FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-8527
DIALYSIS CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
Florida 59-1757642
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
27 Miller Avenue, Lemoyne, Pennsylvania 17043
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(717) 730-6164
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 3,651,344 shares as of April 30, 1998.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Operations (Unaudited) for
the three months ended March 31, 1998 and March 31, 1997 include the
accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
- ------ --------------------
1) Consolidated Condensed Statements of Operations for the
three months ended March 31, 1998 and March 31, 1997.
2) Consolidated Condensed Balance Sheets as of March 31, 1998
and December 31, 1997.
3) Consolidated Condensed Statements of Cash Flows for three
months ended March 31, 1998 and March 31, 1997.
4) Notes to Consolidated Condensed Financial Statements as
of March 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations
-------------------------
PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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<PAGE>
PART I -- FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements
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DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
1998 1997
---- ----
Revenues:
Medical service revenue $ 818,311 $1,034,488
Interest and other income 126,727 79,883
---------- ----------
945,038 1,114,371
Cost and expenses:
Cost of medical services 586,076 626,607
Selling, general and administrative
expenses 455,890 443,384
Interest expense 19,232 22,494
---------- ----------
1,061,198 1,092,485
(Loss) income before income taxes
and minority interest (116,160) 21,886
Income tax benefit (39,000)
---------- ----------
(Loss) income before minority interest (77,160) 21,886
Minority interest in loss of
consolidated subsidiaries (319)
---------- ----------
Net (loss) income $ (77,160) $ 22,205
========== ==========
(Loss) earnings per share:
Basic $(.02) $.01
===== ====
Diluted $(.02) $.01
===== ====
See notes to consolidated condensed financial statements.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1998 1997(A)
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,099,834 $ 8,102,920
Marketable securities 263,606 443,936
Accounts receivable, less allowance
of $90,000 at March 31, 1998;
$52,000 at December 31, 1997 429,137 494,163
Inventories 100,181 113,815
Prepaid expenses and other
current assets 91,756 156,823
----------- -----------
Total current assets 6,984,514 9,311,657
Property and Equipment:
Land 168,358 168,358
Buildings and improvements 1,404,573 1,402,319
Machinery and equipment 972,995 949,749
Leasehold improvements 452,547 442,464
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2,998,473 2,962,890
Less accumulated depreciation 749,578 679,870
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2,248,895 2,283,020
Deferred expenses and other assets 159,868 43,088
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$ 9,393,277 $11,637,765
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 42,247 $ 72,531
Accrued expenses 362,666 370,099
Current portion of long-term debt 157,889 151,844
Income taxes payable 76,164 1,655,164
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Total current liabilities 638,966 2,249,638
Long-term debt, less current portion 538,719 564,673
Advances from parent 193,764 128,727
Minority interest in subsidiaries 645,809
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value,
authorized 20,000,000 shares;
3,751,344 shares issued,
3,651,344 shares outstanding 37,513 37,513
Capital in excess of par value 4,044,154 4,008,720
Retained earnings 4,131,775 4,208,935
Accumulated other comprehensive
income (loss)-unrealized gain on
marketable securities for sale 14,636
Treasury stock at cost; 100,000 shares (206,250) (206,250)
----------- -----------
Total stockholders' equity 8,021,828 8,048,918
----------- -----------
$ 9,393,277 $11,637,765
=========== ===========
(A) Reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and Exchange
Commission in March 1998.
See notes to consolidated condensed financial statements.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
Operating activities:
Net (loss) income $ (77,160) $ 22,205
Adjustments to reconcile net (loss)
income to net cash used in
operating activities:
Depreciation 69,708 59,007
Amortization 422 3,003
Bad debt expense 28,964 37,310
Minority interest (319)
Increase (decrease) relating
to operating activities from:
Accounts receivable 36,062 (105,912)
Inventories 13,634 39,449
Prepaid expenses and other
current assets 20,033 (19,488)
Accounts payable (30,284) (66,293)
Accrued expenses 7,567 (53,105)
Income tax payable (1,579,000)
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Net cash used in operating activities (1,510,054) (84,143)
Investing activities:
Redemption of minority interest
in subsidiaries (385,375)
Additions to property and equipment,
net of minor disposals (19,083) (154,459)
Deferred expenses and other assets (117,202) (47,903)
----------- -----------
Net cash used in investing activities (521,660) (202,362)
Financing activities:
Increase (decrease) in advances
from parent 65,037 (277,801)
Payments on long-term debt (36,409) (30,193)
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Net cash provided by (used in)
financing activities 28,628 (307,994)
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(Decrease) increase in cash and cash
equivalents (2,003,086) (594,499)
Cash and cash equivalents at beginning
of period 8,102,920 4,717,169
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Cash and cash equivalents at end
of period $ 6,099,834 $ 4,122,670
=========== ===========
See notes to consolidated condensed financial statements.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of
Dialysis Corporation of America ("DCA") and its subsidiaries, collec-
tively referred to as the "Company". All material intercompany
accounts and transactions have been eliminated in consolidation. The
Company is a 66.0% owned subsidiary of Medicore, Inc. (the "Parent").
See Note 5.
Government Regulation
Most of the Company's revenues are attributable to payments received
under Medicare, which is supplemented by Medicaid or comparable benefits
in the states in which the Company operates. Reimbursement rates under
these programs are subject to regulatory changes and governmental funding
restrictions. Although the Company is not aware of any future rate
changes, significant changes in reimbursement rates could have a material
effect on the Company's operations.
Interest and Other Income
Interest and other income is comprised as follows:
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
Rental income $ 32,372 $ 25,142
Interest income 91,893 51,072
Other income 2,462 3,669
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$126,727 $ 79,883
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Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
FAS 128, "Earnings Per Share", which was adopted on December 31, 1997
requiring a change in the method previously used for computing earnings
per share and restatement of all prior periods. The new requirements
for calculating basic earnings per share exclude the dilutive effect
of stock options and warrants. Earnings per share under the diluted
computation required under FAS 128 includes stock options and warrants
using the treasury stock method and average market price.
Following is a reconciliation of amounts used in the basic and
diluted computations:
Three Months Ended
March 31,
------------------------
1998 1997
---- ----
Net (loss) income $ (77,160) $ 22,205
========== ==========
Weighted average shares-denominator
basic computation 3,651,344 3,588,844
Effect of dilutive stock options:
Stock options granted November 1995 123,222
---------- ----------
Weighted average shares, as adjusted-
denominator diluted computation 3,651,344 3,712,066
========== ==========
(Loss) earnings per share:
Basic $(.02) $.01
===== ====
Diluted $(.02) $.01
===== ====
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
No potentially dilutive securities were included in the diluted
earnings per share computation for the three months ended March 31,
1998. Since there was a loss, to include them would be anti-dilutive.
In addition to the dilutive stock options included in the recon-
ciliation above, which have an exercise price of $1.50 per share,
there were 10,000 medical director options, 2,300,000 common stock
purchase warrants and underwriter options to purchase 100,000 shares
of common of common stock and 200,000 common stock purchase warrants
which have not been included in the diluted earnings per share compu-
tation for the three months ended March 31, 1997 since they were
anti-dilutive.
Comprehensive Income
The Company has adopted the provisions of Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income"
(FAS 130) in 1998 which is required by FAS 130 for fiscal years
beginning after December 15, 1997. FAS 130 requires the presentation
of comprehensive income and its components in the financial statements
and the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity
section of the balance sheet. The adoption of FAS 130 has no impact
on the Company's net income (loss) or stockholders' equity. The only
component of other comprehensive income in the Company's balance
sheet is the unrealized gain on marketable securities, which even
prior to adoption of FAS 130 would have been separately reported in
stockholders' equity. Below is a detail of comprehensive income
(loss) for the three months ended March 31, 1998 and March 31, 1997:
Three Months Ended
March 31,
------------------------
1998 1997
---- ----
Net (loss) income $(77,160) $22,205
Other comprehensive income:
Unrealized gain on marketable
securities, net of tax 14,636
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Comprehensive (loss) income $(62,524) $22,205
Segment Reporting
The Company has adopted the provisions of Financial Accounting
Standards Board Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131) in 1998 which is
required by FAS 131 for fiscal years beginning after December 15, 1997.
FAS 131 establishes standards for reporting information about operating
segments in annual financial statements with operating segments rep-
resenting components of an enterprise evaluated by the enterprise's
chief operating decision maker for purposes of making decisions
regarding resource allocation and performance evaluation. FAS 131
also requires that certain segment information be presented in interim
financial statements. Interim information is not required in the first
year of implementation; however, in subsequent years in which the first
year of implementation is a comparative year, any required interim
information for the initial year of implementation must be presented.
The Company does not believe that adoption of FAS 131 will significantly
change its segment reporting disclosures.
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 1998
and March 31, 1997 are unaudited and include, in the opinion of manage-
ment of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these Consolidated Condensed Financial Statements be read in conjunc-
tion with the financial statements and notes included in the Company's
audited financial statements for the year ended December 31, 1997.
NOTE 3--LONG TERM DEBT
In December 1988, the Company obtained a $480,000 fifteen-year
mortgage through November 2003 on its building in Lemoyne, Pennsylvania
with interest at 1% over the prime rate. The remaining principal
balance under this mortgage amounted to approximately $184,000 and
$192,000 at March 31, 1998 and December 31, 1997, respectively. In
December 1988, the Company also obtained a $600,000 fifteen-year
mortgage through November 2003 on its building in Easton, Maryland
with interest at 1% over the prime rate. The remaining principal
balance under this mortgage amounted to approximately $230,000 and
$240,000 at March 31, 1998 and December 31, 1997, respectively.
The Company has an equipment purchase agreement for kidney
dialysis machines with interest at rates ranging from 8% to 12%
pursuant to various schedules extending through June 2002. Additional
financing of $17,000 in January 1998, represents a noncash financing
activity which is a supplemental disclosure required by FAS 95. The
remaining principal balance under this agreement amounted to approxi-
mately $283,000 and $285,000 at March 31, 1998 and December 31, 1997,
respectively.
The prime rate was 8.5 % as of March 31, 1998 and December 31,
1997.
Interest payments on long-term debt amounted to approximately
$17,000 for the three months ended March 31, 1998 and $19,000 for
the same period of the preceding year.
NOTE 4--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. The unrealized gain on marketable securities for sale is
net of deferred taxes of approximately $9,000.
Income tax payments amounted to $1,540,000 for the three months
ended March 31, 1998 with no such payments for the same period of the
preceding year.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company
including office space and general accounting assistance the costs of
which are allocated on the basis of direct usage, when identifiable, or
on the basis of time spent. The amount of expenses allocated by the
Parent totaled approximately $60,000 for the three months ended March
31, 1998, and for the same period of the preceding year.
The Company has an intercompany advance payable to the Parent of
approximately $194,000 and $129,000 at March 31, 1998 and December 31,
1997, respectively, which bears interest at the short-term Treasury
Bill rate. Interest on this intercompany advance amounted to approxi-
mately $2,000 for the three months ended March 31, 1998 and $3,000 for
the same period of the preceding year, which is included in the inter-
company advance payable. The Parent has agreed not to require
repayment of the intercompany advances prior to April 1, 1999;
therefore, the advances have been classified as long-term at March 31,
1998.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 6--STOCK OPTIONS
In November 1995, the Company adopted a stock option plan for up
to 250,000 options. Pursuant to this plan, in November, 1995, the Board
of Directors granted 210,000 options to certain of its officers,
directors, employees and consultants of which 19,000 options were
outstanding at March 31, 1998. These options are exercisable for a
period of five years through November 9, 2000 at $1.50 per share.
In August 1996, the Board of Directors granted 15,000 options to
the medical directors at its three kidney dialysis centers of which
10,000 options were outstanding at March 31, 1998. These options are
exercisable for a period of three years through August 18, 1999 at $4.75
per share.
NOTE 7--COMMON STOCK
The Company completed a public offering of common stock and warrants
during the second quarter of 1996, providing it with net proceeds, in-
cluding the exercise of the underwriters' overallotment option, of
approximately $3,445,000.
Pursuant to the offering 1,150,000 shares of common stock were
issued, including 150,000 shares from exercise of the underwriters'
overallotment option, and there are 2,300,000 redeemable common stock
purchase warrants to purchase one common share each with an exercise
price of $4.50 exercisable through April 16, 1999. The underwriters
received options to purchase 100,000 shares of common stock and
200,000 common stock purchase warrants, with the options exercisable
at $4.50 per unit through April 16, 2001 with the underlying warrants
being substantially identical to the public warrants except that they
are exercisable at $5.40 per share.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Effective January 1, 1997 the Company established a 401(k) savings
plan (salary deferral plan) with an eligibility requirement of one year
of service and a 21 year old age requirement. The Company has made no
contributions under this plan as of March 31, 1998.
NOTE 9--SALE OF SUBSIDIARIES' ASSETS
On October 31, 1997, the Company concluded a sale ("Sale") of its
Florida operations pursuant to an Asset Purchase Agreement. Consider-
ation for the assets sold was $5,065,000 consisting of $4,585,000 in
cash and $480,000 of the purchaser's common stock which the purchaser
agreed to register within one year. These shares were carried at
their market value of approximately $444,000 at December 31, 1997
with the difference between the guaranteed value of $480,000 and the
market value reflected as a receivable from the purchaser. In
February 1998, the Company acquired, in a transaction accounted for
as a purchase, the remaining 20% minority interests in two of the
subsidiaries whose assets were sold. The purchase price, totaled
$625,000, which included one-half of the common shares originally
received as part of the consideration of the Sale. The remaining
shares are carried at their market value of approximately $264,000 at
March 31, 1998 with the unrealized gain, net of income tax effect,
included in stockholders' equity in accumulated other comprehensive
income.
The pro forma consolidated condensed financial information pre-
sented below reflects the Sale as if it had occurred on January 1,
1997. For purposes of pro forma statement of operations information,
no assumption has been made that expenses have been eliminated which
were included in corporate expense allocations by the Company and its
Parent, to the business operations sold and which were included in the
actual results of operations of these businesses. Such expenses
amounted to approximately $35,000 for the three months ended March 31,
1997.
<PAGE>
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 9--SALE OF SUBSIDIARIES' ASSETS--(Continued)
No assumption has been included in the pro forma information as to
investment income to be realized from investment of the proceeds of the
sale.
The summary pro forma information is not necessarily representative
of what the Company's results of operations would have been if the Sale
had actually occurred as of January 1, 1997 and may not be indicative of
the Company's operating results for any future periods.
SUMMARY PRO FORMA INFORMATION
Three Months Ended
March 31,
----------------------------
1998 1997
---- ----
Total revenue $ 888,000 $ 619,000
========= =========
Net loss $(171,000) $ (90,000)
========= =========
Loss per share:
Basic $(.05) $(.03)
===== =====
Diluted $(.05) $(.03)
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
------------------------------------------------------------
and Results of Operations
-------------------------
Forward Looking Information
The statements contained in this Quarterly Report on Form 10-Q
that are not historical are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including statements regarding
management's expectations, intentions, beliefs, or strategies regarding
the future. Forward looking statements also include the Company's
statements regarding liquidity, anticipated cash needs and availability,
and anticipated expense levels in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" including anticipated
development and acquisition of dialysis centers, new facility completions
and related anticipated costs. All forward looking statements included
in this document are based on information available to the Company on the
date hereof, and the Company assumes no obligation to update any such
forward looking statement. It is important to note that the Company's
actual results could differ materially from those in such forward looking
statements. Among the factors that could cause actual results to differ
materially are the factors detailed in the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement Form
SB-2, as filed with the Securities and Exchange Commission (effective on
April 17, 1996). Accordingly, readers are cautioned not to place undue
reliance on such forward looking statements.
