<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION NO. 333-57279
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
FOUNTAIN VIEW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------
<TABLE>
<S> <C>
DELAWARE 95-4644784
(STATE OR OTHER JURISDICTION OF INCORPORATION OR OR-
GANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
AND SUBSIDIARY GUARANTORS
SUMMIT CARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-3656297
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE-CALIFORNIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2269142
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE PHARMACY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-3747839
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE TEXAS EQUITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4604050
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE TEXAS, NO. 2, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 95-4060847
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE TEXAS, NO. 3, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 74-2582813
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE MANAGEMENT TEXAS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 74-2850517
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SUMMIT CARE TEXAS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 95-4642711
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
FOUNTAIN VIEW HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4644785
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
AIB CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-3918421
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
ALEXANDRIA CONVALESCENT HOSPITAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4395382
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
BIA HOTEL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-3918420
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
BRIER OAK CONVALESCENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4212165
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
ELMCREST CONVALESCENT HOSPITAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4274740
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
FOUNTAINVIEW CONVALESCENT HOSPITAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2506832
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
FOUNTAIN VIEW MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4199013
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
RIO HONDO NURSING CENTER
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4272737
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
LOCOMOTION HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4644786
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
LOCOMOTION THERAPY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4644790
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
ON-TRACK THERAPY CENTER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 77-0447168
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
I.'N O, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-4560821
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
SYCAMORE PARK CONVALESCENT HOSPITAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2260970
(STATE OR OTHER JURISDICTION OF INCORPO-
RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
(Continued on next page)
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- --------------------------------------------------------------------------------
<PAGE>
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(Continued from previous page)
8051
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
--------------
11900 W. OLYMPIC BOULEVARD
SUITE 680
LOS ANGELES, CALIFORNIA 90064
(310) 571-0351
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT M. SNUKAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FOUNTAIN VIEW, INC.
11900 W. OLYMPIC BOULEVARD, SUITE 680
LOS ANGELES, CALIFORNIA 90064
(310) 571-0351
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
WITH A COPY TO:
STEPHEN M. L. COHEN, ESQ.
CHOATE, HALL & STEWART
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 248-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and they are in compliance
with General Instruction G, check the following box: [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 25, 1998
PROSPECTUS
OFFER TO EXCHANGE UP TO $120,000,000 OF 11 1/4%
SENIOR SUBORDINATED NOTES DUE 2008, SERIES B OF
FOUNTAIN VIEW, INC., WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
FOUNTAIN VIEW, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
Fountain View, Inc., a Delaware corporation (the "Company") hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (as
the same may be amended or supplemented from time to time, this "Prospectus")
and the accompanying letter of transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange up to an
aggregate amount of $120,000,000 of the Company's 11 1/4% Senior Subordinated
Notes Due 2008, Series B (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement of which this Prospectus is a part, which Exchange
Notes shall be guaranteed (the "Exchange Guarantees"), on a full and
unconditional basis, jointly and severally, by each of the Guarantors (as
defined) and all future Restricted Subsidiaries (as defined) of the Company, or
any of the Guarantors for a like principal amount of the Company's outstanding
11 1/4% Senior Subordinated Notes Due 2008 (the "Outstanding Notes"), of which
$120,000,000 in aggregate principal amount was issued on April 16, 1998 and is
outstanding as of the date hereof, which Outstanding Notes have been guaranteed
on a full and unconditional basis by the Guarantors (the "Outstanding
Guarantees" and, together with the Exchange Guarantees, the "Guarantees").
Except as described below, the Notes are not redeemable at the Company's option
prior to April 15, 2003. From and after April 15, 2003, the Notes will be
subject to redemption at the option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, to the date of redemption. In
addition, prior to April 15, 2001, up to 35% in aggregate principal amount of
Notes will be redeemable at the option of the Company from the net proceeds of
Public Equity Offerings (as defined) by the Company, at a price of 111.25% of
the principal amount of the Notes, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided that at least
$78.0 million in aggregate principal amount of Notes remains outstanding
immediately after each such redemption; and provided, further, that any such
redemption occur within 60 days of the date of the closing of such Public
Equity Offering. The form and terms of the Exchange Notes and the Exchange
Guarantees are identical in all material respects to the form and terms of the
Outstanding Notes and the Outstanding Guarantees, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes. The
Exchange Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture, dated as of April 16, 1998, between the Company, the Guarantors and
State Street Bank and Trust Company of California, as trustee, governing the
Outstanding Notes. The Exchange Notes and the Outstanding Notes are hereinafter
sometimes collectively referred to as the "Notes".
The Company is a holding company, has no operations of its own and derives
substantially all of its revenue from its subsidiaries. The operations of the
Company are conducted through its subsidiaries and, therefore, the Company is
dependent upon the cash flow of its subsidiaries to meet its obligations,
including its obligations under the Notes. The Notes are effectively
subordinated to all Indebtedness and other liabilities and commitments
(including trade payables) of the Company's subsidiaries.
Holders of Outstanding Notes whose Outstanding Notes are not tendered and
accepted in the Exchange Offer will continue to hold such Outstanding Notes and
will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture. Following the consummation
of the Exchange Offer, the holders of Outstanding Notes will continue to be
subject to the existing restrictions on the transfer thereof and the Company
will have no further obligation to such holders to provide for the registration
under the Securities Act of the Outstanding Notes held by them. The Company
will not receive any proceeds from, and has agreed to pay all the expenses
incurred by it incident to, the Exchange Offer. No underwriter is being used in
connection with this Exchange Offer.
Except as otherwise indicated, the following description relates both to the
Outstanding Notes issued in the Note Offering and the Exchange Notes, together
with the Exchange Guarantees, to be issued in exchange for the Outstanding
Notes in the Exchange Offer. The form and terms of the Exchange Notes are the
same as the form and terms of the Outstanding Notes, except that the Exchange
Notes have been registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof. The Outstanding Notes are and the
Exchange Notes will be general,
<PAGE>
(Continued from previous page)
unsecured obligations of the Company. There is currently no indebtedness
outstanding that is subordinated to the Notes.The Outstanding Notes rank and
the Exchange Notes will rank on the same level with all future senior
subordinated debt of the Company. The claims of the holders of the Outstanding
Notes are and the claims of the holders of the Exchange Notes will be
subordinated to Senior Debt (as defined). The Company is highly leveraged. As
of June 30, 1998, approximately $126 million of Senior Debt was outstanding,
including approximately $101 million of borrowings under the Company's New
Credit Facility (as defined herein). See "Capitalization" and "Description of
Other Indebtedness".
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
that Exchange Notes to be issued pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
(i) a broker-dealer who purchasers such Exchange Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holder's business and such holder has no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes.
However, the Company has not sought and does not intend to seek its own no-
action letter in connection with the Exchange Offer and there can be no
assurance that the Commission would make a similar determination with respect
to the Exchange Offer. Eligible holders of Outstanding Notes wishing to accept
the Exchange Offer must represent to the Company that such conditions have
been met. Each broker-dealer (a "Participating Broker-Dealer") that receives
Exchange Notes for its account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
A broker-dealer may nonetheless be deemed to be an "underwriter" under the
Securities Act notwithstanding such disclaimer. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such Participating Broker-Dealer as a result of market making activities or
other trading activities, provided such Outstanding Notes do not constitute
any portion of an unsold allotment from the original sale of the Outstanding
Notes. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution".
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY HOLDERS OF OUTSTANDING NOTES AND PROSPECTIVE PURCHASERS OF
EXCHANGE NOTES.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is , 1998.
The Company will accept for exchange any and all validly tendered
Outstanding Notes not withdrawn prior to 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by the Company (the
"Expiration Date"); however, in no event shall the Exchange Offer be extended
beyond sixty (60) days after the date the registration statement of which this
Prospectus is a part is declared effective by the Commission. Tenders of
Outstanding Notes may be withdrawn at any time prior to the Expiration Date.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions which may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement.
See "The Exchange Offer--Certain Conditions to the Exchange Offer".
<PAGE>
THE INITIAL PURCHASERS WHO PARTICIPATED IN THE OFFERING OF THE OUTSTANDING
NOTES MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THE PRICE OF THE NOTES. SPECIFICALLY, THE INITIAL PURCHASERS MAY BID FOR AND
PURCHASE OUTSTANDING NOTES AND EXCHANGE NOTES IN THE OPEN MARKET.
NEITHER THE COMPANY NOR THE INITIAL PURCHASERS ARE MAKING ANY REPRESENTATION
TO ANY OFFEREE OR PURCHASER OF THE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH OFFEREE OR PURCHASER UNDER APPROPRIATE LEGAL
INVESTMENT OR SIMILAR LAWS. THE EXCHANGE OFFER IS BEING MADE ON THE BASIS OF
THIS PROSPECTUS. ANY DECISION TO EXCHANGE NOTES IN THE EXCHANGE OFFER MUST BE
BASED ON THE INFORMATION CONTAINED HEREIN. EACH PROSPECTIVE PURCHASER OF THE
EXCHANGE NOTES MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE
IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS OR SELLS THE EXCHANGE NOTES
OR POSSESSES OR DISTRIBUTES THIS PROSPECTUS AND MUST OBTAIN ANY CONSENT,
APPROVAL OR PERMISSION REQUIRED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF
THE EXCHANGE NOTES UNDER THE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION
TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES,
AND NEITHER THE COMPANY NOR THE INITIAL PURCHASERS SHALL HAVE ANY
RESPONSIBILITY THEREFOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES TO ANY PERSON IN ANY
JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
----------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE NEW HAMPSHIRE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise stated in this Prospectus, references to (a)
"Fountain View" shall mean Fountain View, Inc., a Delaware corporation and its
subsidiaries, other than Summit and its subsidiaries; (b) "Summit" shall mean
Summit Care Corporation, a California corporation and its subsidiaries; and (c)
the "Company" shall mean Fountain View and its subsidiaries, including Summit
and its subsidiaries and, in certain cases, refers to the historical
performance or operations of Fountain View and Summit, taken as a whole. All
references to a fiscal year refer to the twelve months ended June 30, in the
case of Summit, and December 31, in the case of Fountain View and the Company,
of the year referenced.
THE COMPANY
The Company is a leading operator of long-term care facilities and a leading
provider of a full continuum of post-acute care services, with a strategic
emphasis on sub-acute specialty medical care. Sub-acute care is generally
short-term, goal-oriented rehabilitation care intended for individuals who have
a specific illness, injury or disease, but who do not require many of the
services provided in an acute care hospital. Sub-acute care is typically
rendered immediately after, or in lieu of, acute hospitalization in order to
treat such specific medical conditions. Post-acute care is the provision of a
continuum of care to patients following discharge from an acute care hospital.
The Company operates a network of facilities in California, Texas and Arizona,
including 44 skilled nursing facilities ("SNFs") that offer sub-acute,
rehabilitative and specialty medical skilled nursing care, as well as six
assisted living facilities ("ALFs") that provide room and board and social
services in a secure environment. In addition to long-term care, the Company
provides a variety of high-quality ancillary services such as physical,
occupational and speech therapy in Company-operated facilities, unaffiliated
facilities and acute care hospitals. The Company also operates three
institutional pharmacies (one of which is a joint venture), which service acute
care hospitals as well as SNFs and ALFs both affiliated and unaffiliated with
the Company, an outpatient therapy clinic and a durable medical equipment
("DME") company. The Company consists of the combined operations of Fountain
View and Summit and operates 50 facilities with approximately 6,600 beds
serving Medicare, Medicaid, managed care, private pay and other patients.
THE TRANSACTIONS
On February 6, 1998, Fountain View, Summit, Heritage Fund II, L.P. and FV-SCC
Acquisition Corp., a wholly-owned subsidiary of Fountain View ("Acquisition"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") providing
for the acquisition of Summit by Fountain View. Pursuant to the Merger
Agreement, Acquisition offered (the "Tender Offer") to purchase all of the
outstanding shares of common stock of Summit (the "Summit Shares"), at a price
of $21.00 per share, net to the seller in cash. A copy of the Merger Agreement
is filed as an exhibit to the Schedule 14D-1 filed by Fountain View with the
Securities and Exchange Commission (the "Commission") in connection with the
Tender Offer. The Tender Offer expired on March 25, 1998 and Acquisition
purchased approximately 99% of the Summit Shares at the closing of the Tender
Offer on March 27, 1998.
Pursuant to the terms of the Merger Agreement, Acquisition merged with and
into Summit on April 16, 1998 (the "Merger"). Summit was the surviving
corporation in the Merger and became a wholly-owned subsidiary of Fountain
View.
1
<PAGE>
In order to consummate the purchase of Summit Shares in the Tender Offer and
the Merger, to refinance all then existing Fountain View funded indebtedness,
to redeem all outstanding options for Summit Shares, and to pay certain fees,
expenses and other costs arising in connection with such transactions, Fountain
View sold, in a transaction exempt from registration pursuant to Rule 144A and
Regulation S of the Securities Act, $120.0 million of the Outstanding Notes
(the "Note Offering"). The Company also entered into a new revolving credit
facility and term loan facilities (the "New Credit Facility") providing for
revolving credit borrowings of up to $30.0 million and term loan borrowings of
up to $85.0 million. In addition, Fountain View raised approximately
$97.0 million of new equity investments in the amounts of $90.6 million from
Heritage Fund II, L.P. and certain other co-investors, $5.0 million from Mr.
Snukal, Fountain View's Chief Executive Officer, and Sheila Snukal, Fountain
View's Executive Vice President and Mr. Snukal's wife ("Mrs. Snukal"), and
$1.4 million from Mr. Scott, Summit's Chairman and Chief Executive
Officer (collectively, the "Equity Investments"). The Company used the proceeds
of the Note Offering to repay certain indebtedness of Summit assumed in
connection with the Merger and to pay certain transaction fees and expenses.
See "Use of Proceeds".
The Tender Offer, the Merger, the establishment of the New Credit Facility,
the Equity Investments, the Note Offering and the application of the proceeds
therefrom are collectively referred to as the "Transactions".
Since the Transactions, senior management of the Company have owned
approximately 26.3% of the Company's outstanding common stock, on a fully-
diluted basis, and Heritage Partners, Inc. and its affiliates ("Heritage"),
along with certain co-investors, have owned approximately 72.7% of the
Company's outstanding common stock, on a fully-diluted basis. Heritage is a
Boston-based private equity firm with $530 million in capital under management,
specializing in the acquisition and equity-based recapitalization of private,
family-owned businesses. See "Management".
In August 1997, Heritage invested $14.0 million in cash in Fountain View in a
series of transactions (the "Fountain View Equity Transactions") which resulted
in Heritage obtaining a 49.9% ownership position in the common equity of
Fountain View and completing a $7.0 million preferred stock investment in
Fountain View at that time. See Note 3 to the audited financial statements of
Fountain View included elsewhere in this Prospectus.
2
<PAGE>
Set forth below is a diagram showing the post-Merger organizational structure
of Fountain View, Inc. and its subsidiaries (all subsidiaries are 100% owned,
unless otherwise indicated):
CHART APPEARS HERE
The diagram depicts:
(A) Fountain View as the owner of all of the outstanding stock of:
Summit Care Corporation, I'NO, Inc., Locomotion Holdings, Inc., On-Track
Therapy Center, Inc., Fountain View Holdings, Inc. and Sycamore Park
Convalescent Hospital;
(B) Summit Care Corporation as the owner of:
(i) all of the outstanding stock of Summit Care California, Inc., Summit
Care Pharmacy Inc., Summit Care Texas No. 2, Summit Care Texas
Management, Inc., and Summit Care Texas No. 3, and (ii) 82.8% of the
outstanding stock of Summit Care Texas Equity, Inc.
(C) Locomotion Holdings, Inc. as the owner of all the outstanding stock
Locomotion Therapy, Inc.
(D) Fountain View Holdings, Inc. as the owner of all the outstanding stock of;
AIB Corp., Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier
Oak Convalescent, Inc., Elmcrest Convalescent Hospital, Fountainview
Convalescent Hospital, Fountainview Management, Inc., Rio Hondo Nursing
Center
(E) Summit Care Texas No. 2, Inc. owning 17.2% of the outstanding stock of
Summit Care Texas Equity, Inc.
(F) Summit Care Texas Management, Inc. owning a 1% general partnership
interest in Summit Care Texas L.P.
(G) Summit Care Texas Equity, Inc. owning a 99% limited partnership interest
in Summit Care Texas L.P.
3
<PAGE>
THE FINANCINGS
The following table illustrates the sources and uses of funds for the
Transactions. See "Unaudited Pro Forma Financial Data".
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
New Credit Facility(1)........................................ $100.0
11 1/4% Senior Subordinated Notes............................. 120.0
------
Total debt................................................ 220.0
------
Equity Investments:
Heritage and co-investors equity investments(2)............. 90.6
Fountain View management equity investment(3)............... 5.0
Summit management equity investment(4)...................... 1.4
------
Total equity.............................................. 97.0
------
Total sources of funds.................................... $317.0
======
USES OF FUNDS
Purchase of Summit Shares in the Tender Offer and the
Merger(5).................................................... $145.6
Refinancing of Fountain View indebtedness(6).................. 32.0
Refinancing of Summit indebtedness(7)......................... 108.9
Fees and expenses............................................. 30.5
------
Total uses of funds....................................... $317.0
======
</TABLE>
- --------
(1) The New Credit Facility provides for up to $30.0 million of revolving
credit borrowings (with a $4.0 million sublimit for letters of credit) and
up to $85.0 million of term loans and matures in 2004. As of June 30, 1998,
term loans in the aggregate amount of approximately $85.0 million and
revolving loans in the aggregate amount of approximately $16.0 million were
outstanding under the New Credit Facility, and $14.0 million of revolving
credit borrowings were then available to the Company.
(2) Represents only the new cash invested in Fountain View by Heritage and
certain co-investors in connection with the Transactions and excludes the
Fountain View shares held by Heritage prior to the Transactions.
(3) Represents only the new cash invested in Fountain View by Mr. Snukal and
Mrs. Snukal in connection with the Transactions and excludes the Fountain
View shares held by management prior to the Transactions.
(4) Represents the full amount of the after-tax proceeds that Mr. Scott
received from the cash-out in the Merger of all options to purchase Summit
Shares held by him (and a payment from the Company to cover a portion of
related taxes) and the full after-tax proceeds from payments under the
Summit Executive Incentive Plan received by him from the Company, but does
not include the issuance by Mr. Scott of a limited recourse promissory note
in consideration for certain of the Fountain View shares issued to him in
connection with the Transactions. See "Certain Relationships and Related
Transactions--Investment Agreement" and "--Payments to Certain
Stockholders".
(5) Represents the purchase of all Summit Shares in the Tender Offer and the
Merger, and the cash-out of options to purchase 909,500 Summit Shares which
Summit effected upon the effectiveness of the Merger.
(6) Reflects the total funded indebtedness of Fountain View outstanding
immediately prior to the Merger.
(7) Reflects total funded indebtedness of Summit (excluding mortgages, capital
leases and certain other indebtedness) outstanding immediately prior to the
Merger.
4
<PAGE>
RECENT DEVELOPMENTS
On May 4, 1998, Baylor Health Care System, a vertically integrated healthcare
system operating in Texas ("Baylor"), and Buckner Foundation ("Buckner"), a
subsidiary of Buckner Baptist Benevolences, a Texas social services
organization (collectively, the "Baylor Group"), purchased from Heritage shares
of Series A Preferred Stock of Fountain View and warrants to purchase shares of
Fountain View's Series C Common Stock for approximately $12.4 million. The
shares of Series A Preferred Stock purchased by the Baylor Group are entitled
to receive a cumulative dividend calculated to achieve a 12% annual rate of
return, and are subject to automatic redemption upon the completion of an
initial public offering of Fountain View's common stock. The shares represented
by the warrants issued to the Baylor Group currently represent approximately 5%
of Fountain View's diluted capital stock. Baylor is also entitled to have one
of its nominees serve on Fountain View's board of directors.
Baylor and Fountain View also entered into an agreement on May 4, 1998
primarily to develop and operate skilled nursing facilities within a mile of
the Baylor hospital campuses for which Baylor has the right to receive a
market-rate development and license fee in the form of cash or warrants.
Baylor, one of the nation's largest not-for-profit integrated health care
providers, operates a network of 50 hospitals, clinics and primary care
facilities in 19 cities throughout Northern Texas and Southern Oklahoma. Baylor
is based in Dallas-Fort Worth, Texas, where its hospitals represent 16% of all
hospital admissions in the Dallas-Forth Worth area.
For the six months ended June 30, 1998, net revenues totaled $88.3 million.
During the same period, occupancy was 86.4% (excluding three Summit facilities
which commenced operations or were renovated in 1996 or later) and the
Company's quality mix (which is total net revenues less Medicaid net revenues)
was 65.1%.
The Company was incorporated in Delaware in 1997. Its principal executive
offices are located at 11900 Olympic Boulevard, Suite 680, Los Angeles,
California 90064, and its telephone number is (310) 571-0351.
5
<PAGE>
THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on
April 16, 1998 to Goldman, Sachs & Co., Nesbitt
Burns Securities Inc., Paribas Corporation and
Sutro & Co., Incorporated (collectively, the
Outstanding Notes........... "Initial Purchasers") pursuant to a Purchase
Agreement, dated April 16, 1998 (the "Purchase
Agreement"). The Initial Purchasers subsequently
resold the Outstanding Notes in transactions not
registered under the Securities Act in reliance
upon exemptions from registration pursuant to
Rule 144A and Regulation S under the Securities
Act.
Registration Rights Pursuant to the Purchase Agreement, the Company
Agreement................... and the Initial Purchasers entered into the
Registration Rights Agreement, which grants the
holders of the Outstanding Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange and
registration rights which terminate upon the
consummation of the Exchange Offer.
Securities Offered.......... $120,000,000 aggregate principal amount of 11
1/4% Senior Subordinated Notes due 2008, Series B
(the "Exchange Notes").
The Exchange Offer.......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Outstanding Notes that
are properly tendered and accepted. The Company
will issue Exchange Notes on or promptly after
the Expiration Date. As of the date hereof, there
is $120,000,000 aggregate principal amount of
Outstanding Notes outstanding. The terms of the
Exchange Notes are identical in all material
respects to the terms of the Outstanding Notes
for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes
will bear a Series B designation, are freely
transferable by holders thereof (other than as
provided herein), and are not subject to any
covenant restricting transfer absent registration
under the Securities Act. See "The Exchange
Offer". The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Outstanding Notes being tendered for exchange.
Based on no-action letters issued by the staff of
the Commission to third parties with respect to
similar transactions (e.g. Exxon Capital Holdings
Corp. (April 13, 1989), Morgan Stanley & Co.,
Inc. (June 2, 1993) and Shearman & Sterling (July
2, 1993)), the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by
holders thereof (other than (i) a
6
<PAGE>
broker-dealer who purchases such Exchange Notes
from the Company to resell pursuant to Rule 144A
or any other available exemption under the
Securities Act, or (ii) a person that is an
"affiliate" of the Company within the meaning of
Rule 405 of the Securities Act) without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in
the ordinary course of such holders' business and
such holders are not engaged in, have no
arrangement or understanding with any person to
participate in, and do not intend to engage in,
any distribution of the Exchange Notes. However,
the Company has not sought and does not intend to
seek a no-action letter with respect to the
Exchange Offer and there can be no assurance that
the staff of the Commission would make a similar
determination with respect to the Exchange Offer.
Each holder of Exchange Notes, other than a
broker-dealer, must represent that such
conditions have been met. In addition, each
broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes.
The Letter of Transmittal accompanying this
Prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. A
broker-dealer may nonetheless be deemed to be an
"underwriter" under the Securities Act
notwithstanding such disclaimer. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of Exchange Notes
received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. Pursuant
to the Registration Rights Agreements, the
Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use
in connection with any such resale. See "The
Exchange Offer-- Purpose of the Exchange Offer"
and "Plan of Distribution".
By tendering Outstanding Notes in exchange for
Exchange Notes, each holder will represent to the
Company that: (i) it is not an affiliate of the
Company, (ii) it is not engaged in, and does not
intend to engage in, and has no arrangement or
understanding with any person to participate in,
a distribution of the Exchange Notes to be issued
in the Exchange Offer, and (iii) any Exchange
Notes to be received by it will be acquired in
the ordinary course of business. Any holder who
tenders in the Exchange Offer who is unable to
make the foregoing representations may not rely
on the position of the
7
<PAGE>
staff of the Commission enunciated in no-action
letters and, in the absence of an applicable
exemption, must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
Expiration Date............. 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer--Expiration
Date; Extensions; Termination; Amendments".
Accrued Interest on the
Exchange Notes............. Each Exchange Note will bear interest from the
most recent date to which interest has been paid
on the Outstanding Notes or, if no interest has
been paid on such Outstanding Notes, from
April 16, 1998.
Exchange Date............... As soon as practicable after the close of the
Exchange Offer, the Company will accept for
exchange all Outstanding Notes properly tendered
and not validly withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal Rights".
Conditions to the Exchange The Exchange Offer is subject to the following
Offer....................... conditions: (A) an injunction, order or decree
shall not have been issued by any court or
governmental agency that would prohibit, prevent
or otherwise materially impair the ability of the
Company to proceed with the Exchange Offer; and
(B) there shall not have occurred a change in the
current interpretation of the staff of the
Commission which current interpretation permits
the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Outstanding
Notes to be offered for resale, resold and
otherwise transferred by holders thereof (other
than (i) a broker-dealer who purchases such
Exchange Notes directly from the Company to
resell pursuant to Rule 144A, Regulation S or any
other available exemption under the Securities
Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders have no
arrangement with any person to participate in the
distribution of Exchange Notes. The Company
reserves the right to terminate or amend the
Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition. The Exchange Offer is not conditioned
on any minimum aggregate principal amount
8
<PAGE>
of Outstanding Notes being tendered for exchange.
See "The Exchange Offer--Certain Conditions to
the Exchange Offer".
Consequences of Failure to
Exchange................... Any Outstanding Notes not tendered pursuant to
the Exchange Offer will remain outstanding and
continue to accrue interest. Such Outstanding
Notes will remain "restricted securities" under
the Securities Act, subject to the transfer
restrictions described herein. As a result, the
liquidity of the market for such Outstanding
Notes could be adversely affected upon completion
of the Exchange Offer. See "Risk Factors--
Consequences of Failure to Exchange the
Outstanding Notes".
Certain Federal Income Tax
Considerations............. The exchange of the Outstanding Notes for
Exchange Notes by tendering holders should not be
a taxable exchange for U.S. Federal income tax
purposes, and such holders should not recognize
any taxable gain or loss for U.S. Federal income
tax purposes as a result of such exchange. See
"Material Federal Income Tax Consequences".
Use of Proceeds............. There will be no cash proceeds to the Company
from the Exchange Offer. See "Use of Proceeds".
Tendering Outstanding
Notes....................... Each holder of Outstanding Notes wishing to
accept the Exchange Offer must complete, sign and
date a Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Outstanding
Notes and any other required documents, to the
Exchange Agent (as defined) at the address set
forth herein. See "Exchange Offer--Procedures for
Tendering Outstanding Notes".
Withdrawal Rights........... The tender of Outstanding Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date, in accordance with the
procedures set forth in this Prospectus. See "The
Exchange Offer--Withdrawal Rights".
Untendered Outstanding
Notes....................... Upon consummation of the Exchange Offer, the
holders of Outstanding Notes, if any, will have
no further rights under the Registration Rights
Agreement, except as provided herein. Holders of
Outstanding Notes whose Outstanding Notes are not
tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such
Outstanding Notes and will be entitled to all the
rights and preferences and subject to the
limitations applicable thereto. Following
consummation of the Exchange Offer, the holders
of Outstanding Notes will continue to be subject
to the existing restrictions upon transfer
thereof and, except as provided herein, the
Company will have no further obligation to such
9
<PAGE>
holders to provide for the registration under the
Securities Act of the Outstanding Notes held by
them. To the extent that Outstanding Notes are
tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but
unaccepted Outstanding Notes could be adversely
affected.
Exchange Agent.............. State Street Bank and Trust Company of
California, N.A., is serving as Exchange Agent in
connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent".
Shelf Registration Under certain circumstances described in the
Statement................... Registration Rights Agreement, certain holders of
Outstanding Notes (including holders who are not
permitted to participate in the Exchange Offer or
who may not freely resell Exchange Notes received
in the Exchange Offer) may require the Company to
file and use its reasonable efforts to cause to
become effective, a shelf registration statement
under the Securities Act, which would cover
resales of Outstanding Notes by such holders. See
"The Exchange Offer--Purpose of the Exchange
Offer".
TERMS OF THE NOTES
Except as otherwise indicated, the following description relates both to the
Outstanding Notes issued pursuant to the Note Offering and to the Exchange
Notes to be issued in exchange for Outstanding Notes in connection with the
Exchange Offer. The Exchange Notes will be obligations of the Company
evidencing the same indebtedness as the Outstanding Notes, and will be entitled
to the benefits of the same Indenture. The form and terms of the Exchange Notes
are the same as the form and terms of the Outstanding Notes, except that the
Exchange Notes have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof. For a more complete
description of the Notes see "Description of Notes". Throughout this
Prospectus, references to the "Notes" refer to the Exchange Notes and the
Outstanding Notes collectively.
Issuer...................... Fountain View, Inc.
Securities Offered.......... $120.0 million aggregate principal amount of 11
1/4% Senior Subordinated Notes due 2008, Series B
that have been registered under the Securities
Act. See "Description of Notes".
Maturity Date............... April 15, 2008
Guarantees.................. The Company's payment obligations under the Notes
are fully and unconditionally, jointly and
severally guaranteed on a senior subordinated
basis by each of the Company's current and future
Restricted Subsidiaries. As of the date of the
Indenture, all of the Company's Subsidiaries will
be Restricted Subsidiaries. The Outstanding
Guarantees are, and the Exchange Guarantees will
be, subordinated to all Senior Debt of the
Guarantors. See "Description of Notes--Subsidiary
Guarantees".
10
<PAGE>
The Outstanding Notes accrue interest at a rate
Interest on the Notes....... of 11 1/4% per annum from the Issue Date. The
Exchange Notes will accrue interest at a rate of
11 1/4% per annum from the Issue Date or from the
most recent date to which interest had been paid
on the Outstanding Notes.
Interest Payment Dates...... April 15 and October 15 of each year, commencing
October 15, 1998.
Optional Redemption......... Except as described below, the Notes are not
redeemable at the Company's option prior to April
15, 2003. From and after April 15, 2003, the
Notes will be subject to redemption at the option
of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption.
In addition, prior to April 15, 2001, up to 35%
in aggregate principal amount of Notes will be
redeemable at the option of the Company from the
net proceeds of Public Equity Offerings (as
defined) by the Company, at a price of 111.25% of
the principal amount of the Notes, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption; provided that at
least $78.0 million in aggregate principal amount
of Notes remains outstanding immediately after
each such redemption; and provided, further, that
any such redemption occur within 60 days of the
date of the closing of such Public Equity
Offering.
Change of Control........... In the event of a Change of Control, Holders of
the Notes will have the right to require the
Company to repurchase their Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of repurchase.
Ranking.....................
The Notes constitute general, unsecured
obligations of the Company, subordinated in right
of payment to all Senior Debt of the Company,
ranked on the same level with all senior
subordinated debt of the Company and senior in
right of payment to all existing and future
subordinated debt of the Company, if any. The
claims of the Holders of the Notes will be
subordinated to Senior Debt, which, as of June
30, 1998, was approximately $126 million,
approximately $101 million of which was fully
secured borrowings under the New Credit Facility.
See "Description of Notes--Subordination" and
"Description of Other Indebtedness".
Restrictive Covenants....... The Indenture governing the Notes (the
"Indenture") contains certain covenants that,
among other things, limit the ability of the
Company and its Subsidiaries to incur additional
11
<PAGE>
Indebtedness (as defined herein) and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments or
make certain other Restricted Payments (as
defined herein), enter into certain transactions
with affiliates, dispose of certain assets, incur
liens securing on the same level and subordinated
indebtedness and engage in mergers and
consolidations. See "Description of Notes".
Use of Proceeds............. The gross proceeds of $120.0 million from the
Note Offering along with the proceeds of equity
investments made by Heritage and members of
management were used to repay certain existing
indebtedness, pay certain fees and expenses in
connection with the Transactions, and for general
corporate purposes. No proceeds will be received
by the Company and the Guarantors from the
Exchange Offer. See "--The Financings" and "Use
of Proceeds".
COMPARISON OF EXCHANGE NOTES WITH OUTSTANDING NOTES
Freely Transferable......... Generally, the Exchange Notes will be freely
transferable under the Securities Act by holders
thereof other than any holder that is either an
affiliate of the Company or a broker-dealer that
purchased the Notes from the Company to resell
pursuant to Rule 144A, Regulation S or any other
available exemption. The Exchange Notes otherwise
will be substantially identical in all material
respects (including interest rate and maturity)
to the Outstanding Notes. See "The Exchange
Offer".
Registration Rights......... The holders of Outstanding Notes currently are
entitled to certain registration rights pursuant
to the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of
April 16, 1998, among the Company, the Guarantors
and the Initial Purchasers. However, upon
consummation of the Exchange Offer, subject to
certain exceptions, holders of Outstanding Notes
who do not exchange their Outstanding Notes for
Exchange Notes in the Exchange Offer will no
longer be entitled to registration rights and
will not be able to offer or sell their
Outstanding Notes, unless such Outstanding Notes
are subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Company will have no obligation
to do), except pursuant to an exemption from, or
in a transaction not subject to, the Securities
Act and applicable state securities laws. See
"Risk Factors--Consequences of Failure to
Exchange the Outstanding Notes" and "The Exchange
Offer--Purpose of the Exchange Offer".
Exchange Offer and Absence
of a Public Market for the The Exchange Notes will generally be freely
Notes...................... transferable (subject to the restrictions
discussed elsewhere herein) but
12
<PAGE>
will be new securities for which there will not
initially be a market. The Outstanding Notes are
eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages
("PORTAL") Market, the National Association of
Securities Dealers' ("NASD") screen-based
automated market for trading of securities
eligible for resale under Rule 144A. "PORTAL" or
"PORTAL Market" means the NASD's market for
designated foreign and domestic securities
through an automated quotation and communications
system that facilitates private offerings,
resales, trading, clearance and settlement by
PORTAL participants.
The PORTAL Market, as described by the NASD, is
an electronic screen based system, which
facilitates trading of SEC Rule 144A private
placements by qualified investors. The purpose of
PORTAL is to provide companies with increased
flexibility in raising capital by creating a
method for accessing a significant source of
funds. It also is intended to give U.S.
institutional investors another opportunity to
diversify their portfolios by making certain
foreign securities available for purchase in the
domestic market. PORTAL complements the
Commission's Rule 144A, which provides safe
harbor protections by exempting the private
placements of certain issuers from the
Commission's registration and disclosure
requirements and by allowing eligible
institutional investors to trade these securities
freely among themselves without having to observe
restrictions that, prior to the adoption of the
rule, otherwise delayed the trading of these
securities. The Company does not intend to apply
for a listing of the Exchange Notes on any
securities exchange or on any automated dealer
quotation system. See "Plan of Distribution".
FOR MORE COMPLETE INFORMATION REGARDING THE NOTES, SEE "DESCRIPTION OF
NOTES".
RISK FACTORS
Holders of Outstanding Notes and prospective purchasers of the Exchange Notes
should consider carefully all of the information set forth in this Prospectus
and, in particular, should evaluate the specific factors set forth under "Risk
Factors" for risks involved with an exchange or acquisition of the Exchange
Notes.
ADDITIONAL INFORMATION
For additional information regarding the Notes, see "The Exchange Offer",
"Description of Notes" and "Material Federal Income Tax Consequences".
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below is the pro forma financial information as of June 30, 1998
and December 31, 1997 and for the six months ended June 30, 1998 and for the
year ended December 31, 1997. Such pro forma data does not purport to represent
what the Company's actual results would have been if the Transactions had
occurred on the date indicated, nor does such information purport to project
the results of the Company for future periods. The summary unaudited pro forma
financial information below should be read in conjunction with the "Unaudited
Pro Forma Financial Data", "Selected Historical Financial and Other Data--
Fountain View", "Selected Historical Financial and Other Data--Summit" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue................................. $142,287 $287,144
Salaries and related benefits............... 68,099 135,248
Other operating costs....................... 53,097 115,022
Depreciation and amortization............... 7,152 14,072
Rent expense................................ 3,405 6,754
Interest, net............................... 11,199 23,324
-------- --------
142,952 294,420
-------- --------
Loss before provision for income taxes and
extraordinary item......................... (665) (7,276)
Income taxes benefit(1)..................... 190 2,854
Extraordinary item, net of tax.............. (517) --
-------- --------
Net loss.................................... $ (992) $ (4,422)
======== ========
OTHER FINANCIAL DATA
EBITDA(2)................................... $ 17,686 $ 30,120
Adjusted EBITDA(3).......................... 17,686 37,795
Adjusted EBITDA margin...................... 12.4% 13.2%
Adjusted EBITDAR(3)......................... $ 21,091 $ 44,549
Adjusted EBITDAR margin..................... 14.8% 15.5%
Ratio of earnings to fixed charges(4)....... -- --
Ratio of Adjusted EBITDA to net interest
expense.................................... 1.6 1.6
Ratio of net debt to Adjusted EBITDA(5)..... 6.8 6.3
Net cash (used in) provided by operating
activities................................. $(18,492) $ 34,984
OTHER DATA
Number of facilities (end of period)........ 50 50
Total beds (end of period).................. 6,578 6,574
Patient days (in thousands)(6).............. 1,029 1,963
Average occupancy rate(7)................... 87% 89%
Percentage of revenues from:
Managed care, private pay and Medicare.... 65% 70%
Medicaid.................................. 35 30
BALANCE SHEET DATA (AT JUNE 30, 1998 AND
DECEMBER 31, 1997, RESPECTIVELY)
Cash and cash equivalents................... $ 3,725 $ 4,253
Working capital............................. 27,434 23,146
Total assets................................ 408,555 410,800
Total debt and capital leases, including
current maturities and excluding mandatory
redeemable preferred stock................. 245,650 241,990
Stockholders' equity........................ 70,059 69,764
</TABLE>
14
<PAGE>
- --------
(1) In July 1997, Fountain View's predecessor, which was comprised of all of
Fountain View's operating units owned individually by certain controlling
stockholders, was merged with and into several companies formed by Fountain
View in connection with the Fountain View Equity Transactions. Prior to the
Fountain View Equity Transactions, most of such individually owned
corporations had elected to be taxed as cash-basis S-corporations. The pro
forma income tax benefit for the year ended December 31, 1997 includes a
charge in lieu of income taxes to indicate what the tax provision would
have been had Fountain View been taxed as a C-corporation for all of 1997
with a combined federal and state tax rate of 41%. See Note 3 to the
audited financial statements of Fountain View included elsewhere in this
Prospectus.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the historical
operating results of the Company, nor is it meant to be predictive of
future results of operations or cash flows.
(3) For the year ended December 31, 1997, adjusted EBITDA represents EBITDA
adjusted for certain non-recurring charges shown below. Adjusted EBITDAR
represents Adjusted EBITDA plus rent expense. EBITDAR is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. Similar to EBITDA, management views EBITDAR as a financial
indicator of a company's ability to service or incur debt. A majority of
Fountain View's nursing homes are leased, under operating leases, and not
owned. Accordingly, EBITDAR is used since the rent expense approximates the
interest and depreciation expense Fountain View may have incurred as if the
nursing homes were owned as opposed to leased:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA..................................................... $30,120
Non-recurring charges(a)................................... 7,675
-------
Adjusted EBITDA............................................ $37,795
Rent expense............................................... 6,754
-------
Adjusted EBITDAR........................................... $44,549
=======
</TABLE>
(a) EBITDA is adjusted for the following non-recurring entries in
order to present comparable EBITDA with the preceding years
since these entries are only reflected in the results of
operations for the year ended December 31, 1997 for Fountain
View and for the six months ended December 31, 1997 for Summit.
In addition, the Company does not expect to incur similar costs
in the future. Non-recurring charges consist of: (1) $2,100 of
Medicare reserves taken by Summit due to adjustments proposed by
the Medicare intermediary during their audit of prior year cost
reports. The adjustments relate to issues not proposed by the
Medicare intermediary during previous audits and therefore the
one time impact relating to these adjustments for prior year
cost reports is all reflected in the results of operations for
the year ended December 31, 1997 when the cost reports were
audited and finalized with the Medicare intermediary; (2) $1,074
of retroactive workers' compensation, group and general
liability costs due to the recording of tail coverage insurance
expense at the time Summit converted from an occurrence based
insurance policy to a claims made insurance policy; (3) $983 of
incremental bad debt expense relating to 1996 and prior periods
recorded in 1997 resulting from a change in management's
methodology for determining the allowance for bad debt; the
change in methodology was made to convert Summit's allowance
methodology accounting practices to Fountain View's accounting
as a result of the acquisition; (4) termination of non-compete
agreements and consulting arrangements totaling $965 relating to
the Fountain View Equity Transactions; (5) certain transaction
expenses including discretionary employee bonuses totaling $872
paid upon completion of the Fountain View Equity Transactions;
(6) severance for an executive and other costs totaling $871,
the severance package was paid in connection with the
acquisition of Summit by Fountain View; and (7) $810 related to
an employee lawsuit settled in 1997 involving a specific type of
liability for which the Company currently maintains insurance
coverage (net of ongoing insurance costs).
(b) Management believes that as a consequence of the Transactions, the
Company will realize significant ongoing cost savings and revenue
enhancements. However there can be no assurance that these cost savings
or revenue enhancements will be realized. Management's estimate of the
ongoing cost reductions relating to the Transactions includes: (i)
certain reductions in facility-level operating expense items totaling
$1,451; (ii) $1,355 relating to the elimination of specifically
identified duplicative staff; (iii) $512 relating to reductions in
corporate expenses, including the elimination of certain public company
expenses; and (iv) a reduction in costs of supplies. Such amounts have
not been included in adjusted EBITDA or adjusted EBITDAR.
(4) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rent
expense, which management believes is representative of the interest
component of rent expense. Earnings were not sufficient to cover fixed
charges. The amount of the shortfall approximated $7.3 million for the
proforma year ended December 31, 1997 and $0.6 million for the proforma six
months ended June 30, 1998.
15
<PAGE>
(5) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt
less cash and cash equivalents to Adjusted EBITDA.
(6) "Patient days" refers to the total number of days of patient care provided
by the Company's facilities.
(7) Average occupancy rate has been adjusted to exclude three Summit facilities
which were not operational prior to 1996 or were significantly renovated
during 1997 such that beds were not available during the entire year. Such
facilities were deemed to be in a fill-up stage and, therefore, their
occupancies are not considered to be indicative of a mature facility.
Actual occupancy for the year ended December 31, 1997 including these
facilities was 87%. Also excludes Fountain View's ALF, which represented
less than 2% of Fountain View's total revenue during fiscal 1997.
16
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW
The summary financial data of Fountain View as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 are
derived from the audited financial statements included elsewhere herein. The
summary financial and other data as of December 31, 1993, 1994 and 1995, for
the two years in the period ended December 31, 1994 and for the six months
ended June 30, 1997 and 1998 have been derived from Fountain View's unaudited
financial statements included elsewhere herein and, in the opinion of
management, include all necessary adjustments for a fair presentation of such
information in conformity with generally accepted accounting principles. The
information set forth below should be read in conjunction with
"Capitalization", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue................... $41,061 $51,824 $55,836 $59,432 $ 67,905 $33,423 $ 88,369
Salaries and related benefits. 23,248 27,823 35,048 36,166 38,215 18,638 44,467
Other operating costs......... 10,884 14,886 13,454 14,614 17,990 8,525 29,714
Depreciation and amortization. 110 149 416 600 1,198 366 3,934
Rent expense.................. 4,002 4,017 3,946 3,896 3,775 1,879 2,682
Interest, net................. 307 355 332 278 1,164 30 6,219
------- ------- ------- ------- -------- ------- --------
38,551 47,230 53,196 55,554 62,342 29,438 87,016
------- ------- ------- ------- -------- ------- --------
Income before provision for
income taxes and
extraordinary item........... 2,510 4,594 2,640 3,878 5,563 3,985 1,353
Income tax benefit
(provision).................. (81) 43 (54) (78) (361) (50) (541)
Extraordinary item, net of
tax.......................... -- -- -- -- -- -- (517)
------- ------- ------- ------- -------- ------- --------
Net income.................... 2,429 4,637 2,586 3,800 5,202 3,935 295
Preferred stock dividends..... -- -- -- -- -- -- (355)
------- ------- ------- ------- -------- ------- --------
Net income (loss) available to
common shareholders.......... $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 3,935 $ (60)
======= ======= ======= ======= ======== ======= ========
Basic and diluted earnings per
share available to common
shareholders before extraor-
dinary item(5)............... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 19.68 $ .66
Basic and diluted loss per
share available to common
shareholders--extraordinary
item......................... -- -- -- -- -- -- (.75)
------- ------- ------- ------- -------- ------- --------
Basic and diluted earnings per
share available to common
shareholders--net income
(loss)....................... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 19.68 $ (.09)
======= ======= ======= ======= ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1)..................... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 4,381 $ 11,506
EBITDA margin................. 7.1% 9.8% 6.1% 8.0% 11.7% 13.1% 13.0%
EBITDAR(1).................... $ 6,929 $ 9,115 $ 7,334 $ 8,652 $ 11,700 $ 6,260 $ 14,188
EBITDAR margin................ 16.9% 17.6% 13.1% 14.6% 17.2% 18.7% 16.1%
Capital expenditures.......... $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 1,380 $ 3,244
Ratio of earnings to fixed
charges(2)................... 2.5x 3.7x 2.6x 3.5x 3.3x 7.1x 1.2x
Net cash provided by (used in)
operating activities......... $(1,804) $ 908 $ 5,832 $ 1,059 $ 12,739 $ 8,603 $(18,492)
OTHER DATA
Number of facilities (end of
period)...................... 9 9 9 9 9 9 50
Average licensed beds(3)...... 1,061 1,061 1,061 1,061 1,061 1,061 5,937
Total beds (end of period).... 1,227 1,227 1,227 1,227 1,227 1,227 6,578
Patient days (in thousands)... 337 345 341 344 346 170 576
Average occupancy rate(4)..... 87.0% 89.1% 88.1% 88.8% 89.3% 89.3% 87.5%
Percentage of revenues from:
Managed care, private pay
and Medicare............... 58.4% 65.1% 67.2% 69.7% 72.9% 69.8% 65.1%
Medicaid.................... 41.6 34.9 32.8 30.3 27.1 30.2 34.9%
BALANCE SHEET DATA (END OF
PERIOD)
Cash and cash equivalents..... $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 -- 3,725
Working capital............... 8,266 11,140 10,334 13,566 10,021 -- 27,434
Total assets.................. 14,408 18,433 24,693 24,122 25,941 -- 408,555
Total debt, including current
maturities and excluding
redeemable, preferred stock.. 6,758 7,359 6,764 666 30,076 -- 245,650
Shareholders' equity
(deficit).................... 5,570 9,399 9,957 16,601 (12,236) -- 70,059
</TABLE>
17
<PAGE>
- --------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the historical
operating results of the Company, nor is it meant to be predictive of
future results of operations or cash flows. EBITDAR represents EBITDA plus
rent expense. EBITDAR is not a measurement of operating performance
computed in accordance with generally accepted accounting principles and
should not be considered as a substitute for operating income, net income,
cash flows from operations, or other statement of operations or cash flow
data prepared in conformity with generally accepted accounting principles,
or as a measure of profitability or liquidity. Similar to EBITDA,
management views EBITDAR as a financial indicator of a company's ability to
service or incur debt. A majority of Fountain View's nursing homes are
leased, under operating leases, and not owned. Accordingly, EBITDAR is used
since the rent expense approximates the interest and depreciation expense
Fountain View may have incurred as if the nursing home were owned as
opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
(3) Excludes ALF beds.
(4) Excludes Fountain View's ALF, which represents less than 2% of total
revenue.
(5) Weighted average shares outstanding for the five years ended December 31,
1997 and for the six months ended June 30, 1997 has been computed based on
the 200,000 shares of Common Stock issued and outstanding in connection
with the Fountain View Equity Transaction. See note 2 to the consolidated
financial statements of Fountain View included elsewhere herein.
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT
The summary financial data of Summit as of and for each of the five years in
the period ended June 30, 1997 are derived from Summit's audited financial
statements. The financial and other data for the six months ended December 31,
1996 and 1997 have been derived from Summit's unaudited financial statements
included elsewhere herein and, in the opinion of management, include all
necessary adjustments for a fair presentation of such information in conformity
with generally accepted accounting principles. The information set forth below
should be read in conjunction with "Capitalization", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- -------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net revenue............. $83,992 $ 97,599 $137,026 $176,062 $197,927 $95,088 $108,507
Salaries and related
benefits............... 40,044 45,962 63,171 78,233 89,577 43,386 47,742
Other operating costs... 29,998 34,655 49,206 70,696 89,932 41,750 45,736
Depreciation and
amortization........... 2,308 2,949 5,249 6,142 7,393 3,632 4,235
Rent expense............ 2,315 1,613 2,141 2,656 2,864 1,410 1,525
Interest, net........... 1,080 2,243 4,761 6,574 7,973 4,057 4,588
------- -------- -------- -------- -------- ------- --------
75,745 87,422 124,528 164,301 197,739 94,235 103,826
------- -------- -------- -------- -------- ------- --------
Income before provision
for income taxes....... 8,247 10,177 12,498 11,761 188 853 4,681
Income tax provision.... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849)
------- -------- -------- -------- -------- ------- --------
Net income.............. $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832
======= ======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1)............... $11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504
EBITDA margin........... 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4%
EBITDAR(1).............. $13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029
EBITDAR margin.......... 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9%
Capital expenditures.... $29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $12,049 $ 6,706
Ratio of earnings to
fixed charges(2)....... 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x
Net cash provided by
operating activities... $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793
OTHER DATA
Number of facilities
(end of period)........ 21 23 37 38 39 39 41
Average licensed beds... 2,696 2,876 4,197 4,816 5,078 5,065 5,154
Total beds (end of
period)................ 2,696 3,002 4,762 4,940 5,040 -- 5,347
Patient days (in
thousands)............. 858 908 1,316 1,514 1,573 783 827
Average occupancy rate.. 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2%
Percentage of revenues
from:
Managed care and
private pay.......... 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6%
Medicare.............. 28.3 30.3 29.5 34.7 39.7 39.1 36.7
Medicaid.............. 35.2 35.7 36.7 33.4 30.4 30.4 31.7
BALANCE SHEET DATA (END
OF PERIOD)
Cash and cash
equivalents............ $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 -- $ 1,702
Working capital......... 7,151 24,880 10,161 13,906 12,648 -- 11,384
Total assets............ 73,369 114,915 184,480 223,052 250,516 -- 267,420
Total debt and capital
leases, including
current maturities..... 30,331 32,025 89,788 110,374 121,452 -- 129,754
Shareholders' equity.... 31,337 66,361 73,813 81,286 81,412 -- 84,721
</TABLE>
- -------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the historical
operating results of the Company, nor is it meant to be predictive of
future results of operations or cash flows. EBITDAR represents EBITDA plus
rent expense. EBITDAR is not a measurement of operating performance
computed in accordance with generally accepted accounting principles and
should not be considered as a substitute for operating income, net income,
cash flows from operations, or other statement of operations or cash flow
data prepared in conformity with generally accepted accounting principles,
or as a measure of profitability or liquidity. Similar to EBITDA,
management views EBITDAR as a financial indicator of a company's ability to
service or incur debt. A majority of Fountain View's nursing homes are
leased, under operating leases, and not owned. Accordingly, EBITDAR is used
since the rent expense approximates the interest and depreciation expense
Fountain View may have incurred as if the nursing homes were owned as
opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
19
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of the Outstanding Notes and prospective purchasers should carefully consider
the following risk factors before exchanging their Outstanding Notes or
purchasing the Exchange Notes offered hereby. This Prospectus includes
statements that may be considered "forward-looking". Although the Company
believes that its plans, intentions and expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the Company's forward-
looking statements are set forth below and elsewhere in this Prospectus. All
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements set forth below. See "Special Note Regarding Forward-Looking
Statements".
SUBSTANTIAL LEVERAGE
Significant Leverage as a Result of the Transactions.
In connection with the Transactions, the Company incurred a significant
amount of indebtedness, and, as a result, the Company is highly leveraged. As
of June 30, the Company had total funded indebtedness of approximately $245.7
million, excluding mandatory redeemable preferred stock (of which $120.0
million consists of the Notes and the balance consisting of approximately
$101.2 million of borrowings under the New Credit Facility and approximately
$24.5 million of mortgages, capital leases and other debt). The Company's
ratio of earnings to fixed charges was 1.2x for the six months ended June 30,
1998. While the Indenture and the New Credit Facility contain financial and
other restrictive covenants that limit the ability of the Company to borrow
money, the Company is, under those provisions, still permitted to incur
substantial additional indebtedness in the future. For example, under the
terms of the Indenture and the New Credit Facility, the Company and its
subsidiaries may incur additional indebtedness if the Company continues to
meet, for four consecutive quarters, certain specified ratios involving fixed
charges, maximum leverage and minimum net worth. In addition, the incurrence
of certain specified indebtedness is also permitted. See "Capitalization",
"Unaudited Pro Forma Financial Data", "Description of Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" and
"Description of Other Indebtedness--New Credit Facility--Covenants".
Liquidity and Capital Revenues
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
and any acquisitions will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations and anticipated cost savings and revenue
growth, management believes that cash flow from operations and available cash,
together with available borrowings under the New Credit Facility, will be
adequate to meet the Company's future liquidity needs for the next several
years. The Company may, however, need to refinance all or a portion of the
Notes on or prior to maturity. There can be no assurance that the Company's
business will generate sufficient cash flow from operations, that anticipated
revenue growth and operating improvements will be realized or that future
borrowings will be available under the New Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources of the Company Following the Transactions".
Effects of Leverage
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to: (i)
making it more difficult for the Company to satisfy its
20
<PAGE>
obligations with respect to the Notes; (ii) increasing the Company's
vulnerability to general adverse economic and industry conditions; (iii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements; (iv) requiring the dedication of a substantial portion
of the Company's cash flow from operations to the payment of principal of, and
interest on, its indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures, or other general corporate
purposes; (v) limiting the Company's flexibility in planning for, or reacting
to, changes in its business and the healthcare industry; and (vi) placing the
Company at a competitive disadvantage with respect to less leveraged
competitors. In addition, the Indenture and the New Credit Facility contain
financial and other restrictive covenants that limit the ability of the
Company to, among other things, borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company. In addition, the degree to which the Company is leveraged could
prevent it from repurchasing all of the Notes tendered to it upon the
occurrence of a Change of Control. See "Description of Notes--Repurchase at
the Option of Holders--Change of Control" and "Description of Other
Indebtedness--New Credit Facility".
SUBORDINATION OF THE NOTES; GUARANTEES
The Notes and the Guarantees are subordinated in right of payment to all
current and future Senior Debt of the Company and the Guarantors. However, the
Indenture provides that the Company will not, and will not permit any of the
Guarantors to, incur or otherwise become liable for any indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes or any of the Guarantees. The
practical effect of these provisions is that any new indebtedness of the
Company or Guarantors will have to be classified as Senior Debt under the
Indenture in order for it to have a preference over the Notes (for a
definition of "Senior Debt" see "Description of Notes--Certain Definitions").
Upon any distribution to creditors of the Company or a Guarantor in a
liquidation or dissolution of the Company or a Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or a Guarantor or its property, the holders of Senior Debt will be
entitled to be paid in full before any payment may be made with respect to the
Notes. In addition, the subordination provisions of the Indenture provide that
payments with respect to the Notes will be blocked in the event of a payment
default on Senior Debt and may be blocked for up to 179 days each year in the
event of certain non-payment defaults on Senior Debt. In the event of a
bankruptcy, liquidation or reorganization of the Company or a Guarantor,
holders of the Notes will participate ratably with all holders of subordinated
indebtedness of the Company or such Guarantor that is deemed to be of the same
class as the Notes, and potentially with all other general creditors of the
Company, based upon the respective amounts owed to each holder or creditor, in
the remaining assets of the Company. In any of the foregoing events, there can
be no assurance that there would be sufficient assets to pay amounts due on
the Notes. As a result, holders of Notes may receive less, ratably, than the
holders of Senior Debt. As of June 30, 1998, approximately $126.0 million of
Senior Debt was outstanding, including approximately $101 million of
borrowings under the New Credit Facility, and approximately $14 million was
available for additional borrowings under the New Credit Facility. The
Indenture permits the incurrence of substantial additional indebtedness,
including Senior Debt, by the Company and its subsidiaries in the future. See
"Description of Other Indebtedness--New Credit Facility" and "Description of
Notes".
EFFECTS OF NON-COMPLIANCE WITH COVENANTS IMPOSED BY THE NEW CREDIT FACILITY
AND THE INDENTURE
Among other obligations, the New Credit Facility requires the Company to
satisfy certain tests and maintain specified financial ratios, including a
minimum fixed charge coverage ratio and a maximum leverage ratio. In addition,
the New Credit Facility restricts, among other things, the Company's ability
to incur additional indebtedness and to make acquisitions, investments and
capital expenditures beyond a certain level. A failure to comply with the
restrictions contained in the New Credit Facility could lead to an event of
default thereunder which could result in an acceleration of such indebtedness.
Such an
21
<PAGE>
acceleration would constitute an event of default under the Indenture relating
to the Notes. In addition, the Indenture restricts, among other things, the
Company's ability to incur additional indebtedness, make investments, sell
assets, make certain payments and dividends or merge or consolidate. A failure
to comply with the restrictions in the Indenture could result in an event of
default under the Indenture. If, as a result thereof, a default occurs with
respect to Senior Debt, the subordination provisions of the Indenture would
likely restrict payments to holders of the Notes. See "Description of Other
Indebtedness--New Credit Facility" and "Description of Notes--Subordination".
ENCUMBRANCES ON ASSETS TO SECURE NEW CREDIT FACILITY
In addition to being subordinated to all existing and future Senior Debt of
the Company, the Notes will not be secured by any of the Company's assets. The
Company's obligations under the New Credit Facility are secured by a first
priority pledge of and security interest in the common stock of the Company's
subsidiaries and in substantially all of the Company's assets, both tangible
and intangible, including the Company's personal property and real property.
If the Company becomes insolvent or is liquidated, or if payment under the New
Credit Facility is accelerated, the lenders under the New Credit Facility will
be entitled to exercise the remedies available to a secured lender under
applicable law. See "Description of Other Indebtedness--New Credit Facility".
ABILITY OF COMPANY TO OBTAIN FUNDS FROM SUBSIDIARIES
The Company is a holding company, has no operations of its own and derives
substantially all of its revenue from its subsidiaries. Holders of
indebtedness of, and trade creditors of, subsidiaries of the Company would
generally be entitled to payment of their claims from the assets of the
affected subsidiaries before such assets were made available for distribution
to the Company. As of June 30, 1998, the Company had approximately
$126 million of Senior Debt outstanding, including approximately $101 million
of borrowings under the New Credit Facility, and approximately $14 million was
available for additional borrowings under the New Credit Facility. The
Company's Subsidiaries would have had approximately $24.5 million of
Indebtedness, $46.9 million of trade payables and other liabilities and $15.0
million of mandatory redeemable preferred stock outstanding as of June 30,
1998. The Indenture permits the incurrence of substantial additional
indebtedness by the Company and its subsidiaries and permits significant
investments by the Company in its subsidiaries. In the event of a bankruptcy,
liquidation or reorganization of a subsidiary, holders of any of such
subsidiary's indebtedness will have a claim to the assets of the subsidiaries
that is prior to the Company's interest in those assets.
FAILURE TO INTEGRATE BUSINESSES
The Company has no prior history as a combined entity and its operations
have not previously been managed on a combined basis. Prior to the
Transactions, Fountain View and Summit had been operated as separate entities.
The Company's future operations and earnings will be largely dependent upon
management's ability to successfully execute the Company's strategy. This will
require substantial attention from the Company's management team which, to
date, has operated on a combined basis for only a short period. In addition,
management will be required to apply its business strategy to an entity which
is significantly larger than the entities it previously managed. Additionally,
the need to focus management's attention on integration of the businesses and
implementation of the Company's post-combination strategy may limit the
Company's ability to successfully pursue other opportunities related to its
business for the foreseeable future. The historical financial statements and
pro forma financial statements presented in this Prospectus may not
necessarily be indicative of the results that would have been attained had the
Company operated on a combined basis.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
REGULATIONS GOVERNING HEALTH CARE FACILITIES
The federal government and the states in which the Company operates regulate
various aspects of the SNF, ALF, sub-acute and specialty medical care,
therapy, pharmacy and DME businesses. In
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particular, the operation of long-term care facilities and the provision of
specialty medical services are subject to federal, state and local laws
relating to the adequacy of medical care, resident rights, equipment,
personnel, operating policies, fire prevention, rate-setting and compliance
with building codes and environmental and other laws. Facilities which are not
in substantial compliance with such laws and do not correct deficiencies
within a certain time frame may be terminated from the Medicare and/or
Medicaid programs. While the Company endeavors to comply with all applicable
regulatory requirements, from time to time certain of the Company's SNFs have
been subject to various sanctions and penalties as a result of deficiencies
alleged by the Health Care Financing Administration ("HCFA") or state survey
agencies. While in certain instances denial of certification or licensure
revocation actions have been threatened, management believes that the Company
will not suffer any material adverse effect as a result thereof. There can be
no assurance, however, that the Company will not be subject to sanctions and
penalties in the future as a result of such actions.
REGULATIONS GOVERNING FINANCIAL ARRANGEMENTS BETWEEN HEALTH CARE PROVIDERS
The Company is also subject to federal and state laws that govern financial
and other arrangements between healthcare providers. These laws prohibit
certain direct and indirect payments or fee-splitting arrangements between
healthcare 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. Such laws include the anti-kickback provisions of the
federal Medicare and Medicaid Patient and Program Protection Act of 1987
(commonly referred to as the "Anti-Kickback Statute") and the physician self-
referral ban contained in the Omnibus Budget Reconciliation Act as expanded in
1993 (commonly referred to as "Stark II"). The Anti-Kickback Statute
provisions prohibit, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare and
Medicaid patients. Stark II prohibits, in part, physicians from making any
Medicare or Medicaid referrals for certain "designated health services" to any
entity with which the physician has a "financial relationship". In addition to
these anti-kickback and self-referral prohibitions, there are various federal
and state laws prohibiting other types of fraud by healthcare providers,
including criminal provisions which prohibit filing false claims or making
false statements to receive payment or certification under Medicare and
Medicaid, or failing to refund overpayments or improper payments. Violation of
the Anti-Kickback Statute or the criminal false claims statute is a felony
punishable by up to five years imprisonment and/or $25,000 fines, while
violation of Stark II may result in the imposition of civil monetary penalties
of up to $15,000 for each prohibited service provided as well as restitution
of payments for such services. Civil provisions prohibit the knowing filing of
a false claim or the knowing use of false statements to obtain payment. The
penalties for such a violation are fines of not less than $5,000 nor more than
$10,000, plus treble damages, for each claim filed. In addition, some states
restrict certain business relationships between physicians and other providers
of healthcare services. Many states, including California, Texas and Arizona,
prohibit business corporations from providing, or holding themselves out as
providers 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 (including Medicare and Medicaid), asset
forfeitures and civil and criminal penalties. These laws vary from state to
state, are often vague and have seldom been interpreted by the courts or
regulatory agencies. Management believes the Company is in substantial
compliance with the foregoing statutes and regulations. However, there can be
no assurance that government officials responsible for enforcing these
statutes will not assert that the Company or certain transactions in which the
Company is involved are in violation of these statutes, possibly resulting in
the imposition of fines or penalties that may adversely affect the Company's
business, financial condition and results of operations.
ANTI-FRAUD INITIATIVES GOVERNING HEALTH CARE PROVIDERS
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against healthcare providers. The Health
Insurance Portability and Accountability Act of 1996
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(the "Accountability Act") and the Balanced Budget Act of 1997 (the "Balanced
Budget Act") expand the penalties for healthcare fraud, including broader
provisions for the exclusion of providers from the Medicare and Medicaid
programs. Further, under Operation Restore Trust, a major anti-fraud
demonstration project, the Office of the Inspector General of the U.S.
Department of Health and Human Services (the "OIG"), in cooperation with other
federal and state agencies, has focused on the activities of SNFs, home health
agencies, hospices, and DME suppliers in certain states, including California
and Texas, in which the Company currently operates. Due to the success of
Operation Restore Trust, the project has been expanded to numerous other
states and to additional healthcare providers including providers of ancillary
nursing home services. While management believes that the Company's billing
practices are consistent with Medicare and Medicaid criteria, those criteria
are often vague and subject to interpretation. There can be no assurance that
aggressive anti-fraud enforcement actions will not adversely affect the
business of the Company.
The federal government has indicated that the implementation of an effective
compliance program is recommended for healthcare providers in order to
maximize a provider's ability to detect and prevent potential infractions of
applicable law and to address any infractions that may occur. Further, the
existence of an effective compliance program may be taken into account by the
government to reduce any fines or penalties incurred by the Company for
infractions or violations of applicable law. Although the Company does not
currently have a compliance program in place, the Company is in the process of
developing and implementing a compliance program. See "Business--Compliance
Program".
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
COST CONTAINMENT MEASURES IMPOSED BY THIRD PARTY PAYORS
On a pro forma basis, after giving effect to the Transactions the Company
derived approximately 36% and 31% for the twelve months ended December 31,
1997 of its net patient revenues from Medicare and Medicaid, respectively. The
Company expects to continue to derive a significant portion of its revenue
from such federal and state reimbursement programs. There can be no assurance
that the Company will achieve or improve this payor mix in the future. Both
governmental and private payor sources have instituted cost containment
measures designed to limit payments made to healthcare providers. Most
recently, the Balanced Budget Act requires the establishment of a prospective
payment system ("PPS") for Medicare SNFs under which facilities will be paid a
federal per diem rate for virtually all covered SNF services in lieu of the
current cost-based reimbursement rate. The cost-based system reimburses
providers for reasonable direct and indirect allowable costs incurred in
providing "routine costs" (as defined by the Medicare program) as well as
capital costs and ancillary costs. Management believes that the transition to
PPS will reward efficient providers and penalize those that are inefficient.
The law contains numerous other changes that will adversely affect payments to
Medicare and Medicaid providers. Further, the government has not yet set
reimbursement rates under PPS. There can be no assurance that the
implementation of PPS or other changes in the administration or interpretation
of government healthcare programs will not have any adverse effect on the
Company or that payments under government programs will remain at levels
comparable to present levels or will be sufficient to cover the costs
allocable to patients eligible for reimbursement under such programs.
POSSIBLE CURTAILING OF MEDICAID PAYMENTS AND OTHER REIMBURSEMENT PROGRAMS DUE
TO BUDGET CONSTRAINTS
In addition, prior to the enactment of the Balanced Budget Act, federal law
required state Medicaid programs to reimburse SNFs for the costs that are
incurred by efficiently and economically operated providers in order to meet
quality and safety standards. The Balanced Budget Act repealed this payment
standard, effective for services provided on or after October 1, 1997, thereby
granting states greater flexibility in establishing payment rates. There can
be no assurance that budget constraints or
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other factors will not cause states to reduce Medicaid reimbursement to SNFs
or that payments to SNFs will be made on a timely basis. Any such efforts to
reduce Medicaid payment rates or failure of states to meet their Medicaid
obligations on a timely basis would have a material adverse effect on the
Company.
Further, government reimbursement programs are subject to additional
statutory and regulatory changes, retroactive rate adjustments, administrative
ceilings and government funding restrictions, all
of which could materially decrease the rates paid to the Company for its
future services or the services for which the Company will be able to seek
reimbursement. Management cannot predict whether any of these additional
proposals will be adopted or, if adopted and implemented, what effect such
proposals would have on the Company. There can be no assurance that payments
under state or federal governmental programs will remain at levels comparable
to present levels or will be sufficient to cover the costs allocable to
patients eligible for reimbursement pursuant to such programs, particularly
with respect to individual state-administered Medicaid programs, which
generally provide lower reimbursement rates than the Medicare program. In
addition, there can be no assurance that the facilities to be operated by the
Company and the services and supplies to be provided by the Company will meet
or continue to meet the requirements for participation in such programs.
DELAYS IN RECEIVING REIMBURSEMENT
The Company's financial condition and results of operations may also be
affected by the revenue reimbursement process, which in the Company's industry
is complex and can involve lengthy delays between the time that revenue is
recognized and the time that reimbursement amounts are settled. The Company's
results of operations would be materially and adversely affected if the amount
actually received from third-party payors in any reporting period differed
materially from the amounts accrued in prior periods. The Company's financial
condition and results of operations may also be affected by the timing of
reimbursement payments and rate adjustments from third-party payors. See
"Business--Government Regulations".
MEDICARE AND MEDICAID AUDITS AND REFORM
The Company is subject to periodic audits by the Medicare and Medicaid
programs, and the payment agencies for these programs have various rights and
remedies against the Company if they assert that the Company has failed to
comply with program requirements. In 1997, one of Summit's facilities was the
subject of a Medicare billing audit by such a payment agency, resulting in a
finding that approximately $1,500,000 of charges (after cost report settlement
and subject to downward adjustment) for SNF services lacked a timely
certification of medical necessity by a physician. Summit is currently
repaying such charges against reimbursement of current claims. Government
agencies could seek to require the Company to repay any overcharges or amounts
billed in violation of program requirements, or could make deductions from
future amounts due to the Company. Such agencies could also impose fines,
criminal penalties or program exclusions. See "Business--Government
Regulations".
In addition, several states are considering various healthcare reforms,
including Medicaid managed care demonstration projects. Several states in
which the Company operates have applied for, or received, approval from the
U.S. Department of Health and Human Services for waivers from certain Medicaid
requirements that have generally been required for managed care projects.
Although these demonstration projects generally exempt institutional care,
including long-term care facilities, no assurance can be given that these
waiver projects ultimately will not change the reimbursement system for long-
term care from fee for service to managed care negotiated or capitated rates.
Furthermore, the Balanced Budget Act now allows states to mandate enrollment
in managed care systems without going through the federal waiver process
provided certain standards are met. Although the Company believes it will be
well-positioned to operate in a managed care environment, it is not possible
to predict which reforms of state healthcare systems will be adopted and the
effect, if any, that the reforms will have on the Company's business. See
"Business--Government Regulations".
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Current Medicare regulations applicable to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for goods and
services that are charged to the Medicare program. Management believes that
the Company satisfies the requirements for exception to the related party
rules in transactions between its long-term care facilities and its therapy,
pharmacy and DME subsidiaries. If, however, the Company has failed, or in the
future fails, to satisfy regulations for the related party exception with
respect to inter-corporate transactions, the Medicare reimbursement that the
Company received or will receive could be reduced, and as a result, the
Company's financial condition could be materially and adversely affected. See
"Business--Government Regulations".
UNCERTAINTY OF HEALTHCARE LEGISLATION
In addition to extensive government healthcare regulations, there are
numerous initiatives on federal and state levels for comprehensive reforms
affecting the payment for and availability of healthcare services. Changes in
the law, new interpretations of existing laws, or changes in payment
methodology may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business
and the amount of reimbursement by the government. In addition, there can be
no assurance that currently proposed or future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on the Company. See "Business--
Government Regulations".
DEVELOPMENT OF MANAGED CARE CONTRACTS IN RESPONSE TO PRICING PRESSURES
The healthcare services industry is currently experiencing market-driven
reforms from forces within and outside the industry that are exerting pressure
on healthcare and related companies to reduce healthcare costs. These market-
driven reforms are resulting in industry-wide consolidation that is expected
to increase the downward pressure on healthcare service providers' margins, as
larger buyer and supplier groups exert pricing pressure on healthcare
providers. Given the increasing importance of managed care in the healthcare
industry and the continued cost containment pressures for Medicare and
Medicaid, the Company is focusing on developing managed care contracts.
Additionally, the Company is establishing a network of services to meet the
needs of managed care organizations. The success of the Company's managed care
strategy will depend in large part on its ability to increase demand for sub-
acute services among managed care organizations, to obtain favorable
agreements with managed care organizations and to manage effectively its
operations and healthcare delivery costs through various methods, including
utilization management and competitive pricing for purchased services. There
can be no assurance that pricing pressures faced by healthcare providers will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
HEALTHCARE INDUSTRY EXTREMELY COMPETITIVE
The Company operates in a highly competitive industry. The Company's SNFs
and ALFs are located in communities that also are served by similar facilities
operated by others. Some competing facilities 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 sub-acute units. In California, Texas and Arizona, a
certificate of need is no longer required in order to build or expand a SNF,
which is another factor increasing competition. However, in Texas, competition
is limited by
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restrictions on the number of beds that can be enrolled in the Medicaid
program. The Company also may encounter competition in acquiring or developing
new facilities. The Company's pharmacies and DME business also operate in
highly competitive environments and compete with regional and local
pharmacies, medical supply companies and pharmacies operated by other long-
term care chains or by other companies ranging from small local operators to
companies which are national in scope and distribution capability. The Company
also may encounter competition in connection with the provision of other
ancillary services, including physical, occupational and speech therapy.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CERTAIN STATE MEDICAID PROGRAMS
Approximately 54% of the Company's properties are located in the State of
California and approximately 44% are located in the State of Texas.
Consequently, the Company will be dependent on the economies of California and
Texas, the supply and demand in these states for the services provided by the
Company, the regulatory environment in these states and, to a certain extent,
on the continued funding of and reimbursement rates paid under those states'
Medicaid programs. During both 1996 and 1997, payments received from state
Medicaid agencies accounted for approximately 31% of the Company's revenue.
The Company expects that the California and Texas Medicaid reimbursement
programs will continue to constitute a significant source of revenue for the
Company. Adverse changes in general economic factors affecting these states'
respective healthcare industries or in these states' laws and regulatory
environment, including Medicaid reimbursement rates, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
LIABILITY, INSURANCE AND LEGAL PROCEEDINGS
The provision of healthcare services entails an inherent risk of liability.
In recent years, participants in the long-term care industry have become
subject to an increasing number of lawsuits alleging malpractice or related
legal theories, many of which involve large claims and significant defense
costs. The Company currently maintains liability insurance intended to cover
such claims and the Company believes that its insurance is in keeping with
industry standards. There can be no assurance, however, that claims in excess
of the Company's insurance coverage or claims not covered by the Company's
insurance coverage (e.g. claims for punitive damages) will not arise. A
successful claim against the Company not covered by, or in excess of, the
Company's insurance coverage could have a material adverse effect upon the
Company's financial condition and results of operations. Claims against the
Company, regardless of their merit or actual outcome, may also have a material
adverse effect upon the Company's ability to attract patients or expand its
business and would require management to devote time to matters unrelated to
the operation of the Company's business. In addition, the Company's insurance
policies must be renewed annually. There can be no assurance that the Company
will be able to obtain liability insurance coverage in the future or that, if
such coverage is available, it will be available on acceptable terms.
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a number of key personnel, the loss of
which could have a material adverse effect on the Company. In addition, as the
Company's business develops and expands, the Company believes that its future
success will depend greatly on its continued ability to attract and retain
highly skilled and qualified personnel. Currently the Company has entered into
employment agreements with Mr. Snukal and Mrs. Snukal, and with Mr. Scott. See
"Management". The Company maintains key-man insurance on Mr. Snukal in the
amount of $5.0 million. There can be no assurance that key personnel will
continue to be employed by the Company or that the Company will be able to
attract and retain qualified personnel in the future. Failure by the Company
to retain or attract such personnel could have a material adverse effect on
the Company.
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CONTROLLING STOCKHOLDERS
As a result of the Transactions, Heritage and certain members of senior
management of the Company or their affiliates own approximately 68.6% of the
outstanding voting stock of the Company. By virtue of such ownership, these
stockholders have the power to control all matters submitted to stockholders
of the Company and to elect a majority of the directors of the Company and its
subsidiaries.
CONFLICTS OF INTEREST
Circumstances may occur in which the interests of the controlling
stockholders conflict with the interests of the holders of the Notes. For
example, if the Company encounters financial difficulties or is unable to pay
certain of its debts as they mature, the interests of such controlling persons
might conflict with those of holders of the Company's indebtedness, including
the Notes. In addition, these stockholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment,
enhance their equity investment, even though such transactions might involve
risks to the holders of the Notes. See "Principal Stockholders", "Management"
and "Certain Relationships and Related Transactions".
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. Under the terms of the Stockholder Agreement, Heritage has the
right to cause a sale of the Company under certain circumstances, which would
constitute a Change of Control. See "Management--Stockholders Agreement".
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of Notes
tendered or that restrictions in the New Credit Facility will allow the
Company to make such required repurchases. Notwithstanding these provisions,
the Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of
Notes--Repurchase at the Option of Holders".
EFFECT OF FRAUDULENT TRANSFER STATUTES ON VALIDITY OF NOTES AND GUARANTEES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company, or any Guarantor, at the time it incurred the indebtedness evidenced
by the Notes or the Guarantees, (i) (a) was or is insolvent or rendered
insolvent by reason of such incurrence or (b) was or is engaged in a business
or transactions for which the assets remaining with the Company or any
Guarantor constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes that it would incur debts beyond its ability to
pay such debts as they mature, and (ii) received or receives less than
reasonably equivalent value or fair consideration for the incurrence of such
indebtedness, then the Notes or the Guarantees, could be voided, or claims in
respect of the Notes or the Guarantees could be subordinated to all other
debts of the Company or any Guarantor. In addition, the payment of interest
and principal by the Company or any Guarantor pursuant to the Notes could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or any Guarantor.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or any Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
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On the basis of historical financial information, recent operating history
and other factors, the Company and the Guarantors believe that neither the
Company nor any Guarantor will be insolvent, will have unreasonably small
capital for the business in which it is engaged or will incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however,
as to what standard a court would apply in making such determinations or that
a court would agree with the Company's and the Guarantors' conclusions in this
regard.
CONSEQUENCES OF FAILURE TO EXCHANGE THE OUTSTANDING NOTES
The Outstanding Notes have not been registered under the Securities Act or
any state securities laws, and therefore, may not be offered, sold or
otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption therefrom or in a transaction not subject thereto, and in each
case in compliance with certain other conditions and restrictions, including
the right of the Company and the Notes Trustee (as defined) in certain cases
to require the delivery of opinions of counsel, certifications and other
information prior to any such transfer. Outstanding Notes that remain
outstanding after the consummation of the Exchange Offer will continue to bear
a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Outstanding Notes that remain
outstanding will not be entitled to any rights to have such Outstanding Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain
limited exceptions). The Company currently intends to register under the
Securities Act Outstanding Notes that remain outstanding after consummation of
the Exchange Offer only if such Outstanding Notes are held by Initial
Purchasers or persons ineligible to participate in the Exchange Offer (other
than due solely to the status of such holder as an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). If Outstanding Notes
are tendered and accepted in the Exchange Offer, the market for untendered
Outstanding Notes is likely to diminish; accordingly, holders who do not
tender their Outstanding Notes may encounter difficulties in selling such
notes following the Exchange Offer. The Exchange Notes and any Outstanding
Notes that remain outstanding after consummation of the Exchange Offer will
constitute a single series of debt securities under the Indenture and,
accordingly, will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding principal amount of
the Notes have taken certain actions or exercised certain rights under the
Indenture.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Outstanding Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Outstanding
Notes have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes. See "--Consequences of Failure to Exchange". Although the
Exchange Notes will generally be permitted to be resold or otherwise
transferred by the holders (who are not affiliates of the Company) without
compliance with the registration and prospectus delivery requirements under
the Securities Act, they will constitute a new issue of securities with no
established trading market. If the Exchange Notes are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
financial condition of the Company. The Company does not intend to apply for a
listing or quotation of the Exchange Notes on any securities exchange or stock
market. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The liquidity of, and trading
market for, the Notes also may be adversely affected by general declines in
the market for similar securities. Such a decline may adversely affect such
liquidity and trading markets independent of the financial performance of, and
prospects for, the Company.
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Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. Subject to certain provisions set forth in the Registration
Rights Agreement, the Company has agreed that, for a period of up to 180 days
after the consummation of the Exchange Offer, it will make this Prospectus
available to any participating broker-dealer for use in connection with any
such resale. However, under certain circumstance, the Company has the right to
require that participating broker-dealers suspend the resale of Exchange Notes
pursuant to this Prospectus. Notwithstanding that the Company may cause the
resale of Exchange Notes pursuant to this Prospectus to be suspended, the
Company has no obligation to extend the 180-day period referred to above
during which participating broker-dealers are entitled to use this Prospectus
in connection with such resales. See "The Exchange Offer--Procedures for
Tendering Outstanding Notes" and "Plan of Distribution".
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE
The Company is a general business corporation. Corporations such as the
Company are not permitted under certain state laws to practice medicine or
exercise control over the medical judgments or decisions of practitioners.
Corporate practice of medicine laws and their interpretations vary from state
to state and are enforced by the courts and by regulatory authorities with
broad discretion. The Company believes that it performs only non-medical
services, does not represent to the public or its clients that it offers
medical services and does not exercise influence or control over the practice
of medicine by the practitioners with whom it deals. Although the Company
believes its operations as currently conducted are in material compliance with
existing applicable laws, there can be no assurance that the Company's
structure will not be challenged as constituting the unlicensed practice of
medicine or that the enforceability of the agreements underlying this
structure will not be limited. If such a challenge were made successfully in
any state, the Company could be subject to civil and criminal penalties under
such state's law. Such results could have a material adverse effect upon the
Company.
POTENTIAL "YEAR 2000" PROBLEMS
It is possible that the Company's currently installed computer systems,
software products or other business systems, including certain date dependent
medical equipment, or those of the Company's vendors or third-party payors,
working either alone or in conjunction with other software or systems, will
not accept input of, store, manipulate and output dates for the years 1999,
2000 or thereafter without error or interruption (commonly known as the "Year
2000" problem). The Company intends to conduct a review of its business
systems, including its computer systems, and query its vendors and third-party
payors as to their progress in identifying and addressing problems that their
computer systems may face in correctly interrelating and processing date
information as the year 2000 approaches and is reached. However, there can be
no assurance that the Company will identify all such Year 2000 problems in its
computer systems or those of its vendors or third-party payors in advance of
their occurrence or that the Company will be able to successfully remedy any
problems that are discovered. The expenses of the Company's efforts to
identify and address such problems, or the expenses or liabilities to which
the Company may become subject as a result of such problems, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, failure of the Company to identify and
remedy Year 2000 problems could put the Company at a competitive disadvantage
relative to companies that have corrected such problems.
30
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds of the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Outstanding Notes in like principal amount. The issuance of the Exchange Notes
in exchange for the surrender of the Outstanding Notes will not result in any
increase in the indebtedness of the Company.
The net proceeds of the sale of the Outstanding Notes were approximately
$114 million, after deducting discounts and commissions and expenses related
to the sale of the Outstanding Notes. The Company used the net proceeds of the
sale of the Outstanding Notes to consummate the Transactions, repay certain
existing indebtedness, pay certain fees and expenses in connection with the
Transactions and for general corporate purposes (see "Prospectus Summary--The
Financings").
CAPITALIZATION
The following table sets forth cash and cash equivalents and the
capitalization of Fountain View as of June 30, 1998, and of the Company as of
such date. The Summit acquisition and financing transactions were finalized as
of June 30, 1998. Accordingly, the June 30, 1998 balance sheet gives effect to
those transactions. This table should be read in conjunction with "Unaudited
Pro Forma Financial Data", "Selected Historical Financial and Other Data--
Fountain View", "Selected Historical Financial and Other Data--Summit",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------
ACTUAL
----------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 3,725
========
New Credit Facility(1)...................................... 101,161
Outstanding Notes........................................... 120,000
Mortgages, capital leases and other debt assumed............ 24,489
--------
Total debt................................................ 245,650
Mandatory redeemable preferred stock........................ 15,000
Shareholders' equity........................................ 70,059
--------
Total capitalization........................................ $330,709
========
</TABLE>
- --------
(1) The New Credit Facility provides for up to $30.0 million of revolving
credit borrowings (with a $4.0 million sublimit for letters of credit) and
up to $85.0 million of term loans and matures in 2004. As of June 30,
1998, revolving credit loans in the aggregate amount of approximately $16
million and term loans in the aggregate amount of approximately $85
million were outstanding under the New Credit Facility, and $14 million of
revolving credit borrowings were available to the Company.
31
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data for the six months ended
June 30, 1998 and for the year ended December 31, 1997 have been derived by
the application of pro forma adjustments to the financial statements of
Fountain View and Summit included elsewhere in this Prospectus. The Summit
acquisition and financing transactions were finalized as of June 30, 1998.
Accordingly, the June 30, 1998 balance sheet presented on pages F-15 and F-16
gives effect to these transactions and therefore a pro forma balance sheet is
not presented. The pro forma statement of operations data for the six months
ended June 30, 1998 give effect to the transactions as if they had occurred on
January 1, 1998. The pro forma statement of operations data for the year ended
December 31, 1997 give effect to (1) the Transactions and (2) the acquisition
of Briarcliff, a SNF acquired by Summit on December 1, 1997, as if each had
occurred as of January 1, 1997. The adjustments are described in the
accompanying notes.
The pro forma adjustments are based on available data and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial data do not purport to represent what the Company's results of
operations actually would have been if the transactions described above had
been consummated as of the dates or for the periods indicated above, or what
such results will be for any future date or future period. The unaudited pro
forma data should be read in conjunction with "Selected Historical Financial
and Other Data--Fountain View", "Selected Historical Financial and Other
Data--Summit", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto included elsewhere in this Prospectus.
32
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRIARCLIFF
11 MONTHS
FOUNTAIN SUMMIT CARE ENDED PRO FORMA
VIEW, INC. CORPORATION 11/30/97 TOTAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $67,905 $211,346 $7,893 $287,144 $ -- $287,144
Expenses:
Salaries and related
benefits............. 38,215 93,933 3,100 135,248 -- 135,248
Supplies.............. 8,293 20,040 644 28,977 -- 28,977
Purchased services.... 4,256 53,587 70 57,913 -- 57,913
Provision for doubtful
accounts............. 395 3,343 858 4,596 -- 4,596
Other expenses........ 5,046 16,948 1,542 23,536 -- 23,536
Depreciation and
amortization......... 1,198 7,996 688 9,882 4,190 (1) 14,072
Rent expense.......... 2,004 2,979 -- 4,983 -- 4,983
Rent expense to
related parties...... 1,771 -- -- 1,771 -- 1,771
Interest, net......... 1,164 8,504 11 9,679 13,645 (2) 23,324
------- -------- ------ -------- -------- --------
62,342 207,330 6,913 276,585 17,835 294,420
------- -------- ------ -------- -------- --------
Income (loss) before
provision for
income taxes........... 5,563 4,016 980 10,559 (17,835) (7,276)
Income tax benefit
(provision)............ (1,951) (1,631) (402) (3,984) 6,838 (3) 2,854
------- -------- ------ -------- -------- --------
Net income (loss)....... 3,612 2,385 578 6,575 (10,997) (4,422)
Preferred stock
dividends.............. -- -- -- -- (1,800)(4) (1,800)
------- -------- ------ -------- -------- --------
Net income (loss)
available to common
shareholders........... $ 3,612 $ 2,385 $ 578 $ 6,575 $(12,797) $ (6,222)
======= ======== ====== ======== ======== ========
Basic and diluted earn-
ings per share avail-
able to common share-
holders................ $ 18.06 $ (31.11)
======= ========
OTHER DATA:
EBITDA (as defined)(5).. $ 30,120
Adjusted EBITDA(6)...... 37,795
Adjusted EBITDA margin.. 13.2%
Adjusted EBITDAR(6)..... 44,549
Adjusted EBITDAR margin. 15.5%
Ratio of earnings to
fixed charges(7)....... --
Ratio of Adjusted EBITDA
to net interest
expense................ 1.6
Ratio of net debt to
Adjusted EBITDA(8)..... 6.3
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
33
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUMMIT CARE
CORPORATION
PERIOD FROM
FOUNTAIN JANUARY 1 TO PRO FORMA
VIEW, INC. MARCH 26,1998 TOTAL ADJUSTMENTS PRO FORMA
---------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Patient Service
Revenues............... $88,369 $ 53,918 $ 142,287 $ -- $ 142,287
------- -------- --------- ------- ---------
Total Revenue 88,369 53,918 142,287 -- 142,287
Expenses:
Salaries and benefits. 44,467 23,632 68,099 -- 68,099
Supplies.............. 9,534 5,165 14,699 -- 14,699
Purchased services.... 13,102 13,743 26,845 -- 26,845
Provision for doubtful
accounts............. 768 624 1,392 -- 1,392
Other expenses........ 6,310 3,851 10,161 -- 10,161
Rental................ 2,682 723 3,405 -- 3,405
Depreciation and
amortization......... 3,934 2,119 6,053 1,099 (1) 7,152
Interest, net of
Interest Income...... 6,219 2,604 8,823 2,376 (2) 11,199
------- -------- --------- ------- ---------
87,016 52,461 139,477 3,475 142,952
------- -------- --------- ------- ---------
Income before provision
for income taxes....... 1,353 1,457 2,810 (3,475) (665)
Income tax benefit
(provision)............ (541) (575) (1,116) 1,306 (3) 190
Extraordinary Item, net
of tax................. (517) -- (517) -- (517)
------- -------- --------- ------- ---------
Net income (loss)....... 295 882 1,177 (2,169) (992)
Preferred stock
dividends.............. (355) -- (355) (545)(4) (900)
------- -------- --------- ------- ---------
Net income (loss)
available to common
shareholders........... $ (60) $ 882 $ 822 $(2,714) $ (1,892)
======= ======== ========= ======= =========
Basic and diluted earn-
ings per share avail-
able to common share-
holders before
extraordinary item..... $ 0.66 $ (2.01)
Basic and diluted loss
per share available to
common shareholders--
extraordinary item..... (0.75) (0.75)
------- ---------
Basic and diluted
earnings per share
available to common
shareholders--net
income (loss).......... $ (0.09) $ (2.76)
======= =========
OTHER DATA:
EBITDA (as defined)(5).. $ 17,686
Adjusted EBITDA......... 17,686
Adjusted EBITDA mar-
gin(6)................. 12.4%
Adjusted EBITDAR(6)..... 21,091
Adjusted EBITDAR margin. 14.8%
Ratio of earnings to
fixed charges(7)....... --
Ratio of Adjusted EBITDA
to net interest
expense................ 1.6
Ratio of net debt to Ad-
justed EBITDA(8)....... 6.8
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Pro forma adjustments to reflect the step-up in basis of property, plant
and equipment and intangible assets, in connection with the Summit Care
Corporation acquisition:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
AMORTIZATION DECEMBER 31, ENDED
PERIOD 1997 MARCH 31, 1998(A)
------------ ----------------- -----------------
<S> <C> <C> <C>
Increase in amortization of
deferred financing costs.. 10 years $1,414 $ 353
Increase in amortization of
goodwill.................. 35 years 1,157 289
Increase in depreciation of
buildings, leaseholds and
equipment................. 5-35 years 1,619 457
------ ------
$4,190 $1,099
====== ======
(a) Represents the period prior to the completion of the Summit Care
Corporation acquisition.
(2) Reflects additional interest on debt as follows:
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1997 MARCH 31, 1998(A)
------------ -----------------
<S> <C> <C> <C>
Interest on the New Credit
Facility--
Term Loan (8.44%)(b)...... $ 7,171 $1,792
Interest on New Credit
Facility--
Revolver (8.44%).......... 1,265 316
Interest on Notes offered
hereby (11.25%)........... 13,500 3,375
Interest on capital leases
and other existing debt
(various rates)........... 2,037 509
---------- ------
Total interest expense..... 23,974 5,992
Net historical interest
(gross of interest
expense).................. (10,329) (3,616)
---------- ------
Incremental interest....... $ 13,645 $2,376
========== ======
</TABLE>
(a) Represents the period prior to the completion of the financing.
(b) Interest with respect to the New Credit Facility, for both the Term
Loan and the Revolver, is computed on a floating rate based on LIBOR
plus 2.75%. A 0.125% increase in the interest rate on the New Credit
Facility would result in additional interest expense of $125 and would
reduce net income by $74 for the year ended December 31, 1997.
(3) Represents incremental income tax benefit relating to amortization of
deferred financing costs, depreciation and interest expense at an
incremental rate of 41%.
(4) Represents the preferred stock dividend of 12% computed on the $15 million
of mandatory redeemable preferred stock.
(5) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly
titled measures of other companies. EBITDA may not be indicative of the
historical operating results of the Company, nor is it meant to be
predictive of future results of operations or cash flows.
(6) For the year ended December 31, 1997, Adjusted EBITDA represents EBITDA
adjusted for certain non-recurring charges shown below. Adjusted EBITDAR
represents Adjusted EBITDA plus rent expense. EBITDAR is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a
35
<PAGE>
measure of profitability or liquidity. Similar to EBITDA, management views
EBITDAR as a financial indicator of a company's ability to service or incur
debt. A majority of Fountain View's nursing homes are leased, under
operating leases, and not owned. Accordingly, EBITDAR is used since the
rent expense approximates the interest and depreciation expense Fountain
View may have incurred as if the nursing homes were owned as opposed to
leased:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA.................................................... $30,120
Non-recurring charges(a).................................. 7,675
-------
Adjusted EBITDA(b)........................................ 37,795
Rent expense.............................................. 6,754
-------
Adjusted EBITDAR(b)....................................... $44,549
=======
</TABLE>
(a) EBITDA is adjusted for the non-recurring entries in order to present
comparable EBITDA with the preceding years since these entries are only
reflected in the results of operations for the year ended December 31,
1997 for Fountain View and for the six months ended December 31, 1997
for Summit. In addition, the Company does not expect to incur similar
costs in the future. Non-recurring charges consist of: (1) $2,100 of
Medicare reserves taken by Summit due to adjustments proposed by the
Medicare intermediary during their audit of prior year cost reports.
The adjustments relate to issues not proposed by the Medicare
intermediary during previous audits and therefore the one time impact
relating to these adjustments for prior year cost reports is all
reflected in the results of operations for the year ended December 31,
1997 when the cost reports were audited and finalized with the Medicare
intermediary; (2) $1,074 of retroactive workers' compensation, group
and general liability costs due to the recording of tail coverage
insurance expense at the time Summit converted from an occurrence based
insurance policy to a claims made insurance policy; (3) $983 of
incremental bad debt expense relating to 1996 and prior periods
recorded in 1997 resulting from a change in management's methodology
for determining the allowance for bad debts; the change in methodology
was made to convert Summit's allowance methodology accounting practices
to Fountain View's accounting as a result of the acquisition; (4)
termination of non-compete agreements and consulting arrangements
totaling $965 relating to Fountain View Equity Transactions; (5)
certain transaction expenses including discretionary employee bonuses
totaling $872 paid upon completion of Fountain View Equity
Transactions; (6) severance for an executive and other costs totaling
$871, the severance package was paid in connection with the acquisition
of Summit by Fountain View; and (7) $810 related to an employee lawsuit
settled in 1997 involving a specific type of liability for which the
Company currently maintains insurance coverage (net of ongoing
insurance costs).
(b) Management believes that as a consequence of the Transactions, the
Company will realize significant ongoing cost savings and revenue
enhancements. However there can be no assurance that these cost savings
or revenue enhancements will be realized. Management's estimate of the
ongoing cost reductions relating to the Transactions includes: (i)
certain reductions in facility-level operating expense items totaling
$1,451; (ii) $1,355 relating to the elimination of specifically
identified duplicative staff; (iii) $512 relating to reductions in
corporate expenses, including the elimination of certain public company
expenses; and (iv) a reduction in costs of supplies. Such amounts have
not been included in adjusted EBITDA or adjusted EBITDAR.
(7) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense. Earnings were not sufficient to cover fixed
charges. The amount of the shortfall approximated $7.3 million for the pro
forma year ended December 31, 1997 and $0.6 million for the pro forma six
months ended June 30, 1998.
(8) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt,
exclusive of mandatory redeemable preferred stock, less cash and cash
equivalents to Adjusted EBITDA.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW
Set forth below are selected historical financial data of Fountain View as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, which are derived from the audited financial
statements included elsewhere herein. The selected historical financial data
as of December 31, 1993, 1994 and 1995, for the two years in the period ended
December 31, 1994 and for the six months ended June 30, 1997 and 1998 have
been derived from Fountain View's unaudited financial statements included
elsewhere herein, and, in the opinion of management, include all necessary
adjustments for a fair presentation of such information in conformity with
generally accepted accounting principles. The selected historical financial
data below should be read in conjunction with "Capitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net revenue............. $41,061 $51,824 $55,836 $59,432 $ 67,905 $33,423 $ 88,369
Salaries and related
benefits............... 23,248 27,823 35,048 36,166 38,215 18,638 44,467
Other operating costs... 10,884 14,886 13,454 14,614 17,990 8,525 29,714
Depreciation and
amortization........... 110 149 416 600 1,198 366 3,934
Rent expense............ 4,002 4,017 3,946 3,896 3,775 1,879 2,682
Interest, net........... 307 355 332 278 1,164 30 6,219
------- ------- ------- ------- -------- ------- --------
38,551 47,230 53,196 55,554 62,342 29,438 87,016
------- ------- ------- ------- -------- ------- --------
Income before provision
for income taxes and
extraordinary item..... 2,510 4,594 2,640 3,878 5,563 3,985 1,353
Income tax benefit
(provision)............ (81) 43 (54) (78) (361) (50) (541)
Extraordinary item, net
of tax................. -- -- -- -- -- -- (517)
------- ------- ------- ------- -------- ------- --------
Net income.............. 2,429 4,637 2,586 3,800 5,202 3,935 295
Preferred stock
dividends.............. -- -- -- -- -- -- (355)
------- ------- ------- ------- -------- ------- --------
Net income (loss)
available to common
shareholders........... $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 3,935 $ (60)
======= ======= ======= ======= ======== ======= ========
Basic and diluted
earnings per share
available to common
shareholders--before
extraordinary item(5).. $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 19.68 $ 0.66
Basic and diluted loss
per share available to
common shareholders--
extraordinary item..... -- -- -- -- -- -- (.75)
------- ------- ------- ------- -------- ------- --------
Basic and diluted
earnings per share
available to common
shareholders--net
income................. $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 19.68 $ (0.09)
======= ======= ======= ======= ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1)............... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 4,381 $ 11,506
EBITDA margin........... 7.1% 9.8% 6.1% 8.0% 11.7% 13.1% 13.0%
EBITDAR(1).............. $ 6,929 $ 9,115 $ 7,334 $ 8,652 $ 11,700 $ 6,260 $ 14,188
EBITDAR margin.......... 16.9% 17.6% 13.1% 14.6% 17.2% 18.7% 16.1%
Capital expenditures.... $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 1,380 $ 3,244
Ratio of earnings to
fixed charges(2)....... 2.5x 3.7x 2.6x 3.5x 3.3x 7.1x 1.2x
Net cash provided by
(used in) operating
activities............. $(1,804) $ 908 $ 5,832 $ 1,059 $ 12,739 $ 8,603 $(18,492)
OTHER DATA
Number of facilities
(end of period)........ 9 9 9 9 9 9 50
Average licensed
beds(3)................ 1,061 1,061 1,061 1,061 1,061 1,061 5,937
Total beds (end of
period)................ 1,227 1,227 1,227 1,227 1,227 1,227 6,578
Patient days (in
thousands)............. 337 345 341 344 346 170 576
Average occupancy
rate(4)................ 87.0% 89.1% 88.1% 88.8% 89.3% 89.3% 87.5%
Percentage of revenues
from:
Managed care, private
pay and medicare..... 58.4% 65.1% 67.2% 69.7% 72.9% 69.8% 65.1%
Medicaid.............. 41.6 34.9 32.8 30.3 27.1 30.2 34.9
BALANCE SHEET DATA (END
OF PERIOD)
Cash and cash
equivalents............ $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 -- 3,725
Working capital......... 8,266 11,140 10,334 13,566 10,021 -- 27,434
Total assets............ 14,408 18,433 24,693 24,122 25,941 -- 408,555
Total debt, including
current maturities and
excluding redeemable,
preferred stock........ 6,758 7,359 6,764 666 30,076 -- 245,650
Shareholders' equity
(deficit).............. 5,570 9,399 9,957 16,601 (12,236) -- 70,059
</TABLE>
37
<PAGE>
- --------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly
titled measures of other companies. EBITDA may not be indicative of the
historical operating results of the Company, nor is it meant to be
predictive of future results of operations or cash flows. EBITDAR
represents EBITDA plus rent expense. EBITDAR is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. Similar to EBITDA, management views EBITDA as a financial
indicator of a company's ability to service or incur debt. A majority of
Fountain View's nursing homes are leased, under operating leases, and not
owned. Accordingly, EBITDAR is used since the rent expense approximates
the interest and depreciation expense Fountain View may have incurred as
if the nursing homes were owned as opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
(3) Excludes ALF beds.
(4) Excludes Fountain View's ALF, which represents less than 2% of total
revenue.
(5) Weighted average shares outstanding for the five years ended December 31,
1997 and for the three months ended March 31, 1997 has been computed based
on the 200,000 shares of Common Stock issued and outstanding in connection
with the Fountain View Equity Transactions. See note 2 to the consolidated
financial statements of Fountain View included elsewhere herein.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT
Set forth below are selected historical financial data of Summit as of and
for each of the five years in the period ended June 30, 1997, which are
derived from Summit's audited financial statements. The selected historical
financial data for the six months ended December 31, 1996 and 1997 have been
derived from Summit's unaudited financial statements included elsewhere herein
and, in the opinion of management, include all necessary adjustments for a
fair presentation of such information in conformity with generally accepted
accounting principles. The selected historical financial data below should be
read in conjunction with "Capitalization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- -------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net revenue............. $83,992 $ 97,599 $137,026 $176,062 $197,927 $95,088 $108,507
Salaries and related
benefits............... 40,044 45,962 63,171 78,233 89,577 43,386 47,742
Other operating costs... 29,998 34,655 49,206 70,696 89,932 41,750 45,736
Depreciation and
amortization........... 2,308 2,949 5,249 6,142 7,393 3,632 4,235
Rent expense............ 2,315 1,613 2,141 2,656 2,864 1,410 1,525
Interest, net........... 1,080 2,243 4,761 6,574 7,973 4,057 4,588
------- -------- -------- -------- -------- ------- --------
75,745 87,422 124,528 164,301 197,739 94,235 103,826
------- -------- -------- -------- -------- ------- --------
Income before provision
for income taxes....... 8,247 10,177 12,498 11,761 188 853 4,681
Income tax provision.... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849)
------- -------- -------- -------- -------- ------- --------
Net income.............. $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832
======= ======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1)............... $11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504
EBITDA margin........... 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4%
EBITDAR(1).............. $13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029
EBITDAR margin.......... 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9%
Capital expenditures.... $29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $12,049 $ 6,706
Ratio of earnings to
fixed charges(2)....... 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x
Net cash provided by
operating activities .. $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793
OTHER DATA
Number of facilities
(end of period)........ 21 23 37 38 39 39 41
Average licensed beds... 2,696 2,876 4,197 4,816 5,078 5,065 5,154
Total beds (end of
period)................ 2,696 3,002 4,762 4,940 5,040 -- 5,347
Patient days (in
thousands)............. 858 908 1,316 1,514 1,573 783 827
Average occupancy rate.. 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2%
Percentage of revenues
from:
Managed care and
private pay.......... 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6%
Medicare.............. 28.3 30.3 29.5 34.7 39.7 39.1 36.7
Medicaid.............. 35.2 35.7 36.7 33.4 30.4 30.4 31.7
BALANCE SHEET DATA (END
OF PERIOD)
Cash and cash
equivalents............ $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 -- $ 1,702
Working capital......... 7,151 24,880 10,161 13,906 12,648 -- 11,384
Total assets............ 73,369 114,915 184,480 223,052 250,516 -- 267,420
Total debt and capital
leases, including
current maturities..... 30,331 32,025 89,788 110,374 121,452 -- 129,754
Shareholders' equity.... 31,337 66,361 73,813 81,286 81,412 -- 84,721
</TABLE>
39
<PAGE>
- --------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly
titled measures of other companies. EBITDA may not be indicative of the
historical operating results of the Company, nor is it meant to be
predictive of future results of operations or cash flows. EBITDAR
represents EBITDA plus rent expense. EBITDAR is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. Similar to EBITDA, management views EBITDA as a financial
indicator of a company's ability to service or incur debt. A majority of
Fountain View's nursing homes are leased, under operating leases, and not
owned. Accordingly, EBITDAR is used since the rent expense approximates
the interest and depreciation expense Fountain View may have incurred as
if the nursing homes were owned as opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW--THE COMPANY
The Company's business consists of the combined operations of Fountain View
and Summit. At June 30, 1998, the Company operated 50 facilities in
California, Texas and Arizona with approximately 6,600 skilled nursing and
assisted living beds, three institutional pharmacies (one of which is a joint
venture), a contract therapy company, an outpatient therapy clinic and a DME
company.
The Company generates revenues by providing basic healthcare services and
specialty medical care. Basic healthcare services refer to (i) skilled nursing
care which consists of room and board, special nutritional programs, social
services, recreational activities and related medical services, and (ii)
assisted living services which consist of room and board, social activities
and assistance with activities of daily living such as dressing and bathing.
Specialty medical care includes services other than routine skilled nursing
care and are provided to patients who generally require more intensive
treatment and a higher level of acute care. Specialty medical care also
includes sub-acute services such as therapy, pharmacy and durable medical
equipment, which the Company provides to both affiliated and unaffiliated
facilities. Since the services comprising specialty medical care are
reimbursed at higher rates as compared to basic healthcare services, specialty
medical care generally represents the most profitable type of services offered
by the Company. On a pro forma basis for the twelve months ended December 31,
1997, specialty medical revenues represented 55% of total revenues.
The Company provides services to Medicare, Medicaid, managed care and
private pay patients. Government payors, such as state-administered Medicaid
programs, generally provide more restricted coverage and lower reimbursement
rates than private pay and managed care payors. On a pro forma basis for the
twelve months ended December 31, 1997, revenues from Medicare and Medicaid
payors represented 36% and 31% of total revenues, respectively. Management
believes the Company is well-positioned to benefit from the trend toward
increased enrollment in managed care organizations by providing sub-acute
specialty medical care on a cost-effective basis, offering managed care
organizations an attractive alternative to acute hospital care.
On a prospective basis, the Company will operate on a December 31 fiscal
year end. Summit's historical results of operations, which were based on a
June 30 fiscal year end, have not been restated for the purpose of any pro
forma financial presentation of the Company's historical operations.
In July 1997, Fountain View's predecessor, which was comprised of all of
Fountain View's operating units owned individually by certain controlling
stockholders, was merged with and into several companies formed by Fountain
View in connection with the Fountain View Equity Transactions. The Fountain
View Equity Transactions are described in more detail in Note 3 to the audited
financial statements of Fountain View contained elsewhere in this Prospectus.
41
<PAGE>
RESULTS OF OPERATIONS--FOUNTAIN VIEW
The following table presents Fountain View's results of operations for the
six months ended June 30, 1997 and 1998 and the three years ended December 31,
1997:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
-------------------------------------------- ---------------------------------
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
------------------------- ----------------- ------------------- ------------
1995 1996 1997 1997 1998 1995 1996 1997 1997 1998
------- ------- ------- -------- ------- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $55,836 $59,432 $67,905 $ 33,423 $88,369 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and related
benefits............... 35,048 36,166 38,215 18,638 44,467 62.8 60.9 56.3 55.7 50.3
Other operating costs... 13,454 14,614 17,990 8,525 29,714 24.1 24.5 26.5 25.5 33.6
Rent expense............ 3,946 3,896 3,775 1,879 2,682 7.1 6.6 5.5 5.7 3.0
Depreciation and
amortization........... 416 600 1,198 366 3,934 0.7 1.0 1.8 1.1 4.6
Interest, net........... 332 278 1,164 30 6,219 0.6 0.5 1.7 .1 7.0
------- ------- ------- -------- ------- ----- ----- ----- ----- -----
$53,196 $55,554 $62,342 $ 29,438 $87,016 95.3% 93.5% 91.8% 88.1% 98.5%
------- ------- ------- -------- ------- ----- ----- ----- ----- -----
Income before provision
for income taxes and
extraordinary item..... 2,640 3,878 5,563 3,985 1,353 4.7 6.5 8.2 11.9 1.5
Income tax provision.... (1,079) (1,571) (1,951) (50) (541) (1.9) (2.6) (2.9) 0.1 (0.6)
Extraordinary Item...... -- -- -- -- (517) -- -- -- -- (0.6)
------- ------- ------- -------- ------- ----- ----- ----- ----- -----
Net income.............. $ 1,561 $ 2,307 $ 3,612 $ 3,935 $ 295 2.8% 3.9% 5.3% 11.8% 0.3%
======= ======= ======= ======== ======= ===== ===== ===== ===== =====
OCCUPANCY:
Average Licensed Beds............................................ 1,061 1,061 1,061
Patient Days (in thousands)...................................... 341 344 346
Average Occupancy................................................ 88.1% 88.8% 89.3%
</TABLE>
QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30, 1997 (DOLLARS
IN THOUSANDS)
Net revenue increased $51,277 or 301.4% from $17,014 for the quarter ended
June 30, 1997 to $68,291 for the quarter ended June 30, 1998. Substantially
all of the increase was due to the acquisition of Summit.
Average occupancy was 86.4% in the quarter ended June 30, 1998 and 84.4% in
the quarter ended June 30, 1997. The Company's quality mix (total net revenues
less Medicaid net revenues) was 65.1% in the quarter ended June 30, 1998 and
69.8% in the quarter ended June 30, 1997.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other expenses as a percent of net
revenues increased from 83.3% of net revenues in the quarter ended June 30,
1997 to 84.8% in the quarter ended June 30, 1998. Expenses increased $43,739
or 308.6% from $14,172 in the quarter ended June 30, 1997 to $57,911 in the
quarter ended June 30, 1998. Substantially all of the increase was due to the
acquisition of Summit.
Income before rent, rent to related parties, depreciation and amortization
and interest expense increased $7,538 or 265.2% from $2,842 in the quarter
ended June 30, 1997 to $10,380 in the quarter ended June 30, 1998 and was
15.2% of net revenues in the quarter ended June 30, 1998 compared to 16.7% in
the quarter ended June 30, 1997.
42
<PAGE>
Rent, rent to related parties, depreciation and amortization and interest
expense increased $9,305 or 793.9% from $1,172 in the quarter ended June 30,
1997 to $10,477 in the quarter ended June 30, 1998. Substantially all of this
increase was due to higher depreciation costs related to the acquisition of
Summit's tangible and intangible assets and an increase in amortization costs
and interest expense as a result of the debt refinancing.
The Company's effective tax rate was 40.2% of income in the quarter ended
June 30, 1998. In the quarter ended June 30, 1997 the Company was organized as
a Subchapter S Corporation for tax purposes and only recorded state income
taxes. On a proforma basis, the Company has recorded a charge in lieu of
income taxes to arrive at a combined proforma effective tax rate of 39.1%. Net
income after the proforma charge in lieu of income taxes, decreased $1,064
from $1,006 in the quarter ended June 30, 1997 to a net loss of $58 in the
quarter ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net revenues increased $54,946 or 164.4% from $33,423 in the six months
ended June 30, 1997 to $88,369 in the six months ended June 30, 1998.
Substantially all of the increase was due to the acquisition of Summit.
Average occupancy was 86.4% in the six months ended June 30, 1998 and 84.6%
in the six months ended June 30, 1997. The Company's quality mix (total net
revenues, less Medicaid net revenues) was 66.6% in the six months ended June
30, 1998 and 72.0% in the six months ended June 30, 1997.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other expenses as a percent of net
revenues increased from 81.3% of net revenues in the six months ended June 30,
1997 to 83.9% in the six months ended June 30, 1998. Expenses increased
$47,018 or 173.1% from $27,163 in the six months ended June 30, 1997 to
$74,181 in the six months ended June 30, 1998. Substantially all of the
increase was due to the acquisition of Summit.
Income before rent, rent to related parties, depreciation and amortization
and interest expense increased $7,928 or 126.6% from $6,260 in the six months
ended June 30, 1997 to $14,188 in the six months ended June 30, 1998 and was
16.1% of net revenues in the six months ended June 30, 1998 compared to 18.7%
in the six months ended June 30, 1997.
Rent, rent to related parties, depreciation and amortization and interest
expense increased by $10,560 or 464.2% from $2,275 in the six months ended
June 30, 1997 to $12,835 in the six months ended June 30, 1998. Substantially
all of this increase was due to higher depreciation and amortization costs
related to the acquisition of Summit's tangible and intangible assets and an
increase in amortization costs and interest expense as a result of the debt
refinancing.
The Company's effective tax rate was 40.0% of income in the six months ended
June 30, 1998. In the six months ended June 30, 1997 the Company was organized
as a Subchapter S Corporation for tax purposes and only recorded state income
taxes. On a proforma basis, the Company has recorded a charge in lieu of
income taxes to arrive at a combined proforma effective tax rate of 39.1%. Net
income after the proforma charge in lieu of income taxes, decreased $2,100
from $2,395 in the six months ended June 30, 1997 to $295 in the six months
ended June 30, 1998.
43
<PAGE>
Selected statistics are shown below:
<TABLE>
<CAPTION>
INCREASE
1998 1997 (DECREASE)
----- ----- -----------
<S> <C> <C> <C>
Facilities in operation at:
March 31.......................................... 50 9 41
June 30........................................... 50 9 41
Nursing center beds at:
March 31.......................................... 5,937 1,061 4,876
June 30........................................... 5,937 1,061 4,876
Assisted living beds at:
March 31.......................................... 641 166 475
June 30........................................... 641 166 475
Total beds at:
March 31.......................................... 6,578 1,227 5,351
June 30........................................... 6,578 1,227 5,351
Total occupancy:
First quarter..................................... 86.6% 84.9% 1.7%
Second quarter.................................... 86.4% 84.4% 2.0%
Nursing center occupancy:
First quarter..................................... 89.4% 89.8% (0.4)%
Second quarter.................................... 87.5% 89.3% (1.8)%
Assisted living center occupancy:
First quarter..................................... 67.4% 53.7% 13.7%
Second quarter.................................... 76.1% 52.8% 23.3%
Percentage of revenues from private, managed care
and Medicare (quality mix):
First quarter..................................... 72.0% 72.8% (0.8)%
Second quarter.................................... 65.1% 69.8% (4.7)%
Percentage of revenues from Medicaid:
First quarter..................................... 28.0% 27.2% 0.8%
Second quarter.................................... 34.9% 30.2% 4.7%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $3,725 in cash and cash equivalents and
working capital of $27,434. During the six months ended June 30, 1998, the
Company's cash and cash equivalents increased by $1,174.
Net cash provided by operating activities decreased $27,095 from $8,603 of
net cash provided in the first six months of 1997 to $18,492 net cash used in
the first six months of 1998. Net cash used by operating activities during the
six months ended June 30, 1998 was primarily due to a reduction in accounts
payable and accrued liabilities primarily related to costs associated with the
acquisition of Summit and an increase in accounts receivable.
Long-term debt totaling $239,619 at June 30, 1998, consisted of mortgage and
capital lease obligations of $19,708, a term-loan credit facility of $83,750,
borrowings on the Company's bank line of credit of $16,161 and $120,000 in
senior subordinated notes.
The Company believes that it has sufficient cash flow from its existing
operations and from its bank line of credit to service long-term debt due
within one year of $6,031, to make normal recurring capital replacements,
additions and improvements of approximately $5,000 planned for the next
12 months and to meet other long-term working capital needs and obligations.
The Company expects,
44
<PAGE>
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.
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 these costs increases in a timely fashion.
Recent Accounting Pronouncements
See Note 6 to Consolidated Financial Statements.
1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS)
Net revenue increased from $59,432 in 1996 to $67,905 in 1997, an increase
of $8,473 or 14.3%. The increase in net revenue is due in part to growth in
the skilled nursing business, driven by occupancy, improving quality mix, and
the increase in provision of services by Medi-Cal sub-acute units in two
facilities. During 1997, Medi-Cal sub-acute per diem reimbursement rates were
approximately three times higher than Medi-Cal SNF per diem reimbursement
rates. Fountain View's quality mix (percentage of revenues from Medicare,
Medi-Cal sub-acute, managed care, private pay patients and therapy) as a
percentage of total revenues increased from 69.7% in 1996 to 72.9% in 1997.
The increase in net revenue was also attributable to increased revenues
generated by Fountain View's Locomotion Therapy subsidiary.
Expenses consisting of salaries, benefits, supplies, purchased services,
provision for doubtful accounts and other operating costs increased from
$50,780 in 1996 to $56,205 in 1997, an increase of $5,425 or 10.7%, and as a
percentage of net revenue, decreased from 85.4% in 1996 to 82.8% in 1997.
Salary and related benefit expenses increased primarily as the result of four
separate increases in federal and state minimum wage levels between October 1,
1996 and December 31, 1997 as well as discretionary employee bonuses paid
during 1997. However, salary and related benefit expenses decreased as a
percentage of net revenue from 60.9% in 1996 to 56.3% in 1997, reflecting the
revenue benefit of improvement in Fountain View's quality mix relative to the
level of increased salary expenses associated therewith. Other operating costs
increased as the result of the termination of non-compete agreements and
consulting agreements relating to the Fountain View Equity Transactions
totaling $965, $810 (net of ongoing insurance costs) of settlement costs
associated with an employee lawsuit involving a specific type of liability for
which the Company currently maintains insurance coverage, and $415 of other
charges related to the Fountain View Equity Transactions.
Rent expense, depreciation and amortization and interest expense, net of
interest income, was $6,137 in 1997 compared to $4,774 in 1996, an increase of
$1,363 or 28.6%. The increase was primarily due to increased depreciation
costs related to renovation expenditures during 1996 and 1997 and an increase
in interest expense as a result of the Fountain View Equity Transactions.
Fountain View's pro forma effective tax rate was 40% in both 1996 and 1997.
Prior to the Fountain View Equity Transactions, the entities comprising
Fountain View were owned individually by certain controlling stockholders, and
were primarily formed as S-corporations. The pro forma effective tax rate
represents the estimated taxes had such companies been taxed as C-
corporations.
45
<PAGE>
1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS)
Net revenue increased from $55,836 in 1995 to $59,432 in 1996, an increase
of $3,596 or 6.4%. The increase in net revenue relates primarily to revenues
generated by Medi-Cal sub-acute units established in two facilities and a
transitional care unit opened in one facility during 1996. Net revenue also
increased as the result of higher revenues from managed care patients, which
are typically reimbursed at higher rates than Fountain View's private or
Medicaid patients.
Expenses consisting of salaries, benefits, supplies, purchased services,
provision for doubtful accounts and other expenses increased from $48,502 in
1995 to $50,780 in 1996, an increase of $2,278 or 4.7%. However, salary and
related benefit expenses decreased from 62.8% in 1995 to 60.9% in 1996 as a
percentage of net revenue, reflecting the benefit of an increase in revenues
from managed care patients relative to the level of increased salary expenses
associated therewith.
