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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, 1998 or
( ) 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
Commission File Number: 0-17401
OPTIMUMCARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0218003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, California 92677
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (949) 495-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ------------------------
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
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The aggregate market value of the voting stock held by non-affiliates of the
Company on February 16, 1999 (4,658,321 shares of Common Stock) was $4,145,907
based on the average bid and asked price of the Company's voting stock on
February 16, 1999.*
The number of shares outstanding of each of the Company's classes of Common
Stock, as of February 15, 1999 was:
Common Stock, - 5,919,897 shares
$.001 par value
Documents Incorporated by Reference
None.
* 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 primarily 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. In some instances, a fixed monthly fee
and reimbursement of certain direct program costs are received. 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 inpatient management fee per patient which averages $190 per
patient inpatient day, or pays the Company a fixed outpatient management fee per
visit which averages $120 per outpatient visit. In some cases, a percentage of
collected revenues, a reimbursement of direct costs or a monthly fee for partial
hospitalization contracts is received. 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 15, 1999, the Company has ten (10) Programs that are hosted by
five (5) hospitals and one community mental health center: one inpatient and one
partial hospitalization PsychProgram at Huntington InterCommunity Hospital,
D/B/A Humana Hospital Huntington Beach, Huntington Beach, California, one
inpatient and one partial hospitalization PsychProgram at St. Francis Medical
Center, Lynwood, California, one partial hospitalization PsychProgram at Sherman
Oaks Hospital and Health Center, Sherman Oaks, California, one inpatient and one
partial hospitalization PsychProgram at Mission Community Hospital, San
Fernando, California, one partial hospitalization PsychProgram through Citrus
Valley Medical Center, West Covina, California and one partial hospitalization
PsychProgram at Friendship Community Mental Health Center, Phoenix, Arizona. The
Company also operates one partial hospitalization PsychProgram in Las Vegas,
Nevada for which it is seeking its own license as a Community Mental Health
Center (CMHC).
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During January 1999, the Company was informed by the Healthcare Financing
Administration that it "has been examining its process for approving new
applications and final decisions have not yet been reached. Once the process is
defined (expected within 60 days)" the Company will be contacted and "all
efforts will subsequently be made to process the application as expeditiously as
possible at that time." The Company is actively seeking the agency's approval,
as it has two other locations (Long Beach, California and Portland, Oregon)
where it has leased facilities for partial hospitalization programs.
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 provided management
and other behavioral health services to skilled nursing and other similar bed &
board facilities. The Company recorded a charge to earnings for the unamortized
balance of goodwill during the fourth quarter of 1997 of $135,255 associated
with the purchase of the interest in the LLC. This decision was due to the LLC's
insignificant revenues, net losses and negative cash flow. The LLC was inactive
during 1998 and is not expected to resume operations.
(b) Financial Information About Industry Segments
The Company operates 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, partial
hospitalization and outpatient 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 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 an inpatient 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.
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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.
OptimumCare's Outpatient Services
Outpatient Services is a component of a partial hospitalization program intended
for patients with long-term, chronic conditions. Treatment must, at a minimum,
be designed to reduce or control the patient's psychiatric symptoms so as to
prevent relapse requiring a higher level of care. For patients with long-term,
chronic conditions, control of symptoms and maintenance of a functional level to
avoid further deterioration or hospitalization is an acceptable expectation of
improvement. "Improvement" in this context is measured by comparing the effect
of continuing treatment versus discontinuing it. Meeting this criteria of
improvement in patients with long-term, chronic conditions may be measured by
gradually reducing the treatment and measuring the effect on the patient.
Outpatient Services is a voluntary program. Patients attend up to a maximum of
10 hours a week, as prescribed by a psychiatrist, under the direct supervision
of the multi disciplinary team. Treatment includes individual and group therapy
with a range of activities geared toward the individual needs of each patient.
Length of stay varies, depending on the needs of the individual.
Outpatient Services provides a third level in the continuum of care that enables
patients to enter an OptimumCare program at an appropriate level, then advance
as their treatment progresses to a point where they feel confident, productive
and able to experience life fully with minimal intervention.
Expansion of Products
The Company is seeking to expand the scope of psychological services it offers
by enlarging the continuum of care it provides. The Company believes that it can
more effectively market its services to managed care payors by increasing the
scope of services it provides.
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
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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. 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 assumed 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 within five (5) days after the close of the month in which the services
were 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.
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Regulatory Matters
Many of the hospitals the Company contracts with have a large number of Medicare
and Medicaid patients. It is unknown, whether in the future other contracts or
programs will be dependent on a disproportionate amount of Medicare/Medicaid
patients. However, the Company has negotiated with these hospitals whereby it is
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 current contracts.
The healthcare facilities rely upon payment from Medicare. The healthcare
facilities are reimbursed their costs on an interim basis by Medicare fiscal
intermediaries and the health care facilities submit annual cost reimbursement
reports to the fiscal intermediaries for audit and payment reconciliation. The
healthcare facilities seek reimbursement of the Company's management fees from
these fiscal intermediaries as part of their overall payments from Medicare.
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 changes to Medicare/Medicaid policies.
Medicare is part of a federal health program which is administered by the U.S.
Department of Health and Human Services which has established Health Care
Financing Administration ("HCFA") to promulgate rules and regulations governing
Medicare and the benefits associated therewith.
All of the programs managed by the Company are treated as "provider based"
programs by HCFA. This designation is important since partial hospitalization
services are covered only when furnished by a "provider", i.e., a hospital or a
CMHC. To the extent the partial hospitalization programs are not located in a
site which is deemed by HCFA to be "provider-based", there would not be Medicare
coverage for the services furnished at the site under Medicare's partial
hospitalization benefit. In August, 1996, HCFA published criteria for
determining when programs operated in facilities separate from a hospital's or
CMHC's main premises may be deemed to be "provider-based" programs. The proper
interpretation and application of these criteria are not entirely clear, and
there is a risk that some of the sites managed by the Company could be found not
to be "provider-based".
Historically, CMHC's, unlike hospitals, were not surveyed by a Medicare
contractor before being permitted to participate in the Medicare program.
However, HCFA is now in the process of surveying all CMHC's to confirm that they
meet all applicable Medicare conditions for furnishing partial hospitalization
programs. Management believes that the CMHC which contracts with the Company is
in compliance with the applicable requirements.
Currently proposed legislation would implement a prospective payment system for
all outpatient hospital services for the calendar year beginning January 1,
2000. Proposed reimbursement rates have been determined, and their effect is not
believed to be substantially different from what the hospitals are currently
receiving as reimbursement.
The amount paid by Medicare is the provider's reasonable cost less a
"coinsurance" of twenty percent (20%) of the charges which is ordinarily to be
paid by the patient. The coinsurance must be charged to the patient by the
provider unless the patient is indigent.
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If the patient is indigent, or if the patient does not pay the provider the
billed coinsurance amounts after reasonable collection efforts, the Medicare
program has historically paid those amounts as allowable Medicare bad debts. The
allowability of Medicare bad debts to providers for whom the Company manages
partial hospitalization programs is significant since many of the patients in
programs managed by the Company are indigent or have very limited resources. The
reduction in allowable Medicare bad debts could have a materially adverse impact
on Medicare reimbursement to the healthcare facilities for which the Company
provides services and could further result in the restructuring or loss of
contracts.
To the extent that healthcare facilities which contract with the Company for
management services suffer material losses in Medicare payments, there is a
greater risk to the Company of non-payment, and a risk that the healthcare
facilities will terminate or not renew their contracts with the Company. Thus,
even though the Company does not submit claims to Medicare, it may be adversely
affected by reductions in Medicare payments or other Medicare policies.
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 its
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.
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 local marketing plan, in conjunction with the program marketer and
director of marketing. The marketing development strategy is to increase public
awareness of the Program. All Programs share the goal that is consistent with
the Company's overall marketing plan. The host hospital's administrative and
medical staff 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. Licensed
Community Care Residential Facilities are also targeted for marketing because
the residents are the ones who will require inpatient psychiatric treatment. The
Company's marketing approach emphasizes the care giver to become involved in one
on one communication with the professionals who will provide patient referrals.
These professionals and care givers are invited to the Company sponsored
community relations activities, speaker programs and continuing education
seminars.
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(iii) Raw Materials
Inapplicable.
(iv) Patents and Trademarks
The Company holds a federal service mark, Registration #1628745, for its trade
name "OptimumCare". The Company has marketed its programs under the names
"OptimumCare PsychProgram" and "OptimumCare Treatment Program".
(v) Seasonality
The Company acknowledges that patient volume appears to be susceptible to some
seasonal variation. Census tends to substantially decrease near certain
holidays, particularly during the fourth quarter, where individuals are more
reluctant to hospitalize family members.
(vi) Working Capital Items
The Company expects to experience an initial 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. However, this
delay may vary, as in the case of the Company seeking CMHC licensure for its Las
Vegas site, for which a healthcare provider/supplier application was filed with
the Healthcare Financing Administration on May 29, 1998.
(vii) Dependence on a Few Customers
The Company presently has ten (10) Programs operating through five (5) 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. During 1998, one termination required a bad debt write-off of
approximately $300,000.
(viii) Backlog
Inapplicable.
(ix) Government Contracts
Inapplicable.
(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,
Comprehensive Care Corporation, Mental Health Management, PMR Corporation and
Horizon Health Services, most 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.
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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 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
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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 assist the
medical directors in performing their duties. 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 containment will occur. However, legislation has begun to
recognize the need for placing mental health illness on par with other physical
ailments. For example, federal legislation effective in 1998, (the
Kennedy-Kassebaum bill), mandates parity with other reimbursable medical
services for those who receive behavioral health care. This law raised the
lifetime cap from the current $50,000 level to $1 million. 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 16, 1999, the Company employed approximately 100 persons
full-time and 70 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 1,277-square-
foot suite of executive offices in Laguna Niguel, California, under a lease
agreement providing for a monthly base rent of
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$1,900 which expires June 30, 1999. The Company leases additional satellite
corporate offices in Culver City and Venice, California. Lease agreements
provide for monthly base rents of $3,072 and $2,800 and expire November 30, 2001
and October 30, 1999 respectively. The Company also maintains 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 leases space under five separate lease agreements for the operation
of its outpatient partial hospitalization programs. One agreement is on a month
to month basis. The remaining agreements expire June 30, 2000, September 30,
2000, September 30, 2000 and August 14, 2002 respectively. Aggregate monthly
payments total $23,107 of which $5,786 is fully reimbursed through a sublease
with a host hospital. 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.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1998:
- -----
Fourth Quarter 59/64 23/32
Third Quarter 63/64 23/32
Second Quarter 1 25/32
First Quarter 1 5/16 11/16
1997:
- -----
Fourth Quarter 1 7/16 1 3/16
Third Quarter 1 3/8 1 1/16
Second Quarter 1 5/8 1 1/8
First Quarter 2 3/16 1 1/4
</TABLE>
The listed prices represent inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
(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 15, 1999 is set forth
below:
<TABLE>
<CAPTION>
Approximate
Title of Class Number of Record Holders
- -------------- ------------------------
<S> <C>
Common Stock, $.001 par value 200
</TABLE>
The Company believes that there are approximately 800 beneficial owners of its
common stock.
(c) Dividends
The Company has not 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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<PAGE> 14
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, 1998
and December 31, 1997 and for each of the fiscal years in the three year period
ended December 31, 1998 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>
===========================================================================================================================
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $11,409,690 $12,089,398 $10,676,237 $6,027,122 $5,596,283
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 377,133 454,350 876,716 2,070 465,045
- ---------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS*
PER SHARE OF
COMMON STOCK .06 .07 .14 .00 .08
- ---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS*
PER SHARE OF
COMMON STOCK .06 .06 .13 .00 .07
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED NUMBER
OF SHARES
OUTSTANDING 6,567,280 6,870,049 6,237,751 5,892,824 5,871,660
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DILUTED
SHARES 6,699,648 7,194,872 6,677,156 6,388,570 6,218,113
- ---------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER
COMMON SHARE 0 0 0 0 0
===========================================================================================================================
</TABLE>
BALANCE SHEET INFORMATION
AS OF DECEMBER 31
<TABLE>
<CAPTION>
===========================================================================================================================
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS 3,154,744 3,953,241 3,980,307 $2,059,537 $1,814,153
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS 2,652,044 3,213,626 3,518,003 1,731,290 1,699,801
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT
LIABILITIES 429,375 679,774 1,244,909 381,531 333,209
- ---------------------------------------------------------------------------------------------------------------------------
NET WORKING
CAPITAL 2,222,669 2,533,852 2,273,094 1,349,759 1,366,592
- ---------------------------------------------------------------------------------------------------------------------------
LONG-TERM
OBLIGATIONS 0 0 0 166,000 0
===========================================================================================================================
</TABLE>
* Earnings per share for all periods prior to 1997 have been restated to conform
with the requirements of FASB statement No. 128, "Earnings Per Share".
12
<PAGE> 15
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
At fiscal year end 1998 and 1997, the Company's working capital was $2,222,669
and 2,533,852 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.
In February 1997, the Company formed an alliance with Galaxy Health Care, Inc.
to develop community mental health centers. In August 1997, the Company
relicensed one partial hospitalization program with Galaxy. In December 1997, an
insurance reimbursement audit of Galaxy's Florida treatment sites placed Galaxy
under severe working capital constraints. The Company had perfected a security
interest in all funds due Galaxy arising from the operation of this program. The
allowance for doubtful accounts at December 31, 1997 reserved all amounts due
from Galaxy at that point in time.
During 1998, the Company learned that the magnitude of debt owed by Galaxy from
this audit appeared to be extremely substantial. This caused the Company to
believe that the collectibility of its receivables covered by the security
interest was remote. As a result, the Company wrote off all amounts due from
Galaxy during the first quarter of 1998 and terminated its relationship with the
entity.
Despite the write-off of this receivable, the Company has been able to
effectively manage collections on other receivables and payments for services
such that there has been no significant impairment of working capital.
Cash flows from operations were $499,964 for the year ended December 31, 1998,
resulting primarily from income from operations, net of an increase in accounts
receivable, and a decrease in deferred tax assets. The decrease in deferred tax
assets occurred from the write-off of a 1997 bad debt previously reserved, to
1998 taxable income.
Cash used in investing activities was $131,501 for the year ended December 31,
1998. Funds used in 1998 were due to an increase in a note receivable due from
one officer and purchases of property and equipment.
The cash used in financing activities was $1,125,231 for the year ended December
31, 1998. Funds used during 1998 were for the purchase of treasury stock and for
paydowns on the Company's line of credit agreement with a bank. The line of
credit expires May 1, 1999. The maximum indebtedness of the line is $1,500,000.
Amounts allowable for draw are based on 75% of certain qualified accounts
receivable. As of February 15, 1999, approximately $1,325,000 is available for
future draws on the line of credit agreement. The Company's principal sources of
liquidity for the fiscal year 1999 are cash on hand, accounts receivable, the
line of credit with a bank and continuing revenues from programs.
13
<PAGE> 16
(b) Results of Operations
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997.
The Company operated thirteen (13) programs during the year ended December 31,
1998 and twelve (12) programs during the year ended December 31, 1997. As of
February 15, 1999, the Company currently has ten (10) operating programs. These
are composed of three inpatient and seven partial hospitalization programs.
Generally, the size and profit potential of inpatient programs are greater than
partial hospitalization programs. Net revenues were $11,409,690 and $12,089,398
for the years ended December 31, 1998 and 1997, respectively. This decrease is
due to a greater number of programs generating revenue for a longer period of
time in 1997 versus 1998. This is particularly the case with two partial
hospitalization programs, one of which was consolidated into another program
during the second quarter of 1998. The other program operated, but did not
generate revenues during 1998. This was due to the Company's inability to find a
host hospital for this location. During 1997, this program operated and
generated revenue for a portion of that year. During 1999, the Company closed
this program. However, it has retained the lease on this site, as it believes
that a successful program can be operated from this location and is seeking its
own community mental health center license for this purpose.
Cost of services provided were $8,977,538 and $8,894,987 for the years ended
December 31, 1998 and 1997. Costs have remained relatively stable in the
aggregate among years. However, increases in wage, insurance and benefit expense
at certain individual programs have occurred, which have been offset by
significant cost reductions which were achieved from the consolidation of two
partial hospitalization programs which occurred during the second quarter of
1998.
The provision for uncollectible accounts decreased from the prior year primarily
due to the write off of receivables generated by the Galaxy alliance previously
discussed, which was terminated during the first quarter of 1998.
Selling general and administrative expenses have decreased from the prior year.
This was due to lower executive bonus compensation earned in 1998 versus 1997
based on the Company's interim profitability. The decrease was also due to the
change in the manner in which the Company records its workers compensation
insurance costs. During 1998, these costs were directly allocated to its
individual programs. This occurred due to a change in the reporting requirements
of the carrier, which necessitated the Company to be classification specific
among employees, and the growing magnitude of these costs. During 1997, these
costs were treated as general corporate overhead.
The Company recorded a charge to earnings for the unamortized balance of
goodwill during the fourth quarter of 1997 of $135,255 associated with the
purchase of the interest in the LLC. This decision was due to the LLC's
insignificant revenues, net losses and negative cash flow. The LLC was inactive
during 1998 and is not expected to resume operations.
The Company's income taxes have remained relatively stable among years.
Net income was $377,133 and $454,350 for the years ended December 31, 1998 and
1997, respectively. The decrease was primarily attributable to lower revenues,
partially offset by a decrease in bad debts, general and administrative costs
and the absence of any goodwill impairment.
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. Sites for Long Beach, California and
Portland, Oregon have been retained for potential partial hospitalization
programs. The Company is continuing all current service programs, and is
exploring other expansion opportunities.
The Company has continued to provide a larger scope of services to its customers
for a greater management fee. As a result, revenues should continue to increase
and gross profit should continue to rise favorably and disproportionately 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
14
<PAGE> 17
adversely impact the results of operations and the Company's available
resources.
The Company's revenue is expected to increase in 1999 due to an anticipated
expansion in the number of operational programs. Marketing plans for expanding
the volume of the business by obtaining new contracts for programs currently
exist. However, it is uncertain at this time to what extent the Company's fixed
costs will be impacted by this expansion. Due to the Company's dependence on a
relatively small customer base presently consisting of five (5) 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, 1998.
The Company upgraded its general ledger accounting system to be year 2000
compliant effective January 1, 1999. The cost of addressing the year 2000
approximated $2,500 and was not material to its financial position, operating
results or cash flows. However, it does appear that this is a major concern for
its host hospitals and the various insurance companies from which the hospitals
receive reimbursements. The large volume, small dollar transactions processed by
these entities' computer systems would most likely require reconfiguration to
accommodate the year 2000. The trickle down effect of this situation to the
Company is not yet known at this point in time.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
The Company operated twelve (12) programs during the year ended December 31,
1997 and fifteen (15) programs during the year ended December 31, 1996. As of
February 17, 1998, the Company currently had twelve (12) operating programs.
These were 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 $12,089,398 and
$10,676,237 for the years ended December 31, 1997 and 1996, respectively. The
increase in revenues in 1997 over 1996 was due to the increase in patient volume
among periods. This occurred particularly at two programs which the Company
began managing in 1996.
Cost of services provided were $8,894,987 and $8,313,317 for the years ended
December 31, 1997 and 1996, respectively. The increase in the cost of services
provided among years was primarily due to the increase in patient volume among
years and an expanded scope of services provided in connection with certain
contracts such as staffing, dietary, transportation and lease costs.
Selling, general and administrative expenses increased over the prior year due
to the position change of one employee from an Inpatient Program Administrator,
directly responsible for an individual program and previously included in the
costs of services provided, to the Executive Vice President/Chief Operating
Officer of the Company. Also contributing to the increase were higher insurance
expenses associated with the Company's growing revenues and wages.
The provision for uncollectible accounts increased from the prior year primarily
due to a reserve placed on the Galaxy receivables previously discussed.
During the fourth quarter, due to insignificant revenues, continued net losses
and negative cash flows, associated with the LLC, the Company determined that
the unamortized goodwill of $135,255 associated with the purchase of the
interest in the LLC had little if any future value. Accordingly, the Company
recorded a charge to earnings for the unamortized balance.
The Company's effective income tax rate increased 36% from 12% in the prior
year, due to the Company's utilization of its federal net operating loss carry
forwards to offset 1996 taxable income.
Net income was $454,350 and $876,716 for the years ended December 31, 1997 and
1996, respectively. The decrease was primarily attributable to an increase in
the provision for uncollectible accounts.
15
<PAGE> 18
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Immaterial.
16
<PAGE> 19
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OPTIMUMCARE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Report of Independent Auditors F-4
Consolidated Balance Sheets as of December 31, F-5
1998 and December 31, 1997
Consolidated Statements of Operations for the years F-6
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the F-7
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the F-8
year ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-9 through F-19
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 20
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:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edward A. Johnson 53 Chief Executive Officer, Principal Financial
Officer, Secretary and Chairman of the Board
Mulumebet G. Michael 50 Director, President and
Chief Operating Officer
Gary L. Dreher 52 Director
Michael S. Callison 60 Director, Vice President of
Corporate Development
Jon E. Jenett 46 Director
</TABLE>
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
Edward A. Johnson - Chairman & CEO
Mr. Johnson has spent almost his entire professional career in behavioral
healthcare services and co-founded OptimumCare in 1986. As Chief Executive
Officer, Mr. Johnson has overall responsibility for developing strategic program
direction with the firm's current and future healthcare providers at hospitals,
medical centers and community care centers. He also monitors and evaluates
trends shaping the healthcare industry that will impact the Company. In
response, from this larger perspective, he fashions policies, procedures and
systems to maximize patient service while enhancing profitability for
OptimumCare and value for its shareholders. Mr. Johnson received an M.S. degree
in psychology and a B.A. degree in business from Colorado State College. He is
also licensed in California as a Marriage and Family Counselor.
18
<PAGE> 21
Mulumebet G. Michael - President, COO & Board Member
Ms. Michael joined OptimumCare in 1993 as a Program Administrator, advanced to
Executive Vice President and COO in 1997, and was named President and a member
of the Board of Directors in June 1998. Ms. Michael's extensive experience both
as a registered nurse and in behavioral healthcare management over a sixteen
year career has provided superb insight, vision and knowledge, ensuring the best
behavioral health practices are incorporated into each OptimumCare program. She
manages the Company's staff of more than 150 professionals and support
personnel. Ms. Michael completed a four-year nursing school curriculum leading
to her being a licensed nurse (RN) in three countries: America, Canada and
Ethiopia. She also completed a three-year advanced hospital management program
with the British Columbia Institute of Technology in Canada.
Gary L. Dreher - Director
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. He was recently named Vice President of Sales and
Marketing for AMDL, an inventor and marketer of state-of-the-art diagnostic
kits. Prior to this, Mr. Dreher was President of Medical Market International, a
marketing and management services company he co-founded. Mr. Dreher also served
as Vice President of International Sales for Apotex Scientific, an international
distributor network for Esoteric Diagnostic Tests, from 1992 to 1996.
Michael Callison - Vice President Corporate Development
Mr. Callison joined OptimumCare in 1990, and is responsible for sales and
business development, as well as seeking out and nurturing relationships with
strategic alliance partners to help the Company expand its services and coverage
area. His 40 years of healthcare experience began while he attended college and
worked as a psychiatric technician at a Washington state veterans hospital.
Thereafter, he held positions of increasing responsibility primarily in sales
and marketing with Pfizer Labs, Borg Warner Healthcare and Hill-rom, a hospital
architectural and furnishing company. In 1993, he was elected to OptimumCare's
board of directors. Mr. Callison received his B.A. degree in Economics from the
University of Puget Sound.
Jon E. Jenett - Director
Mr. Jenett was elected to the Board of Directors during December, 1995. Since
October 1998, Mr. Jenett has served as President and Chief Financial Officer of
M4 Labs, Inc., which sells a suite of software and hardware products to manage
video and multimedia in networked environments, including cellular and the
Internet. From 1990 to 1998, Mr. Jenett served as 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 and private companies. Mr. Jenett
received his B.A. degree from Harvard College and his M.B.A. from Stanford
Business School.
Section 16(a) Beneficial Ownership Reporting Compliance
No director, officer or beneficial owner of ten percent (10%) or more of the
Company's common stock failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934 during the most recent
fiscal year or prior fiscal year as disclosed in Forms 3 and 4 amendments
thereto furnished to the Company pursuant to Section 240.16a-3 during its most
recent fiscal year and Form 5 and amendments thereto furnished to the Company
with respect to its most recent fiscal year and any written representation that
no Form 5 was required.
(f) Involvement in Certain Legal Proceedings
Inapplicable.
19
<PAGE> 22
ITEM 11 - EXECUTIVE COMPENSATION
(a) (b) 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 PAYOUTS COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) /SARS ($) SATION($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EDWARD A. JOHNSON, 1998 $144,000 $118,188 100,000 $18,304 (1)(2)
CHIEF EXECUTIVE 1997 144,000 127,474 0 17,526 (1)(2)
OFFICER 1996 144,000 123,234 200,000 16,736 (1)(2)
MULUMEBET G 1998 $160,865 $ 63,806 100,000
MICHAEL 1997 156,180 113,027 0
PRESIDENT & CHIEF 1996 142,167 56,272 175,000
OPERATING OFFICER
HELEN TVELIA 1998 $ 62,400 $ 71,917 25,000
PROGRAM 1997 58,020 62,868 0
DIRECTOR 1996 55,500 56,733 25,000
===================================================================================================================================
</TABLE>
# NUMBER OF UNITS
$ DOLLAR AMOUNTS
(1) CAR ALLOWANCE
(2) LIFE INSURANCE PREMIUMS
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.
20
<PAGE> 23
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,
provided 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 terminated on July 28, 1997. The purpose of the Plan was 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 25,000 shares were exercised
during fiscal year ended December 31, 1998. There are currently 100,000 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 was
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 could have been no less than 85% of the fair
market value on the date of grant, although the Company did 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 were granted for terms up to 10 years (five years in the
case of incentive stock options granted to greater than 10% stockholders). No
optionee was granted incentive stock options such that the fair market value of
the options which first become exercisable in any one calendar year exceeded
$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.
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 common stock were reserved for issuance pursuant to the plan. No
options to purchase shares were exercised during fiscal year ended December 31,
1998. There are currently 200,000 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.
21
<PAGE> 24
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 350,000 shares of common stock to
various officers, directors, employees and consultants of the Company during
1998. On February 3, 1998, the Board of Directors granted options to Edward A.
Johnson and Mulumebet G. Michael to each 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 $1.00. The options have a
five year term and vest immediately.
During 1998, no other options previously granted were exercised.
(c) Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning Options/SARs
granted during 1998 to the named individuals:
<TABLE>
<CAPTION>
==============================================================================================================================
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL GRANT DATE
OPTIONS/SARs PRESENT
GRANTED TO EXERCISE VALUE ($)*
OPTIONS/SARs EMPLOYEES OF BASE EXPIRATION
NAME GRANTED IN FISCAL PRICE DATE 5% ($) 10% ($)
YEAR ($/SHARE)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EDWARD A.
JOHNSON 100,000 28 1/2% $1 2/3/2003 31,000 66,000 46,000
- ------------------------------------------------------------------------------------------------------------------------------
MULUMEBET G.
MICHAEL 100,000 28 1/2% $1 2/3/2003 31,000 66,000 46,000
- ------------------------------------------------------------------------------------------------------------------------------
HELEN TVELIA 25,000 7% $1 2/3/2003 7,750 16,500 11,500
==============================================================================================================================
</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 $.46 based on the following inputs:
<TABLE>
<CAPTION>
<S> <C>
Stock Price (Fair Market Value) at Grant $1.0313
Exercise Price $1
Expected Option Term 5 years
Risk-Free Interest Rate 6.25%
Stock Price Volatility 38%
Dividend Yield 0%
</TABLE>
22
<PAGE> 25
The model assumes: (a) an Expected Option Term of 5 years which reflects the
actual life of the option; (b) a Risk-Free Interest Rate that represents the
interest rate on a U.S. Treasury Note with a maturity date corresponding to that
of the Expected Option Term; and (c) Stock Price Volatility is calculated using
quarterly stock prices over the period from January 1, 1994 to December 31,
1998.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table summarizes options and SARs exercised during 1998, and
presents the value of unexercised options and SARs held by the named individuals
at fiscal year end:
<TABLE>
<CAPTION>
=================================================================================================================================
VALUE OF
NUMBER OF UNEXERCISED IN-
SHARES UNEXERCISED THE-MONEY
NAME ACQUIRED ON OPTIONS/SARs AT OPTIONS/SARs AT
EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR-END (#) FISCAL YEAR-END ($)*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDWARD A. JOHNSON 0 0 350,000 $12,625
- ---------------------------------------------------------------------------------------------------------------------------------
MULUMEBET G. 0 0 300,000 $0
MICHAEL **
- ---------------------------------------------------------------------------------------------------------------------------------
HELEN TVELIA 0 0 100,000 $6,313
=================================================================================================================================
</TABLE>
* The difference between fair market value at February 16, 1999 and the
exercise price.
** 100,000 of options vest over five years, 40,000 of which are exercisable at
12/31/98.
(g) 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 $66,000 of wages as Vice President of Corporate
Development in 1998. Mr. Dreher received $12,000 in marketing fees during 1998
for the marketing of the Company's programs to the hospitals during 1998.
(k) 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.
(l) 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, 1998 as well as the U.S. NASDAQ stock market index and the
S&P Healthcare (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.
OptimumCare S&P NASDAQ
Corporation Healthcare Market
----------- ---------- ------
DEC 31, 1993 100 100 100
DEC 31, 1994 137 106 97
DEC 31, 1995 197 148 135
DEC 31, 1996 241 173 166
DEC 31, 1997 232 151 202
DEC 31, 1998 149 124 282
23
<PAGE> 26
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 16, 1999, (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.
<TABLE>
<CAPTION>
========================================================================================================
AMOUNT & NATURE OF
NAME (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EDWARD A. JOHNSON 914,470 (2) 14.6%
- --------------------------------------------------------------------------------------------------------
MULUMEBET G. MICHAEL 269,466 (3) 4.4%
- --------------------------------------------------------------------------------------------------------
MICHAEL S. CALLISON 580,895 (4) 9.7%
- --------------------------------------------------------------------------------------------------------
GARY L. DREHER 252,745 (5) 4.2%
- --------------------------------------------------------------------------------------------------------
JON E. JENETT 134,000 (6) 2.2%
- --------------------------------------------------------------------------------------------------------
ALL OFFICERS AND DIRECTORS
AS A GROUP (5 PERSONS) 2,151,576 (7) 31.6%
========================================================================================================
</TABLE>
(1) The addresses of these persons are as follows: Mr. Johnson - 24 South
Stonington Road, South Laguna, CA 92677; Ms. Michael - 5304 Shenandoah Avenue,
Los Angeles, CA 90056; Mr. Callison - 21972 Summerwind Lane, Huntington Beach,
CA 92646; Mr. Dreher - 6301 Acacia Hill Drive, Yorba Linda, CA 92886; Mr. Jenett
- - 8 South Vista De La Luna, South Laguna, CA 92677.
(2) Includes presently exercisable options to purchase 350,000 shares of Common
Stock. All shares are directly owned.
(3) Includes presently exercisable options to purchase 240,000 shares of Common
Stock. All shares are directly owned.
(4) Includes presently exercisable options to purchase 75,000 shares of Common
Stock directly held, 480,000 shares held through a revocable living trust,
17,500 shares held indirectly through an individual retirement account, 2,395
shares held indirectly through a 401K plan and 6,000 shares held as custodian
for five of Mr. Callison's grandchildren.
(5) Includes presently exercisable options to purchase 125,000 shares of Common
Stock and 58,890 shares directly held, with 64,210 shares held indirectly
through an individual retirement account and 4,645 held indirectly through an
individual retirement account of Mr. Dreher's spouse.
(6) Includes presently exercisable options to purchase 100,000 shares of Common
Stock, with 34,000 shares held indirectly through an individual retirement
account.
(7) Includes presently exercisable options to purchase 890,000 shares of Common
Stock.
(c) Changes in Control
Inapplicable.
24
<PAGE> 27
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions With Management and Others
Inapplicable.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
The Company converted a series of short-term advances to Mr. Johnson and a
$274,000 note dated December 29, 1997 into a $392,070 promissory note due from
Mr. Johnson. The note accrues interest at the current prime rate and provides
for a bi-monthly payment plan.
(d) Transactions With Promoters
Inapplicable.
25
<PAGE> 28
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)
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, F-3
1998 and December 31, 1997
Consolidated Statements of Operations for the years F-4
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the F-5
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the F-6
year ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements. F-7 through F-19
</TABLE>
(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.
26
<PAGE> 29
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.
10.43 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 ended December 31, 1993,
Exhibit 10.48. (Terminated in 1998)
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.
(Terminated in 1998)
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.
27
<PAGE> 30
10.66 Agreement between Sherman Oaks Hospital and Health Center dated
March 30, 1995, incorporated 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, incorporated 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, incorporated 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, incorporated by reference
from Form 10-K for the year ended December 31, 1995. (Terminated
in 1998)
10.70 Lease Agreement between the Company and 757 Pacific Partnership
dated July 3, 1995, incorporated 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, incorporated by
reference from Form 10-K for the year ended December 31, 1995.
(Terminated in 1998)
10.72 Lease Agreement between the Company and Columbia Healthcare
Corporation dated September 14, 1995 which supersedes lease
dated October 18, 1993, incorporated by reference from Form 10-K
for the year ended December 31, 1995. (Terminated in 1998)
10.73 Agreement between San Fernando Community Hospital, Inc. dba
Mission Community Hospital and the Company dated October 6,
1995, incorporated by reference from Form 10-K for the year
ended December 31, 1995.
10.77 Operating Agreement for Optimum Care Source, LLC incorporated 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 incorporated by
reference from March 31, 1996 Form 10-Q Exhibit 10.78.
10.82 Registration Agreement between Professional CareSource, Inc. and
the Company dated April 24, 1996 incorporated 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 incorporated 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 incorporated 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 incorporated by reference
from March 1996 Form 10-Q Exhibit 10.85.
28
<PAGE> 31
10.86 Agreement between Friendship Community Mental Health Center and
the Company dated April 25, 1996 incorporated 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, incorporated by reference from Form 10- K for the year
ended December 31, 1996.
10.88 Lease Agreement between the Company and Jay Arteaga dated
September 30, 1996, incorporated by reference from Form 10-K for
the year ended December 31, 1996.
10.89 Lease Agreement between the Company and Solomon, Saltzman &
Jameson dated October 15, 1996, incorporated by reference from
Form 10-K for the year ended December 31, 1996. (Terminated in
1998)
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, incorporated by
reference from Form 10-K for the year ended December 31, 1996.
10.91 Change in terms Agreement between the Company and National Bank
of Southern California dated January 28, 1997 (Modified),
incorporated by reference from Form 10-K for the year ended
December 31, 1996.
10.92 Staffing Agreement between the Company and Treatment Resources,
Inc. dated February 1, 1997, incorporated by reference from Form
10-K for the year ended December 31, 1996. (Terminated in 1998)
10.93 Community Mental Health Center Agreements (California and
Nevada) between the Company and Treatment Resources, Inc. dated
February 1, 1997 (Modified), incorporated by reference from Form
10-K for the year ended December 31, 1996. (Terminated in 1998)
10.94 Change in Terms Agreement between the Company and National Bank
of Southern California dated May 15, 1997, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.95 Inpatient and Outpatient Psychiatric Unit Management Services
Agreement between the Company and Catholic Healthcare West
Southern California dated June 1, 1997, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.96 Lease Agreement between the Company and The Ribeiro Corporation
dated June 23, 1997, incorporated by reference from Form 10-K
for the year ended December 31, 1997.
10.97 Lease Agreement between the Company and Harriet Maizels, Daniel
Gold, Lesley Gold and Mildred Gold dated July 8, 1997,
incorporated by reference from Form 10-K for the year ended
December 31, 1997.
10.98 Lease Agreement between the Company and Michael F. Maluccio
dated August 6, 1997, incorporated by reference from Form 10-K
for the year ended December 31, 1997. (Terminated in 1998)
29
<PAGE> 32
10.99 Community Mental Health Center Agreement between the Company and
Treatment Resources, Inc. dated August 27, 1997, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.100 Lease Agreement between the Company and Laguna Niguel Office
Center dated September 5, 1997 which supersedes lease dated June
23, 1988, incorporated by reference from Form 10-K for the year
ended December 31, 1997.
10.101 First Lease Extension Agreement between the Company and Whittier
Narrows Business Park and the Company dated September 11, 1997
which supersedes lease dated January 10, 1994, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.102 Lease Extension Agreement between the Company and 757 Pacific
Avenue Partnership dated September 19, 1997 which supersedes
lease dated July 3, 1995, incorporated by reference from Form
10-K for the year ended December 31, 1997.
10.103 Unanimous Written Consent dated December 29, 1997 of the Board
of Directors amending the Promissory Note between the Company
and Edward A. Johnson dated December 31, 1996, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.104 Agreement to terminate agreements between the Company and Galaxy
Health Care, Inc. dated March 19, 1998, incorporated by
reference from Form 10-K for the year ended December 31, 1997.
10.105 Agreement between Friendship Community Mental Health Center and
the Company dated June 25, 1997 which supersedes the Agreement
dated April 25, 1996.
10.106 Lease Agreement between the Company and Laguna Niguel Office
Center dated May 14, 1998 which supersedes lease dated June 23,
1988.
10.107 Change in terms Agreement between the Company and Southern
California Bank dated May 27, 1998.
10.108 Lease Agreement between Whittier Narrows Business Park and the
Company dated July 28, 1998.
10.109 Lease Agreement between the Company and P.S. Business Parks,
L.P. dated August 14, 1998.
10.110 Inpatient and Outpatient Psychiatric Unit Management Services
Agreement between the Company and Catholic Healthcare West
Southern California dated September 15, 1998 which supersedes
Agreement dated June 1, 1997.
10.111 Agreement between Citrus Valley Medical Center and the Company
dated September 18, 1998.
