SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 1, 1995 to June 30, 1995.
Commission file number: 0-11895
CONTINENTAL HEALTH AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2362097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Sylvan Avenue
Englewood Cliffs, N.J. 07632
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 567-4600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.02
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 NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 2, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $5,986,701.
As of February 2, 1996, 7,948,851 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
PART I
Item 1. Business.
General
Continental Health Affiliates, Inc. ("CHA" and, together with its
subsidiaries, the "Company") provides a variety of non-hospital based health
care services to patients. These alternate-site health care services include
long term care and assisted living facilities, home infusion therapy
(including enteral and parenteral nutrition and intravenous therapies) and
provision of medical products and services, including infusion therapy, to
patients in long term care facilities. The Company's home infusion and medical
products and services businesses are conducted by Infu-Tech, Inc. ("Infu-Tech"),
a 59% owned subsidiary.
On October 31, 1995, the Company concluded a $46.0 million financing to
purchase four facilities which the Company had previously leased and/or
managed.
In November 1995, the Company changed its fiscal year to end on June 30 of
each year.
Nursing Homes
At June 30, 1995, the Company was operating or managing eight nursing homes
with approximately 1,175 beds. Typically, the Company provides lodging, meals
and nursing assistance to residents of its nursing homes for a per diem charge
and provides limited additional treatment for additional charges.
The following table provides information about the nursing homes the
Company was operating (as owner or as lessee) or managing at June 30, 1995:
Average Occupancy Percentage
----------------------------
Six months
Number ended
Location of Beds 1993 1994 June 30, 1995
-------- ------- ---- ---- --------------
Nursing Homes Being Operated:
Atlantic City, NJ 104 90% 97% 95%
Cedar Grove, NJ 180 96% 96% 96%
Cape May Courthouse, NJ 116 96% 98% 97%
Pine Brook, NJ (60% owned) 74 83% 94% 98%
Philadelphia, PA 135 91% 93% 92%
West Orange, NJ 131 81% 78% 92%
West Palm Beach, FL 191 95% 92% 91%
Nursing Homes Being Managed:
Norwood, NJ (Heritage)
Skilled 180 99% 98% 98%
Residential Care 60-70 100% 100% 100%
The occupancy percentage for the Pine Brook, New Jersey nursing home is based
upon a 114 bed capacity during 1993 and a 74 bed capacity as of December 31,
1994 and June 30, 1995. During 1994, while the number of beds was being
reduced, the percentage of occupancy was 100%.
As of June 30, 1995, the Company owned the nursing homes in Atlantic City
and Philadelphia and leased the nursing homes in Cedar Grove, West Orange and
West Palm Beach. On October 31, 1995, the Company obtained $46 million in
financing, which was used to purchase the West Orange, Cedar Grove and West Palm
Beach facilities and to purchase the real property of the long term and
residential care facility located in Norwood, New Jersey (the "Heritage
Facility"), which the Company has managed since 1988. The Company still leases
the nursing home in Cape May Courthouse.
Prior to October 31, 1995, the Heritage Facility was owned by Senior Care
Foundation, Inc., a not-for-profit corporation ("Senior Care"), and operated by
the Company under a management contract. The Company had sold the Heritage
Facility to Senior Care in 1990 and still held a $7.4 million second mortgage
note evidencing a portion of the purchase price. On October 31, 1995, the
Company purchased the Heritage Facility for $14.9 million, plus forgiveness of
the $7.4 million second mortgage note. Of the cash portion of the purchase
price, Senior Care used $14.1 million to repay the first mortgage loan (of which
$2 million had been guaranteed by the Company). Simultaneously with the
purchase, the Company leased the Heritage Facility back to Senior Care for
twenty-five years at a rental of $2.4 million per year. Also, the Company's
management contract relating to the Heritage Facility was modified so the
Company receives 5% of the gross revenues of the Heritage Facility (after the
payment of rent to the Company).
The Company is planning to close the nursing home in Pine Brook, New
Jersey. It has agreed to sell the assets of that nursing home, other than the
land and buildings and certain current assets, to another health care provider
for $2.4 million. That transaction is subject to the purchaser's being licensed
to operate 114 beds (equal to the number of currently licensed beds at the Pine
Brook nursing home). It is expected that if the licenses are granted, the
purchaser will offer to transfer the patients at the Company's Pine Brook
nursing home to the newly licensed beds. After the Pine Brook nursing home is
closed, the Company may build an assisted living facility (which currently does
not require licenses) on the Pine Brook site.
The Company has obtained an approved site plan to eventually subdivide
acreage at the Norwood facility. The Company plans to utilize this acreage to
build a 120-unit assisted living facility, if financing becomes available. The
Company plans to sell approximately eight acres adjacent to its facility in West
Orange, New Jersey.
The Company is a 15% limited partner in a partnership which, in 1987,
purchased a property in Teaneck, New Jersey from the Company and constructed a
224-bed congregate care facility (i.e., a facility on which medical and nursing
services are available if needed, but are not provided on a regular basis) on
the property. The Company receives a fee from the partnership equal to 1% of its
revenues, although it is not required to render significant services to the
partnership. During the six months ended June 30, 1995, the fees from the
partnership totalled $41,701.
Infusion Therapy and Other Medical Services
The Company, through Infu-Tech, provides infusion therapy (i.e.,
administration of nutrients, antibiotics and other medications either
intravenously or through feeding tubes) and other medical products to patients
in their homes, in Infu-Tech's ambulatory suites and in nursing homes. The
Company was one of the early marketers of equipment and nutrients for infusion
therapy and was one of the first to market equipment and formulations for
intravenous infusion of nutrients and medication outside hospitals.
Infu-Tech is organized into two service units. The Intravenous Infusion
unit provides a broad range of home ambulatory and subacute infusion therapy
services, including intravenous total parenteral nutrition therapy, intravenous
antibiotic therapy, enteral nutrition therapy, intravenous chemotherapy,
intravenous chronic pain management therapy, intravenous hydration therapy and a
variety of other therapies. The Contract Services unit provides medical products
and services, including enteral nutrition therapy, intravenous infusion therapy,
orthotic products, urological products and wound care products, to patients in
long term care facilities.
From 1982 to 1988, the Company and Infu-Tech experienced significant growth
in their infusion therapy business, increasing revenues to $23.9 million in
1988. Since late 1989, there has been a significant increase in competition
for sales of enteral therapy to residents of long term care facilities,
primarily because an increasing number of operators of those facilities are
providing enteral therapy themselves. This increased competition, together
with effects of the loss of sales and marketing personnel, led to a 69%
reduction (from approximately 1,640 to approximately 515) in nursing home
enteral therapy patients between December 31, 1989 and December 31, 1994.
However, there was a 10% (50 patients) increase during the first six months
of 1995. Because of the reduction in enteral therapy patients, the Company's
nursing home enteral therapy revenues declined from $14 million in 1989 to
$4.8 million during the year ended December 31, 1994 and $2.3 million during
the six months ended June 30, 1995.
In 1993, the Company began focusing on selling infusion therapy through
health maintenance organizations and other managed health care providers. During
1995, the Company entered into new agreements to provide infusion therapy to
members of fifteen health maintenance organizations with a total of
approximately 3.6 million members, increasing the total number of health
maintenance organizations with which the Company has agreements to 48 health
maintenance organizations with approximately 10 million members. The Company's
marketing efforts directed at managed care companies resulted in a 75% increase
in the number of home infusion patients serviced and a 110% increase in home
infusion revenues as of June 1995 compared to June 1994. The agreements with
managed care companies typically provide that the Company is one, but not the
only, provider of infusion therapy, and in some cases other products, to members
of the plans. They typically provide for significant price discounts, which has
resulted in lower gross margins.
In 1994, Infu-Tech entered into a one-year renewable non-exclusive
distribution agreement with Genzyme Corporation for Ceredase(Registered) enzyme
and Cerezyme(Trademark), which are the only products approved by the FDA as
therapy for patients with Gaucher's disease. Genzyme estimates that there are
between 2,000 and 2,500 Gaucher patients in the United States who require
treatment with these drugs. Cost of the therapy normally ranges from
approximately $150,000 to $250,000 per year per patient. Because of this high
cost, the Company's percentage mark-up is relatively small.
The following table sets forth the percentages of Infu-Tech's revenues, by
service unit, from the various therapies, products and services.
<TABLE>
<CAPTION>
Years ended December 31, Six months ended
1993 1994 June 30, 1995
---------------------------------- --------------------------------- ---------------------------------
Intravenous Contract Total Intravenous Contract Total Intravenous Contract Total
Infusion Services Revenues Infusion Services Revenues Infusion Services Revenues
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enteral Nutrition 6% 61% 39% 5% 65% 33% 4% 68% 24%
Antibiotic 47% - 18% 38% - 20% 32% - 22%
Total Parenteral
Nutrition 14% - 6% 11% - 6%% 7% - 5%
Orthotics - 28% 17% - 6% 3% - 3% 1%
Immune Globulin 11% - 4% 11% - 6% 9% - 6%
Ceredase/Cerezyme - - - 10% - 5% 26% - 18%
Wound Care - 4% 2% - 8% 4% - 8% 2%
Other 22% 7% 14% 25% 21% 23% 22% 21% 22%
---- ---- ---- ---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Intravenous Infusion Therapy
Intravenous infusion therapy principally involves the intravenous
administration of nutrients, antibiotics or other medications to patients in
their homes, in Infu-Tech ambulatory suites, or in Infu-Tech certified subacute
facilities, often as a continuation of treatment initiated in the hospital. The
national non-hospital infusion therapy market has grown to over $4 billion
since its inception approximately 15 years ago. Infu-Tech believes the primary
factors contributing to the rapid growth of the non-hospital infusion therapy
market have been health care cost containment pressures, incentives by third
party payors to use home care, rapid growth of the elderly population and
increased acceptance of home infusion therapy by the medical community and
patients. Additionally, the number of therapies that can be administered safely
outside the hospital has increased significantly in recent years because of
technological innovations such as more sophisticated portable infusion control
devices, implantable injection ports, new vascular access devices and advances
in drug therapy. Consequently, more infections and diseases that would otherwise
have required patients to be hospitalized are now considered treatable without
hospitalization.
Before accepting a patient for infusion therapy, Infu-Tech consults with
the physician or clinician and hospital personnel in assessing the patient's
specific medical needs and suitability for infusion therapy. This assessment
process includes an analysis of the patient's physical condition as well as
social factors such as the stability of the patient's home life and the
availability of family members or others who can assist in the administration of
the patient's infusion therapy. Once the patient is accepted for therapy,
Infu-Tech provides training and education to the patient and his family or
others relating to proper infusion techniques, care and use of equipment, care
of infusion sites, and other aspects of the patient's infusion therapy. Infusion
therapy equipment, consisting primarily of poles and pumps, is owned or leased
by Infu-Tech and provided to patients along with other services.
Throughout the course of treatment, all prescribed drugs and solutions are
delivered directly to the patient's home or to an Infu-Tech credentialed
subacute care facility. In approximately 90% of the cases, the Company's own
pharmacies provide the prescribed drugs, solutions and supplies. Due to
geography, patients who cannot be adequately serviced through an Infu-Tech-owned
pharmacy are covered by one of eight satellite pharmacies. The Company maintains
contact with the patient and the patient's physician in order to monitor and,
when directed by the physician, refine the patient's plan of care. The Company's
nursing and pharmacy services are available on-call 24 hours a day for
consultation, home visits and special prescription needs.
A registered nurse clinical-coordinator follows each case and monitors the
therapy with the patient, the nurses assigned to the case and the patient's
physician. Billing information is coordinated at a central billing department
which bills the appropriate payor, in most cases, private insurance companies,
and tracks payments.
During 1994, Infu-Tech began also to provide infusion therapy services in
ambulatory infusion suites attached to Company pharmacies, where patients
receive infusion therapy on an out-patient basis. In addition, Infu-Tech began
arranging with nursing homes and other subacute care facilities to have patients
admitted on a short term basis to receive infusion and other subacute therapies.
Contract Services
Since late 1990, the Contract Services unit has expanded the number of
products it offers to patients in nursing homes and other health care
institutions, and it expects to offer additional products, embodying advances in
health care technology, in the future. On the other hand, changes in
reimbursement regulations or interpretations led the Contract Services unit to
reduce sharply sales of two significant products in 1994 and 1995.
Infu-Tech's contract services involve the distribution of products and
services to residents in long term care facilities. Products and services are
provided through arrangements with the long term care facilities for specific
residents' use. Generally, Infu-Tech bills a third party payor, principally
Medicare, on behalf of the individual resident. Until late 1990, a large
majority of the products and services Infu-Tech provided to residents of long
term care facilities involved enteral nutrition therapy. Beginning in late 1990,
Infu-Tech began marketing other products to residents of long term care
facilities in circumstances in which these products are eligible for
reimbursement under Medicare and other programs. Because of this shift, and a
recent willingness of some long term care facilities to permit residents to
receive intravenous therapies in the facilities (which increases the facilities'
revenues), rather than transferring the residents to hospitals for these
treatments, the products and services Infu-Tech provides through its contract
services unit now include, in addition to enteral feeding, parenteral feeding,
medical/surgical products, orthotic products, wound care products, urological
products and other supplies.
As part of providing its products and services to patients in long term
care facilities, Infu-Tech handles the procedures for obtaining reimbursement
from Medicare and other third party payors for these products and services.
Infu-Tech believes that in a number of instances its ability to manage billing
of third party payors is a significant factor in long term care facilities'
decisions to retain Infu-Tech to provide products and services to their
residents.
Infu-Tech's sales representatives call upon long term care facilities
within their respective geographical territories to review the medical status of
the facilities' residents in order to determine the needs of the individuals for
the products and services provided by Infu-Tech. Since most of the residents
participate in the Medicare program, the representatives review insurance
coverage and the appropriateness of the products and services under Medicare
reimbursement regulations. The sales representatives are responsible for
processing the paperwork for billing by the central billing department.
Orders for products and services are processed through the customer service
department at Infu-Tech's corporate offices in Englewood Cliffs and shipped from
Infu-Tech's Moonachie, New Jersey warehouse. Infu-Tech primarily uses its own
trucks for local (New York-New Jersey) deliveries and common carriers for
deliveries outside the local area.
Other Activities
A wholly owned subsidiary of the Company has a non-exclusive distribution
agreement with Eli Lilly Export S.A. to market, sell and distribute Lilly's
pharmaceuticals in Russia. The agreement is for a one year term, but will
automatically renew for additional one year terms unless 90 days notice not to
renew is given. By January 31, 1996 the Company had total sales of $244,000
under its arrangement with Lilly, all of which was paid to the Company after
June 30, 1995.
Reimbursement For Services
The Company estimates that approximately $13 million (approximately 71%) of
the revenues during the six months ended June 30, 1995 of the seven nursing
homes the Company operates were third-party reimbursements from Medicare and
Medicaid. Governmental reimbursement for nursing home care is at cost-based per
diem rates.
Infu-Tech is reimbursed for its products and services by Medicare,
Medicaid, private payors (private insurance companies, self-insured employers,
health maintenance organizations, other managed care systems and patients) and
other third party sources. Prior to accepting a patient, Infu-Tech's
reimbursement specialists determine the availability and amount of third party
coverage and, thereafter, Infu-Tech processes all payment claims on behalf of
the patient.
Most of Infu-Tech's contract services revenues result from Medicare
reimbursement. Infu-Tech has more than twelve years' experience in billing
Medicare. It believes this experience provides it with an advantage over some of
its competitors. Medicare provides reimbursement for 80% of the amounts shown on
fee schedules it has developed. The remaining 20% co-insurance portion is not
paid by Medicare, although in most cases, Medicaid reimburses the remaining 20%
for "medically indigent" patients. In other cases, Infu-Tech bills other third
party payors or patients responsible for co-insurance reimbursement. Infu-Tech
often has difficulty collecting the 20% co-insurance portion of charges for
Medicare-eligible items, particularly when there is no third party reimbursement
and these sums must be collected directly from patients. Inability to collect
the 20% co-insurance portion of bills is the principal reason for Infu-Tech's
provision for uncollectible accounts.
Infu-Tech also bills private payors (primarily private insurance companies,
self-insured employers, health maintenance organizations and managed care
systems), which generally pay for services and products based upon contracted
rates or "reasonable and customary" charges. Infu-Tech's billing specialists
work closely with these payors to maximize reimbursement in the shortest
possible time. Private payors have been increasingly concerned about cost
containment and often seek to negotiate lower rates directly with providers,
including Infu-Tech. While these efforts tend to reduce profit margins, Infu-
Tech has for several years been able to operate in this environment.
Effective January 1, 1994, Medicare implemented significant changes in its
claims processing systems. As a result of these changes, Infu-Tech experienced
increased delays in having its claims processed as well as an increase in the
number of claims rejected. The number of days' sales represented by accounts
receivable increased from 54 days at December 31, 1993 to 71 days at December
31, 1994. However at June 30, 1995, Infu-Tech's overall outstanding net
accounts receivable had decreased to 59 days.
The following table details the sources of payments to Infu-Tech during the
six months ended June 30, 1995:
Home Contract Total
Infusion Services Revenues
-------- -------- --------
Medicare 7% 82% 31%
Private Pay 91% 18% 68%
Medicaid 2% -- 1%
---- ---- ----
100% 100% 100%
==== ==== ====
Sales and Marketing
The Company's nursing homes have historically been marketed to doctors,
hospitals and social services agencies in the areas in which they are located,
and directly to patients' families. Recently, they have increasingly been
marketed to health maintenance organizations, preferred provider organizations
and managed care systems. Each nursing home has an admissions staff which
interviews with the family, makes financial arrangements and coordinates the
admission of the new resident.
Infu-Tech's principal sources of patient referrals are health maintenance
organizations, physicians, hospital discharge planners, other hospital
officials, nursing homes, insurance companies and other managed care systems.
Infu-Tech's products and services are marketed through its sales force and
clinicians. Infu-Tech's sales force is responsible for establishing and
maintaining referral sources. At June 30, 1995, the sales force included
approximately 18 full time sales employees and approximately six sales and
service representatives, who report to their respective regional managers. Sales
employees receive a base salary plus commissions based on revenues. Infu-Tech
conducts regular sales training programs, intended to enable its sales force to
generate more revenue from current and new sources of patient referrals and to
assist them in targeting and developing new revenue sources.
The "Infu-Tech" trademark is registered and is established in the areas in
which Infu-Tech does business.
Suppliers
The Company purchases drugs and other materials and leases equipment from
many suppliers. The Company has not experienced difficulty in purchasing
supplies or leasing equipment. The Company believes there are alternative
sources for virtually all the supplies and equipment it requires, other than
Ceredase(Registered) enzyme and Cerezyme(Trademark), which are only available
from one supplier, Genzyme Corporation.
Potential Liability and Insurance
Participants in the health care market are subject to lawsuits based upon
alleged negligence or similar legal theories, many of which involve large claims
and significant defense costs. The Company could be subject to such suits. The
Company maintains general liability insurance, including insurance against
professional and products liability, with coverage limits of $10 million. The
Company's insurance policy provides coverage on an "occurrence" basis and is
subject to annual renewal. A successful claim against the Company in excess of
the applicable insurance coverage could have a material adverse effect upon the
Company's business and results of operations. Claims against the Company,
regardless of their merit or eventual outcome, also may have a material adverse
effect upon the Company's reputation. There can be no assurance that the
coverage limits of the Company's insurance policies will be adequate. While the
Company has been able to obtain liability insurance in the past, such insurance
varies in cost, is difficult to obtain and may not be available in the future on
acceptable terms or at all.
Competition
The Company's nursing homes compete with other nursing homes in the areas
in which they are located, as well as, to a limited extent, hospitals and home
health care providers. Competition is based primarily on location and quality of
the nursing home facilities and price.
The segments of the health care market in which Infu-Tech operates are
highly competitive. In each of its lines of business there are relatively few
barriers to entry, a limited number of national providers, as many of the large
national providers have recently merged, and numerous regional and local
providers. Principal national providers of home infusion therapy include Coram
Healthcare, NMC, a division of W.R. Grace, and Apria Healthcare. Large providers
to long term care facilities of products similar to those offered by the
Infu-Tech include Medline Industries, Inc. and Redline, Inc. However, the
principal competitors for sales to patients in long term care facilities are
local providers of health care products and the operators of the facilities
themselves.
The competitive factors most important in Infu-Tech's lines of business are
quality of care and service, on-time delivery, reputation with referring health
care professionals, ease of doing business with the provider, ability to develop
and maintain the confidence of potential sources of patient referrals and price
of service. Some competitors in Infu-Tech's lines of business have also
attempted to enhance sales by entering into joint ventures or other financial
relationships with potential referral sources. Increasingly stringent, and
increasingly enforced, laws prohibiting remuneration between health care
providers has reduced these arrangements as a competitive factor. Infu-Tech
believes that it competes effectively in each of its service areas with respect
to all of the above factors. Some of Infu-Tech's current and potential
competitors have or may obtain significantly greater financial and marketing
resources than Infu-Tech. It is likely that Infu-Tech will encounter increased
competition in the future, which could limit Infu-Tech's ability to maintain or
increase its market share and could adversely affect Infu-Tech's operating
results. Other types of health care providers, including hospitals, physician
groups and home health agencies, have entered, and may continue to enter,
Infu-Tech's lines of business.
Government Regulation
Most states require that a certificate of need be obtained prior to
establishing a new nursing home or adding beds to an existing nursing home. This
can restrict the number of nursing home beds within a specified area. Some
states also require governmental approval prior to the acquisition of a nursing
home by a new owner. While the need for certificates of need and approval to
acquire nursing homes could affect the Company in specific instances, the
Company does not believe they would significantly impede any efforts the Company
might make to expand its overall nursing home activities. A few states, most
notably New York, make it very difficult for nursing homes to be owned by
corporations. This could prevent the Company from acquiring or building nursing
homes in those states.
A New Jersey statute requires that any nursing home in that state which
participates in the Medicaid program may not discriminate in admission policy
against Medicaid patients until the number of Medicaid patients is a specified
percentage (currently 45%) of the beds in the nursing home. Generally,
non-Medicaid patient reimbursement is at higher rates than Medicaid patient
reimbursement.
Health care is an industry subject to extensive regulation and frequent
regulatory change. Changes in the law or new interpretations of existing law
can have a dramatic effect on permissible activities, the relative cost
associated with doing business and the amount of reimbursement by government
and third party payors, such as Medicare and Medicaid. Charges under government
programs are also subject to audit. A reduction in coverage or payment rates by
third party payors, or significant audit adjustments, can have a material
adverse effect on the Company's business and results of operations. A 1992
reimbursement determination led Infu-Tech to discontinue sales of ostomy
irrigation sets and a change in regulations in that year caused a substantial
reduction in Infu-Tech's sales of wound care products. A change in
reimbursement regulations which became effective January 1, 1994 led Infu-Tech
to discontinue most orthotics products.
The Federal government and each of the states in which Infu-Tech currently
operates regulate some aspects of Infu-Tech's business. In particular, the
operations of Infu-Tech's branch locations are subject to Federal and state
laws. Infu-Tech's operations also are subject to state laws governing
pharmacies, nursing services and certain types of home health agency activities.
Certain of Infu-Tech's employees are subject to state laws and regulations
governing the ethics and professional practice of people providing various
therapies, pharmacy and nursing. Certificates of need, permits or licenses may
be required for certain business activities and may be restricted or otherwise
difficult to obtain. Infu-Tech believes it and its employees have all
certificates of need, permits and licenses which are required for the business
currently being conducted by Infu-Tech. The failure to obtain, renew or maintain
any of the required regulatory approvals or licenses could adversely affect
Infu-Tech's business and could prevent the location involved from offering
products and services to patients.
There are Federal laws which generally prohibit any remuneration in return
for the referral of Medicare or Medicaid patients, and prohibit the referral of
any Medicare or Medicaid patient by a health care practitioner to a provider
with which the practitioner has an ownership or financial interest. In addition,
the Federal government and several states in which Infu-Tech operates have laws
that prohibit financial arrangements, certain direct or indirect payments or
fee-splitting arrangements between health care providers. Infu-Tech maintains an
internal regulatory compliance review program and uses in house counsel to
monitor compliance with all such laws and regulations. Increased attention has
been paid recently to enforcement of these laws and regulations. Possible
sanctions for failure to comply with these laws and regulations include
exclusion from the government programs, loss of license and civil and criminal
penalties.
Executive Officers of the Company
The following is a list of the executive officers of the Company as of
February 1, 1996, together with a brief description of the business experience
of the last five years of the officers who are not directors. A brief
description of the business experience of officers who are directors is included
in Item 10, "Directors."
Name Office Age
- ---- ------ ---
Jack Rosen Chairman, President and Director 49
Joseph Rosen Vice President, Assistant Secretary and 44
Director
Israel Ingberman Secretary, Treasurer and Director 49
Benjamin Geizhals Vice President, Assistant Secretary and 46
General Counsel
Richard S. Gordon Executive Vice President 38
Benjamin Geizhals joined the Company in September 1987 as Vice President
and General Counsel. Since the former Chief Financial Officer left the Company
in October 1995, Mr. Geizhals has performed on an interim basis some of the
functions of the Chief Financial Officer.
Richard S. Gordon has been employed by Infu-Tech since March 1994 as an
Executive Vice President and became an Executive Vice President of the Company
in August 1994. From 1989 until 1994, he served as Director of Policy and
Planning for Governor Evan Bayh of Indiana, focusing on healthcare,
telecommunications, education and economic development planning.
Employees
At June 30, 1995, the Company had approximately 129 full-time management,
marketing, technical-professional and clerical personnel, including Infu-Tech's
approximately 117 employees. The Company's seven nursing homes were staffed by
approximately 178 full-time management, marketing, technical-professional and
clerical personnel, approximately 220 registered or practical nurses and 600
other people, for a total of approximately 1,000 people, all of whom were
obtained through an employee leasing organization. Five of the Company's nursing
homes have collective bargaining agreements and another is negotiating an
initial collective bargaining agreement. The Company's nursing home which does
not have a collective bargaining agreement is involved in a National Labor
Relations Board ("NLRB") proceeding in which a union seeks to be certified as
the bargaining agent for certain of the employees. The Company believes its
relations with its employees are generally satisfactory, except that one of its
nursing homes is involved in litigation before the NLRB for alleged unfair labor
practices relating to discharges of employees. The Company does not believe the
outcome of any of the proceedings before the NLRB is likely to have a material
effect upon the Company's financial condition or results of operations.
As of June 30, 1995, Infu-Tech had approximately 117 employees. Of these
employees, five were in executive capacities (in addition to executives of the
Company who rendered services to Infu-Tech), approximately 28 were in sales or
service capacities, approximately 51 were in clinical or pharmaceutical
capacities and the remainder were administrative or distribution personnel.
Infu-Tech's employees are not currently represented by a labor union or other
labor organization. Infu-Tech believes its employee relations are good.
Item 2. Description of Properties.
As of June 30, 1995, the Company owned the nursing homes in Atlantic City
and Philadelphia and leased the nursing homes it operates in Cedar Grove, West
Orange and West Palm Beach. On October 31, 1995, the Company obtained $46
million in financing, which was used to purchase the West Orange, Cedar Grove
and West Palm Beach Facilities and to purchase the real property of the long
term and residential care facility located in Norwood, New Jersey (The "Heritage
Facility"), which the Company has managed since 1988. (See Item 1, "Business --
Nursing Homes.") The Company leases the nursing home in Cape May Courthouse. The
nursing home in Pine Brook, New Jersey is owned by a corporation of which the
Company is a 60% stockholder.
The Company maintains corporate offices in Englewood Cliffs, New Jersey,
and it leases six branch offices for Infu-Tech's branch operations. Offices
provide a home base for salespeople, clinicians and administrative and technical
personnel, as well as storage for excess equipment and supplies. In addition,
Infu-Tech maintains a pharmacy and a warehouse in Moonachie, New Jersey, and
pharmacies and ambulatory infusion suites in Memphis, Tennessee, Boston,
Massachusetts and Philadelphia, Pennsylvania. The lease payments for the six
branch offices, the central pharmacy, the Memphis, Boston and Philadelphia
pharmacies, the infusion suite and the warehouse total $17,960 per month,
payable to unrelated parties. The Company is occupying approximately 15,300
square feet of office space in the office building in Englewood Cliffs
(including 7,400 square feet leased by Infu-Tech). The Company pays rent of
$27,185 per month for corporate office space to an entity owned by the principal
stockholders of the Company, one of whom is the Company's Chairman of the Board.
The Company believes that this rent is at or below the market rate for
comparable space in the area. In communities which cannot be serviced from an
Infu-Tech office, staffing and administration is handled by a representative
residing in the area. The Company believes its facilities are adequate for its
current needs.
Item 3. Legal Proceedings.
In October 1995, the Company was sued in an action in the United States
District Court for the District of New Jersey entitled Rubin v. Continental
Health Affiliates in which the plaintiff seeks $140,000 he claims is due him
under a consulting contract and $1,250,000 for alleged failure of the Company to
issue 250,000 shares of common stock to him in May 1992. The Company is also
subject to certain legal proceedings and claims which arise in the ordinary
course of its business.
The Company does not believe any litigation to which it is a party is
likely to have a material adverse effect upon its financial condition or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the first
six months of 1995.
PART II
Item 5. Market for the Registrant's Common
Stock and Related Security Holder Matters.
The Common Stock is traded in the over-the-counter market and is included
on NASDAQ's OTC Bulletin Board Service, but is not listed on an exchange or
included in a system which reports actual purchase and sale transactions.
According to National Quotation Bureau, Inc., the high bid and low bid prices of
the Common Stock in the over-the-counter market during each calendar quarter
during 1993 and 1994, and through June 30, 1995 were as follows:
High Low
Bid Bid
1993: ---- ---
----
First Quarter 1 1/4 5/8
Second Quarter 1 1/2 5/8
Third Quarter 1 1/8 5/8
Fourth Quarter 1 1/4 1/4
1994:
----
First Quarter 1 15/16 3/8
Second Quarter 1 1/2 1/2
Third Quarter 1 1/32 1/2
Fourth Quarter 1 1/2 1/2
1995:
----
First Quarter 1 3/8 1/2
Second Quarter 1 1/4 1/2
The Company has not declared any cash dividends on its Common Stock since
the Common Stock was initially sold to the public in 1983, and the Company has
no current plans to declare any dividends on its Common Stock. Covenants
relating to the outstanding 14 1/8% Subordinated Debentures prevent the Company
from paying dividends on the Common Stock.
Dividends on the Company's 5% Exchangeable Preferred Stock are cumulative
and are payable semi-annually on January 27 and July 27 at the rate of $5 per
share per year, when and as declared by the Company's Board of Directors.
Although covenants relating to the 14 1/8% Subordinated Debentures limit the
Company's ability to pay dividends, that limitation has been waived as to the
dividend paid on January 27, 1994 and the covenant has been amended to permit
the Company to pay dividends, not exceeding $70,000 in any year, with regard to
the 5% Exchangeable Preferred Stock. The dividends on the 13,884 outstanding
shares of 5% Exchangeable Preferred Stock total less than $70,000 per year.
Under Delaware law, the Company is only permitted to pay dividends out of
accumulated surplus or the current or prior year's net profits. At June 30,
1995, the Company had a surplus of $32,000. During the six months ended June 30,
1995, it had a net loss.
At June 30, 1995 there were 390 holders of record of the Company's Common
Stock.
Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company and
should be read in conjunction with the audited consolidated financial statements
for the six months ended June 30, 1995 and for each of the three years in the
periods ended December 31, 1994 and 1993 and the related notes included
elsewhere in this Report:
<TABLE>
<CAPTION>
Six months
ended Year Ended December 31,
INCOME STATEMENT DATA June 30, 1995 1994 1993 1992 1991
------------- -------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 28,724 $ 54,378 $ 61,270 $ 60,364 $ 57,216
---------- --------- ---------- --------- ----------
Income (loss) from operations (924) (917) 1,647 1,818 1,982
Gain on sale of common stock of subsidiary -- -- -- 4,871 --
Interest and dividend income 183 98 184 134 199
Interest and other financing costs (632) (1,481) (3,082) (4,460) (4,874)
Other income (expense) 458 877 1,268 1,071 1,132
Minority interest 353 375 (194) -- --
---------- --------- ---------- --------- ----------
Income (loss) from continuing
operations before income taxes (562) (1,048) (177) 3,434 (1,561)
Provision (benefit) for income taxes -- (341) (385) 1,750 --
---------- --------- ---------- --------- ----------
Income (loss) from continuing operations (562) (707) 208 1,684 (1,561)
Discontinued operations(a):
Income (loss) from operations -- -- -- -- --
Gain on disposal -- -- -- 150 482
---------- --------- ---------- --------- ----------
Income (loss) before extraordinary items (562) (707) 208 1,834 (1,079)
Extraordinary items (b) -- 1,058 548 1,708 1,173
Cumulative effect of accounting change -- -- 973 -- --
---------- --------- ---------- --------- ----------
Net income (loss) (562) 351 1,729 3,542 94
Preferred dividends (35) (69) -- -- --
---------- --------- ---------- --------- ----------
Net income (loss) available to common
shareholders $ (597) $ 282 $ 1,729 $ 3,542 $ 94
========== ========= ========== ========= ==========
Earnings (loss) per share:
Continuing operations $ (.08) $ (.09) $ .04 $ .34 $ (.31)
Discontinued operations -- -- -- .03 .10
Extraordinary items -- .13 .10 .34 .23
Cumulative effect of
accounting change -- -- .19 -- --
---------- --------- ---------- --------- ----------
Net income (loss) available to common
shareholders $ (.08) $ .04 $ .33 $ .71 $ .02
========== ========= ========== ========= ==========
<CAPTION>
As of As of December 31,
BALANCE SHEET DATA June 30, 1995 1994 1993 1992 1991
------------- -------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ (6,060) $ (4,392) $ (13,586) $ (30,814) $ (37,253)
Total assets 29,675 30,485 46,194 46,700 45,556
Total liabilities and deferred income 28,119 27,980 43,755 52,773 56,858
Minority interest 1,524 1,877 2,326 1,687 --
Stockholders' equity (deficit) 32 628 113 (7,760) (11,302)
- ------------------------------
</TABLE>
(a) Represents operations of the Home Health Care Division which was sold in
June 1990 (net of income taxes).
(b) Represents net gains on extinguishment of Company debt (net of income taxes)
in 1991, 1993 and 1994 and utilization of tax loss carryforward in 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 Compared with Unaudited Six Months
Ended June 30, 1994
Total revenues during the first six months of 1995 increased by
$1,666,000, or 6%, compared with the same period of the prior year, even
though revenues of the Heritage Facility were included through March 16,
1994, but 1995 revenues include only fees for managing the Heritage
Facility. Excluding revenues pertaining to the Heritage Facility in both
years, total revenues increased by $3,392,000, or 14%.
Nursing home services revenues decreased by $1,817,000, or 9%.
Excluding revenues pertaining to the Heritage Facility in both years,
nursing home services revenues decreased by $91,000, or 1%. Excluding
the Heritage Facility in both years, total patient days decreased 1%,
primarily due to a 40 bed reduction in the number of available beds at
one of the Company's nursing homes, partially offset by a 3% increase in
patient days at the other facilities. The occupancy percentage increased
from 91.4% in 1994 to 94.1% in 1995.
Infusion therapy and other medical services revenues increased by
$3,483,000, or 50%, primarily due to a $3,800,000, or 110%, increase in
home infusion division revenues. This increase is partially attributed
to a 75% increase in the number of patients serviced. Most of the
additional home infusion patients were obtained through marketing
efforts directed at managed care companies. These patients are normally
serviced under agreements with significant price discounts or under
other arrangements which substantially reduce prices. The increase in
home infusion revenues was also affected by the Company's beginning to
provide in early 1994 Ceredase(Registered) enzyme and Cerezyme(Trademark)
infusion therapy ("Ceredase(Registered)") to patients with Gaucher's disease.
Sales of Ceredase(Registered) in the 1995 period were $1,945,000, compared to
$175,000 in the same period of 1994. Ceredase(Registered) is a very high priced
drug therapy (approximately $20,000 per month per patient), but due to its high
product cost per revenue dollar, it has a very low gross profit margin
percentage.
Personnel costs increased by $9,000. Excluding the Heritage
Facility, personnel costs increased by $1,053,000, or 8%, primarily
attributed to normal cost of living increases, higher Infu-Tech nursing
costs incurred to support the 75% increase in home infusion patients
serviced and increased Infu-Tech pharmacy payroll costs due to new
pharmacy operations and the higher number of home infusion patients
serviced.
Costs of medical and nutritional products sold to patients and
other customers increased by $2,430,000, or 85%. As a percentage of
infusion therapy and other medical services revenues, medical and
nutritional product costs increased from 41% in 1994 to 51% in 1995. The
increase is primarily attributed to the lower home infusion pricing and
the Ceredase(Registered) sales discussed
above.
Health care and lodging expen ses, which are incurred in connection
with nursing home services, decreased by $412,000, or 7%. Excluding the
Heritage Facility, health care and lodging expenses increased by
$59,000, or 1%.
Selling, general and administrative costs increased by $280,000, or 10%.
Excluding the Heritage Facility, selling, general and administrative
costs increased by $330,000, or 12%, primarily attributed to higher
Infu-Tech distribution costs incurred to support the 75% increase in
home infusion patients serviced, start-up costs associated with new
businesses and higher rent, travel and entertainment costs.
The provision for uncollectible accounts was 3% of revenues
in both the 1995 and the 1994 periods.
Depreciation and amortization expenses decreased by $135,000.
Excluding the Heritage Facility, depreciation and amortization expenses
decreased by $17,000, because certain leasehold improvements became
fully amortized during the second quarter of 1994.
Interest and dividend income increased by $131,000, primarily
due to $148,000 of interest income earned on a $7.4 million mortgage
note receivable in 1995. Interest on this note receivable was not
recorded as income in 1994 because agreements of the obligor prevented
it from paying that interest.
Interest and other financing costs decreased by $288,000, primarily due
to lower debt balances.
Other income of $458,000 in 1995 and $340,000 in 1994 primarily consisted
of amortization of deferred income of $579,000 in both 1995 and 1994 and
$188,000 of income in 1995 resulting from an adjustment to accruals related to
the deconsolidation of the Heritage Facility, partially offset by unrealized
foreign currency translation losses of $309,000 in 1995 and $225,000 in 1994.
Minority interest in loss of subsidiary of $353,000 in 1995 and
$190,000 in 1994 represents the portion of the net loss of Infu-Tech
allocable to minority stockholders.
Due to uncertainty about the ability of Infu-Tech, a 59% owned
subsidiary which files its own tax returns, to recognize the tax benefit of its
1995 operating loss, Infu-Tech did not record a tax benefit of that loss.
Primarily because of this, the Company did not record any tax benefit for the
1995 period. Management of the Company anticipates that Infu-Tech will in the
future have sufficient taxable income to recover the benefit of prior period
losses which were recorded as deferred tax assets at June 30, 1995. With regard
to the six months ended June 30, 1994, the Company recorded a benefit for income
taxes of $487,000, consisting of $171,000 absorbed by taxes on extraordinary
gains and $316,000 resulting from losses of Infu-Tech.
1995 loss was $562,000 ($.08 per share) compared to the same period prior
year loss before extraordinary gains of $165,000 ($.02 per share). The
extraordinary gains of $1,058,000 in the same period of 1994 represented the
amounts by which bank loans were satisfied for less than their principal
amounts, net of transaction costs and income taxes.
The preferred stock dividend related to the 5% exchangeable
preferred stock.
The net loss applicable to common shareholders in the six months ended
June 30, 1995 was $597,000 ($.08 per share) compared to net income applicable
to common shareholders in the first six months of 1994 of $858,000 ($.11 per
share).
1994 Compared with 1993
Total revenues decreased by $6,892,000, or 11%, in 1994 compared with
1993, as revenues of the Heritage Facility were included for the full year in
1993 but only through March 16 in 1994. Excluding the Heritage Facility in both
years, total revenues increased by $942,000, or 2%.
Nursing home services revenues decreased by $6,175,000, or 14%. Excluding
the Heritage Facility in both years, nursing home services revenues increased
by $1,659,000, or 5%, primarily attributed to higher per diem rates and larger
retroactive rate adjustments related to prior periods. Excluding the Heritage
Facility in both years, total patient days decreased slightly, but due to a 40
bed reduction in the number of available beds at one of the Company's nursing
homes during the third quarter of 1994, the occupancy percentage increased from
90.8% in 1993 to 92.3% in 1994.
During 1994, restrictions in the agreement governing a loan to Senior
Care Foundation, Inc. ("SCF"), the not-for-profit corporation which had
purchased the Heritage Facility from the Company, prevented SCF from paying
management fees of $406,000 and interest of $174,000, which were due to the
Company between March 17 and December 31, 1994. No income was recorded with
regard to those management fees and interest. Because the Company waived the
right to receive the 1994 management fees and interest, SCF should be able to
pay the management fees and interest which become due in 1995.
Infusion therapy and other medical services revenues decreased by
$717,000, or 4%. The decrease was the result principally of major declines in
revenues from orthotic products and enteral therapy, partially offset by
increases in home infusion revenues, including revenues from infusion therapy
to patients with Gaucher's disease. Orthotic product revenues declined by
$2,429,000, or 85%, due to changes in Medicare reimbursement determinations,
effective January 1, 1994, which made certain orthotic products no longer
eligible for reimbursement under Medicare. In addition, contract services
enteral therapy revenues declined $1,471,000, or 23%, due to a continuation of
a several year decrease in enteral patients, which is primarily attributed to
an increasing number of nursing home operators providing enteral therapy
services themselves. Home infusion division revenues increased $2,162,000, or
32%, primarily attributed to a 40% increase in the number of patients serviced.
Most of the additional home infusion patients were obtained through successful
marketing efforts directed at managed care companies. These patients are
normally serviced under agreements with significant price discounts or under
other arrangements which substantially reduce prices. The increase in home
infusion revenues was also affected by the Company's beginning in 1994 to
provide Ceredase(Registered) enzyme and Cerezyme(Trademark) infusion therapy
("Ceredase(Registered)") to patients with Gaucher's disease. Sales of
Ceredase(Registered) in 1994 were approximately $880,000. Ceredase(Registered)
is a very high priced drug therapy (approximately $20,000 per month per
patient), but due to its high product cost per revenue dollar, it has a very
low gross profit margin percentage. In addition, 1994 revenues included
approximately $523,000 related to ostomy irrigation sets which were sold in
1992, which were not recorded as revenues at that time due to the uncertainty
of reimbursement.
Personnel costs decreased by $2,178,000, or 7%. Excluding the Heritage
Facility in both years, personnel costs increased by $1,721,000, or 7%,
primarily attributed to normal cost of living increases and the hiring of
additional Infu-Tech marketing and sales personnel as part of the strategy to
aggressively pursue managed care contracts, as well as to implement recently
signed managed care contracts. In addition, Infu-Tech nursing costs increased
to support the 40% increase in home infusion volume and Infu-Tech pharmacy
personnel costs increased due to new pharmacy operations and the higher home
infusion volume.
Costs of medical and nutritional products sold to patients and other
customers increased by $127,000, or 2%. As a percentage of infusion therapy and
other medical services revenues, medical and nutritional product costs
increased from 39% in 1993 to 41% in 1994, and excluding the aforementioned
ostomy revenue recognized in 1994, costs increased to 43%. The increase in
costs as a percentage of sales is primarily attributed to the lower home
infusion pricing and the low profit margin Ceredase(Registered) sales discussed
above.
Health care and lodging expenses, which are incurred in connection w ith
nursing home services, decreased by $1,260,000, or 10%. Excluding the Heritage
Facility in both years, health care and lodging expenses increased by $355,000,
or 3%, primarily attributed to general cost increases.
Selling, general and administrative costs decreased by $73,000, or 1%.
Excluding the Heritage Facility, selling, general and administrative costs
increased by $226,000, or 4%, primarily attributed to costs associated with
settling a lawsuit.
The provision for uncollectible accounts was 3% of revenues in both 1993
and 1994.
Depreciation and amortization expenses decreased by $551,000. Excluding
the Heritage Facility in both years, depreciation and amortization expenses
decreased by $96,000, as certain leasehold improvements became fully amortized
during the second quarter of 1994.
Interest and dividend income decreased by $86,000, primarily due to lower
Infu-Tech cash and cash equivalents and lower notes receivable balances.
Interest and other financing costs decreased by $1,601,000, primarily due
to lower debt balances.
Other income of $877,000 in 1994 and $1,268,000 in 1993 primarily
consists of an unrealized foreign currency translation loss of $267,000 in 1994
and an unrealized foreign currency translation gain of $137,000 in 1993,
amortization of deferred income pertaining to the 1988 sale and leaseback of
three nursing homes of $1,032,000 in both 1994 and 1993, and $126,000 in each
year of amortization of a $628,000 payment received by the Company in 1992 as
consideration for the Company's releasing the buyer of the Company's former
Home Nursing Division from an agreement not to sell infusion therapy services
and the Company's agreeing not to provide nursing services in California,
Arizona or Tennessee for a period of five years.
Minority interest in loss of subsidiary of $375,000 in 1994 and in
earnings of subsidiary of $194,000 in 1993 represents the portion of the net
income or loss of Infu-Tech allocable to minority stockholders.
The benefit for income taxes of $341,000 in 1994 consists of the benefit
of the $171,000 income tax provision related to the extraordinary gains and the
$220,000 benefit for income taxes for Infu-Tech, a 59% owned subsidiary which
files its own Federal income tax return. The benefit for income taxes of
$385,000 in 1993 consists of $318,000 of prior period income tax refunds to the
Company and the benefit of the $381,000 income tax provision related to the
extraordinary gain, partially offset by the provision for income taxes for
Infu-Tech.
The 1994 loss before extraordinary gains and cumulative effect of
accounting change was $707,000 ($.09 per share) compared to prior year income
of $208,000 ($.04 per share). The extraordinary gains of $1,058,000 in 1994
represented the amounts by which bank loans were satisfied for less than their
principal amounts, net of transaction costs and income taxes. The extraordinary
gains of $548,000 in 1993 consisted of a gain of $1,026,000 pertaining to a
Bond exchange and a loss of $97,000 pertaining to a Debenture exchange
transaction, net of applicable income taxes.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and has recognized
a benefit of $973,000 (net of minority interest of $445,000) in 1993 to record
the cumulative effect of the change in accounting for income taxes.
The preferred stock dividend relates to 5% exchangeable preferred stock
issued in October and November 1993 in exchange for 6% Swiss franc denominated
Bonds.
Net income available to common shareholders in 1994 was $282,000 or $.04
per share, compared to $1,729,000, or $.33 per share, in 1993.
1993 Compared with 1992
Total revenues increased by $906,000, or 2%, in 1993 compared with 1992.
Nursing home services revenues increased by $3,716,000, or 9%, primarily
attributed to higher per diem rates and higher occupancy levels at most of the
nursing homes and higher ancillary services revenues. Average per diem rates
increased approximately 6% and total occupancy levels increased from 90.5% in
1992 to 92.6% in 1993.
Infusion therapy and other medical services revenues decreased by
$2,810,000, or 14%. The decrease is partially attributed to the fact that 1992
included $675,000 of sales of ostomy irrigation sets which are no longer being
sold because they are no longer eligible for reimbursement under Medicare. The
1992 revenues also included approximately $270,000 resulting from a release of
payments related to services rendered in 1991 which had been withheld until
resolution of litigation brought by an unrelated participant in the health care
industry regarding Medicare reimbursement rules. In addition, enteral therapy
revenues declined 16% in 1993 due to a decrease in nursing home enteral
patients which is primarily attributed to the fact that an increasing number of
nursing home operators are providing enteral therapy services themselves. Home
infusion therapy revenues declined 10% primarily due to lower pricing. The
decrease in home infusion pricing is a result of the Company's focus on selling
to managed care and other providers at negotiated reduced rates.
Personnel costs increased by $2,084,000, or 7%, primarily attributed to
normal cost of living increases, the hiring of additional Infu-Tech executive
officers, higher occupancy and acuity levels and an increase in ancillary
services at the nursing homes, and higher fringe benefit costs.
Cost of medical and nutritional products sold to patients and other
customers were 39% of infusion therapy and other medical services revenue in
both 1993 and 1992.
Health care and lodging expenses, which are incurred in connection with
nursing home services, increased by $544,000, or 4%, primarily attributed to
higher occupancy and acuity levels at the nursing homes, higher costs
attributed to an increase in nursing home ancillary services and general cost
increases.
Selling, general and administrative costs increased by $394,000, or 7%,
primarily attributed to higher costs associated with Infu-Tech being a public
company and general cost increases.
The Company determines its allowance for uncollectible accounts based upon
historical collection patterns applied to an aging of its accounts receivable
by product line and payor. The provision for uncollectible accounts decreased
from 4.6% of revenues in 1992 to 3.3% of revenues in 1993 because of improved
billing and collections of accounts receivable and better than anticipated
collections of old accounts receivable.
Depreciation and amortization expenses decreased by $71,000, or 5%,
primarily due to certain leasehold improvements becoming fully depreciated in
1992.
Interest and dividend income increased by $50,000, primarily due to
interest earned by Infu-Tech in 1993 on the net proceeds from the December 1992
initial public offering of Infu-Tech stock.
Interest and other financing costs decreased by $1,378,000, primarily due
to lower debt balances.
Other income of $1,268,000 in 1993 and $1,071,000 in 1992 primarily
consists of unrealized foreign currency translation gains of $137,000 in 1993
and $446,000 in 1992, amortization of deferred income pertaining to the 1988
sale and leaseback of three nursing homes of $1,032,000 in both 1993 and 1992,
and amortization of $126,000 in 1993 and $115,000 in 1992 of a $628,000 payment
received by the Company in 1992 as consideration for the Company's releasing
the buyer of the Company's former Nursing Home Division from an agreement not
to sell infusion therapy services and the Company's agreeing not to provide
nursing services in California, Arizona and Tennessee for a period of five
years. In 1992, these were partially offset by a $396,000 write-off of
previously capitalized costs related to projects which were abandoned
(including $306,000 attributable to a previously planned West Orange, N.J.
congregate care facility) and $110,000 of pre-acquisition nursing home rate
adjustments.
Minority interest in earnings of subsidiary of $194,000 represents the
portion of the net income of Infu-Tech allocable to minority stockholders.
The benefit for income taxes of $385,000 in 1993 primarily consists of
$318,000 of prior period income tax refunds to the Company and the benefit of
the $381,000 income tax provision related to the extraordinary gain, partially
offset by the $310,000 provision for income taxes for Infu-Tech, a 58% owned
subsidiary which will file its own Federal income tax return in 1993.
The 1993 income from continuing operations was $208,000 ($.04 per share)
compared to $1,684,000 ($.34 per share) in 1992, but 1992 included a pre-tax
gain on the sale of common stock of Infu-Tech of $4,871,000.
The Company's former home health care division, which was sold in 1990, is
treated as a discontinued operation. The Company recorded a gain on disposal of
that division of $150,000 in 1992, net of applicable income taxes.
The extraordinary net gain in 1993 of $548,000 consists of a gain of
$1,026,000 on the Bond exchange transactions and a loss of $97,000 on the
Debenture exchange transactions, net of applicable income taxes. In 1992, the
Company utilized Federal and state net operating loss carryforwards of
$1,708,000, which was recorded as an extraordinary item.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and has recognized
a benefit of $973,000 (net of minority interest of $445,000) in 1993 to record
the cumulative effect of the change in accounting for income taxes.
After the extraordinary items and the cumulative effect of the accounting
change, net income in 1993 was $1,729,000, or $.33 per share, compared to
$3,542,000, or $.71 per share, in 1992. Before the extraordinary items and the
cumulative effect of the accounting change, the Company had income of $208,000,
or $.04 per share, in 1993, compared to $1,834,000, or $.37 per share, in 1992.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had stockholders' equity of $32,000 and
total liabilities of $28,119,000. The total liabilities at June 30, 1995
included debt of $14,190,000, which included SFr 2,900,000 (approximately
$2,525,000) principal amount of the Company's 6% Swiss franc denominated
convertible bonds which were due June 27, 1995 (the "Bonds"); $686,000
principal amount of a secured loan ("Secured Loan") due August 31, 1995, as
amended; $1,200,000 principal amount of 14 1/8% subordinated debentures due
September 1996 (the "Subordinated Debentures"); $1,213,000 principal amount of
8% notes due 1999; and $5,006,000 principal amount of 6% notes and 6%
convertible notes due 2003.
Although the Sfr 2,900,000 (approximately $2,525,000) of Swiss franc
denominated Bonds matured on June 27, 1995, the Company did not pay that
principal or accrued interest of Sfr 174,000 (approximately $152,000), which
was due on that date. Since June 27, 1995, the Company has acquired SFr
1,530,000 principal amount of Bonds, including accrued interest on those Bonds,
for a total of SFr 488,170 in cash, SFr 619,500 in a note maturing in June
1998, $150,000 in cash and a $165,000 note due February 20, 1996. The Company
has continued to charge earnings with interest on the outstanding Bonds.
Pursuant to a management agreement entered into in January 1994, the
Company earned fees through June 30, 1995 for managing the Heritage Facility of
$261,000 and interest income of $148,000 on a second mortgage note held by the
Company. As a result of the purchase of the Heritage Facility, the Company will
be receiving rental payments of $2.4 million per year and management fees equal
to 5% of the gross revenues of the Heritage Facility.
The Company's cash and cash equivalents balance decreased from $1,161,000
at December 31, 1994 to $546,000 at June 30, 1995, all of which is held by
Infu-Tech. In connection with the initial public offering of Infu-Tech common
stock in 1992, the Company entered into a management and non-competition
agreement with Infu-Tech, expiring September 30, 1997, which prohibits
Infu-Tech from advancing money to (or borrowing money from) the remainder of
the Company. Therefore, at June 30, 1995, the Company (excluding Infu-Tech) had
no cash or cash equivalents.
During the six months ended June 30, 1995, the Company used $149,000 of
cash in operating activities, primarily due to the net loss of $562,000, an
increase in inventories of $279,000 and an increase in net receivables of
$226,000. This was partially offset by a $733,000 net increase in accounts
payable and other current liabilities.
Although the Company used a total of $149,000 of cash in operating
activities, Infu-Tech used $527,000 of cash in operating activities. The
Company (excluding Infu-Tech) generated $378,000 of cash from operating
activities. The Infu-Tech use of cash in operating activities was primarily due
to a net loss of $849,000 and an increase of $279,000 in inventories, partially
offset by a $660,000 increase in accounts payable.
The increase in Infu-Tech's inventories was primarily to support the
higher Infu-Tech sales levels. The increase in Infu-Tech's accounts payable was
primarily attributed to the higher Infu-Tech inventory purchases and an
improved mix of payment terms.
As of June 30, 1995, Infu-Tech's working capital was $3.6 million, which
was substantially lower than the December 31, 1994 working capital of $4.5
million. Further, at June 30, 1995, Infu-Tech's cash and cash equivalents of
$546,000 were $550,000 less than the nearly $1.1 million at December 31, 1994
and its accounts payable of $2,342,000 were $660,000 higher than the
approximately $1.7 million at December 31, 1994. Based upon preliminary
discussions with potential lenders, Infu-Tech believes that it would be able to
secure adequate financing, if necessary, to cover its cash requirements for the
foreseeable future.
During 1995, the Company invested $294,000 in property and equipment,
consisting mostly of nursing home facility improvements.
During 1995, the Company repaid $138,000 of long-term borrowings and paid
preferred dividends of $35,000.
Excluding Infu-Tech, the Company generated $378,000 of cash from operating
activities, which was invested in property and equipment ($280,000) and used in
financing activities ($163,000), resulting in a $65,000 decrease in cash and
cash equivalents, from $65,000 at December 31, 1994.
The Commonwealth of Pennsylvania conducted an audit with respect to the
Medicaid reimbursements for the Philadelphia, Pennsylvania nursing home for the
periods ended June 30, 1991 and 1992. As a result of that audit, Pennsylvania
has sent a letter to the Company dated May 1995 requesting the recoupment of
$494,000 from the nursing home. The Company disputes the results of the audit
and has filed an appeal with respect to the periods covered by the audit. The
Company is requesting that Pennsylvania refrain from immediately beginning to
hold back Medicaid payments due to the nursing home to satisfy the recoupment.
If they proceed to hold back Medicaid payments due to the nursing home, the
Company would be deprived of a significant source of funds upon which it relies
to meet its operating expenses and cash needs. Based upon discussions with
counsel, the Company is confident that it will ultimately prevail in its appeal
of these audits.
At June 30, 1995, the Company had approximately $3.3 million of debt due
in 1995 (consisting primarily of the Bonds and Secured Loan) and approximately
$1.4 million of debt due in 1996 (consisting primarily of the Subordinated
Debentures). Beyond 1996, the next significant required debt repayment was not
until 1999.
On October 31, 1995, the Company made a 15-year borrowing of $41.0 million
secured by mortgages on four of the Company's nursing homes and a five-year
borrowing of $1.5 million secured by 8 acres of land in West Orange, New
Jersey. In addition, four subsidiaries of the Company sold preferred stock for
a total of $3.5 million. The $46.0 million proceeds of those transactions were
used to purchase the four nursing homes which secure the $41.0 million
borrowing (and which previously had been operated by the Company under leases),
to repurchase another nursing home which the Company had sold in 1993 and
managed under a management contract since then and to repay $301,000, and
extend the balance, of a $601,000 secured note which would have matured in
December 1995. At the same time, the Company converted $1,464,000 of trade
payables into a three-year note. The current portion of the borrowings incurred
on October 31, 1995 totals $1.2 million.
The Company has no arrangements under which it can make further
borrowings. At June 30, 1995, the Company had a working capital deficit of
$6,060,000. Excluding Infu-Tech, which had working capital of $3,571,000, the
Company's working capital deficit was $9,631,000. The October 31, 1995
transactions improved working capital by approximately $6 million.
The Company does not have any material commitments for capital
expenditures.
The Company's 14 1/8% Subordinated Debentures due 1996, of which $1.2
million principal amount was outstanding both at June 30, 1995 and at December
31, 1995, mature on September 1, 1996.
The $41.0 million mortgage loan incurred on October 31, 1995, bears
interest at 9.86% per annum and requires payments of principal and interest
totalling $4.28 million per year for 15 years. The Company is in the process of
executing an agreement that if the Company is unable to pay the balance of
$28.19 million which will remain due at the end of 15 years, the interest rate
on the mortgage loan will increase, and all cash flow from the mortgaged
facilities will have to be used to amortize the balance of the mortgage loan.
The $1.5 million mortgage loan incurred on October 31, 1995 bears interest at
2% per annum above the prime rate and requires principal payments of $384,000
per year. The $3.5 million of subsidiary preferred stock requires cumulative
dividends equal to the liquidation preference of the preferred stock (initially
$3.5 million) times LIBOR plus 13% of the liquidation preference of the
preferred stock and is mandatorily redeemable in monthly installments at the
rate of $876,000 per year in 1997 through 2000. Based upon the 8.5% per annum
prime rate and the 5-7/16% per annum LIBOR rate on December 29, 1995, the
payments during the period from October 31, 1995 to June 30, 1996 with regard
to the $42.5 million of mortgage loans and the $3.5 million of preferred stock
would total approximately $3.6 million.
The Company anticipates that the unused portion of the funds it received
on October 31, 1995 plus the cash flow from its operations and the operations
of its subsidiaries other than Infu-Tech will be sufficient to enable the
Company to meet its obligations during the year ending June 30, 1996 with
regard to the mortgage debts incurred, and preferred stock issued, on October
31, 1995 and to pay the principal and interest on the 14 1/8% Subordinated
Debentures when they became due in September 1996. If the funds from those
sources were not sufficient for these purposes, the Company would have to sell
facilities (which it plans to do in any event) or to cause Infu-Tech to pay
dividends (of which the Company would receive 59%).