Rent expense, depreciation and amortization and interest expense, net of
interest income, was $4,774 in 1996 compared to $4,694 in 1995, an increase of
$80 or 1.7%.
Fountain View's pro forma effective tax rate was 40% in both 1995 and 1996.
Prior to the Fountain View Equity Transactions, the entities comprising
Fountain View were owned individually by certain controlling stockholders and
were primarily formed as S-corporations. The pro forma effective tax rate
represents the estimated taxes had such companies been taxed as C-
corporations.
HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
Cash and cash equivalents were $2,551 as of December 31, 1997, and working
capital was $10,021. This compares to cash and cash equivalents of $1,161 and
working capital of $13,566 as of December 31, 1996. Working capital declined
primarily as a result of the Fountain View Equity Transactions and payment of
a $43,700 distribution to certain controlling stockholders in August 1997.
Proceeds of $14,000 from an investment by Heritage and $32,500 in bank
borrowings financed the $43,700 distribution and payment of related
transaction costs.
Cash generated from operating activities increased to $12,739 in 1997
compared to $1,059 in 1996 and $5,832 in 1995. The increased level of cash
from operating activities in 1997 as compared to 1996 reflects differences in
the timing of receiving payments on accounts receivable, primarily managed
care and Medicare balances. Receivables increased by $3,757 in 1996, and
decreased by $2,908 in 1997. The combination of the increase in receivables in
1996 and decrease in 1997 resulted in a variance of $6,665 in cash from
operations between such periods. In addition, accounts payable and accrued
expenses increased by $2,772 in 1997 compared to an increase in 1996 of $421.
In 1997, $2,570 of cash was used for the acquisition of leasehold
improvements and purchases of equipment compared to $1,816 and $665 used in
1996 and 1995, respectively, for the acquisition of leaseholds and equipment.
Cash used in financing activities was $7,604 in 1997 compared to $438 in
1996 and $3,159 in 1995. In 1997, $32,500 of new bank borrowings and $14,000
of proceeds from an investment by Heritage were used to repay $6,065 in bank
borrowings and $48,118 in total distributions to certain stockholders
inclusive of the $43,700 distribution made in connection with the Fountain
View Equity Transactions.
46
<PAGE>
RESULTS OF OPERATIONS--SUMMIT
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996 (DOLLARS IN THOUSANDS)
Net revenues increased $13,419 or 14.1% from $95,088 for the six months
ended December 31, 1996 to $108,507 for the six months ended December 31,
1997. The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<S> <C> <C>
1. Increased census days and revenue rates.................. $ 4,874 36.3%
2. Special charge to Medicare revenues...................... 4,000 29.8
3. New beds opened in fiscal years 1997 and 1998............ 3,973 29.6
4. Pharmacy operations...................................... 1,406 10.5
5. Rehabilitative and other specialty services.............. (834) (6.2)
------- -----
$13,419 100.0%
======= =====
</TABLE>
In December 1996, Summit recorded a special charge of $4,000 against
Medicare revenues as a result of adjustments proposed by Medicare in
connection with an audit of fiscal 1995, which would have an effect on
revenues for that fiscal year, fiscal 1996 and the six months ended December
31, 1996. Average occupancy was 87.2% in the six months ended December 31,
1997 and 84.0% in the six months ended December 31, 1996. Excluding newly
constructed beds, the average occupancy was 90.3% in the six months ended
December 31, 1997 and 85.9% in the six months ended December 31, 1996.
Summit's quality mix (revenues from Medicare, managed care and private pay
patients, including pharmacy revenue) as a percentage of gross revenues was
68.3% in the six months ended December 31, 1997 and 69.6% in the six months
ended December 31, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 85.9% of net
revenues in the six months ended December 31, 1996 to 86.1% in the six months
ended December 31, 1997. Total salaries and employee related benefits were
44.0% of net revenues in the six months ended December 31, 1997 compared to
43.8% of net revenues, before the effect of the special charge, in the six
months ended December 31, 1996.
Expenses increased $8,342 or 9.8% from $85,136 in the six months ended
December 31, 1996 to $93,478 in the six months ended December 31, 1997 for the
following reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<C> <S> <C> <C>
1. Expenses relating to new beds opened in fiscal years
1997 and 1998.......................................... $3,232 38.7%
2. Salaries and benefits................................... 2,776 33.3
3. Other expenses.......................................... 1,540 18.5
4. Rehabilitative and other specialty services............. 794 9.5
------ -----
$8,342 100.0%
====== =====
</TABLE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, increased $5,077 or 51.0% from $9,952 in the six
months ended December 31, 1996 to $15,029 in the six months ended December 31,
1997 and was 13.9% of net revenues in the six months ended December 31, 1997
compared to 10.5% in the six months ended December 31, 1996 (and 14.1% of net
revenues before the special charge to revenues).
Rent, depreciation and amortization and interest expense, net of interest
income, increased by $1,249 or 13.7% from $9,099 in the six months ended
December 31, 1996 to $10,348 in the six months ended December 31, 1997.
Substantially all of this increase was due to interest expense related to
higher debt and depreciation expense related to capital additions.
47
<PAGE>
Summit's effective tax rate was 39.5% of income in the six months ended
December 31, 1997 and in the six months ended December 31, 1996. Net income
increased $2,316 from $516 in the six months ended December 31, 1996 to $2,832
in the six months ended December 31, 1997. The net income of $516 for the six
months ended December 31, 1996 included $2,420 for the special charge
described earlier. Net income before the special charge, decreased $104 or
3.5% from $2,936 in the six months ended December 31, 1996 to $2,832 in the
six months ended December 31, 1997.
1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS)
Net revenues increased $21,865 or 12.4% from $176,062 in fiscal 1996 to
$197,927 in fiscal 1997. The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<S> <C> <C>
1. Rehabilitative and other specialty services.............. $ 7,553 34.6%
2. New beds opened in fiscal years 1996 and 1997............ 12,450 56.9
3. Increased census days and revenue rates.................. 5,647 25.8
4. Pharmacy operations...................................... 2,315 10.6
5. Special charge to Medicare revenue....................... (6,100) (27.9)
------- -----
$21,865 100.0%
======= =====
</TABLE>
The special charge to Medicare revenues reflects the result of adjustments
proposed by Medicare in connection with an audit of fiscal 1995, which would
have an effect on revenues for that fiscal year, fiscal 1996 and fiscal 1997.
Average occupancy was 84.8% in the fiscal year ended June 30, 1997 compared to
85.9% in the fiscal year ended June 30, 1996. Excluding newly constructed
beds, the average occupancy was 87.0% in the fiscal year ended June 30, 1997
and 86.4% in the fiscal year ended June 30, 1996. Summit's quality mix
(revenues from Medicare, managed care and private pay patients, including
pharmacy revenue) patients as a percentage of gross revenues was 69.6% in the
fiscal year ended June 30, 1997 and 66.6% in the fiscal year ended June 30,
1996.
Expenses, consisting of salaries and benefits, supplies, purchased services,
provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 84.6% of net
revenues in the fiscal year ended June 30, 1996 to 88.0% in the fiscal year
ended June 30, 1997. Total salaries and employee related benefits were 43.9%
of net revenues, before the effect of the special charge, in the fiscal year
ended June 30, 1997 compared to 44.4% of net revenues in the fiscal year ended
June 30, 1996. Purchases of rehabilitative and other specialty services were
25.3% of net revenues, before the effect of the special charge, in the fiscal
year ended June 30, 1997 compared to 21.6% of net revenues in the fiscal year
ended June 30, 1996. Expenses increased $30,580 or 20.5% from $148,929 in the
fiscal year ended June 30, 1996 to $179, 509 in the fiscal year ended June 30,
1997 for the following reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<C> <S> <C> <C>
1. Rehabilitative and other specialty services............ $ 8,680 28.4%
2. Expenses relating to new beds opened in fiscal years
1996 and 1997......................................... 11,529 37.7
3. Salaries and benefits.................................. 6,612 21.6
4. Other expenses......................................... 3,759 12.3
------- -----
$30,580 100.0%
======= =====
</TABLE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, decreased $8,715 or 32.1% from $27,133 in the fiscal
year ended June 30, 1996 to $18,418 in the fiscal year ended June 30, 1997 and
was 9.3% of net revenues in the fiscal year ended June 30, 1997 (and 12.0% of
net revenues before the special charge to revenues) compared to 15.4% in the
fiscal year ended June 30, 1996.
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<PAGE>
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $2,858 or 18.6% from $15,372 in the fiscal year ended
June 30, 1996 to $18,230 in the fiscal year ended June 30, 1997. The increase
was primarily due to depreciation of additions to property and equipment and
interest expense related to higher long-term debt.
Summit's effective tax rate was 63.3% of income in the fiscal year ended
June 30, 1997 compared to 37.9% of income in the fiscal year ended June 30,
1996. The increase in the effective tax rate was primarily due to certain
permanent differences between book income and taxable income. Net income was
$69 for the fiscal year ended June 30, 1997, a decrease of $7,240 or 99.1%
from $7,309 for the fiscal year ended June 30, 1996.
1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS)
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>
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. Summit's
quality mix (revenues from Medicare, managed care and private pay patients,
including pharmacy revenue) as a percentage of gross revenues was 66.6% in the
fiscal year ended June 30, 1996 and 63.3% 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
------- -------
<C> <S> <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.
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<PAGE>
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.
Summit'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.
HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
At June 30, 1997, Summit had $3,994 in cash and cash equivalents and working
capital of $12,648. For the fiscal year ended June 30, 1997, Summit's cash and
cash equivalents increased by $1,336 over the prior year.
Net cash provided by operating activities increased $11,149 from $6,866 for
the fiscal year ended June 30, 1996 to $18,015 for the fiscal year ended June
30, 1997. Net cash provided by operating activities, plus proceeds of $15,000
in new long-term debt (see description below) were used principally for
capital expenditures of $24,075 for new and existing centers, the net
reduction of loans outstanding on the line of credit of $1,000, the purchase
of a lease option for $2,022, and the acquisition of a 50% interest in an
institutional pharmacy for $1,565.
Accounts receivable, less allowance for doubtful accounts, increased $5,819
due to increased total revenues in the fiscal year ended June 30, 1997
compared to the prior year, primarily in Medicare and managed care revenues.
At June 30, 1997, Summit's average accounts receivable days outstanding were
41, compared to 39 at June 30, 1996.
For the fiscal year ended June 30, 1997, Summit added $24,075 to its
property and equipment. These additions were primarily for the completion of a
210-bed SNF in Fort Worth, Texas, at a cost of $2,300, construction of a 66-
bed ALF in Orange, California, at a cost of $3,525, and the renovation of
buildings and replacement of furniture and equipment at the remaining centers
and the pharmacies, at a cost of $18,250.
These additions to property and equipment were primarily financed with funds
from $15,000 of Senior Secured Notes issued in July 1996 and with cash
generated from operations. The $15,000 funding represents the second and last
issuance of the $70,000 Senior Secured Notes. The initial funding of $55,000
occurred in December 1995.
Summit believes that it has sufficient cash flow from its existing
operations and from its bank line of credit to service long-term debt due
within one year of $6,997 (Summit intends to borrow this amount against its
bank line of credit which has a revolver extending to September 30, 1998
followed by a three-year payment period), to make normal recurring capital
replacements, additions and improvements to existing centers of approximately
$9,100 planned for the next twelve months, to develop properties costing
approximately $3,000 over the next twelve months, to purchase a 111-bed center
for $1,871 in accordance with a purchase option in a lease and to meet other
long-term working capital needs and obligations. The loans outstanding on the
line of credit at June 30, 1997 were $5,000. Summit 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.
50
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY FOLLOWING THE TRANSACTIONS
(DOLLARS IN THOUSANDS)
Interest payments on the Notes and any borrowings under the New Credit
Facility will represent significant liquidity requirements for the Company.
Any future borrowings under the New Credit Facility will bear interest at
floating rates and will require interest payments on varying dates depending
on the interest rate option selected by the Company. See "Description of Other
Indebtedness--New Credit Facility".
The Company's remaining liquidity demands will be primarily for capital
expenditures and working capital needs. The Company expects to spend
approximately $4.5 million on capital projects in 1998, with approximately
$4.0 million of that amount representing maintenance-related capital
expenditures. The Company currently expects to spend a similar amount on
capital expenditures in fiscal 1999. The New Credit Facility and the Indenture
will impose restrictions on the Company's investments.
The Company's primary sources of liquidity are expected to be cash flows
from operations and borrowings under the New Credit Facility. See "Description
of Other Indebtedness--New Credit Facility". Approximately $16.0 million is
available to be drawn by the Company under the New Credit Facility. In
addition, the Company has approximately $14.0 million in revolving credit
loans and $85.0 million in term loans outstanding under the New Credit
Facility. See "Description of Other Indebtedness--New Credit Facility".
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
and any acquisitions will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations and anticipated cost savings and revenue
growth, management believes that cash flow from operations and available cash,
together with available borrowings under the New Credit Facility, will be
adequate to meet the Company's future liquidity needs for at least the next
several years. The Company may, however, need to refinance all or a portion of
the principal of the Notes on or prior to maturity. There can be no assurance
that the Company's business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the New Credit
Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to fund its other liquidity needs. In
addition, there can be no assurance that the Company will be able to effect
any such refinancing on commercially reasonable terms or at all. See "Risk
Factors".
51
<PAGE>
BUSINESS
THE COMPANY
The Company is a leading operator of long-term care facilities and a leading
provider of a full continuum of post-acute care services, with a strategic
emphasis on sub-acute specialty medical care. The Company operates a network
of facilities in California, Texas and Arizona, including 44 SNFs that offer
sub-acute, rehabilitative and specialty medical skilled nursing care, as well
as six ALFs that provide room and board and social services in a secure
environment. In addition to long-term care, the Company provides a variety of
high-quality ancillary services such as physical, occupational and speech
therapy in Company-operated facilities, unaffiliated facilities and acute care
hospitals. The Company also operates three institutional pharmacies (one of
which is a joint venture), which service acute care hospitals as well as SNFs
and ALFs both affiliated and unaffiliated with the Company, an outpatient
therapy clinic and a DME company. The Company operates 50 facilities with
approximately 6,600 beds serving Medicare, Medicaid, managed care, private pay
and other patients.
Both Fountain View and Summit have demonstrated records of revenue growth,
increasing average census (occupancy) levels and improvements in quality mix
(defined as non-Medicaid revenues). During the five fiscal years ended 1997,
revenues for Fountain View and Summit increased at compound annual growth
rates of 13.1% and 27.1%, respectively. During the same period, average census
levels at Fountain View facilities increased from 87.0% to 89.3%, quality mix
increased from 58.4% to 72.9% and net income increased from $2.4 million to
$5.2 million. Average census levels at Summit facilities (excluding three
facilities which commenced operations or were renovated in 1996 or later)
increased from 87.2% for the year ended June 30, 1993 to 88.7% for the six
months ended December 31, 1997, quality mix increased from 64.8% to 69.6%
during the four fiscal years ended 1997 and net income was $5.0 million for
the year ended June 30, 1993 and $2.8 million for the six months ended
December 31, 1997. The Company had revenues of $88.3 million, an average
census level of 86.4% (excluding three Summit facilities which commenced
operations or were renovated in 1996 or later), a quality mix of 65.1% and net
income of $295,000 for the six months ended June 30, 1998.
Management believes that the Company's strong operating performance has been
supported by the Company's ability to (i) provide high-quality, high-acuity
care, (ii) utilize an efficient cost structure, (iii) operate a network of
attractive, modern facilities, (iv) maintain a leading market position and
(v) capitalize on the extensive experience of its management.
The Company intends to pursue a strategy of further increasing its revenues
and profitability by capitalizing on the relative strengths of Fountain View
and Summit. In implementing its strategy, the Company expects to (i) further
increase the proportion of revenues derived from high-acuity specialty medical
services, (ii) broaden the implementation of its cost-effective operating
model, (iii) expand its ancillary services businesses, (iv) pursue controlled
expansion through construction and acquisition-related growth, and (v)
capitalize on benefits derived from the Transactions.
COMPANY HISTORY
Fountain View was founded in 1964 and originally operated two nursing homes
in Los Angeles, California. Fountain View has expanded the size and scope of
its core long-term care business by acquiring facilities and by introducing
ancillary services to existing operations. Since 1982, the business has grown
from two facilities to nine, with each facility providing a broad array of
specialty medical care. Fountain View was one of the first operators of long-
term care facilities to receive a contract with Medi-Cal to provide sub-acute
care and currently has 36 beds in two facilities dedicated to providing Medi-
Cal patients with sub-acute services (which are eligible for significantly
higher per diem reimbursement rates than standard Medi-Cal per diem
reimbursement rates). Fountain View's
52
<PAGE>
nine facilities have a total of 1,227 beds, of which 1,061 are dedicated to
serving skilled nursing patients and 166 of which comprise an ALF. Each of
Fountain View's facilities is located in close proximity to a hospital,
facilitating patient referrals. Many of Fountain View's skilled nursing
patients have been discharged from acute care hospitals and require medically
complex treatments. Fountain View has placed strategic emphasis on providing
higher-acuity care while simultaneously developing a cost-effective operating
model. Fountain View, through Locomotion Therapy, also provides physical,
occupational and speech therapy to unaffiliated nursing homes and acute care
hospitals as well as several Fountain View facilities. Fountain View also owns
an outpatient therapy clinic company and a DME business.
Summit was incorporated in 1981 as a wholly-owned subsidiary of Summit
Health Ltd., an operator of acute care hospitals. Summit provides diversified
nursing, specialty medical and sub-acute care at 36 owned or leased SNFs as
well as assisted living services at five ALFs located in California, Texas and
Arizona. Summit currently operates 36 SNFs with a total of 4,872 beds. Within
its SNFs, Summit has established separate units for specialty medical and sub-
acute care dedicated to patients requiring complex services such as
chemotherapy, pulmonary and cardiac care, wound care, respiratory therapy and
intensive physical, occupational and speech therapies. Summit also operates
five ALFs with a total of 475 beds which include certain beds designated as
specialty beds, primarily for early-stage Alzheimer's residents. Summit also
operates two institutional pharmacies in Southern California and owns a 50%
interest in a pharmacy in Texas through a joint venture. The pharmacies
provide pharmaceutical products and services to all of Summit's facilities as
well as to unaffiliated SNFs, ALFs and acute care hospitals in Southern
California and Texas, including certain Fountain View facilities.
INDUSTRY
In 1997, nursing home spending was approximately $85 billion and is expected
to reach more than $100 billion by the year 2000, representing an average
annual increase of approximately 6.1%. Demand for long-term care facilities is
expected to continue to increase substantially as the result of cost
containment initiatives, demographic and social trends as well as industry
consolidation.
COST CONTAINMENT INITIATIVES. During the past several years, Medicare
managed care enrollment has grown to more than 14% nationwide. The trend
toward managed care in the Medicare population is particularly evident in
California, where approximately 35% of Medicare enrollees were participating
in a managed care program during 1996. Cost containment initiatives developed
by managed care plans have contributed to shorter hospital stays for acute
care patients. Because acute care patients often still require medically
complex treatments following discharge from a hospital, management believes
that SNFs will experience increased demand for high-acuity services, which are
typically eligible for higher reimbursement rates. In addition, management
believes that certain SNFs will further develop the ability to offer
attractive rates to third-party payors for high-acuity specialty medical
services primarily as the result of the significantly lower overhead costs
generated by SNFs relative to acute care hospitals and hospital-based SNFs.
Labor costs are also generally lower in SNFs than in hospitals, which
typically have higher staffing ratios, higher salary structures, and
significantly more administrative personnel, including nursing staff resources
not fully dedicated to providing care.
DEMOGRAPHIC TRENDS. Demand for long-term care services rises meaningfully
among persons over the age of 75, an age group that has been growing and is
projected to continue growing significantly faster than the overall population
according to the United States Bureau of the Census. This increase in the
elderly portion of the population reflects, among other things, improvements
in medical technology, disease prevention, nutrition and overall health
maintenance. The segment of the population over 85 years of age, which
comprises the largest percentage of long-term care residents, is the fastest-
growing segment of the population and is projected to increase by more than
19.4% from approximately 3.6 million or 1.4% of the domestic population in
1995 to approximately 4.3 million or
53
<PAGE>
1.6% of the domestic population in the year 2000. By 2010, the population of
this segment is expected to be approximately 5.7 million, representing more
than a 58% increase from 1995.
SOCIAL TRENDS. Two-income families often experience significant challenges
in providing home care for elderly relatives. Management believes that ALFs
will continue to experience increased demand as working families seek
attractive alternatives to home care for the elderly. Additionally, management
believes demand for higher-acuity services in long-term care facilities has
contributed to the perception of SNFs as an increasingly attractive
alternative to a wide range of potential patients.
INDUSTRY CONSOLIDATION. Currently, approximately 1.7 million people receive
care in approximately 17,000 long-term care facilities in the United States.
Market share data indicates that the industry is highly fragmented, with the
30 largest operators accounting for less than 25% of total beds. Management
believes that consolidation initiatives by industry participants have been
structured to achieve economies of scale and to create networks of facilities
that can be effectively marketed to managed care organizations. As a result,
management expects that consolidation will continue among smaller local
operators which lack sophisticated management information systems, high-acuity
services necessary to remain attractive to acute patients and the ability to
maintain strict compliance with complex regulations which govern the long-term
care industry.
COMPANY STRENGTHS
ABILITY TO PROVIDE HIGH-QUALITY AND HIGH-ACUITY CARE. Management believes
that the Company's strong operating performance has been supported by the
Company's ability to provide a broad range of high-quality, high-acuity
services which are generally more profitable than routine healthcare services.
Pro forma for the Transactions, revenues from sub-acute and specialty medical
care would have represented 55% of the Company's total revenues for the year
ended December 31, 1997. The Company currently serves Medicare, Medicaid,
managed care, private pay and other patients by providing a continuum of sub-
acute and specialty medical care, which consists of ventilator services,
tracheotomy care, multiple intravenous therapy, chemotherapy,
enteral/parenteral nutrition, end-stage renal disease care, blood
transfusions, dialysis, wound care, rehabilitation services, pharmacy services
and the provision of durable medical equipment. In addition, both Fountain
View and Summit have responded to the increased demand for Alzheimer's care by
broadening their specialty medical care to include Alzheimer's units in a
total of 21 facilities.
Management believes that the Company's facilities provide services similar
to those provided in acute care hospitals for approximately 40% to 60% of the
costs generated by acute care hospitals in providing such services. As a
result, management believes the Company will increase revenues by continuing
to attract managed care payors and is well-positioned to benefit from growing
managed care enrollment levels.
EFFICIENT OPERATOR AND COST-EFFECTIVE PROVIDER. Management believes it has
developed significant expertise in delivering high-quality, high-acuity care
through the implementation of an efficient and cost-effective operating model.
Developed within the Fountain View network of facilities, management believes
this model has produced high levels of efficiency and facility-level EBITDAR
through the application of specific operating initiatives. EBITDAR is not a
measurement of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as a substitute
for operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability or
liquidity. Similar to EBITDA, management views EBITDAR as a financial
indicator of a company's ability to service or incur debt. A majority of
Fountain View's nursing homes are lease, under operating leases, and not
owned. Accordingly, EBITDAR is used since the rent expense approximates the
interest and depreciation expense Fountain View may have
54
<PAGE>
incurred as if the nursing homes were owned as opposed to leased. Management
intends to expand its cost-effective operating model to maximize profitability
and the quality of care provided across the Company's entire facility network.
ATTRACTIVE, MODERN FACILITY NETWORK. Management believes the Company's
facilities are in excellent aesthetic and operational condition as the result
of recent comprehensive construction and renovation initiatives. Summit has
expended more than $180 million over the past five years constructing,
acquiring, expanding and upgrading facilities, and Fountain View has spent
more than $4 million on facility improvements during the past two years.
Approximately 80% of the Company's facilities were either constructed or
renovated within the past three years. Management believes the Company's
attractive and modern facility network will continue to support high average
census and quality mix levels. In addition, management believes that the
Company's recent construction and renovation initiatives will facilitate
improvements in operating efficiency and reductions in maintenance capital
expenditure levels. The Company owns 56% of its facilities (representing 70% of
its beds) and holds options to purchase an additional 10% of its facilities,
providing the Company with an attractive asset base, enhanced credit quality and
increased financial flexibility.
LEADING MARKET POSITION. Management believes the Company will operate as a
leading provider of long-term and specialty medical care in several Southern
California and Texas markets. The Company's Southern California facilities are
strategically located in geographically clustered networks which management
believes are particularly attractive to managed care organizations. Management
believes the Company is well-positioned to benefit from California's rapidly
increasing managed care enrollment levels, which included 35% of Medicare
enrollees during 1996 as compared to a nationwide enrollment level of 14% as
of July 1997. The Company also expects that the increased density of its
Southern California market presence as a result of the Transactions will
result in heightened brand awareness, expanded referral networks, operating
and administrative economies of scale as well as improved purchasing
economies.
In addition to the Company's geographically clustered networks in Southern
California, the Company operates a broad network of facilities in small to
mid-size markets in Texas. Management believes the Company's Texas facilities
are located in several demographically attractive markets and are generally
characterized by leading market positions. In addition to the Company's strong
local market presence in both Southern California and Texas, management
believes the Company will be subject to a relatively low level of direct
competition from any single large competitor due to the considerable
fragmentation which characterizes the Company's markets.
STRONG MANAGEMENT TEAM. Mr. Scott, the Chairman of the Company, and Mr.
Snukal, the Chief Executive Officer of the Company, together have more than 43
years of senior management experience in the long-term care industry in
Southern California and Texas. Mr. Scott has supervised significant expansion
in the number of Summit's facilities and services through strategic
acquisitions and construction. Mr. Snukal has demonstrated expertise in
developing Fountain View's ability to provide specialty medical and sub-acute
care in a cost-effective manner, and achieving strong facility-level operating
and financial performance. Both Mr. Scott and Mr. Snukal will maintain
significant involvement in the daily operations of the Company and have made
significant equity contributions to the Company in connection with the
Transactions. See "Prospectus Summary--The Transactions".
BUSINESS STRATEGY
FURTHER INCREASE PROPORTION OF REVENUES DERIVED FROM SPECIALTY MEDICAL
CARE. The Company intends to leverage its existing specialty medical
infrastructure, further increasing the proportion of total revenues derived
from specialty medical care. On a pro forma basis for the twelve months ended
December 31, 1997, specialty medical revenues represented 55% of total
revenues. Services comprising specialty medical care generally represent the
most profitable types of services
55
<PAGE>
offered by long-term care providers since such services are reimbursed at
higher rates than routine skilled nursing care and basic assisted living
services. As a result of the trend toward shorter hospital stays by patients
who require medically complex treatments and in order to deliver the highest
quality care possible to its residents, the Company has developed significant
expertise and experience caring for high-acuity patients. The Company's
ability to provide high-acuity specialty medical and sub-acute care in its own
facilities generates substantial revenue for the Company and benefits managed
care payors by reducing hospital costs and by eliminating costs incurred by
transferring patients to acute care hospitals to receive specialty medical
care.
BROADEN IMPLEMENTATION OF COST-EFFECTIVE OPERATING MODEL. Management intends
to expand the Company's cost-effective operating model to maximize
profitability and the quality of care provided across the Company's
facilities. Management believes that expanded implementation of a well-
designed and well-monitored operating model will enhance the quality and
consistency of care delivered and improve profitability by simplifying
procedures for administering care.
EXPAND ANCILLARY SERVICES. The Company intends to increase the penetration
of its therapy and pharmacy businesses within both affiliated and unaffiliated
facilities. Ancillary services generally have produced higher revenues and
profitability than routine long-term care services. The Company currently
provides rehabilitative physical, occupational and speech therapy through
Locomotion Therapy. Locomotion Therapy generated $19.7 million of revenues for
the year ended December 31, 1997, providing services to unaffiliated nursing
homes and acute care hospitals under 97 contracts and to eight Fountain View
facilities. Management expects Locomotion Therapy to expand its provision of
services to Summit facilities, which purchased approximately $34 million of
therapy services from nonaffiliates during fiscal 1997. The Company also
intends to pursue increased "bundling" of ancillary services, offering a
unique package of rehabilitative and pharmacy services to unaffiliated
facilities in a cost-efficient manner. In addition to providing ancillary
therapy services, the Company operates three institutional pharmacies (one of
which is a joint venture), a DME company and an outpatient therapy clinic
through its subsidiary, On-Track. Several of Summit's facilities have
existing, unoccupied space allocated to outpatient therapy services which the
Company expects to utilize for the expansion of services provided by On-Track.
PURSUE CONTROLLED EXPANSION THROUGH CONSTRUCTION AND ACQUISITION-RELATED
GROWTH. The Company intends to acquire and construct facilities selectively in
strategic locations which will facilitate operating efficiencies through
economies of scale, will generate marketing synergies through further
expansion of relationships and contracts with hospitals, physicians and
physician groups and will lead to reduced overhead expenditures. The Company
expects to acquire or construct new beds and facilities in a cost-effective
manner, including expansion initiatives which utilize real estate currently
owned by the Company. The Company currently owns properties adjacent to
several facility locations which management believes can support the
construction of approximately 1,400 additional beds at reduced cost levels
relative to the expense associated with acquisition and development of new
real estate.
CAPITALIZE ON BENEFITS DERIVED FROM THE TRANSACTIONS. As a result of the
Transactions, management believes the Company will be able to realize
significant cost savings. As a result of the Company's contiguous geographic
locations in several Southern California markets, management intends to
eliminate specifically identified corporate expenses and leverage
administrative resources across facilities. Management believes the Company
will be able to reduce its cost of food, sanitary and medical supplies as a
result of improved purchasing power and expects the Company to realize
marketing and referral benefits as a result of the increased geographic
density of the Company's clustered facilities. In addition, the Company
expects to expand its provision of services through Locomotion Therapy to
Summit facilities, which purchased approximately $34 million of therapy
services from nonaffiliates during 1997.
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<PAGE>
SERVICES
BASIC HEALTHCARE SERVICES
Basic healthcare services refer to skilled nursing care and assisted living
services. The Company provides skilled nursing care in each of Fountain View's
eight SNFs and in each of Summit's 36 SNFs (which collectively have 5,933
beds). Skilled nursing care consists of 24-hour care by registered nurses,
licensed practical or vocational nurses and certified aides, as well as room
and board, special nutritional programs, social services, recreational
activities and related medical and other services that may be prescribed by a
physician. Assisted living services include general services provided by
Fountain View in its ALF and by Summit in its five ALFs, all of which are
located in California and which collectively have 641 beds. These services
consist of basic room and board, social activities and assistance with
activities of daily living such as dressing and bathing.
SPECIALTY MEDICAL CARE
The Company provides specialty medical care, including a wide range of sub-
acute services, to patients with medically complex needs who generally require
more intensive treatment and a higher level of skilled nursing care. These
services represent an area of strategic emphasis for the Company and typically
generate higher profit margins than basic healthcare services.
SUB-ACUTE CARE. The Company provides a wide range of sub-acute services
to patients with medically complex needs, including the following:
COMPLEX MEDICAL CARE. The Company provides complex medical care to
those patients who require a combination of medical treatments. Complex
medical needs often include the administration of intravenous
medications for various conditions, such as fluids for hydration,
diuretics for congestive heart failure, antibiotics for the treatment
of infection, anti-coagulants to prevent clotting or pain control for
cancer patients. Patients requiring complex medical care have typically
undergone surgical procedures ranging from common joint replacements to
organ transplants, and require close monitoring.
MULTIPLE INTRAVENOUS MEDICATIONS. A variety of intravenous
medications are administered to patients through several types of
veinous access. The Company's licensed nurses are intravenous therapy
certified and skilled in initiating and handling central and peripheral
lines for intravenous medications.
BLOOD TRANSFUSIONS. The Company provides blood transfusions to post-
surgical patients with severe and unresolved anemia. Blood products for
transfusion are obtained through a contract with the American Red
Cross.
CHEMOTHERAPY. The Company provides chemotherapy to patients in
accordance with instructions by attending hematologists/oncologists for
the treatment of various cancers. Chemotherapy requires strict and
careful handling of highly toxic chemotherapy agents.
DIALYSIS. Peritoneal dialysis is typically provided to younger
patients who can perform their own dialysis treatments, utilizing
specialized solutions which are introduced through a peritoneal cavity
port. Whenever possible, patients are taught to perform the procedure
themselves upon discharge from the Company's facility. In addition, the
Company provides hemodialysis to qualified patients.
WOUND CARE PROGRAMS. Wound care programs address the needs of
patients suffering from post-operative wounds, including stoma and
ostomy care, and the care of amputees. Treatment for surgical wounds
includes the prevention of post-operative infections and the removal of
surgical staples. The Company also treats patients for existing
infections, including the treatment of antibiotic resistant micro-
organisms with multiple intravenous antibiotics.
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<PAGE>
Physical therapists aid in the debridement of necrotic wounds with jet
lavage or pulsed irrigation and whirlpool treatments. Electrical
stimulation is used to encourage the growth of healthy tissue.
ENTERAL/PARENTERAL NUTRITION. Patients who are unable to eat for
various reasons may receive enteral or parenteral feeding. The
Company's registered dietitians periodically review the nutritional
needs of each patient.
TRACHEOTOMY CARE. The Company provides care to patients who, due to
any number of conditions, cannot maintain a clear or adequate airway
and have undergone a tracheotomy. These patients often require
mechanical ventilator support. All such patients require frequent
suctioning and humidified oxygen and aggressive pulmonary
rehabilitation.
VENTILATOR CARE. Many patients who have undergone a tracheotomy also
require mechanical ventilation. In treating such patients, the Company
utilizes a ventilator which mechanically regulates the breathing
function of the patient by dictating the volume and/or the rates of
inhalation and exhalation. The Company's licensed nurses and
respiratory therapists oversee a ventilator weaning program under the
direction of a pulmonologist.
ALZHEIMER'S CARE. The Company's dedicated Alzheimer's units provide care
for patients with Alzheimer's disease and severe dementia. This type of
care is designed to reduce the stress and agitation associated with
Alzheimer's disease by addressing the problems of short attention spans and
hyperactivity. The physical environment of the Company's units is designed
to address the problems of disorientation and perceptual confusion
experienced by Alzheimer's sufferers.
THERAPY SERVICES. Many of the Company's patients that have undergone
orthopedic surgeries, including joint replacements such as total hip or
knee replacements or fractures, receive physical therapy. The Company's
physical therapists also perform wound care and utilize electric
stimulation to stimulate viable tissue regrowth. Occupational therapy
addresses functional skills of the upper body and all aspects of self-care.
The Company also provides range of motion and strengthening exercises for
contracture prevention and reduction. Speech therapists treat patients with
speech disorders, perceptual problems, cognitive problems, and swallowing
problems. In coordination with the efforts of the Company's nursing staff
and respiratory therapists, speech therapists help tracheotomy and
ventilator patients use speaking valves and breathing methods which allow
them to communicate with others.
During 1997, Locomotion Therapy provided rehabilitative physical,
occupational and speech therapy to unaffiliated nursing home operators and
acute care hospitals under 97 contracts, as well as to eight Fountain View
facilities, using a progressive, personalized treatment approach to promote
the resident's highest level of independence in mobility and strength.
Historically, a majority of Fountain View's therapy services has been
provided by Locomotion Therapy, which employs approximately 150 therapists
licensed in various specialties who are assigned to facilities based on the
types of contract services requested and the specialization of the
therapists. Throughout the duration of the contract, the selected therapist
functions as the resident therapist for a particular facility.
Summit has also provided rehabilitative care in each of its 36 SNFs
through the use of outside contractors. Historically, Summit has monitored
the rehabilitative care provided in each Summit facility through the use of
in-house supervisory therapists and therapy administration.
PHARMACIES. The Company provides pharmaceutical products and services
through two institutional pharmacies in Southern California. The Company
also owns a 50% equity interest in a limited liability company that
operates a pharmacy in Austin, Texas, which services Summit facilities in
Texas as well as several unaffiliated facilities. These pharmacies service
86 unaffiliated
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<PAGE>
SNFs, ALFs and acute care hospitals located throughout much of Southern
California and in certain Texas markets, as well as all of Summit's and
several of Fountain View's SNFs and ALFs. The Company's pharmacies,
historically operated by Summit, provide prescription drugs, intravenous
products, enteral nutrition therapy services and infusion therapy services,
including nutrition, pain management, antibiotics and hydration.
OUTPATIENT THERAPY CLINICS. The Company's On-Track subsidiary provides
physical therapy services to the outpatient community through a facility in
Fresno, California. The Company intends to open additional facilities in
underserved markets where it has existing relationships with doctors and
currently provides physical therapy services to nursing homes through
Locomotion Therapy. Several of Summit's Texas facilities have excess
capacity intended for outpatient clinics which the Company expects to
utilize for the expansion of services provided by On-Track.
DURABLE MEDICAL EQUIPMENT. The Company provides various types of durable
medical equipment to Fountain View-owned facilities, as well as
unaffiliated facilities, through a subsidiary. The types of equipment and
supplies provided include enteral feeding supplies, poles and pumps (on a
rental basis), catheterization equipment and orthotics.
SOURCES OF REVENUE
The Company's SNFs receive payment for healthcare services from federally
assisted Medicaid programs, Medicare, programs operated by preferred provider
organizations, health maintenance organizations, the Veterans Administration
and directly from patients or their responsible parties or insurers. The
Company's ALFs receive payment exclusively from private individuals, some of
whom depend upon supplemental Social Security payments as a primary source of
income. The sources and amounts of the Company's revenues are and will
continue to be determined by a number of factors, including the licensed bed
capacity of its facilities, occupancy rate, quality mix, the type of services
rendered to the patient and the rates of reimbursement among payor categories
(primarily private, Medicare and Medicaid).
The following table sets forth for Fountain View's SNFs, ALFs and therapy
operations the approximate percentages of net revenues derived from the
various sources of payment for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Managed care and private pay, including Locomotion
Therapy.............................................. 46.6% 47.5% 44.2%
Medicare.............................................. 20.3 19.6 25.6
Medi-Cal Sub-Acute.................................... 0.3 2.6 3.1
----- ----- -----
Subtotal (Quality Mix).............................. 67.2 69.7 72.9
Medi-Cal.............................................. 32.8 30.3 27.1
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table sets forth for Summit's SNFs, ALFs and pharmacy
operations the approximate percentages of total revenues derived from the
various sources of payment for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Managed care and private pay............................ 33.8% 31.9% 29.9%
Medicare................................................ 29.5 34.7 39.7
----- ----- -----
Subtotal (Quality Mix)................................ 63.3 66.6 69.6
Medicaid................................................ 36.7 33.4 30.4
----- ----- -----
Total................................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
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<PAGE>
Changes in the quality mix between Medicaid (known as Medi-Cal in
California), on the one hand, and either Medicare, managed care or private
pay, on the other hand, can significantly affect profitability. Quality mix
represents revenues from Medicare, Medi-Cal sub-acute, managed care, and
private pay patients as a percentage of revenues. Medicare, Medi-Cal sub-
acute, managed care and private pay patients constitute the most profitable
categories of patient mix and Medicaid patients the least profitable.
Management believes the Company has maintained an attractive and improving
high quality mix. In addition, the Company's average reimbursement rate per
patient day for Medicare patients has increased more rapidly than for Medicaid
patients, reflecting the increasing acuity level of the services provided by
the Company. Services provided to Medicare patients generate a higher level of
revenue per patient day at margins that generally exceed the level of
profitability associated with services provided to Medicaid patients. However,
the Company's profitability has not correlated directly with revenue growth,
reflecting the additional costs associated with providing the higher level of
care and other services required by high-acuity Medicare patients.
QUALITY MIX, PATIENT MIX AND OCCUPANCY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------
FOUNTAIN VIEW SUMMIT COMPANY
------------- ------ -------
<S> <C> <C> <C>
QUALITY MIX
Managed care and private pay, including Locomotion
Therapy.......................................... 44.2% 30.5% 33.4%
Medicare.......................................... 25.6 38.5 35.8
Medi-Cal sub-acute................................ 3.1 -- 0.6
----- ----- -----
Total (Quality Mix)............................. 72.9 69.0 69.8
Medicaid.......................................... 27.1 31.0 30.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
PATIENT MIX
Managed care and private pay...................... 17.3 36.8 33.4
Medicare.......................................... 9.0 9.1 9.1
Medi-Cal sub-acute................................ 2.2 -- 0.4
----- ----- -----
28.5 45.9 42.9
Medicaid.......................................... 71.5 54.1 57.1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
OCCUPANCY ........................................ 89.0% 86.0% 89.0%
</TABLE>
The Company's contract therapy services are provided predominantly by
Locomotion Therapy. Contract therapy revenues, after intercompany
eliminations, represented $17.7 million, or 26.1%, of Fountain View's fiscal
1997 revenues and, on a pro forma basis after giving effect to the
Transactions, would have represented 6.2% of the Company's revenues for the
year ended December 31, 1997.
The Company's pharmacy services are derived from the three institutional
pharmacies historically operated by Summit (one of which is a joint venture).
Pharmacy revenues represented $20.4 million, or 10.3%, of Summit's fiscal 1997
revenues and, on a pro forma basis after giving effect to the Transactions,
would have represented 7.1% of the Company's revenues for the year ended
December 31, 1997.
The Company's DME business is provided by a Fountain View subsidiary. DME
revenues represented approximately $3.0 million, or 4.4%, of Fountain View's
fiscal 1997 revenues and, on a pro forma basis after giving effect to the
Transactions, would have represented 1.0% of the Company's revenues for the
year ended December 31, 1997.
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<PAGE>
COMPLIANCE PROGRAM
Historically, senior management of the Company has supervised the Company's
compliance with applicable laws and regulations. The Company is in the process
of developing and implementing an enhanced compliance program to facilitate
the integration of Fountain View and Summit. In the past several years,
federal and state governments have increased their scrutiny of healthcare
providers with regard to compliance with applicable laws and regulations. The
Accountability Act and the Balanced Budget Act have provided the federal
government with increased funding for this initiative as well as a broader
range of penalties available for violation of applicable laws and regulations.
See "--Government Regulations". Management believes that compliance programs
are advisable, particularly in the current environment of stricter government
enforcement in the healthcare industry. The OIG has released guidelines
applicable to compliance programs for laboratories and hospitals, but has not
yet developed a model compliance program or compliance program guidelines for
the long-term care industry. Given the federal government's current fraud and
abuse initiatives however, including Operation Restore Trust which focuses on
the long-term care and home health industry, management believes that a
compliance program will give the Company an additional layer of protection and
assurance in a heavily regulated and continuously evolving industry.
Management believes that an effective compliance program should maximize the
Company's ability to detect and prevent potential infractions of applicable
law (thus reducing the risk of a qui tam, or "whistleblower", action against
the Company for infractions that were not timely detected and addressed) and
may be used to resolve any infractions that do occur in a consistent and
organized fashion. Further, the existence of an effective compliance program
may be taken into account by the government to reduce any fines or penalties
incurred by the Company for infractions or violations of applicable law or
regulation.
Management intends to develop and implement a compliance program that will
involve the appointment of a compliance officer, who will report directly to
the Company's board of directors and Chief Executive Officer, to assist in the
development, implementation and maintenance of the compliance program. The
Company anticipates that the compliance program will include policies and
procedures applicable to all Fountain View and Summit facilities and will
address all aspects of compliance with government requirements, including,
among others, licensing obligations, quality of care, documentation
requirements, billing and coding requirements, regulations regarding
relationships with physicians and other healthcare providers, and federal and
state reporting obligations. It is anticipated that the Company's compliance
program will establish formal training requirements for all Company employees
in areas applicable to individual job functions, as well as general training
regarding criteria and requirements for participation in federal government
healthcare programs. Management intends to establish a Company-wide hotline
pursuant to which any employee may report activity that does not conform to
current standards. Further, the Company anticipates that the existence of a
compliance program will assist it in integrating all Fountain View and Summit
facilities into a consistent Company-wide infrastructure, thereby facilitating
operational and management economies of scale.
QUALITY ASSURANCE
The Company is committed to providing its patients with the highest possible
standard of quality of care. To this end, both Fountain View and Summit have
in place a Quality Assurance department consisting of registered nurses who
routinely visit the Company's facilities and conduct quality assurance tests
to ensure the consistently high quality of care provided in each facility.
Further, Quality Assurance personnel conduct regular training for the nursing
and other staff of each facility. The Company intends to consolidate the
Quality Assurance departments of Fountain View and Summit in order to continue
their tradition of providing the highest possible quality of care. In
addition, the Company intends to develop and implement a compliance program
that will address, in part, quality of care issues. See "--Compliance
Program".
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<PAGE>
The Company is in the process of obtaining accreditation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") for each of
its facilities. As of March 1, 1998, twelve of the Company's 44 SNFs are JCAHO
accredited or are awaiting formal declaration of such accreditation, with the
remainder of the facilities slated for JCAHO accreditation review in the next
24 months. Management believes that the Company's JCAHO accreditation will
assist the Company in obtaining and maintaining high occupancy rates at its
facilities and demonstrates its commitment to a high standard of quality of
care.
MARKETING
The Company's sales and marketing efforts are directed toward improving
overall occupancy and quality mix by maximizing the number of private pay,
managed care and Medicare patients on each facility's census. The Company
believes that the selection of a long-term care facility is strongly
influenced by word-of-mouth marketing and referrals from physicians, hospital
discharge planners, community leaders and family members. Therefore, the
Company's marketing strategy is focused at the local level, and the
administrator, admissions coordinator and other personnel at each facility are
responsible for contacting potential referral sources. Case managers at
certain facilities actively market services to managed care organizations.
Regional marketing directors support and coordinate sales and marketing
efforts. The Company maintains a sales and marketing information system to
monitor the results of its strategy.
GOVERNMENT REGULATIONS
LICENSURE. The Company's SNF, ALF, sub-acute and specialty medical service,
therapy, pharmacy and DME supplies businesses are subject to various
regulatory and licensing requirements of state and local authorities in
California, Texas and Arizona. Each SNF is licensed by either the California
Department of Health Services, the Texas Department of Human Services or the
Arizona Department of Health Services, as applicable. Each ALF is licensed by
the California Department of Social Services and the pharmacies are licensed
by the California Board of Pharmacy and the Texas State 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 compliance with
applicable laws and regulations. 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 such 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. Further, the
facilities operated by the Company are subject to periodic inspection by
governmental and other regulatory authorities to assure continued compliance
with various standards and to provide for their continued licensing under
state law and certification under the Medicare and Medicaid programs.
From time to time, the Company receives notices from federal and state
regulatory agencies relating to alleged deficiencies for failure to comply
with all components of the regulations. Facilities which are not in
substantial compliance and do not correct deficiencies within a certain time
frame may be terminated from the Medicare and/or Medicaid programs. While the
Company endeavors to comply with all applicable regulatory requirements, from
time to time certain of the Company's nursing facilities have been subject to
various sanctions and penalties as a result of deficiencies alleged by HCFA or
state survey agencies. While in certain instances denial of certification or
licensure revocation actions have been threatened, management believes that
the Company will not suffer any material adverse effect as a result thereof.
There can be no assurance, however, that the Company will not be subject to
sanctions and penalties in the future as a result of such actions.
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<PAGE>
MEDICARE AND MEDICAID. The Company's SNFs are subject to various
requirements for participation in government-sponsored healthcare funding
programs such as Medicare and Medicaid. To receive Medicare and Medicaid
payments, each facility must also comply with a number of rules regarding
charges and claims procedures, the violation of which can result in denial of
reimbursement. Medicare is a health insurance program operated by the federal
government for the aged and certain chronically disabled individuals. The
Medicare program consists of Parts A and B. Participation in Part B is
voluntary and is funded in part through the payment of premiums. Benefits
under Part A include inpatient hospital services, skilled nursing services
rendered in a SNF and medical services such as physical, occupational and
speech therapy, certain pharmaceuticals and medical supplies. Part B provides
coverage for physician services. Part B also reimburses for medical services
with the exception of pharmaceutical services. Medicare benefits are not
available for intermediate and custodial levels of care including but not
limited to residence in ALFs; however, medical and physician services
furnished to patients requiring such care may be reimbursable under Part B.
Currently, the Medicare program utilizes a cost-based reimbursement system
for free-standing SNFs which, subject to limits fixed for the particular
geographic area on the costs for routine services (excluding capital related
expenses), reimburses SNFs for reasonable direct and indirect allowable costs
incurred in providing services (as defined by the Medicare program). 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. The Company maintains reserves to
cover retroactive audit adjustments. 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, Summit has filed three exception requests and has received
approval on all three. Fountain View has not filed any exception requests to
date. There is no assurance the Company will be able to recover such excess
costs on 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. However, exception requests will no longer
be necessary upon implementation of PPS, as discussed more fully below.
Fiscal intermediaries also occasionally undertake a more in-depth audit of a
facility's billing records. In March 1997, one of Summit's facilities was the
subject of a Medicare billing audit by its fiscal intermediary, resulting in a
finding that approximately $1,500,000 of charges for SNF services (after cost
report settlement and subject to downward adjustment) lacked a timely
certification of medical necessity by a physician. Summit is currently
repaying such charges against reimbursement of current claims. Following this
audit, Summit adopted measures to strengthen its documentation relating to
physician certification. While the Company does not believe that it is the
target of any other focused reviews, there can be no assurance that
substantial amounts will not be expended by the Company in connection with any
such audit or to defend allegations arising therefrom. If it were found that a
significant number of the Company's Medicare claims failed to comply with
Medicare billing requirements, the Company could be materially adversely
affected.
The Balanced Budget Act requires the establishment of a prospective payment
system, or PPS, for Medicare SNFs under which facilities will be paid a
federal per diem rate for virtually all covered SNF services in lieu of the
current cost-based reimbursement rate. PPS will be phased in over three cost
reporting periods, starting with cost reporting periods beginning on or after
July 1, 1998. The PPS rates have not yet been determined and there can be no
assurance that the Company's revenues under PPS will be sufficient to cover
its costs to operate its facilities.
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<PAGE>
In addition, prior to the enactment of the Balanced Budget Act, federal law
required state Medicaid programs to reimburse SNFs for costs incurred by
efficiently and economically operated providers in order to meet quality and
safety standards. The Balanced Budget Act repealed this payment standard,
effective for services provided on or after October 1, 1997, thereby granting
states greater flexibility in establishing payment rates. There can be no
assurance that budget constraints or other factors will not cause states to
reduce Medicaid reimbursement to SNFs or that payments to SNFs will be made on
a timely basis. Any such efforts to reduce Medicaid payment rates or failure
of states to meet their Medicaid obligations on a timely basis would have a
material adverse effect on the Company.
Current Medicare regulations applicable to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for goods and
services which are charged to the Medicare program. The amount charged on
related party transactions is dependent upon whether or not the related party
exception applies. For transactions between each provider and the applicable
related party which do not qualify for the related party exception, the
transaction is recorded at cost and no profit may be earned by the related
party. For transactions which do qualify for the related party exception, the
transaction is recorded at fair market value. In order for transactions to
qualify as an exception to the related party rule, the following conditions
must be met: (i) the related party must be a bona fide organization; (ii) a
substantial part of the services of each such related party must be transacted
with non-affiliated entities, and there must be an open, competitive market
for such services; (iii) the services provided by each such entity commonly
are obtained by a provider from other organizations, and are not a basic
element of patient care provided by such facilities; and (iv) the prices
charged to the provider by such entities are in line with the charges for such
services in the open market, and no more than the prices charged by such
entities under comparable circumstances to non-affiliated entities. The
Company believes that it satisfies the requirements for exception to the
related party rules in transactions between its long-term care facilities and
its therapy, DME and pharmacy subsidiaries. If, however, the Company has
failed or, in the future, fails to satisfy regulations for the related party
exception with respect to inter-corporate transactions, the Medicare
reimbursement that the Company received or will receive could be reduced, and
as a result, the Company's financial condition could be materially and
adversely affected.
The Company's financial condition and results of operations may also be
affected by the revenue reimbursement process, which in the Company's industry
is complex and can involve lengthy delays between the time that revenue is
recognized and the time that reimbursement amounts are settled. Net revenues
realizable under third-party payor agreements are subject to change due to
examination and retroactive adjustment by payors during the settlement
process. Payors may disallow, in whole or in part, requests for reimbursement
based on determinations that certain costs are not reimbursable or because
additional supporting documentation is necessary. The majority of third-party
payor balances are settled within two to three years following provision of
services. The Company's results of operations would be materially and
adversely affected if the amount actually received from third-party payors in
any reporting period differed materially from the amounts accrued in prior
periods. The Company's financial condition and results of operations may also
be affected by the timing of reimbursement payments and rate adjustments from
third-party payors (for example, Medi-Cal has in the past exposed providers to
payment delays, thus affecting reimbursement).
THERAPY REGULATION. The Company furnishes therapy services on a contract
basis to certain affiliated and unaffiliated providers. For Medicare patients,
the providers bill the Medicare program for reimbursement of the amounts paid
to the Company for these services. HCFA has the authority to establish limits
on the amount Medicare reimburses for therapy services. For services other
than inpatient hospital services, these limits are equivalent to the
reasonable amount that would have been paid if provider employees had
furnished the services. HCFA has exercised this authority by publishing
"salary equivalency guidelines" for physical therapy, respiratory therapy,
speech language pathology
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<PAGE>
and occupational therapy services. On January 30, 1998, HCFA issued a final
regulation, effective April 1, 1998, that will revise the pre-existing salary
equivalency guidelines for physical therapy and respiratory therapy and
establish, for the first time, salary equivalency guidelines for speech
language pathology and occupational therapy services. HCFA estimates that the
regulation will increase the reimbursement rates for physical therapy by 35%
and for respiratory therapy by 10%. In contrast, however, HCFA expects the
salary equivalency rates for occupational therapy and speech language
pathology to reduce current reimbursement rates by 40% and 25%, respectively.
The salary equivalency guidelines will not apply to SNFs that are paid under
PPS, which is being phased-in by Medicare, as discussed above. Management
cannot predict the effect the salary equivalency guidelines will have on the
Company.
PHARMACY REGULATION. The Company's pharmacies are subject to a variety of
state licensing and other laws governing the storage, handling, sale or
dispensing of drugs, and the provision of a duly licensed pharmacist in each
pharmacy, in addition 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. Medicare
pays for the costs of prescription drugs furnished in a number of different
settings under limited circumstances. The California and Texas Medicaid
programs reimburse pharmacies 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.
OUTPATIENT THERAPY REGULATION. Outpatient therapy services are currently
reimbursed on a per visit basis, subject to cost limits established by HCFA
for the given type of therapy provided to the patient. The Balanced Budget Act
contains provisions affecting outpatient rehabilitation agencies and
providers, including a 10% reduction in operating and capital costs for 1998,
a fee schedule for therapy services beginning in 1999, and the application of
per beneficiary therapy caps currently applicable to independent therapists to
all outpatient rehabilitation services beginning in 1999. These provisions may
affect the reimbursement to the Company in connection with the services
provided by On-Track, the Company's outpatient therapy subsidiary.
DME REGULATION. Medicare generally provides reimbursement for DME on a fee
schedule basis. The amount reimbursed depends on the classification of the DME
and, generally, will be the lesser of (1) the provider's actual charge for the
DME or (2) the fee schedule amount.
REFERRAL RESTRICTIONS AND FRAUD AND ABUSE. The Company is also subject to
federal and state laws which govern financial and other arrangements between
healthcare 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 healthcare 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 Statute 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 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 payments for personal
services which are set in advance at a fair market rate and which do not vary
with the value or volume of services referred, provided there is a written
contract which meets certain requirements. A similar safe harbor applies for
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certain agreements for management services. A safe harbor for discounts, which
focuses primarily on appropriate disclosure, is also available. A violation of
the federal Anti-Kickback Statute and similar state laws could result in the
loss of eligibility to participate in Medicare or Medicaid, or in criminal
penalties of up to five years imprisonment and/or $25,000 fines.
In addition, the federal government and some states restrict certain
business relationships between physicians and other providers of healthcare
services. Effective January 1, 1995, Stark II prohibits 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 directors or prohibit its medical directors from
referring patients to the Company. Violations of Stark II may result in the
imposition of civil monetary penalties of up to $15,000 for each prohibited
service provided as well as restitution of reimbursement for such services.
There are various federal and state laws prohibiting other types of fraud by
healthcare providers, including criminal provisions which prohibit filing
false claims or making false statements to receive payment or certification
under Medicare and Medicaid, or failing to refund overpayments or improper
payments. Violation of these provisions is a felony punishable by up to five
years imprisonment and/or $25,000 fines. Civil provisions prohibit the knowing
filing of a false claim or the knowing use of false statements to obtain
payment. The penalties for such a violation are fines of not less than $5,000
nor more than $10,000, plus treble damages, for each claim filed.
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against healthcare providers. The
Accountability Act and the Balanced Budget Act expand the penalties for
healthcare fraud, including broader provisions for the exclusion of providers
from the Medicare and Medicaid programs and the establishment of civil
monetary penalties for violations of the anti-kickback provisions. While the
Company believes that its billing practices are consistent with Medicare and
Medicaid criteria, those criteria are often vague and subject to
interpretation. There can be no assurance that aggressive anti-fraud
enforcement actions will not adversely affect the business of the Company.
Under Operation Restore Trust, a major anti-fraud demonstration project, the
OIG, in cooperation with other federal and state agencies, has focused on the
activities of SNFs, home health agencies, hospices, and DME suppliers in
certain states, including California and Texas, in which the Company currently
operates. Due to the success of Operation Restore Trust, the project has been
expanded to numerous other states and to additional healthcare providers
including providers of ancillary nursing home services. While management does
not believe the Company is the target of any Operation Restore Trust
investigations, there can be no assurance that substantial amounts will not be
expended by the Company to cooperate with any such investigation or to defend
allegations arising therefrom. If it were found that any of the Company's
practices failed to comply with the anti-fraud provisions, the Company could
be materially affected.
CORPORATE PRACTICE OF MEDICINE. Many states, including California, Texas and
Arizona, 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
and are enforced by both the courts and regulatory authorities, each with
broad discretion. Some states interpret the 'practice of medicine' broadly to
include activities of corporations such as the Company that have an indirect
impact on the practice of medicine, even where the physician rendering the
medical services is not an employee of the corporation and the corporation
exercises no discretion with respect to the diagnosis or treatment of a
particular patient. The Company believes that its current and intended
operations do not and will not violate applicable state laws regulating the
unlicensed practice of medicine by a business corporation. However, because
the laws
66
<PAGE>
governing the corporate practice of medicine vary from state to state, any
expansion of the operations of the Company to a state with strict corporate
practice of medicine laws may require the Company to modify its operations
with respect to one or more of such practices, which may result in increased
financial risk to the Company. Further, there can be no assurance that the
Company's arrangements will not be successfully challenged as constituting the
unauthorized practice of medicine. See "Risk Factors -- State Laws Regarding
Prohibition of Corporate Practice of Medicine".
PENDING LEGISLATION. Government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
ceilings and government funding restrictions, all of which could materially
decrease the rates paid to the Company for its future services or the services
for which the Company will be able to seek reimbursement. Since 1972, Congress
has consistently attempted to curb federal spending on healthcare programs.
The Company expects that there will continue to be a number of state and
federal proposals to limit Medicare and Medicaid reimbursement for healthcare
services. The Company cannot at this time predict what healthcare reform
legislation will ultimately be enacted and implemented or whether other
changes in the administration or interpretation of the governmental healthcare
programs will occur. There can be no assurance that future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs, if enacted, will not have a material adverse
effect on the results of operations of the Company.
SHIFT TO MANAGED CARE. The growth in healthcare spending has caused the
private sector, Medicare and state Medicaid programs to reshape the financing
of healthcare services for their beneficiaries. Management anticipates that
one of the most significant changes to the financing of healthcare services
will be the shift to managed care, and that the federal Medicare program,
state Medicaid programs and private insurers will place greater reliance on
managed care alternatives in the future. According to HCFA, as of 1996, 35% of
Medicare enrollees in California had enrolled in a managed care program. In
comparison, 8% of Medicare enrollees in Texas are enrolled in managed care
programs, and approximately 14% of Medicare enrollees nationwide are enrolled
in a managed care program. Providers are generally willing to discount charges
for services to managed care patients because managed care plans can direct
(or strongly influence) the flow of patients. Management believes that the
Company is likely to service an increasing proportion of managed care
enrollees in the future, although payment rates for such services may not be
as favorable as those presently in effect. There can be no assurance that
reimbursements for services provided under managed care programs will not
adversely affect the Company's revenues.
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
healthcare 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.
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<PAGE>
COMPETITION
The Company operates in a highly competitive industry. The Company's SNFs
and ALFs are located in communities that also are served by similar facilities
operated by others. Some competing facilities 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 competing facilities are
operated by non-profit organizations or government agencies supported by
endowments, charitable contributions, tax revenues and other resources 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 sub-acute units. The
competitiveness of the Company's markets is further supported by the fact that
within California, Texas and Arizona, a Certificate of Need is no longer
required in order to build or expand a SNF. However, in Texas, competition is
limited by restrictions on the number of beds that can be enrolled in the
Medicaid program.
The Company also expects to encounter competition during future initiatives
of acquiring or developing new facilities. The Company's pharmacies and DME
business also operate in highly competitive environments and compete with
regional and local pharmacies, medical supply companies and pharmacies
operated by other long-term care chains or by other companies ranging from
small local operators to companies which are national in scope and
distribution capability. The Company also expects to encounter continued
competition in connection with the provision of other ancillary services,
including physical, occupational and speech therapy.
PROPERTIES
As of June 30, 1998, the Company had a total of 44 SNFs with an aggregate of
5,937 beds and 6 ALFs with an aggregate of 641 beds, as reflected in the
following tables:
<TABLE>
<CAPTION>
SUMMIT FOUNTAIN VIEW
---------------- ---------------- TOTAL TOTAL
STATES FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
------ ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
SNFs
California............. 13 1,515 8 1,061 21 2,576
Texas.................. 22 3,211 -- -- 22 3,211
Arizona................ 1 150 -- -- 1 150
--- ----- --- ----- --- -----
Subtotal............. 36 4,876 8 1,061 44 5,937
ALFs
California............. 5 475 1 166 6 641
--- ----- --- ----- --- -----
Total................ 41 5,351 9 1,227 50 6,578
=== ===== === ===== === =====
</TABLE>
FOUNTAIN VIEW FACILITIES
<TABLE>
<CAPTION>
YEAR YEAR
FACILITY LOCATION # BEDS OWNED/LEASED BUILT RENOVATED
-------- ----------- ------ ------------ ----- ---------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING--CALIFORNIA
Rio Hondo...................... Montebello 200 Leased(a) 1968 1996/1998
Hancock Park................... Los Angeles 141 Leased 1969 1996/1998
Brier Oak Terrace.............. Los Angeles 159 Leased 1966 1997/1998
Alexandria..................... Los Angeles 177 Leased 1969 1997
Montebello..................... Montebello 99 Leased(a) 1969 --
Fountain View.................. Los Angeles 99 Leased(a) 1963 1996/1998
Sycamore Park.................. Los Angeles 90 Leased(a) 1965 1997
Elmcrest....................... El Monte 96 Leased 1958 1997
ASSISTED LIVING--CALIFORNIA
Hancock Park................... Los Angeles 166 Leased 1971 1996/1998
-----
Total.................................... 1,227
=====
</TABLE>
- --------
(a) Facility is owned by the Snukal family and leased to a subsidiary of
Fountain View.
68
<PAGE>
SUMMIT FACILITIES
<TABLE>
<CAPTION>
YEAR
FACILITY LOCATION # BEDS OWNED/LEASED YEAR BUILT RENOVATED
-------- ---------------- ------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING--
CALIFORNIA
Woodland................ Reseda 153 Leased 1972 1996
Royalwood............... Torrance 108 Leased 1952 1998(c)
Valley.................. Fresno 99 Owned 1960 1996
Villa Maria............. Santa Maria 85 Owned 1970 1995
Earlwood................ Torrance 85 Owned 1967 1993
Sharon.................. Los Angeles 85 Leased 1967 1996
Bay Crest............... Torrance 78 Leased 1960/1968(b) 1995
Fountain................ Orange 172 Owned 1963/1966(b) 1994
Carehouse............... Santa Ana 174 Owned 1974/1994(b) 1998(c)
Palm Grove.............. Garden Grove 122 Leased 1958 1994
Anaheim................. Anaheim 97 Leased 1967 1997
Devonshire.............. Hemet 98 Owned 1969 1992
Willow Creek............ Fresno 159 Owned 1996 --
-----
Subtotal.............. 1,515
SKILLED NURSING--TEXAS
Coronado................ Abilene 219 Owned 1969 1996
West Side............... White Settlement 238 Owned 1985 1996
The Woodlands........... Houston 212 Owned 1988 1994
Colonial Tyler.......... Tyler 162 Owned 1968 1997
Colonial Manor.......... New Braunfels 152 Owned 1967 1996
Guadalupe Valley........ Seguin 149 Leased(a) 1990 1996
Town & Country.......... Boerme 124 Owned 1972 1994
Clairmont--Longview..... Longview 174 Owned 1986/1996(b) --
Clairmont--Beaumont..... Beaumont 148 Owned 1987/1996(b) --
Clairmont--Tyler........ Tyler 116 Owned 1989 1998
Southern Manor.......... Hallettsville 114 Owned 1991 1995
Southwood............... Austin 112 Owned 1975 1992
Comanche Trail.......... Big Spring 115 Leased(a) 1991 1995
Lubbock................. Lubbock 114 Owned 1968 1995
Monument Hill........... La Grange 111 Owned 1987 1997
Live Oak................ George West 100 Leased(a) 1993 1995
Oak Crest............... Rockport 92 Owned 1991 1996
Oakland Manor........... Giddings 114 Owned 1992 1995
Oak Manor............... Flatonia 80 Owned 1980 1995
Heritage Oaks........... Lubbock 161 Owned 1995/1996(b) --
Cityview................ Fort Worth 210 Owned 1997 --
Briarcliff.............. McAllen 194 Leased(a) 1993/1996(b) --
-----
Subtotal.............. 3,211
SKILLED NURSING--ARIZONA
Phoenix................. Phoenix 150 Leased 1965/1995(b) 1995
ASSISTED LIVING--
CALIFORNIA
Carson.................. Carson 202 Owned 1972 1994
Spring.................. Torrance 51 Owned 1962 1993
Hemet................... Hemet 84 Owned(d) 1965 1997
Fountain................ Orange 72 Owned 1967 1995
Ashton Court............ Orange 66 Owned 1967 1997
-----
Subtotal.............. 475
-----
Total................. 5,351
</TABLE>
- --------
(a) Option to purchase.
(b) Year of latest addition to facility.
(c) Scheduled.
(d) Building owned by Summit with real property held under a ground lease
extending to 2030.
69
<PAGE>
EMPLOYEES
As of June 30, 1998, Fountain View had approximately 1,200 full-time
equivalent employees, and Summit had approximately 4,700 full-time equivalent
employees. Fountain View has three collective bargaining agreements for a
union covering approximately 400 of Fountain View's employees. Fountain View
considers the relations with its employees to be good and it has not
experienced any strikes or work stoppages. None of Summit's employees are
covered by collective bargaining agreements and Summit considers the relations
with its employees to be good and it has not experienced any strikes or work
stoppages. Both Fountain View and Summit are subject to federal and state
minimum wage and applicable federal and state wage and hour laws and maintain
various employee benefit plans.
INSURANCE
Fountain View maintains general and professional liability coverage,
employee benefits liability, property, inland marine, crime, boiler and
machinery coverage, health, automobile, employment practices liability,
earthquake and flood, workers' compensation and employers' liability that
Fountain View believes is adequate. Summit maintains general and professional,
property, casualty, health, directors and officers, automobile, crime,
employee's and workers' compensation coverage that Summit believes is
adequate. Summit's workers' compensation insurance for its California and
Arizona employees pays 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 $986,000. 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 no annual
aggregate stop loss. Summit pays for claims up to $150,000 per occurrence.
Fountain View's and Summit's services subject them to liability risk.
Malpractice claims may be asserted against them if their 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 specialty and
sub-acute services, than for traditional long-term care patients. Fountain
View and Summit have from time to time been subject to malpractice claims and
other litigation in the ordinary course of their businesses. 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. Fountain View's current policy for general and
professional liability coverage is a per occurrence policy and has limits of
$1,000,000 per occurrence and $3,000,000 in the aggregate per year and carries
no deductible except for employee benefits liability coverage, which carries a
$1,000 deductible per claim. In addition, Fountain View has a per occurrence
umbrella policy which provides additional insurance limits of $10,000,000 per
occurrence and $10,000,000 aggregate per year with a self-insured retention of
$10,000 per occurrence over its primary general, professional, automobile and
employers' liability coverage policies. Summit's current policy for general
and professional liability coverages is a claims-made policy and has limits of
$500,000 per occurrence and $1,000,000 in the aggregate per year and carries a
self-insured retention of $100,000 per occurrence and a $700,000 annual
aggregate loss limit. In addition, Summit has a claims-made umbrella policy
which provides additional insurance of $8,500,000 per occurrence and
$8,500,000 aggregate per year over its primary general and professional
policy, its automobile liability policy and its employer liability policy.
Although Fountain View and Summit have not been subject to any judgments or
settlements in excess of their respective insurance limits, there can be no
assurance that claims for damages in excess of such coverage limits will not
arise in the future.
LEGAL PROCEEDINGS
Fountain View and Summit are subject to routine litigation in the ordinary
course of business. Although there can be no assurances, in the opinion of
management, the ultimate resolution of all pending legal proceedings will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<C> <C> <S>
William C. Scott...................... 60 Director and Chairman
Robert M. Snukal...................... 55 Director, Chief Executive
Officer and President
Director and Executive Vice
Sheila S. Snukal...................... 54 President
Derwin L. Williams.................... 60 Chief Financial Officer
Paul Rathbun.......................... 39 Chief Financial Officer
(effective September 20, 1998)
Keith Abrahams........................ 38 President, Locomotion Therapy,
Inc. and On-Track Therapy
Center, Inc.
Michael H. Martel..................... 35 Senior Vice President, Marketing
Michel Reichert....................... 47 Director
Michael F. Gilligan................... 42 Director
Peter Z. Hermann...................... 43 Director
Mark J. Jrolf......................... 33 Director
Boone Powell, Jr. .................... 62 Director
</TABLE>
William C. Scott became a Director and Chairman upon the closing of the
purchase of Summit Shares in the Tender Offer on March 27, 1998. Mr. Scott
previously served as Chief Executive Officer of Summit since May 1994 and
Chairman of the Board of Summit since December 1995. Mr. Scott served as
President of Summit from December 1985 until January 1996 and held the office
of Chief Operating Officer from December 1985 until May 1994. Mr. Scott served
as Senior Vice President of Summit Health Ltd., Summit's former parent
company, from December 1985 until its acquisition by OrNda Health Corp. in
April 1994 and previously was a partner with Arthur Andersen & Co.
Robert M. Snukal became a Director, Chief Executive Officer and President on
August 1, 1997, upon the formation of Fountain View. For the preceding five
years, Mr. Snukal has served as a Director and President of each of Fountain
View's subsidiaries, which were owned directly by Mr. Snukal and Sheila Snukal
during that period and prior to the formation of Fountain View. Mr. Snukal is
the husband of Sheila Snukal and the father-in-law of Mr. Abrahams.
Sheila S. Snukal became a Director and Executive Vice President on August 1,
1997, upon the formation of Fountain View. For the preceding five years, Mrs.
Snukal has served as a Director and Executive Vice President of each of
Fountain View's subsidiaries, which were owned directly by Mrs. Snukal and
Robert M. Snukal during that period and prior to the formation of Fountain
View. Mrs. Snukal is the wife of Robert M. Snukal and the mother-in-law of Mr.
Abrahams.
Derwin L. Williams assumed the role of Chief Financial Officer on April 16,
1998. Mr. Williams previously served as Vice President--Finance and Chief
Financial Officer of Summit from July 1, 1993, and Treasurer from May 10,
1994. Mr. Williams held the Treasurer 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
71
<PAGE>
is also a certified public accountant. Mr. Williams has given notice to the
Company of his resignation to be effective no later than September 30, 1998.
Paul Rathbun has agreed to join the Company as Chief Financial Officer
effective September 20, 1998. Mr. Rathbun previously served as the Executive
Vice President, Chief Financial Officer of Life Care Centers of America (a
privately held nursing home chain) from 1995. From 1994 to 1995, Mr. Rathbun
served as the chief financial officer of Largo Medical Center/Clearwater
Community Hospital. Prior to that, from 1993 to 1994, Mr. Rathbun was a
director of Price Waterhouse in charge of the healthcare practice in the state
of Florida.
Keith Abrahams has been President of Locomotion since 1995. Mr. Abrahams was
previously employed as a Chief Financial Officer of Heftel Broadcasting from
1987 to 1992, a radio broadcasting company. He is also a certified public
accountant. Mr. Abrahams is the son-in-law of Mr. and Mrs. Snukal.
Michael H. Martel assumed the role of Senior Vice President-Marketing on
April 16, 1998. Mr. Martel previously served as Senior Vice President--
Marketing of Summit in March 1995. Prior to joining Summit, Mr. Martel was
Vice President--Marketing for Arbor Health Care Company from August 1992 to
March 1995. Mr. Martel served as Regional Director of Marketing for the acute
care rehabilitation division of National Medical Enterprises from April 1988
to August 1992.
Michel Reichert has been a Director of the Company since August 1, 1997.
Since 1994, Mr. Reichert has been a Managing General Partner of Heritage
Partners, Inc., a Boston-based private investment firm. Prior to 1994, Mr.
Reichert was a Managing Director of BancBoston Capital Inc., a private
investment firm.
Michael F. Gilligan became a Director of the Company immediately prior to
the consummation of the Tender Offer on March 27, 1998. Since December 1993,
Mr. Gilligan has been a General Partner of Heritage Partners, Inc., a Boston-
based private investment firm. Prior to 1994, Mr. Gilligan was a Director of
BancBoston Capital Inc., a private investment firm.
Peter Z. Hermann became a Director of the Company immediately prior to the
consummation of the Tender Offer on March 27, 1998. Since January 1994,
Mr. Hermann has been a General Partner of Heritage Partners, Inc., a Boston-
based private investment firm. Prior to 1994, Mr. Hermann was a Director of
BancBoston Capital Inc., a private investment firm.
Mark J. Jrolf has been a Director of the Company since August 1, 1997. Since
February 1997, Mr. Jrolf has served as Partner and Vice President of Heritage
Partners, Inc. From September 1996 to January 1997, Mr. Jrolf served as a Vice
President of Heritage Partners, Inc. From September 1993 to September 1996,
Mr. Jrolf was a consultant with McKinsey & Co. specializing in healthcare.
Boone Powell, Jr. became a director of the Company in August 1998. Mr.
Powell has been President and Chief Executive Officer of Baylor Health Care
System and Baylor University Medical Center since 1980.
Executive officers of the Company are appointed by the Board, subject to the
provisions of such officers' respective employment agreements. See "--
Employment Agreements". Under the terms of their employment agreements, each
of Mr. Snukal, Mrs. Snukal and Mr. Scott is employed for a period of five
years as Chief Executive Officer, Executive Vice President and Chairman,
respectively, commencing on March 27, 1998. The employment agreements will
automatically renew for up to five additional one year terms unless either the
Company or the respective employee provides prior written notice of
termination to the other party. The other officers and Directors are elected
to serve until their respective successors have been duly elected and
qualified or until their earlier resignation or removal.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation for
the past three fiscal years for the Company's Chief Executive Officer and the
other four most highly compensated executive officers (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------- ------------
SECURITIES
UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert M. Snukal............. 1997 298,340 400,000 -- --
President, Chief Executive 1996 258,750 696,912 -- --
Officer and Director 1995 246,000 967,900 -- --
William C. Scott (2)......... 1997 394,773 -- -- --
Director and Chairman 1996 369,869 150,000 165,000 --
1995 344,869 162,500 50,000 --
Sheila S. Snukal............. 1997 178,125 200,000 -- --
Executive Vice President 1996 144,750 327,570 -- --
and Director 1995 132,000 521,200 -- --
Derwin L. Williams (2)....... 1997 181,423 -- -- --
Chief Financial Officer 1996 171,008 50,000 25,000 --
1995 147,162 40,000 20,000 --
Michael H. Martel (1)(2)..... 1997 152,404 10,000 10,000 --
Senior Vice
President/Marketing 1996 141,308 -- 10,000 --
1995 36,250 10,000 25,000 --
</TABLE>
- --------
(1) Mr. Martel joined Summit Care Corporation in March 1995.
(2) Compensation indicated is for the fiscal year ended June 30.
Options Grants In Last Fiscal Year. The Company did not grant any options to
the Named Executive Officers in the last fiscal year. All options to purchase
shares of Summit Care Corporation outstanding immediately prior to the date of
the Merger were converted into the right to receive $21.00 per share in cash,
less the exercise price of such option.
Fiscal Year-End Option Values. During fiscal 1997, none of the Named
Executive Officers exercised stock options issued by the Company. In addition,
none of the Named Executive Officers held options to purchase stock of the
Company as of the end of the Company's most recent fiscal year. All options to
purchase shares of Summit Care Corporation outstanding immediately prior to
the date of the Merger were converted into the right to receive $21.00 per
share in cash, less the exercise price of such option.
STOCKHOLDERS AGREEMENT
CORPORATE GOVERNANCE. On March 27, 1998, the Company and its stockholders
entered into a Stockholders Agreement (the "Stockholders Agreement")
concurrently with the closing of the Tender Offer. The Stockholders Agreement,
which was amended on May 4, 1998, provides that the Company's board of
directors (the "Board") will consist of directors nominated as follows: (i)
two individuals (but not less than 25% of the total number of directors) will
be designated by Mr. Snukal, as long as he continues to hold any shares of the
Company's common stock; (ii) one individual will be designated by Mr. Scott,
as long as he continues to hold any shares of the Company's common stock;
73
<PAGE>
(iii) one individual will be designated by Baylor, as long as it continues to
hold any shares of the Company's common stock or any securities convertible
into or exercisable for the Company's common stock; and (iv) all other
directors will be designated by the holders of a majority of the shares of
common stock of the Company held by Heritage and certain co-investors (which
designation is expected to be controlled by Heritage). The Board includes a
majority of directors designated by Heritage. Under the Stockholders
Agreement, each stockholder of the Company has granted Heritage an irrevocable
proxy to vote such stockholder's securities of the Company, except with
respect to matters the effect of which on such stockholder differs materially
and adversely from the effect on Heritage. The practical effect of the grant
of the proxy is that Heritage will control the outcome of most matters which
come before the stockholders of the Company, except where such matter will
result in significant harm to the other stockholders of the Company, but not
to Heritage. For example, Heritage would not be able to exercise the proxy to
vote the shares of the other stockholders in favor of an amendment to the
Stockholders Agreement which would provide that, in the event of a sale of the
Company, the other stockholders would receive one-half the consideration per
share that Heritage would receive. The purpose of the limitation on Heritage's
exercise of the proxy is to protect the other stockholders from Heritage
abusing its control position.
Board vacancies will be filled by a designee of the individual or group who
originally designated the vacating director. Each individual or group entitled
to designate a director will also be entitled to direct the removal of such
director and designate a replacement director.
SPECIAL PROVISIONS FOR SERIES B NON-VOTING COMMON STOCK. Mr. and Mrs. Snukal
own an aggregate of 62,599 shares of the Company's Series B Non-Voting Common
Stock and Mr. Scott owns 51,603 shares of the Company's Series B Non-Voting
Common Stock, all of which were issued to them by the Company for nominal
consideration. These shares represent approximately 9.63% of the total number
of outstanding shares of the Company's common stock, on a fully-diluted basis.
The Stockholders Agreement provides that some or all of the Company's Series B
Non-Voting Common Stock will be subject to forfeiture upon a change of control
of the Company, an initial public offering of its shares or other similar
events (each, a "Trigger Event"), with the precise number of shares forfeited
to be determined on a sliding scale based on the value of the Company's common
equity at the date of the Trigger Event in relation to certain value targets
at various dates in the future. Under this arrangement, the higher the value
of the Company at the date of the Trigger Event, the more shares of Series B
Non-Voting Common Stock Mr. and Mrs. Snukal and Mr. Scott will retain.
STOCK TRANSFER RESTRICTIONS AND RIGHTS. The Stockholders Agreement provides
for certain transfer restrictions on securities of the Company. The
stockholders of the Company who are members of management may not transfer
their securities until four years after the consummation of the Tender Offer,
except for certain transfers in connection with estate planning, provided that
Mr. Snukal may transfer his securities earlier if the Company terminates his
employment without cause. See "--Employment Agreements". The Company and
certain stockholders have a right of first refusal on transfers of Company
securities by a stockholder, other than estate planning transfers by
management, transfers by Heritage and certain transfers to affiliates. If
Heritage transfers its securities, other than to its partners, the other
stockholders will have the right to participate on a pro rata basis with
Heritage in such transfers. Heritage will also have the right to require all
other stockholders to transfer a pro rata portion of their shares in a
transaction in which Heritage transfers its shares. For example, on the one
hand, if Heritage decides to sell half of its shares to a third party (other
than one of its partners), each of the other stockholders will have the right
also to sell half of their shares to the same third party; on the other hand,
if a third party wants to buy half of the Company, and Heritage is willing to
sell only half of its shares to this third party, then Heritage can require
each other stockholder to sell half of his shares to the same third party.
OTHER. The Stockholders Agreement also (i) provides stockholders with pre-
emptive rights in the event of certain future issuances of securities by the
Company, (ii) restricts the ability of the Company
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to issue shares of capital stock having rights senior or on par with those of
the Series A Preferred Stock and of the Company's subsidiaries to issue shares
of capital stock while any shares of Series A Preferred Stock are outstanding,
unless the Company is in compliance with certain financial tests, (iii) limits
the amounts of dividends or distributions which the Company may pay with
respect to its common stock while the Series A Preferred Stock remains
outstanding, and (iv) includes a mechanism to convert all existing shares of
common stock into a single series of common stock upon an initial public
offering of the Company. The agreement will terminate upon the consummation of
an initial public offering by the Company.
EMPLOYMENT AGREEMENTS
On March 27, 1998, the Company entered into employment agreements with Mr.
Snukal, Mrs. Snukal and Mr. Scott.
Each employment agreement provides a term of employment of five years, which
will automatically renew for up to five additional one-year terms unless
either the Company or the respective employee provides prior written notice of
termination to the other party, and specifies a base salary, a bonus range and
a package of benefits. Mr. Snukal is employed as Chief Executive Officer, Mrs.
Snukal is employed as Executive Vice President and Mr. Scott is employed as
Chairman of the Company. The employment agreements provide base salaries for
the year ending March 1999 as follows: William C. Scott--$450,000; Robert M.
Snukal--$500,000; and Sheila Snukal--$225,000. Such base salaries will be
subject to cost of living adjustments for each subsequent year. The employment
agreements provide for annual bonuses, based upon the achievement of certain
financial targets, of up to the following amounts for the year ending March
1999 and each subsequent year: William C. Scott--$350,000; Robert M. Snukal--
$500,000; and Sheila Snukal--$125,000.
Each employment agreement provides for termination of employment at any time
by the Company with or without cause or in the event of the death or
disability of the employee. Each of the employment agreements also provides
for severance pay upon termination by the Company without cause (other than
for death or disability). The Company must pay the employee his or her base
salary as in effect prior to any such termination for the duration of the
employee's scheduled employment term (plus an additional $25,000 annually in
the case of such termination of both Mr. and Mrs. Snukal and, in the case of
Mr. Scott, less an amount, if any, he is then due under the Summit Special
Severance Plan adopted by Summit in connection with the Merger). If Mr. Snukal
is terminated without cause, Mrs. Snukal may, at her option, deem her
employment to have been terminated without cause and receive the severance
referred to in the preceding sentence. No severance will be payable in the
event of a termination of employment as a result of death, disability or
retirement, or a termination by the employee without good reason or by the
Company with cause.
Under the employment agreements, each of Mr. and Mrs. Snukal and Mr. Scott
agree not to compete with the Company for the greater of five years after the
date of such agreements or three years after termination of employment,
subject to certain exceptions. In addition, each of Mr. and Mrs. Snukal and
Mr. Scott agree that, for the greater of five years after the date of the
employment agreement or two years after termination, he or she will not
solicit (i) any person who is, or was within the one-year period immediately
prior to termination of the employee's employment with the Company, employed
by, a consultant to or associated with the Company or (ii) a recent (within
two years) client, customer or supplier to the Company.
MANAGEMENT EQUITY INCENTIVE PLANS
The Company intends to adopt one or more management equity incentive plans
to attract, retain and incentivize its management and employees. These plans
may include a stock option plan to make stock options available to employees
(other than Mr. Scott and Mr. Snukal), directors and consultants.
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Stock options granted may be qualified or non-qualified. The Company expects
that vesting of stock options may be subject to certain conditions, including
achievement of Company and individual performance objectives. In addition,
these plans may include a restricted stock plan providing for the grant of
restricted stock that would be subject to vesting based on the achievement of
operating and financial goals.
DIRECTOR COMPENSATION
Directors of the Company do not currently receive compensation from the
Company for their service in such capacity.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the voting common stock of the Company by (i) each person who beneficially
owns more than 5% of the outstanding shares of the Company's voting common
stock, (ii) each director of the Company, (iii) each of the executive officers
of the Company and (iv) each of the directors and executive officers of the
Company as a group. Each of the following stockholders has sole voting and
investment power with respect to shares beneficially owned by such
stockholder, except to the extent that authority is shared with spouses under
applicable law or as otherwise noted.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF SHARES(1) OF CLASS
---- ------------ --------
<S> <C> <C>
Heritage Fund II, L.P.(2)............................. 537,486 50.2%
Michel Reichert(2).................................... 537,486 50.2
Michael F. Gilligan(2)................................ 537,486 50.2
Peter Z. Hermann(2)................................... 537,486 50.2
Mark J. Jrolf(2) ..................................... 537,486 50.2
Robert M. Snukal(3)................................... 149,484 14.0
Sheila S. Snukal(3)................................... 149,484 14.0
Goldman, Sachs & Co.(4)............................... 79,032 7.4
GS Private Equity Partners, L.P.(4)................... 79,032 7.4
GS Private Equity Partners Offshore, L.P.(4).......... 79,032 7.4
PMI Mezzanine Fund, L.P.(5)........................... 59,275 5.5
Baylor Health Care System(6) ......................... 54,999 5.1
William C. Scott(7)................................... 31,357 2.9
Keith Abrahams(8)..................................... 16,588 1.6
All directors and executive officers as a group (10
persons)............................................. 734,915 68.6
</TABLE>
- --------
(1) Number of shares represents the number of shares of Series A Common Stock
and Series C Common Stock, which comprise all of the Company's voting
stock. It does not include the Series A Preferred Stock and Series B Non-
Voting Common Stock. For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares as of a
given date which such person has the right to acquire within 60 days after
such date.
(2) The address of such stockholder is c/o Heritage Partners, Inc.,
30 Rowes Wharf, Boston, MA 02110. The shares shown as beneficially owned
by Mr. Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf represent 525,633
shares and warrants to purchase 11,853 shares owned of record by Heritage.
Each of such persons, through one or more intermediaries may be deemed to
control the voting and disposition of the securities owned by Heritage,
and accordingly may be deemed to have shared voting and investment power
with respect to all shares held by Heritage. However, each of such persons
disclaims beneficial ownership of the securities held by Heritage.
Heritage has a proxy to vote an additional 474,367 shares held by other
stockholders, representing 44.2% of the Company's voting stock, except
with respect to matters the effect of which on such other stockholders
differs materially and adversely from the effect on Heritage. Heritage,
Mr. Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf disclaim beneficial
ownership of such shares.
(3) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic
Boulevard, Suite 680, Los Angeles, CA 90064. The shares shown as
beneficially owned by Mr. Snukal and by Mrs. Snukal represent an aggregate
of 149,484 shares owned jointly by them, and as to which they have shared
voting and investment power. Mr. and Mrs. Snukal also own an aggregate of
62,599 shares of the Company's Series B Non-Voting Common Stock.
(4) The address of such stockholder is c/o Goldman, Sachs & Co., 85 Broad
Street, New York, NY 10004. Shares shown as beneficially owned by Goldman,
Sachs & Co., GS Private Equity Partners, L.P. and GS Private Equity
Partners Offshore, L.P. represent 53,393 shares owned of record by GS
Private Equity Partners, L.P. and 25,639 shares owned of record by GS
Private Equity Partners Offshore, L.P. Each of GS Private Equity Partners,
L.P. and GS Private Equity Partners Offshore, L.P. is an affiliate of
Goldman, Sachs & Co. and each of such entities disclaims beneficial
ownership of the other entity's securities. Goldman, Sachs & Co. disclaims
beneficial ownership of the securities owned by such entities.
(5) The address of such stockholder is c/o Pacific Mezzanine Group, 610
Newport Center Dr., Suite 1100, Newport Beach, CA 92660.
(6) The address of such stockholder is 3500 Gaston Avenue, Suite 150, Dallas,
TX 75246.
(7) Mr. Scott also owns an aggregate of 51,603 shares of the Company's Series
B Non-Voting Common Stock.
(8) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic
Blvd., Suite 680, Los Angeles, CA 90064. Shares shown as beneficially
owned by Mr. Abrahams include 8,294 shares owned by Stacy Abrahams, his
wife.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT AGREEMENT
The Company and Robert Snukal, Sheila Snukal, William Scott, Heritage Fund
II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment
Corporation, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners
I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance
Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS
Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC
(collectively, the "Investors") entered into an Investment Agreement dated
March 27, 1998, providing for the issuance by the Company to such stockholders
of an aggregate of 15,000 shares of Series A Preferred Stock, 668,065 shares
of Series A Common Stock, 114,202 shares of Series B Common Stock and a
warrant to purchase 71,119 shares of Series C Common Stock. These securities
were issued immediately prior to the consummation of the Tender Offer (other
than the Series A Preferred Stock, the warrant and certain shares issued to
Mr. Scott, which were issued promptly after the Merger). The Investment
Agreement specifies the consideration paid by the Investors for the issuance
of such Company securities, which includes (i) a new cash investment in an
aggregate amount of approximately $82 million, (ii) in the case of Heritage,
Mr. Snukal and Mrs. Snukal, the exchange of previously-held stock of Fountain
View, and (iii) in the case of Mr. Scott, the issuance by him to the Company
of a limited recourse promissory note in the amount of $2,530,600, with an
interest rate of 5.7%, due and payable on the earlier to occur of (A) April
15, 2007, or (B) the sale by Mr. Scott of the 20,000 shares of the Company's
common stock pledged as security for the note; the Company has recourse for
the payment of up to $1,012,240 of the principal amount of the note. Pursuant
to the terms of the Investment Agreement, Heritage made an additional cash
investment of $2.6 million for the purchase of the shares of Series A
Preferred Stock and the warrants for shares of Series C Common Stock. On May
4, 1998, Baylor and Buckner purchased certain shares of the Company's Series A
Preferred Stock and a portion of the warrants to purchase Series C Preferred
Stock from Heritage and signed a supplemental signature page agreeing to
become parties to the Investment Agreement. See "Prospectus Summary--The
Financings" and "--Recent Developments".
THE CERTIFICATE OF INCORPORATION
In connection with the Transactions, on March 27, 1998 and May 6, 1998, the
Company amended its certificate of incorporation to provide that its
authorized capital stock consists of (a) 3,000,000 shares of Common Stock
designated as follows: (i) 1,500,000 shares of Series A Common Stock, (ii)
200,000 shares of Series B Non-Voting Common Stock, (iii) 1,300,000 shares of
Series C Common Stock and (b) 1,000,000 shares of Preferred Stock, 200,000 of
which are designated Series A Preferred Stock. The shares of Series A
Preferred Stock are subject to mandatory redemption upon an underwritten
initial public offering of the Company's common stock or after May 1, 2010.
The certificate of incorporation further provides that, on liquidation of the
Company, the holders of Series A Preferred Stock are entitled to receive a
liquidation payment. After such payment, the assets of the Company will be
divided ratably among the holders of (i) the Series A Common Stock and the
Series B Non-Voting Common Stock, on the one hand, and (ii) the holders of the
Series C Common Stock, on the other, based on the relative number of shares of
Common Stock outstanding and held by such holders, provided that the aggregate
number of outstanding shares of Series A Common Stock and Series B Non-Voting
Common Stock shall be deemed to be 1,114,202, or, if different, shall be
deemed to be the number of shares of Series A Common Stock and Series B Non-
Voting Common Stock then outstanding plus any shares of Series B Non-Voting
Common Stock previously outstanding but forfeited pursuant to the Stockholders
Agreement. All amounts distributable among the Series A Common Stock and the
Series B Non-Voting Common Stock will be divided as follows, to the extent of
available proceeds: (A) first, each share of Series A Common Stock will
receive $126.53 plus a 22% internal rate of return thereon calculated from
March 27, 1998 (the "Series A Common Stock Preference"); (B) second, each
share of Series B Non-Voting Common Stock will receive an amount
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equal to the Series A Common Stock Preference; and (C) third, the remaining
assets will be distributed ratably among the Series A Common Stock and the
Series B Non-Voting Common Stock.
The March 27 amendment to the Company's certificate of incorporation also
provides that all shares of Company stock outstanding prior to the amendment
were reclassified into an aggregate of 331,935 shares of Series A Common
Stock.
REGISTRATION RIGHTS AGREEMENT
The Company and its stockholders entered into a Registration Rights
Agreement (the "Investor Registration Rights Agreement") on March 27, 1998
concurrently with the consummation of the Tender Offer. The Investor
Registration Rights Agreement provides that Heritage has the right to require
the Company on two occasions to effect the registration of the Company's
common stock held by it under the Securities Act and Mr. and Mrs. Snukal have
the right to cause the Company to effect one demand registration, each at the
Company's expense and subject to certain conditions. Mr. Scott has the right
to request inclusion of the Company common stock held by him in any such
registrations. In addition, all holders of Registrable Securities (as defined
in the Investor Registration Rights Agreement) are entitled to request the
inclusion of any shares of common stock of the Company in any registration
statement at the Company's expense whenever the Company proposes to register
any of its common stock under the Securities Act. However, the underwriter
managing any such offering or any offering effected pursuant to a demand
registration may reduce the number of shares included therein.
PAYMENTS TO CERTAIN STOCKHOLDERS
SUMMIT EXECUTIVE INCENTIVE PLAN FOR MR. SCOTT. Mr. Scott was the beneficiary
of an Executive Incentive Plan maintained by Summit. Under the terms of this
plan, which was amended by Summit prior to the signing of the Merger
Agreement, Mr. Scott received a cash payment from Summit at the effective time
of the Merger of approximately $1,275,000.
REDEMPTION OF MR. SCOTT'S SUMMIT STOCK OPTIONS. Under the Summit Stock
Option Plan, which terminated at the effective time of the Merger, Mr. Scott
received in cash from Summit the net value of his options to purchase Summit
Shares, which equalled $749,125. Mr. Scott held options to acquire 300,000
Summit Shares.
BONUS TO MR. SCOTT FROM THE COMPANY. At the effective time of the Merger,
the Company paid Mr. Scott a bonus equal to $550,000 to partially cover the
tax cost he will incur upon redemption of his stock options described in the
preceding paragraph. The amount of the bonus was calculated not to exceed the
tax benefit which Summit realized as a result of the payments of those
amounts.
BONUS TO MR. SCOTT FROM SUMMIT. At the effective time of the Merger, Summit
paid Mr. Scott a $100,000 bonus.
REINVESTMENT BY MR. SCOTT. The entire net after-tax proceeds of the
foregoing payments to Mr. Scott were invested by Mr. Scott in securities of
the Company under the terms of the Investment Agreement.
PAYMENT TO HERITAGE PARTNERS MANAGEMENT COMPANY, INC. At the effective time
of the Merger, the Company paid Heritage Partners Management Company, Inc., a
fee of $3 million in connection with the Transactions.
PRE-TRANSACTION ARRANGEMENTS
FOUNTAIN VIEW EQUITY TRANSACTIONS
Prior to August 1, 1997, each of the corporations which is now a subsidiary
of Fountain View (other than Summit and its subsidiaries) was owned directly
by Mr. and Mrs. Snukal. On July 24, 1997,
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<PAGE>
each of those corporations entered into a Stock Purchase and Contribution
Agreement (the "1997 Agreement") with Mr. and Mrs. Snukal, Heritage and
Fountain View providing for the recapitalization of Fountain View, the
issuance of stock of Fountain View to Heritage and the restructuring of the
ownership of the various corporations so that all of them became wholly-owned
subsidiaries of Fountain View. In addition, under the terms of the 1997
Agreement, Mr. and Mrs. Snukal received cash payments from the investments by
Heritage and loans from a senior lender in the aggregate amount of $43.7
million.
The 1997 Agreement contained certain representations, warranties and
covenants, and provided for Mr. and Mrs. Snukal to indemnify Heritage and
Fountain View for varying amounts.
The transactions contemplated by the 1997 Agreement were consummated on
August 1, 1997. From August 1, 1997, until the closing of the purchase of
Summit Shares in the Tender Offer, Fountain View's Board of Directors has
consisted and will consist of three nominees of Mr. and Mrs. Snukal and two
nominees of Heritage. For additional information with respect to the Fountain
View Equity Transactions, see Note 3 to the audited financial statements of
Fountain View included elsewhere in this Prospectus.
RELATED PARTY LEASES
Fountain View leases four SNFs from Mr. and Mrs. Snukal under leases entered
into on August 1, 1997 pursuant to the 1997 Agreement. These facilities are
Fountainview Convalescent Hospital in Los Angeles, California, Montebello
Convalescent Hospital in Montebello, California, Rio Hondo Nursing Center in
Montebello, California and Sycamore Park Convalescent Hospital in Los Angeles,
California. Each lease is for a term of 20 years. The annual rent for the year
ending July 31, 1998 for each of these facilities is as follows: Fountainview
Convalescent Hospital--$360,000; Montebello Convalescent Hospital--$360,000;
Rio Hondo Nursing Center--$720,000; and Sycamore Park Convalescent Hospital--
$324,000. The leases contain rent escalation clauses based on increases in the
consumer price index. Fountain View believes the terms of these leases to be
at fair market value.
TWIN MED
Mrs. Snukal owns approximately 33% of the outstanding equity of Twin Med,
Inc. ("Twin Med"), a supplier of disposable products to long-term care
facilities. Twin Med is one of Fountain View's and Summit's suppliers. Average
monthly payments by Fountain View and Summit to Twin Med are approximately
$50,000 to $70,000 in the aggregate.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
GENERAL. The Company entered into a credit facility with Bank of Montreal
("BMO") that provides Fountain View with financing in the aggregate amount of
up to $115 million. The following summary of the material provisions of the
New Credit Facility does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, (i) the Credit Agreement dated as
of April 16, 1998 among Fountain View, the Banks party thereto and BMO, as
Agent and (ii) the Loan Documents referenced therein .
While BMO committed to fund the entire amount of the credit facilities
described in the Summary of Terms, subject to the conditions described
therein, BMO has formed a syndicate to participate in the New Credit Facility,
and in the future may add financial institutions and other investors
(collectively with BMO, the "Lenders") to such syndicate, who shall be
reasonably acceptable to Fountain View, to join with BMO in providing the
financing. BMO will act as agent for the Lenders (the "Agent"). The New Credit
Facility commitments of the Lenders, which, after syndication, will be several
and not joint, were allocated among (i) a $30 million revolving credit
facility (the "Revolving Credit Facility"), with a $4 million sublimit for
letters of credit (with BMO as the issuing bank), and (ii) one or more term
loan facilities in an aggregate amount of up to $85.0 million (collectively,
the "Term Loan Facility"). The proceeds of the New Credit Facility were used
to refinance certain indebtedness incurred by Fountain View in connection with
the Tender Offer and the Merger, to refinance certain indebtedness of Summit,
to pay fees and expenses incurred in connection with the Transactions (not to
exceed $28 million) and to fund working capital and capital expenditure needs
of the Company and its subsidiaries and for other general corporate purposes.
MATURITY AND PREPAYMENT. The Revolving Credit Facility will mature on April
16, 2004. The Term Loan Facility will be payable in installments with a final
maturity on March 31, 2004. The Term Loan amortization schedule is as follows:
year 1--$0; year 2--$5,000,000; year 3--$10,000,000; year 4--$20,000,000; year
5--$22,500,000; and year 6--$27,500,000. The New Credit Facility is also
subject to mandatory prepayment out of the net cash proceeds of certain asset
sales, issuances of equity, subordinated debt (excluding the Notes offered
hereby) or senior debt securities, as well as out of 85% of excess cash flow
if a specified leverage ratio is exceeded. Prepayments will be applied to
reduce the Term Loan Facility.
REPRESENTATIONS AND WARRANTIES. The credit documents relating to the New
Credit Facility contain customary representations and warranties, including
with respect to corporate status; corporate power, authority and
enforceability; no violation of law, contracts or organizational documents; no
material litigation; correctness of specified financial statements and no
material adverse change; no required governmental or third party approvals;
use of proceeds and compliance with margin regulations; status under the
Investment Company Act of 1940; the Employment Retirement Income Security Act
of 1974, as amended ("ERISA"); environmental matters; perfected liens and
security interests; and payment of taxes.
COVENANTS. The credit documents contain usual and customary covenants,
including covenants with respect to delivery of financial statements and other
reports; compliance with laws; payment of taxes; maintenance of insurance;
limitations on liens; limitations on future mergers, consolidations, joint
ventures and partnerships; prohibitions on sale of all or a substantial part
of the Company's assets; limitations on the incurrence of debt; limitations on
dividends, stock redemptions and the redemption and/or prepayment of other
debt; limitations on investments and acquisitions; limitations on capital
expenditures; compliance with ERISA; limitations on transactions with
affiliates; and a negative pledge, with certain exceptions, for equipment
financing. The credit documents also contain certain financial covenants,
including a minimum fixed charge coverage ratio, a maximum leverage ratio and
a minimum net worth test.
INTEREST AND FEES. Pursuant to the terms of New Credit Facility, Fountain
View may elect to have the interest rate on loans outstanding under the
Revolving Credit Facility and loans outstanding
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under the Term Loan Facility bear interest at the LIBOR or the applicable
alternate base rate (defined as the higher of the federal funds rate plus
0.50% or BMO's base rate), in each case plus an applicable margin which will
vary between 1.75% and 2.75% for LIBOR loans and between 0.75% and 1.75% for
alternate base rate loans, depending upon the ratio of the sum of Fountain
View's total funded debt plus a multiple of its operating rents to EBITDAR.
During the continuance of an event of default, a default interest rate equal
to 2.00% above the rate otherwise in effect shall apply. The Company will pay
a commitment fee of 0.50% on the unused portion of the Revolving Credit
Facility. The Company will also pay BMO, as Agent, a customary annual
administration fee.
EVENTS OF DEFAULT; REMEDIES. The New Credit Facility contains customary
events of default, including with respect to nonpayment of principal,
interest, fees or other amounts; violation of covenants; inaccuracy of
representations and warranties; cross-default to other material agreements and
indebtedness; bankruptcy; material judgments; ERISA; and actual or asserted
invalidity of any loan documents or security interest.
INDEMNIFICATION. Under the New Credit Facility, the Company will indemnify
the Lenders from and against all losses, liabilities, claims, damages or
expenses relating to their loans and the Company's use of loan proceeds or the
commitments, including but not limited to, reasonable attorneys' fees and
settlement costs.
SECURITY AND GUARANTEES. The New Credit Facility contains a perfected first
lien on all of the Company's assets, both tangible and intangible, including
without limitation, cash, cash equivalents, inventory, accounts receivable,
property, plant and equipment, intangibles, bank accounts, instruments,
securities, contract rights and other agreements, and the stock of or other
equity interests in all currently owned or to be acquired subsidiaries of the
Company (other than the capital stock of Alexandria Convalescent Hospital,
Inc.). The New Credit Facility is fully guaranteed by all existing and future
subsidiaries of the Company. The guarantees are secured by a perfected first
lien on all assets of the subsidiaries of the Company.
BMO is an affiliate of Nesbitt Burns Securities Inc., one of the Initial
Purchasers of the Notes. One of the other Lenders is Banque Paribas, an
affiliate of Paribas Corporation, one of the Initial Purchasers of the Notes,
and another affiliate of Paribas Corporation is a Fountain View stockholder.
CAPITAL LEASES
In addition to the indebtedness described above, Summit is also party to
seven capital leases for certain of its facilities. All of these capital
leases contain purchase options and certain of these leases contain various
renewal options and extend up to the year 2030. For the year ended June 30,
1997, property and equipment of Summit includes the following amounts for
leases which have been capitalized (assuming the purchase options contained in
these leases will be exercised):
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Land and land improvements.......................... $ 1,400
Buildings and leasehold improvements................ 21,481
Furniture and equipment............................. 2,405
-------
25,286
Less accumulated amortization....................... 2,070
-------
$23,216
=======
</TABLE>
The minimum rental payments for the next five years under noncancellable
capital leases (including purchase options when expected to be exercised) that
have initial or remaining lease terms in excess of one year as of the year
ended June 30, 1997 are $3,321,000, $4,634,000, $4,297,000, $350,000 and
$350,000 for 1998, 1999, 2000, 2001 and 2002, respectively.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $120.0 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Outstanding Notes properly tendered on or prior to the Expiration
Date and not withdrawn as permitted pursuant to the procedures described
below. The Exchange Offer is being made with respect to all of the Outstanding
Notes; the total aggregate principal amount of Outstanding Notes and Exchange
Notes will in no event exceed $120.0 million.
The summary herein of material provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which will be available upon request of the Company.
PURPOSE OF THE EXCHANGE OFFER
On April 16, 1998, the Company issued $120.0 million aggregate principal
amount of Outstanding Notes. The issuance of the Outstanding Notes was not
registered under the Securities Act in reliance upon exemptions provided in
Rule 144A and Regulation S under the Securities Act.
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to the
Registration Rights Agreement, the Company and the Guarantors agreed to use
commercially reasonable efforts to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors will offer the Exchange
Notes (which will have terms substantially identical in all material respects
to the Outstanding Notes), including the Existing Guarantees (the "Exchange
Notes") (except that the Exchange Notes will not contain terms with respect to
transfer restrictions). If (i) the Company and the Guarantors are not required
to consummate the Exchange Offer because the Exchange Offer is not permitted
by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company within 20 days after the Exchange
Offer has been consummated (A) that it is prohibited by applicable law or
Commission policy from participating in the Exchange Offer or (B) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, or (C) that such Holder is a broker-dealer and holds
Notes acquired directly from the Company or one of its affiliates, then the
Company and the Guarantors will use commercially reasonable efforts to file a
shelf registration statement pursuant to Rule 415 under the Securities Act,
which may be an amendment to the Existing Offer Registration Statement (in
either event, the "Shelf Registration Statement") on or prior to the earliest
to occur of (1) the 60th day after the date on which the Company determines
that it is not required to file the Exchange Offer Registration Statement or
(2) the 60th day after the date on which the Company receives notice from a
Holder of Transfer Restricted Securities as contemplated by clause (ii) above
(such earliest date being the "Shelf Filing Deadline"), which Shelf
Registration Statement shall provide for resales of all Transfer Restricted
Securities the Holders of which shall provide certain information to the
Company. The Company and the Guarantors will use commercially reasonable
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission on or before the 135th day after the obligation to file the
Shelf Registration Statement arises. For purposes of the foregoing, "Transfer
Restricted Securities" means each Note until the earliest of (i) the date on
which such Note is exchanged in the Exchange Offer and the Note for which it
is exchanged is entitled to be resold to the public by the Holder thereof
without complying
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with the prospectus delivery requirements of the Securities Act, (ii) the date
on which such Note has been disposed of in accordance with a Shelf
Registration Statement, or (iii) the date on which such Note is permitted to
be distributed to the public pursuant to Rule 144 under the Securities Act or
by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of a copy of this
prospectus).
The Registration Rights Agreement provided that unless the Exchange Offer
were not permissible under applicable law or Commission policy (i) the Company
and the Guarantors would cause to be filed an Exchange Offer Registration
Statement with the Commission as soon as practicable after the Closing Date,
but in no event later than 90 days after the Closing Date, (ii) the Company
and the Guarantors would use commercially reasonable efforts to cause the
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 150 days after the Closing Date,
(iii) in connection with the foregoing, file (A) all pre-effective amendments
to such Registration Statement as may be necessary in order to cause such
Registration Statement to become effective, (B) if applicable, a post-
effective amendment to such Registration Statement pursuant to Rule 430A under
the Securities Act and (C) cause all necessary filings in connection with the
registration and qualification of the Exchange Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit the Exchange Offer
to be consummated, and (iv) upon the effectiveness of such Registration
Statement, commence the Exchange Offer. The Company is entitled to suspend the
effectiveness of any Shelf Registration Statement for certain limited periods
under certain prescribed circumstances. If (a) any of the Registration
Statements required by the Registration Rights Agreement is not filed with the
Commission on or prior to the date specified for such filing; (b) any of such
Registration Statements has not been declared effective by the Commission on
or prior to the date specified for such effectiveness; (c) an Exchange Offer
Registration Statement becomes effective but the Company and the Guarantors
fail to consummate the Exchange Offer within 30 business days thereafter with
respect to the Exchange Offer Registration Statement; or (d) subject to
certain exceptions, the Shelf Registration Statement or the Exchange Offer
Registration Statement is filed and is declared effective but thereafter
ceases to be effective or fails to be usable for its intended purpose prior to
the expiration of the time period specified in the Registration Rights
Agreement without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
declared effective immediately (each such event referred to in clauses (a)
through (d) above, a "Registration Default", and each period during which a
Registration Default has occurred and is Continuing, a "Registration Default
Period"), the Company and Guarantors jointly and severally agree that the
liquidated damages ("Liquidated Damages"), in addition to the base interest
that would otherwise accrue on the Transfer Restricted Securities, shall
accrue at a per annum rate of 0.25% of the aggregate principal amount of such
Transfer Restricted Securities for the first 90 days of the Registration
Default Period, increasing by 0.25% per annum every 90 days up to a maximum of
1.0% per annum until such Registration Default has been cured. All accrued
Liquidated Damages will be paid by the Company to the Record Holders by wire
transfer of immediately available funds or by federal funds check on each
interest payment date at the office or agency of the Company maintained for
such purpose in the Borough of Manhattan, The City of New York. Following the
cure of all Registration Defaults relating to any particular Transfer
Restricted Securities, the accrual of Liquidated Damages with respect to such
Transfer Restricted Securities will cease immediately.
Holders of such Notes will be required to make certain representations to
the Company and the Guarantors (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
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EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1998, unless the Company, in its sole discretion, has extended the
period of time (as described below) for which the Exchange Offer is open (such
date, as it may be extended, is referred to herein as the "Expiration Date").
The Expiration Date will be at least 20 business days after the commencement
of the Exchange Offer (or longer if required by applicable law). The Company
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Outstanding Notes by giving oral notice
(confirmed in writing) or written notice to the Exchange Agent (as defined
herein) and by giving written notice of such extension to the holders thereof
or by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release through the Dow Jones News
Service, in each case, no later than 9:00 A.M. New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time. During any such extension, all Outstanding Notes previously
tendered will remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "-- Certain Conditions to the Exchange Offer". If any
such termination or amendment occurs, the Company will notify the Exchange
Agent and will either issue a press release or give oral or written notice to
the holders of the Outstanding Notes as promptly as practicable.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
A holder of Outstanding Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references
in this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Outstanding Notes being tendered, if any, and
any required signature guarantees, to the Exchange Agent at its address set
forth below on or prior to 5:00 p.m., New York City time, on the Expiration
Date (or complying with the procedure for book-entry transfer described below)
or (ii) complying with the guaranteed delivery procedures described below. THE
METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE
USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY
DELIVERY. NO OUTSTANDING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Outstanding Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined herein). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be by a
participant in a recognized signature guaranty medallion program (each an
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"Eligible Institution"). If Outstanding Notes are registered in the name of a
person other than a signer of the Letter of Transmittal, the Outstanding Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Outstanding Notes at the
book-entry transfer facility, The Depository Trust Company, for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Outstanding Notes by causing
such book-entry transfer facility to transfer such Outstanding Notes into the
Exchange Agent's account with respect to the Outstanding Notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Outstanding Notes may be effected through book-entry transfer in
the Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Outstanding Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent
has received at its address or facsimile number set forth below on or prior to
the Expiration Date a letter, telegram or facsimile from an Eligible
Institution setting forth the name and address of the tendering holder, the
name in which the Outstanding Notes are registered and, if possible the
certificate number or numbers of the certificate or certificates representing
the Outstanding Notes to be tendered, and stating that the tender is being
made thereby and guaranteeing that within three business days after the
Expiration Date the Outstanding Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at the book-entry transfer facility), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Outstanding Notes being tendered by the above-described method are deposited
with the Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by an Eligible Institution for
the purposes described in this paragraph are available from the Exchange
Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Outstanding Notes (or a confirmation of book-entry transfer
of such Outstanding Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Outstanding Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
to similar effect (as provided above) by an Eligible Institution will be made
only against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Outstanding Notes. All questions as to the
validity, form, eligibility (including time of receipt) and acceptance of
Outstanding Notes tendered for exchange will be determined by the Company in
its sole discretion, which determination will be final and binding on all
parties. The Company reserves the right to reject any and all tenders of any
particular Outstanding Notes not properly tendered or reject any particular
shares of Outstanding Notes the acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The
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Company also reserves the absolute right to waive any defects or
irregularities or condition of the Exchange Offer as to any particular
Outstanding Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Outstanding
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Outstanding Notes for exchange must be cured within such time as
the Company shall determine. Neither the Company nor any other person shall be
under any duty to give notification of defects or irregularities with respect
to tenders of Outstanding Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving Exchange Notes for its own account will represent to the
Company that the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of such holder's business, that such
holder has no arrangement or understanding with any person to participate in
the distribution of such Exchange Notes and that such holder is not an
"affiliate" of the Company as defined in Rule 405 under the Securities Act or,
if it is an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that is receiving Exchange Notes for its own
account in exchange for Outstanding Notes that were acquired as a result of
market-making or other trading activities will represent to the Company that
it will deliver a prospectus in connection with any resale of such Outstanding
Notes. In addition, the Letter of Transmittal requires each holder to
represent and warrant that (a) the holder accepts the terms and conditions of
the Exchange Offer, (b) the holder has a net long position within the meaning
of Rule 14e-4 under the Exchange Act ("Rule 14e-4") equal to or greater than
the principal amount of Outstanding Notes being tendered, (c) the tender of
such Outstanding Notes complies with Rule 14e-4 (to the extent that Rule 14e-4
is applicable to such exchange), (d) the holder has full power and authority
to tender, exchange, assign and transfer the Outstanding Notes being tendered,
and (e) when the same are accepted for exchange by the Company, the Company
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Outstanding Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "--Certain
Conditions to the Exchange Offer", to terminate the Exchange Offer and (b) to
the extent permitted by applicable law, purchase Outstanding Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers may differ from the terms of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
letter, telegram or facsimile must be received by the Exchange Agent at any
time prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date at its address or facsimile number set forth below. Any such
notice of withdrawal must (i) specify the name of the person having tendered
the Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify the
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Outstanding Notes to be withdrawn (including the certificate number of numbers
of the certificate or certificates representing such Outstanding Notes and the
aggregate principal amount of such Outstanding Notes), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such Outstanding Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Transfer Agent with respect to the Outstanding Notes
to register the transfer of such Outstanding Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Outstanding
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties. Any
Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Any Outstanding Notes which have been tendered but which
are withdrawn will be returned to the holder thereof without cost to such
holder as soon as practicable after such withdrawal. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering Outstanding Notes" at any
time prior to the Expiration Date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Outstanding
Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Exchange Offer. See "-- Certain Conditions to the Exchange
Offer" below. For purposes of the Exchange Offer, the Company will be deemed
to have accepted properly tendered Outstanding Notes for exchange when the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of the Exchange Notes in exchange for Outstanding
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Company of such Outstanding Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered
Outstanding Notes are not accepted for exchange for any reason set forth in
the terms and conditions of the Exchange Offer, such unaccepted Outstanding
Notes will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration
or termination of the Exchange Offer.
UNTENDERED OUTSTANDING NOTES
Holders of Outstanding Notes whose Outstanding Notes are not tendered or are
tendered but not accepted in the Exchange Offer will continue to hold such
Outstanding Notes and will be entitled to all the rights and preferences and
subject to the limitations applicable thereto. Following consummation of the
Exchange Offer, the holders of Outstanding Notes will continue to be subject
to the existing restrictions upon transfer thereof and, except as provided
herein, the Company will have no further obligation to such holders to provide
for the registration under the Securities Act of the Outstanding Notes held by
them. To the extent that Outstanding Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Outstanding Notes could be adversely affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue Exchange Notes in exchange for,
any Outstanding Notes, and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Outstanding Notes for exchange, any of
the following events shall occur:
(A) an injunction, order or decree shall have been issued by any court or
governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
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(B) there shall occur a change in the current interpretation of the staff
of the Commission which current interpretation permits the Exchange Notes
issued pursuant to the Exchange Offer in exchange for the Outstanding Notes
to be offered for resale, resold and otherwise transferred by holders
thereof (other than (i) a broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to Rule 144A, Regulation S or
any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to
participate in the distribution of Exchange Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Outstanding Notes and
return any Outstanding Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior
to the Expiration Date, subject to the rights of such holders of tendered
shares of Outstanding Notes to withdraw their tendered Outstanding Notes, or
(iii) waive such termination event with respect to the Exchange Offer and
accept all properly tendered Outstanding Notes that have not been withdrawn.
If such waiver constitutes a material change in the Exchange Offer, the
Company will disclose such change by means of a supplement to this Prospectus
that will be distributed to each registered holder of Outstanding Notes, and
the Company will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders of the Outstanding Notes, if the Exchange
Offer would otherwise expire during such period.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at any time any stop order shall be threatened by the
Commission or in effect with respect to the Registration Statement.
The Exchange Offer is not conditioned on any minimum principal amount of
Outstanding Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions regarding Exchange Offer procedures and requests
for additional copies of this Prospectus or the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Mail:
By Hand:
or Overnight Delivery:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Kellie Mullen
Re: Fountain View, Inc.
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By Facsimile:
617-664-5290
Confirm by Telephone:
617-664-5587
State Street Bank and Trust Company of California, N.A. is also the Transfer
Agent for the Outstanding Notes and Exchange Notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Outstanding
Notes in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Outstanding Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Outstanding Notes
tendered, or if tendered Outstanding Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Exchange
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Exchange Notes will be amortized by the Company over
the term of the Exchange Notes under generally accepted accounting principles.
