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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended December 31, 1996 or
[X] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to __________
Commission file number 0-17401
OPTIMUMCARE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-0218003
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, California 92677
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 495-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
-----------------------------
(Title of Class)
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
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The aggregate market value of the voting stock held by non-affiliates of the
Company on February 18, 1997 (5,677,673 shares of Common Stock) was $11,710,201
based on the bid price of the Company's voting stock on February 18, 1997.*
The number of shares outstanding of each of the Company's classes of Common
Stock, as of February 18, 1997 was:
Common Stock, - 6,811,218 shares
$.001 par value
Documents Incorporated by Reference
None.
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 registrants 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. X
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* This value is not intended to make any representation as to value or worth
of the Company's shares of Common Stock. The number of shares held by
non-affiliates of the Company has been calculated by subtracting shares held
by controlling persons of the Company from the number of issued and
outstanding shares of the Company.
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PART I
ITEM 1 - BUSINESS
(a) General Development of Business
OptimumCare Corporation (the "Company") was incorporated in California on
November 25, 1986 and was reincorporated in Delaware on June 29, 1987. In
mid-1987, the Company commenced the development and marketing of health care
facility-based programs ("Programs") to be managed by the Company for the
treatment of depression and certain other mental health disorders
("PsychPrograms"), as well as programs for alcohol and drug abuse ("Treatment
Programs"). After the Company obtains a contract for the establishment of one
or more Programs at a host health care facility, the Company recruits and
trains the staff needed to operate its programs. Typically, the host health
care facility provides a specified number of beds for the Program, as well as
all other support services required for the operation of the Program,
including nursing, dietary, housekeeping, billing and other administrative
functions. The Company recruits and trains the staff to operate the Program.
The Company's staffing of a Program will usually include a medical director, a
program director, a psychologist, a chief therapist and one or more counselors
or social workers.
Contracts are individually negotiated with the host health care facility and
usually approximate 20 to 60 beds. Generally, the Company and the host health
care facility negotiate a per patient management fee which depends on the
scope of services provided by the Company, number of beds, rates charged and
reimbursements received by the facility, and in some instances, a fixed
monthly administrative fee and reimbursement of certain direct program costs.
The health care facility charges the patient on a daily basis in accordance
with a fee schedule of prescribed rates, except where the insurer provides for
payment which is limited to a maximum number of days per patient. The health
care facility pays the Company a fixed management fee per patient which
averages $190 per patient inpatient day or in some cases, a reimbursement of
direct costs plus a per patient per day incentive fee and a percentage of
overhead fee, and a fixed management fee per visit which averages $120 per
visit or in some cases, a percentage of collected revenues for partial
hospitalization contracts. Certain contracts contain provisions which deny
portions or all of the management fee should patient days be ultimately
appealed and denied by the patient payor.
As of February 18, 1997, the Company has twelve (12) Programs that are hosted
by four (4) hospitals and one community mental health center: Five
PsychPrograms through Huntington InterCommunity Hospital, D/B/A Humana
Hospital Huntington Beach, Huntington Beach, California, two PsychPrograms at
St. Francis Medical Center, Lynwood, California, two PsychPrograms through
Sherman Oaks Hospital and Health Center, Sherman Oaks, California, two
PsychPrograms at Mission Community Hospital, San Fernando, California and one
PsychProgram at Friendship Community Mental Health Center, Phoenix, Arizona.
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On February 13, 1997 OptimumCare formed a strategic alliance with Galaxy
Health Care (Galaxy) of Miami, Florida to develop community mental health
centers (CMHC's) in the southwest, southeast, and northeast regions of the
country over a three year period. CMHC's are community based, free-standing
mental health treatment facilities which provide broad based outpatient
psychiatric and psychological care for patients with mental illness and
substance abuse problems. The alliance will join together CMHC's, psychiatric
providers, regional hospitals and primary care physicians in various regions
of the country. The treatment centers will be structured on a state-by-state,
multi-state integrated network model for provision of community based mental
health treatment services for Medicare patients and which also meet the needs
of managed care in both the public and private sectors. Galaxy Health Care
has developed a multi-site network of wholly owned CMHC's operated under the
name "Treatment Resources" and provides home care through its Psych Home Care,
Inc. subsidiary. Galaxy also provides management and administrative services
to healthcare providers through its Management Services Organization (MSO).
As of February 18, 1997, the Company has entered into a 90 day consulting
agreement with Galaxy for the operation of a partial hospitalization
PsychProgram in Margate, Florida.
On April 19, 1996 the Company completed the acquisition of a 70% interest in
certain contracts of Professional Care Source, Inc. through the formation of
OptimumCare Source, LLC (the LLC). OptimumCare Source, LLC provides
management and other behavioral health services to skilled nursing and other
similar bed & board facilities. As of February 18, 1997 the LLC has 16
contracts with the following facilities: Alcott Rehabilitation Hospital, Los
Angeles, California; Anaheim Healthcare Center, Anaheim, California; Citrus
Nursing Center, Fontana, California; Citrus Villa Retirement Center, Fontana,
California; Corbell's Marine Manor, Gardena, California; Del Mar Convalescent
Hospital, Rosemead, California; Extended Care of Riverside, Riverside,
California; Fountain Care Center, Orange, California; Garden Park Care Center,
Garden Grove, California; Laurel Convalescent Hospital, Fontana, California;
Monterey Park Convalescent Hospital, Monterey Park, California; North Valley
Nursing Center, Tujunga, California; Paramount Convalescent Hospital,
Paramount, California; Park Regency Retirement Center, La Habra, California;
Sun Mar Nursing Center, Anaheim, California; and Sunset Manor Convalescent
Hospital, El Monte, California.
(b) Financial Information About Industry Segments
The Company competes in one industry segment which is the development,
marketing and operation of Programs.
(c) Narrative Description of the Business
(i) and (ii) Products
OptimumCare's PsychPrograms ("PsychProgram")
The PsychProgram is a medically-supervised psychiatric care program for
certain types of mental health disorders that is offered on both an inpatient
and partial hospitalization basis. The PsychProgram is directed at assisting
the patient to return to a normal life. The PsychProgram is designed to treat
patients with neuroses and personality disorders; however, the Company's
marketing focus is to attract patients who exhibit symptoms of depression.
Patients suffering from depressive mental illness manifest, among other
things, loss of interest in the world
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generally, loss of activity and capacity to love, sadness, hopelessness,
fatigue, boredom, restlessness, loss of belief in personal future, anxiety and
feelings of ill-at-ease. At the outset, a patient receives a physical
examination and diagnostic testing to eliminate any physical illnesses which
may evidence some symptoms of mental disorders.
Each PsychProgram also includes individual and group therapy and a full daily
regimen of activities including sessions for relaxation, assertiveness
training, exercise and men's and women's sexual awareness. The Company
estimates that the average stay for a patient in a PsychProgram is 7-10 days.
OptimumCare's Partial Hospitalization Program ("Partial Hospitalization")
Partial Hospitalization is a relatively new behavioral medicine outpatient
product that provides daytime treatment programs that employ an integrated and
individualized schedule of recognized psychiatric treatment modalities.
Partial Hospitalization is a treatment approach developed as an alternative to
inpatient treatment. It includes the major psychiatric evaluation and
treatment modalities (both psychosocial and biological), which are usually
found in a comprehensive psychiatric inpatient program. It is designed for
voluntary patients with serious mental disorders who require intensive and
multi-disciplinary treatment which cannot be provided in an outpatient
setting. By offering a medically-supervised alternative to inpatient
treatment, it provides a more flexible, less costly and less restrictive form
of treatment.
Partial Hospitalization can be utilized by individuals who are mentally or
emotionally impaired, but who are able to be maintained in the community at
least part of each day, and present little risk of imminent danger to
themselves or others. The Company believes that the benefits of partial
hospitalization include: lessening the disruption of social, family, and
community ties; allowing the patient to test new skills in a more natural
environment than a hospital setting; providing a treatment milieu that fosters
independence and self reliance; allowing daily feedback from the home
environment thereby closely involving members of the patient's family or
supportive environment in the treatment program; and providing flexibility in
the number of treatment days per week thus allowing a patient to pursue other
activities such as a shortening of the inpatient stay or preventing the need
for full hospitalization.
Expansion of Products
The Company is seeking to expand the scope of psychological services it offers
by acquiring entities which offer complimentary mental health services. The
Company believes that it can more effectively market its services to managed
care payors by increasing the scope of services it provides.
The Company completed the acquisition of a 70% interest in certain contracts
of Professional Care Source, Inc. in April, 1996. Care Source provides
management and other administrative behavioral healthcare services to skilled
nursing and other similar bed and board facilities.
During 1996 the Company entered into letter of intent to purchase certain
assets of Giem, Guerra & Myers, Inc. and a short-term management services
agreement with an affiliate of Giem, Guerra & Myers, Inc. Upon further
analysis, the Company concluded that the value of these assets to the Company
did not justify the consideration proposed to be paid by the Company for these
assets. The Company does not intend to acquire the assets of Giem, Guerra &
Myers, Inc. As
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such, approximately $96,000 of deferred acquisition costs previously
capitalized with respect to this acquisition have been expensed in the fourth
quarter of 1996.
Staffing
The PsychProgram and Partial Hospitalization Programs are staffed by the
Company with a medical director, a program manager, and in some cases, a
psychologist, a chief therapist, and at least one counselor or social worker.
The key staff members are the medical director and the program manager. The
medical director is a licensed psychiatrist who is a staff member of the host
health care facility and is engaged as an independent contractor charged with
the responsibility for overseeing the administration of the Program from a
medical/regulatory compliance viewpoint. In addition to the medical director
who is responsible for administering the clinical aspects of the contract, the
Company often engages co-medical directors in each community in which a
Program is located. These co-medical directors are licensed psychiatrists or
psychologists. They provide administrative assistance to a Program and
represent it at various professional activities in the local community. The
co-medical directors are compensated at a fixed monthly rate, depending on the
amount of time they commit to supporting the Company's Programs. The
Company's employees and contractors at each program are subject to approval
and pre-employment screening by the host health care facility. The Company
has not experienced any difficulty in locating qualified medical directors
from the hospital staff to affiliate with the Company's Programs. The program
manager is a full time employee of the Company and usually has completed
either a bachelor's or master's degree program in psychology or social work,
but is principally a marketing representative of the Company. Program
managers are officed at their respective Program's facility.
Contract Operations
The Company provides a host health care facility with staff recruitment, a
two-week pre-opening in-service nurse and hospital employee training program,
program management, continuing education, community education, ongoing public
relations and program quality assurance.
The Company provides these training programs to the host health care facility
at no charge. Typically, nursing, dietary, X-ray, laboratory, housekeeping,
admissions and billing are the responsibility of the host health care
facility. However, the Company has recently begun to assume some of the
nursing and dietary aspects of the programs under certain contracts. The
expanded scope of services has evolved from the desire of the host hospital to
benefit from the Company's growing expertise in those functions.
Existing contracts range from a period of one to five years and may be renewed
for subsequent terms, of usually one year periods. In some cases, if the
Company does not maintain a stipulated minimum average daily census for
specified periods, the health care facility may terminate the contract on
reasonable notice to the Company.
Payment for Services
Patients are screened by the host healthcare facility prior to admission.
Screening procedures include verification of the existence and extent of
insurance coverage.
It is the host health care facility's responsibility to bill and collect the
fees charged to the patient for all program services. The Company in turn
bills the host health facility for the total patient days of service provided
at the specified contract rate. Generally, the Company bills the host health
care facility fifteen (15) days after the close of the month in which the
services were
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rendered. Except in the cases where the contracts provide for specific hold
backs for ultimately denied days, the majority of the contracts do not
specifically provide that the Company shall bear any risk of non-payment by
the host healthcare facility. However, industry practice dictates that the
Company acknowledge that a certain percentage of the fees will be uncollected
by the host health care facility. Thus, accommodations are expected to be
made on a case-by-case basis with each host health care facility (except where
there is an express contractual provision which governs this issue) to offset
some portion of Program patients' bad debts experienced by the host health
care facility.
Many of the hospitals the Company contracts with have a large number of
Medicare and Medicaid patients. However, the Company has negotiated with
these hospitals whereby they are paid either a flat per diem rate or a per
diem rate with a hold back for days ultimately denied. Thus, the Company is
not directly dependent on Medicare or Medicaid for payment under its
contracts. It is unknown, whether in the future other contracts or programs
will be dependent on a disproportionate amount of Medicare/Medicaid patients.
Pending legislative proposals revising Medicare/Medicaid reimbursement, if
enacted, could have a negative effect on the revenues of the hospitals with
which the Company contracts. Generally, the Company's agreements with
hospitals require the Company and the hospital to renegotiate rates in the
event of a significant legislative change which affects the compensation
received by the hospital. It is uncertain at this time to what extent the
Company's revenues may be impacted by the proposed legislation.
In addition, government efforts to eliminate the exemption from Medicare's
prospective payment system for long-term care hospitals currently exist.
These proposals would affect the cash flow of the facilities the Company
intends to contract with through its 70% owned subsidiary, OptimumCare Source,
LLC. This could also result in renegotiation of the rates the OptimumCare
Source, LLC receives for its services and the timing of payments. During
1996, OptimumCare Source, LLC did not generate significant revenues from the
facilities with which it contracts. It is currently uncertain as to what
point in time these revenues will become material to the Company.
The Company anticipates that additional legislation may be adopted focusing on
controlling health care costs and improving access to medical services for
persons who are uninsured. Such legislation may also affect the amount which
health care providers can charge for services. The Company believes that it
is well positioned to respond to these changes and that it is likely that the
Company will experience a lesser impact than other companies in the health
care industry based on the fact that the Company has already focused its
efforts on shortening patient stays and has historically provided a greater
percentage of its services to Medicaid patients than have many of its
competitors.
Marketing
The Company's marketing efforts are primarily directed toward increasing the
number of management contracts by either the takeover of existing programs
operated by others or the establishment of new Partial Hospitalization or
PsychPrograms in geographically desirable areas. The Company believes that
their ability to secure new contracts is based on its reputation as a quality
provider coupled with its history of low length of patient stays resulting in
less uncompensated care.
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Sales calls are primarily directed at health care facilities which may be
experiencing a low or declining patient census and facilities in
geographically desirable areas. After a contract is obtained, the Company
prepares a detailed marketing development strategy aimed at attracting
patients to the Programs.
The program director for each PsychProgram at the host health care facility
develops a media press kit for each Program. The program director coordinates
all local advertising consistent with the Company's overall marketing plan.
Each program director implements a local market development strategy to
increase the public awareness of the Program, including the establishment of a
media appearance and community speakers bureau which are referred to the
broadcast media for further exposure. The co-medical directors direct local
continuing professional education and community service programs on an
as-needed basis. The host hospital's administrative and medical staffs are
also encouraged to participate in community relations activities.
Direct marketing to psychiatrists, psychologists and other licensed
professionals by the Company is emphasized because these individuals motivate
potential patients to seek inpatient treatment for their mental health. The
Company's marketing approach to physicians and clinicians emphasizes
involvement through one-on-one communication with the professionals who will
provide patient referrals. These professionals are invited to the
Company-sponsored community relations activities, speaker programs and
continuing education seminars.
(iii) Raw Materials
Inapplicable.
(iv) Patents and Trademarks
The Company holds a federal service mark, Registration #1628745, for its
tradename "OptimumCare". The Company has marketed its programs under the
names "OptimumCare PsychProgram" and "OptimumCare Treatment Program".
(v) Seasonality
The Company has noted a trend that its business appears to be susceptible to
some seasonal variation. Census tends to substantially decrease near various
holidays, particularly during the fourth quarter.
(vi) Working Capital Items
The Company expects to experience an initial one-time maximum delay of up to
90 days in receipt of revenues after each Program is opened due to the normal
processing time for the billing/payment cycle of the host health care
facilities.
(vii) Dependence on a Few Customers
The Company presently has twelve (12) Programs operating through four (4)
hospitals and one community mental health center. If any of these Programs
were terminated, or if any of the accounts receivable from these contracts
were to become uncollectible, such event could have a material adverse effect
on the Company.
(viii) Backlog
Inapplicable.
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(ix) Government Contracts
The Company is not currently a party to any government contract.
(x) Competition
The Company competes with other health care management companies for contracts
with acute care hospitals. Also, the Company's Programs will compete for
patients with the programs of other hospitals and other health care
facilities. The success of the Company's Programs is also dependent on its
ability to establish relationships with sources of patient referrals.
The Company's principal competitors include Charter Medical Corporation,
Community Psychiatric Centers, Comprehensive Care Corporation, Mental Health
Management and Horizon Health Services, all of which have greater financial
and other resources and more experience than the Company. In addition, some
health maintenance organizations ("HMOs") offer competing programs; however,
the HMO-owned hospitals typically do not provide inpatient psychiatric
services, nor coverage for these services. Most HMOs also do not provide
programs for partial hospitalization or substance abuse, but often provide
coverage for these programs, usually at a reduced rate.
Other health care facilities offer comparable programs which compete with the
Company's Programs in each service area. The Company believes, however, that
in general its marketing efforts are primarily effective within a ten (10)
mile radius around the host hospital and that patients outside such radius are
not directly affected by such advertising unless their personal physician has
admitting privileges and recommends the Company's program at that host
hospital.
The Company believes that the principal competitive factors in obtaining
contracts with health care facilities are experience, reputation for quality
programs, the availability of program support services and price. The primary
competitive factors in attracting referral sources and patients are marketing,
reputation, record of success, quality of care and location and scope of
services offered by a host health care facility. The Company implements
active promotional programs and believes it is competitive in attracting
referral sources and patients based on these factors.
(xi) Research and Development
Inapplicable.
(xii) Government Regulation and or Environmental Protection
The health care industry is extensively regulated by federal, state and local
governments. Regulations which affect the Company relate to controlling the
growth of health care facilities, requiring licensure of the host health care
facility, requiring certification of the Program at the host facility and
controlling reimbursement for health care services. Licensure of facilities
and certification of Programs are state requirements, while certification for
Medicare is a federal requirement. Compliance with the licensure and
certification requirements is monitored by annual on-site inspections by
representatives of the licensing agencies. Loss of licensure or Medicare
certification by a host facility could result in termination of such contract.
Certificate of need ("CON") laws in some states require approval for capital
expenditures in excess of certain threshold amounts, expansion of bed capacity
or facilities, acquisition of medical equipment or institution of new
services. If a CON must be obtained, it may take up to 12 months to do so,
and in some instances longer, depending upon the state involved and whether
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the application is contested by a competitor or the state agency. CON's
usually are issued for a specified maximum expenditure and require
implementation of the proposed improvement within a specified period of time.
Certain states, including California, Texas, Utah, Colorado and Arizona, have
enacted legislation repealing CON requirements for the construction of new
health care facilities, the expansion of existing facilities and the
institution of new services. Some states have enacted or have under
legislative consideration "sunset" provisions which require the review,
modification or deletion of these statutes when no longer needed. The Company
is unable to predict whether such legislative proposals will be enacted but
believes that the elimination of CON requirements positively impacts its
business.
The Joint Commission on the Accreditation of Healthcare Organizations
("JCAHO"), at a facility's request, will participate in the periodic surveys
which are conducted by state and local health agencies to ensure continuous
compliance with all licensing requirements by health care facilities. JCAHO
accreditation satisfies certain of the certification requirements for
participation in the Medicare and Medicaid programs. A facility found to
comply substantially with JCAHO standards receives accreditation. A patient's
choice of a treatment facility may be affected by JCAHO accreditation
considerations because most third-party payers limit coverage to services
provided by an accredited facility. All of the hospitals currently under
contract with the Company have received JCAHO accreditation.
The laws of various states in which the Company may choose to operate,
including California, generally prevent corporations from engaging in the
practice of medicine. These laws (e.g., Section 2052 of the California
Business and Professions Code), as well as applicable case law, were enacted
to protect the public from the rendering of unnecessary medical or other
services for treatment of the ill. Although the Company has not obtained a
legal opinion, it believes that the establishment and operation of Programs
will not cause it to be engaged in the "practice of medicine" as that term is
used in such laws and regulations. These laws and regulations are subject to
interpretation and, accordingly, the issue is not free from doubt. Since the
Company has not sought or obtained any rulings, there can be no assurance that
state authorities or courts will not determine that the Company is engaged in
the unauthorized practice of medicine. If such a determination is made and is
not overturned, the Company would have to terminate its operations in that
state.
The Company's medical directors are engaged to provide administrative
services, including but not limited to planning the clinical program,
supervising the clinical staff, establishing standards of professional care,
and advising the Company and staff on questions of policy. The co-medical
directors conduct public relations activities and assist the Company in
marketing. Although the Company has not obtained a legal opinion, it believes
that the proposed agreements between the Company and its medical and
co-medical directors do not violate any fee-sharing prohibitions. The federal
prohibition, as it relates to the Medicare program, is found at 42 U.S.C.
1320a-7b. Such prohibitions are found in Section 650 of the California
Business and Professional Code and Section 445 of the California Health and
Safety Code, as well as comparable statutes in other states. However, future
judicial, legislative or administrative interpretations of these arrangements
could prohibit the Company from hiring professionals which could have a
materially adverse effect on the Company.
Given the recent political mandate for health care reform, it appears likely
that health care cost
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containment will occur. The Company is practiced in administrating "managed
care type" programs and is familiar with the pressures of improving
productivity and reducing costs.
(xiii) Employees
As of February 18, 1997, the Company employed 120 persons full-time and eighty
(80) persons part-time. Those figures do not include physicians and
psychiatrists who are medical directors of the Company's Programs and not
employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Inapplicable.
ITEM 2 - PROPERTIES
The Company maintains its corporate offices in an approximately
2,200-square-foot suite of executive offices in Laguna Niguel, California,
under a lease agreement providing for a monthly base rent of $2,880 which
expires June 30, 1997. The Company leases an additional satellite corporate
office in Playa Del Rey, California under a lease agreement providing for a
monthly base rent of $2,000 from November 1, 1996 to October 31, 1997 and
$2,100 from November 1, 1997 to October 31, 1998. During October, 1996, the
Company began leasing an office in Mission Hills, California to service
potential incoming patient inquiries under a lease agreement providing for a
monthly base rent of $1,100 which expires October 14, 1999. The Company
believes that this office space is adequate for its reasonably foreseeable
needs. It is expected that the expiring leases will be renewed on similar
terms.
The Company has also leased space under seven separate lease agreements for
the operation of its outpatient partial hospitalization programs. Three
agreements are on a month to month basis. The remaining agreements expire
March 31, 1997, May 31, 1997, June 30, 1997 and July 13, 1997 respectively.
The lease which expires June 30, 1997 contains five (5) one (1) year options
to extend the lease. Aggregate monthly payments total $16,137 of which
$13,383 are fully reimbursed through subleases with the Company's host
hospitals. It is expected that the expiring leases and subleases will be
renewed on similar terms.
ITEM 3 - LEGAL PROCEEDINGS
Inapplicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Inapplicable.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
(a) Market Information
The Company's common stock is currently quoted on the over the counter "OTC"
electronic bulletin board under the symbol OPMC.