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which will become effective on July 1, 1996 for the Company. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed. The effect of the adoption of SFAS No. 121 has not been determined by
the Company.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes an alternative method of accounting
for stock-based compensation awarded to employees such as the stock options the
Company grants to employees. SFAS No. 123 provides for the recognition of
compensation expense based on the fair value of the stock-based award. The
standard allows companies to continue to measure compensation cost in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees." Companies electing to retain this method must make pro
forma disclosures of net income and earnings per share as if the fair value
based method had been applied. The Company plans to continue to use APB No. 25,
which does not require the Company to record compensation expense for the stock
options it awards to employees. In 1997, the Company will disclose the pro forma
effect of the fair value method on 1996 and 1997 net income and earnings per
share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data required by
this item appear beginning at page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
Served on
the Board of
Directors
Name Age Since
---- --- ------------
Jack Rosen ...................... 49 1981
Joseph Rosen .................... 44 1981
Israel Ingberman ................ 49 1981
Joseph Giglio ................... 54 1983
Bruce Slovin .................... 60 1988
Carl D. Glickman ................ 69 1989
Jack Rosen has served as the chief executive officer (the President or
Chairman of the Board) and as a Director of the Company since its incorporation
in 1981 and of its subsidiaries from their respective dates of incorporation,
the first of which was in 1976. Mr. Rosen is also the President and a Director
of CompreMedx Cancer Centers Corporation ("CompreMedx"), an 89.1%-owned
subsidiary of the Company, and the Chairman of the Board of Directors and Chief
Executive Officer of Infu-Tech, Inc. ("Infu-Tech"), a 59% owned subsidiary of
the Company. He first became involved in the health care field in September
1971 when he became a director of Garden State Health Care Center of East
Orange, New Jersey. He is actively engaged, together with Joseph Rosen and
Israel Ingberman, who are officers and directors, and along with Jack Rosen,
are the three principal stockholders of the Company (the "Principal
Stockholders"), in a variety of enterprises, including nursing home ownership
and management, real estate development and hotel ownership (the
"Rosen-Ingberman Enterprises"). Jack Rosen is the brother of Joseph Rosen.
Joseph Rosen has served as a Vice President and as a Director of the
Company since its incorporation in 1981 and as a director and officer of all
its subsidiaries (including CompreMedx and Infu-Tech) from their respective
dates of incorporation. He became an Assistant Secretary of the Company in
March 1983. He first became involved in the health care field in October 1974
with the organization of Jayber Inc., which operates a nursing home in West
Orange, New Jersey and now is a subsidiary of the Company. He is actively
engaged, together with the other Principal Stockholders, in the Rosen-Ingberman
Enterprises. He is the brother of Jack Rosen.
Israel Ingberman has served as Secretary, Treasurer and as a Director of
the Company since its incorporation in 1981 and as a director and officer of
all its subsidiaries (including CompreMedx and Infu-Tech) from their
respective dates of incorporation. He first became involved in the health care
field in October 1974 with the organization of Jayber Inc. He is actively
engaged, together with the other Principal Stockholders, in the Rosen-Ingberman
Enterprises.
Joseph M. Giglio has been a director of the Company since January 1983 and
is also a Director of Infu-Tech. Since December 1993, he has been serving as
the Chairman of Apogee Research, Inc., an infrastructure consulting firm. From
December 1993 until August 1994, he was the Senior Advisor to the First
Southwest Company. From April 1992 to November 1993, he was an Executive Vice
President of Smith Barney & Co., and from June 1991 to April 1992, he was a
Managing Director of that firm. From January 1990 to June 1991, he was the
President of Chase Municipal Securities, Inc., an affiliate of The Chase
Manhattan Bank, N.A. From August 1988 through December 1989, Mr. Giglio was a
Senior Vice President at Chase Securities, Inc. in the Municipal Finance
Division. For more than five years prior to joining Chase, Mr. Giglio was the
Senior Managing Director of the Public Finance Department at Bear Stearns &
Co., Inc. Mr. Giglio served as Chairman of the National Council on Public Works
Improvement, which released its final report, "Fragile Foundation," in February
1988. Mr. Giglio chaired the U.S. Senate Budget Committee's Private Sector
Advisory Panel on Infrastructure Financing. He serves on the boards of
directors of Small Business Foundation of America, Inc.; The Hudson Institute;
and Empire Blue Cross/Blue Shield. Mr. Giglio has served as an Associate
Professor of Finance at New York University. He is a graduate of Rutgers
University, and holds a Master of Public Administration degree from New York
University and a Master's degree in Business from Columbia University.
Carl D. Glickman has been a director of the Company since August 1989 and
is also a Director of Infu-Tech. Since 1953, he has been the president of The
Glickman Organization, a real estate ownership and management company. In
addition, Mr. Glickman is a director of Andal Corporation (a diversified
manufacturing company), Bear Stearns Companies, Inc. (an investment banking
company), Custodial Trust Company (a New Jersey bank), Jerusalem Economic
Corporation (an Israeli real estate company), Alliance Tyre and Rubber Co. (an
Israeli tire manufacturer), Franklin Holdings, Inc. (an investment company),
Lexington Corporate Properties, Inc. (a real estate investment trust), Modern
Video Co. (a motion picture production company) and Office Max, Inc. (an office
supply retailer).
Bruce Slovin has been a Director of the Company since June 1988 and is
also a Director of Infu-Tech. Mr. Slovin is a graduate of Harvard Law School
and Cornell University. Since 1985, he has been president and a director of
Revlon Group Incorporated, an industrial products holding company. Since 1980,
he has been president and a director of MacAndrews & Forbes Group, Inc., an
industrial holding company. In addition, Mr. Slovin is a director of Andrews
Group Incorporated (a publishing and entertainment company), Power Central
Technologies, Inc. (a manufacturer of aerospace components), Cantel Industries,
Inc. (a distributor of furniture and medical equipment) and The Coleman
Company, Inc. (an outdoor recreational equipment manufacturer).
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation received during each of
the two years ended December 31, 1993 and 1994 and the six months ended June
30, 1995, by the Company's chief executive officer and its other executive
officers:
<TABLE>
<CAPTION>
==================================================================================================================================
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------ ------------------------------------
Awards Payouts
---------------------- -------
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Rosen, Chairman, 1995* 150,000**
President and Chief 1994 300,000** None None None None None None
Executive Officer 1993 300,000**
- ----------------------------------------------------------------------------------------------------------------------------------
Richard S. Gordon 1995* 49,479 5,000 --
Executive Vice President 1994*** 99,920*** 37,154*** None None 5,000 None None
--
- ----------------------------------------------------------------------------------------------------------------------------------
Benjamin Geizhals, 1995* 65,000 --
Vice President 1994 130,000 None None None 2,000 None None
1993 130,000 --
- ----------------------------------------------------------------------------------------------------------------------------------
Gary Finkel 1995* 60,000 -- --
Vice President 1994 120,000 -- None None 5,000 None None
1993 115,125 5,000 --
==================================================================================================================================
</TABLE>
* Six months ended June 30, 1995.
** Includes compensation paid by Infu-Tech.
*** For the period since Mr. Gordon became employed by the Company and
Infu-Tech in March 1994. Mr. Gordon became an officer of the
Company in August 1994.
DIRECTORS' FEES
Since 1993, the directors have waived directors' fees (which, prior to
1993, had been paid to directors who were not employees at the rate of $10,000
plus $500 for each directors' meeting attended). In recognition of this, and
the waiver of fees for calendar 1995, in January 1995, each director who was
not an officer of the Company was granted an option under the Company's 1989
Key Employees and Key Personnel Plan to purchase 20,000 shares of Common Stock.
OPTION PLANS
No options were granted during the six months ended June 30, 1995 to the
Company's chief executive officer and its other executive officers, and no
options or SARs held at June 30, 1995 were exercised during the six months
ending on that date.
The following table sets forth certain information with regard to options
and SARs held at June 30, 1995.
<TABLE>
<CAPTION>
======================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year-End* at Fiscal Year End
(#) ($)**
----------------------------------------------------------
Shares Value
Acquired on Realized Exercisable(E)/ Exercisable(E)/
Name Exercise (#) ($) Unexercisable(U) Unexercisable(U)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jack Rosen -- -- 500,000(E) 0(E)
0(U) 0(U)
- ----------------------------------------------------------------------------------------------------------------------
Richard S. Gordon -- -- 5,000(E) 0(E)
0(U) 0(U)
- ----------------------------------------------------------------------------------------------------------------------
Benjamin Geizhals -- -- 10,000(E) 6,000(E)
0(U) 0(U)
- ----------------------------------------------------------------------------------------------------------------------
Gary Finkel -- -- 14,500(E) 7,125(E)
0(U) 0(U)
======================================================================================================================
</TABLE>
* The Corporation has not granted any SARs.
** Based upon the amount by which the high bid price of the Company's
Common Stock on June 30, 1995 ($1.00 per share) exceeded the exercise
price of the options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company does not have a Compensation Committee. Salaries of its senior
executive officers, other than its Chairman of the Board, are set by the
Chairman of the Board. The salary of the Chairman of the Board is approved by
the Board of Directors. Jack Rosen, who is Chairman of the Board, and Joseph
Rosen (Jack Rosen's brother) and Israel Ingberman (the third of the Principal
Stockholders), both of whom are officers of the Company, are members of the
Board of Directors and participate in its deliberations.
Transactions between the Company and members of its Board of Directors
during the six months ended June 30, 1995 were as follows:
The Company is occupying approximately 15,300 square feet of office space
(including 7,400 square feet leased by Infu-Tech) in an office building in
Englewood Cliffs, New Jersey which is owned by the Principal Stockholders. The
rent expense is $27,185 per month. The Company believes the terms on which it
is occupying this space are more favorable to it than the terms on which it
could rent a similar amount of comparable space from an unaffiliated person.
Early in 1990 a dispute over management fees between the Company and three
nursing homes owned by the Principal Stockholders was resolved by the nursing
homes' agreeing to pay a total of $1,940,000 in satisfaction of all their
December 31, 1989 obligations to the Company. In early 1992, the settlement
agreement between the Company and the three nursing homes was modified to
provide that the then-existing balance of $1,046,000 would be paid in sixteen
equal quarterly payments of $76,000 each (which included interest at 7 1/2% and
principal) beginning June 15, 1992 and continuing through March 15, 1996. The
balance remaining on the modified settlement agreement at December 31, 1994
(including accrued interest due to payment delinquencies) was $839,000. In
January 1995 the settlement agreement was further modified to provide for a
$227,000 principal and interest payment to be made on or before March 30, 1995
and the remaining balance of $626,000 to be paid in twelve equal quarterly
installments of $60,000 each (including interest at 8 1/2%) beginning July 1,
1995 and continuing through March 31, 1998. The payment due on January 1, 1996
has not yet been made.
At June 30, 1995, the Company was owed a total of $180,000 from two
entities owned by the Principal Stockholders resulting from loans to the
entities from various corporations which now are subsidiaries of the Company,
but which were not owned by the Company when the loans were made. The Company
is also owed $15,000 for health insurance premiums and other charges with
regard to nursing homes owned by the Principal Stockholders.
From January to March 1995, the Company rented a house in Florida which was
used by the Company, and its Chairman, primarily in connection with the
Company's business. The total rent paid was $114,000.
During the six months ended June 30, 1995, the Company (including its
Infu-Tech subsidiary) was charged $39,000 by a corporation owned by Jack Rosen
for use of an airplane owned by that corporation. The Company believes the
rates it was charged for use of that airplane were lower than those which would
have been available from an independent charter company for use of a similar
airplane.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table contains information concerning the ownership of the
Company's Common Stock on January 31, 1996 by each person known to the Company
to be a beneficial owner of more than 5% of any class of the Company's voting
securities, by the Company's directors, by each of the executive officers of
the Company who was among the five most highly compensated executive officers
of the Company in 1994 and by directors and executive officers as a group are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Amount and Nature
Name and Address of
Title of Class Of Beneficial Owner Beneficial Ownership Percent of Class
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Colonial Management Associates, Inc. 530,000 shares 6.7%
1 Financial Center
Boston, MA 02111
Common Stock Michael Klein 940,220 shares 11.8%
Preferred Stock 100 Shoreline Highway 3,305 shares 23.8%
Building A, Suite 190
Mill Valley, CA 94941
Common Stock Andrew J. McLaughlin, Jr. 1,684,683 shares (a) 18.5%
61 Broadway
New York, NY 10006
Common Stock Carl D. Glickman 76,000 shares (a) 1.0%
The Leader Building, Suite 1140
Cleveland, OH 44114
Common Stock Israel Ingberman 886,072 shares 11.3%
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Common Stock Jack Rosen 1,386,076 shares (b) 16.6%
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Common Stock Joseph Rosen 893,577 shares 11.4%
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Common Stock Bruce Slovin 92,500 shares (b) 1.2%
35 E. 62nd Street
New York, NY 10021
Common Stock Joseph M. Giglio 95,517 shares (b) 1.2%
4350 East West Highway, Suite 600
Bethesda, MD 20814
Common Stock Richard S. Gordon 5,000 shares (b) (c)
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Common Stock Benjamin Geizhals 10,000 shares (b) (c)
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Common Stock All directors and 3,459,242 shares (a) 43.5%
executive officers
as a group (8 persons)
</TABLE>
- --------------
(a) Includes 1,148,391 shares issuable on conversion of 6% Convertible
Notes due 2003.
(b) Includes shares of Common Stock issuable on exercise of outstanding
stock options as follows: Mr. Rosen 500,000 shares; Mr. Giglio,
85,000 shares; Mr. Glickman, 75,000 shares; Mr. Slovin, 85,000
shares; Mr. Geizhals, 10,000 shares; Mr. Gordon, 5,000 shares; all
directors and executive officers as a group, 774,500 shares.
(c) Less than 1%.
On January 31, 1996, Cede & Co. owned of record 4,804,449 shares of the
Company's Common Stock, constituting 60% of the outstanding Common Stock. The
Company understands those shares were held beneficially for members of the New
York Stock Exchange, some of whom may in turn have been holding shares
beneficially for customers.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transactions between the Company and members of its Board of Directors are
described under "Compensation Committee Interlocks and Insider Participation."
FILING OF REPORTS
To the best of the Company's knowledge, no director, officer, or
beneficial owner of more than 10% of the Company's stock failed to file on a
timely basis reports required by ss. 16(a) of the Securities and Exchange Act of
1934, as amended, with regard to the six months ended June 30, 1995, except that
The 1965 Trust (the "Trust") failed timely to file a Form 4 reflecting the
termination of the trust on June 30, 1995 and Mr. Michael Klein, the beneficiary
of the Trust, failed timely to file a Form 3 reflecting the receipt on August
19, 1995 of shares following the liquidation of the Trust. Although the Company
was made aware of the liquidation of the Trust when it occurred, neither the
Trust nor Mr. Klein were advised that because of the liquidation, the filings
would be required.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS
SCHEDULE, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
1. Financial Statements
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
2. Financial Statement Schedule
Listed on Index to Consolidated Financial Statements and Financial
Statement Schedule.
3. The following exhibits are filed with this Report or incorporated
by reference:
3(a) Certificate of Incorporation, as amended. (1)(6)
3(b) By-Laws, as amended. (1)
4(a) Specimen of Common Stock Certificate. (1)
4(b) Public Bond Issue Agreement dated as of May 31, 1985 with Banque
Gutzwiller, Kurz, Bungener S.A. as representative of a
consortium of Swiss financial institutions. (2)
4(c) Indenture dated as of September 4, 1986 relating to 14-1/8%
Subordinated Debentures due 1996. (3)
4(d) Supplemental Indenture No. 1 dated as of September 27, 1991. (10)
10(a) Agreement dated July 20, 1987 among Continental Teaneck Realty
Inc., Forest City Residential Development Inc. and the
Company. (4)
10(b) Certificate and Articles of Limited Partnership of CR Teaneck
Limited Partnership. (4)
10(c) Lease dated November 28, 1988 between Midlantic National Bank,
Trustee, and Pompton Avenue Associates Inc. (5)
10(d) Lease dated November 28, 1988 between Midlantic National Bank,
Trustee, and Jayber, Inc. (5)
10(e) Lease dated December 28, 1988 between Midlantic National Bank &
Trust Company/Florida, Trustee, and P.V.M. Associates, Inc. (5)
10(f) 1989 Key Employees and Key Personnel Stock Option Plan. (6)
10(g) Indenture dated September 1, 1993 between the Company and
American Stock Transfer & Trust Company. (7)
10(h) Debenture Purchase Agreement dated September 7, 1993 between
the Company and USLIFE Income Fund, Inc. (7)
10(i) Debenture Purchase Agreement dated September 7, 1993 between
the Company and The United States Life Insurance Company in the
City of New York. (7)
10(j) Option Agreement dated October 13, 1993 between the Company and
Carl D. Glickman. (7)
10(k) Bond Purchase Agreement dated October 27, 1993 among the Company,
Andrew J. McLaughlin, Jr. and Gerald T. McLaughlin. (7)
10(l) Debenture Purchase Agreement dated October 27, 1993 among the
Company, Andrew J. McLaughlin, Jr. and Gerald T. McLaughlin. (7)
10(m) Restatement Modification and Extension of Loan Agreement and
Note dated as of July 13, 1993 between Barclays Bank, N.A. and
the Company. (7)
10(n) Mutual Release dated March 16, 1994 between Barclays Bank, N.A,
the Company, Senior Care Foundation and the Company's
Subsidiaries. (8)
10(o) Unconditional and Continuing Guaranty dated as of March 16,
1994 from the Company and Continental Norwood, Inc. to Health
Care REIT, Inc. (8)
10(p) Mortgage Note dated March 16, 1994 from Senior Care Foundation to
Continental Norwood Holdings, Inc. (8)
10(q) Mortgage dated March 16, 1994 from Senior Care of Continental
Norwood Holdings, Inc. (8)
10(r) Intercreditor Subordination Agreement dated as of March 16,
1994 between Health Care REIT, Inc., Company, Continental
Norwood, Inc., and Continental Norwood Holdings, Inc. (8)
10(s) Management Agreement dated as of January 1, 1994 between Senior
Care Foundation and Continental Norwood, Inc. (8)
10(t) Distribution Agreement between Infu-Tech Inc. and Genzyme
Corporation dated November 11, 1994. (9)
10(u) Loan Agreement dated October 31, 1995 by and among Nomura Asset
Capital Corporation, Jayber, Inc., PVM Associates, Inc.,
Continental Norwood Holdings, Inc. and Pompton Avenue
Associates, Inc.
10(v) Lease Agreement dated October 31, 1995 between Continental
Norwood Holdings, Inc. and Senior Care Foundation, Inc.
10(w) Management Agreement dated October 31, 1995 between TNS Nursing
Homes, Inc. and Continental Norwood Holdings, Inc.
11 Calculation of Earnings Per Share.
21 List of Subsidiaries.
- -----------
(1) Incorporated by reference to Registration Statement No. 2-81823.
(2) Incorporated by reference to Registration Statement No. 33-611.
(3) Incorporated by reference to Registration Statement No. 33-6341.
(4) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1987.
(5) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1988.
(6) Incorporated by reference to definitive proxy statement dated
July 13, 1989.
(7) Incorporated by reference to Registration Statements Nos. 33-74474
and 33-7476.
(8) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1993.
(9) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1994.
(b) Reports on Form 8-K filed during the six months ended June 30, 1995.
None.
(c) The exhibits to this Report are listed in Item 14(a)3.
(d) The financial statement schedule required by Regulation S-X which is
excluded from the Annual Report to Stockholders by Rule 14a-3(b)(1) is
listed in Item 14(a)(2).
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1995, December 31, 1994 and 1993
With Independent Auditors' Report Thereon)
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedules
Page
----
(1) FINANCIAL STATEMENTS:
Independent Auditors' Report ......................................... F-1
Consolidated Financial Statements:
Balance Sheets:
June 30, 1995, December 31, 1994 and 1993 ........................ F-2
Statements of Operations:
Six-month period ended June 30, 1995,
Years ended December 31, 1994, 1993 and 1992 .................... F-3
Six-month periods ended June 30, 1995 and 1994 ................... F-4
Statements of Stockholders' Equity (Deficit):
Six-month period ended June 30, 1995
Years ended December 31, 1994, 1993 and 1992 .................... F-5
Statements of Cash Flows:
Six-month period ended June 30, 1995
Years ended December 31, 1994, 1993 and 1992 .................... F-6
Notes to Consolidated Financial Statements ......................... F-7
(2) FINANCIAL STATEMENT SCHEDULES:
II - Valuation and Qualifying Accounts ............................... S-1
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Independent Auditors' Report
The Board of Directors and Stockholders
Continental Health Affiliates, Inc.:
We have audited the consolidated financial statements of Continental Health
Affiliates, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obatain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Continental Health
Affiliates, Inc. and subsidiaries as of June 30, 1995 and December 31, 1994 and
1993, and the results of their operations and their cash flows for the six-month
period ended June 30, 1995 and each of the years in the three year period ended
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
As discussed in notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
New York, New York
September 29, 1995, except as to note 14,
which is as of October 31, 1995
F-1
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
Assets 1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $546 $1,161 $3,527
Patients' funds 200 205 284
Accounts receivable, net of allowances for uncollectible
accounts of $3,712, $3,137 and $3,188 6,038 6,264 6,419
Inventories 1,686 1,407 1,293
Deferred income taxes 849 849 926
Prepaid expenses and other current assets 1,116 1,231 1,078
----------- ---------- ---------
Total current assets 10,435 11,117 13,527
Property and equipment, at cost, net of accumulated depreciation
and amortization of $3,875, $3,564 and $5,871 9,934 9,903 30,728
Mortgage note receivable (note 2 and 14) 7,399 7,399 --
Goodwill, net of accumulated amortization of $601, $558 and $473 339 382 467
Deferred income taxes 220 220 143
Other assets 1,348 1,464 1,329
----------- ---------- ---------
Total assets $29,675 $30,485 $46,194
=========== ========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ -- $ -- $15,000
Current portion of long-term debt 3,424 3,165 198
Accounts payable 8,660 7,451 6,696
Other current liabilities 4,411 4,893 5,219
----------- ---------- ---------
Total current liabilities 16,495 15,509 27,113
Long-term debt, net of current portion (note 14) 10,766 10,806 13,298
Deferred income 615 1,194 2,352
Other liabilities 243 471 992
Minority interest in subsidiary 1,524 1,877 2,326
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.02 par value; $100 liquidation preference;
1,000,000 shares authorized; 13,884 shares outstanding 1 1 1
Common stock, $.02 par value; 15,000,000 shares authorized;
7,830,059, 7,825,059 and 7,661,439 shares outstanding 156 156 153
Additional paid-in capital 20,192 20,226 20,065
Accumulated deficit (20,317) (19,755) (20,106)
----------- ---------- ---------
Total stockholders' equity 32 628 113
----------- ---------- ---------
Total liabilities and stockholders' equity $29,675 $30,485 $46,194
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six-month
period ended
June 30, Years ended December 31,
1995 1994 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Nursing home services $18,248 $38,182 $44,357 $40,641
Infusion therapy and other medical services 10,476 16,196 16,913 19,723
------- ------- ------- -------
Total revenues 28,724 54,378 61,270 60,364
------- ------- ------- -------
Operating expenses:
Personnel 14,493 28,689 30,867 28,783
Medical and nutritional product 5,300 6,714 6,587 7,721
Health care and lodging 5,496 11,511 12,771 12,227
Selling, general and administrative 3,014 5,931 6,004 5,610
Provision for uncollectible accounts 979 1,622 2,015 2,755
Depreciation and amortization 366 828 1,379 1,450
------- ------- ------- -------
Total operating expenses 29,648 55,295 59,623 58,546
------- ------- ------- -------
Income (loss) from operations (924) (917) 1,647 1,818
Gain on sale of common stock of subsidiary (note 2) -- -- 4,871
Interest and dividend income 183 98 184 134
Interest and other financing costs (632) (1,481) (3,082) (4,460)
Other income, net 458 877 1,268 1,071
Minority interest in loss (earnings) of subsidiary 353 375 (194) --
------- ------- ------- -------
Income (loss) before income taxes, extraordinary
gains and cumulative effect of accounting change (562) (1,048) (177) 3,434
Provision (benefit) for income taxes -- (341) (385) 1,750
------- ------- ------- -------
Income (loss) from continuing operations before
extraordinary gains and cumulative effect of
accounting change (562) (707) 208 1,684
Gain on disposal of discontinued operations (net of
income taxes of $100) (note 2) -- -- -- 150
------- ------- ------- -------
Income (loss) before extraordinary gains and
cumulative effect of accounting change (562) (707) 208 1,834
Extraordinary gains:
Utilization of tax loss carryforward (note 8) -- -- -- 1,708
Net gains on extinguishment of debt (net of income
taxes of $171 and $381) -- 1,058 548 --
Cumulative effect of change in accounting for income taxes,
net of minority interest (note 8) -- -- 973 --
------- ------- ------- -------
Net income (loss) (562) 351 1,729 3,542
Preferred dividends (35) (69) -- --
------- ------- ------- -------
Net income (loss) available to common shareholders ($597) $282 $1,729 $3,542
======= ======= ======= =======
Earnings (loss) per share:
Continuing operations ($0.08) ($0.09) $0.04 $0.34
Discontinued operations -- -- -- 0.03
Extraordinary items -- 0.13 0.10 0.34
Cumulative effect of change in accounting for
income taxes, net -- -- 0.19 --
------- ------- ------- -------
Net income (loss) available to common shareholders ($0.08) $0.04 $0.33 $0.71
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
CONTINENTAL HEALTH AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
--------- ------------
(Audited) (Unaudited)
<S> <C> <C>
Revenues:
Nursing home services $18,248 $20,065
Infusion therapy and other medical services 10,476 6,993
--------- ------------
Total revenues 28,724 27,058
--------- ------------
Operating expenses:
Personnel 14,493 14,484
Medical and nutritional product 5,300 2,870
Health care and lodging 5,496 5,908
Selling, general and administrative 3,014 2,734
Provision for uncollectible accounts 979 875
Depreciation and amortization 366 501
--------- ------------
Total operating expenses 29,648 27,372
--------- ------------
Loss from operations (924) (314)
Interest and dividend income 183 52
Interest and other financing costs (632) (920)
Other income, net 458 340
Minority interest in loss of subsidiary 353 190
--------- ------------
Loss before income taxes and extraordinary gains (562) (652)
Benefit for income taxes -- (487)
--------- ------------
Loss before extraordinary gains (562) (165)
Extraordinary gains on extinguishment of debt (net of income
taxes of $171,000) -- 1,058
--------- ------------
Net income (loss) (562) 893
Preferred dividends (35) (35)
--------- ------------
Net income (loss) applicable to common shareholders ($597) $858
========= ============
Earnings (loss) per share:
Before extraordinary items ($0.08) ($0.02)
Extraordinary items -- 0.13
--------- ------------
Net income (loss) applicable to common shareholders ($0.08) $0.11
========= ============
</TABLE>
See accompanying notes to financial statements.
F-4
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Six-month period ended June 30, 1995 and years ended December 31, 1994, 1993
and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
----------------- ------------------ Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
------- ------ --------- ------ ------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1992 -- $ -- 4,964,299 $99 $13,976 ($25,377) ($11,302)
Exercise of stock options -- -- 500 -- -- -- --
Net income -- -- -- -- -- 3,542 3,542
------- ------ --------- ----- ------- --------- -----------
Balance,
December 31, 1992 -- -- 4,964,799 99 13,976 (21,835) (7,760)
Issuance of preferred stock 13,884 1 -- -- 1,313 -- 1,314
Issuance of common stock -- -- 2,696,640 54 4,776 -- 4,830
Net income -- -- -- -- -- 1,729 1,729
------- ------ --------- ----- ------- --------- -----------
Balance,
December 31, 1993 13,884 1 7,661,439 153 20,065 (20,106) 113
Issuance of common stock -- -- 161,120 3 281 -- 284
Exercise of stock options -- -- 2,500 -- 1 -- 1
Additional costs related to
issuance of preferred stock
in 1993 -- -- -- -- (52) -- (52)
Preferred dividends -- -- -- -- (69) -- (69)
Net income -- -- -- -- -- 351 351
------- ------ --------- ----- ------- --------- -----------
Balance,
December 31, 1994 13,884 1 7,825,059 156 20,226 (19,755) 628
Exercise of stock options -- -- 5,000 -- 1 -- 1
Preferred dividends -- -- -- -- (35) -- (35)
Net loss -- -- -- -- -- (562) (562)
------- ------ --------- ----- ------- --------- -----------
Balance,
June 30, 1995 13,884 $1 7,830,059 $156 $20,192 ($20,317) $32
======= ====== ========= ===== ======= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six-month
period ended Years ended December 31,
June 30, ------------------------------
1995 1994 1993 1992
---------- ------ ------- -------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) ($562) $351 $1,729 $3,542
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 366 828 1,379 1,450
Amortization of deferred financing costs 32 104 212 205
Provision for uncollectible accounts 979 1,622 2,015 2,755
Amortization of deferred income (579) (1,158) (1,158) (1,147)
Gain on sale of common stock of subsidiary -- -- -- (4,871)
Cumulative effect of accounting change -- -- (973) --
Provision for deferred income taxes -- -- 2 --
(Gain) loss on translation of foreign currency debt 309 267 (137) (446)
Gains on disposal of discontinued operations -- -- -- (250)
Write-off of previously capitalized costs -- -- -- 396
Minority interest (353) (375) 194 --
Net gains on extinguishment of debt -- (1,229) (929) --
Increase (decrease) in cash due to changes in:
Accounts receivable (753) (1,702) (2,228) (1,695)
Inventories (279) (147) (77) (11)
Prepaid expenses and other current assets 115 (158) (274) (390)
Other assets 71 (223) 320 349
Accounts payable 1,209 1,518 456 960
Other current liabilities (476) 73 236 (1,060)
Deferred income -- -- -- 628
Other liabilities (228) (521) (332) 419
---------- ------ ------- -------
Net cash provided by (used in) operating activities (149) (750) 435 834
---------- ------ ------- -------
Investing activities:
Expenditures for property and equipment (294) (1,021) (513) (1,280)
Net proceeds from sales of assets and division -- -- -- 600
Net proceeds from sale of common stock of subsidiary -- -- -- 6,558
Purchase by Infu-Tech of treasury stock -- (73) -- --
---------- ------ ------- -------
Net cash provided by (used in) investing activities (294) (1,094) (513) 5,878
---------- ------ ------- -------
Financing activities:
Net proceeds from not-for-profit borrowings -- 12,905 -- --
Net proceeds from long-term borrowings -- 790 -- 102
Payments of short-term borrowings -- (13,750) -- (2,986)
Payments of long-term borrowings (138) (327) (311) (318)
Payment of preferred dividends (35) (69) -- --
Cost of debt exchange offers -- (71) (520) --
Net proceeds from exercise of common stock options 1 -- -- --
---------- ------ ------- -------
Net cash used in financing activities (172) (522) (831) (3,202)
---------- ------ ------- -------
Net increase (decrease) in cash and cash equivalents (615) (2,366) (909) 3,510
Cash and cash equivalents, beginning of year 1,161 3,527 4,436 926
---------- ------ ------- -------
Cash and cash equivalents, end of year $546 $1,161 $3,527 $4,436
========== ====== ======= =======
Supplemental disclosure of cash flow data:
Interest paid $284 $1,483 $3,341 $4,559
========== ====== ======= =======
Income taxes paid $26 $109 $374 $251
========== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(1) (a) Principles of Consolidation
The consolidated financial statements include the accounts of
Continental Health Affiliates, Inc. ("Continental") and its
subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Minority interest represents the minority stockholders'
proportionate share of equity in Infu-Tech, Inc.
("Infu-Tech").
(b) Business Activities
The Company's operations consist primarily of nursing home
services and infusion therapy and other medical services.
Nursing home services include the ownership, leasing,
operation and management of nursing homes. Infusion therapy
and other medical services include enteral and other medical
services, primarily for patients in nursing homes, and
intravenous and other infusion therapies for patients at home
and in nursing homes.
(c) Cash and Cash Equivalents
Cash and cash equivalents at June 30, 1995 and December 31,
1994 and 1993 includes $546, $1,096 and $3,215, respectively,
held by Infu-Tech. In connection with the Company's initial
public offering (see note 2), a management and non-competition
agreement between Continental and its 59% owned subsidiary,
Infu-Tech, expiring September 30, 1997, prohibits Infu-Tech
from lending money to (or borrowing money from) Continental
and its other subsidiaries subsequent to December 31, 1992.
The Company classifies all highly liquid investments with
maturities of three months or less when purchased as cash
equivalents.
(d) Patients' Funds
Patients' funds represent cash balances which have been
deposited by the Company into separate bank accounts and are
restricted for the use of patients. The related liability is
included in other current liabilities.
(e) Revenues
Revenue is reported at the net amounts estimated to be
realized from patients, third-party payors and others for
services rendered. The Company receives payments for services
to eligible patients under Medicare and various state Medicaid
programs. Approximately 59% (1995), 60% (1994), 60% (1993) and
61% (1992) of total revenues were derived from such medical
assistance programs. Revenues under these programs are based
upon government approved rates which are subject to audit. In
the opinion of management, retroactive adjustments, if any,
would not be material to the Company's financial position or
results of operations.
(f) Inventories
Inventories, which consist of medical and nutritional products
and supplies, are valued at the lower of cost (first-in,
first-out method) or market.
(Continued)
F-7
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(1) Continued
(g) Property and Equipment
Depreciation of property and equipment is computed using the
straight-line method at rates that charge the cost of various
classes of assets over the periods of expected use. The range
of useful lives estimated for buildings and improvements is
generally 7 to 40 years, and the range for furniture and
equipment is three to ten years. Leasehold improvements are
amortized over the lesser of the term of the lease or the
estimated life of the asset.
(h) Goodwill
The excess of the Company's cost of acquired businesses over
the fair values at the dates of acquisition of the net assets
acquired has been attributed to goodwill, except as explained
in note 2. Goodwill is being amortized over periods ranging
from 7 to 40 years. Impairment is assessed based upon the
profitability of the related businesses relative to planned
levels.
(i) Deferred Financing Costs
Deferred financing costs (included in other assets) incurred
in connection with the issuance of long-term debt are being
amortized on a straight-line basis over the term of the
related debt agreements. In the event of an early retirement
of debt, these costs would be written off in an amount
relative to the amount of principal retired.
(j) Sales of Stock by Subsidiaries
The Company recognizes income or loss on the sale of stock by
its subsidiaries.
(k) Income Taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"), and has reported the cumulative
effect of the change in the method of accounting for income
taxes in the consolidated statement of operations for 1993.
Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to the differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(l) Earnings Per Share
Earnings per share is computed based upon the weighted average
number of common shares and common share equivalents
outstanding during each year. Common share equivalents reflect
the dilutive effect of stock options. The effects of the
assumed conversion of the convertible bonds outstanding, which
are also common stock equivalents, have not been included
since they are antidilutive.
The weighted average number of shares used in computing
earnings per share total 7,826,309 (1995), 7,783,425 (1994),
5,189,519 (1993) and 4,964,737 (1992).
(Continued)
F-8
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(2) Acquisitions and Dispositions
(a) The Heritage Facility
Between 1986 and 1989, the Company built a long-term care
facility (the "Heritage Facility") on a property owned by a
corporation in which the Company had a significant preferred
stock interest and which the Company had the option to
purchase in its entirety. The accounts of this corporation
were included in the consolidated financial statements because
the Company had the right to elect the directors, although it
did not do so, and exercise financial control of the
corporation. In connection with the construction of the
Heritage Facility, the corporation incurred a $10,000 mortgage
debt to a bank and an $11,649 second mortgage debt to the
Company. In 1990, (i) the corporation completed the transfer
of the Heritage Facility to a newly-formed, not-for-profit
corporation ("SCF") in exchange for the assumption by SCF of
the $10,000 and $11,649 mortgage debts, and (ii) the Company
exercised its option to purchase the corporation. In addition,
SCF entered into a management agreement under which the
Company manages the Heritage Facility for a fee. The Company
had agreed to provide funds to the Heritage Facility for cash
deficiencies.
In March 1994, SCF obtained a $14,100 mortgage loan secured by
the Heritage Facility and used $12,905 of the proceeds of that
loan to (i) repay the $10,000 construction mortgage loan which
had been incurred by the Company and assumed by SCF, but for
which the Company had continued to be responsible (which SCF
was able to do for $9,167) and (ii) pay the Company an
additional $3,738 of the Heritage Facility purchase price. The
Company used the $3,738 plus the net proceeds of $830 of new
secured borrowings ("Secured Loan") to repay the balance of a
$5,000 bank revolving credit (which it was able to do for
$4,583). The Company guaranteed $2,000 of the $14,100 mortgage
loan. SCF gave the Company a $7,399 second mortgage note to
evidence its remaining obligations to the Company. The second
mortgage note is due in 2004, with interest at 3%, escalating
1% each January 1 until January 1999, after which it remains
at 8%. Principal and interest are to be paid by SCF as
promptly as possible and permitted under the mortgage loan. In
addition, the Company forgave $4,113 of working capital
advances, fees, interest and second mortgage debt owed to it
by SCF.
Pursuant to SCF's mortgage loan, specified financial covenants
must be met by both the Company and SCF. At June 30, 1994 and
September 30, 1994, SCF was not in compliance with certain
financial covenants of the mortgage loan, which were waived by
the lender. Since December 31, 1994, SCF has been in
compliance with the financial covenants. Since September 30,
1994, the Company has not been in compliance with certain
financial covenants of the mortgage loan, which were waived by
the lender.
Because the above transactions resulted in the Company no
longer being responsible for SCF's construction mortgage loan
or being required to fund losses at the Heritage Facility,
after March 16, 1994 the Heritage Facility was no longer
included in the consolidated financial statements of the
Company. As the net assets of the Heritage Facility
approximated the amount of the second mortgage note, no gain
or loss was recorded in 1994. Included in the consolidated
statements of operations of the Company are revenues of
$1,987, $9,821 and $8,781 for 1994, 1993 and 1992,
respectively, and income from operations of $284, $1,813 and
$1,249 for 1994, 1993 and 1992, respectively, pertaining to
the Heritage Facility.
(Continued)
F-9
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(2) Continued
(a) Continued
Pursuant to a management agreement entered into in January
1994, the Company is entitled to fees for managing the
Heritage Facility. However, the mortgage loan entered into by
SCF prohibits any payments (including principal and interest
on the second mortgage note) to the Company until the Heritage
Facility attains certain specified financial levels (coverage
ratio of 1.25 to 1, current ratio of 1.1 to 1 and net worth of
$100). Because the Heritage Facility attained the specified
financial levels at December 31, 1994 and March 31, 1995, the
Company received and recorded in 1995 management fees of
$261,000 and interest income of $148,000. In 1994, the Company
did not receive any payments from SCF and did not record any
management fees or interest income.
As a result of the March 1994 transactions, the Company
recorded extraordinary gains on extinguishment of debt in 1994
of $1,058, net of income taxes and transaction costs.
(b) Infu-Tech, Inc.
On December 31, 1992, the Company completed an initial public
offering of 1,330,000 shares, at $6 per share, of its
Infu-Tech subsidiary, and received net proceeds of $6,558.
Infu-Tech sold 600,000 newly issued shares and received net
proceeds of $2,923. Continental, which owned 100% of the
outstanding common stock of Infu-Tech prior to the offering,
sold 730,000 shares which, together with the sale of shares by
Infu-Tech, reduced its ownership of Infu-Tech to 58%, and
received net proceeds of $3,635. As a result of this
transaction, the Company realized a gain of $3,316 on the sale
of its shares of-Infu-Tech. In addition, the Company recorded
a gain of $1,555 in recognition of the net increase in the
value of Continental's remaining investment in Infu-Tech.
In connection with the initial public offering, the
representative of the underwriters was issued warrants to
purchase up to 133,000 shares (73,000 shares from Continental
and 60,000 shares from Infu-Tech) of Infu-Tech's common stock
at 125% of the initial public offering price for a period of
four years. As of June 30, 1995, none of these warrants have
been exercised.
(c) Home Health Care Division
In 1990, the Company sold certain assets, including accounts
receivable under 150 days old, of its Home Health Care
Division (the "Division") to Hospital Staffing Services, Inc.
("HSSI"). Cash on accounts receivable collected in excess of
those net balances purchased revert back to the Company. In
1992, the Company recorded a gain on disposal of $150, which
represents cash receipts pertaining to these accounts
receivable, net of additional costs and income taxes.
In February 1992, the Company received $628 in consideration
of its agreement not to compete with HSSI in providing nursing
services in California, Arizona and Tennessee for a period of
five years and the termination of a non-competition provision
which had barred HSSI from providing infusion therapy
services. The $628 was recorded as deferred income and is
being amortized to other income over five years.
(Continued)
F-10
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(2) Continued
(d) Nursing Home Group
In 1986, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of four
corporations and 60% of the outstanding common stock of a
fifth corporation, each of which operates a nursing home (the
"Nursing Home Group"). The total cost of the acquisition of
the Nursing Home Group was approximately $18,415. Three
individuals (the "Principal Stockholders"), one of whom is the
Company's Chairman of the Board, who beneficially owned
approximately 60% of the common stock of the Company at the
date of the acquisition, owned 100% of the common stock of one
of the five corporations and between 45% and 75% of the common
stock of the other four corporations. The Principal
Stockholders received total consideration of approximately
$15,580 for their interests in the corporations acquired.
Since the Principal Stockholders controlled the Company and
the Nursing Home Group before and after the acquisition, the
Company recorded net liabilities for the Nursing Home Group
based on the Principal Stockholders' proportionate interest in
the historical carrying values of the assets and liabilities
of the acquired corporations at the date of acquisition. The
aggregate consideration paid to the Principal Stockholders was
recorded as a distribution and, accordingly, a reduction of
retained earnings. The cost to acquire the minority interests
in the Nursing Home Group was allocated to the assets and
liabilities of the acquired corporations at the date of
acquisition based on their respective fair values. The excess
of cost over net liabilities acquired was allocated to
goodwill.
(3) Property and Equipment
Property and equipment, at cost, is comprised as follows:
December 31,
June 30, --------------
1995 1994 1993
------- ---- ----
Land and improvements $ 2,047 $ 2,047 $ 5,292
Buildings and improvements 7,495 7,387 26,655
Furniture and equipment 2,030 1,897 2,499
Leasehold improvements 1,400 1,319 1,583
Construction in progress 837 817 570
------- ------- -------
13,809 13,467 36,599
Less: accumulated depreciation and
amortization 3,875 3,564 5,871
------- ------- -------
$ 9,934 $ 9,903 $30,728
======= ======= =======
(Continued)
F-11
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(4) Long-Term Debt
Long-term debt is comprised as follows:
December 31,
June 30, --------------
1995 1994 1993
------- ---- ----
14 1/8% subordinated debentures
due September 1, 1996 (a) $ 1,200 $ 1,200 $ 1,504
6% convertible bonds in the face
amount of 2,900,000 Swiss
francs, due June 27, 1995 (b) 2,525 2,216 1,949
6% notes due 2003 (a) 3,400 3,400 3,400
6% convertible notes due 2003 (a) 1,606 1,606 1,606
8% notes due 1999 (b) 1,213 1,213 1,213
8-1/2% to 11% mortgage notes (c) 3,463 3,532 3,709
Other (d) 783 804 115
------- ------- -------
14,190 13,971 13,496
Less: current portion 3,424 3,165 198
------- ------- -------
$10,766 $10,806 $13,298
======= ======= =======
(a) The 14 1/8% subordinated debentures (the "Debentures") are
redeemable, at the option of the Company, in whole or in part,
at par plus accrued interest. Interest is payable on March 1
and September 1.
In September 1993, the Company acquired $3,400 principal
amount of Debentures in exchange for 6% notes due 2003 ("6%
Notes") in that amount. In December 1993, the Company acquired
an additional $1,500 principal amount of Debentures in
exchange for 6% convertible notes due 2003 ("6% Convertible
Notes") in the principal amount of $1,606 (which included
accrued interest on those Debentures), which will be
convertible (at a price as defined in the agreement) into the
Company's common stock after August 31, 1995. Interest on the
6% Notes and the 6% Convertible Notes is payable on March 1
and September 1. These transactions resulted in a loss of $97
in 1993, which represents the amount of related deferred
financing costs. This loss was recorded as an extraordinary
item, net of income tax benefits.
In November 1993, the Company acquired $5,088 principal amount
of Debentures, including a waiver of interest on those
Debentures since March 1, 1993, in exchange for 2,696,640
shares of its common stock. In April 1994, the Company
acquired $304 principal amount of Debentures, including a
waiver of interest on those Debentures since November 1994, in
exchange for 161,120 shares of its common stock. The amount by
which the principal amount of the acquired Debentures exceeded
the par value of the newly issued shares, net of related
deferred financing costs and transaction costs, was credited
to additional paid-in capital.
(Continued)
F-12
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(4) Continued
(b) The principal balance of SFr 2,900,000 (approximately $2,525)
and accrued interest of SFr 174,000 (approximately $152)
pertaining to the Company's 6% Swiss franc denominated
convertible bonds (the "Bonds") was due on June 27, 1995. The
Company did not make these payments as of June 30, 1995.
Non-payment of these obligations did not result in a default
under any other financing agreements. The Company is currently
attempting to identify and communicate with the bondholders.
Except for the Bonds acquired by the Company as noted in the
following paragraph no other bondholders have contacted the
Company. The Company has classified the outstanding bonds as a
current liability. The face amount of the outstanding Bonds
and accrued interest thereon are translated from Swiss Francs
into U.S. dollars at the current exchange rate at each balance
sheet date, and any unrealized gains or losses resulting from
foreign currency fluctuations are included in the
determination of net income. Interest is payable annually on
June 27. The principal amount was payable on June 27, 1995
and, therefore, is classified as current portion of long-term
debt on the consolidated balance sheets at June 30, 1995 and
December 31, 1994.
In September 1995, the Company acquired Sfr 885,000
(approximately $738) principal amount of Bonds (including
interest coupons totalling Sfr 53,100, or approximately $44,
which was due June 27, 1995) in exchange for a cash payment of
Sfr 265,500 (approximately $221) and Sfr 619,500
(approximately $516) principal amount of 8% notes due 1998
("8% Swiss Note"). Interest on the 8% Swiss Note is payable on
June 27 and December 27. The Company has the option at any
time to redeem in full the 8% Swiss Note for 100% of its
principal amount.
In September 1993, the Company acquired Sfr 4,005,000
(approximately $2,647) principal amount of Bonds in exchange
for 10,579 shares of 5% exchangeable preferred stock
("Preferred Stock") (see note 7) and $965 principal amount
(which included accrued interest on those Bonds) of 8% notes
due 1999 ("8% Notes"). In October 1993, the Company acquired
an additional Sfr 1,250,000 (approximately $826) principal
amount of Bonds in exchange for 3,305 shares of Preferred
Stock and $248 principal amount of 8% Notes. Interest on the
8% Notes is payable on January 27 and July 27. The Company has
the option to redeem in part or in full the 8% Notes at any
time for 104% of their principal amount, declining 1% on July
28, 1994 and each July 28 after that to 100% after July 28,
1997. These transactions resulted in a gain, net of related
deferred financing costs, of $1,026 in 1993, which was
recorded as an extraordinary item, net of income taxes.
(c) An Economic Development Authority mortgage loan ("EDA loan")
with a principal balance of $846 at June 30, 1995 is payable
in monthly installments, including interest at 11%, through
2009. The EDA loan is secured by property with a net book
value of approximately $1,597 at June 30, 1995.
The remaining mortgage notes are payable in monthly
installments, including interest at rates ranging from 10% to
12%, with final payments due between 1997 and 2009. These are
secured by properties with an aggregate net book value of
approximately $3,391 at June 30, 1995.
(d) A secured loan ("Secured Loan") with a principal balance of
$686 at June 30, 1995 is payable in monthly installments of
$24, based upon a 34-month amortization schedule, including
interest at 13.5%, through December 1, 1995. The Secured Loan
is secured by a mortgage on one of the Company's nursing homes
and most of the Company's nursing home accounts receivable.
Aggregate scheduled amounts maturing in each of the five-year periods
ending June 30 subsequent to June 30, 1995 are as follows: 1996 -
$3,424; 1997 - $1,382; 1998 - $195; 1999 -$69; and 2000 - $1,288.
(Continued)
F-13
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(5) Other Current Liabilities
Other current liabilities are comprised as follows:
December 31,
June 30, --------------
1995 1994 1993
------- ---- ----
Accrued interest $ 358 $ 291 $ 397
Accrued payroll and related
expenses 2,551 2,566 2,348
Other accrued liabilities 1,502 2,036 2,474
------- ------- -------
$ 4,411 $ 4,893 $ 5,219
======= ======= =======
In 1993, the Company established a self-insured health insurance
program for most of the employees at the Company's nursing homes, up
to policy limits, as defined. Claims in excess of such limits are
insured by third- party reinsurers. The Company's estimate of its
liability for both outstanding as well as incurred but unreported
claims is based upon its historical loss experience. As of June 30,
1995 and December 31, 1994 and 1993, reserves for these estimated
liabilities totalled approximately $317, $392 and $350, respectively,
and are included as a component of accrued payroll and related
expenses. Differences between actual losses incurred and reserve
estimates are recognized in the period when such differences become
known.
(6) Stockholders' Equity
(a) Preferred Stock
In 1993, the Company issued 13,884 shares of Preferred Stock
as part of an exchange offer to holders of its Bonds (see note
4). Each share of Preferred Stock has a liquidation preference
of $100. Dividends on the Preferred Stock are cumulative and
are payable on January 27 and July 27 at the annual rate of $5
per share, when and as declared by the Company's Board of
Directors.
The Preferred Stock is exchangeable for Infu-Tech common stock
at an exchange price of $6.20 liquidation preference of
Preferred Stock per share of Infu-Tech common stock, subject
to adjustment to prevent dilution. The shares of Infu-Tech
common stock issuable upon the exchange of Preferred Stock are
shares owned by Continental.
All (but not less than all) of the Preferred Stock is
redeemable at the Company's option at any time when the
current market price of Infu-Tech common stock has for at
least 20 consecutive trading days been at least 120% of the
exchange price, upon at least 45 days' notice at a redemption
price equal to the liquidation preference of the shares being
redeemed plus accumulated unpaid dividends on those shares.
Shares may be exchanged for Infu-Tech common stock during the
45-day period.
The Company may not pay any dividends or make any other
distributions on, or repurchase, its common stock or any other
of its stock which ranks junior to the Preferred Stock if
Continental is not at the time current in its dividend
payments on the Preferred Stock.
(Continued)
F-14
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(6) Continued
(b) Stock Option Plans
Under Continental's incentive stock option plan adopted in
1983 (the "1983 Plan"), options to purchase 343,750 shares of
common stock could have been granted to key employees of the
Company. Options which have been granted are exercisable for a
term of up to ten years. The 1983 Plan was terminated in 1989
upon the approval by the stockholders of the 1989 Key
Employees and Key Personnel Stock Option Plan (the "1989
Plan"). No options were granted under the 1983 Plan after July
1989.
The 1989 Plan authorizes the Company to grant stock purchase
options relating to a maximum of 400,000 shares of common
stock. Options may not be granted at a price that is less than
100% of fair market value on the date of the grant (110% of
fair market value for persons owning 10% or more of the
Company's common stock). Options become exercisable six months
after the date of the grant or after the employee has been
employed for 12 months, whichever is later, and are
exercisable for a term of up to ten years.
Stock option transactions for the six months ended June 30,
1995 and each of the years ended December 31, 1994, 1993 and
1992 are summarized as follows:
Number Option Price
of Shares Per Share
--------- ------------
Outstanding, January 1, 1992 315,775 $ 0.25 - $ 10.25
Granted (1989 Plan) 64,500 $ 1.25 - $ 1.375
Cancelled (1989 Plan) (25,200) $ 0.25 - $ 3.875
Exercised (1989 Plan) (500) $ 0.25
--------
Outstanding, December 31, 1992 354,575 $ 0.25 - $ 10.25
Cancelled (1983 Plan) (34,725) $ 1.00 - $ 10.25
Granted (1989 Plan) 115,825 $ 0.69 - $ 1.00
Cancelled (1989 Plan) (141,900) $ 0.25 - $ 3.50
--------
Outstanding, December 31, 1993 293,775 $ 0.25 - $ 8.50
Cancelled (1983 Plan) (8,250) $ 1.00 - $ 8.50
Granted (1989 Plan) 26,250 $ 1.00
Cancelled (1989 Plan) (23,500) $ 0.25 - $ 8.50
Exercised (1989 Plan) (2,500) $ 0.25
--------
Outstanding, December 31, 1994 285,775 $ 0.25 - $ 3.50
Granted (1989 Plan) 67,500 $ 1.03 - $ 1.44
Cancelled (1989 Plan) (12,225) $ 0.25 - $ 1.00
Exercised (1989 Plan) (5,000) $ 0.25
--------
Outstanding, June 30, 1995 336,050 $ 0.25 - $ 3.50
========
At June 30, 1995, 273,550 options were exercisable. Options to
purchase 118,200 shares were available for grant at June 30,
1995 under the 1989 Plan.
(Continued)
F-15
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(6) (Continued)
(b) Continued
In July 1992, Infu-Tech adopted a stock option plan (the
"Infu-Tech Plan") under which it is authorized to grant stock
options to designated employees, officers and directors of
Infu-Tech. The Infu-Tech Plan authorized Infu-Tech to grant
stock options relating to a maximum of 150,000 shares of
common stock. In 1994, the maximum number of shares which may
be granted under the Infu-Tech Plan was increased to 300,000
shares of common stock. Options may not be granted at a price
that is less than 100% of fair market value on the date of the
grant (110% of fair market value for persons owning 10% or
more of Infu-Tech common stock). Options become exercisable 12
months after the date of the grant and are exercisable until
ten years from the date of grant. As of December 31, 1992, the
Company had not granted any options under the Infu-Tech Plan.
Stock option transactions for the six months ended June 30,
1995 and each of the years ended December 31, 1994 and 1993
are summarized as follows:
Number Option Price
of shares Per Share
--------- ------------
Granted 128,700 $5.00 - $6.13
Cancelled (6,500) $5.125
--------
Outstanding, December 31, 1993 122,200 $5.00 - $6.13
Granted 49,750 $1.00 - $4.50
Cancelled (7,300) $1.00 - $5.375
--------
Outstanding, December 31, 1994 164,650 $1.00 - $6.13
Granted 22,000 $1.59 - $1.95
Cancelled (8,400) $1.00 - $5.125
--------
Outstanding, June 30, 1995 178,250 $1.00 - $6.13
=======
At June 30, 1995, options to purchase 137,300 shares were
exercisable at prices ranging from $2.81 to $6.13 per share.
(c) Other Stock Options
In January 1994, the Company's Chairman of the Board was
granted a seven-year option to purchase 500,000 shares of the
Company's common stock for $1 per share.
(Continued)
F-16
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(7) Related Party Transactions
Three nursing homes controlled and partially owned by the Principal
Stockholders owed the Company $2,804 at December 31, 1989, which
included amounts for supplies, services and management fees. However,
the Principal Stockholders asserted on behalf of the three nursing
homes that management fees for all years should have been limited to
amounts eligible for reimbursement from Medicare and Medicaid. Early
in 1990, this dispute was resolved, with the three nursing homes
agreeing to pay a total of $1,940 in satisfaction of all their
obligations to the Company at December 31, 1989. In 1992, the
settlement agreement between the Company and the three nursing homes
was modified, whereby the February 1992 balance of $1,046 would be
paid in sixteen equal quarterly payments of $76 (including interest at
7 1/2%) beginning June 15, 1992 and continuing through March 15, 1996.
The balance remaining on the modified settlement agreement at December
31, 1994 and 1993 was $839 and $783, respectively. In January 1995,
the settlement agreement was further modified to provide for a $227
principal and interest payment to be made on or before March 30, 1995
(which payment was received) and the remaining principal balance of
$626 to be paid in twelve equal quarterly payments of $60 (including
interest at 8 1/2%) beginning July 1, 1995 and continuing through
March 31, 1998. The $227 payment included all previously unpaid
principal under the prior agreement through December 31, 1993 and all
accrued interest under that agreement through March 30, 1995. The
balance remaining on the modified settlement agreement at June 30,
1995 was $639. Interest income includes $27, $56, $57 and $71 of
interest on this receivable for 1995, 1994, 1993 and 1992,
respectively.
One of the Company's nursing homes was on several occasions forced to
temporarily evacuate its residents due to weather-related emergencies.
The residents were evacuated to a nursing home controlled and
partially owned by the Principal Stockholders. Management believes
this course of action was preferable to the alternatives. The Company
paid the nursing home to which the residents were evacuated at that
nursing home's daily Medicaid rate. Amounts charged to health care and
lodging expenses were $27, $71 and $125 in 1994, 1993 and 1992,
respectively.
In 1995, 1994, 1993 and 1992, the Company was charged $39, $89, $60
and $25, respectively, by a corporation owned by the Company's
Chairman of the Board for use of an airplane owned by that
corporation. The Company believes the rates it was charged for use of
that airplane were lower than those which would have been available
from an independent charter company for use of a similar airplane.
Included in selling, general and administrative expenses in 1995 and
1994 is rent expense of $159 and $110, respectively, for office space
leased from an entity owned by the Principal Stockholders.
The Company administered a self-funded health plan on behalf of three
nursing homes controlled and partially owned by the Principal
Stockholders (the "Principal Stockholders' Nursing Homes"). Revenues
derived from services provided to the Principal Stockholders' Nursing
Homes were $19 and $35 in 1995 and 1994, respectively. Included in
accounts receivable at June 30, 1995 and December 31, 1994 are amounts
due from the Principal Stockholders' Nursing Homes of $15 and $23,
respectively.
Included in other assets were additional amounts due from entities
owned by the Principal Stockholders totalling $200 at June 30, 1995
and December 31, 1994 and 1993. Included in other current liabilities
were amounts due to an entity controlled by the Principal Stockholders
totalling $19, $22 and $28 at June 30, 1995 and December 31, 1994 and
1993, respectively.
(Continued)
F-17
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(7) Continued
In January 1992, Infu-Tech and Medline Industries, Inc. ("Medline")
entered into a joint venture, MedTech Uro Services ("MedTech"). This
joint venture was established as part of the settlement of a lawsuit
against the Company by Medline. In accordance with the joint venture
agreement, Infu-Tech is paid to provide sales and marketing services
to MedTech. In addition, Infu-Tech will share in the net profits of
MedTech to the extent they exceed approximately $200 per year over
each of four years. Infu-Tech's participation in MedTech allows Infu-
Tech to market urological, tracheostomy and other services in
conjunction with Infu-Tech's marketing of contract services to
residents of long-term care facilities. During 1995, 1994, 1993 and
1992, Infu-Tech recorded revenues of $45, $139, $204 and $126,
respectively, under this agreement, which included $14 in 1994 as its
share of net profits. Included in accounts receivable at June 30, 1995
and December 31, 1994 and 1993 is $7, $6 and $29, respectively, due
from MedTech.
(8) Income Taxes
Prior to 1993, the Company filed a consolidated Federal income tax
return. Due to the reduction in Continental's ownership of Infu-Tech,
commencing in 1993, Infu-Tech filed its own Federal income tax return.
As noted in note 1, effective January 1, 1993, the Company adopted
Statement 109 and, accordingly, has recognized a benefit of $973 (net
of minority interest of $445) to record the cumulative effect of the
change in accounting for income taxes in the consolidated statement of
operations for 1993.
During 1993, the Internal Revenue Service completed its examination
for the years 1986 through 1990, which resulted in the Company
receiving a refund of $169 in 1993.
The provision (benefit) for income taxes on income (loss) from
continuing operations is presented below:
Six months
ended Years ended December 31,
June 30, ----------------------------
1995 1994 1993 1992
---------- ---- ---- ----
Current:
Federal -- $ (357) $ (225) --
State -- 16 (162) 142
------- ------- ------- -------
-- (341) (387) 142
------- ------- ------- -------
Deferred:
Federal rate change -- -- (27) --
Other -- -- 29 --
------- ------- ------- -------
-- -- 2 --
------- ------- ------- -------
Charge equivalent to
income tax benefits -- -- -- 1,608
------- ------- ------- -------
-- $ (341) $ (385) $ 1,750
======= ======= ======= =======
Infu-Tech had recorded a Federal income tax refund receivable of $225
in 1994, which was included in prepaid expenses and other current
assets in the accompanying June 30, 1995 consolidated balance sheet.
(Continued)
F-18
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(8) Continued
The following table reconciles the Federal income tax provision
(benefit) computed at statutory Federal income tax rates applied to
income (loss) from continuing operations to the provision (benefit)
for income taxes.
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, --------------------------
1995 1994 1993 1992
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Federal income tax provision (benefit) at
statutory rate applied to income (loss) from
continuing operations (197) (367) (62) $ 1,168
State income tax provision (benefit), net
of Federal income tax benefit (34) (63) (105) 348
Book loss (income) for which tax benefit
(expense) not recorded -- -- (63) 161
Change in valuation allowance 456 (70) -- --
Temporary differences $ (236) $ 112 -- --
Permanent differences arising from
acquisitions and dispositions -- 30 26 26
Refunds of prior years' Federal income taxes -- -- (169) --
Other 11 171 (12) 47
------- ------ ------- -------
-- $ (341) $ (385) $ 1,750
======= ====== ======= =======
</TABLE>
At December 31, 1992, the Company utilized Federal and state book net
operating loss carryforwards and, accordingly, has recorded an
extraordinary item of $1,708 in the accompanying 1992 consolidated
statement of operations.