10.112 Sublease Agreement between Citrus Valley Medical Center and the
Company dated September 23, 1998.
10.113 Lease Agreement between the Company and Coldwell Banker dated
November 1, 1998.
30
<PAGE> 33
10.114 Amendment to the Agreement dated June 25, 1997 between
Friendship Community Mental Health Center and the Company dated
November 12, 1998.
23 Consent of Independent Auditors.
27 Financial Data Schedule
(b) Reports on Form 8-K
Inapplicable.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 1999 OPTIMUMCARE CORPORATION
By: /s/ EDWARD A. JOHNSON
------------------------------------------
Edward A. Johnson, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ EDWARD A. JOHNSON March 30, 1999
- --------------------------------------------
Edward A. Johnson, Chief Executive Officer
and Director (Principal Financial and
Accounting Officer)
/s/ MULUMEBET G. MICHAEL March 30, 1999
- --------------------------------------------
Mulumebet G. Michael, Director,
President and Chief Operating Officer
/s/ MICHAEL S. CALLISON March 30, 1999
- --------------------------------------------
Michael S. Callison, Director
/s/ GARY L. DREHER March 30, 1999
- --------------------------------------------
Gary L. Dreher, Director
/s/ JON E. JENETT March 30, 1999
- --------------------------------------------
Jon E. Jenett, Director
</TABLE>
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, 1998
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 560,198 $ 334,564 $ 0 $(894,762)(1) $ 0
YEAR ENDED
DECEMBER 31, 1997
Reserves and allowances
from asset accounts:
Allowance for
uncollectible accounts $ 0 $ 602,643 $ 0 $ (42,445)(1) $ 560,198
YEAR ENDED
DECEMBER 31, 1996
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
33
<PAGE> 36
Financial Statements
OptimumCare Corporation
YEARS ENDED DECEMBER 31, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 37
OptimumCare Corporation
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors...............................................1
Financial Statements
Consolidated Balance Sheets..................................................2
Consolidated Statements of Income............................................3
Consolidated Statements of Stockholders' Equity..............................4
Consolidated Statements of Cash Flows........................................5
Notes to Consolidated Financial Statements...................................6
F-1
<PAGE> 38
Report of Independent Auditors
The Stockholders and Board of Directors
OptimumCare Corporation
We have audited the accompanying consolidated balance sheets of OptimumCare
Corporation and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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 and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, 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.
/s/ ERNST & YOUNG LLP
Orange County, California
March 5, 1999
F-2
<PAGE> 39
OptimumCare Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 188,636 $ 945,404
Accounts receivable, net of allowance of
$0 in 1998 and $560,198 in 1997 2,293,583 2,186,906
Note receivable from officer 78,000 --
Prepaid expenses 71,537 81,316
Deferred tax asset 20,288 --
----------- -----------
Total current assets 2,652,044 3,213,626
Note receivable from officer 314,070 274,000
Furniture and equipment, less accumulated
depreciation of $131,062 in 1998 and
$90,473 in 1997 59,527 86,685
Deferred tax asset 75,817 334,000
Other assets 53,286 44,930
----------- -----------
Total assets $ 3,154,744 $ 3,953,241
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 244,525 $ 270,178
Accrued vacation 50,720 65,639
Accrued expenses 134,130 143,957
Line of credit -- 200,000
----------- -----------
Total current liabilities 429,375 679,774
Commitments
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 20,000,000
Issued and outstanding shares -
5,919,897 in 1998 and 6,902,611
in 1997 5,920 6,903
Paid-in-capital 2,431,761 3,356,009
Retained earnings (deficit) 287,688 (89,445)
----------- -----------
Total stockholders' equity 2,725,369 3,273,467
----------- -----------
Total liabilities and stockholders' equity $ 3,154,744 $ 3,953,241
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 40
OptimumCare Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues $11,409,690 $12,089,398 $10,676,237
Interest income 24,736 7,685 5,316
----------- ----------- -----------
11,434,426 12,097,083 10,681,553
Operating expenses:
Costs of services provided 8,977,538 8,894,987 8,313,317
Selling, general and administrative 1,505,169 1,724,942 1,343,961
Provision for uncollectible accounts 334,564 602,643 --
Goodwill impairment -- 135,255 --
Interest 2,401 31,906 26,544
----------- ----------- -----------
10,819,672 11,389,733 9,683,822
----------- ----------- -----------
Income before income taxes 614,754 707,350 997,731
Income taxes 237,621 253,000 121,015
---------- ----------- -----------
Net income $ 377,133 $ 454,350 $ 876,716
=========== =========== ===========
Basic earnings per share $ 0.06 $ .07 $ .14
=========== =========== ===========
Diluted earnings per share $ 0.06 $ .06 $ .13
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 41
OptimumCare Corporation
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
Optimum CareSource 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
Exercise of stock options 25,000 25 9,350 -- 9,375
Common stock issued for consulting fees 91,393 92 74,252 -- 74,344
Net income -- -- -- 454,350 454,350
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 6,902,611 6,903 3,356,009 (89,445) 3,273,467
Exercise of stock options 25,000 25 7,475 -- 7,500
Purchase and retirement of treasury stock (1,007,714) (1,008) (931,723) -- (932,731)
Net income -- -- -- 377,133 377,133
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,919,897 $ 5,920 $ 2,431,761 $ 287,688 $ 2,725,369
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 42
OptimumCare Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 377,133 $ 454,350 $ 876,716
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 40,589 38,338 17,753
Amortization -- 40,777 27,254
Provision for uncollectible accounts 334,564 602,643 --
Common stock issued as consulting fees -- 74,344 --
Impairment of goodwill -- 135,255 --
Deferred taxes 237,895 (334,000) --
Changes in operating assets and liabilities:
Increase in accounts receivable (441,241) (400,530) (852,326)
Decrease (increase) in prepaid expenses 9,779 (34,071) 7,390
(Increase) decrease in other assets (8,356) 12,846 (27,207)
(Decrease) increase in accounts payable (25,653) 42,889 34,546
(Decrease) increase in accrued expenses (24,746) (194,282) 183,020
----------- ----------- -----------
Net cash provided by operating activities 499,964 438,559 267,146
INVESTING ACTIVITIES
Intangible asset from business acquisition -- -- (202,878)
Purchases of equipment (13,431) (51,527) (65,632)
Deferred acquisition costs -- -- 138,753
Note receivable from officer (118,070) (119,000) --
----------- ----------- -----------
Net cash used in investing activities (131,501) (170,527) (129,757)
FINANCING ACTIVITIES
Note payable to bank (200,000) (445,812) 479,812
Purchase of treasury stock (932,731) -- --
Exercise of stock options 7,500 9,375 325,676
----------- ----------- -----------
Net cash (used in) provided by financing (1,125,231) (436,437) 805,488
activities
----------- ----------- -----------
Net (decrease) increase in cash (756,768) (168,405) 942,877
Cash at beginning of year 945,404 1,113,809 170,932
----------- ----------- -----------
Cash at end of year $ 188,636 $ 945,404 $ 1,113,809
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid $ 2,401 $ 32,912 $ 25,538
Income taxes paid $ 11,366 $ 629,000 $ 95,133
</TABLE>
See Accompanying Notes.
F-6
<PAGE> 43
OptimumCare Corporation
Notes to Consolidated Financial Statements
December 31, 1998
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. Hospitals are primarily reimbursed by Medicare
and Medicaid for the majority of these programs, which in turn pay the Company a
contracted management fee. The Company's programs are currently being marketed
in the United States, principally California, to independent acute general
hospitals and other health care facilities.
The accompanying financial statements include the accounts of the Company and
its majority owned subsidiary, Optimum CareSource, LLC (discussed below).
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
Optimum CareSource, 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 was used to record the transaction. No
tangible assets of the LLC were acquired and as such, the purchase price was
allocated to intangibles to be amortized over five years.
F-7
<PAGE> 44
OptimumCare Corporation
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS ACQUISITION (CONTINUED)
During 1997, based on recurring losses at the LLC and a lack of substantive new
contracts, management determined that this goodwill was impaired and based on
its estimate of discounted cash flows the Company wrote off the remaining
balance of $135,000 at December 31, 1997. The impairment loss is recorded as a
separate line item in operating expenses on the accompanying statements of
operations.
The Company did not proceed with a proposed business acquisition with Drs. Giem,
Guerra and Meyers and expensed $96,000 of direct costs as selling, general and
administrative expenses during 1996.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed on the
straight-line method based upon the estimated useful lives of the related
assets, which range from three to five years.
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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform with Statement 128 requirements. The
calculation of earnings per share for all periods presented also reflects the
effect of a stock dividend issued in 1996 (NOTE 6).
F-8
<PAGE> 45
OptimumCare Corporation
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash, accounts and
note receivable, accounts payable, and borrowings. The Company believes all of
the financial instruments' recorded values approximate current values.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, REPORTING COMPREHENSIVE INCOME, which establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements. For the years ended December 31, 1998,
1997, and 1996, the Company did not have any components of comprehensive income
as defined in Statement No. 130.
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, effective
for fiscal years beginning after December 15, 1997. Statement No. 131 supercedes
Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE.
Statement No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual consolidated
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement No.
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement No.
131 did not affect the consolidated results of operations or financial position
of the Company. The Company operates in one industry segment.
F-9
<PAGE> 46
OptimumCare Corporation
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROFESSIONAL LIABILITY INSURANCE
Effective October 7, 1997, OptimumCare maintains an occurrence based
professional liability insurance coverage of up to $500,000 per occurrence,
$5,000,000 annual aggregate.
RISKS AND UNCERTAINTIES
The Company contracts with hospitals which are primarily reimbursed by Medicare
and Medicaid for the majority of the company's programs. Laws and regulations
governing Medicare and Medicaid reimbursement programs are complex and subject
to interpretation. The Company is indirectly affected by such laws and
regulations governing Medicare and Medicaid programs. The Company believes that
it is in compliance with all applicable laws and regulations and is not aware of
any pending or threatened investigations involving allegations of potential
wrong doing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with the
current year presentation.
2. NOTE RECEIVABLE FROM OFFICER
During 1998, the Company converted a series of short-term advances and a
$274,000 note dated December 29, 1997 into a promissory note from an officer
totaling $392,000. The note accrues interest at the current prime rate and
provides for a bi-monthly payment plan. During 1996 the note accrued interest at
the rate of 4.03%.
3. LINE OF CREDIT
The Company has a line of credit with a bank, which allows the Company to borrow
up to 75% of certain qualified receivables with a maximum indebtedness of
$1,500,000. The interest rate is based on the Wall Street Journal prime plus
1.25%. The weighted average interest rate was 9.60% and 9.94% in the years ended
December 31, 1998 and 1997, respectively. The line of credit matures on May 1,
1999 and is collateralized by substantially all of the Company's assets. At
December 31, 1998, $1,325,000 was available for future draws under the line of
credit agreement, and no amounts were outstanding.
F-10
<PAGE> 47
OptimumCare Corporation
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company began to provide a 401(k) Plan for all
employees having completed one year of service. Under the 401(k) Plan, eligible
employees voluntarily contribute to the Plan up to 15% of their salary through
payroll deductions. OptimumCare matches 50% of the first 4% of employee
contributions to the Plan through payroll deductions. Expenses associated with
employer contributions were $54,181, $40,190, and $0 for 1998, 1997 and 1996,
respectively.
5. LEASE COMMITMENT
The Company leases four office facilities under lease agreements that expire
June 30, 1999, October 14, 1999, October 30, 1999 and November 30, 2001,
respectively. The Company also leased space under five separate lease agreements
for the operation of five of its outpatient partial hospitalization psychiatric
program sites, of which one agreement is on a month-to-month basis and the
remaining agreements expire, June 30, 2000, September 30, 2000, September 30,
2000 and August 14, 2002, respectively. Aggregate future minimum lease payments
under remaining noncancelable leases with terms in excess of one year are as
follows:
1999 262,376
2000 178,464
2001 83,016
2002 33,840
-------
557,696
=======
Subleases with one of the Company's host hospitals exist for $121,319 of
aggregate future minimum lease payments above. Sublease rental income was
$87,693, $157,844 and $160,596 for the years ended December 31, 1998, 1997 and
1996, respectively. Rent expense was $354,520, $307,192 and $244,185 for the
years ended December 31, 1998, 1997 and 1996, 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.
F-11
<PAGE> 48
OptimumCare Corporation
Notes to 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 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.
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 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).
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.
F-12
<PAGE> 49
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
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.
In October 1997, the Company granted non-qualified options to purchase 48,000
shares of its common stock at prices ranging from $1.21 to $1.81 per share which
vest over six months. No options have been exercised under these grants.
On February 3, 1998, the Company granted to certain officers, directors,
employees and consultants, non-qualified options to purchase 350,000 shares of
its common stock at $1.00 per share. All options are vested upon grant.
A summary of stock option activity under the 1987 and 1994 Plans during 1996,
1997 and 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
VARIOUS EXERCISE 1987 EXERCISE 1994 EXERCISE
Shares under option NON PLAN PRICE PLAN PRICE PLAN PRICE
-------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1995 -- $ -- 317,500 $ .32 475,000 $.78
Granted 708,000 1.25 100,000 1.08 -- --
Exercised -- -- (267,500) .34 (250,000) .66
Canceled -- -- -- -- -- --
-------- ------ -------- ------ -------- ----
Outstanding at December 31, 1996 708,000 $ 1.25 150,000 $ .83 225,000 $.68
Granted 48,000 1.51 -- -- -- --
Exercised -- -- (25,000) .375 -- --
Canceled (200,000) (1.50) -- -- (25,000) .91
-------- ------ -------- ------ -------- ----
Outstanding at December 31, 1997 556,000 $ 1.18 125,000 $ .92 200,000 $.74
Granted 350,000 1.00 -- -- -- --
Exercised -- -- (25,000) .30 -- --
Canceled -- -- -- -- -- --
-------- ------ -------- ------ -------- ----
Outstanding at December 31, 1998 906,000 $ 1.11 100,000 $1.08 200,000 $.74
======== ====== ======== ====== ======== ====
</TABLE>
F-13
<PAGE> 50
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- ----------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .6375 125,000 .5 years $.6375 125,000 $.6375
.91 50,000 1.5 years .91 50,000 .91
.93 25,000 1.5 years .93 25,000 .93
. 901 to 1.3133 608,000 2.5 years 1.14 528,200 1.15
1.21 to 1.81 48,000 3.5 years 1.51 48,000 1.51
1.00 350,000 4.5 years 1.00 350,000 1.00
- ----------------- --------- --------- ------- --------- -------
$.6375 to $1.3133 1,206,000 2.5 years $ 1.05 1,126,200 $ 1.05
================= ========= ========= ======= ========= =======
</TABLE>
A total of 1,206,000 shares of common stock are reserved for future issuance
upon the exercise of stock options at December 31, 1998. A total of 52,500
options were available for future grant at December 31, 1998 under existing
stock option plans.
Pro forma information regarding net income and earnings per share is required by
Statement No. 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 1996,
1997 and 1998, respectively: risk-free interest rates of 6.25%, 6.625% and
6.31%; a dividend yield of 0%; a volatility factor of the expected market price
of the Company's common stock of .38, .521, .529 for 1998 1997 and 1996,
respectively.
F-14
<PAGE> 51
OptimumCare Corporation
Notes to 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>
YEAR ENDED DECEMBER 31
------------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Net income
As reported $377,133 $454,350 $876,716
Pro forma $324,696 $425,306 $538,255
Earnings per share
Basic as reported $ .06 $ .07 $ .14
Diluted as reported $ .06 $ .06 $ .13
Basic pro forma $ .05 $ .06 $ .09
Diluted pro forma $ .05 $ .06 $ .08
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 $ -- $ 1.21 $ 1.14
Options whose exercise price is more
than the market price of the stock
on the grant date $ 1 $ 1.81 $ --
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 $ -- $ .67 $ .75
Options whose exercise price is more
than the market price of the stock
on the grant date $ .46 $ .52 $ --
</TABLE>
F-15
<PAGE> 52
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected until 1998.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerator: Net income $ 377,133 $ 454,350 $ 876,716
Denominator:
Denominator for basic earnings per
share--weighted-average shares
outstanding 6,567,280 6,870,049 6,237,751
Dilutive employee stock options 132,368 324,823 439,405
---------- ---------- ----------
Denominator for diluted earnings
per share 6,699,648 7,194,872 6,677,156
========== ========== ==========
Basic earnings per share $ .06 $ .07 $ .14
========== ========== ==========
Diluted earnings per share $ .06 $ .06 $ .13
========== ========== ==========
</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 table reflects the stock
dividend for all periods presented.
F-16
<PAGE> 53
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal provision for income taxes $ 209,000 $ 240,499 $ 339,229
Increase (decrease) in taxes resulting from:
Change in valuation allowance -- (71,000) --
Current use of net operating loss
carryforwards -- -- (339,229)
Federal alternative minimum tax -- -- 14,000
Permanent differences and other (5,379) 25,596 --
State tax, net of federal benefit 34,000 57,905 107,015
--------- --------- ---------
$ 237,621 $ 253,000 $ 121,015
========= ========= =========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ (1,124) $ 449,000 $ 14,000
State 850 138,000 107,015
--------- --------- ---------
Total current (274) 587,000 121,015
--------- --------- ---------
Deferred:
Federal 185,239 (284,000) --
State 52,656 (50,000) --
--------- --------- ---------
Total deferred 237,895 (334,000) --
---------
$ 237,621 $ 253,000 $ 121,015
========= ========= =========
</TABLE>
F-17
<PAGE> 54
OptimumCare Corporation
Notes to 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, 1998, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net operating loss carryforwards $ -- $ -- $ 23,000
Alternative minimum tax credit carryforwards -- -- 18,000
Reserve for bad debts -- 224,000 --
Reserves and accruals not currently
deductible for tax purposes 20,288 53,000 23,000
Depreciation and amortization not currently
deductible for tax purposes 75,817 57,000 7,000
-------- -------- --------
Total deferred tax assets $ 96,105 334,000 71,000
Less valuation allowance -- -- (71,000)
-------- -------- --------
Net deferred tax asset $ 96,105 $334,000 $ --
======== ======== ========
</TABLE>
8. MAJOR CUSTOMERS
The Company is dependent upon a small number of hospitals and 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.
F-18
<PAGE> 55
OptimumCare Corporation
Notes to Financial Statements (continued)
8. MAJOR CUSTOMERS (CUSTOMERS)
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,
-----------------------------------------------
1998 1997
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- --------
<S> <C> <C> <C> <C>
Hospital 1 $ 2,563,088 22.5% $ 3,182,156 26.3%
Hospital 2 1,381,666 12.1% 1,433,494 11.9%
Hospital 3 4,838,421 42.3% 4,753,094 39.3%
Hospital 4 1,396,317 12.3% 1,160,444 9.6%
Other Hospitals and Community
Mental Health Centers 1,197,713 10.5% 1,560,210 12.9%
----------- ----- ----------- -----
$11,377,205 100.0% $12,089,398 100.0%
=========== ===== =========== =====
</TABLE>
In addition, these hospitals accounted for approximately $2,138,861 and
$2,006,817 of accounts receivable at December 31, 1998 and 1997, respectively.
Customer payments of accounts receivable are reasonably prompt and collateral is
not required.
F-19
<PAGE> 56
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.105 Agreement between Friendship Community Mental Health Center and
the Company dated June 25, 1997 which supersedes the Agreement
dated April 25, 1996.
10.106 Lease Agreement between the Company and Laguna Niguel Office
Center dated May 14, 1998 which supersedes lease dated June 23,
1988.
10.107 Change in terms Agreement between the Company and Southern
California Bank dated May 27, 1998.
10.108 Lease Agreement between Whittier Narrows Business Park and the
Company dated July 28, 1998.
10.109 Lease Agreement between the Company and P.S. Business Parks,
L.P. dated August 14, 1998.
10.110 Inpatient and Outpatient Psychiatric Unit Management Services
Agreement between the Company and Catholic Healthcare West
Southern California dated September 15, 1998 which supersedes
Agreement dated June 1, 1997.
10.111 Agreement between Citrus Valley Medical Center and the Company
dated September 18, 1998.
10.112 Sublease Agreement between Citrus Valley Medical Center and the
Company dated September 23, 1998.
10.113 Lease Agreement between the Company and Coldwell Banker dated
November 1, 1998.
10.114 Amendment to the Agreement dated June 25, 1997 between
Friendship Community Mental Health Center and the Company dated
November 12, 1998.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.105 AGREEMENT
THIS AGREEMENT is entered into as of this 25th day of June, 1997, by and between
FRIENDSHIP COMMUNITY MENTAL HEALTH CENTER (CMHC), and OptimumCare(R) Corporation
(Manager), a Delaware Corporation.
RECITALS
A. CMHC operates a Community Mental Health Center in Phoenix, Arizona,
including a Partial Hospitalization Program (the "Out-Patient
Program") for the treatment of psychiatric disorders, and
B. Manager is in the business of providing management services for the
treatment of patients with psychiatric disorders; and
C. CMHC desires to retain Manager, and Manager desires to be retained,
to provide the services described herein; and
D. CMHC will provide (subject to the provisions of this Agreement)
appropriate program and office space for the use of this Out-Patient
Program during the term of this Agreement.
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.
(b) "Employee Benefits" shall include, by way of illustration and not
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,
-1-
<PAGE> 2
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 the Out-Patient Program. An outpatient 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 twenty-one (21) months
commencing (effective) on July 1, 1997 and terminating April 30,
1999.
(b) Termination provisions are in Section (10) of this Agreement.
3. COVENANTS OF CMHC
CMHC will:
(a) Furnish necessary and identified program space as per Exhibit A and
rent said space to the Manager for the duration of this agreement as
described in Addendum 1.
CMHC will cooperate with Manager in providing appropriate program
space for a potential capacity of at least twenty-five (25) chairs.
(b) Provide support activities including: i) maintenance of or
installation of carpet and decorating of patient treatment areas as
needed; (ii) furniture, (iii) clerical support and (iv) all
telephone expenses at CMHC. (For illustration see Addendum 3)
(c) Bill and collect all Out-Patient Program charges due for Out-Patient
Program services, and (i) provide record keeping as customary in the
ordinary course of CMHC's business, and (II) furnish OptimumCare
with all Information necessary to bill Management fee.
(d) Staff the Out-Patient Program with qualified Administrator,
Assistant Administrator and Unit Secretary and be solely liable to
those personnel who are CMHC employees for their wages, compensation
and employee benefits. CMHC personnel shall comply with the
Out-Patient Program policies and procedures as mutually agreed upon
in writing by CMHC and Manager. CMHC shall not, without Manager's
prior written consent (which shall not be unreasonably withheld),
deviate, change or otherwise decrease the agreed staffing.
-2-
<PAGE> 3
(e) Maintain license from the Arizona Department of Health Services and
pay all related fees associated with this license.
(f) Provide Manager's employees and contracted personnel with copies of
all relevant CMHC Policies and Procedures, as amended from time to
time.
(g) 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.
(h) 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 certification 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, deductibles, 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: (For
illustration see Exhibits and Addendums).
(a) Rent facility as described on Exhibit A from CMHC for the duration
of this agreement.
(b) Pay for all supplies and materials necessary for operating CMHC's
partial hospitalization program.
(c) Pay for the dietary and transportation services for all patients.
(d) Provide for Out-Patient Program management and direction.
(e) Provide for Out-Patient Program marketing including community
awareness and liaison concerning the care and treatment of the
Out-Patient Program's patients.
(f) Provide housekeeping services for patients and manager's offices at
CMHC.
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<PAGE> 4
(g) Provide the following: (i) A full-time Partial Hospitalization
Program Director; (ii) Social Services; (iii) Psychological
Services; (iv) Therapy/Activities and other services as appropriate.
(v)A registered nurse services (vi) and professional counseling
staff as needed to provide for the professional counseling of
Out-Patient Program patients and 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.
(h) Provide to CMHC an accounting of Manager's expenses in operating
program.
(i) Provide Out-Patient Program orientation and training for all
appropriate personnel.
(j) 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.
(k) 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.
(l) 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, deductible, or co-insurance or aggregate limits. Any
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"
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<PAGE> 5
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.
(m) Until the expiration of four (4) years after the furnishing of any
services to be provided under this Agreement make 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.
(n) 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 and
any applicable standards of care.
(o) 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.
(p) Provide monthly written reports to CMHC regarding all aspects of the
operation of the Out-Patient Program.
(q) Commit no act or omission which adversely affects the CMHC license.
(r) Admit patients to the Out-Patient Program (including but not limited
to Medicare and Medicaid patients) only if the admission is ordered
by a physician on the Out-patient Program staff with admitting
privileges.
(s) Provide appropriate utilization review and quality assessment
services for all outpatient program patients. Utilization and review
extends to filing and pursuing clinical appeals with the fiscal
intermediary, Blue Cross & Blue Shield of Phoenix, Arizona.
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 Arizona with the power and
authority to carry on the business in which it is engaged and to
perform its
-5-
<PAGE> 6
obligations under this Agreement subject to maintaining the license
described in subpart (e) of the 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.
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
judgement, order, decree or regulation of any court or other
governmental administrative agency) which would materially adversely
affect the performance of Manager's obligations hereunder.
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<PAGE> 7
7. MANAGEMENT FEE
Group Therapy $45.00 per unit
Individual Therapy $90.00 per unit
Nursing Assessments $150.00 per unit
8. MEALS AND TRANSPORTATION
A) CMHC and OptimumCare agree that the management fee does not include
Meals and Transportation. However, Meals and Transportation may be
provided by OptimumCare as a cost of doing business where necessary
to comply with State Certification Requirements or out of
OptimumCare's profits or as an increase of its loss and not as a
component of OptimumCare's management fee.
B) OptimumCare agrees to indemnify CMHC for Medicare reimbursement of
OptimumCare's fees as a result of OptimumCare providing or paying
for meals and transportation costs for patients of the program. The
indemnification shall be applied by CMHC to the disallowed portion
of OptimumCare's fees. In no event shall the indemnity payment be
deemed to be reduction in OptimumCare's fees to the extent that such
fees are allowable by Medicare.
C) Any indemnity payments made by OptimumCare are contingent and shall
be returned to OptimumCare to the extent that any disallowance are
subsequently reversed. The indemnity payments are also contingent
upon CMHC designating OptimumCare or OptimumCare's nominee as CMHC
representative in an appeal of disallowance of OptimumCare's fees,
and CMHC otherwise cooperating fully in such appeal through
furnishing relevant documentation and information, making available
one or more witnesses to testify in the appeal, and as otherwise may
be reasonably requested by OptimumCare. If CMHC designates
OptimumCare or OptimumCare's designee as CMHC's representative in
such appeal, OptimumCare may pursue such appeal, and the costs of
any such appeal, if pursued by OptimumCare, shall be borne
exclusively by OptimumCare. If OptimumCare is successful in such
appeal, OptimumCare shall be reimbursed its costs by CMHC to the
extent that such costs are reimbursable to CMHC by the intermediary.
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<PAGE> 8
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.
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 of or in any way retain the
services of any employee, former
-8-
<PAGE> 9
employee, or contracted personnel or former agent of CMHC without
CMHC's prior written consent.
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 into 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.
(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. Within six months of the date of this agreement, if Manager
does not maintain an average daily census of 10 patients over
a three (3) consecutive month period.
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<PAGE> 10
2. In the event that Medicare, Medicaid, a third party payer 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.
(d) Manager agrees not to affiliate with other providers of partial
hospitalization services within a ten (10) mile radius of CMHC.
(e) Prior to Managing another partial hospitalization outpatient program
in Maricopa or Pinal County, Manager will give CMHC three (3) months
in which to make reasonable progress towards opening a facility in
that area, therein providing CMHC first right of refusal and a time
frame. Any future agreement for another partial hospitalization
outpatient program will be identical to this agreement unless
mutually agreed otherwise.
(f) Governing Law: The validity of this Agreement and of 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 governed in accordance with the laws of
the State of California.
(g) 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 of transportation, or inability due to the
aforementioned causes to obtain necessary labor, materials, or
facilities.
(h) 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.
(i) 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
waiver unless in writing signed
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<PAGE> 11
by the party against whom the waiver is sought to be enforced.
(j) 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.
(k) 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.
(l) 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.
(m) Notice: All notices hereunder shall be in writing, delivered
personally or by U.S. Certified or Registered postal 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.
12. 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 judgement 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) Attorneys' Fees: If any legal action (including arbitration) is
necessary to enforce the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees and costs
awarded against the other party in addition to any other relief to
which that party may be entitled.
(c) UCC1: CMHC agrees to allow Manager, at Manager's expense, file a
UCC1 payment promise against the CMHC's psychiatric outpatient
accounts receivables referred to in this agreement.
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<PAGE> 12
CMHC's Address: Friendship Community Mental Health Center
3201 North 16th Street #6
Phoenix, AZ 85011-8646
Manager's Address: OptimumCare Corporation
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, CA 92677-5018
IN WITNESS WHEREOF, this Agreement has been executed
at Laguna Niguel, California at Phoenix, Arizona
Manager:
OPTIMUMCARE CORPORATION CMHC
FRIENDSHIP COMMUNITY
MENTAL HEALTH CENTER
By: By: Steve Nelson
----------------------------- --------------------------------
Edward A. Johnson Steve Nelson
President Administrator
Date: Date: June 25, 1997
--------------------------- ------------------------------
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<PAGE> 13
EXHIBIT A
Approximately 3300 Sq. Ft. of office space in commercial building located at
3201 North 16th Street, Phoenix, AZ 85011.
Described further as follows:
Cheery Lynn Executive Office Building
<TABLE>
<CAPTION>
Approx.
Sq. Ft.
-------
<S> <C>
Suite 6 1,452
Suite 14 & 15 1,920
Suite 11 200
</TABLE>
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<PAGE> 14
ADDENDUM 1
1. Manager will rent from CMHC the program space described in Exhibit A for
the duration of this agreement. Said rent shall be paid monthly from the
effective date of this agreement. Payment will be made to the building
owner or as requested by CMHC. The figures below will include local and
State sales tax additions.
<TABLE>
<CAPTION>
APPROX.
MONTHLY RENT SQUARE FT.
------------ ----------
<S> <C> <C>
Suite 6 $1,089.00/month 1,452
Suite 14 & 15 $1,477.50/month 1,920
Suite 11 $ 200.00/month 200
</TABLE>
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<PAGE> 15
ADDENDUM 2
ILLUSTRATION
1. CMHC pays for the following:
A. Telephone
B. Office Supplies
C. Postage
D. Clerical Support
E. Furniture
F. Copy Machine/Fax
G. Two Computers
H. Billing Services
I. Stationary
J. Admin. Business Cards
K. Accounting Fees
L. Annual Audit
M. Preparation of Cost Reports
N. General Liability Insurance
O. Educational Costs for Admin. Employees
2. Manager pays for following expenses as Manager deems necessary or
appropriate for program management.
A. Yellow Page Advertising
B. Therapy Supplies
C. Housekeeping Services
D. Clinical Business Cards
E. Printing of Brochures
F. Beverages - Soft Drinks and Coffee
G. Meals for Clients
H. Nursing Supplies
I. Transcription Services
J. Toilet Paper, Paper Towels and Kleenexes
K. Salaries and Benefits of all Clinical Staff
L. All costs associated with transporting patients
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<PAGE> 16
ADDENDUM 3
CMHC will not pay Manager for initial clinical denials until such denials (if
any) have been paid for by intermediary.
CMHC will receive credit for retroactive clinical denials (if any) which will be
adjusted off credit once such denials have been paid for by intermediary.
A. EXAMPLE:
1. Claim paid by Medicare
2. CMHC pays management fee
3. Medicare retroactively denies claim
4. CMHC adjusts management fee accordingly during the next month
5. Medicare approves claim
6. Management fee is paid accordingly during the next month
<PAGE> 1
EXHIBIT 10.106
LEASE AMENDMENT
That certain OFFICE BUILDING LEASE dated June 23, 1988 and amended on September
27, 1989, September 24, 1990, July 7, 1992, June 5, 1995, April 30, 1996, May
19, 1997 and September 5, 1997 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 shall be extended for a period of one (1) year. New expiration
date shall be June 30, 1998.
2) Rental rate shall increase to $1,900.00 per month effective July 1,
1998.
3) Landlord shall clean carpets at Tenant's request, at Landlord's
expense.
4) All other terms and conditions of the original lease shall remain
the same.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of May
14, 1998.
LAGUNA NIGUEL OFFICE CENTER OPTIMUMCARE CORPORATION
a California Limited Partnership a Delaware Corporation
BY: CARL J. GREENWOOD BY: EDWARD JOHNSON
- ---------------------------------- -------------------------------------
Carl J. Greenwood, General Partner Edward Johnson, President
(Landlord) (Tenant)
<PAGE> 1
EXHIBIT 10.107
SOUTHERN
CALIFORNIA
BANK MEMBER FDIC
<TABLE>
<CAPTION>
CHANGE IN TERMS AGREEMENT
==================================================================================================================================
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 05-01-1999 4000928 51 5005 382
- ----------------------------------------------------------------------------------------------------------------------------------
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.
==================================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Borrower: OPTIMUMCARE CORPORATION (TIN: 33-0218003) Lender: SOUTHERN CALIFORNIA BANK
30011 IVY GLENN DRIVE #219 ORANGE COUNTY CORPORATE BANKING
LAGUNA NIGUEL, CA 92677 P.O. BOX 588
LA MIRADA, CA 90637
</TABLE>
Principal Amount: $1,500,000.00 Date of Agreement: May 27, 1998
DESCRIPTION OF EXISTING INDEBTEDNESS.
- - PROMISSORY NOTE DATED APRIL 14, 1995 IN THE ORIGINAL AMOUNT OF
$500,000.00.
- - Change in Terms Agreement dated May 6, 1996 extending the maturity date to
July 1, 1996.
- - Change in Terms Agreement dated August 1, 1996 increasing the principal
amount to $750,000.00 and extending the maturity date to March 1, 1997.
- - Change in Terms Agreement dated January 28, 1997, extending the maturity
date to June 1, 1997.
- - Change in Terms Agreement dated May 15, 1997, increasing the principal
amount to $1,500,000.00 and extending the maturity date to May 1, 1998.
- - And Change in Terms Agreement dated May 1, 1998 extending the maturity
date to June 15, 1998.
DESCRIPTION OF COLLATERAL. All Inventory, Chattel Paper, Accounts, Equipment,
General Intangibles and Fixtures.
DESCRIPTION OF CHANGE IN TERMS. MATURITY DATE SHALL BE EXTENDED FROM JUNE 15,
1998 TO MAY 1, 1999.
PROMISE TO PAY. OPTIMUMCARE CORPORATION ("Borrower") promises to pay to SOUTHERN
CALIFORNIA BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million Five Hundred Thousand & 00/100
Dollars ($1,500,000.00) 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 May 1,
1999. In addition, Borrower will pay regular monthly payments of accrued unpaid
interest beginning July 1, 1998, 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 of 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 WALL
STREET JOURNAL PRIME RATE (the "Index"). The Index is not necessarily the lowest
rate charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may be 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 8.500% per annum. The Interest rate to be applied to the
unpaid principal balance of this Agreement will be at a rate of 1.250 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. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Agreement, Borrower understands that Lender is entitled
to a minimum interest charge of $250.00. 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 $5.00, 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) A 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.
<PAGE> 2
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, increase the variable interest rate on this Agreement to 6.250
percentage points over the Index. 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. Subject to the provisions on arbitration, this Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $16.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SET OFF. Borrower grants to Lender a contractual 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 SET OFF 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 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; or (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.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or dispose
of any collateral securing this Agreement shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Agreement, including any claim to rescind, reform,
or otherwise modify any agreement relating to the collateral securing this
Agreement, shall also be arbitrated, provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act of any party. Lender
and Borrower agree that in the event of an action for judicial foreclosure
pursuant to California Code of Civil Procedure Section 726, or any similar
provision in any other state, the commencement of such an action will not
constitute a waiver of the right to arbitrate and the court shall refer to
arbitration as much of such action, including counterclaims, as lawfully may be
referred to arbitration. Judgment upon any award rendered by any arbitrator may
be entered in any court having jurisdiction. Nothing in this Agreement shall
preclude any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
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: EDWARD A JOHNSON, PRESIDENT
<PAGE> 3
SOUTHERN
CALIFORNIA
BANK MEMBER FDIC
<TABLE>
<CAPTION>
DISBURSEMENT REQUEST AND AUTHORIZATION
==================================================================================================================================
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 05-01-1999 4000928 51 5005 382
- ----------------------------------------------------------------------------------------------------------------------------------
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.
==================================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Borrower: OPTIMUMCARE CORPORATION (TIN: 33-0218003) Lender: SOUTHERN CALIFORNIA BANK
30011 IVY GLENN DRIVE #219 ORANGE COUNTY CORPORATE BANKING
LAGUNA NIGUEL, CA 92677 P.O. BOX 588
LA MIRADA, CA 90637
</TABLE>
LOAN TYPE. This is a Variable Rate (1.250% over WALL STREET JOURNAL PRIME RATE,
making an initial rate of 9.750%), Revolving Line of Credit Loan to a
Corporation for $1,500,000.00 due on May 1, 1999.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
Personal, Family or Household Purposes or Personal Investment
X Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Short term working
capital needs.
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 $1,500,000.00 as follows:
Undisbursed Funds: $1,500,000.00
Amount paid on Borrower's account: $ 0.00
-------------
Note Principal: $1,500,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $3,750.00
$3,750.00 Loan Fee
---------
Total Charges Paid in Cash: $3,750.00
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 MAY 27, 1998.
BORROWER:
OPTIMUMCARE CORPORATION
By: EDWARD A. JOHNSON
-----------------------------------
EDWARD A. JOHNSON, PRESIDENT
<PAGE> 4
SOUTHERN
CALIFORNIA
BANK MEMBER FDIC
<TABLE>
<CAPTION>
LOAN AGREEMENT
==================================================================================================================================
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 05-01-1999 4000928 51 5005 382
- ----------------------------------------------------------------------------------------------------------------------------------
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.