High Bid Low Bid
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1996:
- -----
Fourth Quarter 1 17/32 1 1/16
Third Quarter 1 3/16 19/32
Second Quarter 1 1/16 3/4
First Quarter 1 1/64 23/32
1995:
- -----
Fourth Quarter 1 1/16 1 3/32
Third Quarter 1 1/16 3/4
Second Quarter 1 1/16 17/32
First Quarter 23/32 5/8
The listed prices represent inter-dealer quotations, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
The listed prices retroactively reflect the 20% stock dividend issued on
October 18, 1996.
(b) Holders
The approximate number of holders of record each class of the Company's common
equity securities as of the close of business on February 18, 1997 is set
forth below:
Approximate
Title of Class Number of Record Holders
- -------------- ------------------------
Common Stock, $.001 par value 205
The Company believes that there are approximately 900 beneficial owners of its
common stock.
(c) Dividends
On October 18, 1996, the Company issued a dividend of two-tenths (.2) share
for each share of the Company's common stock held by stockholders of record on
October 1, 1996. The Board of Directors declared the stock dividend based on
the Company's anticipated current year earnings. The Company has accounted
for the dividend by transferring from current year earnings and accumulated
deficit to common stock and paid-in- capital an amount equal to the fair value
of stock distributed as a dividend as of the date the dividend was declared.
The Company has never paid or declared cash dividends on its Common Stock.
The Company does not anticipate the payment of cash dividends on its common
stock in the foreseeable future. The transfer agent for the Company's common
stock is American Stock Transfer & Trust Company, New York, New York.
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ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and Notes thereto of the Company included elsewhere
herein, and such data should be read with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The data at
December 31, 1996 and December 31, 1995 and for each of the fiscal years in
the three year period ended December 31, 1996 are derived from the Company's
Financial Statements for such years audited by Ernst & Young LLP which
Financial Statements are included elsewhere herein.
A 20% stock dividend was declared by the Board of Directors on August 14,
1996 for stockholders of record on October 1, 1996. The stock dividend was
issued on October 18, 1996. Per share amounts for all periods presented
have been restated to reflect the stock dividend.
STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES $10,676,237 $6,027,122 $5,596,283 $3,825,613 $2,314,376
NET INCOME 876,716 2,070 465,045 365,189 127,045
NET INCOME PER SHARE OF
COMMON STOCK .14 .00 .07 .06 .02
WEIGHTED NUMBER OF
SHARES OUTSTANDING 6,425,884 6,414,709 6,218,113 5,939,264 5,886,611
</TABLE>
BALANCE SHEET INFORMATION
AS OF DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS $3,953,100 $2,059,537 $1,814,153 $1,299,215 $917,779
CURRENT ASSETS 3,518,003 1,731,290 1,699,801 1,237,885 904,072
CURRENT LIABILITIES 1,244,909 381,531 333,209 269,343 249,701
NET WORKING CAPITAL 2,273,094 1,349,759 1,366,592 968,542 654,371
LONG-TERM OBLIGATIONS 0 166,000 0 0 0
</TABLE>
11
<PAGE> 14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe harbor statements under the Private Securities Litigation Reform Act of
1995
The statements in this Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K
are forward-looking in time and involve risks and uncertainties, including the
risks associated with plans, the effect of changing economic and competitive
conditions, government regulation which may affect facilities, licensing,
healthcare reform which may affect payment amounts and timing, availability of
sufficient working capital, Program development efforts and timing and market
acceptance of new Programs which may affect future sales growth and/or costs
of operations.
(a) Liquidity and Capital Resources
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995.
At fiscal year end 1996 and 1995, the Company's working capital was $2,273,094
and 1,349,759 respectively. The increase in working capital resulted from the
increase in cash and receivables arising from increased revenues and profits.
The nature of the Company's business requires significant working capital to
fund operations of its programs as well as to fund corporate expenditures
until receivables can be collected. Moreover, because each of the existing
contracts represents a significant portion of the Company's business, the
cancellation of any one contract or the inability to collect any of the
accounts receivable could materially and adversely affect the Company's
liquidity.
Cash flows from operations were $267,146 and $159,554 for the years ended
December 31, 1996 and 1995, respectively. The increase was primarily
attributable to the increase in net income due to increased revenues among
periods, partially offset by an increase in program accounts receivable and an
increase in accounts payable and accrued expenses due to expanded volume in
fiscal year 1996.
Cash flows used in investing activities were ($129,757) and ($215,196) for the
years ended December 31, 1996 and 1995, respectively. The decrease in cash
used was primarily attributable to acquisition costs incurred in 1995 in
connection with the acquisition of a company which closed in April 1996 and
the proposed acquisition of certain other assets, that has been abandoned.
The cash flows from financing activities was $805,488 and $189,917 for the
years ended December 31, 1996 and 1995, respectively. The increase was
primarily due to $480,000 in draws on the Company's line of credit agreement
with a bank and $326,000 from the exercise of employee stock options. The
credit agreement was modified August 1, 1996, by increasing the maximum amount
available under the loan from $500,000 to $750,000 and by changing the note
from a non-revolving line of credit to a formula line of credit. The line
matures June 1, 1997, and is expected to be extended. As of February 24,
1997, approximately $104,000 is available for future draws on the line of
credit agreement. The Company believes that the increase in the exercise of
employee stock options occurred due to the registration of one of the
Company's stock option plans during 1996 and the announcement of the October
1996 stock dividend. The Company's principal sources of liquidity for the
fiscal year 1997 are cash on hand, accounts receivable, the revolving line of
credit with a bank and continuing revenues from programs.
12
<PAGE> 15
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994.
At fiscal year end 1995 and 1994, the Company's working capital was $1,349,759
and $1,366,592 respectively. The nature of the Company's business requires
significant working capital to fund operations of its programs as well as to
fund corporate expenditures until receivables can be collected. Moreover,
because each of the existing contracts represents a significant portion of the
Company's business, the cancellation of any one contract or the inability to
collect any of the accounts receivable could materially and adversely affect
the Company's liquidity.
Cash flows from operations were $159,554 and ($192,153) for the years ended
December 31, 1995 and 1994, respectively. The increase was primarily
attributable to an increase in revenues partially offset by an increase in
program accounts receivable attributable to an increase in program volume.
Cash flows used in investing activities were ($215,196) and ($59,848) for the
years ended December 31, 1995 and 1994, respectively. The decrease in cash
was primarily attributable to deferred acquisition costs incurred in 1995 in
connection with the proposed acquisitions of two companies performing
complimentary mental health services.
The cash flows from financing activities were $189,917 and ($13,973) for the
years ended December 31, 1995 and 1994, respectively. The increase was
primarily due to draws on the Company's line of credit agreement with a bank.
The credit agreement expires May 1, 1996, but is convertible into a one year
term loan with an initial due date of May 1, 1997 but with a five (5) year
repayment schedule.
(b) Results of Operations
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995.
The Company operated fifteen (15) programs during the year ended December 31,
1996 and seventeen (17) programs during the year ended December 31, 1995. As
of February 18, 1997, the Company currently has twelve (12) operating
programs. These are composed of three inpatient and nine partial
hospitalization programs. Generally, the size and profit potential of
inpatient programs are greater than partial hospitalization programs. Net
Revenues were $10,676,237 and $6,027,122 for the years ended December 31, 1996
and 1995, respectively. The increase in revenues in 1996 over 1995 is due to
the increase in patient volume among periods and the increase in management
fees charged, due to an expanded scope of services the Company now provides to
many of its customers. This has occurred particularly at those programs which
the Company began managing in late 1995 and early 1996.
Cost of services provided were $8,313,317 and $5,022,040 for the years ended
December 31, 1996 and 1995, respectively. The increase in the cost of
services provided among years is primarily due to the increase in patient
volume among years and an expanded scope of services provided in connection
with certain contracts such as nursing, dietary, transportation and lease
costs.
Selling, general and administrative expenses have increased over the prior
year due to increased corporate marketing wages and activities, and various
professional fees incurred with the Company's contract and business
acquisition efforts.
The provision for uncollectible accounts decreased from the prior year due to
the relicensing of three programs to a new hospital during the latter part of
1995.
13
<PAGE> 16
Income taxes have increased over the prior year due to the Company's provision
for state income taxes in 1996. The Company has utilized the majority of its
federal net operating loss carryforwards to offset 1996 taxable income.
Net income was $876,176 and $2,070 for the years ended December 31, 1996 and
1995, respectively. The increase was primarily attributable to revenue
growth, generated by increased patient volume, and larger management fees,
causing gross profit to rise favorably, and disproportionately, to the
increase in the cost of services provided.
The Company does not know of any events which are likely to materially change
the costs of operating its Programs individually; however, plans to expand the
number of operating programs do exist. During February 1997 the Company
formed a strategic alliance with Galaxy Health Care of Miami, Florida to
develop community mental health centers in the southwest, southeast and
northeast regions of the country over a three year period. In addition, the
Company has recently begun to provide a larger scope of services to its
customers for a greater management fee. During 1996, many of the new programs
secured in 1995 began to mature. In addition, the fee structure of programs
which existed during 1996 differed from those which existed during 1995. As a
result, revenues began to increase significantly and gross profit rose
favorably and disproportionately due to the increase in costs for such
programs. Conversely, should patient census and the resulting revenue
decrease (especially below the minimum break even level) costs will be
disproportionately high which would adversely impact the results of operations
and the Company's available resources.
The Company's revenue is expected to increase in 1997 due to the expansion in
the number of operational programs. Marketing plans for expanding the volume
of the business by obtaining new contracts for programs and expanding the
scope of mental health services offered by the acquisition of complementary
businesses currently exist. However, it is uncertain at this time, to what
extent the Company's fixed costs will be impacted by this expansion. In
addition, the Company has exhausted the majority of its net operating loss
carryforwards during 1996. Consequently in 1997, the Company will be required
to provide for all federal and state income tax expense at the applicable
statutory rates. Due to the Company's dependence on a relatively small
customer base presently consisting of only four (4) hospitals and one
community mental health center, the loss of any of its customers could have a
significant adverse effect on the Company's operations. Hence, there is a
special emphasis paragraph in the report of the Company's independent auditors
of the financial statements for the fiscal year ended December 31, 1996.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company operated seventeen (17) programs during the year ended December
31, 1995 and sixteen (16) programs during the year ended December 31, 1994.
Net Revenues were $6,027,122 and $5,596,283 for the years ended December 31,
1995 and 1994 respectively. The increase in revenues in 1995 over 1994 is due
to the greater number of total operating programs among years and a greater
number of inpatient psychiatric programs operating for a greater portion of
1995 versus 1994. The Company typically earns a larger management fee on
managing inpatient versus partial hospitalization programs. In addition, the
volume of patient days treated through inpatient programs is greater than
those treated through partial hospitalization programs.
Cost of services provided were $5,022,040 and $4,238,555 for the years ended
December 31, 1995 and 1994 respectively. The increase in the cost of services
provided among years is primarily due to the increase in program volume among
years and an expanded scope of services provided in connection with certain
contracts such as nursing, transportation and lease costs.
14
<PAGE> 17
Selling, general and administrative expenses have increased over the prior
year due to increased corporate marketing wages and activities, and various
professional fees incurred with the Company's contract and business
acquisition efforts.
The provision for uncollectible accounts decreased from the prior year due to
the termination of two contracts with one entity which leased facilities from
a hospital which filed bankruptcy in June, 1994.
Net income was $2,070 and $465,045 for the years ended December 31, 1995 and
1994, respectively. The decrease was primarily attributable to increased cost
of services provided and increased sales and marketing efforts.
15
<PAGE> 18
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OPTIMUMCARE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
See pages F1 through F11 of this Form 10-K and Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
16
<PAGE> 19
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) and (b) Identification of Directors and Executive Officers
The directors and executive officers of the Company are:
NAME AGE POSITION
---- --- --------
Edward A. Johnson 51 President, Principal Financial
Officer, Secretary and Chairman of the Board
Gary L. Dreher 50 Director
Michael S. Callison 58 Director, Vice President of Corporate
Development
Jon E. Jenett 44 Director
Each director serves for a term of one year or until his successor has been
elected and qualified. Each executive officer serves at the pleasure of the
Board of Directors. Directors do not receive any director's fees or other
compensation for their services, as such, but receive reimbursement for their
expenses in attending meetings of the Board of Directors.
(c) Identification of Certain Significant Employees
Inapplicable.
(d) Family Relationships
Inapplicable.
(e) Business Experience
Mr. Johnson has been President, Chief Executive Officer and Chairman of the
Board of the Company since co-founding the Company in November 1986. During
May, 1990, Mr. Johnson assumed the role of Principal Financial Officer
following the resignation of the former Chief Financial Officer. From August
1985 through July 1986, he was Executive Vice President of Behavioral Medicine
Corporation, a joint venture between The Voluntary Hospital Association of
America and Comprehensive Care Corporation.
Mr. Johnson's duties principally included the development of psychiatric and
substance abuse programs for hospitals throughout the United States. From
1969 until August 1985, Mr. Johnson was employed in various positions with
Comprehensive Care Corporation, a significant provider of management programs
for psychiatric disorders and substance abuse. Mr. Johnson's most recent
position at Comprehensive Care Corporation was the Executive Vice President of
Operations. His principal duties were to develop and implement marketing
systems for that company's programs. Mr. Johnson received a M.S. degree in
Psychology from Colorado State College in 1966 and is licensed in California
as a Marriage and Family Counselor.
17
<PAGE> 20
Mr. Dreher was elected to the Board of Directors during September, 1993. He
received his B.S. degree in Microbiology and Lab Technology from California
State University in 1971. For the past five years, he has served as Vice
President of International Sales for Apotex Scientific, an international
distributor network for Esoteric Diagnostic Tests. From 1984 to 1991, he was
Vice President of Sales at Ventrex Laboratories, a manufacturer of Diagnostic
Tests for medical and biotechnology markets.
Mr. Callison was elected to the Board of Directors during September, 1993. He
received his B.A. degree in Economics from the University of Puget Sound,
Tacoma, Washington in 1966. In 1994, Mr. Callison was promoted to Vice
President of Marketing and Development. From 1990 to 1993, he was a sales
and marketing consultant to the Company, assisting in business development and
responsible for securing various key management contracts for the Company.
From 1984 to 1990, Mr. Callison was a Senior Account Executive for the
Hill-Rom Company, responsible for marketing patient care systems to hospitals.
Mr. Jenett was elected to the Board of Directors during December, 1995. He
received his B.A. degree in Economics from Harvard College in 1974 and his
M.B.A. from Stanford Business School in 1978. For the past six years, he has
served as the Chief Financial Officer of Mission Electronics Corporation, a
wholesale broker of electronic components. From 1981-1990, he was a partner
of Investment Group of Santa Barbara, an investment fund specializing in small
public an private companies.
(f) Involvement in Certain Legal Proceedings
Inapplicable.
18
<PAGE> 21
ITEM 11 - EXECUTIVE COMPENSATION
(a) Cash Compensation
The following table sets forth the elements of compensation paid, earned or
awarded for the named individuals. All aspects of executive compensation is
determined by the Board of Directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------- ------------------------- ----------------------------
OTHER
NAME & ANNUAL RESTRICTED (#) ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) SARS PAYOUTS($) SATIONS($)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EDWARD A. JOHNSON 1996 $144,000 $123,234 200,000 $16,736 (1)(2)
PRESIDENT 1995 144,000 40,259 50,000 11,602 (1)(2)
1994 144,000 61,703 0 11,196 (1)(2)
MULU G. MICHAEL 1996 $142,167 $ 56,272 175,000
VICE PRESIDENT 1995 103,433 30,833 25,000
OF CLINICAL 1994 67,500 14,072 0
OPERATIONS
HELEN TVELIA 1996 $ 55,500 $ 56,733 25,000
PROGRAM 1995 55,500 33,504 25,000
DIRECTOR 1994 55,500 26,894 0
</TABLE>
- -----------------------------
# NUMBER OF UNITS
$ DOLLAR AMOUNTS
(1) CAR ALLOWANCE
(2) LIFE INSURANCE PREMIUMS
19
<PAGE> 22
(b) Compensation Pursuant to Plans
Stock Option Plans
1987 Plan
The Company's 1987 Stock Option Plan (the "Plan"), adopted by the Board of
Directors on July 28, 1987, and approved by the stockholders on August 28,
1987, provides for the grant to officers, directors, employees and consultants
of nonqualified stock options and stock options to employees that qualify as
incentive stock options under Section 422A of the Internal Revenue Code of
1986. The Plan terminates on July 28, 1997. The purpose of the Plan is to
enable the Company to attract and retain qualified persons as employees,
officers and directors and others whose services are required by the Company,
and to motivate such persons by providing them with an equity participation in
the Company. A maximum of 455,000 shares of the Company's Common Stock were
reserved for issuance pursuant to the Plan. Options to purchase 267,500
shares were exercised during fiscal year ended December 31, 1996. There are
currently 150,000 shares subject to options outstanding under the Plan. The
Plan is administered by the Board of Directors, which has, subject to
specified limitations, the full authority to grant options and establish the
terms and conditions under which they may be exercised.
The exercise price of incentive stock options granted under the Plan is
required to be not less than the fair market value of the common stock on the
date of grant (110% in the case of a greater than 10% stockholder). The
exercise price of nonqualified stock options can be no less than 85% of the
fair market value on the date of grant, although the Company does not intend
to grant any such stock options at less than fair market value. In the
discretion of the Board, the exercise price may be payable in cash, by
delivery of a promissory note or in Common Stock of the Company.
The options are subject to forfeiture upon termination of employment or other
relationship with the Company except by reason of death or disability and are
nonassignable. Options may be granted for terms up to 10 years (five years in
the case of incentive stock options granted to greater than 10% stockholders).
No optionee may be granted incentive stock options such that the fair market
value of the options which first become exercisable in any one calendar year
exceeds $100,000. Options granted under the Plan to officers, employees or
consultants may be exercised only while the optionee is employed or retained
by the Company or within six (6) months after termination of the employment or
consulting relationship by reason of death or permanent disability, and three
months after termination for any other reason.
On December 31, 1991, the Board of Directors granted options under this Plan
to Edward A. Johnson to purchase 27,500 shares and Michael S. Callison to
purchase 25,000 shares. The options were exercised during 1996 at an exercise
price of $.21 per share. On August 23, 1993, the Board of Directors granted
additional options under this Plan to Michael S. Callison and Gary L. Dreher
to each purchase 25,000 shares. The option exercise price is $.30 per share.
Options of 25,000 granted to Mr. Callison were exercised during 1996. The
25,000 in options granted to Mr. Dreher vest immediately and expire five years
from the date of grant.
1994 Plan
On December 20, 1994, the Board of Directors re-adopted the Company's 1994
stock option plan. The plan allows the Company to grant officers, directors,
employees and consultants nonqualified stock options. The Plan terminates on
March 22, 2004. The purpose of the Plan is to enable the Company to attract
and retain qualified persons as employees, officers and directors and others
whose services are required by the Company, and to motivate such persons by
providing them with an equity participation in the Company. A maximum of
500,000 shares of the Company's
20
<PAGE> 23
Common Stock were reserved for issuance pursuant to the Plan. Options to
purchase an aggregate of 250,000 shares were granted during fiscal year ended
December 31, 1995 including options under the Plan to Jon E. Jenett to
purchase 25,000 shares. The option exercise price is $.93 per share. The
options have a five year term and vest immediately. Options to purchase
250,000 shares were exercised during fiscal year ended December 31, 1996.
There are currently 225,000 shares subject to option outstanding under the
Plan. The Plan is administered by the Board of Directors, which has, subject
to specified limitations, the full authority to grant options and establish
the terms and conditions under which they may be exercised.
The exercise price of nonqualified stock options can be no less than 85% of
the fair market value on the date of grant, although the Company does not
intend to grant any such stock options at less than fair market value. In the
discretion of the Board, the exercise price may be payable in cash, by
delivery of a promissory note or in Common Stock of the Company.
The options are subject to forfeiture upon termination of employment or other
relationship with the Company except by reason of death or disability and are
nonassignable. Options may be granted for terms up to 10 years. Options
granted under the Plan to officers, employees or consultants may be exercised
only while the optionee is employed or retained by the Company or within six
(6) months after termination of the employment or consulting relationship by
reason of death or permanent disability, and three months after termination
for any reason.
Other Options
The Company granted options to purchase 657,000 shares of common stock to
various officers, directors, employees and consultants of the Company during
1996. These options are not currently registered under a formal stock option
plan. On January 16, 1996, the Board of Directors granted options to Edward
A. Johnson to purchase 100,000 shares and granted options to Michael S.
Callison, Gary L. Dreher and Jon E. Jenett to each purchase 25,000 shares. The
option exercise price is $.901. The options have a five year term and vest
immediately. On November 18, 1996, the Board of Directors granted options to
Edward A. Johnson to purchase 100,000 shares and granted options to Michael S.
Callison, Gary L. Dreher and Jon E. Jenett to each purchase 25,000 shares.
The option exercise price is $1.3133. The options have a five year term and
vest immediately.
During 1996, 222,500 of options previously granted to an officer of the
Company were exercised at $.21 per share.
21
<PAGE> 24
Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning Options/SARs
granted during 1996 to the named individuals:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARs
GRANTED TO EXERCISE OF GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) ($)*
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EDWARD A. JOHNSON 100,000 23 1/2% $.901 1/16/2001 46,000 81,000 61,000
100,000 23 1/2% $1.3133 11/18/2001 64,000 115,000 87,000
MULU G. MICHAEL 100,000 23 1/2% $1.08 6/11/2001 52,000 93,000 71,000
75,000 17 1/2% $1.3133 11/18/2001 48,000 86,250 65,250
HELEN TVELIA 25,000 6% $1.3133 11/18/2001 16,000 28,750 21,750
</TABLE>
- ------------------
* Present values were calculated using the Black-Scholes options pricing model
which should not be viewed in any way as a forecast of the future
performance of the Company's stock. The estimated present value of each
stock option is $.61 for the January 16, 1996 grant, $.71 for the June 11,
1996 grant, and $.87 for the November 1996 grant based on the following
inputs:
1/16/96 6/11/96 11/18/96
GRANT GRANT GRANT
------- ------- --------
Stock Price (Fair Market Value) at Grant $1.0625 $1.25 $1.53125
Exercise Price $ .901 $1.08 $1.3133
Expected Option Term 5 years 5 years 5 years
Risk-Free Interest Rate 6.31% 6.31% 6.31%
Stock Price Volatility 53% 53% 53%
Dividend Yield 0% 0% 0%
The model assumes: (a) an Expected Option Term of 5 years which reflects the
actual life of the option; (b) a Risk-Free Interest Rate that represents the
interest rate on a U.S. Treasury Note with a maturity date corresponding to
that of the Expected Option Term; and (c) Stock Price Volatility is
calculated using quarterly stock prices over the period from January 1, 1992
to December 31, 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table summarizes options and SARs exercised during 1996 and
presents the value of unexercised options and SARS held by the named
individuals at fiscal year end:
22
<PAGE> 25
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
NAME EXERCISE (#) VALUE REALIZED ($) YEAR-END (#) YEAR-END ($)*
----------------- --------------------- ------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C>
EDWARD A. JOHNSON 250,000 253,305 250,000 184,195
MULU G. MICHAEL 200,000** 229,248 200,000 120,753
HELEN TVELIA 75,000 71,520 75,000 53,730
</TABLE>
- --------------------
* The difference between fair market value at 3/4/97 and the exercise price.
** 100,000 of options vest over five years, none of which are exercisable at
12/31/96.
