<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from _______________ to _______________ Commission
file number 0-19411
SUMMIT CARE CORPORATION
(Exact name of Company as specified in its charter)
California 95-3656297
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2600 W. Magnolia Blvd., Burbank, CA 91505-3031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 841-8750
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
None on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company 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 (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates* as of August
30, 1996 was $100,125.
The number of shares outstanding of Registrant's common stock as of August 30,
1996: 6,772,800.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its annual meeting of
shareholders to be held on December 12, 1996, which will be filed with the
Commission within 120 days of the Company's last fiscal year end, are
incorporated by reference in Part III of this Form 10-K.
* Without acknowledging that any individual director of the Company is an
affiliate, the shares over which they have voting control have been included
as owned by affiliates solely for purposes of this computation.
The exhibit index is located on Page 47.
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PART I
ITEM 1. BUSINESS
GENERAL
Summit Care Corporation (the "Company") principally operates skilled
nursing care centers and assisted living centers located in California, Texas
and Arizona. The skilled nursing care centers provide subacute,
rehabilitative, specialty medical and skilled nursing care. The assisted
living centers provide room and board, social and minor medical services in a
secure environment and, in selected situations, provide care to early stage
Alzheimer's residents. The Company also operates pharmacies which service
skilled nursing care centers, assisted living centers and acute hospitals, both
affiliated and non-affiliated, throughout a substantial portion of Southern
California, as well as mail order services to affiliated skilled nursing care
centers outside of the Southern California area. In addition, the Company is a
minority partner in a joint venture that manages subacute care units in acute
hospitals. The Company is incorporated under the laws of the State of
California.
At June 30, 1996, the Company operated 34 skilled nursing care centers
with 4,472 beds. Currently, the Company operates 35 skilled nursing care
centers with 4,638 beds. Thirteen centers are in California with 1,551 beds;
twenty-one centers are in Texas with 2,937 beds and one center in Arizona with
150 beds. Within its skilled nursing care centers, the Company has established
separate units for specialty medical care and subacute: fourteen units are
dedicated to Alzheimer's and 35 units for patients requiring services for such
complex medical needs as oncology, pulmonary cardiac complications, wounds,
respiratory therapy and intensive physical, speech and occupational therapies.
The Company operates four assisted living centers with 468 beds in
California. Included in two of the centers are units dedicated to the needs of
early stage Alzheimer's residents.
At June 30, 1996, the Company operated two pharmacies in Southern
California. The pharmacies provide pharmaceutical products and services to 46
non-affiliated skilled nursing care centers, assisted living centers and acute
hospitals located in Southern California. The pharmacies also provide products
and services to the Company's skilled nursing care and assisted living centers.
The joint venture in which the Company is a minority partner is currently
managing subacute units in four acute hospitals.
During fiscal year 1996, the Company opened 182 new beds in three
skilled nursing care centers, and in August 1996, subsequently opened another
166 new beds in two skilled nursing care centers. A new center with 108 beds
was opened in January 1996 in Fresno, California. This center offers services
to Alzheimer's residents in 52 beds and to subacute/skilled nursing residents
in 56 beds. The other 74 beds added in fiscal year 1996 were expansion
projects at two skilled nursing care centers in Texas. The new beds opened in
August 1996, represent 110 beds in a newly constructed skilled nursing care
center in Fort Worth, Texas and 56 additional beds at the new Fresno center.
Construction is continuing on the Fort Worth center to add another 100
beds later in fiscal 1997. In addition, plans have been developed or are in
the process of being developed to construct and open 195 new beds in four
centers. It is presently estimated that the new beds will be open by the
summer of 1997.
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The growth in the number of centers and beds by acquisition and
construction is shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1994 1995 1996 1997*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Centers
-------
Acquired 2 13 -- --
Constructed -- 1 1 2
----- ----- ----- -----
Total 2 14 1 2
===== ===== ===== =====
Owned 1 7 1 2
Leased -
With Option to Purchase -- 7 ** -- --
With No Purchase Option 1 -- -- --
----- ----- ----- -----
Total 2 14 1 2
===== ===== ===== =====
Beds
----
Acquired 282 1,670 -- --
Constructed in New Centers -- 118 108 279
Constructed in Existing Centers 24 74 74 182
----- ----- ----- ----
Total 306 1,862 182 461
==== ====== ==== ====
Owned 230 976 182 461
Leased -
With Option to Purchase -- 812 ** -- --
With No Purchase Option 76 74
----- ----- ----- -----
Total 306 1,862 182 461
==== ===== ==== ====
</TABLE>
* Centers and beds planned to open by the summer of 1997.
** One center with 90 beds was purchased in July 1996 upon exercise of
an option to purchase.
In April 1994, OrNda HealthCorp ("OrNda") acquired the Company's then
majority shareholder, Summit Health, Ltd. ("SHL"). The Company completed a
common stock offering in June 1994, which reduced OrNda's percentage ownership
to below 50%. OrNda owned 7.5% Exchangeable Subordinated Notes ("OrNda Notes")
exchangeable into all of its equity interest in the Company's common stock, at
the option of the holders. In August 1995, OrNda redeemed 100% of the
outstanding OrNda Notes in exchange for all of its equity interest in the
Company's common stock. OrNda currently has no position in the Company's
common stock.
In December 1995, the Company issued $55 million of Senior Secured
Notes ("New Notes") and in July 1996, issued another $15 million of New Notes.
The New Notes are payable as follows:
<TABLE>
<CAPTION>
ANNUAL AMOUNT
-------------
<S> <C>
December 15, 2000 $ 7,000,000
December 15, 2001 5,000,000
December 15, 2003 9,600,000
December 15, 2004 9,600,000
December 15, 2005 9,600,000
December 15, 2006 9,600,000
December 15, 2007 9,600,000
December 15, 2010 10,000,000
----------
$70,000,000
===========
</TABLE>
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The annual fixed interest rate on each New Note ranges from 7.38% on
the earliest maturing New Note to 8.14% on the last New Note to mature and
averages 7.8% when weighted. The New Notes are secured by certain real estate
in a collateral pool shared, on the basis of dollars committed, with the
investors holding the Company's $25 million Senior Secured Notes and the
lenders under the Company's $40 million bank line of credit. Proceeds from the
New Notes were used to payoff bank debt ($55,000,000) and for construction
through June 30, 1996 ($6,000,000), and $9,000,000 was invested in short-term,
high quality financial instruments. Subsequently, $2,022,000 of the invested
funds was used in the exercise of the purchase option in July 1996. The
balance is expected to be used for future construction projects. Concurrent
with the issuance of the New Notes, the Company reduced its bank line of credit
from $60,000,000 to $40,000,000 at more favorable interest rates and reduced
the bank line's repayment period following the revolving commitment from four
years to three years.
OPERATIONS
The Company provides long-term care services at its skilled nursing
care centers, assisted living centers and pharmacies, and manages such services
at acute hospitals through its joint venture. Long-term care services provided
by the Company are of five types.
SKILLED NURSING CARE. Skilled nursing care is offered in each of the
Company's 35 skilled nursing care centers and at the four units managed by the
Company's joint venture. Skilled nursing care services consist of
round-the-clock care by registered nurses, licensed practical or vocational
nurses and certified aides, room and board, special nutritional programs and
related medical or other services that may be prescribed by a physician. Each
skilled nursing care center has one or more physicians acting as medical
director and has agreements with hospitals for the transfer of patients
requiring emergency treatment. Each center also has a licensed administrator
responsible for all activities in the skilled nursing center and a director of
nursing responsible for nursing services.
The Company has a corporate quality assurance department whose licensed
nurses, dietitians and medical records technicians supervise services in the
skilled nursing care centers. The Company is seeking to become accredited by
the Joint Commission on Accreditation of Health Care Organizations in each of
its centers. Accreditation has been achieved at the two centers surveyed by
the Commission to date and nine additional centers are scheduled at this time
for survey.
The Company believes education, training and development provide tools
that enhance the effectiveness of its employees. The Company's administrators,
directors of nursing and department supervisors are trained to recruit
employees who meet specific standards. All employees attend a 16-hour general
orientation. Administrators and department supervisors receive at least 40
hours of training annually. Other personnel receive twelve hours of training
annually, primarily in customer service. Clinical training for licensed
nurses, including supervision skills, is conducted by the Company to ensure
each licensed nurse meets the skill competency standards. An eight-hour
quality improvement program is conducted at each center for employees at all
levels in the center on a yearly basis.
REHABILITATIVE CARE. Rehabilitative care is provided in each of the
Company's 35 skilled nursing care centers by outside contractors.
Rehabilitative care consists of respiratory, physical, speech and occupational
therapies and are provided by therapists generally assigned to each center.
The Company provides management and oversight of each center's rehabilitative
care through the use of corporate therapists and therapy administration.
SUBACUTE AND SPECIALTY MEDICAL SERVICES. The Company continues to
focus on extending its specialty and subacute services as a means of increasing
revenues and operating margins. Such services are generally reimbursed at
rates higher than those for routine skilled nursing care and basic assisted
living services. The services allow the Company to treat a greater range of
patient acuities, which the Company believes results in increased occupancy at
its centers. The Company's goal is to offer care to patients of the highest
acuity level permitted by a center's physical plant and employee skill levels.
Each skilled nursing care center is certified for participation in the Medicare
reimbursement program and contracts with a physician as medical director who
has a practice specialty related to the subacute or specialty medical services
offered at the center.
The Company provides wound care, hospice care, oncology services,
pulmonary cardiac services, infection control, pain management and infusion,
enteral nutrition therapy and other specialty medical services in separate
units at all of its skilled nursing care centers. Also, the Company operates
units for the care of residents in various stages of Alzheimer's. There
currently are sixteen Alzheimer's units (fourteen in skilled nursing care
centers and two in assisted living centers) with a total of 497 beds and 35
units with 845 beds providing subacute and specialty medical services.
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PHARMACEUTICAL PRODUCTS AND SERVICES. The Company provides
pharmaceutical products and services through the operation of two pharmacies in
Southern California. The pharmacies service 46 non-affiliated skilled nursing
care centers, assisted living centers and acute hospitals located throughout a
substantial portion of Southern California, as well as all of the Company's
skilled nursing care and assisted living centers. Pharmacists are on call 24
hours a day to ensure the availability of medication whenever it is needed.
The pharmacies provide prescription drugs, enteral nutrition therapy services
and infusion therapy services, including nutrition, pain management, antibiotic
and hydration.
ASSISTED LIVING SERVICES. The four assisted living centers operated by
the Company are located in California and have 468 beds, with 86 beds dedicated
to early stage Alzheimer's. Aside from the Alzheimer's units, assisted living
services consist of basic room and board, social activities and assistance with
activities of daily living such as dressing and bathing. The Company has
developed plans to construct and open 135 beds dedicated to assisted living.
These new beds represent two projects, each located on a campus with an
existing skilled nursing care center or assisted living center. It is expected
that these new beds will open in the summer of 1997.
SOURCE OF REVENUE. The Company's skilled nursing care centers receive
payment for health care services from federally assisted Medicaid programs,
from the federal Medicare program, from programs operated by preferred provider
organizations, health maintenance organizations, the Veterans Administration
and directly from patients or their responsible parties or insurers. The
assisted living centers receive payment entirely from private individuals, some
of whom depend upon supplemental Social Security payments as their primary
source of income. The following table sets forth for the Company's skilled
nursing care and assisted living centers the approximate percentages of gross
revenues (excluding revenues from operation of the pharmacies) derived from the
various sources of payment for the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1994 1995 1996
-----------------------------------
<S> <C> <C> <C>
Private/Managed Care 31.4% 32.4% 30.2%
Medicare 32.0 30.7 36.5
----- ----- -----
Subtotal 63.4 63.1 66.7
Medicaid 36.6 36.9 33.3
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Changes in the quality mix between Medicaid and either Medicare,
managed care or private pay can significantly affect profitability. Quality
mix represents revenues from Medicare, managed care and private pay patients as
a percentage of gross revenues excluding pharmacy revenues. Medicare, managed
care and private pay patients constitute the most profitable categories and
Medicaid patients the least profitable. The Company has consistently
maintained a high ratio of Medicare, managed care and private pay patients
relative to Medicaid patients; however, no assurance can be given that the
Company's quality mix will not change.
Specialty medical, subacute, rehabilitative and pharmacy revenues
generally represent the most profitable types of services because the principal
payors for such services are Medicare and managed care and, in the case of
pharmacy revenues, the skilled nursing care centers. The following tables set
forth the approximate percentages of gross revenues and the amounts for these
types of revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1994 1995 1996
-----------------------------------
<S> <C> <C> <C>
Specialty medical, subacute
and rehabilitative revenues 36.4% 36.8% 43.0%
Pharmacy revenues 9.9 8.9 7.9
----- ----- -----
46.3% 45.7% 50.9%
===== ===== =====
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1994 1995 1996
---------------------------------------------
<S> <C> <C> <C>
Specialty medical, subacute
and rehabilitative revenue $39,225,000 $57,116,000 $ 87,829,000
Pharmacy revenues 10,692,000 13,822,000 16,193,000
----------- ----------- ------------
$49,917,000 $70,938,000 $104,022,000
=========== =========== ============
</TABLE>
The pharmacy revenues in the above tables exclude revenues from
affiliated skilled nursing care and assisted living centers. While the Company
has consistently maintained a high percentage of specialty medical, subacute,
rehabilitative and pharmacy revenues relative to total gross revenues, no
assurance can be given that these high percentages will not change.
EMPLOYEES. At June 30, 1996, the Company had approximately 3,900
full-time equivalent employees. None of the Company's employees are covered by
collective bargaining agreements and the Company considers the relations with
its employees to be good. The Company is subject to both federal minimum wage
and applicable federal and state wage and hour laws and maintains various
employee benefit plans.
As a result of increases in the specialty and subacute services
provided by the Company (which require greater expenditures for equipment,
supplies and independent contractor clinicians than basic nursing services, but
which generally yield a higher margin), salaries and related employee benefits
as a percentage of operating expenses have decreased during the last three
years. Salaries and related employee benefits accounted for approximately 53%,
56% and 57% of the Company's expenses (excluding rental, depreciation and
amortization and interest) for fiscal years 1996, 1995 and 1994, respectively.
COMPETITION. The Company operates in a highly competitive industry.
The Company's skilled nursing care and assisted living centers are located in
communities that also are served by similar centers operated by others. Some
competing centers provide services not offered by the Company and some are
operated by entities having greater financial and other resources than the
Company. In addition, some are operated by non-profit organizations or
government agencies supported by endowments, charitable contributions, tax
revenues and other sources not available to the Company. Furthermore, cost
containment efforts, which encourage more efficient utilization of acute care
hospital services, have resulted in decreased hospital occupancy in recent
years. As a result, a significant number of acute care hospitals have
converted portions of their facilities to other purposes, including specialty
and subacute units. In California, Texas and Arizona a certificate of need is
no longer required in order to build or expand a nursing center, which is
another factor increasing competition. The Company's pharmacies also operate
in a highly competitive environment and compete with regional and local
pharmacies, medical supply companies and pharmacies operated by other long-term
care chains. The Company also may encounter competition in acquiring or
developing new centers.
INSURANCE. The Company maintains general and professional, property,
casualty, health, directors and officers, automobile, crime, employee's and
workers' compensation coverage that the Company believes is adequate. The
Company's workers' compensation insurance for its California and Arizona
employees is funded by Company payments to a rental captive insurance company,
Meridian Insurance Company Ltd. ("Meridian"), which is partially owned by
persons who sold their interests in SHL to OrNda and resigned their
directorships in the Company. The funds received by Meridian pay for claims up
to $250,000 per claim and for the purchase of reinsurance coverage for amounts
in excess of the per claim limit and for annual aggregate claim amounts in
excess of a $1,300,000 stop loss. Texas employees are covered by a policy for
employer's excess and occupational indemnity for risks in excess of $150,000 up
to $1,000,000 per occurrence and $3,000,000 annually in the aggregate. The
Company pays for claims up to $150,000 per occurrence.
The Company's services subject it to liability risk. Malpractice
claims may be asserted against the Company if its services are alleged to have
resulted in patient injury or other adverse effects, the risk of which is
greater for higher acuity patients, such as those treated by the Company's
specialty and subacute services, than for traditional long-term care patients.
The Company has from time to time been subject to malpractice claims and other
litigation in the ordinary course of its business. While the Company believes
that the ultimate resolution of all pending legal proceedings will not have a
material adverse effect on the Company's business or financial condition, there
can be no assurance that future claims will not have such an effect on the
Company. Its current policy for general and professional liability coverages
has limits of $1,000,000 per occurrence and $2,000,000 and $3,000,000 in the
aggregate per year, respectively, and carries a self-insured retention of
$5,000 and $100,000 per occurrence, respectively, and a $300,000 annual
aggregate loss limit. In addition, the Company has an umbrella policy which
provides additional insurance of $8,000,000 per occurrence and $8,000,000
aggregate per year over its primary general and professional policy, its
automobile liability policy and its employer liability policy.
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Although the Company has not been subject to any judgments or
settlements in excess of its self-insured retention or insurance limits, there
can be no assurance that claims for damages in excess of its coverage limits
will not arise in the future.
Prior to OrNda's acquisition of SHL, the Company was co-insured under
common policies with SHL with respect to general and professional, workers'
compensation, group health and property and casualty. Currently, with the
exception of workers' compensation, the Company is insured with independent
companies. Until December 31, 1994, the Company's general and professional
liability risks were insured by Meridian for losses limited to $2,000,000 per
occurrence and $2,000,000 annual aggregate losses. Also, until December 31,
1994 Tristar Risk Management (formerly TOPA Insurance Company) which is
partially owned by a person who was formerly a shareholder of SHL and formerly
a director of the Company, insured the Company's workers' compensation risks in
California. The Company's co-insured position with SHL with respect to group
health, property and casualty policies was discontinued effective July 1, 1994.
REGULATION
LICENSURE. The Company's skilled nursing care centers, assisted living
centers and pharmacies are subject to various regulatory and licensing
requirements of state and local authorities in California, Texas and Arizona.
Each skilled nursing care center is licensed by either the California
Department of Health Services, the Texas Department of Health or the Arizona
Department of Health Services, as applicable, each assisted living center is
licensed by the California Department of Social Services and the pharmacies are
licensed by the California Board of Pharmacy. All licenses must be renewed
annually, and failure to comply with applicable rules, laws and regulations
could lead to loss of licenses. In granting, monitoring and renewing licenses,
these agencies consider, among other things, the physical condition of the
facility, the qualifications of the administrative and nursing staffs, the
quality of care and the compliance with applicable laws and regulations. In
addition to a variety of state licensing and other laws governing the storage,
handling, sale or dispensing of drugs, and the supervising of a duly licensed
pharmacist, the pharmacies are subject to federal regulation under the Food,
Drug and Cosmetic Act and the Prescription Drug Marketing Act. Moreover, the
Company is required to register its pharmacies with the United States Drug
Enforcement Administration, and to comply with requirements imposed by that
agency with respect to security and reporting of inventories and transactions.
Such regulatory and licensing requirements are subject to change, and there can
be no assurance that the Company will continue to be able to maintain necessary
licenses or that it will not incur substantial costs in doing so. Failure to
comply with licensing requirements could result in the loss of the right to
payment by Medicare or Medicaid as well as the right to conduct the business of
the licensed entity.
REIMBURSEMENT. The Company's skilled nursing care centers are subject
to various requirements for participation in government-sponsored health care
funding programs, such as Medicare and Medicaid. To receive Medicare and
Medicaid payments, each center must also comply with a number of rules
regarding charges and claims procedures. Medicare is a health insurance
program operated by the federal government for the aged and certain chronically
disabled individuals. Medicare utilizes a cost-based reimbursement system for
free-standing nursing facilities which, subject to limits fixed for the
particular geographic area on the costs for routine services (excluding capital
related expenses), reimburses nursing facilities for reasonable direct and
indirect allowable costs incurred in providing services (as defined by the
program). Effective October 1, 1993, nursing facilities are no longer paid a
return on equity under Medicare. Allowable costs normally include
administrative and general costs as well as operating costs and rental,
depreciation and interest expenses. Reimbursement is subject to retrospective
audit adjustment. An interim rate based upon estimated costs is paid by
Medicare during the cost reporting period and a cost settlement is made
following an audit of the actual costs as reported in the filed cost report.
Such adjustments may result in additional payments being made to the Company or
in recoupments from the Company. To the extent that the Company's costs exceed
certain limits known as the Medicare Routine Cost Limits, the Company may
submit exception requests seeking reimbursement for such excess costs from
Medicare. To date, the Company has filed four exception requests. Approval
has been received on one and the others are subject to the government
completing their audit of the Medicare cost reports for fiscal year 1995.
There is no assurance the Company will be able to recover such excess costs
under the pending requests or any future requests. If the Company files
exception requests on a regular basis in the future and fails to recover the
excess costs covered by such requests, such failure could adversely affect the
Company's financial position and results of operations. In addition, the
Company purchases respiratory therapy services and physical therapy services
and is subject to payment limits for such therapy services imposed by Medicare.
To the extent the Company's actual costs exceed such payment limits, the excess
costs will be denied. Occupational therapy and speech therapy services are
purchased by the Company from third-party vendors and are not subject to
specific Medicare payment limits; however, the cost of such services has come
under additional scrutiny, and it is possible a portion of such costs may be
disallowed by the Medicare program in the future. To the extent that costs of
therapy services exceed payment limits and are disallowed by Medicare, the
Company has contractual arrangements with third-party vendors to recover such
costs from the vendors. The Company maintains reserves to cover retroactive
audit adjustments. Medicare will reimburse certain products, such as enteral
and parenteral
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nutrition, provided by a pharmacy directly to Medicare beneficiaries who are
not eligible for inpatient services based on a fee screen amount.
Medicaid is a medical assistance program for the indigent, operated by
individual states with financial participation by the federal government.
California, Texas and Arizona each have Medicaid programs. While the
California, Texas and Arizona programs differ in certain respects, all are
subject to federally imposed requirements. Approximately 50% of the funds
available under the California program, approximately 63% of the funds
available under the Texas program and approximately 66% of the funds available
under the Arizona program are provided by the federal government under a
matching program.
Under Medi-Cal, California currently provides for reimbursement of most
routine and ancillary services at free-standing skilled nursing care centers at
a flat daily rate, as determined by the California Department of Health
Services, based on median costs of skilled nursing care centers, classified by
number of beds and geographic location. Under its Medicaid program, Texas
currently provides for reimbursement at a flat daily rate, as determined by the
Texas Department of Human Services, based on the combination of the mean costs,
median costs and appraised value of assets of skilled nursing care centers,
classified by the required level of patient care. The Texas legislature has
enacted legislation requiring the Department of Human Services to base its
Medicaid payments for long-term care on minimum data sets. It is unclear at
the present time how the Department will implement changes from the current
Texas Index of Level of Effort (TILE) system to use of minimum data sets.
Arizona has adopted a managed care approach to providing skilled nursing and
other kinds of care to the indigent. Under the Arizona system, beneficiaries
enroll in a managed care plan in their area. That managed care plan, which is
responsible for providing 90 days of inpatient skilled nursing care, contracts
with nursing facilities to provide varying degrees of care, depending upon the
needs of the beneficiaries, at negotiated, per diem rates. After the 90 days
of skilled nursing care coverage have been exhausted, the beneficiary is
enrolled in a county-operated managed care plan, which also pays skilled
nursing care centers based on a negotiated per diem rate for each of two levels
of service.
Medi-Cal will reimburse a pharmacy for drugs supplied to patients based
on the cost of the drug plus an additional amount which varies depending on the
type of drugs supplied.
Effective October 1, 1990, the Omnibus Budget Reconciliation Act of
1987 ("OBRA") was implemented. Among other things, it eliminated the different
certification standards for "skilled" and "intermediate care" nursing
facilities under the Medicare and Medicaid programs in favor of a single
"nursing facility" standard. OBRA also mandated an increase in the level of
services nursing centers must provide in order to participate in Medicare and
Medicaid. This change, the cost of which was partially offset by Medicaid rate
increases in California, Texas and Arizona and an increase in the routine cost
limits under Medicare, thus far has not had a significant impact on the
Company.
OBRA also requires that substantial additional regulations be
promulgated, covering, among other things, licensure requirements for
administrators, enforcement policies and procedures and the use of restraints
and certain drugs. While the Company believes that it is in substantial
compliance with the current requirements of OBRA, it is unable to predict how
future interpretation and enforcement of regulations promulgated under OBRA by
the state and federal governments may affect the Company in the future.
The Omnibus Budget Reconciliation Act of 1993 (the "OBRA 93") impacts
Medicare reimbursement for skilled nursing services in two ways, both of which
are expected to have a minimal effect on the Company's earnings. First, the
current limits on the portion of the Medicare reimbursement known as "routine
service costs" (excluding capital related expenses) will be frozen for two
consecutive years beginning with the Company's 1995 fiscal year. Second, the
return on equity included in Medicare reimbursement has been eliminated
beginning October 1, 1993.
Governmental funding for health care programs is subject to statutory
and regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries and governmental funding restrictions, all of
which may materially increase or decrease program reimbursement to health care
centers. Since 1972, Congress has consistently attempted to curb federal
spending on such programs. Recent actions include limitations or freezes on
payments to skilled nursing care centers under the Medicare and Medicaid
programs. The Company expects that there will continue to be a number of state
and federal proposals to limit Medicare and Medicaid reimbursement for health
care services. The Company cannot at this time predict whether any of such
proposals will be adopted and no assurance can be given that future funding
levels of Medicare and Medicaid programs will remain comparable to present
levels. Reimbursement limits or other changes in the reimbursement policies as
a result of budget cuts or other government action could materially and
adversely affect the Company's results of operations. See "Pending Matters
That Affect Health Care Operations," discussed below. In addition, in
California, the Department of Health Services intends to shift Medi-Cal
beneficiaries in selected service areas into managed
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care plans. If this occurs in the service areas of the Company's centers and
if the plans call for covering long-term care, it could have a substantial
unfavorable impact on the Company's revenues.
In addition, the Company's cash flow could be materially adversely
affected by periodic government program funding delays or budgetary shortfalls.
The Company received approximately 9% of its revenues during the fiscal year
ended June 30, 1996 from Medi-Cal. Medi-Cal delayed payments for approximately
30 days and nursing center rate increases for several months in 1991 and
delayed nursing center rate increases for approximately 30 days in 1992. The
Company believes that it will be able to cover any Medi-Cal payment delays that
may occur in the future from cash on hand or by borrowing under its $40,000,000
bank line of credit. However, given the percentage of the Company's revenues
derived from Medi-Cal, there can be no assurance that rate freezes or future
delays in payments from Medi-Cal will not have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
While federal statutes do not provide states with authority to curtail
funding of Medicaid reimbursement programs solely due to budget deficiencies,
some states nevertheless have curtailed funding for this reason. No assurance
can be given that they will not continue to do so or that future funding levels
of Medicaid programs will remain comparable to present levels. On June 16,
1990, the United States Supreme Court ruled that health care providers may
bring suit in federal court to enforce the Medicaid Act's requirement that the
states reimburse skilled nursing care centers at rates adequate to cover the
costs of efficiently and economically operated centers. Operators of skilled
nursing care centers have used the federal courts to require California and
Texas to adequately fund their Medicaid programs.