==================================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Borrower: OPTIMUMCARE CORPORATION (TIN: 33-0218003) Lender: SOUTHERN CALIFORNIA BANK
30011 IVY GLENN DRIVE #219 ORANGE COUNTY CORPORATE BANKING
LAGUNA NIGUEL, CA 92677 P.O. BOX 588
LA MIRADA, CA 90637
</TABLE>
THIS LOAN AGREEMENT between OPTIMUMCARE CORPORATION ("BORROWER") and SOUTHERN
CALIFORNIA BANK ("LENDER"), is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans". Borrower understands and agrees that: (a) In
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement;
(b)the granting, renewing, or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgement and discretion; and (c) all such Loans
shall be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of May 27, 1998, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means OPTIMUMCARE CORPORATION. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates".
Borrowing Base. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $1,500,000.00; or (b) 75.000% of the
aggregate amount of Eligible Accounts.
Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
<PAGE> 5
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by
the Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or SET OFF.
(f) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(g) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to
be unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy, insolvency,
or debtor-in-relief acts; or who has had appointed a trustee,
custodian, or receiver for the assets of such Account Debtor; or who
has made an assignment for the benefit of creditors or has become
insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.
(i) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(j) Accounts which have not been paid in full within 90 DAYS from the
invoice date. The entire balance of any Account of any single
Account debtor will be ineligible whenever the portion of the
Account which has not been paid within 90 DAYS from the invoice date
is in excess of 25.000% of the total amount outstanding on the
Account.
(k) That portion of the Accounts of any single Account Debtor which
exceeds 25.000% of all of Borrower's Accounts.
(l) Eligible accounts shall exclude amounts due from OptimumCare Source
LLC.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT".
Expiration Date. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
Grantor. The words "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral for
the indebtedness, including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodations parties in connection with
any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower to
Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter existing,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be or hereafter
may become otherwise unenforceable.
Lender. The word "Lender" means SOUTHERN CALIFORNIA BANK, its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility described in
the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or Loans" means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by law, contract
or otherwise.
<PAGE> 6
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of
1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" means indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets
excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights,
organizational expenses, and similar intangible items, but including leaseholds
and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender and be in full
force and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted
an audit of Borrower's Accounts, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then
due and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested only in
writing by authorized persons. Each Advance shall be conclusively deemed to have
been made at the request of and for the benefit of Borrower (a) when credited to
any deposit account of Borrower maintained with Lender or (b) when advanced in
accordance with the instructions of an authorized person. Lender, at its option,
may set a cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day. Under no
circumstances shall Lender be required to make any Advance in an amount less
than $1,000.00.
Mandatory Loan Repayments. If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits as
shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after Borrower's receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts and general intangibles. Lender's
Security Interests in the Collateral shall be continuing liens and shall include
the proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's Security interests in the Collateral. Upon request of
Lender, Borrower will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Borrower will note Lender's interest upon
any and all chattel paper if not delivered to Lender for possession by Lender.
Contemporaneous with the execution of this Agreement, Borrower will execute one
or more UCC financing statements and any similar statements as may be required
by applicable law, and will file such financing statements and all such similar
statements in the appropriate location or locations. Borrower hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue any Security Interest. Lender may
at any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for use
as a financing statement. Borrower will reimburse Lender for all expenses for
the perfection, termination, and the continuation of the perfection of Lender's
security interest in the Collateral. Borrower promptly will notify Lender of any
change in Borrower's name including any change to the assumed business names of
Borrower. Borrower also promptly will notify Lender of any change in Borrower's
Social Security Number or Employer Identification Number. Borrower further
agrees to notify Lender in writing prior to any change in address or location of
Borrower's principal governance office or should Borrower merge or consolidate
with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees to
keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings. The following is an accurate and complete list of all locations at which
Borrower keeps or maintains business records concerning Borrower's Accounts:
30011 Ivy Glenn Drive, Suite 219, Laguna Niguel, Ca. 92677.
<PAGE> 7
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of Accounts
and Eligible Accounts, in form and substance satisfactory to the Lender.
Thereafter Borrower shall execute and deliver to Lender such supplemental
schedules of Eligible Accounts and such other matters and information relating
to Borrower's Accounts as Lender may request. Supplemental schedules shall be
delivered according to the following schedule: MONTHLY.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this Agreement
conforms to the requirements of the definition of an Eligible Account; (b) all
Account information listed on schedules delivered to Lender will be true and
correct, subject to immaterial variance; and (c) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to inspect, examine,
and audit Borrower's records and to confirm with Account Debtors the accuracy of
such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the failure
to so qualify would have a material adverse effect on its businesses or
financial condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used, or filed a financing statement under, any other name
for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement shall
have the same meanings as set forth in the "CERCLA", "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant of any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there has been no
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened litigation
or claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any if
the properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any inspections
or tests made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this section
of the Agreement, including the obligation to indemnify, shall survive the
payment of the indebtedness and the termination or expiration of this Agreement
and shall not be affected by Lenders' acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
<PAGE> 8
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 30011 IVY GLENN DRIVE, SUITE 219, LAGUNA NIGUEL, CA
92677. Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees that
Lender without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit Lender
to examine and audit Borrower's books and records at all reasonable times.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than
$3,000,000.00.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.00 to 1.00. Except as provided above, all
computations made to determine compliance with the requirements contained
in this paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages, and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be canceled or diminished without at least thirty (30) days' prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is offered
a security interest for the Loans, Borrower will provide Lender with such loss
payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing Insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often then annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided, however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
<PAGE> 9
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or
other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets,
or (c) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
ADDITIONAL TERMS, CONDITIONS, AND COVENANTS. An exhibit, titled "ADDITIONAL
TERMS, CONDITIONS, AND COVENANTS," is attached to this Agreement and by this
reference is made a part of this Agreement just as if all the provisions, terms
and conditions of the Exhibit had been fully set forth in this Agreement.
RIGHT OF SET OFF. Borrower grants to Lender a contractual 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 SET OFF all sums owing on the indebtedness against any and all such accounts.
<PAGE> 10
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on the
Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
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
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This incudes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable 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.
Subject to the provisions on arbitration, this Agreement shall be governed
by and construed in accordance with the laws of the State of California.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure
Section 726, or any similar provision in any other state, the commencement
of such an action will not constitute a waiver of the right to arbitrate
and the court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
<PAGE> 11
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees incurred in
connection with the preparation, execution, enforcement and collection of
this Agreement or in connection with the Loans made pursuant to this
Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay 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
attorney's fees 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.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MAY 27, 1998.
BORROWER:
OPTIMUMCARE CORPORATION
BY: EDWARD A. JOHNSON
-----------------------------------
EDWARD A. JOHNSON, PRESIDENT
LENDER:
SOUTHERN CALIFORNIA BANK
BY:
-----------------------------------
AUTHORIZED OFFICER
<PAGE> 12
ADDITIONAL TERMS, CONDITIONS, AND COVENANTS
<TABLE>
<S> <C>
==============================================================================================
Borrower: OptimumCare Corporation (TIN: 33-0218003) Lender: SOUTHERN CALIFORNIA BANK
30011 Ivy Glenn Dr., Suite 219 ORANGE COUNTY CORPORATE BANKING
Laguna Niguel, CA 92677 P.O. BOX 588
LA MIRADA, CA 90637
==============================================================================================
</TABLE>
This ADDITIONAL TERMS, CONDITIONS, AND COVENANTS is attached to and by this
reference is made a part of each Business Loan Agreement or Negative Pledge
Agreement and Boarding Data, dated May 27, 1998, and executed in connection with
a loan or other financial accommodations between SOUTHERN CALIFORNIA BANK and
OptimumCare Corporation.
AFFIRMATIVE COVENANTS--OTHER: Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will provide the following financial
information and statements and such additional information as requested by the
Lender from time to time:
(a) A Collateral Schedule and Borrowing Base Certificate setting forth the
respective amounts of Eligible Accounts as of the last day of each month within
25 days after the end of each month.
(b) Accounts Receivable summary aging within 25 days after the end of each
month.
(c) Promptly upon the Lender's request, such other statements, lists, budgets,
forecasts, projections, or reports as to the Borrower and as to each guarantor
of the Borrower's obligations to the Lender as the Lender may request.
(d) St. Francis Hospital, Mission Community and Humana Hospital shall not be
subject to 25% concentration limit.
(e) Maximum annual capital expenditures of $50,000.00 in excess of Borrower's
annual depreciation and amortization expense.
(f) Advances to Officers/Shareholders not to exceed $274,000.00 without prior
consent of Lender.
(g) In the event Borrower obtains additional equity financing through a public
or private offering or venture capital financing and such funding exceeds, in
one or more transactions, an aggregate of at least $2,000,000.00, Bank may
request that the line be repaid in full unless Borrower shall satisfy Bank that
the disposition of such funding will not adversely impact the repayment of the
line.
(h) Annual 10-K report and CPA Audited fiscal year end financial statement shall
be submitted within 120 days of fiscal year end.
(l) Quarterly 10-Q and internally prepared financial statements shall be
submitted within 45 days of period end.
ADDITIONAL COVENANTS AND RATIOS. Borrower agrees to comply with the following
covenants and ratios:
(1) Maintain a Debt Coverage Ratio of at least 1.5x
ADDITIONAL DEFINITIONS. Debt Coverage Ratio is defined as (a) The sum of (i) Net
Income, (ii) Depreciation and (iii) Interest Expense to (b) the sum of (i) the
current portion of Long Term Debt, and (ii) Interest Expense (Calculated on an
annualized basis)
THIS ADDITIONAL TERMS, CONDITIONS, AND COVENANTS IS EXECUTED ON MAY 27, 1998.
BORROWER:
OptimumCare Corporation
By: ___________________________________
Edward A. Johnson, President
LENDER:
SOUTHERN CALIFORNIA BANK
By: ___________________________________
Authorized Officer
<PAGE> 1
EXHIBIT 10.108
OFFICE BUILDING LEASE
<TABLE>
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PAGE
<S> <C>
Paragraph 1 LEASE OF PREMISES...................................... 1
Paragraph 2 DEFINITIONS............................................ 1
Paragraph 3 EXHIBITS AND ADDENDA................................... 2
Paragraph 4 DELIVERY OF POSSESSION................................. 2
Paragraph 5 RENT................................................... 2
Paragraph 6 INTEREST AND LATE CHARGES.............................. 5
Paragraph 7 SECURITY DEPOSIT....................................... 5
Paragraph 8 TENANT'S USE OF THE PREMISES........................... 5
Paragraph 9 SERVICES AND UTILITIES................................. 5
Paragraph 10 CONDITION OF THE PREMISES.............................. 6
Paragraph 11 CONSTRUCTION, REPAIRS AND MAINTENANCE.................. 6
Paragraph 12 ALTERATIONS AND ADDITIONS.............................. 7
Paragraph 13 LEASEHOLD IMPROVEMENTS;TENANT'S PROPERTY............... 8
Paragraph 14 RULES AND REGULATIONS.................................. 8
Paragraph 15 CERTAIN RIGHTS RESERVED BY LANDLORD.................... 8
Paragraph 16 ASSIGNMENT AND SUBLETTING.............................. 8
Paragraph 17 HOLDING OVER........................................... 9
Paragraph 18 SURRENDER OF PREMISES.................................. 9
Paragraph 19 DESTRUCTION OR DAMAGE..................................10
Paragraph 20 EMINENT DOMAIN.........................................10
Paragraph 21 INDEMNIFICATION........................................11
Paragraph 22 TENANT'S INSURANCE.....................................11
Paragraph 23 WAIVER OF SUBROGATION..................................12
Paragraph 24 SUBORDINATION AND ATTORNMENT...........................12
Paragraph 25 TENANT ESTOPPEL CERTIFICATES...........................12
Paragraph 26 TRANSFER OF LANDLORD'S INTEREST........................12
Paragraph 27 DEFAULT................................................12
Paragraph 28 BROKERAGE FEES.........................................14
Paragraph 29 NOTICES................................................14
Paragraph 30 GOVERNMENT ENERGY OR UTILITY CONTROLS..................14
Paragraph 31 RELOCATION OF PREMISES.................................14
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Paragraph 32 QUIET ENJOYMENT........................................15
Paragraph 33 OBSERVANCE OF LAW......................................15
Paragraph 34 FORCE MAJEURE..........................................15
Paragraph 35 CURING TENANT'S DEFAULTS...............................15
Paragraph 36 SIGN CONTROL...........................................15
Paragraph 37 MISCELLANEOUS..........................................15
</TABLE>
<PAGE> 3
OFFICE BUILDING LEASE
This Lease between WHITTIER NARROWS BUSINESS PARK ("Landlord"), and OPTIMUM CARE
CORPORATION, a Delaware Corporation, ("Tenant"), is dated, for reference
purposes only, July 28, 1998.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use the Common Area (as defined at
Section 2e.).
2. DEFINITIONS.
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent: $ 61,142.63
b. Base Year: 1998
c. Broker(s) and Sales Agents: None
d. Commencement Date: See Addendum Paragraph 40
e. Common Areas: the building lobbies, common corridors and hallways, restrooms,
garage and parking areas, stairways, elevators and other generally understood
public or common areas. Landlord shall have the right to regulate or restrict
the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ N/A.
g. Expiration Date: September 30, 2000.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, Greater Los Angeles
Area Average, Subgroup "All Items" (1982-1984=100).
i. Landlord's Mailing Address: Whittier Narrows Business Park
c/o Liberty West Inc.
16027 Ventura Blvd., Suite 550
Encino, CA 91436
Tenant's Mailing Address: Optimum Care Corporation
ATTN: Edward A. Johnson, President
30011 Ivy Glenn Drive
Laguna Niguel, CA 92677
j. Monthly Installments of Base Rent: $ 2,397.75
k. Parking: Tenant shall be permitted upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park 8 cars on a
non-exclusive basis in the area(s) designated for the 1170 Durfee Avenue
building by Landlord for parking. Tenant shall abide by any and all parking
regulations and rules established from time to time by Landlord or Landlord's
parking operator. Landlord reserves the right to separately charge Tenant's
guests and visitors for parking.
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l. Premises: that portion of the Building containing approximately 2,085 square
feet of useable area, shown by diagonal lines on Exhibit "A", located on the 1st
floor of the Building and known as Suites A and B.
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 1170 Durfee Ave., So. El Monte, CA and further described at Exhibit
"B". The Project is known as the Whittier Narrows Business Park.
n. Useable and/or Rentable Area: as to both the Premises and the Project, the
respective measurements of floor area as may from time to time be subject to
lease by Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
o. Security Deposit (Article 7): $ 2,397.75
p. State: the State of CALIFORNIA.
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus 11 months (see Addendum).
r. Tenant's Proportionate Share: 2.602%. Such share is a fraction, the numerator
of which is the Useable Area of the Premises, and the denominator of which is
the Useable Area of the Project, as determined by Landlord from time to time.
The Project consists of 3 building(s) containing a total Useable Area of 80,183
square feet.
s. Tenant's Use Clause (Article 8): Psychological Counseling and General Office
t. Term: the period commencing on the Commencement Date and expiring at midnight
on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-Floor Plan showing the Premises.
b. Exhibit "B"-Site Plan of the Project.
c. Exhibit "C"-Tenant Improvement Plan.
d. Exhibit "D"-Rules and Regulations.
e. Exhibit "E"-.
f. Addenda:
Addendum to Lease
- --------------------------------------------
- --------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C". If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including without limitation, the payment of Rent.
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
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5.2 Adjusted Base Rent.
a. The amount of Base Rent (and the corresponding Monthly Installments of
Base Rent) payable hereunder shall be adjusted annually (the "Adjustment Date"),
commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be
based upon increases (if any) in the Index. The Index in publication three (3)
months before the Commencement Date shall be the "Base Index". On each
Adjustment Date, the Base Rent shall be increased by a percentage equal to the
percentage increase, if any, in the Index in publication three (3) months before
the Adjustment Date (the "Comparison Index") over the Base Index ("adjusted Base
Rent"). In the event the Comparison Index in any year is less than the
Comparison Index (or Base Index, as the case may be) for the preceding year, the
Base Rent shall remain the amount of Base Rent payable during that preceding
year. When the adjusted Base Rent payable as of each Adjustment Date is
determined Landlord shall give Tenant written notice of such adjusted Base Rent
and the manner in which it was computed. The adjusted Base Rent shall thereafter
be the "Base Rent" for all purposes under this Lease.
b. If at any Adjustment Date the Index no longer exists in the form
described in this Lease, Landlord may substitute any substantially equivalent
official index published by the Bureau of Labor Statistics or its successor.
Landlord shall use any appropriate conversion factors to accomplish such
substitution. The substitute index shall become the "Index" hereunder. (See
Addendum)
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increase in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under this
Lease, an amount equal to Tenant's Proportionate Share of such excess Project
Operating Costs in accordance with the provisions of this Section 5.3b.
(1) The term "Project Operating Costs" shall include all those items
described in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or
Project or their operation, including without limitation, (i) real
property taxes or assessments levied or assessed against the Building or
Project, (ii) assessments or charges levied or assessed against the
Building or Project by any redevelopment agency, (iii) any tax measured
by gross rentals received from the leasing of the Premises, Building or
Project, excluding any net income, franchise, capital stock, estate or
inheritance taxes imposed by the State or federal government or their
agencies, branches or departments; provided that if at any lime during
the Term any governmental entity levies, assesses or imposes on Landlord
any (1) general or special, ad valorem or specific, excise, capital levy
or other tax, assessment, levy or charge directly on the Rent received
under this Lease or on the rent received under any other leases of space
in the Building or Project, or (2) any license fee, excise or franchise
tax, assessment, levy or charge measured by or based, in whole or in
part, upon such rent, or (3) any transfer, transaction, or similar tax,
assessment, levy or charge based directly or indirectly upon the
transaction represented by this Lease or such other leases, or (4) any
occupancy, use, per capita or other tax, assessment, levy or charge
based directly or indirectly upon the use or occupancy of the Premises
or other premises within the Building or Project, then any such taxes,
assessments, levies and charges shall be deemed to be included in the
term Project Operating Costs. If at any time during the Term the
assessed valuation of, or taxes on, the Project are not based on a
completed Project having al least eighty-five percent (85%) of the
Rentable Area occupied, then the "taxes" component of Project Operating
Costs shall be adjusted by Landlord to reasonably approximate the taxes
which would have been payable if the Project were completed and at least
eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating
the Building and Project, including without limitation the following:
costs of (1) utilities; (2) supplies; (3) insurance (including public
liability, property damage, earthquake, and fire and extended coverage
insurance for the full replacement cost of the Building and Project as
required by Landlord or its lenders for the Project; (4) services of
independent contractors; (5) compensation (including employment taxes
and fringe benefits) of all persons who perform duties connected with
the operation, maintenance, repair or overhaul of the Building or
Project, and equipment, improvements and facilities located within the
Project, including without limitation engineers, janitors, painters,
floor waxers, window washers, security and parking personnel and
gardeners (but excluding persons performing services not uniformly
available to or performed for substantially all Building or Project
tenants); (6) operation and maintenance of a room for delivery and
distribution of mail to tenants of the Building or Project as required
by the U.S. Postal Service (including, without limitation, an amount
equal to the fair market rental value of the mail room premises); (7)
management of the Building or Project, whether managed by Landlord or an
independent contractor (including, without limitation, an amount equal
to the fair market value of any on-site manager's office); (8) rental
expenses for (or a reasonable depreciation allowance on) personal
property used in the maintenance operation or repair of the Building or
Project; (9) costs, expenditures or charges (whether capitalized or not)
required by any governmental or quasi- governmental authority; (10)
amortization of capital expenses (including financing costs) (i)
required by a governmental entity for energy conservation or life safety
purposes, or (ii) made by Landlord to reduce Project Operating Costs;
and (11) any other costs or expenses incurred by Landlord under this
Lease and not otherwise reimbursed by tenants of the Project. If at any
time during the Term, less than eighty- five percent (85%) of the
Rentable Area of the Project is occupied, the "operating costs"
component of
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Project Operating Costs shall be adjusted by Landlord to reasonably approximate
the operating costs which would have been incurred if the Project had been at
least eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable
by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for
each calendar year thereafter ("Comparison Year"), Tenant shall pay
Landlord an amount equal to Tenant's Proportionate Share of the Project
Operating Costs incurred by Landlord in the Comparison Year which
exceeds the total amount of Project Operating Costs payable by Landlord
for the Base Year. This excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year,
an amount equal to Tenant's Proportionate Share of the Excess Expenses
payable during such Comparison Year, as estimated by Landlord from time
to time. Such payments shall be made in monthly installments, commencing
on the first day of the month following the month in which Landlord
notifies Tenant of the amount it is to pay hereunder and continuing
until the first day of the month following the month in which Landlord
gives Tenant a new notice of estimated Excess Expenses. It is the
intention hereunder to estimate from time to time the amount of the
Excess Expenses for each Comparison Year and Tenant's Proportionate
Share thereof, and then to make an adjustment in the following year
based on the actual Excess Expenses incurred for that Comparison Year."
c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share
of the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made
by Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's
next ensuing monthly installment(s) of additional rent an amount equal
to the difference until the credit is exhausted. If a credit is due from
Landlord on the Expiration Date, Landlord shall pay Tenant the amount of
the credit. The obligations of Tenant and Landlord to make payments
required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison
Year having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes
the amount of additional rent owed, a certification as to the proper
amount shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the
cost of such certification unless it is determined that Landlord's
original statement overstated Project Operating Costs by more than five
percent (5%).
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense
Stop. Tenant shall make current payments of such excess costs during the
Term in the same manner as is provided for payment of Excess Expenses
under the applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which tenant assumes or agrees to
pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be
paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises.
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If it becomes unlawful for Tenant to reimburse Landlord for any costs as
required under this Lease, the Base Rent shall be revised to net Landlord the
same net Rent after imposition of any tax or other charge upon Landlord as would
have been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
it any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or Project, or injure or annoy them or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the
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Building or Project, electricity for normal desk top office equipment and normal
copying equipment, and heating, ventilation and air conditioning ( HVAC ) as
required in Landlord's judgment for the comfortable use and occupancy of the
Premises. If Tenant desires HVAC at any other time, Landlord shall use
reasonable efforts to furnish such service upon reasonable notice from Tenant
and Tenant shall pay Landlord's charges therefor on demand. Landlord shall also
maintain and keep lighted the common stairs, common entries and restrooms in the
Building. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the Rent be abated by
reason of (i) the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, (ii) failure to
furnish or delay in furnishing any such services where such failure or delay is
caused by accident or any condition or event beyond the reasonable control of
Landlord, or by the making of necessary repairs or improvements to the Premises,
Building or Project, or (iii) the limitation, curtailment or rationing of, or
restrictions on, use of water, electricity, gas or any other form of energy
serving the Premises, Building or Project. Landlord shall not be liable under
any circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services. If Tenant uses heat generating machines or equipment in the
Premises which affect the temperature otherwise maintained by the HVAC system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, operation
and maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through existing electrical
outlets in the Premises. Tenant shall not consume water or electric current in
excess of that usually furnished or supplied for the use of premises as general
office space (as determined by Landlord), without first procuring the written
consent of Landlord, which Landlord may refuse, and in the event of consent,
Landlord may have installed a water meter or electrical current meter in the
Premises to measure the amount of water or electric current consumed. The cost
of any such meter and of its installation, maintenance and repair shall be paid
for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible tor the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C." Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not the
obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in Exhibit
"C."
(2) Tenant at Tenant's sole expense shall, except for services furnished by
Landlord pursuant to Article 9 hereof, maintain the Premises in good order,
condition and repair, including the interior surfaces of the ceilings, walls and
floors, all doors, all interior windows, all plumbing, pipes and fixtures,
electrical wiring, switches and fixtures, Building Standard furnishings and
special items and equipment installed by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to the
Premises, Building and Project and the facilities and
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systems thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of Tenant's
Property (as defined in Article 13) in the Premises, (iii) the moving of
Tenant's Property into or out of the Building, or (iv) the act, omission, misuse
or negligence of Tenant, its agents, contractors, employees or invitees.
(4) If Tenant fails to maintain the Premises in good order, condition and
repair, Landlord shall give Tenant notice to do such acts as are reasonably
required to so maintain the Premises. If Tenant fails to promptly commence such
work and diligently prosecute it to completion, then Landlord shall have the
right to do such acts and expend such funds at the expense of Tenant as are
reasonably required to perform such work. Any amount so expended by Landlord
shall be paid by Tenant promptly after demand with interest at the prime
commercial rate then being charged by Bank of America NT & SA plus two percent
(2%) per annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for any damage,
inconvenience, or interference with the use of the Premises by Tenant as a
result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts required to
comply with all applicable laws, ordinances, and rules of any public authority
relating to their respective maintenance obligations as set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford the Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor of
the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural engineer.
The cost of any such determination made by Landlord's structural engineer shall
be paid for by Tenant upon demand. Tenant shall not install business machines or
mechanical equipment which cause noise or vibration to such a degree as to be
objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly Provided in this Lease, Landlord shall have no
liability to Tenant nor shall Tenant's obligations under this Lease be reduced
or abated in any manner whatsoever by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any repairs or
changes which Landlord is required or permitted by this Lease or by any other
tenant's lease or required by law to make in or to any portion of the Project,
Building, or the Premises. Landlord shall nevertheless use reasonable efforts to
minimize any interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical, electrical,
plumbing, HVAC or other systems serving, located in, or passing through the
Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall return
the Premises to Landlord clean and in the same condition as on the date Tenant
took possession, except for normal wear and tear. Any damage to the Premises,
including any structural damage, resulting from Tenant's use or from the removal
of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be
repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord. Landlord's
consent may be conditioned on Tenant's removing any such additions, alterations
or improvements upon the expiration of the Term and restoring the Premises to
the same condition as on the date Tenant took possession. All work with respect
to any addition, alteration or improvement shall be done in a good and
workmanlike manner by properly qualified and licensed personnel approved by
Landlord, and such work shall be diligently prosecuted to completion. Landlord
may, at Landlord's option, require that any such work be performed by Landlord's
contractor, in which case the cost of such work shall be paid for before
commencement of the work. Tenant shall pay to Landlord upon completion of any
such work by Landlord's contractor, an administrative fee of fifteen percent
(15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and clear of
liens of any kind. Tenant shall indemnify, defend against and keep Landlord free
and harmless from all liability, loss, damage, costs, attorneys' fees and any
other expense incurred on account of claims by any person performing work or
furnishing materials or supplies for Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or improvements
which are or become the property of Landlord under this Lease, free and clear of
all attachment or judgment liens. Before the actual commencement of any work for
which a claim or lien may be filed, Tenant shall give Landlord notice of the
intended commencement date a sufficient time before that date to enable Landlord
to post notices of non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the Premises
and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal to
at least one and one-half (1 1/2) times the total estimated cost of any
additions, alterations or
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improvements to be made in or to the Premises, to protect Landlord against any
liability for mechanic's and materialmen's liens and to insure timely completion
of the work. Nothing contained in this Section 12c shall relieve Tenant of its
obligation under Section 12b to keep the Premises, Building and Project free of
all liens.
d. Unless their removal is required by Landlord as provided in Section 12a, all
additions, alterations and improvements made to the Premises shall become the
property of Landlord and be surrendered with the Premises upon the expiration of
the Term; provided, however, Tenant's equipment, machinery and trade fixtures
which can be removed without damage to the Premises shall remain the property of
Tenant and may be removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or built
into the Premises at the commencement of or during the Term, whether or not by
or at the expense of Tenant ("Leasehold Improvements"), shall be and remain a
part of the Premises, shall be the property of Landlord and shall not be removed
by Tenant, except as expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense
to Landlord which can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Premises
(collectively "Tenant's Property") shall be and shall remain the
property of Tenant and may be removed by Tenant at any time during the
Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage, to the Premises or to the Building resulting
from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and sales;
d. At any time during the Term, and on reasonable prior notice to
Tenant, to inspect the Premises, and to show the Premises to any
prospective purchaser or mortgagee of the Project, or to any assignee of
any mortgage on the Project, or to others having an interest in the
Project or Landlord, and during the last six months of the Term, to show
the Premises to prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or
Landlord's interest therein, or as may be necessary or desirable for the
operation or improvement of the Building or in order to comply with
laws, orders or requirements of governmental or other authority.
Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the
course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord,
assign or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use of the Premises by any
party other than Tenant. Any of the foregoing acts without such consent
shall be void and shall, at the option of Landlord, terminate this
Lease. This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
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b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant
shall give notice to Landlord setting forth the terms and provisions of
the proposed assignment or sublease, and the identity of the proposed
assignee or subtenant. Tenant shall promptly supply Landlord with such
information concerning the business background and financial condition
of such proposed assignee or subtenant as Landlord may reasonably
request. Landlord shall have the option, exercisable by notice given to
Tenant within twenty (20) days after Tenant's notice is given, either to
sublet such space from Tenant at the rental and on the other terms set
forth in this Lease for the term set forth in Tenant's notice, or, in
the case of an assignment, to terminate this Lease. If Landlord does not
exercise such option, Tenant may assign the Lease or sublet such space
to such proposed assignee or subtenant on the following further
conditions:
(1) Landlord shall have the right to approve such proposed
assignee or subtenant, which approval shall not be unreasonably
withheld;
(2) The assignment or sublease shall be on the same terms set
forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an
executed counterpart of such assignment or sublease has been
delivered to Landlord;
(4) No assignee or sublessee shall have a further right to
assign or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant
as a result of such assignment or subletting, however
denominated under the assignment or sublease, which exceed, in
the aggregate, (i) the total sums which Tenant is obligated to
pay Landlord under this Lease (prorated to reflect obligations
allocable to any portion of the Premises subleased), plus (ii)
any real estate brokerage commissions or fees payable in
connection with such assignment or subletting, shall be paid to
Landlord as additional rent under this Lease without affecting
or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant
may assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any recapture or
termination option to Landlord, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant, or to
any person or entity which acquires all the assets of Tenant's business
as a going concern, provided that (i) the assignee or sublessee assumes,
in full, the obligations of Tenant under this Lease, (ii) Tenant remains
fully liable under this Lease, and (iii) the use of the Premises under
Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of Tenant
in the performance of any of the terms hereof. Landlord may proceed
directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and any such actions shall not relieve Tenant of
liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to do,
then Tenant shall, upon demand, pay Landlord an administrative fee of
One Hundred Fifty and No/100ths Dollars ($150.00) plus any attorneys'
fees reasonably incurred by Landlord in connection with such act or
request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as
when Tenant took possession, except for (i) reasonable wear and tear,
(ii) loss by fire or other casualty, and (iii) loss by condemnation.
Tenant shall, on Landlord's request, remove Tenant's Property on or
before the Expiration Date and promptly repair all damage to the
Premises or Building caused by such removal.
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b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the
Premises shall be deemed to be abandoned, and, at Landlord's option,
title shall pass to Landlord under this Lease as by a bill of sale. If
Landlord elects to remove all or any part of such Tenant's Property, the
cost of removal, including repairing any damage to the Premises or
Building caused by such removal, shall be paid by Tenant. On the
Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of
other casually, Landlord shall, subject to the provisions of this
Article, promptly repair the damage, if such repairs can, in Landlord's
opinion, be completed within (90) ninety days. If Landlord determines
that repairs can be completed within ninety (90) days, this Lease shall
remain in full force and effect, except that if such damage is not the
result of the negligence or willful misconduct of Tenant or Tenant's
agents, employees, contractors, licensees or invitees, the Base Rent
shall be abated to the extent Tenant's use of the Premises is impaired,
commencing with the date of damage and continuing until completion of
the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be completed within
ninety (90) days, Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full
force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not so elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
c. If any other portion of the Building or Project is totally destroyed
or damaged to the extent that in Landlord's opinion repair thereof
cannot be completed within ninety (90) days, Landlord may elect upon
notice to Tenant given within thirty (30) days after the date of such
fire or other casualty, to repair such damage, in which event this Lease
shall continue in full force and effect, but the Base Rent shall be
partially abated as provided in Section 19a. If Landlord does not elect
to make such repairs, this Lease shall terminate as of the date of such
fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any
other Leasehold Improvements and Tenant's Property. Landlord shall not
be liable for any loss of business, inconvenience or annoyance arising
from any repair or restoration of any portion of the Premises, Building
or Project as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any
case of damage to or destruction of the Premises, Building or Project by
fire or other casualty, and any present or future law which purports to
govern the rights of Landlord and Tenant in such circumstances in the
absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the
Building or Premises is so taken, this Lease shall be unaffected by such
taking, provided that (i) Tenant shall have the right to terminate this
Lease by notice to Landlord given within ninety (90) days after the date
of such taking if twenty percent (20%) or more of the Premises is taken
and the remaining area of the Premises is not reasonably sufficient for
Tenant to continue operation of its business, and (ii) Landlord shall
have the right to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such taking. If either Landlord or
Tenant so elects to terminate this Lease, the Lease shall terminate on
the thirtieth (30th) day after either such notice. The Rent shall be
prorated to the date of termination. If this Lease continues in force
upon such partial taking, the Base Rent and Tenant's Proportionate Share
shall be equitably adjusted according to the remaining Rentable Area of
the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgement or settlement payable by the condemning authority
shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment
or settlement from the condemning authority. Tenant, however, shall have
the right, to the extent that Landlord's award is not reduced or
prejudiced, to claim from the condemning authority (but not from
Landlord) such compensation as may be recoverable by Tenant in its own
right for relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not
result in a termination of this Lease, Landlord shall restore the
remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking, but only to the extent of
Building Standard Work. Tenant shall be responsible at its sole cost and
expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property.
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21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of
Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any
work, activity or other things allowed or suffered by Tenant to be done
in, on or about the Premises; (2) any breach or default by Tenant of any
of Tenant's obligations under this Lease; or (3) any negligent or
otherwise tortious act or omission of Tenant, its agents, employees,
invitees or contractors. Tenant shall at Tenant's expense, and by
counsel satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord
against all costs, attorneys' fees, expert witness fees and any other
expenses incurred in such action or proceeding. As a material part of
the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or
about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees
or customers, or any other person in or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may
leak or flow from or into any part of the Premises, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing; air conditioning or lighting fixtures,
whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources. Landlord shall not be liable for any damages arising from any
act or omission of any other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of
Landlord, as an additional insured, as their respective interests may
appear. Each policy shall contain (i) a cross-liability endorsement,
(ii) a provision that such policy and the coverage evidenced thereby
shall be primary and non-contributing with respect to any policies
carried by Landlord and that any coverage carried by Landlord shall be
excess insurance, and (iii) a waiver by the insurer of any right of
subrogation against Landlord, its agents, employees and representatives,
which arises or might arise by reason of any payment under such policy
or by reason of any act or omission of Landlord, its agents, employees
or representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be delivered to
Landlord before the date Tenant is first given the right of possession
of the Premises, and thereafter within thirty (30) days after any demand
by Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by
Tenant hereunder. No such policy shall be cancelable except after twenty
(20) days written notice to Landlord and Landlord's lender. Tenant shall
furnish Landlord with renewals or "binders" of any such policy at least
ten (10) days prior to the expiration thereof. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but
shall not be required to) procure said insurance on Tenant's behalf and
charge the Tenant the premiums together with a twenty-five percent (25%)
handling charge, payable upon demand. Tenant shall have the right to
provide such insurance coverage pursuant to blanket policies obtained by
the Tenant, provided such blanket policies expressly afford coverage to
the Premises, Landlord, Landlord's mortgagee and Tenant as required by
this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures, merchandise
and other personal property from time to time in, on or about the
Premises, in an amount not less than one hundred percent (100%) of their
actual replacement cost from time to time, providing protection against
any peril included within the classification "Fire and Extended
Coverage" together with insurance against sprinkler damage, vandalism
and malicious mischief. The proceeds of such insurance shall be used for
the repair or replacement of the property so insured. Upon termination
of this Lease following a casualty as set forth herein, the proceeds
under (i) shall be paid to Landlord, and the proceeds under (ii) above
shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect workers' compensation insurance
as required by law and comprehensive public liability and property
damage insurance with respect to the construction of improvements on the
Premises, the use, operation or condition of the Premises and the
operations of Tenant in, on or about the Premises, providing personal
injury and broad form property damage coverage for not less than One
Million Dollars ($1,000,000.00) combined single limit for bodily injury,
death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all Insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree
upon the amounts of said increases, then Tenant agrees that all
insurance policy limits as set forth in this Article shall be adjusted
for increases in the cost of living in the same manner as is set forth
in Section 5.2 hereof for the adjustment of the Base Rent.
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23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage, Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1. Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure continues for five (5)
days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on
any of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with
its creditors; or
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f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed will, in
forty-five (45) days thereafter, or if under the provisions of any law
providing for reorganization or winding up of corporations, any court of
competent jurisdiction assumes jurisdiction, custody or control of
Tenant or any substantial part of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises
or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d
through g above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall
have no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth, to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due; Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly,
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent
which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could be
reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom, including, but not
limited to, any costs or expenses (including attorneys' fees), incurred
by Landlord in (a) retaking possession of the Premises, (b) maintaining
the Premises after Tenant's default, (c) preparing the Premises for
reletting to a new tenant, including any repairs or alterations, and (d)
reletting the Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10 %) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
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The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlords Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30)days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty(30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or any
first mortgagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate this
Lease or to withhold, reduce or offset any amount against any payments of Rent
or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another Part of the
Building in accordance with the following:
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease,
and if the relocation occurs after the Commencement Date, shall be
placed in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice
of Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises
shall take place on a weekend and shall be completed before the
following Monday. If the Physical relocation has not been completed in
that time, Base Rent shall abate in full from the time the physical
relocation commences to the time it is completed. Upon completion of
such relocation, the new premises shall become the "Premises" under this
Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed
before the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this
Lease setting forth the relocation of the Premises and the
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reduction of Base Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant shall
pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the
business terms of this Lease
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or otherwise materially diminish any rights or materially increase any
obligations of the party from whom consent to such charge or amendment is
requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance with
the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgement to enforce any right to such
consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing this
Lease on behalf of Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of the corporation and that this Lease
is binding on Tenant in accordance with its terms. Tenant shall, at Landlord's
request, deliver a certified copy of a resolution of its board of directors
authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, until Landlord has in
fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements. Tenant's Representations. In order to
induce the Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written request,
with financial statements reflecting Tenant's current financial condition.