23
<PAGE> 26
(c) Other Compensation
In addition to all other options held by him, the Company has obtained life
insurance on the life of Mr. Johnson in the amount of $2,000,000, $1,000,000
for the benefit of the Company and $1,000,000 for the benefit of his estate.
(d) Compensation of Directors
Directors do not receive compensation for their services although they are
entitled to reimbursement for expenses incurred in attending board meetings.
Michael S. Callison received $71,000 of wages as Vice President of Marketing
and Development in 1996. Mr. Dreher received $12,000 in marketing fees during
1996 for the marketing of the Company's programs to the hospitals during 1996.
(e) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The entire Board of Directors is responsible for determining the Chief
Executive Officer's compensation. The Board's philosophy has been to offer a
stable base salary plus a monthly bonus based on a percentage of corporate
monthly profits before income taxes.
The committee's approach to base compensation is to offer competitive salaries
in comparison with market practices. However, base salaries have become a
relatively smaller element in the total executive officer compensation package
as the Company has introduced incentive compensation programs which it
believes reinforce strategic performance objectives.
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to Company's stockholders during the five
year period ended December 31, 1996 as well as the U.S. NASDAQ stock market
index and the S&P Hospital Management Index.
The Company does not currently meet the standards required for trading on the
NASDAQ exchange, however the Company believes that the securities traded on
this exchange most closely resemble its market capitalization.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of February 19, 1997, (i) by each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock; (ii) by each of the Company's directors and named
executive officers; and (iii) by all directors and named executive officers of
the Company as a group. Unless otherwise indicated below, the person or
persons named have sole voting and dispositive power.
24
<PAGE> 27
PERFORMANCE GRAPH
OPMC S&P NASDAQ
---- --- ------
DEC 31, 1991 100 100 100
DEC 31, 1992 75 75 116
DEC 31, 1993 228 111 132
DEC 31, 1994 313 118 128
DEC 31, 1995 450 164 179
DEC 31, 1996 550 193 220
25
<PAGE> 28
AMOUNT & NATURE OF
NAME (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------- -------------------- ----------------
EDWARD A. JOHNSON 796,970 (2) 11.3%
MICHAEL S. CALLISON 536,000 (3) 7.8%
GARY L. DREHER 191,575 (4) 2.8%
JON E. JENETT 109,000 (5) 1.6%
ALL OFFICERS AND DIRECTORS
AS A GROUP (4 PERSONS) 1,633,545 (6) 22.4%
- --------------------
(1) The addresses of these persons are as follows: Mr. Johnson - 24 South
Stonington Road, South Laguna, CA 92677; Mr. Callison - 21972 Summerwind
Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia Hill Drive,
Yorba Linda, CA 92686; Mr. Jenett - 8 South Vista De La Luna, South
Laguna, CA 92677.
(2) Includes presently exercisable options to purchase 250,000 shares of
Common Stock.
(3) Includes presently exercisable options to purchase 50,000 shares of Common
Stock.
(4) Includes presently exercisable options to purchase 125,000 shares of
Common Stock.
(5) Includes presently exercisable options to purchase 75,000 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 500,000 shares of
Common Stock.
(c) Changes in Control
Inapplicable.
26
<PAGE> 29
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 8, 1995, the Company granted to Mr. Jenett options to purchase
25,000 shares of the Company's common stock at $.93 per share. The options
vest immediately and expire five years from the date of grant.
On January 16, 1996, the Company granted to Mr. Johnson options to purchase
100,000 shares of the Company's common stock and granted Mr. Callison, Mr.
Dreher and Mr. Jenett options to each purchase 25,000 shares of the Company's
common stock at $.901 per share. The options vest immediately and expire five
years from the date of grant.
On November 18, 1996, the Company granted to Mr. Johnson options to purchase
100,000 shares of the Company's common stock and granted Mr. Callison, Mr.
Dreher and Mr. Jenett options to each purchase 25,000 shares of the Company's
common stock at $1.3133 per share. The options vest immediately and expire
five years from the date of grant.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
On December 29, 1995, the Company converted a series of short-term advances to
Mr. Johnson and a $97,000 note dated December 30, 1994 into a $155,000
promissory note due from Mr. Johnson. The note was originally due December
30, 1996. On December 31, 1996, the Company extended the promissory note to
December 31, 1997. The note accrues interest at 4.03%.
(d) Transactions With Promoters
Inapplicable.
27
<PAGE> 30
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements Filed as a Part of this Report (Filed
Under Item 8 above)
Page
Number
------
Report of Independent Auditors --
Consolidated Balance Sheets as of December 31, --
1996 and December 31, 1995
Consolidated Statements of Operations for the years --
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the --
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the --
year ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements. --
(a) (2) List of Financial Statement Schedules filed as a Part of this Report
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
(a) (3) List of Exhibits Filed as a Part of This Report
3.1 Certificate of Incorporation incorporated by reference from Form S-18
Registration Statement (Registration No. 0033-16313-LA) filed July 28,
1988, Exhibit 3.1.
3.2 Bylaws incorporated by reference from Form S-18 Registration Statement
(Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2.
3.3 Certificate of Amendment of Certificate of Incorporation filed February
29, 1988. Incorporated by reference from Form S-18 Registration
Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit
3.5.
28
<PAGE> 31
3.4 Restated Certificate of Incorporation, filed October 3, 1989.
Incorporation by reference from Form 10-K for the year ended December
31, 1989.
10.1 Lease between the Company and Laguna Niguel Office Center dated June 23,
1988 which supersedes lease dated December 15, 1986, incorporated by
reference from Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.1.
10.6 Amended and Restated 1987 Stock Option Plan incorporated by reference
from Form S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.6.
10.18 Form of Modification Agreement to Incentive Stock Option Agreement,
dated January 20, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed July 28,
1988, Exhibit 10.18.
10.30 Lease amendment between the Company and Laguna Niguel Office Center
dated September 24, 1990 which supersedes lease dated June 23, 1988
incorporated by reference from Annual Report on Form 10-K for the year
ended December 31, 1990, Exhibit 10.30.
10.34 Agreement between Huntington Intercommunity Hospital and the Company
dated November 1, 1991 incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1991, Exhibit 10.34.
10.38 Agreement between Huntington Intercommunity Hospital and the Company
dated October 1, 1992 incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1992, Exhibit 10.38.
10.39 Agreement between Brotman Medical Center and the Company dated October
20, 1992 incorporated by reference from Annual Report on Form 10-K for
the year ended December 31, 1992, Exhibit 10.39. (Terminated)
10.43 Lease amendment between the Company and Laguna Niguel Office Center
dated May 12, 1993 which supersedes lease dated June 23, 1988
incorporated by reference form Annual Report on Form 10-K for the year
ended December 31, 1993, Exhibit 10.43.
10.48 Lease agreement between Columbia Healthcare Corporation and the
Company dated October 18, 1993 incorporated by reference from Annual
Report on Form 10-K for the year ened December 31, 1993, Exhibit
10.48.
10.50 Unanimous written consent dated December 10, 1993 of the Board of
Directors amending the Promissory Note between the Company and Edward
A. Johnson dated December 10, 1992. Incorporated by reference from
Form 10-K for the year ended December 31, 1992.
29
<PAGE> 32
10.52 Lease agreement between Whittier Narrows Business Park and the Company
dated January 10, 1994 incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1994, Exhibit 10.52.
10.55 1994 Stock Option Plan incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1994, Exhibit 10.55.
10.56 Lease Agreement between Frank T. Howard and the Company dated May 4,
1994 incorporated by reference from Annual Report on Form 10-K for the
year ended December 31, 1994, Exhibit 10.56.
10.60 Lease amendment between the Company and Laguna Niguel Office Center
dated July 7, 1994 which supersedes lease dated June 23, 1988
incorporated by reference from Annual Report on Form 10-K for the year
ended December 31, 1994, Exhibit 10.60.
10.64 Unanimous written consent dated December 30, 1994 of the Board of
Directors amending the Promissory Note between the Company and Edward
A. Johnson dated December 10, 1993 incorporated by reference from
Annual Report on Form 10-K for the year ended December 31, 1994,
Exhibit 10.64.
10.66 Agreement between Sherman Oaks Hospital and Health Center dated March
30, 1995, Incorporation by reference from Form 10-K for the year ended
December 31, 1995.
10.67 Loan Agreement between the Company and National Bank of Southern
California dated March 31, 1995. Incorporation by reference from Form
10-K for the year ended December 31, 1995.
(Modified)
10.68 Lease Agreement between the Company and Laguna Niguel Office Center
dated June 5, 1995 which supersedes lease dated June 23, 1988.
Incorporation by reference from Form 10-K for the year ended December
31, 1995.
10.69 Sublease Agreements between the Company and Huntington Beach and
Medical Center dated July 1, 1995. Incorporation by reference from
Form 10-K for the year ended December 31, 1995.
10.70 Lease Agreement between the Company and 757 Pacific Partnership dated
July 3, 1995. Incorporation by reference from Form 10-K for the year
ended December 31, 1995.
10.71 Sublease Agreement between the Company and Huntington Beach Hospital
and Medical Center dated July 24, 1995. Incorporation by reference
from Form 10-K for the year ended December 31, 1995.
10.72 Lease Agreement between the Company and Columbia Healthcare
Corporation dated September 14, 1995 which supersedes lease dated
October 18, 1993. Incorporation by reference from Form 10-K for the
year ended December 31, 1995.
10.73 Agreement between San Fernando Community Hospital, Inc. dba Mission
Community Hospital and the Company dated October 6, 1995.
Incorporation by reference from Form 10-K for the year ended December
31, 1995.
30
<PAGE> 33
10.77 Operating Agreement for Optimum Care Source, LLC incorporation by
reference from March 31, 1996 Form 10-Q Exhibit 10.77.
10.78 Master Joint Venture Agreement between Professional CareSource, Inc.
and the Company dated April 19, 1996 incorporation by reference from
March 31, 1996 Form 10-Q Exhibit 10.78.
10.79 Employment Agreement between Margaret M. Minnick and Optimum Care
Source, LLC incorporation by reference from March 31, 1996 Form 10-Q
Exhibit 10.79.
10.80 Employment Agreement between Teri L. Jolin and Optimum Care Source,
LLC incorporation by reference from March 31, 1996 Form 10-Q Exhibit
10.80.
10.81 Employment Agreement between Joseph H. Dadourian and Optimum Care
Source, LLC incorporation by reference from March 31, 1996 Form 10-Q
Exhibit 10.81.
10.82 Registration Agreement between Professional CareSource, Inc. and the
Company dated April 24, 1996 incorporation by reference from March 31,
1996 Form 10-Q Exhibit 10.82.
10.83 Non-qualified stock option Agreement between Joseph H. Dadourian and
the Company dated April 24, 1996 incorporation by reference from March
31, 1996 Form 10-Q Exhibit 10.83.
10.84 Non-qualified stock option Agreement between Teri L. Jolin and the
Company dated April 24, 1996 incorporation by reference from March 31,
1996 Form 10-Q Exhibit 10.84.
10.85 Non-qualified stock option Agreement between Margaret M. Minnick and
the Company dated April 24, 1996 incorporation by reference form March
1996 Form 10-Q Exhibit 10.85.
10.86 Agreement between Friendship Community Mental Health Center and the
Company dated April 25, 1996 incorporation by reference from March 31,
1996 Form 10-Q Exhibit 10.86.
10.87 Lease Agreement between the Company and Laguna Niguel Office Center
dated April 30, 1996 which supersedes lease dated June 23, 1988.
10.88 Lease Agreement between the Company and Jay Arteaga dated September
30, 1996.
10.89 Lease Agreement between the Company and Solomon, Saltzman & Jameson
dated October 15, 1996.
10.90 Unanimous Written Consent dated December 31, 1996 of the Board of
Directors amending the promissory note between the Company and Edward
A. Johnson dated December 29, 1995.
31
<PAGE> 34
10.91 Change in terms Agreement between the Company and National Bank of
Southern California dated January 28, 1997.
10.92 Staffing Agreement between the Company and Treatment Resources, Inc.
dated February 1, 1997.
10.93 Community Mental Health Center Agreements (California and Nevada)
between the Company and Treatment Resources, Inc. dated February 1,
1997.
11 Statement re: Computation of per share earnings.
23 Consent of Ernst & Young LLP.
(b) Reports on Form 8-K
Inapplicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OPTIMUMCARE CORPORATION
By: /s/ EDWARD A. JOHNSON
------------------------
Edward A. Johnson
President
Date: March 28, 1997
--------------
/s/ EDWARD A. JOHNSON
- ----------------------------- March 28, 1997
Edward A. Johnson, Director
/s/ MICHAEL S. CALLISON
- ----------------------------- March 28, 1997
Michael S. Callison, Director
/s/ GARY L. DREHER
- ----------------------------- March 28, 1997
Gary L. Dreher, Director
/s/ JON E. JENETT
- ----------------------------- March 28, 1997
Jon E. Jenett, Director
32
<PAGE> 35
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
OPTIMUMCARE CORPORATION
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions At End
Description of Period & Expenses Describe Describe of Period
- ----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1996
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts $ 0 $ 0 $ 0 $ 0
YEAR ENDED
DECEMBER 31, 1995
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts 0 36,030 (36,030) 0
YEAR ENDED
DECEMBER 31, 1994
Reserves and allowances
from asset accounts:
Allowance for
uncollectible
accounts 0 141,620 (141,620) 0
</TABLE>
33
<PAGE> 36
OptimumCare Corporation
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 6,237,751 5,892,824 5,871,660
Net effect of dilutive stock options
- based on the treasury stock method
using average market price 188,133 521,885 346,453
--------- --------- ---------
Total 6,425,884 6,414,709 6,218,113
--------- --------- ---------
Net income $ 876,716 $ 2,070 $ 465,045
--------- --------- ---------
Per share amount $0.14 $0.00 $0.07
--------- --------- ---------
FULLY DILUTED
Average shares outstanding 6,237,751 5,892,824 5,871,660
--------- --------- ---------
Net effect of dilutive stock options
- based on the treasury stock method
using year-end market price, if
higher than average market price 246,169 597,186 346,453
--------- --------- ---------
Total 6,483,920 6,490,010 6,218,113
--------- --------- ---------
Net income $ 876,716 $ 2,070 $ 465,045
--------- --------- ---------
Per share amount $0.14 $0.00 $0.07
========= ========= =========
</TABLE>
A 20% stock dividend was declared by the Board of Directors on August 14, 1996
for shareholders of record on October 1, 1996. The stock dividend was issued
on October 18, 1996 and all stock related data in this exhibit reflects the
stock dividend for all periods presented.
34
<PAGE> 37
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-8833 and 33-78340) pertaining to the 1987 and 1994 Stock
Option Plans of OptimumCare Corporation of our report dated March 21, 1997,
with respect to the consolidated financial statements and schedule of
OptimumCare Corporation included in the Annual Report (Form 10K) for the year
ended December 31, 1996.
/s/ ERNST & YOUNG LLP
----------------------
Ernst & Young LLP
Orange County, California
March 27, 1997
<PAGE> 38
FINANCIAL STATEMENTS
OPTIMUMCARE CORPORATION
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 39
OPTIMUMCARE CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
Page
----
Report of Independent Auditors ........................... 1
Financial Statements
Consolidated Balance Sheets .............................. 2
Consolidated Statements of Operations .................... 3
Consolidated Statements of Stockholders' Equity .......... 4
Consolidated Statements of Cash Flows .................... 5
Notes to Consolidated Financial Statements ............... 6
<PAGE> 40
[LETTERHEAD OF ERNST & YOUNG]
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
OptimumCare Corporation
We have audited the accompanying consolidated balance sheets of OptimumCare
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 8 to the consolidated financial statements, the Company is
dependent upon a small number of contracts, the loss of any of which could have
a significant adverse effect on the Company's operations.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OptimumCare Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Orange County, California
March 21, 1997
1
<PAGE> 41
OPTIMUMCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,113,809 $ 170,932
Accounts receivable 2,389,019 1,536,693
Prepaid expenses 15,175 23,665
Total current assets 3,518,003 1,731,290
----------------------------
Note receivable from officer 155,000 155,000
Furniture and equipment, less accumulated depreciation of
$52,135 in 1996 and $34,382 in 1995 73,496 25,617
Deposits and other assets 29,922 7,822
Deferred acquisition costs - 138,753
Intangibles, less accumulated amortization of $27,050 in 1996
and $0 in 1995 175,828 -
Tradename, less accumulated amortization of $1,224 in 1996 and
$1,020 in 1995 851 1,055
----------------------------
Total assets $3,953,100 $ 2,059,537
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 227,289 $ 192,743
Accrued expenses 371,808 188,788
Line of credit 645,812 -
----------------------------
Total current liabilities 1,244,909 381,531
Note payable to bank - 166,000
Minority interest (27,207) -
Commitments
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 20,000,000
6,786,218 shares issued and outstanding in 1996;
4,923,509 shares issued and outstanding in 1995 6,786 4,924
Paid-in-capital 3,272,407 2,927,593
Accumulated deficit (543,795) (1,420,511)
----------------------------
Total stockholders' equity 2,735,398 1,512,006
----------------------------
Total liabilities and stockholders' equity $3,953,100 $ 2,059,537
============================
</TABLE>
See accompanying notes.
2
<PAGE> 42
OPTIMUMCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Net revenues $10,676,237 $6,027,122 $5,596,283
Interest income 5,316 8,741 8,487
--------------------------------------------
10,681,553 6,035,863 5,604,770
Operating expenses:
Costs of services provided 8,313,317 5,022,040 4,238,355
Provision for uncollectible accounts - 36,030 141,620
Selling, general and administrative 1,343,961 964,701 741,919
Interest 26,544 10,222 4,065
--------------------------------------------
9,683,822 6,032,993 5,125,959
--------------------------------------------
Income before income taxes 997,731 2,870 478,811
Income taxes 121,015 800 13,766
--------------------------------------------
Net income $ 876,716 $ 2,070 $ 465,045
============================================
Net income per share $.14 $.00 $.07
============================================
</TABLE>
See accompanying notes.
3
<PAGE> 43
OPTIMUMCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NOTE
RECEIVABLE
COMMON STOCK PAID-IN ACCUMULATED TREASURY FROM
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT OFFICER TOTAL
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,896,509 $4,897 $2,917,676 $(1,887,626) 8,500 $(5,075) $ - $1,029,872
Note receivable from officer - - - - - - (15,653) (15,653)
Exercise of stock options 8,000 8 1,672 - - - - 1,680
Net income - - - 465,045 - - - 465,045
------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,904,509 4,905 2,919,348 (1,422,581) 8,500 (5,075) (15,653) 1,480,944
Payment of note receivable
from officer - - - - - - 15,653 15,653
Exercise of stock options 19,000 19 8,245 - - - - 8,264
Reissue of treasury stock - - - - (8,500) 5,075 - 5,075
Net income - - - 2,070 - - - 2,070
------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,923,509 4,924 2,927,593 (1,420,511) - - - 1,512,006
Exercise of stock options 740,000 740 324,936 - - - - 325,676
OptimumCare Source
contributed capital - - 21,000 - - - - 21,000
Payment of stock dividend 1,122,709 1,122 (1,122) - - - - -
Net income - - - 876,716 - - - 876,716
------------------------------------------------------------------------------------------
Balance at December 31, 1996 6,786,218 $6,786 $3,272,407 $ (543,795) - $ - $ - $2,735,398
==========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 44
OPTIMUMCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 876,716 $ 2,070 $ 465,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 17,753 8,919 6,622
Amortization 27,254 204 204
Provision for uncollectible accounts - 36,030 141,620
Common stock issued as bonuses - 5,075 -
Minority interest in net income (27,207) - -
Changes in operating assets and liabilities:
(Increase) in accounts receivable (852,326) 69,317 (1,022,363)
(Increase) decrease in prepaid expenses 7,390 (10,383) 152,853
Increase (decrease) in accounts payable 34,546 40,208 (2,728)
Increase in accrued liabilities 183,020 8,114 66,594
-----------------------------------------
Net cash provided by (used in) operating activities
267,146 159,554 (192,153)
INVESTING ACTIVITIES
Intangible asset from business acquisition (202,878) - -
Purchases of equipment (65,632) (18,443) (13,362)
Loss on sale of equipment - - 514
Deferred acquisition costs 138,753 (138,753) -
Note receivable from officer - (58,000) (47,000)
-----------------------------------------
Net cash used in investing activities (129,757) (215,196) (59,848)
FINANCING ACTIVITIES
Note payable to bank 479,812 166,000 -
Note receivable from officer - 15,653 (15,653)
Exercise of stock options 325,676 8,264 1,680
-----------------------------------------
Net cash provided by (used in) financing activities 805,488 189,917 (13,973)
-----------------------------------------
Net increase (decrease) increase in cash 942,877 134,275 (265,974)
Cash and cash equivalents at beginning of year 170,932 36,657 302,631
-----------------------------------------
Cash and cash equivalents at end of year $1,113,809 $ 170,932 $ 36,657
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 25,538 $ 8,720 $ 4,065
Cash paid for income taxes $ 95,133 $ 31,201 $ 22,065
</TABLE>
See accompanying notes.
5
<PAGE> 45
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
OptimumCare Corporation (the Company) develops, markets and manages
hospital-based programs for the treatment of psychiatric disorders on both an
inpatient and outpatient basis. The Company's programs are currently being
marketed in the United States, principally California, to independent acute
general hospitals and other health care facilities. Significant intercompany
transactions have been eliminated in consolidation.
BUSINESS ACQUISITION
On April 19, 1996, the Company completed the acquisition of a 70% interest in
certain contracts of Professional CareSource, Inc. through the formation of
OptimumCareSource, LLC (the "LLC"). The Company acquired a 70% ownership
interest in the LLC and Professional CareSource, Inc. holds a 30% ownership
interest in the LLC. The Company considers the LLC to be a 70% owned subsidiary
of the Company. The Company paid $11,000 in cash to each of the three
principals of Professional CareSource, Inc. and made an initial contribution of
$50,000 to the LLC for working capital.
The Company is required to purchase all of Professional CareSource, Inc.'s
interest in the LLC by April 29, 2001, but may elect to purchase the interest
at any time after April 29, 2000 at a specified price, which approximates
Professional CareSource's ownership percentage in the LLC multiplied by five
(5) times the LLC's net profit after taxes as reflected on its most recent Form
1065 after agreed upon taxes.
Three principals of Professional CareSource, Inc. were each given one year
employment contracts with the LLC. In connection with the employment agreement,
the Company granted nonqualified stock options to purchase 33,000 shares of
common stock at $.92 per share, which vest over five years, to each of the
principals of Professional CareSource, Inc. Optimum CareSource, LLC,
headquartered in Southern California, provides mental health services at
long-term care facilities.
The purchase method of accounting has been used to record the transaction. No
tangible assets of the LLC were acquired and as such the purchase price was
allocated to intangibles and amortized over five years. The deferred
acquisition costs associated with the purchase are amortized under the straight
line method over five years.
The Company did not proceed with a proposed business acquisition with Drs.
Giem, Guerra and Meyers and expensed $96,000 of direct costs to selling,
general and administrative expenses during 1996.
6
<PAGE> 46
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed by the
straight-line method based upon the estimated useful lives of the related
assets.