The dialysis industry is highly competitive and subject to
extensive regulation, including the limitation on fees for dialysis
treatment and services. Significant competitive factors include
quality of care and service, convenience of location and pleasant
environment. Additionally, there is intense competition for retaining
qualified nephrologists who normally are the sole source of patient
referrals and are responsible for the supervision of the dialysis
centers. There is also substantial competition for obtaining quali-
fied nurses and technical staff. Major companies, some of which are
public companies or divisions of public companies, have many more
centers, physicians and financial resources than does the Company,
and by virtue of such have a significant advantage in competing for
acquisitions of dialysis facilities in areas targeted by the Company.
The Company's future growth depends primarily on the availability
of suitable dialysis centers for acquisition or development in appro-
priate and acceptable areas, and the Company's ability to compete with
larger companies with greater personnel and financial resources to
develop these new potential dialysis centers at costs within the budget
of the Company. Its ability to retain qualified nephrologists, nursing
and technical staff at reasonable rates is also a significant factor.
Management continues in negotiations with nephrologists for the acqui-
sition or development of new dialysis facilities, as well as with
hospitals and other health care maintenance entities. The Company
opened a new center in Carlisle, Pennsylvania in July 1997. Its
fourth center in Manahawkin, New Jersey is presently under construc-
tion and two additional centers, one in Pennsylvania and one in New
Jersey are in the planning and architectural stage. Several agreements
for acute inpatient services are under review but there is no assurance
that such agreements will be completed. There is no certainty as to when
any new centers or service contracts will be implemented, or the number
of stations, or patient treatments such may involve, or if such will
ultimately be profitable. Newly established dialysis centers,
although contributing to increased revenues, also adversely affect
results of operations due to start-up costs and expenses with a
smaller developing patient base.
The year 2000 computer information processing challenge associated
with the upcoming millennium change, with which all companies, public
and private, are faced to ensure continued proper operations and
reporting of financial condition, has been assessed by management and
is being addressed. The singular area impacting the Company is in its
electronic billing. No other significant computer issues, particularly
any potential breakdown of the system due to its hardware or software
not being year 2000 compliant, are presently known that would affect
the Company's ability to provide dialysis services, purchase equipment
or conduct general operations. With respect to any financial impact in
view of electronic billing and maintenance of receivables, management
has evaluated its computer systems and discussed the year 2000 issue
with its computer software provider. The software provider is pro-
ceeding to deal with modifying the software used by the Company to
alleviate any interruptions in electronic billing and to have the new
software system available during fiscal 1998. The Company believes
the conversion of its internal software program will be completed in
a timely manner. While the Company does not have a precise estimate
of the cost of the software modifications, it does not anticipate that
the costs will be material or that they will have a material adverse
effect on its business.
In addition to addressing its own internal software system, the
Company is communicating with its suppliers and other key third
parties with whom it deals to determine the extent of their year 2000
problem and what actions they are taking to assess and address that
issue. To the extent such third parties are materially adversely
affected by the year 2000 issue which is not timely corrected, that
could disrupt the Company's relationship with such parties and its
operations. No assurance can be given that the modifications of the
Company's software system or those of its key suppliers and payors
will be successful and that any such year 2000 compliance failures
will not have a material adverse effect on the Company's business or
results of operations.
<PAGE>
Results of Operations
Medical service revenue decreased approximately $216,000 (21%)
for the three months ended March 31, 1998 compared to the same
period of the preceding year. This decrease reflected lost revenues
of approximately $493,000 resulting from the sale of the Company's
Florida dialysis operations on October 31, 1997 which were offset to
some degree by revenues of approximately $221,000 from a new dialysis
center located in Carlisle, Pennsylvania, which commenced operations
in July 1997. Although the operations of the new Carlisle center
have resulted in additional revenues, it is in the developmental
stage and, accordingly, its operating results will adversely
affect the Company's results of operations until it achieves a suf-
ficient patient count to cover fixed operating costs.
Interest and other income increased approximately $47,000 for
the three months ended March 31, 1998 compared to the same period of
the preceding year largely due to interest earned on proceeds invested
from the October 1997 sale of the Company's Florida dialysis opera-
tions.
Cost of medical services sales increased to 72% for the three
months ended March 31, 1998 compared to 61% for the same period of
the preceding year reflecting increases in healthcare salaries and
supply costs as a percentage of sales and including the operations
of the Company's new Carlisle center which is still in its develop-
mental stage.
Selling, general and administrative expenses increased approxi-
mately $13,000 for the three months ended March 31, 1998 compared
to the preceding year. This increase reflected the commencement of
operations at the new dialysis center in Carlisle, Pennsylvania and
the cost of increased support functions offset by cost decreases
resulting from the sale of the Florida dialysis operations.
Interest expense decreased approximately $3,000 for the three
months ended March 31, 1998 compared to the same period of the
preceding year reflecting reduced average borrowings.
Liquidity and Capital Resources
Working capital totaled $6,346,000 at March 31, 1998, which
reflected a decrease of approximately $716,000 during the three months
ended March 31, 1998. Included in the changes in components of working
capital was a decrease in cash and cash equivalents of $2,003,000,
which included net cash used in operating activities of $1,510,000
(including a decrease in income taxes payable of $1,579,000 resulting
from tax payments on the gain on the sale of the Florida dialysis
operations), net cash used in investing activities of $522,000
(including funds used for redemption of minority interest in subsidi-
aries of $385,000 and an increase in other assets of $117,000
resulting from development of the Manahawkin, New Jersey center)
and net cash used in financing activities of $29,000 (including an
increase in the advances from the Parent of $65,000 and debt
repayments of $36,000).
During 1988, the Company obtained mortgages totaling $1,080,000 on
its two buildings, one in Lemoyne, Pennsylvania and the other in Easton,
Maryland. The mortgages had a combined remaining balance of $414,000
and $432,000 at March 31, 1998 and December 31, 1997, respectively.
The bank has liens on the real and personal property of the Company,
including a lien on all rents due and security deposits from the rental
of these properties. See Note 3 to "Notes to Consolidated Condensed
Financial Statements".
The Company has an equipment purchase agreement for kidney
dialysis machines for its dialysis facilities which had a remaining
balance of $283,000 and $285,000 at March 31, 1998 and December 31,
1997, respectively, which included additional equipment financing of
approximately $17,000 in the first quarter of 1998. See Note 3 to
"Notes to Consolidated Condensed Financial Statements".
The Company believes that current levels of working capital, in-
cluding the proceeds of its securities offering and the sale of its
Florida dialysis operations will enable it to successfully meet its
liquidity demands for at least the next twelve months.
The Company, having operated on a larger scale in the past, is
seeking to expand its outpatient dialysis treatment facilities and
inpatient dialysis care. Such expansion, whether through acquisi-
tions of existing centers, or the development of its own dialysis
centers, requires capital, which was the basis for the Company's
security offering in 1996 and sale of its Florida dialysis operations
in 1997. No assurance can be given that the Company will be suc-
cessful in implementing its growth strategy or that the funds from
its securities offering and Florida dialysis operations sale will
be adequate to finance such expansion. See Notes 7 and 9 to "Notes
to Consolidated Condensed Financial Statements".
<PAGE>
Liquidity and Capital Resources--Continued
The Company has entered into agreements with medical directors,
and intends to establish two new dialysis centers, one in New Jersey
and one in Pennsylvania. It is anticipated that a New Jersey facili-
ty, currently under construction, will commence operations in the
third quarter of 1998. A lease was recently negotiated for a new
center in Pennsylvania and lease negotiations are currently under
way for a new facility in New Jersey.
Impact of Inflation
Inflationary factors have not had a significant effect on the
Company's operations. A substantial portion of the Company's revenue
is subject to reimbursement rates established and regulated by the
federal government. These rates do not automatically adjust for infla-
tion. Any rate adjustments relate to legislation and executive and
Congressional budget demands, and have little to do with the actual
cost of doing business. Therefore, dialysis services revenues cannot
be voluntarily increased to keep pace with increases in supply costs
or nursing and other patient care costs.
<PAGE>
PART II -- OTHER INFORMATION
------------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(10) Material Contracts
(i) Lease Agreement between Dialysis Services
of Pa., Inc. - Chambersburg(1) and BPS
Development Group dated April 13, 1998.
(ii) Promissory Note to Mercantile-Safe De-
posit and Trust Company dated November 30,
1988.(2)
(iii) Mortgage and Security Agreement from the
Company to Mercantile-Safe Deposit and
Trust Company dated November 30, 1988.(2)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter
ended March 31, 1998.
- ----------
(1) Wholly-owned subsidiary.
(2) The Company has two loans with and mortgages and security agreements
and promissory notes to Mercantile-Safe Deposit and Trust Company.
Each mortgage and security agreement and promissory note conforms to
the exhibit filed but for the amount and each document was previously
filed as an exhibit, but is now filed electronically in the EDGAR
system.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DIALYSIS CORPORATION OF AMERICA
/s/ Daniel R. Ouzts
By:-------------------------------
DANIEL R. OUZTS, Vice President/Finance
Controller and Chief Financial Officer
Dated: May 12, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(10) Material Contracts
(i) Lease Agreement between Dialysis Services of Pa.,
Inc. - Chambersburg(1) and BPS Development Group
dated April 13, 1998.
(ii) Promissory Note to Mercantile-Safe Deposit and Trust
Company dated November 30, 1988.(2)
(iii) Mortgage and Security Agreement from the Company to
Mercantile-Safe Deposit and Trust Company dated
November 30, 1988.(2)
- ----------
(1) Wholly-owned subsidiary.
(2) The Company has two loans with and mortgages and security agreements
and promissory notes to Mercantile-Safe Deposit and Trust Company.
Each mortgage and security agreement and promissory note conforms to
the exhibit filed but for the amount and each document was previously
filed as an exhibit, but is now filed electronically in the EDGAR
system.
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 13th day of April, 1998, by and be-
tween BPS DEVELOPMENT GROUP, a Pennsylvania general partnership, with
offices at 37 S. Main Street, Suite 200, Chambersburg, PA, 17201 (herein-
after referred to as "Lessor") and DIALYSIS SERVICES OF PA., INC. - CHAM-
BERSBURG, a Pennsylvania corporation having an office at c/o Dialysis
Services of Pa., Inc. - Lemoyne, 27 Miller Street, Lemoyne, PA 17043
(hereinafter referred to as "Lessee").
1. PREMISES
--------
Lessor, in consideration of the rents and covenants hereinafter
mentioned, does demise and lease unto Lessee, all that certain space
consisting of 7,000 square feet of rentable space to be specifically
determined and adjusted upon final plan acceptance (the "Space"), with
specifications for the Space attached as Exhibit A, in the complex known
as the Park Fifth Avenue Professional Center located at 765 Fifth Avenue
(the "Building"), Suite A, Chambersburg, PA 17201 (the "Complex") to be
used for an out-patient medical and dialysis center and related offices,
medical and other, and storage purposes ("Use").
2. TERM
----
2.1 Term This Lease is for the term of five (5) years, com-
----
mencing on the commencement date defined below (the "Term"). In the
event this Lease commences on a day other than the first day of the
month, then the rent shall be paid for such fractional month.
2.2 Renewal Option
--------------
This Lease shall be renewable for two consecutive periods of five
(5) years each under the terms and conditions of this Lease, which
renewal(s) shall be automatic provided that:
(i) Lessee is not in default hereunder; and
(ii) Lessee has not given notice of its intent to terminate
the Lease and not enter into any renewal; provided that any such notice
to terminate this Lease and not to renew shall be given at least ninety
(90) days prior to the expiration of the current Term; and
(iii) The rent for any renewal period will commence on the
day of the month immediately following the expiration of the Term, which
rent shall be prorated for any portion of a month, and will be at a rental
of $8.00 per square foot for the first five year renewal term and $8.20
per square foot for the second five year renewal term.
2.3 Condominium Approval
--------------------
(i) This Lease and the Use of the Space is subject to the
Park Fifth Avenue Professional Center Association, Inc.'s ("Condominium")
rules and regulations and Condominium Declaration; and
(ii) The Lessor shall obtain and provide to Lessee the
Condominium's written approval of this Lease on or prior to the Com-
mencement Date as defined in Section 3.1, without which this Lease shall
be null and void with no obligation of either party to the other, except
for Lessor's immediate return of any Rent or Additional Rent payments
and/or security deposits to Lessee without deduction for costs and
without interest.
<PAGE> 1
3. COMMENCEMENT OF TERMS
---------------------
3.1 Commencement of Rent
--------------------
The Term and the payment of rent shall commence at the earlier of
(i) the 120th day from date that the Building is substantially completed
(the "Commencement Date") for Lessee's possession and Use; or (ii) when
the Lessee takes possession of the Space to operate for its Use. The
Building shall be constructed so as to conform the Space to the re-
quirements of Lessee's floor plan. The Building shall be deemed
substantially completed when all of the following have been met: (i)
Lessor has procured a certificate of occupancy or, if a certificate of
occupancy is not legally required, when the Lessor has obtained all
necessary licenses, permits, variances, and any other local, state and
federal authorizations or approvals, and the Building complies with all
safety, health and other governmental codes; and (ii) the service facil-
ities and systems of the Building serving the Space are stubbed into the
Space and are in good operating condition and working order. Failure of
Lessor to complete the Building on or prior to July 15, 1998, subject to
force majeure, will provide the Lessee with the right to complete the
Building and at Lessee's sole option either (i) receive Lessor's im-
mediate reimbursement of the Building completion expenses, or (ii)
set-off such amounts of Building completion expenses against Rent and
Additional Rent payments due or that may be due under this Lease with
interest at prime plus 1% charged against any unused Building completion
expenses.
3.2 Possession of the Space includes the exclusive use of the
same, together with the use, concurrent with any other occupants of the
Building and Complex, of the common hallways, stairs, elevators (if any),
toilet rooms, parking areas, air conditioning, storage, waste removal,
electric, heat, light and water. Lessee, its agents, invitees, employees,
servants, visitors and patients shall have the right of ingress and egress
to and from the said Space, the Building and Complex. Lessor covenants
that it will not at any time during the Term or any Renewal Term become a
party or consent to any action, proceeding or project which might in any
manner compete or interfere with Lessee's business of providing dialysis
services, Lessee's Use of the Space, or deprive Lessee, its agents,
employees, servants, invitees and visitors or patients of ingress and
egress to or from the Space, the Building or the Complex.
3.3 Use Availability
----------------
It shall be Lessee's responsibility to determine and, if necessary,
submit the appropriate applications for the Use of the Space to the
appropriate governmental officials, agencies, commissions and boards
having jurisdiction over the Use of the Space.
4. RENT
----
4.1 Subject to adjustment based upon the final square footage
determination of the Space, Lessee agrees to pay as base rent to Lessor
for the use of the Space during the Term $7.50 per square foot or Fifty-
two Thousand Five Hundred and 00/100 ($52,500.00) Dollars per year
("Rent") to be paid in monthly installments of Four Thousand Three
Hundred Seventy-five and 00/100 ($4,375.00) Dollars, payable monthly in
advance on the due date, which is the first day of each calendar month
during the Term, allowing ten (10) day check processing time. The Rent
must be paid without demand.
Lessee shall pay to Lessor upon the execution of this Lease Three
Thousand Seven Hundred Fifty and 00/100 ($3,750.00) Dollars, which Lessor
shall credit Lessee for the first month's rent, to be adjusted if the
square footage is adjusted as provided in this Lease, and if pro-rated
due to the Commencement Date falling on a date later than the first day
of the month, the balance to be applied to the second month's rent (which
pro rata portion shall be applicable to any Additional Rent).
<PAGE> 2
4.2 This Lease is a triple net lease and during the Term and
any Renewal Period the Lessee shall pay the Additional Rent described in
Section 4.3.
4.3 Additional Rent
---------------
(i) The Lessee shall pay as additional rent above the Rent
("Additional Rent") (i) the lesser of ____% ("Lessee's Proportionate
Share") for all exterior common area maintenance expenses attributable
to the operation and maintenance of the Complex exclusive of electricity.
