SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal years ended December 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20345
Iatros Health Network, Inc.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-2596710
______________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 Piedmont Center, Suite 400
Atlanta, Georgia 30305
_________________________________ _____________________________
(Address of principal executive (Zip Code)
offices)
(404) 266-3643
_______________________________________________________________________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(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 periods that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and no
disclosure will 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. _______
The Registrant had revenue of $25,512,540 from continuing
operations for its most recent fiscal year.
As of March 31, 1998, the aggregate market value of the
Registrant's Common Stock held by non-affiliates was $8,478,420 based
upon the average bid and asked price of $13/32 on March 31, 1998.
As of March 31, 1998, 20,869,958 shares of the Registrant's Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain exhibits are incorporated by reference to the Company's
Registration Statement on Form S-1 and to certain of its Current
Reports on Form 8-K, as listed in response to 13(a)(3) of Part III.
FORWARD LOOKING STATEMENTS
THIS FORM 10-K INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS
OF THE COMPANY. SUCH STATEMENTS REFLECT SIGNIFICANT ASSUMPTIONS AND
SUBJECTIVE JUDGMENTS BY THE COMPANY'S MANAGEMENT CONCERNING ANTICIPATED
RESULTS. THESE ASSUMPTIONS AND JUDGMENTS MAY OR MAY NOT PROVE TO BE
CORRECT. MOREOVER SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS
AND UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. FORWARD
LOOKING STATEMENTS SPEAK ONLY AS TO THE DATE HEREOF.
PART I
ITEM 1. BUSINESS
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Iatros Health Network, Inc., and its subsidiaries (together
referred to as the "Company") are involved in the operation of long-
term care facilities and provide services and products to the long-term
care industry. The Company's principal market areas currently are
Pennsylvania and New England.
The Company's corporate offices are located in Atlanta, Georgia.
During 1997, the Company discontinued operations associated with
certain of its business segments.
Business Strategy
-----------------
The Company's principal business strategy is to position itself in
selected market areas, having established a network of formal operating
and service relationships involving long-term care facilities and
health care providers. Through the introduction of its specialized
operating skills and ancillary service programs, the Company provides
cost effective and efficient, quality-oriented services to area health
care facilities. The Company emphasizes the localized nature of the
long-term care industry, utilizing its operating resources to achieve
maximum economies. Strategic alliances with local owners, operators and
health care providers in developing the area network are key
ingredients to the Company's business strategy.
During 1997, the Company changed its growth and development plans
to more actively pursue opportunities involving the direct leasing and
ownership of long-term care facilities. This represents a change from
previous development initiatives which focused solely on contract
management and service engagements. This strategy reflects
management's efforts to develop a stronger and more tangible balance
sheet while broadening its revenue base and increasing operating
control over facilities managed. However, the Company's growth
initiatives are constrained by its current financial position. As a
result, the Company is pursuing a merger transaction that would result
in the Company being acquired by NewCare Health Corporation (NASDAQ:
"NWCA") [See "Year Ended December 31, 1997 Compared with Year Ended
December 31, 1996 Liquidity and Capital Resources" and "Events
Subsequent to December 31, 1997".]
In view of continuing health care reform initiatives, the Company
believes it is important to position itself as a low cost quality
provider of health care services in its respective markets. The
Company seeks to provide value added services that promote revenue
enhancement, cost containment and quality assurance to its facilities.
Management Services
-------------------
The Company provides a full range of management services to the
long-term care facilities it owns and operates. These include
financial as well as operational management services, quality assurance
services, and special consulting services.
The Company currently provides management services to 10
facilities representing approximately 1,200 beds located in the New
England market area.
The Company's operating objective is to achieve the optimum
integration of financial services and operations management in all of
its facilities. Embodied in this philosophy is the Company's priority
to develop its key people as both financial and operational managers.
The Company emphasizes the development of its financial service
capabilities to both support and enhance its operating programs. An
important ingredient to promoting the integration of financial and
operating management is the integrity of the underlying information
systems. The Company is committed to utilizing state-of-the-art
technology to support its operating needs. This includes the
development and utilization of information systems technology that is
financially as well as clinically oriented.
Ancillary Services
------------------
The Company provides a full range of ancillary services to long-
term care facilities operating in its market areas. These include
institutional pharmacy services, durable medical equipment, wound care
management, infusion therapy, respiratory therapy services and
rehabilitation therapy services. Institutional pharmacy and medical
supply service programs, which extend beyond product delivery,
emphasize operational support services including drug consultation,
resident care management, quality assurance practices, and
documentation and administrative support.
The Company currently provides ancillary services to approximately
14 long-term care facilities in the Philadelphia, Pennsylvania market
representing in excess of 2,200 beds. In addition, the Company is
expanding its ancillary service business into the New England market
area.
Development Services
--------------------
The Company provides a full range of development services on
behalf of owners and operators as well as lenders and investors who are
active in the long-term care industry. The Company seeks opportunities
to be engaged in a development, consulting or financial advisory
capacity on a fee for service basis, particularly where possibility
exists to realize development income while securing ownership, lease,
and ancillary services business.
Significant Transactions
------------------------
During March 1997, the Company's wholly-owned subsidiary, OHI
Corporation, which does business as Oasis Healthcare ("Oasis") leased
two nursing facilities located in Holyoke and Greenfield, Massachusetts
having a combined total of 222 beds. The term of each lease is for ten
years with a five year renewal period and a combined facilities
purchase option for $11.5 million which is exercisable through March
2000. These leases are being accounted for as operating leases. In
connection with this transaction, the Company recorded leasehold rights
totaling $1,025,000.
During May 1997, OHI Realty I, LLP, a Massachusetts limited
partnership with the Company as general partner and it's wholly-owned
Oasis subsidiary as limited partner, acquired two nursing facilities
for $8,164,000 located in Taunton and Quincy, Massachusetts, having a
combined total of 171 beds. The Company recorded mortgage debt
totaling $8,550,000 with respect to this transaction. Of this amount,
approximately $450,000 represents escrowed loan reserves for the
mortgage financing.
During August 1997, the Company's wholly-owned Oasis subsidiary
entered into management contracts with respect to a 90 bed skilled
nursing and retirement center located in North Falmouth, Massachusetts
known as "Royal Megansett" ("the Royal Megansett Agreement"). At the
time of this transaction, Royal Megansett was leased by a partnership
controlled by an officer of Oasis (the "Royal Megansett officer")
pursuant to a ten-year lease (the "Royal Megansett lease"). Because
the parties contemplated that such lease would be assigned to, and
assumed by, Oasis immediately after it obtained approval by the
Massachusetts Department of Public Health, the Company guaranteed the
Royal Megansett lease. In November, 1997, the Royal Megansett officer
resigned as an officer of Oasis and the Royal Megansett Management
Agreement was terminated. The Company and the Royal Megansett officer
are in a dispute over such actions, but no litigation has commenced.
During 1997, the Company discontinued operations associated with
certain segments of its long-term care business. Specifically, these
included subsidiary operations providing third party development and
management services to independent owners and operators of long-term
care facilities and relating to the Company's prior business
acquisitions of Greenbrier Healthcare Services, Inc. and New Health
Management Systems, Inc. In addition, the Company discontinued
operations associated with providing respiratory therapy services and
relating to the prior business acquisition of King Care Respiratory
Services, Inc.
In December 1997, the Company issued four million shares of its
Common Stock to NewCare Health Corporation ("NewCare") for an aggregate
investment of $1,000,000. This investment was made in connection with
the commencement of discussions between the Company and NewCare
concerning NewCare's possible acquisition of the Company through a
statutory merger transaction. [See "Events Subsequent to December 31,
1997."]
Competition
-----------
Intense competition exists in the market for operation of long-
term care facilities as well as for providing ancillary services. The
long-term care facilities operated or serviced by the Company compete
for patients with other long-term care facilities and, to a lesser
extent, with home health care providers, acute care hospitals and
facilities that provide long-term care services. Facilities which the
Company manages or provides services to operate in localities that are
also served by similar facilities operated by others. Some competing
facilities are newer than those operated by the Company and provide
services not offered by the Company.
Many competitors have greater financial resources than the
Company. Certain of those providers are operated by not-for-profit
organizations and similar businesses that can finance capital
expenditures on a tax exempt basis or receive charitable contributions
unavailable to the Company. Competition for acquisition of long-term
care facilities is expected to increase in the future. However, given
the Company's current financial position, it is unlikely that the
Company will acquire any new facility in the near future.
Construction of new long-term care facilities near the facilities
operated and serviced by the Company could adversely affect its
business. While state regulations generally require that a Certificate
of Need be obtained before any long-term care facility can be
constructed or additional beds added to existing facilities, no
assurances can be given that such additional facilities or beds will
not be built and result in increased competition for the facilities
managed and serviced by the Company.
Human Resources
---------------
As of March 31, 1998, the Company had 659 employees, of which 35
were employed in pharmacy and durable medical equipment operations, 494
associated with nursing home operations and management personnel, 23
corporate, and 107 in therapy services operations. The Company
believes that it has good employee relations.
Government Regulation
---------------------
The long-term health care industry is subject to extensive
federal, state and, in some cases, local regulation with respect to
reimbursement, licensing, certification and health planning, conduct of
operations at existing facilities, construction of new facilities,
acquisition of existing facilities, addition of new services and
certain capital expenditures. Compliance with such regulatory
requirements, as interpreted and amended from time to time, can
increase operating costs and thereby adversely affect the financial
viability of the Company and the facilities managed by the Company.
Failure to comply with regulatory requirements could also result in
restrictions on admissions, the revocation of licensure,
decertification or the closure of the facilities operated by the
Company.
The operation of a long-term health care facility is licensed by
the Department of Health or other agency of the jurisdiction in which
it is located and by the U.S. Department of Health and Human Services
("HHS"). Other state and local agencies may have regulatory authority
over certain facility matters. Operators of such facilities are also
subject to various federal, state, and local environmental laws.
All facilities operated by the Company are licensed under
applicable state law and are certified or approved as providers under
one or more of the Medicaid, Medicare or other third party payor
programs. Both initial and continuing qualification of a long-term
health care facility to participate in such programs depends upon many
factors, including accommodations, equipment, services, patient care,
safety, personnel, physical environment and adequate policies,
procedures and controls. Licensing, certification, and other
applicable standards vary from jurisdiction to jurisdiction and are
revised periodically. State and federal agencies survey all long-term
health care facilities on a regular basis to determine whether such
facilities are in compliance with the requirements for continued
licensure and for participation in government sponsored and third party
payor programs. The Company believes that the facilities it operates
are in material compliance with the various state licensing, Medicare
and Medicaid regulatory requirements applicable to them. However, in
the ordinary course of its business, the Company may receive notices of
alleged deficiencies at the facilities for failure to comply with
various regulatory requirements. The Company reviews such notices and
assists the facility personnel in filing and implementing appropriate
plans of corrective action. In most cases, the Company, and the
reviewing agency will agree upon the measures to be taken to bring the
facility into compliance. In some cases or upon repeat violations, the
reviewing agency has the authority to take various adverse actions
against a facility, including the imposition of fines, temporary
suspension of admission of new residents to the facility, suspension or
decertification from participation in the Medicare or Medicaid Program
and, in extreme circumstances, revocation of a facility's license.
These actions would adversely affect a facility's ability to meet
operating costs. Additionally, conviction of abusive or fraudulent
behavior with respect to one facility could subject other facilities
under common control or ownership to disqualification from
participation in the Medicare and Medicaid programs. It is not
possible to predict the content or effect of future legislation and
regulations affecting the health care industry.
Pharmacists and those providing pharmacy services in the United
States are regulated by state statutes and rules and regulations of
state boards of pharmacy. Currently, the Company operates pharmacies
only in the Commonwealth of Pennsylvania. As required by applicable
law, the Company's subsidiary, Durant Medical, and its pharmacists are
licensed as a retail pharmacy, and as pharmacists, respectively.
In addition, both state and federal regulators prohibit the
dispensing of certain drugs or medicines other than pursuant to a
prescription written by a licensed physician. In order to implement
these restrictions, regulations impose strict record keeping
requirements with respect to the handling and dispensing of controlled
substances, small quantities of which are maintained in Durant
Medical's pharmacy for use in filling prescriptions. These
requirements also impose significant record keeping obligations upon
Durant Medical and its pharmacists. The Company is subject to regular
audits by governmental authorities to monitor compliance with record
keeping and other requirements imposed by law and regulation.
Penalties for failure to comply with applicable regulations can range
from imposition of fines to the suspension or revocation of the license
of the pharmacy, one or more pharmacists, or both.
The Company currently provides pharmacy services to approximately
ten facilities in Pennsylvania.
Fraud and Abuse and Anti-Kickback Laws
--------------------------------------
The Medicare and Medicaid Patient and Program Protection Act of
1987 (the "MMPPPA") provided authority to the Office of Inspector
General ("OIG") of HHS to exclude a person or entity from participation
in Medicare or state health care programs if it is determined that the
party is engaged in a prohibited scheme involving direct or indirect
payments or fee-splitting arrangements designed to pay remuneration in
exchange for referrals. The legislation prohibiting payments for
referrals is general and has been construed broadly by the courts. The
OIG may exclude a person or entity from participation under Medicare or
state health programs if it is determined that the party is engaged in
a prohibited remuneration scheme. Other possible sanctions for
violations of the aforementioned restrictions include loss of
licensure, and civil or criminal penalties.
FRAUD AND ABUSE LAWS.
--------------------
Various federal and state laws regulate
the relationship between providers of health care services and other
health care providers in a position to make or influence referrals.
These laws include the fraud and abuse provisions of the federal
Medicare/Medicaid laws and similar state statutes (the "Fraud and Abuse
Laws"). These prohibit the payment, receipt, solicitation or referring
of any direct or indirect remuneration, in cash or in kind, intended to
induce the referral of a Medicare/Medicaid patient for the ordering or
providing of Medicare or Medicaid coverage services, items or
equipment. Violations of these provisions carry criminal and civil
penalties, including exclusion from participation in the Medicare and
Medicaid programs. The Federal government in various judicial and
administrative decisions, has interpreted these provisions broadly to
include the payment of anything of value to influence a referral of a
Medicare or Medicaid beneficiary. The Federal agencies responsible for
administering the statutes have published regulations establishing
"safe harbors" applicable to certain business arrangements between
entities that otherwise might be subject to the Fraud and Abuse Laws.
Nevertheless, the interpretations and applications of the broadly
worded Fraud and Abuse Laws by governmental authorities cannot be
predicted or guaranteed.
Medicare
--------
The Medicare program is a federally-administered and financed
program which provides health insurance protection to qualified
individuals over the age of 65 and the chronically disabled. This
program has been a retrospective reimbursement system that is based on
a prior period's cost report filed with a Medicare intermediary. In
1997, Congress passed the Balance Budget Act of 1997 ("BBA") which
provides for a phase-in of a prospective payment system ("PPS") for
skilled nursing facilities over a four-year period, effective for the
Company in January 1999. Under PPS, Medicare will pay skilled nursing
facilities a fixed fee per patient day based on the acuity level of the
patient to cover all post-hospital extended care routine service costs,
including ancillary and capital related costs for beneficiaries
receiving skilled services. The per diem rate will also cover
substantially all items and services furnished during a covered stay
for which reimbursement was formerly made separately under Medicare.
During the phase-in, payments will be based on a blend of the
facility's historical costs and a federally established per diem rate.
Since the federally established per diem rates have not been
finalized, it is unclear what the impact of PPS will be on the Company.
Effective October 1, 1990, the Omnibus Budget Reconciliation Act
of 1987 ("OBRA") eliminated the different certification standards for
"skilled" and "intermediate care" nursing facilities under Medicaid and
Medicare programs in favor of a single "nursing facility" standard.
This standard has required the Company to have at least one registered
nurse on each shift and has increased training requirements for nurses'
aides by requiring a minimum number of training hours and a
certification test before a nurses' aide can commence work. States
also must certify that nursing facilities provide skilled care in order
to obtain Medicare reimbursement. OBRA has also increased the
enforcement powers of state and federal certification agencies.
Additional sanctions have been authorized including fines, temporary
suspension of admission of new patients to nursing facilities,
decertification from participation in the Medicaid or Medicare programs
and, in extreme circumstances, revocation of a nursing facility's
license.
The Medicaid and Medicare programs provide criminal penalties for
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce business that is reimbursed under these
programs. The illegal remuneration provisions of the Social Security
Act, also known as the anti-kickback statute, prohibit remuneration
intended to induce the purchasing, leasing, ordering, or arranging for
any goods, facility, service or item to be paid by Medicaid or Medicare
programs.
There is increasing scrutiny by law enforcement authorities, the
Office of Inspector General ("OIG") of the Department of Health and
Human Services ("HHS"), the courts, and Congress of arrangements
between health care providers and potential referral sources to ensure
that the arrangements are not designed as a mechanism to exchange
remuneration for patient care referrals and opportunities.
Investigators have also demonstrated a willingness to look behind the
formalities of a business transaction to determine the underlying
purpose of payments between health care providers and potential
referral sources. Enforcement actions have increased, as evidenced by
recent highly publicized enforcement investigations of certain hospital
activities. Although, to its knowledge, the Company is not currently
the subject of any investigation which is likely to have a material
adverse effect on its business, financial condition or results of
operations, there can be no assurance that the Company and its
hospitals will not be the subject of investigations or inquiries in the
future.
The Social Security Act also imposes criminal and civil penalties
for making false claims to the Medicaid and Medicare programs for
services not rendered or for misrepresenting actual services rendered
in order to obtain higher reimbursement. The Medicare program has
published certain "Safe Harbor" regulations which describe various
criteria and guidelines for transactions which are deemed to be in
compliance with the anti-remuneration provisions. Although the Company
has contractual arrangements with some health care providers,
management believes it is in compliance with the anti-kickback statute
and other provisions of the Social Security Act and with the state
statutes. However, there can be no assurance that government officials
responsible for enforcing these statutes will not assert that the
Company or certain transactions in which it is involved are in
violation of these statutes.
The Company derives a significant portion of its revenue from
these programs, particularly with respect to ancillary services. With
respect to Medicaid, reimbursement rates are determined by the
appropriate administrative state agency based on the cost report filed
by each individual nursing facility. Changes in the reimbursement
policies of the Medicaid and Medicare programs as a result of
legislative and regulatory actions by federal and state governments
could adversely affect the revenues of the Company. Governmental
funding for health care programs is subject to statutory and regulatory
changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all
of which may materially increase or decrease program reimbursement to
health care facilities. Congress has consistently attempted to curb
the growth of federal spending on such programs. Recent actions
include limitations on payments to hospitals and nursing facilities
under the Medicaid and Medicare programs, limitations on payments for
physicians' services and elimination of funding for health planning
agencies. No assurance can be given that the future funding of
Medicaid and Medicare programs will remain at levels comparable to the
present levels.
Medicaid
--------
The Medicaid program is a state-administered program financed by
state and matching federal funds. The program provides for federal
assistance to the indigent and certain other eligible persons.
Although administered under broad federal regulations, states are given
flexibility to construct programs and payment methods consistent with
their individual goals. Currently, certain states including,
Massachusetts, have Medicaid reimbursement plans which are prospective
systems of reimbursement. Under a prospective system, per diem rates
are established based on cost of services provided for a prior year,
and are adjusted to reflect such factors as inflation.
Health Care Reform
------------------
The Clinton Administration and various federal legislators have
introduced health care reform proposals, which are intended to control
health care costs and to improve access to medical services for
uninsured individuals. These proposals include proposed cutbacks to
the Medicare and Medicaid programs and steps to permit greater
flexibility in the administration of Medicaid. Changes in
reimbursement levels under Medicare or Medicaid and changes in
applicable governmental regulations could significantly affect the
Company's results of operations. While no federal legislation
regarding health care reform was enacted in the calendar year 1997, it
is uncertain at this time what legislation on health care reform will
ultimately be enacted or whether other changes in the administration or
interpretation of governmental health care programs will occur. There
can be no assurance that future health care legislation or other
changes in the administration or interpretation of governmental health
care programs will not have an adverse effect on the results of
operations of the Company.
Compliance with Environmental Laws
----------------------------------
The Company's health care operations generate medical waste that
must be disposed of in compliance with federal, state and local
environmental laws, rules and regulations. The Company's operations,
as well as the Company's purchases and sales of facilities, are also
subject to various other environmental laws, rules and regulations.
The Company believes that it is in material compliance with applicable
environmental laws and regulations. Management believes that there are
no material environmental contingencies.
Property
--------
The Company leases 25,900 square feet of office space in the
following properties representing an aggregate monthly lease payment of
$25,589 (rates and square footage approximate): (1) 4,100 square feet
for its executive offices in Atlanta, Georgia at a rate of $7,186 per
month, with term ending September 30, 2000; (2) 2,300 square feet for
its New England operations office in Bedford, New Hampshire at rates of
$2,500 per month increasing to $3,500 per month over a three-year term
ending October 31, 2000; (3) 1,500 square feet for its restorative
therapy offices in Hampden, Massachusetts at a rate of $1,125 per
month, with a term ending September 30, 1999; (4) 16,5000 square feet
of office and ancillary services space in Malvern, Pennsylvania at a
rate of $11,500 per month with a term ending April 30, 1999; (5) 1,500
square feet of space for other restorative therapy services in the
greater Philadelphia, Pennsylvania area at a rate of $6,330 per month
with a term ending September 30, 1999. Company leases generally
include taxes and insurance.
The Company owns two long-term care nursing facilities located in
Taunton and Quincy, Massachusetts having a combined total of 171 beds.
The Company acquired these existing properties during May 1997 for a
purchase price of $8,164,000. In connection with this purchase
acquisition, the Company recorded mortgage debt totaling $8,550,000
which amount includes loan reserves of approximately $450,000.
The Company operates two long-term care nursing facilities located
in Holyoke and Greenfield, Massachusetts having a combined total of 222
beds pursuant to terms of a lease purchase agreement. The term of the
lease agreement is for ten years with a five year renewal period and a
combined facilities purchase option for $11.5 million, which is
exercisable through March 2000. These leases are being accounted for
as operating leases. In connection with this transaction, the Company
recorded leasehold rights totaling $1,025,000.
ITEM 3. LEGAL PROCEEDINGS
---------------------------
1. Dennis Nooner, Jr. v. Gull Creek, Inc. and Iatros Health Network,
Inc., Civil Action No. L-96-1695, filed in the United States District
Court for the District of Maryland:
In December of 1994, Gull Creek, Inc., a wholly-owned subsidiary
of the Company, Dennis Nooner, Jr. and the Company, as guarantor of
payment, entered into an Employment Agreement with Mr. Nooner, Jr. for
a term of five years commencing January 1, 1995 and granted to Mr.
Nooner, Jr. stock warrants, in connection with the lease of a facility
controlled by Mr. Nooner, Jr. and his father, Mr. Nooner, Sr. and an
option to purchase the Nooners' interests in the facility. In February
of 1996, Gull Creek, Inc. terminated Mr. Nooner, Jr. for cause under
the terms of his Employment Agreement. In April of 1996, Mr. Nooner,
Jr. filed suit against Gull Creek, Inc. and the Company in the Circuit
Court for Worcester County, Maryland, alleging that Gull Creek, Inc.
and the Company had breached their obligations to Mr. Nooner, Jr. under
his Employment Agreement and Stock Option Agreement, had converted
stock options to which Mr. Nooner, Jr. believes he is entitled, and had
violated the Maryland Wage Payment and Collection Act by failing to
deliver to Mr. Nooner, Jr. stock underlying certain options. The
action was removed to the United States District Court for the District
of Maryland. The Company and Gull Creek, Inc. have denied the
allegations of Mr. Nooner, Jr.'s Complaint.
In May of 1996, the Company and Gull Creek, Inc. filed suit
against Dennis Nooner, Sr., Dennis Nooner, Jr., Ewing Land Development,
Inc. and Ewing Health Services, Inc. in the District Court for the
Northern District of Georgia, Atlanta Division, alleging that Mr.
Nooner, Jr., through his acts and misdeeds, breached a Consulting and
Development Agreement he entered into with Ewing Land Development,
Inc., payment under which was guaranteed by the Company. In addition,
the Complaint alleged claims of fraud, conspiracy, and bad faith
against all the Defendants and breach of fiduciary duties and agency by
Mr. Nooner, Jr. Later, in May of 1996, the Company and Gull Creek,
Inc. filed an Amended Complaint dismissing without prejudice Mr.
Nooner, Sr. and Ewing Health Services, Inc. as Defendants and asserting
claims against Dennis Nooner, Jr., Gull Creek Retirement Village
Limited Partnership, Ewing Retirement Corporation, Inc., IHN Personal
Care, Inc., and Ewing Health Systems, Inc. (collectively, the "Nooner
Parties". This suit has since been transferred to Maryland and
consolidated with the prior pending action. All of the Nooner Parties
in this action have denied liability.
The Company is vigorously prosecuting its claims against the
Nooner Parties, as well as vigorously defending against all allegations
made by Dennis Nooner, Jr. Discovery has been concluded, but no trial
date has been set. Management believes that the Company has valid
defenses against all such allegations, as well as valid counterclaims
against the Nooner Parties.
2. Scott Schuster et al. v. Iatros Health Network, Inc. and OHI
Corporation, Civil Action No. 97-11304-DPW, filed in the United States
District Court for the District of Massachusetts:
Scott Schuster became an employee of OHI Corporation ("OHI"),
which is a wholly-owned subsidiary of Iatros, in the Spring of 1996
contemporaneously with the merger of Schuster's company, Oasis
Healthcare, Inc., with and into OHI. Prior to this merger, Schuster's
company had worked under contract for Iatros. In the Spring of 1997,
Schuster refused to comply with the Company's directives to reduce
costs and to consolidate OHI's financial functions with those of the
Company. Instead of complying with the Company's directives, Schuster
made an offer to buy OHI from the Company.
In June of 1997, after his purchase offer was rejected by the
Company, Schuster filed suit against the Company and OHI seeking to
acquire such subsidiary, to be paid additional incentive compensation,
and for damages in connection with various alleged misrepresentation in
connection with the merger. Schuster claims he is entitled to more
than 3.5 million shares of Iatros's common stock, plus approximately
$1.0 million in damages.
Iatros answered denying the allegations and claiming the right to
rescind the original merger transaction because of alleged
misrepresentations made by Schuster in connection with such merger, as
well as the right to terminate Schuster's employment and to recover
damages from him because of various wrongful acts of Schuster.
In July of 1997, the Court denied Schuster's motion for an order
to prevent the Company from consolidating OHI's financial functions and
from terminating Schuster's employment for cause. Immediately
following entry of the Court's order denying this motion, Schuster's
employment with OHI was terminated for cause.
The Company is vigorously prosecuting its claims against Schuster,
as well as vigorously defending against all allegations made by the
Plaintiffs in this action. Discovery has been concluded, but no trial
date has been set. Management believes that the Company has valid
defenses against all allegations made by the Plaintiffs in this action,
as well as valid counterclaims against Schuster.
3. Seton Hill Manor, Inc. v.Iatros Health Network, Inc., Civil
Action No. JFM97-1642, filed in the United States District Court for
the District of Maryland:
In March of 1996, a skilled nursing home facility in Baltimore,
Maryland, known as the Ravenwood Facility was acquired by Ravenwood
Healthcare, Inc. ("RHI") from Seton Manor, Inc. ("Seton Hill"); and
Ravenwood's receivables for the period prior to the purchase were
purchased for a note in the amount of $1,860,560.69. The note is
collateralized by all the prior and future receivables of Ravenwood,
the aggregate face amount which approximated $2.2 million. The note
provided for a deferred payment schedule to provide the Ravenwood
Facility access to receivables proceeds for working capital purposes.
More than the face amount of the note was collected from the
receivables. However, Ravenwood experienced operational deficiencies
sufficient to exhaust these receivables collections, and the facility
lacked sufficient operating income to make all scheduled payments under
the note.
After the acquisition, Ravenwood was managed on behalf of RHI by a
Iatros subsidiary and Iatros guaranteed timely payment of the note.
The guarantee included a confession of judgment provision allowing
prompt exercise upon the guaranty. The purchaser defaulted on the
note.
In May of 1997, a Confessed Judgment in the amount of $946,698.99
was entered against Iatros, subject to its right to file a motion to
vacate within thirty days. In June of 1997, all parties entered into a
Forbearance Agreement. Pursuant to the terms of the Forbearance
Agreement, $736,057.97 had been paid on the note as of December 31,
1997, and the remaining note balance (which the Company has guaranteed)
was $210,641.02 as of December 31, 1997.
The Forbearance Agreement provides for payments of $50,000 per
month, commencing August 1, 1997, until payment in full. In addition,
beginning on August 15, 1997, and continuing on the 15th day of each
month thereafter, Iatros shall calculate and certify in writing to
Seton Hill, the total Management fee that it is permitted to be paid
under the Management Agreement and applicable Bond documents (the
"Payable Management Fee"). Iatros is entitled to receive the lesser
of: (a) $35,000.00 or (b) one-half (1/2) of the Payable Management
Fee, and shall pay, or cause Ravenwood to pay, to Seton Hill an amount
equal to the balance of the Payable Management Fee. Pursuant to the
terms of the Split-Off Agreement concerning the Company's former
subsidiary, IHN/New Health Management, Inc. ("New Health"), New Health
is, effective as of June 30, 1997, entitled to receive these amounts
and is obligated to ensure that all required monthly payments are made
to Seton Hill in accordance with the terms of the Forbearance
Agreement. To date, New Health has complied with the provisions of the
Forbearance Agreement and, as of March 31, 1998, the outstanding
balance of the note (which the Company has guaranteed) was $6,686.09.
Pursuant to the terms of the Forbearance Agreement, so long as no
default occurs thereunder, the time that Iatros has to file a motion to
vacate the Confessed Judgment will be extended on a month-to-month
basis. The current expiration date for filing such a motion is May 4,
1998.
4. Sundance Rehabilitation Corporation v. Heritage Housing
Development of Kansas, Inc., New Health Management Systems, Inc., and
Iatros Health Network, Inc., Civil Action No. 97-C5430, filed in the
District Court of Johnson County, Kansas, Civil Court Department:
This is an action to collect $741,695.76 for rehabilitation
services rendered by Sundance to patients at a nursing home facility
owned by Heritage Housing Development of Kansas, Inc. ("Heritage"),
located in Olathe, Kansas and known as the Phoenix Nursing Home (the
"Phoenix"), which was formerly managed by the Company's former "New
Health" subsidiary. Subsequent to the filing of this litigation, all
members of the Board of Heritage were replaced, the name of Heritage
was changed to "The Phoenix Rehabilitation Center, Inc." ("TPRCI" or
the "Owner"), the Management Agreement between TPRCI and New Health was
mutually terminated, and they entered into a mutual release.
Immediately after these changes, TPRCI filed bankruptcy.
The contract for therapy services in question was between The
Phoenix and Sundance, and it was signed on behalf of The Phoenix by an
employee of the Owner, in his capacity as Executive Director. However,
pursuant to regulatory requirements of the Kansas Health Department,
The Phoenix was licensed in the joint names of the Owner and New
Health, as manager.
Sundance sued the Company on the theory that it was a co-owner of
The Phoenix, along with TPRCI and, therefore, that the Company was
jointly and severally liable under the contract between Sundance and
The Phoenix. In actuality, the Company never owned any interest in The
Phoenix. Moreover, the Company is not subject to the jurisdiction of
any court in Kansas because it has never conducted any business there.
The Company is vigorously defending against all allegations made
by the Plaintiff in this action. Management believes that the Company
has valid defenses against all allegations made by the Plaintiff in
this action.
5. Maryland Health and Higher Education Facilities Authority v.
Iatros Health Network, Inc., Civil Action No. C-97-39090CN, filed in
the Circuit Court of Maryland for Anne Arundel County:
In May of 1995, the Company entered into a $400,000 Operating
Deficits Agreement (the "ODA") with AHF/Severn, Inc. ("AHF") and The
First National Bank of Maryland (the "Trustee"), respecting a Facility
in Annapolis, Maryland, and one in Salisbury, Maryland (collectively,
the "Facilities"). The ODA required the Company to make loans to AHF,
subject to AHF's satisfying certain loan preconditions, to cover AHF's
operating deficits. The Facilities were developed and managed by the
Company for AHF pursuant to a Management Agreement and a Development
Agreement (the "M&D Agreements"). In compliance with the terms of the
ODA, the Company funded a $200,000 Security Account with the Trustee as
security for any wrongful failure by the Company to fund any proper
request by AHF for an advance under the ODA.
The Maryland Health and Higher Education Facilities Authority
("MAHHEFA") filed suit against the Company in July of 1997, allegedly
in its capacity as a secured party of AHF, seeking to enforce the ODA
and to compel the Company to fund a $200,000 loan advance thereunder.
In the meantime, the Company and AHF had mutually terminated the M&D
Agreements effective as of June 30, 1997. The Company believes that
MAHHEFA has no standing to assert this claim because they have no
security in interest in the ODA or any proceeds of loan advances made
to AHF pursuant thereto. Indeed, the ODA specifically prohibits its
assignment without the prior written consent of the Company, which it
never gave. Moreover, in November of 1997, MAHHEFA foreclosed against
the facilities. The ODA relates solely to operating deficits
experienced by AHF in its capacity of owner/operator of the facilities.
Thus, the Company believes that, because AHF is no longer the owner or
operator of the facilities, AHF cannot incur any further operating
deficits.
The Company is vigorously defending this action. Discovery has
been concluded, but no trial date has been set. Management believes
that the Company has valid defenses against all allegations made by the
Plaintiff in this action.
6. Trinity Geriatric Center, Inc. v. Trinity Retirement
Community, Inc., Maryland General Hospital Long Term Care, Inc.,
Greenbrier Healthcare Services, Inc., and Iatros Health Network, Inc.,
Civil Action No. 03-C-97-009546, filed in the Circuit Court of Maryland
for Baltimore County:
In January of 1996, Trinity Geriatric Center, Inc. ("TGC") sold a
nursing home, known as "Trinity" to Trinity Retirement Community, Inc.
("TR"). Contemporaneously with the Closing, TR entered into a
Management Agreement for the facility with Maryland General Hospital
Long Term Care, Inc. ("LTC"); and LTC, in turn, entered into a Sub-
Management Agreement respecting the facility with the Company's wholly-
owned subsidiary, Greenbrier Healthcare Services, Inc. ("Greenbrier"),
the operations of which were discontinued during the first quarter of
1997. The Company itself was not a party to, or guarantor of, the Sub-
Management Agreement.
Prior to the sale of the Trinity facility by TG to TR, the State
of Maryland paid TG $280,000 as an advance payment for Medicaid patient
care for November and December, 1995. Subsequent to the sale of the
Facility, TG received another check from the State of Maryland in the
amount of $236,658.89. Apparently, believing this check represented
funds due to TR, TG endorsed the check and sent it to TR. Later, the
State of Maryland made a refund claim against TG, claiming that the
State had overpaid TG for the months of November and December, 1995, by
$231,000. TG then made demand upon TR to reimburse it for the $231,000
overpayment. It is unclear why TG sent TR the $236,658.89 check,
rather than returning it to the State of Maryland.
In September of 1997, TG filed suit against TR, as well as against
LTC, Greenbrier, and the Company, seeking to recover the $231,000
overpayment. TG's claims against Greenbrier and the Company are based
upon TG's belief that they managed and controlled the expenditures of
the funds of the Trinity facility, they owed a duty to TG, and that
they breached this duty by not ensuring that the overpayment from the
State of Maryland was reimbursed. TG also claims that they further
breached their duty to TG by not ensuring that TR paid payables of TG
that TR assumed pursuant to the purchase of the Trinity facility. TG
does not articulate any theory on which it bases its claim that
Greenbrier and the Company owed it any duty. Moreover, TG is
apparently unaware of the fact that because the Trinity facility was
unable to pay the management fees due under the Management Agreement
with LTC, LTC terminated its Management Agreement effective as of
October 31, 1997. As a result of LTC not being paid, Greenbrier was
also not paid its fees due under its Sub-Management Agreement; and, as
a result of LTC's termination of its Management Agreement, Greenbrier
had no further duties under its Sub-Management Agreement.
The Company is vigorously defending this action. The Company's
Management believes that the Company has valid defenses against all
allegations made by the Plaintiff in this action.
7. Therapists Unlimited, Baltimore/Washington, D.C., L.P. v. Champion
Rehab, Inc., Iatros Health Network, Inc., and Greenbrier Health Care
Services, Inc., Civil Action No. 693,314, filed in the County Civil
Court of Harris County, Texas:
This is a collection action for $57,955.50 of fees for the
services of therapists furnished by the Plaintiff to Champion pursuant
to the terms of a written contract between Champion and the Plaintiff
(the "Contract"), an 80% owned subsidiary of Greenbrier, which is, in
turn, a wholly-owned subsidiary of the Company. The operations of
Champion and Greenbrier were discontinued during the first quarter of
1997.
The Plaintiff sued the Company, Greenbrier, and Champion on an
alter ego theory. All of the Defendants have made a Special Appearance
in this Action objecting to personal jurisdiction in Texas and
requesting that the Action be dismissed for lack of jurisdiction for
the following reasons: (1) none of the Defendants have ever done any
business in Texas, (2) the Contract in question was negotiated and
executed in Maryland, and (3) all services provided pursuant to the
Contract were performed in Maryland.
The Company's Management believes that the Company has valid
defenses against all allegations made by the Plaintiff in this action.
8. CGB Occupational Therapy, Inc. and Cindy Brillman v. Iatros Health
Network, Inc., Civil Action No. 97-00105, filed in the Court of Common
Pleas of Montgomery County, Pennsylvania:
In October of 1994, the Company entered into a non-binding letter
of intent with Ms. Brillman concerning the possible purchase of her
therapy business and executed a Confidentiality Agreement.
Subsequently, after determining that it was unwilling to close on the
transaction as outlined in the non-binding letter of intent, the
Company terminated negotiations with Ms. Brillman. Since then, Ms.
Brillman has been unable to sell her therapy business.
In April of 1998, she filed suit, alleging that the Company
breached its duty of good faith to negotiate the transaction as
outlined in the non-binding letter of intent, that the Company breached
its confidentiality obligations contained in the Confidentiality
Agreement, that the Company interfered with her company's contractual
relationships, and that the Company, as financial manager of certain
nursing facilities owned by third persons, should be held responsible
for the failure of such facilities to promptly pay her company in full
for therapy services rendered to patients in these facilities in
accordance with the payment terms Ms. Brillman negotiated with the
owners of these facilities even though neither such owners nor such
facilities had sufficient working capital to comply with such payment
terms. The total amount of her claims is to be proven at trial, but
she alleges that she believes they will exceed $300,000 in the
aggregate.
The Company has not yet filed its answer to these claims, but
intends to vigorously defend against all allegations made by the
Plaintiffs in this action. Management believes that the Company has
valid defenses against all allegations made by the Plaintiff in this
action.
9. Rouse & Associates v. Durant Medical, Inc., Civil Action No. 9-
8-02620, filed in the Court of Common Pleas of Chester County,
Pennsylvania:
The Plaintiff in this action is the landlord of the premises
occupied by the Company's medical supply and pharmacy subsidiary
("Durant") in Malvern, Pennsylvania. During March of 1998, the
Plaintiff obtained an ex parte judgment for possession of Durant's
premises based on a confession of judgment contained in the lease and
the Plaintiff's allegation that Durant owed the Plaintiff $18,968.81 in
unpaid rent, attorneys' fees, and court costs.
Durant is negotiating with the Plaintiff to resolve this dispute
amicably. If it is unable to do so, Durant intends to timely file a
petition vigorously defending itself and seeking relief from the
confessed judgment in accordance with applicable laws and procedures.
10. Neuman Distributors, Inc. v. Durant Medical, Inc., Civil Action
No. 98-1285, filed in the United States District Court for the Eastern
District of Pennsylvania:
This is a collection action instituted in March of 1998 for
$353,746.49 for certain pharmaceutical products and other merchandise
allegedly delivered by the Plaintiff to the Company's Durant subsidiary
in Malvern, Pennsylvania. Durant disputes the amount alleged to be
owed and believes it is entitled to certain credits and adjustments.
Durant is negotiating with the Plaintiff to resolve this dispute
amicably. If it is unable to do so, Durant intends to vigorously
defend itself.
11. National Employer Solutions, Inc. v. Iatros Health Network, Inc.,
Civil Action No. E-65359, filed in the Superior Court of Fulton County,
Georgia:
In December of 1997, the Plaintiff in this action filed suit to
collect a $500,000 demand note issued by the Company to the Plaintiff
in January of 1997. This demand note is secured by one of the Company's
notes receivable having a face value of $550,000. In February of 1998,
the Company and the Plaintiff entered into a Settlement Agreement and
Consent Judgment in the amount of $504,791.65, plus post judgment
interest of 9% per annum and costs. Pursuant to the terms of the
Consent Judgment, the Plaintiff has agreed to take no action to enforce
the Consent Judgment so long as no "Judgment Default" (as defined
therein) occurs. A Judgment Default includes the Company's failure to
timely make payments on the Consent Judgment in accordance with a
payment schedule requiring the principal amount of $504,791.65 to be
paid at the rate of $15,000 per month during the 5-month period of
February through June of 1998 and with a final balloon payment due on
July 23, 1998 in an amount equal to $429,791.65, plus post judgment
interest and costs.
12. Other Litigation:
-----------------------
In addition to the foregoing pending actions, the Company and its
subsidiaries have outstanding a number of other routine actions, as
well as a number of threatened actions, involving their respective
creditors, vendors, customers, former employees, and/or other third
persons. Some of them are in the process of being settled, and the
remainder of them are being vigorously defended. With respect to all
actions that the Company is not attempting to settle, Management
believes that the Company has valid defenses to such actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
The last annual meeting of the Company's stockholders was held in
Atlanta, Georgia, on December 19, 1996. The Company anticipates
holding the next annual meeting of stockholders prior to December 31,
1998.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------
Market Information
------------------
The Company's Common Stock is listed and traded on the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") SmallCap Market Systema under the following symbol:
Common Stock............IHNI
The following table sets forth the high and low sales price as
determined form NASDAQ for the Common Stock for the periods indicated.
No trading market existed for the Company's securities prior to April
21, 1992. For six trading days during the period from September 1
through September 9, 1994, the Company's securities were delisted from
The NASDAQ SmallCap Market Systema.
Common Stock
Fiscal 1998 HIGH LOW
-----------
First Quarter 21/32 5/16
Fiscal 1997
-----------
First Quarter 2-3/8 1-1/4
Second Quarter 1-1/2 17/32
Third Quarter 1-13/32 29/32
Fourth Quarter 1 7/16
Fiscal 1996
-----------
First Quarter 9-3/8 5-1/2
Second Quarter 5-5/8 3-1/2
Third Quarter 4-5/8 2-3/8
Fourth Quarter 3-1/16 1-1/2
Fiscal 1995
-----------
First Quarter 6-3/4 2-5/8
Second Quarter 6-5/8 4-7/8
Third Quarter 12-1/8 5-5/8
Fourth Quarter 13 7-1/2
The high and low prices (based on the average bid and ask price)
for the Company's Common Stock as reported by NASDAQ and rounded to the
nearest 1/32, are indicated above. These are inter-dealer prices
without retail mark-ups, mark-downs, or commissions and may not
represent actual transactions. The Company has applied for listing
upon the NASDAQ National Market System.
According to the Company's Stock Transfer Agent as of March 31,
1998, there were approximately 175 holders of record of the Company's
Common Stock and as of November 18, 1996, there were 6,332 beneficial
holders of the Company's Common Stock.
Dividends
---------
The payment by the Company of dividends, if any, rests within the
discretion of the Board of Directors and among other things, will
depend upon the Company's earnings, capital requirements and financial
condition, as well as other relevant factors. The Company has not paid
cash dividends on its Common Stock to date and does not anticipate
doing so in the foreseeable future. It is the present intention of
management to utilize all available funds for working capital of the
Company. The holders of Series A Senior Convertible Preferred Stock
are entitled to receive out of funds legally available therefore, when
and if declared by the Company, dividends at the rate per annum of $.30
for each outstanding share of Series A Senior Convertible Preferred
Stock. Dividends cumulate and accrue ratably from and after the date
of issuance of the Series A Senior Convertible Preferred Stock, for
each day that shares of the Company's Series A Senior Convertible
Preferred Stock are outstanding. Although no such preferred dividends
have been declared or are currently due and payable, the Company
accrues such preferred dividends because no dividends may be paid in
respect of shares of the Company's Common Stock until all cumulative
dividends in respect of the Company's Series A Senior Convertible
Preferred Stock have been declared and paid and also because such
cumulative preferred dividends carry a liquidation preference. At
March 31, 1998, dividends on the Series A Senior Convertible Preferred
Stock totaling $590,000 had been accrued. The Series B Preferred Stock
is non-voting and pays no dividends. The Company may not pay dividends
on any shares of its Common Stock or its preferred stock other than the
Series A Senior Convertible Preferred Stock are simultaneously paid.
The Company's Certificate of Incorporation provides for a Board of
Directors consisting of 6 directors. Holders of the Common Stock and
the Series A Senior Convertible Preferred Stock voting together as one
class are entitled to elect this number of directors. The size of the
Board is increased, up to a maximum of 13 directors, by 1 director each
time the cumulative dividends payable on the Series A Senior
Convertible Preferred Stock are in arrears in an amount equal to two
(2) full quarterly dividend payments. The holders of the Series A
Senior Convertible Preferred Stock, voting separately as a single
class, are entitled to elect these additional directors. The voting
rights of the holders of the Series A Senior Convertible Preferred
Stock for these directors continue until all Cumulative Dividends have
been paid in full, and at such time the number of directors
constituting the full Board of Directors is decreased to 6.
Currently, the holders of the Series A Senior Convertible
Preferred Stock, voting separately as a single class, are entitled to
increase the number of directors comprising the Company's Board from 6
directors to 13 and to elect all 7 additional directors. To date, such
preferred shareholders have only increased the size of the Company's
Board of Directors to 7 and elected 1 additional director, Scott W.
Ryan.
During April of 1998, Mr. Ryan resigned from the Company's Board
of Directors with no successor being nominated to replace him by the
holders of the Series A Senior Convertible Preferred Stock. [See Events
Subsequent to December 31, 1997.]
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
SUMMARY FINANCIAL DATA
IATROS HEALTH NETWORK, INC.
(in dollars, except number of shares)
Year Ended December 31
Statement of Operations
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---
Revenues $ 25,512,540 $ 11,261,119 $ 11,017,865 $ 2,331,786 $ 1,197,215
Operating Expenses $ 26,204,750 $ 13,316,234 $ 7,441,146 $ 4,015,254 $ 3,507,621
Net Operating Income (Loss) $( 692,210) $( 2,055,115) $ 3,576,719 $( 1,683,468) $( 2,310,406)
Income(Loss)
from Continuing Operations $(11,093,116) $( 4,240,680) $ 3,343,439 $( 943,658) $( 2,257,495)
Income (Loss)
from Discontinued Operations $( 7,117,226) $( 6,073,881) $ 311,741 $( 241,049) $( 1,629,955)
Net Income (Loss) $(18,210,342) $(10,314,561) $ 3,655,188 $( 1,196,609) $( 3,834,560)
Earnings Per Share
Continuing Operations $ (.73) $ (.33) $ .35 $ (.15) $ (.39)
Discontinued Operations $ (.40) $ (.44) $ .03 $ (.04) $ (.29)
--------- --------- --------- --------- ---------
$ (1.13) $ (.77) $ .38 $ (.19) $ (.68)
Weighted Average Shares
of Common Stock and
equivalents outstanding 16,666,375 13,946,359 9,002,561 6,281,584 5,668,411
Balance Sheet Data: 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- -------------------
Working Capital $( 3,106,337) $ 3,077,162 $ 2,832,702 $ 487,682 $( 97,625)
Total Assets $ 25,237,278 $ 25,105,242 $ 23,044,380 $ 1,547,265 $ 1,018,992
Total Long-Term Debt
and Capital Lease obligations $ 8,617,478 $ 746,813 $ 131,140 $ 50,165 $ 44,015
Total Liabilities $ 21,370,004 $ 4,789,462 $ 4,227,132 $ 1,311,194 $ 898,809
Stockholders' Equity $ 3,867,274 $ 20,315,780 $ 18,817,250 $ 236,071 $ 120,182
NOTES:
No cash dividends have been declared on the Common Stock.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATION
------------------------
Business Background
-------------------
Iatros Health Network, Inc. (formerly Gracecare Health Systems,
Inc.) is a Delaware corporation incorporated in June 1988 and completed
its initial public offering in April 1992. The Company's initial
business activities were concentrated in providing health care services
for post-acute, ventilator dependent and medically complex patients
residing in long-term care nursing facilities. Commencing in July
1994, management of the Company redirected operations by pursuing
development, management and ancillary service opportunities involving
unrelated long-term care facilities, while discontinuing operations
involving specialized programs. Commencing in 1997, the Company began
to develop long-term care operating and ancillary service opportunities
exclusively for its own account. Continuing business activities of the
Company include operating long-term care facilities through direct
ownership and lease as well as providing related ancillary services.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Results of Operations
---------------------
For the year ended December 31, 1997, the Company reported a net
loss of $18,210,342. This is largely attributed to losses associated
with discontinued operations ($7,117,226); write-down of intangible
assets ($5,637,703); substantial general and administrative expenses
($3,114,413) associated with the Company's business history and
corporate expenses; and the write-down of deferred tax assets
($2,341,000) for which future realization is uncertain. In addition,
recent operating losses reported by the Company during 1997 and 1996
together with other adverse corporate developments have exhausted the
Company's capital resources and had a material adverse effect on short-
term liquidity and the Company's ability to service its debts At
December 31, 1997, the Company reports a negative working capital
position of $3,106,337.
The Company reported revenue from continuing operations for the
years ended December 31, 1997 and 1996 of $25,512,540 and $11,261,119,
respectively, representing an increase of $14,251,421 or 127%. During
1997, the operating expenses incurred for continuing operations,
exclusive of general and administrative costs, totaled $21,827,890
yielding an operating margin of $3,684,650 or 14% on related revenues.
Notwithstanding this increase in revenue, the operating margins
attained by the Company are insufficient to cover the levels of general
and administrative costs as well as other expense requirements.
Consolidated operating revenue relating to the Company's
continuing operations for 1997 include $12,191,384 associated with
nursing home operations in the New England market area. This revenue
relates to nursing facilities, which are owned or leased by the Company
beginning in 1997, and reflects the Company's business plan in this
direction. Operating income from nursing home operations reported in
1997 totaled $1,680,148 and represents a return of approximately 14% on
related revenue.
Ancillary services revenue relating to the Company's continuing
operations for 1997 totaled $11,283,832 representing an increase of
$2,964,681 or approximately 37% over 1996. This increase is largely
attributable to the Company's ancillary services business developed in
New England where related revenue totaled $2,088,523 for 1997.
Operating income from ancillary services revenue reported in 1997
totaled $1,196,479 and represents a return of approximately 11% on
related revenue. The operating margin reported on ancillary services
revenue for 1996 approximated 8.5%.
Management services revenue relating to the Company's continuing
operations for 1997 totaled $2,037,324 representing an increase of
$1,052,577 or approximately 107% over 1996. This revenue relates to
six nursing facilities located in the New England market area managed
by the Company. The Company is attempting to convert these management
contracts into lease arrangements during 1998. Operating income from
management services reported in 1997 totaled $808,023 and represents a
return of approximately 40% on related revenue.
Revenue derived from development services has diminished
materially and reflects the Company's concentration on existing
operations and emphasis on growth efforts in the area of direct
ownership and lease of nursing facilities. Consequently, the Company
is precluded from realizing development fee income which historically
had been derived from third party projects and related transactions.
Consolidated operating expenses relating to the Company's
continuing operations reported for 1997 totaled $26,204,750 compared to
$13,316,234 for 1996, representing an increase of $12,888,516 or 97%
during 1997. This compares to an increase in related revenue during
1997 of 127% over 1996. Of this reported increase in consolidated
operating expenses, $10,511,236 or 82% relates to the Company's nursing
home operations developed in New England; $2,472,734 or 19% relates to
increased ancillary services; $472,159 or 4% relates to increased
management services costs in New England; and, ($567,613) or (5%)
relates to decreased general and administrative expenses effected by
the Company during 1997.
General and administrative expenses reported for 1997 include
$4,072,880 associated with the Company's corporate management and
related costs of corporate overhead. Comparable corporate expenses
reported for 1996 totaled $3,955,804. Significant components of such
costs for 1997 included salaries and related costs for executive
management of $1,735,409; legal and professional fees of $857,786;
contracted services of $174,562; travel and related expenses of
$550,305; insurance expenses of $307,478; and other general expenses.
Significant components of such costs for 1996 included salaries and
related costs for executive management of $1,384,337; legal and
professional fees of $716,956; contracted services of $797,907; travel
and related expenses of $366,783; insurance expenses of $213,563; and
other general expenses. During 1997 and to date, in connection with
discontinuing non-profitable operations, the Company has been
substantially effecting cost reductions relating to general and
administrative expenses. The annualized level of general and
administrative expenses for continuing operations for 1998 has been
reduced to less than $2,500,000. Despite these efforts, the Company
has insufficient cash-flow to timely pay all of its general and
administrative expenses.
Other income (expense) reported for 1997 totaled a net expense of
$8,059,906 representing an increase of $5,055,416 over 1996. Of this
amount reported in 1997, $5,637,703 represents non-cash charges to
current year operations associated with the write down of intangible
assets associated with discontinued operations. Other major components
for 1997 include interest expense of $1,015,534 and property lease
expense of $916,839. Significant components of 1997 interest expense
include $225,806 relating to corporate debt obligations; $637,047
relating to property mortgages and working capital debt associated with
New England nursing home operations; and $103,338 in interest costs
associated with the Company's ancillary services business. Property
lease expense reported totaling $916,839 in 1997 relates to two nursing
facilities in New England which operations were assumed under a lease
purchase arrangement commencing in March 1997.
The 1997 intangible asset write-downs were comprised of
uncollectible nursing home operating advances totaling $2,080,000;
uncollectible development notes receivable of $1,500,000; forfeited
facility acquisition deposits of $1,616,000; and accelerated
amortization of goodwill and contract rights totaling $441,703.
The income tax expense reported for 1997 totaling $2,800,000
results principally from the Company's reserve against deferred tax
assets reported in prior periods and represents a non cash charge to
current year operations. The deferred tax asset relates to net
operating loss carry forward benefits available to the Company for
which the future utilization against taxable income is uncertain.
The Company's current business strategy is to pursue the direct
ownership or lease of long-term care facilities for its own account.
Accordingly, during 1997, the Company discontinued operations
associated with certain segments of its long-term care business.
Specifically, these included subsidiary operations providing third
party development and management services to independent owners and
operators of long-term care facilities and relating to the Company's
prior business acquisitions of Greenbrier Healthcare Services, Inc. and
New Health Management Systems, Inc. In addition, the Company
discontinued operations associated with providing respiratory therapy
services and relating to the prior business acquisition of King Care
Respiratory Services, Inc.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Results of Operations
---------------------
For the year ended December 31, 1996, the Company's consolidated
financial statements reflect a net loss of $10,314,561 compared with
net income of $3,655,188 for the year ended December, 31, 1995. The
net loss reported for 1996 largely results from the fourth quarter
reduction in the carrying value of intangible assets totaling
$6,697,974, together with the increase in the allowance for doubtful
accounts of $1,630,900, and the write-off of accounts receivable and
notes and loans receivable of $405,103 and $1,200,000, respectively.
Consolidated operating revenue relating to the Company's
continuing operations totals $11,261,119 for 1996, representing an
increase of $243,254 over 1995. Of the reported increase in 1996
revenue, $2,729,380 relates to increased ancillary services revenue and
$984,747 relates to increased management services revenue offset by a
decrease in development services revenue of $3,470,873. The increase
in recorded revenue during 1996 results principally from the Company
having expanded into a new market area represented by New England. The
reported reduction in development services revenue reflects
management's efforts away from outside development initiatives and more
directed towards the demands of existing business as well as
emphasizing the direct ownership or lease of long-term care nursing
facilities.
Consolidated operating expenses relating to the Company's
continuing operations reported for 1996 totaled $13,316,234 compared to
$7,441,146 for 1995, representing an increase of $5,875,088 or 79%
during 1996. Of this reported increase, $2,487,597 or 42% relates to
increased ancillary services; $757,142 or 13% relates to new costs
associated with initiating management services in New England; and,
$2,630,350 or 45% relates to increased general and administrative
expenses incurred by the Company.
General and administrative expenses reported for 1996 include
$3,955,804 associated with the Company's corporate management and
related costs of corporate overhead. Comparable corporate expenses
reported for 1995 totaled $2,751,951. Significant components of such
costs for 1996 included salaries and related costs for executive
management of $1,384,337; legal and professional fees of $716,956;
contracted services of $797,907; travel and related expenses of
$366,783; insurance expenses of $213,563; and other general expenses.
Significant components of such costs for 1995 included salaries and
related costs for executive management of $527,016; legal and
professional fees of $690,210; contracted services of $471,464; travel
and related expenses of $122,211; insurance expenses of $86,181; and
other general expenses.
Operating income from ancillary services relating to the Company's
continuing operations during 1996 totaled $704,532 representing 8.5% on
related revenues. Comparable income reported for 1995 totaled $462,749
representing 8.3% on related revenues. Operating income derived from
management services revenue for 1996 totaled $227,605 representing 23%.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Liquidity and Capital Resources
-------------------------------
During 1997 and to date, the Company has been successful in
reducing levels of its corporate overhead and general and
administrative costs. Continued cost reductions are required however
for the Company to achieve positive cash flow from continuing
operations. In the alternative, the Company requires a higher revenue
base to support the corporate overhead represented by its executive
management structure. In addition, the Company requires infusion of
capital in order to satisfy its short-term obligations. The Company
has been unsuccessful in its independent efforts to secure financial
relief from its existing creditors as well as to raise new sources of
capital.
The Company has been engaged in discussions with third parties
having an interest in corporate merger opportunities or the purchase of
certain of its business holdings. The Company has been particularly
focused on growth prospects which would yield added economies and
eliminate redundancy of overhead costs through merger or acquisition.
As further described in Events Subsequent to December 31, 1997,
the Company has entered into a formal letter of intent with NewCare
Health Corporation (NASDAQ: NWCA) to complete a statutory merger
transaction. Among the benefits to be derived by the Company in
consummating such a transaction would be immediate infusion of working
capital needed to revitalize existing operations and access to added
capital resources required to meet corporate obligations.
In light of the Company's current financial position, its
inability to independently meet its short-term corporate obligations,
its need to further capitalize existing operations and its dependency
on continued cost reductions and revenue growth to support continuing
operations, its viability to continue as a going concern is uncertain.
While the Company intends to pursue and consummate a merger
transaction with NewCare Health Corporation, there can be no assurance
that this transaction will be completed.
At December 31, 1997, the Company reports a working capital
deficit of $3,116,337 compared with a positive working capital position
at December 31,1996 of $3,077,163. This deterioration in the Company's
working capital position during 1997 has resulted largely from having
had to subsidize working capital associated with discontinued
operations as well as having had to utilize working capital reserves to
settle corporate obligations associated with prior business and
development activities of the Company. While continuing operations of
the Company is profitable, the limited working capital available to the
Company internally is constraining and limits the Company's ability to
effectively support existing lines of business.