INTANGIBLE ASSETS
The Company's tradename became registered during December 1990. It is recorded
at cost and is being amortized over its estimated useful life of 10 years using
the straight-line method. Accumulated amortization is $1,224 and $1,020 as of
December 31, 1996 and 1995, respectively.
The Company has capitalized the legal and consulting fees incurred as a result
of the acquisition of a 70% interest in contracts from Professional CareSource,
Inc. through the formation of the LLC as an intangible asset. The legal and
consulting fees together with the $11,000 in cash paid to each of the three
Principals of Professional CareSource, Inc. were incurred as a part of the
acquisition of the Company's 70% interest in the LLC. These costs associated
with the purchase are amortized under the straight line method over five years.
Accumulated amortization is $27,050 and $0 as of December 31, 1996 and 1995,
respectively.
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. During 1996 events and circumstances
indicated that $175,828 of intangibles recorded as a result of the CareSource
acquisition might be impaired based on its operating loss for the year.
However, the Company's estimate of undiscounted cash flows indicated that such
carrying amounts were expected to be recovered and that the loss was not
unusual for a developing business in its early stages. Nonetheless, it is
reasonably possible that the estimate of undiscounted cash flows may change in
the near term resulting in the need to write-down those assets to fair value.
7
<PAGE> 47
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized in the period services are provided and are recorded
net of contractual adjustments representing the difference between standard
rates and estimated net realizable amounts under reimbursement agreements with
customers.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding, giving effect to common stock equivalents arising from
stock options, of 6,425,884, 6,414,709 and 6,218,113 in 1996, 1995 and 1994,
respectively. A 20% stock dividend was declared by the Board of Directors on
August 14, 1996 for stockholders of record on October 1, 1996. The stock
dividend was issued on October 18, 1996 and common stock equivalents for all
periods presented have been restated to reflect the stock dividend.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about the future that affect the amounts reported in the financial statements.
These estimates include assessing the collectibility of accounts receivable and
the usage and recoverability of long-lived assets. The actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with the
current year presentation.
2. PROVISION FOR UNCOLLECTIBLE ACCOUNTS
In June 1994, two contracts with one entity which leased facilities from one
hospital were canceled due to the filing of bankruptcy by the hospital. All
unpaid amounts due from the contracts have been written off in full at December
31, 1994, which totaled $141,620.
8
<PAGE> 48
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTE RECEIVABLE FROM OFFICER
On December 29, 1995, the Company converted a series of short-term advances and
a $97,000 note dated December 30, 1994 into a promissory note from an officer
totaling $155,000. The note accrues interest at the rate of 4.03% and is due
December 30, 1996. On December 31, 1996 the Company extended this note for an
additional year.
On June 24, 1994, the Company loaned two officers $26,400 and $13,200,
respectively, to purchase corporate common stock in the open market. The notes
accrued interest at the rate of 7.25% and were payable in monthly installments
due July 1, 1995. On September 19, 1994 one officer repaid the $13,200 note in
full. The other note was repaid in full on July 1, 1995.
On May 12, 1995 the Company loaned an officer $22,800. The note accrued
interest at the rate of 9% and was repaid in full on May 26, 1995.
4. LINE OF CREDIT
On April 12, 1995, the Company entered into a $500,000 line of credit agreement
with a bank that expired May 1, 1996. At the expiration date, the then
principal balance of the loan was to be convertible into a one year term loan
with an initial due date of May 1, 1997, but with a five (5) year repayment
schedule. The term loan was to be renewable for an additional term of one year.
The loan bore interest at the rate of 11% per year and is secured by all of the
assets of the Company.
On May 6, 1996 the maturity date of the line of credit was extended to July 1,
1996. On August 1, 1996 the line of credit was changed from a non-revolving
line of credit to a formula line of credit, which allows the Company to borrow
up to 75% of certain qualified receivables. The maximum indebtedness increased
to $750,000. The variable interest rate is Wall Street Journal prime plus
1.50%. The weighted average interest rate was 10.06% and 11% in the year ended
December 31, 1996 and 1995, respectively. On January 28, 1997, the maturity
date was extended to June 1, 1997. At December 31, 1996, $104,000 was available
for future draws on the line of credit agreement. During 1997, no additional
funds were borrowed under this agreement.
9
<PAGE> 49
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASE COMMITMENT
The Company leases three office facilities under lease agreements that expire
June 30, 1997, October 31, 1998 and October 14, 1999, respectively. The Company
also leased space under seven separate lease agreements for the operation of
five of its outpatient partial hospitalization psychiatric programs, of which
three agreements are on a month-to-month basis and the remaining agreements
expire, March 31, 1997, May 31, 1997, June 30, 1997 and July 13, 1997,
respectively. Aggregate future minimum lease payments under remaining
noncancelable leases with terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997 $37,400
1998 34,200
1999 10,450
-------
$82,050
=======
</TABLE>
The lease which expires June 30, 1997 contains five one-year options to extend
the lease. Subleases with two of the Company's host hospitals exist for the
entire amount of aggregate future minimum lease payments above. Sublease rental
income was $160,596, $154,621 and $48,995 for the years ended December 31,
1996, 1995 and 1994, respectively. Rent expense was $244,185, $191,251, and
$119,520 for the years ended December 31, 1996, 1995 and 1994, respectively.
6. STOCKHOLDERS' EQUITY
STOCK DIVIDEND
On August 14, 1996, a 20% stock dividend was declared by the Board of Directors
for shareholders of record on October 1, 1996. The stock dividend was issued on
October 18, 1996. Earnings per share amounts for all periods presented in the
financial statements have been restated to give retroactive effect to the stock
dividend. In such calculation common stock equivalents arising from stock
options have not been restated as no anti-dilution rights have been granted to
the option holders.
10
<PAGE> 50
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant. During 1996, the Company granted stock options with
an exercise price that differed from the market price of the underlying stock
on the date of grant. However, the compensation expense with respect to these
options was insignificant and not recognized by the Company.
In July 1987, the Company adopted a stock option plan (the 1987 Plan) including
incentive stock options and nonqualified stock options. A maximum of 455,000
shares of the Company's common stock has been reserved for issuance under the
plan. Under the Plan, incentive stock options may be granted at an exercise
price which is not less than 100% of the fair market value on the date of grant
(110% for greater than 10% stockholders). In addition, nonqualified stock
options may be granted at an exercise price which is no less than 85% of the
fair market value on the date of grant. Options may be granted for terms up to
10 years (five years for greater than 10% stockholders).
In 1991, the Company granted options to purchase 239,600 shares of its common
stock at $.21 per share that were vested upon grant. Of these options 222,500
were granted to an officer of the Company and were exercised during 1996.
In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the
1994 Plan) including incentive stock options and nonqualified stock options. In
December 1995, the Company readopted and approved the 1994 Stock Option Plan. A
maximum of 500,000 shares of the Company's common stock has been reserved for
issuance under the 1994 Plan. Under the 1994 Plan, incentive stock options may
be granted at an exercise price which is not less than 100% of the fair market
value on the date of grant (110% for greater than 10% stockholders). In
addition, nonqualified stock options may be granted at an exercise price which
is no less than 85% of the fair market value on the date of grant. Options may
be granted for terms up to 10 years (five years for greater than 10%
stockholders).
11
<PAGE> 51
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
In 1995, the Company granted options to purchase 200,000 shares of its common
stock at $.65 per share that are vested upon grant. No options have been
exercised under these grants.
In April 1996, the Company granted options to purchase 33,000 shares of its
common stock to three principals of its newly acquired LLC (Note 1). The
exercise price is $.92 per share, the fair market value at the date of grant.
Options vest over five years. No options have been exercised under these
grants.
During various dates in 1996, the Company granted to certain officers,
directors, employees and consultants, non-qualified options to purchase 675,000
shares of its common stock at prices ranging from $.901 to $1.50 per share.
Options to purchase 475,000 shares are vested upon grant. Options to purchase
200,000 shares vest over three years. No options have been exercised under
these grants.
A summary of stock option activity under the 1987 and 1994 Plans during 1994,
1995 and 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
Shares under option AVERAGE AVERAGE
1987 EXERCISE 1994 EXERCISE
PLAN PRICE PLAN PRICE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 344,500 $.29 - $ -
Granted 50,000 .6375 225,000 .6375
Exercised (8,000) .21 - -
Canceled (25,000) .21 - -
-------------------------------------------------------------
Outstanding at December 31, 1994 361,500 .35 225,000 .6375
Granted - - 250,000 .91
Exercised (19,000) .6375 - -
Canceled (25,000) .375 - -
-------------------------------------------------------------
Outstanding at December 31, 1995 317,500 .32 475,000 .78
Granted 100,000 1.08 - -
Exercised (267,500) .34 (250,000) .66
Canceled - - - -
-------------------------------------------------------------
Outstanding at December 31, 1996 150,000 $.83 225,000 $.68
=============================================================
</TABLE>
12
<PAGE> 52
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICE AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE
- ----------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$0.30 25,000 1.5 years $ .30 25,000 $ .30
$0.37 25,000 1.5 years .37 25,000 .37
$0.6375 125,000 2.5 years .6375 125,000 .6375
$0.91 75,000 3.5 years .91 75,000 .91
$0.93 25,000 3.5 years .93 25,000 .93
$1.08 100,000 4.5 years 1.08 - 1.08
- --------------------------------------------------------------- -------------------------------
$.30 to $1.08 375,000 2.5 years $ .78 275,000 $ .68
=============================================================== ===============================
</TABLE>
A total of 1,283,000 and 1,394,600 shares of common stock were reserved for
future issuance upon the exercise of stock options at December 31, 1996 and
1995, respectively. A total of 27,500 options were available for future grant
at December 31, 1996 under existing stock option plans. Options under the
Plans have expiration dates ranging from 1998 through 2001.
Pro forma information regarding net income and earnings per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996, respectively: risk-free interest rates of 6.31% for those options
expected to be exercised over a five year term and 5.6% for those options
granted in 1995 and exercised in 1996; a dividend yield of 0%; a volatility
factor of the expected market price of the Company's common stock of .529.
13
<PAGE> 53
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Net income (loss)
As reported $876,716 $ 2,070
Pro forma $538,255 $(187,430)
Earnings (loss) per share
Primary and fully diluted as reported $ .14 $ .00
Primary and fully diluted pro forma $ .08 $ (.04)
Weighted average exercise price of:
Options whose exercise price equals the market price of
the stock on the grant date $ 1.50 -
Options whose exercise price is less than the market
price of the stock on the grant date $ 1.14 $ .72
Weighted average fair value of:
Options whose exercise price equals the market price of
the stock on the grant date $ .80 -
Options whose exercise price is less than the market
price of the stock on the grant date $ .75 $ .42
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
14
<PAGE> 54
OPTIMUMCARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
A reconciliation of the provision for income taxes using the federal statutory
rate to the book provision for income taxes follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Statutory federal provision for income taxes $ 339,229 $ 1,000 $ 167,583
Increase (decrease) in taxes resulting from:
Current use of net operating loss carryforwards
(339,229) (1,000) (167,583)
Federal alternative minimum tax 14,000 - 6,000
State tax, net of federal benefit 107,015 800 7,776
--------- ------- ---------
$ 121,015 $ 800 $ 13,766
========= ======= =========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ----- -------
<S> <C> <C> <C>
Current:
Federal $ 14,000 $ - $ 6,000
State 107,015 800 7,766
-------- ---- -------
Total current 121,015 800 13,766
-------- ---- -------
Deferred:
Federal - - -
State - - -
-------- ---- -------
Total deferred - - -
-------- ---- -------
$121,015 $800 $13,766
======== ==== =======
</TABLE>
At December 31, 1996, the Company has unused net operating loss carryforwards
of approximately $95,000 for federal income tax purposes which expire beginning
in the year 2003. A valuation allowance has been recorded to entirely offset
the tax benefits of this attribute.
15
<PAGE> 55
OPTIMUMCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
net deferred tax asset at December 31, 1996, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ----------
<S> <C> <C> <C>
Net operating loss carryforwards $ 23,000 $ 413,000 $ 401,000
Alternative minimum tax credit carryforwards 18,000 4,000 4,000
Reserves and accruals not currently deductible for
tax purposes 23,000 17,000 43,000
Depreciation and amortization not currently
deductible for tax purposes 7,000 - 1,000
-------- --------- ---------
Total deferred tax assets 71,000 434,000 449,000
Less valuation allowance (71,000) (434,000) (449,000)
-------- --------- ---------
Net deferred tax asset $ - $ - $ -
======== ========= =========
</TABLE>
8. MAJOR CUSTOMERS
The Company is dependent upon a small number of hospitals, the loss of any
contract could have a significant adverse effect on the Company's operations.
Further, certain contracts are terminable on 90 days notice and if certain
patient census is not maintained. Management intends to use its best efforts to
retain existing contracts and expand the scope of services on these contracts,
obtain new contracts, and maintain patient census at the same or higher levels
than has historically been experienced.
The following table summarizes the amount of revenue for each customer
representing greater than 10% of total revenues for the:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995
---------------------------------------------------------
DOLLAR PERCENT DOLLAR PERCENT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Hospital 1 $ 3,116,166 29.2% $ 975,652 16.2%
Hospital 2 596,438 5.6% 791,995 13.1%
Hospital 3 1,242,955 11.6% 1,675,942 27.8%
Hospital 4 35,000 .4% 816,280 13.5%
Hospital 5 4,221,088 39.5% 419,580 7.0%
Other Hospitals 1,464,590 13.7% 1,347,673 22.4%
---------------------------------------------------------
$10,676,237 100.0% $6,027,122 100.0%
=========================================================
</TABLE>
In addition, these hospitals accounted for approximately $1,973,715 and
$1,080,633 of accounts receivable at December 31, 1996 and 1995, respectively.
16
<PAGE> 1
EXHIBIT 10.87
LEASE AMENDMENT
---------------
That certain OFFICE BUILDING LEASE dated June 23, 1988 and Amended
September 27, 1989, September 24, 1990, July 7, 1992, May 12, 1993, July 7,
1994 and June 5, 1995, by and between LAGUNA NIGUEL OFFICE CENTER, a California
Limited Partnership, as Landlord and OPTIMUMCARE CORPORATION, a Delaware
Corporation, as Tenant, is hereby amended as follows:
1) Lease has been extended for one (1) year. New expiration date
shall be June 30, 1997.
2) Rental rate shall remain the same.
3) Suite shall be painted at Landlords expense when painting is
convenient for Tenant.
4) All other terms and conditions of the original lease shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
April 30, 1996.
LAGUNA NIGUEL OFFICE CENTER, OPTIMUMCARE CORPORATION,
a California Limited Partnership a Delaware Corporation
By: /s/ CARL J. GREENWOOD By: /s/ EDWARD JOHNSON
----------------------------- -----------------------------
Carl J. Greenwood Edward Johnson
General Partner President
(LANDLORD) (TENANT)
<PAGE> 1
EXHIBIT 10.88
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, September 30.
1996, is made by and between Jav Arteaga (herein called "Lessor") and
OptimumCare Corporation, doing business under the name of OptimumCare
Corporation (herein called "Lessee").
1.2 Premises: Suite Number(s) 308, 3rd floors, consisting of approximately
650 rentable sq. feet, more or less, as defined in paragraph 2 and as shown on
Exhibit "A" hereto (the "Premises").
1.3 Building. Commonly described as being located at Jade II, 15501 San
Fernando Mission Blvd. in the City of Mission Hills (Los Angeles), County of
Los Angeles, State of California, as more particularly described in Exhibit A
hereto, and as defined in paragraph 2.
1.4 Use: General Offices, subject to paragraph 6.
1.5 Term: Three (3) years commencing October 15, 1996 (or sooner)
("Commencement Date") and ending October 14, 1999, as defined in paragraph 3.
1.6 Base Rent: $1,100.00 per month, payable on the 1st day of each month,
per paragraph 4.1.
1.7 Base Rent Increase: On Anniversary of Commencement, the monthly Base
Rent payable under paragraph 1.6 above shall be adjusted as provided in
paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $1,100.00 for first month's rent.
1.9 Security Deposit: $1,100.00.
1.10 Lessee's Share of Operating Expense Increase: 2.64% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project". Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time
to time, Lessee shall be entitled to rent and use 3/1000 parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
<PAGE> 2
2.2.2 The monthly parking rate per parking space will be S -0- per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall
be payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of
the Office Building Project that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to
common entrances, lobbies, corridors, stairways and stairwells, public
restrooms, elevators, escalators, parking areas to the extent not otherwise
prohibited by this Lease, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, ramps, driveways, landscaped areas and
decorative walls.
2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and conform
to the rules and regulations attached hereto as Exhibit B with respect to the
Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project
2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common Areas,
including, without limitation, changes in the location, size, shape, number,
and appearance thereof, including but not limited to the lobbies, windows,
stairways, air shafts, elevators, escalators, restrooms, driveways, entrances,
parking spaces, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of the
Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to
the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Area and Office Building Project as Lessor may, in
the exercise of sound business judgement deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Not withstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease of
the obligations of Lessee hereunder or extend the term thereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided
in this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all operations hereunder; provided, however,
that, as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Non-Standard Improvements); and provided further, that if such
written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
3.2.1 Possession Tendered - Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements
to be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent, and
the sixty (60) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
<PAGE> 3
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6
of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons
or at such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase",
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease term
commences.
(c) "Comparison Year" is defined as each calendar year during the term of
this Lease subsequent to the Base Year; provided, however, Lessee shall have no
obligation to pay a share of the Operating Expense increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by
a governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense increase for the first and
last Comparison Years of the Lease Term shall be prorated according to that
portion of such Comparison Year as to which Lessee is responsible for a share
of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to include
all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical systems,
life safety equipment, telecommunication and other equipment used in common by,
or for the benefit of, lessees or occupants of the Office Building Project,
including elevators and escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere in
this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor under
paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other publicly
mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
<PAGE> 4
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgement of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful life
for depreciation purposes according to Federal income tax guidelines of five
(5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
guidelines of five (5) years unless it is of the type described in paragraph
4.2(d)(viii), in which case their cost shall be included as above provided.
(f) Operating Expenses shall not include any expenses paid by any lessee
directly to third parties, or as to which Lessor is otherwise reimbursed by any
third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense increase shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time in advance of Lessee's Share of the
Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount under this paragraph during
said Comparison Year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement. Lessor and
Lessee shall forthwith adjust between them by cash payment any balance
determined to exist with respect to that portion of the last Comparison Year
for which Lessee is responsible as to Operating Expense Increases,
notwithstanding that the Lease term may have terminated before the end of such
Comparison Year.
4.3 Rent Increase.
4.3.1 At the time set forth in paragraph 1.7 of the Basic Lease Provisions,
the monthly Base Rent payable under paragraph 4.1 of this Lease shall be
adjusted by the increase, if any, in the Consumer Price Index of the Bureau of
Labor Statistics of the Department of Labor for All Urban Consumers,
(1967=100). "All items", for the city nearest the location of the Building,
herein referred to as "C.P.I.", since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall be
calculated as follows: the Base Rent payable for the first month of the term of
this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied by
a fraction the numerator of which shall be the C.P.I. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the calendar month in which the original Lease term
commences. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date for the rent
adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculations. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in the County in which the Premises are
located, in accordance with the then rules of said association and the decision
of the arbitrators shall be binding upon the parties, notwithstanding one party
failing to appear after due notice of the proceeding. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental installments
then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by this
Lease is known or determined, Lessor and Lessee shall execute an amendment to
this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss
or damage which Lessor may suffer thereby. If Lessor so uses or applies all or
any portion of said deposit, Lessee shall within ten (10) days after written
demand therefore deposit cash with Lessor in an amount sufficient to restore
said deposit to the full amount then required of Lessee. If the monthly Base
Rent shall, from time to time, increase during the term of this Lease. Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by
Lessor shall at all times bear the same proportion to the then current Base
Rent as the initial security deposit hears to the initial Base Rent set forth
in paragraph 1.6 of the Base Lease Provisions. Lessor shall not be required to
keep said security deposit separate from its general
<PAGE> 5
accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not heretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor
and Lessee with respect to said Security Deposit.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record or any
applicable building code, regulations or ordinance in effect on such Lease Term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expenses, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the
Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waster or a nuisance or shall tend to disturb other
occupants of the Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
it is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost; rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record,
and accepts this Lease subject thereto and to all matters disclosed thereby and
by any exhibits attached hereto. Lessee acknowledges that it has satisfied
itself by its own independent investigation that the Premises are suitable for
its intended use, and that neither Lessor nor Lessor's agent or agents has made
any representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or area above
the Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
Interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is attributable
to causes beyond normal wear and tear. Lessee shall be responsible for the
cost of painting, repair or replacing wall coverings, and to repair or replace
any Premises improvements that are not ordinarily a part of the Building or
that are above then Building standards. Lessor may, at its option, upon
reasonable notice, elect to have Lessee perform any particular such maintenance
or repairs the cost of which is otherwise Lessee's responsibility hereunder.
<PAGE> 6
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices by Lessee.
Lessee shall repair any damage to the Premises occasioned by the installation
or removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the airlines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling,
ceilings, and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, utility installations or repairs in, on,
or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication
wiring and equipment. At the expiration of the term Lessor may require the
removal of any or all of said alterations, improvements, additions or Utility
installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at
any time during the term of this Lease, require that Lessee remove any part or
all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the office Building Project that Lessee shall
desire to make shall be presented to Lessor in written form with proposed
detailed plans. If Lessor shall give its consent to Lessee's making such
alteration, improvement, addition or Utility Installation, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises of
the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgement that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premise, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee
to pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee)
which may be made to the Premises by Lessee, including but not limited to,
floor coverings, paneling, doors, drapes, built-ins, moldings, sound
attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specification
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilizes as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard
form with Broad Form General Liability Endorsement (GL0404), or equivalent, in
an amount of not less than $1,000,000 per occurrence of bodily injury and
property damage combined or in a greater amount as reasonably determined by
Lessor and shall insure Lessee with Lessor as an additional insured against
liability arising out of the use, occupancy or maintenance of the premises.
Compliance with the above requirement shall not, however, limit the liability
of Lessee hereunder.
<PAGE> 7
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance
of the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form or equivalent, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien on
the Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's Insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this
Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including, but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter. Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of
Lessee or injury to persons, in, upon or about the Office Building Project
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building Project, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees, agents
or contractors, whether such damage or injury is caused by or results from
theft, fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the Premises
or upon other portions of the Office Building Project, or of the equipment,
fixtures or appurtenances applicable thereto, and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible, Lessor shall not be liable for any damages arising from any act
or neglect of any other lessee, occupant or user of the Office Building
Project, nor from the failure of Lessor to enforce the provisions of any other
lease of any other lessee of the Office Building Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or homes of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or destroyed to
any extent.