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation Finance
of the Commission set forth in no-action letters issued to third parties, the
Company believes that, except as described below, Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the respective holders thereof without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that (i) such Exchange Notes are acquired in the ordinary course of
such holder's business and (ii) such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
of the Exchange Notes. A holder of Outstanding Notes that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act or that is
a broker-dealer that purchased Outstanding Notes from the Company to resell
pursuant to an exemption from registration under the Securities Act (a) cannot
rely on such interpretations by the staff of the Division of Corporation
Finance of the Commission, (b) will not be permitted or entitled to tender
such Outstanding Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Outstanding Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
In addition, any holder who tenders Outstanding Notes in the Exchange Offer
with the intention or for the purpose of participating in a distribution of
the Exchange Notes cannot rely on such interpretations by the staff of the
Division of Corporation Finance of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing selling security
holders information required by Item 507 of Regulation S-K under the
Securities Act. To date, the staff of the Division of Corporation Finance of
the Commission has taken the position that a broker-dealer that has acquired
securities in exchange for securities that were acquired by such broker-dealer
as a result of market-making activities or other trading activities may
fulfill the prospectus delivery requirements with the prospectus contained in
an exchange offer registration statement.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make
certain representations to the Company set forth in "The Exchange Offer--
Purpose of the Exchange Offer".
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Notes. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that, for a
period of up to 180 days after the effective date of the Registration
Statement, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Risk Factors--Absence of Public
Market for the Notes" and "The Exchange Offer--Procedures for Tendering
Outstanding Notes".
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer
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and any broker or dealer that participates in a distribution of such Exchange
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit from any such resale of Exchange Notes and any
commissions or concessions received by any such person may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Subject to certain provisions set forth in the Registration Rights
Agreement, for a period of 180 days after the effective date of the
Registration Statement, the Company will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
participating broker-dealer that requests such documents in the Letter of
Transmittal. The Company has agreed to pay the expenses incident to the
Exchange Offer, other than any discounts or commissions incurred upon the sale
of the Exchange Notes. The Company will indemnify each participating broker-
dealer selling Exchange Notes against certain liabilities, including
liabilities under the Securities Act.
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DESCRIPTION OF NOTES
GENERAL
Except as otherwise indicated, the following description relates both to the
Outstanding Notes issued in the Note Offering and the Exchange Notes, together
with the Exchange Guarantees, to be issued in exchange for the Outstanding
Notes in the Exchange Offer. The form and terms of the Exchange Notes are the
same as the form and terms of the Outstanding Notes, except that the Exchange
Notes have been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof. The Exchange Notes will be
obligations of the Company evidencing the same indebtedness as the Outstanding
Notes. The Outstanding Notes were issued, and the Exchange Notes offered
hereby will be issued, pursuant to an Indenture (the "Indenture") between the
Company, the Guarantors and State Street Bank and Trust Company of California,
N.A., as trustee (the "Trustee"), in a private transaction that is not subject
to the registration requirements of the Securities Act. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
proposed form of Indenture and Registration Rights Agreement are available as
set forth below under "--Additional Information". The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions". For purposes of this summary, the term "Company" refers only to
Fountain View, Inc. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Debt. As of
June 30, 1998, the Company had Senior Debt of approximately $126 million, $15
million of mandatory redeemable preferred stock and, through its Subsidiaries,
would have had additional liabilities (including trade payables) aggregating
approximately $71.5 million. The Indenture permits the incurrence of
additional Senior Debt in the future.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes are
effectively subordinated to all Indebtedness and other liabilities and
commitments (including trade payables) of the Company's Subsidiaries. Any
right of the Company to receive assets of any of its Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the
Holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the
extent that the Company is itself recognized as a creditor of such Subsidiary,
in which case the claims of the Company would still be subordinate to any
security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. As of June 30, 1998, the
Company's Subsidiaries had approximately $24.5 million of Indebtedness, $46.9
million of trade payables and other liabilities outstanding and $15.0 million
of mandatory redeemable preferred stock. See "Risk Factors--Ability of Company
to Obtain Funds from Subsidiaries".
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $120.0 million and
will mature on April 15, 2008. Interest on the Notes accrues at the rate of 11
1/4% per annum and will be payable semi-annually
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in arrears on April 15 and October 15, commencing on October 15, 1998, to
Holders of record on the immediately preceding April 1 and October 1. Interest
on the Notes accrues from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of original issuance. Interest
is computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Notes
is payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes; provided that all payments of principal, premium,
interest and Liquidated Damages with respect to Notes the Holders of which
have given wire transfer instructions to the Company will be required to be
made by wire transfer of immediately available funds to the respective
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed by the Guarantors. The Guarantee of each Guarantor are unsecured
and subordinated to the prior payment in full of all Senior Debt of such
Guarantor, which as of June 30, 1998 included approximately $126 million of
Senior Debt and the amounts for which the Guarantors are liable under the
guarantees issued from time to time with respect to Senior Debt, including
guarantees of all Obligations under the New Credit Facility. The Subsidiary
Guarantees provide that the Obligations of each Guarantor thereunder are
limited so as not to constitute a fraudulent conveyance under applicable law.
See, however, "Risk Factors--Effect of Fraudulent Transfer Statutes on
Validity of Notes and Guarantees".
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor under the
Registration Rights Agreement and, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the Notes and
the Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) except in the case of a merger
of a Guarantor with or into another Guarantor or a merger of a Guarantor with
or into the Company, the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant described below
under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock".
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor (other than to the Company or another
Guarantor), by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor (other than to the
Company or another Guarantor), then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Guarantor) or the entity acquiring the property
(in the event of a sale or other disposition of all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee and any such acquiring entity will not be required to
assume any obligations of such Guarantor under the applicable Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. See
"Repurchase at Option of Holders--Asset Sales".
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SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company or any Guarantor in a
liquidation or dissolution of the Company or any Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or any Guarantor or its property, an assignment for the benefit of
creditors or any marshalling of the Company's or any Guarantor's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment with respect to the Notes, and until all Obligations with
respect to Senior Debt are paid in full, any distribution to which the Holders
of Notes would be entitled shall be made to the holders of Senior Debt (except
that Holders of Notes may receive and retain Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
The Company and the Guarantors also may not make any payment upon or in
respect of the Notes or the Guarantees (except in Permitted Junior Securities
or from the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) a default in the payment of the principal of, premium, if
any, or interest on Senior Debt occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with
respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt. Payments on the
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received by the Trustee, unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage under
clause (ii) above may be commenced unless and until (i) 360 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been waived for a period of not
less than 180 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company and the Guarantors who are holders of Senior Debt.
The principal amount of Senior Debt outstanding at June 30, 1998 was
approximately $126.0 million. The Indenture limits, subject to certain
financial tests, the amount of additional Indebtedness, including Senior Debt,
that the Company and its Subsidiaries can incur. See "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock".
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to April 15,
2003. Thereafter, the Notes will be subject to redemption at any time or from
time to time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices
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(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest and Liquidated Damages thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on April
15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................... 105.625%
2004........................................................... 103.750
2005........................................................... 101.875
2006 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 111.25% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings by the Company; provided that at least
$78.0 million in aggregate principal amount of Notes remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by
the Company and its Subsidiaries); and provided, further, that such redemption
shall occur within 60 days of the date of the closing of such Public Equity
Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within fifteen Business Days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Indenture and described in such notice. The
Company will
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comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The New Credit Facility currently prohibits the Company from purchasing any
Notes and also provides that certain change of control events, including,
without limitation, a Change of Control, with respect to the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the
Company will remain prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture which would, in turn, constitute a default under
the New Credit Facility. In such circumstances, the subordination provisions
in the Indenture would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all", there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
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Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes
or the Subsidiary Guarantees thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) in the
case of any Asset Sale constituting the transfer (by merger or otherwise) of
all of the Capital Stock of a Restricted Subsidiary, any liabilities (as shown
on such Restricted Subsidiary's most recent balance sheet) of such Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the Notes or the Subsidiary Guarantees) that will
remain outstanding after such transfer and will not be a liability of the
Company or any other Restricted Subsidiary of the Company following such
transfer and (z) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, or (b) to the acquisition of a majority of the assets of, or a majority
of the Voting Stock of, a Healthcare Related Business, the making of a capital
expenditure or the acquisition of other long-term assets for use in a
Healthcare Related Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that any Excess Proceeds remain after consummation of
an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose
not otherwise prohibited by the Indenture. If the aggregate principal amount
of Notes tendered into such Asset Sale Offer surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or
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any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company; (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated to the Notes except a payment
of interest or principal at Stated Maturity, or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (vi) and (vii) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company since the date of the Indenture as a contribution to its
common equity capital or from the issue or sale of Equity Interests of the
Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus (iii) to the extent that any Restricted Investment that
was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness that is subordinated to the Notes or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary of
the Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph; (iii) the defeasance, redemption, repurchase or other acquisition
of Indebtedness that is subordinated to the Notes with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend (in cash or otherwise) by a Restricted Subsidiary of the Company
to the holders of its common Equity Interests on a pro rata basis; and (v) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its Restricted Subsidiaries')
management pursuant to any management equity
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subscription agreement, stock option agreement or employment agreement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $2.0 million in any
twelve-month period and no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company or any Subsidiary of the Company held by any member
of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement, stock option agreement or employment
agreement, provided that the purchase price is paid with the proceeds to the
Company of key man life insurance or disability insurance policies purchased
by the Company specifically to finance any such repurchase, redemption or
other acquisition; or (vii) the payment of the Transaction Related Payments.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant or Permitted
Investments, as applicable. All such outstanding investments will be deemed to
constitute Restricted Investments in an amount equal to the greatest of (x)
the net book value of such Investments at the time of such designation, (y)
the fair market value of such Investments at the time of such designation and
(z) the original fair market value of such Investments at the time they were
made. Such designation will only be permitted if such Restricted Payment would
be permitted at such time and if such Restricted Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if such
redesignation would not cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by
this covenant shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee, such determination to
be based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if such fair market value exceeds
$10.0 million. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock, provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and the Company's
Subsidiaries may incur Indebtedness or issue preferred stock if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters (excluding any fiscal quarters ending prior to July 1, 1997) for
which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock or preferred stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock or preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period.
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The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness and letters of credit
(with letters of credit being deemed to have a principal amount equal to
the stated amount thereof) and other obligations under Credit Facilities in
an aggregate principal amount that does not exceed at any one time $115.0
million less the aggregate amount of all Net Proceeds of Asset Sales
applied by the Company or any of its Subsidiaries to repay Indebtedness
under such Credit Facilities pursuant to the covenant described above under
the caption "--Asset Sales" (other than temporary paydowns pending final
application of such Net Proceeds);
(ii) the incurrence by the Company and the Guarantors of the Existing
Indebtedness and the issuance of the Existing Disqualified Stock;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes in an aggregate principal amount not to exceed $120.0 million;
(iv) the incurrence by the Company or any of the Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (iv), that does not
exceed at any one time the amount of such Capital Lease Obligations,
mortgage financings or purchase money obligations outstanding as of the
date of the Indenture, plus $5.0 million;
(v) the incurrence by the Company or any of the Guarantors of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred under the
first paragraph hereof or clauses (ii) or (iv) of this paragraph;
(vi) the incurrence by the Company or any of the Guarantors of
intercompany Indebtedness between or among the Company and any Guarantor;
provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and
(ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Guarantor thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Guarantor
thereof shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Guarantor, as the case may be, that was
not permitted by this clause (vi);
(vii) the incurrence by the Company or any of the Guarantors of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding; and
(viii) the guarantee by the Company or any of its Subsidiaries or any of
the Guarantors of Indebtedness of the Company or another Guarantor that was
permitted to be incurred by another provision of this covenant;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (ix), and
the issuance of preferred stock by Unrestricted Subsidiaries; and
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(x) the incurrence by the Company or any of the Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (x), not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (x) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount thereof is
included in Fixed Charges of the Company as accrued (to the extent not already
included in Fixed Charges).
Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, securing Indebtedness or trade payables, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are not materially more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in the agreements governing such Existing Indebtedness as in effect
on the date of the Indenture, (b) the New Credit Facility as in effect as of
the date of the Indenture, or other Credit Facilities entered into subsequent
to the date of the Indenture, and in either case any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such other Credit
Facilities or amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are not materially more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the New Credit Facility as in effect on
the date of the Indenture, (c) the Indenture and the Notes, (d) applicable
law, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or
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the property or assets of the Person, so acquired, provided that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred, (f) customary non-assignment provisions in leases and other
contracts and other contracts entered into in the ordinary course of business
and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above on the property so acquired, (h)
any agreement for the sale of a Subsidiary or a substantial proportion of such
Subsidiary's assets that restricts distributions by that Subsidiary pending
its sale, (i) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced,
(j) secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "--Liens" that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, (k) provisions with respect to the disposition or distribution
of assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (l) restrictions on cash
or other deposits or net worth imposed by customers under contracts entered
into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is
a corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) except in the case of a merger
or consolidation of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Registration Rights Agreement, the Notes and the Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Subsidiary of the Company, the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the transaction and (B) will,
immediately after such transaction after giving pro forma effect thereto and
any related financing transaction as if the same had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock". The Indenture
provides that the Company shall not lease its properties and assets
substantially as an entirety to any Person.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is
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on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of
the Board of Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing. Notwithstanding the
foregoing, the following items shall not be deemed to be Affiliate
Transactions: (i) any employment agreement entered into by the Company or any
of its Subsidiaries in the ordinary course of business and consistent with the
past practice of the Company or such Subsidiary, (ii) transactions between or
among the Company and/or its Restricted Subsidiaries, (iii) payment of
reasonable directors fees to Persons who are not otherwise Affiliates of the
Company, (iv) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company, (v) Restricted Payments that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments", and (vi) Existing Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company may enter into a sale and leaseback transaction if
(i) the Company could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Additional
Indebtedness and Issuance of Preferred Stock", (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in
an Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Asset Sales".
Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
expressly subordinate or junior in right of payment to any Senior Debt and
senior in any respect in right of payment to the Notes, and (ii) no Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is expressly subordinate or junior in right of payment
to the Senior Guarantees and senior in any respect in right of payment to the
Guarantees.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
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Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary after the date of the
Indenture, then such newly acquired or created Subsidiary shall become a
Guarantor and execute a Supplemental Indenture and deliver an Opinion of
Counsel, in accordance with the terms of the Indenture; provided, that all
Subsidiaries that have properly been designated as Unrestricted Subsidiaries
in accordance with the Indenture (i) shall not be subject to the requirements
of this covenant and (ii) shall be released from all Obligations under any
Guarantee, in each case for so long as they continue to constitute
Unrestricted Subsidiaries.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the Exchange
Offer, whether or not required by the rules and regulations of the Commission,
the Company will file a copy of all such information and reports with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the
Guarantors have agreed that, for so long as any Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act. Any materials required
to be furnished to Holders of Notes by this covenant shall discuss, in
reasonable detail, either on the face of the financial statements included
therein or in the footnotes thereto and in any Management's Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations
of the Unrestricted Subsidiaries of the Company.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any of its Subsidiaries for 30 days after notice to comply with
the provisions described under the captions "--Change of Control", "--Asset
Sales", "--Restricted Payments" or "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; (iv) failure by the Company or any of its Subsidiaries
for 60 days after notice to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity of which
has been so accelerated, aggregates $5.0 million or more;
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(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; and (viii) except as permitted by the Indenture, any Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid in any
material respect or shall cease for any reason to be in full force and effect
or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
April 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to April 15, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest, Liquidated Damages or premium on, or the principal of,
the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below,
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(ii) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the Stated Maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, including, without
limitation, the New Credit Facility; (vi) the Company must have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and
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transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company is not
required to transfer or exchange any Note selected for redemption. Also, the
Company is not required to transfer or exchange any Note for a period of
15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"); (iii) reduce the
rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
Liquidated Damages, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration); (v) make any Note payable in money other
than that stated in the Notes; (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or interest on
the Notes; (vii) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"); or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to
the provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
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The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Fountain View,
Inc., 11900 W. Olympic Blvd., Suite 680, Los Angeles, California 90064,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Outstanding Notes were offered and sold to qualified institutional
buyers in reliance on Rule 144A ("Rule 144A Notes"). The Outstanding Notes
were also offered and sold in offshore transactions in reliance on Regulation
S ("Regulation S Notes"). Except as set forth below, the Outstanding Notes are
issued in registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. Notes were issued at the
Closing only against payment in immediately available funds.
Rule 144A Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Rule 144A Global Notes").
Regulation S Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Regulation S Global Notes"
and, together with the Rule 144A Global Notes, the "Outstanding Global
Notes"). The Outstanding Global Notes were deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below. Through and including the 40th day after the later of the commencement
of the Note Offering and the Closing (such period through and including such
40th day, the "Restricted Period"), beneficial interests in the Regulation S
Global Notes could be held only through the Euroclear System ("Euroclear") and
Cedel, S.A. ("Cedel") (as indirect participants in DTC), unless transferred to
a person that took delivery through a Rule 144A Global Note in accordance with
the certification requirements described below. Beneficial interests in the
Rule 144A Global Notes may not be exchanged for beneficial interests in the
Regulation S Global Notes at any time except in the limited circumstances
described below. See "--Exchanges between Regulation S Notes and Rule 144A
Notes".
Except as set forth below, the Outstanding Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Outstanding Global Notes may
not be exchanged for Outstanding Notes in certificated form except in the
limited circumstances described below. See "--Exchange of Book-Entry Notes for
Certificated Notes". Except in the limited circumstances described below,
owners of beneficial interests in the Outstanding Global Notes are not
entitled to receive physical delivery of Certificated Notes (as defined
below).
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) are subject to certain restrictions on transfer and bear a restrictive
legend. Regulation S Notes also bear a restrictive legend. In addition,
transfers of beneficial interests in the Outstanding Global Notes are subject
to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Cedel), which
may change from time to time.
The Trustee acts as Paying Agent and Registrar. The Outstanding Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar.
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Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Outstanding Global Notes, DTC credited the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Outstanding Global Notes and (ii) ownership of
such interests in the Outstanding Global Notes is shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
(with respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interest in the
Outstanding Global Notes).
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants
in such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants
in such systems, or indirectly through organizations that are participants in
such systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Notes through
Participants in the DTC system other than Euroclear and Cedel. Euroclear and
Cedel will hold interests in the Regulation S Global Notes on behalf of their
participants through customers' securities accounts in their respective names
on the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of Cedel. All interests in a Global Note, including those
held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also
be subject to the procedures and requirements of such systems. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global Note to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Outstanding Global Note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE OUTSTANDING GLOBAL
NOTES DO NOT HAVE OUTSTANDING NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF OUTSTANDING NOTES IN CERTIFICATED FORM AND WILL
NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE
INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on an Outstanding Global Note registered in the
name of DTC or its nominee will be payable to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Outstanding
Notes, including the Outstanding Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Outstanding Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Outstanding Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Outstanding Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants
and the Indirect Participants to the beneficial owners of the Outstanding
Notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants
and will not be the responsibility of DTC, the Trustee or the Company. Neither
the Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Outstanding Notes,
and the Company and the Trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Outstanding Global Notes are eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests
will, therefore, settle in immediately available funds, subject in all cases
to the rules and procedures of DTC and its Participants. See "--Same Day
Settlement and Payment".
Subject to any applicable transfer restrictions, transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same day funds, and transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Outstanding Notes described herein, cross-market transfers between the
Participants in DTC, on the one hand, and Euroclear or Cedel participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or Cedel, as the case may be, by its respective
depositary; however, such cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Cedel, as
the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect
final settlement on its behalf by delivering or receiving interests in the
relevant Outstanding Global Note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of the Outstanding Notes only at the direction of one or
more Participants to whose account DTC has credited the interests in the
Outstanding Global Notes and only in respect of such portion of the aggregate
principal amount of the Outstanding Notes as to which such Participant or
Participants has
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or have given such direction. However, if there is an Event of Default under
the Outstanding Notes, DTC reserves the right to exchange the Outstanding
Global Notes for legended Outstanding Notes in certificated form, and to
distribute such Outstanding Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Global Notes and in the
Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor
the Trustee nor any of their respective agents will have any responsibility
for the performance by DTC, Euroclear or Cedel or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
An Outstanding Global Note is exchangeable for definitive Outstanding Notes
in registered certificated form ("Certificated Notes") if (i) DTC (x) notifies
the Company that it is unwilling or unable to continue as depositary for the
Outstanding Global Notes and the Company thereupon fails to appoint a
successor depositary or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of the Certificated Notes or
(iii) there shall have occurred and be continuing a Default or Event of
Default with respect to the Outstanding Notes. In addition, beneficial
interests in an Outstanding Global Note may be exchanged for Certificated
Notes upon request upon compliance with the procedures set forth in the
Indenture. In all cases, Certificated Notes delivered in exchange for any
Outstanding Global Note or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the depositary (in accordance with its customary procedures) and will bear
the applicable restrictive legend, unless the Company determines otherwise in
compliance with applicable law.
Exchange of Certificated Notes for Book-Entry Notes
Outstanding Notes issued in certificated form may not be exchanged for
beneficial interests in any Outstanding Global Note unless the transferor
first delivers to the Trustee a written certificate (in the form provided in
the Indenture) to the effect that such transfer will comply with any
appropriate transfer restrictions applicable to such Outstanding Notes.
Exchanges Between Regulation S Notes and Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if such exchange occurs in connection with a
transfer of the Outstanding Notes pursuant to Rule 144A and the transferor
first delivers to the Trustee a written certificate (in the form provided in
the Indenture) to the effect that the Outstanding Notes are being transferred
to a person who the transferor reasonably believes to be a qualified
institutional buyer within the meaning of Rule 144A, purchasing for its own
account or the account of a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A and in accordance with all applicable
securities laws of the states of the United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
person who takes delivery in the form of an interest in the Regulation S
Global Note, whether before or after the expiration of the Restricted Period,
only if the transferor first delivers to the Trustee a written certificate (in
the form provided in the Indenture) to the effect that such transfer is being
made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if
available) and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately
thereafter through Euroclear or Cedel.
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Transfers involving an exchange of a beneficial interest in the Regulation S
Global Note for a beneficial interest in a Rule 144A Global Note or vice versa
will be effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/Withdraw at Custodian system. Accordingly, in
connection with any such transfer, appropriate adjustments will be made to
reflect a decrease in the principal amount of the Regulation S Global Note and
a corresponding increase in the principal amount of the Rule 144A Global Note
or vice versa, as applicable. Any beneficial interest in one of the
Outstanding Global Notes that is transferred to a person who takes delivery in
the form of an interest in the other Outstanding Global Note will, upon
transfer, cease to be an interest in such Outstanding Global Note and will
become an interest in the other Outstanding Global Note and, accordingly, will
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interest in such other Outstanding Global Note for so
long as it remains such an interest. The policies and practices of DTC may
prohibit transfers of beneficial interests in the Regulation S Global Note
prior to the expiration of the Restricted Period.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Outstanding Notes
represented by the Outstanding Global Notes (including principal, premium, if
any, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Outstanding
Global Note Holder. With respect to Outstanding Notes in certificated form,
the Company will make all payments of principal, premium, if any, interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Outstanding Notes represented by the Outstanding Global Notes are expected to
be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Outstanding Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Outstanding Notes will also be
settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in an Outstanding Global Note from a
Participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or Cedel participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Cedel) immediately following the settlement date of DTC. DTC has advised the
Company that cash received in Euroclear or Cedel as a result of sales of
interests in an Outstanding Global Note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel
following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of
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this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary,
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "--Restricted Payments", and (iv) an exchange of facilities
by the Company or a Restricted Subsidiary to the extent that such facilities
are exchanged for one or more nursing centers, long-term care facilities,
assisted living facilities, outpatient clinics or any other facilities or
businesses that are used or useful in the provision of healthcare related
services, in each case the aggregate fair market value of which is equal to or
greater than the fair market value of the facilities so exchanged, as
determined in good faith by the Board of Directors.
"Attributable Debt" in respect of a sale and leaseback transaction or an
operating lease in respect of a healthcare facility means, at the time of
determination, the present value (discounted at the rate of interest implicit
in such transaction, determined in accordance with GAAP) of the obligation of
the lessee of the property subject to such sale and leaseback transaction or
operating lease in respect of a healthcare facility for net rental payments
during the remaining term of the lease included in such transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with
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any lender party to the New Credit Facility or with any domestic commercial
bank having capital and surplus in excess of $500 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial
paper having the highest rating obtainable from Moody's Investors Service,
Inc. or Standard & Poor's Corporation and in each case maturing within six
months after the date of acquisition and (vi) money market funds at least 95%
of the assets of which constitute Cash Equivalents of the kinds described in
clauses (i)-(v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than one or more Principals and their
Related Parties, (ii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than one or more Principals and their
Related Parties, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition), directly or
indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares), (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than one or
more Principals and their Related Parties, becomes the "beneficial owner" (as
defined above), directly or indirectly, of more than 35% of the Voting Stock
of the Company (measured by voting power rather than number of shares) and the
Principals and their Related Parties in the aggregate "beneficially own" (as
defined above) less than 35% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or, in the event the Company has
consummated a Public Equity Offering, less than 20% of the Voting Stock of the
Company (measured by voting power rather than number of shares), or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) any non-recurring expenses
related to Fountain View's reorganization transactions during August 1997,
plus (vi) non-recurring financing, advisory and other expenses incurred in
connection with the Transactions, minus (vii) non-cash items increasing
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such Consolidated Net Income for such period (other than items that were
accrued in the ordinary course of business), in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Subsidiary of the Company shall
be added to Consolidated Net Income to compute Consolidated Cash Flow of the
Company only to the extent that a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of
a change in accounting principles shall be excluded, (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries and (vi) the Net Income of any Restricted
Subsidiary shall be calculated after deducting preferred stock dividends
payable by such Restricted Subsidiary to Persons other than the Company and
its other Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election, or (iii) was elected to such Board of Directors
pursuant to a designation made pursuant to the Stockholder Agreement, provided
that at such time the Principals and their Related Parties own more than 35%
of the Voting Stock of the Company.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the New Credit Facility) or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on
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the date on which Notes are first issued and authenticated under the Indenture
shall be deemed to have been incurred on such date in reliance on the
exception provided by clause (i) of the definition of Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) so long as the New Credit Facility is
outstanding, any Indebtedness outstanding under the New Credit Facility, and
(ii) at any time thereafter any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Company as "Designated Senior Debt".
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments".
"Employment Agreement" means any of the employment agreements between the
Company and William C. Scott, Robert M. Snukal or Sheila S. Snukal in effect
as of the date of the Indenture.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Affiliate Transactions" means any transaction contemplated by any
of (i) the Stockholder Agreement, (ii) the Employment Agreements, (iii) the
Agreement and Plan of Merger, dated as of February 6, 1998, among the Company,
Summit Care Corporation, Heritage Fund II, L.P. and FV-SCC Acquisition Corp.,
(iv) the Investment Agreement, dated as of March 27, 1998, among the Company,
Heritage Fund II, L.P., Heritage Investors II, L.L.C. and certain other
Persons named therein, (v) the leases of the Company's Rio Hondo, Fountain
View, Montebello and Sycamore Park skilled nursing facilities, between Robert
M. Snukal, Sheila S. Snukal or their affiliates and the Company, and (vi) the
purchase and supply agreements between the Company or its Subsidiaries and
Twin Med, Inc. consistent with past practice in the ordinary course of
business.
"Existing Disqualified Stock" means the Series A Preferred Stock of the
Company.
"Existing Indebtedness" means up to $165 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the New Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs (other
than any such costs incurred in connection with the Transactions) and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest of such Person and its
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Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or any of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or any of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of Summit Care Corporation, a California
corporation, Summit Care-California, Inc., a California corporation, Summit
Care Pharmacy, Inc., a California corporation, Skilled Care Network, a
California corporation, Summit Care Texas Equity, Inc., a California
corporation, Summit Care-Texas No. 2, Inc., a Texas corporation, Summit Care-
Texas No. 3, Inc., a Texas corporation, Summit Care Management Texas, Inc., a
Texas corporation, Summit Care Texas, L.P., a Texas limited partnership,
Fountain View Holdings, Inc., a Delaware corporation, AIB Corp., a California
corporation, Alexandria Convalescent Hospital, Inc., a California corporation,
BIA Hotel Corp., a California corporation, Brier Oak Convalescent, Inc., a
California corporation, Elmcrest
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Convalescent Hospital, a California corporation, Fountainview Convalescent
Hospital, a California corporation, Fountain View Management, Inc., a
California corporation, Rio Hondo Nursing Center, a California corporation,
Locomotion Holdings, Inc., a Delaware corporation, Locomotion Therapy, Inc., a
Delaware corporation, On-Track Therapy Center, Inc., a California corporation,
I.'N O., Inc., a California corporation, and Sycamore Park Convalescent
Hospital, a California corporation, and (ii) any other subsidiary that
executes a Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.
"Healthcare Related Business" means a business, at least a majority of whose
revenues result from healthcare, long-term care or assisted living related
businesses or facilities.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness under the New Credit
Facility) secured by a lien on the asset or assets that were the subject of
such Asset Sale, and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, by and among the
Company and Bank of Montreal, as agent, providing for up to $30 million of
revolving credit borrowings and $85 million of term loan borrowings, including
any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment
in Cash Equivalents; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company that is a
Guarantor; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (f) Hedging Obligations; (g) any Investment in Permitted Joint
Ventures; (h) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when
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taken together with all other Investments made pursuant to this clause
(h) that are at the time outstanding, not to exceed $2.5 million; and (i)
Investments provided for in the Investment Agreement as of the date of the
Indenture.
"Permitted Joint Venture" means (i) any Restricted Subsidiary which owns,
operates or services a Healthcare Related Business, and (ii) Summit Care
Pharmacy, L.L.C., which owns and operates a pharmacy in Texas.
"Permitted Junior Securities" means Equity Interests in the Company or any
Guarantor or debt securities that are unsecured and subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to at least
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens on assets of the Company, and of its
Restricted Subsidiaries or any of the Guarantors securing Senior Debt that was
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof or
the acquisition of a Person owning such property or assets by the Company or
any Restricted Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of the Indenture; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor; (ix)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other Liens imposed by law incurred in
the ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made in respect thereof; (x)
easements, rights-of-way, zoning restrictions and other similar charges or
encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; (xi) Liens on assets of Guarantors to secure Senior
Debt of such Guarantors that was permitted by the Indenture to be incurred;
(xii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Restricted Subsidiary; and (xiii) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable
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expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Heritage Partners Management Company, Inc. and Heritage
Fund II, L.P.
"Public Equity Offerings" means a public offering of common stock of the
Company pursuant to a registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act.
"Related Party" with respect to any Principal means (A) any controlling
holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex-
spouse or immediate family member (in the case of an individual) of such
Principal or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which consist of such Principal and/or
such other Persons referred to in the immediately preceding clause (A) or (C)
any investment fund, whether a limited partnership, limited liability company
or corporation or other entity managed or controlled by Heritage Partners
Management Company, Inc.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities
and all Hedging Obligations with respect thereto, (ii) any other Indebtedness
permitted to be incurred by the Company under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without
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regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Transaction Related Payments" means (i) certain bonus and other payments
not to exceed $1,925,000 from Summit or the Company to William Scott, payable
at the effective time of the Merger, (ii) payments not to exceed $2,535,000 in
the aggregate to effect the cash-out of Summit stock options, as described in
the Merger Agreement, (iii) the payment of a transaction fee of up to $3
million by the Company to Heritage, payable at the effective time of the
Merger, and (iv) payments to Mr. and Mrs. Snukal and William Scott, not to
exceed $150,000 in the aggregate, upon the forfeiture of Series B Common Stock
pursuant to the Stockholders Agreement.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments".
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock", the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock", calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal,
123
<PAGE>
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
124
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion, which was prepared by Choate, Hall &
Stewart, counsel to the Company, summarizes the anticipated material United
States federal income tax consequences of an exchange of the Outstanding Notes
for the Exchange Notes and of the purchase at original issue, ownership and
disposition of the Exchange Notes and is based upon the provisions of the
Internal Revenue Code of 1986, as amended, (the "Code"), the final, temporary
and proposed regulations promulgated thereunder, and administrative rulings
and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. This summary
does not purport to deal with all aspects of federal income taxation that may
be relevant to a particular investor, nor any tax consequences arising under
the laws of any state, locality, or foreign jurisdiction, and it is not
intended to be applicable to all categories of investors, some of which may be
subject to special rules. The tax treatment of holders of the Notes may vary
depending upon their particular situations. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
subsequent purchasers of Notes and broker-dealers) may be subject to special
rules not discussed below. In general, this discussion assumes that a holder
acquires a Note at original issuance and holds such Note as a capital asset
and not as part of a "hedge", "straddle", "conversion transaction", "synthetic
security" or other integrated investment.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF
NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
TAXATION OF HOLDERS ON EXCHANGE
Subject to the limitation set forth above, an exchange of Outstanding Notes
for Exchange Notes should not be a taxable event to holders of Outstanding
Notes, and holders should not recognize any taxable gain or loss as a result
of such an exchange. Accordingly, a holder would have the same adjusted basis
and holding period in the Exchange Notes as it had in the Outstanding Notes
immediately before the exchange. Further, the tax consequences of ownership
and disposition of any Exchange Notes should be the same as the tax
consequences of ownership and disposition of Outstanding Notes.
As used herein, the term "United States Holder" means a beneficial owner of
a Note that is, for United States federal income tax purposes, a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in the United States or under the law of the United
States or of any political subdivision thereof, an estate whose income is
includible in gross income for United States federal income tax purposes
regardless of its source or a trust, if a United States court is able to
exercise primary supervision over the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
UNITED STATES HOLDERS
STATED INTEREST. Stated interest on a Note will be taxable to a United
States Holder as ordinary interest income at the time that such interest
accrues or is received, in accordance with the United States Holder's regular
method of accounting for federal income tax purposes. The Company expects that
the Notes will not be considered to be issued with original issue discount for
federal income tax purposes.
LIQUIDATED DAMAGES. The Company intends to take the position that the
Liquidated Damages described above under "The Exchange Offer--Purpose of the
Exchange Offer" will be taxable to a United States Holder as ordinary income
in accordance with such United States Holder's method of
125
<PAGE>
accounting for tax purposes. The Internal Revenue Service ("IRS"), however,
may take a different position, which could affect the timing of both a United
States Holder's income and the timing of the Company's deduction with respect
to such Liquidated Damages.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a United
States Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest which will be taxable as ordinary
income) and such holder's adjusted tax basis in the Note. Gain or loss
recognized on the disposition of a Note generally will be capital gain or
loss. Pursuant to the recently enacted IRS Reform and Restructuring Act of
1998, long-term capital gains tax rates will apply to dispositions by
individuals of capital assets (such as the Notes) held for more than one year.
The maximum long-term capital gains tax rate applicable to individuals is
currently 20% (10% for individuals in the 15% tax bracket). Corporate
taxpayers continue to be subject to a maximum regular tax rate of 35% on all
capital gains and ordinary income.
The exchange of a Outstanding Note by a United States Holder for an Exchange
Note should not constitute a taxable exchange of the Note. As a result, a
United States Holder should not recognize taxable gain or loss upon receipt of
an Exchange Note, a United States Holder's holding period for an Exchange Note
should generally include the holding period for the Note so exchanged and such
holder's adjusted tax basis in an Exchange Note should generally be the same
as such holder's adjusted tax basis in the Outstanding Note so exchanged.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, a United States
Holder of a Note will be subject to backup withholding at the rate of 31% with
respect to interest, premium and possibly principal, if any, paid on a Note,
unless the holder (a) is an entity (including corporations, tax-exempt
organizations and certain qualified nominees) that is exempt from withholding
and, when required, demonstrates this fact, or (b) provides the Company with
its Taxpayer Identification Number ("TIN") (which, for an individual, would be
the holder's Social Security number), certifies that the TIN provided to the
Company is correct and that the holder has not been notified by the IRS that
it is subject to backup withholding due to underreporting of interest or
dividends, and otherwise complies with applicable requirements of the backup
withholding rules. In addition, such payments of interest, premium and
possibly principal to United States Holders that are not corporations, tax-
exempt organizations or qualified nominees will generally be subject to
information reporting requirements.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
NON-UNITED STATES HOLDERS
STATED INTEREST. Interest paid by the Company to any beneficial owner of a
Note that is not a United States Holder (a "Non-United States Holder") will
not be subject to United States federal income or withholding tax if such
interest is not effectively connected with the conduct of a trade or business
within the United States by such Non-United States Holder and (a) such Non-
United States Holder (i) does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company;
(ii) is not a controlled foreign corporation with respect to which the Company
is a "related person" within the meaning of the Code and (iii) satisfies
certain certification requirements or (b) such Non-United States Holder is
entitled to the benefits of an income tax treaty under which the interest is
exempt from United States withholding tax, and such Non-United States
126
<PAGE>
Holder provides a properly executed IRS Form 1001 claiming the exemption (or,
after December 31, 1999, IRS Form W-8, which may require obtaining a TIN and
making certain certifications). However, to the extent that any payment of
Liquidated Damages is not treated as a payment of interest on the Notes, such
payment may be subject to U.S. withholding taxes. See "--United States
Holders".
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. A Non-United States Holder will
generally not be subject to United States federal income tax on gain
recognized on a sale, exchange, redemption, retirement at maturity or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such
holder is present in the United States for 183 or more days in the taxable
year and certain other requirements are met.
FEDERAL ESTATE TAXES. If interest on the Notes is exempt from withholding of
United States federal income tax under clause (a) of the rules described under
"--Stated Interest", the Notes will not be included in the estate of a
deceased Non-United States Holder for United States federal estate tax
purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The Company will, where
required, report to the holders of Notes and the IRS the amount of any
interest paid on the Notes in each calendar year and the amounts of tax
withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States Holders, Treasury
Regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payment with respect to which
either the requisite certification has been received or an exemption has
otherwise been established; provided that neither the Company nor its payment
agent has actual knowledge that the holder is a United States person or that
the conditions of any other exemption are not in fact satisfied. Under the
Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a Non-United
States Holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless certain certification
requirements are met or the holder otherwise establishes an exemption.
Information reporting requirements, but not backup withholding, will also
apply to a payment of the proceeds of a disposition of the Notes by or through
a foreign office of a United States broker or foreign brokers with certain
types of relationships to the United States unless the holder is an exempt
recipient (as demonstrated through appropriate certification) or such broker
has documentary evidence in its file that the holder of the Notes is not a
United States person and has no actual knowledge to the contrary and certain
other conditions are met. Neither information reporting nor backup withholding
generally will apply to a payment of the proceeds of a disposition of the
Notes by or through a foreign office of a foreign broker not subject to the
preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
Recently, the Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, the final regulations do not significantly alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. Under the
final regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules.
Non-United States Holders are urged to consult their tax advisors with respect
to the application of these final regulations.
127
<PAGE>
VALIDITY OF THE NOTES
Certain legal matters with respect to U.S. federal and Delaware law in
connection with the Exchange Notes offered hereby will be passed upon for the
Company by Choate, Hall & Stewart (a partnership including professional
corporations), Boston, Massachusetts. Stephen M. L. Cohen, a partner of
Choate, Hall & Stewart, is a limited partner in Heritage Fund II, L.P.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, the Company
will furnish to the holders of the Notes and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company was required to file such
forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods set forth in the Commission's rules and
regulations.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request.
Once the Registration Statement has been declared effective by the
Commission, the Company will become subject to the informational requirements
of the Exchange Act and in accordance therewith will be required to file
reports and other information with the Commission. When filed, the
Registration Statement and the exhibits thereto, as well as such reports and
other information to be filed by the Company with the Commission, may be
inspected, without charge, at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
as well as the regional offices of the Commission at the Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
documents can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed
rates. In addition, the Company will be required to file electronic versions
of these documents with the Commission through the Commission's Electronic
Data Gathering, Analysis, and Retrieval (EDGAR) system. The Commission
maintains a World Wide Web site, located at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
EXPERTS
The consolidated financial statements and schedule of Fountain View, Inc. as
of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
stated in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Summit Care Corporation at June 30,
1997 and 1996, and for each of the three years in the period ended June 30,
1997, appearing in this Prospectus and
128
<PAGE>
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be considered "forward-
looking". Such forward-looking statements include, among other things,
synergies resulting from the Transactions, the success of the Company's
business strategy, the Company's ability to develop and expand its business in
its regional markets, the Company's ability to increase the level of sub-acute
and specialty medical care it provides, the effects of government regulation
and healthcare reform, litigation, the Company's anticipated future revenues
and additional revenue opportunities, capital spending and financial
resources, the liquidity demands of the Company, the Company's ability to meet
its liquidity needs, the resolution of Year 2000 issues, and other statements
contained in this Prospectus regarding matters that are not historical facts.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements of the Company expressed or implied by
such forward-looking statements. Prospective investors in the Notes offered
hereby are cautioned that although management believes that the assumptions on
which the forward-looking statements contained herein are based are
reasonable, any of those assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions also could
be materially incorrect. The uncertainties in this regard include, but are not
limited to, those identified in the section of this Prospectus entitled "Risk
Factors". In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved and
prospective investors in the Notes should not place undue reliance on such
forward-looking statements.
129
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FOUNTAIN VIEW, INC.
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997................. F-3
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997............................................................ F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Three
Years Ended December 31, 1997............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996
and 1997................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Statements of Income (Unaudited) for the Three and Six Months
Ended June 30, 1997 and 1998............................................. F-14
Consolidated Balance Sheet (Unaudited) at June 30, 1998................... F-15
Consolidated Statements of Cash Flows (Unaudited) for the Three and Six
Months Ended
June 30, 1997 and 1998................................................... F-17
Notes to Unaudited Consolidated Financial Statements...................... F-18
SUMMIT CARE CORPORATION
Report of Independent Auditors............................................ F-22
Consolidated Balance Sheets at June 30, 1996 and 1997..................... F-23
Consolidated Statements of Income for the Years Ended June 30, 1995, 1996
and 1997................................................................. F-24
Consolidated Statements of Shareholders' Equity for the Three Years Ended
June 30, 1997............................................................ F-25
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995,
1996 and 1997............................................................ F-26
Notes to Consolidated Financial Statements................................ F-27
Consolidated Balance Sheet (Unaudited) at December 31, 1997............... F-38
Consolidated Statements of Income (Unaudited) for the Period from July 1,
1997 to
December 31, 1997........................................................ F-39
Consolidated Statements of Cash Flows (Unaudited) for the Period from July
1, 1997 to
December 31, 1997........................................................ F-40
Notes to Unaudited Consolidated Financial Statements...................... F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fountain View, Inc.
We have audited the accompanying consolidated balance sheets of Fountain
View, Inc. as of December 31, 1996 and 1997 and the related consolidated
statements of income, shareholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fountain View, Inc. at December 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Los Angeles, California
March 11, 1998
F-2
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,161 $ 2,551
Accounts receivable, less allowance for uncollectible
accounts
of $779 and $1,152, respectively ......................... 18,717 15,809
Deferred income taxes...................................... -- 927
Other current assets....................................... 713 576
------- -------
Total current assets..................................... 20,591 19,863
------- -------
Leasehold improvements and equipment, at cost:
Leasehold improvements..................................... 2,329 4,659
Furniture and equipment.................................... 1,914 2,096
------- -------
4,243 6,755
Less accumulated depreciation and amortization............. (1,680) (2,481)
------- -------
2,563 4,274
Other assets................................................. 968 1,804
------- -------
Total assets................................................. $24,122 $25,941
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Payable to banks........................................... $ 2,975 $ --
Accounts payable and accrued liabilities................... 1,457 4,179
Employee compensation and benefits......................... 2,423 2,479
Income taxes payable....................................... -- 1,443
Current maturities of long-term debt....................... 170 1,741
------- -------
Total current liabilities................................ 7,025 9,842
------- -------
Long-term debt, less current maturities...................... 496 28,335
------- -------
Total liabilities............................................ 7,521 38,177
Commitments and contingencies -- --
Shareholders' equity (deficit):
Preferred stock, $0.01 par value:
7,000 shares authorized, issued and outstanding
(liquidation preference $7,000).......................... $ -- $ --
Common Stock Series A-1, $0.01 par value:
53,850 shares authorized, issued and outstanding......... -- 1
Common Stock Series A-2, $0.01 par value:
99,950 shares authorized, issued and outstanding......... -- 1
Common Stock Series A-3, non-voting, $0.01 par value:
46,200 shares authorized, issued and outstanding......... -- --
Additional paid-in capital................................. 8,000 21,957
Treasury Stock............................................. (120) --
Retained earnings (accumulated deficit).................... 8,721 (34,195)
------- -------
Total shareholders' equity (deficit)......................... 16,601 (12,236)
------- -------
Total liabilities and shareholders' equity (deficit)......... $24,122 $25,941
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES:
Net revenue............................................ $55,836 $59,432 $67,905
EXPENSES:
Salaries and benefits................................ 35,048 36,166 38,215
Supplies............................................. 5,642 5,483 8,293
Purchased services................................... 3,964 4,658 4,256
Provision for doubtful accounts...................... 427 430 395
Other expenses....................................... 3,421 4,043 5,046
Rent................................................. 1,890 2,120 2,004
Rent to related parties.............................. 2,056 1,776 1,771
Depreciation and amortization........................ 416 600 1,198
Interest (net of interest income--$65, $29 and $4 for
1995, 1996 and 1997, respectively).................. 332 278 1,164
------- ------- -------
Total expenses..................................... 53,196 55,554 62,342
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 2,640 3,878 5,563
Provision for income taxes............................. 54 78 361
------- ------- -------
NET INCOME............................................. $ 2,586 $ 3,800 $ 5,202
======= ======= =======
Pro forma net income:
Net income as reported............................... $ 2,586 $ 3,800 $ 5,202
Charge in lieu of income taxes....................... 1,025 1,493 1,590
------- ------- -------
Net income............................................. $ 1,561 $ 2,307 $ 3,612
======= ======= =======
Earnings per share:
Basic and diluted--Historical........................ $ 12.93 $ 19.0 $ 26.01
======= ======= =======
Pro forma............................ $ 7.81 $ 11.53 $ 18.06
======= ======= =======
Weighted average shares outstanding:
Basic and diluted.................................... 200 200 200
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
PREFERRED SERIES A-1 SERIES A-2 SERIES A-3 RETAINED
STOCK COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS
------------- ------------- ------------- ------------- PAID-IN TREASURY (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT) TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1995............ -- $ -- -- $ -- -- $ -- -- $ -- $ 916 $(120) $ 8,998 $ 9,794
Net income........ -- -- -- -- -- -- -- -- -- -- 2,586 2,586
Issuance of
common stock...... -- -- -- -- -- -- -- -- 300 -- -- 300
Distributions to
shareholders...... -- -- -- -- -- -- -- -- -- -- (2,724) (2,724)
----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- --------
Balance at December
31, 1995........... -- -- -- -- -- -- -- -- 1,216 (120) 8,860 9,956
Contributions
from
shareholders...... -- -- -- -- -- -- -- -- 6,784 -- -- 6,784
Net income........ -- -- -- -- -- -- -- -- -- -- 3,800 3,800
Distributions to
shareholders...... -- -- -- -- -- -- -- -- -- -- (3,939) (3,939)
----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- --------
Balance at December
31, 1996........... -- -- -- -- -- -- -- -- 8,000 (120) 8,721 16,601
Net income........ -- -- -- -- -- -- -- -- -- -- 5,202 5,202
Contributions
before
reorganization.... -- -- -- -- -- -- -- -- 1,277 -- -- 1,277
Cancellation of
treasury stock.... -- -- -- -- -- -- -- -- -- 120 -- 120
Distributions to
shareholders
before
reorganization.... -- -- -- -- -- -- -- -- -- -- (4,418) (4,418)
Reorganization:
Issuance of
preferred stock. 7,000 -- -- -- -- -- -- -- 7,000 -- -- 7,000
Issuance of
common stock.... -- -- 53,850 1 99,950 1 46,200 -- 6,998 -- -- 7,000
Transactional
costs........... -- -- -- -- -- -- -- -- (1,318) -- -- (1,318)
Distributions to
shareholders.... -- -- -- -- -- -- -- -- -- -- (43,700) (43,700)
----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- --------
Balance at December
31, 1997........... 7,000 $ -- 53,850 $ 1 99,950 $ 1 46,200 $ -- $21,957 $ -- $(34,195) $(12,236)
===== ===== ====== ===== ====== ===== ====== ===== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................................... $ 2,586 $ 3,800 $ 5,202
------- ------- --------
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization.................. 416 600 1,198
Changes in operating assets and liabilities:
Accounts receivable............................ 1,176 (3,757) 2,908
Other current assets........................... 165 (92) 137
Accounts payable and accrued liabilities....... 317 421 2,722
Employee compensation and benefits............. 1,152 116 56
Income taxes payable........................... 20 (29) 1,443
Deferred income taxes.......................... -- -- (927)
------- ------- --------
Total adjustments............................ 3,246 (2,741) 7,537
------- ------- --------
Net cash provided by operating activities.... 5,832 1,059 12,739
------- ------- --------
INVESTING ACTIVITIES:
Additions to leasehold improvements and
equipment....................................... (665) (1,816) (2,570)
Additions to other assets........................ (282) -- (1,175)
------- ------- --------
Net cash used in investing activities........ (947) (1,816) (3,745)
------- ------- --------
FINANCING ACTIVITIES:
Decrease in payable to bank...................... (250) (925) (2,975)
Principal payments on long-term debt............. (910) (472) (3,090)
Proceeds from long-term debt..................... 725 249 32,500
Proceeds from issuances of stock................. -- -- 12,682
Contributions from shareholders.................. -- 4,649 1,277
Cancellation of treasury stock................... -- -- 120
Distributions to shareholders.................... (2,724) (3,939) (48,118)
------- ------- --------
Net cash used in financing activities........ (3,159) (438) (7,604)
------- ------- --------
Increase (decrease) in cash and cash equivalents... 1,726 (1,195) 1,390
Cash and cash equivalents at beginning of year..... 630 2,356 1,161
------- ------- --------
Cash and cash equivalents at end of year........... $ 2,356 $ 1,161 $ 2,551
======= ======= ========
NONCASH ACTIVITY:
Additional paid-in-capital relating to debt
forgiveness..................................... $ -- $ 2,135 $ --
Additional paid-in-capital relating to stock
acquisition..................................... 300 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS
Fountain View, Inc. (the "Company") provides a variety of healthcare
services primarily to the elderly through the operation of eight skilled
nursing care centers and a retirement hotel in California. 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 therapy services to other long-term care providers.
In July 1997, the Company's predecessor, which was comprised of all of the
Company's operating units owned individually by the controlling shareholders,
was merged with and into several companies formed by Fountain View, Inc., a
holding company, formed for the express purpose of effectuating the
reorganization of the Company. These transactions are described further in
Note 3 to the consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
EARNINGS PER SHARE
Basic and diluted earnings per share have been computed reflecting the
Fountain View Equity Transactions as if such transactions had occurred as of
January 1, 1995, and all common stock, series A-1, A-2 and A-3, was
outstanding from that date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
or remaining maturity of three months or less when purchased. The Company
places its temporary cash investments with high credit quality financial
institutions.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Depreciation and amortization (straight-line method) is based on the
estimated useful lives of the individual assets as follows:
<TABLE>
<C> <S>
Leasehold improvements...... Shorter of lease term or estimated useful
life, generally 5-10 years.
Furniture and equipment..... 3-10 years.
</TABLE>
NET PATIENT SERVICES REVENUE
Approximately 53 percent, 52 percent and 56 percent of the Company's
revenues in the years ended December 31, 1995, 1996 and 1997, respectively,
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. Differences between
final settlement and estimated net realizable value accrued in prior years are
reported as adjustments to the current year's net revenues. A significant
F-7
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
portion of the Company's skilled nursing care center revenues is derived from
government-sponsored healthcare 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.
REGULATORY MATTERS
Laws and regulations governing the Medicare program are complex and subject
to interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. Compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
INSURANCE COVERAGE
The Company insures for workers' compensation and general and professional
liability coverage under an occurrence based policy, with no deductible. Prior
to October 1997, the Company was self-insured for claims arising from
employees relating to employment matters.
ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 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 believes,
based on current circumstances, that there are no indicators of impairment to
its long-lived assets, and the Company presently has no expectations for
disposing of any long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), which is effective for fiscal years beginning after December 15,
1997. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. Items recognized as components of comprehensive
income which are not included in the income statement include unrealized gains
and losses in marketable securities, foreign currency translation adjustments,
tax benefits related to nonqualified stock options, and others. The Company is
presently evaluating the new standard to determine how it will present
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Settlements of an
Enterprise and Related Information" (SFAS 131), which is effective for fiscal
years ending after December 15, 1997. SFAS 131 establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements. It also requires that those enterprises report
selected information about
F-8
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operating segments in interim financial reports issued to shareholders. Under
existing accounting standards, the Company has reported its operations as one
line of business because substantially all of its revenues have been derived
from its skilled nursing care centers and assisted living centers and closely
related ancillary services. The Company is presently evaluating the new
standard in order to determine its effect, if any, on the way the Company
might report its operations in the future.
3. FOUNTAIN VIEW EQUITY TRANSACTIONS
On or about August 1, 1997, the controlling shareholders of the Company
consummated a reorganization transaction (the "Fountain View Equity
Transactions"). Prior to the Fountain View Equity Transactions, the
controlling shareholders were the sole owners of a number of healthcare
companies, which they managed as one business enterprise. The separately owned
companies consisted of eight skilled nursing facilities, an assisted living
facility and a therapy company which provides therapy services primarily to
third-party owned facilities as well as Company-owned facilities.
Additionally, the controlling shareholders owned the real estate which is
operated by four of the nursing homes. The remaining real estate is leased
from unrelated third parties.
The controlling shareholders along with Heritage formed a new holding
company known as Fountain View, Inc. ("New Fountain View") along with several
acquisition subsidiaries to consolidate the healthcare companies owned by the
controlling shareholders into one company. At the same time, New Fountain View
entered into market rate leases for the four real estate facilities owned by
the controlling shareholders.
Under the terms of the Fountain View Equity Transactions, Heritage invested
$14.0 million in cash in New Fountain View in exchange for all of the
Company's preferred stock with a liquidation value of $7.0 million, and 99,950
shares of the Company's Common Stock Series A-2. The controlling shareholders
at the same time contributed all of their healthcare assets, except for owned
real estate, to New Fountain View in exchange for 53,850 shares of the
Company's Common Stock Series A-1 and 46,200 shares of the Company's common
Stock Series A-3. Concurrent with the exchange of shares, the New Fountain
View obtained bank financing totaling $32.5 million, the proceeds of which
along with the $14.0 million invested by Heritage was used to fund a
distribution of $43.7 million of cash to the controlling shareholders and pay
$1,318,000 in transaction costs. The Common Stock Series A-1 shares have three
votes for each share, whereas Series A-2 has one vote per share, and Series A-
3 is non-voting. By virtue of the voting features, the controlling
shareholders maintained a controlling financial interest in New Fountain View.
Also, a shareholders agreement between the controlling shareholders and
Heritage provides that the Controlling Shareholders hold a majority of the
seats on the Board of Directors.
The preferred shareholders are entitled to receive dividends, at the Board
of Director's discretion, at an annual rate of 10 percent of the preferred
stock base amount, as defined. The initial base amount is $7,000,000. The
preferred stock is non-voting and the holders are entitled to be paid in cash,
in respect of each share of preferred stock held, upon any liquidation or
dissolution of the Company before any distribution is made to the common
shareholders.
Since the controlling shareholders maintained a controlling financial
interest in New Fountain View, a change in control was not deemed to have
occurred upon the consummation of the Fountain View Equity Transactions.
Therefore, the Fountain View Equity Transactions were treated as a
reorganization/merger of companies under common control, with no step-up in
basis of the assets of New Fountain View.
F-9
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. 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.
LONG-TERM DEBT (INCLUDING CURRENT PORTION)
The carrying value of $30,076,000 of long-term approximates the fair market
value of such debt since the interest rate approximates the Company's
incremental borrowing rate.
5. MATERIAL TRANSACTIONS WITH RELATED ENTITIES
Robert and Sheila Snukal own the real estate for four of the Company's
facilities. Such real estate has not been included in the financial statements
for any of the years presented herein since such real estate was excluded from
the Fountain View Equity Transactions discussed in Note 3. Lease payments to
the shareholders under operating leases for these facilities totaled
$2,056,000, $1,776,000 and $1,771,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
6. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1996 1997
---- ------
<S> <C> <C>
Deposits........................................................ $ 56 $ 56
Goodwill, net................................................... 530 500
Lease acquisition costs, net.................................... 382 337
Deferred loan fees.............................................. -- 911
---- ------
$968 $1,804
==== ======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- -------
<S> <C> <C>
Union Bank of California, $15 million Term Loan A due in 2002
and $15 million Term Loan B due in 2004, payable in quarterly
installments ranging from $37 to $1,781, including interest
based on the LIBOR rate. The Company's accounts receivable and
equipment collateralize the Term Loans........................ $-- $29,925
Note payable to shareholders................................... 337 --
Other.......................................................... 329 151
---- -------
666 30,076
Less current maturities........................................ 170 1,741
---- -------
$496 $28,335
==== =======
</TABLE>
F-10
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt are as follows: years ending December
31, 1998--$1,741,000; 1999--$3,710,000; 2000--$4,150,000; 2001--$4,150,000;
2002--$5,638,000; and thereafter $10,687,000.
Interest payments were $397,000, $307,000 and $1,105,000, in 1995, 1996 and
1997, respectively.
8. LINE OF CREDIT
The Company has a line of credit with a financial institution amounting to
$4,500,000 in 1996 and $15,000,000 in 1997. Total draws on the line amounted
to $0 and $2,975,000 as of December 31, 1996 and 1997, respectively. The line
of credit terminates on August 1, 2002 and bears interest at the LIBOR rate.
The Company's accounts receivable and equipment collateralize the line of
credit.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Federal:
Current................................................. $ -- $ -- $1,004
Deferred................................................ -- -- (722)
State:
Current................................................. 54 78 282
Deferred................................................ -- -- (203)
------ ------ ------
54 78 361
Charge in lieu of income taxes............................ 1,025 1,493 1,590
------ ------ ------
$1,079 $1,571 $1,951
====== ====== ======
</TABLE>
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Temporary differences are primarily
attributable to reporting for income tax purposes the excess of tax over book
depreciation, allowance for uncollectible accounts, accrued expenses and
accrued vacation benefits. Significant components of the Company's deferred
tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
--------------- ---------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................... $ -- $ -- $-- $ 1
Total deferred tax liabilities................. -- -- -- 1
Deferred tax assets:
Vacation, accrued expenses and allowance for
uncollectible accounts -- -- 770 --
State tax...................................... -- -- 157 --
----- ----- ---- ----
Total deferred tax assets...................... -- -- 927 --
----- ----- ---- ----
Net deferred tax assets........................ $ -- $ -- $927 $ 1
===== ===== ==== ====
</TABLE>
F-11
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes with the amount computed
using the federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal rate (34%).................................... $ 898 $1,324 $1,902
State taxes, net of federal tax benefit............... 158 234 336
Goodwill.............................................. -- -- 84
Other, net............................................ 23 13 (4)
Establishment of deferred taxes due to conversion from
S-Corporation to C-Corporation....................... -- -- (367)
------ ------ ------
$1,079 $1,571 $1,951
====== ====== ======
</TABLE>
Total income tax payments during 1995, 1996 and 1997 were $17,000, $30,000
and $8,000, respectively.
CHARGE IN LIEU OF INCOME TAXES AND S-CORPORATION STATUS
Prior to the Fountain View Equity Transactions, most of the individually
owned corporations had elected to be taxed as cash basis S-Corporations.
Included herein are pro forma charges in lieu of income taxes to indicate what
the tax provision would have been had the Company been taxed as a C-
Corporation for all years with a federal and state effective tax rate of 41%.
In connection with the Fountain View Equity Transactions, the controlling
shareholders elected to make a Section 338(h)(10) election (the "Election").
Since the corporations which comprised the predecessor organization were owned
individually by the controlling shareholders, and some of such corporations
had previously elected to be taxed as cash basis S-Corporations, upon the
Election, the cash basis S-Corporations incurred taxable income to the extent
of any receivables and payables not previously recognized in the S-Corporation
tax returns. The controlling shareholders, and not the Company, are
responsible for the taxes due as a result of the Election.
10. LEASES
The Company leases certain of its centers and equipment under noncancelable
operating 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.
The future minimum rental payments under noncancelable operating leases that
have initial or remaining lease terms in excess of one year as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
RELATED
PARTY OTHER TOTAL
------- ------- -------
<S> <C> <C> <C>
1998................................................. $ 1,764 $ 1,954 $ 3,718
1999................................................. 1,764 2,003 3,767
2000................................................. 1,764 1,938 3,702
2001................................................. 1,764 1,995 3,759
2002................................................. 1,764 2,023 3,787
Thereafter........................................... 25,726 7,008 32,734
------- ------- -------
$34,546 $16,921 $51,467
======= ======= =======
</TABLE>
F-12
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 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.
YEAR 2000 (UNAUDITED)
Some of the Company's information systems and biomedical equipment have
time-sensitive software that will not properly recognize the year 2000. This
could result in a system failure or miscalculations causing disruption of the
Company's operations. The Company is currently completing an assessment and
developing a plan to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter.
12. SHAREHOLDERS' EQUITY
SHAREHOLDERS AGREEMENT
In connection with the Fountain View Equity Transactions, the controlling
shareholders and Heritage which owns all of the preferred stock, and all of
the Series A-2 common stock consummated a shareholders agreement (the
Agreement). Under the Agreement, each of the parties has certain rights and
obligations. The controlling shareholders retain 3 of the 5 board of directors
seats unless certain events occur including non-payment of any debt of $1
million or more, and the failure to meet certain earnings targets. In
addition, at any time on or after July 1, 2001, at the option of Heritage,
Heritage will have the right to put its common stock holdings to the Company
at appraised value. At any time on or after July 1, 2003, if Heritage has not
elected to put its stock to the Company, at the option of a majority of the
controlling shareholders, the controlling shareholders will have the right to
put the stock to the Company at appraised value. Heritage has also retained
certain protective rights with respect to its investment in the Company.
In addition to the above rights and obligations, should certain Company
terminal value targets not be met, then the Common Stock Series A-3 will be
returned to the Company and cancelled, without remuneration to the controlling
shareholders. The number of shares returned is based on a formula included in
the Agreement. The Agreement terminates upon the occurrence of an IPO.
PURCHASE AND CONTRIBUTION AGREEMENT
In connection with the Fountain View Equity Transactions, the controlling
shareholders agreed to reimburse the Company for any adverse change in cost
report settlements for periods prior to the investment of funds by Heritage.
The controlling shareholders also agreed to indemnify the Company from any
future liability arising from a certain lawsuit.
13. SUBSEQUENT EVENT
In February 1998, the Company entered into a purchase agreement with Summit
Care Corporation ("Summit") to acquire all of the outstanding common stock of
Summit for cash of $21 per share. The total purchase price approximates $145
million.
F-13
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ---------------
1997 1998 1997 1998
------- --------- ------- -------
<S> <C> <C> <C> <C>
Net revenues............................... $17,014 $ 68,291 $33,423 $88,369
Expenses:.................................. 9,203 33,781 18,638 44,467
Salaries and benefits.................... 82 626 142 768
Provision for doubtful accounts.......... 2,434 7,316 4,082 9,534
Supplies................................. 768 11,274 1,614 13,102
Purchased services....................... 1,685 4,914 2,687 6,310
Other expenses........................... 494 1,258 991 1,800
Rent..................................... 444 441 888 882
Rent to related parties.................. 224 3,410 366 3,934
Depreciation and amortization............
Interest expense, net of interest income. 10 5,368 30 6,219
------- --------- ------- -------
15,344 68,388 29,438 87,016
Income (loss) before provision for income
taxes and extraordinary item.............. 1,670 (97) 3,985 1,353
Provision (benefit) for income taxes....... 17 (39) 50 541
------- --------- ------- -------
Income before extraordinary item........... 1,653 (58) 3,935 812
Extraordinary item:
Loss on early extinguishment of debt, net
of taxes................................ -- -- -- (517)
------- --------- ------- -------
Net income (loss).......................... 1,653 (58) 3,935 295
Preferred stock dividends.................. -- (355) -- (355)
------- --------- ------- -------
Net income (loss) available to common
shareholders.............................. $ 1,653 $ (413) $ 3,935 $ (60)
======= ========= ======= =======
Pro forma net income:
Net income (loss) as reported............ $ 1,653 $ (58) $ 3,935 $ 295
Charge in lieu of income taxes for S-
Corporation............................. 647 -- 1,540 --
------- --------- ------- -------
Net income (loss).......................... $ 1,006 $ (58) $ 2,395 $ 295
======= ========= ======= =======
Basic and diluted earnings per share
available to common shareholders before
extraordinary item........................ $ 8.27 $ (.37) $ 19.68 $ .66
Basic and diluted earnings per share
available to common shareholders--
extraordinary item, net of taxes.......... -- -- -- (.75)
------- --------- ------- -------
Basic and diluted earnings per share
available to common shareholders--net
income (loss)............................. $ 8.27 $ (.37) $ 19.68 $ (.09)
======= ========= ======= =======
Basic and diluted earnings per share--pro
forma..................................... $ 5.03 $ -- $ 11.98 $ --
======= ========= ======= =======
Weighted average shares outstanding:
Basic and diluted........................ 200,000 1,114,202 200,000 684,881
======= ========= ======= =======
</TABLE>
See accompanying notes.
F-14
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC.
31, JUNE 30,
1997 1998
------- -----------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,551 $ 3,725
Accounts receivable, less allowance for doubtful
accounts: $1,152 at 1997 and $6,761 at 1998............ 15,809 58,538
Supplies inventory, at cost............................. -- 2,865
Other current assets.................................... 1,503 15,324
------- --------
Total current assets.................................. 19,863 80,452
Property and equipment, at cost:
Land and land improvements.............................. -- 25,062
Buildings and leasehold improvements.................... 4,659 207,828
Furniture and equipment................................. 2,096 27,002
Construction in progress................................ -- 1,839
------- --------
6,755 261,731
Less accumulated depreciation and amortization.......... (2,481) (5,529)
------- --------
4,274 256,202
Notes receivable, less allowance for doubtful accounts:
$640 at 1998............................................. -- 6,114
Goodwill and other intangible assets...................... -- 49,476
Deferred financing costs.................................. -- 11,573
Other assets.............................................. 1,804 4,738
------- --------
$25,941 $408,555
======= ========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes.
F-15
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEC. 31, JUNE 30,
1997 1998
-------- -----------
(NOTE) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to banks....................................... $ -- $ 4,514
Accounts payable and accrued liabilities............... 4,179 33,407
Employee compensation and benefits..................... 2,479 9,066
Income taxes payable................................... 1,443 --
Current portion of long-term debt...................... 1,741 6,031
-------- --------
Total current liabilities............................ 9,842 53,018
Long-term debt, less current portion..................... 28,335 239,619
Deferred income taxes.................................... -- 30,859
Mandatory redeemable preferred stock..................... -- 15,000
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Stock Series A, $0.01 par value:
1,000,000 shares authorized, 15,000 issued and
outstanding at 1998.................................. -- --
Common Stock Series A, $0.01 par value:
1,500,000 shares authorized; 200,000 shares and
1,000,000 shares issued and outstanding at 1997 and
1998................................................. 2 10
Common Stock Series B, $0.01 par value:
200,000 shares authorized; 114,202 shares issued and
outstanding at 1998.................................. -- 1
Common Stock Series C, $0.01 par value:
1,300,000 shares authorized; none issued.............. -- --
Paid in capital........................................ 21,957 103,948
Accumulated deficit.................................... (34,195) (33,900)
-------- --------
Total shareholders' equity (deficit)................. (12,236) 70,059
-------- --------
$ 25,941 $408,555
======== ========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes.
F-16
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 3,935 $ 295
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 366 3,934
(Increase) decrease in accounts receivable, net........ 3,717 (6,069)
Decrease in other current assets....................... 244 3,796
(Decrease) increase in accounts payable and accrued
liabilities........................................... 387 (20,294)
Increase (decrease) in employee compensation and
benefits.............................................. (93) 1,370
(Decrease) increase in income taxes payable............ 47 ( 1,524)
------- ---------
Total adjustments.................................... 4,668 (18,787)
------- ---------
Net cash (used in) provided by operating activities.. 8,603 (18,492)
------- ---------
INVESTING ACTIVITIES
Principal payments on notes receivable................... -- 482
Additions to property and equipment...................... (1,380) (3,244)
(Increase) in deferred financing costs................... -- (9,609)
Acquisition of Summit Care, net of cash acquired......... -- (150,291)
(Increase) decrease in other assets...................... 18 (289)
------- ---------
Net cash (used) in investing activities.............. (1,362) (162,951)
------- ---------
FINANCING ACTIVITIES:
Increase in payable to banks............................. -- 2,569
Distributions to shareholders............................ (2,444) --
Retirement of long-term debt............................. (2,975) (29,933)
(Decrease) in capital lease obligations.................. (46) (46)
Proceeds from long-term debt............................. -- 221,160
Principal payments on long-term debt..................... -- (108,133)
Proceeds from stock issuance............................. -- 97,000
------- ---------
Net cash provided by (used in) financing activities.. (5,465) 182,617
------- ---------
Increase in cash and cash equivalents...................... 1,776 1,174
Cash and cash equivalents at beginning of period........... 1,161 2,551
------- ---------
Cash and cash equivalents at end of period................. $ 2,937 $ 3,725
======= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 30 $ 1,892
Income taxes........................................... 50 1,498
Detail of purchase business combination:
Fair value of assets acquired............................ -- 374,440
Less: Liabilities assumed................................ -- (222,785)
------- ---------
Cash paid for acquisition................................ -- 151,655
Less: Cash acquired from Summit.......................... -- (1,364)
------- ---------
Net cash paid for acquisition........................ $ -- $ 150,291
======= =========
</TABLE>
F-17
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Fountain View, Inc. ("Fountain View" or "Company") is a leading operator on
long-term care facilities and a leading provider of a full continuum of post-
acute care services, with a strategic emphasis on sub-acute specialty medical
care. With the acquisition of Summit Care Corporation ("Summit") on March 27,
1998, Fountain View now operates a network of facilities in California, Texas,
and Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-
acute, rehabilitative and specialty medical skilled nursing care, as well as
six assisted living facilities ("ALFs") that provide room and board and social
services in a secure environment. In addition to long-term care, Fountain View
provides a variety of high-quality ancillary services such as physical,
occupational and speech therapy in Fountain View-operated facilities,
unaffiliated facilities and acute care hospitals. Fountain View also operates
three institutional pharmacies (one of which is a joint venture), which serve
acute care hospitals as well as SNFs and ALFs, both affiliated and
unaffiliated with Fountain View, an outpatient therapy clinic and a durable
medical equipment ("DME") company.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The unaudited financial information contained
herein includes the financial results of operations of Fountain View for the
full periods reported and the results of operations of Summit since March 27,
1998. In the opinion of management, the unaudited financial information
reflects all adjustments (all of which are of a normal recurring nature),
which are considered necessary to fairly state the Company's financial
position, its cash flows and the results of operations. These statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the Company's audited financial statements for the
year ended December 31, 1997. The interim financial information herein is not
necessarily representative of that to be expected for a full year.
3. FOUNTAIN VIEW EQUITY TRANSACTIONS
On or about August 1, 1997, the controlling shareholders of the Company
consummated a reorganization transaction (the "Fountain View Equity
Transactions"). Prior to the Fountain View Equity Transactions, the
controlling shareholders were the sole owners of a number of healthcare
companies, which they managed as one business enterprise. The separately owned
companies consisted of eight skilled nursing facilities, an assisted living
facility and a therapy company which provides therapy services primarily to
third-party owned facilities as well as Company-owned facilities.
Additionally, the controlling shareholders owned the real estate which is
operated by four of the nursing homes. The remaining real estate is leased
from unrelated third parties.
The controlling shareholders along with Heritage Fund II, L.P. ("Heritage")
formed a new holding company known as Fountain View, Inc. along with several
acquisition subsidiaries to consolidate the healthcare companies owned by the
controlling shareholders into one company. At the same time, Fountain View
entered into market rate leases for the four real estate facilities owned by
the controlling shareholders.
F-18
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Under the terms of the Fountain View Equity Transactions, Heritage invested
$14.0 million in cash in Fountain View in exchange for all of the Company's
preferred stock with a liquidation value of $7.0 million, and 99,950 shares of
the Company's Common Stock Series A-2. The controlling shareholders at the
same time contributed all of their healthcare assets, except for owned real
estate, to Fountain View in exchange for 53,850 shares of the Company's Common
Stock Series A-1 and 46,200 shares of the Company's Common Stock Series A-3.
Concurrent with the exchange of shares, Fountain View obtained bank financing
totaling $31.0 million, the proceeds of which along with the $14.0 million
invested by Heritage was used to fund a distribution of $43.7 million of cash
to the controlling shareholders and pay $1.3 million in transaction costs.
Since the controlling shareholders maintained a controlling financial
interest in Fountain View, a change in control was not deemed to have occurred
upon the consummation of the Fountain View Equity Transactions. Therefore, the
Fountain View Equity Transactions were treated as a reorganization/merger of
companies under common control, with no step-up in basis of the assets of
Fountain View.
4. ACQUISITION OF SUMMIT CARE CORPORATION
On February 6, 1998, Fountain View, Summit, Heritage and FV-SCC Acquisition
Corp. ("Acquisition"), a wholly-owned subsidiary of Fountain View entered into
an Agreement and Plan of Merger providing for the acquisition of Summit by
Fountain View at a price of $21.00 per share. On February 13, 1998,
Acquisition initiated a Tender Offer for the outstanding shares of Summit. The
Tender Offer expired on March 25, 1998 and Acquisition purchased approximately
99% of the shares of Summit for approximately $141.8 million at the closing of
the Tender Offer on March 27, 1998. Pursuant to the short form merger
provisions of California law the Merger became effective 20 days later on
April 16, 1998 and Summit was merged into Acquisition, a wholly owned
subsidiary of Fountain View.
In order to consummate the purchase of the Summit shares in the Tender Offer
and to refinance Fountain View's existing debt, Fountain View entered into a
term-loan of $32.0 million and a credit facility of approximately $62.7
million. In addition, Fountain View raised approximately $82.0 million of new
equity investments in the amounts of $75.6 million from Heritage and certain
other co-investors, $5.0 million from Mr. Robert Snukal, Fountain View's Chief
Executive Officer, and Mrs. Sheila Snukal, Fountain View's Executive Vice
President and $1.4 million from Mr. William Scott, Summit's Chairman and Chief
Executive Officer.
On April 16, 1998 concurrent with the Merger becoming effective, Fountain
View entered into a new $30.0 million revolving credit facility, and $85.0
million term-loan facility, and successfully completed a Senior Subordinated
Note Offering providing for borrowings of $120.0 million. In addition,
Heritage made an additional equity investment of $15.0 million and received
15,000 shares of Series A Preferred Stock of Fountain View that entitles them
to a dividend at the time of a liquidity event calculated to achieve a 12%
annual rate of return, as well as warrants to purchase 71,119 shares of
Fountain View's Series C Common Stock. These funds were used to consummate the
purchase of Summit's remaining shares, refinance all then existing Fountain
View indebtedness, as described above, and Summit indebtedness (except for
capital lease and mortgage obligations) totaling $107.8 million, redeem all
outstanding options for Summit shares, and pay certain fees, expenses, and
other costs arising in connection with such transactions.
On May 4, 1998, Fountain View signed an investment agreement with Baylor
Health Foundation System ("Baylor"), a vertically integrated healthcare system
operating in Texas, and Buckner, a non-
F-19
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
profit foundation, (collectively, the "Baylor Group"). In addition, Fountain
View signed an operating agreement with Baylor. Pursuant to these agreements,
Baylor invested $10.0 million and Buckner invested $2.5 million in Fountain
View through the purchase of 12,342 shares of Series A Preferred Stock from
Heritage that entitles them to a dividend at the time of a liquidity event
calculated to achieve a 12% annual rate of return, as well as warrants to
purchase 59,266 shares of Fountain View's Series C Common Stock. As part of
its investment, the Baylor Group is entitled to have one of its nominees serve
on Fountain View's board of directors. Fountain View and Baylor are also in
the process of discussing the possible development or operation of certain
facilities on a joint or cooperative basis.
5. OTHER CURRENT ASSETS
Other current assets (in thousands) consist of the following:
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, 30,
1997 1998
------------ -------
<S> <C> <C>
Deferred tax assets................................... $ 926 $ 9,468
Notes receivables..................................... -- 1,165
Prepaid expenses...................................... 551 1,589
Income tax receivable................................. -- 2,654
Other receivables..................................... 26 448
------ -------
$1,503 $15,324
====== =======
</TABLE>
6. RECENT ACCOUNTING PRONOUNCEMENT
Reporting Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") which establishes standards for the reporting of comprehensive
income and its components in a full set of general purpose financial
statements. The standard is effective for fiscal years beginning after
December 15, 1997. An enterprise is required to report a total for
comprehensive income in condensed financial statements of interim periods
issued for external reporting purposes. Comprehensive income is defined as the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. SFAS
130 uses the term comprehensive income to describe the total of all components
of comprehensive income, that is, net income plus other comprehensive income.
Other comprehensive income items include: unrealized gains and losses on
available-for-sale securities; foreign currency translation adjustments;
changes in the market value of certain futures contracts; and changes in
certain minimum pension liabilities. Fountain View has no items of other
comprehensive income in the periods reported, and, therefore, this statement
does not apply.
Disclosures about Segments of an Enterprise
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for
fiscal years beginning after December 15, 1997. This Statement is not required
to be applied to interim financial statements in the initial year of its
application. SFAS 131 establishes standards for the way that public
enterprises report information about operating segments
F-20
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
in annual financial statements. It also requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. Under existing accounting standards, the Company has
reported its operations as one line of business because substantially all of
its revenues have been derived from its skilled nursing care centers and
assisted living centers and closely related ancillary services. The Company is
presently evaluating the new standard in order to determine its effect, if
any, on the way the Company might report its operations in the future.
F-21
<PAGE>
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,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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, 1997 and 1996, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Los Angeles, California
August 22, 1997
F-22
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,658 $ 3,994
Accounts receivable, less allowance for doubtful accounts:
1996--$2,084; 1997--$2,028................................ 27,930 33,749
Supplies inventory, at cost................................ 2,058 2,690
Other current assets....................................... 13,032 12,356
-------- --------
Total current assets..................................... 45,678 52,789
Property and equipment, at cost:
Land and land improvements................................. 16,018 19,513
Buildings and leasehold improvements....................... 136,907 161,080
Furniture and equipment.................................... 18,668 23,978
Construction in progress................................... 15,043 5,947
-------- --------
186,636 210,518
Less accumulated depreciation and amortization............. 21,713 28,605
-------- --------
164,923 181,913
Notes receivable, less allowance for doubtful accounts:
1996--$268; 1997--$322..................................... 4,845 6,859
Other assets................................................. 7,606 8,955
-------- --------
$223,052 $250,516
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank............................................ $ 4,165 $ 4,678
Accounts payable........................................... 19,895 29,586
Employee compensation and benefits......................... 3,738 5,877
Income taxes payable....................................... 989 --
Long-term debt due within one year......................... 2,985 --
-------- --------
Total current liabilities................................ 31,772 40,141
Long-term debt............................................... 107,389 121,452
Deferred income taxes........................................ 2,605 7,511
-------- --------
Total liabilities........................................ 141,766 169,104
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;
6,776,000 and 6,772,800 issued and outstanding,
respectively.............................................. 51,486 51,543
Retained earnings............................................ 29,800 29,869
-------- --------
Total shareholders' equity............................... 81,286 81,412
-------- --------
$223,052 $250,516
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Net revenues........................................ $137,026 $176,062 $197,927
EXPENSES:
Salaries and benefits............................. 63,171 78,233 89,577
Supplies.......................................... 15,374 18,071 20,160
Purchased services................................ 22,234 37,963 51,520
Provision for doubtful accounts................... 1,330 2,241 2,530
Other expenses.................................... 10,268 12,421 15,722
Rental............................................ 1,691 2,656 2,864
Rental to related parties......................... 450 -- --
Depreciation and amortization..................... 5,249 6,142 7,393
Interest (net of interest income: $513, $522 and
$645, respectively).............................. 4,761 6,574 7,973
-------- -------- --------
124,528 164,301 197,739
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............ 12,498 11,761 188
Provision for income taxes.......................... 4,987 4,452 119
-------- -------- --------
NET INCOME.......................................... $ 7,511 $ 7,309 $ 69
======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------- -------- -------
<S> <C> <C> <C> <C>
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
Net income............................... -- -- 69 69
Exercise of stock options................ 3,200 57 -- 57
--------- ------- ------- -------
Balances at June 30, 1997.................. 6,776,000 $51,543 $29,869 $81,412
========= ======= ======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 7,511 $ 7,309 $ 69
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 5,249 6,142 7,393
(Increase) in accounts receivable............ (6,907) (7,594) (5,819)
(Increase) decrease in supplies inventory.... (623) 118 (632)
Decrease (increase) in other current assets.. (1,740) (8,429) 1,257
Increase in accounts payable................. 2,512 8,923 9,691
Increase (decrease) in employee compensation
and benefits................................ 478 (270) 2,139
(Decrease) increase in income taxes payable.. 577 (72) (989)
Increase (decrease) in deferred income taxes. (43) 739 4,906
-------- -------- --------
Total adjustments.......................... (497) (443) 17,946
-------- -------- --------
Net cash provided by operating activities.... 7,014 6,866 18,015
-------- -------- --------
INVESTING ACTIVITIES:
Issuance of notes receivable................... (2,089) (916) (3,142)
Principal payments of notes receivable......... 962 498 547
Additions to property and equipment............ (9,004) (26,558) (24,075)
Acquisitions of nursing centers................ (51,178) -- --
Additions to other assets...................... (3,279) (2,276) (1,657)
-------- -------- --------
Net cash used in investing activities........ (64,588) (29,252) (28,327)
FINANCING ACTIVITIES:
Increase in payable to bank.................... 826 1,193 513
Principal payments on long-term debt........... (38,225) (49,914) (17,922)
Proceeds from long-term debt................... 76,520 70,500 29,000
Net expenses from sale of common stock......... (251) -- --
Net proceeds on exercise of stock options...... 192 164 57
-------- -------- --------
Net cash provided by financing activities.... 39,062 21,943 11,648
-------- -------- --------
Increase (decrease) in cash and cash equivalents. (18,512) (443) 1,336
Cash and cash equivalents at beginning of year... 21,613 3,101 2,658
-------- -------- --------
Cash and cash equivalents at end of year......... $ 3,101 $ 2,658 $ 3,994
======== ======== ========
Supplemental disclosures of non-cash investing
and financing activities:
Acquisition notes payable...................... $ (2,814) $ -- $ --
Acquisition of nursing care centers............ 2,814 -- --
Acquisition of nursing care centers under
capital leases................................ 16,654 -- --
Capital lease obligations...................... (16,654) -- --
</TABLE>
See accompanying notes.
F-26
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Summit Care Corporation ("Company" or "Summit")
provides a variety of healthcare services primarily to the elderly through the
operation of sub-acute, skilled nursing, Alzheimer's and assisted living units
in skilled nursing care centers and assisted living centers in California,
Texas and Arizona. These services include nursing care, room, board 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"). 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. In January 1997, OrNda was merged into
Tenet Healthcare Corporation ("Tenet").
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 68 percent, 70 percent and 72 percent of the
Company's revenues in the years ended June 30, 1995, 1996 and 1997 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. Differences between final
settlement and estimated net realizable value accrued in prior years are
reported as adjustments to the current year's net revenues. These adjustments
decreased net revenues by $4,892 in fiscal 1997. A significant portion of the
Company's skilled nursing care center revenues is derived from government
sponsored healthcare 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>
<C> <S>
Buildings and improvements....... 15-40 years
Shorter of lease term or estimated useful
Leasehold improvements........... life
Furniture and equipment.......... 3-20 years
</TABLE>
F-27
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 lesser of the estimated useful lives and the period covered by the right.
INTANGIBLE ASSETS. Goodwill of $2,321 less accumulated amortization of $182
is included in other assets at June 30, 1997 and is amortized over 35 years
using the straight-line method.
INSURANCE COVERAGE. The Company self insures for certain levels of workers'
compensation and general and professional liability coverage. The Company
utilizes a captive insurance company for the purpose of providing reinsurance
coverage for workers' compensation claims filed by its California and Arizona
employees in excess of a $250 self insurance retention per occurrence and not
subject to an annual aggregate limit. The Company has elected under Texas law
to decline to participate in the Texas workers' compensation insurance program
and maintains employer's excess and occupational indemnity insurance on claims
subject to a $150 self insurance retention per occurrence with no annual
aggregate limit. The Company maintains general and professional liability
insurance on a claims made basis, subject to a $100 self insurance retention
per occurrence and $600 on an annual aggregate basis.
Under both self insurance programs, the Company estimates its liability,
including potential legal fees and settlement amounts, based on claims filed
and estimates of claims incurred but not reported, utilizing historical
experience on an undiscounted basis. Differences between the amounts accrued
and subsequent settlements are recorded in operations in the year of
settlement.
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.
ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS. Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 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 believes, based on current
circumstances, that there are no indicators of impairment to its long-lived
assets, and the Company presently has no expectations for disposing of any
long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS. 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. In accordance with SFAS 123, the Company has provided pro forma
disclosure of what net income and earnings per share would have been had the
new fair value method been used (see Note 10).
F-28
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier adoption is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed under SFAS
128 in the notes to the financial statements in periods prior to adoption. The
statement requires restatement of all prior-period earnings per share data
presented after the effective date. SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share and is
substantially similar to the standard recently issued by the International
Accounting Standards Committee entitled "International Accounting Standards,
Earnings per Share." The Company plans to adopt SFAS 128 in fiscal year 1998
and has not determined the impact of adoption.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for
fiscal years ending after December 15, 1997. SFAS 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements. It also requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Under existing accounting standards,
the Company has reported its operations as one line of business because
substantially all of its revenues have been derived from its skilled nursing
care centers and assisted living centers and closely related ancillary
services. The Company is presently evaluating the new standard in order to
determine its effect, if any, on the way the Company might report its
operations in the future.
RECLASSIFICATIONS. Certain amounts have been reclassified to conform with
1997 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, before
the allowance for doubtful accounts, is $8,434. The fair value of $8,400 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 carrying value of
$121,452 of long-term debt is based on the original face value (issue
amount). The fair value of $120,300 is estimated based on the present value
of the underlying cash flows discounted at the Company's incremental
borrowing rate.
3. MATERIAL TRANSACTIONS WITH RELATED ENTITIES
TENET HEALTHCARE CORPORATION, ORNDA HEALTHCORP AND SUMMIT HEALTH LTD. The
Company had an agreement with Tenet/OrNda, which expired in March 1997, under
which the Company leased a
F-29
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. NATIONAL TRANSACTIONS WITH RELATED ENTITIES (CONTINUED)
portion of its corporate office space to OrNda and shared the cost of building
services with OrNda. The agreement also required OrNda to provide tax
accounting to the Company. The Company's rental income from OrNda for the
space exceeded the payments to OrNda for services by $31 for the year ended
June 30, 1997. For the years ended June 30, 1996 and 1995, payments to OrNda
for services exceeded rental income for the space by $50 and $23,
respectively. The Company believes that the amount reimbursed for the services
provided and the rental income received are reasonable. The agreement also
indemnified 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 survive the
termination of the agreement. Certain provisions of this agreement were
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).
In January 1994, the Company entered into a ten-year sub-lease of a nursing
care center with SHL. The Company believes the monthly lease payments of $37
are reasonable for the market areas. Lease payments to Tenet, OrNda and SHL
were $450 for each of the years ended June 30, 1995, 1996 and 1997.
At June 30, 1997, the net amount due from Tenet for transactions between the
Company and Tenet was $918 and is included in Other Current Assets (see Note
5).
4. ACQUISITIONS AND CONSTRUCTION ACTIVITY
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.
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.
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.
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 1996. On January 8, 1996, the Company opened a 108-bed skilled
nursing care center in Fresno, California, and in August 1996, opened another
51 beds at the same site. Total cost of construction including the original
purchase price was $14,024. In March 1996, the Company added
F-30
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITION AND CONSTRUCTION ACTIVITY (CONTINUED)
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 Notes issued in December 1995 and
draws against the Company's bank line of credit (see Note 6).
FISCAL YEAR 1997. In August 1996, the Company opened a 110-bed skilled
nursing care center in Fort Worth, Texas, and in June 1997, opened another 100
beds at the same site. Total cost of construction including the original
purchase price (see this Note, Fiscal Year 1995) was $12,012. On July 1, 1997,
the Company opened a 66-bed assisted living center in Orange, California,
dedicated to Alzheimer's and other patients with dementia. Total cost of
construction, which constituted renovation of an existing building on a campus
with a 172-bed skilled nursing center and a 72-bed assisted living center, was
$3,525. Cost of construction completed in the year ended June 30, 1997 was
financed with funds from $15 million of Senior Secured Notes ("Notes") issued
in July 1996 and with cash generated from operations. The Notes represented
the second and last issuance of $70 million of Notes. The first issuance of
$55 million occurred in December 1995.
In July 1996, the Company exercised a purchase option in its lease of a 88-
bed skilled nursing care center in Rockport, Texas. The purchase price of
$2,022 was financed with funds from the Notes.
In December 1996, the Company entered into a limited liability company
("LLC") agreement to operate a pharmacy in Austin, Texas. The purchase price
for its 50% membership interest was $1,565 in cash. The pharmacy services
nursing centers in Texas operated by either the Company, the other LLC member
or non-affiliated nursing center owners. The Company accounts for its
investment in the LLC under the equity method of accounting. The Company's
equity in earnings of the LLC was insignificant during fiscal year 1997.
In June 1997, the Company purchased 10 acres of vacant land in Longview,
Texas for $648 in cash. The land will be used for new services which will
complement the 174-bed skilled nursing center currently owned and operated by
the Company.
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1997
------- -------
<S> <C> <C>
Due from third party payors.................................... $ 8,055 $ 2,491
Deferred tax assets............................................ 1,810 1,956
Notes receivable............................................... 672 1,253
Prepaid expenses............................................... 952 1,004
Income tax receivable.......................................... -- 4,128
Other receivables.............................................. 1,543 1,524
------- -------
$13,032 $12,356
======= =======
</TABLE>
F-31
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<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 $91,781 at June 30, 1997........... $ 55,000 $ 70,000
Secured revolving bank line of credit expires September 30,
1998, variable interest rates approximating 7.44% in the
year ending June 30, 1997, convertible to a term loan due
in equal quarterly principal payments through September
2001, secured by property and equipment with a book value
of approximately $6,556 at June 30, 1997.................. 6,000 5,000
8.96% senior secured notes, due 2002, interest only,
payable semi-annually through June 1997, annual principal
payments of $4,150 beginning December 1997, secured by
property and equipment with a book value of approximately
$32,779 at June 30, 1997.................................. 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 $23,216 at
June 30, 1997............................................. 15,680 13,133
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 $7,379 at June 30, 1997....... 5,231 5,281
Promissory note, less imputed interest of $81 in the year
ended June 30, 1997, at an 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
$3,060 at June 30, 1997................................... 2,304 1,944
Mortgage note payable, variable interest rates from 8.25%
to 9.0% in year ended June 30, 1997, due in equal monthly
principal installments through March 2001, secured by
property and equipment with a book value of approximately
$2,816 at June 30, 1997................................... 1,159 1,094
Less current portion....................................... (2,985) --
-------- --------
Non-current portion........................................ $107,389 $121,452
======== ========
</TABLE>
Future maturities of long-term debt (including capital lease obligations)
are as follows: years ending June 30, 1998--$-0-; 1999--$8,699; 2000--$13,788;
2001--$17,187; 2002--$10,904, and thereafter--$70,874.
In December 1995, the Company amended its secured bank line of credit which
reduced the commitment from $60,000 to $40,000, converted accounts receivable
from collateral to a negative pledge, extended the revolver to September 30,
1997 (the revolver has been subsequently extended to September 30, 1998) 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.
F-32
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
At June 30, 1997, credit line loans outstanding were $5,000 which was used to
finance the construction described in Note 4. At June 30, 1997, the Company
classified $6,997 of current debt maturities as long-term debt based on its
intent and ability to refinance these obligations under the bank line of
credit.
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 $6,033, $8,701 and $10,296 in fiscal years 1995, 1996
and 1997, respectively, of which $759, $1,605 and $1,678 in 1995, 1996 and
1997 were capitalized as part of the ongoing construction projects. Interest
payments were $5,712 , $7,874 and $10,124 in fiscal years 1995, 1996 and 1997,
respectively.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Federal:
Current............................................ $4,359 $3,611 $(3,979)
Deferred........................................... (277) 19 4,003
------ ------ -------
4,082 3,630 24
State:
Current............................................ 952 798 (662)
Deferred........................................... (47) 24 757
------ ------ -------
905 822 95
------ ------ -------
$4,987 $4,452 $ 119
====== ====== =======
</TABLE>
F-33
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
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 financial statement purposes in future years. Temporary differences
are primarily attributable to reporting for income tax purposes the 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 1997
------------------- -------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Income Taxes
Deferred tax liabilities:
Tax over book depreciation........ $ -- $(3,136) $ -- $(7,858)
Other............................. -- (137) -- (264)
------ ------- ------ -------
Total deferred tax liabilities.. -- (3,273) -- (8,122)
Deferred tax assets:
Vacation and deferred compensation
benefits and bad debt............ 1,810 330 1,956 452
State tax......................... -- 338 -- 159
------ ------- ------ -------
Total deferred tax assets....... 1,810 668 1,956 611
------ ------- ------ -------
Net deferred tax assets
(liabilities)...................... $1,810 $(2,605) $1,956 $(7,511)
====== ======= ====== =======
</TABLE>
A reconciliation of the provision for income taxes with the amount computed
using the federal statutory rate is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1996 1997
---- -----
<S> <C> <C>
Federal rate 35.0% 34.0%
State taxes, net of federal tax benefit........................ 4.5 4.5
Tax credits.................................................... (1.6) --
Other, net..................................................... -- 24.8
---- -----
37.9% 63.3%
==== =====
</TABLE>
The increase in the effective tax rate was primarily due to certain
permanent differences between book income and taxable income. Total income tax
payments during fiscal years 1995, 1996 and 1997 were $4,876, $3,904 and
$1,828, respectively.
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.
F-34
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LEASES (CONTINUED)
All capital leases contain purchase options, and the accompanying balance
sheet and following table 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>
JUNE 30, 1997
-------------
<S> <C>
Land and land improvements..................................... $ 1,400
Buildings and leasehold improvements........................... 21,481
Furniture and equipment........................................ 2,405
-------
25,286
Less accumulated amortization.................................. 2,070
-------
$23,216
=======
</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,
1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING JUNE 30, LEASES LEASES TOTAL
-------------------- --------- -------- --------
<S> <C> <C> <C>
1998.......................................... $ 3,054 $ 3,321 $ 6,375
1999.......................................... 2,995 4,634 7,629
2000.......................................... 2,755 4,297 7,052
2001.......................................... 2,513 350 2,863
2002.......................................... 2,176 350 2,526
Thereafter.................................... 7,827 3,525 11,352
-------- -------- --------
Total minimum lease payments.................. 21,320 16,477 37,797
Less amount representing interest............. -- 3,344 3,344
-------- -------- --------
Present value of net minimum lease payments
(capital lease amount included in long-term
debt--see Note 6)............................ $21,320 $13,133 $34,453
======== ======== ========
</TABLE>
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. STOCK OPTION PLAN
Effective July 1, 1991, the Company adopted a stock option plan authorizing
the 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 the fair market value at the date of the grant. The terms of each option
and the increments
F-35
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
in which each 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,
-------------------------------------------------------
1995 1996 1997
----------------- ----------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE AVERAGE
OF EXERCISE OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options at beginning of
year................... 256,000 $12.97 523,000 $16.79 948,500 $18.91
Changes during year:
Granted............... 284,500 $19.94 504,000 $21.15 112,000 $13.36
Exercised............. (15,700) $12.20 (13,500) $12.13 (3,200) $17.85
Canceled.............. (1,800) $12.26 (65,000) $20.58 (26,800) $20.31
------- ------- ---------
Options outstanding at
end of year............ 523,000 $16.79 948,500 $18.91 1,030,500 $18.27
======= ======= =========
Options exercisable at
end of year............ 58,100 $12.26 161,600 $14.97 352,300 $17.10
Options available for
grant at end of year... 57,700 418,700 333,500
</TABLE>
The weighted average fair value per share of options granted during the year
was $10.14 and $6.72 for fiscal years 1996 and 1997, respectively. The
exercise prices for options outstanding at June 30, 1997 ranged from $10.50 to
$22.50. The weighted average remaining contractual life of these options is
approximately eight years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) which uses an
intrinsic value method and, because the exercise price of the Company's stock
options equals the market price of the underlying stock on the date of grant,
results in no compensation expense. However, pro forma information regarding
net income and earnings per share is required by Statement of Financial
Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based
Compensation" (SFAS 123), and, in the following disclosure, has been
determined as if the Company had accounted for its stock options under the
fair value method of SFAS 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for the years ended June 30, 1997 and
1996, respectively: risk-free interest rates of 6.4% and 5.5%; dividend yields
of zero percent for both years; volatility factors of the expected market
price of the Company's common stock of 48.4% and 46.8%; and a weighted average
expected life of the options of five years.
Because the Company's stock options have characteristics significantly
different from those options used in the Black-Scholes option pricing model,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the
Company's stock options.
F-36
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects
of providing pro forma disclosure are not likely to be representative of the
effects on reported net income for future years. The Company's pro forma
information follows for the years ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Pro forma net income (loss)................................... $6,914 $(543)
</TABLE>
11. SUBSEQUENT EVENT
In September 1997, the Company exercised a purchase option in its lease of a
111-bed skilled nursing care center in La Grange, Texas. The purchase option
price of $1,871 was financed by a draw on the Company's bank line of credit
(see Note 6).
12. UNAUDITED QUARTERLY INFORMATION
Following is a summary of unaudited quarterly results of operations from the
years ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------
1ST 2ND 3RD 4TH
QTR. QTR. QTR. 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
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------------
1ST 2ND 3RD 4TH
QTR. QTR. QTR. QTR. TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues..................... $48,907 $46,181 $52,012 $50,827 $197,927
Income (loss) before income
taxes........................... 2,587 (1,734) 2,394 (3,059) 188
Net income (loss)................ 1,565 (1,049) 1,448 (1,895) 69
</TABLE>
F-37
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 1,702
Accounts receivable, less allowance for doubtful accounts of
$2,474......................................................... 36,343
Supplies inventory, at cost..................................... 3,204
Other current assets............................................ 15,569
--------
Total current assets.......................................... 56,818
Property and equipment, at cost:
Land and land improvements...................................... 20,036
Buildings and leasehold improvements............................ 175,078
Furniture and equipment......................................... 24,361
Construction in progress........................................ 5,298
--------
224,773
Less accumulated depreciation and amortization.................. 30,220
--------
194,553
Notes receivable, less allowance for doubtful accounts of $363 ... 6,842
Other assets...................................................... 9,207
--------
Total assets.................................................. $267,420
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank................................................. $ 2,985
Accounts payable................................................ 36,776
Employee compensation and benefits.............................. 4,622
Income taxes payable............................................ 1,051
--------
Total current liabilities..................................... 45,434
Long-term debt.................................................... 129,754
Deferred income taxes............................................. 7,511
--------
Total liabilities............................................. 182,699
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000 authorized shares, none
issued......................................................... --
Common stock, no par value, 100,000 authorized shares; 6,776 and
6,813 issued and outstanding, respectively..................... 52,020
Retained earnings............................................... 32,701
--------
Total shareholders' equity.................................... 84,721
--------
Total liabilities and shareholders' equity.................... $267,420
========
</TABLE>
See accompanying notes.
F-38
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------
1996 1997
------- --------
<S> <C> <C>
NET REVENUES.................................................. $95,088 $108,507
EXPENSES:
Salaries and benefits....................................... 43,386 47,742
Supplies.................................................... 10,381 10,261
Purchased services.......................................... 24,144 26,211
Provision for doubtful accounts............................. 967 1,780
Other expenses.............................................. 6,258 7,484
Rent........................................................ 1,410 1,525
Depreciation and amortization............................... 3,632 4,235
Interest (net of interest income, $371 in 1997 and $179 in
1996, respectively)........................................ 4,057 4,588
------- --------
94,235 103,826
------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES...................... 853 4,681
Provision for income taxes.................................... 337 1,849
------- --------
NET INCOME.................................................... $ 516 $ 2,832
======= ========
</TABLE>
See accompanying notes.
F-39
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 516 $ 2,832
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 3,632 4,235
(Increase) in accounts receivable, net................. (5,027) (2,594)
(Increase) in supplies inventory......................... (66) (514)
(Increase) in other current assets....................... (1,602) (3,152)
Increase in accounts payable............................. 6,805 7,190
(Decrease) increase in employee compensation and
benefits.............................................. 294 (1,255)
Increase (decrease) in income taxes payable.............. (989) 1,051
-------- --------
Total adjustments...................................... 3,047 4,961
-------- --------
Net cash provided by operating activities.............. 3,563 7,793
-------- --------
INVESTING ACTIVITIES:
Issuance of notes receivable............................. (550) (2,281)
Principal payments of notes receivable................... 253 2,294
Additions to property and equipment...................... (12,049) (6,706)
Property and equipment related to purchase of nursing
center.................................................. -- (4,209)
(Increase) in other assets............................... (1,579) (470)
-------- --------
Net cash (used in) investing activities................ (13,925) (11,372)
-------- --------
FINANCING ACTIVITIES:
(Decrease) in payable to bank............................ (1,229) (1,693)
Principal payments on long-term debt..................... (8,435) (10,497)
Proceeds from long-term debt............................. 19,000 13,000
Proceeds from exercise of stock options.................. -- 477
-------- --------
Net cash provided by financing activities.............. 9,336 1,287
-------- --------
(Decrease) in cash and cash equivalents.................... (1,026) (2,292)
Cash and cash equivalents at beginning of year............. 2,658 3,994
-------- --------
Cash and cash equivalents at end of the period............. $ 1,632 $ 1,702
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 5,161 $ 5,015
Income taxes............................................. 1,654 808
Non cash investing and financing activities:
Acquisition of nursing care center under capital lease. -- 5,799
Capital lease obligation............................... -- (5,799)
</TABLE>
See accompanying notes.
F-40
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. The unaudited financial information included herein, in the opinion of
management, reflects all adjustments (all of which are of a normal recurring
nature except for a special charge recorded in December 1996, see Note 5),
which are considered necessary to fairly state the Company's financial
position, its cash flows and the results of operations. These statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the Company's annual report filed on Form 10-K for
the year ended June 30, 1997. The interim financial information herein is not
necessarily representative of that to be expected for a full year.
2. Certain amounts have been reclassified to conform with fiscal 1998
presentations.
3. Other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Due from third-party payors..................................... $ 4,743
Deferred tax assets............................................. 1,956
Notes receivable................................................ 1,257
Prepaid expenses................................................ 2,526
Income tax receivable........................................... 3,000
Other receivables............................................... 2,087
-------
$15,569
=======
</TABLE>
4. In December 1996, the Company recorded a special charge of $4,000 against
revenues ($2,420 against net income) as a result of adjustments proposed by
Medicare in connection with an audit of fiscal 1995 completed in the quarter
ended December 31, 1996, which would have an effect on revenues for that
fiscal year, fiscal 1996 and the six months ended December 31, 1996.
5. In July 1997, the Company opened its fifth assisted living center with 66
beds in Orange, California, at a total cost of construction of $3,924. In
September 1997, the Company exercised a purchase option in the amount of
$1,871 in its lease of a 111-bed skilled nursing care center in La Grange,
Texas. In November 1997, the Company opened 47 additional beds at one of its
two skilled nursing care centers in Lubbock, Texas, at an approximate cost of
construction of $1,900. In December 1997, the Company acquired the assets of a
194 bed skilled nursing care center in McAllen, Texas at an approximate cost
of $10,058. The Compan's bank line of credit was used to finance the two
construction projects, the exercise of the purchase option and $4,259 of the
acquisition cost of the McAllen center. The balance of the McAllen acquisition
cost of $5,799 was financed with a capitalized lease obligation.
6. In December 1997, the Company amended its secured bank line of credit by
reducing the commitment from $40,000 to $33,000. One of the four lenders was
deleted from the credit agreement, and the revolving credit termination date
was extended one year to September 30, 1999. No other terms and conditions
were added, deleted or amended.
7. Recent Accounting Pronouncement: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years ending after December 15, 1997.
This Statement is not required to be applied to interim financial statements
in the
F-41
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
initial year of its application. SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements. It also requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Under existing accounting standards, the Company has reported
its operations as one line of business because substantially all of its
revenues have been derived from its skilled nursing care centers and assisted
living centers and closely related ancillary services. The Company is
presently evaluating the new standard in order to determine its effect, if
any, on the way the Company might report its operations in the future.
8. Subsequent Event: On February 6, 1998, the Company and Fountain View,
Inc., a privately-held skilled nursing care company based in Los Angeles,
California, entered into a definitive merger agreement for Fountain View to
acquire the Company. According to the terms of the merger agreement, the
Company's shareholders will receive $21.00 per share in cash for a total
purchase price of approximately $274 million, including the assumption of
approximately $130 million of the Company's debt.
On February 13, 1998, Fountain View commenced a cash tender offer for all
outstanding shares of the Company's stock at $21.00 per share. The tender
offer expired on March 25, 1998 and, following consummation of the tender
offer on March 27, 1998, subject to the terms and conditions contained in the
merger agreement, the Company will be merged with a subsidiary of Fountain
View, and each remaining outstanding share of the Company will be converted in
the merger into $21.00 in cash.
Fountain View has received a commitment from Heritage Fund II, L.P. for $82
million of the equity financing necessary to complete the transaction and a
bank financing commitment from Bank of Montreal covering an additional $250
million. Completion of the tender offer and the merger are subject to
customary conditions to closing, including the receipt of any applicable
regulatory approvals and the expiration of any applicable regulatory waiting
periods.
F-42
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 20
Use of Proceeds........................................................... 31
Capitalization............................................................ 31
Unaudited Pro Forma Financial Data........................................ 32
Selected Historical Financial and Other Data--Fountain View............... 37
Selected Historical Financial and Other Data--Summit...................... 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 41
Business.................................................................. 52
Management................................................................ 71
Principal Stockholders.................................................... 77
Certain Relationships and Related Transactions............................ 78
Description of Other Indebtedness......................................... 81
The Exchange Offer........................................................ 83
Plan of Distribution...................................................... 91
Description of Notes...................................................... 93
Material Federal Income Tax Consequences.................................. 125
Validity of the Notes..................................................... 128
Available Information..................................................... 128
Experts................................................................... 128
Special Note Regarding Forward-Looking Statements......................... 129
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FOUNTAIN VIEW, INC.
OFFER TO EXCHANGE UP TO $120,000,000 OF 11 1/4% SENIOR SUBORDINATED
NOTES DUE 2008, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED FOR ANY AND ALL OF ITS OUTSTANDING 11
1/4% SENIOR SUBORDINATED NOTES DUE 2008 OF WHICH $120,000,000 IN PRINCIPAL
AMOUNT IS OUTSTANDINGON THE DATE HEREOF.
-----------
PROSPECTUS
-----------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fountain View, Inc. and certain of the Registrants (Fountain View Holdings,
Inc., Locomotion Holdings, Inc. and Locomotion Therapy, Inc.) are Delaware
corporations. Section 145 of the Delaware General Corporation Law (the "DGCL")
grants a Delaware corporation the power to indemnify any director, officer,
employee or other agent if such person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe such person's conduct was unlawful. No
indemnification may be provided, however, for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
With respect to indemnification of directors, Article Eight of the
Certificate of Incorporation of the Company states that the Company shall
indemnify and hold harmless any director, officer, employee or agent of the
Company from any expenses and liabilities that may be imposed upon or incurred
in connection with, or as a result of, any proceeding in which he or she may
become involved, by reason of the fact that he or she is or was such a
director, officer, employee, or agent, whether or not he or she is in such
capacity at the time such expenses and liabilities are imposed or incurred, to
the fullest extent permitted by the laws of the State of Delaware.
Certain of the Registrants (Summit Care Corporation, Summit Care California,
Inc., Summit Care Pharmacy, Inc., Summit Care Texas Equity, Inc., AIB Corp.,
Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier Oak
Convalescent, Inc., Elmcrest Convalescent Hospital, Fountainview Convalescent
Hospital, Fountain View Management, Inc., Rio Hondo Nursing Center, On-Track
Therapy Center, Inc., I.' NO, Inc. and Sycamore Park Convalescent Hospital)
are California corporations. The California General Corporation Law provides
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the corporation to procure a judgment in its
favor) by reason of the fact that the person is or was an agent of the
corporation, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with the proceeding if
that person acted in good faith and in a manner the person reasonably believed
to be in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of the person was
unlawful.
Certain of the Registrants (Summit Care Texas No. 2, Inc., Summit Care Texas
No. 3, Inc. and Summit Care Management Texas, Inc.) are Texas corporations.
Article 2.02-1 of the Texas Business Corporation Act provides that a
corporation may indemnify its officers, directors, employees and agents for
expenses and costs incurred in certain proceedings arising out of actions
taken in their official capacity only if such persons were acting in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, except in relation to matters in which they have
been found liable (i) to the corporation, or (ii) on the basis that personal
benefit was improperly received regardless of whether or not the benefit
resulted from action taken in their official capacity. In the case of any
criminal proceeding, such persons must also have had no reasonable cause to
believe such conduct was unlawful. Article 2.02-1 further provides that a
corporation shall indemnify its officers
II-1
<PAGE>
and directors against reasonable expenses incurred in connection with
proceedings arising out of actions taken in their official capacity in which
such persons have been wholly successful, on the merits or otherwise, in the
defense of such actions.
The Companies maintain insurance, the general effect of which is to provide
coverage for the Companies with respect to amounts that they may required to
pay officers and directors under the indemnity provisions described above and
coverage for officers and directors against certain liabilities, including
certain liabilities under the federal securities law.
Summit Care Texas, L.P. is a Texas limited partnership (the "Partnership").
Article 10.2 of its Articles of Limited Partnership provides that the
Partnership shall indemnify the General Partner against all judgments,
penalties (including excise and similar taxes), fines, amounts paid in
settlement and reasonable Expenses actually incurred by the General Partner in
connection with any Proceeding to which it was, is or is threatened to be
named a defendant or respondent, or in which it was or is a witness without
being named a defendant or respondent, by reason, in whole or in part, of it
serving or having served, as a General Partner if it is determined that the
General Partner (a) acted in good faith, (b) reasonably believed, in the case
of conduct in its official capacity, that its conduct was in the Partnership's
best interests and, in all other cases, that its conduct was at least not
opposed to the Partnership's best interests, and (c) in the case of any
criminal proceeding, had no reasonable cause to believe that its conduct was
unlawful. No indemnification shall be made under this Section 10.2 in respect
of any judgment, penalty, fine, or amount paid in settlement in connection
with any Proceeding in which such General Partner shall have been (x) found
liable on the basis that personal benefit was improperly received by it
whether or not the benefit resulted form an action taken in the General
Partner's official capacity, or (y) found liable to the Partnership. However,
if the General Partner is found liable on the basis that personal benefit was
improperly received by it, or is found liable to the Partnership, or the
Limited Partner, the General Partner shall be entitled to reasonable expenses
actually incurred by it in connection with the Proceeding unless it has been
found liable for willful or intentional misconduct in the performance of its
duty to the Partnership or the Limited Partner. The termination of any
Proceeding by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, is not of itself determinative that the General
Partner did not meet the requirements set forth in clauses (a), (b) or (c) in
the first sentence of this Section 10.2. The General Partner shall be deemed
to have been found liable in respect of any claim, issue or matter only after
it shall have been so adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain
View and the Initial Purchasers named therein relating to the 11 1/4%
Senior Subordinated Notes due 2008.
3.1 Certificate of Incorporation of Fountain View.
3.1(a) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed March 27, 1998.
3.1(b) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed May 6, 1998.
3.2 By-laws of Fountain View.
3.3 Articles of Incorporation of Summit Care Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.4 By-laws of Summit Care Corporation.
3.5 Articles of Incorporation of Summit Care-California, Inc.
3.6 By-laws of Summit Care-California, Inc.
3.7 Articles of Incorporation of Summit Care Pharmacy, Inc.
3.8 By-laws of Summit Care Pharmacy, Inc.
3.9 Omitted
3.10 Omitted
3.11 Articles of Incorporation of Summit Care Texas Equity, Inc.
3.12 By-laws of Summit Care Texas Equity, Inc.
3.13 Articles of Organization of Summit Care Texas, No. 2, Inc.
3.14 By-laws of Summit Care Texas, No. 2, Inc.
3.15 Articles of Organization of Summit Care Texas, No. 3, Inc.
3.16 By-laws of Summit Care Texas, No. 3, Inc.
3.17 Articles of Organization of Summit Care Texas Management, Inc.
3.18 By-laws of Summit Care Texas Management, Inc.
3.19 Certificate of Limited Partnership of Summit Care Texas, L.P.
3.20 Omitted
3.21 Certificate of Incorporation of Fountain View Holdings, Inc.
3.22 By-laws of Fountain View Holdings, Inc.
3.23 Articles of Incorporation of AIB Corp.
3.24 By-laws of AIB Corp.
3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc.
3.26 By-laws of Alexandria Convalescent Hospital, Inc.
3.27 Articles of Incorporation of BIA Hotel Corp.
3.28 By-laws of BIA Hotel Corp.
3.29 Articles of Incorporation of Brier Oak Convalescent, Inc.
3.30 By-laws of Brier Oak Convalescent, Inc.
3.31 Articles of Incorporation of Elmcrest Convalescent Hospital
3.32 By-laws of Elmcrest Convalescent Hospital
3.33 Articles of Incorporation of Fountainview Convalescent Hospital
3.34 By-laws of Fountainview Convalescent Hospital
3.35 Articles of Incorporation of Fountain View Management, Inc.
3.36 By-laws of Fountain View Management, Inc.
3.37 Articles of Incorporation of Rio Hondo Nursing Center
3.38 By-laws of Rio Hondo Nursing Center
3.39 Certificate of Incorporation of Locomotion Holdings, Inc.
3.40 By-laws of Locomotion Holdings, Inc.
3.41 Certificate of Incorporation of Locomotion Therapy, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.42 By-laws of Locomotion Therapy, Inc.
3.43 Articles of Incorporation of On-Track Therapy Center, Inc.
3.44 By-laws of On-Track Therapy Center, Inc.
3.45 Articles of Incorporation of I.' NO, Inc.
3.46 By-laws of I.' NO, Inc.
3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital
3.48 By-laws of Sycamore Park Convalescent Hospital
4.1 Indenture dated as of April 16, 1998 by and among Fountain View,
certain subsidiaries of Fountain View, and State Street Bank and
Trust Company of California, N.A., as trustee, for the 11 1/4%
Senior Subordinated Notes due 2008.
4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see
Exhibit A-1 to Exhibit 4.1).
5.1 Opinion of Choate, Hall & Stewart.
8.1 Opinion of Choate, Hall & Stewart (Tax)
10.1 Hancock Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent
Investments, and A.I.B. Corporation and Robert and Sheila Snukal;
Consent, Agreement, and Acknowledgment, dated July 30, 1997
10.2 Hancock Park Retirement Hotel, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent
Investments, and B.I.A. Corporation and Robert and Sheila Snukal;
Consent, Agreement, and Acknowledgment dated July 30, 1997
10.3 Montebello Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Elmcrest Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.4 Fountainview Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Fountainview Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.5 Rio Hondo Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Rio Hondo Nursing Center and Fountain View Holdings; First Amendment
to Lease, dated March 27, 1998
10.6 Sycamore Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Sycamore Park Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
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.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 Alaric 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 Summit Care Corporation by
Assignment of Lease, dated March 9, 1992, between SHL and Summit Care
Corporation.
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.), 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 Brier Oak
Convalescent, Inc.
10.13 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes,
Ltd., and SHL, assigned to Summit Care Corporation by Assignment of
Lease dated March 9, 1992, between SHL and Summit Care Corporation.
10.14 Seller Note for purchase of The Woodlands.
10.15 HUD Note for purchase of The Woodlands.
10.16 Phoenix Living Center Lease dated August 1, 1993 between Sierra Land
Group, Inc. and Summit Care Corporation. Sublease with Summit Health
Ltd., for Phoenix Living Center dated January 1994.
10.17 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and
Security Agreement dated September 30, 1994.
10.18 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.
10.19 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.
10.20 Omitted
10.21 Limited Liability Company Agreement of APS-Summit Care Pharmacy,
L.L.C., dated November 30, 1996.
10.22 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and
Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated
November 24, 1997.
10.23 Alexandria Convalescent Hospital, Los Angeles, California, Lease
Agreement dated November 2, 1992 between Alexandria Convalescent
Investments and Robert Snukal, Sheila Snukal, Manuel Padama and Clair
Padama; Consent, Agreement, and Acknowledgment, dated July 30, 1997
10.24 Lease Agreement for office space at 11900 Olympic Boulevard, Los
Angeles, California, dated February 1, 1995 between Douglas Emmett
Joint Venture and The Fountain View Management Group
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25 Locomotion Therapy, Inc., Fresno, California, Lease Agreement, dated
December 18, 1996 between M.D. Bautista Developments and Locomotion
Therapy, Inc.
10.26 Elmcrest Convalescent Hospital, El Monte, California, Lease Agreement
dated November 15, 1977 between Convalescent Hospital Management
Corporation and Elmcrest Convalescent Center, Inc.; Assignment and
Assumption of Lease Agreement dated May 31, 1990; Consent to
Assignment and Agreement, dated July 30, 1997
10.27 Monument Hill Nursing Center, Flatonia, Texas, Lease Agreement dated
October 20, 1986; Bill of Sale and General Warranty Deed from Hobbs &
Curry Family Limited Partnership to Summit Care Corporation, dated
September 11, 1997
10.28 Comanche Trail Nursing Home, Big Spring, Texas, Lease Agreement, dated
April 10, 1990, between Lloyd G. Hobbs and Select Care Enterprises,
Inc. (assigned to Summit Care Corporation); Consent to Assignment of
Lease, dated April 10, 1990; Assignment of Lease with Option to
Purchase, dated December 1, 1994; Assignment and Assumption of Lease,
dated September 1, 1997
10.29 Woodland Convalescent Center, Reseda, California Lease Agreement,
dated February 1, 1995 between Uni-Cal Associates and Summit Care
California, Inc.
10.30 Agreement for Development and Operation of Skilled Nursing Facilities,
dated May 4, 1998, between Fountain View, Inc. and Baylor Health Care
System; Service Mark Sublicense Agreement, dated May 4, 1998, between
Fountain View, Inc. and Baylor Health Care System; Trademark License
Agreement, dated July 24, 1997, between Baylor University and Baylor
Health Care System
10.31 On Track Physical Therapy, Office Building Lease Agreement, Fresno,
California, dated January 31, 1997 between M.D. Bautista Developments
and On Track Physical Therapy, Inc.