Tenant represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonable be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction that
any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or
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render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AS OF THE DATES SET FORTH BELOW.
Date: Date:
---------------------------- ------------------------------------
Landlord: WHITTIER NARROWS BUSINESS Tenant: OPTIMUM CARE CORPORATION
PARK A Delaware Corporation
c/o Liberty West Inc.
By: By:
------------------------------- -------------------------------------
Adam Milstein, President Edward A. Johnson, President
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made as to the legal
sufficiency or tax consequences of this document of the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
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ADDENDUM TO LEASE
ADDENDA TO THAT LEASE, DATED FOR REFERENCE PURPOSES ONLY, JULY 28, 1998, BETWEEN
WHITTIER NARROWS BUSINESS PARK, AS LANDLORD, AND OPTIMUM CARE CORPORATION, A
DELAWARE CORPORATION, AS TENANT.
38. TENANT IMPROVEMENTS: Landlord will deliver Premises in its as-is condition,
with the exception that Landlord will perform the following improvements, before
the Commencement Date of the Lease, per the attached plan marked Exhibit "C":
1) remove the wall between rooms B and C, and the easterly wall and door of
room K
2) patch and paint areas where walls were removed
3) repair carpet in areas where walls were removed
4) install a door on the westerly wall of room K if possible. Otherwise,
door to be placed on westerly wall of rooms C or D
5) clean carpets
The cost of the above improvements (estimated to be approximately $ 2,500 - $
3,000) is being amortized into the Base Rent over a three year period. Tenant
will be responsible for any unamortized portion of the above improvement cost if
Tenant occupies the space for less than three (3) years.
39. RENTAL RATE: Notwithstanding any of the provisions of Sections 2.a., 2.j.
2.q. and Section 5 of the Lease, the Rental Rate to be fixed for the initial
term of the Lease.
40. COMMENCEMENT DATE: Lease to commence upon the earlier of either August 15,
1998 or the date the above improvements are completed.
41. UTILITIES: Notwithstanding the provisions of Section 9 of the Lease, Tenant
to be responsible for payment, to the proper utility company, of its own
electric bill for both suites, for the term of the Lease.
42. PARKING: Notwithstanding the provisions of Section 2.k. of the Lease,
Landlord agrees to not charge Tenant for the 8 non- exclusive parking spaces
during the term of the Lease.
APPROVED: APPROVED:
LANDLORD TENANT
Whittier Narrows Business Park Optimum Care Corporation
c/o Liberty West Inc. A Delaware Corporation
By: By:
------------------------------- -------------------------------------
Adam Milstein, President Edward A. Johnson, President
DATE: SEP 01, 98 DATE: 8/8/98
---------------------------- ----------------------------------
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EXHIBIT "A"
WHITTIER NARROWS BUSINESS PARK
1170-1190 DURFEE AVE. EL MONTE CALIFORNIA
1170 DURFEE
FLOOR PLAN
(EXHIBIT A IS AN OUTLINE OF THE FLOOR PLAN)
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EXHIBIT "B"
WHITTIER NARROWS BUSINESS PARK
1170-1190 DURFEE AVE. EL MONTE CALIFORNIA
1170 DURFEE
ONE STORY BUILDING
18,000 SQ. FT.
(EXHIBIT B IS AN OUTLINE OF THE SITE PLAN)
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EXHIBIT B-1
A. AGREEMENT:
A.1 Lessor and Lessee agree to the construction of improvements in the Premises
according to the terms and conditions of the Lease, Exhibit A-1, and this
Exhibit B.
A.2 Lessee agrees to provide Lessor with a fully executed lease on or before
September 24, 1998.
A.3 Provided the A.2 deadline date is adhered to, Lessor will provide Lessee
with final detailed plans and specifications of all proposed improvements on or
before n/a.
A.4 Lessee will return to Lessor a copy of said final detailed plans and
specifications Exhibit A-1 approved by Lessee on or before n/a , subject to the
provisions or paragraph D.1 DELAYS of this Exhibit B.
A.5 Any changes required by Lessee to final plans and specifications previously
approved by both Lessor and Lessee, shall be approved by Lessor at its sole
discretion, subject to the provisions or paragraph D.1 DELAYS of this Exhibit B.
A.6 Provided Lessee and Lessor perform according to the mentioned provisions of
A.1 through A.5 and there are no Delays which are identified in provisions D.1 &
D.2 of this Exhibit, Lessor shall complete all final proposed improvements to
the best of its ability on or before November 15, 1998 .
B. LESSEE PAID IMPROVEMENT:
B.1 Lessee at its sole cost and expense will pay for the following improvements
to the Premises:
ITEM AMOUNT
1. Carpet Installation $2,700.00*
2. * (To be paid in monthly installments of $75.00 per month along with monthly
rental payment.)
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EXHIBIT C
(THIS EXHIBIT IS AN OUTLINE OF FLOOR PLAN FOR UNIT A AND UNIT B SHOWING PROPOSED
ALTERATIONS OF ADDING A DOOR AND REMOVING TWO WALLS.)
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EXHIBIT "D"
RULES AND REGULATIONS
WHITTIER NARROWS
BUSINESS PARK
1. Building Hours: 7:00 a.m. - 6:00 p.m. WEEKDAYS
HVAC: 7:00 a.m. - 6:00 p.m. WEEKDAYS
WNBP recognizes the following holidays:
President's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Day after Thanksgiving
Christmas
New Year's Day
2. Overtime heating, ventilating and air conditioning must be requested at
least 24 hours in advance and is billed at $30.00 per hour.
3. The sidewalks, passages, exits and entrances shall not be obstructed by
Tenant or used for any purpose other than for ingress to and egress from
their respective premises. The Landlord shall in all cases retain the
right to control and prevent access by all persons whose presence, in
the judgment of the Landlord, shall be prejudicial to the safety,
character, reputation and interests of the Building and its Tenants,
provided that nothing herein contained shall be construed to prevent
such access to persons with whom the Tenants normally deal in the
ordinary course of Tenant's business, unless such persons are engaged in
illegal activities. No Tenant and no employees or invitees of any Tenant
shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of Tenant only, and Landlord reserves
the right to exclude any other names thereon.
5. No signs shall be attached to or placed in windows. No awning or shade
shall be affixed or installed over or in the windows or the exterior of
the Premises. The windows of the Building shall not be covered or
obstructed by Tenant.
6. The toilets and urinals shall not be used for any purpose other than
those for which they were constructed and no rubbish, newspapers or
other substances of any kind shall be thrown into them. Tenants shall
not mark, drive nails, screw or drill into, paint, nor in any way deface
the walls, ceilings, partitions or floors. The expense of any breakage,
stoppage or damage resulting from a violation of this rule shall be
borne by the Tenant who has caused such breakage, stoppage or damage.
7. Electric wiring of any kind shall be introduced and connected as
directed by Landlord, and no boring or cutting for wires will be allowed
except with the consent of Landlord. The location of telephones, call
boxes, etc., shall be prescribed by Landlord.
8. Landlord reserves the right to prescribe the weight and position of all
safes and other heavy equipment so as to distribute properly the weight
thereof and to prevent any unsafe condition from arising. Safes or other
heavy objects shall, if considered necessary by Landlord, stand on wood
strips of such thickness as is necessary to properly distribute the
weight. Landlord will not be responsible for any loss or damage to any
such safe or property from any cause; but all damage done to the
Building by moving or maintaining any such safe or property shall be
repaired at the expense of Tenant.
9. There shall not be used in any space, or in the public halls of the
Building, either by Tenant or others, any hand trucks, except those
equipped with rubber tires and side guards.
10. No additional lock or locks shall be placed by Tenants on any door in
the Building unless written consent of Landlord shall have first been
obtained. Two keys will be furnished by Landlord for entry door or doors
only, and any additional keys required must be obtained from Landlord,
at Tenant's cost, and neither Tenant nor his agents or employees shall
have any
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<PAGE> 26
Rules and Regulations
Whittier Narrows
Page Two
duplicate key made. The Tenant, upon termination of the tenancy, shall
deliver to the Landlord the keys of the offices, rooms and toilet rooms
which shall have been furnished, or shall pay the Landlord the cost of
replacing same or changing the lock or locks opened by such lost key if
Landlord deems it necessary to make such changes.
11. The carrying in or out of freight, furniture or bulky matter of any
description, must take place during such hours as Landlord may from time
to time reasonably determine. The installation and moving of such
property shall be made upon previous notice to the superintendent of the
Building, but Landlord shall not be responsible for loss of or damage to
such property, from any cause.
12. Tenant shall use, at Tenant's cost, such pest extermination contractor
as Landlord may direct and at such intervals as Landlord may require.
13. Tenant and tenant's officers, agents and employees shall not make or
permit any loud, unusual or improper noises, nor interfere in any way
with other Tenants or those having business with them, not bring into
nor keep any animal or bird, or any bicycle, automobile, or other
vehicle, except such vehicles as they are permitted to park in the
parking lot, and shall park in the areas designated from time to time
for employee parking.
14. Tenant shall not employ any person or person for the purpose of cleaning
the Premises unless otherwise agreed to by Landlord. Except with the
written consent of Landlord, no person other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning same. Tenant shall not cause any unnecessary labor by reason of
Tenant's carelessness or indifference in the preservation of good order
and cleanliness. Landlord shall in no way be responsible to Tenant for
any loss of property on the Premises, however occurring, or for any
damage done to the effects of Tenant by the janitor or any other
employee or any other person. Janitor service shall include ordinary
dusting and cleaning by the janitor assigned to such work and shall not
include cleaning of carpets or rugs, except normal vacuuming, or moving
of furniture and other special services.
15. No machinery of any kind will be allowed in the Premises without the
written consent of Landlord. This shall not apply, however, to customary
office equipment or trade fixtures or package handling equipment.
16. No aerial shall be erected on the roof or exterior walls of the
Premises, or on the grounds, without in each instance, the written
consent of Landlord.
17. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises
in any manner, except as approved by Landlord. The expense of repairing
any damage resulting from a violation of this rule or removal of any
floor covering shall be borne by the tenant by whom, or by whose
contractors, employees, or invitees, the damage shall have been caused.
18. All garbage, including wet garbage, refuse, or trash shall be placed by
the Tenant in the receptacles provided by the Landlord for the purpose.
19. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
Landlord.
20. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and the street address of the
Building of which the Premises are a part.
21. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time to time by Landlord, and Tenant
also shall provide Landlord with the name of a designated responsible
employee to represent Tenant in all matters pertaining to such fire or
security regulations.
22. Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity shall be likewise carefully shut off, so as to prevent waste
or damage, and for any default or carelessness Tenant shall make good
all injuries sustained by Tenant, other tenants, or occupants of the
Building. Landlord reserves the right to close and keep locked all
entrances and exit doors of the Building before and after the normal
hours of operation, and during such further hours as Landlord may deem
advisable for the adequate
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Rules and Regulations
Whittier Narrows
Page Three
protection of said Building and the property of its tenants.
23. The requirements of Tenant will be attended to only upon application at
the Building Office. Employees of Landlord shall not perform any work or
do anything outside of their regular duties unless under special
instructions from Landlord, and no employee will admit any person
(Tenant or otherwise) to any office without specific instructions from
the Landlord.
24. Landlord reserves the right by written notice to Tenant to add to,
rescind, alter or waive these rules and regulations at any time
prescribed for the Building when, in Landlord's reasonable judgment, it
is necessary, desirable or proper for the best interest of the Building
and its Tenants.
25. Tenants shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
All city and county ordinances shall be observed by Tenants in the use of this
Building and leased Premises.
It is understood and agreed between Tenant and Landlord that no assent or
consent to any waiver of any part hereof by Landlord in spirit or letter shall
be deemed or taken as made except when the same is done in writing and attached
to or endorsed hereon by Landlord.
In the event of any conflict between these rules and regulations or any further
or modified rules and regulations from time to time issued by Landlord and the
Lease provisions, the Lease provisions shall govern and control.
WHITTIER NARROWS BUSINESS PARK
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EXHIBIT 10.109
STANDARD BUSINESS COMPLEX LEASE
Lease Preparation Date: August 14, 1998
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Lessor: PS Business Parks, L.P.
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Lessee: Optimum Care Corporation
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Trade Name: Optimum Care Corporation
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1. LEASE TERMS
1.01 Premises: The Premises referred to in this Lease contain
approximately 2,259 rentable square feet and are located on Exhibit "A" as
described in Exhibit "A1" attached. The address of the leased Premises is 5850
Hannum Drive, Culver City CA 90230.
1.02 Project: The Project consists of approximately 146,402 rentable
square feet.
1.03 Lessee's Notice Address: Lessee's Notice Address is the address
of the leased Premises as defined in paragraph 1.01 unless otherwise specified
here: Same as 1.01.
1.04 Lessor's Notice Address: Lessor's Notice Address is:
PS Business Parks, L.P.
17326 Edwards Rd., Suite 115
Cerritos, CA 90703
1.05 Lessee's Permitted Use: Management of Mental Health Programs and
other related legal uses.
1.06 Lease Term: The Lease Term commences on November 15, 1998 and
ends on November 30, 2001 (Thirty-six months, and Sixteen days).
1.07 Base Monthly Rent: $ 3,072.00 * in lawful money of the United
States of America.
*See provision #46 for base rent adjustment.
1.08 Security Deposit: $ 3,280.00 In lawful money of the United
States of America.
1.09 Lease Documentation Fee: $ 75.00 in lawful money of the United
States of America. INITIAL
1.10 Proportionate Share: Lessee's Proportionate Share is .0154.
1.12 Expense Base Year: The calendar year: 1999.
1.13 Expense Base Rate: If paragraph 4.02D is initialed, the Expense
Base Rate used for determining the Expense Base Year amount is $ n/a.
1.14 Tax Base Year: The fiscal year commencing on January 1, 1999 and
ending on December 31, 1999.
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2. DEMISE AND POSSESSION
2.01 Lessor leases to Lessee and Lessee leases from Lessor the
Premises described in 1.01. By entering the Premises, Lessee acknowledges that
it has examined the Premises and accepts the Premises in their present condition
subject to any additional work Lessor has agreed to do as stated on Exhibit B.
2.02 If for any reason Lessor cannot deliver possession of the
Premises on the date the Lease commences, Lessor shall not be subject to any
liability nor shall the validity of this Lease be affected. If Lessee has not
caused such delay there shall be a proportionate reduction of the Base Monthly
Rent covering the period between the commencement of the Lease Term and the date
when Lessor can deliver possession. However, either Lessor or Lessee, unless it
is the cause of the delay, has the right to cancel this Lease by written
notification if possession of the Premises is not delivered within ninety (90)
days of the date the Lease Term commences.
3. BASE MONTHLY RENT
3.01 Base Monthly Rent: On the first day of each calendar month of
the Lease Term, Lessee will pay, without deduction or offset, prior notice or
demand, Base Monthly Rent at the place designated by Lessor. However, the first
month's rent is due and payable upon execution of this Lease. In the event that
the Term of this Lease commences or ends on a day other than the first day of a
calendar month, a prorated amount of Base Monthly Rent shall be due upon
execution and it will be calculated using a thirty (30) day month.
A. At the same time the Base Monthly Rent is adjusted, the Security
Deposit will also be adjusted to equal the new Base Monthly Rent amount and the
deficiency is due concurrently with the next payment of Base Monthly Rent.
3.03 Any Installment of rent or any other charge payable which is not
paid within five (5) days after it becomes due will be considered past due and
Lessee will pay to Lessor as Additional Rent a late charge equal to ten percent
(10%) of such Installment or the sum of twenty-five dollars ($25.00), whichever
is greater, for each month or fractional month transpiring from the date due
until paid. A twenty-five dollar ($25.00) handling charge will be paid by Lessee
to Lessor for each returned check and, thereafter, Lessee will pay all future
payments of rent or other charges due by money order or cashier's check.
3.04 The amount of the Base Monthly Rent includes projected
construction of Lessee's improvements as indicated on Exhibit "B" attached. In
the event that Lessee requests Lessor to construct additional improvements
and/or final construction costs exceed original estimates, Lessor may increase
the Base Monthly Rate according to the terms and conditions outlined on Exhibit
"B," or elsewhere in this Lease.
4. ADDITIONAL RENT
4.01 All charges payable by Lessee other than Base Monthly Rent are
called "Additional Rent." Unless this lease provides otherwise, Additional Rent
is to be paid with the next monthly installment of Base Monthly Rent and is
subject to the provisions of 3.03. The term "rent" whenever used in this Lease
means Base Monthly Rent and Additional Rent.
4.02 OPERATING EXPENSES
A. Definitions:
"EXPENSE COMPARISON YEAR": Each calendar year after the Expense Base
Year.
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"OPERATING EXPENSES" are all costs and expenses of ownership, operation,
maintenance, repair and insurance of the Project, as determined according to
generally accepted accounting principles applied by Lessor in its sole
discretion, including, but not limited to the following costs: all supplies,
materials, labor and equipment, used in or related to the operation and
maintenance of the Project; all utilities, including but not limited to, water,
electricity, gas, heating, lighting, sewer, waste disposal, security,
air-conditioning and ventilating costs and all charges relating to the use,
ownership or operation of the Project; all maintenance, management, janitorial
and service agreements related to the Project; all legal expenses and accounting
costs; all insurance premiums and including but not limited to the premiums and
costs of fire, casualty and liability coverage, rent abatement and earthquake
insurance and any other type of insurance related to the Project; all
maintenance costs relating to the public and service areas within and around the
Project, including but not limited to, sidewalks, landscaping, service areas,
driveways, parking areas, walkways, building exteriors (including painting),
signs and directories, including for example, costs of resurfacing and
restriping parking areas; amortization (along with reasonable financing charges)
of capital improvements made to the Project which may be required by any
government authority or which will improve the operating efficiency of the
Project; all Lessor's costs in managing, maintaining, repairing, operating and
insuring the project, including for example, clerical, supervisory and
janitorial staff; a five percent (5%) fee for Lessor's supervision of the common
areas (five percent (5%) of the total above mentioned costs and expenses
incurred in a calendar year); however, such costs shall not include depreciation
on the Project, loan payments, executive salaries, or real estate broker
commissions.
B. If the Operating Expenses incurred or paid by Lessor for any
Expense Comparison Year during the Lease Term are greater than the Operating
Expenses incurred or paid by Lessor for the Expense Base Year, then Lessee will
pay as Additional Rent an amount equal to the increase multiplied by Lessee's
Proportional Share as defined in 1.10. In the event of any partial Expense
Comparison Year, Lessee will pay the increase, if any, based on the number of
days of the Expense Comparison Year included within the Lease Term.
C. By April 1st of each Expense Comparison Year, Lessor will
provide Lessee a statement of Lessor's best estimate of Lessee's share of the
increase in Operating Expenses for the coming year over the costs for the
Expense Base Year. This amount will be divided by twelve (12) and beginning with
the next regular Base Monthly Rent payment, Lessee will pay 1/12th of the
increase multiplied by the number of elapsed months from the commencement of the
Expense Comparison Year and thereafter will continue to pay 1/12th of the
increase each month until Lessee receives the next Expense Comparison Year's
statement. By April 1st following each Expense Comparison Year, Lessor will
provide Lessee a statement showing the total actual Operating Expenses for the
calendar year just ended, and Lessee's share of any increase over the Expense
Base Year. If Lessee's estimates paid to date for the preceding calendar year
are less than Lessee's share of the increase, Lessee will pay the difference
concurrently with the next payment of Base Monthly Rent.
In the event that Lessee has paid more than his share of
estimates for the preceding calendar year, Lessor will credit the amount towards
Lessee's future Operating Expense obligations. Thereafter if any succeeding
Expense Comparison Year results in a further increase in Operating Expenses,
Lessee will pay, upon receipt of the statement, a lump sum equal to its share of
the total increase over the Expense Base Year less the total of the monthly
estimate installments paid in that Expense Comparison Year, and the monthly
estimate installments for the next Expense Comparison Year will be adjusted to
reflect Lessor's new best estimate.
D. If this paragraph is initialed, Lessee understands that upon
execution of this Lease the Project is less than 50% occupied, and the Operating
Expense amount for the Expense Base Year will be established by multiplying the
Expense Base Rate shown in 1.13 by the Project square footage reflected in 1.02.
E. Lessee will not be entitled to any reduction, refund, offset,
allowance or rebate in Base Monthly Rent or any other sums due if the Operating
Expenses for any Expense Comparison Year are less than those of the Expense Base
Year nor shall the failure by Lessor to provide Lessee with a statement by April
1st of each year constitute a waiver by
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<PAGE> 4
Lessor of its right to collect Lessee's share of any increase in Operating
Expenses. In addition, if for any reason Lessor should not elect to bill Lessee
for lump sum Operating Expense increase or estimates for a particular Expense
Comparison Year, Lessor's right to charge Lessee for such expense in subsequent
years is not waived.
4.03 TAXES
A. As Additional Rent, Lessee will reimburse Lessor upon demand for
all taxes payable by Lessor (other than net income) as defined and stated in the
following paragraphs.
B. Definitions:
"TAX BASE YEAR" is the tax fiscal year as indicated in 1.14. However, if
the project in which the Premises are located is not yet fully assessed or
completed as improved real property by the tax fiscal year shown in 1.14, the
Tax Base Year is the year in which the first tax bill reflects the full assessed
value of the Property.
"TAX COMPARISON YEAR" is each tax fiscal year commencing on the
anniversary of the Tax Base Year and ending twelve (12) months thereafter.
"REAL PROPERTY TAXES" are: (i) any fee, license fee, license tax,
business license fee, commercial rental tax, levy, charge, assessment, penalty
or tax imposed by any taxing authority against the Property; (ii) any tax or fee
on Lessor's right to receive, or the receipt of, rent or income from the
Property or against Landlord's business of leasing the Property; (iii) any tax
or charge for fire protection, streets, sidewalks, road maintenance, refuse or
other services provided to the Property by any governmental agency; (iv) any tax
imposed upon this transaction, or based upon a reassessment of the Project due
to a change in ownership or transfer of all or part of Lessor's interest in the
Property; and (v) any charge or fee replacing, substituting for, or in addition
to any tax previously included within the definition of real property tax. Real
Property Taxes do not, however, include Lessor's federal or state income,
franchise, inheritance or estate taxes.
C. If the Real Property Taxes incurred or paid by Lessor for any
Tax Comparison Year ending or commencing during the Lease Term, are greater than
the Real Property Taxes incurred or paid by Lessor for the Tax Base Year, the
Lessee will pay Lessor an amount equal to the increase multiplied by Lessee's
Proportionate Share as indicated in 1.10. In the event of any partial Tax
Comparison Year, Lessee shall pay the increase, if any, based on the number of
days of such Tax Comparison Year included within the Lease Term.
D. Following the end of each Tax Comparison Year, Lessor shall
provide Lessee a statement of the amount of the increase, if any, in Real
Property Taxes, but failure to do so by Lessor does not constitute a waiver of
its right to collect Lessee's share of the increase in Real Property Taxes. Upon
receipt of the statement, Lessee will pay in full the amount of its share of
increase. In the event that any Tax Comparison Year amount is less than the Tax
Base Year amount, Lessee will not be entitled to any reduction in rent or to any
refund, offset, allowable or rebate of any nature. Should Lessee's Lease expire
before Lessor is able to determine the increase, if any, for the Lessee's last
Tax Comparison Year, Lessor will estimate the increase and Lessee will pay the
estimated amount upon demand by Lessor.
E. Personal Property Taxes: Lessee will pay all taxes charged
against trade fixtures, furnishings, equipment or any other personal property
belonging to Lessee. Lessee will have personal property taxes billed separately
from the Project. If any of Lessee's personal property is taxed with the
Project, Lessee will pay Lessor the taxes for the personal property upon demand
by Lessor.
4.04 Based on Lessee's Proportionate Share defined in 1.10, Lessee
agrees to pay as Additional Rent to Lessor its share of any parking charges,
utility surcharges, occupancy taxes, or any other costs resulting from the
statues or
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<PAGE> 5
regulations, or interpretations thereof, enacted by any governmental authority
in connection with the use or occupancy of the Project or the parking facilities
serving the Project, or any part thereof.
5. SECURITY DEPOSIT
5.01 If Lessee defaults with respect to any provision of this Lease,
Lessor may retain, use or apply all or any part of the Security Deposit to
compensate Lessor for any loss or damage suffered by Lessee's default including,
but not limited to, the payment of Base Monthly Rent, Additional Rent or other
rental sums due, and for payment of amounts Lessor is obligated to spend by
reason of Lessee's default. If any portion is so retained, used or applied,
Lessee, upon demand, will deposit with Lessor an amount sufficient to restore
the deposit to its original amount, as adjusted per 3.02. Lessor will not be
required to keep the Security Deposit separate from its general funds, and
Lessee will not be entitled to interest on it. If Lessee fully and faithfully
performs every provision of this Lease, the Security Deposit or a balance
thereof will be returned to Lessee within the time frame permitted by law. In no
event will Lessee have the right to apply any part of the Security Deposit to
any rents payable under this lease.
6. LEASE DOCUMENTATION FEE
6.01 For expenses incurred related to the execution of this Lease
including, but not limited to, legal costs, administration and credit
verification, Lessee will pay Lessor upon execution of this Lease, the Lease
Documentation Fee. Lessee acknowledges and agrees that this fee is nonrefundable
and will not be credited to any sums which may become due during the Lease Term.
7. USE OF PREMISES; QUIET CONDUCT
7.01 The Premises may be used and occupied only for Lessee's
Permitted Use as shown in 1.05 and for no other purpose, without obtaining
Lessor's prior written consent. Lessee will comply with all covenants,
conditions and restrictions affecting the Premises. Lessee will promptly comply
with all laws, ordinances, orders and regulations affecting the Premises. Lessee
will not perform any act or carry on any practices that may injure the Project
or the Premises or be a nuisance or menace, or disturb the quiet enjoyment of
other lessees in the Project including, but not limited to, equipment which
causes vibration, use or storage of chemicals, or heat or noise which is not
properly insulated. Lessee will not cause, maintain or permit any outside
storage on or about the Premises. In addition, Lessee will not allow any
condition or thing to remain on or about the Premises which diminishes the
appearance or aesthetic qualities of the Premises and/or the Project or the
surrounding property. The keeping of a dog or other animal on or about the
Premises is expressly prohibited.
8. TENANT IMPROVEMENTS
8.01 Tenant Improvements to be performed in the Premises, if any,
will be performed in accordance with the terms and provisions entitled "Lessor's
Work" contained in "Exhibit B" attached. Thereafter during the Lease Term,
Lessor will be under to obligation to alter, change, decorate or improve the
Premises.
9. PARKING
9.01 Lessee and Lessee's customers, suppliers, employees and invitees
have the non-exclusive right to park in common with other lessees in the parking
facilities as designated by Lessor. Lessee agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other lessees in the use of
the parking facilities. Lessor reserves the right to, on an equitable basis,
assign specific spaces with or without charge to Lessee as Additional Rent, make
changes in the parking layout from time to time, and to establish reasonable
time limits on parking.
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10. UTILITIES (DELETE 10.01 OR 10.02)
10.01 Serviced Space: Lessor will provide to the Premises between the
hours of 8 a.m. and 6 p.m., Monday through Friday or any other time periods
established by Lessor:
A. All utilities, including heat, electricity, gas, power and
air-conditioning, if any, as are commercially reasonable for normal office use.
If Lessee uses heat, water, electricity, gas, power or air-conditioning in
excess of normal office use, Lessor may separately meter such services at
Lessee's expense where applicable, or Lessor, may, at its sole discretion,
measure or estimate the increased use and Lessee will pay Lessor, on demand, the
amount of the measured or estimated increase. Lessor will also provide water for
restroom facilities (if any). However, Lessee will pay all services directly
contracted for by Lessee.
B. Such janitorial service as is commercially reasonable.
10.03 Lessor will not be liable or deemed in default to Lessee nor
will there be any abatement of rent for any interruption or reduction of
utilities or services not caused by any act of Lessor or any act reasonably
beyond Lessor's control. Lessee agrees to comply with energy conservation
programs implemented by Lessor by reason of enacted laws or ordinances.
10.04 Lessee will contract and pay for all telephone and such other
services for the Premises subject to the provisions of 11.03.
11. ALTERATIONS, MECHANIC'S LIENS
11.01 Lessee will not make any alterations to the interior of the
Premises, without Lessor's prior written consent which will not be unreasonably
withheld. If Lessor gives its consent, no such alterations will proceed without
Lessor's prior written approval of (i) Lessee's contractor, (ii) certificates of
insurance by Lessee's's contractor for public liability and automobile liability
and property damage insurance with limits not less than
$1,000,000/$250,000/$500,000 respectively endorsed to show Lessor as an
additional insured and for worker's compensation as required and (iii) detailed
plans and specifications for such work. In addition, before alterations may
begin, valid building permits or other permits or licenses required must be
furnished to Lessor, and, once the alterations begin, Lessee will diligently and
continuously pursue their completion. At Lessor's option, any alterations may
become part of the realty and belong to Lessor. If requested by Lessor, Lessee
will pay, prior to the commencement of construction, an amount determined by
Lessor necessary to cover the costs of demolishing such alterations and/or the
cost of returning the Premises to their condition before any such alterations.
Lessor may also require Lessee to provide Lessor, at Lessee's sole cost and
expense, a payment and performance bond in form acceptable to Lessor, in a
principal amount not less than one and one-half times the estimated cost of such
alterations, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work and such bond will
continue in force for a period no less than 131 days after the completion of
such work.
11.02 Notwithstanding anything in 11.01, Lessee may, with written
consent of Lessor, install trade fixtures, equipment and machinery in
conformance with the ordinances of the applicable city and county, and they may
be removed upon termination of this Lease provided the Premises are not damaged
by their removal.
11.03 All private telephone systems and/or other related
telecommunications equipment and lines may not be installed without Lessor's
prior written consent. In addition, if Lessor gives consent all equipment must
be installed within Lessee's Premises and, upon termination of this Lease,
removed and the Premises restored to the same condition as before such
installation.
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11.04 Lessee will pay all costs for alterations and will keep the
Premises, the Project and the underlying property free from any liens arising
out of work performed for, materials furnished to, or obligation incurred by
Lessee.
11.05 Lessor will have the right to construct or permit construction
of tenant improvements in or about the Project for existing and new lessees and
to alter any public areas in and around the Project. Notwithstanding anything
which may be contained in this Lease, Lessee understands this right of Lessor
and agrees that such construction will not be deemed to constitute a breach of
this Lease by Lessor. Lessee waives any such claims which it might have arising
from such construction.
12. FIRE INSURANCE; HAZARDS AND LIABILITY INSURANCE
12.01 Except as expressly provided as Lessee's Permitted Use,
subsection 1.05, or as otherwise consented to by Lessor in writing, Lessee shall
not do or permit anything to be done within or about the Premises which will
increase the existing rate of insurance on the Project or cause the cancellation
of any insurance policy covering the Project. Nor shall Lessee keep, use or
sell, or permit anyone to keep, use or sell, any article in or about the
Premises, which may be prohibited by the standard form of fire and other
insurance policies. Lessee shall, at its sole cost and expense, comply with any
requirements pertaining to the Premises or any insurance organization insuring
the Project and Project related apparatus. Lessee agrees to pay to Lessor, as
Additional Rent, any increases in premiums on policies from Lessee's Permitted
Use or other use consented to by Lessor which increases Lessor's premiums or
requires extended coverage by Lessor to insure the Premises.
12.02 Lessee, at all times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of standard fire and extended
coverage insurance with "all risk" coverage on all Lessee's improvements and
alterations in or about the Premises and on all personal property and equipment
to the extent of at least ninety percent (90%) of their full replacement value.
The proceeds from this policy will be used by Lessee for the replacement of
personal property and equipment and the restoration of Lessee's improvements
and/or alterations. This policy will contain an express waiver, in favor of
Lessor, of any right of subrogation by the insurer.
12.03 Lessee, at all times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of comprehensive general liability
coverage with limits of not less than $1,000,000 combined single limit for
bodily injury and property damage insuring against all liability of Lessee and
its authorized representatives arising out of or in connection with Lessee's use
or occupancy of the Premises. This policy of insurance will name Lessor as an
additional insured and will include an express waiver of subrogation by the
insurer in favor of Lessor and will release Lessor from any claims for damage to
any person, to the Premises, and to the Project, and to Lessee's personal
property, equipment, improvements and alterations in or on the Premises of the
Project, caused by or resulting from risks which are to be insured against by
Lessee under this Lease.
12.04 All insurance required to be provided by Lessee under this Lease
will (a) be issued by an insurance company authorized to do business in the
state in which the Premises are located and which is satisfactory to Lessor, (b)
be primary and noncontributing with any insurance carried by Lessor, and (c)
contain an endorsement requiring at lease thirty (30) days prior written notice
of cancellation to Lessor before cancellation or change in coverage, scope or
limit of any policy. Lessee will deliver a certificate of insurance or a copy of
the policy to Lessor within thirty (30) days of execution of the Lease and will
provide evidence of renewed insurance coverage at each anniversary, prior to the
expiration of any current policies. Lessee's failure to provide evidence of this
coverage to Lessor may, in Lessor's sole discretion, constitute a default under
this Lease.
13. INDEMNIFICATION AND WAIVER OF CLAIMS
13.01 Lessee waives all claims against Lessor for damage to any
property in or about the Premises and for injury
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to any persons, including death resulting therefrom, regardless of cause or time
of occurrence. Lessee will defend, indemnify and hold Lessor harmless from and
against any and all claims, actions, proceedings, expenses, damages and
liabilities, including attorney's fees, arising out of, connected with, or
resulting from any use of the Premises by Lessee, its employees, agents,
visitors or licensees, except for any damage or injury which is the direct
result of intentional acts by Lessor, its employees, agents, visitors or
licensees.
14. REPAIRS
14.01 Lessee shall, at its sole expense, keep and maintain the
Premises and every part thereof (excepting air-conditioning, common use
equipment, exterior walls and roofs, which Lessor agrees to repair unless
damages are due to the neglect or intentional acts of Lessee or its agents,
employees, visitors, or licensees), including interior windows, skylights,
doors, any store fronts and the interior of the Premises, in good and sanitary
order, condition and repair. Lessee will, also at its sole cost keep and
maintain all utilities, fixtures, plumbing and mechanical equipment used by
Lessee in good order and repair and furnish all expendable (light bulbs [unless
provided by Lessor], paper goods, soaps, etc.) used in the Premises. The
standard for comparison and need of repair will be the condition of the Premises
at the time of commencement of this Lease and all repairs will be made by a
licensed and bonded contractor approved by Lessor.
14.02 Lessee will not make repairs to the Premises at the cost of
Lessor whether by reduction of rent or otherwise, or to vacate the Premises or
terminate the Lease with abatement or termination of rent if repairs are not
made. If during the Term, any alteration, addition or change to the Premises is
required by legal authorities, Lessee, at its sole expense, shall promptly make
the same. Lessor reserves the right to make any such repairs not repaired or
maintained in good condition by Lessee and Lessee shall reimburse Lessor for all
such costs upon demand. If such repairs have not been made within 30 days of
notice to repair by Lessor to Lessee, Lessor may make such repairs and such
costs of repairs shall be at Lessee's expense. Failure to pay such expenses
within 30 days of presentation shall be deemed to be a breach of this Lease.
15. AUCTIONS, SIGNS, LANDSCAPING
15.01 Lessee will not conduct or permit to be conducted any sale by
auction on the Premises. Lessor will have the right to control landscaping and
approve the placement, size, and quality of signs. Lessee shall comply with the
terms and conditions regarding sign criteria set forth in Exhibit "C" attached.
Lessee will not make alterations or additions to the landscaping and will not
place signs which are visible from the outside of any buildings of the Project
without prior written consent of Lessor. Lessor will have the right in its sole
discretion to withhold its consent. Any signs not in conformity with this Lease
may be removed by Lessor at Lessee's expense.
16. ENTRY BY LESSOR
16.01 Lessee will permit Lessor and Lessor's agents to enter the
Premises at all reasonable times for the purpose of inspecting the same, or for
the purpose of maintaining the Project, or for the purpose of making repairs,
alterations or additions to any portion of the Project, including the erection
and maintenance of such scaffolding, canopies, fences and props as may be
required, or for the purpose of posting notices of nonresponsibility for
alterations, additions or repairs, or for the purpose of showing the Premises to
prospective tenants during the last six months of the Lease Term, or placing
upon the Project any usual or ordinary "for sale" signs, without any rebate of
rents and without any liability to Lessee for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned. Lessee will permit Lessor at any
time within sixty (60) days prior to the expiration of this Lease, to place upon
the Premises any usual or ordinary "to let" or "to lease" signs. For each of the
above purposes, Lessor will at all times have and retain a key with which to
unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults and safes. Lessee will not alter any lock or install a new or additional
lock or any bolt on any door of the Premises without the prior written consent
of
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Lessor, which will not be unreasonably withheld. If Lessor gives its consent,
Lessee will furnish Lessor with a key and Lessor retains the right to charge
Lessee for restoring any altered doors to their conditions prior to the
installation of the new or additional locks.
17. ABANDONMENT
17.01 Lessee will not vacate or abandon the Premises at any time
during the Lease Term or permit the Premises to remain unoccupied for a period
longer than fifteen (15) consecutive days during the Lease Term. If Lessee
abandons, vacates or surrenders the Premises, or is dispossessed by process of
law, or otherwise, any personal property belonging to Lessee is left in or about
the Premises will, at the options of Lessor be deemed abandoned and may be
disposed of by Lessor in the manner provided for by the laws of the state in
which the Premises are located.