<PAGE> 8
(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent (50%) of the then Replacement cost of the
building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost
of the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings on
the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if the
Office Building Project Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent (50%) or more of the then Replacement Cost
of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring, excluding all improvements made by
lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage: Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at
any time during the term of this lease there is damage which is an Insured Loss
and which falls into the classification of either Premises Damage or Premises
Building Partial Damage; then Lessor shall, as soon as reasonably possible and
to the extent the required materials and labor are readily available through
usual commercial channels, at Lessor's expense, repair such damage (but not
Lessee's fixtures, equipment or tenant improvements originally paid for by
Lessee) to its condition existing at the time of the damage, and this Lease
shall continue in full force and effect
(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this lease shall terminate as of the date of the
occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve (12)
months of the term of this Lease there is substantial damage to the Premises,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is
to be exercised at all, no later than twenty (20) days after the occurrence of
an insured loss falling within the classification of Premises Damage during the
last twelve (12 months) of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
<PAGE> 9
9.5 Abatement of Rent; Lessee's Remedies
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (Including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or the
Building under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months
after such occurrence, Lessee may at Lessee's option cancel and terminate this
Lease by giving Lessor written notice of Lessee's election to do so at any time
prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease pursuant to
this paragraph 9, an equitable adjustment shall be made concerning advance rent
and any advance payments made by Lessee to Lessor, Lessor shall, in addition,
return to Lessee so much of Lessee's security deposit as has not theretofore
been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which relate
to termination of leases when leased property is destroyed and agree that such
event shall be governed by the terms of this Lease.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real property
tax" shall include any form of real estate tax or assessment, general, special,
ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax
purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof
10.4 Joint Assessment. If the improvements or property, the taxes for which are
to be paid separately by Lessee under paragraph 10.2 or 10.5 are not separately
assessed, Lessee's portion of that tax shall be equitably determined by Lessor
from the respective valuations assigned in the assessor's worksheets or such
other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
<PAGE> 10
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating, ventilation,
air conditioning and janitorial service as reasonably required, reasonable
amounts of electricity for normal lighting and office machines, water for
reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof Lessee shall have access 24 hours per day for lights and air
conditioning/heating.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation,
or (b) if Lessee is a partnership, more than twenty-five percent (25%) of the
profit and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of who shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including
Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have hen guaranteed by third
parties, then an assignment or sublease, and Lessor's consent thereto, shall
not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefore to
Lessor, or any security held by Lessor or Lessee.
<PAGE> 11
(g) Lessor's written consent to any assignment or subletting of the Premises
by Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon by
Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter
made by Lessee, and Lessor may collect such rent and income and apply same
toward Lessee's obligations under this Lease; provided, however, that until a
default shall occur if the performance of Lessee's obligations under this Lease,
Lessee may receive, collect and enjoy the rents accruing under a such sublease.
Lessor shall not, by reason of this or any other assignment of such sublease to
Lessor nor by reason of the collection of the rents from a sublessee, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with
any of Lessee's obligations to such sublessee under such sublease. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a default exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents due and to
become due under the sublease. Lessee agrees that such sublessee shall have the
right to rely upon any such statement and request from Lessor, and that such
sublessee shall pay such rents to Lessor without any obligation or right to
inquire as to whether such default exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee or Lessor for any such rents so paid by said sublessee to
Lessor.
(b) No sublease entered into by Lessee shall be effective unless and unto
it has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublessee as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its obligations
under this Lease, Lessor at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the exercise of
said option to the termination of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to Lessee or for any other prior defaults of Lessee under such
sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessor shall assign or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if Lessee
shall request the consent of Lessor for any act Lessee proposes to do then
Lessee shall pay Lessor's reasonable costs and expenses incurred in connection
therewith, including attorneys', architects', engineers' or other consultants'
fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any approval
to assign or sublet upon Lessor's determination that (a) the proposed assignee
or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13.1 Default. The occurrence of any one or more of the following events shall
constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of the
Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or provisions
of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1 (a) (vacation or abandonment), 13.1 (e) (insolvency), 13.1
(f) (false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
<PAGE> 12
(d) the failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) days notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors: (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case
of a pension filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receive to take possession is not
restored to Lessee within thirty (30) days; or (iv) the attachments execution
or other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be of
no force or effect.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee, or its successor in interest or by any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid, the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent
for the balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Lessee proves could be reasonably
avoided; that portion of the leasing commission paid by Lessor pursuant to
paragraph 14 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due
from Lessee shall not be received by Lessor or Lessor's designee within ten
(10) days after such amount shall be due, then, without any requirement for
notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such later charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount,
nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat
of the exercise of said power (all of which are herein called "condemnation")
this Lease shall terminate as to the part so taken as of the date the
condemning authority takes title or possession, whichever first occurs; provided
that if so much of the Premises or the Office Building Project are taken by
such condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
the condemning authority shall have taken possession), to terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent and Lessee's Share of Operating Expense Increase shall be
reduced in the proportion that the floor area of the Premises taken bears to
the total floor area of the Premises. Common Areas taken shall be excluded from
the Common Areas usable by Lessee and no reduction of rent shall occur with
respect thereto or by reason thereof Lessor shall have the option in its sole
discretion to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any past of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises
<PAGE> 13
or the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are N/A as "listing broker"
and N/A as "cooperating broker," licensed real estate broker(s). A "cooperating
broker" is defined as any broker other than the listing broker entitled to a
share of any commission arising under this Lease. Upon execution of this Lease
by both parties, Lessor shall pay to said brokers jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $N/A, for
brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, there as to any of said transactions or rent increases,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease. Said fee shall be
paid at the time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor, but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any commission arising under
this Lease and may enforce that right directly against Lessor; provided,
however, that all brokers having a right to any part of such total commission
shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 14(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorney's fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date in which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any incurred defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrances of the Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no incurred defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, or for Lessor's internal use, Lessee hereby
agrees to deliver to any lender or purchaser designated by Lessor such
financial statements of Lessee as may be reasonably required by such lender or
purchaser. Such statements shall include the past three (3) years' financial
statements of Lessee. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 14, and in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor
<PAGE> 14
or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
not on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expense payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 14 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature of
the respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach of time
of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200% of the rent payable immediately preceding the
termination date of this Lease, and all Options, if any, granted under the terms
of this Lease shall be deemed terminated and be no further effect during said
month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
<PAGE> 15
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security
thereof and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgement. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorney's fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorney's fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorney's fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction
is subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forcible or
unlawful entry or detainer of the Premises or any eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
<PAGE> 16
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entry term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options
39.1 Definition. As used in this paragraph the word "option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to lease other space within the Office Building Project or the right or
option to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any person or entity other than Lessee; provided, however, that an
Option may be exercised by or assigned to any Lessee Affiliate as defined in
paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are
not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the day
after the monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) and continuing until the obligation
is paid, or (iii) in the event that Lessor has given to Lessee three or more
notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or
not the defaults are cured, during the 12 month period of time immediately prior
to the time that Lessee attempts to exercise the subject Option, (iv) if Lessee
has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv)
if Lessee has committed any non-curable breach, including without limitation
those described in paragraph 13.1 (b), or is otherwise in default of any of the
terms, covenants and conditions of this Lease.
40. Security Measures - Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project or
building in which the Premises are located upon not less than 90 days prior
written notice;
<PAGE> 17
(b) To, at Lessee's expense, provide and install Building standard graphics
on the door of the Premises and such portions of the Common areas as Lessor
shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or the
Office Building Project or their name(s) in connection with Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights dedications Maps and restriction do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted
shall have the right to make payment "under protest" and such payment shall not
be regarded as a voluntary payment, and there shall survive the right on the
part of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provision of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to Lease
this Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemental by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
50. Relocation. Lessor shall have the right, at its option, upon at least
thirty (30) days written notice to Lessee, to relocate Lessee and to substitute
for the Premises (the "Original Premises") other space (the "Substituted
Premises") in the building of which the premises are a part, containing at
least as much rentable area as the Original Premium. Should Lessee not approve
of the Substituted Premise, which approval shall not be unreasonable withheld,
Lessee's sole remedy shall be to cancel this Lease. This Substituted Premises
shall be improved at Lessor's expense, with decorations and improvements at
least equal in quantity and quality to those in the Original Premises and may
include improvements from the Original Premises and existing improvements in
the Substituted Premises. Lessor shall pay the expenses reasonably incurred by
Lessee in connection with such substitution of Premises, in an amount not
to exceed $1,000.00 in the aggregate. Such expenses shall include, without
limitation, costs of moving, door lettering, telephone relocation and
reasonable quantities of new stationary, but shall not include any compensation
for any alleged interruption of Lessee's business.
<PAGE> 18
51. Confidentiality of Lease. Lessee acknowledges and agrees that the terms of
this Lease are confidential and constitute proprietary information of Lessor and
Lessee. Disclosure of the terms hereof could adversely affect the ability of
Lessor to negotiate other leases with respect to the Building or impair
Lessor's relationship with other tenants of the Building. Lessee agrees that it
and its partners, officers, directors, employees and attorneys shall not
disclose the terms and conditions of this Lease to any other persons without
the prior written consent of Lessor. It is understood and agreed that damages
would be inadequate remedy for the breach of this provision by Lessee, and
Lessor shall have the right to performance of this provision and to injunctive
to prevent breach or continued breach.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
Jay Arteaga OptimumCare Corporation
By: JAY ARTEAGA By: EDWARD A. JOHNSON
Its: Owner Its: C.E.O.
by:__________________________________ by:___________________________________
Its:_________________________________ Its:__________________________________
Executed at:_________________________ Executed at:__________________________
on: 10/2/96 on:
Address: Address:
15515 San Fernando Mission Blvd. #7 30011 Ivy Glean Drive
Mission Hills, CA 91345 Laguna Niguel, CA 92677
(818) 365-7809 (714) 495-1100
<PAGE> 19
STANDARD OFFICE LEASE
FLOOR PLAN
JADE 11
SUITE #308
EXHIBIT A
<PAGE> 20
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
================================================================================
Dated: September 30, 1996
By and Between: Jay Arteaga and OptimumCare Corporation
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of
the office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to
be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7:00
P.M. and 7:00 A.M. of the following day. If Lessee uses the Premises during
such periods, Lessee shall be responsible for securely locking any doors it
may have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or food
preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
<PAGE> 21
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants.
Lessee agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles".
Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offside
location(s), and to reasonably allocate them between compact and standard
size spaces, as long as the same complies with applicable laws, ordinances
and regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Lessor will not be responsible for any
damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules, regulations, laws and agreements.
12. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
<PAGE> 22
EXHIBIT C
CERTIFICATE OF LESSEE'S ACCEPTANCE OF OCCUPANCY
TO: Jay Arteaga
15515 San Fernando Mission Blvd. #7, Mission Hills, CA 91345
RE: 15501 San Fernando Mission Blvd., Suite
Gentlemen:
The undersigned is the Lessee under that certain Lease dated September 30, 1996
(referred to hereinafter as the "Lease"), by and between Jay Arteaga as Lessor
(referred to hereinafter as "Landlord"), and the undersigned, as Tenant. In
connection with occupancy of the premises, the undersigned delivers this
Certificate of Lessee's Acceptance of Occupancy to you and the undersigned
understands that you and others, including your lenders, will be relying on
each of the statements contained herein.
The undersigned hereby certifies to you as a condition to the obligation:
(a) The undersigned accepts possession under the Lease on a current rent
paying basis as of .
(b) The Lease is in full force and effect and there are no defaults under
the Lease by Lessor.
(c) The Leased Premises and all parking and common areas have been improved
to the undersigned's satisfaction and as may be called for under the Lease.
(d) The initial monthly rental under the Lease is $1,100.00 and the
undersigned from the date hereof agrees to deliver the same and all other
charges to the undersigned under the Lease to you without any deduction, set
off or counterclaim whatsoever.
(e) The undersigned has listed "clean up" items for the Premises requested
to be complied with by Lessor within a reasonable period of time and except
as to the items set forth hereinbelow, accepts the complete obligation to
repair and maintain the Premises.
(f) There have been no amendments, modifications or other agreements
respecting the Lease.
Very truly yours,
OptimumCare Corporation
By: EDWARD A. JOHNSON, C.E.O.
---------------------------
Date: 10/2/96
<PAGE> 1
EXHIBIT 10.89
THE PRUDENTIAL - JON DOUGLAS COMPANY
A member of the
Jon Douglas Real Estate Services Group, Inc.
RESIDENTIAL LEASE AGREEMENT
This is more than a receipt for money. This is intended to be a legally binding
contract. Do not sign it until you have thoroughly read and understood each
provision.
This Residential Lease Agreement ("Agreement") is entered into at Playa Del
Rey, State of California, this _____ day of _________, 1996, by and between
SOLOMON, SALTSMAN & JAMIESON ("Lessor"), and OPTIMUMCARE CORP. ("Lessee").
In consideration of the rents and covenants contained herein, Lessor does
hereby lease to Lessee, and Lessee does hereby lease from Lessor those certain
premises with appurtenances situated in the City of Playa Del Rey, County of
Los Angeles, State of California, and more particularly described as follows:
428 Culver Blvd. ("Property").
[ ] Furnished, [X] Unfurnished, [X] Single Family Residence, [ ] Condominium
Unit and Parking Space(s) No. ______, [ ] Storage Area No. ___,
[ ] Other ___________________________________________________________________
- -----------------------------------------------------------------------------
The following personal property is included as a part of this Agreement: None
1. RENT AND TERM. Lessee agrees to pay Lessor rent at the rate of $_______ per
month in advance, on the 1st day of each calendar month. The term of this
Agreement shall begin on November 1, 1996 ("Commencement Date"), as a:
[ ] a. Month to month tenancy (Periodic Tenancy), which may be terminated
by either party, by giving written notice to the other party at
least 30 days prior to the intended termination date; or
[ ] b. A lease with the Commencement Date as stated above and an ending
date of October 31, 1998, with a total rental for the full term
of $49,200, payable in monthly installments as defined above; or
[X] c. Other: 1st 12 months @ $2,000 and 2nd 12 months @ $2,100.
2. DEPOSITS AND PREPAID RENTAL.
a. Lessee has given The Prudential Jon Douglas Company ("Broker")
an Earnest Money Deposit in the amount of...................... $________
in the form of [ ] cashier's check, [ ] certified check,
[ ] personal check, [ ] other. In the event the Earnest
Money Deposit is made in the form of a personal check, Lessee
agrees to replace such check with a cashier's check within
____ days of Lessor's acceptance of this Agreement.
b. Lessee shall pay to Lessor the first month's rent, in the
amount of...................................................... $_______
c. Lessee shall pay to Lessor a Security Deposit, in the amount of $_______
d. Lessee shall pay to Lessor additional sums for _____________
in the amount of............................................... $_______
e. Lessee agrees to pay to Broker, if Lessee is represented by The
Prudential Jon Douglas Company, the sum of One Hundred Dollars
($100.00) representing reimbursement to Broker of a portion of
Broker's administrative and clerical costs, including the cost
of document preparation and processing. Said sum shall only be
payable to Broker in full upon execution of this Agreement by
Lessor and Lessee.............................................. $ 100.00
Total Deposits, Prepaid Rent and Fees due (2a through 2e)...... $_______
Less (Item 2a) any Deposits received with this offer...........($_______)
Balance due, in the form of a cashier's check, on or before
_________________, 19____ ..................................... $_______
Note: The total advance payment, including the first month's rent may not
exceed three times one month's rent for an unfurnished property or four times
one month's rent for a furnished property.
3. LATE CHARGE/BAD CHECKS. Lessee agrees to pay a late charge of six (6)
percent of all rents not paid within ___ calendar days from the date due
under this Agreement. In the event Lessee pays any rent installment with a
check that is returned for insufficient or uncollected funds, Lessee shall
pay all subsequent rent due under this Agreement by cashier's check. Lessee
shall also pay Lessor $15.00 for each check that is returned to Lessor by
Lessee's bank.
4. RETENTION OF DEPOSIT. If Lessee defaults in the performance of any
obligation under this Agreement, Lessor may apply or retain all or any part
of the security deposit for, but not limited to, the following reasons: (a)
to repair or replace any items damaged or missing; (b) to replace any keys,
cards, remote control openers, or locks given to Lessee but not returned;
(c) to clean and return the property and the items in it, into the condition
it was in when the Lessee first occupied the property with the exception of
reasonable wear and tear; (d) to pay for damages caused in the event of
Lessee's breach of this Agreement including, but not limited to, a pro-rated
portion of any lease commissions; (e) to pay arrearrages in rent and other
charges due; (f) the deduction of late charges, if any, which have accrued
and have not been paid by Lessee. If used during the tenancy, Lessee agrees
to reinstate the total security deposit within five days after written
notice is given to Lessee in person or by mail. If Lessee complies with all
the covenants and conditions of this Agreement, the deposit, less any sums
expended by Lessor and accounted for to Lessee, shall be returned to Lessee
within the period required by law. IF THE DEPOSIT IS NOT ADEQUATE TO COVER
ALL DAMAGES, COSTS AND ARREARAGES, LESSEE MUST PAY ALL COSTS WHICH EXCEED
THE AMOUNT OF THE SECURITY DEPOSIT.
5. HANDLING AND/OR TRANSFER OF DEPOSIT. Lessee shall not be entitled to any
interest on the deposit except as required by law. Lessor shall have the
right to commingle said deposit with other funds of the Lessor. Should
Lessor sell Lessor's interest in the Property, Lessor shall transfer to the
purchaser the unexpended funds deposited by Lessee and shall so notify
Lessee by certified U.S. mail. Lessor shall be discharged from any further
liability for such funds. Any claim for refund of security deposit or other
sums shall be handled directly between Lessor and Lessee.
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page 1 of 5 pages.
Lessees' Initials ______________ OFFICE USE ONLY
Lessors' Initials ______________ Reviewed by Broker or Designee___Date________
<PAGE> 2
PROPERTY ADDRESS 428 Culver Blvd.
--------------------------------------------------------------
6. POSSESSION. If Lessee abandons or vacates the Property, Lessor may terminate
this Agreement and regain lawful possession. If Lessor for any reason
cannot deliver possession of the Property to Lessee on the Commencement
Date, Lessor shall not be liable to Lessee for any resulting loss or
damage, but there shall be a proportionate reduction of rent through the
date possession is delivered. In the event Lessor is unable to deliver
possession within _____ calendar days from scheduled Commencement Date,
Lessee may, prior to Lessor's delivery of the Property, declare this lease
to be null and void and all money paid to Lessor shall be refunded to
Lessee.
7. USE/RESTRICTIONS. It is agreed that the Property shall be used only for
residential purposes, and for no other purposes whatsoever, for the
occupancy of the following named persons only: OptimumCare business as used
at the date of execution of this lease and no animals except ____________.
Any changes or exceptions to the occupancy must be approved in writing in
advance by Lessor. Lessee agrees to make no use of the Property, nor to do
any acts, which will increase the existing rate of insurance on the
Property, or will cause cancellation of any insurance policy covering the
Property. Lessee further agrees to comply with all laws, ordinances,
covenants, conditions, restrictions, rules, and orders affecting the
Property or Lessee's occupancy.
8. UTILITIES/SERVICES. Lessee shall pay for all gas, heat, light, power, water,
telephone service, alarm or security service, cable television and other
services supplied to the property, except: N/A
9. CONDITION, REPAIRS AND MAINTENANCE. Lessor shall maintain the exterior
walls, roof, electrical wiring, heating system, air conditioning system (if
any), water heater, built-in appliances, and water lines in good and
sanitary order, condition, and repair, at Lessor's sole cost and expense.
Except for those items, Lessee shall, at Lessee's sole cost and expense,
keep and maintain the Property, including household furniture, fixtures,
goods and chattels belonging to Lessor, in the manner in which they were
received, reasonable wear and tear excepted. In the event damage is caused
by the abuse or negligence of Lessee or Lessee's guests or invitees, Lessee
shall pay the full cost and expense of repairing such damage. Lessee shall
immediately notify Lessor of damage from any cause. Lessee has examined the
Property, all furniture, furnishings, and appliances, if any, and fixtures,
including smoke detector(s), and hereby agrees that the Property is now in a
habitable and good condition except: N/A. Lessor agrees to maintain
landscaping, swimming pool and spa, if any, and Lessee agrees to adequately
water said landscaping and add water as necessary to the swimming pool and
spa. Lessor AND LESSEE ACKNOWLEDGE AND AGREE THAT BROKER HAS NO
RESPONSIBILITY OR LIABILITY FOR THE CONDITION OF THE PROPERTY OR FOR ANY
REPAIR OR MAINTENANCE OF THE PROPERTY. Lessor AND LESSEE SHALL LOOK SOLELY
TO EACH OTHER FOR THE PERFORMANCE OF REPAIR AND MAINTENANCE OBLIGATIONS
UNDER THIS AGREEMENT.
10. LEAD-BASED PAINT DISCLOSURE. Prior to occupancy, Lessor shall: (a) deliver
to Lessee the EPA booklet entitled "Protect Your Family From Lead in Your
Home" and (b) notify Lessee of all known lead-based paint hazards on the
Property.
11. INVENTORY. Any furnishings and equipment to be included by Lessor in this
Agreement, other than the items set forth herein, shall be set forth in a
special inventory, to be signed by both Lessee and Lessor. It is agreed all
such furnishings and equipment are in good condition when delivered, unless
specifically noted in the inventory. Lessee agrees, upon termination of
occupancy under this Agreement, to surrender to Lessor the Property with any
furnishings and equipment belonging to Lessor in the same condition as when
received, reasonable wear and tear excepted. Lessor AND LESSEE ACKNOWLEDGE
AND AGREE THAT BROKER IS NOT RESPONSIBLE FOR PREPARING OR CHECKING
INVENTORY.
12. ALTERATIONS AND ADDITIONS. Lessee shall not paint, wallpaper, or make any
alterations to the Property without the prior written consent of Lessor. Any
additions to, or alterations of, the Property, with the exception of movable
furniture, shall become at once a part of the Property and belong to Lessor.
Lessee shall not change or add any locks, opening devices and/or security
codes on the Property without the prior written consent of Lessor. Should
Lessor so consent, Lessee shall give Lessor keys, codes, and/or opening
devices within forty-eight (48) hours of any such change.
13. FREE FROM LIENS. Lessee shall keep the Property free from any liens arising
out of any work performed, materials furnished, or obligations incurred by
Lessee or any person acting in Lessee's behalf.
14. ENTRY/SHOWING BY Lessor. Lessee shall permit Lessor and/or Lessor's
representatives to access the Property at all reasonable times and with
reasonable notice for the purpose of inspecting, maintaining, repairing or
showing the Property to prospective purchasers or tenants. Verbal or written
notice at least twenty-four (24) hours in advance of entry shall be deemed
reasonable notice. No notice shall be required in case of emergency or to
perform repairs or maintenance requested by Lessee. Lessee shall take
reasonable precautions to safeguard, protect, and insure personal property
items that might be accessible during the inspection, maintenance, repair,
or showing of the Property. Lessor AND LESSEE ACKNOWLEDGE AND AGREE THAT
BROKER IS NOT RESPONSIBLE FOR LOSS OF PERSONAL PROPERTY OR DAMAGE TO THE
REAL PROPERTY.
15. DAMAGE. If the Property is damaged from any cause rendering same
uninhabitable, either party shall have the right to terminate this Agreement
by giving written notice to the other party within fifteen (15) days after
the damage occurs. If this right is exercised by either party, rent for the
current month shall be prorated between the parties as of the date the
damage occurred. Any unearned rent and/or unused deposits shall be refunded
to Lessee. If this Agreement is not terminated as provided in this
paragraph, Lessor shall promptly repair the damage then the rent shall be
reduced proportionately until the Property is repaired and ready for
lessee's occupancy. If any damage or destruction occurs as a result of abuse
or negligence of Lessee, or Lessee's guests or invitees, then Lessor only
shall have the above right of termination, and no reduction of rent shall be
made.