Lessor will connect 15% of the outdoor lighting for the new Building in
which the Space is located directly to Lessee's meter and there will be
no other electric utility charges to Lessee. Lessor shall provide item-
ization to Lessee of the exterior common area maintenance expenses.
Lessee's Proportionate Share is determined by dividing the square
footage of the Space by the square footage of the Complex. Any addi-
tions to the Complex shall proportionately reduce Lessee's Propor-
tionate Share. Lessor shall promptly notify Lessee of any such
additions and the new computation of Lessee's Proportionate Share.
(ii) With respect to each fiscal tax year or portion thereof
during the Term, the Lessee shall pay to the Lessor, as Additional Rent
any real estate taxes, levies and special assessments assessed by any
governmental authority only with respect to the Space. Should any such
assessment be provided upon the Building or Complex rather than directly
for the Space, then Lessee shall pay Lessee's Proportionate Share of
Lessor's interest in the Complex. The payment of Additional Rent shall
be pro-rated should the Lease or any renewal thereof terminate before the
end of any fiscal year. Lessee shall make such tax payments semi-annually
or on a quarterly basis, as determined by the billing method used by the
Borough of Chambersburg, within twenty (20) days of written notice from
Lessor that such taxes are payable by Lessor together with the written
assessment and tax bill.
Subject to the provisions of Section 4.1 if any installment of Rent
or Additional Rent is not paid within 10 days of its due date then Lessor
may assess a late charge of five (5%) percent of the total amount of Rent
or Additional Rent then due until the date of payment, which charge shall
be immediately due and payable as further Additional Rent.
4.4 Security Deposit
----------------
No security deposit required. [B.P./C.S.P.]
<PAGE> 3
5. UTILITIES
---------
Lessee shall pay, directly to the utility company, promptly when
due, all bills for water, sewer, electricity, heat and air conditioning
and all other utilities that are furnished to the Space and separately
billed and metered.
Lessor shall have no obligation to provide utilities or equipment
within the Space except for those utilities that are provided as of the
Commencement Date of this Lease. In the event Lessee requires addi-
tional utilities or equipment, the installation and maintenance thereof
shall be at Lessee's sole obligation, provided that such installation
shall be subject to Lessor's written consent which shall not be un-
reasonably withheld or delayed.
Lessor shall not be liable to Lessee for any interruption of or
failure to provide electrical service, heating, air conditioning, or
water, or other utility service which is due to any energy shortage,
power failure, or other cause beyond the control of Lessor, or is
required in order to enable Lessor to perform required and necessary
maintenance or repairs within the Building.
6. OPERATING RESPONSIBILITIES OF THE LESSOR
----------------------------------------
Lessor shall be responsible for the following during the Term:
(i) To keep and maintain in good, clean, safe and sanitary
order, condition and repair the roof, exterior walls, structure, founda-
tion, floor slabs, paving and outside walks and other structural
components of the Building, and surrounding grounds, and all common
areas within and without the Building and the Complex;
(ii) To keep and maintain in good and sanitary order,
condition and repair the main plumbing and electrical components leading
into and the overall plumbing and electrical components of the Building,
other than those installed by Lessee and within the Space, the latter to
be the responsibility of the Lessee;
(iii) Subject to Section 4.3(i), to keep and maintain in good
and sanitary order, condition and repair, the parking area; and to mark
the parking spaces for the Lessee's staff and, if applicable (see sub-
paragraph (v) below), for the Lessee's patients;
(iv) Subject to Section 4.3(i), to handle in an expeditious
manner the snow and ice removal from the Building, all parking areas,
walk-ways leading up to the Building, provided it shall be Lessor's sole
responsibility to remove snow and ice from the roof of the Building;
(v) To insure adequate and free parking adjacent to the
Space, including a reserved space and ramp for delivery of supplies, to
insure designated and clearly numbered parking spaces at the side parking
lot adjacent to the Building for Lessee's staff, and to the extent and at
such time parking becomes inadequate for the Complex, then Lessor to
insure a minimum of twenty (20) assigned and clearly marked parking
spaces for the sole use of Lessee's patients, of which three (3) park-
ing spaces will be designated and so marked for the handicapped and
placed at the front entrance of the Building, and to allow Lessee's
patients and staff to use additional parking facilities as may be avail-
able;
(vi) To use diligence in obtaining all necessary permits
and licenses from any and all regulatory agencies for the continuous
operation of the Building, which will comply with all safety, health and
other governmental codes and regulations. Lessor warrants to Lessee
that the Building is located in an area which is zoned for the use of
an outpatient dialysis center. In the event it has been determined
<PAGE> 4
that this warranty has been violated, then it shall be the obligation of
Lessor to promptly, at Lessor's sole cost and expense, rectify such
violations; provided, if the zoning ordinances restrict the use of the
Building and/or Space as it is to be used as provided herein, then the
Lease shall be null and void.
(vii) Subject to Section 4.3(i), to provide trash dumpsters
in close proximity to the Building in which the Space is located of
sufficient size and capacity to handle the daily containment and removal
of trash from the Building; provided however, that Lessee shall be re-
sponsible at its sole cost and expense for the proper containment and
disposal of all medical refuse;
(viii) To install and/or modify the exterior walk and entrance
way, in such a manner that is mutually agreed upon, so the Space is easily
accessible for the delivery of supplies and the entrance or exit of non-
ambulatory patients of Lessee; such modifications may require the in-
stallation of a concrete ramp and loading dock to handle the palletized
delivery of supplies;
(ix) To permit Lessee's installation of interior and exterior
signs identifying the Lessee and its business, such signs to be reasonable
in number, size and design; and Lessor to include and display Lessee's
business name on all Building directories and at the Complex's street
entrance signs;
The parties, to the best of their abilities, will endeavor to
maintain their separate identities.
(x) To allow the patients and staff of Lessee free and easy
access through all exits and entrances of the Building and the Complex;
(xi) To keep and maintain separate metering for the utilities
for the Space and insure no other party's utilities are connected or
charged to Lessee's meters for the Space;
(xii) Subject to Section 4.3(i), to provide and maintain suf-
ficient landscaping around the Building and the Complex in such a manner
and capacity as to create a pleasing and attractive environment;
(xiii) To provide for the easy access and delivery of supplies
via a tractor-trailer insuring an adequate turning radius, sufficient
parking and easy access to the Space;
(xiv) To provide utilities and services, in particular suf-
ficient water, electric and gas lines and telephone conduits to meet the
needs of Lessee's dialysis center; the Space shall have available 400
amp dedicated service; Lessor shall provide no less than a 2" water line
and sewer lines together with a natural gas line from the street to the
Building; and
(xv) To install and maintain adequate exterior lighting to
the Building and the Complex for Lessee's staff and patients.
7. OPERATING RESPONSIBILITIES OF LESSEE
------------------------------------
Lessee shall be responsible for the following during the Term:
(i) Subject to Section 3, to make and pay for all necessary
alterations and improvements to the Space, which Lessee has the right to
do for Lessee's own purposes, which shall be made at Lessee's expense;
Lessee may remove furniture, fixtures, laboratory and other equipment
and movable improvements installed within the Space at any time, in-
cluding machinery and equipment
<PAGE> 5
affixed either to the Space or to the Building; Lessee shall promptly
repair any damage to the Space and the Building as a result of such
removal, other than normal wear and tear.
Notwithstanding anything herein to the contrary, the
Lessee shall not make structural alterations or additions to the Building
or the Space, nor erect or paint any sign or other identification on any
window or part of the Building, except as provided in Section 6(ix),
provided Lessor consents thereto in writing, which consent shall not
be unreasonably withheld or delayed. All structural alterations or
improvements made by Lessee shall become the property of the Lessor at
the termination of this Lease.
Lessee shall not permit any mechanic's liens, or
similar liens, to remain upon the Building or the Space for labor and
material furnished to Lessee or claimed to have been furnished to Lessee
in connection with work of any character performed or claimed to have
been performed at the direction of Lessee and shall cause any such lien
to be released and an instrument evidencing discharge of same to be
recorded forthwith without any cost to Lessor. Lessee shall indemnify
and save Lessor harmless from all injury, loss, claims, liens or damage
to any person or property occasioned by or arising from such work. If
Lessor incurs any costs and expenses, including reasonable attorney's
fees, then Lessee shall pay the Lessor that sum so incurred as Additional
Rent.
(ii) To provide janitorial services and supplies for the
Space, trash removal from the Space, and maintain the Space in good
condition; and
(iii) To install and maintain in good and sanitary order,
condition and repair, the air-conditioning and heating, including but
not limited to all necessary plumbing and electrical with respect to the
Space, and to be responsible for the cost of electricity, heat, air-con-
ditioning and water and sewerage charges relating to the Space and
Lessee's use of the same; the Space to be separately metered at the sole
cost of the Lessor.
8. ASSIGNING OR SUBLETTING BY LESSEE
---------------------------------
Lessee shall have the privilege of assigning or subletting the Space
to another who has the approximate capitalization or financial condition
of Lessee at the time of execution of this Lease, after first obtaining
written consent of Lessor, such consent to be reasonable and shall not be
arbitrarily withheld. Notwithstanding any provisions hereof, Lessee may
assign or sublet the Space or any portion thereof, without Lessor's con-
sent, to (i) Lessee's medical director and similar physician; and (ii)
any corporation which controls, is controlled by or is under common con-
trol with Lessee, or to any corporation resulting from the merger or
consolidation with Lessee, or to any person or entity which acquires
substantially all of the assets of Lessee, provided that said assignee
assumes, in full, the obligations of Lessee under this Lease. Any such
subletting or assignment shall terminate from that time on any and all
liabilities and obligations of Lessee to pay rent or perform under the
Lease. Consent to one assignment or subletting by Lessor shall not be
deemed consent to any subsequent assignment or subletting.
9. RESPONSIBILITY OF LESSEE
------------------------
All damages or injuries done to the Space by Lessee and/or Lessee's
servants, agents, employees, patients, and individuals for whom Lessee is
responsible shall be repaired by Lessee at its expense, exclusive of
ordinary wear and tear, or except as the result, directly or indirectly,
of Lessor's failure to maintain the Building and the Space in accordance
with the provisions of this Lease, or except for the negligence of Lessor,
its tenants and/or their respective servants, agents, invitees or em-
ployees. Lessee covenants and agrees to make such repairs upon thirty
(30) days' written notice given to Lessee by
<PAGE> 6
Lessor, and if Lessee shall thereafter neglect to make said repairs or
commence to timely make the same, Lessor shall have the right to make
such repairs at the reasonable expense and cost of Lessee, provided
Lessor gives Lessee thirty (30) days written notice that Lessor is going
to cure the damage or injury and charge the same to Lessee, and the
amount thereof may be collected as Additional Rent accruing for the month
following the date of said repair.
10. FIRE OR CASUALTY
----------------
In the event that the Building or the Space shall be totally or
substantially damaged by fire or other casualty or happening, to the
extent that the business of the Lessee cannot reasonably be conducted
therein and if such damage cannot be or is not repaired, restored, or
rebuilt by the Lessor, as the case may be, to substantially the same
condition as it was immediately prior to such damage or destruction
within three (3) months after such damage, then either the Lessor or
Lessee shall have the option of terminating this Lease by written notice
delivered to the other party within thirty (30) days following such
failure to rebuild; in either event Lessee shall immediately vacate
and surrender possession of the Space to Lessor. If neither Lessee nor
Lessor elects to terminate this Lease, or if the Building or the Space
is not damaged to the extent that the damage unreasonably interferes
with Lessee's Use, Lessor shall proceed with said repairs with all
reasonable diligence, but in no event shall the repairs exceed ninety
(90) days. The rent payable hereunder shall entirely abate in case the
Space or the Building is substantially destroyed or so damaged as to
render the Space untenantable or not useable or convenient or in a con-
dition for patients of Lessee noting the Use of the Space, or abate
proportionately according to the extent of the injury or damage sus-
tained by the Building or the Space, if such is not substantially
destroyed or is rendered partially untenantable, until the Building
and the Space shall have been restored, repaired, or rebuilt and put
in proper condition for the Use and occupancy of Lessee. Lessor agrees
to institute such repairs immediately after such damage and to complete
the same with due diligence and within a reasonable time as provided in
this Lease.
11. SUBORDINATION
-------------
This Lease shall be subject and subordinate to any and all mortgages,
deeds of trust and other instruments in the nature of a mortgage, which
now or at any time hereafter, become a lien or liens on the Building. In
confirmation of such subordination, Lessee shall, when requested by
Lessor or any mortgagee or their respective successors, promptly execute
and deliver such written instruments as shall be necessary to show,
acknowledge or confirm the subordination of this Lease to said mortgages,
deeds of trust or other such instruments in the nature of a mortgage.
If Lessee fully performs its obligations under the Lease then, with
respect to any mortgage or instrument now or hereafter becoming a lien
or liens on the Building, Lessee's obligation to subordinate to such
mortgage or other instrument shall be conditioned upon the mortgagee
agreeing not to unreasonably disturb or interfere with Lessee's rights,
Lessee's quiet enjoyment or with Lessee's possession of the Space.
Notwithstanding the foregoing, Lessee shall not unreasonably withhold or
delay executing a subordination agreement if the lender presents a
standard subordination and non-interference agreement utilized industry
wide.
12. LESSOR'S ACCESS AND INSPECTION
------------------------------
The Lessor, its employees, agents and servants may at reasonable
times, with reasonable notice, or in emergency situations, enter all
parts of the Space; to inspect the same; to enforce or carry out any
provision of the Lease; to make repairs and alterations as Lessor
should elect to do; and within 120 days of expiration of the Term or
Renewal Term, to show the Leased Premises to others.
<PAGE> 7
13. CONDEMNATION
------------
If any part of the Space or the Building should be taken for any
public or quasi-public use under governmental law, ordinance, or regu-
lation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or
materially interfere with Lessee's use of the Space or in Lessor's
judgment would materially interfere with or impair its ownership or
operation of the Building, then upon written notice by Lessor this Lease
shall terminate and the Rent and Additional Rent shall be apportioned as
of said date. If part of the Space shall be Taken, and this Lease is not
terminated as provided above, the Rent and Additional Rent payable here-
under during the unexpired Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. In the event of any
such Taking, Lessor shall be entitled to receive the entire price or
award from any such Taking without any payment to Lessee and Lessee
hereby assigns to Lessor Lessee's interest, if any, in such award.
Lessee shall have the right, to the extent that same shall not diminish
Lessor's award, to make a separate claim against the condemning
authority (but not Lessor) for such compensation as may be separately
awarded or recoverable by Lessee for moving expenses and damage to
Lessee's trade fixtures, if a separate award for such items is made to
Lessee.
14. INDEMNIFICATION
---------------
Except for the negligence of Lessor, its agents, employees or con-
tractors, and to the extent permitted by law, Lessee agrees to indemnify,
defend and hold harmless Lessor, and Lessor's agents, employees and con-
tractors, from and against any and all losses, liabilities, damages,
costs and expenses (including reasonable attorneys' fees) resulting
from claims by third parties for injuries to any person and damage to
or theft or misappropriation or loss of property occurring in or about
the Building and arising from the use and occupancy of the Space or
from any activity, work, or thing done, permitted or suffered by Lessee
or due to any other act or omission of Lessee, its subtenants, assignees,
invitees, employees, contractors and agents in or about the Space. The
furnishing of insurance required hereunder shall not be deemed to limit
Lessee's obligations under this Section 14.
15. EVENTS OF DEFAULT
-----------------
Each of the following events shall be an event of default ("Event
of Default") by Lessee under this Lease:
(i) Lessee shall fail to pay any installment of Rent or any
other payment required herein when due, and such failure shall continue
for a period of 10 days from the date such payment was due.