COMPLIANCE. The Company believes that its centers are in substantial
compliance with the various applicable regulatory and licensing requirements of
state and local authorities in California, Texas and Arizona, and of the
Medicare and Medicaid programs, including the requirements of OBRA. In the
ordinary course of its business, however, the Company from time to time
receives notices from state and federal agencies of failure to comply with
various requirements. The Company endeavors to take prompt corrective action
and, in most cases, the Company and the reviewing agency agree on remedial
steps. The reviewing agency may also take action against a center, which can
include the imposition of fines, denial of payment for new patients at the
center, decertification and loss of participation in the Medicare or Medicaid
programs and, in extreme circumstances, revocation of a center's license. In
certain circumstances, certain egregious failures to comply by one or more
centers with program rules may subject the Company's centers to exclusion from
participation in the Medicare and Medicaid programs.
ANTI-KICKBACK LAWS. The Company is also subject to federal and state
laws which govern financial and other arrangements between health care
providers. Federal law, as well as the law in California, Texas and Arizona
and other states, prohibits direct or indirect payments in some cases or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products and services. These laws include the
federal "Anti-kickback law" which prohibits, among other things, the offer,
payment, solicitation or receipt of any form of remuneration in return for, or
to induce, the referral of Medicare and Medicaid patients. A wide array of
relationships and arrangements, including ownership interests in a company by
persons who refer or are in a position to refer patients, as well as personal
service agreements have, under certain circumstances, been alleged or have been
found to violate these provisions. Certain arrangements, such as the provision
of services for less than fair market value compensation, may also violate such
laws. Because of the law's broad reach, the federal government has published
regulations, known commonly as "safe harbors," which set forth the requirements
under which certain relationships will not be considered to violate the law.
One of these safe harbors protects investment interests in certain large
publicly traded entities which meet certain requirements regarding the
marketing of their securities and the payment of returns on the investment. A
second safe harbor protects payments for management services which are set in
advance at a fair market rate and which do not vary with the value or volume of
services referred, so long as there is a written contract which meets certain
requirements. A safe harbor for discounts, which focuses primarily on
appropriate disclosure, is also available. A violation of the federal
Anti-kickback law and similar state law could result in the loss of eligibility
to participate in Medicare or Medicaid, or in criminal penalties.
In addition, the federal government and some states restrict certain
business relationships between physicians and other providers of health care
services. OBRA 93 contained provisions which greatly expanded the then
existing federal prohibition on physician referrals to entities with which a
physician has a financial relationship. Effective January 1, 1995, OBRA 93 has
prohibited any physician with a financial relationship (defined as a direct or
indirect ownership or investment interest or compensation arrangement) with an
entity from making a referral for a Medicare or Medicaid (along with certain
other federal payment programs) "designated health service" to that entity, and
prohibits that entity from billing for such services. "Designated health
services" do not include skilled nursing services, but do include many services
which nursing facilities provide to their patients including therapy and
enteral and parenteral nutrition. In addition, exceptions exist for
9
<PAGE> 10
physician ownership in publicly traded companies which at the end of a
company's most recent fiscal year end or on average during the past three years
have shareholder equity exceeding $75,000,000 and for the payment of fair
market compensation for the provision of personal services, so long as various
requirements are met.
California also has a state statute which limits the ability of
physicians to refer patients for certain specified services to an entity with
which it has a financial interest which includes most ownership or compensation
arrangements. A broad exception applies for referrals to certain licensed
providers, including nursing centers. Many states, including California,
prohibit business corporations and other persons or entities not licensed to
practice medicine from providing, or holding themselves out as a provider of,
medical care. Possible sanctions for violation of any of these restrictions or
prohibitions include loss of licensure or eligibility to participate in
reimbursement programs and civil and criminal penalties. These laws, their
construction and level of enforcement, vary from state to state.
Each of the Company's skilled nursing care centers has at least one
medical director who is a licensed physician. The medical directors may from
time to time refer their patients to the Company's centers in their independent
professional judgment. The physician anti-referral restrictions and
prohibitions could, among other things, require the Company to modify its
contractual arrangements with its medical directors or prohibit its medical
directors from referring patients to the Company. From time to time, the
Company has sought guidance as to the interpretation of these laws, and
believes that such arrangements are consistent with legal requirements.
However, there can be no assurance that such laws will ultimately be
interpreted in a manner consistent with the practices of the Company.
ENVIRONMENTAL REGULATION. The Company is also subject to a wide
variety of federal, state and local environmental and occupational health and
safety laws and regulations. Among the types of regulatory requirements faced
by health care providers are: air and water quality control requirements;
waste management requirements; specific regulatory requirements applicable to
asbestos, polychlorinated biphenyls, and radioactive substances; requirements
for providing notice to employees and members of the public about hazardous
materials and wastes; and certain other requirements.
In its role as owner and/or operator of properties or centers, the
Company may be subject to liability for investigating and remedying any
hazardous substances that have come to be located on the property, including
any such substances that may have migrated off, or emitted, discharged, leaked,
escaped or been transported from, the property. Ancillary to the Company's
operations are, in various combinations, the handling, use, storage,
transportation, disposal and/or discharge of hazardous, infectious, toxic,
radioactive, flammable and other hazardous materials, wastes, pollutants or
contaminants. Such activities may result in damage to individuals, property or
the environment; may interrupt operations and/or increase their costs; may
result in legal liability, damages, injunctions or fines; may result in
investigations, administrative proceedings, penalties or other governmental
agency actions; and may not be covered by insurance. There can be no assurance
that the Company will not encounter such risks in the future, and such risks
may result in material adverse consequences to the operations or financial
condition of the Company.
PENDING MATTERS THAT AFFECT HEALTH CARE OPERATIONS. In recent years,
an increasing number of legislative proposals have been introduced in Congress
and various state legislatures that would affect major reforms of the health
care system. Among the proposals under consideration are insurance market
reforms to increase the availability of group health insurance to small
businesses, requirements that all businesses offer health insurance coverage to
their employees, the provision of federal tax credits to individuals for the
purchase of health insurance and the creation of a single government health
insurance plan that would cover all citizens. In addition, the Clinton
administration has promulgated proposals including cutbacks to certain Medicare
and Medicaid programs and has proposed steps to permit greater flexibility in
the administration of Medicaid. In June 1995, a joint resolution was adopted
by Congress to reduce Medicare expenditures by $270 billion and Medicaid
expenditures by $180 billion over the seven-year period between 1995 and 2002.
A portion of such Medicare and Medicaid reductions would likely reduce the
level of payments received by skilled nursing facilities and could adversely
impact revenues received by the Company under the Medicare and Medicaid
Programs. Until legislation is adopted implementing the budget resolution, the
scope of such proposed reductions is unclear. Any reduction in federal
Medicaid expenditures would likely result in reductions in state Medicaid
expenditures because Medicaid is jointly funded by the federal and state
governments. In California, the Department of Health Services has established
plans to enroll many Medi-Cal recipients in managed care plans. These plans
have the option of covering long-term care in addition to other services, which
could materially and adversely affect the Company's revenues. Changes in the
reimbursement levels under Medicare or Medicaid and changes in applicable
governmental regulations could materially and adversely affect the Company's
results of operations. It is uncertain at this time what health care reform
legislation will ultimately be enacted and implemented or whether other changes
in the administration or interpretation of the 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, if enacted, will not have a material adverse
effect on the results of operations of the Company.
10
<PAGE> 11
In August 1996, legislation was signed into law that will increase
minimum wages from $4.25 per hour to $4.75 per hour on October 1, 1996 and to
$5.15 per hour on September 1, 1997. In addition, an initiative statute
entitled "Minimum Wage Increase" has qualified for the November 5, 1996
California ballot. The initiative statute, Proposition 210, proposes to
increase the current state minimum wage of $4.25 per hour to $5.00 per hour on
March 1, 1997 and then to $5.75 per hour on March 1, 1998 for all industries.
Proposition 210, if passed, would affect minimum wages for California employees
only. The Company believes that these wage increases will not have a material
adverse effect on the Company's operations.
Two other initiative measures, Proposition 214 and Proposition 216,
have also qualified for the November 5, 1996 California ballot which may impact
the Company's operations and finances. Both propositions propose additional
regulation of health care businesses. Among other matters, Proposition 214
requires health care businesses to make tax returns and other information
public, to disclose certain financial information to consumers including
administrative costs, and to publicly disclose the outcome of all complaints,
arbitrations and lawsuits. Health care businesses would also be required to
provide for minimum staffing of health care facilities which may require the
Company's facilities to have physician staff. The initiative statute would
also require the Company and its facilities to show just cause before
discharging or demoting any certified care giver. Proposition 214 authorizes
public and private enforcement actions for violations of its provisions.
Proposition 216 also regulates health care businesses and addresses certain
matters similar to those contained in Proposition 214. In addition,
Proposition 216 requires that taxes be assessed on facilities which reduce or
eliminate services, and assesses taxes on facilities involved in sales or
mergers. Similar to Proposition 214, it authorizes public and private
enforcement actions.
The growth in health care spending has caused the private sector,
Medicare and state Medicaid programs, to reshape the financing of health care
services for their beneficiaries. One of the most significant changes to the
financing of health care services which the Company anticipates is the shift to
managed care. The federal Medicare program, state Medicaid programs and
private insurers are anticipated to place greater reliance on managed care
alternatives in the future. Providers are generally willing to discount
charges for services to managed care plan patients because managed care plans
can direct (or strongly influence) the flow of patients. The Company believes
that while it is likely that it will service an increasing proportion of
managed care enrollees in the future at payment rates which may not be as
favorable as those presently in effect, the expansion of managed care may also
increase the volume of patients served.
11
<PAGE> 12
ITEM 2. PROPERTIES
EXISTING FACILITIES
At June 30, 1996, the Company owned or leased 34 skilled nursing care
(35 as of August 1996) and four assisted living centers. In addition, the
Company owns its corporate headquarters and leases space in buildings at which
it operates its pharmacy business, located in Pasadena and Yorba Linda,
California. The following table sets forth certain information concerning the
skilled nursing care centers and assisted living centers operated by the
Company as of June 30, 1996.
<TABLE>
<CAPTION>
Specialty Average
Total and Occupancy
Licensed Subacute for F.Y.E. Owned/
Location Beds Beds 06/30/96 Leased
-------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING CARE CENTERS:
California:
Woodland Reseda 157 30 88% Leased
Royalwood Torrance 110 22 93% Leased
Valley Fresno 99 12 94% Owned
Villa Maria Santa Maria 88 24 91% Owned
Earlwood Torrance 87 20 93% Owned
Sharon Los Angeles 86 39 91% Leased(1)
Bay Crest Torrance 80 47 92% Leased
Fountain Orange 179 53 92% Owned
Carehouse Santa Ana 174 40 97% Owned
Palm Grove Garden Grove 129 48 91% Leased(1)
Anaheim Anaheim 99 22 96% Leased
Devonshire Hemet 99 15 95% Owned
Willow Creek Fresno 108 86 41% Owned(2)
Texas:
Coronado Abilene 235 21 86% Owned
West Side White Settlement 220 28 85% Owned
The Woodlands Houston 206 22 93% Owned
Colonial Tyler Tyler 172 20 85% Owned
Colonial Manor New Braunfels 160 44 85% Owned
Guadalupe Valley Seguin 152 49 88% Leased(3)
Town & Country Boerne 131 18 81% Owned
Clairmont - Longview Longview 182 56 92% Owned
Clairmont - Beaumont Beaumont 148 24 79% Owned
Clairmont - Tyler Tyler 120 24 86% Owned
Oakland Manor Giddings 120 50 62% Leased(3)
Southern Manor Hallettsville 120 50 78% Leased(3)
Southwood Austin 120 18 84% Owned
Comanche Trail Big Spring 119 28 75% Leased(3)
Heritage Oaks Lubbock 114 56 92% Owned
Lubbock Lubbock 117 10 94% Owned
Monument Hill La Grange 111 47 92% Leased(3)
Live Oak George West 100 36 86% Leased(3)
Oak Manor Flatonia 90 38 63% Owned
Oak Crest Rockport 90 29 88% Leased(3)
Arizona:
Phoenix Living Center Phoenix 150 72 87% Leased(4)
ASSISTED LIVING CENTERS:
California:
Carson Carson 230 60 78% Owned
Spring Torrance 51 -- 90% Owned
Hemet Hemet 100 26 79% Owned(5)
Fountain Orange 87 -- 75% Owned
----- -----
4,940 1,284
===== =====
</TABLE>
12
<PAGE> 13
(1) The Company's leases for its Sharon and Palm Grove centers require
that OrNda guarantee the Company's obligations under each lease.
(2) Center opened January 8, 1996.
(3) Leased with options to purchase ranging from July 1996 to February
2005. The option to purchase Oak Crest was exercised in July 1996.
(4) Subleased to the Company by OrNda.
(5) Building owned by the Company with real property held under a ground
lease extending to June 2030.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to malpractice claims and other litigation in
the ordinary course of business. In the opinion of its management, the
ultimate resolution of all pending legal proceedings will not have a material
adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of its fiscal year ended June 30, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers, who are not also directors are:
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
David G. Schumacher, Jr. Sr. Vice President - Operations and
Chief Operating Officer 40
Derwin L. Williams Sr. Vice President - Finance, 59
Chief Financial Officer and Treasurer
Melodye Stok Vice President - Controller, Chief 50
Accounting Officer and Secretary
</TABLE>
David G. Schumacher, Jr., has been Sr. Vice President - Operations and
Chief Operating Officer of Summit Care Corporation since January 1, 1996.
Prior to joining Summit, Mr. Schumacher was the Vice President of Operations at
Arbor Health Care Company. He also spent ten years in various operations
capacities at Manor Care.
Derwin L. Williams was appointed Vice President - Finance and Chief
Financial Officer of the Company on July 1, 1993, Treasurer on May 10, 1994 and
Senior Vice President - Finance on December 8, 1995. Previously he has served
in the same position at three other nursing home companies: Hallmark Health
Service, Inc. from November 1989 to February 1992; Care Enterprises from April
1980 to August 1987; and Flagg Industries, Inc. from June 1978 to March 1980.
Mr. Williams has also served in various capacities specializing in Medicare
reimbursement for the Company in 1992 and 1993 and for Beverly Enterprises in
1988 and 1989. He is also a certified public accountant.
Melodye Stok was appointed Secretary of the Company on December 9,
1994 and Vice President - Controller and Chief Accounting Officer on July 1,
1993. Previously she served as the Vice President - Finance of the Company
from October 1990 to June 1993. She was also the Controller of the Company
from January 1986 to October 1990. Prior to that, she was the Controller of
Flagg Industries, Inc. from May 1979 to February 1985.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ Stock Market under
the symbol SUMC. On August 30, 1996, the Company had approximately 1,200
shareholders of record.
The table below sets forth high and low bid prices as reported by the
National Association of Securities Dealers, Inc. High and low bid prices
reflect inter-dealer prices, without retail markup, markdown or commissions,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996:
1st Quarter $ 25-1/2 $ 16-3/4
2nd Quarter 24-1/2 19-3/8
3rd Quarter 24 16-1/2
4th Quarter 25-3/4 19-1/4
FISCAL 1995:
1st Quarter $ 24 $ 17-3/4
2nd Quarter 23 15
3rd Quarter 23-3/4 18-1/2
4th Quarter 23-3/4 17-1/4
</TABLE>
No dividends have been paid or are expected to be paid in the
foreseeable future on the Company's common stock, as the Company's Board of
Directors intends to retain earnings for the use in its business. The Company
is restricted from the payment of dividends (other than dividends payable in
common stock) or to acquire its common stock by its bank line of credit
agreement and senior secured note agreements to the extent that such payments
exceed $5,000,000 plus 50% of the Company's net income after June 30, 1995.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes certain selected financial data of the Company
and should be read in conjunction with the related Consolidated Financial
Statements of the Company and accompanying Notes to Consolidated Financial
Statements:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data (year ended):
Net revenues $176,062 $137,026 $97,599 $83,992 $72,483
Income before provision for income taxes 11,761 12,498 10,177 8,247 5,026
Net income 7,309 7,511 6,167 5,023 3,086
Earnings per share (1) 1.06 1.10 1.20 1.00 .92
Consolidated Balance Sheet Data (at June 30):
Total assets 223,052 184,480 114,915 73,369 41,489
Long-term debt 10,374 89,788 32,025 30,331 4,929
Shareholders' equity 81,286 73,813 66,361 31,337 26,314
Other Data:
Nursing centers operated:
Licensed beds (at June 30) 4,472 4,294 2,534 2,228
Average occupancy (year ended) 86.7% 86.9% 88.9% 90.3% 91.1%
Assisted living centers operated:
Licensed beds (at June 30) 468 468 468 468
Average occupancy (year ended) 78.7% 77.9% 73.7% 72.5% 72.7%
Total centers operated:
Licensed beds (at June 30) 4,940 4,762 3,002 2,696
Average occupancy (year ended) 85.9% 85.9% 86.5% 87.2% 88.0%
</TABLE>
(1) Earnings per share are based on the weighted average number of shares
of common stock outstanding and common stock equivalents arising from
stock options, which were 6,895,661 for the year ended June 30, 1996,
6,837,991 for the year ended June 30, 1995, 5,156,780 for the year
ended June 30, 1994, 5,028,936 for the year ended June 30, 1993 and
3,357,814 for the year ended June 30, 1992. The effect of common
stock equivalents arising from stock options on the computation of
earnings per share is not significant.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
TWELVE MONTHS ENDED JUNE 30, 1996 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1995
Net revenues increased $39,036 or 28.5% from $137,026 in fiscal 1995
to $176,062 in the fiscal year 1996. The increase occurred due to the
following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<S> <C> <C> <C>
1. Acquisitions in fiscal year 1995 $13,228 33.9%
2. Rehabilitative and other specialty services 11,527 29.5
3. Increased census days and revenue rates 8,017 20.5
4. New beds opened in fiscal years 1995 and 1996 3,614 9.3
5. Pharmacy operations 2,650 6.8
------- -----
$39,036 100.0%
======= =====
</TABLE>
Average occupancy was 85.9% in the fiscal years ended June 30, 1996
and 1995, and new beds were opened in both fiscal years. Excluding acquisitions
and newly constructed beds, the average occupancy was 88.4% in the fiscal year
ended June 30, 1996 and 89.0% in the fiscal year ended June 30, 1995. The
Company's quality mix (revenues from Medicare, managed care and private pay
patients as a percentage of gross revenues excluding pharmacy revenues) was
66.7% in the fiscal year ended June 30, 1996 and 63.1% in the fiscal year ended
June 30, 1995.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other as a percent of net
revenues increased from 82.0% of net revenues in the fiscal year ended June 30,
1995 to 84.6% in the fiscal year ended June 30, 1996. Total salaries and
employee related benefits were 44.4% of net revenues in the fiscal year ended
June 30, 1996 compared to 46.1% of net revenues in the fiscal year ended June
30, 1995. Expenses increased $36,552 or 32.5% from $112,377 in the fiscal year
ended June 30, 1995 to $148,929 in the fiscal year ended June 30, 1996 for the
following reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<S> <C> <C> <C>
1. Rehabilitative and other specialty services $10,906 29.8%
2. Acquisitions in fiscal year 1995 10,454 28.6
3. Salaries and benefits 7,592 20.8
4. Expenses relating to new beds opened
in fiscal years 1995 and 1996 3,202 8.8
5. Other expenses 4,398 12.0
------- -----
$36,552 100.0%
======= =====
</TABLE>
Income before rental, depreciation and amortization and interest
expense, net of interest income, increased $2,484 or 10.1% from $24,649 in the
fiscal year ended June 30, 1995 to $27,133 in the fiscal year ended June 30,
1996 and was 15.4% of net revenues in the fiscal year ended June 30, 1996
compared to 18.0% in the fiscal year ended June 30, 1995.
Rental, depreciation and amortization and interest expense, net of
interest income, increased by $3,221 or 26.5% from $12,151 in the fiscal year
ended June 30, 1995 to $15,372 in the fiscal year ended June 30, 1996.
Substantially all of this increase was due to depreciation and amortization,
rent and interest expense related to acquisitions and newly constructed beds in
fiscal years 1995 and 1996.
The Company's effective tax rate was 37.9% of income in the fiscal
year ended June 30, 1996 and 39.9% of income in the fiscal year ended June 30,
1995. Net income after taxes decreased $202 or 2.7% from $7,511 in the fiscal
year ended June 30, 1995 to $7,309 in the fiscal year ended June 30, 1996.
TWELVE MONTHS ENDED JUNE 30, 1995 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1994
Net revenues increased by $39,427, or 40.4%, from $97,599 in fiscal
1994 to $137,026 in fiscal 1995. This increase occurred primarily due to
acquisitions (89.7%) and increased pharmacy operations (6.8%). The remaining
3.5% increase was due to increased use of rehabilitative and other specialty
services offset slightly by a decrease in census days due to 102 beds being
removed from service. Average occupancy decreased to 85.9% in fiscal 1995 from
86.5% in fiscal 1994 including acquisitions. Excluding acquisitions and newly
constructed beds, average occupancy was 89.0% in fiscal 1995. The Company's
quality mix was 63.1% in fiscal 1995 and 63.4% in fiscal 1994.
16
<PAGE> 17
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other as a percent of net
revenues declined from 82.6% of revenues in fiscal 1994 to 82.0% in fiscal
1995. Total salaries and employee related benefits were 47.1% of net revenues
in fiscal 1994 compared to 46.1% of net revenues in fiscal 1995. Expenses
increased $31,760 or 39.4% from $80,617 in fiscal 1994 to $112,377 in fiscal
1995. Acquisitions represented 90.3% of this increase, pharmacy costs
increased 3.2% due to new business, rehabilitative and other specialty service
costs rose 5.4% due to a greater utilization of such services during the twelve
months ended June 30, 1995, and other expenses increased 1.1%.
Income before rental, depreciation and amortization and interest
expenses net of interest income increased $7,667 or 45.2% from $16,982 in
fiscal 1994 to $24,649 in fiscal 1995 and was 18.0% of revenues in fiscal 1995
compared to 17.4% in fiscal 1994.
Rental, depreciation and amortization and interest expense net of
interest income increased by $5,346 or 78.6% from $6,805 in fiscal 1994 to
$12,151 in fiscal 1995. Substantially all of this increase was due to
depreciation and amortization, rent and interest expense related to new
acquisitions.
The Company's effective tax rate was 39.9% of income for fiscal 1995
compared to 39.4% for fiscal 1994. Net income after taxes increased $1,344 or
21.8% from $6,167 in fiscal 1994 to $7,511 in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $2,658 in cash and cash equivalents
and working capital of $13,906. Cash and cash equivalents decreased $443 for
the year ended June 30, 1996.
Net cash provided by operating activities decreased $2,424 from $7,014
for the year ended June 30, 1995 to $4,590 for the year ended June 30, 1996.
The decrease is attributable primarily to an increase in amounts owing from the
Company's Medicare fiscal intermediary which amounts are included in other
current assets.
Accounts receivable, less allowance for doubtful accounts, increased
$7,594 for the year ended June 30, 1996, primarily as a result of acquiring
thirteen skilled nursing care centers and opening two centers constructed by
the Company. The Company's average accounts receivable days outstanding were
39 at the end of fiscal year 1996 and were 32 at the end of fiscal years 1995
and 1994. The increase in accounts receivable days outstanding were primarily
due to an increase in Medicare and managed care revenues.
For the year ended June 30, 1996, the Company added $26,558 to its
property and equipment and $418 to its notes receivable. The additions to
property and equipment were primarily for the construction of skilled nursing
centers in Fresno, California, and in Ft. Worth, Texas, or $13,927, and the
renovation and replacement of furnishings and equipment at the remaining
centers and the pharmacies, or $12,631.
The addition to property and equipment and notes receivable totaling
$26,976 were primarily financed with a combination of new long- term debt in
the form of senior secured notes, the bank line of credit and net cash provided
by operating activities. In December 1995, the Company issued $55,000 of
Senior Secured Notes ("New Notes"), the initial funding of $70,000 in New
Notes. The remaining amount of $15,000 was issued in July, 1996. In
transactions related to the New Notes, the Company reduced its bank line of
credit from $60,000 to $40,000 at more favorable interest rates and amended the
indenture for its $25,000 Senior Secured Notes ("Current Notes"). Also, the
bank line of credit's repayment period following the revolving commitment was
reduced from four years to three years. Holders of the Current Notes and the
New Notes and the Company's bank lenders have entered into an intercreditor
agreement and collateral agreement which provide a security interest in certain
real estate on a pari passu basis and except for certain permitted liens, a
negative pledge on the Company's assets. The New Notes are payable at the end
of the fifth year ($7,000), the end of the sixth year ($5,000), annually from
the eighth year through the twelfth year ($48,000) and at the end of the
fifteenth year ($10,000). The annual, fixed interest rate on each New Note
ranges from 7.38% on the earliest maturing New Note to 8.14% on the last New
Note to mature and averages 7.8% when weighted.
The Company believes that it has sufficient capital resources and cash
flow from its existing operations to service long-term debt due within one year
of $2,985, to make normal recurring capital replacements, additions and
improvements of approximately $11,600 planned for the next 12 months, to
develop properties over the next 12 months costing approximately $11,500 and to
meet other long-term working capital needs and obligations. The Company
expects, on a selective basis, to pursue expansion of its existing centers and
the acquisition or development of additional centers in markets where
demographics and competitive factors are favorable. The Company currently has
plans, or is developing plans, to construct
17
<PAGE> 18
and open 195 new beds in four centers by the summer of 1997.