The Company has approximately $9,317 of net operating tax loss
carryforwards for Federal income tax purposes which will expire in the
years 2005 through 2010, which includes approximately $1,374 of net
operating tax loss carryforwards for Federal income tax purposes for
Infu-Tech, which will expire in 2009.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
December 31,
June 30, ---------------
1995 1994 1993
-------- ---- ----
Net deferred income tax assets:
Deferred income $ 251 $ 488 $ 963
Allowances for uncollectible accounts
receivable 1,522 1,286 1,243
Net operating tax loss carryforwards 3,820 3,328 2,624
Cumulative unrealized losses on translation
of foreign currency debt 567 440 331
Deferred rent payable 99 193 329
Provision for judgment -- 50 160
Compensated absences, principally due to
accrual for financial reporting purposes 151 161 166
Difference between book and tax bases of
investment in subsidiary (638) (638) (638)
Difference between book and tax bases of
property and equipment (584) (569) (533)
Other 72 65 229
------- ------- -------
Sub-total 5,260 4,804 4,874
Valuation allowance (4,191) (3,735) (3,805)
------- ------- -------
Net deferred income tax assets $ 1,069 $ 1,069 $ 1,069
======= ======= =======
(Continued)
F-19
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(8) Continued
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Based
upon the Company's historical losses from continuing operations before
extraordinary gains, the Company has recorded a valuation allowance of
$4,191. This represents a 100% valuation allowance for all net
deferred income tax assets, except for part of those pertaining to its
59% owned subsidiary, Infu-Tech. Infu-Tech has historically been
profitable and anticipates taxable income in 1996 and future years. In
the opinion of management, Infu-Tech will realize the net deferred
income tax assets.
(9) Other Income, Net
Other income (expense) is comprised as follows:
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, ----------------------------
1995 1994 1993 1992
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Gains on sales and leasebacks of property
and equipment (note 10) $ 516 $ 1,032 $ 1,032 $ 1,032
Gains (losses) on translation of foreign currency debt (309) (267) 137 446
Amortization of deferred income related to
non-compete agreement (note 2) 63 126 126 115
Write-off of previously capitalized costs -- -- -- (396)
Other, net 188 (14) (27) (126)
-------- -------- -------- --------
$ 458 $ 877 $ 1,268 $ 1,071
======== ======== ======== ========
</TABLE>
(10) Commitments and Contingencies
(a) Lease Commitments
The Company is obligated under various operating leases for
nursing homes, office space and equipment with initial terms
expiring at various dates through 2002. The leases generally
require the Company to pay all costs of maintaining the leased
properties. The Company has options to renew certain of these
leases for periods ranging from 7 to 80 years and to purchase
certain of the leased properties at specified renewal or
termination dates.
In 1988, the Company sold three nursing home facilities, which
included land, buildings and certain equipment, for aggregate
sales prices of $22,240, and leased back the properties under
operating leases with initial terms of seven years expiring in
November and December 1995. The sale and leaseback
transactions resulted in an aggregate pretax gain of
approximately $7,968, of which $511 was recognized as a gain
on sale in 1988 and $7,457 was deferred. The deferred amount
is being amortized to income over the lease terms.
The Company had the right to purchase these nursing homes in
1995 for the greater of $23,569 or their fair market value and
has the right to purchase them at the end of each renewal term
(the first seven- year renewal term to commence in December
1995) for their fair market values. The Company may repurchase
these homes in the second half of calendar 1995 if it is able
to secure financing and repurchase the homes on terms that the
Company considers to be favorable. Also see note 14.
(Continued)
F-20
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(10) Continued
(a) Continued
The following is a schedule of future minimum annual rental
payments required under operating leases as of June 30, 1995:
Year ending Nursing
June 30, Homes Office Equipment Total
----------- ----- ------ --------- -----
1996 $ 3,806 $ 486 $ 76 $ 4,368
1997 4,058 464 44 4,566
1998 4,062 337 3 4,402
1999 4,065 301 -- 4,366
2000 4,030 99 -- 4,129
Thereafter 9,514 -- -- 9,514
-------- -------- -------- --------
$ 29,535 $ 1,687 $ 123 $ 31,345
======== ======== ======== ========
Rent expense was $2,058, $3,743, $3,957 and $4,008 in 1995,
1994, 1993 and 1992, respectively. Also see note 14.
(b) Contingencies
The Company is subject to certain legal proceedings and claims
which arise in the ordinary course of business. In the opinion
of management, the ultimate liability with respect to these
activities will not materially affect the financial position
or results of operations of the Company.
Participants in the health care market are subject to lawsuits
based upon alleged negligence or similar legal theories. The
Company currently has in force general liability insurance,
including professional and product liability, with coverage
limits of $10 million, which is subject to annual renewal. The
Company has not recorded any related loss liabilities as of
June 30, 1995.
(11) Distribution Agreement
In November 1994, Infu-Tech entered into a distribution agreement with
a drug manufacturer under which-Infu-Tech provides a specific home
infusion therapy utilizing the manufacturer's drug. Under this
agreement, accounts payable to the drug manufacturer ($1,247 at June
30, 1995) are secured by Infu-Tech's inventories of the drug ($627 at
June 30, 1995) as well as any accounts receivable ($569 at June 30,
1995) arising from the sale of this drug.
(12) Business and Credit Concentrations
The Company generally does not require collateral or other security in
extending credit to patients; however, the Company routinely obtains
assignment of (or is otherwise entitled to receive) patients' benefits
payable under health insurance programs, plans or policies (e.g.,
Medicare, Medicaid, Blue Cross, health maintenance organizations, and
commercial insurance policies).
At June 30, 1995, the Company had gross receivables from the Federal
Government (Medicare) of approximately $2,654 and from various state
Medicaid programs of approximately $1,814.
(Continued)
F-21
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(13) Business Segment Data
The Company's operations are conducted primarily through two business
segments: nursing home services and Infu-Tech, which provides infusion
therapy and other medical services.
Information about the Company's operations is presented below.
Operating income is total revenues less operating expenses, excluding
expenses incurred at the corporate headquarters. The elimination of
inter-segment revenues is included in other services and eliminations.
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, --------------------------------
1995 1994 1993 1992
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Nursing home services $ 18,248 $ 38,273 $ 44,357 $ 40,641
Infu-Tech 10,601 16,289 17,011 19,687
Other services and eliminations (125) (184) (98) 36
---------- ---------- ---------- ----------
Consolidated $ 28,724 $ 54,378 $ 61,270 $ 60,364
========== ========== ========== ==========
Operating income (loss):
Nursing home services $ 1,106 $ 2,263 $ 2,786 $ 2,140
Infu-Tech (746) (1,024) 854 2,220
Expenses incurred at corporate headquarters (1,284) (2,156) (1,993) (2,542)
Gain on sale of common stock of subsidiary -- -- -- 4,871
Interest and dividend income 183 98 184 134
Interest and other financing costs (632) (1,481) (3,082) (4,460)
Other income, net 458 877 1,268 1,071
Minority interest in earnings of subsidiary 353 375 (194) --
---------- ---------- ---------- ----------
Consolidated $ (562) $ (1,048) $ (177) $ 3,434
========== ========== ========== ==========
Assets:
Nursing home services $ 19,487 $ 19,894 $ 35,066 $ 35,011
Infu-Tech 7,366 7,586 8,124 7,538
Corporate 2,822 3,005 3,004 4,151
---------- ---------- ---------- ----------
Consolidated $ 29,675 $ 30,485 $ 46,194 $ 46,700
========== ========== ========== ==========
Depreciation and amortization of property and equipment:
Nursing home services $ 196 $ 515 $ 1,000 $ 901
Infu-Tech 66 58 48 23
Corporate 49 145 219 415
---------- ---------- ---------- ----------
Consolidated $ 311 $ 718 $ 1,267 $ 1,339
========== ========== ========== ==========
Capital expenditures:
Nursing home services $ 267 $ 710 $ 447 $ 1,208
Infu-Tech 14 98 64 48
Corporate 13 213 2 24
---------- ---------- ---------- ----------
Consolidated $ 294 $ 1,021 $ 513 $ 1,280
========== ========== ========== ==========
</TABLE>
(Continued)
F-22
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands)
(14) Subsequent Event
On October 31, 1995, the Company obtained $41,000 in mortgage loans
secured by four nursing home facilities located in West Orange, Cedar
Grove and Norwood, New Jersey and West Palm Beach, Florida, and
proceeds from the issuance of subsidiary Floating Rate Series A
Cumulative Preferred Stock totalling $3,500. In addition, the Company
obtained a $1,500 loan secured by a mortgage on approximately 8 acres
of land located in West Orange, New Jersey.
The combined proceeds, totalling $46,000 were used to purchase the
West Orange, Cedar Grove and West Palm Beach facilities which were
previously operated under operating leases and to purchase the real
property of the long term and residential care facility located in
Norwood, NJ (the "Heritage Facility") , which the Company has been
managing since 1988. The transaction in which the Company purchased
the Norwood facility also released a $2,000 guarantee which the
Company had given to the prior mortgage lender. Proceeds totalling
$301 were also used to release pledged receivables and restructure a
secured loan due December 1, 1995 totalling $601 for which a new three
year note was issued for the balance of $300, secured by a first
mortgage on the Company's nursing home facility in Atlantic City, New
Jersey.
The Company generated $4,400 in working capital as a result of these
transactions.
As a result of the previously noted purchase of the Heritage Facility
by the Company, the Company will now own the facility and manage the
operations of SCF. Starting from October 31, 1995, SCF will be
included in the consolidated financial statements of the Company. The
mortgage note receivable of $7,399 was forgiven along with other
advances in exchange for The Heritage Facility. The amount disclosed
in note 10 for minimum annual rental payments for nursing homes of
approximately $29,535 as a result of these transactions will be
reduced by approximately $27,800.
The $41,000 loan is due in 2010 with interest at 9.86%. The monthly
payment of principal and interest totalling $369 is based upon a 25
year amortization period. The balloon payment due in the year 2010
will be $28,188. The current portion of principal due under the loan
agreement is $397.
Under the loan agreement, the Company is required to maintain
restricted cash management accounts for each facility.
The $3,500 in Floating Rate Series A Cumulative Preferred Stock of the
secured subsidiaries ("Series A Preferred Stock") is subject to
mandatory redemption upon the earlier of the sale of the Company's
nursing home in West Palm Beach or the year 2000. The Series A
Preferred Stock pays a dividend at the rate of LIBOR plus 13% and is
subject to partial monthly redemption of approximately $73 per month
beginning in the second year based upon a 48 month amortization.
The $1,500 loan is payable monthly over five years with interest at
prime plus 2%. The monthly payment of principal and interest is $32.
The current portion of principal due under the loan agreement is $239.
On October 31, 1995, the Company negotiated terms to convert $1,464
trade accounts payable into a three year note due in 1998. The
interest rate is 10%. The monthly payment of principal and interest of
$47 will fully amortize the loan at the end of the term. Current
principal payments due under the terms of the note total $440. The
long term portion of the note totalling $938 as of September 30, 1995,
has been reclassed from accounts payable to long-term debt, net of
current portion. The short-term portion of the note totalling $404 as
of September 30, 1995, has been classified as the current portion of
long-term debt.
F-23
Senior Care Foundation
Unaudited Financial Statements
June 30, 1995
Senior Care Foundation, Inc.
Unaudited Balance Sheets
(Dollars in thousands)
Assets
June 30, December 31,
1995 1994
-------- ------------
Current assets:
Cash and cash equivalents $286 $303
Patients' funds 20 25
Patient accounts receivable, net of
allowances for uncollectible accounts
of $95 and $134 269 232
Inventories 51 33
Prepaid expenses 76 14
------- -------
Total current assets 702 607
Property and equipment, net 20,695 20,780
Restricted cash 600 600
Other assets 888 930
------- -------
$22,885 $22,917
======= =======
Liabilities and Accumulated Surplus
Current liabilities:
Current portion of long-term debt $119 $109
Accounts payable and other current liabilities 1,054 970
Current portion of capital lease obligations 10 10
------- -------
Total current liabilities 1,183 1,089
Mortgage loan 13,860 13,924
Mortgage payable to CHA 7,399 7,399
Capital lease obligations, net of current portion 8 13
Other liabilities 332 332
Commitments and contingencies
Accumulated surplus 103 160
------- -------
$22,885 $22,917
======= =======
See accompanying notes to financial statements.
-2-
Senior Care Foundation, Inc.
Unaudited Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) ($57) $4,484
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gains -- (4,925)
Depreciation and amortization 326 305
Provision for uncollectible accounts 53 50
Increase (decrease) from changes in:
Patient accounts receivable (90) (56)
Inventories (18) 6
Patients' funds and other current assets (57) 3
Due to CHA -- 15
Accounts payable and other current liabilities 84 80
Mortgage payable to CHA -- 64
---- ------
Net cash provided by operating activities 241 26
---- ------
Cash flows from investing activities:
Expenditures for property and equipment (199) (6)
---- ------
Cash flows from financing activities:
Net proceeds of new long-term debt -- 12,926
Payment of short-term borrowings -- (9,188)
Payment of mortgage payable to HCREIT (54) (17)
Payment of mortgage obligation to CHA -- (3,738)
Payment of capital lease obligation (5) (3)
---- ------
Net cash used in financing activities (59) (20)
---- ------
Net change in cash ($17) $ ---
==== ======
See accompanying notes to financial statements.
-3-
Senior Care Foundation, Inc.
Unaudited Statements of Operations
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
---- ----
Revenues:
Net patient service revenues $5,209 $4,773
------ ------
Expenses:
Personnel 2,465 2,537
Health care and lodging 1,084 1,065
Interest 963 864
Management fees 260 239
General and administrative 145 154
Depreciation 284 284
Amortization of deferred financing costs 42 21
Provision for uncollectible accounts 53 50
Other income (30) --
------ ------
Total expenses 5,266 5,214
------ ------
Loss before extraordinary items ($57) ($441)
See accompanying notes to financial statements.
-4-
Senior Care Foundation, Inc.
Notes to Unaudited Financial Statements
(1) Unaudited Information
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly SCF's financial position as of June
30, 1995 and the results of its operations for the six months ended June
30, 1995 and 1994. These financial statements should be read in
conjunction with the annual financial statements of SCF. The results of
operations for the six months ended June 30, 1995 are not necessarily
indicative of the results to be expected for the full year.
-5-
Senior Care Foundation, Inc.
Notes to Financial Statements
June 30, 1995
(Dollars in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies and Organization
(a) Organization
Senior Care Foundation, Inc. ("SCF") is a not-for-profit
corporation under Internal Revenue Code Section 501(c)(3) and is
therefore exempt from Federal income taxes pursuant to Section 501
(a) of the Code.
(b) Business Activities
SCF operates a long-term care facility consisting of 180 skilled
care beds and 60 to 70 (depending upon the number of residents
requiring private or semi-private rooms) residential care beds.
(c) Cash and cash equivalents
The Company classifies all highly liquid investments with
maturities of three months or less when purchased as cash
equivalents.
(d) Patients' Funds
Patients' funds represent cash balances which have been deposited
by SCF into separate bank accounts and are restricted for the use
of patients. The related liability is included in other current
liabilities.
(e) Revenue
Revenue is reported on the accrual basis at the estimated net
realizable amounts from patients, third party payors and others for
services rendered. SCF receives payments for services to eligible
patients under Medicare and various state Medicaid programs.
Approximately 49% of total revenues as of June 30, 1995, were
derived from such medical assistance programs. Revenues under these
programs are based upon government approved rates which are subject
to audit. Management believes it has properly applied these rates
in the determination of revenues from these programs and that any
potential liabilities related to the settlement of open years would
be immaterial to the financial position of SCF.
-6-
(f) Depreciation
Depreciation of property and equipment is computed using the
straight-line method at rates that charge the costs of various
classes of assets over the periods of expected use. The range of
useful lives is four to forty years.
(g) Inventories
Inventories, which consist of supplies, are stated at the lower of
cost (first-in, first-out) or market.
-7-
Senior Care Foundation, Inc.
Notes to Financial Statements
(Dollars in thousands)
(Unaudited)
(1) Continued
(h) Deferred Financing Costs
Deferred financing costs (included in other assets) incurred in
connection with the issuance of long-term debt are being amortized
on a straight-line basis over the term of the related debt.
(i) Security Deposits from Patients
Security deposits from patients, which represents cash balances
which have been deposited by SCF into separate bank accounts and
are restricted in use, are included in other assets. The related
liability is included in other liabilities.
(2) Property and Equipment
Property and equipment, at cost, are comprised as follows:
June 30,
1995 1994
--------- ---------
Land and improvements $ 3,434 $ 3,245
Building and improvements 19,454 19,456
Furniture and equipment 839 824
--------- ---------
23,725 23,525
Less accumulated depreciation 3,030 2,745
--------- ---------
$ 20,795 $ 20,780
========= =========
(3) Business and Credit Concentrations
SCF generally does not require collateral or other security in extending
credit to patients, however, SCF routinely obtains assignment of (or is
otherwise entitled to receive) patients' benefits payable under health
insurance programs, plans or policies (e.g. Medicare, Medicaid, Blue
Cross, health maintenance organizations, and commercial insurance
policies). AtJune 30, 1995, SCF had gross receivable from the New Jersey
Medicaid program of approximately $233.
-8-
Senior Care Foundation, Inc.
Notes to Financial Statements
(Dollars in thousands)
(Unaudited)
(4) Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities are comprised as follows:
June 30,
1995 1994
-------- ------
Accounts payable $ 450 $644
Accrued payroll and related 85 96
Accrued expenses 519 230
------ ----
$1,054 $970
====== ====
(5) Capital Lease Obligations
Capital lease obligations consist of the following:
June 30,
1995 1994
-------- ----
Capital lease obligations at implicit
interest rates of 15% $18 $23
Less current portion 10 10
--- ---
Long-term portion $ 8 $13
=== ===
Minimum lease payments due under the above obligations in each of the
years subsequent to December 31, 1994 are $10 (1995); $8 (1996). (See
subsequent event note 8)
(6) Lease Commitments
SCF is obligated under an operating lease through June 1996 with minimum
rental payments in 1995 of $135 and 1996 of $67 for certain furniture and
fixtures. (See subsequent event note 8)
-9-
(7) Long-Term Debt
Prior to 1990, a corporation which was acquired by Continental Health
Affiliates, Inc. ("CHA") had borrowed $10,000 from Barclays Bank
("Barclays") secured by a mortgage on a 240-bed long-term care facility in
Norwood, New Jersey (the "Heritage Facility") and CHA had borrowed an
additional $10,000 from that bank under an unsecured revolving credit
agreement. The proceeds of both of these borrowings were used to construct
the Heritage Facility. During 1990, the unsecured revolving credit was
converted into a secured revolving credit, secured primarily by a second
mortgage on the Heritage Facility and security interests in most of CHA's
accounts receivable and in stock of some subsidiaries. Both the mortgage
loan and revolving credit obligations ($15,000 at December 31, 1993) had
been extended several times.
-10-
Senior Care Foundation, Inc.
Notes to Financial Statements
(Dollars in thousands)
(Unaudited)
(7) Continued
During 1990, the Heritage Facility was transferred to SCF, in exchange for
assumption by SCF of indebtedness totalling $21,649 consisting of the
$10,000 due on the mortgage loan at prime plus 3% from Barclays (short
term borrowings) (the mortgage to Barclays included security for a standby
letter of credit which was $297 at December 31, 1993) and $11,649 due on a
mortgage note without scheduled maturity held by CHA with an interest rate
of 7% agreed to by CHA and SCF ($815 for each of the years ended December
31, 1993 and 1992). At the same time, CHA entered into an agreement to
manage the Heritage Facility for a fee of $29 per month plus 3% of
revenues ($643 and $610 for the years ended December 31, 1993 and 1992,
respectively) and to lend SCF any amounts it needed as working capital for
the Heritage Facility. As of December 31, 1993, SCF owed CHA $3,726 for
working capital loans, interest and management fees.
On March 16, 1994, SCF obtained a $14,100 mortgage loan (the "Mortgage
Loan") secured by the Heritage Facility and used $12,926 of the proceeds
of that loan to repay Barclays the $10,000 mortgage loan (which it was
able to do for $9,188, including transaction costs) and to pay $3,738 to
CHA. CHA used the $3,738 plus net proceeds of new borrowings to repay the
balance of the $5,000 secured loan (which it was able to do for $4,583).
CHA guaranteed $2,000 of the Mortgage Loan as well as the $297 standby
letter of credit issued by a bank on behalf of SCF. The $297 standby
letter of credit is secured by 100,000 shares of CHA's-Infu-Tech stock.
SCF gave CHA a $7,399 second mortgage note to evidence its remaining
obligations to CHA. The second mortgage note is due in 2004, with interest
at 3%, escalating 1% each January 1 until January 1999, and then remains
at 8%. Principal and interest shall be paid as promptly as possible as
permitted under the Mortgage Loan agreements. In addition, CHA forgave
$4,113 of working capital loans, interest, management fees and second
mortgage debt owed to it by SCF.
The Mortgage Loan is payable in monthly installments of $143 based on a 25
year amortization schedule, including interest at 11.5%, through April
2001. The Mortgage Loan is renewable in April, 2001 for an additional 7
years at SCF's option, at a rate of 6.5% over the comparable U.S. Treasury
Note. SCF will pay, beginning in 1995, additional interest equal to 5% of
incremental revenues with a base year of 1994. There are prepayment fees
of 9% during the first three years, declining during the balance of the
loan period. Pursuant to the Mortgage Loan agreement, specified financial
covenants must be met by both SCF and CHA.
Pursuant to the Mortgage Loan agreement, SCF is required to maintain a
letter of credit in the amount of $600 to partially secure the obligations
under the Mortgage Loan. The bank which issued the letter of credit
required that SCF maintain a $600 balance on deposit as security for the
letter of credit, which is classified as restricted cash in the June 30,
1995 balance sheet.
-11-
Senior Care Foundation, Inc.
Notes to Financial Statements
(Dollars in thousands)
(Unaudited)
(7) Continued
Pursuant to a management agreement entered into in January 1994, CHA is
entitled to fees of 5% of revenues for managing the Heritage Facility.
However, the Mortgage Loan agreements entered into by SCF prohibits any
payments (including principal and interest on the second mortgage note) to
CHA until the Heritage Facility attains certain specified financial
levels. At December 31, 1994, the Heritage Facility had attained these
specified levels, and therefore, will begin making payments to CHA in
1995.
As a result of the March 16, 1994 transactions, SCF recorded extraordinary
gains in 1994 on extinguishment of debt of $4,925, net of transactions
costs.
(8) Subsequent Event
On October 31, 1995, Continental Norwood Holdings, Inc. ("CNHI") (The
Manager of the Heritage Facility, a wholly owned subsidiary of CHA)
purchased the real property of the Heritage Facility from SCF. CNHI paid
SCF $14,917 and the mortgage note payable of $7,399 was forgiven along
with other advances in exchange for the Heritage Facility.
As of November 1, 1995 SCF entered into a triple net lease for the
occupied property at $200 per month. The lease expires October 31, 2020.
The capital and operating leases discussed in note 5 and note 6 were
satisfied as of October 31, 1995 persuant to the sale of the property.
-12-
Schedule II
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-----------------------
Balance at Charged to Balance
beginning cost and at end
Description of period expenses Other Deductions (a) of period
- ----------- ---------- ---------- ----- -------------- ---------
Allowance for
uncollectible
accounts:
1995 $3,137 $ 979 -- $ 404 $3,712
====== ====== ====== ====== ======
1994 $3,188 $1,622 -- $1,673 $3,137
====== ====== ====== ====== ======
1993 $2,831 $2,015 -- $1,658 $3,188
====== ====== ====== ====== ======
(a) Uncollectible accounts charged-off during the year, net of recoveries.
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL HEALTH AFFILIATES, INC.
By: JACK ROSEN
--------------------------------
Date: February 12, 1996 Jack Rosen, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Principal Executive Officer:
Jack Rosen Jack Rosen
--------------------------------
Chairman of the Board Date: February 12, 1996
Principal Financial Officer:
Benjamin Geizhals BENJAMIN GEIZHALS
--------------------------------
Vice President Date: February 12, 1996
Principal Accounting Officer:
Jeffrey M. Tilton JEFFREY M. TILTON
--------------------------------
Date: February 12, 1996
Directors:
Jack Rosen JACK ROSEN
--------------------------------
Date: February 12, 1996
Joseph Rosen JOSEPH ROSEN
--------------------------------
Date: February 12, 1996
Israel Ingberman ISRAEL INGBERMAN
--------------------------------
Date: February 12, 1996
Joseph M. Giglio JOSEPH M. GIGLIO
--------------------------------
Date: February 12, 1996
Bruce Slovin BRUCE SLOVIN
--------------------------------
Date: February 12, 1996
Carl D. Glickman CARL D. GLICKMAN
--------------------------------
Date: February 12, 1996
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
3(a) Certificate of Incorporation, as amended. (1)(6)
3(b) By-Laws, as amended. (1)
4(a) Specimen of Common Stock Certificate. (1)
4(b) Public Bond Issue Agreement dated as of May 31, 1985 with Banque
Gutzwiller, Kurz, Bungener S.A. as representative of a
consortium of Swiss financial institutions. (2)
4(c) Indenture dated as of September 4, 1986 relating to 14-1/8%
Subordinated Debentures due 1996. (3)
4(d) Supplemental Indenture No. 1 dated as of September 27, 1991. (10)
10(a) Agreement dated July 20, 1987 among Continental Teaneck Realty
Inc., Forest City Residential Development Inc. and the
Company. (4)
10(b) Certificate and Articles of Limited Partnership of CR Teaneck
Limited Partnership. (4)
10(c) Lease dated November 28, 1988 between Midlantic National Bank,
Trustee, and Pompton Avenue Associates Inc. (5)
10(d) Lease dated November 28, 1988 between Midlantic National Bank,
Trustee, and Jayber, Inc. (5)
10(e) Lease dated December 28, 1988 between Midlantic National Bank &
Trust Company/Florida, Trustee, and P.V.M. Associates, Inc. (5)
10(f) 1989 Key Employees and Key Personnel Stock Option Plan. (6)
10(g) Indenture dated September 1, 1993 between the Company and
American Stock Transfer & Trust Company. (7)
10(h) Debenture Purchase Agreement dated September 7, 1993 between
the Company and USLIFE Income Fund, Inc. (7)
10(i) Debenture Purchase Agreement dated September 7, 1993 between
the Company and The United States Life Insurance Company in the
City of New York. (7)
10(j) Option Agreement dated October 13, 1993 between the Company and
Carl D. Glickman. (7)
10(k) Bond Purchase Agreement dated October 27, 1993 among the Company,
Andrew J. McLaughlin, Jr. and Gerald T. McLaughlin. (7)
10(l) Debenture Purchase Agreement dated October 27, 1993 among the
Company, Andrew J. McLaughlin, Jr. and Gerald T. McLaughlin. (7)
10(m) Restatement Modification and Extension of Loan Agreement and
Note dated as of July 13, 1993 between Barclays Bank, N.A. and
the Company. (7)
10(n) Mutual Release dated March 16, 1994 between Barclays Bank, N.A,
the Company, Senior Care Foundation and the Company's
Subsidiaries. (8)
10(o) Unconditional and Continuing Guaranty dated as of March 16,
1994 from the Company and Continental Norwood, Inc. to Health
Care REIT, Inc. (8)
10(p) Mortgage Note dated March 16, 1994 from Senior Care Foundation to
Continental Norwood Holdings, Inc. (8)
10(q) Mortgage dated March 16, 1994 from Senior Care of Continental
Norwood Holdings, Inc. (8)
10(r) Intercreditor Subordination Agreement dated as of March 16,
1994 between Health Care REIT, Inc., Company, Continental
Norwood, Inc., and Continental Norwood Holdings, Inc. (8)
10(s) Management Agreement dated as of January 1, 1994 between Senior
Care Foundation and Continental Norwood, Inc. (8)
10(t) Distribution Agreement between Infu-Tech Inc. and Genzyme
Corporation dated November 11, 1994. (9)
10(u) Loan Agreement dated October 31, 1995 by and among Nomura Asset
Capital Corporation, Jayber, Inc., PVM Associates, Inc.,
Continental Norwood Holdings, Inc. and Pompton Avenue
Associates, Inc.
10(v) Lease Agreement dated October 31, 1995 between Continental
Norwood Holdings, Inc. and Senior Care Foundation, Inc.
10(w) Management Agreement dated October 31, 1995 between TNS Nursing
Homes, Inc. and Continental Norwood Holdings, Inc.
11 Calculation of Earnings Per Share.
21 List of Subsidiaries.
- -----------
(1) Incorporated by reference to Registration Statement No. 2-81823.
(2) Incorporated by reference to Registration Statement No. 33-611.
(3) Incorporated by reference to Registration Statement No. 33-6341.
(4) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1987.
(5) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1988.
(6) Incorporated by reference to definitive proxy statement dated
July 13, 1989.
(7) Incorporated by reference to Registration Statements Nos. 33-74474
and 33-7476.
(8) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1993.
(9) Incorporated by reference to Report on Form 10-K for the year
ended December 31, 1994.
LOAN AGREEMENT
Dated as of October 31, 1995
by and among
JAYBER, INC.,
P.V.M. ASSOCIATES, INC.,
POMPTON AVENUE ASSOCIATES, INC.,
CONTINENTAL NORWOOD HOLDINGS, INC.
and
NOMURA ASSET CAPITAL CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS.................. 2
Section 1.1. Definitions.......................... 2
ARTICLE II
GENERAL TERMS........................ 32
Section 2.1. Amount of the Loan................... 32
Section 2.2. Use of Proceeds...................... 32
Section 2.3. Security for the Loan................ 32
Section 2.4. Borrower's Notes..................... 32
Section 2.5 Principal and Interest Payments...... 33
Section 2.6. Voluntary Prepayment and Defeasance.. 34
Section 2.7. Mandatory Prepayment................. 35
Section 2.8. Application of Payments.............. 35
Section 2.9. Payment of Debt Service, Method and
Place of Payment................... 35
Section 2.10. Taxes................................ 36
Section 2.11. Release of Collateral................ 36
Section 2.12. Central Cash Management.............. 37
Section 2.13. Security Agreement................... 45
Section 2.14. Securitization....................... 49
Section 2.15. Supplemental Mortgage Affidavits..... 50
ARTICLE III
CONDITIONS PRECEDENT................. 51
Section 3.1. Conditions Precedent to the Making
of the Loan........................ 51
Section 3.2. Form of Loan Documents and
Related Matters.................... 56
ARTICLE IV
REPRESENTATIONS AND WARRANTIES....... 56
Section 4.1. Closing Date Representations
and Warranties..................... 56
Section 4.2. Survival of Representations
and Warranties..................... 68
ARTICLE V
AFFIRMATIVE COVENANTS................ 69
Section 5.1. Borrower Covenants................... 69
ARTICLE VI
NEGATIVE COVENANTS................... 82
Section 6.1. Borrower Negative Covenants.......... 82
ARTICLE VII
DEFAULTS............................. 85
Section 7.1. Event of Default..................... 85
Section 7.2. Remedies............................. 89
Section 7.3. Remedies Cumulative.................. 89
ARTICLE VIII
MISCELLANEOUS........................ 90
Section 8.1. Survival............................. 90
Section 8.2. Lender's Discretion.................. 90
Section 8.3. Governing Law........................ 90
Section 8.4. Modification, Waiver in Writing...... 92
Section 8.5. Delay Not a Waiver................... 92
Section 8.6. Notices.............................. 92
SECTION 8.7. TRIAL BY JURY........................ 93
Section 8.8. Headings............................. 93
Section 8.9. Assignment........................... 93
Section 8.10. Severability........................ 93
Section 8.11. Preferences......................... 93
Section 8.12. Waiver of Notice.................... 94
Section 8.13. Remedies of Borrowers............... 94
Section 8.14. Exculpation as to Borrowers'
Shareholders...................... 94
Section 8.15. Exhibits Incorporated............... 96
Section 8.16. Offsets, Counterclaims
and Defenses...................... 96
Section 8.17. No Joint Venture or Partnership..... 96
Section 8.18. Waiver of Marshalling of
Assets Defense.................... 96
Section 8.19. Waiver of Counterclaim.............. 97
Section 8.20. Conflict; Construction
of Documents...................... 97
Section 8.21. Brokers and Financial Advisors...... 97
Section 8.22. Counterparts ....................... 97
Section 8.23. Estoppel Certificates .............. 98
Section 8.24. Payment of Expenses ................ 98
Section 8.25. Bankruptcy Waiver .................. 98
Section 8.26. [Intentionally Deleted]............. 99
Section 8.27. Entire Agreement.................... 99
Section 8.28 Cross Collateralization............. 99
Section 8.29. Limitation of Interest.............. 99
Section 8.30 [Intentionally Deleted.............. 100
Section 8.31. Indemnification..................... 100
Section 8.32. Borrowers' Acknowledgments.......... 100
Section 8.33. Lender as Shareholder............... 101
Section 8.34. Release of Acreage at
Norwood Facility.................. 101
EXHIBITS
Exhibit A - Assignment of Management Agreement and Agreements
Affecting Real Estate
Exhibit B - Assignment of Leases and Rents
Exhibit C - Manager's Consent and Subordination of Management Agreement
Exhibit D - Mortgage, Assignment of Rents, Security Agreement
and Fixture Filing
Exhibit E - Note
Exhibit F - [Intentionally deleted]
Exhibit G - [Intentionally deleted]
Exhibit H - [Intentionally deleted]
Exhibit I - Surveyor's Certification
Exhibit J - Opinions of Counsel (2)
Exhibit K - Allocated Loan Amounts
Exhibit L - [Intentionally Deleted]
Exhibit M - Secretary's Certificate
Exhibit N - Cash Collateral Accounts
Exhibit O - Certificate of Lender
Exhibit P - CC Account Agreement
Exhibit Q - Letters of Instruction
Exhibit R - Title Instruction Letter
Exhibit S - Zoning Letter
Exhibit T - Disbursement Accounts
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of October 31, 1995,
is by and among NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation, having an address at 2 World Financial Center, Building B,
New York, New York 10281-1198, Attention: Gregory Anderson, Telefax
Number 212-667-1022 (together, with its successors and assigns,
"Lender"), JAYBER, INC., a New Jersey corporation ("Jayber"), P.V.M.
ASSOCIATES, INC., a Florida corporation ("P.V.M."), CONTINENTAL NORWOOD
HOLDINGS, INC., a New Jersey corporation ("Norwood") and POMPTON AVENUE
ASSOCIATES, INC., a New Jersey corporation ("Pompton"), all with an
address of 910 Sylvan Avenue, Englewood Cliffs, NJ 07632, Attention:
Benjamin Geizhals, Telefax Number 201-567-8536 (each a "Borrower" and
collectively, the "Borrowers").
RECITALS
WHEREAS, Borrowers desire to obtain a loan (the
"Loan") from Lender in an aggregate maximum amount of up to $41,000,000
(the "Loan Amount") to finance the acquisition by the Borrowers of four
nursing home facilities and to provide working capital to the Borrowers;
WHEREAS, Lender is willing to make the Loan on the
condition that each of the Borrowers join in the execution and delivery
of this Agreement which shall establish the terms and conditions of the
Loan;
WHEREAS, Norwood has leased its Facility (the
"Norwood Facility") to the Operator pursuant to the Master Lease and the
Operator has, in such Master Lease, pledged to such Borrower a security
interest in all of such Operator's Collateral (as defined in the Master
Lease) as security for payment of such Operator's obligations to Norwood
under such Master Lease;
WHEREAS, the obligations of each Borrower shall
hereunder shall be "cross-defaulted" and "cross-collateralized" with the
obligations of all other Borrowers hereunder;
WHEREAS, Lender and Borrowers contemplate that
Lender's interest in the Loan and to the Loan Documents may be assigned,
in whole or in part, by Lender to another person, including without
limitation to a trustee on behalf of security holders in connection with
a Securitization.
NOW, THEREFORE, in consideration of the making of
the Loan by Lender and the covenants, agreements, representations and
warranties set forth in this Agreement, the parties hereby covenant,
agree, represent and warrant as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions. For all purposes of
this Agreement:
(a) the capitalized terms defined in this Article
I have the meanings assigned to them in this Article I, and include the
plural as well as the singular;
(b) all accounting terms have the meanings
assigned to them in accordance with GAAP;
(c) the words "herein", "hereof", and "hereunder"
and other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section, or other subdivision; and
(d) the following terms have the following
meanings:
"Account Collateral" has the meaning set forth in
Section 2.13(a).
"Accounts" means, with respect to each Borrower,
to the extent such Borrower has any rights, title or interests in or to
any of the following, such Borrower's rights or the rights of the
Operator, if any, of such Borrower's Facility to payment for goods sold
or leased or for services rendered arising from the ownership or
operation of such Borrower's Facility and not evidenced by an
Instrument, including, without limitation, all accounts and accounts
receivable arising from the ownership or operation of such Facility, now
existing or hereinafter coming into existence, and all proceeds thereof
(whether cash or non-cash, movable or immovable, tangible or
intangible), received from the sale, exchange, transfer, collection or
other disposition or substitution. In addition to the foregoing, the
term "Accounts" shall include the meaning as such term has in Section
9-106 of the UCC.
"Adjusted Net Operating Income" means for any
period (and calculated either for a Facility or the Facilities) the Net
Operating Income for such period reduced by (to the extent that the
following are not already included in Operating Expenses) (i) an annual
allowance for Capital Improvement Costs in an amount equal to the
Capital Reserve Amount, pro rated for the applicable period, and (ii)
annual management fees pro rated for the applicable period equal to the
greater of (x) actual management fees paid pursuant to the relevant
Management Agreements and (y) five percent (5%) of Gross Revenue, and
(iii) for the applicable period an amount necessary to reflect operating
revenues at a five percent (5%) vacancy factor if the actual vacancy
factor is less than five percent (5%). Notwithstanding the foregoing
part of this definition of "Adjusted Net Operating Income" to the
contrary, if the period for which Adjusted Net Operating Income is being
calculated includes periods prior to the Closing Date, Adjusted Net
Operating Income for such Facility shall be calculated for such period
based on the applicable pro rata portion of Base NOI.
"Advisor" means Nomura Securities International,
Inc.
"Affiliate" of any specified Person means any
other Person controlling, controlled by or under common control with
such specified Person. For the purposes of this Agreement, "control"
when used with respect to any specified Person means the power to direct
the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities or other beneficial
interests, by contract or otherwise; and the terms "controls",
"controlling" and "controlled" have the meanings correlative to the
foregoing.
"Agreement" means this Loan Agreement, as the same
may from time to time hereafter be modified, supplemented or amended.
"Allocated Loan Amount" means the portion of the
Loan Amount allocated to each Facility, as set forth on Exhibit K
attached hereto as such amounts shall be adjusted from time to time as
hereinafter set forth. Upon a prepayment with respect to the King David
Center Facility, in accordance with Section 2.6(b), the Allocated Loan
Amount for that Facility shall be reduced to zero. Upon each adjustment
of Principal Indebtedness due to either (i) a regular monthly payment of
principal pursuant to Section 2.5 or (ii) a prepayment of principal
pursuant to Section 2.7(a), each Allocated Loan Amount shall be
decreased by an amount equal to the product of (i) the amount of such
principal payment and (ii) a fraction, the numerator of which is the
applicable Allocated Loan Amount (prior to the adjustment in question)
and the denominator of which is the total of all Allocated Loan Amounts
(prior to the adjustment in question). Notwithstanding the foregoing
sentence to the contrary, when the Principal Indebtedness is reduced as
a result of Lender's receipt of Net Proceeds or Loss Proceeds, with
respect to a Taking or casualty affecting one hundred percent (100%) of
a Facility, the Allocated Loan Amount for such Facility with respect to
which the Net Proceeds or Loss Proceeds were received shall be reduced
to zero (such Allocated Loan Amount prior to reduction being referred to
as the "Withdrawn Allocated Amount"), and each other Allocated Loan
Amount shall, if the Withdrawn Allocated Amount exceeds the Net Proceeds
or Loss Proceeds, (such excess being referred to as the "Proceeds
Deficiency"), be increased by an amount equal to the product of (1) the
Proceeds Deficiency and (2) a fraction, the numerator of which is the
applicable Allocated Loan Amount (prior to the adjustment in question)
and the denominator of which is the aggregate of all of the Allocated
Loan Amounts other than the Withdrawn Allocated Amount.
"Appraisals" means the appraisals, if any, with
respect to a Facility delivered to Lender in connection with the Loan
and any more recent appraisal of any Facility delivered to Lender, each
made by an Appraiser at the request of a Borrower or Lender, as any of
the same may be updated by recertification from time to time by the
Appraiser performing such Appraisal.
"Appraiser" means any Independent appraiser
selected by a Borrower (and satisfactory to Lender) who is a member of
the Appraisal Institute with a national practice and who has at least
ten years experience with real estate of the same type and in the
geographic area of the Facility to be appraised.
"Assignment of Agreements" means, with respect to
each Facility, a first priority Assignment of Management Agreement and
Agreements Affecting Real Estate, in the form attached hereto as Exhibit
A, (conformed to local lending practices in the jurisdiction in which
the relevant Facility is located including, without limitation,
additional remedies available to lenders in such jurisdiction), dated as
of the Closing Date from the relevant Borrower, as assignor, to Lender,
as assignee, assigning to Lender (to the extent set forth in the
Assignment of Agreements) such Borrower's interest in and to all
contracts between such Borrower and third parties in connection with the
management and operation of such Facility, including without limitation,
the Management Agreement, any other agreements with design
professionals, all agreements, allocations, and rights with all utility
services serving such Facility and all development agreements and
Permits, as the same may thereafter from time to time be supplemented,
amended or extended by one or more written agreements supplemental
thereto, and "Assignments of Agreements" means all such instruments
collectively.
"Assignment of Leases" means, with respect to each
Facility, a first priority Assignment of Leases and Rents, in the form
attached hereto as Exhibit B, (conformed to local lending practices in
the jurisdiction in which the relevant Facility is located including,
without limitation, additional remedies available to lenders in such
jurisdiction), dated as of the Closing Date from the relevant Borrower,
as assignor, to Lender, as assignee, assigning to Lender such Borrower's
interest in and to the Leases and the Rents with respect to such
Facility as security for the Loan, as the same may thereafter from time
to time be supplemented, amended, modified or extended by one or more
written agreements supplemental thereto, and "Assignments of Leases"
means all such instruments collectively.
"Bank" means Boatmen's First National Bank of
Kansas City, 10th & Baltimore, Kansas City, Missouri 64183, or any
successor bank hereafter selected by Lender in accordance with the terms
hereof.
"Base NOI" means $2,023,000 for the Cedar Grove
Facility, $1,133,000 for the Northfield Manor Facility, $485,000 for the
King David Center Facility and $2,574,000 for the Norwood Facility.
"Basic Carrying Costs" means, with respect to each
Facility, the following costs: (i) real property taxes, assessments and
Impositions applicable to such Facility, and (ii) insurance premiums for
policies of insurance required or permitted to be maintained by a
Borrower pursuant to this Agreement or the other Loan Documents.
"Basic Carrying Costs Monthly Installment" means,
with respect to each Facility, Lender's good faith estimate of
one-twelfth (1/12th) of the annual amount of the relevant Basic Carrying
Costs. Should the relevant Basic Carrying Costs for the then current
Fiscal Year or payment period not be ascertainable by Lender at the time
a monthly deposit is required to be made, the relevant Basic Carrying
Costs Monthly Installment shall be Lender's good faith estimate based on
one-twelfth (1/12th) of the relevant aggregate Basic Carrying Costs for
the prior Fiscal Year or payment period, with reasonable adjustments as
determined by Lender. As soon as the relevant Basic Carrying Costs are
fixed for the then current Fiscal Year or period, the next ensuing
relevant Basic Carrying Costs Monthly Installment shall be adjusted to
reflect any deficiency or surplus in prior relevant Basic Carrying Costs
Monthly Installments.
"Basic Carrying Costs Sub-Account" means the
Sub-Account of the relevant Cash Collateral Account established and
maintained pursuant to Section 2.12 relating to the payment of the
relevant Basic Carrying Costs.
"Borrower" and "Borrowers" have the meanings
provided in the first paragraph of this Agreement.
"Borrower's Broker" has the meaning set forth in
Section 8.21.
"Borrower's Certificate" means the certificate in
the form attached hereto as Exhibit F of Borrower dated as of the
Closing Date.
"Business Day" means any day other than (i) a
Saturday or a Sunday, and (ii) a day on which federally insured
depository institutions in Missouri or New York or any State in which
the Collection Accounts, the Cash Collateral Accounts or the
Sub-Accounts are located are authorized or obligated by law, regulation,
governmental decree or executive order to be closed.
"Capital Improvement Costs" means costs incurred
by a Borrower in connection with capital improvements to the relevant
Facility.
"Capital Reserve Amount" means, with respect to
each Facility, an amount equal to the greater of (x) $250 per bed or
unit (as applicable) of such Facility per annum and (y) the amount
identified in the relevant Engineering Report(s) as the annual amount
needed to be reserved for ongoing capital expenditures.
"Capital Reserve Monthly Installment" means, with
respect to a Facility, an amount equal to one-twelfth (1/12th) of the
Capital Reserve Amount.
"Capital Reserve Sub-Account" means the
Sub-Account of the relevant Cash Collateral Account established and
maintained pursuant to Section 2.12 relating to the payment of the
relevant Capital Improvement Costs.
"Cash Collateral Account" has the meaning provided
in Section 2.12(b).
"CC Account Agreement" has the meaning provided in
Section 2.13(c).
"Cedar Grove Facility" means the Facility owned by
Pompton.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended, and as it may be further amended from time to time, any
successor statutes thereto, and applicable U.S. Department of Treasury
regulations issued pursuant thereto in temporary or final form.
"Collateral" means, collectively, the Land,
Improvements, Equipment, Rents, Leases, Accounts, Account Collateral,
General Intangibles, Instruments, Inventory and Money, and (to the full
extent assignable) Permits and all proceeds of the foregoing, all
whether now owned or hereafter acquired and all other property which is
or hereafter may become subject to a Lien in favor of Lender as security
for the Loan.
"Collateral Security Instrument" means any right,
document or instrument, other than a Mortgage, given as security for the
Loan, including, without limitation, the Assignments of Leases, the
Assignments of Agreements and the Manager's Subordinations, as same may
thereafter from time to time be supplemented, amended, extended or
modified.
"Collection Account" has the meaning provided in
Section 2.12(a).
"Collection Account Bank" means, with respect to a
Facility, the applicable bank for such Facility and any successor bank
hereafter selected by Borrower and approved by Lender. Each Collection
Account Bank (i) shall be a financial institution within reasonable
proximity of such Facility with respect to which it will hold accounts
and (ii) shall meet the rating requirements set forth in clause (i) of
the definition of "Eligible Account".
"Commitment Letters" means collectively the letter
from Lender to Norwood dated October 13, 1995 and the letter from Lender
to TNS Nursing Homes, Inc., dated October 20, 1995, which letters were
accepted by Borrowers in writing.
"CON" has the meaning set forth in Section
4.1(b)(AG)(ii).
"Condemnation Proceeds" has the meaning provided
in Section 2.12(h).
"Contingent Obligation" means any obligation of
any Borrower guaranteeing any indebtedness, leases, dividends or other
obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of any Borrower, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation (including any master lease) or (iv) otherwise to
assure or hold harmless the owner of such primary obligation against
loss in respect thereof, except the Loan and indemnities required by
Title Insurer in connection with the issuance of the Title Insurance
Policies. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made
(taking into account the non-recourse or limited recourse nature of such
Contingent Obligation, if applicable) or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof
(assuming that the relevant Borrower is required to perform thereunder)
as determined by Lender in good faith (taking into account the
non-recourse or limited recourse nature of such Contingent Obligation,
if applicable).
"Current Interest Accrual Period" has the meaning
provided in Section 2.12(g).
"Current Rate" means, with respect to each
principal payment, the Ten-Year Treasury Rate as of such date of
payment.
"Debt Service" means, for any period (and
calculated either for a Facility or all Facilities) the principal,
interest payments, Default Rate interest, Late Charges, Yield
Maintenance Premium and Hedge Loss, if any, that would accrue or be due
and payable in accordance with the Loan Documents during such period.
"Debt Service Payment Sub-Account" means the
Sub-Account of the relevant Cash Collateral Account established and
maintained pursuant to Section 2.12 relating to the payment of the
relevant Debt Service.
"Deed of Trust Trustee" means each of the
trustees, if any, under the Mortgages.
"Default" means the occurrence of any event which,
but for the giving of notice or the passage of time, or both, would be
an Event of Default.
"Default Collateral" has the meaning provided in
Section 8.14.
"Default Rate" means the per annum interest rate
equal to the lesser of (i) the Maximum Amount or (ii) the greater of (x)
the Interest Rate plus five percent (5%) or (y) the Prime Rate of
Interest (as of the date that Lender is first entitled to collect the
applicable Default Rate interest hereunder) plus five percent (5%).
"DOH" has the meaning set forth in Section
4.1(b)(AG)(i).
"Eligible Account" means (i) an account maintained
with a federal or state chartered depository institution or trust
company, whose (x) commercial paper, short-term debt obligations or
other short-term deposits are rated at least A-1 by each Rating Agency,
if the deposits in such account are to be held in such account for
thirty (30) days or less or (y) long-term unsecured debt obligations are
rated by each Rating Agency as at least AA-, if the deposits are to be
held in such account for more than thirty (30) days, (ii) a segregated
trust account maintained with the trust department of a federal or state
chartered depository institution or trust company acting in its
fiduciary capacity which institution or trust company is subject to
regulations regarding fiduciary funds on deposit substantially similar
to 12 C.F.R. Section 9.10(b) or (iii) prior to Securitization, an account
maintained at the Bank.
"Engineer" means any reputable Independent
engineer, properly licensed in the relevant jurisdiction and approved by
Lender, in Lender's discretion.
"Engineering Reports" means the structural
engineering reports with respect to each Facility prepared by an
Engineer and delivered to Lender in connection with the Loan and any
amendments or supplements thereto delivered to Lender.
"Environmental Claim" means any written request
for information by a Governmental Authority, or any written notice,
notification, claim, administrative, regulatory or judicial action,
suit, judgment, demand or other written communication by any Person or
Governmental Authority requiring, alleging or asserting liability with
respect to any Borrower, or any Facility, whether for damages,
contribution, indemnification, cost recovery, compensation, injunctive
relief, investigatory, response, remedial or cleanup costs, damages to
natural resources, personal injuries, fines or penalties arising out of,
based on or resulting from (i) the presence, Use, Release or threatened
Release into the environment of any Hazardous Substance originating at
or from, or otherwise affecting, a Facility, (ii) any fact,
circumstance, condition or occurrence forming the basis of any
violation, or alleged violation, of any Environmental Law by any
Borrower or otherwise affecting a Facility or (iii) any alleged injury
or threat of injury to health, safety or the environment by any Borrower
or otherwise affecting a Facility.
"Environmental Laws" means any and all applicable
federal, state and local laws, rules, regulations or municipal
ordinances, each as amended from time to time, any judicial or
administrative orders, decrees, settlement agreements or judgments
thereunder, and any permits, approvals, licenses, registrations, filings
and authorizations, in each case as in effect as of the relevant date,
relating to the environment, health or safety, or the Release or
threatened Release of Hazardous Substances into the indoor or outdoor
environment including, without limitation, ambient air, soil, surface
water, ground water, wetlands, land or subsurface strata or otherwise
relating to the presence or Use of Hazardous Substances.
"Environmental Reports" means, with respect to
each Facility, the environmental audit reports delivered to Lender in
connection with the Loan for a Facility and any amendments or
supplements thereto delivered to Lender.
"Equipment" means, with respect to each Borrower,
to the extent such Borrower has any rights, title or interests in or to
any of the following, all fixtures, appliances, machinery, furniture,
furnishings, decorations, tools and supplies, now owned or hereafter
acquired, including but not limited to, all beds, linen, radios,
televisions, carpeting, telephones, cash registers, computers, lamps,
glassware, restaurant and kitchen equipment, all medical, dental,
rehabilitation, therapeutic and paramedic equipment and supplies, any
building equipment, including but not limited to, all heating, lighting,
incinerating, waste removal and power equipment, engines, pipes, tanks,
motors, conduits, switchboards, security and alarm systems, plumbing,
lifting, cleaning, fire prevention, fire extinguishing, refrigeration,
ventilating, and communications apparatus, air cooling and air
conditioning apparatus, escalators, elevators, ducts, and compressors,
materials and supplies, and all other machinery, apparatus, equipment,
fixtures and fittings now owned or hereafter acquired by such Borrower,
or by the Operator, if any, of such Borrower's Facility, any portion
thereof or any appurtenances thereto, together with all additions,
replacements, parts, fittings, accessions, attachments, accessories,
modifications and alterations of any of the foregoing, to the extent
relating to such Borrower's Facility, provided, however, that, with
respect to any items which are leased and not owned by a Borrower, the
Equipment shall include the leasehold interest only of such Borrower,
together with any options to purchase any of said items and any
additional or greater rights with respect to such items which such
Borrower may hereafter acquire. In addition to the foregoing, the term
"Equipment" shall include the meaning such term has in the UCC.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the regulations
promulgated thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and, as of the relevant date, any
subsequent provisions of ERISA, amendatory thereof, supplemental thereto
or substituted therefor.
"ERISA Affiliate" means any corporation or trade
or business that is a member of any group of organizations (i) described
in Section 414(b) or (c) of the Code of which any Borrower is a member,
and (ii) solely for purposes of potential liability under Section
302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien
created under Section 302(f) of ERISA and Section 412(n) of the Code,
described in Section 414(m) or (o) of the Code of which any Borrower is
a member.
"Event of Default" has the meaning set forth in
Section 7.1.
"Facility" means, with respect to each Borrower,
such Borrower's Collateral and the Collateral relating to such Borrower
unless released pursuant to the terms of this Agreement and "Facilities"
means every Facility.
"Fifteen-Year Treasury Rate" means the yield,
calculated by linear interpolation (rounded to three decimal places) of
the yields of United States Treasury Constant Maturities with terms (one
longer and one shorter) most nearly approximating that of noncallable
United States Treasury obligations having maturities as close as
possible to 15 years from the Closing Date, as determined by Lender on
the basis of Federal Reserve Statistical Release H.15-Selected Interest
Rates under the heading U.S. Governmental Security/Treasury Constant
Maturities, or other recognized source of financial market information
selected by Lender.
"Fiscal Year" means the 12-month period ending on
December 31 of each year or such other fiscal year of a Borrower as a
Borrower may select from time to time with the prior consent of Lender
(which consent shall not be unreasonably withheld); provided, however,
that all Borrowers shall always have the same Fiscal Year.
"GAAP" means generally accepted accounting
principles consistently applied in the United States of America as of
the date of the applicable financial report.
"General Intangibles" means, with respect to each
Borrower, to the extent such Borrower has any rights, title, or
interests in or to any of the following, all intangible personal
property of such Borrower or of the Operator, if any, of such Borrower's
Facility arising out of or directly relating to such Borrower's Facility
(other than Accounts, Rents, Instruments, Inventory, Money and Permits),
including, without limitation, things in action, settlements, judgments,
contract rights, rights to performance (including, without limitation,
rights under warranties) refunds of real estate taxes and assessments
and other rights to payment of Money, copyrights, trademarks and patents
now existing or hereinafter in existence. In addition to the foregoing,
the term "General Intangibles" shall include the meaning as such term
has in Section 9-106 of the UCC.
"Governmental Authority" means any national or
federal government, any state, regional, local or other political
subdivision thereof with jurisdiction and any Person with jurisdiction
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Gross Revenue" means, with respect to a Facility,
the total dollar amount of all income and receipts whatsoever received
by Operator, if any, and, without duplication, the relevant Borrower in
the ordinary course of its business with respect to such Borrower's
Facility, including, without limitation, all Rents (but excluding
security deposits) and Money.
"Hazardous Substance" means, collectively, (i) any
petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBs"), lead in drinking water, and lead-based paint, the
presence, generation, use, transportation, storage or disposal of or
exposure to which (x) is regulated or could lead to liability under any
Environmental Law or (y) is subject to notice or reporting requirements
under any Environmental Law, (ii) any chemicals or other materials or
substances which are now or hereafter become defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," "contaminants," "pollutants" or
words of similar import under any Environmental Law and (iii) any other
chemical or any other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"Hedge Loss" means the product of (i) the amount
of the relevant Principal Indebtedness being paid by P.V.M. multiplied
by (ii) the Modified Duration (determined as of the date of such
principal payment) multiplied by (iii) the Rate Difference (determined
as of the date of such principal payment).
"Impositions" means all taxes (including, without
limitation, all real estate, ad valorem, sales (including those imposed
on lease rentals), use, single business, gross receipts, value added,
intangible transaction privilege, privilege, license or similar taxes),
assessments (including, without limitation, to the extent not discharged
prior to the Closing Date, all assessments for public improvements or
benefits, whether or not commenced or completed within the term of the
Related Mortgage), ground rents, water, sewer or other rents and
charges, excises, levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary
or extraordinary, foreseen or unforeseen, of every character in respect
of a Facility or in respect of Operator, if any, (including all interest
and penalties thereon), which at any time prior to, during or in respect
of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) a Borrower (including, without limitation, all income,
franchise, single business or other taxes imposed on such Borrower for
the privilege of doing business in the jurisdiction in which such
Facility, or any other Collateral, is located), an Operator, if any, or
Lender, (ii) a Facility, or any other Collateral or any part thereof, or
(iii) any occupancy, operation, use or possession of, or sales from, or
activity conducted on, or in connection with such Facility or the
leasing or use of such Facility or any part thereof, or the acquisition
or financing of the acquisition of such Facility by such Borrower.
Nothing contained in this Agreement shall be construed to require any
Borrower to pay any tax, assessment, levy or charge imposed on Lender,
in the nature of a franchise, capital levy, estate, inheritance,
succession, income or net revenue tax.
"Improvements" means, with respect to each
Facility, all buildings, structures and improvements of every nature
whatsoever situated on the Land on the Closing Date or thereafter,
including, but not limited to, to the extent of any Borrower's right,
title or interest therein, all gas and electric fixtures, radiators,
heaters, engines and machinery, boilers, ranges, elevators and motors,
plumbing and heating fixtures, antennas, carpeting and other floor
coverings, water heaters, awnings and storm sashes, and cleaning
apparatus which are or shall be attached to the Land or said buildings,
structures or improvements.
"Indebtedness" means the Principal Indebtedness,
together with all accrued and unpaid interest thereon and all other
obligations and liabilities due or to become due to Lender pursuant
hereto, under the Notes or in accordance with any of the other Loan
Documents, and all other amounts, sums and expenses paid by or payable
to Lender hereunder or pursuant to the Notes or any of the other Loan
Documents.
"Independent" means, when used with respect to any
Person, a Person who (i) does not have any direct financial interest or
any material indirect financial interest in any Borrower or any Operator
or in any Affiliate of any Borrower or of any Operator, and (ii) is not
connected with any Borrower or any Operator or any Affiliate of any
Borrower or any Operator as an officer, employee, promoter, underwriter,
trustee, partner, member, manager, creditor, director or person
performing similar functions.
"Independent Director" means a duly appointed
member of the board of directors of the relevant entity who shall not
have been, at the time of such appointment or at any time in the
preceding five (5) years, (a) a direct or indirect legal or beneficial
owner in such entity or any of its affiliates, (b) a creditor, supplier,
employee, officer, director, manager or contractor of such entity or any
of its affiliates, or (c) a person who controls such entity or its
affiliates.
"Initial Basic Carrying Costs Amount" means
$48,006.00 for the Northfield Manor Facility, $11,500.00 for the Cedar
Grove Manor Facility, $67,638.00 for the King David Center Facility, and
$87,856.00 for the Norwood Facility.
"Initial Capital Reserve Amount" means $69,500 for
the Northfield Manor Facility, $500 for the Cedar Grove Manor Facility,
$1500 for the King David Center Facility and $625 for the Norwood
Facility.
"Instruments" means, with respect to each
Borrower, to the extent such Borrower has any rights, title, or
interests in or to any of the following, all instruments, chattel paper,
documents or other writing obtained by such Borrower or by the Operator,
if any, of such Borrower's Facility from or in connection with the
operation of such Borrower's Facility evidencing a right to the payment
of Money, including, without limitation, all notes, drafts, acceptances,
documents of title, and policies and certificates of insurance,
including but not limited to, liability, hazard, rental and credit
insurance, guarantees and securities, now or hereafter received by such
Borrower or by the Operator, if any, of such Borrower's Facility or in
which such Borrower or Operator, if any, has or acquires an interest
pertaining to the foregoing. In addition to the foregoing, "Instruments"
shall include the meaning such term has in Section 9-105 of the UCC.