10.32 Omitted
10.33 Omitted
10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain
View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II,
L.P., dated February 6, 1998.(1)
10.35 Summit Care Corporation Special Severance Pay Plan dated February 6,
1998.(1)
10.36 Investment Agreement dated as of March 27, 1998 among Fountain View
and certain investors.
10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View,
the existing stockholders of Fountain View and certain investors.
10.38 Registration Rights Agreement dated as of March 27, 1998 among
Fountain View, certain stockholders of Fountain View and certain
investors.
10.39 Employment Agreement between Fountain View and Robert Snukal dated
March 27, 1998.
10.40 Employment Agreement between Fountain View and Sheila Snukal dated
March 27, 1998.
10.41 Employment Agreement between Fountain View and William Scott dated
March 27, 1998.
10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by
William Scott to Fountain View relating to purchase of 20,000 Shares
of Series A Common Stock.
10.43 Supplemental Signature Page to Investment Agreement dated as of May 4,
1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care
System ("Baylor") and Buckner Foundation ("Buckner").
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998
among Fountain View, Heritage, Baylor, Buckner and certain other
parties.
10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4,
1998 among Fountain View, Heritage, Baylor, Buckner and certain other
parties.
10.46 Warrants to purchase Series C Common Stock of Fountain View issued by
Fountain View to Heritage, Baylor, Buckner and certain of Baylor's
brokers.
10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain
View, The Banks party thereto and the Bank of Montreal, as agent.
10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.
10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.
10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.
10.51 Form of Revolving Note.
10.52 Form of Term Note.
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1).
23.3 Consent of Choate, Hall & Stewart (included as part of Exhibit 8.1).
24.1 Powers of Attorney.
25.1 Statement of eligibility of State Street Bank and Trust Company of
California, N.A., as trustee.
27.1 Financial Data Schedule.
99.1 Letter of Transmittal with respect to the Exchange Offer.
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.4 Letter Regarding Eligibility for use of Form S-4.
99.5 Report of Ernst & Young LLP on Schedule II.
</TABLE>
- --------
(1) Incorporated by reference to the Company's Schedule 14D-1 (File No. 005-
43590), filed with the Commission on February 13, 1998.
(B)FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Account
II-7
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended ("the Act"), may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
such Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, such Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus and facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-8
<PAGE>
SCHEDULE II
FOUNTAIN VIEW, INC.
VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
ADDITIONS
--------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COST AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995
Allowance for doubtful
accounts.............. $528,000 $427,000 -- $(229,000)(1) $ 726,000
======== ======== === ========= ==========
Year ended December 31,
1996
Allowance for doubtful
accounts.............. $726,000 $430,000 -- $(377,000)(1) $ 779,000
======== ======== === ========= ==========
Year ended December 31,
1997
Allowance for doubtful
accounts.............. $779,000 $395,000 -- $ (22,000)(1) $1,152,000
======== ======== === ========= ==========
</TABLE>
- --------
(1) Deductions relate to uncollectible accounts written off.
1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View, Inc. has duly caused this Amendment No. 2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
FOUNTAIN VIEW, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Chief Financial Officer and August 25, 1998
____________________________________ Treasurer (Principal
Derwin L. Williams Financial and Accounting
Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Executive Vice President and August 25, 1998
____________________________________ Director
Sheila S. Snukal
/s/ Michel Reichert* Director August 25, 1998
____________________________________
Michel Reichert
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael F. Gilligan* Director August 25, 1998
____________________________________
Michael F. Gilligan
/s/ Peter Z. Hermann* Director August 25, 1998
____________________________________
Peter Z. Hermann
/s/ Mark J. Jrolf* Director August 25, 1998
____________________________________
Mark J. Jrolf
Robert M. Snukal
*By ________________________________
/s/ Robert M. Snukal
Attorney-in-fact
</TABLE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Robert M. Snukal, William C.
Scott and Mark J. Jrolf, and each of them, with full power to act without the
other, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this Registration Statement, and any
and all amendments thereto (including pre- and post-effective amendments) or
any registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
and to file the same, with exhibits and schedules thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the undersigned in the capacity and
on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Boone Powell, Jr.
____________________________________ Director August 25, 1998
Boone Powell, Jr.
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Corporation has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
SUMMIT CARE CORPORATION
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
By: ___________________________
Robert M. Snukal
Attorney-in-fact
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care-California, Inc. has duly caused this Amendment No. 2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Los Angeles, State of California, on August 25, 1998.
SUMMIT CARE-CALIFORNIA, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Pharmacy, Inc. has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
SUMMIT CARE PHARMACY, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas Equity, Inc. has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on August 25, 1998.
SUMMIT CARE TEXAS EQUITY, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas No. 2, Inc. has duly caused this Amendment No. 2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
SUMMIT CARE TEXAS NO. 2, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* - Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* - Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* - Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas No. 3, Inc. has duly caused this Amendment No. 2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
SUMMIT CARE TEXAS NO. 3, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Management Texas, Inc. has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on August 25, 1998.
SUMMIT CARE MANAGEMENT TEXAS, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas, L.P. has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
SUMMIT CARE TEXAS, L.P.
By: ____Summit Care Management Texas,
Inc.
Its: General Partner
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal of Summit Care Management
Texas, Inc. (Principal
Executive Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________ of Summit Care Management
William C. Scott Texas, Inc.
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________ of Summit Care Management
Sheila S. Snukal Texas, Inc.
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View Holdings, Inc. has duly caused this Amendment No. 2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
FOUNTAIN VIEW HOLDINGS, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, AIB
Corp. has duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on August 25, 1998.
AIB CORP.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Alexandria Convalescent Hospital, Inc. has duly caused this Amendment No. 2 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 25, 1998.
ALEXANDRIA CONVALESCENT HOSPITAL,
INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, BIA
Hotel Corp. has duly caused this Amendment No. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Los Angeles, State
of California, on August 25, 1998.
BIA HOTEL CORP.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Brier Oak Convalescent, Inc. has duly caused this Amendment No. 2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Los Angeles, State of California, on August 25, 1998.
BRIER OAK CONVALESCENT, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Elmcrest Convalescent Hospital has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 25, 1998.
ELMCREST CONVALESCENT HOSPITAL
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountainview Convalescent Hospital has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 25, 1998.
FOUNTAINVIEW CONVALESCENT HOSPITAL
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View Management, Inc. has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 25, 1998.
FOUNTAIN VIEW MANAGEMENT, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Rio
Hondo Nursing Center has duly caused this Amendment No. 2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
RIO HONDO NURSING CENTER
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Locomotion Holdings, Inc. has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
LOCOMOTION HOLDINGS, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Locomotion Therapy, Inc. has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
LOCOMOTION THERAPY, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal Chief Executive Officer and August 25, 1998
____________________________________ Director (Principal
Robert M. Snukal Executive Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Keith Abrahams* President and Director August 25, 1998
____________________________________
Keith Abrahams
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, On-
Track Therapy Center has duly caused this Amendment No. 2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 25, 1998.
ON-TRACK THERAPY CENTER
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal Chief Executive Officer and August 25, 1998
____________________________________ Director (Principal
Robert M. Snukal Executive Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Keith Abrahams* President and Director August 25, 1998
____________________________________
Keith Abrahams
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
I.'NO, Inc. has duly caused this Amendment No. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Los Angeles, State
of California, on August 25, 1998.
I.'NO, INC.
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Sycamore Park Convalescent Hospital has duly caused this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 25, 1998.
SYCAMORE PARK CONVALESCENT HOSPITAL
/s/ Robert M. Snukal
By: _________________________________
Robert M. Snukal
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive August 25, 1998
____________________________________ Officer and Director
Robert M. Snukal (Principal Executive
Officer)
/s/ Derwin L. Williams* Treasurer (Principal August 25, 1998
____________________________________ Financial and Accounting
Derwin L. Williams Officer)
/s/ William C. Scott* Director and Chairman August 25, 1998
____________________________________
William C. Scott
/s/ Sheila S. Snukal* Vice President and Director August 25, 1998
____________________________________
Sheila S. Snukal
</TABLE>
/s/ Robert M. Snukal
*By ___________________________
Robert M. Snukal
Attorney-in-fact
S-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain
View and the Initial Purchasers named therein relating to the 11 1/4%
Senior Subordinated Notes due 2008.*
3.1 Certificate of Incorporation of Fountain View.*
3.1(a) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed March 27, 1998.*
3.1(b) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed May 6, 1998.*
3.2 By-laws of Fountain View.*
3.3 Articles of Incorporation of Summit Care Corporation.*
3.4 By-laws of Summit Care Corporation.*
3.5 Articles of Incorporation of Summit Care-California, Inc.*
3.6 By-laws of Summit Care-California, Inc.*
3.7 Articles of Incorporation of Summit Care Pharmacy, Inc.*
3.8 By-laws of Summit Care Pharmacy, Inc.*
3.9 Omitted
3.10 Omitted
3.11 Articles of Incorporation of Summit Care Texas Equity, Inc.*
3.12 By-laws of Summit Care Texas Equity, Inc.*
3.13 Articles of Organization of Summit Care Texas, No. 2, Inc.*
3.14 By-laws of Summit Care Texas, No. 2, Inc.*
3.15 Articles of Organization of Summit Care Texas, No. 3, Inc.*
3.16 By-laws of Summit Care Texas, No. 3, Inc.*
3.17 Articles of Organization of Summit Care Texas Management, Inc.*
3.18 By-laws of Summit Care Texas Management, Inc.*
3.19 Certificate of Limited Partnership of Summit Care Texas, L.P.*
3.20 Omitted
3.21 Certificate of Incorporation of Fountain View Holdings, Inc.*
3.22 By-laws of Fountain View Holdings, Inc.*
3.23 Articles of Incorporation of AIB Corp.*
3.24 By-laws of AIB Corp.*
3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc.*
3.26 By-laws of Alexandria Convalescent Hospital, Inc.*
3.27 Articles of Incorporation of BIA Hotel Corp.*
3.28 By-laws of BIA Hotel Corp.*
3.29 Articles of Incorporation of Brier Oak Convalescent, Inc.*
3.30 By-laws of Brier Oak Convalescent, Inc.*
3.31 Articles of Incorporation of Elmcrest Convalescent Hospital*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.32 By-laws of Elmcrest Convalescent Hospital*
3.33 Articles of Incorporation of Fountainview Convalescent Hospital*
3.34 By-laws of Fountainview Convalescent Hospital*
3.35 Articles of Incorporation of Fountain View Management, Inc.*
3.36 By-laws of Fountain View Management, Inc.*
3.37 Articles of Incorporation of Rio Hondo Nursing Center*
3.38 By-laws of Rio Hondo Nursing Center*
3.39 Certificate of Incorporation of Locomotion Holdings, Inc.*
3.40 By-laws of Locomotion Holdings, Inc.*
3.41 Certificate of Incorporation of Locomotion Therapy, Inc.*
3.42 By-laws of Locomotion Therapy, Inc.*
3.43 Articles of Incorporation of On-Track Therapy Center, Inc.*
3.44 By-laws of On-Track Therapy Center, Inc.*
3.45 Articles of Incorporation of I.' NO, Inc.*
3.46 By-laws of I.' NO, Inc.*
3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital*
3.48 By-laws of Sycamore Park Convalescent Hospital*
4.1 Indenture dated as of April 16, 1998 by and among Fountain View,
certain subsidiaries of Fountain View, and State Street Bank and
Trust Company of California, N.A., as trustee, for the 11 1/4%
Senior Subordinated Notes due 2008.*
4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see
Exhibit A-1 to Exhibit 4.1).*
5.1 Opinion of Choate, Hall & Stewart.
8.1 Opinion of Choate, Hall & Stewart (Tax)
10.1 Hancock Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent
Investments, and A.I.B. Corporation and Robert and Sheila Snukal;
Consent, Agreement, and Acknowledgment, dated July 30, 1997
10.2 Hancock Park Retirement Hotel, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent
Investments, and B.I.A. Corporation and Robert and Sheila Snukal;
Consent, Agreement, and Acknowledgment dated July 30, 1997
10.3 Montebello Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Elmcrest Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.4 Fountainview Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Fountainview Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.5 Rio Hondo Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Rio Hondo Nursing Center and Fountain View Holdings; First Amendment
to Lease, dated March 27, 1998
10.6 Sycamore Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Sycamore Park Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
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 Alaric 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 Summit Care Corporation by
Assignment of Lease, dated March 9, 1992, between SHL and Summit Care
Corporation.
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.), 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 Brier Oak
Convalescent, Inc.
10.13 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes,
Ltd., and SHL, assigned to Summit Care Corporation by Assignment of
Lease dated March 9, 1992, between SHL and Summit Care Corporation.
10.14 Seller Note for purchase of The Woodlands.
10.15 HUD Note for purchase of The Woodlands.
10.16 Phoenix Living Center Lease dated August 1, 1993, between Sierra Land
Group, Inc. and Summit Care Corporation; Sublease with Summit Health
Ltd., for Phoenix Living Center dated January 1994.
10.17 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and
Security Agreement dated September 30, 1994.
10.18 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.
10.19 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.
10.20 Omitted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.21 Limited Liability Company Agreement of APS-Summit Care Pharmacy,
L.L.C., dated November 30, 1996.*
10.22 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and
Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated
November 24, 1997.
10.23 Alexandria Convalescent Hospital, Los Angeles, California, Lease
Agreement dated November 2, 1992 between Alexandria Convalescent
Investments and Robert Snukal, Sheila Snukal, Manuel Padama and Clair
Padama; Consent, Agreement, and Acknowledgment, dated July 30, 1997
10.24 Lease Agreement for office space at 11900 Olympic Boulevard, Los
Angeles, California, dated February 1, 1995 between Douglas Emmett
Joint Venture and The Fountain View Management Group
10.25 Locomotion Therapy, Inc., Fresno, California, Lease Agreement, dated
December 18, 1996 between M.D. Bautista Developments and Locomotion
Therapy, Inc.
10.26 Elmcrest Convalescent Hospital, El Monte, California, Lease Agreement
dated November 15, 1977 between Convalescent Hospital Management
Corporation and Elmcrest Convalescent Center, Inc.; Assignment and
Assumption of Lease Agreement dated May 31, 1990; Consent to
Assignment and Agreement, dated July 30, 1997
10.27 Monument Hill Nursing Center, Flatonia, Texas, Lease Agreement dated
October 20, 1986; Bill of Sale and General Warranty Deed from Hobbs &
Curry Family Limited Partnership to Summit Care Corporation, dated
September 11, 1997
10.28 Comanche Trail Nursing Home, Big Spring, Texas, Lease Agreement, dated
April 10, 1990, between Lloyd G. Hobbs and Select Care Enterprises,
Inc. (assigned to Summit Care Corporation); Consent to Assignment of
Lease, dated April 10, 1990; Assignment of Lease with Option to
Purchase, dated December 1, 1994; Assignment and Assumption of Lease,
dated September 1, 1997
10.29 Woodland Convalescent Center, Reseda, California Lease Agreement,
dated February 1, 1995 between Uni-Cal Associates and Summit Care
California, Inc.
10.30 Agreement for Development and Operation of Skilled Nursing Facilities,
dated May 4, 1998, between Fountain View, Inc. and Baylor Health Care
System; Service Mark Sublicense Agreement, dated May 4, 1998, between
Fountain View, Inc. and Baylor Health Care System; Trademark License
Agreement, dated July 24, 1997, between Baylor University and Baylor
Health Care System
10.31 On Track Physical Therapy, Office Building Lease Agreement, Fresno,
California, dated January 31, 1997 between M.D. Bautista Developments
and On Track Physical Therapy, Inc.
10.32 Omitted
10.33 Omitted
10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain
View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II,
L.P., dated February 6, 1998.(1)
10.35 Summit Care Corporation Special Severance Pay Plan dated February 6,
1998.(1)
10.36 Investment Agreement dated as of March 27, 1998 among Fountain View
and certain investors.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View,
the existing stockholders of Fountain View and certain investors.*
10.38 Registration Rights Agreement dated as of March 27, 1998 among
Fountain View, certain stockholders of Fountain View and certain
investors.*
10.39 Employment Agreement between Fountain View and Robert Snukal dated
March 27, 1998.*
10.40 Employment Agreement between Fountain View and Sheila Snukal dated
March 27, 1998.*
10.41 Employment Agreement between Fountain View and William Scott dated
March 27, 1998.*
10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by
William Scott to Fountain View relating to purchase of 20,000 Shares
of Series A Common Stock.*
10.43 Supplemental Signature Page to Investment Agreement dated as of May 4,
1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care
System ("Baylor") and Buckner Foundation ("Buckner").*
10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998
among Fountain View, Heritage, Baylor, Buckner and certain other
parties.*
10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4,
1998 among Fountain View, Heritage, Baylor, Buckner and certain other
parties.*
10.46 Warrants to purchase Series C Common Stock of Fountain View issued by
Fountain View to Heritage, Baylor, Buckner and certain of Baylor's
brokers.*
10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain
View, The Banks party thereto and the Bank of Montreal, as agent.*
10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.51 Form of Revolving Note.*
10.52 Form of Term Note.*
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1).
23.3 Consent of Choate, Hall & Stewart (included as part of Exhibit 8.1).
24.1 Powers of Attorney (located on signature page).
25.1 Statement of eligibility of State Street Bank and Trust Company of
California, N.A., as trustee.*
27.1 Financial Data Schedule.
99.1 Letter of Transmittal with respect to the Exchange Offer.*
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.*
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.*
99.4 Letter Regarding Eligibility for use of Form S-4.*
99.5 Report of Ernst & Young LLP on Schedule.*
</TABLE>
- --------
* Previously filed
(1) Incorporated by reference to the Company's Schedule 14D-1 (File No. 005-
43590), filed with the Commission on February 13, 1998.
<PAGE>
Exhibit 5.1
CHOATE, HALL & STEWART
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109-2891
TELEPHONE (617) 248-5000
FACSIMILE (617) 248-4000
August 25, 1998
Fountain View, Inc.
11900 W. Olympic Boulevard, Suite 680
Los Angeles, CA 90064
Re: Fountain View, Inc. - Registration of $120,000,000 Aggregate
Principal Amount of 11 1/4% Senior Subordinated Notes
Due 2008, Series B on Form S-4
------------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration, pursuant to
a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended (the "Act"), filed with the Securities and Exchange Commission on June
19, 1998 (the "Registration Statement"), of $120,000,000 aggregate principal
amount of 11 1/4% Senior Subordinated Notes due 2008, Series B (the "Exchange
Notes") of Fountain View, Inc. (the "Company"), together with guarantees thereof
(the "Exchange Guarantees") by Summit Care Corporation, Summit Care-California,
Inc., Summit Care Pharmacy, Inc., Summit Care Texas Equity, Inc., Summit Care
Texas, No. 2, Inc., Summit Care Texas, No. 3, Inc., Summit Care Management
Texas, Inc., Summit Care Texas, L.P., Fountain View Holdings, Inc., AIB Corp.,
Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier Oak Convalescent,
Inc., Elmcrest Convalescent Hospital, Fountainview Convalescent Hospital,
Fountain View Management, Inc., Rio Hondo Nursing Center, Locomotion Holdings,
Inc., Locomotion Therapy, Inc., On-track Therapy Center, Inc., I.'N O, Inc. and
Sycamore Park Convalescent Hospital (the "Guarantors").
The Exchange Notes and the Exchange Guarantees will be offered in exchange
for the Company's outstanding 11 1/4% Senior Subordinated Notes due 2008 (the
"Outstanding Notes"), which have also been guaranteed by the Guarantors,
pursuant to the terms of the exchange offer (the "Exchange Offer") set forth in
the form of prospectus included in the Registration Statement.
<PAGE>
We have acted as counsel to the Company and the Guarantors in connection
with the foregoing registration of the Exchange Notes. We have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction, of such records, instruments, certificates, memoranda and other
documents as we have deemed necessary or advisable for purposes of this opinion
and have assumed, without independent inquiry, the accuracy of those documents.
In that examination, we have assumed the genuineness of all signatures, the
conformity to the originals of all documents reviewed by us as copies, the
authenticity and completeness of all original documents reviewed by us in
original or copy form and the legal competence of each individual executing such
documents.
As to all matters of fact (including factual conclusions and
characterizations and descriptions of purpose, intent or other state of mind),
we have relied on the representations of the Company and the Guarantors, and we
have assumed, without independent inquiry, the accuracy of those
representations.
We have also assumed that the Indenture (as defined in the Registration
Statement), the Exchange Notes and the Exchange Guarantees have been duly
authorized and validly executed and delivered by each of the Company and the
Guarantors and that each of the Company and the Guarantors is a corporation
validly existing under the laws of its jurisdiction of organization and has the
corporate power and authority to enter into each of the Indenture, the Exchange
Notes and the Exchange Guarantees.
The opinion set forth below relating to the binding effect of the
Indenture, the Exchange Notes and the Exchange Guarantees (collectively, the
"Operative Documents") upon the Company and the Guarantors is subject to the
following general qualifications:
(i) as to any instrument delivered by the Company or the Guarantors as
contemplated by the Operative Documents, we assume that the Company
or the respective Guarantor has received the agreed to consideration
therefor;
(ii) as to any agreement to which the Company or a Guarantor is a party,
we assume that such agreement is the binding obligation of each party
thereto other than the Company or the Guarantors;
(iii) the enforceability of any obligation of the Company or the Guarantors
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, marshalling or other laws and rules of
law affecting the enforcement generally of creditors' rights and
remedies (including such as may deny giving effect to waivers of
debtors' or guarantors' rights);
<PAGE>
(iv) no opinion is given herein as to the enforceability of any particular
provision of any of the Operative Documents relating to remedies
after default or as to the availability of any specific or equitable
relief of any kind;
(v) no opinion is given herein as to the enforceability of any particular
provision of any of the Operative Documents relating to (A) waivers
of defenses, of rights to trial by jury, or rights to obtain
jurisdiction or venue and other rights or benefits bestowed by
operation of law, (B) waivers of provisions which are not capable of
waiver under Section 1-102(3) of the Uniform Commercial Code, or (C)
exculpation clauses, indemnity or contribution clauses and clauses
relating to releases or waivers of unmatured claims or rights; we
express no opinion as to the effect of suretyship defenses, or
defenses in the nature thereof, with respect to the obligor or of any
guarantor, joint obligor or surety;
(vi) with respect to any liquidated damages provisions, we have assumed
that the amount of the liquidated damages specified in such provision
bears a reasonable proportion to the probable loss from failure to
comply with the relevant covenant and the amount of actual loss is
incapable of precise estimation or difficult to estimate precisely;
and
(vii) the enforcement of any rights may in all cases be subject to an
implied duty of good faith and to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
This opinion is limited to the internal substantive laws of The
Commonwealth of Massachusetts as applied by courts located in Massachusetts and
the General Corporation Law of the State of Delaware as applied by courts
located in Delaware. No opinion is given herein as to the choice of law or
internal substantive rules of law which any tribunal may apply to the
transactions referred to herein. We express no opinion as to, and assume
compliance, with any applicable, federal or state securities law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
<PAGE>
Based upon the foregoing, we are of the opinion that:
1. the Indenture has been duly authorized and validly executed and
delivered by the Company and the Guarantors and is a valid and binding agreement
of the Company and the respective Guarantors, enforceable against the Company
and the respective Guarantors in accordance with its terms; and
2. the Exchange Notes, when issued by the Company in accordance with the
terms of the Indenture against receipt of Outstanding Notes pursuant to the
terms of the Exchange Offer, will have been duly authorized and validly executed
and delivered by the Company, and will be binding obligations of the Company
enforceable in accordance with their terms and the Exchange Guarantees will be
binding obligations of the Guarantors enforceable against the Guarantors in
accordance with their terms.
We consent to the filing of a copy of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement under the caption "Legal Matters."
Very truly yours,
/s/ CHOATE, HALL & STEWART
<PAGE>
Exhibit 8.1
CHOATE, HALL & STEWART
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109-2891
TELEPHONE (617) 248-5000
FACSIMILE (617) 248-4000
August 25, 1998
Fountain View, Inc.
11900 W. Olympic Boulevard
Suite 680
Los Angeles, California 90064
RE: Fountain View, Inc.
Senior Subordinated Notes Due 2008
----------------------------------
Gentlemen :
You have requested our opinion regarding the discussion of the material
United States federal income tax considerations under the heading "Material
Federal Income Tax Consequences" in the Prospectus (the "Prospectus") included
in the Registration Statement on Form S-4, File No. 333-57279 (as amended, the
"Registration Statement"), filed by Fountain View, Inc., a Delaware corporation
(the "Company') on August 5, 1998 with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). The Prospectus relates to the offer, made by the Company, to exchange an
aggregate amount at maturity of up to $120,000,000 of the 11 1/4% Senior
Subordinated Notes Due 2008 of the Company (the "Exchange Notes") for a like
principal amount of the Company's issued and outstanding 11 1/4% Senior
Subordinated Notes Due 2008, previously sold pursuant to Rule 144A (the
"Outstanding Notes"). This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
Unless otherwise defined herein, capitalized terms used in this opinion shall
have the meaning set forth in the Registration Statement.
Our opinion is premised upon the accuracy of all factual statements made in
the Exchange Offer and the underlying documents cited therein, and upon the
completion of the transaction in the manner contemplated in the Exchange Offer.
In addition, our opinion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations (including proposed regulations)
promulgated thereunder, administrative rulings and pronouncements of the
Internal Revenue Service ("IRS"), and judicial decisions, all as of the date
<PAGE>
Fountain View, Inc.
August 25, 1998
Page 2
thereof and all of which are subject to change at any time, possibly with
retroactive effect. Any change in the facts or law upon which we rely could
change our conclusion and render our opinion inapplicable.
We have examined the Registration Statement and have made such other
factual and legal investigations as we considered necessary or appropriate for
the purpose of this opinion. In that connection, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of our documents,
corporate records and other instruments as we have deemed necessary for the
purpose of rendering the opinion set forth below. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic originals of all
documents submitted to us as certified or photostatic copies.
Based on the foregoing, and subject to the discussion and limitations set
forth under the heading "Material Federal Income Tax Consequences" in the
Prospectus, it is our opinion that the statements made under the heading
"Material Federal Income Tax Consequences" in the Prospectus, to the extent they
constitute matters of law or legal conclusions, are correct in all material
respects.
This opinion is based on the relevant law in effect (or, in the case of
proposed regulations, proposed) and the relevant facts that exist as of the date
hereof. We have no obligation to advise the Company or any other person of
changes of law or fact that occur after the date hereof. This opinion
represents our best legal judgment but has no binding effect on the IRS.
Accordingly, there can be no assurance that the IRS will not successfully
challenge our opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission. We do not
consent to any reference to this opinion letter in any other document. We
express no opinion with respect to the merits of an investment in the Company or
participation in the Exchange offer.
Very truly yours,
/s/ CHOATE, HALL & STEWART
<PAGE>
EXHIBIT 10.1
LA BREA CONVALESCENT INVESTMENTS
8417 BEVERLY BOULEVARD, SUITE 205
LOS ANGELES, CALIFORNIA 90048
(213) 651-1100
March 27, 1997
Mr. Robert Snukal, President
c/o Fountain View Management
11900 W. Olympic Blvd., No. 680
Los Angeles, CA 90064
RE: Hancock Park Convalescent Hospital
Hancock Park Retirement Hotel
Gentlemen:
Please have this letter serve as confirmation that on this date we received, by
certified mail, your letter dated March 26, 1997 informing us that you are
exercising the option to renew your leasing the above noted facilities.
Very truly yours,
/s/ Sanford Deutsch
Sanford Deutsch
<PAGE>
LEASE OF HANCOCK PARK CONVALESCENT HOSPITAL
-------------------------------------------
-i-
<PAGE>
LEASE OF HANCOCK PARK CONVALESCENT HOSPITAL
-------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPALS NAMED................................................... 1
RECITALS........................................................... 1
1. DESCRIPTION OF LEASED PROPERTY..................................... 2
------------------------------
1.1 Convalescent Hospital......................................... 2
1.2 Hospital Equipment............................................ 2
1.3 References.................................................... 2
2. TENANT'S ACCEPTANCE OF LEASED PROPERTY............................. 3
--------------------------------------
3. TERM............................................................... 3
----
4. RENT............................................................... 4
----
4.1 Minimum Monthly Rent.......................................... 4
4.2 Adjustment to Minimum Monthly Rent............................ 4
4.3 Additional Rent............................................... 8
5. TAXES PAID BY TENANT............................................... 9
--------------------
6. SECURITY DEPOSIT................................................... 12
----------------
7. LESSOR'S NAME...................................................... 15
-------------
8. USE................................................................ 16
---
9. INSURANCE HAZARDS.................................................. 18
-----------------
10. COMPLIANCE WITH LAW................................................ 18
-------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
11. WASTE.............................................................. 20
-----
12. ALTERATIONS AND ADDITIONS.......................................... 20
-------------------------
13. UTILITIES.......................................................... 22
---------
14. REPAIRS............................................................ 22
-------
15. SURRENDER UPON TERMINATION......................................... 23
--------------------------
16. DAMAGE OR DESTRUCTION.............................................. 24
---------------------
16.1 Risk of Loss................................................. 24
16.2 TENANT'S Obligation to Repair and Rebuild.................... 25
16.3 Loss Covered by Insurance.................................... 26
17. TENANT'S INSURANCE................................................. 28
------------------
17.1 Required Coverage............................................ 28
17.2 Full Insurable Value......................................... 30
17.3 Names Insured................................................ 30
17.4 Miscellaneous Requirements of Policies....................... 31
17.5 TENANT'S Obligations, Rights and Remedies
of LESSOR................................................... 32
17.6 Insurance and Exercise of Rights of First
Refusal..................................................... 33
18. LESSOR TO BE HELD HARMLESS......................................... 34
--------------------------
18.1 Indemnity.................................................... 34
18.2 Exemption of Lessor from Liability........................... 35
19. ENTRY BY LESSOR.................................................... 35
---------------
20. BOOKS AND RECORDS.................................................. 36
-----------------
21. ABANDONMENT OF LEASED PROPERTY..................................... 36
------------------------------
21.1 Trade Fixtures............................................... 36
22. ASSIGNMENT OR SUBLETTING........................................... 37
------------------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
23. INVOLUNTARY ASSIGNMENT............................................. 38
----------------------
24. DEFAULT............................................................ 40
-------
24.1 TENANT'S Default............................................. 40
24.2 LESSOR'S Remedies............................................ 40
(a) Re-Entry Without Termination............................ 41
(b) Termination............................................. 42
(c) Receiver................................................ 44
(d) Cure at TENANT'S Expense................................ 44
25. INTEREST ON UNPAID RENT OR OTHER SUMS DUE.......................... 44
-----------------------------------------
26. LATE CHARGES AND OTHER COSTS....................................... 44
----------------------------
27. LESSOR'S DEFAULT................................................... 45
----------------
28. CONDEMNATION....................................................... 45
------------
29. FINANCIAL STATEMENT OF TENANT...................................... 47
-----------------------------
30. BINDING ON SUCCESSORS.............................................. 47
---------------------
31. HOLDING OVER....................................................... 47
------------
32. ESTOPPEL CERTIFICATE............................................... 48
--------------------
33. SUBORDINATION...................................................... 49
-------------
34. COVENANT OF AUTHORITY AND QUIET POSSESSION......................... 49
------------------------------------------
35. WAIVER............................................................. 50
------
36. ABSOLUTE ASSIGNMENT OF RENTS....................................... 51
----------------------------
37. OPTION TO EXTEND................................................... 51
----------------
38. RIGHT OF FIRST REFUSAL TO PURCHASE LEASED PROPERTY................. 52
--------------------------------------------------
39. TRANSFER OF LESSOR'S INTEREST...................................... 56
-----------------------------
40. NOTICES............................................................ 56
-------
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
41. SURRENDER OF LEASE NOT MERGER...................................... 57
-----------------------------
42. ATTORNEYS' FEES.................................................... 58
---------------
43. PROHIBITION AGAINST RECORDING LEASE OR MEMORANDUM OF LEASE......... 58
----------------------------------------------------------
44. DESIGNATION OF AGENT FOR SERVICE OF PROCESS........................ 58
-------------------------------------------
45. QUITCLAIM DEED..................................................... 59
--------------
46. CONSENT OF PARTIES................................................. 60
------------------
47. RENT PAYABLE IN U.S. MONEY......................................... 60
--------------------------
48. REAL ESTATE BROKERS; FINDERS....................................... 60
----------------------------
49. EXHIBITS........................................................... 60
--------
50. APPLICABLE LAW..................................................... 60
--------------
51. SINGULAR AND PLURAL................................................ 60
-------------------
52. SEVERABILITY....................................................... 60
------------
53. CROSS-DEFAULT...................................................... 61
-------------
54. ADDITIONAL REQUIREMENT OF ASSIGNMENT
------------------------------------
OR SUBLETTING...................................................... 61
--------------
SIGNATURE PAGE.................................................... 61
</TABLE>
-v-
<PAGE>
LEASE OF HANCOCK PARK CONVALESCENT HOSPITAL
-------------------------------------------
THIS LEASE is a revision of the Lease signed May 19, 1987, by and between:
LA BREA CONVALESCENT INVESTMENTS, a California partnership,
hereinafter referred to as ..... "LESSOR" and the following persons,
jointly and severally:
A.I.B. CORPORATION, a California corporation, hereinafter referred to
as ........... A.I.B., and
ROBERT SNUKAL and SHEILA SNUKAL, husband and wife, hereinafter
referred to as ............... "SNUKAL."
SNUKAL, and A.I.B. are hereinafter referred to, jointly and severally,
as ......................... "TENANT"
RECITALS
--------
A. LESSOR is the owner of those certain premises with improvements
and appurtenances thereon situated in the City of Los Angeles, County of Los
Angeles, State of California, commonly designated at 505 North La Brea
Avenue, Los Angeles, California.
B. LESSOR is willing to lease to TENANT, and TENANT is willing to
lease from LESSOR, upon the terms and conditions hereinafter set forth, the
real and personal property hereinafter described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED BY AND BETWEEN THE PARTIES HERETO as
follows:
DESCRIPTION OF LEASED PROPERTY
------------------------------
LESSOR hereby leases to TENANT, and TENANT leases from LESSOR, upon
the terms and conditions hereinafter set forth, the following real and personal
property:
1
<PAGE>
LESSOR hereby leases to TENANT, and TENANT leases from LESSOR, upon the
terms and conditions hereinafter set forth, the following real and personal
property:
1.1. Convalescent Hospital. Those certain premises with improvements
---------------------
thereon, situated in the City and County of Los Angeles, State of California,
commonly designated as 505 North La Brea Avenue, Los Angeles, California, on
which there was erected and there is presently operating a skilled nursing
facility, which present operation is known as HANCOCK PARK CONVALESCENT
HOSPITAL, and which real property is more particularly described in EXHIBIT
"1,,, attached hereto and incorporated herein by reference, and is hereinafter
referred to as .......... "HOSPITAL"
1.2. Hospital Equipment. All of the furniture, furnishings,
------------------
fixtures and equipment presently being used in the operation of HOSPITAL, as
more particularly described and itemized in EXHIBIT "2", attached hereto and
incorporated herein by reference and hereinafter referred to as "HOSPITAL
EQUIPMENT"
1.3. References:
----------
(a) HOSPITAL and HOSPITAL EQUIPMENT are hereinafter collectively
referred to as ...................... "HOSPITAL FACILITY"
(b) HOSPITAL is hereinafter collectively referred to as .............
"REAL PROPERTY"
(c) HOSPITAL EQUIPMENT is hereinafter collectively referred to as
....................... "PERSONAL PROPERTY"
(d) HOSPITAL, and HOSPITAL EQUIPMENT is hereinafter collectively
referred
2
<PAGE>
to as ........................... "LEASED PROPERTY"
2. TENANT'S ACCEPTANCE OF LEASED PROPERTY
--------------------------------------
2.1. TENANT accepts the LEASED PROPERTY and each and every part thereof in
their state and condition as of the date hereof and without any representation
or warranty by LESSOR as to the condition of such property or as to the use
which may be made thereof except as may otherwise be set forth herein. TENANT
is fully aware of the state and condition of the LEASED PROPERTY and of the
operation thereof.
2.2. LESSOR shall not be responsible for any latent defect in the REAL
PROPERTY nor shall LESSOR be responsible for any change of condition in LEASED
PROPERTY, and the rent, additional rent 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 with respect thereto of any violations of
the laws or regulations of any governmental authority.
2.3. TENANT acknowledges that HOSPITAL is licensed as a 141 bed skilled
nursing facility and that HOSPITAL is now occupied by less than 141 patients or
residents respectively, and further that some rooms and suites are being used or
have been modified for use on a private or semi-private basis.
3. TERM
----
The term of the within Lease shall be for ten (10) years, commencing August
1, 1988 and terminating on July 31, 1998, unless sooner terminated as
hereinafter provided.
3
<PAGE>
4. RENT
----
4.1. Minimum Rent. Monthly rent shall be payable by TENANT to LESSOR
------------
in lawful money of the United States, without abatement, deduction, set-off,
prior notice or demand, at such place or places that may be designated from time
to time by LESSOR, in monthly installments, payable on the first day of each
month, in advance, commencing August 1, 1988, and continuing thereafter on
the first of every month until the end of the term of this Lease, or any
extension thereof, in the following amounts for the thirty month periods
specified below; provided, however that the minimum monthly rent shall be
subject to adjustments in accordance with the provisions of Paragraph 4.2:
Minimum Monthly Rent
Adjustment (Subject to
Thirty Month Periods of Term Per Paragraph 4.2)
- -------------------------------------------------------------------------------
First: Aug. 1, 1988 to Dec. 31, 1990 $24,265
Jan. 1, 1991 to Jan. 31, 1991 $27,000
Second: Feb. 1, 1991 to July 31, 1993 $27,900
Third: Aug. 1, 1993 to Jan. 31, 1996 $29,100
Fourth: Feb. 1, 1996 to July 31, 1998 $30,600
Thirty Month Periods of Minimum Monthly Rent
(Extended) Term
- ---------------
Fifth: Aug. 1, 1998 to To be calculated and adjusted
Jan. 31, 2001 pursuant to paragraph 4.2(d)
Sixth: Feb. 1, 2001 to To be calculated and adjusted
July 31, 2003 pursuant to paragraph 4.2(e)
4
<PAGE>
4.2. Adjustment to Minimum Monthly Rent.
----------------------------------
(a) Definitions As used herein the following definitions shall
-----------
apply:
(1) "Index" shall mean the Consumer Price Index for All Urban
Consumers, Los Angeles, Long Beach, Anaheim, metropolitan area, 1967 equal 100,
published by the Bureau of Labor Statistics of the United States Department of
Labor.
(2) "Adjustment Date(s)" shall mean February 1, 1991, August
1, 1993, February 1, 1996, August 1, 1998 and Feb. 1, 2001.
(3) "Applicable Base Date(s)" shall mean the first month of
the Thirty Month Period preceding the Adjustment Date, as follows:
Adjustment Date Applicable Base Date
---------------------------------------------------
February 1, 1991 August 1988
August 1, 1993 February 1991
February 1, 1996 August 1993
August 1, 1998 February 1996
February 1, 2001 August 1998
(4) "Thirty Month Period" shall mean the six thirty month
periods specified in Paragraph 4.1 above.
(5) "Percentage Increase of Index" shall mean the percentage
increase in the Index between the Applicable Base Date and the Adjustment Date
equal to a fraction, the numerator of which shall be the Index on such
Adjustment Date minus the Index on the Applicable Base Date; and the denominator
of the fraction shall be the Index for the Applicable Base Date.
5
<PAGE>
(b) Changes or Revisions to Index. If the Index is changed so that
-----------------------------
the base year differs from that in effect when the term commences, the Index
shall be converted in accordance with the conversion factor published by the
United States Department of Labor Bureau of Labor Statistics. If the Index is
discontinued or revised during the 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.
(c) Adjustment to Minimum Rent During Initial Term. The minimum
----------------------------------------------
monthly rent for the Second, Third and Fourth Thirty Month Periods shall be
subject to adjustment as follows:
(1) Second Thirty Month Period. If the Percentage Increase
--------------------------
of Index on the Adjustment Date, that is, February 1, 1991, shall be 10% or
greater, then the monthly rent for the Second Thirty Month period shall be
$28,350 per month, which is an increase of 5% above the monthly rent for the
First Thirty Month Period. In no event shall the monthly rent for the Second
Thirty Month Period be less than $27,900.
(2) Third Thirty Month Period. If the Percentage Increase of
-------------------------
Index on the Adjustment Date, that is, August 1, 1993, shall be 12% or greater,
then, the monthly rent for the Third Thirty Month Period shall be an amount
equal to the sum of the minimum monthly rent for the second thirty month period,
as adjusted in accordance with Paragraph 4.2(c)(l), plus 6% of said amount. In
no event shall the monthly rent for Third Thirty Month Period be less than
$29,100 per month.
6
<PAGE>
(3) Fourth Thirty Month Period. If the Percentage Increase of
--------------------------
Index on the Adjustment Date, that is February 1, 1996, shall be 14% or greater,
then, the monthly rent for the Fourth Thirty Month Period shall be an amount
equal to the sum of the minimum monthly rent for the Third Thirty Month Period,
as adjusted in accordance with Paragraph 4.2(c)(2) above, plus an amount equal
to 7% of said amount. In no event shall the monthly rent for the Fourth Thirty
Month Period be less than $30,600 per month.
(d) Fifth Thirty Month Period (Extended Term) The minimum monthly
-----------------------------------------
rent for the Fifth Thirty Month Period, (from August 1, 1998 to January 31,
2001), shall be an amount equal to the sum of the minimum monthly rent for the
Fourth Thirty Month Period, as adjusted pursuant to paragraph 4.2(c)(3) above,
plus the greater of:
(1) One half of the Percentage Increase of Index on the
Adjustment Date, that is, August 1, 1998 multiplied by said minimum monthly rent
for the Fourth Thirty Month Period, as adjusted pursuant to Paragraph 4.2(c);
or,
(2) $2,400.
(e) Sixth Thirty Month Period (Extended Term). The minimum monthly
-----------------------------------------
rent for the Sixth Thirty Month Period, (from February 1, 2001, to July 31,
2003), shall be an amount equal to the minimum monthly rent for the Fifth Thirty
Month Period, as determined pursuant to paragraph 4.2(d) above, plus the greater
of:
(1) One-half of the percentage Increase of Index on the
Adjustment Date, that is, February 1, 2001,
7
<PAGE>
multiplied by said minimum monthly rent for the Fifth Thirty Month Period as
determined pursuant to paragraph 4.2(d) above; or
(2) $3,000.
(f) Example. An example of the computation of the adjustment and
-------
determination of the minimum monthly rent is set forth below:
Example
-------
Thirty Rent for Thirty Month
Month Adjustment Percentage Period Starting with
Period Date Increase of Index Adjustment Date
- ------ ---- ------------------ ----------------
First N/A N/A $27,000
Second Feb. 1, 1991 11% $28,350 (i)
Third Aug. 1, 1993 15% 30,051 (ii)
Fourth Feb. 1, 1996 13% 30,600 (iii)
Fifth: August 1, 1998 10% 33,000 (iv)
Sixth: February 1, 2001 20% 36,300 (v)
(i) 27,000 x 5% = 1,350 + 27,000 = 28,350
(ii) 28,350 x 6% = 1,701 + 28,350 = 30,051
(iii) Percentage increase of Index less than 14% - minimum monthly rent
applies.
(iv) Adjusted monthly rent for Fourth Thirty Month Period plus $2,400 = 30,600
+ 2,400 = 33,000, which is greater than adjusted monthly rent for Fourth Thirty
Month Period plus 1/2 Percentage Increase of Index: $30,600 + (5% x 30,600) =
32,130
(v) Adjusted monthly rent for Fifth Thirty Month Period plus 1/2 Percentage
Increase of Index = 33,000 + (10% x 33,000) = 36,300, which is greater than
adjusted monthly rent for Fifth Thirty Month Period plus $3,000: 33,000 + 3,000
= 36,000.
8
<PAGE>
(g) The minimum monthly rent as adjusted pursuant to paragraph 4.2 is
sometimes referred to herein as "basic rent" or the "Monthly Rent".
4.3. Additional Rent This Lease is what is commonly called a "net net net
---------------
lease", it being understood that LESSOR shall receive the basic rent set forth
in Paragraph 4 free and clear of any and all other obligations, impositions,
taxes, liens, assessments, fees or other charges in lieu of taxes, rental taxes,
license fees, penalties that may accrue thereon in the event of TENANT'S failure
to pay such amounts (including but not limited to late charges, interest and
penalties incurred for late payment of property taxes), charges or expenses of
any nature whatsoever in connection with the ownership and operation of the
LEASED PROPERTY. In addition to the basic rent, TENANT shall pay to the parties
respectively entitled thereto all taxes, impositions, insurance premiums,
operating charges, maintenance charges, construction costs, and any other
charges, costs and expenses which arise or may be contemplated under any
provisions of this Lease or incurred with respect to the activities in
connection with the LEASED PROPERTY during the term hereof. All of such charges,
costs and expenses shall constitute additional rent and upon the failure of
TENANT to pay any of such costs, charges or expenses, LESSOR shall have the same
rights and remedies as otherwise provided in this Lease for the failure of
TENANT to pay basic rent. It is the intention of the parties hereto that this
Lease shall not be terminable for any reason by the TENANT, and that TENANT
shall in no event be entitled to any abatement of or reduction in rent payable
hereunder, except as
9
<PAGE>
herein expressly provided. Any present or future law to the contrary shall not
alter this agreement of the parties.
5. TAXES PAID BY TENANT
--------------------
5.1. TENANT, in addition to the basic rent provided for herein, shall pay
all real property taxes, personal property taxes and assessments upon the
LEASED PROPERTY, and upon any improvements, additions or replacements thereof,
which are applicable to the Lease term. All taxes assessed prior to, but
payable in whole or in installments after the effective date of the Lease term,
and all taxes assessed during the term but payable in whole or in installments
after the Lease term, shall be adjusted and prorated, so that LESSOR shall pay
its prorated share for the period prior to and for the period subsequent to the
Lease term.
5.2. LESSOR shall submit to TENANT the real property tax bills, personal
property tax bill and any assessments, upon receipt thereof by LESSOR, TENANT
shall pay such property tax bills, personal property tax bill or assessments
directly to the payee thereof at least ten (10) days prior to the delinquency
date; such procedure to continue during the whole term of this Lease, subject to
such proration for the initial and the last year's taxes or assessments as may
be necessary. TENANT shall promptly forward to LESSOR upon TENANT'S receipt
thereof, copies of receipts or cancelled checks in payment thereof. TENANT
shall, at its cost, provide LESSOR with a tax reporting service through a title
company selected by LESSOR.
If LESSOR'S Lender requires LESSOR to impound real property taxes on a
periodic basis during the term, TENANT, on notice from LESSOR indicating this
requirement, shall pay a sum of money
10
<PAGE>
toward its liability under this LEASE to LESSOR on a periodic basis in
accordance with the Lender's requirements. LESSOR shall impound the tax payments
received from TENANT in accordance with the requirements of Lender.
5.3. As used herein, the term "real property tax" shall include any form
of assessment, license fee, levy, penalty, or tax (other than inheritance or
estate taxes), imposed by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement district thereof, as
against any legal or equitable interest of LESSOR in the REAL PROPERTY or any
part thereof, as against LESSOR,S right to rent or other income therefrom, or as
against LESSOR,S business of leasing the LEASED PROPERTY or any part thereof.
5.4. If at any time during the term the State of California or any
political subdivision of the state, including any county, city, city and county,
public corporation, district, or any other political entity or public
corporation of this state or of the United States, levies or assesses against
LESSOR a tax, fee, or excise on rents, on the square footage of the REAL
PROPERTY, on the act of entering into this Lease, or on the occupancy of TENANT,
or any other charge, tax, fee, or excise, however described, as a direct
substitution in whole or in part for, or in addition to, any real property
taxes, TENANT shall pay before delinquency that charge, tax, fee, or excise on
rents.
5.5. (a) TENANT or LESSOR shall have the right at its own cost and expense
to contest the validity of any such tax, or assessment provided that no acts
shall be done which create a
11
<PAGE>
penalty or accrue interest.
(b) LESSOR shall not be required to join in any proceeding or contest
brought by TENANT unless the provisions of any law require that the proceeding
or contest be brought by or in the name of LESSOR or any owner of the Premises.
In that case, LESSOR shall join in the proceeding or contest or permit it to be
brought in LESSOR'S name as long as LESSOR is not required to bear any cost.
TENANT, on final determination of the proceeding or contest, shall immediately
pay or discharge any decision or judgment rendered, together with all costs,
charges, interest, penalties incidental to the decision or judgment.
(c) If TENANT does not pay the real property taxes when due and TENANT
seeks a reduction or contests them as provided in this paragraph, before the
commencement of the proceeding or contest TENANT shall furnish to LESSOR a
surety bond issued by an insurance company qualified to do business in
California. The amount of the bond shall equal one hundred fifty per percent
(150%) of the total amount of real property taxes in dispute. The bond shall
hold LESSOR and the REAL PROPERTY harmless from any damage arising out of the
proceeding or contest and shall insure the payment of any judgment that may be
rendered.
5.6. LESSOR warrants and represents to TENANT that there are no outstanding
special or general assessments against the REAL PROPERTY.
5.7. In the event that the real property taxes upon the LEASED PROPERTY
shall be increased by reason of any sale or transfer of the LEASED PROPERTY, or
any part thereof pursuant to paragraph 38.3 of this Lease, then and in that
event, TENANT and
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LESSOR shall each pay one-half of the amount of said increase.
6. SECURITY DEPOSIT
----------------
6.1. TENANT shall not be required to deposit any security deposit with
LESSOR; except:
(a) In the event TENANT shall assign its interest in this Lease or
sublet all or any part of the LEASED PROPERTY, then, and in that event, as an
additional condition to LESSOR'S consent to such assignment or sublease, LESSOR
may require that such assignee or subtenant (other than an assignee or subtenant
pursuant to paragraph 22.4) deposit a security deposit with LESSOR in the amount
and on the terms and conditions set forth in this Article 6; or
(b) In the event TENANT shall be in breach or default of its
obligations to pay any rent, additional rent or any other sum payable by TENANT
under this Lease on more than three occasions during the term or any extended
term hereof, TENANT shall, upon ten days written notice to TENANT deposit a
security deposit with LESSOR in the amount and on the terms and conditions set
forth in this Article 6.
6.2. If required pursuant to Paragraph 6.1 above, TENANT shall deposit with
LESSOR the sum of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) as
security for the full and faithful performance by TENANT of all of the terms,
conditions and provisions of this Lease required to be performed by TENANT.
6.3. LESSOR may use, apply or retain the whole or any part of the security
so deposited to the extent required for the payment of any rent, additional rent
or other sum or sums as to which TENANT is in default, or for any sum which
LESSOR may
13
<PAGE>
expend or be required to expend in accordance with the terms of this Lease by
reason of TENANT'S default in respect to any of the terms of this Lease,
including, but not limited to, any damages or deficiency in the re-letting of
the LEASED PROPERTY or any part thereof, whether such damages or deficiency
accrued before or after summary proceedings or other legal or equitable
proceedings or other re-entry by LESSOR.
6.4. In the event that TENANT shall have fully and faithfully complied with
all of the terms and conditions of this Lease, the security deposit, without any
interest thereon, shall be returned to TENANT after the date fixed at the end of
the Lease term and after delivery of possession of the LEASED PROPERTY to LESSOR
pursuant to the terms of this Lease.
6.5. (a) In the event of a sale by LESSOR of the LEASED PROPERTY to a third
party other than TENANT, LESSOR shall have the right to transfer the security to
the vendee, provided the vendee shall be obligated to place said security
deposit in a separate account maintained in trust and to return said security
deposit upon the same terms and conditions as in this Lease provided, and upon
the opening of such separate account, the LESSOR shall be released from all
liability for the return of such security. TENANT shall look solely to the new
lessor for the return of such security.
(b) In the event of a sale by LESSOR to one or more of the partners of
LESSOR or an entity in which one or more of the partners of LESSOR own at least
a fifty percent (50%) beneficial interest, then and in that event LESSOR shall
have the right to transfer the security to the vendee, provided the vendee
assumes
14
<PAGE>
the obligation to hold and return said security deposit upon the same terms and
conditions as in this Lease provided, and upon such assumption, the selling
partners of LESSOR shall be released from all liability for the return of such
security. TENANT shall look solely to the new lesser for the return of such
security. In such event, the security deposit shall not be required to be
deposited in a trust account as set forth in (a) above.
6.6. Provided that TENANT has not during the term of this Lease been in
default or delinquent in the performance of all of the terms and conditions of
this Lease, in the event that TENANT shall purchase the LEASED PROPERTY pursuant
to the "right of first refusal" set forth in Article 39 of this Lease, then and
in that event the security deposit, if any, shall be applied to the balance of
the initial cash down payment for the purchase of the LEASED PROPERTY by TENANT
after, and in addition to, any part of the down payment required to be deposited
in escrow.
6.7. TENANT shall not assign or encumber the monies deposited as security,
and neither LESSOR nor its successor or assigns shall be bound by any such
assignment or encumbrance; except to assignees or transferees approved in
accordance with this Lease.
6.8. In the event any federal or state law, statute, rule, regulation,
ruling or order shall, during the term of this Lease, provide that interest
shall be paid by LESSOR to TENANT on account of LESSOR holding the security
deposit, then TENANT does hereby waive the right to receive such payment or if
such interest is paid, then and in that event, TENANT shall, within ten (10)
days, after receipt thereof, pay to LESSOR, as
15
<PAGE>
additional rent hereunder, a sum equal to the amount of the interest that such
laws, statutes, rules, regulations or orders provide shall be paid by LESSOR.
7. LESSOR'S NAME
-------------
7.1. TENANT acknowledges that the names HANCOCK PARK, HANCOCK PARK
CONVALESCENT HOSPITAL and HANCOCK PARK RETIREMENT HOTEL, or any name similar
thereto or a derivative thereof, when used in connection with the operation of
HOSPITAL, HOTEL or any other facility or business engaged in providing
convalescent or skilled nursing care or retirement care or board and care are
the sole and exclusive property of LESSOR.
7.2. LESSOR hereby grants to TENANT, for the term of this Lease or any
renewal or extension thereof, the right to use said names in connection with the
operation and use of HOSPITAL And HOTEL and for no other purpose. The right to
use said names shall terminate upon (a) expiration of the Lease; or (b)
termination of the Lease; or (c) termination of TENANT'S right to possession; or
(d) a change in use of the LEASED PROPERTY or portion thereof.
7.3. Nothing herein contained shall require HANCOCK PARK CONVALESCENT
HOSPITAL, INC. or HANCOCK PARK RETIREMENT HOTEL to change their names during the
term of this Lease, nor shall they be prevented from conducting and maintaining
bank accounts under said names and depositing funds therein and withdrawing
funds therefrom.
7.4. TENANT shall not license, assign or permit anyone else taking or
claiming through or under it to use such names without LESSOR'S prior written
consent which shall not be unreasonably
16
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withheld.
8. USE
---
8.1. LESSOR is leasing the HOSPITAL FACILITY to TENANT for the purpose of
operating a skilled nursing facility on the HOSPITAL premises, and HOSPITAL
FACILITY is being leased to TENANT for said purpose only. TENANT may convert the
use of the HOSPITAL FACILITY to a licensed or unlicensed residential care home
with LESSOR'S prior written consent which shall not be unreasonably withheld.
8.2. TENANT shall not use or permit LEASED PROPERTY, or any part thereof,
to be used for any purpose or purposes other than the respective purposes for
which LEASED PROPERTY is hereby leased. TENANT shall not take any act or suffer
or permit any licensing change which would alter, change or reduce any use of
the LEASED PROPERTY permitted hereunder. TENANT shall not take any act or suffer
or permit any change in the configuration of the LEASED PROPERTY which would
alter, change or reduce the potential occupancy of the LEASED PROPERTY.
8.3. TENANT acknowledges that it knows that: a license is required to
operate HOSPITAL FACILITY as a skilled nursing facility on the HOSPITAL
premises; the license of the present TENANT to operate a HOSPITAL FACILITY is
not transferable, and the TENANT will have to obtain its own license to operate
HOSPITAL FACILITY as a skilled nursing facility on the HOSPITAL premises. The
failure of TENANT to obtain any one or more required permit, license or other
authority or approval shall no eliminate TENANT'S obligations under this Lease.
8.4. TENANT shall not remove the PERSONAL PROPERTY, any
17
<PAGE>
part thereof, or any improvement, alteration, addition or replacement thereof
during the term of this Lease or any renewal or extension of this Lease;
provided TENANT may remove particular items of PERSONAL PROPERTY with the
consent in writing of LESSOR, where such removal is required to repair same.
8.5. Neither TENANT nor any sublessee, assignee nor any other person or
firm operating, occupying or managing HOSPITAL FACILITY shall enter into any
lifetime care agreement or any lease or other term arrangement in excess of six
(6) months, nor shall they accept any prepaid rent, fees, deposits or other
compensation in excess of an aggregate of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000.00) for all occupants or patients or in excess of an aggregate of TEN
THOUSAND AND NO/lOO DOLLARS ($10,000.00) for any other person or entity;
provided, however, that in no event shall TENANT enter into any agreement or
accept any funds except in accordance with all applicable laws, ordinances,
statutes, regulations or other authority.
8.6. TENANT and TENANT'S sublessees, licensees and assignees or other
persons or firms operating or managing HOSPITAL FACILITY shall promptly inform
LESSOR in writing of any damage or destruction to any part of the LEASED
PROPERTY in excess of TWO THOUSAND AND NO/1OO DOLLARS ($2,000.00), and of any
notice or claim of violation of any law, statute, building code, ordinance, rule
or regulation or other matter concerning or affecting the LEASED PROPERTY.
9. INSURANCE HAZARDS
-----------------
No use shall be made or permitted to be made of the LEASED PROPERTY or
any part thereof, nor acts done, which will cause a
18
<PAGE>
cancellation of any insurance policy covering said buildings, or any part
thereof, nor shall TENANT sell, or permit to be kept, used, or sold, in or about
REAL PROPERTY, any article which may be prohibited by the standard form of fire
insurance policies. TENANT shall, at its sole cost and expense, comply with any
and all requirements pertaining to LEASED PROPERTY, of 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 said LEASED PROPERTY or the operations thereon.
10. COMPLIANCE WITH LAW
-------------------
10.1. TENANT shall, at its sole cost and expense, comply promptly with all
laws, statutes, ordinances, rules, regulations, orders and requirements of all
municipal, county, state and federal authorities now in force, or which may
hereafter be in force, pertaining to or regulating the use or maintenance of the
LEASED PROPERTY with respect to the operation or business on the LEASED PROPERTY
in effect from time to time as permitted under the provisions of this Lease, and
TENANT shall faithfully observe in the use and maintenance of the LEASED
PROPERTY all municipal, county, state and federal laws, statutes, rules,
ordinances, regulations and received requirements now in force or which may
hereafter be in force.
10.2. The final judgment of any court of competent jurisdiction or the
admission of TENANT in any action or proceeding against TENANT, whether LESSOR
be a party thereto or not, that TENANT has violated any such law, ordinance,
rule, regulation, order, statute or requirement in the use of the
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LEASED PROPERTY shall be conclusive as between LESSOR and TENANT.
10.3. TENANT acknowledges that a skilled nursing facility, commonly called
a "convalescent hospital" and a licensed residential care home are unique
facilities and that a substantial violation of governmental requirements with
respect to such unique facilities can cause severe damage to such facilities,
including but not limited to the reputation, good will and economic viability of
such facilities. Therefore, TENANT acknowledges and agrees that the failure of
TENANT to perform its obligations and duties under this Article 10 is a material
breach of and default under this Lease, that such failure may result in
substantial injury and damage to LESSOR, and that TENANT shall be liable to
LESSOR for any and all damages, whether direct or consequential that may be
suffered, incurred or sustained by LESSOR on account of such breach or default
including, but not limited to, reasonable attorneys, fees, injury and damage to
the name and reputation of LESSOR; notwithstanding the foregoing TENANT may
promptly in good faith change the use in accordance with Article 8 hereof.
10.4. TENANT shall, within twenty-four (24) hours of receipt of notice of
any Class A violation of the California Health & Safety Code, any violation,
order or proceeding which directly places in jeopardy the continued licensing of
the HOSPITAL as a skilled nursing facility for which the HOSPITAL is presently
licensed or places in jeopardy the continued certification of TENANT as a
Medicare or Medi-Cal provider, give written notice to LESSOR by certified mail
return receipt requested. Such notice shall include a copy of all applicable
20
<PAGE>
documents. The failure of TENANT to comply with this Section 10.4 shall be a
material non-curable default under this Lease.
11. WASTE
-----
TENANT shall not commit, or suffer to be committed, any waste upon the
LEASED PROPERTY, or any nuisance, nor shall TENANT use, permit or suffer any use
of the LEASED PROPERTY which would tend to create waste or any nuisance.
12. ALTERATIONS AND ADDITIONS
-------------------------
12.1. TENANT shall not, without LESSOR'S prior written consent, change the
configuration of or move any walls in HOSPITAL or make any alterations,
improvements, additions, or utility installations in, on or about the LEASED
PROPERTY, except that TENANT may make non-structural alterations the cost of
which do not exceed FIFTY THOUSAND AND NO/lOO DOLLARS ($50,000.00) in the
aggregate. As used in this Article 12, the term "utility installations" shall
include, but not be limited to, bus ducting, power panels, fluorescent fixtures,
space heaters, conduits and wiring. As a condition to giving such consent,
LESSOR may require that TENANT agree to remove any such alterations,
improvements, additions or utility installations at the expiration of the term,
and to restore the LEASED PROPERTY to its prior condition. As a further
condition to giving such consent, LESSOR may require TENANT to provide LESSOR,
at TENANT'S sole cost and expense, with a lien and completion bond in an amount
equal to one and one-half (1-1/2) times the estimated cost of such alterations,
improvements, or additions to insure LESSOR against any liability for mechanics,
and materialmen's liens and to insure completion of the work.
21
<PAGE>
12.2. 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,
on or adjacent to the LEASED PROPERTY, which claims are or may be secured by any
mechanics, or materialmen's, lien against the LEASED PROPERTY, or any interest
therein. TENANT shall give LESSOR not less than ten (10) days, notice prior to
the commencement of any work in, on or adjacent to the LEASED PROPERTY, and
LESSOR shall have the right to post notices of non-responsibility in or on the
REAL PROPERTY as provided by law.
12.3. Unless LESSOR requires their removal, as set forth in Paragraph
12.1, all alterations, improvements, additions, and replacements to or of the
LEASED PROPERTY and all utility installations (whether or not such utility
installations constitute trade fixtures of TENANT), which may be made on the
LEASED PROPERTY, shall become the property of LESSOR and remain upon and be
surrendered with the LEASED PROPERTY at the expiration of the term. TENANT'S own
machinery and equipment other than:
(a) That which is affixed to the REAL PROPERTY so that it cannot be
removed without substantial damage to the REAL PROPERTY; and
(b) All alterations, improvements, additions, and replacements of
the LEASED PROPERTY and all utility installations; shall remain the property of
TENANT and may be removed by TENANT subject to the provisions of Article 15.
13. UTILITIES
---------
13.1. TENANT shall pay for all water, gas, heat, light,
22
<PAGE>
steam, electricity, power, telephone and other utilities and services supplied
to the LEASED PROPERTY, together with any taxes thereon. LESSOR shall not be
required to furnish to TENANT any facilities, services or utilities of any kind.
13.2. TENANT shall, at the commencement of the term of this Lease, cause
all of the utilities supplied to the LEASED PROPERTY, to be transferred and
billed directly to TENANT, which shall include all water, gas, heat, light,
power, telephone service and other utilities.
14. REPAIRS
-------
14.1. TENANT shall, at its own costs and expense, make all necessary
repairs, replacements and improvements to the LEASED PROPERTY and to the pipes,
heating or cooling system, plumbing system, window glass, fixtures and other
appliances and appurtenances belonging thereto, all equipment used in connection
with the LEASED PROPERTY, and the sidewalks, curbs, and vaults adjoining or
appurtenant to the REAL PROPERTY. Such repairs, replacements and improvements,
interior and exterior, ordinary as well as extraordinary, and structural as well
as non-structural, shall be made promptly, as and when necessary, including
but not limited to any repairs, replacements or improvements required by any
appropriate governmental authority. All repairs replacements and improvements
shall be in quality and class at least equal to the original work.
14.2. TENANT hereby waives all rights to make repairs at the expense of
LESSOR as provided in Section 1942 of the Civil Code of the State of California,
and all rights provided for by Section 1941 of said Civil Code. LESSOR shall
have no obligation
23
<PAGE>
or duty to make any repairs, replacements or improvements of whatsoever kind or
nature.
14.3. If TENANT fails to perform TENANT'S obligation under this Article
14, LESSOR may at its option (but shall not be required to) enter upon the REAL
PROPERTY, after three (3) days, prior written notice to TENANT, and make such
repairs and replacements, and 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 LESSOR, together with TENANT'S next rental installment.
15. SURRENDER UPON TERMINATION.
--------------------------
15.1. 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 a condition acceptable to all governing or licensing
authorities and TENANT shall remove all of its property therefrom so that LESSOR
can take possession of the LEASED PROPERTY not later than noon on the day upon
which this Lease or any extension thereof expires, whether upon notice or by
holdover or otherwise, or any sooner termination of this Lease.
15.2. LESSOR shall have the same rights to enforce this covenant by
summary proceedings, ejectment and for damages or otherwise as for the breach of
any other condition or covenant of this Lease.
15.3. TENANT may at any time prior to or upon the termination of this
Lease or any renewal or extension thereof, remove from the REAL PROPERTY,
TENANT'S own equipment and machinery except for all alterations, improvements,
additions and
24
<PAGE>
replacements of or to the LEASED PROPERTY and all utility installations,
provided, however, that such property owned by TENANT is removed without
substantial injury to the LEASED PROPERTY.
15.4. No injury shall be considered substantial if it is promptly
corrected by restoration to the condition prior to the installation of such
property, if so requested by LESSOR. Any such property not removed shall become
the property of LESSOR.
16. DAMAGE OR DESTRUCTION
---------------------
16.1. Risk of Loss. No damage or destruction, whether partial or total, to
------------
the LEASED PROPERTY, or any part thereof, or any substitute therefor, or any of
the equipment, fixtures and machinery used in the operation and maintenance
thereof, by fire, wind, storm, or any other cause whatsoever, whether or not
such damage or destruction is covered by insurance under this Lease, shall
entitle TENANT to surrender possession of the LEASED PROPERTY, or any part
thereof, to terminate this Lease, to violate any of its provisions, or to cause
any rebate or abatement in rent then due or thereafter becoming due under the
terms hereof.
Notwithstanding the foregoing, in the event as a result of any such damage
or destruction of the LEASED PROPERTY, TENANT is required by any governmental
authority to remove more than fifty percent (50%) of the patients occupying REAL
PROPERTY at the time of damage or destruction, the following shall apply: (a) in
the event TENANT is unable to obtain rental or business interruption insurance,
then the monthly basic rent shall, until the sooner of the repair of such damage
or destruction or the expiration of six
25
<PAGE>
(6) months from the date thereof be decreased to an amount equal to one-half
(1/2) of the payments required under notes secured by deeds of trust encumbering
all or any part of the REAL PROPERTY, or (b) in the event TENANT'S business
interruption or rental insurance is in an amount less than one hundred percent
(100%) of the monthly basic rent then in effect, TENANT shall until the sooner
of the repair of such damage or destruction or the expiration of six (6) months
from the date thereof pay monthly basic rent in an amount equal to the amount of
such insurance plus one-half (1/2) of the difference between the basic rent then
in effect and the amount of such insurance. In either of such events, TENANT
shall pay all additional rent or other sums hereunder.
16.2 TENANT'S Obligation to Repair and Rebuild.
-----------------------------------------
(a) In case of any such damage or destruction to the LEASED PROPERTY,
or any part thereof, by wind, fire, storm or any cause whatsoever, whether
partial or total, whether or not such damage or destruction is covered by
insurance, TENANT will, at its own cost and expense and at such time and upon
the conditions set forth in this Article 16, restore, repair, replace, rebuild,
or alter the same as nearly as possible to the condition such property was in
immediately prior to such damage or destruction.
(b) Such restoration, repair, replacement, rebuilding, or alteration
shall be commenced within a reasonable time after such damage or destruction.
After such work has been commenced, it shall be prosecuted to completion with
reasonable diligence.
16.3. Loss Covered by Insurance.
-------------------------
(a) In the event such damage or destruction is covered
26
<PAGE>
by insurance, all insurance money received by LESSOR, holder of any security
interest, beneficiary or mortgagee on account of such damage or destruction
(with the consent of and subject to the rights of the holder of any security
interest, including but not limited to, the beneficiary of any deed of trust and
the mortgagee under any mortgage against the REAL PROPERTY, PERSONAL PROPERTY or
any part thereof) less the cost, if any, of such recovery, shall be applied by
LESSOR or such holder, beneficiary or mortgagee to the payment of the cost of
such restoration, repair, replacement, rebuilding, or alteration (hereinafter
referred to as the "work"), including expenditures made for temporary repairs or
for the protection of property pending the completion of permanent restoration,
repair, replacement, rebuilding, or a1teration to the LEASED PROPERTY, and shall
be paid out, as hereinafter provided, from time to time, as such work
progresses, upon the written request of TENANT, which shall be accompanied by
the following:
(i) A certificate of the architect, engineer, or licensed building
contractor in charge of the work, dated not more than thirty (30) days prior to
such request, setting forth that the sum then requested either has been paid by
TENANT or is justly due to contractors, sub-contractors, materialmen, engineers,
architects, or other persons (whose names and addresses shall be stated), who
have rendered services or furnished materials for certain work. Such certificate
shall give a brief description of such services and materials, shall list the
several amounts so paid or due to each of such persons, shall state the fair
value of such work at the date of the
27
<PAGE>
requisition, and shall state that no part of such expenditures has been or is
being made the basis for any other request for payment. Such certificate shall
state also that except for the amounts listed therein, there is no outstanding
indebtedness known to such architect, engineer or contractor after due inquiry,
which is then due for labor, wages, materials, supplies, or services in
connection with such work which, if unpaid, might become the basis of a vendor's
mechanic's, laborer's, materialman's or similar lien upon such work or upon the
LEASED PROPERTY, or any part thereof.
(ii) An affidavit sworn to by TENANT that all materials and all
property constituting the work described in such certificate of the architect,
engineer or contractor are free and clear of all mortgages, liens, charges or
encumbrances, except encumbrances, if any, securing indebtedness due to persons
specified in such certificate which are to be discharged upon payment of such
indebtedness.
(b) At the written request of TENANT, and upon compliance with and subject
to the foregoing provisions of this Paragraph 16.3, LESSOR shall request such
holder, beneficiary or mortgagee to pay, out of such insurance money to the
persons named in such certificate, the respective amounts stated in such
certificate to be due to them, or shall pay to the TENANT the amount stated in
such certificate to have been paid by TENANT; provided, however, that such
payments shall not exceed in amount the fair value of the relevant work as
stated in such certificate.
(c) Notwithstanding the foregoing provisions of this
28
<PAGE>
Paragraph 16.3, any insurance monies in the hands of LESSOR or such beneficiary,
mortgagee shall not be required to be paid out if, at the time of the request
for payment, the TENANT is in default in the performance of any term, covenant
or condition of this Lease as to which notice of default has been given until
such default is remedied unless the payment of said moneys is reasonably
required with respect to the correcting of said default.
17. TENANT'S INSURANCE
------------------
17.1. Required Coverage. TENANT shall keep the LEASED PROPERTY and each
-----------------
and every part thereof and the operation of the HOSPITAL FACILITY insured
throughout the term of this Lease against the following:
(a) Loss or damage by fire and such other risks as may be included in
the broadest form of extended coverage insurance, as is hereinafter specifically
defined, from time to time available in amounts sufficient to prevent LESSOR 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 insurable value.
(b) Loss or damage from leakage of sprinkler systems now or hereafter
installed in the buildings on the REAL PROPERTY in an amount not less than one
hundred percent (100%) of the then full insurable value.
(c) Loss or damage by explosion of steam boilers, pressure vessels,
or similar apparatus, now or hereafter installed in the buildings on the REAL
PROPERTY, in such limits with respect to any one accident as may be reasonably
requested
29
<PAGE>
by LESSOR from time to time.
(d) Loss of rental and or business interruption insurance covering
risk of loss due to the occurrence of any of the hazards described in the
preceding sub-paragraphs of this paragraph 17.1, in an amount sufficient to
prevent the LESSOR from becoming a coinsurer, but in any event, in an amount not
less than one hundred percent (100%) of the then full basic rental income of
eighteen (18) months, including all other charges to be paid hereunder, such
policy or policies to be obtained and paid for by TENANT as frequently as
required.
(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 such limits as may reasonably
be requested by LESSOR from time to time, but not less than ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) for injury to or death of any one person in any
one accident or occurrence and in an amount of not less than TWO MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00) for injury to or death of
more than one person in any one accident or occurrence and ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) for property damage or in such other reasonable
amounts requested by LESSOR from time to time.
(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 said security interest, mortgages and deeds of trust.
30
<PAGE>
(g) Against 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 HOSPITAL FACILITY,
with such limits as may reasonably be requested by LESSOR from time to time, but
not less than ONE MILLION AND NO/100 DOLLARS ($1,000,000.00).
17.2. Full Insurable Value. The term "full insurable value" shall mean
--------------------
the actual replacement cost, less physical depreciation, excluding foundation
and excavation costs. The full insurable value shall be determined whenever
reasonably requested by TENANT, by a qualified appraiser selected and paid by
TENANT and acceptable to LESSOR. The finding of such appraiser shall not be
binding without the written approval of LESSOR, which approval shall not be
unreasonably withheld.
17.3. Named Insured.
-------------
(a) The rental value insurance policy above described shall name only
LESSOR as the insured. However, TENANT may furnish a combined rental and use and
occupancy or business interruption policy, provided that LESSOR shall be named
as the insured and the first payee with respect to an amount equal to the annual
fixed rent and real estate taxes and additional rent, and TENANT shall be named
as the payee with respect to any remaining proceeds for business interruption
insurance. Any payments actually received by LESSOR under the rental value
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insurance or business interruption insurance policy or policies, shall be
applied by LESSOR toward the rentals or other sums due or payable by TENANT in
the order determine by LESSOR.
(b) All other policies of insurance shall name LESSOR and TENANT as
the insureds, as their respective interests may appear. At the request of
LESSOR, any insurance policy 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.
17.4. 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 AAA by "Best's Insurance Guide".
(b) All policies shall contain an agreement by the Insurers:
(i) That any loss shall be payable to LESSOR 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 which might otherwise result in the forfeiture of such
insurance;
(ii) That such policies shall not be cancelled or subject to
reduction of coverage or other modification except after ten (10) days written
notice to LESSOR and to the holders of any mortgage or deed of trust to whom
loss may be payable and
(iii) That the coverage afforded thereby shall not be affected by
the performance of any work in or about the REAL
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PROPERTY.
(c) 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 which would be
provided under a separate policy covering only the LEASED PROPERTY.
17.5. TENANT'S Obligations. Rights and Remedies of LESSOR.
----------------------------------------------------
(a) TENANT agrees that it will pay all premiums and charges on all
of the insurance required to be carried by it, promptly when same become due and
to furnish LESSOR with satisfactory evidence of the payment of the premium of
any policy within ten (10) days after such premium shall become due and payable,
and if TENANT shall fail to pay such premiums and charges when due, or fail to
furnish satisfactory evidence of payment of premiums on any policy, or fail to
place or maintain such insurance, then LESSOR may, without having the obligation
to do so, place such insurance or pay the premiums and charges therefor, and in
the event of such payment by LESSOR, the amount paid may, at the option of
LESSOR, 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) All policies of insurance herein provided, or certificates
thereof, at the option of LESSOR, shall be delivered to LESSOR not later than
ten (10) days from the commencement of
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the term of this Lease, accompanied by evidence satisfactory to LESSOR that the
premiums thereon have been paid for at least one (1) year, and thereafter, upon
the renewal period or periods, further satisfactory evidence is to be submitted
to LESSOR that the premiums for the next ensuing period (never less than for one
(1) year on such insurance policies have been paid.)
(c) Within ten (10) days after the expiration of any policy, TENANT
shall deliver the original renewal policy for such insurance to LESSOR, or
LESSOR 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) Nothwithstanding 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 when any such policy is not in effect.
17.6 Insurance and Exercise of Rights of First Refusal. In the event
-------------------------------------------------
TENANT shall exercise the right of first refusal to purchase the LEASED
PROPERTY, as provided in Article 39 hereinbelow, as additional security for
any promissory note and deed of trust to be issued by Buyer to Seller, the
Buyer, so long as such promissory note secured by deed of trust shall not have
been fully paid and discharged, shall maintain the same type of insurance
policies as are provided hereinabove, excepting only that the amount to be
insured for the business interruption, use
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and occupancy, shall be not less per month than the monthly payments of interest
and principal under such promissory note and deed of trust to be paid by Buyer
to Seller for a period of eighteen (18) months; and such proceeds of business
interruption insurance policies and all other policies as shall be received by
Seller, shall be applied towards the monthly principal and interest payments due
him under the note and deed of trust in inverse order.
18. LESSOR TO BE HELD HARMLESS
--------------------------
18.1. Indemnity. As a material consideration to be rendered to LESSOR,
---------
TENANT shall indemnify and hold harmless LESSOR from and against any and all
claims arising from TENANT'S use of the LEASED PROPERTY, or from the conduct of
TENANT'S business or from any activity, work or things done, permitted or
suffered by TENANT in or about the REAL PROPERTY or elsewhere and shall further
indemnify and hold harmless LESSOR 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 the terms of this Lease, or arising from any negligence of
the TENANT, or any of TENANT,S agents, contractors, employees, assignees,
sublessees, business invitees or other persons or entities taking through or
under TENANT, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against LESSOR by reason of any such claim, TENANT upon notice from LESSOR shall
defend the same at TENANT'S expense by counsel satisfactory to LESSOR. TENANT,
as a material part of the
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consideration to LESSOR, hereby assumes all risk of damage to property or injury
to persons, in, upon or about the REAL PROPERTY arising from any cause, and
TENANT hereby waives all claims in respect thereof against LESSOR.
18.2. Exemption of Lessor from Liability. TENANT, as a material
----------------------------------
consideration to be rendered to LESSOR, hereby agrees that LESSOR shall not be
liable for injury to TENANT'S business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of TENANT, TENANT'S
employees, invitees, customers, or any other person in or about the LEASED
PROPERTY, nor shall LESSOR be liable for injury to the person of TENANT,
TENANT'S employees, agents or contractors, for any reason whatsoever, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the LEASED PROPERTY, or from other sources or places,
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to or beyond the control of TENANT.
19. ENTRY BY LESSOR.
---------------
TENANT shall permit LESSOR and his agents to enter into and upon REAL
PROPERTY at all reasonable times for the purpose of inspecting the LEASED
PROPERTY, even though LESSOR has no duty with respect thereto, or, if TENANT
shall default in its duty to do so, for the purpose of maintaining the LEASED
PROPERTY, or any
36
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part thereof, or for the purpose of making repairs, alterations, or additions to
any other portion of the LEASED PROPERTY, including the erection and maintenance
of such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of non-liability for alterations, additions, or
repairs, and if as a result of TENANT'S default without any rebate of rent and
without any liability to TENANT for any loss of occupation or quiet enjoyment of
the LEASED PROPERTY thereby occasioned.
20. BOOKS AND RECORDS.
-----------------
20.1. TENANT shall keep and maintain on the REAL PROPERTY full and
complete medical records covering all patients in HOSPITAL and all other records
required to be maintained by or provided under MEDI-CARE, MEDI-CAL or any other
governmental authority for a period of at least seven (7) years, and TENANT
shall cause all its assignees, sub-tenants, licensees and agents to do the same.
20.2. Upon any default by TENANT, and within three (3) days after written
request to do so, TENANT shall cause all such records and all books of account,
and subsidiary ledgers or journals with respect to the operations at the LEASED
PROPERTY to be available to LESSOR or its representatives at the office at the
REAL PROPERTY and LESSOR shall have the right to copy, inspect and audit (by its
representatives, employees or agents) such books of account and other records.
TENANT and TENANT'S sub-tenants, assignees, licensees and agents shall upon such
three (3) days notice by LESSOR, make all such records available for said
examination, provided that if TENANT or any person or
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entity taking by or through TENANT is charged with any violation of law or
LESSOR reasonably believes any such violation exists, inspection may be made
forthwith upon demand.
21. ABANDONMENT OF LEASED PROPERTY
------------------------------
21.1. Trade Fixtures. TENANT shall not vacate or abandon the LEASED
--------------
PROPERTY or cease operating a business thereon permissible under the provisions
of Article 8; and 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 and left on the REAL PROPERTY shall be deemed to be
abandoned, at the option of LESSOR.
22. ASSIGNMENT OR SUBLETTING
------------------------
22.1. TENANT shall not assign this Lease, or any interest therein, and
shall not sublet the LEASED PROPERTY or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person (the agents and
servants of TENANT excepted) to occupy or use the LEASED PROPERTY, or any
portion thereof, without the written consent of LESSOR first had and obtained,
which consent shall not be unreasonably withheld.
22.2. Any assignee of this Lease shall be required, prior to such
assignment to execute an agreement required by LESSOR assuming TENANT'S
obligations under this Lease.
22.3. If any TENANT is a corporation, any dissolution merger,
consolidation or other reorganization of the corporate TENANT, or the sale or
transfer of a controlling percentage of the capital stock of the corporate
TENANT, or the sale of at least 51% of the value of the assets of the corporate
TENANT, shall be deemed an assignment requiring the prior written consent
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of LESSOR. The phrase "controlling percentage" means the ownership of, and the
right to vote, stock possessing at least 51% of the total combined voting power
of all classes of the corporate TENANT'S capital stock issued, outstanding, and
entitled to vote for the election of directors. Any change in the controlling
percentage shall also be deemed an assignment requiring LESSOR'S prior written
consent. If any TENANT is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law, of the partners owning 51% or more of the
partnership, or the dissolution of the partnership shall be deemed an assignment
requiring LESSOR'S prior written consent.
22.4. TENANT shall have the right, without LESSOR'S prior written consent,
to assign this Lease or to sublet the LEASED PROPERTY to a corporation of which
ROBERT SNUKAL is the owner of at least 51% of the outstanding capital stock
provided that the corporation executes an agreement required by LESSOR assuming
TENANT'S obligations under this Lease and that LESSOR is notified not less than
thirty days prior to such assignment or subletting.
22.5. A consent to one assignment, subletting, occupation, or use by
another person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by the same or another person. Any such
assignment or subletting and/or any attempted such assignment or subletting
without such written consent of LESSOR shall be void and shall be a non-curable
default under this Lease, and LESSOR may, at its option, terminate this Lease
upon three (3) days, written notice to TENANT at any time after such actual or
attempted assignment or subletting and without regard to TENANT'S prior
knowledge
39
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thereof.
23. INVOLUNTARY ASSIGNMENT
----------------------
23.1. No interest of TENANT in this Lease shall be assignable by operation
of law (including, without limitation, the transfer of this Lease by will or
intestacy) . Each of the following acts shall be considered an involuntary
assignment:
(a) If TENANT is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding under the
Bankruptcy Act in which TENANT is the bankrupt, or an involuntary proceeding is
brought against TENANT under the Bankruptcy Act; or, if TENANT is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors;
(b) If a writ of attachment or execution is levied on this Lease;
(c) If, in any proceeding or action to which TENANT is a party, a
receiver is appointed with authority to take possession of the LEASED PROPERTY
or any part thereof;
(d) If a writ of attachment or execution is levied on the LEASED
PROPERTY or any part thereof, TENANT shall have thirty (30) days in which to
cause the attachment or execution to be removed. If any involuntary proceeding
in bankruptcy is brought against TENANT, or if a receiver is appointed, TENANT
cure shall have sixty (60) days in which to have the involuntary proceeding
dismissed or the receiver removed.
23.2. Except as provided in paragraph 23.3 an involuntary assignment shall
constitute a material default by TENANT under
40
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this Lease, and LESSOR shall have the right to elect to terminate this Lease, in
which case this Lease shall not be treated as an asset of TENANT. Such right to
terminate this Lease shall be in addition to and cumulative with such other
rights and remedies that LESSOR may have hereunder or as may now be or hereafter
provided by law.
23.3. The death of both ROBERT SNUKAL and SHEILA SNUKAL and the transfer
of their interest in this Lease by will or intestacy (except a transfer by the
estate of one of them to the survivor of them) shall be an involuntary
assignment of this Lease, but shall not be a default hereunder. In the event of
the death of both ROBERT SNUKAL and SHEILA SNUKAL this Lease shall not be
treated as an asset of such TENANTS and LESSOR shall have the right to elect to
terminate this Lease within sixty (60) days after receipt by LESSOR of written
notice of the death of both ROBERT SNUKAL and SHEILA SNUKAL without further
liability by TENANTS.
24. DEFAULT
-------
24.1. TENANT'S Default. The occurrence of any of the following shall
----------------
constitute a default by TENANT:
(a) Failure to pay rent, additional rent or any other sum
or sums payable by TENANT hereunder when due, if the failure continues for three
(3) days after notice has been given to TENANT.
(b) Abandonment and vacation of the REAL PROPERTY or the
PERSONAL PROPERTY.
(c) Failure to perform any other provision of this Lease
if the failure to perform is not cured within ten (10)
41
<PAGE>
days after notice has been given to TENANT. Provided, that if the default is
under Article 16.2 hereof and such default cannot reasonably be cured within ten
(10) days, TENANT shall not be in default of this Lease if TENANT commences to
the default within the ten (10) day period and diligently and in good faith
continues to cure the default.
24.2. LESSOR'S Remedies. In the event of a default by TENANT under
this Lease, LESSOR shall have the following remedies, these remedies are not
exclusive; they are cumulative and are in addition to any remedies now or later
allowed by law and in addition to any other rights and remedies of LESSOR under
any provision of this Lease:
(a) Re-Entry Without Termination. LESSOR shall have the immediate
right of re-entry and may remove all persons and property from the REAL
PROPERTY; such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of TENANT.
(i) Should LESSOR elect to re-enter, as herein provided, or
should he take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, LESSOR may either terminate this Lease or LESSOR may
from time to time, without terminating this Lease, relet the REAL PROPERTY
and/or the PERSONAL PROPERTY, 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 LESSOR in his sole
discretion may deem advisable with the right to make repairs to said REAL
PROPERTY and PERSONAL PROPERTY; upon each such re-letting
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(ii) TENANT shall be liable immediately to pay to LESSOR:
(aa) All costs LESSOR incurs in reletting the LEASED
PROPERTY, including, without limitation, broker's commissions, expenses of
remodeling the LEASED PROPERTY required by the reletting, expenses of repairing
the LEASED PROPERTY and like costs. Reletting can be for a period shorter or
longer than the remaining terms of this Lease; and
(bb) 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;
or
(iii) At the option of LESSOR, rents received by such
LESSOR from such reletting shall be applied: first, to the payment of any
indebtedness, other than rent due hereunder from TENANT to LESSOR; second, to
the payment of any costs and expenses of such reletting and of such repairs;
third, to the payment of rent due and unpaid hereunder and the residue, if any,
shall be held by LESSOR and applied in payment of future rent as the same may
become due and payable hereunder.
(iv) If TENANT has been credited with any rent to be
received by such reletting under this paragraph 24 and such rent shall not be
promptly paid to LESSOR by the new tenant, or if such rentals received from
such reletting under this paragraph 24.2 during any month be less than that to
be paid during that month by TENANT hereunder, TENANT shall pay any such
43
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deficiency to LESSOR. Such deficiency shall be calculated and paid monthly.
(v) No such re-entry or taking possession of said Premises
by LESSOR shall be construed as an election on LESSOR'S part to terminate this
Lease unless 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 reletting without termination, LESSOR may at any time
thereafter elect to terminate this Lease for such previous breach and such re-
entry by LESSOR.
(b) Termination. LESSOR may terminate this Lease and TENANT'S
-----------
right to possession of the LEASED PROPERTY, or any part thereof, at any time.
No act by LESSOR other than giving written notice to TENANT shall terminate this
Lease. Acts of maintenance, efforts to relet the LEASED PROPERTY, or the
appointment of a receiver on LESSOR'S initiative to protect LESSOR'S interest
under this Lease shall not constitute a termination of TENANT'S right to
possession. On termination, LESSOR has the right to recover from TENANT:
(i) The worth, at the time of the award of the unpaid rent that
had been earned at the time of termination of this Lease;
(ii) 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;
(iii) The worth, at the time of the award, of
44
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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
(iv) Any other amount, and court costs, necessary to
compensate LESSOR for all detriment proximately caused by TENANT'S default.
(v) "The worth, at the time of the award," as used in
subparagraph (b)(i) and (b)(ii) of this paragraph 24.2, 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 referred to in subparagraph (b) (iii) of this paragraph
24.2, 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%).
(c) Receiver. LESSOR shall have the right to have a receiver
--------
appointed to collect rent and conduct TENANT'S business. If a receiver be
appointed at the instance of LESSOR in any action against TENANT to take
possession of said Premises and/or to collect the rents or profits derived
therefrom, the receiver may, if it be necessary or convenient in order to
collect such rents and profits, conduct the business of TENANT then being
carried on at the REAL PROPERTY and may take possession of any personal
property belonging to TENANT and used in the conduct of such business, and may
use the same in conducting such business at the REAL PROPERTY without
compensation of TENANT for such use. Neither the application for the
appointment of such receiver, nor the appointment of such a receiver, shall be
construed as an election on LESSOR,S part to
45
<PAGE>
terminate this Lease unless a written notice of such intention is given to
TENANT.
(d) Cure at TENANT'S Expense. LESSOR can cure any default at
------------------------
TENANT'S cost. If LESSOR at any time, by reason of TENANT'S default, pays any
sum or does any act that requires the payment of any sum, the sum paid by LESSOR
shall be due immediately from TENANT to LESSOR at the time the sum is paid, and
if paid at a later date shall bear interest at the rate of ten percent (10%) per
annum from the date the sum is paid by LESSOR until LESSOR is reimbursed by
TENANT. The sum, together, with interest on it, shall be additional rent.
25. INTEREST ON UNPAID RENT OR OTHER SUMS DUE.
-----------------------------------------
Rent or other sums due hereunder from TENANT to LESSOR, not paid when due
shall bear interest at the rate of ten percent (10%) per annum from the date due
until paid.
26. LATE CHARGES AND OTHER COSTS
----------------------------
TENANT acknowledges that late payment by TENANT to LESSOR of rent will
cause TENANT to incur costs not contemplated by this Lease. Such costs include,
without limitation, such things as processing and accounting charges, late
charges, foreclosure costs and other such costs that may be imposed on LESSOR by
the terms of any encumbrance, or note secured by an encumbrance covering the
LEASED PROPERTY or any part thereof. Therefore, if any installment of rent due
from TENANT is not received by LESSOR when due, TENANT shall pay to LESSOR all
obligations, losses, costs, or expenses charged to or incurred by LESSOR with
respect to debts, charges, fees, permits, liens, expenses or encumbrances
relating to the LEASED PROPERTY or any part thereof. Such sum
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shall be paid within three (3) days after written notice given to TENANT by
LESSOR.
27. LESSOR'S DEFAULT
----------------
Provided that TENANT has then paid all rent or other sums required to be
paid by it and in the event any mortgagee or beneficiary of any note secured by
deed of trust or mortgage, on the REAL PROPERTY or any part thereof shall
commence foreclosure proceedings as a result of LESSOR'S wrongful failure to
make any interest or principal payment due thereunder, then and in such event
TENANT shall have the right, but not the obligation, to pay such sum as may be
required to bring such indebtedness current and to pay any foreclosure costs in
connection therewith, and to set off the amount so paid against the next ensuing
installments of fixed rent due from TENANT to LESSOR. Thereafter, all such rent
shall be paid directly to LESSOR.
28. CONDEMNATION
------------
28.1. If any part of the REAL PROPERTY shall be taken or condemned for a
public or quasi-public use, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date title shall vest in the condemnor, and the rent payable hereunder shall
be adjusted so that the TENANT shall be required to pay for the remainder of the
term only such portion of such rent as the value of the part remaining after
the condemnation bears to the value of the entire REAL PROPERTY at the date of
condemnation; but in the event the remainder is so diminished so that the
economic feasibility of operating the facility is unreasonably diminished as to
TENANT, either LESSOR or TENANT shall have the option to
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terminate this Lease as of the date when title to the part so condemned vests in
the condemnor by written notice to the other within ten (10) days after title
vests in the condemnor.
28.2. If all the Demised Premises, or such part thereof be taken or
condemned so that there does not remain a portion susceptible for occupation
hereunder, as hereinabove described, this Lease shall thereupon terminate. If a
part or all of the REAL PROPERTY be taken or condemned, all compensation awarded
upon such condemnation or taking which does not relate to TENANT'S personal
property shall go to the LESSOR, and the TENANT shall have no claim thereto, and
the TENANT hereby irrevocably assigns and transfers to the LESSOR any right to
compensation or damages to which the TENANT may become entitled during the term
hereof by reason of the condemnation of all, or a part of the REAL PROPERTY.
28.3. Each party waives the provisions of Code of Civil Procedure
Section 1265.130 allowing either party to petition the superior court to
terminate this Lease in the event of a partial taking of the REAL PROPERTY.
29. FINANCIAL STATEMENT OF TENANT
-----------------------------
As a further condition to the execution of this Lease by LESSOR to TENANT,
TENANT agrees that it shall submit to LESSOR or cause to be submitted to LESSOR,
the most recent financial statement (not more than one year old) of the
operation of TENANT or any person or entity holding under or through it, and of
HOSPITAL FACILITY which shall be submitted within five (5) days after written
request therefor given (a) after a default under the Lease, or (b) in connection
with an attempt to finance or
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refinance the LEASED PROPERTY or any part thereof by LESSOR. Such financial
statement shall be certified by TENANT to be true and correct to the best of
its knowledge. Said financial statements shall include at the very least, the
following:
29.1. A balance sheet as of the day of said financial statement; and
29.2. A profit and loss statement for each period of operation of TENANT
and facility.
30. BINDING ON SUCCESSORS
---------------------
The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind and inure to the benefit of the
heirs, successors, executors, administrators and assigns of all of the parties
hereto; and all of the parties hereto shall be jointly and severally liable
hereunder.
31. HOLDING OVER
------------
Any holding over after the expiration of the term, or any extended term
without the written consent of LESSOR, shall be construed to be a tenancy from
month to month, at a monthly rental of a sum equal to fifty percent, (50%)
greater than the highest monthly rent due at any time during the Lease and shall
otherwise be on the terms and conditions herein specified, so far as applicable.
32. ESTOPPEL CERTIFICATE
--------------------
32.1. TENANT shall at any time upon not less than ten (10) days, prior
written notice from LESSOR execute, acknowledge and deliver to LESSOR a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if
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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 TENANT'S knowledge, any uncured defaults on the part of LESSOR
hereunder, or specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the LEASED PROPERTY.
32.2. TENANT'S failure to deliver such statement within such time shall be
conclusive upon TENANT (a) that this Lease is in full force and effect, without
modification except as may be represented by LESSOR, (b) that there are no
uncured defaults in LESSOR'S performance.
32.3 If LESSOR desires to finance or refinance the LEASED PROPERTY, or
any part thereof, TENANT hereby agrees to deliver to any lender designated by
LESSOR such financial statements of TENANT as may be reasonably required by
such lender. Such statements shall include the past three (3) year's financial
statements of TENANT. All such financial statements shall be received by
LESSOR in confidence and shall be used only for the purposes herein set forth.
33. SUBORDINATION
-------------
33.1. This Lease is and shall be subordinate to any encumbrance now of
record or recorded after the date of this Lease affecting the REAL PROPERTY.
Such subordination is effective without any further act of TENANT. TENANT shall
from time to time on request from LESSOR execute and deliver any documents or
instruments that may be required by a lender to
50
<PAGE>
effectuate any subordination. If LESSOR fails to execute and deliver any such
documents or instruments, TENANT irrevocably constitutes and appoints LESSOR as
TENANT'S special attorney-in-fact to execute and deliver any such documents or
instruments.
33.2. Notwithstanding the foregoing provisions of this Article 33, with
respect to encumbrances recorded after the date of this Lease, LESSOR shall as a
condition to such subordination obtain a written agreement from the lender under
such encumbrance that provides substantially the following:
"As long as TENANT performs its obligations under this Lease, no
foreclosure of, deed given in lieu of foreclosure of, or sale under the
encumbrance, and no steps or procedures taken under the encumbrance, shall
affect TENANT,S rights under this LEASE."
TENANT shall attorn to any purchaser at any foreclosure sale, or to any grantee
or transferee designated in any deed given in lieu of foreclosure. TENANT shall
execute the written agreement and any other documents required by the lender to
accomplish the purposes of this Article.
34. COVENANT OF AUTHORITY AND QUIET POSSESSION LESSOR covenants and warrants
------------------------------------------
that LESSOR has full right and lawful authority to enter into this Lease for the
full term aforesaid, and that subject to the terms of this Lease, TENANT upon
full performance of each and every provision hereof shall peaceably and quietly
have, hold and enjoy the LEASED PROPERTY throughout the leased term and any
extensions thereof, without any disturbance from the LESSOR or from any person
claiming through the LESSOR. TENANT may at its own expense obtain a policy of
leasehold title
51
<PAGE>
insurance, which policy shall show that LESSOR is the owner of the REAL
PROPERTY.
35. WAIVER
------
35.1. No delay or omission in the exercise of any right or remedy of
LESSOR shall impair such a right or remedy or be construed as a waiver by
LESSOR.
35.2. The receipt and acceptance by LESSOR of any rent or other sum due
LESSOR hereunder shall not constitute a waiver of any other breach or default by
TENANT; it shall constitute only a waiver of timely payment for the particular
rent or other sum payable involved regardless of LESSOR'S knowledge of such
preceding breach at the time of acceptance of such rent or other sum.
35.3. No act or conduct of LESSOR, including, without limitation, the
acceptance of the keys to the REAL PROPERTY, shall constitute an acceptance of
the surrender of the LEASED PROPERTY, or any part thereof, by TENANT before the
expiration of the term. Only a notice from LESSOR to TENANT shall constitute
acceptance of the surrender of the LEASED PROPERTY and accomplish a termination
of the Lease.
35.4. LESSOR'S consent to or approval of any act by TENANT requiring
LESSOR'S consent or approval shall not be deemed to waive or render unnecessary
LESSOR,S consent to or approval of any subsequent act by TENANT.
35.5. Any waiver by LESSOR of any default, or breach by TENANT must be in
writing and shall not be a waiver of any other breach or default concerning the
same or any other provision of the Lease.
52
<PAGE>
36. ABSOLUTE ASSIGNMENT OF RENTS
----------------------------
TENANT shall upon execution of this Lease execute, acknowledge and deliver
to LESSOR an absolute assignment of rents in the form attached hereto as EXHIBIT
"5".
37. OPTION TO EXTEND
-----------------
37.1. Provided that TENANT has not, on more than three occasions during
the term hereof, and, is not then in breach or in default of its obligation to
pay rent, additional rent or any other sum payable by TENANT under this Lease or
in material breach or default under any of the other terms, covenants and
conditions of this Lease, TENANT may extend the term of this Lease for one (1)
additional five (5) year period ("Extended Term") from and after the end of the
initial term of this Lease by giving written notice to LESSOR at least one (1)
year, but not more than two (2) years prior to the expiration of the original
term. Provided, further, that if TENANT is delinquent in the payment of any
rent, additional rent or other amount payable under this Lease or is in material
breach or default under this Lease at any time after giving such notice, the
Extended Term shall not commence and this Lease shall expire at the end of the
initial term.
37.2. TENANT shall have no other right to extend the term of this Lease.
37.3. The Extended Term shall be on the same terms and conditions as the
initial term of this Lease except that the minimum monthly rent and adjustments
thereto for the extended term shall be payable in monthly installments
determined in accordance with paragraphs 4.2(d) and (e) above.
53
<PAGE>
38. RIGHT OF FIRST REFUSAL TO PURCHASE LEASED PROPERTY
--------------------------------------------------
Provided that TENANT is not then in breach or default under any of the
terms, covenants and conditions of this LEASE and has not been in material
breach or default on more than three (3) occasions during the term of this
Lease, TENANT is hereby given and shall have a right of first refusal to
purchase the LEASED PROPERTY (the Real Property described in EXHIBITS 1 and the
Personal Property described in EXHIBIT 2) on the following terms and conditions:
38.1. In the event LESSOR receives a bona fide written offer to purchase
all of the LEASED PROPERTY from a prospective purchaser, which bona fide offer
LESSOR desires to accept, LESSOR shall give written notice thereof, together
with full and complete copies of all such offers to TENANT.
38.2. Upon receipt of said written notice, TENANT shall have the option to
purchase the LEASED PROPERTY for the price and upon the same terms and
conditions as said bona fide offer, except as otherwise provided herein.
38.3. Notwithstanding anything to the contrary herein, TENANT shall not
have the right of first refusal or option to purchase the REAL PROPERTY in the
event of a sale or transfer of the REAL PROPERTY or any part thereof among
LESSOR, any partner of LESSOR, (hereinafter collectively, "Beneficial
Owner(s)"), any other Beneficial owner, spouse of a Beneficial Owner, descendant
of a Beneficial Owner, spouse of a descendant of a Beneficial Owner or any
corporation, partnership or trust, the shares or beneficial interest of which is
owned by any of the foregoing persons or entities.
<PAGE>
38.4. Said option shall be exercised by: (i) giving written notice to
LESSOR of such desire to exercise the option to purchase within fifteen (15)
days after receipt of the written notice giving rise to the option, and (ii) the
preparation and execution of the escrow instructions at City National Bank,
Beverly Hills, by TENANT no later than ten (10) days after exercise of such
option, which escrow instructions shall provide for closing thereof within the
time specified in the offer of the bona fide purchaser or ninety (90) days after
the giving of the original notice by LESSOR, whichever is later. The initial
cash down payment required shall be the greater of the amount provided in the
bona fide file offer or $100,000 and shall be deposited in escrow no later than
five (5) working days after exercise of the option.
38.5. Said right of first refusal shall terminate as to all subsequent
sales at the expiration of the term of this Lease, or upon the sooner
termination of this Lease or TENANT'S right to possession hereunder. In the
event the TENANT fails to exercise the option to purchase arising out of a bona
fide written offer from a prospective purchaser, then LESSOR may thereupon sell
the LEASED PROPERTY in accordance with the bona fide offer to purchase and upon
such sale TENANT'S rights to purchase under this Article shall be terminated and
be of no further force or effect for any further sale. Provided, however, that
TENANT'S rights hereunder shall continue in effect if the original LESSOR does
not consummate such sale.
38.6. If TENANT purchases the LEASED PROPERTY, this Lease shall terminate
on the date title vests in TENANT.
<PAGE>
38.7. The failure of TENANT to deposit the initial cash down payment
required to be deposited pursuant to paragraph 38.4 after exercising an option
to purchase the LEASED PROPERTY shall be a material non-curable default under
this Lease.
38.8. PRIOR TO ENTERING INTO THIS LEASE, LESSOR AND TENANT HAVE BEEN
CONCERNED WITH THE FACT THAT SUBSTANTIAL DAMAGES WILL BE SUFFERED BY LESSOR IN
THE EVENT THAT TENANT FAILS TO CONSUMMATE A PURCHASE OF THE LEASED PROPERTY
AFTER EXERCISING AN OPTION TO PURCHASE THE LEASED PROPERTY. WITH THE FLUCTUATION
IN LAND VALUES, THE UNPREDICTABLE STATE OF THE ECONOMY AND OF GOVERNMENTAL
REGULATIONS, THE FLUCTUATING MONEY MARKET FOR REAL ESTATE LOANS OF ALL TYPES AND
OTHER FACTORS WHICH DIRECTLY EFFECT THE VALUE AND MARKETABILITY OF THE LEASED
PROPERTY IT IS REALIZED BY THE PARTIES THAT IT WOULD BE EXTREMELY DIFFICULT AND
IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF CERTAINTY THE
AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY LESSOR IN THE EVENT OF TENANT,S
BREACH OF ITS OBLIGATION TO PURCHASE THE LEASED PROPERTY AFTER EXERCISING AN
OPTION TO PURCHASE THE LEASED PROPERTY UNDER THIS LEASE. THE PARTIES HAVING MADE
DILIGENT BUT UNSUCCESSFUL ATTEMPTS TO ASCERTAIN THE ACTUAL COMPENSATORY DAMAGES
LESSOR WOULD SUFFER IN THE EVENT OF TENANT,S BREACH, IT IS HEREBY AGREED THAT
THE REASONABLE VALUE OF SAID DAMAGES IS THE SUM OF ONE HUNDRED THOUSAND DOLLARS
($100,000), AND IN THE EVENT OF TENANT'S BREACH OF ITS OBLIGATION UNDER THIS
LEASE TO PURCHASE THE LEASED PROPERTY AFTER EXERCISING AN OPTION THEREFORE UNDER
THIS ARTICLE 38, LESSOR SHALL, AS ITS SOLE REMEDY, BE ENTITLED TO SUCH SUM AS
LIQUIDATED DAMAGES. THE RIGHT TO RECEIVE SUCH LIQUIDATED DAMAGES SHALL BE
LESSOR'S SOLE REMEDY IN THE EVENT OF
<PAGE>
TENANT'S BREACH HEREUNDER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
LESSOR HEREBY EXPRESSLY WAIVES THE RIGHT TO SPECIFICALLY ENFORCE TENANT'S
OBLIGATION TO PURCHASE THE LEASED PROPERTY AFTER EXERCISING AN OPTION TO
PURCHASE THE LEASED PROPERTY UNDER THIS ARTICLE 38.
TENANT: LESSOR
By /s/ Robert Snukal LA BREA CONVALESCENT INVESTMENTS,
-----------------------------
ROBERT SNUKAL a partnership
By
_________________________________
/s/ Sheila Snukal By /s/ Sanford Deutsch
- ------------------------------- ----------------------------------
SHEILA SNUKAL
A.I.B. CORPORATION,
a corporation
By /s/ Robert Snukal
-----------------------------
57
<PAGE>
39. TRANSFER OF LESSOR'S INTEREST
-----------------------------
The term "LESSOR" as used in this Lease so far as covenants and obligations
on the part of the LESSOR are concerned shall be limited to mean and include
only the owner or owners at the time in question of the fee of the LEASED
PROPERTY, and in the event of any transfer or transfer of the title to such fee,
the LESSOR 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 as respects the performance
of any covenants or obligations on the part of the LESSOR contained in this
Lease thereafter to be performed, provided that any funds in the hands of such
LESSOR or the then grantor at the time of such transfer, in which the TENANT has
an interest, shall be turned over to the grantee and any amount then due and
payable to the TENANT by the LESSOR or the then grantor under any provision of
this Lease, shall be paid to the TENANT, and provided further that the grantee
assumes and agrees in writing to perform the obligations of LESSOR under this
Lease, it being intended hereby that the covenants and obligations contained in
this Lease on the part of the LESSOR shall, subject as aforesaid, be binding on
the LESSOR, its successors and assigns, only during and in respect of their
respective successive periods of ownership. Notwithstanding the foregoing, the
liability of LESSOR or any member thereof shall be limited to LESSOR'S equity
in the LEASED PROPERTY and there shall be no personal liability with respect
thereto.
40. NOTICES
-------
40.1. TO TENANT: All notices to be given to TENANT may be
58
<PAGE>
given in writing personally or by depositing the same in the United States mail,
postage prepaid, certified or registered mail, and addressed to TENANT at the
HOSPITAL, whether or not TENANT has departed from, abandoned or vacated the
Premises, with a copy to:
David B. Bloom
3325 Wilshire Blvd.
9th Floor
Los Angeles, CA900l0
or at such other addresses (not to exceed two) as TENANT or any of them may
designate from time to time.
40.2. To LESSOR: All notices to be given to LESSOR shall be given to him
in writing by depositing the same in the United States mail, postage prepaid,
certified or registered mail, and addressed to LESSOR as follows:
LA BREA CONVALESCENT INVESTMENTS Attention:
SANFORD DEUTSCH 8417 Beverly Boulevard
Suite 205
Los Angeles, CA90048
with a copy to:
ELLIOT L. SHELTON
Shea & Gould
1800 Avenue of the Stars
Los Angeles, CA90067
or at such other address or addresses (not to exceed two) as LESSOR may instruct
TENANT from time to time. Notices shall be deemed communicated within forty (40)
hours from the time of mailing if mailed in accordance with this paragraph 40.
41. SURRENDER OF LEASE NOT MERGER
-----------------------------
The voluntary or other surrender of this Lease by TENANT, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
LESSOR, terminate all or any existing
59
<PAGE>
subleases, subtenancies, or other rights to use or occupy the LEASED PROPERTY or
any part thereof, or may, at the option of LESSOR, operate as an assignment to
him of any or all such subleases, subtenancies or other rights to use or occupy
the LEASED PROPERTY or any part thereof.
42. ATTORNEYS, FEES
---------------
42.1. If either party becomes a party to any litigation concerning this
Lease or the LEASED PROPERTY, or any business or activity conducted thereon by
reason of any act or omission of the other party or its authorized
representatives, and not by any act or omission of the party that becomes a
party to that litigation, or any act or omission of its authorized
representatives, the party that causes the other party to become involved in the
litigation shall be liable to that party for reasonable attorneys, fees and
court costs incurred by it in the litigation.
42.2. If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Lease, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Lease, the successful or prevailing party or parties shall be entitled
to recover reasonable attorneys, fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
43. PROHIBITION AGAINST RECORDING LEASE OR MEMORANDUM OF LEASE
----------------------------------------------------------
Neither this Lease nor any memorandum thereof shall be recorded. A
violation or breach hereof shall be considered a non-curable default.
60
<PAGE>
44. DESIGNATION OF AGENT FOR SERVICE OF PROCESS
-------------------------------------------
44.1. Any TENANT and any sublessee or assignee under this Lease that is a
partnership, limited partnership, corporation, trust or other entity shall upon
the execution of this Lease or any sublease or assignment thereof:
(a) Designate an agent for service of process in the County of Los
Angeles, State of California, in accordance with the laws of the State of
California;
(b) Within ten (10) days after such designation, or any amendment,
modification, substitution or cancellation thereof, furnish LESSOR with a
certified copy of such designation, amendment, modification, substitution or
cancellation; and
(c) Notify LESSOR in writing of the names and addresses of its
officers, and the address of its principal place of business in the State of
California, and in the State where it maintains its principal place of business.
Within ten (10) days after any change in such officers or addresses, TENANT, or
such assignee or sublessee shall give LESSOR written notice thereof.
44.2. Any TENANT and any sublessee or assignee under this Lease that is an
individual shall upon the execution of this Lease and upon any assignment
thereof give written notice to LESSOR of his residence and business address and
of any subsequent change thereof. If such TENANT, sublessee or assignee is not a
resident of the State of California, he shall in addition to the foregoing,
designate an agent for service of process in the County of Los Angeles, State of
California, and within ten (10) days of the date of said designation or any
amendment, modification, substitution or cancellation thereof
61
<PAGE>
furnish LESSOR with a certified copy of such designation, or any amendment
modification, substitution or cancellation thereof.
45. QUITCLAIM DEED
--------------
TENANT shall execute and deliver to LESSOR on the expiration or termination
of this Lease, immediately on LESSOR'S request, a quitclaim deed to the REAL
PROPERTY, the Lease and/or the PERSONAL PROPERTY, in recordable form,
designating LESSOR as transferee.
46. CONSENT OF PARTIES
------------------
Whenever consent or approval of either party is required, that party shall
not unreasonably withhold such consent or approval.
47. RENT PAYABLE IN U.S. MONEY
--------------------------
Rent and all other sums payable under this Lease must be paid in lawful
money of the United States of America.
48. REAL ESTATE BROKERS; FINDERS
----------------------------
Each party represents that it has not had dealings with any real estate
broker, finder, or other person, with respect to this Lease in any manner. Each
party shall hold harmless the other party from all damages resulting from any
claims that may be asserted against the other party by any broker, finder, or
other person, with whom the other party has or purportedly has dealt.
49. EXHIBITS
--------
All exhibits referred to are attached to this Lease and incorporated by
reference.
50. APPLICABLE LAW
--------------
This Lease shall be construed and interpreted in accordance with the laws
of the State of California.
62
<PAGE>
51. SINGULAR AND PLURAL
-------------------
When required by the context of this Lease, the singular shall include the
plural.
52. SEVERABILITY
------------
The unenforceability, invalidity, or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
53. CROSS-DEFAULT
-------------
As material consideration for this Lease, LESSEE has entered and executed a
second Lease with LESSOR dated May 19, 1987 leasing property commonly known as
515 North La Brea Avenue, Los Angeles, California. The occurrence of any breach
or event of default by LESSEE under said second Lease shall be an event of
default under this Lease, entitling LESSOR to invoke the Default Clause of this
Lease.
54. ADDITIONAL REQUIREMENT OF ASSIGNMENT OR SUBLETTING
--------------------------------------------------
LESSOR shall have the right, as a condition of consenting to an assignment
or sublease, to require the second Lease entered between LESSOR and LESSEE
covering property commonly known as 515 North La Brea Avenue, Los Angeles,
California, be assigned or sublet simultaneously with this Lease by the same
assignee or sublessee.
63
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR: LESSEE:
LA BREA CONVALESCENT INVESTMENTS, A.I.B. Corporation A
Partnership a California Corporation
By /s/ [SIGNATURE ILLEGIBLE] By /s/ Robert Snukal
----------------------------- ---------------------------
Robert Snukal, President
By /s/ [SIGNATURE ILLEGIBLE] By /s/ Sheila Snukal
----------------------------- ---------------------------
Secretary
/s/ Robert Snukal
-----------------------------
ROBERT SNUKAL
/s/ Sheila Snukal
-----------------------------
SHEILA SNUKAL
64
<PAGE>
DESCRIPTION OF HOSPITAL EQUIPMENT
---------------------------------
To be Attached
EXHIBIT 2
<PAGE>
DESCRIPTION OF HOSPITAL
-----------------------
Lots 19, 20, 21 and 22 of Tract No. 6740, Sheets 1 and 2, in the City of Los
Angeles, County of Los Angeles, State of California, as per Map recorded in Book
98, pages 98 and 99 of Maps, in the office of the County Recorder of said
County.
EXHIBIT "1"
<PAGE>
Recording requested by and
when recorded return to:
ELLIOT L. SHELTON
Shea & Gould
1800 Avenue of the Stars
Suite 500
Los Angeles, California 90067
ABSOLUTE ASSIGNMENT OF RENTS
----------------------------
ROBERT SNUKAL, SHEILA SNUKAL, and A.I.B. CORPORATION, a California corporation,
("Assignor") is the Tenant of the real property located in the County of Los
Angeles, State of California, commonly known as 505 North La Brea Blvd., Los
Angeles, California and more particularly described in Exhibit "A" attached
hereto and made a part hereof ("Property").
For value received, Assignor hereby grants, transfers and assigns to LA BREA
CONVALESCENT INVESTMENT! a partnership (Assignee") all rents, income, royalties,
issues and profits due or to become due hereafter for the occupancy or use of
the Property (such rents, royalties, issues and profits being hereinafter
collectively called "Rents").
Assignor warrants that Assignor is the Tenant of the Property pursuant to a
lease dated May 19, 1987 by and between Assignor, as Tenant and Assignee, as
Lessor ("Lease"), that Assignor is the lawful owner of all Rents from Property
now due or to become due from any lessee, sublessee, tenant, assignee, licensee
or concessionaire of Assignor; that Assignor has the right to make this
Assignment; that full title and right to receive all Rents, due or to become
due, are vested in Assignee by reason of this Assignment; that property and
Rents are free from any liens, encumbrances, claims or setoffs of every kind
whatsoever and that no prior or other assignment of Rents has been given by
Assignor.
Assignor appoints Assignee its true, lawful and irrevocable attorney
to demand, receive and enforce payment, to give receipts, releases and
satisfactions, and to sue, either in the name of Assignor or in the name of
Assignee, for all Rents.
EXHIBIT "3"
Page 1 of 3
<PAGE>
Assignor Consents that without further notice and without releasing
the liability of Assignor, Assignee may, at Assignee's discretion agree to give
grace or indulgence in the collection of any such Rents and grant extensions of
time for the payment of the same before, at or after maturity.
Assignor agrees that Assignee may proceed against Assignor hereunder
without joining any tenant or other party to the obligation to pay Rents covered
hereunder; that cessation of the liability of any tenant or other party to pay
Rents for any reason other than full payment shall not in any way affect the
liability of Assignor under this Assignment.
Assignee does not assume any of Assignor's obligations under Lease,
any lease agreement, or tenancy, or any other agreement to pay any Rent assigned
hereunder, and Assignor agrees (a) to keep and perform all obligations under
such agreements or tenancies and to save Assignee harmless from the consequences
of any failure to do so including reasonable counsel fees incurred by Assignee;
and (b) to preserve the Property free and clear of liens and encumbrances.
Assignor agrees that Assignor will not assign any interest in any
lease agreement or tenancy or any other agreement to pay any Rent assigned
hereunder; that notice of this Assignment may be given to any tenant, or party
to any such agreement at any time at Assignee's option; and that, in the event
any payment under such agreement or tenancy is made to Assignor, Assignor will
promptly transmit such payment to Assignee in the same form as it is received by
Assignor, except that Assignor will endorse to Assignee instruments which are
payable to Assignor.
Assignor agrees that, as long as this Assignment is in force, Assignor
will give a copy of this Assignment to each and every lessee, tenant, or other
person obligated to pay Rent as to Property during the term hereof and will
secure the execution by each such lessee, tenant, or other person of an
acknowledgment of this Assignment.
Assignor agrees that Assignee shall be entitled to deduct and retain
from any monies received by it hereunder for its services or that of any agents
in collecting said monies a just and reasonable compensation.
Notwithstanding any other provision of this Assignment to the
contrary, Assignee shall not collect any rents whatsoever, or exercise any of
the other rights herein granted to Assignee, so long as Assignor is not in
default in the payment of rent or property taxes under the terms of Lease. In
the event, Assignor defaults in the performance of any of Assignor's obligations
under, Lease, Assignee shall be free to pursue all of Assignee's rights under
this Assignment in addition to such other rights of Assignor under Lease or as
provided by law.
EXHIBIT "3"
Page 2 of 3
<PAGE>
Notwithstanding any provision of this Assignment to the contrary, upon
the happening of any default under Lease, Assignee may exercise each and all of
the rights, remedies and powers herein granted, with or without demanding
possession of the Property, and with or without commencing legal proceedings to
recover possession of the Property.
Failure of Assignee at any time or from time to time to enforce this
Assignment shall not in any manner prevent its subsequent enforcement, such
Assignee not being obligated to collect anything hereunder, but being
accountable only for sums actually collected.
