exchange Commission, or (iv) within any
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twenty-four (24) month period beginning on or after the Effective Date, the
persons who were directors of the Employer immediately before the beginning of
such period (the "Incumbent Directors") shall cease (for any reason other than
death, disability or retirement) to constitute at least a majority of the Board
or the board of directors of any successor to the Employer, provided that, any
director who was not a director as of the Effective Date shall be deemed to be
an Incumbent Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of this Section 3.3(b)(iv) unless such election, recommendation or approval was
the result of any actual or threatened election contest of the type contemplated
by Regulation 14a-11 promulgated under the Exchange Act or any successor
provision.
ARTICLE III
COMPENSATION
3.1 BASE SALARY. For all services rendered by the Employee under this
Agreement, the Employee shall receive a base salary at an initial rate of One
Hundred and Twenty Thousand Dollars ($120,000) per year, payable in accordance
with the pay period policy established by the Employer from time to time. Said
base salary shall be reviewed annually, commencing on the next annual salary
review date as determined by Employer policy. If at any time the Employer
decides to effect a company-wide pay reduction, reduction of the Employee's base
salary under such company-wide pay reduction shall take effect immediately and
shall neither cause the termination of this Agreement nor constitute an event of
default by the Employer.
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<PAGE>
3.2 BONUSES. Within ninety (90) days of the close of each calendar year
(beginning with calendar year 1998), the Employer shall pay to the Employee a
cash bonus ("Cash Bonus") in such amount as may be determined at the Employer's
discretion.
3.3 ADDITIONAL BENEFITS. Separate and apart from the Employee's cash
compensation as set forth above, the Employer shall provide to the Employee
coverage under the Employer's standard life, health and disability insurance
package as currently provided to employees on the same level as the Employee and
non-cumulative paid vacation in the amount of four (4) weeks per year. The
Employee shall also be eligible to participate in the Company's 1998 Omnibus
Securities and Incentive Plan and, if established, any 401(k) Retirement Savings
Plan.
3.4 SEVERANCE PAY. (a) In the event the Employer chooses to terminate this
Agreement without cause prior to the Agreement's natural expiration date and so
notifies the Employee, or the Employee chooses to terminate this Agreement for
Good Reason and so notifies the Employer, then Employer shall pay to the
Employee non-competition severance pay of one-twelfth (1/12) of the greater of
(i) the Employee's then current annual salary on a monthly basis or (ii) One
Hundred and Twenty Thousand Dollars ($120,000) ("Noncompetition Severance Pay")
for a minimum of twelve (12) months (eighteen (18) months if the Good Reason is
a Change of Control, as defined in Section 2.4(b) or the amount of time
remaining until this Agreement's natural expiration, whichever is less;
provided, however, that the Employee shall be bound by the non-competition
restrictions of Section 4.4 for as long as the Employee is receiving such
Noncompetition Severance Pay.
(b) In the event this Agreement terminates at its natural expiration date
and the Employer elects to enforce and bind the Employee to the Noncompetition
restrictions of Section 4.4 below,
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<PAGE>
then the Employer shall pay to the Employee Noncompetition Severance Pay for
each month of restriction for a period of time which is no later than twelve
(12) months from the Agreement's natural expiration, which time period shall be
at the Employer's election. The benefits provided for under Section 3.3, above,
shall not continue to be applicable during such restriction period.
(c) In the event that this Agreement is terminated by the Employer for
cause, and the Employer elects to enforce and bind the Employee to the
non-competition restrictions of Section 4.4, below, then the Employer shall pay
to the Employee one hundred percent (100%) of the Noncompetition Severance Pay
for the period during which the non-competition restrictions of Section 4.4
shall apply, up to a period of nine (9) months. The Employer may extend the
nine-month restriction period of Section 4.4 by paying to the Employee the full
Noncompetition Severance Pay for each month of restriction after the initial
nine-month restriction period, up to a maximum of three (3) additional months,
which time period shall be at the Employer's election. The benefits provided for
under Section 3.3, above, shall not continue to be applicable during such
restriction period.
(d) In the event the Employee terminates this Agreement without Good Reason
prior to the Agreement's natural expiration date, then the Employee shall not be
entitled to any Noncompetition Severance Pay; however, the Employee shall be
bound by the non-competition restrictions of Section 4.4 for a period of nine
(9) calendar months following the date of termination of the Employee's
employment hereunder.