16. ASSIGNMENT/SUBLETTING. Lessee shall not sublet the Property or assign this
Agreement, or the tenancy, or any interest therein, without the prior
written consent of Lessor. Any consent to one assignment or subletting shall
not be construed as a consent to any subsequent assignment or subletting.
Lessor shall not unreasonably withhold such consent. Unless prior written
consent is obtained, any assignment, transfer, or subletting of the
Property, this Agreement, or the tenancy, by voluntary act of Lessee,
operation of law, or otherwise, shall be null and void and shall, at the
option of Lessor, terminate this Agreement.
17. ABANDONMENT/DEFAULT. Lessee shall not vacate or abandon the Property at any
time during the term of this Agreement. In the event of any breach by Lessee
of this Agreement, in addition to other rights and remedies available at law
or in equity, Lessor shall have the option immediately to terminate this
Agreement and all rights of Lessee hereunder by giving written notice of
termination. In the event Lessor elects to so terminate this Agreement,
Lessor may recover from Lessee all amounts of unpaid rents for the entire
term, less any amounts received by Lessor for the re-letting of the
Property. In the event Lessee vacates or abandons the Property or otherwise
breaches this Agreement, Lessor may from time to time, without terminating
this Agreement, either recover all rents as they become due or re-let the
Property or any part thereof upon such terms and conditions as Lessor deems
appropriate.
18. INDEMNIFICATION OF Lessor. Lessee, as a material part of the consideration
to Lessor under this Agreement, hereby waives all claims against Lessor,
Lessor's employees, and agents for damage to household furniture, goods,
vehicles, and other property, and for injury to any persons in, upon, or
about the property, from any cause arising at any time, except for Lessor's
negligence. Lessee agrees to indemnify and hold harmless Lessor, Lessor's
employees, and agents, from and against all claims of, and liability for,
any such damage to property and injury to persons, from any cause arising at
any time.
19. WAIVER. The waiver by Lessor of any breach of any covenant or condition of
this Agreement shall not be construed as a waiver of any subsequent breach
of the same or any other covenant or condition. The subsequent acceptance of
rent by Lessor shall not be construed as a waiver of any preceding breach by
Lessee of any covenant or condition of this Agreement, other than the
failure of Lessee to pay the particular rent so accepted, regardless of
Lessor's knowledge of such preceding at the time of acceptance of such rent.
20. INSURANCE/SECURITY. Lessee is advised to secure, at Lessee's expense,
insurance policies covering any potential loss or damage to Lessee's
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page 2 of 5 pages.
Lessees' Initials ______________ OFFICE USE ONLY
Lessors' Initials ______________ Reviewed by Broker or Designee___Date________
<PAGE> 3
PROPERTY ADDRESS 428 Culver Blvd.
--------------------------------------------------------------
personal property or vehicles, and liability for injury to any persons in,
upon, or about the Property. Lessee understands that Lessor does not
maintain insurance to cover any lessee's liabilities, loss, or damage,
whether caused by theft, vandalism, other criminal act, negligence of any
person, fire, rain, water overflow/leakage, act of God, and/or any other
causes. Lessee agrees Lessor is not liable for these occurrences and Lessee
shall look solely to Lessee's insurance policies for any reimbursement for
any such liabilities, injuries, loss, or damage sustained by Lessee. LESSEE
AGREES NOT TO SEEK RECOVERY OR REIMBURSEMENT FROM LESSOR OR BROKER FOR SUCH
OCCURRENCES OR ITEMS. LESSEE FURTHER AGREES LESSOR AND BROKER HAVE NO
OBLIGATION TO PROVIDE ANY SECURITY FOR THE PROPERTY.
21. NOTICE: THE AMOUNT OR RATE OF REAL ESTATE COMMISSIONS IS NOT FIXED BY LAW.
THEY ARE SET BY EACH BROKER INDIVIDUALLY AND MAY BE NEGOTIABLE BETWEEN THE
LESSOR AND BROKER.
COMMISSIONS. For Broker's services in arranging this Agreement, Lessor
agrees to pay Broker as commission 6% of the total lease or rental payments
to be made by Lessee for the entire term but payable now for the first year
only then for the second year at the beginning of the 2nd year of this
Agreement, or % of the first month's rent if the agreed term is
month-to-month or is six (6) months or less. The commission shall be paid
in full, irrespective of agency relationship(s), upon execution of this
Agreement. See above. Lessor authorizes Broker to deduct the commission
from any amounts paid by Lessee for rent or deposits. To the extent such
rent and deposits are inadequate to pay in full the commission due, Lessor
agrees to pay promptly to Broker any balance due. Of the commissions
referred to in this Agreement, % shall be paid to The Prudential Jon
Douglas Company and % to (other broker).
22. RENEWAL COMMISSIONS. Upon any extension or renewal of this Agreement or the
tenancy, Lessor shall pay to Broker an additional commission of 6% of the
total rent payments for said extension or renewal period. Lessor shall
immediately notify Broker of each extension or renewal. The commission
shall be paid within five (5) days after commencement of the extension or
renewal. In the event Lessor fails to pay to Broker the additional
commission when due, then, upon written notice by Broker to Lessee, Lessee
shall pay to Broker the rent for each extension or renewal period
commencing with the rent due immediately following Lessee's receipt of such
notice. Rent shall continue to be paid to Broker until all additional
commission due Broker has been paid in full. Lessee shall then resume
paying rent directly to Lessor. Lessor agrees Broker may deduct and retain
the commission due from rents collected by Broker and forward any balance
to Lessor. See above.
23. SALE OR EXCHANGE. In the event Lessee, or any person or entity related
to, or controlled by, or affiliated with Lessee, acting directly or
indirectly, acquires title to the Property during Lessee's occupancy or
within twelve (12) months after the termination of Lessee's occupancy,
Broker shall be considered the procuring cause in negotiating said transfer
of title or ownership by reason of this Agreement. As compensation for such
services, Lessor agrees to pay Broker as commission 5% of the total
consideration involved in such transfer upon close of escrow, or if there
be no escrow, then upon execution of any sale contract or recordation of
any deed, whichever occurs first.
24. LEASE PROCESSING FEE. Lessor agrees to pay to Broker, if represented by
The Prudential Jon Douglas Company, the sum of One Hundred Dollars
($100.00), representing a reimbursement to Broker of a portion of Broker's
administrative and clerical costs, including the cost of document
preparation and processing. Said sum shall only be payable to Broker in
full upon execution of a lease or rental agreement by Lessor.
25. HOLDING OVER. If Lessee remains in possession of the Property past the
expiration of the term of this Agreement or any extension or renewal, with
written consent of Lessor, then, unless otherwise agreed, the holding over
shall create a month-to-month tenancy at a monthly rent of $ , or the
rent for the immediately preceding month, whichever is greater. Should
Lessee request a holdover, or extension or renewal of the term of this
Agreement, Lessee shall notify Lessor in writing no later than sixty (60)
days prior to the expiration of this Agreement. Any holdover, extension, or
renewal is subject to the written consent of Lessor. All other terms and
conditions of this Agreement shall remain in full force and effect.
Lessee's Lessor's
Initials Initials
26. _____/_____ _____/_____ OPTION TO PURCHASE. By initialing this paragraph,
Lessor and Lessee acknowledge that this Agreement is subject to the
provisions of the Option To Purchase which is attached as an addendum
hereto.
Lessee's Lessor's
Initials Initials
27. _____/_____ _____/_____ RENT CONTROL. By initialing this paragraph, Lessor
and Lessee acknowledge the Property may be subject to a rent control law.
Lessor and Lessee hereby acknowledge they have been advised to check with
legal counsel and/or the rent control board to determine rights and
obligations under the law. Lessor represents the Property is not leased for
any rent in excess of the maximum allowable rent permitted under such rent
control law and the rental is in full compliance with such law. Lessor and
Lessee further acknowledge they are not relying upon any advice from Broker
regarding rent control laws.
28. HOME PROTECTION PLAN. Lessor and Lessee acknowledge that home protection
plans may be available which provide various types of limited coverage to
both Lessor and Lessee. Broker does not endorse or approve any particular
company or plan.
29. CONDOMINIUM LEASE. In the event the Property is in a condominium, stock
cooperative, or planned development, Lessee agrees to abide by the
covenants, conditions, and restrictions, rules, regulations, orders, and
decisions of the Homeowners' Association governing the development. Lessor
further agrees to keep current all dues and/or assessments that may be
levied against the Property during the term of this Agreement. Upon
request, Lessor shall provide to Lessee a copy of the covenants,
conditions, and restrictions, rules, and regulations of the Homeowners'
Association.
30. BANKRUPTCY/FORECLOSURE. Lessee's rights under this Agreement may be
affected by a bankruptcy of Lessor or foreclosure of a lender's interest in
the Property. Lessee has been advised to obtain legal advice from Lessee's
attorneys regarding Lessee's rights in the event of a bankruptcy or
foreclosure. Lessor represents there is not presently a notice of default
recorded against the Property and the Property is not an asset of any
bankruptcy proceeding. Lessor further agrees to inform Lessee immediately
in the event a notice of default is recorded against the Property or the
Property becomes an asset of any bankruptcy proceeding during the term of
this Agreement or any extension or renewal. LESSEE ACKNOWLEDGES THAT LESSEE
IS NOT RELYING ON ANY REPRESENTATIONS OR STATEMENTS MADE BY BROKER
REGARDING THESE MATTERS.
31. INFORMATION AUTHORIZATION. Lessor and Lessee agree that Broker may report
the terms of this transaction to multiple listing services.
32. NOTICES. All notices to Lessee shall be given in writing, personally, or
by deposit in the United States mail, postage prepaid and addressed to
Lessee at the Property, whether Lessee still occupies or has departed from,
abandoned, or vacated the Property, unless Lessee has given a different
address in writing for this purpose.
33. SUCCESSORS/ASSIGNS. Subject to the provisions on assignment and
subletting, the covenants and conditions in this Agreement shall apply to
and bind the heirs, successors, executors, administrators, and assigns of
all types of the parties. If at any time the Lessee consists of more than
one person or entity, all such persons and entities shall be jointly and
severally liable hereunder.
34. VALIDITY/SEVERABILITY. Any provision of this Agreement which is held to be
invalid shall not affect the validity or enforceability of any other
provisions of this Agreement.
35. MEDIATION OF DISPUTES. Any dispute or claim in law or equity, except an
unlawful detainer action and the subject matter of an unlawful detainer
action, arising out of this Agreement or any resulting transaction shall be
submitted to neutral, non-binding mediation before the commencement of
arbitration, litigation, or other proceeding, including all disputes or
claims involving Broker (other than commission disputes between brokers
only). The parties to the dispute or claim agree to act in good faith to
participate in the mediation, and to identify a mutually acceptable
mediator. If a mediator cannot be so selected, the dispute or claim shall
be submitted for mediation to and in accordance with the mediation rules
of
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page 3 of 5 Pages.
Lessees' Initials ______________ OFFICE USE ONLY
Lessors' Initials ______________ Reviewed by Broker or Designee___Date________
<PAGE> 4
PROPERTY ADDRESS 428 Culver Blvd.
-----------------------------------------------------------
JAMS/ENDISPUTE, with all parties to the mediation sharing equally in its
cost. If the dispute or claim is successfully resolved in the mediation,
the resolution will be documented by a written agreement executed by all
parties to the dispute or claim. If the mediation does not successfully
resolve the dispute or claim, the mediator shall provide written notice of
same to all parties to the mediation, and the parties may proceed to seek
other resolution of the dispute or claim, in accordance with the terms of
this Agreement and their other legal rights. If any party obligated to
mediate a dispute or claim, commences arbitration or litigation without
first attempting in good faith to resolve the matter through mediation,
then, in the discretion of the arbitrator or judge, that party shall not be
entitled to recover attorney fees, if that party or parties prevails in the
arbitration or litigation, against the other party to the dispute or claim.
36. ARBITRATION OF DISPUTES. Any dispute or claim in law or equity arising out
of this Agreement or any resulting transaction shall be decided by neutral,
binding arbitration in accordance with the rules of JAMS/ENDISPUTE, and not
by court action except as provided by California law for judicial review of
arbitration proceedings. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The parties
shall have the right to discovery in accordance with California Code of
Civil Procedure, Section 1283.05.
Any dispute or claim by or against the broker(s), arising out of this
Agreement or any resulting transaction, shall be submitted to arbitration
as above, provided the broker(s) shall have agreed, prior to or within a
reasonable period after the dispute or claim is presented, to submit it to
arbitration consistent with this provision.
The following matters are excluded from arbitration hereunder: (a) a
judicial or non judicial foreclosure or other action or proceeding to
enforce a deed of trust, mortgage or real property sales contract as
defined in California Civil Code, Section 2985; (b) an unlawful detainer
action; (c) the filing or enforcement of a mechanic's lien; (d) any matter
which is within the jurisdiction of a small claims or probate court; (e) an
action for bodily injury or wrongful death; or (f) an action for latent or
patent defects to which California Code of Civil Procedure Sections 337.1
or 337.15 applies. The filing of a judicial action to enable the recording
of a notice of pending action, for order of attachment, receivership,
injunction, or other provisional remedies, shall not constitute a waiver of
right to arbitrate under this provision.
NOTICE: BY INITIALING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF
DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE
THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE
BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE 'ARBITRATION OF
DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING
TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF
THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTOOD THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION TO NEUTRAL ARBITRATION.
Lessees' Initials _____/_____, Lessors' Initials:_____/_____.
37. ADDITIONAL TERMS.
1. AFTER THE FIRST 12 MONTHS OF THIS LEASE IT IS AGREED THAT IN THE EVENT
OF A SALE OF SUBJECT PROPERTY BY LESSOR PRIOR TO ITS EXPIRATION, LESSOR
WILL GIVE LESSEE FOUR (4) MONTHS NOTICE TO VACATE PREMISES.
2. LESSOR GRANTS LESSEE THE RIGHT TO PURCHASE SAID PROPERTY ON THE SAME
TERMS AND CONDITIONS THAT LESSOR ACCEPTS FROM A THIRD PARTY FOR THE
SALE OF THE BUILDING. LESSEE SHALL ACCEPT OR REJECT SAID OFFER WITHIN
48 HOURS OF PRESENTATION. IF THE OFFER IS NOT ACCEPTED IN WRITING
WITHIN 48 HOURS BY WRITTEN COMMUNICATION DELIVERED TO LESSOR, THEN SAID
OFFER WILL BE DEEMED TO BE REFUSED.
3. THIS LEASE IS A RENEWAL OF THE LEASE EXECUTED OCT. 10, 1995 AND IS
SUBJECT TO ALL TERMS AND CONDITIONS CONTAINED THEREIN.
38. CAPTIONS. The captions of this Agreement are for convenience only, are not
a part of this Agreement, and do not in any way limit or amplify the terms
and provisions of this Agreement.
39. ATTORNEY'S FEES. In any action, proceeding, or arbitration between the
Lessor and the Lessee arising out of this Agreement or any resulting
transaction, the prevailing Lessor or Lessee shall be entitled to
reasonable attorney's fees and costs from the non-prevailing Lessor or
Lessee.
40. FACSIMILE SIGNATURES. Should Lessee or Lessor transmit signed documents by
facsimile, Lessee and Lessor shall accept and rely upon such documents in
the same manner as if those transmitted copies were original signed
documents. Lessee and Lessor shall forward signed originals of documents
within 48 hours of transmission. The failure of Lessee or Lessor to forward
signed originals of documents shall not invalidate the documents or this
Agreement.
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page 4 of 5 Pages.
Lessees' Initials ______________ OFFICE USE ONLY
Lessors' Initials ______________ Reviewed by Broker or Designee___Date________
<PAGE> 5
PROPERTY ADDRESS 428 Culver Blvd.
--------------------------------------------------------------
41. AGENCY CONFIRMATION. The following agency relationship(s) are hereby
confirmed for this transaction:
Listing agent: THE PRUDENTIAL JON DOUGLAS CO. is the agent of (check one):
[ ] the Lessor exclusively; or [X] both the Lessor and Lessee.
Leasing agent:_____________________(if not the same as Listing agent)
is the agent of (check one):
[ ] the Lessee exclusively; or [ ] the Lessor exclusively; or [ ] both
the Lessee and Lessor.
42. PLACE OF PAYMENTS. Lessee agrees to pay all rent by personal check at the
address indicated below Lessor's signature, or at such address and in such
manner as Lessor may specify.
43. INCORPORATION OF PRIOR AGREEMENTS AND AMENDMENTS. This Agreement covers in
full every agreement of any kind between the parties concerning the lease
or rental of the Property. All preliminary discussions, negotiations, and
agreements with respect to the lease or rental of the Property, except
those contained herein, are superseded and of no further force and effect.
The parties agree no other representations or promises have been made. No
verbal or implied agreement or covenant shall vary the provisions of this
Agreement. Any changes or additions to this Agreement must be approved in
writing by all parties or their respective successors in interest, subject
to the provisions concerning assignments and sublettings.
44. APPLICATION AND CREDIT REPORT. Lessee warrants the accuracy of the
information in Lessee's rental application and gives permission to Lessor
to verify Lessee's information and to obtain Lessee's credit report. Lessee
tenders to Broker the non-refundable sum of $15.00 to compensate for the
cost of obtaining a credit report in Lessor's behalf. Broker cannot and
will not interpret or verify any information furnished by Lessee or in
Lessee's credit report. LESSOR SHALL HAVE TWO (2) BUSINESS DAYS FROM THE
DATE LESSOR SIGNS THIS AGREEMENT TO NOTIFY LESSEE IN WRITING SHOULD LESSOR
REASONABLY DISAPPROVE LESSEE'S APPLICATION BASED ON CREDIT OR OTHER
INFORMATION REVIEWED BY LESSOR. IN SUCH EVENT LESSEE'S DEPOSIT (BUT NOT THE
CREDIT REPORT FEE) SHALL BE REFUNDED IN FULL. IF LESSOR FAILS TO NOTIFY
LESSEE, THIS CONDITION SHALL BE DEEMED SATISFIED.
45. REPRESENTATIONS. The parties agree Broker makes no representations
regarding the ability of Lessee or Lessor to perform under the terms of
this Agreement. Broker is unable to verify and/or determine the financial
stability and performance of the Lessor and Lessee. Lessor assumes full
responsibility to determine the creditworthiness of Lessee. Therefore,
Lessor and Lessee are hereby advised to seek independent legal counsel
regarding any risks, rights, or obligations that may arise from either
party suffering financial hardship, bankruptcy, or foreclosure.
It is understood that Broker is not providing property management services
for Lessor or Lessee and is not responsible for damage by Lessee to the
Property.
Lessor and Lessee understand it is illegal for Lessor or Broker to refuse
to show or lease the Property to any person because of race, color,
religion, national origin, ancestry, sex, marital or family status,
children or physical disability.
Any obligation of Lessor to make alterations, improvements or repairs to
the Property during the term of this Agreement shall be solely the
obligation of Lessor. Lessee and Lessor acknowledge that Broker is not
responsible for the parties' performance hereunder, and shall look solely
to the other party for performance of obligations, duties and
responsibilities.
No representation is made as to the legal validity of any provision or the
adequacy of any provision in any specific transaction. A real estate broker
is the person qualified to advise on real estate. If you desire legal
advice, consult your attorney.
Lessor represents that Lessor is the owner of the Property or has the
authority to execute this Agreement on behalf of the owner of the Property,
and hereby agrees to lease the Property on the above terms and conditions.
Lessor and Lessee acknowledge that they have read and understood each and
every paragraph of all pages of this Agreement; agree to the above
confirmation of agency relationship(s); and have executed this Agreement
and hereby acknowledge receipt of a copy thereof.
Brokers are not parties to the Agreement between Lessor and Lessee.
46. OFFER DEADLINE. This offer to lease expires on OCT. 15, 1996, at 6 p.m.
[SIG] 10/7/96
- -------------------- ------------ ----------------------- ---------------
Lessee Date Lessor Date
[SIG] 10/15/96
- -------------------- ------------ ----------------------- ---------------
Lessee Date Lessor Date
The Prudential Jon Douglas Company 426 Culver Blvd. PDR 90293
--------------------------------------
Address for all Notices and Rental
Payments
/s/ BRUCE KASPER 310 822-9848
- ---------------------------------- --------------------------------------
Sales Associate Lessor's Phone Number
MDR
- ----------------------------------
Sales Associate's Office
310-301-3500
- ----------------------------------
Sales Associate's Office Phone Number
Agency relationships are confirmed as above
THE PRUDENTIAL JON DOUGLAS CO. 10/2/96
- ---------------------------------- --------------------------------------
Real Estate Broker (Listing) Date
/s/ BRUCE KASPER
- ----------------------------------
By: Bruce Kasper
------------------- OFFICE USE ONLY -------------------
Reviewed by Broker or Designee __________ Date ___________
__________________________________________________________
<PAGE> 1
EXHIBIT 10.90
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
OPTIMUMCARE CORPORATION
A DELAWARE CORPORATION
- -------------------------------------------------------------------------------
The undersigned, being all of the directors of OptimumCare Corporation, a
Delaware corporation (the "Corporation"), hereby adopt the following
resolutions by their written consent thereto, effective as of December 31,
1996, hereby waiving all notice of and the holding of any meeting of the board
of directors to act upon such resolutions.
WHEREAS, the Company has previously converted $155,000 of temporary advances of
Mr. Johnson to loans.
WHEREAS, a payment plan of $500 per pay period currently exists.
NOW, THEREFORE, BE IT RESOLVED, that the Company hereby extend the temporary
advances into a one year loan with interest deferred for one year to be
computed at the existing interest rate.
RESOLVED FURTHER, that the officers of the Company be and are hereby
authorized, empowered and directed to do or cause to be done any and all such
further acts and things and to execute any and all such further documents as
they may deem necessary or advisable in order to carry into effect the purposes
and intent of the foregoing resolutions.
RESOLVED, FURTHER, that this transaction be neither void nor voidable, the
interests of Mr. Johnson being known to this Board of Directors and the
transactions being fair and reasonable to the Corporation.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written
Consent effective as of December 31, 1996.
/s/ EDWARD A. JOHNSON
- -------------------------------
Edward A. Johnson
/s/ MICHAEL S. CALLISON
- -------------------------------
Michael S. Callison
/s/ GARY L. DREHER
- -------------------------------
Gary L. Dreher
/s/ JON E. JENETT
- -------------------------------
Jon E. Jenett
<PAGE> 1
EXHIBIT 10.91
[LOGO] NATIONAL BANK
OF SOUTHERN CALIFORNIA
CHANGE IN TERMS AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$750,000.00 06-01-1997 4000928 5005 423157 112
- --------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: OPTIMUMCARE CORPORATION LENDER: NATIONAL BANK OF SOUTHERN CALIFORNIA
30011 IVY GLENN DRIVE NEWPORT REGIONAL OFFICE
#219 4100 NEWPORT PLACE
LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660
================================================================================
PRINCIPAL AMOUNT: $750,000.00 DATE OF AGREEMENT: January 28, 1996
DESCRIPTION OF EXISTING INDEBTEDNESS. ORIGINAL PROMISSORY NOTE DATED APRIL 14,
1995 IN THE PRINCIPAL AMOUNT OF $500,000.00.
MODIFIED MAY 6, 1996 AS FOLLOWS: MATURITY DATE EXTENDED TO JULY 1, 1996.