(ii) Lessee shall (A) make a general assignment for the
benefit of creditors; (B) commence any case, proceeding or other action
seeking to have an order for relief entered on its behalf as a debtor or
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or
its debts or seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or of any substantial part of
its property (collectively a "proceeding for relief"); (C) become the
subject of any proceeding for relief which is not dismissed within 60
days of its filing or entry; or (D) be dissolved or otherwise fail to
maintain its legal existence.
(iii) Any insurance required to be maintained by Lessee pur-
suant to this Lease shall be canceled or terminated or shall expire or
shall be materially reduced or changed, except, in each case, as per-
mitted in this Lease.
<PAGE> 8
(iv) Lessee shall not occupy or shall vacate the Space or
shall fail to continuously operate its business at the Space for the Use
during the Term or Renewal Period, if applicable, whether or not Lessee
is in monetary or other default under this Lease.
(v) Lessee shall attempt or there shall occur any assign-
ment, subleasing or other transfer of Lessee's interest in or with
respect to this Lease except as otherwise permitted in this Lease.
(vi) Lessee shall fail to discharge any lien placed upon the
Building in violation of this Lease within 30 days after any such lien or
encumbrance is filed against the Building.
(vii) Lessee shall fail to materially comply with any pro-
vision of this Lease other than those specifically referred to in this
Section 15, and except as otherwise expressly provided herein, such
default shall continue for more than 30 days after Lessor shall have
given Lessee written notice of such default.
16. REMEDIES OF LESSOR
------------------
Upon each occurrence of an Event of Default and so long as such
Event of Default shall be continuing, Lessor may at any time thereafter
at its election terminate this Lease or Lessee's right of possession (but
Lessee shall remain liable as hereinafter provided), and/or pursue any
other remedies at law or in equity. Upon the termination of this Lease
or termination of Lessee's right of possession, it shall be lawful for
Lessor, to re-enter the Space by summary dispossession proceedings or any
other action or proceeding authorized by law and to remove Lessee and all
persons and property therefrom. If Lessor re-enters the Space, Lessor
shall have the right to keep in place and use, or remove and store, all
of the furniture, fixtures and equipment at the Space.
If Lessor terminates this Lease, Lessor may recover from Lessee the
sum of: all Rent, Additional Rent and all other amounts accrued hereunder
to the date of such termination; the cost of reletting the whole or any
part of the Space, including without limitation brokerage fees and/or
leasing commissions incurred by Lessor, and costs of removing and storing
Lessee's or any other occupant's property, repairing, altering, re-
modeling, or otherwise putting the Space into condition acceptable to
a new tenant or tenants, and all reasonable expenses incurred by Lessor
in pursuing its remedies, including reasonable attorneys' fees and court
costs.
If Lessor terminates Lessor's right of possession (but not this
Lease), Lessor shall relet the Space for rent and upon such terms as
shall be satisfactory to Lessor without thereby releasing Lessee from
any liability hereunder and without demand or notice of any kind to
Lessee. For the purpose of such reletting Lessor is authorized to make
any repairs, changes, alterations, or additions in or to the Space as
Lessor deems reasonably necessary or desirable. If the Space is not
relet, then Lessee shall pay to Lessor as damages a sum equal to the
amount of rental reserved in this Lease for such period or periods, plus
the cost of recovering possession of the Space (including reasonable
attorney's fees and costs of suit), the unpaid Rent, Additional Rent and
other amounts accrued hereunder at the time of repossession, and the
costs incurred in any attempt by Lessor to relet the Space. If the
Space is relet and a sufficient sum shall not be realized from such
reletting [after first deducting therefrom, for retention by Lessor,
the unpaid Rent, Additional Rent and other amounts accrued hereunder at
the time of reletting, the cost of recovering possession (including
reasonable attorneys' fees and costs of suit), all of the costs and
expenses of repairs, changes, alterations, and additions, the expense
of such reletting (including without limitation brokerage fees and
leasing commissions) and the cost of collection of the Rent and Addi-
tional Rent accruing therefrom] to satisfy the Rent provided for in
this Lease to be paid, then Lessee shall immediately satisfy and pay
any such deficiency. Any such payments due Lessor shall be made upon
demand therefor from time to time and Lessee agrees that Lessor may file
suit to recover any sums falling due from time to
<PAGE> 9
time. Notwithstanding any such reletting without termination, Lessor
may at any time thereafter elect in writing to terminate this Lease for
such previous breach.
Exercise by Lessor of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender
of the Space and/or a termination of this Lease by Lessor, whether by
agreement or by operation of law, it being understood that such surrender
and/or termination can be effected only by the written agreement of Lessor
and Lessee. The failure of Lessor at any time to enforce its rights under
this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific
terms, provisions, and covenants of this Lease or as having modified the
same. Lessee and Lessor further agree that forbearance or waiver by
Lessor to enforce its rights pursuant to this Lease or at law or in
equity, shall not be a waiver of Lessor's right to enforce one or more
of its rights in connection with any subsequent Event of Default. No
waiver by Lessor of any provision of this Lease shall be deemed to have
been made unless expressed in writing and signed by Lessor. To the
greatest extent permitted by law, Lessee waives all right of redemption
in case Lessee shall be dispossessed by a judgment or by warrant of any
court or judge.
17. REMEDIES OF LESSEE
------------------
In the event of a default under the terms, covenants or conditions
of this Lease on the part of the Lessor which shall include but not be
limited to unreasonably withholding consents, failure to maintain facil-
ities for the introduction of water, gas, and electric into the Space,
failure to maintain the Building and the Space as required herein,
failure to use due care with respect to the persons and property of
Lessee, failure of Lessor's warranties as to the good operating condi-
tion of the services to the Space, and otherwise interfering with,
whether negligently or intentionally, the business of Lessee and its
peaceable and quiet enjoyment of the Space for the Term or any Renewal
Term, Lessee shall notify Lessor in writing of said default and Lessor
shall have thirty (30) days to cure or commence to cure said default;
provided that if the nature of the default is such that it cannot be
reasonably cured within said thirty (30) days, Lessor shall not be
deemed to be in default if it shall commence performance within said
thirty (30) day period and diligently proceeds to so cure the default
thereafter. If Lessor shall not cure or commence to cure the said
default within the thirty (30) day period, Lessee has the option to
either terminate this Lease and vacate the Space immediately without any
further liability under the Lease and take whatever other lawful
remedies that may be available to it upon such default, or cure the
default and at Lessee's option deduct reasonable costs and expenses
for such cure from Rent or Additional Rent or any other amounts accrued
hereunder due, or otherwise be immediately reimbursed by Lessor.
Should there be a need to make any emergency repairs which were
otherwise the responsibility of the Lessor as provided in this Lease, but
due to the emergent circumstances, Lessee makes such repairs, the cost
thereof shall be a deduction from the Rent and Additional Rent accruing
for the month following the date of such repair.
18. INSURANCE
---------
(i) Lessee, at its cost, shall maintain a policy of Com-
bined Single Limit Bodily Injury and Property Damage Insurance during
the Term and any Renewal Term such insurance to provide protection in
the amount of One Million ($1,000,000) Dollars combined single limit,
insuring Lessor and Lessee against any liability arising out of and in
connection with Lessee's Use or occupancy of the Space. Lessee should
also obtain and maintain a policy or policies of insurance covering loss
or damage to the Space, providing protection against all perils included
within the classification of fire, extended coverage, vandalism, mali-
cious mischief, flood (in the event such is required by a lender having
a lien on the Building), and special extended perils ("all risk" as
such term is used in the insurance industry).
<PAGE> 10
(ii) Lessor shall obtain and maintain insurance on the
Building, primarily a policy of Combined Single Limit Bodily Injury and
Property Damage Insurance insuring against any liability arising out of
the ownership or maintenance of the Building and all areas appurtenant
thereto in an amount not less than combined single limit of One Million
($1,000,000) Dollars.
(iii) Insurance required hereunder shall be placed with rep-
utable insurance companies. Each party shall deliver to the other
copies of policies of liability insurance required under this Section
18 or certificates evidencing the existence and amounts of such insur-
ance. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) day's prior
written notice to Lessor or Lessee, as the case may be. Lessor and
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish the other party with renewals or "binders" thereof,
or the other party, after ten (10) days written notice, may order such
insurance, provided such is during and for the Term or any Renewal Term,
and charge the cost thereof to the non-renewing party which amount shall
be payable upon demand. Lessor and Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to
in this Section 18.
(iv) Lessee and Lessor each hereby release and relieve the
other (which includes the other party's employees, agents, officers,
directors and shareholders) from any liability, whether for negligence
or otherwise, in connection with loss covered by any insurance policies
which the releasor carries with respect to the Building and/or the Space
or any interest or property therein or thereon, but only to the extent
that such loss is collected under said insurance policies. Such release
is also conditioned upon the inclusion in the policy of a provision
whereby any such release does not adversely affect such policy or pre-
judice any right of the releasor to recover thereunder. Each party's
insurance policies shall include such a provision so long as it is
obtainable without extra cost.
19. QUIET ENJOYMENT
---------------
Lessor, covenants and agrees that Lessee, upon paying said rent
and performing the covenants of this Lease, on its part to be performed,
shall and may peaceably and quietly have, hold and enjoy the Space and
common areas, including but not limited to parking areas, sidewalk
entrances and exits of the Building and the Complex, for the Term and
any Renewal Term.
20. HAZARDOUS WASTE
---------------
Lessee shall not dump, flush or in any way introduce any hazardous
substances or any other toxic substances into the septic, sewage or
other waste disposal system serving the Space, Building and Complex.
Lessee and Lessor shall not dispose of any hazardous or toxic sub-
stances or wastes in or on the Space, Building or Complex nor generate,
store, use or dispose of any hazardous or toxic substances, except as
may be permitted by applicable law, therein or thereon. To the best
of Lessor's knowledge and belief, Lessor states that it has not gen-
erated any hazardous waste in or upon the Space, the Building or the
Complex, nor does it have knowledge that any other lessee of the
property has done the same. Lessee shall indemnify, save and hold
Lessor harmless from and against all costs, fees, expenses, including
reasonable attorneys' fees, losses and damages resulting from or arising
out of the generation, storage, use or disposal of hazardous wastes by
Lessee on or about the Space, the Building and the Complex, including
the transport or leaching of any hazardous wastes from the Space,
Building and Complex. Lessee shall not make any use of the Space,
Building or Complex which is improper, offensive or contrary to any
law or ordinance or which will invalidate any of the Lessor's in-
surance.
<PAGE> 11
21. AUTHORIZATION
-------------
Lessor and Lessee each has all the requisite right, power, legal
capacity and authority, corporate and otherwise, to enter into this Lease
and to assume and perform their respective obligations hereunder. The
execution and delivery of this Lease and the performance by Lessor and
Lessee of their obligations hereunder have been duly authorized by their
respective boards of directors and/or partners, as the case may be, and
this Lease is a binding and enforceable Lease of Lessor and Lessee
according to its terms. The execution, delivery and performance of this
Lease by Lessor and Lessee will not result in any violation of and will
not conflict with, or result in any breach of any of the terms of or con-
stitute a default under, or constitute an event which with notice or the
passage of time or both would constitute a default under, any provision
of any law to which Lessor or Lessee is subject, the partnership agree-
ment of Lessor, or the articles of incorporation, and by-laws of the
Lessee, or any mortgage, indenture, agreement, instrument, judgment,
decree, or rule or resolution or other restriction to which Lessor or
Lessee is bound. The representations as contained herein are only made
by Lessor and Lessee as to their own corporate acts, articles of incor-
poration, by-laws and/or partnership agreements, as the case may be,
and their respective related agreements and regulations and neither
makes any representations as to the others acts, articles of incorpo-
ration, by-laws, partnership agreements, as the case may be, and
related agreements and regulations.
No action, approval, consent or authorization, including but not
limited to any action, approval or consent of any shareholder, note
holder, partner, or order of any court or governmental agency, com-
mission, board, bureau or instrumentality, otherwise than as specif-
ically provided in this Lease, is necessary in order to constitute
this Lease as a valid, binding and enforceable obligation of the
parties hereto in accordance with its terms.
22. AGREEMENT
---------
It is expressly understood by the parties that the whole agreement
between them is embodied in this Lease and the attachments hereto
(executed in duplicate) and may only be modified by a written agreement(s)
executed by Lessor and Lessee.
23. HEIRS, SUCCESSORS, ETC.
-----------------------
This Lease shall be binding upon the parties hereto and their
respective successors and/or assigns.
24. NOTICES
-------
All rent payments, notices, requests, demands and other communica-
tions under this Lease shall be in writing and shall be deemed to have
been duly given on the date of service if served personally on the party
to whom notice is to be given, or on the third day after mailing if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, or the next day or second day
if effected by such overnight mail, and properly addressed as follows:
To Lessor: BPS Development Group
37 S. Main Street, Suite 200
P.O. Box 1012
Chambersburg, PA 17201
Attn: Cheryl Plummer, Partner
<PAGE> 12
Copy To: Courtney J. Graham, Esq.
Graham & Graham
223 Lincoln Way East
Chambersburg, PA 17201
To Lessee: Dialysis Services of Pa., Inc. - Chambersburg
c/o Dialysis Services of Pa., Inc. - Lemoyne
27 Miller Avenue, Suites 2 & 3
Lemoyne, PA 17043
Attn: Bart Pelstring, President
Copy To: Lawrence E. Jaffe, Esq.
Heights Plaza-5th Floor
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Any party may change its address for purposes of this Section 24 by
giving the other parties written notice of the new address in the manner
set forth above.
25. BROKERS
-------
Other than Lessor's sole obligation to Commercial Investment Real
Estate of Carlisle, PA ("CIRE"), Lessor and Lessee each represent and
warrant that neither has dealt with any broker, agent or other person
in connection with this transaction and other than CIRE, for whom
Lessor is solely responsible, no broker, agent or other person brought
about this transaction, and Lessor and Lessee each agree to indemnify
and hold the other harmless from and against any claims by any broker,
agent or other person claiming a commission or other form of compensa-
tion by virtue of having dealt with Lessor or Lessee, as the case may
be, with regard to this leasing transaction; and Lessor specifically
indemnifies Lessee against any claims for commissions, fees, costs or
other charges by CIRE.
26. APPLICABLE LAW
--------------
This Lease shall be construed under the laws of the Commonwealth
of Pennsylvania. Any action shall be brought in a court that would
have appropriate jurisdiction within Franklin County, Pennsylvania. If
any provision of this Lease, or portion thereof, or the application
thereof to any person or circumstances shall, to any extent, be invalid
or unenforceable, the remainder of this Lease shall not be affected
thereby and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
27. RIGHTS AND OBLIGATIONS UNDER BANKRUPTCY CODE
--------------------------------------------
(a) Upon the filing of a petition by or against Lessee under
the Bankruptcy Code, Lessee, as debtor and as debtor in possession, and
any trustee who may be appointed agree as follows: (i) to perform each
and every obligation of lessee under this lease until such time as this
Lease is either rejected or assumed by order of the United States Bank-
ruptcy Court; (ii) to pay in accordance with the terms of this Lease as
reasonable compensation for use and occupancy of the Space an amount
equal to the monthly Rent, Additional Rent and other costs and expenses
to be paid or reimbursed by Lessee under this Lease except as may be
ordered by the United States Bankruptcy Court; (iii) to reject or assume
this Lease within sixty (60) days of the filing of such petition under
the Bankruptcy code; (iv) to give Lessor at least forty-five (45) days
prior written notice of any proceeding relating to any assumption of the
Lease; (v) to give at least thirty (30) days prior written notice of any
abandonment of the Space; any such
<PAGE> 13
abandonment to be deemed a rejection of this Lease; (vi) to promptly
surrender possession of the Space to Lessor upon rejection of the
Lease; (vii) to do all other things of benefit to Lessor otherwise
required under the Bankruptcy Code; (viii) to be deemed to have
rejected this Lease in the event of the failure to comply with any of
the above; and (ix) to have consented to the entry of an order by an
appropriate United States Bankruptcy Court providing all of the above,
waiving notice and hearing of the entry of same.