IMPACT OF INFLATION
The health care industry is labor intensive. Wages and other expenses
increase more rapidly during periods of inflation and when shortages in the
labor market occur. In addition, suppliers pass along rising costs in the form
of higher prices. Increases in reimbursement rates under Medicaid generally
lag behind actual cost increases, so that the Company may have difficulty
covering them in a timely fashion.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS 121"), was issued. SFAS 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt SFAS 121 in the first quarter of fiscal
year 1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if
elected, would require companies to use a new fair value method of valuing
stock-based compensation plans. The Company has elected to continue following
present accounting rules under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" which uses an intrinsic value method
and often results in no compensation expense. However, at the end of fiscal
year 1997, in accordance with SFAS 123, the Company will provide pro forma
disclosure of what net income and earnings per share would have been had the
new fair value method been used.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Summit Care Corporation
We have audited the accompanying consolidated balance sheets of Summit Care
Corporation and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1996. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Summit
Care Corporation at June 30, 1996 and 1995, and the consolidated results of its
operations and cash flows for each of the three years in the period ended June
30, 1996, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
August 19, 1996
19
<PAGE> 20
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net revenues $176,062 $137,026 $97,599
Expenses:
Salaries and benefits 78,233 63,171 45,962
Supplies 18,071 15,374 11,476
Purchased services 37,963 22,234 14,611
Provision for doubtful accounts 2,241 1,330 828
Other expenses 12,421 10,268 7,740
Rental 2,656 1,691 1,388
Rental to related parties -- 450 225
Depreciation and amortization 6,142 5,249 2,949
Interest (net of interest income,
$522, $513 and $404, respectively) 6,574 4,761 2,243
-------- -------- -------
164,301 124,528 87,422
-------- -------- -------
Income before provision for income taxes 11,761 12,498 10,177
Provision for income taxes 4,452 4,987 4,010
-------- -------- -------
Net income $ 7,309 $ 7,511 $ 6,167
======== ======== =======
Earnings per share $ 1.06 $ 1.10 $ 1.20
======== ======== =======
</TABLE>
See accompanying notes
20
<PAGE> 21
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,658 $ 3,101
Accounts receivable, less allowance for doubtful
accounts: 1996 - $2,084; 1995 - $989; 27,930 20,336
Supplies inventory, at cost 2,058 2,176
Other current assets 13,032 4,570
-------- --------
Total current assets 45,678 30,183
Property and equipment, at cost:
Land and land improvements 16,018 13,653
Buildings and leasehold improvements 136,907 123,723
Furniture and equipment 18,668 14,967
Construction in progress 15,043 8,868
-------- --------
186,636 161,211
Less accumulated depreciation and amortization 21,713 16,999
-------- --------
164,923 144,212
Notes receivable, less allowance for doubtful accounts:
1996 - $268; 1995 - $184 4,845 4,460
Other assets 7,606 5,625
-------- --------
$223,052 $184,480
======== ========
</TABLE>
See accompanying notes
21
<PAGE> 22
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank $ 4,165 $ 2,972
Accounts payable 19,895 10,972
Employee compensation and benefits 3,738 4,008
Income taxes payable 989 1,061
Long-term debt due within one year 2,985 1,009
-------- -------
Total current liabilities 31,772 20,022
Long-term debt 107,389 88,779
Deferred income taxes 2,605 1,866
-------- --------
Total liabilities 141,766 110,667
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000,000
authorized shares, none issued
Common stock, no par value, 100,000,000 authorized shares;
6,772,800 and 6,759,300 issued and outstanding,
respectively 51,486 51,322
Retained earnings 29,800 22,491
-------- --------
Total shareholders' equity 81,286 73,813
-------- --------
$223,052 $184,480
======== ========
</TABLE>
See accompanying notes
22
<PAGE> 23
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------- Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balances at June 30, 1993 5,015,000 $22,524 $ 8,813 $31,337
Net income -- -- 6,167 6,167
Exercise of stock options 3,600 38 -- 38
Issuance of common stock, net 1,725,000 28,819 -- 28,819
--------- ------- ------- -------
Balances at June 30, 1994 6,743,600 51,381 14,980 66,361
Net income -- -- 7,511 7,511
Exercise of stock options 15,700 192 -- 192
Expenses on sale of common stock -- (251) -- (251)
--------- ------- ------- -------
Balances at June 30, 1995 6,759,300 51,322 22,491 73,813
Net income -- -- 7,309 7,309
Exercise of stock options 13,500 164 -- 164
--------- ------- ------- -------
Balances at June 30, 1996 6,772,800 $51,486 $29,800 $81,286
========= ======= ======= =======
</TABLE>
See accompanying notes
23
<PAGE> 24
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,309 $ 7,511 $ 6,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,142 5,249 2,949
(Increase) in accounts receivable (7,594) (6,907) (4,014)
Decrease (increase) in supplies inventory 118 (623) (507)
(Increase) in other assets (10,705) (1,740) (2,652)
Increase in accounts payable 8,923 2,512 4,437
(Decrease) increase in employee compensation
and benefits (270) 478 1,004
(Decrease) increase in income taxes payable (72) 577 (50)
Increase (decrease) in deferred income tax liability 739 (43) 178
-------- -------- --------
Total adjustments (2,719) (497) 1,345
-------- -------- --------
Net cash provided by operating activities 4,590 7,014 7,512
-------- -------- --------
Investing activities:
Issuance of notes receivable (916) (2,089) (1,313)
Principal payments of notes receivable 498 962 544
Additions to property and equipment (26,558) (9,004) (15,505)
Acquisitions of nursing centers -- (51,178) --
Additions to other assets -- (3,279) --
-------- -------- --------
Net cash used in investing activities (26,976) (64,588) (16,274)
Financing activities:
Increase (decrease) in payable to bank 1,193 826 (741)
Principal payments on long-term debt (49,914) (38,225) (22,090)
Proceeds from long-term debt 70,500 76,520 18,048
Net (expenses) proceeds from sale of common stock -- (251) 28,819
Net proceeds on exercise of stock options 164 192 38
-------- -------- --------
Net cash provided by financing activities 21,943 39,062 24,074
-------- -------- --------
(Decrease) increase in cash and cash equivalents (443) (18,512) 15,312
Cash and cash equivalents at beginning of year 3,101 21,613 6,301
-------- -------- --------
Cash and cash equivalents at end of year $ 2,658 $ 3,101 $ 21,613
======== ======== ========
</TABLE>
See accompanying notes
24
<PAGE> 25
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
-----------------------------------
1996 1995 1994
---- -------- --------
<S> <C> <C> <C>
Supplemental disclosures of non-cash investing
and financing activities:
Acquisition notes payable $ -- $ (2,814) $ (5,736)
Acquisition of nursing care centers -- 2,814 5,736
Acquisition of nursing care centers
under capital leases -- 16,654 --
Capital lease obligations -- (16,654) --
</TABLE>
See accompanying notes
25
<PAGE> 26
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Summit Care Corporation ("Company" or "SCC")
provides a variety of health care services primarily to the elderly through the
operation of subacute, skilled nursing, Alzheimer and assisted living units in
skilled nursing care centers and assisted living centers in California, Texas
and Arizona. These services include nursing care, lodging, food and certain
specialty medical services, including rehabilitation care, infusion therapy and
other ancillary services. The Company also provides specialty pharmaceutical
and infusion therapy services to other long-term care providers. In April
1994, OrNda HealthCorp ("OrNda") acquired the Company's then majority
shareholder, Summit Health Ltd. ("SHL"). The Company completed a common stock
offering in June 1994, which reduced OrNda's percentage ownership to below 50%.
OrNda's 7.5% Exchangeable Subordinated Notes ("OrNda Notes") were exchangeable
into its equity interest in the Company's common stock, at the option of the
holders. OrNda redeemed 100% of the outstanding OrNda Notes in exchange for
its equity interest in the Company's common stock in August 1995. OrNda
currently has no position in the Company's common stock.
BASIS OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
USE OF ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
REVENUES: Approximately 70 percent, 68 percent, and 69 percent of the
Company's revenues in the years ended June 30, 1996, 1995 and 1994 were derived
from funds under Federal and state medical assistance programs, the
continuation of which are dependent upon governmental policies. These revenues
are based, in certain cases, upon cost reimbursement principles and are subject
to audit. Revenues are recorded on an accrual basis as services are performed
at their estimated net realizable value. A significant portion of the
Company's skilled nursing care center revenues is derived from government
sponsored health care programs such as Medicare and Medicaid. These programs
are highly regulated and are subject to budgetary and other constraints. While
the Company's cash flow could be adversely affected by periodic government
program funding delays or shortfalls, management does not believe there are any
significant credit risks associated with these government programs.
PROPERTY AND EQUIPMENT: Depreciation and amortization (straight-line
method) is based on the estimated useful lives of the individual assets as
follows:
<TABLE>
<S> <C>
Building and improvements 15-40 years
Leasehold improvements Shorter of lease term or estimated useful life
Furniture and equipment 3-20 years
</TABLE>
Amortization of capital leases is included in depreciation and
amortization expense. For leasehold improvements, where the Company has
acquired the right of first refusal to purchase or to renew the lease,
amortization is based on the period covered by the right.
INTANGIBLE ASSETS: Goodwill of $2,321, less accumulated amortization
of $116, is included in other assets at June 30, 1996 and is amortized over 35
years using the straight-line method.
EARNINGS PER SHARE: Earnings per share is based on the weighted
average number of shares of common stock outstanding and common stock
equivalents arising from stock options which were 6,895,661 for the year ended
June 30, 1996, 6,837,991 for the year ended June 30, 1995 and 5,156,780 for the
year ended June 30, 1994. The effect of common stock equivalents arising from
stock options on the computation of earnings per share is not significant.
26
<PAGE> 27
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include highly
liquid investments with an original maturity of three months or less. The
Company places its temporary cash investments with high credit quality
financial institutions.
CASH MANAGEMENT: The Company utilizes a centralized cash management
system. Payable to bank represents checks outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS: In March 1995, Statement of
Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), was issued.
SFAS 121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company will adopt SFAS 121 in the
first quarter of fiscal year 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if
elected, would require companies to use a new fair value method of valuing
stock-based compensation plans. The Company has elected to continue following
present accounting rules under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" which uses an intrinsic value method
and often results in no compensation expense. However, at the end of fiscal
year 1997, in accordance with SFAS 123, the Company will provide pro forma
disclosure of what net income and earnings per share would have been had the
new fair value method been used.
RECLASSIFICATIONS: Certain amounts have been reclassified to conform
with 1996 presentations.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair market value disclosures.
CASH AND CASH EQUIVALENTS: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
NOTES RECEIVABLE (INCLUDING CURRENT PORTION): The carrying amount is
$5,786. The fair value of $6,065 is estimated using discounted cash flow
analyses, based on interest rates currently being offered for notes with
similar terms to borrowers of similar credit quality.
LONG-TERM DEBT (INCLUDING CURRENT PORTION): The $110,374 carrying
value of long-term debt is based on the original face value (issue amount).
The fair value of $94,931 is based on present value of the underlying cash
flows discounted at the Company's incremental borrowing rate.
3. MATERIAL TRANSACTIONS WITH RELATED ENTITIES
ORNDA HEALTHCORP AND SUMMIT HEALTH LTD.: The Company has an agreement
with OrNda under which the Company leases a portion of its corporate office
space to OrNda and shares the cost of building services with OrNda. The
agreement also requires OrNda to provide tax accounting to the Company. The
Company's reimbursement to OrNda for these services, less rental income from
OrNda for the space, approximated $50 for the year ended June 30, 1996, $23 for
the year ended June 30, 1995 and $350 for the year ended June 30, 1994. The
Company believes that the amount reimbursed is reasonable for the services
provided. The agreement which expires in March 1997 also indemnifies the
Company against any liability arising from its divestiture of facilities, the
net assets of which were purchased by SHL during the year ended June 30, 1992.
The provisions of the indemnification will survive the termination of the
agreement. Certain provisions of this agreement have been terminated or
amended as a result of the redemption on August 28, 1995 by OrNda of 100% of
the OrNda Notes in exchange for the Company's common stock (see Note 1).
27
<PAGE> 28
At June 30, 1996, the net amount due from OrNda for transactions
between the Company and OrNda was $602 and is included in Other Current Assets
(see Note 5).
SUMMIT PROPERTIES AND SIERRA LAND GROUP, INC.: Prior to the
acquisition of SHL by OrNda in April 1994, certain owners of Summit Properties
and Sierra Land Group, Inc. ("Sierra"), collectively (the affiliates), also
were principal shareholders of SHL, some of whom were also directors of the
Company. OrNda acquired their ownership interest in SHL and those who were
directors of the Company resigned as directors. In January 1994, the Company
entered into a ten-year sub-lease of a nursing care center leased by SHL from
Sierra. The Company believes the monthly lease payments of $37 are reasonable
for the market area. Lease payments to OrNda and SHL were $450 for each of the
years ended June 30, 1996 and 1995 and $225 for the year ended June 30, 1994.
INSURANCE COVERAGE: Prior to OrNda's acquisition of SHL, the Company
was co-insured under common policies with SHL with respect to general and
professional, workers' compensation, group health and property and casualty.
Currently, with the exception of workers' compensation, the Company is insured
with independent companies. The Company rents a captive insurance company,
Meridian Insurance Company Ltd. ("Meridian"), which is partially owned by
persons who sold their interests in SHL to OrNda and resigned their
directorships in the Company, for the purpose of providing reinsurance coverage
for its workers' compensation claims up to $250 per occurrence and $1,300 on an
annual aggregate basis. Until December 31, 1994, the Company's general and
professional liability risks were insured by Meridian for losses limited to
$2,000 per occurrence and $2,000 annual aggregate losses. Also, until December
31, 1994, Tristar Risk Management (formerly TOPA Insurance Company), which is
partially owned by a person who was formerly a shareholder of SHL and formerly
a director of the Company, insured the Company's workers' compensation risks in
California. The Company's co-insured position with SHL with respect to group
health, property and casualty policies was discontinued effective July 1, 1994.
Amounts incurred by the Company for premium expense payable to insurance
companies during the time they were affiliated with the Company were $1,605 and
$3,015 for the years ended June 30, 1995 and 1994, respectively.
4. ACQUISITIONS AND CONSTRUCTION ACTIVITY
FISCAL YEAR 1996: On January 8, 1996, the Company opened a 108-bed
skilled nursing care center in Fresno, California, and in August 1996, opened
another 56 beds at the same site. Total cost of construction including the
original purchase price (see this note, Fiscal Year 1994) was $13,005,
including an estimated $300 to complete construction after June 30, 1996 (see
Note 11).
In March 1996, the Company added 20 licensed beds to one of its two
skilled nursing care centers in Beaumont, Texas, increasing the center's total
beds to 148. Total cost of construction was $785. In June 1996, the Company
also added 54 beds to its skilled nursing care center in Longview, Texas,
increasing the total beds to 182. Total cost of construction was $1,860.
Cost of construction completed in the year ended June 30, 1996 was
financed with funds from the senior secured notes issued in December 1995 and
draws against the Company's bank line of credit (see Note 6).
FISCAL YEAR 1995: On September 1, 1994, the Company purchased a
220-bed skilled nursing care center in White Settlement (Fort Worth), Texas,
for $11,925 in cash and a four-acre site for $1,500 in cash for construction of
a 210-bed skilled nursing care center located in Fort Worth, Texas, which began
in May 1995 (see Note 11).
The Company acquired on October 1, 1994 the leasehold interest in six
skilled nursing care centers and the real and personal property of a seventh
with a combined total of 783 beds located in various communities in Texas for
$30,938, including goodwill of $2,321. The purchase price consists of (I)
$11,470 in cash (of which $8,541 was funded under the Company's bank line of
credit), (ii) a $2,814 promissory note ($3,000 less a $186 discount) at 9%
interest (7% contract rate) fully amortized in seven years and (iii) a $16,654
capital lease obligation assumed by the Company. The leases on the six centers
range from eight to twenty-one years, include purchase options, the first
exercisable in July 1996, and the last exercisable in February 2005, and have
combined monthly payments of $159 (see Note 11).
On December 1, 1994, the Company acquired four skilled nursing care
centers in three communities in East Texas with a combined total of 548 beds
for $27,000 in cash and, in a separate transaction, the leasehold interest in a
119-bed skilled nursing care center located in Big Spring, Texas, for $800 in
cash. Both transactions were funded under the Company's bank line of credit.
28
<PAGE> 29
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's acquisitions have been accounted for as purchases and,
accordingly, the results of operations of the acquired centers have been
included in the consolidated statement of income since the date of acquisition.
The Company completed in May 1995 an addition of 74 beds to a 76-bed
nursing care center which is operated under a ten-year sub-lease with OrNda
(see Note 3).
FISCAL YEAR 1994: The Company acquired a 206-bed skilled nursing care
center located in the Houston, Texas metropolitan area on December 1, 1993, for
$6,742 consisting of $1,042 in cash, the assumption of existing debt of $4,523
and a new note to the seller for $1,177. On January 4, 1994, the Company
assumed operation of a 76-bed skilled nursing care center under a ten-year
sub-lease with OrNda (see Note 3) requiring monthly lease payments of $37.
Also, in January 1994, the Company purchased a former psychiatric hospital in
Fresno, California, for $4,200 in cash (see this note, Fiscal Year 1996). In
June 1994, construction was completed on a 114-bed skilled nursing care center
located in Lubbock, Texas, which had been a former hospital and was acquired
from Summit Properties in May 1992 for $900 in cash. The cost of construction
was $4,582 paid in cash. The new center opened for operations in July 1994.
5. OTHER CURRENT ASSETS
Other current assets as of June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Due from third party
payors $ 8,055 $ 804
Deferred tax assets 1,810 1,114
Notes receivable 672 640
Prepaid expenses 952 1,008
Other receivables 1,543 1,004
------- -------
$13,032 $ 4,570
======= =======
</TABLE>
29
<PAGE> 30
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
-------- ------- -------
<S> <C> <C>
Senior secured notes, at fixed interest rates from 7.38% to
8.14%, interest only payable semi-annually, principal due
from December 2000 to December 2010 in various annual
payments, secured by property and equipment with a
book value of approximately $76,660 at June 30, 1996. $55,000 $ --
Secured revolving bank line of credit expires September 30,
1997, variable interest rates from 6.56% to 8.25% in the
year ending June 30, 1996, convertible to term loan due in
equal quarterly principal payments through September 2000,
secured by property and equipment with a book value of
approximately $8,385 at June 30, 1996. 6,000 39,500
8.96% senior secured notes, due 2002, interest only, payable
semi-annually through December 1997, annual principal
payments of $4,150 thereafter, secured by property with a
book value of approximately $34,736 at June 30, 1996. 25,000 25,000
Present value of capital lease obligations at effective interest
rates from 7% to 9%, secured by property and equipment with
a book value of approximately $26,758 at June 30, 1996. 15,680 16,282
Mortgage and other note payable, fixed interest rates from
7.75% to 9%, due in various monthly installments through
January 2026, secured by property and equipment with a
book value of approximately $6,378 at June 30, 1996. 5,231 5,166
Promissory note, less imputed interest of $109 in the year
ended June 30, 1996, at effective interest rate of 9% due in
October 2001, secured by the leasehold interest in a
nursing care center, with a book value of approximately
$3,175 at June 30, 1996. 2,304 2,616
Mortgage note payable, variable interest rates from
8.25% to 9.0% in year ended June 30, 1996, due in equal
monthly principal installments through March 2001, secured
by property and equipment with a book value of approximately
$2,798 at June 30, 1996. 1,159 1,224
Less current portion (2,985) (1,009)
-------- -------
Non-current portion $107,389 $88,779
======== =======
</TABLE>
Future maturities of long-term debt (including capital lease
obligations) are as follows: years ending June 30, 1997 - $2,985; 1998 -
$8,501; 1999 - $10,682; 2000 - $10,467; 2001 - $10,873; and thereafter -
$66,866.
30
<PAGE> 31
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In June 1994, the Company obtained a $25,000 bank line of credit
secured by property, equipment and accounts receivable. In November 1994, the
Company obtained a $20,000 short-term, unsecured line of credit from a bank.
In February 1995, an amendment to the Company's secured bank line of credit was
consummated which increased the commitment from $25,000 to $60,000. In
December 1995, the Company amended the secured bank line of credit which
reduced the commitment to $40,000, converted accounts receivable from
collateral to a negative pledge, extended the revolver to September 30, 1997
and reduced the period of the term loan upon termination of the revolver from
four to three years. The interest rate is variable and at the Company's
option, will equal either the bank prime rate or the Eurodollar rate plus a
margin (reduced by the amendment) that varies depending on the ratio of certain
senior debt to earnings before certain interest, taxes, depreciation and
amortization. At June 30, 1996, loans outstanding were $6,000 which was used
to finance the construction described in Note 4 (see Note 11).
The bank line of credit loan agreement and the two senior secured note
agreements contain covenants that include requirements to comply with certain
financial tests and ratios and restrict the ability of the Company to incur
additional indebtedness. Also, the Company is restricted by the agreements
from the payment of dividends (other than dividends payable in common stock) or
to acquire its common stock to the extent that such payments exceed $5,000 plus
50% of the Company's net income after June 30, 1995. The Company currently is
meeting all financial tests and ratios.
Interest expense was $8,701, $6,033, and $3,172 in fiscal years 1996,
1995 and 1994, respectively, of which $1,605, $759 and $525 in 1996, 1995 and
1994 were capitalized as part of the ongoing construction projects. Interest
payments were $7,874, $5,712 and $3,165 in fiscal years 1996, 1995 and 1994,
respectively.
7. INCOME TAXES
The Company filed consolidated Federal income tax returns with SHL and
combined state tax returns with SHL and Sierra pursuant to a tax-sharing
agreement for the periods prior to the Company's initial public offering of
common stock completed on March 18, 1992. The Company's tax sharing agreement
with SHL provides for the indemnification of the Company for any final
determination of tax, interest and penalties which may be due as a result of
audits for tax years through June 30, 1991. SHL also indemnified the Company
for any Federal income taxes, interest and penalties that may be finally
determined to be payable by SHL or its affiliates for the year ended June 30,
1992, that is allocable to SHL or its affiliates other than the Company.
However, the Company as a member of the SHL consolidated group is jointly and
severally liable for group Federal income tax liabilities related to periods
prior to March 18, 1992. In the event that SHL is not able to discharge any
such liabilities fully, the Company could be held responsible for any unpaid
portion. Between March 18, 1992 and April 19, 1994, the date SHL was acquired
by OrNda, the Company filed a combined California return with SHL and Sierra,
but filed a separate Federal income tax return. Subsequent to April 19, 1994,
the Company files separate California and Federal income tax returns.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 1995 1994
-------------------- ------ ------ ------
<S> <C> <C> <C>
Federal:
Current $3,611 $4,359 $3,276
Deferred 19 (277) (97)
------ ------ -------
3,630 4,082 3,179
State:
Current 798 952 844
Deferred 24 (47) (13)
------ ------ --------
822 905 831
------ ------ ------
$4,452 $4,987 $4,010
====== ====== ======
</TABLE>
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements and represent differences between income for tax purposes and income
for
31
<PAGE> 32
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
financial statement purposes in future years. Temporary differences are
primarily attributable to reporting for income tax purposes excess of tax over
book depreciation, bad debts and vacation benefits. The current deferred tax
assets are included in other current assets (see Note 5). Significant
components of the Company's deferred tax liabilities and assets as of June 30
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME TAXES
------------
Deferred tax liabilities:
Tax over book depreciation $ -- $(3,136) $ -- $(2,220)
Other -- (137) -- (300)
------- ------- ------ -------
Total deferred tax liabilities -- (3,273) -- (2,520)
Deferred tax assets:
Bad debt and vacation and
deferred compensation benefits 1,810 330 1,114 288
State tax -- 338 -- 366
------ ------- ------ -------
Total deferred tax assets 1,810 668 1,114 654
------ ------- ------ -------
Net deferred tax assets (liabilities) $1,810 $(2,605) $1,114 $(1,866)
====== ======= ====== ========
</TABLE>
A reconciliation of the provision for income taxes with the amount
computed using the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 1995 1994
-------------------- ---- ---- ----
<S> <C> <C> <C>
Federal rate 35.0% 35.0% 34.0%
State taxes, net of Federal tax benefit 4.5 4.7 5.4
Tax credits (1.6) (0.8) (0.3)
Other, net -- 1.0 0.3
---- ---- ----
37.9% 39.9% 39.4%
==== ==== ====
</TABLE>
Total income tax payments during fiscal years 1996, 1995 and 1994 were
$3,904, $4,876 and $4,183, respectively.
33
<PAGE> 33
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LEASES
The Company leases certain of its centers, equipment and its pharmacy
space under both noncancellable operating leases and capital leases. The
leases generally provide for payment of property taxes, insurance and repairs,
and have rent escalation clauses based upon the consumer price index or annual
per bed adjustments.
All capital leases contain purchase options and the accompanying
balance sheet and following schedule have been prepared assuming such options
will be exercised (see Note 11). Some leases contain various renewal options
and extend up to the year 2030. Property and equipment includes the following
amounts for leases which have been capitalized:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------- -----
<S> <C>
Land and improvements $ 1,605
Buildings and improvements 23,601
Equipment and furnishings 2,009
-------
27,215
Less accumulated amortization 1,450
-------
$25,765
=======
</TABLE>
The future minimum rental payments under noncancellable operating
leases and capital leases (including purchase options when expected to be
exercised) that have initial or remaining lease terms in excess of one year as
of June 30, 1996, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES TOTAL
--------- -------- -----
Year Ending June 30,
--------------------
<S> <C> <C> <C>
1997 $ 2,684 $ 3,646 $ 6,330
1998 2,351 3,329 5,680
1999 2,362 4,634 6,996
2000 2,109 4,297 6,406
2001 1,888 350 2,238
Thereafter 10,397 3,846 14,243
------- ------- -------
Total minimum lease
payments 21,791 20,102 41,893
Less amount representing
interest -- 4,422 4,422
------- ------- ------
Present value of net
minimum lease payments
included in long-term debt.
See Note 6. $21,791 $15,680 $37,471
======= ======= =======
</TABLE>
33
<PAGE> 34
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. CONTINGENCIES
The Company is subject to malpractice claims and other litigation
arising in the ordinary course of business. In the opinion of management, any
liability beyond amounts covered by insurance and the ultimate resolution of
all pending legal proceedings will not have a material adverse effect on the
Company's financial position or results of operations.
10. SHAREHOLDERS' EQUITY
On June 16, 1994, the Company completed a common stock offering of
1,725,000 shares at a price of $17.75. The net proceeds of this transaction
were $28,819.
Effective July 1, 1991, the Company adopted a stock option plan
authorizing issuance of 250,000 shares of common stock. The plan was amended
on December 9, 1994 and again on December 8, 1995 to increase the authorized
shares to 1,400,000. Options may be granted to key employees, and directors,
of the Company. Options granted to employees may be either incentive stock
options or nonstatutory options. Only non-qualified options may be granted to
non-employee directors. Options granted to non-employee directors are granted
automatically pursuant to a formula grant provision contained in the plan. The
option price per share for incentive stock options shall not be less than 85%
of fair market value at the date of the grant. The terms of each option and
the increments in which it is exercisable are determined by a committee
appointed by the Board of Directors. No option may be exercised after ten
years from the date of the grant and no option may be granted under the plan
after June 30, 2001.