"Insurance Proceeds" has the meaning provided in
Section 2.12(h).
"Insurance Requirements" means all material terms
of any insurance policy required pursuant to the Loan Documents and all
material regulations and then current standards applicable to or
affecting the applicable Facility or any part thereof or any use or
condition thereof, which may, at any time, be recommended by the Board
of Fire Underwriters, if any, having jurisdiction over such Facility, or
such other body exercising similar functions.
"Interest Accrual Period" means each period of
time running from and including the eleventh day of a calendar month to
and including the tenth day of the following calendar month during the
term of the Loan, provided, however, that the first Interest Accrual
Period for the Loan shall be from and including the Closing Date to but
not including the first Payment Date. Interest for the first Interest
Accrual Period shall be paid on the Closing Date.
"Interest Rate" means 9.86% per annum.
"Inventory" means, with respect to each Borrower,
to the extent such Borrower has any rights, title or interest in or to
any of the following, all goods now owned or hereinafter acquired by
such Borrower or the Operator, if any, of such Borrower's Facility
intended for sale or lease, or to be furnished under contracts of
service by such Borrower or the Operator, if any, in connection with
such Borrower's Facility, including without limitation, all inventories
of food and beverages held by such Borrower or Operator, if any, for
sale or use at or from such Borrower's Facility, and all other such
goods, wares, merchandise, and materials and supplies of every nature
held by such Borrower or Operator, if any, for sale to or for
consumption by guests of such Facility and others, and all such other
goods returned to or repossessed by such Borrower or Operator, if any.
In addition to the foregoing, the term "Inventory" shall include the
meaning as such term has in Section 9-109 of the UCC.
"Issuer" means any issuer of securities issued in
connection with a Securitization.
"King David Facility" means the Facility owned by
PVM.
"Land" has the meaning provided in the Mortgages.
"Late Charge" means the lesser of (i) five percent
(5%) of any unpaid amount and (ii) the maximum late charge permitted to
be charged under applicable laws of the State of New York.
"Leases" means, with respect to each Borrower, all
leases (including, without limitation, any Master Lease) and other
agreements or arrangements affecting the use or occupancy of all or any
portion of such Borrower's Facility now in effect or hereafter entered
into (including, without limitation, all patient admissions and resident
care agreements, lettings, subleases, licenses, concessions, tenancies
and other occupancy agreements covering or encumbering all or any
portion of such Borrower's Facility), together with any guarantees,
supplements, amendments, modifications, extensions and renewals of the
same, and all additional remainders, reversions, and other rights and
estates appurtenant thereto.
"Legal Requirements" means all governmental
statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions of Governmental Authorities affecting either an
applicable Facility or any part thereof or the ownership, construction,
use, alteration or operation thereof, or any part thereof, enacted and
in force as of the relevant date, and all Permits and regulations
relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
any Borrower, at any time in force affecting such Facility or any part
thereof, including, without limitation, any which (i) may require
repairs, modifications, or alterations in or to such Facility or any
part thereof, or (ii) in any way limit the use and enjoyment thereof.
"Lender" has the meaning provided in the first
paragraph of this Agreement.
"Lender's Brokers" has the meaning set forth in
Section 8.21.
"Letters of Instructions" has the meaning set
forth in Section 2.12(b).
"Licenses" has the meaning provided in Section
4.1(d)(AG)(ii).
"Lien" means any mortgage, deed of trust, lien
(statutory or other), pledge, easement, restrictive covenant,
hypothecation, assignment, preference, priority, security interest, or
any other encumbrance or charge on or affecting a Facility or any
portion thereof or any Collateral or any Borrower, or any interest
therein, including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, the filing of any
financing statement or similar instrument under the UCC or comparable
law of any other jurisdiction, domestic or foreign, and mechanic's,
materialmen's and other similar liens and encumbrances.
"Loan" has the meaning provided in the Recitals
hereto.
"Loan Amount" has the meaning provided in the
Recitals hereto.
"Loan Documents" means this Agreement, the Notes,
the Mortgages, the Assignments of Leases, the Assignments of Agreements,
the Manager's Subordinations, the Commitment Letters, the Cash
Collateral Account Agreements, and all other agreements, instruments,
certificates and documents delivered by or on behalf of any Borrower or
any Affiliate to evidence or secure the Loan or otherwise in
satisfaction of the requirements of this Agreement, the Mortgages or the
other documents listed above.
"Locked Rate" means, as of the Closing Date, the
Fifteen-Year Treasury Rate.
"Loss Proceeds" has the meaning provided in
Section 2.12(h).
"Management Agreement" means, with respect to a
Facility, the Management Agreement entered into between a Manager and
the relevant Borrower pertaining to the management of such Facility in
the form attached to the form of Manager's Subordination which is
attached hereto as Exhibit C or such other form as may be approved by
Lender in Lender's discretion, and "Management Agreements" means all
such agreements collectively.
"Manager" means TNS Nursing Homes, Inc., a
Delaware corporation, or any successor or assignee, as manager of a
Facility or all of the Facilities, as the case may be, which successor
or assignee shall be acceptable to Lender in Lender's discretion.
"Manager's Subordination" means, with respect to a
Facility, the Manager's Consent and Subordination of Management
Agreement in the form attached hereto as Exhibit C, (conformed to local
lending practices in the jurisdiction in which the relevant Facility is
located including, without limitation, additional remedies available to
lenders in such jurisdiction), dated as of the Closing Date, executed by
a Manager, the relevant Borrower and Lender, as the same may thereafter
from time to time be supplemented, amended, modified or extended by one
or more written agreements supplemental thereto, and "Manager's
Subordinations" means all such agreements collectively provided,
however, that in the event that the Management Agreement deviates from
the form attached hereto as Exhibit C, and Lender approves such
deviation, Lender shall have the right to modify the form of Manager's
Subordination to the extent reasonably necessary to reflect such
deviations.
"Master Lease" means, with respect to the Norwood
Facility, that certain Lease between Norwood and the Operator, if any,
for the lease of all or a part of such Facility, together with any
guarantees, supplements, amendments, modifications, extensions, and
renewals of the same, and all additional remainders, reversions, and
other rights and estates appurtenant thereto, and "Master Leases" means
all such leases collectively.
"Material Adverse Effect" means a material adverse
effect upon (i) the business or the financial position or results of
operation of any Borrower, (ii) the ability of any Borrower to perform,
or of Lender to enforce, any of the Loan Documents, (iii) the value of
(x) the Collateral taken as a whole or (y) any Facility or (iv) the
ability of the Operator, if any, to perform Operator's obligations under
the relevant Master Lease.
"Material Lease" has the meaning provided in
Section 3.1(a)(U).
"Maturity Date" means November 11, 2010 or such
earlier date resulting from acceleration of the Indebtedness by Lender.
"Maximum Amount" means the maximum rate of
interest designated by applicable laws of the State of New York.
"Modified Duration" means the modified duration
(calculated to six decimal places) for a Ten-Year Treasury Rate.
"Money" means, with respect to each Borrower, to
the extent such Borrower has any rights, title, or interests in or to
any of the following, all moneys, cash, rights to deposit or savings
accounts, credit card receipts or other items of legal tender obtained
from or for use in connection with the ownership or operation of such
Borrower's Facility.
"Mortgage" means, with respect to a Facility, a
first priority Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing, a first priority Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing or such other comparable document
which is customarily used by prudent lenders in the jurisdiction in
which the relevant Collateral is located, in the form attached hereto as
Exhibit D (conformed to local lending practices in the jurisdiction in
which the relevant Facility is located including, without limitation
additional remedies available to lenders in such jurisdiction) dated as
of the Closing Date, granted by a Borrower to Lender (or, in the case of
a Deed of Trust, to Deed of Trust Trustee for the benefit of Lender)
with respect to such Facility as security for the Loan, as same may
thereafter from time to time be supplemented, amended, modified or
extended by one or more written agreements supplemental thereto, but
shall exclude any such instrument released by Lender pursuant to Section
2.11, and "Mortgages" means all such instruments collectively.
"Mortgaged Property" means, at any time, the
Facility encumbered by the Related Mortgage and "Mortgaged Properties"
means, at any time, the Facilities encumbered by the Mortgages.
"Multiemployer Plan" means a multiemployer plan
defined as such in Section 3(37) of ERISA to which contributions have
been made by any Borrower or any ERISA Affiliate and which is covered by
Title IV of ERISA.
"Net Operating Income" means for any period (and
calculated either for a Facility or for all Facilities) the excess, if
any, of Operating Income for such period over Operating Expenses for
such period.
"Net Proceeds" means the sum of any amounts which
Lender elects to apply toward reduction of Principal Indebtedness after
the occurrence and continuance of an Event of Default pursuant to
Section 2.8 plus (to the extent not already included in the foregoing)
(i) either (x) the purchase price (at foreclosure or otherwise) actually
received by Lender from a third party purchaser with respect to one or
more Facilities as a result of the exercise by Lender of its rights,
powers, privileges and other remedies after the occurrence of an Event
of Default or (y) in the event that Lender is the purchaser at
foreclosure of one or more of such Facilities, the fair market value of
such Facilities, as determined by Lender in good faith, or, at a
Borrower's request and expense, an Appraiser, in either case less (ii)
all costs and expenses, including, without limitation, all attorneys'
fees and disbursements and any closing costs, brokerage fees, sheriff's
or marshall's commissions or the like, if applicable, incurred by Lender
in connection with the exercise of such remedies; provided, however,
that such costs and expenses shall not be deducted to the extent such
amounts previously have been added to the Indebtedness in accordance
with the terms of the Mortgages or applicable law.
"Northfield Manor Facility" means the Facility
owned by Jayber.
"Norwood Facility" means the Facility owned by
Norwood.
"Note" means and refers to, with respect to each
Borrower, the promissory note, in the form attached hereto as Exhibit E,
dated the Closing Date, made by a Borrower to Lender pursuant to this
Agreement as such note may be modified, amended, supplemented, extended
or consolidated in writing, and any note(s) issued in exchange therefor
or in replacement thereof, and "Notes" means all such promissory notes
and instruments collectively.
"Officer's Certificate" means a certificate by a
Borrower which is signed by an authorized general partner, officer or
managing member of such Borrower.
"Operating Expenses" means, for any period, for
any Borrower, all expenditures by such Borrower as and to the extent
required to be expensed under GAAP during such period in connection with
the ownership, operation, maintenance, repair or leasing of the
Facilities (or of a Facility), and all expenditures of Operator, if any,
to the extent required to be expensed under GAAP during such period in
connection with such Operator's activities as tenant and operator of the
Norwood Facility, including, without limitation:
(i) expenses in connection with cleaning,
repair and maintenance;
(ii) wages, benefits, payroll taxes, uniforms,
insurance costs and all other related expenses for
employees of such Borrower or any Affiliate engaged in
repair, operation, maintenance or service to patrons;
(iii) any management fees and expenses;
(iv) the cost of all electricity, oil, gas, water,
steam, heat, ventilation, air conditioning and any other
energy, utility or similar item and overtime services;
(v) the cost of cleaning supplies;
(vi) Impositions (but excluding income taxes of
such Borrower or Operator, if any, or any partner, member
or shareholder thereof);
(vii) business interruption, liability, casualty
and fidelity insurance premiums (the cost of which, in the
case of any policies covering more than one Facility,
shall be allocated among the Facilities pro rata in
proportion to the insured value of the Facilities covered
by such policies);
(viii) legal, accounting and other professional
fees and expenses including, without limitation,
collection costs and expenses;
(ix) costs and expenses of security and
security systems;
(x) trash removal and exterminating
costs and expenses;
(xi) advertising and marketing costs;
(xii) costs of environmental audits and monitoring,
environmental investigation, remediation or other response
actions or any other expenses incurred with respect to
compliance with Environmental Laws; and
(xiii) all other ongoing expenses which in
accordance with GAAP are required to be or are included in
such Borrower's and Operator's, if any, annual financial
statements as operating expenses of the Facilities (or of
a Facility).
Notwithstanding the foregoing, Operating Expenses shall not include (w) any
Capital Improvement Costs, (x) depreciation, amortization and other non-cash
charges, (y) any extraordinary items not normally considered an operating
expense in accordance with GAAP or (z) Debt Service and Operator Debt Service,
if any. Operating Expenses shall be calculated in accordance with GAAP.
"Operating Income" means, for any period, for any
Borrower, all regular ongoing income during such period of the Operator,
if any, together with all regular ongoing income of such Borrower from
any source other than such Operator, if any, arising from the ownership
or during such period from the operation of the Facilities (or of a
Facility), including, without limitation:
(i) all amounts payable as Rents and all
other amounts under Leases or other agreements relating
to the Facilities (or a Facility);
(ii) business interruption proceeds; and
(iii) all other amounts which in accordance with
GAAP are required to be or are included in such Borrower's
or such Operator's, if any, annual financial statements as
operating income, except that, in the case of such
Borrower, such other amounts shall only be included if
from any source other than such Operator, if any, of the
Facilities (or of a Facility).
Notwithstanding the foregoing, Operating Income shall not include (v) any
Condemnation Proceeds or Insurance Proceeds, (w) any proceeds resulting from the
sale, exchange, transfer, financing or refinancing of all or any portion of one
or more Facilities, (x) any Rent attributable to a Lease prior to the date on
which the actual payment of Rent is required to be made thereunder, or (y)
security deposits received from tenants until forfeited. Operating Income shall
be calculated in accordance with GAAP.
"Operator" means Senior Care Foundation, Inc., a
non-profit New Jersey corporation, or any successor or assignee, as
operator of the Norwood Facility, which successor or assignee shall be
acceptable to Lender in Lender's discretion.
"Operator Debt Service" means, for any period (and
calculated either for a Facility or all Facilities), any principal or
interest payments that would accrue or be due and payable by Operator
during such period under any loan.
"Other Borrowings" means, with respect to a
Borrower, without duplication (but not including the Indebtedness or any
Transaction Costs payable in connection with the Transactions) (i) all
indebtedness of such Borrower for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of such
Borrower evidenced by a note, bond, debenture or similar instrument,
(iii) the face amount of all letters of credit issued for the account of
such Borrower and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of such Borrower secured by a Lien on
any property owned by such Borrower whether or not such indebtedness has
been assumed, (v) all Contingent Obligations of such Borrower, and (vi)
all payment obligations of such Borrower under any interest rate
protection agreement (including, without limitation, any interest rate
swaps, caps, floors, collars or similar agreements) and similar
agreements.
"Payment Date" has the meaning provided in Section
2.5.
"PBGC" means the Pension Benefit Guaranty
Corporation established under ERISA, or any successor thereto.
"PCBs" has the meaning provided in the definition
of "Hazardous Substance."
"Permits" means, with respect to a Facility, all
licenses, registrations, permits, allocations, filings, authorizations,
approvals and certificates used in connection with the ownership,
operation, construction, renovation, use or occupancy of such Facility,
including, without limitation, building permits, business licenses,
state health department licenses, food service licenses, liquor
licenses, licenses to conduct business, and all such other permits,
licenses and rights, obtained from any Governmental Authority or private
Person concerning ownership, operation, renovation use or occupancy of
such Facility.
"Permitted Encumbrances" means, with respect to a
Facility, collectively, (i) the Lien created by the Related Mortgage or
the other Loan Documents of record, (ii) all Liens and other matters
disclosed in the applicable Title Insurance Policies concerning such
Facility or any part thereof which have been approved by Lender in
Lender's discretion, (iii) Liens, if any, for Impositions imposed by any
Governmental Authority not yet due or delinquent or being contested in
good faith and by appropriate proceedings in accordance with the Related
Mortgage, (iv) subject to Section 2.06(b) of the Related Mortgage, any
mechanics' and materialmen's Liens deleted from the exceptions to, or
affirmatively insured against collection with respect to, the Facility
under the applicable Title Insurance Policies, and (v) without limiting
the foregoing, any and all governmental, public utility and private
restrictions, covenants, reservations, easements, licenses or other
agreements of an immaterial nature which may be granted by such Borrower
after the Closing Date and which do not affect (A) the ability of such
Borrower to pay any of its obligations to any Person as and when due,
(B) the marketability of title to such Facility, (C) the fair market
value of such Facility, or (D) the use or operation of such Facility as
of the Closing Date and thereafter, (vi) [intentionally deleted], and
(vii) [intentionally deleted].
"Permitted Investments" means any one or more of
the following obligations or securities:
(i) obligations of, or obligations fully guaranteed
as to payment of principal and interest by, (x) the United
States or any agency or instrumentality thereof provided such
obligations are backed by the full faith and credit of the
United States of America including, without limitation,
obligations of: the U.S. Treasury (all direct or fully
guaranteed obligations), the Farmers Home Administration
(certificates of beneficial ownership), the General Services
Administration (participation certificates), the U.S. Maritime
Administration (guaranteed Title XI financing), the Small
Business Administration (guaranteed participation certificates
and guaranteed pool certificates), the U.S. Department of
Housing and Urban Development (local authority bonds) and the
Washington Metropolitan Area Transit Authority (guaranteed
transit bonds); provided, however, that the investments
described in this clause must (i) have a predetermined fixed
dollar of principal due at maturity that cannot vary or
change, (ii) if rated by Standard & Poor's Rating Services,
must not have an "r" highlighter affixed to their rating,
(iii) if such investments have a variable rate of interest,
such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must prove
proportionately with that index, and (iv) such investments may
not be subject to liquidation prior to their maturity;
(ii) Federal Housing Administration debentures;
(iii) obligations of the following United States
government sponsored agencies: Federal Home Loan Mortgage
Corp. (debt obligations), the Farm Credit System (consolidated
systemwide bonds and notes), the Federal Home Loan Banks
(consolidated debt obligations), the Federal National Mortgage
Association (debt obligations), the Student Loan Marketing
Association (debt obligations), the Financing Corp. (debt
obligations), and the Resolution Funding Corp. (debt
obligations); provided, however, that the investments
described in this clause must (i) have a predetermined fixed
dollar of principal due at maturity that cannot vary or
change, (ii) if rated by Standard & Poor's Rating Services,
must not have an "r" highlighter affixed to their rating,
(iii) if such investments have a variable rate of interest,
such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must prove
proportionately with that index, and (iv) such investments may
not be subject to liquidation prior to their maturity;
(iv) federal funds, unsecured certificates of
deposit, time deposits, bankers' acceptances and repurchase
agreements of any bank, the short term obligations of which
are rated in the highest short term rating category by the
Rating Agencies; provided, however, that the investments
described in this clause must (i) have a predetermined fixed
dollar of principal due at maturity that cannot vary or
change, (ii) if rated by Standard & Poor's Rating Services,
must not have an "r" highlighter affixed to their rating,
(iii) if such investments have a variable rate of interest,
such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must prove
proportionately with that index, and (iv) such investments may
not be liquidated prior to their maturity;
(v) fully Federal Deposit Insurance
Corporation-insured demand and time deposits in or
certificates of deposit of, or bankers' acceptances issued by,
any bank or trust company, savings and loan association or
savings bank; provided, however, that the investments
described in this clause must (i) have a predetermined fixed
dollar of principal due at maturity that cannot vary or
change, (ii) if rated by Standard & Poor's Rating Services,
must not have an "r" highlighter affixed to their rating,
(iii) if such investments have a variable rate of interest,
such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must prove
proportionately with that index, and (iv) such investments may
not be subject to liquidation prior to their maturity;
(vi) debt obligations rated by the Rating Agencies in
their highest long-term unsecured rating category; provided,
however, that the investments described in this clause must
(i) have a predetermined fixed dollar of principal due at
maturity that cannot vary or change, (ii) if rated by Standard
& Poor's Rating Services, must not have an "r" highlighter
affixed to their rating, (iii) if such investments have a
variable rate of interest, such interest rate must be tied to
a single interest rate index plus a fixed spread (if any) and
must prove proportionately with that index, and (iv) such
investments may not be subject to liquidation
prior to their maturity;
(vii) commercial paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more
than one year after the date of issuance thereof) that is
rated by the Rating Agencies in their highest short-term
unsecured debt rating; provided, however, that the investments
described in this clause must (i) have a predetermined fixed
dollar of principal due at maturity that cannot vary or
change, (ii) if rated by Standard & Poor's Rating Services,
must not have an "r" highlighter affixed to their rating,
(iii) if such investments have a variable rate of interest,
such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must prove
proportionately with that index, and (iv) such investments may
not be subject to liquidation prior to their maturity;
(viii) units of taxable money market funds rated AAAm
or AAAm-G by Standard & Poor's Rating Services and in the
highest rating category by the other Rating Agencies (if rated
by such other Rating Agencies); and
(ix) any other demand, money market or time deposit,
or any other obligation, security or investment, that before
the Securitization Closing Date may be acceptable to Lender
(as evidenced in writing) and, after the Securitization
Closing Date, the Rating Agencies have confirmed in writing
would not result in a downgrade, withdrawal or qualification
of the then-applicable ratings assigned to the securities
issued in a Securitization;
provided, however, that no obligation or security shall be a Permitted
Investment if (x) the right to receive principal and interest payments derived
from the underlying investment provides a yield to maturity in excess of 120% of
the yield to maturity at par of such underlying investment, or (y) such
investments have a maturity in excess of one year.
"Permitted Transfers" shall mean (i) Permitted Encumbrances;
(ii) all transfers, conveyances or sales of personalty in the ordinary course of
business; (iii) all transfers of worn out or obsolete furnishings, fixtures or
equipment that are replaced with equivalent property; (iv) all resident care
agreements in the ordinary course of business; (v) a Transfer of the Mortgaged
Property to a Person which complies with the definitions of Single Purpose
Entity provided that prior to such Transfer (a) prior to a Securitization,
Lender shall have consented to such Transfer in its sole discretion, (b) after a
Securitization, Lender shall have consented to such Transfer in its sole
discretion and the Rating Agencies then rating any securities issued in
connection with a Securitization shall have confirmed in writing that such
Transfer shall not result in a downgrade, withdrawal or qualification of the
then-applicable ratings assigned to any securities issued in connection with
such Securitization, (c) acceptable opinions relating to such Transfer shall
have been delivered by Borrower to the Rating Agencies then rating any
securities issued in connection with a Securitization and Lender, (d) the
relevant Borrower pays to the Lender an assumption fee equal to one percent (1%)
of the Principal Indebtedness, and (e) the transferee executes assumption
agreements and such other agreements as Lender may require; and (vi) the initial
signing of any Master Lease (but not any amendments thereto).
"Person" means any individual, corporation, limited
liability company, partnership, joint venture, estate, trust, unincorporated
association, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.
"Plan" means an employee benefit or other plan established
or maintained by Borrower or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"Pooling and Servicing Agreement" means a Pooling and
Servicing Agreement entered into by and among Lender, as depositor, a servicer
and a trustee with respect to a Securitization, and "Pooling and Servicing
Agreements" means all such agreements collectively.
"Prime Rate of Interest" means the prime rate as published
from time to time in the Money Rates table of The Wall Street Journal.
"Principal Indebtedness" means the principal amount of the
entire Loan outstanding as the same may be increased or decreased, as a result
of prepayment or otherwise, from time to time.
"Proceeds" means all proceeds whether cash or non-cash,
movable or immovable, tangible or intangible (including Insurance Proceeds and
Condemnation Proceeds), from the Collateral, including, without limitation,
those from the sale, exchange, transfer, collection, loss, damage, disposition,
substitution or replacement of any of the Collateral and all income, gain,
credit, distributions and similar items from or with respect to the Collateral.
In addition to the foregoing "Proceeds" shall also include the meaning as such
term has in Section 9-306 of the UCC.
"Proceeds Deficiency" has the meaning provided in
the definition of "Allocated Loan Amount".
"Rate Difference" means the percentage obtained by
subtracting (i) the Current Rate from (ii) the Locked Rate.
"Rating Agencies" means Fitch Investors Service,
Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co.
and Standard & Poor's Rating Services, or any successor thereto, and any
other nationally recognized statistical rating organization which may
hereafter be engaged by Lender or its designees.
"Recourse Distributions" has the meaning provided
in Section 8.14.
"Related Collateral Security Instrument" means, with respect
to a particular Facility, the Collateral Security Instrument relating to such
Facility.
"Related Mortgage" means, with respect to a particular
Facility, the Mortgage encumbering such Facility.
"Related Assignment of Agreements" means, with respect to a
particular Facility, the Assignment of Agreements relating to such Facility.
"Related Assignment of Leases" means, with respect to a
particular Facility, the Assignment of Leases relating to such Facility.
"Release" means any release, threatened release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Release Date" has the meaning provided in Section 2.11(a).
"Remedial Work" has the meaning provided in Section
5.1(D)(i).
"Rents" means, with respect to each Borrower and its
Facility, to the extent such Borrower has any rights, title or interests in or
to any of the following, all rents (whether denoted as advance rent, minimum
rent, percentage rent, additional rent or otherwise), issues, income, royalties,
profits, revenues, proceeds, bonuses, deposits (whether denoted as security
deposits or otherwise), lease termination fees or payments, rejection damages,
buy-out fees and any other fees made or to be made in lieu of rent, any award
made hereafter to Borrower or Operator, if any, in any court proceeding
involving any tenant, lessee, licensee or concessionaire under any of the Leases
in any bankruptcy, insolvency or reorganization proceedings in any state or
federal court, and all other payments, rights and benefits of whatever nature
from time to time due under the Leases, including, without limitation, (i)
rights to payment earned under the Leases for space in the Improvements for the
operation of ongoing businesses such as restaurants, news stands, barber shops,
beauty shops and pharmacies, and (ii) all other income, consideration, issues,
accounts, profits or benefits of any nature arising from the ownership,
possession, use or operation of such Borrower's Facility, including, without
limitation, all rights to payment from the Medicare and Medicaid programs or
similar state or federal programs, boards, bureaus or agencies and rights to
payment from patients or private insurers, arising from the operation of such
Borrower's Facility.
"Required Debt Service Payment" means, with respect to each
Borrower and any Payment Date, the Debt Service then due and payable by such
Borrower.
"Secretary's Certificate" means, with respect to a Borrower,
the certificate in the form attached hereto as Exhibit M of such Borrower dated
as of the Closing Date.
"Securitization" shall have the meaning set forth
in Section 2.14.
"Securitization Closing Date" means the date on
which a Securitization is effected.
"Security Agreement" has the meaning set forth in
Section 2.11.
"Security Deposit Accounts" has the meaning set
forth in Section 2.12(a).
"Single-Purpose Entity" means a corporation, limited
partnership, or limited liability company which, as stated herein, at all times
since its formation or will from the Closing Date and thereafter (i) be
organized solely for the purpose of (x) owning one Facility or (y) acting as the
managing member of a limited liability company which owns one Facility or (z)
acting as the general partner of a limited partnership which owns one Facility,
(ii) has not and will not engage in any business unrelated to the (x) the
ownership of one Facility or (y) acting as a member of a limited liability
company which owns one Facility or (z) acting as a general partner of a limited
partnership which owns one Facility, (iii) has not and will not have any assets
other than (x) those related to one Facility or (y) its member interest in the
limited liability company which owns one Facility or (z) its general partnership
interest in the limited partnership which owns one Facility, as applicable, (iv)
except as otherwise expressly permitted by this Agreement, has not and will not
engage in, seek or consent to any dissolution, winding up, liquidation,
consolidation, merger, asset sale, transfer of partnership or membership
interests, or amendment of its limited partnership agreement, articles of
incorporation, articles of organization, certificate of formation or operating
agreement (as applicable), (v) if such entity is a limited partnership, has as
its only general partners, general partners which are Single-Purpose Entities
which are corporations, (vi) if such entity is a corporation, will have at least
one Independent Director, (vii) the board of directors of such entity may not
take any action requiring the unanimous affirmative vote of 100% of the members
of the board of directors unless an Independent Director shall have participated
in such vote, (viii) will not fail to correct any known misunderstanding
regarding the separate identity of such entity, (ix) intentionally deleted, (x)
intentionally omitted, (xi) if such entity is a limited liability company, has
at least one member that is a Single-Purpose Entity which is a corporation,
(xii) without the unanimous consent of all of the partners, directors or
members, as applicable, shall not file a bankruptcy or insolvency petition or
otherwise institute insolvency proceedings with respect to itself or to any
other entity in which it has a direct or indirect legal or beneficial ownership
interest, (xiii) will maintain its accounts, books and records separate from any
other person or entity, (xiv) will maintain its books, records, resolutions and
agreements as official records, (xv) will not commingle its funds or assets with
those of any other entity, (xvi) will hold its assets in its own name, (xvii)
will conduct its business in its name, (xviii) will maintain its financial
statements, accounting records and other entity documents separate from any
other person or entity, (xix) will pay its own liabilities out of its own funds
and assets, (xx) will observe all partnership, corporate or limited liability
company formalities as applicable, (xxi) will maintain an arms-length
relationship with its affiliates, (xxii) has no indebtedness other than the
Indebtedness and unsecured trade payables in the ordinary course of business
relating to the ownership and operation of the Facility which are paid within
sixty (60) days of the date incurred except for outstanding trade payables
existing as of the Closing Date which do not require payment within sixty (60)
days, (xxiii) will not assume or guarantee or become obligated for the debts of
any other entity or hold out its credit as being available to satisfy the
obligations of any other entity except for the Indebtedness, (xxiv) will not
acquire obligations or securities of its partners, members or shareholders,
(xxv) will allocate fairly and reasonably any shared expenses, including but not
limited to, overhead for shared office space and use separate stationary,
invoices and checks, (xxvi) will not pledge its assets for the benefit of any
other person or entity, (xxvii) will hold itself out and identify itself as a
separate and distinct entity under its own name and not as a division or part of
any other person or entity, (xxviii) will not make loans to any person or
entity, (xxix) will not identify its partners, members or shareholders, or any
affiliates of any of them as a division or part of it, (xxx) if such entity is a
limited liability company, its articles of organization, certificate of
formation and/or operating agreement, as applicable, shall provide that the vote
of a majority-in-interest of the remaining members is sufficient to continue the
life of such limited liability company, (xxxi) will not enter into or be a party
to, any transaction with its partners, members, shareholders or its affiliates
except in the ordinary course of its business and on terms which are
intrinsically fair and are no less favorable to it than would be obtained in a
comparable arms-length transaction with an unrelated third party.
"Start-Up Day" means the "start-up day," within the meaning
of Section 860G(a)(9) of the Code, of any "real estate mortgage investment
conduit," within the meaning of Section 860D of the Code, that holds the Notes.
"Sub-Account" shall have the meaning provided in
Section 2.12(c).
"Survey" means, with respect to a Facility, a survey of such
Facility satisfactory to Lender, prepared by a registered Independent surveyor
satisfactory to Lender and Title Insurer, together with a metes and bounds legal
description of the land corresponding with the survey and containing the
Surveyor's Certification.
"Surveyor's Certification" means a certification in
substantially the form of Surveyor's certification attached hereto as Exhibit I.
"Taking" means a taking or voluntary conveyance during the
term hereof of all or part of a Facility, or any interest therein or right
accruing thereto or use thereof, as the result of, or in settlement of, any
condemnation or other eminent domain proceeding by any Governmental Authority
affecting a Facility or any portion thereof whether or not the same shall have
actually been commenced.
"Tax Fair Market Value" means, with respect to a Facility,
the fair market value of such Facility, and (x) shall not include the value
of any personal property or other property that is not an "interest in real
property" within the meaning of Treasury Regulation Sections 1.860G-2 and
1.856-3(c), or is not "qualifying real property" within the meaning of
Treasury Regulation Section 1.593-11(b), and (y) shall be reduced by the
"adjusted issue price" (within the meaning of Code Section 1272(sa)(44))
(the "Tax Adjusted Issue Price") of any indebtedness, other than the Loan,
secured by a Lien affecting such Facility, which Lien is prior to or on
a parity with the Lien created under the Related Mortgage.
"Ten-Year Treasury Rate" means the yield, calculated by
linear interpolation (rounded to three decimal places) of the yields of
United States Treasury Constant Maturities with terms (one longer and one
shorter) most nearly approximating that of noncallable United States Treasury
obligations having maturities as close as possible to 10 years from the
Closing Date, as determined by Lender on the basis of Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading U.S.
Governmental Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by Lender.
"Third-Party Payors' Programs" has the meaning set
forth in Section 4.1(b)(AG)(v).
"Title Instruction Letter" means an instruction letter in
substantially the form attached hereto as Exhibit R.
"Title Insurance Policy" means, with respect to a Facility,
the loan policy of title insurance for such Facility issued by Title Insurer
with respect to such Facility in an amount acceptable to Lender and insuring the
first priority lien in favor of Lender created by the relevant Mortgage, subject
only to the items described in clause (ii) of the definition of "Permitted
Encumbrances" for that Facility and containing such endorsements and affirmative
assurances as Lender shall require, and "Title Insurance Policies" means all
such title policies collectively.
"Title Insurer" means Chicago Title Insurance Company and
any reinsurer required by Lender and/or any other nationally recognized title
insurance company acceptable to Lender in Lender's discretion, provided,
however, that the reinsurer of any Title Insurance Policy may include, in
amounts acceptable to Lender, First American Title Insurance Company, Lawyers
Title Insurance Company, Commonwealth Land Title Insurance Company and Stewart
Title Insurance Company.
"Transaction Costs" means all costs and expenses paid or
payable by Borrowers relating to the Transactions on the Closing Date,
including, without limitation, (i) a financing fee of $432,500 and (ii) all
appraisal fees, legal fees, accounting fees and the costs and expenses described
in Section 8.24.
"Transactions" means each of the transactions
contemplated by the Loan Documents.
"Transfer" means any conveyance, transfer, sale, Lease,
(including any amendment, extension, modification, waiver or renewal thereof),
assignment, mortgage, pledge, grant of a security interest, or hypothecation,
whether by law or otherwise of any Collateral (including any legal or beneficial
direct or indirect interest therein or in any Borrower) other than a Permitted
Transfer.
"UCC" means, with respect to any Collateral, the Uniform
Commercial Code in effect in the jurisdiction in which the relevant Collateral
is located.
"UCC Searches" has the meaning specified in Section 3.1.
"U.S. Obligations" means obligations or securities not
subject to prepayment, call or early redemption which are direct obligations of,
or obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America.
"Use" means, with respect to any Hazardous Substance, the
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation to or from
the property of such Person of such Hazardous Substance.
"Yield Maintenance Premium" means, with respect to each
Note, the amount, together with the principal paid (or required to be paid
pursuant to an acceleration of such Note) that will be sufficient (at the time
of an acceleration of such Note or a defeasance of the Loan pursuant to Section
2.11) to purchase U.S. Obligations having maturity dates on or prior to, but as
close as possible to, successive scheduled Payment Dates after the Release Date
or date of acceleration of such Note, as applicable, upon which interest and
principal payments would be required under such Note through November 11, 2010,
and in amounts sufficient to pay all scheduled principal and interest payments
through the Maturity Date, November 11, 2010.
ARTICLE II
GENERAL TERMS
Section 2.1. Amount of the Loan. Lender shall lend to
Borrowers a total aggregate amount of up to the Loan Amount.
Section 2.2. Use of Proceeds. Proceeds of the Loan shall be
used for the following purposes: (a) to pay the acquisition costs for the
Facilities being acquired by the Borrowers and reasonable costs and expenses
directly related to such acquisition, (b) to fund any upfront reserves or escrow
accounts hereunder, (c) to pay any Transaction Costs and (d) to provide working
capital to the Borrowers.
Section 2.3. Security for the Loan. The Notes and each
Borrower's obligations hereunder and under the other Loan Documents shall be
secured by the Mortgages, the Assignments of Leases, the Assignments of
Agreements, the Manager's Subordinations and the security interest and Liens
granted in this Agreement and in the other Loan Documents.
Section 2.4. Borrower's Notes. (a) Each Borrower's
obligation to pay the principal, interest, Late Charges, Default Rate interest
and Indebtedness shall be evidenced by this Agreement, a Note, and a Related
Mortgage duly executed and delivered by the relevant Borrower. The Notes shall
be payable as to principal and interest (including Late Charges, Default Rate
interest and Yield Maintenance Premium and Hedge Loss, if any) as specified in
this Agreement, with a final maturity on the Maturity Date. The Borrowers shall
pay all outstanding Indebtedness on the Maturity Date.
(b) Lender is hereby authorized, at its sole option, (i) to
endorse on a schedule attached to each Note (or on a continuation of such
schedule attached to such Note and made a part thereof) an appropriate notation
evidencing the date and amount of each payment of principal, interest, Late
Charges, Default Rate interest, and Yield Maintenance Premium and Hedge Loss, if
any, in respect thereof, and/or (ii) to record the Allocated Loan Amounts and
such payments in its books and records.
Section 2.5. Principal and Interest Payments. (a) Accrual of
Interest. Interest shall accrue on the outstanding principal balance of each
Borrower's Note (which balance shall initially be established on the Closing
Date by reference to the relevant Allocated Loan Amount) and all other amounts
due to Lender under the Loan Documents at the Interest Rate.
(b) Monthly Payments of Principal and Interest at the
Interest Rate. During the entire term of the Loan, the Borrowers shall pay to
Lender monthly constant payments as follows: $71,908.03 for Jayber, Inc.,
$31,459.76 for P.V.M. Associates, Inc., $112,356.30 for Pompton Avenue
Associates, Inc., and $152,804.57 for Continental Norwood Holdings, Inc., which
monthly payments represent the amount necessary to pay the outstanding principal
balance of the Notes (and each Note) and interest thereon at the Interest Rate
in equal amount installments calculated to fully amortize the Loan to November
11, 2010. Each such installment of principal and interest shall be payable in
arrears.
(c) Payment Dates. All payments required to be made pursuant
to paragraphs (a) and (b) above shall be made beginning on the eleventh day of
the second full calendar month following the calendar month in which the Closing
Date occurs, and on the eleventh day of each and every calendar month
thereafter, unless, in any such case, such day is not a Business Day in which
event such payments shall be payable on the first Business Day following such
date (such date for any particular month, the "Payment Date").
(d) Calculation of Interest. Interest shall accrue on the
outstanding principal balance of the Loan and all other amounts due to Lender
under the Loan Documents commencing upon the Closing Date. Interest shall be
computed on the actual number of days elapsed, based on a 360 day year.
(e) Default Rate Interest. If (i) on any Payment Date there
are insufficient funds in any Debt Service Payment Sub-Account to make any
Required Debt Service Payment then due and if the Borrowers otherwise fail to
make any Required Debt Service Payment then due on such Payment Date or any
other payment when due hereunder including the payment due on the Maturity Date
or (ii) if an Event of Default has occurred and is continuing, the entire unpaid
amount outstanding hereunder and under all Notes will bear interest at the
Default Rate.
(f) Late Charge. If any Borrower fails to make
any payment of any sums due under the Loan Documents within fifteen (15)
days after the same is due, such Borrower shall pay a Late Charge.
(g) Maturity Date. On the Maturity Date, Borrowers shall pay
to Lender all amounts owing under the Loan Documents, including without
limitation, interest, principal, Late Charges, Default Rate interest and any
Yield Maintenance Premium and Hedge Loss.
Section 2.6. Voluntary Prepayment and Defeasance. (a)
Provided that no Default has occurred and is continuing and that no Event of
Default has occurred and is continuing, prior to a Securitization Closing Date,
the Loan may be prepaid in whole, but not in part, on a Payment Date by
Borrowers, provided, however, that, any such prepayment must be accompanied by
an amount equal to the Yield Maintenance Premium. After the date specified in
Section 2.11, the Loan may be defeased in whole, but not in part, in accordance
with Section 2.11. The Loan may only be prepaid pursuant to Sections 2.6(a),
2.6(b) and 2.7.
(b) Notwithstanding the foregoing, P.V.M. may
prepay, in whole, but not in part, the Allocated Loan Amount with
respect to the King David Center Facility at any time from the Closing
Date through and including January 31, 1996, provided, however, that any
such prepayment must consist of the payment of (i) 102% of the Allocated
Loan Amount with respect to the King David Center Facility, (ii) all of
the accrued and unpaid interest to the date of such prepayment and all
other sums due and owing under the Note executed by P.V.M. and (iii) the
Hedge Loss.
(c) In the event that the Hedge Loss paid pursuant to the
preceding Section 2.6(b)(iii) is greater than zero, Lender shall credit against
the payment described in Section 2.6.(b)(i) above an amount equal to the lesser
of (i) 50% of the Hedge Loss, and (ii) an amount which would cause the amount
set forth in Section 2.6(b)(i) above to equal one hundred percent (100%) of the
Allocated Loan Amount with respect to the King David Facility.
(d) In the event of any voluntary prepayment or defeasance
pursuant to this Section 2.6, each of P.V.M. or the Borrowers, as applicable,
shall give Lender written notice of its intent to prepay or defease, which
notice shall be given at least five Business Days prior to the date upon which
prepayment or defeasance is to be made and shall specify the Payment Date and
the amount of such prepayment or defeasance. If notice of prepayment or
defeasance is given, the entire Indebtedness (in the case of a prepayment in
full) pursuant to Section 2.6(a) or the Allocated Loan Amount (in the case of a
prepayment pursuant to Section 2.6(b)) shall be due and payable on the Payment
Date specified therein (unless such notice is revoked by such Borrower prior to
the date specified therein in which event such Borrower shall immediately
reimburse Lender for any costs incurred by Lender in connection with such
Borrower's giving of such notice and its revocation). Any defeasance or
prepayment hereunder is required to be made on a Payment Date.
(e) Borrowers shall not be permitted at any time
to prepay or defease all or any part of the Loan except as expressly
provided herein and in the other Loan Documents.
Section 2.7. Mandatory Prepayment. (a) If any Borrower is
required by Lender under the provisions of a Mortgage to prepay the Loan or any
portion thereof in the event of damage, destruction or a Taking of a Facility,
such Borrower shall prepay the Loan (such prepayment to be applied to the
Allocated Loan Amounts as set forth in the definition of such term) to the full
extent of the Insurance Proceeds or the Condemnation Proceeds.
(b) Upon prepayment of the Loan, the Borrowers shall pay to
Lender, in addition to the amounts specified in Section 2.6 or this Section 2.7,
as applicable, any other amounts then due and payable to Lender pursuant to the
Loan Documents. All prepayments made pursuant to Section 2.6 or this Section 2.7
shall be applied in accordance with the provisions of Section 2.8.
Section 2.8. Application of Payments. Prior to the
occurrence of an Event of Default, all proceeds of any repayment,
including prepayments, of the Loan shall be applied to pay: first, any
costs and expenses of Lender, including, without limitation, the
Lender's attorney's fees and disbursements arising as a result of such
repayment or made by Lender to protect the Collateral; second, any Late
Charges and accrued and unpaid interest (including Default Rate interest
but not including interest thereon) then payable with respect to the
Loan or the portion thereof being repaid; third, the Yield Maintenance
Premium and the Hedge Loss, if any, on the Loan or the portion thereof
being repaid; fourth, to the Principal Indebtedness in accordance with
the relevant Allocated Loan Amounts; and fifth, any other amounts due
and owing under the Loan Documents. After the occurrence and continuance
of an Event of Default, all proceeds of any payment or recovery on the
Collateral including any Net Proceeds, shall, unless otherwise provided
in the Mortgages, be applied in such order and in such manner as Lender
shall elect in its sole discretion.
Section 2.9. Payment of Debt Service, Method and
Place of Payment. (a) Except as otherwise specifically provided herein,
all payments and prepayments under this Agreement and the Notes shall be
made to Lender not later than 12:00 noon, New York City time, on the
date when due and shall be made in lawful money of the United States of
America in federal or other immediately available funds to an account
specified to the Borrowers by Lender in writing, and any funds received
by Lender after such time for all purposes hereof, shall be deemed to
have been paid on the next succeeding Business Day.
(b) All payments made by any Borrower hereunder,
or by any Borrower under the other Loan Documents, shall be made
irrespective of, and without any deduction for, any set-offs or
counterclaims.
Section 2.10. Taxes. All payments made by any
Borrower under this Agreement and under the other Loan Documents shall
be made free and clear of, and without deduction or withholding for or
on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority (other than taxes imposed on the income of
Lender).
Section 2.11. Release of Collateral. (a) Provided
that no Default has occurred and is continuing and that no Event of
Default has occurred and is continuing, at any time after the date which
is two years after the Start-up Day and, notwithstanding the previous
phrase to the contrary, at any time after the third anniversary of the
date hereof the Loan may be defeased in whole, but not in part, provided
that the Borrowers: (i) provide not less than thirty (30) days prior
written notice to the Lender specifying a Payment Date (the "Release
Date") on which the payments provided in clauses (ii) and (iii) below
are to be made and the deposits provided in clauses (iv) and (v) below
are to be made, (ii) pay all interest accrued and unpaid on the
Principal Indebtedness to and including the Release Date, (iii) pay all
other sums, not including scheduled interest or principal payments, due
under the Loan Documents, (iv) deposit with the Lender an amount equal
to the Principal Indebtedness, (v) deposit with the Lender the Yield
Maintenance Premium and (vi) deliver to the Lender (A) a security
agreement, in form and substance satisfactory to the Lender, creating a
first priority perfected Lien on the deposits required pursuant to this
Section and the U.S. Obligations purchased on behalf of the Borrowers in
accordance with this Section (the "Security Agreement"), (B) for
execution by the Lender, releases of the Mortgaged Properties from the
liens of the Mortgages in a form appropriate for the jurisdictions in
which the Mortgaged Properties are located, (C) an Officer's Certificate
of each of the Borrowers certifying that the requirements set forth in
this Section have been satisfied, (D) an opinion of counsel from the
Borrowers' counsel in form satisfactory to the Lender stating, among
other things, that (x) the U.S. Obligations have been duly and validly
assigned and delivered to Lender and Lender has a first priority
perfected security interest on the deposits required pursuant to this
Section and a first priority perfected lien on the U.S. Obligations and
the proceeds thereof purchased hereunder, and (y) that the defeasance
will not adversely affect the status of any REMIC formed in connection
with a Securitization and (E) such other certificates, documents or
instruments as the Lender may request including, without limitation, (x)
written confirmation that such defeasance will not cause any Rating
Agency to withdraw, qualify or downgrade the then-applicable rating on
any security issued in connection with any Securitization and (y) a
certificate from an Independent certified public accountant certifying
that the U.S. Obligations comply with all of the requirements of this
Loan Agreement. The U.S. Obligations shall mature on or be redeemable,
or provide for payment thereon, on or prior to the Business Day
preceding the date on which payments under the relevant Note are due and
payable and the proceeds thereof shall be payable directly to the
relevant Cash Collateral Account. In connection with the foregoing, the
Borrowers appoint the Lender as their agent for the purpose of applying
the amounts delivered pursuant to clauses (iv) and (v) above to purchase
U.S. Obligations. Notwithstanding anything in this Agreement to the
contrary, in the event the Yield Maintenance Premium is due as a result
of the acceleration of the Indebtedness after the occurrence and
continuance of an Event of Default, Lender shall have the right to
receive and collect the Yield Maintenance Premium but shall have no
obligation to purchase U.S. Obligations or otherwise comply with this
Section 2.11.
(b) Upon compliance with the requirements of this
Section 2.11, the property encumbered by the lien of the Related
Mortgage shall be released from the lien of the Related Mortgage. In
connection with a complete defeasance of the Loan, the Borrowers may be
required by Lender to assign their obligations under the Notes, the
other Loan Documents and the Security Agreements together with the
pledged U.S. Obligations to such other entity or entities established or
designated by Lender (the "Successor Mortgagor"). Such Successor
Mortgagor shall assume the obligations under the Notes, the other Loan
Documents and the Security Agreements and, upon such assignment, the
Borrowers shall be relieved of their obligations thereunder. Each of the
Borrowers shall pay $1,000 to any such Successor Mortgagor as
consideration for assuming the obligations under the Notes, the other
Loan Documents and the Security Agreements.
(c) Nothing in this Section 2.11 shall release any
Borrower from any liability or obligation relating to any environmental
matters arising under Sections 4.1(d)(U) or 5.1(D)-(I), inclusive,
hereof.
Section 2.12. Central Cash Management. (a)
Collection Accounts, Security Deposit Accounts and Cash Collateral
Accounts. Each Borrower hereby acknowledges and agrees that all of the
Rents (other than security deposits) and Money constituting Proceeds of
Accounts derived from its Facility shall, subject to Section 2.12(b), be
first utilized (i) to pay all amounts to become due and payable under
the relevant Borrower's Note by funding the relevant Debt Service
Payment Sub-Account to the extent required pursuant to Section
2.12(g)(i), (ii) to fund the relevant Basic Carrying Costs Sub-Account
to the extent required pursuant to Section 2.12(g)(ii), (iii) to fund
the relevant Capital Reserve Sub-Account to the extent required pursuant
to Section 2.12(g)(iii), and (iv) to fund other Cash Collateral Accounts
and the relevant Sub-Accounts of such Cash Collateral Accounts to the
extent required by Section 2.12(g)(iv) and then, in accordance with
Section 2.12(g), shall be either disbursed to the relevant Borrower or
applied to the Indebtedness. For each Facility, each Borrower shall open
and maintain at a Collection Account Bank a demand deposit account
(each, a "Collection Account" and collectively the "Collection
Accounts"). Each Collection Account shall be assigned a separate and
unique identification number by the Collection Account Banks and shall
be opened and maintained in the name "[Jayber, Inc., P.V.M. Associates,
Inc., Pompton Avenue Associates, Inc., or Continental Norwood Holdings,
Inc. as applicable], as Debtor, and Nomura Asset Capital Corporation, as
Secured Party, pursuant to the Loan Agreement dated as of [insert date
of Loan Agreement]." Each Borrower shall collect or cause the collection
of all Rents (other than security deposits) from its Facility and shall
endorse all checks and deposit all such funds and other receipts, within
one Business Day after receipt thereof, directly into the relevant
Collection Account for such Facility. Each Borrower shall open and
maintain for its Facility a demand deposit account (each, a "Security
Deposit Account" and collectively "the Security Deposit Accounts"). Each
Security Deposit Account shall be assigned a separate and unique
identification number by the relevant Collection Account Bank and shall
be opened and maintained in the name "[Jayber, Inc., P.V.M. Associates,
Inc., Pompton Avenue Associates, Inc., or Continental Norwood Holdings,
Inc., as applicable], as Debtor, and Nomura Asset Capital Corporation,
as Secured Party, pursuant to the Loan Agreement dated as of [insert
date of the Loan Agreement]" and on the Closing Date (and at all times
thereafter), each Borrower, if applicable, shall instruct and cause the
Manager and/or the Operator, if any, of such Borrower's Facility to
cause all rents, revenues or income of any kind under the Master Lease
and derived by such Operator, if any, or from such Borrower's Facility
to be deposited within one Business Day after receipt thereof, directly
into the Collection Account for such Borrower's Facility. Each Borrower
shall collect or, if applicable, shall instruct and cause the Manager
and/or the Operator, if any, to collect all security deposits with
respect to its Facility and shall deposit or cause the deposit of all
such funds and other receipts within one Business Day after receipt
thereof, directly into the Security Deposit Account for such Facility.
Each Security Deposit Account shall at all times be an Eligible Account.
No Borrower, Manager or Operator, if any, shall have any right of
withdrawal from a Security Deposit Account except that, prior to a
Collection Account Bank's receipt of notice of the occurrence of an
Event of Default, a Borrower may withdraw funds from the Security
Deposit Account for Borrower's Facility to refund or apply security
deposits as required by the related Leases or by applicable Legal
Requirements, and, after delivery of such notice, Lender, on written
request from such Borrower with appropriate supporting materials, will
direct the relevant Collection Account Bank to release funds from such
Security Deposit Account to refund security deposits as required by the
Leases or by applicable Legal Requirements. Each Borrower may designate
a new financial institution to serve as a Collection Account Bank
hereunder as provided in Section 2.13(l). Each Collection Account shall
at all times be an Eligible Account. No Borrower, Manager or Operator,
if any, shall have any right of withdrawal from the Collection Accounts.
Any breach of this Section 2.12(a) by any Borrower shall be an Event of
Default.
(b) Cash Collateral Accounts. Pursuant to the
Letters of Instructions to be delivered to the Collection Account Banks
(the "Letters of Instructions") in substantially the form attached
hereto as Exhibit Q, each Borrower will authorize and direct the
relevant Collection Account Bank to transfer on a daily basis all funds
deposited in the relevant Collection Account for the Borrower's Facility
to the cash collateral account for such Facility each as identified on
Exhibit N hereto (individually, the "Cash Collateral Account" and
collectively, the "Cash Collateral Accounts"); Lender may elect to
change the financial institution at which the Cash Collateral Accounts
shall be maintained; provided, however, that Lender shall give each
Borrower and each Collection Account Bank not fewer than 30 days' prior
notice of each change. One Cash Collateral Account shall be established
for each Borrower and its Facility. Each Cash Collateral Account shall
at all times be an Eligible Account. Lender has established each Cash
Collateral Account with the Bank in the name of Lender as aforesaid, and
each Cash Collateral Account shall be under the sole dominion and
control of Lender. Borrower shall have no right of withdrawal in respect
of any Cash Collateral Account.
(c) Establishment of Sub-Accounts. Each Cash
Collateral Account shall contain a Debt Service Payment Sub-Account, a
Basic Carrying Costs Sub-Account and a Capital Reserve Sub-Account, each
of which accounts (individually, a "Sub-Account" and collectively, the
"Sub-Accounts") shall be an Eligible Account to which certain funds
shall be allocated and from which disbursements shall be made pursuant
to the terms of this Agreement.
(d) Permitted Investments. Upon the written
request of any Borrower, which request may be made once per Interest
Accrual Period, Lender shall direct Bank to invest and reinvest any
balance in the relevant Cash Collateral Account from time to time in
Permitted Investments as instructed by such Borrower; provided, however,
that (i) if Borrower fails to so instruct Lender, or if a Default or an
Event of Default shall have occurred and is continuing, Lender may
direct the Bank to invest and reinvest such balance in Permitted
Investments as Lender shall determine in its sole discretion; (ii) the
maturities of the Permitted Investments on deposit in any Cash
Collateral Account shall, to the extent such dates are ascertainable, be
selected and coordinated to become due not later than the day before any
disbursements from the relevant Sub-Accounts must be made; (iii) all
such Permitted Investments shall be held in the name and be under the
sole dominion and control of Lender; (iv) no Permitted Investment shall
be made unless Lender shall retain a perfected first priority Lien in
such Permitted Investment securing the Indebtedness and all filings and
other actions necessary to ensure the validity, perfection, and priority
of such Lien have been taken; (v) Lender shall only be required to
follow the investment instructions which were most recently received by
Lender for such Borrower and such Borrower shall be bound by such last
received investment instructions; and (vi) any written request from any
Borrower containing investment instructions shall contain an Officer's
Certificate from such Borrower (which may be conclusively relied upon by
Lender and its agents) that any such investments constitute Permitted
Investments. It is the intention of the parties hereto that all amounts
deposited in the Cash Collateral Accounts (or as much thereof as Lender
may arrange to invest) shall at all times be invested in Permitted
Investments. All funds in the Cash Collateral Accounts that are invested
in a Permitted Investment are deemed to be held in such Cash Collateral
Accounts for all purposes of this Agreement and the other Loan
Documents. All gain in investments of funds in the Cash Collateral
Accounts shall be allocated in the same manner as any other funds in
such Cash Collateral Accounts. Lender shall have no liability for any
loss in investments of funds in the Cash Collateral Accounts that are
invested in Permitted Investments (unless invested contrary to a
Borrower's request other than after the occurrence and continuance of a
Default or an Event of Default) and no such loss shall affect any
Borrower's obligation to fund, or liability for funding, the Cash
Collateral Accounts and each Sub-Account, as the case may be. Each
Borrower and Lender agree that each Borrower shall include all such
earnings and losses (other than those for Lender's account in accordance
with the immediately preceding sentence) on the relevant Cash Collateral
Account as income of Borrower for federal and applicable state tax
purposes.
(e) Interest on Accounts. All interest paid or
other earnings on the Permitted Investments made hereunder shall be
deposited into the relevant Cash Collateral Account and shall be subject
to allocation and distribution like any other monies deposited therein.
(f) Payment of Debt Service, Basic Carrying Costs
and Capital Improvement Costs. Not later than three Business Days before
each Payment Date during the term of the Loan, Lender shall deliver to
each Borrower a certificate in the form attached hereto as Exhibit O,
setting forth (i) the relevant Required Debt Service Payment for such
Payment Date and (ii) whether sufficient funds exist in the relevant
Cash Collateral Account to fund the relevant Debt Service Payment
Sub-Account, the relevant Basic Carrying Costs Sub-Account and the
relevant Capital Reserve Sub-Account in the required amounts. If any
such certificate states that the funds then allocated to the relevant
Sub-Accounts are less than the amount of funds which are required to be
on deposit therein on such Payment Date, the Borrowers shall be
obligated to deposit funds into the relevant Cash Collateral Account in
the amount of such deficiency, and failure to make such deposit prior to
12:00 noon, New York City time, on such Payment Date 20
shall be an Event of Default hereunder. Notwithstanding anything contained
herein to the contrary, Lender shall not be in any way liable for (i) Lender's
failure to perform its obligations pursuant to this Section 2.12(f), or (ii)
Lender's miscalculation of any amounts pursuant to this Section 2.12(f); and
such failure to perform or miscalculation shall not in any way relieve Borrowers
from any of their obligations hereunder or under any other Loan Document.
(i) Payment of Debt Service. At or before 12:00 noon, New York
City time, on each Payment Date during the term of the Loan, Lender
shall, with respect to each Borrower and each Collection Account,
transfer to Lender's own account from the relevant Debt Service Payment
Sub-Account an amount equal to the Required Debt Service Payment for
such Borrower for such Payment Date. Each relevant Borrower shall be
deemed to have timely made the relevant Required Debt Service Payment
pursuant to Section 2.9 regardless of the time Lender makes such
transfer as long as sufficient funds are on deposit in the relevant
Debt Service Payment Sub-Account at 12:00 noon, New York City time on
the applicable Payment Date.
(ii) Payment of Basic Carrying Costs. At least five (5)
Business Days prior to the due date of any Basic Carrying Cost and not
more frequently than once each Interest Accrual Period, each Borrower
shall notify Lender in writing and request that Lender pay such Basic
Carrying Cost on behalf of such Borrower on or prior to the due date
thereof. Together with each such request, such Borrower shall furnish
Lender with copies of bills and other documentation as may be required
by Lender to establish that such Basic Carrying Cost is then due.
Lender shall make such payments out of the relevant Basic Carrying Cost
Sub-Account before the same shall be delinquent to the extent that
there are funds available in the relevant Basic Carrying Cost
Sub-Account and Lender has received appropriate documentation to
establish the amount(s) due and the due date(s) as and when provided
above.
(iii) Payment of Capital Improvement Costs. Not more
frequently than once each Interest Accrual Period and provided that no
Default or Event of Default has occurred and is continuing, each
Borrower shall notify Lender in writing and request that Lender release
to such Borrower funds out of the Capital Reserve Sub- Account for
payment of the relevant Capital Improvement Costs for Borrower's
Facility. Together with each such request, each Borrower shall furnish
Lender with copies of bills and other documentation as may be required
by Lender to establish that such Capital Improvement Costs are
reasonable and have been paid by Borrowers or are then due.
(g) Monthly Funding of Sub-Accounts. During each Interest
Accrual Period during the term of the Loan commencing with the Interest Accrual
Period in which the Closing Date occurs (each, the "Current Interest Accrual
Period"), with respect to each Borrower, Lender shall allocate all funds then on
deposit in the relevant Cash Collateral Account among the relevant Sub-Accounts
as follows and in the following priority:
(i) first, to the relevant Debt Service Payment Sub-Account,
until an amount equal to the relevant Required Debt Service Payment for
the Payment Date occurring in the Interest Accrual Period following the
Current Interest Accrual Period has been allocated to the relevant Debt
Service Payment Sub-Account;
(ii) second, to the relevant Basic Carrying Costs Sub-Account,
until an amount equal to the relevant Basic Carrying Costs Monthly
Installment for the Current Interest Accrual Period has been allocated
to the relevant Basic Carrying Costs Sub-Account. On the Closing Date,
each Borrower will deposit the relevant Initial Basic Carrying Costs
Amount into the relevant Basic Carrying Costs Sub-Account;
(iii) third, to the relevant Capital Reserve Sub-Account,
until an amount equal to the relevant Capital Reserve Monthly
Installment for the Current Interest Accrual Period has been allocated
to the relevant Capital Reserve Sub-Account. On the Closing Date, each
Borrower will deposit the relevant Initial Capital Reserve Amount into
the relevant Capital Reserve Sub-Account; and
(iv) fourth, to the extent that the funds in any of the
Sub-Accounts in any other Cash Collateral Accounts are insufficient to
pay the relevant monthly installments required hereunder, then to such
other Cash Collateral Accounts and the relevant Sub-Accounts of such
Cash Collateral Accounts until the relevant monthly installments have
been paid.