(b) No default of this Lease by Lessee, either prior to or
subsequent to the filing of such a petition, shall be deemed to have
been waived unless expressly done so in writing by Lessor.
(c) It is understood and agreed that this is a Lease of real
property for Use as provided in Section 1 and of non-residential real
property as such a lease is described or referred to in the Bankruptcy
Code; and
(d) Only with respect to obligations under the Bankruptcy Code,
included with and in addition to any other conditions or obligations
imposed upon Lessee or its successor in the event of assumption and/or
assignment are the following: (i) the cure of any monetary defaults and
the reimbursement of pecuniary loss within not more than forty-five (45)
days of assumption and/or assignment; (ii) the use of the Space only as
set forth in Section 1 of this Lease; (iii) the reorganized debtor or
assigns of such debtor in possession or of Lessee's trustee demonstrates
in writing that it has sufficient background including, but not limited
to, substantial experience and financial ability to professionally
operate a business establishment out of this Lease; (iv) the prior
written consent of any mortgagee to which this Lease has been assigned
as collateral security; and (v) the Space, at all times, remains a center
for the dispensing of medical services and any physical changes of any
kind may not be made to the Space unless not in compliance with the
applicable provisions of this Lease.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Lease
on the date so indicated alongside their respective signatures.
Lessor: BPS DEVELOPMENT GROUP,
A Pennsylvania General Partnership
/s/ Cheryl S. Plummer
Dated: April 15, 1998 By: ---------------------------------------
, Authorized Partner
Lessee: DIALYSIS SERVICES OF PA., INC. -
CHAMBERSBURG
/s/ Bart Pelstring
By: ---------------------------------------
BART PELSTRING, President
<PAGE> 14
EXHIBIT A
Shell space and site construction items supplied by BPS shall consist of
the following:
1. Sewer service into the corner of the suite.
2. Natural gas service into the suite at a location determined by the
architect.
3. Water service in water meter in adjacent mechanical room.
4. Electric service to the electric meter base.
5. Telephone conduits into the suite at a location determined by the
architect.
6. Four inches of stone base on compacted earth subbase.
7. All windows and exterior pedestrian doors.
8. Framing for overhead door if required.
9. Below grade perimeter insulation only.
10. Wood stud finish on exterior walls and concrete block finish on
interior fire wall. (All above grade insulation and drywall is by
lessee.)
11. Lighted paved parking lot.
12. Loading dock and ambulance paved driveways.
13. Seeding and landscaping.
14. Signage on our street entrance sign. All other signage by Lessee.
November 30, 1988 $480,000.00
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned (the "BORROWER") promises to
pay to the order of Mercantile-Safe Deposit and Trust Company (the
"BANK") at the BANK'S offices at Two Hopkins Plaza, Baltimore, Maryland
21201 or at such other place as the holder of this Note may from time to
time designate, the principal sum of Four Hundred Eighty Thousand
Dollars ($480,000.00) together with interest thereon at the rate here-
inafter provided and any and all other sums which may be owing to the
holder of this Note by the BORROWER, according to the repayment schedule
set forth in Section 2 hereof, but in no event later than November 2003,
which is the final and absolute due date of this Note, or on such
earlier date specified by the BANK if this Note is called pursuant to
Section 6 or accelerated pursuant to Section 8 hereof. The following
terms shall apply to this Note.
1. Interest Rate. Until all sums due and owing hereunder have been
-------------
paid in full, interest shall accrue on the unpaid balance hereunder at a
floating rate, obtained by adding one (1) percentage point to the prime
rate of interest declared by the BANK from time to time, such rate to be
adjusted on any day on which a change in the BANK'S prime rate of interest
is effective. The prime rate of interest as used herein refers to that
interest rate set by the BANK from time to, time as an interest rate for
borrowings. The prime rate is one of several interest rate bases used by
the BANK. The BANK lends at rates above and below the prime rate.
2. Repayment. The unpaid principal balance of this Note shall be
---------
repaid in equal, monthly installments of Two Thousand Six Hundred Sixty-
seven Dollars ($2,667.00), together with interest on the outstanding
principal balance hereof at the applicable rate, beginning on January 1,
1989 and continuing on the first day of each succeeding calendar month
until the final and absolute due date of this Note, at which time the
entire outstanding principal amount hereof, together with any accrued
and unpaid interest, as well as any other fees and charges due here-
under, shall be due and payable in full.
3. Calculation of Interest. Interest shall be calculated on the
-----------------------
basis of a three hundred sixty (360) days per year factor applied to
the actual days on which there exists an unpaid principal balance.
<PAGE> 1
4. Application of Payments. All payments made hereunder, except
-----------------------
principal installments timely paid on the dates set forth in Section 2,
shall be applied first to late penalties or other sums owing the holder,
next to accrued interest, and then to principal, or in such other order
of application as the holder hereof may elect.
5. Optional Prepayment; Penalty. From and after November 30,
----------------------------
1989, the unpaid principal balance of this Note may be prepaid in whole
or in part at any time without penalty or additional interest. Until
such date this Note may not be prepaid without consent of the BANK.
6. Mandatory Prepayment. This Note is subject to mandatory pre-
--------------------
payment at the option of the BANK, in whole or in part, together with
all unpaid interest accrued hereunder to the date of prepayment, and
together with all other fees and charges due hereunder without premium
or penalty, on November 30, 1993 and on each November 30 thereafter
until maturity. The BANK shall give BORROWER at least ninety (90)
days' written notice of intent to require prepayment in accordance
with the terms hereof.
7. Late Payment Penalty. Should any payment of interest or
--------------------
principal, or both, due hereunder be received by the holder of this Note
more than fifteen (15) days after its due date, the BORROWER shall pay
a late payment penalty equal to five percent (5%) of the amount then
due for each month or portion of a month until paid.
8. Acceleration Upon Default. At any time after a default in the
-------------------------
payment of any installment of interest, or of principal, or both, or in
the payment of any other sums due hereunder, or upon a default in the
performance of any of the covenants, conditions, or terms of the Loan
Agreement of even date herewith between the BANK and the BORROWER, or
in any other document executed in connection herewith or therewith
(collectively the "Loan Documents"), the BANK may, in the BANK'S sole
and absolute discretion, and without notice or demand (unless otherwise
specifically required tinder an applicable Loan Document) declare the
entire unpaid balance of principal plus accrued interest and any other
sums due hereunder immediately due and payable, and all such amounts
shall thereupon be immediately due and payable.
9. Default Interest Rate. Upon a default in the payment of any
---------------------
amount due under this Note, or in the performance of any of the
covenants, conditions, or terms of the Loan Documents, and after the
expiration of any specifically provided grace period, and unless and
until cured,
<PAGE> 2
the BANK may raise the rate of interest accruing on the disbursed unpaid
principal balance by two (2) percentage points above the rate of
interest otherwise applicable, independent of whether the BANK elects
to accelerate the unpaid principal balance as a result of such default.
10. Confession of Judgment; Jurisdiction and Venue. Upon any
----------------------------------------------
default hereunder or under the Loan Documents and after the expiration
of any specifically provided grace period, the BORROWER authorizes any
attorney admitted to practice before any court of record in the United
States to confess judgment on behalf of the BORROWER against the
BORROWER in the full amount due on this Note, plus attorney's fees of
ten percent (10%) of such amount. The BORROWER consents to the exercise
of personal jurisdiction over the BORROWER by the courts of the State of
Maryland and agrees that jurisdiction and venue shall be proper in any
County of the State of Maryland or in Baltimore City, or in the United
States District Court for the District of Maryland, as well as in any
court of competent jurisdiction in the States of Florida and Pennsyl-
vania, in addition to any other court where jurisdiction and venue may
be proper. The BORROWER waives the benefit of any and every statute,
ordinance, or rule of court which may be lawfully waived conferring
upon the BORROWER any right or privilege of exemption, appeal, stay of
execution, or supplementary proceedings, or other relief from the en-
forcement or immediate enforcement of a judgment or related proceedings
on a judgment.
11. Interest Rate After Judgment. If judgment is entered against
----------------------------
the BORROWER on this Note, the amount of the judgment entered (which may
include principal, interest, default interest, late charges, fees and
costs) shall bear interest at the highest rate authorized under this
Note as of the date of entry of the judgment.
12. Expenses of Collection. Should this Note be referred to an
----------------------
attorney for collection, whether or not judgment has been confessed or
suit has been filed, the BORROWER shall pay all of the BANK'S actual
costs, fees of the principal and interest then due and expenses
resulting from such referral. These costs shall include the actual
expense of counsel incurred at any time by the BANK in enforcing its
rights hereunder.
13. Waiver of Protest. The BORROWER, and each every party to
-----------------
this Note, whether maker, indorser, guarantor, waives presentment,
demand for payment, notice dishonor and protest.
<PAGE> 3
14. Extensions of Maturity. All parties to this Note, whether
----------------------
maker, indorser, or guarantor, agree that the maturity of this Note, or
any payment due hereunder, may be extended at any time or from time to
time without releasing, discharging, or affecting the liability of such
party.
15. Commercial Loan. The BORROWER warrants that this Note is the
---------------
result of a commercial loan transaction.
16. Security. This Note is secured as provided in the Loan Docu-
--------
ments.
17. Waiver. No waiver of any power, privilege, right or remedy
------
(hereinafter collectively referred to as "Rights") hereunder shall be
effective unless in writing. No delay on the part of the BANK in ex-
ercising any Rights hereunder, or under any other instrument executed by
the BORROWER or any other party in connection with the transaction
(including the Loan Documents) shall operate as a waiver thereof, and no
single or partial exercise of any such Rights (including acceptance of
late payments by the BANK) shall preclude other or further exercise
thereof, or the exercise of any other Rights. Waiver by the BANK of
any default by the BORROWER, or any other party, shall not constitute a
waiver of any subsequent defaults, but shall be restricted to the
default so waived. If any provision or part of any provision of this
Note shall be contrary to any law which the BANK might seek to apply or
enforce, or should otherwise be defective, the other provisions, or
parts of such provisions, of this Note shall not be affected thereby,
but shall continue in full force and effect. All Rights of the BANK
hereunder are irrevocable arid cumulative, and not alternative or ex-
clusive, and shall be in addition to all Rights given hereunder or in or
by any other instrument or any laws now existing or hereafter enacted.
18. Notices. All notices required o r permitted hereunder shall be
-------
in writing and delivered personally or made by addressing the same to the
party to whom directed at the following addresses by registered or
certified mail, return receipt requested:
If to the BANK:
Mercatitile-Safe Deposit
and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attn: Stephen D. Palmer
<PAGE> 4
with copies to:
Christopher J. Fritz, Esquire
Gallagher, Evelius & Jones
Park Charles - Suite 400
218 N. Charles Street
Baltimore, Maryland 21201
If to the Borrower:
Dialysis Corporation of America
402 Marvel Court
Easton, Maryland 21601
Attn: Barton L. Pelstring
With copies to:
David R. Thompson, Esquire
Earnest & Cowdrey, P.A.
130 N. Washington Street
Easton, Maryland 21601
Either party may change the address to which notices are to be sent
by a writing directed to the other party in the manner aforesaid.
Unless otherwise specifically provided, all notices hereunder given
by mail, as aforesaid, shall be deemed delivered when deposited in a
United States Post Office, general or branch, or an official mail
depository, maintained by the U.S. Postal Service, enclosed in a
registered or certified prepaid wrapper addressed as above. provided,
except notice of change of address shall be deemed served when received.
19. Choice of Law. This Note shall be governed, construed and
-------------
enforced in accordance with the law of the State of Maryland. The
BORROWER acknowledges and warrants that this Note is to be treated for
all purposes, including choice of law purposes, as though it was
executed and delivered within the geographic boundaries of the State of
Maryland, even if it was, in fact, executed and delivered elsewhere.
20. Invalidity of Any Part. If any provision or part of any
----------------------
provision of this Note, or the application thereof to any facts or
circumstances, shall for any reason be held invalid, illegal, or unen-
forceable in any respect, such invalidity, illegality, or unenforce-
ability shall not affect any other provisions or the remaining part of
any effective provisions of the Note, or the application of any
provisions hereof to other facts or circumstances, and this Note shall
be
<PAGE> 5
construed as if such invalid, illegal, or unenforceable provision or
part thereof had never been contained herein, but only to the extent of
its invalidity, illegality, or unenforceability.
WITNESS THE BORROWER:
Dialysis corporation of
America
/s/ Phylis O. Pope /s/ Barton L. Pelstring
- ----------------------------- By:----------------------------(SEAL)
Barton L. Pelstring,
President
/s/ Jamie A. Palz /s/ Dennis W. Healey
- ----------------------------- By:----------------------------(SEAL)
Dennis W. Healey,
Secretary/Treasurer
11/14/88
CJF/18701
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT is made as of the day of
November, 1988, from DIALYSIS CORPORATION OF AMERICA, a Florida cor-
poration (hereinafter referred to as the "Mortgagor"), to MERCANTILE-
SAFE DEPOSIT AND TRUST COMPANY (hereinafter referred to as "Mortgagee"),
and any successor holder of the Note secured by this Mortgage.
SECTION 1. RECITALS
1.01 The Loan. Mortgagor is indebted to Mortgagee for a loan in the
--------
principal sum of Four Hundred Eighty Thousand Dollars ($480,000.00) (the
"Loan") to be advanced pursuant to a Loan Agreement between Mortgagor
and Mortgagee of even date herewith (the "Loan Agreement"), as evidenced
by a Note of Mortgagor of even date.
1.02 Obligations Secured. This Mortgage secures (a) the full and
-------------------
punctual payment of the Loan according to the terms of the Note, (b)
the payment of all sums due to Mortgagee according to the terms of any
of the Loan Documents, (c) future advances, which may be made by
Mortgagee for any reason, and (d) the performance of, and compliance
with, all of the obligations of the Mortgagor (express or implied)
contained in the Loan Documents.
SECTION 2. DEFINITIONS. Whenever capitalized in this Deed of
Trust, the following terms shall have the meaning given in this
Section 2, unless the context clearly indicates a contrary intent.
2.01 Default. "Default" means: (a) the failure of Mortgagor to
-------
perform, cause to be performed, abide by, comply with, or observe any
duty or obligation imposed upon Mortgagor by the Loan Documents; (b)
the breach of any of Mortgagor's warranties or covenants contained in
any of the Loan Documents; (c) a misrepresentation by Mortgagor, its
counsel, or any other person on behalf of Mortgagor, in any of the
Loan Documents; and (d) any event, happening or condition that would
constitute an Event of Default, as described herein, if not cured
within any applicable grace period.
2.02 Encumbrances. "Encumbrances" includes all liens, mortgages,
------------
rights, leases, restrictions, easements, deeds of trust, covenants,
agreements, rights of way, rights of redemption, security interests,
conditional sales agreements, land installment contracts, options, and
all other burdens or charges.
<PAGE> 1
2.03 Environmental Requirements. "Environmental Requirements" means
--------------------------
any federal, state or local law, statute, ordinance or regulation; or
court or administrative order or decree; or private agreement which
requires special handling, collection, storage, treatment disposal or
removal of any materials located in or on or about the Property.
2.04 Event of Default. "Event of Default" has the meaning given
----------------
and provided in Section 9.
2.05 Expense Account. "Expense Account" means the Account which
---------------
may be maintained pursuant to Section 6.02.
2.06 Mortgage. "Mortgage" means this instrument, including all
--------
current and future supplements, amendments and attachments thereto.
2.07 Mortgagor. "Mortgagor" means the party identified as such in
---------
the introductory paragraph of this Mortgage, its successors and assigns,
including any subsequent owner of all or any portion of Mortgagor's
interest in the Property.