This Assignment is irrevocable and shall remain in full force and
effect until and unless there is payment in full of all obligations owned by
Assignor to Assignee on the Property, including but not limited to Lease.
ASSIGNEE: ASSIGNOR:
- -------- --------
LA BREA CONVALESCENT A.I.B. Corporation
INVESTMENTS, a partnership a California Corporation
By /s/ Robert Snukal
----------------------------
Robert Snukal, President
By____________________________
By /s/ Sheila Snukal
----------------------------
Sheila Snukal, Secretary
By____________________________
EXHIBIT "3"
Page 3 of 3
<PAGE>
Consent, Agreement, and Acknowledgement
---------------------------------------
July 30, 1997
To: La Brea Convalescent Investments
Attn: Sanford Deutsch
8417 Beverly Boulevard
Suite 205
Los Angeles, CA 90048
Dear Gentlemen:
My wife and I are the owners of 100% of the capital stock of AIB Corp., a
California corporation ("AIB"). AIB is a party to a Stock Purchase and
Contribution Agreement (the "Agreement"). Pursuant to the terms of the Agreement
at the time of closing, ownership of 100% of AIB's capital stock will be
transferred (the "Transfer") to Fountain View Holdings, Inc., a Delaware
corporation ("Holdings"), which will be a wholly-owned subsidiary of Fountain
View, Inc., a Delaware corporation ("Fountain View"). In addition, in connection
with the transactions contemplated by the Agreement, we will assign our
interests in the Lease to AIB (together with the Transfer, the "Assignment").
Immediately after the consummation of the transactions contemplated by the
Agreement, my wife and myself will retain voting and operational control of AIB,
we will control the Board of Directors of Fountain View by electing three of the
five proposed Directors of Fountain View, and we will continue to lead AIB's
management team, and Robert Snukal will continue as the Chief Executive Officer
of AIB Corp., Holdings, and Fountain View. The Board of Directors shall be
comprised of myself, my wife, and a third individual to be nominated by us; the
other two seats on the Board of Directors will be nominees of Heritage Fund II
Investment Corporation. Further, my wife and I will retain voting control of
50.1% of the common stock of Fountain View, Inc.
Pursuant to Sections 22.1 and 22.3 of the Lease Agreement dated May 19, 1997
(the "Lease") between La Brea Convalescent Investments, a California
partnership, as Lessor ("Lessor") and AIB and us, as Lessees ("Lessees"), your
written consent is required to the Assignment referred to herein. Further, by
their signature to this document and in connection with your consenting to the
Assignment, Holdings and Fountain View, agree to assume all of the terms,
covenants, conditions, and obligations of the Lessee to be performed under the
Lease, upon the closing. Additionally, Holdings, Fountain View, AIB, my wife and
myself, also agree to the following:
A. In addition to the Lease for the Leased Property located at
505 North La Brea Avenue,
<PAGE>
Los Angeles, California, ("505 Lease") Lessees Robert Snukal and
Sheila Snukal, and their affiliate, B.I.A., are also the Lessees under
a lease from Lessor of the adjoining and connected Leased Property
commonly known as 515 North La Brea, Los Angeles, California ("515
Lease"). The "Leased Property" under each of these two leases are
together referred to herein as the "Leased Properties". Lessee agrees
that because of the nature, physical configuration and other factors
affecting the Leased Properties and the businesses thereon, the Leased
Properties are not severable from each other for purposes of the 505
Lease and the 515 Lease ("Leases"); and it is and has always been the
intention of Lessor and the Lessee under each of the Leases that the
Lessee under any one of the Leases shall not have the right under any
circumstances whatsoever to terminate or reject, including a rejection
under the Bankruptcy code, any one of the Leases, without concurrently
terminating or rejecting the other one of the Leases, and in the event
one of the Leases shall be terminated or rejected by Lessee, it shall
constitute a default under the other Lease.
B. Lessee may not exercise the right of first refusal under paragraph 38
of the 505 Lease, unless Lessee simultaneously exercises the right of
first refusal under paragraph 38 of the 515 Lease.
We therefore would appreciate you executing this Consent, Agreement, and
Acknowledgement with respect to the following:
1. A true and correct copy of the Lease between AIB and Robert and Sheila
Snukal, as Lessees, and La Brea Convalescent Investments, a California
partnership, as lessor, dated May 19, 1997 is attached hereto as
Exhibit A.
2. As of the date hereof, (i) there exist no known defaults by any of the
Lessees, (ii) Lessees are in full compliance with the terms of the
Lease and (iii) the Lease is in effect as of the date hereof.
3. We hereby consent to the Assignment, effective as of the date hereof,
provided however, that in no event shall Lessees, AIB, Robert and
Sheila Snukal, be released from Lessees' obligations under the Lease,
and they agree
<PAGE>
that they will continue to be primarily obligated on the Lease and
that in the event of a breach or default thereunder, Lessor may
commence legal proceedings against said Lessees, without first
proceeding against any Assignee.
If you have any questions or require clarification, please do not hesitate to
contact us.
AIB Corp.
/s/ Robert Snukal By: /s/ Robert Snukal
- ---------------------------- ---------------------------
Robert Snukal Robert Snukal, President
Fountain View Holdings, Inc.,
/s/ Sheila Snukal a Delaware corporation
- ----------------------------
Sheila Snukal
By: /s/ Robert Snukal
---------------------------
Robert Snukal, President
Fountain View, Inc.,
a Delaware corporation
By: /s/ Robert Snukal
---------------------------
Robert Snukal, President
Based on the truth of the facts, representations, and statements set forth
herein, by AIB, Robert and Sheila Snukal, Fountain View Holdings, Inc., a
Delaware corporation, and Fountain View, Inc., a Delaware corporation, we agree
to and consent to the Asssignment referred to herein.
Executed this 30th day of July, 1997.
La Brea Convalescent Investments,
a California partnership
By: /s/ Sanford Deutsch
-------------------------------
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
<PAGE>
EXHIBIT 10.2
Pursuant to Instruction 2 to Item 601 of Regulation S-K, this exhibit is
not being filed because it is substantially identical to Exhibit 10.1. The
differences are as follows:
Tenant: Snukal and B.I.A. Corporation
Premises: 515 North LaBrea Avenue, Los Angeles, CA
Facility: 166 bed residential care home
Min. Monthly Rent: First Aug. 1, 1988 to Dec.31, 1990 $20,735
Jan. 1, 1991 to Jan.31, 1991 $18,000
Second: Feb. 1, 1991 to July 31, 1993 $18,600
Third: Aug. 1, 1993 to Jan 31, 1996 $19,400
Fourth: Feb. 1, 1996 to July 31, 1998 $20,400
<PAGE>
EXHIBIT 10.3
LEASE
MONTEBELLO CONVALESCENT HOSPITAL
--------------------------------
August 1, 1997
<PAGE>
CONTENTS:
Recitals
Section 1. Definitions
Section 2. Lease
Section 3. Term of Lease
Section 4. Delay in Possession
Section 5. Base Monthly Rent
Section 6. Use
Section 7. Utilities
Section 8. Taxes
Section 9. Condition of Premises
Section 10. Repairs and Maintenance
Section 11. Alterations
Section 12. Entry
Section 13. Surrender of Premises; Holding Over
Section 14. Indemnity
Section 15. Insurance
Section 16. Signs
Section 17. Damage and Destruction
Section 18. Condemnation
Section 19. Assignment and Subletting
Section 20. Default
Section 21. Remedies
Section 22. Late Charge
Section 23. Default Interest
Section 24. Waiver of Breach
Section 25. Estoppel Certificates
Section 26. Attorney Fees
Section 27. Security Deposit
Section 28. Authority
Section 29. Notices
Section 30. Heirs and Successors
Section 31. Partial Invalidity
Section 32. Entire Agreement
Section 33. Time of Essence
Section 34. Rent
Section 35. Amendments
Section 36. Subordination
Section 37. Merger
Section 38. Governing Law
Section 39. Representations of Landlord
Section 40. Snukal Management Control
Exhibit A. Inventory
Lease Guaranty
<PAGE>
LEASE
This Lease (Lease) is entered into as of August 1, 1997 between Robert
Snukal and Sheila Snukal (Landlord) and Elmcrest Convalescent Hospital, dba
Montebello Convalescent Hospital (Tenant).
Recitals
A. Landlord is the owner of certain land, buildings, improvements,
furnishings and equipment located at 1035 West Beverly Boulevard, Montebello,
California (Premises). The Premises include the above described real property
and improvements consisting of a 99 bed skilled nursing facility (the "Licensed
Facility") and the furnishings, fixtures and equipment used on the premises for
operation of the licensed facility, including but not limited to the items
listed in the inventory, attached hereto as Exhibit "A", and any
replacements thereof, additions, augmentations, or improvements thereto,
whether presently in use on said premises or hereinafter acquired or so used,
and any proceeds of any of the foregoing. The foregoing personal property
included in the Premises is hereinafter sometimes referred to as the
"Equipment."
B. Landlord desires to lease to Tenant and Tenant desires to lease from
Landlord the Premises on the terms and conditions in this Lease.
For good and valuable consideration, the parties agree as follows:
Section 1. Definitions.
As used in this Lease the following terms shall have the following
definitions:
Adjustment Dates is defined in Section 5(b).
Commencement Date is defined in Section 3.
Equipment is defined in Recital A.
Event of Default is defined in Section 20.
Index is defined in Section 5(c).
Initial Monthly Rent is defined in Section 5(a).
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Landlord is defined in the preamble of this Lease.
Lease is defined in the preamble of this Lease.
Licensed Facility is defined in Recital A.
Base Monthly Rent is defined in Section 5(a).
Premises is defined in Recital A.
Tenant is defined in the preamble of this Lease.
Term is defined in Section 3.
Termination Date is defined in Section 3.
Section 2. Lease.
Landlord leases to Tenant and Tenant leases from Landlord the Premises on
the terms and conditions in this Lease.
Section 3. Term of Lease.
The term of this Lease (Term) shall be for twenty (20) years commencing on
August 1, 1997 (Commencement Date), and ending on July 31, 2017, unless sooner
terminated pursuant to the terms of this Lease (Termination Date).
Section 4. Delay in Possession.
If for any reason Landlord fails to deliver or offer to deliver physical
possession of the Premises to Tenant on or before the Commencement Date, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting from the failure to deliver possession, so long as
Landlord has exercised, and continues to exercise, reasonable diligence to
deliver possession; provided, however, that rent shall be abated until Landlord
delivers physical possession of the Premises to Tenant. The Term shall not be
extended by Landlord's failure to deliver possession of the Premises to Tenant
on the Commencement Date.
Section 5. Base Monthly Rent.
(a) For the period commencing August 1, 1997 and ending July 31, 1998, the
minimum monthly rental shall be thirty thousand Dollars ($30,000.00) (Initial
Monthly Rent and as adjusted from time to time, Base Monthly Rent). The Base
Monthly Rent shall be
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payable in advance on the first day of each month at the following address:
Robert Snukal, 11900 West Olympic Blvd, #680, Los Angeles, California 90064, or
at another address that Landlord may from time to time designate by written
notice to Tenant.
(b) On the first day of July, of each year during the term of this lease,
(Adjustment Dates) the Base Monthly Rent shall be adjusted to an amount equal to
the greater of
(i) the Base Monthly Rent in effect immediately prior to the
Adjustment Date (without regard to any temporary abatement of rental then
or previously in effect pursuant to the provisions of this Lease), or
(ii) the product obtained by multiplying the Initial Monthly Rent
(without regard to any temporary abatement of rental then or previously in
effect pursuant to the provisions of this Lease) by a fraction, the
numerator of which is the Index, as defined below, published nearest but
prior to the Adjustment Date and the denominator of which is the Index
published nearest but prior to the Commencement Date.
(C) The term Index as used in this Lease shall mean the Consumer Price
Index for Urban Wage Earners and Clerical Workers, for the Los Angeles --
Anaheim -- Riverside, All Items (base year 1982-84) published by the Bureau of
Labor Statistics of the United States Department of Labor. If the Bureau of
Labor Statistics revises the Index, the parties agree that they will substitute
the index designated by the Bureau of Labor Statistics as the most comparable of
successive indexes. If that agency, however, fails to supply indexes that it
deems comparable, or if no succeeding index is published, the parties shall then
negotiate to determine an appropriate alternative published price index. If
they are unable to agree on an alternative index within thirty (30) days after
the request to do so is made by one party to the other, then either party may
request that each appoint a person, within fifteen (15) days after the request,
to select an alternative published price index. The two persons so appointed,
within fifteen (15) days after the later of them is appointed, shall appoint a
third person to act with them in the selection of an alternative price index.
If either of the first two fails to appoint the third, or if Landlord or Tenant
fails to appoint one of the first two, then, upon the application of either
Landlord or Tenant, the vacancy shall be filled by way of a proceeding commenced
in the Superior Court of the State of California in the County which the
property is located, pursuant to California Code of Civil Procedure (S)1280, et
seq. If any appointee declines or is unable to serve, the appointee shall be
replaced by another person appointed in the same manner. Within thirty (30)
days after the appointment process is completed, and on the basis of all
pertinent facts, the appointees, by majority vote, shall select an alternative
published price index
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<PAGE>
and advise Landlord and Tenant in writing of the selection. All fees and
expenses incurred in the appointment of the persons shall be shared equally by
Landlord and Tenant.
Section 6. Use.
(a) Tenant will occupy and use the Premises for the operation of the
Licensed Facility and all other operations incident to the conduct of the
business, and Tenant agrees not to use the Premises for any immoral or unlawful
purpose.
(b) Tenant shall not commit any acts on the Premises, nor use the Premises
in any manner that will increase the existing rates for or cause the
cancellation of any fire, liability, or other insurance policy insuring the
Premises or the improvements on the Premises. Tenant shall, at Tenant's own
cost and expense, comply with all requirements of Landlord's insurance carriers
that are necessary for the continued maintenance at reasonable rates of fire and
liability insurance policies on the Premises and the improvements on the
Premises.
(c) Tenant shall not commit any waste or any public or private nuisance
upon the Premises.
(d) Tenant shall at its sole cost and expense comply with all laws, rules,
and orders of all federal, state, and municipal governments or agencies that may
be applicable to use of the Premises or the operation of the Licensed Facility.
(e) Tenant shall maintain at all times during the Term, including any
extension of holdover periods, all governmental licenses, permits and
authorizations necessary for the establishment and operation of the Premises
as the Licensed Facility in the city of Los Angeles, County of Los Angeles,
State of California and participation as a provider under Medicare, Medi-Cal, or
other such legislation and regulations (collectively, "Required Licenses").
Tenant shall not, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed, effect any change in the license
category or status of the Premises or any part thereof or in the number of
licensed beds thereat (except in accordance with Paragraph 8.1 of this Lease).
Tenant agrees that if it is notified, or otherwise learns or believes, that the
Department of Health Services ("DHS") or other governmental authorities
(collectively, "Agencies"; singularly, an "Agency") intends to close the
Licensed Facility, require transfer of patients of the Licensed Facility or
suspend, revoke or terminate any Required Licenses, Tenant will fully cooperate
with Landlord, DHS and any other applicable Agencies to take any and all actions
necessary to preempt and avoid such
4
<PAGE>
closure, transfer or loss of Required Licensure If such closure, transfer or
loss of Required Licensure is imminent, Tenant shall permit Landlord or other
party acceptable to Landlord and the applicable Agencies to immediately assume
management of the Licensed Facility under a management arrangement with Tenant.
(f) Tenant shall furnish to Landlord promptly upon receipt by Tenant,
copies of all correspondence, surveys, etc. received by Tenant from, and/or sent
to Tenant from, any and all Agencies, including but not limited to DHS and the
agencies regulating Medicare and Medi-Cal certification of the Premises,
reimbursement and/or provider agreements relating to any and all Class A or
Class AA citations or any threat or implementation of revocation, suspension or
reduction of the Facility's license or decertification of the Facility
under Medicare or Medi-Cal. Tenant shall also furnish to Landlord copies of all
plans of correction and all correspondence related thereto submitted to any such
Agencies concurrently with such submission related to any such events requiring
notice hereunder. All notices required pursuant to this paragraph 8(f) shall be
provided as soon as reasonably possible, not later than five days following each
such action or event for which notice is required.
(g) Tenant shall not use, generate, manufacture, disturb, store or dispose
of on, under or about the Premises or transfer to or from the Premises any
flammable explosives, radioactive materials, hazardous wastes, toxic substances
or related materials (collectively "Hazardous Substances") except that Lessee
may store, use and dispose of such substances that are customarily used in
skilled nursing facilitates in California provided they are stored, used and
disposed of in full compliance with all applicable laws, rules and regulations.
As used in this Lease, Hazardous Substances shall include, but not be limited
to, substances defined as "hazardous substances", "hazardous materials", or
"toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 6901 et
seq.; the Clean Water Act, 33 U.S.C. Section 466 et seq.; the Superfund
Amendment and Re-authorization Act of 1986, Public Law 99-499, 100 Stat.
1613; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as
amended; and those materials and substances of a similar nature regulated or
restricted under any laws of the United States or State of California and in
regulations adopted and publications promulgated pursuant to said laws.
(h) During the Term of this Lease, Landlord shall have the right to
receive any operating and financial statements otherwise prepared by Tenant
throughout the Term, if required by any third party ("Requested Statements") as
a condition to such third party agreeing to lend funds to Landlord or to
purchase all or part of
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<PAGE>
Landlord's interest in the Premises. Upon Landlord's receipt of notice of the
request by such third party lender or purchaser for such Requested Statements,
Landlord shall tender a written request to Tenant for such Requested Statements
and Tenant, upon receipt of such request, shall deliver such Requested
Statements to Landlord as soon thereafter as reasonably possible but in any case
within fifteen (15) working days after receipt of such request. Such third
party requiring the Requested Statements shall execute a reasonable
confidentiality agreement with Tenant pursuant to which it shall agree not to
disclose the Requested Statements or information therein.
(i) Tenant shall take all steps appropriate to promote and maintain a high
level of patient census at the Premises consistent with law and ethical
standards governing the operation of skilled nursing facilities. Tenant shall
not transfer patients from the Licensed Facility, except for reasons of health,
family request and/or convenience of or at the request of the patient.
Section 7. Utilities.
During the Term, Tenant shall pay, before delinquency, all charges or
assessments for telephone, water, sewer, gas, heat, electricity, garbage
disposal, trash disposal, and all other utilities and services of any kind that
may be used on the Premises.
Section 8. Taxes.
(a) Subject to the terms of Section 8(d), Tenant, as additional rent,
shall pay to the public authorities charged with the collection thereof on or
before the last day on which payment may be made without penalty or interest, as
additional rent, all taxes, permit, inspection, and license fees, and other
public charges of whatever nature that are assessed against the Premises or
arise because of the occupancy, use, or possession of the Premises (including
but not limited to taxes on, or which shall be measured by, any rents or rental
income, and taxes on real and/or personal property, located at the premises,
whether of Landlord or Tenant), subsequent to the commencement of the Term, and
all installments of assessments that are due during the Term, provided in the
case of each respective assessment that Landlord shall have elected to pay such
assessment in installments over the longest period permitted by law.
(b) Landlord agrees to send to Tenant any statements and billings received
from public authorities for taxes, assessments, and public charges payable by
Tenant hereunder, however, any failure to mail such statements or billings shall
not excuse the
6
<PAGE>
Tenants obligation to insure timely payment. However, where such statements or
billings are sent initially to Landlord and not Tenant, Tenant shall not be
deemed to be in default for non-payment until ten (10) days after landlord has
sent such statements or billings, to Tenant. Tenant shall deliver to Landlord,
on demand, original receipts or photocopies evidencing payment of all taxes,
assessments, and public charges payable by Tenant hereunder. If Tenant fails to
pay taxes, assessments, and charges on or before the last day on which payment
may be made without penalty or interest, other than as provided for in this
Section 8, Landlord may, but shall not be obligated to, pay those taxes,
assessments, or charges, together with interest and penalties. Any amounts that
Landlord may pay pursuant to this provision, together with interest at the rate
of ten percent (10%) per annum, shall be repaid to Landlord by Tenant on demand
as additional rent.
(c) All real estate taxes levied on the Premises for the tax year in which
the Commencement Date falls shall be appropriately prorated between Landlord and
Tenant, so that Tenant's share will reflect the portion of that tax year in
which Tenant had possession of the Premises under this Lease. Tenant shall pay
Tenant's share of the taxes directly to Landlord and not to the public
authorities charged with the collection. That payment shall constitute full
performance by Tenant, and Landlord shall pay from those funds and Landlord's
own funds all of the taxes for that tax year. Taxes levied on the Premises for
the tax year in which the Termination Date occurs shall be similarly prorated
between Landlord and Tenant to reflect the period of Tenant's possession of the
Premises during that tax year. Tenant shall pay Tenant's share of those taxes
to Landlord directly rather than to the public authorities, and that payment
shall constitute full performance under this Lease with respect to this tax
liability.
(d) Tenant shall not be required to pay, discharge, or remove any tax
(including penalties and interest), assessment, tax lien, forfeiture, or other
imposition or charge against the Premises or any part of the Premises or any
improvements, so long as Tenant diligently and in good faith contests the
validity or the legality of the assessment, levy, or charge by
appropriate legal proceedings, which should prevent the collection of the tax,
assessment, imposition, or charge contested; provided however, that Tenant,
prior to the date that the tax, assessment, imposition, or charge is due and
payable, shall either have paid it under protest or shall have, in the case of
real estate taxes, deposited with Landlord funds sufficient to cover the amount
of the taxes and penalties and interest which funds Landlord shall deposit in an
interest bearing account pending a final determination as to whether the tax,
assessment, imposition, or charge is valid, legal and owing. Upon such final
determination, Tenant agrees to immediately pay any tax, assessment,
imposition, or charge determined to be owing, together with all interest and
penalties,
7
<PAGE>
if any, and remove and discharge any lien or forfeiture arising from the prior
nonpayment. The funds deposited with Landlord shall be applied to such payment
and any remaining balance shall be returned to Tenant. Any proceedings for
contesting the validity, legality, or amount of any tax, assessment, imposition,
or charge, or to recover any tax, assessment, imposition, or charge paid by
Tenant, may be brought by Tenant in the name of Landlord or in the name of
Tenant, or both, as Tenant deems advisable. Landlord agrees that Landlord will,
upon the reasonable request of Tenant, execute or join in the execution of any
truthful and proper instrument or document necessary in connection with any
proceeding. However, if any proceedings are brought by Tenant, Tenant agrees to
indemnify Landlord for all reasonable loss, cost, or expense that may be imposed
on Landlord in connection with the proceeding. Tenant's right to contest taxes
as provided in this Lease shall not extend beyond the point where Landlord's
title to the Premises could be lost. In any event, Tenant shall notify Landlord
in advance of any tax contest proceedings that Tenant intends to initiate, and
shall then inform Landlord of all significant developments in the proceedings as
they may occur.
(e) If Tenant has not paid any tax, assessment, or public charge required by
this Lease to be paid by Tenant before its delinquency, or if a tax,
assessment, or public charge is contested by Tenant and that tax,
assessment, or public charge and is not paid within thirty (30) days after
a final determination of the validity, legality, or amount of the tax,
assessment or public charge, then Landlord may, but shall not be required
to, pay and discharge the tax, assessment, or public charge. If a tax,
assessment, or public charge, including penalties and interest, are paid by
Landlord, the amount of that payment shall be immediately due and payable
to Landlord by Tenant, and shall bear interest at the rate of ten percent
(10%) per annum from the date of the payment by Landlord until repayment by
Tenant.
(f) If any assessments for local improvements which are payable in installments
become a lien after the Commencement Date, Tenant shall pay only the
installments of the assessments that become due and payable during the
Term.
(g) The covenants and agreements to pay taxes by Tenant in this Section 8 shall
not include the payment of any inheritance, estate, succession, transfer,
gift, franchise, corporation, income, or profit tax, or capital levy that
is or may be imposed on Landlord.
Section 9. Condition of Premises.
Tenant acknowledges that as of the date of this Lease, Tenant has inspected
the Premises including all improvements and the Equipment, and that the Premises
including the improvements and
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Equipment are in good order, repair, and condition, and that Tenant has accepted
same.
Section 10. Repairs and Maintenance.
(a) Tenant agrees, at Tenant's own expense, to keep the Premises
(including without limitation, the sidewalks, the parking lot, and the
landscaping that are part of the Premises and the Equipment) in good condition
and repair, and to deliver to Landlord physical possession of the Premises at
the end of the Term, or any extension of the Term, in good condition and repair,
and to make and perform all maintenance, repairs, and replacements as may be
necessary.
(b) If from time to time during the Term any item or items of Equipment
cannot be effectively repaired or are determined by Tenant as not worth
repairing, Tenant shall at its sole cost replace such items of Equipment with
substitutes of a quality equivalent to the quality of such replaced items as of
the Commencement Date. The replaced Equipment, shall immediately become part of
the leased Premises, and the property of the Landlord.
(c) If at any time during the Term, including renewals or extensions,
Tenant fails to maintain the Premises or make any repairs or replacements as
required by this Section 10, Landlord shall provide Tenant with written notice
of such failure, and if thereafter Tenant remains in default of its obligations,
Landlord may, but shall not be required to, enter the Premises and perform the
maintenance or make the repairs or replacements for the account of Tenant; any
sums expended by Landlord in so doing, together with interest at ten percent
(10%) per annum, shall be deemed additional rent and shall be immediately due
from Tenant on demand of Landlord.
(d) The obligation of Tenant to maintain the Premises shall include,
without limitation, the obligation to maintain, improve or upgrade the Premises,
including but not limited to the improvements thereon and the Equipment, as may
be required by applicable law or regulation as they presently exist or may be
changed, professional standards of care, or prudent and safe practices for the
operation of the Licensed Facility.
(e) Tenant waives the provisions of Civil Code SS 1941 and 1942 and any
other law that would require Landlord to maintain the Premises in a tenantable
condition or would provide Tenant with the right to make repairs and deduct the
cost of those repairs from the rent.
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Section 11. Alterations.
(a) Tenant shall have the right to make alterations to the building and
improvements on the Premises, provided that, if the reasonably estimated cost of
alterations exceeds Ten Thousand Dollars ($10,000.00) in any lease year, Tenant
must first obtain Landlord's written consent to the alterations, and Landlord
agrees not to unreasonably withhold approval of the alterations. Approval,
however, may be conditioned upon the receipt by Landlord of a set of plans and
specifications for the alterations no later than thirty-five (35) days prior to
the scheduled construction of the alterations, and upon Tenant's agreement to
restore the Premises, if Landlord requires it at the end of the Term, to the
same condition as before the alterations. All improvements, additions,
alterations, and repairs shall be in accordance with applicable laws and at
Tenant's own expense. Tenant will indemnify and defend Landlord for all liens,
claims, or damages caused by remodeling, improvements, additions, alterations,
and repairs. Landlord agrees, when requested by Tenant, to execute and deliver
any applications, consents, or other instruments required to permit Tenant to do
work or to obtain permits for the work permitted hereunder.
(b) All alterations and improvements made to the Premises shall become
the property of Landlord and shall remain on and be surrendered with the
Premises at the expiration or sooner termination of this Lease, including any
renewals or extensions.
(c) At least ten (10) days before any construction commences or
materials are delivered for any alterations that Tenant is making to the
Premises, whether or not Landlord's consent is required, Tenant shall give
written notice to Landlord as to when the construction is to commence or the
materials are to be delivered. Landlord shall then have the right to post and
maintain on the Premises any notices that are required to protect Landlord and
Landlord's interest in the Premises from any liens for work and labor performed
or materials furnished in making the alterations; provided, however, that it
shall be Tenant's duty to keep the Premises free and clear of all liens, claims,
and demands for work performed, materials furnished, or operations conducted on
the Premises at the request of Tenant.
(d) Tenant will not at any time permit any mechanics', laborers', or
materialmen's liens to stand against the Premises for any labor or material
furnished to Tenant or claimed to have been furnished to Tenant or Tenant's
agents, contractors, or subtenants, in connection with work of any character
performed or claimed to have been performed on the Premises by or at the
direction or sufferance of Tenant. Tenant shall have the right to contest the
validity or amount of any lien or claimed lien, provided that Tenant first
causes a sufficient release bond to be recorded
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releasing the lien. On final determination of the lien or claim of lien, Tenant
will immediately pay any final judgment rendered, with all proper costs and
charges, and shall have the judgment satisfied at Tenant's own expense. If
Tenant fails to timely pay such a judgment promptly or remove any lien, claim of
lien or as required herein, Landlord shall have the right, upon five (5) days'
written notice to Tenant, to pay or take action to contest or remove same, and
the amount expended by Landlord for this purpose shall be immediately due and
payable to Landlord, and shall bear interest at the rate of ten percent (10%)
per annum from the date of payment by Landlord until repayment by Tenant.
Section 12. Entry.
Tenant shall permit Landlord or Landlord's agents, representatives, or
employees to enter the Premises at all reasonable times without unreasonably
disturbing the operation of the facility to inspect the Premises to determine
whether Tenant is complying with the terms of this Lease, to do other lawful
acts that may be necessary to protect Landlord's interest in the Premises under
this Lease or to perform Landlord's duties under this Lease, or to show the
Premises to any prospective purchasers, lenders or, during the last 120 days of
the Term, Lessees. Landlord shall give at least 24 hours prior notice of
Landlord's intent to enter the Premises, unless Landlord reasonably believes
that a life threatening condition may exist. Landlord may at any time place on
or about the Premises any ordinary "For Sale" signs and at any time during the
last one hundred twenty (120) days of the Term place on or about the Premises
any ordinary "For Lease" signs.
Section 13. Surrender of Premises; Holding Over.
(a) On the Termination Date or the end of any extension or renewal of
this Lease, Tenant shall promptly surrender and deliver the Premises to Landlord
in as good condition as they were as of the date of this Lease, reasonable wear
and tear excepted, provided that Tenant has fulfilled its duties of maintenance,
repairs, and replacement as required by Section 10.
(b) At the end of the Term, or any extension, should Tenant hold over
for any reason, it is agreed that in the absence of a written agreement to the
contrary, that tenancy shall be from month-to-month only and not a renewal of
this Lease, nor an extension for any further term. Tenant shall pay Base Monthly
Rent in an amount equal to one hundred twenty-five percent (125%) of the Base
Monthly Rent payable prior to the end of the Term or any extension and the
month-to-month tenancy shall be subject to every other term, covenant, and
condition in this Lease that is
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consistent with and not contrary to a month-to-month tenancy.
Section 14. Indemnity and Exemption of Landlord from Liability.
(a) Tenant agrees to indemnify and defend Landlord from any claims,
demands, and causes of action of any nature and any expense incident to the
defense, for injury to or death of persons or loss of or damage to property
occurring on or about the Premises during the Term. Further, Tenant shall
indemnify and hold harmless Landlord from and against any and all claims arising
from Tenant's use of the Premises, or from the conduct of Tenant's business or
from any activity, work or things done, permitted or suffered by Tenant in or
about the Premises or elsewhere, and shall further indemnify and hold harmless
Landlord 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 the
terms of this Lease, or arising from any negligent or willful acts of the Tenant
or any of Tenant's agents, contractors, or employees. Tenant shall further hold
Landlord harmless and indemnify Landlord from and against all costs, attorneys
fees, expenses and liabilities incurred in the defense of any such claim.
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. 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 and
Tenant hereby waives all claims in respect thereof against Landlord.
(b) Except as expressly set forth in this lease, Landlord does not make,
and has not made, representations or warranties, express or implied, nor does
Landlord make any representation or warranty herein regarding the condition of
the Premises or any part thereof. Tenant, not Landlord, shall be fully
responsible for the costs of and for effectuating any and all alterations,
repairs and replacements required to be made by all governmental authorities
having jurisdiction for the continued licensing and certification of the
Licensed Facility, as well as alterations and replacements required to maintain
and preserve the Premises in the condition called for herein throughout the
Term.
(c) Tenant hereby agrees that Landlord shall not be liable for injury to
Tenant's business or any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers, or any other person in or about the Premises, nor shall Landlord be
liable for injury to the person of the Tenant, Tenant's patients, employees,
agents, contractors or subcontractors, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air
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conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the Premises, the furniture and
equipment or upon other portions of the building or which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to the
Tenant.
Section 15. Insurance.
(a) Tenant agrees at all times during the Term and during any extension, to
maintain in force, at Tenant's sole cost and expense, insurance on the building
and improvements that may be built or placed on the Premises and the Equipment,
against the hazard of fire, with special extended perils (all risk) coverage,
including vandalism, malicious mischief and sprinkler leakage, in an amount
equal to their full insurable value, with a replacement cost endorsement. Tenant
further agrees that once every three (3) years during the Term and any
extension, Tenant will review with the insurance companies issuing the insurance
the costs of building, labor and materials, and other pertinent factors to
determine whether the stipulated value of the building and improvements stated
in the insurance is equal to their full insurable value. If the stipulated value
is determined by the insurance companies to be less than full insurable value,
Tenant agrees to immediately adjust the aggregate amount of the insurance to the
extent required to make the stipulated value equal the full insurable value.
Landlord agrees to reasonably cooperate with Tenant in making this
determination for stipulated value and from time to time to furnish to Tenant
any pertinent facts and figures reasonably necessary. Tenant agrees to give
prompt, written notification to Landlord as to the results of these periodic
determinations for stipulated value. Tenant agrees that if the buildings and
improvements on the Premises are destroyed and the proceeds of any applicable
insurance policy and any policy carried by Landlord amount to less than the cost
of rebuilding the buildings and improvements, Tenant will advance and pay any
sum, which along with the insurance proceeds, is necessary to meet the cost of
rebuilding. No work or repair or reconstruction shall be undertaken until
Tenant has delivered to Landlord plans and specifications for the work that are
to be prepared by a competent architect reasonably acceptable to Landlord,
Landlord approves them (which approval will not be unreasonably withheld), and
Tenant delivers to Landlord an estimate of the cost of the work to be done in
accordance with the plans; the estimate is to be prepared by a competent
contractor, reasonably acceptable to Landlord. If Tenant fails to commence the
rebuilding, reconstruction, repair, or restoration of any building or
improvement as required under this Lease, Landlord or any beneficiary under any
deed of trust covering the Premises, if permitted by the deed of trust, may, but
shall not be obligated to, enter the Premises and do whatever may be necessary
for the
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rebuilding, reconstruction, repair, restoration or preservation of any building
or improvement as required of Tenant under the terms of this Lease.
(b) The Tenant shall obtain and keep in force during the Term of this Lease
policies of the comprehensive public liability insurance, with contractual
liability endorsement insuring the indemnity set forth in Section 14, insuring
Landlord and Tenant against liability arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto.
Boiler, machinery, any equipment coverage shall be included in such coverage.
Such insurance shall be in an amount of not less than $2,000,000 (or such
greater amount as may hereafter prevail in the industry from time to time) for
injury to or death of one person in any one accident or occurrence and in an
amount of not less than $2,000,000 (or such greater amount as may hereafter
prevail in the industry from time to time) for injury to or death of more than
one person in any one accident or occurrence. Such insurance shall insure
Landlord and Tenant against liability for property damage of at least
$150,000.00 (or such greater amount as may hereafter prevail in the industry
from time to time). The limits of said insurance shall not, however, limit the
liability of Tenant hereunder. The limits of such policy shall be increased from
time to time to the limits of the standard public liability policy being used in
the health care industry, but in no event shall be reduced below the limits set
forth above in this Paragraph b. If Tenant shall fail to procure and maintain
said insurance, Landlord may, but shall not be required to, procure and maintain
the same, but at the expense of the Tenant. Tenant shall immediately reimburse
Landlord for any such premiums paid by Landlord together with interest thereon
at the maximum rate of interest permitted by law per annum from the date said
premiums are paid by Landlord.
(c) Tenant shall also obtain and keep in force during the Term of this
lease adequate malpractice insurance covering the acts and operations of the
Tenant and its agents, servants, representatives and employees on the Premises
with coverage and deductible amounts as are hereafter prevailing or customary in
the industry from time to time.
(d) So that the business of Tenant may continue with as little interruption
as possible, Tenant shall, during the Term and any renewals or extensions,
maintain at Tenant's own cost and expense, an insurance policy insuring against
damage or destruction by fire, theft, or the elements for their full insurable
value all fixtures and equipment that are on the Premises at any time during the
Term or any renewal or extension.
(e) At all times during the Term and any extensions or renewals, Tenant
agrees to keep and maintain, or cause Tenant's agents, contractors, or
subcontractors to keep and maintain,
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workmen's compensation insurance and other forms of insurance as may from time
to time be required by law or may otherwise be necessary to protect Landlord and
the Premises from claims of any person who may at any time work on the Premises,
whether as a servant, agent, or employee of Tenant or otherwise. This insurance
shall be maintained at the expense of Tenant or Tenant's agents, contractors, or
subcontractors and not at the expense of Landlord.
(f) Tenant shall at its sole expense, maintain in force during the Term
business interruption insurance covering Landlord's "loss of rents" hereunder in
an amount equal to at least six (6) months advance rent owing from time to time
under this Lease, covering Tenant's operation of its business at the Premises.
Tenant shall assign the proceeds of such business interruption insurance to
Landlord.
(g) Each policy of insurance shall be issued by a responsible insurance
company authorized and admitted to do business as insurers in California, rated
at least A - by Bests, and shall be issued in the names of Landlord, Tenant, and
any beneficiary under any deed of trust covering the Premises, if required by
the deed of trust, as their respective interests may appear. Tenant shall
deliver a certificate for each insurance policy to Landlord together with a copy
of each policy and all relevant endorsements. Each policy of insurance shall be
primary and noncontributory with any policies carried by Landlord and, to the
extent obtainable, any loss shall be payable notwithstanding any act or
negligence of Landlord that might otherwise result in forfeiture of insurance.
Each insurance policy shall provide that a thirty (30) day notice of
cancellation and of any material modification of coverage shall be given to all
named insureds. The insurance coverage required under this Section may be
carried by Tenant under a blanket policy insuring other locations of Tenant's
business, provided that the Premises covered by this Lease are specifically
identified as included under that policy. Tenant agrees that upon the failure to
insure as provided in this Lease, or to pay the premiums in the insurance,
Landlord may contract for the insurance and pay the premiums, and all sums
expended by Landlord for the insurance shall be considered additional rent under
this Lease and shall be immediately repayable by Tenant.
(h) Landlord agrees that it will tender and turn over to Tenant or to
Tenant's insurers the defense of any claims, demands, or suits instituted, made,
or brought against Landlord or against Landlord and Tenant jointly, within the
scope of this Section. However, Landlord shall have the right to approve the
selection of legal counsel, to the extent that selection is within Tenant's
control, which approval shall not be unreasonably withheld or delayed. In
addition, Landlord shall retain the right at Landlord's election to have
Landlord's own legal counsel participate as co-counsel, to the extent that
claims are made that
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may not be fully covered by Tenant's insurers.
(i) Tenant and Landlord each hereby waive any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for the loss of or damage to such waiving party or
its property or the property of others under its control to the extent that such
loss or damage is insured against under any insurance policy in force at the
time of such loss or damage. The Tenant shall, upon obtaining the policies of
insurance required hereunder, give written notice to the insurance carrier or
carriers with a copy to Landlord that the foregoing mutual waiver of subrogation
is contained in this Lease. Tenant shall cause such insurance policies obtained
by it to provide that the insurance company waives all right of recovery by way
of subrogation against either party in connection with any damage covered by any
policy.
Section 16. Signs.
Tenant shall not place, maintain, nor permit on any exterior door, wall, or
window of the Premises any sign, awning, canopy, marquee, or other advertising
without the express written consent of Landlord, such consent not to be
unreasonably withheld or delayed. Furthermore, Tenant shall not place any
decoration, lettering, or advertising matter on the glass of any exterior show
window of the Premises without the written approval of Landlord, such consent
not to be unreasonably withheld or delayed. If Landlord consents to any sign,
awning, canopy, marquee, decoration, or advertising matter, Tenant shall
maintain it in good appearance and repair at all times during this Lease. Any
of the items mentioned in this section are and shall be the property of Landlord
and shall be considered part of the Premises.
Section 17. Damage and Destruction.
(a) If the building, improvements, Equipment or other part of the Premises
are damaged or destroyed, whether partially or entirely, by any cause, Tenant,
at Tenant's own cost and expense, but utilizing the proceeds of insurance, if
any, including any insurance carried by Landlord to the extent available, shall
repair, restore, or reconstruct the damaged or destroyed building, other
improvements, Equipment, and any other part of the Premises, so that the
condition and quality of the new building and other improvements shall be as
near as reasonably possible to the condition and quality immediately prior to
the damage or destruction. Damage to or destruction of any portion of the
building, fixtures, Equipment, improvements or other part of the Premises by
fire, the elements, or any other cause shall not terminate this Lease or entitle
Tenant to surrender the Premises or
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otherwise affect the respective obligations of the parties, any present or
future law to the contrary notwithstanding. There shall be no abatement of rent
or of any other obligation of Tenant hereunder by reason of such damage or
destruction.
(b) If the Premises are damaged or destroyed in whole or in part, Tenant
shall proceed with due diligence to have plans and specifications prepared and
obtain approval by Landlord, which approval shall not be unreasonably withheld,
to commence rebuilding, reconstruction, or restoration as promptly as possible
after the occurrence of the event causing the damage or destruction, and
thereafter to diligently complete the work. If Tenant does not proceed with due
diligence and does not diligently finish the work, Landlord or any beneficiary
under any deed of trust covering the Premises, if permitted by the deed of
trust, may, but shall not be obligated to, enter the Premises and do whatever
may be necessary for the rebuilding, replacement, reconstruction, repair, or
restoration of any building, improvements, Equipment or other part of the
Premises, damaged or destroyed.
(c) Before any contract or subcontract is let or other agreement executed
for the performance of any service, or the furnishing of any materials, and
before any work of any kind or nature is commenced upon the rebuilding,
reconstruction, replacement, repair, or restoration, Tenant will procure and
deliver to Landlord a completion bond or agreement in form satisfactory to
Landlord issued by a reputable surety corporation or bonding corporation
qualified to do business in California, guaranteeing or otherwise assuring
Landlord that the reconstruction and repair of the building and improvements
will proceed to completion with due diligence, that the reconstruction and
repair, when completed, will be fully paid for, and that the Premises will
remain free of all mechanics', laborers' or materialmen's liens or claimed liens
on account of any services or materials furnished or labor or work performed in
connection with the performance of the reconstruction and repair.
Section 18. Condemnation.
(a) If, during the Term or any renewal or extension, the whole of the
Premises shall be taken pursuant to any condemnation proceeding, this Lease
shall terminate as of 12:01 a.m. of the date that actual physical possession of
the Premises is taken, and after that, both Landlord and Tenant shall be
released from all obligations under this Lease, accruing or to be performed
hereafter.
(b) If, during the Term or any renewal or extension, only a part of the
Premises is taken pursuant to any condemnation
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proceeding and the remaining portion is not suitable or adequate for the
purposes for which Tenant was using the Premises prior to the taking, or if the
Premises should become unsuitable or inadequate for those purposes by reason of
the taking of any other property adjacent to or over the Premises pursuant to
any condemnation proceeding, or if by reason of any law or ordinance the use of
the Premises for the purposes specified in this Lease shall become unlawful,
then and after the taking or after the occurrence of other described events,
Tenant shall have the option to terminate, and the option can be exercised only
after the taking or after the occurrence of other described events by Tenant
giving ten (10) days' written notice to Landlord, and rent shall be paid only to
the time when Tenant surrenders possession of the Premises. Without limiting the
generality of the previous provision, it is agreed that in the event of a
partial taking of the Premises pursuant to any condemnation proceeding, if the
number of square feet of floor area in the portion remaining after the taking is
less than eighty percent (80%) of the number of square feet of floor area at the
commencement of the Term, Tenant shall, after the taking, have the option to
terminate this Lease on ten (10) days' written notice to Landlord, and rent
shall be paid only to the time when Tenant surrenders possession of the
Premises.
(c) If only a part of the Premises is taken pursuant to any condemnation
proceeding under circumstances that Tenant does not have the option to terminate
this Lease as provided in this Section, or having the option to terminate,
Tenant elects not to terminate, then Landlord shall at Landlord's expense
promptly proceed to restore the remainder of the Premises to a self-contained
architectural unit, and the Base Monthly Rent payable shall be reduced effective
the date of the taking to an amount that shall be in the same proportion to Base
Monthly Rent payable prior to the taking, as the number of patient beds
remaining after the taking bears to the number of patient beds referenced in
Recital A, above. However, in the event Tenant had the option to terminate this
Lease as provided in this Section, but elected not to do so, Landlord may elect
to terminate the Lease on ten days written notice to Tenant.
(d) If the whole or any part of the Premises are taken pursuant to any
condemnation proceeding, then Landlord shall be entitled to the entirety of any
condemnation award and Tenant hereby assigns to Landlord any condemnation claim
Tenant may have with respect to any future condemnation of Premises.
Section 19. Assignment and Subletting.
(a) Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that, except
as permitted by this Section 19,
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Tenant shall not assign, mortgage or encumber this Lease, nor sublet, nor
suffer, nor permit the Premises or any part thereof to be used or occupied by
others (except patients of the Licensed Facility), without the prior written
consent of Landlord in each instance. If this Lease be assigned, or if the
Premises or any part thereof be sublet or occupied by anyone other than Tenant
and its patients, Landlord may, after default by Tenant, collect rent from the
assignee, subtenant or occupant, and apply the amount collected less costs of
collection including attorney's fees, to the rent herein reserved, but no
assignment, subletting, occupancy or collection shall be deemed a waiver of the
provisions hereof, the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of the Tenant herein contained. The consent by the
Landlord to an assignment or subletting shall not in any way be construed to
relieve Tenant or any subtenant or assignee thereof from having to obtain the
express consent in writing of Lessor to any further assignment or subletting.
In no event shall any subtenant or assignee of Tenant assign or encumber its
sublease or further sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance as addressed
below.
(b) If Tenant shall at any time or times during the Term desire to assign
all or any portion of its rights and responsibilities under this
Lease or sublet all or part of the Premises, Tenant shall give notice
("Transfer Notice") thereof to Landlord, which notice shall be accompanied
by (i) a conformed or photostatic copy of the proposed assignment or
sublease, (ii) a statement setting forth in reasonable detail the identity
of the proposed assignee or subtenant, including, without limitation with
respect to the proposed assignee or subtenant, the nature of its business
and its proposed use of the Premises, and (iii) current financial and
credit information with respect to the proposed assignee or subtenant,
including, without limitation, its most recent financial statements.
Landlord may from time to time designate, by written notice to Tenant, one
or more parties to whom any such Transfer Notice is to be delivered, and
upon any such designation such Transfer Notice shall be delivered to Tenant
care of such designated party or parties. Providing that this Lease is in
full force and effect, Landlord's consent (which must be in writing and in
form reasonably satisfactory to Tenant and Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed,
provided that in Landlord's reasonable judgment:
(i) the proposed assignee or subtenant is engaged in a business related to,
and the Premises or the relevant part thereof will be used in a manner which is
limited to, the use expressly permitted under this Lease; and
13.adler.snukal.lease.mon
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(ii) the proposed assignee or subtenant has the professional, financial and
business experience to lawfully operate the Licensed Facility on the
Premises and adhere to the terms of the assignment or sublease and the
terms of this Lease which are made applicable to the assignment or
sublease.
Landlord shall provide Tenant with written notice of its decision concerning the
proposed assignment or sublease within twenty (20) working days of its receipt
of the Transfer Notice; provided, however, that if Landlord is unable to obtain
decisions concerning the proposed assignment or sublease from all required
Landlord parties within such twenty (20) working day period despite reasonable
efforts to do so, Landlord may upon written notice to Tenant extend the required
period for providing such decision for an additional five (5) working days.
Each subletting and assignment pursuant to this Section 19 shall be subject to
all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. The provisions of any such sublease or assignment may
not be modified or terminated (except in accordance with its terms as approved
by Landlord) without Landlord's consent. Notwithstanding any such subletting or
assignment and/or acceptance of rent or additional rent by Landlord from any
subtenant, or assignee, Tenant shall, and will remain fully liable for the
payment of the base rent and additional rent due and to become due hereunder and
for the performance of all the covenants, agreements, terms, provisions, and
conditions contained in this Lease on the part of Tenant to be performed and all
acts and omissions of any licensee or subtenant or assignee or anyone claiming
under or through any subtenant or assignee which shall be in violation of any of
the obligations of this Lease, and any such violation shall be deemed a
violation by Tenant. Tenant further agrees that notwithstanding any such
subletting or assignment, no other and further subletting of the Premises or
assignment of the Lease by Tenant or any person claiming through or under the
Tenant shall or will be made exempt from compliance with and subject to the
provisions of this Section 19.
(c) In the event that Landlord consents to a proposed assignment or sublease,
but Tenant fails to execute and deliver the assignment or sublease to which
Tenant consented within 90 days after Landlord's giving of such consent,
then Tenant must again comply with all of the provisions and conditions of
this Section 19 before assigning this Lease or subletting all or part of
the Premises.
(d) As a condition to approving any sublease or assignment hereunder, Landlord
may require the following:
(i) that any "key money," assignment fee, or other consideration paid by
the assignee or subleasee as consideration specifically for the assignment
or sublease, or as up-front rent,
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other than monthly rent received by Tenant from Sublessee or assignee be paid
over to Landlord as additional rent under this Lease (This subparagraph (i)
shall only apply to an assignment or sublease entered into after the tenth
anniversary of this Lease, and shall not apply to any transaction deemed to be
an assignment under subsection (f) below);
(ii) that the amount of the security deposit provided for in this lease be
increased to an amount equal to six times the then current base rent; and
(iii) that the rent due under this Lease be increased to the amount due
from the sublessee to Tenant under the sublease if it is greater than the rent
that would be due under the Lease. Further, if after consent is given to a
sublease, as of any Adjustment Date the rent due under the sublease exceeds the
amount which would otherwise be due from Tenant to Landlord under the Lease, the
rent due under the Lease shall be increased so as to equal that due under the
sublease and conversely, if the rent due under the Lease exceeds the rent called
for in the sublease, then the rent as of any adjustment date shall be that
specified in the Lease.
(e) With respect to each and every assignment or sublease authorized by
Landlord under the provisions of this Lease, it is further agreed:
(i) No subletting shall be for a term ending later than one day prior to
the expiration date of this Lease.
(ii) No sublease shall be valid and no subtenant shall take possession of
the Premises or any part thereof, until an executed counterpart of such sublease
has been delivered to Landlord.
(iii) Each sublease shall provide that it is subject and subordinate to
this Lease and to the matters to which this Lease is or shall be subordinate. In
the event of termination, reentry or dispossession of Tenant by Landlord under
this lease, Landlord may, at its option, take over all the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (i) be liable for
any previous act or omission of Tenant under such sublease, (ii) be subject to
any offset, not expressly provided in such sublease, which theretofore accrued
to such subtenant against Tenant, (iii) be bound by any previous modification of
such sublease not previously accepted by Landlord in writing after submission of
such proposed modification in writing to Landlord, or by any prepayment of more
than one month's rent, or (iv) be liable for the return of any security deposit
not actually held by Landlord.
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(f) If any of the following shall occur it shall be deemed a voluntary
assignment of this Lease and the provisions of this Section 19 shall apply to
such voluntary assignment:
(i) if Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law, of an aggregate of (in one or more
transfers) fifty-one percent (51%) or more of the partnership, or the
dissolution of the partnership;
(ii) if Tenant consists of more than one person, a purported assignment,
voluntary, involuntary or by operation of the law, from one person to another;
(iii) if Tenant is a corporation or limited liability company, other than a
public company, any dissolution, merger, consolidation or other reorganization
of Tenant, or the sale or other transfer of a controlling percentage of the
capital stock or membership interests of the Tenant, or the sale of an aggregate
or (in one or more transfers) at least 51% of the value of the assets of the
Tenant, shall be deemed a voluntary assignment. The phrase "controlling
percentage" means the ownership of, and the right to vote, stock or membership
interests possessing an aggregate of (in one or more transfers) at lease 51% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding, and entitled to vote for the election of directors, or in the case
of a limited liability company, 51% of its membership interests;
(iv) any of the above with respect to Fountain View, Inc., a Delaware
corporation.
(g) The Landlord's rights as set forth in this Section 19 shall prevail
over any inconsistent language in any sublease or assignment to which Landlord
has consented hereunder. Landlord reserves all of its rights hereunder from the
grant of the Leasehold estate to Tenant hereunder.
(h) Any assignment or transfer, whether made with or without Landlord's
consent pursuant to this Section 19, shall be made only if, and shall not be
effective until the assignee shall execute, acknowledge and deliver to Landlord
an agreement whereby the assignee shall assume the obligations of this Lease on
the apart of the Tenant to be performed or observed and whereby assignee shall
agree that the provisions of this Section 19 shall, notwithstanding such
assignment or transfer, continue to be binding upon it in respect of all future
assignments and transfers. The original named Tenant covenants that,
notwithstanding any assignment or transfer, whether or not in violation of the
provisions of this Lease, and notwithstanding the acceptance of rent of any kind
by Landlord from an assignee, transferee or any other party, the original named
Lessee shall remain fully liable for the payment of rent and for the other
obligations of this Lease on the part of Tenant to be performed or observed,
including but not limited to
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any conditions imposed by Paragraph (d), above.
(i) The joint and several liability of Tenant and any immediate or remote
successor in interest of Tenant and the due performance of the obligations of
this Lease on the Tenant's part to be performed or observed shall not be
discharged, released or impaired in any respect by any agreement or stipulation
made by Landlord modifying any of the obligations of this Lease (provided such
modifications do not adversely affect the rights and obligations of Tenant or
extend the duration of its obligations), or by any waiver or failure of Landlord
to enforce any of the obligations of this Lease. The failure of a permitted
subtenant or assignee (other than Landlord or a subtenant or assignee of
Landlord) to pay the rent or perform its obligations shall not affect Tenant's
obligations under this Lease for which Tenant will remain liable under this
Lease after sublease or assignment.
(j) If tenant requests Landlord to consent to a proposed assignment or
subletting or other transaction subject to the provisions of Section 19 Tenant
shall pay to Landlord, whether or not consent is ultimately given, Landlord's
reasonable attorney's fees, not to exceed $1,000.00, incurred in connection with
review of each such request; provided, however, that the foregoing cap on the
Landlord's attorney's fees subject to reimbursement hereunder shall not apply to
any legal services required in connection with reviewing, negotiating or
developing any documentation that may be required or requested by or on behalf
of the proposed assignee or sublessee, including without limitation any Tenant
or assignee developed or requested consents, estoppel certificates, non-
disturbance agreements or memorandum of sublease or assignment.
(k) Notwithstanding anything to the contrary contained elsewhere in this
Section 19, Tenant, or Fountain View, Inc., may without Landlord's prior
consent:
(i) Assign this Lease, or sublet all or any part of the Premises to its
parent corporation or to any affiliate of Tenant. As used in this subsection,
the term "parent" means any entity that controls Tenant. The term "affiliate"
means any entity which is directly or indirectly controlled by or controlling
any parent or subsidiary of Tenant. The terms "controlled", "controlled by", and
"controlling" shall have the meanings given those terms under the Federal
Securities Laws;
(ii) Sell, transfer and effect changes of control in accordance with the
Terms of the Stockholders Agreement of Fountain View, Inc.
Notwithstanding either of the permitted assignments under this subsection,
the provisions set forth in Section 19 (d) and its various subsections shall
apply to such assignment or sublease.
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Section 20. Default.
Any of the following events or occurrences shall constitute a material
breach of this Lease by Tenant and, after the expiration of any applicable grace
period, each such event shall constitute an event of default:
(a) The failure by Tenant to pay any rent in full within ten days after
notice of such non-payment from Landlord;
(b) The failure by Tenant to perform any obligation under this Lease, which
by its nature Tenant has no capacity to cure;
(c) The failure by Tenant to perform any other obligation under this Lease,
if the failure has continued for a period of twenty (20) days after Landlord
demands in writing that Tenant cure the failure. If, however, by its nature the
failure cannot be cured within twenty (20) days, Tenant may have a longer period
as is necessary to cure the failure, but this is conditioned upon Tenant's
promptly commencing to cure within the twenty (20) day period and thereafter
diligently completing the cure within a reasonable time under the circumstances.
Tenant shall indemnify and defend Landlord against any liability, claim, damage,
loss, or penalty that may be threatened or may in fact arise from that failure
during the period the failure is uncured;
(d) Any of the following: A general assignment by Tenant for the benefit of
Tenant's creditors; any voluntary filing, petition, or application by Tenant
under any law relating to insolvency or bankruptcy, whether for a
declaration of bankruptcy, a reorganization, an arrangement, or otherwise;
the abandonment, vacation, or surrender of the Premises by Tenant without
Landlord's prior written consent; or the dispossession of Tenant from the
Premises (other than by Landlord) by process of law or otherwise;
(e) The appointment of a trustee or receiver to take possession of all or
substantially all of Tenant's assets; or the attachment, execution or other
judicial seizure of any portion of Tenant's assets located at the Premises or of
accounts or intangibles relating to the Licensed Facility, or of Tenant's
interest in this Lease, unless the appointment or attachment, execution, or
seizure is discharged within sixty (60) days.
(i) a petition to have Tenant, or any partner of Tenant if Tenant is a
partnership, declared bankrupt under any law relating to insolvency or
bankruptcy unless such petition is dismissed within sixty (60) days, or
(ii) a petition for reorganization or arrangement of Tenant under any law
relating to insolvency or bankruptcy, unless, in the
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case of any involuntary filing, it is dismissed within sixty (60) days;
(f) The abandonment of the Premises by Tenant.
(g) The loss or suspension of any license necessary to operate the Licensed
Facility, unless the license is reinstated within five days of the notice of
such loss before the effective date of any revocation, termination or
suspension.
Landlord shall not be considered in default under this Lease unless
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event earlier than thirty (30) days after written notice by
Tenant to Landlord and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have theretofore been
furnished to Tenant in writing, 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 if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
Section 21. Remedies.
Upon the occurrence of an Event of Default, Landlord, in addition to any
other rights or remedies available to Landlord at law or in equity, shall have
the right to:
(a) terminate this Lease and all rights of Tenant under this Lease by
giving Tenant written notice that this Lease is terminated, in which case
Landlord may recover from Tenant the aggregate sum of
(i) the worth at the time of award of any unpaid rent that had been
earned at the time of termination;
(ii) the worth at the time of award of the amount by which (A) the
unpaid rent that would have been earned after termination until the time of
award exceeds (B) the amount of the rental loss, if any, as Tenant
affirmatively proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which (A) the
unpaid rent for the balance of the term after the time of award exceeds (B)
the amount of rental loss, if any, as Tenant affirmatively proves could be
reasonably avoided;
(iv) any other amount necessary to compensate Landlord
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for all the detriment caused by Tenant's failure to perform Tenant's
obligations or that, in the ordinary course of things, would be likely to
result from Tenant's failure; and
(v) all other amounts in addition to or in lieu of those previously
set out as may be permitted from time to time by applicable California law.
As used in clauses (i) and (ii) of Section 21(a), the worth at the time of
award is computed by allowing interest at the rate of the discount rate of the
Federal Reserve Bank of San Francisco, at the time of the award plus two percent
(2%), or ten percent (10%) per annum, whichever is higher. As used in clause
(iii) of Section 21(a), the worth at the time of award is computed by
discounting that amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%), or seven percent,
whichever is lower. As used in this Section, the term rent shall include Base
Monthly Rent, Percentage Rent, and any other payments required by Tenant under
this Lease.
(b) continue this Lease, and from time to time, without terminating this
Lease, either
(i) recover all rent and other amounts payable as they become due
or
(ii) relet the Premises or any part on behalf of Tenant on terms and
at the rent that Landlord, in Landlord's sole discretion, may deem
advisable, all with the right to make alterations and repairs to the
Premises, at Tenant's cost, and apply the proceeds of reletting to the rent
and other amounts payable by Tenant. To the extent that the rent and other
amounts payable by Tenant under this Lease exceed the amount of the
proceeds from reletting, the Landlord may recover the excess from Tenant as
and when due.
(c) Upon the occurrence of an Event of Default, Landlord shall also have
the right, with or without terminating this Lease, to reenter the Premises and
remove all persons and property from the Premises. Landlord may store any
property of tenant removed from the Premises in a public warehouse or elsewhere
at the expense and for the account of Tenant.
(d) None of the following remedial actions, alone or in combination, shall
be construed as an election by Landlord to terminate this Lease unless Landlord
has in fact given Tenant written notice that this Lease is terminated or unless
a court of competent jurisdiction decrees termination of this Lease: any act by
Landlord to maintain or preserve the Premises; any efforts by Landlord to relet
the Premises; any re-entry, repossession, or reletting of the Premises; or any
re-entry, repossession, or
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reletting of the Premises by Landlord pursuant to this Section. If Landlord
takes any of the previous remedial actions without terminating this Lease,
Landlord may nevertheless at any later time terminate this Lease by written
notice to Tenant.
(e) If Landlord relets the Premises, Landlord shall apply the revenue from
the reletting as follows: first, to the payment of any indebtedness other than
rent due from Tenant to Landlord; second, to the payment of any cost of
reletting, including without limitation finder's fees and leasing commissions;
third, to the payment of the cost of any maintenance and repairs to the
Premises; and fourth, to the payment of rent and other amounts due and unpaid
under this Lease. Landlord shall hold and apply the residue, if any, to payment
of future amounts payable under this Lease as the same may become due, and shall
be entitled to retain any eventual balance with no liability to Tenant. If the
revenue from reletting during any month, after application pursuant to the
previous provisions, is less than the sum of (i) Landlord's expenditures for the
Premises during that month and (ii) the amounts due from Tenant during that
month, Tenant shall pay the deficiency to Landlord immediately upon demand.
(f) After the occurrence of an Event of Default, Landlord, in addition to
or in lieu of exercising other remedies, may, but without any obligation to do
so, cure the breach underlying the Event of Default for the account and at the
expense of Tenant. Tenant shall, upon demand, immediately reimburse Landlord for
all costs, including costs of settlements, defense, court costs, and attorney
fees, that Landlord may incur in the course of any cure.
(g) No security or guaranty for the performance of Tenant's obligations
that Landlord may now or later hold shall in any way constitute a bar or defense
to any action initiated by Landlord for unlawful detainer or for the recovery of
the Premises, for enforcement of any obligation of Tenant, or for the recovery
of damages caused by a breach of this Lease by Tenant or by an Event of Default.
(h) Except where this is inconsistent with or contrary to any provisions of
this Lease, no right or remedy conferred upon or reserved to either party is
intended to be exclusive of any other right or remedy, or any right or remedy
given or now or later existing at law or in equity or by statute.
Section 22. Late charge.
Tenant acknowledges that Tenant's failure to pay any installment of the
Base Monthly Rent, or any other amounts due under this Lease as and when due may
cause Landlord to incur costs not contemplated by Landlord when entering into
this Lease, the
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exact nature and amount of which would be extremely difficult and impracticable
to ascertain. Accordingly, if any installment of the Base Monthly Rent, or any
other amount due under the Lease is not received by Landlord within ten days of
the date on which it is due, then, without any notice to Tenant, Tenant shall
pay to Landlord an amount equal to ten percent (10%) of the past due amount,
which the parties agree represents a fair and reasonable estimate of the costs
incurred by Landlord as a result of the late payment by Tenant.
Section 23. Default Interest.
If Tenant fails to pay any amount due under this Lease as and when due,
that amount shall bear interest at the rate of 10% per annum from the due date
until paid. Said interest shall be deemed additional rent due from Tenant to
Landlord.
Section 24. Waiver of Breach.
The acceptance of rent shall not constitute a waiver of any breach of any
term of this Lease, except as to the payment of rent accepted, but such
acceptance shall not even as to that payment constitute a waiver of the right to
collect late charges or default interest. Except to the extent that either party
may have otherwise agreed in writing, no waiver by a party of any violation or
nonperformance by the other party of any obligations, agreements, or covenants
under this Lease shall be deemed to be a waiver of any subsequent violation or
nonperformance of the same or any other covenant, agreement, or obligation, nor
shall any forbearance by either party to exercise a remedy for any violation or
nonperformance by the other party be deemed a waiver by that party of the rights
or remedies with respect to that violation or nonperformance.
Section 25. Estoppel Certificates.
At any time, with at least ten (10) days' prior notice by Landlord, Tenant
shall execute, acknowledge, and deliver to Landlord a certificate certifying:
(a) the Commencement Date and the Term,
(b) the amount of the Base Monthly Rent,
(c) the dates to which rent and other charges have been paid,
(d) that this Lease is unmodified and in full force or, if there have been
modifications, that this Lease is in full force, as modified, and stating the
date and nature of each modification,
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(e) that no notice has been received by Tenant of any default by Tenant
that has not been cured, except, if any exist, those defaults must be specified
in the certificate, and Tenant must certify that no event has occurred that, but
for the expiration of the applicable time period or the giving of notice or
both, would constitute an Event of Default under this Lease,
(f) that no default of Landlord is claimed by Tenant, except, if any, those
defaults must be specified in the certificate, and
(g) other matters as may be reasonably requested by Landlord.
Any certificate may be relied on by prospective purchasers, lenders,
mortgagees, or beneficiaries under any deed of trust on the Premises or any part
of it.
Section 26. Attorney Fees.
If any action at law or in equity is brought to recover any rent or other
sums under this Lease, or for or on account of any breach of or to enforce or
interpret any of the covenants, terms, or conditions of this Lease, or for the
recovery of the possession of the Premises, the prevailing party shall be
entitled to recover from the other party as part of prevailing party's costs
reasonable attorney fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
Section 27. Security Deposit.
Upon delivery of possession of the Premises to Tenant, Tenant shall deposit
with Landlord a sum equal to the initial monthly rent as a security deposit
securing the performance of Tenant's obligations under this Lease. This deposit
shall not be construed as an advance payment of any rental due under this Lease.
Landlord shall not be required to segregate such deposit into a separate
account, or to pay interest thereon and Tenant expressly waives any right it may
have to interest thereon, or segregator of, such deposit.
Section 28. Authority.
If Tenant is a corporation, trust, limited liability company, or general or
limited partnership, all individuals executing this Lease on behalf of that
entity represent that they are authorized to execute and deliver this Lease on
behalf of that entity. If Tenant is a corporation, trust, limited liability
company, or partnership, Tenant shall, prior to the execution of this Lease,
deliver to Landlord evidence of that authority and evidence of due
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formation, all satisfactory to Landlord. If Tenant is a partnership, Tenant
shall furnish Landlord with a copy of Tenant's partnership agreement and with a
certificate from Tenant's attorney, stating that the partnership agreement
constitutes a correct copy of the existing partnership agreement of Tenant.
Section 29. Notices.
Except as otherwise expressly provided by law, all notices or other
communications required or permitted by this Lease or by law to be served on or
given to either party to this Lease by the other party shall be in writing and
shall be deemed served when personally delivered to the party to whom they are
directed, or in lieu of the personal service, upon deposit in the United States
Mail, certified or registered mail, return receipt requested, postage prepaid,
addressed to Tenant at:
Fountain View Holdings, Inc.
11900 West Olympic Boulevard, #680
Los Angeles, CA 90064
With a copy to:
Heritage Partners, Inc.
30 Rowes Wharf, Suite 300
Boston, MA 62109
Attn:______________________
or to Landlord at:
Robert Snukal
11900 West Olympic Boulevard, #680
Los Angeles, CA 90064
With a copy to:
Law Offices of David B. Bloom
3325 Wilshire Boulevard, 9th Floor
Los Angeles, California 90010
Attn: David B. Bloom
Either party, Tenant or Landlord, may change the address for the purpose of
this Section by giving written notice of the change to the other party in the
manner provided in this Section.
Section 30. Heirs and Successors.
This Lease shall be binding on and shall inure to the benefit of the heirs,
executors, administrators, successors, and assigns of
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Landlord and Tenant, subject to the provisions of Section 19, above.
Section 31. Partial Invalidity.
Should any provision of this Lease be held by a court of competent
jurisdiction to be either invalid or unenforceable, the remaining provisions of
this Lease shall remain in effect, unimpaired by the holding.
Section 32. Entire Agreement.
This instrument constitutes the sole agreement between Landlord and Tenant
respecting the Premises, the leasing of the Premises to Tenant, and the
specified lease term, and correctly sets forth the obligations of Landlord and
Tenant. Any agreement or representations respecting the Premises or their
leasing by Landlord to Tenant not expressly set forth in this instrument are
void.
Section 33. Time of Essence.
Time is of the essence in this Lease.
Section 34. Rent.
All monetary obligations of Tenant to Landlord under the Lease, however
denominated, and whether paid directly to Landlord or to a third party, shall be
deemed rent.
Section 35. Amendments.
This Lease may be modified only in writing and only if signed by the
parties hereto.
Section 36. Subordination.
This Lease shall be, and is hereby declared to be, wholly junior, inferior
and subordinate to the lien or charge of any mortgage or deed of trust which may
be at anytime hereafter created by Landlord covering the Premises or any
property, or interest or estate of Landlord in property of which the Premises
are a part; provided, however, that if pursuant to the provisions of any such
mortgage or deed of trust the mortgagee or beneficiary thereunder should elect
by the terms of any such mortgage or deed of trust to cause the same to be
subordinate to this Lease, either alone or in conjunction with any other leases
covering the property or interest
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or estate in property mortgaged or encumbered by such mortgage or deed of trust
and of which the Premises constitute a part, Tenant agrees that this Lease shall
in such event be and become prior and paramount to the lien or charge of such
mortgage or deed of trust and shall not in such event be terminated or
extinguished in the event of any foreclosure or sale on foreclosure of said
mortgage or deed of trust The foregoing notwithstanding, in the event of a
foreclosure of the fee mortgage or deed of trust, provided the Lease has not
been terminated or a new lease has been entered into pursuant to that certain
Consent to Encumbrance of Lessee's Interest dated on or about August 1, 1997 in
favor of Union Bank of California, N.A., the foreclosure shall not terminate
Tenant's rights under the Lease or affect the lien of Tenant's leasehold lender.
No subordination of this Lease to any future mortgage or deed of trust
shall exist under this Lease unless Tenant first obtains from the lender a
written agreement that provides that as long as Tenant performs its obligations
under this Lease, no foreclosure of, deed given in lieu of foreclosure, or sale
under the mortgage or deed of trust, and no steps or procedures taken thereunder
shall affect Tenant's rights under this Lease.
Tenant shall execute the written agreement and any other documents
reasonably required by any lender to accomplish the purpose of this Section 36
and if applicable shall attorn to any purchaser at any foreclosure sale or at
any grantee or transferee designated in any deed given in lieu of foreclosure.
Landlord agrees that after the commencement date of this Lease, prior to
granting any deed of trust, mortgage or other similar security interest in the
Premises or any property of which the Premises are part, the Landlord will give
written notice to the trustee, grantee, mortgagee or other similar party of the
existence of this Lease, and will furnish a copy of such notice to the Tenant.
If, at any time, the Landlord proposes to sell or assign the Premises or
any property of which the Premises are part, such that the Premises or such
property are not owned by the original Landlord or a member of the original
Landlord's immediate family, the Landlord will at least 10 days prior to the
closing, give written notice thereof to the Tenant and will record a notice or
memorandum of lease with respect to this Lease in the appropriate real estate
recording office prior to such sale or assignment.
Section 37. Merger.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation of the Lease, or a termination by Landlord,
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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 a Landlord of any of the subtenancies.
Section 38. Governing Law.
This Lease shall be governed by and construed in accordance with California
law.
Section 39. Representation of Landlord.
The following representations and warranties are made for the benefit of
Tenant:
(a) If Landlord is a corporation, Landlord represents and warrants that
Landlord is duly organized, validly existing in good standing in the state of
its incorporation and has all requisite power and authority to own and lease
property and conduct business in the state where the Premises are located, and
each individual executing this Lease on behalf of Landlord represents and
warrants that he or she is duly authorized to execute and deliver this Lease on
behalf of Landlord;
(b) If Landlord is a partnership, each individual executing this Lease
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of the partnership, and that the persons who have executed
this lease on behalf of the partnership are all of the partners whose signatures
are necessary to bind this partnership;
(c) If Landlord is an individual or individuals, each individual executing
this Lease represents and warrants that he or she is fully authorized to execute
and deliver this Lease;
(d) If more than one person if Landlord, they represent and warrant that
the obligations of such persons as Landlord are joint and several;
(e) Landlord represents and warrants that this Lease is binding on Landlord
in accordance with its terms;
(f) Landlord represents and warrants that Landlord is the owner of the
Premises and the Equipment;
(g) Landlord represents and warrants that there are no provisions contained
in other leases executed by Landlord that would adversely affect the operation
of Tenant's permitted use of the Premises; and
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(h) Landlord represents and warrants that, to their knowledge, there is no
(i) enacted, pending or proposed condemnation proceedings or other governmental
action, (ii) pending or threatened litigation, (iii) current or proposed plans
to alter access to the Premises, or (iv) the presence on the Premises of
anything dangerous to humans such as Hazardous Materials, which would adversely
affect the operation of Tenant's permitted use of the Premises.
Section 40. Snukal Management Control.
Notwithstanding any other provision of this Lease, until the first to occur
of (i) the date on which neither Robert Snukal, Sheila Snukal nor any of their
relatives or affiliates hold any direct or indirect equity interest in the
Tenant of (ii) there is a change of the Board of Directors of Fountain View,
Inc. pursuant to Section 1.06 of the Stockholders Agreement dated on or about
August 1, 1997, among Fountain View, Inc., Robert Snukal, Sheila Snukal, and
Heritage Fund II Investment Corporation (such first date being referred to
herein as the "Change of Control Date"), Tenant shall not be considered to be in
default under this Lease, the Landlord shall not be entitled to exercise any
remedies arising upon an event of default, and there shall be no late charges or
default interest charged to Tenant. In addition, in no event shall the Tenant be
in default under this Lease, or owe any such amount referred to in the preceding
sentence, at any time as a result of any event or condition occurring or arising
prior to the Change of Control Date.
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The parties have executed this Lease as of the date first above written.
"TENANT"
ELMCREST CONVALESCENT HOSPITAL dba
MONTEBELLO CONVALESCENT HOSPITAL
By: /s/ Robert Snukal
--------------------------------------
Printed Name: Robert Snukal
-----------------------------
Title: President
------------------------------------
"LANDLORD"
/s/ Robert Snukal
------------------------------------------
ROBERT SNUKAL
/s/ Sheila Snukal
------------------------------------------
SHEILA SNUKAL
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EXHIBIT "A"
All tangible personal property fixtures, and equipment, used in the
operation of the Licensed Facility, or used by the Licensed Facility on the
premises.
<PAGE>
LEASE GUARANTY
THIS LEASE GUARANTY (the "Guaranty") is executed and delivered by FOUNTAIN
VIEW HOLDINGS, INC., a Delaware corporation, and FOUNTAIN VIEW, INC., a Delaware
corporation, jointly and severally ("collectively "Guarantor"), whose addresses
appear below, to ROBERT SNUKAL an4 SHEILA SNUKAL ("Landlord").
WHEREAS, Landlord has entered into a lease between it and Elmcrest
Convalescent Hospital, dba Montebello Convalescent Hospital ("Tenant") in
reliance upon this Guaranty and would not have done so in the absence of this
Guaranty;
NOW, THEREFORE, for good and valuable consideration, including the
foregoing recitals, the receipt and adequacy of which is hereby acknowledged,
Guarantor hereby agrees as follows:
Guarantor unconditionally and irrevocably guarantees the prompt
payment by Tenant of all rentals and all other sums payable by Tenant under the
Lease of even date herewith ("Lease") and any amendments thereto and the prompt
performance by Tenant of each and every one of the terms, conditions and
covenants of the Lease and any amendments thereto to be kept and performed by
Tenant.
Guarantor's obligations hereunder are primary and direct to Landlord,
joint and several, and are independent of Tenant's obligations. A separate
action may be brought or prosecuted against Guarantor whether the action is
brought or prosecuted against any other guarantor or Tenant, or whether any
other guarantor or Tenant, or all, are jointed in the action. Guarantor's
liability hereunder shall be absolute regardless of any release of any other
guarantor of Tenant's obligations under the Lease.
Guarantor waives the benefit of any statue of limitations affecting
Guarantor's liability under the Guaranty or the enforcement thereof.
The provisions of the Lease may be changed by agreement between
Landlord and Tenant at any time, or by course of conduct, without the consent of
or without notice to Guarantor. This Guaranty shall guarantee the performance
of the Lease as so changed. Assignment of the Lease (as permitted by the Lease)
shall not affect this Guaranty, nor shall any assignment of the Lease to any
lender pursuant to any deed of trust, mortgage or other security interest on the
Property affect this Guaranty. If the Lease is assigned with Landlord's consent,
Guarantor will, upon Landlord's request, execute and deliver to Landlord a
written consent to such assignment.
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Guarantor hereby expressly acknowledges that in the event Tenant were
to fail to deliver a subordination agreement to Landlord in connection with
either the refinance or sale of the Property, that Landlord could incur
substantial damages. Guarantor recognizes and agrees that such damages in a
refinance could include (i) higher interest rates, (ii) greater monthly dollar
amount of payment, (iii) shorter maturity, (iv) terms less favorable to Landlord
or (v) the loss by foreclosure or forced sale of the Property. In a sale such
damages could include (i) a lower purchase price, (ii) terms less favorable to
Landlord or (iii) the loss of any such sale.
Guarantor hereby agrees that its obligations to Landlord under this
Guaranty shall include any and all damages which result to Landlord in the event
that for any reason Tenant refuses or otherwise fails to promptly execute and
deliver to Landlord any required subordination agreement or estoppel certificate
with respect to the Property.
This Guaranty shall not be affected by Landlord's failure or delay to
enforce any of its rights.
If Tenant defaults under the Lease, Landlord may proceed immediately
against Tenant, Guarantor or any other guarantor, or any of them, or Landlord
can enforce against Guarantor, any other guarantor or Tenant, or any of them,
any rights that it has under the Lease, or pursuant to applicable laws. If the
Lease terminates and Landlord has any rights it can enforce against Tenant after
termination, Landlord can enforce those rights against Guarantor without giving
previous notice to Tenant or Guarantor, or without making any demand on either
of them.
Guarantor hereby waives any suretyship defenses she might have under
the law of California or any other state. Guarantor waives all rights and
remedies accorded by applicable law, including, without limitation, any right to
require Landlord to (1) proceed against Tenant; (2) proceed against or exhaust
any security that Landlord holds from Tenant; or (3) pursue any other remedy in
Landlord's power. Guarantor waives any defense based on any incapacity, lack of
authority, death or disability of Tenant or the failure of Landlord to file or
enforce a claim against the estate (in administration, bankruptcy or other
proceeding) of Tenant, and waive any other defense based on the termination of
Tenant's liability from any cause. Except as provided in the Lease, Guarantor
waives all notices, presentments, demands for performance, notices of
nonperformance, notices of nonpayment, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Guaranty, and waives all notices of
the existence, creation or incurring of new or additional obligations. Guarantor
waives any defense arising by reason of the cessation
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from any cause whatsoever of the liability of Tenant to Landlord. Guarantor
waives any defense based upon an election of remedies. Guarantor waives any
right to any defense based upon any statue or rule of law which provides that
the obligation of surety must be neither larger in amount nor in other respect
more burdensome than that of the principal.
Guarantor hereby expressly waives and releases any and all rights of
subrogation, reimbursement, indemnity or contribution which Guarantor may now or
hereafter have against (i) Tenant, any other guarantor or any person who now or
hereafter has direct or contingent liability (whether by contract, at or in
equity) for all or any portion of the obligations guaranteed hereby, or (ii) any
property which now or hereafter serves as collateral security for the
obligations hereby. Guarantor waives all rights and defenses arising out of an
election of remedies by Landlord, even though that election of remedies has
destroyed the Guarantor's rights of subrogation and reimbursement against the
Tenant, whether by operation of statue or otherwise. If and to the extent such
waiver and release is unenforceable, Guarantor hereby agrees that all such
rights of subrogation, reimbursement, indemnity and contribution shall be junior
and subordinate to the right of Landlord, and the right of Landlord's lender, to
obtain payment and performance of the obligations guaranteed hereby and to all
rights of Landlord and Landlord's lender, in and to any property which now or
hereafter serves as collateral security for such obligations.
Guarantor understands and agrees that if Tenant becomes insolvent or
is adjudicated bankrupt, whether by voluntary or involuntary petition, or if any
bankruptcy action involving Tenant is commenced or filed, or if a petition for
reorganization, arrangement or similar relief is filed against Tenant, or if a
receiver of any part of Tenant's property or assets is appointed by any court,
Guarantor will pay to Landlord the amount of all accrued, unpaid and accruing
rent, any additional rent of any kind or other consideration owed to Landlord
under the Lease, to the date when the trustee or administrator accepts the Lease
and commences paying same; provided, however, at such time as the trustee or
administrator rejects the Lease, Guarantor shall pay to Landlord all accrued,
unpaid and accruing rent, any additional rent of any kind and other
consideration owed to Landlord under the Lease.
Nothing shall discharge or satisfy the liability of Guarantor under
this Guaranty except the full performance of the Tenant under the Lease.
Guarantor agrees that if any payment or payments or any part thereof made by
Tenant to Landlord under the Lease are subsequently invalidated, declared to be
fraudulent or preferential, or otherwise set aside, and are required to be
repaid by Landlord to trustee, receiver, or any other party under any
41
<PAGE>
bankruptcy act, state or federal, common law or equitable cause, then to the
extent of such repayment, the obligation or part thereof intended to be
satisfied shall be revived and continued in full force and effect as if such
payment or payments or part thereof had not been made, and such payment or
payments to Landlord shall be fully guaranteed by this Guaranty even though this
Guaranty may have been canceled or surrendered by Landlord.
Any operation of any present or future debtor's relief act or similar act
or law, or decision of any court, shall in no way affect the obligations of
Guarantor or Tenant to perform any of the terms, covenants or conditions of the
Lease or of this Guaranty.
Without limiting the generality of the foregoing or any other provision
hereof, Guarantor hereby expressly waives any and all benefits which might
otherwise be available to Guarantor under California law.
The liability of Guarantor hereunder is not contingent on the genuineness,
validity, regularity or enforceability of the documents relating to the Lease
and the obligations guaranteed thereunder or the pursuit by Landlord of any
remedies it may now have or hereafter acquire. Guarantor shall have not
authority to revoke this Guaranty, but if any such revocation shall be deemed to
have occurred by operation of law or otherwise, the provisions of this Guaranty
shall continue to apply notwithstanding such revocation.
Guarantor assumes the responsibility for being and keeping itself informed
of the financial condition of Tenant and of all circumstances bearing upon the
risk of nonpayment of the obligations guaranteed hereby which diligent inquiry
would reveal, and agrees that, absent a written request for such information by
Guarantor, Landlord shall have no duty to advise Guarantor of information
regarding such condition or any such circumstances. Accordingly, Guarantor
waives any duty on the part of Landlord to disclose to Guarantor any facts
Landlord may now or hereafter know about Tenant, regardless of whether Landlord
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or have a reasonable opportunity to communicate such
facts to Guarantor.
Any indebtedness of Tenant now or hereafter held by Guarantor is hereby
waived and subordinated to all indebtedness of Tenant to Landlord; and such
indebtedness of Tenant to Guarantor if Landlord so requests shall be collected,
enforced and received by Guarantor as trustee for Landlord and shall be paid
over to Landlord on account of the indebtedness of Tenant to Landlord but
without
4
<PAGE>
reducing or affecting in any manner the liability of Guarantor under the
provisions of this Guaranty.
Guarantor represents, warrants, covenants and agrees as follows:
The execution, delivery and performance of this Guaranty by Guarantor does
not and will not (i) require any authorization which has not been obtained, (ii)
contravene any applicable laws or other requirements or any agreement or
restriction binding on or affecting Guarantor or its properties, or (iii) except
as expressly contemplated herein, result in or require the creation or
imposition of any lien, claim or encumbrance upon or with respect to any
property now or in the future owned by Guarantor. This Guaranty, when executed
and delivered by Guarantor, will constitute the legal, valid and binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms;
Except as otherwise disclosed in writing to Landlord: (i) no actions or
other proceedings are pending or, to the best knowledge of Guarantor, threatened
against or affecting Guarantor or any of its properties which, if determined
adversely, could materially impair the financial condition, operations
properties or prospects of Guarantor or the ability of Guarantor to perform its
obligations under this Guaranty; and (ii) Guarantor has given notice to Landlord
of any other matters which Guarantor is required to disclose to Landlord
hereunder.
Guarantor is not involved in any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation proceedings, and to the best
knowledge of Guarantor, no such proceedings are contemplated or threatened; and
Each and every waiver set forth herein is made with full knowledge of its
importance and consequences.
The amount of Guarantor's liability and all rights, powers and remedies of
Landlord hereunder and under any other agreement now or at any time hereafter in
force between Landlord and Guarantor, including any other guaranty executed by
Guarantor relating to any indebtedness or obligation of Tenant to Landlord,
shall be cumulative and not alternative, and such rights, powers and remedies
shall be in addition to all rights, powers and remedies given to Landlord by
law.
Landlord may, without notice, assign this Guaranty and/or any of its
rights and powers hereunder with all or any part of the obligations guaranteed
hereby, including, without limitation, any of the instruments evidencing or
securing the Lease, and, in the
5
<PAGE>
event of such assignment, the assignee hereof or of such rights and powers shall
have the same rights and remedies as if originally named herein in place of
Landlord, and Landlord shall be thereafter fully discharged from all
responsibility therefor.
The term "Landlord", whenever used, refers to and means the Landlord in the
Lease specifically named and also any assignee of said Landlord whether by
outright assignment or by assignment for security, and also any successor to the
interest of said Landlord or of any assignee in such Lease or any part thereof,
whether by assignment or otherwise. So long as the Landlord's interest in or to
the Property or the rents, issues and profits therefrom, or in, to or under said
Lease are subject to any mortgage or deed of trust or assignment for security,
no acquisition by Guarantor of the Landlord's interest in the Property or under
said Lease shall affect the continuing obligation of Guarantor under this
Guaranty which shall nevertheless continue in full force and effect for the
benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage,
deed of trust or assignment, of any purchaser at sale by judicial foreclosure or
under private power of sale, and of the successors and assigns of any such
mortgagee, beneficiary, trustee, assignee or purchase.
The term "Tenant", whenever used, refers to and means the Tenant in the
Lease specifically named and also any assignee of sublessee of said Lease and
also any successor to the interests of said Tenant, assignee or sublessee of
such Lease or any part thereof, whether by assignment, sublease or otherwise.
Guarantor agrees to file all claims against Tenant in any bankruptcy or
other proceeding in which the filing of claims is require, in respect of any
indebtedness of Tenant to Guarantor, and Landlord is entitled to all of
Guarantor's rights thereunder. If Guarantor fails to file a claim, Guarantor
hereby authorizes Landlord, as its attorney in fact, to file such claim in the
name of Guarantor. The foregoing power of attorney is coupled with an interest
and cannot be revoked. Guarantor assigns to Landlord its rights to any payments
or distributions to which Guarantor would otherwise be entitled. If the amount
paid is greater than the indebtedness, Landlord will pay the excess to the party
entitled thereto.
This Guaranty constitutes the entire agreement between Guarantor and
Landlord with respect to the subject matter hereof. No provision of this
Guaranty or right of Landlord hereunder may be either modified or waived in
whole or in part, nor can Guarantor be released from Guarantor's obligations
hereunder, except by a writing duly executed by Landlord and Guarantor.
Guarantor hereby expressly and unconditionally waives, in
6
<PAGE>
connection with any suit, action or proceeding brought in connection with this
Guaranty, any and every right Guarantor may have to (i) injunctive relief, (ii)
a trial by jury, (iii) interpose any counterclaim therein, or (iv) have the same
consolidated with any other or separate suit, action or proceeding. Nothing
herein contained shall prevent or prohibit Landlord from instituting or
maintaining a separate action against Guarantor with respect to any asserted
claim.
This Guaranty and all rights, obligations and liabilities hereunder shall
be governed by and construed in accordance with the laws of the State of
California, without regard to conflicts of law principles.
It is understood and agreed that this Guaranty is unconditional and
continuing, and a guaranty of payment and performance and not of collection.
Guarantor also recognizes that there are some obligations and liabilities of
Tenant under the Lease that survive the termination of the Lease and that this
Guaranty shall survive any termination under the Lease.
The obligations of Tenant under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require Guarantor to do and provide the same for Landlord.
If, in connection with obtaining construction, interim or permanent
financing for the Property, the proposed lender shall request modifications to
the Lease or this Guaranty, Guarantor will not unreasonably withhold, delay or
defer its consent thereto, and will execute any such changes, provided that such
modifications do not increase the financial obligations of Guarantor hereunder.
If any provision or portion of this Guaranty is declared or found by a
court of competent jurisdiction to be unenforceable or null and void, such
provision or portion thereof shall be deemed stricken and severed from this
Guaranty, and the remaining provisions and portions thereof shall continue in
full force and effect and Guarantor shall nonetheless still be liable under this
Guaranty, and this Guaranty shall continue in full force and effect, with
respect to all guaranteed obligations, notwithstanding any such unenforceability
or invalidity.
If any party to this Guaranty commences litigation for the interpretation
enforcement, termination, cancellation or rescission of this Guaranty, or for
damages for the breach of this Guaranty, the prevailing party in such action
shall be entitled to its or its reasonable attorneys' fees and court and other
costs incurred, to be paid by the losing party as fixed by the court or in a
separate action brought for that purpose.
7
<PAGE>
Guarantor's obligations under this Guaranty shall be binding on Guarantor's
successors and assigns.
This Guaranty may be executed in two or more separate counterparts, each of
which shall be deemed an original, and all of which, when taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Guaranty is executed by an authorized signatory
for the undersigned corporation as of the date first above written.
"Guarantor"
FOUNTAIN VIEW INC.
a Delaware corporation
By: /s/ [SIGNATURE APPEARS HERE]
----------------------------
Its:
----------------------------
Address:
----------------------------
----------------------------
----------------------------
Fax:
----------------------------
"Guarantor"
FOUNTAIN VIEW HOLDINGS, INC.
a Delaware corporation
By: /s/ [SIGNATURE APPEARS HERE]
----------------------------
Its:
----------------------------
Address:
----------------------------
----------------------------
----------------------------
Fax:
----------------------------
8
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease (the "First Amendment") is made as of March
---------------
27, 1998 by and among Robert Snukal ("RS"), Sheila Snukal (the "Snukals" or
-- -------
"Landlord") and Elmcrest Convalescent Hospital, dba Montebello Convalescent
--------
Hospital ("Tenant").
------
Introduction
------------
Landlord and Tenant entered into a Lease dated as of August 1, 1997 (the
"Existing Lease") covering land, buildings, improvements, furnishings and
--------------
equipment located at 1035 West Beverly Boulevard, Montebello, California. In
connection with the acquisition by Fountain View, Inc. ("Fountain View"), the
-------------
corporate parent of Tenant, of Summit Care Corporation and the related
refinancing and recapitalization of Fountain View (the "Transactions"), the
------------
Landlord and the Tenant wish to amend the Existing Lease and to otherwise agree
as set forth herein. Capitalized terms used herein and not defined shall have
the meanings given to them in the Existing Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein expressed,
the parties hereto hereby agree as follows:
1. Section 19(f) Amended. The Existing Lease is amended by deleting
---------------------
Section (19)(f)(iv) thereof. The parties waive the application of Section
19(f) (iv) of the Existing Lease to the Transactions.
2. Section 19(k) Amended. Section 19(k) of the Existing Lease is amended
---------------------
by (a) deleting the reference to Fountain View in the first sentence, (b)
deleting Section (ii), and (c) replacing the words "Notwithstanding either of
the permitted assignments under this subsection, the provisions set forth in
Section 19(d) and its various subsections shall apply to such assignment or
sublease" with "Notwithstanding the permitted assignment under this subsection,
the provisions set forth in Section 19(d) and its various subsections shall
apply to such assignment or sublease".
3. Section 27 Amended. Section 27 of the Existing Lease is amended by
------------------
adding the following sentence at the end of such Section: "At the Landlord's
request, the security deposit will increase to six months rent on the first to
occur of (i) neither of the Snukals holding any equity interest in Fountain
View, (ii) neither of the Snukals being in active management of the Fountain
View (unless they voluntarily resign, other than upon disability), (iii) a
Trigger Event (which term is used as defined
<PAGE>
in the Stockholders Agreement among Fountain View and certain of its
stockholders entered into in connection with the Transactions) (other than an
initial public offering of Fountain View's common stock (an "IPO") or (iv) two
months after an IPO.
4. Section 40 Amended. The Existing Lease is amended by deleting Section
------------------
40 in its entirety.
5. Leasehold Mortgages. Notwithstanding any provision of the Existing
-------------------
Lease to the contrary, the Landlord will grant leasehold mortgages to lenders to
Fountain View and/or its direct or indirect subsidiaries until the earlier of
(i) a Trigger Event (other than an IPO) or (ii) six months after an IPO.
6. Miscellaneous. Except as modified hereby, the Existing Lease is
-------------
hereby ratified and confirmed. In the event of any conflicts or inconsistencies
between the Existing Lease and this First Amendment, the terms of this First
Amendment shall control. From and after the date hereof, all references in the
Existing Lease to the terms "the Lease" or "this Lease" shall mean the Existing
Lease as amended by this First Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
to Existing Lease under seal as of the date first above written.
WITNESS: "LANDLORD"
/s/ Robert Snukal
---------------------------
Robert Snukal
/s/ Joan Chandler /s/ Sheila Snukal
- -------------------------- ---------------------------
Name: Joan Chandler Sheila Snukal
WITNESS: "TENANT"
ELMCREST CONVALESCENT HOSPITAL
dba MONTEBELLO CONVALESCENT
HOSPITAL
/s/ Joan Chandler By: /s/ Robert Snukal
- -------------------------- -------------------------
Name: Joan Chandler Name:
-----------------------
Title:
----------------------
-2-
<PAGE>
Exhibits 10.4
Pursuant to Instruction 2 to Item 601 of Regulation S-K, this exhibit is
not being filed because it is substantially identical to Exhibit 10.3. The
differences are as follows:
Tenant: Fountainview Convalescent Hospital
Premises: 5310 Fountain Avenue, Los Angeles, CA
Licensed Facility: 99 bed skilled nursing facility
Initial Monthly Rent: $30,000
<PAGE>
Exhibit 10.5
Pursuant to Instruction 2 to Item 601 of Regulation S-K, this exhibit is
not being filed because it is substantially identical to Exhibit 10.3. The
differences are as follows:
Tenant: Rio Hondo Nursing Center
Premises: 273 East Beverley Boulevard, Montebello, CA
Licensed Facility: 200 bed skilled nursing facility
Initial Monthly Rent: $60,000
<PAGE>
Exhibit 10.6
Pursuant to Instruction 2 to Item 601 of Regulation S-K, this exhibit is
not being filed because it is substantially identical to Exhibit 10.3. The
differences are as follows:
Tenant: Sycamore Park Convalescent Hospital
Premises: 4585 North Figueroa Street, Los Angeles, CA
Licensed Facility: Sycamore Park Convalescent Hospital (90 bed skilled
nursing facility)
Initial Monthly Rent: $27,000
<PAGE>
EXHIBIT 10.7
SUMMIT CARE CORPORATION
2600W. Magnolia Boulevard, P.O. Box 2100, Burbank, California 91507-2100
(818)841-8750 FAX(818)841-5847
June 1, 1994
Palmorest Associates, Ltd.
c/o Michael Traiger & Company
4314 Marina City Drive
Marina Del Rey, CA 90292
Gentlemen:
This letter shall serve as notification of our intent to exercise the option to
extend our lease dated November 20, 1969 amended as of September 1, 1979 on the
property located at 13075 Blackbird, Garden Grove, CA 92643.
In accordance with the above mentioned lease terms, this extension shall be for
five (5) years commencing on September 1, 1994 and terminating on August 31,
1999. Monthly rent will continue to be computed as specified in the lease,
amendment paragraph III.
Please forward confirmation of this extension for our files.
Sincerely,
/s/ Derwin L. Williams
Derwin L. Williams
Vice President - Finance
<PAGE>
LEASE OF
CONVALESCENT HOSPITAL FACILITY
(as amended)
Amendment to Lease, recorded December 1, 1969 in Book 9150, Page 794,
Official Records of Orange County, California. Said 1ease was executed November
20, 1969 by and between PARMCREST ASSOCIATES LTD., as Lessor, and CENTURY
CONVALESCENT CENTERS, a Delaware corporation, as Lessee (herein "Century").
IT IS HEREBY MUTUALLY AGREED, that the foregoing described lease shall
be and is hereby amended and the following paragraphs shall be amended in their
entirety to read as follows:
OPENING PARAGRAPH:
- -----------------
The Lessee shall be SUMMIT HEALTH LTD., a California corporation in
place and instead of CENTURY CONVALESCENT CENTERS.
II
TERM: The term of the lease shall be fifteen (15) years commencing
----
September 1, 1979.
III
RENT AND SECURITY DEPOSIT:
--------------------------
(a) During the term of this lease, Lessee shall pay to Lessor rent in
ADVANCE on or before the first day of each calendar month of the term hereof at
the rate of:
(i) For the first year of the TERM hereof the
<PAGE>
sum of $11,025 or month ($87.50 per bed per month): and
(ii) For the second year the sum of $11,340 per
month ($90.00 per bed per month); and
(iii) For each succeeding year of the term hereof
and any extended term an increase of 1 1/2 dollars ($1.50 per bed per month over
and above the rent paid per bed per month for the preceding year -
(b) The first sentence of this subparagraph (b) shall be amended by
subsrirtiring $25,000 as security for the full and faithful performance of
Lessee's obligations hereunder, in place and instead of $40,000.
(c) Paragraph (c) of this subparagraph (c) is stricken and deleted
from this lease.
IV
USE:
---
The demised premises hereby leased by Lessee shall be used by Lessee
for the purposes of operating a 12G bed convalescent hospital, nursing home or
facility of a similar nature and for no other purpose whatsoever without the
express written permission of the Lessor first having been obtained. Such
permission by the Lessor shall not be unreasonably withheld.
XXIV
OPTION TO RENEW:
---------------
Provided not then in default, Lessee shall have the option,
exercisable not more than 90 and not less than 30 days prior to the end of the
initial term, to renew the ease for an
-2-
<PAGE>
additional five (5) year term on all of the lease terms and conditions as
herein set forth, and likewise have the option to renew this lease upon
notice as provided for herein, for a second additional five year term in the
manner and upon the terms and conditions above set forth.
XXV
PERSONAL PROPERTY:
-----------------
Lessee acknowledges that all personal property located in, on, or
about the premises, is the sole property of Lessor. Lessee shall, at his sole
cost and expense, insure, keep, and maintain in good and sanitary order,
condition and repair, all of the furnishings, equipment and personal property
in, on or about the premises and make replacements thereof as necessary, to
operate a 126 Bed Convalescent. Hospital in accordance with the rules and
regulations of all governmental agencies concerned; and all such personal
property, together with all substitutions and replacements therefor, shall
become and remain the property of Lessor.
The following additional articles are hereby added to the lease:
ARTICLE XXVII
REMOVAL OF PATIENTS:
-------------------
Lessee shall not remove patients from the premises to any other
convalescent hospital, nursing home, or facility, of a similar nature owned or
operated by Lessee or any assignee
-3-
<PAGE>
of Lessee hereunder. As used herein the phrase "owned or operated" shall
include, but not be limited to any entity in which lessee or any assignee of
Lessee owns any interest whatsoever, or has any financial arrangements pursuant
to which Lessee or any assignee of Lessee receives compensation of any kind
whatsoever, defining compensation in its broadest sense. Nothing contained
herein shall be construed to restrict Lessee of any assignee of Lessee from
removing patients to such a facility if the consent of Lessor, in writing, is
first obtained.
ARTICLE XXVIII
Lessee is given the option to assign this lease to its wholly owned
subsidiary, namely, ROYALWOOD CONVALESCENT HOSPITAL, a corporation.
Notwithstanding such assignment, Lessee SUMMIT HEALTH LTD., shall remain
obligated to pay all rents and perform all the obligations of this lease to the
same effect as SUMMIT had not assigned this lease to its named subsidiary.
ARTICLE XXIX
LATE CHARGES:
------------
In the event that any sums payable to Lessor under this lease are not
paid within fifteen (15) days after the date due, then, in such event, in
addition to the amounts due, there shall also be due a late payment charge in
the sum of $20.00. In addition thereto, interest at the maximum rate allowed by
law shall be added to the amount due Lessor. In the event any portion of this
Article is found to be unenforceable as an unlawful penalty, forfeiture,
liquidated damages clause, on the grounds
-4-
<PAGE>
of usury, or for any other reason, then the amount unenforceable by reason
thereof shall be forgiven, but any other sums provided for herein shall
nevertheless be due and payable.
ARTICLE XXX
Lessor in consideration of Lessee executing this lease agrees that any
sum paid by Lessee to Lessor's prior Lessee GLENN OLELS) of the demised
premises, as and for the purchase of the rent deposit heretofore paid to Lessor
by said prior Lessee but not exceeding $15,000.00, will be paid by Lessor to
Lessee in the event SUMMIT CANNOT obtain all necessary licenses and permits
required by law to operate a 126 bed convalescent hospital in its demised
premises. Such payment by Lessor shall be made it Lessee does not obtain all the
licenses herein mentioned within 95 days from September 1, 1979. Wherein GLENN
OLELS is mentioned herein, it shall also refer with equal force and effect to
PALM GROVE CONVALESCENT CENTER INC., formerly known as GLENHAVEN OF FULLERTON.
ARTICLE XXXI
SUMMIT hereby appoints ROYALWOOD CONVALESCENT HOSPITAL, a wholly owned
subsidiary corporation, as its nominee to be Lessee hereunder, but SUMMIT shall
at all times remain obligated to pay all the rents and perform all the
obligations of this lease, to the same effect as if SUMMIT had not appointed the
above named corporation to be the Lessee hereunder.
EXCEPT as said Lease is amended by this Instrument, all other
provisions of the described Lease shall remain in
-5-
<PAGE>
full force and effect between the parties hereto; and all former or other
amendments to this Lease are hereby cancelled and annulled.
Dated 9/1 1979.
-------
LESSEE: SUMMIT HEALTH LTD., and its appointed nominee as Lessee
hereunder,
ROYALWOOD CONVALESCENT HOSPITAL
By [ILLEGIBLE SIGNATURE]
-------------------------------------
By [ILLEGIBLE SIGNATURE]
-------------------------------------
LESSSOR: PALMCREST ASSOCIATES LTD.
By [ILLEGIBLE SIGNATURE]
--------------------------------------
By [ILLEGIBLE SIGNATURE]
--------------------------------------
-6-
<PAGE>
CONVALESCENT HOSPITAL LEASE
---------------------------
THIS LEASE is made this 20th day of November 20, 1969 between
---- -----------------
PALMCREST ASSOCIATES, LTD. hereinafter referred to as "Lessor", and CENTURY
- -------------------------- -------
CONVALESCENT CENTERS, a Delaware corporation, hereinafter referred to as
- --------------------------------------------
"Lessee"
I
PREMISES
--------
In consideration of the rent herein agreed to be paid by Lessee
and the covenants and conditions herein contained, Lessor hereby leases to
Lessee and Lessee hereby hires from Lessor, for the term hereinafter provided,
and upon the terms and conditions set forth herein, that certain real property
in the City of Garden Grove, County of Los Angeles, State of California, more
------------ ----------
particularly described in Exhibit A-1 attached hereto, together with all
improvements thereon and the personal property located thereon and more
particularly described in Exhibit A-2 attached hereto, said real property and
improvements and personal property being known and operated as Palmcrest
---------
Convalescent Home and sometimes hereinafter being collectively referred to as
- -----------------
"The Premises".
II
TERM
----
The term of this Lease shall be for 25 years, commencing on or
--
before December 31, 1969.
-----------------
III
RENT AND SECURITY DEPOSIT
(a) During the term of this Lease, Lessee shall pay to Lessor rent
in advance on or before the first day of each calendar month of the term at the
rate of $8,190 per month.
(b) Lessee has deposited with Lessor the sum of $40,000 as
security for the full and faithful performance of Lessee's obligations
hereunder. If Lessee defaults with respect to its obligations hereunder, Lessor
may use, apply or retain all or any part of the security deposit for the payment
of any sum in default, or to compensate Lessor for any loss or damage sustained
by reason of Lessee's default. If any portion of said deposit is to be used or
applied, Lessee shall within fifteen (15) days after written demand therefor
deposit cash with the Lessor in an amount sufficient to restore the security
deposit to its
-1-
<PAGE>
original amount. Lessor shall not be required to keep the security deposit
separate from its general funds, and Lessee shall not be entitled to interest on
such deposit. The security deposit or any balance thereof shall be returned to
Lessee at the expiration of the lease term.
IV
USE
---
The demised premises hereby leased by Lessee shall be used by
Lessee for the purposes of operating a convalescent hospital, nursing home or
facility of a similar nature and for no other purpose whatsoever without the
express written permission of the Lessor first having been obtained. Such
permission by the Lessor shall not be unreasonably withheld.
V
CARE AND MAINTENANCE
--------------------
Lessee shall, at its sole cost, keep and maintain the entire
demised premises, including the appurtenances, parking lot, and sidewalks
immediately adjacent thereto, as well as shrubbery and landscaping, in good and
sanitary order, condition and repair, replacing any broken glass. Lessee
expressly waives any right to require Lessor to make repairs, or to make repairs
at the cost of Lessor. By taking possession of the property Lessee accepts the
premises as presently being in good and sanitary order, condition, repair and
agrees on the last day of said term or sooner termination of this Lease to
surrender unto Lessor all and singular said Premises with said appurtenances in
at least as good a condition as when received, fair wear and tear, damages by
fire, act of God or by the elements excepted. Lessee further agrees to remove
all of Lessee's signs from said Premises in a good and workmanshiplike manner at
the termination of this Lease upon the request and option of the Lessor that he
do so. All work in the removal of said signs shall be done in a workmanshiplike
manner and without injury to the Premises.
VI
CHANGE AND ALTERATIONS
----------------------
Lessee may install partitions, fixtures, machinery and other
equipment in conformance with applicable ordinances and laws, and, if so
requested by
-2-
<PAGE>
Lessor, shall before the expiration of the term hereof remove the same, repair
any damage caused thereby, and restore all tine Premises substantially to their
condition prior to the making of any alterations or changes.
Lessee agrees not to make any other changes or alterations on or
to said Premises without the express written permission of Lessor first having
been obtained, which permission shall not be unreasonably withheld by Lessor.
Lessee shall not commit or suffer to be committed any waste upon said premises
or any nuisance or other act or thing which may disturb the quiet enjoyment of
any other tenant in the adjacent buildings. Any alteration to said Premises,
additions or improvements thereto shall become at once a part of the realty and
belong to tine Lessor.
VII
INSURANCE
---------
Lessee agrees to take out and keep in force during the term of the
lease at his own expense public liability, property damage and other insurance
to protect against liability to persons or property incident to the use of or
resulting in any way from any accident occurring in or upon or about said
Premises. Such policy or policies shall be in an amount not less than One
Hundred Thousand Dollars ($100,000.00) for injuries to or death of any one
person and in an amount not less than Three Hundred Thousand Dollars
($300,000.00) for injuries to or death of more than one person arising from one
and the same accident, and in an amount of not less than Twenty-Five Thousand
Dollars ($25,000.00) for damage or injury to personal property. Lessee agrees to
save, indemnify and hold Lessor harmless from liability arising out of Lessee's
utilization of the demised promises. Lessee shall furnish to Lessor a
certificate of said insurance, which certificate shall contain the provision
that it shall not be subject to cancellation without at least ten (10) days
written notice to the Lessor. In the event that Lessee fails to carry such
insurance Lessor is hereby given the right to obtain such insurance and add the
cost thereof to the rental accruing hereunder. However, Lessor shall be under no
obligation to do so.
Lessee shall carry and pay for fire and extended hazard insurance
to 100% of the insurable value of the building and improvements herein demised;
provided, however, that Lessor shall appear as co-insured on such policy or
policies. "Insurable value" shall be deemed to be such value as may be
determined at the time of Issuance of any policy of Insurance required under the
terms hereof and at the time of renewal of any such policy by the insurer
issuing said policy or renewal or by the broker through whom such insurance
shall be obtained. Evidence of such insurance value shall be furnished to
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<PAGE>
Lessor at the time of each such issuance or renewal. Lessee may provide such
insurance on behalf of Lessor, under blanket policies to such effect. If Lessee
does not obtain and keep such insurance in full force and effect, Lessor may
take out the necessary insurance and pay the premiums thereon and repayment
thereof to Lessor shall be deemed to he a part of the rental and shall be paid
by Lessee to Lessor upon the next day when rent becomes due. Should there at any
time be a deed of trust on the demised premises to secure a loan from a lender,
the policy or policies hereinabove provided may contain a loss payable clause
in a form suitable to the lender; provided, however, that the lender shall in
turn be required to apply the proceeds of such insurance for the reconstruction
of the property. Lessee shall provide Lessor with evidence of such insurance
prior to commencing occupancy and at least ten (10) working days prior to
expiration of each policy period. Evidence of renewal shall be furnished to
Lessor during the term or extended terms of this Lease.
VIII
TAXES
-----
Lessee shall pay and discharge any real property taxes which shall
be assessed, levied or imposed upon the demised premises or any part thereof, by
the Federal, State, municipal or other governmental authority during the demised
term hereunder.
Lessee shall also promptly pay all personal property taxes
assessed as they pertain to personal property located within the building.
Taxes will be prorated at the beginning and the termination of
this Lease between Lessor and Lessee based upon the period of occupancy and the
taxes then prevailing.
IX
UTILITIES
---------
Lessee shall promptly pay for all gas, heat, light, power,
telephone or other utility services supplied to said Premises during the term of
this Lease.
X
INSPECTION & ACCESS
-------------------
Lessee shall permit Lessor and his agents to enter into and upon
said Premises at all reasonable times for the purpose of inspecting the same or
the maintenance thereof. Lessor shall have the further right to enter to and
upon said Premises at all reasonable times during the last six months of this
Lease for the purpose of displaying it to prospective lessees, and during such
period of time Lessor shall have the right to place upon the property any usual
or ordinary signs indicating that the property is for sale or lease.
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<PAGE>
XI
COMPLIANCE WITH LAW
-------------------
Lessee shall at its sole cost comply with all requirements of all
municipal, state and federal and other governmental authorities now in force or
which may hereafter be enacted pertaining to the use of the leased premises and
shall faithfully observe in said use all such laws, ordinances, regulations and
statutes now in force or which may hereafter be enacted. The judgment of any
court of competent jurisdiction or the admission of Lessee in any action or
proceeding against Lessee whether Lessor be a party thereto or not that Lessee
has violated any such ordinances, regulations of statute in said use shall be
conclusive of that fact as between the Lessor and Lessee.
XII
ASSIGNMENT & SUBLETTING
-----------------------
(a) Lessee may, without the prior written consent of Lessor,
assign or sublet all or any part of Lessee's interest in this Lease or in the
Premises to a corporation which owns a majority of the outstanding voting stock
of Lessee, to any wholly-owned subsidiary of Lessee, or to an affiliated
corporation, but Lessee shall not otherwise voluntarily or by operation of law
assign, sublet, transfer, mortgage or otherwise encumber all or any part of
Lessee's interest in this Lease or in the Premises, without the prior written
consent of Lessor in each instance, and any such attempted assignment, sublease,
transfer, mortgage, or encumbrance without such consent shall be wholly void.
(b) No subletting or assignment permitted under subparagraph (a)
hereinabove or made with the consent of Lessor, shall relieve Lessee of its
obligations to pay the rent and to perform all of the other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provisions of this
Lease or to be a consent to any assignment or subletting.
XIII
ABONDONMENT
-----------
Lessee shall not vacate or abandon the Premises at any time during
the term of this Lease. Failure on the part of the Lessee to operate the
business of a convalescent hospital, nursing home or similar facility for five
days for lack of proper licensing, or by reason of a suspension of license or
ceasing to do business for any reason not beyond the control of Lessee shall be
deemed an abondonment by the Lessee.
XIV
SURRENDER
---------
The voluntary or other surrender of this Lease by Lessee or a
mutual
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<PAGE>
cancellation thereof shall not work a merger and shall at the option of Lessor
terminate all or existing subleases or subtenancies or may at the option of
Lessor operate as an assignment to any or all of such subleases or subtenancies.
The provisions of this paragraph shall not be construed as in any way
permitting a subletting without the written consent of Lessor.
XV
DESTRUCTION
-----------
In the event of partial or total destruction of the said Premises
during the term from any cause, Lessee shall give immediate notice thereof to
Lessor and Lessor shall forthwith repair or replace the same if such can be done
in accordance with the then existing laws and regulations. Such partial or total
destruction shall in no way annul or void this Lease except by the mutual
agreement of the parties and further except that Lessee shall be entitled to a
proportionate reduction of rent while such replacement or repairs are being
made. Such proportionate reduction to be based on the extent to which the making
of such repairs shall deprive the Lessee of the beneficial use thereof. In the
event that the demised premises cannot be so reconstructed or repaired with
reasonable diligence within 8 months from the date of such damage, this Lease
shall forthwith terminate at the option of either Lessor or Lessee, as of the
date of such damage. The determination of the time required for such
reconstruction or repair shall be made within 60 days following the date of such
damage; a firm commitment by a reputable contractor to complete within the time
permitted, together with all necessary governmental approvals, secured by either
party, shall conclusively establish that the time requirement can be met.
In the event of any damage or destruction as hereinabove referred
to, any insurance money received by or paid to the Lessor or Lessee by reason
thereof shall be applied to such costs of repairing, restoration or rebuilding
as therein provided for and required.
XVI
CONDEMNATION
------------
(a) Should forty per cent (40%) or more of (1) the Premises other
than gross floor area of the building, (2) the gross floor area of the building,
or (3) both together, be taken by condemnation proceeding, Lessee shall have the
option to terminate this Lease effective as of the date possession is taken by
the condemning authority provided that Lessee shall have given written notice
of such election to Lessor after the extent of such taking has been determined
and not later than ninety (90) days after Lessor has given Lessee written notice
of the extent of such taking, provided further than such option or the
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<PAGE>
exercises thereof shall not be construed as denying to Lessee of any right to
compensation by reason of such taking to which it would otherwise be entitled
(b) In the event of any taking which does not so result in a
termination of this Lease as aforesaid, the rental payable hereunder shall be
reduced, effective as of the date of which the condemning authority takes
possession, in proportion to the reduction in the number of Square feet of land
by reason of such taking. Lessor shall promptly at its expense, restore the
portion of said Premises riot so taken to as near its former condition as is
reasonably possible, and this Lease shall continue in Full force and effect.
(c) All damages awarded for any such taking shall belong to Lessor
including damages, if any, which may be awarded as compensation for diminution
in value of the leasehold or of the fee; provided, however, that Lessor shall
not be entitled to share in any award made to Lessee for damages for
interruption of or interference with Lessee's business.
XVII
SUBORDINATION
-------------
Upon written request by Lessor, Lessee shall subordinate its rights
under this Lease to the lien of any mortgage or deed of trust now or here-after
enforced against the Premises and to all loans made or hereafter to be made upon
the security thereof; provided, however, that any Such mortgage or deed of trust
shall provide that this Lease shall remain in full force and effect for the term
or terms herein set forth so long as Lessee is not in default hereunder, and
farther provided that the payments on such encumbrances shall be in periodic
amounts less than the periodic payments due hereunder. Should Lessor default in
making the payments on said encumbrances, Lessee may make said payments and set
off said sum against the monies due and payable to Lessor hereunder.
XVII
BREACH
------
In the event of any breach of this Lease by the Lessee and the
failure of Lessee to correct and remedy such breach within fifteen days after
receipt of written notice from Lessor, then Lessor besides other rights and
remedies he may have, shall have the immediate right of re-entry and may remove
all persons therefrom. Should Lessor elect to re-enter as herein provided, or
should he take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, he may either terminate this Lease or may from time
to time without terminating this Lease relet said Premises or any part thereof
for such term or terms and for such rental or rentals and upon such other terms
and conditions as Lessor in his sole discretion may deem advisable. Rentals
received by Lessor for such reletting shall be applied:
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<PAGE>
(1) to the payment of any cost of such reletting, (2) to the payment of the cost
of any repairs to the Premises, (3) to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by Lessor and applied in
payment of future rent as the same may become due and payable hereunder. Should
such rentals received from such reletting during any month be less than that
agreed to be paid during that month by Lessee hereunder, then Lessee shall pay
such deficiency to Lessor upon Lessor's demand. No such re-entry or taking
possession of said Premises by Lessor shall be construed as an election on his
part to terminate this Lease unless a written notice of such intention be given
to Lessee or unless the termination thereof be decreed by a Court of competent
jurisdiction. Notwithstanding any such reletting without termination, Lessor may
at any time thereafter elect to terminate this Lease for such previous breach.
Should Lessor at any time terminate this Lease for any breach in addition to any
other remedy he may have, he may recover from Lessee all damages he may incur by
reason of such breach including the costs of recovering the Premises and
including the worth at the time of such termination of the excess, if any, of
the amount of rent and charges equivalent to rent reserved in this Lease for the
remainder of the stated term over the then reasonable rental value of the
Premises for the remainder of the stated term.
XIX
EARLY TERMINATION
-----------------
Either (a) the appointment of a receiver to take possession of all
or substantially all of the assets of Lessee or (b) a general assignment by
Lessee for the benefit of creditors, or (c) any action taken or suffered by
Lessee under any insolvency or bankruptcy act shall constitute a breach of this
Lease by Lessee.
XX
ATTORNEYS' FEES
---------------
In the event either party brings an action against the
other to enforce condition or covenant of this Lease, the prevailing party in
such action shall be entitled to recover the court costs and reasonable
attorneys' fees in judgment rendered through such action.
XXI
NOTICES
-------
All notices to be given to Lessee may be given in writing
personally or by depositing same in the United States mail postage prepaid and
addressed to Lessee at said premises whether or not Lessee has departed from,
abandoned or vacated the Premises. All notices to be given to Lessor shall
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<PAGE>
be given in writing personally, or be depositing same in the United States mail
postage prepaid and addressed to Lessor: % Traiger, Crasnick, 1605 Ventura
---------------------------------
Boulevard, Encino, California or such other address as Lessor may designate to
- -----------------------------
Lessee in writing.
XXII
WAIVER
------
The waiver by Lessor of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term
covenant or condition or any subsequent breach of the same, or any other term,
covenant or condition herein contained.
XXIII
HOLDING OVER
------------
Any holding over after the expiration of the said term with the
consent of Lessor shall be construed as a tenancy from month to month on the
same terms and conditions as herein specified.
XXIV
OPTION TO RENEW
---------------
Provided not then in default hereunder, Lessee shall have the
option, exercisable not more than 90 and not less than 30 days prior to the end
of the initial term, to renew the Lease for an additional term of 10 years upon
--
all of the terms and conditions herein contained.