MODIFIED AUGUST 1, 1996 AS FOLLOWS: NOTE WAS CHANGED FROM A NON-REVOLVING LINE
OF CREDIT TO A FORMULA LINE OF CREDIT.
MATURITY DATE WAS EXTENDED TO MARCH 1, 1997.
PRINCIPAL NOTE AMOUNT INCREASED TO $750,000.00.
VARIABLE INTEREST RATE WAS CHANGED TO WALL STREET JOURNAL PRIME PLUS 1.50%.
DESCRIPTION OF COLLATERAL. SECURITY AGREEMENT AND UCC-1 FILING ON AL ACCOUNTS
RECEIVABLE, INVENTORY, FIXED ASSETS AND EQUIPMENT.
DESCRIPTION OF CHANGE IN TERMS. EXTENDING MATURITY DATE FROM MARCH 1, 1997 TO
JUNE 1, 1997.
ALL OTHER TERMS AND CONDITIONS SHALL REMAIN THE SAME.
PROMISE TO PAY. OPTIMUMCARE CORPORATION ("BORROWER") PROMISES TO PAY TO
NATIONAL BANK OF SOUTHERN CALIFORNIA ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF SEVEN HUNDRED FIFTY
THOUSAND & 00/100 DOLLARS ($750,000.00) OR SO MUCH AS MAY BE OUTSTANDING,
TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH
ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL
REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED, UNPAID INTEREST ON JUNE
1, 1997. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING FEBRUARY 1, 1997, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this
Agreement is computed on a 365/365 simple interest basis; that is, by applying
the ratio of the annual interest rate over the number of days in a year,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will
be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to
change from time to time based on changes in an independent index which is the
Prime rate as published in the Wall Street Journal. When a range of rates has
been published, the lower of the rates will be used (the "Index"). The Index is
not necessarily the lowest rate charged by Lender on it loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each DAY. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS AGREEMENT
WILL BE AT A RATE OF 1.500 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN
INITIAL RATE OF 9.750% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Agreement be more than the maximum rate allowed by
applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Agreement, Borrower understands that Lender is entitled to a MINIMUM
INTEREST CHARGE OF $100.00. Other than Borrower's obligation to pay any minimum
interest charge, Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed to
by Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender, (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related Documents.
(d) Any representation or statement made or furnished to Lender by Borrower or
on Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished, (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws, (f)
Any creditor tries to take any of Borrower's property on or in which Lender has
a lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender, (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of
this Agreement, (h) Any material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the Indebtedness is impaired, (i) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Agreement
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be sufficient
to cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon Borrower's failure
to pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Agreement to 6.500 percentage points over the Index, and
(b) add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Agreement (including any
increased rate). Lender may hire or pay someone else to help collect this
Agreement if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. THIS AGREEMENT HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF CALIFORNIA. LENDER
AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE
OTHER. (INITIAL HERE _________) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Agreement against
any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested only in writing by Borrower or by an
authorized person. All communications, instructions, or directions by telephone
or otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: EDWARD A. JOHNSON, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's internal
<PAGE> 2
01-28-1997 CHANGE IN TERMS AGREEMENT Page 2
Loan No 400028 (CONTINUED)
================================================================================
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Agreement if: (a) Borrower or any guarantor is in
default under the terms of this Agreement or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Agreement; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Agreement or any
other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Agreement for purposes other than those authorized by Lender; or (e)
Lender in good faith deems itself insecure under this Agreement or any other
agreement between Lender and Borrower.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, including all agreements evidenced
or securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s),
including accommodation parties, unless a party is expressly released by Lender
in writing. Any maker or endorser, including accommodation makers, will not be
released by virtue of this Agreement. If any person who signed the original
obligation does not sign this Agreement below, then all persons signing below
acknowledge that this Agreement is given conditionally, based on the
representation to Lender that the non-signing party consents to the changes and
provisions of this Agreement or otherwise will not be released by it. This
waiver applies not only to any initial extension, modification or release, but
also to all such subsequent actions.
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Agreement without
losing them. Borrower and any other person who signs, guarantees or endorses
this Agreement, to the extent allowed by law, waive any applicable statute of
limitations, presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE AGREEMENT.
BORROWER:
OPTIMUMCARE CORPORATION
By: /s/ EDWARD A. JOHNSON
------------------------------------
EDWARD A. JOHNSON, PRESIDENT
================================================================================
<PAGE> 3
[LOGO] NATIONAL BANK
OF SOUTHERN CALIFORNIA
DISBURSEMENT REQUEST AND AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$750,000.00 06-01-1997 4000928 5005 423157 112
- --------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: OPTIMUMCARE CORPORATION LENDER: NATIONAL BANK OF SOUTHERN CALIFORNIA
30011 IVY GLENN DRIVE NEWPORT REGIONAL OFFICE
#219 4100 NEWPORT PLACE
LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660
================================================================================
LOAN TYPE. This is a Variable Rate (1.500% over Prime rate as published in the
Wall Street Journal. When a range of rates has been published, the lower of the
rates will be used, making an initial rate of 9.750%), Revolving Line of Credit
Loan to a Corporation for $750,000.00 due on June 1, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for (please
initial):
[ ] ________ PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] ________ BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: TO FINANCE SHORT-TERM
CASH REQUIREMENTS.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $750,000.00 as follows:
UNDISBURSED FUNDS: $104,187.61
AMOUNT PAID ON BORROWER'S ACCOUNT: $645,812.39
$645,812.39 Payment on Loan #EXTEND 4000928 -----------
NOTE PRINCIPAL: $750,000.00
===========
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
PREPAID FINANCE CHARGES PAID IN CASH: $ 0.00
OTHER CHARGES PAID IN CASH: $ 6,567.66
$6,567.66 INTEREST TO 2-1-97 -----------
TOTAL CHARGES PAID IN CASH: $ 6,567.66
===========
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED JANUARY 28, 1997.
BORROWER:
OPTIMUMCARE CORPORATION
By /s/ EDWARD A. JOHNSON
-----------------------------------------
EDWARD A. JOHNSON, PRESIDENT
================================================================================
<PAGE> 1
EXHIBIT 10.92
MARGATE, FLORIDA COMMUNITY MENTAL HEALTH CENTER FACILITY SITE
-------------------------------------------------------------
STAFFING AGREEMENT
------------------
THIS AGREEMENT is made this first day of February, 1997 ("Effective Date"), by
and between OPTIMUMCARE CORPORATION, whose address is 428 Culver Boulevard,
Playa Del Rey, California 90293 and Treatment Resources, Inc. ("TR"), a wholly
owned subsidiary of Galaxy Health Care Inc. whose address is 290 N.W. 165
Street, Miami, Florida 33169.
WITNESSETH
WHEREAS, OPTIMUMCARE CORPORATION is engaged in the business of providing
professional nursing, therapy and mental health staff to Partial Hospital
Programs at Community Mental Health Centers.
WHEREAS, TR is a Community Mental Health Center providing partial
hospitalization services ("Program"), which needs professional nursing, therapy
and mental health staffing services, and wishes to contract with OPTIMUMCARE
CORPORATION to provide such staffing services under the terms and conditions of
this Agreement;
NOW, THEREFORE, in consideration of the premises set forth above and the mutual
benefits, covenants, and agreements set forth below, the parties agree to the
terms and conditions set forth below.
1. SCOPE OF AGREEMENT
1.1 Staff OPTIMUMCARE CORPORATION shall provide professional nursing,
therapy and rehabilitation staff ("Staff") to TR at its Margate, Florida
facility located at 5100 Coconut Creek Parkway, Margate, Florida 33063,
including but not limited to nurses, occupational therapists, clinical social
workers, mental health counselors, certified nurses aides and mental health
technicians. Services provided by such Staff shall include, but shall not
necessarily be limited to, initial and ongoing assessments and care planning,
direct patient care, teaching, supervision and consultations.
1.2 Terms and Conditions In performing its obligations under this
Agreement TR and OPTIMUMCARE CORPORATION agree as follows:
a) Plan of Care All services are to be furnished by OPTIMUMCARE
CORPORATION and Staff in accordance with the plan of care established by the
physician responsible for the patient's care and may not be altered in type,
scope, frequency, or duration by OPTIMUMCARE CORPORATION or Staff (except in
the case of an adverse reaction to a specific treatment), without the
permission of such treating physician and TR. The physician responsible for the
patient shall supervise all services by the Staff.
b) Geographical Area OPTIMUMCARE CORPORATION and TR agree that all
services provided by OPTIMUMCARE CORPORATION shall be provided in the State of
Florida.
c) Requirements OPTIMUMCARE CORPORATION agrees that all Staff and
services provided by it pursuant to the Agreement shall meet the same
requirements and possess the same
1
<PAGE> 2
credentials as those requirements and credentials which would be applicable if
the staff and services were being furnished directly by TR.
d) Conferences and Records OPTIMUMCARE CORPORATION agrees that, as
needed, the Staff shall participate in any conferences required to coordinate
the care of an individual patient, and shall provide for the preparation of
treatment records, with progress notes and observations, and for the prompt
incorporation of such into the clinical records of TR.
e) Billing OPTIMUMCARE CORPORATION agrees that it may not bill the
patient or any health insurance program for covered services performed by the
Staff pursuant to this Agreement, and that all services shall be billed through
TR exclusively. Receipt of payment by TR for all services on behalf of a
patient discharges the patient from any liability to pay for such services.
1.3 Standard of Performance In performing its obligations under this
Agreement, OPTIMUMCARE CORPORATION shall:
a) Act in good faith and with due diligence;
b) Perform professional and supervisory services in accordance with
recognized standards of the medical and mental health professions;
c) Act in a manner consistent with the Principles of Medical Ethics of
the American Medical Association;
d) Comply with all material and applicable federal, state and local
laws and regulations;
e) Provide the skill and intensity of services as provided for under
the Program's Policy Guidelines.
OPTIMUMCARE CORPORATION and TR agree that their mutual goal is to provide
quality health care to patients in an efficient and economical manner and that
TR has entered into this Agreement with OPTIMUMCARE CORPORATION for the purpose
of obtaining staff and services designed to assist its Programs in providing
such health care.
1.4 All Staff services will be provided pursuant to a written request
from TR, and the placement of Staff shall be confirmed in writing by TR. Staff
provided to TR by OPTIMUMCARE CORPORATION shall be employees of OPTIMUMCARE
CORPORATION and Staff, in performance of the services hereunder, are bona fide
independent contractors of TR. Accordingly, OPTIMUMCARE CORPORATION and Staff
are responsible to deduct from compensation paid by TR to OPTIMUMCARE
CORPORATION any sums for income tax, unemployment insurance, social security,
or any other withholding as is required by law or other requirement of any
governmental body. OPTIMUMCARE CORPORATION and Staff shall have no claim under
this Agreement or otherwise against TR for vacation pay, sick leave, retirement
benefits, social security benefits, workers compensation, disability or
unemployment insurance benefits of any kind.
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1.5 TR has the right, at its sole option, to request that OPTIMUMCARE
CORPORATION immediately replace any of the Staff provided pursuant to this
Agreement.
2. Compensation All Staff necessary to meet projected Program staffing levels
will be provided by OPTIMUMCARE CORPORATION a grouped rate of 25% over the
direct actual cost for such Staff services on a bi-weekly basis. Such rate is
based upon the average fair market value for the projected level of Staff
necessary to provide at least four (4) hours of direct patient services per
day, pursuant to the Program's Policy Guidelines. OPTIMUMCARE CORPORATION shall
bill TR on a bi-weekly basis for all Staff and services provided pursuant to
this Agreement. All invoices submitted by OPTIMUMCARE CORPORATION shall contain
acceptable documentation of all charges, and TR shall make no payment for
charges not reasonably documented by OPTIMUMCARE CORPORATION.
a) Repayment Schedule of Staffing Costs and Fees Treatment Resources
will pay to OptimumCare on or before June 1, 1997 1/2 of the total amount of
direct costs and fees owing to OptimumCare by that date. The balance shall be
paid by Treatment Resources to OptimumCare in twelve (12) equal consecutive
monthly installments commencing July 1, 1997. An additional 10% profit will be
computed and added to the amount owing to OptimumCare by Treatment Resources.
3. Term and Termination
3.1 Term This Agreement shall be for a term of ninety days from the
Effective Date of this Agreement, unless terminated earlier or extended by the
parties by the parties hereto pursuant to subsection 3.2 or 3.3 or below.
3.2 Termination for Cause This Agreement may be terminated by either
party for the following:
a) Upon the other party's materials default or breach of any of its
obligations hereunder, if such default or breach remains uncorrected for a
period of thirty (30) days after the receipt by the defaulting or breaching
party from the other party of written notice of such default or breach.
b) Immediately upon notice that either party has entered bankruptcy or
made an assignment for the benefit of creditors, or is otherwise unable to meet
its financial obligations or objectives under this Agreement, unless otherwise
agreed to in writing by both parties or unless said bankruptcy, assignment or
inability does not materially alter the affected party's ability to perform
under this Agreement.
c) Immediately upon the reasonable determination that the health and
safety of patients is being endangered by the other party hereto.
d) Immediately upon OPTIMUMCARE CORPORATION's failure to provide the
level of care and documentation as provided for in the Program's Policy
Guidelines.
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3.3 Effect of Termination In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of either party arising prior to the date of such
expiration or termination, nor shall such expiration or termination effect any
allegations, promises or covenants contained herein which are expressly made to
extend beyond the term of this Agreement.
4. Licenses, Permits and Certifications OPTIMUMCARE CORPORATION represents to
TR that it and all of its Staff, employees, agents and representatives possess
and will maintain in valid and current status during the term of this
Agreement, all required licenses, permits and certifications. OPTIMUMCARE
CORPORATION shall provide copies of all Staff licenses, permits and
certifications to TR prior to assigning such Staff to the Program.
5. Indemnification
5.1 By Staffing OPTIMUMCARE CORPORATION indemnities and holds
harmless TR, its directors, officers, employees and agents from any and all
claims, losses, liabilities, obligations, demands, actions, judgments, suits
and related costs and expenses of any nature whatsoever, including reasonable
attorney's fees, arising in any way out of the willful misconduct or negligence
of OPTIMUMCARE CORPORATION, its Staff employees, agents and representatives in
providing services pursuant to this Agreement.
5.2 By TR TR hereby indemnifies and holds harmless OPTIMUMCARE
CORPORATION, its directors, officers, employees and agents from any and all
claims, losses, liabilities, obligations, demands, actions, judgments, suits
and related costs and expenses of any nature whatsoever, including reasonable
attorney's fees, arising in any way out of the willful misconduct or negligence
of TR, its employees, agents and representatives pursuant to this Agreement.
6. Insurance Each party hereto shall maintain during the term of this
Agreement, at its sole cost and expense, the following insurance.
6.1 Liability and Worker's Compensation Insurance Each party hereto
shall, at its sole cost and expense, maintain comprehensive general and
professional liability insurance with one or more commercial insurers
satisfactory to the other party hereto, in the amount of at least Five Hundred
Thousand Dollars ($500,000.00) per occurrence and One Million Dollars
($1,000,000.00) in the aggregate; and maintain workers' compensation insurance
as may be required by law.
6.2 Proof of Insurance Upon request, each party shall deliver to the
other copies of certificates of insurance reflecting each type of insurance
under this Section. Each party agrees to notify the other party within ten (10)
calendar days of any material change or cancellation in any policy of insurance
required to be secured or maintained by such party hereunder.
7. Confidentiality
7.1 Patient Records
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a) OPTIMUMCARE CORPORATION shall comply with its policies and all
state and federal laws and regulations regarding the confidentiality,
disclosure and retention of patient records.
b) All medical records of its patients are and shall remain the
property of TR and shall not be copied or removed from its storage areas
without the express written consent of TR, unless otherwise directed by court
order.
7.2 Confidentiality Information Each party hereto agrees and
acknowledges that each party possesses books, manuals, documents, materials, or
other business or technical information in any from whatsoever, which relate to
their own proprietary business, and which were distributed or otherwise
disclosed to the other party or its employees, agents or representatives or
developed pursuant to the operation of their business to which the such party
or its employees, agents or representatives had access as a result of the
operation of such party's business and which are not in the public domain shall
Constitute confidential information under this Agreement ("Confidential
Information"). Such Confidential Information shall include technical and
business information, including but not limited to information related to
invention, brochures, forms, customer lists, research and development,
engineering, products, designs, manufacture, methods, systems, improvements,
trade secrets, formulas, process, protocols, records and financial information,
or strategy concerning its business plan or policies. Each party, and its
employees, agents and representatives shall not use any of the other party's
Confidential Information for any purpose other than under Agreement, and shall
not disclose, publicize or disseminate any such Confidential Information to any
third party without the express written consent of the party, except as may be
required under state or federal law. In the event applicable law requires a
party to disclose such Confidential Information of the other party, such party
shall immediately notify the party whose Confidential Information is in
question of the request for disclosure, and to the extent permissible by law,
such other party shall respond to said request.
Upon termination of this Agreement, each party shall use its best
efforts to retrieve from employees, agents and representatives and return to
the other party any and all materials containing Confidential Information of
the other party.
7.3 Use of Name Company shall use in any manner the name, logo,
trade-name or trademark of the other party hereto, other than pursuant to the
terms and conditions of this Agreement, without the express prior written
consent of the other party.
8. Medicare Reporting Requirements
8.1 Reporting Requirements The parties agree that this Agreement may
be subject to the Medicare/Medicaid statutes and regulations and upon request
made in accordance with applicable law and regulations, and upon request made
in accordance with applicable law and regulations, the Comptroller General or
Inspector General of the United States Department of Health and Human Services
and the duty authorized representative, of the foregoing shall be given access
to the following records from the date of this Agreement until the expiration
of four (4) years after the furnishing of the services under this Agreement:
a) This Agreement;
b) All books, records and other documents of TR or OPTIMUMCARE
CORPORATION any subcontractor of TR or OPTIMUMCARE CORPORATION that receives
more than Ten Thousand Dollars ($10,000.00) in a twelve (12) month period that
are necessary to verify the nature and extent of the
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costs of services rendered hereunder.
8.2 Subcontracts All subcontracts of OPTIMUMCARE CORPORATION pursuant
to this Agreement shall contain a clause imposing the same obligation on the
subcontractor regarding such subcontractor's contracts, books, records and
other documents.
9. Notices Any notice, demand, designation, or other communication given or
required to be given under this Agreement shall be in writing and shall be
deemed to have been given upon actual receipt, or personal delivery, or three
(3) days after deposit of such writing in the U.S. Mail registered or
certified, return receipt requested, postage and registration or certified fees
prepaid, to the following addresses or such other addresses as the parties
shall designate from time to time:
If to TR at GALAXY HEALTH CARE: if to OPTIMUMCARE CORPORATION:
290 N.W. 165th Street 428 Culver Boulevard
Miami, Florida 33169 Playa Del Rey, California 90293
Tel. (305) 940-1290 Tel: (888) 448-1848
Fax: (305) 940-0162 Fax: (310) 448-1850
10. Arbitration of Disputes Any controversies or disagreements arising out
of, or relating to this Agreement or the breach thereof, shall be settled by
arbitration in Dade County, Florida, in accordance with the rules then existing
of the American Arbitration Association, and judgment upon the award rendered
may be entered in any court having jurisdiction thereof. Such arbitration shall
be binding and the expenses and costs thereof shall become by each party as
incurred. Any disputes between the parties and resulting arbitration and/or
mediation shall be kept confidential by the parties.
11. Compliance with Laws If any changes in state but not limited to laws
relating to reimbursement, in the opinion or counsel for TR or OPTIMUMCARE
CORPORATION, (a) does or could have a material adverse effect upon third-party
reimbursement to TR (b) causes or has significant probability or causing either
party to be in violation of state or federal laws or regulations, either party
may request renegotiation of the applicable terms of this Agreement by written
notice to the other party. In the event the parties do not execute an amended
agreement within thirty (30) days of such notice, either party may terminate
the agreement upon ten (10) days prior written notice to the other party. TR
and OPTIMUMCARE CORPORATION will comply with those provisions of law or
regulations that affect reimbursement to the TR.
12. Miscellaneous Provisions
12.1 Assignment Neither party may assign its rights or obligations
under this Agreement without the consent of the other, except that either party
may assign all or part of its rights or obligations under this Agreement to an
entity in which the principals of such party have a substantial ownership
interest, or to public corporation formed by the merger or consolidation of
such party and other corporations or entities in which the principals of such
party have a substantial ownership interest.
12.2 Modification There are no other agreements, promises, or
undertaking between the parties except as specifically set forth herein. No
alterations, changes, modifications or amendments shall be made to this
Agreement except in writing and signed or initiated by the parties hereto.
12.3 Severability If any provision or paragraph of this Agreement is
deemed to be unlawful or unenforceable by any court, administrative agency or
statute, law or ordinance, the said provision or
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paragraph shall be served from the Agreement without affecting the
enforceability of the remainder of the Agreement. The parties shall make a good
faith effort to redraft the severed provision or paragraph consistent with the
parties' original intention but in such a way as to be lawful and enforceable.
12.4 Binding Effect This Agreement shall be binding upon and insure
to the benefit of the respective successors and assigns of the parties hereto.
12.5 Survivability The covenants, representations and warranties of
the respective parties hereto shall survive the termination of this Agreement.
12.6 California Contract This Agreement shall be deemed a California
Contract and shall be construed in accordance with the laws of such state,
regardless of whether or not this Agreement is being executed by any of the
parties hereto in other states or otherwise.
12.7 Counterparts This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
12.8 Compliance Dates In the event that any date specified in this
Agreement shall be on a Saturday, Sunday or nationally declared holiday, then
the date so specified shall be deemed to be the next business day following
such date, and compliance by such business day hereunder shall be deemed a
default by any of the parties under this Agreement.
12.9 Headings The headings of each section or subsection in this
Agreement are for convenience of reference only, and shall in no manner or way
whatsoever affect the interpretation or meaning of such section or subsection.
12.10 Negotiation of Partnership, Joint Venture and Equity Interest
Nothing contained in this Agreement shall constitute or be construed to be or
to create a partnership or joint venture between TR and OPTIMUMCARE CORPORATION
with respect to TR or its program or any equity interest in TR on the part of
OPTIMUMCARE CORPORATION. The relationship of TR and OPTIMUMCARE CORPORATION
under this Agreement is that of independent contractors.
12.11 Entire Agreement This constitutes the entire agreement between
the parties relating to the subject thereof, and prior agreements pertaining
thereto, whether oral or written, have been merged and integrated into this
Agreement.
12.12 Execution and Delivery, etc. Each party hereto represents and
warrants to the other that neither the execution and delivery, nor the
performance of the terms of this Agreement, violate or will violate the terms
of its article of incorporation, bylaws, any agreement, or any other instrument
by which such party is bound upon execution of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement this first
day of February, 1997.
GALAXY HEALTH CARE INC. D/B/A
TREATMENT RESOURCES, INC.