The following summarizes activity in the stock option plan:
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
- -------------------- ---------------------- ----------------------- ----------------------------
NUMBER RANGE NUMBER RANGE NUMBER RANGE
OF SHARES OF PRICES OF SHARES OF PRICES OF SHARES OF PRICES
---------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Options at beginning 523,000 $10.50-19.94 256,000 $10.50-15.75 105,500 $10.38-10.62
of year
Changes during year:
Granted 504,000 $21.00 284,500 $19.94 159,500* $14.37-15.75
Exercised (13,500) $10.50-14.37 (15,700) $10.50-14.37 (3,600) $10.38-10.62
Canceled (45,000) $19.94-21.00 (1,800) $10.50-14.37 (5,400) $10.38-10.62
Options outstanding
at end of year 968,500 $10.50-21.00 523,000 $10.50-19.94 256,000 $10.50-15.75
Options available for
grant at end of year 398,700 57,700 5,400
Options exercisable at
end of year 161,600 58,100 24,900
</TABLE>
*Of these options to purchase, 15,000 shares of common stock were granted
contingent upon shareholder approval of the amendment to the plan, which
approval was received on December 9, 1994.
34
<PAGE> 35
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. SUBSEQUENT EVENT
In July 1996, the Company issued $15 million Senior Secured Notes
("Notes") which represented the second and last issuance of $70 million of
Notes. The first issuance of $55 million occurred in December 1995. The
second series of notes have the same terms as the first series except that the
interest rates are 0.05% higher than the fixed rates for the first series of
notes (see Note 6). The proceeds from the July 1996 Notes were used to repay
$6,000 in bank credit line loans, there now being no outstanding bank credit
line loans, and the balance of $9,000 was invested in short-term, high credit
quality financial instruments.
In July 1996, the Company exercised a purchase option in its lease of
a 90-bed skilled nursing care center in Rockport, Texas. The purchase price of
$2,022 was financed with funds from the Notes issued in July 1996 (see above).
In August 1996, the Company opened 110 beds of its planned 210-bed skilled
nursing care center in White Settlement (Fort Worth), Texas and opened 56
additional beds at its skilled nursing care center in Fresno, California, which
initially opened in January 1996 with 108 beds (see Note 4).
12. UNAUDITED QUARTERLY INFORMATION
Following is a summary of unaudited quarterly results of operations
from the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
------------------------ -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Net revenues $41,270 $42,801 $45,232 $46,759 $176,062
Income before income taxes 3,924 3,400 2,077 2,360 11,761
Net income 2,359 2,043 1,327 1,580 7,309
Earnings per share $ 0.34 $ 0.30 $ 0.19 $ 0.23 $ 1.06
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
------------------------ -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Net revenues $27,219 $33,625 $37,077 $39,105 $137,026
Income before income taxes 2,668 2,895 3,163 3,772 12,498
Net income 1,617 1,726 1,901 2,267 7,511
Earnings per share $ 0.24 $ 0.25 $ 0.28 $ 0.33 $ 1.10
</TABLE>
See accompanying notes
35
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information required by Part III of Form 10-K (Items 10 through
13) is set forth in the Company's definitive proxy statement for its Annual
Meeting of Shareholders to be held on December 12, 1996, which will be filed
with the Commission pursuant to Regulation 14A within 120 days of the Company's
last fiscal year, and such information is incorporated herein by reference.
See also "Executive Officers of the Registrant" in Part I of this report for
certain information concerning the Company's executive officers who are not
also directors of the Company.
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Pages
-----
<S> <C> <C>
(a) Financial Statements and Financial Statement Schedules:
(1) Financial Statements:
Report of Independent Auditors 19
Consolidated Statements of Income for each of the three years
ended June 30, 1996 20
Consolidated Balance Sheets at June 30, 1996 and 1995 21 - 22
Consolidated Statements of Shareholders' Equity
for each of the three years ended June 30, 1996 23
Consolidated Statements of Cash Flows for each of the three years
ended June 30, 1996 24 - 25
Notes to Consolidated Financial Statements 26 - 35
(2) Financial Statement Schedules:
VIII Valuation and Qualifying Accounts 46
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Company's
consolidated financial statements and notes thereto.
(3) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Amended and Restated Bylaws. (1)
4.1 Form of Common Stock Certificate. (3)
10.1(a) Summit Care Corporation Stock Option Plan (1) as amended by Amendment to Summit Care Corporation Stock
Option Plan. (6)
10.2(a) Form of Summit Care Corporation Stock Option Agreement. (1)
10.3 Tax Sharing Agreement among Sierra Land Group, Inc., SHL and the Company, dated May 17, 1991 (1), as
amended by Amendment to Tax Sharing Agreement, dated as of February 5, 1992. (6)
</TABLE>
36
<PAGE> 37
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
10.4 Agreement Regarding Shared Services and Other Matters between SHL and the Company, dated as of February 5, 1992. (6)
10.5(a) Form of Directors and Officers Indemnity Agreement. (1)
10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent Center): Convalescent Hospital Lease, dated
November 20, 1969, between Palmcrest Associates, Ltd., and Century Convalescent Centers, as amended by Lease of
Convalescent Hospital Facility (as amended), dated September 1, 1979, by which SHL and its appointed nominee
Royalwood Convalescent Hospital, Inc. (now Summit Care - California, Inc.) are substituted as lessees. (1)
10.8 Anaheim Care Center: Lease, dated June 1, 1995,, between Sam Menlo, Trustee of the Menlo Trust U/T/I 5/22/83 and
Summit Care - California, Inc., doing business as Anaheim Care Center.
10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and Marie Gabrielle Nabel, as tenants in common,
and Summit Care - California, Inc. (1)
10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between Jack H. Cramer and Walter Lee Brown (together,
as lessors) and Albert J. Allasandra, as amended by Amendment to Lease and Right of First Refusal to Purchase,
dated May 23, 1969, by which Aljar Corporation is substituted as lessee, and as further amended by Amendment to
Agreement of Lease and Right of First Refusal, dated November 18, 1974, and as further amended by Second Amendment
to Agreement of Lease and Right of First Refusal and Assignment of Lease, dated July 10, 1979, by which National
Accommodations, Inc. (now SHL) is substituted as lessee (1), assigned to the Company by Assignment of Lease, dated
March 9, 1992, between SHL and the Company. (6)
10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between South Bay Sanitarium and Convalescent
Hospital and Garnet Convalescent Hospital, Inc. (now Summit Care - California, Inc.), (6) and Amendment to Lease
dated March 1, 1994.
10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18, 1985, between Bernard Bubman, Arnold Friedman,
Irene Weiss and Sunset Motel and Development Co. (collectively, as lessors), and Summit Care - California, Inc. (1)
10.13 Valley Palms Convalescent Hospital: Lease, dated March 16, 1982, between Uni-Cal Associates and Valley Palms
Convalescent, Inc. (now Summit Care - California, Inc.). (1)
10.14 Marina Care Center: Standard Industrial Lease - Net, dated March 1, 1989, between Summit Properties and Summit
Care - California, Inc., as modified by Addendum to Standard Industrial Lease - Net. (1)
10.15 Phoenix Resident Hotel: Lease, dated July 29, 1977, between Sierra Land & Livestock, Inc. and Southwest Hotels,
Inc., as modified by Addendum to Lease dated August 11, 1983, assigned to the Company by Assignment of Lease, dated
July 1, 1982, between Southwest Hotels, Inc. and the Company. (1)
10.16 Sublease of Phoenix Retirement Hotel: Sublease, dated July 1, 1987, between the Company and Phoenix McDowell
Properties, Inc. (1), as assigned by Assignment of Sublease, dated March 9, 1992, between the Company and Summit
Health Ltd. (7)
10.17 Sublease of Marina Care Center: Nursing Home Sublease Agreement, dated March 7, 1989, between Summit Care -
California, Inc. and 5240 Sepulveda, Inc. (1), as assigned by Assignment of Sublease, dated March 9, 1992,
between Summit Care - California, Inc. and Summit Health Ltd. (7)
10.18 Sublease of Valley Palms Care Center: Nursing Home Sublease Agreement, dated May 11, 1989, between Summit Care -
California, Inc. and Trinity Health Systems (1), as assigned by Assignment of Sublease, dated March 9, 1992, between
Summit Care - California, Inc. and Summit Health Ltd. (7)
</TABLE>
37
<PAGE> 38
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
10.19 Sublease of Brier Oak Terrace Care Center: Nursing Home Sublease Agreement, dated April 1, 1989, between Summit
Care - California, Inc. and Brier Oak Hospital, Inc. (1), as assigned by Assignment of Sublease, dated March 9, 1992,
between Summit Care - California, Inc. and Summit Health Ltd. (7)
10.20 Sublease of Pharmacy: Standard Sublease, dated August 1, 1989, between St. Luke Medical Center and Mediscript, Inc.,
as modified by Addendum of the same date. (1)
10.21 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes, Ltd., and SHL, assigned to the Company by
Assignment of Lease dated March 9, 1992, between SHL and the Company. (6)
10.22 Summit Care Corporation Note Purchase Agreement dated as of December 15, 1992; 8.95% Senior Secured Notes
Due 2002. (8)
10.23 Loan Agreement and Term Note made and entered into by and between Summit Care Corporation, and Union Bank dated as
of March 28, 1994. (9)
10.24 Seller Note for purchase of The Woodlands. (10)
10.25 HUD Note for purchase of The Woodlands. (10)
10.26 Sublease with Summit Health Ltd., for Phoenix Living Center dated January 1994. (10)
10.27 Real Estate Lien Note - $3,000,000 dated September 30, 1994 and Security Agreement dated September 30, 1994. (11)
10.28 Warranty Deed - Oak Manor, Flatonia dated September 30, 1994. (11)
10.29 Live Oak Nursing Center, George West, Texas Lease Agreement dated July 19, 1991; Assignment of Lease With Option to
Purchase dated September 30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak Nursing Center, George
West, Texas dated August 15, 1994. (11)
10.30 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated February 28, 1989; Assignment Of Lease With
Option To Purchase dated September 30, 1994 and Consent To Assignment Of leasehold Estate Of Guadalupe Valley
Nursing Center, Sequin, Texas dated August 15, 1994. (11)
10.31 Southern Manor Nursing Center, Hallettsville, Texas Nursing Home Lease Agreement dated June 29, 1992; Assignment
Of Lease With Option To Purchase dated September 30, 1994; Consent To Assignment Of Lease dated June 29, 1992 and
Agreement Re Option dated September 30, 1994. (11)
10.32 Monument Hill Nursing Center, LaGrange, Texas Lease Agreement dated October 20, 1986; Option Agreement dated
October 20, 1986; Assignment of Option dated September 1, 1988; Assignment Of Lease With Option To Purchase dated
September 30, 1994 and Consent To Assignment Of Leasehold Estate Of Monument Hill Nursing Center, LaGrange, Texas
dated September 1, 1988. (11)
10.33 Oak Crest Nursing Center, Rockport, Texas Nursing Home Lease Agreement dated October 18, 1990 and Consent To
Assignment And Assumption Agreement dated October 5, 1994. (11)
10.34 Oakland Manor Nursing Center, Giddings, Texas Nursing Home Lease Agreement dated June 29, 1992; Assignment Of Lease
With Option To Purchase dated September 30, 1994; Consent To Assignment Of Lease dated June 29, 1992 and Agreement Re
Option dated September 30, 1994. (11)
10.35 David Lake Agreement Of Purchase And Sale Of Assets dated October 16, 1994. (11)
</TABLE>
38
<PAGE> 39
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
10.36 Woodland Convalescent Center Lease Agreement dated January 16, 1995. (12)
10.37 Purchase of Comanche Trails Nursing Center by Summit Care Corporation from Select Care Enterprises dated
December 1, 1994. (13)
10.38 $70,000,000 Note Purchase Agreement dated as of December 15, 1995 among Summit Care Corporation and the several
purchasers listed on the acceptance form at the end thereof. (14)
10.39 $25,000,000 Amended and Restated Note Purchase Agreement dated as of December 15, 1995 among Summit Care Corporation
and the several purchasers listed on the acceptance form at the end thereof. (14)
10.40 Third Amended and Restated Credit Agreement dated as of December 15, 1995 among Summit Care Corporation, the Lenders
named therein, and Bank of Montreal, as the Agent, amending and modifying that certain Second Amended and Restated
Credit Agreement, dated as of February 6, 1995, among Summit Care Corporation, the lenders named therein, and The
First National Bank of Chicago, as the agent for the lenders named therein. (14)
10.41 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $18,071,429, made by Summit Care
Corporation in favor of John Hancock Mutual Life Insurance Company.* (14)
* In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted agreements substantially
identical to Exhibit 10.41. The omitted agreements and their material terms that differ from those in
Exhibit 10.41 are as follows:
a. 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $1,571,428, made by Summit Care
Corporation in favor of John Hancock Variable Life Insurance Company;
b. 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $2,357,143, made by Summit
Care Corporation in favor of Mellon Bank, N.A., as Trustee for AT&T Master Pension Trust;
c. 7.38% Note, dated December 20, 1995, in the aggregate principal amount of $5,500,000, made by Summit Care
Corporation in favor of Principal Mutual Life Insurance Company;
d. 7.52% Note, dated December 20, 1995, in the aggregate principal amount of $3,929,000, made by Summit
Care Corporation in favor of Principal Mutual Life Insurance Company;
e. 8.09% Note, dated December 20, 1995, in the aggregate principal amount of $7,857,000, made by Summit Care
Corporation in favor of Principal Mutual Life Insurance Company;
f. 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $5,107,050, made by Summit
Care Corporation in favor of Massachusetts Mutual Life Insurance Company;
g. 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $5,107,050, made by Summit Care
Corporation in favor of Massachusetts Mutual Life Insurance Company;
h. 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $5,499,900, made by Summit
Care Corporation in favor of Massachusetts Mutual Life Insurance Company.
10.42 Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the aggregate principal amount
of $5,000,000, made by Summit Care Corporation in favor of Northwestern National Life Insurance Company.**
**In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted agreements substantially
identical to Exhibit 10.42. The omitted agreements and their material terms that differ from those in Exhibit 10.42
are as follows:
</TABLE>
39
<PAGE> 40
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
a. Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the aggregate
principal amount of $5,000,000, made by Summit Care Corporation in favor of Northern Life Insurance Company;
b. Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the aggregate
principal amount of $2,000,000, made by Summit Care Corporation in favor of North Atlantic Life Insurance Company;
c. Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the aggregate
principal amount of $10,000,000, made by Summit Care Corporation in favor of John Hancock Mutual Life Insurance
Company;
d. Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the aggregate
principal amount of $3,000,000, made by Summit Care Corporation in favor of USG Annuity & Life Company.
10.43 Note, dated December 20, 1995, in the aggregate principal amount of $7,000,000, made by Summit Care Corporation in
favor of Banque Paribas.*** (14)
***In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted agreements substantially
identical to Exhibit 10.43. The omitted agreements and a description of how their material terms differ from those
in Exhibit 10.43 are as follows:
a. Note, dated December 20, 1995, in the aggregate principal amount of $7,000,000, made by Summit Care
Corporation in favor of The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency;
b. Note, dated December 20, 1995, in the aggregate principal amount of $13,000,000, made by Summit Care
Corporation in favor of Bank of Montreal;
c. Note, dated December 20, 1995, in the aggregate principal amount of $13,000,000, made by Summit Care
Corporation in favor of Union Bank.
10.44 Guaranty in favor of certain note purchasers listed therein, dated as of December 15, 1995, executed by Summit Care
Pharmacy, Inc., a California corporation and Summit Care-Texas No. 2, Inc., a Texas corporation and Summit Care-Texas
No. 3, Inc., a Texas corporation.**** (14)
****In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted an agreement substantially
identical to Exhibit 10.44. The omitted agreement and its material terms that differ from those in Exhibit 10.44 is
the Guaranty in favor of certain note purchasers listed therein, dated as of December 15, 1995, executed by Summit
Care-California, Inc., a California corporation.
10.45 Amended and Restated Guaranty in favor of certain note purchasers listed therein, dated as of December 15, 1995,
executed by Summit Care Pharmacy, Inc., a California corporation, Summit Care-Texas No. 2, Inc., a Texas corporation,
Summit Care-Texas No. 2, Inc., a Texas corporation.***** (14)
*****In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted an agreement
substantially identical to Exhibit 10.45. The omitted agreement and its material terms that differ from those in
Exhibit 10.45 is the Amended and Restated Guaranty in favor of certain note purchasers listed therein, dated as of
December 15, 1995, executed by Summit Care-California, Inc., a California corporation.
10.46 Second Amended and Restated Guaranty dated as of December 15, 1995 executed by Summit Care Pharmacy, Inc., a
California corporation, Summit Care-Texas No. 2, Inc., a Texas corporation and Summit Care-Texas No. 3, Inc.,
a Texas corporation in favor of the Bank of Montreal.****** (14)
******In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted an agreement
substantially identical to Exhibit 10.46. The omitted agreement and its material terms that differ from those in
</TABLE>
40
<PAGE> 41
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
Exhibit 10.46 is the Second Amended and Restated Guaranty dated as of December 15, 1995 executed by Summit
Care-California, Inc., a California corporation, in favor of the Bank of Montreal.
10.47 Collateral Account Agreement, dated as of December 15, 1995, by and between Summit Care Corporation, Summit
Care-California, Inc., a California corporation, Summit Care - Texas No. 2, Inc., a Texas corporation and Harris
Trust and Savings Bank. (14)
10.48 Intercreditor Agreement dated as of December 15, 1995 by and among the Bank of Montreal, Harris Trust and Savings
Bank, and acknowledged and agreed to by Summit Care Corporation, Summit Care-California, Inc., a California
corporation, Summit Care - Texas No. 2, Inc., a Texas corporation, Summit Care - Texas No. 3, Inc., a Texas corporation
and Summit Care Pharmacy, Inc., a California corporation. (14)
10.49 Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security Agreement, Financing
Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care - Texas No. 2, Inc., a Texas
corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with respect to
the Lubbock-Heritage facility.******* (14)
*******In reliance on Instruction 2 to Item 601 of Regulation S-K, the Registrant has omitted agreements substantially
identical to Exhibit 10.49. The omitted agreements and their material terms that differ from those in Exhibit 10.49
are as follows:
a. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care - Texas
No. 2, Inc., a Texas corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and
Savings Bank, with respect to the Kendall facility;
b. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care -
Texas No. 2, Inc., a Texas corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust
and Savings Bank, with respect to the Taylor facility;
c. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Tarrant-Westside facility;
d. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Fayette facility;
e. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Smith-Clairmont facility;
f. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Gregg facility;
g. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents,
Security Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit
Care Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Jefferson facility;
</TABLE>
41
<PAGE> 42
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
h. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Smith-Colonial facility;
i. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Comal facility;
j. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Lubbock-Hospitality facility;
k. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to Martha Harris, Esq., as trustee, for the benefit of the Harris Trust and Savings Bank, with
respect to the Travis facility;
l. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit
Care-California, Inc., a California corporation to Chicago Title Insurance Company, as trustee, for the
benefit of the Harris Trust and Savings Bank, with respect to the Orange-Carehouse facility;
m. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit
Care-California, Inc., a California corporation, to the Chicago Title Insurance Company, as trustee, for the
benefit of the Harris Trust and Savings Bank, with respect to the Riverside-Assisted Living facility;
n. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Fresno-Valley Convalescent facility;
o. Assignment of Leasehold Deed of Trust and Amended and Restated Leasehold Deed of Trust, Assignment of
Rents, Security Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by
Summit Care Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust
and Savings Bank, with respect to the Los Angeles-Carson facility;
p. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Los Angeles-Earlwood facility;
q. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Los Angeles-Spring facility;
r. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Orange-Fountain Care facility;
</TABLE>
42
<PAGE> 43
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
<TABLE>
<S> <C>
s. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Orange-Fountain Assisted Living facility;
t. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Riverside-Hemet Convalescent facility;
u. Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, executed by Summit Care
Corporation to the Chicago Title Insurance Company, as trustee, for the benefit of the Harris Trust and Savings
Bank, with respect to the Santa Barbara facility;
v. Deed of Trust, Assignment of Rents, Security Agreement, Financing Statement and Fixture Filing, dated as
of December 15, 1995, executed by Summit Care-California, Inc., a California corporation to the Chicago Title
Insurance Company, as trustee, for the benefit of the Harris Trust and Savings Bank, with respect to the
Fresno-Willow Creek facility;
w. Deed of Trust, Assignment of Rents, Security Agreement, Financing Statement and Fixture Filing, dated
as of December 15, 1995, executed by Summit Care Corporation to Martha Harris, Esq., as trustee, for the benefit
of the Harris Trust and Savings Bank, with respect to the Tarrant-City View facility;
10.50 Lease Termination Agreement regarding purchase of Oak Crest Nursing Center.
22 List of the Company's Significant Subsidiaries.
</TABLE>
(1) Filed as exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-40778) originally filed on May 23, 1991, and
incorporated herein by reference.
(2) Filed as exhibit to Amendment No. 1 to the Company's Registration
Statement on June 6, 1991, and incorporated herein by reference.
(3) Filed as exhibit to Amendment No. 2 to the Company's Registration
Statement on July 3, 1991, and incorporated herein by reference.
(4) Filed as exhibit to Amendment No. 3 to the Company's Registration
Statement on February 6, 1992, and incorporated herein by reference.
(5) Filed as exhibit to Amendment No. 4 to the Company's Registration
Statement on February 12, 1992, and incorporated herein by reference.
(6) Filed as exhibit to Amendment No. 5 to the Company's Registration
Statement on March 10, 1992, and incorporated herein by reference.
(7) Filed as exhibit to Amendment No. 6 to the Company's Registration
Statement on March 18, 1992, and incorporated herein by reference.
(8) Filed as an exhibit to Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1992, and incorporated herein by reference.
(9) Filed as exhibit to Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994, and incorporated herein by reference.
43
<PAGE> 44
SUMMIT CARE CORPORATION
OTHER INFORMATION (CONTINUED)
(10) Filed as an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by reference.
(11) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the quarter ended September 31, 1994 and incorporated herein by
reference.
(12) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the quarter ended December 31, 1994 and incorporated herein by
reference.
(13) Filed as an exhibit to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the quarter ended December 31, 1995 and incorporated herein by
reference.
(a) Exhibits identified by this footnote represent management contracts
or compensatory plans or arrangements required to be specifically
identified pursuant to Item 14 of Form 10-K.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT CARE CORPORATION
<TABLE>
<S> <C> <C>
By /s/ WILLIAM C. SCOTT Chairman of the Board, August 30, 1996
------------------------------ Chief Executive Officer and
William C. Scott President
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ DERWIN L. WILLIAMS Sr. Vice President - Finance, August 30, 1996
--------------------------------- Chief Financial Officer and
Derwin L. Williams Treasurer
(Principal Financial Officer)
/s/ MELODYE STOK Vice President - Controller August 30, 1996
-------------------------------- and Secretary
Melodye Stok (Principal Accounting Officer)
/s/ DONALD AMARAL Director August 30, 1996
----------------------------
Donald Amaral
/s/ JOHN A. BRENDE Director August 30, 1996
------------------------------
John A. Brende
/s/ WILLIAM J. CASEY Director August 30, 1996
-------------------------------
William J. Casey
/s/ GARY MASSIMINO Director August 30, 1996
----------------------------
Gary Massimino
/s/ KEITH B. PITTS Director August 30, 1996
----------------------------
Keith B. Pitts
</TABLE>
45
<PAGE> 46
SUMMIT CARE CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
YEAR ENDED JUNE 30, 1996
Allowance for doubtful $ 989 $2,157 $ 38 $(1,100) $2,084
accounts
YEAR ENDED JUNE 30, 1995
Allowance for doubtful $ 653 $1,146 $ 22 $ (832) $ 989
accounts
YEAR ENDED JUNE 30, 1994
Allowance for doubtful $ 636 $ 828 $ 16 $ (827) $ 653
accounts
NOTES RECEIVABLE:
YEAR ENDED JUNE 30, 1996
Allowance for notes $ 184 $ 84 $ -- $ -- $ 268
receivable
YEAR ENDED JUNE 30, 1995
Allowance for notes $ -- $ 184 $ -- $ -- $ 184
receivable
YEAR ENDED JUNE 30, 1994
Allowance for notes $ -- $ -- $ -- $ -- $ --
receivable
</TABLE>
(1) Recoveries of amounts written off.
(2) Write-offs of uncollectible accounts.
46
<PAGE> 47
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation. Incorporated
by Reference
3.2 Amended and Restated Bylaws. Incorporated
by Reference
4.1 Form of Common Stock Certificate. Incorporated
by Reference
10.1 Summit Care Corporation Stock Option Plan as amended by Amendment Incorporated
to Summit Care Corporation Stock Option Plan. by Reference
10.2 Form of Summit Care Corporation Stock Option Agreement. Incorporated
by Reference
10.3 Tax Sharing Agreement among Sierra Land Group, Inc., SHL and the Company, Incorporated
dated May 17, 1991, as amended by Amendment to Tax Sharing Agreement, by Reference
dated as of February 5, 1992.
10.4 Agreement Regarding Shared Services and Other Matters between SHL and the Incorporated
Company, dated as of February 5, 1992. by Reference
10.5 Form of Directors and Officers Indemnity Agreement.
10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent Center): Incorporated
Convalescent Hospital Lease, dated November 20, 1969, between Palmcrest by Reference
Associates, Ltd., and Century Convalescent Centers, as amended by Lease of
Convalescent Hospital Facility (as amended), dated September 1, 1979, by
which SHL and its appointed nominee Royalwood Convalescent Hospital, Inc.
(now Summit Care - California, Inc.) are substituted as lessees.
10.8 Anaheim Care Center: Lease, dated June 1, 1995,, between Sam Menlo, Trustee 53 - 92
of the Menlo Trust U/T/I 5/22/83 and Summit Care - California, Inc., doing business
as Anaheim Care Center.
10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and Marie Incorporated
Gabrielle Nabel, as tenants in common, and Summit Care - California, Inc. by Reference
</TABLE>
47
<PAGE> 48
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between Jack H. Incorporated
Cramer and Walter Lee Brown (together, as lessors) and Albert J. Allasandra, by Reference
as amended by Amendment to Lease and Right of First Refusal to Purchase, dated
May 23, 1969, by which Aljar Corporation is substituted as lessee, and as further
amended by Amendment to Agreement of Lease and Right of First Refusal, dated
November 18, 1974, and as further amended by Second Amendment to Agreement of
Lease and Right of First Refusal and Assignment of Lease, dated July 10, 1979,
by which National Accommodations, Inc. (now SHL) is substituted as lessee,
assigned to the Company by Assignment of Lease, dated March 9, 1992, between SHL
and the Company.
10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between South Bay 93 - 97
Sanitarium and Convalescent Hospital and Garnet Convalescent Hospital, Inc.