2.08 Land. "Land" means the Land more particularly described in
----
Exhibit A to this Mortgage.
2.09 Lease. "Lease" means each lease which purports to convey any
-----
interest of Mortgagor in any portion of the Property, as defined in
Section 3.05, and includes subleases and assignments of leases.
2.10 Loan Documents. "Loan Documents" means this Mortgage, the
--------------
Note, the Loan Agreement, and any and all certificates, opinions,
assignments and other documents executed in connection herewith or
therewith, and all current and future supplements, amendments, and
attachments thereto.
2.11 Note. "Note" means the Note of even date herewith payable
----
to the Mortgagee by Mortgagor evidencing the loan made pursuant to the
Loan Documents in a principal sum not to exceed Four Hundred Eighty
Thousand Dollars ($480,000.00), including all current and future
replacements, supplements, amendments and attachments thereto.
2.12 Permitted Encumbrances. "Permitted Encumbrances" if any,
----------------------
listed in the title policy shall mean those exceptions, insuring the
interest of the Mortgagee hereunder, as accepted and approved by the
Mortgagee.
<PAGE> 2
2.13 Rents. "Rents" includes all rents, profits, royalties, issues,
-----
revenues, income, proceeds, earnings and products generated by and
arising out of the Property.
2.14 Taking. "Taking" includes any taking by condemnation or
------
eminent domain, any sale in lieu of condemnation under threat thereof,
the alteration of the grade of any street, or any other injury to or
decrease in the value of the Property by any public or quasi-public
authority or corporation or any other person having the power of eminent
domain.
2.15 Taxes. "Taxes" includes all taxes, excises, documentary stamp
-----
and transfer taxes, recording taxes, assessments, water rents, sewer
rents, metropolitan district charges, sanitary district charges, public
dues, and other public charges levied or assessed upon the Property,
upon the Loan, or upon any Loan Document.
2.16 Tenant. "Tenant" means any lessee of Mortgagor under any
-----
Lease, and any sub-lessee or assignee of a Lease.
SECTION 3. GRANT
3.01 Lien on Real Property. The Mortgagor, in consideration of
---------------------
the Loan and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, grants and assigns to the Mortgagee
all the Land situate in Cumberland County, Pennsylvania, described more
particularly in Exhibit A attached hereto as a part hereof, together
with (a) all buildings and improvements now or hereafter located thereon,
(b) all rights, rights of way, air rights, riparian rights, franchises,
licenses, easements, tenements, hereditaments, appurtenances, accessions
and other rights and privileges now or hereafter belonging to the Land
or the buildings and improvements thereupon, now owned or hereafter
acquired by the Mortgagor (hereinafter collectively referred to as the
"Real Property").
3.02 Lien on Fixtures and Personal Property. The Mortgagor further
--------------------------------------
grants and assigns to the Mortgagee all the machines, apparatus, equip-
ment, fixtures and articles of personal property now or hereafter
located on the Land or in any improvements thereon (other than that
owned by any Tenant), including without limitation all furniture,
fixtures, equipment and building materials acquired with the proceeds
of this Loan, and all the right, title and interest of the Mortgagor
in and to any of such property which may be subject to any title
retention or security agreement or instrument having priority over this
Mortgage.
<PAGE> 3
3.03 Lien on Rents and Other Rights. The Mortgagor further grants
------------------------------
and assigns to the Mortgagee (a) all Rents, including, without limitation,
all cash or security deposits to secure performance by Tenants (whether
such cash or securities are to be held until the expiration of the terms
of Leases or are to be applied to one or more of the installments of rent
coming due immediately prior to the expiration of such terms), (b) all of
the estate, right, title, use, claim and demand of every nature whatso-
ever, at law or in equity, which the Mortgagor may now have or may here-
after acquire in and to the Property, and (c) all right, title and
interest of the Mortgagor in and to all extensions, betterments,
renewals, substitutes and replacements of, and all additions and appur-
tenances to, the Property, hereafter acquired by or released to the
Mortgagor, or constructed, assembled or placed by or for the Mortgagor
on the Property, and all in conversion of the security constituted
thereby.
3.04 Lien on Insurance policies and Condemnation Awards. The
--------------------------------------------------
Mortgagor further grants and assigns to the Mortgagee all insurance
policies and insurance proceeds pertaining to the Property and all
awards or payments, including interest thereon and the right to
receive the same, which may be made with respect to any of the Prop-
erty as a result of any taking or any injury to or decrease in the
value of the Property.
3.05 The Property. All of the property described in this Section
------------
3 is collectively called the "Property."
3.06 Security Interest. Under the Uniform Commercial Code. Any por-
-----------------
tion of the Property which by law is or may be real property shall be
deemed to be a part of the Real Property for the purposes of this
Mortgage. The remainder of the Property shall be subject to the
Uniform Commercial Code and this Mortgage shall constitute a Security
Agreement with respect thereto. Mortgagor hereby grants to the Mort-
gagee a security interest in that portion of the Property not deemed
a part of the real property for the purpose of securing performance
of all of Mortgagor's obligations under the Loan Documents. With
respect to such security interest (a) the Mortgagee may exercise all
rights granted or to be granted a secured party under the Uniform
Commercial Code and (b) upon the occurrence of an Event of Default
the Mortgagee shall have a right of possession superior to any right
of possession of the Mortgagor or any person claiming through or on
behalf of the Mortgagor.
<PAGE> 4
SECTION 4. HABENDUM CLAUSE AND DEFEASANCES
4.01 Habendum Clause. The Mortgagee shall have and hold the Prop-
---------------
erty in fee simple, upon the terms herein set forth.
4.02 Termination of Mortgage. If all obligations of Mortgagor
-----------------------
under this Mortgage and the other Loan Documents are paid and satisfied
in accordance with the terms hereof and thereof, this Mortgage shall
terminate and the Property shall be released to the Mortgagor, at the
cost of the Mortgagor.
SECTION 5. REPRESENTATIONS AND WARRANTIES
5.01 Warranty of Title and Further Assurances. The Mortgagor
----------------------------------------
warrants that it has the right and authority to convey the Property
and warrants generally title to the Property and that it will
execute such further assurances as may be requested.
5.02 Purpose of the Loan. The Mortgagor warrants that the Loan is
-------------------
to be used for commercial purposes.
5.03 Existence, Good Standing, Power and Authority of Mortgagor.
----------------------------------------------------------
Mortgagor is a corporation of the State of Florida, is in good standing
in the States of Florida and Pennsylvania, and in every other state in
which it transacts business, and will maintain its good standing and
existence until all of Mortgagor's obligations under the Loan Documents
have been performed and satisfied. The execution and delivery of the
Loan Documents, the carrying out of the transactions contemplated by
the Loan Documents, and the performance of Mortgagor's obligations
under the Loan Documents, have been duly authorized by all necessary
action and will not conflict with or result in a breach of law or any
agreement, or other instrument to which Mortgagor is bound, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar
laws heretofore or hereafter enacted affecting creditors' rights gen-
erally, to the extent constitutionally applicable, and subject to
general equitable principles as applied by a court of law or a court
of equity. The Loan Documents are valid and binding on Mortgagor and
are enforceable against Mortgagor in accordance with their respective
terms, as applicable.
SECTION 6. COVENANTS, RIGHTS, AND DUTIES OF MORTGAGOR GENERALLY
6.01 Covenant to Pay Loan and to Perform Obligations Under the
---------------------------------------------------------
Terms of the Loan Documents. The Mortgagor covenants that it will
- ---------------------------
punctually (a) pay to the Mortgagee the principal
<PAGE> 5
and interest of the Loan and all other costs and indebtedness secured
hereby according to the terms of the Note and other Loan Documents,
and (b) perform and satisfy all other obligations of the Mortgagor
under the Loan Documents.
6.02 Expense Account. The Mortgagor agrees to the following pro-
---------------
visions with respect to the Expense Account.
6.02.1 Upon written request of the Mortgagee, the Mortgagor
will pay to the Mortgagee monthly installments, each of which shall be
equal to one-twelfth (1/12th) of the sum of (a) the estimated annual
premiums for all insurance policies required by Sections 8.01 and 8.02,
and (b) the estimated annual Taxes pertaining to the Property, to be
held by the Mortgagee in the Expense Account and disbursed by the Mort-
gagee to pay insurance premiums as they become due, and the Taxes
before any penalty or interest shall accrue thereon. Estimates are
to be made solely by the Mortgagee and payments shall be made on the
day of the month designated by the Mortgagee. No interest shall be
payable by the Mortgagee on the Expense Account unless, and then only
to the extent that, applicable law shall otherwise require. All over-
payments to the Expense Account shall be applied to reduce future
payments to the Expense Account, if any, or shall be returned to the
Mortgagor, at the sole discretion of the Mortgagee.
6.02.2 Upon the request of the Mortgagee, the Mortgagor shall
pay such additional sums into the Expense Account as the Mortgagee
determines are necessary, so that one month prior to the date the
Mortgagee is required to make payments of insurance premiums, or Taxes,
as the case may be, payments can be made therefor out of the Expense
Account.
6.02.3 The Mortgagor hereby grants the Mortgagee a security
interest in the sums on deposit in the Expense Account to secure the
obligations secured hereby, and upon the occurrence of an Event of
Default, the Mortgagee may, unless prohibited by applicable law, apply
the balance of the Expense Account to operate the Property or to
satisfy the Mortgagor's obligations under the Loan Documents, as the
Mortgagee may elect.
6.03 Compliance With Laws. The Mortgagor shall comply with all
--------------------
laws a breach of which would adversely affect (a) the financial con-
ditions of the Mortgagor, (b) the ability to use buildings and other
improvements on the Land for the purposes for which they were
designed or intended, (c) the value or status of the Property, or
(d) the value or status of the Mortgagee's title to the Property.
<PAGE> 6
6.04 Notice With Respect to Ownership and Control of Mortgagor.
---------------------------------------------------------
Mortgagor will at all times promptly notify Mortgagee of all changes
in the ownership of the stock of Mortgagor. At any time Mortgagee may
request, Mortgagor shall furnish a complete statement, certified by an
officer of Mortgagor, setting forth all of the stockholders, officers,
and directors of Mortgagor, and the extent of their respective stock
ownership or control. In the event the Mortgagor is aware of any other
person or entity having a beneficial interest in such stock, the state-
ment shall also set forth the name of such person or entity and the
extent of such person's interest.
6.05 Statement of Amount Owing. Within ten (10) days after re-
-------------------------
quest from the Mortgagee, the Mortgagor shall certify, in writing,
the amount of principal and interest then owing on the Loan.
6.06 Changes in Applicable Tax Laws. In the event (a) any law is
------------------------------
hereafter enacted which imposes a tax upon the Loan, any of the Loan
Documents, or the transactions evidenced or contemplated by any of the
Loan Documents, or (b) any law now in force governing the taxation of
deeds of trust, debts secured by mortgages, or the manner of collecting
any such tax shall be changed or modified, in any manner, so as to
impose a tax upon the Loan, any of the Loan Documents, or the trans-
actions evidenced or contemplated by any of the Loan Documents,
(including, without limitation, a requirement that revenue stamps be
affixed to any or all of the Loan Documents), the Mortgagor will
promptly pay any such tax. If the Mortgagor fails to make prompt
payment, or if any law either prohibits the Mortgagor from making the
payment or would penalize the Mortgagee if Mortgagor makes the payments,
then the failure, prohibition, or penalty, shall entitle the Mortgagee
to declare the entire unpaid principal balance of the Loan, together
with all accrued interest and any other amounts due, immediately due
and payable, provided that no Event of Default has occurred, and the
Mortgagor shall thereupon have thirty (30) days to pay the entire
amount due without penalty. If an Event of Default has occurred or if
the Mortgagor fails to make payment in full within thirty (30) days,
then the Mortgagee shall be entitled to exercise all rights hereunder
as though an Event of Default had occurred.
6.07 Further Assurances and Continuation Statements. The Mort-
----------------------------------------------
gagor from time to time will execute, acknowledge, deliver and record,
at the Mortgagor's sole cost and expense, all further instruments,
deeds, conveyances,, supplemental mortgages, assignments, financing
statements, transfers, and assurances as in the opinion of the
Mortgagee's counsel may be
<PAGE> 7
necessary (a) to preserve, continue, and protect the interest of the
Mortgagee in the Property, (b) to perfect the grant to the Mortgagee
of every part of the Property, (c) to facilitate the execution of the
terms of this Mortgage, (d) to secure the rights and remedies of the
Mortgagee under this Mortgage and the other Loan Documents, or (e) to
transfer to any new mortgagee or purchaser at a sale hereunder the
Property, funds, and powers now or hereafter held by Mortgagee here-
under. The Mortgagor, at the request of the Mortgagee, shall promptly
execute any continuation statements required by the Uniform Commercial
Code to maintain the lien on any portion of the Property subject to the
Uniform Commercial Code.
6.08 Expenses. The Mortgagor shall reimburse the Mortgagee for any
--------
sums, including attorney's fees and expenses, incurred or expended by it
(a) in connection with any action or proceeding to sustain the lien,
security interest, priority, or validity of any Loan Document, (b) to
protect, enforce, interpret, or construe any of its rights under the
Loan Documents, (c) for any title examination or title insurance policy
relating to the title to the Property, or (d) for any other purpose
contemplated by the Loan Documents. The Mortgagor shall, upon demand,
pay all such sums together with interest thereon at the Default Interest
Rate defined in the Note accruing from the time the expense is paid.
All such sums so expended by the Mortgagee shall be secured by this
Mortgage. In any action or proceeding to foreclose this Mortgage or
to recover or collect the Loan, the provisions of law allowing the
recovery of costs, disbursements, and allowances shall be in addition
to the rights given by this Section 6.08.
6.09 Environmental Requirements. The Mortgagor hereby covenants
--------------------------
and agrees that, if at any time it is determined that there are
materials (hereinafter, Environmental Materials") located on the
Property which under any Environmental Requirements require special
handling in collection, storage, treatment, disposal or removal, the
Mortgagor shall, within thirty (30) days after written notice thereof,
take or cause to be taken, at its sole expense, such actions as may be
necessary to comply with all Environmental Requirements. If the Mort-
gagor shall fail to take such action, the Mortgagee may make advances
or payments towards performance or satisfaction of the same but shall
be under no obligation to do so; and all sums so advanced or paid,
including all sums advanced or paid in connection with any judicial or
administrative investigation or proceeding relating thereto, including,
without limitation, reasonable attorneys' fees, fines, or other penalty
payments, shall be at once repayable by Mortgagor and shall bear
interest at the Default Interest Rate defined in the Note or at the
<PAGE> 8
maximum interest rate which the Mortgagor may by law pay, which ever
is lower, from the date the same shall become due and payable until
the date paid, and all sums so advanced or paid, with interest as
aforesaid, shall become a part of the indebtedness secured hereby.
Failure of the Mortgagor to comply with all Environmental Requirements
shall constitute and be a default under this Mortgage. Mortgagor shall
defend, indemnify and hold harmless the Mortgagee against any loss,
cost or expense incurred by the Mortgagee resulting from the presence
on the Property at any time of any Environmental Materials.
SECTION 7. RIGHTS AND DUTIES OF MORTGAGOR WITH RESPECT TO MANAGE-
MENT AND USE OF THE PROPERTY
7.01 Control by the Mortgagor. Until the happening of an Event of
------------------------
Default, the Mortgagor shall have the right to possess and enjoy the
Property and, except as prohibited by the Loan Documents, to receive the
Rents (as defined hereinafter in Section 7.07).
7.02 Management. At all times the Mortgagor shall provide competent and
----------
responsible management to maintain and operate the Property.
7.03 Financial Statements; Books and Records. The Mortgagor shall
---------------------------------------
furnish to the Mortgagee annual financial and operating statements of
the Mortgagor and of the Property. Such statements shall show all items
of income and expense for the operation of the Property, shall be cer-
tified by the Mortgagor and shall be prepared in accordance with gen-
erally accepted accounting principles applied on a consistent basis.