/s/ DALE P. REDLICH
- -----------------------------
Dale P. Redlich
Chief Executive Officer
OPTIMUMCARE CORPORATION
/s/ EDWARD A. JOHNSON
- -----------------------------
Edward A. Johnson
President & CEO
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EXHIBIT 10.93
COMMUNITY MENTAL HEALTH CENTER AGREEMENT
THIS AGREEMENT is entered into as of this first day of February 1997, by and
between Galaxy Health Care Inc., a Florida Corporation, d/b/a Treatment
Resources Inc. (CMHC), and OptimumCare(R) Corporation (Manager), a Delaware
Corporation.
RECITALS
A. Galaxy Health Care Inc. intends to develop and operate a Community Mental
Health Center in the State of California called Treatment Resources for the
treatment of psychiatric disorders, and CMHC desires to have a Partial
Hospitalization Program (the "Out-Patient Program"); the city and address to
be determined within thirty (30) days after the date of execution hereof.
B. Manager is in the business of providing management services for the
treatment of patients with psychiatric disorders as well as creating and/or
managing Partial Hospitalization Programs with CMHCs and;
C. CMHC desires to retain Manager, and Manager desires to be retained, to
provide the services described herein.
THEREFORE, it is mutually agreed as follows:
1. DEFINITIONS
-----------
(a) "Confidential Information" of the Manager shall mean all documents and
other materials provided by Manager not available through sources in
the public domain. Manager's documents and other materials may
include, but are not limited to, memoranda, manuals, handbooks,
production books and audio and visual recordings, which contain
information relating to the Out-Patient Program (including written
materials distributed to Out-Patient Program patients or for promotion
of the Out-Patient Program); and all models, techniques, formulations
and procedures used to provide psychiatric services to Program
patients.
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limitation, the employer's contribution under the Federal Insurance
Contributions Act, unemployment compensation and related insurance,
payroll and other employment taxes, pension and retirement plan
contributions, worker's compensation and related insurance, group
life, health, disability and accident insurance, severance and other
benefits.
(c) A "Patient Day" shall be deemed to exist with each out-patient visit
to be the Out-Patient Program. An out-patient visit is defined as a
patient attending at least two (2) therapy sessions a day.
(d) "Out-Patient Program" shall mean the out-patient partial
hospitalization psychiatric program managed by Manager at CMHC.
2. TERM
----
(a) This Agreement shall have an initial term of five (5) years commencing
(effective) on _______________ and termination ______________ 20; the
agreement will continue automatically for a second term of five (5)
years unless the termination provisions set forth in Section (11)
becomes applicable.
(b) Thereafter, each party may exercise the option to continue the
agreement for a succession of one (1) year terms by exercising an
"option for continuation" within sixty (60) days prior to the
expiration date in each succeeding year; the option may be exercised
by providing written notice to the other parties address as set forth
herein.
(c) Termination provisions as in Section (11) of this Agreement.
3. COVENANTS OF CMHC
-----------------
CMHC will:
(a) CMHC will cooperate with manager in locating appropriate program space
for potential capacity of at least twenty-five (25) chairs.
(b) Bill and collect all Out-Patient Program changes due for Out-Patient
Program services, and provide record keeping as customary in the
ordinary course of CMHC's business.
(c) Maintain license from the California Department of Health Services and
pay all related fees associated with this license.
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(d) Provide Manager's employees and contracted personnel with copies of
all relevant CMHC Policies and Procedures, as amended from time to
time.
(e) Indemnify, save harmless, and defend Manager from all claims and
liability and expenses (including reasonable attorney's fees) arising
solely from the negligence of or breach of this Agreement by CMHC or
its employees or contracted personnel.
(f) Maintain professional and comprehensive general liability insurance
for itself and its employees and contracted personnel in an amount not
less than $1,000,000 per occurrence or claim and whenever reasonably
requested provide Manager with a certificate from the insurer stating
that such insurance is in effect and which also states that Manager
will be given at least ten (10) days advance written notice of any
cancellation, non-renewal, or changes in policy limits, deductible, or
co-insurance. Any deductible or co-insurance or aggregate limits shall
be subject to Managers approval which shall not be unreasonably
withheld. Manager agrees that $100,000 is an acceptable deductible or
co-insurance. CMHC shall use reasonable efforts to maintain "tail"
coverage if necessary for any terminated "claims made" policy so as to
apply to any of its acts or omissions which occur during the term of
this Agreement until the expiration of any applicable statute of
limitation but not to exceed seven (7) years.
4. COVENANTS OF MANAGER
--------------------
Manager will do the following at its own cost and expense:
(a) Provide out-patient program consultation, orientation, direction and
training for the program.
(b) Rent facility program space for the duration of this Agreement.
(c) Provide the following staffing: (i) A full-time Partial
Hospitalization Program Director, (ii) Social services, (iii)
Psychological Services; (iv) Therapy/Activities and other services as
appropriate, (v) A Medical Director (who shall be a physician duly
licensed in the State of California, (vi) registered nurse services,
(vii) professional counseling staff and (viii) qualified unit
secretary as needed to provide for the professional counseling of
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Out-Patient Program patients and other personnel as required to
adequately supervise and operate the Out-Patient Program. All such
personnel shall be subject to CMHC approval but CMHC shall be deemed
to have accepted such personnel unless it informs Manager otherwise in
writing within five (5) business days of receipt of all such required
information. Such personnel shall not be deemed employees or
contracted personnel or borrowed servants of CMHC. Manager shall have
full responsibility for their wages, compensation and employee
benefits and acts or Omissions.
(c) Indemnify, save harmless, and defend CMHC from all claims and
liability and expenses (including reasonable attorney's fees) (1)
arising solely from the negligence of or breach of this Agreement by
Manager or its employees or contracted personnel or (2) arising out of
CMHC negligence if the sole basis for any such negligence consists of
entering into this Agreement with Manager, failing to properly
supervise, monitor or oversee Manager or its employees or agents, or
failing to properly review or act upon its review of the
qualifications of Manager or its employees or contracted personnel.
(d) Staff training for initial operating date.
(e) Supervision of staff hiring.
(f) Implementation of training on basic Medicare regulation policies as to
operational policies.
(g) Oversight of computer software and hardware installation by
consultant.
(h) Hiring and oversight of QA consultant.
(i) Implementation of employee policies.
(j) Installation of policies and procedures, intake forms, patient chart
documents and all forms and documents required to commence operation.
(k) Oversight of compliance with OSHA regulations and fire inspection.
(l) Oversight of acquisition of equipment leases, furniture lease and
office lease, including interior planning.
(m) Oversight of all day to day continued operational and financial
management issues.
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(n) Continued staff training and development through in-services.
(o) Oversight of continued TQM and QA.
(p) Continued oversight of reimbursement/expenditure issues.
(q) Development of strategic policies regarding surplus funds issues.
(r) Continued development and training of staff as to personnel policies
and procedures, compliance with Federal Labor Laws, and oversight of
EAP Consultant; installation of Employee Manual, patient handbooks,
external EAP and Drug Free work place policies.
(s) Continued collaboration and suggestions as to legal and accounting
consultants.
(t) Oversight of all employment contract preparation.
(u) Implementation of corporate compliance policies with respect to
internal control mechanisms for fraud and abuse prevention protocols.
(v) Collaboration with preparation for year-end cost audit report with
Accounting and Legal Consultant.
(w) Continued training in admissions and in-take protocols.
(x) Oversight and suggestions as to all necessary contractual
relationships.
(y) Consulting computer, technology and communications consulting as to
services, as required for day to day operational management of
Facility.
(z) All other necessary continued management and regulatory compliance
services as to day to day operations.
(ai) Consult, manage and support the Out-Patient Program treatment team's
effort to provide quality psychiatric treatment while maintaining
prudent control of patient length of stay.
(bi) Maintain professional and comprehensive general liability insurance
for itself and its employees and contracted personnel in an amount not
less than $5,000,000 per occurrence or claim and whenever reasonably
requested provide CMHC with a certificate from the insurer stating
that such insurance is in effect and which also states that CMHC will
be given at least ten (10) days advance written notice of any
cancellation, non-renewal, changes in policy limits,
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deductible, or co-insurance or aggregate limits shall be subject to
CMHC's approval which shall not be unreasonably withheld. CMHC agrees
that $100,000 is an acceptance deductible or co-insurance. Manager
shall use reasonable efforts to maintain "tail" coverage if necessary
for any terminated "claims made" policy so as to apply to any of its
acts or omissions which occur during the term of this Agreement until
the expiration of any applicable statute of limitation but not to
exceed seven (7) years. Manager shall use reasonable efforts to have
CMHC named as an additional insured on Manager's insurance with
respect to any claim or liability arising solely out of any act of
omission by Manager, its employees, or contracted personnel.
(fi) Until the expiration of four (4) years after the furnishing of any
services to be provided under this Agreement made available, upon
request, to the Secretary of Health and Human Services or to the
Comptroller General of the United States of America, or their duly
authorized representatives, this Agreement and books, documents and
records which are necessary to certify the nature and extent of
reimbursable costs under the Medicare laws.
(gi) Comply with all applicable laws (including but not limited to
42.U.S.C. 1395(nn)(b) or any similar law or regulation, regulations,
CMHC policies and procedures, program policies and procedures any
applicable standards of care.
(hi) Use reasonable efforts to resolve any issues regarding acceptability
of Out-Patient Program Personnel to CMHC personnel and to Out-Patient
Program patients which may arise with respect to any of Manager's
employees or contracted personnel.
(ii) Provide monthly written reports to CMHC regarding all pertinent
aspects of the operation of the Out-Patient Program.
(ji) Commit no act or omission which adversely affects the CMHC license.
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(ki) Admit patients to the Out-Patient Program (including but not limited
to Medicare, Medicaid or Managed Care or private pay patients) only if
the admission is ordered by a physician on the Out-Patient Program
staff with admitting privileges.
(li) Provide appropriate utilization review and quality assessment services
for all out-patient program patients. Utilization and review extends
to filing and pursuing clinical appeals with the CMHC's fiscal
intermediary.
5. REPRESENTATION AND WARRANTS OF CMHC
-----------------------------------
CMHC hereby represents to Manager as follows:
(a) CMHC is a corporation duly organized and validly existing in good
standing under the laws of the State of Florida with the power and
authority to carry on the business in which it is engaged and to
perform its obligations under this Agrement subject to maintaining the
license described in subpart (d) of Section (3).
(b) The execution of this Agreement and the performance of the obligations
of the CMHC hereunder will not result in any breach of any of the
terms, conditions or provisions of any Agreement or other instrument
to which CMHC is a party or by which it may be bound or affected, or
any governmental license, franchise, permit or other authorization
possessed by the CMHC, nor will such execution and performance violate
any Federal, State or local law, rule or regulation.
(c) There is no litigation, administrative proceeding or investigation
pending or threatened against CMHC (nor is the CMHC subject to any
judgment, order, decree or regulation of any court or other
governmental administrative agency) which would materially adversely
affect the performance of CMHC's obligations hereunder.
(d) No Certificate of Need is required by CMHC from any state regulatory
agency for the operation of the Out-Patient Program.
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6. REPRESENTATIONS OF MANAGER
--------------------------
Manager hereby represents to CMHC as follows:
(a) Manager is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware with the power and
authority to carry on the business in which it is engaged and to
perform its obligations under this Agreement.
(b) The execution of this Agreement and the performance of the obligations
of the Manager hereunder will not result in any breach of any of the
terms, conditions or provisions of any Agreement or other instrument
to which the Manager is a party or by which it may be bound or
affected, or any governmental license, franchise, permit or other
authorization possessed by the Manager, nor will such execution and
performance violate any Federal, State or local law, rule or
regulation.
(c) There is no litigation, administrative proceeding or investigation
pending or threatened against Manager (nor is Manager subject to any
judgment, order, decree or regulation of any court or other
governmental administrative agency) which would materially adversely
affect the performance of Manager's obligations hereunder.
7. MANAGEMENT FEES AND STAFFING FEES
---------------------------------
(a) CMHC shall pay to Manager a management fee of $200.00 per patient day
for each patient attending the Out-Patient Program.
(b) CMHC shall be entitled to a two hundred dollar ($200.00) per day
credit against the management fee otherwise due with respect to each
Patient Day of any patient for which any payor has finally denied
payment for clinical reasons, if in excess of 10%.
(c) CMHC shall pay Manager within five (5) working days of the date CMHC
receives payment.
(d) For all funds (including fees) advanced by OptimumCare including,
without limitation staffing costs and fees and facility location
costs, prior to CMHC(TR) receiving its initial reimbursement check
from Medicare.
1. CMHC will repay to OptimumCare 1/2 of all funds advanced to be
fully paid within fifteen (15) days after CMHC is in receipt of
the first reimbursement check.
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2. Balance payable over succeeding twelve (12) months in
consecutive equal installments including an additional
10% profit on the unpaid balance.
8. EQUIPMENT LEASING
-----------------
Upon being presented with the vendor invoices, OptimumCare will purchase
and lease back to CMHC business equipment as needed for operation of
facility including communications, MIS, furniture, copier and a fax. Such
lease will be paid by CMHC over 36 months in equal consecutive monthly
payments including a 10% profit per year over direct costs to OptimumCare.
At the end of 36 months, CMHC shall own the said equipment.
9. CONFIDENTIAL AND PROPRIETARY INFORMATION
----------------------------------------
(a) CMHC agrees and acknowledges that Confidential Information is
disclosed to it in confidence with the understanding that it
constitutes business information developed by Manager. CMHC further
agrees that it shall not use such Confidential Information for any
purpose other than in connection with the Out-Patient Program. CMHC
further agrees not to disclose such Confidential Information to any
third party except as required by law or regulation or in order to
serve the purposes of the Out-Patient Program or as permitted by
written authorization of Manager.
(b) Manager hereby grants to CMHC for the term of this Agreement, a
non-exclusive license to use the registered service marks of Manager
when identifying the Out-Patient Program. These service marks are the
exclusive property of Manager.
(c) Manager agrees not to disclose confidential information pertaining to
the CMHC business or Out-Patient Program patients except as required
by law or regulation or as permitted by written authorization of CMHC
or the respective patient as the case may be.
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10. RECRUITMENT OF EMPLOYEES AND AGENTS
-----------------------------------
(a) CMHC acknowledges that Manager has expended and will continue to
expend substantial time, effort, and money to train its employees and
contracted personnel in the operation of the Out-Patient Program. The
employees and contracted personnel of Manager who will operate the
Out-Patient Program at the CMHC will have access to and possess
Confidential Information of Manager. CMHC, therefore, agrees that for
the earlier of two (2) years after the cessation of the employment or
agency relationship between the Manager and the employee or agent or
two (2) years after termination of this Agreement, it will not
knowingly (and it will not induce any of its affiliates to) employ or
solicit the employment of, or in any way retain the services of any
employee, former employee, or contracted personnel or former agent of
Manager if such individual has been employed or retained by Manager in
the Out-Patient Program unless Manager gives CMHC prior written
consent thereto or unless this Agreement is terminated by CMHC
pursuant to paragraph (10) of this Agreement.
(b) Manager agrees that during the same respective period of time, it will
not knowingly (and it will not induce any of its affiliates to) employ
or solicit the employment in any way retain the services of any
employee, former employee, or contracted personnel or former agent of
CMHC without CMHC's prior written consent thereto.
11. TERMINATION
-----------
(a) Termination by Manager:
(1) By written notice to CMHC, if CMHC should have a bankruptcy,
reorganization or similar action filed by or against it, become
insolvent, go liquidation for any purpose.
(2) In the event CMHC has failed to comply with the terms of this
Agreement in any material respect, including substantial
completion of all refurbishing in the identified program space,
Manager shall, in writing, notify all of the nature of the breach
and CMHC shall have thirty (30) days to cure such breach or else
the Agreement will thereupon be terminated upon written notice to
CMHC.
10
<PAGE> 11
(3) By written notice to CMHC if CMHC fails to maintain any license
granted to it by a regulatory agency without which the Out-Patient
Program would be materially and adversely affected.
(4) By written notice to CMHC if CMHC fails to maintain professional and
general liability insurance in the minimum amount of $1,000,000.
(b) Termination by CMHC:
1. By written notice to Manager if Manager should have a bankruptcy,
reorganization or similar action filed by or against it, become
insolvent, or go into liquidation for any purpose.
2. In the event Manager has failed to comply with the terms of this
Agreement in any material respect, CMHC shall, in writing, notify
Manager of the nature of the breach, and Manager shall have
thirty (30) days to cure such breach or else the Agreement will
thereupon be terminated upon written notice to Manager.
3. By written notice to Manager if Manager fails to provide
professional and general liability insurance in the minimum
amount of $5,000,000.
(c) Termination by either party.
1. In the event that Medicare, Medicaid, a third party payor or
other Federal, State, Local Laws, rules, regulations, or
interpretations thereof at any time during this Agreement
duration; prohibit, restrict or substantially change the method,
payment or amount of reimbursement or the like for services
provided under this Agreement, then the CMHC and Manager in good
faith shall amend the Agreement to provide for payment of
compensation to each other in a manner consistent with any such
prohibition restriction and/or limitation. If this Agreement is
not or cannot be amended prior to any event as above or to the
mutual satisfaction of the CMHC and Manager, then this Agreement
may be terminated by either party with thirty (30) days written
notice.
11
<PAGE> 12
(d) Governing Law: The validity of this Agreement and any of its terms or
provisions, the interpretation of the rights and duties of the parties
hereunder, and the construction of the terms or provisions hereof
shall be government in accordance with the laws of the State of
California.
(e) Force Majeure: If either of the parties hereto is delayed or
prevented from fulfilling any of its obligations under this Agreement
by force majeure, said party shall not be liable for said delay or
failure. "Force Majeure" means any cause beyond the reasonable control
of a party, including but not limited to an act of God, act or
omission of civil military authorities, fire, strike, flood, riot,
war, delay or transportation, or inability due to the aforementioned
causes to obtain necessary labor, materials, or facilities.
(f) Severability: If any part of this Agreement is held to be void or
unenforceable, such part will be treated as severable, leaving valid
the remainder of this Agreement notwithstanding the part found void or
unenforceable.
(g) Waiver: A waiver by either party of a breach or failure to perform
shall not constitute a waiver of any provision hereof or of any other
breach or failure whether or not similar. There shall be no wavier
unless in writing signed by the party against whom the waiver is
sought to be enforced.
(h) Binding Effect: This Agreement shall be binding on the successors,
and assigns of the respective parties, provided, however, neither
party may assign or otherwise transfer this Agreement or delegate
obligations hereunder without the other's written consent.
(i) Complete Agreement: This Agreement constitutes the complete
understanding of the parties and supersedes all other Agreements,
either oral or in writing, between the parties hereto with respect to
the subject matter hereof, and no other Agreement, representation,
statement, or promise relating to the subject matter of this Agreement
which is not contained herein shall be valid or binding. There shall
be no amendment unless in writing signed by both parties.
12
<PAGE> 13
(j) No Agency or Partnership: The relationship between Manager and CMHC
is that of independent contractors and nothing in the Agreement shall
be deemed to create an agency, joint venture, partnership or similar
relationship between the parties hereto. Neither party shall have the
right to bid for the other or enter into any contract or commitment in
the name of, or on behalf of the other.
(k) Notice: All notices hereunder shall be in writing, delivered
personally or by U.S. Certified or Registered post mails, postage
prepaid, return receipt requested, and shall be deemed given when
delivered personally or upon the earlier of actual receipt or five (5)
days after deposit in said United States Mail, addressed as below with
proper postage affixed, but each party may change his address by
written notice in accordance with this paragraph.
13. MISCELLANEOUS PROVISIONS
------------------------
(a) Compulsory Arbitration: Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
binding arbitration in accordance with the rules of the American
Arbitration Association, and judgment on the award rendered may be
entered in any court having jurisdiction. However, this shall not
apply with respect to any claim for indemnity for bodily injury or
death.
(b) UCC1 Filing: Galaxy agrees to allow OptimumCare to file a UCC1 payment
promising against Galaxy's psychiatric out-patient accounts receivable
for the facilities referred to in the staffing and/or Management
Agreements.
(c) Attorney's Fees: If any legal action (including arbitration) is
necessary to enforce the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees and costs awarded
against the other party in addition to any other relief to which that
party may be entitled.
13
<PAGE> 14
CMHC's Address:
Galaxy Health Care Inc./Treatment Resources, Inc.
290 N.W. 165th Street, Suite P-300
Miami, Florida 33169
Manager's Address:
OptimumCare Corporation
30011 Ivy Glen Drive, #219
Laguna Niguel, California 92677
IN WITNESS WHEREOF, this Agreement has been executed
at Laguna Niguel, California At Miami, Florida
Manager:
OPTIMUMCARE CORPORATION GALAXY HEALTH CARE, INC.
By: /s/ EDWARD A. JOHNSON By: /s/ DALE P. REDLICH
----------------------------- -------------------------------
Edward A. Johnson Dale P. Redlich
President Chief Executive Officer
Date: 2/11/97 Date: 2/11/97
--------------------- ----------------------
14
<PAGE> 1
OptimumCare Corporation
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 6,237,751 5,892,824 5,871,660
Net effect of dilutive stock options
- based on the treasury stock method
using average market price 188,133 521,885 346,453
--------- --------- ---------
Total 6,425,884 6,414,709 6,218,113
--------- --------- ---------
Net income $ 876,716 $ 2,070 $ 465,045
--------- --------- ---------
Per share amount $0.14 $0.00 $0.07
--------- --------- ---------
FULLY DILUTED
Average shares outstanding 6,237,751 5,892,824 5,871,660
--------- --------- ---------
Net effect of dilutive stock options
- based on the treasury stock method
using year-end market price, if
higher than average market price 246,169 597,186 346,453
--------- --------- ---------
Total 6,483,920 6,490,010 6,218,113
--------- --------- ---------
Net income $ 876,716 $ 2,070 $ 465,045
--------- --------- ---------
Per share amount $0.14 $0.00 $0.07
========= ========= =========
</TABLE>
A 20% stock dividend was declared by the Board of Directors on August 14, 1996
for shareholders of record on October 1, 1996. The stock dividend was issued
on October 18, 1996 and all stock related data in this exhibit reflects the
stock dividend for all periods presented.
34
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-8833 and 33-78340) pertaining to the 1987 and 1994 Stock
Option Plans of OptimumCare Corporation of our report dated March 21, 1997,
with respect to the consolidated financial statements and schedule of
OptimumCare Corporation included in the Annual Report (Form 10K) for the year
ended December 31, 1996.
/s/ ERNST & YOUNG LLP
----------------------
Ernst & Young LLP
Orange County, California
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820474
<NAME> OPTIMUMCARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,113,809
<SECURITIES> 0
<RECEIVABLES> 2,389,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,518,003
<PP&E> 73,496
<DEPRECIATION> 52,135
<TOTAL-ASSETS> 3,953,100
<CURRENT-LIABILITIES> 1,244,909
<BONDS> 0
0
0
<COMMON> 6,786
<OTHER-SE> 3,272,407
<TOTAL-LIABILITY-AND-EQUITY> 3,953,100
<SALES> 10,676,237
<TOTAL-REVENUES> 10,681,553
<CGS> 8,313,317
<TOTAL-COSTS> 9,683,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,544
<INTEREST-EXPENSE> 997,731
<INCOME-PRETAX> 121,015
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876,716
<EPS-PRIMARY> $.14
<EPS-DILUTED> 0
</TABLE>