Cash and cash equivalents relating to the Company's continuing
operations at December 31, 1997 totaled $639,236 and include restricted
amounts of $448,540. Restricted cash represents a loan reserve for
mortgage indebtedness associated with two nursing home properties owned
by the Company and located in New England. Cash and cash equivalents
at December 31, 1996 totaled $654,197 and include a certificate of
deposit held by a financial institution in the amount of approximately
$520,000. This certificate was redeemed in March 1997 and was utilized
to satisfy an outstanding credit obligation totaling $516,000, which is
included in notes payable at December 31, 1996.
Accounts receivable relating to the Company's continuing
operations at December 31, 1997 of $7,596,741, representing 78% of
total current assets, were comprised of $3,958,735 relating to nursing
home operations; $4,720,521 relating to ancillary services; and,
$2,300,151 relating to management services; net of an aggregate
allowance for doubtful accounts of $3,382,667. The substantial level of
allowance relates to accounts receivable from nursing home operations
which amounts were assumed in connection with acquiring property
leasehold rights ($1,025,000) and amounts relating to ancillary and
management services for unrelated nursing facilities associated with
discontinued operations (approximately $2,000,000). Accounts
receivable relating to the Company's continuing operations at December
31, 1996 of $3,724,952, representing 52% of total current assets, were
comprised of $3,707,981 relating to ancillary services and $327,911
relating to management services, net of an aggregate allowance for
doubtful accounts of $310,940.
Prepaid expenses and other current assets relating to the
Company's continuing operations at December 31, 1997 totaled $712,343.
Subscriptions receivable of $789,000 represent a common stock
subscription receivable from NewCare Health Corporation pursuant to an
investment agreement and corporate merger proposal. This receivable
was fully realized by the Company during the first quarter of 1998.
Other prepaid expenses and current assets reported include deposits and
interest receivable associated with the Company's outstanding notes and
loans due from third parties. Significant components of prepaid and
other current assets at December 31, 1996 include project costs
advanced in connection with transactions involving the Company in a
development capacity in New England. Such costs were largely recovered
during 1997 or written-off at December 31, 1997.
Notes and loans receivable relating to the Company's continuing
operations at December 31, 1997 aggregate $2,988,064 and predominantly
relate to long term care facilities for which the Company had provided
development services or otherwise advanced capital to secure management
rights. Of the amounts outstanding, nearly $2,000,000 relates to
nursing home properties in New England that are currently managed by
the Company. The Company is presently attempting to convert these
management arrangements to long term leasehold positions whereby it is
expected to forego the cash realization of these notes and loans.
Otherwise, the notes and loans are generally formalized as long term,
mature over periods approximating ten years, bear simple interest
between eight and ten percent and are partially secured by a mortgage
position on the properties to which they relate. Further, payments are
generally subordinated to senior debt and other priority operating
obligations of the properties. Notes and loans receivable reported at
December 31, 1996 resulted largely from development services income
recognized by the Company in prior periods as well as from working
capital advances made by the Company to support facilities pursuant to
its obligations under operating deficit agreements. At December 31,
1997, approximately $2,500,000 was written-off.
Notes payable to banks and other relating to the Company's
continuing operations at December 31, 1997 totaled $5,638,262 and
include $3,910,000 outstanding and relating to working capital
financing of accounts and notes receivable and associated with the
Company's continuing operations. Specifically, $3,085,000 relates to
working capital financing associated with ancillary services and
$825,000 relates to working capital financing associated with nursing
home operations in New England. At December 31, 1997, the availability
under these working capital financing arrangements is fully extended.
Other notes payable at December 31, 1997 totaled $1,705,000 and
represent various corporate obligations that have been formalized as
short-term note instruments and remain outstanding. Notes payable
reported outstanding at December 31, 1996 relate to working capital and
equipment notes associated with ancillary services.
In January 1997, the Company obtained a $500,000 loan from
National Employer Solutions, Inc. ("NES"). This loan is due on demand,
bears interest at the rate of prime plus 5% and is secured by one of
the Company's notes receivable having a face value of $550,000. The
loan had an original maturity of March 1997, was extended to August
1997 and is currently past due. At December 31, 1997, the loan
obligation due NES, including accrued interest, totaled approximately
$515,000 and is reported in Notes payable banks and other. Litigation
was commenced by NES to collect this note in December of 1997. In
February of 1998, this litigation was settled. [See "Legal
Proceedings."]
During April 1997, the Company's New England based operating
subsidiary secured a working capital line of credit from a financial
institution in the amount of $1,500,000. The line is secured by
various notes receivable and management contract rights associated with
the Company's operating subsidiary. The line is due on demand and
accrues interest at the bank's base rate plus 1% on amounts
outstanding. At December 31, 1997, the Company has utilized $1,481,500
of this financing to support working capital and development activities
of its New England based operating subsidiaries. The Company is in the
process of renewing the loan term associated with this financing which
term expired on April 30, 1998. This note payable is reported in Notes
payable banks and other at December 31, 1997.
During May 1997, the Company's Philadelphia based ancillary
service subsidiaries secured a working line of credit of up to
$4,000,000 of which approximately $1,600,000 was outstanding at
December 31, 1998 representing the maximum availability under the
credit arrangement at year end. This line of credit is secured by the
subsidiaries' accounts receivable; is due on demand and accrues
interest at the rate of prime plus 2.25% on amounts drawn and
outstanding. To date this working capital line of credit remains
outstanding in the amount of the maximum availability. This note
payable is reported in Notes payable banks and other at December 31,
1997.
In April and July 1997, the Company entered into two working
capital lending programs regarding four nursing homes owned and leased
in Massachusetts. These programs allow for maximum borrowings of
$2,000,000 in the aggregate and are collateralized by accounts
receivable of the nursing homes. Interest is incurred at the rate of
11% on one program and 12.5% on the other. Total borrowings under the
two programs approximated $828,000 at December 31.
In September 1997, the Company settled an outstanding lawsuit with
NPFII-W as described in the Company's 10-K for the year ended December
31, 1996. The settlement calls for the Company to pay NPFII-W $500,000
over 5 years, with the unpaid balance accruing interest at the rate of
10% per annum, together with 50,000 shares of the Company's Common
Stock.
During August 1997, the Company agreed to pursue a proposed
private equity offering and in connection therewith secured a bridge
loan in the amount of $300,000. The bridge loan included interest at
10% per annum and was to mature upon the earlier of (i) December 5,
1997 or (ii) the successful consummation by the Company of any
financing raising at least $500,000. In addition, in consideration of
the bridge loan, the Company issued to the lender a five-year warrant
to purchase 325,000 shares of the Company's Common Stock at an exercise
price of $0.50 per share. In the event of a default under the bridge
loan, the principal thereof and all accrued, unpaid interest thereon
would be convertible into shares of the Company's Common Stock at a
price of $0.25 per share; and, in such event, the exercise price of the
warrants issued would automatically reduce to $0.25 per share. During
1997, the Company realized net proceeds of approximately $255,000 in
connection with this bridge loan and financing transaction. The
Company subsequently abandoned the proposed equity offering
contemplated and negotiated a cancellation of its obligations
associated with the issue of Company warrants. Total expenditures
incurred by the Company to satisfy the loan obligation and effect
cancellation of the related consideration amounted to $430,492. At
December 31, 1997, approximately $211,000 had been paid by the Company
towards this settlement and the balance was fully paid during the first
quarter of 1998. At December 31, 1997, the principal loan obligation
outstanding totaled $150,000 and is reported in Notes payable banks and
other.
During 1997 and to date, the Company has formalized a note payable
associated with certain legal and professional fees incurred. The note
payable is for approximately $450,000, is unsecured, bears interest at
approximately 12%, and is due on demand. At December 31, 1997, this
note is reported in Notes payable banks and other.
Accounts payable relating to the Company's continuing operations
at December 31, 1997 totaled $3,439,953 and includes $1,323,128
associated with nursing home operations; $521,249 representing
corporate accounts payable; $1,160,364 relating to ancillary services;
and, $435,212 relating to management services. Accounts payable
reported at December 31, 1996 totaled $1,770,842 and includes $264,539
representing corporate accounts payable; $1,117,506 relating to
ancillary services; and, $388,797 relating to management services.
Accrued expenses and other liabilities relating to the Company's
continuing operations at December 31, 1997 totaled $2,459,197.
Significant components include accrued payroll and related costs of
$335,026; and accrued expenses associated with nursing home operations
totaling $1,755,866. Accrued expenses and other liabilities reported
at December 31, 1996 totaled $767,404 and included accrued payroll and
related costs of $244,756 together with accrued expenses associated
with ancillary services of $243,887 and corporate obligations totaling
$278,761.
Long-term debt reported by the Company relating to the Company's
continuing operations at December 31, 1997 totaled $8,550,000 and
relates exclusively to mortgage financing associated with nursing home
acquisitions in New England during 1997. Initial terms of this
financing provide for interest only payable monthly at annual rates
that approximate ten percent.
In December of 1997, the Company executed a note payable for
approximately $145,000 to one of its former subsidiaries in exchange
for certain retained assets of the former subsidiary. The note bears
interest at 10% and is payable over two years.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents relative to the Company's continuing
operations at December 31, 1996, totaled $654,197 and included a
certificate of deposit held by a financial institution in the amount of
approximately $520,000 which was redeemed in March 1997 and was utilized to
satisfy an outstanding credit obligation totaling $516,000 which is
included in notes payable, at December 31, 1996.
Cash and cash equivalents relative to the Company's continuing
operations at December 31, 1995, totaled $931,772, comprised of
unrestricted amounts of $556,772 and restricted amounts of $375,000.
Restricted cash of $275,000 represented funds received from a third
party as security for future payment obligations pursuant to a
management subcontract agreement, which was satisfied in the fourth
quarter of 1996. The balance of restricted funds totaling $100,000
related to escrowed funds associated with contractual obligations
involving the Company's development activities, which were satisfied in
1996.
Accounts receivable relative to the Company's continuing
operations at December 31, 1996 of $3,724,952, representing 52% of
total current assets in 1996, were comprised of $3,707,981 relating to
ancillary services, and $327,911 relating to management services and is
net of an allowance for doubtful accounts of $310,940.
Accounts receivable relative to the Company's continuing
operations at December 31, 1995 of $3,848,454, representing 56% of
total current assets in 1995, were comprised of $1,848,454 relating to
ancillary services, and $2,000,000 relating to development services and
were net of an allowance for doubtful accounts of $143,400.
Deposits at December 31, 1996 include a purchase deposit of
$1,000,000 associated with the planned acquisition of a long-term care
nursing facility. This transaction was abandoned by the Company during
1997 and the purchase deposit was forfeited.
At December 31, 1996 notes receivable relative to the Company's
continuing operations resulting from development, financial advisory,
and consulting services which the Company had provided to several long-
term care properties totaled $4,403,393 as compared with $2,110,295 at
December 31, 1995. The notes, which are generally formalized as long-
term, mature over a period not to exceed ten years, bear simple
interest ranging between eight and ten percent per annum and are
secured by a mortgage position on the properties to which they relate.
Further, the notes are generally subordinated to senior debt and other
priority operating obligations associated with the properties. To
date, approximately $2.5 million in reserves have been established by
the Company for these notes.
The Company utilized certain of these notes receivable as security
for working capital financing arrangements during 1997 and associated
with its New England operations.
Events Subsequent to December 31, 1997
--------------------------------------
During January of 1998, the Company entered into a note purchase
and loan agreement whereby the Company purchased a note instrument in
the principal amount $1,475,000 from third party lender with whom the
Company has extensive business relationships. The note purchase
financing was provided by such lender with collateral and security
relating to nursing facilities in New England financed by the lender
and in which the Company has an interest. The loan agreement
associated with the purchase financing has a maturity date of April 1,
2007; requires monthly payments of principal and interest payable at
10.5% per annum and amortized over a period of twenty-five years. The
note instrument acquired by the Company is secured by a subordinated
mortgage position held on a nursing facility that was previously
managed by the Company. The prior management of this facility was
provided by one of the Company's subsidiaries, which operations were
discontinued during 1997. The note instrument acquired by the Company
is currently non-performing.
During April of 1998, the Company renegotiated the terms of merger
previously announced by NewCare Health Corporation (NASDAQ: "NWCA").
The Company and NWCA have entered into a non-binding letter of intent
for the acquisition by means of a statutory merger of the outstanding
common and Series B Preferred Stock and options and warrants of IHNI
(excluding, however, any shares of IHNI common stock issued to NWCA by
IHNI) for approximately $7,000,000 in NWCA common stock, valued at the
average closing bid price of the NWCA common stock for the 20 trading
days ending 2 trading days prior to the closing date of the merger
("NWCA Price"), or a combination of NWCA common stock and cash at the
option of NWCA, and of the outstanding Series A Preferred Stock for
approximately $1,000,000 in a combination of NWCA common stock, cash
and warrants for 250,000 shares of NWCA common stock at an exercise
price of $1.00 above the NWCA Price. The acquisition transaction is
subject to, among other things, execution of a definitive merger
agreement and approval of the shareholders of IHNI and NWCA.
Also during April of 1998, NWCA nominated Mr. Frank Camma and Mr.
Jim Sanregret to the Company's Board of Directors to fill two existing
vacancies. These nominations were made pursuant to rights granted to
NWCA by the Company in connection with NWCA's $1,000,000 investment in
the Company made in December of 1997. [See "Significant Transactions."]
In addition, during April of 1998, Scott W. Ryan resigned as a
member of the Company's Board of Directors. Mr. Ryan had been elected
by the holders of the Series A Senior Convertible Preferred Stock
voting separately as a class. No successor has been nominated by such
holders to replace Mr. Ryan as a Director. [See "Dividends."]
Year 2000 Issue
---------------
In common with users of computers around the world, the Company is
investigating if and to what extent the date change from 1999 to 2000
may affect its networks and systems. There can be no assurance that
the costs of implementing a program to address this issue will not be
material, that such a program will be successful, or that the date
change from 1999 to 2000 will not materially adversely affect the
Company's business, financial condition and results of operations. The
ability of third parties with which the Company transacts business to
adequately address their year 2000 issues is outside the Company's
control. Although the Company will seek alternative vendors, where its
current vendors are unwilling or unable to become year 2000 compliant
in a timely manner, there can be no assurance that the Company's
operations will not be materially adversely affected by the ability of
third parties dealing with the Company, including Medicare and
Medicaid, to also manage the effect of the year 2000 date change.
Effects of Inflation
--------------------
The Company does not expect inflation to materially effect its
results of operations. However, the health care industry is labor
intensive. Wages and other related labor costs are especially
sensitive to inflation and future operating costs could be subject to
general economic and inflationary pressures. Accordingly, the Company
cannot predict its ability to control such cost increases.
New Accounting Standards
------------------------
The Company was required to implement Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") in the
fourth quarter of 1997. The effect of the implementation of SFAS No.
128 was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements required to be filed
pursuant to this Item 8 begin on Page F-1 of this report. Such
consolidated financial statements are hereby incorporated by reference
into this Item 8. The Supplementary Data requirement as set forth in
Item 302 of Regulation S-K is inapplicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
INAPPLICABLE
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
NAME AGE PRESENT POSITION
(1)
Reginald D. Strickland 43 President/Chief Executive
Officer and Director
Joseph C. McCarron, Jr. 43 Executive Vice President and
Director, President - OHI
Corporation
Judson H. Simmons 52 Executive Vice President of
Strategic Planning/Corporate
Development and Secretary
William T. Filippone 47 Executive Vice President and
Chief Operating Officer
Joseph L. Rzepka 45 Executive Vice President and
Chief Financial Officer
(1) (2)
John D. Higgins 65 Director
Robert A. Kasirer 48 Director
(2)(4)
Scott W. Ryan 53 Director
(3)(5)
James H. Sanregret 47 Director
(3)(5)
Frank Camma 28 Director
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Nominated to fill an existing vacancy on the Board of Directors in
April of 1998.
(4) Mr. Ryan resigned as a Director in April of 1998 [See "Events
Subsequent to December 31, 1997."]
(5) Nominated to fill two vacancies on the Board of Directors in April
of 1998. [See "Events Subsequent to December 31, 1998" and
"Certain Relationships and Related Transactions."]
Reginald D. Strickland
Mr. Strickland was appointed Chief Executive Officer in May 1997
and President in March 1997. Mr. Strickland previously served as Vice
President of Operations for the long-term care division of Horizon/CMS
HealthCare, overseeing the operation of 130 principally long-term care
facilities from 1994 through 1996. Mr. Strickland served as Vice
President of Waverly Group from 1990 through 1993. Mr. Strickland
began his career in 1977 with Beverly Enterprises where he worked for
approximately 15 years and where he was ultimately Vice President of
Operations for over 100 facilities located in seven states in the
Southeastern United States. Mr. Strickland has twenty years of
experience in long-term operations. Mr. Strickland received his
Bachelor's Degree in Applied Behavioral Sciences from National-Louis
University.
Joseph L. Rzepka
Mr. Rzepka was appointed Executive Vice President and Chief
Financial Officer of the Company in September 1996. Mr. Rzepka served
as Vice President of Operations of Omega HealthCare Investors, Inc., a
long-term care real estate investment trust from 1993 through 1996.
Mr. Rzepka has held executive financial positions in the long-term care
industry for over twelve years. Mr. Rzepka was the Vice President of
Finance of International Health Care Management, Inc. from 1991 through
1993 and was Vice President and Chief Financial Officer of National
Heritage, Inc., the nation's fourth largest operator of long-term care
facilities from 1989 through 1991. Mr. Rzepka received a Bachelor's
Degree in Business Administration from the University of Michigan in
Ann Arbor and completed masters studies in a Business Administration
Program at Xavier University. Mr. Rzepka is a Certified Public
Accountant.
Judson H. Simmons
Mr. Simmons was appointed Executive Vice President of Strategic
Planning of the Company in July 1995. From 1993 through the end of
1995, Mr. Simmons was President of Retirement Corporation of America,
an Atlanta based owner, manager, and operator of independent living,
assisted living, and congregate care facilities throughout the Eastern
United States. From 1980 to 1993, Mr. Simmons was a Partner and Of
Counsel with two different Atlanta based law firms, where he had a
broad based international corporate practice. His legal experience in
the health care industry included serving as outside general counsel
for Retirement Corporation of America, HealthCare Concepts, Inc., the
National Investment Conference for the Senior Living and Long-term Care
Industries, and a wholesale distributor of pharmaceutical products and
medical supplies. Mr. Simmons received his BS degree, with Special
Attainment in Commerce (concentration in Finance), from Washington &
Lee University; a Certificate of High Honors from the Department of
Economics of the University of Nottingham, England; his JD degree, cum
laude, from the University of Georgia School of Law; his LLM degree
from Columbia University School of Law; and a Certificate in Foreign
and Comparative Law from Columbia University's Parker School. Mr.
Simmons is a member of the State Bar of Georgia.
Joseph C. McCarron, Jr.
Mr. McCarron was appointed a director of the Company in July 1994.
From July 1994 to January 17, 1995, Mr. McCarron served as Chief
Executive Officer and President of the Company. Mr. McCarron served as
Chief Financial Officer from July 1994 through September 1996. On
January 17, 1995, Mr. McCarron was appointed Executive Vice President.
In July 1997, Mr. McCarron was appointed President of Oasis
Healthcare, the Company's New England based operating subsidiary. Mr.
McCarron served as President of HealthCare Concepts, Inc., a health
care financial advisory and management consulting firm from 1989
through 1994. Mr. McCarron has held executive management positions in
the long-term care industry for over fifteen years. Mr. McCarron was a
senior manager with Ernst & Young in the New England area. Mr.
McCarron graduated cum laude with a BA in Business Administration from
Northeastern University. Mr. McCarron is a Certified Public
Accountant.
William T. Filippone
Mr. Filippone was appointed Executive Vice President and Chief
Operating Officer of the Company effective June 1, 1997. Mr. Filippone
previously served as President and Chief Executive Officer of Horizon
Facilities Management, Inc., located in Dallas, Texas from 1995 through
May 1997. Before his association with Horizon HealthCare, he served as
Executive Vice President/COO of Community Care of America, located in
Naples, Florida from 1993 through August 1995. There he was a
cofounder and instrumental in the initial public offering of the
company. Before his relationship with CCA, he held key senior
management roles with other healthcare companies nationwide. Mr.
Filippone began his healthcare career in 1974, after receiving his
Bachelor's Degree in Business from West Virginia University.
Robert A. Kasirer
Mr. Kasirer has been a director of the Company since February
1995. Mr. Kasirer was appointed Managing Director of Iatros
Respiratory Corporation in January 1995 and in May 1996, was appointed
President of Western Region Operations of IHN/Health Services Group,
Inc. and Iatros Respiratory Corporation. From 1991 to 1994, Mr.
Kasirer was the owner and Chief Executive Officer of King Care
Respiratory Services, Inc. From 1986 to 1991, Mr. Kasirer developed
retirement communities, assisted living facilities, and health care
facilities for not-for-profit owners as a consultant. Prior to 1986,
Mr. Kasirer practiced law and was Of Counsel at Manatt, Phelps,
Rosenberg & Phillips. Mr. Kasirer graduated from New York University
with a BA degree in 1970. Mr. Kasirer received his JD degree from St.
John's University School of Law in 1973 and is a member of the New York
Bar Association. [See "Certain Relationships and Related
Transactions."]
John D. Higgins
Mr. Higgins has been a director since July 1994. Since October
1994, Mr. Higgins has served as Vice President and Senior Vice
President - Corporate Finance of Royce Investment Group, Inc., an
investment banking firm. From March 1987 to May 1990, Mr. Higgins
served as an executive officer of Lombard Securities Corp., an
investment banking firm. Mr. Higgins holds a BBA and MBA degree in
finance from Hofstra University.
Scott W. Ryan
Mr. Ryan founded S.W. Ryan & Company, Inc. in Philadelphia,
Pennsylvania in 1988 through the present. Mr. Ryan is a registered
securities broker and dealer. He has established himself with several
investment firms in the Northeast. Mr. Ryan began his career in 1973.
He holds a BS degree from the US Naval Academy and a Master's Degree
in Business from the University of Virginia.
James H. Sanregret
Has served as Chief Financial Officer of NewCare Health
Corporation since June 1997. Mr. Sanregret was previously employed by
Delta Air Lines for 24 years. He was Treasurer of Delta from 1992 to
May 1997. As Treasurer, he was responsible for all Corporate Finance,
Tax and Corporate Insurance activities on a global basis for the $12
billion airline. He was Assistant Vice President of Financial Planning
in 1992, and was responsible for analyzing the economics of all
proposed spending activities, preparation of projected income
statements for quarterly Board of Directors' meetings, and the
development of expense levels and capital outlays for all major
corporate acquisitions/mergers. From 1985 to 1992, he was the Director
of Financial Planning. He coordinated all financial activities related
to the acquisition of Western Airlines. He functioned as Manager of
Financial Planning from 1981 to 1985, Analyst of Financial Planning
from 1974 to 1981, and Accountant of Property Accounting from 1973 to
1974. Mr. Sanregret received a Bachelor of Business Administration
from the University of Wisconsin in 1972. [See "Certain Relationships
and Related Transactions."]
Frank Camma
Has served as Vice President of Strategic Planning of NewCare
Health Corporation since July of 1997. Mr. Camma began his career in
the healthcare industry in 1990, when he served as an accountant in the
Contract Services division of NovaCare Incorporated, a rehabilitation
services company until 1992. From June 1992 to October 1993, he served
as a Financial Analyst at First Fidelity Bank Corporation. He
completed the Professional Banker training program and returned to
NovaCare Incorporated as a Financial Analyst in the Corporate Finance
department. In this capacity, he was responsible for the annual budget
as well as weekly operating reports. From September 1994 to August
1996, he served as a Senior Financial Analyst at Acquisition Management
Services. Acquisition Management Services is a captive investment
banking boutique for Foster Management Company, a $250 million venture
capital firm specializing in the consolidation of niche healthcare
businesses. He was responsible for valuing, performing due diligence
and negotiating potential transactions. His primary client was NovaCare
Incorporated. From August 1996 to March 1997, he served as an
Associate with the investment banking firm of NatWest Markets. Mr.
Camma graduated summa cum laude from Villanova University with a
Bachelors Degree in Business Administration in 1992. [See "Certain
Relationships and Related Transactions."]
Each director and executive officer of the Company is required to
file a Form 3 with the Securities and Exchange Commission reporting
initial ownership of the Company's securities at the time such person
is elected or appointed a director or executive officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation
paid by the Company to executive officers of the company whose total annual salary
and bonus exceeded $100,000 for the years ended December 31, 1997, December 31, 1996,
and December 31, 1995.
ANNUAL COMPENSATION
LONG-TERM COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL OTHER
($) ($) ANNUAL STOCK UNDERLYING PAYOUTS COMPENSATION
COMPENSATION AWARDS OPTIONS/SARs (#) ($)
IONM ($) (#)
Robert T. Eramian 1997 $102,163 $0 $6,125 0 100,000 $0 $0
Chief Executive 1996 $245,192 $0 $14,700 0 401,348 $0 $0
Officer & Chairman 1995 $229,000 $0 $0 0 30,000 $0 $0
of the Board (1)
Reginald D. Strickland 1997 $245,000 $50,000 $9,000 0 420,000 $0 $0
President and Chief 1996 N/A N/A N/A N/A N/A N/A N/A
Executive Officer (6) 1995 N/A N/A N/A N/A N/A N/A N/A
William T. Filippone 1997 $131,250 $45,000 $9,000 0 200,000 $0 $0
Executive Vice 1996 N/A N/A N/A N/A N/A N/A N/A
President & Chief 1995 N/A N/A N/A N/A N/A N/A N/A
Operating Officer (3)
Joseph L. Rzepka 1997 $175,000 $0 $9,000 100,000 $0 $0
Executive Vice 1996 $47,115 $0 $2,250 0 100,000 $0 $0
President & Chief 1995 N/A N/A N/A N/A N/A N/A N/A
Financial Officer
Gordon Simmons 1997 N/A N/A N/A N/A N/A N/A N/A
Chief Operating 1996 $119,798 $0 $0 0 100,000 (4) $0 $0
Officer (4) 1995 N/A N/A N/A N/A N/A $0 $0
Joseph C. McCarron, 1997 $200,000 $0 $9,000 300,000 $0 $0
Jr. Executive Vice 1996 $196,154 $0 $9,000 0 40,000 $0 $0
President & Director(6) 1995 $162,500 $0 $0 0 30,000 $0 $0
Judson H. Simmons 1997 $225,000 $0 $9,000 0 360,000 $0 $0
Executive Vice 1996 $66,346 $0 $150,000 0 40,000 $0 $0
President of Strategic 1995 $0 $0 $125,000 0 0 $0 $0
Planning/Corporate
Development and
Secretary (6)
(1) Mr. Eramian resigned as Chief Executive Officer and Chairman of the company in May 1997.
(2) Mr. Strickland was appointed Cheif Executive Officer of the compnay in May 1997.
(3) Mr. Filippone was appointed Executive Vice President and Chief Operating Officer of the
company on June 1, 1997.
(4) Mr. Gordon Simmons resigned as an officer of the company in December 1996.
(5) Mr. Mccarron was also appointed President of the company's subsidiary in July 1997.
(6) Considering the company's working capital restraints, Messrs. Strickland, Simmons,
and McCarron deferred payment of $93,500 in the aggregate of their salaries during 1997.
</TABLE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (FISCAL YEAR ENDED DECEMBER 31, 1997)
POTENTIAL
INDIVIUAL GRANTS REALIZABLE VALUE
AT ASSUMED ANNUAL
<S> <C> <C> <C> <C> <C> <C>
RATES OF STOCK
PRICE APPECIATION
FOR OPTION TERM
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Expiration 5% 10%
Options/SARs Employees in Base Price Date
NAME Granted (#) Fiscal Year (1) ($/Share)
Robert T. Eramian 100,000 (1) 6.54% $0.38 May 22, 2007 $23,584 (5) $59,765 (6)
Chief Executive Officer and
Chairman of the Board
Reginald D. Strickland 420,000 (2) 27.45% $0.50 May 22, 2007 $132,068 (7) $334,686 (8)
Chief Executive Officer
Joseph L. Rzepka 100,000 (3) 6.54% $0.50 June 9, 2007 $31,445 (7) $79,687 (8)
Executive Vice President and
Chief Financial Officer
Joseph C. McCarron, Jr. 100,000 (1) 6.54% $0.38 May 22, 2007 $23,584 (5) $59,765 (6)
Executive Vice President 200,000 (3) 13.07% $0.50 June 9, 2007 $62,889 (7) $159,374 (8)
William P. Filippone 200,000 (3) 13.07% $0.38 June 9, 2007 $47,167 (5) $119,531 (6)
Executive Vice President
Judson H. Simmons 360,000 (3) 23.53% $1.50 Dec 31, 2006 $254,702 (9) $645,466 (10)
Exective Vice President-
Strategic Planning and
Corporate Organization
(1) Warrant granted on May 22, 1997 based upon the closing bid price of the Company's Common Stock on that date of $0.75 as
traded on the NASDAQ SmallCap Market SM. The warrant was exercisable at grant.
(2) Warrant granted on May 22, 1997 in connection wit Mr. Strickland's employment agreement, based upon closing bid price of
the Company's Common Stock on that date of $0.75 as traded on the NASDAQ SmallCap Market SM. The warrant was exercisable at
grant.
(3) Warrant granted on June 9, 1997 based upon the closing bid price of the Company's Common Stock on that date of $1.25 as
traded on the NASDAQ SmallCap Market SM. The warrant was exercisable at grant.
(4) Warrant granted on January 1, 1997 in connection with Mr. Simmons employment agreement, based upon closing bid price of
the Company's Common Stock on that date of $1.88 as traded on the NASDAQ SmallCap Market SM. The warrant was exercisable as
follows:
180,000 shares on signing of employment agreement; and 7,500 shares on the last day of each calendar month thereafter through
December, 1998 so long as Mr. Simmons is employed on those dates.
(5) Represents an assumed market price per share of Common Stock of $0.61
(6) Represents an assumed market price per share of Common Stock of $0.97
(7) Represents an assumed market price per share of Common Stock of $0.81
(8) Represents an assumed market price per share of Common Stock of $1.30
(9) Represents an assumed market price per share of Common Stock of $2.44
(10) Represents an assumed market price per share of Common Stock of $3.89
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTIONS/SAR VALUES
Name Shares Number of Securities Value
Acquired Value Underlying Unexercised of Unexercised
On Realized Options/SARs at Fry-End In-the-Money Options/SARs
Exercise (#) at Fiscal Year End ($)
(#) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Robert T. Eramian -0- -0- 1,365,827 (E) / 0 (U) $24,800 (1) (E) / $0 (U)
Chief Executive Officer
Reginald D. Strickland -0- -0- 420,000 (E) / 0 (U) $25,200 (2) (E) / $0 (U)
Chief Executive Officer
Joseph L. Rzepka -0- -0- 200,000 (E) / 0 (U) $6,000 (3) (E) / $0 (U)
Chief Financial Officer
Joseph C. McCarron, Jr. -0- -0- 1,020,000 (E) / 0 (U) $36,800 (4) (E) / $0 (U)
Executive Vice President
William T. Filippone -0- -0- 200,000 (E) / 0 (U) $37,000 (5) (E) / $0 (U)
Executive Vice President
Judson H. Simmons -0- -0- 310,000 (E) / 90,000 (U) $0 (5) (E) / $0 (U)
Vice President Strategic
Planning and Corporate
Organization
(1) Based upon the closing bid of the Company's Common Stock ($0.56 per share) on December 31, 1997
(fiscal year end), as traded on the NASDAQ SmallCap market, minus the exercise price
for the following options/warrants (30,000 share at $0.35, 100,000 shares at $0.38)
(2) Based upon the closing bid of the Company's Common Stock ($0.56 per share) on December 31, 1997
(fiscal year end), as traded on the NASDAQ SmallCap market, minus the exercise price
for the following options/warrants (420,000 shares at $0.50)
(3) based upon the closing bid of the Company's Common Stock ($0.56 per share) on December 31, 1997
(fiscal year end), as traded on the NASDAQ SmallCap market, minus the exercise price
for the following options/warrants (100,000 shares at $0.50)
(4) Based upon the closing bid of the Company's Common Stock ($0.56 per share) on December 31, 1997
(fiscal year end), as traded on the NASDAQ SmallCap market, minus the exercise price
for the following options/warrants (30,000 shares at $0.35, 100,000 shares at $0.38, 200,000
shares at $0.50)
(5) Based upon the closing bid of the Company's Common Stock ($0.56 per share) on December 31, 1997
(fiscal year end), as traded on the NASDAQ SmallCap market, minus the exercise price
for the following options/warrants (200,000 shares at $0.38)
</TABLE>
Compensation of Directors
There is no standard compensation for the Directors of the Company
beyond direct reimbursement for expenses incurred in attending board
meetings. On May 22, 1997, each of the following directors were
granted a 10-year warrant to purchase 100,000 shares of the Company's
Common Stock, exercisable at $0.375 per share: Messrs. Eramian,
Higgins, Kasirer, and McCarron. Shares of the Company's Common Stock
had a fair market value of approximately $0.75 per share as of the date
of grant. In addition, on June 9, 1997, each of the following directors
were granted a 10-year warrant to purchase the following respective
number of shares of the Company's Common Stock, exercisable at $0.50
per share: Mr. McCarron (200,000 shares), Mr. Kasirer (175,000), Mr.
Higgins (75,000). Shares of the Company's Common Stock had a fair
market value of approximately $1.08 per share as of the date of grant.
Employment Contracts and Termination, Severance and Change-of-Control
Agreements
Robert T. Eramian
In February of 1996, the Company's Board of Directors approved an
employment agreement with Mr. Eramian effective January 1, 1996. The
term of the agreement was for five (5) years. The employment agreement
provided for an annual base salary of $250,000 with such salary
increases and incentive compensation as determined by the Company's
Board of Directors. The employment agreement also provided for
reimbursement of travel expenses, an automobile allowance of $750 per
month and health and life insurance benefits. The employment agreement
was mutually terminated effective as of May 22, 1997 upon his
resignation as an officer and director of the Company.
Simultaneously with Mr. Eramian's resignation, the Company entered
into a consulting agreement with him having a term expiring as of June
1, 1999, and providing for payment of consulting fees to him of $16,200
per month. To date, no payments have been made pursuant to the
Agreement. The Company believes that it has an offset against the
consulting fees due under this agreement in an amount that has not yet
been determined.
Joseph C. McCarron, Jr.
The Company entered into an employment agreement with Mr. McCarron
as of October 21, 1994 for a term of three (3) years beginning July 25,
1994. The employment agreement provides for an annual base salary of
$150,000, a maximum annual bonus equal to 100% base salary, at the
discretion of the Board of Directors, non-qualified stock options to
purchase 200,000 shares of Common Stock at $.75 per share, which vested
upon employment, with a three-year exercise period and stock options to
purchase 200,000 shares of Common Stock at $1.00 per share with a
vesting period of one year and a three-year exercise period. The
employment agreement also provides for reimbursement of travel
expenses, an automobile allowance of $750 per month and health and life
insurance benefits. During 1995, the Board of Directors approved the
increase of the annual based salary of Mr. McCarron to $200,000.
During 1997, Mr. McCarron's employment agreement was extended for one
additional year.
Reginald D. Strickland
The Company entered into an employment agreement with Mr.
Strickland as of January 1, 1997 for a term of three (3) years
beginning January 1, 1997. The employment agreement provided for a
$15,000 signing bonus, and an annual base salary of $185,000, a warrant
to purchase 330,000 shares of Common Stock at $1.50 per share with a
10-year exercise period which vested over two years. The employment
agreement also provided for reimbursement of travel expenses, an
automobile allowance of $750 per month and health and life insurance
benefits. During May of 1997, Mr. Strickland's employment agreement
was modified by extending the term to five years, increasing his annual
base salary to $245,000, increasing his bonus to $50,000, increasing
the number of shares of the Company's Common Stock purchasable under
his warrant to 420,000 shares, and decreasing the exercise price under
such warrant to $0.50.
Joseph L. Rzepka
The Company entered into an employment agreement with Mr. Rzepka
as of September 9, 1996 for a term of five (5) years beginning
September 9, 1996. The employment agreement provides for an annual
base salary of $175,000, a warrant to purchase 100,000 shares of Common
Stock at $1.50 per share with a ten-year exercise period which vest
over a two-year period. The employment agreement also provides for
health and life insurance benefits, reimbursement of travel expenses,
and an automobile allowance of $750 per month.
Judson H. Simmons
The Company entered into an employment agreement with Mr. Simmons
as of January 1, 1997 for a term of five (5) years beginning January 1,
1997. The employment agreement provides for an annual base salary of
$225,000, a warrant to purchase 360,000 shares of Common Stock at $1.50
per share with a ten-year exercise period which vests over a two-year
period. The employment agreement also provided for health and life
insurance benefits, reimbursement of travel expenses, and an automobile
allowance of $750 per month.
William T. Filippone
The Company entered into an employment agreement with Mr.
Filippone as of June 1, 1997, for a term of five (5) years. The
employment agreement provides for a $30,000 signing bonus, a $15,000
relocation allowance, and an annual base salary of $183,000, a warrant
to purchase 200,000 shares of Common Stock at $.375 per share with a
10-year exercise period. The employment agreement also provides for an
additional 10-year warrant to purchase 100,000 shares to be issued on
January 1, 1998, at an exercise price of $.375 per share. The
employment agreement also provides for reimbursement of all travel
expenses related to business, an automobile allowance of $750 per
month, and health, life and disability insurance benefits.
Change of Control Agreements
During 1997, the Company executed Change of Control Agreements
with its five executive officers. This action was undertaken to assure
continuity of management in the event of actual or threatened change in
control of the Company. Further the Company believes it is important
for its key executives to be able to assess and advise whether
supporting a change in control would be in the best interest of the
Company and its shareholders without being influenced by the uncertain
effect of such a change upon the executive's role within the Company.
The Change of Control Agreements provide for severance
compensation to the executives in the event of a change as defined by
the agreements and generally provide for such compensation to equate to
the respective executives annual compensation multiplied by factors of
either two or three times. In addition, the Change of Control
Agreements provide for immediate vesting of all outstanding stock
purchase options and warrants attributable to the executives.
Compensation Committee Interlocks and Insider Participation
Mr. Eramian, the Company's former Chief Executive Officer and
President, served on the Compensation Committee until his resignation
in May of 1997. Although Messrs. Eramian and Strickland, respectively,
served on the Company's Compensation Committee, neither of them
participated in any recommendation or decision regarding his own
compensation as an executive officer or director. The Company's Board
of Directors, as a whole, determines the method by which the Company`s
executive compensation is determined based upon recommendations of the
Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the information as of March 31,
1998 with respect to the securities holdings of all persons which the
Company, by virtue of filings with the Securities and Exchange
Commission or otherwise, has reason to believe may be deemed the
beneficial owners of more than 5% of the Company's outstanding Common
Stock or securities convertible into Common Stock as of March 31, 1998,
based upon a total of 20,869,958. Also set forth in the table is the
beneficial ownership of all of the Company's outstanding Common Stock
as of such date by directors, executive officers and all directors and
executive officers of the Company as a group.
(1) Number of Shares
Name of Beneficial Owner Beneficially Owned Percent
----------------------------------------------------------------------
(2)
Robert T. Eramian 751,348 3.5%
(3)
Reginald D. Strickland 422,500 2.0%
(4)
Joseph L. Rzepka 209,000 1.0%
(5)
Joseph C. McCarron, Jr. 1,020,000 4.7%
(6)
Judson H. Simmons 405,000 1.9%
(7)
William T. Filippone 300,000 1.4%
(8)
Robert A. Kasirer 1,345,000 6.3%
(9)
John D. Higgins 623,275 2.9%
NewCare Health (10)
Corporation 4,000,000 19.2%
All executive officers and
directors as a group
8 persons) 5,070,123 20.4%
All officers and directors
and 5% or greater
shareholders as a group 9,070,123 36.5%
(1)
Unless otherwise noted, all shares are beneficially owned and the
sole voting and investment power is held by persons indicated.
Ownership does not include options, or portions of options, to
purchase shares which are not currently exercisable, or
exercisable within sixty days.
(2)
Includes the following: (i) 250,000 shares of Common Stock
purchasable under a warrant granted by the Company in 1994 to Etel
Corporation (which is controlled by Mr. Eramian), (ii) 30,000
shares of Common Stock purchasable under a warrant granted by the
Company in 1995 to Mr. Eramian, (iii) an aggregate of 371,348
shares of Common Stock purchasable under warrants granted by the
Company in 1996 to him, (iv) 100,000 shares of Common Stock
purchasable under a warrant granted by the Company in 1997 to him.
(3)
Includes the following: (i) 420,000 shares of Common Stock
purchasable under warrants granted by the Company in 1997 and (ii)
2,500 shares purchased by Mr. Strickland in an open market
transaction.
(4)
Includes the following: (i) 100,000 shares of Common Stock
purchasable under warrants granted by the Company in 1996 to Mr.
Rzepka, (ii) 100,000 shares of Common Stock purchasable under a
warrant granted by the Company in 1997 to him, and (iii) 9,000
shares purchased by Mr. Rzepka in open market transactions.
(5)
Includes the following: (i) 250,000 shares of Common Stock
purchasable under warrants granted by the Company in 1994 to Mr.
McCarron, (ii) 400,000 shares of Common Stock purchasable under a
Non-qualified Option granted by the Company in 1994 to him, (iii)
30,000 shares of Common Stock purchasable under a warrant granted
by the Company in 1995 to him, (iv) 40,000 shares of Common Stock
purchasable under a warrant granted by the Company in 1996 to him,
and (v) includes an aggregate of 300,000 shares of Common Stock
purchasable under warrants issued to by the Company to him in
1997.
(6)
Includes the following: (i) 5,000 shares of Common Stock purchased
by Mr. Simmons in an open market transaction, (ii) 40,000 shares
of Common Stock purchasable under warrants granted by the Company
in 1996 to him, and (iii) 360,000 shares purchasable under a
warrant granted by the Company in 1997 to him.
(7)
Includes the following: (i) 200,000 shares of Common Stock
purchasable under warrants issued by the Company in 1997 to him
and (ii) 100,000 shares of Common Stock purchasable under a
warrant granted by the Company in 1998 to him.
(8)
Includes the following: (i) 1,000,000 shares of Common Stock held
by record by Health Care Holdings, Ltd., a limited partnership of
which Mr. Kasirer is a general partner, (ii) 30,000 shares of
Common Stock purchasable under warrants granted by the Company in
1995 to Mr. Kasirer, (iii) 40,000 shares of Common Stock
purchasable under a warrant granted by the Company to him in 1996,
and (iv) an aggregate of 275,000 shares of Common Stock
purchasable under warrants granted by the Company in 1997 to him.
(9)
Includes the following: (i) 54,488 shares of Common Stock held of
record by Mr. Higgins, (ii) 95,000 shares of Common Stock
purchasable under warrants issued by the Company in 1994 to Royce
Investment Group, Ltd. ("Royce") and transferred by Royce to Mr.
Higgins, (iii) an aggregate of 15,948 shares of Common Stock
purchasable under warrants issued by the Company in 1995 to him,
(iv) includes 90,000 shares of Common Stock purchasable under a
warrant issued by the Company in 1995 to Royce and transferred to
him by Royce, (v) an option to purchase 152,839 shares of Common
Stock granted to Royce by shareholders of the Company and
transferred to him by Royce, (vi) 40,000 shares of Common Stock
purchasable under a warrant issued by the Company in 1996 to him,
and (vii) an aggregate of 175,000 shares of Common Stock
purchasable under warrants granted by the Company in 1997 to him.
(10)
Includes 4,000,000 shares issued by the Company in December 1997
for an aggregate investment of $1,000,000.
There are no family relationships among any directors or executive
officers of the Company
Option and Proxy Agreements
---------------------------
In July 1994, Family Investment Associates L.P. ("Family"), James
M. Foulke and Ellen Foulke ("Foulke") and Bentley-Midas Group, Ltd.
("Bentley") each of whom was a principal stockholder of the Company
(collectively, the "Issuing Parties") entered into a series of
agreements granting options to purchase shares of Common Stock owned by
them to Etel Corporation (which is controlled by Robert T. Eramian) and
to Joseph C. McCarron, jr. and giving irrevocable proxies to vote those
shares of Common Stock to Mr. Eramian. The options are to purchase
shares of Common Stock from Family, Foulke and Bentley. These options
and irrevocable proxies expired during April of 1997 without any of
them having been exercised by Etel or Mr. McCarron.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
At December 31, 1997, net loans and other amounts owing to the
Company from Robert A. Kasirer, a director of the Company, aggregated
$243,585.
During April of 1998, NewCare Health Corporation nominated Mr.
Frank Camma and Mr. Jim Sanregret to the Company's Board of Directors
to fill two existing vacancies. These nominations were made pursuant
to rights granted NewCare in connection with NewCare's $1,000,000
investment in the Company made in December of 1997. During April of
1998, the Company also executed a non-binding letter of intent with
NewCare concerning NewCare's possible acquisition of the Company by
means of a statutory merger. [See "Significant Transactions" and
"Events Subsequent to December 31, 1997."]
PART IV
-------
ITEM 14. EXHIBITS AND REPORTS OR FORM 8-K
------------------------------------------
(a) The following documents are filed as part of this report
1. The consolidated financial statements filed as part of this
report are listed under the caption "Index to Financial
Statements", appearing elsewhere in this report.
2. The consolidated financial schedules of the Company are filed
as part of that report.
Schedules:
Schedules II - Valuation and Qualifying Accounts
3. The following exhibits are filed herein:
Exhibit No. Description
----------- -----------
10.1 Agreement and Plan of Split-off dated as of July 1,
1997, among Iatros Health Network, Inc., IHN/New
Health Management, Inc., Andrea G. Dawkins, and
Ronald A. Halko.
10.2 Lease and Security Agreement dated March 15, 1997
by and between Greenfield Associates Real Estate
Trust and Oasis Healthcare, a/k/a OHI Corporation.
10.3 Lease and Security Agreement dated March 15, 1997
by and between Buckley Nursing Home and Oasis
Healthcare a/k/a OHI Corporation.
10.4 Mortgage Deed, Assignment of Rents and Leases and
Security Agreement made as of May 31, 1997 made by
OHI Realty Limited Partnership I for and for the
benefit of National Health Investors, Inc.
10.5 Mortgage Deed, Assignment of Rents and Leases and
Security Agreement made as of May 31, 1997 by OHI
Realty Limited Partnership I to and for the benefit
of National Health Investors, Inc.
(1)
10.6 Investment Agreement dated December 22, 1997,
between Iatros Health Network, Inc. and NewCare
Health Corporation.
21.0 Subsidiaries of Registrant.
(1) Incorporated by reference from Form 8-K of even date herewith
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of Independent Certified Public Accountants -
.............................................................F-2
Consolidated Balance Sheets..................................F-3
Consolidated Statements of Operations........................F-5
Consolidated Statements of Changes in Stockholders'
Equity.......................................................F-7
Consolidated Statements of Cash Flows........................F-10
Notes to Consolidated Financial Statements...................F-12
Report of Independent Certified Public Accountants on
Financial Statement Schedule.................................F-34
Schedule II - Valuation and Qualifying Accounts..............F-35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Iatros Health Network, Inc. and Subsidiaries
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Iatros
Health Network, Inc. and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of operations, changes in Stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Iatros Health Network, Inc. and Subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company experienced
significant net losses in 1997 and 1996, has a negative working capital as
of December 31, 1997, and is currently in default on certain covenants of
its debt agreements. The Company is seeking to restructure its current
debt requirements, obtain new financing or consummate a corporate merger
transaction. There can be no assurance that the Company will be successful
with any of these transactions. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 2. The
accompanying financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
April 23, 1998
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 190,696 $ 654,197
Accounts receivable, net 7,596,741 3,724,952
Subscription receivable 789,000 -
Inventory 357,409 443,755
Prepaid expenses and other current assets 712,343 1,232,254
Net current assets of discontinued operations - 1,064,653
-------- ----------
Total current assets 9,646,189 7,119,811
PROPERTY AND EQUIPMENT, net 9,108,815 783,899
OTHER ASSETS
Cash and cash equivalents, restricted 448,540 -
Intangible assets, net 2,954,677 2,762,378
Notes receivable 2,573,904 4,423,325
Loans receivable and other assets 414,160 3,609,571
Deferred tax asset, net - 2,700,000
Net long-term assets of discontinued operations 90,993 3,706,258
-------- ----------
6,482,274 17,201,532
--------- ----------
Total Assets $25,237,278 $25,105,242
========== ==========
</TABLE>
F-3
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Notes payable, banks and other $ 5,638,262 $ 985,907
Accounts payable 3,439,953 1,770,842
Accrued expenses and other current liabilities 2,459,197 767,404
Preferred stock dividends payable 550,000 390,000
Current portion of capital lease obligations 146,210 128,496
Net current liabilities of discontinued operations 518,904 -
---------- -----------
Total current liabilities 12,752,526 4,042,649
LONG-TERM DEBT 8,550,000 -
SUBORDINATED CONVERTIBLE DEBENTURES - 600,000
CAPITAL LEASE OBLIGATIONS 67,478 146,813
---------- ----------
21,370,004 4,789,462
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value,
5,000,000 shares authorized;
Series A, 533,333 shares issued and
outstanding 533 533
Series B, 100,000 shares issued and
outstanding 100 100
Common Stock, $.001 par value,
25,000,000 shares authorized;
20,869,958 and 15,931,500 issued
and outstanding in 1997 and 1996,
respectively 20,870 15,931
Additional Paid-In Capital 36,059,867 34,142,970
Accumulated Deficit (32,214,096) (13,843,754)
------------ ------------
3,867,274 20,315,780
---------- -----------
Total Liabilities and Stockholders'
Equity $25,237,278 $25,105,242
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Revenue
Nursing home operation services $ 12,191,384 $ - $ -
Ancillary services 11,283,832 8,319,151 5,589,771
Management services 2,037,324 984,747 -
Development services - 1,957,221 5,428,094
---------- ---------- ----------
25,512,540 11,261,119 11,017,865
Operating expenses
Nursing home operation services 10,511,236 - -
Ancillary services 10,087,353 7,614,619 5,127,023
Management services 1,229,301 757,142 -
General and administrative 4,376,860 4,944,473 2,314,123
---------- ---------- ---------
26,204,750 13,316,234 7,441,146
---------- ---------- ----------
Income(loss) from continuing
operations before other income
(expense), income tax benefit and
discontinued operations (692,210) (2,055,115) 3,576,719
Other income(expense)
Interest income 257,000 421,577 53,290
Interest expense (1,015,534) (620,224) (190,473)
Property lease expense (916,839) - -
Depreciation and amortization (677,345) (690,022) (518,606)
Write-down of intangible assets (5,637,703) (2,228,923) -
Other income (expense) (69,485) 112,027 (205,491)
---------- ---------- ----------
(8,059,906) (3,005,565) (861,280)
----------- ----------- ----------
Income(loss) from continuing
operations before income tax
benefit and discontinued operations (8,752,116) (5,060,680) 2,715,439
Income tax benefit (expense), net (2,341,000) 820,000 628,000
------------- ------------ -------------
Income(loss) from continuing
operations before discontinued
operations (11,093,116) (4,240,680) 3,343,439
Discontinued operations
Income(loss)from operations, net
of income taxes of $(202,000),
$360,000 and $42,000 in 1997,
1996 and 1995, respectively (3,125,544) (6,073,881) 311,749
Loss on separation, net of income
taxes of $(257,000) (3,991,682) - -
------------- -------------- --------------
(7,117,226) (6,073,881) 311,749
------------- -------------- --------------
Net Income(loss) $(18,210,342) $(10,314,561) $ 3,655,188
============= ============= ============
F-5
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
Basic earnings(loss) per share:
Continuing operations $ (.70) $ (.33) $ .35
Discontinued operations (.43) (.44) .03
------------- ------------ ------------
Net Income(loss) $ (1.13) $ (.77) $ .38
============= ============= ============
Weighted average number
of shares of common stock
outstanding 16,666,375 13,946,359 9,002,561
============ ============ ============
Diluted earnings per share:
Continuing operations $ - $ - $ .26
Discontinued operations - - .03
------------ -------------- -------------
Net Income(loss) $ - $ - $ .29
============ ============= =============
Weighted average number
of shares of common stock
outstanding - - 12,759,969
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 833,333 $833 7,436,333 $7,436 $9,411,918 $(6,864,381) $2,555,806
Issuance of Common Stock on
January 23, 1995 in connection
with an unregistered sale
of securities - - 1,000,000 1,000 1,750,250 - 1,751,250
Issuance of Common Stock on
April 12, 1995 in connection
with an unregistered sale
of securities - - 14,060 14 99,986 - 100,000
Issuance of Common Stock on
June 30, 1995 in connection
with the termination of a
lease and assignment of a
purchase option - - 30,489 30 149,969 - 149,999
Issuance of Common Stock on
August 29, 1995 in connection
with an unregistered sale
of securities - - 170,000 170 1,019,830 - 1,020,000
Issuance of Common Stock on
August 31,1995 in connection
with an unregistered sale
of securities - - 100,000 100 224,900 - 225,000
Issuance of Common Stock on
September 28, 1995 in connection
with conversion of debt - - 189,941 190 664,605 - 664,795
Issuance of Common Stock on
September 28, 1995 in connection
with an unregistered sale
of securities - - 400,000 400 1,399,600 - 1,400,000
Issuance of Common Stock on
September 29, 1995 in connection
with an unregistered sale
of securities - - 316,667 317 1,899,683 - 1,900,000
Costs of issuance incurred
during 1995 in connection
with unregistered sales
of securities - - - - (542,270) - (542,270)
Redemption of Series B
Preferred Stock on
November 30, 1995 (200,000) (200) - - - - (200)
Issuance of Common Stock on
December 29, 1995 in connection
with exercise of warrants held
by a Company Director - - 30,000 30 86,220 - 86,250
F-7
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock during
1995 in connection with exercise
of public warrants - - 1,664,255 $1,664 $3,842,439 $ - $3,844,103
Compensation incurred during 1995, in
connection with an unregistered
sale of securities - - - - 419,000 - 419,000
Director compensation incurred during
1995 in connection with an unregistered
sale of securities - - - - 15,000 - 15,000
Series A Preferred Stock dividends
recorded - - - - - (160,000) (160,000)
Net Income - - - - - 3,655,188 3,655,188
Balance, December 31, 1995 633,333 633 11,351,745 11,351 20,441,130 (3,369,193) 17,083,921
Issuance of Common Stock during
1996 in connection with the conversion
of a registered sale of
convertible debt securities - - 3,815,020 3,815 12,707,394 - 12,711,209
Costs of Issuance incurred on
January 26, 1996 in connection
with a registered sale of
convertible debt securities - - - - (683,466) - (683,466)
Issuance of Common Stock during
1996 in connection with exercise
of public warrants - - 92,572 93 267,522 - 267,615
Issuance of Common Stock during
1996 in connection with the exercise
of warrants and options - - 619,325 619 1,147,393 - 1,148,012
Issuance of Common Stock on
April 1,1996 in connection
with an unregistered sale
of securities - - 52,838 53 214,997 - 215,050
Compensation incurred during 1996, in
connection with an unregistered
sale of securities - - - - 18,000 - 18,000
Director compensation incurred during
1996 in connection with an unregistered
sale of securities - - - - 30,000 - 30,000
Series A Preferred Stock dividends
recorded - - - - - (160,000) (160,000)
F-8
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Loss - $ - - $ - $ - $(10,314,561) $10,314,561)
Balance, December 31, 1996 633,333 633 15,931,500 15,931 34,142,970 (13,843,754) 20,315,780
Issuance of Common Stock during
1997 in connection with the conversion
of a registered sale of
convertible debt securities - - 679,268 679 666,772 - 667,451
Issuance of Common Stock during
1997 in connection with the exercise
of warrants and options - - 209,190 210 91,379 - 91,589
Issuance of Common Stock during
1997 in connection with
conversion of debt - - 4,050,000 4,050 1,042,825 - 1,046,875
Costs of Issuance incurred in
1997 in connection with a registered
sale of convertible debt securities - - - - (67,079) - (67,079)
Compensation incurred during 1997 in
connection with an unregistered
sale of securities - - - - 63,000 - 63,000
Director compensation incurred during
1997 in connection with an unregistered
sale of securities - - - - 120,000 - 120,000
Series A Preferred Stock dividends
recorded - - - - - (160,000) (160,000)
Net Loss - - - - - (18,210,342) (18,210,342)
-------- ----- ---------- --------- ----------- ------------ -----------
Balance, December 31, 1997 633,333 $ 633 20,869,958 $ 20,870 $36,059,867 $(32,214,096) $ 3,867,274
========= ====== ========== ========= =========== ============= ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-9
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES ---- ---- ----
Net income (loss) $(18,210,342) $(10,314,561) $ 3,655,188
Adjustments to reconcile
net income (loss) to net cash
utilized by operating activities:
Loss (income) from discontinued operations 3,734,342 6,433,881 (269,749)
Loss on disposal of
discontinued operations 2,923,544 - -
Net cash utilized by
discontinued operations (467,773) (3,378,138) (1,633,407)
Depreciation and amortization 677,346 690,021 509,607
Provision for doubtful
accounts receivable 1,164,101 467,906 79,217
Write-off of uncollectible
Notes, loans and deposits
receivable 4,402,324 1,150,000 -
Write-down of intangible assets 577,971 2,173,485 -
Common stock issued for
services rendered 183,000 48,000 99,750
Deferred taxes 2,750,000 (1,180,000) (870,000)
Changes in:
Accounts receivable (5,891,941) (928,434) (1,642,678)
Notes and loans receivable 357,154 (2,145,197) (1,648,355)
Inventory 86,346 16,590 (216,257)
Prepaid expenses and other (476,542) (489,131) (1,019,769)
Accounts payable 1,884,227 819,562 289,657
Accrued expenses and other 1,838,983 304,185 319,057
Net cash utilized by
operating activities (4,466,920) (6,331,831) (2,347,739)
INVESTING ACTIVITIES
Purchase of property
and equipment (173,729) (135,322) (156,488)
Acquisition of businesses - (215,050) (2,074,219)
Acquisition of contract rights - (2,164,478) (639,705)
Loans to third parties - (3,185,541) (710,295)
Repayment of loans to
third parties - 445,555 -
Deposits, net 100,000 (1,110,000) 271,875
Restricted cash and cash
equivalents (12,790) 375,000 (25,000)
Organization costs (63,064) (37,563) (545,743)
Net cash utilized by
investing activities (149,583) (6,027,399) (3,879,575)
F-10
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
FINANCING ACTIVITIES ---- ---- ----
Net proceeds from issuance
of capital stock and other
capital contributions $ 302,589 $ 1,415,627 $ 5,087,332
Proceeds from issuance
of convertible debentures - 12,900,000 -
Fees paid on issuance of
convertible debentures - (876,331) -
Short term borrowings, net 3,937,239 33,330 1,342,761
Payments of long-term debt - (438,013) (130,000)
Stockholders' loan payments - (443,683) (197,086)
Redemption of Preferred Stock - - (200)
Capital lease obligations, net (100,966) (65,023) (57,162)
Security deposits, net 14,140 (69,351) 16,771
Net cash provided by
financing activities 4,153,002 12,456,556 6,062,416
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (463,501) 97,326 (164,898)
Cash and cash equivalents,
beginning of year 654,197 556,871 721,769
Cash and cash equivalents,
end of year $ 190,696 $ 654,197 $ 556,871
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid $1,015,534, $640,881 and $113,297 in cash for interest during 1997, 1996 and 1995, respectively.