All such financial and operating statements shall be supplied not later
than ninety (90) days after the close of Mortgagor's fiscal year. At
the request of Mortgagee, Mortgagor shall provide audited financial
statements prepared by an independent certified public accountant
approved by Mortgagee. The Mortgagor agrees to make its books and
records relating to the operation of the Property available for in-
spection by the Mortgagee, upon request at any reasonable time, at
Mortgagor's principal place of business or at such other location in
the State of Maryland as Mortgagee may reasonably request. This para-
graph shall be superseded, to the extent of any direct inconsistency
only, by the financial reporting provisions, if any, set forth in the
Loan Documents.
7.04 Leases. All leases affecting any portion of the Property
------
("Leases") shall be subject to the prior written approval of the
Mortgagee, and shall contain a provision prohibiting subleasing or
assigning by any Tenant without the
<PAGE> 9
prior written approval of the Mortgagee, which approval shall not be
unreasonably withheld. Upon the execution of any Leases, the Mortgagor
shall provide the Mortgagee with a subordination and attornment agree-
ment executed by the Tenant in a form acceptable to the Mortgagee.
Upon demand by the Mortgagee, Mortgagor will transfer and assign to the
Mortgagee, in a form satisfactory to the Mortgagee, Mortgagor's
interest in any specific lease as further security for the obliga-
tions secured hereby. No such assignment shall impose upon the
Mortgagee any Liability to perform the Mortgagor's obligations under
any Lease.
7.05 Enforcement of Leases, Amendment, Waiver, etc. The Mortgagor
---------------------------------------------
will enforce all Leases according to their terms and shall take such
action to that end as may be requested by the Mortgagee, regardless of
whether any such Lease has been assigned to the Mortgagee. The Mort-
gagor shall not, without the prior written consent of the Mortgagee
(a) cancel or terminate, or consent to or accept any cancellation,
termination or surrender of any Lease, or permit any event within the
Mortgagor's control to occur which would cancel or terminate any
Lease, (b) amend or modify any Lease, (c) waive any default under or
breach of any Lease, (d) consent to or permit any prepayment or dis-
count of rent or advance rent under any Lease, or (e) give any consent,
waiver, or approval under any Lease or take any other action with re-
spect to any Lease which may impair the value of- the Mortgagee's
interest in the Property or the position or interest of the Mortgagee
with respect to the Property. Mortgagor shall comply with and perform
all duties and obligations imposed upon or assumed by it in all Leases.
7.06 Subordination and Attornment. In the event of a foreclosure
----------------------------
sale pursuant to this Mortgage, each tenant under a Lease ("Tenant")
shall, upon request, attorn to and acknowledge any purchaser at fore-
closure or grantee in lieu of foreclosure as landlord and the
purchaser will not be required to credit any Tenant under any Lease
with rent paid more than one (1) month in advance. All Leases shall
be subject-and subordinate to modifications of and amendments to the
Loan Documents and any additional financing or refinancing of the
Property by or for the Mortgagee.
7.07 Restriction of Assignment of Rents. Mortgagor shall not
----------------------------------
assign the Rents arising from the Property or any part thereof or
any interest therein ("Rents") without the prior written consent of
the Mortgagee. Any attempted assignment, pledge, hypothecation, or
grant without such consent shall be null and void.
<PAGE> 10
7.08 Alterations and Improvements. The Mortgagor shall not make
----------------------------
any alterations or improvements on the Property without the prior
written consent of the Mortgagee. All alterations or improvements
shall be erected (a) in a good and workmanlike manner strictly in
accordance with all applicable law, (b) entirely on the Land (c)
without encroaching upon any easement, right of way, or land of
others, (d) so as not to violate any applicable use, height, set-back
or other applicable restriction, and (e) without permitting any
mechanic's lien to attach to the Property which is not being con-
tested as permitted in Section 7.13. All alterations, additions,
and improvements to the Property shall automatically be a part of
the Property and shall be subject to this Mortgage.
7.09 Restrictions on Sale and Transfer of the Property. The
-------------------------------------------------
Mortgagor shall not permit the Property, or any part or portion thereof
or any interest therein, to be transferred (whether by voluntary or
involuntary conveyance, merger, operation of law, or otherwise) without
the prior written consent of the Mortgagee. Any transferee of the
Property or any part or portion thereof or any interest therein, by
virtue of its acceptance of the transfer, shall (without in any way
affecting Mortgagor's liability under the Loan Documents) be conclu-
sively deemed to have agreed to assume primary personal liability for
the performance of the Mortgagor's obligations under the Loan Documents.
This section shall not apply to any condemnation, any disposition per-
mitted by Section 7.12, any Lease entered into in compliance with
Section 7.04, or any disposition by the Mortgagee by foreclosure
hereunder or as otherwise permitted by the Loan Documents.
7.10 Restriction on Encumbrances. The Mortgagor shall not allow
---------------------------
any Encumbrances on the Property except the Permitted Encumbrances.
The Mortgagor shall give the Mortgagee prompt notice of any default
in or under any Permitted Encumbrances and any notice of foreclosure
or threat of foreclosure. The Mortgagor shall comply with its obliga-
tions under all Permitted Encumbrances. The Mortgagee may at its
election, satisfy any Encumbrance (other than a Permitted Encumbrance
not then in default), and the Mortgagor shall, on demand, reimburse
the Mortgagee for any sums advanced for such satisfaction together
with interest at the Default Interest Rate stated in the Note
accruing from the date of satisfaction, which sums shall be secured
hereby.
7.11 Maintenance, Waste, Repair and Inspection. Mortgagor shall: (a)
-----------------------------------------
keep and maintain the Property in good order, condition, and repair and
make, in a prompt manner, all equipment replacements and repairs
necessary to insure that the
<PAGE> 11
security for the Loan is not impaired; (b) not commit or suffer any
waste of the Property; (c) promptly protect and conserve any portion
of the Property remaining after any damage to, or partial destruction
of, the Property; (d) promptly repair, restore, replace or rebuild any
portion of the Property which is damaged or destroyed; (e) promptly
restore the balance of the Property remaining after any Taking; (f)
permit the Mortgagee or its designee to inspect the Property at all
reasonable times; and (g) not make any material change in the grade of
the Property or permit any material excavation of or on the Property
except as required for utility easements.
7.12 Removal and Replacement of Equipment and Improvements. No part
-----------------------------------------------------
of the Property, except supplies consumed or raw materials, work in
progress and finished goods sold or transferred in the ordinary course
of business and operations as they are currently conducted, shall be
removed from the Land, demolished, or materially altered without the
prior written consent of the Mortgagee. The Mortgagor may, without
consent and free from the lien and security interest of this Mortgage,
remove and dispose of any worn out or obsolete fixtures or equipment
which are a part of the Property, provided that prior to or simul-
taneously with their removal, such fixtures and equipment shall be
replaced with fixtures or equipment of equal or greater value. The
replacement fixtures or equipment shall be free of all Encumbrances,
shall automatically be subject to the lien and security interest of
this Mortgage, and shall automatically be subject to the granting
clauses hereof. Upon the sale of any removed fixtures and equipment
which are not replaced, the proceeds shall, at the election of the
Mortgagee, be applied as a prepayment of the Loan, to be applied in
inverse order of maturity. All sales shall be conducted in a commer-
cially reasonable manner.
7.13 Taxes and Permitted Contests. The Mortgagor shall pay: (a)
----------------------------
all Taxes on or before the date any interest or penalty begins to accrue
or attach thereto; and (b) all lawful claims which, if unpaid, might
become a lien or charge upon the Property to such an extent as to
materially and adversely affect the Mortgagor's ability to use the
Property for the purposes for which it was designed or intended;
provided however, that the Mortgagor shall not be required to pay any
Taxes or claim the amount, validity or payment of which is being con-
tested, in good faith, by appropriate legal proceedings, and so long
as, in the sole opinion of the Mortgagee, no part of the Property is
in danger of being sold, forfeited or lost and the contest is not
impairing the security for the Loan. Upon payment thereof, the Mort-
gagor shall promptly supply the Mortgagee with receipts showing the
payment of the Taxes or claim.
<PAGE> 12
7.14 Restrictive Covenants, Zoning, etc. No restrictive covenant,
----------------------------------
zoning change, or other restriction affecting the Property may be
entered into, requested by or consented to by Mortgagor without the
prior written consent of the Mortgagee.
7.15 Preservation of Appurtenances. The Mortgagor will do all
------------------------------
things necessary to preserve intact and unimpaired, all easements,
appurtenances, and other interests and rights in favor of, or consti-
tuting any portion of, the Property.
SECTION 8. INSURANCE AND CONDEMNATION
8.01 Casualty and Liability Insurance. The Mortgagor shall at
--------------------------------
all times keep the Property insured for the benefit of the Mortgagor
and the Mortgagee against loss or damage by fire by fire insurance
and extended coverage insurance and against such other hazards,
casualties, and contingencies, all as Mortgagee may require from time
to time. Such insurance shall be written in amounts equal to one
hundred percent (100%) of the replacement value of the Property or
such other amount as may be approved by Mortgagee. Such insurance
shall be written in forms and by companies satisfactory to the Mort-
gagee, and the losses thereunder shall be payable to the Mortgagee
alone and not to the Mortgagor and the Mortgagee, jointly. The
policy or policies of such casualty insurance shall, if requested by
Mortgagee, be delivered to and retained by the Mortgagee, and the
Mortgagor shall provide the Mortgagee with receipt evidencing the
payment of all premiums due on such policies. The Mortgagor shall
give the Mortgagee prompt notice of any loss covered by such casualty
insurance, and the Mortgagee shall have the right (subject to the
approval of Mortgagor, so long as no Event of Default has occurred)
to adjust any loss covered by an insurance policy. All monies
received as payment for a loss covered by an insurance policy
("Insurance Proceeds") shall be paid over to the Mortgagee to be
applied, at the option of the Mortgagee, either to the prepayment of
the indebtedness secured by the Mortgage or to the payment of other
charges or expenses actually incurred by the Mortgagor in the res-
toration, reconstruction, repair, renovation' or replacement of the
Property; provided, however, that the application of Insurance
Proceeds shall be made at the option of the Mortgagor so long as no
default or Event of Default has occurred and so long as the Insurance
Proceeds are sufficient, together with other funds deposited for this
purpose with the Mortgagee by Mortgagor, to restore the Property to a
condition and value satisfactory to the Mortgagee.
The Mortgagor may not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be
maintained under the above paragraph unless
<PAGE> 13
the mortgagee is included thereon as a named insured with losses
payable to the Mortgagee as above provided. The Mortgagor shall
immediately notify the Mortgagee whenever any such separate insurance
is taken out and shall promptly deliver to the Mortgagee the policy
or policies of such insurance.
If any of the Property is located in an area which has been iden-
tified as a flood hazard area, the Mortgagor will keep the Property
covered by flood insurance in an amount at least equal to the full
amount secured by this Mortgage or the maximum limit 6f coverage
available for the Property.
Unless a written waiver from Mortgagee is obtained, Mortgagor
shall (a) keep all of its insurable properties insured against all risks
usually insured against by persons operating like properties in the
localities where the properties are located; (b) maintain public lia-
bility insurance against claims for personal injury, death or property
damage suffered by others upon or in or about any premises occupied by
it or occurring as a result of its maintenance or operation of any
automobiles, trucks or other vehicles or airplanes or other facilities
or as a result of the use of products sold by it or services rendered
by it; and (c) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdic-
tion in which it may be engaged in business.
8.02 Business Interruption Insurance. If requested by Mortgagee,
-------------------------------
the Mortgagor shall also carry and maintain business interruption
insurance on the Property in an amount equal to six (6) months pro-
jected income, as approved by Mortgagee.
8.03 Condemnation and Allocation of Condemnation Awards. Mortgagor,
--------------------------------------------------
immediately upon obtaining knowledge of the institution of any proceeding
for a condemnation, will notify the Mortgagee of such proceedings. The
Mortgagee may participate in any such proceedings, and Mortgagor will,
from time to time, deliver to them all instruments requested by it to
permit such participation. Any award or payment made as a result of
any Taking shall be paid to the Mortgagee, to be applied (a) if funds
sufficient to restore the remainder of the Property are available from
such award or payment (together with other funds supplied or caused to
be supplied by Mortgagor) and no Event of Default is then outstanding,
to the restoration of the remainder of the Property, or (b) if suffi-
cient funds are not available to restore the remainder of the
Property, or an Event of Default is then outstanding, to prepayment
of amounts due under the Note in inverse order of maturity. All
moneys not utilized for the repair or restoration of the remainder
of the Property shall be applied
<PAGE> 14
as a prepayment of amount due under the Note, in inverse order of matur
ity. The application of any award or payment as a prepayment of amounts
due under the Note shall take effect only on the actual date of the
receipt of the payment or award by the Mortgagee. In the event any
payment or award is used to restore the Property, as aforesaid, the
Mortgagee shall not be obligated to see to the proper allocation
thereof nor shall any amount so used be deemed a payment of any indebt-
edness secured by this Mortgage. Payments or awards to be used for
restoration purposes, as aforesaid, shall be held by the Mortgagee and
disbursed under such terms and conditions, to such persons, and at such
times, as Mortgagee may determine.
SECTION 9. DEFAULT
9.01 Event of Default. The occurrence of any of the following
----------------
shall constitute an Event of Default.
9.01.1 Monetary Defaults. The failure of the Mortgagor to
pay any amounts due under the Loan Documents when due and payable,
whether at maturity by obligation or election to prepay, or otherwise,
unless such payment is made within ten (10) days from the date such
payment became due and payable.
9.01.2 Breach of Representations and Warranties. Any represen-
tation or warranty made by the Mortgagor herein or any statement or
representation made in any of the Loan Documents shall prove to have
been incorrect in any material respect when made or shall be breached,
which representation or warranty shall not be cured in full within ten
(10) days after Mortgagee gives Mortgagor written notice thereof.
9.01.3 Insurance Provisions. The failure of Mortgagor to
perform its obligations set forth in Section 8.01 or 8.02.
9.01.4 Receiver; Bankruptcy. If the Mortgagor (a) applies
for, or consents in writing to, the appointment of a receiver, trustee,
or liquidator for it of the Property, or of all or substantially all of
its assets, (b) files a voluntary petition in bankruptcy or admits in
writing its inability to pay its debts as they become due, (c) makes an
assignment for benefit of creditors, (d) files a petition or an answer
seeking a reorganization, composition, adjustment arrangement with
creditors, or takes advantage of any insolvency law, (e) files an
answer admitting the material allegations of a petition filed against
it in any bankruptcy, reorganization, composition, adjustment, arrange-
ment, or insolvency proceeding, or (f) is dissolved as a result of an
adversary suit or proceeding.
<PAGE> 15
9.01.5 Receiver; Bankruptcy (Involuntary). If (a) any execu-
tion or attachment levied against the assets of the Mortgagor is not
set aside, discharged, or stayed within sixty (60) days, (b) an order,
judgment, or decree is entered by any court of competent jurisdiction
on the application of a creditor, adjudicating the Mortgagor a bankrupt
or insolvent, or appointing a receiver, trustee, or liquidator for the
Mortgagor of all or substantially all of its assets, or (c), an order
of relief is entered against the Mortgagor pursuant to any bankruptcy
statute or law and such order, judgment, or decree continues unstayed
and in effect for a period of sixty (60) days.
9.01.6 Assignment of Rents. Any attempted assignment by the
Mortgagor of the whole or any part of the Rents in contravention of
Section 7.07.
9.01.7 Prohibited Transfer or Encumbrance. Any transfer or
event in violation of Sections 7.09, 7.10, or 7.11.