18. DESTRUCTION
18.01 Should the Premises or the building on the Premises be partially
destroyed by any cause not the fault of Lessee (or any person in or about the
Premises with the consent, expressed or implied, of Lessee), this Lease will
continue in full force and effect and Lessor, at Lessor's own cost and expense,
will promptly commence the work of repairing and restoring the Premises to their
prior condition providing that the work can be accomplished under all applicable
government laws and regulations within sixty (60) days from the date of damage
at a cost not exceeding twenty-five percent (25%) of the total replacement cost
of the Premises. Within thirty (30) days of the occurrence of partial
destruction, Lessor may terminate this Lease as of the date of the occurrence if
nine (9) months or less remain the Lease Term.
18.02 Should the Premises or the building in which the Premises are a
part be so far destroyed by any cause not the fault of Lessee (or any person in
or about the Premises with the consent, expressed or implied, of Lessee) that
they cannot be repaired or restored to their former condition within sixty (60)
days of the date of damage or at a cost exceeding twenty-five percent (25%) of
the total replacement cost of the Premises, Lessor may at Lessor's options
either:
A. Continue this Lease in full force and effect by repairing and
restoring, at Lessor's own cost and expense, the Premises to their former
condition; or
B. Terminate this Lease by giving Lessee written notice of such
termination.
18.03 Should the Premises be partially or totally destroyed by any
cause of Lessee, or any person in or about the Premises with the consent,
expressed or implied of Lessee, this Lease will remain in full force and effect
and Lessee shall immediately commence work to repair the damage and diligently
pursue its completion.
18.04 Any insurance proceeds received by Lessor because of the total
or partial destruction of the Premises or the building on the Premises will be
the sole property of Lessor, free from any claims of Lessee, and may be used by
Lessor for whatever purposes Lessor may desire.
18.05 Should Lessor elect to repair and restore the Premises to their
former condition, or should Lessor be required to restore the Premises to their
former condition, there will be a proportional abatement in the amount of rent
payable during the period of repair and restoration as long as Lessee (or any
person in or about the Premises with the consent, expressed or implied of
Lessee) is not the cause of the total or partial destruction. The rent due under
the terms of the Lease will be reduced between the date of destruction and the
date of completion of restoration and repairs based on the extent to which
destruction interferes with Lessee's use of the Premises.
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19. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP
19.01 Lessee will not directly or indirectly, voluntarily or by
operation of law, assign, sell, mortgage, encumber, convey, or otherwise
Transfer all or any part of Lessee's Leasehold estate, or permit the Premises to
be occupied by anyone other than Lessee and Lessee's employees or sublet the
Premises or any portion thereof (collectively called "Transfer") without
Lessor's prior written consent. If Lessee desires at any time to Transfer this
Lease, Lessee shall first give written notice to Lessor of its desire to do so,
which notice shall contain (a) the identity of the proposed Transferee, (b) the
terms and provisions of the proposed Transfer, (c) the nature of the proposed
Transferee's business to be carried on in the Premises, (d) a detailed summary
of the business background and financial condition of the proposed Transferee,
and (e) such financial information as deemed necessary by Lessor to evaluate any
proposed Transfer. All of the foregoing information shall be provided to Lessor
by Lessee at least sixty (60) days in advance of Lessee's proposed Transfer
date.
19.02 Lessor will not unreasonably withhold its consent to any
proposed Transfer except that such consent need not be granted if: (a) in the
reasonable judgment of Lessor the Transferee is of a character is engaged in a
business which is not in keeping with the standards of the Lessor for the
Project; (b) in the reasonable judgment of Lessor any purpose for which the
Transferee intends to use the Premises is not in keeping with the standards of
Lessor for the Project; provided in no event may any purpose for which
Transferee intends to use the Premises be in violation of this Lease; (c) the
portion of the Premises subject to the Transfer is not regular in shape with
appropriate means of entering and exiting, including adherence to any local,
county or other governmental codes, or is not otherwise suitable for the normal
purposes associated with such a Transfer; (d) the proposed Transferee be at
least as financially responsible as Lessee was expected to be at the time of the
execution of this Lease or (e) Tenant is in default under this Lease.
19.03 In the event Lessor consents to a Transfer, Lessee will pay
Lessor the excess, if any, of the rent and other charges reserved in the
Transfer over the allocable portion of the rent and other charges hereunder for
that portion of the Premises subject to the Transfer. For the purpose of this
section, the rent reserved in the Transfer will be deemed to include any lump
sum payment or other consideration given to Lessee in consideration for the
Transfer. Lessee will pay or cause the Transferee to pay to Lessor this
additional rent together with the monthly installments of rent due.
19.04 Any consent to any Transfer which may be given by Lessor, or the
acceptance of any rent, charges or other consideration by Lessor from Lessee or
any third party, will not constitute a waiver by Lessor of the provisions of
this Lease or a release of Lessee from the full performance by it or the
covenants stated herein; and any consent given by Lessor to any Transfer will
not relieve Lessee (or any transferee of Lessee) from the above requirements for
obtaining the written consent of Lessor to any subsequent Transfer.
19.05 If a default under this Lease should occur while the Premises or
any part of the Premises are assigned, sublet or otherwise transferred, Lessor,
in addition to any other remedies provided for within this Lease or by law, may
at its option collect directly from the Transferee all rent or other
consideration becoming due to Lessee under the Transfer and apply these monies
against any sums due to Lessor by Lessee; and Lessee authorizes and directs any
Transferee to make payments of rent or other consideration direct to Lessor upon
receipt of notice from Lessor. No direct collection by Lessor from any
Transferee should be construed to constitute a novation or a release of Lessee
or any guarantor of Lessee from the further performance of its obligations in
connection with this Lease.
19.06 Any Transfer without the Lessor's consent shall be void and
shall, at the option of Lessor, terminate this Lease.
19.07 If Lessee requests a consent of Lessor to any Transfer, then
Lessee shall, upon demand, pay Lessor an administrative fee of One Hundred Fifty
Dollars ($150.00) plus any attorneys' fees reasonably incurred by Lessor in
connection with such request.
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20. BREACH BY LESSEE
20.01 Lessee will be in breach of this Lease if at any time during the
term of this Lease (and regardless of the pendency of any bankruptcy,
organization, receivership, insolvency or other proceedings in law, in equity or
before any administrative tribunal which have or might have the effect of
preventing Lessee from complying with the terms of this Lease):
A. Lessee fails to make payment of any installment of Base Monthly
Rent, Additional Rent, or of any other sum herein specified to be paid by
Lessee, and such failure is not cured within three (3) days after Lessor's
written notice to Lessee of such failure of payment, which notice shall be in
lieu of and not in addition to any notice required by statute; or
B. Lessee fails to observe or perform any of its other covenants,
agreements or obligations hereunder, and such failure is not cured within ten
(10) days after Lessor's written notice to Lessee of such failure, which notice
shall be in lieu of and not in addition to any notice required by statute
provided, however, that if the nature of Lessee's obligation is such that more
than ten (10) days are required for performance, then Lessee will not be in
breach if Lessee commences performance within such ten (10) day period and
thereafter diligently prosecutes the same to completion; or
C. Lessee becomes insolvent, makes a transfer in fraud of its
creditors, makes a transfer for the benefit of its creditors, voluntarily files
for bankruptcy, is adjudged bankrupt or insolvent in proceedings filed against
Lessee, a receiver, trustee, or custodian is appointed for all or substantially
all of Lessee's assets, fails to pay its debts as they become due, convenes a
meeting of all or a portion of its creditors, or performs any act of bankruptcy
or insolvency, including the selling of its assets to pay creditors; or
D. Lessee has abandoned the Premises as defined in paragraph 17
above.
21. REMEDIES OF LESSOR
21.01 Termination of Lease After Breach: If Lessee breaches this Lease
and abandons the Premises before the end of the term, or if its right to
possession is terminated by Lessor because of Lessee's breach of this Lease,
then this Lease may be terminated by Lessor at its option. On such termination
Lessor may recover from Lessee, in addition to the remedies permitted by law:
A. The worth at the time of award of the unpaid rents which had
been earned at the time of termination;
B. The worth at the time of award of the amount by which the unpaid
rents which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
C. The worth at the time of award of the amount by which the unpaid
rents for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss for such period that Lessee proves could be
reasonably avoided; and
D. Any other amount necessary to compensate Lessor for all the
damage proximately caused by Lessee's breach of its obligations under this
Lease, or which in the ordinary course of events would be likely to result
therefrom. The damage proximately caused by Lessee's breach will include,
without limitation, (i) expenses for cleaning, repairing or restoring the
Premises, (ii) expenses for altering, remodeling or otherwise improving the
Premises for the purpose of reletting, (iii) brokers' fees and commissions,
advertising costs and other expenses of reletting the Premises, (iv) costs of
carrying the Premises such as taxes, insurance premiums, utilities and security
precautions, (v) expenses in retaking
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possession of the Premises, (vi) attorneys' fees and court costs, (vii) any
unearned brokerage commissions paid in connection with this Lease and (viii)
reimbursement of any previously waived Base Rent or Additional Rent.
21.02 Continuation of Lease After Breach: Notwithstanding the
foregoing, in the event Lessee has breached this Lease and abandoned the
Premises, this Lease, at Lessor's option, will continue in full force and effect
so long as Lessor does not terminate Lessee's right to possession of the
Premises, and in such event Lessor may enforce all of its rights and remedies
under this Lease, including the right to recover rent as it becomes due. For
purposes of this Subparagraph 21.02, the following acts by Lessor will not
constitute the termination of Lessee's right to possession of the premises:
A. Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Lessor shall consider advisable for the
purpose of reletting the Premises or any part thereof; or
B. The appointment of a receiver upon the initiative of Lessor to
protect Lessor's interest under this Lease or in the Premises.
21.03 In the event of bankruptcy, Lessee assigns to Lessor all its
rights, title and interest in the Premises as security for its obligations and
covenants set forth in this Lease.
21.04 Definitions and Incidental Rights.
A. The "worth at the time of award" of the amounts referred to in
21.01A, and 21.01B, will be computed by allowing interest at the rate of ten
percent (10%) per annum. The "worth at the time award" of the amount referred to
above in 21.01C will be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco in effect at the time of award,
plus one percent (1%).
B. Any efforts by Lessor to lessen the damages caused by Lessee's
breach of this Lease will not waive Lessor's right to recover the damages set
forth above.
C. Nothing herein will be construed to affect other provision of
this Lease regarding Lessor's right to indemnification from Lessee for liability
arising prior to the termination of this Lease for personal injuries or property
damage.
D. No right or remedy conferred upon or reserved to Lessor in the
Lease is intended to be exclusive of any other right or remedy granted to Lessor
by statute or common law, and each and every such right and remedy will
cumulative.
22. SURRENDER OF LEASE NOT MERGER
22.01 The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, will not work a merger and will, at the option of
Lessor, terminate all or any existing transfers, or may, at the option of
Lessor, operate as an assignment to it of any or all of such transfers.
23. ATTORNEYS FEES / COLLECTION CHARGES
23.01 In the event of any legal action or proceeding between the
parties hereto, actual attorneys' fees and expenses of the prevailing party in
any such action or proceeding will be added to the judgment therein. Should
Lessor be named as defendant in any suit brought against Lessee in connection
with or arising out of Lessee's occupancy hereunder, Lessee will pay to Lessor
its costs and expenses incurred in such suit, including actual attorneys' fees.
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23.02 If Lessor utilizes the services of any attorney at law for the
purpose of collecting any rent due and unpaid by Lessee after three (3) days'
written notice to Lessee of such nonpayment of rent or in connection with any
other breach of this Lease by Lessee, Lessee agrees to pay Lessor actual
attorneys' fees as determined by Lessor for such services, regardless of the
fact that no legal action may be commenced or filed by Lessor.
24. CONDEMNATION
24.01 If twenty-five percent (25%) or more of the Premises is taken
for any public or quasi-public purpose by any lawful government power or
authority, by exercise of the right of appropriation, reverse condemnation,
condemnation or eminent domain, or sold to prevent such taking, the Lessee or
the Lessor may at its option terminate this Lease as of the effective date
thereof. Lessee will not because of such taking assert any claim against the
Lessor or the taking authority for any compensation because of such taking, and
Lessor will be entitled to receive the entire amount of any award without
deduction for any estate of interest of Lessee. If less than twenty-five percent
(25%) of the Premises is taken, Lessor at its options may terminate this Lease.
If Lessor does not so elect, Lessor will promptly proceed to restore the
Premises to substantially its same condition prior to such partial taking,
allowing for any reasonable effects of such taking, and a proportionate
allowance will be made to Lessee for the rent corresponding to the time during
which, and to the part of the Premises which, Lessee is deprived on account of
such taking and restoration.
25. RULES AND REGULATIONS
25.01 Lessee will faithfully observe and comply with the Rules and
Regulations printed on or attached to this Lease and Lessor reserves the right
to modify and amend them as it deems necessary. Lessor will not be responsible
to Lessee for the nonperformance by any other lessee or occupant of the Project
of any said Rules and Regulations.
25.02 Violation of any such Rules and Regulations shall be deemed a
material breach of this Lease by Lessee.
26. ESTOPPEL CERTIFICATE
26.01 Lessee will execute and deliver to Lessor, within ten (10) days
of receiving written notice, a statement in writing certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification) and the date to which rent and other charges are paid in
advance, if any, and acknowledging that there are not, to Lessee's knowledge,
and uncured defaults on the part of Lessor hereunder or specifying such defaults
if they are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises. Lessee's failure to
deliver such statement within such time shall be conclusive upon Lessee that (1)
this Lease is in full force and effect, without modification except as may be
represented by Lessor; (2) there are no defaults not cured in Lessor's
performance; and (3) not more than one (1) month's rent has been paid in
advance.
27. SALE BY LESSOR
27.01 In the event of a sale of conveyance by Lessor of the Project
the same shall operate to release Lessor from any liability upon any of the
covenants or conditions, expressed or implied, herein contained in favor of
Lessee, and in such event Lessee agrees to look solely to the responsibility of
the successor in interest of Lessor in and to this Lease. This Lease will not be
affected by any such sale, and Lessee agrees to attorn to the purchaser or
assignee.
28. NOTICES
28.01 All notices, statements, demands, requests, consents, approvals,
authorizations, offers, agreements, appointments, or designations under this
Lease by either party to the other will be in writing and will be considered
sufficiently given and served upon the other party if sent by certified mail,
return receipt requested, postage prepaid, and
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addressed as indicated in 1.03 and 1.04.
29. WAIVER
29.01 The failure of Lessor to insist in any one or more cases upon
the strict performance of any term, covenant or condition of this Lease will not
be construed as a waiver of a subsequent breach of the same or any other
covenant, term or condition; nor shall any delay or omission by Lessor to seek a
remedy for any breach of this Lease be deemed a waiver by Lessor of its remedies
or rights with respect to such a breach.
30. LESSEE'S INTENT, HOLDING OVER
30.01 Lessee will give Lessor, ninety (90) days prior to the
expiration of the Lease Term, written notification of Lessee's intent to either
remain in or vacate the Premises on the Lease Expiration Date. If Lessee does
not notify Lessor by the date specified herein, Lessor deems that Lessee will
vacate the Premises by the Lease Expiration Date and Lessor will have no further
obligation.
30.02 Any holding over after the expiration or termination of the term
of this Lease, or after the date in any notice given by Lessor to Lessee
terminating this Lease, such possession by Lessee will be deemed to be a
month-to-month tenancy terminable on thirty (30) days notice at any time by
either party. All provisions of this Lease, except those pertaining to term and
rent, will apply to the month-to-month tenancy. Lessee will pay Base Monthly
Rent in an amount equal to 150% of rent for the last full calendar month during
the regular term.
31. PROJECT PLAN
31.01 In the event Lessor requires the Premises for use in conjunction
with another suite or for other reasons connected with the Project planning
program, Lessor, upon notifying Lessee in writing, shall have the right to move
Lessee to space in the Project of which the Premises forms a part, at Lessor's
sole cost and expense (excluding private telephone systems which Lessee must
bear the cost of moving and installing), and the terms and conditions of the
original Lease will remain in full force and effect excepting that the Premises
will be in a new location. However, if the new space does not meet with Lessee's
approval, Lessee will have the right to cancel this Lease upon giving Lessor
thirty (30) days' notice within ten (10) days of receipt of Lessor's
notification. Should Lessee elect to cancel the Lease as provided in this
paragraph, the effective expiration date will equal the projected move-in date
of the suite Lessor wishes Lessee to move to as indicated in Lessor's written
notification to Lessee.
32. DEFAULT OF LESSOR / LIMITATION OF LIABILITY
32.01 In the event of any default by Lessor hereunder, Lessee agrees
to give notice of such default, by registered mail, to Lessor at Lessor's Notice
Address as stated in 1.04 and to offer Lessor a reasonable opportunity to cure
the default.
32.02 In the event of any actual or alleged failure, breach or default
hereunder by Lessor, Lessee's sole and exclusive remedy will be against Lessor's
interest in the Project, and no partner of Lessor will be sued, be subject to
service or process, or have a judgment obtained against him in connection with
any alleged breach or default, and no writ of execution will be levied against
the assets of any partner of Lessor. The covenants and agreements are
enforceable by Lessor and also by any partner of Lessor.
33. RELEASE OF PARTNERS OF LESSOR
33.01 If Lessee has any claim against Lessor under or arising out of
this Lease, Lessee's recourse shall be against
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the assets of Lessor and Lessee further hereby waives any and all right to
assert any claims against, or obtain any damages from the partners, employees,
officers, directors or agents of Lessor.
34. EXPANSION CLAUSE
34.01 If during the Lease Term, Lessee executes a lease within the
Project for space larger than the present Premises with a lease term at least
equal to that which remains on this Lease or one (1) year, whichever is greater,
with a Base Monthly Rent amount at least equal to the present Base Monthly Rent
of this Lease, this Lease shall be terminated upon the commencement date of the
lease for such substitute space. Notwithstanding the above-stated, Lessee shall
remain obligated to pay for any adjustments in rent pursuant to Paragraphs 3 and
4 due Lessor as a result of Lessee's tenancy hereunder and this obligation shall
survive the termination of this Lease pursuant to this Paragraph 34.
35. SUBORDINATION
35.01 Without the necessity of any additional document being executed
by Lessee for the purpose of effecting a subordination, and at the election of
Lessor or any mortgagee with a lien on the Project or any ground lessor with
respect to the Project, this Lease will be subject and subordinate at all times
to (a) all ground leases or underlying leases which may now exist or hereafter
be executed affecting the Project, and (b) the lien of any mortgage or deed of
trust which may now exist or hereafter be executed in any amount for which the
Project, ground leases or underlying leases, or Lessor's interest or estate in
any of said items is specified as security. In the event that any ground lease
or underlying lease terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made for any reason,
Lessee will, notwithstanding any subordination, attorn to and become the Lessee
of the successor in interest to Lessor, at the option of such successor in
interest. Lessee covenants and agrees to execute and deliver, upon demand by
Lessor and in the form requested by Lessor any additional documents evidencing
the priority or subordination of this Lease with respect to any such ground
lease or underlying leases or the lien of any such mortgage or deed of trust.
Lessee hereby irrevocably appoints Lessor as attorney-in-fact of Lessee to
execute, deliver and record any such document in the name and on behalf of
Lessee.
36. MISCELLANEOUS PROVISIONS
36.01 Whenever the singular number is used in this Lease and when
required by the context, the same will include the plural, and the masculine
gender will include the feminine and neuter genders, and the word "person" will
include corporation, firm, partnership, or association. If there be more than
one Lessee, the obligations imposed upon Lessee under this Lease will be joint
and several.
36.02 The headings or titles to paragraphs of this Lease are not a
part of this Lease and will have no effect upon the construction or
interpretation of any part of this Lease.
36.03 This instrument contains all of the agreements and conditions
made between the parties to this Lease and may not be modified orally or in any
other manner than by an agreement in writing signed by all parties to this
Lease. Lessee acknowledges that neither Lessor nor Lessor's agents have made any
representation or warranty as to the suitability of the Premises to the conduct
of Lessee's business. Any agreements, warranties or representations not
expressly contained herein will in no way bind either Lessor or Lessee, and
Lessor and Lessee expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease.
36.04 Time is of the essence of each term and provision of this Lease.
36.05 Except as otherwise expressly stated, each payment required to
be made by Lessee is in addition to and not in substitution for other payments
to be made by Lessee.
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36.06 Subject to Paragraph 19, the terms and provisions of this Lease
are binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of Lessor and Lessee.
36.07 All covenants and agreements to be performed by Lessee under any
of the terms of this Lease will be performed by Lessee at Lessee's sole cost and
expense and without any abatement of rent.
36.08 Any provision of this Lease, except for the payment of rents,
determined to be invalid by a court of competent jurisdiction will in no way
affect any other provision hereof.
36.09 In consideration of Lessor's covenants and agreements hereunder,
Lessee hereby covenants and agrees not to disclose any terms, covenants or
conditions of this Lease to any other party without the prior written consent of
Lessor.
37. DEPOSIT AGREEMENT
37.01 Lessor and Lessee hereby agree that Lessor will be entitled to
immediately endorse and cash Lessee's good faith rent and the Security Deposit
check(s) accompanying this Lease. It is further agreed and understood that such
action will not guarantee acceptance of this Lease by Lessor, but, in the event
Lessor does not accept this Lease, such deposits will be refunded to Lessee.
This Lease will be effective only after Lessee has received a copy fully
executed by Lessor.
38. GOVERNING LAW
38.01 This Lease is governed by and construed in accordance with the
laws of the state in which the Premises are located, and venue of any suit will
be in the county where the Premises are located.
39. SEVERABILITY
39.01 If any provision of this Lease is found to be unenforceable, all
other provisions shall remain in full force and effect.
40. LANDLORD'S LIEN
40.01 LESSOR HEREUNDER WILL HAVE THE BENEFIT OF, AND THE RIGHT TO, ANY
AND ALL LANDLORD'S LIENS PROVIDED UNDER THE LAW BY WHICH THIS LEASE IS GOVERNED.
41. SPECIAL PROVISIONS
41.01 Special provisions of this Lease number 42 through 46 are
attached hereto and made a part hereof. If none, so state in the following
space: see attached exhibits .
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
day and year indicated by Lessor's execution date as written below.
Individuals signing on behalf of a Lessee warrant that they have the
authority to bind their principals. In the event that Lessee is a corporation,
Lessee shall deliver to Lessor, concurrently with the execution and delivery of
this Lease, a certified copy of corporate resolutions adopted by Lessee
authorizing said corporation to enter into and perform the Lease and authorizing
the execution and delivery of the Lease on behalf of the corporation by the
parties executing and delivering this Lease. THIS LEASE, WHETHER OR NOT EXECUTED
BY LESSEE, IS SUBJECT TO
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<PAGE> 17
ACCEPTANCE BY LESSOR, ACTING ITSELF OR BY ITS AGENT ACTING THROUGH ITS PRESIDENT
AND VICE PRESIDENT AT ITS HOME OFFICE, REGIONAL MANAGERS, DIRECTOR OF LEASING
AND ASSISTANT VICE PRESIDENTS.
<TABLE>
<S> <C>
LESSOR LESSEE
PS Business Parks, L.P. Optimum Care Corporation:
Federal Tax ID# 95-4609269 A Delaware Corporation
By Lisa Freitas - Assistant Vice President By Edward A. Johnson - Chairman & CEO
------------------------------------------- --------------------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
- ---------------------------------------------- -----------------------------------------------
TITLE TITLE
DATE DATE 9/23/98
------------------------------------------ -------------------------------------------
EXECUTION DATE
</TABLE>
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<PAGE> 18
Provision 42
HAZARDOUS MATERIALS
Compliance with Law
Lessee, at Lessee's expense, shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of federal, state, county
and municipal authorities pertaining to Lessee's use of the premises and with
the recorded covenants, conditions and restrictions, regardless of when they
become effective, including, without limitation, all applicable federal, state
and local laws, regulations or ordinances pertaining to air and water quality,
Hazardous Materials (as hereinafter defined), waste disposal, air emissions and
other environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Lessor or Lessee with respect to the
use or occupation of the Premises.
Use of Hazardous Materials
(1) Lessee shall (i) not cause or permit any Hazardous Material to
be brought upon, kept or used in or about the premises or the project by Lessee,
its agents, employees, contractor or invitees without prior written consent of
Lessor, which Lessor shall not unreasonably withhold as long as Lessee
demonstrates to Lessor's reasonable satisfaction that such Hazardous Material is
necessary or useful to Lessee's business and will be used, kept and stored in a
manner that complies with all laws regulating any such Hazardous Material so
brought upon or used or kept in or about the Premises. If Lessee breaches the
obligations stated in the preceding sentence, or if the presence of Hazardous
Material on the Premises or the Project caused or permitted by Lessee results in
contamination of the Premises or the Project by Hazardous Material otherwise
occurs for which Lessee is legally liable to Lessor for damage resulting
therefrom, then Lessee shall indemnify, defend and hold Lessor harmless from any
and all claims, judgements, damages, penalties, fines, costs, liabilities or
losses (including, without limitation, diminution in value of the Premises or
the Project, damages for the loss or restriction on use of rentable or useable
space or of any amenity of the Premises or the Project, damages arising from any
adverse impact on marketing of space, and sums paid in settlement of claims,
attorney's fees, consultant fees and expert fees) which arise during or after
the Lease term as a result of such contamination. This indemnification of Lessor
by Lessee includes, without limitations, costs, incurred in connection with any
investigation of site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Premises on the Project. Without limiting the
foregoing, if the presence of any Hazardous Material on the Premises or the
Project caused or permitted by Lessee results in any contamination of the
Premises or the Project, Lessee shall promptly take all actions at its sole
expense as are necessary to return the Premises and the Project to the condition
existing prior to the introduction of any such Hazardous Material to the
Premises or the Project; provided that Lessor's approval of such actions shall
first be obtained, which approval shall not be unreasonably withheld so long as
such actions would not potentially have any material adverse long-term or
short-term effect on the Premises or the Project. The foregoing indemnity shall
survive the expiration or earlier termination of this Lease.
(2) Definition of "Hazardous Material". As used herein, the term
"Hazardous Material" means any hazardous or toxic substance, substances, or
materials, and wastes listed in the United States Department of Transportation
Hazardous Material Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances, material and wastes that are or become regulated
under any applicable local, state of federal law.
(3) Disclosure. At the commencement of this Lease, and on January
1st of each year thereafter (each such date being hereafter called "Disclosure
Dates"), including January 1 of the year after termination of this Lease, Lessee
shall disclose to Lessor the names and amount of all Hazardous Materials, or any
combination thereof, which were stored, used or disposed of on or about the
Premises, or which Lessee intends to store, use or dispose of on or about the
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<PAGE> 19
Premises.
(4) Inspection. Lessor and its agents shall have the right, but not
the duty, to inspect the Premises and the Project at any time to determine
whether Lessee is complying with the terms of this Lease. If Lessee is not in
compliance with this Lease, Lessor shall have the right to immediately enter
upon the Premises and the Project to remedy any contamination caused by Lessee's
failure to comply notwithstanding any other provision of this Lease. Lessor
shall use its best efforts to minimize interference with Lessee's business but
shall not be liable for any interference caused thereby.
(5) Default. Any default under this Paragraph shall be a material
default enabling Lessor to exercise any of the remedies set forth in the Lease.
Provision #43
USE CLAUSE. Tenant has negotiated the use clause contained in sec. 1.05 of this
lease. Tenant hereby agrees that the use clause as so written is deemed to be
reasonable for all purposes. Tenant hereby further agrees that this use clause
is enforceable for all purposes and specifically waives all challenges to this
clause now and in the future. The purposes for which this use clause is deemed
to be reasonable and enforceable include, but are not limited to, any and all
future changes tenant may request in the use of the premises, and any and all
circumstances relating to breach of lease, and/or mitigation of damages, and/or
assignment, and/or subletting.
Provision #44
SMOKING. Smoking of any kind is strictly prohibited, at all times, at any
location on this property, except in the designated smoking area which is
located at the OUTSIDE PERIMETER OF BUILDING ONLY. The designated smoking area
may be relocated by Lessor, at its sole discretion, at any time during the term
of this lease.
Provision #45
NON DISCRIMINATION. The Lessee herein covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
it, and this lease is made and accepted upon and subject to the following
conditions; that there shall be no discrimination against or segregation of any
person or group of persons, on account of sex, marital status, race, color,
religion, creed, national origin, or ancestry, the leasing, sub-leasing,
renting, transferring, use occupancy or enjoyment of the land herein leased not
shall the Lessee itself or any person claiming under or through it, establish or
permit any such practice or practices of discrimination or segregation with
reference to the selection, location, number use or occupancy of tenants,
lessees, sublessees, subtenants, or vendees, in the land herein leased.
Provision #46
ADJUSTMENT TO BASE MONTHLY RENT:
The base monthly rent shall increase to the following amounts for the following
period:
June 1, 2000 - November 30, 2001 the Base Monthly Rent will be
$3,280.00.
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EXHIBIT A
PS BUSINESS PARK
CULVER CITY
(THIS EXHIBIT IS A MAP OF THE LOCATION OF THE PROJECT, AS WELL AS, AN OUTLINE OF
THE PROJECT.)
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EXHIBIT A-1
PS BUSINESS PARK
5850 HANNUM AVE.
CULVER CITY, CALIFORNIA
SCALE 1/8" = 1'-0"
Approximately 2,259 r.s.f.
(THIS EXHIBIT IS AN OUTLINE OF THE PREMISES, INCLUDING THE "PROPOSED ADDITION OF
CONFERENCE ROOM.)
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EXHIBIT "A-2"
LEGAL DESCRIPTION - CULVER CITY (#24534)
The land referred to herein is situated in the County of Los Angeles, State of
California, and is described as follows:
Parcel 1:
Lots 11 to 13 inclusive, of Tract No. 22864, in the city of Culver City, in the
County of Los Angeles, State of California, as per map recorded in Book 880
Pages 49 to 55 inclusive of maps, in the office of the County Recorder of said
County.
Excepting from said land, all metals and minerals and all oil, natural gas,
asphaltum and other hydrocarbons, without right of surface entry, together with
the right to explore and to drill and to produce, extract and take metals and
minerals, oil, natural gas, asphaltum and other hydrocarbons, together with all
rights necessary and convenient thereto for any or all of the above purposes,
including without limiting the generality hereof subsurface rights of way for
drilling, repairing, redrilling, deepening, maintaining, operating, abandoning,
reworking, and removing wells into and through said land, below a plan of 500
feet below the surface thereof and excepting and reserving the right to maintain
pipes and to transport any such substances and to cross and traverse from other
lands below a depth of 500 feet, as reserved by Home Savings and Loan
Association, a California Corporation, in deed recorded December 30, 1969 as
Instrument No. 261, in Book D-4593 Page 72, Official Records.
Parcel 2:
Parcel 1 of Parcel 2 Map No. 12436, in the city of Culver City, as per map filed
in Book 122 Pages 22 and 23 of parcel maps, in the office of the County Recorder
of said County.
Excepting from said land, all metals and minerals and all oil, natural gas,
asphaltum and other hydrocarbons, without right of surface entry, together with
the right to explore and to drill and to produce, extract and take metals and
minerals, oil, natural gas, asphaltum, and other hydrocarbons, together with all
rights necessary and convenient thereto for any or all of the above purposes,
including without limiting the generality hereof subsurface rights of way for
drilling, repairing, redrilling, deepening, maintaining, operating, abandoning,
reworking, and removing wells into and through said land, below a plane of 500
feet below the surface thereof and excepting and reserving the right to maintain
pipes and to transport any such substances and to cross and traverse from other
lands below a depth of 500 feet, as reserved by Home Savings and Loan
Association, a California Corporation, in deed recorded December 30, 1969 as
Instrument No. 261, in Book D-4593 Page 72, Official Records.
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EXHIBIT B
Lessee accepts premises in present condition
Subject to the provision of Article 8 , Lessee accepts the premises in the
condition they are in at the commencement of this lease and shall maintain said
premises in the same condition, order, and repair, excepting only reasonable
wear and tear, arising from the use under this Agreement. Lessee has examined
and knows the condition of the leased premises and agrees that no
representations, except such as are contained herein, have been made to Lessee
respecting the condition of said premises. The taking possession of said
premises by Lessee shall be conclusive that the premises are in good and
satisfactory condition.
Lessor agrees to install a conference room as per the drawing in Exhibit
A-1.
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EXHIBIT C
Lessee shall submit in writing to Lessor, for Lessor's approval, all plans for
suite signage, prior to installation of such signage. All signage shall be
subject to Lessor's approval.
CONTACT: Tim Jetmore (562) 427-0123
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EXHIBIT D
RULES AND REGULATIONS
In order to promote the safety, cleanliness, and aesthetics of the Business
Park, the following rules and regulations are in effect which may be modified or
amended at any time by Lessor upon notice to Lessee. In the case of conflict
between these regulations and the lease, the lease shall be controlling.
1. Furniture safes/moving. Safes, furniture, freight, or bulky articles shall be
moved in and out of the complex in a manner and as such times so as not to
create an inconvenience to other tenants and is subject to direction and
approval of Lessor. Heavy articles that exceed the structural support of the
premises or exceed fifty (50) pounds per square foot is not permitted.
2. Windows/signs. All tenant identification signs shall be a type, size, and
color as specified by Lessor and provided at Lessee's expense. No sign, picture,
or advertisement may be placed in the windows or exterior of the building. Where
Lessor provides standard window coverings, such coverings shall not be altered,
removed or replaced by Lessee. Where Lessor does not provide standard window
coverings, installation of window coverings by Lessee shall be subject to
Lessor's prior written approval.
3. Common area/roof. Sidewalks, entrances, and exits shall not be obstructed or
used by Lessee for any purpose other than normal ingress and egress. Neither
Lessee nor employees or invitees of Lessee shall go upon the roof of the
building.
4. Parking. The parking areas, include surface parking, parking structure,
driveways, entrances, exits, pedestrian walkways, and any other areas designated
for parking and shall be regulated and modified by Lessor with respect to
restricted areas, direction and flow of traffic, hours of use and any other
related facilities. The parking area shall be used solely for the parking of
passenger vehicles during normal business hours. The parking of trucks,
trailers, recreational vehicles, and campers is not permitted. No vehicle of any
type shall be stored in the parking areas at any time. In the event that a
vehicle is disabled, it shall be removed within 48 hours. Maintenance of
vehicles is not permitted in the parking areas. All vehicles shall be parked in
designated parking areas in conformance with all signs and markings and shall
not be parked in areas not designated for parking, in aisles, driveways,
no-parking areas, or in any manner which impeded the flow of traffic. "For Sale"
signs or any other advertising is not permitted on or about any parked vehicles.
5. Advertising. Lessee shall not use the name of the building in connection with
promoting or advertising Lessee's business except as the Lessees address. Lessor
shall have the right to prohibit the use of the name of the project or other
publicity by Lessee which in Lessor's opinion tends to impair the reputation of
the project or its desirability for other Lessees. Lessee will discontinue such
publication immediately upon receipt of notice from Lessor.
6. Nuisance. Lessee shall not keep or allow to be used any foul or noxious gas
or substance on the premises. Nor shall Lessee occupy or use the premises in any
manner which is objectionable or offensive to other occupants by reason of
odors, noise, vibration, or interference in any way with other tenants or those
having about the premises or any part of the project. Lessee shall maintain the
leased premises free of mice, ants, bugs, or other vermin.
7. Dangerous articles. Lessee shall not use or keep on the premises or any part
of the project any kerosene, gasoline, or inflammable or combustible fluid or
material or any article deemed extra hazardous. Lessee shall not use any method
of heating or air conditioning other than supplied by Lessor.
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EXHIBIT D
(PAGE 2)
8. Improper conduct. Lessor reserves the right to expel from the Business Park
any person who is intoxicated or under the influence of liquor or drugs or who
shall act in violation of any of these rules and regulations
9. Janitorial Service. Lessee shall not dispose any dirt or other substance into
the parking areas, landscaping, walkways or common area. Lessee shall not do any
act which would create additional costs to maintain the cleanliness of the
project.
10. Locks. Lessee shall not alter any lock or install new or additional lock or
bolt on any door of the of the premises without prior written consent, Lessee
shall furnish a key to such lock. Upon termination of the tenancy, Lessee must
return all keys of the premises to Lessor.
11. Use of premises. The leased premises shall not be used for lodging,
sleeping, cooking or for any immoral or illegal purpose that will damage the
premises or the reputation thereof. Lessee shall not use the premises for any
purpose other than that specified in the lease covering the premises.
12. Solicitations. Lessee shall not disturb, solicit, or canvas any occupant of
the project and shall cooperate to prevent the same.
13. Safety. Lessee shall not do or permit any act or bring anything on the
premises which shall in any way increase rate of fire insurance on the building,
obstruct or interfere with the right of other tenants, conflict with the fire
regulations and fire laws, or conflict ordinances established by the Board of
Health or other governmental authority.
14. Damage. Walls, floors and ceilings shall not be defaced in any way and no
one shall be permitted to mark, paint, penetrate or in any way mark the building
surfaces, walkways, stairwells, driveways, or parking area. Pictures,
certificates, licenses, and similar items normally used in Lessee's premises may
be carefully attached to the walls or other surfaces shall be repaired by
Lessee.
15. Wiring. No electrical wiring, electrical apparatus, or additional electrical
outlets shall be installed without the prior written approval of Lessor. Any
such installation may be removed by Lessor at Lessee's expense. Lessee may not
alter any existing electrical outlets or overburden them beyond their designed
capacity. Lessor reserves the right to enter the leased premises, with
reasonable notice to tenant, for the purpose of installing additional electrical
wiring and other utilities for the benefit of Lessee or adjoining tenants.
Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced. The location of telephones, call boxes, and other
equipment affixed to the premises shall be subject to the approval of Lessor.
16. Auction. No auction, public or private will be permitted.
17. Exterior. Lease shall not place any improvement or moveable object including
antennas, awnings, outside furniture, etc. in the parking areas, landscaped
areas, on the roof, or other areas outside of the leased premises.
18. Requirements of Lessee. Employees of Lessor shall not perform any work or do
anything outside of their regular duties unless under special instruction from
Lessor. Lessee shall give Lessor prompt notice of any defects in the water,
sewage, gas pipes, exterior electrical lights and fixtures, or other service
equipment.