Provided that (i) no Event of Default has occurred and is
continuing, (ii) Lender has received all financial information described in
Section 5.1(Q) for the most recent periods for which the same are due and (iii)
the conditions in the third to last sentence of this paragraph are satisfied,
Lender agrees that, with respect to each Borrower, in each Current Interest
Accrual Period, any amounts deposited into or remaining in the relevant Cash
Collateral Account after the minimum amounts set forth in clauses (i), (ii),
(iii) and (iv) above have been satisfied with respect to the Current Interest
Accrual Period (as to all Facilities) and any periods prior thereto, shall be
disbursed by Lender on a weekly basis for the remainder of the Current Interest
Accrual Period, at Borrower's expense, to the accounts identified next to each
Borrower's name as set forth in Exhibit T hereto. Each Borrower shall use any
funds distributed to such Borrower pursuant to the foregoing to first pay all
Operating Expenses of such Borrower (including any management and servicing fee
agreed to by Lender), unless prepayments of the Loan are then required pursuant
to Section 2.7, and thereafter any excess funds may be retained by such
Borrower. Notwithstanding the foregoing, no Borrower shall be entitled to
receive any amounts described in the first sentence of this paragraph until all
amounts set forth in clauses (i), (ii), (iii) and (iv) with respect to all of
the Sub-Accounts for all of the Cash Collateral Accounts have been satisfied
with respect to the Current Interest Accrual Period and any periods prior
thereto. The parties hereto agree that Lender and its agents shall not be
responsible for monitoring Borrowers' use of any funds disbursed from the Cash
Collateral Account or any of the Sub-Accounts. Notwithstanding anything in this
Agreement to the contrary, if an Event of Default has occurred and is
continuing, any amounts deposited into or remaining in any Cash Collateral
Account shall be for the account of Lender and may be withdrawn by Lender to be
applied in any manner as Lender may elect in its sole discretion.
If with respect to any Borrower, on any Payment Date, the
balance in the relevant Debt Service Payment Sub-Account is insufficient to make
the relevant Required Debt Service Payment, Lender may (but shall not be
obligated to), in addition to any other rights and remedies available hereunder,
withdraw funds to pay such deficiency from (A) first, the relevant Basic
Carrying Costs Sub-Account, (B) thereafter, the relevant Capital Reserve
Sub-Account and (C) thereafter, any other Cash Collateral Accounts (including
the relevant Basic Carrying Costs Sub-Accounts and the relevant Capital Reserve
Sub-Accounts, but not including any other Debt Service Sub-Accounts). In the
event that Lender elects to pay the relevant Required Debt Service Payment by
applying the proceeds of (A) either such relevant Sub-Account and/or (B) any
other Cash Collateral Account, Basic Carrying Cost Sub-Account or Capital
Reserve Sub-Account the Borrowers shall repay, upon demand, to Lender the amount
of such withdrawn funds to replenish such relevant Sub-Account and/or relevant
Cash Collateral Account, Basic Carrying Cost Sub-Account or Capital Reserve
Sub-Account and if any Borrower shall fail to repay such amounts within one (1)
Business Day after notice of such withdrawal, an Event of Default shall exist
hereunder.
(h) Loss Proceeds. In the event of a casualty or Taking with
respect to a Facility, unless the Related Mortgage allows the relevant Borrower
to utilize the proceeds received under any insurance policy required to be
maintained by such Borrower ("Insurance Proceeds") or the proceeds in respect of
any Taking ("Condemnation Proceeds"), as the case may be, for restoration,
Lender and such Borrower shall cause all such Insurance Proceeds or Condemnation
Proceeds (collectively, "Loss Proceeds") to be paid directly to the relevant
Cash Collateral Account and Lender shall apply the same to reduce the
Indebtedness in accordance with Section 2.7(a) and Section 2.8. All Insurance
Proceeds received by a Borrower or Lender in respect of business interruption
coverage and all Condemnation Proceeds received in respect of a temporary Taking
shall be maintained in the relevant Cash Collateral Account, to be applied by
Lender in the same manner as Rents received from such Borrower with respect to
the operation of a Facility; provided, further, that in the event that the
Insurance Proceeds of any such business interruption insurance policy or
Condemnation Proceeds of such temporary Taking are paid in a lump sum in
advance, Lender shall hold such Insurance Proceeds or Condemnation Proceeds in a
segregated interest-bearing escrow account at the Bank, and Lender shall
estimate, in Lender's reasonable discretion, the number of months required for
the relevant Borrower to restore the damage caused by the casualty to such
Facility or that such Facility will be affected by such casualty or temporary
Taking, as the case may be, shall divide the aggregate business interruption
Insurance Proceeds or Condemnation Proceeds in connection with such casualty or
temporary Taking by such number of months, and shall disburse from such escrow
account into the relevant Cash Collateral Account each month during the
performance of such restoration or pendency of such temporary Taking such
monthly installment of said Insurance Proceeds or Condemnation Proceeds. In the
event that Insurance Proceeds or other Loss Proceeds are to be applied toward
restoration pursuant to the Related Mortgage, Lender shall hold such funds in a
segregated interest-bearing escrow account for the relevant Borrower's and
Lender's benefit, as the case may be, at the Bank and shall disburse same in
accordance with the provisions of the Related Mortgage. If any Loss Proceeds are
received by a Borrower, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of such Borrower, and shall be
forthwith paid to the relevant Cash Collateral Account or paid to Lender to hold
in a segregated interest-bearing escrow account, in each case to be applied or
disbursed in accordance with the foregoing, except as provided to the contrary
in the Related Mortgage. Any Loss Proceeds made available to a Borrower for
restoration in accordance herewith, to the extent not used by such Borrower in
connection with, or to the extent they exceed the cost of, such restoration,
shall be deposited into the relevant Cash Collateral Account whereupon Lender
shall apply the same to reduce the Indebtedness in accordance with Section 2.7
and Section 2.8.
(i) Payment of Basic Carrying Costs. Except to the extent that
Lender is obligated to pay Basic Carrying Costs from a Basic Carrying Costs
Sub-Account pursuant to the terms of Section 2.12(f), each Borrower shall pay
all Basic Carrying Costs with respect to itself and its Facility in accordance
with the provisions of the Related Mortgage, subject, however, to such
Borrower's rights to contest payment of the same in accordance with the Related
Mortgage. Each Borrower's obligation to pay (or cause Lender to pay) Basic
Carrying Costs pursuant to this Agreement shall include, to the extent permitted
by applicable law, Impositions resulting from future changes in law which impose
upon Lender or any Deed of Trust Trustee an obligation to pay any property taxes
or other Impositions or which otherwise adversely affect Lender's or the Deed of
Trust Trustee's interests. (In the event such a change in law prohibits a
Borrower from assuming liability for payment of any such Imposition, the
outstanding Indebtedness shall, at the option of Lender, become due and payable,
on the date that is 120 days after such change in law and failure to pay such
amounts on the date due shall be an Event of Default.) Should an Event of
Default have occurred, the proceeds on deposit in any Basic Carrying Costs
Sub-Account may be applied by Lender in any manner as Lender in its sole
discretion may determine.
(j) The Bank's Reliance. The Bank may rely and shall be
protected in acting or refraining from acting upon any written notice,
instruction or request furnished to it hereunder and believed by it in good
faith to be genuine and to have been signed or presented by the proper party or
parties. The Bank may rely on written notice from Lender as to the occurrence of
an Event of Default.
Section 2.13. Security Agreement. (a) Pledge of Accounts. To
secure the full and punctual payment and performance of all of the Indebtedness,
each Borrower hereby sells, assigns, conveys, pledges and transfers to Lender
and grants a first and continuing security interest in and to, the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located (collectively, the "Account Collateral"):
(i) all of such Borrower's right, title and interest in the
relevant Collection Account and relevant Security Deposit Account and
all Money, if any, from time to time deposited or held in each such
Collection Account and Security Deposit Account;
(ii) all of such Borrower's right, title and interest in the
relevant Cash Collateral Account (including all relevant Sub-Accounts)
and all Money and Permitted Investments, if any, from time to time
deposited or held in such Cash Collateral Account;
(iii) all interest, dividends, Money, Instruments and other
property from time to time received, receivable or otherwise payable in
respect of, or in exchange for, any of the foregoing; and
(iv) to the extent not covered by clauses (i), (ii),
(iii) or above, all Proceeds of any or all of the foregoing.
(b) Covenants. Each Borrower covenants that (i) on the Closing
Date (and at all times thereafter), each Borrower, if applicable, shall instruct
and cause the Manager and/or the Operator, if any, of such Borrower's Facility
to cause all rents, revenues or income of any kind under the Master Lease and
derived by such Operator, if any, or from such Borrower's Facility, to be
deposited within one Business Day after receipt thereof, directly into the
relevant Collection Account or the relevant Security Deposit Account, as
applicable, for such Borrower's Facility (ii) all Rents and Money received from
Accounts shall be deposited into the relevant Collection Account or relevant
Security Deposit Account, as applicable, and (iii) so long as any portion of the
Indebtedness is outstanding, no Borrower shall open any other account for the
collection of Rents or Money received from Accounts, other than such replacement
Collection Accounts and Security Deposit Accounts as may be established pursuant
to Section 2.13(l). The Collection Accounts and Security Deposit Accounts shall
be subject to such applicable laws, and such applicable regulations of the Board
of Governors of the Federal Reserve System and of any other banking authority or
Governmental Authority, as may now or hereafter be in effect, and to the rules,
regulations and procedures of the relevant Collection Account Bank relating to
demand deposit accounts from time to time in effect.
(c) Instructions and Agreements. On or before the Closing
Date, each relevant Borrower will submit to the Collection Account Bank for the
applicable Facility a Letter of Instructions, and such Collection Account Bank
will execute and return the acknowledgement of instructions and notice that is
part of its Letter of Instructions. In connection with the Closing Date, each
Borrower and the Bank will execute and deliver that certain Cash Collateral
Account Agreement (the "CC Account Agreement"), the form of which is attached
hereto as Exhibit P. Each Borrower agrees that prior to the payment in full of
the Indebtedness, the relevant CC Account Agreement shall be irrevocable by such
Borrower without the prior written consent of Lender. Each Cash Collateral
Account shall be subject to such applicable laws, and such applicable
regulations of the Board of Governors of the Federal Reserve System and of any
other banking authority or Governmental Authority, as may now or hereafter be in
effect and the rules, regulations and procedures of the Bank relating to demand
deposit accounts from time to time in effect. All statements relating to each
Cash Collateral Account shall be issued by the Bank as provided in the relevant
CC Account Agreement.
(d) Financing Statements; Further Assurances. Each Borrower
will execute and deliver to Lender for filing a financing statement or
statements in connection with the Account Collateral in the form required to
properly perfect Lender's security interest in the Account Collateral to the
extent that it may be perfected by such a filing. Each Borrower agrees that at
any time and from time to time, at the expense of such Borrower, such Borrower
shall promptly execute and deliver all further instruments, and take all further
action, that Lender may request, in order to perfect and protect the pledge and
security interest granted or purported to be granted hereby, or to enable Lender
to exercise and enforce Lender's rights and remedies hereunder with respect to,
any Account Collateral.
(e) Transfers and Other Liens. Each Borrower agrees that it
will not sell or otherwise dispose of any of the Account Collateral other than
pursuant to the terms hereof and of the other Loan Documents, or create or
permit to exist any Lien upon or with respect to all or any of the Account
Collateral, except for the Lien granted to Lender under this Agreement.
(f) Lender's Right to Perform. If any Borrower fails to
perform any covenant or obligation contained herein and such failure shall
continue for a period of five Business Days after the relevant Borrower's
receipt of written notice thereof from Lender, Lender may, but shall have no
obligation to, itself perform, or cause performance of, such covenant or
obligation, and the expenses of Lender incurred in connection therewith shall be
payable by Borrowers to Lender upon demand. Notwithstanding the foregoing,
Lender shall have no obligation to send notice to any Borrower of any such
failure.
(g) Lender's Reasonable Care. Beyond the exercise of
reasonable care in the custody thereof, Lender shall not have any duty as to any
Account Collateral or any income thereon in its possession or control or in the
possession or control of any agents for, or of Lender, or the preservation of
rights against any Person or otherwise with respect thereto. Lender shall be
deemed to have exercised reasonable care in the custody of the Account
Collateral in its possession if the Account Collateral is accorded treatment
substantially equal to that which Lender accords its own property, it being
understood that Lender shall not be liable or responsible for (i) any loss or
damage to any of the Account Collateral, or for any diminution in value thereof
from a loss of, or delay in Lender's acknowledging receipt of, any wire transfer
from the Collection Account Banks or (ii) any loss, damage or diminution in
value by reason of the act or omission of Lender, or Lender's agents, employees
or bailees, except to the extent that such loss or damage or diminution in value
results from Lender's gross negligence or willful misconduct or the gross
negligence or willful misconduct of any such agent, employee or bailee of
Lender.
(h) Remedies. The rights and remedies provided in this Section
2.13 are cumulative and may be exercised independently or concurrently, and are
not exclusive of any other right or remedy provided at law or in equity. No
failure to exercise or delay by Lender in exercising any right or remedy
hereunder or under the Loan Documents shall impair or prohibit the exercise of
any such rights or remedies in the future or be deemed to constitute a waiver or
limitation of any such rights or remedies or acquiescence therein.
(i) No Waiver. Every right and remedy granted to Lender under
this Agreement or by law may be exercised by Lender at any time and from time to
time, and as often as Lender may deem it expedient. Any and all of Lender's
rights with respect to the pledge and security interest granted hereunder shall
continue unimpaired, and each Borrower shall be and remain obligated in
accordance with the terms hereof, notwithstanding (i) any proceeding of any
Borrower under the United States Bankruptcy Code or any bankruptcy, insolvency
or reorganization laws or statutes of any state, (ii) the release or
substitution of Account Collateral at any time, or of any rights or interests
therein or (iii) any delay, extension of time, renewal, compromise or other
indulgence granted by Lender in the event of any Default with respect to the
Account Collateral or otherwise hereunder. No delay or extension of time by
Lender in exercising any power of sale, option or other right or remedy
hereunder, and no notice or demand which may be given to or made upon any
Borrower by Lender, shall constitute a waiver thereof, or limit, impair or
prejudice Lender's right, without notice or demand, to take any action against
any Borrower or to exercise any other power of sale, option or any other right
or remedy.
(j) Lender Appointed Attorney-In-Fact. Each Borrower hereby
irrevocably constitutes and appoints Lender as such Borrower's true and lawful
attorney-in-fact, with full power of substitution, at any time that an Event of
Default has occurred and is continuing (provided, however, that Borrower shall
not be entitled to any other notice or cure periods other than as set forth in
the definition of "Event of Default" unless consented to by Lender in writing),
to execute, acknowledge and deliver any instruments and to exercise and enforce
every right, power, remedy, option and privilege of such Borrower with respect
to the Account Collateral, and do in the name, place and stead of such Borrower,
all such acts, things and deeds for and on behalf of and in the name of such
Borrower with respect to the Account Collateral, which such Borrower could or
might do or which Lender may deem necessary or desirable to more fully vest in
Lender the rights and remedies provided for herein with respect to the Account
Collateral and to accomplish the purposes of this Agreement. The foregoing
powers of attorney are irrevocable and coupled with an interest.
(k) Continuing Security Interest; Termination. This Section
2.13 shall create a continuing pledge of and security interest in the Account
Collateral and shall remain in full force and effect until payment in full of
the Indebtedness. Subject to the terms of this Agreement and upon payment in
full of the Indebtedness, each Borrower shall be entitled to the return, upon
its request and at its expense, of such of the Account Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof, and Lender
shall execute such instruments and documents as may be reasonably requested by
such Borrower to evidence such termination and the release of the pledge and
Lien hereof, provided, however, that such Borrower shall pay on demand all of
Lender's expenses in connection therewith.
(l) Replacement of a Collection Account Bank. So long as no
Event of Default shall have occurred and be continuing (provided, however, that
Borrower shall not be entitled to any other notice or cure periods other than as
set forth in the definition of "Event of Default" unless consented to by Lender
in writing), Borrowers shall have the right at any time to designate a successor
Collection Account Bank to hold one or more of the Collection Accounts and
Security Deposit Accounts upon thirty (30) days' prior written notice to Lender,
and Lender's approval of the successor, which approval shall not be unreasonably
withheld or delayed. In the event that the rating of long-term unsecured debt
obligations of any Collection Account Bank fails to comply with the ratings set
forth in clause (i) of the definition of Eligible Account, Borrowers shall be
obligated to promptly select a new Collection Account Bank and, upon approval of
such selection by Lender, to establish and maintain all the Collection Accounts
and Security Deposit Accounts previously held at such Collection Account Bank at
said successor. Any successor Collection Account Bank selected hereunder shall
comply with the definition of "Collection Account Bank." No such designation
shall become effective until Borrowers have (i) delivered to the successor
Collection Account Bank a written letter of instructions substantially
equivalent to the Letter of Instructions and (ii) delivered to Lender evidence
satisfactory to Lender that such instructions have been delivered to the
successor Collection Account Bank and acknowledged by such successor's execution
of an acknowledgement of instructions and notice substantially in the form
included in the Letter of Instructions such financing statements as may be
necessary or appropriate have been prepared, executed and delivered to a filing
agency.
Section 2.14. Securitization. Each Borrower hereby
acknowledges that Lender, its successors or assigns, may securitize the
Loan or portions thereof in one or more transactions through the
issuance of securities, which may be rated by the Rating Agencies (each,
a "Securitization"; collectively, the "Securitizations"). Each Borrower
agrees that it shall cooperate with Lender in each Securitization
including, but not limited to, by (a) amending this Agreement and the
other Loan Documents, and executing such additional documents, including
amendments to such Borrower's organizational documents, and preparing
financial statements as requested by the Rating Agencies; (b) providing
such information as may be requested in connection with the preparation
of a private placement memorandum or a registration statement required
to privately place or publicly distribute the securities in a manner
which does not conflict with federal or state securities laws; (c)
providing in connection with each of (i) a preliminary and a private
placement memorandum or (ii) a preliminary and final prospectus, as
applicable, an indemnification certificate (x) certifying that such
Borrower has carefully examined such memorandum or prospectus, as
applicable, including, without limitation, the sections entitled
"Special Considerations", "Description of the Mortgage Loan" and "The
Underlying Mortgaged Properties", "The Manager", "The Borrower" and
"Certain Legal Aspects of the Mortgage Loan", and such sections (and any
other sections reasonably requested) do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under
which they were made, not misleading (provided, however, Lender shall
have afforded Borrower an opportunity to review and comment upon such
memorandum or prospectus in order to allow Borrower to render such
indemnification certificate), (y) indemnifying Lender, the Issuer, and
the Advisor for any losses, claims, damages or liabilities (the
"Liabilities") to which Lender, the Issuer or the Advisor may become
subject insofar as the Liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in such sections or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated in such sections or necessary in order to make the
statements in such sections, in light of the circumstances under which
they were made, not misleading and (z) agreeing to reimburse Lender, the
Issuer, and the Advisor for any legal or other expenses reasonably
incurred by Lender, the Issuer, and the Advisor in connection with
investigating or defending the Liabilities; (d) causing to be rendered
such customary opinion letters as shall be requested by the Rating
Agencies; (e) making such representations, warranties and covenants with
respect to such Borrower, (and its Affiliates), and the Mortgaged
Property, as may be requested by the Rating Agencies; (f) [intentionally
deleted]; (g) providing such information regarding the Mortgaged
Property as may be requested by the Rating Agencies or otherwise
required in connection with the formation of a REMIC, including, without
limitation, recertified or updated Appraisals; and (h) amending such
Borrower's organizational papers and making such other changes to the
structure of such Borrower required by the Rating Agencies; provided,
however, that the costs of all Securitizations to be reimbursed by
Borrower shall not exceed 0.5% of the Loan Amount. If a portion of the
Loan is included in a Securitization, that portion of the Loan and all
of the Loan Documents and Mortgaged Property related thereto shall be
severed from the balance of the Loan for all purposes. Nothing herein
shall in any way limit Lender's right to sell any portion of the Loan in
a transaction which is not a Securitization.
Section 2.15. Supplemental Mortgage Affidavits. The Liens to
be created by each Mortgage are intended to encumber the Facility described
therein to the full extent of the relevant Borrower's obligations under such
Borrower's Note from time to time. As of the Closing Date, each Borrower shall
have paid all state, county and municipal recording and all other taxes imposed
upon the execution and recordation of the Mortgages. Notwithstanding anything
contained herein to the contrary, if at any time Lender determines, based on
Lender's estimation of market value and applicable law, that Lender is not being
afforded the maximum amount of security available from any Facility as a direct,
or indirect, result of applicable taxes not having been paid with respect to the
Related Mortgage, Lender may request, and each Borrower agrees that it (i) will
execute, acknowledge and deliver to Lender, immediately upon Lender's request,
supplemental affidavits increasing the amount of Indebtedness for which all
applicable taxes have been or are required to be paid under the Related Mortgage
to an amount determined by Lender to be appropriate and (ii) will pay any and
all applicable recording, intangible or similar taxes.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1. Conditions Precedent to the Making of the Loan.
(a) As a condition precedent to the making of the Loan, Borrowers shall have
satisfied the following conditions (unless waived by Lender in accordance with
Section 8.4) with respect to each Facility on or before the Closing Date:
(A) Loan Documents.
(i) Loan Agreement. Borrowers shall
have executed and delivered this Agreement to Lender.
(ii) Notes. Each Borrower shall have executed
and delivered to Lender such Borrower's Note.
(iii) Mortgages. Each Borrower shall have executed
and delivered to Lender the Related Mortgage with respect to such
Borrower's Facility and the Mortgages shall have been filed of record
in the appropriate filing offices in the jurisdictions in which the
respective Facilities are located or irrevocably delivered to a title
agent for such recordation.
(iv) Assignments of Leases. Each Borrower shall have
executed and delivered to Lender the Related Assignment of Leases with
respect to such Borrower's Facility and the Assignments of Leases shall
have been filed of record in the appropriate filing offices in the
jurisdictions in which the respective Facilities are located or
irrevocably delivered to a title agent for such recordation.
(v) Assignments of Agreements. Each Borrower shall
execute and deliver to Lender the Related Assignment of Agreements with
respect such Borrower's Facility and the Assignments of Agreements
shall, to the extent prudent pursuant to local practices, have been
filed of record in the appropriate filing offices in the jurisdictions
in which the respective Facilities are located or irrevocably delivered
to a title agent for such recordation.
(vi) Financing Statements. Each Borrower shall have
executed and delivered to Lender all financing statements required by
Lender and such financing statements shall have been filed of record in
the appropriate filing offices in each of the appropriate jurisdictions
or irrevocably delivered to a title agent for such recordation.
(vii) Manager's Subordination. Each Borrower
and Manager shall have executed and delivered to Lender the
Manager's Subordinations.
(viii) Cash Collateral Account Agreement.
Each Borrower and the Bank shall have executed and delivered a
CC Account Agreement and shall have delivered an executed copy
of such agreement to Lender.
(B) Opinions of Counsel. In addition, Lender shall have
received from Schepisi & McLaughlin, counsel to the Borrowers, a legal
opinion in substantially the form attached hereto as Exhibit J, from
Florida real estate counsel to the relevant Borrower, its legal opinion
in substantially the form attached hereto as Exhibit J, and a
non-consolidation opinion from Dechert Price & Rhoads and such other
opinions as Lender may request. Each of such legal opinions will be
addressed to Lender and the Rating Agencies, dated as of the Closing
Date, and in form and substance satisfactory to Lender, the Rating
Agencies and their counsel. Each Borrower hereby instructs such counsel
to deliver to Lender such opinions addressed to Lender and the Rating
Agencies.
(C) Secretary's Certificate. Lender shall have received,
with respect to each Borrower, a Secretary's Certificate.
(D) Insurance. Lender shall have received certificates of
insurance demonstrating insurance coverage in respect of the Facilities
of types, in amounts, with insurers and otherwise in compliance with
the terms, provisions and conditions set forth in the Related
Mortgages. Such certificates shall indicate that Lender is an
additional insured as its interests may appear and shall contain a loss
payee endorsement in favor of Lender with respect to the property
policies required to be maintained under the Related Mortgages. All
insurance policies required to be maintained hereunder shall be
maintained from the Closing Date throughout the term of this Agreement
in the types and amounts required under the Related Mortgages.
(E) Lien Search Reports. Lender shall have received
satisfactory reports of UCC (collectively, the "UCC Searches"), federal
tax lien, state tax lien, judgment and pending litigation searches
conducted by a search firm acceptable to Lender. Such searches shall
have been received in relation to each Borrower, each Operator, if any,
and each owner of each Facility (or any portion thereof) immediately
prior to the acquisition of such Facility by the relevant Borrower and
each Operator, if any, immediately prior to the acquisition of such
Facility by the relevant Borrower. Such searches shall have been
conducted in each of the locations designated by Lender in Lender's
discretion and shall be dated not more than 45 days prior to the
Closing Date.
(F) Title Insurance Policies. Lender shall have received (i)
Title Insurance Policies or marked up commitments (in form and
substance satisfactory to Lender in Lender's discretion) from Title
Insurer to issue the Title Insurance Policies and (ii) a fully executed
copy of the Title Instruction Letter from the Title Insurer in the form
attached hereto as Exhibit R.
(G) Environmental Matters. Lender shall have received an
Environmental Report with respect to each Facility, addressed to
Lender, which Environmental Reports shall be acceptable to Lender in
Lender's sole discretion and shall otherwise show no adverse
environmental condition on the Facilities, such Environmental Reports
to be conducted by an Independent environmental Engineer.
(H) Consents, Licenses, Approvals. Lender shall have received
copies of all consents, licenses and approvals, if any, required in
connection with the execution, delivery and performance by the
Borrowers under, and the validity and enforceability of, the Loan
Documents, and such consents, licenses and approvals shall be in full
force and effect.
(I) Additional Matters. Lender shall have received such other
Permits, certificates (including certificates of occupancy reflecting
the use of each Facility as of the Closing Date), opinions, documents
and instruments (including, without limitation, written proof from the
appropriate Governmental Authority regarding the zoning of each
Facility in substantially the form attached hereto as Exhibit S and
letters from the applicable utility companies confirming the
availability of adequate utilities relating to each Facility) relating
to the Loan as may have been requested by Lender, and all other
documents and all legal matters in connection with the Loan shall be
satisfactory in form and substance to Lender.
(J) Representations and Warranties. The representations and
warranties herein and in the other Loan Documents shall be true and
correct in all material respects.
(K) [Intentionally Deleted]
(L) No Injunction. No law or regulation shall have been
adopted, no order, judgment or decree of any Governmental Authority
shall have been issued, and no litigation shall be pending or
threatened, which in the good faith judgment of Lender would enjoin,
prohibit or restrain, or impose or result in a material adverse effect
upon the making or repayment of the Loan or the consummation of the
Transactions.
(M) Survey. Lender shall have received a Survey with respect
to each Facility which Survey shall be satisfactory to Lender in
Lender's discretion.
(N) Engineering Report. Lender shall have received an
Engineering Report with respect to each Facility prepared by an
Engineer (addressed to Lender) and which reports shall be acceptable to
Lender in Lender's discretion and shall show no adverse property or
structural condition.
(O) Appraisal. If Lender shall so request, Lender shall have
received an Appraisal with respect to each Facility.
(P) Service Contracts. Each Borrower shall have delivered to
Lender a copy of each material service contract and Permit affecting
such Borrower's Facility.
(Q) Site Inspection. Unless waived by Lender in accordance
with Section 8.4, Lender shall have performed, or caused to be
performed on its behalf, an on-site due diligence review of each
Facility to be acquired with the Loan satisfactory to Lender in
Lender's sole discretion.
(R) Nursing Homes. The Facilities shall be operating only as
nursing homes.
(S) Financial Information. Lender shall have received all
financial information (which financial information shall be
satisfactory to Lender in Lender's sole discretion) relating to each
Facility which (i) the relevant Borrower received from the seller of
the Facility or (ii) which relates to the relevant Borrower's ownership
of the Facility which shall include any financial statements, operating
statements, census data, rent roll and resident mix.
(T) Management Agreement. Lender shall have received the
Management Agreement with respect to each Facility.
(U) Leases; Tenant Estoppels. With respect to each Facility,
the relevant Borrower shall have delivered a true and correct rent roll
and a copy of each of the Leases identified in such rent roll, and with
respect to any Lease, evidence satisfactory to Lender that each such
Lease is in full force and effect, including, but not limited to, an
originally executed tenant estoppel certificate from each such tenant
in form and substance satisfactory to Lender.
(V) Subdivision. Evidence satisfactory to Lender (including
title endorsements) that the Land with respect to each Facility
constitutes a separate lot for real estate tax and assessment purposes.
(W) Transaction Costs. Borrowers shall have paid or caused
to be paid all Transaction Costs.
(X) Master Lease. With respect to the Norwood Facility,
Norwood shall have executed and delivered a true and correct copy of
the Master Lease in form and substance satisfactory to Lender.
(b) Lender shall not make the Loan unless and until each of
the applicable conditions precedent set in Section 3.1 is satisfied.
(c) In connection with the Loan, Borrowers shall execute
and/or deliver to Lender all additions, amendments, modifications and
supplements to the Loan Agreement and the organizational materials of Borrowers
set forth in this Article III, including without limitation, amendments,
modifications and supplements to the Notes, Mortgages, Assignments of Leases,
Assignments of Agreements, and Manager's Subordinations, if requested by Lender
to effectuate the provisions hereof, and to provide Lender with the full benefit
of the security intended to be provided under the Loan Documents. Without in any
way limiting the foregoing, such additions, modifications and supplements shall
include those deemed desirable by Lender's counsel in the jurisdiction in which
the relevant Facility is located.
(d) The making of the Loan shall constitute, without the
necessity of specifically containing a written statement to such effect, a
confirmation, representation and warranty by the relevant Borrower to Lender
that all of the applicable conditions to be satisfied in connection with the
making of the Loan have been satisfied (unless waived by Lender in accordance
with Section 8.4,) and that all of the representations and warranties of the
Borrowers set forth in the Loan Documents are true and correct as of the date of
the making of the Loan.
Section 3.2. Form of Loan Documents and Related Matters. The
Loan Documents and all of the certificates, agreements, legal opinions and other
documents and papers referred to in this Article III, unless otherwise
specified, shall be delivered to Lender, and shall be satisfactory in form and
substance to Lender (unless the form thereof is prescribed herein).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Closing Date Representations and Warranties.
(a) [Intentionally deleted]
(b) [Intentionally deleted]
(c) Closing Date Representations of Corporate Borrowers.
Each Borrower represents and warrants, as to itself that, as of the
Closing Date:
(A) Organization. Borrower (i) is a duly organized and validly
existing corporation in good standing under the laws of the State of
its formation, (ii) has the requisite corporate power and authority to
carry on its business as now being conducted, and (iii) has the
requisite corporate power to execute and deliver, and perform its
obligations under the Loan Documents.
(B) Authorization. The execution and delivery by Borrower of
the Loan Documents, Borrower's performance of its obligations
thereunder and the creation of the security interests and Liens
provided for in the Loan Documents (i) have been duly authorized by all
requisite corporate action on the part of Borrower, (ii) will not
violate any provision of any Legal Requirements, any order of any court
or other Governmental Authority, the articles of incorporation or
by-laws of Borrower or any indenture or material agreement or other
instrument to which Borrower is a party or by which Borrower is bound,
(iii) will not be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under,
or result in the creation or imposition of any Lien of any nature
whatsoever upon any of the property or assets of Borrower pursuant to,
any such indenture or material agreement or instrument and (iv) have
been duly executed and delivered by Borrower. Other than those obtained
or filed on or prior to the Closing Date, Borrower is not required to
obtain any consent, approval or authorization from, or to file any
declaration or statement with, any Governmental Authority or other
agency in connection with or as a condition to the execution, delivery
or performance of the Loan Documents.
(C) Single-Purpose Entity.
(i) Borrower at all times since its formation has
been, and will continue to be, a duly formed and existing corporation,
and following an amendment to its articles of incorporation prior to
the Closing Date will be and will continue to be, a Single-Purpose
Entity.
(ii) Borrower at all times since its formation has
complied, and will continue to comply, with the provisions of its
articles of incorporation, and the laws of the State of its formation
relating to corporations.
(iii) All customary formalities regarding the
corporate existence of Borrower have been observed at all times since
its formation and will continue to be observed.
(iv) Borrower has been at all times since its
formation and will continue to be adequately capitalized in light of
the nature of its business.
(d) Closing Date Borrower Representations and Warranties.
Each Borrower represents and warrants, as to itself and its Facility,
that, as of the Closing Date:
(A) Litigation. There are no actions, suits or proceedings at
law or in equity by or before any Governmental Authority or other
agency now pending and served or, to the knowledge of Borrower,
threatened against Borrower or its Facility, which actions, suits or
proceedings, if determined against Borrower or its Facility, might
result in a Material Adverse Effect.
(B) Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which is reasonably likely to
have a Material Adverse Effect. Borrower is not in default in any
material respect in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any agreement
or instrument to which it is a party or by which Borrower or its
Facility is bound.
(C) No Bankruptcy Filing. Borrower is not contemplating either
the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of
Borrower's assets or property, and Borrower has no knowledge of any
Person contemplating the filing of any such petition against it.
(D) Full and Accurate Disclosure. No statement of fact made by
or on behalf of Borrower in the Loan Documents or in any other document
or certificate delivered to Lender contains any untrue statement of a
material fact or omits to state any material fact necessary to make
statements contained herein or therein not misleading. There is no fact
presently known to Borrower which has not been disclosed to Lender
which adversely affects, nor as far as Borrower can foresee, might
adversely affect the business, operations or condition (financial or
otherwise) of Borrower.
(E) Location of Chief Executive Offices. The location of
Borrower's principal place of business and chief executive office
is the Borrower's Facility.
(F) Compliance. Borrower, its Facility and Borrower's use
thereof and operations thereat comply in all material respects with all
applicable Legal Requirements, including without limitation, building
and zoning ordinances and codes. Borrower is not in default or
violation of any order, writ, injunction, decree or demand of any
Governmental Authority, the violation of which is reasonably likely to
have a Material Adverse Effect.
(G) Other Debt and Obligations. Borrower has no material
financial obligation under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which Borrower is a party
incurred in the ordinary course of business relating to the ownership
and operation of its Facility or by which Borrower or its Facility is
bound, other than unsecured trade payables incurred in the ordinary
course of business relating to the ownership and operation of its
Facility which are paid within sixty (60) days of the date incurred,
except for outstanding trade payables existing as of the Closing Date
which do not require payment within sixty (60) days, and other than
obligations under the Related Mortgage and the other Loan Documents.
Borrower has not borrowed or received other debt financing that has not
been heretofore repaid in full and Borrower has no known material
contingent liabilities.
(H) ERISA. Each Plan, and, to the knowledge of Borrower, each
Multiemployer Plan, is in compliance in all material respects with, and
has been administered in all material respects in compliance with, its
terms and the applicable provisions of ERISA, the Code and any other
federal or state law, and no event or condition has occurred and is
continuing as to which Borrower would be under an obligation to furnish
a report to Lender under Section 5.1(T).
(I) Solvency. Borrower (i) has not entered into this Loan
Agreement or any Loan Document with the actual intent to hinder, delay,
or defraud any creditor, and (ii) has received reasonably equivalent
value in exchange for its obligations under the Loan Documents. Giving
effect to the transactions contemplated hereby, the fair saleable value
of Borrower's assets exceeds and will, immediately following the
execution and delivery of this Agreement, exceed Borrower's total
liabilities, including, without limitation, subordinated, unliquidated
or disputed liabilities or Contingent Obligations. The fair saleable
value of Borrower's assets is and will, immediately following the
execution and delivery of this Agreement, be greater than Borrower's
probable liabilities, including the maximum amount of its Contingent
Obligations or its debts as such debts become absolute and matured.
Borrower's assets do not and, immediately following the execution and
delivery of this Agreement, will not, constitute unreasonably small
capital to carry out its business as conducted or as proposed to be
conducted. Borrower does not intend to, and does not believe that it
will, incur debts and liabilities (including, without limitation,
Contingent Obligations and other commitments) beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
to be payable on or in respect of obligations of Borrower).
(J) Not Foreign Person. Borrower is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Code.
(K) Enforceability. The Loan Documents are the legal, valid
and binding obligation of Borrower, enforceable against Borrower in
accordance with their terms, subject to bankruptcy, insolvency and
other limitations on creditors' rights generally and to equitable
principles and the other matters described in the opinions delivered
pursuant to Section 3.1.
(L) Investment Company Act; Public Utility Holding Company
Act. Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, (ii) a "holding company" or
a "subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or (iii)
subject to any other federal or state law or regulation which purports
to restrict or regulate its ability to borrow money.
(M) No Defaults. No Default or Event of Default exists
under or with respect to any Loan Document.
(N) Labor Matters. Except for the Northfield Manor Nursing
Home and The Heritage at Norwood, Borrower is not a party to any
collective bargaining agreements. No collective bargaining agreement
will have a Material Adverse Effect, and all obligations which accrued
under any collective bargaining agreement prior to the date hereof have
been satisfied in full without exception.
(O) Title to the Mortgaged Property. Borrower owns good,
marketable and insurable fee simple title to its Facility, free and
clear of all Liens, other than the Permitted Encumbrances applicable to
its Facility. Except as disclosed in writing to Lender, there are no
outstanding options to purchase or rights of first refusal affecting
its Facility. The Permitted Encumbrances do not and will not materially
and adversely affect (i) the ability of Borrower to pay in full all
sums due under its Note in a timely manner or (ii) the use of such
Borrower's Facility for the use currently being made thereof, the
operation of its Facility as currently being operated or the value of
its Facility.
(P) Use of Proceeds; Margin Regulations. Borrower will use the
proceeds of the Loan for the purposes described in Section 2.2. No part
of the proceeds of the Loan will be used for the purpose of purchasing
or acquiring any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or for any other
purpose which would be inconsistent with such Regulation U or any other
Regulations of such Board of Governors, or for any purposes prohibited
by Legal Requirements.
(Q) Financial Information. All historical financial data
concerning Borrower and its Facility that has been delivered by
Borrower to Lender is true, complete and correct in all material
respects. Since the delivery of such data, except as otherwise
disclosed in writing to Lender, there has been no material adverse
change in the financial position of Borrower, its Facility, or in the
results of operations of Borrower. Borrower has not incurred any
obligation or liability, contingent or otherwise, not reflected in such
financial data which might materially adversely affect its business
operations or its Facility.
(R) Condemnation. No Taking has been commenced or, to
Borrower's knowledge, is contemplated with respect to all or any
portion of its Facility or for the relocation of roadways providing
access to its Facility.
(S) Other Debt. Except for unsecured trade payables incurred
in the ordinary course of business relating to the ownership and
operation of its Facility which are paid within sixty (60) days of the
date incurred, except for outstanding trade payables existing as of the
Closing Date which do not require payment within sixty (60) days.
Borrower has not borrowed or received other debt financing whether
unsecured or secured by its Facility or any part thereof.
(T) Utilities and Public Access. Borrower's Facility has
rights of access to public ways and is served by water, sewer, sanitary
sewer and storm drain facilities as are adequate for full utilization
of its Facility for its current purpose. Except as otherwise disclosed
by the Surveys, all public utilities necessary to the continued use and
enjoyment of Borrower's Facility as presently used and enjoyed are
located in the public right-of-way abutting the premises, and all such
utilities are connected so as to serve such Facility without passing
over other property. All roads necessary for the full utilization of
Borrower's Facility for its current purpose have been completed and
dedicated to public use and accepted by all Governmental Authorities or
are the subject of access easements for the benefit such Facility.
(U) Environmental Compliance. Except for matters set forth in
the "Summary" sections of the Environmental Reports delivered to Lender
in connection with the Loan (true, correct and complete copies of which
have been provided to Lender by Borrower):
(i) Borrower and its Facility are in compliance with
all applicable Environmental Laws, which compliance includes, but is
not limited to, the possession by Borrower of and compliance with all
environmental, health and safety permits, licenses and other
governmental authorizations required in connection with the ownership
and operation of such Facility under all Environmental Laws, except
where the failure to comply with such laws is not reasonably likely to
result in a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to
Borrower's knowledge, threatened, and no penalties arising under
Environmental Laws have been assessed, against Borrower, its Facility
or against any Person whose liability for any Environmental Claim
Borrower has or may have retained or assumed either contractually or by
operation of law, and no investigation or review is pending or, to the
knowledge of Borrower, threatened by any Governmental Authority,
citizens group, employee or other Person with respect to any alleged
failure by Borrower, or its Facility to have any environmental, health
or safety permit, license or other authorization required under, or to
otherwise comply with, any Environmental Law or with respect to any
alleged liability of Borrower for any Use or Release of any Hazardous
Substances or the presence, Use or Release of any Hazardous Substances
at, on, in, under, or from any Facility.
(iii) To the knowledge of Borrower after due inquiry,
there have been and are no past or present Releases of any Hazardous
Substance that are reasonably likely to form the basis of any
Environmental Claim against Borrower or, to Borrower's knowledge,
against any Person whose liability for any Environmental Claim Borrower
has or may have retained or assumed either contractually or by
operation of law.
(iv) To the knowledge of Borrower after due inquiry,
without limiting the generality of the foregoing, there is not present
at, on, in or under the Facility, PCB-containing equipment, asbestos or
asbestos containing materials, underground or aboveground storage tanks
or surface impoundments for Hazardous Substances, lead in drinking
water (except in concentrations that comply with all Environmental
Laws), or lead-based paint (nor have there been any underground storage
tanks present at, on, in, or under the Facility).
(v) No Liens are presently recorded with the
appropriate land records under or pursuant to any Environmental Law
with respect to Borrower's Facility and, to Borrower's knowledge, no
Governmental Authority has been taking or is in the process of taking
any action that could subject the Facility to Liens under any
Environmental Law.
(vi) There have been no environmental investigations,
studies, audits, reviews or other analyses conducted by or on behalf of
Borrower that are in the possession or control of Borrower in relation
to a Facility which have not been provided to Lender.
(vii) No conditions exist which would require
Borrower under any Environmental Laws to place a notice on any deed to
its Facility with respect to the presence, Use or Release of Hazardous
Substances at, on, in, under or from its Facility and no such Facility
has any such notice in its deed.
(V) No Joint Assessment; Separate Lots. Borrower has not and
shall not suffer, permit or initiate the joint assessment of its
Facility (i) with any other real property constituting a separate tax
lot, and (ii) with any portion of such Facility which may be deemed to
constitute personal property, or any other procedure whereby the lien
of any taxes which may be levied against such personal property shall
be assessed or levied or charged to its Facility as a single lien.
Borrower's Facility is comprised of one or more parcels, each of which
constitutes a separate tax lot and none of which constitutes a portion
of any other tax lot.
(W) Assessments. Except as disclosed in the Title Insurance
Policies, there are no pending or, to the knowledge of Borrower,
proposed special or other assessments for public improvements or
otherwise affecting Borrower's Facility, nor, to the knowledge of
Borrower, are there any contemplated improvements to its Facility that
may result in such special or other assessments.
(X) Mortgage and Other Liens. The Related Mortgage creates a
valid and enforceable first mortgage Lien on the Borrower's Facility,
as security for the repayment of the Indebtedness, subject only to the
Permitted Encumbrances applicable to that Facility. The Related
Collateral Security Instrument establishes and creates a valid,
subsisting and enforceable Lien on and a security interest in, or claim
to, the rights and property described therein. All property covered by
such Related Collateral Security Instrument is subject to a UCC
financing statement filed and/or recorded, as appropriate, (or
irrevocably delivered to an agent for such recordation or filing) in
all places necessary to perfect a valid first priority Lien with
respect to the rights and property that are the subject of such Related
Collateral Security Instrument to the extent governed by the UCC. All
continuations and any assignments of any such financing statements have
been or will be timely filed or refiled, as appropriate, in the
appropriate recording offices.
(Y) Enforceability. The Loan Documents executed by Borrower in
connection with the Loan, including, without limitation, any Related
Collateral Security Instrument, contain the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance
with their terms, subject to bankruptcy, insolvency and other
limitations on creditors' rights generally and to equitable principles
and the other matters described in the opinions delivered pursuant to
Section 3.1(a)(B). Such Loan Documents are, as of the Closing Date, not
subject to any right of rescission, set-off, counterclaim or defense by
Borrower, including the defense of usury, nor will the operation of any
of the terms of the Borrower's Note, the Related Mortgage, or such
other Loan Documents, or the exercise of any right thereunder, render
the Related Mortgage unenforceable against Borrower, in whole or in
part, or subject to any right of rescission, set-off, counterclaim or
defense by Borrower, including the defense of usury, and Borrower has
not asserted any right of rescission, set-off, counterclaim or defense
with respect thereto.
(Z) Fair Market Value. As of the Closing Date, the fair market
value of the Facility with respect to which the Loan is made is equal
to or greater than the Allocated Loan Amount of such Facility after
giving effect to the Loan.
(AA) No Prior Assignment. As of the Closing Date, (i) Lender
is the assignee of Borrower's interest under the Leases, and (ii) there
are no prior assignments of the Leases or any portion of the Rent due
and payable or to become due and payable which are presently
outstanding.
(AB) Use of Facilities. Borrower's Facility is used
exclusively as a nursing home and uses ancillary thereto.
(AC) Certificate of Occupancy. Borrower has obtained (in its
own name, or in Manager's name), all Permits necessary to use and
operate Borrower's Facility for the use described in Section
4.1(d)(AB). The use being made of Borrower's Facility is in conformity
in all material respects with the certificate of occupancy and/or
Permits for such Facility and any other restrictions, covenants or
conditions affecting such Facility.
(AD) Flood Zone. Except as shown on the Surveys, Borrower's
Facility is not located in a flood hazard area as defined by the
Federal Insurance Administration.
(AE) Physical Condition. Borrower's Facility is free of
material structural defects and all building systems contained therein
are in good working order in all material respects subject to ordinary
wear and tear, except as disclosed in the Engineering Reports.
(AF) Intellectual Property. All material trademarks, trade
names and service marks that Borrower owns or has pending, or under
which it is licensed, are in good standing and uncontested. There is no
right under any trademark, trade name or service mark necessary to the
business of Borrower as presently conducted or as Borrower contemplates
conducting its business. Borrower has not infringed, is not infringing,
and has not received notice of infringement with respect to asserted
trademarks, trade names and service marks of others. To Borrower's
knowledge, there is no infringement by others of material trademarks,
trade names and service marks of Borrower.
(AG) Nursing Home Representations.
(i) Compliance with Laws. Borrower and its Facility
comply with all applicable federal, state and local laws, regulations,
quality and safety standards, accreditation standards and requirements
of the applicable state Department of Health (each a "DOH") and all
other Governmental Authorities including, without limitation, those
relating to the quality and adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment, personnel, operating
policies, additions to facilities and services and fee splitting.
(ii) Licenses. All governmental licenses, permits,
regulatory agreements or other approvals or agreements necessary or
desirable for the use and operation of Borrower's Facility as intended
are held by the Borrower and are in full force and effect, including,
without limitation, a valid certificate of need ("CON") or similar
certificate, license, or approval issued by the DOH for the requisite
number of beds, and approved provider status in any approved provider
payment program (collectively, the "Licenses").
(iii) Ownership of Licenses. The Licenses,
including without limitation, the CON:
(a) may not be, and have not been,
transferred to any location other than Borrower's Facility;
(b) have not been pledged as collateral
security for any other loan or indebtedness; and
(c) are held free from restrictions or
known conflicts which would materially impair the use or operation
of the Borrower's Facility as intended, and are not provisional,
probationary or restricted in any way.
(iv) Medicare and Medicaid Compliance. Borrower's
Facility is in compliance with all requirements for participation in
Medicare and Medicaid, including without limitation, the Medicare and
Medicaid Patient and Program Protection Act of 1987. Such Facility is
in conformance in all material respects with all insurance,
reimbursement and cost reporting requirements, and has a current
provider agreement which is in full force and effect under Medicare and
Medicaid.
(v) Third Party Payors. There is no threatened or
pending revocation, suspension, termination, probation, restriction,
limitation, or non-renewal affecting Borrower or its Facility or any
participation or provider agreement with any third party payor
(including Medicare, Medicaid, Blue Cross and/or Blue Shield, and any
other private commercial insurance managed care and employee assistance
program) (such programs, the "Third Party Payors' Programs") to which
Borrower presently is subject. All Medicaid, Medicare, and private
insurance cost reports and financial reports submitted by Borrower are
and will be materially accurate and complete and have not been and will
not be misleading in any material respects. No cost reports for
Borrower's Facility remain "open" or unsettled, except as otherwise
disclosed.
(vi) Governmental Proceedings and Notices. Neither
Borrower nor its Facility is currently the subject of any proceeding by
any Governmental Authority, and no notice of any violation has been
received from a Governmental Authority that would, directly or
indirectly, or with the passage of time:
(a) have a Material Adverse Effect on
Borrower's ability to accept and/or retain patients or result in the
imposition of a fine, a sanction, a lower rate certification or a
lower reimbursement rate for services rendered to eligible patients;
(b) modify, limit or annul or result in
the transfer, suspension, revocation or imposition of probationary
use of Borrower's Licenses; or
(c) affect Borrower's continued
participation in the Medicaid or Medicare programs or any other of
the Third Party Payors' Programs, or any successor programs thereto,
at current rate certifications.
(vii) Physical Plant Standards. Borrower's Facility
and the use thereof complies in all material respects with all
applicable local, state and federal building codes, fire codes, health
care, nursing facility and other similar regulatory requirements (the
"Physical Plant Standards") and no waivers of Physical Plant Standards
exist at such Facility.
(viii) Past Violations. Borrower's Facility has not
received a "Level A" (or equivalent) violation, and no statement of
charges or deficiencies has been made or penalty enforcement action has
been undertaken against such Facility or against Borrower or against
any partner, member, officer, director or stockholder of Borrower by
any Governmental Authority during the last three calendar years, and
there have been no violations over the past three years which have
threatened such Facility's or Borrower's certification for
participation in Medicare or Medicaid or the other Third Party
Payors' Programs.
(ix) Audits. There are no current, pending or
outstanding Medicaid, Medicare or Third Party Payors' Programs
reimbursement audits or appeals pending at Borrower's Facility, and
there are no years that are subject to audits.
(x) Recoupment. There are no current or pending
Medicaid or Medicare or Third Party Payors' Programs recoupment efforts
at Borrower's Facility. The Borrower is not a participant in any
federal program whereby any Governmental Authority may have the right
to recover funds by reason of the advance of federal funds, including,
without limitation, those authorized under the Hill-Burton Act (42
U.S.C. 291, et seq.).
(xi) Pledges of Receivables. Borrower has not
pledged its receivables as collateral security for any other loan
or indebtedness.
(xii) Patient Care Agreements. There are no patient
or resident care agreements with patients or residents or with any
other persons which deviate in any material adverse respect from the
standard form customarily used at Borrower's Facility.
(xiii) Patient Records. All patient or resident
records at Borrower's Facility, including patient or resident trust
fund accounts, are true and correct in all material respects.
(xiv) Management and Operating Agreements. Any
existing Management Agreement with respect to Borrower's Facility is in
full force and effect and is not in default by any party thereto. In
the event any Management Agreement is terminated or in the event of
foreclosure or other acquisition of such Facility by the Lender,
neither the Borrower, the Lender, nor any subsequent operator or any
subsequent purchaser must obtain a CON prior to applying for and
receiving a license to operate such Facility or prior to receiving
Medicare or Medicaid payments.
(AH) Conduct of Business. Borrower does not conduct its
business "also known as," "doing business as" or under any other name
other than (i) for Pompton, the "Cedar Grove Manor Nursing Home," (ii)
for PVM, the "King David at West Palm Beach," (iii) for Jayber, the
"Northfield Manor Nursing Home," and (iv) for Norwood, "The Heritage at
Norwood" and "The Rosemont."
(AI) Title Insurance. Borrower's Facility is covered by either
an American Land Title Association (ALTA) mortgagee's title insurance
policy, or a commitment to issue such a title insurance policy,
insuring a valid first lien on such Facility, which is in full force
and effect and is freely assignable to and will inure to the benefit of
Lender and any assignee of Lender, including but not limited to the
trustee in a Securitization, subject only to the Permitted
Encumbrances.
(AJ) Borrower's Facility is not an "industrial establishment"
as defined by the Industrial Site Recovery Act, NJSA B:1K-6 et seq., as
amended.
(AK) (i) The amount of the Note with respect to each Facility
does not exceed the Tax Fair Market Value of such Facility.
(ii) If a Note with respect to a Facility is
significantly modified prior to the closing date of a Securitization so
as to result in a taxable exchange under Code ss.1001, the relelvant Borrower
will, if requested by Lender, represent that the amount of such Note does
not exceed the Tax Fair Market Value of such Facility as of the date of
such significant modification.
Section 4.2. Survival of Representations and Warranties. Each
Borrower agrees that (i) all of the representations and warranties of such
Borrower set forth in this Agreement and in the other Loan Documents delivered
on the Closing Date are made as of the Closing Date (except as expressly
otherwise provided) and (ii) all representations and warranties made by such
Borrower shall survive the delivery of the Notes and continue for so long as any
amount remains owing to Lender under this Agreement, the Notes or any of the
other Loan Documents; provided, however, that the representations set forth in
Section 4.1(d) (U) shall survive in perpetuity. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1. Borrower Covenants. Each Borrower covenants and
agrees that, from the date hereof and until payment in full of the Indebtedness
(or with respect to a particular Facility, the earlier release of its Related
Mortgage):
(A) Existence; Compliance with Legal Requirements; Insurance.
Borrower shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence,
rights, licenses, Permits and franchises necessary for the conduct of
its business and shall comply in all material respects with all Legal
Requirements and Insurance Requirements applicable to it and its
Facility. Borrower shall notify Lender promptly of any written notice
or order that the Borrower receives from any Governmental Authority
with respect to the Borrower's compliance with such Legal Requirements
relating to such Borrower's Facility and promptly take any and all
actions necessary to bring its operations at such Facility into
compliance with such Legal Requirements (and shall fully comply with
the requirements of such Legal Requirements that at any time are
applicable to its operations at such Facility) provided, that the
Borrower at its expense may, after prior notice to the Lender, contest
by appropriate legal, administrative or other proceedings conducted in
good faith and with due diligence, the validity or application, in
whole or in part, of any such Legal Requirements as long as (i) neither
the applicable Collateral nor any part thereof or any interest therein,
will be sold, forfeited or lost if the Borrower pays the amount or
satisfies the condition being contested, and the Borrower would have
the opportunity to do so, in the event of the Borrower's failure to
prevail in the contest, (ii) Lender would not, by virtue of such
permitted contest, be exposed to any risk of any civil liability for
which the Borrower has not furnished additional security as provided in
clause (iii) below, or to any risk of criminal liability, and neither
the applicable Collateral nor any interest therein would be subject to
the imposition of any Lien provided in clause (iii) below as a result
of the failure to comply with such Legal Requirement or of such
proceeding and (iii) the Borrower shall have furnished to the Lender
additional security in respect of the claim being contested or the loss
or damage that may result from the Borrower's failure to prevail in
such contest in such amount as may be reasonably requested by the
Lender but in no event less than 125% of the amount of such claim.
Borrower shall at all times maintain, preserve and protect all
franchises and trade names and preserve all the remainder of its
property necessary for the continued conduct of its business and keep
its Facility in good repair, working order and condition, except for
reasonable wear and use, and from time to time make, or cause to be
made, all necessary repairs, renewals, replacements, betterments and
improvements thereto, all as more fully provided in the Related
Mortgage. Borrower shall keep its Facility insured at all times, by
financially sound and reputable insurers, to such extent and against
such risks, and maintain liability and such other insurance, as is more
fully provided herein and in the Related Mortgage.
(B) Impositions and Other Claims. Borrower shall pay and
discharge or cause to be paid and discharged all Impositions, as well
as all lawful claims for labor, materials and supplies or otherwise,
which could become a Lien, all as more fully provided in, and subject
to any rights to contest contained in, the Related Mortgage.
(C) Litigation. Borrower shall give prompt written notice to
Lender of any litigation or governmental proceedings pending or
threatened against Borrower which is reasonably likely to have a
Material Adverse Effect.
(D) Environmental Remediation.
(i) If any investigation, site monitoring, cleanup,
removal, abatement, restoration, remedial work or other response action
of any kind or nature is required pursuant to an order or directive of
any Governmental Authority or under any applicable Environmental Law
(collectively, the "Remedial Work"), because of or in connection with
the (x) past, present or future presence, suspected presence, Release
or suspected Release of a Hazardous Substance at, on, in, under or from
a Facility or any portion thereof, or (y) violation of or compliance
with applicable Environmental Laws, Borrower shall promptly commence
and diligently prosecute to completion all such Remedial Work. In all
events, such Remedial Work shall be commenced within the time period
ordered or directed by such Governmental Authority or such shorter
period as may be required under any applicable Environmental Law;
provided, however, that Borrower shall not be required to commence such
Remedial Work within the above specified time periods: (x) if prevented
from doing so by any Governmental Authority, (y) if commencing such
Remedial Work within such time periods would result in Borrower or such
Remedial Work violating any Environmental Law or (z) if Borrower, at
its expense and after prior notice to Lender, is contesting by
appropriate legal, administrative or other proceedings conducted in
good faith and with due diligence the need to perform Remedial Work, as
long as (1) Borrower is permitted by the applicable Environmental Laws
to delay performance of the Remedial Work pending such proceedings, (2)
neither Borrower's Facility nor any part thereof or interest therein
will be sold, forfeited or lost if Borrower performs the Remedial Work
being contested, and Borrower would have the opportunity to do so, in
the event of Borrower's failure to prevail in the contest, (3) Lender
would not, by virtue of such permitted contest, be exposed to any risk
of any civil liability for which Borrower has not furnished additional
security as provided in clause (4) below, or to any risk of criminal
liability, and neither such Facility nor any interest therein would be
subject to the imposition of any Lien for which Borrower has not
furnished additional security as provided in clause (4) below, as a
result of the failure to perform such Remedial Work and (4) Borrower
shall have furnished to Lender additional security in respect of the
Remedial Work being contested and the loss or damage that may result
from Borrower's failure to prevail in such contest in such amount as
may be reasonably requested by Lender, but in no event less than 125%
of the cost of such Remedial Work and any loss or damage that may
result from Borrower's failure to prevail in such contest.
(ii) All Remedial Work under clause (i) above shall
be performed by contractors, and under the supervision of a consulting
environmental Engineer, each approved in advance by Lender which
approval will not be unreasonably withheld or delayed. All costs and
expenses incurred in connection with such Remedial Work shall be paid
by Borrower. If Borrower does not timely commence and diligently
prosecute to completion the Remedial Work, Lender may (but shall not be
obligated to), upon 30 days prior written notice to Borrower of its
intention to do so, cause such Remedial Work to be performed. Borrower
shall pay or reimburse Lender on demand for all Advances (as defined in
the Related Mortgage) and expenses (including attorneys' fees and
disbursements, but excluding internal overhead, administrative and
similar costs of Lender) relating to or incurred by Lender in
connection with monitoring, reviewing or performing any Remedial Work
in accordance herewith.
(iii) Unless otherwise required by law, Environmental
Laws or any Governmental Authority, Borrower shall not commence any
Remedial Work under clause (i) above, nor enter into any settlement
agreement, consent decree or other compromise relating to any Hazardous
Substances or Environmental Laws which is reasonably likely to have a
Material Adverse Effect. Notwithstanding the foregoing, if the presence
or threatened presence or Release of Hazardous Substances at, on, in,
under, from or about Borrower's Facility poses an immediate threat to
the health, safety or welfare of any Person or the environment, or is
of such a nature that an immediate response is necessary, Borrower may
complete all necessary Remedial Work. In such events, Borrower shall
notify Lender as soon as practicable and, in any event, within three
Business Days, of any action taken.
(E) Environmental Matters; Inspection.
(i) Borrower shall not cause, allow or authorize a
Hazardous Substance to be present at, on, in, under or to emanate from
its Facility, or migrate from adjoining property controlled by Borrower
onto or into its Facility, except under conditions permitted by
applicable Environmental Laws and, in the event that such Hazardous
Substances are present at, on, in, under or emanate from such Facility,
or migrate onto or into such Facility, Borrower shall cause the
performance of Remedial Work, removal or remediation of such Hazardous
Substances, in accordance with this Agreement and Environmental Laws.