(now Summit Care - California, Inc.), and Amendment to Lease dated March 1, 1994.
10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18, 1985, Incorporated
between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset Motel and by Reference
Development Co. (collectively, as lessors), and Summit Care -California,
Inc.
10.13 Valley Palms Convalescent Hospital: Lease, dated March 16, 1982, between Incorporated
Uni-Cal Associates and Valley Palms Convalescent, Inc. (now Summit Care - by Reference
California, Inc.).
10.14 Marina Care Center: Standard Industrial Lease - Net, dated March 1, 1989, Incorporated
between Summit Properties and Summit Care - California, Inc., as modified by Reference
by Addendum to Standard Industrial Lease - Net.
10.15 Phoenix Resident Hotel: Lease, dated July 29, 1977, between Sierra Land & Incorporated
Livestock, Inc. and Southwest Hotels, Inc., as modified by Addendum to Lease by Reference
dated August 11, 1983, assigned to the Company by Assignment of Lease, dated
July 1, 1982, between Southwest Hotels, Inc. and the Company.
10.16 Sublease of Phoenix Retirement Hotel: Sublease, dated July 1, 1987, between Incorporated
the Company and Phoenix McDowell Properties, Inc., as assigned by by Reference
Assignment of Sublease, dated March 9, 1992, between the Company and
Summit Health Ltd.
</TABLE>
48
<PAGE> 49
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
10.17 Sublease of Marina Care Center: Nursing Home Sublease Agreement, dated Incorporated
March 7, 1989, between Summit Care - California, Inc. and 5240 Sepulveda, by Reference
Inc., as assigned by Assignment of Sublease, dated March 9, 1992,
between Summit Care - California, Inc. and Summit Health Ltd.
10.18 Sublease of Valley Palms Care Center: Nursing Home Sublease Agreement, Incorporated
dated May 11, 1989, between Summit Care - California, Inc. and Trinity by Reference
Health Systems, as assigned by Assignment of Sublease, dated March 9,
1992, between Summit Care - California, Inc. and Summit Health Ltd.
10.19 Sublease of Brier Oak Terrace Care Center: Nursing Home Sublease Agreement, Incorporated
dated April 1, 1989, between Summit Care - California, Inc. and Brier Oak by Reference
Hospital, Inc., as assigned by Assignment of Sublease, dated March 9, 1992,
between Summit Care - California, Inc. and Summit Health Ltd.
10.20 Sublease of Pharmacy: Standard Sublease, dated August 1, 1989, between St. Incorporated
Luke Medical Center and Mediscript, Inc., as modified by Addendum of the by Reference
same date.
10.21 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes, Incorporated
Ltd., and SHL, assigned to the Company by Assignment of Lease dated March by Reference
9, 1992, between SHL and the Company.
10.22 Summit Care Corporation Note Purchase Agreement dated as of December Incorporated
1.95%9Senior Secured Notes Due 2002. by Reference
10.23 Loan Agreement and Term Note made and entered into by and between Summit Care Incorporated
Corporation, and Union Bank dated as of March 28, 1994. by Reference
10.24 Seller Note for purchase of The Woodlands.
Incorporated
by Reference
10.25 HUD Note for purchase of The Woodlands.
Incorporated
by Reference
10.26 Sublease with Summit Health Ltd., for Phoenix Living Center dated Incorporated
January 1994. by Reference
10.27 Real Estate Lien Note - $3,000,000 dated September 30, 1994 and Security Incorporated
Agreement dated September 30, 1994. by Reference
</TABLE>
49
<PAGE> 50
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
10.28 Warranty Deed - Oak Manor, Flatonia dated September 30, 1994. Incorporated
by Reference
10.29 Live Oak Nursing Center, George West, Texas Lease Agreement dated July 19, 1991; Incorporated
Assignment of Lease With Option to Purchase dated September 30, 1994 and Consent by Reference
To Assignment Of Leasehold Estate of Live Oak Nursing Center, George West, Texas
dated August 15, 1994.
10.30 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated February 28, 1989; Incorporated
Assignment Of Lease With Option To Purchase dated September 30, 1994 and Consent by Reference
To Assignment Of Leasehold Estate Of Guadalupe Valley Nursing Center, Sequin, Texas dated
August 15, 1994.
10.31 Southern Manor Nursing Center, Hallettsville, Texas Nursing Home Lease Agreement dated Incorporated
June 29, 1992; Assignment Of Lease With Option To Purchase dated September 30, 1994; by Reference
Consent To Assignment Of Lease dated June 29, 1992 and Agreement Re Option dated
September 30, 1994.
10.32 Monument Hill Nursing Center, LaGrange, Texas Lease Agreement dated October 20, 1986; Incorporated
Option Agreement dated October 20, 1986; Assignment of Option dated September 1, 1988; by Reference
Assignment Of Lease With Option To Purchase dated September 30, 1994 and Consent To
Assignment Of Leasehold Estate Of Monument Hill Nursing Center, LaGrange, Texas dated
September 1, 1988.
10.33 Oak Crest Nursing Center, Rockport, Texas Nursing Home Lease Agreement dated October 18, Incorporated
1990 and Consent To Assignment And Assumption Agreement dated October 5, 1994. by Reference
10.34 Oakland Manor Nursing Center, Giddings, Texas Nursing Home Lease Agreement dated Incorporated
June 29, 1992; Assignment Of Lease With Option To Purchase dated September 30, 1994; by Reference
Consent To Assignment Of Lease dated June 29, 1992 and Agreement Re Option dated
September 30, 1994.
10.35 David Lake Agreement Of Purchase And Sale Of Assets dated October 16, 1994. Incorporated
by Reference
10.36 Woodland Convalescent Center Lease Agreement dated January 16, 1995. Incorporated
by Reference
10.37 Agreement of Purchase and Sale of Assets and Closing Escrow Agreement of Comanche Trails Incorporated
Nursing Center by Summit Care Corporation from Select Care Enterprises dated December 1,1994. by Reference
</TABLE>
50
<PAGE> 51
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
10.38 $70,000,000 Note Purchase Agreement dated as of December 15, 1995 among Summit Care Corp- Incorporated
oration and the several purchasers listed on the acceptance form at the end thereof. by Reference
10.39 $25,000,000 Amended and Restated Note Purchase Agreement dated as of December 15, 1995 Incorporated
among Summit Care Corporation and the several purchasers listed on the acceptance form at by Reference
end thereof.
10.40 Third Amended and Restated Credit Agreement dated as of December 15, 1995 among Summit Incorporated
Care Corporation, the Lenders named therein, and Bank of Montreal, as the Agent, amending and by Reference
modifying that certain Second Amended and Restated Credit Agreement, dated as of February
6, 1995, among Summit Care Corporation, the lenders named therein, and The First National Bank
of Chicago, as the agent for the lenders named therein.
10.41 7.80% Note, dated December 20, 1995, in the aggregate principal amount of $18,071,429, made Incorporated
by Summit Care Corporation in favor of John Hancock Mutual Life Insurance Company. by Reference
10.42 Amended and Restated 8.96% Senior Secured Note due 2002, dated December 31, 1992, in the Incorporated
aggregate principal amount of $5,000,000, made by Summit Care Corporation in favor of by Reference
Northwestern National Life Insurance Company.
10.43 Note, dated December 20, 1995, in the aggregate principal amount of $7,000,000, made by Summit Incorporated
Care Corporation in favor of Banque Paribas. by Reference
10.44 Guaranty in favor of certain note purchasers listed therein, dated as of December 15, 1995, executed Incorporated
by Summit Care Pharmacy, Inc., a California corporation and Summit Care-Texas No. 2, Inc., a by Reference
Texas corporation and Summit Care-Texas No. 3, Inc., a Texas corporation.
10.45 Amended and Restated Guaranty in favor of certain note purchasers listed therein, dated as of Incorporated
December 15, 1995, executed by Summit Care Pharmacy, Inc., a California corporation, Summit by Reference
Care-Texas No. 2, Inc., a Texas corporation, and Summit Care-Texas No. 3, Inc., a Texas
corporation.
10.46 Second Amended and Restated Guaranty dated as of December 15, 1995 executed by Summit Care Incorporated
Pharmacy, Inc., a California corporation, Summit Care-Texas No. 2, Inc., a Texas corporation and by Reference
Summit Care-Texas No. 3, Inc., a Texas corporation in favor of the Bank of Montreal.
10.47 Collateral Account Agreement, dated as of December 15, 1995, by and between Summit Care Incorporated
Corporation, Summit Care-California, Inc., a California corporation, Summit Care - Texas No. 2, by Reference
Inc., a Texas corporation and Harris Trust and Savings Bank.
</TABLE>
51
<PAGE> 52
SUMMIT CARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
BEGIN ON
EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
- ------ -------------
<S> <C>
10.48 Intercreditor Agreement dated as of December 15, 1995 by and among the Bank of Montreal, Harris Incorporated
Trust and Savings Bank, and acknowledged and agreed to by Summit Care Corporation, Summit by Reference
Care-California, Inc., a California corporation, Summit Care - Texas No. 2, Inc., a Texas
corporation, Summit Care - Texas No. 3, Inc., a Texas corporation and Summit Care Pharmacy,
Inc., a California corporation.
10.49 Assignment of Deed of Trust and Amended and Restated Deed of Trust, Assignment of Rents, Incorporated
Security Agreement, Financing Statement and Fixture Filing, dated as of December 15, 1995, by Reference
executed by Summit Care - Texas No. 2, Inc., a Texas corporation to Martha Harris, Esq.,
as trustee, for the benefit of the Harris Trust and Savings Bank, with respect to the
Lubbock-Heritage facility.
10.50 Lease Termination Agreement regarding purchase of Oak Crest Nursing Center. 98 - 100
22 List of the Company's Significant Subsidiaries. Incorporated
by Reference
</TABLE>
52
<PAGE> 1
Exhibit 10.8
LEASE
1. PARTIES.
This Lease ("Lease"), dated for reference purposes only, as of June 1,
1995 ("Commencement Date"), is made by and between SAM MENLO, TRUSTEE OF THE
MENLO TRUST U/T/I 5/22/83 ("LANDLORD") and SUMMIT CARE-CALIFORNIA, INC., doing
business as ANAHEIM CARE CENTER and the successor in interest to KNOTT
CONVALESCENT, INC., a California corporation ("TENANT").
2. DESCRIPTION OF LEASED PROPERTY.
LANDLORD hereby leases to TENANT and TENANT leases from LANDLORD, for
the terms, at the rental, and upon all of the conditions set forth herein, the
following real and personal property:
2.1. FACILITY. Those certain premises with improvements thereon,
situated in the City of Anaheim, County of Orange, State of California,
commonly known as 141 S. Knott, Anaheim, California, on which there was erected
and there currently is operating a long term care facility, which is known as
Anaheim Terrace Care Center, and which real property is more particularly
described in Exhibit "A" attached hereto and incorporated herein by reference
(hereinafter referred to as the "Facility" or the "Premises").
2.2 FACILITY EQUIPMENT. All of the LANDLORD'S furniture,
furnishings, fixtures and equipment currently on the Premises necessary for the
licensing of a ninety-nine (99) bed Facility (hereinafter referred to as
"Equipment").
2.3 LEASED PROPERTY. The Facility and Equipment are hereinafter
collectively referred to as the "Leased Property".
3. TENANT'S ACCEPTANCE OF LEASED PROPERTY.
3.1 ACCEPTANCE "AS-IS". TENANT accepts the Leased Property and
each and every part thereof in its respective state and condition as of the
Commencement Date and without any representation or warranty by LANDLORD as to
the condition of such property or as to the use that may be made thereof,
except as may otherwise be set forth herein and in the lease for the Leased
Property entered into between TENANT and LANDLORD that expired on May 31, 1995
(the "Original Lease"). TENANT acknowledges that it currently occupies the
Premises pursuant to the Original Lease and TENANT accepts the condition of the
Premises based solely on its own inspection, investigation and use of the
Premises. TENANT acknowledges that the Facility is licensed as a 99 bed
skilled nursing facility.
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3.2 TENANT RESPONSIBILITY FOR REPAIRS AND IMPROVEMENTS. If any
repairs or improvements are required for any part of the Leased Property by
appropriate governmental authorities at any time during the Lease term, such
repairs or improvements shall be made by TENANT at TENANT'S sole cost and
expense without any reimbursement or contribution by LANDLORD.
3.3 LANDLORD NON-RESPONSIBILITY. Except as provided in Paragraph
10.3 hereof or as may be caused by the acts or omission of LANDLORD or its
agents, LANDLORD shall not be responsible for any latent defect in the
Facility, nor shall LANDLORD be responsible for any change or condition in the
Leased Property, and the Rent, Additional Rent (both of which are hereinafter
defined) and/or any sum payable by TENANT hereunder shall in no case be
withheld, diminished or abated on account of any reason whatsoever, including
but not limited to, any defect in or use being made of the Leased Property, any
change in the condition or use thereof, any damage occurring thereto, or the
existence of any violation of the laws or regulations of any governmental
authority with respect to the Leased Property.
4. TERM.
The term of this Lease shall be for ten (10) years commencing on June
1, 1995 and ending on May 31, 2005 (the "Term") unless sooner terminated
pursuant to any provision hereof. There are no options to extend the Term of
this Lease.
5. RENT.
5.1 MINIMUM MONTHLY RENT. Except as expressly provided herein,
TENANT shall pay to LANDLORD in lawful money of the United States, monthly rent
in advance on the first day of each month, during the term hereof, beginning on
the Commencement Date, without prior notice, demand, abatement, deduction or
set-off of any kind or nature whatsoever, the amount of TWENTY-FIVE THOUSAND
TWO HUNDRED FORTY-FIVE DOLLARS ($25,245.00) per month, which amount is subject
to adjustment as provided in Paragraph 5.2 hereof (the "Minimum Rent").
Minimum Rent for the first month or portion thereof shall be paid on the day
the term commences. Minimum Rent for any partial month shall be prorated on a
monthly basis at the then current Minimum Rent per day.
5.2 INCREASE IN MINIMUM RENT. The Minimum Rent provided for in
Paragraph 5.1 hereof shall be increased effective June 1, 1996 and annually
thereafter on the first day of June of each succeeding year during the Term
hereof by an amount equal to three (3%) of the then current Minimum Rent.
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5.3 ADDITIONAL RENT. In addition to the Minimum Rent set forth
above, TENANT shall pay, as additional rent, all sums of money required
pursuant to the terms of Paragraph 7 (Taxes), Paragraph 12 (Utilities),
Paragraph 14 (Insurance) and all other sums of money or charges required to be
paid by TENANT under this Lease (collectively referred to in this Lease as
"Additional Rent") without abatement, deduction or off-set of any kind or
nature whatsoever. All amounts of Minimum Rent and Additional Rent payable
(also collectively referred to in this Lease as "Rent") shall be deemed to
comprise a single rental obligation of TENANT to LANDLORD.
5.4 PREPAID RENT. Upon execution of this Lease, TENANT shall pay
to LANDLORD TWENTY-FIVE THOUSAND TWO HUNDRED FORTY-FIVE DOLLARS ($25,245.00)
for the Minimum Rent due for the first full month of the Term.
5.5 NO MONTHLY STATEMENTS. TENANT hereby acknowledges that
LANDLORD will not be required to send monthly statements and/or invoices as a
condition to TENANT paying any Rent due under this Lease.
6. NON-REFUNDABLE FEES.
Upon execution of this Lease, TENANT shall pay to LANDLORD a
non-refundable fee (the "Fee") in the amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) as a lump sum payment for leasing the Facility.
TENANT acknowledges that (i) the Fee is non-refundable; (ii) no
portion of the Fee shall be credited against any Rent due under this Lease at
any time; (iii) such Fee is a material inducement to LANDLORD to enter into
this Lease with TENANT; and (iv) TENANT expressly acknowledges that LANDLORD
shall not be required to repay to TENANT the Fee or any portion thereof upon
expiration or termination of this Lease for any reason whatsoever.
Initial [SIG]
------ --------
TENANT LANDLORD
7. TAXES.
7.1 REAL PROPERTY TAXES. In addition to the payment of Rent
specified in Paragraph 5 hereof TENANT shall pay in the following manner all
real property taxes and general and special assessments (collectively, "Taxes"
as defined in Paragraph 7.3 hereof), levied or assessed against the Premises
during the Term of this Lease:
(a) LANDLORD shall deliver to TENANT at least thirty (30)
days prior to the date that payment is due on the Taxes, all statements or
invoices for such Taxes. TENANT shall pay in full the amount of the Taxes
prior to their due date and provide to
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LANDLORD adequate written evidence of the amount of such payment and the date
paid.
(b) If any special assessments that may be bonded are
levied against the Premises during the Term of this Lease, they shall be
allowed to be bonded and only the installments of principal and interest
becoming due each year on the bonds evidencing the special assessments shall be
included as Taxes in the amounts payable by TENANT under this Paragraph 7.
(c) The Taxes levied against the Premises during the last
year of this Lease or any renewal or extension thereof shall be prorated
between the LANDLORD and TENANT for purposes of this Paragraph 7 as of 12:01
A.M. on the date of termination of this Lease or any renewal or extension
thereof.
7.2 IMPOUND ACCOUNT. If LANDLORD'S lender requires LANDLORD to
impound Taxes on a periodic basis at any time during the Term of this Lease,
upon receipt of notice from LANDLORD indicating this requirement, TENANT shall
pay such portion of the Taxes due hereunder, as lender may require to
LANDLORD'S lender on a periodic basis in accordance with the lender's
requirements.
7.3 DEFINITION OF "TAXES". As used herein, the term "Taxes" shall
include any form of assessment, license fee, commercial rent tax, levy,
penalty, or tax, imposed by any authority having the direct or indirect power
to tax, including any city, county, state or federal government, or any school,
agriculture, lighting, drainage or other improvement district thereof, as
against the Premises or the real property of which the Premises are a part, or
any tax imposed in substitution, partially or totally, or any tax previously
included within the definition of real property tax, or any additional tax the
nature or which was previously included within the definition of real property
tax; provided, however, that notwithstanding the foregoing, nothing contained
in this Lease shall require or obligate TENANT to pay any franchise, estate,
inheritance, succession, capital levy, corporation, gift, transfer, income,
profit, revenue or similar tax, or any tax, assessment, charge, or levy upon
rent payable to LANDLORD under this Lease, or any other tax which is in fact
personal to LANDLORD (unless imposed in place of actual currently existing real
property ad valorem tax).
7.4 PERSONAL PROPERTY TAXES. TENANT shall pay before delinquency
all taxes, assessments, license fees, and other charges that are levied and
assessed against trade fixtures, furnishings, the Equipment and all of TENANT'S
personal property installed or located in or on the Premises, and that become
payable during the Term." On demand by LANDLORD, TENANT shall furnish LANDLORD
with satisfactory evidence of these payments.
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7.5 RIGHT TO CONTEST TAXES. TENANT shall have the right, at
TENANT'S sole cost and expense, to protest or contest, in the name of LANDLORD
or otherwise, any tax or assessment, or any increase in any tax or assessment,
levied on the Premises. Notwithstanding the foregoing, the right provided to
TENANT pursuant to this Paragraph 7. 5 shall not be deemed or construed in any
way as relieving, modifying or extending TENANT'S covenants to pay such Taxes
at the time and in the manner provided in this Lease. TENANT shall pay all
Taxes before they become delinquent pending final determination of any protest
or contest.
8. FACILITY'S NAME.
The name of the Facility is Anaheim Care Center. TENANT shall have
the right to change the name of the Facility as it may deem advisable in its
sole discretion. LANDLORD shall have the right to use the name of the Facility
upon termination of this Lease; provided, however, that LANDLORD agrees not to
use the "Summit Care California, Inc." name or logo, or a name or logo similar
the thereto or a derivative thereof after the termination of this Lease.
9. USE.
9.1 LIMITATION ON USE. LANDLORD is leasing the Facility to TENANT
for the purpose of operating a long term care facility on the Premises and for
all other purposes subsumed within that licensing classification. TENANT shall
not use or permit the Leased Property or any part thereof, to be used for any
purpose or purposes other than the purpose(s) for which the Leased Property is
leased hereunder. TENANT shall not change or convert the use of the Facility
to any other use without the prior written consent of LANDLORD, which consent
may be withheld or refused in the discretion of LANDLORD for any reason
whatsoever.
9.2 NO LICENSING CHANGE. Except for changes that may be effected
without prejudice to the Facility's current permitted use, TENANT shall not
undertake any act nor suffer or permit (if within TENANT'S control) any
licensing change that would materially and adversely alter, change or reduce
any use of the Leased Property permitted hereunder, nor shall TENANT undertake
any act nor suffer or permit (if within TENANT'S control) any change in the
configuration of the Leased Property that would materially and adversely alter,
change or reduce the potential occupancy of the Leased Property, without the
LANDLORD'S prior written consent, which consent shall not be unreasonably
withheld.
9.3 LICENSE REQUIRED. TENANT acknowledges that a license from
appropriate governmental authorities is required to operate the Premises as a
Facility and that TENANT must retain its own license to operate the Facility on
the Premises. The failure of TENANT to maintain any required permit, license
or other authorization or approval shall not affect or eliminate TENANT'S
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obligations under this Lease, including but not limited to, payment of all Rent
due hereunder.
9.4 NO REMOVAL OF EQUIPMENT. TENANT shall keep in good order,
condition and repair all of the Equipment leased hereunder, as specified in
Paragraph 2.2 hereof, and shall, at TENANT'S sole cost and expense, replace
such Equipment with equivalent quality equipment at the time that replacements
become reasonably necessary in order to maintain a properly operating first
class Facility. In addition, during the Term of this Lease, TENANT shall, at
its sole cost and expense, provide, repair and maintain, all other equipment,
furnishings, and inventory necessary to properly operate and maintain the
Facility. Replacements for the Equipment specified in Paragraph 2.2 hereof and
used in connection with the Premises shall become the sole property of LANDLORD
at the termination of the Lease. TENANT shall not be entitled to remove any
trade fixtures, furnishings or equipment specified in Paragraph 2.2 or items
that are specifically bought by TENANT to replace these items. TENANT shall be
entitled to remove furnishings or equipment purchased for its own use, that are
not a substitute for items specified in Paragraph 2.2, provided they have not
become permanently affixed to the Premises, and provided further that any
damage to the Premises resulting from such removal is repaired by TENANT.
Nothing herein shall restrict TENANT'S ability to provide for removal of the
Equipment from the Premises for purposes of repairing or replacing it.
9.5 LIMITATIONS ON AGREEMENTS. Except as provided in Paragraph 17
hereof, no TENANT, sublessee, assignee or any other person or entity operating,
occupying or managing the Facility shall:
(a) enter into any lifetime care agreement or any lease
or other term arrangement for a term greater than six (6) months;
(b) accept any prepaid rent, fees, deposits or other
compensation in excess of an aggregate of Ten Thousand ($10,000.00) DOLLARS for
all occupants or residents of the Facility; or
(c) enter into any agreement or accept any funds except
in accordance with all applicable laws, ordinances, statutes, regulations or
other authority applicable to operation of the Facility.
9.6 NOTICES TO LANDLORD. TENANT and any sublessee, licensee,
assignee and any other person or entity operating, occupying or managing the
Facility shall inform LANDLORD promptly in writing of:
(a) any damage or destruction to any part of the Leased
Property in excess of TEN THOUSAND DOLLARS ($10,000.00); and
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(b) any notice or claim or violation of any law,
statute, building code, ordinance, rule or regulation or other matter having a
material adverse effect on the Leased Property or the licensing thereof as a
Facility.
9.7 COMPLIANCE WITH LAW.
(a) TENANT shall not use the Premises or permit anything
to be done in, on or about the Premises that will in any material way conflict
with any applicable law, statute, zoning restriction, ordinance or governmental
rule, regulation or requirement of duly constituted public authorities now in
force or which may hereafter be in force or conflict with the requirements of
any board of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use, or occupancy of the
Premises. The judgment of any court of competent jurisdiction or the admission
of TENANT in any action against TENANT, whether LANDLORD be a party thereto or
not, that TENANT has violated any such law, statute, ordinance, or governmental
rule, regulation or requirement, shall be conclusive of the fact as between
LANDLORD and TENANT. TENANT shall not allow the Premises to be used for any
unlawful or objectionable purpose, nor shall TENANT commit any waste or cause,
maintain, or permit any nuisance or conduct any auction in, on or about the
Premises.
(b) TENANT acknowledges that a long term care facility,
commonly called a "Convalescent Hospital," is a unique facility and that a
substantial violation of governmental requirements with respect to such unique
facility can cause severe damage to the Facility, including but not limited to
the loss of the license required to operate it. TENANT acknowledges and
agrees, therefore, that the loss by TENANT of its license to operate the
Facility as a consequence of any intentional or negligent act or omission of
Tenant shall constitute a breach of and default under this Lease; provided,
however, TENANT shall not be deemed in default hereunder so long as TENANT'S
loss of license is not "final" and for so long as TENANT diligently prosecutes
appropriate administrative or judicial proceedings to reinstate its license.
TENANT shall be liable to LANDLORD for any and all damages, whether direct or
consequential that may be suffered, incurred or sustained by LANDLORD on
account of such breach or default including, but not limited to, reasonable
attorney's fees, and costs, and injury and damage to the name and reputation of
LANDLORD.
9.8 INSURANCE HAZARDS. No use shall be made or permitted to be
made of the Leased Property or any part thereof, nor acts done, that will cause
the cancellation of any insurance policy covering the Leased Property, or any
part thereof, nor shall TENANT sell, or permit to be kept, used or sold, in or
about the Premises any article that may be prohibited by applicable forms of
fire insurance policies. TENANT shall, at its sole cost and expense,
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comply with any and all requirements pertaining to the Leased Property, or any
insurance organization or company necessary for the maintenance of reasonable
fire and extended coverage, public liability or other insurance required to be
provided hereunder covering the Leased Property or the operations thereof.
10. MAINTENANCE, REPAIRS AND ALTERATIONS
10.1 TENANT'S OBLIGATIONS.
(a) Subject to Paragraphs 10.3 (LANDLORD'S Obligations),
15 (Damage or Destruction) and 16 (Condemnation) hereof, TENANT shall, at its
sole cost and expense, and at all times, keep the Premises and every part
thereof in good order, condition and repair (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably
or readily accessible to TENANT, and whether or not the need for such repairs
occurs as a result of TENANT'S use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, skylights, foundations, structural
condition of interior bearing walls, exterior roof, fire, sprinkler and/or
standpipe and hose or other automatic fire extinguishing system including fire
alarm and/or smoke detection systems and equipment, fire hydrants, parking
lots, walkways, parkways, driveways, landscaping, fences, signs and utility
systems serving the Premises. TENANT, in keeping the Premises in good order,
condition and repair, shall exercise and perform commercially prudent
maintenance practices. TENANT'S obligation shall include restorations,
replacements or renewals necessary to keep the Premises and all improvements
thereon or a part thereof in good order, condition, and state of repair.