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ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 OWNERSHIP AND RETURN OF DOCUMENTS. The Employee agrees that all
memoranda, notes, records, papers or other documents and all copies thereof
relating to the Employer's operations or businesses, some of which may be
prepared by the Employee, and all objects associated therewith in any way
obtained by the Employee shall be the Employer's property. The Employee shall
not, except for the Employer's use, copy or duplicate any of the aforementioned
documents or objects, nor remove them from the Employer's facilities nor use any
information concerning them except for the Employer's benefit, either during the
Employee's employment or thereafter. The Employee agrees that the Employee will
deliver all of the aforementioned documents and objects that may be in
Employee's possession to the Employer on termination of the Employee's
employment, or at any other time on the Employer's request, together with the
Employee's written certification of compliance with the provision of this
section.
4.2 CONFIDENTIAL INFORMATION. In connection with employment at the
Employer, the Employee will have access to confidential information consisting
of some or all of the following categories of information. The Employer and the
Employee consider their relation one of confidence with respect to such
information:
(A) FINANCIAL INFORMATION, including, but not limited to, information
relating to the Employer's earnings, assets, debts, prices, pricing
structure, volume of purchases or sales or other financial data whether
related to the Employer or generally, or to particular products, services,
geographic areas, or time periods;
(B) SUPPLY AND SERVICE INFORMATION, including, but not limited to,
information relating to goods and services, suppliers' names or addresses,
terms of supply or service contracts or of particular transactions, or
related information about potential suppliers to the
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<PAGE>
extent that such information is not generally known to the public, and to
the extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages to the
Employer details of which are not generally known;
(C) MARKETING INFORMATION, including, but not limited to, information
relating to details about ongoing or proposed marketing programs or
agreements by or on behalf of the Employer, sales forecasts, advertising
formats and methods or results of marketing efforts or information about
impending transactions;
(D) PERSONNEL INFORMATION, including, but not limited to, information
relating to employees' personal or medical histories, compensation or other
terms of employment actual or proposed promotions, hirings, resignation,
disciplinary actions, terminations or reasons therefor, training methods,
performance, or other employee information; and
(E) CUSTOMER INFORMATION, including, but not limited to, information
relating to past, existing or prospective customers' names, addresses or
backgrounds, records of agreements and prices, proposals or agreements
between customers and the Employer, status of customers' accounts or
credit, or related information about actual or prospective customers as
well as customer lists.
(F) INVENTIONS AND TECHNOLOGICAL INFORMATION, including, but not
limited to, information related to proprietary technology, trade secrets,
research and development data, processes, formulae, data and know-how,
improvements, inventions, techniques, and information that has been
created, discovered or developed, or has otherwise become known to the
Employer (including, without limitation, information created, discovered,
developed or made known by or to the Employee during the period of or
arising out of the Employee's employment by the Employer), and/or in which
property rights have been assigned or otherwise conveyed to the Employer,
which information has commercial value in the business in which the
Employer is engaged.
All of the foregoing are hereinafter referred to as "Trade Secrets." During
and after the employment by the Employer, regardless of the reasons that such
employment ends, the Employee agrees:
(i) To hold all Trade Secrets in confidence and not discuss,
communicate or transmit to others, or make any unauthorized copy of or use
the Trade Secrets in any capacity, position or business except as it
directly relates to The Employee's employment by the Employer;
(ii) To use the Trade Secrets only in furtherance of proper employment
related reasons of the Employer to further the interests of the Employer;
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(iii) To take all reasonable actions that Employer deems necessary or
appropriate, to prevent unauthorized use or disclosure of or to protect the
Employer's interest in the Trade Secrets; and
(iv) That any of the Trade Secrets, whether prepared by the Employee
or which may come into the Employee's possession during the Employee's
employment hereunder, are and remain the property of the Employer and its
affiliates, and all such Trade Secrets, including copies thereof, together
with all other property belonging to the Employer or its affiliates, or
used in their respective businesses, shall be delivered to or left with the
Employer.
This Agreement does not apply to (A) information that by means other than
the Employee's deliberate or inadvertent disclosure becomes well known to the
public; (B) disclosure compelled by judicial or administrative proceedings after
the Employee diligently tries to avoid each disclosure and affords the Employer
the opportunity to obtain assurance that compelled disclosures will receive
confidential treatment.
The Employee specifically waives any rights to customer names, customer
lists, customer files or parts thereof as well as test results or information
the Employee might otherwise be entitled to by virtue of any applicable state or
federal law or regulation.