XXV
PERSONAL PROPERTY
-----------------
Lessee shall, at its sole cost insure and keep and maintain in
good and sanitary order, condition and repair all of the personal property
listed on Exhibit A-2 hereof, and will make replacements thereof as necessary,
and all such personal property shall be and remain, and any and all
substitutions and replacements therefor shall become, the property of Lessor
upon the expiration or earlier termination of this Lease. All substantial
additions made by Lessee to the furnishings, equipment and other personal
property located on the premises shall, however, be and remain the property of
Lessee upon the expiration or earlier termination of this Lease.
XXVI
MISCELLANEOUS PROVISIONS
------------------------
The covenants and conditions herein contained shall, subject to
the provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of all the parties hereto. Time is of
the essence of this Lease.
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<PAGE>
In the event that any part or provision of this Lease shall be invalid and
legally unenforceable, the remainder hereof shall nevertheless be carried out
disregarding such part or provision.
Where the context so indicates the singular number where used in this
instrument shall include the plural and the plural the singular, the present
tense shall include the future and the future the present, the masculine gender
shall include the feminine and neuter.
IN WITNESS WHEREOF, the parties hereunto have executed this Lease the day
and year first above written.
/s/ Signature appears here CENTURY CONVALESCENT CENTERS, INC.
- ---------------------------- -------------------------------------
/s/ Signature appears here By /s/ William F. Moody Jr. Pres
- ---------------------------- -------------------------------------
- ---------------------------- -------------------------------------
LESSOR LESSEE
General Partners of
THE PALMCREST GENERAL COMPANY,
the General Partner of
PALMCREST ASSOCIATES, LTD.
- --------------------------------------------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November 20th, 1969 before me, the undersigned,
a Notary Public in and for said State, personally
appeared William F. Moody, Jr., known to me to be
the President of the CENTURY CONVALESCENT CENTERS,
INC., the Corporation that executed the within
instrument, known to me to be the person who
executed the within instrument, on behalf of the
Corporation, therein named, and acknowledged to me
that such Corporation executed the same.
---------------------------------------------------
---------------------------------------------------
WITNESS my hand and official seal.
/s/ Joanne Burdt
--------------------------------------
[SEAL OF JOANNE BURDT Joanne Burdt
NOTARY PUBLIC CALIFORNIA --------------------------------------
APPEARS HERE] NAME(TYPED OR PRINTED)
Notary Public in and for said State.
================================================================================
STATE OF CALIFORNIA )
) ss.
County of Los Angeles )
November 20, 1969, before me to the undersigned, a Notary Public in and for said
State, totally appeared ISAAC BRASSNER and MELVIN WANDER, known to me to be two
of the partners PALMCREST GENERAL COMPANY, a partnership, said partnership being
known to me to be one the partners of PALMCREST ASSOCIATES, LTD. the partnership
that executed the within instrument, and acknowledged to me that they executed
the same as partners of the partnership first above named, that said partnership
executed the same as a partner of CREST ASSOCIATES, LTD., and that said last
named partnership executed the same.
WITNESS my hand and official seal.
/s/ Signature appears here
---------------------------------
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[SEAL APPEARS HERE]
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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
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
5
<PAGE>
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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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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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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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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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.
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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
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EXHIBIT A
PARCEL 1:
That portion of the Northeast quarter of Section 15, Township 4 South, Range 11
West, in the Rancho Los Coyotes, City of Anaheim, County of Orange, State of
California, as per map recorded in Book 51 Page 11 of Miscellaneous Maps, in the
office of the County Recorder of said County, described as follows:
Beginning at a point on the East line of said Northeast quarter, South 672.71
feet from the Northeast corner thereof; thence Westerly 630.00 feet; thence
North 132.00 feet parallel with said East line; thence Easterly 430.00 feet;
thence South 60.00 feet parallel with said East line; thence Easterly 200.00
feet to said East line; thence South 72.00 feet to the point of beginning.
PARCEL 2:
An easement for the construction and maintenance of sanitary sewer and all
appurtenances thereto and for storm water drainage, over, along, upon and across
that portion of the Northeast quarter of Section 15, Township 4 South, Range 11
West, in The Rancho Los Coyotes, City of Anaheim, County of Orange, State of
California, as per map recorded in Book 51 Page 11 of Miscellaneous Maps, in the
office of the County Recorder of said County, included within a strip of land
20.00 feet wide, the Southerly line of which is described as follows:
Beginning at a point on the North line of Tract No. 2826 as per map recorded in
Book 85 Pages 37 to 42 inclusive of said Miscellaneous Maps, North 89 degrees
37'25" East 458.00 feet from the Northwest corner of Lot 71 in said Tract;
thence North 89 degrees 37' 25" East 145.00 feet along said North line and the
Easterly prolongation thereof.
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EXHIBIT 10.9
LEASE
Landlord: Jozef Nabel and Marie Gabrielle Nabel, as tenants in common
Tenant: Summit Care-California, Inc., a California corporation
Dated as of May 1, 1987
INDEX
No. Page No.
1. Defined Terms
2. Leased Premises
3. Term and Option to Extend
4. Rent
5. Use
6. Maintenance and Repairs
7. Alterations and Additions
8. Insurance
9. Indemnity
10. Damage or Destruction; Obligation to
Rebuild
11. Property Taxes
12. Condemnation
13. Utilities
14. Assignment and Subletting
15. Defaults; Remedies
16. Security Deposit
17. Right of First Refusal
18. Miscellaneous
18.(a) Estoppel Certificate
18.(b) Landlord's Liability
18.(c) Construction
18.(d) Interest on Past-due Obligations
18.(e) Time of Essence
18.(f) Counterparts
18.(g) Incorporation of Prior Agreements;
Amendments
18.(h) Notices
18.(i) Waivers
18.(j) Recording
18.(k) Holding Over
18.(l) Covenants and Conditions
18.(m) Binding Effect
18.(n) Subordination
18.(o) Attorneys' Fees
18.(p) Landlord's Access
18.(q) Brokers and Finders
Exhibit "A" - Legal Description
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1. Defined Terms.
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Each reference in this Lease to any of the following terms shall
incorporate the data stated for that term. Other terms are as defined in the
Lease.
Landlord: Jozef Nabel and Marie Gabrielle Nabel, as tenants in common
Tenant: Summit Care-California, Inc., a California corporation
Street Address of Premises (paragraph 2):
Sharon Care Center
8167 West Third Street
Los Angeles, California 90048
Term (paragraph 3a): 120 months
Option Terms (paragraph 3b): 60 months
Commencement Date (paragraph 3): May 11, 1987
Fixed Rent (paragraph 4(a)): $23,925/month
Permitted Uses (paragraph 5): Skilled Care Nursing Facility
Landlord's Address (paragraph 18(h)):
Jozef Nabel
2323 La Mesa Drive
Santa Monica, California 90402
with a copy to
Robert L. Esensten
A Professional Law Corporation
924 Westwood Blvd., //400
Los Angeles, California 90024
Tenant's Address (paragraph 18(h)):
1800 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Attn: President, Long Term Care Group
Real Estate Broker Commission Responsibility (paragraph 18(q): None
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2. Leased Premises.
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Landlord hereby leases to Tenant, and Tenant XXXXXXX from
Landlord, subject to the terms and conditions contained herein, (a) that certain
real property located at the street address set forth in paragraph 1 hereof and
more particularly described in Exhibit A attached hereto and incorporated herein
by this reference (the "Property") and (b) the improvements thereon (the
"Improvements"). The Property and the Improvements are sometimes hereinafter
referred to collectively as the "Premises".
3. Term and Option to Extend.
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(a) The Term of this Lease, which, subject to subparagraph 3(b)
below, shall be for the period set forth in paragraph I above and shall commence
on the date set forth in paragraph I above.
(b) Landlord hereby grants Tenant two successive options to
extend the Term of this Lease for the Option Term set forth in paragraph 1
above, each such Option Term commencing upon the expiration of the then-existing
Term of this Lease. Tenant may exercise the foregoing options by written notice
to the Landlord at least one hundred eighty (180) but not more than two hundred
seventy (270) days prior to the end of the then-existing Term of this Lease.
4. Rent.
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(a) Beginning on the Commencement Date and hereafter, Tenant
shall pay Landlord each month, without prior notice, demand, deduction or
setoff, the Rent, which, until adjusted as hereinafter provided, shall be the
Fixed Rent set forth in paragraph 1 above. Rent shall be payable in lawful money
of the United States in advance on or before the 1st day of each successive
calendar month beginning the term hereof, except that if the Commencement Date
occurs on a date other than the first day of the month, Rent for that month
shall be prorated on the basis of a thirty (30) day month and shall be paid on
the Commencement Date. Rent shall be paid in the place designated by Landlord
for receipt of notices or at such other place as Landlord may designate in
writing.
(b) The Rent shall be increased but not decreased on May 1, of
every second calendar year subsequent to the Commencement Date. The new Rent
shall be determined as follows:
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(i) The Consumer Price Index for All Urban Consumers for
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the United States Department of Labor, Bureau of Labor Statistics (CPI) shall be
used for the basis of determining the increase, if any, in the Rent. The "Base
Period" shall be the month and year of the Commencement Date. The "Comparison
Period" shall be the second month of January following the Commencement Date and
every second January thereafter during the term of this Lease.
(ii) If the CPI for any Comparison Period is higher than the
CPI for the Base Period, the Fixed Rent set forth in paragraph 1 shall be
multiplied by a fraction, of which the numerator is the CPI for the Comparison
Period and the denominator is the CPI for the Base Period. If the product so
calculated is higher than the Rent payable by Tenant for the Comparison Period,
that product or 108% of the Rent for that comparison period (whichever is less)
constitutes the new Rent, effective on the first day of May immediately
following the particular Comparison Period. If the product so calculated is
equal to or lower than the Rent payable by Tenant for the particular Comparison
Period, no adjustment shall be made in the Rent.
(iii) Any delay by Landlord in billing for the foregoing rent
increases shall not constitute a waiver of or in any way impair the continuing
obligation of Tenant to pay these rent increases.
(c) In the event the CPI is no longer published, Landlord and Tenant
shall determine another index of similar nature showing changes in the cost of
living to be used to calculate the Adjustment due Landlord. If Landlord and
Tenant cannot agree on the selection of an index, or if Landlord and Tenant
disagree as to the computations called for in this subparagraph (b), any
disagreed matters shall then be resolved by arbitration in the county in which
the Premises are located, in accordance with the then rules of the American
Arbitration Association.
5. Use.
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(a) The Premises shall be used and occupied only for the
Permitted Uses set forth in paragraph 1 above and for no other purpose.
(b) Tenant shall, at Tenant's sole cost and expense, comply
with all present and future laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments, courts,
departments, commissions, boards, and offices, and any national or local Board
of Fire
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Underwriters, or any other body exercising functions similar to those of any of
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may be applicable to the Premises and the sidewalk, curbs and vaults adjoining
the Premises or to the use or manner of use of the Premises, whether or not such
law, ordinance, order, rule, regulation or requirement shall necessitate
structural charges or improvements, ornamental, structural or otherwise, onto or
over the streets or sidewalks adjacent to the Premises, or onto or over other
property contiguous or adjacent thereto. Tenant shall not use or permit the use
of the Premises in any manner that will tend to create waste or a nuisance.
(c) Tenant, having been in occupancy of the Premises for six (6)
years prior to the Commencement Date, hereby accepts the Premises subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises and subject to all liens,
claims and encumbrances currently existing against the Premises or any part
thereof, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Tenant acknowledges that neither
Landlord nor Landlord's agents have made any representation or warranties as to
the Premises, including without limitation, any representation or warranty as to
condition or fitness of the Improvements or the suitability of the Improvements
for the conduct of Tenant's business.
6. Maintenance and Repair.
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(a) Tenant shall during the Term keep in good order, condition
and repair, the Premises (including all alterations and additions made by Tenant
pursuant to the provisions hereof, and the roof and foundation), and all
adjacent sidewalks, landscaping, driveways, parking lots, fences and signs
located in the areas which are adjacent to or included with the Premises.
(b) On the last day of the Term, or on any sooner termination
of this Lease, Tenant shall surrender the Premises to Landlord in the same
condition as when received, broom clean, ordinary wear and tear alone excepted.
Tenant shall repair any damage to the Premises occasioned by the removal of
Tenant's alterations and improvements (including, without limitation, its trade
fixtures, furnishings and equipment) which repair shall include, without
limitation, the patching and filling of holes and repair of structural damage.
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7. Alternations and Additions.
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(a) Tenant shall not, without Landlord's prior written consent
make any improvements, additions, or utility installations (which term "utility
installations" shall include ducting, power panels, flourescent fixtures, space
heaters, conduits and wiring) in, or about the Premises, except for
nonstructural alterations to the Premises costing less than Ten Thousand Dollars
($10,000).
(b) 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 on or in connection with the Premises, which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Tenant shall give Landlord not less than then ten (10) days notice
prior to the commencement of any work on the Premises, and Landlord shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law.
(c) Unless Landlord requires or consents to their removal, all
alterations, improvements, additions and utility installations which may be made
on or to the Premises shall become the property of Landlord and remain upon and
be surrendered with the Premises at the expiration of the Term. Notwithstanding
the provisions of this subparagraph (c), Tenant's machinery and equipment 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.
8. Insurance.
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(a) Tenant at its sole cost and expense, but for the mutual
benefit of Landlord as co-loss payee and Tenant as named insured, shall maintain
comprehensive general liability insurance on an "occurrence basis" against
claims for "personal injury," including without limitation, bodily injury, death
or property damage, occurring upon, in or about the Premises and on, in or about
the adjoining sidewalks, streets, and passageways and for all other areas
appurtenant thereto, such insurance to afford immediate minimum protection, at
the time of the inception of this Lease, and at all times during the Term, to a
limit of not less than One Million Dollars ($1,000,000) with respect to personal
injury or death to any one or more persons or to damage to property. Such
insurance shall also include coverage against liability for bodily injury or
property damage arising out of the use, by or on behalf of Tenant, or any other
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person or organization, of any owned, non-owned, leased or hired automotive
equipment in the conduct of any and all operations called for under this Lease.
The limits of said insurance shall not, however, limit the liability of Tenant
hereunder.
(b) Tenant, at its sole cost and expense, shall keep the
Improvements insured during the Term for the mutual benefit of Landlord and
Tenant as named insured, against loss or damage by fire and lightning and
against loss or damage by other risks embraced by coverage, of the type now
known as the broad form of extended coverage, including but not limited to fire,
riot and civil commotion, vandalism and malicious mischief, special extended
perils (all risk) and sprinkler leakage, and against such other risks or hazards
as Landlord may from time to time reasonably designate, in amounts sufficient to
prevent Landlord or Tenant from becoming a co-insurer under the terms of the
applicable policies, but in any event in an amount not less that the full
replacement cost of the Improvements and Personal Property, without deduction
for physical depreciation, and with not more than Five Thousand dollars ($5,000)
deductible from the loss payable for any casualty. The policies of insurance
carried in accordance with this paragraph shall contain a "Replacement Cost
Endorsement." Such full replacement cost shall be determined from time to time,
but not more frequently than once in any twelve (12) consecutive calendar months
(except in the event of substantial changes or alterations to the Improvements
undertaken by Tenant as permitted hereunder) upon the written request of
Landlord by an appraiser, architect or contractor who shall be mutually and
reasonably acceptable to Landlord and Tenant. A copy of any such determination
shall promptly be sent to Landlord, and subject to the approval of such
determination by Landlord, the insurance maintained in this paragraph shall be
adjusted to the new full replacement cost. Said insurance shall provide for
payment for loss thereunder to Landlord or, at Landlord's request, to the holder
of any mortgage or deed of trust on the Premises.
(c) Tenant shall deliver to Landlord copies of policies of such
insurance or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days written notice to
Landlord.
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9. Indemnity.
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(a) In addition to any other obligations of Tenant hereunder
including the obligations of Tenant to provide insurance, Tenant shall indemnify
and hold Landlord harmless from and against any and all claims arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and 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 the terms
of this Lease, or arising from any negligence of Tenant, or any of 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; and in case any action or proceeding be
brought against landlord by reason of any such claim, Tenant upon notice from
Landlord shall defend the same at Tenant's expense.
10. Damage or Destruction; Obligation to Rebuild.
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In the event that during the Term the premises are damaged or
destroyed, partially or totally, from any cause whatsoever, whether or not such
damage or destruction is covered by any insurance required to be maintained
under this Lease, then Landlord shall repair, restore, and rebuild the Premises
to their condition existing immediately prior to such damage or destruction.
Such repair, restoration and rebuilding (all of which are herein called the
"repair") shall be commenced within a reasonable time after such damage or
destruction and shall be diligently prosecuted to completion. During such
repair, this Lease shall continue in full force and effect, provided that the
rent shall be reduced in proportion to the area of the plan area of the
Improvements which is no longer useable by Tenant. The proceeds of any insurance
maintained under paragraph 8 hereof shall be made available to Landlord for
payment of the costs and expenses of the repair; provided, however, that in the
event that the insurance proceeds are insufficient to cover the cost of the
repair, then any amount in excess thereof required to complete the repair shall
be paid by Landlord. Notwithstanding the foregoing, if the repairs are not
completed within one hundred eighty (180) days of the date of such damage or
destruction, Tenant may, by written notice to Landlord, terminate this Lease.
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11. Property Taxes.
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(a) Tenant shall pay all "Property Taxes" (as defined XXXXXXX)
applicable to the Premises during the Term. Each payment shall be made prior to
the delinquency date of such payment. Tenant shall promptly furnish Landlord
with evidence satisfactory to Landlord that Property Taxes have been paid. If
any Property Taxes due with respect to the Premises shall cover any period of
time prior to or after the expiration of the Term, Tenant's share of such
Property Taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect. If Tenant
shall fail to pay any Property Taxes, Landlord shall have the right, but not the
obligation, to pay the same, in which case Tenant shall repay such amount to
Landlord with Tenant's next Rent installment.
(b) As used herein, the term "Property Taxes" shall include any
form of general or special assessment, license fee, commercial rental tax, levy,
penalty, or tax (other than inheritance or estate taxes) imposed by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement district, or any part or parts thereof, or against
any legal or equitable interest of Landlord in the Premises (but exclusive of
taxes levied on or computed by reference to landlord's net income as a whole).
(c) Tenant shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings equipment and all other
personal property of Tenant contained on the Premises or elsewhere. When
possible, Tenant shall cause such trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the Premises.
(d) As between the parties hereto, Tenant alone shall have the
duty of attending to, making or filing any declaration, statement or report
which may be provided or required by law as the basis of or in connection with
the determination, equalization, reduction or payment of any Property Taxes
which are to be borne or paid or which may become payable by Tenant under the
provisions of this paragraph and Landlord shall not be or become responsible to
Tenant therefor, nor for the contents of any such declaration, statement or
report.
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12. Condemnation.
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(a) ??????? ??????? or any portion thereof is taken under
the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs (the "Condemnation Date") and the
Rent shall be reduced (as of the Condemnation Date) as provided below. If (i)
more than ten percent (10%) of the floor area of any building comprising the
Improvements or more than twenty-five percent (25%) of the land area of the
Property which is not occupied by any such building is taken by condemnation,
and (ii) as a result of such taking such condemnation the balance of the
Premises remaining after such condemnation is not reasonably suitable for the
use to which the Premises were being put immediately prior to the condemnation,
Landlord or Tenant may, at either's option, to be exercised in writing only
within ten (10) days after Landlord shall have given Tenant written notice of
such taking (or in the absence of such notice, within ten (10) days of the
Condemnation Date) terminate this Lease as of the Condemnation Date. If Landlord
or Tenant does not terminate this Lease in accordance with the foregoing, or in
the event that the portion of the Premises taken by condemnation is not
sufficiently large so as to give rise to the right to terminate this Lease as
above provided, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Rent shall be reduced (as of
the Condemnation Date) in the proportion that the area taken by condemnation
bears to the total area of the Premises.
(b) Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Landlord, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award specifically attributed by the condemning
authority to loss or damage to Tenant's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason of such
condemnation, Landlord shall repair any damage to the Premises caused by such
condemnation except to the extent that Tenant has been reimbursed therefor by
the condemning authority (in which event such reimbursement to Tenant shall also
be applied to such repair).
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(c) If the temporary use of the whole or any part of the Premises
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way, with the Fixed Rent reduced as herein provided, and except to the extent
that Tenant is prevented from so doing by reason of any order of the condemning
authority, shall continue to perform and observe all of the other covenants,
conditions and agreements of this Lease to be performed or observed by Tenant as
though such taking had not occurred. In the event of any such temporary
condemnation Landlord shall be entitled to receive for itself any and all awards
or payments made for such use of that portion of the Premises so taken;
provided, however, that Landlord shall repair any and all damages to the
Premises (whether or not covered by any award to Landlord) caused by such
temporary condemnation.
13. Utilities.
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Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Tenant, Tenant shall
pay a reasonable proportion to be determined by Landlord of all charges jointly
metered with other premises, and Landlord's determination thereof, in good
faith, shall be conclusive.
14. Assignment and Subletting.
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(a) Tenant may mortgage or pledge all or any part and may assign,
sublet, or otherwise transfer a part of Tenant's interest in this Lease or in
the Premises. Without Landlord's prior written consent, however, Tenant may not
assign or otherwise transfer all of Tenant's interest in this Lease, except to
an entity with a consolidated net worth, determined on the basis of audited
financial statements dated not earlier than eighteen (18) months prior to the
date of such assignment, or transfer, in an amount not less than Fifteen Million
Dollars ($15,000,000). As used in this subparagraph (a), the words "consolidated
net worth" shall mean the net worth of the entity, its parent and subsidiary
organizations determined in accordance with generally accepted accounting
principals applied on a consistent basis.
(b) Regardless of Landlord's consent, no subletting or assignment shall
alter the primary liability of Tenant to pay the rent or release Tenant of
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Tenant's obligation to perform all other obligations to be performed by Tenant
hereunder unless Landlord's written consent shall so specifically provide and
Landlord under no circumstances shall be obligated to release Tenant from any
such liability. The acceptance of rent of Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof.
15. Defaults; Remedies.
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(a) Defaults. The occurrence of any one or more of the following
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events shall constitute a default and breach of this Lease by Tenant:
(i) The vacating or abandonment of the Premises by Tenant;
(ii) The failure by Tenant to make any payment of Rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure shall continue for a period of five (5) business days after written
notice thereof from Landlord to Tenant;
(iii) The failure by Tenant to observe or perform any of the
convenants, conditions or provisions of this Lease to be observed or performed
by Tenant, other than described in subparagraph (ii) above, where such failure
shall continue for a period of thirty (30) days after written notice thereof
from Landlord to Tenant; provided, however, that if the nature of Tenant's
default is such that it is capable of being cured but more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within such thirty (30) day period and
thereafter diligently prosecutes such cure to completion; or
(iv) The making by Tenant of any general assignment for the
benefit of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for liquidation or reorganization or
rehabilitation or arrangement or rearrangement under any law relating to
bankruptcy whether now existing or hereafter enacted; the adjudication of Tenant
as a bankrupt or insolvent; the appointment of a trustee or receiver to take
possession of all or 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 thirty (30) days; 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
thirty (30) days. Unless Landlord's express written consent thereto is first
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obtained, in no event shall this Lease, or any interest herein or hereunder or
any estate ?????????????????????????????????????????????????????????????????????
under voluntary or involuntary bankruptcy or insolvency or reorganization
proceedings or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy or insolvency or
reorganization proceedings. Any purported assignment or transfer in violation of
the provisions of this subparagraph (iv) shall constitute a default and breach
of this Lease by Tenant and in connection with any such default and breach
Landlord shall have the rights and remedies described in subparagraph (b) below,
including, without limitation, the election to terminate this Lease.
(b) Remedies.
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(i) In the event of any default and breach by Tenant of
any of its obligations under this Lease and notwithstanding the vacation or
abandonment of the Premises by Tenant, this Lease shall continue in effect so
long as Landlord does not expressly terminate Tenant's right to possession in
any of the manners specified in this paragraph and Landlord may, at Landlord's
option and without limiting Landlord in the exercise of any other rights or
remedies which it may have by reason of such default and breach, exercise all of
its rights and remedies hereunder, including, without limitations:
(A) The right to declare the Term ended and to re-
enter the Premises and take possession thereof and remove all persons therefrom,
and Tenant shall have no further claim in or to the Premises or under this
Lease; or
(B) The right without declaring this Lease ended and
to re-enter the Premises, take possession thereof, remove all persons therefrom
and occupy or lease the whole or any part thereof for and on account of Tenant
and upon such terms and conditions and for such rent as Landlord may deem proper
and to collect such rent or any other rent that may hereafter become payable and
apply the same as provided in subparagraph (ii) below; or
(C) The right, even though Landlord may have relet
the Premises or brought an action to collect Rent and other charges without
terminating this Lease, to thereafter elect to terminate this Lease and all of
the rights of Tenant in or to the Premises; or
(D) The right, without terminating this Lease, to
bring an action or actions to collect Rent and other charges hereunder which are
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from time to time past due and unpaid or to enforce any other provisions of this
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any such action or actions shall not terminate this Lease unless written notice
of termination is given.
(ii) Should Landlord relet the Premises under the provisions of
subparagraph (b)(i)(B) above, Landlord may execute any lease either in its own
name or in the name of Tenant, but Tenant hereunder shall have no right or
authority whatever to collect any rent from the new tenant. The proceeds of any
such reletting shall first be applied to the payment of the costs and expenses
of reletting the Premises, including without limitation, reasonable brokerage
commissions and alterations and repairs which Landlord, in its sole discretion,
deems reasonably necessary and advisable and to the payment of reasonable
attorneys' fees incurred by Landlord in connection with the retaking of the
Premises and such reletting and, second, to the payment of any indebtedness,
other than Rent, due hereunder including, without limitation, storage charges
owing from Tenant to Landlord. When such costs and expenses of reletting have
been paid, and if there is no such indebtedness or such indebtedness has been
paid, Tenant shall be entitled to a credit for the net amount of rental received
from such reletting each month during the unexpired balance of the Term, and
Tenant shall pay Landlord monthly on the first day of each month as specified
herein such sums as may be required to make up the rentals provided for in this
Lease. Nothing contained herein shall be construed as obligating Landlord to
relet the whole or any part of the Premises.
(iii) Should Landlord elect to terminate this Lease under the
provisions or subparagraphs (b)(i)(A) or (C) above, Landlord shall be entitled
to recover immediately from Tenant (in addition to any other amounts recoverable
by Landlord as provided by law), the following amounts:
(A) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;
(B) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
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(C) The worth at the time of award of the amount by
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exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; and
(D) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom. For purposes of computing "the worth at the time of
the award" of the amount specified in subparagraph (b) (iii) (C) above, such
amount shall be discounted at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award. For purposes of computing "the worth at the
time of the award" under subparagraph (b) (iii) (A) and (b) (iii) (B) above, an
interest rate of ten percent (10%) per annum shall be utilized.
(iv) If Landlord shall elect to re-enter the Premises as provided
above, Landlord shall not be liable for damages by reason of any reentry. Tenant
hereby waives all claims and demands against Landlord for damages or loss
arising out of or in connection with any reentering and taking possession of the
Premises and waives all claims for damages or loss arising out of or in
connection with any destruction of or damage to the Premises, or for any loss of
property belonging to Tenant or to any other person, firm or corporation which
may be in or upon the Premises at the time of such reentry.
(v) Landlord shall not be deemed to have terminated this Lease.
Tenant's right to possession of the Premises or the liability of Tenant to pay
Rent thereafter to accrue or its liability for damages under any of the
provisions hereof by any reentry hereunder or by any action in unlawful detainer
or otherwise to obtain possession of the Premises, unless Landlord shall notify
Tenant in writing that Landlord has so elected to terminate this Lease. Tenant
agrees that the service by Landlord of any notice pursuant to the unlawful
detainer statutes or comparable statutes of the state or locality in which the
Premises are located and the surrender of possession pursuant to such notice
shall not (unless Landlord elects to the contrary at the time of or at any time
subsequent to the service of such notice and such election shall be evidenced by
a written notice to Tenant) be deemed to be a termination of this Lease or of
Tenant's obligations hereunder. No reentry or reletting under this paragraph
shall be deemed to constitute a surrender or termination of this Lease, or of
any
-15-
<PAGE>
of the rights, options, elections, powers and remedies reserved by Landlord
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Landlord shall specifically notify Tenant, in writing, to that effect. No such
reletting shall preclude Landlord from thereafter at any time terminating this
Lease as herein provided.
(vi) All fixtures, furnishings, goods, equipment, chattels
or other personal property of Lessee remaining on the Premises at the time that
Landlord takes possession thereof may at Landlord's election be stored at
Tenant's expense or sold or otherwise disposed of by Landlord in any manner
permitted by applicable law.
(vii) All rights, options, elections, powers and remedies of
Landlord under the provisions of this Lease are cumulative of each other and of
every other right, option, election, power or remedy which Landlord may
otherwise have at law or in equity and all or any of which Landlord is hereby
authorized to exercise. The exercise of one or more rights, options, elections,
powers or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies Landlord may have upon a breach and default
under this Lease and shall not be deemed to be a waiver of Landlord's rights or
remedies thereupon or to be a release of Tenant from Tenant's obligations
thereunder unless such waiver or release is expressed in writing and signed by
Landlord.
(c) Defaults by Landlord. Landlord shall not be in default under
--------------------
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 obligations; 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 if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
16. Security Deposit.
----------------
Landlord acknowledges receipt from Tenant of the amount of Forty
Thousand Dollars ($40,000) and, on or before the Commencement Date, Tenant shall
deposit with Landlord an additional Fifty Thousand Dollars ($50,000) as
-16-
<PAGE>
security for the performance by Tenant of its obligations hereunder. Landlord
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX of amounts due
Landlord from Tenant arising by virtue of the failure of Tenant to perform any
of its obligations hereunder. Except to the extent of such application, the
security deposit shall be returned to Tenant at the termination of this Lease.
In the event of any assignment of this Lease by Tenant (other than an assignment
to an entity controlled by, in control of, or under common control with Tenant)
the security deposit shall, as a condition to such assignment, be increased by
Fifty Thousand Dollars ($50,000).
17. Right of First Refusal.
----------------------
If, at any time during the term of this Lease, Landlord shall
receive a bona fide offer from any third person to purchase the Premises or
shall make a bona fide offer to any third person to sell the Premises, Landlord
shall in either event, prior to the execution of a contract with said third
person, serve upon the Tenant a notice (herein "Notice of Offer") in writing
describing in detail the terms of such offer and the intention of Landlord to
accept the same. The Tenant shall have the right for thirty (30) days thereafter
to notify Landlord, in writing, of its intent to purchase the Premises on the
terms and conditions set forth in the Notice of Offer. Tenant agrees that Tenant
shall, within fourteen (14) days from the date Tenant gives Landlord Tenant's
notice of intent to purchase, execute a contract to purchase the Premises upon
the terms and conditions set forth in the Notice of Offer. If Tenant shall not
within the thirty (30) day period elect to acquire the Premises upon the terms
and conditions set forth in the Notice of Offer, the Landlord may then sell the
Premises to said third person provided said sale is on the terms and conditions
and for the price set forth in the Notice of Offer. If Tenant fails to execute a
contract to purchase the Premises within fourteen (14) days following Tenant's
giving of its notice of intent to purchase to Landlord, then Landlord shall have
the same rights as if Tenant shall have not elected to acquire the Premises.
18. Miscellaneous.
-------------
(a) Estoppel Certificate.
--------------------
(i) Tenant shall at any time upon not less than ten (10)
days prior written notice from Landlord execute, acknowledge, and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
-17-
<PAGE>
full force and effect (or, if modified, stating that 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
acknowledging that there are not, to Tenant'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 any person to whom it
shall be delivered by Landlord including any prospective purchaser or
encumbrancer of the Premises or any part thereof.
(ii) Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant that this Lease is in full force and
effect, without modification except as may be represented by Landlord; that
there are no uncured defaults in Landlord's performance; and that not more than
one month's Rent has been paid in advance.
(iii) If Landlord desires to finance or refinance the
Premises, or any part thereof, Tenant hereby agrees to deliver to any lender
designated by Landlord such financial statements of Tenant as may be reasonably
required by such lender. Such statements shall include the past three years
financial statements of Tenant. All such financial statements shall be received
by Landlord in confidence and shall be used only for the purposes herein set
forth.
(b) Landlord's Liability. The term "Landlord" as used herein
--------------------
shall mean only the owner or owners at the time in question of the fee title (or
the lessee's interest in any ground or master lease) to the Premises and in the
event of any transfer of such title, Landlord herein named (and in case of any
subsequent transfers, the then grantor) shall be relieved from and after the
date of such transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hand of Landlord or
the then grantor at the time of such transfer in which Tenant has an interest
shall be delivered to the grantee. The obligation contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns only during their respective periods of ownership.
(c) Construction. Paragraph captions are solely for the
------------
convenience of the parties and shall not be deemed to or be used to define,
construe, or limit the terms hereof. As used in this Lease, the masculine,
feminine and neuter genders shall be deemed to include the others, and the
singular number shall be deemed to include the plural, whenever the context so
-18-
<PAGE>
requires. The invalidity of any provision of this Lease as determined by a court
of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
provision hereof. This Lease shall be governed by the laws of the State of
California.
(d) Interest on Past-due Obligations. Except as expressly herein
--------------------------------
provided, any amount due to Landlord not paid when due shall bear interest at
the lesser of (i) ten percent (10%) per annum or (ii) the maximum rate permitted
by law, from the date due until the date such amount is paid. Payment of such
interest shall be made when such amount is paid. Payment of such interest shall
not excuse or cure any default by Tenant under this Lease.
(e) Time of Essence. Time is of the essence of this Lease and
---------------
all of the covenants and obligations hereof.
(f) Counterparts. This Lease may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Lease.
(g) Incorporation of Prior Agreement; 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 the time of the modification.
(h) Notices. Any notices, approval, agreements, certificates,
-------
other documents or communications between the parties hereto required or
permitted under this Lease shall be in writing. Any such communications shall be
deemed to have been duly given or served if delivered in hand or forty-eight
(48) hours after deposit in the United States mail, certified or registered,
postage and fees prepaid, return receipt requested, addressed to the parties at
the addresses set forth in paragraph 1 of this Lease. The address to which any
such communications shall be sent may be changed by either party hereto from
time to time by a notice mailed as aforesaid.
(i) Waivers. No waiver by Landlord of any provision hereof shall
-------
be deemed a waiver of any other provision hereof or of any subsequent breach by
Tenant of the same or any other provision. Landlord's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of Rent
hereunder by Landlord shall not be a waiver of any preceding breach by Tenant
-19-
<PAGE>
of any provision hereof, other than the failure of Tenant to pay the particular
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
at the time of acceptance of such Rent.
(j) Recording. Tenant shall not record this Lease without
---------
Landlord's prior written consent and such recordation shall, at the option of
Landlord, constitute a non-curable default of Tenant hereunder. Landlord and
Tenant shall, upon the request of either party, execute, acknowledge and deliver
to the other a "short form" memorandum of this Lease for recording purposes.
(k) Holding Over. If Tenant remains in possession of the
------------
Premises or any part thereof after the expiration of the Term or sooner
termination of this Lease without the express written consent of Landlord, such
occupancy shall be a tenancy from month to month at a rental equal to one
hundred twenty percent (120%) of the last monthly Rent plus all other charges
payable hereunder, and upon all the terms hereof applicable to a month-to-month
tenancy.
(l) Covenants and Conditions. Each provision of this Lease
------------------------
performable by Tenant shall be deemed both a covenant and a condition.
(m) Binding Effect. Subject to any provisions hereof
--------------
restricting assignment or subletting by Tenant and subject to the provision of
subparagraph (b) above, this Lease shall bind the parties and their personal
representatives, successors and assigns.
(n) Subordination.
-------------
(i) 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 Premises, the
Property or the Improvements, or any part of parts thereof, and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any present or future
mortgagee, trustee or ground lessor shall at any time elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and written
notice of such election shall be given 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.
-20-
<PAGE>
(ii) Tenant agrees to execute any documents required to
??????????????????????????????????????????????????????????????????????????????
mortgage, dead of trust or ground lease, as the case may be, and failing to do
so within ten (10) days after written demand, 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.
(o) Attorneys' Fees. If either party brings an action to
---------------
enforce the terms hereof or declare right under this Lease, the prevailing party
in the final adjudication or any such action, on trial or appeal, shall be
entitled to its costs and expenses of suit, including, without limitation, its
actual attorneys' fees, to be paid by the losing party as fixed by the court.
(p) 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 or lenders.
Landlord may at any time during the last one hundred twenty (120) days of the
Term place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Tenant.
(q) Brokers and Finders. Landlord and Tenant agree that the
-------------------
execution of this Lease was not induced or procured through any person, firm or
corporation acting as a broker or finder other than the broker set forth in
paragraph 1 hereof, whose commission shall be the responsibility of the party
designated in paragraph 1. Each party agrees to hold the other harmless from any
loss, damage, or expense resulting from any claim by any other person, firm or
corporation based upon their having acted as a broker or finder for or in
connection with this transaction on behalf of such party.
(r) Financial Statements. Tenant shall, within thirty (30) days
--------------------
of filing, provide Landlord with copies of all financial statements which are
filed by Tenant with the State Health Department.
-21-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Lease as
of the date ?????????????????????????????
LANDLORD Jozef Nabel
/s/ Josef Nabel
-----------------------------------
Marie Gabrielle Nabel
/s/ Marie Gabrielle Nabel
-----------------------------------
TENANT Summit Care-California, Inc.
BY: /s/ William C. Scott
--------------------------------
Name: WILLIAM C. SCOTT
------------------------------
Title: PRESIDENT
-----------------------------
-22-
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
PARCEL 1:
Lots 20, 21, 22, 23, and 24, Block 6, Tract No. 7355, in the city of Los
Angeles, county of Los Angeles, state of California, as per may recorded in
Book 79 pages 48 and 49 of maps, in the office of the county recorder of said
county.
PARCEL 2:
Lot 9, Block 6, Tract 7355, in the city of Los Angeles, county of Los Angeles,
state of California, as per map recorder in Book 79 pages 48 and 49 of Maps,
in the office of the county recorder of said county.
EXPECT the northerly 48.70 feet thereof.
<PAGE>
GUARANTY
IN CONSIDERATION of the execution by Landlord of the foregoing
Lease with Summit Care-California, Inc., a subsidiary of Summit Health Ltd.
("Summit"), as Tenant, Summit does hereby guaranty to Landlord the full and
complete payment and performance by Tenant of all the provisions, conditions,
covenants and agreements contained in the Lease and does hereby waive all notice
of default, notice of acceptance of this guaranty by Landlord, and consents to
any amendment, revision or extension of time for performance under the Lease
agreed between Landlord and Tenant.
SUMMIT HEALTH LTD.
By: /s/ William C. Scott
--------------------------------
Name: WILLIAM C. SCOTT
------------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------
Date: May 8, 1987
<PAGE>
ASSIGNMENT OF LEASE
-------------------
This Assignment of Lease is entered into as of the 19th day of
September, 1980 by and between JACK SLOMOVIC and MIRIAM SLOMOVIC, husband and
wife ?? 9/21/80 (collectively, "Assignor") and SHARON CONVALESCENT HOSPITAL,
INC., a California corporation ("Assignee").
RECITALS
--------
A. Assignor is the lessee of certain premises located at 8167 West
3rd Street, Los Angeles, California 91342 and certain equipment and personal
property located thereon (collectively, the "Leased Premises") pursuant to an
Agreement of Lease dated January 16, 1966 and an addendum dated March 1, 1976
(collectively, the "Lease"), copies of which are attached hereto as Exhibit A,
---------
between Assignor as lessee and Jozef Nabel and Marie Nabel, as lessor (the
"Lessor").
B. Assignor desires to assign to Assignee all of its right, title
and interest in the Lease, and Assignee is desirous of accepting this
Assignment, all on the terms and conditions provided herein.
<PAGE>
Based on the foregoing, and consideration of the mutual promises
contained below, the parties hereto agree as follows:
1. Assignment
----------
a. Effective October 1, 1980, Assignor hereby assigns to
Assignee all of its right, title and interest as lessee in and under the Lease.
b. Assignee hereby accepts the foregoing assignment and agrees
to keep, perform and be bound by all of the terms, covenants and conditions in
the Lease to all intents and purposes as though Assignee were the original
lessee thereunder unless otherwise waived by Lessor.
2. Consideration. As consideration for this Assignment, Assignee
-------------
shall pay to Assignor, on the first day of each month, commencing October 1,
1980 and ending May 1, 1987, the sum of $4,300. In addition, Assignee shall pay
an additional $258 per month on the first day of October of each year commencing
October 1, 1981. For example, the monthly payments for the year from October 1,
1981 through September 30, 1982 shall be $4,558.
3. Lease Deposit. In addition to the amounts described in Section 2
-------------
of this Assignment, on October 1, 1980,
-2-
<PAGE>
Assignee shall deliver to Assignor a check in the amount of $20,000, which
together with the $20,000 previously paid to Assignor by Assignee, receipt of
which is hereby acknowledged, constitute reimbursement of the $40,000 security
deposit held by the Lessor. Assignee shall have all rights of the Assignor to
the $40,000 security deposit held by Lessor.
4. Relicensing. Assignee shall promptly apply for relicensing
-----------
of the Leased Premises as a skilled nursing facility in the name of the
Assignee.
5. Representations and Warranties of Assignor.
------------------------------------------
a. Assignor hereby warrants that the Leased Premises are
in compliance with all applicable state, federal and local ordinances, laws and
regulations, except as disclosed on Exhibit B hereto.
---------
b. Assignor warrants that all equipment and personal
property on the Leased Premises is properly functioning and can be used for the
purposes for which it is intended. Assignee shall inspect all such equipment and
personal property by October 1, 1980, and shall notify Assignor of any equipment
or personal property which is not properly functioning. Assignee may, at its
option, repair any such equipment or require Assignor to make such repairs; pro-
-3-
<PAGE>
vided, however, Assignor shall be liable only for repairs of which Assignor has
received notice on or before October 1, 1980. Any expenses incurred by Assignee
in repairing such equipment and personal property may be offset against the
payments due under Section 2 hereof. Assignee acknowledges that the personal
property on the Leased Premises was purchased from Assignor by Lessor pursuant
to an option dated March 1, 1976.
6. Representation and Warranty of Assignee. Assignee hereby
---------------------------------------
warrants that it is a corporation organized and existing under the laws of the
State of California with full power to enter into this Assignment.
7. Conditions to Effectiveness of Assignment. As a condition
-----------------------------------------
to the effectiveness of this Assignment and the assumption of the obligations
under the Lease by Assignee, the following conditions shall have been complied
with or waived in writing by Assignee:
a. Assignor shall obtain the consent of the Lessor to this
Assignment in the form attached hereto as Exhibit C.
---------
b. All equipment and personal property shall have been
inspected by Assignee and all necessary repairs shall
-4-
<PAGE>
have been made as provided in Section 5b of this Assignment.
8. Expenses, Liabilities and Receipts. Assignor shall be
----------------------------------
personally liable for and shall cause to be promptly paid any and all expenses
and liabilities incurred or accrued prior to October 1, 1980 in connection with
the Leased Premises and the operation of the convalescent hospital thereon.
Bills and other demands for payment of such expenses received by Assignee shall
be forwarded to Assignor for immediate payment. Any credits accruing to Assignor
prior to October 1, 1980, but received after such date shall belong to Assignor
and shall promptly be forwarded to Assignor by Assignee.
9. Notices. Any notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed to have been given,
if personally delivered, or four days after being placed in the United States
mail, registered or certified, postage prepaid, addressed as follows:
If to Assignor: Mr. Jack Slomovic
9911 W. Pico Blvd.
L.A. 90035, Calif. Suite 40
With a copy to: Saul Kreshek, Esq.
10880 Wilshire Blvd.
23rd Floor
Los Angeles, California 90024
-5-
<PAGE>
If to Assignee: Sharon Convalescent
Hospital, Inc.
4070 Laurel Canyon Boulevard
Studio City, California 91604
Attention: Thomas Konig
With a copy to: Kindel & Anderson
555 South Flower Street
26th Floor
Los Angeles, California 90071
Attention: Patricia T. Mulryan, Esq.
Each of the parties shall be entitled to specify a different
address within the State of California by giving notice as aforesaid.
10. Indemnity
---------
a. Assignor shall indemnify and hold harmless Assignee
from and against any claims, damages, injuries or liabilities asserted against
Assignee (including attorneys' fees and costs) by virtue of the operation of the
Leased Premises by Assignor prior to October 1, 1980, including without
limitation, creditors' claims, claims of vendors, mechanics lien claims, payroll
claims, claims by any tax authority, claims for patient trust funds, and other
liabilities incurred in operations of the Leased Premises, including without
limitation Medicare and Medi-Cal.
b. Assignee shall indemnify and hold harmless Assignor
from and against any and all claims, damages, injuries
-6-
<PAGE>
or liabilities asserted against Assignor (including attorneys fees and costs) by
virtue of Assignee's breach of the Lease or Assignee's operation of the Leased
Premises subsequent to October 1, 1980.
11. Entire Agreement. This Assignment and the documents
----------------
contemplated hereby constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification, waiver or termination of this Assignment
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Assignment shall be deemed or shall
constitute a waiver of any of the provisions hereof nor shall such waiver
constitute a continuing waiver unless otherwise specifically provided.
12. Successors and Assigns. All of the terms provisions and
----------------------
obligations of this Assignment shall be binding upon and shall enure to the
benefit of the parties hereto and respective heirs, representatives, successors
and assigns.
13. Governing Law. The parties hereby agree that the validity
-------------
construction and interpretation of this Assignment shall be governed by the laws
of the State of California.
-7-
<PAGE>
14. Headings. Section headings are not to be considered part of
--------
this Assignment and are included solely for convenience or reference and are not
intended to be full or accurate descriptions of the content thereof.
15. Attorneys' Fees. In the event any party takes legal action to
---------------
enforce any of the terms of this Assignment the unsuccessful party to such
action shall pay the successful parties costs and expenses, including attorneys'
fees incurred in such action.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
to be executed as of the date and year first above written.
/s/ Jack Slomovic
-----------------------------------
JACK SLOMOVIC
/s/ Miriam Slomovic
-----------------------------------
MIRIAM SLOMOVIC
SHARON, CONVALESCENT HOSPITAL, INC.
By /s/ William L. Pierpoint
--------------------------------
William L. Pierpoint,
President
By /s/ Thomas Konig
--------------------------------
Thomas Konig,
Vice President
-8-
<PAGE>
Summit Health Ltd. hereby guarantees the obligations of the Assignee
hereunder.
SUMMIT HEALTH LTD.
By /s/ William L. Pierpoint
----------------------------
William L. Pierpoint
By /s/ Thomas Konig
----------------------------
Thomas Konig
-9-
<PAGE>
EXHIBIT 10.10
LEASE
-----
This LEASE, executed in duplicate at Torrance, California, on August 18,
1964, Between Jack H. Cramer and Walter Lee Brown Jr., hereinafter called
Lessor, and Albert J. A1essandra, hereinafter called Lessee.
(1) That the Lessor, in consideration of the rents hereinafter reserved
and of the agreements, conditions, covenants and terms of the part of the Lessee
hereinafter contained, leases to the Lessee, and the Lessee takes and gires from
the Lessor for the purpose of a one hundred-six (106) bed nursing home and/or
convalescent hospital, or for such use or uses as a defined by written agreement
between Lessor and Lessee, the following property described (hereinafter
referred to as "the premises"), in the city of Torrance, County of Los Angeles,
State of California, generally known and described as follows:
Legal Description of Parcel "C" - That portion of Lots 65, 66, 82 and 83 of
Tract No. 2200, City of Torrance, County of Los Angeles, State of
California as per map recorded in Book 26, pages 19 AND 20 of Maps in the
office of the County Recorder of said County, described as follows:
Beginning at the Northwesterly corner of Lot l of Tract No. 22792 as per
map recorded in Book 701, Pages 84 to 89 of Maps, records of said County;
thence along the Northerly boundary of said Tract No. 22792, N. 89 Deg. 57
Min. 52 Sec. E., 280.97 feet; thence leaving said boundary line N.76 Deg 39
Min. 25 Sec. W., 3.09 feet; thence N. 0 Deg. 01 Min. 49 Sec. W., 161.96
feet; thence N. 76 Deg. 39 Min. 30 Sec. W., 270.86 feet more or less to a
point on the Easterly boundary of Maple Avenue, 80 feet wide, as shown on
map of said Tract 22792; thence along said Easterly boundary of Maple
Avenue S. 13 Deg. 20 Min. 30 Sec. W., 8.18 feet to the beginning of a
tangent curve concave Easterly and having a radius of 460.00 feet;
Northwesterly along said curve
<PAGE>
through a central angle of 13 Deg. 22 Min. 38 Sec., distance of 107.40 feet
to the end thereof, and S. 0 Deg. 02 Min. 08 Sec. E., 110.96 feet to the
point of beginning. Property is more commonly known as 22500 Block, Maple
Avenue, Torrance, California.
(2) The term of the lease shall be for ten (10) years, commencing on August
1, 1965, and ending on July 31, 1975, at a total rent of Five Hundred Seventy-
Two Thousand, Four Hundred ($572,400,000) Dollars, in lawful money of the United
States, payable to the Lessor in equal monthly installments of Four Thousand,
Two Hundred Forty ($4,240.00) Dollars in advance on the first day of each month
for the first five years of the lease term, and in equal monthly installments of
Five Thousand, Three Hundred ($5,300.00) Dollars per month from the Sixth thru
the Tenth years of the term of the lease herein, each in advance on the first
day of each month until said total rent of Five Hundred Seventy-Two Thousand,
Four Hundred ($572,400.00) Dollars shall be paid in full.
If Lessor, for any reason whatsoever, cannot deliver the possession of said
premises to Lessee at the commencement of said term, as hereinbefore specified,
this lease shall not be void or voidable, nor shall Lessor be liable to Lessee
for any loss or damage resulting therefrom; but in that event said term shall
commence from the time and when Lessor can deliver possession and the term of
this lease shall be extended by such delay. PROVIDED, HOWEVER, that in the event
said delay shall continue more than sixteen months after the execution, then the
herein lease shall be deemed cancelled unless the parties mutually agree in
writing to extend said commencement date to a date certain not to exceed three
months thereafter. Date of possession is to be established by recorded Notice of
Completion and Certificate of Occupancy issued by the Building Department of the
City of Torrance.
-2-
<PAGE>
The Lessee shall pay as advance rent the first three (3) months rent and
the last three (3) months rent amounting to Twenty-Eight Thousand, Six Hundred
Twenty ($28,620.00) Dollars payable as follows: Four Thousand, Two Hundred Forty
($4,240.00) Dollars upon the start of construction of herein said premises; and
Twenty Four Thousand Three Hundred Eighty ($24,380.00) Dollars upon the
completion of herein said premises.
(3) That the Lessee will not use, or permit to be used, and no use shall
be made, or permitted to be made, of said premises, nor acts done, which will
increase the hazard thereon nor shall the Lessee sell, or permit to be kept,
used or sold, in or about the said premises, any article which may be prohibited
by the standard form of fire insurance policies, or by law or ordinance.
Lessee shall insure under a policy or policies of extended coverage fire
insurance, policies in an amount equal to the sound insurable value thereof, the
premises demised herein. The Lessor and Lessee herein agree that the sound
insurable value is the sum of Three Hundred Twenty Nine Thousand ($329,000.00)
Dollars. In the event that Lessee shall fail or neglect to take out or maintain
said extended coverage fire insurance, Lessor may, but nothing herein contained
shall be deemed to create any obligation or liability on Lessors part so to do,
procure such insurance for such period as the Lessee shall fail or neglect so to
do, and shall have the right to charge Lessee for same, and upon demand Lessee
shall pay to Lessor the costs of obtaining said extended coverage fire
insurance. In case of loss by fire, the proceeds from the insurance will be used
to immediately replace the destroyed premises, and both Lessee and Lessor will
cooperate to effect the earliest possible reconstruction or the repair of the
damaged premises.
(4) Lessee shall pay for all water, gas, heat, light, power, telephone
service, and all other service supplied to the premises.
-3-
<PAGE>
(5) Excepting only the duty of the Lessor to care for maintain the roof,
Lessor shall have no duty; obligation or liability, whatsoever, to care for or
maintain the demised premises.
(6) That the Lessee shall not commit, or suffer to be committed, any waste
in, upon or about the said premises, or any other act or thing which may disturb
the quite enjoyment of any other Lessee.
(7) Lessee shall take care of demised premises and fixtures therein, and
shall make, at Lessee's sole cost and expense, as and when needed, as a result
of misuses and neglect by Lessee, all repairs in and about demised premises
necessary to preserve them in good repair, order and condition, which repairs
shall be, in quality and class to the original work. The Lessee shall not make,
or suffer to be made, any additions, alterations or changes of the said
premises, or any part thereof, without the written consent of the Lessor first
had and obtained.
(8) Any additions to or alterations of the said demised premises, except
moveable furniture and fixtures, shall become at once a part of the realty, and
belong to the Lessor, it is expressly agreed that any linoleum or rubber tile,
or other floor covering affixed to the floors by plaster, glue or cement or
mastic, and any wood flooring, paneling or other wall covering installed by the
Lessee shall become and remain a part of the leased premises and shall not be
removed by the Lessee at the end of his occupancy or otherwise, except upon the
written consent or order of the Lessor.
(9) Lessee shall pay all real estate taxes which shall, during the time of
this lease, be assessed against the demised premises. Lessee shall further pay,
in addition to all other sums, any assessments, general or specific, which may
become payable and which may be levied or assessed against the demised premises
during the term hereof. Lessee further agrees to pay all fees,
-4-
<PAGE>
?????????????????????????????????????????????????????????????????????????????
part thereof, or anything pertaining thereto, charge by any public authority
having jurisdiction over the demised premises.
(10) That Lessee will, at Lessee's sole cost and expense, faithfully
observe in the use of the premises, all the requirements of all Municipal,
State, Federal and other governmental authorities and shall observe and comply
with all laws, regulations and ordinances of such authorities, now in force, or
which may hereafter be in force.
(11) That Lessee, as material part of the consideration for the execution
of the herein lease, does hereby assume all risk of injury or damage to all
property or persons, including Lessee and Lessee's property and that Lessee will
hold the Lessor harmless from all liability, loss, cost and obligations arising
out of, or on account of any damage or injury caused by Lessee or any other
persons. Lessee further agrees to maintain and keep in force during the term of
the lease, at Lessee's expense, public liability insurance in the amount of Two
Hundred Thousand ($200,000.00) Dollars as to any one person, and Three Hundred
Thousand ($300,000.00) Dollars as to any two or more persons, and property
damage in the amount of Ten Thousand ($l0,000.00) Dollars.
(12) Lessee will not place, or permit to be placed, in, upon or about the
said premises, any sign visible from the exterior of said premises, without
Lessor's written approval.
(13) That Lessee will permit the Lessor and his agents to enter into and
upon said premises at all reasonable times for the purpose of inspecting same,
or for emergency purposes, or for the purpose of making repairs, alterations or
additions, or for the purpose of posting notices of non-responsibility, to any
portion of said building, without any rebate of rent to the Lessee for any loss
of occupancy or quite enjoyment of the premises thereby occasioned.
-5-
<PAGE>
(14) That on the last day of said term, ?? ?????? ???????? termination of
this lease, the Lessee wi11 peaceably and quietly leave, surrender and yield up
to the Lessor, all and singular, the said premises with the said appurtenances
in good order, condition and repair, reasonable wear, and tear excepted, and
Lessee will remove all fixtures and equipment which Lessee shall be entitled to
remove on or before the expiration or sooner termination of the herein lease.
(15) In the event that during the term hereby any alteration, addition, or
change or otherwise to the demised premises or any portion thereof be required
by law or regulation or rule, all thereof shall be made by Lessee's at Lessee
sole cost and expense.
(16) No default or breach of any covenant or condition on the part of
Lessor shall exist unless and until Lessee shall serve upon Lessor a written
notice, specifying with particularity wherein it is claimed that Lessor has
failed or omitted to perform or observe any covenant or condition on his part,
and the failure or omission on the part of Lessor to so perform within fifteen
(15) days after receipt by Lessor of said notice.
(17) Lessor represents and warrants unto Lessee that at the time of the
execution hereof the demised premises are zoned for the uses and purposes, as
hereinbefore in paragraph (1) provided, for which the demised premises are let
and demised to Lessee.
(18) Lessee shall not have any claim whatsoever against the Lessor for any
damages, nor shall Lessee be released or discharged from any of his obligations,
liabilities, or indebtedness hereunder, should the possession by Lessee of the
demised premises be disturbed or interfered with or affected in any manner
whatsoever, and irrespective of how cause or by whom, excepting only the
intentional, wrongful, affirmative, and wilful eviction of Lessee by Lessor.
-6-
<PAGE>
(19) Throughout this lease the word ????????????????????????????????????
sive with the phrase "right of eminent domain," i.e., the right of people or
government to take property for government use, and shall include the intention
to condemn expressed in writing as well as the filing of any action or
proceeding for condemnation.
In the event that any action or proceeding for condemnation is commenced,
in exercise of the right of eminent domain, of the demised premises or any
portion thereof, or if Lessor is advised in writing by any government, federal,
state or municipal, or agency or department or bureau thereof, or any entity or
body having the right or power of condemnation, of its intention to condemn the
or any portion of the demised premises, Lessee having the right of possession of
the demised premises at the time thereof, or if the demised premises or any part
or portion thereof be condemned through such action, then and in any of said
events:
(a) Lessor may, without any obligation or liability to Lessee and without
affecting the validity and existence of this lease other than as hereafter
expressly provided, agree to sell and/or convey to the condemnor, without first
requiring any action or proceeding be instituted, or, if such action or
proceeding shall have been instituted, without requiring any trial or hearing
hereof, and Lessor is expressly empower to stipulate to judgment therein, the
part and portion of the demised premises sought by the condemnor, free from this
lease and the rights of Lessee hereunder with and excepting only as hereinafter
in paragraph (b) provided.
(b) Lessee shall have no claim against Lessor nor be entitled to any part
or portion of the amount that may be paid or awarded as a result of the sale,
for the reasons as aforesaid, or condemnation of the demised premises or any
actual part or portion thereof, Lessee hereby assigning, transferring, and
setting over
-7-
<PAGE>
unto Lessor any interest, if any, which Lessee would but for this provision
????? ??? to, upon, or against the demised premises or any part of portion
thereof or the amount agreed to be paid and/or awarded and paid to Lessor
excepting only Lessee shall be entitled to seek to recover as against the
condemnor, and Lessor shall have no claim therefor or thereto, for Lessee's
trade fixtures and any removable structures and improvements erected and made by
Lessee to or upon the demised premises which Lessee is entitled to remove upon
expiration of the term hereof.
(20) Lessee shall have the reasonable right to assign this lease, or any
interest therein, and shall have the right to sublet the said premises or any
part thereof, or any right or privilege appurtenant thereto, or suffer any other
person, the agents and servants of Lessee excepted, to occupy or use the said
premises, or any portion thereof, with the written consent of Lessor first had
and obtained, and a consent to one assignment, subletting, occupation or use by
another person shall be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by another person. Any such assignment or
subletting without such consent shall be void, and shall, at the option of
Lessor, terminate the lease. This lease shall not, nor shall any interest
therein, be assignable, as to the interest of Lessee, by operation of law
without the written consent of Lessor.
(a) If Lessee be a partnership, a withdrawal or change, voluntary,
involuntary, by operation of law, or otherwise of any of the partners thereof,
or if Lessee be composed of more than one person, a purported assignment or
transfer, voluntary or involuntary, by operation of law, or otherwise from one
thereof unto the other or others thereof, or if Lessee be a corporation, a
change in the ownership, voluntary or involuntary, or by operation of law, or
otherwise, of thirty-three and one-third per cent (33-1/3%) or more of its
capital stock as owned as of the date
-8-
<PAGE>
of execution hereof, shall be deemed an assignment prohibited hereby unless the
written consent of Lessor be obtained thereto.
(21) Either (a) the appointment of a receiver to take the possession
of all or substantially all of the assets of Lessee, or (b) a general assignment
by Lessee for the benefit of creditors, or (c) any action taken or suffered by
Lessee under any insolvency or bankruptcy act shall ipso facto constitute a
breach of this lease by Lessee.
(22) In the event of any breach of this lease by Lessee, after
giving Lessee fifteen (15) days written notice of said breach, and Lessee within
said fifteen (15) days period having failed to remedy said breach, then Lessor
besides other rights of remedies he may have, 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 Lessee. Should Lessor elect to re-enter, as
herein provided, or should he take possession pursuant to legal proceedings or
pursuant to any notice provided for by law, he may either terminate this lease
or he may from time to time, without terminating this lease, re-let said
premises 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 Lessor in his sole discretion may deem
advisable with the right to make alterations and repairs to said premises; upon
each such re-letting (a) Lessee shall be immediately liable to pay to Lessor, in
addition to any indebtedness other than rent due hereunder, the cost and
expenses of such re-letting and of such alterations and repairs, incurred by
Lessor, and the amount, if any, by which the rent reserved in this lease for the
period of such re-letting exceeds the amount the Lessee agreed to be paid as
rent for the demised premises for such period of such re-letting; or (b) at
-9-
<PAGE>
the option of Lessor rents received by such Lessor from such re-letting shall be
applied; first, to the payment of any indebtedness, other than rent due
hereunder from Lessee to Lessor; second, to the payment of any costs and
expenses of such re-letting and of such alterations and repairs; third, to the
payment for rent due and unpaid hereunder and the residue, if any, shall be held
by Lessor and applied in payment of future rent as the same may become due and
payable hereunder. If Lessee has been credited with any rent to be received by
such re-letting under option (a), and such rent shall not be promptly paid
to Lessor by the new tenant, or if such rentals received from such re-letting
under option (b) during any month be less than that to be paid during that month
by Lessee hereunder, Lessee shall pay any such deficiency to Lessor. Such
deficiency shall be calculated and paid monthly. No such re-entry or taking
possession of said premises by Lessor shall be construed as an election on his
part to terminate this lease unless a written notice of such intention be given
to Lessee or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such re-letting without termination. Lessor
may at any time thereafter elect to terminate this lease for such previous
breach. Should Lessor at any time terminate this lease for such breach, in
addition to any other remedy he may have, he may recover from Lessee all damages
he may incur by reason of such breach, including the cost of recovering the
premises.
(23) That in case suit be brought by Lessor against Lessee for the breach
of any covenant or condition herein contained on the part of Lessee to be kept
or performed, the Lessor shall be entitled to recover, in addition to any other
damage suffered, reasonable attorney's fees and courts costs. Upon the filing
of any action for unlawful detainer, or any other action by the Lessor against
the Lessee under the terms ran of this lease, the
-10-
<PAGE>
court may appoint a receiver without notice to the Lessee to take possession of
said premises, remove the goods, chatters and fixtures of the Lessee therefrom
and conduct any other business therein, and collect any rent that may be or
become due from any subtenant, pay all operating and cost expenses, and hold the
balance, if any, during the pendency of said action.
(24) In the event that the premises shall be partially destroyed by fire,
earthquake or other casualty, or by the elements, the Lessor, shall have the
right to re-enter the demised premises and repair the same, provided such
repairs can be made within ninety (90) days of notice thereof to Lessor, and
such partial destruction shall in no wise annul or void this lease, except that
the Lessee shall be entitled to a proportionate deduction based upon the extent
to which the making of such repairs shall interfere with the business carried on
by the Lessee in said premises, but in no event to be more than the amount of
the monthly rental. In the event that repairs cannot be made within the said
ninety day period, this lease may be terminated at the option of either party.
Such period of ninety days shall be extended by any delay caused by strikes,
lockouts, lack of materials, acts of the Lessee, acts of God, fire or other
casualty. In respect to any partial destruction which the lessor is obligated to
repair under the terms of this paragraph, the provisions of (S)1932, subdivision
2, and (S)1933, subdivision 4, of the civil code of the State of California, are
hereby waived by the Lessee. A total destruction of the building in which the
said premises are situated shall terminate this lease.
(25) All notices to be served hereunder shall be served upon the Lessor,
care of Jack H. Cramer, 2780 Sepulveda Boulevard, in Torrance, California, and
upon Lessee at the address of Lessee's demised premises. Either party may
change said address of notice by notice in writing to the other.
-11-
<PAGE>
(26) Lessee is hereby granted an option to renew this lease for a further
period of ten (10) years from and after the expiration of the original term,
upon the same terms and conditions as herein contained, with the exception that
if Lessee elects to exercise the option to renew this lease, then and in that
event, the amount of rental shall be adjusted to an amount equivalent to the
increased percentage, if any, of the Living Cost Index, published by the United
States Bureau of Labor Statistics, Department of Labor, for the Los Angeles
County area, for the a period from August 1, 1965, to and including July 31,
1975. In no event, however shall the rental rate for the exercise for the option
to renew the lease for an additional ten year period be less than the sum of
Forty-Five ($45.00) Dollars per bed per month. Written notice of Lessee's
intention to renew this lease shall be given to Lessor at least sixty (60) days
prior to the expiration of this lease.
(27) Any holding over after the expiration of the said term, with the
consent of Lessor, shall be construed to be a tenancy room month to month, at a
rental of Forty-Five ($45.00) Dollars per bed per month, and shall otherwise be
on the terms and conditions herein specified, so far as applicable.
(28) This lease is subject to and valid upon Lessor's procurement of
financing and start of construction of herein said demised premises on of before
March 15, 1965.
(29) The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators, and assigns of all of the parties hereto; and all of the parties
hereto shall be jointly and severally liable ?????????????.
(30) Time is of essence in every case and instance as contained
in this agreement, including each and every term and condition as
herein contained in this agreement.
-12-
<PAGE>
IN WITNESS THEREOF, Lessor and Lessee have executed this lease on
August ??, ????.
/s/ Jack H. Cramer
---------------------------------------
JACK H. CRAMER, Lessor
/s/ Walter Lee Brown, Jr.
---------------------------------------
WALTER LEE BROWN JR., Lessor
/s/ Albert J. Alessandra
---------------------------------------
ALBERT J. ALESSANDRA, Lessee
-13-
<PAGE>
SECOND AMENDMENT TO AGREEMENT OF LEASE
--------------------------------------
AND RIGHT OF FIRST REFUSAL AND
------------------------------
ASSIGNMENT OF LEASE
-------------------
This "SECOND AMENDMENT TO AGREEMENT OF LEASE AND RIGHT OF FIRST REFUSAL
AND ASSIGNMENT OF LEASE" ("AMENDMENT") as entered into by JACK H. CRAMER and
WALTER LEE BROWN, JR. (LESSORS), ALJAR CORPORATION, a California corporation,
operating ROYALWOOD CONVALESCENT HOSPITAL ("OLD LESSEE"), and NATIONAL
ACCOMODATIONS, INC. ("NEW LESSEE").
RECITALS:
--------
This SECOND AMENDMENT is made with reference to the following facts:
A. On November 1, 1969, WALTER LEE BROWN, JR. and JACK CRAMER leased to
ALJAR CORPORATION, certain real property in the City of Torrance, California. (A
copy of said LEASE is attached hereto and made a part hereof as EXHIBIT "A").
B. On November 18, 1974, the aforesaid parties executed a document
amending said LEASE, entitled "AMENDMENT TO AGREEMENT OF LEASE AND RIGHT OF
FIRST REFUSAL" which is attached hereto and made a part hereof as EXHIBIT "B".
C. This SECOND AMENDMENT is entered into by the parties hereto in order
to further amend the terms of the LEASE as heretofore amended, and to substitute
NATIONAL ACCOMODATIONS, INC. as the new "LESSEE" for ALJAR CORPORATION, the "OLD
LESSEE", and to terminate all rights, duties and obligations of OLD LESSEE
under the LEASE as heretofore amended all effective on August 1, 1979.
Page One
<PAGE>
D. Except as specifically amended herein, all terms and conditions of
the LEASE (as previously amended) shall remain in full force and effect.
AMENDMENT:
---------
For and in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the parties hereto agree as follows:
1. The language contained in Paragraphs 2 and 26 is stricken and the
following language is substituted in its place:
"(2) The continued term of this LEASE shall commence on August 1, 1979
and end at midnight of October 31, 1994. LESSEE shall have the option to
extend this LEASE for an additional five (5) terms, each comprised of five (5)
years, under the same terms and conditions contained in this LEASE. Said option
shall be exercised in writing by giving LESSORS notice at least ninety (90) days
but not more than one hundred eighty (180) days prior to October 31, 1994.
From August 1, 1979 to and including November 30, 1984, the monthly
rent shall be Nine thousand four hundred ($9,400.00) Dollars, payable in advance
on the first (1st) day of each and every month. Upon the execution of this LEASE
by "NEW LESSEE", it (NEW LESSEE) shall deposit with LESSOR the additional sum of
Nine thousand four hundred ($9,400.00) Dollars to be held by LESSOR to assure
the faithful performance by the NEW LESSEE of the covenants and conditions of
this LEASE. Said sum will be returned to LESSEE at the end of the leasehold
period or end of the option period, if exercised, provided NEW LESSEE is not in
default of any of the provisions of this LEASE.
Page Two
<PAGE>
If NEW LESSEE is in default, LESSOR may retain that sum of money required to
compensate LESSOR for the damages resulting from said default and return the
balance remaining to NEW LESSEE.
Beginning on December 1, 1984, and through October, 1989, the monthly
rental shall be increased to reflect the greater of the following:
(a) Fifteen (15%) percent of the prior monthly rental ($9,400.00 plus
$1,410.00); or
(b) Fifty (50%) percent of the increase, if any, of the allowable Medi-
Cal rate using the base rate of $27.77 per patient day (the June 1979 rate) as
compared with the rate for November, 1984. By way of example, should the rate
increase by forty (40%) percent over the base rate, the monthly rental shall
increase by twenty (20%) percent over the prior month's rent ($9,400.00).
(c) The above formula for computing increases in rent shall be applied
to each successive five (5) year rental period including any option period
exercised to increase the rent by fifteen (15%) percent over the prior period's
rent or by applying fifty (50%) percent of the increase of the Medi-Cal rate
from June 1979 to the last months rent of the prior rental period, whichever is
greater.
Should the State of California discontinue the present program of
issuing a daily rate, or should it modify that program in any way, the increase
in rent shall be calculated to fairly reflect fifty (50%) percent of the
increase in reimbursement received by the NEW LESSEE from Medi-Cal or any
successor program."
2. Paragraph 32 (as set forth in the FIRST AMENDMENT) is stricken and
the following language is substituted:
Page Three
<PAGE>
"32". Excluded from the provisions of this LEASE, and not demised or
rented herewith to NEW LESSEE, is the property commonly described as 22510 Maple
Avenue, Torrance, California, including the building located thereupon and three
(3) parking stalls located behind said building. LESSOR shall have full and
complete use of the aforesaid, and shall not be required to pay any real
property taxes and related assessments due and payable thereon. Said taxes shall
be paid by NEW LESSEE.
3. Paragraph 3 of the LEASE (Page 2) is amended to change the insurable
value of the premises from $329,000.00 to $700,000.00.
4. Paragraph 11 of the LEASE is amended to change the public liability
insurance amounts to $250,000.00 as to any one (1) person, $400,000.00 as to
any two (2) or more persons, and property damage in the amount of $25,000.00.
5. A new Paragraph 33 shall be added to this LEASE to provide as
follows:
"NEW LESSEE agrees that if any lender, holder or proposed holder of a
note or other obligation secured or to be secured by a mortgage or a
deed of trust on the above premises, shall succeed to the interest of
the LESSOR in the above premises, whether such succession comes about as
a consequence of foreclosure of any such mortgage, sale under such deed
of trust, or otherwise, the NEW LESSEE, at the option of the lender,
will attorn to the lender under the above LEASE and will execute such
agreement of attornment as may reasonably be required by the lender
confirming such attornment including such agreement of attornment as may
be required by a new lender prior to making a loan.
Page Four
<PAGE>
In the event of such attornment, the LEASE shall continue in
effect, but the lender shall not be liable with respect to any matter
under the LEASE prior to the date of attornment, and from and after
such date the lender's liability under the LEASE shall be only in
privity of estate and not otherwise. On any transfer by the lender of
its interest after such attornment, the lender shall thereupon
automatically be released and discharged from all liability thereafter
accruing under the LEASE.
The agreements in favor of the lender as set forth above,
shall not only inure to its benefit but also to the benefit of any
assignee or successor of the lender, including any purchaser at a sale
in foreclosure. The NEW LESSEE makes the foregoing agreement well
knowing that a lender may rely on it in making any loan to be secured
by a mortgage or deed of trust on the above premises".
6. Paragraph (22) of the LEASE is amended to add the following
language:
In the event of default of payment of rent for a period of seven (7)
business days after written notice by LESSOR to LESSEE to pay all
arrearage and rent, LESSOR may, at his option, declare the LEASE
terminated and pursue all contractual and legal remedies to recover the
premises and for such damages, if any, resulting from the breach, as
set forth herein. In the event of any conflict between this paragraph
and the other provisions of this paragraph (22) of this LEASE, the
provisions of this paragraph shall control.
Page Five
<PAGE>
7. Paragraph (25) of the LEASE is amended in the following respect as
to the name and address for the giving of NOTICE to LESSEE:
"LESSEE:
NATIONAL ACCOMODATIONS, INC.
4070 Laurel Canyon Boulevard
Studio City, California
91604"
8. Paragraph (34) is added to the LEASE to read as follows:
"(34) LESSEE is granted the right to cancel this LEASE at any time
during its term upon the giving of ninety (90) days notice in writing
to LESSOR and the payments to LESSOR of a cancellation fee of
$250,000.00 in cash."
9. LESSOR agrees that NEW LESSEE is hereby substituted as LESSEE
under the LEASE, as amended herein, in place and stead of OLD LESSEE, effective
August 1, 1979, and releases fully OLD LESSEE from any rights, duties and
obligations under this LEASE, as amended, beginning August 1, 1979. NEW LESSEE
hereby agrees to become LESSEE under the LEASE, as amended, and to comply with
all terms and conditions of the LEASE, as amended, imposed upon LESSEE therein,
effective August 1, 1979.
10. Paragraph (20) of the LEASE is stricken and the following language
substituted:
"(20) LESSEE may not assign this LEASE nor sublet the premises without
the prior express written consent of the LESSOR. LESSOR shall not
unreasonably withhold its consent to a financially responsible person
or entity, but in the event of such assignment, LESSEE shall remain
liable for nonpayment of rent by any subsequent assignee unless
released therefrom in writing by LESSOR. Notwithstanding the above, NEW
LESSEE, as LESSEE has the
Page Six
<PAGE>
right to assign the LEASE, as amended, to a subsidiary corporation
of NEW LESSEE; but NEW LESSEE shall at all times be obligated to
perform the term hereof and to pay the rents provided for herein as
though no such assignment had been made by NEW LESSEE to its
subsidiary.
11. LESSOR and OLD LESSEE agree that NEW LESSEE has acquired all
right, title and interest in the furniture, fixtures and equipment, including
but not limited to dietary equipment, presently used or useful in the
operations of a 110-bed convalescent hospital in the said premises and that
NEW LESSEE has the sole and exclusive use of the name "ROYALWOOD CONVALESCENT
HOSPITAL" and the telephone number used with the telephone system in said
premises.
12. OLD LESSEE shall not manage, operate or otherwise engage in the
convalescent hospital business within a radius of twenty (20) miles from 22520
Maple Avenue, Torrance, California, without the written consent of NEW LESSEE.
13. For the sum of Ten ($10.00) Dollars and other valuable
consideration, receipt of which is hereby acknowledged, LESSOR agrees that
this AMENDMENT shall become effective on August 1, 1979, if, but only if, NEW
LESSEE and OLD LESSEE shall deliver to LESSOR a NOTICE signed by both of them
to that effect on or before August 1, 1979.
IN WITNESS WHEREOF, LESSOR, OLD LESSEE, and NEW LESSEE as LESSEE
have executed this AMENDMENT on July 10, 1979.
LESSORS:
/s/ Walter Lee Brown, Jr.
- -----------------------------
Walter Lee Brown, Jr.
/s/ Jack H. Cramer
- -----------------------------
Jack H. Cramer
Page Seven
<PAGE>
(NEW LESSEE) LESSEE:
NATIONAL ACCOMODATIONS, INC.
BY /s/ [SIGNATURE APPEARS HERE]
-------------------------------
/s/ [SIGNATURE APPEARS HERE]
- ----------------------------------
OLD LESSEE:
ALJAR CORPORATION
BY /s/ [SIGNATURE APPEARS HERE]
-------------------------------
/s/ [SIGNATURE APPEARS HERE]
- ----------------------------------
Page Eight
<PAGE>
SECOND AMENDMENT TO AGREEMENT OF LEASE
--------------------------------------
AND RIGHT OF FIRST REFUSAL AND
------------------------------
ASSIGNMENT OF LEASE
-------------------
This "SECOND AMENDMENT TO AGREEMENT OF LEASE AND RIGHT OF FIRST REFUSAL
AND ASSIGNMENT OF LEASE" ("AMENDMENT") is entered into by JACK H. CRAMER and
WALTER LEE BROWN, JR. (LESSORS), ALJAR CORPORATION, a California corporation,
operating ROYALWOOD CONVALESCENT HOSPITAL ("OLD LESSEE"), and NATIONAL
ACCOMODATIONS, INC. ("NEW LESSEE").
RECITALS:
--------
This SECOND AMENDMENT is made with reference to the following facts:
A. On November 1, 1969, WALTER LEE BROWN, JR. and JACK CRAMER leased
to ALJAR CORPORATION, certain real property in the City of Torrance, California.
(A copy of said LEASE is attached hereto and made a part hereof as EXHIBIT "A").
B. On November 18, 1974, the aforesaid parties executed a document
amending said LEASE, entitled "AMENDMENT TO AGREEMENT OF LEASE AND RIGHT OF
FIRST REFUSAL" which is attached hereto and made a part hereof as EXHIBIT "B".
C. This SECOND AMENDMENT is entered into by the parties hereto in
order to further amend the terms of LEASE as heretofore amended, and to
substitute NATIONAL ACCOMODATIONS, as the new "LESSEE' for ALJAR CORPORATION,
the "OLD LESSEE", and to terminate all rights, duties and obligations of OLD
LESSEE under the LEASE as heretofore amended all effective on August 1, 1979.
Page One
<PAGE>
D. Except as specifically amended herein, all terms and conditions of
the LEASE (as previously amended) shall remain in full force and effect.
AMENDMENT:
---------
For and in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the parties hereto agree as follows:
1. The language contained in Paragraphs 2 and 26 is stricken and the
following language is substituted in its place:
"(2) The continued term of this LEASE shall commence on August 1, 1979
and end at midnight of October 31, 1994. LESSEE shall have the option to extend
this LEASE for an additional five (5) terms, each comprised of five (5) years,
under the same terms and conditions contained in this LEASE. Said option shall
be exercised in writing by giving LESSORS notice at least ninety (90) days but
not more than one hundred eighty (180), days prior to October 31, 1994.
From August 1, 1979 to and including November 30, 1984, the monthly
rent shall be Nine thousand four hundred ($9,400.00) Dollars, payable in advance
on the first (1st) day of each and every month. Upon the execution of this LEASE
by "NEW LESSEE", it (NEW LESSEE) shall deposit with LESSOR the additional sum of
Nine thousand four hundred ($9,400.00) Dollars to be held by LESSOR to assure
the faithful performance by the NEW LESSEE of the covenants and conditions of
this LEASE. Said sum will be returned to LESSEE at the end of the leasehold
period or end of the option period, if exercised, provided NEW LESSEE is not in
default of any of the provisions of this LEASE.
Page Two
<PAGE>
If NEW LESSEE is in default, LESSOR may retain that sum of money required to
compensate LESSOR for the damages resulting from said default and return the
balance remaining to NEW LESSEE.
Beginning on December 1, 1984, and through October, 1989, the monthly
rental shall be increased to reflect the greater of the following:
(a) Fifteen (15%) percent of the prior monthly rental ($9,400.00 plus
$1,410.00); or
(b) Fifty (50%) percent of the increase, if any, of the allowable Medi-Cal
rate using the base rate of $27.77 per patient day (the June 1979 rate) as
compared with the rate for November, 1984. By way of example, should the rate
increase by forty (40%) percent over the base rate, the monthly rental shall
increase by twenty (20%) percent over the prior month's rent ($9,400.00).
(c) The above formula for computing increases in rent shall be applied to
each successive five (5) year rental period including any option period
exercised to increase the rent by fifteen (15%) percent over the prior period's
rent or by applying fifty (50%) percent of the increase of the Medi-Cal rate
from June 1979 to the last months rent of the prior rental period, whichever is
greater.
Should the State of California discontinue the present program of issuing a
daily rate, or should it modify that program in any way, the increase in rent
shall be calculated to fairly reflect fifty (50%) percent of the increase in
reimbursement received by the NEW LESSEE from Medi-Cal or any successor
program.
2. Paragraph 32 (as set forth in the FIRST AMENDMENT) is stricken and the
following language is substituted:
Page Three
<PAGE>
AMENDMENT TO
------------
RIGHT OF FIRST REFUSAL
----------------------
This Amendment is entered into by and between JACK H. CRAMER and WALTER LEE
BROWN, JR. ("LESSOR"), and ALJAR CORPORATION, a California corporation,
operating Royalwood Convalescent Hospital ("LESSEE").
Recitals
--------
1. This Amendment, executed at Torrance, California, on November 18, 1974,
amends and supercedes, effective November 1, 1974 to the extent recited herein,
that certain Agreement of Lease and Right of First Refusal executed on November
1, 1974, between LESSOR and LESSEE.
2. This Amendment is entered into by the parties hereto in order to resolve
certain disputes which have arisen concerning the Agreement of Lease and Right
of First Refusal, executed by the parties hereto on November 1, 1969.
Amendment
---------
1. Paragraph (1) is amended to exclude from the property let by LESSOR to
LESSEE that property commonly known as 2251 Maple Avenue in the City of
Torrance, County of Los Angeles, State of California, including the building
located thereupon and three (3) parking stalls located behind said building.
2. Paragraph (2) is amended to read as follows:
"(2) The term of the lease shall be twenty-five (25) years from
November 1, 1969 through and including October 31, 1994. Upon giving notice
thereof not more than twelve nor less than six months before the expiration
of that term of lease, LESSEE shall have the right of
-1-
<PAGE>
renewal for an additional twenty-five (25) years upon favorable ????????? terms
and conditions.
"The rental shall be $5,390.00 per month from November 1, 1969 through
October 31, 1974.
"The rental shall be $7,390.00 per month ("base rental") from November 1,
1974 through October 31, 1994, with cost of living increases over the base
rental commencing on November 1, 1979 and November 1, 1984, computed in the
manner provided in Paragraph (26).
"Any prepaid rentals previously paid by LESSEE to LESSOR shall be applied
with reference to the rental due hereunder."
3. Paragraph (26) is amended to read as follows:
"(26) Cost of living increases described in Paragraph (2) shall be computed
as follows based upon the Cost of Living Index, published by the United States
Bureau of Labor Statistics, Department of Labor, for the Los Angeles County
area.
"The base index shall be the index for October 1974.
"The cost of living increases, as of November 1, 1979 and November 1, 1984
respectively, to the base rental as defined in Paragraph (2) shall be computed
based on the percentage increase, if any, of the indexes for October 1979 and
October 1984 respectively over the base index.
"By way of example, if the index for October 1974 ("base index") were 107.5
and the index for October 1979 were 123.2, the monthly rental from November 1979
to October 1984 would be (123.2-107.5 x $7,390.00) + 107.5 $7,390.00 =
$8,469.28. Similarly, if the index for
-2-
<PAGE>
October 1984 were 139.7, the monthly rental from November 1984 to October 1994
inclusive would be
(139.7-107.5
------------ x $7,390.00) + $7,390.00 = $9,603.56.
107.5
"Since there is some delay in the issuance of the indexes by the
Department of Labor, the October 1979 and October 1984 indexes will not be
available as of November 1, 1979 and November 1, 1984 respectively. LESSOR and
LESSEE therefore agree that the rental increases as of November 1, 1979 and
November 1, 1984 shall initially be computed based on the percentage increase,
if any, of the latest available indexes as of those dates ("tentative indexes")
over the base index. Upon the release of the indexes for October 1979 and
October 1984, the rental increases shall be calculated based upon said indexes
as provided above; and the parties shall make any necessary adjustment,
retroactive to November 1, 1979 and November 1, 1984 respectively, to make the
rentals the same as they would have been if calculated based on the percentage
increases of the indexes for October 1979 and October 1984 respectively (rather
than the tentative indexes) over the base index. Such adjustment shall be made
within 10 days after written demand therefor stating the appropriate index and
the amount of adjustment. No interest shall be payable on any such adjustment.
"By way of example, if on November 1, 1979, the latest available index
was the index for July 1979 and such index were 121.2 and the index for October
1974 (base index) were 107.5, the monthly rental for each month from November
1979 through the month in which the October 1979 index was released would be
-3-
<PAGE>
(121.2-107.5
----------- x $7,390.00) + $7,390.00 = $8,33l.80.
107.5
If the October 1979 index were released in February 1980 and
were 123.2, and LESSOR thereupon made demand on LESSEE for the
adjustment, the adjustment would be payable in 10 days, being
equal to the difference in monthly rentals ($8,469.28 -
$8,331.80 = $137.48), computed using the October 1979 and July
1979 indexes respectively, and those computed using the
tentative indexes, times the number of months over which said
differential was payable (in this example, November 1979 through
February 1980 inclusive, equals four months) equals ($137.48 x
4) = $549.92."
4. A new paragraph 31 is added to the lease, to read as
follows:
"(31) LESSEE hereby waives all claims against LESSOR for
rent and taxes for the period prior to this Amendment, for the
property commonly known as 2251 Maple Avenue, City of Torrance,
County of Los Angeles, State of California, including the
building located thereupon and three (3) parking stalls located
behind said building.
5. A new paragraph 32 is added to the lease to read as follows:
"(32) LESSOR hereby agrees to procure a separate tax
bill for the property commonly known as 2251 Maple Avenue, City
of Torrance, County of Los Angeles, State of California,
including the building located thereupon and three (3) parking
stalls located behind said property. LESSOR agrees to pay all
real and personal property taxes becoming due and payable upon
said property after December 1, 1974, and to hold, LESSEE
harmless
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<PAGE>
from any claims for any taxes on said property due and payable
after the date hereof. There shall be no pro-ration upon any
taxes previously paid by LESSEE upon said property."
IN WITNESS WHEREOF, LESSOR and LESSEE have executed this
Amendment on November 18, 1974.
LESSOR:
---------------------------------------
Walter Lee Brown, Jr.
---------------------------------------
Jack H. Cramer
LESSEE: ALJAR CORPORATION
By
-------------------------------------
Joseph S. Steinberg,
Vice-President
---------------------------------------
Mildred Garcia,
Secretary-Treasurer
-5-
<PAGE>
EXHIBIT C
AMENDMENT TO LEASE
AND
RIGHT OF FIRST REFUSAL TO PURCHASE
This amendment is entered into by and between Walter Lee Brown, Jr. and
Jack H. Cramer Lessors, and Aljar Corporation, a California corporation, Lessee.
Recitals
--------
This amendment, executed at Torrance, California, on May 23, 1969, amends
and supersedes, to the extent recited herein, that certain lease executed on
August 18, 1964, between Jack H. Cramer and Walter Lee Brown, Jr., Lessors, and
Albert J. Alessandra, Lessee. The lease was subsequently assigned to Aljar
Corporation, a California corporation, dba Royalwood Convalescent Hospital in
Torrance, California, and amended on February 27, 1966. Said lease as assigned
and amended is referred to herein as "the lease".
Amendment
---------
1. With reference to paragraph (2), as amended:
(a) The term of the lease shall be twenty-five (25) years from the
effective date of this amendment; and, upon giving of notice thereof not more
than twelve nor less than six months before the expiration of that term of the
lease, lessee shall have the right of renewal for an additional twenty-five (25)
years upon equally favorable terms and conditions.
(b) The rental shall be $49.00 per bed, with cost of living increases in
the 5th and 15th years, computed in the manner provided in paragraph 26.
2. Paragraph (2) is amended to read as follows:
(20) This lease may be freely assigned, and the premises, or any part
thereof, may be freely sublet by lessee or any assignee, all without any consent
of lessors; provided,
<PAGE>
??????????? written notice of any assignment or sublease given to lessors; and
provided, further, that lessee and any assignee shall continue to be liable for
nonpayment of rent by any subsequent assignee unless released therefrom in
writing by lessors.
3. A new paragraph 31 is added to the lease, to read as follows:
(31) Lessee, or any assignee, shall have the right of first refusal to
purchase the real property described in paragraph (1), or any portion thereof,
upon equally favorable terms and conditions as may be available to any other
prospective purchaser (whether, technically, said purchaser is making an offer
or accepting an offer of lessors). Lessors shall give written notice to lessee
or assignee of all the terms of such prospective sale, and offer to sell to
lessee or assignee on those terms; and lessee or assignee shall have thirty (30)
days in which to accept that offer by giving notice to lessors of its acceptance
of that offer to purchase on those terms and conditions. Such notices may be
given by personal service or by registered mail, return receipt requested (which
shall be effective upon receipt by the person to whom addressed). If lessee or
assignee does not give such notice of acceptance within thirty (30) days after
receipt of lessors' offer, lessors may proceed to sell such property to any
third party but not on any more favorable terms or conditions than those set
forth in lessors' offer to lessee or assignee.
4. Any notices to be given under the lease as amended shall be in writing.
In lieu of personal service, such notices may be made by registered or certified
mail, return receipt requested, with postage fully prepaid, directed to the
following address or any other address hereafter specified in writing:
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<PAGE>
Lessors:
-------
Walter Lee Brown, Jr.
Jack H. Cramer
12007 Santa Monica Boulevard
W. Los Angeles, California
Lessee:
------
Aljar Corporation
c/o Associated Care Enterprises
1319 South Manhattan Place
Los Angeles, California
5. This amendment shall become effective upon the date of the
recordation of the lease and all amendments thereto with the County Recorder for
Los Angeles County.
6. Except as expressly or by implication inconsistent with this
amendment, the other provisions of the lease remain in full force and effect.
The parties intend that the lease may, at their convenience, be rewritten so as
to reflect all its terms in one instrument.
IN WITNESS WHEREOF, lessors and lessee have executed this
amendment on May 23, 1969.
LESSORS
- -------
/s/ Walter Lee Brown, Jr.
--------------------------------
Walter Lee Brown, Jr.
/s/ Jack H. Cramer
--------------------------------
Jack H. Cramer
LESSEE
- ------
ALJAR CORPORATION
By /s/ Jack H. Cramer
------------------------------
President
/s/ [ILLEGIBLE SIGNATURE]
--------------------------------
Secretary
-3-
<PAGE>
(Corporation)
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On May 23, 1969 before me, the undersigned, a Notary Public in and for said
State, personally appeared JACK H. CRAMER, known to me to be the ________
President, and CONSTANTINE FARMANS, known to me to be _________ Secretary of the
corporation that executed the within Instrument, known to me to be the persons
who executed the within Instrument on behalf of the corporation therein named,
and acknowledged to me that such corporation executed the within Instrument
pursuant to its by-laws or a resolution of its board of directors.
WITNESS my hand and official seal. [NOTARY SEAL APPEARS HERE]
Signature /s/ Bernard Levine -------------------------------------
--------------------- OFFICIAL SEAL
BERNARD LEVINE
Bernard Levine NOTARY PUBLIC CALIFORNIA
- ------------------------------- PRINCIPAL OFFICE IN
Name (Typed or Printed) LOS ANGELES COUNTY
My Commission Expires March 7, 1972
-------------------------------------
(This area for official notorial seal)
(Individual)
STATE OF CALIFORNIA )
) SS.
COUNTY OF Los Angeles )
On May 23, 1969, before me, the undersigned, a Notary Public in and for said
State, personally appeared Walter Lee Brown, Jr. and Jack H. Cramer known to me
to be the persons whose names are subscribed to the within instrument and
acknowledged that they executed the same.
WITNESS my hand and official seal. [NOTARY SEAL APPEARS HERE]
Signature /s/ Bernard Levine -------------------------------------
--------------------- OFFICIAL SEAL
BERNARD LEVINE
Bernard Levine NOTARY PUBLIC CALIFORNIA
- ------------------------------- PRINCIPAL OFFICE IN
Name (Typed or Printed) LOS ANGELES COUNTY
My Commission Expires March 7, 1972
-------------------------------------
(This area for official notorial seal)
-4-
<PAGE>
AMENDMENT TO THE
----------------
SECOND AMENDMENT TO AGREEMENT OF LEASE
--------------------------------------
AND RIGHT OF FIRST REFUSAL AND
------------------------------
ASSIGNMENT OF LEASE
-------------------
With reference to the name of NATIONAL ACCOMMODATIONS, INC., as of
July 1, 1979, NATIONAL ACCOMMODATIONS, INC. is now known as SUMMIT HEALTH Ltd.
/s/ Thomas Konig
- --------------------------------------------
Thomas Konig, President
Skilled Nursing & Hotel Divisions
<PAGE>
Exhibit 10.11
LEASE
SOUTH BAY SANITARIUM AND CONVALESCENT HOSPITAL,
A Partnership,
Landlord
GARNET CONVALESCENT HOSPITAL, INC.,
a California corporation, d.b.a.
BAY CREST CONVALESCENT HOSPITAL
Tenant
DATED: March 1, 1980
<PAGE>
2. Term. The term of this Lease (the "Lease Term") shall be for ten
----
(10) years expiring, unless sooner terminated, at midnight February 28, 1990.
The date on which this Lease commences is March 1, 1980.
3. Acceptance of Premises. Tenant acknowledges to Landlord that Tenant
----------------------
has inspected the Premises and all parts thereof and has reviewed all inspection
and other reports relating to the Premises supplied to Tenant by Landlord.
Tenant acknowledges to Landlord that Landlord has not made any representations
or warranties with respect to the condition of the Premises and its compliance
with any applicable state, federal or local ordinances, laws or regulations.
Based upon the above, Tenant agrees to accept possession of the Premises in its
"as-is, where-is" condition.
4. Rent
----
A. Tenant shall pay to Landlord Six Thousand Dollars ($6,000) per
month as initial minimum monthly rent, without deduction, set off, prior notice
or demand ("the Minimum Monthly Rent").
B. The Minimum Monthly Rent shall be increased at the rate of One
Hundred Dollars ($100) commencing on each March 1st during the Lease Term. For
example, the monthly rent for the second lease year shall be the sum of Six
Thousand One Hundred Dollars ($6,100), and the monthly rent for the third lease
year shall be the sum of Six Thousand Two Hundred Dollars ($6,200).
-2-
<PAGE>
C. In addition, if pursuant to the Medi-Ca1 Act of the State of California,
Tenant receives an increase of Eight Percent (8%) or more (excluding any amounts
allocated to a specific program or for reimbursement of specific items of cost
or expense) in any one year of the Lease Term in the daily bed rate applicable
to a 79-bed skilled nursing facility, Tenant shall pay as rent an additional One
Hundred Dollars ($100) per month. If such increase is received on or before July
31, Tenant shall pay the additional rent commencing the first day of the month
following the increase. If such increase is received after July 31 and before
March 1, Tenant shall pay the additional rent commencing the following March
1st.
D. The monthly rent payments shall be made on the first day of each month.
Landlord acknowledges it has received from Tenant Six Thousand Dollars ($6,000)
for the first month of the Lease Term.
E. All rent shall be paid to Landlord at the address to which notices to
Landlord are to be given.
F. Tenant acknowledges that late payment of rent by Tenant will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult and impracticable to fix. Such costs include,
without limitation, processing and accounting charges and late charges that may
be imposed on Landlord by the terms of any encumbrance and note secured by the
Premises. There-fore, Tenant shall pay to Landlord an additional sum of five
percent (5%) of the overdue rent as a late charge. The parties agree that this
late charge represents a fair and
-3-
<PAGE>
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. This late charge shall be in lieu of any recovery for actual
damages suffered by Landlord due to the late payment of rent. Acceptance of any
late charge shall not constitute a waiver of Tenant's default with respect to
the overdue amount, nor prevent Landlord from exercising any of the other rights
and remedies available to Landlord hereunder. No late charge shall accrue unless
and until Tenant is in default as provided in paragraph 13 hereof.
G. The rent shall be in addition to and over and above all other
payments to be made by Tenant as hereinafter provided. It is the purpose and
intent of Landlord and Tenant that the rent shall be absolutely net to Landlord
so that this Lease shall yield net to Landlord the rent specified above in each
month during the Lease Term. Excluding secured obligations of Landlord affecting
the Premises and Personal Property, and except as otherwise provided in this
Lease, all costs, expenses and obligations of every kind and nature whatsoever
relating to the Premises and Personal Property which may arise or become due
during or out of the Lease Term shall be paid by Tenant and Landlord shall be
indemnified and saved harmless by Tenant from and against the same.
5. Security Deposit. On or before May 30, 1980, Tenant shall deposit
----------------
with Landlord the sum of Ten Thousand Dollars ($10,000), which shall serve as a
security deposit for the performance of Tenant's obligations hereunder. If
Tenant is in default under any provision of this Lease, Land-
-4-
<PAGE>
lord may use the security deposit, or any portion of it, to cure the default or
to compensate Landlord for any damage sustained by Landlord resulting from
Tenant's default. Tenant shall within five (5) days after notice and demand, pay
the Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord as provided in this paragraph so as to maintain the security
deposit at the level set forth above. If Tenant is not in default at the
expiration or termination of this Lease, Landlord shall return the security
deposit to Tenant within ten (10) days of such expiration or termination.
Landlord's obligations with respect to the security deposit are those of a
debtor and not a trustee. Landlord may maintain the security deposit separate
and apart from Landlord's general funds, or may commingle the security deposit
with Landlord's general and other funds. Landlord shall not be required to pay
Tenant interest on the security deposit.
6. Taxes and Assessments
---------------------
A. Tenant shall pay before delinquency all taxes, assessments,
license fees and other charges ("Personal Property Taxes") that are levied and
assessed against the Personal Property and all personal property of Tenant
located on the Premises which become payable during the Lease Term.
B. Tenant shall pay all real property taxes and general and special
assessments ("Real Property Taxes") levied and assessed against the Premises
during the Lease Term.
-5-
<PAGE>
C. Landlord shall use its best efforts to cause all tax bills to be sent
directly to Tenant from the tax collector. Should Landlord not be able to make
such arrangements, Landlord shall each year notify Tenant of the Real Property
Taxes and Personal Property Taxes, and immediately on receipt of the tax bill(s)
shall furnish Tenant with a copy thereof. Tenant shall pay the respective taxes
not later than five (5) days before the taxing authority's delinquency date as
to each installment, and shall promptly furnish Landlord with satisfactory
evidence of such payments.
D. Tenant's liability to pay Real and Personal Property Taxes shall be
prorated on the basis of a 365-day year to account for any fractional portion of
a fiscal tax year included in the Lease Term at its commencement or expiration.
E. Tenant at its cost shall have the right, at any time, to seek a
reduction in the assessed valuation of the Premises or to contest any Real or
Personal Property Taxes that are to be paid by Tenant. If Tenant seeks a
reduction or contests the Real or Personal Property Taxes, the failure on
Tenant's part to pay the Real or Personal Property Taxes shall not constitute a
default as long as Tenant complies with the provisions of this subparagraph E.
(1) Landlord shall not be required to join in any proceeding or contest
brought by Tenant pursuant to this subparagraph E unless the provisions of any
law require that the proceeding or contest be brought by or in the name
-6-
<PAGE>
of Landlord or any owner of the Premises. In that case, Landlord shall join in
the proceeding or contest or permit it to be brought in Landlord's name as long
as Landlord is not required to bear any cost. Tenant, on final determination of
the proceeding or contest, shall immediately pay or discharge any decision or
judgment rendered, together with all costs, charges, interest and penalties
incidental to the decision or judgment.
(2) If Tenant does not pay the Real or Personal Property Taxes when
due and Tenant seeks a reduction or contests them as provided in this
subparagraph E, before the commencement of the proceeding or contest Tenant
shall furnish to Landlord a surety bond equal to one hundred twenty-five percent
(125%) of the total amount of Real or Personal Property Taxes in dispute. The
bond shall hold Landlord, the Premises and the Personal Property harmless from
any damage arising out of the proceeding or contest and shall insure the payment
of any judgment that may be rendered. In lieu of a surety bond, Tenant may
provide other security satisfactory to Landlord, in Landlord's reasonable
discretion.
F. Tenant shall, in addition to all other sums, pay all fees for
inspection and examination of the Premises during the Lease Term charged by any
public authority having jurisdiction over the Premises. In addition, Tenant
shall reimburse Landlord for any and all business taxes imposed upon Landlord by
the State of California and/or any political subdivision thereof, including
taxes which are based on or measured, in whole or in part, by rents received or
other amounts charged by Landlord under this Lease; pro-
-7-
<PAGE>
- -ivided, however, that Tenant shall only be responsible for the amount of such
business tax actually paid by Landlord. Tenant shall not be required to pay any
municipal, county, state or federal income or franchise taxes of Landlord, or
any municipal, county, state or federal estate, succession, inheritance or
transfer taxes of Landlord.
G. As used herein, Real Property Tax shall include any form of assessment,
license fee, license tax, business license fee, business license tax, commercial
rental tax, levy, charge, penalty tax or similar imposition imposed by any
authority having the direct power to tax, including any city, county, state or
federal government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof, as against any legal or
equitable interest of Landlord in the Premises, including but not limited to the
following:
(a) any tax on Landlord's right to rent or other income from the
premises or as against Landlord's business of leasing the Premises;
(b) any assessment, tax, fee, levy or charge in substitution, partially
or totally, of any assessment, tax, fee, levy or charge previously included
within the definition of Real Property Tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June 1978 election and that assessment, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants;
-8-
<PAGE>
(c) any assessment, tax, fee, levy or charge measured by the area of
the Premises or the rent payable hereunder, including without limitation, any
gross income tax or excise tax levied by the state, city or federal government,
or any political subdivision thereof, upon or with respect to the possession,
operating, management, maintenance, alteration, repair, use or by Tenant of the
Premises, or any portion thereof; and
(d) any assessment, tax, fee, levy or charge, upon this transaction
or any document to which Tenant is a party, creating or transferring an interest
or an estate in the premises. "Real Property Tax" shall not include without
limitation Landlord's federal, state or local income, franchise, inheritance or
estate taxes.
7. Use
---
A. Tenant shall use the Premises for a licensed skilled nursing facility
and for no other use without Landlord's consent, which consent shall not be
unreasonably withheld.
B. Tenant's use of the Premises as provided in this Lease shall be in
accordance with the following:
(1) Tenant shall not do, bring or keep anything on or about the
Premises that will cause a cancellation of any insurance covering the Premises.
(2) Tenant shall cause the Premises to be and remain licensed as
provided in paragraph 28 hereof. Tenant shall cause the Premises to conform to
the requirements
-9-
<PAGE>
and provisions of all applicable laws, rules, regulations and ordinances
concerning the Premises or Tenant's use of the Premises, including without
limitation, the obligation at Tenant's cost to alter, maintain or restore the
Premises in compliance and conformity with all laws relating to the condition,
use or occupancy of the Premises during the Lease Term. Tenant shall make
available for the inspection of Landlord copies of all inspection reports by
applicable governmental agencies and/or their intermediaries together with
Tenant's plan of correction (where applicable) as to each such report.
(3) Tenant shall not use the Premises in any manner that will continuously
constitute a waste, nuisance or unreasonable annoyance to owners or occupants of
adjacent properties, other than those incidental to the normal operation of a
skilled nursing facility.
(4) Tenant shall not do anything on the Premises that will cause damage to
the Premises. No machinery, apparatus or other appliance shall be used or
operated in or on the Premises that will in any manner injure, vibrate or shake
the Premises.
(5) Tenant shall make all payrolls promptly when due, respecting all
personnel at the Premises, and shall file all payroll tax returns and pay such
taxes promptly and before delinquency.
-10-
<PAGE>
8. Maintenance
-----------
A. Except as expressly provided otherwise in this Lease, Tenant shall,
at its sole cost and expense, maintain the Premises including the building and
improvements thereon, walls and plumbing, the parking area and service areas,
the approaches thereto and appurtenances thereof (including all adjacent
sidewalks), but excluding the roof, in good order and repair during the Lease
Term. Landlord shall be responsible for and bear all expenses associated with
repair and maintenance of the roof on the Premises. Otherwise, Landlord shall
not have any responsibility to maintain the Premises. Tenant waives the
provisions of California Civil Code Sections 1941 and 1942 with respect to
Landlord's obligation for tenantability of the Premises and Tenant's right to
make repairs and deduct the expenses of such repairs from rent, except with
respect to expenses incurred in connection with repair or maintenance of the
roof.
B. Tenant shall, at its sole cost and expense, during the Lease Term,
keep and maintain the Personal Property in good order and repair. Tenant shall
have the right to install on the Premises any and all equipment and fixtures
Tenant may desire which are necessary or convenient to Tenant's use of the
Premises as a skilled nursing facility. All such property (other than
replacements for the Personal Property as provided below and other than
equipment and furniture installed by Tenant which are required to comply with
state and federal licensing requirements for a skilled nursing facility) shall
be and remain Tenant's property. Tenant shall not remove the Personal Property
or any part
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<PAGE>
thereof from the Premises without the prior written consent of Landlord. Tenant
shall replace, at Tenant's expense, with suitable substitutes any worn out or
broken items of the Personal Property, as the same may occur from time to time
throughout the Lease Term. Items so replaced by Tenant shall become the property
of Landlord. Tenant agrees, upon written request from Landlord, to execute for
filing a Form UCC-l Financing Statement listing Tenant as "debtor" and Landlord
as "secured party" with respect to the Personal Property.
9. Alterations. Tenant shall not make any structural alterations to the
-----------
Premises without Landlord's prior consent, which consent shall not be
unreasonably withheld. Any structural alterations made shall remain on and be
surrendered with the Premises on expiration or termination of the Lease. If
Tenant makes any structural alterations to the Premises as provided in this
paragraph, the alterations shall not be commenced until fifteen (15) days after
Landlord has received notice from Tenant stating the date alteration is to
commence to enable Landlord to post and record an appropriate notice of
nonresponsibility.
10. Mechanic's Liens. Tenant shall pay all costs of construction done
----------------
by it or caused to be done by it on the Premises as permitted by this Lease.
Tenant shall keep the Premises free and clear of all mechanics' liens resulting
from construction done by or for Tenant. Tenant shall have the right to contest
the correctness or the validity of any such lien if, within thirty (30) days of
a demand by Landlord, Tenant procures and records a lien release bond in an
amount
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<PAGE>
equal to one and one-half times the amount of the claim of lien. The bond shall
meet the requirements of California Civil Code Section 3143 or any successor
statutes thereto and shall provide for the payment of any sum that the claimant
may recover on the claim (together with any costs of suit awarded). Tenant shall
not be required to procure such a bond if the claim of lien is for an amount
less than Five Thousand Dollars ($5,000);
11. Utilities and Services. Tenant shall make all arrangements for and
----------------------
pay for all utilities and services furnished to or used by it, including without
limitation, gas, electricity, water, telephone service and trash collection, and
all connection charges.
12. Indemnity and Exculpation
-------------------------
A. Landlord and Tenant expressly acknowledge that this is a new
Lease for the Premises and that Tenant shall be liable only for costs, expenses
and other liabilities incurred in connection with the Premises on or after March
1, 1980.
B. This Lease is made upon the express condition that Landlord is
to be free from all liability and claims for damages, except for breach of this
Lease by Landlord or its willful or negligent conduct or omission, by reason of
any injury to any person or persons, including Tenant, or property of any kind
whatsoever and to whomsoever belonging, including Tenant, from any cause or
causes, while in, upon or in any way connected with the Premises and all
portions thereof,
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<PAGE>
the sidewalks adjacent thereto and the Personal Property during the Lease Term
or occupancy by Tenant. Subject to the terms of this Lease, and except for
breach of this Lease by Landlord or its willful or negligent conduct or
omission, Tenant hereby agrees, during the Lease Term to indemnify and save
Landlord harmless from and against any and all claims, demands, obligations,
liabilities and cause(s) of action by reason of the condition, the use or misuse
of the Personal Property and/or the condition of the Premises and the approaches
and appurtenances thereto, including all adjacent sidewalks, alleys and the
parking areas.
C. Tenant hereby agrees that Landlord shall not be liable, except for
Landlord's breach of this Lease or its willful or negligent conduct or omission,
for injury to Tenant's business, any loss of income therefrom or for damages to
the goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, patients, customers or any other person in or about the Premises, nor
shall Landlord be liable, except for Landlord's breach of this Lease or its
willful or negligent conduct or omission, for injury to the person of Tenant,
Tenant's employees, agents, invitees or patients, whether such damage or injury
is caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defect of the pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
of the same, or from any other cause, whether such damage or injury results from
conditions arising upon the Premises or elsewhere and regardless of whether the
cause
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of such damage or injury or the means of repairing the same is inaccessible to
Tenant.
13. Insurance
---------
A. Tenant at its cost shall take out and keep in force during the
Lease Term, public liability and property damage insurance, malpractice
insurance and owned and non-owned automobile liability insurance in an amount
not less than Five Hundred Thousand Dollars ($500,000) combined single limits,
insuring against all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the Premises,
and insuring Landlord with respect to the ownership, maintenance, operation and
use or occupancy of the Premises, including the sole negligence and strict
liability of Landlord. All such insurance shall insure performance by Tenant of
the indemnity provisions of this Lease. Both parties shall be named as
additional insureds, and the policy shall contain cross-liability (if readily
obtainable in the market), personal injury and contractual liability
endorsements.
B. Not more frequently than each two (2) years of the Lease Term,
if, in the opinion of an independent licensed insurance consultant chosen by the
mutual consent of the parties, the amount of public liability and property
damage insurance coverage at that time is not adequate, Tenant shall increase
the insurance coverage as determined by such independent consultant.
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<PAGE>
C. Tenant at its cost shall maintain on all Tenant's personal property,
improvements and alterations, in, on or about the Premises, a policy of standard
fire and extended coverage insurance, with vandalism and malicious mischief
endorsements, to the extent of at least one hundred percent (100%) of their full
replacement value. The proceeds from any such policy shall be used by Tenant for
the replacement of such personal property or the restoration of Tenant's
improvements or alterations.
D. Tenant at its cost shall maintain on all the Personal Property, and all
replacements therefor, and on the building and other improvements that are a
part of the Premises, during the Lease Term, a policy or policies of fire
insurance with vandalism and malicious mischief special extended coverage (not
applicable to Personal Property), sprinkler leakage and earthquake sprinkler
leakage endorsements. The property to be insured under this paragraph shall be
continually insured to value (not less than ninety percent (90%) average clause,
twenty-five percent (25%) for sprinkler leakage and earthquake sprinkler
leakage), and the policy or policies shall be written to provide replacement
cost insurance. The insurance policy or policies shall be issued in the names of
Landlord, Landlord's lender and Tenant as their interests appear. In the event
this Lease is terminated, the insurance policy and all rights under it or the
insurance proceeds shall be assigned to Landlord at Landlord's election, and
Tenant shall be credited with pro rata returned premiums and dividends. Tenant
shall pay the premiums for maintaining the insurance required hereunder while
the Lease is in force, so long as Tenant remains in possession of the Premises.
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<PAGE>
E. In order to assure that the building and other improvements to
be insured hereunder are continually insured to value with replacement cost
insurance, the full replacement value of the insurable improvements shall be
determined by the company issuing the insurance policy at the time the policy is
initially obtained. Not more frequently than once every three (3) years of the
Lease Term either party shall have the right to notify the other party that it
elects to have the replacement value redetermined by an insurance company, or by
appraisal. The redetermination shall be made promptly and in accordance with the
rules and practices of the Board of Fire Underwriters, or a like board
recognized and generally accepted by the insurance industry, and each party
shall be promptly notified of the results by the company. The insurance policy
shall be adjusted according to the determination.
If the insurance company refuses to redetermine value upon request, the
parties shall engage a qualified appraiser to determine full replacement value
of the insurable improvements, the cost of which shall be paid by Tenant.
F. All insurance and bonds required under this Lease shall:
(1) Be issued by insurance companies authorized to do business
in the State of California, with a policyholders and financial rating of at
least A: Class XI status as rated in the most recent edition of Best's Key-
Rating Guide;
<PAGE>
(2) Be issued as a primary policy; however, Tenant may carry the
insurance under blanket policy if the policy specifically provides that the
amount of insurance required under this Lease will be in no way prejudiced by
other losses covered by the policy; and
(3) Contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties and Landlord's lender before
cancellation or change in the coverage, scope or amount of any policy; but if
not obtainable, ten (10) days' notice shall be acceptable.
G. Each policy, or a certificate of the policy together with evidence
of payment of premiums, shall be deposited with Landlord upon execution of this
Lease, and on renewal of the policy not less than twenty (20) days before
expiration of the term of the policy.
H. Deductible provisions contained in any insurance policy required by
this Lease shall be for the account of and payable by Tenant.
14. Destruction
-----------
A. If, during the Lease Term, the Premises are totally or partially
destroyed, rendering the Premises totally or partially inaccessible or unusable,
Tenant shall restore the Premises to substantially the same condition as they
were in immediately before destruction, whether or not (if any), the insurance
proceeds/are sufficient to cover the actual cost
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<PAGE>
of restoration. Such destruction shall not terminate this Lease. If the existing
laws do not permit the restoration, either party may terminate this Lease
immediately by giving notice to the other party.
B. If, during the term, the Premises are destroyed from a risk covered by
insurance, and the total amount of loss does not exceed Ten Thousand Dollars
($10,000), Tenant shall make the loss adjustment with the insurance company
insuring the loss. The proceeds shall be paid directly to Tenant for the sole
purpose of making the restoration of the Premises in accordance with this
paragraph.
C. If, during the term, the Premises are destroyed from a risk covered by
insurance, and the total amount of loss exceeds Ten Thousand Dollars ($10,000),
Tenant shall, with Landlord's approval, make the loss adjustment with the
insurance company insuring the loss, and on receipt of the proceeds, the parties
shall immediately on receipt pay the proceeds to a company furnishing
construction disbursement control services acceptable to the parties ("insurance
trustee") to act as insurance trustee hereunder.
D. If the Premises are destroyed from a risk not covered by insurance,
Tenant shall deposit with the insurance trustee the sum necessary for
restoration.
E. All sums deposited with the insurance trustee (including insurance
proceeds) shall be held for the
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<PAGE>
following purposes and the insurance trustee shall have the following powers and
duties:
(1) The sums shall be paid in installment by the insurance trustee to the
contractor retained by Tenant as construction progresses, for payment of the
cost of restoration. A ten percent (10%) retention fund shall be established to
be paid to the contractor on completion of restoration, payment of all costs,
expiration of all applicable lien periods and proof that the Premises are free
of all mechanics' liens and lienable claims.
(2) Payments shall be made on presentation of certificates or vouchers from
the architect, engineer or other inspection agency retained by the insurance
trustee or Tenant showing the amount due. If the insurance trustee, or Landlord,
in its reasonable discretion, determines that the certificates or vouchers are
being improperly approved, either shall have the right to appoint an architect,
engineer or inspection agency to supervise construction and to make payments on
certificates or vouchers approved by such person. The reasonable expenses and
charges of the person retained by the Landlord or insurance trustee shall be
paid out of the trust fund.
(3) If after deposit by the parties of all sums required by this paragraph,
the sums held by the insurance trustee are not sufficient to pay the actual cost
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<PAGE>
of restoration, Tenant shall deposit the amount of the deficiency with the
insurance trustee within twenty (20) days after request by the insurance trustee
indicating the amount of the deficiency.
(4) Insurance proceeds not disbursed by the insurance trustee after
restoration has been completed and final payment has been made to Tenant's
contractor shall be delivered within fifteen (15) days to Tenant;
(5) If the insurance trustee resigns or for any reason is unwilling to
act or continue to act, Landlord shall substitute a new trustee in the place of
the designated insurance trustee. The new trustee shall be a company engaged in
the business of construction disbursement control or a trust company doing
business in the county of Los Angeles.
F. Promptly following the date on which Tenant is obligated to
restore the Premises, Tenant at its cost shall prepare final plans and
specifications and working drawings complying with applicable laws that will be
necessary for restoration of the Premises. The plans and specifications and
working drawings shall be subject to approval by Landlord. Landlord shall have
thirty (30) days after receipt of the plans and specifications and working
drawings to either approve or disapprove the plans and specifications and
working drawings and return them to Tenant. If Landlord disapproves the plans
and specifications and working drawings, Landlord shall notify Tenant of its
objections and Landlord's proposed
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<PAGE>
solution to each objection. Tenant acknowledges that the plans and
specifications and working drawings shall be subject to approval of the
appropriate government bodies and that they will be prepared in such a manner as
to obtain that approval.
G. The restoration shall be accomplished as follows:
(1) Tenant shall complete the restoration as promptly as possible after
final plans and specifications and working drawings have been approved by the
appropriate government bodies and all required permits have been obtained
(subject to a reasonable extension for delays resulting from causes beyond
Tenant's reasonable control).
(2) Tenant shall retain a licensed contractor that is bondable. The
contractor shall be required to carry public liability and property damage
insurance, standard fire and extended coverage insurance, with vandalism and
malicious mischief endorsements, during the period of construction.
(3) Tenant shall notify Landlord of the date of commencement of the
restoration at least fifteen (15) days prior thereto to enable Landlord to post
and record notices of nonresponsibility. The contractor retained by Tenant shall
not commence construction until a completion bond and a labor and materials bond
have been delivered to Landlord to insure completion of the construction.
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<PAGE>
(4) Tenant shall accomplish the restoration in a manner which will
cause the least inconvenience, annoyance and disruption of the Premises.
(5) On completion of the restoration Tenant shall immediately record a
notice of completion in the county in which the Premises are located.
(6) The restoration shall not be commenced until sums sufficient to
cover the cost of restoration are placed with the insurance trustee as provided
in this paragraph.
H. In case of damage or destruction, there shall be no abatement or
reduction of rent, except as expressly provided in this Lease.
I. If the Premises are damaged or destroyed during the last year of the
Lease Term, and the cost of restoration exceeds Twenty Five Thousand Dollars
($25,000), either party may terminate this Lease by giving notice to the other
not more than thirty (30) days after such damage or destruction occurs.
J. Tenant waives the provisions of Civil Code 1932(2) and Civil Code
1933(4) (or any successor statutes) with respect to any destruction of the
Premises.
K. The provisions of this paragraph assume that the insurance proceeds, in
the event of an insurable
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<PAGE>
loss, are made available to the parties for the purpose of restorating of the
Premises. In the event that Landlord's lender refuses to make the proceeds
available for such purpose, having the right to do so, and/or as a condition of
making the proceeds available, alters the terms of any obligations secured by a
mortgage or deed of trust affecting the Premises so as to materially change the
cost of or the manner in which such obligation may be paid or discharged,
Landlord shall have the right to terminate this Lease by giving notice to Tenant
not more than fifteen (15) days after determination of such condition(s).