(b) TENANT hereby' expressly waives all rights to make
repairs at the expense of LANDLORD as provided in Section 1942 of the
California Civil Code, and all rights provided for by California Civil Code
Section 1941.
(c) If TENANT fails to perform TENANT'S obligations under
this Paragraph 10, LANDLORD may at its option (but shall not be required to)
enter upon the Premises, after three (3) days, prior written notice to TENANT
(except in the case of emergency, in which case no notice shall be required),
and make such repairs and replacements or perform such maintenance on behalf of
and for the account of TENANT. In such event, the cost thereof together with
interest thereon at the rate of ten percent (10%) per annum shall become due
and payable as Additional Rent to LANDLORD, together with TENANT'S next payment
of Minimum Rent.
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(d) TENANT shall use reasonable care and diligence to
keep and maintain the Premises and the Leased Property free from waste or
nuisance and shall deliver the Premises and the Leased Property to LANDLORD in
good order, condition and state of repair at the expiration of the term,
reasonable wear, tear and casualty excepted.
(e) LANDLORD shall not be liable for any damage done or
occasioned by or from the electrical system, heating or air conditioning
system, and plumbing and sewer systems in, upon or about the Premises, nor for
damages occasioned by water being upon or coming through the roof, walls
windows, doors or otherwise, nor for any damage arising from acts of any owners
or occupants of adjoining or contiguous properties; and furthermore, LANDLORD
shall not be liable for any damage occasioned by reason of the construction of
the Premises or for failure to keep the Premises in repair. LANDLORD shall not
be liable for any damage to the Premises, fixtures, or merchandise resulting
from fire or other insurable hazards, regardless of the cause thereof, and
TENANT hereby releases LANDLORD from all liability for such damage.
10.2 ALTERATIONS AND ADDITIONS.
(a) TENANT shall not, without LANDLORD'S prior written
consent which consent shall not be unreasonably withheld, make any alterations,
improvements, additions, or Utility Installations (as hereinafter defined) in,
on or about the Premises, except as required by applicable laws, rules or
regulations nor make nonstructural alterations that exceed Fifty Thousand
Dollars ($50,000.00) in cost. As used in this Paragraph 10.2 the term "Utility
Installation" shall mean all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises except such as may be considered movable and trade
fixtures of TENANT. If LANDLORD'S written consent is required pursuant to the
first sentence of this Paragraph 10.2(a), LANDLORD may require TENANT to
provide LANDLORD, at TENANT'S sole cost and expense, a lien and completion bond
in an amount equal to one hundred fifty percent (150%) of the estimated cost of
such improvements, to insure LANDLORD against any liability for mechanics' and
materialmens' liens and to insure completion of the work. If TENANT shall make
any alterations, improvements, additions or Utility Installations without the
prior written consent of LANDLORD, and if such approval is required hereunder,
LANDLORD may require that TENANT remove any or all of such alterations,
improvements, additions or Utility Installations at TENANT'S sole cost and
expense. Failure to remove any alterations, improvements, additions or Utility
Installations that have been begun or completed without the prior written
consent of LANDLORD shall be a material breach of this Lease.
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(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that TENANT shall desire to make and
that require the consent of LANDLORD shall be presented to LANDLORD in written
form, with proposed detailed plans. if LANDLORD shall give its consent, the
consent shall be deemed conditioned upon TENANTS acquiring a permit to do so,
if required, from appropriate governmental agencies, the furnishing of a copy
thereof to LANDLORD prior to the commencement of the work and the compliance by
TENANT of all conditions of said permit in a prompt and expeditious manner. If
LANDLORD fails to respond to TENANT'S written request for consent under this
Paragraph 10 within ten (10) business, days of such request, LANDLORD shall be
deemed to have given its consent.
(c) TENANT shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for TENANT at or
for use in the Premises, which claims are or may be secured by any mechanics,
or materialmens' lien against the Premises or any interest therein. TENANT
shall give LANDLORD not less than ten (10) days' notice prior to the
commencement of any work in the Premises, and LANDLORD shall have the right to
post notices of non-responsibility in, on and about the Premises as provided by
law. If TENANT shall, in good faith, contest the validity of any such lien,
claim or demand, then TENANT shall, at its sole cost and expense defend itself
and LANDLORD against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against
the LANDLORD or the Premises, upon the condition that if LANDLORD shall
require, TENANT shall furnish to LANDLORD a surety bond satisfactory to
LANDLORD in an amount equal to one hundred fifty percent (150%) of such
contested lien claim or demand indemnifying the LANDLORD against such liability
and holding the Premises free from the effect of such lien or claim. In
addition, LANDLORD may require TENANT to pay LANDLORD'S reasonable attorney's
fees and costs in participating in such action if LANDLORD shall decide it is
in its best interest to do so.
(d) Unless LANDLORD requires their removal, as set forth
in Paragraph 10.2(a) hereof, all alterations, improvements, additions and
Utility Installations (unless such Utility Installations constitute movable or
trade fixtures of TENANT), that may be made on the Premises, shall become the
property of LANDLORD and remain upon and be surrendered with the Premises at
the expiration of the Term of this Lease. Notwithstanding the provisions of
this Paragraph 10.2(d), TENANT'S personal property, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises, shall remain the property of TENANT and may be removed by TENANT.
Any such removal that results in damage to the Premises shall be repaired
immediately by TENANT.
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10.3 LANDLORD'S OBLIGATIONS. LANDLORD shall maintain, in good
condition, the structural parts of the building of which the Premises are a
part, which structural parts shall be deemed to include only the foundations
and exterior walls but which shall not include any painting nor the roof.
Notwithstanding the foregoing, to the extent any expenditures reasonably
required of LANDLORD in connection with the Premises maintenance are deemed to
be capital expenditures, according to generally accepted accounting principles
consistently applied, TENANT shall reimburse LANDLORD for such expenses as
items of Additional Rent, based on the cost of the capital item multiplied by
the balance of the term of the Lease, divided by the useful life of the
improvement.
11. SURRENDER ON TERMINATION.
11.1 REMOVAL OF PERSONAL PROPERTY. Subject to Paragraph 9.4
hereof, TENANT shall vacate and surrender the Leased Property and any additions
to or replacements thereof in good order and repair, ordinary wear and tear
excepted, in compliance of any licensing survey of the Leased Property
conducted prior to the end of the Lease Term, and the TENANT shall remove all
of its personal property and/or equipment therefrom so that LANDLORD is able to
take possession of the Leased Property not later than noon on the day upon
which this Lease or any extension thereof expires, or any sooner termination of
this Lease.
11.2 REMEDIES OF LANDLORD. LANDLORD shall have the same rights to
enforce the provisions of Paragraph 11 by summary proceedings, ejectment and/or
for damages or otherwise as for the breach of any other condition or covenant
of this Lease.
11.3 REMOVAL OF TENANT PROPERTY. Subject to the provisions of
Paragraphs 9.4 and 11.2 hereof, TENANT may at any time prior to or upon the
termination of this Lease remove from the Premises, TENANT'S own personal
property and/or equipment excepting any and all alterations, improvements,
additions and replacements of and/or to the Leased Property; provided, however,
that such property owned by TENANT shall be removed without substantial damage
to the Leased Property. No damage shall be considered substantial if it is
properly corrected at TENANT'S expense by restoration to the condition prior to
the installation of such property, if so requested by LANDLORD. Any such
property not removed shall become the property of LANDLORD.
11.4 TRANSFER OF LICENSES AND AGREEMENTS UPON TERMINATION. During
the last three (3) months of the Term hereof, TENANT agrees that LANDLORD may,
upon prior notice, enter upon the Premises, if reasonably required at
reasonable times, to prepare replacement staff and take such other reasonable
steps as would enable LANDLORD or his nominee and/or agent to obtain a license
and Medicare and Medi-Cal participation agreements upon the Lease termination,
and TENANT shall cooperate with LANDLORD to that end; provided however,
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that any such entry shall be affected in a manner that provides the least
possible disturbance to TENANT and the residents of the Facility. In no event
shall LANDLORD in entering the Premises pursuant to this Paragraph 11.4
interfere with TENANT'S operation of the Facility. LANDLORD shall have no
authority whatsoever, to dictate or prescribe the manner in which the Facility
is managed and/or operated during the Term of this Lease.
12. UTILITIES.
TENANT shall pay prior to delinquency for all water, gas, heat, light,
power, telephone, sewage, air-conditioning and ventilating, janitorial,
landscaping, and all other materials and utilities supplied to the Premises,
together with any taxes thereon. Unless otherwise provided, LANDLORD shall not
be liable in damages or otherwise for any failure or interruption of any
utility service furnished to the Premises, and no such failure or interruption
shall entitle TENANT to terminate this Lease or withhold Rent or other sums due
hereunder.
13. INDEMNITY.
13.1 INDEMNITY. TENANT shall indemnify, protect, defend and hold
LANDLORD harmless from and against any and all claims of liability for any
injury or damage to any person or property arising from TENANT'S use of the
Premises, or from the conduct of TENANT'S business, or from any activity, work
or thing done, permitted or suffered by TENANT in or about the Premises.
TENANT shall further indemnify and hold LANDLORD harmless from and against any
and all claims arising from any breach or default in the performance of any
obligation on TENANT'S part to be performed under this Lease, or arising from
any negligence of TENANT or TENANT'S agents, contractors, or employees and from
and against all costs, attorneys' fees, expenses, and liabilities incurred in
the defense of any such claim or any action or proceeding brought thereon. If
any action or proceeding is brought against LANDLORD by reason of any such
claim, TENANT upon notice from LANDLORD shall defend LANDLORD at TENANT'S
expense. TENANT, as a material part of the consideration to LANDLORD, hereby
assumes all risk of damage to property or injury to persons in, upon, or about
the Premises arising from any cause (other than the intentional act or gross
negligence of LANDLORD) and TENANT hereby waives all claims in respect thereof
against LANDLORD.
13.2 EXEMPTION OF LANDLORD FROM LIABILITY. LANDLORD shall not be
liable for injury to TENANT, TENANT'S business or loss of income therefrom or
for damages that may be sustained by the person, goods, wares, merchandise, or
property of TENANT, its employees, invitees, customers, patients, agents, or
contractors, or any other person in, on or about the Premises, from any cause
whatsoever, including but not limited to those caused by or resulting from
fire, steam, electricity, gas, water, or rain, that may leak or
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flow from or into any part of the Leased Property, or from the breakage,
leakage, obstruction, or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air-conditioning, or lighting fixtures of the same,
whether the damage or injury results from conditions arising from the Leased
Property, or from other sources or places and regardless of whether the cause
of such damage or injury or the means of repairing it is inaccessible to
TENANT. LANDLORD shall not be liable for any damages arising from any act or
neglect of any other tenant (if any) of the Premises or of the buildings
adjacent to the Premises. Notwithstanding the foregoing, LANDLORD shall be
liable to TENANT for any damages sustained or incurred by TENANT as a result of
the intentional or grossly negligent acts of LANDLORD, its employees or agents.
14. INSURANCE.
14.1 REQUIRED COVERAGE. TENANT shall keep the Leased Property and
each and every part thereof and the operation of the Facility insured at all
times throughout the Term of this Lease against the following:
(a) Loss or damage by fire, vandalism, malicious
mischief, special extended perils (all risk), earthquake and such other risks
as may be included in the broadest form of extended coverage insurance,
including, but not limited to, an endorsement covering repair or replacement to
then current building codes and requirements, that are from time to time
available in amounts sufficient to prevent LANDLORD or TENANT from becoming a
co-insurer within the terms of the applicable policies, and in any event, in an
amount not less than one hundred percent (100%) of the then full replacement
cost of the Leased Property.
(b) Loss or damage from leakage or sprinkler systems now
or hereafter installed in, on or about the Premises in any amount not less than
one hundred percent (100%) of the then full replacement cost.
(c) Loss or damage by explosion of steam boilers,
pressure vessels, or similar apparatus, now or hereafter installed in, on or
about the Premises, in such limits with respect to any one accident as may be
reasonably requested by LANDLORD from time to time.
(d) Loss of rental or business interruption covering risk
of loss due to the occurrence of any on the hazards described in the preceding
subparagraphs of this Paragraph 14.1, in an amount sufficient to prevent the
LANDLORD from becoming a co-insurer, but in and event, in an amount not less
than one hundred percent (100%) of the then full Minimum Rent and Additional
Rent for twelve (12) months, such policy or policies to be obtained and paid
for by TENANT as frequently as required.
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(e) Claims for personal injury and/or property damage,
under a policy of comprehensive general public liability insurance against any
liability arising out of the ownership, use, occupancy or maintenance of the
Leased Property and all areas appurtenant thereto, with limits not less than
Two Million Dollars ($2,000,000.00) for injury to or death of any one person in
any one accident or occurrence and in an amount of not less than Three million
Dollars ($3,000,000.00) for injury to or death of more than one person in any
one accident or occurrence and One Million Dollars ($1,000,000.00) for property
damage. All such injury liability insurance and property damage insurance
shall specifically insure the performance by TENANT of its obligations under
the indemnity contained in Paragraph 13 hereof.
(f) Against such other hazards and in such amounts as the
holder of any security interest, mortgage or deed of trust to which this Lease
is subordinate may reasonably require from time to time pursuant to the
provisions of such security interest, mortgages and deeds of trust.
(g) Against all claims, losses and damages under a policy
of full coverage plate glass insurance.
(h) Any and all risks covered by a full coverage policy
of workman's or worker's compensation insurance under the laws of the State of
California.
(i) Against all risks under a full coverage policy of
malpractice insurance or other such insurance covering the operation of the
Facility, with limits of not less than Two Million Dollars ($2,000,000.00) per
occurrence, and Three Million Dollars ($3,000,000.00) in the aggregate.
14.2 FULL INSURABLE VALUE. The term "full insurable value,, shall
mean the actual replacement cost. The full insurable value shall be determined
whenever reasonably requested by LANDLORD, by a qualified appraiser selected
and paid by TENANT and acceptable to LANDLORD, and/or by the relevant insurance
carrier. The finding of such appraiser shall not be binding without the
written approval by LANDLORD, which approval shall not be unreasonably
withheld.
14.3 BLANKET COVERAGE AND DEDUCTIBLES. TENANT shall have the
option of providing all or any of the insurance coverage required in this
Paragraph 14 on a blanket basis so long as the insurance provided meets all the
requirements of this Paragraph 14. It is acknowledged between the parties that
TENANT shall obtain coverage for earthquake and aftershock damage to the Leased
Property in the maximum amount available and with the minimum deductible amount
that is commercially available and that the deductible amount for coverage of
other perils shall not exceed fifty thousand dollars ($50,000).
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14.4 ADDITIONAL INSURED.
(a) The fire and extended coverage insurance policies and
the rental value insurance policy described above shall name LANDLORD as
additional insured. TENANT may furnish a combined loss of rental and business
interruption policy, provided that LANDLORD shall be named as an additional
insured. Any payments actually received by LANDLORD under the rental value
insurance or business interruption insurance policy or policies, shall be
applied by LANDLORD toward all amounts due hereunder by TENANT.
(b) All other policies of insurance shall name LANDLORD
as an additional insured. At the request of LANDLORD, any insurance proceeds
shall be made payable to the holders of any security interest, mortgage or
deeds of trust to which this Lease is at any time-subordinate, as the interest
of such holders may appear.
14.5 MISCELLANEOUS REQUIREMENTS OF POLICIES.
(a) All insurance provided for in this Lease shall be
effected under enforceable policies issued by insurers of recognized
responsibility licensed to do business in this State and rated A- by "Best's
Insurance Guide".
(b) Any loss shall be payable to LANDLORD or the holders
of any security interest, mortgage or deeds of trust to which this Lease is
subordinate, as the interest of such holders may appear, notwithstanding any
act or negligence of TENANT that might otherwise result in the forfeiture of
such insurance;
(c) All policies of insurance required under this Lease
shall contain an agreement by the Insurers:
(I) That such policies shall not be canceled
except after thirty (30) days written notice to LANDLORD and to the holders of
any mortgage or deed of trust to whom losses may be payable, except in cases of
non-payment of premium; and
(ii) That the coverage afforded thereby shall not
be affected by the performance of any work in, on or about the Premises.
(d) If TENANT provides any insurance required by this
Lease in the form of a blanket policy, TENANT shall furnish satisfactory proof
that such blanket policy complies in all respects with the provisions of this
Lease, and that the coverage thereunder is at least equal to the coverage that
would be provided under a separate policy covering only the Leased Property.
(e) If any policies of insurance required under this
Lease shall be subject to reduction of coverage or other
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modification for any reason whatsoever, TENANT shall provide LANDLORD with
written notice of the nature, extent and reason(s) for such reduction or
modification within fifteen (15) days after TENANT becomes aware of such
changes.
14.6 TENANT'S OBLIGATIONS, RIGHTS AND REMEDIES OF LANDLORD.
(a) TENANT agrees that it shall pay promptly when due all
premiums and charges on all of the insurance required to be carried by TENANT
under this Lease, and shall furnish to LANDLORD without demand satisfactory
evidence of the payment of the premium of each policy within ten (10) days
after such premium shall become due and payable. If TENANT shall fail to pay
such premiums and charges when due, or fail to place or maintain such
insurance, then LANDLORD may, without having the obligation to do so, obtain
such insurance or pay the premiums and charges therefor, and in the event of
such payment by LANDLORD, the amount paid may, at the option of LANDLORD, be
added as Additional Rent to the installment of Rent next accruing, or to any
subsequent installment and shall be collectible as Additional Rent in the same
manner and with the same remedies as if it had been originally reserved and
designated as Rent.
(b) Certificates evidencing all policies of insurance
herein provided, at the option of LANDLORD, shall be delivered to LANDLORD not
later than ten (10) days from the commencement of the Term of this Lease.
(c) As soon as practicable and without any unreasonable
delay before the expiration of any policy, TENANT shall deliver the original
renewal certificates) for such insurance to LANDLORD, or LANDLORD (after ten
(10) days written notice to TENANT) may, but shall not be required to, order
such insurance and charge the cost thereof to TENANT to be added as Additional
Rent to the installment of Rent next accruing or to any subsequent installment
and shall be payable and collectible as Additional Rent in the same manner and
with the same rights and remedies as if it had been originally reserved and
designated as Rent.
(d) Notwithstanding the time provided for delivery of
policies or certificates of insurance, such insurance coverage shall be
provided at all times and there shall be no time during the Term of this Lease
when any such policy is not in effect.
14.7 WAIVER OF SUBROGATION. TENANT and LANDLORD each hereby waives
and releases the other party from any and all rights of recovery, claims,
actions or causes of action against the other, or against their respective
officers, directors, partners, employees, agent and representatives of the
other, for any loss of or damage to such waiving party of its property or the
property of others under its control, where such loss or damage is insured
against under any insurance policy in force at the time of such loss or
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damage and proceeds are actually collected under such insurance. TENANT and
LANDLORD shall, upon obtaining certificates of insurance required hereunder:
(I) immediately give to each insurance company that has issued to it a policy
of fire and extended coverage insurance, written notice of the terms of such
mutual waivers and provide a copy to the other party upon written request; (ii)
use its best efforts to obtain from such insurance company a waiver of its
right to subrogation against LANDLORD or TENANT, as the case may be; and (iii)
use its best efforts to cause any such insurance policy to be properly
endorsed, if necessary, to prevent the invalidation of such insurance coverages
by reason of such waivers. The above waivers are limited to the extent the
rights so waived are compensable by insurance maintained, or required to be
maintained, by the waiving party.
15. DAMAGE OR DESTRUCTION.
15.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Tenant Owned
Alterations and Utility Installations, where the cost to repair such damage or
destruction is equal to or less than fifty percent (50% of the replacement cost
of the Premises, as certified to the parties by LANDLORD'S general contractor
within thirty (30) days following such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Tenant Owned Alterations and Utility
Installations where the cost to repair such damage or destruction is more than
fifty percent (50%) of the replacement cost of the Premises, as certified to
the parties by LANDLORD's general contractor within thirty (30) days following
such damage or destruction.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Tenant Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 14, irrespective of any deductible amounts or
coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by LANDLORD at the time of the occurrence, to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in
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Paragraph 24 of the Hazardous Substances Rider, in, on, or under the Premises.
15.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then TENANT shall, at TENANT'S expense, repair
such damage as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required
insurance was not in force or the insurance proceeds are not sufficient to
effect such repair, TENANT shall promptly contribute the shortage in proceeds
as and when required to complete all repairs. Unless otherwise agreed, TENANT
shall in no event have any right to reimbursement from LANDLORD for any funds
contributed by TENANT to repair any such damage or destruction. Premises
Partial Damage due to floor or earthquake shall be subject to Paragraph 15.3
rather than Paragraph 15.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available
for the repairs if made by either Party.
15.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, TENANT shall make the repairs at TENANT'S
sole cost and expense and this Lease shall continue in full force and effect.
15.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs (including any destruction
required by any authorized public authority), this Lease shall terminate
effective as of the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of TENANT. In the event, however, that the damage or destruction
was caused by TENANT, LANDLORD shall have the right to recover LANDLORD'S
damages from TENANT.
15.5 DAMAGE NEAR END OF TERM. If any time during the last six (6)
months of the Term of this Lease there is damage for which the cost to repair
exceeds one (1) months's Minimum Rent, whether or not an Insured Loss, LANDLORD
may, at LANDLORD'S option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice of
TENANT of LANDLORD'S election to do so within thirty (30) days after the date
of occurrence of such damage.
15.6 ABATEMENT OF RENT. In the event of damage described in
Paragraph 15.2 hereof (Partial Damage-Insured Loss), all Rent and other
charges, if any, payable by TENANT hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 14 hereunder), shall
be abated in proportion to the degree to which TENANT'S use of the Premises is
impaired; provided, however, that in no event shall Rent and other charges, if
any, payable by TENANT under this Lease be abated by
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TENANT unless and only to the extent LANDLORD actually receives such amounts
from any insurance carrier that has provided rental abatement insurance with
respect to this Lease, it being the intention of the parties that LANDLORD
shall always receive payment of Rent and the TENANT shall always pay the Rent
and other charges payable under this Lease either directly or through an
insurance carrier. Except for abatement of Rent, all other obligations of
TENANT hereunder shall be performed by TENANT, and TENANT shall have no claim
against LANDLORD for any damage suffered by reason of any such repair or
restoration.
15.7 WAIVER OF STATUTES. LANDLORD and TENANT agree that the terms
of this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any current or future statute(s) to the extent inconsistent
herewith.
15.8 DAMAGE DUE TO EARTHQUAKE. Notwithstanding anything to the
contrary in this Lease, TENANT shall be solely responsible for the repair,
replacement and payment of all damages that occur to the Leased Property as a
result of all earthquakes and/or subsequent aftershocks ("Earthquake Damage")
whether or not such damages are classified as an insured or uninsured loss and
irrespective of whether the damage is considered "Premises Partial Damage" or
"Premises Total Destruction." This obligation of TENANT shall continue and
survive termination of this Lease even if LANDLORD or TENANT terminates this
Lease pursuant to the provisions of this Paragraph 15.8, so long as Earthquake
Damage occurred during a period when this Lease was in full force and effect.
The following provisions shall apply to any damage to the Premises caused by
Earthquake Damage:
(a) NOTICE OF DAMAGE. In the event a party becomes aware
of Earthquake Damage to the Premises, such party shall give prompt written and
telephonic notice to the other party.
(b) INSPECTION; LANDLORD'S RIGHTS TO LIMIT ENTRY.
LANDLORD shall request an inspection of the Premises by appropriate
governmental inspectors as soon as possible. If LANDLORD in good faith
believes there is a risk of injuries to natural persons or damage to property
from entry into the Premises prior to governmental inspection, LANDLORD may
restrict entry into the Premises by TENANT, its employees and contractors in a
nondiscriminatory manner and TENANT shall not be responsible for the
consequences of any such decision made by LANDLORD to which TENANT has not
consented. Upon request, LANDLORD shall consult with TENANT to determine if
there are safe methods of entry into the Premises in order to retrieve files,
data in computers and inventory, subject to any indemnities and waivers of
liability that LANDLORD may reasonably require. The decision of any
appropriate governmental inspector regarding safe entry shall be binding on the
parties unless subsequently amended or revoked.
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(c) PRELIMINARY ESTIMATE OF DAMAGE. Within thirty (30)
days after the initial occurrence of Earthquake Damage (the "Initial
Occurrence") , TENANT shall provide LANDLORD with its best preliminary estimate
(the "Preliminary Estimate") of the cost of repairing the Earthquake Damage,
the time needed to complete such repairs, and the limits of any insurance
coverage TENANT reasonably believes is applicable to the Earthquake Damage. If
TENANT is unable to submit such estimate within such thirty (30) day period
despite TENANT'S commercially reasonable efforts, the Preliminary Estimate may
be submitted up to forty (40) days after the Initial occurrence. In addition
to the Preliminary Estimate, TENANT shall enclose reasonably detailed backup
information justifying the information contained in the Preliminary Estimate.
If the time contained in the Preliminary Estimate for
the completion of the repairs is in excess of 270 days measured from the date
of the Initial Occurrence, then either LANDLORD or TENANT shall have the right
to terminate the Lease. TENANT'S exercise of such right shall be contained in
the Preliminary Estimate; if TENANT does not exercise such right, LANDLORD may
exercise such right by giving written notice to TENANT within fifteen (15) days
after receipt of the Preliminary Estimate. The Preliminary Estimate shall not
include any extra time or cost required to construct new, additional or
upgraded improvements to any portion of the Premises, except as may be required
to meet building and other codes then in effect.
(d) FINAL ESTIMATE. Within seventy-five (75) days after
the Initial Occurrence, TENANT shall give LANDLORD its best final estimate (the
"Final Estimate") of the cost of repairing the Earthquake Damage, the time
needed to complete such repairs, and the limits of any insurance coverage
TENANT reasonably believes is applicable to the Earthquake Damage. Together
with the Final Estimate, TENANT shall enclose reasonably detailed backup
information justifying the information contained in the Final Estimate and any
significant variations from the Preliminary Estimate. If the time contained in
the Final Estimate for the completion of the repairs is in excess of two
hundred seventy (270) days measured from the date of the Initial Occurrence,
then either LANDLORD or TENANT shall have the right to terminate the Lease.
TENANT'S exercise of such right will be contained in the Final Estimate; if
TENANT does not exercise such right, LANDLORD may exercise such right by giving
written notice to TENANT within fifteen (15) days after receipt of the Final
Estimate. The Final Estimate shall not include any extra time required to
construct new, additional or upgraded improvements to any portion of the
Premises, except as may be required to meet building and other codes then in
effect. If the cost to repair the Earthquake Damage contained in the Final
Estimate is in excess of the sum of the amount of insurance carried by TENANT
which covers Earthquake Damage (excluding any deductible amount) plus
$1,000,000, then TENANT shall have the right to terminate the Lease unless
within
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fifteen (15) days after receipt of the Final Estimate LANDLORD elects to pay
such shortfall.