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19. General. It is understood that if Lessee, his employees, agents, or invitees
violate any of these rules and regulations which results in any damage to the
property, increases costs of maintenance of the property, or incurs expenses to
reasonably enforce the rules and regulations, Lessee shall pay to Lessor all
such costs as additional rent.
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EXHIBIT 10.110
PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT
THIS PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT ("Agreement") is
made and entered into by and between CATHOLIC HEALTHCARE WEST SOUTHERN
CALIFORNIA, a California nonprofit public corporation doing business as St.
Francis Medical Center ("Medical Center"), and OPTIMUMCARE CORPORATION, a
Delaware corporation ("Manager").
RECITALS
A. Medical Center operates a general acute care hospital in which
is located a mental health unit which provides adult inpatient psychiatric
services ("Inpatient Program").
B. Manager is in the business of providing management and other
services for the treatment of inpatient psychiatric patients in compliance with
industry, regulatory, and governmental standards and requirements through its
OPTIMUMCARE PSYCH UNIT PROGRAM.
C. Medical Center and Manager desire to enter into this Agreement
in order to set forth the terms and conditions upon which Manager will provide
Inpatient Program management and other services to or for the benefit of Medical
Center.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and promises set forth herein, and for such other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Term and Termination.
1.1 Term: Unless sooner terminated in accordance with the provisions
of Sections 10 hereof, this agreement shall commence at 12:01 a.m. on September
15, 1998 and shall remain in full force and effect for a term of two (2) years,
expiring at 11:59 p.m. on September 14, 2000.
1.2 Termination: In addition to any other events causing termination
under this Agreement, this Agreement may be terminated on the first to occur of
any of the following:
1.2.1 Either party, at any time during the term of this
Agreement, may terminate this Agreement without cause upon ninety (90) days'
prior written notice.
1.2.2 Either party shall have the right to terminate this
Agreement on thirty (30) days' prior written notice to the other party if the
party to whom such notice is given is in breach of any material provision of
this Agreement. The party claiming the right to terminate hereunder shall set
forth, in the notice of intended termination required hereby, the facts
<PAGE> 2
underlying its claim that the other party is in breach of this Agreement.
Notwithstanding the foregoing, this Agreement shall not terminate in the event
that the breaching party cures the breach within ten (10) days of the receipt of
such notice, or if such breach is not reasonably capable of cure within such
period, diligently prosecutes such cure to completion within the thirty (30) day
notice period.
1.2.3 In the event there are any changes effected in the
California Medical Assistance Program ("Medi-Cal"), Title XVIII of the Federal
Social Security Act ("Medicare"), and/or substantial changes under other public
or private health and/or hospital care insurance programs or policies which may
have a material effect on the operations of Medical Center, Medical Center may
elect to renegotiate this Agreement upon written notice of Manager. Medical
Center shall indicate the basis upon which it has determined that such a
material impact on its operations may result. In any case where such notice is
provided, both parties shall negotiate a revised agreement, which, to the extent
reasonably practicable, under the circumstances, each party will adequately
protect its interests and fulfill its objectives in light of the governmental
program or private insurance policy changes which constituted the basis for the
exercise of this provision. In the event the parties are unable to negotiate a
revised agreement within said period, Medical Center may thereupon elect to
terminate this Agreement upon thirty (30) days' prior written notice.
1.3 Subject to the provisions of the sections above, Manager shall
immediately cause the removal of any Inpatient Program Director, Medical
Director or any physician or licensed professional providing professional
services for the Inpatient Program under Manager's employment or contract, who
is subject to or under disciplinary action by licensing or other authorities, or
whose performance results in disciplinary action by the Medical Staff, and/or
whose performance results in a final judgement awarding damages of $100,000 or
more against the Medical Center and/or if any such physician(s) loses (or has
suspended or modified or placed on probation) his or her Medical Staff
membership and/or clinical privileges to practice psychiatry or his or her
profession at the Medical Center. If Manager fails to immediately terminate any
such professional, then Medical Center may immediately terminate this Agreement.
1.4 If either party to this Agreement should be declared bankrupt or
become insolvent or liquidate for any reason, the other party may transmit to
the former party written notice of its intention to immediately terminate this
Agreement, specifying with particularity the event justifying such notice;
provided, that the delay or failure of a party so to transmit written notice
shall not constitute a waiver by said party of any default hereunder or of any
other or further default under this Agreement by the former party. If the event
justifying such notice is the bankruptcy, insolvency or liquidation of the party
receiving such notice, this Agreement shall terminate forthwith.
1.5 This Agreement may be terminated by Medical Center immediately
on written notice if:
1.5.1 Medical Center gives written notice to Manager
(specifying in reasonable detail the reasons and events giving rise to the
delivery of such notice) that the
<PAGE> 3
Inpatient Program operated by manager has failed to meet licensing, payor
certification, or JCAHO standards of patient care or requirements, or Medical
Center's or its Medical Staff's standards, and Manager fails to remedy such
deficiencies to Medical Center's absolute satisfaction within thirty (30) days
of receipt of such notice.
1.5.2 Manager initiates or undergoes, without Medical Center's
prior written approval, (a) any sale or transfer of all or substantially all of
its assets other than in the ordinary course of business; (b) any dissolution,
merger or reorganization; or (c) any change, individually or through a series of
transactions, in a 20% or greater ownership, voting or control interest in
Manager or any change in Manager's management with responsibility over the
Inpatient Program.
2. Covenants of the Medical Center.
Medical Center shall:
2.1 Subject to availability and budgetary constraints, shall provide
space that shall accommodate a minimum of forty (40) inpatient beds in a
discrete contiguous wing of the Medical Center facility for Program inpatients
("Unit"). Medical Center shall also provide the services, facilities and support
of other Medical Center departments, including without limitation, available
diagnostic facilities, as Medical Center determines is reasonably necessary for
Program patients and as ordered by said patients' attending physicians. Medical
Center shall also provide office space for Manager's Program Director within the
Unit as Medical Center reasonably determines is necessary for the operation of
the Program, subject to space and budgetary constraints. Manager shall accept
such space, facilities, etc. of Medical Center in "as is" condition, and title
to such space, facilities, etc. shall remain at all times in Medical Center.
Said Unit space shall be used solely for the operation of the Program and for no
other purposes.
2.2 Provide the Inpatient Program with qualified nursing personnel,
at staffing levels sufficient to meet Inpatient Program needs as determined by
Medical Center in its sole discretion, who are trained and experienced in
psychiatric nursing and provide other non-physician personnel, such personnel
collectively referred to herein as "Medical Center Personnel". Medical Center
shall be responsible for employing or engaging such Medical Center Personnel and
are solely liable to such personnel for payment of their wages, compensation and
employee benefits. Said personnel shall comply with the Inpatient Program
policies and procedures as developed by Medical Center.
2.3 Assist Manager in maintaining accreditation of the Inpatient
Program by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"), Accreditation Council for Psychiatric Facilities, and pay all related
application fees, and assist Manager in the preparation of any and all
information, data and materials required in connection with application or
renewal for such accreditation. Medical Center shall also obtain, with Manager's
full cooperation and assistance, any and all certifications or approvals from
the Medicare and MediCal Programs and from any other governmental or private
payment or reimbursement programs. Medical Center shall also obtain, with
Manager's full assistance and cooperation, any consents
<PAGE> 4
or approvals to maintain the Program as an inpatient service under Medical
Center's general acute care hospital license. Manager shall be solely liable for
any costs or expenses that it incurs in connection with providing assistance to,
and cooperating with, Medical Center in obtaining the consents and approvals
described in this Section 2.4.
2.4 Acknowledges that the selection, continued employment and
termination of employment and overall supervision and direction of Medical
Center Personnel for the Inpatient Program shall be at the sole discretion of
Medical Center's Administration. However, Medical Center agrees that it shall
consult with Manager in the event Manager desires the removal from the Program
of any Medical Center Personnel, provided that such request is made in writing
specifying with particularity the cause for such request and such request shall
not be made unreasonably.
2.5 Provide: (1) maintenance of the patient care areas used for the
Inpatient Program as Medical Center determines is necessary upon consultation
with Manager; (2) dietary service for Program patients as is normally available
to other Medical Center patients; (3) housekeeping services for patients and
Manager's offices at the Medical Center as is normally available to other
Medical Center patients; (4) telephone and utilities for patient areas and
Manager's offices at the Medical Center as is normally available for Medical
Center facilities; and (5) other services of Medical Center departments
customarily provided in the ordinary course of business to Medical Center
patients (e.g. record keeping); all of which as reasonably determined by Medical
Center to be necessary for the efficient operation of the Program.
2.6 Provide oversight and supervision for appropriate utilization
review ("UR") and quality improvement ("QI") programs and procedures developed
and implemented by Manager in cooperation with Medical Center for the Inpatient
Program, and integrate such programs and procedures with Medical Center's other
such programs and procedures.
2.7 Review and, if acceptable, approve Manager's publicity and
marketing plans and advertising, publicity and marketing materials for the
Program, from time to time.
2.8 Maintain its general and professional liability insurance, or
self-insurance, coverage for Medical Center and Medical Center employees or
agents.
3. Covenants of Manager.
Manager shall:
3.1 Provide professional and general liability insurance coverage of
at least Three Million Dollars ($3,000,000) per occurrence with an aggregate
limitation of Five Million Dollars ($5,000,000) with respect to Manager and
Manager's employees, agents, and contractors that Manager retains to provide
services to the Program. If Manager provides a claims-made policy, Manager shall
either maintain such insurance coverage in force following the termination of
this Agreement, or provide evidence of adequate "tail" coverage, with such terms
and conditions approved in advance by Medical Center. Manager shall also ensure
that each physician
<PAGE> 5
providing professional services on behalf of the Inpatient Program maintains
professional liability insurance in the minimum coverage amounts and subject to
the terms specified herein. All insurance policies providing coverage as
described above shall provide for at least thirty (30) days' prior written
notice to Medical Center prior to any modification, amendment or cancellation of
such coverage taking effect. Manager shall provide Medical Center with
certificates evidencing the insurance coverage required above immediately upon
the execution of this Agreement.
3.2 Subject to Medical Center's approval, Manager shall develop,
implement and supervise the Inpatient Program. The Inpatient Program shall
include intensive, specialized inpatient services for the care and treatment of
adult psychiatric patients. Manager shall, in general, develop clinical
treatment programs that meet the clinical needs and community standards, and are
in compliance with the licensure and accreditation requirements for governmental
and regulatory agencies and payors. Manager shall provide ongoing management and
support services for the Inpatient Program.
3.3 Provide the following personnel for the Inpatient Program: (1) a
Medical Director assigned exclusively full-time to the Program (who shall be a
psychiatrist duly licensed in good standing by the State of California, shall be
certified by the Board of Psychiatry, and shall be a member in good standing of
the Medical Center's Medical Staff with clinical privileges in Psychiatry); (2)
a Program Director to manage the Inpatient Program and who shall have day-to-day
management responsibility for the Program and Program personnel, (3) clinical
psychologist(s) in a number acceptable to Medical Center, one of whom shall be
designated as chief therapist; (4) A Program Coordinator, with such licensure
and background as shall be approved in advance by Medical Center; and (5)
occupational/recreational therapist(s) in numbers sufficient to meet Inpatient
Program needs, additional licensed counselors in numbers sufficient to meet
Inpatient Program needs, and any other non-physician personnel required for the
Inpatient Program who are not provided by Medical Center hereunder. Any and all
non-Medical Center personnel employed or contracted for by Manager to render
services in the Inpatient Program shall be subject to prior approval by Medical
Center and, as applicable, its Medical Staff and shall be compatible with
Medical Center's employment standards, and Medical Center shall be furnished a
job description and resume of qualifications and work experience with respect to
such personnel as well as any completed applications as may be required by
Medical Center or its Medical Staff. Such personnel shall not be deemed
employees or agents of Medical Center, and Manager shall have full
responsibility for wages, vacation pay, sick leave, payroll and other employment
taxes, pension and retirement plan contributions, worker's compensation and
unemployment insurance, social security, or any other benefits, or other pay or
compensation whatsoever (collectively, "employee benefits") for any of Manager's
employees or contractors provided hereunder, or providing services under this
Agreement, as defined below.
3.4 Consult with the Medical Center for the development of clinical
needs for the selection of Program nursing staff.
3.5 Provide, at its sole cost and expense, qualified personnel of
Manager to conduct on-site orientation programs, to enable Medical Center to
train the Program nursing staff and selective nursing personnel from other units
of the Medical Center to act as back-up for the
<PAGE> 6
Program nursing staff.
3.6 Consult, manage and support the Inpatient Program treatment
team's effort to provide quality psychiatric treatment working collaboratively
with Medical Center's Medical Staff, and care management, UR and Discharge
Planning personnel.
3.7 Any employee or contractor of Manager who, Medical Center, in
its sole discretion, determines is incompatible with the goals, bylaws, rules,
regulations, policies or procedures of Medical Center and/or its Medical Staff
shall be removed by Manager upon thirty (30) days' prior written notice. Medical
Center shall have the right, in its sole discretion, to approve or disapprove in
advance in writing any proposed replacement or substitute for any of Manager's
personnel hereunder. Any employee or contractor of Manager shall be immediately
removed if Medical Center, in its sole discretion, determines that the
individual's presence is a threat to patient care or the Medical Center's
operations. Professionals provided by Manager shall apply for and maintain in
good standing appropriate membership as an allied health professional or
physician (as applicable) on Medical Center's Medical Staff with appropriate
clinical privileges, as required by the Medical Staff bylaws, rules and
regulations and shall not cause any suspension, reduction or termination of such
membership or privileges or be placed on probation by the Medical Staff.
3.8 Submit monthly status reports for the Program to Medical
Center's Administration in a form acceptable to Medical Center that will review
Program operations during the previous month and outline planned activities for
the coming month.
3.9 Initiate a comprehensive public information, education,
marketing and referral development program, which shall be reviewed and approved
periodically in coordination with other Medical Center public relations and
marketing plans. Within thirty (30) days following the commencement date hereof,
Manager shall present Medical Center for its review and approval with a detailed
publicity and marketing plan, and Manager shall implement such plan within no
later than thirty (30) days following Medical Center's approval thereof. Such
publicity and marketing activities shall be conducted at Manager's sole cost and
expense, which costs and expenses may include, without limitation, development
of patient handbooks or brochures; printing of articles, business cards,
stationery, and the like; development of public service announcements,
advertising campaigns, press releases and radio commercials; preparation of
invitations and announcements for educational programs; preparation of referral
letters; and hosting seminars and workshops. Medical Center shall have the right
and must approve or disapprove in advance all marketing programs, which approval
shall not be unreasonably withheld. Manager shall not be permitted to use
Medical Center's or Medical Center's name, logo or likeness without Medical
Center's prior written approval.
3.10 Develop and implement operational policies and procedures for
the Inpatient Program, including, without limitation, UR/QI procedures, in
collaboration with Medical Center. Any and all Inpatient Program policies,
procedures, programs and activities are subject to prior review and approval by
Medical Center's administration and its Medical Staff.
<PAGE> 7
3.11 Use its best efforts to assist Medical Center in working with
governmental agencies, third-party payors and others to secure necessary
licenses, permits, approvals, accreditation and certifications for the Program.
3.12 Follow admission policies and procedures developed by Medical
Center in respect to patients of Inpatient Program, as well as other
authorizations for admission of patients to the Program and the provision of
services to such patients on behalf of Medical Center as are required by
governmental agencies or any other third-payor prior to the patient's admission.
Utilize its best efforts to obtain additional Treatment Authorization Record's
("TAR's") and approvals for continued hospitalization and/or services as
necessary to promote timely payment.
3.13 Obtain and maintain worker's compensation insurance for its
employees and agents as required by California law. If permitted, Medical Center
shall be added as an additional insured on such policy.
3.14 Commit no act or omission which adversely affects Medical
Center's licensure reimbursement or certification or accreditation in connection
with the management and operation of the Inpatient Program.
3.15 Cause patients to be admitted to the Inpatient Program
(including but not limited to Medicare and Medi-Cal patients) only if the
admission is ordered by a physician who is a member in good standing of the
Medical Center Medical Staff with admitting privileges, and strictly in
compliance with Medical Center's admission policies and procedures (as described
above).
4. Representation and Warranties of Manager.
Manager hereby represents and warrants to Medical Center as
follows, which representations and warranties shall be true, accurate and
complete on the date of this Agreement (as defined herein) and at all other
times during the term hereof:
4.1 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.
4.2 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 contravene
any governmental license, franchise, permit or other authorization possessed by
either party, nor will such execution and performance violate any federal, state
or local law, rule or regulation. This Agreement is a legal and binding
obligation of Manager, and all corporate actions and approvals have been taken
and obtained in order for Manager to enter into this Agreement. No approval,
authorization or other action by, or filing with, any governmental authority or
any other third party is required in connection with either party performing its
duties and obligations hereunder.
<PAGE> 8
4.3 There is no litigation, administrative proceedings or
investigation pending or threatened against Manager (nor is it subject to any
judgement, order, decree or regulations of any court or other governmental
administrative agency) pending or affect Manager which would materially
adversely affect the performance of Manager's obligations hereunder. Without
limiting the foregoing, Manager represents and warrants that it has strictly
complied, is currently in compliance and shall strictly comply with any and all
statutes, rules, regulations, decisions and guidelines applicable to the
operation, management, reimbursement and/or payment of services provided by
inpatient psychiatry programs which Manager is, has or shall be operating and/or
managing, under the Medicare and Medi-Cal Programs and any other public or
private third party reimbursement or payment program, and that Manager is not,
has not been and shall not be under investigation, audit or challenge by any
federal or state agency or authority in connection with any of its operations,
policies or procedures.
4.4 Any and all personnel and professionals provided by Manager to
the Inpatient Program shall be duly licensed and qualified, as applicable, and
shall fulfill each of their terms, duties, obligations covenants,
representations, warranties, responsibilities and indemnities applicable to them
hereunder at all times while performing services for the Program.
5. Compensation.
5.1 Compensation payable to Manager by Medical Center shall be on a
fixed fee basis and shall be the sum of Seventy Five Thousand Dollars ($75,000)
per month for each month of service provided hereunder. On or before the fifth
(5th) day of each calendar month Manager will forward to Medical Center an
invoice from the previous month for the fees due and payable by Medical Center
under this Section 5. Medical Center shall have ten (10) days following receipt
of any such invoice to dispute Manager's days of service or claim for
reimbursement in writing, which shall set forth the reasons for such dispute. If
Medical Center does not dispute an invoice, the payment of the Management Fee is
expressly conditioned upon Manager: (1) preparing and submitting to Medical
Center on a periodic basis, as determined by Medical Center, complete and
accurate time records on such forms specified by Medical Center, and complying
with all requirements and supplying all documents necessary to otherwise
substantiate claims by Medical Center to third party payors for services of
Manager, Medical Director, Inpatient Program Director and Manager's other
personnel; and (2) otherwise at all times being in compliance with the terms and
conditions of this Agreement. Except as otherwise provided herein, a failure by
Medical Center to pay the submitted invoice by the thirtieth (30th) day
following receipt of the invoice shall be a material breach of this Agreement by
Medical Center, which shall give Manager the right to terminate this Agreement
for cause, unless such failure is due to Manager's default under this or any
other provision of this Agreement. Any such termination of this Agreement by
Manager shall not affect Medical Center's obligation to pay undisputed amounts
due Manager under this Agreement, less any applicable credits, withholds or
deductions. Should this Agreement terminate for any reason as provided for under
this Agreement prior to the end of a calendar month, Manager shall be paid a
pro-rata amount for services rendered prior to the termination as payment in
full for services provided under this Agreement.
5.2 Medical Center or its duly authorized agents shall have the
exclusive and
<PAGE> 9
sole right to bill and collect all charges for services rendered by Manager to
patients in the Inpatient Program. All amounts collected by Medical Center or
its duly authorized agents pursuant to such invoices shall belong to Medical
Center, and Manager shall have no right or interest in the same; provided
however, this in no way restricts the Medical Director or other members of the
Medical Center Medical Staff from billing and collecting fees for professional
services rendered to patients in the Inpatient Program.
5.3 Both parties agree to evaluate the impact which HMO, Managed
Care, PPO, and other group business opportunities may have on Inpatient Program
operations, and to work collaboratively in the strategic planning and marketing
processes.
5.4 If Medical Center is denied reimbursement for ten percent (10%)
or more of the patient days billed under the Inpatient Program, compensation
payable to Manager under Section 5.1 shall be decreased at the rate of Two
Hundred and Fifty Dollars ($250.) per day denied in excess of that ten percent
(10%). A denied day is defined as reimbursement that is denied by any third
party payor, including MediCal, which denial has been appealed through the
appropriate appeals process in accordance with Medical Center's regular billing
and collection standards and practices.
5.4.1 The percentage of denied days shall be determined as
follows:
5.4.1.1 The number of patient days billed under the
Inpatient Program shall be identified for each six (6) month period of services
("billing period") provided hereunder. At the end of that billing period, the
percentage of denied days for that billing period shall equal the sum of the
number of denied days for that billing period divided by the total number of
patient days billed.
6. Confidential Information.
6.1 For purposes of this Agreement, the term "Confidential
Information" shall include the following: (1) all documents and other materials
including but not limited to the Proposal, memoranda, manuals, handbooks,
pamphlets, production books and audio or visual recordings, which contain
written information relating to the Inpatient Program (excluding written
materials distributed to patients in the Inpatient Program or as promotion for
the Inpatient Program), (2) all methods, techniques and procedures utilized in
providing psychiatric treatment services to patients in the Inpatient Program at
the Medical Center not readily available through sources in the public domain;
and (3) all trademarks, trade names and service marks of Manager.
6.2 Medical Center agrees and acknowledges that Confidential
Information is disclosed to it in confidence with the understanding that it
constitutes valuable business information developed by Manager at great
expenditure of time, effort and money. Medical Center agrees it shall not,
without the express prior written consent of Manager, use Confidential
Information for any purpose other than the performance of this Agreement.
Medical Center further agrees to keep strictly confidential and hold in trust
all Confidential Information and not disclose or reveal such information to any
third party without the express prior written consent of
<PAGE> 10
Manager. It is expressly understood that Medical Center will continue to
disclose patient information to insurers and governmental agencies as mandated.
6.3 Medical Center acknowledges that the disclosure of Confidential
Information to it by Manager is done in reliance upon the Medical Center's
representation and covenants in this Agreement. Upon termination of this
Agreement by either party for any reason whatsoever, Medical Center shall
forthwith return all material constituting or containing Confidential
Information and Medical Center will not thereafter use, appropriate, or
reproduce such information or disclose such information to any third party,
except as mandated by law.
6.4 Non-Disclosure. Manager acknowledges that during the term of
this Agreement she may be given access to certain proprietary information and
trade secrets of Medical Center ("Trade Secrets"). The Trade Secrets will
include information relative to Medical Center and may also include information
encompassed in business plans, proposals, marketing and development plans,
financial information, costs and other concepts, ideas or know-how related to
the business or developments of CHWSC which have not been publicly released by
Medical Center or its duly authorized representatives. Manager shall preserve
and maintain as confidential all Trade Secrets that have been or may be obtained
by her in the courses of her performance of services under this Agreement.
Manager also shall not, without the prior written consent of Medical Center, use
for her own benefit or purposes, or disclosure to others, either during the term
of this Agreement hereunder or thereafter, any Trade Secret. All Trade Secrets
shall constitute "trade secrets" under the Uniform Trade Secrets Act contained
in California Civil Code Sections 3426 et seq., and Medical Center shall be
entitled to all protection and be afforded all remedies available under such
Act.
7. Recruitment of Employees and Independent Contractors.
7.1 Medical Center acknowledges that Manager has and will continue
to expend substantial time, effort, and money training its employees and
independent contractors in the operation of the Program. The employees and
independent contractors of manager who will operate the program at the Medical
Center will have access to and possess Confidential Information of Manager.
Medical Center acknowledges that to employ or contract with former employees or
independent contractors of Manager would likely result in the use of Manager's
Confidential Information in violation of Section 6 hereof. Medical Center,
therefore, agrees that during the term of this Agreement and for one (1) year
thereafter, it will not, and it will cause Medical Center, not to employ,
solicit the employment of, or in any way retain the services of any employee,
former employee, or independent contractor of Manager if such individual has
been employed or retained by Manager and has provided services under this
Agreement as Medical Center at any time during the immediate preceding one (1)
year unless Manager gives Medical Center prior written consent thereto.
7.2 Manager agrees that during the same respective period of time,
it will not 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 Medical Center without Medical Center's prior written consent thereto.
<PAGE> 11
8. Service Mark License.
Medical Center acknowledges that "OptimumCare" and "OptimumCare
Unit" are registered service marks belonging exclusively to OptimumCare, and
that during the term of this Agreement only, Medical Center is licensed to
utilize these service marks in the marketing of professional services for the
treatment of adult psychiatric patients in the Program. Medical Center's use of
these service marks shall inure to the benefit of OptimumCare, and shall not
give Medical Center any right or title therein, and any common law service marks
rights acquired as a consequence of Medical Center's use thereof are hereby
assigned exclusively to OptimumCare. At the termination of this Agreement,
Medical Center shall immediately terminate the use of these service marks unless
a separate written service mark license agreement, specifically authorizing
continued use of such service marks, is entered into by the parties hereto at
that time. Medical Center will not cause any documents to be printed bearing
such service marks without an accompanying mark indicating that such service
marks are registered service marks. Manager likewise agrees that all publication
and information pieces developed or utilized for any purpose involving the
Medical Center must first have specific authorization of the Medical Center.
9. Compliance with Regulations.
Manager will conduct its activities and operations in strict
compliance with all rules and regulations of the Medical Center, its medical
staff and applicable state and other government authorities and agencies.
Manager's employees and representatives shall comply with and observe such rules
and regulations.
10. Jeopardy.
Notwithstanding anything to the contrary hereinabove contained,
in the event the performance by either party hereto of any term, covenant,
condition or provision of this Agreement should jeopardize the licensure of
Medical Center, its participation in, or its certification or reimbursement
from, Medicare, Medi-Cal, Blue Cross or any other reimbursement or payment
program, or its full accreditation by JCAHO or any other state or nationally
recognized accreditation, organization, or if for any reason said performance
should be in violation or be deemed unethical by any recognized body, agency or
association in the Medical or hospital fields, Medical Center may at its option
terminate this Agreement forthwith.
11. Miscellaneous.
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 judgement 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.
<PAGE> 12
12. Attorney Fees.
If any legal action (including arbitration) is necessary to
enforce the term 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. Governing Law.
The validity of this Agreement, the interpretation of the rights
and duties of the parties hereunder and the construction of the terms hereof
shall be governed in accordance with the internal laws of the State of
California.
14. Federal Government Access.
Until the expiration of four (4) years after the furnishing of
services pursuant to this Agreement, Manger shall make available, upon request
to the Secretary of Health and Human Services, or upon request to the Controller
General, or any of their duly authorized representatives, this Agreement, books,
documents and records of manager that are necessary to certify the nature and
extent of the cost claimed to Medicare with respect to the services provided
under this Agreement.
15. Notice.
All notices hereunder shall be in writing, delivered personally
or by Certified or Registered postal mails, postage prepaid, return receipt
requested, and shall be deemed given when delivered personally or when deposited
in the United States mail, addressed as below with proper postage affixed, but
each may change his address by written notice in accordance with this Paragraph.
Medical Center's Address: St. Francis Medical Center
3630 East Imperial Highway
Lynwood, CA 90262
Attention: Administrator
Copy to: CHW Southern California
790 E. Colorado Blvd., Suite 600
Pasadena, CA 91101
Attention: Corporate Counsel
Manager's Address: OptimumCare Corporation
428 Culver Blvd.
Playa Del Rey, CA 90293
<PAGE> 13
16. Severability.
If for any reason any clause or provision of this Agreement, or
the application of any such clause or provision in a particular context or to a
particular situation, circumstance or person, should be held unenforceable,
invalid or in violation of law by any court or other tribunal, then the
application of such clause or provision in contexts or to situations,
circumstances or persons other than that in or to which it is held
unenforceable, invalid or in violation of law shall not be affected thereby, and
the remaining clauses and provisions hereof shall nevertheless remain in full
force and effect.
17. Captions.
Any captions to or headings of the Articles, Paragraphs or
subparagraphs of this Agreement are solely for the convenience of the parties,
and shall not be interpreted to affect the validity of this Agreement or to
limit or affect any rights, obligations, or responsibilities of the parties
arising hereunder.
18. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument.
19. Entire Agreement; Amendment.
This Agreement constitutes the full and complete agreement and
understanding between the parties hereto and shall supersede all prior written
and oral agreements concerning the subject matter contained herein. Unless
otherwise provided herein, this Agreement may be modified, amended or waived
only by a written instrument executed by all of the parties hereto.
20. Force Majeure.
Neither party shall be liable nor deemed to breach this
Agreement for any delay or failure in performance or other interruption of
service resulting, directly or indirectly, from Acts of God, civil or military
authority, acts of the public enemy, riots or civil disobedience, war,
accidents, fires, explosions, earthquakes, floods, failure of transportation,
machinery or supplies, vandalism, strikes or other work interruptions by the
employees of any party, or any other cause beyond the reasonable control of the
party affected thereby. However, each party shall utilize its best good faith
efforts to perform under this Agreement in the event of any such occurrence or
circumstance.
21. Gender and Number.
Whenever the context hereof requires, the gender of all terms
shall include the masculine, feminine, and neuter, and the number shall include
the singular and plural.
<PAGE> 14
22. Ambiguities.
The general rule that ambiguities are to be construed against
the drafter shall not apply to this Agreement. In the event that any provision
of this Agreement is found to be ambiguous, each party shall have an opportunity
to present evidence as to the actual intent of the parties with respect to such
ambiguous provision.
23. Waiver.
No failure or delay by a party to insist upon the strict
performance of any term, condition, covenant or agreement of this Agreement, or
to exercise any right, power or remedy hereunder or under law or consequent upon
a breach hereof or thereof shall constitute a waiver of any such term,
condition, covenant, agreement, right, power or remedy or of any such breach or
preclude such party from exercising any such right, power or remedy at any later
time or times.
24. Indemnification.
Manager and Medical Center shall each indemnify, defend and hold
the other harmless against all claims and liabilities (including reasonable
attorney's fees and costs of suit) that may arise as a result of the negligent,
intentional or wrongful acts or omissions of the indemnifying party.
25. Independent Contractors.
25.1 In the performance of Manager's duties and obligations arising
under this Agreement, Manager is at all times acting and performing as an
independent contractor. Nothing in this Agreement is intended nor shall be
construed to create between Manager and Medical Center, with respect to their
relationship under this Agreement, either an employer/employee, joint venture,
partnership, or landlord/tenant (lease) relationship. In the event that a
determination is made for any reason that an independent contractor relationship
does not exist between Manager and Medical Center, Medical Center may terminate
this Agreement immediately upon written notice to Manager.
25.2 Manager shall reimburse Medical Center for the employee portion
of all employee-related taxes, charges or levies which may be collected from
Medical Center in the event that Manager is determined to be an employee of
Medical Center and not an independent contractor.
<PAGE> 15
SIGNATURE PAGE TO THE
PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT
IN WITNESS WHEREOF, this Agreement has been executed on _________, 1998,
at LYNWOOD, California.
Manager Medical Center
OPTIMUMCARE CORPORATION CHW SOUTHERN CALIFORNIA
doing business as
ST. FRANCIS MEDICAL CENTER
By: /s/ EDWARD A. JOHNSON By:
------------------------------- ----------------------------------
Edward A. Johnson Print name and title
Chairman of the Board
By: /s/ MULU G. MICHAEL
-------------------------------
Mulu G. Michael
President & Chief Operating
Officer
<PAGE> 16
SUPPORT ACTIVITIES
OptimumCare Corporation Responsibilities:
Patient Handbooks
Brochure
Reprints of Selected Articles
Printing of Business Cards for OptimumCare Program Team
Printing of Personalized OptimumCare Program Stationery, is desired
Public Service Announcement Campaign - Including Materials Prepared
for Television/Radio/Print
Public Relations Campaigns
Typing of Press Releases
Typing of Radio and Television Spots of Medical Center Stationery,
Addressing and Mailing of Invitations, Announcements and
General Program Correspondence
Marketing Expertise
Medical Center Responsibilities:
Typing of Public Relations and Referral Letters
Providing Telephone System for the OptimumCare Program
<PAGE> 17
OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT
THIS OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT
("Agreement") is made and entered into by and between CATHOLIC HEALTHCARE WEST
SOUTHERN CALIFORNIA, a California nonprofit public corporation doing business as
St. Francis Medical Center ("Medical Center"), and OPTIMUMCARE CORPORATION, a
Delaware corporation ("Manager").
RECITALS
A. Medical Center operates a general acute care hospital in which
is located a mental health unit which provides an adult partial hospitalization
program for outpatient psychiatric services ("Outpatient Program").
B. Manager is in the business of providing management and other
services for the treatment of inpatient psychiatric patients in compliance with
industry, regulatory, and governmental standards and requirements through its
OPTIMUMCARE PSYCH UNIT PROGRAM.
C. Medical Center and Manager desire to enter into this Agreement
in order to set forth the terms and conditions upon which Manager will provide
Outpatient Program management and other services to or for the benefit of
Medical Center.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and promises set forth herein, and for such other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Term and Termination.
1.1 Term: Unless sooner terminated in accordance with the provisions
of Sections 10 hereof, this agreement shall commence at 12:01 a.m. on September
15, 1998 and shall remain in full force and effect for a term of two (2) years,
expiring at 11:59 p.m. on September 14, 2000.
1.2 Termination: In addition to any other events causing termination
under this Agreement, this Agreement may be terminated on the first to occur of
any of the following:
1.2.1 Either party, at any time during the term of this
Agreement, may terminate this Agreement without cause upon ninety (90) days'
prior written notice.
1.2.2 Either party shall have the right to terminate this
Agreement on thirty (30) days' prior written notice to the other party if the
party to whom such notice is given is in breach of any material provision of
this Agreement. The party claiming the right to terminate hereunder shall set
forth, in the notice of intended termination required hereby, the facts
<PAGE> 18
underlying its claim that the other party is in breach of this Agreement.
Notwithstanding the foregoing, this Agreement shall not terminate in the event
that the breaching party cures the breach within ten (10) days of the receipt of
such notice, or if such breach is not reasonably capable of cure within such
period, diligently prosecutes such cure to completion within the thirty (30) day
notice period.
1.2.3 In the event there are any changes effected in the
California Medical Assistance Program ("Medi-Cal"), Title XVIII of the Federal
Social Security Act ("Medicare"), and/or substantial changes under other public
or private health and/or hospital care insurance programs or policies which may
have a material effect on the operations of Medical Center, Medical Center may
elect to renegotiate this Agreement upon written notice of Manager. Medical
Center shall indicate the basis upon which it has determined that such a
material impact on its operations may result. In any case where such notice is
provided, both parties shall negotiate a revised agreement, which, to the extent
reasonably practicable, under the circumstances, each party will adequately
protect its interests and fulfill its objectives in light of the governmental
program or private insurance policy changes which constituted the basis for the
exercise of this provision. In the event the parties are unable to negotiate a
revised agreement within said period, Medical Center may thereupon elect to
terminate this Agreement upon thirty (30) days' prior written notice.
1.3 Subject to the provisions of the sections above, Manager shall
immediately cause the removal of any Outpatient Program Director, Medical
Director or any physician or licensed professional providing professional
services for the Outpatient Program under Manager's employment or contract, who
is subject to or under disciplinary action by licensing or other authorities, or
whose performance results in disciplinary action by the Medical Staff, and/or
whose performance results in a final judgement awarding damages of $100,000 or
more against the Medical Center and/or if any such physician(s) loses (or has
suspended or modified or placed on probation) his or her Medical Staff
membership and/or clinical privileges to practice psychiatry or his or her
profession at the Medical Center. If Manager fails to immediately terminate any
such professional, then Medical Center may immediately terminate this Agreement.
1.4 If either party to this Agreement should be declared bankrupt or
become insolvent or liquidate for any reason, the other party may transmit to
the former party written notice of its intention to immediately terminate this
Agreement, specifying with particularity the event justifying such notice;
provided, that the delay or failure of a party so to transmit written notice
shall not constitute a waiver by said party of any default hereunder or of any
other or further default under this Agreement by the former party. If the event
justifying such notice is the bankruptcy, insolvency or liquidation of the party
receiving such notice, this Agreement shall terminate forthwith.
1.5 This Agreement may be terminated by Medical Center immediately
on written notice if:
1.5.1 Medical Center gives written notice to Manager
(specifying in reasonable detail the reasons and events giving rise to the
delivery of such notice) that the
<PAGE> 19
Outpatient Program operated by Manager has failed to meet licensing, payor
certification, or JCAHO standards of patient care or requirements, or Medical
Center's or its Medical Staff's standards, and Manager fails to remedy such
deficiencies to Medical Center's absolute satisfaction within thirty (30) days
of receipt of such notice.
1.5.2 Manager initiates or undergoes, without Medical Center's
prior written approval, (a) any sale or transfer of all or substantially all of
its assets other than in the ordinary course of business; (b) any dissolution,
merger or reorganization; or (c) any change, individually or through a series of
transactions, in a 20% or greater ownership, voting or control interest in
Manager or any change in Manager's management with responsibility over the
Outpatient Program.
2. Covenants of the Medical Center.
Medical Center shall:
2.1 Subject to availability and budgetary constraints, furnish space
in Medical Center's outpatient department to the Outpatient program so as to
enable the participation of at least forty (40) outpatients per day, as
determined by Medical Center to be reasonably necessary for said program.
Medical Center shall also provide the services, facilities and support of other
Medical Center departments, including without limitation, available diagnostic
facilities, as Medical Center determines is reasonably necessary for Program
patients and as ordered by said patients' attending physicians. Medical Center
shall also provide office space for Manager's Program Director within the Unit
as Medical Center reasonably determines is necessary for the operation of the
Program, subject to space and budgetary constraints. Manager shall accept such
space, facilities, etc. of Medical Center in "as is" condition, and title to
such space, facilities, etc. shall remain at all times in Medical Center. Said
Unit space shall be used solely for the operation of the Program and for no
other purposes.