15. Condemnation
------------
A. Wherever used in this paragraph, the following words shall have the
definitions and meanings hereafter set forth:
(1) "Condemnation" - Any action or proceeding brought for the
purpose of any taking of the fee of the Premises or any part thereof by
competent authority as a result of the exercise of the power of eminent domain,
including a voluntary sale to such authority either under threat of condemnation
or while such action or proceeding is pending.
(2) "Vesting Date": The event and date of vesting of title to the
fee of the Premises or any part thereof in the competent authority pursuant to
condemnation.
B. If twenty-five percent (25%) or more of the floor space of the
Premises or of the licensed beds shall
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be taken in condemnation, this Lease shall terminate, at the option of Tenant,
at the Vesting Date and the Minimum Monthly Rent and additional rent under this
Lease shall be apportioned to the date of such termination.
C. If less than twenty-five percent (25%) of the floor space of the
Premises or of the licensed beds shall be taken in condemnation, Landlord and
Tenant shall mutually determine, within a reasonable time after the Vesting
Date, whether the remaining buildings and improvements and building equipment
(after necessary repairs and reconstruction to constitute them a complete
architectural unit) can economically and feasibly be used by Tenant. If it is
determined by mutual agreement or by arbitration that the remaining buildings
and improvements and building equipment cannot economically and feasible be used
by Tenant, either party may elect to terminate this Lease upon five (5) days'
notice to the other party to such effect, given within thirty (30) days after
such determination, and the Minimum Monthly Rent and additional rent under this
Lease shall be apportioned to the date of termination.
D. If this Lease shall terminate pursuant to the provisions of subparagraph
B or C above, the entire condemnation award, except any award made for Tenant's
personal property shall be paid to the Landlord.
E. If, in the case of a partial taking, this Lease shall not terminate, as
provided in subparagraph C, it shall continue in full force and effect as to the
portion of
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<PAGE>
the Premises not taken and Tenant, at Tenant's expense, shall commence and
proceed with reasonable promptness and diligence to repair or reconstruct the
remaining buildings, improvements and building equipment to a complete
architectural unit, and the entire condemnation award shall be to Tenant.
F. If this Lease shall not terminate, as provided in subparagraph C,
the Minimum Monthly Rent and additional rent thereafter required to be paid
hereunder shall be reduced in the same ratio as the floor space or licensed beds
taken. Any controversy arising out of, or relating to, this paragraph 15 shall
be settled by arbitration in accordance with the then prevailing rules of the
American Arbitration Association.
G. Each party waives the provisions of California Code of Civil
Procedure Section 1265.130 allowing either party to petition the superior court
to terminate this Lease in the event of a partial taking of the Premises, and
waives such other provisions of law as may be in conflict herewith.
16. Assignment and Subletting
-------------------------
A. Tenant shall not voluntarily assign or encumber its interest in this
Lease, the option granted pursuant to paragraph 30, the Premises or Personal
Property, or sublease all or any part of the Premises or Personal Property, or
allow any other person or entity (except Tenant's agents, invitees and patients)
to occupy or use all or any part of the Premises or Personal Property, without
first obtaining Landlord's consent,
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<PAGE>
which consent shall not be unreasonably withheld. Any such assignment,
encumbrance or sublease without Landlord's consent shall be voidable, and, at
Landlord's election, shall constitute a default. No consent to any assignment,
encumbrance or sublease shall constitute a further waiver of the provisions of
this paragraph. Any dissolution, merger, consolidation or other reorganization
of Tenant, or (except by the voluntary act of Landlord) the sale or other
transfer of a controlling percentage of the capital stock of Tenant, or the
sale of twenty-five (25%) of the value of the assets of Tenant, shall be deemed
a voluntary assignment. The phrase "controlling percentage" means the ownership
of, and the right to vote, stock possessing at least twenty-five (25%) of the
total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. Notwithstanding
the foregoing, Tenant may assign or sublet this Lease or its interest therein to
its parent, Summit Health Ltd., or to any other corporation that is wholly-
owned, directly or indirectly, by its parent, provided that such assignee agrees
to perform and be bound by all the terms and provisions of this Lease.
Similarly, a dissolution, merger, consolidation or reorganization of Tenant or
sale or transfer of a controlling percentage of its capital stock or assets to
or among its parent or any other corporation that is wholly-owned, directly or
indirectly, by its parent shall not be deemed a voluntary assignment for
purposes of this subparagraph A. Tenant shall, in connection with any request to
Landlord for its consent to any assignment or subletting, deliver to Landlord a
copy of the proposed sublease, assignment agreement or any other agreements
between Tenant and
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<PAGE>
its assignee or sublessee, and a descriptive resume of the experience of the
proposed assignee or sublessee. Within a fifteen (15) days of the receipt of the
information set forth above, Landlord shall notify Tenant whether it refuses to
consent to the assignment or subletting and the reasons for such refusal or
whether it will consent to the proposed assignment or sublease. No such consent
shall relieve Tenant of its liability under this Lease.
B. Tenant immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as permitted by this Lease, and Landlord, as assignee and
as attorney-in-fact for Tenant, or a receiver for Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease; except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent.
C. No interest of Tenant in this Lease shall be assignable by operation of
law except as permitted under subparagraph A. Each of the following acts shall
be considered an involuntary assignment:
(1) If Tenant is or becomes bankrupt or insolvent, makes an assignment
for the benefit of creditors, or institutes a proceeding under the Bankruptcy
Act in which Tenant is the bankrupt;
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(2) If a writ of attachment or execution is levied on this Lease;
(3) If, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the Premises.
D. An involuntary assignment shall constitute a default by Tenant, and
Landlord shall have the right to elect to terminate this Lease, in which case
this Lease shall not be treated as an asset of Tenant. If a writ of attachment
or execution is levied on this Lease, or if any involuntary proceeding in
bankruptcy is brought against Tenant, or if a receiver is appointed, Tenant
shall have sixty (60) days in which to have the involuntary proceeding dismissed
or the receiver removed.
17. Termination. Tenant shall use its best efforts to obtain a health
-----------
facilities license for the Premises from the California Department of Health on
or before June 30, 1980. In the event Tenant should fail to do so, Landlord
may elect to terminate this Lease, in which case Tenant shall have no further
obligations under this Lease, or Landlord may elect to continue this Lease in
force.
18. Defaults, Remedies
------------------
A. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
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<PAGE>
(1) Failure to pay rent when due, if the failure continues for five
(5) days after notice has been given to Tenant;
(2) Abandonment of the Premises (failure to occupy and operate the
Premises for twelve (12) hours shall be demand an abandonment unless such
failure is due to acts of God);
(3) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in subparagraph (1) or (2) above where such failure shall
continue for a period of thirty (30) days after notice thereof from Landlord to
Tenant; provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion;
(4) The filing of, execution or occurrence of:
(a) a petition in bankruptcy by or against the Tenant, unless cured
or removed within sixty (60) days;
(b) a petition or answer by Tenant seeking a reorganization,
arrangement, composition, readjustment,
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<PAGE>
liquidation, dissolution or other relief of the same or different kind under any
provision of the Bankruptcy Act;
(c) adjudication of Tenant as a bankrupt or insolvent;
(d) an assignment of all or substantially all of Tenant's assets for
the benefit of its creditors;
(e) a petition or other proceeding, except by Landlord, its agents or
affiliates, by or against Tenant, for the appointment of a trustee, receiver or
liquidator of Tenant with respect to all or substantially all of its property;
provided, however, that Tenant shall not be in default if Tenant cures or
removes such a petition or proceeding within sixty (60) days;
(f) a petition or other proceeding by or against Tenant for its
dissolution or liquidation, or the taking of possession of the property of
Tenant by any governmental authority in connection with Tenant's dissolution or
liquidation; provided, however, that Tenant shall not be in default if Tenant
cures or removes such a petition or proceeding within sixty (60) days;
(g) the taking by any person, except by Landlord or its agents or
affiliates, of the leasehold created hereby or any part thereof upon execution,
or other process of law or equity.
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<PAGE>
(5) Notwithstanding any other provisions of this Lease, and
without additional notice to Tenant, the failure of Tenant to comply with any of
the provisions of the Lease, if such failure (in the reasonable and good faith
judgment of Landlord) places in imminent jeopardy the continued licensing of
the Premises as a skilled nursing facility and/or its certification as either a
Medi-Cal or Medicare provider, and if, within twenty-four (24) hours after
notice thereof from Landlord to Tenant, Tenant shall not have either (a) cured
such failure, (b) obtained an injunction or other order preventing revocation or
suspension of licensing and/or decertification of the Premises by virtue of such
failure or alleged failure, or (c) provided Landlord with other reasonable
assurances that the Premises will not be subject to license suspension or
revocation and/or decertification as a result of such failure or alleged
failure.
(6) Notices given hereunder shall specify the alleged default
and the applicable Lease provisions, shall demand that Tenant perform the
provisions of this Lease or pay the rent that is in arrears, as the case may be,
within the applicable period of time, or quit the Premises, and shall be given
as provided in paragraph 22. No such notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord so elects in the notice.
B. Landlord shall have the following remedies without further notice
to Tenant if Tenant commits a default. These remedies are not exclusive; they
are cumula-
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tive and in addition to any remedies now or later allowed by law:
(1) Landlord may continue this Lease in full force and effect.
The Lease shall continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect rent
when due. During the period Tenant is in default, Landlord may enter the
Premises and relet them, or any part of them, to third parties for Tenant's
account. Tenant shall be liable immediately to Landlord for expenses Landlord
incurs in no reletting the Premises to another tenant for use as a 79-bed
skilled nursing facility, nursing home, convalescent hospital or similar
institution, including without limitation brokers' commissions, expenses of
remodeling the Premises required by the reletting and like costs. Reletting may
be for a period shorter or longer than the period remaining in the Lease Term.
Tenant shall pay to Landlord the rent hereunder as due, less the rent Landlord
receives or could have received from any reletting, had Landlord diligently
relet the Premises.
(2) Landlord may terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving notice to Tenant or
terminating Tenant's right to possession shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to recover from Tenant:
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(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.
"The worth, at the time of the award," as used in (a) and (b) of
this subparagraph B(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 referred to
in (c) of this subparagraph B(2) 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%).
(3) Landlord shall have the right to have a receiver appointed
to collect rent and conduct Tenant's business. Neither the filing of a petition
for the appointment of a receiver nor the appointment itself shall constitute an
election by Landlord to terminate this Lease.
-34-
<PAGE>
(4) Landlord, at any time after Tenant commits a default, may
cure the default at Tenant's cost. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the payment of any
sum, the sum paid by Landlord shall be due from Tenant to Landlord at the same
time the sum is paid, and if repaid at a later date, shall bear interest at the
rate of ten percent (10%) per annum from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. The sum, together with interest thereon,
shall be additional rent.
19. Signs. Tenant at its cost shall have the right to place, construct and
-----
maintain on the Premises one or more signs advertising its business at the
Premises. Any such sign shall comply with all laws and Tenant shall obtain any
approval required by such laws. Landlord makes no representation with respect to
Tenant's ability to obtain such approval.
20. Right of Entry
--------------
A. Landlord and its authorized representatives shall have the right
to enter the Premises at all reasonable times, so long as such entry does not
disrupt the operation of Tenant's business, for any of the following purposes:
(1) To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease;
-35-
<PAGE>
(2) To do any necessary maintenance or restoration to the
Premises that Landlord has the right or obligation to perform; nothing herein
sha1l constitute an obligation on the part of Landlord to maintain or restore
the Premises or any part thereof;
(3) To serve, post or keep posted any notices required or
allowed under the provisions of this Lease;
(4) To show the Premises to prospective brokers, agents,
buyers, tenants or persons interested in an exchange, at any time during the
Lease Term;
(5) To remove the baby grand piano, three pictures and metal
bookcase; and
(6) To shore the foundations, footings and walls of the building
and other improvements that are a part of the Premises, to erect scaffolding and
protective barricades around and about the Premises (but not so as to prevent
entry to the Premises) and to do any other act or thing necessary for the safety
or preservation of the Premises, if any excavation or other construction is
undertaken or is about to be undertaken on any adjacent property or nearby
street. Landlord's right under this provision extends to the owner of the
adjacent property on which excavation or construction is to take place and to
the adjacent property owner's authorized representatives. Nothing herein shall
constitute an obligation on the part of Landlord to maintain or restore the
Premises or any part thereof.
-36-
<PAGE>
B. Landlord sha1l not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage arising
out of Landlord's entry on the Premises as provided in this paragraph, except
damage resulting from Landlord's breach of this Lease or willful or negligent
conduct or omission of Landlord or its authorized representatives.
C. Tenant shall not be entitled to an abatement or reduction
of rent if Landlord exercises any rights reserved in this paragraph. Landlord
shall conduct its activities on the Premises as allowed in this paragraph in a
manner that will cause no unreasonable inconvenience, annoyance, or disturbance
to Tenant.
21. Subordination; Estoppel
-----------------------
A. This Lease is and sha1l be prior to any encumbrance recorded
after the date of this Lease, and any encumbrance now of record affecting the
Premises. If, however, a lender requires that this Lease be subordinate to any
such encumbrance, this Lease shall be subordinate to that encumbrance, if
Landlord first obtains from the lender a written agreement that provides
substantially the following:
"As long as Tenant performs its obligations under this Lease, no
foreclosure of, deed given in lieu of foreclosure of, or sale under
the encumbrance, and no steps or procedures taken under the
encumbrance, shall affect Tenant's rights under this Lease."
-37-
<PAGE>
B. Tenant shall attorn to any purchaser at any foreclosure
sale, or to any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute upon demand any and all documents required by
lender to accomplish the purposes of this paragraph.
C. Each party, within ten (10) days after notice from the other
party, shall execute and deliver to the other party, in recordable form, a
certificate stating that this Lease is unmodified and in full force and effect,
or in full force and effect as modified, and stating the modifications. The
certificate also shall state the amount of monthly rent then applicable, the
dates to which the rent has been paid in advance and the amount of any security
deposit or prepaid rent. Failure to deliver the certificate within the ten (10)
days shall be conclusive upon the party failing to deliver the certificate for
the benefit of the party requesting the certificate and any successor thereto
that this Lease is in full force and effect and has not been modified, except as
may be represented by the party requesting the certificate. If a party fails to
deliver the certificate within the ten (10) days, the party failing to deliver
the certificate irrevocably constitutes and appoints to other party as its
special attorney-in-fact to execute and deliver the certificate to any third
party.
22. Notices. All written notices, demands or requests of any kind
-------
which either party may be required or may desire to serve on the other in
connection with this Lease may be served personally or by registered or
certified mail.
-38-
<PAGE>
Any such notice or demand served by registered or certified mail shall be
deposited in the United States mail with postage and fees thereon fully prepaid,
and addressed to the parties as follows:
To South Bay Sanitarium Southbay Sanitarium
---------------------------
and Convalescent Hospital: c/o Dr. Steve Brodie
---------------------------
792 Linda Flora Drive
---------------------------
Los Angeles, CA 90049
with a copy thereof to: Martin H. Blank, Jr., Esq.
---------------------------
10850 Wilshire Blvd., 11th Fl.
---------------------------
Los Angeles, CA 90024
---------------------------
To Garnet Convalescent Summit Health Ltd.
Hospital Inc.: 4070 Laurel Canyon Blvd.
Studio City, California 91604
with a copy thereof to: Kindel & Anderson
555 South Flower Street
26th Floor
Los Angeles, California 90071
Attn: Patricia T. Mulryan, Esq.
Service of any such notice or demand so made by mail shall be deemed complete on
the day of actual delivery as shown by the addressee's registry or certification
receipt or at the expiration of the fifth (5th) day after the date of mailing,
whichever is earlier in time. Either party hereto may from by time to time, by
notice in writing served upon the other as aforesaid, designate a different
mailing address, or a different or additional person(s) to which all such
notices or demands are thereafter to be addressed:
23. Waiver
------
A. No delay or omission in the exercise of any right or
remedy of Landlord for any default by Tenant shall impair such a right or remedy
or be construed as a waiver.
-39-
<PAGE>
B. The receipt and acceptance by Landlord of delinquent rent
shall not constitute a waiver of any other default; it shall constitute only a
waiver of timely payment for the particular rent payment involved.
C. No act or conduct of Landlord including without limitation
the acceptance of the keys to the Premises, shall constitute an acceptance of
the surrender of the Premises by Tenant before the expiration of the Lease Term.
Except as otherwise expressly provided herein, only a notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish a termination of the Lease.
D. Landlord' s consent to or approval of any act by Tenant
requiring Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
E. Any waiver by any party hereto must be in writing and shall
not be a waiver of any other default concerning the same or any other provision
of the Lease.
24. Recordation; Quitclaim. This Lease shall not be recorded, however
----------------------
the parties shall execute a Memorandum of Lease in recordable form which shall
be recorded with the Los Angeles County Recorder. Tenant shall execute and
deliver to Landlord on the expiration or termination of this Lease, immediately
on Landlord's request, a quitclaim deed to the Premises in recordable form
designating Landlord's transferee.
-40-
<PAGE>
25. Sale or Transfer of Premises
----------------------------
A. If Landlord determines to sell fifty percent (50%) or more
of the Premises or of the Personal Property Landlord shall notify Tenant of the
terms on which Landlord will be willing to sell. Tenant shall have a right of
first refusal and may notify Landlord, within fifteen (15) days after receipt of
Landlord's notice, in writing of Tenant's agreement to purchase that being
offered for sale by Landlord on the terms stated in Landlord' s notice. If
Tenant so exercises its right of first refusal, Landlord shall sell and convey
same to Tenant on the terms stated in the notice. If Tenant does not indicate
its agreement within fifteen (15) days, Landlord thereafter shall have the right
to sell and convey said property to a third party on the same terms stated in
the notice. If Landlord does not sell and convey said prop within ninety (90)
days, any further transaction shall be deemed a new determination by Landlord to
sell and convey same and the provisions of this paragraph shall be applicable.
B. If Landlord sells or transfers the Premises, on consummation
of the sale or transfer the transferee shall take subject to this Lease and
assume all obligations hereunder. If any security deposit or prepaid rent has
been paid by Tenant, Landlord shall transfer the security deposit or prepaid
rent to Landlord's successor and shall promptly notify Tenant of such transfer.
C. If Tenant purchases all of the Premises and Personal
Property, this Lease shall terminate on the date
-41-
<PAGE>
title vests in Tenant, and Landlord shall remit to Tenant all prepaid and
unearned rent and the remaining security deposit. If Tenant purchases a part of
the Premises and/or Personal Property, this Lease, as to the part purchased,
shall terminate on the date title vests in Tenant, and the Minimum Monthly Rent
and additional rent shall be reduced in the same ratio that the value of the
Premises and Personal Property before the purchase bears to the value of the
Premises and Personal Property covered by the Lease immediately after the
purchase.
26. Attorneys' Fees. In the event any action is commenced for
---------------
any breach of or default in any of the terms or conditions of this Lease, then
the party in whose favor judgment shall be entered shall be entitled to have and
recover from the other party all costs and expenses (including reasonable
attorneys' fees) of such suit.
27. Financial Statements. Curing the Lease Term, Tenant shall
--------------------
provide Landlord with copies of (a) semi-annually, the profit and loss
statement of Tenant; and (b) annually, the consolidated financial statements of
Summit Health Ltd. as certified by its certified public accountants.
28. Licensing. Except as may be otherwise permitted hereunder,
---------
Tenant shall maintain at all times during the Lease Term all governmental
licenses, permits and authorizations necessary for the establishment and
operation of a seventy-nine (79) bed skilled nursing facility in the city of
Torrance, County of Los Angeles, State of California, in-
-42-
<PAGE>
including qualification as a provider under Medi-Cal and Medicare legislation.
Tenant shall not, without the prior consent of Landlord, which consent shall not
be unreasonably withheld, effect any change in the license category or license
status of the Premises or any part thereof.
29. Surrender of Premises; Holding Over
-----------------------------------
A. On expiration of the Lease Term, Tenant shall surrender
to Landlord the Personal Property and the Premises, and all Tenant's
improvements and alterations thereto, in good condition (except for ordinary
wear and tear occurring after the last necessary maintenance made by Tenant and
destruction of the Premises covered by paragraph 14), except for alterations
that Tenant has the right to remove or is obligated to remove under the
provisions of paragraph 9.
B. If Tenant fails to surrender the Premises at the
expiration of the Lease Term as required by this paragraph, Tenant shall hold
Landlord harmless from all damages resulting from Tenant's failure to surrender
the Premises and/or Personal Property, including without limitation, claims made
by a succeeding tenant resulting from Tenant's failure to surrender the Premises
and/or the Personal Property.
C. If Tenant, with Landlord's consent, remains in
possession of the Premises and/or the Personal Property after expiration or
termination of the Lease Term, or after the date in any notice terminating this
Lease, such possession by Tenant shall be deemed to be a month-to-month
-43-
<PAGE>
tenancy terminable on thirty (30) days' notice given at any time by either
party. All provisions of this Lease except those pertaining to term shall apply
to the month-to-month tenancy.
30. Option to Renew. Provided Tenant is not then in default
---------------
hereunder, Tenant is hereby granted an option to renew this Lease for an
additional period of five (5) years from and after February 28, 1990 under the
same terms, conditions and covenants (so far as applicable) as herein contained,
including rental adjustment as provided in paragraph 4. The option shall be
exercised by notice, setting forth Tenant's election to exercise the option,
delivered to Landlord not less than one hundred eighty (180) days prior to the
expiration of the Lease Term. Upon exercise, such additional five (5) year
period shall be deemed to be an extension of the Lease Term for the purposes of
this Lease.
31. Miscellaneous.
-------------
A. Time is of the essence of each provision of this Lease.
B. Each party represents that it has not had dealings with
any real estate broker, finder or other person with respect to this Lease in any
manner. Each party shall hold harmless the other party from all damages
resulting from any claims that may be asserted against the other party by any
broker, finder or other person with whom the other party has or purportedly has
dealt.
-44-
<PAGE>
C. All exhibits referred to are attached to this Lease and
incorporated by reference.
D. All provisions, whether covenants or conditions, on the
part of Tenant shall be deemed to be both covenants and conditions.
E. This Lease includes the entire agreement of the parties
with respect to the subject matter hereof, and may not be amended or modified
except by written agreement of the parties.
F. Tenant shall provide to Landlord a certified resolution
of Tenant's Board of Directors authorizing Tenant to enter into this Lease.
32. Definitions. As used in this Lease, the following words and
-----------
phrases shall have the following meanings:
A. "Alteration" - any structural addition or structural
change to, or modification of, the Premises made by Tenant including without
limitation fixtures, but excluding Tenant's personal property.
B. "Authorized representative" - any officer, agent,
employee or independent contractor retained or employed by either party, acting
within authority given him by that party.
-45-
<PAGE>
C. "Encumbrance" - any deed of trust, mortgage or other
written security device or agreement affecting the Premises and/or Personal
Property, and the note or other obligation secured by it, that constitutes
security for the payment of a debt or performance of an obligation.
D. "Hold harmless" - to defend and indemnify from all
liability, losses, penalties, damages as defined herein, costs, expenses
(including without limitation, attorneys' fees), causes of action, claims or
judgments arising out of or related to any damage, as defined herein, to any
person or property.
E. "Law" - any judicial decision, statute, constitution,
ordinance, resolution, regulation, rule, administrative order or other
requirement of any local, state, federal or other government agency or authority
having jurisdiction over the parties or the Premises, or both, in effect either
at the time of execution of the Lease or at any time during the Lease Term,
including without limitation, any regulation or order of a quasi-official entity
or body.
F. "Lender" - the beneficiary, mortgagee, secured party or
other holder of an encumbrance, as defined above.
G. "Rent" - Minimum Monthly Rent, additional rent, security
deposit, Real and Personal Property Taxes and assessments, insurance, utilities
and other similar charges
-46-
<PAGE>
payable by Tenant to Landlord or payable by Tenant to a third person and
required by the provisions of this Lease.
H. "Restoration" - the reconstruction, rebuilding,
rehabilitation and repairs that are necessary to return destroyed portions of
the Premises and Personal Property to substantially the same physical condition
as they were in immediately before the destruction.
I. "Successor" - assignee, transferee, personal
representative, heir or other person or entity succeeding lawfully, and
pursuant to the provisions of this Lease, to the rights or obligations of either
party.
J. "Tenant's improvements" - any addition to or modification
of the Premises made by Tenant during the Lease Term, including without
limitation, fixtures.
33. Captions. The captions of this Lease are for convenience only
--------
shall have no effect on its interpretation.
34. Singular and Plural. When required by the context of this
-------------------
Lease, the singular shall include plural.
35. Severability. The unenforceability, invalidity or illegality
------------
of any provision shall not render any other provision unenforceable, invalid or
illegal.
-47-
<PAGE>
36. Legal Impossibility. Should performance hereunder by Tenant
-------------------
be rendered legally impossible at any time during the term hereof by reason of
governmental action not precipitated by or in any way resulting from acts or
omissions of Tenant, Tenant shall be excused from further performance hereunder.
However, laws or other governmental acts making performance hereunder
unprofitable, more difficult or more expensive shall not excuse performance by
Tenant.
IN WITNESS WHEREOF, the undersigned have executed the Lease as of
the date and year first above written.
South Bay Sanitarium &
Convalescent Hospital
By [SIGNATURE APPEARS HERE]
---------------------------------
, General Partner
-----------
Garnet Convalescent Hospital,
Inc., dba Bay Crest
Convalescent Hospital
By /s/ William L. Pierpoint
---------------------------------
William L. Pierpoint, President
/s/ Thomas Konig Vice Pres.
Summit Health, Ltd. hereby guaranties
the obligations of Tenant hereunder.
Summit Health, Ltd.,
a California Corporation
By /s/ Thomas Konig
--------------------------------
Thomas Konig, President
Skilled Nursing/Resident Hotels
Division
By /s/ William Pierpoint
--------------------------------
William Pierpoint
President
-48-
<PAGE>
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)
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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: [signature]
---------------------------
Its:
TENANT
SUMMIT CARE-CALIFORNIA
a California corporation
By: /s/ Derwin L. Williams
--------------------------
Its: Vice President Finance
5
<PAGE>
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)
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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: [signature]
---------------------------
Its:
TENANT
SUMMIT CARE-CALIFORNIA
a California corporation
By: /s/ Derwin L. Williams
--------------------------
Its: Vice President Finance
5
<PAGE>
Exhibit 10.12
E X E C U T E D
Brier Oak Convalescent Lease
LEASE AGREEMENT
by and among
BERNARD BUBMAN, ARNOLD & ELAINE FRIEDMAN
AS TRUSTEES FOR THE
ARNOLD & ELAINE FRIEDMAN FAMILY TRUST OF SEPTEMBER 7TH, 1993,
IRENE WEISS AND SUNSET MOTEL AND DEVELOPMENT CO.,
Collectively as Lessor
and
BRIER OAK CONVALESCENT, INC.
a California Corporation
as Lessee
Dated Effective as of February 1, 1995
<PAGE>
Brier Oak Convalescent Lease
TABLE OF CONTENTS
PAGE
----
1. Description of the Premises.......................................... 1
2. Term................................................................. 1
2.1 Term............................................................ 1
3. Consideration for Execution of Lease................................. 1
4. Rent................................................................. 2
4.1 Initial Rent.................................................... 2
4.2 Cost of Living Adjustments...................................... 2
4.3 Payment of Monthly Rent......................................... 2
5. Additional Rent...................................................... 3
6. Security Deposit..................................................... 3
7. Insurance............................................................ 3
7.1 Property Insurance.............................................. 3
7.2 Liability and Malpractice Insurance............................. 4
7.3 Business Interruption and Worker's Compensation Insurance....... 4
7.4 Insurance Policies.............................................. 4
7.5 Waiver of Subrogation........................................... 5
7.6 Indemnity....................................................... 5
7.7 Warranties; Exemption of Lessor from Liability.................. 5
8. Use of Premises...................................................... 6
8.1 Use; Change In Beds............................................. 6
8.2 Conditions on Use............................................... 7
9. Alterations.......................................................... 9
10. Abandonment of Premises.............................................. 9
11. Repairs.............................................................. 9
12. Acceptance of Premises; Surrender.................................... 10
13. Compliance with Law.................................................. 10
14. Assignment, Subletting, Prior Consent................................ 10
14.1 Lessor's Consent Required...................................... 10
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Brier Oak Convalescent Lease
14.2 Sublease or Assignment by Consent.............................. 11
14.3 Expiration of Lessor's Consent................................. 12
14.4 Assignment and Sublease Limitations and Conditions............. 12
14.5 Security Deposit on Assignment or Sublease..................... 13
14.6 Assignment of Partnership's Interests, Corporate Stock, etc.... 13
14.7 Lessor's Rights Prevail and Reserved........................... 14
14.8 Assumption by Assignee, Lessee's Continued Responsibility...... 14
14.9 No Waiver...................................................... 14
14.10 Attorney's Fees................................................ 14
14.11 Intercorporate Transfers....................................... 14
14.12 Insolvency..................................................... 15
15. Transfer by Lessor................................................... 16
16. Damage or Destruction; Obligation to Rebuild......................... 16
17. Real Property Taxes.................................................. 20
17.1 Payment of Taxes............................................... 20
17.2 Definition of "Real Property" Tax.............................. 20
17.3 Joint Assessment............................................... 20
17.4 Personal Property Taxes........................................ 20
18. Utilities............................................................ 21
19. Defaults; Remedies................................................... 21
19.1 Defaults........................................................ 21
19.2 Lessor's Remedies............................................... 21
19.3 Default by Lessor............................................... 24
19.4 Late Charges.................................................... 24
20. Surrender of Lease................................................... 24
21. Attorney's Fees...................................................... 25
22. Notices.............................................................. 25
23. Waiver............................................................... 25
24. Condemnation......................................................... 26
25. Holding Over......................................................... 26
26. Successors........................................................... 26
27. Inventory............................................................ 26
28. Lessor's Access...................................................... 27
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Brier Oak Convalescent Lease
29. Certification........................................................ 27
30. Subordination........................................................ 27
31. Guaranty............................................................. 28
32. Time................................................................. 28
33. Captions............................................................. 28
34. Use of Tradename and License......................................... 28
35. Authority of Lessee's Signatories.................................... 29
36. Severability......................................................... 30
<PAGE>
Brier Oak Convalescent Lease
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into effective as of
the first (1st) day of February, 1995, by and between BERNARD BUBMAN ("Bubman"),
ARNOLD & ELAINE FRIEDMAN AS TRUSTEES FOR THE ARNOLD & ELAINE FRIEDMAN FAMILY
TRUST OF SEPTEMBER 7TH, 1993 ("Friedman"), IRENE WEISS ("Weiss") (hereinafter
Bubman, Friedman and Weiss are collectively referred to as "BFW") and SUNSET
MOTEL AND DEVELOPMENT CO., a General Partnership ("Sunset"; hereinafter, BFW and
Sunset are collectively referred to as "Lessor"), and BRIER OAK CONVALESCENT,
INC. a California corporation (hereinafter referred to as "Lessee").
IT IS AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. Description of the Premises.
---------------------------
The Lessor leases to the Lessee, and the Lessee hires from the Lessor, on
the terms and conditions hereinafter set forth, those certain improved,
furnished and equipped premises situated in the County of Los Angeles, State of
California, located at 5154 Sunset Boulevard (hereinafter referred to as the
"Premises"). The Premises include the above-described real property and
improvements therein consisting of a one hundred fifty-nine (159) bed skilled
nursing facility (the "Licensed Facility") and furnishings, fixtures and
equipment constituting part of the Premises as per inventory attached hereto as
Exhibit "A" (or replacements thereof) and by this reference made a part hereof
(collectively, "FF&E").
2. Term.
----
2.1 Term. The term of this Lease shall be for ten (10) years, commencing
----
effective as of February 1,1995 (the "Commencement Date" hereinafter) and
terminating on January 31, 2005, unless earlier terminated as provided herein
(the "Term").
3. Consideration for Execution of Lease.
------------------------------------
For and in consideration of the granting of this Lease by Lessor to
Lessee, Lessee unconditionally agrees to pay to Lessor, a non-refundable lease
execution fee of Three Hundred Eighteen Thousand Dollars ($318,000) (i.e.,
$2,000 per bed) ("Lease Execution Fee"), payable in three installments
("Installments") as follows: (i) a first payment of One Hundred Fifty-Nine
Thousand Dollars ($159,000) due and payable immediately upon execution of this
Lease; (ii) a second payment of Seventy-Nine Thousand Five Hundred Dollars
($79,500) due and payable on April 1,1996; and (iii) a final payment of Seventy
Nine Thousand Five Hundred Dollars ($79,500) due and payable on April 1,1997.
Such payments shall accrue interest, at the then maximum rate of interest
permitted by law, only if Lessee fails to pay any of such Installments by the
applicable due date. Lessee agrees to execute a promissory note reflecting the
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Brier Oak Convalescent Lease
payment obligation and terms set forth in this Paragraph 3 in substantially the
form attached hereto as Exhibit "B" and acknowledges and agrees that any breach
of the terms of this Paragraph 3 or the Note shall be a material default of the
Lessee's obligations hereunder.
In no event shall any part of said Lease Execution Fee be returned to
Lessee and shall be considered fully earned by Lessor upon execution of this
Lease by Lessee and Lessor. The Lease Execution Fee is not intended to be and is
not provided or accepted as liquidated damages or as security for the
performance of this Lease, but as payment and consideration for the execution of
this Lease by Lessor.
4. Rent.
----
4.1 Initial Rent. Lessee shall pay rent to Lessor on the first day of each
------------
month during the Term in equal monthly payments of initial base rent of
Forty-Two Thousand One Hundred Thirty-Five Dollars ($42,135) ("Base Rent").
4.2 Cost of Living Adjustments. Beginning on the first day of the second
--------------------------
Lease year (i.e. February 1, 1996) and the corresponding date of every Lease
year thereafter during the Term (each such date referred to hereinafter as an
"Adjustment Date"), the Base Rent due hereunder shall be increased to reflect
increases in the cost of living as reflected by changes in the Consumer Price
Index ("CPI") for all urban consumers for Los Angeles-Anaheim-Riverside (base
year 1982-84), published by the United States Department of Labor, Bureau of
Labor Statistics (the "Index"). On each Adjustment Date the Base Rent for the
new Lease year shall be computed by multiplying the initial monthly Base Rent
(i.e. $42,135) by a fraction, the numerator of which is the Index figure
published for the most nearly prior ending December to the respective Adjustment
Date (the "Extension Index") and the denominator of which is the lndex figure
published for December 1994 (153.4) (the "Beginning Index"). In no event shall
the Base Rent on any Adjustment Date be less than the Base Rent in effect for
the preceding Lease year. If the Index is changed so that the base year differs
from that in effect as of the Lease Commencement Date of this Lease, the Index
shall be converted in accordance with conversion factors published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the 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. ln the absence of any replacement index, the parties
shall agree upon another source of information to determine changes in the
purchasing power of United States currency in the city in which the Premises are
located, and if they are unable to agree, such issue shall be submitted to
binding arbitration by and pursuant to the rules of the American Arbitration
Association.
4.3 Payment of Monthly Rent. The monthly rent payable to Lessor under
-----------------------
Paragraph 4.1 shall be paid to Bubman, Friedman, Weiss and Sunset c/o East West
Bank, at 2496 Glendale Blvd., Los Angeles, California 90039-3240, Account Number
60003303799, or as directed in writing by Lessor, which payment instructions
Lessor expects to modify after the Commencement Date.
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Brier Oak Convalescent Lease
5. Additional Rent.
---------------
This Lease is what is commonly called a "Net, Net, Net Lease," it being
understood that Lessor shall receive the rent set forth in Paragraph 4 free and
clear of any and all other impositions, taxes, liens, charges or expenses of any
nature whatsoever in connection with the ownership and operation of the
Premises. In addition to the rent reserved by Paragraph 4, Lessee shall pay to
the parties respectively entitled thereto all impositions, insurance premiums,
operating charges, maintenance charges, construction costs, and any other
charges, costs and expenses which arise or may be contemplated under any
provisions of this Lease during the Term hereof. All of such charges, costs and
expenses shall constitute additional rent hereunder, and upon the failure of
Lessee to pay any of such costs, charges or expenses, Lessor shall have the same
rights and remedies as otherwise provided in this Lease for the failure of
Lessee to pay rent. It is the intention of the parties hereto that this Lease
shall not be terminable for any reason by the Lessee, and that Lessee shall in
no event be entitled to any abatement of or reduction in rent payable hereunder,
except as herein expressly provided. Any present or future law to the contrary
shall not alter this agreement of the parties.
6. Security Deposit.
----------------
No security deposit shall be required hereunder except in the case of a
sublease or assignment by Lessee, in accordance with Paragraph 14.5 of this
Agreement.
7. Insurance.
---------
7.1 Property Insurance. Lessee shall, at its own cost and expense, procure
------------------
a policy of fire, extended coverage, vandalism, malicious mischief, sprinkler
leakage, and special extended perils (all risk), insurance on the Premises and
all buildings, other improvements and all personal property now or hereafter
located or erected thereon with Lessor as beneficiary, in an amount of the full
replacement cost thereof. Said insurance shall provide for payment for loss
thereunder to Lessor, and to the holder of the first mortgage or deed of trust
on the Premises, as their interests may appear. If Lessee shall fail to procure
and maintain said insurance Lessor may, but shall not be required to, procure
and maintain the same, but at the expense of Lessee. Lessee shall immediately
reimburse Lessor for any such premiums paid by Lessor, together with interest
thereon at the then maximum rate of interest permitted by law per annum from the
date said premiums are paid by Lessor. No use shall be made or permitted to be
made of the Premises, nor acts done, which will increase the rate of insurance
upon the Premises, or any part hereof, nor shall Lessee keep, or permit to be
kept, or used in or about the Premises, any article which may be prohibited by
the standard form of fire insurance policies. Lessee shall at its sole cost and
expense, comply with any and all requirements pertaining to the Premises of any
insurance organization or company, necessary for the maintenance of reasonable
fire and public liability insurance covering the Premises.
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Brier Oak Convalescent Lease
7.2 Liability and Malpractice Insurance. The Lessee shall obtain and keep
-----------------------------------
in force during the Term of this Lease policies of comprehensive public
liability insurance, with contractual liability endorsement insuring the
indemnity set forth in Paragraph 7.5, insuring Lessor and Lessee against
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in an amount
of not less than $2,000,000 (or such greater amount as may hereafter prevail in
the industry from time to time) for injury to or death of one person in any one
accident or occurrence and in an amount of not less than $2,000,000 (or such
greater amount as may hereafter prevail in the industry from time to time) for
injury to or death of more than one person in any one accident or occurrence.
Such insurance shall further insure Lessor and Lessee against liability for
property damage of at least $150,000 (or such greater amount as may hereafter
prevail in the industry from time to time). The limits of said insurance shall
not, however, limit the liability of Lessee hereunder. The limits of such policy
shall be increased from time to time to the limits of the standard public
liability policy being used in the health care industry, but in no event shall
be reduced below the limits set forth above in this Paragraph 7.2. If Lessee
shall fail to procure and maintain said insurance Lessor may, but shall not be
required to, procure and maintain the same, but at the expense of Lessee. Lessee
shall immediately reimburse Lessor for any such premiums paid by Lessor,
together with interest thereon at the then maximum rate of interest permitted by
law per annum from the date said premiums are paid by Lessor.
Lessee shall also obtain and keep in force during the Term of this Lease
adequate malpractice insurance covering the acts and operations of the Lessee
and its agents, servants, representatives and employees on the Premises with
coverage and deductible amounts as are hereafter prevailing or customary in the
industry from time to time.
7.3 Business Interruption and Worker's Compensation Insurance. Lessee
---------------------------------------------------------
shall, at its sole expense, maintain in force during the Term business
interruption insurance covering "loss of rents" hereunder, in an amount equal to
at least six (6) months advance rent owing from time to time under this Lease,
covering Lessee's operation of its business at the Premises. Lessee shall assign
the proceeds of such business interruption insurance to Lessor. Lessee shall
also, at its sole expense, maintain during the Term adequate worker's
compensation insurance covering all workmen, employees and others engaged in or
upon the Premises, in such amounts and pursuant to such policies as required by
applicable legal requirements existing from time to time under applicable state
and federal law.
7.4 Insurance Policies. Insurance required hereunder shall be issued by
------------------
companies authorized to do business in California with a financial rating of B+
or better in the most recent edition of "Best's Insurance Guide." The Lessee
shall deliver to the Lessor copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with loss
payable/co-insured clauses satisfactory to Lessor on or before the Commencement
Date, and shall throughout the Term deliver to Lessor, no later than twenty (20)
business days prior to the expiration of each policy's coverage period, copies
of written confirmation from the applicable insurance carrier
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Brier Oak Convalescent Lease
confirming renewal of all such policies; provided, however, that Lessor shall
have the right to review the actual renewed policies from time to time upon five
(5) days' advance written request of Lessee. No such policy shall be cancelable
or subject to reduction of coverage or other modification except after ten (10)
working days prior written notice to Lessor. All public liability insurance, and
the property damage insurance, required hereunder shall include insurance of
performance by Lessee of the indemnity provisions of Paragraph 7.6 of this
Lease.
7.5 Waiver of Subrogation. Lessee and Lessor each hereby waive any and all
---------------------
rights of recovery against the other, or against the officers, employees, agents
and representatives of the other, for loss of or damage to such waiving party or
its property or the property of others under its control to the extent that such
loss or damage is insured against under any insurance policy in force at the
time of such loss or damage. The Lessee shall, upon obtaining the policies of
insurance required hereunder, give written notice to the insurance carrier or
carriers with a copy to Lessor that the foregoing mutual waiver of subrogation
is contained in this Lease. Lessee shall cause such insurance policies obtained
by it to provide that the insurance company waives all right of recovery by way
of subrogation against either party in connection with any damage covered by any
policy.
7.6 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
---------
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere, and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligent or willful acts of the Lessee, or any of Lessee's agents, contractors,
or employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim; Lessee, upon notice from
Lessor, shall defend the same at Lessee's expense by counsel satisfactory to
Lessor. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor.
7.7 Warranties: Exemption of Lessor from Liability. Lessor does not make,
----------------------------------------------
and has not made, representations or warranties, express or implied, nor does
Lessor make any representation or warranty herein regarding the condition of the
Premises or any part thereof. Lessee, not Lessor, shall be fully responsible for
the costs of and for effectuating any and all alterations, repairs and
replacements required to be made by all governmental authorities having
jurisdiction for the continued licensing and certification of the Licensed
Facility, as well as all alterations and replacements required to maintain and
preserve the Premises in the condition called for herein throughout the Term.
Initials of Lessee
----------
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Brier Oak Convalescent Lease
Lessee hereby agrees that Lessor shall not be liable for injury to
Lessee's business or any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's patients, employees, agents,
contractors or subcontractors, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the Premises,
the furniture and equipment or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of whether
the cause of such damage or injury or the means of repairing the same is
inaccessible to Lessee.
8. Use of Premises.
---------------
8.1 Use: Change In Beds. Lessee shall use the Premises only for the
-------------------
purposes of conducting thereon the operation of a licensed 159 bed convalescent
hospital, skilled nursing facility. Lessee shall obtain and maintain at its
expense all licenses and permits required by law to operate such Licensed
Facility. Lessee shall not decrease or increase the number of beds, except as
otherwise permitted herein. Lessee may increase the number of beds up to but not
to exceed ten (10) additional beds within the building which now contains the
159 bed facility, provided that all of the following conditions are satisfied:
(a) Lessee shall submit to Lessor, two (2) sets of the final plans
and specifications for all additional improvements and alterations to be made to
the facility in order to add the additional beds. One set of the final plans and
specifications shall be sent to each of the parties designated in Paragraph 23
of this Lease for receiving notices on behalf of Lessor.
(b) Said plans and specifications shall be subject to the approval of
Lessor, which approval shall not be unreasonably withheld. Lessor shall have a
period of sixty (60) days from receipt of said plans and specifications to
approve or disapprove such plans and specifications. If either Lessor (i.e. BFW
or Sunset) fails to notify Lessee of such approval or disapproval within said
sixty (60) day period, it shall be deemed that Lessor has disapproved said plans
and specifications.
(c) If Lessor approves such plans and specific additional
improvements and alterations pursuant to the provisions of Subparagraph 8.1(b)
above, then Lessee, at its sole expense, shall construct such additional
improvements and alterations in accordance with the plans and specifications
approved by Lessor. Lessee shall keep the Premises, including, but not limited
to the FF&E therein and the property in which the Premises are situated, free
from any liens arising out of any work performed, materials furnished or
obligations incurred by Lessee. Lessee shall commence construction of such
additional improvements and alterations within ninety (90) days after Lessor
shall have approved such plans and specifications and shall diligently prosecute
same to completion.
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Brier Oak Convalescent Lease
(d) If Lessee increases the number of beds at the Premises in
accordance with this Paragraph 8.1, then upon completion of such additional
improvements and alterations, the monthly rent payable under Paragraph 4 of
this Lease shall be increased by an amount equal to Two Hundred Sixty-Five
Dollars ($265) multiplied by the number of beds to be added. Such additional
rent shall commence immediately upon the completion of such additional
improvements and alterations, and if that completion occurs on a day other than
the first day of any month, the additional rent for that month shall be prorated
on a per diem basis for the balance of the month, but shall be due and payable,
in accordance with Paragraph 4.3 of this Lease, not later than the first day of
the following month.
(e) Any and all additions, improvements and alterations made by
Lessee or Lessor under the foregoing provisions shall become part of the realty
and belong to Lessor.
(f) No construction of such additional improvements and alterations
shall endanger the existing Licensed Facility or the licenses or certifications
to operate same and no such construction shall take place without the consent,
approval and permission of all governmental authorities having jurisdiction.
8.2 Conditions on Use. Lessee's use of the Premises shall be in
-----------------
accordance with the following requirements:
(a) Lessee shall not commit, or suffer to be committed, any waste
upon the said Premises or any part thereof, or any nuisance.
(b) Lessee shall maintain at all times during the Term, including any
extension of holdover periods, all governmental licenses, permits and
authorizations necessary for the establishment and operation of the Premises as
the Licensed Facility in the city of Los Angeles, County of Los Angeles, State
of California and participation as a provider under Medicare, Medi-Cal, or other
such legislation and regulations (collectively, "Required Licenses"). Lessee
shall not, without the prior written consent of Lessor, effect any change in the
license category or status of the Premises or any part thereof or in the number
of licensed beds thereat (except in accordance with Paragraph 8.1 of this
Lease). Lessee agrees that if it is notified, or otherwise learns or believes,
that the Department of Health Services ("DHS") or other governmental authorities
(collectively, "Agencies"; singularly, an "Agency") intends to close the
Licensed Facility, require transfer of patients of the Licensed Facility or
suspend, revoke or terminate any Required Licenses, Lessee will fully cooperate
with Lessor, DHS and any other applicable Agencies to take any and all actions
necessary to preempt and avoid such closure, transfer or loss of Required
Licensure. If such closure, transfer or loss of Required Licensure is imminent,
Lessee shall permit Lessor or other party acceptable to Lessor and the
applicable Agencies to immediately assume management of the Licensed Facility
under a management arrangement with Lessee.
(c) Lessee shall furnish to Lessor promptly upon receipt by Lessee,
copies of all correspondence, surveys, etc. received by Lessee from, and/or sent
by Lessee to,
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any and all Agencies, including but not limited to DHS and the agencies
regulating Medicare and Medi-Cal certification of the Premises, reimbursement
and/or provider agreements relating to any and all Class A or Class AA citations
or any threat or implementation of revocation, suspension or reduction of the
Facility's license or decertification of the Facility under Medicare or
Medi-Cal. Lessee shall also furnish to Lessor copies of all plans of correction
and all correspondence related thereto submitted to any such Agencies
concurrently with such submission related to any such events requiring notice
hereunder. All notices required pursuant to this Subparagraph 8(c) shall be
provided as soon as reasonably possible, not later then 5 days following each
such action or event for which notice is required.
(d) Lessee shall not use, generate, manufacture, disturb, store or
dispose of on, under or about the Premises or transfer to or from the Premises
any flammable explosives, radioactive materials, hazardous wastes, toxic
substances or related materials (collectively "Hazardous Substances") except
that Lessee may store, use and dispose of such substances that are customarily
used in skilled nursing facilitates in California provided they are stored, used
and disposed of in full compliance with all applicable laws, rules and
regulations. As used in this Lease, Hazardous Substances shall include, but not
be limited to, substances defined as "hazardous substances", "hazardous
materials", or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq.; the Clean Water Act, 33 U.S.C. Section 466 et seq.; the Superfund
Amendment and Reauthorization Act of 1986, Public Law 99-499, 100 Stat. 1613;
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as amended;
and those materials and substances of a similar nature regulated or restricted
under any laws of the United States or State of California and in regulations
adopted and publications promulgated pursuant to said laws.
(e) During the Term of this Lease, Lessor shall have the right to
receive any operating and financial statements otherwise prepared by Lessee
throughout the Term, if required by any third party ("Requested Statements") as
a condition to such third party agreeing to lend funds to Lessor or to purchase
all or part of Lessor's interests in the Premises. Upon Lessor's receipt of a
request from such third party lender or purchaser for such Requested Statements,
Lessor shall tender a written request to Lessee for such Requested Statements
and Lessee, upon receipt of such request, shall deliver such Requested
Statements to Lessor as soon thereafter as reasonably possible but in any case
within fifteen (15) working days after receipt of such request. Such third party
requiring the Requested Statements shall execute a reasonable confidentiality
agreement with Lessee pursuant to which it shall agree not to disclose the
Requested Statements or information therein.
(f) Lessee shall take all steps appropriate to promote and maintain a
high level of patient census at the Premises consistent with law and ethical
standards governing the operation of skilled nursing facilities. Lessee shall
not transfer patients from the Licensed Facility, except for reasons of health,
family request and/or
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convenience of or at the request of the patient. Without limiting the foregoing,
Lessee also agrees not to solicit or encourage patients of the Licensed Facility
or their families to undertake a transfer of any such patients to any other
facilities during the last year of the Term.
9. Alterations.
-----------
Lessee shall not make, or suffer to be made, any alterations that will
jeopardize or affect the license or certification of said Premises, or any part
thereof. Also, Lessee shall not make, or suffer to be made, any major
alterations to the physical structure of the Premises, or any part thereof,
without the written consent of the Lessor first had and obtained, and any
additions to, or alterations of the Premises, shall become at once a part of the
realty and belong to Lessor. If Lessee makes any major alterations or repairs to
the Premises as permitted under this Lease, the alterations or repairs shall not
be commenced until two (2) days after Lessor has received notice from Lessee
stating the date the installation of the alterations or repairs is to commence
so that Lessor can post and record an appropriate notice of non-responsibility.
Lessee shall keep the Premises, including, but not limited to the FF&E therein
and the property in which the Premises are situated, free from any liens arising
out of any work performed, material furnished, or obligations incurred by the
Lessee. Lessee shall have the right to contest the correctness or validity of
any such lien if Lessee provides reasonable security therefor as may be required
by Lessor or Lessor's lender. Nothing contained herein shall imply or constitute
any consent or agreement by Lessor to any alterations, construction or
improvements of the Premises or to subject the Premises to any liability under
any mechanic's or other lien law.
10. Abandonment of Premises.
-----------------------
Lessee shall not vacate or abandon the Premises at any time during the
Term, and if Lessee shall abandon, vacate, or surrender said Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Lessee and left on the Premises shall be deemed to be abandoned, at the option
of Lessor, except such property as may be mortgaged to Lessor.
11. Repairs.
-------
Lessee shall, at its sole cost, keep, replace and maintain the Premises,
personal property and appurtenances and every part thereof, including, without
limitation, exterior walls, roof and plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities and FF&E within the Premises,
windows and skylights, sidewalks adjacent to said Premises, the interior of the
Premises, any parking lots and yard, and every other portion of the Premises, in
good and sanitary order, condition and repair. If from time to time during the
Term any item or items of FF&E cannot be effectively repaired or are determined
by Lessee as not worth repairing, Lessee shall at its sole cost replace such
items of FF&E with substitutes of a quality equivalent to the quality of such
replaced items as of the Commencement Date. The replaced FF&E may be removed by
Lessee without Lessor's prior consent and shall, upon removal and replacement,
become the
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property of Lessee. Lessor shall have no duty, obligation, or liability,
whatsoever to care for or maintain the Premises, or any part thereof, as stated
in this Paragraph and Lessee waives the provisions of Civil Code (S)(S) 1941 and
1942 with respect to Lessor's obligations for tenantability of the Premises, and
Lessee's right to make repairs and deduct the expenses of such repairs from
rent. Lessee agrees to assign to Lessor all warranties, express and implied,
running in its favor from any contractor, subcontractors, and suppliers who
performs any work on the Premises, provided that Lessee shall be able to enforce
such warranties while this Lease is in effect, and Lessee is not in default
hereunder, but if Lessee shall fail to enforce such warranties, upon demand of
Lessor, Lessor may enforce such warranties.
12. Acceptance of Premises; Surrender.
---------------------------------
By entry hereunder, the Lessee will have accepted the Premises, including
but not limited to the FF&E therein, as being in good and sanitary order,
condition and repair and agrees on the last day of the Term, or sooner
termination of this Lease, to surrender to Lessor the Premises including any
remaining or replacement FF&E, with all appurtenances thereto, in the same
condition as when received at the Commencement Date referred to in Paragraph 2
hereof, reasonable use and wear thereof and damage by fire, act of God or by the
elements excepted, and to return to Lessor all then existing patient contracts
(and all rights thereunder to continue caring for such patients), patient
records and any other documents of every kind whatsoever necessary to enable
Lessor or a new lessee to continue operation of the Licensed Facility and to
remove all of Lessee's signs from the Premises.
13. Compliance with Law.
-------------------
Lessee shall, at its sole cost and expense, comply with all of the
requirements of all municipal, state and federal authorities now in force, or
which may hereafter be in force, pertaining to the Premises, and shall
faithfully observe in the use of the Premises all municipal ordinances and state
and federal statutes now in force or which may hereafter be in force. The
judgment of any court of competent jurisdiction, or the admission of Lessee in
any action or proceeding against Lessee, whether Lessor be a party thereto or
not, that Lessee has violated any such ordinances or statute in the use of the
Premises, shall be conclusive of that fact as between Lessor and Lessee.
14. Assignment, Subletting, Prior Consent.
-------------------------------------
14.1 Lessor's Consent Required. Lessee, for itself, its heirs,
-------------------------
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that, except as permitted by this Paragraph 14,
Lessee shall not assign, mortgage or encumber this Lease, nor sublet, nor
suffer, nor permit the Premises or any part thereof to be used or occupied by
others (except patients of the Licensed Facility), without the prior written
consent of Lessor in each instance. If this Lease be assigned, or if the
Premises or any part thereof be sublet or occupied by anyone other than Lessee
and its patients, Lessor may, after default by Lessee, collect rent from the
assignee, subtenant or occupant, and apply the amount collected, less costs of
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collection, including attorney's fees, to the rent herein reserved, but no
assignment, subletting, occupancy or collection shall be deemed a waiver of the
provisions hereof, the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Lessee from the further performance by Lessee of
covenants on the part of Lessee herein contained. The consent by Lessor to an
assignment or subletting shall not in any way be construed to relieve Lessee or
any subtenant or assignee thereof from having to obtain the express consent in
writing of Lessor to any further assignment or subletting. In no event shall any
subtenant or assignee of Lessee assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or permit the
sublet space or any part thereof to be used or occupied by others, without
Lessor's prior written consent in each instance as addressed below.
14.2 Sublease or Assignment by Consent. If Lessee shall at any time or
---------------------------------
times during the Term desire to assign all or any portion of its rights, and
responsibilities under this Lease or sublet all or part of the Premises, Lessee
shall give notice ("Transfer Notice") thereof to Lessor, which notice shall be
accompanied by (i) a conformed or photostatic copy of the proposed assignment or
sublease, (ii) a statement setting forth in reasonable detail the identity of
the proposed assignee or subtenant, the nature of its business and its proposed
use of the Premises, and (iii) current financial and credit information with
respect to the proposed assignee or subtenant, including, without limitation,
its most recent financial statements. Lessor may from time to time designate, by
written notice to Lessee, one or more parties to whom any such Transfer Notice
is to be delivered, and upon any such designation such Transfer Notice shall be
delivered to Lessor care of such designated party or parties. Providing that
this Lease is in full force and effect, Lessor's consent (which must be in
writing and in form reasonably satisfactory to Lessee and Lessor) to the
proposed assignment or sublease shall not be unreasonably withheld or delayed,
provided that in Lessor's reasonable judgment:
(a) the proposed assignee or subtenant is engaged in a business
related to, and the Premises or the relevant part thereof will be used in a
manner which is limited to, the use expressly permitted under this Lease; and
(b) the proposed assignee or subtenant has the financial and business
experience to lawfully operate the Licensed Facility on the Premises and adhere
to the terms of the assignment or sublease and the terms of this Lease which are
made applicable to the assignment or sublease.
Lessor shall provide Lessee with written notice of its decision
concerning the proposed assignment or sublease within ten (10) working days of
its receipt of the Transfer Notice; provided, however, that if Lessor is unable
to obtain decisions concerning the proposed assignment or sublease from all
required Lessor parties within such ten (10) working day period, despite
reasonable efforts to do so, Lessor may upon written notice to Lessee extend the
required period for providing such decision for an additional five (5) working
days. If Lessor does not respond to Lessee's request for such consent within
such ten (10) or fifteen (15) working day period, as applicable, Lessor shall be
deemed to have consented to the proposed assignment or subletting.
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Each subletting and assignment pursuant to this Paragraph 14 shall
be subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. The provisions of any such sublease or assignment may
not be modified or terminated (except in accordance with its terms as approved
by Lessor) without Lessor's consent. Notwithstanding any such subletting or
assignment and/or acceptance of rent or additional rent by Lessor from any
subtenant, or assignee, Lessee shall, and will remain fully liable for the
payment of the fixed rent and additional rent due to and to become due hereunder
and for the performance of all the covenants, agreements, terms, provisions and
conditions contained in this Lease on the part of Lessee to be performed and all
acts and omissions of any licensee or subtenant or assignee or anyone claiming
under or through any subtenant or assignee which shall be in violation of any of
the obligations of this Lease, and any such violation shall be deemed a
violation by Lessee. Lessee further agrees that notwithstanding any such
subletting or assignment, no other and further subletting of the Premises or
assignment of the Lease by Lessee or any person claiming through or under Lessee
shall or will be made except upon compliance with and subject to the provisions
of this Paragraph 14.
14.3 Expiration of Lessor's Consent. In the event that Lessor consents or
------------------------------
is deemed to have consented to a proposed assignment or sublease, but Lessee
fails to execute and deliver the assignment or sublease to which Lessor
consented within 90 days after Lessor's giving of such consent, then Lessee must
again comply with all of the provisions and conditions of this Paragraph 14
before assigning this Lease or subletting all or part of the Premises.
14.4 Assignment and Sublease Limitations and Conditions. With respect to
--------------------------------------------------
each and every assignment or sublease authorized by Lessor under the provisions
of this Lease, it is further agreed:
(a) No subletting shall be for a term ending later than one day prior
to the expiration date of this Lease.
(b) No sublease shall be valid, and no subtenant shall take possession
of the Premises or any part thereof, until an executed counterpart of such
sublease has been delivered to Lessor.
(c) Each sublease shall provide that it is subject and subordinate to
this Lease and to the matters to which this Lease is or shall be subordinate. In
the event of termination, reentry or dispossession of Lessee by Lessor under
this Lease Lessor may, at its option, take over all of the right, title and
interest of Lessee, as sublessor, under such sublease, and such subtenant shall,
at Lessor's option, attorn to Lessor pursuant to the then executory provisions
of such sublease, except that Lessor shall not (i) be liable for any previous
act or omission of Lessee under such sublease, (ii) be subject to any offset,
not expressly provided in such sublease, which theretofore accrued to such
subtenant against Lessee, (iii) be bound by any previous modification of such
sublease not previously accepted by Lessor in writing after submission of such
proposed modification in writing to Lessor, or by any prepayment of more than
one
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Brier Oak Convalescent Lease
month's rent, or (iv) be liable for the return of any security deposit not
actually held by Lessor.
14.5 Security Deposit on Assignment or Sublease. If the Lessor shall give
------------------------------------------
its consent to any assignment of this Lease, or to any sublease, Lessee shall in
consideration therefor deposit or cause to be deposited with Lessor a sum equal
to four (4) times the then current monthly rent owing hereunder
("Assignment/Sublease Deposit") to be held as a security deposit hereunder. If
Lessee, or a subtenant or assignee thereof, fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision of this
Lease, Lessor may use, apply or retain all or any portion of the
Assignment/Sublease Deposit for the payment of any rent or other charge in
default or for the payment of any other sum to which Lessor may become obligated
by reason of Lessee's, or the assignee's or subtenant's, default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of the Assignment/Sublease Deposit,
Lessee shall within ten (10) days after written demand therefor deposit or cause
to be deposited cash with Lessor in an amount sufficient to restore the
Assignment/Sublease Deposit to the full amount hereinabove stated. Lessor shall
not be required to keep the Assignment/Sublease Deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, the
Assignment/Sublease Deposit, or so much thereof as has not theretofore been
applied by Lessor hereunder, shall be returned, without payment of interest or
other amount for its use by Lessor, to Lessee or its designee forthwith after
the expiration of the Term and Lessee and any assignee or subtenant has vacated
the Premises.
14.6 Assignment of Partnership's Interests, Corporate Stock, etc. If any
-----------------------------------------------------------
of the following shall occur it shall be deemed a voluntary assignment of this
Lease and the provisions of this Paragraph 14 shall apply to such voluntary
assignment:
(a) if Lessee is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law, of an aggregate of (in one or more
transfers) fifty-one percent (51%) or more of the partnership, or the
dissolution of the partnership;
(b) if Lessee consists of more than one person, a purported
assignment, voluntary, involuntary or by operation of law, from one person to
another;
(c) if Lessee is a corporation, any dissolution, merger,
consolidation or other reorganization of Lessee (provided that the result is a
change in the controlling percentage ownership of Lessee), or the sale or other
transfer of a controlling percentage of the capital stock of Lessee, or the sale
of an aggregate of (in one or more transfers) at least 51% of the value of the
assets of Lessee, or the sale of an aggregate of (in one or more transfers) at
least 51% of the value of the assets of Lessee, shall be deemed a voluntary
assignment. The phrase "controlling percentage" means the ownership of, and the
right to vote, stock possessing an aggregate of (in one or more transfers) at
least 51% of the total combined voting power of all classes of Lessee's capital
stock issued, outstanding, and entitled to vote for the election of directors.
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This paragraph shall not apply to corporations the stock of which is
traded on an exchange or over the counter.
14.7 Lessor's Rights Prevail and Reserved. The Lessor's rights as set
------------------------------------
forth in this Paragraph 14 shall prevail over any inconsistent language in any
sublease or assignment to which Lessor has consented hereunder. Lessor reserves
all of its rights hereunder from the grant of the Leasehold estate to Lessee
hereunder.
14.8 Assumption by Assignee, Lessee's Continued Responsibility. Any
---------------------------------------------------------
assignment or transfer, whether made with or without Lessor's consent pursuant
to this Paragraph 14, shall be made only if, and shall not be effective until
the assignee shall execute, acknowledge and deliver to Lessor an agreement
whereby the assignee shall assume the obligations of this Lease on the part of
Lessee to be performed or observed and whereby the assignee shall agree that the
provisions of this Paragraph 14 shall, notwithstanding such assignment or
transfer, continue to be binding upon it in respect of all future assignments
and transfers. The original named Lessee covenants that, notwithstanding any
assignment or transfer, whether or not in violation of the provisions. of this
Lease, and notwithstanding the acceptance of fixed rent and/or additional rent
by Lessor from an assignee, transferee or any other party, the original named
Lessee shall remain fully liable for the payment of the fixed rent and
additional rent and for the other obligations of this Lease on the part of
Lessee to be performed or observed.
14.9 No Waiver. The joint and several liability of Lessee and any
---------
immediate or remote successor in interest of Lessee and the due performance of
the obligations of this Lease on Lessee's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Lessor modifying any of the obligations of this Lease
(provided such modifications do not adversely affect the rights and obligations
of Lessee or extend the duration of its obligations), or by any waiver or
failure of Lessor to enforce any of the obligations of this Lease. The failure
of a permitted subtenant or assignee (other than Lessor or a subtenant or
assignee of Lessor) to pay the rent or perform its obligations shall not affect
Lessee's obligations under this Lease for which Lessee will remain liable under
this Lease after such sublease or assignment.
14.10 Attorney's Fees. If Lessee requests Lessor to consent to a proposed
---------------
assignment or subletting or other transaction subject to the provisions of
Paragraph 14.1, Lessee shall pay to Lessor, whether or not consent is ultimately
given, Lessor's reasonable attorney's fees, not to exceed $1,000, incurred in
connection with review of each such request; provided, however, that the
foregoing cap on Lessor's attorney's fees subject to reimbursement hereunder
shall not apply to any legal services required in connection with reviewing,
negotiating or developing any documentation that may be required or requested by
or on behalf of the proposed assignee or sublessee, including without limitation
any lessee or assignee developed or requested consents, estoppel certificates,
non-disturbance agreements or memorandum of sublessee or assignment.
14.11 Intercorporate Transfers. Notwithstanding the foregoing provisions
------------------------
of this Paragraph 14, the original Lessee hereunder, Brier Oak Convalescent,
Inc., may,
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without the consent of Lessor, assign this Lease or sublet the Premises to any
corporation controlling, controlled by or under common control with Brier Oak
Convalescent, Inc. provided that Brier Oak Convalescent, Inc. shall remain
liable for the performance of Lessee's obligations hereunder and that the
assignee or sublessee confirms in writing to Lessor that it has assumed and will
be liable for the performance of such obligations.
14.12 Insolvency.
----------
(a) Either (i) the appointment of a receiver to take possession of
all or substantially all of the assets of Lessee, or (ii) a general assignment
by Lessee for the benefit of creditors, or (iii) any action taken or suffered by
or against Lessee under any insolvency or bankruptcy act shall constitute a
breach of this Lease by Lessee.
(b) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), any and all monies or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Lessor, shall be and remain the exclusive property to Lessor and
shall not constitute property of Lessee or of the estate of Lessee within the
meaning of the Bankruptcy Code.
(c) If this Lease is proposed to be assigned pursuant to the
provisions of the Bankruptcy Code to any person or entity who shall have made a
bona fide offer to accept an assignment of this Lease on terms acceptable to
Lessee, the notice of such proposed assignment setting forth (i) the name and
address of such person, (ii) all of the terms and conditions of such offer, and
(iii) the adequate assurance to be provided Lessor to assure such person's
future performance under the Lease, including, without limitation, the assurance
referred to in Section 365(f)(b)(2) of the Bankruptcy Code, shall be given to
Lessor by the assignee no later than twenty (20) days after receipt by Lessee,
but in any event not later than ten (10) days prior to the date that Lessee
shall make application to a court of competent jurisdiction for authority and
approval to enter into such assignment and assumption, and Lessor shall
thereupon have the prior right and option, to be exercised by notice to Lessee
given at any time prior to the effective date of such proposed assignment, to
accept an assignment of this Lease upon the same terms and conditions and for
the same consideration, if any, as the bona fide offer made by such person, less
any brokerage commissions which may be payable out of the consideration to be
paid by such person for the assignment of this Lease.
(d) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease on and
after the date of such assignment. Any such assignee shall upon demand execute
and deliver to Lessor an instrument confirming such assumption.
(e) Lessee irrevocably: (i) assigns to Lessor, effective immediately
upon any default by Lessee of any of the terms of this Lease without further act
or deed, as security for Lessee's obligations under this Lease, all rent, fees
and other receivables
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after such damage or destruction after best efforts of Lessee to obtain same and
through no fault of Lessee, and the cost to repair the damage or destruction
exceeds $275,000, Lessee shall have the option for thirty (30) days, commencing
on the expiration of such ninety (90) day period, of canceling this Lease
subject to Lessor's right to avoid cancellation as set forth below in this
Paragraph. Lessee shall exercise such option by sixty (60) days' advance written
notice to Lessor within said thirty (30) day period ("Insurance Cancellation
Notice"). Should Lessor elect not to avoid cancellation, as set forth in
Paragraph 16(b)(iii) below, Lessor shall return to Lessee any
Assignment/Sublease Deposit held by Lessor in accordance with Paragraph 14.5 of
this Lease and Lessee shall assign to Lessor any and all of its rights to the
proceeds under any and all applicable insurance policies.
(iii) Notwithstanding the foregoing, Lessor shall have the right to
elect, by written notice to Lessee within thirty (30) days following its receipt
of the Insurance Cancellation Notice, to advance to Lessee those proceeds that
should have been paid to Lessee pursuant to the insurance policy covering the
Covered Damages ("Advanced Proceeds") with respect to that portion of the
Covered Damages which exceeds $275,000.00, and upon such election by Lessor and
payment to Lessee of the Advanced Proceeds within sixty (60) days after Lessor's
receipt of the Insurance Cancellation Notice, the Lease shall be fully
reinstated and Lessee's election to cancel the Lease shall be of no further
force and effect. If Lessor elects to reinstate the Lease by paying the Advanced
Proceeds, Lessee shall fully assign to Lessor any and all of its rights to the
Insurance Proceeds and the right to seek recovery of the same from any
applicable insurance carrier. Lessee shall cooperate, at no cost to it, with the
Lessor in seeking recovery of the Advanced Proceeds for the benefit of Lessor.
Lessor fully understands that should it elect to avail itself of the right to
pay the Advanced Proceeds, the assignment of Lessee's rights as against any
insurance company, is being made by the Lessee to the Lessor without warranty,
representation, or recourse to the Lessee, other than the representation the
insurance claim has been made by Lessee in good faith, should Lessor, for any
reason whatsoever, be unsuccessful in obtaining reimbursement of the Advanced
Proceeds. Lessor understands that its sole recourse after the assignment of
rights is made by the Lessee to the Lessor, shall be as against the applicable
insurance carrier, and the Lessor shall have no further rights as against the
Lessee whatsoever, said rights to reimbursement being expressly waived by the
Lessor. Lessor's election to provide the Advanced Proceeds shall not be
construed as an independent determination by Lessor that the damage or
destruction for which the Lessor has provided Advanced Proceeds constitutes
Covered Damage. Any such determination shall be made in accordance with the
provisions of the relevant insurance policy maintained under Paragraph 7.
(iv) In the event Lessee shall recover any amounts of Insurance
Proceeds after issuing an Insurance Cancellation Notice, but prior to the
decision by Lessor to provide Advanced Proceeds and prior to any assignment of
Lessee's rights as against any insurance company, Lessee shall provide notice of
such receipt of funds to Lessor within forty-eight (48) hours of any such
receipt of funds, as set forth in Paragraph 22 of this Lease.
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(v) Beginning on the first day of the second Lease Year (i.e.
February 1, 1996) and the corresponding date of every Lease year thereafter
during the Term the maximum Cost of damage or destruction repair for which
Lessee is responsible ($275,000) shall be increased to reflect any increases in
the cost of living, as reflected by increases in the Consumer Price Index
("CPI"), calculated consistent with the methodology set forth in Paragraph 4.2
of this Lease.
(vi) In the event Lessor shall recover monies from any insurer which
constitute Insurance Proceeds, said monies shall be disbursed in accordance with
the following priorities: (1) to payment of costs of litigation and attorneys'
fees incurred in obtaining the Insurance Proceeds; (2) to reduce any amounts
provided to Lessee as Advanced Proceeds; and (3) to reimburse Lessee for amounts
expended towards repair of damage or destruction.
(c) The Insurance Proceeds or Advanced Proceeds shall be made available
to Lessee for use in payment of the cost and expense of the repair; provided,
however, that such proceeds may be made available to Lessee subject to
reasonable conditions including, but not limited to, architect's certification
of costs and retention of a percentage of such proceeds pending final notice of
completion. Lessor may require that Lessee provide, at Lessee's sole cost and
expense, a lien and completion bond to insure against mechanics' or
materialmen's liens arising out of the repair, and to insure completion of the
repair. In the event that the insurance proceeds are insufficient to cover the
cost of the repair, then any amount in excess thereof required to complete the
repair shall be paid by Lessee, provided, however, anything herein to the
contrary notwithstanding, in the event loss or destruction occurs to the
structure on the Premises representing more than a destruction of 50% (fifty
percent) of the structure within the last two years of the Term of this Lease,
it shall be optional, to be exercised by notice in writing to Lessor, within
thirty (30) days following such casualty for Lessee to: (i) assign to Lessor any
of its rights to the proceeds of any insurance policy which insures against this
type of loss responsible for the destruction of 50% (fifty percent) or more to
the structure on the Premises, and thereby Lessee shall be released of any
further obligations under the terms and conditions of this Lease and the same
shall be deemed to have effectively been terminated and canceled; or (ii) to
repair or rebuild the damage and continue the Lease.
(d) Notwithstanding the foregoing, with respect to each incident of
damage or destruction to the Premises from time to time resulting from
earthquake activity, the Lessor and Lessee agree as follows (with a single
"incident" being defined as an earthquake and all aftershocks occurring within
ninety (90) days after the initial earthquake):
(i) Lessee shall be responsible for, and shall insure or
self-insure for the costs of, repairing, restoring, replacing and rebuilding the
Premises, or any parts thereof, damaged from earthquake activity (collectively
"Earthquake Repairs") involving a cost of up to Two Hundred Seventy-Five
Thousand Dollars ($275,000) ("Base Repair Amount");
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(ii) If Earthquake Repairs involve a cost of greater than the
Base Repair Amount but not in excess of Five Hundred Fifty Thousand Dollars
($550,000) ("Ceiling Repair Amount"), Lessor may elect within thirty (30) days
of the damage to continue the Lease by paying for all costs of Earthquake
Repairs in excess of the Base Repair Amount ("Excess Repair Amount" being
defined as damages in excess of $275,000 and up to $550,000) (which Base Repair
Amount shall in all cases remain Lessee's obligation) with no extension of the
Term. If Lessor does not elect to conduct such repairs at its cost in accordance
with the immediately preceding sentence, either Lessor or Lessee may elect to
continue the Lease and have Lessee pay for both the Base Repair Amount and
Excess Repair Amount, in which case the original Term shall be extended by the
number of years (or fraction thereof rounded to the nearest number of months)
resulting from dividing the Excess Repair Amount by One Hundred Twenty-Five
Thousand Dollars ($125,000) ("Extension Factor').
(iii) If Earthquake Repairs involve a cost greater than the
Ceiling Repair Amount, either Lessor or Lessee, in its sole and absolute
discretion, may elect to terminate the Lease upon thirty (30) days advance
written notice to the other party unless Lessor and Lessee mutually agree within
thirty (30) days of the damage upon the terms for repairing such damages.
However, even if the Lease is terminated as a result of damage resulting in
costs in excess of the Ceiling Repair Amount, Lessee shall make a one-time
payment of the Base Repair Amount to Lessor, within five (5) days of either
Party's termination notice in accordance with this subsection (iii).
(iv) Any Earthquake Repairs to be conducted in accordance with
this Section 16(d) shall be commenced within a reasonable time after such damage
or destruction and shall be diligently prosecuted to completion by Lessee in
accordance with the repair obligations set forth in Paragraph 16(a) and the
first two sentences of Paragraph 16(b) except that the source for funding of
such repairs shall be dictated by the terms of this Paragraph 16(d) rather than
those prior paragraphs.
(v) Beginning on the first day of the second Lease year (i.e.
----
February 1, 1996) and the corresponding date of every Lease year thereafter
during the Term the dollar amounts specified above in this Paragraph 16(d),
including the amounts designated as the Base Repair Amount, Excess Repair
Amount, Ceiling Repair Amount and Extension Factor, shall be increased to
reflect any increases in the cost of living, as reflected by increases in the
Consumer Price Index ("CPI"), calculated consistent with the methodology set
forth in Paragraph 4.2 of this Lease.
Notwithstanding the foregoing, nothing in this Paragraph 16(d) is
intended to, or shall be deemed to, reflect an intent by any of the Parties that
any repair, compliance or other obligations, of whatever nature, of Lessee
hereunder not related to Earthquake Repairs, are in any way unreasonable in
relation to the original Term of the Lease or otherwise. Instead, the Parties
acknowledge and agree that the terms contained in this Paragraph 16(d) are a
unique compromise related to the unique threat of earthquakes relating to the
Premises, and that it is the Parties' clear and unqualified intent that all
repair, compliance and other obligations of Lessee hereunder other than those
set forth
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in this Paragraph 16(d) are not obligations shared by Lessor, and are not
otherwise qualified, except as expressly stated herein.
17. Real Property Taxes.
-------------------
17.1 Payment of Taxes. Lessee shall pay all real property taxes applicable
----------------
to the Premises during the Term of this Lease. All such payments shall be made
at least ten (10) days prior to the delinquency date of such payment. Lessee
shall promptly furnish Lessor with satisfactory evidence that such taxes have
been paid. If any such taxes paid by Lessee shall cover any period of time after
the expiration of the Term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
during which this Lease shall be in effect, and Lessor shall reimburse Lessee to
the extent required. If Lessee shall fail to pay any such taxes, Lessor shall
have the right to pay the same, in which case Lessee shall repay such amount to
Lessor with Lessee's next rent installment together with interest at the then
maximum rate of interest permitted by law per annum. Non-delinquent real
property and personal property taxes shall be prorated between Lessor and Lessee
as of the date of expiration of the Term of this Lease.
17.2 Definition of "Real Property" Tax. As used herein, the term "real
---------------------------------
property tax" shall include any form of assessment, license fee, commercial
rental tax, levy, penalty, or tax (other than inheritance or estate taxes)
imposed by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as against any legal
or equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom, or as against Lessor's business of leasing the Premises.
If at any time during the Term, the State of California or any political
subdivision of the state, including any county, city, city and county, public
corporation, district, or any other political entity or public corporation of
this state, levies or assesses against Lessor a tax, fee, or excise: (i) on
rents, (ii) on the square footage of the Premises, (iii) on the act of entering
into this Lease, (iv) on the occupancy of Lessee, or any other tax, fee, or
excise, however, described, including, without limitation, a so-called value
added tax, as a direct substitution in whole or in part for, or in addition to,
any real property taxes, Lessee shall pay, before delinquency, that tax, fee, or
excise.
17.3 Joint Assessment. If the Premises are not separately assessed,
----------------
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by the parties from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available.
17.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all
-----------------------
taxes assessed against and levied upon all other personal property contained in
the Premises, including all FF&E. When possible, Lessee shall cause said
personal property to be assessed and billed separately from the real property of
Lessor.
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18. Utilities.
---------
Lessee shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon.
19. Defaults: Remedies.
------------------
19.1 Defaults. The occurrence of any one or more of the following events
--------
shall constitute a default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) business days after written
notice thereof from Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in the other subparagraphs of this Paragraph 19.1,
where such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's default is such that more than thirty (30) days are reasonably required
for its cure, no breach shall occur if Lessee commences said cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Lessee of any general assignment, or
general arrangement for the benefit of creditors; (ii) the filing by or against
Lessee or the guarantors of this Lease, Mr. Robert Snukal and Mrs. Sheila Snukal
("Guarantors"), of a petition to have Lessee or either or both of the Guarantors
adjudged bankrupt or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Lessee
or the Guarantors, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
the assets of any or all of the Guarantors or all of the Lessee's assets located
at the Premises or of Lessee's interest in this Lease, where possession is not
restored to the Guarantors or Lessee within thirty (30) days of such
appointment; or (iv) the attachment, execution or other judicial seizure of
substantially all of the assets of any or all of the Guarantors or all of the
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days of such attachment,
execution or seizure; or
(e) The loss of any Required License to operate the Licensed
Facility at the Premises.
19.2 Lessor's Remedies. If any default by Lessee shall continue
-----------------
uncured, following notice of default as required by the Lease, for the period
applicable to the default under the Lease, Lessor shall have the following
remedies in addition to all
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other rights and remedies provided by law or equity, to which Lessor may resort
cumulatively or in the alternative:
(a) Lessor may, at Lessor's election, terminate this Lease by
giving Lessee notice of termination. On the giving of the notice, all Lessee's
rights in the Premises and in all improvements, furniture and equipment shall
terminate. Promptly after notice of termination, Lessee shall surrender and
vacate the Premises and all improvements, furniture and equipment in broom clean
condition, and Lessor may reenter and take possession of the Premises and all
remaining improvements, furniture and equipment and eject all parties in
possession or eject some and not others or eject none. Termination under this
Paragraph shall not relieve Lessee for the payment of any sums then due to
Lessor for any claim or damages previously accrued or then accruing against
Lessee.
(b) Lessor may, at Lessor's election, reenter the Premises, and,
without terminating this Lease, and at any time and from time to time relet the
Premises or improvements, furniture or equipment or any part or parts of them
for the account and in the name of Lessee. Lessor may, at Lessor's election
eject all persons or eject some and not others or eject none. Lessor shall apply
all rents from reletting as in the provision on assignment of subrents
hereinbelow set forth. Any reletting may be for the remainder of the Lease Term
or for a longer or shorter period. Lessor may execute any leases made under this
provision in Lessee's name and shall be entitled to all rents from the use,
operation, or occupancy of the Premises or improvements, furniture or equipment
or both. Lessee shall nevertheless pay to Lessor on the due date specified in
this Lease the equivalent of all sums required of Lessee under this Lease, plus
Lessor's expenses, less the avails of any reletting or attornment. No act by or
on behalf of Lessor under this provision shall constitute a termination of this
Lease unless Lessor gives Lessee notice of termination.
(c) Lessor may, at Lessor's election use Lessee's personal property
and trade fixtures or any of such property and fixtures, if any, without
compensation and without liability for use or damage, or store them for the
account and at the cost of Lessee. The election of one remedy for any one item
shall not foreclose an election of any other remedy for another item or for the
same item at a later time.
(d) Lessor, which is hereby granted the remedy provided by Civil
Code ss.1951.4, shall be entitled at Lessor's election to each installment of
rent or to any combination of any installments for any period before
termination, plus interest at the then maximum rate of interest permitted by law
per year from the due date of each installment. Lessor shall make reasonable
efforts to mitigate Lessee's liability under this provision.
(e) In the event that Lessor terminates Lessee's right to
possession because of a breach of this Lease, this Lease shall thereupon
terminate and upon such termination, Lessor may recover from Lessee:
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(i) the worth at the time of award of the unpaid rent
(including charges equivalent to rent) which had been earned at the time of
termination,
(ii) the worth at the time of award of the amount by which the
unpaid rent (including charges equivalent to rent) which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Lessee proves could have been reasonably avoided,
(iii) the worth at the time of the award of the amount by which
the unpaid rent (including charges equivalent to rent) for the balance of the
Term after the time of award exceeds the amount of such rental loss that Lessee
proves could be reasonably avoided,
(iv) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform his obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises or any part thereof, reasonable
attorney's fees and any real estate commission actually paid or incurred.
The "worth at the time of award" of the amounts referred to in (i)
and (ii) above shall include interest at the maximum rate an individual is
permitted by law to charge. The "worth at the time of award" of the amount
referred to in (iii) above shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1 %). Nothing in this paragraph shall affect the right of
Lessor to indemnification for liability arising prior to the termination of the
Lease for personal injuries or property damage as provided in this Lease.
Nothing herein provided shall affect Lessor's rights under Chapter 4 (commencing
with Section 1159) of Title 3 of Part 3 of the Code of Civil Procedure relating
to actions for unlawful detainer, forcible entry and forcible detainer.
(f) Lessee assigns to Lessor all subrents and other sums falling
due from subtenant and licensees (herein called subtenants) during any period in
which Lessor has the right under this Lease, whether exercised or not, to
reenter the Premises for Lessee's default, and Lessee shall not have any rights
to such sums during that period. Lessor may, at Lessor's election, either as
attorney in fact of Lessee, or through a receiver appointed on Lessor's
application, reenter the Premises and improvements with or without process of
law, without terminating this Lease and either or both collect these sums or
bring action for the recovery of the sums directly from such obligors. Lessor
shall receive and collect all subrents and avails from reletting, applying them:
first, to the payment of reasonable expenses (including attorney's fees or
broker's commissions or both) paid or incurred by or on behalf of Lessor in
recovering possession, placing the Premises and improvements, furniture and
equipment in good condition, and repairing or altering the Premises or
improvements, furniture and equipment for reletting; second, to the reasonable
expense of securing new Lessees; third, to the fulfillment of Lessee's covenants
to the end of the Term; and fourth, to
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Lessee. Lessee shall nevertheless pay to Lessor, on the due dates specified in
this Lease, the equivalent of all sums required of Lessee under this Lease, plus
Lessor's expenses, less the avails of the sums assigned and actually collected
under this provision. Lessor may proceed to collect either the assigned sums or
Lessee's balances or both, and any installment or installments of them, either
before or after expiration of the Lease Term, but the period of limitation shall
not begin to run on Lessee's payments until the due date of the final
installment to which Lessor is entitled, nor shall it begin to run on payments
of the assigned sums until the due date of the final installment due from the
respective obligors.
19.3 Default by Lessor. Lessor shall not be considered in default under
-----------------
this Lease unless Lessor fails to perform obligations required of Lessor within
a reasonable time, but in no event later than thirty (30) days after written
notice by Lessee to Lessor and to the holder of any first mortgage or deed of
trust covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such thirty (30)
day period and thereafter diligently prosecutes the same to completion.
19.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
------------
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
Lessee shall pay to lessor a late charge equal to ten percent (10%) of the
overdue amount, plus the then maximum rate of interest permitted by law per
----
annum of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of costs Lessor will incur by reason
of late payment by Lessee. Acceptance of such late charge by Lessor shall in no
event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
available to Lessor.
20. Surrender of Lease.
------------------
The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall at the option of
Lessor, terminate all or any existing sublease or subtenancies, or may, at the
option of Lessor, operate as an assignment to it of any or all such subleases or
subtenancies.
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21. Attorney's Fees.
---------------
In case a suit shall be brought for an unlawful detainer of the said
Premises, for the recovery of any rent due under the provisions of this Lease,
or because of the breach of any other covenant herein contained on the part of
either party to be kept or performed, the prevailing party shall be entitled to
a reasonable attorney's fees and legal costs incurred in such suit or
arbitration and any appeal therein which shall be fixed by the court or arbiter,
as applicable.
22. Notices.
-------
All notices to be given to Lessee may be given in writing personally or by
depositing the same in the United States mail, certified or registered, postage
prepaid, and addressed to Lessee at the said Premises, whether or not Lessee has
departed from, abandoned, or vacated the said Premises.
Notices to Lessor shall be given in the same manner, its address for this
purpose, until further notice being:
Bernard Bubman
16161 Roscoe Boulevard
Suite 206
North Hills, California 91343
and
Fredric Frankel
1476 Rising Glen Rd.
Los Angeles, California 90069
Any party may change its address for the purpose of this paragraph by giving
written notice of such change to the other parties in the manner described
herein.
23. Waiver.
------
The waiver by Lessor of any breach of any term, covenant, or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition on any subsequent breach of the same or any other term, covenant, or
condition, herein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessor of
any term, covenant, or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's knowledge of
such preceding breach at the time of acceptance of such rent.
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24. Condemnation.
------------
If any part of the Premises shall be taken or condemned for a public or
quasi-public use, and a part thereof remains which is susceptible of occupation
hereunder, this Lease shall, as to the part so taken, terminate as of the date
title shall vest in the condemnor, and the rent payable hereunder shall be
adjusted so that the Lessee shall be required to pay for the remainder of the
Term only such portion of such rent as the value of the part remaining after the
condemnation bears to the value of the entire Premises at the date of
condemnation, provided the condemned portion does not reduce bed capacity below
100 (one hundred) beds or condemnation of more than 50% (fifty percent) of
dietary areas; in the event that the condemned area herein mentioned shall
exceed reduction of bed capacity below 100 (one hundred) or reduction of the
dietary areas below 50% (fifty percent), Lessee shall have the option for 30
days after the taking to terminate this Lease as of the date when the Lessee no
longer has effective use of the demised Premises as herein this Lease provided
for. Upon such reduction Lessor also shall have the option to terminate this
Lease as of the date when title to the part so condemned vests in the condemnor.
If a part or all of the leased Premises be taken or condemned, all compensation
awarded upon such condemnation or taking shall go to the Lessor, and the Lessee
shall have no claim thereto, and the Lessee hereby irrevocably assigns and
transfers to the Lessor any right to compensation or damages to which the Lessee
may become entitled during the Term hereof by reason of the condemnation of all,
or a part, of the leased Premises.
25. Holding Over.
------------
Any holding over after the expiration of the Term of this Lease or earlier
termination hereof, with the consent of Lessor, shall be construed to be a
tenancy from month to month, at a rental rate equal to 110% of the rental last
owing during the Term of this Lease, and shall otherwise be on the terms and
conditions herein specified, so far as applicable.
26. Successors.
----------
The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators, and assigns of the parties hereto.
27. Inventory.
---------
Two days prior to the expiration or earlier termination of the Term
hereof, the parties hereto shall jointly take an inventory of all expendable
items used in the operation of the skilled nursing facility, including but not
limited to food stuff, maintenance supplies, linen, medical central supplies and
FF&E. The Lessor shall have the option, but not the obligation, exercisable by
written notice to Lessee prior to the expiration or earlier termination of the
Term, to purchase all of such expendable items and supplies (the FF&E already
being owned by Lessor), and pay to Lessee on
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the expiration or termination date of the Lease a sum equal to Lessee's cost for
those items included in such inventory.
28. Lessor's Access.
---------------
Lessor and Lessor's agents shall have the right to enter the Premises
during business hours, without unreasonably disturbing the operation of the
facility on the Premises, for the purpose of inspecting the same, showing the
same to prospective purchasers, or lenders, making such alterations, repairs,
improvements or additions to the Premises or to the building of which they are a
part as Lessor may deem necessary or desirable and posting notices of
non-responsibility for alterations, additions and repairs. Lessor may at any
time place on or about the Premises any ordinary "For Sale" signs and Lessor may
at any time during the last one-hundred twenty (120) days of the Term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
29. Certification.
-------------
Lessee shall, without charge, at any time and from time to time hereafter,
within ten (10) business days after written request by Lessor, certify by
written instrument duly executed and acknowledged to any mortgagee or purchaser,
or proposed mortgagee or proposed purchaser, or any other person or company
specified in such request: (i) as to whether this Lease has been supplemented or
amended, and if so, the substance and manner of such supplement or amendment;
(ii) as to the validity and force and effect of this Lease, in accordance with
its tenor as then constituted; (iii) as to the existence of any default
thereunder; (iv) as to the existence of any offsets, counter-claims or defenses
thereto on the part of Lessee; (v) as to the commencement and expiration dates
of the Term of this lease; (vi) the amount of minimum monthly rent, the dates to
which the rent has been paid in advance and the amount of any security deposit
or prepaid rent; and (vii) as to any other matters as may reasonably be so
requested. Any such certificate may be relied upon by Lessor and any other
person or company to whom the same may be exhibited or delivered and the
contents of such certificate shall be binding on the party executing the same.
Failure to deliver the certificate within the ten (10) day period shall be
conclusive upon the Lessee for the benefit of the Lessor and any successor of
Lessor that this Lease is in full force and effect and has not been modified
except as may be represented by the Lessor.
30. Subordination.
-------------
This Lease shall be, and is hereby declared to be, wholly junior, inferior
and subordinate to the lien or charge of any mortgage or deed of trust which may
be at any time hereafter created by Lessor covering the Premises or any
property, or interest or estate of Lessor in property of which the Premises are
a part; provided, however, that if pursuant to the provisions of any such
mortgage or deed of trust the mortgagee or beneficiary thereunder should elect
by the terms of any such mortgage or deed of trust to cause the same to be
subordinate to this Lease either alone or in conjunction with any other leases
covering the property or interest or estate in property mortgaged or
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encumbered by such mortgage or deed of trust and of which the Premises
constitute a part, Lessee agrees that this Lease shall in such event be and
become prior and paramount to the lien or charge of such mortgage or deed of
trust and shall not in such event be terminated or extinguished in the event of
any foreclosure or sale on foreclosure of said mortgage or deed of trust.
Notwithstanding the above, no subordination of this Lease to any future
mortgage or deed of trust shall be required of Lessee under this Lease unless
Lessee first obtains from the lender a written agreement that provides that as
long as Lessee performs its obligations under this Lease, no foreclosure of,
deed given in lien of foreclosure of, or sale under the mortgage or deed of
trust, and no steps or procedures taken thereunder shall affect Lessee's rights
under this Lease.
Lessee shall execute the written agreement and any other documents
required by any lender to accomplish the purpose of this Paragraph 32 and if
applicable shall attorn to any purchaser at any foreclosure sale or to any
grantee or transferee designated in any deed given in lieu of foreclosure.
31. Guaranty.
--------
This Lease shall not be effective and shall have no force or effect unless
and until Mr. Robert Snukal and Mrs. Sheila Snukal, as joint and several
Guarantors, execute guarantees in the form which is attached hereto as Exhibit
"D" and made a part hereof by reference and delivers same to Lessor.
32. Time.
----
Time is of the essence of this Lease.
33. Captions.
--------
The title or headings to the paragraphs of this Lease are not a part of
the Lease, and shall have no effect upon the construction or interpretation of
any part thereof.
34. Use of Tradename and License.
----------------------------
Upon termination of this Lease either by expiration of the Term or in
accordance with the terms hereof or by law, Lessee shall no longer use the name
"Brier Oak Terrace Convalescent Center" or any similar name or any license or
permits to operate the facility on the Premises.
Lessee shall execute such documents as may be required to accomplish the
foregoing restrictions and assignments.
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35. Authority of Lessee's Signatories.
---------------------------------
In the event that Lessee is not an individual, the persons executing this
Lease on behalf of Lessee represent and warrant to Lessor that: (i) if Lessee is
a partnership, Lessee's partnership agreement authorizes such persons to execute
this Lease on behalf of Lessee and commit the Lessee hereto; (ii) if Lessee is a
corporation, such persons are executing this Lease pursuant to a resolution of
the Lessee's board of directors approving such execution and authorizing such
persons to execute the Lease on behalf of the Lessee and to commit the Lessee
hereto. Concurrently with Lessee's execution of this Lease, Lessee shall deliver
to Lessor a copy of Lessee's partnership agreement or statement of partnership
or certificate of limited partnership or certified copy of a board of director's
resolution and such other corporate documents as reasonably requested by Lessor,
as the case may be, confirming such authorizations.
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<PAGE>
Brier Oak Convalescent Lease
36. Severability.
------------
The unenforceability, invalidity or illegality of any portion of this
Lease shall not render any other portions unenforceable, invalid or illegal.
37. Counterparts. This Lease may be executed in two or more counterparts, each
------------
of which shall be deemed an original, but all of which shall constitute one and
the same instrument.
LESS0R: SUNSET MOTEL AND
DEVELOPMENT CO., a General
/s/ Bernard Bubman Partnership
- ----------------------
BERNARD BUBMAN
By:
-----------------------
/s/ Irene Weiss FREDRIC FRANKEL, as Trustee of
- ------------------- the FREDERIC R. AND
IRENE WEISS GERTRUDE J. FRANKEL LIVING
TRUST,
dated March 22, 1983
General Partner
ARNOLD & ELAINE FRIEDMAN AS
TRUSTEES FOR THE ARNOLD &
ELAINE FRIEDMAN FAMILY TRUST By:
OF SEPTEMBER 7th, 1993 ------------------------
GERTRUDE FRANKEL, as Trustee
of the FREDERIC R. AND
GERTRUDE J. FRANKEL LIVING
By: /s/ Arnold Friedman, Tr. TRUST,
------------------------- dated March 22, 1983
ARNOLD FRIEDMAN, Trustee General Partner
By: /s/ Elaine Friedman, Tr.
-------------------------
ELAINE FRIEDMAN, Trustee
Page 30
<PAGE>
Brier Oak Convalescent Lease
36. Severability.
------------
The unenforceability, invalidity or illegality of any portion of this
Lease shall not render any other portions unenforceable, invalid or illegal.
37. Counterparts. This Lease may be executed in two or more counterparts, each
------------
of which shall be deemed an original, but all of which shall constitute one and
the same instrument.
LESS0R: SUNSET MOTEL AND
DEVELOPMENT CO., a General
Partnership
By: /s/ Fredric Frankel
- ----------------------- -------------------------
BERNARD BUBMAN FREDRIC FRANKEL, as Trustee of
the FREDERIC R. AND
- ----------------------- GERTRUDE J. FRANKEL LIVING
IRENE WEISS TRUST,
dated March 22, 1983
General Partner
ARNOLD & ELAINE FRIEDMAN AS
TRUSTEES FOR THE ARNOLD &
ELAINE FRIEDMAN FAMILY TRUST By: /s/ Gertrude Frankel
OF SEPTEMBER 7th, 1993 ----------------------
GERTRUDE FRANKEL, as Trustee
of the FREDERIC R. AND
GERTRUDE J. FRANKEL LIVING
By: TRUST,
------------------------ dated March 22, 1983
ARNOLD FRIEDMAN, Trustee General Partner
By:
-----------------------
ELAINE FRIEDMAN, Trustee
Page 30
<PAGE>
Brier Oak Convalescent Lease
By: /s/ Julia Herman Zalkind
----------------------------
JULIA HERMAN ZALKIND, as
Successor Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1993, as amended
By: /s/ Michael Herman
------------------------------
MICHAEL HERMAN, as Successor
Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1983
By:
-----------------------------
STANLEY FLEISHMAN, as trustee
of the Fleishman Family Trust,
General Partner
By:
-----------------------------
DORIS FLEISHMAN, as
trustee of the Fleishman Family
Trust,
General Partner
LESSEE:
BRIER OAK CONVALESCENT, Inc., a
California corporation
By:
-----------------------------
President
-------------
By:
-----------------------------
Secretary
-------------
Page 31
<PAGE>
Brier Oak Convalescent Lease
By:
----------------------------
JULIA HERMAN ZALKIND, as
Successor Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1993, as amended
By:
----------------------------
MICHAEL HERMAN, as Successor
Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1983
By: /s/ Stanley Fleishman
------------------------------
STANLEY FLEISHMAN, as trustee
of the Fleishman Family Trust,
General Partner
By: /s/ Doris Fleishman
------------------------------
DORIS FLEISHMAN, as
trustee of the Fleishman Family
Trust,
General Partner
LESSEE:
BRIER OAK CONVALESCENT, Inc., a
California corporation
By:
------------------------------
----------------- President
By:
------------------------------
----------------- Secretary
Page 31
<PAGE>
Brier Oak Convalescent Lease
By:
-----------------------------
JULIA HERMAN ZALKIND, as
Successor Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1993, as amended
By:
-----------------------------
MICHAEL HERMAN, as Successor
Co-Trustee of the
MOLLY HERMAN LIVING
TRUST,
dated July 7, 1983
By:
-------------------------------
STANLEY FLEISHMAN, as trustee
of the Fleishman Family Trust,
General Partner
By:
-------------------------------
DORIS FLEISHMAN, as trustee
of the Fleishman Family Trust,
General Partner
LESSEE:
BRIER OAK CONVALESCENT, Inc., a
California corporation
By: [ILLEGIBLE SIGNATURE]
--------------------------------
President
--------------------
By: [ILLEGIBLE SIGNATURE]
--------------------------------
Secretary
---------------------
Page 31
<PAGE>
SECURED PROMISSORY NOTE
-----------------------
$159,000.00 Los Angeles, California
February 1, 1995
----------
FOR VALUE RECEIVED, the undersigned, BRIER OAK CONVALESCENT,
INC., a California corporation ("Maker"), promises to pay to BERNARD BUBMAN,
-----
ARNOLD FRIEDMAN, IRENE WEISS AND SUNSET MOTEL AND DEVELOPMENT CO., a general
partnership (collectively, "Holders"), or order, at Bubman, Friedman, Weiss and
-------
Sunset c/o East West Bank, 2496 Glendale Blvd. L.A. CA 90039 or at such other
-----------------------------------------------------
place as may be designated in writing by the Holders of this Secured Promissory
Note (this "Note"), the principal sum of ONE HUNDRED FIFTY NINE THOUSAND DOLLARS
($159,000.00), together with interest from the date hereof on the unpaid
principal balance at a rate equal to the lesser of (i) ten percent (10%) per
annum or (ii) the maximum rate of interest from time to time permitted by law.
Interest chargeable hereunder shall be calculated on the basis of a three
hundred sixty five (365) day year for actual days elapsed.
This Note has been issued pursuant to that certain Lease
Agreement, of even date herewith (the "Agreement"), between Maker and Holders,
---------
and all of the terms, covenants and conditions of the Agreement, as the
Agreement may from time to time be amended (including all exhibits and schedules
thereto), and all other instruments evidencing and/or securing the indebtedness
hereunder are hereby made part of this Note and are deemed incorporated herein
in full. The occurrence or existence of a default under the Agreement, including
the failure to pay any installment of principal and/or interest in full on the
due date thereof under this Note, or a default as defined in any other
instruments securing and/or evidencing this indebtedness, shall constitute an
"Event of Default" under this Note and shall entitle Holders, at their option,
----------------
to accelerate the then outstanding indebtedness hereunder and take such other
action as may be provided for in the Agreement.
Principal shall be due and payable on the dates and in the
manner as follows:
a. A payment of Seventy Nine Thousand Five
Hundred Dollars ($79,500.00) due and payable
on April 1, 1996; and
b. A payment of Seventy Nine Thousand Five
Hundred Dollars ($79,500.00) due and payable
on April 1, 1997.
Interest shall be due and payable on the dates and in the
manner as follows:
a. If the indebtedness on this Note is not
accelerated and if Maker shall pay both
scheduled principal payments on a timely
basis, Holders agree to waive payment by
Maker of all interest accruing under this
Note.
<PAGE>
b. If Maker shall pay the first installment of
principal on a timely basis, but fails to
pay the second installment of principal on a
timely basis (or if the indebtedness on this
Note is accelerated), Holders agree to waive
payment by Maker of interest accruing for
the period from the date of this Note
through March 31, 1996, and interest accrued
on the unpaid principal amount of this Note
for the period from April 1, 1996 to
April 1, 1997 (or such earlier date on
which the indebtedness on this Note may be
accelerated) shall be due and payable on
such date.
c. If Maker shall fail to pay the first
installment of principal on a timely basis,
interest accrued on the unpaid principal
amounts of this Note on April 1, 1996 and
April 1, 1997 shall be due and payable on
such dates, unless the indebtedness on this
Note is accelerated, in which case interest
accrued as of the date of acceleration shall
be due and payable on such date.
A late charge of five percent (5%) of any installment of
principal or interest, or such maximum lesser amount permitted by law, will be
charged any such installment unpaid on its due date and shall be immediately due
and payable by Maker to Holders.
Maker may prepay the principal balance due under this Note at
any time.
All payments hereunder are to be applied first to the payment
of Holders' costs, fees, and expenses under the Agreement or in connection with
the enforcement of its rights under this Note, second to the payment of accrued
interest, and thereafter to the payment of principal. All principal and interest
due hereunder is payable in lawful money of the United States of America.
Maker, for itself and its legal representatives, successors
and assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, and diligence in collection, and consents
and agrees that Holders may release or surrender, exchange or substitute any
collateral security now held or which may hereafter be held as security for the
payment of this Note, without affecting the enforceability of this Note or the
indebtedness evidenced hereby.
IT IS EXPRESSLY AGREED THAT IF MAKER FAILS TO PAY ANY PAYMENT
OF PRINCIPAL OR INTEREST AS ABOVE PROVIDED, OR UPON THE OCCURRENCE OF ANY OTHER
DEFAULT UNDER THE TERMS OR CONDITIONS OF THE AGREEMENT OR UNDER ANY OTHER
INSTRUMENTS SECURING AND/OR EVIDENCING MAKER'S OBLIGATIONS UNDER THE AGREEMENT,
OR UPON THE TERMINATION OF THE AGREEMENT, THEN THE UNPAID PRINCIPAL BALANCE OF
THIS NOTE, TOGETHER WITH ALL INTEREST ACCRUED THEREON, SHALL THEREUPON BE
IMMEDIATELY DUE AND PAYABLE AT THE OPTION OF THE HOLDERS HEREOF, WITHOUT
PRESENTMENT, DEMAND, PROTEST OR NOTICE
2
<PAGE>
OF PROTEST OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED. IT IS FURTHER
UNDERSTOOD AND AGREED THAT THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE
SECURITY INTERESTS GRANTED BY MAKER IN THE AGREEMENT, AND ALL OF THE COVENANTS,
CONDITIONS, WARRANTIES, REPRESENTATIONS, AND AGREEMENTS CONTAINED IN THE
AGREEMENT, OR IN ANY OTHER AGREEMENT BETWEEN MAKER AND HOLDERS WHICH IS EXECUTED
IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER OR UNDER THE
AGREEMENT, ARE HEREBY INCORPORATED HEREIN AND MADE A PART HEREOF.
MAKER AND HOLDERS EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY DOCUMENTS CONTEMPLATED HEREIN.
In the event it should become necessary to employ counsel to
collect this Note, Maker agrees to pay the reasonable attorneys' fees and costs
of the holder hereof, whether or not suit is brought. This Note and all
transactions hereunder and/or evidenced hereby shall be governed by, construed
under and enforced in accordance with the internal laws of the State of
California (without reference to principles of conflicts of law). This Note may
not be changed, modified, amended or terminated orally and the provisions hereof
may not be waived by Holders unless in writing.
BRIER OAK CONVALESCENT, INC.,
a California corporation
By: [ILLEGIBLE SIGNATURE]
------------------------
Title: President
------------------
3
<PAGE>
GUARANTY OF LEASE AGREEMENT AND SECURED PROMISSORY NOTE
-------------------------------------------------------
This Guaranty of Lease Agreement and Secured Promissory Note
(the "Guaranty") is entered into as of Feb. 1 , 1995, by Robert Snukal and
-------- ------
Sheila Snukal, husband and wife (collectively, the "Guarantors"), for the
----------
benefit of Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset Motel and
Development Co., a partnership (the "Lessors").
-------
RECITALS
A. Concurrently herewith, the Lessors and Brier Oak Convalescent, Inc.,
a California corporation ("Brier Oak"), as lessee, have entered into that
---------
certain Lease Agreement dated as of Feb. 1, 1995 (the "Lease as Agreement")
------------------
whereby Brier Oak leases certain real property from the Lessors. Certain of
Brier Oak's obligations under the Lease Agreement are evidenced by a Secured
Promissory Note dated as of Feb. 1, 1995 (the "Note") payable to the order of
------
the Lessors. The Lease Agreement and the Note are collectively referred to as
the "Documents".
---------
B. Under the Lease Agreement, Brier Oak grants a security interest in
certain of its property to secure its obligations to Lessors.
C. Guarantors acknowledge that they have a financial interest in Brier
Oak and will obtain material financial benefits from Brier Oak's lease of
property under the Lease Agreement.
D. Guarantors acknowledge that Lessors would not have entered into the
Lease Agreement in the absence of this Guaranty.
GUARANTY
1. In consideration of the execution of the Documents by the
Lessors and as a material inducement to the Lessors to execute the Documents,
Guarantors, jointly and severally, unconditionally and irrevocably guarantee, to
the Lessors, their successors and assigns, without deduction by reason of
setoff, defense or counterclaim, the full and timely payment by Brier Oak of all
rentals and all other sums payable by Brier Oak under the Documents and the full
and timely performance by Brier Oak of each and every one of the terms,
conditions and covenants of the Documents to be kept and performed by Brier Oak
(collectively, "Brier Oak's Obligations"). This Guaranty shall be binding
-----------------------
(jointly and severally) and enforceable against Guarantors, and their heirs,
personal representatives, successors and assigns.
2. Guarantors represent and warrant to the Lessors that they
are each residents of California and that neither is a debtor in proceedings
under the Bankruptcy Code.
3. If Brier Oak shall at any time default in the payment,
performance or observance of any of the terms, conditions or covenants in the
Documents contained on Brier
<PAGE>
Oak's part to be kept, performed or observed, Guarantors will pay, keep, perform
and observe same, as the case may be.
4. Any act of the Lessors consisting of a waiver of any of the terms
or conditions of the Documents, or the giving of any consent to any matter or
thing relating to the Documents, or the granting of any extensions of time to
Brier Oak, may be done without notice to Guarantors and without releasing
Guarantors from any of their obligations hereunder or otherwise affecting same.
5. The terms of the Documents may be altered, modified, changed,
extended or renewed by agreement between the Lessors and Brier Oak, or by a
course of conduct, and the Documents may be assigned by the Lessors or any
assignee of the Lessors, c by Brier Oak or any successor thereto, without
consent or notice to Guarantors and this Guaranty shall thereupon and thereafter
guarantee the performance of Brier Oak or any such successor thereto under the
Documents as so changed, altered, modified, assigned, extended or renewed.
6. Without authorization from or notice to Guarantors, the Lessors
and Brier Oak may alter, compromise or change the time or manner of payment or
performance of any or all of Brier Oak's Obligations, may release or add any one
or more guarantors, sureties or endorsers in respect of any of Brier Oak's
Obligations, and may take and hold collateral to secure payment, performance,
discharge and satisfaction of any or all of Brier Oak's Obligations, may
foreclose upon or otherwise realize all or any part of any such collateral in
any order, and may release all of or any part of any such collateral, all
without impairing, affecting or otherwise exonerating any of the covenants,
agreements, duties or obligations of Guarantors hereunder. No exercise or non-
exercise by the Lessors of any right or remedy hereby given to the Lessors, no
dealing by the Lessors with Guarantors or with any other guarantor, endorser or
surety in respect of any of Brier Oak's Obligations, or with all or part of any
collateral securing any of Brier Oak's Obligations, and no change, impairment or
suspension of any right or remedy of the Lessors shall in any way impair or
affect any of Guarantors' covenants, agreements, duties or obligations hereunder
or give Guarantors any recourse against the Lessors.
7. This Guaranty guarantees the payment by Guarantors of any and all
amounts due or owing at any time from Brier Oak with respect to any and all of
Brier Oak's Obligations notwithstanding any payments made or any settlement of
account or any other thing whatsoever; and no payments made by or on behalf of
Guarantors shall discharge, diminish or otherwise affect the continuing
liability of Guarantors hereunder or otherwise, unless and until each of Brier
Oak's Obligations has been fully, effectively and irrevocably paid, performed,
satisfied and discharged. Guarantors hereby waive all right of subrogation and
all benefit of or right to participate in any security now or hereafter held by
the Lessors for the payment, performance, satisfaction or discharge of any of
Brier Oak's Obligations or otherwise. Notwithstanding anything to the contrary
in this Guaranty, or in any other agreement or instrument to which Guarantors
are a party, Guarantors hereby: (a) expressly
2
<PAGE>
and irrevocably waive, to the fullest extent possible, on behalf of themselves
and their successors and assigns (including any surety), any and all rights at
law or in equity to subrogation, to reimbursement, to exoneration, to
contribution, to indemnification, to setoff or to any other rights that could
accrue to a surety against a principal, to a guarantor against a maker or
obligor, to an accommodation party against the party accommodated, to a holder
or transferee against a maker, or to the holder of any claim against any person,
and which Guarantors may have or hereafter acquire against Brier Oak as a result
of Guarantors' execution, delivery or performance of this Guaranty, or any other
documents to which Guarantors are a party or otherwise; (b) expressly and
irrevocably waive any "claim" (as such term is defined in the United States
Bankruptcy Code) of any kind against Brier Oak, and further agree that they
shall not have or assert any rights with respect to any such claim against any
person (including any surety), either directly or as an attempted setoff to any
action commenced against Guarantors by the Lessors; and (c) acknowledge and
agree (i) that this waiver is intended to benefit the Lessors and shall not
limit or otherwise affect Guarantors' liability hereunder or the enforceability
of this Guaranty, and (ii) that the Lessors and their successors and assigns are
intended third party beneficiaries of the waivers and agreements set forth in
this sentence and their rights under this sentence shall survive payment and
performance in full of Brier Oak's Obligations. If a claim is made upon any
person at any time for disgorgement, repayment or recovery of any amount or
amounts or other consideration or value received from any source whatsoever in
payment, performance, satisfaction or discharge of, or otherwise on account of,
any of Brier Oak's Obligations, and if such person repays any such amounts,
value or consideration or otherwise becomes liable for all or any part of such
claim by reason of (a) any judgment, decree or order of any court or
administrative body having competent jurisdiction, (b) any settlement or
compromise of any such claim (provided, if such claim does not arise in the
context of insolvency or bankruptcy, that any such settlement or compromise is
made with the consent of Guarantors), or (c) the bankruptcy, insolvency or
reorganization of Brier Oak of any endorser, guarantor, surety or other obligor
in respect of any of Brier Oak's Obligations, Guarantors shall be and remain
liable hereunder for the amount, value or consideration so repaid, or for which
such person otherwise is liable, to the same extent as if such amount, value or
consideration never had been received by such person, all notwithstanding any
termination hereof or the cancellation of any agreement, instrument or document
evidencing any of Brier Oak's Obligations. By virtue of this Guaranty,
Guarantors hereby expressly assume any and all risks of a bankruptcy, insolvency
or reorganization with respect to Brier Oak. Notwithstanding any other provision
of this Guaranty or anything to the contrary contained in the Documents,
Guarantors' obligations under this Guaranty shall be continuing obligations and
shall survive until Brier Oak's Obligations are fully, effectively and
irrevocably paid, performed, satisfied and discharged.
8. Guarantors agree that they may be joined in any action against
Brier Oak in connection with Brier Oak's Obligations under the Documents and
recovery may be had against Guarantors in any such action. The Lessors may
enforce the obligations of Guarantors hereunder without previous notice to or
demand upon either Brier Oak or Guarantors and
3
<PAGE>
without first taking any action whatsoever against Brier Oak or its successors
and assigns, or pursuing any other remedy or applying any security it may hold.
9. Guarantors hereby expressly waive, relinquish and release any
right, defense, protection, claim of exoneration or other claim, and any right
to assert any right, defense, protection, claim of exoneration or other claim,
in any action brought on this Guaranty or otherwise:
(a) based upon California Civil Code 2809 or otherwise, that any
obligation of Guarantors under this Guaranty is larger in amount or in other
respects more burdensome than that of Brier Oak, or that any such obligation of
Guarantors is reducible in proportion to any of Brier Oak's Obligations;
(b) based upon California Civil Code Section 2810 or otherwise,
that for any reason there is no liability upon the part of Brier Oak under any
of the Documents at the time of the execution of any of the Documents, or that
the liability of Brier Oak under any of the Documents thereafter ceases for any
reason other than the full, effective and irrevocable payment, performance,
satisfaction and discharge of such liability or that the Lessors has recovered
any res that formed all or part of the consideration for any of the Documents
except only to the extent that any of Brier Oak's Obligations;
(c) based upon California Civil Code Section 2819 or otherwise,
that any original Brier Oak Obligation has been altered in any respect without
Guarantors' consent (whether or not by any act of the Lessors), or that the
remedies or rights of the Lessors against Brier Oak in respect thereto, have
been in any way impaired or suspended;
(d) based upon California Civil Code Section 2839 or otherwise,
that performance of any or all of Brier Oak's Obligations, or any offer of such
performance, exonerates Guarantors except only to the extent that any of Brier
Oak's Obligations are fully, effectively and irrevocably paid, performed,
satisfied or discharged;
(e) based upon California Civil Code Section 2845 or otherwise,
that Guarantors may require the Lessors to proceed against Brier Oak or to
pursue any other remedy in the Lessors' power that Guarantors cannot pursue or
that would lighten Guarantors' burden, or that the Lessors has neglected so to
proceed against Brier Oak, or to purse any such other remedy;
(f) based upon California Civil Code Section 2846 or otherwise,
that Guarantors may compel Brier Oak to perform any of Brier Oak's Obligations
when due, whether as a condition precedent to any liability of Guarantors or
otherwise;
(g) based upon California Civil Code Section 2847 or otherwise,
that if Guarantors satisfy any of Brier Oak's Obligations (or any part thereof),
whether with or
4
<PAGE>
without legal proceedings, Brier Oak is bound to reimburse what Guarantors have
disbursed, whether or not including any necessary costs and expenses;
(h) based upon California Civil Code Section 2848 or otherwise,
that Guarantors, upon satisfying or discharging all or any part of any of Brier
Oak's Obligations, are entitled to enforce any remedy that the Lessors then have
against Brier Oak, whether to the extent of reimbursing what Guarantors have
expended or otherwise, or to require any or all of any co-sureties of Guarantors
to contribute thereto;
(i) based upon California Civil Code Section 2849 or otherwise,
that Guarantors are entitled to the benefit of any security held for the
performance of Brier Oak's Obligations, whether any such security is held by the
Lessors, or by any co-surety of Guarantors, or otherwise, and whether any such
security was held at the time of Guarantors' entering into this Guaranty or
acquired afterwards, and whether Guarantors were aware of any such security or
not;
(j) based upon California Civil Code Section 2850 or otherwise,
that as to any property of Guarantors that has been hypothecated with property
of Brier Oak, Guarantors are entitled to have the property of Brier Oak first
applied to the discharge of any or all of Brier Oak's Obligations;
(k) based upon California Civil Code Section 2855 or otherwise,
that an arbitration award rendered against Brier Oak alone shall not be, be
deemed to be, or utilized as, an award against the Guarantors;
(l) based upon California Civil Code Section 2899 or otherwise,
that the Lessors must resort to property upon which the Lessors have a lien in
any particular order, or must otherwise marshal any such liens;
(m) based upon California Civil Code Section 3433 or otherwise,
that Guarantors may require the Lessors to seek satisfaction from funds to which
Guarantors have no claim or must otherwise marshal assets;
(n) otherwise based upon any of the sections of the California
Civil Code referred to in this paragraph 9; or
(o) based upon any other action or circumstance that might
otherwise constitute a legal or equitable discharge, defense or exoneration of a
guarantor or surety.
Without limiting the generality of the foregoing, Guarantors hereby expressly
waive (a) notice of the acceptance of this Guaranty by any person, (b) notice of
Brier Oak's Obligations now existing or that may hereafter exist, (c) notice of
demand for payment or performance, or notice of default or nonpayment or
nonperformance, under the Documents (or any of them) or otherwise in respect of
any of Brier Oak's Obligations, and (d) all other notices to which
5
<PAGE>
Guarantors might otherwise be entitled in connection with this Guaranty, the
Documents (or any of them) or otherwise in respect of Brier Oak's Obligations.