Interest paid attributable to discontinued operations totaled $50,102, $79,761 and $64,101 as of December 31, 1997,
1996 and 1995.
The accompanying notes are an integral part of
these consolidated financial statements.
F-11
</TABLE>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the Company's significant accounting policies con-
sistently applied in the preparation of the accompanying consolidated
financial statements is as follows:
Business
--------
Iatros Health Network, Inc. and Subsidiaries (the "Company") is a
Delaware Corporation organized in June 1988. The Company is
engaged in providing services to the long-term care industry.
The Company's principal markets include the metropolitan areas of
Philadelphia, Pennsylvania; Baltimore, Maryland; and, New
England. During 1997, the Company discontinued operations in
Maryland (See Note 3).
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of
Iatros Health Network, Inc. and its wholly-owned subsidiaries.
All intercompany transactions and accounts have been eliminated
in consolidation.
Cash and cash equivalents
-------------------------
The Company considers all highly liquid debt instruments pur-
chased with an original maturity of three months or less to be
cash equivalents.
The Company maintains cash accounts which at times may exceed
federally insured limits. The Company has not experienced any
losses from maintaining cash accounts in excess of federally
insured limits. Management believes that the Company does not
have significant credit risk related to its cash accounts.
Revenue and accounts receivable
-------------------------------
Ancillary services revenue is reported at the estimated net
realizable amounts due from residents, third party payors, and
others. Management services revenue is reported pursuant to the
terms and amounts provided by the associated management service
contracts. Development services revenue is generally realized on
a fee for service basis recognized upon completion of the service
transaction.
The Company's credit risk with respect to accounts receivable is
concentrated in services related to the healthcare industry,
which is highly influenced by governmental regulations. This
concentration of credit risk is limited due to the number and
types of entities comprising the Company's customer base and
their geographic distribution. The Company routinely monitors
its exposure to credit losses and maintains an allowance for
doubtful accounts.
The allowance for doubtful accounts is maintained at a level
determined to be adequate by management to provide for potential
losses based upon an evaluation of the accounts receivable. This
evaluation considers such factors as the age of receivables, the
contract terms and the nature of the contracted services.
F-12
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Revenue and accounts receivable (Continued)
-------------------------------
Certain nursing home and ancillary revenue is recorded based on
standard charges applicable to patients. Under Medicare,
Medicaid and other cost-based reimbursement programs, the
provider is reimbursed for services rendered to covered program
patients as determined by reimbursement formulas. The
differences between established billing rates and the amounts
reimbursable by the programs and patient payments are recorded as
contractual adjustments and deducted from revenue.
Inventory
---------
Inventory is principally comprised of pharmaceutical and medical
supplies and is valued at the lower of cost (first-in, first-out
method) or market.
Property and equipment
----------------------
Property and equipment is stated at cost. The cost of property
and equipment is depreciated over the estimated useful lives of
the respective assets using primarily the straight-line method.
Property and equipment under capital leases is amortized over the
lives of the respective leases or over the service lives of the
assets. Leasehold improvements are amortized over the lesser of
the term of the related lease or the estimated useful lives of
the assets.
Normal maintenance and repair costs are charged against income.
Major expenditures for renewals and betterments which extend
useful lives are capitalized. When property and equipment is sold
or otherwise disposed of, the asset accounts and related
accumulated depreciation or amortization accounts are relieved,
and any gain or loss is included in operations.
The useful lives of property and equipment for purposes of
computing depreciation and amortization are:
Building 40 Years
Leasehold improvements 3 - 10 Years
Property and equipment
held under capital leases Life of lease
Equipment 5 Years
Furniture and fixtures 3 - 7 Years
Intangible assets
-----------------
The Company evaluates the carrying value of its long-lived assets
and identifiable intangibles including contract rights, excess of
cost over net assets acquired, leasehold rights and organization
costs when events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The
review includes an assessment of industry factors, contract
retentions, cash flow projections and other factors the Company
believes are relevant.
F-13
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Intangible assets (Continued)
-----------------
Contract rights
---------------
Contract rights represent the value assigned to management
contracts obtained by the Company. Management contracts
provide for a management fee in exchange for management,
marketing and development services provided to the
facilities. Contract rights are being amortized over the
term of the related contracts.
Excess of cost over net assets acquired
---------------------------------------
The excess of cost over net assets acquired relates to the
acquisition of the Company's operating subsidiaries. The
excess of cost over net assets acquired is being amortized
over their lives of 15 to 20 years.
Leasehold Rights
----------------
Leasehold rights represent costs associated with securing
leasehold interests in connection with operating nursing
facilities and are being amortized using the straight-line
method over 15 years, the maximum lease term.
Organization costs
------------------
Organization costs incurred in connection with the
acquisition or formation of new business activities for the
Company are being amortized using the straight-line method
over five years.
Income taxes
------------
The Company employs the asset and liability method in accounting
for income taxes pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109 ``Accounting for Income Taxes.'' Under
this method, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting
and tax bases of assets and liabilities and net operating loss
carryforwards, and are measured using enacted tax rates and laws
that are expected to be in effect when the differences are
reversed.
Earnings per share
------------------
The Company adopted Statement of Financial Accounting Standard
No. 128 ``Earnings per Share ''(``SFAS 128'') in 1997. All prior
period earnings per common share data have been restated to
conform to the provisions of this statement.
Basic earnings per share is based upon the weighted average
number of common shares outstanding during the period.
Diluted earnings per share is based upon the weighted average
number of common shares outstanding during the period plus the
number of incremental shares of common stock contingently
issuable upon exercise of stock options and warrants.
F-14
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF 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 that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Reclassifications
-----------------
Certain amounts have been reclassified in 1996 and 1995 to
conform with the 1997 presentation.
NOTE 2: GOING CONCERN
For the year ended December 31, 1997, the Company reported a net loss
of $18,210,342. This is largely attributed to losses associated with
discontinued operations of $6,658,226; a write-down of intangible
assets of $5,637,703; and substantial general and administrative
expenses of $4,376,860 associated with the Company's business history
and corporate expenses. Recent operating losses reported by the
Company during 1997 and 1996 together with other adverse corporate
developments have exhausted the Company's capital resources and had a
material adverse effect on short term liquidity and the Company's
ability to service its debts. At December 31, 1997, the Company has a
negative working capital position of $3,106,337.
The Company reported revenue from continuing operations for the years
ended December 31, 1997 and 1996 of $25,512,540 and $11,261,119,
respectively, representing an increase of $14,251,421 or 127%. During
1997, the operating expenses incurred for continuing operations,
exclusive of general and administrative costs, totaled $21,827,890
yielding an operating margin of $3,684,650 or 14% on related revenue.
Notwithstanding this increase in revenue, the operating margins
attained by the Company are insufficient to cover the levels of
general and administrative costs as well as other expense
requirements.
During 1997 and to date, the Company has been successful in reducing
levels of its corporate overhead and general and administrative costs.
Continued cost reductions are required, however, for the Company to
achieve positive cash flow from continuing operations. In the
alternative, the Company requires a higher revenue base to support the
corporate overhead represented by its executive management structure.
In addition, the Company requires an infusion of capital in order to
satisfy its short-term obligations. The Company has been unsuccessful
in its independent efforts to secure financial relief from its
existing creditors as well as to raise new sources of capital.
The Company has been engaged in discussions with third parties having
an interest in corporate merger opportunities or otherwise in the
purchase of certain of its business holdings. The Company has been
particularly focused on growth prospects which would yield added
economies and eliminate redundancy of overhead costs through merger or
acquisition.
As further described in Note 27 to the financial statements, the
Company has entered into a formal letter of intent with NewCare Health
Corporation to complete a statutory merger transaction. Among the
benefits to be derived by the Company in consummating such a
transaction would be an immediate infusion of working capital needed
to revitalize existing operations and provide access to additional
capital resources required to meet corporate obligations.
F-15
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 2: GOING CONCERN (Continued)
In light of the Company's current financial position, its inability to
independently meet its short term corporate obligations, its need to
further capitalize existing operations and its dependency on continued
cost reductions and revenue growth to support continuing operations,
its viability to continue as a going concern is uncertain. While the
Company intends to expediently pursue and consummate a merger
transaction with NewCare Health Corporation, there can be no assurance
that this transaction will be completed.
NOTE 3: DISCONTINUED OPERATIONS
The Company's current business strategy is to pursue the direct
ownership or lease of long-term care facilities for its own account.
Accordingly, during 1997, the Company discontinued operations
associated with certain segments of its long-term care business.
Specifically, these included subsidiary operations providing third
party development and management services to independent owners and
operators of long-term care facilities and relating to the Company's
prior business acquisitions of Greenbrier Healthcare Services, Inc.
and New Health Management Systems, Inc. In addition, the Company
discontinued operations associated with providing respiratory therapy
services and relating to the prior business acquisition of King Care
Respiratory Services, Inc. See Significant Capital Stock Transactions
(Note 4).
<TABLE>
<CAPTION>
Assets and liabilities of discontinued operations as of December 31,
1997 and 1996 are as follows:
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets
Cash $ 12,155 $ 479,928
Accounts receivable - 2,163,253
Inventory - 9,363
Prepaid expenses and other
current assets 37,031 907,860
Net current liabilities of
discontinued operations 518,904 -
---------- -----------
568,090 3,560,404
---------- ----------
Property and equipment, net 90,809 465,864
Deposits 6,553 17,650
Intangible assets, net - 2,691,284
Loans receivable - 925,698
---------- -----------
97,362 4,100,496
---------- -----------
Total $ 665,452 $ 7,660,900
========== ===========
F-16
</TABLE>
<TABLE>
<CAPTION>
NOTE 3: DISCONTINUED OPERATIONS (Continued)
1997 1996
<S> <C> <C>
Liabilities
Current liabilities
Current portion of long-
term debt $ - $ 60,633
Current portion of capital
lease obligations 69,354 102,265
Accounts payable 310,835 919,418
Accrued payroll and related 9,280 405,929
Accrued expenses and other 28,621 507,506
Reserve for contingencies 150,000 500,000
Net current assets of
discontinued operations - 1,064,653
---------- -----------
568,090 3,560,404
--------- -----------
Long-term debt - 308,330
Capital lease obligations 6,369 85,908
Net long-term assets of
discontinued operations 90,993 3,706,258
---------- -----------
97,362 4,100,496
---------- ----------
$ 665,452 $7,660,900
========== ==========
Revenue associated with discontinued operations for the years ended December 31, 1997, 1996 and 1995 totaled $3,728,130,
$10,601,633 and $5,610,398 respectively.
</TABLE>
NOTE 4: SIGNIFICANT CAPITAL STOCK TRANSACTIONS
During 1997, 1996 and 1995, the Company completed a number of Capital
Stock transactions. Significant transactions included the following:
In December, 1997, the Company issued four million shares of its
common stock to NewCare Health Corporation at a price of $.25 per
share for an aggregate investment of $1 million.
In January 1996, the Company completed the sale of $12,900,000 of
its 10% Subordinated Convertible Debentures. The Debentures pay
interest in quarterly installments at the rate of 10% per annum.
The Debentures are convertible into shares of the Company's
Common Stock, with the conversion rate determined by a formula
based upon the share price of the Company's Common Stock. Costs
associated with the issuance of the Debentures totaled $876,331.
Through December 31, 1996, $12,300,000 was converted into a
total of 3,815,020 shares of Common Stock. During 1997, $600,000
was converted into 679,268 shares of Common Stock.
On May 31, 1996, Oasis HealthCare, Inc., a long-term care
management company located in Chestnut Hill, Massachusetts was
merged into the Company's wholly owned subsidiary, OHI
Acquisition Corporation. The shareholders of Oasis HealthCare,
Inc. received a total of 52,828 shares of Common Stock and
$215,050 in cash in exchange for their shares in Oasis
HealthCare, Inc. In addition, an amount will be paid to the
former shareholders of Oasis HealthCare, Inc. within thirty days
of the execution of agreements with respect to any of twelve
management contract opportunities specifically identified in the
Merger Agreement. Each amount (half of which will be payable in
cash and half in Common Stock) will be determined based upon a
percentage of the value of each such agreement, the aggregate of
which will not exceed $1,500,000. As part of the transaction OHI
Acquisition Corporation entered into a five year employment
agreement with the former president of Oasis HealthCare, Inc.
The name of the subsidiary has been changed to OHI Corporation.
F-17
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4: SIGNIFICANT CAPITAL STOCK TRANSACTIONS (Continued)
In January 1995, the Company, through a newly-created subsidiary,
Iatros Respiratory Corporation ("IRC"), merged with King Care
Respiratory Services, Inc. ("King Care"), with IRC being the
surviving entity. King Care, located in Los Angeles, California,
manages and provides respiratory therapy services to skilled
long-term care facility patients and managed out-patient
respiratory therapy programs for acute care hospitals. All of
the outstanding shares of King Care were converted into the right
to receive 1,000,000 shares of the Company's Common Stock and the
right to receive a deferred payment of up to $480,000, plus
simple interest on such payment of nine percent (9%) payable in
January 2000. The 1,000,000 shares of Common Stock issued by the
Company in connection with this transaction were valued at
$1,750,250. In 1996, the intangible assets related to this
transaction were reviewed for impairment (See Note 17). In 1997,
operations associated with IRC were discontinued.
In April 1995, the Company through its newly-created subsidiary,
Iatros Therapy Corporation, acquired the business operations and
assets of Physical Therapy and Restorative Care Associates, P.C.
and Therapyworks, P.C., a rehabilitation agency and out-patient
clinic which provides physical, occupational and speech therapy
services in Philadelphia, Pennsylvania. The purchase price of
the acquisition totaled $550,000.
In August 1995, the Company, through a newly-created subsidiary,
Greenbrier Healthcare Services, Inc. ("Greenbrier") merged with
Greenbrier Health Care Management, Inc., with Greenbrier being
the surviving entity. Greenbrier serves as the manager of
several health care facilities located in Maryland. At the
effective date of the merger, the outstanding shares of the
Common Stock of Greenbrier Health Care Management, Inc. were
converted into the right to receive: (i) 170,000 shares of Common
Stock of the Company, (ii) $574,219, and (iii) payments of
$100,000 within 30 days after the execution of each of five
anticipated management contracts. The 170,000 shares issued by
the Company in connection with this transaction were valued at
$1,020,000. In 1996, the intangible assets related to this
transaction were reviewed for impairment (See Note 19). In 1997,
operations associated with Greenbrier were discontinued.
In September 1995, New Health Management Systems, Inc., a
Pennsylvania corporation ("New Health") was merged into NHMS
Acquisition Corp. ("NHMS"), a wholly owned subsidiary of the
Company, pursuant to an Agreement and Plan of Merger (the
"Merger"). At the effective date of the merger, the outstanding
shares of New Health were converted into the right to receive (i)
316,667 shares of Common Stock of the Company and (ii)
$1,900,000, in cash and (iii) short-term notes payable totaling
$500,000. The 316,667 shares issued by the Company were valued at
$1,900,000. In 1996, the intangible assets related to this
transaction were reviewed for impairment (See Note 19). In 1997,
operations associated with NHMS were discontinued.
In November 1995, the Company expended $1,350,000 in connection
with acquiring the contract rights to three nursing facilities
representing approximately 400 beds located in the Massachusetts
market area. Of the amount expended, $710,295 was provided as a
long term loan to the corporate owner of the facilities while
$639,705 was attributable to acquiring contract rights to the
facilities. The contract rights to these facilities secured by
the Company included a five year contract commencing on November
1, 1995. The costs associated with acquiring these contract
rights are being amortized over the contract term.
F-18
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 5: CASH AND CASH EQUIVALENTS
As of December 31, 1997, cash and cash equivalents totaled $639,236 of
which $448,540 relates to a loan reserve held in escrow in connection
with the long-term mortgage loan payable.
Cash and cash equivalents at December 31, 1996 totaled $654,197 and
included a certificate of deposit held by a financial institution in
the amount of approximately $520,000. This certificate was redeemed
in March 1997 and was utilized to satisfy an outstanding credit
obligation totaling $516,000 which was included in notes payable,
banks and other, at December 31, 1996.
NOTE 6: SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During March 1997, the Company's wholly-owned subsidiary, OHI
Corporation, which does business as Oasis Healthcare (``Oasis'')
leased two nursing facilities located in Holyoke and Greenfield,
Massachusetts having a combined total of 222 beds. The term of each
lease is for ten years with a five year renewal period and a combined
facilities purchase option for $11.5 million which is exercisable
through March 2000. These leases are being accounted for as operating
leases. In connection with this transaction, the Company recorded
leasehold rights totaling $1,025,000.
During May 1997, OHI Realty I, LLP, a Massachusetts limited
partnership with the Company as general partner and it's wholly-owned
Oasis subsidiary as limited partner, acquired two nursing facilities
for approximately $8,164,000 located in Taunton and Quincy,
Massachusetts, having a combined total of 171 beds. The Company
recorded mortgage debt totaling $8,550,000 with respect to this
transaction and transfered net assets of approximatley $286,000 to
the cost basis of the facilities.
During 1997, $500,000 of net current liabilities from discontinued
operations were converted into a note payable.
During 1997, accounts payable to a vendor of $215,117 was converted
into a note payable.
During 1997, the Company entered into a short-term loan agreement
with a potential merger partner. Proceeds amounted to $211,000. This
obligation was converted to equity through an investment agreement
whereby the potential merger partner received 844,000 shares of
Common Stock and subscribed to purchase an additional 3,156,000
shares for $789,000. Related costs amounting to $50,000 were recorded
as a charge to additional paid in capital.
During 1997, 1996 and 1995 annual dividends on shares of Preferred
Stock of $160,000 were recorded but not paid.
During 1997, 1996 and 1995, the Company acquired property and
equipment under capital leases and incurred capital lease obligations
in the amounts of $35,388, $281,564 and $230,822, respectively.
In 1996, the Company incurred a note payable associated with an
equipment purchase in the amount of $34,882.
During 1996, the Company acquired one business, recording excess of
cost over net assets acquired of $430,100 in connection with the
acquisition. As consideration for the net assets acquired, the
Company issued 52,838 shares of Common Stock in the amount of $215,050
to the related parties.
During 1996, the Company issued 10% Subordinated Convertible
Debentures in the amount of $12,900,000. As of December 31, 1996,
$12,300,000 of the Debentures were converted into 3,815,020 shares of
Common Stock and as of December 31, 1997, the remaining Debentures
were converted into 679,268 shares of Common Stock. Accrued interest
on the Debentures converted into Common Stock during 1997 and 1996
resulted in an increase to Additional Paid-In Capital
in the amounts of $67,452 and $411,209 respectively. Loan costs of
$17,079 and $683,466 during 1997 and 1996, respectively, were recorded
as a charge to paid in capital.
F-19
NOTE 6: SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES (Continued)
During 1995 the Company acquired property and equipment from a related
party and incurred a note payable in the amount of $112,850.
During 1995, the Company acquired three businesses, recording excess
of cost over net assets acquired of $6,147,030 in connection with the
acquisitions. As consideration for the net assets acquired, the
Company issued 1,501,000 shares of Common Stock and notes payable in
the amount of $1,200,000 to the principals of the acquired companies.
Various assets and liabilities were assumed in connection with the
acquisitions.
During 1995, the Company issued 331,438 warrants to purchase shares of
Common Stock as compensation to a third party corporation whose
principal officer serves on the Company's Board of Directors. In
addition, in January 1995, this officer assumed the position of
President and Chief Executive Officer of the Company, resulting in the
capitalization of organization costs of $410,000.
During 1995, the Company issued 189,941 shares of Common Stock and
514,941 warrants to purchase shares of Common Stock in connection with
the conversion of long-term debt in the amount of $664,795.
During 1995, the Company incurred a note receivable from a related
party in the amount of $240,000 as consideration for accrued payments
to be made in the future.
During 1995, the Company received notes receivable of $650,000 and
incurred accrued expenses of $200,000 as a return of property deposits
of $450,000. During 1996, the Company offset $200,000 of the notes
receivable against the accrued expense due to the termination of the
contractual obligation.
NOTE 7: ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
1997 1996
---- ----
Nursing home operation services $ 3,958,735 -
Ancillary services 4,720,521 $ 3,707,981
Management services 2,300,152 327,911
----------- -----------
10,979,408 4,035,892
Allowance for doubtful accounts (3,382,667) (310,940)
----------- -----------
$ 7,596,741 $ 3,724,952
=========== ===========
<TABLE>
<CAPTION>
NOTE 8: PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at December 31, 1996 include approximatley
1,000,000 of project costs advanced in connection with tranactions involving the
Company's development initiatives in New England. These amounts include legal and
professional as well as financial issue costs which are recoverable upon completion of the
property aquisition and project financing or development activity for which such costs
were advanced. The Company routinely advances project costs associated with its development
as it deems necessary to secure business prospects and complete tranactions.
Additional prepaid expenses and other current assets approximate $232,000.
F-20
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1997 1996
---- ----
<S> <C> <C>
Land $ 156,272 $ -
Buildings and building improvements 7,468,345 -
Leasehold improvements 76,659 60,371
Property and equipment held
under capital leases 447,066 418,019
Equipment 1,586,843 636,808
Furniture and fixtures 218,482 172,837
----------- ----------
9,953,667 1,288,035
Less: Accumulated depreciation
and amortization (844,852) (504,136)
----------- -----------
$ 9,108,815 $ 783,899
=========== ===========
Depreciation and amortization expense charged to continuing operations was $345,208, $217,014 and $136,843 in 1997, 1996 and
1995, respectively. Additionally, depreciation and amortization expense charged to discontinued operations was $84,452,
$545,944 and $66,826 with respect to 1997, 1996 and 1995, respectively.
</TABLE>
<TABLE>
<CAPTION>
NOTE 10: INTANGIBLE ASSETS
Intangible assets consists of the following at December 31:
1997 1996
---- ----
<S> <C> <C>
Excess of costs over net assets acquired $ 1,588,282 $ 1,588,281
Contract rights 715,773 1,333,286
Leasehold rights 1,025,000 -
Organization costs 176,532 229,648
----------- -----------
3,505,587 3,151,215
Less: Accumulated amortization (550,910) (388,837
----------- ------------)
$ 2,954,677 $ 2,762,378
=========== ===========
Amortization expense for intangible assets charged to continuing operations was $332,138, $473,007 and $381,763 in 1997, 1996
and 1995, respectively. Additionally, amortization expense charged to discontinued operations was $85,115, $415,639 and
$23,811 in 1997, 1996 and 1995, respectively.
</TABLE>
NOTE 11: NOTES RECEIVABLE
At December 31, 1997 and 1996, notes receivable result from
development, financial advisory, and consulting services which the
Company has provided to several long-term care properties. The notes,
which are generally formalized as long-term, mature over a period not
to exceed ten years, bear simple interest ranging between eight and
ten percent per annum and are secured by a mortgage position on the
properties to which they relate. Further, the notes are generally
subordinated to senior debt and other priority operating obligations
associated with the properties.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments", requires that the Company
disclose estimated fair values of financial instruments.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Cash and cash equivalents, accounts receivable, prepaid expenses and
other current assets, accounts payable, accrued expenses and other
current liabilities are carried at amounts that approximate their fair
values because of the short-term maturity of these instruments.
The Company believes that the carrying value of notes and loans
receivable and long-term debt approximates fair value.
F-21
NOTE 13: LOANS RECEIVABLE AND OTHER ASSETS
At December 31, 1997 and 1996, loans receivable and other assets
include $384,000 and $2,244,424, respectively, advanced by the Company
pursuant to the terms of operating deficit agreements for the
operating needs of properties managed by the Company. During 1997,
$2,080,424 of such advances outstanding as of December 31, 1996 were
written off as uncollectible. Amounts remaining outstanding as of
December 31, 1997 generally accrue interest at market rates and are
expected to be recoverable from permanent financing proceeds
anticipated from the properties.
In addition, other assets reported at December 31, 1996 include a
purchase deposit of $1,000,000 associated with the planned acquisition
of a long-term care nursing facility, and a $100,000 deposit on land
associated with the future development of a long-term care or assisted
living facility. During 1997, pursuant to the terms of the respective
agreements, only $100,000 was recovered by the Company.
<TABLE>
<CAPTION>
NOTE 14: INCOME TAXES
The effective income tax rate differs each year from the statutory
Federal income tax rate due to graduated Federal income tax rates,
state income taxes, utilization of net operating loss carryforwards,
certain permanently non-deductible charges to net income and certain
temporary differences between the financial and income tax bases. The
reconciliation of these differences is as follows:
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Federal income tax rate (34)% (34)% 34%
State income taxes, net of
Federal tax benefit - (1) 2
Tax benefit of prior years'
net operating losses (18) (11) (75)
Deferred tax asset
valuation allowance 44 10 19
Tax effect of net non-deductible
expenses 19 20 -
------- ------- -------
Other 7 6 (2)
(18)% (10)% (22)%
======= ======= =======
F-22
</TABLE>
<TABLE>
<CAPTION>
NOTE 14: INCOME TAXES (Continued)
Deferred income taxes arise primarily as a result of differences between the financial and income tax basis of reporting
principally for differences in the bases of allowances for doubtful accounts, property and equipment, organization costs,
as well as the effects of future benefits to be realized from net operating losses for financial reporting purposes.
Deferred tax assets at December 31, 1997 and 1996 are comprised of the following:
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets
Tax benefit of net operating loss
carryforwards $ 5,699,000 $ 3,159,000
Allowance for doubtful accounts 1,009,000 605,000
Organization costs 33,000 120,000
Other - 15,000
----------- ------------
Total deferred tax assets 6,741,000 3,899,000
Less: valuation allowance (6,741,000) (1,150,000)
------------ ------------
Net deferred tax assets - 2,749,000
Deferred tax liabilities
Property and equipment 50,000 49,000
----------- ------------
Total deferred tax liabilities 50,000 49,000
----------- ------------
Net deferred tax asset(liability) (50,000) $ 2,700,000
=========== ===========
During 1997, the deferred tax asset valuation allowance increased by $5,591,000, and during 1996, the valuation allowance
increased by $1,090,000.
At December 31, 1997, the Company has available net operating loss carryfowards for Federal income tax purposes of
approximately $14,876,000, which can be offset against future earnings of the Company. These net operating losses expire
from 2008 through 2012, and are subject to annual limitations. In addition the Company has available various state net
operating loss carryforwards of approximately $16,892,000 at December 31, 1997, which expire from 1999 to 2012.
</TABLE>
<TABLE>
<CAPTION>
The provision for (benefit of) income taxes include:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
State $ 50,000 $ 200,000
Deferred:
Federal $ 2,350,000 (1,030,000) $(820,000)
State 400,000 (150,000) (50,000)
----------- ------------ ----------
$ 2,800,000 $(1,180,000) $(670,000)
=========== ============ ==========
F-23
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 15: NOTES PAYABLE, BANKS AND OTHER
1997 1996
---- ----
<S> <C> <C>
Note payable to a bank, due on demand,
line of credit of $1.5 million, bearing
interest at prime plus 1%, secured by accounts
receivable and property and equipment $1,481,500 $ 792,663
Note payable to a third party, due on demand,
bears interest at prime rate plus 2.25% (10.75%
at December 31, 1997), serving as working
capital; secured by certain ancillary subsidiaries'
accounts receivable 1,603,505 -
Note payable to a third party, due on demand
bears interest at approximately 12%; serving as
working capital; secured by certain nursing home
subsidiaries' accounts receivable 828,670 -
Note payable to a third party, due on demand,
payable in monthly installments of $1,139,
including interest at the banks' prime rate
plus 1.5%,(9.75% at December 31, 1996), secured
by equipment 20,760 30,684
Notes payable to third parties, due on
demand, unsecured and accruing interest at
approximately 12% to 13.5% 1,703,827 -
Note payable to a Stockholder, due on demand,
non-interest bearing, unsecured, paid in 1997 - 162,560
---------- -----------
$5,638,262 $ 985,907
========== =========
The weighted average rate of interest charged to the Company during 1997 and 1996 was approximately 10.5% and 9%,
respectively.
</TABLE>
NOTE 16: ACCRUED EXPENESES AND OTHER CURRENT LIABITIES
Accrued expenseds and other current liabilities reported at
December 31, 1997 include: accrued expenses of approximately
$1,756,000 associated with nursing home operations;
approximately $335,000 in accrued salaries and related expenses,
and; approximately $368,000 in other current liabilities.
Accrued expenses and other current liabilities reported at
December 31, 1996 include: accrued legal and professional fees of
approximately $275,000; approximately $305,000 in accrued salaries
and related expenses, and; approximately $187,000 in other current
liabilities.
F-24
<TABLE>
<CAPTION>
NOTE 17: LONG-TERM DEBT
<S> <C>
Long-term debt consists of:
Mortgage loan payable to a financing institution
with interest having a ten year term; interest only
payable through June 1999, amortizing over a 25 year
period, bearing interest at 10.5%; with a balloon
payment of $7,360,420 due in June 2007; secured
by property, plant and equipment associated with two
nursing home facilities $8,300,000
Long-term debt consists of:
Subordinated mortgage loan payable to a third
party due in June 2000; interest only payable
at 9%; secured by property, plant and equipment
associated with two nursing home facilities $ 250,000
----------
$8,550,000
==========
</TABLE>
The Company is not in full compliance with certain financial
covenants of the mortgage loan payable to a financing
institution. Annual maturities of long-term debt in
the next five years are as follows:
Year Ending December 31, Amount
1998 $ -
1999 35,215
2000 326,201
2001 84,598
2002 93,921
NOTE 18: LEASES
The Company leases its executive offices, operating facilities and
certain equipment accounted for as operating leases. Rent expense
under these leases charged to continuing operations was $461,398,
$367,900, and $198,536 for the years ended December 31, 1997, 1996 and
1995, respectively. Additionally, rent expense under these leases
charged to discontinued operations was $182,716, $455,615 and $364,766
for the years ended December 31, 1997, 1996 and 1995, respectively.
The following represents future minimum rental payments required under
operating leases with remaining non-cancelable lease terms in excess
of one year as of December 31, 1997:
Year Ending December 31, Amount
------------------------- -------
1998 $ 1,464,959
1999 1,396,580
2000 1,310,754
2001 1,214,580
2002 1,214,580
Thereafter 13,562,810
-----------
$20,164,263
============
F-25
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NOTE 18: LEASES (Continued)
The Company also leases property and equipment under capital leases. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are
amortized over the lesser of their related lease terms or their estimated useful lives. Amortization under capital leases
charged to continuing operations was $77,768, $57,437 and $32,797 in 1997, 1996 and 1995, respectively. Amortization to
discontinued operations for the years ended December 31, 1997, 1996 and 1995 was $29,934, $21,251 and $15,989,
respectively.
The following is a summary of property held under capital leases as of December 31, 1997 and 1996:
1997 1996
---- ----
<S> <C> <C>
Equipment $ 447,066 $ 418,019
Less: Accumulated amortization 169,228 121,394
--------- -----------
$ 277,838 $ 296,625
========= =========
Minimum future lease payments under capital leases for continuing operations for the three years subsequent to December 31,
1997 are as follows:
</TABLE>
Year Ending December 31, Amount
------------------------- --------
1998 $167,359
1999 65,027
2000 8,864
---------
Total minimum lease payments 241,250
Less: Imputed interest 27,562
--------
Present value of net minimum lease
payments 213,688
Less: Current portion 146,210
---------
$ 67,478
=========
Interest rates on capitalized leases range from 9% to 15% and are imputed based
upon the lower of the Company's incremental borrowing rate at the inception of
each lease or the lessor's implicit rate of return.
NOTE 19: IMPAIRMENT OF INTANGIBLE ASSETS
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, ``Accounting for the impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of''( ``SFAS No.121")
In accordance with SFAS No. 121, the Company is required to
analyze the value of its recorded intangible assets on an ongoing
basis to determine that the recorded amounts are reasonable and are
not impaired.
In 1997, the Company determined that its recorded intangible assets
had been impaired due to the termination of certain service
relationships, the bankruptcy of a nursing facility in Olathe, Kansas
in which the Company had invested, and the forfeiture of a $1,000,000
security deposit relating to a nursing facility in New Jersey.
Additionally, the Company executed a separation agreement regarding
its unprofitable nursing home management subsidiary in Philadelphia
and discontinued operations of its respiratory therapy operations in
California. Of the total impairment loss of $5,637,703 included in the
results of operations for 1997, $3,580,000 relates to uncollectible
accounts and notes receivable, $1,616,000 to forfeited property
acquisitions deposits and costs, $225,000 to contract rights, and
$216,703 to other intangible assets.
F-26
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 19: IMPAIRMENT OF INTANGIBLE ASSETS (Continued)
In 1996, the Company determined that the value of its recorded
intangible assets had been impaired, based upon historical operating
deficits with respect to the related subsidiaries and the uncertainty
that the Company will be able to generate sufficient future cash flows
to recover the recorded amounts of the intangible assets. The total
impairment loss from continuing operations of $2,228,923 which is
included in the results of operations for 1996,
was determined by evaluating the net realizable
value of the intangable assets as of December 31, 1996 based upon
projected results of future operations. Impairment loss from continuing
operations related to organization costs of $1,266,439 and contract
rights of $962,484. Net impairment loss associated with discontinued
operations totaled $4,469,051 and related to excess of cost over net
assests acquired.
NOTE 20: RELATED PARTY TRANSACTIONS
During 1995, the Company had a consulting agreement with a third party
corporation whose principal officer serves on the Company's Board of
Directors. In addition, in January 1995, this officer assumed the
position of President and Chief Executive Officer of the Company.
Fees paid during 1995 for financial advisory and development services
totaled approximately $112,000. In addition, for services rendered
during 1995, this officer was granted Common Stock purchase warrants
of the Company as incentive compensation pursuant to this consulting
agreement. This consulting agreement was terminated effective
December 31, 1995. During 1997, this officer formally resigned.
During October 1995, the Company reached a settlement with the
principals of prior management involving numerous obligations that
existed between the parties. The settlement agreement resulted in
payments by the Company to a former principal totaling approximately
$533,000. Of this amount, $300,000 represents a prepayment of a
consulting agreement with one of prior management's principals which
terminated in June 1997.
<TABLE>
<CAPTION>
NOTE 21: EARNINGS (LOSS) PER SHARE
Earnings per share is calculated as follows for the years ended December 31, 1997, 1996 and 1995 as follows:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic Earnings per Share:
-------------------------
Income (loss) from continuing
operations $(11,552,116) $ (3,880,680) $3,385,439
Less preferred stock dividends (550,000) (390,000) (230,000)
------------- ------------- -----------
(12,102,116) (4,270,680) 3,155,439
Income (loss) from discontinued
operations (6,658,226) (6,433,881) 269,748
------------- ------------- -----------
$(18,760,342) $(10,704,561) $3,425,187
============= ============= ============
Weighted average common shares
outstanding 16,666,375 13,946,359 9,002,561
============= ============= ============
Basic earnings (loss) per share:
Continuing operations $ (0.70) $ (0.33) $ 0.35
Discontinued operations (0.43) (0.44) 0.03
------------ ------------ -----------
$ (1.13) $ (0.77) $ 0.38
============ ============ ===========
F-27
</TABLE>
<TABLE>
<CAPTION>
NOTE 21: EARNINGS (LOSS) PER SHARE (Continued)
1997 1996 1995
<S> <C>
Diluted Earnings per Share: ---- ---- ----
---------------------------
Income from continuing
operations after reduction for
preferred stock dividends $3,113,439
Add preferred stock dividends 230,000
-----------
3,343,439
Income from discontinued
operations 311,749
-----------
$3,655,188
===========
Weighted average common shares
outstanding 9,002,561
Shares from assumed conversions 3,757,408
----------
12,759,969
===========
Diluted earnings per share:
Continuing operations $ 0.26
Discontinued operations 0.03
-----------
$ 0.29
</TABLE>
Diluted loss per share for the years ended December 31, 1997 and 1996
have not been computed because they are antidilutive.
During 1997, all of the Company's 10% Subordinated Convertible
Debentures outstanding as of December 31, 1996 were converted.
Additionally, a total of 209,190 common shares were also issued during
1997 in connection with the exercise of certain outstanding warrants,
and, in December 1997, the Company issued four million shares of its
Common Stock to NewCare Health Corporation at a price of $0.25 per
share for an aggregate investment of $1 million. Had all such
conversions and issuances occurred on January 1, 1997, the reported
basic loss per share would have been antidilutive.
During 1995, the Company issued Common Stock in connection with the
exercise of its Redeemable Common Stock Purchase Warrants and the
conversion of convertible debt during the year. Had all exercises and
conversions occurred on January 1, 1995, the reported basic earnings
per share would have decreased $0.06 to $0.32.
NOTE 22: COMMITMENTS
The Company has entered into several executive employment agreements
with executive officers, providing for terms ranging between three and
five years. Aggregate annual compensation provided by these
agreements totals $1,165,812. In addition, certain of these
agreements provide options and warrants for the executives to purchase
an aggregate of 1,480,000 shares of the Company's Common Stock at
prices ranging from $.375 to $1.50 per share.
Upon the resignation of an officer and director, the Company entered
into a consulting agreement with him having a term expiring as of June
1, 1999, and providing for payment of consulting fees of $16,200 per
month. To date, no payments have been made pursuant to this
agreement. The Company believes that it has an offset against the
consulting fees due under this agreement in an amount that has not yet
been determined.
F-28
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 22: COMMITMENTS (continued)
The Company was involved in a number of project financings wherein
the Company was contracted to provide development, marketing and
management services. In connection therewith, the Company committed
to loan working capital as may be required in the form of operating
deficit agreements. Aggregate amounts committed to date by the
Company relating to project financings total $859,000 of which
approximately $334,000 has been advanced by the Company and
approximately $525,000 remains outstanding at December 31, 1997.
In February 1996, the Company had granted a put option exercisable by
Courtland Health Care, Inc. for the Company to purchase all of the
issued and outstanding shares of Courtland II, Inc., a third party
services corporation, for not less than $2,000,000. In anticipation
of this service transaction, the Company had entered into a series of
service agreements involving several long-term care facilities
affiliated with Courtland II, Inc. In December 1996, the Company
consummated a termination and settlement agreement with respect to all
such service agreements. In addition, the put option purchase granted
by the Company has expired.
The Company guarantees aggregate debt service payments relating to
approximately $35,000,000 of long-term debt and working capital
financing associated with long-term care facilities for which it
provides management services on a long-term basis. The Company may be
unable to independently satisfy debt service payments, if required.
During August 1997, the Company's wholly-owned Oasis subsidiary
entered into management contracts with respect to a 90 bed skilled
nursing and retirement center located in North Falmouth, Massachusetts
known as ``Royal Megansett'' (``the Royal Megansett Agreement''). At
the time of this transaction, Royal Megansett was leased by a
partnership controlled by an officer of Oasis (the``Royal Megansett
officer") pursuant to a ten-year lease (the``Royal Megansett
lease'). Because the parties contemplated that such lease would be
assigned to, and assumed by, Oasis immediately after it obtained
approval by the Massachusetts Department of Public Health, the Company
guaranteed the Royal Megansett lease. In November, 1997, the Royal
Megansett Officer resigned as an officer of Oasis and the Royal
Megansett Management Agreement was terminated. The Company and the
Royal Magansett officer are in a dispute over such actions, but no
litigation has commenced.
NOTE 23: CONTINGENCIES
The Company is a defendant in two lawsuits relating to the termination
of former executive officers for cause under the terms of, in one
case, the executive's employment agreement and, in the second, the
executive's employment and merger agreement. The two former executives
are independently claiming to be paid additional compensation,
and in the case of one, damages for alleged misrepresentations in
connection with the related merger agreement. The Company is
vigorously prosecuting counterclaims with respect to this latter case
and otherwise is vigorously defending both of these cases. Management
believes that the Company has valid defenses against all allegations
made by the Plaintiffs in these actions, as well as valid
counterclaims in its prosecution actions. Further, Management does
not believe that the outcome of these matters will have a material
adverse affect on the Company's financial position, results of
operations or cash flows.
The Company is a defendant in certain lawsuits involving third-party
creditors whose claims arise from transactions which occurred under
prior management. Management believes that is has sufficiently
reserved for these claims in its financial statements at December 31,
1997. Management does not believe that the outcome of these matters
will have a material affect on the Company's financial position,
results of operations or cash flows.
In addition to the foregoing, the Company and its subsidiaries have
outstanding a number of other routine actions, as well as a number of
threatened actions, involving their respective creditors, vendors,
customers, former employees and/or other third parties. Some of them
are in the process of being settled, and the remainder of them are
being vigorously defended. Management does believe that the outcome
of these matters will not have a material, adverse affect on the
Company's financial position, results of operations or cash flows.
F-29
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 24: PREFERRED STOCK
On July 25, 1994, the Company sold 533,333 shares of 8% cumulative
Series A Senior Convertible Preferred Stock include voting rights,
cumulative dividends at $.30 per annum for each share and conversion
rights to Common Stock at the conversion price of $3.75 per share.
The liquidation preference of each Senior Preferred Convertible share
is $3.75 per share plus unpaid dividends, which amounts to $2,550,000
at December 31, 1997. The Company had the option, prior to July 1,
1996, to pay the preferred stock dividends by issuance of Common Stock
in lieu of cash. The Company did not exercise their option. At
December 31, 1997, dividends in arrears on the 8% Cumulative Series A
Senior Convertible Preferred Stock totaled $550,000.
During 1995, 200,000 shares of the Company's Series B Preferred Stock
were redeemed. The Series B Preferred Stock is nonvoting and pays no
dividends.
NOTE 25: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS
The Company has a Stock Option Plan (the Plan) which provides for the
granting of incentive and nonqualified stock options and stock
appreciation rights to certain officers, directors, key employees and
consultants. Currently, a maximum of 750,000 shares of Common Stock
may be issued under the Plan. Stock Options are granted at a price not
less than 100% of the fair market value of the Common Stock at the
date of grant and must be exercised within 10 years from the date of
grant, with certain restrictions. Nonqualified Stock Options will be
granted on terms determined by the Board of Directors.
<TABLE>
<CAPTION>
Transactions involving the Plan are summarized as follows:
Options Shares
---------------
Weighted Weighted Weighted
Average Price Average Price Average Price
1997 Per Share 1996 Per Share 1995 Per Share
---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 500,000 $ .90 688,153 $2.21 688,153 $2.21
Granted - - 50,000 1.00 - -
Exercised - - - - - -
Canceled (100,000) 1.00 (25,000) 1.50 - -
Expired - - (213,153) 5.10 - -
--------- --------- ---------
Outstanding December 31 400,000 $ .87 500,000 $ .90 688,153 $2.21
======== ========= ========
Exercisable December 31 400,000 $ .87 500,000 $ .90 490,000 $1.10
======== ========= ========
The options outstanding on December 31, 1997 expire during 1998.
</TABLE>
Common Stock Purchase Warrants
------------------------------
In addition to options granted under its Stock Option Plan, the
Company has issued Common Stock Purchase Warrants to the public and
underwriter in connection with its initial public offering and to
officers, directors and employees as compensation for past and future
services, all of which are outside of the Stock Option Plan.
Redeemable Common Stock Purchase Warrants
-----------------------------------------
The Company, in connection with its initial public offering in 1992,
issued Redeemable Common Stock Purchase Warrants for 1,145,000 shares
of the Company's Common Stock, with an exercise price of $4.00 and an
expiration date of April 21, 1996.
F-30
<TABLE>
<CAPTION>
NOTE 25: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS (Continued)
Warrants 1996 1995
- --------- ---- -----
<S> <C> <C>
Outstanding January 1 184,150 1,145,000
Exercised (52,301) (960,850)
Canceled (131,849) -
--------- -----------
Outstanding December 31 - 184,150
</TABLE>
<TABLE>
<CAPTION>
========== ===========
Underwriter's Unit Purchase Warrants
The Company sold to the Underwriter, for a price of $.0001 per Warrant, an amount of warrants (the "Underwriter's Unit
Purchase Warrants") equal to 10% of the aggregate number of Units (90,000) in connection with the Company's initial public
offering.
Underwriter's Common Stock
Unit Purchase
Purchase Warrants
Warrants Effective Exercise Exercise Expiration
Issued Date Price/Unit Price/Share Date
--------- --------- ----------- ----------- ----------
<C> <C> <C> <C> <C>
90,000 4/26/92 $8.70 $5.80 4/20/97
During 1997, 37,190 warrants were exercised at $.75 per share.
</TABLE>
<TABLE>
<CAPTION>
Non-Redeemable Common Stock Purchase Warrants
- ---------------------------------------------
During 1994, the Company privately issued Non-Redeemable Common Stock Purchase Warrants for 1,600,000 shares of the
Company's Common Stock.
Warrants Effective Exercise Expiration
Issued Date Price Date
----------- ---------- --------- ------------
<C> <C> <C> <C>
800,000 7/25/94 $ .75 7/25/99
500,000 7/25/94 $1.50 7/25/04
200,000 7/25/94 $1.00 7/25/99
100,000 7/25/94 $3.50 7/25/99
----------
1,600,000
=========
During 1997, 37,190 warrents were exercised at $0.75 per share.
</TABLE>
<TABLE>
<CAPTION>
Private Warrants
- ----------------
Transactions involving private warrants are summarized as follows:
Warrants
- -------- Weighted Weighted Weighted
Average Price Average Price Average Price
1997 Per Share 1996 Per Share 1995 Per Share
---- --------- ---- ---------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 2,434,846 $4.88 2,175,375 $5.11 809,086 $7.98
Granted 2,250,000 .72 730,000 3.17 1,366,289 3.41
Exercised 172,000 (.38) (370,529) 3.29 - -
Expired (801,586) 2.47 - - -
Canceled (1,116,736) 4.33 (100,000) - - -
----------- ---------- ----------
Outstanding December 31 3,396,110 $1.77 2,434,846 $4.88 2,175,375 $5.11
========== =========== ===========
Exercisable December 31 2,988,450 $1.77 2,370,178 $4.88 2,175,375 $5.11
========== =========== ===========
F-31
</TABLE>
<TABLE>
<CAPTION>
NOTE 25: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS (Continued)
The warrants outstanding on December 31, 1997 expire from 1998 through
2007.
Under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company is permitted
to continue accounting for the issuance of stock options and warrants
in accordance with Accounting Principles Board (``APB'') Opinion No.
25, which does not require recognition of compensation expense for
option and warrant grants unless the exercise price is less than the
market price on the date of grant. As a result, the Company has
recognized compensation cost for stock options and warrants for 1997,
1996 and 1995 of $183,000, $48,000 and $75,000, respectively. If the
Company had recognized compensation cost for the ``fair value'' of
option grants under the provisions of SFAS No. 123, the pro forma
financial results for 1997, 1996 and 1995 would have differed from the
actual results as follows:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss)
As reported (18,210,342) $(10,314,561) $3,655,188
Proforma $(19,434,176) $(10,711,154) $1,184,643
Basic earnings (loss) per share
As reported $(1.13) $(.77) $.38
Proforma $(1.17) $(.77) $.13
</TABLE>
The per share weighted average fair value of the stock options and
warrants granted during 1997, 1996 and 1995 was $1.25, $3.30 and
$7.20, respectively. The fair value was estimated at the date of
grant using the Modified Black-Scholes Stock Option Pricing Model with
the following average assumptions for 1997, 1996 and 1995,
respectively: risk free interest rates of approximately 6% for all
three years; expected volatility factors of 163.6%, 116.2% and 96.9%
and expected lives of 1-10 years, 3-10 years and 1-10 years and no
expected dividends rate for all three years.
Under SFAS 123, the fair value of stock options issued in any given
year is expensed as compensation over the vesting period, which for
substantially all of the Company's options and warrants is three to
ten years; therefore, the pro forma net income (loss) and basic
earnings (loss) per share do not reflect the total compensation cost
for options and warrants granted in the respective years.
Furthermore, the pro forma results only include the effect of options
granted in 1997, 1996 and 1995; options and warrants granted prior to
1995 were not considered.
NOTE 26: RETIREMENT SAVINGS PLAN
The Company has a savings plan available to substantially all
employees, under Section 401(k) of the Internal Revenue Code. The
Company's contributions to this plan are discretionary. Employee
contributions are generally limited to 10% of their compensation
subject to Internal Revenue Code limitations. The Company made no
contributions to this plan during the three year period ended December
31, 1997.
F-33
NOTE 27: SUBSEQUENT EVENT
In April 1998, the Company entered into a formal letter of intent
agreement whereby NewCare Health Corporation ("NWCA") would, by
means of a statutory merger, acquire all of the issued and outstanding
shares of all classes and series of the Capital Stock of the Company.
NWCA would acquire all of the Company's Capital Stock other than the
Series A Preferred Stock for aggregate consideration of $7,000,000
worth of shares of NWCA Common Stock, valued in accordance with a
predetermined valuation method. At NWCA's option, up to $3,500,000 of
the consideration may be paid in cash, rather than NWCA stock. NWCA
would acquire the Series A Preferred Stock for aggregate consideration
of (a) $500,000 in cash, (b) $500,000 worth of shares of NWCA Common
Stock and (c) 250,000 five-year warrants to purchase NWCA Common Stock
at a strike price of $1 per share above the NWCA market price. As
part of the agreement, NWCA has committed to enter into an " at risk''
management arrangement for the Company's continuing business
operations. The management arrangement would commence on the date
that the parties execute a definitive merger agreement. The merger
transaction remains subject to due diligence, board approvals, receipt
of fairness opinions, regulatory approvals and stockholder vote.
During January 1998, the Company entered into a note purchase and
loanagreement whereby the Company purchased a note instrument in the
principal amount $1,475,000 from a third party lender with whom the
Company has extensive business relationships. The note purchase
financing was provided by such lender with collateral and security
relating to nursing facilities in New England financed by the lender
and in which the Company has interest. The loan agreement associated
with the purchase financing has a maturity date of Apri 1, 2007;
requires monthly payments of principal and interest payable at 10.5%
per annum and amortizes over a period of twenty-five years. The note
instrument acquired by the Company is secured by a subordinated
mortgage position held on a nursing facility that was previously
managed by the Company. The prior management of this facility was
provided by one of the Companys subsidiaries whose operations were
discontinued during 1997. The note instrument acquired by the Company
is currently non-performing.
F-33
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Iatros Health Network, Inc. and Subsidiaries
Atlanta, Georgia
We have audited the consolidated financial statements of Iatros Health
Network, Inc. and Subsidiaries, referred to in our report, dated April 23,
1998, which includes an explanatory paragraph concerning the Company's
ability to continue as a going concern. In connection with our audit of
these consolidated financial statements, we also have audited the
accompanying relatedd financial statement schedule for 1997, 1996 and 1995.
In our opinion, such financial statement schedule for 1997, 1996 and
1995, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Asher & Company, Ltd.
Philadelphia, Pennsylvania
April 23, 1998
F-34
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance
Beginning Operating Deductions at End of
of Year Expenses (1) (2) Year(3)
----------- ----------- ---------- ---------
Year Ended December 31, 1997
- ----------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts receivable) $1,774,300 $3,036,900 $1,428,500 $3,382,700
========== ========== ========== ==========
Year Ended December 31, 1996
- ----------------------------
Allowance for doubtful accounts
(deducted from accounts receivable) $ 143,400 $2,036,003 $ 405,103 $1,774,300
========== ========== ========== ==========
Year Ended December 31, 1995
- ----------------------------
Allowance for doubtful accounts
(deducted from accounts receivable) $ 319,183 $ 79,217 $ 255,000 $ 143,400
========== ========== ========== ===========
(1) Amounts charged to continuing operations were $3,036,900, $ 572,643 and $158,731 for 1997, 1996 and 1995 respectively.
The amounts charged to discontinued operations were $0, $1,463,360 and $50,000 for 1997, 1996 and 1995.
(2) Amounts deemed to be uncollectible.
(3) Included in the allowance for doubtful accounts at December 31, 1996 and 1995 is
a balance related to discontinued operations in the amount of $1,428,567 and $50,000, respectively.
F-35
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant certifies that it has reasonable grounds to
believe that it meets all requirements for filing on Form 10-K, and has
duly caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized on the 27th day of April, 1998.
IATROS HEALTH NETWORK, INC.
By:/s/Reginald D. Strickland
Reginald D. Strickland
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, as amended, this Form 10-K has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Reginald D. Strickland Chief Executive Officer
Reginald D. Strickland and Director 4/27/98
/s/ Joseph L. Rzepka Chief Financial Officer
4/27/98
Joseph L. Rzepka
/s/ Joseph C. McCarron, Jr. Executive Vice President
Joseph C. McCarron, Jr. and Director 4/27/98
/s/ Robert A. Kasirer Director 4/27/98
Robert A. Kasirer
/s/ John D. Higgins Director 4/27/98
John D. Higgins
/s/ James H. Sanregret Director
James H. Sanregret 4/27/98
/s/ Frank Camma Director
Frank Camma 4/27/98
AGREEMENT AND PLAN OF SPLIT-OFF
DATED AS OF JULY 1, 1997
AMONG
IATROS HEALTH NETWORK, INC.
AND
IHN/NEW HEALTH MANAGEMENT SYSTEMS, INC.
AND
ANDREA G. DAWKINS
AND
RONALD A. HALKO
TABLE OF CONTENTS
Page
ARTICLE I
The Split-Off
SECTION 1.01. The Split-Off 2
SECTION 1.02. Closing 2
SECTION 1.03. Effective Time of the Split-Off 2
SECTION 1.04. Articles of Incorporation and Bylaws 2
SECTION 1.05. Directors 2
SECTION 1.06. Officers 2
SECTION 1.07. Assets and Liabilities of Sub 2
SECTION 1.08. Termination of Agreements 3
ARTICLE II
Effects of the Split-Off
SECTION 2.01. Effect on Capital Stock of the Constituent Corporations 4
SECTION 2.02. Exchange of Certificates 4
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Parent 4
SECTION 3.02. Representations and Warranties of Dawkins and Halko 6
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business 8
ARTICLE V
Additional Agreements
SECTION 5.01. Best Efforts 9
SECTION 5.02. Access to Information 10
SECTION 5.03. Legal Conditions to Split-Off 10
SECTION 5.04. Fees and Expenses 10
SECTION 5.05. Indemnification 10
SECTION 5.06. Public Announcements 11
SECTION 5.07. Mutual Releases 11
SECTION 5.08. Competition Among the Parties 11
SECTION 5.09. Cooperation Among the Parties 11
SECTION 5.10. Covenants by the Parent 12
SECTION 5.11. Release of the Parent 12
SECTION 5.12. 12
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Obligations of the Parent 12
SECTION 6.02. Conditions to Obligations of Dawkins and Halko 13
SECTION 6.03. Frustration of Closing Conditions 15
ARTICLE VII
Indemnification
SECTION 7.01. Indemnification by Dawkins and Halko 15
SECTION 7.02. Indemnification by the Parent 16
SECTION 7.03. Notification of Claims 16
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination 18
SECTION 8.02. Effect of Termination 18
SECTION 8.03. Amendment 19
SECTION 8.04. Extension; Waiver 19
ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties 19
SECTION 9.02. Notices 19
SECTION 9.03. Interpretation 20
SECTION 9.04. Counterparts 21
SECTION 9.05. Entire Agreement; No Third Party Beneficiaries 21
SECTION 9.06. Governing Law 21
SECTION 9.07. Assignment; Binding Effect 21
SECTION 9.08. Enforcement 21
SECTION 9.09. Further Assurances 22
SECTION 9.10. Time of Essence 22
SECTION 9.11. Reporting for Tax Purposes 22
SECTION 9.12 Completion of Schedules 22
SCHEDULES
Schedule 1.07(a) - Statement of Assets
Schedule 1.07(b) - Contracts of the Sub
Schedule 1.07(c) - Liabilities of the Sub
Schedule 1.08 - Dawkins/Halko Agreements
Schedule 3.01(c) - Governmental Authorizations of the Sub
Schedule 3.01(d) - Non-Contravention of the Sub
Schedule 3.02(b) - Governmental Authorizations of Dawkins and Halko
Schedule 3.02(c) - Non-Contravention of Dawkins and Halko
Schedule 5.09 - Financial Services and Ancillary Services
Schedule 5.11 - List of Parent Guaranty Obligations
EXHIBITS
Exhibit A Mutual Release Agreement
AGREEMENT AND PLAN OF SPLIT-OFF
THIS AGREEMENT AND PLAN OF SPLIT-OFF ("Agreement") dated as
of July 1, 1997 among Iatros Health Network, Inc., a Delaware
corporation (the "Parent"); IHN/New Health Management Systems,
Inc., a Pennsylvania corporation (the "Sub"); Andrea G. Dawkins,
an individual ("Dawkins"); and Ronald A. Halko, an individual
("Halko").
Background
WHEREAS, the Parent owns one hundred percent (100%) of the
issued and outstanding shares of common stock of the Sub
consisting of two hundred (200) shares (the "Sub Shares") and
Dawkins and Halko own (i) certain shares of the issued and
outstanding common stock of the Parent and (ii) a twenty percent
(20%) phantom stock interest in the Sub; and
WHEREAS, the respective Boards of Directors of the Parent
and the Sub have approved the Split-Off of the Sub from the
Parent (the "Split-Off"), upon the terms and subject to the
conditions set forth in this Agreement, whereby all of the Sub
Shares will be transferred by the Parent to Dawkins and Halko in
exchange for the transfer of an aggregate of one hundred (100)
shares of the issued and outstanding common stock of the Parent
(the "Parent Shares") by Dawkins and Halko to the Parent; and
WHEREAS, each of the Parent and the Sub will survive the
Split-Off as an independent corporation; and
WHEREAS, the Parent, the Sub, Dawkins and Halko desire to
make certain representations, warranties, covenants and
agreements in connection with the Split-Off and also to prescribe
various conditions to the Split-Off; and
WHEREAS, for federal income tax purposes, it is intended
that the Split-Off shall qualify as a tax-free transaction under
the provisions of Section 355 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement,
and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
SECTION 1.01. The Split-Off. Upon the terms and subject
to the conditions set forth in this Agreement, the Sub shall
split-off from the Parent at the Effective Time of the Split-Off
(as defined in Section 1.03). Following the Effective Time of
the Split-Off, the Parent and the Sub shall each have a separate
corporate existence, and each shall continue as a surviving,
independent corporation after the Split-Off.
SECTION 1.02. Closing. The closing of the Split-Off
(the "Closing") will take place at 10:00 a.m. on a date to be
specified by the parties (the "Closing Date"), which (subject to
satisfaction or waiver of the conditions set forth in
Sections 6.01 and 6.02) shall be no later than the second
business day after satisfaction of the conditions set forth in
Section 6.01, unless another date or place is agreed to in
writing by the parties hereto. The parties shall use their best
efforts to effect the Closing on or before August 20, 1997.
SECTION 1.03. Effective Time of the Split-Off. The
Split-Off shall be effective as of July 1, 1997, at 12:01 a.m.