Borrower shall use best efforts to prevent, and to seek the remediation
of, any migration of Hazardous Substances onto or into Borrower's
Facility from any adjoining property.
(ii) Upon prior written notice, Lender shall have the
right at all reasonable times to enter upon and inspect all or any
portion of any Facility, provided that such inspections shall not
unreasonably interfere with the operation or the tenants, residents or
occupants of such Facility. If Lender suspects that Remedial Work may
be required, Lender may select or may require Borrower to select a
consulting environmental Engineer satisfactory to Lender to conduct and
prepare environmental reports assessing the environmental condition of
the Facility. Lender shall be given a reasonable opportunity to review
any reports, data and other documents or materials reviewed or prepared
by the environmental Engineer. The inspection rights granted to Lender
in this Section 5.1(E) shall be in addition to, and not in limitation
of, any other inspection rights granted to Lender in the Loan
Documents, and shall expressly include the right (if Lender suspects
that Remedial Work may be required) to conduct or require Borrower to
conduct soil borings, establish ground water monitoring wells and
conduct other customary environmental tests, assessments and audits.
(iii) Borrower agrees to bear and shall pay or
reimburse Lender on demand for all sums advanced and expenses incurred
(including attorneys' fees and disbursements, but excluding internal
overhead, administrative and similar costs of Lender) relating to, or
incurred by Lender in connection with, the inspections and reports
described in this Section 5.1(E) in the following situations:
(x) If Lender has reasonable grounds to believe, at
the time any such inspection is ordered, that there exists an
occurrence or condition that could lead to an Environmental
Claim;
(y) If any such inspection reveals an occurrence or
condition that could lead to an Environmental Claim; or
(z) If an Event of Default with respect to any
Facility exists at the time any such inspection is ordered,
and such Event of Default relates to any representation,
covenant or other obligation pertaining to Hazardous
Substances, Environmental Laws or any other environmental
matter.
(F) Environmental Notices. Borrower shall promptly provide
notice to Lender of:
(i) any Environmental Claim asserted or threatened by
any Governmental Authority or other Person with respect to any
Hazardous Substance on, in, under or emanating from Borrower's
Facility, which could reasonably be expected to impair the value of
Lender's security interests hereunder or have a Material Adverse
Effect;
(ii) any Environmental Claim or proceeding,
investigation or inquiry commenced or threatened in writing by any
Person or Governmental Authority, against Borrower, with respect to the
presence, suspected presence, Release or threatened Release of
Hazardous Substances from or onto, in or under any property not owned
by Borrower, including, without limitation, proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act,
as amended, 42 U.S.C. ss. 9601, et seq., which could reasonably be
expected to impair the value of Lender's security interests hereunder
or have a Material Adverse Effect;
(iii) all Environmental Claims asserted or threatened
against Borrower, against any other party occupying any Facility or any
portion thereof which become known to Borrower or against such
Facility, which could reasonably be expected to impair the value of
Lender's security interests hereunder or have a Material Adverse
Effect;
(iv) the discovery by Borrower of any occurrence or
condition on its Facility or on any real property adjoining or in the
vicinity of such Facility which could reasonably be expected to lead to
an Environmental Claim against Borrower or Lender which such
Environmental Claim is reasonably likely to have a Material Adverse
Effect; and
(v) the commencement or completion of any Remedial
Work.
(G) Copies of Notices. Borrower shall immediately transmit to
Lender copies of any citations, orders, notices or other written
communications received from any Person or any Governmental Authority
and any notices, reports or other written communications submitted to
any Governmental Authority with respect to the matters described in
Section 5.1(F).
(H) Environmental Claims. Lender and/or, to the extent
authorized by Lender if applicable, the Deed of Trust Trustee may join
and participate in, as a party if Lender so determines, any legal or
administrative proceeding or action concerning a Facility or any
portion thereof under any Environmental Law, if, in Lender's reasonable
judgment, the interests of Lender or the Deed of Trust Trustee, will
not be adequately protected by Borrower. Borrower agrees to bear and
shall pay or reimburse Lender and the Deed of Trust Trustee on demand
for all sums advanced and expenses incurred (including attorneys' fees
and disbursements, but excluding internal overhead, administrative and
similar costs of Lender) and the Deed of Trust Trustee, incurred by
Lender and the Deed of Trust Trustee in connection with any such action
or proceeding.
(I) Indemnification. Each Borrower agrees to indemnify,
reimburse, defend, and hold harmless Lender and the Deed of Trust
Trustee, for, from, and against all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties,
consequential damages, attorneys' fees, disbursements and expenses, and
consultants' fees, disbursements and expenses including costs of
Remedial Work (but excluding internal overhead, administrative and
similar costs of Lender and the Deed of Trust Trustee), asserted
against, resulting to, imposed on, or incurred by Lender and the Deed
of Trust Trustee, directly or indirectly, in connection with any of the
following, (except to the extent the same are directly and solely
caused by Lender's and the Deed of Trust Trustee's gross negligence or
willful misconduct):
(i) events, circumstances, or conditions which are
alleged to, or do, form the basis for an Environmental Claim;
(ii) the presence, Use or Release of Hazardous
Substances at, on, in, under or from any Facility which presence, Use
or Release requires or would require Remedial Work;
(iii) any Environmental Claim against Borrower,
Lender, Deed of Trust Trustee or any Person whose liability for such
Environmental Claim Borrower has or may have assumed or retained either
contractually or by operation of law; or
(iv) the breach of any representation, warranty or
covenant set forth in Section 4.1(d)(U) and Sections 5.1(A),(D) through
5.1(I), inclusive.
Nothing in this Section 5.1(I) shall be deemed to deprive
Lender of any rights or remedies provided to it elsewhere in this
Agreement or the other Loan Documents or otherwise available to it
under law. Borrower waives and releases Lender and any Deed of Trust
Trustee from any rights or defenses Borrower may have under common law
or Environmental Laws for liability arising or resulting from the
presence, Use or Release of Hazardous Substances except to the extent
caused by the gross negligence or willful misconduct of Lender or Deed
of Trust Trustee.
(J) Access to Facilities. Borrower shall permit agents,
representatives and employees of Lender to inspect Borrower's Facility
or any part thereof at such reasonable times as may be requested by
Lender upon advance notice, subject, however, to the rights of the
tenants, occupants and guests of such Facility.
(K) Notice of Default. Borrower shall promptly advise Lender
of any material adverse change in Borrower's condition, financial or
otherwise, or of the occurrence of any Event of Default, or of the
occurrence of any Default.
(L) Cooperate in Legal Proceedings. Except with respect to any
claim by Borrowers against Lender, Borrower shall cooperate fully with
Lender with respect to any proceedings before any Governmental
Authority which may in any way affect the rights of Lender hereunder or
any rights obtained by Lender under any of the Loan Documents and, in
connection therewith, not prohibit Lender, at its election, from
participating in any such proceedings.
(M) Perform Loan Documents. Borrower shall observe, perform
and satisfy all the terms, provisions, covenants and conditions
required to be observed, performed or satisfied by it, and shall pay
when due all costs, fees and expenses required to be paid by it, under
the Loan Documents executed and delivered by Borrower.
(N) Insurance Benefits. Borrower shall cooperate with Lender
in obtaining for Lender the benefits of any Insurance Proceeds lawfully
or equitably payable to Lender in connection with Borrower's Facility,
and Lender shall be reimbursed for any expenses incurred in connection
therewith (including attorneys' fees and disbursements and the payment
by Borrower of the expense of an Appraisal on behalf of Lender in case
of a fire or other casualty affecting such Facility or any part
thereof, but excluding internal overhead, administrative and similar
costs of Lender) out of such Insurance Proceeds, all as more
specifically provided in the Related Mortgage.
(O) Further Assurances. Borrower shall, at Borrower's sole
cost and expense:
(i) upon Lender's request therefor given from time to
time during the continuation of any Default pay for (a) reports of UCC,
federal tax lien, state tax lien, judgment and pending litigation
searches with respect to Borrower and (b) searches of title to
Borrower's Facility, each such search to be conducted by search firms
designated by Lender in each of the locations designated by Lender;
(ii) furnish to Lender all instruments, documents,
boundary surveys, footing or foundation surveys, certificates, plans
and specifications, Appraisals, title and other insurance reports and
agreements, and each and every other document, certificate, agreement
and instrument required to be furnished pursuant to the terms of the
Loan Documents;
(iii) execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings, and do such
other acts necessary, to evidence, preserve and/or protect the
Collateral at any time securing or intended to secure Borrower's Note,
as Lender may require; and
(iv) do and execute all and such further lawful acts,
conveyances and assurances for the better and more effective carrying
out of the intents and purposes of this Agreement and the other Loan
Documents, as Lender shall require from time to time.
(P) Management of Mortgaged Property. (i) Borrower's Facility
will be managed at all times by a Manager pursuant to a Management
Agreement unless terminated as herein provided. Pursuant to each
Manager's Subordination, Manager will agree that the applicable
Management Agreement is subject and subordinate in all respects to the
Lien of the Related Mortgage. Each Management Agreement shall be
terminated by Borrower, at Lender's request, upon 30 days prior written
notice to the relevant Borrower and Manager (a) upon the occurrence and
continuance of an Event of Default, (b) if Manager commits any act
which would permit termination by the relevant Borrower under the
Management Agreement or (c) in the event that the Adjusted Net
Operating Income for all Facilities calculated as of the end of any
Interest Accrual Period, computed on the basis of the prior twelve (12)
months, is less than 80% of the Base NOI for all Facilities, provided
that, under a termination under clause (c), Borrower shall have thirty
(30) days to find a replacement Manager acceptable to Lender in
Lender's sole discretion. A Borrower may from time to time appoint a
successor manager to manage its Facility which successor manager shall
be satisfactory to Lender in Lender's discretion, as evidenced in
writing. Notwithstanding the foregoing, any successor property manager
selected hereunder by Lender or any Borrower to serve as Manager shall
be a reputable management company having at least seven years'
experience in the management of nursing homes in the state in which
such Facility is located.
(ii) Norwood will be operated at all times by an
Operator pursuant to a Master Lease unless terminated as herein
provided. Such Master Lease shall be terminated by Borrower, at
Lender's request, upon 30 days prior written notice to Norwood and
Operator (a) upon the occurrence and continuance of an Event of
Default, (b) if Operator commits any act which would permit termination
by Norwood under the Master Lease or (c) in the event that the Adjusted
Net Operating Income for all Facilities calculated as of the end of any
Interest Accrual Period, computed on the basis of the prior twelve (12)
months, is less than 80% of the Base NOI for all Facilities, provided
that, under a termination under clause (c), Borrower shall have thirty
(30) days to find a replacement Operator acceptable to Lender in
Lender's sole discretion.. Norwood may from time to time appoint a
successor operator to operate its Facility which successor operator
shall be satisfactory to Lender in Lender's discretion, as evidenced in
writing.
(Q) Financial Reporting.
(i) Borrower shall keep and maintain or shall cause
to be kept and maintained on a Fiscal Year basis, in accordance with
GAAP books, records and accounts reflecting in reasonable detail all of
the financial affairs of Borrower and all items of income and expense
in connection with the operation of Borrower's Facility and in
connection with any services, equipment or furnishings provided in
connection with the operation of Borrower's Facility, whether such
income or expense may be realized by Borrower or by any other Person
whatsoever. Lender shall have the right from time to time at all times
during normal business hours upon reasonable prior written notice to
Borrower to examine such books, records and accounts at the office of
Borrower or other Person maintaining such books, records and accounts
and to make such copies or extracts thereof as Lender shall desire.
After the occurrence and continuance of an Event of Default with
respect to Borrower or its Facility, Borrower shall pay any costs and
expenses incurred by Lender to examine Borrower's accounting records
with respect to Borrower's Facility, as Lender shall determine to be
necessary or appropriate in the protection of Lender's interest.
(ii) Borrower shall furnish to Lender annually,
within 90 days following the end of each Fiscal Year, a complete copy
of Borrower's financial statement audited by an Independent certified
public accountant acceptable to Lender (Lender hereby agreeing that any
"Big Six" certified public accounting firm or Kenneth Leventhal &
Company shall be acceptable to Lender) in accordance with GAAP (or such
other accounting basis reasonably acceptable to Lender) covering
Borrower's financial position and results of operations for such Fiscal
Year and containing a statement of revenues and expenses, a statement
of assets and liabilities and a statement of Borrower's equity.
Notwithstanding the foregoing, Borrower's annual financial statement
does not need to be audited by an Independent certified public
accountant for so long as Continental Health Affiliates (i) owns the
same stock in Borrower as of the date hereof and (ii) provides Lender
with annual financial statements audited by an Independent certified
public accountant pursuant to, and in accordance with, a letter
agreement by and between Continental Health Affiliates and Lender.
Together with Borrower's annual financial statements, Borrower shall
furnish to Lender an Officer's Certificate certifying as of the date
thereof (x) that the annual financial statements present fairly in all
material respects the results of operations and financial condition of
Borrower all in accordance with GAAP, and (y) whether there exists an
Event of Default or Default, and if such Event of Default or Default
exists, the nature thereof, the period of time it has existed and the
action then being taken to remedy same.
(iii) Borrower shall furnish to Lender, within 45
days following the end of each Fiscal Year quarter, a true, complete
and correct cash flow statement with respect to Borrower's Facility for
that quarter.
(iv) Borrower shall furnish to Lender, within 45 days
after the end of each Fiscal Year quarter, an aged accounts receivable
report for its Facility.
(v) Borrower shall furnish to Lender, within 15
Business Days after request, such further information with respect to
the operation of its Facility and the financial affairs of Borrower as
may be requested by Lender, including all business plans prepared for
Borrower.
(vi) Borrower shall furnish to Lender, within 15
Business Days after request, such further information regarding any
Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA as may be requested by Lender.
(vii) Borrower shall, concurrently with Borrower's
delivery to Lender, provide a copy of the items required to be
delivered to Lender hereunder to the Rating Agencies, the trustee, and
any servicer and/or special servicer that may be retained in
conjunction with the Loan or any Securitization.
(viii) Borrower shall furnish or shall cause to be
furnished to Lender, within five (5) days of the receipt by Borrower,
Manager or Operator, if any, any and all notices (regardless of form)
from any licensing and/or certifying agency that the Licenses of such
Borrower's Facility or Medicare or Medicaid certification of the
Facility is being downgraded to a substandard category, revoked, or
suspended, or that action is pending or being considered to downgrade
to a substandard category, revoke, or suspend the nursing home's
license or certification;
(ix) Borrower shall furnish to Lender, within one
hundred twenty (120) Business Days after the fiscal year of the Manager
and Operator, if any, compilation statements of such Manager or
Operator, if any, in form and substance satisfactory to Lender,
certified by the relevant chief financial officer as true and correct;
(x) Borrower shall furnish to Lender, within ten (10)
Business Days of the date of the required filing of cost reports of
Borrower's Facility with the Medicaid agency or the date of actual
filing of such cost report of the Facility with such agency, whichever
is earlier, a complete and accurate copy of the annual Medicaid cost
report for the Facility, which will be prepared by an Independent
certified public accountant or by an experienced cost report preparer
acceptable to Lender, and promptly furnish Lender any amendments filed
with respect to such reports and all responses, audit reports or
inquiries with respect to such reports; and
(xi) Borrower shall furnish to Lender, within five
(5) Business Days of receipt, a copy of any Medicare, Medicaid or other
licensing agency survey or report and any statement of deficiencies,
and within the time period required by the particular agency for
furnishing a plan of correction also furnish or cause to be furnished
to Lender a copy of the plan of correction generated from such survey
or report for Borrower's Facility, and correct or cause to be corrected
any deficiency, the curing of which is a condition of continued
licensure or for full participation in Medicare and Medicaid for
existing patients or for new patients to be admitted with Medicare or
Medicaid coverage, by the date required for cure by such agency (plus
extensions granted by such agency).
(xii) Notwithstanding anything herein to the
contrary, Borrower shall furnish to Lender 1995 Unaudited Financial
Statements on or before January 20, 1995.
(R) Conduct of Business. Borrower shall cause the operation of
Borrower's Facility to be conducted at all times in a manner consistent
with at least the level of operation of Borrower's Facility as of the
Closing Date, including, without limitation, the following:
(i) to maintain or cause to be maintained the
standard of operations at Borrower's Facility at all times at a level
necessary to insure a level of quality for such nursing home Facility
consistent with similar nursing home facilities in the same competitive
market;
(ii) to operate or cause to be operated Borrower's
Facility in a prudent manner in compliance in all material respects
with applicable Legal Requirements and Insurance Requirements relating
thereto and cause all licenses, Permits, and any other agreements
necessary for the continued use and operation of such Facility to
remain in effect; and
(iii) to maintain or cause to be maintained
sufficient Inventory and Equipment of types and quantities at
Borrower's Facility to enable Borrower or Manager to operate Borrower's
Facility.
(S) Intentionally Omitted.
(T) ERISA. Borrower shall deliver to Lender as soon as
possible, and in any event within ten days after Borrower knows or has
reason to believe that any of the events or conditions specified below
with respect to any Plan or Multiemployer Plan has occurred or exists,
a statement signed by a senior financial officer of Borrower setting
forth details respecting such event or condition and the action, if
any, that Borrower or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with
or given to PBGC by Borrower or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with respect to
a Plan, as to which PBGC has not by regulation waived the requirement
of Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of the issuance
of any waivers in accordance with Section 412(d) of the Code); and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken by
Borrower or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by Borrower or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by Borrower or any ERISA Affiliate that results in
liability under Section 4201 or 4204 of ERISA (including the obligation
to satisfy secondary liability as a result of a purchaser default) or
the receipt by Borrower or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days;
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA,
would result in the loss of tax-exempt status of the trust of which
such Plan is a part if Borrower or an ERISA Affiliate fails to timely
provide security to the Plan in accordance with the provisions of said
Sections; and
(vii) the imposition of a lien or a security
interest in connection with a Plan.
(U) Single Purpose Entity. Borrower shall at all times be
a Single Purpose Entity.
(V) Nursing Home Covenants. Borrower shall:
(1) operate Borrower's Facility in full compliance
with the laws and requirements referred to in Section 4.1(d)(AG)(i);
(2) operate Borrower's Facility or cause Borrower's
Facility to be operated in a manner such that the Licenses shall remain
in full force and effect; and
(3) comply with all requirements for participation in
Medicare and Medicaid, and shall keep in full force and effect a
current provider agreement under Medicare and Medicaid.
(W) Trade Indebtedness. Borrower will pay its trade payables
within sixty (60) days of the date incurred except for outstanding
trade payables existing as of the Closing Date which do not require
payment within sixty (60) days, unless Borrower is in good faith
contesting Borrower's obligation to pay such trade payables in a manner
satisfactory to Lender (which may include Lender's requirement that
Borrower post security with respect to the contested trade payable).
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1. Borrower Negative Covenants. Each Borrower
covenants and agrees that, until payment in full of the Indebtedness (or, with
respect to any particular Facility, the earlier release of the Related
Mortgage), it will not do, directly or indirectly, any of the following unless
Lender consents thereto in writing:
(A) Liens on the Mortgaged Property. Incur, create, assume,
become or be liable in any manner with respect to, or permit to exist,
any Lien with respect to Borrower's Facility, except: (i) Liens in
favor of Lender, and (ii) the Permitted Encumbrances.
(B) Transfer. Except as expressly permitted by or pursuant to
this Agreement or the Related Mortgage, or except as otherwise approved
by Lender in writing in Lender's sole discretion, allow any Transfer to
occur, terminate the Management Agreement, or enter into a management
contract with respect to Borrower's Facility.
(C) Other Borrowings. Incur, except for unsecured trade
payables incurred in the ordinary course of business relating to the
ownership and operation of Borrower's Facility which are paid within
sixty (60) days of the date incurred, except for outstanding trade
payables existing as of the Closing Date which do not required payment
within sixty (60) days, create, assume, become or be liable in any
manner with respect to Other Borrowings.
(D) Intentionally omitted.
(E) Change In Business. Cease to be a Single-Purpose Entity,
or make any material change in the scope or nature of its business
objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business.
(F) Debt Cancellation. Cancel or otherwise forgive or release
any material claim or debt owed to Borrower by any Person, except for
adequate consideration or in the ordinary course of Borrower's
business.
(G) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of Borrower, except (i) for a Master
Lease or (ii) in the ordinary course of business and on terms which are
no less favorable to Borrower or such Affiliate than would be obtained
in a comparable arm's length transaction with an unrelated third party
and, if the amount to be paid to the Affiliate pursuant to the
transaction or series of related transactions is greater than $50,000
(determined annually on an aggregate basis) fully disclosed to Lender
in advance; provided, however, that Lender hereby agrees that, provided
no Event of Default shall have occurred with respect to Borrower or
Borrower's Facility, and subject to the provisions of Section 5.1(P)
and the relevant Manager's Subordination, nothing contained in the
foregoing shall prohibit payment by Borrower of any fees or expenses to
Manager in accordance with the terms of the Management Agreement, and
Lender hereby consents to Manager serving as manager of Borrower's
Facility; provided, further, however, that the management fees charged
by Manager shall not be more than the amounts provided for in the
relevant Management Agreement as of the Closing Date with respect to
Borrower's Facility covered by such Management Agreement.
(H) Creation of Easements. Create, or permit Borrower's
Facility or any part thereof to become subject to, any easement,
license or restrictive covenant, other than a Permitted Encumbrance.
(I) Misapplication of Funds. Distribute any Rents or Money
received from Accounts in violation of the provisions of Section 2.12.
(J) Certain Restrictions. Enter into any agreement which
expressly restricts the ability of Borrower to enter into amendments,
modifications or waivers of any of the Loan Documents.
(K) Issuance of Equity Interests. Issue or allow to be created
any shareholder interests other than the shareholder interests which
are outstanding or exist on the Closing Date or any security or other
instrument which by its terms is convertible into or exercisable or
exchangeable for any shareholder interests in Borrower.
(L) Assignment of Licenses and Permits. Assign or transfer any
of its interest in any Permits pertaining to Borrower's Facility
(except to the Manager in the ordinary course of Borrower's business),
or assign, transfer or remove or permit any other Person to assign,
transfer or remove any records pertaining to Borrower's Facility
without Lender's prior written consent, which consent may be granted or
refused in Lender's sole discretion.
(M) Place of Business. Change its chief executive office or
its principal place of business or place where its books and records
are kept without giving Lender at least 30 days' prior written notice
thereof and promptly providing Lender such information as Lender may
request in connection therewith.
(N) Nursing Home Negative Covenants: Borrower shall not:
(1) transfer the Licenses to any location other than
Borrower's Facility nor shall Borrower pledge the Licenses as
collateral security for any other loan or indebtedness;
(2) rescind, withdraw, revoke, amend, modify,
supplement, or otherwise alter the nature, tenor or scope of the
Licenses for Borrower's Facility;
(3) amend or otherwise change Borrower's Facility's
authorized bed capacity and/or the number of beds approved by the DOH;
(4) replace or transfer all or any part of
Borrower's Facility's beds to another site or location;
(5) jeopardize in any manner Borrower's
participation with any Third-Party Payors' Programs to which
Borrower is subject as of the Closing Date;
(6) pledge its receivables as collateral security
for any other loan or indebtedness;
(7) enter into any patient or resident care
agreements with patients or residents or with any other persons which
deviate in any material adverse respect in the standard form
customarily used at Borrower's Facility; or
(8) other than in the normal course of business,
change the terms of any of the Third Party Payors' Programs or its
normal billing payment or reimbursement policies and procedures with
respect thereto (including without limitation the amount and timing of
finance charges, fees and write-offs).
ARTICLE VII
DEFAULTS
Section 7.1. Event of Default. The occurrence of one or more
of the following events shall be an "Event of Default" hereunder:
(i) if on any Payment Date the funds in any Debt
Service Payment Sub-Account are insufficient to pay any relevant
Required Debt Service Payment due on such Payment Date;
(ii) if any Borrower fails to pay the outstanding
Indebtedness on the Maturity Date;
(iii) if on the date any payment of a Basic Carrying
Cost would become delinquent, the funds in the relevant Basic Carrying
Costs Sub-Account required to be reserved pursuant to Section
2.12(g)(ii) together with any funds in the relevant Cash Collateral
Account not allocated to another Sub-Account are insufficient to make
such payment;
(iv) the occurrence of the events identified
elsewhere in the Loan Documents as constituting an "Event of Default";
(v) except as expressly permitted by the Loan
Documents, a Transfer, unless the prior written consent of Lender is
obtained (which consent may be withheld with or without cause in
Lender's discretion);
(vi) if any Borrower fails to pay any other amount
(other than amounts referred to in Sections 7.1(i), 7.1(ii) and
7.1(iii)) payable pursuant to this Agreement or any other Loan Document
when due and payable in accordance with the provisions hereof or
thereof, as the case may be, and such failure continues for ten (10)
days after Lender delivers written notice thereof to any Borrower;
(vii) if any representation or warranty made herein
or in any other Loan Document, or in any report, certificate, financial
statement or other Instrument, agreement or document furnished by any
Borrower in connection with this Agreement, the Notes or any other Loan
Document executed and delivered by any Borrower, shall be false in any
material respect as of the date such representation or warranty was
made or remade and such Borrower fails to remedy such matters as to
make such representation or warranty true and correct within ten (10)
days after notice to such Borrower from Lender or its successors or
assigns in the case of any matter which can be remedied by the payment
of a sum of money or for thirty (30) days after notice from Lender or
its successors or assigns, in the case of any other matter;
(viii) if any Borrower or any Borrower's shareholders
(other than Nomura Asset Capital Corporation) makes an assignment for
the benefit of creditors;
(ix) if a receiver, liquidator or trustee shall be
appointed for any Borrower, or any Borrower's shareholders (other than
Nomura Asset Capital Corporation) or if any Borrower, or Borrower's
shareholders (other than Nomura Asset Capital Corporation) shall be
adjudicated as bankrupt or insolvent, or if any petition for
bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by
or against, consented to, or acquiesced in by any Borrower, or any
Borrower's shareholders (other than Nomura Asset Capital Corporation)
or if any proceeding for the dissolution or liquidation of any
Borrower, or any Borrower's shareholders (other than Nomura Asset
Capital Corporation) shall be instituted; provided, however, that if
such appointment, adjudication, petition or proceeding was involuntary
and not consented to by such Borrower, or such Borrower's shareholder
as the case may be, upon the same not being discharged, stayed or
dismissed within 90 days, or if any Borrower, or any Borrower's
shareholders (other than Nomura Asset Capital Corporation) shall
generally not be paying its debts as they become due;
(x) if any Borrower attempts to delegate its
obligations or assign its rights under this Agreement, any of the other
Loan Documents or any interest herein or therein, or if any Transfer
occurs other than in accordance with the Related Mortgage or any other
Loan Document;
(xi) if any provision of the articles of
incorporation or bylaws of any Borrower is amended or modified in any
material respect which may adversely affect Lender, or if any Borrower
or Borrower's shareholder fails to perform or enforce the provisions of
such organizational documents or attempts to dissolve such Borrower; or
if any Borrower breaches any of its representations, warranties or
covenants set forth in Sections 4.1(d)(I), 4.1(d)(K), 5.1(U), or
6.1(E).
(xii) if an Event of Default as defined or described
in any Loan Document (other than this Agreement) occurs, whether as to
any Borrower or any Facility or all or any portion of the Mortgaged
Property;
(xiii) if any Borrower shall be in default under any
of the other obligations, agreements, undertakings terms, covenants,
provisions or conditions of this Agreement, the Notes, the Mortgages or
the other Loan Documents, not otherwise referred to above in this
Section 7.1, for ten (10) days after notice to such Borrower from
Lender or its successors or assigns, in the case of any default which
can be cured by the payment of a sum of money or for thirty (30) days
after notice from Lender or its successors or assigns, in the case of
any other default (unless otherwise provided herein or in such other
Loan Document); provided, however, that if such non-monetary default
under this subparagraph (xiii) is susceptible of cure but cannot
reasonably be cured within such 30 day period and provided further that
such Borrower shall have commenced to cure such default within such 30
day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30 day period shall be extended for such time as is
reasonably necessary for such Borrower in the exercise of due diligence
to cure such default, but in no event shall such period exceed 180 days
after the original notice from Lender;
(xiv) if an event or condition specified in Section
5.1(T) shall occur or exist with respect to any Plan or Multiemployer
Plan and, as a result of such event or condition, together with all
other such events or conditions, any Borrower or any ERISA Affiliate
shall incur or in the opinion of Lender shall be reasonably likely to
incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) which would constitute, in the
determination of Lender, a Material Adverse Effect;
(xv) if an Event of Default occurs and is
continuing as to any Borrower or any Operator under any Master Lease;
(xvi) if without Lender's prior consent (i) any
Manager or Operator, if any, resigns or is removed, or (ii) the
management or control of such Manager or Operator, if any, is
transferred or (iii) there is any change in any Management Agreement or
Master Lease for any Facility;
(xvii) if any Borrower shall fail to correct, within
the time deadlines set by any Medicare, Medicaid or licensing agency,
any deficiency that justifies either of the following actions by such
agency with respect to any Facility:
(i) a termination of any Medicare contract,
Medicaid contract or License;
(ii) a ban on new admissions generally or on
admission of patients otherwise qualifying for
Medicaid or Medicare coverage for a period greater
than six (6) months;
(xviii) if any Facility is assessed fines or
penalties in excess of $50,000 in the aggregate in any calendar year by
any state or any Medicare, Medicaid, health, reimbursement or licensing
agency having jurisdiction over the Borrower or the Facility.
Section 7.2. Remedies. (a) Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers and other remedies
available to Lender against any Borrower under this Agreement, the Notes, the
Mortgages or any of the other Loan Documents executed by or with respect to any
Borrower, or at law or in equity may be exercised by Lender at any time and from
time to time (including, without limitation, the right to declare the
outstanding principal amount, unpaid interest, Default Rate interest, Late
Charges, Yield Maintenance Premium, Hedge Loss and any other amounts owing by
one or more Borrowers to be immediately due and payable), without notice or
demand, whether or not all or any portion of the Indebtedness shall be declared
due and payable, and whether or not Lender shall have commenced any foreclosure
proceeding or other action for the enforcement of its rights and remedies under
any of the Loan Documents with respect to any Facility or all or any portion of
the Collateral. Any such actions taken by Lender shall be cumulative and
concurrent and may be pursued independently, singly, successively, together or
otherwise, at such time and in such order as Lender may determine in its sole
discretion, to the fullest extent permitted by law, without impairing or
otherwise affecting the other rights and remedies of Lender permitted by law,
equity or contract or as set forth herein or in the other Loan Documents.
Notwithstanding that this Agreement may refer to a continuing Event of Default,
Borrower shall have no right pursuant to this Agreement to cure any Event of
Default unless this Agreement unless consented to by Lender in its sole
discretion.
(b) In the event of the foreclosure or other action by Lender
to enforce its remedies in connection with one or more of the Facilities or all
or any portion of the Mortgaged Property, whether such foreclosure sale (or
other remedy) yields Net Proceeds in an amount less than, equal to or more than
the Allocated Loan Amount of such Facility or Mortgaged Property, Lender may, in
Lender's sole discretion, apply such Net Proceeds received to repay the
Indebtedness in accordance with Section 2.8, and, in such event, the remaining
portion of the Indebtedness shall remain outstanding and secured by the Related
Mortgage and the other Loan Documents, it being understood and agreed by the
Borrowers that the Borrowers are liable for the repayment of all the
Indebtedness and that any "excess" foreclosure proceeds are part of the
cross-collateralized and cross-defaulted security granted to Lender pursuant to
the Related Mortgage.
Section 7.3. Remedies Cumulative. The rights, powers and
remedies of Lender under this Agreement shall be cumulative and not exclusive of
any other right, power or remedy which Lender may have against any Borrower
pursuant to this Agreement or the other Loan Documents executed by or with
respect to any Borrower, or existing at law or in equity or otherwise. Lender's
rights, powers and remedies may be pursued singly, concurrently or otherwise, at
such time and in such order as Lender may determine in Lender's sole discretion.
No delay or omission to exercise any remedy, right or power accruing upon an
Event of Default shall impair any such remedy, right or power or shall be
construed as a waiver thereof, but any such remedy, right or power may be
exercised from time to time and as often as may be deemed expedient. A waiver of
any Default or Event of Default shall not be construed to be a waiver of any
subsequent Default or Event of Default or to impair any remedy, right or power
consequent thereon. Notwithstanding any other provision of this Agreement,
Lender reserves the right to seek a deficiency judgment or preserve a deficiency
claim, in connection with the foreclosure of a Mortgage on a Facility, to the
extent necessary to foreclose on other parts of the Mortgaged Property.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Survival. Subject to Section 4.2, this Agreement
and all covenants, agreements, representations and warranties made herein and in
the certificates delivered pursuant hereto shall survive the execution and
delivery of this Agreement and the execution and delivery by each Borrower to
Lender of each Note, and shall continue in full force and effect so long as any
portion of the Indebtedness is outstanding and unpaid. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All covenants,
promises and agreements in this Agreement contained, by or on behalf of each
Borrower, shall inure to the benefit of the respective successors and assigns of
Lender. Nothing in this Agreement or in any other Loan Document, express or
implied, shall give to any Person other than the parties and the holder(s) of
the Notes, the Mortgages and the other Loan Documents, and their legal
representatives, successors and assigns, any benefit or any legal or equitable
right, remedy or claim hereunder.
Section 8.2. Lender's Discretion. Whenever pursuant to this
Agreement, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender.
Section 8.3. Governing Law. (a) This Agreement was negotiated
in New York, and made by Lender and accepted by each Borrower in the State of
New York, and the proceeds of the Notes delivered pursuant hereto were disbursed
from New York, which State the parties agree has a substantial relationship to
the parties and to the underlying transaction embodied hereby, and in all
respects, including, without limitation, matters of construction, validity and
performance, this Agreement and the obligations arising hereunder shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and performed in such State and any applicable law
of the United States of America. To the fullest extent permitted by law, each
Borrower hereby unconditionally and irrevocably waives any claim to assert that
the law of any other jurisdiction governs this Agreement and the Notes, and this
Agreement and the Notes shall be governed by and construed in accordance with
the laws of the State of New York pursuant to ss. 5-1401 of the New York General
Obligations Law.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR
EACH BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED
IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO ss. 5-1402 OF
THE NEW YORK GENERAL OBLIGATIONS LAW OR IN ANY FEDERAL OR STATE COURT IN THE
JURISDICTION IN WHICH THE RELEVANT COLLATERAL IS LOCATED AND EACH BORROWER
WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
EACH BORROWER DOES HEREBY DESIGNATE AND APPOINT SCHEPISI & MCLAUGHLIN,
ATTENTION: JOHN A. SCHEPISI AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON
ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT AND AGREES THAT SERVICE OF
PROCESS UPON SAID AGENT AT SAID ADDRESS (OR AT SUCH OTHER OFFICE AS MAY BE
DESIGNATED BY EACH BORROWER FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS
HEREOF) WITH A COPY TO EACH BORROWER AT ITS PRINCIPAL EXECUTIVE OFFICES,
ATTENTION: GENERAL COUNSEL, AND WRITTEN NOTICE OF SAID SERVICE OF EACH BORROWER
MAILED OR DELIVERED TO EACH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON EACH BORROWER, IN ANY
SUCH SUIT, ACTION OR PROCEEDING. EACH BORROWER (I) SHALL GIVE PROMPT NOTICE TO
LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY
TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT (WHICH OFFICE
SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL
PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN
OFFICE OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
Section 8.4. Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, the Notes or any other Loan Document, or consent to any departure by
any Borrower therefrom, shall in any event be effective unless the same shall be
in a writing signed by the party against whom enforcement is sought, and then
such waiver or consent shall be effective only in the specific instance, and for
the purpose, for which given. Except as otherwise expressly provided herein, no
notice to or demand on any Borrower shall entitle any Borrower to any other or
future notice or demand in the same, similar or other circumstances.
Section 8.5. Delay Not a Waiver. Neither any failure nor any
delay on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Notes, or of any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Notes or any
other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Notes or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
Section 8.6. Notices. All notices, consents, approvals and
requests required or permitted hereunder or under any other Loan Document shall
be given in writing and shall be effective for all purposes if hand delivered or
sent by (a) hand delivery, with proof of attempted delivery, (b) certified or
registered United States mail, postage prepaid, (c) expedited prepaid delivery
service, either commercial or United States Postal Service, with proof of
attempted delivery, or (d) by telecopier (with answerback acknowledged) provided
that such telecopied notice must also be delivered by one of the means set forth
in (a), (b) or (c) above, addressed if to Lender at its address set forth on the
first page hereof, and if to any Borrower at its designated address set forth on
the first page hereof, or at such other address and Person as shall be
designated from time to time by any party hereto, as the case may be, in a
written notice to the other parties hereto in the manner provided for in this
Section 8.6. A copy of all notices, consents, approvals and requests directed to
Lender shall be delivered concurrently to Joseph B. Heil, Esquire, Dechert Price
& Rhoads, 1717 Arch Street, 4000 Bell Atlantic Tower, Philadelphia, PA 19103,
Telefax Number (215) 994-2222 and a copy of all notices, consents, approvals and
requests directed to any Borrower (other than statements setting forth the
monthly amount payable under the Notes) shall be delivered to Schepisi &
McLaughlin, P.O. Box 1313, 611 Palisades Avenue, Englewood Cliffs, NJ
07632-1313, Attention: John A. Schepisi, Telefax Number (201) 569-5350. A copy
of all notices, approvals and requests directed to Lender shall be delivered
concurrently to any servicer, trustee, or other agent of Lender by any Borrower
as designated by Lender in writing. A notice shall be deemed to have been given:
(a) in the case of hand delivery, at the time of delivery; (b) in the case of
registered or certified mail, when delivered or the first attempted delivery on
a Business Day; (c) in the case of expedited prepaid delivery, upon the first
attempted delivery on a Business Day; or (d) in the case of telecopier, upon
receipt of answerback confirmation, provided that such telecopied notice was
also delivered as required in this Section 8.6. A party receiving a notice which
does not comply with the technical requirements for notice under this Section
8.6 may elect to waive any deficiencies and treat the notice as having been
properly given. Notice to one Borrower hereunder shall be deemed to be effective
notice to all other Borrowers.
SECTION 8.7. TRIAL BY JURY. EACH BORROWER AND LENDER, TO THE
FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY
HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS.
Section 8.8. Headings. The Article and Section headings in
this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
Section 8.9. Assignment. Lender shall have the right to assign
in whole or in part this Agreement and/or any of the other Loan Documents and
the obligations hereunder to any Person and to participate all or any portion of
the Loan evidenced hereby, including, without limitation, any servicer or
trustee.
Section 8.10. Severability. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Section 8.11. Preferences. Lender shall have no obligation to
marshal any assets in favor of any Borrower or any other party or against or in
payment of any or all of the obligations of any Borrower pursuant to this
Agreement, the Notes or any other Loan Document. Lender shall have the
continuing and exclusive right to apply or reverse and reapply any and all
payments by any Borrower to any portion of the obligations of any Borrower
hereunder. To the extent any Borrower makes a payment or payments to Lender for
such Borrower's benefit, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 8.12. Waiver of Notice. No Borrower shall be entitled
to any notices of any nature whatsoever from Lender except with respect to
matters for which this Agreement or the other Loan Documents specifically and
expressly provide for the giving of notice by Lender to such Borrower and except
with respect to matters for which such Borrower is not, pursuant to applicable
Legal Requirements, permitted to waive the giving of notice. Each Borrower
hereby expressly waives the right to receive any notice from Lender with respect
to any matter for which this Agreement or the other Loan Documents does not
specifically and expressly provide for the giving of notice by Lender to such
Borrower.
Section 8.13. Remedies of Borrowers. In the event that a claim
or adjudication is made that Lender or its agents, has acted unreasonably or
unreasonably delayed acting in any case where by law or under this Agreement,
the Notes, the Mortgages or the other Loan Documents, Lender or such agent, as
the case may be, has an obligation to act reasonably or promptly, the Borrowers
agree that neither Lender nor its agents, shall be liable for any monetary
damages, and Borrowers' sole remedies shall be limited to commencing an action
seeking injunctive relief or declaratory judgment. The parties hereto agree that
any action or proceeding to determine whether Lender has acted reasonably shall
be determined by an action seeking declaratory judgment.
Section 8.14. Exculpation as to Borrowers' Shareholders.
Notwithstanding anything herein or in any other Loan Document to the contrary,
except as otherwise set forth in this Section 8.14 to the contrary, Lender shall
not enforce the liability and obligation of any Borrower to perform and observe
the obligations contained in this Agreement, the Notes, the Mortgages or any of
the other Loan Documents executed and delivered by any Borrower by any action or
proceeding wherein a money judgment shall be sought against any Borrower's
shareholders, except that Lender may pursue any power of sale, bring a
foreclosure action, action for specific performance, action for money judgment,
or other appropriate action or proceeding (including, without limitation, to
obtain a deficiency judgment) against such shareholders solely for the purpose
of enabling Lender to realize upon (i) intentionally omitted, (ii) the
Borrower's interest in the Mortgaged Property, (iii) the Rents and Accounts
arising from Borrower's Facility to the extent (x) received by each Borrower,
the Manager or Operator, if any, after the occurrence and continuance of an
Event of Default or (y) distributed to the Borrower or Operator, if any, or its
shareholders during or with respect to any period for which Lender did not
receive the full amounts it was entitled to receive as prepayments of the Loan
pursuant to Section 2.7 (all Rents and Accounts covered by clauses (x) and (y)
being hereinafter referred to as the "Recourse Distributions") and (iv) any
other collateral given to Lender under the Loan Documents ((i), (ii), (iii) and
(iv) collectively, the "Default Collateral"); provided, however, that any
judgment in any such action or proceeding shall be enforceable only to the
extent of any such Default Collateral. The provisions of this Section 8.14 shall
not, however, (a) impair the validity of the Indebtedness evidenced by the Loan
Documents or in any way affect or impair the Liens of the Mortgages or any of
the other Loan Documents or the right of Lender to foreclose the Mortgages
following an Event of Default and continuance thereof; (b) impair the right of
Lender to name any Person as a party defendant in any action or suit for
judicial foreclosure and sale under any of the Mortgages; (c) affect the
validity or enforceability of the Notes, the Mortgages or the other Loan
Documents; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of the Assignments of Leases, the
Assignments of Agreements, or the Manager's Subordinations; (f) impair the right
of Lender to bring suit for actual damages, losses and costs resulting from
fraud or intentional misrepresentation by any Borrower or Operator, if any, or
any shareholder of Borrower (each a "Borrowing Party"), in connection with this
Agreement, the Notes, the Mortgages or the other Loan Documents; (g) impair the
right of Lender to obtain the Recourse Distributions received by any Borrowing
Party, to the extent any such Recourse Distributions have actually theretofore
been distributed to such Borrowing Party (h) impair the right of Lender to bring
suit with respect to any misappropriation of security deposits or Rents
collected more than one month in advance; (i) impair the right of Lender to
obtain Insurance Proceeds or Condemnation Proceeds due to Lender pursuant to the
Mortgages; (j) impair the right of Lender to enforce the provisions of Sections
4.2(c)(J) or 5.1(D)-(I) even after repayment in full by the Borrowers of the
Indebtedness; (k) prevent or in any way hinder Lender from exercising, or
constitute a defense, or counterclaim, or other basis for relief in respect of
the exercise of, any other remedy against any or all of the Collateral securing
the Notes as provided in the Loan Documents; (l) impair the right of Lender to
bring suit with respect to any misapplication of any funds; (m) intentionally
omitted; or (n) impair the right of Lender to sue for, seek or demand a
deficiency judgment against any Person solely for the purpose of foreclosing the
Mortgaged Property or any part thereof, or realizing upon the Default
Collateral; provided, however, that any such deficiency judgment referred to in
this clause (n) shall be enforceable only to the extent of any of the Default
Collateral. The provisions of this Section 8.14 shall be inapplicable to any
Borrowing Party if any petition for bankruptcy, reorganization or arrangement
pursuant to federal or state law shall be filed by, consented to or acquiesced
in by or with respect to any Borrower, or if any Borrower shall institute any
proceeding for the dissolution or liquidation of such Borrower, or if any
Borrower shall make an assignment for the benefit of creditors, in which event
Lender shall have recourse against all of the assets of such Borrower and the
interests in such Borrower owned by, and the Recourse Distributions received by,
such Borrower's shareholders. Notwithstanding the foregoing, in the event a
Facility is released from the lien created by the Related Mortgage, the Borrower
who owns such Facility shall be released in all respects from any further
liability with respect to the Loan other than any further liability for certain
kinds of environmental matters arising under Sections 4.2(c)(J) or 5.1(D)-(I)
as the same applies to such Facility.
Section 8.15. Exhibits Incorporated. The information set forth
on the cover, heading and recitals hereof, and the Exhibits attached hereto, are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
Section 8.16. Offsets, Counterclaims and Defenses. Any
assignee of Lender's interest in and to this Agreement, the Notes, the Mortgages
and the other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to the Loan, this Agreement, the
Notes, the Mortgages and the other Loan Documents which any Borrower may
otherwise have against any assignor, and no such unrelated counterclaim or
defense shall be interposed or asserted by any Borrower in any action or
proceeding brought by any such assignee upon this Agreement, the Notes, the
Mortgages and other Loan Documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by each Borrower.
Section 8.17. No Joint Venture or Partnership. The Borrowers
and Lender intend that the relationship created hereunder be solely that of
borrower and lender. Nothing herein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between any
Borrower and Lender nor to grant Lender any interest in the Mortgaged Property
other than that of mortgagee or lender.
Section 8.18. Waiver of Marshalling of Assets Defense. To the
fullest extent that any Borrower may legally do so, each Borrower waives all
rights to a marshalling of the assets of such Borrower, and others with
interests in such Borrower, and of the Mortgaged Property, or to a sale in
inverse order of alienation in the event of foreclosure of the interests hereby
created, and agrees not to assert any right under any laws pertaining to the
marshalling of assets, the sale in inverse order of alienation, homestead
exemption, the administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of Lender under the Loan
Documents to a sale of its Facility for the collection of the Indebtedness
without any prior or different resort for collection, or the right of Lender or
Deed of Trust Trustee to the payment of the Indebtedness out of the Net Proceeds
of the Facility in preference to every other claimant whatsoever.
Section 8.19. Waiver of Counterclaim. Each Borrower hereby
waives the right to assert a counterclaim, other than compulsory counterclaim,
in any action or proceeding brought against it by Lender or its agents.
Section 8.20. Conflict; Construction of Documents. In the
event of any conflict between the provisions of this Agreement and the
provisions of the Notes, the Mortgages or any of the other Loan Documents, the
provisions of this Agreement shall prevail. The parties hereto acknowledge that
they were represented by counsel in connection with the negotiation and drafting
of the Loan Documents and that the Loan Documents shall not be subject to the
principle of construing their meaning against the party which drafted same.
Section 8.21. Brokers and Financial Advisors. The Borrowers
and Lender hereby represent that they have dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement except for Peregrine Mortgage
Company, Inc., Love Funding Corporation and Arcadia Capital Corp. The Lender
shall pay the fees of Peregrine Mortgage Company, Inc. and Love Funding
Corporation ("Lender's Brokers") pursuant to a separate agreement with each. The
Borrowers shall pay the fees of Arcadia Capital Corp. ("Borrowers' Broker")
pursuant to a separate agreement with such party. The Borrowers hereby agree to
indemnify and hold the Lender harmless from and against any and all claims,
liabilities, costs and expenses of any kind in any way relating to or arising
from a claim by any Person (other than Lender's Brokers) that such Person acted
on behalf of the indemnifying party in connection with the transactions
contemplated herein. The Lender hereby agrees to indemnify and hold harmless the
Borrowers from and against any and all claims, liabilities, costs and expenses
of any kind in any way relating to or arising from a claim by any Person (other
than Borrowers' Broker) that such Person acted on behalf of the indemnifying
party in connection with the transactions contemplated herein. The provisions of
this Section 8.21 shall survive the expiration and termination of this Agreement
and the repayment of the Indebtedness.
Section 8.22. Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be an original, but all of which shall together constitute one and
the same instrument.
Section 8.23. Estoppel Certificates. Each Borrower and Lender
each hereby agree at any time and from time to time upon not less than 15 days
prior written notice by a Borrower or Lender to execute, acknowledge and deliver
to the party specified in such notice, a statement, in writing, certifying that
this Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications hereto), and stating whether or not, to the knowledge
of such certifying party, any Default or Event of Default has occurred and is
then continuing and, if so, specifying each such Default or Event of Default;
provided, however, that it shall be a condition precedent to Lender's obligation
to deliver the statement pursuant to this Section 8.23, that Lender shall have
received, together with such Borrower's request for such statement, an Officer's
Certificate stating that no Default or Event of Default exists as of the date of
such certificate (or specifying such Default or Event of Default).
Section 8.24. Payment of Expenses. Borrowers shall, whether or
not the Transactions are consummated, pay all Transaction Costs, which shall
include, without limitation, out-of-pocket costs, expenses, and disbursements of
Lender and its attorneys, accountants and other contractors in connection with
(i) the negotiation, preparation, execution and delivery of the Loan Documents
and the documents and instruments referred to therein, (ii) the creation,
perfection or protection of Lender's Liens in the Collateral (including, without
limitation, fees and expenses for title and lien searches and filing and
recording fees, intangibles taxes, personal property taxes, mortgage recording
taxes, third party due diligence expenses, travel expenses, accounting firm
fees, costs of the Appraisals, Environmental Reports (and an environmental
consultant), and the Engineering Reports), (iii) the negotiation, preparation,
execution and delivery of any amendment, waiver or consent relating to any of
the Loan Documents, and (iv) the preservation of rights under and enforcement of
the Loan Documents and the documents and instruments referred to therein,
including any restructuring or rescheduling of the Indebtedness.
Section 8.25. Bankruptcy Waiver. Each Borrower hereby agrees
that, in consideration of the recitals and mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, in the event such Borrower shall (i) file with
any bankruptcy court of competent jurisdiction or be the subject of any petition
under Title 11 of the U.S. Code, as amended, (ii) be the subject of any order
for relief issued under Title 11 of the U.S. Code, as amended, (iii) file or be
the subject of any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or law relating to bankruptcy, insolvency or other relief of debtors,
(iv) have sought or consented to or acquiesced in the appointment of any
trustee, receiver, conservator or liquidator or (v) be the subject of any order,
judgment or decree entered by any court of competent jurisdiction approving a
petition filed against such party for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future federal or state act or law relating to bankruptcy, insolvency
or other relief for debtors, the automatic stay provided by the Federal
Bankruptcy Code shall be modified and annulled as to Lender, so as to permit
Lender to exercise any and all of its remedies, upon request of Lender made on
notice to such Borrower and any other party in interest but without the need of
further proof or hearing. No Borrower nor any Affiliate of any Borrower shall
contest the enforceability of this Section 8.25.
Section 8.26. [Intentionally Deleted].
Section 8.27. Entire Agreement. This Agreement, together with
the Exhibits hereto and the other Loan Documents constitutes the entire
agreement among the parties hereto with respect to the subject matter contained
in this Agreement, the Exhibits hereto and the other Loan Documents and
supersedes all prior agreements, understandings and negotiations between the
parties.
Section 8.28 Cross Collateralization. Without limitation to
any other right or remedy provided to Lender in this Agreement or any of the
other Loan Documents, each Borrower covenants and agrees that upon the
occurrence and continuance of an Event of Default, (i) Lender shall have the
right to pursue all of its rights and remedies in one proceeding, or separately
and independently in separate proceedings which it, as Lender, in its sole and
absolute discretion, shall determine from time to time, (ii) Lender is not
required to either marshall assets, sell Collateral in any inverse order of
alienation, or be subjected to any "one action" or "election of remedies" law or
rule, (iii) the exercise by Lender of any remedies against any Collateral will
not impede Lender from subsequently or simultaneously exercising remedies
against any other Collateral, (iv) all Liens and other rights, remedies and
privileges provided to Lender in this Agreement and in the other Loan Documents
or otherwise shall remain in full force and effect until Lender has exhausted
all of its remedies against the Collateral and all Collateral has been
foreclosed, sold and/or otherwise realized upon in satisfaction of the Loan and
(v) such Borrower's Facility shall be security for the payment and performance
of all obligations of all Borrowers hereunder, and (vi) each Borrower shall be
jointly and severally liable for payment of the Indebtedness and performance of
the obligations under the Loan Documents.
Section 8.29. Limitation of Interest. It is the intent of each
Borrower and Lender in the execution of this Loan Agreement and all the other
Loan Documents to contract in strict compliance with the usury laws governing
the Loan. In furtherance thereof each Borrower and Lender stipulate and agree
that none of the terms and provisions contained in the Loan Documents shall ever
be construed to create a contract for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of the Maximum Rate. Each
Borrower or any endorser or other party now or hereafter becoming liable for the
payment of the relevant Note and shall never be required to pay interest on the
relevant Note at a rate in excess of the Maximum Rate, and the provisions of
this Section 8.29 shall control over all other provisions of the relevant Note
and any other Loan Document which may be in apparent conflict herewith. In the
event any holder of a Note shall collect monies that are deemed to constitute
interest and that would otherwise increase the effective interest rate on the
relevant Note to a rate in excess of the Maximum Rate, all such sums deemed to
constitute interest in excess of the Maximum Rate shall be applied to the unpaid
principal balance of the relevant Note and if in excess of such balance, shall
be immediately returned to the relevant Borrower upon such determination.
Section 8.30 [Intentionally Deleted.]
Section 8.31. Indemnification. Borrowers shall indemnify and
hold Lender and each of its affiliates (including its officers, directors,
partners, employees and agents and each other person, if any, controlling Lender
or any of its affiliates within the meaning of either Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended) (each, including Lender, an "Indemnified Party") harmless
against any and all losses, claims, damages, costs, expenses (including the fees
and disbursements of outside counsel retained by any such person) or liabilities
in connection with, arising out of or as a result of the transactions and
matters referred to or contemplated by this Agreement, except to the extent that
it is finally judicially determined that any such loss, claim, damage, cost,
expense or liability results from the gross negligence or bad faith of such
Indemnified Party or any of its agents or representatives. In the event that any
Indemnified Party becomes involved in any action, proceeding or investigation in
connection with any transaction or matter referred to or contemplated in this
Agreement, the Borrowers shall periodically reimburse any Indemnified Party upon
demand therefor in an amount equal to its reasonable outside legal and other
expenses (including the costs of any investigation and preparation) incurred in
connection therewith to the extent such legal or other expenses are the subject
of indemnification hereunder.
Section 8.32. Borrowers' Acknowledgments. Each Borrower hereby
acknowledges to and agrees with Lender that (i) the scope of Lender's business
is wide and includes, but is not limited to, financing real estate financing,
investment in real estate and other real estate transactions which may be viewed
as adverse to or competitive with the business of such Borrower or its
Affiliates and (ii) such Borrower has been represented by competent legal
counsel and has consulted with such counsel prior to executing this Loan
Agreement and any of the other Loan Documents.
Section 8.33. Lender as Shareholder. Each Borrower
acknowledges that Lender is a shareholder of such Borrower and that Lender in
its capacity as shareholder has no fiduciary duty to such Borrower to take any
action or refrain from taking any action hereunder or under any of the Loan
Documents.
Section 8.34. Release of Acreage at Norwood Facility. Provided
that no Default has occurred and that no Event of Default has occurred, Norwood
may obtain a partial release of approximately three (3) acres of raw land (the
"Released Land") encumbered by the Mortgage on the Norwood Facility. Norwood
shall deliver to Lender: (i) not less than sixty (60) days prior written notice
to the Lender, (ii) a copy of the subdivision plan of the Released Land, (iii)
evidence that the Released Land will not have any material adverse effect on the
value, use or operation of the Norwood Facility, (iv) a title update, bringdown
and endorsement on the Norwood Facility showing no adverse change to the Title
Insurance Policy delivered on the Closing Date, (v) an Officer's Certificate
from Norwood certifying that the requirements set forth in this Section have
been satisfied and (vi) such other certificates, documents or instruments as the
Lender or the Rating Agencies may request. Norwood shall pay any and all of
Lender's legal fees relating to the release of acreage at the Norwood Facility.
[Signatures on the following pages]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized representatives, all as
of the day and year first above written.
LENDER:
NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation
By:-----------------------------
Title:
BORROWER:
JAYBER, INC.
a New Jersey corporation
By:-----------------------------
Name:
Title:
BORROWER:
P.V.M. ASSOCIATES, INC.
a Florida corporation
By:-----------------------------
Name:
Title:
[Signatures continue on the following page]
BORROWER:
POMPTON AVENUE ASSOCIATES, INC.
a New Jersey corporation
By:-----------------------------
Name:
Title:
BORROWER:
CONTINENTAL NORWOOD HOLDINGS, INC.
a New Jersey corporation
By:-----------------------------
Name:
Title:
MASTER LEASE
THIS MASTER LEASE (this "Lease") is entered into this 31st day of
October, 1995 by and between Continental Norwood Holdings, Inc., a New Jersey
corporation ("Lessor"), and Senior Care Foundation, Inc., a nonprofit New Jersey
corporation ("Lessee").
RECITALS:
A. The Lessor is the owner of a certain parcel of land commonly known
as The Heritage at Norwood, and which is legally described on Exhibit A,
attached hereto and made a part hereof (the "Land").
B. Upon the Land is situated a building and certain other improvements
(the "Building"; the Land, the Building and any other improvements located on
the Land together with all attendant rights are collectively referred to herein
as the "Premises").
C. The Lessee desires to lease the Premises from the Lessor and the
Lessor desires to lease the Premises to the Lessee all in accordance with the
terms hereof.
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Lessor and Lessee hereby agree as follows:
AGREEMENTS:
SECTION 1 Grant. The Lessor hereby demises and leases to Lessee, and
Lessee hereby leases and accepts from Lessor, the Premises, subject to the
Permitted Exceptions, and all terms and provisions contained herein.
SECTION 2 Definitions. Terms used but not otherwise defined in this
Lease shall have the meaning given such term in the Loan Agreement, dated as of
even date herewith, by and between Nomura Asset Capital Corporation, Lessor,
Jayber Inc., P.V.M. Associates, Inc. and Pompton Avenue Associates, Inc. The
following terms shall have the meanings ascribed to them below when used in this
Lease, unless the context otherwise requires:
"Additional Rent" shall have the meaning ascribed to such term
in Section 4.2.
"Base Rent" shall have the meaning ascribed to such term in
Section 4.1.
"Building" shall have the meaning ascribed to such term in
the Second Recital.
"Commencement Date" shall have the meaning ascribed to such
term in Section 3.1.
"Debt Service Coverage Ratio" shall have the meaning ascribed
to such term in Section 24.3.
"Equipment" means, with respect to the Premises and Lessee,
all fixtures, appliances, machinery, furniture, furnishings,
decorations, tools and supplies, now owned or hereafter acquired,
including but not limited to, all beds, linen, radios, televisions,
carpeting, telephones, cash registers, computers, lamps, glassware,
restaurant and kitchen equipment, all medical, dental, rehabilitation,
therapeutic and paramedic equipment and supplies, any building
equipment, including but not limited to, all heating, lighting,
incinerating, waste removal and power equipment, engines, pipes, tanks,
motors, conduits, switchboards, security and alarm systems, plumbing,
lifting, cleaning, fire prevention, fire extinguishing, refrigeration,
ventilating, and communications apparatus, air cooling and air
conditioning apparatus, escalators, elevators, ducts, and compressors,
materials and supplies, and all other machinery, apparatus, equipment,
fixtures and fittings now owned or hereafter acquired by such Lessee,
or any appurtenances thereto, together with all additions,
replacements, parts, fittings, accessions, attachments, accessories,
modifications and alterations of any of the foregoing, to the extent
relating to the Premises or Lessee, provided, however, that, with
respect to any items which are leased and not owned Lessee, the
Equipment shall include the leasehold interest only of such Lessee,
together with any options to purchase any of said items and any
additional or greater rights with respect to such items which such
Lessee may hereafter acquire. In addition to the foregoing, the term
"Equipment" shall include the meaning such term has in the UCC.
"Event of Default" shall have the meaning ascribed to such
term in Section 21.
"Governmental Authorities" shall mean all federal, state,
county, municipal and local governments, and all departments, agencies,
commissions, boards, bureaus and offices thereof, having or claiming
jurisdiction over the Premises.