4.3 NON-SOLICITATION AND NON-PIRATING. At all times following a termination
or the natural expiration of this Agreement, the Employee hereby agrees that,
without the express written consent of the Employer, the Employee will not,
directly or indirectly, for the Employee or on behalf of any other person, firm,
entity or other enterprise:
(a) call upon any client or customer of the Employer or in any way
solicit, divert or take away any client or customer of the Employer who was
a client or customer of the Employer while the Employee was an employee of
the Employer under this Agreement (such period being hereinafter referred
to as the "Employment Period"); and
(b) disturb, hire, entice away or in any other manner persuade any
employee, client, or customer of the Employer who was an employee, client,
or customer of the Employer
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during the Employment Period, to alter, modify or terminate their relationship
with the Employer as an employee, client, or customer, as the case may be.
4.4 NON-COMPETITION. In consideration of the Employee's employment
hereunder, and subject to the provisions of Sections 2.1 and 3.4, above, the
Employee hereby agrees that, without the express written consent of the
Employer, the Employee will not, directly or indirectly, for the Employee or on
behalf of any other person, firm, entity or other enterprise, during any period
by which the Employee is receiving Noncompetition Severance Pay pursuant to
Section 3.4 or, in the event the Employee terminates this Agreement pursuant to
Section 3.4(d), be employed by, be a director or manager of, act as a consultant
for, be a partner in, have a proprietary interest in, give advice to, loan money
to or otherwise associate with, any person, enterprise, partnership,
association, corporation, joint venture or other entity which is directly or
indirectly in the business of owning, operating, managing or providing
consulting services to a real estate investment trust ("REIT") primarily engaged
in owning or lending to healthcare-related facilities, properties and entities.
This provision shall not be construed to prohibit the Employee from owning up to
two percent (2%) of the issued shares of any healthcare REIT subject to the
reporting requirements of Section 13 or Section 15(d) of the Securities and
Exchange Act of 1934, as amended.
4.5 NECESSARY RESTRICTIONS. The Employee acknowledges that the restrictions
contained in Sections 4.3 and 4.4 are reasonable and necessary to protect the
legitimate business interests of the Employer and that any violation thereof by
him would result in irreparable harm to the Employer. Accordingly, the Employee
agrees that upon the violation by him of any of the restrictions contained in
Sections 4.3 or 4.4, the Employer shall be entitled to obtain from any court of
competent jurisdiction a preliminary and permanent injunction as well as any
other relief provided at law,
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equity, under this Agreement or otherwise. In the event any of the foregoing
restrictions are adjudged unreasonable in any proceeding, then the parties agree
that the period of time or the scope of such restrictions (or both) shall be
adjusted to such a manner or for such a time (or both) as is adjudged to be
reasonable.
4.6 PRIOR EMPLOYERS. The Employee agrees to indemnify and hold harmless the
Company, its officers, directors, and employees from and against any liabilities
and expenses, including reasonable and documented attorney's fees and amounts
paid in settlement, incurred by any of them in connection with any claim by any
of the Employee's prior employers that the termination of the Employee's
employment with such employer, the Employee's employment with the Employer, or
that the use of any skills or knowledge by the Employer is a violation of
contract or law. The Employee hereby represents and warrants to the Employer
than (a) the Employee is not bound by any agreement with any prior employer or
other party to refrain from using or disclosing any confidential information or
from competing with the business of such employer or other party, (b) the
Employee's performance under this Agreement will not breach any other agreement
by which the Employee is bound, and (c) the Employee has not brought with him to
the Employer, nor will the Employee bring or use in the performance of the
Employee's responsibilities at the Employer, any materials or documents of a
former employer which are not generally available to the public.
4.7 REMEDIES FOR BREACH. The Employee acknowledges that the covenants
contained in Article IV of this Agreement are independent covenants and that any
failure by the Employer to perform its obligations under this Agreement (other
than the act of nonpayment which is not cured by the Employer within thirty (30)
days of the receipt of written notice of said condition from the
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Employee) shall not be a defense to enforcement of the covenants contained in
Article IV, including, but not limited to, a temporary or permanent injunction.
The Employee acknowledges that damages in the event of the Employee's breach of
this Article IV will be difficult, if not impossible, to ascertain and it is
therefore agreed that the Employer, in addition to, and without limiting any
other remedy or right it may have, shall have the right to an injunction
enjoining the said breach. The Employee agrees to reimburse the Employer for all
costs and expenses, including reasonable and documented attorney's fees,
incurred by the Employer because of any breach of this Article IV.
ARTICLE V
ASSIGNMENT
5.1 PROHIBITION OF EMPLOYEE ASSIGNMENT. The Employee agrees on behalf of
the Employee and the Employee's heirs and executors, personal representatives,
and any other person or persons claiming any benefit under the Employee by
virtue of this Agreement, that this Agreement and the rights, interests, and
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way by the Employee or the Employee's heirs, executors and personal
representatives, and shall not be subject to execution, attachment or similar
process. Any attempt to assign, transfer, pledge, hypothecate or otherwise
dispose of this Agreement or any such rights, interests and benefits thereunder
contrary to the foregoing provision, or the levy of any attachment or similar
process thereupon shall be null and void and without effect and shall relieve
the Employer of any and all liability hereunder.