(the date and time the Split-Off becomes effective being
hereinafter referred to as the "Effective Time of the Split-
Off").
SECTION 1.04. Articles of Incorporation and Bylawsof
Incorporation
(a) The Articles of Incorporation of the Sub as in
effect immediately prior to the Effective Time of the Split-Off
shall be the Articles of Incorporation of the Sub until
thereafter changed or amended as provided therein or by
applicable law.
(b) The Bylaws of the Sub as in effect at the
Effective Time of the Split-Off shall be the Bylaws of the Sub
until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.05. Directors. The directors of the Sub at
the Effective Time of the Split-Off, other than Dawkins and
Halko, shall resign as of the Effective Time of the Split-Off,
and Dawkins and Halko shall be the sole directors of the Sub.
SECTION 1.06. Officers. The officers of the Sub at the
Effective Time of the Split-Off, other than Dawkins and Halko,
shall resign as of the Effective Time of the Split-Off, and
Dawkins and Halko shall be the sole officers of the Sub.
SECTION 1.07. Assets and Liabilities of SubError!
Reference source not found.. At the Effective Time of the Split-
Off, the Sub will be the sole owner of all of its usual and
customary assets (whether real and immoveable, personal and
moveable, or mixed and whether tangible or intangible), which are
set forth on the Statement of Assets set forth on Schedule
1.07(a), including the nursing home contracts for the facilities
Effective Time of the Split-Off, the Sub will be subject to and
obligated for its usual and customary liabilities, which are set
forth on the Statement of Liabilities set forth on Schedule
1.07(c). The assets and liabilities set forth in Schedules
1.07(a) and 1.07(c), respectively, shall be mutually agreed upon
by Dawkins and Halko, on the one hand and the Parent, on the
other hand, as of the Effective Date of the Split-Off.
Notwithstanding anything in this Section 1.07 to the contrary,
all intercompany assets and liabilities incurred in the ordinary
course of business between the Sub and the Parent prior to the
Effective Time of the Split-Off shall not be included in
Schedules 1.07(a) and 1.07(c).
SECTION 1.08. Termination of Agreements.. At the
Effective Time of the Split-Off, the Employment Agreements and
the Phantom Stock Agreements among the Parent, the Sub, Dawkins
and Halko, as set forth on Schedule 1.08 shall terminate and be
of no further force and effect and Parent shall be excused from
any further liability thereunder. At the Effective Time any and
all salary guarantees and commitments of the Parent in connection
with such agreements shall have been terminated.
ARTICLE II
Effects of the Split-Off ARTICLE II
SECTION 2.01. Effect on Capital Stock of the Constituent
Corporation. As of the Effective Time of the Split-Off, by
virtue of the Split-Off:
(a) Capital Stock of the Sub. Each issued and
outstanding share of capital stock of the Sub shall continue to
be issued and outstanding Common Stock, no par value, of the Sub.
(b) Capital Stock of the Parent. Each issued and
outstanding share of the Capital Stock of Parent shall continue
to be issued and outstanding Common Stock, 0.001 par value of the
Parent.
(c) Exchange of Shares. Upon the Effective Date of
the Split-Off, the Parent shall transfer to Dawkins and Halko the
Sub Shares and Dawkins and Halko shall transfer to the Parent the
Parent Shares. There shall be no other consideration transferred
by any of the parties by virtue of the Split-Off.
SECTION 2.02. Exchange of Certificates
(a) Exchange Procedures. At the Closing, (i) the
Parent shall deliver the certificate(s) for the Sub Shares to
Dawkins and Halko in consideration for the right to receive the
certificate(s) for the Parent Shares from Dawkins and Halko and
(ii) Dawkins and Halko shall deliver the certificate(s) for the
Parent Shares to the Parent, in consideration for the right to
receive the certificate(s) for the Sub Shares from the Parent.
Dawkins and Halko shall each deliver fifty (50) Parent Shares to
Parent, and Parent shall deliver one hundred (100) Sub Shares to
each of Dawkins and Halko. Until surrendered as contemplated by
this Section 2.02, each of the certificate(s) representing the
Sub Shares shall be deemed at any time after the Effective Time
of the Split-Off to represent only the right to receive upon such
surrender the certificate(s) representing the Parent Shares and
each of the certificate(s) representing the Parent Shares shall
be deemed at any time after the Effective Time of the Split-Off
to represent only the right to receive upon such surrender the
certificate(s) representing the Sub Shares.
ARTICLE III
Representations and WarrantiesARTICLE III
SECTION 3.01. Representations and Warranties of the Parent
(a) Corporate Existence and Power. The Parent is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and the Sub is
a corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania; and
the Parent and the Sub each has all corporate power and authority
necessary to enable it to enter into the transactions
contemplated hereby.
(b) Corporate Authorization. The execution,
delivery and performance by the Parent and the Sub of this
Agreement, and the consummation by the Parent of the Split-Off
and other transactions contemplated by this Agreement, are within
the corporate power and authority of the Parent and the Sub and
have been duly authorized by all necessary corporate action.
This Agreement has been duly and validly authorized, executed and
delivered by the Parent and the Sub and constitutes a valid and
binding obligation of the Parent and the Sub enforceable against
the Parent and the Sub in accordance with its terms, except
(a) that such enforcement may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally from time to time in effect, (b) that such enforcement
may be limited by equitable principles of general application,
(c) that such enforcement may be limited by courts with respect
to any "unconscionable" provisions contained herein, and (d) that
certain of the covenants contained herein may not be specifically
enforceable and courts may award money damages rather than
specific performance for contractual provisions involving matters
other than payment of money.
(c) Governmental Authorization. The execution,
delivery and performance by the Parent and the Sub of this
Agreement, and the consummation of the Split-Off and other
transactions contemplated by this Agreement by the Parent and to
the knowledge of Parent, the Sub, do not and will not require any
consent, approval or action by or in respect of, or any
declaration, filing or registration with, any governmental or
regulatory body, court, agency, official or authority
("Governmental Authority"), except for filings, permits,
authorizations, consents and approvals as may be required under
any other applicable requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Securities Act, the
BCL, the Delaware General Corporation Law, the Pennsylvania
Business Corporation Law and the laws of other states in which
the Parent or the Sub is qualified to do or is doing business or
such ownership and control disclosure forms and approvals as may
be required under federal and state healthcare and licensure laws
and regulations applicable to the Parent, and as disclosed in
Schedule 3.01(c).
(d) Non-Contravention. Except as set forth in
Schedule 3.01(d), the execution, delivery and performance by the
Parent and the Sub of this Agreement, and the consummation of the
Split-Off and other transactions contemplated by this Agreement
by the Parent and the Sub, do not and will not, with or without
the giving of notice, the lapse of time or other: (i) contravene
or conflict with the certificates of incorporation or by-laws of
the Parent or to the knowledge of Parent, the Sub, (ii) assuming
compliance with the matters referred to in Section 3.01(c),
contravene or conflict with or constitute a violation of any
provision of any law, rule, regulation, judgment, injunction,
order or decree binding upon or applicable to the Parent or to
the knowledge of Parent, the Sub, (iii) require any consent,
approval or other action by any person, contravene or conflict
with or constitute a violation of or a default under, or give
rise to any right of termination, cancellation or acceleration of
any right or obligation of the Parent or to the knowledge of
Parent, the Sub or to a loss of any benefit to which the Parent
or to the knowledge of Parent, the Sub is entitled, under any
material provision of any material agreement, contract,
indenture, any license, franchise, permit or other similar
authorization held by the Parent or to the knowledge of Parent,
the Sub, or any lease or other instrument binding upon the Parent
or the Sub, or (iv) result in the creation or imposition of any
mortgage, pledge, security interest, lien, claim, charge,
restriction, encumbrance or assessment of any kind (each, a
"Lien") on any asset of the Parent or to the knowledge of Parent,
the Sub.
(e) Capitalization; Ownership of Shares.
There are no outstanding obligations of the Parent or the Sub or
any of their subsidiaries or affiliates, to sell, deliver or
otherwise transfer to any third party the Sub Shares, other than
any such obligations that may have been created by Dawkins and
Halko. The Sub Shares are owned by the Parent and are free and
clear of all liens, encumbrances, security interest, options,
rights or claims of others except for the rights of Dawkins and
Halko created by this Agreement.
(f) Assets and Liabilities of the Sub. To the
knowledge of the Parent, except as set forth on Schedules
1.07(a), (b) and (c), there exist no assets or liabilities of the
Sub.
(g) Disclosure. No statement of fact by the Parent
contained in this Agreement and no written statement of fact
furnished or to be furnished by the Parent to Dawkins or Halko
pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or
therein contained not misleading.
(h) Knowledge of the Parent and the Sub. Neither
the Parent nor the Sub has any independent knowledge that any
representation or warranty of Dawkins and Halko herein is not
true and correct as of the Closing hereunder.
(i) Financial Statements. Assuming that the
underlying accounting data furnished to the Parent by the Sub is
and was accurate, all financial statements of the Sub prepared by
or on behalf of the Parent are, as of June 30, 1997, true,
complete and accurate; and all such financial statements have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis both as to
classification of items and amounts (except as may be indicated
therein or in the notes thereto); and fairly presents the
financial position of the Sub as of June 30, 1997, subject to
normal adjustments described therein, which adjustments will not
be material in amount or effect.
SECTION 3.02. Representations and Warranties of Dawkins
and Halko. Dawkins and Halko hereby represent and warrant to the
Parent as follows:
(a) Authorization. This Agreement has been duly
authorized, executed and delivered by Dawkins and Halko and
constitutes a valid and binding obligation of Dawkins and Halko,
enforceable against Dawkins and Halko in accordance with its
terms, except (a) that such enforcement may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights
generally from time to time in effect, (b) that such enforcement
may be limited by equitable principles of general application,
(c) that such enforcement may be limited by courts with respect
to any "unconscionable" provisions contained herein, and (d) that
certain of the covenants contained herein may not be specifically
enforceable and courts may award money damages rather than
specific performance for contractual provisions involving matters
other than payment of money.
(b) Governmental Authorization. The
execution, delivery and performance by Dawkins and Halko of this
Agreement, and the consummation of the Split-Off and other
transactions contemplated by this Agreement by Dawkins and Halko,
do not and will not require any consent, approval or action by or
in respect of, or any declaration, filing or registration with,
any Governmental Authority, other than such ownership and control
disclosure forms and approvals as may be required under federal
and state healthcare and licensure laws and regulations
applicable to Dawkins and Halko as disclosed in Schedule 3.02(b).
(c) Non-Contravention. Except as set forth in
Schedule 3.02(c), the execution, delivery and performance by
Dawkins and Halko of this Agreement, and the consummation of the
Split-Off and other transactions contemplated by this Agreement
by Dawkins and Halko, do not and will not, with or without the
giving of notice, the lapse of time or both: (i) contravene or
conflict with the matters referred to in Section 3.02(b), (ii)
assuming compliance with the matters referred to in Section
3.02(b), contravene or conflict or constitute a violation of any
provision of any law, rule, regulation, judgment, injunction,
order or decree currently in effect and binding upon or
applicable to Dawkins and Halko, (iii) require any consent,
approval or other action by any person, contravene or conflict
with or constitute a violation of or a default under, or give
rise to any right of termination, cancellation or acceleration of
any right or obligation of Dawkins and Halko or to a loss of any
benefit to which Dawkins and Halko are entitled, under any
material provision of any material agreement, contract,
indenture, any license, franchise, permit or other similar
authorization held by Dawkins and Halko, or any lease or other
instrument binding upon Dawkins and Halko, or (iv) result in the
creation or imposition of any Lien on any asset of Dawkins and
Halko.
(d) Ownership of Shares. The Parent Shares are
owned by Dawkins and Halko and are free and clear of any and all
liens, encumbrances, security interests, options or rights or
claims of others created by Dawkins and Halko with respect
thereto.
(e) Capitalization. There are no outstanding
obligations of the Sub or any of its affiliates or subsidiaries
to sell, deliver or otherwise transfer to any third party any of
the Parent Shares.
(f) Acquisition of Sub Shares. Dawkins and Halko
are acquiring the Sub Shares to be transferred hereunder for
their own account (and not for the account of others) for
investment and not with a view to the distribution thereof.
Neither Dawkins nor Halko will sell or otherwise dispose of the
Sub Shares without registering such sale or other disposition
under the Securities Act of 1933, as amended (the "Securities
Act"), and under any applicable state securities law, unless such
sale or other disposition is exempt from such registration in
which case the sale or other disposition will be made in
compliance with such exemption.
(g) Disclosure. No statement of fact by
Dawkins and Halko contained in this Agreement and no written
statement of fact furnished or to be furnished by Dawkins and
Halko to Parent pursuant to this Agreement contains or will
contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the
statements herein or therein contained not misleading.
(h) Knowledge of Dawkins and Halko. Neither
Dawkins nor Halko has independent knowledge that any
representation or warranty of the Parent and the Sub herein is
not true and correct as of the Closing hereunder.
(i) Assets and Liabilities of the Sub. To the
knowledge of Halko and Dawkins, except as set forth on Schedules
1.07(a), (b) and (c), there exist no assets or liabilities of the
Sub.
ARTICLE IV
Covenants Relating to Conduct of BusinessARTICLE IV
SECTION 4.01. Conduct of Business.
(a) Conduct of Business by the Sub. During the
period from the date of this Agreement to the Closing, Sub shall
carry on its businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, shall
remain in good standing under the laws of the Commonwealth of
Pennsylvania and any other states in which it is qualified to do
business and, to the extent consistent therewith, use its best
efforts to preserve intact their current business organizations,
keep available the services of their current officers and
employees, preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and
ongoing businesses shall be, unimpaired at the Closing and the
Effective Time of the Split-Off. Without limiting the generality
of the foregoing, during the period from the date of this
Agreement to the Closing, the Sub shall not, and Parent, Halko
and Dawkins shall not cause the Sub to:
(i) acquire or agree to acquire (x) by merging
or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other
business organization or division thereof or (y) any assets that
individually or in the aggregate are material to the Sub except
purchases of inventory in the ordinary course of business
consistent with past practice;
(ii) incur any material indebtedness, except
for short term borrowings incurred in the ordinary course of
business consistent with past practice, or (y) make any loans,
advances or capital contributions to, or investments in, or
dividend distributions to, any other person, other than to the
Sub;
(iii) except in the ordinary course of
business, modify, amend or terminate any material contract or
agreement to which the Sub is a party or waive, release or assign
any material rights or claims thereunder;
(iv) take any action that (without giving
effect to any action taken or agreed to be taken by the Parent or
any of its affiliates) would prevent the Parent, the Sub, and
Dawkins and Halko from accounting for the Split-Off as a "tax-
free transaction" under Section 355 of the Code;
(v) authorize any of, or commit or agree to
take any of, the foregoing actions.
(b) Conduct of Business by the Parent. During the
period from the date of this Agreement to the Closing, neither
the Parent nor the Sub shall take any action that (without giving
effect to any action taken or agreed to be taken by the Sub or
any of its affiliates) would prevent the Sub and Dawkins and
Halko from accounting for the Split-Off as a "tax-free
transaction" under Section 355 of the Code.
(c) Other Actions. Dawkins and Halko, on the one
hand, and the Parent and the Sub, on the other hand, shall not,
and shall not permit any of their respective subsidiaries to,
take any action that would, or that could reasonably be expected
to, result in (i) any of the representations and warranties of
such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Split-Off
set forth in Article VI not being satisfied.
(d) Advice of Changes. Dawkins and Halko, on the
one hand, and the Parent and the Sub, on the other hand, shall
promptly advise the other party orally and in writing of any
change or event having, or which, insofar as can reasonably be
foreseen, would have, a material adverse effect on such party or
on the truth of their respective representations and warranties.
ARTICLE V
Additional Agreements
SECTION 5.01. Best Efforts. Subject to the terms
and conditions of this Agreement, each of the parties hereto
agrees to use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by
this Agreement. Each party shall promptly consult with the other
with respect to, provide any necessary information with respect
to and provide the other, or its counsel, copies of, all filings
made by such party with any Governmental Authority in connection
with this Agreement and the transactions contemplated hereby.
SECTION 5.02. Access to Information Upon reasonable
notice and subject to restrictions contained in the
confidentiality agreements to which such party may be subject,
Dawkins, Halko, the Sub and the Parent shall each, afford to the
officers, employees, accountants, counsel and other representa-
tives of the others, reasonable access, during normal business
hours during the period prior to the Closing Date, to all
information concerning the Sub's business, properties and
personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such
information which is nonpublic in confidence until such time as
such information otherwise becomes publicly available through no
wrongful act of either party, and in the event of termination of
this Agreement for any reason each party shall promptly return
all nonpublic documents obtained from any other party, and any
copies made of such documents, to such other party.
SECTION 5.03. Legal Conditions to Split-OffError!
Reference source not found.. Each of the Sub and the Parent will
take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on itself with respect to
the Split-Off, which actions shall include, without limitation,
furnishing all information required in connection with approvals
of or filings with any Governmental Authority and will promptly
cooperate with and furnish information to each other in
connection with any such requirements imposed upon them in
connection with the Split-Off. Each of the Sub and the Parent
will take all reasonable actions necessary to obtain, and will
cooperate with each other in obtaining, any consent,
authorization, order or approval of, or any exemption by, any
Governmental Authority or other public or private third party,
required to be obtained or made by the Parent or the Sub in
connection with the Split-Off or the taking of any action
contemplated thereby or by this Agreement.
SECTION 5.04. Fees and Expenses. All costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses.
SECTION 5.05. Indemnification.
(a) Continuing Indemnifications. The Sub
shall, and from and after the Effective Time of the Split-Off,
indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time of the Split-Off, an officer
or director of the Sub (the "Indemnified Parties") against
(i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the
approval of the indemnifying party, which approval shall not be
unreasonably withheld, of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of the Sub,
whether pertaining to any matter existing or occurring at or
prior to the Effective Time of the Split-Off and whether asserted
or claimed prior to or at or after the Effective Time
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent a
corporation is permitted under the BCL to indemnify directors and
officers, as the case may be.
SECTION 5.06. Public Announcements. Except as required
by law, including but not limited to, federal and state
securities laws and rules and regulations of the Securities and
Exchange Commission (the "Commission"), state securities
commissions, the National Association of Securities Dealers, Inc.
and NASDAQ, the Parent, on the one hand, and the Sub, Dawkins and
Halko, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this
Agreement, including the Split-Off, and shall not issue any such
press release or make any such public statement prior to such
consultation and the receipt of the prior written consent of the
other parties, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with
any national market system. If consent is not received by the
party requesting consent within five (5) business days of receipt
by the party from whom consent is requested, the party from whom
consent was requested shall have been deemed to have consented
to the issue of such press release or public statement.
Notwithstanding anything to the contrary contained in this
Section 5.06, Halko and Dawkins may discuss the Split-Off
Transaction with the owners of the nursing homes set forth on
Schedule 1.07(b).
SECTION 5.07. Mutual. As additional consideration for
the benefits being provided hereunder to each party, the Sub,
Dawkins and Halko, on one hand, and the Parent, on the other
hand, shall contemporaneously with the Effective Time of the
Split-Off, execute a mutual release in the form attached hereto
as Exhibit A hereto.
SECTION 5.08. Competition Among the Parties. The Parent
hereby acknowledges that upon the Effective Date of the Split-
Off, the Sub, Dawkins and Halko shall not be subject to any
restrictions on competition with the Parent in any field,
including the provision of nursing home management and related
services, and the Sub, Dawkins and Halko hereby acknowledge that
upon the Effective Date of the Split-Off, the Parent also shall
not be subject to any such restrictions on competition with the
Sub, Dawkins or Halko.
SECTION 5.09. Cooperation Among the Parties.
Subject to the consent of the owners of the nursing homes set
forth on Schedule 1.07(b) hereto, which such nursing homes are
managed by the Sub pursuant to the contracts set forth on Sched-
ule 1.07(b) hereto, the Sub shall use its reasonable best efforts
to continue to use the Parent as the provider of the Financial
Services and Ancillary Services set forth in Schedule 5.09,
following the Effective Time of the Split-Off.
SECTION 5.10. Covenants by the Parent
From the date of this Agreement until the
Closing, the Parent covenants not to purchase, acquire, purchase
or acquire any option for, or consider any purchase, acquisition
or offer to purchase or acquire, any of the outstanding capital
stock of the Sub, all or a substantial amount of the assets of
the Sub or the merger or other consolidation of the Sub with any
other person.
SECTION 5.11. Release of the Parent. At the Effective
Time of the Split-Off, the Sub shall cause the Parent to be
released from all of the Parent's guaranty obligations with
respect to all operating deficits agreements, guarantees, loans,
commitments to provide financial or other assistance with respect
to the Sub and with respect to any other obligations of the Sub
listed on Schedule 5.11 attached hereto, including, without
limitation, any obligations pertaining to any facilities managed
by the Parent or any of its affiliates and with respect to which
such facilities the management contracts are to be assigned to
the Sub or any of its affiliates contemporaneously with the
Effective Time of the Split-Off. All such guaranty obligations
are listed on Schedule 5.11 hereto. To the extent the Sub, Halko
or Dawkins receives any repayment of any loan or advance made by
the Parent pursuant to an operating deficits agreement, the party
receiving such payment shall promptly deliver that payment to the
Parent.
SECTION 5.12. Halko, Dawkins and the Sub and its employees
each agree to make themselves reasonably available to Parent and
Parent's attorneys or representatives in order to assist as
needed with the defense or prosecution of any litigation
involving Parent. Halko, Dawkins and the Sub shall provide
reasonable assistance to Parent in collecting any amounts that
are due to Parent in connection with any financings or
transactions referred to in Schedule 5.11 attached hereto.
ARTICLE VI
Conditions PrecedentARTICLE VI
SECTION 6.01. Conditions to Obligations of the Parent.
The obligations of the Parent and the Sub to effect the Split-Off
are further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The covenants,
representations and warranties of Dawkins and Halko set forth in
this Agreement shall be true and correct in each case as of the
date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent such cove-
nants, representations and warranties speak as of an earlier
date, and the Parent shall have received a certificate signed by
Dawkins and Halko to such effect.
(b) Performance of Obligations of Dawkins and
Halko. Dawkins, Halko and the Sub shall have performed in all
material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and
the Parent shall have received a certificate signed by Dawkins
and Halko to such effect.
(c) No Litigation. There shall not be pending or
threatened by any Governmental Authority any suit, action or
proceeding and there shall not be pending by any other person any
suit, action or proceeding that has a reasonable likelihood of
success, in each case (i) challenging the exchange of the Parent
Shares and the Sub Shares by the Parent, on the one hand, and
Dawkins and Halko, on the other hand, seeking to restrain or
prohibit the consummation of the Split-Off or any of the other
transactions contemplated by this Agreement or seeking to obtain
from the Parent any damages that are material to the Parent, or
(ii) that otherwise could reasonably be expected to have a
material adverse effect on the Parent.
(d) Board Approval. This Agreement shall have been
approved by the Boards of Directors of the Parent and the Sub.
(e) Mutual Release. Dawkins, Halko and the Sub
shall have executed the Mutual Release in the form attached
hereto as Exhibit A.
(f) Consents and Approvals. The Sub shall have
obtained all authorizations, declarations, approvals and consents
(all of which shall be in full force and effect) to the Split-Off
under any of the Contracts, the failure to obtain which would
have a material adverse effect on the continuation of such
Contract.
(g) No Adverse Findings. Parent shall not have
discovered any information through any investigation or through
its review of the information provided in the Schedules attached
hereto which in the reasonable opinion of the Parent is material
and adverse to an evaluation of the merits of the Split-Off from
the perspective of the Parent.
SECTION 6.02. Conditions to Obligations of Dawkins and
HalkoError! Reference source not found.. The obligations of
Dawkins and Halko to effect the Split-Off is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The covenants,
representations and warranties of the Parent and the Sub set
forth in this Agreement shall be true and correct in each case as
of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent
such representations speak as of an earlier date, and Dawkins and
Halko shall have received a certificate signed by the chief
executive officer and the chief financial officer of the Parent
to such effect.
(b) Performance of Obligations of the Parent
and the Sub. The Parent and the Sub shall have performed in all
material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and
Dawkins and Halko shall have received a certificate signed by the
chief executive officer and the chief financial officer of the
Parent to the effect that the Parent has performed all of its
obligations under this Agreement.
(c) Certificates. The Parent shall have delivered
to Dawkins and Halko certified copies of resolutions duly adopted
by the Parent's and the Sub's Boards of Directors evidencing the
taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such
reasonable detail as Dawkins and Halko and their counsel shall
reasonably request.
(d) No Litigation. There shall not be pending or
threatened by any Governmental Authority any suit, action or
proceeding and there shall not be pending by any other person any
suit, action or proceeding that has a reasonable likelihood of
success, in each case (i) challenging the exchange of the Parent
Shares and the Sub Shares by the Parent, on the one hand, and
Dawkins and Halko, on the other hand, seeking to restrain or
prohibit the consummation of the Split-Off or any of the other
transactions contemplated by this Agreement or seeking to obtain
from Dawkins, Halko or the Sub any damages that are material to
Dawkins, Halko or the Sub, or (ii) that otherwise could
reasonably be expected to have a material adverse effect on the
Sub, Dawkins or Halko.
(e) Consents and Approvals. The Sub shall have
obtained all authorizations, declarations, approvals and consents
(all of which shall be in full force and effect) to the Split-Off
under any of the Contracts, the failure to obtain which would
have a material adverse effect on the continuation of such
Contract.
(f) No Adverse Findings. Dawkins and Halko shall
not have discovered any information through their investigation
contemplated herein or through their review of the information
provided in the Schedules attached hereto which in the reasonable
opinion of Dawkins and Halko is material and adverse to an
evaluation of the merits of the Split-Off from the perspective of
Dawkins and Halko.
(g) No Material Adverse Change. There shall not
have occurred a material adverse change in the business of the
Sub subsequent to the date of this Agreement and prior to the
Closing.
(h) Mutual Release. The Parent shall have executed
the Mutual Release in the form attached hereto as Exhibit A.
SECTION 6.03. Frustration of Closing Conditions.
None of the Sub, the Parent, Dawkins and Halko may rely on the
failure of any condition set forth in Section 6.01 or 6.02, as
the case may be, to be satisfied if such failure was caused by
such party's failure to act in good faith or to use its best
efforts to consummate the Split-Off and the other transactions
contemplated by this Agreement, as required by Section 5.01.
ARTICLE VII
Indemnification
SECTION 7.01. Indemnification by Dawkins and Halko.
(a) If the transactions contemplated herein shall
be consummated, and if timely notice of a claim for
indemnification is furnished pursuant to Section 7.04 hereof,
Dawkins and Halko shall, in their individual capacities only,
indemnify, hold harmless the Parent, its successors and assigns
and all directors, officers, employees and representatives of
each of the foregoing, other than themselves and promptly defend
such persons from and against any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind
(including, without limitation, reasonable attorney fees and
other legal costs and expenses) which such persons may at any
time suffer or incur, or become subject to (the "Parent Losses"),
as a result of or in connection with:
(i) any breach or inaccuracy of any of
the representations and warranties made by Dawkins or Halko in or
pursuant to this Agreement, or in any instrument, certificate or
affidavit delivered by Dawkins and Halko at the Effective Time of
the Split-Off in accordance with the provisions of any Section
hereof;
(ii) any failure by Dawkins or Halko or
the Sub to carry out, perform, satisfy and discharge any of their
covenants, agreements, undertakings, liabilities or obligations
to the Parent under this Agreement or under any of the documents
and materials delivered by Dawkins or Halko pursuant to this
Agreement; or
(iii) any suit, action or other
proceeding brought by any Governmental Authority or third person
arising out of, or in any way related to, any of the matters
referred to in this Section 7.01.
(b) The Parent shall not be entitled to
indemnification hereunder for any Parent Losses suffered by it as
a result of any of the occurrences set forth in Section 7.01(a)
hereof unless the aggregate amount of such Parent Losses suffered
by the Parent exceeds $10,000 and then Dawkins and Halko, jointly
and not severally, shall be responsible only for the amount of
such Parent Losses that exceeds $10,000.
(c) The Parent shall not be entitled to be
indemnified hereunder for any Parent Losses suffered by the
Parent as a result of any of the breaches set forth in Section
7.01(a)(i) hereof of which the Parent had knowledge prior to the
Closing.
SECTION 7.02. Indemnification by the Parent.
(a) If the transactions contemplated herein shall
close, the Parent shall indemnify and hold harmless Dawkins and
Halko from and against, and reimburse them for, any and all
losses, damages, costs, expenses, liabilities, obligations and
claims of any kind (including, without limitation, reasonable
attorney fees and other legal costs and expense) which they may
at any time suffer or incur, or become subject to (the "Dawkins
and Halko Losses"), as a result of or in connection with:
(i) any breach or inaccuracy of any
representations and warranties made by the Parent or the Sub in
or pursuant to this Agreement, or in any certificate or affidavit
delivered by the Parent or the Sub at the Effective Time of the
Split-Off in accordance with the provisions of any Section
hereof;
(ii) any failure by the Parent to carry
out, perform, satisfy and discharge any of its covenants,
agreements, undertakings, liabilities or obligations under this
Agreement or under any of the documents and materials delivered
by the Parent or the Sub pursuant to this Agreement; or
(iii) any suit, action or other
proceeding brought by any Governmental Authority or third person
arising out of, or in any way related to, any of the matters
referred to in this Section 7.02.
(b) Dawkins and Halko shall not be entitled to
indemnification hereunder for any Dawkins and Halko Losses
suffered by them as a result of any of the occurrences set forth
in Section 7.02(a) hereof unless the aggregate amount of such
Dawkins and Halko Losses suffered by Dawkins and Halko exceeds
$10,000 and then the Parent shall be responsible only for the
amount of such Dawkins and Halko Losses that exceeds $10,000.
(c) Dawkins and Halko shall not be entitled to be
indemnified hereunder for any Dawkins and Halko Losses suffered
by them as a result of any of the breaches set forth in Section
7.02(a)(i) hereof of which Dawkins and Halko had knowledge prior
to the Closing.
SECTION 7.03. Notification of Claims.
(a) A party entitled to be indemnified
pursuant to this Article VII (the "Indemnified Party") shall
notify the party liable for such indemnification (the
"Indemnifying Party") in writing of any claim or demand which the
Indemnified Party has determined has given or could give rise to
a right of indemnification under this Agreement. Subject to the
Indemnifying Party's right to defend in good faith third party
claims as hereinafter provided, the Indemnifying Party shall
satisfy its obligations under this Article VII within thirty (30)
days after the receipt of written notice thereof from the
Indemnified Party.
(b) If the Indemnified Party shall notify the
Indemnifying Party of any claim or demand pursuant to this
Section 7.03, and if such claim or demand relates to a claim or
demand asserted by a third party against the Indemnified Party
which the Indemnifying Party acknowledges is a claim or demand
for which it must indemnify or hold harmless the Indemnified
Party under this Article VII, the Indemnifying Party may elect to
defend any such claim or demand asserted against the Indemnified
Party. The Indemnified Party shall cooperate in the defense of
any such claim or demand. The Indemnifying Party shall notify
the Indemnified Party in writing, within fifteen (15) days after
the date of the notice of claim given by the Indemnified Party to
the Indemnifying Party under this Section 7.03 of its election to
defend in good faith any such third party claim or demand. So
long as the Indemnifying Party is defending in good faith any
such claim or demand asserted by a third party against the
Indemnified Party, the Indemnified Party shall not settle or
compromise such claim or demand. The Indemnified Party shall
make available to the Indemnifying Party or its agents all
records and other materials in the Indemnified Party's possession
reasonably required by it for its use in contesting any third
party claim or demand. In the event that the Indemnifying Party
shall elect not to defend, the Indemnified Party may, but shall
not be obligated to, assume the defense of such claim at the cost
and expense of the Indemnifying Party, subject to the right of
the Indemnifying Party to assume the defense of such claim at any
time prior to settlement, compromise or final determination
thereof.
Anything in this Section 7.03 to the contrary
notwithstanding, (i) if there is a reasonable probability that a
claim may materially and adversely affect the Indemnified Party
other than as a result of money damages or other money payments,
the Indemnified Party shall have the right, at its own cost and
expense and without indemnification from the Indemnifying Party,
to defend, compromise or settle such claim, and (ii) the
Indemnifying Party shall not, without the Indemnified Party's
written consent, settle or compromise any claim or consent to
entry of any judgment which does not include an unconditional
term thereof giving by the claimant or the plaintiff to the
Indemnified Party a release from all liability in respect to such
claim.
(c) No notice of claim as provided under this
Section 7.03 addressed to the party against which indemnification
is claimed shall be valid if received by such party after
December 31, 1998, except for a claim under Section 7.01(a)(iii)
or Section 7.02(a)(iii), or any claim for breach of the covenant
set forth in Section 5.11, which may be made at any time until
any applicable guarantee, operating deficits or other obligation
or agreement is terminated.
ARTICLE VIII
Termination, Amendment and Waiver ARTICLE VIII
SECTION 8.01. TerminationSECTION 8.01. This Agreement
may be terminated at any time prior to the Closing of the Split-
Off:
(a) by mutual written consent of the Parent, the
Sub, Dawkins and Halko; or
(b) by either the Parent and the Sub on the one
hand, or Dawkins and Halko on the other hand:
(i) if the Split-Off shall not have been
consummated on or before August 20, 1997, unless (i) the failure
to consummate the Split-Off is the result of a willful and
material breach of this Agreement by the party seeking to
terminate this Agreement; provided, however, that the passage of
such period shall be tolled for any part thereof (but not
exceeding 30 calendar days in the aggregate) during which any
party shall be subject to a nonfinal order, decree, ruling or
action restraining, enjoining or otherwise prohibiting the
consummation of the Split-Off or (ii) the parties hereto are in
good faith pursuing the consummation of the Split-Off, in which
event the termination date under this Subsection 8.01(b)(i) shall
be extended for ten (10) days;
(ii) if any Governmental Authority shall have
issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
Split-Off and such order, decree, ruling or other action shall
have become final and nonappealable;
(iii) in the event of a breach by the other
party of any representation, warranty, covenant or other
agreement contained in this Agreement that (A) would give rise to
the failure of a condition set forth in Section 6.01(a) or (b) or
Section 6.02(a) or (b), as applicable, and (B) cannot be or has
not been cured within 5 days after the giving of written notice
to the breaching party of such breach (a "Breach") (provided that
the terminating party is not then in Breach of any representa-
tion, warranty, covenant or other agreement contained in this
Agreement).
SECTION 8.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without
any liability or obligation on the part of the Parent and the Sub
on the one hand, or Dawkins and Halko on the other hand, other
than the provisions of Article I, Section 5.04, Article VII,
Section 8.02 and Article IX, and except to the extent that such
termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may not be
amended except by an instrument in writing signed on behalf of
each of the parties.
SECTION 8.04. Extension; Waiver. At any time prior to
the Closing, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in
any document delivered pursuant to this Agreement, or (c) waive
compliance by the other parties with any of the agreements or
conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not
constitute a waiver of such rights.
ARTICLE IX
General ProvisionsARTICLE IX
SECTION 9.01. Nonsurvival of Representations and
Warranties. The representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement shall
survive the Closing, but shall expire on December 31, 1998,
unless a claim for indemnification is made pursuant thereto on or
before such date.
SECTION 9.02. Notices. All notices, requests, claims,
demands and other communications under this Agreement shall be in
writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Parent or the Sub, to
Iatros Health Network, Inc.
12 Piedmont Center
3495 Piedmont Road, N.E.
Suite 402
Atlanta, GA 30305
Telecopier: (404) 262-7627
Attention: Reginald D. Strickland
with a copy to:
Harkleroad & Hermance, P.C.
2500 Cain Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, GA 30303
Telecopier: (404) 659-0860
Attention: Donald R. Harkleroad, Esquire
(b) if to Dawkins and Halko, to
Andrea G. Dawkins
Ronald A. Halko
510 North Latches Lane
Merion, PA 19066
Telecopier: (610) 617-9959
with a copy to:
Duane, Morris & Heckscher LLP
One Liberty Place
Philadelphia, PA 19103-7396
Telecopier: (215) 979-1020
Attention: Donald R. Auten, Esquire
SECTION 9.03. Interpretation. When a reference is
made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference shall be to an Article or Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the
words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All terms defined in
this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes)
by succession of comparable successor statutes and references to
all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and
assigns.
SECTION 9.04. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
SECTION 9.05. Entire Agreement; No Third Party
Beneficiaries. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire
agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) except
for the provisions of Article II, Section 5.05 and Section 5.06
and Article VII, are not intended to confer upon any person other
than the parties any rights or remedies.
SECTION 9.06. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the internal laws
of the State of Georgia regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof.
SECTION 9.07. Assignment; Binding Effect. Neither this
Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the parties and their
respective successors, assigns, personal representatives,
administrators, executors and heirs.
SECTION 9.08. Enforcement. The parties agree that
irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State
of Georgia or Commonwealth of Pennsylvania or any Georgia or
Pennsylvania state court, this being in addition to any other
remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located
in the Commonwealth of Pennsylvania or State of Georgia or any
Pennsylvania or Georgia state court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (c) agrees that
it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court
other than a Federal court sitting in the Commonwealth of
Pennsylvania or the State of Georgia or any Pennsylvania or
Georgia state court.
SECTION 9.09. Further Assurances. From time to time
after the Effective Time of the Split-Off, upon the reasonable
request of a party, the other parties shall execute and deliver
or cause to be executed and delivered such further instruments of
conveyance, assignment and transfer and take such further action
as may reasonably request in order to more effectively perfect
the Split-Off.
SECTION 9.10. Time of Essence. Time is of the essence
of this Agreement.
SECTION 9.11. Reporting for Tax Purposes. All of the
parties agree to treat the Split-Off as a tax-free transaction
within the meaning of Section 355 of the Code for federal income
tax purposes and to report the Split-Off and prepare and file all
federal income tax returns and financial statements in a manner
which is consistent with such treatment.
SECTION 9.12. Completion of Schedules. The following
schedules have not been completed as of the date of execution by
the parties of this Agreement; however, such schedules shall be
completed and mutually agreed to by the parties in good faith on
or before August 31, 1997:
Schedule 1.07(a) - Statement of Assets
Schedule 1.07(c) - Statement of Liabilities
Schedule 5.09 - Financial Services and
Ancillary Services
Schedule 5.11 - Parent Guaranty Obligations
Any dispute among the parties regarding the content of the
foregoing schedules that prevents the parties reaching mutual
agreement shall be submitted by the parties to binding
arbitration in accordance with the rules of the American
Arbitration Association. The arbitration proceeding shall be
held in Charlotte, North Carolina.
IN WITNESS WHEREOF, the Parent, the Sub, Dawkins and
Halko have signed this Agreement or have caused this Agreement to
be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
Attest: IATROS HEALTH NETWORK, INC.
By:
Title: Title
Attest: IHN/NEW HEALTH MANAGEMENT
SYSTEMS, INC.
By:
Title: Title:
Witness:
_____________________________________
ANDREA G. DAWKINS,
individually
Witness:
RONALD A. HALKO, individually
PH1\325360.1
EXHIBIT A
Mutual Release Agreement
32
PH1\325360.10
Greenfield
Lease and Security Agreement
THIS EASE AND SECURITY AGREEMENT ("Lease") is made and
entered in to as of the ~ of March, 1997 by and between
GREENFIELD ASSOCIATES REAL (1W ESTATE TRUST a Massachuseffs real
estate trust ("Landlord") and OASIS HEALTHCARE,
a Georgia corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain real property
commonly known and numbered as 95 Laurel Street, Greenfield,
Massachusetts consisting of approximately 4.774 acres presently
improved by a skilled care nursing home facility (such
facilities, generally, are sometimes referred to herein as a
"Nursing Home") licensed for one hundred twenty (120) beds and
all appurtenances thereto, all as more particularly described in
Exhibit "A" hereto (the "Facility"), together with certain of the
furniture, machinery, equipment, appliances, fixtures, supplies
and other personal property used in connection therewith as more
specifically described on Exhibit "B" attached hereto ("Landlord
Personal Property"). All of the foregoing property owned by the
Landlord is sometimes referred to in this Lease; collectively, as
the "Premises".
WHEREAS, pursuant to a certain Guaranty of Lease of even
date herewith, latros Health Network, Inc., a Delaware
corporation (the "Guarantor") has agreed to guarantee all of
Tenant's obligations under this Lease.
WHEREAS, Landlord desires to lease the Premises to Tenant,
and Tenant desires to lease the Premises from Landlord.
NOW THEREFORE, in consideration of the mutual covenants,
conditions and agreements set forth herein, Landlord hereby
leases and lets unto Tenant the Premises for the term and upon
the conditions and provisions hereinafter set forth.
1. Term.
1.1 Term. The term of this Lease shall commence on 1997
(the "Commencement Date") and shall end on 2007 (the "Initial
Term") unless extended pursuant to Section 6.3 or earlier
terminated in accordance with the provisions hereof. The Initial
Term and the Renewal Term (as hereinafter defined), if any, are
referred to collectively as the "Term".
3/13/97
2. Rent. During the Initial Term and the Renewal Term,
if any, Tenant shall pay to Landlord minimum rent ("Minimum
Rent") and additional rent ("Additional Rent") as follows:
2.1 Initial Term Minimum Rent.
2.1.1 Tenant shall pay to Landlord annual Minimum
Rent which is equal to (i) $473,833.36 during the first
twelve (12) month period of the Initial Term, and (ii)
$485,833.36 during the next succeeding twelve (12) month
period. All such Minimum Rent (as the same may be adjusted
as hereinafter provided) shall be paid in equal
monthly installments on the twenty-fifth (25") day of each
calendar month.
2.1.2 During the remainder of the Initial Term,
annual Minimum Rent shall be equal to $526,681.64.
2.1.3 Notwithstanding the, foregoing, Tenant may
elect to pay a portion of the annual Minimum Rent due
Landlord equal to (i) $425,833.36 annually during the first
two (2) years of the Initial Term, and (ii) $466,681.64
annually during the remainder of the Initial Term, directly
to NHI to be applied to the NHI Indebtedness (as such terms
are hereinafter defined). The balance of the Minimum Rent
then due from time to time shall be paid to Landlord as
provided above.
2.2 Initial Term Additional Rent.
2.2.1 Commencing with the second (2fld) Lease Year
(as defined below) and continuing thereafter during the
Iriitial Term, Tenant agrees to pay Additional Rent to
Landlord on a quarterly basis in arrears no more than 30
days after the end of each quarter of the Lease Year. Such
Additional Rent shall be equal to five percent (5%) of the
amount by which the Gross Revenues for the Lease Year
through the applicable quarter exceed the prorated Gross
Revenues for the applicable portion of the Base Year (as
such terms are defined below). On or before the thirtieth
(30th) day following any Lease Year for which Additional
Rent is payable hereunder, Tenant shall deliver to Landlord
an Officer's Certificate setting forth the Gross Revenues
for the subject Lease Year. If the Additional Rent, as
finally determined for any Lease Year (or portion thereof),
exceeds the sum of the quarterly payments of Additional Rent
previously paid by Tenant with respect to such Lease Year,
within five (5) business days after such determination is so
made, Tenant shall pay such deficit to Landlord. If the
Additional Rent, as finally determined for any Lease Year
(or portion thereof), is less than the amount previously
paid with respect thereto by Tenant, Tenant shall notify
Landlord either to (a) pay to Tenant an amount equal to such
overpayment or (b) grant Tenant a credit against Additional
Rent or Minimum Rent next coming due in the amount of such
overpayment.
2.2.2 "Gross Revenues" shall be calculated
according to generally accepted accounting principles
consistently applied ("GAAP") and shall be defined as all
revenues generated by the Tenant's operation, sublease
and/or use of the Premises in any way, excluding (or
subtracting therefrom, as the case may be) (i) contractual
allowances during the Term for billings not paid by or
received from the appropriate governmental agencies or third
party providers; (ii) all proper patient billing credits and
adjustments according to GAAP relating to health care
accounting; (iii) federal, state or local sales or excise
taxes and any tax based upon or measured by said revenues
which is added to or made a part of the amount billed to the
patient or other recipient of such services or goods,
whether included in the billing or stated separately; (iv)
revenue from professional fees or charges by physicians and
unaffiliated providers of ancillary services, when and to
the extent such charges are paid over to such physicians or
unaffiliated providers or are separately billed and not
included in comprehensive fees; and (v) monies received by
Tenant on account of capital contributions made by Tenant's
shareholders or other owners, loans to Tenant, insurance
proceeds or premium refands and/or condemnation awards
relating to the Premises; and (v) other non-operating
revenues such as interest income (other than interest income
received in connection with late payment of fees or charges
assessed by Tenant), investor note payments or income from
assets not sold in the ordinary course of business.
2.2.3 "Lease Year" shall be defined as the twelve
(12) month periods commencing on January lst of each
calendar year during the Term ______provided that (i) the first
Lease Year shall commence on the Commencement Date and end
on December 31, 1997, and (ii) the last Lease Year of the
Initial Term shall end on the tenth (10th) anniversary of
the Commencement Date.
2.2.4 The "Base Year" during the Initial Term shall
mean the last quarter of calendar year 1997, as such
period shall be "annualized" by extrapolation of the
Gross Revenues generated during such.
period to create the equivalent of an annual Gross Revenues
amount for purposes of calculating Additional Rent under
this Lease.
2.3 Renewal Term Minimum Rent . The Minimum Rent for the
Renewal Term shall be
expressed as an annual amount but shall be payable in equal
monthly installments on the twenty-fifth business day of each
calendar month. Such annual Minimum Rent shall be equal to the
greater of (i) the fair market rental value of the Premises as of
the expiration of the Initial Term (the "Fair Market Rent"), as
determined by the parties pursuant to the procedure set forth
below or (ii) the Minimum Rent in effect as of the last Lease
Year of the Initial Term. If Landlord and Tenant are unable to
agree on the Fair Market Rent by that date which is 240 days
prior to the expiration of the Initial Term, then such Fair
Market Rent shall be established by the appraisal process set
forth on Exhibit "C" attached hereto. The Fair Market Rent of the
Premises as so determined shall be binding upon the parties and
must in all cases be finally determined on or before a date which
is not less than 180 days prior to the expiration of the Initial
Term.
2.4 Renewal Term Additional Rent. Except during the
first Lease Year of the Renewal Term, Tenant shall pay to
Landlord Additional Rent in the Renewal Term on a quarterly basis
in arrears no more than 30 days after the end of each Lease Year
quarter. The Additional Rent for the Renewal Term shall be
calculated as provided in Section 2.2 except that the Base Year
for the purpose of determining such Additional Rent shall be the
first Lease Year of the Renewal Term ______provided that in no event
shall the sum of Minimum Rent and Additional Rent (the "Total
Rent") for any Lease Year of the Renewal Term be less than the
Total Rent for the last Lease Year of the Initial Term.
2.5 Proration for Partial Periods. The rent for any
month during the Term which begins
or ends on other than the first or last calendar day of a
calendar month shall be prorated based on actual days elapsed.
2.6 Form for Additional Rent. Tenant shall accompany
each payment of Additional Rent with a completed calculation
supporting such payment in a form mutually approved by
Landlord and Tenant.
2.7 Absolute Net Lease. All rent payments shall be
absolutely net to the Landlord free of taxes, assessments,
utility charges, operating expenses, reflimishings, insurance
premiums or any other charge or expense in connection with the
Premises. All expenses and charges, whether for upkeep,
maintenance, repair, refinnishing, reflirbishing, restoration,
replacement, insurance premiums, taxes, utilities, and other
operating or other charges of a like nature or otherwise, shall
be paid by Tenant. This provision is not in derogation of the
specific provisions of this Lease, but in expansion thereof and
as an indication of the general intention of the parties hereto.
Tenant shall continue to perform its obligations under this Lease
even if Tenant claims that Tenant has been damaged by any act or
omission of Landlord. Therefore, Tenant shall at all times remain
obligated under this Lease without any right of set-off,
counterclaim, abatement, deduction, reduction or defense of any
kind. Tenant's sole right to recover damages against Landlord by
reason of a breach or alleged breach of Landlord's obligations
under this Lease shall be to prove such damages in a separate
action against Landlord.
3. Taxes. Assessments and Other Charges:
3.1 Tenant's Obligations . Tenant agrees to pay and
discharge (including the filing of all
required returns) any and all taxes (including but not limited to
real estate and personal property taxes, business and
occupational license taxes, ad valorem sales, use, single
business, gross receipts, transaction privilege, rent or other
excise taxes) and other assessments levied or assessed against
the Premises or any interest therein during the Term, prior to
delinquency or imposition of any fine, penalty, interest or other
cost. Notwithstanding the foregoing, nothing contained in this
Lease shall be construed to require Tenant to pay (a) customary
federal or state income taxes based on Landlord's net income
(expressly excluding any franchise or business privilege tax
assessed with respect to the Premises), (b) any tax imposed with
respect to the sale, exchange or other disposition by Landlord of
the Premises or the proceeds thereof, or (c) except as expressly
provided elsewhere in this Lease with respect to the NHI
Indebtedness, any
principal or interest regarding any mortgage or other encumbrance
with respect to the Landlord's interest in the Premises.
3.2 Proration. At the commencement and at the end of the
Term, all such taxes and assessments shall be prorated.
3.3 Right to Protest. Landlord and/or Tenant shall have
the right, but not the obligation, to protest the amount or
payment of any real or personal property taxes or assessments
levied against the Premises; provided that in the event of any
protest by Tenant, Landlord shall not incur any expense because
of any such protest, Tenant shall diligently and continuously
prosecute any such protest at its sole cost and expense and
notwithstanding such protest Tenant shall pay any tax, assessment
or other charge before the imposition of any penalty or interest.
If Tenant chooses to protest, Landlord will cooperate therewith.
3.4 Tax Bills. Landlord shall promptly forward to Tenant
copies of all tax bills and payment receipts relating to the
Premises received by Landlord, and Tenant, upon paying any such
tax bill, shall promptly forward to Landlord evidence of such
payment.
3.5 Other Charges . Tenant agrees to pay and discharge,
punctually as and when the same shall become due and payable
without penalty, all electricity, gas, garbage collection, cable
television, telephone, water, sewer, and other utilities costs
and all other charges, obligations or deposits assessed against
the Premises during the Term.
4.Insurance.
4.1 General Insurance Requirements . All insurance
provided for in this Lease shall be obtained by the Tenant at its
sole cost and expense and shall be maintained under valid and
enforceable policies issued by insurers of recognized
responsibility, licensed and approved to do business in the
Commonwealth of Massachusetts, having a general policyholders
rating of not less than "A" in the then most current Best's
Insurance Report. Any and all policies of insurance required
under this Lease shall name the Landlord as a so-called "named
insured" and NHI as an additional insured and shall be on an
"occurrence" basis. In addition, NHI shall be shown as the loss
payable beneficiary under the casualty insurance policy
maintained by Tenant pursuant to Section 4.2. All policies of
insurance required herein may be in the form of "blanket" or
"umbrella" type policies which shall name the NHI, Landlord and
Tenant as their interests may appear and allocate to the Premises
the full amount of insurance required hereunder. Certified copies
of the policies or satisfactory certificates from the insurers
evidencing the existence of all policies of insurance required by
this Lease and showing the interest of the Landlord and NHI shall
be filed with the Landlord prior to the commencement of the Term
and shall provide that the subject policy may not be canceled
except upon not less than ten (10) days prior written notice to
Landlord. If Landlord is provided with a certificate, upon
Landlord's request Tenant shall provide Landlord with a complete
copy of the insurance policy evidenced by such certificate within
30 days of the commencement of the Term. Certified copies of the
renewal policies or certificates therefor from the insurers
evidencing the existence thereof shall be
deposited with Landlord not less than ten (10) days prior to the
expiration dates of the policies. If Landlord is provided with a
certificate for a renewal policy, upon Landlord's request Tenant
shall deliver a copy of the complete renewal policy to Landlord
within 30 days of the expiration of the replaced policy. Any
claims under any policies of insurance described in this Lease
shall be adjudicated by and at the expense of the Tenant or of
its insurance carrier, but shall be subject to joint control of
Tenant and Landlord. Notwithstanding any particular amounts
specified in this Lease for Tenant's insurance coverage, Landlord
shall have the right at any time hereafter to require such higher
limits as it may determine in its reasonable discretion are
prudent.
4.2 Fire and Other Casualty . Tenant shall keep the
Premises insured against loss or damage from all causes under
standard "all risk" property insurance coverage, without
exclusion for fire, lightning, windstorm, explosion, smoke
damage, vehicle damage, sprinkler leakage, flood, vandalism,
earthquake, malicious mischief or any other risk as is normally
covered under an extended coverage endorsement, in the amounts
that are not less than the full insurable value of the Premises
including all equipment and personal property (whether or not
Landlord Personal Property) used in the operation of the
Premises, but in no event less than the full insurable value of
the Premises from time to time, and together with an agreed
amount endorsement, a replacement cost endorsement and a waiver
of subrogation endorsement. During any period of construction
such insurance shall be on a builder's risk, completed value,
non-reporting form (including all risk and extended coverage,
collapse, cost of demolition, increased cost of construction and
value of undamaged portion of improvements protection). The term
"full insurable value" as used in this Lease shall mean the
actual replacement value of the Premises (including all
improvements) and every portion thereof, including the cost of
compliance with changes in zoning and building codes and other
laws and regulations, demolition and debris removal and increased
cost of construction. In addition, the casualty insurance
required under this Section 4.2 will include an agreed amount
endorsement such that the insurance carrier has accepted the
amount of coverage and has agreed that there will be no co-
insurance penalty.
4.3 Public Liability. Tenant shall maintain
comprehensive general public liability insurance coverage
(including products liability coverage) against claims for bodily
injury, death or property damage occurring on, in or about the
Premises and the adjoining sidewalks and passageways, such
insurance to in~ude a broad form endorsement and to afford
protection to Landlord and Tenant of not less than Three Million
Dollars ($3,000,000) per occurrence with respect to bodily injury
or death to any one person, and not less than Three Million
Dollars ($3,000,000) with respect to property damage.
4.4 Professional Liability Insurance. Guarantor or
Tenant shall maintain insurance against liability imposed by law
upon Guarantor and its Affiliates (including Tenant) for damages
on account of professional services rendered or which should have
been rendered by Guarantor and Tenant or any person for which
acts Guarantor or Tenant is legally liable on account of injury,
sickness or disease, including death at any time resulting
therefrom, and including damages allowed for loss of service, in
a minimum amount of Three Million Dollars ($3,000,000.00) for
each claim.
4.5 Workers ComDensation . Tenant shall comply with all
legal requirements regarding worker's compensation, including any
requirement to maintain worker's compensation insurance against
claims for injuries sustained by Tenant's employees in the course
of their employment.
4.6 Boiler Insurance . Tenant shall maintain boiler and
pressure vessel insurance, including an endorsement for boiler
business interruption insurance, on any fixtures or equipment
which are capable of bursting or exploding, in an amount not less
than One Million Dollars ($1 ,0O0,00O) for damage to Premises,
bodily injury or death resulting from such perils.
4.7 Business Interruption Insurance . Tenant shall
maintain, at its expense, business interruption and extra expense
insurance insuring not less than one (1) year's Minimum Rent.
4.8 Deductible Amounts. The policies of insurance which
Tenant is required to provide under this Lease will not have
deductibles or self-insured retentions in excess of Ten Thousand
Dollars ($10,000).
5. User Maintenance and Alteration of the Premises.
5.1 Tenant's Maintenance Obligations
5.1.1 General Facility Maintenance . At its sole
cost and expense, Tenant will keep and maintain the Premises
in good appearance, repair and condition and maintain proper
housekeeping. Tenant shall promptly make or cause to be made
all repairs, interior and exterior, structural and
nonstructural, ordinary and extraordinary, foreseen and
unforeseen, necessary to keep the Premises in good and
lawful order and condition and in substantial compliance
with all requirements for the licensing of a Nursing Home in
the Commonwealth of Massachusetts and certification for
participation in Medicare and Medicaid (or any successor
programs) or as otherwise required under all applicable
local, state and federal laws.
5.1.2 Personal ProDerty . As part of Tenant's
obligations under this Section 5.1, Tenant shall be
responsible to maintain, repair and replace all Landlord
Personal Property and all Tenant Personal Property (as
defined in Section 7.1 below) in good condition, ordinary
wear and tear excepted, consistent with prudent Nursing Home
industry practice.
5.1.3 Reciuired CaDital Exuenditures . Without
limiting Tenant's obligations to maintain the Premises under
this Lease, within thirty (30) days of the end of each Lease
Year starting with the end of the third (3rd) Lease Year
during the Initial Term, Tenant shall provide Landlord with
evidence satisfactory to Landlord, in the reasonable
exercise of Landlord's discretion, that the Tenant has spent
on Capital Expenditures (as hereinafter defined) an annual,
average amount over the preceding three (3) year period in
each case of at least $500 per Facility bed (the "Capital
Expenditure Target"). If the Tenant fails to make at least
the Capital Expenditure Target in any Lease Year, Tenant
shall pay to
Landlord the difference between the Capital Expenditures
Target for the Lease Year in question and the amount
actually spent by the Tenant on Capital Expenditures in such
year (the "Shortage"). In the event a Shortage occurs,
Tenant shall pay such Shortage in nine (9) equal monthly
installments to Landlord commencing on the first (1St) day
of the fourth (4") month immediately following the Lease
Year in question; and the Landlord, or its lender, National
Health Investors, Inc., a Maryland corporation ("NHI") shall
hold the Shortage in a separate deposit account (the
"Capital Improvement Reserve"). Absent the occurrence and
continuation of any Event of Default, any earnings on the
Capital Improvements Reserve shall be paid quarterly to the
Tenant. If the Tenant elects or is required to spend more
than the Capital Expenditure Target in any subsequent Lease
Year, Tenant may use funds from the Capital Improvement
Reserve to pay such costs subject to the terms and
conditions specified in that certain Capital Improvement
Reserve Agreement by and between Landlord, NHI and Tenant of
even date herewith. Any Capital Expenditures made by Tenant
in any Lease Year in excess of the Capital Expenditure
Target shall be credited against future obligations of
Tenant to make Capital Expenditures, and in no event shall
Tenant be required to fund further Shortages at any time
that the balance of the Capital Improvement Reserve together
with the like reserve under the Greenfield Lease (as defined
below) is equal or greater than $500,000, all as more
particularly set forth in the foregoing Capital Improvement
Reserve Agreement.
5.1.3(a) "Capital Expenditures" means, for any
period, the aggregate amount (without duplication) of all
expenditures made by Tenant during the period in
connection with the Facility, whether paid in cash or
other consideration, to acquire fixed or capital assets
or make repairs, renovations or improvements to the
Facility that in accordance with GAAP would be classified
as Capital Expenditures.
5.2 Regulatory Compliance.
5.2.1 Tenant covenants that during the Term, Tenant
and the Premises shall comply with all federal, state and
local licensing and other laws and regulations applicable to
Nursing Home facilities as well as with the certification
requirements of Medicare and Medicaid (or any successor
program). Further, Tenant shall ensure that the Premises
continue to be licensed as a Nursing Home beds at all times
certified for participation in Medicare and Medicaid (or any
successor program) throughout the Term and at the time the
Premises are returned to Landlord at the termination
thereof, all without any suspension, revocation or
decertification, and without any penalty which is not fully
satisfied, or material limitation which is not removed,
within sixty (60) days from the imposition thereof (or such
lesser time period as may be required by the relevant
program). Further, Tenant shall not commit any act or
omission that would in any way violate any certificate of
occupancy affecting the Premises.