(e) RIGHT TO OPERATE TEMPORARY FACILITY. LANDLORD
acknowledges that TENANT has an extremely strong interest in continuously
conducting its business from the Premises. Consequently, if there is
Earthquake Damage to the Premises, then:
(1) If the damages to the Premises are such that
TENANT can reasonably continue to occupy the Premises under applicable
governmental requirements, then TENANT shall be entitled to do so, so long as
TENANT pays its Rent based upon its proportionate share of the space in the
Premises that remains occupied.
(2) If the Earthquake Damage to the Premises
renders the Premises wholly or partially unusable for the conduct of TENANT'S
business, then TENANT may locate at its sole cost and expense a trailer or
other temporary facility, if appropriate, (the "Temporary Facility") on the
property where the Premises are located at a location reasonably approved by
LANDLORD, for the conduct of TENANT'S business, without any rent obligation.
Any location and use of such Temporary Facility shall be in compliance with all
applicable laws and requirements. The rent abatement to which TENANT is
entitled for its inability to use all or a portion of the Premises shall not he
affected by TENANT'S use of such Temporary Facility.
(3) LANDLORD shall use all commercially
reasonable methods to allow TENANT to continue to use the Premises or Temporary
Facility during the repair of any Earthquake Damage to the Project but TENANT'S
continued occupancy and obligations hereunder may be terminated by either
LANDLORD or TENANT once LANDLORD commences reconstruction or demolition work
that materially interferes with TENANT'S occupancy.
(f) RENT ABATEMENT. Minimum Rent and Additional Rent
shall abate from the date of the Initial Occurrence until the date repairs of
the Earthquake Damage to the Premises are completed, based on the proportion of
the Premises that are rendered unusable for the conduct of TENANT'S business by
the Earthquake Damage.
(g) DILIGENT PROSECUTION OF REPAIRS. In the event that
the Lease is not terminated by a party having a right to terminate, TENANT
shall promptly commence and diligently prosecute to completion the repair of
the Earthquake Damage to the Premises.
16. CONDEMNATION.
16.1 PARTIAL CONDEMNATION. If any part of the Premises shall be
taken or condemned for a public or quasi-public use under the power of eminent
domain or sold under the exercise of such power
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(all of which are herein called "condemnation") , and a part thereof remains
that is susceptible of occupation hereunder, this Lease shall terminate, as to
the part so taken, as of the date the condemning authority takes title or
possession, whichever first occurs. The Rent payable hereunder shall be
adjusted so that the TENANT shall be required to pay for the remainder of the
Term of the Lease only such portion of the Rent as the value of the part
remaining after the condemnation bears to the value of the entire Premises at
the date of condemnation; but in the event the remainder is so diminished that
the economic feasibility of operating the Facility is unreasonably diminished
as to TENANT, either LANDLORD or TENANT shall have the option to terminate
this Lease as of the date that the condemning authority takes title or
possession, by written notice to the other party within ten (10) days after the
condemning authority takes title or possession, whichever first occurs.
16.2 USE OF PROCEEDS TO RESTORE PREMISES. In the case of partial
condemnation, subject to the provisions of Paragraph 16.1, to the extent the
condemnation award so provides, LANDLORD agrees to utilize the applicable
portion of the condemnation proceeds to restore the Premises to a useable
condition for operation as a Facility.
16.3 COMPLETE CONDEMNATION. If all of the Premises, or such part
thereof be taken under the power of eminent domain or sold under the exercise
of such power so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall thereupon terminate. If a part or all
of the Premises be taken or condemned, all compensation awarded upon such
condemnation or taking that does not relate to TENANT'S personal property shall
be paid to the LANDLORD, and the TENANT shall have no claim thereto, and the
TENANT hereby irrevocably assigns and transfers to the LANDLORD any right to
compensation or damages with respect to the diminution in value to the Premises
to which the TENANT may become entitled during the Term hereof by reason of the
condemnation of all or any part of the Premises. Nothing contained herein
shall prohibit TENANT from maintaining a separate action against the condemning
authority.
17. ASSIGNMENT AND SUBLETTING
17.1 LANDLORD'S CONSENT REQUIRED. TENANT shall not voluntarily or
by operation of law assign, sublet, transfer, mortgage, hypothecate or
otherwise encumber this Lease (each a "Transfer Transaction"), in whole or in
part, or sublet all or any part of the Premises without the prior written
consent of LANDLORD, which consent shall not be unreasonably withheld. The
consent by LANDLORD to any Transfer Transaction shall not constitute a waiver
of the necessity for such consent to any subsequent Transfer Transaction. If
this Lease is assigned or if the Premises, or any part thereof, are occupied by
any power or entity other than the
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TENANT, LANDLORD may collect from the assignee or the occupant, and apply the
net amount collected to the Rent due hereunder but no Transfer Transaction or
collection of Rent by the LANDLORD shall be deemed a waiver of this provision
or the acceptance of the assignee, subtenant or occupant as TENANT, or as a
release of TENANT from the further performance by TENANT of the provisions on
its part to be observed or performed herein. Notwithstanding any Transfer
Transaction, TENANT shall remain fully liable herein and shall not be released
from performing any of the terms and conditions of this Lease. Any request for
LANDLORD'S consent to a proposed Transfer Transaction shall be in writing
accompanied by a copy of any documents, assignment or sublease documents.
TENANT hereby acknowledges and agrees that any request by LANDLORD for the
financial statement, balance sheet, or other written evidence of
credit-worthiness of TENANT'S proposed assignee or sublessee is a reasonable
prerequisite to LANDLORD granting consent to any assignment or subletting. In
the event LANDLORD consents to a Transfer Transaction charged by TENANT to its
assignee or subtenant exceeds the Minimum Rent attributable to the assigned or
subleased portion of the Premises, the Minimum Rent payable hereunder by TENANT
shall be increased by fifty percent (50%) of such excess for the term of the
sublease or assignment. LANDLORD shall also be entitled to receive fifty
percent (50%) of any bonus value or other consideration received or to be
received by TENANT, from whatever source, because of or arising out of TENANT'S
Transfer Transaction; provided, however, LANDLORD shall not be entitled to
receive fifty percent (50%) of any amount that TENANT receives as a refundable
security deposit from its assignee or subtenant. The assignee shall assume and
be deemed to have assumed this Lease, and each and every term thereof, and
shall be and remain liable, jointly and severally, with TENANT for the payment
of all Rent due hereunder and for the due performance of all of the terms,
covenants, conditions and agreements herein contained. Any direct or indirect
transfer, sale, assignment, or other disposition during the Term of this Lease,
whether voluntary or involuntary, of more than fifty percent (50%) interest in
the stock of the corporate tenant, shall be deemed an assignment of this Lease
under this Paragraph 17, and shall require the consent of LANDLORD as set
specified herein.
17.2 NO CONSENT REQUIRED. Notwithstanding the provisions of
Paragraph 17.1 hereof, TENANT shall have the right without LANDLORD'S consent
to sublet or assign its rights under this Lease to a parent or subsidiary that
is more than fifty percent (50%) owned by TENANT or TENANT'S parent
corporation, including without limitation, to a corporation with whom TENANT
merges or consolidates; provided, however, that TENANT shall notify LANDLORD in
writing of any such assignment and subletting and advise LANDLORD of the terms
thereof and shall certify in writing that the assignee or sublessee is
controlled by TENANT or otherwise satisfies the requirements specified herein.
An assignment or subletting to such entity shall not entitle LANDLORD to any
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percentage of any excess rent, bonuses or other consideration otherwise payable
by such controlled entity to TENANT.
A sale via a public offering as defined under the Securities Act of
1933 of all or a portion of the capital stock of TENANT shall not be deemed an
assignment or subletting for the purposes of Paragraph 17.1.
17.3 ATTORNEY'S FEES IN CONNECTION WITH TRANSFER TRANSACTION. In
the event that TENANT shall engage in a Transfer Transaction or request the
consent of LANDLORD to any Transfer Transaction or if shall request the consent
of LANDLORD for any act TENANT proposes to do then TENANT shall, on demand of
LANDLORD, reimburse LANDLORD for LANDLORD'S reasonable costs, including
attorneys, fees, incurred in obtaining advice and preparing documentation for
each Transfer Transaction to which LANDLORD has consented.
17.4 NULLITY. Any purported Transfer Transaction consummated in
violation of the provisions of Paragraph 17.1 hereof shall be null and void and
of no force or effect.
17.5 FORM OF CONSENT. Each Transfer Transaction for which there
has been consent shall be made by an instrument in writing in a form reasonably
satisfactory to LANDLORD, and shall be executed by the parties thereto who
shall agree in writing for the benefit of LANDLORD herein to assume, to be
bound by, and to perform all of the terms, covenants, and conditions of this
Lease. One executed copy of such written instrument shall be delivered to
LANDLORD. Failure to first obtain in writing LANDLORD'S consent or failure to
comply with the provisions of this Paragraph 17 shall operate to prevent any
Transfer Transaction from becoming effective.
18. DEFAULT.
18.1 TENANT'S DEFAULT. The occurrence of any one or more of the
following shall constitute a material default and breach of this Lease by
TENANT:
(a) TENANT'S failure to pay Rent, Additional Rent or any
other sum or sums payable by TENANT hereunder when due, if the failure
continues for five (5) days after written notice has been given to TENANT.
(b) TENANT'S abandonment of the Premises.
(c) TENANT'S failure to perform any obligation under this
Lease within thirty (30) days after notice from LANDLORD to TENANT of such
failure.
(d) TENANT'S failure to commence to perform within thirty
(30) days after notice from LANDLORD to TENANT, any obligation hereunder;
provided, however, that if the nature of
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TENANT'S obligation is such that more than thirty (30) days are required for
performance, then TENANT shall not be in default if TENANT commences
performance within thirty (30) days after receipt of notice from LANDLORD and
diligently prosecutes such obligation to completion.
(e) (I) The making by TENANT of any general assignment
for the benefit of creditors; (ii) the filing by or against TENANT of a
petition to have TENANT adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against TENANT, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of TENANT'S assets located at the Premises or of TENANT'S
interest in this Lease, where possession is not restored to TENANT within sixty
(60) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of TENANT'S assets located at the Premises or of TENANT'S
interest in this Lease, where such seizure is not discharged within sixty (60)
days.
(f) A loss of TENANT'S license to operate the Facility.
18.2 LANDLORD'S REMEDIES.
(a) In the event of any default by TENANT, the LANDLORD
shall have the right, in addition to all other rights available to LANDLORD
under this Lease that are now or later permitted by law or equity, to terminate
this Lease by providing TENANT with a notice of termination, in which event
TENANT shall immediately surrender the Premises to LANDLORD. If, TENANT fails
to surrender the Premises immediately to LANDLORD, LANDLORD may, without
prejudice to any other remedy that it may have for possession of the Premises
or arrearages in Rent, enter upon and take possession of the Premises and
remove TENANTS and any other person(s) who may be occupying the Premises or any
part thereof, without being liable for prosecution or any claim or damages
therefor.
(b) LANDLORD shall have the immediate right of re-entry
and may remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost of, and for
the account of TENANT.
(1) Should LANDLORD elect to re-enter the
Premises as herein provided, or should it take possession pursuant to legal
proceedings or pursuant to any notice provided for by law, LANDLORD may either
terminate this Lease or LANDLORD may from time to time, without terminating
this Lease, re-let the Premises and/or the Equipment, or any part thereof, for
such term or terms (which may be for a term extending beyond the Term of this
Lease) and at such rental or rentals and upon such other terms and conditions
as LANDLORD may deem advisable, and which are commercially reasonable,
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with the right to make repairs to the Premises and Equipment upon each such
re-letting.
(2) TENANT shall be liable immediately to pay to
LANDLORD:
(i) All costs that LANDLORD incurs in
re-letting the Leased Property, including, without limitation, broker's
commissions, expenses of remodeling the Leased Property required by the
re-letting, expenses of repairing the Leased Property and like costs.
Re-letting can be for a period shorter or longer than the remaining term of
this Lease; and
(ii) The amount, if any, by which the
Rent, Additional Rent and all other sums reserved in this Lease from the period
of such re-letting (up to but not beyond the Term of this Lease) exceeds the
amount agreed to be paid as rent for the Leased Property for such reletting,
payable monthly.
(3) At the option of LANDLORD, rents received by
such LANDLORD from such re-letting shall be applied: First, to the payment of
any indebtedness, other than Rent due hereunder from TENANT to LANDLORD;
second, to the payment of any reasonable costs and expenses of such re-letting
and of such repairs; third, to the payment of Rent due and unpaid hereunder and
the remaining amount, if any, shall be held by LANDLORD and applied in payment
of future Rent as the same may become due and payable hereunder.
(4) If TENANT has been credited with any rent
received by such re-letting under this Paragraph 18.2, and such rent shall not
be promptly paid to LANDLORD by the new tenant, or if such rentals received
from such re-letting under this Paragraph 18.2 during any month be less than
that to be paid during that month by TENANT hereunder, TENANT shall pay any
such deficiency to LANDLORD. Such deficiency shall be calculated and paid
monthly.
(5) No re-entry or taking of possession of the
Premises by LANDLORD shall be construed as an election on LANDLORD'S part to
terminate this Lease unless and until a written notice of such intention be
given to TENANT or unless the termination thereof be decreed by a court of
competent jurisdiction. Notwithstanding any such re-letting without
termination, LANDLORD may at any time thereafter elect to terminate this Lease
for such previous breach and such re-entry by LANDLORD.
(c) TERMINATION. LANDLORD may terminate this Lease and
TENANT'S right to possession of the Leased Property, or any part thereof, at
any time, after a default by TENANT. No act by LANDLORD other than giving
written notice to TENANT shall terminate this Lease. Acts of maintenance,
efforts to re-let the Leased Property, or the appointment of a receiver on
LANDLORD'S initiative to protect LANDLORD'S interest under this Lease shall not
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constitute a termination of TENANT'S right to possession. On termination,
LANDLORD has the right to recover from TENANT:
(a) The worth, at the time of the award of the
unpaid Rent that had been earned at the time of termination of this Lease;
(b) The worth, at the time of the award of the
amount by which the unpaid Rent that would have been earned after the date of
termination of this Lease until the time of award exceeds the amount of the
loss of Rent that TENANT proves could have been reasonably avoided;
(c) The worth, at the time of the award of the
amount by which the unpaid Rent for the balance of the term after the time of
award exceeds the amount of the loss of Rent that TENANT proves could have been
reasonably avoided; and
(d) Any other amount, and court costs, necessary
to compensate LANDLORD for all detriment proximately caused by TENANT'S
default.
(e) "The worth, at the time of the award", as
used in this Paragraph 18.2, is to be computed by allowing interest at the rate
of ten percent (10%) per annum. "The worth, at the time of the award", as used
herein is to be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%).
(d) CURE AT TENANT'S EXPENSE. LANDLORD may cure any
default at TENANT'S cost. If LANDLORD at any time, by reason of TENANT'S
default, pays any money or does any act that requires the payment of any money,
the amount paid by LANDLORD shall be due immediately from TENANT to LANDLORD at
the time the amount is paid, and if paid at a later date shall bear interest at
the maximum rate allowed by law from the date the amount is paid by LANDLORD
until LANDLORD is reimbursed by TENANT. The amount, together with interest
thereon, shall be deemed to be Additional Rent.
18.3 DEFAULT BY LANDLORD.
(a) LANDLORD shall not be deemed to be in default of this
Lease unless LANDLORD fails to perform obligations required of LANDLORD within
a reasonable time, but in no event later than thirty (30) days after written
notice by TENANT to LANDLORD, specifying wherein LANDLORD has failed to perform
such obligation; provided, however, that if the nature of LANDLORD'S obligation
is such that more than thirty (30) days are required for performance, then
LANDLORD shall not be in default of this Lease if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
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(b) Provided that TENANT has paid Rent or other sums
required to be paid to LANDLORD and in the event any mortgagee or beneficiary
of any note secured by a deed of trust or mortgage on the Premises or any part
thereof shall commence foreclosure proceedings as a result of LANDLORD'S
failure to perform any of its obligations thereunder, then and in such event
TENANT shall have the right, but not the obligation, to perform such obligation
and pay any foreclosure costs in connection therewith, and to set off any costs
or expenses incurred in connection with such performance, together with any
foreclosure costs paid, against the next ensuing installments of Minimum Rent
and Additional Rent due from TENANT to LANDLORD. Thereafter, all such Rent
shall be paid directly to LANDLORD.
In the event LANDLORD fails to commence making repairs
required to be made by it under this Lease within thirty (30) days of written
notice by TENANT to LANDLORD of the need for such repairs, TENANT may undertake
such repairs in place of LANDLORD and LANDLORD, on demand, shall reimburse
TENANT for the reasonable cost of such repairs; provided, however, that nothing
in this Paragraph 18.3 shall entitle TENANT to any off-set rights against Rent
or other payment obligations to LANDLORD under this Lease.
18.4 LATE CHARGES. TENANT hereby acknowledges that late payment by
TENANT to LANDLORD of Rent and other amounts due hereunder will cause LANDLORD
to incur costs not contemplated by this Lease, the exact amount of which will
be extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges that may be imposed on
LANDLORD by the terms of any mortgage or deed of trust covering the Premises.
Accordingly, if any installment of Rent or any other amounts due from TENANT
shall not be received by LANDLORD or LANDLORD'S designee within ten (10) days
after such amount shall be due, and LANDLORD or LANDLORD'S designee has given
five (5) days prior written notice to TENANT of non-receipt of funds, then
TENANT shall pay to LANDLORD a late charge equal to ten percent (10%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs LANDLORD may incur by reason of late
payment by TENANT. Acceptance of such late charge by LANDLORD shall in no
event constitute a waiver of TENANT'S default with respect to such overdue
amount, nor prevent LANDLORD from exercising any of the other rights and
remedies granted to LANDLORD hereunder.
19. BOOKS AND RECORDS.
19.1 FINANCIAL STATEMENT OF TENANT. As a condition to the
execution of this Lease by LANDLORD, TENANT agrees that it shall submit to
LANDLORD or cause to be submitted to LANDLORD, the annual financial and
operating statements of the Facility showing the results of operations of
TENANT or any person or entity holding
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under or through it, and of the Facility, which shall include all items of
revenue and expense. TENANT shall further provide to LANDLORD on an annual
basis, copies of its audited financial statements, which shall include a
balance sheet and profit and loss statement. All statements shall be submitted
to LANDLORD within five (5) days after written request therefore is given (a)
after a default under the Lease, or (b) in connection with an attempt to
finance or refinance the Leased Property or any part thereof by LANDLORD. All
financial statements shall be certified by TENANT to the best of its knowledge
to be true and complete as of a relevant date. All financial statements shall
include at least a balance sheet as of the day of such financial statement and
a profit and loss statement for the most recent fiscal year of TENANT and the
Facility.
20. ABANDONMENT OF LEASED PROPERTY.
TENANT shall not vacate or abandon the Facility or cease operating a
Facility business thereon. If TENANT shall abandon, vacate or surrender the
Leased Property, or be dispossessed by process of law, or otherwise, any
personal property belonging to TENANT left on the Premises shall be deemed to
be abandoned, at the option of LANDLORD.
21. TRANSFER OF LANDLORD'S INTEREST.
The term "LANDLORD" as used in this Lease so far as covenants and
obligations on the part of the LANDLORD are concerned shall be limited to mean
and include only the owner or owners at the time in question of the fee of the
Premises, and in the event of any transfer or transfer of the title to such
fee, the LANDLORD herein named (and in case of any subsequent transfers or
conveyances the then Grantor) shall be automatically freed and relieved from
and after the date of such transfer or conveyance of all liability for the
performance of any covenants or obligations on the part of the LANDLORD
contained in this Lease thereafter to be performed, provided that any funds in
the hands of such LANDLORD or the then Grantor at the time of such transfer, in
which the TENANT has an interest, shall be turned over or credited to the
Grantee and any amount then due and payable to the TENANT by the LANDLORD or
the then Grantor under any provision of this Lease, shall be paid to the
TENANT; provided further that the Grantee assumes and agrees in writing to
perform the obligations of LANDLORD under this Lease, it being intended hereby
that the covenants and obligations contained in this Lease on the part of the
LANDLORD shall, subject as aforesaid, be binding on the LANDLORD, its
successors and assigns, only during and in respect of their respective
successive periods of ownership. Notwithstanding the foregoing, the liability
of the LANDLORD shall be limited to LANDLORD'S equity in the Leased Property
and there shall be no personal liability with respect thereto.
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22. NO BROKERS.
LANDLORD and TENANT each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby and that no broker or other person, firm or entity is
entitled to any commission or finder's fee in connection with this transaction.
Each of the parties do hereby agree to indemnify, protect, defend and hold
harmless the other party from and against any liability for compensation or
charges that may be claimed by any unnamed broker, finder or other similar
party by reason of any dealings or actions of the indemnifying party, including
any costs, expenses and/or attorneys' fees reasonably incurred with respect
thereto.
23. SECURITY MEASURES.
TENANT hereby acknowledges that the Rent payable to LANDLORD hereunder
does not include the cost of guard service or other security measures, and that
LANDLORD shall have no obligation whatsoever to provide such security services.
TENANT assumes all responsibility for protection of the Premises, TENANT, its
agents and invitees and their property from the acts of third parties.
24. HAZARDOUS SUBSTANCES.
24.1 PROPER USE. The term "Hazardous Substance" as used in this
Lease shall mean any asbestos, flammable explosives, radioactive materials,
hazardous wastes, hydrocarbons, petroleum, gasoline, crude oil or any products
or by-products thereof and other harmful substances defined as such from time
to time under applicable law. TENANT shall not engage in any activity in, on
or about the Premises that constitutes an improper use or storage of any
Hazardous Substances without the express prior written consent of LANDLORD and
compliance in a timely manner (at TENANT'S sole cost and expense) with all
applicable laws and regulations. Notwithstanding the foregoing, TENANT may,
without LANDLORD'S prior consent, but upon notice to LANDLORD, and in
compliance with all applicable laws and regulations, use any ordinary and
customary materials reasonably required to be used by TENANT in the normal
course of the permitted use of the Premises, as specified in Paragraph 9
hereof, so long as such use is not illegal and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose LANDLORD to any liability therefore.
24.2 DUTY TO INFORM LANDLORD. If TENANT knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises other than as previously consented to in writing by
LANDLORD, TENANT shall immediately give LANDLORD written notice thereof,
together with a copy of any statement, report, notice, registration,
application,
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permit, business plan, license, claim, action, or proceeding given to, or
received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including but not limited to all such documents as may be involved in
any improper use involving the Premises. TENANT shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including without limitation through the plumbing or sanitary sewer
system).
24.3 INDEMNIFICATION. TENANT shall indemnify, protect, defend and
hold harmless LANDLORD, its agents, employees, lenders and ground LANDLORD, if
any, and the Premises, from and against any and all damages, liabilities,
judgements, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees and costs arising out of or involving any
Hazardous Substance in, on, under or in the vicinity of the Premises only
caused by TENANT. TENANT'S obligations under this Paragraph shall include, but
not be limited to, any such damages, liabilities, etc., relating to any
contamination or injury to person, property or the environment created or
suffered by TENANT, and the cost of investigation (including consultants' and
attorneys' fees and testing), removal, remediation, restoration and/or
abatement thereof, or of any contamination therein involved, shall survive the
expiration or earlier termination of this Lease. No termination, cancellation
or release agreement entered into by LANDLORD and TENANT shall release TENANT
from its obligations under this Lease with respect to Hazardous Substances,
unless specifically so agreed by LANDLORD in writing at the time of such
agreement.
24.4 INSPECTION: COMPLIANCE WITH LAW. LANDLORD, and its agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises (collectively
referred to herein as "Lenders") shall have the right to enter the Premises at
any reasonable time in the case of an emergency, and otherwise at reasonable
times (provided all such entry is effected in a manner designed to cause the
least possible disturbance to TENANT'S business operations) for the purpose of
inspecting the condition of the Premises and for verifying compliance by TENANT
with this Lease and all Applicable Requirements, and LANDLORD shall be entitled
to employ experts and/or consultants in connection therewith to advise LANDLORD
with respect to TENANT'S activities, including but not limited to TENANT'S
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance in, on under or about the Premises. The costs and expenses
of any such inspections shall be paid by the party requesting it, unless a
Default or Breach of this Lease by TENANT or a violation of applicable laws and
regulations or contamination is found to exist or to be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or
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contamination. In such case, TENANT shall immediately upon request reimburse
LANDLORD or LANDLORD'S Lender, as the case may be, for the costs and expenses
of such inspections.
25. ARBITRATION.
25.1 GENERAL SUBMITTALS TO ARBITRATION. The submittal of all
matters to arbitration in accordance with the terms of this Paragraph 25 is the
sole and exclusive method, means and procedure to resolve any and all claims,
disputes or disagreements arising under this Lease, including, but not limited
to any matter relating to LANDLORD'S failure to approve an assignment, sublease
or other transfer of TENANT'S interest in the Lease, any other defaults by
LANDLORD, or any TENANT default, except for (i) all claims by either party
which (A) seek anything other than enforcement of rights under this Lease, or
(B) are primarily founded upon matters of fraud, willful misconduct, bad faith
or any other allegations of tortious action, and seek the award of punitive or
exemplary damages, and (ii) claims relating to LANDLORD'S exercise of any
unlawful detainer rights pursuant to California law or rights or remedies used
by LANDLORD to gain possession of the Premises or terminate TENANT'S right of
possession to the Premises, which disputes shall be resolved by suit filed in
the Municipal or Superior Court of Los Angeles County, California, the decision
of which court shall be subject to appeal pursuant to applicable law. The
parties hereby irrevocably waive any and all rights to the contrary and shall
at all times conduct themselves in strict, full, complete and timely accordance
with the terms of this Paragraph 25 and all attempts to circumvent the terms of
this Paragraph 25 shall be absolutely null and void and of no force or effect
whatsoever. As to any matter submitted to arbitration with respect to the
payment of money, to determine whether a matter would, with the passage of
time, constitute a default, such passage of time shall not commence to run in
the event that the party that is obligated to make the payment does in fact
make the payment to the other party. Such payment may be made "under protest,"
which shall occur when such payment is accompanied by a good faith notice
stating the reasons that the party has elected to make a payment under protest.
Such protest will be deemed waived unless the subject matter identified in the
protest is submitted to arbitration as set forth in this Paragraph 25.