"Improvements" means, with respect to the Premises and Lessee,
all buildings, structures and improvements of every nature whatsoever
situated on the Land on the Closing Date or thereafter, including, but
not limited to, all gas and electric fixtures, radiators, heaters,
engines and machinery, boilers, ranges, elevators and motors, plumbing
and heating fixtures, antennas, carpeting and other floor coverings,
water heaters, awnings and storm sashes, and cleaning apparatus which
are or shall be attached to the Land or said buildings, structures or
improvements.
"Inventory" means, with respect to the Premises and Lessee,
all goods now owned or hereinafter acquired by the Lessee, intended for
sale or lease, or to be furnished under contracts of service by Lessee,
in connection with the Premises, including without limitation, all
inventories of food and beverages held by Lessee, for sale or use at or
from such the Premises and all other such goods, wares, merchandise,
and materials and supplies of every nature held by Lessee, for sale to
or for consumption by guests of the Premises and others, and all such
other goods returned to or repossessed by Lessee. In addition to the
foregoing, the term "Inventory" shall include the meaning as such term
has in Section 9-109 of the UCC.
"Land" shall have the meaning ascribed to such term in the
First Recital.
"Leases" means, with respect to each Borrower, all leases
(including, without limitation, any Master Lease) and other agreements or
arrangements affecting the use or occupancy of all or any portion of such
Borrower's Facility now in effect or hereafter entered into (including, without
limitation, all patient admissions and resident care agreements, lettings,
subleases, licenses, concessions, tenancies and other occupancy agreements
covering or encumbering all or any portion of such Borrower's Facility),
together with any guarantees, supplements, amendments, modifications, extensions
and renewals of the same, and all additional remainders, reversions, and other
rights and estates appurtenant thereto.
"Lease Term" shall have the meaning ascribed to such term in
Section 3.1.
"Lessee" shall have the meaning ascribed to such term in the
Introductory Paragraph.
"Lessor" shall have the meaning ascribed to such term in the
Introductory Paragraph.
"Licenses" shall have the meaning set forth in Section 18.26.
"Loss Proceeds" shall have the meaning ascribed to such term
in Section 13.
"Material Adverse Effect" means a material adverse effect upon
(i) the business or the financial position or results of operation of any
Borrower, (ii) the ability of any Borrower to perform, or of Lender to enforce,
any of the Loan Documents, (iii) the value of (x) the Collateral taken as a
whole or (y) any Facility or (iv) the ability of the Operator, if any, to
perform Operator's obligations under the relevant Master Lease.
"Permits" means, with respect to the Premises and Lessee, all
licenses, registrations, permits, allocations, filings, authorizations,
approvals and certificates used in connection with the ownership,
operation, construction, renovation, use or occupancy of the Premises,
including, without limitation, building permits, business licenses,
state health department licenses, food service licenses, liquor
licenses, licenses to conduct business, and all such other permits,
licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, renovation use or
occupancy of the Premises.
"Permitted Exceptions" means, collectively, (i) the Lien
created by the Related Mortgage or the other Loan Documents of record,
(ii) all Liens and other matters disclosed in the applicable Title
Insurance Policy concerning the Premises or any part thereof which have
been approved by Lender in Lender's discretion, (iii) Liens, if any,
for Impositions imposed by any Governmental Authority not yet due or
delinquent or being contested in good faith and by appropriate
proceedings in accordance with the Related Mortgage, (iv) subject to
Section 2.06(b) of the Related Mortgage, any mechanics' and
materialmen's Liens deleted from the exceptions to, or affirmatively
insured against collection with respect to, the Facility under the
applicable Title Insurance Policies, and (v) without limiting the
foregoing, any and all governmental, public utility and private
restrictions, covenants, reservations, easements, licenses or other
agreements of an immaterial nature which may be granted by Lessor after
the Closing Date and which do not affect (A) the ability of Lessor to
pay any of its obligations to any Person as and when due, (B) the
marketability of title to the Premises, (C) the fair market value of
the Premises, or (D) the use or operation of the Premises as of the
Closing Date and thereafter, (vi) [intentionally deleted], and (vii)
[intentionally deleted].
"Permitted Transfers" shall mean (i) Permitted Encumbrances;
(ii) all transfers, conveyances or sales of personalty in the ordinary
course of business; (iii) all transfers of worn out or obsolete
furnishings, fixtures or equipment that are replaced with equivalent
property; and (iv) all resident care agreements in the ordinary course
of business.
"Permitted Uses" shall have the meaning ascribed to such term
in Section 7.
"Premises" shall have the meaning ascribed to such term in
the Second Recital.
"Rents" means, with respect to each Lessee and the Premises,
all rents (whether denoted as advance rent, minimum rent, percentage
rent, additional rent or otherwise), issues, income, royalties,
profits, revenues, proceeds, bonuses, deposits (whether denoted as
security deposits or otherwise), lease termination fees or payments,
rejection damages, buy-out fees and any other fees made or to be made
in lieu of rent, any award made hereafter to Lessee in any court
proceeding involving any tenant, lessee, licensee or concessionaire
under any of the Leases in any bankruptcy, insolvency or reorganization
proceedings in any state or federal court, and all other payments,
rights and benefits of whatever nature from time to time due under the
Leases, including, without limitation, (i) rights to payment earned
under the Leases for space in the Improvements for the operation of
ongoing businesses such as restaurants, news stands, barber shops,
beauty shops and pharmacies, and (ii) all other income, consideration,
issues, accounts, profits or benefits of any nature arising from the
ownership, possession, use or operation of the Premises, including,
without limitation, all rights to payment from the Medicare and
Medicaid programs or similar state or federal programs, boards, bureaus
or agencies and rights to payment from patients or private insurers,
arising from the operation of the Premises.
"Transfer" means any conveyance, transfer, sale, lease,
(including any amendment, extension, modification, waiver or renewal
thereof or hereof), assignment, mortgage, pledge, grant of a security
interest, or hypothecation, whether by law or otherwise of this Lease
or the Premises (including any legal or beneficial direct or indirect
interest herein or in Lessee) other than a Permitted Transfer.
SECTION 3 Lease Term and Renewal Option.
SECTION 3.1 Term. The term of this Lease shall be for a period of
twenty-five (25) years commencing on the date hereof (the "Commencement Date")
and ending on October 31, 2020 (the "Lease Term") unless sooner terminated as
provided in this Lease.
SECTION 4 Rent.
SECTION 4.1 Base Rent. Lessee shall pay as base rent (the "Base Rent")
the monthly rental amounts set forth on Schedule 4.1 as Base Rent beginning on
the Commencement Date and on the eleventh day of each month thereafter during
the Lease Term. In the event the obligation to begin paying Rent commences on a
date which is not the eleventh day of a month or if the last day of the Lease
Term is not the eleventh day of a month, the Rent shall be prorated on a per
diem basis. Lessor shall open and maintain at a Collection Account Bank a demand
deposit account "Collection Account". The Collection Account shall be assigned a
separate and unique identification number by the Collection Account Bank and
shall be opened and maintained in the name Continental Norwood Holdings, Inc.,
as Debtor, and Nomura Asset Capital Corporation, as Secured Party, pursuant to
the Loan Agreement dated as of [insert date of Loan Agreement]." Lessee shall
collect all Rents (other than security deposits) from the Premises and shall
endorse all checks and deposit all such funds and other receipts, within one
Business Day after receipt thereof, directly into the Collection Account for the
Premises. Lessor shall open and maintain for the Premises a demand deposit
account "Security Deposit Account". The Security Deposit Account shall be
assigned a separate and unique identification number by the relevant Collection
Account Bank and shall be opened and maintained in the name Continental Norwood
Holdings, Inc., as Debtor, and Nomura Asset Capital Corporation, as Secured
Party, pursuant to the Loan Agreement dated as of [insert date of the Loan
Agreement]" and on the Closing Date (and at all times thereafter), and Lessee
shall cause all rents, revenues or income of any kind derived by Lessee or from
the Premises to be deposited within one Business Day after receipt thereof,
directly into the Collection Account for the Premises. Lessee shall collect or,
if applicable, shall instruct and cause the Manager to collect all security
deposits with respect to the Premises and shall deposit or cause the deposit of
all such funds and other receipts within one Business Day after receipt thereof,
directly into the Security Deposit Account for the Premises. Lessee shall have
no right of withdrawal from a Security Deposit Account except that, prior to the
Collection Account Bank's receipt of notice of the occurrence of an Event of
Default hereunder or under the Loan Documents, Lessor may withdraw funds from
the Security Deposit Account for the Premises to refund or apply security
deposits as required by the related Leases or by applicable Legal Requirements,
and, after delivery of such notice, Lender, on written request from Lessee with
appropriate supporting materials, will direct the relevant Collection Account
Bank to release funds from such Security Deposit Account to refund security
deposits as required by the Leases or by applicable Legal Requirements. Lessor
may designate a new financial institution to serve as a Collection Account Bank
hereunder as provided in the Loan Agreement. Each Collection Account shall at
all times be an Eligible Account. Lessee shall have any right of withdrawal from
the Collection Account. Any breach of this Section by Lessee or Lessor shall be
an Event of Default hereunder.
SECTION 4.2 Additional Rent. In addition to the Base Rent, all other
payments to be made by Lessee under this Lease shall be deemed additional rent
(the "Additional Rent"). The parties acknowledge and agree that this Lease shall
be "triple net" and that the Base Rent shall be absolutely net to Lessor, and
that all costs, expenses and obligations of every kind and nature relating to
the Premises shall be paid by Lessee, except as expressly set forth in this
Lease. All such costs, expenses and obligations shall be deemed Additional Rent.
The Base Rent and the Additional Rent shall be referred to collectively herein
as the "Rent." Notwithstanding anything contained herein to the contrary, the
Rent shall at all times be an amount adequate to enable Lessor to satisfy all of
its obligations to Lender under the Loan Documents.
SECTION 5 Real Estate Taxes. The Lessee hereby agrees to pay when due
all taxes (including, without limitation, all real estate, ad valorem, sales
(including those imposed on lease rentals), use, single business, gross
receipts, value added, intangible transaction privilege, privilege, license or
similar taxes), assessments (including, without limitation, to the extent not
discharged prior to the Commencement Date, all assessments for public
improvements or benefits, whether or not commenced or completed within the
Term), ground rents, water, sewer or other rents and charges, excises, levies,
fees (including, without limitation, license, permit, inspection, authorization
and similar fees), and all other governmental charges, in each case whether
general or special, ordinary or extraordinary, foreseen or unforeseen, of every
character in respect of the Premises or in respect of Lessee (including all
interest and penalties thereon), which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Lessee (including, without limitation, all income, franchise,
single business or other taxes imposed on Lessee for the privilege of doing
business in the jurisdiction in which the Premises is located), Lessor or
Lender, (ii) the Premises, or (iii) any occupancy, operation, use or possession
of, or sales from, or activity conducted on, or in connection with the Premises
or the leasing or use of the Premises or any part thereof, or the acquisition or
financing of the acquisition of the Premises. Notwithstanding the foregoing, the
Lessee at its expense may, after prior notice to the Lessor, contest by
appropriate legal, administrative or other proceedings conducted in good faith
and with due diligence, the validity or application, in whole or in part, of any
such impositions as long as the Lessee shall have furnished to the Lessor
additional security in respect of the claim being contested or the loss or
damage that may result from the Lessee's failure to prevail in such contest in
such amount as may be reasonably requested by the Lessor but in no event less
than 125% of the amount of such claim.
SECTION 6 Utility Services.
SECTION 6.1 Heat, Electricity, etc. The Lessor shall have no duty or
obligation to provide any air conditioning, heat, electricity, water or other
utility services under this Lease. However, the Lessor hereby represents to the
Lessee that electricity, water and sewer service, and natural gas are available
from public or quasi-public utility companies. All costs for such services
rendered to the Premises prior to the Commencement Date shall be the sole
obligation of the Lessor. The Lessee shall also be responsible for trash and
refuse removal during the Lease Term.
SECTION 6.2 Telephone. Lessee shall make arrangements directly with the
telephone company servicing the Premises for telephone service in the Premises
as desired by Lessee. Lessee shall pay for all telephone services it receives.
SECTION 6.3 Other Installations. In addition to all other rights,
Lessee shall have the right to obtain telegraphic, alarm, computer installations
or signal services for the Premises. Such installations or services shall be at
Lessee's sole expense and shall be installed in compliance with all applicable
laws and governmental codes and ordinances.
SECTION 7 Permitted Uses. The Lessee is hereby permitted to use the
Premises or any portion thereof for the operation of a skilled nursing facility
licensed by the New Jersey Department of Public Health and such other uses as
may be reasonably necessary in connection with the operation of such skilled
nursing facility ("Permitted Uses").
SECTION 8 Possession. Lessor shall give to Lessee sole, exclusive, and
peaceful possession of the Premises, subject to the Permitted Exceptions, on the
Commencement Date. As long as no Event of Default by Lessee shall have occurred
and be continuing, Lessee shall have the right at all times during the Lease
Term to freely, peaceably, and quietly occupy, use and enjoy the full and
exclusive possession of the Premises and the tenements, hereditaments, and
appurtenances thereto belonging, and the rights and privileges herein granted
without molestation or hindrance, subject to the Permitted Exceptions.
SECTION 9 No Transfer.
The Lessee shall not permit any Transfer to occur.
SECTION 10 Certain Rights Reserved by Lessor. Unless expressly waived
by Lessor in writing, Lessor shall have the following rights (but no
obligation), which may be exercised without notice (except as expressly provided
to the contrary in this Lease), without any liability to Lessee for damage or
injury to person, property or business, without being deemed an eviction or
disturbance in any manner of Lessee's use or possession of the Premises and
without relieving Lessee from its obligation to pay all Rent when due or from
any other obligation hereunder:
(a) To make such repairs to the Premises as Lessor may deem
necessary or desirable; and
(b) To inspect the Premises after giving reasonable notice
during the business hours of Lessee.
In exercising any of the foregoing rights, Lessor shall at all times exercise
due care and perform the foregoing in such manner as will cause the least
disturbance to Lessee as is practicable. Except in the event of an emergency or
a hazardous condition pursuant to which the Lessor may forcibly enter the
Premises, Lessor shall enter the Premises only after providing Lessee
twenty-four (24) hours prior notice in accordance with Section 25.4 hereof.
SECTION 11 Insurance and Casualty Events.
(a) At all times during the term of this Lease, the
Lessee shall maintain the following insurance:
(i) During any period of repair or restoration,
builder's "all risk" insurance in an amount equal to not less than the
full insurable value of the Premises against such risks (including,
without limitation, fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender;
(ii) Insurance with respect to the Improvements,
Equipment and Inventory against any peril included within the
classification "All Risks of Physical Loss" with extended coverage in
amounts at all times sufficient to prevent the Lessee from becoming a
co-insurer within the terms of the applicable policies, but in any
event such insurance shall be maintained in an amount equal to the full
insurable value of the Improvements, Equipment and Inventory located on
the Premises, the term "full insurable value" to mean the actual
replacement cost of the Improvements, Equipment and Inventory (without
taking into account any depreciation) determined annually by an insurer
or by the Lessee or, at the request of the Lender, by an independent
insurance broker (subject to the Lender's reasonable approval)
including an endorsement covering acts of municipal authorities
including increased cost of construction and demolition;
(iii) Comprehensive general liability insurance,
including contractual injury, bodily injury, broad form death and
property damage liability, and umbrella liability insurance against any
and all claims, including all legal liability to the extent insurable
imposed upon the Lessee and all court costs and attorneys' fees and
expenses, arising out of or connected with the possession, use,
leasing, operation, maintenance or condition of the Premises in such
amounts as are generally required by institutional lenders for
properties comparable to the Premises but in no event with limits for
the Premises of less than $1,000,000 per occurrence if the Premises
does not have elevators and $3,000,000 if there are elevators on the
Premises;
(iv) Statutory workers' compensation insurance (to
the extent the risks to be covered thereby are not already covered by
other policies of insurance maintained by the Lessee), with respect to
any work on or about the Premises;
(v) Business interpretation and/or loss of "rental
value" insurance for the Premises in an amount equal to eighteen months
estimated Gross Revenue attributable to the Premises and based on the
Gross Revenue for the immediately preceding year and otherwise
sufficient to avoid any co- insurance penalty;
(vi) If all or any portion of the Improvements, or
any portion of the land which, if lost or flooded, is located within a
federally designated flood hazard zone, flood insurance in an amount
equal to the lesser of the full insurable value of the Premises or the
maximum amount available;
(vii) Insurance against loss or damage from (A)
leakage of sprinkler systems and (B) explosion of steam boilers, air
conditioning equipment, pressure vessels or similar apparatus now or
hereafter installed at the Premises, in such amounts as the Lender may
from time to time require and which are customarily required by
institutional mortgagees with respect to similar properties similarly
situated; and
(viii) Such other insurance with respect to the
Improvements, Equipment and Inventory located on the Premises against
loss or damage as is requested by the Lender (including without
limitation liquor/dram insurance and earthquake insurance) provided
such insurance is of the kind from time to time customarily insured
against and in such amounts as are generally required by institutional
lenders for properties comparable to the Premises or which Lender may
deem necessary in its reasonable discretion.
(b) The Lessee will maintain the insurance coverage described
in Section 11 with companies acceptable to Lender and with a claims paying
ability of not less than AA by Standard and Poors Rating Services and "AA" (or
its equivalent) by any other Rating Agency. All insurers providing insurance
required by this Lease shall be authorized to issue insurance in the state where
the Premises is located.
The insurance coverage required under Section 11(a) may be effected
under a blanket policy or policies covering the Premises and other property and
assets not constituting a part of the Premises; provided that any such blanket
policy shall specify, except in the case of public liability insurance, the
portion of the total coverage of such policy that is allocated to the Premises
and Equipment and Inventory located thereof, and any sublimits in such blanket
policy applicable to the Premises, which amounts shall not be less than the
amounts required pursuant to Section 11(a) and which shall in any case comply in
all other respects with the requirements of this Section 11.
(c) All insurance policies shall be in such form and with such
endorsements and in such amounts as shall be satisfactory to Lender (and Lender
shall be entitled to approve amounts, form, risk coverage, deductibles, loss
payees and insureds). The policy referred to in Section 11(a)(ii) shall contain
a replacement cost endorsement and a waiver of depreciation. Originals of all of
the above-mentioned insurance policies have been delivered to and shall be held
by the Lender. All such policies shall name the Lender as additional
insureds/loss payees, shall provide that all Insurance Proceeds be payable to
the Lender as set forth in Section 11(d), and shall contain: (i) "Non
Contributory Standard and Lender Clause" and a Lender's Loss Payable Endorsement
(Form 438 BFUNS) or their equivalents naming Lender as the person to which all
payments shall be paid, (ii) a waiver of subrogation endorsement as to the
Lender and its assigns providing that no policy shall be impaired or invalidated
by virtue of any act, failure to act, negligence of, or violation of
declarations, warranties or conditions contained in such policy by the Lessee,
the Lender or any other named insured, additional insured or loss payee, except
for the willful misconduct of the Lender knowingly in violation of the
conditions of such policy; (iii) an endorsement indicating that neither the
Lender nor the Lessee shall be or be deemed to be a co-insurer with respect to
any risk insured by such policies and shall provide for a deductible per loss of
an amount not more than that which is customarily maintained by prudent owners
of property of the same type and quality as the Premises, but in no event in
excess of $2,000; (iv) a provision that such policies shall not be canceled or
amended, including, without limitation, any amendment reducing the scope or
limits of coverage, without at least 30 days prior written notice to the Lender
in each instance; and (v) include effective waivers by the insurer of all claims
for insurance premiums against any loss payees, additional insureds and named
insureds (other than the Lessee). Certificates of insurance with respect to all
renewal and replacement policies shall be delivered to the Lender not less than
ten days prior to the expiration date of any of the insurance policies required
to be maintained hereunder which certificates shall bear notations evidencing
payment of applicable premiums and originals of such insurance policies shall be
delivered to the Lender promptly after the Lessee's receipt thereof. If the
Lessee fails to maintain and deliver to the Lender the original policies or
certificates of insurance required by this Lease, the Lender may, at its option,
after written notice to Lessee, procure such insurance, and the Lessee shall
reimburse the Lender for the amount of all premiums paid by the Lender thereon
promptly, after demand by the Lender, with interest thereon at the Default Rate
from the date paid by the Lender to the date of repayment. The aggregate
deductible applicable to all insurance policies required by this Lease shall not
exceed $2,000.
The Lender shall not by the fact of approving, disapproving,
accepting, preventing, obtaining or failing to obtain any insurance, incur any
liability for or with respect to the amount of insurance carried, the form or
legal sufficiency of insurance contracts, solvency of insurance companies, or
payment or defense of lawsuits, and the Lessee hereby expressly assumes full
responsibility therefor and all liability, if any, with respect thereto.
(d) The Lender shall be entitled to receive and collect all
Insurance Proceeds and all of the Insurance Proceeds are hereby assigned to the
Lender. The Lessee shall execute such further assignments of the Insurance
Proceeds as the Lender may from time to time reasonably require. Without
limiting the generally of the foregoing, following the occurrence of any
casualty or damage involving the Premises or any part thereof, the Lessee shall
give prompt notice thereof to the Lender and shall cause all Insurance Proceeds
payable as a result of such casualty or damage to be paid to the Lender in
accordance with Section 13. Notwithstanding the foregoing, all checks and
payments shall be payable directly to Lender and shall be applied in accordance
with this Lease.
(e) Notwithstanding anything to the contrary set forth in
Section 11(d), the Lender agrees that the Lender shall make the Insurance
Proceeds (other than business interruption insurance proceeds, which shall be
held and disbursed as provided in Section 2.12(h) of the Loan Agreement)
available to the Lessee for the Lessee's repair, restoration and replacement of
the Improvements, Equipment and Inventory damaged or taken on the following
terms and subject to the Lessee's satisfaction of the following conditions:
(i) At the time of such loss or damage and at all
times thereafter while the Lender is holding any portion of such
Insurance Proceeds, there shall exist no Event of Default;
(ii) The Improvements, Equipment and Inventory for
which loss or damage has resulted shall be capable of being restored
(including replacements) to their pre-existing condition and utility in
all material respects with a value equal to or greater than prior to
such loss or damage, and shall be capable of being completed ten years
and six months prior to the Termination Date and prior to the
expiration of business interruption insurance;
(iii) The Lessee shall demonstrate to the Lender's
reasonable satisfaction the Lessee's ability to pay the Rent relating
to the Premises coming due during such restoration period;
(iv) Within 30 days from the date of such loss or
damage the Lessee shall have given the Lender a written notice electing
to have the Insurance Proceeds applied for such purpose;
(v) Within 60 days following the date of notice under
the preceding subparagraph (iv) and prior to any Insurance Proceeds
being disbursed to the Lessee, the Lessee shall have provided to the
Lender all of the following:
(1) if loss or damage exceeds $25,000, complete plans
and specifications for restoration, repair and replacement of the
Improvements, Equipment and Inventory damaged to the condition, utility
and value required by the preceding subparagraph (ii).
(2) if loss or damage exceeds $25,000, fixed-price or
guaranteed maximum cost construction contracts for completion of the
repair and restoration work in accordance with such plans and
specifications,
(3) if loss or damage exceeds $25,000, builder's risk
insurance for the full cost of construction with the Lender named under
a standard Lender loss-payable clause,
(4) such additional funds as in the Lender's
reasonable opinion are necessary to complete the repair, restoration
and replacement, and
(5) if loss or damage exceeds $25,000, copies of all
permits and licenses necessary to complete the work in accordance with
the plans and specifications.
(vi) If loss or damage exceeds $25,000, the Lender may, at the
Lessee's expense to the extent such expenses and fees are reasonable retain an
independent inspector to review and approve plans and specifications and
completed construction and to approve all requests for disbursement, which
approvals shall be conditions precedent to release of the Insurance Proceeds as
work progresses;
(vii) No portion of such Insurance Proceeds shall be made
available by the Lender for purposes which are not directly attributable to the
cost of repairing, restoring or replacing the Improvements, Equipment and
Inventory for which a loss or damage has occurred unless the same are covered by
such insurance;
(viii) The Lessee shall commence such work within 60 days
after such loss or damage and shall diligently pursue such work to completion;
(ix) If loss or damage exceeds $25,000, each disbursement by
the Lender of such Insurance Proceeds shall be funded subject to conditions and
in accordance with disbursement procedures which a commercial construction
lender would typically establish in the exercise of sound banking practices and
shall be made only upon receipt of disbursement requests on an AIA G702/703 form
(or similar form approved by the Lender) signed and certified by the Lessee and
its architect and general contractor with appropriate invoices, lien waivers and
any other documents, instruments or things which may be required by the Lender;
(x) The Lender shall have a first lien and security interest
in all building materials and completed repair and restoration work and in all
fixtures and equipment acquired with such Insurance Proceeds, and the Lessee
shall execute and deliver such mortgages, deeds of trust, security agreements,
financing statements and other instruments as the Lessor or Lender shall
reasonably request to create, evidence, or perfect such lien and security
interest; and
(xi) In the event and to the extent such Insurance Proceeds
are not required to be used for the repair, restoration and replacement of the
Improvements, Equipment and Inventory for which a loss or damage has occurred,
or in the event the Lessee fails to timely make such election or having made
such election fails to timely comply with or is otherwise unable to satisfy the
terms and conditions set forth herein, upon five Business Days prior notice to
the Lessee, the Lender shall be entitled without consent from the Lessee to
apply such Insurance Proceeds, or the balance thereof, at the Lender's option
either (x) to the full or partial payment or prepayment of the Loan Obligations
in accordance with Section 2.7 of the Loan Agreement, or (y) to the repair,
restoration and/or replacement of all or any part of such Improvements,
Equipment and Inventory for which a loss or damage has occurred.
(f) The Lessee appoints the Lender to act after an Event of
Default as the Lessee's attorney-in-fact, coupled with an interest, to cause the
issuance of or an endorsement of any policy to bring the Lessee into compliance
herewith and, as limited above, at the Lender's sole option, to make any claim
for, receive payment for, and execute and endorse any documents, checks or other
instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will the Lender be liable for failure to
collect any amounts payable under any insurance policy.
(g) The Lender shall be entitled at its option to participate
in any compromise, adjustment or settlement in connection with any claims for
loss, damage or destruction under any policy or policies of insurance, in excess
of $25,000, and the Lessee shall within ten Business Days after request therefor
reimburse the Lender for all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and disbursements) incurred by the Lender in
connection with such participation. The Lessee shall not make any compromise,
adjustment or settlement in connection with any such claim in excess of $25,000
without the prior written approval of the Lender.
SECTION 12 Condemnation.
(a) Should the Premises or any part thereof be taken or
damaged by reason of a Taking, or should the Lessee receive any written notice
regarding any such proceeding, the Lessee shall give prompt notice thereof to
the Lender.
(b) The Lender shall be entitled to all Condemnation Proceeds,
and all such compensation, awards, damages and other payments or relief,
together with all rights and causes of action relating thereto or arising out of
any Taking, are hereby assigned to the Lender. The Lessee shall execute such
further assignments of the Condemnation Proceeds as the Lender may from time to
time require. Without limiting the generality of the foregoing, following the
occurrence of any Taking involving the Premises or any part thereof, the Lessee
shall give prompt notice thereof to the Lender and shall cause all Condemnation
Proceeds payable as a result of such Taking to be paid to the Lender in
accordance with Section 13.
(c) Notwithstanding anything to the contrary in paragraph (b)
above, the Lender agrees that the Lender shall make the Condemnation Proceeds
available to the Lessee for the Lessee's repair, restoration and replacement of
the Improvements, Equipment and Inventory affected by the Taking on the
following terms and subject to the Lessee's satisfaction of the following
conditions:
(i) At the time of such Taking and at all times
thereafter while the Lender is holding any portion of such
Condemnation Proceeds, there shall exist no Event of Default;
(ii) The Improvements, Equipment and Inventory
affected by the Taking shall be capable of being restored and
utility in all material respects with a value equal to or
greater than prior to such Taking and shall be capable of
being completed ten years and six months prior to the
Termination Date;
(iii) The Lessee shall demonstrate to the Lender's
reasonable satisfaction the Lessee's ability to pay the Rent
relating to the Premises coming due during such restoration
period;
(iv) Within 30 days from the date of such Taking the
Lessee shall have given the Lender a written notice electing
to have the Condemnation Proceeds applied for such purpose;
(v) Within sixty (60) days following the date of
notice under the preceding subparagraph (iv) and prior to any
Condemnation Proceeds being disbursed to the Lessee, the
Lessee shall have provided to the Lender all of the following:
(1) if loss or damage exceeds $25,000,
complete plans and specifications for
restoration, repair and replacement of the
Improvements, Equipment and Inventory
damaged to the condition, utility and value
required by the preceding subparagraph (ii),
(2) If loss or damage exceeds $25,000,
fixed-price or guaranteed maximum cost
construction contracts for completion of the
repair and restoration work in accordance
with such plans and specifications,
(3) if loss or damage exceeds $25,000,
builder's risk insurance for the full cost
of construction with the Lender named under
a standard Lender loss-payable clause,
(4) such additional funds as in the
Lender's reasonable opinion are necessary
to complete the repair, restoration and
replacement, and
(5) if loss or damage exceeds $25,000,
copies of all permits and licenses
necessary to complete the work in
accordance with the plans and
specifications;
(vi) If loss or damage exceeds $25,000, the Lender may, at the
Lessee's expense to the extent such expenses and fees are reasonable, retain an
independent inspector to review and approve plans and specifications and
completed construction and to approve all requests for disbursement, which
approvals shall be conditions precedent to release of the Condemnation Proceeds
as work progresses;
(vii) No portion of such Condemnation Proceeds shall be made
available by the Lender for purposes which are not directly attributable to the
cost of repairing, restoring or replacing the Improvements, Equipment and
Inventory;
(viii) The Lessee shall commence such work within sixty (60)
days after such Taking and shall diligently pursue such work to completion;
(ix) If loss or damage exceeds $25,000, each disbursement by
the Lender of such Condemnation Proceeds shall be funded subject to conditions
and in accordance with disbursement procedures which a commercial construction
lender would typically establish in the exercise of sound banking practices and
shall be made only upon receipt of disbursement requests on an AIA G702/703 form
(or similar form approved by the Lender) signed and certified by the Lessee and
its architect and general contractor with appropriate invoices, lien waivers and
any other instruments, documents and things which Lender may require;
(x) The Lessor shall have a first lien and security interest
in all building materials and completed repair and restoration work and in all
fixtures and equipment acquired with such Condemnation Proceeds, and the Lessee
shall execute and deliver such mortgages, deeds of trust, security agreements,
financing statements and other instruments as the Lessor or Lender shall
reasonably request to create, evidence or perfect such lien and security
interest; and
(xi) In the event and to the extent such Condemnation Proceeds
are not used for the repair, restoration and replacement of the Improvements,
Equipment and Inventory affected by the Taking, or in the event the Lessee fails
to timely make such election or having made such election fails to timely comply
with or is otherwise unable to satisfy the terms and conditions set forth
herein, upon five Business Days prior notice to the Lessee, the Lender shall be
entitled without consent from the Lessee to apply such Condemnation Proceeds, or
the balance thereof, at the Lender's option either (x) to the full or partial
payment or prepayment of the Loan Obligations in accordance with Section 2.7(a)
of the Loan Agreement, or (y) to the repair, restoration and/or replacement of
all or any part of such Improvements, Equipment and Inventory affected by the
Taking.
(d) The Lender shall be entitled at its option to participate
in any compromises, adjustment or settlement in connection with any Taking
involving an amount in controversy in excess of $25,000, and the Lessee shall
within ten Business Days after request therefor reimburse the Lender for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
disbursements) incurred by the Lender in connection with such participation. The
Lessee shall not make any compromises, adjustment or settlement in connection
with any such claim in excess of $25,000 without the prior written approval of
the Lender.
SECTION 13 Insurance and Condemnation Proceeds. Subject to Section 11
and Section 12, Insurance Proceeds and Condemnation Proceeds (collectively, the
"Loss Proceeds") not made available to Lessee pursuant to such Sections shall be
applied in accordance with Section 2.12(h) of the Loan Agreement.
SECTION 14 Alteration of Premises. The Lessee shall not renovate,
remodel or otherwise alter the Premises without first obtaining the written
consent of Lender and Lessor. With respect to any renovation performed on the
Premises to which Lessor may consent, the Lessee hereby agrees to:
(a) provide plans and/or blueprints describing the extent
and scope of the work to be performed prior to the commencement of
any work on the Premises; and
(b) any renovation and construction shall be performed in a
good and workmanlike manner and in accordance with the ordinances of
the governmental agencies having jurisdiction over the Premises.
The Lessor shall not be liable for the payment of any expense incurred or for
the value of any work done or material furnished in connection with any
alterations, replacements, changes, additions, repairs or renovations made to
the Premises. If by any reason of any matter set forth in this Section 14, any
mechanic's or other lien, charge or order for the payment of money shall be
filed against the Premises against the Lessor and regardless of whether or not
such lien, charge or order is valid or enforceable as such, Lessee shall, at its
own cost and expenses, cause the same to be bonded or insured over within ninety
(90) days after Lessee shall have received notice of the filing thereof. The
amount of any such bond shall be in an amount as is satisfactory to Lender and,
in any event, equal to 125% of the amount of the lien. In the event of the
failure of the Lessee to bond or otherwise insure over or discharge within such
period any such lien, charge or order which is hereunder required to be paid or
discharged by the Lessee, the Lessor may pay such items or discharge such
liability by payment, or bond or both after delivering a written notice thereof
to the Lessee, and Lessee shall repay to Lessor, upon demand, the amount of such
liability or bond, plus interest at the Default Rate. In any event, any such
lien shall be subordinate to the rights of the Lessor as the owner of the
Premises. The Lessee hereby agrees to protect and defend the Lessor from all
liability or claims asserted against the Lessor by reason of any lien described
in this Section 14.
SECTION 15 Compliance with Law. Lessee agrees, for itself, its
employees, agents, clients, customers, invitees and guests, to comply with all
statutes, rules and regulations promulgated by any Governmental Authority,
including but not limited to standards, rules and regulations of the New Jersey
Department of Public Health.
SECTION 16 Environmental; Hazardous Substances on Premises. In the
event that the Lessee brings onto or permits the entry onto the Premises any
hazardous waste or any chemical or substance which constitutes a threat to the
life, safety or welfare of any individual, it shall be Lessee's duty and
obligation, at its sole cost and expense to promptly remove same. Lessee shall
indemnify, defend and hold Lessor harmless from and against any cost, loss,
damage or expense (including attorneys' fees and costs) which may be incurred by
Lessor as a result of Lessee's failure to comply with this provision, and
Lessee, at its sole cost and expense, and after demand by Lessor, shall
undertake the defense of Lessor for any action or litigation which may be
instituted, wherein Lessor may be named as a party, arising out of any of any of
the foregoing. This covenant shall survive the termination of this Lease.
SECTION 17 Real Estate Brokers. The parties hereby represent to each
other that no real estate broker has been engaged, employed or consulted in
connection with this Lease.
SECTION 18 Lessee's Representations and Warranties. Lessee represents
and warrants as follows:
SECTION 18.1 Organization. Lessee (i) is a duly organized and validly
existing corporation in good standing under the laws of the State of its
formation (ii) has the requisite power and authority to carry on its business as
now being conducted, and (iii) has the requisite corporate power to execute and
deliver, and perform its obligations under this Lease.
SECTION 18.2 Authorization. The execution and delivery by Lessee
of this Lease, Lessee's performance of its obligations thereunder and the
creation of the security interests and liens provided for in this Lease (i)
have been duly authorized by all requisite corporate action on the part of
Lessee, (ii) will not violate any provision of any Legal Requirements, any
order of any court or other Governmental Authority, the articles of formation
or operating agreement of Lessee or any indenture or material agreement or
other instrument to which Lessee is a party or by which Lessee is bound,
(iii) will not be in conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under, or result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
property or assets of Lessee pursuant to, any such indenture or material
agreement or instrument. Other than those obtained or filed on or prior to the
Closing Date, Lessee is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
Governmental Authority or other agency in connection with or as a condition to
the execution, delivery or performance of this Lease.
SECTION 18.3 Single-Purpose Entity.
(i) Lessee at all times since its formation has been,
and will continue to be, a duly formed and existing corporation, and,
as of the Closing Date, will be a Single-Purpose Entity.
(ii) Lessee at all times since its formation has
complied, and will continue to comply, with the provisions of its
articles of incorporation and the laws of the State of its formation
relating to corporations.
(iii) All customary formalities regarding the
existence of Lessee have been observed at all times since its formation
and will continue to be observed.
(iv) Lessee has been at all times since its formation
and will continue to be adequately capitalized in light of the nature
of its business.
SECTION 18.4 Litigation. There are no actions, suits or proceedings at
law or in equity by or before any Governmental Authority or other agency now
pending and served or, to the knowledge of Lessee, threatened against Lessee or
the Premises.
SECTION 18.5 Agreements. Lessee is not a party to any agreement or
instrument or subject to any restriction which is reasonably likely to have a
Material Adverse Effect. Lessee is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party or by
which Lessee or the Premises is bound.
SECTION 18.6 No Bankruptcy Filing. Lessee is not contemplating either
the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of Lessee's
assets or property, and Lessee has no knowledge of any Person contemplating
the filing of any such petition against it.
SECTION 18.7 Full and Accurate Disclosure. No statement of fact
made by or on behalf of Lessee in this Lease contains any untrue statement of a
material fact or omits to state any material fact necessary to make statements
contained herein or therein not misleading. There is no fact presently known to
Lessee which has not been disclosed to Lender which adversely affects, nor as
far as Lessee can foresee, might materially affect the business, operations or
condition (financial or otherwise) of Lessee.
SECTION 18.8 Location of Chief Executive Offices. The location of
Lessee's principal place of business and chief executive office is the Premises.
SECTION 18.9 Compliance. Lessee, the Premises and Lessee's use thereof
and operations thereat comply in all material respects with all applicable Legal
Requirements, including without limitation, building and zoning ordinances and
codes. Lessee is not in default or violation of any order, writ, injunction,
decree or demand of any Governmental Authority, the violation of which is
reasonably likely to have a Material Adverse Effect.
SECTION 18.10 Other Debt and Obligations. Lessee has no material
financial obligation under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which Lessee is a party incurred
in the ordinary course of business relating to the ownership and operation of
the Premises or by which Lessee or the Premises is bound, other than unsecured
trade payables incurred in the ordinary course of business relating to the
ownership and operation of the Premises which are paid within sixty (60) days of
the date incurred, except for outstanding trade payables as of the Commencement
Date which do not require payment within sixty (60) days.
SECTION 18.11 ERISA. Each Plan, and, to the knowledge of Lessee, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, its terms and the
applicable provisions of ERISA, the Code and any other federal or state law.
SECTION 18.12 Solvency. Lessee (i) has not entered into this Lease
with the actual intent to hinder, delay, or defraud any creditor, and (ii) has
received reasonably equivalent value in exchange for its obligations under this
Lease. Giving effect to the transactions contemplated hereby, the fair saleable
value of Lessee's assets exceeds and will, immediately following the execution
and delivery of this Lease, exceed Lessee's total liabilities, including,
without limitation, subordinated, unliquidated or disputed liabilities or
Contingent Obligations. The fair saleable value of Lessee's assets is and will,
immediately following the execution and delivery of this Lease, be greater than
Lessee's probable liabilities, including the maximum amount of its Contingent
Obligations or its debts as such debts become absolute and matured. Lessee's
assets do not and, immediately following the execution and delivery of this
Lease, will not, constitute unreasonably small capital to carry out its business
as conducted or as proposed to be conducted. Lessee does not intend to, and does
not believe that it will, incur debts and liabilities (including, without
limitation, Contingent Obligations and other commitments) beyond its ability to
pay such debts as they mature (taking into account the timing and amounts to be
payable on or in respect of obligations of Lessee).
SECTION 18.13 Not Foreign Person. Lessee is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Code.
SECTION 18.14 Enforceability. This Lease is the legal, valid and
binding obligation of Lessee, enforceable against Lessee in accordance with its
terms, subject to bankruptcy, insolvency and other limitations on creditors'
rights generally and to equitable principles.
SECTION 18.15 Investment Company Act; Public Utility Holding Company
Act. Lessee is not (i) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, (ii) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other federal or state law or regulation
which purports to restrict or regulate its ability to borrow money.
SECTION 18.16 No Setoff or Defense. Lessee does not have any defense or
right of offset with respect to its rights, duties and obligations under this
Lease or any claim of right against Lessor.
SECTION 18.17 Labor Matters. No collective bargaining agreement will
have a Material Adverse Effect, and all obligations which accrued under any
collective bargaining agreement prior to the date hereof have been satisfied
in full without exception.
SECTION 18.18 Financial Information. All historical financial data
concerning Lessee and the Premises that has been delivered by Lessee to Lender
is true, complete and correct in all material respects. Since the delivery of
such data, there has been no material adverse change in the financial position
of Lessee or the Premises, or in the results of operations of Lessee. Lessee has
not incurred any obligation or liability, contingent or otherwise, not reflected
in such financial data which might have a Material Adverse Effect.
SECTION 18.19 Condemnation. No Taking has been commenced or, to
Lessee's knowledge, is contemplated with respect to all or any portion of the
Premises or for the relocation of roadways providing access to the Premises.
SECTION 18.20 Use of Facilities. The Premises are used exclusively as a
nursing home and uses ancillary thereto.
SECTION 18.21 Certificate of Occupancy. Lessee has obtained (in its own
name), all Permits necessary to use and operate the Premises for the Permitted
Uses. The use being made of the Premises is in conformity in all material
respects with the certificate of occupancy and/or Permits for the Premises and
any other restrictions, covenants or conditions affecting the Premises.
SECTION 18.22 Intellectual Property. All material trademarks, trade
names and service marks that Lessee owns or has pending, or under which it is
licensed, are in good standing and uncontested. There is no right under any
trademark, trade name or service mark necessary to the business of Lessee as
presently conducted or as Lessee contemplates conducting its business. Lessee
has not infringed, is not infringing, and has not received notice of
infringement with respect to asserted trademarks, trade names and service marks
of others. To Lessee's knowledge, there is no infringement by others of material
trademarks, trade names and service marks of Lessee.
SECTION 18.23 Conduct of Business. Lessee does not conduct its business
also known as, doing business as or under any other than as set forth in the
Loan Agreement.
SECTION 18.24 Nursing Home Representations.
SECTION 18.25 Compliance with Laws. Lessee and the Premises comply with
all applicable federal, state and local laws, regulations, quality and safety
standards, accreditation standards and requirements of the applicable state
Department of Health (each a "DOH") and all other Governmental Authorities
including, without limitation, those relating to the quality and adequacy of
medical care, distribution of pharmaceuticals, rate setting, equipment,
personnel, operating policies, additions to facilities and services and fee
splitting.
SECTION 18.26 Licenses. All governmental licenses, permits, regulatory
agreements or other approvals or agreements necessary or desirable for the use
and operation of the Premises as intended are held by the Lessee and are in full
force and effect, including, without limitation, a valid certificate of need
("CON") or similar certificate, license, or approval issued by the DOH for the
requisite number of beds, and approved provider status in any approved provider
payment program (collectively, the "Licenses").
SECTION 18.27 Ownership of Licenses. The Licenses, including without
limitation, the CON:
(a) may not be, and have not been, transferred to any
location other than the Premises;
(b) are held free from restrictions or known conflicts which
would materially impair the use or operation of the Premises as
intended, and are not provisional, probationary or restricted in any
way;
(c) have not been pledged as collateral security for any
other loan or indebtedness.
SECTION 18.28 Medicare and Medicaid Compliance. The Premises is in
compliance with all requirements for participation in Medicare and Medicaid,
including without limitation, the Medicare and Medicaid Patient and Program
Protection Act of 1987. The Premises are in conformance in all material respects
with all insurance, reimbursement and cost reporting requirements, and has a
current provider agreement which is in full force and effect under Medicare and
Medicaid as applicable on the Closing Date.
SECTION 18.29 Patient Care Agreements. There are no patient or resident
care agreements with patients or residents or with any other persons which
deviate in any material adverse respect from the standard form customarily used
at the Premises.
SECTION 18.30 Patient Records. All patient or resident records at the
Premises, including patient or resident trust fund accounts, are true and
correct in all material respects.
SECTION 18.31 Management and Operating Agreements. Any existing
Management Agreement with respect to the Premises is in full force and effect
and is not in default by any party thereto.
SECTION 19 Lessee's Affirmative Covenants. During the term of this
Lease, Lessee covenants and agrees as follows:
SECTION 19.1 Existence; Compliance with Legal Requirements; Insurance.
Lessee shall do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its existence as a corporation, rights, Licenses,
Permits and franchises necessary for the conduct of its business and comply in
all material respects with all Legal Requirements and Insurance Requirements
applicable to it and the Premises.
SECTION 19.2 Impositions and Other Claims. Lessee shall pay and
discharge or cause to be paid and discharged all Impositions, as well as all
lawful claims for labor, materials and supplies or otherwise, which could become
a Lien.
SECTION 19.3 Litigation. Lessee shall give prompt written notice to
Lessor and Lender of any litigation or governmental proceedings pending or
threatened against Lessee which is reasonably likely to have a Material Adverse
Effect.
SECTION 19.4 Copies of Notices. Lessee shall immediately transmit to
Lessor and Lender copies of any citations, orders, notices or other written
communications received from any Person or any Governmental Authority and any
notices, reports or other written communications submitted to any Governmental
Authority with respect to Lessee or the Premises.
SECTION 19.5 Access to Facilities. Lessee shall permit Lessors and
Lender and agents, representatives and employees of Lessor and Lender to inspect
Lessee's Facility or any part thereof at such reasonable times as may be
requested by Lessor or Lender upon advance notice, subject, however, to the
rights of the tenants, occupants and guests of the Premises.
SECTION 19.6 Insurance Benefits. Lessee shall cooperate with Lessor and
Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully
or equitably payable to Lender in connection with the Premises, and Lender shall
be reimbursed for any expenses incurred in connection therewith (including
reasonable attorneys' fees and disbursements and the payment by Lessee of the
expense of an Appraisal on behalf of Lender in case of a fire or other casualty
affecting the Premises or any part thereof, but excluding internal overhead,
administrative and similar costs of Lender) out of such Insurance Proceeds, all
as more specifically provided in the Related Mortgage.
SECTION 19.7 Nursing Home Covenants. Lessee shall:
(i) operate the Premises in full compliance with the
laws;
(ii) operate the Premises or cause the Premises to
be operated in a manner such that the Licenses shall remain
in full force and effect; and
(iii) comply with all requirements for participation
in Medicare and Medicaid, and shall keep in full force and
effect a current provider agreement under Medicare and
Medicaid.
SECTION 19.8 Trade Indebtedness. Lessee will pay its trade payables
within sixty (60) days of the date incurred, except for outstanding trade
payables existing on the Closing Date which do not require payment within sixty
(60) days, unless Lessee is in good faith contesting Lessee's obligation to pay
such trade payables in a manner satisfactory to Lender (which may include
Lender's requirement that Lessee post security with respect to the contested
trade payable).
SECTION 20 Lessee's Negative Covenants. During the term of this Lease,
Lessee covenants and agrees that it will not do any of the following, indirectly
or directly, without the prior written consent of Lessor and Lender:
SECTION 20.1 Liens on the Premises. Incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any Lien with respect
to the Premises, except: (i) Liens in favor of Lender, and (ii) the Permitted
Exceptions.
SECTION 20.2 Transfer. Allow any Transfer to occur, terminate the
Management Agreement, or enter into a new management contract with respect to
the Premises.
SECTION 20.3 Other Indebtedness. Incur, except for unsecured trade
payables incurred in the ordinary course of business relating to the ownership
and operation of ownership of the Premises which are paid within sixty (60) days
of the date incurred, except for outstanding trade payables existing on the
Closing Date which do not require payment within sixty (60) days, create,
assume, become or be liable in any manner with respect to indebtedness.
SECTION 20.4 Change In Business. Cease to be a Single-Purpose Entity,
or make any material change in the scope or nature of its business objectives,
purposes or operations, or undertake or participate in activities other than the
continuance of its present business.
SECTION 20.5 Debt Cancellation. Cancel or otherwise forgive or release
any material claim or debt owed to Lessee by any Person, except for adequate
consideration or in the ordinary course of Lessee's business.
SECTION 20.6 Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of Lessee, except in the ordinary course of
business and on terms which are no less favorable to Lessee or such Affiliate
than would be obtained in a comparable arm's length transaction with an
unrelated third party and, if the amount to be paid to the Affiliate pursuant to
the transaction or series of related transactions is greater than $50,000
(determined annually on an aggregate basis) fully disclosed to Lessor and Lender
in advance.
SECTION 20.7 Creation of Easements. Create, or permit Lessee's
Facility or any part thereof to become subject to, any easement, license or
restrictive covenant, other than a Permitted Exception.
SECTION 20.8 Assignment of Licenses and Permits. Assign or transfer
any of its interest in any Permits pertaining to Lessee's Facility, or assign,
transfer or remove or permit any other Person to assign, transfer or remove any
records pertaining to Lessee's Facility without the prior written consent of
Lender and Lessor, which consent may be granted or refused in Lender's sole
discretion.
SECTION 20.9 Place of Business. Change its chief executive office or
its principal place of business or place where its books and records are kept
without giving Lender at least 30 days' prior written notice thereof and
promptly providing Lender such information as Lender may request in connection
therewith.
SECTION 20.10 Nursing Home Negative Covenants: Lessee shall not:
(i) transfer the Licenses to any location other
than the Premises nor shall Lessee pledge the Licenses as
collateral security;
(ii) rescind, withdraw, revoke, amend, modify,
supplement, or otherwise alter the nature, tenor or scope of
the Licenses for the Premises;
(iii) amend or otherwise change the Premises's
authorized bed capacity to decrease the number of beds
approved by the DOH;
(iv) replace or transfer all or any part of the
Premises's beds to another site or location;
(v) jeopardize in any manner its participation with
any Third-Party Payors' Programs to which Lessee is subject
as of the Closing Date;
(vi) enter into any patient or resident care
agreements with patients or residents or with any other
persons which deviate in any material adverse respect in the
standard form customary used at the Premises; or
(vii) other than in the normal course of business,
change the terms of any of the Third Party Payors' Programs or
its normal billing payment or reimbursement policies and
procedures with respect thereto (including without limitation
the amount and timing of finance charges, fees and
write-offs).
SECTION 21 Lessee's Default and Remedies.
SECTION 21.1 Default by Lessee. Each of the following shall constitute
an "Event of Default" by Lessee hereunder:
(a) If Lessee shall fail to pay any installment of Base Rent
or Additional Rent as and when the same shall become due and payable;
or
(b) Lessee vacates or fails to operate the Nursing Home or
removes its property from the Premises and fails to occupy the Premises
with or without notice to Lessor or notifies Lessor that it is vacating
the Premises or otherwise abandons the Premises; or
(c) This Lease or the Premises or any part of the Premises is
taken upon execution or by other process of law directed against
Lessee, or is taken upon or subjected to any attachments by any
creditor of Lessee or claimant against Lessee, and the attachment is
not discharged within fifteen (15) days after its levy; or
(d) Lessee files a petition in bankruptcy or insolvency or for
reorganization or arrangement under the bankruptcy laws of the United
States or under any insolvency act of any state, or is dissolved, or
makes an assignment for the benefit of creditors; or
(e) Involuntary proceedings under any bankruptcy laws or
insolvency act or for the dissolution of Lessee are instituted against
Lessee or any principal of the Lessee, or any guarantor hereof, or a
receiver or trustee is appointed for all or substantially all of
Lessee's property, and the proceeding is not dismissed or the
receivership or trusteeship is not vacated within sixty (60) days after
institution or appointment; or
(f) If an order, judgment or decree shall be entered by any
court adjudicating the Lessee a bankrupt or insolvent, or approving a
petition seeking reorganization of the Lessee or guarantor of this
Lease or appointing a receiver, trustee or liquidator of the Lessee, or
of all or a substantial part of its assets, and such order, judgment or
decree shall continue unstayed and in effect for any period of sixty
(60) days; or
(g) Lessee shall file an answer admitting the material
allegations of a petition filed against the Lessee in any bankruptcy,
reorganization or insolvency proceeding or under any laws relating to
the relief of debtors, readjustment or indebtedness, reorganization,
arrangements, composition or extension; or
(h) Lessee shall fail to comply with any written requirement
of any governmental body relating to the physical structure of the
Nursing Home and its facilities (as distinguished from staffing
requirements) which would prevent the Nursing Home from being licensed
as a skilled care facility, and such failure shall continue for thirty
(30) days, provided that the time to cure such default shall not exceed
the time allowed by the State to cure the failure to comply, and
provided further that if Lessee promptly begins to cure during such
thirty (30) day notice period and diligently pursues the same to
completion (and the governmental body allows Lessee additional time to
cure) Lessee shall not be in default hereunder during such additional
time allowed by the governmental body, and provided further that the
Lessee at its expense may, after prior notice to the Lessor, contest by
appropriate legal, administrative or other proceedings conducted in
good faith and with due diligence the validity or application of any
such asserted deficiency, in whole or in part, as long as the Lessee
shall have furnished to the Lessor additional security in respect of
the claim being contested or the loss or damage that may result from
the Lessee's failure to prevail in such contest in such amount as may
be reasonably requested by the Lessor but in no event less than 125% of
the amount of such claim; or
(i) The termination by the New Jersey Department of Public
Health of the Nursing Home license because Lessee has been found to be
ineligible to operate nursing home facilities within the State of New
Jersey unless and except to the extent stayed by administrative order
or by court; or
(j) Subject to Lessee's right to cure as hereinafter set
forth, the State of New Jersey commences proceedings to (i) revoke the
Nursing Home license of Lessee, (ii) revoke the Medicaid certification
or participation of Nursing Home; provided, however, that it shall not
be an Event of Default hereunder so long as Lessee timely files a
request for a hearing on any and/or all aforesaid revocations and
diligently pursues said hearing to its conclusion, including but not
limited to, Lessee's exhaustion of all rights to appeal in any and/or
all courts of competent jurisdiction, and so long as Lessee maintains
the New Jersey Department of Public Health license in full force and
effect; or
(k) Subject to Lessee's right to cure as hereinafter set
forth, the United States Government commences proceedings to (i) revoke
the certification of the Nursing Home for participation in Medicare or
(ii) to terminate the Nursing Home's participation in Medicare;
provided, however, that it shall not be an Event of Default hereunder
so long as Lessee timely files a request for a hearing on any and/or
all aforesaid revocations and/or terminations and diligently pursues
said hearing(s) to its conclusion, including but not limited to,
Lessee's exhaustion of all rights to appeal in any and/or all courts of
competent jurisdiction. In the event the ultimate outcome of said
hearing and/or appeal is determined favorably to Lessee and no
revocation and/or termination occurs, it shall not be an Event of
Default hereunder; or
(l) The Nursing Home ceases to participate in Medicare or
Medicaid; or
(m) If Lessee shall fail to perform any other agreements,
terms, covenants or conditions required hereof on Lessee's part to be
performed and such non-performance shall continue for a period of
thirty (30) days after notice thereof by Lessor to Lessee or, if such
performance cannot be reasonably completed within such thirty (30) day
period, if Lessee shall not in good faith have commenced such
performance within such thirty (30) day period and shall not thereafter
diligently proceed therewith to completion.
(n) If Lessee shall fail to comply with any term or condition
of the Mortgage with which Lessor has encumbered the Premises or, if
applicable, any of the other Loan Documents.
(o) If Lessee shall fail to provide written notice to Lessor
and Lender within ten (10) days after Lessee receives a Survey Report
or other compliance report from any Governmental Authority.
(p) If Lessee shall attempt to make or make a Transfer in
violation of this Lease.
(q) The Adjusted Net Operating Income for all Facilities (as
defined in the Loan Agreement) calculated as of the end of any Interest
Accrual Period computed on the basis of the prior twelve (12) months is
less than 80% of Base NOI.
(r) If any representation or warranty made herein or in any
report, certificate, financial statement or other instrument, agreement
or document furnished by Lessee in connection with this Lease or any
other document executed and delivered by any Lessee, shall be false in
any material respect as of the date such representation or warranty was
made or remade and such Lessee fails to remedy such matters as to make
such representation or warranty true and correct within ten (10) days
after notice to such Lessee from Lessor or its successors or assigns in
the case of any matter which can be remedied by the payment of a sum of
money or for thirty (30) days after notice from Lessor or its
successors or assigns, in the case of any other matter.
SECTION 21.2 Lessor's Remedies. Upon the occurrence of an Event of
Default, the Lessor shall have the following non-exclusive rights:
(a) Lessor, at its option, shall have the right to: (i) cancel
and terminate this Lease, as well as all of the rights, title and
interest of Lessee hereunder by giving to Lessee and Lender written
notice of such cancellation and termination, and upon the giving of
such notice, this Lease and the Lease Term, as well as all of the
right, title and interest of Lessee hereunder shall expire in the same
manner and with the same force and effect, except as to Lessee's
liability, as if the date upon which such notice is given was the last
day of the Lease Term, or (ii) terminate Lessee's right to possession
by giving to Lessee written notice thereof, upon the receipt of which
Lessee shall peaceably and promptly vacate the Premises.
(b) Lessor, at its option, may, but shall not be obligated to,
make any payment required of Lessee herein or comply with any
agreement, term, covenant or condition, required hereby to be performed
by Lessee and the amount so paid, together with interest thereon at the
Default Rate, from the date of such payment by Lessor, shall be deemed
to be additional rent hereunder payable by Lessee and collectible as
such by Lessor with the next succeeding monthly installment of rent.
(c) Lessor shall have the right to enter the Premises for the
purpose of correcting or remedying any such default but neither any
such expenditure nor any such performance by Lessor shall be deemed to
waive or release Lessee's default or the right of Lessor to take such
action as may be otherwise permissible hereunder in the case of such
default.
(d) Lessor shall have all rights and remedies available to a
Lessor at law, in equity and under the Uniform Commercial Code.
SECTION 22 Lessor's Default and Remedies.
SECTION 22.1 Events of Default. The following events shall constitute
an "Event of Default" by Lessor:
(a) Any act or omission of the Lessor which prevents the
Lessee, its assignees, guests, agents or employees from using any
portion of the Premises for any Permitted Use; and
(b) Any failure of the Lessor to perform any other agreement,
term, covenant or condition required of the Lessor to be performed and
such non- performance continues for a period of thirty (30) days after
notice thereof by the Lessee to the Lessor or, if such performance
cannot be reasonably completed within such thirty (30) day period, if
Lessor shall not in good faith have commenced such performance within
such thirty day period and shall not thereafter diligently proceed
therewith to completion.
SECTION 22.2 Lessee's Remedies. Upon the occurrence of an Event of
Default by Lessor, the Lessee shall have the right to exercise any and all of
the following non-exclusive rights and remedies:
(a) The right to cancel and terminate this Lease by giving
at least ninety (90) days' prior written notice to Lessor and Lender;
and
(b) The right to exercise all rights and remedies available
at law or equity.
SECTION 23 Subordination/Attornment.
SECTION 23.1 Subordination.
(a) At the option of Lender and without requirement of a written
instrument, this Lease and Lessee's interest hereunder shall be subject and
subordinate to any Mortgage and the Loan Documents, or any method of financing
or refinancing now existing or hereafter placed against the land, and/or the
Premises; and to all renewals, modifications, replacements, consolidations and
extensions thereof. Upon written notice to Lessee, any mortgagee may elect, at
any time, to subordinate the lien of the Mortgage to that of this Lease, and
thereupon, this Lease shall be deemed prior to such Mortgage, without regard to
the execution or recording dates of the same.
(b) Lessee agrees to give to Lender notice simultaneously with any
notice given to Lessor to correct any default of Lessor as hereinabove provided,
and agrees that the holder of record of such first mortgage shall have the
right, within thirty (30) days after receipt of said notice, to correct or
remedy such default before Lessee may take any action under this Lease by reason
of such default, provided, that such thirty-day period shall be extended as long
as Lender is diligently pursuing the cure of such default.
SECTION 23.2 Attornment. At Lender's election, Lessee shall, in the
event of the sale or transfer or assignment of Lessor's interest in the
Premises, or in the event of any proceedings brought for the foreclosure of, or
in the event of exercise of the power of sale under the Mortgage, or in the
event of a transfer by a deed in lieu of foreclosure, made by Lessor covering
the Premises, attorn to the Lender or any purchaser and recognize such Lender or
purchaser as Lessor under this Lease, but no such Lender, or purchaser shall be
(a) liable for any act or omission of Lessor, (b) bound by any payment of Rent
or other charges made more than ten (10) days in advance of the due date
thereof, or be bound by any assignment, surrender, termination, cancellation,
amendment or modification of this Lease made without the express written consent
of Lender or purchaser.
SECTION 24 Further Covenants and Obligations; Grant of Security
Interest to Service Rent.