5.2.2 During the Term, all inspection fees, costs
and charges associated with a change of any licensure or
certification shall be borne solely by Tenant. Tenant shall at
its sole cost make any additions or alterations to the Premises
necessitated by, or imposed in connection with, a change of
ownership inspection survey for the transfer of operation of
the Premises from Tenant or Tenant's assignee or subtenant
to Landlord or Landlord's designee at the expiration or
earlier termination of the Term in accordance herewith.
5.3 Permitted Use . Tenant shall continuously use and
occupy the Premises during the Term, solely as a Nursing Home
licensed for not less than one hundred two (102) beds, except in
the event of a casualty or taking. Tenant shall not permit in the
Premises any nuisance, or the emission from the Premises of any
objectionable noise, odor or vibration, nor use or devote the
Premises or any part thereof for any purpose which is contrary to
any applicable law, nor permit any waste in or with respect to
the Premises.
5.4 No Liens: Permitted Contests. Tenant shall not cause
or permit any liens, levies or attachments to be placed or
assessed against the Premises or the operation thereof for any
reason (expressly excluding the security interests permitted
under Section 7.2.2 hereof). However, Tenant shall be permitted
in good faith and at its expense to contest the existence, amount
or validity of any lien upon the Premises by appropriate
proceedings sufficient to prevent the collection or other
realization of the lien or claim so contested, as well as the
sale, forfeiture or loss of any of the Premises or any rent to
satisfy the same. Tenant shall provide Landlord with security
satisfactory to Landlord in Landlord's reasonable judgment to
assure the foregoing. Each contest permitted by this Section 5.4
shall be promptly and diligently prosecuted to a final conclusion
by Tenant.
5.5 Alterations by Tenant . Tenant shall have the right
of altering, improving, replacing, modifying or expanding the
facilities, equipment or appliances in the Premises from time to
time as it may determine is desirable for the continuing and
proper use and maintenance of the Premises under this Lease;
provided, however, that any structural alterations, improvements,
replacements, expansions or modifications in excess of One
Hundred Thousand Dollars ($100,000) which are not required to
comply with applicable law or the provisions of Section
5.1.3 of this Lease shall require the prior written consent
of the Landlord, which consent shall not be unreasonably
withheld. The cost of all such alterations, improvements,
replacements, modifications, expansions or other purchases,
whether undertaken as an on-going licensing, Medicare or Medicaid
(or any successor program) or other regulatory requirement or
otherwise shall be borne solely and exclusively by Tenant and
shall immediately become a part of the Premises and the property
of the Landlord subject to the terms and conditions of this
Lease. All work done in connection therewith shall be done in a
good and workmanlike manner and in compliance with ail existing
codes and regulations pertaining to the Premises and shall comply
with the requirements of insurance policies required under this
Lease. In the event any items of the Premises have become
inadequate, obsolete or worn out or require replacement (by
direction of any regulatory body, third party payor or
otherwise), Tenant shall remove such items and exchange or
replace the same at Tenant's sole cost and the same shall become
part of the Premises and property of the Landlord.
6. Condition of Premises, Option to Purchase, Renewal Term, Etc.
6.1 Condition And Title Of Premises. Tenant accepts the
Premises for use as a Nursing Home under this Lease on an "AS IS"
basis and will assume all responsibility and cost for the
correction of any observed or unobserved deficiencies or
violations. In making its decision to enter into this Lease,
Tenant has not relied on any representations or warranties,
express or implied, of any kind from Landlord other than as
expressly set forth in that certain Agreement to Lease dated
March ~ 1997 between Landlord and Tenant (the "Agreement to
Lease"). Tenant has examined the condition of title to the
Premises prior to the execution and delivery of this Lease and
has found the same to be satisfactory.
6.2 Option to Purchase the Premises . Provided no Event
of Default (as defined in Section 10 below) has occurred and is
continuing as of the Tenant's exercise of its option to purchase
the Premises pursuant to this Section 6.2 or at the closing date
established to consummate the purchase of the Premises pursuant
to the Tenant's exercise of such option (except as provided in
Section 6.2.2(c) below), Tenant shall have the option to purchase
the Premises upon the following terms and conditions:
6.2.1 At any time during the Initial Term before
the close of business on that date which is thirty (30) days
prior to the third (3rd) anniversary of the Commencement
Date, the Tenant may exercise its option to purchase all but
not less than all of the Premises by giving Landlord written
notice thereof.
6.2.2 The purchase price (the "Purchase Price") for
both the Premises and the Greenfield Premises (as defined in
Section 6.4 below) shall be equal to $1,500,000 (the
"Closing Payment") payable as follows ___plus Tenant's
assumption of the then outstanding balance of the NHI
Indebtedness (as hereinafter defined):
(a) The Tenant shall tender a portion of the Closing
Payment in an amount not less than $750,000 in cash,
with the balance of the Closing Payment to be paid to
the Landlord in the form of a purchase money promissory
note providing for the
following principal terms all as more particularly set
forth in the Promissory Note
attached hereto as Schedule 6.2.2 (the "Seller Note"):
(i) annual interest rate of 8% during the first
year thereof, and an annual interest rate of ten
percent (10%) thereafter until maturity;
(ii) payable in equal monthly installments of
principal and interest based on a ten (10) year
amortization schedule;
(iii) the outstanding balance of the Seller Note
shall be due in full on 2007.
The foregoing indebtedness shall be secured by (x) mortgages
in form and substance reasonably satisfactory to Tenant and
its counsel encumbering the Premises and the Greenfield
Premises, which mortgages shall be subordinate in all
respects to the NHI Indebtedness or any other indebtedness
incurred by Tenant in substitution thereof and (y)
guaranties from Guarantor in the form attached hereto as
Schedule 6.2.2(a). The Purchase Price shall be allocated
among the Premises, the Greenfield Premises, the personal
property located thereon and certain other assets
incorporated therein as set forth in the Agreement to Lease.
(b)
All of Landlord's rights and obligations in and with respect to
the NHI Indebtedness including, in particular, and without
limitation, all so-called reserve accounts, and all rights to
receive the Additional Funds (as defined in Section 17.3 below)
shall be assigned to Tenant on the closing date set forth below,
and all obligations thereunder shall be assumed by Tenant as of
such date, all as more particularly set forth in the Assignment
and Assumption Agreement attached hereto as Schedule 6.2.2(b).
(c) If an Event of Default may be cured by the payment
of money, Tenant may exercise its option to purchase
the Premises provided that Tenant pays all
amounts necessary to cure any such Event of Default
simultaneously with the closing of such purchase
transaction, including, without limitation, any
outstanding Total Rent then due and owing Landlord.
6.2.3 Once the Purchase Price is established pursuant to the
above, Landlord as seller and the Tenant as buyer shall within
seven (7) days after such determination establish an escrow to
consummate such purchase with Landlord's counsel on the following
terms: (i) the form of escrow instructions to be then signed by
Landlord and the Tenant and all other documents delivered in
connection with any such transfer of the Premises shall not
provide for any representations or warranties regarding the
Premises (without affecting any representations or warranties
contained in the Agreement to Lease) nor any due diligence or
other contingencies in favor of the Tenant, (ii) the Purchase
Price shall be payable as provided above and on the closing date
established by Tenant at a date prior to the third (3")
anniversary of the Commencement Date, (iii) the transaction costs
shall be allocated between the parties in accordance with
customary practices, (iv) at close, Landlord shall deliver title
to the Premises to the Tenant or its designee subject only to the
Permitted Exceptions (as defined below), (v) the sale escrow
instructions shall provide for a deposit equal to five percent
(5%) of the Closing Payment and shall provide that the deposit
may be retained by Landlord as liquidated damages in the event of
any breach by the Tenant of the terms of the escrow instructions
~rovided, however, such liquidated damages shall relate only to
Landlord's damages by reason of a breach of the escrow
instructions and shall in no way liquidate or limit Landlord's
damages by reason of a breach of this Lease) or in the
alternative, Landlord may elect to pursue its rights and remedies
in equity, including, without limitation, Landlord's right to sue
for specific performance of Tenant's obligation to acquire the
Premises pursuant to this Section 6.2, and (vi) the escrow
instructions shall otherwise be in form and substance reasonably
satisfactory to Landlord and Tenant. As
used in this Lease the "Permitted Exceptions" shall consist
solely of those title matters set forth on Exhibit D hereto or
any other encumbrances (i) approved in writing by Tenant in its
sole discretion, or (ii) created by or through the acts or
omissions of Tenant including, without limitation, any tax liens
or other encumbrances resulting from Tenant's failure to fulfill
its obligations to pay all taxes and other amounts due and owing
under this Lease. In the event of a breach by Landlord of its
obligation to convey the Premises under this Section 6.2, the
Tenant shall be entitled to sue for specific performance thereof
or, in the alternative, immediately recover its deposit against
the Purchase Price. Moreover, in the event either party breaches
its obligations under this Section 6.2, the prevailing party in
any resulting litigation, regardless of whether the same is
prosecuted to judgment, shall be entitled to recover its
enforcement expenses, including reasonable attorney's fees and
court costs, in addition to its other damages.
6.3 Renewal Term. If the Tenant elects not to exercise
its option to purchase the Premises under Section 6.2 or if the
Tenant fails to close the escrow for any reason other than a
breach by Landlord, then the Initial Term shall automatically be
extended and renewed for an additional period of five (5) years
(the "Renewal Term"). The Additional Rent and Minimum Rent during
the Renewal Term shall be calculated as provided in Section 2.3
and determined in all events by that date which is not later than
one hundred eighty (180) days prior to the expiration of the
Initial Term.
6.4 Greenfleld Lease . Notwithstanding the foregoing or
any other provision hereof, it shall be a condition of the
exercise of any of its purchase rights under this Lease that
Tenant shall have previously, or simultaneously with its exercise
hereunder, exercised similar purchase option rights under that
certain lease agreement (the "Greenfield Lease") of even date
herewith between Tenant and Greenfield Associates Real Estate
Trust, a Massachusetts trust and a party to the Agreement to
Lease ("Greenfield Associates") with respect to that certain
Nursing Home facility owned by Greenfield Associates and located
in Greenfield, Massachusetts (the "Greenfield Premises").
7. Landlord and Tenant Personal Property.
7.1 Tenant Personal Property. At its sole expense,
Tenant shall install, affix or assemble or place on the Premises
all items of furniture, fixtures, equipment and supplies not
included as Landlord Personal Property as Tenant reasonably
considers to be appropriate for Tenant's use of the Premises as
contemplated by this Lease (the "Tenant Personal Property").
Tenant shall provide and maintain during the entire Term all
Tenant Personal Property as shall be necessary in order to
operate the Premises in compliance with all requirements set
forth in this Lease. All Tenant Personal Property shall be and
shall remain the property of Tenant and may be removed by Tenant
upon the expiration of the Term. However, if there is any Event
of Default, Tenant will not remove the Tenant Personal Property
from the Premises and will on demand from Landlord, convey the
Tenant Personal Property to Landlord by executing a bill of sale
in a form reasonably required by Landlord. In any event, Tenant
will repair all damage to the Premises caused by any removal of
the Tenant Personal Property.
7.2 Landlord's Security Interest.
7.2.1 The parties intend that if Tenant defaults
under this Lease, Landlord will control the Tenant Personal
Property and the Intangible Property (as defined in Section
7.4 below) so that Landlord or its designee can operate or
re-let the Premises intact for use as a Nursing Home.
7.2.2 Therefore, to implement the intention of the
parties, and for the purpose of securing the payment and
performance of Tenant's obligations under this Lease,
Tenant, as debtor, hereby grants to Landlord, as secured
party, a security interest in and an express contractual
lien upon, all of Tenant's right, title and interest in and
to the Tenant Personal Property and, to the extent permitted
by law (subject to the obligation of Tenant to fully
cooperate in connection therewith), in and to the Intangible
Property and any and all products and proceeds thereof, in
which Tenant now owns or hereafter acquires an interest or
right, including any leased Tenant Personal Property. This
Lease constitutes a security agreement covering all such
Tenant Personal Property and the Intangible Property. The
security interest granted to Landlord in this Section 7.2.2.
is intended by Landlord and Tenant to be subordinate to (i)
the security interest granted of even date herewith in and
to Tenant's accounts receivable granted to HCFP Funding,
Inc. (the "Working Capital Lender"), and securing the
obligations of Tenant to the Working Capital Lender in an
amount not to exceed $1,000,000 in the aggregate (when taken
together with all security interests granted by Tenant in
its accounts receivable to parties other than Greenfield
Associates with respect to the Greenfield Lease), (ii) any
security interest granted in connection with the financing
or leasing of all or any portion of the Tenant Personal
Property so long as the lessor or financier of such Tenant
Personal Property agrees to give Landlord written notice of
any default by Tenant under the terms of such lease or
financing arrangement, to give Landlord a reasonable time
following such notice to cure any such default and to
consent to Landlord's written assumption of such lease or
financing arrangement upon Landlord's curing of any defaults
thereunder, and (iii) shall be subordinated in the future
with respect to any security interest granted in and to
Tenant's accounts receivable in the event Tenant enters into
a financing arrangement whereby its accounts receivable are
pledged or otherwise encumbered in an amount not to exceed
$1,000,000 in the aggregate when taken together with all
security interests granted by Tenant in its accounts
receivable as provided in clause (i) above and then in
effect. This security agreement and the security interest
created herein shall survive the termination of this Lease
if such termination results from the occurrence of an Event
of Default.
7.3 Financial Statements. If required by Landlord at any
time during the Term, Tenant will execute and deliver to
Landlord, in form reasonably satisfactory to Landlord, additional
security agreements, financing statements, fixture filings and
such other documents as Landlord may reasonably require to
perfect or continue the perfection of Landlord's security
interest in the Tenant Personal Property and the Intangible
Property and any and all products and proceeds thereof now owned
or hereafter acquired by Tenant. Tenant shall pay all fees and
costs that Landlord may incure in filing
such documents in public offices and
in obtaining such record searches as Landlord may reasonably
require. In the event Tenant fails to execute any financing
statements or other documents for the perfection or continuation
of Landlord's security interest, Tenant hereby appoints Landlord
as its true and lawful attorney-in-fact to execute any such
documents on its behalf, which power of attorney shall be
irrevocable and is deemed to be coupled with an interest.
7.4 Intantble Property. The term " Intangible Property"
means all of Tenant's accounts, proceeds of accounts, rents,
profits, income or revenue derived from the use of rooms or other
space within the Premises or the providing of services in or from
the Premises; documents, chattel paper, instruments, contract
rights, deposit accounts, general intangibles, choses in action,
now owned or hereafter acquired by Tenant (including any right to
any refund of any taxes or other charges heretofore or hereafter
paid to any governmental authority) arising from or in connection
with Tenant's operation or use of the Premises; all licenses and
permits now owned or hereafter acquired by Tenant, necessary or
desirable for Tenant's use of the Premises under this Lease,
including without limitation, if applicable, any certificate of
need or other similar certificate; and the right to use any trade
or other name now or hereafter associated with the operation of
the Premises by Tenant. The word "accounts" above shall include,
without limitation and to the extent assignable, accounts to be
paid by Medicaid or Medicare (or successor programs).
8. Reuresentations And Warranties . Landlord and Tenant
do hereby each for itself represent and warrant to each other as
follows:
8.1 Due Authorization And Execution. This Lease and all
agreements, instruments and documents executed or to be executed
in connection herewith by either Landlord or Tenant were duly
authorized and shall be binding upon the party that executed and
delivered the same.
8.2 Due Organization . Landlord and Tenant are duly
organized, validly existing and in good standing under the laws
of the State of their respective formations and are duly
authorized and qualified to do all things required of the
applicable party under this Lease within the Commonwealth of
Massachusetts.
8.3 No Breach of Other A~reements. Neither this Lease
nor any agreement, document or instrument executed or to be
executed in connection herewith, violates the terms of any other
agreement to which either Landlord or Tenant is a party.
9. Financial Management and Regulatory Reports.
9.1 Monthly Facility Reports. Within thirty (30) days
after the end of each calendar month during the Term, Tenant
shall prepare and deliver monthly unaudited financial reports,
reviewed and certified by Tenant's Chief Financial Officer, to
Landlord consisting of a balance sheet, income statement
(including in-patient and outpatient revenues), together with an
aged accounts receivable report and reports listing licensed
beds, average daily census, admission and
length of stay and payor mix concerning the business conducted at
the Premises. Without limitation, such reports shall clearly
state Gross Revenues for the applicable period.
9.2 Ouarterlv Financial Statements . Within sixty (60)
days of the end of each of the first three quarters of each
calendar year during the Term, Tenant shall deliver the
quarterly, unaudited financial statements of Tenant, reviewed and
certified by Tenant's Chief Financial Officer to Landlord,
together with (i) an aged accounts receivable report in form and
substance reasonably satisfactory to Landlord, and (ii) a
Certificate of Compliance in the form attached hereto as Exhibit E.
9.3 Annual Financial Statements. Within ninety (90) days
of each calendar year end during the Term, Tenant shall deliver
to Landlord its audited annual financial statements, in each case
certified in a manner acceptable to Landlord by independent
certified public accountants of recognized national standing
reasonably acceptable to Landlord, together with a report by such
accountants to the effect that, in making such annual report,
such accountants have not become aware (without special
investigation) of any Event of Default, or event which, after
notice of lapse of time, would constitute an Event of Default.
Moreover, if Tenant becomes subject to any reporting requirements
of the Securities and Exchange Commission (the "SEC") or produces
audited financial statements for the SEC or any other purpose
during the Term, Tenant shall promptly deliver such audited
financial statements to Landlord.
9.4 Accounting Pnnciples . All of the reports and
statements required hereby shall be prepared in accordance with
GAAP and Tenant's accounting principles consistently applied.
9.5 ReguIatorv Reports. In addition, Tenant shall within
five (5) business days of receipt thereof deliver to Landlord all
federal, state and local licensing and reimbursement
certification surveys, inspections and other reports received by
Tenant as to the Premises and the operation of business thereon,
including, without limitation, state department of health
licensing surveys, Medicare and Medicaid (and successor programs)
certification surveys and life safety code reports. Within five
(5) business days of receipt of any written notice of any
violation of any federal, state or local licensing or
reimbursement certification statute or regulation including
without limitation Medicare or Medicaid (or successor programs),
any suspension, termination or restriction placed upon Tenant or
the Premises, the operation of business thereon or the ability to
admit patients, or any violation of any other permit, approval or
certification in connection with the Premises or its business, by
any federal, state or local authority including without
limitation Medicare or Medicaid (or successor programs) Tenant
shall provide Landlord with a copy thereof.
9.6 Miscellaneous Reports. Tenant shall also deliver the
following items to Landlord:
(a) Catpital Expenditure Compliance Certificate .
Within sixty (60) days after the end of each Lease Year
following the third (3rd) Lease Year, a Certificate
certified by Tenant's Chief Financial Officer demonstrating
compliance with the Capital Expenditure requirements of
Section 5.1.3 hereof,
(b) Event of Default Notices. Promptly after Tenant
obtains actual knowledge thereof, notice of the occurrence
of any Event of Default, or event which, after notice or
lapse of time (or both), would constitute an Event of
Default, together with a statement setting forth details of
such Event of Default or event and the action that Tenant
has taken and proposes to take with respect thereto;
(c) Guarantors Reports. A current Financial
Statement of the Guarantor updated each Lease Year during
the Term of this Lease;
(d) Malpractice Matters. Promptly upon Tenant's
receipt, written notice of the filing of any medical
malpractice action against Tenant seeking damages in excess
of One Hundred Fifty Thousand and No/l00 Dollars
($150,000.00);
(e) Working Capital Account. Promptly upon Tenant's
receipt, copies of the monthly bank statements for the (i)
working capital accounts, and (ii) unconditional line(s) of
credit from Working Capital Lender(s) designated for the
sole use of Tenant in connection with the Nursing Homes
located at the Premises and the Greenfield Premises, which
items are used to satisfy the working capital requirements
with respect to the NHI Indebtedness; and
(f) Other Information. Such other information about
Tenant or the Facility as Landlord may reasonably request
from time to time.
10. Events of Default and Landlord's Remedies.
10.1 Events of Default. The occurrence of any of the
following shall constitute an event of default on the part of
Tenant hereunder ("Event of Default"):
10.1.1 The failure to pay within ten (10) calendar
days of the date when due any Minimum Rent, Additional Rent,
taxes or assessments, utilities, premiums for insurance or
other charges or payments required of Tenant under this
Lease;
10.1.2 A breach of any of the representations,
warranties or covenants in favor of
Landlord as set forth in the Agreement to Lease, any
guaranties or other agreements of even date herewith
relating to the transactions contemplated hereby, which
breach continues beyond any applicable period of notice and
grace, if any;
10.1.3 The occurrence of any Event of Default
under, and as defined in, the Greenfield Lease.
10.1.4 Any material misstatement or omission of
fact in any written report, notice or communication from
Tenant, or any Guarantor to Landlord with respect to Tenant,
any Guarantor, or the Premises;
10.1.5 An assignment by Tenant, or any Guarantor of
all or substantially all of its property for the benefit of
creditors;
10.1.6 The appointment of a receiver, trustee, or
liquidator for Tenant, or any Guarantor, or any of the
property of Tenant or any Guarantor, if within three (3)
business days of such appointment Tenant does not inform
Landlord in writing that such party intends to cause such
appointment to be discharged or such party does not
thereafter diligently prosecute such discharge to completion
within thirty (30) days after the date of such appointment;
10.1.7 The filing by Tenant or any Guarantor of a
voluntary petition under any federal bankruptcy law or under
the law of any state to be adjudicated as bankrupt or for
any arrangement or other debtor~s relief, or in the
alternative, if any such petition is involuntarily filed
against Tenant, or Guarantor by any other party and Tenant
or Guarantor, as the case may be, does not within three (3)
business days of any such filing inform Landlord in writing
of its intent to cause such petition to be dismissed, or if
Tenant or Guarantor does not thereafter diligently prosecute
such dismissal, or if such filing is not dismissed in any
event within ninety (90) days after filing thereof;
10.1.8 The failure to perform or comply with any
other term or provision of this Lease not requiring the
payment of money, including, without limitation, the failure
to comply with the provisions hereof pertaining to the use,
operation and maintenance of the Premises or the breach of
any representation or warranty of Tenant in this Lease;
provided, however, the default described in this Section
10.1.10 is curable and shall be deemed cured, if: (i) within
three (3) business days of Tenant's receipt of a notice of
default from Landlord, Tenant gives Landlord notice of its
intent to cure such default; and (ii) Tenant cures such
default within thirty (30) days after such notice from
Landlord, unless such default cannot with due diligence be
cured within a period of thirty (30) days because of the
nature of the default or delays beyond the control of
Tenant, and cure after such thirty (30) day period will not
have a material and adverse effect upon the Premises, in
which case such default shall not constitute an Event of
Default if Tenant uses diligent efforts to cure such default
by promptly commencing and diligently pursuing such cure to
the completion thereof, provided, however, no such default
shall continue for more than one hundred twenty (120) days
from Tenant's receipt of a notice of default from Landlord;
10.1.9 There shall be no cure period in the event
of the breach by Tenant of (i) the obligation to provide
replacement policies of insurance as required in Section 4.1
above, the provisions of Section 22 below with respect
to assignments and other related matters; and
10.1.10 All notice and cure periods provided herein
shall run concurrently with any notice or cure periods
provided by applicable law.
10.1.11 Liquidated Damages . Notwithstanding the
foregoing or any other provision hereof or contained in the
Greenfield Lease to the contrary, upon the occurrence of an
Event of Default, the Tenant may elect, by written notice to
the Landlord at any time following such occurrence, to
acquire the Premises (together with the Greenfield Premises)
and pay to the Landlord, as liquidated damages, the Purchase
Price (as defined and described in Section 6.2 above)
together with any amount of Total Rent or other charges then
due under this Lease ~rior to any exercise of Landlord's
remedies pursuant to Section 10.2 hereof and exclusive of
any payment obligations set forth therein) provided,
however, that if a default then exists under and with
respect to the NHI Indebtedness such that NHI will not
permit the same to be assumed by the Tenant as anticipated
under Section 6.2, then the portion of the Purchase Price
equal to the Current Indebtedness (as defined in Section
17.2 below) shall be due and payable in cash upon the
closing of such transaction. Landlord shall accept the
foregoing payments by the Tenant as liquidated damages and
Landlord's sole remedy for any such Event of Default
provided that the same is paid to the Landlord no later then
ninety (90) days following Tenant's notice, as aforesaid,
whereupon Landlord shall convey the Premises and the
Greenfield Premises to the Tenant in accordance with the
applicable provisions of Section 6.2 including, without
limitation, the provisions governing the Seller Note.
10.2 Remedies. Upon the occurrence of an Event of
Default, Landlord may exercise all rights and remedies under this
Lease and the laws of the Commonwealth of Massachusetts available
to a lessor of real and personal property in the event of a
default by its lessee, and as to the Tenant Personal Property and
Intangible Property all remedies granted under the laws of the
Commonwealth of Massachusetts to a secured party under its
Uniform Commercial Code. Without limiting the foregoing, Landlord
shall have the right to do any of the following:
10.2.1 Sue for the specific performance of any
covenant of Tenant under this Lease as to which Tenant is in
breach:
10.2.2 Upon compliance with the requirements of
applicable law, Landlord may do any of the following: enter
upon the Premises, terminate this Lease, dispossess Tenant
from the Premises and/or collect money damages by reason of
Tenant1s breach, including without limitation all rent which
would have accrued after such termination and all
obligations and liabilities of Tenant under this Lease which
survive the termination of the Term;
10.2.3 Elect to leave this Lease in place and sue
for rent and/or other money damages as the same come due;
10.2.4 Before or after repossession of the Premises
pursuant to Section 10.2.2, and whether or not this Lease
has been terminated, Landlord shall have the right (but
shall be under no obligation) to relet any portion of the
Premises to such tenant or tenants, for such term or terms
(which may be greater or less than the remaining balance of
the Term), for such rent, on such conditions (which may
include concessions or free rent) and for such uses, as
Landlord, in its absolute discretion, may determine, and
Landlord may collect and receive any rents payable by reason
of such reletting. Landlord shall have no duty to mitigate
damages unless required by applicable law and shall not be
responsible or liable for any failure to relet any of the
Premises or for any failure to collect any rent due upon any
such reletting. Tenant agrees to pay Landlord, immediately
upon demand, all expenses incurred by Landlord in obtaining
possession and in reletting any of the Premises, including
fees, commissions and costs of attorneys, architects,
contractors, agents and brokers;
10.2.5 Sell the Tenant Personal Property in a
nonjudicial foreclosure sale pursuant to the procedures
therefor provided under the Uniform Commercial Code, as
enacted in the Commonwealth of Massachusetts.
10.2.6 For the purpose of calculating rent loss
damages payable to Landlord, Additional Rent for all periods
after an Event of Default shall be calculated based on the
higher of actual Gross Revenues or extrapolated Gross
Revenues based on Gross Revenues generated prior to the
Event of Default.
10.3 Receivership. Tenant acknowledges that one of the
rights and remedies available to Landlord under applicable law is
to secure a court-appointed receiver to take possession of the
Premises, to collect the rents, issues, profits and income of the
Premises, and to manage the operation of the Premises. Tenant
further acknowledges that the revocation, suspension or material
limitation of the certification of the Premises for provider
status under Medicare or Medicaid (or successor programs) and/or
the revocation, suspension or material limitation of the license
of the Premises as a Nursing Home under the laws of the
Commonwealth of Massachusetts will materially and irreparably
impair the value of Landlord's investment in the Premises.
Therefore, in any of such events, and in addition to any other
right or remedy of Landlord under this Lease, Tenant hereby
consents to the appointment of such a receiver to enter upon and
take possession of the Premises, to manage the operation of the
Premises, to collect and disburse all rents, issues, profits and
income generated thereby and to preserve or replace to the extent
possible the Nursing Home license and provider certification of
the Premises or to otherwise substitute the licensee or provider
thereof. The receiver shall be entitled to a reasonable fee for
its services as a receiver. All such fees and other expenses of
the receivership estate shall be added to the monthly rent due to
Landlord under this Lease. Tenant hereby irrevocably stipulates
to the appointment of a receiver under such circumstances and for
such purposes and agrees not to contest such appointment.
10.4 Late Charges . Tenant acknowledges that the late
payment of any Minimum Rent or Additional Rent will cause
Landlord to lose the use of such 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, if any installment of Minimum
Rent or Additional Rent is not paid within ten (10) calendar days
after the due date for such rent payment, then Tenant shall
thereafter pay to Landlord on demand a late charge equal to five
percent (5%) of the amount of any installment of Minimum Rent or
Additional Rent not paid on the due date. 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.
10.5 Remedies Cumulative: No Waiver. No right or remedy
herein conferred upon or reserved to Landlord or Tenant is
intended to be exclusive of any other right or remedy, and each
and every right and remedy shall be cumulative and in addition to
any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No failure of Landlord or Tenant to
insist at any time upon the strict performance of any provision
of this Lease or to exercise any option, right, power or remedy
contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof as to any similar or
different breach (future or otherwise) by Tenant or Landlord, as
the case may be. A receipt by Landlord of any rent or other sum
due hereunder (including any late charge) with knowledge of the
breach of any provision contained in this Lease shall not be
deemed a waiver of such breach, and no waiver by Landlord or
Tenant of any provision of this Lease shall be deemed to have
been made unless expressed in a writing signed by Landlord or
Tenant, as the case may be.
10.6 Performance of Tenant's Obli~ations bv Landlord. If
Tenant at any time shall fail to make any payment or perform any
act on its part required to be made or performed under this
Lease, then Landlord may (but shall be under no obligation to),
without waiving or releasing Tenant from any obligations or
default of Tenant hereunder, make any such payment or perform any
such act for the account and at the expense of Tenant, and may
enter upon the Premises for the purpose of taking all such action
thereon as may be reasonably necessary therefor. No such entry
shall be deemed an eviction of Tenant. All sums so paid by
Landlord and all necessary and incidental costs and expenses
(including, without limitation, reasonable attorneys' fees and
expenses) incurred in connection with the performance of any such
act by Landlord, together with interest at the per annum rate
equal to the Bank of America reference rate plus 5% (or if said
interest rate is violative of any applicable statute or law, then
the maximum interest rate allowable) from the date of the making
of such payment or the incurring of such costs and expenses by
Landlord, shall be payable by Tenant to Landlord on demand.
11. Additional Purchase Rights and Obligations.
11.1 Purchase Obligations. Tenant shall be obligated to
purchase the Premises from Landlord upon the following
conditions:
11.1.1 At any time during the Initial Term before
the close of business on that date which is thirty (30) days
prior to the third (3rd) anniversary of the Commencement
Date, Landlord shall have the right to put the Premises
(together with the Greenfield Premises) to the Tenant
provided that Tenant has met all requirements for the
advance of the Additional Funds (as defined in Section 17
hereof) by NHI, as evidenced by the financial reports
prepared by Tenant and submitted to Landlord in accordance
with Section 9 hereof, and provided, further that NHI has
approved the same and committed in writing to provide such
funding. If Landlord exercises such right, Tenant shall
purchase the Premises (together with the Greenfield
Premises) for the Purchase Price set forth in Section 6.2
hereof The Purchase Price shall be payable as provided in
Section 6.2.2 and all other terms and conditions of the
conveyance of the Premises and the Greenfield Premises to
Tenant provided in Section 6.2 shall apply to any exercise
of the Landlord's rights under this Section 11.1.1
including, without limitation, the provisions governing the
Sel]er Note and Landlord's simultaneous exercise of its
similar rights under the Greenfield Lease. At the closing of
the foregoing transaction, Tenant shall also pay to Landlord
all amounts of Total Rent and other charges then due under
this Lease and cure any Event of Default then continuing
which is curable by the payment of money.
11.1.2 At any time following the determination of
Minimum Rent for the Renewal Term in accordance with Section
2.3, through the expiration of the first Lease Year of the
Renewal Term (i.e., the eleventh (11th) Lease Year),
Landlord shall have the right to put the Premises to Tenant.
If Landlord exercises such right, Tenant shall purchase the
Premises together with the Greenfield Premises from Landlord
for a cash price equal to $1,500,000 plus the Current
Indebtedness (as defined below) as of the closing date set
forth below. Within one hundred twenty (120) days of
Landlord's exercise of its put under this Section 11.1, such
purchase shall be consummated and the Landlord shall deliver
title to the Premises to Tenant subject only to the
Permitted Exceptions. At the closing of the foregoing
transaction, Tenant shall also pay to Land~ord all amounts
of Total Rent and other charges then due under this Lease
and cure any Event of Default then continuing which is
curable by the payment of money.
It shall be a condition of Landlord's exercise of any of its
rights under this Section 11.1 that simultaneously therewith
Greenfield Associates shall have exercised its similar put rights
under the Greenfield Lease.
11.2 Additional Purchase ODtion. At anytime following
the determination of the Minimum Rent for the Renewal Term in
accordance with Section 2.3, through the expiration of the first
Lease Year of the Renewal Term (i.e. the eleventh (11th) Lease
Year), Tenant shall have the right to purchase the Premises
(together with the Greenfield Premises) from Landlord for a cash
price equal to $1,500,000 plus the Current Indebtedness as of the
closing date set forth below. Such purchase shall be consummated
and Landlord shall deliver title to the Premises to Tenant,
subject only to the Permitted Exceptions, on a date set therefor
by Tenant provided that such date shall not in any event be later
than one hundred twenty (120) days after the expiration of the
eleventh (1 ith) Lease Year. All other terms and conditions set
forth in Section 6.2 for such
conveyance shall apply to Tenant's exercise of its option rights
under this Section 11.2, including in particular and without
limitation, that Tenant shall have simultaneously exercised (and
consummated) its similar purchase rights under the Greenfield
Lease. At the closing of the foregoing transaction Tenant shall
also pay to Landlord all amounts of Total Rent and other charges
then due under this Lease and cure any Event of Default then
continuing which is curable by the payment of money.
12. Damage by Fire or Other Casualty.
12.1 Reconstruction Using Insurance. In the event of the
damage or destruction of the Premises, Tenant shall forthwith
notify Landlord and diligently repair or reconstruct the same to
a like or better condition than existed prior to such damage or
destruction, to the extent legally permitted to do so. Any net
insurance proceeds payable with respect to the casualty shall be
used for the repair or reconstruction of the Premises pursuant to
reasonable disbursement controls in favor of Landlord. If such
proceeds are insufficient for such purposes, Tenant shall provide
the required additional funds.
12.2 Surylus Proceeds . If there remains any surplus of
insurance proceeds after the completion of the repair or
reconstruction of the Premises, such surplus shall belong to and
be paid to Tenant provided that if any Event of Default then
exists which may be cured by the payment of money, any such
surplus insurance proceeds shall first be applied to curing any
such Event of Default.
12.3 No Rent Abatement. The rent payable under this
Lease shall not abate by reason of any damage or destruction of
the Premises by reason of an insured or uninsured casualty.
Tenant hereby waives all rights under applicable law to abate,
reduce or offset rent by reason of such damage or destruction.
13. Condemnation.
13.1 Complete Taking . If during the Term all or
substantially all of the Premises is taken or condemned by any
competent public or quasi-public authority, then Tenant may, at
Tenant's election, made within thirty (30) days of such taking by
condemnation, terminate this Lease, and the current Minimum Rent
and Additional Rent shall be prorated as of the date of such
termination. The award payable upon such taking shall be
allocated as follows:
(i) first to any Minimum Rent or other charges due
Landlord hereunder;
(ii) then to the Current Indebtedness;
(iii) upon satisfaction of the Current Indebtedness,
Landlord shall receive a portion of the remainder of
such award up to a maximum of $1,500,000; and
(iv) the balance, if any, remaining shall be paid to
Tenant. Any amounts received by Landlord pursuant to this Section 13
shall in all events be credited against the monies due Landlord
in connection with any conveyance of the Premises
under this Lease (or the Greenfield Premises under the Greenfield
Lease); and notwithstanding any provision hereof or contained in
the Greenfield Lease to the contrary, upon a taking of the
Premises under this Section 13, Tenant shall have the absolute
right to elect anytime thereafter to acquire the Greenfield
Premises in accordance with the provisions of Section 6.2
thereof.
13.2 Partial Taking. In the event such condemnation
proceeding or right of eminent domain results in a taking of less
than all or substantially all of the Premises, the Minimum Rent
and Additional Rental thereto shall be abated to the same extent
as the diminution in the fair market value of the Premises by
reason of the condemnation. Such diminution in the fair market
value shall be as agreed between Landlord and Tenant, but failing
such agreement within thirty (30) days of the effective date of
the condemnation the same will be determined by appraisal
pursuant to Exhibit "C" attached hereto. Any amounts awarded for
a partial taking under this Section 13.2 shall be allocated and
credited as provided in Section 13.1 above provided that such
award shall first be made available to Tenant and used to restore
the Premises for the Permitted Uses.
13.3 Lease Remains in Effect. Except as provided above,
this Lease shall not terminate and shall remain in full force and
effect in the event of a taking or condemnation of the Premises,
or any portion thereof, and Tenant hereby waives all rights under
applicable law to abate, reduce or offset rent by reason of such
taking.
14. Provisions on Termination of Term.
14.1 Surrender of Possession. Tenant shall, on or before
the last day of the Term, or upon earlier termination of this
Lease, surrender to Landlord the Premises (including all patient
charts and records along with appropriate patient consents) in
good condition and repair, ordinary wear and tear excepted.
14.2 Removal of Personal ProDerty. If Tenant is not then
in default hereunder Tenant
shall have the right in connection with the surrender of the
Premises to remove from the Premises all Tenant Personal Property
but not the Landlord Personal Property (including the Landlord
Personal Property replaced by Tenant or required by the
Commonwealth of Massachusetts or any other governmental entity to
operate the Premises for the purpose set forth in Section 5.3
above). Any such remov~ shall be done in a workmanlike manner
leaving the Premises in good and presentable condition and
appearance, including repair of any damage caused by such
removal. At the end of the Term or upon the earlier termination
of this Lease, Tenant shall return the Premises to Landlord with
the Landlord Personal Property (or replacements thereof) in the
same condition and utility as was delivered to Tenant at the
commencement of the Term, normal wear and tear excepted.
14.3 Title to Personal Property Not Removed. Title to any of
Tenant Personal Property which is not removed by Tenant upon the
expiration of the Term shall, at Landlord's election, vest in
Landlord; provided, however, that Landlord may remove and dispose
at Tenant's expense of any or all of such Tenant Personal
Property which is not so removed by Tenant without obligation or
accounting to the Tenant.
14.4 Management of Premises. Upon the expiration or
earlier termination of the Term, Landlord or its designee, upon
written notice to Tenant, may elect to assume the
responsibilities and obligations for the management and operation
of the Premises and Tenant agrees to cooperate fully with
Landlord or its designee to accomplish the transfer of such
management and operation without interrupting the operation of
the Premises. Tenant shall not commit any act or be remiss in the
undertaking of any act that would jeopardize any licensure or
certification of the facility, and Tenant shall comply with all
requests for an orderly transfer of the Nursing Home license,
Medicare and Medicaid (or any successor program) certifications
and possession at the time of any such surrender. Upon the
expiration or earlier termination of the Term, Tenant shall
promptly deliver copies of all of Tenant's books and records
relating to the Premises and its operations to Landlord. In the
event Landlord elects not to assume the foregoing
responsibilities and continue the operation of the Facility upon
such expiration of the Term, Tenant shall be solely responsible
for relocating all residents of the Premises as may be required
by applicable laws then in effect.
14.5 Correction of Deficiencies . Upon termination or
cancellation of this Lease, Tenant shall indemnify Landlord for
any loss, damage, cost or expense incurred by Landlord to correct
all deficiencies of a physical nature identified by the
Massachusetts Department of Health and/or the Massachusetts
Department of Human Services or any other government agency or
Medicare or Medicaid (or any successor program) providers in the
course of the change of ownership inspection and audit.
15. Notices and Demands. All notices and demands,
certificates, requests, consents, approvals, and other similar
instruments under this Lease shall be in writing and shall be
deemed to have been properly given when sent by (a) United States
certified or registered mail, return receipt requested, postage
prepaid (b) overnight delivery service with proof of delivery, or
(c) electronic transmission with confirmation of receipt,
addressed as follows:
(a) if to Tenant, addressed to:
OASIS Healthcare, Inc.
250 Boylston Street
Chestnut Hill, MA 02167-2001
Attn: Scott Schuster
Fax No.(617)630-4452
(i) Posternak, Blankstein & Lund 100 Charles River
Plaza Boston, MA 02114
Attn: Gerald J. Billow, Esq. Fax No.(617)367-
2315
or at such other address as Tenant from time to time may have
designed by written notice to Landlord,
(b) if to Landlord, addressed to:
with a copy to:
Buckley Nursing Home, Inc.
124 Wooddiff Drive
Westfield, MA 01085
Attn: William Hartt, President
Fax No.
Behar & Kalman
Six Beacon Street
Boston, MA 02108-3802
Attn: Kenneth Behar, Esquire
Fax: (617) 227-4208
or at such address as Landlord may from time to time have
designated by written notice to Tenant. Refusal 10 accept
delivery shall be deemed delivery. If Tenant is not an
individual, notice may be made to any officer, general partner or
principal thereof. Notice to any one co-Tenant shall be deemed
notice to all co-Tenants. All notices of any kind given or made
as aforesaid shall be deemed to have been given and received on
the second (2nd) business day following the post marked date of
the mailing thereof, or upon receipt when sent by overnight
courier service or upon confirmation of receipt if sent by
electronic transmission.
16. Right of Entry: Examination of Records. Landlord and
its representative may enter the Premises at any reasonable time
after reasonable notice to Tenant for the purpose of inspecting
the Premises for any reason including, without limitation,
Tenant's default under this Lease, or to exhibit the Premises for
sale, lease or mortgage financing, or posting notices of default,
or nonresponsibility under any mechanic's or materialman's lien
law or to otherwise inspect the Premises for compliance with the
terms of this Lease. Any such entry shall not unreasonably
interfere with patients, patient care, or any other of Tenant's
operations. During normal business hours, Tenant will permit
Landlord and Landlord's representatives, inspectors and
consultants to examine all contracts, books and records relating
to Tenant's operations at the Premises, whether kept at the
Premises or at some other location, including, without
limitation, Tenant's financial records.
17. NHI Indebtednessg No Further Encumbrancesg Etc.
17.1 Encumbrance. Without the written consent of
Tenant in each instance, which consent may be granted or
withheld in Tenant's sole and absolute discretion, Landlord
shall not, directly or indirectly, create or otherwise cause
to exist any lien, encumbrance or title retention agreement
("Encumbrance") upon the Premises, or any portion thereof or
interest therein (including this Lease), whether to secure
any borrowing or other means of financing or refinancing or
otherwise with the exception of the NHI Indebtedness (as
defined below). Any such Encumbrance allowed by the Tenant
(including, in particular, the NHI Indebtedness) shall
provide that it is subject to the rights of Tenant under
this Lease, and shall further provide that so long as no
Event of Default shall have occurred under this Lease,
Tenant's rights hereunder, including but without limitation
(i) Tenant's right of quiet enjoyment provided in Section
18, and (ii) the Tenant's purchase options provided in
Section 6.2 and Section 11.2 shall not be disturbed in the
event any such lienholder or any other person takes
possession of the Premises through foreclosure proceeding or
otherwise.
17.2 NHI Indebtedness . As used in this Lease, the
"NHI Indebtedness" shall mean, collectively, all obligations
of Landlord to NHI as set forth in that certain Loan
Agreement between Landlord and NHI of even date herewith
(the "Loan Agreement") and certain other documentation
relating thereto and evidencing a loan to Landlord in the
original principal amount of $10,000,000. The principal
balance outstanding under the Loan Agreement from time to
time is sometimes referred to in this Lease as the "Current
Indebtedness".
17.3 Additional Funds. The Loan Agreement provides
for, among other matters, an additional advance of funds by
NHI up to a maximum amount of $1,000,000 (the "Additional
Funds"). Except in connection with the exercise of its put
rights under Section 11.1 hereof, Landlord agrees not to
exercise its rights to the Additional Funds and thereby
increase the NHI Indebtedness without the written consent of
Tenant, which consent may be granted or withheld in Tenant's
sole and absolute discretion.
17.4 Landlord's Contribution. On the Commencement
Date, Landlord shall contribute a portion of the proceeds of
the NHI Indebtedness to Tenant equal to the amount set forth
as the "Landlord's Contribution" in the Settlement Statement
delivered in connection with the closing of the NHI
Indebtedness for Tenant's use in connection with its Nursing
Home operations at, and anticipated improvements to, the
Premises and the Greenfield Premises (the "Landlord's
Contribution"). The Landlord's Contribution may be used in
any manner the Tenant deems necessary or advisable (so long
as the same is in compliance with all documents evidencing
the NHI Indebtedness) and may be allocated between the
Premises and the Greenfield Premises as determined by the
Tenant in its sole and absolute discretion.
18. Quiet Enjoyment. So long as there is no Event of
Default by Tenant, Landlord covenants and agrees that Tenant
shall peaceably and quietly have, hold and enjoy the Premises for
the Term, free of any claim or other action not caused or created
by Tenant (excepting, however, intrusion of Tenant's quiet
enjoyment occasioned by condemnation or destruction of the
Premises as referred to in Sections 12 and 13 hereof).
19. Applicable Law. This Lease shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to the conflict of laws rules of
such state.
20. INTENTIONALLY DELETED
21. Hazardous Materials.
21.1 Hazardous Material Covenants . Tenant's use of the
Premises shall comply with all Hazardous Materials Laws. In the
event any Environmental Activities occur or are suspected to have
occurred in violation of any Hazardous Materials Laws or if
Tenant has received any Hazardous Materials Claim against the
Premises, Tenant shall, at its sole expense, promptly obtain all
permits and approvals necessary to remedy any such actual or
suspected problem through the removal of Hazardous Materials or
otherwise, and upon Landlord~s approval of the remediation plan,
remedy any such problem to the satisfaction of Landlord, in
accordance with all Hazardous Materials Laws and good business
practices.
21.2 Tenant Notices to Landlord . Tenant shall promptly
advise Landlord in writing of:
21.2.1 any Hazardous Materials Claims against
Tenant or the Premises,
21.2.2 any remedial action taken by Tenant in
response to any Hazardous Materials Claims or any Hazardous
Materials on, under or about the Premises in violation of
any Hazardous Materials Laws,
21.2.3 Tenant's discovery of any occurrence or
condition on or in the vicinity of the Premises that
materially increase the risk that the Premises will be
exposed to Hazardous Materials.
21.3 Environmental Activities shall mean the use,
generation, transportation, handling, discharge, production,
treatment, storage, release or disposal of any Hazardous
Materials at any time to or from the Premises or located on or
present on or under the Premises. Nothing contained in the
foregoing or elsewhere in this Section 21 is intended to, nor
shall it, limit the liability of Tenant, if any, to Landlord with
respect to any representation or warranty given by Tenant to
Landlord with respect to Hazardous Materials or environmental
matters generally as set forth in the Hazardous Waste Indemnity
Agreement of even date herewith from Tenant and Guarantor for the
benefit of Landlord.
21.4 Hazardous Materials shall mean (i) any petroleum
products and/or by-products (including any fraction thereof),
flammable substances, explosives, radioactive materials,
hazardous or toxic wastes, substances or materials, known
carcinogens or any other materials, contaminants or pollutants
which pose a hazard to the Premises or to persons on or about the
Premises or would cause the Premises to be in violation of any
Hazardous Materials Laws; (ii) asbestos in any form which is
friable; (iii) urea formaldehyde in foam insulation or any other
form; (iv) transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls
in excess of fifty (50) parts per million or any other more
restrictive standard then prevailing; (v) medical wastes and
biohazards; (vi) radon gas; and (vii) any other chemical,
material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority or may or could pose a
hazard to the health and safety of the occupants of the Premises
or the owners and/or occupants of Premises adjacent to or
surrounding the Premises.
21.5 Hazardous Materials Claims shall mean any and all
enforcement, clean-up, removal or other governmental or
regulatory actions or orders threatened, instituted or completed
pursuant to any Hazardous Material Laws, together with all claims
made or threatened by any third party against the Premises,
Landlord or Tenant relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any
Hazardous Materials.
21.6 Hazardous Materials Laws shall mean any laws,
ordinances, regulations, rules, orders, guidelines or written
policies relating to the environment, health and safety,
Environmental Activities, Hazardous Materials, air and water
quality, waste disposal and other environmental matters.
22. Assignment and Sublettin~. Tenant shall not, without
the prior written consent of Landlord, which may be withheld at
Landlord's sole discretion, voluntarily or involuntarily assign
or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof. For the purposes of this Lease, a
management or similar agreement shall be considered to be an
assignment of this Lease by Tenant. Any of the foregoing acts
without such consent shall be void but shall, at the option of
Landlord in its sole discretion, constitute an Event of Default
giving rise to Landlord's right, among other things, to terminate
this Lease. Without limiting the foregoing, this Lease shall not,
nor shall any interest of Tenant herein, be assigned or
encumbered by operation of law without the prior written consent
of Landlord which may be withheld at Landlord's sole discretion.
Notwithstanding the foregoing, (a) Tenant may without Landlord's
consent assign this Lease or sublet the Premises or any portion
thereof to a wholly-owned subsidiary of Tenant or Guarantor or to
an entity controlling, controlled by or under common control with
Tenant or Guarantor, and (b) all of the issued and outstanding
capital stock or other ownership interests (collectively,
'~Ownership Interests") of Tenant may be transferred to one or
more trusts or other estate planning vehicles for the benefit of
any individual owner of the Ownership Interests and/or his
immediate family, or to members of any such individual's
immediate family directly, provided that such entity or
individual to whom this Lease is assigned fully assumes the
obligations of Tenant under this Lease, Tenant remains fully
liable under this Lease, any Guarantor remains fully liable with
Lease, the use of the Premises remains unchanged, and no such
assignment or sublease shall be valid and no such subsidiary
shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord. Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not sublet the Premises on any
basis such that the rental to be paid by the sublessee thereunder
would be based, in whole or in part, on either the income or
profits derived by the business activities of the sublessee, or
any other formula, such that any portion of the sublease rental
received by Landlord would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the U.S.
Internal Revenue Code, or any similar or successor provision
thereto.
22.1 For the purpose of this Lease, the transfer,
assignment, sale, hypothecation or other disposition of any
Ownership Interests of Tenant, which results in a change in the
Person (as hereinafter defined) which ultimately exerts effective
Control (as hereinafter defined) over the management of the
affairs of Tenant as of the date hereof, shall be deemed to be an
assignment of the Lease. For purposes herein, "Control" shall
mean, as applied to any individual, partnership, association,
corporation or other entity (collectively, "Person"), the
possession, directly or indirectly, of the power to direct the
management and policies of that Person, whether through
ownership, voting control, by contract or otherwise.
22.2 Notwithstanding anything to the contrary contained in
Section 22 or 22.1 or any other provision of this Lease, none of
the following shall constitute an assignment of this Lease or
require the consent of Landlord:
(i) Any initial or secondary public offering of the
Ownership Interests of Tenant.
(ii) Any initial or secondary private offering of
the Ownership Interests of Tenant, provided that after any
such offering more than fifty percent (50%) of the voting
Ownership Interests of Tenant shall be owned or controlled
by the Guarantor.
(iii) The entering into by Tenant of any joint
venture, general partnership, limited partnership, limited
liability company or other ownership entity in which Tenant
or any entity affiliated with Tenant will own more than fifty
percent (50%) of the interests therei
23. Indemnification. Except with respect to gross
negligence or willful misconduct of Landlord (as to which no
indemnity is provided) to the fullest extent permitted by law,
Tenant agrees to protect, indemnify, defend and save harmless
Landlord, its directors, officers, trustees, shareholders,
beneficiaries, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense, loss, costs,
deficiency, fine, penalty, or damage or any kind or nature,
including reasonable attorneys' fees, from any suits, claims or
demands, on account of any matter or thing, action or failure to
act arising out of or in connection with this Lease (including,
without limitation, the breach by Tenant of any of its
obligations hereunder), the Premises, or the operations of Tenant
on the Premises, including without limitation all Environmental
Activities on the Premises, all Hazardous Materials Claims, any
violation by Tenant of a Hazardous
Materials Law with respect to the Premises or any other
obligation or liability of Tenant under this Lease or otherwise
with respect to Landlord. Upon receiving knowledge of any suit,
claim or demand asserted by a third party that Landlord believes
is covered by this indemnity, Landlord shall give Tenant notice
of the matter. Tenant shall defend Landlord against such matter
at Tenant's sole cost and expense with legal counsel satisfactory
to Landlord. Landlord may elect to defend the matter with its own
counsel at Tenant's expense.
24. Holding Over. If Tenant shall for any reason remain
in possession of the Premises after the expiration or earlier
termination of this Lease, such possession shall be a month to
month tenancy during which time Tenant shall pay as rental each
month, the aggregate of the monthly Minimum Rent payable with
respect to the last Lease Year plus Additional Rent allocable to
the month, all additional charges accruing during the month and
all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Premises. Nothing
contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of this Lease, nor shall
anything contained herein be deemed to limit Landlord's remedies
pursuant to this Lease or otherwise available to Landlord at law
or in equity.
25. Estouuel Certificates. Each party shall, at any time
upon not less than ten (10) business days prior written request
by the other, execute, acknowledge and deliver to such requesting
party or its designee a statement in writing, executed by an
officer or general partner, or trustee as appropriate, certifying
that this Lease is unmodified and in full force and effect (or,
if there have been any modifications, that this Lease is in full
force and effect as modified, and setting fortb such
modifications), the dates to which Minimum Rent, Additional Rent
and additional charges hereunder have been paid, certifying that
no default by either Landlord or Tenant exists hereunder or
specifying each such default and as to other matters as such
party may reasonably request.
26. Waiver of Jury Trial: Etc. Landlord and Tenant
hereby waive any rights to trial by jury in any action,
proceedings or counterclaim brought by either of the parties
against the other in connection with any matter whatsoever
arising out of or in any way connected with this Lease,
including, without limitation, the relationship of Landlord and
Tenant, Tenant's use and occupancy of the Premises, or any claim
of injury or damage relating to the foregoing or the enforcement
of any remedy hereunder. In no event shall any officer,
shareholder, employee or agent of Landlord be personally liable
for any obligation of Landlord hereunder or otherwise arising in
connection with any of the foregoing and Landlord's liability for
any such matters shall in all cases be limited to its interest in
the Premises, it being the agreement of the parties that neither
Tenant, nor anyone claiming by, through or under Tenant shall be
entitled to obtain any judgment creating personal liability on
the part of Landlord or enforcing any obligations of Landlord
against any assets of Landlord other than its interest in the
Premises.
27. Severabilitv. In the event any part or provision of
the Lease shall be determined to be invalid or enforceable, the
remaining portion of this Lease shall nevertheless continue in
full force and effect'.
28. Counterparts. This Lease may be executed in any
number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same
agreement.
29. Binding Effect. Subject to the provisions of Section
22 above, this Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs,
personal representatives, successors in interest and assigns.
30. Waiver and Subro~ation . Landlord and Tenant hereby
waive to each other all rights of subrogation which any insurance
carrier, or either of them, may have as to the other by reason of
any provision in any policy of insurance issued to Landlord or
Tenant, provided such waiver does not thereby invalidate the
policy of insurance.
31. Memorandum of Lease . Landlord and Tenant shall,
promptly upon the request of either, enter into a short form
memorandum of the Lease, in form suitable for recording under the
laws of the Commonwealth of Massachusetts in which reference to
this Lease shall be made. The party requesting such recordation
shall pay all costs and expenses of preparing and recording such
memorandum of this Lease.
32. IncorDoration of Recitals and Attachments . The
recitals and exhibits, schedules, addenda and other attachments
to this Lease are hereby incorporated into this Lease and made a
part hereof.
33. Titles and Headings. The titles and headings of
sections of this Lease are intended for convenience only and
shall not in any way affect the meaning or construction of any
provision of this Lease.
34. Nature of Relationship: Usurv Savin~ Clause . The
parties intend that their relationship shall be that of lessor
and lessee only. Nothing contained in this Lease shall be deemed
or construed to constitute an extension of credit by Landlord to
Tenant, nor shall this Lease be deemed to be a partnership or
venture agreement between Landlord and Tenant. Notwithstanding
the foregoing, in the event any payment made to Landlord
hereunder is deemed to violate any applicable laws regarding
usury, the portion of any payment deemed to be usurious shall be
held by Landlord to pay the future obligations of Tenant as such
obligations arise and, in the event Tenant discharges and
performs all obligations hereunder, such funds will be reimbursed
to Tenant upon the expiration of the Term. No interest shall be
paid on any such funds held by Landlord.
35. Joint and Several. If more than one person or entity
is the Tenant hereunder, the liability and obligations of such
persons or entities under this Lease shall be joint and several.
36. Survival of ReDresentationsg Warranties and
Covenants. All of the obligations, representations, warranties
and covenants and indemnities of Tenant under this Lease shall
survive the expiration or earlier termination of the Term.
37 Interpretation. Both Landlord and Tenant have been
represented by counsel and this Lease has been freely and fairly
negotiated. Consequently, all provisions of this Lease shall be
interpreted according to their fair meaning and shall not be
strictly construed against any party.
Executed as a Massachusetts instrument under seal as of the
date first indicated above.
TENANT.
OASIS HEALTHCARE~
Hollyoke
Lease and Security Agreement
THIS LEASE AND SECURITY AGREEMENT ("Lease"1) is made and
entered into as of the of March, 1997 by and between
BUCKLEY NURSING HOME, Massachusetts corporation ("Landlord")
and OASIS HEALTHCARE, a Georgia corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain real property
cornmonly known and numbered as 282 Cabot Street, Holyoke,
Massachuseus consisting of approximately 1.097
acres presently irnproved by a skilled care nursing home facility
(such facilities, generally, are sometimes referred to herein as
a "Nursing Home") licensed for one hundred two (102) beds and all
appurtenances thereto, all as more particularly described in
Exhibit "A" hereto (the"Facility"),
together with certain of the furniture, machinery,
equipment, appliances, fixtures, supplies and other personal
property used in connection therewith as more specifically
described on Exhibit "B " attached hereto ("Landlord Personal
Property"). All of the
foregoing property owned by the Landlord is sometimes referred to
in this Lease, collectively, as the "Premises".
WHEREAS, pursuant to a certain Guaranty of Lease of even
date herewith, latros Health Network, Inc., a Delaware
corporation (the "Guarantor") has agreed to guarantee all of
Tenant's obligations under this Lease.
WHEREAS, Landlord desires to lease the Premises to Tenant,
and Tenant desires to lease the Premises from Landlord.
NOW THEREFORE, in consideration of the mutual covenants,
conditions and agreements set forth herein, Landlord hereby
leases and lets unto Tenant the Premises for the term and upon
the conditions and provisions hereinafter set forth.