2.2 Provide the Outpatient Program with qualified nursing personnel,
at staffing levels sufficient to meet Outpatient Program needs as determined by
Medical Center in its sole discretion, who are trained and experienced in
psychiatric nursing and provide other non-physician personnel, such personnel
collectively referred to herein as "Medical Center Personnel". Medical Center
shall be responsible for employing or engaging such Medical Center Personnel and
are solely liable to such personnel for payment of their wages, compensation and
employee benefits. Said personnel shall comply with the Outpatient Program
policies and procedures as developed by Medical Center.
2.3 Assist Manager in maintaining accreditation of the Outpatient
Program by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"), Accreditation Council for Psychiatric Facilities, and pay all related
application fees, and assist Manager in the preparation of any and all
information, data and materials required in connection with application or
renewal for such accreditation. Medical Center shall also obtain, with Manager's
full cooperation and assistance, any and all certifications or approvals from
the Medicare and MediCal Programs and from any other governmental or private
payment or reimbursement programs.
<PAGE> 20
Medical Center shall also obtain, with Manager's full assistance and
cooperation, any consents or approvals to maintain the Program as an Outpatient
service under Medical Center's general acute care hospital license. Manager
shall be solely liable for any costs or expenses that it incurs in connection
with providing assistance to, and cooperating with, Medical Center in obtaining
the consents and approvals described in this Section 2.3.
2.4 Acknowledges that the selection, continued employment and
termination of employment and overall supervision and direction of Medical
Center Personnel for the Outpatient Program shall be at the sole discretion of
Medical Center's Administration. However, Medical Center agrees that it shall
consult with Manager in the event Manager desires the removal from the Program
of any Medical Center Personnel, provided that such request is made in writing
specifying with particularity the cause for such request and such request shall
not be made unreasonably.
2.5 Provide: (1) maintenance of the patient care areas used for the
Outpatient Program as Medical Center determines is necessary upon consultation
with Manager; (2) dietary service for Program patients as is normally available
to other Medical Center patients; (3) housekeeping services for patients and
Manager's offices at the Medical Center as is normally available to other
Medical Center patients; (4) telephone and utilities for patient areas and
Manager's offices at the Medical Center as is normally available for Medical
Center facilities; and (5) other services of Medical Center departments
customarily provided in the ordinary course of business to Medical Center
patients (e.g. record keeping); all of which as reasonably determined by Medical
Center to be necessary for the efficient operation of the Program.
2.6 Provide oversight and supervision for appropriate utilization
review ("UR") and quality improvement ("QI") programs and procedures developed
and implemented by Manager in cooperation with Medical Center for the Outpatient
Program, and integrate such programs and procedures with Medical Center's other
such programs and procedures.
2.7 Review and, if acceptable, approve Manager's publicity and
marketing plans and advertising, publicity and marketing materials for the
Program, from time to time.
2.8 Maintain its general and professional liability insurance, or
self-insurance, coverage for Medical Center and Medical Center employees or
agents.
3. Covenants of Manager.
Manager shall:
3.1 Provide professional and general liability insurance coverage of
at least Three Million Dollars ($3,000,000) per occurrence with an aggregate
limitation of Five Million Dollars ($5,000,000) with respect to Manager and
Manager's employees, agents, and contractors that Manager retains to provide
services to the Program. If Manager provides a claims-made policy, Manager shall
either maintain such insurance coverage in force following the termination of
this Agreement, or provide evidence of adequate "tail" coverage, with such terms
and
<PAGE> 21
conditions approved in advance by Medical Center. Manager shall also ensure that
each physician providing professional services on behalf of the Outpatient
Program maintains professional liability insurance in the minimum coverage
amounts and subject to the terms specified herein. All insurance policies
providing coverage as described above shall provide for at least thirty (30)
days' prior written notice to Medical Center prior to any modification,
amendment or cancellation of such coverage taking effect. Manager shall provide
Medical Center with certificates evidencing the insurance coverage required
above immediately upon the execution of this Agreement.
3.2 Subject to Medical Center's approval, Manager shall develop,
implement and supervise the Outpatient Program. The Outpatient Program shall
include intensive, specialized Outpatient services for the care and treatment of
adult psychiatric patients. Manager shall, in general, develop clinical
treatment programs that meet the clinical needs and community standards, and are
in compliance with the licensure and accreditation requirements for governmental
and regulatory agencies and payors. Manager shall provide ongoing management and
support services for the Outpatient Program.
3.3 Provide the following personnel for the Outpatient Program: (1)
a Medical Director assigned exclusively full-time to the Outpatient Program (who
shall be a psychiatrist duly licensed in good standing by the State of
California, shall be certified by the Board of Psychiatry, and shall be a member
in good standing of the Medical Center's Medical Staff with clinical privileges
in Psychiatry); (2) an Outpatient Program Director assigned exclusively
full-tine to manage the Outpatient Program and who shall have day-to-day
management responsibility for the Outpatient Program and Outpatient Program
personnel, (3) clinical psychologist(s) in a number acceptable to Medical
Center, one of whom shall be designated as chief therapist; (4) A Partial
Hospitalization Program Coordinator, with such licensure and background as shall
be approved in advance by Medical Center; and (5) occupational/recreational
therapist(s) in numbers sufficient to meet Outpatient Program needs, additional
licensed counselors in numbers sufficient to meet Outpatient Program needs, and
any other non-physician personnel required for the Outpatient Program who are
not provided by Medical Center hereunder. Any and all non-Medical Center
personnel employed or contracted for by Manager to render services in the
Outpatient Program shall be subject to prior approval by Medical Center and, as
applicable, its Medical Staff and shall be compatible with Medical Center's
employment standards, and Medical Center shall be furnished a job description
and resume of qualifications and work experience with respect to such personnel
as well as any completed applications as may be required by Medical Center or
its Medical Staff. Such personnel shall not be deemed employees or agents of
Medical Center, and Manager shall have full responsibility for wages, vacation
pay, sick leave, payroll and other employment taxes, pension and retirement plan
contributions, worker's compensation and unemployment insurance, social
security, or any other benefits, or other pay or compensation whatsoever
(collectively, "employee benefits") for any of Manager's employees or
contractors provided hereunder, or providing services under this Agreement, as
defined below.
3.4 Consult with the Medical Center for the development of clinical
needs for the selection of Program nursing staff.
3.5 Provide, at its sole cost and expense, qualified personnel of
Manager to
<PAGE> 22
conduct on-site orientation programs, to enable Medical Center to train the
Program nursing staff and selective nursing personnel from other units of the
Medical Center to act as back-up for the Program nursing staff.
3.6 Consult, manage and support the Outpatient Program treatment
team's effort to provide quality psychiatric treatment working collaboratively
with Medical Center's Medical Staff, and care management, UR and Discharge
Planning personnel.
3.7 Any employee or contractor of Manager who, Medical Center, in
its sole discretion, determines is incompatible with the goals, bylaws, rules,
regulations, policies or procedures of Medical Center and/or its Medical Staff
shall be removed by Manager upon thirty (30) days' prior written notice. Medical
Center shall have the right, in its sole discretion, to approve or disapprove in
advance in writing any proposed replacement or substitute for any of Manager's
personnel hereunder. Any employee or contractor of Manager shall be immediately
removed if Medical Center, in its sole discretion, determines that the
individual's presence is a threat to patient care or the Medical Center's
operations. Professionals provided by Manager shall apply for and maintain in
good standing appropriate membership as an allied health professional or
physician (as applicable) on Medical Center's Medical Staff with appropriate
clinical privileges, as required by the Medical Staff bylaws, rules and
regulations and shall not cause any suspension, reduction or termination of such
membership or privileges or be placed on probation by the Medical Staff.
3.8 Submit monthly status reports for the Outpatient Program to
Medical Center's Administration in a form acceptable to Medical Center that will
review Outpatient Program operations during the previous month and outline
planned activities for the coming month.
3.9 Initiate a comprehensive public information, education,
marketing and referral development program, which shall be reviewed and approved
periodically in coordination with other Medical Center public relations and
marketing plans. Within thirty (30) days following the commencement date hereof,
Manager shall present Medical Center for its review and approval with a detailed
publicity and marketing plan, and Manager shall implement such plan within no
later than thirty (30) days following Medical Center's approval thereof. Such
publicity and marketing activities shall be conducted at Manager's sole cost and
expense, which costs and expenses may include, without limitation, development
of patient handbooks or brochures; printing of articles, business cards,
stationery, and the like; development of public service announcements,
advertising campaigns, press releases and radio commercials; preparation of
invitations and announcements for educational programs; preparation of referral
letters; and hosting seminars and workshops. Medical Center shall have the right
and must approve or disapprove in advance all marketing programs, which approval
shall not be unreasonably withheld. Manager shall not be permitted to use
Medical Center's or Medical Center's name, logo or likeness without Medical
Center's prior written approval.
3.10 Develop and implement operational policies and procedures for
the Outpatient Program, including, without limitation, UR/QI procedures, in
collaboration with
<PAGE> 23
Medical Center. Any and all Outpatient Program policies, procedures, programs
and activities are subject to prior review and approval by Medical Center's
administration and its Medical Staff.
3.11 Use its best efforts to assist Medical Center in working with
governmental agencies, third-party payors and others to secure necessary
licenses, permits, approvals, accreditation and certifications for the Program.
3.12 Follow admission policies and procedures developed by Medical
Center in respect to patients of Outpatient Program, as well as other
authorizations for admission of patients to the Program and the provision of
services to such patients on behalf of Medical Center as are required by
governmental agencies or any other third-payor prior to the patient's admission.
Utilize its best efforts to obtain additional Treatment Authorization Record's
("TAR's") and approvals for continued participation in the Outpatient Program
and/or services as necessary to promote timely payment.
3.13 Obtain and maintain worker's compensation insurance for its
employees and agents as required by California law. If permitted, Medical Center
shall be added as an additional insured on such policy.
3.14 Commit no act or omission which adversely affects Medical
Center's licensure reimbursement or certification or accreditation in connection
with the management and operation of the Outpatient Program.
3.15 Cause patients to be admitted to the Outpatient Program
(including but not limited to Medicare and Medi-Cal patients) only if the
admission is ordered by a physician who is a member in good standing of the
Medical Center Medical Staff with admitting privileges, and strictly in
compliance with Medical Center's admission policies and procedures (as described
above).
4. Representation and Warranties of Manager.
Manager hereby represents and warrants to Medical Center as
follows, which representations and warranties shall be true, accurate and
complete on the date of this Agreement (as defined herein) and at all other
times during the term hereof:
4.1 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.
4.2 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 contravene
any governmental license, franchise, permit or other authorization possessed by
either party, nor will such execution and performance violate any federal, state
or local law, rule or regulation. This Agreement is a legal and binding
obligation
<PAGE> 24
of Manager, and all corporate actions and approvals have been taken and obtained
in order for Manager to enter into this Agreement. No approval, authorization or
other action by, or filing with, any governmental authority or any other third
party is required in connection with either party performing its duties and
obligations hereunder.
4.3 There is no litigation, administrative proceedings or
investigation pending or threatened against Manager (nor is it subject to any
judgement, order, decree or regulations of any court or other governmental
administrative agency) pending or affect Manager which would materially
adversely affect the performance of Manager's obligations hereunder. Without
limiting the foregoing, Manager represents and warrants that it has strictly
complied, is currently in compliance and shall strictly comply with any and all
statutes, rules, regulations, decisions and guidelines applicable to the
operation, management, reimbursement and/or payment of services provided by
Outpatient psychiatry programs which Manager is, has or shall be operating
and/or managing, under the Medicare and Medi-Cal Programs and any other public
or private third party reimbursement or payment program, and that Manager is
not, has not been and shall not be under investigation, audit or challenge by
any federal or state agency or authority in connection with any of its
operations, policies or procedures.
4.4 Any and all personnel and professionals provided by Manager to
the Outpatient Program shall be duly licensed and qualified, as applicable, and
shall fulfill each of their terms, duties, obligations covenants,
representations, warranties, responsibilities and indemnities applicable to them
hereunder at all times while performing services for the Program.
5. Compensation.
5.1 Compensation payable to Manager by Medical Center shall be on a
fixed fee basis and shall be the sum of Twenty Eight Thousand Three Hundred
Thirty Three Dollars ($28,333) per month for each month of service provided
hereunder. On or before the fifth (5th) day of each calendar month Manager will
forward to Medical Center an invoice from the previous month for the fees due
and payable by Medical Center under this Section 5. Medical Center shall have
ten (10) days following receipt of any such invoice to dispute Manager's days of
service or claim for reimbursement in writing, which shall set forth the reasons
for such dispute. If Medical Center does not dispute an invoice, the payment of
the Management Fee is expressly conditioned upon Manager: (1) preparing and
submitting to Medical Center on a periodic basis, as determined by Medical
Center, complete and accurate time records on such forms specified by Medical
Center, and complying with all requirements and supplying all documents
necessary to otherwise substantiate claims by Medical Center to third party
payors for services of Manager, Medical Director, Outpatient Program Director
and Manager's other personnel; and (2) otherwise at all times being in
compliance with the terms and conditions of this Agreement. Except as otherwise
provided herein, a failure by Medical Center to pay the submitted invoice by the
thirtieth (30th) day following receipt of the invoice shall be a material breach
of this Agreement by Medical Center, which shall give Manager the right to
terminate this Agreement for cause, unless such failure is due to Manager's
default under this or any other provision of this Agreement. Any such
termination of this Agreement by Manager shall not affect Medical Center's
obligation to pay undisputed amounts due Manager under this Agreement, less any
applicable credits, withholds or
<PAGE> 25
deductions. Should this Agreement terminate for any reason as provided for under
this Agreement prior to the end of a calendar month, Manager shall be paid a
pro-rata amount for services rendered prior to the termination as payment in
full for services provided under this Agreement.
5.2 Medical Center or its duly authorized agents shall have the
exclusive and sole right to bill and collect all charges for services rendered
by Manager to patients in the Outpatient Program. All amounts collected by
Medical Center or its duly authorized agents pursuant to such invoices shall
belong to Medical Center, and Manager shall have no right or interest in the
same; provided however, this in no way restricts the Medical Director or other
members of the Medical Center Medical Staff from billing and collecting fees for
professional services rendered to patients in the Outpatient Program.
5.3 Both parties agree to evaluate the impact which HMO, Managed
Care, PPO, and other group business opportunities may have on Outpatient Program
operations, and to work collaboratively in the strategic planning and marketing
processes.
5.4 If Medical Center is denied reimbursement for ten percent (10%)
or more of the patient days billed under the Outpatient Program, compensation
payable to Manager under Section 5.1 shall be decreased at the rate of One
Hundred Dollars ($100.) per day denied in excess of that ten percent (10%). A
denied day is defined as reimbursement that is denied by any third party payor,
including MediCal, which denial has been appealed through the appropriate
appeals process in accordance with Medical Center's regular billing and
collection standards and practices.
5.4.1 The percentage of denied days shall be determined as
follows:
5.4.1.1 The number of outpatient days billed under the
Outpatient Program shall be identified for each six (6) month period of services
("billing period") provided hereunder. At the end of that billing period, the
percentage of denied days for that billing period shall equal the sum of the
number of denied days for that billing period divided by the total number of
patient days billed.
6. Confidential Information.
6.1 For purposes of this Agreement, the term "Confidential
Information" shall include the following: (1) all documents and other materials
including but not limited to the Proposal, memoranda, manuals, handbooks,
pamphlets, production books and audio or visual recordings, which contain
written information relating to the Outpatient Program (excluding written
materials distributed to patients in the Outpatient Program or as promotion for
the Outpatient Program), (2) all methods, techniques and procedures utilized in
providing psychiatric treatment services to patients in the Outpatient Program
at the Medical Center not readily available through sources in the public
domain; and (3) all trademarks, tradenames and service marks of Manager.
6.2 Medical Center agrees and acknowledges that Confidential
Information is disclosed to it in confidence with the understanding that it
constitutes valuable business
<PAGE> 26
information developed by Manager at great expenditure of time, effort and money.
Medical Center agrees it shall not, without the express prior written consent of
Manager, use Confidential Information for any purpose other than the performance
of this Agreement. Medical Center further agrees to keep strictly confidential
and hold in trust all Confidential Information and not disclose or reveal such
information to any third party without the express prior written consent of
Manager. It is expressly understood that Medical Center will continue to
disclose patient information to insurers and governmental agencies as mandated.
6.3 Medical Center acknowledges that the disclosure of Confidential
Information to it by Manager is done in reliance upon the Medical Center's
representation and covenants in this Agreement. Upon termination of this
Agreement by either party for any reason whatsoever, Medical Center shall
forthwith return all material constituting or containing Confidential
Information and Medical Center will not thereafter use, appropriate, or
reproduce such information or disclose such information to any third party,
except as mandated by law.
6.4 Non-Disclosure. Manager acknowledges that during the term of
this Agreement she may be given access to certain proprietary information and
trade secrets of Medical Center ("Trade Secrets"). The Trade Secrets will
include information relative to Medical Center and may also include information
encompassed in business plans, proposals, marketing and development plans,
financial information, costs and other concepts, ideas or know-how related to
the business or developments of CHWSC which have not been publicly released by
Medical Center or its duly authorized representatives. Manager shall preserve
and maintain as confidential all Trade Secrets that have been or may be obtained
by her in the courses of her performance of services under this Agreement.
Manager also shall not, without the prior written consent of Medical Center, use
for her own benefit or purposes, or disclosure to others, either during the term
of this Agreement hereunder or thereafter, any Trade Secret. All Trade Secrets
shall constitute "trade secrets" under the Uniform Trade Secrets Act contained
in California Civil Code Sections 3426 et seq., and Medical Center shall be
entitled to all protection and be afforded all remedies available under such
Act.
7. Recruitment of Employees and Independent Contractors.
7.1 Medical Center acknowledges that Manager has and will continue
to expend substantial time, effort, and money training its employees and
independent contractors in the operation of the Program. The employees and
independent contractors of manager who will operate the program at the Medical
Center will have access to and possess Confidential Information of Manager.
Medical Center acknowledges that to employ or contract with former employees or
independent contractors of Manager would likely result in the use of Manager's
Confidential Information in violation of Section 6 hereof. Medical Center,
therefore, agrees that during the term of this Agreement and for one (1) year
thereafter, it will not, and it will cause Medical Center, not to employ,
solicit the employment of, or in any way retain the services of any employee,
former employee, or independent contractor of Manager if such individual has
been employed or retained by Manager and has provided services under this
Agreement as Medical Center at any time during the immediate preceding one (1)
year unless Manager gives Medical Center prior written consent thereto.
<PAGE> 27
7.2 Manager agrees that during the same respective period of time,
it will not 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 Medical Center without Medical Center's prior written consent thereto.
8. Service Mark License.
Medical Center acknowledges that "OptimumCare" and "OptimumCare
Unit" are registered service marks belonging exclusively to OptimumCare, and
that during the term of this Agreement only, Medical Center is licensed to
utilize these service marks in the marketing of professional services for the
treatment of adult psychiatric patients in the Program. Medical Center's use of
these service marks shall inure to the benefit of OptimumCare, and shall not
give Medical Center any right or title therein, and any common law service marks
rights acquired as a consequence of Medical Center's use thereof are hereby
assigned exclusively to OptimumCare. At the termination of this Agreement,
Medical Center shall immediately terminate the use of these service marks unless
a separate written service mark license agreement, specifically authorizing
continued use of such service marks, is entered into by the parties hereto at
that time. Medical Center will not cause any documents to be printed bearing
such service marks without an accompanying mark indicating that such service
marks are registered service marks. Manager likewise agrees that all publication
and information pieces developed or utilized for any purpose involving the
Medical Center must first have specific authorization of the Medical Center.
9. Compliance with Regulations.
Manager will conduct its activities and operations in strict
compliance with all rules and regulations of the Medical Center, its medical
staff and applicable state and other government authorities and agencies.
Manager's employees and representatives shall comply with and observe such rules
and regulations.
10. Jeopardy.
Notwithstanding anything to the contrary hereinabove contained,
in the event the performance by either party hereto of any term, covenant,
condition or provision of this Agreement should jeopardize the licensure of
Medical Center, its participation in, or its certification or reimbursement
from, Medicare, Medi-Cal, Blue Cross or any other reimbursement or payment
program, or its full accreditation by JCAHO or any other state or nationally
recognized accreditation, organization, or if for any reason said performance
should be in violation or be deemed unethical by any recognized body, agency or
association in the Medical or hospital fields, Medical Center may at its option
terminate this Agreement forthwith.
11. Miscellaneous.
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 judgement on the award rendered may be
<PAGE> 28
entered in any court having jurisdiction. However, this shall not apply with
respect to any claim for indemnity for bodily injury or death.
12. Attorney Fees.
If any legal action (including arbitration) is necessary to
enforce the term 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. Governing Law.
The validity of this Agreement, the interpretation of the rights
and duties of the parties hereunder and the construction of the terms hereof
shall be governed in accordance with the internal laws of the State of
California.
14. Federal Government Access.
Until the expiration of four (4) years after the furnishing of
services pursuant to this Agreement, Manager shall make available, upon request
to the Secretary of Health and Human Services, or upon request to the Controller
General, or any of their duly authorized representatives, this Agreement, books,
documents and records of Manager that are necessary to certify the nature and
extent of the cost claimed to Medicare with respect to the services provided
under this Agreement.
15. Notice.
All notices hereunder shall be in writing, delivered personally
or by Certified or Registered postal mails, postage prepaid, return receipt
requested, and shall be deemed given when delivered personally or when deposited
in the United States mail, addressed as below with proper postage affixed, but
each may change his address by written notice in accordance with this Paragraph.
Medical Center's Address: St. Francis Medical Center
3630 East Imperial Highway
Lynwood, CA 90262
Attention: Administrator
Copy to: CHW Southern California
790 E. Colorado Blvd., Suite 600
Pasadena, CA 91101
Attention: Corporate Counsel
Manager's Address: OptimumCare Corporation
428 Culver Blvd.
Playa Del Rey, CA 90293
<PAGE> 29
16. Severability.
If for any reason any clause or provision of this Agreement, or
the application of any such clause or provision in a particular context or to a
particular situation, circumstance or person, should be held unenforceable,
invalid or in violation of law by any court or other tribunal, then the
application of such clause or provision in contexts or to situations,
circumstances or persons other than that in or to which it is held
unenforceable, invalid or in violation of law shall not be affected thereby, and
the remaining clauses and provisions hereof shall nevertheless remain in full
force and effect.
17. Captions.
Any captions to or headings of the Articles, Paragraphs or
subparagraphs of this Agreement are solely for the convenience of the parties,
and shall not be interpreted to affect the validity of this Agreement or to
limit or affect any rights, obligations, or responsibilities of the parties
arising hereunder.
18. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument.
19. Entire Agreement; Amendment.
This Agreement constitutes the full and complete agreement and
understanding between the parties hereto and shall supersede all prior written
and oral agreements concerning the subject matter contained herein. Unless
otherwise provided herein, this Agreement may be modified, amended or waived
only by a written instrument executed by all of the parties hereto.
20. Force Majeure.
Neither party shall be liable nor deemed to breach this
Agreement for any delay or failure in performance or other interruption of
service resulting, directly or indirectly, from Acts of God, civil or military
authority, acts of the public enemy, riots or civil disobedience, war,
accidents, fires, explosions, earthquakes, floods, failure of transportation,
machinery or supplies, vandalism, strikes or other work interruptions by the
employees of any party, or any other cause beyond the reasonable control of the
party affected thereby. However, each party shall utilize its best good faith
efforts to perform under this Agreement in the event of any such occurrence or
circumstance.
21. Gender and Number.
Whenever the context hereof requires, the gender of all terms
shall include the masculine, feminine, and neuter, and the number shall include
the singular and plural.
<PAGE> 30
22. Ambiguities.
The general rule that ambiguities are to be construed against
the drafter shall not apply to this Agreement. In the event that any provision
of this Agreement is found to be ambiguous, each party shall have an opportunity
to present evidence as to the actual intent of the parties with respect to such
ambiguous provision.
23. Waiver.
No failure or delay by a party to insist upon the strict
performance of any term, condition, covenant or agreement of this Agreement, or
to exercise any right, power or remedy hereunder or under law or consequent upon
a breach hereof or thereof shall constitute a waiver of any such term,
condition, covenant, agreement, right, power or remedy or of any such breach or
preclude such party from exercising any such right, power or remedy at any later
time or times.
24. Indemnification.
Manager and Medical Center shall each indemnify, defend and hold
the other harmless against all claims and liabilities (including reasonable
attorney's fees and costs of suit) that may arise as a result of the negligent,
intentional or wrongful acts or omissions of the indemnifying party.
25. Independent Contractors.
25.1 In the performance of Manager's duties and obligations arising
under this Agreement, Manager is at all times acting and performing as an
independent contractor. Nothing in this Agreement is intended nor shall be
construed to create between Manager and Medical Center, with respect to their
relationship under this Agreement, either an employer/employee, joint venture,
partnership, or landlord/tenant (lease) relationship. In the event that a
determination is made for any reason that an independent contractor relationship
does not exist between Manager and Medical Center, Medical Center may terminate
this Agreement immediately upon written notice to Manager.
25.2 Manager shall reimburse Medical Center for the employee portion
of all employee-related taxes, charges or levies which may be collected from
Medical Center in the event that Manager is determined to be an employee of
Medical Center and not an independent contractor.
<PAGE> 31
SIGNATURE PAGE TO THE
OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT
IN WITNESS WHEREOF, this Agreement has been executed on ________, 1998,
at LYNWOOD, California.
Manager Medical Center
OPTIMUMCARE CORPORATION CHW SOUTHERN CALIFORNIA
doing business as
ST. FRANCIS MEDICAL CENTER
By: /s/ EDWARD A. JOHNSON By:
------------------------------- --------------------------------
Edward A. Johnson Print Name and Title
Chairman of the Board
By: /s/ MULU G. MICHAEL
-------------------------------
Mulu G. Michael
President & Chief Operating Officer
<PAGE> 32
SUPPORT ACTIVITIES
OptimumCare Corporation Responsibilities:
Patient Handbooks
Brochure
Reprints of Selected Articles
Printing of Business Cards for OptimumCare Program Team
Printing of Personalized OptimumCare Program Stationery, is desired
Public Service Announcement Campaign - Including Materials Prepared
for Television/Radio/Print
Public Relations Campaigns
Typing of Press Releases
Typing of Radio and Television Spots of Medical Center Stationery,
Addressing and Mailing of Invitations, Announcements and
General Program Correspondence
Marketing Expertise
Medical Center Responsibilities:
Typing of Public Relations and Referral Letters
Providing Telephone System for the OptimumCare Program
<PAGE> 1
EXHIBIT 10.111
MENTAL HEALTH PARTIAL HOSPITALIZATION
SERVICES AGREEMENT
THIS AGREEMENT ("Agreement") is entered into for reference purposes only as
of the Eighteenth (18th) day of September, 1998, by and between CITRUS VALLEY
MEDICAL CENTER, a California nonprofit public benefit corporation ("Hospital")
and OPTIMUMCARE CORPORATION, a Delaware corporation ("Manager").
Recitals
A. Hospital operates a duly licensed acute care facility located in
West Covina, California and desires to develop an outpatient partial
hospitalization program (the "Program") for the treatment of psychiatric
disorders.
B. Manager is in the business of providing management services for
the treatment of patients with psychiatric disorders. Manager presently manages
a partial hospitalization program pursuant to an affiliation with another acute
care hospital at a facility located at 1170 N. Durfee, Suite "E", South El
Monte, California ("Facility"), the space for which Manager is the sole lessor.
Manager desires to terminate its relationship with said other hospital and
desires to continue operating such partial hospitalization program at the
Facility pursuant to a relationship with Hospital.
C. Manager presently leases the Facility pursuant to a lease
("Lease"). Pursuant to a sublease of even date herewith ("Sublease"), Hospital
will sublease the Facility from Manager thereby satisfying Hospital's obligation
hereunder to provide space for the Program.
D. Hospital desires to establish the Program at the Facility, and
Hospital desires to retain Manager, and Manager desires to be retained, to
provide management services with respect to the Program.
E. Hospital and Manager desire to enter into this Agreement to
provide a clear understanding of their respective rights, duties and obligations
with respect to the subject matter hereof.
<PAGE> 2
Agreement
SECTION 1. DEFINITIONS.
1.1 "Confidential Information." "Confidential Information" shall
mean all confidential information and trade secrets of Manager, including
without limitation financial statements, internal memoranda, reports, patient
lists, memoranda, manuals, handbooks, pamphlets, production books and audio and
visual recordings, models, techniques, formulations, procedures and other
materials or records of a confidential and/or proprietary nature which relate to
the Program and which are used by Manager in providing psychiatric services to
Program patients.
1.2 "Employee Benefits." "Employee Benefits" shall include, by way
of illustration and not limitation, an employer's contribution under the Federal
Insurance Contributions Act, unemployment compensation and related insurance,
payroll and other employment taxes, pension and retirement plan contributions,
workers' compensation and related insurance, group life, health, disability, and
accident insurance, severance, and other benefits.
1.3 "Patient Day." A "Patient Day" shall be deemed to exist with
respect to each outpatient visit to the Program.
SECTION 2. TERM.
This Agreement shall commence on such date as Hospital becomes
appropriately licensed to operate the Program at the Facility, and shall expire
two years from such date, unless earlier terminated in accordance with the
provisions of Section 10 of this Agreement. Notwithstanding the provisions of
this Section 2, upon the execution of this Agreement, Manager shall be obligated
to take all commercially reasonable efforts in accordance with Section 4.3
hereof to assist Hospital in becoming so licensed. In the event Hospital remains
unlicensed as of February 1, 1999, this Agreement shall be deemed to have
expired.
SECTION 3. COVENANTS OF HOSPITAL.
3.1 Ultimate Control. Hospital shall have and maintain throughout
the period hereof ultimate control and authority for the operation and
administration of the Program.
3.2 Space. Pursuant to the Sublease, Hospital shall lease the
Facility from Manager, which consists of approximately Five Thousand Thirty One
(5,031) square feet of office space, which Manager agrees is sufficient in size
and quality for the proper operation of this Program.
3.3 Hospital's Employees. Hospital shall employ, or shall
independently contract with, and shall be financially responsible for staffing
the Program with all personnel necessary for the proper and efficient
administration and clinical operation of the Program as set forth in Schedule
3.3. All personnel employed or otherwise contracted for (including the office
manager) shall be required to
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comply with the Program policies and procedures as mutually developed and agreed
upon in writing by Hospital and Manager.
3.4 Diagnostic Facilities. Hospital shall make available to Program
patients the Hospital's inpatient, diagnostic, and other facilities as requested
from time to time by such patients' attending physicians or by Program staff.
3.5 General Services. Hospital shall provide the following support
services for the efficient and proper operation of the Program:
3.5.1 Dietary services for patients of the Program (including
one mid-day meal to be served to each patient at the Facility and the part-time
services of the Hospital's nutritionist/dietician).
3.5.2 Housekeeping services for the Facility.
3.5.3 Janitorial and physical upkeep of the Facility.
3.5.4 All utilities for the Facility. Manager acknowledges
that utilities ultimately will be supplied by the Facility's landlord under the
terms of the Lease.
3.5.5 All clerical support, office supplies and general
supplies necessary for the proper operation of the Program.
3.5.6 Record keeping services, in accordance with state and
federal laws and regulations.
3.5.7 Daily transportation of all patients from their homes to
the Facility in the morning, and from the Facility to patients' homes in the
evenings, but only for such patients who reside within twenty five (25) miles of
Hospital.
Nothing in this Agreement is intended to or shall be construed to limit
or restrict the Hospital's ability to outsource the provision of the goods and
services contemplated in this Section 3.5.
3.6 Policies and Procedures. Hospital shall provide all Program
staff (including employees and independent contractors of Manager) with copies
of all relevant hospital and Program policies and procedures, as amended from
time to time.
3.7 Health Screenings. Hospital shall provide to all Program staff
(including employees and independent contractors of Manager) such appropriate
pre-employment and periodic diagnostic and health screening procedures as are
customarily provided by Hospital for Hospital employees.
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3.8 Accreditation. Hospital shall maintain accreditation by the
Joint Commission on the Accreditation of Health Care Organizations, and shall be
financially responsible for paying all such fees related to such accreditation.
3.9 Quality Improvement Review. Hospital shall provide appropriate
utilization review and quality improvement services with respect to services
provided by the Program.
3.10 Insurance. Hospital shall procure and maintain, at its sole cost
and expense, throughout the term hereof, a policy or policies of comprehensive
general liability insurance covering itself and its employees for patient care
services from an insurance carrier licensed and authorized to sell or approved
to place liability insurance policies of this nature in this State with limits
of not less than Five Million Dollars ($5,000,000.00) per occurrence. Hospital
shall cause to be issued to Manager, by the insurance carriers issuing such
coverage, certificates of insurance evidencing that the foregoing covenants of
this Agreement have been complied with and stating that said insurance carriers
shall provide ten (10) calendar days prior written notice to Manager of any
cancellation or material modification of the policy or coverage described
herein, or, if any such carrier shall not agree to provide such notice, then
Hospital shall agree to provide notice to Manager of any such cancellation or
modification immediately upon their receipt of notice of same from the carrier.
Any deductible, co-insurance, or aggregate limits shall be subject to Manager's
approval, which shall not be unreasonably withheld. Manager agrees that
co-insurance or deductible amounts of $100,000 or less, per occurrence, is an
acceptable co-insurance or deductible.
3.10.1 Extended Reporting Period. If any liability insurance policy
procured pursuant to Section 3.10 is on a "claims made" rather than "occurrence"
basis, then such policy shall include an option to purchase a "tail" or an
extended reporting period, which option shall be exercisable upon termination or
cancellation of said policy or upon any material modification of said policy
that has the effect of causing the coverage of said policy to fail, in any
respect, to meet the requirements of Section 3.10, regardless of whether such
termination, cancellation or modification shall occur during the term hereof or
thereafter. The tail or extended reporting period shall provide coverage meeting
all of the requirements set forth in Section 3.10, for a period of at least
seven (7) years after termination, cancellation or modification of the
underlying policy. Such policy shall provide that the carrier shall give
Hospital or Manager thirty (30) calendar days advance written notice of the date
upon which the option may be exercised regardless of whether such date shall
occur during the term hereof or thereafter and shall specifically provide that
Manager shall be permitted to exercise the option upon the failure of Hospital
to do so. Upon such notice, Hospital shall take all steps, including the payment
of money, necessary to exercise such option, and if Hospital shall fail to
effectively exercise such option, then Manager may do so, and Hospital shall
fully and immediately reimburse Manager, within ten (10) calendar days notice
thereof by Manager, for all monies expended by Manager in connection therewith.
3.11 Billing and Collections. Hospital has in effect a schedule of
fees and patient charges for the administrative and technical component of all
services rendered by the Program. Said fees and charges may be modified by
Hospital from time to time in its sole and absolute discretion, but
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<PAGE> 5
Hospital shall give prior notice of such modification to Manager. Hospital shall
bill all patients and third party payors for Hospital's fees and charges with
reference to services provided by the Program in accordance with such schedule.
3.12 Indemnification by Hospital. Hospital shall protect, indemnify,
hold harmless, and defend Manager, its legal representatives, employees, agents,
officers, trustees, affiliates and assigns, and each of them, from and against
any and all claims, actions, demands, proceedings, losses, damages, costs,
expenses and liabilities (including reasonable attorneys' fees) arising out of
or related to the performance or nonperformance by Hospital of any obligations
to be performed or services to be provided hereunder. This indemnification
obligation shall survive the expiration or termination of this Agreement.
SECTION 4. COVENANTS OF MANAGER.
4.1 Clinical Management. Subject to Hospital's ultimate retention of
control and authority, Hospital hereby appoints Manager as its sole and
exclusive manager of the clinical operation of the Program and Manager accepts
such appointment. Manager shall have full responsibility for the efficient and
proper administration of the Program and for the care and treatment of Program
patients while at the Facility. Manager shall have overall authority and
responsibility to conduct, supervise, manage, and direct the day-to-day clinical
operation of the Program.
4.2 Manager's Employees. Manager shall employ and/or independently
contract with, and shall be financially responsible for staffing the Program
with, the full-time equivalent of (a) one program director, (b) one licensed
clinical social worker, (c) Marriage, Family and Child Counselors (or,
alternatively, social workers who have been awarded a Master's Degree in
clinical social work, or a combination thereof), (d) activity therapists, and
(e) one medical director ("Medical Director") in accordance with Schedule 4.2,
based upon the anticipated Program census for each day of operation. Manager
shall not, without Hospital's prior written consent, which shall not be
unreasonably withheld, deviate from, change, or decrease the agreed staffing as
set forth in Schedule 4.2. In addition, Manager shall be financially responsible
for staffing the Program with all such additional professional counseling staff
and therapists as may be reasonably necessary for the proper operation of the
Program and as may be ordered by patients' attending physicians.
4.2.1 Medical Director Qualifications. Manager represents,
warrants, covenants and agrees that Medical Director shall be a physician duly
licensed to practice medicine in the State of California, shall be a member of
the Hospital's Active Medical Staff with clinical privileges sufficient to
permit Medical Director to perform all services reasonably required of him/her
as Medical Director of the Program, and shall be in legitimate possession of all
customary narcotics and controlled substances numbers and licenses. Manager
represents, warrants, covenants and agrees that Medical Director's license to
practice medicine in any state has never been suspended, revoked, or restricted,
that Medical Director has never been reprimanded, sanctioned or disciplined by
any licensing board or state or local medical society or specialty board, and
Medical Director has never
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<PAGE> 6
been denied membership or reappointment of membership on the medical staff of
any hospital and no hospital medical staff membership or clinical privileges of
Medical Director have ever been suspended, curtailed or revoked for a medical
disciplinary cause or reason.