9.01.8 Loss of License. The loss by the Mortgagor or by any
Tenant of any franchise agreement, license or permit necessary for the
continued operation, occupancy, or use of the Property in the manner and
to the extent being operated, occupied and used at the time of such loss,
if the same is not restored within ten (10) days after the loss.
9.01.9 Judgments. Any judgment against the Mortgagor remains
unpaid, unstayed, undischarged, unbonded or undismissed for a period of
thirty (30) days following the date which the judgment becomes final or
any appeal thereof is finally determined.
9.01.10 Other Defaults. The failure of the Mortgagor to per-
form or observe any of its obligations or covenants under this Mortgage
not previously specifically referred to in this Article 9, which failure
continues for a period of thirty (30) days after written notice to
Mortgagor.
9.01.11 Default Under Other Loan Documents. The failure of
the Mortgagor to perform or observe any of its obligations or covenants
in any Loan Document other than this Mortgage, which failure is not
remedied within any applicable grace or cure period specified in such
other Loan Document.
10.01.12 Event of Default Under Other Loan Documents. An
"Event of Default" (if so defined) occurs under a Loan Document other
than this Mortgage.
<PAGE> 16
9.02 Payment or Performance by Mortgagee. Upon the occurrence of
------------------------------------
any Default, the Mortgagee may, at its option, make any payments or
take any other actions it deems necessary or desirable to cure the
Default or conserve the Property. The Mortgagor shall, upon demand,
reimburse the Mortgagee for all sums so advanced or expenses incurred
by it, together with interest at the Default Interest Rate stated in
the Note from the date of advance or payment of the same, which sums
shall be secured by this Mortgage. The Mortgagee may enter upon the
Property without prior notice to the Mortgagor or judicial process and
may take any action to enforce its rights under this Section 9.02 without
liability to the Mortgagor.
9.03 Possession by Mortgagee. Upon the occurrence of an Event of
------------------------
Default, the Mortgagee may enter upon and take possession of the
Property with notice to the Mortgagor, but without judicial process
or the appointment of a receiver. The Mortgagee may exclude all
persons from the Property and may proceed to operate the Property
and receive all Rents. The Mortgagee shall have the right as agent
for the Mortgagor to operate the Property and carry on the business
of the Mortgagor, either in the name of the Mortgagor or otherwise.
The Mortgagee shall not be liable to the Mortgagor for taking pos-
session of the Property, as aforesaid, nor shall the Mortgagee be
required to make repairs or replacements, and the Mortgagee shall
be liable to account only for Rents actually received by it. All
Rents collected by the Mortgagee shall be applied (a) first, to pay
all expenses incurred in taking possession of the Property, (b)
second, to pay costs and expenses to operate the Property and/or to
comply with the terms of the Loan Documents, including reasonable
attorney's fees, (c) third, to pay all sums secured by the Loan
Documents in the order of priority selected by Mortgagee, and (d)
fourth, with the balance, if any" to the Mortgagor or such other
person as may be entitled thereto. Neither the assignment of Rents
and Leases hereunder nor any other assignment of Leases shall impose
upon Mortgagee any liability to perform Mortgagor's obligations under
any Lease.
9.04 Acceleration of the Note. Upon an Event of Default, Mortgagee
------------------------
may, at its option and by written notice to the Mortgagor, declare the
entire balance of the Note and all other amounts due under the Loan Doc-
uments, immediately due and payable. Acceleration of maturity, once
claimed by the Mortgagee, may at the option of the Mortgagee, be
rescinded by written acknowledgment to that effect by the Mortgagee,
but the tender and acceptance of partial payments alone shall riot in
any way affect or rescind such acceleration of maturity.
<PAGE> 17
9.05 Collection of Rents. Upon the occurrence of an Event of Default
-------------------
and the failure of the Mortgagor to cure the same within any notice and
cure periods set forth herein, and upon written demand by the Mortgagee
to the Tenants, all Rents shall be payable directly to the Mortgagee.
Any Tenant may rely upon such demand by Mortgagee pursuant to this
Section 9.04 and Mortgagor hereby consents to such payment of Rents to
Mortgagee.
9.06 Power of Sale and Assent to a Decree. The Mortgagor assents
------------------------------------
to the passage of a decree for the sale of the Property upon the occur-
rence of an Event of Default, by any court having jurisdiction and the
Mortgagor authorizes and empowers the Mortgagee, upon the occurrence of
an Event of Default, to sell the Mortgagor's interest in the Property,
in accordance with applicable law. The Property or any interest therein
may be sold upon such terms and in as many parcels as the person con-
ducting the sale may, in its sole discretion, elect. No readvertise-
ment of any sale shall be required if the sale is adjourned by announce-
ment, at the time and place set therefor, of the date, time, and place
to which the same is to be adjourned.
9.07 Application and Proceeds of Sale. Upon a sale by the Mort-
--------------------------------
gagee under Section 9.06, the purchaser shall receive that portion of
or interest in the Property purchased by it free from any claims of
the Mortgagor and without any liability to see to the application of
the purchase money. The net proceeds from the sale, after deduction
of all costs of the sale, shall be applied (a) first, to pay all
expenses incurred in taking possession of the Property, (b) second, to
pay costs and expenses to operate the Property, including attorney's
fees, (c) third, to pay all sums secured by or due under the Loan
Documents in the order of priority determined by the Mortgagee, and
(d) fourth, the balance, if any, to the Mortgagor or to other persons
entitled thereto.
9.08 Deficiency of Proceeds. If, after a sale by the Mortgagee
----------------------
under Section 9.06, a deficiency exists in the net proceeds of such
sale, the Mortgagee shall be entitled to a deficiency judgment or
decree for such deficiency which shall bear interest at the Default
Interest Rate stated in the Note.
9.09 Insurance or Condemnation After Deficiency. If the Property is
------------------------------------------
sold by the Mortgagee under Section 9.06 prior to receipt of a condem-
nation award or payment, the Mortgagee shall receive and apply the
proceeds of the award or payment toward the satisfaction of any
deficiency resulting from the sale, whether or not a deficiency
judgment is sought, recovered, or denied.
<PAGE> 18
9.10 Right of the Mortgagee to Bid. The Mortgagee may bid and be-
-----------------------------
come the purchaser at a foreclosure sale under this Mortgage.
9.11 Bond. The Mortgagor waives any right to require any person
----
authorized to make the sale hereunder to post a bond.
9.12 Appointment of a Receiver. Upon the occurrence of an Event of
-------------------------
Default and the failure of the Mortgagor to cure the same within any
applicable notice and cure periods set forth herein, the Mortgagee
shall be entitled to the immediate appointment of a receiver for the
Property, without regard to the value of the Property or the solvency
of any person liable for payment of the amounts due under the Loan
Documents.
9.13 Remedies Cumulative. All rights, powers, and remedies of the
-------------------
Mortgagee provided for in the Loan Documents are cumulative and con-
current and shall be in addition to and not exclusive of any
appropriate legal or equitable remedy provided by law or contract.
Exercise of any right, power, or remedy shall not preclude the simul-
taneous or subsequent exercise of any other by the Mortgagee.
9.14 Consent to Jurisdiction and Venue. The Mortgagor consents to
---------------------------------
be sued in any jurisdiction where any of the Property is located.
9.15 Rights under the Uniform Commercia1 Code. Upon the occurrence
of an Event of Default, the Mortgagor shall assemble and make available
to the Mortgagee those portions of the Property which consist of personal
property at a place to be designated by the Mortgagee, and the Mortgagee
may exercise all the rights and, remedies of a secured party under the
Uniform Commercial Code. Any notices required by the Uniform Commercial
Code shall be deemed reasonable if mailed certified mail, return receipt
requested, postage prepaid, by the Mortgagee to the Mortgagor. Disposi-
tion of the Property shall be deemed commercially reasonable if made
pursuant to a public offering advertised at least twice in a newspaper
of general circulation in the County where the Property is located.
9.16 Right to Determine Which Leases Survive. if disclosed in
---------------------------------------
the advertisement of sale, a sale by the Mortgagee may be made subject
to one or more Leases of the Property.
SECTION 10. MISCELLANEOUS
10.01 Waivers. No term of any Loan Document shall be deemed waived
-------
unless the waiver shall be in writing and signed by the parties making
the waiver. Any failure by the Mortgagee
<PAGE> 19
to insist upon the Mortgagor's strict performance of any of the terms
of the Loan Documents shall not be deemed or construed as a waiver of
those or any other terms. Any delay in exercising or enforcing any
rights with respect to a Default or an Event of Default shall not bar
the Mortgagee from exercising any rights under the Loan Documents, or
at law or in equity.
10.02 Consents.
--------
10.02.1 The Mortgagee may (a) release any person liable under
the Loan Documents, (b) release any part of the security, (c) extend the
time of payment of the Loan, and/or (d) modify the terms of the Loan
Documents, regardless of consideration and without notice to or consent
by the holder of any subordinate lien on the Property. No release,
extension or modification of the security held under the Loan Documents
shall impair or affect the lien of this Mortgage or the priority of such
lien over any subordinate lien.
10.02.2 Regardless of whether a person has been given notice
or has given its prior consent, it shall not be relieved of any obliga-
tion under any Loan Documents by reason of,(a) the failure of the
Mortgagee or any other person to take any action, foreclose, or other-
wise enforce any provision of the Loan Documents, (b) the release of
any other person liable under any Loan Document, (c) the release of any
portion of the security under the Loan Documents, or (d) any agreement
or stipulation between any subsequent owners of the Property and
Mortgagee extending the time of payment or modifying the terms of any
Loan Document.
10.03 Headings. All section headings are for convenience only and
--------
shall not be interpreted to enlarge or restrict the provisions of this
Mortgage.
10.04 Notices. All notices shall be in writing and, unless other-
-------
wise specified in a written notice, shall be sent to the respective
addresses of the parties as follows:
Mortgagee: Mercantile-Safe Deposit
and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attn: Stephen D. Palmer
Mortgagor: Dialysis Corporation of America
402 Marvel Court
Easton, Maryland 21601
Attn: Barton L. Pelstring
<PAGE> 20
A notice may be hand-delivered, sent by any overnight delivery
service or mailed, postage prepaid, by first class, registered or
certified mail. Any notice sent by mail shall be deemed to have been
received on the second business day following the date of mailing.
10.05 Binding Effect. No transfer of any portion of the Property
--------------
or any interest thereon shall relieve any transferor of its obliga-
tions under the Loan Documents. No transferor of any obligation under
any Loan Document shall be relieved of its obligations by any modifica-
tion of any Loan Document subsequent to the transfer.
10.06 Amendment. This Mortgage may not be modified except in
---------
writing signed by the Mortgagee and the Mortgagor.
10.07 Severability. In the event any provision of this Mortgage
------------
shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforce-
able any other provision hereof.
10.08 Notices from Governmental Authorities Affecting The
---------------------------------------------------
Property. Any notice from any governmental or quasi-governmental
- --------
authority or corporation with respect to the Property sent to or
known by the Mortgagor shall be promptly transmitted to the Mortgagee.
10.09 Applicable Law. The Mortgage is being executed and delivered
--------------
in the State of Maryland and shall be construed, governed and enforced
in accordance with the laws in effect from time to time in the State
of Pennsylvania for the purposes of establishing, maintaining and
enforcing the lien of this mortgage only, it being acknowledged and
agreed that the loan transactions underlying this Mortgage are
governed by the laws of the State of Maryland.
10.10 Time of the Essence. Time is of the essence with respect
-------------------
to the Loan Documents.
10.11 Effect of Payments. Any payment or other performance made
------------------
in accordance with the Loan Documents by any person other than
Mortgagor shall not entitle such person to any right of subrogation
under the Loan Documents, unless expressly consented to in writing by
the Mortgagee.
10.12 Word Forms. The use of any gender, tense, or conjugation
----------
herein shall be applicable to all genders, tenses and conjugations.
The use of the singular shall include the plural and the plural shall
include the singular.
<PAGE> 21
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Mortgagor has executed this Mortgage and Security Agreement as of the
day and year first above written.
WITNESS: THE MORTGAGOR:
Dialysis Corporation of
America
/s/ Phylis O Pope /s/ Barton L. Pelstring
- ------------------------------ By:---------------------------(SEAL)
Barton L. Pelstring,
President
/s/ Jamie A. Palz /s/ Dennis W. Healey
- ------------------------------ By:---------------------------(SEAL)
Dennis W. Healey,
Secretary/Treasurer
STATE OF MARYLAND, CITY/COUNTY OF Talbot, to wit:
------
I HEREBY CERTIFY, that on this 12th day of December, 1988, before
----
me, the undersigned Notary Public of the State of Maryland, personally
appeared Barton L. Pelstring, President of Dialysis Corporation of
America, known to me (or satisfactorily proved) to be the person who
executed the aforegoing Mortgage and Security Agreement and acknowledged
that he executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Phylis O. Pope
-------------------------------
Notary Public
My commission expires: 7/1/90
------
<PAGE> 22
STATE OF FLORIDA, CITY/COUNTY OF Dade, to wit:
----
I HEREBY CERTIFY, that on this 8 day of December, 1988, before me,
---
the undersigned Notary Public of the State of Maryland, personally
appeared Dennis W. Healey, Secretary/Treasurer of Dialysis Corporation
of America, known to me (or satisfactorily proved) to be the person who
executed the aforegoing Mortgage and Security Agreement and acknowledged
that he executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Jamie A. Palz
--------------------------------
Notary Public
My commission expires:
------
Notary Public, State of Florida
My Commission Expires May 10, 1992
Bonded Thru Troy Fain Insurance Inc.
11/14/88
CJF/18661
<PAGE> 23
dialysis corp
LEGAL9
ALL THAT CERTAIN tract or parcel of land situate in the Borough
of Lemoyne, County of Cumberland, and Commonwealth of Pennsylvania,
more particularly bounded and described as follows, to wit:
BEGINNING at a point in the eastern line of Miller Avenue (40 feet
wide) which point is measured southwardly along said line of Miller
Avenue at right angles from Walnut Street a distance of 80 feet; thence
in an eastwardly direction at right angles to Miller Avenue a distance
of 120 feet to a point in the western line of Peach Alley (20 feet
wide); thence in a southwardly direction along said line of Peach Alley
238.10 feet to a nail in the northern line of a 15-foot unnamed alley;
thence at right angles to Peach Alley and westwardly along the said
northern line of the 15-foot wide unnamed alley 120 feet to a point
in the eastern line of Miller Avenue; thence along said line of Miller
Avenue in a northwardly direction at right angles to Walnut Street
238.10 feet to a point, the place of BEGINNING.
BEING THE SAME PREMISES which Hazel M. Opperman, widow, by her deed
dated May 13, 1987, and recorded July 24, 1987 in the Office of the
Recorder of Deeds in and for Cumberland County, Pennsylvania in Record
Book 32-V, at page 51, granted and conveyed unto Dialysis Corporation
of America, the within Mortgagor.
EXHIBIT A
Description of Land
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,099,834
<SECURITIES> 263,606
<RECEIVABLES> 429,137<F1>
<ALLOWANCES> 0
<INVENTORY> 100,181
<CURRENT-ASSETS> 6,984,514
<PP&E> 2,998,473
<DEPRECIATION> 749,578
<TOTAL-ASSETS> 9,393,277
<CURRENT-LIABILITIES> 638,966
<BONDS> 538,719
0
0
<COMMON> 37,513
<OTHER-SE> 7,984,315
<TOTAL-LIABILITY-AND-EQUITY> 9,393,277
<SALES> 818,311
<TOTAL-REVENUES> 945,038
<CGS> 586,076
<TOTAL-COSTS> 586,076
<OTHER-EXPENSES> 455,890
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,232
<INCOME-PRETAX> (116,160)
<INCOME-TAX> (39,000)
<INCOME-CONTINUING> (77,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,160)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<FN>
<F1> Accounts receivable are net of allowance of $90,000 at March
31, 1998.
</FN>
</TABLE>