1. Term.
1.1 Term. The term of this Lease shall commence on
________ 1997 (the "Commencement Date") and shall end on _______2007
(the "Initial Term") unless extended pursuant
to Section 6.3 or earlier terminated in accordance with the
provisions hereof. The Initial Term and the Renewal Term (as
hereinafter defined), if any, are referred to collectively as the
"Term".
2. Rent. During the Initial Term and the Renewal Term, if
any, Tenant shall pay to Landlord minimum rent ("Minimum Rent")
and additional rent ("Additional Rent") as follows:
2.1 Initial Term Minimum Rent.
2.1.1 Tenant shall pay to Landlord annual Minimum
Rent which is equal to (i)
$710,750.04 during the first twelve (12) month period
of the Initial Term, and (ii)
$728,750.04 during the next succeeding twelve (12)
month period. All such Minimum
Rent (as the same may be adjusted as hereinafter
provided) shall be paid in equal
monthly installments on the twenty-fifth (25th) day of
each calendar month.
2.1.2 During the remainder of the Initial Term,
annual Minimum Rent shall be equal to $740,022.46.
2.1.3 Notwithstanding the foregoing, Tenant may
elect to pay a portion of the annual Minimum Rent
due Landlord equal to (i) $638,750.04 annually during
the first two (2) years of the Initial Term, and
(ii) $700,022.46 annually during the remainder of the
Initial Term, directly to NHI to be applied to the NHI
Indebtedness (as such terms are hereinafter defined).
The balance of the Minimum Rent then due from time
to time shall be paid to Landlord as provided above.
2.2 Initial Term Additional Rent.
2.2.1 Commencing with the second (2nd) Lease Year
(as defined below) and continuing thereafter during the
Initial Term, Tenant agrees to pay Additional Rent to
Landlord on a quarterly basis in arrears no more than 30
days after the end of each quarter of the Lease Year. Such
Additional Rent shall be equal to five percent (5%) of the
amount by which the Gross Revenues for the Lease Year
through the applicable quarter exceed the prorated Gross
Revenues for the applicable portion of the Base Year (as
such terms are defined below). On or before the thirtieth
(30th) day following any Lease Year for which Additional
Rent is payable hereunder, Tenant shall deliver to Landlord
an Officer's Certificate setting forth the Gross Revenues
for the subject Lease Year. If the Additional Rent, as
finally determined for any Lease Year (or portion thereof),
exceeds the sum of the quarterly payments of Additional Rent
previously paid by Tenant with respect to such Lease Year,
within five (5) business days after such determination is so
made, Tenant shall pay such deficit to Landlord. If the
Additional Rent, as finally determined for any Lease Year
(or portion thereof), is less than the amount previously
paid with respect thereto by Tenant, Tenant shall notify
Landlord either to (a) pay to Tenant an amount equal to such
overpayment or (b) grant Tenant a credit against Additional
Rent or Minimum Rent next coming due in the amount of such
overpayment.
2.2.2 "Gross Revenues" shall be calculated
according to generally accepted accounting principles
consistently applied ("GAAP") and shall be defined as all
revenues generated by the Tenant's operation, sublease
and/or use of the Premises in any way, excluding (or
subtracting therefrom, as the case may be) (i) contractual
allowances during the Term for billings not paid by or
received from the appropriate governmental agencies or third
party providers; (ii) all proper patient billing credits and
adjustments according to GAAP relating to health care
accounting; (iii) federal, state or local sales or excise
taxes and any tax based upon or measured by said revenues
which is added to or made a part of the amount billed to the
patient or other recipient of such services or goods,
whether included in the billing or stated separately; (iv)
revenue from professional fees or charges by physicians and
unaffiliated providers of ancillary services, when and to
the extent such charges are paid over to such physicians or
unaffiliated providers or are separately billed and not
included in comprehensive fees; and (v) monies received by
Tenant on account of capital contributions made by Tenant's
shareholders or other owners, loans to Tenant, insurance
proceeds or premium refunds and/or condemnation awards
relating to the Premises; and (v) other non-operating
revenues such as interest income (other than interest income
received in connection with late payment of fees or charges
assessed by Tenant), investor note payments or income from
assets not sold in the ordinary course of business.
2.2.3 "Lease Year" shall be defined as the twelve
(12) month periods commencing on January 1st of each calendar
year during the Term provided (i) the first Lease Year
shall commence on the Commencement Date and end on December
31, 1997, and (ii) the last Lease Year of the Initial Term
shall end on the tenth (10th) anniversary of the
Commencement Date.
2.2.4 The "Base Year" during the Initial Term shall
mean the last quarter of calendar year 1997, as such period
shall be "annualized" by extrapolation of the Gross Revenues
generated during such period to create the equivalent of an
annual Gross Revenues amount for purposes of calculating
Additional Rent under this Lease.
2.3 Renewal Term Minimum Rent. The Minimum Rent for the
Renewal Term shall be expressed as an annual amount but shall be
payable in equal monthly installments on the twenty-fifth
business day of each calendar month. Such annual Minimum Rent
shall be equal to the greater of (i) the fair market rental value
of the Premises as of the expiration of the Initial Term (the
'~Fair Market Rent"), as determined by the parties pursuant to
the procedure set forth below or (ii) the Minimum Rent in effect
as of the last Lease Year of the Initial Term. If Landlord and
Tenant are unable to agree on the Fair Market Rent by that date
which is 240 days prior to the expiration of the Initial Term,
then such Fair Market Rent shall be established by the appraisal
process set forth on Exhibit "C" attached hereto. The Fair Market
Rent of the Premises as so determined shall be binding upon the
parties and must in all cases be finally determined on or before
a date which is not less than 180 days prior to the expiration of
the Initial Term.
2.4 Renewal Term Additional Rent. Except during the first
Lease Year of the Renewal Term, Tenant shall pay to Landlord
Additional Rent in the Renewal Term on a quarterly basis in
arrears no more than 30 days after the end of each Lease Year
quarter. The Additional Rent for the Renewal Term shall be
calculated as provided in Section 2.2 except that the Base Year
for the purpose of determining such Additional Rent shall be the
first Lease Year of the Renewal Term provided, that in no event
shall the sum of Minimum Rent and Additional Rent (the "Total
Rent") for any Lease Year of the Renewal Term be less than the
Total Rent for the last Lease Year of the Initial Term.
2.5 Proration for Partial Periods. The rent for any month
during the Term which begins or ends on other than the first or
last calendar day of a calendar month shall be prorated based on
actual days elapsed.
2.6 Form for Additional Rent. Tenant shall accompany each
payment of Additional Rent with a completed calculation
supporting such payment in a form mutually approved by Landlord
and Tenant.
2.7 Absolute Net Lease. All rent payments shall be
absolutely net to the Landlord free of taxes, assessments,
utility charges, operating expenses, refurnishings, insurance
premiums or any other charge or expense in connection with the
Premises. All expenses and charges, whether for upkeep,
maintenance, repair, refurnishing, refurbishing, restoration,
replacement, insurance premiums, taxes, utilities, and other
operating or other charges of a like nature or otherwise, shall
be paid by Tenant. This provision is not in derogation of the
specific provisions of this Lease, but in expansion thereof and
as an indication of the general intention of the parties hereto.
Tenant shall continue to perform its obligations under this Lease
even if Tenant claims that Tenant has been damaged by any act or
omission of Landlord. Therefore, Tenant shall at all times remain
obligated under this Lease without any right of set-off,
counterclaim, abatement, deduction, reduction or defense of any
kind. Tenant's sole right to recover damages against Landlord by
reason of a breach or alleged breach of Landlord's obligations
under this Lease shall be to prove such damages in a separate
action against Landlord.
3. Taxes Assessments and Other Charges:
3.1 Tenant's Obligations. Tenant agrees to pay and
discharge (including the filing of all required returns) any and
all taxes (including but not limited to real estate and personal
property taxes, business and occupational license taxes, ad
valorem sales, use, single business, gross receipts, transaction
privilege, rent or other excise taxes) and other assessments
levied or assessed against the Premises or any interest therein
during the Term, prior to delinquency or imposition of any fine,
penalty, interest or other cost. Notwithstanding the foregoing,
nothing contained in this Lease shall be construed to require
Tenant to pay (a) customary federal or state income taxes based
on Landlord's net income (expressly excluding any franchise or
business privilege tax assessed with respect to the Premises),
(b) any tax imposed with respect to the sale, exchange or other
disposition by Landlord of the Premises or the proceeds thereof,
or (c) except as expressly provided elsewhere in this Lease with
respect to the NHI Indebtedness, any
principal or interest regarding any mortgage or other encumbrance
with respect to the Landlord's interest in the Premises.
3.2 Proration. At the commencement and at the end of the
Term, all such taxes and assessments shall be prorated.
3.3 Right to Protest. Landlord and/or Tenant shall have the
right, but not the obligation, to protest the amount or payment
of any real or personal property taxes or assessments levied
against the Premises; provided that in the event of any protest
by Tenant, Landlord shall not incur any expense because of any
such protest, Tenant shall diligently and continuously prosecute
any such protest at its sole cost and expense and notwithstanding
such protest Tenant shall pay any tax, assessment or other charge
before the imposition of any penalty or interest. If Tenant
chooses to protest, Landlord will cooperate therewith.
3.4 Tax Bills. Landlord shall promptly forward to Tenant
copies of all tax bills and payment receipts relating to the
Premises received by Landlord, and Tenant, upon paying any such
tax bill, shall promptly forward to Landlord evidence of such
payment.
3.5 Other Charges. Tenant agrees to pay and discharge,
punctually as and when the same shall become due and payable
without penalty, all electricity, gas, garbage collection, cable
television, telephone, water, sewer, and other utilities costs
and all other charges, obligations or deposits assessed against
the Premises during the Term.
4. Insurance.
4.1 General Insurance Requirements . All insurance
provided for in this Lease shall be obtained by the Tenant at its
sole cost and expense and shall be maintained under valid and
enforceable policies issued by insurers of recognized
responsibility, licensed and approved to do business in the
Commonwealth of Massachusetts, having a general policyholders
rating of not less than "A" in the then most current Best's
Insurance Report. Any and all policies of insurance required
under this Lease shall name the Landlord as a so-called "named
insured" and NHI as an additional insured and shall be on an
"occurrence" basis. In addition, NHI shall be shown as the loss
payable beneficiary under the casualty insurance policy
maintained by Tenant pursuant to Section 4.2. All policies of
insurance required herein may be in the form of "blanket" or
"umbrella" type policies which shall name the NHI, Landlord and
Tenant as their interests may appear and allocate to the Premises
the full amount of insurance required hereunder. Certified copies
of the policies or satisfactory certificates from the insurers
evidencing the existence of all policies of insurance required by
this Lease and showing the interest of the Landlord and NHI shall
be filed with the Landlord prior to the commencement of the Term
and shall provide that the subject policy may not be canceled
except upon not less than ten (10) days prior written notice to
Landlord. If Landlord is provided with a certificate, upon
Landlord's request Tenant shall provide Landlord with a complete
copy of the insurance policy evidenced by such certificate within
30 days of the commencement of the Term. Certified copies of the
renewal policies or certificates therefore from the insurers
evidencing the existence thereof shall be
deposited with Landlord not less than ten (10) days prior to the
expiration dates of the policies. If Landlord is provided with a
certificate for a renewal policy, upon Landlord's request Tenant
shall deliver a copy of the complete renewal policy to Landlord
within 30 days of the expiration of the replaced policy. Any
claims under any policies of insurance described in this Lease
shall be adjudicated by and at the expense of the Tenant or of
its insurance carrier, but shall be subject to joint control of
Tenant and Landlord. Notwithstanding any particular amounts
specified in this Lease for Tenant's insurance coverage, Landlord
shall have the right at any time hereafter to require such higher
limits as it may determine in its reasonable discretion are
prudent.
4.2 Fire and Other Casualty. Tenant shall keep the
Premises insured against loss or damage from all causes under
standard "all risk" property insurance coverage, without
exclusion for fire, lightning, windstorm, explosion, smoke
damage, vehicle damage, sprinkler leakage, flood, vandalism,
earthquake, malicious mischief or any other risk as is normally
covered under an extended coverage endorsement, in the amounts
that are not less than the full insurable value of the Premises
including all equipment and personal property (whether or not
Landlord Personal Property) used in the operation of the
Premises, but in no event less than the full insurable value of
the Premises from time to time, and together with an agreed
amount endorsement, a replacement cost endorsement and a waiver
of subrogation endorsement. During any period of construction
such insurance shall be on a builder's risk, completed value,
non-reporting form (including all risk and extended coverage,
collapse, cost of demolition, increased cost of construction and
value of undamaged portion of improvements protection). The term
"full insurable value" as used in this Lease shall mean the
actual replacement value of the Premises (including all
improvements) and every portion thereof, including the cost of
compliance with changes in zoning and building codes and other
laws and regulations, demolition and debris removal and increased
cost of construction. In addition, the casualty insurance
required under this Section 4.2 will include an agreed amount
endorsement such that the insurance carrier has accepted the
amount of coverage and has agreed that there will be no co-
insurance penalty.
4.3 Public Liability . Tenant shall maintain comprehensive
general public liability insurance coverage (including products
liability coverage) against claims for bodily injury, death or
property damage occurring on, in or about the Premises and the
adjoining sidewalks and passageways, such insurance to include a
broad form endorsement and to afford protection to Landlord and
Tenant of not less than Three Million Dollars ($3,000,000) per
occurrence with respect to bodily injury or death to any one
person, and not less than Three Million Dollars ($3,000,000) with
respect to property damage.
4.4 Professional Liability Insurance. Guarantor or
Tenant shall maintain insurance against liability imposed by law
upon Guarantor and its Affiliates (including Tenant) for damages
on account of professional services rendered or which should have
been rendered by Guarantor and Tenant or any person for which
acts Guarantor or Tenant is legally liable on account of injury,
sickness or disease, including death at any time resulting
therefrom, and including damages allowed for loss of service, in
a minimum amount of Three Million Dollars ($3,000,000.00) for
each claim.
4.5 Workers Compensation. Tenant shall comply with all legal
requirements regarding worker's compensation, including any
requirement to maintain worker's compensation insurance against
claims for injuries sustained by Tenant's employees in the course
of their employment.
4.6 Boiler Insurance . Tenant shall maintain boiler and
pressure vessel insurance, including an endorsement for boiler
business interruption insurance, on any fixtures or equipment
which are capable of bursting or exploding, in an amount not less
than One Million Dollars ($1,000,000) for damage to Premises,
bodily injury or death resulting from such perils.
4.7 Business Interruption Insurance. Tenant shall maintain,
at its expense, business interruption and extra expense insurance
insuring not less than one (1) year's Minimum Rent.
4.8 Deductible Amounts. The policies of insurance which
Tenant is required to provide
under this Lease will not have deductibles or self-insured
retentions in excess of Ten Thousand Dollars ($10,000).
5. Use, Maintenance and Alteration of the Premises.
5.1 Tenant's Maintenance Obligations.
5.1.1 General Facility Maintenance. At its sole cost
and expense, Tenant will
keep and maintain the Premises in good appearance, repair
and condition and maintain proper housekeeping. Tenant
shall promptly make or cause to be made all repairs,
interior and exterior, structural and nonstructural,
ordinary and extraordinary, foreseen and unforeseen,
necessary to keep the Premises in good and lawful order and
condition and in substantial compliance with all
requirements for the licensing of a Nursing Home in the
Commonwealth of Massachusetts and certification for
participation in Medicare and Medicaid (or any successor
programs) or as otherwise required under all applicable
local, state and federal laws.
5.1.2 Personal Property . As part of Tenant's
obligations under this Section 5.1, Tenant shall be
responsible to maintain, repair and replace all Landlord
Personal Property and all Tenant Personal Property (as
defined in Section 7.1 below) in good condition, ordinary
wear and tear excepted, consistent with prudent Nursing Home
industry practice.
5.1.3 Required Capital Expenditures . Without
limiting Tenant's obligations to maintain the Premises under
this Lease, within thirty (30) days of the end of each Lease
Year starting with the end of the third (3rd) Lease Year
during the Initial Term, Tenant shall provide Landlord with
evidence satisfactory to Landlord, in the reasonable
exercise of Landlord's discretion, that the Tenant has spent
on Capital Expenditures (as hereinafter defined) an annual,
average amount over the preceding three (3) year period in
each case of at least $500 per Facility bed (the "Capital
Expenditure Target"). If the Tenant fails to make at least
the Capital Expenditure Target in any Lease Year, Tenant
shall pay to
Landlord the difference between the Capital Expenditures
Target for the Lease Year in question and the amount
actually spent by the Tenant on Capital Expenditures in
such year (the "Shortage"). In the event a Shortage occurs,
Tenant shall pay such Shortage in nine (9) equal monthly
installments to Landlord commencing on the first (1St) day
of the fourth (4th) month immediately following the Lease
Year in question; and the Landlord, or its lender, National
Health Investors, Inc., a Maryland corporation ("NHI")
shall hold the Shortage in a separate deposit account (the
"Capital Improvement Reserve"). Absent the occurrence and
continuation of any Event of Default, any earnings on the
Capital Improvements Reserve shall be paid quarterly to the
Tenant. If the Tenant elects or is required to spend more
than the Capital Expenditure Target in any subsequent Lease
Year, Tenant may use funds from the Capital Improvement
Reserve to pay such costs subject to the terms and
conditions specified in that certain Capital Improvement
Reserve Agreement by and between Landlord, NHI and Tenant
of even date herewith. Any Capital Expenditures made by
Tenant in any Lease Year in excess of the Capital
Expenditure Target shall be credited against future
obligations of Tenant to make Capital Expenditures, and in
no event shall Tenant be required to fund further Shortages
at any time that the balance of the Capital Improvement
Reserve together with the like reserve under the Holyoke
Lease (as defined below) is equal or greater than $500,000,
all as more particularly set forth in the foregoing Capital
Improvement Reserve Agreement.
5.1.3(a) "Capital Expenditures" means, for any
period, the aggregate amount (without duplication) of all
expenditures made by Tenant during the period in
connection with the Facility, whether paid in cash or
other consideration, to acquire fixed or capital assets
or make repairs, renovations or improvements to the
Facility that in accordance with GAAP would be classified
as Capital Expenditures.
5.2 Regulatory Compliance.
5.2.1 Tenant covenants that during the Term, Tenant
and the Premises shall comply with all federal, state and
local licensing and other laws and regulations applicable to
Nursing Home facilities as well as with the certification
requirements of Medicare and Medicaid (or any successor
program). Further, Tenant shall ensure that the Premises
continue to be licensed as a Nursing Home beds at all times
certified for participation in Medicare and Medicaid (or any
successor program) throughout the Term and at the time the
Premises are returned to Landlord at the termination
thereof, all without any suspension, revocation or
decertification, and without any penalty which is not fully
satisfied, or material limitation which is not removed,
within sixty (60) days from the imposition thereof (or such
lesser time period as may be required by the relevant
program). Further, Tenant shall not commit any act or
omission that would in any way violate any certificate of
occupancy affecting the Premises.
5.2.2 During the Term, all inspection fees, costs
and charges associated with a change of any licensure or
certification shall be borne solely by Tenant. Tenant shall
at its
sole cost make any additions or alterations to the Premises
necessitated by, or imposed in connection with, a change of
ownership inspection survey for the transfer of operation
of the Premises from Tenant or Tenant's assignee or
subtenant to Landlord or Landlord's designee at the
expiration or earlier termination of the Term in accordance
herewith.
5.3 Permitted Use. Tenant shall continuously use and occupy
the Premises during the Term, solely as a Nursing Home licensed
for not less than one hundred twenty (120) beds, except in the
event of a casualty or taking. Tenant shall not permit in the
Premises any nuisance, or the emission from the Premises of any
objectionable noise, odor or vibration, nor use or devote the
Premises or any part thereof for any purpose which is contrary to
any applicable law, nor permit any waste in or with respect to
the Premises.
5.4 No Liens: Permitted Contests. Tenant shall not cause
or permit any liens, levies or attachments to be placed or
assessed against the Premises or the operation thereof for any
reason (expressly excluding the security interests permitted
under Section 7.2.2 hereof). However, Tenant shall be permitted
in good faith and at its expense to contest the existence, amount
or validity of any lien upon the Premises by appropriate
proceedings sufficient to prevent the collection or other
realization of the lien or claim so contested, as well as the
sale, forfeiture or loss of any of the Premises or any rent to
satisfy the same. Tenant shall provide Landlord with security
satisfactory to Landlord in Landlord's reasonable judgment to
assure the foregoing. Each contest permitted by this Section 5.4
shall be promptly and diligently prosecuted to a final conclusion
by Tenant.
5.5 Alterations by Tenant . Tenant shall have the right of
altering, improving, replacing, modifying or expanding the
facilities, equipment or appliances in the Premises from time to
time as it may determine is desirable for the continuing and
proper use and maintenance of the Premises under this Lease;
provided, however, that any structural alterations, improvements,
replacements, expansions or modifications in excess of One
Hundred Thousand Dollars ($100,000) which are not required to
comply with applicable law or the provisions of Section 5.1.3 of
this Lease shall require the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The
cost of all such alterations, improvements, replacements,
modifications, expansions or other purchases, whether undertaken
as an on-going licensing, Medicare or Medicaid (or any successor
program) or other regulatory requirement or otherwise shall be
borne solely and exclusively by Tenant and shall immediately
become a part of the Premises and the property of the Landlord
subject to the terms and conditions of this Lease. All work done
in connection therewith shall be done in a good and workmanlike
manner and in compliance with all existing codes and regulations
pertaining to the Premises and shall comply with the requirements
of insurance policies required under this Lease. In the event any
items of the Premises have become inadequate, obsolete or worn
out or require replacement (by direction of any regulatory body,
third party payor or otherwise), Tenant shall remove such items
and exchange or replace the same at Tenant's sole cost and the
same shall become part of the Premises and property of the
Landlord.
6. Condition of Premises, Option to Purchase, Renewal Term, Etc.
6.1 Condition And Title Of Premises. Tenant accepts the
Premises for use as a Nursing Home under this Lease on an "AS IS"
basis and will assume all responsibility and cost for the
correction of any observed or unobserved deficiencies or
violations. In making its decision to enter into this Lease,
Tenant has not relied on any representations or warranties,
express or implied, of any kind from Landlord other than as
expressly set forth in that certain Agreement to Lease dated
March~ 1997 between Landlord and Tenant (the "Agreement to
Lease"). Tenant has examined the condition of title to the
Premises prior to the execution and delivery of this Lease and
has found the same to be satisfactory
6.2 Option to Purchase the Premises . Provided no Event
of Default (as defined in Section 10 below) has occurred and is
continuing as of the Tenant's exercise of its option to purchase
the Premises pursuant to this Section 6.2 or at the closing date
established to consummate the purchase of the Premises pursuant
to the Tenant's exercise of such option (except as provided in
Section 6.2.2(c) below), Tenant shall have the option to purchase
the Premises upon the following terms and conditions:
6.2.1 At any time during the Initial Term before
the close of business on that date which is thirty (30) days
prior to the third (3rd) anniversary of the Commencement
Date, the Tenant may exercise its option to purchase all but
not less than all of the Premises by giving Landlord written
notice thereof.
6.2.2 The purchase price (the "Purchase Price") for
both the Premises and the Holyoke Premises (as defined in
Section 6.4 below) shall be equal to $1,500,000 (the
"Closing Payment") payable as follows plus Tenant's
assumption of the then outstanding balance of the NHI
Indebtedness (as hereinafter defined):
(a) The Tenant shall tender a portion of the Closing
Payment in an amount not less than $750,000 in cash,
with the balance of the Closing Payment to be paid to
the Landlord in the form of a purchase money promissory
note providing for the
following principal terms all as more particularly set
forth in the Promissory Note attached hereto as
Schedule 6.2.2 (the "Seller Note"):
(i) annual interest rate of 8% during the first
year thereof, and an annual interest rate of ten
percent (10%) thereafter until maturity;
(ii) payable in equal monthly installments of
principal and interest based on a ten (10) year
amortization schedule;
(iii) the outstanding balance of the Seller Note shall
be due in full on _________ 2007;
The foregoing indebtedness shall be secured by (x)
mortgages in form and substance reasonably satisfactory to
Tenant and its counsel encumbering the Premises and the
Holyoke Premises, which mortgages shall be subordinate in
all respects to the NHI Indebtedness or any other
indebtedness incurred by Tenant in substitution thereof and
(y) guaranties from Guarantor in the form attached hereto
as Schedule 6.2.2(a). The Purchase Price shall be allocated
among the Premises, the Holyoke Premises, the personal
property located thereon and certain other assets
incorporated therein as set forth in the Agreement to
Lease.
(b)All of Landlord's rights and obligations in and with respect
to the NHI Indebtedness including, in particular, and without
limitation, all so-called reserve accounts, and all rights to
receive the Additional Funds (as defined in Section 17.3 below)
shall be assigned to Tenant on the closing date set forth below,
and all obligations thereunder shall be assumed by Tenant as of
such date, all as more particularly set forth in the Assignment
and Assumption Agreement attached hereto as Schedule 6.2.2(b).
(c) If an Event of Default may be cured by the payment
of money, Tenant may exercise its option to purchase
the Premises provided that Tenant pays all
amounts necessary to cure any such Event of Default
simultaneously with the
closing of such purchase transaction, including,
without limitation, any outstanding Total Rent then
due and owing Landlord.
6.2.3 Once the Purchase Price is established pursuant to
the above, Landlord as seller and the Tenant as buyer shall
within seven (7) days after such determination establish an
escrow to consummate such purchase with Landlord's counsel on the
following terms: (i) the form of escrow instructions to be then
signed by Landlord and the Tenant and all other documents
delivered in connection with any such transfer of the Premises
shall not provide for any representations or warranties regarding
the Premises (without affecting any representations or warranties
contained in the Agreement to Lease) nor any due diligence or
other contingencies in favor of the Tenant, (ii) the Purchase
Price shall be payable as provided above and on the closing date
established by Tenant at a date prior to the third (3rd)
anniversary of the Commencement Date, (iii) the transaction costs
shall be allocated between the parties in accordance with
customary practices, (iv) at close, Landlord shall deliver title
to the Premises to the Tenant or its designee subject only to the
Permitted Exceptions (as defined below), (v) the sale escrow
instructions shall provide for a deposit equal to five percent
(5%) of the Closing Payment and shall provide that the deposit
may be retained by Landlord as liquidated damages in the event of
any breach by the Tenant of the terms of the escrow instructions
(provided, however, such liquidated damages shall relate only to
Landlord1s damages by reason of a breach of the escrow
instructions and shall in no way liquidate or limit Landlord's
damages by reason of a breach of this Lease) or in the
alternative, Landlord may elect to pursue its rights and remedies
in equity, including, without limitation, Landlord's right to sue
for specific performance of Tenant's obligation to acquire the
Premises pursuant to this Section 6.2, and (vi) the escrow
instructions shall otherwise be in form and substance reasonably
satisfactory to Landlord and Tenant. As
used in this Lease the "Permitted Exceptions" shall consist
solely of those title matters set forth on Exhibit D hereto or
any other encumbrances (i) approved in writing by Tenant in its
sole discretion, or (ii) created by or through the acts or
omissions of Tenant including, without limitation, any tax liens
or other encumbrances resulting from Tenant's failure to fulfill
its obligations to pay all taxes and other amounts due and owing
under this Lease. In the event of a breach by Landlord of its
obligation to convey the Premises under this Section 6.2, the
Tenant shall be entitled to sue for specific performance thereof
or, in the alternative, immediately recover its deposit against
the Purchase Price. Moreover, in the event either party breaches
its obligations under this Section 6.2, the prevailing party in
any resulting litigation, regardless of whether the same is
prosecuted to judgment, shall be entitled to recover its
enforcement expenses, including reasonable attorney's fees and
court costs, in addition to its other damages.
6.3 Renewal Term. If the Tenant elects not to exercise
its option to purchase the Premises under Section 6.2 or if the
Tenant fails to close the escrow for any reason other than a
breach by Landlord, then the Initial Term shall automatically be
extended and renewed for an additional period of five (5) years
(the "Renewal Term"). The Additional Rent and Minimum Rent during
the Renewal Term shall be calculated as provided in Section 2.3
and determined in all events by that date which is not later than
one hundred eighty (180) days prior to the expiration of the
Initial Term.
6.4 Holyoke Lease. Notwithstanding the foregoing or any
other provision hereof, it shall be a condition of the exercise
of any of its purchase rights under this Lease that Tenant shall
have previously, or simultaneously with its exercise hereunder,
exercised similar purchase option rights under that certain lease
agreement (the "Holyoke Lease") of even date herewith between
Tenant and Buckley Nursing Home, Inc., a Massachusetts
corporation and a party to the Agreement to Lease ("Buckley")
with respect to that certain Nursing Home facility owned by
Buckley and located in Holyoke, Massachusetts (the "Holyoke
Premises").
7. Landlord and Tenant Personal Property.
7.1 Tenant Personal Property. At its sole expense,
Tenant shall install, affix or assemble or place on the Premises
all items of furniture, fixtures, equipment and supplies not
included as Landlord Personal Property as Tenant reasonably
considers to be appropriate for Tenant's use of the Premises as
contemplated by this Lease (the "Tenant Personal Property").
Tenant shall provide and maintain during the entire Term all
Tenant Personal Property as shall be necessary in order to
operate the Premises in compliance with all requirements set
forth in this Lease. All Tenant Personal Property shall be and
shall remain the property of Tenant and may be removed by Tenant
upon the expiration of the Term. However, if there is any Event
of Default, Tenant will not remove the Tenant Personal Property
from the Premises and will on demand from Landlord, convey the
Tenant Personal Property to Landlord by executing a bill of sale
in a form reasonably required by Landlord. In any event, Tenant
will repair all damage to the Premises caused by any removal of
the Tenant Personal Property.
7.2 Landlord's Security Interest.
7.2.1 The parties intend that if Tenant defaults
under this Lease, Landlord will control the Tenant Personal
Property and the Intangible Property (as defined in Section
7.4 below) so that Landlord or its designee can operate or
re-let the Premises intact for use as a Nursing Home.
7.2.2 Therefore, to implement the intention of the
parties, and for the purpose of securing the payment and
performance of Tenant's obligations under this Lease,
Tenant, as debtor, hereby grants to Landlord, as secured
party, a security interest in and an express contractual
lien upon, all of Tenant's right, title and interest in and
to the Tenant Personal Property and, to the extent permitted
by law (subject to the obligation of Tenant to fully
cooperate in connection therewith), in and to the Intangible
Property and any and all products and proceeds thereof, in
which Tenant now owns or hereafter acquires an interest or
right, including any leased Tenant Personal Property. This
Lease constitutes a security agreement covering all such
Tenant Personal Property and the Intangible Property. The
security interest granted to Landlord in this Section 7.2.2.
is intended by Landlord and Tenant to be subordinate to (i)
the security interest granted of even date herewith in and
to Tenant's accounts receivable granted to HCFP Funding,
Inc. (the "Working Capital Lender"), and securing the
obligations of Tenant to the Working Capital Lender in an
amount not to exceed $1,000,000 in the aggregate (when taken
together with all security interests granted by Tenant in
its accounts receivable to parties other than Buckley with
respect to the Holyoke Lease), (ii) any security interest
granted in connection with the financing or leasing of all
or any portion of the Tenant Personal Property so long as
the lessor or financier of such Tenant Personal Property
agrees to give Landlord written notice of any default by
Tenant under the terms of such lease or financing
arrangement, to give Landlord a reasonable time following
such notice to cure any such default and to consent to
Landlord's written assumption of such lease or financing
arrangement upon Landlord's curing of any defaults
thereunder, and (iii) shall be subordinated in the future
with respect to any security interest granted in and to
Tenant's accounts receivable in the event Tenant enters into
a financing arrangement whereby its accounts receivable are
pledged or otherwise encumbered in an amount not to exceed
$1,000,000 in the aggregate when taken together with all
security interests granted by Tenant in its accounts
receivable as provided in clause (i) above and then in
effect. This security agreement and the security interest
created herein shall survive the termination of this Lease
if such termination results from the occurrence of an Event
of Default.
7.3 Financing Statements. If required by Landlord at any
time during the Term, Tenant will execute and deliver to
Landlord, in form reasonably satisfactory to Landlord, additional
security agreements, financing statements, fixture filings and
such other documents as Landlord may reasonably require to
perfect or continue the perfection of Landlord's security
interest in the Tenant Personal Property and the Intangible
Property and any and all products and proceeds thereof now owned
or hereafter acquired by Tenant. Tenant shall pay all fees and
costs that
Landlord may incur in filing such documents in public offices and
in obtaining such record searches as Landlord may reasonably
require. In the event Tenant fails to execute any financing
statements or other documents for the perfection or continuation
of Landlord's security interest, Tenant hereby appoints Landlord
as its true and lawful attorney-in-fact to execute any such
documents on its behalf, which power of attorney shall be
irrevocable and is deemed to be coupled with an interest.
7.4 Intangible Property . The term " Intangible Property"
means all of Tenant's accounts, proceeds of accounts, rents,
profits, income or revenue derived from the use of rooms or other
space within the Premises or the providing of services in or from
the Premises; documents, chattel paper, instruments, contract
rights, deposit accounts, general intangibles, choses in action,
now owned or hereafter acquired by Tenant (including any right to
any refund of any taxes or other charges heretofore or hereafter
paid to any governmental authority) arising from or in connection
with Tenant's operation or use of the Premises; all licenses and
permits now owned or hereafter acquired by Tenant, necessary or
desirable for Tenant's use of the Premises under this Lease,
including without limitation, if applicable, any certificate of
need or other similar certificate; and the right to use any trade
or other name now or hereafter associated with the operation of
the Premises by Tenant. The word "accounts" above shall include,
without limitation and to the extent assignable, accounts to be
paid by Medicaid or Medicare (or successor programs).
8. Representations And Warranties . Landlord and Tenant do
hereby each for itself represent and warrant to each other as
follows:
8.1 Due Authorization And Execution . This Lease and all
agreements, instruments and documents executed or to be executed
in connection herewith by either Landlord or Tenant were duly
authorized and shall be binding upon the party that executed and
delivered the same.
8.2 Due Organization. Landlord and Tenant are duly
organized, validly existing and in good standing under the laws
of the State of their respective formations and are duly
authorized and qualified to do all things required of the
applicable party under this Lease within the Commonwealth of
Massachusetts.
8.3 No Breach of Other Agreements. Neither this Lease nor
any agreement, document or instrument executed or to be executed
in connection herewith, violates the terms of any other agreement
to which either Landlord or Tenant is a party.
9. Financial. Management and Regulatory Reports.
9.1 Monthly Facility Reports. Within thirty (30) days
after the end of each calendar month during the Term, Tenant
shall prepare and deliver monthly unaudited financial reports,
reviewed and certified by Tenant's Chief Financial Officer, to
Landlord consisting of a balance sheet, income statement
(including in-patient and outpatient revenues), together with an
aged accounts receivable report and reports listing licensed
beds, average daily census, admission and
length of stay and payor mix concerning the business conducted at
the Premises. Without limitation, such reports shall clearly
state Gross Revenues for the applicable period.
9.2 Quarterly Financial Statements . Within sixty (60)
days of the end of each of the first three quarters of each
calendar year during the Term, Tenant shall deliver the
quarterly, unaudited financial statements of Tenant, reviewed and
certified by Tenant's Chief Financial Officer to Landlord,
together with (i) an aged accounts receivable report in form and
substance reasonably satisfactory to Landlord, and (ii) a
Certificate of Compliance in the form attached hereto as Exhibit
E.
9.3 Annual Financial Statements. Within ninety (90) days
of each calendar year end during the Term, Tenant shall deliver
to Landlord its audited annual financial statements, in each case
certified in a manner acceptable to Landlord by independent
certified public accountants of recognized national standing
reasonably acceptable to Landlord, together with a report by such
accountants to the effect that, in making such annual report,
such accountants have not become aware (without special
investigation) of any Event of Default, or event which, after
notice of lapse of time, would constitute an Event of Default.
Moreover, if Tenant becomes subject to any reporting requirements
of the Securities and Exchange Commission (the "SEC") or produces
audited financial statements for the SEC or any other purpose
during the Term, Tenant shall promptly deliver such audited
financial statements to Landlord.
9.4 Accounting Principles. All of the reports and
statements required hereby shall be prepared in accordance with
GAAP and Tenant's accounting principles consistently applied.
9.5 Regulatory Reports. In addition, Tenant shall within
five (5) business days of receipt thereof deliver to Landlord all
federal, state and local licensing and reimbursement
certification surveys, inspections and other reports received by
Tenant as to the Premises and the operation of business thereon,
including, without limitation, state department of health
licensing surveys, Medicare and Medicaid (and successor programs)
certification surveys and life safety code reports. Within five
(5) business days of receipt of any written notice of any
violation of any federal, state or local licensing or
reimbursement certification statute or regulation including
without limitation Medicare or Medicaid (or successor programs),
any suspension, termination or restriction placed upon Tenant or
the Premises, the operation of business thereon or the ability to
admit patients, or any violation of any other permit, approval or
certification in connection with the Premises or its business, by
any federal, state or local authority including without
limitation Medicare or Medicaid (or successor programs) Tenant
shall provide Landlord with a copy thereof.
9.6 Miscellaneous Reports. Tenant shall also deliver the
following items to
Landlord:
(a) Capital Expenditure Compliance Certificate .
Within sixty (60) days after the end of each Lease Year
following the third (3rd) Lease Year, a Certificate
certified by
Tenant's Chief Financial Officer demonstrating compliance
with the Capital Expenditure requirements of Section 5.1.3
hereof,
(b) Event of Default Notices. Promptly after Tenant
obtains actual knowledge thereof, notice of the occurrence
of any Event of Default, or event which, after notice or
lapse of time (or both), would constitute an Event of
Default, together with a statement setting forth details of
such Event of Default or event and the action that Tenant
has taken and proposes to take with respect thereto;
(c) Guarantors Reports. A current Financial
Statement of the Guarantor updated each Lease Year during
the Term of this Lease;
(d) Malpractice Matters. Promptly upon Tenant's
receipt, written notice of the filing of any medical
malpractice action against Tenant seeking damages in excess
of One Hundred Fifty Thousand and No/100 Dollars
($150,000.00);
(e) Working Capital Account. Promptly upon Tenant's
receipt, copies of the monthly bank statements for the (i)
working capital accounts, and (ii) unconditional line(s) of
credit from Working Capital Lender(s) designated for the
sole use of Tenant in connection with the Nursing Homes
located at the Premises and the Greenfield Premises, which
items are used to satisfy the working capital requirements
with respect to the NHI Indebtedness; and
(f) Other Information. Such other information about
Tenant or the Facility as Landlord may reasonably request
from time to time.
10. Events of Default and Landlord's Remedies.
10.1 Events of Default. The occurrence of any of the
following shall constitute an event of default on the part of
Tenant hereunder ("Event of Default"):
10.1.1 The failure to pay within ten (10) calendar
days of the date when due any Minimum Rent, Additional Rent,
taxes or assessments, utilities, premiums for insurance or
other charges or payments required of Tenant under this
Lease;
10.1.2 A breach of any of the representations,
warranties or covenants in favor of Landlord as set forth in
the Agreement to Lease, any guaranties or other agreements
of even date herewith relating to the transactions
contemplated hereby, which breach continues beyond any
applicable period of notice and grace, if any;
10.1.3 The occurrence of any Event of Default
under, and as defined in, the Holyoke Lease.
10.1.4 Any material misstatement or omission of
fact in any written report, notice or communication from
Tenant, or any Guarantor to Landlord with respect to Tenant,
any Guarantor, or the Premises;
10.1.5 An assignment by Tenant, or any Guarantor of
all or substantially all of its property for the benefit of
creditors;
10.1.6 The appointment of a receiver, trustee, or
liquidator for Tenant, or any Guarantor, or any of the
property of Tenant or any Guarantor, if within three (3)
business days of such appointment Tenant does not inform
Landlord in writing that such party intends to cause such
appointment to be discharged or such party does not
thereafter diligently prosecute such discharge to completion
within thirty (30) days after the date of such appointment;
10.1.7 The filing by Tenant or any Guarantor of a
voluntary petition under any federal bankruptcy law or under
the law of any state to be adjudicated as bankrupt or for
any arrangement or other debtor's relief, or in the
alternative, if any such petition is involuntarily filed
against Tenant, or Guarantor by any other party and Tenant
or Guarantor, as the case may be, does not within three (3)
business days of any such filing inform Landlord in writing
of its intent to cause such petition to be dismissed, or if
Tenant or Guarantor does not thereafter diligently prosecute
such dismissal, or if such filing is not dismissed in any
event within ninety (90) days after filing thereof,
10.1.8 The failure to perform or comply with any
other term or provision of this Lease not requiring the
payment of money, including, without limitation, the failure
to comply with the provisions hereof pertaining to the use,
operation and maintenance of the Premises or the breach of
any representation or warranty of Tenant in this Lease;
provided, however, the default described in this Section
10.1.10 is curable and shall be deemed cured, if: (i) within
three (3) business days of Tenant's receipt of a notice of
default from Landlord, Tenant gives Landlord notice of its
intent to cure such default; and (ii) Tenant cures such
default within thirty (30) days after such notice from
Landlord, unless such default cannot with due diligence be
cured within a period of thirty (30) days because of the
nature of the default or delays beyond the control of
Tenant, and cure after such thirty (30) day period will not
have a material and adverse effect upon the Premises, in
which case such default shall not constitute an Event of
Default if Tenant uses diligent efforts to cure such default
by promptly commencing and diligently pursuing such cure to
the completion thereof, provided, however, no such default
shall continue for more than one hundred twenty (120) days
from Tenant's receipt of a notice of default from Landlord;
10.1.9 There shall be no cure period in the event
of the breach by Tenant of (i) the obligation to provide
replacement policies of insurance as required in Section 4.1
above, the provisions of Section 22 below with respect to
assignments and other related matters; and
10.1.10 All notice and cure periods provided herein
shall run concurrently with any notice or cure periods
provided by applicable law.
10.1.11 Liquidated Damages . Notwithstanding the
foregoing or any other provision hereof or contained in the
Holyoke Lease to the contrary, upon the occurrence of an
Event of Default, the Tenant may elect, by written notice to
the Landlord at any time following such occurrence, to
acquire the Premises (together with the Holyoke Premises)
and pay to the Landlord, as liquidated damages, the Purchase
Price (as defined and described in Section 6.2 above)
together with any amount of Total Rent or other charges then
due under this Lease (prior to any exercise of Landlord's
remedies pursuant to Section 10.2 hereof and exclusive of
any payment obligations set forth therein) provided,
however, that if a default then exists under and with
respect to the NHI Indebtedness such that NHI will not
permit the same to be assumed by the Tenant as anticipated
under Section 6.2, then the portion of the Purchase Price
equal to the Current Indebtedness (as defined in Section
17.2 below) shall be due and payable in cash upon the
closing of such transaction. Landlord shall accept the
foregoing payments by the Tenant as liquidated damages and
Landlord's sole remedy for any such Event of Default
provided that the same is paid to the Landlord no later then
ninety (90) days following Tenant's notice, as aforesaid,
whereupon Landlord shall convey the Premises and the Holyoke
Premises to the Tenant in accordance with the applicable
provisions of Section 6.2 including, without limitation,
the provisions governing the Seller Note.
10.2 Remedies. Upon the occurrence of an Event of
Default, Landlord may exercise all rights and remedies under this
Lease and the laws of the Commonwealth of Massachusetts available
to a lessor of real and personal property in the event of a
default by its lessee, and as to the Tenant Personal Property and
Intangible Property all remedies granted under the laws of the
Commonwealth of Massachusetts to a secured party under its
Uniform Commercial Code. Without limiting the foregoing, Landlord
shall have the right to do any of the following:
10.2.1 Sue for the specific performance of any
covenant of Tenant under this Lease as to which Tenant is in
breach:
10.2.2 Upon compliance with the requirements of
applicable law, Landlord may do any of the following: enter
upon the Premises, terminate this Lease, dispossess Tenant
from the Premises and/or collect money damages by reason of
Tenant's breach, including without limitation all rent which
would have accrued after such termination and all
obligations and liabilities of Tenant under this Lease which
survive the termination of the Term;
10.2.3 Elect to leave this Lease in place and sue
for rent and/or other money damages as the same come due;
10.2.4 Before or after repossession of the Premises
pursuant to Section 10.2.2, and whether or not this Lease
has been terminated, Landlord shall have the right (but
shall be under no obligation) to relet any portion of the
Premises to such tenant or tenants, for such term or terms
(which may be greater or less than the remaining balance of
the Term), for such rent, on such conditions (which may
include concessions or free rent) and for such uses, as
Landlord, in its absolute discretion, may determine, and
Landlord may collect and receive any rents payable by reason
of such reletting. Landlord shall have no duty to mitigate
damages unless required by applicable law and shall not be
responsible or liable for any failure to relet any of the
Premises or for any failure to collect any rent due upon any
such reletting. Tenant agrees to pay Landlord, immediately
upon demand, all expenses incurred by Landlord in obtaining
possession and in reletting any of the Premises, including
fees, commissions and costs of attorneys, architects,
contractors, agents and brokers;
10.2.5 Sell the Tenant Personal Property in a
nonjudicial foreclosure sale pursuant to the procedures
therefor provided under the Uniform Commercial Code, as
enacted in the Commonwealth of Massachusetts.
10.2.6 For the purpose of calculating rent loss
damages payable to Landlord, Additional Rent for all periods
after an Event of Default shall be calculated based on the
higher of actual Gross Revenues or extrapolated Gross
Revenues based on Gross Revenues generated prior to the
Event of Default.
10.3 Receivership. Tenant acknowledges that one of the
rights and remedies available to Landlord under applicable law is
to secure a court-appointed receiver to take possession of the
Premises, to collect the rents, issues, profits and income of the
Premises, and to manage the operation of the Premises. Tenant
further acknowledges that the revocation, suspension or material
limitation of the certification of the Premises for provider
status under Medicare or Medicaid (or successor programs) and/or
the revocation, suspension or material limitation of the license
of the Premises as a Nursing Home under the laws of the
Commonwealth of Massachusetts will materially and irreparably
impair the value of Landlord's investment in the Premises.
Therefore, in any of such events, and in addition to any other
right or remedy of Landlord under this Lease, Tenant hereby
consents to the appointment of such a receiver to enter upon and
take possession of the Premises, to manage the operation of the
Premises, to collect and disburse all rents, issues, profits and
income generated thereby and to preserve or replace to the extent
possible the Nursing Home license and provider certification of
the Premises or to otherwise substitute the licensee or provider
thereof. The receiver shall be entitled to a reasonable fee for
its services as a receiver. All such fees and other expenses of
the receivership estate shall be added to the monthly rent due to
Landlord under this Lease. Tenant hereby irrevocably stipulates
to the appointment of a receiver under such circumstances and for
such purposes and agrees not to contest such appointment.
10.4 Late Charges . Tenant acknowledges that the late
payment of any Minimum Rent or Additional Rent will cause
Landlord to lose the use of such 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, if any installment of Minimum Rent or
Additional Rent is not paid within ten (10) calendar days after
the due date for such rent payment, then Tenant shall thereafter
pay to Landlord on demand a late charge equal to five percent
(5%) of the amount of any installment of Minimum Rent or
Additional Rent not paid on the due date. 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.
10.5 Remedies Cumulative: No Waiver. No right or remedy
herein conferred upon or reserved to Landlord or Tenant is
intended to be exclusive of any other right or remedy, and each
and every right and remedy shall be cumulative and in addition to
any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No failure of Landlord or Tenant to
insist at any time upon the strict performance of any provision
of this Lease or to exercise any option, right, power or remedy
contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof as to any similar or
different breach (future or otherwise) by Tenant or Landlord, as
the case may be. A receipt by Landlord of any rent or other sum
due hereunder (including any late charge) with knowledge of the
breach of any provision contained in this Lease shall not be
deemed a waiver of such breach, and no waiver by Landlord or
Tenant of any provision of this Lease shall be deemed to have
been made unless expressed in a writing signed by Landlord or
Tenant, as the case may be.
10.6 Performance of Tenant's Obligations by Landlord. If
Tenant at any time shall
fail to make any payment or perform any act on its part required
to be made or performed under this Lease, then Landlord may (but
shall be under no obligation to), without waiving or releasing
Tenant from any obligations or default of Tenant hereunder, make
any such payment or perform any such act for the account and at
the expense of Tenant, and may enter upon the Premises for the
purpose of taking all such action thereon as may be reasonably
necessary there for. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all necessary and
incidental costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection
with the performance of any such act by Landlord, together with
interest at the per annum rate equal to the Bank of America
reference rate plus 5% (or if said interest rate is violative of
any applicable statute or law, then the maximum interest rate
allowable) from the date of the making of such payment or the
incurring of such costs and expenses by Landlord, shall be
payable by Tenant to Landlord on demand.
11. Additional Purchase Rights and Obligations.
11.1 Purchase Obligations. Tenant shall be obligated to
purchase the Premises from Landlord upon the following
conditions:
11.1.1 At any time during the Initial Term before
the close of business on that date which is thirty (30) days
prior to the third (3rd) anniversary of the Commencement
Date, Landlord shall have the right to put the Premises
(together with the Holyoke
Premises) to the Tenant provided that Tenant has met all
requirements for the advance of the Additional Funds (as
defined in Section 17 hereof) by NHI, as evidenced by the
financial reports prepared by Tenant and submitted to
Landlord in accordance with Section 9 hereof, and provided,
further that NHI has approved the same and committed in
writing to provide such funding. If Landlord exercises such
right, Tenant shall purchase the Premises (together with
the Holyoke Premises) for the Purchase Price set forth in
Section 6.2 hereof. The Purchase Price shall be payable as
provided in Section 6.2.2 and all other terms and
conditions of the conveyance of the Premises and the
Holyoke Premises to Tenant provided in Section 6.2 shall
apply to any exercise of the Landlord's rights under this
Section 11.1.1 including, without limitation, the
provisions governing the Seller Note and Landlord's
simultaneous exercise of its similar rights under the
Holyoke Lease. At the closing of the foregoing transaction,
Tenant shall also pay to Landlord all amounts of Total Rent
and other charges then due under this Lease and cure any
Event of Default then continuing which is curable by the
payment of money.
11.1.2 At any time following the determination of
Minimum Rent for the Renewal Term in accordance with Section
2.3, through the expiration of the first Lease Year of the
Renewal Term (i.e., the eleventh (11th) Lease Year),
Landlord shall have the right to put the Premises to Tenant.
If Landlord exercises such right, Tenant shall purchase the
Premises together with the Holyoke Premises from Landlord
for a cash price equal to $1,500,000 plus the Current
Indebtedness (as defined below) as of the closing date set
forth below. Within one hundred twenty (120) days of
Landlord's exercise of its put under this Section 11.1, such
purchase shall be consummated and the Landlord shall deliver
title to the Premises to Tenant subject only to the
Permitted Exceptions. At the closing of the foregoing
transaction, Tenant shall also pay to Landlord all amounts
of Total Rent and other charges then due under this Lease
and cure any Event of Default then continuing which is
curable by the payment of money.
It shall be a condition of Landlord's exercise of any of its
rights under this Section 11.1 that simultaneously therewith
Buckley shall have exercised its similar put rights under the
Holyoke Lease.
11.2 Additional Purchase Option. At anytime following
the determination of the Minimum Rent for the Renewal Term in
accordance with Section 2.3, through the expiration of the first
Lease Year of the Renewal Term (i.e. the eleventh (11th) Lease
Year), Tenant shall have the right to purchase the Premises
(together with the Holyoke Premises) from Landlord for a cash
price equal to $1,500,000 plus the Current Indebtedness as of the
closing date set forth below. Such purchase shall be consummated
and Landlord shall deliver title to the Premises to Tenant,
subject only to the Permitted Exceptions, on a date set therefor
by Tenant provided that such date shall not in any event be later
than one hundred twenty (120) days after the expiration of the
eleventh (11th) Lease Year. All other terms and conditions set
forth in Section 6.2 for such conveyance shall apply to Tenant's
exercise of its option rights under this Section 11.2, including
in particular and without limitation, that Tenant shall have
simultaneously exercised (and consummated) its similar purchase
rights under the Holyoke Lease. At the closing of the
foregoing transaction Tenant shall also pay to Landlord all
amounts of Total Rent and other charges then due under this Lease
and cure any Event of Default then continuing which is
curable by the payment of money.
12. Damage by Fire or Other Casualty.
12.1 Reconstruction Using Insurance. In the event of the
damage or destruction of the Premises, Tenant shall forthwith
notify Landlord and diligently repair or reconstruct the same to
a like or better condition than existed prior to such damage or
destruction, to the extent legally permitted to do so. Any net
insurance proceeds payable with respect to the casualty shall be
used for the repair or reconstruction of the Premises pursuant to
reasonable disbursement controls in favor of Landlord. If such
proceeds are insufficient for such purposes, Tenant shall provide
the required additional funds.
12.2 Surplus Proceeds . If there remains any surplus of
insurance proceeds after the completion of the repair or
reconstruction of the Premises, such surplus shall belong to and
be paid to Tenant provided that if any Event of Default then
exists which may be cured by the payment of money, any such
surplus insurance proceeds shall first be applied to curing any
such Event of Default.
12.3 No Rent Abatement . The rent payable under this Lease
shall not abate by reason of any damage or destruction of the
Premises by reason of an insured or uninsured casualty. Tenant
hereby waives all rights under applicable law to abate, reduce or
offset rent by reason of such damage or destruction.
13. Condemnation.
13.1 Complete Taking . If during the Term all or
substantially all of the Premises is taken or condemned by any
competent public or quasi-public authority, then Tenant may, at
Tenant's election, made within thirty (30) days of such taking by
condemnation, terminate this Lease, and the current Minimum Rent
and Additional Rent shall be prorated as of the date of such
termination. The award payable upon such taking shall be
allocated as follows:
(i) first to any Minimum Rent or other charges due
Landlord hereunder;
(ii) then to the Current Indebtedness;
(iii) upon satisfaction of the Current Indebtedness,
Landlord shall receive a portion of the remainder of
such award up to a maximum of $1,500,000; and
(iv) the balance, if any, remaining shall be paid to
Tenant.
Any amounts received by Landlord pursuant to this Section
13 shall in all events be credited against the monies due
Landlord in connection with any conveyance of the Premises
under this Lease (or the Holyoke Premises under the Holyoke
Lease); and notwithstanding any provision hereof or contained in
the Holyoke Lease to the contrary, upon a taking of the Premises
under this Section 13, Tenant shall have the absolute right to
elect anytime thereafter to acquire the Holyoke Premises in
accordance with the provisions of Section 6.2 thereof.
13.2 Partial Taking. In the event such condemnation
proceeding or right of eminent domain results in a taking of less
than all or substantially all of the Premises, the Minimum Rent
and Additional Rental thereto shall be abated to the same extent
as the diminution in the fair market value of the Premises by
reason of the condemnation. Such diminution in the fair market
value shall be as agreed between Landlord and Tenant, but failing
such agreement within thirty (30) days of the effective date of
the condemnation the same will be determined by appraisal
pursuant to Exhibit "C" attached hereto. Any amounts awarded for
a partial taking under this Section 13.2 shall be allocated and
credited as provided in Section 13.1 above provided that such
award shall first be made available to Tenant and used to restore
the Premises for the Permitted Uses.
13.3 Lease Remains in Effect. Except as provided above, this
Lease shall not terminate and shall remain in full force and
effect in the event of a taking or condemnation of the Premises,
or any portion thereof, and Tenant hereby waives all rights under
applicable law to abate, reduce or offset rent by reason of such
taking.
14. Provisions on Termination of Term.
14.1 Surrender of Possession. Tenant shall, on or before the
last day of the Term, or upon earlier termination of this Lease,
surrender to Landlord the Premises (including all patient charts
and records along with appropriate patient consents) in good
condition and repair, ordinary wear and tear excepted.
14.2 Removal of Personal Property. If Tenant is not then
in default hereunder Tenant shall have the right in connection
with the surrender of the Premises to remove from the Premises
all Tenant Personal Property but not the Landlord Personal
Property (including the Landlord Personal Property replaced by
Tenant or required by the Commonwealth of Massachusetts or any
other governmental entity to operate the Premises for the purpose
set forth in Section 5.3 above). Any such removal shall be done
in a workmanlike manner leaving the Premises in good and
presentable condition and appearance, including repair of any
damage caused by such removal. At the end of the Term or upon the
earlier termination of this Lease, Tenant shall return the
Premises to Landlord with the Landlord Personal Property (or
replacements thereof) in the same condition and utility as was
delivered to Tenant at the commencement of the Term, normal wear
and tear excepted.
14.3 Title to Personal Property Not Removed. Title to
any of Tenant Personal Property which is not removed by Tenant
upon the expiration of the Term shall, at Landlord's election,
vest in Landlord; provided, however, that Landlord may remove and
dispose at Tenant's expense
of any or all of such Tenant Personal Property which is not so
removed by Tenant without obligation or accounting to the Tenant.
14.4 Management of Premises. Upon the expiration or
earlier termination of the Term, Landlord or its designee, upon
written notice to Tenant, may elect to assume the
responsibilities and obligations for the management and operation
of the Premises and Tenant agrees to cooperate fully with
Landlord or its designee to accomplish the transfer of such
management and operation without interrupting the operation of
the Premises. Tenant shall not commit any act or be remiss in the
undertaking of any act that would jeopardize any licensure or
certification of the facility, and Tenant shall comply with all
requests for an orderly transfer of the Nursing Home license,
Medicare and Medicaid (or any successor program) certifications
and possession at the time of any such surrender. Upon the
expiration or earlier termination of the Term, Tenant shall
promptly deliver copies of all of Tenant's books and records
relating to the Premises and its operations to Landlord. In the
event Landlord elects not to assume the foregoing
responsibilities and continue the operation of the Facility upon
such expiration of the Term, Tenant shall be solely responsible
for relocating all residents of the Premises as may be required
by applicable laws then in effect.
14.5 Correction of Deficiencies . Upon termination or
cancellation of this Lease, Tenant shall indemnify Landlord for
any loss, damage, cost or expense incurred by Landlord to correct
all deficiencies of a physical nature identified by the
Massachusetts Department of Health and/or the Massachusetts
Department of Human Services or any other government agency or
Medicare or Medicaid (or any successor program) providers in the
course of the change of ownership inspection and audit.
15. Notices and Demands. All notices and demands,
certificates, requests, consents, approvals, and other similar
instruments under this Lease shall be in writing and shall be
deemed to have been properly given when sent by (a) United States
certified or registered mail, return receipt requested, postage
prepaid (b) overnight delivery service with proof of delivery, or
(c) electronic transmission with confirmation of receipt,
addressed as follows:
(a) if to Tenant, addressed to:
OASIS Healthcare, Inc.
250 Boylston Street
Chestnut Hill, MA 02167-2001
Attn: Scott Schuster
Fax No. (617)630-4452
(i) Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02114
Attn: Gerald J. Billow, Esq.