25.2 JAMS. Any dispute to be arbitrated pursuant to the provisions
of this Paragraph 25 shall be determined by binding arbitration before a
retired judge of the Superior Court of the State of California (the
"Arbitrator") under the auspices of Judicial Arbitration & Mediation Services,
Inc. ("JAMS") or such other comparable alternative dispute resolution service.
Such arbitration shall be initiated by the parties, or either of them, within
ten (10) days after either party sends written notice (the "Arbitration
Notice") of a demand to arbitrate by registered or certified mail to the other
party and to JAMS. The Arbitration
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Notice shall contain a description of the subject matter of the arbitration,
the dispute with respect thereto, the amount involved, if any, and the remedy
or determination sought. The parties may agree on a retired judge from the
JAMS panel. If they are unable to agree promptly, JAMS will provide a list of
three available judges and each party may strike one. The remaining judge (or
if there are two, the one selected by JAMS) will serve as the Arbitrator. In
the event that JAMS shall no longer exist or if JAMS fails or refuses to accept
submission of such dispute, then the dispute shall be resolved by binding
arbitration before the American Arbitration Association ("AAA") under the AAA's
commercial arbitration rules then in effect.
25.3 ARBITRATION PROCEDURE.
(a) PRE-DECISION ACTIONS. The Arbitrator shall schedule
a pre-hearing conference to resolve procedural matters, arrange for the
exchange of information, obtain stipulations, and narrow the issues. The
parties will submit proposed discovery schedules to the Arbitrator at the
pre-hearing conference. The scope and duration of discovery shall be within
the sole discretion of the Arbitrator. The Arbitrator shall have the
discretion to order a pre-hearing exchange of information by the parties,
including, without limitation, production of requested documents, exchange of
summaries of testimony of proposed witnesses, and examination by deposition of
parties and third-party witnesses. This discretion shall be exercised in favor
of discovery reasonable under the circumstances.
(b) THE DECISION. The arbitration shall be conducted in
Los Angeles, California. Any party may be represented by counsel or other
authorized representative. In rendering a decision(s), the Arbitrator shall
determine the rights and obligations of the parties according to the
substantive and procedural laws of California and the terms and provisions of
this Lease. The Arbitrator's decision shall be based on the evidence
introduced at the hearing, including all logical and reasonable inferences
therefrom. The Arbitrator may make any determination, and/or grant any remedy
or relief that is just and equitable. The decision must be based on, and
accompanied by, a written statement of decision explaining the factual and
legal basis for the decision as to each of the principal controverted issues.
The decision shall be conclusive and binding, and it may thereafter be
confirmed as a judgment by the Superior Court of the State of California,
subject only to challenge on the grounds set forth in California Code of Civil
Procedure Section 1286.2. The validity and enforceability of the Arbitrator's
decision is to be determined exclusively by the California courts pursuant to
the provisions of this Lease. The Arbitrator shall award costs, including
without limitation, attorneys' fees, and expert and witness costs, to the
"Prevailing Party" (as defined in Paragraph 26.25 hereof), if any, as
determined by the Arbitrator. The Arbitrator's fees and costs
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shall be paid by the non-prevailing party as determined by the Arbitrator.
26. GENERAL PROVISIONS.
26.1 ESTOPPEL CERTIFICATE.
(a) Either party shall at any time upon not less than
fifteen (15) days' prior written notice from the other party execute,
acknowledge and deliver to such party a statement in writing (i) certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the date to which the Rent and other
charges are paid in advance, if any, and (ii) acknowledging that there are not,
to such party's knowledge, any uncured defaults on the part of LANDLORD
hereunder, or specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by the requesting party.
(b) Failure to deliver such statement within such time
shall be conclusive upon the obligated party (i) that this Lease is in full
force and effect, without modification except as may be represented in the
Certification, (ii) that there are no uncured defaults in performance, and
(iii) that not more than one (1) month's Rent has been paid in advance.
26.2 SEVERABILITY. The invalidity of any provision of this Lease
as determined by arbitration or a court of competent jurisdiction, shall in no
way affect the validity of any other provision hereof.
26.3 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to either party not paid when due shall bear interest
at the maximum rate allowed by law from the date due. Payment of such interest
shall not excuse or cure any breach by the defaulting party under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by the defaulting party nor on any amounts upon which late charges are paid by
the defaulting party.
26.4 TIME OF ESSENCE. Time is of the essence.
26.5 CAPTIONS. Article and Paragraph captions are not a part
hereof.
26.6 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at
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the time of modification. Except as otherwise stated in this Lease, each party
hereby acknowledges that no real estate broker nor any cooperating broker on
this transaction nor the other party or any employees or agents of any of said
persons has made any oral or written warranties or representations relative to
the condition or use of the Premises. TENANT acknowledges that TENANT assumes
all responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in effect during the term of this Lease except as
otherwise specifically stated in this Lease. The parties acknowledge that the
previous Lease for the Premises entered into by the parties or their respective
predecessors in interest is terminated as of May 31, 1995 and is of no further
force or effect. The former Lease shall not be used in any way to construe or
interpret the provisions of this Lease.
26.7 NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and may be given by personal delivery or by
certified mail, postage prepaid, return receipt requested. Such notice shall
be deemed given on the date personally delivered, or if by mail, then
forty-eight (48) hours after deposit in the U.S. mails, if addressed to TENANT
or to LANDLORD at the address noted opposite the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes. A copy of all notices shall be mailed
to TENANT at the Premises. A copy of all notices required or permitted to be
given to LANDLORD hereunder shall be concurrently transmitted to such party or
parties at such addresses as LANDLORD may from time to time hereafter designate
by notice to TENANT.
If to LANDLORD:
Sam Menlo, Trustee of the
Menlo Trust U/T/I of 2/22/83
4221 Wilshire Boulevard
Los Angeles, CA 90010
With a copy to:
James M. Jimenez, Esq.
Solish, Jordan, Arbiter & Wiener
12100 Wilshire Boulevard, 15th Floor
Los Angeles, CA 90025
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<PAGE> 36
If to TENANT:
Summit Care California, Inc.
dba Anaheim Care Center
2600 West Magnolia Blvd
Burbank, California 91505
Attn: Mr. William C. Scott, President
With a copy to:
Frank S. Osen, Esq.
9454 Wilshire Boulevard, Suite 800
Beverly Hills, CA 90212
26.8 WAIVERS. No waiver by either party of any provision hereof
shall be deemed a waiver of any other provision hereof or of any subsequent
breach of TENANT or LANDLORD of the same or any other provision. A party's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of the party's consent to or approval of any subsequent act by the
other party. The acceptance of Rent hereunder by LANDLORD shall not be a
waiver of any preceding breach by TENANT of any provision hereof, other than
the failure of TENANT to pay the particular Rent so accepted, regardless of
LANDLORD'S knowledge of such preceding breach at the time of acceptance of such
Rent.
26.9 RECORDING. A Memorandum of Lease, in the form of Exhibit
"2", attached hereto, shall be recorded in the County Recorder's Office in
the County in which the Premises are located.
26.10 HOLDING OVER. TENANT has no right to retain possession of the
Premises or any part thereof or of the Leased Property beyond the expiration or
earlier termination of this Lease. If TENANT remains in possession of the
Premises or any part thereof after the expiration of the term hereof without
the express written consent of LANDLORD, such occupancy shall be a tenancy from
month-to-month at a rental in the amount of Two Hundred Percent (200%) of the
most recent Minimum Rent plus all other charges payable hereunder, including,
but not limited to Additional Rent, and upon all the terms hereof applicable to
a month-to-month tenancy. Nothing contained herein shall be construed as a
consent by LANDLORD to any holding over by TENANT.
26.11 CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
26.12 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions
hereof restricting assignment or subletting by TENANT,
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<PAGE> 37
this Lease shall bind the parties, their personal representatives, successors
and assigns. This Lease shall be governed by the laws of the State of
California.
26.13 SUBORDINATION.
(a) This Lease, at LANDLORD'S option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements, and
extension thereof. Notwithstanding such subordination, TENANT'S right to quiet
possession of the Premises shall not be disturbed if TENANT is not in default
and so long as TENANT shall pay the Rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease prior to the lien of its mortgage, deed of trust or ground lease, and
shall give written notice thereof to TENANT, this Lease shall be deemed prior
to such mortgage, deed of trust or ground lease, whether this Lease is dated
prior or subsequent to the date of said mortgage, deed of trust or ground lease
or the date of recording thereof.
(b) TENANT agrees to execute promptly any documents
required to effectuate such subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be so long
as such documents do not effect TENANT'S right to quiet possession. If TENANT
fails to execute such documents within ten (10) days after written demand,
TENANT does hereby make, constitute and irrevocably appoint LANDLORD as
TENANT'S attorney in fact and in TENANT'S name, place and stead, to do so.
(c) In the event of foreclosure or the exercise of the
power of sale under any deed of trust made by LANDLORD covering the Premises,
TENANT shall attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as LANDLORD under this Lease, provided such purchaser
expressly agrees in writing to be bound by the terms of this Lease.
26.14 LANDLORD'S ACCESS. LANDLORD and LANDLORD'S agents shall have
the right to enter the Premises at reasonable times for the purpose of
inspecting the same, showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to the
Premises. LANDLORD may at any time place on or about the Premises any ordinary
"For Sale" signs and LANDLORD may at any time during the last three (3) months
of the term hereof place on or about the Premises any ordinary "For Lease"
signs, all without rebate of Rent or liability to TENANT.
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<PAGE> 38
26.15 SIGNS AND AUCTIONS. LANDLORD agrees that TENANT shall have
the right to place any signs or other advertising devices, electrical or
non-electrical, on or about the Premises in conformity with city ordinances and
other applicable laws, provided such signs shall only advertise the Facility
and/or the business conducted therein. TENANT shall pay for the installation,
repair, maintenance, and removal of any such signs and shall be responsible for
any damages caused by the installation or removal of such signs. TENANT shall
not conduct any auction on the Premises without LANDLORD'S prior written
consent.
26.16 MERGER. The voluntary or other surrender of this Lease by
TENANT, or a mutual cancellation thereof, or a termination by LANDLORD, shall
not work a merger, and shall, at the option of LANDLORD, terminate all or any
existing subtenancies or may, at the option of LANDLORD, operate as an
assignment to LANDLORD of any or all of such subtenancies.
26.17 CORPORATE AUTHORITY. TENANT shall, within thirty (30) days
after execution of this Lease, deliver to LANDLORD a certified copy of a
resolution of the Board of Directors of the corporate tenant authorizing or
ratifying the execution of this Lease.
26.18 CONSENTS. Wherever in this Lease the consent of one party is
required to an act of the other party such consent shall not be unreasonably
withheld or delayed.
26.19 GUARANTOR. The guarantor of this Lease shall have the same
obligations as TENANT under Paragraph 26.1 of this Lease.
26.20 QUIET POSSESSION. Upon TENANT paying the Rent required
hereunder and observing and performing all of the covenants, conditions and
provisions on TENANT'S part to be observed and performed hereunder, TENANT
shall have the quiet possession of the Premises for the entire Term hereof
subject to all of the provisions of this Lease.
26.21 SEVERABILITY; CONSTRUCTION OF PROVISIONS. It is agreed that,
if any provision of this Lease shall be determined to be void by any court of
competent jurisdiction, then such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full
force and effect. It is the intention of the parties hereto that, if any
provision of this Lease is capable of two (2) constructions, one of which would
render the provision void and the other of which would render the provision
valid, then the provision shall have the meaning which renders it valid.
26.22 WAIVER OR CONSENT LIMITATION. A waiver of any given breach or
default shall not be a waiver of any other breach or default. LANDLORD'S
consent to or approval of any act by TENANT requiring LANDLORD'S consent or
approval shall not be deemed to
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<PAGE> 39
waive or render unnecessary LANDLORD'S consent to or approval of any subsequent
similar act by TENANT.
26.23 FORCE MAJEURE. Unless otherwise provided in this Lease, the
occurrence of any of the following events shall excuse such obligations of
LANDLORD or TENANT as are thereby rendered impossible or reasonably
impracticable for so long as such event continues: lockouts; labor disputes;
acts of God; inability to obtain labor, materials or reasonable substitutes
therefor; governmental restrictions, regulations or controls; judicial orders;
enemy or hostile governmental action; civil commotion; fire or other casualty;
and other causes beyond the reasonable control of the party obligated to
perform. Notwithstanding the foregoing, the occurrence of such events shall
not, except as otherwise provided, excuse TENANT'S obligations to pay Minimum
Rent and Additional Rent or excuse such obligations as this Lease may otherwise
impose on either party to obey, remedy or avoid such event; moreover, should
the work performed by either party or its contractor result in a strike,
lockout and/or labor dispute, such strike, lockout and/or labor dispute shall
not excuse that party's performance.
26.24 COUNTERPARTS. This Lease may be executed in one or more
separate counterparts, each of which, when so executed, shall be deemed to be
an original. Such counterparts shall, together, constitute and shall be one
and the same instrument.
26.25 ATTORNEYS' FEES AND COSTS. If any party brings an action or
proceeding in arbitration or otherwise to enforce the terms of this Lease or
declare any rights hereunder, the Prevailing Party (as hereinafter defined) in
any such proceeding, action or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term "Prevailing Party" shall include, without limitation, a
party who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment or the abandonment by the other
party of its claim or defense. The attorneys' fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. Each party shall be
entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default, and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with such
Default or resulting breach of the Lease by the other party.
91
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Lease at the
place and on the dates specified immediately adjacent to their respective
signatures.
"LANDLORD":
SAM MENLO, TRUSTEE OF THE
MENLO TRUST U/T/I 5/22/83
Executed at Los Angeles,
California
on November 28, 1995 By: /s/ SAM MENLO
-----------------------
SAM MENLO, Trustee
"TENANT":
SUMMIT-CARE CALIFORNIA, INC., A
CALIFORNIA CORPORATION dba
ANAHEIM CARE CENTER
Executed at Burbank
California
on November 27, 1995 By: /s/ WILLIAM C. SCOTT
----------------------
William C. Scott
President
By:
----------------------
----------------------
(Print Name)
Secretary
92
<PAGE> 1
Exhibit 10.11
AMENDMENT TO LEASE
This Amendment to Lease ("Amendment") is entered into as of the First
day of March, 1994, by and between SOUTH BAY SANITARIUM AND CONVALESCENT
HOSPITAL, a partnership ("Landlord") and SUMMIT CARE-CALIFORNIA, INC., a
California corporation doing business as Bay Crest Care Center and the
successor in interest to GARNET CONVALESCENT HOSPITAL, INC., a California
corporation ("Tenant"), for the purpose of amending and modifying that certain
lease dated March 1, 1980 (the "Lease") , between Landlord and Tenant.
The terms and provisions of the Lease except as hereby amended are
hereby incorporated herein by reference, as if fully set forth herein. All
capitalized undefined terms used herein shall have the same meanings as set
forth in the Lease.
RECITALS
The parties acknowledge that the Lease is in full force and effect and
wish to amend the Lease to extend the term, provide for rental payments and
grant to Tenant rights of renewal and a right of first refusal, all as
hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
AMENDMENT
1. Term
Section 2, "Term", is hereby deleted and amended to provide as follows:
"The term of this Lease, as hereby amended ("Lease Term"), shall
commence April 1, 1994 and shall expire, unless sooner terminated, at
midnight February 28, 2010."
2. Options to Renew
Section 30, "Option to Renew" is hereby deleted and amended to provide as
follows:
"Provided Tenant is not then in default hereunder, Tenant is hereby
granted an option to renew this Lease under the same terms, provisions
and covenants (so far as applicable) as herein contained, including
rental adjustment as provided in paragraph 4, as amended, for an
additional term of five (5)
93
<PAGE> 2
years (the "Extended Term") to commence on March 1, 2010 and end on
February 28, 2015. The option shall be exercised by notice, setting
forth Tenant's election to exercise the option, delivered to Landlord
not less than sixty (60) days prior to the expiration of the Term.
Upon exercise, such additional period shall be deemed to be an
extension of the Lease Term for the purposes of this Lease."
3. Rent
Paragraphs 4(A) , 4(B) , 4(C) and 4(D) of Section 4, "Rent", are hereby
deleted and amended to provide as follows:
A. During the period commencing on April 1, 1994 and ending on
February 28, 1995 (the "First Adjustment Period"), Tenant
shall pay Landlord as Minimum Monthly Rent for the Premises a
sum equal to Eleven Thousand Eight Hundred Dollars and 00/100
($11,800.00) before the first day of each and every month
during the First Adjustment Period.
B. During the period commencing on March 1, 1995 and ending on
February 27, 1997 (the "Second Adjustment Period") Tenant
shall pay Landlord as Minimum Monthly Rent for the Premises a
sum equal to Sixteen Thousand Nine Hundred Sixty Six Dollars
and 67/100 ($16,966.67) before the first day of each and every
month during the Second Adjustment Period.
C. During the period commencing on March 1, 1997 and ending on
February 28, 2010 (the "Third Adjustment Period") Tenant shall
pay Landlord as Minimum Monthly Rent for the Premises a sum
equal to Eighteen Thousand Eight Hundred Dollars and 00/100
($18,800.00) before the first day of each and every month of
the Third Adjustment Period, subject to annual increases as
set forth in subparagraph 4(D) below.
D. The Minimum Monthly Rent provided for in Paragraph C above
shall be subject to adjustment effective March 1, 1996 and
annually each first day of March thereafter (the "adjustment
date") as follows:
The base for computing the adjustment is the Consumer Price
Index (All Items) for the Los Angeles-Long Beach Metropolitan Area,
published by the United States Department of Labor, Bureau of Labor
Statistics ("Index"), which is published for the closest date on or
before March 1, 1995 ("Beginning Index"). If the Index for the
closest date on or before the adjustment date ("Extension Index") has
94
<PAGE> 3
increased over the Beginning Index, the Minimum Monthly Rent for the
next twelve (12) months until the next annual adjustment shall be set
by multiplying the then-current monthly rent by a fraction, the
numerator of which is the Extension Index and the denominator of which
is the Beginning Index. Provided, however, that in no event shall the
annual adjustment to the Minimum Monthly Rent be less than three
percent (3%) nor more than six percent (6%) of the then-current
Minimum Monthly Rent. On adjustment of the Minimum Monthly Rent as
provided for in this Amendment, the parties shall immediately confirm
to each other in writing the new Minimum Monthly Rent.
If the Index is discontinued or revised during the Lease Term,
such other government index or computation with which it is replaced
shall be used in order to obtain substantially the same result as
would be obtained if the Index had not been discontinued or revised."
This lease is what is commonly called a "triple net lease", it being
understood that Landlord shall receive the Rent set forth in this paragraph
free and clear of any and all impositions, taxes, liens, charges, or expenses
of any nature whatsoever in connection with its ownership and leasing of the
Premises. Tenant at its cost shall maintain the premises in good condition and
Landlord shall have no responsibility to maintain the premises. In addition to
the Rent provided in this paragraph, Tenant shall pay to the parties
respectively entitled thereto all impositions, taxes, insurance premiums and
operating charges, including maintenance and repairs charges.
4. Section 13, Insurance, is hereby amended to provide that the policies
of insurance maintained pursuant to this section shall have deductible
provisions (a) in amounts reasonable for and in accordance with the Tenant's
financial capability, (b) subject to the deductible levels established by the
insurance industry marketplace at the time of inception of said insurance
policies and renewals thereof, and (c) which shall be for the account of and
payable by Tenant.
In addition, Tenant, at its sole cost and expense, shall purchase and
maintain earthquake insurance to cover the physical premises and contents.
Coverage is to be written on a replacement cost basis.
5. Section 16, Assignment and Subletting, is hereby amended to delete
reference to the merger or consolidation of Tenant or to the transfer or sale
of a controlling percentage of the capital stock of Tenant as requiring the
consent of Landlord. Landlord hereby acknowledges that Tenant is a publicly
held corporation, and that the merger or consolidation of Tenant or changes in
the
95
<PAGE> 4
ownership of the outstanding capital stock of Tenant shall not require
Landlord's consent.
6. Right of First Refusal.
If Landlord at any time determines to sell all or any part of the Premises
(whether or not in response to an offer from a third party), Landlord shall
notify Tenant of the terms on which Landlord will be willing to sell.
If Tenant, within thirty (30) days after Landlord's notice, indicates
in writing its agreement to purchase the Premises or a part of the Premises on
the terms stated in the Landlord's notice, Landlord shall sell and convey the
Premises or a part of the Premises to Tenant on the terms stated in the notice.
If Tenant does not indicate its agreement within thirty (30) days, Landlord
thereafter shall have the right to sell and convey the Premises or a part of
the Premises to third party on the same terms stated in the notice. If
Landlord does not thereafter sell and convey the Premises to a third party on
the same terms stated in the Landlord's notice to Tenant, within ninety (90)
days, any further transaction will be deemed to be a new determination by
Landlord to sell and convey the premises or a part of the Premises and the
provisions of this Section shall apply.
If Tenant purchases all of the Premises, this Lease shall terminate on
the date title vests in Tenant. If Tenant shall purchase a part of the
Premises, this Lease as to the part purchased shall terminate on the date title
vests in Tenant, and the Minimum Monthly Rent shall be reduced in the same
ratio that the value of the Premises before the purchase bears to the value of
the Premises covered by the Lease immediately after the purchase.
III. EFFECT OF AMENDMENT
Except as expressly amended or modified herein the Lease shall remain
in full force and effect.
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<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Lease as of the
date first set forth above.
LANDLORD
SOUTH BAY SANITARIUM AND
CONVALESCENT HOSPITAL
a partnership
By:
--------------------------------
Its:
TENANT
SUMMIT CARE-CALIFORNIA
a California corporation
By:
-------------------------------
Its: Vice President Finance
97
<PAGE> 1
Exhibit 10.50
LEASE TERMINATION AGREEMENT
This Lease Termination Agreement this "Agreement" by and between Irwin
M. Herz, Jr., Trustee for the Three R Trusts "Landlord" and Summit Care
Corporation "Tenant", a California corporation.
WHEREAS, Landlord and Tenant are the respective lessor and lessee with
respect to that certain "Nursing Home Lease Agreement", made October 15, 1990 by
and between Landlord and Oakcrest Nursing Center, Inc. ("Oak Crest") (Tenant's
predecessor in interest) concerning the real property and improvements thereon
located in Aransas County, Texas more particularly described on Exhibit "A"
attached hereto and incorporated herein by reference for all purposes, as
supplemented by that certain undated "Supplemental Agreement to Nursing Home
Lease Agreement" executed by said parties and amended by that certain "Amendment
to Nursing Home Lease Agreement" dated on or about July 20, 1992 by and between
Landlord, Oak Crest and Leonard May Enterprises, Inc. as Optionee and further
amended by that certain "Consent to Assignment and Assumption Agreement" dated
on or about October 5, 1994 (said Lease as supplemented and amended collectively
the "Lease"); and
WHEREAS, Tenant is the successor in interest to all the interest of
Oakcrest Nursing Center, Inc. (also known as Oak Crest Nursing Center, Inc.)
and is the owner and holder of all of the lessee's interest in and to the
Lease; and
WHEREAS, Tenant desires to exercise its option to purchase the Demised
Premises (as defined in the Lease) in accordance with the Lease; and
WHEREAS, Landlord and Tenant desire that the Lease shall terminate upon
consummation of such acquisition.
NOW THEREFORE, in consideration of $10.00 and of the premises herein
and the mutual covenants hereinafter set forth, the receipt and insufficiency
which is hereby acknowledged, the parties agree as follows:
1. Landlord represents and warrants that the Landlord is the sole
beneficial owner of all of the right, title and interest of the
lessor under the Lease.
2. Tenant represents and warrants that Tenant is the sole beneficial
owner of all of the right, title and interest of the lessee under
the Lease.
3. (a) Upon delivery of the Purchase Option Price, defined below, to
Landlord, the Lease shall terminate. Such termination of the Lease
is expressly conditioned upon Tenant's payments to Landlord of the
amount of:
(i) $1,997,334.00 (in accordance with Section 22.1
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<PAGE> 2
of the Lease) plus (b) in the event the closing, funding and delivery of
the Purchase Option Price referred to in subparagraph 1, to the Landlord
does not occur on July 1, 1996, then an additional amount equal to
$725.39 under the Lease for each additional day or portion thereof from
and including July 1, 1996 until such closing, funding and delivery to
the Landlord occurs.
(iii) "Delivery" to Landlord means receipt of wire transferred
funds by Landlord's bank, Moody National Bank of Galveston, in
accordance with Landlord's (or Landlord's attorney's) written
instructions which have been delivered to the title company closing the
subject conveyance.
(iv) Any and all provisions in the Lease which would survive
expiration of the term of the Lease, including any releases, indemnities
and hold harmlesses shall survive the termination of the Lease herein
referenced.
(b) As consideration for Landlord's execution and delivery of the Bill of
Sale and Assignment dated on or about the date hereof relating to
certain personal property on or about the Demised Premises which is more
particularly described therein. Tenant shall pay Landlord, and Landlord
agrees to accept, the amount of $25,000.00 simultaneous with the
delivery of the Purchase Option Price to Landlord.
4. Where appropriate, all references to the singular shall include the
plural and vice versa and references to any gender shall include the
others.
5. Each person executing on behalf of the parties hereto represents that
such person has the full right, power and authority to execute and
deliver this Agreement on behalf of such party without any further
action or consent of any other person or entity.
6. This Agreement may be executed in multiple counterparts, each of which
shall be an original instrument and which, taken together constitute one
and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
99
<PAGE> 3
EXECUTED on the _______ day of ____________________, 1996 with respect
to Landlord and on the 10th day of July, 1996 with respect to Tenant, in each
case to be effective as of the 10th day of July, 1996.
By:
------------------------------------
IRWIN M. HERZ, JR., Trustee for
the Three R Trusts and not
individually
SUMMIT CARE CORPORATION
By: /s/ DERWIN L. WILLIAMS
------------------------------------
Name: Derwin L. Williams
Its: Sr. Vice President Finance
100
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,658
<SECURITIES> 0
<RECEIVABLES> 30,014
<ALLOWANCES> (2,084)
<INVENTORY> 2,058
<CURRENT-ASSETS> 45,678
<PP&E> 186,636
<DEPRECIATION> (21,713)
<TOTAL-ASSETS> 223,052
<CURRENT-LIABILITIES> 31,772
<BONDS> 0
0
0
<COMMON> 51,486
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 223,052
<SALES> 176,062
<TOTAL-REVENUES> 176,062
<CGS> 0
<TOTAL-COSTS> 164,301
<OTHER-EXPENSES> 12,421
<LOSS-PROVISION> 2,241
<INTEREST-EXPENSE> 6,574
<INCOME-PRETAX> 11,761
<INCOME-TAX> 4,452
<INCOME-CONTINUING> 0
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<NET-INCOME> 7,309
<EPS-PRIMARY> 1.06
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