SECTION 24.1 Single Purpose Entity. Lessee represents, warrants and
covenants and agrees that it is a corporation, which, at all times since its
formation and thereafter (i) was organized solely for the purpose of operating
the Premises; (ii) has not and will not engage in any business unrelated to the
operation of the Premises; (iii) has not and will not have any assets other than
those related to the Premises; (iv) has not and will not engage in, seek or
consent to any dissolution, winding up, liquidation, consolidation, merger,
asset sale, transfer of shareholder interests, or amendment of its articles of
incorporation, (v) has and will have at least one Independent Director, (vi) the
board of directors may not take any action requiring the unanimous affirmative
vote of 100% of the members of the board of directors unless all of the
directors, including an Independent Director shall have participated in such
vote; (vii) will not fail to correct any known misunderstanding regarding its
separate identity; (viii) without the unanimous consent of all of the directors,
shall not file a bankruptcy or insolvency petition or otherwise institute
insolvency proceedings with respect to itself or to any other entity in which it
has a direct or indirect legal or beneficial ownership interest, (ix) has
maintained and will maintain its accounts, books and records separate from any
other person or entity, (x) has maintained and will maintain its books, records,
resolutions and agreements as official records, (xi) has not and will not
commingle its funds or assets with those of any other entity, (xii) has held and
will hold its assets in its own name, (xiii) has conducted and will conduct its
business in its name, (xiv) has maintained and will maintain its financial
statements, accounting records and other entity documents separate from any
other person or entity, (xv) has paid and will pay its own liabilities out of
its own funds and assets, (xvi) has observed and will observe all corporate
formalities, (xvii) has maintained and will maintain an arms-length relationship
with its affiliates, (xviii) has no indebtedness other than unsecured trade
payables incurred in the ordinary course of business relating to the operation
of Facility which are paid within sixty (60) days of the date incurred, except
outstanding trade payables existing on the Closing Date which do not require
payment within sixty (60) days, (xix) has not and will not assume or guarantee
or become obligated for the debts of any other entity or hold out its credit as
being available to satisfy the obligations of any other entity, (xx) has not and
will not acquire obligations or securities of its members or shareholders, (xxi)
has allocated and will allocate fairly and reasonably any overhead for any
shared expenses, including, without limitation, shared office space and uses
separate stationary, invoices and checks, (xxii) has not and will not pledge its
assets for the benefit of any other person or entity, (xxiii) has held and
identified itself and will hold itself out and identify itself as a separate and
distinct entity under its own name and not as a division or part of any other
person or entity, (xxiv) has not made and will not make loans to any person or
entity, (xxv) has not and will not identify its shareholders or any of its
affiliates as a division or part of it, (xxvi) has not entered and will not
enter into or be a party to, any transaction with its shareholders or its
affiliates, except in the ordinary course of its business and on terms which are
intrinsically fair and are no less favorable to it than would be obtained in a
comparable arms-length transaction with an unrelated third party.
SECTION 24.2 Grant of Security Interest. To secure the payment of Rent,
Lessee hereby grants to Lessor a security interest in the following (the
"Collateral"):
(a) All Inventory, fixtures, Equipment, Permits, Licenses and
accounts, now existing or hereafter arising or acquired;
(b) All present and future contract rights, lease rights, rents,
chattel paper and general intangibles (including trademarks,
trade names and patents of Lessee) not otherwise included as
Collateral under the foregoing;
(c) All other property necessary to operate the Premises for the
Permitted Uses.
(d) To the extent related to the property described in clauses (a)
through (c) above, all books, correspondence, credit files,
records, invoices, bills of lading and other documents
including, without limitation, to the extent so related, all
tapes, cards, computer runs, computer programs and other
papers and documents in the possession or control of Lessee or
any computer bureau from time to time acting for Lessee and,
to the extent so related, all rights in, to and under all
policies of insurance, including claims of rights to payments
thereunder and proceeds therefrom, including any credit
insurance; and
(e) Any other property in which Lessee can create or perfect a
security interest.
(f) All proceeds and products of any and all of the foregoing.
SECTION 25 Miscellaneous.
SECTION 25.1 No Waiver. The failure of either party hereto to insist
upon strict performance of any of the terms, covenants and conditions hereof
shall not be deemed a waiver of any rights or remedies that either party may
have and such omission shall not be deemed a waiver of any subsequent breach or
default in any of such terms, covenants and conditions.
SECTION 25.2 Consent. Whenever the consent or approval of the Lessor is
required hereunder, the Lessor shall not unreasonably withhold such consent or
approval or the delivery thereof; provided, however, that in the event that any
Lender's consent is required and such mortgagee withhold's its consent, Lessor
shall not be deemed to have unreasonably withheld its consent.
SECTION 25.3 Intentionally Omitted.
SECTION 25.4 Notices. Any notice, demand, request or other
communication shall be effective only if delivered by hand to the party whose
attention it is directed or by mailing the same by registered or certified mail
postage prepaid, return receipt requested, to the addresses listed on Schedule
25.4, or at such other address as the parties may from time to time designate by
notice. Every notice, demand, request or other communication hereunder shall be
deemed to have been given or served on the date at such other address as the
parties may from time to time designate by notice. Every notice, demand, request
or other communication hereunder shall be deemed to have been given or served on
the date that the same shall be received by Lessor or Lessee, as the case may
be.
SECTION 25.5 Force Majeure Whenever Lessee shall be required by the
terms of this Lease or by law to perform any contract, act, work, labor or
services, or to discharge any lien against the Premises, or to perform and
comply with any laws, rules, orders, ordinances, regulations or zoning
regulations, Lessee shall not be deemed to be in default herein and Lessor shall
not enforce or exercise any of its rights under this Lease, if and so long as
non-performance or default herein shall be directly caused by strikes,
unavailability of materials, war or national defense preemptions, governmental
restrictions, acts of God or other similar causes beyond the reasonable control
of Lessee.
SECTION 25.6 Relationship of Parties. Nothing herein contained shall be
deemed or construed by the parties hereto, nor by any third party, as creating
the relationship of principal and agent, or of partnership, or of joint venture
between the parties, it being understood and agreed that neither the method of
computation of rent, nor any other provision contained herein, nor any acts of
the parties, shall be deemed to create any relationship between the parties
hereto, other than the relationship of landlord and tenant.
SECTION 25.7 Entire Agreement. This Lease contains the entire agreement
between the parties and cannot be changed or terminated orally, but only by an
instrument in writing executed by the parties.
SECTION 25.8 New Jersey Law. This Lease shall be governed by and
constructed in accordance with the laws of the New Jersey.
SECTION 25.9 Attorneys' Fees. Upon the occurrence of an Event of
Default by a party hereto the defaulting party shall be liable for and shall pay
to the other party the reasonable attorney's fees, court costs, and other
reasonable costs and expenses incurred by said party in enforcing its rights
hereunder.
SECTION 25.10 Successors and Assigns. The agreements, terms, covenants
and conditions herein shall bind and inure to the benefit of Lessor and Lessee
and their respective heirs, personal representatives, successors, and assigns.
Nothing contained in the preceding sentence shall be construed to permit Lessee
to assign or sublet this Lease, in whole or in part, without the consent of
Lessor, which may be withheld by Lessor in Lessor's sole discretion. Nothing in
this Section 25.10 shall be in any way intended to limit the provisions of
Section 9.
SECTION 25.11 No Merger. There shall be no merger of this Lease, or of
the leasehold estate created by this Lease, with the Lessors's fee title estate
in the Premises by reason of the fact that this Lease or the leasehold estate
created by this Lease or any interest in this Lease or any such fee title estate
may be held directly or indirectly, by or for the account of any person,
persons, parties or entities of any kind or nature who shall own or have any
interest in such fee title estate, and no such merger, shall occur unless all
such persons, parties or entities at the time having an interest in such fee
title estate in the Premises and all such persons, parties or entities having an
interest in this Lease or in the leasehold estate created by this Lease shall
join in the execution, acknowledgment and delivery of a written instrument
effectuating such merger.
SECTION 25.12 Partial Invalidity. If any term or provision of this
Lease or the application thereof to any entity, person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
SECTION 25.13 Headings. Headings or captions contained in this Lease
are inserted only as a matter of convenience and in no way define, limit or
extend the scope or intent of this Lease or any provision hereof.
SECTION 25.14 Business Day. Whenever, under the terms and provisions of
this Lease, the time for performance of a condition is required to be performed
upon a Saturday, Sunday, or holiday such time for performance shall be extended
to the next business day.
SECTION 25.15 Benefit of Lender. The parties hereby acknowledge that
this Lease was executed in connection with and at the time of the Loan and the
provision hereof are intended to run to the benefit of and be enforceable by
Lender.
SECTION 25.16 Amendment. This Lease shall not be amended except
pursuant to a writing executed by Lessor and Lessee, which writing shall also be
approved by Lender, in Lender's sole discretion in writing.
SECTION 26 Additional Representations and Warranties.
SECTION 26.1 Environmental Compliance:
(i) Lessee and the Premises are in compliance with
all applicable Environmental Laws, which compliance includes, but is
not limited to, the possession by Lessee of and compliance with all
environmental, health and safety permits, licenses and other
governmental authorizations required in connection with the ownership
and operation of the Premises under all Environmental Laws, except
where the failure to comply with such laws is not reasonably likely to
result in a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to
Lender's knowledge, threatened, and no penalties arising under
Environmental Laws have been assessed, against Lessee, the Premises or
against any Person whose liability for any Environmental Claim Lessee
has or may have retained or assumed either contractually or by
operation of law, and no investigation or review is pending or, to the
knowledge of Lessee, threatened by any Governmental Authority, citizens
group, employee or other Person with respect to any alleged failure by
Lessee, or the Premises to have any environmental, health or safety
permit, license or other authorization required under, or to otherwise
comply with, any Environmental Law or with respect to any alleged
liability of Lessee for any Use or Release of any Hazardous Substances
or the presence, Use or Release of any Hazardous Substances at, on, in,
under, or from the Premises.
(iii) To the knowledge of Lessee after due inquiry,
there have been and are no past or present Releases of any Hazardous
Substance that are reasonably likely to form the basis of any
Environmental Claim against Lessee or, to Lessee's knowledge, against
any Person whose liability for any Environmental Claim Lessee has or
may have retained or assumed either contractually or by operation of
law.
(iv) To the knowledge of Lessee after due inquiry,
without limiting the generality of the foregoing, there is not present
at, on, in or under the Premises, PCB- containing equipment, asbestos
or asbestos containing materials, underground or aboveground storage
tanks or surface impoundments for Hazardous Substances, lead in
drinking water (except in concentrations that comply with all
Environmental Laws), or lead-based paint (nor have there been any
underground storage tanks present at, on, in, or under the Premises).
(v) No Liens are presently recorded with the
appropriate land records under or pursuant to any Environmental Law
with respect to Lessee's Premises and, to Lessee's knowledge, no
Governmental Authority has been taking or is in the process of taking
any action that could subject the Premises to Liens under any
Environmental Law.
(vi) There have been no environmental investigations,
studies, audits, reviews or other analyses conducted by or on behalf of
Lessee that are in the possession or control of Lessee in relation to
the Premises which have not been provided to Lender.
(vii) No conditions exist which would require Lessee
under any Environmental Laws to place a notice on any deed to its
Premises with respect to the presence, Use or Release of Hazardous
Substances at, on, in, under or from the Premises and the Premises has
no such notice in its deed.
SECTION 26.2 Enforceability. This Lease contains the legal, valid and
binding obligations of Lessee, enforceable against Lessee in accordance with its
terms, subject to bankruptcy, insolvency and other limitations on creditors'
rights generally and to equitable principles.
SECTION 26.3 Additional Nursing Home Representations and Warranties
(A) Third Party Payors. There is no threatened or
pending revocation, suspension, termination, probation, restriction, limitation,
or non-renewal affecting Lessee or the Premises or any participation or provider
agreement with any third party payor (including Medicare, Medicaid, Blue Cross
and/or Blue Shield, and any other private commercial insurance managed care and
employee assistance program) (such programs, the "Third Party Payors' Programs")
to which Lessee presently is subject. All Medicaid, Medicare, and private
insurance cost reports and financial reports submitted by Lessee are and will be
materially accurate and complete and have not been and will not be misleading in
any material respects. No cost reports for the Premises remain "open" or
unsettled, except as otherwise disclosed.
(B) Governmental Proceedings and Notices. Neither
Lessee nor the Premises is currently the subject of any proceeding by any
Governmental Authority, and no notice of any violation has been received from a
Governmental Authority that would, directly or indirectly, or with the passage
of time:
(i) have a Material Adverse Effect on
Lessee's ability to accept and/or retain patients or result in the
imposition of a fine, a sanction, a lower rate certification or a
lower reimbursement rate for services rendered to eligible patients;
(ii) modify, limit or annul or result in
the transfer, suspension, revocation or imposition of probationary
use of Lessee's Licenses; or
(iii) affect Lessee's continued
participation in the Medicaid or Medicare programs or any other of
the Third Party Payors' Programs, or any successor programs thereto,
at current rate certifications.
(C) Physical Plant Standards. The Premises and the
use thereof complies in all material respects with all applicable
local, state and federal building codes, fire codes, health care,
nursing facility and other similar regulatory requirements (the
"Physical Plant Standards") and no waivers of Physical Plant Standards
exist at such the Premises.
(D) Past Violations. The Premises has not received a
"Level A" (or equivalent) violation, and no statement of charges or
deficiencies has been made or penalty enforcement action has been
undertaken against the Premises or against Lessee or against any
partner, member, officer, director or stockholder of Lessee by any
Governmental Authority during the last three calendar years, and there
have been no violations over the past three years which have threatened
the Premises or Lessee's certification for participation in Medicare or
Medicaid or the other Third Party Payors' Programs.
(E) Audits. There are no current, pending or
outstanding Medicaid, Medicare or Third Party Payors' Programs
reimbursement audits or appeals pending at the Premises, and there are
no years that are subject to audits.
(F) Recoupment. There are no current or pending
Medicaid or Medicare or Third Party Payors' Programs recoupment efforts
at the Premises. The Lessee is not a participant in any federal program
whereby any Governmental Authority may have the right to recover funds
by reason of the advance of federal funds, including, without
limitation, those authorized under the Hill-Burton Act (42 U.S.C. 291,
et seq.).
(G) Pledges of Receivables. Lessee has not pledged
its receivables as collateral security for any other loan or
indebtedness.
SECTION 26.4 ISRA
The Premises is not an "industrial establishment" as defined
by the Industrial Site Recovery Act, NJSA B:1K-6 et seq., as amended.
IN WITNESS WHEREOF, this Lease has been executed as of the day and
year first above written.
Lessor:
CONTINENTAL NORWOOD HOLDINGS, INC.
By:____________________________
Name:__________________________
Title:_________________________
WITNESS OR ATTEST:
By:________________________
LESSEE:
SENIOR CARE FOUNDATION, INC.
By:______________________________
Name:____________________________
Title:___________________________
WITNESS OR ATTEST
By:________________________
EXHIBIT A
Legal Description of Premises
SCHEDULE 4.1
ANNUAL RENT SCHEDULE
The Base Rent shall be $200,000 monthly of which $20,000 shall be allocated to
the rental of Equipment.
SCHEDULE 25.4
Addresses for Notices
(a) If intended for Lessor:
Senior Care Foundation, Inc.
c/o Continental Health Affiliates, Inc.
910 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Attention: Benjamin Geizhals
(b) If intended for Lessee:
Continental Norwood Holdings, Inc.
c/o Continental Health Affiliates, Inc.
910 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Attention: Benjamin Geizhals
With a copy to:
Shepisi & McLaughlin, P.A.
473 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Attention: Joseph Shepisi, Esq.
(c) If intended for Lender:
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
Attention: Gregory Anderson
Facsimile No.: 212-667-1022
With a copy to:
Dechert Price & Rhoads
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, Pennsylvania 19013
Attention: Joseph B. Heil, Esq.
Facsimile No.: 215-994-2222
MANAGEMENT AGREEMENT
AGREEMENT dated as of October 31, 1995, by and among TNS
NURSING HOMES, INC., a Delaware corporation (the "Manager") and
CONTINENTAL NORWOOD HOLDINGS, INC., a New Jersey corporation (the "Owner").
BACKGROUND
The Owner is the owner of a certain long-term care facility located in the
Borough of Norwood, Bergen County, New Jersey known as HERITAGE AT NORWOOD (the
"Facility").
desire that the Manager assume full operation and management of the Facility
pursuant to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Appointment.
The Owner hereby retains the Manager and the Manager accepts such retention
and agrees to make available services in accordance with the terms of this
Agreement.
2. Authority, Duties and Responsibilities.
(a) The Owner retains ultimate responsibility for the Facility.
(b) The Manager shall be responsible for the management and the day-to-day
operations of the Facility. responsibilities include the health care component
nursing, dietary, resident therapies) maintenance of building and grounds,
housekeeping, financial, marketing, purchasing and other services as set forth
in this Agreement.
(c) As specified in this Agreement, the Owner hereby authorizes, empowers
and directs the Manager, in conjunction with and on behalf of the Owner, to
perform and undertake all reasonable acts and duties which the Manager, in its
discretion, deems necessary and desirable to ensure the efficient and proper
operation of the Facility including, but not limited to, the acts and duties
expressed and contemplated by this Agreement.
(d) The Manager shall report only to a designee selected by the Board of
Directors of the Owner in regard to all matters pursuant to this Agreement and
shall not be required to report to any other person or entity.
(e) The Manager is acting under this Agreement as an independent contractor
and nothing herein contained, nor any acts by the Manager or the Owner, nor any
other circumstances shall be construed to establish the Manager as an agent of
the Owner, except to the extent specified by this Agreement.
2.1 Maintenance of Standards.
2.1-1 Standards of Health Care. The Manager shall assure that:
(a) the Facility complies with all accreditation standards and
requirements of the applicable State Department of Health requirements and all
applicable federal, state and local laws, rules and regulations, quality and
safety standards and all accredited standard requirements regarding compliance
with all of the foregoing laws shall be met; and
(b) all licenses, permits and certificates required for the operation
of the Facility are maintained in the name of and at the expense of the Facility
and Owner is the licensee on all such licenses.
2.2 Fiscal Matters.
2.2-1 Preparation of the Annual Budgets, Employee Compensation. The Manager
shall prepare annual operating and capital plans ("Plans") for the Facility
which shall set forth material operating objectives, anticipated revenues
(including proposed changes for services to the Facility's patients), expenses,
cash flow and capital expenditures. Such Plans will be submitted to the Owner at
least thirty (30) days prior to the commencement of each year. Such Plans shall
be in conformity with all of the terms and provisions of a certain Loan
Agreement of even date herewith between Owner and NOMURA ASSET CAPITAL
CORPORATION (hereinafter "NOMURA" or "Lender") (hereinafter "Loan Agreement"),
the terms and provisions of which are incorporated herein by reference.
2.2-2 Accounting Records. The Manager shall establish, supervise, direct
and maintain the operation of a suitable accounting system for the Facility
within the Facility and at such other locations as the Manager shall deem
appropriate and at the Facility's expense in a manner conforming to the
directives of the Owner, all applicable third party payors and any lender of
funds to the Facility. In addition to the foregoing, Manager shall maintain all
of such books and records and shall provide all financial reporting in
conformity with the Loan Agreement.
2.2-3 Deposit and Disbursement of Funds: Collection of Accounts. The
Manager, in the name of and as agent for the Facility, shall deposit in
Facility's bank account all receipts arising from the operation of the Facility
received by the Manager on behalf of the Facility, and shall ensure that
disbursements from such accounts are made on behalf of the Facility in such
amounts and at such times as may be required to conduct the business of the
Facility. Persons shall be selected from time to time by mutual agreement of the
Owner and the Manager to sign checks drawn on such bank accounts due the
Facility and shall initiate in the name of and at the expense of the Facility,
any and all legal actions or proceedings necessary to collect charges or other
income due the Facility. In addition to the foregoing, Manager shall conform to
all of the obligations of Owner under Section 2.12 of the Loan Agreement, and
the terms and provisions therein set forth are hereby incorporated by reference
as if set forth at length herein.
2.2-4 Legal Actions. The Manager shall initiate in the name of and at the
expense of the Facility, any and all legal actions or proceedings necessary, to
enforce any agreements between the Facility and third parties or otherwise, and
to seek appropriate relief and/or collect damages for breach or default by any
such third party.
2.2-5 Insurance. The Manager shall review periodically with an insurance
consultant selected by the Manager the insurance program of the Facility and
make such changes in such insurance program as required by the business of the
Facility. If the Owner uses Manager's insurance program, it will reimburse
Manager for the cost of its participation in said program. All insurance shall
be placed with such companies, on such conditions, in such amounts, and with
such beneficial interest appearing thereon as shall be acceptable to the Owner
and the Manager. The Manager shall investigate and furnish the Owner with full
reports as to all accidents, claims, and potential claims for damage relating to
the Facility and shall cooperate with the insurers in connection therewith. In
addition to the foregoing, Manager shall comply with all of the insurance
provisions set forth in the Loan Agreement and the Mortgage (as defined in the
Loan Agreement), which provisions shall be deemed to control in the event of a
conflict between this document and the Loan Agreement.
2.2-6 Rates. The parties recognize the importance of maintaining room and
other rates to pay obligations while containing health care costs. The Manager
will institute appropriate rate changes which take into account the financial
obligations of the facility while providing quality health care at a reasonable
cost. Notwithstanding the foregoing, during the period that the loan is
outstanding, Lender's written consent, as set forth in the Loan Agreement, must
be obtained prior to decreasing any rate.
2.3 Contracts and Purchases.
2.3-1 Operating Supplies; Prices. The Manager shall, in the name of and for
the account of the Facility, cause the purchases of the food, beverages,
equipment, operating supplies and other material and supplies which may be
needed for the maintenance
3. Compensation of Manager; Expenses.
3.1 As Manager's compensation for the services to be provided hereunder, Manager
shall receive the following compensation: A fee equal to five percent 5% of the
Facility's gross revenues, calculated and payable quarterly based upon the prior
quarter, such payment to be made by the thirtieth day following the end of such
quarter. If any part of the fee required to be paid under this Section remains
unpaid for a period of 30 days, it shall accrue interest until paid at the rate
of one percent 1% over the prime rate published from time to time in the Wall
Street Journal.
3.2 In addition to the compensation and subject to the limitations set forth
herein, the Manager shall be reimbursed for all reasonable incremental and
direct expenses incurred by the Manager in connection with the performance of
its service hereunder, including, without limitation, legal expenses, auditing
fees, extraordinary travel expenses, expenses for consultants, experts and
professionals and the like. Such expenses shall be reimbursed within thirty (30)
days after submission of the Manager's written request for reimbursement
accompanied by reasonable documentation.
4. Term. The term of this Agreement shall be one hundred eighty one (181) months
which shall commence as of the date hereof, and shall be automatically renewed
for successive five (5) year terms unless written notice not to renew is
delivered by either party six (6) months prior to the end of any term. The
foregoing provisions shall be subject to the rules and regulations of the
Department of Health.
5. Termination.
5.1 Termination by Owner. The Owner may terminate this Agreement at any time
upon delivery of written notice ("Termination Notice") if any of the following
shall occur:
(a) The Manager shall default in the performance of any material term,
condition or representation of this Agreement and such default, shall continue
for a period of thirty (30) days after written notice to the Manager stating the
specific default. If the default by the Manager is a monetary default, there
shall be no notice required and no grace period.
(b) The Manager shall apply for or consent to the appointment of a
receiver, trustee or liquidator of the Manager or of all or a substantial part
of its assets, file a voluntary petition in bankruptcy, or admit in writing its
inability to pay its debts as they become due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency laws; or
(c) Proceedings in bankruptcy, or for the reorganization of the Manager, or
for the readjustment of any of its debts under the Bankruptcy Code, as amended,
or any part thereof, or under any other laws, whether state or federal for the
relief of debtors, now or hereafter existing, shall be commenced against the
Manager, or an appointment of a receiver or trustee for the Manager or any
proceedings shall be instituted for the dissolution or liquidation of the
Manager or of all or a substantial part of its assets, provided, however, that
the foregoing actions are not withdrawn or dismissed within ninety (90) days; or
(d) If the Manager performs any unethical or illegal actions with respect
to its management of the Facility; or
(e) Any federal, state, or local law, rule or regulation is enacted or
adopted which would prohibit the relationship established between the parties
hereunder or any material provision herein is determined by a court of competent
jurisdiction to be unenforceable.
The termination will be effective thirty (30) days after the Termination
Notice is given or such longer time as may be required by the New Jersey
Department of Health Regulation.
5.2 Conditions to Termination by Owner.
(a) In the event that the Owner elects to terminate this Agreement pursuant
to paragraph 5.1, the following conditions must be satisfied:
(1) All sums owing by the Owner to the Manager shall have been
repaid in full prior to the termination dated.
(2) Nothing in this Agreement shall be interpreted to require
Manager to abandon the Facility and its residents until a suitable and approved
successor Manager is retained.
5.3 Termination by NOMURA. This Agreement may be terminated by NOMURA or the
Owner upon thirty (30) days prior written notice to the Manager:
(a) Upon the occurrence and continuance of an Event of Default.
(b) If the Manager commits any act which would permit termination by the
owner under this Management Agreement or,
(c) In the event that the Adjusted Net Operating Income for all Facilities,
as defined in the Loan Agreement, calculated (as of the end of any Interest
Accrual Period), computed on the basis of the prior twelve (12) months, is less
than 80% of the Base NOI for all Facilities.
5.4 Termination by the Manager. Manager may terminate this Agreement at any time
upon delivery of written notice ("Termination Notice") if any of the following
shall occur:
(a) The Owner shall default in the performance of any material term,
condition or representation of this Agreement and such default shall continue
for a period of forty-five (45) days after written notice to the Owner from the
Manager stating the specific default; or
(b) The Owner shall apply for or consent to the appointment of a receiver,
trustee or liquidator of the Owner or of all or a substantial part of its
assets, file a voluntary petition in bankruptcy, or admit in writing its
inability to pay its debt as they become due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law; or
(c) Proceedings in bankruptcy, or for the reorganization of the Owner, or
for the readjustment of any of its debts under the Bankruptcy Code, as amended,
or any part thereof, or under any other laws, whether state or federal for the
relief of debtors, now or hereafter existing, shall be commenced against the
Owner, or any appointment of a receiver or trustee for the Owner or any
proceedings shall be instituted for the dissolution or liquidation of the Owner
or of all or a substantial part of its assets; provided, however, that the
foregoing actions are not withdrawn or dismissed within ninety (90) days; or
(d) Any federal, state, or local law, rule or regulation is enacted or
adopted which would prohibit the relationship established between the parties
hereunder or any material provision herein is determined by a court of competent
jurisdiction to be unenforceable.
The termination will be effective ninety (90) days after the Termination
Notice is given. Manager shall be entitled to all compensation through the
effective date of such Termination.
5.5 Conditions to Termination. Upon termination of this Agreement, the Owner and
Manager shall account to each other with respect to all matters outstanding as
of the date of termination. All property of the Owner in possession of the
Manager, including without limitation, books and records shall be delivered to
the Owner upon termination of this Agreement. The Owner and Manager shall each
have the right to set-off amounts owed by the other against amounts owed to the
other. The Manager does hereby agree that any setoff rights that the Manager has
against the Owner are subordinate to NOMURA's pursuant to the Managers Consent
and Subordination Agreement.
6. Protection of Facility. Notwithstanding any provision herein to the contrary,
the Owner shall have the right to take reasonable measures to protect the
Facility and itself from any damage that might occur as a result of the
Manager's failure to comply with the terms and conditions of this Agreement.
7. Indemnification. The Owner hereby indemnifies and holds harmless the Manager
from any and all loss, liability or expense (including reasonable attorneys'
fees) relating to or arising out of any claims, injuries or damages to persons
or property in connection with the operation of the Facility not caused by the
Manager's gross negligence, willful acts or a failure of Manager to discharge
its obligations hereunder. The Manager shall indemnify and hold harmless the
Owner from any and all loss, liability or expenses (including reasonable
attorneys' fees) caused by Manager's breach of any terms or conditions under
this Agreement or by Manager's gross negligence or willful failure in the
performance of its duties hereunder. Notwithstanding any other provision of this
Agreement, the obligations of the Owner and the Manager under this section shall
survive termination of the Agreement. Any indemnification by Owner to the
Manager is fully subordinate to all obligations of the Owner to Nomura under the
loan documents.
8. Representations and Warranties of the Owner. The Owner represents and
warrants to the Manager as follows:
8.1 The Owner is a duly formed and validly existing corporation under the laws
of New Jersey. The Owner does not engage in any business activity other than the
ownership and operation of the Facility.
8.2 All corporate actions necessary to approve this Agreement have been taken by
the Owner, and this Agreement constitutes a valid and binding obligation of the
Owner binding in accordance with its terms.
8.3 The Owner will cause to be delivered to the Manager prior to the effective
date of this Agreement such evidence as shall be deemed necessary or appropriate
by Manager's counsel to evidence ownership of the Facility, the due
organization, formation and valid existence of the Owner and the due
authorization and delivery of this Agreement including, without limitation,
certified copies of articles of incorporation and amendments and certified
copies of corporate resolutions and an incumbency certificate.
8.4 The Owner will not incur any additional debt, accelerate the payment of
principal on any debt or make any capital expenditure with respect to the
Facility without the consent of the Manager which shall not be unreasonably
withheld.
9. Representations and Warranties of the Manager. The Manager represents and
warrants to the Owner as follows:
9.1 Organization. Manager (i) is a duly organized and validly existing
corporation in good standing under the laws of the State of its formation, (ii)
has the requisite corporate power and authority to carry on its business as now
being conducted, and (iii) has the requisite corporate power to execute and
deliver, and perform its obligations under the Loan Documents.
9.2 Authorization. The execution and delivery by Manager of the Loan Documents,
Manager's performance of its obligations thereunder and the creation of the
security interests and Liens provided for in the Loan Documents (i) have been
duly authorized by all requisite corporate action on the part of Manager, (ii)
will not violate any provision of any Legal Requirements, any order of any court
or other Governmental Authority, the articles of incorporation or by-laws of
Manager or any indenture or material agreement or other instrument to which
Manager is a party or by which Manager is bound, (iii) will not be in conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under, or result in the creation or imposition of any Lien of
any nature whatsoever upon any of the property or assets of Manager pursuant to,
any such indenture or material agreement or instrument and (iv) have been duly
executed and delivered by Manager. Other than those obtained or filed on or
prior to the Closing Date, Manager is not required to obtain any consent,
approval or authorization from, or to file any declaration or statement with,
any Governmental Authority or other agency in connection with or as a condition
to the execution, delivery or performance of the Loan Documents.
9.3 Single-Purpose Entity.
(i) Manager at all times since its formation has been, and will continue to
be, a duly formed corporation. and existing
(ii) Manager at all times since its formation has complied, and will
continue to comply, with the provisions of its articles of incorporation, and
the laws of the formation relating to corporations.
(iii) All customary formalities regarding the State of its corporate
existence of Manager have been observed at all times since its formation and
will continue to be observed.
(iv) Manager has been at all times since its formation and will continue to
be adequately capitalized in light of the nature of its business.
9.4 Litigation. There are no actions, suits or proceedings at law or in equity
by or before any Governmental Authority or other agency now pending and served
or, to the knowledge of Manager, threatened against Manager or the Facility,
which actions, suits or proceedings, if determined against Manager or the
Facility, might result in a Material Adverse Effect.
9.5 Agreements. Manager is not a party to any agreement or instrument or subject
to any restriction which is reasonably likely to have a Material Adverse Effect.
Manager is not in default in any material respect in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any agreement or instrument to which it is a party or by which Manager or the
Facility is bound.
9.6 No Bankruptcy Filing. Manager is not contemplating either the filing of a
petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a major portion of Manager's assets or property, and
Manager has no knowledge of any Person contemplating the filing of any such
petition against it.
9.7 Full and Accurate Disclosure. No statement of fact made by or on behalf of
Manager in the Loan Documents or in any other document or certificate delivered
to Lender contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained herein or therein not
misleading. There is no fact presently known to Manager which has not been
disclosed to Lender which adversely affects, nor as far as Manager can foresee,
might adversely affect the business, operations or condition (financial or
otherwise) of Manager.
9.8 Compliance. Manager, the Facility and Manager's use thereof and operations
thereat comply in all material respects with all applicable Legal Requirements,
including without limitation, building and zoning ordinances and codes. Manager
is not in default or violation of any order, writ, injunction, decree or demand
of any Governmental Authority, the violation of which is reasonably likely to
have a Material Adverse Effect.
9.9 Other Debt and Obligations. Manager has no material financial obligation
under any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which Manager is a party incurred in the ordinary course of
business relating to the ownership and operation of the Facility or by which
Manager or the Facility is bound, other than unsecured trade payables incurred
in the ordinary course of business relating to the ownership and operation of
the Facility which are paid within sixty (60) days of the date incurred, except
for outstanding trade payables existing as of the Closing Date which do not
require payment within sixty (60) days, and other than obligations under the
Related Mortgage and the other Loan Documents. Manager has not borrowed or
received other debt financing that has not been heretofore repaid in full and
Manager has no known material contingent liabilities.
9.10 ERISA. Each Plan, and, to the knowledge of Manager, each Multiemployer
Plan, is in compliance in all material respects with, and has been administered
in all material respects in compliance with, its terms and the applicable
provisions of ERISA, the Code and any other federal or state law, and no event
or condition has occurred and is continuing as to which Manager would be under
an obligation to furnish a report to Lender.
9.11 Solvency. Manager (i) has not entered into this Loan Agreement or any Loan
Document with the actual intent to hinder, delay, or defraud any creditor, and
(ii) has received reasonably equivalent value in exchange for its obligations
under the Loan Documents. Giving effect to the transactions contemplated hereby,
the fair saleable value of Manager's assets exceeds and will, immediately
following the execution and delivery of this Agreement, exceed Manager's total
liabilities, including, without limitation, subordinated, unliquidated or
disputed liabilities or Contingent Obligations. The fair saleable value of
Manager's assets is and will, immediately following the execution and delivery
of this Agreement, be greater than Manager's probable liabilities, including the
maximum amount of its Contingent Obligations or its debts as such debts become
absolute and matured. Manager's assets do not and, immediately following the
execution and delivery of this Agreement, will not, constitute unreasonably
small capital to carry out its business as conducted or as proposed to be
conducted. Manager does not intend to, and does not believe that it will, incur
debts and liabilities (including, without limitation, Contingent Obligations and
other commitments) beyond its ability to pay such debts as they mature (taking
into account the timing and amounts to be payable on or in respect of
obligations of Manager).
9.12 Not Foreign Person. Manager is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Code.
9.13 Enforceability. The Loan Documents are the legal, valid and binding
obligation of Manager, enforceable against Manager in accordance with their
terms, subject to bankruptcy, insolvency and other limitations on creditors'
rights generally and to equitable principles and the other matters described in
the opinions delivered pursuant to Section 3.1 of the Loan Agreement.
9.14 Investment Company Act: Public Utility Holding Company Act. Manager is not
(i) an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended,
(ii) a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
9.15 No Defaults. No Default or Event of Default exists under or with respect to
any Loan Document.
9.16 Labor Matters. Manager is not a party to any collective bargaining
agreements.
9.17 Financial Information. All historical financial data concerning Manager and
the Facility that has been delivered by Manager to Lender is true, complete and
correct in all material respects. Since the delivery of such data, except as
otherwise disclosed in writing to Lender, there has been no material adverse
change in the financial position of Manager, the Facility, or in the results of
operations of Manager. Manager has not incurred any obligation or liability,
contingent or otherwise, not reflected in such financial data which might
materially adversely affect its business operations or the Facility.
9.18 Other Debt. Except for unsecured trade payables incurred in the ordinary
course of business relating to the operation of the Facility which are paid
within sixty (60) days of the date incurred, except for outstanding trade
payables existing as of the Closing Date which do not require payment within
sixty (60) days. Manager has not borrowed or received other debt financing
whether unsecured or secured by the Facility or any part thereof.
9.19 Enforceability. The Loan Documents executed by Manager in connection with
the Loan, including, without limitation, any Related Collateral Security
Instrument, contain the legal, valid and binding obligations of Manager,
enforceable against Manager in accordance with their terms, subject to
bankruptcy, insolvency and other limitations on creditors' rights generally and
to equitable principles and the other matters described in the opinions
delivered pursuant to Section 3.1(a)(B) of the Loan Agreement. Manager has not
asserted any right of rescission, setoff, counterclaim or defense with respect
thereto.
9.20 Use of Facilities. The Facility is used exclusively as a nursing home and
uses ancillary thereto.
9.21 Certificate of Occupancy. Manager has obtained (in its own name, or in
Manager's name), all Permits necessary to use and operate the Facility for the
use described in Section 4.1(d)(AB) of the Loan Agreement. The use being made of
the Facility is in conformity in all material respects with the certificate of
occupancy and/or Permits for such Facility and any other restrictions, covenants
or conditions affecting such Facility.
9.22 Nursing Home Representation.
(i) Compliance with Laws. Manager and the Facility comply with all
applicable federal, state and local laws, regulations, quality and safety
standards, accreditation standards and requirements of the applicable state
Department of Health (each a "DOH") and all other Governmental Authorities
including, without limitation, those relating to the quality and adequacy of
medical care, distribution of pharmaceuticals, rate setting, equipment,
personnel, operating policies, additions to facilities and services and fee
splitting.
(ii) Licenses. All governmental licenses, permits, regulatory agreements or
other approvals or agreements necessary or desirable for the use and operation
of the Facility as intended are held by the Manager and are in full force and
effect, including, without limitation a valid certificate of need ("CON") or
similaran issued by the DO for the certificate, license, or approval requisite
number of beds, and approved provider status in any approved provider payment
program (collectively, the "Licenses").
(iii) Ownership of Licenses. The Licenses, including without limitation,
the CON:
(a) may not be, and have not been, transferred to any location other
than the Facility;
(b) have not been pledged as collateral security for any other loan
or indebtedness; and
(c) are held free from restrictions or known conflicts which would
materially impair the use or operation of the Facility as intended, and are not
provisional, probationary or restricted in any way.
(iv) Medicare and Medicaid Compliance. The Facility is in compliance with
all requirements for participation in Medicare and Medicaid, including without
limitation, the Medicare and Medicaid Patient and Program Protection Act of
1987. Such Facility is in conformance in all material respects with all
insurance, reimbursement and cost reporting requirements, and has a current
provider agreement which is in full force and effect under Medicare and
Medicaid.
(v) Third Party Payors. There is no threatened or Pending revocation,
suspension, termination, probation, restriction, limitation, or non-renewal
affecting Manager or the Facility or any participation or provider agreement
with any third party (including Medicare, Medicaid, Blue Cross and/or Blue
Shield, and any other private commercial insurance managed care and employee
assistance program) (such programs, the "Third Party Payors' Programs") to which
Manager presently is subject. All Medicaid, Medicare, and private insurance cost
reports and financial reports submitted by Manager are and will be materially
accurate and complete and have not been and will not be misleading in any
material respects. No cost reports for the Facility remain "open" or unsettled,
except as otherwise disclosed.
(vi) Governmental Proceedings and Notices. Neither Manager nor the Facility
is currently the subject of any proceeding by any Governmental Authority, and no
notice of any violation has been received from a Governmental Authority that
would, directly or indirectly, or with the passage of time:
(a) have a Material Adverse Effect on Manager's ability to accept
and/or retain patients or result in the imposition of a fine, a sanction, a
lower rate certification or a lower reimbursement rate for services rendered to
eligible patients;
(b) modify, limit or annul or result in the transfer, suspension,
revocation or imposition of probationary use of Manager's Licenses; or
(c) affect Manager's continued participation in the Medicaid or
Medicare programs or any other of the Third Party Payors' Programs, or any
successor programs thereto, at current rate certifications.
(vii) Physical Plant Standards. The Facility and the use thereof complies
in all material respects with all applicable local, state and federal building
codes, fire codes, health care, nursing facility and other similar regulatory
requirements (the "Physical Plant Standards") and no waivers of Physical Plant
Standards exist at such Facility.
(viii) Past Violations. The Facility has not received a "Level A" (or
equivalent) violation, and no statement of charges or deficiencies has been made
or penalty enforcement action has been undertaken against such Facility or
against Manager or against any partner, member, officer, director or stockholder
of Manager by any Governmental Authority during the last three calendar years,
and there have been no violations over the past three years which have
threatened such Facility's or Manager's certification for participation in
Medicare or Medicaid or the other Third Party Payors' Programs.
(ix) Audits. There are no current, pending or outstanding Medicaid,
Medicare or Third Party Payors' Programs reimbursement audits or appeals pending
at the Facility, and there are no years that are subject to audits.
(x) Recoupment. There are no current or pending Medicaid or Medicare or
Third Party Payors' Programs recoupment efforts at the Facility. The Manager is
not a participant in any federal program whereby any Governmental Authority may
have the right to recover funds by reason of the advance of federal funds,
including, without limitation, those authorized under the HillBurton Act (42
U.S.C. 291, et seq.).
(xi) Pledges of Receivables. Manager has not pledged its receivables as
collateral security for any other loan or
in debt so a:
(xii) Patient Care Agreements. There are no patient or resident care
agreements with patients or residents or with any other persons which deviate in
any material adverse respect from the standard form customarily used at the
Facility.
(xiii) Patient Records. All patient or resident records at the Facility,
including patient or resident trust fund accounts, are true and correct in all
material respects.
(xiv) Management and Operating Agreements. Any existing Management
Agreement with respect to the Facility is in full force and effect and is not in
default by any party thereto. In the event any Management Agreement is
terminated or in the event of foreclosure or other acquisition of such Facility
by the Lender, neither the Manager, the Lender, nor any subsequent operator or
any subsequent purchaser must obtain a CON prior to applying for and receiving a
license to operate such Facility or prior to receiving Medicare or Medicaid
payments.
9.23 Conduct of Business. Manager does not conduct its siness "also known as,"
"doing business as`' or under any other name other than TNS Nursing Homes Inc.
9.24 Requirements; Insurance. Manager shall do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its corporate
existence, rights, licenses, Permits and franchises necessary for the conduct of
its business and shall comply in all material respects with all Legal
Requirements and Insurance Requirements applicable to it and the Facility.
Manager shall notify Lender promptly of any written notice or order that the
Manager receives from any Governmental Authority with respect to the Manager's
compliance with such Legal Requirements relating to the Facility and promptly
take any and all actions necessary to bring its operations at the Facility into
compliance with such Legal Requirements (and shall fully comply with the
requirements of such Legal Requirements that at any time are applicable to its
operations at such Facility) provided, that the Manager at its expense may,
after prior notice to the Lender, contest by appropriate legal, administrative
or other proceedings conducted in good faith and with due diligence, the
validity or application, in whole or in part, of any such Legal Requirements as
long as (i) neither the applicable Collateral nor any part thereof or any
interest therein, will be sold, forfeited or lost if the Manager pays the amount
or satisfies the condition being contested, and the Manager would have the
opportunity to do so, in the event of the Manager's failure to prevail in the
contest, (ii) Lender would not, by virtue of such permitted contest, be exposed
to any risk of any civil liability for which the Manager has not furnished
additional security as provided in clause (iii) below, or to any risk of
criminal liability, and neither the applicable Collateral nor any interest
therein would be subject to the imposition of any Lien provided in clause (iii)
below as a result of the failure to comply with such Legal Requirement or of
such proceeding and (iii) the Manager shall have furnished to the Lender
additional security in respect of the claim being contested or the loss or
damage that may result from the Manager's failure to prevail in such contest in
such amount as may be reasonably requested by the Lender but in no event less
than 125% of the amount of such claim. Manager shall at all times maintain,
preserve and protect all franchises and trade names and preserve all the
remainder of its property necessary for the continued conduct of its business
and keep the Facility in good repair, working order and condition, except for
reasonable wear and use, and from time to time make, or cause to be made, all
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Related Mortgage. Manager shall keep the
Facility insured at all times, by financially sound and reputable insurers, to
such extent and against such risks, and maintain liability and such other
insurance, as is more fully provided herein and in the Related Mortgage.
9.25 Impositions and Other Claims. Manager shall cause to be paid and discharged
all Impositions, as well as all lawful claims for labor, materials and supplies
or otherwise, which could become a Lien, all as more fully provided in, and
subject to any rights to contest contained in, the Related Mortgage.
9.26 Litigation. Manager shall give prompt written notice to Lender of any
litigation or governmental proceedings pending or threatened against Manager
which is reasonably likely to have a Material Adverse Effect.
9.27 Copies of Notices. Manager shall immediately transmit to Lender copies of
any citations, orders, notices or other written communications received from any
Person or any Governmental Authority and any notices, reports or other written
communications submitted to any Governmental Authority with respect to the
matters described in Section 5.1(F) of the Loan Agreement.
9.28 Access to Facilities. Manager shall permit agents, representatives and
employees of Lender to inspect the Facility or any part thereof at such
reasonable times as may be requested by Lender upon advance notice, subject,
however, to the rights of the tenants, occupants and guests of such Facility.
9.29 Notice of Default. Manager shall promptly advise Lender of any material
adverse change in Manager's condition, financial or otherwise, or of the
occurrence of any Event of Default, or of the occurrence of any Default.
9.30 Cooperate in Legal Proceedings. Except with respect to any claim, Manager
shall cooperate fully with Lender with respect to any proceedings before any
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, not prohibit Lender, at its election, from
participating in any such proceedings.
9.31 Insurance Benefits. Manager shall cooperate with Lender in obtaining for
Lender the benefits of any Insurance Proceeds lawfully or equitably payable to
Lender in connection with the Facility, and Lender shall be reimbursed for any
expenses incurred in connection therewith (including attorneys' fees and
disbursements and the payment by Manager of the expense of an Appraisal on
behalf of Lender in case of a fire or other casualty affecting such Facility or
any part thereof, but excluding internal overhead, administrative and similar
costs of Lender) out of such Insurance Proceeds, all as more specifically
provided in the Related Mortgage.
9.32 Conduct of Business. Manager shall cause the operation of the Facility to
be conducted at all times in a manner consistent with at least the level of
operation of the Facility as of the Closing Date, including, without limitation,
the following: (i) to maintain or cause to be maintained the standard of
operations at the Facility at all times at a level necessary to insure a level
of quality for such nursing home Facility consistent with similar nursing home
facilities in the same competitive market;
(ii) to operate or cause to be operated the Facility in a prudent manner in
compliance in all material respects with applicable Legal Requirements and
Insurance Requirements relating thereto and cause all licenses, Permits, and any
other agreements necessary for the continued use and operation of such Facility
to remain in effect; and
(iii) to maintain or cause to be maintained sufficient Inventory and
Equipment of types and quantities at the Facility to enable Manager to operate
the Facility.
9.33 Nursing Home Covenants. Manager shall:
(1) operate the in full compliance with the laws and requirements referred
to in Section 4.1(d)(AG)(i) of the Loan Agreement;
(2) operate the Facility or cause the Facility to be operated in a manner
such that the Licenses shall remain in full force and effect; and
(3) comply with all requirements for participation in Medicare and
Medicaid, and shall keep in full force and effect a current provider agreement
under Medicare and Medicaid.
9.34 Trade Indebtedness. Manager will pay its trade payables within sixty (60)
days of the date incurred, except for outstanding trade payables existing as of
the Closing Date which do not require payment within sixty (60) days, unless
Manager is in good faith contesting Manager's obligation to pay such trade
payables in a manner satisfactory to Lender (which may include Lender's
requirement that Manager post security with respect to the contested trade
payable).
9.35 Assignment of Licenses and Permits. Assign or transfer any of its interest
in any Permits pertaining to the Facility, or assign, transfer or remove or
permit any other Person to assign, transfer or remove any records pertaining to
the Facility without Lender's prior written consent, which consent may be
granted or refused in Lender's sole discretion.
9.36 Nursing Home Negative Covenants: Manager shall not:
(1) transfer the Licenses to any location other than the Facility nor shall
Manager pledge the Licenses as collateral security for any other loan or
indebtedness;
(2) rescind, withdraw, revoke, amend, modify, supplement, or otherwise
alter the nature, tenor or scope of the Licenses for the Facility;
(3) amend or otherwise change the Facility's authorized bed capacity and/or
the number of beds approved by the DOH;
(4) replace or transfer all or any part of the Facility's beds to another
site or location;
(5) jeopardize in any manner Manager's participation with any Third-Party
Payors' Programs to which Manager is subject as of the Closing Date;
(6) pledge its receivables as collateral security for any other loan or
indebtedness;
(7) enter into any patient or resident care agreements with patients or
residents or with any other persons which deviate in any material adverse
respect in the standard form customarily used at the Facility; or
(8) other than in the normal course of business, change the terms of any
of the Third Party Payors' Programs or its normal billing payment or
reimbursement policies and procedures with respect thereto (including without
limitation the amount and timing of finance charges, fees and write-offs).
10. Federal Government Access. To the extent required by Section 1861(v) (1) (I)
of the Federal Social Security Act:
(a) Until the expiration of four (4) years after the furnishing of services
pursuant to this Agreement, the Manager shall make available, upon written
request to the Secretary of Health and Human Services, or upon request to the
Comptroller General, or any of their duly authorized representatives, this
Agreement, and books, documents and records of the Manager that are necessary to
certify the nature and extent of the cost claimed to Medicare with respect to
the services provided under this Agreement.
(b) If the Manager carries out any of the duties of this Agreement through
a subcontract, with a value or cost of Ten Thousand Dollars ($10,000) or more
over a twelve (12) month period, with a related organization, until the
expiration of four (4) years after the furnishing of such services pursuant to
such subcontract, the Manager shall cause the related organization to make
available, upon written request to the Secretary of Health and Human Services,
or upon request to the Comptroller General, or any of their duly authorized
representatives, the subcontract and books, documents and records of such
related organization that are necessary to verify the nature and extent of the
costs claimed to Medicare with respect to the services provided under this
Agreement.
11. Conflict with Loan Documents.
In the event this Management Agreement conflicts with the Loan Documents or
with the Managers Consent And Subordination Agreement, then the other applicable
loan documents shall control.
12. Term.
The provisions of this Agreement referring to NOMURA shall be binding upon
the parties to this Agreement for as long as Owner remains liable to NOMURA or
any of its assigns or successors.
13. Compliance with Loan Agreement.
Notwithstanding anything contained herein to the contrary, Manager shall
perform its obligations under the Management Agreement and the other Additional
Collateral (as defined in the Manager's Consent and Subordination Agreement (as
defined in the Loan Agreement)) in a manner which causes Owner to comply with
the Loan Agreement and the other Loan Documents (as defined in the Loan
Agreement).
13.1 Manager shall take all reasonable steps to assist Owner in complying with
the covenants set forth in the definition of Single Purpose Entity in the Loan
Agreement. In addition, Manager: (i) will not fail to correct any known
misunderstanding regarding the separate identity of Owner, (ii) will maintain
its accounts, books and records separate from Owner, (iii) will maintain its
books, records, resolutions and agreements as official records, (iv) will not
commingle its funds or assets with those of Owner, (v) will hold its assets in
its own name, (vi) will conduct its business in its name, (vii) will maintain
its financial statements, accounting records and other entity documents separate
from Owner, (viii) will observe all partnership, corporate or limited liability
company formalities as applicable, (ix) will maintain an arms-length
relationship with Owner, (x) will not assume or guarantee or become obligated
for the debts of Owner or hold out its credit as being available to satisfy the
obligations of Owner except for liabilities permitted by this Agreement, (xi)
will allocate fairly and reasonably any shared expenses, including but not
limited to, overhead for shared office space and use separate stationary,
invoices and checks, (xii) will not pledge its assets for the benefit of Owner,
(xii) will hold itself out and identify itself as a separate and distinct entity
under its own name and not as a division or part of Owner, (xiii) will not
identify its partners, members or shareholders, or any affiliates of any of them
as a division or part of it, (xiv) will not enter into or be a party to, any
transaction with Owner except in the ordinary course of its business and on
terms which are intrinsically fair and are no less favorable to it than would be
obtained in a comparable arms-length transaction with an unrelated third party.
14. Notices.
Any notice or other communication by either party to the other shall be in
writing and shall be deemed to have been given if either delivered personally or
by reputable overnight courier against receipt or mailed, postage prepaid,
registered or certified mail, addressed as follows:
To the Owner:
With a copy to: Benjamin Geishals, Esq.
c/o
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
To the Manager: TNS Nursing Homes, Inc.
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
With a copy to: Benjamin Geizhals, Esq.
c/o TNS Nursing Homes, Inc.
910 Sylvan Avenue
Englewood Cliffs, NJ 07632
Inc.
or to such other address, and to the attention of such other person or officer,
as any party may designate in writing.
15. Delay Waiver. Etc.
Except as specifically provided herein, no delay or omission by any party
in exercising any right upon any default by the other will impair any such right
or be construed as a waiver of any such default or any acquiescence of it. No
waiver of any default will affect any later default or impair any rights with
respect thereto. No single, partial or full exercise or any right will preclude
other or full exercise thereof.
16. Entire Agreement; Parties Bound.
This Agreement and the exhibits hereto contain the entire agreement between
the parties concerning the Facility, are subject to change only by a written
statement referring to this Agreement and signed by the parties, and will bind
and inure to the benefit of the parties hereto.
17. Assignment.
This Agreement, including the duties and obligations hereunder, may not be
assigned by any party without the prior written consent of the other parry.
18. Governing Law.
This Agreement shall be deemed to have been made and shall be construed and
interpreted in accordance with the laws of New Jersey.
19. Arbitration.
Any dispute or controversy between the parties relating to or arising out
of this Agreement or any amendment or Modification hereof, shall be determined
by arbitration in Bergen County, New Jersey pursuant to the rules then applying
of the American Arbitration Association. The arbitration award shall be final
and binding upon the parties and judgment may be entered thereon in the Superior
Court of the State of New Jersey, County of Bergen or in any other court of
competent jurisdiction. The service of any notice, process, motion or other
document in connection with an arbitration award hereunder may be effectuated by
either personal service upon a party or by certified mail duly addressed to him
or the executors, administrators, personal representatives, next of kin,
successors or assigns or a party at the address or addressed of such party or
parties.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed this Agreement on the date first above written.
TNS NURSING HOMES, INC.
By: /s/
CONTINENTAL NORWOOD HOLDINGS, INC., a Delaware corporation.
BY: /s/
Exhibit 11
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Calculation of Loss Per Share
(Dollars in thousands)
Year ended June 30, 1995
Primary Loss Per share:
Net loss applicable to common shareholders $ 597
===========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,826,309
Average net additional equivalent shares issuable --
-----------
Weighted average number of common and common
equivalent shares 7,826,309
===========
Loss per share $ (.08)
===========
The above does not give effect to the assumed conversion of the 6% SFr
convertible bonds since the effect is antidilutive as shown below:
Net loss applicable to common shareholders $ (597)
Add after tax effect of eliminating interest
expense applicable to 6% SFr convertible bonds 78
-----------
Net loss as adjusted $ (519)
===========
Weighted average number of common and common
equivalent shares 7,877,866
Additional weighted average shares from assuming
conversion of 6% SFr convertible bonds 65,540
Weighted average number of common and common
equivalent shares, as adjusted 7,943,406
===========
Loss per share $ (.07)
===========
Fully Diluted Earnings Per Share:
Net loss applicable to common shareholders $ (597)
===========
Weighted average number of shares outstanding 7,826,309
Add: Weighted average number of shares which could have been
issued upon exercise of outstanding options 51,557
-----------
Weighted average number of shares used to compute fully
diluted earnings per share 7,877,866
===========
Fully diluted loss per share $ (.08)
===========
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Calculation of Earnings Per Share
(Dollars in thousands)
Year ended December 31, 1994
Primary Earnings Per Share:
Net income available to common shareholders $ 282
===========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 7,783,425
Average net additional equivalent shares issuable --
-----------
Weighted average number of common and common equivalent shares 7,783,425
===========
Earnings per share $ .04
===========
The above does not give effect to the assumed conversion of the 6% SFr
convertible bonds since the effect is antidilutive as shown below:
Net income available to common shareholders $ 282
Add after tax effect of eliminating interest expense
applicable to 6% SFr convertible bonds 150
-----------
Net income as adjusted $ 432
===========
Weighted average number of common and common
equivalent shares 8,033,994
Additional weighted average shares from assuming
conversion of 6% SFr convertible bonds 65,540
-----------
Weighted average number of common and common
equivalent shares, as adjusted 8,099,534
===========
Earnings per share $ .05
===========
Fully Diluted Earnings Per Share:
Net income available to common shareholders $ 282
===========
Weighted average number of shares outstanding 7,783,425
Add: Weighted average number of shares which could have been
issued upon exercise of outstanding options 250,569
-----------
Weighted average number of shares used to compute fully diluted
earnings per share 8,033,994
===========
Fully diluted earnings per share $ .04
===========
CONTINENTAL HEALTH AFFILIATES, INC.
AND SUBSIDIARIES
Calculation of Earnings Per Share
(Dollars in thousands)
Year ended December 31, 1993
Net income $ 1,729
===========
Adjustment of shares outstanding:
Weighted average number of shares outstanding 5,189,519
Average net additional equivalent shares issuable --
-----------
Weighted average number of common and common equivalent shares 5,189,519
===========
Earnings per share $ .33
===========
The above does not give effect to the assumed conversion of the 6% SFr
convertible bonds since the effect is antidilutive as shown below:
Net income $ 1,729
Add after tax effect of eliminating interest expense
applicable to 6% SFr convertible bonds 264
-----------
Net income as adjusted $ 1,993
===========
Weighted average number of common and common
equivalent shares 5,261,870
Additional weighted average shares from assuming
conversion of 6% SFr convertible bonds 65,540
-----------
Weighted average number of common and common
equivalent shares, as adjusted 5,327,410
===========
Earnings per share $ .37
===========
Exhibit 21
SUBSIDIARIES OF CONTINENTAL HEALTH AFFILIATES, INC.
Alternative Care, Inc.
CH Acquisition Corp.
Cambridge Home Health Care, Inc.
Compremedx Corporation (formerly, Compremedx Cancer Centers
Corporation)
Compremedx Case Management, Inc. (formerly, Compremedx, Inc.)
Compremedx Rehabilitation Services, Inc.
Compremedx Medical Management, Inc.
Continental Property Management Corp.
Continental Nutrition Corp.
Medparc Development Corp.
Continental Florida Management, Inc.
Continental Home Care, Inc.
Marketech, Inc.
Continental Media, Inc.
Continental Pharmaceuticals International, Inc. (formerly,
Continental Sana International, Inc.)
First American-Norwood, Inc.
Infu-Tech, Inc. (a Delaware corporation)
Infu-Tech, Inc. (a New Jersey corporation)
Infu-Tech of Massachusetts, Inc.
Infu-Tech of New York, Inc.
Infu-Tech of Tennessee, Inc.
Intrx Medical, Inc.
Mid-South Comprehensive Home Health and Hospice, Inc.
Mid-South Staffing Services, Inc.
Temporary Nursing Services of California, Inc.
Temporary Nursing Services of Kansas, Inc.
Temporary Nursing Services of Philadelphia, Inc.
Temporary Nursing Services of Texas, Inc.
TNS Certified Home Health Care Corp.
TNS Home Life Support Systems, Inc.
TNS Nur-Temps, Inc.
TNS Nursing Homes, Inc.
Cape May Care Center, Inc.
Continental Beachview, Inc.
Continental Beachview Realty, Inc.
Continental Norwood, Inc.
Continental Norwood Holdings, Inc.
Continental Riverview, Inc.
Continental Teaneck Realty, Inc.
Hilltop Care Center, Inc.
Jayber, Inc.
PVM Associates, Inc.
Pompton Avenue Associates, Inc.
TNS Nursing Homes of Pennsylvania, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 546,000
<SECURITIES> 0
<RECEIVABLES> 9,750,000
<ALLOWANCES> 3,712,000
<INVENTORY> 1,686,000
<CURRENT-ASSETS> 10,435,000
<PP&E> 13,809,000
<DEPRECIATION> 3,875,000
<TOTAL-ASSETS> 29,675,000
<CURRENT-LIABILITIES> 16,495,000
<BONDS> 14,190,000
0
1,000
<COMMON> 156,000
<OTHER-SE> (125,000)
<TOTAL-LIABILITY-AND-EQUITY> 29,675,000
<SALES> 28,724,000
<TOTAL-REVENUES> 28,724,000
<CGS> 5,300,000
<TOTAL-COSTS> 29,648,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 979,000
<INTEREST-EXPENSE> 450,000
<INCOME-PRETAX> (562,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (562,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562,000)
<EPS-PRIMARY> (0.08)
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</TABLE>