Fax No.(617) 367-2315
or at such other address as Tenant from time to time may have
designed by written notice to Landlord,
(b)
if to Landlord, addressed to:
Greenfield Associates Real Estate Trust
124 Wooddiff Drive
Westfield, MA 01085
Attn: William Hartt, Trustee
Fax No.
with a copy to:
Behar & Kalman
Six Beacon Street
Boston, MA 02108-3802
Attn: Kenneth Behar, Esquire
Fax: (617) 227-4208
or at such address as Landlord may from time to time have
designated by written notice to Tenant. Refusal to accept
delivery shall be deemed delivery. If Tenant is not an
individual, notice may be made to any officer, general partner or
principal thereof: Notice to any one co-Tenant shall be deemed
notice to all co-Tenants. All notices of any kind given or made
as aforesaid shall be deemed to have been given and received on
the second (2nd) business day following the post marked date of
the mailing thereof, or upon receipt when sent by overnight
courier service or upon confirmation of receipt if sent by
electronic transmission.
16. Right of Entry: Examination of Records. Landlord and
its representative may enter the Premises at any reasonable time
after reasonable notice to Tenant for the purpose of inspecting
the Premises for any reason including, without limitation,
Tenant's default under this Lease, or to exhibit the Premises for
sale, lease or mortgage financing, or posting notices of default,
or nonresponsibility under any mechanic's or materialman's lien
law or to otherwise inspect the Premises for compliance with the
terms of this Lease. Any such entry shall not unreasonably
interfere with patients, patient care, or any other of Tenant's
operations. During normal business hours, Tenant will permit
Landlord and Landlord's representatives, inspectors and
consultants to examine all contracts, books and records relating
to Tenant's operations at the Premises, whether kept at the
Premises or at some other location, including, without
limitation, Tenants financial records.
17. NHI Indebtedness: No Further Encumbrances, Etc.
17.1 Encumbrance. Without the written consent of
Tenant in each instance, which consent may be granted or
withheld in Tenant's sole and absolute discretion,
Landlord shall not, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title
retention agreement ("Encumbrance") upon the Premises, or
any portion thereof or interest therein (including this
Lease), whether to secure any borrowing or other means of
financing or refinancing or otherwise with the exception of
the NHI Indebtedness (as defined below). Any such
Encumbrance allowed by the Tenant (including, in particular,
the NHI Indebtedness) shall provide that it is subject to
the rights of Tenant under this Lease, and shall further
provide that so long as no Event of Default shall have
occurred under this Lease, Tenant's rights hereunder,
including but without limitation (i) Tenant's right of quiet
enjoyment provided in Section 18, and (ii) the Tenant's
purchase options provided in Section 6.2 and Section 11.2
shall not be disturbed in the event any such lienholder or
any other person takes possession of the Premises through
foreclosure proceeding or otherwise.
17.2 NHI Indebtedness . As used in this Lease, the
"NHI Indebtedness" shall mean, collectively, all obligations
of Landlord to NHI as set forth in that certain Loan
Agreement between Landlord and NHI of even date herewith
(the "Loan Agreement") and certain other documentation
relating thereto and evidencing a loan to Landlord in the
original principal amount of $10,000,000. The principal
balance outstanding under the Loan Agreement from time to
time is sometimes referred to in this Lease as the "Current
Indebtedness".
17.3 Additional Funds. The Loan Agreement provides
for, among other matters, an additional advance of funds by
NHI up to a maximum amount of $1,000,000 (the "Additional
Funds"). Except in connection with the exercise of its put
rights under Section 11.1 hereof, Landlord agrees not to
exercise its rights to the Additional Funds and thereby
increase the NHI Indebtedness without the written consent of
Tenant, which consent may be granted or withheld in Tenant's
sole and absolute discretion.
17.4 Landlord's Contribution. On the Commencement
Date, Landlord shall contribute a portion of the proceeds of
the NHI Indebtedness to Tenant equal to the amount set forth
as the "Landlord's Contribution" in the Settlement Statement
delivered in connection with the closing of the NHI
Indebtedness for Tenant's use in connection with its Nursing
Home operations at, and anticipated improvements to, the
Premises and the Holyoke Premises (the "Landlord's
Contribution"). The Landlord's Contribution may be used in
any manner the Tenant deems necessary or advisable (so long
as the same is in compliance with all documents evidencing
the NHI Indebtedness) and may be allocated between the
Premises and the Holyoke Premises as determined by the
Tenant in its sole and absolute discretion.
18. Quiet Enjoyment. So long as there is no Event of Default
by Tenant, Landlord covenants and agrees that Tenant shall
peaceably and quietly have, hold and enjoy the Premises for the
Term, free of any claim or other action not caused or created by
Tenant (excepting, however, intrusion of Tenant's quiet enjoyment
occasioned by condemnation or destruction of the Premises as
referred to in Sections 12 and 13 hereof).
19. Applicable Law. This Lease shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to the conflict of laws rules of
such state.
20. INTENTIONALLY DELETED
21. Hazardous Materials.
21.1 Hazardous Material Covenants. Tenant's use of the
Premises shall comply with all Hazardous Materials Laws. In the
event any Environmental Activities occur or are suspected to have
occurred in violation of any Hazardous Materials Laws or if
Tenant has received any Hazardous Materials Claim against the
Premises, Tenant shall, at its sole expense, promptly obtain all
permits and approvals necessary to remedy any such actual or
suspected problem through the removal of Hazardous Materials or
otherwise, and upon Landlord's approval of the remediation plan,
remedy any such problem to the satisfaction of Landlord, in
accordance with all Hazardous Materials Laws and good business
practices.
21.2 Tenant Notices to Landlord. Tenant shall promptly
advise Landlord in writing of:
21.2.1 any Hazardous Materials Claims against
Tenant or the Premises,
21.2.2 any remedial action taken by Tenant in
response to any Hazardous Materials Claims or any Hazardous
Materials on, under or about the Premises in violation of
any Hazardous Materials Laws,
21.2.3 Tenant's discovery of any occurrence or
condition on or in the vicinity of the Premises that
materially increase the risk that the Premises will be
exposed to Hazardous Materials.
21.3 Environmental Activities shall mean the use,
generation, transportation, handling, discharge, production,
treatment, storage, release or disposal of any Hazardous
Materials at any time to or from the Premises or located on or
present on or under the Premises. Nothing contained in the
foregoing or elsewhere in this Section 21 is intended to, nor
shall it, limit the liability of Tenant, if any, to Landlord with
respect to any representation or warranty given by Tenant to
Landlord with respect to Hazardous Materials or environmental
matters generally as set forth in the Hazardous Waste Indemnity
Agreement of even date herewith from Tenant and Guarantor for the
benefit of Landlord.
21.4 Hazardous Materials shall mean (i) any petroleum
products and/or by-products (including any fraction thereof),
flammable substances, explosives, radioactive materials,
hazardous or toxic wastes, substances or materials, known
carcinogens or any other materials, contaminants or pollutants
which pose a hazard to the Premises or to persons on or about the
Premises or would cause the Premises to be in violation of any
Hazardous Materials Laws; (ii)
asbestos in any form which is friable; (iii) urea formaldehyde in
foam insulation or any other form; (iv) transformers or other
equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per
million or any other more restrictive standard then prevailing;
(v) medical wastes and biohazards; (vi) radon gas; and (vii) any
other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority or
may or could pose a hazard to the health and safety of the
occupants of the Premises or the owners and/or occupants of
Premises adjacent to or surrounding the Premises.
21.5 Hazardous Materials Claims shall mean any and all
enforcement, clean-up, removal or other governmental or
regulatory actions or orders threatened, instituted or completed
pursuant to any Hazardous Material Laws, together with all claims
made or threatened by any third party against the Premises,
Landlord or Tenant relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any
Hazardous Materials.
21.6 Hazardous Materials Laws shall mean any laws,
ordinances, regulations, rules, orders, guidelines or written
policies relating to the environment, health and safety,
Environmental Activities, Hazardous Materials, air and water
quality, Waste disposal and other environmental matters.
22. Assignment and Subletting. Tenant shall not, without
the prior written consent of Landlord, which may be withheld at
Landlord's sole discretion, voluntarily or involuntarily assign
or hypothecate this Lease or any interest herein or sublet the
Premises or any part thereof. For the purposes of this Lease, a
management or similar agreement shall be considered to be an
assignment of this Lease by Tenant. Any of the foregoing acts
without such consent shall be void
but shall, at the option of Landlord in its sole
discretion, constitute an Event of Default giving rise to
Landlord's right, among other things, to terminate this Lease.
Without limiting the foregoing, this Lease shall not, nor shall
any interest of Tenant herein, be assigned or encumbered by
operation of law without the prior written consent of Landlord
which may be withheld at Landlord's sole discretion.
Notwithstanding the foregoing, (a) Tenant may without Landlord's
consent assign this Lease or sublet the Premises or any portion
thereof to a wholly-owned subsidiary of Tenant or Guarantor or to
an entity controlling, controlled by or under common control with
Tenant or Guarantor, and (b) all of the issued and outstanding
capital stock or other ownership interests (collectively,
"Ownership Interests") of Tenant may be transferred to one or
more trusts or other estate planning vehicles for the benefit of
any individual owner of the Ownership Interests and/or his
immediate family, or to members of any such individual's
immediate family directly, provided that such entity or
individual to whom this Lease is assigned fully assumes the
obligations of Tenant under this Lease, Tenant remains fully
liable under this Lease, any Guarantor remains fully liable with
respect to its guaranty of this Lease, the use of the Premises
remains unchanged, and no such assignment or sublease shall be
valid and no such subsidiary shall take possession of the
Premises until an executed counterpart of such assignment or
sublease has been delivered to Landlord. Anything contained in
this Lease to the contrary notwithstanding, Tenant shall not
sublet the Premises on any basis such that the rental to be paid
by the sublessee thereunder would be based, in whole or in part,
on either the
income or profits derived by the business activities of the
sublessee, or any other formula, such that any portion of the
sublease rental received by Landlord would fail to qualify as
"rents from real property" within the meaning of Section 856(d)
of the U.S. Internal Revenue Code, or any similar or successor
provision thereto.
22.1 For the purpose of this Lease, the transfer,
assignment, sale, hypothecation or other disposition of any
Ownership Interests of Tenant, which results in a change in the
Person (as hereinafter defined) which ultimately exerts effective
Control (as hereinafter defined) over the management of the
affairs of Tenant as of the date hereof, shall be deemed to be an
assignment of the Lease. For purposes herein, "Control" shall
mean, as applied to any individual, partnership, association,
corporation or other entity (collectively, "Person"), the
possession, directly or indirectly, of the power to direct the
management and policies of that Person, whether through
ownership, voting control, by contract or otherwise.
22.2 Notwithstanding anything to the contrary contained in
Section 22 or 22.1 or any other provision of this Lease, none of
the following shall constitute an assignment of this Lease or
require the consent of Landlord:
(i) Any initial or secondary public offering of the
Ownership Interests of Tenant.
(ii) Any initial or secondary private offering of
the Ownership Interests of Tenant, provided that after any
such offering more than fifty percent (50%) of the voting
Ownership Interests of Tenant shall be owned or controlled
by the Guarantor.
(iii) The entering into by Tenant of any joint
venture, general partnership, limited partnership, limited
liability company or other ownership entity in which Tenant
or any entity affiliated with Tenant will own more than fifty
percent (50%) of the interests therein.
23. Indemnification. Except with respect to gross
negligence or willful misconduct of Landlord (as to which no
indemnity is provided) to the fullest extent permitted by law,
Tenant agrees to protect, indemnify, defend and save harmless
Landlord, its directors, officers, trustees, shareholders,
beneficiaries, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense, loss, costs,
deficiency, fine, penalty, or damage or any kind or nature,
including reasonable attorneys' fees, from any suits, claims or
demands, on account of any matter or thing, action or failure to
act arising out of or in connection with this Lease (including,
without limitation, the breach by Tenant of any of its
obligations hereunder), the Premises, or the operations of Tenant
on the Premises, including without limitation all Environmental
Activities on the Premises, all Hazardous Materials Claims, any
violation by Tenant of a Hazardous Materials Law with respect to
the Premises or any other obligation or liability of Tenant under
this Lease or otherwise with respect to Landlord. Upon receiving
knowledge of any suit, claim or demand asserted by a third party
that Landlord believes is covered by this indemnity, Landlord
shall give Tenant notice of the matter. Tenant shall defend
Landlord against such matter at
Tenant's sole cost and expense with legal counsel satisfactory to
Landlord. Landlord may elect to defend the matter with its own
counsel at Tenant's expense.
24. Holding Over. If Tenant shall for any reason remain
in possession of the Premises after the expiration or earlier
termination of this Lease, such possession shall be a month-to--
month tenancy during which time Tenant shall pay as rental each
month, the aggregate of the monthly Minimum Rent payable with
respect to the last Lease Year plus Additional Rent allocable to
the month, all additional charges accruing during the month and
all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Premises. Nothing
contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of this Lease, nor shall
anything contained herein be deemed to limit Landlord's remedies
pursuant to this Lease or otherwise available to Landlord at law
or in equity.
25. Estoppel Certificates . Each party shall, at any time
upon not less than ten (10) business days prior written request
by the other, execute, acknowledge and deliver to such requesting
party or its designee a statement in writing, executed by an
officer or general partner, or trustee as appropriate, certifying
that this Lease is unmodified and in full force and effect (or,
if there have been any modifications, that this Lease is in full
force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Rent
and additional charges hereunder have been paid, certifying that
no default by either Landlord or Tenant exists hereunder or
specifying each such default and as to other matters as such
party may reasonably request.
26. Waiver of Jury Trial: Etc. Landlord and Tenant
hereby waive any rights to trial by jury in any action,
proceedings or counterclaim brought by either of the parties
against the other in connection with any matter whatsoever
arising out of or in any way connected with this Lease,
including, without limitation, the relationship of Landlord and
Tenant, Tenant's use and occupancy of the Premises, or any claim
of injury or damage relating to the foregoing or the enforcement
of any remedy hereunder. In no event shall any officer,
shareholder, employee or agent of Landlord be personally liable
for any obligation of Landlord hereunder or otherwise arising in
connection with any of the foregoing and Landlord's liability for
any such matters shall in all cases be limited to its interest in
the Premises, it being the agreement of the parties that neither
Tenant, nor anyone claiming by, through or under Tenant shall be
entitled to obtain any judgment creating personal liability on
the part of Landlord or enforcing any obligations of Landlord
against any assets of Landlord other than its interest in the
Premises.
27. Severability. In the event any part or provision of
the Lease shall be determined to be invalid or enforceable, the
remaining portion of this Lease shall nevertheless continue in
full force and effect.
28. Counterparts. This Lease may be executed in any number
of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
29. Binding Effect. Subject to the provisions of Section
22 above, this Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs,
personal representatives, successors in interest and assigns.
30. Waiver and Subrogation . Landlord and Tenant hereby
waive to each other all rights of subrogation which any insurance
carrier, or either of them, may have as to the other by reason of
any provision in any policy of insurance issued to Landlord or
Tenant, provided such waiver does not thereby invalidate the
policy of insurance.
31. Memorandum of Lease . Landlord and Tenant shall,
promptly upon the request of either, enter into a short form
memorandum of the Lease, in form suitable for recording under the
laws of the Commonwealth of Massachusetts in which reference to
this Lease shall be made. The party requesting such recordation
shall pay all costs and expenses of preparing and recording such
memorandum of this Lease.
32. Incorporation of Recitals and Attachments . The
recitals and exhibits, schedules, addenda and other attachments
to this Lease are hereby incorporated into this Lease and made a
part hereof.
33. Titles and Headings. The titles and headings of
sections of this Lease are intended for convenience only and
shall not in any way affect the meaning or construction of any
provision of this Lease.
34. Nature of Relationship: Usury Savings Clause. The
parties intend that their relationship shall be that of lessor
and lessee only. Nothing contained in this Lease shall be deemed
or construed to constitute an extension of credit by Landlord to
Tenant, nor shall this Lease be deemed to be a partnership or
venture agreement between Landlord and Tenant. Notwithstanding
the foregoing, in the event any payment made to Landlord
hereunder is deemed to violate any applicable laws regarding
usury, the portion of any payment deemed to be usurious shall be
held by Landlord to pay the future obligations of Tenant as such
obligations arise and, in the event Tenant discharges and
performs all obligations hereunder, such funds will be reimbursed
to Tenant upon the expiration of the Term. No interest shall be
paid on any such funds held by Landlord.
35. Joint and Several. If more than one person or entity
is the Tenant hereunder, the liability and obligations of such
persons or entities under this Lease shall be joint and several.
36. Survival of Representations, Warranties and
Covenants. All of the obligations, representations, warranties
and covenants and indemnities of Tenant under this Lease shall
survive the expiration or earlier termination of the Term.
37. Interpretation. Both Landlord and Tenant have been
represented by counsel and this Lease has been freely and fairly
negotiated. Consequently, all provisions of this Lease shall be
interpreted according to their fair meaning and shall not be
strictly construed against any party.
Executed as a Massachusetts instrument under seal as of the
date first indicated above.
TENANT:
OASIS HEALTHCARE,
By:
Name:
Its:
LANDLORD:
GREENFIELD ASSOCIATES REAL
ESTATE TRUST
By:
William M. Hartt, as
Trustee and not individually
By:
Marjorie W. Hartt, as
Trustee and not individually
Prepared by:
Robert N. Buchanan III
Farris, Warfield & Kanaday, PLC
Suite 1 800, SunTrust Center
424 Church Street
Nashville, Tennessee 37219
MORTGAGE DEED, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT
This Mortgage Deed, Assignment of Rents and Leases and
Security Agreement (as it may be amended and/or restated from
time to time, this "_______ Mortage") is made as of the ____ day
of May 1997, by OHI REALTY LIMITED PARTNERSHIP I, a
Massachusetts limited partnership with its principal place of
business at 250 Boylston Street, Chestnut Hill, Massachusetts
02167-2001 (the "Mortgagor"), to and for the benefit of
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation with its
principal office and mailing address at 100 Vine Street,
Murfreesboro, Tennessee 37130 (the "Mortagee").
KNOW ALL MEN BY THESE PRESENTS
That Mortgagor, for consideration paid, hereby irrevocably
grants, mortgages, transfers, hypothecates and assigns to
Mortgagee, with Mortgage Covenants the following tract(s) of land
and other property:
I. LAND: That certain parcel of land situated in Quincy,
County of Norfolk, Massachusetts. and more particularly described
in Exhibit A attached hereto and made a part hereof ( the
"Premises").
II. IMPROVEMENTS: All buildings and improvements now
situated upon the Premises or that may hereafter be constructed
on the Premises or added thereto, together with all fixtures now
or hereafter owned by Mortgagor or in which Mortgagor has an
interest (but only to the extent of such interest) and placed in
or upon the Premises or the buildings or improvements thereon
(collectively the "Improvements").
III. EASEMENTS: Any easement, bridge or right of way,
contiguous or adjoining the Premises and the Improvements
thereon, and all other easements, if any, inuring to the benefit
of the Premises.
IV. PERSONAL PROPERTY AND FIXTURES: All ofthe equipment,
personal property and fixtures of every kind and description now
or hereafter owned by Mortgagor or in which Mortgagor has an
interest (But only to the extent of such interest) and situated
or to be situated upon the Premises, together with any renewals,
replacements or additions thereto or substitutions therefor, and
now or hereafter located at, or used in connection with the
operation of the Premises.
V. RENTS AND LEASES: All rents, income, issues, profits,
royalties, and other benefits derived or to be derived from the
Premises, Improvements, and fixtures (all of which are called
"Rents") and all of Mortgagor's interest in any lease, license or
other agreement pursuant to which any Rents are
payable and all security and guaranties therefor (all of which
are called "Leases"); provided, however, that patient receivables
shall not be considered "Rents" or otherwise be encumbered
hereunder.
All of the Premises, Improvements and other property hereby
granted, sold and conveyed, or intended so to be, are referred to
collectively as the "Mortgaged Property."
TOGETHER WITH:
A. PROCEEDS FOR DAMAGE TO THE MORTGAGED PROPERTY: All
proceeds paid for any damage done to the Mortgaged Property, or
any part thereof, or for any portion thereof appropriated for any
character of public or quasi-public use in accordance with the
provisions, terms and conditions hereinafter set forth.
B. RECORDS: All of the records and books of account now
or hereafter maintained by Mortgagor in connection with the
operation of the Premises.
C. NAME AND GOODWILL: The right, in event of foreclosure
hereunder of the Mortgaged Property, to take and use any name by
which the Mortgaged Property is then known, and the goodwill of
Mortgagor with respect thereto.
SUBJECT, HOWEVER, to those certain liens, encumbrances and
other matters, if any, set forth on Exhibit B attached hereto and
incorporated herein by this reference (collectively the
"Permitted Exceptions").
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee
and its successors and assigns forever, subject to the Permitted
Exceptions together with all and singular the tenements,
hereditaments and appurtenances belonging or in anyway
appertaining thereto, whether now owned or acquired hereafter,
with the reversions, remainders, rents, issues, incomes and
profits thereof, and all of the estate, right, title, interest
and claim whatsoever that Mortgagor now has or may hereafter acqu
ire in and to the Mortgaged Property. And Mortgagor does hereby
bind itself, its heirs, successors and assigns, to warrant and
forever defend the same unto Mortgagee and its successors and
assigns against all persons whomsoever claiming or to claim the
same or any part thereof subject to the Permitted Exceptions.
Capitalized terms not otherwise defined herein shall have
the meanings set forth in that certain Loan Agreement dated as of
_______________, 1997 herewith by and between Mortgagor, OHI
Corporation d/b/a Oasis Healthcare, a Georgia corporation
("Oasis") and Mortgagee (as it may be amended and/or restated
from time to time, the "Loan Agreement").
The conveyance is made for the purpose of securing the
following:
(a) Payment of all principal, interest and other amounts
pursuant to the terms of a note in the amount of up to Eight
Million Three Hundred Thousand and No/I00 Dollars ($8,300,000.00)
executed by Mortgagor and Oasis having a _______________________,
1997 effective date and payable to the order of Mortgagee and any
and all extensions, modifications and renewals thereof and
substitutions therefor (such promissory note, together with the
second note described in (b) below, as either may be extended,
modified, or renewed or their substitution, is referred to
collectively, jointly and severally as
the "Note"), and of the performance of every obligation and
agreement of Mortgagor and/or Oasis contained in the Note;
(b) Payment of all other principal, interest and other
amounts which may become due under that certain $300,000
Promissory Note executed by Mortgagor and Oasis and payable to
the order of Mortgagee and all extensions, modifications and
renewals thereof and substitutions therefor.
(c) Performance by Mortgagor and by Oasis and, if
applicable, by latros Health Network,
Inc., a Delaware corporation, of all obligations and payment of
any amounts due tinder (i) the Loan
Agreement; (ii) the Note (and/or either of them), (iii) the
Mortgages, including without limitation this
Mortgage, (iv) the Debt Service Reserve Agreement, (v) the
Capital Improvement Reserve Agreements,
(vi) the Security Agreement/ Facilities, (vii) the Security
Agreement/Deposits, (viii) the Escalator
Agreements, (ix) the Environmental Agreements, (x) the Guaranty,
and (xi) any other Loan Document;
(d) Payment of any and all sums or indebtedness now or
hereafter existing and owed to Mortgagee from Mortgagor and/or by
Oasis pursuant to the Loan Documents.
ARTICLE I - Covenants and Warranties.
Mortgagor covenants, warrants and agrees as follows:
1.1 Mortgagor is lawfully seized of the Mortgaged
Property and has the right to encumber it with the lien created
by this Mortgage, which lien is subject only to the Permitted
Exceptions. Mortgagor will defend the title thereto in any action
affecting the rights of the Mortgagee hereunder and pay all costs
of any such action (including, but not limited to, reasonable
attorneys' fees actually incurred), whether or not such action
(a) progresses to judgment, or (I)) is brought by or against
Mortgagee.
1.2 Subject to the terms of Section 5.11 of the Loan
Agreement, Mortgagor will pay or cause to be paid (before they
become delinquent) all taxes and exhibit the receipts therefor to
Mortgagee. The term "taxes" as used in this Section 1.2 shall be
deemed to include all assessments, impositions and other
governmental charges, ordinary or extraordinary, foreseen or
unforeseen, that may be levied, assessed or otherwise become a
lien upon or charge against the Mortgaged Property, or the
interest created therein by this Mortgage. After the occurrence
of an Event of Default and upon written demand by Mortgagee,
Mortgagor will deposit or cause to be deposited monthly with
Mortgagee or its duly authorized agent an amount that will create
a fund sufficient to make each and every payment of taxes in the
future as the same shall become due and payable. Such deposits
shall be received and held by Mortgagee or its agent, in a non-
interest bearing account, unless othenvise required by law, and
applied to the payment of each installment of such taxes as it
becomes due and payable and Mortgagor shall furnish to Mortgagee
or its agent, promptly upon receipt, the tax bills with respect
thereto. If Mortgagor shall have deposited amounts in the
aggregate more than sufficient to pay such taxes, the excess
shall be applied by Mortgagee toward the deposits next required
to be made hereunder or at its election shall be repaid to
Mortgagor. All of Mortgagor's interest in such deposits is hereby
assigned by Mortgagor to Mortgagee, and Mortgagor hereby pledges
to Mortgagee an interest in such deposits, as additional security
for the performance of the obligations secured hereby. Upon
performance in full of all indebtedness secured hereby, any
monthly deposits then held by Mortgagee or its agent shall be
repaid to Mortgagor, or as otherwise may be required by law.
1.3 Mortgagor will also pay or cause to be paid (before
they become delinquent) any and all assessments, water, sewer and
other utility charges and all other charges and encumbrances that
are or may be a lien upon the Mortgaged Property.
1.4 Mortgagor will commit or permit no waste on the
Mortgaged Property and will keep all Improvements now or
hereafter erected on the Premises in a sound condition and in
substantially the same condition as exists on the date of this
Mortgage normal wear and tear and fully-insured casualty
excepted.
1.5 Mortgagor will:
1.5.1 Promptly repair, restore, rebuild, replace or
alter as necessary any portion of the Mortgaged Property that may
be damaged or destroyed by fire or other casualty, or taken by
condemnation, as nearly as possible to the condition such
Improvements were in prior to such damage, destruction or taking,
without regard to the availability or adequacy of insurance
proceeds or condemnation awards; provided, however, Mortgagor's
repair obligations hereunder are contingent upon the Mortgagee's
making the insurance and condemnation proceeds subject to
Mortgagee's control available to Mortgagor as provided herein.
Mortgagor will give Mortgagee prompt notice of damage to such
Improvements or personal property in excess of $25,000.00;
1.5.2 Pay when due all invoices properly payable for labor
and construction materials thereon:
1.5.3 Provide management of the Mortgaged Property reasonably
satisfactory to the Mortgagee;
1.5.4 Not remove or demolish any such Improvements,
and make no change or alteration to such Improvements as would
reduce the value of the Improvements without the prior consent of
Mortgagee, which consent shall not be unreasonably withheld,
delayed or conditioned. Mortgagor further covenants that it will
not make, authorize or permit to be made any structural
alterations, or other significant renovations to the Mortgaged
Property, the estimated cost of which exceeds $100,000.00, except
in such manner and under such terms and conditions as Mortgagee
may reasonably require. No fixtures or personal property shall be
removed from the Mortgaged Property during the course of any work
performed in accordance with this Section 1.5.4 except as
authorized in Section 8.10 hereof, without the prior written
consent of Mortgagee. The provisions of this Section 1.5.4 shall
apply to any change, alteration or addition made or required to
be made by Mortgagor in the course of complying with the
provisions of any other section contained herein; provided,
however, Mortgagee's consent and approval is not required for
alterations required to comply with any of the Requirements or to
meet the Capital Expenditure requirements contained in the Loan
Agreement. Nothing herein shall prohibit Mortgagor from removing
from the Premises obsolete equipment or other personal property
if it is replaced with comparable or better items.
1.6 Mortgagor will continuously operate the Mortgaged
Property or cause the Mortgaged Property to be operated in
material compliance with (a) all applicable laws, ordinances,
rules, regulations and directions of government authorities
having jurisdiction of the Mortgaged Property, and (b) the
requirements of all policies of insurance on the Mortgaged
Property and of the national or local Boards of Fire
Underwriters. Mortgagor will require that the Facility Operator
procure, pay for and maintain all permits, licenses and other
authorizations needed for the operation of the Mortgaged
Property.
1.7 Mortgagor will keep or cause to be kept proper and
separate books of account, in accordance with generally accepted
accounting practice, and make, or cause to be made, full and true
entries of all dealings with transactions of every kind relating
to the Mortgaged Property, which books and records will be open
to inspection by Mortgagee, its agents, accountants and
representatives, at all reasonable times.
1.8 All leases of all or any portion of the Mortgaged
Property hereafter made by Mortgagor, including without
limitation the Facility Lease of the Mortgaged Property between
Mortgagor and Oasis, will be subordinated to the lien created by
this Mortgage, and shall provide that, at the option of
Mortgagee, the tenant thereunder shall attorn to Mortgagee or any
assignee of Mortgagee. Other than leases with residents of the
Mortgaged Property, no lease will be executed by Mortgagor
without prior written approval of Mortgagee. Mortgagor will, from
time to time, promptly upon demand, deliver to the Mortgagee a
true and correct schedule of all such leases then in effect,
showing the name of the tenant, the space occupied, the rental
rate and the expiration date of the term.
ARTICLE II - Insurance.
2.1 Mortgagor will at all times keep the Mortgaged
Property or cause it to be kept insured in accordance with the
terms of the Loan Agreement.
ARTICLE III - Damage By Fire or Other Casualty.
3.1 If by reason of any damage or destruction to the
Mortgaged Property any sums are paid under any insurance policy
mentioned iii or contemplated by Article II hereof, such sums
shall be paid as follows:
3.1 .1 If the aggregate insurance proceeds received by
reason of any single instance of such damage or destruction
shall be $100,000.00 or less, such insurance proceeds shall
be paid over to Mortgagee and Mortgagor jointly or, at the
option of Mortgagee, to Mortgagor alone, to be held as a
trust fund to be used first for the payment of the entire
cost of restoring, repairing, rebuilding or replacing the
damaged or destroyed Mortgaged Property before using the
same for any other purpose; provided, however, that if any
uncured Event of Default shall exist hereunder at the time
such proceeds are so to be paid over, such proceeds shall be
paid over to Mortgagee alone, to be applied in Mortgagee's
discretion to the payment of the indebtedness secured hereby
as it shall become due or the repair of the Mortgaged
Property.
3.1.2 If the aggregate insurance proceeds received
by reason of any single instance of such damage or
destruction shall exceed $100,000.00, such proceeds shall be
paid to Mortgagee alone, to be applied toward reimbursement
of all costs and expenses of Mortgagee in collecting such
proceeds in the event Mortgagee is not able to promptly
collect such proceeds, and then to be released to Mortgagor
for the repair, restoration, rebuilding or replacement of
that part of the Mortgaged Property so damaged or destroyed,
or if an uncured Event of Default exists, at Mortgagee's
sole discretion to the payment of the indebtedness secured
hereby as it shall become due. Mortgagee is authorized (a)
to adjust and compromise such loss without the consent of
Mortgagor, (1,) to collect, receive and receipt for such
proceeds in the name of Mortgagee and Mortgagor, and (c) to
endorse Mortgagor's name upon any draft or check in payment
thereof.
3.1.3 In the event that the insurance proceeds
received pursuant to Section 3.1.2 hereof are to be applied
to the restoration of the Mortgaged Property, such
restoration shall be done, subject to the following
conditions:
(a) Mortgagor shall submit to Mortgagee plans
and specifications and a budget of all costs for such
restoration, which items shall be reasonably
satisfactory to Mortgagee;
(b) at any time and from time to time, to the
extent the estimated cost of completion of such
restoration exceeds then available insurance proceeds
during such restoration, the Mortgagor shall deposit
with Mortgagee the amount of such deficiency or
otherwise demonstrate the availability of funds for
such deficiency within ten (10) days after demand by
Mortgagee;
(c) the deficiency referred to in Section
3.1.3(b) hereof shall be spent on such restoration of
the Mortgaged Property prior to any advance of
insurance proceeds by Mortgagee;
(d) Mortgagee's being satisfied that all
leases with respect to the Mortgaged Property that are
in existence at the time of such damage will be, at the
time of completion of the reconstruction or repair of
the portions damaged, in full force and effect; and
(e) such proceeds shall be disbursed subject
to such other terms and conditions as Mortgagee shall
reasonably require.
3.2 Provided that Mortgagee releases all available
proceeds to Mortgagor, nothing contained in this Article III
shall relieve Mortgagor of its obligations in Section 1.5.1
hereof in the event that no or inadequate proceeds of insurance
are available to defray the cost of such work, except that, on
the occurrence of any fire or other casualty that affects the
Mortgaged Property, Mortgagor shall have the right to pay
Mortgagee the entire principal balance of the Note, together with
all accrued and unpaid interest thereunder to the date of such
payment and all other sums, if any, then due under this Mortgage.
In addition, nothing contained herein shall relieve Mortgagor of
its duty to pay all installments of interest and to make all
other payments called for or required by the Note and this
Mortgage subsequent to the occurrence of any fire or other
casualty.
ARTICLE IV - Condemnation.
4.1 Promptly upon receipt by Mortgagor of notice of the
institution of any proceeding or negotiations for the taking of
the Mortgaged Property, or any part thereof, in condemnation or
by the exercise of the power of eminent domain, Mortgagor shall
give notice thereof to Mortgagee. Mortgagee may appear in any
such proceedings and participate in any such negotiations and may
be represented by counsel. Mortgagor, notwithstanding that
Mortgagee may not be a party to any such proceeding, will
promptly give to Mortgagee copies of all notices, pleadings,
judgments, determinations and other papers received by Mortgagor
in connection therewith. Mortgagor will not enter into any
agreement for the taking of the Mortgaged Property, or any part
thereof, with anyone authorized to acquire the same in
condemnation or by eminent domain unless Mortgagee shall first
have consented in writing thereto.
4.2 In the event of a taking of all or substantially all
of the Mortgaged Property in condemnation or by eminent domain,
the whole of the principal sum and accrued and unpaid interest
evidenced and secured by the Note and this Mortgage, together
with all other amounts, if any, secured hereby, shall forthwith
become due and payable, at the option of Mortgagee, and all
awards paid or payable on account of such taking shall be paid to
Mortgagee. As used in this Section 4.2, a taking of all or
substantially all of the Mortgaged Property shall mean a taking
of so much as leaves a balance that cannot economically be
operated for the purposes for which the same was operated or
intended to be operated prior to such taking.
4.3 In the event of a taking of less than substantially
all of the Mortgaged Property in condemnation or by eminent
domain, or by agreement in lieu thereof, all awards payable as a
result of such taking shall forthwith be paid to Mortgagee, and
the proceeds of such awards shall be applied first towards the
repair or restoration of the Mortgaged Property if such repair or
restoration is commercially feasible considering the remaining
indebtedness secured by this Mortgage and the balance towards the
payment of the indebtedness secured hereby. Provided, however,
that if any Event of Default shall exist hereunder at the time
such proceeds are so to be paid over, such proceeds shall be paid
over to Mortgagee alone, to be applied to the payment of the
indebtedness secured hereby as it shall become due. In the event
such proceeds are released, as aforesaid, to repair, restore and
alter the Mortgaged Property to the extent required as a result
of such taking, the proceeds of such taking shall be disbursed in
accordance with and subject to the provisions of Section 3.1.3
hereof.
ARTICLE V: RENTS AND LEASES
5.01 Assignment of Rents . Mortgagor hereby authorizes
Mortgagee or Mortgagee's agents to collect the Rents and hereby
directs each tenant of the Premises to pay the Rents to Mortgagee
or Mortgagee's agents; provided, however, that prior to the
occurrence and absent the continuation of an Event of Default
under this Mortgage, Mortgagor shall collect and receive all
Rents as licensee for the benefit of Mortgagee, and Mortgagor
shall apply the Rents so collected to the amount then due and
payable under this Mortgage, so long as no Event of Default has
occurred and is continuing, to the account of Mortgagor, it being
intended by Mortgagor and Mortgagee that this assignment of Rents
constitutes an absolute assignment and not an assignment for
additional security only. Upon the occurrence and during the
continuation of an Event of Default and without the necessity of
Mortgagee entering upon and taking and maintaining full control
of the Premises in person, by agent or by a receiver, Mortgagee
shall immediately be entitled to possession of all Rents as the
same become due and payable, including but not limited to, Rents
then due and unpaid, and all such Rents shall immediately upon
delivery be held by Mortgagor as licensee for the benefit of
Mortgagee only. Mortgagor agrees that during the continuation of
an Event of Default, each tenant of the Premises shall pay such
Rents to Mortgagee or Mortgagee's agent on Mortgagee's written
demand to each tenant therefor, delivered to each tenant
personally or by mail, without any liability on the part of said
tenant to inquire further as to the existence of an Event of
Default. Mortgagor hereby covenants that Mortgagor has not
executed any prior assignment of Rents, that Mortgagor has not
performed, and will not perform any acts that would prevent
Mortgagee from exercising its rights under this Article V .
Mortgagor covenants that Mortgagor will not hereafter collect or
accept payment of any Rents except for the following: (a)
payments of Rents for a period not more than one month prior to
the due dates of such Rents;(b) payment of Rents in arrears; and
(c) payments of security deposits for performance of any lessee's
or other obligor's covenants under any Lease in usual and
customary amounts. Mortgagor further covenants that Mortgagor
will execute and deliver to Mortgagee such further assignments of
Rents as Mortgagee may from time to time request.
5.02 Compliance with Leases. Mortgagor shall comply with
all Leases and shall notify Mortgagee if Mortgagor is unable to
do so or determines that it will be unable to do so for any
significant terms. Mortgagee may do whatever it determines is
necessary to insure that all Leases continue in effect whenever
Mortgagee determines that Mortgagor is or may be unable to
perform any significant term of the Leases.
5.03 Modification of Leases. etc. . Mortgagor shall not
change the material terms of any Lease and shall not reduce any
Rent without the prior written consent of Mortgagee. Mortgagor
shall not change the terms of any security interests or
guarantees securing or guaranteeing the payment of Rent to
Mortgagor.
5.04 No Delegation of Mortgagor's Duties and Indemnity .
Mortgagor does not hereby delegate to Mortgagee Mortgagor's
duties under the Leases and Mortgagee shall not be obligated to
discharge such duties. Mortgagor shall indemnify Mortgagee and
hold it harmless from all claims, regardless of merit, in any way
arising out of the Leases and the assignment to Mortgagee of the
Leases and Rents and any expenses related to such claims,
including without limitation attorneys' fees except claims based
upon the gross negligence or willful misconduct of Mortgagee
after Mortgagee takes possession of the Premises. Mortgagor shall
reimburse Mortgagee for any claims paid or expenses incurred by
Mortgagee which fall within the preceding indemnity immediately
upon demand.
5.05 Subordination of Leases. All Leases (including
without limitation the Facility Lease of the Mortgage Property,
between Mortgagor and Mortgagee) and the rights of tenants
thereunder shall be subordinate to the lien of this Mortgage and
to all terms, conditions and provisions hereof and to any
renewal, consolidation, extension, modification or replacement
hereof, and every Lease shall provide for such subordination
therein.
5.06 Attornent. The tenant of any Lease shall attorn to
anyone, including Mortgagee, who acquires the lessor's interest
in the Lease and the Premises ("Purchaser"), whether by
foreclosure sale or otherwise. The tenant's attomment shall be
effective immediately upon the Purchaser's succession to the
lessor's interest and the Lease shall continue in effect between
Purchaser, as lessor, and the tenant without any further act of
Purchaser, Mortgagee or the tenant. Purchaser shall have no
liability for any act, omission or obligation of the previous
lessor. Every Lease shall provide for such attomment therein.
ARTICLE VI- Default Provisions.
6.1 The occurrence of an Event of Default under the Loan
Agreement shall constitute an " Event of Default" under this
Mortgage.
ARTICLE VII - Remedies Upon Default.
7.1 Upon the occurrence of any Event of Default
hereunder, Mortgagee, at its option, without presentment, demand,
protest or notice of any kind, may declare the indebtedness
evidenced by the Note and the other Obligations (as defined in
the Loan Agreement) secured by this Mortgage immediately due and
payable. Mortgagee, however, need not, and is not obligated to,
declare said indebtedness due as a condition precedent to
exercising its rights and remedies as set forth herein.
7.2 Upon the occurrence of any Event of Default
hereunder:
7.2.1 Mortgagee, at its option, without obligation
to do so, without notice to, or demand on, Mortgagor and
without releasing Mortgagor from any liability under the
Note, this Mortgage or any other Loan Document, may make any
payment or perform any act that Mortgagor is obligated to
pay or do under the terms of this Mortgage or any other Loan
Document.
7.2.2 In exercising any of the rights set forth
under Section 7.2.1 hereof, Mortgagee may incur any
liability and expend whatever amounts it may deem necessary.
All such amounts, without notice or demand, shall be
immediately due and payable to Mortgagee by Mortgagor with
interest at the Default Rate and shall be secured hereby;
7.2.3 If Mortgagee shall pay or discharge any lien,
rents or claim on the Mortgaged Property, or pay any del
inquent tax, assessment or similar charge, Mortgagee shall
be subrogated to the rights of the holder of such lien,
rents or claim or to the rights of such taxing authority.
7.3 Upon the occurrence of any Event of Default
hereunder, Mortgagee, at its option, without notice, without any
liability to Mortgagor, to the extent permitted by law and
without regard to the adequacy of the security for said debt,
may:
7.3.1 Enter upon and take possession of the
Mortgaged Property (with or without bringing any action or
proceeding in court); or
7.3.2 Demand and receive payment of all rents,
benefits and profits of the Mortgaged Property, including
those past due and unpaid (whether or not Mortgagee has
taken possession of the Mortgaged Property); or
7.3.3 Have a receiver immediately appointed for the
Mortgaged Property and the earnings, revenues, rents,
issues, profits and other income thereof and therefrom, with
all such powers as the court making such appointment shall
confer.
7.4 If Mortgagee enters upon and takes possession of the
Mortgaged Property as provided in Section 7.3 hereof, Mortgagee
may operate and manage the Mortgaged Property and perform any
acts that Mortgagee, in its sole discretion, deems necessary or
desirable to protect and preserve the marketability, rentability,
increase the income or conserve the value of the Mortgaged
Property. Mortgagee shall have no liability for any action or
inaction while in possession of the Mortgaged Property so long as
such action or inaction is taken or refrained from being taken in
good faith.
7.5 Upon the occurrence of an Event of Default
hereunder:
7.5.1 Mortgagee is irrevocably appointed the agent
and attorney-in-fact of Mortgagor, which appointment is
hereby coupled with an interest, in its name and stead and
on its behalf, for the purposes of effectuating any sale for
the enforcement of this Mortgage, whether under the power of
sale hereby given or pursuant to judicial proceedings or
otherwise, to execute and deliver all such deeds,
conveyances, bills of sale, assignments, transfers and other
instruments as Mortgagee may consider necessary or
appropriate, and to substitute one or more persons with like
power, Mortgagor hereby ratifying and confirming all that
Mortgagee, or such substitute or substitutes, shall lawfully
do by virtue hereof, provided however Mortgagee will give
Mortgager
seven (7) days notice prior to exercise of said power of
attorney. In addition, if so requested by Mortgagee or by
any purchaser, Mortgagor shall ratify and confirm any such
sale by executing and delivering to Mortgagee or to such
purchaser or purchasers all such proper deeds, conveyances,
assignments, instruments of transfer and releases as may be
designated in any such request.
7.5.2 This Mortgage is upon the STATUTORY CONDITION
and upon the further condition that all covenants and
agreements of Mortgagor contained herein, in the Loan
Agreement, the Note and the other Loan Documents, shall be
kept and fully performed, for any breach of which Mortgagee
shall have the STATUTORY POWER OF SALE.
7.6 Acceptance by Mortgagee of any payment in an amount
less than the amount then due on the indebtedness secured hereby
shall be deemed an acceptance on account only and the failure to
pay the entire amount then due shall be and continue to be an
Event of Default; at any time thereafter and until the entire
amount then due on said indebtedness has been paid, Mortgagee
shall be entitled to exercise all rights conferred upon Mortgagee
in this Mortgage upon the occurrence of an Event of Default.
7.7 No remedy herein conferred upon Mortgagee shall be
exclusive of any other remedy herein or by law or equity provided
or permitted, but such shall be cumulative and in addition to
every other remedy given herein or now or hereafter existing at
law or equity.
7.8 The exercise of any option in this Mortgage by
Mortgagee shall not be deemed a waiver of its rights to exercise
any other option; and the filing of a suit for collection of the
Note and foreclosure of this Mortgage as a mortgage or for any
other default hereunder shall not preclude sale pursuant to the
power of sale contained in this Mortgage after a dismissal of the
suit. No provision hereof shall be deemed to release Mortgagor's
obligation to pay the interest, principal and other sums and
charges secured hereby until such time as all thereof have been
paid to the Mortgagee in full.
7.9 If foreclosure should be commenced by Mortgagee, at
any time before the sale of the Mortgaged Property, Mortgagee may
abandon such sale and may at any time or times thereafter again
commence such sale, or Mortgagee may sue for foreclosure of this
Mortgage in the courts; if Mortgagee should sue for such
foreclosure, it may at any time before entry of final judgment
dismiss the suit and sell the Mortgaged Property pursuant to the
power of sale contained herein.
7.10 At any foreclosure sale, whether pursuant to the
power of sale contained in this Mortgage, or pursuant to the
judgment of a court, all of the Mortgaged Property at the option
of Mortgagee and without notice to Mortgagor, may be sold as a
whole and it shall not be necessary to have said personal
property present at the place of sale. The recitals in the bill
of sale to any purchaser at such sale shall be full and
conclusive evidence of the truth of the matters stated therein,
and all prerequisites to such sale shall be presumed to have been
performed and such sale and bill of sale shall be conclusive
against Mortgagor.
7.11 Mortgagor agrees, to the extent that it may
lawfully so agree, that if an Event of Default shall occur
hereunder, neither Mortgagor nor anyone claiming through or under
Mortgagor shall or will set Lip, seek or claim to take advantage
of any appraisement, valuation, redemption, moratorium or
marshalling laws now or hereafter in force in the locality where
the property subject to the lien of this Mortgage may be
situated, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage,
or the absolute sale of the Mortgaged Property, or the final or
absolute putting into possession thereof, immediately after such
sale, of the purchaser thereof, and Mortgagor for itself and its
successors and assigns hereby waives, to the full extent that it
may lawfully do so, the benefit of all such laws and any and all
right to have the estates comprising the security intended to be
created hereby marshalled upon any foreclosure of the lien hereof
and agrees that the Mortgaged Property may be sold as an
entirety.
7.12 Mortgagor, to the extent that it may lawfully do
so, hereby submits to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts, as well as to the
jurisdiction of all courts from which an appeal may be taken from
the aforesaid courts, for the purpose of any suit, action or
other proceeding arising out of the breach by Mortgagor of any of
obligations under or with respect to the Note or this Mortgage,
and expressly waives any and all objections it may have as to
venue in any of such courts.
ARTICLE VIII- Miscellaneous Provisions.
8.1 Without affecting the liability of Mortgagor, or any
other person (except any person expressly released in writing),
for payment of the debt secured hereby or for the performance of
any obligations secured by this Mortgage, and without affecting
the lien or other rights of Mortgagee with respect to any
Mortgaged Property not expressly released in writing, Mortgagee
at any time, and from time to time, either before or after
maturity of the Note, and without notice or consent, may:
8.1.1 Release any person liable for payment of the
indebtedness secured hereby or for the performance of any
obligation secured hereby;
8.1.2 Make any agreement extending the time, or
otherwise altering the terms of payment of the indebtedness
secured hereby, or modifying or waiving any obligation
secured hereby, or subordinating, modifying or otherwise
dealing with the lien securing payment of the indebtedness
secured hereby;
8.1.3 Exercise or refrain from exercising or waive
any right Mortgagee may have;
8.1.4 Accept additional security of any kind for
the indebtedness secured hereby; and
8.1.5 Release or otherwise deal with any property,
real or personal, securing the indebtedness secured hereby,
including all or any part of the Mortgaged Property.
8.2 In the event that Mortgagor conveys its interest in
the Mortgaged Property to parties not appearing in this Mortgage
(without implying any right of Mortgagor to do so without
Mortgagee's written consent), Mortgagee may, without notice to
Mortgagor, deal with such successor or successors in interest
with reference to this Mortgage and the Note secured hereby,
either by way of forbearance on the part of Mortgagee or
extension of the time of payment of the debt or any sum hereby
secured, without in any way modifying or affecting the conveyance
under this Mortgage or the original liability of Mortgagor or any
other party on the Note secured hereby, either in whole or in
part.
8.3 All payments on the debt and advancements, if any,
hereby secured shall be applied, first to advancements, if any,
in the order of maturity, and second, to the payment of the
indebtedness evidenced by the Note hereinabove described and
secured hereby and other sums owed under the terms of the Loan
Agreement and the other Loan Documents in such manner as
Mortgagee shall deem
appropriate. Proceeds from foreclosure sales and insurance
proceeds or condemnation awards shall be applied in the same
manner after payment of all costs and expenses of sales,
including reasonable attorney's and auctioneer's fees actually
incurred.
8.4 At any time and from time to time until payment of
the indebtedness secured hereby and upon request of Mortgagee,
Mortgagor will promptly execute and deliver to the Mortgagee such
additional instruments as may be reasonably required to further
evidence the lien of this Mortgage and further to protect the
security position of this Mortgagee with respect to the property
subject to this Mortgage.
8.5 In the event of any sale of the Mortgaged Property
under the provisions hereof Mortgagor shall forthwith surrender
possession thereof to the purchaser. Upon failure to do so,
Mortgagor shall thereupon be a tenant at sufferance of such
purchaser, and upon its failure to surrender possession of the
Mortgaged Property upon demand, such purchaser, his heirs or
assigns shall be entitled to institute and maintain an
appropriate action for possession of the Mortgaged Property.
8.6 Upon performance in full of the obligations secured
hereby, this Mortgage shall become null and void and shall be
released by Mortgagee at Mortgagor's expense.
8.7 In case any one or more of the provisions contained
in the Note or in this Mortgage shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision hereof or thereof, but each shall be construed as
if such invalid, illegal or unenforceable provision had never
been included.
8.8 All notices, requests, demands, consents or other
communications given hereunder or in connection herewith shall be
in writing and shall be sent as provided in the Loan Agreement.
8.9 Mortgagee and its agents may enter and inspect the
Mortgaged Property during usual business hours after reasonable
prior notice.
8.10 It is the intent of the parties hereto that this
Mortgage shall constitute a security agreement within the meaning
of the Code with respect to all fixtures and personal property
above referred to and all replacements thereof, substitutions
therefor or additions thereto (said property being sometimes
hereinafter referred to as the "Personalty"), and that a security
interest shall attach thereto for the benefit of Mortgagee to
secure the indebtedness evidenced by the Note and secured by this
Mortgage, and all other sums and charges that may become due
hereunder or thereunder. Mortgagor hereby authorizes Mortgagee to
file financing and continuation statements with respect to the
Personalty without the signature of Mortgagor whenever lawful.
Upon the occurrence and during the continuation of an Event of
Default and to the extent permitted by law, Mortgagee shall have
the option of proceeding as to both real and personal property in
accordance with its rights and remedies in respect of the real
property comprising the Mortgaged Property, in which event the
default provisions of the Code shall not apply. The parties agree
that in the event Mortgagee elects to proceed with respect to the
Personalty separately from the real property, five (5) days'
notice of the sale of the Personalty shall be reasonable notice.
Mortgagor agrees that, without the written consent of Mortgagee,
Mortgagor will not remove or permit to be removed from the
Mortgaged Property any of the Personalty unless the same is
immediately replaced with unencumbered fixtures or articles of
personal property, as the case may be, of a quality and value
equal or superior to those which they replace. All such
replacements, renewals and additions shall become and be
immediately subject to the security interest of this Mortgage and
be covered hereby.
Mortgager shall, from time to time, on request of Mortgagee,
deliver an inventory of the Personalty in reasonable detail,
including an itemization of all items leased to Mortgagor or
subject to conditional bill iof sale, security agreement or other
title retention agreement.
8.11 Mortgagor, to the extent reasonably within its control,
will preserve and renew all rights of way, easemnets, grants,
priveleges, licenses and franchises reasonably necessary for the
use of the Mortgaged Property from time to time and will not,
without the prior consent of the Mortgagee initiate, join in or
consent to any private or restrictive covenant or other public
or private restriction as the use of the Motgaged Property.
Mortgager shall, however, comply with all restrictive covenants
that may at any time affect the Mortgaged Property, zoning
ordinances and other public or private restrictions as to the use
of the Mortgaged Property.
8.12 If at any time any governmental body shall impose a
stamp, documentary or other similar tax on the Note, this
Mortgage, the indebtedness secured hereby or the income generated
therefrom, or any modification, amendment, extension or
consolidation of either thereof, Mortgagor will pay the same
promptly after demand by Mortgagee, but in any event prior to the
due date thereof, and furnish evidence of such payment to
Mortgagee.
8.13 This Mortgage shall insure and bind the successors and
assigns of the parties hereto, and shall be so construed that
whenever applicable with reference to any of the parties hereto,
the use of the sungular number shall include the plural number,
the use of the plural number shall include the singular number,
the use of the masculine gender shall include the feminine
gender, and shall likewise be so construed as applicable to and
including a partneship or partneerships, corporation or
corporations or any other entity that may be a part or parties
hereto. This Mortgage may not be waived, changed or discharges
orally, but only in ana greement in writing signed by the party
against whom any waiver, charge or discharge is sought.
8.14 It is understood and agreed that the validity,
construction and interpretation of this Mortgage will be in
accordance with the laws of the State of Massachusetts.
IN WITNESS WHEREOF, Mortgagor has duly caused this Mortgage
to be executed on ______________, 1997 to be effective as of the
day and year indicated above.
OHI REALTY LIMITED PARTNERSHIP I,
a Massachusetts limited partnership
By: Iatros Health Network, Inc.,
General Partner
By:_______________________
Title:____________________
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF ___________________ ____________________, 1997
Then personally appeared before me the above named
_______________, the _______________________of latros Health
Network, Inc., the general partner of
OHI REALTY LIMITED PARTNERSHIP I, a Massachusetts limited
partnership, and acknowledged the foregoing instrument to be
his/her free act and deed and the free act and deed of latros
Health Network, Inc., as general partner of OHI Realty Limited
Partnership I as aforesaid.
__________________________
Notary Public
My Commission Expires:
EXHIBIT A
Property Description
Two certain parcels of land together with the buildings
thereon, situated on Franklin Street, Quincy, Norfolk County,
Commonwealth of Massachusetts, as shown on a Plan entitled "Plan
of Land Situated in Quincy, Mass., Belonging to Heirs of John L.
Miller, Sept., 1915" recorded with said Registry of Deeds in Book
1323, Page 569, and as more particularly described in two deeds
recorded with said Registry of Deeds in Book 6317, Page 594 and
Book 6317, Page 595, and more particularly described as follows:
Parcel I:
Beginning at the westerly sideline of Franklin Street at the
most southeasterly corner of parcel; thence,
S 75 30' 10" W, 137.00 feet to a point; thence,
N 14 29' 50" W, 92.74 feet to a point; thence,
N 65 40' 04" E, 12.19 feet to a point; thence,
N 14 29' 50" W, 68.50 feet to Parcel II; thence,
N 75 30' 10" E, 125.00 feet to Franklin Street; thence,
S 14 29' 50" E, 163.34 feet to the point of beginning.
Containing 21,543 square feet more or less.
Parcel II:
Beginning at the westerly sideline of Franklin Street at the
most southeasterly corner of parcel adjoining Parcel I; thence,
S 75 30' 10" W, 125.00 feet to a point; thence,
N 14 29' 50" W, 82.67 feet to a point; thence,
N 75 30' 10" E, 125.00 feet to Franklin Street; thence,
S 14 29' 50" E, 82.67 feet to the point of beginning.
Containing 10,334 square feet more or less.
EXHIBIT B
Permitted Exceptions
1. Taxes for the year 1997 to the extent they are due and
payable. Subsequent taxes are a lien but not yet due and
payable.
2. Notice of Variance recorded in Book 4490, Page 462.
3. Utility Easement to New England Telephone and Telegraph
Company recorded in Book 8282, Page 548.
4. Decision by the Zoning Board of Appeals of the City of
Quincy recorded in Book 8673, Page
666.
Prepared by:
Robert N. Buchanan III
Farris, Warfield & Kanaday, PLC
Suite 1 800, SunTrust Center
424 Church Street
Nashville, Tennessee 37219
MORTGAGE DEED, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT
This Mortgage Deed, Assignment of Rents and Leases and
Security Agreement (as it may be amended and/or restated from
time to time, this "_______ Mortage") is made as of the ____ day
of May 1997, by OHI REALTY LIMITED PARTNERSHIP I, a
Massachusetts limited partnership with its principal place of
business at 250 Boylston Street, Chestnut Hill, Massachusetts
02167-2001 (the "Mortgagor"), to and for the benefit of
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation with its
principal office and mailing address at 100 Vine Street,
Murfreesboro, Tennessee 37130 (the "Mortagee").
KNOW ALL MEN BY THESE PRESENTS
That Mortgagor, for consideration paid, hereby irrevocably
grants, mortgages, transfers, hypothecates and assigns to
Mortgagee, with Mortgage Covenants the following tract(s) of land
and other property:
I. LAND: That certain parcel of land situated in Quincy,
County of Norfolk, Massachusetts. and more particularly described
in Exhibit A attached hereto and made a part hereof ( the
"Premises").
II. IMPROVEMENTS: All buildings and improvements now
situated upon the Premises or that may hereafter be constructed
on the Premises or added thereto, together with all fixtures now
or hereafter owned by Mortgagor or in which Mortgagor has an
interest (but only to the extent of such interest) and placed in
or upon the Premises or the buildings or improvements thereon
(collectively the "Improvements").
III. EASEMENTS: Any easement, bridge or right of way,
contiguous or adjoining the Premises and the Improvements
thereon, and all other easements, if any, inuring to the benefit
of the Premises.
IV. PERSONAL PROPERTY AND FIXTURES: All ofthe equipment,
personal property and fixtures of every kind and description now
or hereafter owned by Mortgagor or in which Mortgagor has an
interest (But only to the extent of such interest) and situated
or to be situated upon the Premises, together with any renewals,
replacements or additions thereto or substitutions therefor, and
now or hereafter located at, or used in connection with the
operation of the Premises.
V. RENTS AND LEASES: All rents, income, issues, profits,
royalties, and other benefits derived or to be derived from the
Premises, Improvements, and fixtures (all of which are called
"Rents") and all of Mortgagor's interest in any lease, license or
other agreement pursuant to which any Rents are
payable and all security and guaranties therefor (all of which
are called "Leases"); provided, however, that patient receivables
shall not be considered "Rents" or otherwise be encumbered
hereunder.
All of the Premises, Improvements and other property hereby
granted, sold and conveyed, or intended so to be, are referred to
collectively as the "Mortgaged Property."
TOGETHER WITH:
A. PROCEEDS FOR DAMAGE TO THE MORTGAGED PROPERTY: All
proceeds paid for any damage done to the Mortgaged Property, or
any part thereof, or for any portion thereof appropriated for any
character of public or quasi-public use in accordance with the
provisions, terms and conditions hereinafter set forth.