4.2.2 Medical Director Duties. Manager shall provide the
professional services of Medical Director as an independent management
consultant and advisor to perform certain administrative functions as hereafter
set forth. The Medical Director shall furnish the following for the operation of
the Program:
4.2.2.1 Medical Director shall serve as Medical Director
of the Program. Medical Director shall, during the entire term of this
Agreement, supervise the clinical, medical and psychiatric operation of the
Program and shall devote such time as necessary to carry out such duties and
ensure efficient and effective medical administration of the Program. The
primary objective is to provide optimal utilization of the Program's facilities,
equipment and staff and to provide quality services to all patients.
4.2.2.2 Manager shall assure that Medical Director shall
be available at reasonable times for consultation with the Board of Directors,
the Chief Operational Officer ("C.O.O.")/Administrator, the Chief of Staff,
individual members of the medical staff, committees of the professional staff
and nursing and administrative employees of Hospital. Medical Director shall be
available by electronic pager for emergency consultation during all hours that
the Program is in operation and Medical Director is offsite, provided, however,
that Medical Director may arrange for coverage of this on-call obligation, which
coverage shall be provided by a physician licensed to practice medicine in the
State of California and shall be at Manager's or Medical Director's sole cost
and expense. Medical Director shall actively participate in the affairs of the
professional staff of the Hospital and shall perform such tasks and provide such
services as the professional staff or any committee may from time to time
appropriately request. Manager acknowledges and agrees that the Hospital's
medical staff committees shall conduct at regular intervals ongoing monitoring
and reviewing of the professional performance of Medical Director and that the
results of these reviews shall be transmitted to Hospital administration.
4.2.3 Acceptability of Staff Members. Manager shall use
reasonable efforts to resolve any issues regarding the acceptability to Hospital
of Program staff employed or otherwise contracted for by Manager.
4.2.4 Removal of Staff Member. At the request of Hospital, in
its sole and absolute discretion, Manager shall immediately remove any employee
or independent contractor of Manager providing services at the Facility or to
the Program.
4.3 Licensure. With the cooperation assistance of the Hospital and
its administration, Manager shall be responsible for and shall undertake all
activities necessary to obtain and maintain all necessary licenses and approvals
from governmental and accrediting agencies, including without limitation the
California Department of Health Services, and shall be responsible for and shall
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<PAGE> 7
undertake all activities necessary to obtain and maintain all certifications and
approvals necessary to participate in the Medi-Cal and Medicare programs.
Manager shall prepare, file and supplement all regulatory applications, reports,
and forms required by any local, state or federal regulatory agency and shall
prepare the Facility for, and monitor, regulatory surveys and inspections.
Manager shall use its best efforts to remedy any deficiencies identified in such
surveys and inspections to the extent such deficiencies are within Manager's
control. Manager shall use its best efforts to ensure that the Program and the
Facility are operated and maintained in compliance with all applicable federal,
state, and local laws, rules, and regulations.
4.4 Policies and Procedures. Manager shall, in conjunction with the
Hospital's administration, develop and implement all policies and procedures
necessary for the safe and efficient operation of the Program and the Facility,
and shall educate Program staff on such policies and procedures. Manager shall
provide orientation and training for all Program staff, irrespective of whether
such staff members are employees or independent contractors of Hospital or of
Manager. Manager shall as reasonably necessary provide program of ongoing
in-service training such as to assure that Program staff have the requisite
knowledge and skill required to deliver quality health care services at the
Facility and through the Program.
4.4.1 Hospital Approval. The implementation of the policies
and procedures required under Section 4.4 shall be subject to prior approval by
the Hospital's administration and, where appropriate, the Hospital's medical
staff.
4.5 Indemnification by Manager. Manager shall protect, indemnify,
hold harmless, and defend Hospital, its legal representatives, employees,
agents, officers, trustees, affiliates and assigns, and each of them, from and
against any and all claims, actions, demands, proceedings, losses, damages,
costs, expenses and liabilities (including reasonable attorneys' fees) arising
out of or related to the performance or nonperformance by Manager of any
obligations to be performed or services to be provided hereunder. This
indemnification obligation shall survive the expiration or termination of this
Agreement.
4.6 Insurance. Manager shall procure and maintain, at its sole cost
and expense, throughout the term hereof, a policy or policies of comprehensive
general liability insurance covering itself and its employees from an insurance
carrier licensed and authorized to sell or approved to place liability insurance
policies of this nature in this State with limits of not less than Five Million
Dollars ($5,000,000.00) per occurrence. Manager shall cause to be issued to
Hospital, by the insurance carriers issuing such coverage, certificates of
insurance evidencing that the foregoing covenants of this Agreement have been
complied with and stating that said insurance carriers shall provide ten (10)
calendar days prior written notice to Hospital of any cancellation or material
modification of the policy or coverage described herein, or, if any such carrier
shall not agree to provide such notice, then Manager shall provide notice to
Hospital of any such cancellation or modification immediately upon their receipt
of notice of same from the carrier. Any deductible, co-insurance, or aggregate
limits shall be subject to Hospital's approval, which shall not be unreasonably
withheld. Hospital agrees that co-insurance or deductible amounts of $100,000 or
less, per occurrence, is an acceptable co-
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<PAGE> 8
insurance or deductible.
4.6.1 Extended Reporting Period. If any liability insurance
policy procured pursuant to Section 4.6 is on a "claims made" rather than
"occurrence" basis, then such policy shall include an option to purchase a
"tail" or an extended reporting period, which option shall be exercisable upon
termination or cancellation of said policy or upon any material modification of
said policy that has the effect of causing the coverage of said policy to fail,
in any respect, to meet the requirements of Section 4.6, regardless of whether
such termination, cancellation or modification shall occur during the term
hereof or thereafter. The tail or extended reporting period shall provide
coverage meeting all of the requirements set forth in Section 4.6, for a period
of at least seven (7) years after termination, cancellation or modification of
the underlying policy. Such policy shall provide that the carrier shall give
Hospital or Manager thirty (30) calendar days advance written notice of the date
upon which the option may be exercised regardless of whether such date shall
occur during the term hereof or thereafter and shall specifically provide that
Hospital shall be permitted to exercise the option upon the failure of Manager
to do so. Upon such notice, Manager shall take all steps, including the payment
of money, necessary to exercise such option, and if Manager shall fail to
effectively exercise such option, then Hospital may do so, and Manager shall
fully and immediately reimburse Hospital, within ten (10) calendar days notice
thereof by Hospital, for all monies expended by Hospital in connection
therewith.
4.7 Access to Documents. For the purpose of implementing Section
1861 (v) (1) (I) of the Social Security Act, as amended, and any regulations
promulgated pursuant thereto, Manager agrees to comply with the following
statutory requirements governing the maintenance of documentation to verify the
cost of services rendered under this Agreement:
"(i) until the expiration of four years after the furnishing of such
services pursuant to such contract, [Manager] shall make available, upon
written request to the Secretary [of the U.S. Department of Health and
Human Services] or upon request to the Comptroller General, or any of
their duly authorized representatives, the contract and books,
documents, and records of such costs, and"
"(ii) if [Manager] carries out any of the duties of the contract through
a subcontract with a value or cost of $10,000 or more over a
twelve-month period, with a related organization, such subcontract shall
contain a clause to the effect that until the expiration of four years
after the furnishing of such services pursuant to such subcontract, the
related organization shall make available, upon written request to the
Secretary, or upon request to the Comptroller General, or any of their
duly authorized representatives, the subcontract and books, documents,
and records of such organization that are necessary to verify the nature
and extent of such costs."
4.8 Audit Disclosure. If Manager is requested to disclose books,
documents, or records for purpose of an audit, Manager shall notify Hospital of
the nature and scope of such request and Manager shall make available, upon
written request of Hospital, all such books, documents, or
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records, during regular business hours of Manager. The provisions of this
Section 4.8 shall survive the expiration or earlier termination hereof.
4.9 Reports. Manager shall provide monthly written reports to
Hospital administration regarding all aspects of the operation of the Program.
Such reports shall accompany Manager's invoice as required pursuant to Section
7.1 of this Agreement, and the submission of a report which meets with
Hospital's approval, which shall not be unreasonably withheld, shall be an
express condition precedent to Hospital obligation to pay to Manager the
Management Fee as required by Section 7.2 of this Agreement. Such report shall
address, among other things, the therapies provided to patients, any notable
therapeutic successes or failures experienced by patients of the Program, any
changes in Program staff, any complaints received by Manager regarding the
operation and administration of the Program and the Facility, Program census,
and any other items or issues significant to the administration of the Program.
4.10 Adverse Actions. Manager shall commit no act or omission which
adversely affects any licensure or certification of the Hospital.
4.11 Admissions. Manager shall admit patients to the Program only
where such admission is ordered by a physician member of the Hospital's medical
staff with admitting privileges.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF HOSPITAL.
5.1 Corporate Status. Hospital is a nonprofit public benefit
corporation duly organized and validly existing in good standing under the laws
of the State of California with the power and authority to carry on the
activities in which it is engaged and to perform its obligations hereunder
subject to licensure by the California Department of Health Services.
5.2 Execution of Agreement. The execution of this Agreement and the
performance of the obligations of the Hospital hereunder will not result in any
breach of any of the terms, conditions, or provisions of any agreement or other
instrument to which Hospital is a party or by which it may be bound or affected,
or any governmental license, franchise, permit or other authorization possessed
by the Hospital, nor will such execution and performance violate any federal,
state or local law, rule, or regulation. The Hospital is accredited by the Joint
Commission on the Accreditation of Health Care Organizations.
5.3 Litigation. There is no litigation, administrative proceeding or
investigation pending or threatened against Hospital, nor is the Hospital
subject to any judgment, order, decree or regulation of any court or other
governmental or administrative agency which would materially adversely affect
the performance of Hospital's obligations hereunder.
5.4 Certificate of Need. No Certificate of Need is required by
Hospital from any state regulatory agency for the operation of the Program.
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SECTION 6. REPRESENTATIONS BY MANAGER.
6.1 Corporate Status. Manager is a corporation duly organized and
existing under the laws of the State of Delaware, is authorized and qualified to
conduct business in the State of California, and has the power and authority to
carry on the activities in which it is engaged and to perform its obligations
hereunder.
6.2 Execution of Agreement. 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 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.
6.3 Litigation. There is no litigation, administrative proceeding or
investigation pending or threatened against Manager, nor is the Manager subject
to any judgment, order, decree or regulation of any court or other governmental
or administrative agency, which would materially adversely affect the
performance of Hospital's obligations hereunder.
SECTION 7. MANAGEMENT FEE.
7.1 Invoice. Manager shall prepare and submit to Hospital on a
monthly basis an invoice for its services rendered hereunder. Said invoice shall
indicate the name of each patient of the Program and the dates on which each
patient attended the Program and shall reflect each such patient's social
security number, admitting diagnosis, and patient identification number. Within
twenty (20) days of Hospital's receipt thereof, and upon Hospital's approval
thereof, which approval shall not be unreasonably withheld, and subject to the
provisions of Section 4.9, Hospital shall make payment to Manager of all sums
owing hereunder.
7.2 Per Capita Fee. Hospital shall be obligated to pay to Manager a
fee of Ninety Five Dollars and Fifty Cents ($95.50) per patient day for each
patient attending the Program.
7.3 Payments Declined. Hospital shall be entitled to a credit of
Ninety Five Dollars and Fifty Cents ($95.50) per patient day for all Patient
Days in excess of five percent (5%) per day for which payment was denied for
clinical reasons.
SECTION 8. CONFIDENTIAL AND PROPRIETARY INFORMATION.
8.1 Acknowledgment. Hospital acknowledges and agrees that
Confidential Information may be disclosed to it in confidence with the
understanding that it constitutes business information developed by Manager.
Hospital further agrees that it shall not use such Confidential Information for
any purpose other than in connection with the Program. Hospital further agrees
not to disclose such Confidential Information to any third party except as
required by law or regulation or in order
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to serve the purposes of the Program or as permitted by written authorization of
Manager.
8.2 License. Manager hereby grants to Hospital for the term of this
Agreement a non-exclusive license to use the registered service marks of Manager
when identifying the Program. These service marks are to remain the exclusive
property of Manager.
8.3 Nondisclosure. Manager agrees not to disclose confidential
information pertaining to the Hospital's business or affairs or the Program or
Program patients except as required by law or regulation or as permitted by
written authorization of the Hospital or the respective Program patients, as the
case may be.
SECTION 9. RECRUITMENT OF EMPLOYEES AND AGENTS.
9.1 Recruitment by Hospital. Hospital acknowledges that it has
expended and will continue to expend substantial time, effort, and money to
train its employees and contracted personnel in the operation of the Program.
The employees and contracted personnel of Manager who will operate the Program
will have access to and possess Confidential Information of Manager. Hospital
agrees that for the earlier of two (2) years after the cessation of the
employment or agency relationship between the Manager and an employee 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 by or
retained by Manager in the Program unless Manager gives Hospital express written
consent thereto or unless this Agreement is terminated by Hospital pursuant to
Section 10 of this Agreement.
9.2 Recruitment by Manager. Manager acknowledges that it has
expended and will continue to expend substantial time, effort, and money to
train its employees and contracted personnel in the operation of the Program and
the Hospital. The employees and contracted personnel of Manager who will operate
the Program will have access to and possess Confidential Information of
Hospital. Manager agrees that for the earlier of two (2) years after the
cessation of the employment, independent contractual or agency relationship
between the Hospital and an employee 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
Hospital if such individual has been employed by or retained by Hospital in the
Program unless Hospital gives Manager express written consent thereto or unless
this Agreement is terminated by Manager pursuant to Section 10 of this
Agreement.
SECTION 10. TERMINATION.
10.1 Termination by Manager.
10.1.1 Manager may terminate this Agreement by written notice
to Hospital, if
11
<PAGE> 12
Hospital should have a bankruptcy, reorganization, or similar action filed by or
against it, or become insolvent, or sell all or substantially all of its assets.
10.1.2 In the event Hospital fails to comply with the terms of
this Agreement in any material respect, Manager may notify Hospital of such
breach, in writing, and Hospital shall have thirty (30) days to cure such
breach. In the event Hospital fails to cure such breach with said period, the
Agreement may be terminated by Manager.
10.1.3 Manager may terminate this Agreement by written notice
to Hospital in the event Hospital fails to maintain accreditation by the Joint
Commission on the Accreditation of Health Care Organizations, or in the event
Hospital fails to maintain any license or certification granted to it by a
regulatory agency without which the Program would be materially and adversely
affected, unless the responsibility to maintain such license or certification is
a responsibility of Manager pursuant to Section 4.3.
10.1.4 Manager may terminate this Agreement by written notice
to Hospital in the event Hospital fails to maintain commercial general liability
insurance in accordance with the requirements of Section 3.10.
10.2 Termination by Hospital.
10.2.1 Hospital may terminate this Agreement by written notice
to Manager, if Manager should have a bankruptcy, reorganization, or similar
action filed by or against it, or become insolvent, or sell all or substantially
all of its assets.
10.2.2 In the event Manager fails to comply with the terms of
this Agreement in any material respect, Hospital may notify Manager of such
breach, in writing, and Hospital shall have thirty (30) days to cure such
breach. In the event Manager fails to cure such breach with said period, the
Agreement may be terminated by Hospital.
10.2.3 Hospital may terminate this Agreement by written notice
to Manager in the event Hospital fails to maintain accreditation by the Joint
Commission on the Accreditation of Health Care Organizations, or in the event
Hospital fails to maintain any license or certification necessary for the
operation of the Program or the Facility.
10.2.4 Hospital may terminate this Agreement by written notice
to Manager in the event Manager fails to maintain insurance in accordance with
the requirements of Section 4.6.
10.2.5 In the event Hospital terminates this Agreement for any
reason, the Sublease shall be deemed to also have been terminated.
10.3 Termination Without Cause. Either party may terminate this
Agreement without penalty or cause by giving written notice to the other party.
Such termination shall take place upon
12
<PAGE> 13
the expiration of one hundred eighty (180) calendar days after the giving of
such written notice.
SECTION 11. COMPLIANCE WITH LAW.
11.1 Applicable Laws. In addition to the obligations of the parties
to comply with applicable federal, state and local laws respecting the use of
the Unit and the conduct of their respective businesses and professions,
Hospital and Manager each acknowledge that they are subject to certain federal
and California laws governing the referral of patients which are in effect or
will become effective during the term of this Agreement. These laws include
prohibitions on:
11.1.1 Payments for referral or to induce the referral of
patients (Social Security Act Section 1128; Cal. Business and Professions Code
Section 650; and Cal. Labor Code Section 3215); and
11.1.2 The referral of patients by a physician for certain
designated health care services to an entity with which a physician (or his/her
immediate family) has a financial relationship (Cal. Labor Code Sections 139.3
and 139.31, applicable to referrals for workers' compensation services; Cal.
Business and Professions Code Sections 650.01 and 650.02, applicable to all
other patient referrals within the State; and Section 1877 of the Social
Security Act, applicable to referrals of Medicare and MediCal patients).
11.2 Acknowledgments. As consideration for each party hereto to enter
into this Agreement, the parties:
11.2.1 Acknowledge that (i) each has had the opportunity to
engage independent counsel of her/its choice for advice as to the requirements
of the anti-referral laws referred to in this Section 11; and (ii) each has had
the opportunity to consult with legal counsel or other experts as each deems
appropriate to assist in the determination by each party that the terms of this
Agreement are commercially reasonable.
11.2.2 Represent to the other that it is the intent that the
terms of this Agreement shall be commercially reasonable.
11.2.3 Represent to the other that it is the intent that
compensation for each of the services which are provided under this Agreement
shall be based on the air market value of such services, including a fair rate
of return.
11.3 No Referral Requirement. Nothing in this Agreement is intended
or shall require any party to violate the California or federal prohibitions on
payments for referrals, and this Agreement shall not be interpreted to:
11.3.1 Require the Medical Director to make referrals to
Hospital, be in a position to make or influence referrals to Hospital, or
otherwise generate business for Hospital.
13
<PAGE> 14
11.3.2 Restrict Medical Director from establishing staff
privileges at, referring any service to, or otherwise generating any business
for any other entity of his/her choosing.
11.3.3 To interfere in any way with Medical Director's
professional prerogatives and medical decisions.
11.4 No Gifts to Beneficiaries. As part of its administrative
obligations hereunder, Manager may market the Program to the Hospital's
community. Under no circumstances whatsoever shall Manager offer or make any
gift or payment to any individual as a means of encouraging such person to seek
medical or psychiatric attention from Hospital, Manager, or through the Program,
or from any other provider of health care.
11.5 Audits. Hospital shall have the right, but not the obligation,
to interview patients who receive services through the Program, and to conduct
audits of all types of the Program, for the purpose of determining whether
Manager is in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, as well as Hospital rules, regulations, bylaws,
policies, and procedures and this Agreement.
SECTION 12. MISCELLANEOUS PROVISIONS.
12.1 Compulsory Arbitration. Any controversy, dispute or claim
arising out of or relating to this Agreement, or the breach or alleged breach
thereof, shall be settled by binding arbitration in accordance with the rules of
the American Arbitration Association, and judgment on the award may be entered
in any court having jurisdiction. The provisions of this Section 12.1 shall not
apply with respect to any claim arising out of or relating to bodily injury or
death.
12.2 Attorneys' Fees. If any legal action, including arbitration, is
necessary to enforce the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs awarded against the other party
in addition to any other relief to which the prevailing party may be entitled.
12.3 Governing Law. The validity of this Agreement and of 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
governed in accordance with the laws of the State of California.
12.4 Force Majeure. If either of the parties hereto is delayed or
prevented from fulfilling any of its obligations hereunder by force majeure,
said party shall not be liable for said delay or failure. "Force Majeure" shall
mean any cause beyond the reasonable control of a party, including but not
limited to an act of God, act or omission of civil or military authorities,
fire, strike, flood, riot, war, delay of transportation, or inability due to the
aforementioned causes to obtain necessary labor, materials or facilities.
14
<PAGE> 15
12.5 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, unless the severed part contains an essential economic term.
12.6 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 waiver unless in
writing signed by the party against whom the waiver is sought to be enforced.
12.7 Binding Effect. This Agreement shall be binding on the
successors and assigns of the respective parties, provided however that neither
party may assign or otherwise transfer this Agreement or delegate obligations
hereunder without the other's written consent.
12.8 Complete Agreement. Except for the Sublease, this Agreement
constitutes the complete understanding of 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 hereof unless such
amendment is in writing and is signed by both parties.
12.9 No Agency or Partnership. The relationship between Manager and
Hospital 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.
12.10 Notices. All notices hereunder shall be in writing, delivered
personally or by U.S. Certified or Registered postal 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 its address by written notice in accordance with this Section.
If to Hospital: Citrus Valley Medical Center
1115 South Sunset
West Covina, California 91790
Attn: C.O.O./Administrator
If to Manager: OptimumCare Corporation
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, California 92677-5018
Attn: Ed Johnson
12.11 Captions. Any captions to or headings of the articles, sections,
subsections, paragraphs, or subparagraphs of this Agreement are solely for the
convenience of the parties, are not a part of this Agreement and shall not be
used for the interpretation or determination of validity of
15
<PAGE> 16
this Agreement or any provision hereof.
12.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
12.13 Assistance in Litigation. Manager and Medical Director shall, at
no charge, provide information and testimony and otherwise assist Hospital in
defending against litigation brought against Hospital, its directors, officers,
shareholders, members or employees based upon a claim of negligence, malpractice
or any other cause of action, arising under this Agreement, except where Manager
and/or Medical Director is a named adverse party.
12.14 Tax Exempt Financing. In the event Hospital intends to seek
tax-exempt financing, Manager agrees to amend this Agreement as may be
reasonably necessary in order for Hospital to obtain such financing. Immediately
upon request by Hospital, Manager shall execute any and all such amendments
reasonably presented by Hospital and shall return promptly said fully executed
original amendments to Hospital.
12.15 Gender and Number. Whenever the context hereof requires, the
gender of all words shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.
12.16 Legal Counsel. Each party understands the advisability of
seeking legal counsel and has exercised its own judgment in this regard.
12.17 Interpretation. No provision of this Agreement shall be
interpreted or construed for or against either party because that party's legal
representatives drafted such provision.
12.18 Facilitation. Each party agrees promptly to perform further acts
and to execute, acknowledge and deliver any provisions of this Agreement or
effect its purposes.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"HOSPITAL":
CITRUS VALLEY MEDICAL CENTER, a California Nonprofit
public benefit corporation
By:
----------------------------------------------------
Its: Administrator
---------------------------------------------------
(Title)
"MANAGER":
OPTIMUMCARE CORPORATION, a Delaware Corporation
By: /s/ Edward A. Johnson
----------------------------------------------------
Its: CEO
---------------------------------------------------
(Title)
17
<PAGE> 18
SCHEDULE 3.3
STAFFING TO BE PROVIDED BY HOSPITAL
<TABLE>
<CAPTION>
FTE CATEGORY CENSUS CENSUS CENSUS CENSUS CENSUS
10-16 17-20 21-25 26-30 31-40
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office Manager 1 1 1 1 1
Registered Nurse 1 1 1 1 1
Licensed Vocational 0 0 0.5 1 1
Nurse/LPT
Mental Health Worker 1 1 1 1 2
TOTAL 3 3 3.5 4 5
</TABLE>
18
<PAGE> 19
SCHEDULE 4.2
STAFFING TO BE PROVIDED BY MANAGER
<TABLE>
<CAPTION>
FTE CATEGORY CENSUS CENSUS CENSUS CENSUS CENSUS
10-15 16-20 21-25 26-30 31-40
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Program Director 1 1 1 1 1
Clinical Social Worker 1 1 1 1 1
Master/Social Worker or Marriage, 0 0.5 1 1 1.5
Family, Child Counselor
Activity Therapist 1 1.5 1.5 2 2
Corporate Clinical Director/Corporate 0.5 0.5 0.5 0.5 0.5
UR-Educational Director
Medical Director 0.25 0.25 0.25 0.25 0.25
TOTAL FTE/DAY 3.75 4.75 5.25 5.75 6.25
</TABLE>
19
<PAGE> 1
EXHIBIT 10.112 SUBLEASE
OPTIMUMCARE CORPORATION (OptimumCare) and CITRUS VALLEY HEALTH PARTNERS agree
that Citrus Valley Health Partners shall sublet the property at 1170 Durfee
Avenue, South El Monte, California from OptimumCare under the following
conditions:
1. Citrus Valley Health Partners shall rent the 5,031 square feet at the
above mentioned location at a rate of $5,785.65 per month.
2. Citrus Valley Health Partners shall pay a security deposit equal to one
month's rent.
3. The sublease shall have an initial term beginning with the commencement
date of the Mental Health Partial Hospitalization Services Agreement and
shall run concurrently with that Agreement and thereafter shall continue
at will, cancelable by either party on 180 days notice or in accordance
with provision 10.2 or 10.3 of the Agreement.
4. Rent is due on the 1st day of the month, except for the first payment
due with submission of the signed sublease.
5. Citrus Valley Health Partners shall pay any proportionate share of
lessors "Excess Expenses".
/s/ Edward A. Johnson
- ---------------------------------- -------------------------------------
OptimumCare Corporation Citrus Valley Health Partners
Edward A. Johnson
Chairman of the Board
9/27/91
- ---------------------------------- -------------------------------------
Date Date
Landlord's Consent:
/s/ Adam Milstein 9/23/98
- ---------------------------------- -------------------------------------
Whittier Narrows Business Park
c/o Liberty West, Inc.
Adam Milstein, President
<PAGE> 1
EXHIBIT 10.113 COLDWELL BANKER
JON DOUGLAS COMPANY
RESIDENTIAL LEASE AGREEMENT
This is more than a receipt for money. This is intended to be a legally binding
contract. Do not sign until you have thoroughly read and understood each
provision.
This Residential Lease Agreement ("Agreement") is entered into at Marina Del
Rey, State of California, this 10th day of Sept., 1998, by and between
___________________________________ ("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 Venice, County of LA, State of
California, and more particularly described as follows: 420 Howland Canal
("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 part of this Agreement: ________
______________________________________________________________________________.
1. RENT AND TERM. Lessee agrees to pay Lessor rent at the rate of $ 2,800.00
per month, in advance, on the 1st day of each calendar month. The term of this
Agreement shall begin on November, 1998 ("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
[x] b. A lease with the Commencement Date as stated above and an
ending date of October 30, 1998, with a total rental for the
full term of $33,600.00, payable in monthly installments as
defined above; or
[ ] c. Other________________________________________________________.
2. DEPOSITS AND PREPAID RENTAL.
a. Lessee has given Coldwell Banker/Jon Douglas Company ("Broker") an
Earnest Money Deposit in the amount of.....................$2,800.00
In the form of [ ] cashier's check, [ ] certified check,
[x] 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 7 days of Lessor's
acceptance of this Agreement.
b. Lessee shall pay to Lessor the first month's rent, in the amount of
...........................................................$2,800.00
c. Lessee shall pay to Lessor a Security Deposit, in the amount of
...........................................................$2,800.00
d. Lessee shall pay to Lessor additional sums for______________________
_______________________________________ in the amount
of.........................................................$________
e. Lessee agrees to pay to Broker, if Lessee is represented by Coldwell
Banker/Jon Douglas Company, the sum of One Hundred Dollars ($100.00)
representing reimbursement to Broker's administrative and clerical
costs, including the cost of document preparation and processing,
Said sum shall only be payable to Broker in full upon execution of
this Agreement by Lessor and Lessee.........................$ 100.00
Total Deposits, Prepaid Rent and Fees due (2a through
2e)........................................................$5,700.00
Less (Item 2a) any Deposits received with this
offer....................................................($2,800.00)
Balance due, in the form of a cashier's check, on or before
____________________, 19____...............................$2,900.00
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 5 calendar days from the date of 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
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page _____ of _____ Pages.
Lessees' Initials (______________)(______________)
Lessors' Initials (_______________)(______________)
<PAGE> 2
PROPERTY ADDRESS 420 HOLLAND CANAL
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 arrearages 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 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.
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 names persons only: EDWARD JOHNSON AND GUESTS
and no animals EXCEPT: 0 . 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: ________________________
________________________________________________________________________.
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 not in a habitable and good condition EXCEPT: _______________
____________________________________. 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, wall paper, 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 to Property to prospective purchasers or tenants. Verbal or
written
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page _____ Of _____ Pages. Lessee's Initials (________)(________)
<PAGE> 3
PROPERTY ADDRESS 420 HOWLAND CANAL
notice at least twenty-four (24) hours in advance of entry shall be deemed
reasonable notice. No notice shall be requited 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 guest 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
of 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 breach 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
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 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. 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. Of the commissions referred to in this Agreement, ____% shall
be paid to Coldwell Banker/Jon Douglas Company and 6% to
__________________________________________________________ (other broker).
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
____% 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.
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page _____ of _____ Pages.
Lessees' Initials (________)(________)
Lessors' Initials (________)(________)
<PAGE> 4
PROPERTY ADDRESS 420 HOWLAND CANAL
24. LEASE PROCESSING FEE. Lessor agrees to pay to Broker, if represented by
Coldwell Banker/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.
Lessees' Initials Lessors' Initial
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.
Lessees' Initials Lessors' Initial
27. __________/__________ __________/__________ RENT CONTROL. By initialing
this paragraph, Lessor and Lessee acknowledge that this Agreement is
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 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 as 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 their 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 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.
Lessee and Lessor acknowledge receipt of copy of this page, which constitutes
Page _____ of _____ Pages. Lessee's Initials (________)(________)
<PAGE> 5
PROPERTY ADDRESS 420 HOWLAND CANAL
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 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 UNDERSTAND 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._________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
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 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 and
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 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 _____ of _____ Pages. Lessee's Initials (________)(________)
Lessors' Initials (___)(___)
<PAGE> 6
CALIFORNIA
COUNTER OFFER NO. 1
ASSOCIATION
(FOR USE BY SELLER OR BUYER. MAY BE USED FOR MULTIPLE COUNTER OFFER)
OF REALTORS
This is a counter offer to the [x] Offer, [ ] Counter Offer, [ ] Other Lease,
dated 9-10-98, regarding (property address): 420 Howland Canal between
OptimumCare Corp., "Buyer", and Mark Galanty, "Lessor".
1. TERMS: The terms and conditions of the above referenced document are
ACCEPTED SUBJECT TO THE FOLLOWING:
A. PARAGRAPHS IN THE PURCHASE CONTRACT (OFFER) WHICH REQUIRE INITIALS
BY ALL PARTIES, BUT ARE NOT INITIALED BY ALL PARTIES, ARE EXCLUDED
FROM THE FINAL AGREEMENT UNLESS SPECIFICALLY REFERENCED FOR
INCLUSION IN PARAGRAPH 1C OF THIS OR ANOTHER COUNTER OFFER.
B. UNLESS OTHERWISE SPECIFIED IN WRITING, DOWN PAYMENT AND LOAN
AMOUNT(S) WILL BE ADJUSTED IN THE SAME PROPORTION AS IN THE ORIGINAL
OFFER.
C. LEASE TO START ON OCTOBER 15, 1998 AND TERMINATE ON OCTOBER 14,
1999.
D. SECURITY DEPOSIT SHALL BE $5,600.00.
E. DELETE ITEM # E OF LEASE AGREEMENT.
F. TOTAL DUE PRIOR TO MOVE IN SHALL BE $8,400.00.
G. COMMISSION IS 5% OF THE TOTAL LEASE.
H. LESSEE IS AWARE THIS LEASE IS FOR THE FRONT UNIT ONLY WITH 1 CAR
GARAGE.
I. LESSOR SHALL CLEAN CARPET IN LIVING AND DINING ROOM OR REPLACE IF
NECESSARY. PAINT ENTIRE UNIT & FINISH CEILING IN KITCHEN.
D. THE FOLLOWING ATTACHED SUPPLEMENTS ARE INCORPORATED IN THIS COUNTER
OFFER:
[ ] _______________________________ [ ]_____________________________
[ ] _______________________________ [ ]_____________________________
2. [ ] (If checked:) MULTIPLE COUNTER OFFER: Seller is making a Counter
Offer(s) to another prospective buyer(s) on terms which may or may not be
the same as in this Counter Offer. Acceptance of this Counter Offer by
Buyer shall NOT be binding unless and until it is subsequently re-signed
by Seller in paragraph 7 below. Prior to the completion of all of these
events, Buyer and Seller shall have no duties or obligations for the
purchase or sale of the Property.
3. RIGHT TO ACCEPT OTHER OFFERS: Seller reserves the right to continue to
offer the Property for sale or for other transaction, and to accept any
other offer at any time prior to communication of acceptance, as described
in paragraph 4. Seller's acceptance of another offer prior to Buyer's
acceptance and communication of acceptance of this Counter Offer shall
revoke this Counter Offer.
4. EXPIRATION: Unless acceptance of this Counter Offer is signed by the
person receiving it, and communication of acceptance is made by delivering
a signed copy in person, by mail, or by facsimile which is personally
received, to the person making this Counter Offer or to SANDY BERENS , by
5:00PM on the third calendar day after this Counter Offer is written (or,
if checked, [ ] date: _________________, time _________ AM/PM), this
Counter Offer shall be deemed revoked and the deposit shall be returned to
Buyer. This Counter Offer may be executed in counterparts.
AS THE PERSON(S) MAKING THIS COUNTER OFFER ON THE TERMS ABOVE, RECEIPT OF
A COPY IS ACKNOWLEDGED.
_________________________________________ Date: 9/25/98 Time: 11:53 AM/PM
_________________________________________ Date: _______ Time: _____ AM/PM
5. ACCEPTANCE: I/WE accept the above Counter Offer (IF CHECKED: [ ] SUBJECT
TO THE ATTACHED COUNTER OFFER) and acknowledge receipt of a copy.
_________________________________________ Date: 9/25/98 Time: _____ AM/PM
_________________________________________ Date: _______ Time: _____ AM/PM
6. ACKNOWLEDGMENT OF RECEIPT: Receipt of signed acceptance on (date)
___________________________________, at _____ AM/PM, by the maker of the
Counter Offer, or other person designated in paragraph 4, is acknowledged.
(_______/_______) (Initials)
<PAGE> 7
7. MULTIPLE COUNTER OFFER SIGNATURE LINE: (PARAGRAPH 7 APPLIES ONLY IF
PARAGRAPH 2 IS CHECKED.) By signing below, Seller accepts this Multiple
Counter Offer, and creates a binding contract. (NOTE TO SELLER: Do NOT
sign in this paragraph until after Buyer signs the acceptance in paragraph
5, and returns to Seller for re-signing.)
_________________________________________ Date: _______ Time: _____ AM/PM
_________________________________________ Date: _______ Time: _____ AM/PM
THIS FORM HAS BEEN APPROVED BY THE CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.).
NO REPRESENTATION IS MADE AS TO THE LEGAL VALIDITY OR ADEQUACY OF ANY PROVISION
IN ANY SPECIFIC TRANSACTION. A REAL ESTATE BROKER IS THE PERSON QUALIFIED TO
ADVISE ON REAL ESTATE TRANSACTIONS. IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT
AN APPROPRIATE PROFESSIONAL.
This form is available for use by the entire real estate industry. It is not
intended to identify the user as a REALTOR. REALTOR is a registered collective
membership mark which may be used only by members of the NATIONAL ASSOCIATION OF
REALTORS who subscribe to its Code of Ethics.
The copyright laws of the United States (17 U.S. Code) forbid the unauthorized
reproduction of this form by any means, including facsimile or computerized
formats Copyright 1986-1997 CALIFORNIA ASSOCIATION OF REALTORS
<PAGE> 1
EXHIBIT 10.114
October 1, 1998
Mr. Steven Nelson, Administrator
Friendship Community Mental Health Center
3201 N. 16th Street #6
Phoenix, AZ 85016
Dear Steve:
This letter shall serve as an amendment to the Agreement dated June 25, 1997
between Friendship Community Mental Health Center (CMHC) and OptimumCare
Corporation extending the term of the Agreement from April 30, 1999 to April 30,
2002.
OptimumCare Corporation agrees to evaluate and assess the impact of any
prospective payment system reimbursement changes such that Manager and CMHC
shall in theory receive the same proportionate reimbursement as currently exists
between the two parties.
In addition, both parties agree to proportionately adjust fees, for any expenses
currently designated as their responsibility in the Agreement dated June 25,
1997 which are ultimately paid by the other party.
Please sign and return this letter as evidence of your acceptance at your
earliest convenience.
Sincerely,
Edward A. Johnson
Chairman of the Board & CEO
Steven Nelson 11/12/98
- ------------------------------------------- --------------------------
Steven Nelson - Administrator Date
Friendship Community Mental Health Center
Mulu G. Michael 11/6/98
- ------------------------------------------- --------------------------
Mulu G. Michael - President & COO Date
OptimumCare Corporation
Edward A. Johnson 11/6/98
- ------------------------------------------- --------------------------
Edward A. Johnson - Chairman of the Board Date
OptimumCare Corporation
<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 No. 33-78340) pertaining to the 1987 and 1994 Stock
Option Plans of OptimumCare Corporation of our report dated March 5, 1999, with
respect to the consolidated financial statements and schedule of OptimumCare
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ ERNST & YOUNG LLP
Orange County, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 188,636
<SECURITIES> 0
<RECEIVABLES> 2,293,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,652,044
<PP&E> 59,527
<DEPRECIATION> 131,062
<TOTAL-ASSETS> 3,154,744
<CURRENT-LIABILITIES> 429,375
<BONDS> 0
0
0
<COMMON> 5,920
<OTHER-SE> 2,431,761
<TOTAL-LIABILITY-AND-EQUITY> 3,154,744
<SALES> 11,409,690
<TOTAL-REVENUES> 11,434,426
<CGS> 8,977,538
<TOTAL-COSTS> 10,819,672
<OTHER-EXPENSES> 1,505,169
<LOSS-PROVISION> 334,564
<INTEREST-EXPENSE> 2,401
<INCOME-PRETAX> 614,754
<INCOME-TAX> 237,621
<INCOME-CONTINUING> 377,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377,133
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