5.2 RIGHT OF EMPLOYER TO ASSIGN. This Agreement shall be assignable and
transferable by the Employer to the Employer's transferee, assignee or any
successor-in-interest, parent,
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subsidiary or affiliate of the Employer, and shall inure to the benefit of and
be binding upon the Employee, the Employee's heirs and personal representatives,
and the Employer and its successors and assigns; provided, however, the
provisions of Section 2.4 shall apply if it is determined that such assignment
results in "good reason", as defined in Section 2.4. The Employee agrees to
execute all documents necessary to ratify and effectuate such assignment.
5.3 BINDING EFFECT IF TRANSFERRED. In the event this Agreement is
transferred by the Employer, the term "Employer" as used herein shall refer to
and be binding upon the Employer's transferee or assignee.
ARTICLE VI
GENERAL
6.1 GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of Florida, irrespective of the fact that the Employee may
become a resident of a different state.
6.2 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
6.3 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties and contains all of the agreements between the parties with
respect to the subject matter hereof; this Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the subject hereof. No change or modification of this Agreement shall
be valid unless the same be in writing and signed by both parties hereto. No
waiver of any
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provisions of this Agreement shall be valid unless in writing and signed by the
person or party to be charged.
6.4 SEVERABILITY. If any portion of this Agreement shall be for any reason,
invalid or unenforceable, the remaining portion or portions shall nevertheless
be valid, enforceable and carried into effect, unless to do so would clearly
violate the present legal and valid intention of the parties hereto.
6.5 NOTICES. All notices, demands, requests, consents, approvals or other
communications required or permitted hereunder shall be in writing and shall be
delivered by hand, registered or certified mail with return receipt requested or
by a nationally recognized overnight delivery service, in each case with all
postage or other delivery charges prepaid, and to the address of the party to
whom it is directed as indicated below, or to such other address as such party
may specify by giving notice to the other in accordance with the terms hereof.
Any such notice shall be deemed to be received (a) when delivered, if by hand,
(b) on the next business day following timely deposit with a nationally
recognized overnight delivery service, or (c) on the date shown on the return
receipt as received or refused or on the date the postal authorities state that
delivery cannot be accomplished, if sent by registered or certified mail, return
receipt requested.
IF TO THE EMPLOYER: Monarch Properties, Inc.
8889 Pelican Bay Boulevard - Suite 501
Naples, Florida 34108
Attn: John B. Poole
IF TO THE EMPLOYEE: Douglas Listman
26392 Clarkston Drive
Bonita Springs, Florida 34135
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<PAGE>
6.6 INDEPENDENT LEGAL COUNSEL. The Employee represents and warrants that
the Employee has had the opportunity to seek the advice of independent legal
counsel prior to signing this Agreement, and that the Company has recommended to
Employee that Employee obtain such counsel.
6.7 ATTORNEYS' FEES. In the event of litigation concerning this Agreement,
the prevailing party shall be entitled to collect from the losing party
attorneys' fees and costs, including those on appeal.
SIGNATURE PAGE FOLLOWS
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<PAGE>
IN WITNESS WHEREOF, the Employer and the Employee have caused this
Employment Agreement to be signed and delivered as of the day and year first
above written.
EMPLOYER EMPLOYEE
MONARCH PROPERTIES, INC.
By:
------------------------------------------- ---------------------------
Name: John B. Poole Douglas Listman
-----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
-17-
EXHIBIT 21.1
List of Subsidiaries
Monarch Properties, LP, a Delaware limited partnership
MP Operating, Inc., a Delaware corporation
MP Properties LP, Inc. a Delaware corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Monarch Properties, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 29, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Members
Lyric Health Care LLC
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to a
change in accounting method, effective January 1, 1996, from deferring and
amortizing pre-opening costs of medical specialty units to recording them as
expenses when incurred.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 29, 1998
EXHIBIT 23.9
CONSENT OF VALUATION COUNSELORS
The Board of Directors
Monarch Properties, Inc.
We consent to the reference to our firm and the summary of our report in
the prospectus included in the Registration Statement on Form S-11 of Monarch
Properties, Inc.
Valuation Counselors Group, Inc.
By: /s/ Raymond Ghelardi
----------------------------------
Raymond Ghelardi
Managing Director
Lawrenceville, New Jersey
June 5, 1998