B. RECORDS: All of the records and books of account now
or hereafter maintained by Mortgagor in connection with the
operation of the Premises.
C. NAME AND GOODWILL: The right, in event of foreclosure
hereunder of the Mortgaged Property, to take and use any name by
which the Mortgaged Property is then known, and the goodwill of
Mortgagor with respect thereto.
SUBJECT, HOWEVER, to those certain liens, encumbrances and
other matters, if any, set forth on Exhibit B attached hereto and
incorporated herein by this reference (collectively the
"Permitted Exceptions").
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee
and its successors and assigns forever, subject to the Permitted
Exceptions together with all and singular the tenements,
hereditaments and appurtenances belonging or in anyway
appertaining thereto, whether now owned or acquired hereafter,
with the reversions, remainders, rents, issues, incomes and
profits thereof, and all of the estate, right, title, interest
and claim whatsoever that Mortgagor now has or may hereafter acqu
ire in and to the Mortgaged Property. And Mortgagor does hereby
bind itself, its heirs, successors and assigns, to warrant and
forever defend the same unto Mortgagee and its successors and
assigns against all persons whomsoever claiming or to claim the
same or any part thereof subject to the Permitted Exceptions.
Capitalized terms not otherwise defined herein shall have
the meanings set forth in that certain Loan Agreement dated as of
_______________, 1997 herewith by and between Mortgagor, OHI
Corporation d/b/a Oasis Healthcare, a Georgia corporation
("Oasis") and Mortgagee (as it may be amended and/or restated
from time to time, the "Loan Agreement").
The conveyance is made for the purpose of securing the
following:
(a) Payment of all principal, interest and other amounts
pursuant to the terms of a note in the amount of up to Eight
Million Three Hundred Thousand and No/I00 Dollars ($8,300,000.00)
executed by Mortgagor and Oasis having a _______________________,
1997 effective date and payable to the order of Mortgagee and any
and all extensions, modifications and renewals thereof and
substitutions therefor (such promissory note, together with the
second note described in (b) below, as either may be extended,
modified, or renewed or their substitution, is referred to
collectively, jointly and severally as
the "Note"), and of the performance of every obligation and
agreement of Mortgagor and/or Oasis contained in the Note;
(b) Payment of all other principal, interest and other
amounts which may become due under that certain $300,000
Promissory Note executed by Mortgagor and Oasis and payable to
the order of Mortgagee and all extensions, modifications and
renewals thereof and substitutions therefor.
(c) Performance by Mortgagor and by Oasis and, if
applicable, by latros Health Network,
Inc., a Delaware corporation, of all obligations and payment of
any amounts due tinder (i) the Loan
Agreement; (ii) the Note (and/or either of them), (iii) the
Mortgages, including without limitation this
Mortgage, (iv) the Debt Service Reserve Agreement, (v) the
Capital Improvement Reserve Agreements,
(vi) the Security Agreement/ Facilities, (vii) the Security
Agreement/Deposits, (viii) the Escalator
Agreements, (ix) the Environmental Agreements, (x) the Guaranty,
and (xi) any other Loan Document;
(d) Payment of any and all sums or indebtedness now or
hereafter existing and owed to Mortgagee from Mortgagor and/or by
Oasis pursuant to the Loan Documents.
ARTICLE I - Covenants and Warranties.
Mortgagor covenants, warrants and agrees as follows:
1.1 Mortgagor is lawfully seized of the Mortgaged
Property and has the right to encumber it with the lien created
by this Mortgage, which lien is subject only to the Permitted
Exceptions. Mortgagor will defend the title thereto in any action
affecting the rights of the Mortgagee hereunder and pay all costs
of any such action (including, but not limited to, reasonable
attorneys' fees actually incurred), whether or not such action
(a) progresses to judgment, or (I)) is brought by or against
Mortgagee.
1.2 Subject to the terms of Section 5.11 of the Loan
Agreement, Mortgagor will pay or cause to be paid (before they
become delinquent) all taxes and exhibit the receipts therefor to
Mortgagee. The term "taxes" as used in this Section 1.2 shall be
deemed to include all assessments, impositions and other
governmental charges, ordinary or extraordinary, foreseen or
unforeseen, that may be levied, assessed or otherwise become a
lien upon or charge against the Mortgaged Property, or the
interest created therein by this Mortgage. After the occurrence
of an Event of Default and upon written demand by Mortgagee,
Mortgagor will deposit or cause to be deposited monthly with
Mortgagee or its duly authorized agent an amount that will create
a fund sufficient to make each and every payment of taxes in the
future as the same shall become due and payable. Such deposits
shall be received and held by Mortgagee or its agent, in a non-
interest bearing account, unless othenvise required by law, and
applied to the payment of each installment of such taxes as it
becomes due and payable and Mortgagor shall furnish to Mortgagee
or its agent, promptly upon receipt, the tax bills with respect
thereto. If Mortgagor shall have deposited amounts in the
aggregate more than sufficient to pay such taxes, the excess
shall be applied by Mortgagee toward the deposits next required
to be made hereunder or at its election shall be repaid to
Mortgagor. All of Mortgagor's interest in such deposits is hereby
assigned by Mortgagor to Mortgagee, and Mortgagor hereby pledges
to Mortgagee an interest in such deposits, as additional security
for the performance of the obligations secured hereby. Upon
performance in full of all indebtedness secured hereby, any
monthly deposits then held by Mortgagee or its agent shall be
repaid to Mortgagor, or as otherwise may be required by law.
1.3 Mortgagor will also pay or cause to be paid (before
they become delinquent) any and all assessments, water, sewer and
other utility charges and all other charges and encumbrances that
are or may be a lien upon the Mortgaged Property.
1.4 Mortgagor will commit or permit no waste on the
Mortgaged Property and will keep all Improvements now or
hereafter erected on the Premises in a sound condition and in
substantially the same condition as exists on the date of this
Mortgage normal wear and tear and fully-insured casualty
excepted.
1.5 Mortgagor will:
1.5.1 Promptly repair, restore, rebuild, replace or
alter as necessary any portion of the Mortgaged Property that may
be damaged or destroyed by fire or other casualty, or taken by
condemnation, as nearly as possible to the condition such
Improvements were in prior to such damage, destruction or taking,
without regard to the availability or adequacy of insurance
proceeds or condemnation awards; provided, however, Mortgagor's
repair obligations hereunder are contingent upon the Mortgagee's
making the insurance and condemnation proceeds subject to
Mortgagee's control available to Mortgagor as provided herein.
Mortgagor will give Mortgagee prompt notice of damage to such
Improvements or personal property in excess of $25,000.00;
1.5.2 Pay when due all invoices properly payable for labor
and construction materials thereon:
1.5.3 Provide management of the Mortgaged Property reasonably
satisfactory to the Mortgagee;
1.5.4 Not remove or demolish any such Improvements,
and make no change or alteration to such Improvements as would
reduce the value of the Improvements without the prior consent of
Mortgagee, which consent shall not be unreasonably withheld,
delayed or conditioned. Mortgagor further covenants that it will
not make, authorize or permit to be made any structural
alterations, or other significant renovations to the Mortgaged
Property, the estimated cost of which exceeds $100,000.00, except
in such manner and under such terms and conditions as Mortgagee
may reasonably require. No fixtures or personal property shall be
removed from the Mortgaged Property during the course of any work
performed in accordance with this Section 1.5.4 except as
authorized in Section 8.10 hereof, without the prior written
consent of Mortgagee. The provisions of this Section 1.5.4 shall
apply to any change, alteration or addition made or required to
be made by Mortgagor in the course of complying with the
provisions of any other section contained herein; provided,
however, Mortgagee's consent and approval is not required for
alterations required to comply with any of the Requirements or to
meet the Capital Expenditure requirements contained in the Loan
Agreement. Nothing herein shall prohibit Mortgagor from removing
from the Premises obsolete equipment or other personal property
if it is replaced with comparable or better items.
1.6 Mortgagor will continuously operate the Mortgaged
Property or cause the Mortgaged Property to be operated in
material compliance with (a) all applicable laws, ordinances,
rules, regulations and directions of government authorities
having jurisdiction of the Mortgaged Property, and (b) the
requirements of all policies of insurance on the Mortgaged
Property and of the national or local Boards of Fire
Underwriters. Mortgagor will require that the Facility Operator
procure, pay for and maintain all permits, licenses and other
authorizations needed for the operation of the Mortgaged
Property.
1.7 Mortgagor will keep or cause to be kept proper and
separate books of account, in accordance with generally accepted
accounting practice, and make, or cause to be made, full and true
entries of all dealings with transactions of every kind relating
to the Mortgaged Property, which books and records will be open
to inspection by Mortgagee, its agents, accountants and
representatives, at all reasonable times.
1.8 All leases of all or any portion of the Mortgaged
Property hereafter made by Mortgagor, including without
limitation the Facility Lease of the Mortgaged Property between
Mortgagor and Oasis, will be subordinated to the lien created by
this Mortgage, and shall provide that, at the option of
Mortgagee, the tenant thereunder shall attorn to Mortgagee or any
assignee of Mortgagee. Other than leases with residents of the
Mortgaged Property, no lease will be executed by Mortgagor
without prior written approval of Mortgagee. Mortgagor will, from
time to time, promptly upon demand, deliver to the Mortgagee a
true and correct schedule of all such leases then in effect,
showing the name of the tenant, the space occupied, the rental
rate and the expiration date of the term.
ARTICLE II - Insurance.
2.1 Mortgagor will at all times keep the Mortgaged
Property or cause it to be kept insured in accordance with the
terms of the Loan Agreement.
ARTICLE III - Damage By Fire or Other Casualty.
3.1 If by reason of any damage or destruction to the
Mortgaged Property any sums are paid under any insurance policy
mentioned iii or contemplated by Article II hereof, such sums
shall be paid as follows:
3.1 .1 If the aggregate insurance proceeds received by
reason of any single instance of such damage or destruction
shall be $100,000.00 or less, such insurance proceeds shall
be paid over to Mortgagee and Mortgagor jointly or, at the
option of Mortgagee, to Mortgagor alone, to be held as a
trust fund to be used first for the payment of the entire
cost of restoring, repairing, rebuilding or replacing the
damaged or destroyed Mortgaged Property before using the
same for any other purpose; provided, however, that if any
uncured Event of Default shall exist hereunder at the time
such proceeds are so to be paid over, such proceeds shall be
paid over to Mortgagee alone, to be applied in Mortgagee's
discretion to the payment of the indebtedness secured hereby
as it shall become due or the repair of the Mortgaged
Property.
3.1.2 If the aggregate insurance proceeds received
by reason of any single instance of such damage or
destruction shall exceed $100,000.00, such proceeds shall be
paid to Mortgagee alone, to be applied toward reimbursement
of all costs and expenses of Mortgagee in collecting such
proceeds in the event Mortgagee is not able to promptly
collect such proceeds, and then to be released to Mortgagor
for the repair, restoration, rebuilding or replacement of
that part of the Mortgaged Property so damaged or destroyed,
or if an uncured Event of Default exists, at Mortgagee's
sole discretion to the payment of the indebtedness secured
hereby as it shall become due. Mortgagee is authorized (a)
to adjust and compromise such loss without the consent of
Mortgagor, (1,) to collect, receive and receipt for such
proceeds in the name of Mortgagee and Mortgagor, and (c) to
endorse Mortgagor's name upon any draft or check in payment
thereof.
3.1.3 In the event that the insurance proceeds
received pursuant to Section 3.1.2 hereof are to be applied
to the restoration of the Mortgaged Property, such
restoration shall be done, subject to the following
conditions:
(a) Mortgagor shall submit to Mortgagee plans
and specifications and a budget of all costs for such
restoration, which items shall be reasonably
satisfactory to Mortgagee;
(b) at any time and from time to time, to the
extent the estimated cost of completion of such
restoration exceeds then available insurance proceeds
during such restoration, the Mortgagor shall deposit
with Mortgagee the amount of such deficiency or
otherwise demonstrate the availability of funds for
such deficiency within ten (10) days after demand by
Mortgagee;
(c) the deficiency referred to in Section
3.1.3(b) hereof shall be spent on such restoration of
the Mortgaged Property prior to any advance of
insurance proceeds by Mortgagee;
(d) Mortgagee's being satisfied that all
leases with respect to the Mortgaged Property that are
in existence at the time of such damage will be, at the
time of completion of the reconstruction or repair of
the portions damaged, in full force and effect; and
(e) such proceeds shall be disbursed subject
to such other terms and conditions as Mortgagee shall
reasonably require.
3.2 Provided that Mortgagee releases all available
proceeds to Mortgagor, nothing contained in this Article III
shall relieve Mortgagor of its obligations in Section 1.5.1
hereof in the event that no or inadequate proceeds of insurance
are available to defray the cost of such work, except that, on
the occurrence of any fire or other casualty that affects the
Mortgaged Property, Mortgagor shall have the right to pay
Mortgagee the entire principal balance of the Note, together with
all accrued and unpaid interest thereunder to the date of such
payment and all other sums, if any, then due under this Mortgage.
In addition, nothing contained herein shall relieve Mortgagor of
its duty to pay all installments of interest and to make all
other payments called for or required by the Note and this
Mortgage subsequent to the occurrence of any fire or other
casualty.
ARTICLE IV - Condemnation.
4.1 Promptly upon receipt by Mortgagor of notice of the
institution of any proceeding or negotiations for the taking of
the Mortgaged Property, or any part thereof, in condemnation or
by the exercise of the power of eminent domain, Mortgagor shall
give notice thereof to Mortgagee. Mortgagee may appear in any
such proceedings and participate in any such negotiations and may
be represented by counsel. Mortgagor, notwithstanding that
Mortgagee may not be a party to any such proceeding, will
promptly give to Mortgagee copies of all notices, pleadings,
judgments, determinations and other papers received by Mortgagor
in connection therewith. Mortgagor will not enter into any
agreement for the taking of the Mortgaged Property, or any part
thereof, with anyone authorized to acquire the same in
condemnation or by eminent domain unless Mortgagee shall first
have consented in writing thereto.
4.2 In the event of a taking of all or substantially all
of the Mortgaged Property in condemnation or by eminent domain,
the whole of the principal sum and accrued and unpaid interest
evidenced and secured by the Note and this Mortgage, together
with all other amounts, if any, secured hereby, shall forthwith
become due and payable, at the option of Mortgagee, and all
awards paid or payable on account of such taking shall be paid to
Mortgagee. As used in this Section 4.2, a taking of all or
substantially all of the Mortgaged Property shall mean a taking
of so much as leaves a balance that cannot economically be
operated for the purposes for which the same was operated or
intended to be operated prior to such taking.
4.3 In the event of a taking of less than substantially
all of the Mortgaged Property in condemnation or by eminent
domain, or by agreement in lieu thereof, all awards payable as a
result of such taking shall forthwith be paid to Mortgagee, and
the proceeds of such awards shall be applied first towards the
repair or restoration of the Mortgaged Property if such repair or
restoration is commercially feasible considering the remaining
indebtedness secured by this Mortgage and the balance towards the
payment of the indebtedness secured hereby. Provided, however,
that if any Event of Default shall exist hereunder at the time
such proceeds are so to be paid over, such proceeds shall be paid
over to Mortgagee alone, to be applied to the payment of the
indebtedness secured hereby as it shall become due. In the event
such proceeds are released, as aforesaid, to repair, restore and
alter the Mortgaged Property to the extent required as a result
of such taking, the proceeds of such taking shall be disbursed in
accordance with and subject to the provisions of Section 3.1.3
hereof.
ARTICLE V: RENTS AND LEASES
5.01 Assignment of Rents . Mortgagor hereby authorizes
Mortgagee or Mortgagee's agents to collect the Rents and hereby
directs each tenant of the Premises to pay the Rents to Mortgagee
or Mortgagee's agents; provided, however, that prior to the
occurrence and absent the continuation of an Event of Default
under this Mortgage, Mortgagor shall collect and receive all
Rents as licensee for the benefit of Mortgagee, and Mortgagor
shall apply the Rents so collected to the amount then due and
payable under this Mortgage, so long as no Event of Default has
occurred and is continuing, to the account of Mortgagor, it being
intended by Mortgagor and Mortgagee that this assignment of Rents
constitutes an absolute assignment and not an assignment for
additional security only. Upon the occurrence and during the
continuation of an Event of Default and without the necessity of
Mortgagee entering upon and taking and maintaining full control
of the Premises in person, by agent or by a receiver, Mortgagee
shall immediately be entitled to possession of all Rents as the
same become due and payable, including but not limited to, Rents
then due and unpaid, and all such Rents shall immediately upon
delivery be held by Mortgagor as licensee for the benefit of
Mortgagee only. Mortgagor agrees that during the continuation of
an Event of Default, each tenant of the Premises shall pay such
Rents to Mortgagee or Mortgagee's agent on Mortgagee's written
demand to each tenant therefor, delivered to each tenant
personally or by mail, without any liability on the part of said
tenant to inquire further as to the existence of an Event of
Default. Mortgagor hereby covenants that Mortgagor has not
executed any prior assignment of Rents, that Mortgagor has not
performed, and will not perform any acts that would prevent
Mortgagee from exercising its rights under this Article V .
Mortgagor covenants that Mortgagor will not hereafter collect or
accept payment of any Rents except for the following: (a)
payments of Rents for a period not more than one month prior to
the due dates of such Rents;(b) payment of Rents in arrears; and
(c) payments of security deposits for performance of any lessee's
or other obligor's covenants under any Lease in usual and
customary amounts. Mortgagor further covenants that Mortgagor
will execute and deliver to Mortgagee such further assignments of
Rents as Mortgagee may from time to time request.
5.02 Compliance with Leases. Mortgagor shall comply with
all Leases and shall notify Mortgagee if Mortgagor is unable to
do so or determines that it will be unable to do so for any
significant terms. Mortgagee may do whatever it determines is
necessary to insure that all Leases continue in effect whenever
Mortgagee determines that Mortgagor is or may be unable to
perform any significant term of the Leases.
5.03 Modification of Leases. etc. . Mortgagor shall not
change the material terms of any Lease and shall not reduce any
Rent without the prior written consent of Mortgagee. Mortgagor
shall not change the terms of any security interests or
guarantees securing or guaranteeing the payment of Rent to
Mortgagor.
5.04 No Delegation of Mortgagor's Duties and Indemnity .
Mortgagor does not hereby delegate to Mortgagee Mortgagor's
duties under the Leases and Mortgagee shall not be obligated to
discharge such duties. Mortgagor shall indemnify Mortgagee and
hold it harmless from all claims, regardless of merit, in any way
arising out of the Leases and the assignment to Mortgagee of the
Leases and Rents and any expenses related to such claims,
including without limitation attorneys' fees except claims based
upon the gross negligence or willful misconduct of Mortgagee
after Mortgagee takes possession of the Premises. Mortgagor shall
reimburse Mortgagee for any claims paid or expenses incurred by
Mortgagee which fall within the preceding indemnity immediately
upon demand.
5.05 Subordination of Leases. All Leases (including
without limitation the Facility Lease of the Mortgage Property,
between Mortgagor and Mortgagee) and the rights of tenants
thereunder shall be subordinate to the lien of this Mortgage and
to all terms, conditions and provisions hereof and to any
renewal, consolidation, extension, modification or replacement
hereof, and every Lease shall provide for such subordination
therein.
5.06 Attornent. The tenant of any Lease shall attorn to
anyone, including Mortgagee, who acquires the lessor's interest
in the Lease and the Premises ("Purchaser"), whether by
foreclosure sale or otherwise. The tenant's attomment shall be
effective immediately upon the Purchaser's succession to the
lessor's interest and the Lease shall continue in effect between
Purchaser, as lessor, and the tenant without any further act of
Purchaser, Mortgagee or the tenant. Purchaser shall have no
liability for any act, omission or obligation of the previous
lessor. Every Lease shall provide for such attomment therein.
ARTICLE VI- Default Provisions.
6.1 The occurrence of an Event of Default under the Loan
Agreement shall constitute an " Event of Default" under this
Mortgage.
ARTICLE VII - Remedies Upon Default.
7.1 Upon the occurrence of any Event of Default
hereunder, Mortgagee, at its option, without presentment, demand,
protest or notice of any kind, may declare the indebtedness
evidenced by the Note and the other Obligations (as defined in
the Loan Agreement) secured by this Mortgage immediately due and
payable. Mortgagee, however, need not, and is not obligated to,
declare said indebtedness due as a condition precedent to
exercising its rights and remedies as set forth herein.
7.2 Upon the occurrence of any Event of Default
hereunder:
7.2.1 Mortgagee, at its option, without obligation
to do so, without notice to, or demand on, Mortgagor and
without releasing Mortgagor from any liability under the
Note, this Mortgage or any other Loan Document, may make any
payment or perform any act that Mortgagor is obligated to
pay or do under the terms of this Mortgage or any other Loan
Document.
7.2.2 In exercising any of the rights set forth
under Section 7.2.1 hereof, Mortgagee may incur any
liability and expend whatever amounts it may deem necessary.
All such amounts, without notice or demand, shall be
immediately due and payable to Mortgagee by Mortgagor with
interest at the Default Rate and shall be secured hereby;
7.2.3 If Mortgagee shall pay or discharge any lien,
rents or claim on the Mortgaged Property, or pay any del
inquent tax, assessment or similar charge, Mortgagee shall
be subrogated to the rights of the holder of such lien,
rents or claim or to the rights of such taxing authority.
7.3 Upon the occurrence of any Event of Default
hereunder, Mortgagee, at its option, without notice, without any
liability to Mortgagor, to the extent permitted by law and
without regard to the adequacy of the security for said debt,
may:
7.3.1 Enter upon and take possession of the
Mortgaged Property (with or without bringing any action or
proceeding in court); or
7.3.2 Demand and receive payment of all rents,
benefits and profits of the Mortgaged Property, including
those past due and unpaid (whether or not Mortgagee has
taken possession of the Mortgaged Property); or
7.3.3 Have a receiver immediately appointed for the
Mortgaged Property and the earnings, revenues, rents,
issues, profits and other income thereof and therefrom, with
all such powers as the court making such appointment shall
confer.
7.4 If Mortgagee enters upon and takes possession of the
Mortgaged Property as provided in Section 7.3 hereof, Mortgagee
may operate and manage the Mortgaged Property and perform any
acts that Mortgagee, in its sole discretion, deems necessary or
desirable to protect and preserve the marketability, rentability,
increase the income or conserve the value of the Mortgaged
Property. Mortgagee shall have no liability for any action or
inaction while in possession of the Mortgaged Property so long as
such action or inaction is taken or refrained from being taken in
good faith.
7.5 Upon the occurrence of an Event of Default
hereunder:
7.5.1 Mortgagee is irrevocably appointed the agent
and attorney-in-fact of Mortgagor, which appointment is
hereby coupled with an interest, in its name and stead and
on its behalf, for the purposes of effectuating any sale for
the enforcement of this Mortgage, whether under the power of
sale hereby given or pursuant to judicial proceedings or
otherwise, to execute and deliver all such deeds,
conveyances, bills of sale, assignments, transfers and other
instruments as Mortgagee may consider necessary or
appropriate, and to substitute one or more persons with like
power, Mortgagor hereby ratifying and confirming all that
Mortgagee, or such substitute or substitutes, shall lawfully
do by virtue hereof, provided however Mortgagee will give
Mortgager
seven (7) days notice prior to exercise of said power of
attorney. In addition, if so requested by Mortgagee or by
any purchaser, Mortgagor shall ratify and confirm any such
sale by executing and delivering to Mortgagee or to such
purchaser or purchasers all such proper deeds, conveyances,
assignments, instruments of transfer and releases as may be
designated in any such request.
7.5.2 This Mortgage is upon the STATUTORY CONDITION
and upon the further condition that all covenants and
agreements of Mortgagor contained herein, in the Loan
Agreement, the Note and the other Loan Documents, shall be
kept and fully performed, for any breach of which Mortgagee
shall have the STATUTORY POWER OF SALE.
7.6 Acceptance by Mortgagee of any payment in an amount
less than the amount then due on the indebtedness secured hereby
shall be deemed an acceptance on account only and the failure to
pay the entire amount then due shall be and continue to be an
Event of Default; at any time thereafter and until the entire
amount then due on said indebtedness has been paid, Mortgagee
shall be entitled to exercise all rights conferred upon Mortgagee
in this Mortgage upon the occurrence of an Event of Default.
7.7 No remedy herein conferred upon Mortgagee shall be
exclusive of any other remedy herein or by law or equity provided
or permitted, but such shall be cumulative and in addition to
every other remedy given herein or now or hereafter existing at
law or equity.
7.8 The exercise of any option in this Mortgage by
Mortgagee shall not be deemed a waiver of its rights to exercise
any other option; and the filing of a suit for collection of the
Note and foreclosure of this Mortgage as a mortgage or for any
other default hereunder shall not preclude sale pursuant to the
power of sale contained in this Mortgage after a dismissal of the
suit. No provision hereof shall be deemed to release Mortgagor's
obligation to pay the interest, principal and other sums and
charges secured hereby until such time as all thereof have been
paid to the Mortgagee in full.
7.9 If foreclosure should be commenced by Mortgagee, at
any time before the sale of the Mortgaged Property, Mortgagee may
abandon such sale and may at any time or times thereafter again
commence such sale, or Mortgagee may sue for foreclosure of this
Mortgage in the courts; if Mortgagee should sue for such
foreclosure, it may at any time before entry of final judgment
dismiss the suit and sell the Mortgaged Property pursuant to the
power of sale contained herein.
7.10 At any foreclosure sale, whether pursuant to the
power of sale contained in this Mortgage, or pursuant to the
judgment of a court, all of the Mortgaged Property at the option
of Mortgagee and without notice to Mortgagor, may be sold as a
whole and it shall not be necessary to have said personal
property present at the place of sale. The recitals in the bill
of sale to any purchaser at such sale shall be full and
conclusive evidence of the truth of the matters stated therein,
and all prerequisites to such sale shall be presumed to have been
performed and such sale and bill of sale shall be conclusive
against Mortgagor.
7.11 Mortgagor agrees, to the extent that it may
lawfully so agree, that if an Event of Default shall occur
hereunder, neither Mortgagor nor anyone claiming through or under
Mortgagor shall or will set Lip, seek or claim to take advantage
of any appraisement, valuation, redemption, moratorium or
marshalling laws now or hereafter in force in the locality where
the property subject to the lien of this Mortgage may be
situated, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage,
or the absolute sale of the Mortgaged Property, or the final or
absolute putting into possession thereof, immediately after such
sale, of the purchaser thereof, and Mortgagor for itself and its
successors and assigns hereby waives, to the full extent that it
may lawfully do so, the benefit of all such laws and any and all
right to have the estates comprising the security intended to be
created hereby marshalled upon any foreclosure of the lien hereof
and agrees that the Mortgaged Property may be sold as an
entirety.
7.12 Mortgagor, to the extent that it may lawfully do
so, hereby submits to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts, as well as to the
jurisdiction of all courts from which an appeal may be taken from
the aforesaid courts, for the purpose of any suit, action or
other proceeding arising out of the breach by Mortgagor of any of
obligations under or with respect to the Note or this Mortgage,
and expressly waives any and all objections it may have as to
venue in any of such courts.
ARTICLE VIII- Miscellaneous Provisions.
8.1 Without affecting the liability of Mortgagor, or any
other person (except any person expressly released in writing),
for payment of the debt secured hereby or for the performance of
any obligations secured by this Mortgage, and without affecting
the lien or other rights of Mortgagee with respect to any
Mortgaged Property not expressly released in writing, Mortgagee
at any time, and from time to time, either before or after
maturity of the Note, and without notice or consent, may:
8.1.1 Release any person liable for payment of the
indebtedness secured hereby or for the performance of any
obligation secured hereby;
8.1.2 Make any agreement extending the time, or
otherwise altering the terms of payment of the indebtedness
secured hereby, or modifying or waiving any obligation
secured hereby, or subordinating, modifying or otherwise
dealing with the lien securing payment of the indebtedness
secured hereby;
8.1.3 Exercise or refrain from exercising or waive
any right Mortgagee may have;
8.1.4 Accept additional security of any kind for
the indebtedness secured hereby; and
8.1.5 Release or otherwise deal with any property,
real or personal, securing the indebtedness secured hereby,
including all or any part of the Mortgaged Property.
8.2 In the event that Mortgagor conveys its interest in
the Mortgaged Property to parties not appearing in this Mortgage
(without implying any right of Mortgagor to do so without
Mortgagee's written consent), Mortgagee may, without notice to
Mortgagor, deal with such successor or successors in interest
with reference to this Mortgage and the Note secured hereby,
either by way of forbearance on the part of Mortgagee or
extension of the time of payment of the debt or any sum hereby
secured, without in any way modifying or affecting the conveyance
under this Mortgage or the original liability of Mortgagor or any
other party on the Note secured hereby, either in whole or in
part.
8.3 All payments on the debt and advancements, if any,
hereby secured shall be applied, first to advancements, if any,
in the order of maturity, and second, to the payment of the
indebtedness evidenced by the Note hereinabove described and
secured hereby and other sums owed under the terms of the Loan
Agreement and the other Loan Documents in such manner as
Mortgagee shall deem
appropriate. Proceeds from foreclosure sales and insurance
proceeds or condemnation awards shall be applied in the same
manner after payment of all costs and expenses of sales,
including reasonable attorney's and auctioneer's fees actually
incurred.
8.4 At any time and from time to time until payment of
the indebtedness secured hereby and upon request of Mortgagee,
Mortgagor will promptly execute and deliver to the Mortgagee such
additional instruments as may be reasonably required to further
evidence the lien of this Mortgage and further to protect the
security position of this Mortgagee with respect to the property
subject to this Mortgage.
8.5 In the event of any sale of the Mortgaged Property
under the provisions hereof Mortgagor shall forthwith surrender
possession thereof to the purchaser. Upon failure to do so,
Mortgagor shall thereupon be a tenant at sufferance of such
purchaser, and upon its failure to surrender possession of the
Mortgaged Property upon demand, such purchaser, his heirs or
assigns shall be entitled to institute and maintain an
appropriate action for possession of the Mortgaged Property.
8.6 Upon performance in full of the obligations secured
hereby, this Mortgage shall become null and void and shall be
released by Mortgagee at Mortgagor's expense.
8.7 In case any one or more of the provisions contained
in the Note or in this Mortgage shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision hereof or thereof, but each shall be construed as
if such invalid, illegal or unenforceable provision had never
been included.
8.8 All notices, requests, demands, consents or other
communications given hereunder or in connection herewith shall be
in writing and shall be sent as provided in the Loan Agreement.
8.9 Mortgagee and its agents may enter and inspect the
Mortgaged Property during usual business hours after reasonable
prior notice.
8.10 It is the intent of the parties hereto that this
Mortgage shall constitute a security agreement within the meaning
of the Code with respect to all fixtures and personal property
above referred to and all replacements thereof, substitutions
therefor or additions thereto (said property being sometimes
hereinafter referred to as the "Personalty"), and that a security
interest shall attach thereto for the benefit of Mortgagee to
secure the indebtedness evidenced by the Note and secured by this
Mortgage, and all other sums and charges that may become due
hereunder or thereunder. Mortgagor hereby authorizes Mortgagee to
file financing and continuation statements with respect to the
Personalty without the signature of Mortgagor whenever lawful.
Upon the occurrence and during the continuation of an Event of
Default and to the extent permitted by law, Mortgagee shall have
the option of proceeding as to both real and personal property in
accordance with its rights and remedies in respect of the real
property comprising the Mortgaged Property, in which event the
default provisions of the Code shall not apply. The parties agree
that in the event Mortgagee elects to proceed with respect to the
Personalty separately from the real property, five (5) days'
notice of the sale of the Personalty shall be reasonable notice.
Mortgagor agrees that, without the written consent of Mortgagee,
Mortgagor will not remove or permit to be removed from the
Mortgaged Property any of the Personalty unless the same is
immediately replaced with unencumbered fixtures or articles of
personal property, as the case may be, of a quality and value
equal or superior to those which they replace. All such
replacements, renewals and additions shall become and be
immediately subject to the security interest of this Mortgage and
be covered hereby.
Mortgager shall, from time to time, on request of Mortgagee,
deliver an inventory of the Personalty in reasonable detail,
including an itemization of all items leased to Mortgagor or
subject to conditional bill iof sale, security agreement or other
title retention agreement.
8.11 Mortgagor, to the extent reasonably within its control,
will preserve and renew all rights of way, easemnets, grants,
priveleges, licenses and franchises reasonably necessary for the
use of the Mortgaged Property from time to time and will not,
without the prior consent of the Mortgagee initiate, join in or
consent to any private or restrictive covenant or other public
or private restriction as the use of the Motgaged Property.
Mortgager shall, however, comply with all restrictive covenants
that may at any time affect the Mortgaged Property, zoning
ordinances and other public or private restrictions as to the use
of the Mortgaged Property.
8.12 If at any time any governmental body shall impose a
stamp, documentary or other similar tax on the Note, this
Mortgage, the indebtedness secured hereby or the income generated
therefrom, or any modification, amendment, extension or
consolidation of either thereof, Mortgagor will pay the same
promptly after demand by Mortgagee, but in any event prior to the
due date thereof, and furnish evidence of such payment to
Mortgagee.
8.13 This Mortgage shall insure and bind the successors and
assigns of the parties hereto, and shall be so construed that
whenever applicable with reference to any of the parties hereto,
the use of the sungular number shall include the plural number,
the use of the plural number shall include the singular number,
the use of the masculine gender shall include the feminine
gender, and shall likewise be so construed as applicable to and
including a partneship or partneerships, corporation or
corporations or any other entity that may be a part or parties
hereto. This Mortgage may not be waived, changed or discharges
orally, but only in ana greement in writing signed by the party
against whom any waiver, charge or discharge is sought.
8.14 It is understood and agreed that the validity,
construction and interpretation of this Mortgage will be in
accordance with the laws of the State of Massachusetts.
IN WITNESS WHEREOF, Mortgagor has duly caused this Mortgage
to be executed on ______________, 1997 to be effective as of the
day and year indicated above.
OHI REALTY LIMITED PARTNERSHIP I,
a Massachusetts limited partnership
By: Iatros Health Network, Inc.,
General Partner
By:_______________________
Title:____________________
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF ___________________ ____________________, 1997
Then personally appeared before me the above named
_______________, the _______________________of latros Health
Network, Inc., the general partner of
OHI REALTY LIMITED PARTNERSHIP I, a Massachusetts limited
partnership, and acknowledged the foregoing instrument to be
his/her free act and deed and the free act and deed of latros
Health Network, Inc., as general partner of OHI Realty Limited
Partnership I as aforesaid.
__________________________
Notary Public
My Commission Expires:
EXHIBIT A
Property Description
Parcel 1: A certain parcel of land together with the
buildings thereon, situated on Dean Street, Taunton, Bristol
County, Commonwealth of Massachusetts, being shown as Lot No.2 on
a Plan entitled "Plan of Land belonging to Alice R. Hartshorn
Estate Taunton, Mass., made by Seth V Freeman, dated October
1, 1947" recorded with said Registry of Deeds in Plan Book 40,
Plan 68. Excepting therefrom, a certain parcel of land,
containing 8.18 acres, as shown on a plan entitled, "Property in
Taunton, Mass., owned by Long Lane Company, Scale: 1 inch = 40
feet, dated May, 1972. Bristol Land Surveyors Taunton" recorded
with said Registry of Deeds in Plan Book 138, Page 69. The
subject premises are described on said Plan Book 138, Plan 69, as
"Long Lane Company," and as more particularly described in deed
recorded with said Registry of Deeds in Book 1727, Page 1110, and
are more particularly described as follows:
Beginning at a point on the north side of Dean Street that
is S 78 -07'-53" W, 188.49 feet from a Mass. Highway Bound at
station 34+95;
thence S 78 -07'-53" W, 131.55 feet to a Mass. Highway bound and
by Dean Street;
thence S 81 -33'-58" W, 72.05 feet by Dean Street;
thence N 30 -12'-10" W, 322.56 feet by land now or formerly of O'Neill;
thence N 71 -18'-00" E, 273.62 feet by Parcel 2;
thence S 17 -24'-00" E, 344.69 feet by Parcel 2 to the point of
beginning. Containing 78,349 square feet.
Parcel 2: A certain parcel of land together with the buildings thereon,
situated on Dean Street, Taunton, Bristol County, Commonwealth of
Massachusetts, containing 8.18 acres, as shown on a Plan
entitled "Property in Taunton, Mass., owned by Long Lane Company,
Scale 1 inch = 40 feet, dated May, 1972. Bristol Land Surveyors,
Taunton" recorded with said Registry of Deeds in Plan Book 138,
Page 69, and as more particularly described in deed recorded with
said Registry of Deeds in Book 2165, Page 192, and more particularly
described as follows:
Beginning at a point on the north side of Dean Street that
is S 78 -07'-53" W, 88.49 feet from a Mass. Highway Bound at
station 34+95;
thence S 78 -07' -53" W, 100.00 feet by Dean Street;
thence N 17 -24' -00" W, 344.69 feet by Parcel 1;
thence S 71 -18' -00" W, 273.62 feet by Parcel 1;
thence S 79 -29' -10" W, 134.96 feet by land now or formerly of O'Neill;
thence N 28 -4O' -30" W, 385.71 feet by land now or formerly of South
Bay Corporation;
thence N 15 -27' -00" E, 254.48 feet by land now or formerly of
Penn Central Railroad Co.;
thence N 65 -50' -30" E, 360.00 feet by land now or formerly of the
City of Taunton;
thence S 29 -05' -00" E, 642.61 feet by lands now or formerly of
Gebelien and Finn;
thence S 55 -49' -00" W, 45.00 feet by land now or formerly of Gordon;
thence S 17 -24' -00" E, 356.64 feet by said Gordon to point of
beginning. Containing 354,063 square feet.
EXHIBIT B
Permitted Exceptions
1. Taxes for the year 1997 to the extent they are due and
payable. Subsequent taxes are a lien but not yet due and
payable.
2. Sewer connection shown on Plan recorded in Plan Book 138,
Plan 69.
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (the "Agreement") is made and
entered into as of the 22nd day of December, 1997 by and among
IATROS HEALTH NETWORK, INC., a Delaware corporation ("IHNI") and
NEWCARE HEALTH CORPORATION, a Nevada corporation ("NewCare").
W I T N E S S E T H:
WHEREAS, IHNI desires to sell to NewCare, and NewCare
desires to purchase from IHNI, 4,000,000 newly issued shares (the
"Shares") of the common stock, par value $.0001 per share, of
IHNI (the "Common Stock") for an aggregate purchase price of
$1,000,000 (the "Purchase Price") pursuant to the terms and
conditions set forth herein;
WHEREAS, IHNI has, by resolution of the Board of Directors
of IHNI (the "IHNI Board"), increased the number of directors
serving on the IHNI Board to seven members;
WHEREAS, IHNI desires to grant NewCare the right to appoint
the Chairman of the Board of the IHNI Board (the "Chairman") and
one additional director to serve on the IHNI Board at the
discretion of NewCare (the "Additional Director" and, together
with the Chairman, the "NewCare Directors") who will begin
serving on the IHNI Board immediately upon the execution and
delivery hereof; and
WHEREAS, the parties hereto wish to set forth their
agreement with respect to the purchase and sale of the Shares by
NewCare and the appointment of the NewCare Directors;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt of which is
acknowledged by the undersigned, the undersigned hereby agree as
follows:
Section 1. Agreement of Purchase and Sale.
Simultaneously with the execution hereof, NewCare shall purchase
from IHNI and IHNI shall sell to NewCare the Shares for the
Purchase Price, and IHNI will make delivery of the Shares to
NewCare by delivering to NewCare share certificate(s)
representing the Shares in the amount contemplated hereby. The
Purchase Price shall be paid by NewCare in accordance with the
following:
Forgiveness of Indebtedness. Two Hundred Eleven
Thousand Dollars ($211,000) shall be paid
contemporaneously with the execution and delivery
hereof by cancelling the indebtedness of IHNI in favor
of NewCare represented by that certain Promissory Note
dated as of December 12, 1997; and
Payment of Balance. Seven Hundred Eighty-Nine
Thousand Dollars ($789,000) shall be paid in equal
installments of One Hundred Ninety-Seven Thousand Two
Hundred Fifty Dollars ($197,250) on each of January 15,
1998, February 15, 1998, March 15, 1998 and April 15,
1998, unless the parties hereto mutually agree in
writing to a different method and timing of payment
hereunder.
Section 2. Corporate Governance.
Appointment of NewCare Directors. Immediately upon
the execution and delivery hereof, IHNI shall take
whatever action is necessary (including any necessary
amendments of the Bylaws of IHNI) to implement the
provisions of this Section 2 and to cause the full IHNI
Board, at and immediately after the date hereof, to
include the NewCare Directors, each of whom shall be
chosen by NewCare, at its sole discretion. If any
person chosen by NewCare to serve on the IHNI Board as
a NewCare Director is unable or unwilling to serve, or
if a NewCare Director resigns or is removed from the
IHNI Board, such person shall be replaced by an
individual or individuals designated by NewCare, in its
sole discretion.
Equitable Considerations. IHNI acknowledges that
irreparable loss and injury would result to NewCare
upon the breach of any of the covenants contained in
this Section 2 and that damages arising out of such
breach would be difficult to ascertain. IHNI hereby
agrees that, in addition to all other remedies provided
at law or in equity, NewCare may petition and obtain
from a court of law or equity, without the necessity of
proving actual damages and without posting bond or
other security, both temporary and permanent injunctive
relief and all other equitable remedies available to
NewCare to prevent a breach by IHNI of any covenant
contained in this Section 2.
Section 3. Representations and Warranties of IHNI. As a
material inducement to enter into this Agreement, IHNI represents
and warrants to NewCare as follows, and acknowledges and confirms
that NewCare is relying upon such representations and warranties
in connection with the execution, delivery and performance
hereof, notwithstanding any investigation made by NewCare or on
its behalf.
3.1 Due Organization. IHNI is a corporation duly
organized, existing and in good standing under the laws
of the State of Delaware with corporate power and
authority to conduct its business as currently
conducted and to own and use its assets as currently
owned and used.
3.2 Capital Stock. IHNI's authorized shares consist of
25,000,000 shares of the Common Stock, of which
16,330,449 shares were outstanding as of December 15,
1997, and 5,000,000 shares of preferred stock, $.0001
par value per share, of which 533,333 shares of Series
A Preferred Stock and 100,000 shares of Series B
Preferred Stock were outstanding as of December 15,
1997.
3.3 No Derivatives. Except as set forth in Exhibit"A"
attached hereto and incorporated herein by this
reference, there are no options, subscriptions,
warrants, calls, rights or commitments obligating IHNI
to issue equity securities or acquire its equity
securities.
3.4 Shares Duly Authorized, Validly Issued, Etc. The
Shares have been duly authorized, are validly issued
and have not been issued in violation of any statutory
preemptive rights of shareholders and are fully paid
and non-assessable shares of the Common Stock, and no
personal liability attaches or will attach to NewCare
by reason of its ownership thereof in accordance with
Section 152 of the Delaware General Corporation Law.
3.5 No Encumbrances. IHNI has all right, title and
interest in and to the Shares, free and clear of all
liens, claims and encumbrances.
3.6 Due Authorization. This Agreement has been duly
authorized by all necessary corporate action on the
part of IHNI and constitutes a valid and binding
obligation of IHNI, enforceable against IHNI in
accordance with its terms.
3.7 No Violation. The execution, delivery and
performance of this Agreement by IHNI does not (with or
without the giving of notice, the passage of time or
both) result in any violation of the Certificate of
Incorporation and Bylaws of IHNI or conflict with or
constitute a breach of any contract, agreement or
obligation of IHNI.
Section 4. Representations and Warranties of NewCare.
As a material inducement to enter into this Agreement, NewCare
represents and warrants to IHNI as follows, and acknowledges and
confirms that IHNI is relying upon such representations and
warranties in connection with the execution, delivery and
performance hereof, notwithstanding any investigation made by
IHNI or on its behalf:
4.1 Due Organization. NewCare is a corporation duly
organized, existing and in good standing under the laws
of the State of Nevada with corporate power and
authority to conduct its business as currently
conducted and to own and use its assets as currently
owned and used;
4.2 Due Authorization. This Agreement has been duly
authorized by all necessary corporate action on the
part of NewCare and constitutes a valid and binding
obligation of NewCare, enforceable against NewCare in
accordance with its terms; and
4.3 No Violation. The execution, delivery and
performance of this Agreement by NewCare does not (with
or without the giving of notice, the passage of time or
both) result in any violation of the Articles of
Incorporation and Bylaws of NewCare or conflict with or
constitute a breach of any contract, agreement or
obligation of NewCare.
Section 5. Registration Rights.
5.1 Shelf Registration. (a) Upon written request by
NewCare in accordance with the terms of Subsection 9.4
hereof within one (1) year following the date hereof,
IHNI shall file with the Securities and Exchange
Commission (the "Commission") a shelf registration
statement on an appropriate form under Rule 415 under
the Securities Act of 1933, as amended (the "Securities
Act"), or any similar rule that may be adopted by the
Commission (a "Shelf Registration Statement"), relating
to the resale of the Shares by NewCare from time to
time in accordance with the methods of distribution set
forth in such Shelf Registration Statement and shall
use its best efforts to cause such Shelf Registration
Statement to be declared effective under the Securities
Act as soon as practicable thereafter.
(b) IHNI shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order
to permit the prospectus forming a part thereof to be
usable by NewCare until the earliest to occur of the
following: (A) the two year anniversary of the date
hereof; (B) the earliest time at which all the Shares
have been sold pursuant to the Shelf Registration
Statement; and (C) the earliest time at which, in the
written opinion of independent counsel to IHNI, all
outstanding Shares held by persons that are not
affiliates of IHNI may be resold without registration
under the Securities Act pursuant to Rule 144(k) under
the Securities Act or any successor provision thereto
(in any such case, such period being called the
"Effectiveness Period"). IHNI shall be deemed not to
have used its best efforts to keep the Shelf
Registration Statement effective during the requisite
period if IHNI voluntarily takes any action that would
result in NewCare not being able to offer and sell the
Shares during the Effectiveness period, unless such
action is required by applicable law.
5.2 Registration Procedures. In connection with
any Shelf Registration Statement, the following
provisions shall apply:
(a) IHNI shall take such action as may be necessary so
that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part
thereof and any amendment or supplement thereto (and
each report or other document incorporated therein by
reference in each case) complies in all material
respects with the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
and the respective rules and regulations thereunder,
(ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not misleading
and (iii) any prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement
to such prospectus, does not include an untrue
statement of a material fact or omit to state a
material fact necessary in order to make the
statements, in the light of the circumstances under
which they were made, not misleading.
(b) IHNI shall advise NewCare:
(i) when a Shelf Registration Statement and any
amendment thereto has been filed with the
Commission and when the Shelf Registration
Statement or any post-effective amendment thereto
has become effective;
(ii) upon the issuance by the Commission of any
stop order suspending effectiveness of the Shelf
Registration Statement or the initiation of any
proceedings for that purpose;
(iii) upon the receipt by IHNI of any notification
with respect to the suspension of the
qualification of the securities included therein
for sale in any jurisdiction or the initiation of
any proceeding for such purpose; and
(iv) upon the happening of any event that requires
the making of any changes in the Shelf
Registration Statement or the prospectus so that,
as of such date, the Shelf Registration Statement
and the prospectus do not contain an untrue
statement of a material fact and do not omit to
state a material fact required to be stated
therein or necessary to make the statements
therein (in the case of the prospectus, in light
of the circumstances under which they were made)
not misleading (which advice shall be accompanied
by an instruction to suspend the use of the
prospectus until the requisite changes have been
made).
(c) IHNI shall, during the Effectiveness Period,
deliver to NewCare with respect to a Shelf Registration
Statement, without charge, as many copies of the
prospectus (including each preliminary prospectus)
included in such Shelf Registration Statement and any
amendment or supplement thereto as NewCare may
reasonably request; and IHNI consents to the use of the
prospectus or any amendment or supplement thereto by
NewCare in connection with the offering and sale of the
IHNI Shares covered by the prospectus or any amendment
or supplement thereto during the Effectiveness Period.
(d) Prior to any offering of the Shares pursuant to
any Shelf Registration Statement, IHNI shall register
or qualify or cooperate with NewCare and its counsel in
connection with the registration or qualification of
the Shares for offer and sale under the securities or
blue sky laws of such jurisdictions as NewCare
reasonably requests in writing and do any and all other
acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Shares
covered by such Shelf Registration Statement.
(e) Upon the occurrence of any event contemplated by
Subsection 4.2(b)(iv) above, IHNI shall promptly
prepare a post-effective amendment to any Shelf
Registration Statement or an amendment or supplement to
the related prospectus or file any other required
document so that, as thereafter delivered to purchasers
of the Shares included therein, the prospectus will not
include an untrue statement of a material fact or omit
to state any material fact necessary to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. If IHNI
notifies NewCare of the occurrence of any event
contemplated by Section 4.2(b)(iv) above, NewCare shall
suspend the use of the prospectus until the requisite
changes to the prospectus have been made.
(f) IHNI may require NewCare with respect to the Shelf
Registration Statement to furnish to IHNI such
information regarding NewCare and the distribution of
the Shares as may be required by applicable law or
regulation for inclusion in such Shelf Registration
Statement.
(g) IHNI will use its best efforts to cause the Shares
to be listed with the Nasdaq Small Cap Market or other
stock exchange or trading system on which the Common
Stock primarily trades on or prior to the effective
date of any Shelf Registration Statement hereunder."
Section 6. Parties' Knowledge and Sophistication.
NewCare hereby represents the following:
6.1 Sophistication. NewCare has sufficient knowledge
and experience in financial and business matters to be
able to evaluate the risks and merits of the investment
represented by the purchase of the Shares hereunder.
6.2 Economic Risks. NewCare is able to bear the
economic risks of its investment in the Shares,
including the risk of losing all of such investment.
6.3 No Need for Liquidity. NewCare has no need for
liquidity with respect to its investment in the Shares.
6.4 Independent Investigation. NewCare understands that
no prospectus, offering circular or other offering
statement containing information with respect to IHNI
and the Shares or with respect to IHNI's business is
being issued by IHNI herewith, and NewCare has made its
own inquiry and analysis with respect to IHNI and the
Shares, IHNI's business and other material factors
affecting the investment in the Shares. NewCare
acknowledges that it has either been supplied with or
has had access to information to which a reasonable
investor would attach significance in making investment
decisions, and has had the opportunity to ask questions
and receive answers from IHNI management and from other
knowledgeable individuals concerning IHNI, its business
and the Shares so that, as a reasonable investor,
NewCare has been able to make an informed decision to
purchase the Shares. In determining to proceed with
this transaction, NewCare has relied solely on the
results of its own independent investigation with
respect to the Shares.
Section 7. Manner of Sale. The Shares were not offered
to NewCare by means of publicly disseminated advertisements or
sales literature, or as a part of a general solicitation, nor is
NewCare aware of any offers made to other persons by such means.
NewCare understands that the Shares are not being registered
under the Securities Act or under the securities or Blue Sky laws
and regulations of any state in reliance upon exemptions from
registration. NewCare further understands that the Shares cannot
be sold, transferred or otherwise disposed of unless subsequently
registered under the Securities Act and applicable state
securities or Blue Sky laws or pursuant to an exemption from such
registration which is available at the time of desired sale, and
will bear a legend to that effect.
Section 8. Investment Intent. NewCare is purchasing the
Shares for its own account and for investment purposes and not
with a view to resale or other distribution thereof inconsistent
with or in violation of the federal securities laws or the
securities or Blue Sky laws of any state.
Section 9. Indemnification.
9.1 Indemnities. Subject to the limitations hereinafter
set forth, from and after the date hereof, IHNI and
NewCare (hereinafter referred to respectively as the
"Indemnifying Party") shall indemnify and save the
other party hereto, as the case may be (hereinafter
referred to respectively as the "Indemnified Party"),
and each of such Indemnified Party's employees,
shareholders, subsidiaries, affiliates, officers,
directors, successors and assigns, as the case may be,
harmless from, against, for and in respect of any and
all claims, injuries, damages and liabilities,
including, without limitation, reasonable attorneys'
fees and costs (collectively, "Damages") suffered,
sustained, incurred or required to be paid by any
Indemnified Party by reason of (a) the failure of
performance or breach by the Indemnifying Party of any
of the terms and conditions set forth in this
Agreement, (b) the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant of the
Indemnifying Party contained in or made pursuant to
this Agreement, and (c) any untrue statement or alleged
untrue statement of a material fact contained in any
Shelf Registration Statement or prospectus contained
therein or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances
under which they were made.
9.2 Rules Regarding Indemnification.
The obligations and liabilities of the Indemnifying
Party hereunder with respect to Damages resulting from
the assertion of liability by the Indemnified Party
shall be subject to the following terms and conditions:
(a) The Indemnified Party shall give prompt written
notice to the Indemnifying Party of any claim that
might give rise to a claim by the indemnified party
against the Indemnifying Party based on the indemnity
agreement contained in Subsection 8.1 hereof, stating
the nature and basis of said claims and the amounts
thereof, to the extent known; and
(b) if any claim, action, suit or proceeding is
brought against the Indemnified Party with respect to
which the Indemnifying Party may have liability under
the indemnity agreement contained in Subsection 8.1
hereof, the claim, action, suit or proceeding shall,
upon the written acknowledgment by the Indemnifying
Party that it is obligated to indemnify under
Subsection 8.1 hereof, be defended (including all
proceedings on appeal or for review that counsel for
the Indemnified Party shall deem appropriate) by the
Indemnifying Party. The Indemnified Party shall have
the right to employ its own counsel in any such case,
but the fees and expenses of such counsel shall be at
the Indemnified Party's own expense unless (i) the
employment of such counsel and the payment of such fees
and expenses both shall have been specifically
authorized by the Indemnifying Party in connection with
the defense of such claim, action, suit or proceeding,
or (ii) such Indemnified Party shall have reasonably
concluded and specifically notified the Indemnifying
Party that there may be specific defenses available to
it that are different from or additional to those
available to the Indemnifying Party or that such claim,
action, suit or proceeding involves or could have an
effect upon matters beyond the scope of the indemnity
agreement contained in Subsection 8.1 hereof, in which
event the Indemnifying Party, to the extent made
necessary by such defenses, shall not have the right to
direct the defense of such claim, action, suit or
proceeding on behalf of the Indemnified Party. In such
case only that portion of such fees and expenses
reasonably related to matters covered by the indemnity
agreement contained in Subsection 8.1 hereof shall be
borne by the Indemnifying Party. The Indemnified Party
shall be kept fully informed of such claim, action,
suit or proceeding at all stages thereof whether or not
it is so represented. The Indemnifying Party shall
make available to the Indemnified Party and its
attorneys and accountants all books and records of the
Indemnifying Party relating to such claims, proceedings
or litigation, and the parties hereto agree to render
to each other such assistance as they may reasonably
require of each other in order to ensure the proper and
adequate defense of any such claim, action, suit or
proceeding.
(c) The Indemnified Party shall not make any
settlement of any claims without the written consent of
the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed.
(d) Except as herein expressly provided, the remedies
provided in this Section 8 shall be cumulative and
shall not preclude the assertion by any party of any
other rights or the seeking of any other rights or
remedies against any other party hereto.
Section 10. Miscellaneous.
10.1 Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws
of the State of Georgia, without regard to its
principles of conflicts-of-laws.
10.2 Entire Agreement. This Agreement contains the
entire understanding of the parties with respect to the
transactions contemplated hereby and supersede all
prior agreements and understandings between the parties
with respect to such matters.
10.3 Section Headings. The section and subsection
headings contained in this Agreement are for reference
purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
10.4 Notices. All notices and other communications
under this Agreement shall be in writing and may be
given by any of the following methods: (i) personal
delivery; (ii) facsimile transmission; (iii) registered
or certified mail, postage prepaid, return receipt
requested; or (iv) overnight delivery service requiring
acknowledgment of receipt. Any such notice or
communication shall be sent to the appropriate party at
its address or facsimile number given below (or at such
other address or facsimile number for such party as
shall be specified by notice given hereunder):
If to IHNI:
Iatros Health Network, Inc.
10 Peidmont Center
Suite 400
Atlanta, Georgia 30305
Facsimile:404/262-7627
Attention: General Counsel
with a copy to:
Harkleroad & Hermance
2500 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Facsimile: (404) 659-0860
Attention: Donald R. Harkleroad, Esq.
If to NewCare:
NewCare Health Corporation
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Facsimile: (404) 843-9677
Attention: General Counsel
with a copy to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Facsimile: (404) 525-2224
Attention: Steven E. Fox, Esq.
10.5 Amendments. This Agreement may not be changed
orally or modified, amended or supplemented without an
express written agreement executed by each of the
parties hereto.
10.6 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be
considered one and the same agreement, and shall become
effective when one or more counterparts have been
signed by each of the parties and delivered to the
other parties.
[Signatures Next Page]
IN WITNESS WHEREOF, IHNI and NewCare have each executed and
delivered this Agreement by its duly authorized officer as of the
day and year first above written.
IATROS HEALTH NETWORK, INC.
By:________________________
Its:_______________________
NEWCARE HEALTH CORPORATION
By:________________________
Its:_______________________
Exhibit 21.0 IATROS SUBSIDIARIES
1. Pace Rehabilitation and Home Care Services, Inc.
2. Gull Creek, Inc.
3. IHN/Financial Services Corporation
4. Greenbrier Services, Inc.
5. Iatros Caring Services, Inc.
6. Iatros Therapy Corporation
7. OHI Corporation
8. Iatros Management Corporation
9. Iatros Assisted Living Services, Inc.
10.Greenbrier Healthcare Services, Inc.
11.Greenbrier Rehablilitation Services, Inc.
12.Champion Rehab, Inc.
13.New Generations Healthcare Associates, Inc.
14.IHN Health Services Group, Inc
15.Gatti-Durant Healthcare Venture, Inc., dba Durant Pharmacy
16.Durant Medical, Inc.
17.IHN Rehab, Inc.
18.Iatros Acute Care Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 190,696
<SECURITIES> 0
<RECEIVABLES> 10,979,408
<ALLOWANCES> 3,382,667
<INVENTORY> 357,409
<CURRENT-ASSETS> 9,646,189
<PP&E> 9,953,667
<DEPRECIATION> 844,852
<TOTAL-ASSETS> 25,237,278
<CURRENT-LIABILITIES> 12,752,526
<BONDS> 0
0
633
<COMMON> 20,870
<OTHER-SE> 3,845,771
<TOTAL-LIABILITY-AND-EQUITY> 3,867,274
<SALES> 6,876,124
<TOTAL-REVENUES> 25,512,540
<CGS> 4,049,060
<TOTAL-COSTS> 26,204,750
<OTHER-EXPENSES> 8,059,906
<LOSS-PROVISION> 3,036,022
<INTEREST-EXPENSE> 1,015,534
<INCOME-PRETAX> (8,752,116)
<INCOME-TAX> (2,341,000)
<INCOME-CONTINUING> (11,093,116)
<DISCONTINUED> (7,117,226)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,210,342)
<EPS-PRIMARY> ($1.13)
<EPS-DILUTED> 0
</TABLE>