10. Guarantors hereby expressly waive (a) any right to require the
Lessors, as a condition precedent to the enforcement of the Guaranty or
otherwise, to exhaust any security for the payment, performance, satisfaction or
discharge of Brier Oak's Obligations under the Documents (or any of them) in any
manner, or to pursue any other rights or remedies that the Lessors currently or
hereafter may have against Guarantors, or any other guarantors, payors,
endorsers or sureties of the Documents (or any of them) or Brier Oak's
Obligations, whether such rights exist in law, in equity, by contract, by
statute or otherwise, it being agreed by Guarantors that this Guaranty is and
constitutes an absolute, unconditional and irrevocable guarantee by Guarantors
of payment and the performance and not of collection, that failure of the
Lessors to exercise any rights or remedies they have or may have against
Guarantors shall in no way abrogate, impair, nullify, terminate or otherwise
affect the obligations of Guarantors under this Guaranty, and that the liability
of Guarantors hereunder is and shall be direct, absolute, unconditional and
irrevocable, or (b) any defense arising by reason of the termination or other
cessation of any of Brier Oak's Obligations for any cause whatsoever other than
full, effective and irrevocable payment, performance, satisfaction or discharge
of any liability or obligation comprising any of Brier Oak's Obligations.
11. Guarantors' liability hereunder shall continue notwithstanding, and
shall be unaltered, unaffected and unimpaired by (a) the bankruptcy, insolvency,
reorganization, merger, liquidation, dissolution, winding-up or cessation of
existence of Brier Oak, (b) any fraudulent, illegal or improper act by Brier
Oak, or (c) any payment made on Brier Oak's Obligations that the recipient
repays or is liable to repay to Brier Oak pursuant to any court order or as
otherwise required by law. Guarantors hereby waive and relinquish any
entitlement to claim or assert that a finding or liquidation of damages by a
bankruptcy court administering a bankruptcy proceeding of Brier Oak constitutes
collateral estoppel or res judicata as to the Lessors' claims against Guarantors
and Guarantors covenants not to assert any such claim of collateral estoppel or
res judicata in any action or legal proceeding brought by the Lessors.
12. Guarantors hereby covenant and agree that the failure by the
Lessors to file or enforce a claim against Guarantors (either in administration,
bankruptcy or other proceedings of Guarantors or any other person or otherwise)
shall not affect Guarantors' liability hereunder nor shall Guarantors be
released from liability hereunder if recovery from Brier Oak, any other
guarantor, payor, endorser or surety in respect of any of Brier Oak's
Obligations becomes barred by any statute of limitations (other than by
application of any statute of limitations to any breach by Guarantors of its
obligations under this Guaranty).
13. Guarantors hereby waive and agree not to exercise or take advantage
of the defense of any applicable statue of limitations (as any such statute of
limitations may apply to any of the Documents and/or to any Brier Oak's
Obligations, but not as any such statute of limitations may apply directly to
any actions or claims under this Guaranty) in any action
6
<PAGE>
hereunder or for the collection or payment or performance of any of Brier Oak's
Obligations. In the event that the maturity of any of Brier Oak's Obligations is
accelerated by bankruptcy or otherwise, such maturity shall also be accelerated
for purposes of this Guaranty (and the guarantee of Guarantors hereunder), and
without demand or notice to Guarantors.
14. The obligations of Guarantors hereunder are independent of Brier
Oak's Obligations under the Documents (and each of them) and of any security for
or other guarantee of Brier Oak's Obligations. The Lessors may maintain an
action against Guarantors upon this Guaranty, whether or not Brier Oak is joined
therein or a separate action is brought against Brier Oak. The rights of the
Lessors hereunder are cumulative and shall not be exhausted by the exercise of
any of its rights hereunder or otherwise against Guarantors or by any number of
successive actions unless and until all of Brier Oak's Obligations have been
fully, effectively and irrevocably paid, performed, satisfied and/or discharged,
and each of Guarantors' obligations hereunder has been fully, effectively and
irrevocably paid, performed, satisfied and discharged.
15. If Brier Oak's Obligations guaranteed hereby are also directly or
indirectly guaranteed by any other person, by guarantee of the Documents (or any
of them) or otherwise, the obligations of such other person and Guarantors'
obligations hereunder shall be deemed to be joint and several, and neither the
existence of any such other guarantee nor the release of any such other
guarantor, any settlement with such other guarantor, or the revocation or
impairment of such other guarantee, shall directly or indirectly in any manner
operate to prejudice any of the rights, privileges, preferences and remedies of
the Lessors against Guarantors hereunder. The Lessors may proceed directly
against Guarantors hereunder without proceeding against any such other guarantor
irrespective of, and without regard to, any actions, suits or proceedings that
are or may be initiated, undertaken or maintained by the Lessors against any
such other guarantor.
16. Without limiting the generality of any of the provisions hereof,
and notwithstanding anything to the contrary contained in this Guaranty, or the
Documents, Guarantors hereby recognize, acknowledge and agree that the
covenants, agreements, duties, and obligations of Guarantors under this Guaranty
are absolute, unconditional and irrevocable, and shall not, directly or
indirectly, in any manner whatsoever be exonerated, discharged, abrogated,
impaired, nullified, suspended, terminated, released or otherwise affected by
any event, condition, circumstance, transaction (regardless of form) or act
(including, without limitation, any alteration, modification, compromise,
waiver, surrender or release of any covenant, agreement, duty or obligation
under the Documents or otherwise comprising part of or included in any of Brier
Oak's Obligations or of any person guaranteeing, giving security for or who is
otherwise directly or indirectly liable for the payment, performance, discharge
or satisfaction of all or any of Brier Oak's Obligations, any bankruptcy or
insolvency of, or any disability affecting Brier Oak, any liquidation,
dissolution, winding-up, termination or other cessation of existence of Brier
Oak or any failure to deliver any notice to Guarantors), which might otherwise
constitute a legal, equitable or other exoneration, release or discharge of a
guarantor or surety (or similarly situated person) under applicable law.
7
<PAGE>
17. Guarantors hereby covenant and agree to, and shall, indemnify,
defend and hold harmless the Lessors from and against any and all losses,
liabilities, damages, claims, demands, obligations, actions, settlements, costs
and expenses (including, without limitation, court costs and attorneys' fees)
that the Lessors may suffer, sustain, incur, pay, expend or lay out by virtue,
as a result of or in respect of, in connection with or based upon or arising out
of, directly or indirectly, each and every breach by Guarantors of any of Brier
Oak's Obligations and any or all of the covenants, agreements, representations,
warranties, duties or obligations of Guarantors under the Documents or under
this Guaranty.
18. In the event that any action, suit, or other proceeding is brought
by the Lessors to enforce the obligations of Guarantors under this Guaranty, the
prevailing party shall be entitled to recover all of such party's costs and
expenses (including, without limitation, court costs and reasonable attorneys'
fees) incurred in each and ever such action, suit or other proceeding, including
any and all appeals or petitions therefrom.
19. Guarantors may not assign any of its rights, or delegate any of its
duties or obligations, hereunder without the prior written consent of the
Lessors, and any such assignment or delegation without such prior written
consent of the Lessors shall be void ab initio and of no legal force or effect
whatsoever.
20. This Guaranty shall terminate, if at all, only upon the full,
effective and irrevocable payment, performance, discharge and satisfaction of
each and all of Brier Oak's Obligations and the full, effective and irrevocable
performance by Guarantors of each and all of its covenants, agreements, duties
and obligations under this Guaranty.
21. THIS GUARANTY HAS BEEN MADE AND ENTERED INTO IN THE STATE OF
CALIFORNIA, AND THE INTERNAL SUBSTANTIVE LAWS (AS DISTINGUISHED FROM THE CHOICE
OF LAW RULES) OF SAID STATE SHALL GOVERN THE VALIDITY AND INTERPRETATION HEREOF,
AND THE PERFORMANCE BY GUARANTORS OF ITS DUTIES AND OBLIGATIONS HEREUNDER.
WHENEVER POSSIBLE, EACH PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH
MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW. IF ANY PROVISION OF
THIS GUARANTY SHALL BE INVALID OR UNENFORCEABLE UNDER APPLICABLE LAW, SUCH
PROVISION SHALL BE INEFFECTIVE ONLY TO THE EXTENT OF SUCH INVALIDITY OR
UNENFORCEABILITY WITHOUT INVALIDATING OR RENDERING UNENFORCEABLE THE REMAINDER
OF SUCH PROVISIONS OR OF THE REMAINING PROVISIONS OF THIS GUARANTY.
22. The term "Lessors" as used herein shall refer to the Lessors and
also to any assignee of any of the Lessors or any successor in interest to any
of the Lessors, whether by assignment or otherwise.
8
<PAGE>
23. The term "Brier Oak" as used herein refers to Brier Oak and also to
any assignee of Brier Oak or any successor in interest to Brier Oak, whether by
assignment or otherwise.
24. This instrument constitutes the entire agreement between Guarantors
and the Lessors with respect to the subject matter hereof, superseding all prior
oral or written agreements or understandings with respect thereto, and may not
be changed, modified, discharged or terminated in any manner other than by an
agreement in writing signed by Guarantors and the Lessors.
IN WITNESS WHEREOF, Guarantors have executed this Guaranty.
RECEIPT OF A TRUE COPY OF THIS GUARANTY IS HEREBY ACKNOWLEDGE
BY THE UNDERSIGNED.
GUARANTORS: /s/ Robert Snukal
- ---------- -------------------------------------------
Robert Snukal
Address: 11900 W. Olympic Blvd # 680
---------------------------
Los Angeles ,CA 90064
---------------------------
/s/ Sheila Snukal
-------------------------------------------
Sheila Snukal
Address: 11900 W. Olympic Blvd # 680
---------------------------
Los Angeles, CA 90064
---------------------------
9
<PAGE>
EXHIBIT 10.13
[RECORDERS APPEARS HERE]
FOR RECORDER'S USE ONLY
--------------
ASSIGNMENT OF LEASE
-------------------
GENES, LTD,, a California Limited Partnership and its Successor , GENES
CAPITAL MANAGEMENT COMPANY, an Arizona Corporation, as assignor, for a valuable
consideration, the receipt of which is hereby acknowledged, does hereby assign
to I.T.E., LTD., an Arizona Limited Partnership, its interest, being the
interest of GENES, LTD., a California Limited Partnership as lessor in and under
that certain Assignment of Lease dated June 24, 1980 and recorded July 3, 1980
as Instrument No. 121237, Official Records of Riverside County Records, State of
California; being the interest of LAPAN LANDPLAN 72, a Limited Partnership, as
lessor in and under that certain lease date October 20, 1971, and recorded
November 23, 1971 as Instrument No, 134252, Official Records, Riverside County
Records, State of California,
Dated: 9/15/87
--------------
[SEAL APPEARS HERE]
/s/ Signature appears here
-------------------------------------
Genes Capital Management Company,
An Arizona Corporation
By: Patricia Lapan, President
- --------------------------------------------------------------------------------
STATE OF CALIFORNIA )
ss.
COUNTY OF ALAMEDA )
-------------------
On September 15, 1987, before me, the undersigned, a Notary Public in and for
------------------
said State, personally appeared Patricia Lapan known to me to be the ___________
--------------
President, of the corporation that executed the within instrument, and known to
be the persons who executed the within instrument on behalf of the corporation
therein named, and acknowledged to me that such corporation executed the within
instrument pursuant to its by-laws or a resolution of its board of directors.
WITNESS my hand and official seal. [SEAL OF MARY A. MUSGROVE - NOTARY
PUBLIC - CALIFORNIA ALAMEDA COUNTY
APPEARS HERE]
Signature /s/ Mary A. Musgrove
--------------------------
Mary A. Musgrove
- -----------------------------------
Name (Typed or Printed)
<PAGE>
GROUND LEASE
------------
THIS GROUND LEASE, made and entered into this 25TH day of June, 198O, by
and between GENES, Ltd. , a California limited partnership ("Lessor") and SUMMIT
HEALTH LTD., a California corporation ("Lessee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor is the owner of certain real property more particularly
described in Exhibit "A" attached hereto, in the City of Hemet, County of
Riverside, State of California; and
WHEREAS, Lessor desires to lease to Lessee and Lessee desires to hire
from Lessor such real property upon the covenants and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Lease. Lessor hereby leases to Lessee and Lessee hereby hires from
-----
Lessor all of that certain real property located on Devonshire Avenue more
particularly described in Exhibit "A" attached hereto, for the term and pursuant
to all of the convenants agreements and conditions contained herein.
2. Term. The term of this lease shall commence as of the date hereof and
----
shall continue for a period of fifty (50) years thereafter.
3. Rental.
------
(a) During the term hereof, Lessee will pay rent to Lessor at Lessor's
address for notices hereunder or at such ether place as Lessor may from time to
time notify lessee in writing,
-1-
<PAGE>
in advance, on the first day of each and every calendar month, the sum of One
Thousand Two Hundred Dollars ($1,200.00) per month, for a period of twelve
months.
(b) The basic rent shall be increased by three per cent (3%) for each
and every succeeding twelve (12) months. In order to avoid misunderstanding or
ambiguity, the monthly rent from month thirteen (13) through twenty four (24)
shall be One Thousand Two Hundred Thirty Six Dollars ($1,236.00), payable in
advance each and every month. The monthly rent for month number twenty five (25)
through thirty six (36) shall be One Thousand Two Hundred Seventy Three Dollars
and Eight Cents ($1.,273.08), payable monthly in advance. The monthly rent for
month number thirty seven (37) through forty eight (48) shall be One Thousand
Three Hundred Eleven Dollars and Twenty Seven Cents ($1,311.27), payable
monthly in advance. The rent for each succeeding twelve (12) month period shall
be increased by three percent (3%) of the rent paid the preceding twelve (12)
months.
4. NET LEASE.
---------
(a) This lease is intended to be a Net Lease in that it is the intention
of the parties hereto that rent payable to the Lessor shall not be reduced by
any cost or charge whatsoever, and that all expenses and charges, whether for
upkeep, maintenance, insurance, taxes, utilities and other charges of a like
nature or type or otherwise, shall be paid by Lessee.
(b) Lessee agrees that it will pay and discharge punctually, each and
every cost, expense and obligation of every kind and nature whatsoever, for the
payment of which Lessor is, or shall or may be or become, liable by reason of
its estate or interest in the leased premises, or any portion thereof, or by
reason of any rights or interest of Lessor in or under this lease,
-2-
<PAGE>
or by reason of or in any manner connected with or arising out of the ownership,
possession, leasing, operations management, maintenance, alteration, repair,
rebuilding, use or occupancy of the leased premises, or by any other reason
whether similar or dissimilar to the foregoing, foreseen or unforeseen,
connected with or arising out of the leased premises or this lease; provided,
however, that nothing herein shall be construed as obligating Lessee to pay or
discharge any lien or encumbrance upon the leased premises existing as of the
date hereof or hereafter created by Lessor. Lessee further agrees that it will
pay and discharge punctually as and when the same shall become due and payable,
at least five (5) days before delinquency and without penalty, all real estate
taxes, taxes upon or measured by rents, personal property taxes, privilege
taxes, excise taxes, business and occupational license taxes, water charges,
sewer charges, assessments (including, but not limited to, assessments for
public improvements or benefits) and all other governmental taxes, impositions
and charges of every kind and nature whatsoever, whether or not now customary or
within the contemplation of the parties hereto and regardless of whether the
same shall be extraordinary or ordinary, general or special, unforeseen or
foreseen, or similar or dissimilar to any of the foregoing (each such tax, water
charge, sewer charge, assessment and other governmental imposition and charge
which Lessee is obligated to pay hereunder being herein sometimes termed "Tax"),
which, at any time during the term hereof, shall be or become due and payable by
Lessor or by Lessee, or by both Lessor and Lessee, and which shall be levied,
assessed or imposed:
(1) upon or with respect to, or shall be or become liens upon, the
leased premises or any portion thereof or
-3-
<PAGE>
any interest of Lessor therein or under this lease; or
(2) upon or against, or which shall be measured by, or shall be or
become liens upon, any rents or rental income, as such, payable to or on
behalf of Lessor, in connection with the leased premises or any interest of
Lessor therein;
(3) upon or with respect to the ownership, possession, leasing,
operation, management, maintenance, alteration, repair, rebuilding, use or
occupancy by Lessee of the leased premises or any portion thereof or any
building or improvement located thereon; or
(4) upon this transaction or any document to which Lessee is a party
creating or transferring an interest or an estate in the leased premises; or
(5) upon or against Lessor any interest of Lessor in the leased
premises in any manner and for any reason whether similar or dissimilar to
the foregoing;
under or by virtue of any present or future law, statute, ordinance, regulation
or other requirement of any governmental authority whatsoever, whether federal,
state, county, city, municipal or otherwise, it being the intention of the
parties hereto that, insofar as the same may lawfully be done, the provisions of
this Paragraph should be so construed to provide that the amount of rental
reserved to Lessor under Paragraph 3 of this lease shall be net to Lessor.
(c) If by law any tax or assessment with respect to the leased premises is
payable, or may at the option of Lessee be paid, in installments, Lessee may,
whether or not interest shall accrue on the unpaid balance thereof, pay the
same, and any accrued interest or any unpaid balance thereof, in installments as
each installment becomes due and payable, but in any event
-4-
<PAGE>
before any fine, penalty, interest or cost may be added thereto for nonpayment
of any installment or interest.
(d) Lessee covenants to furnish to Lessor, at least once in each calendar
year during the term of this lease, a certificate of an authorized officer of
Lessee to the effect that all Taxes with respect to the leased premises have
been paid. If Lessee shall fail to pay and discharge any Tax when and as
required by this Paragraph, Lessor may, but shall not be obligated to, pay and
discharge such Tax.
(e) Any provision in this lease to the contrary notwithstanding, Lessee
shall not be required to pay, discharge, or remove any Tax (including penalties
and interest) , upon or against the leased premises, or any part thereof, so
long as Lessee shall in good faith contest the same or the validity thereof by
appropriate legal proceedings, and shall give Lessor prompt notice in writing of
its intention to do so at least ten (10) days before any delinquency occurs, and
so long as said legal proceedings shall operate to prevent the collection of the
tax, assessment, forfeiture, lien or imposition so contested, and/or the sale of
the leased premises, or any part thereof, to satisfy the same. Pending any such
legal proceedings Lessor shall not have the right to pay, remove or discharge
such Tax thereby contested; provided Lessee shall, upon the written request of
Lessor, protect and indemnify Lessor against all loss, cost, expense and damage
resulting therefrom; and provided further, that if at any time payment of such
Tax shall become necessary to prevent the delivery of a tax deed conveying the
leased premises or any portion thereof because of nonpayment, then Lessor may,
but shall not be required to, pay the same in sufficient time to prevent the
delivery of such tax deed. In the event of any such contest, Lessee shall,
-5-
<PAGE>
within five (5) days after the final determination thereof, adversely to
Lessee, pay and discharge the amounts involved in or affected by such contest,
together with any penalties, fines, interest, costs and expenses that may have
accrued thereon or that may result from any such action by Lessee. Any
proceeding or proceedings for contesting the validity or amount of any Tax or to
recover back any Tax paid by Lessee, may be brought by Lessee at Lessee s own
expense, in the name of Lessor or in the name of Lessee, or both, as Lessee may
deem advisable; provided, however, that if any such proceeding be brought by
Lessee, Lessee shall indemnify and save harmless Lessor against any and all
loss, cost or expense of any kind that may be imposed upon Lessor in connection
therewith.
(f) Notwithstanding any provision herein to the contrary:
(1) Lessee shall not be obligated to pay any federal or state income or
franchise tax that may be payable or chargeable to Lessor under the Internal
Revenue Code or any other similar tax or charge that may be payable by or
chargeable to Lessor, under any present or future law of the United States
or any State thereof, or imposed by any other governmental agency, upon or
imposed with respect to or measured by (aa) any income of Lessor unrelated
to this lease and (bb) the rents reserved hereunder to the extent that the
foregoing taxes are applicable to such rents and are similarly imposed upon
the other ordinary non-rental income and profits of Lessor. Nor shall Lessee
be obligated to pay any personal property tax levied upon or with respect to
any personal property of Lessor, or any inheritance, transfer estate,
succession or other similar tax or charge that may be payable under any
present or future law of the United
-6-
<PAGE>
States or the State of California, or imposed by any political or taxing
subdivision thereof, or by any other governmental agency, by reason of the
devolution, succession, transfer, passing by inheritance, devise,
acquisition or becoming effective of the right to possession and enjoyment
of all or any part of the estate of Lessor in the premises or the leased
premises, whether by descent, deed, testamentary provision, trust deed,
gift, mortgage, or otherwise.
5. Insurance. Lessee shall (at its own cost and expense) keep and maintain
---------
in full force during the term hereof public liability insurance covering the
leased premises and Lessee s activities therein against claims for personal
injury and death in an amount of not less than Five Hundred Thousand Dollars
($500,000.) for injury or death of any one person, and One Million Dollars
($1,000,000.) for injury or death of all persons in any one accident, and not
less than Nine Hundred Thousand Dollars ($900,000.) property damage. Any and all
insurance policies carried pursuant to this paragraph shall name Lessor as an
additional insured thereunder, and shall be payable as the interests of Lessor
and Lessee may appear. Lessor and Lessee hereby agree that no insurer of any
interest of either shall have any right of subrogation against the other and
that any and all insurance policies carried by either on the leased premises or
any part thereof shall contain a full waiver of subrogation by the insurer
against the other and its assigns. Lessee shall furnish to Lessor a certificate
evidencing the fact that the insurance described in this paragraph has been
obtained and is in full force and effect, and that such insurance cannot be
cancelled without ten (10) days' prior notice to Lessor.
6. Compliance with Laws. Lessee shall promptly comply with
--------------------
-7-
<PAGE>
all laws, ordinances, rules and regulations of all Federal, State, County and
Municipal Governments now in force or that may be enacted hereafter affecting
the leased premises or Lessee's use and occupancy thereof. Lessee shall have the
right, however, to contest any such law, ordinance, rule or regulation by
appropriate legal action; provided Lessee shall, upon the written request of
Lessor, protect and indemnify Lessor against all loss, cost, expense or damage
resulting therefrom;
7. Indemnification. Lessee covenants and agrees, at its own cost and
---------------
expense, to indemnify and save harmless Lessor from and against and all claims
whatsoever by or on behalf of any person, firm, corporation (including Lessee or
any subtenant of Lessee) or governmental authority, arising out of or in
connection with the occupation, use, possession, conduct or management of, or
any work or thing whatsoever done, in or about, or transactions of Lessee
concerning the leased premises, including, but without limitation, claims for
injury or death to persons and claims of damage to property (including the
leased premises or any part thereof, or any property of Lessee located within or
about the leased premises), whether or not caused by any latent or other defects
upon the leased premises; provided, however, that Lessee shall not be required
to indemnify Lessor for any damage or injury of any kind whatsoever arising out
of the negligence of Lessor, its agents, or employees.
8. Eminent Domain.
--------------
It is understood and agreed that in the event the whole of the leased
premises is taken by governmental authority or by any corporation, public or
private, under the right of eminent domain, this lease shall cease and come to
an end and all rights of Lessee thereunder shall terminate, except as
hereinafter
-8-
<PAGE>
provided. In the event that only a part of the premises are taken, the rent
herein reserved shall be adjusted for the remainder of the leased premises so
that Lessee shall be required to pay for the balance of the term that portion of
rent herein reserved which is appropriate for the value of the part of the
leased premises remaining after condemnation. If there is not sufficient space
remaining to conduct the business of Lessee, the lease shall terminate. From the
proceeds of the condemnation award after trial, or as otherwise agreed upon with
the condemnation authority without trial, Lessor and Lessee shall receive
reimbursement as follows: Lessor shall receive the value attributable to the
real property and improvements thereon subject however, to the right of the
Lessee to receive the sum that may be apportioned to the Lessee for the value of
the leasehold estate and interest of the Lessee.
9. Default.
-------
(a) Should Lessee default in the performance of any convenant,
agreement or condition herein contained with reference to the payment of
rent, and such default continue for thirty (30) days after such default, or
should Lessee default in the performance of any covenant, agreement or
condition herein, other than the payment of rent, and such default
continues, without diligent effort being made to cure it, for sixty (60)
days after receipt by Lessee of written notice thereof from Lessor, Lessor
may:
(1) Re-enter the leased premises, with or without process of law and
remove all persons therefrom; or
(2) Declare the lease term ended and re-enter the leased premises,
with or without process of law, and remove all persons therefrom.
-9-
<PAGE>
(b) The exercise by Lessor of such rights of re-entry shall entitle
Lessor to sublet the leased premises for the account of Lessee and to apply the
proceeds of such rentals against the rentals due under the Lease to Lessor from
Lessee.
(c) None of the rights herein granted to Lessor in the event of a
default by Lessee shall prejudice any other legal remedies available to Lessor
other than those herein enumerated. (No act of the Lessor shall be deemed an act
terminating this lease or declaring this lease term ended unless written notice
is served upon the Lessee expressly setting forth therein that the Lessor elects
to terminate said lease or to declare the lease term ended.
10. Right to Inspect. Lessee shall permit Lessor and/or its agents to
----------------
enter into and upon the leased premises at all reasonable times for the purpose
of inspecting the same or for the purpose of posting notices of non-liability
for alterations, additions, repairs or new construction.
11. Independent Operation. Nothing in this lease shall cause Lessor in
---------------------
any way to be construed as a partner, joint venture, or associated in any way
with the Lessee in the operation of said premises, or subject Lessor to any
obligation, loss, charge or expense connected with or arising from the operation
or use of said premises or any part thereof. Lessee, in any case not resulting
from Lessor's act of negligence, will hold Lessor exempt and harmless from all
claims and liability for death or of injury to any person or damage to the
goods, wares or merchandise of any person, or claims of any person arising from
the use of the premises by Lessee in the conduct of Lessee's business, or from
the failure of Lessee to keep the premises in good condition and repair.
Lessee agrees further to defend on behalf of and in the name
-10-
<PAGE>
of Lessor against any claim or demand arising out of Lessee's use of the leased
premises or arising out of claimed injury to person or property upon or in the
leased premises, whether meritorious or otherwise, said obligation to include
the retention and payment of legal counsel and investigation costs from the
first notice that any claim or demand is to be or may be made.
12. Attorneys' Fees. Should either party commence an action against
---------------
the other to enforce any obligation hereunder, the pre-vailing party shall be
entitled to recover a reasonable attorney's fee from the other unless expressly
otherwise provided herein.
13. Heirs, Successors and Assigns. Each and every covenant, agreement
-----------------------------
and condition contained herein shall be binding upon and insure to the benefit
of each of the parties, its successors and assigns.
14. Notices. All notices required to be given hereunder shall be in
-------
writing. Such notices shall be sent by United States registered mail, postage
prepaid, addressed to Lessee; Summit Health LTD., 4070 Laurel Canyon Blvd.,
Studio City, Ca. 91604; and to Lessor: Genes, LTD, 1750 Scenic View Crt., San
Leandro, Ca. 94577.
15. Termination and Quitclaim. Upon the termination of this lease,
-------------------------
whether by the expiration of the term thereof or for any other reason as
provided in this lease, then all of Lessee's interest in and to said leased
premises shall revert to the Lessor, and the Lessee shall upon demand execute
and deliver a Quitclaim Deed in favor of the Lessor, quitclaiming and releasing
all its right, title and interest in and to the said premises, which exist by
virtue of landlord, tenant relationship.
16. General Covenants. The invalidity of any portion of this lease
-----------------
shall not prevent the remainder from being carried into effect. Whenever the
context of any provision shall require
-11-
<PAGE>
it, the singular number shall be held to include the plural number, and vice
versa, and the use of any gender shall include any other or all genders. The
paragraph and section headings this lease contain are for convenience only, and
do not constitute a part of the provisions hereof. All exhibits to which
reference is made are deemed included in the lease whether or not actually
attached. No oral modification of, or amendment to, this lease shall be
effective, but this lease may be modified or amended by written agreement signed
by the Lessee and the Lessor. This lease binds, applies to and inures to the
benefit of, as the case may require, the respective heirs, executors,
administrators, successors and assigns of Lessor and Lessee.
17. Execution of Documents. Lessee agrees to execute any and all
----------------------
documents which Lessor deems necessary in order to secure any financing or re-
financing; or for the purpose of recording any documents including but not
limited to a short form lease, an assignment, a conveyance or transfer of the
property or any document of any kind or nature so long as it does not interfere
with the rights of Lessee to the quiet and peaceful possession of the leased
premises for the full term hereof.
Lessor agrees to cooperate with Lessee in the execution of any
documents which may be necessary for the Lessee's business purposes except that
Lessor shall not be required to subordinate its interest in the land for an
amount in excess of $750,000.00.
18. Miscellaneous.
-------------
(a) The timeliness of the monthly rent which is payable in advance
and in accordance with the provisions of Paragraph 3, is of the essence to the
Lessor. In the event Lessee is unable for any reason to deliver the stipulated
rent to Lessor on or before the tenth (10) day of each and every month, the
Lessee shall be obligated to pay a late charge of One Hundred Dollars
-12-
<PAGE>
($100.) which charge shall be in addition to the stipulated rent. This charge
shall be assessed for each and every month that said rent is not received on
time.
(b) Upon the execution of this document, Lessee will deliver to Lessor
the sum of One Thousand Two Hundred Dollars ($l,200.00) for rents of the
premises from July 1, 1980 until July 31, 1980.
IN WITNESS WHEREOF, the parties hereto have executed this instrument
in duplicate by proper persons thereunto duly authorized as of the day and year
first here and above written.
LESSOR: GENES, Ltd.,
A California Limited Partnership
By /s/ Pat Wahl
----------------------------
Pat Wahl, General Partner
LESSEE: SUMMIT HEALTH LTD. (CORPORATE SEAL)
By [SIGNATURE APPEARS HERE]
----------------------------
By
----------------------------
-13-
<PAGE>
ADDENDUM TO LEASE
-----------------
With respect to that certain Lease dated June 25, 1980 by and between
GENES, LTD , hereafter called "Lessor" and SUMMIT HEALTH LTD., hereafter called
"Lessee", there is one additional necessary provision. Since this provision may
be of transient nature, it is set forth here and below and shall be of no force
and effect at such time that the underlying obligation to Central Bank and/or
it's assigns is extinguished.
Central Bank, originally known as Central Valley National Bank, is the
obligee under that certain Note secured by a Deed of Trust on the subject
property dated June 18, 1970. Under the terms of said Note, Central Bank is
entitled to additional interest in the amount of two per cent (2%) of the total
gross annual income received during the preceding calendar year from the
property described by the Deed of Trust. A copy of said 20 Note is attached
hereto as Exhibit "A".
The Deed of Trust contains a provision for financial disclosure by the
Trustor. This provision is attached hereto as Exhibit "B".
Lessee shall, upon request, provide any and all information required
by Central Bank in order to fulfill the obligations created by these
instruments. Lessor shall report the gross income from land rent and shall be
liable for the payment of the participation fee based upon the land rent
received.
At such time that Lessor repays the existing obligation in full, this
Addendum shall become null and void and the Lessee
<PAGE>
EXHIBIT "A"
PARCEL 1:
- --------
That portion of Lot 2 in Block 142 of the Lands of the Hemet Land Company, in
the County of Riverside, State of California, as per map recorded in Book 1 page
1-4 of Maps, in the office of the County Recorder of said County, described as
follows:
BEGINNING at a point on the center line of Devonshire Avenue, 165 feet East of
the intersection of the center line of San Jacinto Street with the center line
of Devonshire Avenue; THENCE South, parallel with the center line of San Jacinto
Street, 300 feet; THENCE East parallel with the center line of Devonshire
Avenue, 75 feet; THENCE North, parallel with the center line of San Jacinto
Street, 300 feet, to the center line of Devonshire Avenue; THENCE West, on the
center line of Devonshire Avenue, 75 feet, to the Point of Beginning;
EXCEPT the Southerly SO feet.
ALSO EXCEPT, that portion in Devonshire Avenue.
PARCEL 2:
- --------
The Northerly 300 feet, measured from the center line of Devonshire Avenue, of
Lot 2, in Block 142 of the Lands of the Hemet Land Company, in the County of
Riverside, State of California, as per map recorded in Book 1 page 14 of Maps,
in the office of the County Recorder of said County.
EXCEPT the Easterly 345.20 feet;
ALSO EXCEPT the Westerly 240 feet, measured from the center line of San Jacinto
Street.
ALSO EXCEPT that portion in Devonshire Avenue;
ALSO EXCEPT that portion lying within Tehquitz Estates as per map recorded in
Book 42 page 91 of Maps, in the office of the County Recorder of said County.
<PAGE>
shall have not future reporting obligations.
Dated: June 25, 1980
LESSOR: GENES, Ltd.,
A California Limited Partnership
By /s/ Pat Wahl
--------------------------------
Pat Wahl, General Partner
Dated: June 25, 1980
LESSEE: SUMMIT HEALTH LTD.
By /s/ Signature appears here
-------------------------------
By
-------------------------------
<PAGE>
EXHIBIT 10.14
REAL ESTATE LIEN NOTE
---------------------
SECOND LIEN
-----------
DATE: December 1, 1993
MAKER: SUMMIT CARE-TEXAS NO. 3, INC. A TEXAS CORPORATION
MAKERS' MAILING ADDRESS 2600 W. MAGNOLIA BLVD.
BURBANK, CA 91505
PAYEE: WOODLANDS PLACE NURSING CENTER, INC.
PLACE FOR PAYMENT 709 N. SAN JACINTO
CONROE, TX 77301
PRINCIPAL AMOUNT: TWO MILLION FIVE HUNDRED SEVENTY ONE THOUSAND TWO HUNDRED
SIXTY SIX AND 62/100 DOLLARS ($2,571,266.62)
ANNUAL INTEREST RATE ON UNPAID PRINCIPAL FROM DATE:
NO INTEREST IS CHARGED ON NON-DEFAULT PAYMENTS
ANNUAL INTEREST RATE ON MATURED, UNPAID AMOUNTS OR ON DEFAULT: SEVEN PERCENT
(7%)
TERMS OF PAYMENT (PRINCIPAL ONLY):
Principal shall be paid in regular monthly payments and one final payment
according to the following schedule:
a. No payments shall be due from December 1, 1993 through December 31,
1994.
b. Principal is payable in monthly installments of One thousand five
hundred and no/100 dollars ($1,500.00) beginning January 1, 1995 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 1995: then
c. Principal is payable in monthly installments of three thousand five
hundred fifty and no/100 dollars ($3,550.00) beginning January 1, 1996
and continuing monthly thereafter for eleven (11) consecutive months
with the last installment due on December 1, 1996: then
d. Principal is payable in monthly installments of five thousand fifty
and no/100 dollars ($5,050.00) beginning January 1, 1997 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 1997: then
e. Principal is payable in monthly installments of five thousand fifty
and no/100 dollars ($5,050.00) beginning January 1, 1998 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 1998: then
Page 1
<PAGE>
f. Principal is payable in monthly installments of eight thousand fifty
and no/100 dollars ($8,050.00) beginning January 1, 1999 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 1999: then
g. Principal is payable in monthly installments of thirteen thousand
fifty and no/100 dollars ($13,050.00) beginning January 1, 2000 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 2000: then
h. Principal is payable in monthly installments of sixteen thousand fifty
and no/100 dollars ($16,050.00) beginning January 1, 2001 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 2001: then
i. Principal is payable in monthly installments of sixteen thousand fifty
and no/100 dollars ($16,050.00 beginning January 1, 2002 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 2002: then
j. Principal is payable in monthly installments of nineteen thousand
fifty and no/100 dollars ($19,050.00 beginning January 1, 2003 and
continuing monthly thereafter for eleven (11) consecutive months with
the last installment due on December 1, 2003: then
k. A final payment of remaining principal and interest, if any, is due
December 1, 2003.
SECURITY FOR PAYMENT: This note is secured by a vendor's lien and superior
title retained in a deed from WOODLANDS PLACE NURSING CENTER, INC. to SUMMIT
CARE-TEXAS NO. 3. INC., A TEXAS CORPORATION. Maker dated of even date herewith
and by a deed of trust with security agreement of even date from Maker to Rodney
Tow, Trustee, all of which cover the following described real property and
chattels located thereon:
SEE EXHIBIT "A"
INFERIOR TO PRIOR LIENS: This note and the documents securing it are secondary
inferior and subject to the following liens and encumbrances:
1. The renewed, modified and extended real estate lien note in the
original principal amount of $5,458,048.28, deed of trust and security agreement
between the Woodlands Place Nursing Center, Inc. and the Secretary of Housing
and Urban Development of even date herewith. Said renewed, modified and
extended real estate lien note, deed of trust and security agreement are an
extension, renewal and modification of the following:
A. Deed of Trust dated March 6, 1985, recorded under File No. 8509454 of
the Official Public Records of Real Property of Montgomery County,
Texas, executed by Woodlands Place Nursing Center, Inc. in favor of
Dale H. Andreas, Trustee, securing the payment of one note in the
principal amount of $4,762,200.00 bearing interest and
Page 2
<PAGE>
payable as therein provided to the order of Mitchell Mortgage Company.
Said note and lien securing same being additionally secured by that
certain Agreement dated March 6, 1985, executed by Woodlands Place
Nursing Center, Inc. and the Secretary of Housing and Urban
Development, recorded under File No. 8509455 of the Official Public
Records of Real Property and by those certain Financing Statements
recorded under File Nos. 8509456 and 9030955 of the Official Public
Records of Real Property of said County.
Said note and lien securing same having been subsequently assigned to
the Secretary of Housing and Urban Development by instrument recorded
under File No. 9259715 and 9259716 of the Official Public Records of
Real Property of Montgomery County.
B. Deed of Trust dated January 19, 1989, recorded under File No. 8903245
of the Official Public Records of Real Property of Montgomery County,
Texas, executed by Woodlands Place Nursing Center, Inc. in favor of
Dale H. Andreas, Trustee, securing the payment of one note in the
principal amount of $768,000.00, bearing interest and payable as
therein provided to the order of Mitchell Mortgage Company.
Said lien has been subsequently assigned to the Secretary of Housing
and Urban Development by instrument dated November 20, 1992 and
recorded under File No. 9259131 of the official Public Records of Real
Property of Montgomery County.
2. The Deed of Trust to Secure Assumption of even date herewith from
Maker to Rodney Tow, Trustee covering the property described in Exhibit "A".
As long as the Secretary of Housing and Urban Development, or his successor
or assigns, is the insurer or holder of the first lien on the property described
herein, any payments due from project income under this Note shall be payable
only from surplus cash of the said project, as that term is defined in the
Regulatory Agreement of even date herewith, between the Secretary of Housing and
Urban Development and Woodlands Place Nursing Center, Inc. The restriction on
payment imposed by this paragraph shall not excuse any default caused by the
failure of the maker to pay the indebtedness evidenced by this Note.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note or in the performance of any
obligation in any instrument securing or collateral to it, or in the payment of
the renewed, modified and extended real estate lien note in the original
principal amount of $5,458,048.28 or any instrument securing or collateral to
such note, the unpaid principal balance and earned interest on this note shall
become immediately due at the election of Payee. Except as herein provided,
Page 3
<PAGE>
Maker and each surety, endorser, and guarantor waiver all demands for payment,
presentations for payment, notices of intention to accelerate maturity, notices
of acceleration of maturity, protests, and notices of protest. Notwithstanding
the foregoing, Payee agrees to give Maker ten (10) days prior written notice of
any default under the Note or the $5,458,048.28 Note, or any instrument securing
collateral to either of such notes, (during which ten (10) days Maker shall have
the right to cure such default), before Maker will exercise any remedy as a
result of such default.
If this note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceedings, then Maker shall pay Payee all costs of collection
and enforcement, including reasonable attorney's fees and court costs, in
addition to other amounts due. Reasonable attorney's fees shall be 10% of all
amounts due unless either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law: any interest in excess of that maximum amount
shall be credited on the principal of the debt of, of that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment or,
if already paid, credited on the principal of the debt or, if the principal of
the debt has been paid, refunded. This provision overrides other provisions on
this and all other instruments concerning the debt.
Each Maker is responsible for all obligations represented by this note.
When the context requires, singular nouns and pronouns include the plural.
Notwithstanding anything contained herein on the contrary, all obligations
of Maker contained herein are subject to Maker's right of offset granted under a
certain Agreement of Purchase and Sale of Assets entered into between Woodlands
Place Nursing Center, Inc. and Summit Care-Texas No. 3, Inc. as of November 6,
1993 (the "Agreement"), the terms of which are incorporated by reference herein
as if set forth verbatim herein. In the event that any right of offset arises
such amount shall be applied to the next installment due under this note and any
excess shall be applied to subsequent installments until the amount of such
offset is totally applied. Notwithstanding anything contained herein to the
contrary, the exercise of any right of offset in good faith by Maker shall not
constitute a default under this Note. In the event that a right of offset
arises the amount of such offset shall bear interest at the rate of ten percent
(10%) per annum until it is applied against an installment under this Note and
until such offset is ultimately totally applied.
SUMMIT CARE-TEXAS NO. 3, INC.
/s/ Derwin Williams
---------------------------------
By: Derwin Williams
Vice President/Chief Financial Officer
Page 4
<PAGE>
Exhibit 10.15
RENEWAL, MODIFICATION, EXTENSION AND CONSOLIDATIONS
DEED OF TRUST NOTE
(MULTIFAMILY)
$5,458,048.28 The Woodlands, Montgomery County , Texas
December 1 , 1993
FOR VALUE RECEIVED, the undersigned promise(s) to pay to the Secretary of
Housing and Urban Development, of Washington, D.C., and his successors in office
, or order, the principal sum of FIVE MILLION FOUR HUNDRED FIFTY-EIGHT
THOUSAND FORTY-EIGHT AND 28/100ths Dollars ($5,458,048.28-----), with interest
on the unpaid balance until paid at the rate of Six per centrum
(6.000-----------%) per annum. The principal and interest of this Note are to
be paid in monthly installments as follows:
Commencing on the first day of January, 1994, monthly installments of
interest and principal shall be paid in the sum of THIRTY-ONE THOUSAND
SIX HUNDRED EIGHTY-SIX AND 86/100THS DOLLARS ($31,686.86) each, such
payments to continue monthly thereafter on the first day of each
succeeding month until the entire indebtedness has been paid. In any
event, the balance of principal, if any, plus accrued interest, shall
be due and payable on December 1, 2026. The installments of interest
and principal shall be applied first to interest at the applicable
rate aforesaid upon the principal sum or so much thereof as shall from
time to time remain unpaid, and the balance thereof shall be applied
on account of principal.
THE ALLONGE TO THIS NOTE CONTAINS ADDITIONAL TERMS AND CONDITIONS AND
IS INCORPORATED HEREIN FOR ALL PURPOSES.
Both principal and interest under this Note, as well as the additional
payments set forth in the Deed of Trust, shall be payable at the office of the
Secretary of Housing and Urban Development in Washington, D.C., or
such other place as the holder may designate in writing.
Privilege is reserved to pay the debt in whole or in an amount equal to one
or more monthly payments on principal next due, on the first day of any month
prior to maturity upon at least thirty (30) days' prior written notice to the
holder. Notwithstanding any provision herein for a prepayment charge, such
charge shall be applicable only to the amount of prepayment in any one calendar
year which is in excess of fifteen per centum (15%) of the original principal
sum of this Note.
If default is made in the payment of any Installment under this Note, and
if such default is not made good prior to the due date of the next such
installment, the entire principal sum and accrued interest shall at once become
due and payable without notice, at the option of the holder of this Note.
Failure to exercise this option shall not constitute a waiver of the right to
exercise the same in the event of any subsequent default. In the event of
default in the payment of this Note, and if the same is collected by an attorney
at law, the undersigned hereby agree(s) to pay all costs of collection,
including a reasonable attorney's fee.
No default shall exist by reason of nonpayment of any required installment
of principal so long as the amount of optional additional prepayments of
principal already made pursuant to the privilege of prepayment act forth in this
Note equals or exceeds the amount of such required installment of principal.
All parties to this Note, whether principal, surety, guarantor or endorser,
hereby waive presentment for payment, demand, protest, notice of protest and
notice of dishonor.
<PAGE>
HERITAGE MANOR NURSING CENTER
FHA Project No. 114-43034-PM and
FHA Project No. 114-15002-PM
THIS IS AN ALLONGE TO THE RENEWAL, MODIFICATION, EXTENSION AND CONSOLIDATION
DEED OF TRUST NOTE ("NOTE") DATED EFFECTIVE AS OF DECEMBER 1, 1993, FROM
WOODLANDS PLACE NURSING CENTER, INC. ("MAKER", WHETHER ONE OR MORE), TO THE
SECRETARY OF HOUSING AND URBAN DEVELOPMENT OR ORDER ("PAYEE"), IN THE ORIGINAL
PRINCIPAL SUM OF $5,458,048.28.
________________________________________________________________________________
1. THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS A RENEWAL, MODIFICATION,
EXTENSION AND CONSOLIDATION OF THE FOLLOWING INDEBTEDNESSES:
A. To the extent of $4,696,878.33, that certain Deed of Trust Note
(the "First Lien Note") dated March 6, 1985, in the original
principal amount of $4,762,200.00, executed by Maker, payable to
the order of Mitchell Mortgage Company ("Lender"), and secured,
inter alia, by the following:
1. Deed of Trust of even date therewith from the Maker to Dale
H. Andreas, Trustee, recorded under File No. 8509454 in the
Official Public Records of Real Property, Montgomery County,
Texas (the "Records"); as modified by Modification Agreement
dated August 13, 1986 (the "First Modification"), recorded
under File No. 8634286 in the Records; as further modified
by Modification Agreement dated August 13, 1991 (the "Second
Modification"), recorded under File No. 9136896 in the
Records; and as further modified by Modification Agreement
dated August 16, 1991 (the "Third Modification"), recorded
under File No. 9148131 in the Records; the Deed of Trust, as
previously modified, being hereafter called the "First
Lien".
2. Regulatory Agreement (the "Regulatory Agreement") of even
date therewith between the Maker and the Payee herein,
wherein the Lender is mortgagee, recorded under File No.
8509455 in the Records, which Regulatory Agreement is
incorporated into the First Lien by reference.
Said First Lien Note and First Lien having been subsequently
assigned to payee by instruments recorded under File No. 9259715
and File No. 9259716 in the Records.
B. To the extent of $761,169.95, that certain Deed of Trust Note
(the "Second Lien Note") dated January 19, 1989, in the original
amount of $768,000.00, executed by the Maker, payable to the
order of the Lender, and secured, inter alia, by the following
instrument:
Deed of Trust of even date therewith from the Maker to Dale
H. Andreas, Trustee, recorded under File No. 8903245 in the
Records, hereinafter called the "Second Lien".
Said Second Lien Note and Second Lien having been subsequently
assigned to Payee by instrument recorded under File No. 9259131
in the Records.
This Note is in renewal, modification, extension and consolidation but not
extinction of the First Lien Note and the Second Lien Note and the liens
securing them as listed above.
Payee has signed in the space provided below for the sole purpose of
evidencing his consent to the renewal, modification, extension and consolidation
of the First Lien Note and the Second Lien Note.
Maker's Initials: [SIG]
--------------
<PAGE>
2. This Note is secured by that certain Renewal, Modification, Extension
and Supplemental Deed of Trust of even date herewith being recorded in the
Records, covering the property described therein and commonly known as Heritage
Manor Nursing Center, and by that certain Security Agreement of even date
herewith.
3. Maker, its successors and assigns, agrees to pay to the Payee, its
successors and assigns, an amount equal to two cents ($0.02) of each dollar of
payment of principal and interest in arrears more than fifteen (15) days, as a
late charge to cover the expense involved in handling delinquent payments.
4. Notwithstanding any other provision contained in this Note, it is
agreed that the execution of this Note shall impose no personal liability on the
Maker hereof for payment of the indebtedness evidenced hereby and in the event
of a default, the holder of this Note shall look solely to the property
described in the Deed of Trust, and other security instruments given to secure
the indebtedness, and to the rents, issues and profits therefrom in satisfaction
of the indebtedness evidenced hereby and will not seek or obtain any deficiency
or personal judgment against the Maker hereof except such judgment or decree as
may be necessary to foreclose and bar its interest in the property and all other
property mortgaged, pledged, conveyed or assigned to secure payment of this Note
except as set out in the Deed of Trust of even date given to secure this
indebtedness.
5. In the event any item, items, terms or provisions contained in this
instrument are in conflict with the laws of the State of Texas, this instrument
shall be affected only as to its application to such item, items, terms or
provisions, and shall in all other respects remain in full force and effect. It
is understood and agreed that in no event and upon no contingency shall the
Maker or Makers of this Note, or any party liable thereon or therefor, be
required to pay interest in excess of the rate allowed by the laws of the State
of Texas. The intention of the parties is to conform strictly to the Usury Laws
as now or hereafter construed by the courts having jurisdiction, and reference
is here made to the Deed of Trust securing the payment of this Note which
relates to the reduction of Interest if from any circumstances whatsoever
fulfillment of this Note or any instrument securing its payment shall involve
transcending the limits of validity prescribed by the usury statutes or any
other law.
WOODLANDS PLACE NURSING CENTER, INC.
By: /s/ Daniel Glick
-------------------------------
Daniel Glick, President
APPROVED:
SECRETARY OF HOUSING AND URBAN DEVELOPMENT
By: [Signature]
-----------------------------------
Authorized Agent
<PAGE>
Exhibit 10.16
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT ("Sublease") is made on January 1,
1994, between SUMMIT HEALTH LTD., a California corporation ("Sublessor") and
SUMMIT CARE CORPORATION, a California corporation ("Sublessee").
Recitals
--------
A. SIERRA LAND GROUP, INC., a California corporation ("Lessor"),
as landlord, and Sublessor, as tenant, executed a lease, as of
August 1, 1993 (the "Master Lease"). By the terms of the
Master Lease, Lessor leased certain real property to Sublessor
for a term of ten (10) years, commencing on August 1, 1993,
and ending on July 31, 2003. A copy of the Master Lease is
attached to this Sublease as Exhibit A.
---------
B. Sublessor desires to sublease to Sublessee the real property
currently occupied by Sublessor under the terms of the Master
Lease, and Sublessee desires to lease that real property from
Sublessor.
C. The Lessor under the Master Lease desires to consent to this
Sublease.
NOW, THEREFORE, the parties agree as follows:
1. Premises. Sublessor hereby subleases to Sublessee and
--------
Sublessee hereby subleases from Sublessor that certain real property situated in
the County of Maricopa, State of Arizona, commonly known as 1314/1342 East
McDowell Road, Phoenix, Arizona, with improvements thereon, said real property
and improvements being collectively referred to as the "Premises".
2. Term. The term of this Sublease shall commence on January 1,
----
1994 (hereinafter referred to as "Commencement Date") and end at midnight on
July 31, 2003 (hereinafter referred to as "Expiration Date"), unless otherwise
terminated or extended as provided herein. Notwithstanding the foregoing, this
Sublease is not effective until Lessor consents to this Sublease. This Sublease
terminates upon the termination of the Master Lease at any time.
1
<PAGE>
3. Rent and Security Deposit.
-------------------------
(a) Rent. Sublessee shall pay to Sublessor Thirty Seven Thousand
----
Five Hundred Dollars and 00/100 ($37,500.00) as monthly rent, without deduction,
set-off, prior notice or demand, all amounts due and owing Lessor under the
terms and conditions of the Master Lease for such month including, but not
limited to rent, additional rent, and real and personal property taxes (the
"Rent") each month in advance on the first day of each month, beginning on the
Commencement Date and continuing throughout the term hereof. The monthly rent
for any partial month shall be prorated on the basis of actual number of days in
said month.
4. Use and Condition of the Premises.
---------------------------------
(a) The Premises shall be used by Sublessee solely for those
purposes specified in the Master Lease and in compliance with all statutes and
regulations governing the provision of such services.
(b) Sublessee shall not do or permit anything to be done in or
about the Premises which will in anyway (i) increase the existing rate of or
affect any fire or other insurance upon the Premises; or (ii) cause cancellation
of any insurance policy covering said Premises or any part thereof; or (ii) use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose; or (iii) cause, maintain or permit any nuisance in, on or
about the Premises. Sublessee shall not commit or suffer to be committed any
waste in or about the Premises.
(c) Sublessee accepts the Premises in their condition existing
as of the date of execution hereof, subject to all applicable municipal, county
and state laws, ordinances and regulations governing and regulating the use of
the Premises, and accepts the Sublease subject thereto. Sublessee acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of the
Sublessee's business.
5. Applicabi1ity of Master Lease. This Sublease is subject and
-----------------------------
subordinate to the terms and conditions of the Master Lease.
6. Assumption. Sublessee hereby expressly assumes and agrees to
----------
perform and comply with all the obligations required to be kept or performed by
the Sublessor under the provisions of the Master Lease, to the extent that they
are applicable to the Premises, with the following exception: the obligation and
covenant to pay rent to the Lessor under the Master Lease shall be considered
performed by Sublessee to the extent the Rent is
2
<PAGE>
paid to Sublessor in accordance with this Sublease. Sublessee shall defend and
hold Sublessor harmless from all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or
related to Sublessee's failure to comply with or perform the obligations
required hereunder.
7. Assignment and Subletting. Sublessee shall not, either voluntarily
-------------------------
or by operation of law, directly or indirectly, sell, hypothecate, assign or
transfer this Sublease, or sublet the Premises or any part thereof, or permit
the Premises or any part thereof to be occupied by anyone other than Sublessee
or Sublessee's employees without the prior written consents of Lessor and
Sublessor thereto.
8. Hold Harmless; Indemnity.
------------------------
(a) Sublessee shall indemnify, defend and hold Lessor and
Sublessor harmless from any and all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or
related to Sublessee's use of the Premises for the conduct of its business or
from any activity, work or other thing done, permitted or suffered by Sublessee
in or about the Premises and shall further indemnify, defend and hold Lessor and
Sublessor harmless from any and all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or
related to any breach or default in the performance of any obligation on
Sublessee's part to be performed under the terms of this Sublease, or arising
from any negligent or intentional act or omission of Sublessee, or any officer,
employee, agent or invitee of Sublessee. Sublessee, as a material part of the
consideration to Sublessor, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
Lessor's or Sublessor's negligence, and Sublessee hereby waives and releases all
claims in respect thereof against Sublessor.
(b) Lessor and Sublessor shall not be liable for any loss,
damage or injury to the property or person of any person whomsoever, whether
arising directly or indirectly from any state or condition of the Premises or
any part thereof during the terms of this Sublease, except for acts attributable
to Lessor's or Sublessor's sole respective neglect.
9. Insurance.
---------
Sublessee shall, at all times during the term of this Sublease at its
own cost and expense procure and continue in force all insurance coverage
required under the Master Lease. With the exception of the professional
liability insurance coverage, the aforesaid insurance shall name Lessor and
Sublessor
3
<PAGE>
as additional insureds, and shall be with companies satisfactory to Lessor and
Sublessor. Sublessee shall furnish Lessor and Sublessor with certificates of
coverage within ten (10) days prior to the commencement of this Sublease.
10. Rules and Regulations. Sublessee shall faithfully observe and
---------------------
comply with the rules and regulations adopted by Sublessor from time to time.
11. Holding Over. If Sublessee holds over after the expiration or
------------
earlier termination of the term hereof without the express written consent of
Sublessor, Sublessee shall become a tenant at sufferance only, at a rental rate
equal to one and one-half times the rate then in effect upon the date
immediately prior to such expiration or termination (prorated on a daily basis),
and otherwise upon the terms, covenants and conditions herein specified, so far
as applicable. In addition, Sublessee agrees to be responsible for any
consequential damages to Sublessor and Lessor arising out of such holdover.
Acceptance by Sublessor of rent after such expiration or earlier termination
shall not constitute a consent to any holdover hereunder or result in a renewal
or extension. The foregoing provisions of this are in addition to and do not
affect Sublessor's rights of re-entry or any other rights of Sublessor hereunder
or as otherwise provided by law.
12. Entry By Sublessor. Sublessor reserves and shall at all times have
------------------
the right to enter the Premises, to inspect the same, to show said Premises to
prospective purchasers or sublessees, and to post notices of nonresponsibility.
Sublessor may also enter the Premises, without abatement or rent, in order to
alter, improve or repair the Premises that Sublessor may deem necessary or
desirable. With respect to the entry rights of Sublessor herein provided for,
Sublessee hereby waives any claim for damages for any injury or inconvenience to
or interference with Sublessee's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby; provided that
Sublessor covenants and agrees to make all reasonable effort not to unreasonably
interfere with Sublessee's use and occupation of the Premises resulting from
Sublessor's entry upon the Premises.
13. Obligations of Sublessor. Sublessor agrees to maintain the Master
------------------------
Lease during the entire term of this Sublease, subject, however, to any earlier
termination of the Master Lease without the fault of Sublessor. Sublessor also
agrees to pay all rent provided for in the Master Lease in accordance with its
terms. Further, Sublessor agrees not to modify or surrender the Master Lease
without the prior consent of Sublessee. Any modification or surrender made
without that consent shall be null and void and shall have no effect on the
rights of Sublessee
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under this Sublease. Sublessor does not assume the obligations of Lessor.
14. Termination by Sublessor.
------------------------
(a) Default by Sublessee. The occurrence of any one or more of
--------------------
the following events shall constitute an Event of Default hereunder by
Sublessee:
(i) The vacating or abandonment or the Premises by
Sublessee.
(ii) The failure by Sublessee to make any payment of Rent
when the same is due, if such failure shall continue for
a period of ten days after written notice thereof from
Sublessor to Sublessee.
(iii) The failure by Sublessee to observe or perform any of
the covenants or provisions of this Sublease or the
Master Lease to be observed or performed by Sublessee,
other than payment of Rent as specified above, where
such failure shall continue for a period of 30 days
after written notice thereof from Sublessor to
Sublessee.
(iv) The filing of a petition for bankruptcy, insolvency or
transfer of property for the benefit of creditors by
Sublessee.
(b) Termination for Default. Upon the occurrence of any Event
-----------------------
of Default by Sublessee, Sublessor shall have the following remedies, which
remedies are not exclusive and are cumulative with any other remedies now or
later allowed by law:
(i) Continue this Sublease in full force and effect and not
terminate Sublessee's right to possession of the
Premises, in which event Sublessor shall have the right
to enforce all rights and remedies granted by this
Sublease or by law against Sublessee, including, without
limitation, the right to collect when due Rent and other
sums payable hereunder;
(ii) Terminate Sublessee's right to possession of the
Premises by any lawful means, in which case this
Sublease shall terminate and Sublessee shall immediately
surrender possession of the Premises to Sublessor; and
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(iii) Pursue any other remedy now or hereafter permitted by
law or in equity.
15. Termination By Sublessee. Sublessee may terminate this Sublease
------------------------
following failure by Sublessor to observe or perform any material covenants or
provisions of this Sublease to be observed or performed by Sublessor, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Sublessee to Sublessor.
16. Termination By Agreement. In the event the parties hereto shall
------------------------
agree in writing this Sublease may be terminated on terms and date stipulated
therein.
17. Termination in Event of Government Action. If (a) any legislation,
-----------------------------------------
regulations, rules or procedures are duly passed, adopted or implemented by any
federal, state or local government or legislative body or any private agency; or
(b) Sublessor or Sublessee shall receive notice of any actual or threatened
decision, finding, or action (collectively referred to herein as an "Action") by
any governmental or private agency, court or other third party which, if or when
implemented, would have the effect of (i) revoking or jeopardizing the status of
the health facility or other license granted to Sublessor; or (ii) subjecting
the Sublessor or the Sublessee, or any of their members, to civil or criminal
prosecution, or other adverse proceedings, on the basis of their participation
herein, Sublessor and Sublessee shall attempt to amend this Sublease to avoid
the action or threatened action. If the parties hereto, acting in good faith,
are unable to so amend this Sublease within ten (10) days to meet the
requirements of the agency, court or third party in question, or, alternatively,
if the parties determine in good faith that compliance with such requirements is
impossible or infeasible, this Sublease shall be terminated.
18. Termination of Master Lease. If the Master Lease is terminated,
---------------------------
this Sublease shall terminate simultaneously therewith and the Sublessor and
Sublessee shall thereafter be released from all obligations under this Sublease,
and Sublessor shall refund to Sublessee any unearned rent paid in advance.
19. Effects of Termination. Upon termination of this Sublease,
----------------------
Sublessee shall immediately surrender possession of the Premises to Sublessor,
and all of the rights, duties and obligations of the parties hereunder shall
cease except as necessary to effectuate the covenants, conditions and
restrictions contained herein.
20. Attornment. Notwithstanding anything herein to the contrary, if
----------
Sublessor defaults under the Master Lease and Lessor provides Sublessee with
written notice thereof, Sublessee shall attorn to Lessor and perform all
Sublessee's obligations under
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the Sublease directly to Lessor as if Lessor were Sublessor hereunder. From the
date Sublessee attorneys to Lessor as provided herein, Sublessee shall not be
further liable to Sublessor for performance under this Sublease. Lessor and
Sublessee, from the date of attornment, shall have the same rights that can be
enforced against each other as Sublessor and Sublessee have hereunder. Lessor
shall not be liable for any act or omission of Sublessor and its authorized
representatives, and shall not be subject to any offsets or defenses that
Sublessee has against Sublessor.
21. Late Charges. Sublessee hereby acknowledges that late payment by
------------
Sublessee to Sublessor of rent or other sums due hereunder will cause Sublessor
to incur costs not contemplated by this Sublease, the exact amount of which will
be extremely difficult to ascertain. Such costs include, but are limited to,
processing and accounting charges, and late charges which may be imposed upon
Sublessor by terms of the Master Lease. Accordingly, if any installment of rent,
or of a sum due from Sublessee, is not received by Sublessor's designee within
10 days after written notice that said amount is past due, then Sublessee shall
pay to Sublessor a late charge equal to ten percent (10%) of such overdue
amount. The parties hereby agree that such late charges represent a fair and
reasonable estimate of the costs which Sublessor will incur by reason of the
late payment by Sublessee. Acceptance of such late charges by Sublessor shall in
no event constitute a waiver of Sublessee's default with respect to such overdue
amount, not prevent Sublessor from exercising any of the other rights and
remedies granted hereunder.
22. Authority of Parties.
--------------------
(a) Each individual executing this Sublease on behalf of a
corporation represents and warrants that he is duly authorized to execute and
deliver this Sublease on behalf of the corporation, in accordance with a duly
adopted resolution of the board of directors of the corporation or in accordance
with the Bylaws of the corporation, and that this Sublease is binding upon the
corporation in accordance with its terms.
23. Notices. Any notice required or permitted to be given under this
-------
Sublease shall be in writing and hand delivered or sent by registered or
certified mail to each party as follows:
SUBLESSOR: Summit Health Ltd.
2600 W. Magnolia Blvd.
Burbank, CA 91505
Attention: Chief Executive Officer
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SUBLESSEE: Summit Care Corporation
2600 W. Magnolia Blvd.
Burbank, CA 91505
Attention: Chief Executive Officer
Notice shall be deemed given 24 hours after the date it is placed, postage
prepaid, in a depository for United States mail. Either party may provide for a
different address by notifying the other party of said change as provided for
herein.
24. General Provisions.
------------------
(a) Prior notice. In the event of any act or omission on the
------------
part of Sublessor which would give Sublessee the right to terminate this
Sublease or claim a total or partial eviction from the Premises, Sublessee shall
not exercise such right or make such claim until (i) it has given written notice
thereof to the Sublessor; and (ii) Sublessor has had a reasonable opportunity to
remedy such act or omission.
(b) Time of Essence. Time is hereby made of the essence of
---------------
each of the promises, covenants, agreements and conditions herein contained on
the part of Sublessee to be kept, observed and performed.
(c) Modification. This Sublease contains all of the terms and
------------
conditions agreed upon by the parties hereto with reference to the subject
matter hereof. No other agreements not specifically referred to herein, oral or
otherwise, shall be deemed to exist or to bind any of the parties hereto. This
Sublease cannot be modified or changed except by written instrument signed by
all of the parties hereto.
(d) Relationship of Parties. Nothing contained in this
-----------------------
Sublease shall be deemed or construed by the parties or by any third person or
create the relationship of principal and agent or of partnership or of joint
venture or of any association between Sublessor and Sublessee.
(e) Choice of Law. This Sublease shall be governed by the laws
-------------
of the State of Arizona.
(f) Waiver. The waiver by Sublessor of any term, covenant or
------
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition on any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Sublessor shall not be deemed to be a waiver of any preceding
breach by Sublessee of any term, covenant or condition of this Sublease,
regardless of Sublessor's knowledge of such preceding breach at the time of the
acceptance of such rent.
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(g) Partial Invalidity. If any term or provision of this Sublease,
------------------
or the application thereof to any person or circumstance, shall to any event be
invalid or unenforceable, the remainder of this Sublease or the application or
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each term
and provisions of this Sublease shall be valid and enforced to the fullest
extent permitted by law.
(h) Captions. The captions contained in this lease are for
--------
convenience only and shall not be referred to for the purpose of limiting and
construing this Sublease.
(i) Successors and Assigns. The covenants and conditions herein
----------------------
contained, subject to the provisions as to assignment and subletting, apply to
and bind the heirs, successors, executors, administrators and assigns of the
parties hereto.
(j) Recordation. Neither Sublessor nor Sublessee shall record
-----------
this Sublease or a short form memorandum hereof without the prior written
consent of the other party.
(k) Inability to Perform. This Sublease and the obligations of
--------------------
Sublessee hereunder shall not be affected or impaired because Sublessor is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of Sublessor.
(l) 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.
(m) Entire Agreement. The parties agree that this Sublease
----------------
contains the entire agreement of the parties hereto with respect to the matters
covered hereby, and no other agreement, statement or promise made by any party
hereto or to any officer,
9
<PAGE>
employee or agent of any party hereto which is not contained herein shall be
binding or valid.
IN WITNESS WHEREOF, the undersigned have executed this
Sublease as of the day and year first above written.
SUBLESSOR: SUMMIT HEALTH LTD.
a California corporation
By:
--------------------------------
Its
--------------------------------
SUBLESSEE:
By: /s/ Derwin L. Williams
--------------------------------
Its VICE PRESIDENT, FINANCE
--------------------------------
CONSENT OF LESSOR
The undersigned is the Lessor under the Master Lease described in the
foregoing Sublease and hereby consents to the sublease of the premises described
in this Sublease to the Sublessee. In granting this consent, the undersigned
does not waive any of its rights under the Master Lease as to the Lessee or
under the Sublease as to the Sublessee.
LESSOR: SIERRA LAND GROUP, INC.
a California corporation
By:
--------------------------------
Its
--------------------------------
10
<PAGE>
EXHIBIT "A"
LEASE
This Lease is made and entered into this 1st day of August 1993, by and
between SIERRA LAND GROUP, INC., a California corporation ("Landlord"), and
SUMMIT CARE CORPORATION, a California corporation (Tenant").
1. Leased Premises
---------------
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, subject to the terms and conditions contained herein, that certain
real property situated in the County of Maricopa, State of Arizona, commonly
known as 1314/1342 East McDowell Road, Phoenix, Arizona and more particularly
described in Exhibit "A" hereto and incorporated herein by reference (the
"Property"), with improvements thereon (the "Improvements"), said Property and
Improvements hereinafter being collectively referred to as the "Premises".
2. Term
----
The term of the Lease shall be for ten (10) years commencing
on August 1, 1993 (the "Commencement Date") and ending on July 31, 2003
("Termination Date"), unless sooner terminated pursuant to any provision hereof.
3. Rent
----
(a) Tenant shall pay Landlord as fixed rent for the Premises a
sum equal to Twenty Five Thousand Dollars and 00/100 ($25,000) (the "Fixed
Rent") before the first day of each and every month during the Term of this
Lease.
(b) On or before the first day of each and every month of each
twelve (12) month period (the "Adjustment Period"), the first of which shall
commence ____________________________, in addition to the Fixed Rent due
pursuant to subparagraph (a) above, Tenant shall pay as additional rent an
additional amount (the "Adjustment") to be determined in accordance with the
variations, if any, in the cost of living as shown by the Consumer Price Index
for all Urban Consumers, as published by the Bureau of Labor Statistics, United
States Department of Labor, or any successor agency (the "CPI"). The Adjustment
for each month of each Adjustment Period shall be an amount equal to the
difference between (i) the product obtained by multiplying the Fixed Rent by a
fraction, the numerator of which shall equal the CPI reported for the calendar
month of May immediately prior to the first day of such Adjustment Period and
the denominator of which shall equal the CPI reported for May, 1993 and (ii) the
Fixed Rent. The computation of the Adjustment for each month of
1
<PAGE>
each Adjustment period shall be made without regard to whether any Adjustment
was payable with respect to any preceding Adjustment Period. In no event shall
the calculation of the amount of the Adjustment operate to reduce the total rent
due pursuant to this Paragraph 3 below the Fixed Rent. In the event that the
necessary CPI figures are not available to compute the Adjustment upon the
commencement of any Adjustment Period, Tenant shall continue to pay the Fixed
Rent plus the Adjustment in effect, if any, for the prior Adjustment period (the
"Tentative Adjustment") until such CPI figures become available, at which time
the appropriate Adjustment for each month of such Adjustment period shall be
determined. Immediately following such determination, either Landlord shall
refund to Tenant the amount by which the sum of all Tentative Adjustment
actually paid during such Adjustment Period exceeds the sum of all Adjustments
properly payable during such Adjustment Period, or Tenant shall pay to Landlord
the amount by which the sum of all Adjustment properly payable during such
Adjustment Period exceeds the sum of all Tentative Adjustments actually paid
during such Adjustment Period. In the event the CPI is no longer published,
Landlord and Tenant shall determine another index of similar nature showing
changes in the cost of living to be used to calculate the Adjustment due
Landlord. If Landlord and Tenant cannot agree on the selection of an index, or
if Landlord and Tenant disagree as to the computations called for in this
subparagraph (b), any disagreed matters shall then be resolved by arbitration
in the county in which the Premises are located, in accordance with the then
rules of the American Arbitration Association. The fixed Rent and any
adjustments are sometimes collectively referred to as the "Rent".
(c) Rent for any period during the Term which is for less than one
month shall be a prorata portion of the monthly installment. Rent shall be
payable, without deduction or offset, in lawful money of the United States to
Landlord at the address stated herein or to such other persons or at such other
places as Landlord may designate in writing.
(d) This lease is what is commonly called a "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.
In addition to the Rent provided in this paragraph, Tenant shall pay to the
parties respectively entitled thereto all impositions, taxes, insurance
premiums, operating charges, costs and expenses which arise or may be
contemplated under any provisions of this Lease during the Term. All of such
charges, costs and expenses shall constitute additional rent, and upon the
failure of Tenant to pay any of such costs, charges or expenses, Landlord shall
have the same rights and remedies as otherwise provided in this Lease for the
failure of Tenant to pay Rent. It is the intention
2
<PAGE>
of the parties hereto that Tenant shall in no event be entitled to any abatement
of or reduction in Rent payable hereunder, except as expressly provided herein.
Any present or future law to the contrary shall not alter this agreement of the
parties.
5. Use
---
(a) The Premises shall be used and occupied only for provision
of licensed skilled nursing facility services and any future programs which are
an extension of the programs contemplated by Tenant at the time of execution of
this Lease, and related office, administration and support services, and for no
other purposes without Landlord's prior written consent, which consent will not
be unreasonably withheld.
(b) Tenant shall, at Tenant's sole cost and expense, comply
with all present and future laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments, courts,
commissions, boards, and officers, and any national or local Board of Fire
Underwriters, or any other body exercising functions similar to those of any of
the foregoing, foreseen or unforeseen, ordinary as well as extraordinary, which
may be applicable to the Premises and the sidewalk, curbs, and vaults adjoining
the Premises or to the use or manner of use of the Premises, whether or not such
law, ordinance, order, rule, regulation or requirement shall necessitate
structural changes or improvements, or the removal of any encroachments or
projections, ornamental, structural or otherwise, onto or over the streets or
sidewalks adjacent to the Premises, or onto or over other property contiguous or
adjacent thereto. Tenant shall obtain any required certificate of occupancy with
respect to its use of the Premises within thirty (30) days from the Commencement
Date and shall deliver a copy thereof to Landlord within such thirty (30) day
period. Tenant shall not use or permit the use of the Premises in any manner
that will tend to create waste or a nuisance.
(c) Tenant hereby accepts the Premises subject to all
applicable zoning, municipal, county and state laws, ordinances and regulation
governing and regulating the use of the Premises and subject to all liens,
claims and encumbrances currently existing against the Premises or any part
thereof, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Tenant acknowledges that neither
Landlord not Landlord's agents have made any representations or warranties as to
the Premises, including without limitation, any representation or warranty as to
condition or fitness of the Improvements or the suitability of the Improvements
for the conduct of Tenant's business.
3
<PAGE>
6. Maintenance and Repairs
-----------------------
(a) Tenant shall, during the Term, keep in good order,
condition and repair, the Premises, (including the Improvements and any and all
alterations and additions made by Tenant pursuant to the provisions hereof),
structural or non-structural, and all adjacent sidewalks, landscaping,
driveways, parking lots, fences and signs located in the areas which are
adjacent to or included with the Premises. Landlord shall incur no expense nor
have any obligation of any kind whatsoever in connection with maintenance of the
Premises, and Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's failure to keep the Premises in good order, condition and
repair.
(b) On the last day of the Term, or on any sooner termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same condition as
when received, broom clean, ordinary wear and tear alone excepted. Tenant shall
repair any damage to the Premises occasioned by the removal of Tenant's
alterations and improvements (including, without limitation, its trade fixtures,
furnishings and equipment) which repair shall include, without limitation, the
patching and filling of holes and repair of structural damage.
(c) If Tenant fails to perform Tenant's obligations under this
paragraph, Landlord may at its option enter upon the Premises after ten (10)
days prior written notice to Lessee, and put the same in good order, condition
and repair, and the cost thereof together with interest thereon at the rate of
ten percent (10%) per annum shall become due and payable as additional rental to
landlord together with Tenant's next monthly Rent payment. Nothing herein shall
imply any duty upon the part of Landlord to do any such work and the performance
thereof by Landlord shall not constitute a waiver of Tenant's default in failing
to perform the same. Landlord may, during the progress of any such work in or on
the Premises, keep and store therein all necessary materials, tools, supplies
and equipment. Landlord shall not be liable for the inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant by reason of making such
repairs or the performance of any such work, or on account of bringing
materials, tools, supplies or equipment into or through the Premises during the
course thereof and the obligations of Tenant under this Lease shall not be
affected thereby.
7. Alterations and Additions
-------------------------
(a) Tenant shall not, without Landlord's prior written
consent, make any alterations, improvements, additions, or utility installations
(which term "utility installations" shall include ducting, power panels,
fluorescent fixtures, space heaters, conduits and wiring) in, or about the
Premises, except
4
<PAGE>
for nonstructural alterations to the Premises costing less than Twenty Five
Thousand Dollars ($25,000) in the aggregate over any one (1) year period. As a
condition to giving such consent, Landlord may require that Tenant agree to (i)
remove any such alterations, improvements, additions or utility installations at
the expiration of the Term and restore the Premises to their prior condition or,
in the alternative, (ii) require that such alterations, improvements, additions
or utility installation shall become the property of Landlord and shall be left
by Tenant upon the expiration of the Term. As a further condition to giving such
consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost
and expense, lien and completion bonds in an amount equal to one and one-half
(1-1/2) times the estimated cost of such improvements to insure Landlord against
any liability for mechanics' and materialsmen's liens and to insure completion
of the work.
(b) 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 on or in connection with the Premises, which claims are or may be secured by
any mechanics' or materialmen's liens against the Premises or any interest
therein. Tenant shall give Landlord not less than ten (10) days notice prior to
commencement of any work on the Premises, and Landlord shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
(c) Unless Landlord requires their removal as set forth in
subparagraph (a) above or otherwise consents to such removal, all alterations,
improvements, additions and utility installations which may be made on or to the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the Term. Notwithstanding the
provisions of this subparagraph (c), Tenant's machinery and equipment 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 subject to the provisions of paragraph 8(c) above .
8. Insurance
---------
(a) Tenant at its sole cost and expense, but for the mutual
benefit of Landlord and Tenant as named insureds, shall maintain comprehensive
general liability insurance on an "occurrence basis" against claims for
"personal injury", including without limitation, bodily injury, death or
property damage, occurring upon, in or about the Premises and on, in or about
the adjoining sidewalks, streets, and passageways and for all other areas
appurtenant thereto, such insurance to afford, immediate minimum protection, at
the time of the inception of this Lease, and at all times during the Term, to a
limit of not
5
<PAGE>
less than One Million Dollars ($1,000,000) with respect to personal injury or
death to any one or more persons or to damage to property. Such insurance shall
also include coverage against liability for bodily injury or property damage
arising out of the use by or on behalf of Tenant, or any other person or
organization, of any owned, non-owned, leased or hired automotive equipment in
the conduct of any and all operations called for under this Lease. The limits of
said insurance shall not, however, limit the liability of Tenant hereunder.
(b) Tenant, at its sole cost and expense, shall keep the
Improvements insured during the Term for the mutual benefit of Landlord and
Tenant as named insureds, against loss or damage by fire and lightning and
against loss or damage by other risks embraced by coverage of the type now known
as the broad form of extended coverage, including but not limited to fire, riot
and civil commotion, vandalism and malicious mischief, special extended perils
(all risk) and sprinkler leakage, and against such other risks or hazards as
Landlord may from time to time reasonably designate, in amounts sufficient to
prevent Landlord or Tenant from becoming a co-insurer under the terms of the
applicable policies, but in any event in an amount not less than the full
replacement cost of the Improvements and the Personal Property, without
deduction for physical depreciation, and with not more than One Thousand Dollars
($1,000) deductible from the loss payable for any casualty. The policies of
insurance carried in accordance with this paragraph shall contain a "Replacement
Cost Endorsement". Such full replacement cost shall be determined from time to
time, but not more frequently than once in any twelve (12) consecutive calendar
months (except in the event of substantial changes or alterations to the
Improvements undertaken by Tenant as permitted hereunder) upon the written
request of Landlord by an appraiser, architect or contractor who shall be
mutually and reasonably acceptable to Landlord and Tenant. A copy of any such
determination shall promptly be sent to Landlord, and subject to the approval of
such determination by Landlord, the insurance maintained in this paragraph shall
be adjusted to the new full replacement cost. Said insurance shall provide for
payment for loss thereunder to Landlord or, at Landlord's request, to the holder
of any mortgage or deed of trust on the Premises.
(c) Insurance required hereunder shall be by companies rated
AAA or better in "Best Insurance Guide" licensed to do business in the state in
which the Premises are located and acceptable to Landlord and the holder of any
mortgage or deed of trust on the Premises or any part or portion thereof. Tenant
shall deliver to Landlord copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (3) days
6
<PAGE>
written notice to Landlord. Tenant shall, within ten (10) days of the expiration
of such policies, furnish Landlord with renewals of "binders' thereof, or
Landlord may order such insurance and charge the cost thereof to Tenant, which
amount shall be payable by Tenant upon demand. Each such policy or certificate
therefor issued by the insurer shall to the extent obtainable contain (i) a
provision that no act or omission of Tenant which would otherwise result in
forfeiture or reduction of the insurance therein provided it shall affect or
limit the obligation of the insurance company to pay the amount of any loss
sustained and (ii) an agreement by the insurer that such policy shall not be
cancelled without at least thirty (30) days prior written notice by registered
mail to Landlord. Tenant shall not do or permit to be done anything which shall
invalidate the insurance policies referred to herein. If Tenant shall fail to
procure and maintain any insurance required to be maintained by it by virtue of
any provision of this paragraph, Landlord may, but shall not be required to,
procure and maintain the same, but at the expense of Tenant.
(d) Landlord and Tenant each hereby waive any and all rights
of recovery against the other, or against the officers, employees, agents and
representative of the other, for loss of or damage to such waiving party, or its
property, or the property of other under its control to the extent that such
loss or damage is insured against under any insurance policy in force at the
time of such loss or damage. Tenant shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
9. Indemnity; Exemption of Landlord from Liability
-----------------------------------------------
(a) In addition to any other obligations of Tenant hereunder,
including the obligations of Tenant to provide insurance, Tenant shall indemnify
and hold Landlord harmless from and against any and all claims arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and 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 the be performed under the
terms of this Lease, or arising from any negligence of Tenant, or any of
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; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
satisfactory to Landlord. Tenant, as a material part of the consideration to
Landlord for Landlord's
7
<PAGE>
execution of this Lease, hereby assumes all risk of damage to property or injury
to persons in, upon or about the Premises arising from any cause and Tenant
hereby waives all claims in respect thereof against Landlord.
(b) In addition to any other obligation of Tenant hereunder,
including any obligation of Tenant to provide insurance, Tenant hereby agrees
that Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers, or any other person
in or about the Premises, nor shall Landlord be liable for injury to the person
of Tenant or Tenant's employees, agents or contractors, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing air conditioning or lighting fixtures,
or from any other cause, resulting from conditions arising upon the Premises, or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant.
10. Damage or Destruction: Obligation to Rebuild
--------------------------------------------
In the event that during the Term the Improvements are damaged or
destroyed, partially or totally, from any cause whatsoever, whether or not such
damage or destruction is covered by any insurance required to be maintained
under this Lease, then Tenant shall repair, restore, and rebuild the Premises to
their condition existing immediately prior to such damage or destruction and
this Lease shall continue in full force and effect. Such repair, restoration and
rebuilding (all of which are herein called the "repair") shall be commenced
within a reasonable time after such damage or destruction and shall be
diligently prosecuted to completion. There shall be no abatement of Rent or of
any other obligation of Tenant hereunder by reason of such damage or
destruction. The proceeds of any insurance maintained under paragraph 8 hereof
shall be made available to Tenant for payment of the costs and expenses of the
repair, provided, however, that such proceeds may be made available to Tenant
subject to reasonable conditions including, but not limited to, architects'
certification of costs and retention of a percentage of such proceeds pending
final notice of completion. Landlord may require that Tenant provide, at
Tenant's sole costs and expense, lien and completion bonds in an amount equal to
one and one-half (1-1/2) times the estimated cost of repairs to insure against
mechanics' or materialmen's liens arising out of the repair and to insure
completion of the repair. In the event that the insurance proceeds are
insufficient to cover the cost of the repair, then any amount in excess thereof
required to complete the repair shall be paid by Tenant.
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11. Property Taxes
--------------
(a) Tenant shall pay all "Property Taxes" (as defined below)
applicable to the Premises during the Term. Each payment shall be made at least
ten (10) days prior to the delinquency date of such payment; provided, however,
that if in connection with any financing obtained by Landlord on the Premises or
any portion thereof, Landlord is required to pay into an impound account any
sums due as Property taxes, then Tenant shall pay such sums to Landlord in
satisfaction of Tenant's obligation to pay such sums due as Property taxes as
additional rent and without deduction or offset on or before the first day of
each and every month during which said sums are required to be impounded. Tenant
shall promptly furnish Landlord with evidence satisfactory to Landlord that
Property taxes have been paid. If any Property Taxes due with respect to the
Premises shall cover any period of time prior to or after the expiration of the
Term, Tenant's share of such Property Taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect. If Tenant shall fail to pay any Property Taxes, Landlord shall
have the right, but not the obligation, to pay the same, in which case Tenant
shall repay such amount to Landlord with Tenant's next Rent installment.
(b) As used herein, the term "Property Taxes" shall include
any form of general or special assessment, license fee, commercial rental tax,
levy, penalty, or tax (other than inheritance or estate taxes) imposed by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement district, or any part of part thereof, or against
any legal or equitable interest of Landlord's right to rent or other income
therefrom (but exclusive of taxes levied on or computed by reference to
Landlord's net income as a whole), or against Landlord's business of leasing the
Premises, it being the intention of the parties hereto that the Rent to be paid
hereunder shall be paid to Landlord absolutely net, without deduction of any
nature whatsoever, foreseeable or unforeseeable.
(c) If the Premises are not separately assessed, Tenant's
liability shall be an equitable proportion of the Property Taxes for all of the
land and improvements included within the tax parcel assessed, such proportion
to be determined by Landlord from the respective valuations assigned in the
assessor's work sheet or such other information as may be reasonably available.
Landlord's reasonably determination thereof, in good faith, shall be conclusive.
(d) Tenant shall pay prior to delinquency all taxes assessed
against the levied upon trade fixtures, furnishings,
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equipment and all other personal property of Tenant contained on the Premises or
elsewhere. When possible, Tenant shall cause such trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the Premises.
(e) As between the parties hereto, Tenant alone shall have
the duty of attending to, making or filing any declaration, statement or report
which may be provided or required by law as the basis of or in connection with
the determination, equalization, reduction or payment of any Property Taxes
which are to be borne or paid or which may become payable by Tenant under the
provisions of this paragraph and Landlord shall not be or become responsible to
Tenant therefor, nor for the contents of any such declaration, statement or
report.
12. Condemnation
------------
(a) If the Premises or any portion there of is taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs (the "Condemnation Date") and the Rent shall
be reduced (as of the Condemnation Date) as provided below. If (i) more than ten
percent (10%) of the floor area of any building comprising the Improvements or
more than twenty-five percent (25%) of the land area of the Property which is
not occupied by any such building is taken by condemnation, and (ii) as a result
of such taking by condemnation the balance of the Premises remaining after such
condemnation is not reasonably suitable for the use to which the Premises were
being put immediately prior to the condemnation, Landlord or Tenant may, at
either's option, to be exercised in writing only within ten (10) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within ten (10) days of the Condemnation Date) terminate
this Lease as of the Condemnation Date. If Landlord or Tenant does not terminate
this Lease in accordance with the foregoing, or in the event that that portion
of the Premises taken by condemnation is not sufficiently large so as to give
rise to the right to terminate this Lease as above provided, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Fixed Rent shall be reduced (as of the Condemnation Date) in the
proportion that the area taken by condemnation bears to the total area of the
Premises.
(b) Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the
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fee, or as severance damages, provided, however, that Lessee shall be entitled
to any award specifically attributed by the condemning authority to loss or
damage to Tenant's trade fixtures and removable personal property. In the event
that this Lease is not terminated by reason of such condemnation, Landlord
shall, to the extent of severance damages received by Landlord in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Tenant has been reimbursed therefor by
the condemning authority (in which event such reimbursement to Tenant shall also
be applied to such repair). Tenant shall pay any amount in excess of such
severance damages required to complete such repair.
(c) If the temporary use of the whole or any part of the
Premises shall be taken by condemnation, the Term shall not be reduced or
affected in any way, and Tenant in such event shall continue to pay in full the
rent and other charges herein reserved, without reduction or abatement, and
except to the extent that Tenant is prevented from so doing by reason of any
order of the condemning authority, shall continue to perform and observe all of
the other covenants, conditions and agreements of this Lease to be performed or
observed by Tenant as though such taking had not occurred. In the event of any
such temporary condemnation Tenant shall, so long as it is otherwise in
compliance with the provisions of this Lease, be entitled to receive for itself
any and all awards or payments made of such use of that portion of the Premises
so taken, provided, however, that Tenant shall repair any and all damages to the
Premises (whether or not covered by any award to Tenant) caused by such
temporary condemnation.
13. Utilities
---------
Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services supplied to the Premises are not separately
metered by Tenant, Tenant shall pay a reasonable proportion to be determined by
Landlord of all charges jointly metered with other premises, and Landlord's
determination thereof, in good faith, shall be conclusive.
14. Assignment and Subletting
-------------------------
(a) Tenant shall not voluntarily or by operation of law
assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any
part of Tenant's interest in this Lease or in the Premises without Landlord's
prior written consent, which Landlord shall not unreasonably withhold. Landlord
may withhold its consent to such assignment, transfer, mortgage, subletting or
other transfer or encumbrance pursuant to the preceding sentence for reasons
including, without limitation, the financial
11
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condition of the proposed assignee or transferee. Any attempted assignment,
transfer, mortgage, subletting or encumbrance without such consent shall be
void, and shall constitute a breach of this Lease. The consent of Landlord to
any one assignment, transfer, mortgage, subletting, or encumbrance shall not be
deemed to be a consent to any subsequent assignment, transfer, mortgage,
subletting, or encumbrance. The transfer of more than twenty-five percent (25%)
of the stock or other ownership interest in Tenant, or the merger or
consolidation of Tenant with or into another firm or entity, shall be deemed to
be a transfer of Tenant's interest under this Lease and shall be subject to the
provisions of this subparagraph (a).
(b) Regardless of Landlord's consent, no subletting or
assignment shall alter the primary liability of Tenant to pay the rent or
release Tenant of Tenant's obligation to perform all other obligations to be
performed by Tenant hereunder unless Landlord's written consent shall so
specifically provide, and Landlord under no circumstances shall be obligated to
release Tenant from any such liability. The acceptance of rent by Landlord from
any other person shall not be deemed to be a waiver by Landlord of any
provisions hereof.
(c) In the event that Landlord shall consent to a sublease or
assignment under subparagraph (a) above, Tenant shall pay Landlord's reasonable
attorneys' fees not to exceed Five Hundred Dollars ($500) incurred in connection
with the giving of such consent.
15. Default; Remedies
-----------------
(a) Defaults. The occurrence of any one or more of the
--------
following events shall constitute a default and breach of this Lease by Tenant:
(i) The vacating or abandonment of the Premises by
Tenant;
(ii) The failure by Tenant to make any payment of Rent or
any other payment required to be made by Tenant hereunder, as and when due,
where such failure shall continue for a period of three (3) days after written
notice thereof from Landlord to Tenant;
(iii) The failure by Tenant to observe or perform any of
the covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in subparagraph (ii) above, where such
failure shall continue for a period of ten (10) days after written notice hereof
from Landlord to Tenant; provided, however, that if the nature of Tenant's
default is such that it is capable of being cured but more than ten (10) days
are reasonably required for its cure, then Tenant
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<PAGE>
shall not be deemed to be in default if Tenant commences such cure within such
ten (10) day period and thereafter diligently prosecuted such cure to
completion; or
(iv) The making by Tenant of any general assignment for the
benefit of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for liquidation or reorganization or
rehabilitation or arrangement or rearrangement under any law relating to
bankruptcy whether now existing or hereafter enacted (including, without
limitation, any petition filed by or against Tenant under any one or more of the
following Chapters of the Federal Bankruptcy Act: Chapters 1-6 or Chapter 10 or
Chapter 11 or Chapter 12 or Chapter 13); the adjudication of Tenant as a
bankrupt or insolvent; the appointment of a trustee or receiver to take
possession of all or 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 twenty (20) days; 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
twenty (20) days. Unless Landlord's express written consent thereto is first
obtained, in no event shall this Lease, or any interest herein or hereunder or
any estate created hereby, be assigned or assignable by operation of law or by,
in or under voluntary or involuntary bankruptcy or insolvency or reorganization
proceeding or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy or insolvency or
reorganization proceedings. Any purported assignment or transfer in violation of
the provisions of this subparagraph (iv) shall constitute a default and breach
of this Lease by Tenant and in connection with any such default and breach
Landlord shall have the rights and remedies described in subparagraph (b) below,
including, without limitation, the election to terminate this Lease. As used in
this subparagraph (iv), the words "bankruptcy or insolvency or reorganization
proceedings" shall include any proceedings under any law relating to bankruptcy
whether now existing or hereinafter enacted (including, without limitation,
proceedings under any one or more of the following Chapters of the Federal
Bankruptcy Act: Chapters 1-6 or Chapter 10 or Chapter 11 or Chapter 12 or
Chapter 13).
(b) Remedies
--------
(i) In the event of any default and Breach by Tenant of any
of its obligations under this Lease and notwithstanding the vacation or
abandonment of the Premises by Tenant, this Lease shall continue in effect so
long as Landlord does not expressly terminate Tenant's right to possession in
any of the manners specified in this paragraph and Landlord may, at Landlord's
option and without limiting Landlord in the exercise of any other rights or
remedies which it may have by reason of
13
<PAGE>
such default and breach, exercise all of its rights and remedies hereunder,
including, without limitation:
(A) The right to declare the Term ended and to re-enter the
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim in or to the Premises or under this Lease; or
(B) The right without declaring this Lease ended to re-enter
the Premises, take possession thereof, remove all persons therefrom and occupy
or lease the whole or any part thereof for and on account of Tenant and upon
such terms and conditions and for such rent as Landlord may deem proper and to
collect such rent or any other rent that may hereafter become payable and apply
the same as provided in subparagraph (ii) below; or
(C) The right, even though Landlord may have relet the
Premises or brought an action to collect Rent and other charges without
terminating this Lease, to thereafter elect to terminate this Lease and all of
the rights of Tenant in or to the Premises.
(ii) Should Landlord relet the Premises under the provisions of
subparagraph (b) (i) (B) above, Landlord may execute any lease either in its own
name or in the name of Tenant, but tenant hereunder shall have no right or
authority whatever to collect any rent from the new tenant. The proceeds of any
such reletting shall first be applied to the payment of the costs and expenses
of relating the Premises, including without limitation, reasonable brokerage
commissions and alterations and repairs which Landlord, in its sole discretion,
deems unreasonably necessary and advisable and to the payment of reasonable
attorneys' fees incurred by Landlord in connection with the retaking of the
Premises and such relating and, second, to the payment of any indebtedness,
other than Rent, due hereunder including, without limitation, storage charges
owing from Tenant to Landlord. When such costs and expenses of reletting have
been paid, and if there is no such indebtedness or such indebtedness has been
paid, Tenant shall be entitled to a credit for the net amount of rental received
from such reletting each month during the unexpired balance of the Term, and
Tenant shall pay Landlord monthly on the first day of each month as specified
herein such sums as may be required to make up the rentals provided for in this
Lease. Nothing contained herein shall be construed as obligating Landlord to
relet the whole or any part of the Premises.
(iii) Should Landlord elect to terminate this Lease under the
Provisions of subparagraphs (b) (i) (A) or (C) above, Landlord shall be entitled
to recover immediately from Tenant (in addition to any other amounts recoverable
by Landlord as provided
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<PAGE>
by law), the following amounts:
(A) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;
(B) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(C) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amounts of such rental loss that Tenant proves could be reasonably avoided; and
(D) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom.
For purposes of computing "the worth at the time of the
award" of the amount specified in subparagraph (b) (iii) (C) above, such amount
shall be discounted at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award. For purposes of computing "the worth at the time
of the award" under subparagraph (b) (iii) (A) and (b) (iii) (B) above, an
interest rate of ten percent (10%) per annum shall be utilized.
(iv) If Landlord shall elect to re-enter the Premises as provided
above, Landlord shall not be liable for damages by reason of any re-entry.
Tenant hereby waives all claims and demands against Landlord for damages or loss
arising out of or in connection with any reentering and taking possession of the
Premises and waives all claims for damages or loss arising out of or in
connection with any destruction of or damage to the Premises, or for any loss of
property belonging to Tenant or to any other person, firm or corporation which
may be in or upon the Premises at the time of such re-entry.
(v) Landlord shall not be deemed to have terminated this Lease,
Tenant's right to possession of the Premises or the liability of Tenant to pay
Rent thereafter to accrue or its liability for damages under any of the
provisions hereof by any re-entry hereunder or by any action in unlawful
detainer or otherwise to obtain possession of the Premises, unless Landlord
shall notify Tenant in writing that Landlord has so elected to terminate this
Lease. Tenant agrees that the service by Landlord of any notice pursuant to the
unlawful detainer statutes or comparable statutes of the state or locality in
which the
15
<PAGE>
Premises are located and the surrender of possession pursuant to such notice
shall not (unless Landlord elects to the contrary at the time of or at any time
subsequent to the service of such notice and such election shall be evidenced by
a written notice to Tenant) be deemed to be a termination of this Lease or of
Tenant's obligations hereunder. No re-entry or reletting under this paragraph
shall be deemed to constitute a surrender or termination of this Lease, or of
any of the rights, options, elections, powers and remedies reserved by Landlord
hereunder, or a release of Tenant from any of its obligations hereunder, unless
landlord shall specifically notify Tenant, in writing, to that effect. No such
reletting shall preclude Landlord from thereafter at any time terminating this
Lease as herein provided.
(vi) All fixtures, furnishings, goods, equipment,
chattels or other personal property of Lessee remaining on the Premises at the
time that Landlord takes possession thereof may at Landlord's election be stored
at Tenant's expense or sold or otherwise disposed of by Landlord in any manner
permitted by applicable law.
(vii) All rights, options, elections, powers and remedies
of Landlord under the provisions of this Lease are cumulative of each other and
of every other right, option, election, power or remedy which Landlord may
otherwise have at law or in equity and all or any of which Landlord is hereby
authorized to exercise. The exercise of one or more rights, options, elections,
powers or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies Landlord may have under this Lease and
shall not be deemed to be a waiver of Landlord's rights or remedies thereupon or
to be release of Tenant from Tenant's obligations thereon unless such waiver or
release is expressed in writing and signed by Landlord.
(viii) In the event of the exercise by Landlord of any one
or more of its rights and remedies hereunder, Tenant hereby expressly waives any
and all rights of redemption, if any, granted by or under any present or future
laws.
(c) Defaults by Landlord Landlord shall not be in default under
--------------------
this Lease unless Landlord fails to perform obligations required of Landlord
within a reasonable time, but in no event later than ten (10) days after written
notice by Tenant to Landlord and to the holder of any first mortgage or deed of
trust covering the Premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has failed to
perform such obligation; provide, however, that if the nature of Landlord's
obligation is such that more than ten (10) days are required for performance,
then Landlord shall not be in default if Landlord commences performance within
such ten (10) day period and thereafter
16
<PAGE>
diligently prosecutes the same to completion.
(d) Late Charges Tenant hereby acknowledges that late payment
------------
by Tenant to Landlord of Rent and other sums 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 which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, 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 will
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 hereunder.
16. Miscellaneous
-------------
(a) Estoppel Certificate
--------------------
(i) Tenant shall at any time upon not less than ten (10) days
prior written notice from Landlord execute, acknowledge, and deliver to Landlord
a statement in writing certifying that this Lease is unmodified and is 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
acknowledging that there are not, to Tenant's knowledge, any unsecured defaults
on the part of Landlord hereunder, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any person to
whom it shall be delivered by Landlord including any prospective purchaser or
encumbrancer of the Premises or any part thereof.
(ii) Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant that this Lease is in full force and
effect, without modification, except as may be represented by Landlord; that
there are no uncured defaults in Landlord's performance; and that not more than
one month's Rent has been paid in advance.
(iii) If Landlord desires to finance or refinance the Premises,
or any part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial
17
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statements of Tenant as may be reasonably required by such lender. Such
statements shall include the past thee years financial statements of Tenant. All
such financial statements shall be received by Landlord in confidence and shall
be used only for the purposes herein set forth.
(b) Landlord's Liability The term "Landlord" as used herein
--------------------
shall mean only the owner or owners at the time in question of the fee title (or
the lessee's interest in any ground or master lease) to the Premises and in the
event of any transfer of such title, Landlord herein named (and in case of any
subsequent transfers, the then grantor) shall be relieved from and after the
date of such transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer in which Tenant has an interest
shall be delivered to the grantee. The obligation contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns only during their respective period of ownership.
(c) Construction Paragraph captions are solely for the
------------
convenience of the parties and shall not be deemed to or be used to define,
construe, or limit the terms hereof. As used in this Lease, the masculine,
feminine and neuter gender shall be deemed to include the others, and the
singular number shall be deemed to include the plural, whenever the context so
requires. The invalidity of any provision of this Lease as determined by a court
of competent jurisdiction shall in no way affect the validity of any other
provision hereof. This Lease shall be governed by the laws of the state in which
the Premises are located.
(d) Interest on Past-due Obligations Except as expressly
--------------------------------
herein provided, any amount due to Landlord not paid when due shall bear
interest at the lesser of (i) ten percent (10%) per annum or (ii) the maximum
rate permitted by law, from the date due until the date such amount is paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease.
(e) Time of Essence Time is of the essence of this Lease and
---------------
all of the covenants and obligations hereof.
(f) Counterparts This Lease may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Lease.
(g) Incorporation of Prior Agreements: Amendments
---------------------------------------------
This Lease contains all agreements of the parties with
18
<PAGE>
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 the time of the modification.
(h) Notices Any notices, approvals, agreements, certificates,
-------
other documents or communications between the parties hereto required or
permitted under this Lease shall be in writing. Any such communication shall be
deemed to have been duly given or served if delivered in hand or forty-eight
(48) hours after deposit in the United States mail, certified or registered,
postage and fees prepaid, return receipt requested, addressed to the parties as
follows:
Landlord: Sierra Land Group, Inc.
620 N. Brand Blvd.
Glendale, CA 91203
Attn: Chief Executive Officer
Tenant: Summit Care Corporation
2600 W. Magnolia Blvd.
Burbank, CA 91505
Attn: Chief Executive Officer
The address to which any such communications shall be sent
may be changed by either party hereto from time to time by a written notice
mailed as aforesaid.
(i) Waivers No waiver by Landlord of any provision hereof
-------
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by Tenant of the same or any other provisions. Landlord's consent to or
approval of any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. 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.
(j) Recording Tenant shall not record this Lease without
---------
Landlord's prior written consent and such recordation shall, at the option of
Landlord, constitute a non-curable default of Tenant hereunder. Landlord and
Tenant shall, upon the request of either party, execute, acknowledge, and
deliver to the other a "short form" memorandum of lease for recording purposes.
(k) Holding Over If Tenant remains in possession of the
------------
Premises or any part thereof after the expiration of the Term or sooner
termination of this Lease without the express written
19
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consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental equal to one hundred twenty percent (120%) of the last monthly Rent plus
all other charges payable hereunder, and upon all the terms hereof applicable to
a month-to-month tenancy.
(1) Covenants and Conditions Each provision of this Lease
------------------------
performable by Tenant shall be deemed both a covenant and a condition.
(m) Binding Effect Subject to any provisions hereof
--------------
restricting assignment or subletting by Tenant and subject to the provisions of
subparagraph (b) above, this Lease shall bind the parties and their personal
representatives, successors and assigns.
(n) Subordination
-------------
(i) 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 Premises, the
Property or the Improvements, or any part or parts thereof; and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any present or future
mortgagee, trustee or ground lessor shall at any time elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and written
notice of such election shall be given 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.
(ii) Tenant agrees to execute 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, and failing to do
so within ten (10) days after written demand, 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.
(o) Attorneys' Fees If either party brings an action to
---------------
enforce the terms hereof or declare rights under this Lease, the prevailing
party in the final adjudication or any such action, on trial or appeal, shall be
entitled to its costs and expenses of suit, including, without limitation, its
actual attorneys fees, to be paid by the losing party as fixed by the court.
(p) 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
20
<PAGE>
prospective purchasers or lenders, and making such alterations, repairs,
improvements or additions to the Premises or the Improvements as Landlord may
deem necessary or desirable. 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 One Hundred Twenty (120) days of the term place on or about the Premises
any ordinary "For Lease" signs, all without rebate of rent or liability to
Tenant.
(q) Signs and Auctions Tenant shall not place any sign upon
------------------
the Premises or conduct any auction thereon without Landlord's prior written
consent. Further, Tenant shall erect an exterior, identifying sign in form and
substance satisfactory to Landlord.
(r) Merger The voluntary or other surrender of this Lease by
------
Tenant, or a mutual cancellation thereof, 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.
(s) Joint and Several Liability Each party signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for the failure on the part of
Tenant to pay any sums due under the terms of this Lease or for the breach by
Tenant or any of the covenants or obligations of Tenant contained herein.
IN WITNESS WHEREOF, the undersigned have executed this Lease
as of the date and year first above written.
LANDLORD
SIERRA LAND GROUP, INC.
a California corporation
By:
------------------------
Don Freeberg
Chief Executive Officer
and President
TENANT
SUMMIT CARE CORPORATION
a California corporation
By:
------------------------
21
<PAGE>
Exhibit 10.17
REAL ESTATE LIEN NOTE
DATE: September 30, 1994
MARKER: Summit Care Corporation, a California corporation
PAYEE: Leonard May and Catherine May
PLACE FOR PAYMENT: 4733A Baldwin, Corpus Christi, Texas 78408
PRINCIPAL AMOUNT: Three Million Dollars ($3,000,000.00)
ANNUAL INTEREST RATE ON UNPAID PRINCIPAL FROM DATE OF FUNDING: Seven percent
(7%)
TERMS OF PAYMENT (PRINCIPAL AND INTEREST): In equal monthly installments of
Forty Five Thousand Two Hundred Seventy Eighty and 04/100 Dollars ($45,278.04)
(or more) each, the first payment being due November 15th, 1994, and a like
payment being due on the same day of each month thereafter until paid in full.
Interest shall be calculated on the unpaid principal to the date of each
installment paid, and the payment made credited first to the discharge of the
interest accrued and the balance to the reduction of the principal.
ANNUAL INTEREST RATE ON MATURED, UNPAID AMOUNTS: Eighteen Percent (18%)
SECURITY FOR PAYMENT: A Deed of Trust of even date herewith to Robert Anderson,
Trustee, upon the following-described property, to-wit:
As described on Exhibit "A" attached hereto and made a part hereof for
all purposes.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note or in the performance of any
obligation in any instrument securing or collateral to it, this note and all
obligations in all instruments securing or collateral to it shall become
immediately due at the election of Payee. Maker and each surety, endorser, and
guarantor waive all demands for payment, presentations for payment, notices of
intention to accelerate maturity, notices of acceleration of maturity, protests,
and notices of protest.
If this note or any instrument securing or collateral to it is
<PAGE>
given to an attorney for collection or enforcement, or if suit is brought for
collection or enforcement, or if it is collected or enforced through probate,
bankruptcy, or other judicial proceeding, then Maker shall pay Payee reasonable
attorneys' fees in addition to other amounts due. Reasonable attorneys' fees
shall be 10% of all amounts due unless either party pleads otherwise.
Nothing in this note shall authorize the collection of interest in excess
of the highest rate allowed by law.
Each Maker is responsible for the entire amount of this note.
All agreements between Maker and Payee, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand or acceleration of the maturity hereof
or otherwise, shall the interest contracted for, charged, received, paid, or
agreed to be paid to Payee hereof exceed the maximum contractual rate permitted
under applicable law; and if from any circumstances Payee shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal hereof and if said amount exceeds the unpaid balance
of principal hereof, such excess shall be refunded to Maker. All interest paid
or agreed to be paid to Payee shall, to the extent permitted by applicable law,
be amortized, prorated, allocated, and spread throughout the full period until
payment in full of the principal so that the interest hereon for such full
period shall not exceed the maximum amount permitted by applicable law. This
paragraph shall control all agreements between Maker and Payee.
The terms Maker and Payee and other nouns and pronouns include the plural
if more than one. The terms Maker and Payee also include their respective
heirs, personal representatives, successors and assigns.
Maker shall have a right of off-set, but only to the extent of $100,000.00,
if any misrepresentations have been made by payees under that particular
Agreement of Purchase and Sale of Assets among maker, payee and others dated
August 23, 1994, but only to the extent that such misrepresentations result in
an actual monetary loss to maker.
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
--------------------------
Derwin L. Williams
--------------------------
Its Vice President-Finance
----------------------
<PAGE>
BETTERSWORTH & ASSOCIATES, INC.
ENGINEERS SURVEYORS
315 SOUTH CROCKETT ST. SEGUIN, TEXAS 78155
16449 AC (210) 379-5552
564-28 FAX (210) 379-5553
16449-C-O
SEPTEMBER 23, 1994 KEN L. REMMGER, P.E. & P.L.S.
5.199 ACRE TRACT
----------------
Being a 5.199 ACRE TRACT situated in and being part of Lot 1, Guadalupe Nursing
Center recorded in volume 5 at page 101A of the Plat Records of Guadalupe
County, Texas. Said 5.199 ACRE TRACT is that tract called 5.188 acres in
conveyance from Lloyd Hobbs to S&H, Inc. recorded in volume 900 at page 0339 of
the Official Records of said county and being described by metes and bounds, as
follows:
BEGINNING at a fence corner marking the southwest corner of the tract herein
described, some being the southwest corner of said S&H, Inc. tract, the
southeast corner of a tract called 60 x 145.5 feet recorded in volume 303 at
page 376, lying in the north line of a tract called 0.983 acres described in
volume 214 at page 340 and lying in the north line of F.M. Highway No. 466 (aka
Capote Road - Eastwood Drive);
THENCE with the west line of the tract herein described, same being the common
line of said S&H, Inc. tract with that of said 60 x 145.5 foot tract, as
follows:
N 04 degrees 56' 57" W 332.00 feet called N 04 degrees 55' 49" W 331.93
feet) to a two-way fence corner; and N 11 degrees 00' 48" W 99.76 feet
(called N 11 degrees 02' 34" W 99.71 feet) to a two-way fence corner
marking the northwest corner of the tract herein described, same being the
northwest corner of said S&H, Inc. tract, the northeast corner of said 60 x
145.5 foot tract, lying in the south line of the residue of a tract called
Tract One (15.72 acres) described in volume 472 at page 180;
THENCE with the north line of the tract herein described, same being the north
line of said S&H, Inc. tract, same being a segment of the common line of said
Lot 1 and said residue of 15.72 acres, S 89 dregrees 34' 13" E 557.84 feet
(called S 89 dregrees 34' 13" E 557.85 feet) to the northeast corner of the
tract herein described, same being the northeast corner of said S&H, Inc. tract
and northwest corner of a tract called 0.325 acres described in volume 876 at
page 75;
THENCE with the east line of the tract herein described, same being the common
line of said S&H, Inc. tract and said 0.325 acre tract, as follows:
S 00 degrees 25' 47" W 380.78 feet (called S 00 degrees 25' 47" W 300.78
feet) to a point; and
<PAGE>
16449
564-28
16449-C-G
0.325 ACRE TRACT
September 23, 1994
Page 2
S 45 degrees 25' 00" W 70.71 feet (called S 45 degrees 25' 47" W 70.71
feet) to the southeast corner of the tract herein described, same being the
southeast corner of said S&H, Inc. tract and lying in the common line of
said Lot 1 and said F.M. Highway No. 466;
THENCE with the south line of the tract herein described, same being the common
line of said S&H, Inc. tract and said F.M. Highway No. 466, as follows:
N 89 degrees 34' 34" W 237.00 feet (called N 89 degrees 34' 13" W 237.00
feet) to a 1/2 inch diameter rebar found; and N 88 55' 11" 219.95 feet
(called N 88 53' 49" W 220.2 feet) to the PLACE OF BEGINNING and containing
5.199 ACRES OF LAND.
Basis of bearings is the record bearing along the north line of said S&H, Inc.
tract.
I hereby certify the foregoing field notes represent the results of an on the
ground survey made under my supervision in September, 1994.
/s/ Ken L. Reininger
------------------------------
Ken L. Reininger, P.L.S. 2633
<PAGE>
BETTERSWORTH & ASSOCIATES, INC.
ENGINEERS SURVEYORS
315 SOUTH CROCKETT ST. SEGUIN, TEXAS 78155
16449 AC (210) 379-5552
564-28 FAX (210) 379-5553
16449-C-O
SEPTEMBER 23, 1994 KEN L. REMMGER, P.E. & P.L.S.
0.336 ACRE TRACT
----------------
Being a 0.336 ACRE TRACT situated in and being part of Lot 1 of Guadalupe Valley
Nursing Center recorded in volume 5 at page 101A of the Plat Records of
Guadalupe County, Texas. Said 0.336 ACRE TRACT is that tract called 0.325 acre
in conveyance from Mary Louise Orr, et al, to Lloyd Hobbs recorded in volume 876
at page 75 of the Official Records of said county and being described by metes
and bounds, as follows:
BEGINNING at a PK nail set marking the southeast corner of the tract herein
described, same being the southeast corner of said Hobbs tract, the southeast
corner of said Lot 1, the southwest corner of the residue of a tract called
Tract One described in volume 472 at page 180, lying in the north line of a
tract called 0.983 acres described in volume 214 at page 340 and lying in the
north line of F.M. Highway No. 466 (aka Capote Road - Eastwood Drive);
THENCE with the south line of the tract herein described, same being the common
line of said Hobbs tract and said 0.983 acre tract and along the north line of
said F.M. Highway No. 466, N 89 34' 34" W 80.00 feet to the southwest corner of
the tract herein described, same being the southwest corner of said Hobbs tract,
the southeast corner of a tract called 5.188 acres described in volume 900 at
page 0339;
THENCE with the west line of the tract herein described, same being the common
line of said Hobbs tract and said 5.188 acre tract, as follows:
N 45 degrees 25' 00" E 70.71 feet called N 45 degrees 25' 47" E 70.71
feet); and N 00 degrees 25' 47" E 380.78 feet (called N 00 degrees 25' 47"
E 380.78 feet) to the northwest corner of the tract therein described, same
being the northwest corner of said Hobbs tract, the northeast corner of
said 5.188 acre, lying in the north line of said Lot 1 and lying in the
south line of the residue of said Tract One;
THENCE with the north line of the tract herein described, same being the north
line of said Hobbs tract and a segment of the common line of said Lot 1 and said
Tract One, S 89 34' 13" E 30.01 feet (called S 89 34' 13" E 30 feet) to a 1/2
inch diameter rebar found marking the northeast corner of the tract herein
described, same being the northeast corner of said Hobbs tract, the northeast
corner of said Lot 1 and being a re-entrant corner of the residue of said Tract
One;
THENCE with the east line of the tract herein described, same being the east
line of said Hobbs tract and the common line of said Lot 1 and said Tract One, S
00 25' 46" W 430.78 feet (called S 00 25' 47" W 430.78) feet to the PLACE OF
BEGINNING and containing 0.336 ACRE OF LAND.
<PAGE>
16449
564-28
16449-C-G
0.325 ACRE TRACT
September 23, 1994
Page 2
Basis of bearing is the record bearing along the north line of said Hobbs tract.
I hereby certify the foregoing field notes represent the results of an on the
ground survey made under my supervision in September, 1994.
/s/ Ken L. Reininger
------------------------------
Ken L. Reininger, P.L.S. 2633
<PAGE>
DEED OF TRUST, SECURITY AGREEMENT
AND FINANCING STATEMENT
DATE: September 30, 1994
GRANTOR: Summit Care Corporation, a California corporation
GRANTOR'S ADDRESS: 2600 W. Magnolia Blvd., Burbank, CA 91505
TRUSTEE: Robert Anderson
TRUSTEE'S MAILING ADDRESS: 1200 American Bank Plaza, Corpus Christi, Texas
78475
BENEFICIARY: Leonard May and Catherine May
BENEFICIARY'S MAILING ADDRESS: P.O. Box 4956 Corpus Christi, Texas 78469
NOTE:
DATE: Even date herewith
AMOUNT: $3,000,000.00
MAKER: Summit Care Corporation, a California corporation
PAYEE: Leonard May and Catherine May
FINAL MATURITY DATE: Eighty Four (84) months from date
MAKER'S MAILING ADDRESS: 2600 W. Magnolia Blvd., Burbank, CA 91505
TERMS OF PAYMENT: As therein provided
PROPERTY (INCLUDING ANY IMPROVEMENTS):
Leasehold estate in and option to purchase the property described on
Exhibit "A" attached hereto and made a part hereof for all purposes.
PRIORITY OF LIEN: First lien
OTHER EXCEPTIONS TO CONVEYANCE AND WARRANTY: None
<PAGE>
For value received and to secure the payment of the note, Grantor conveys
the property to Trustee in trust. Grantor warrants and agrees to defend the
title to the property. If Grantor performs all the covenants and pays the note
according to its terms, this deed of trust shall have no further effect, and
Beneficiary shall release it at Grantor's expense.
GRANTOR'S OBLIGATIONS:
GRANTOR AGREES TO:
1. keep the property in at least as good a repair and condition as it
exists as of the date hereof;
2. pay all taxes and assessments on the property before delinquency;
3. preserve the priority of lien;
4. maintain, in a form acceptable to Beneficiary, an insurance policy
that:
a. covers all improvements for their full insurable value as
determined when the policy is issued and renewed, unless Beneficiary approves a
smaller amount in writing;
b. contains an 80% co-insurance clause;
c. provides fire and extended coverage, including windstorm
coverage;
d. protects Beneficiary with a standard mortgage clause;
e. provides flood insurance at any time the property is in a flood
hazard area; and
f. contains such other coverage as Beneficiary may reasonably
require;
5. comply at all times with the requirements of the 80% co-insurance
clause;
6. deliver the insurance policy to Beneficiary and deliver renewals to
Beneficiary at least ten days before expiration;
7. keep any buildings occupied as required by the insurance policy;
8. if this is not a first lien, pay all prior lien notes that Grantor is
personally liable to pay and abide by all prior lien instruments;
9. as part of this transaction, it is agreed by and between Grantor and
Beneficiary that Grantor will pay the taxes annually prior to their due dates
and shall furnish copies of the paid receipt to Beneficiary prior to said dates,
showing the payment of all such taxes. In the event that Grantor should fail
for any reason to make such payments and furnish such receipts, Beneficiary may,
without waiving any of their rights of default under the Note and Deed of Trust,
require Grantor to establish an escrow account with Beneficiary and pay the
taxes on a monthly basis to Beneficiary as provided in the Deed of Trust.
Failure to establish and pay such sums into the escrow account may, at
Beneficiary's option, be considered a default.
<PAGE>
BENEFICIARY'S RIGHTS
1. Beneficiary may appoint in writing a substitute or successor trustee,
succeeding to all rights and responsibilities of the original trustee.
2. If the proceeds of the note are used to pay any debt secured by prior
liens, Beneficiary is subrogated to all of the rights and liens of the holders
of any debt so paid.
3. Beneficiary may apply any proceeds received under the insurance policy
either to reduce the note or to repair or replace damaged or destroyed
improvements covered by the policy.
4. If Grantor fails to perform any of Grantor's obligations, Beneficiary
may perform those obligations and be reimbursed by Grantor, on demand, at the
place where the note is payable for any sums so paid, including attorney's fees,
plus interest on those sums from the dates of payment at the rate stated in the
note. The sum to be reimbursed shall be secured by this deed of trust.
5. If Grantor or Maker defaults on the note or if either fails to perform
any of their obligations, Beneficiary may:
a. declare the note, including any other sums secured by this deed
of trust, immediately due (Grantor waives the requirements for presentment,
demand for payment, notice of acceleration of maturity and notice of intention
to accelerate maturity);
b. request Trustee to foreclose this lien; and
c. purchase the property at any sale by offering the highest bid
and; have the bid credited on the note.
TRUSTEE'S DUTIES
If requested by Beneficiary to foreclose this lien, Trustee shall:
1. either personally or by agent give notice of the foreclosure sale as
required by the Texas Property Code as then amended;
2. sell and convey all or part of the property to the highest bidder for
cash with a general warranty binding Grantor, subject to prior liens and to
other exceptions to conveyance and warranty; and
3. from the proceeds of the sale, pay, in this order:
a. expenses of foreclosure, including a commission to Trustee of
five percent of the bid;
b. to Beneficiary, the full amount of principal, interest,
attorney's fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to Grantor;
and
d. to Grantor, any balance.
GENERAL PROVISIONS
1. If any of the property is sold under this deed of trust, Grantor shall
immediately surrender possession to the purchaser. If Grantor fails to do so,
Grantor shall become a tenant at
<PAGE>
sufferance of the purchaser, subject to an action for forcible detainer.
2. Recitals in any trustee's deed conveying the property will be deemed
conclusively true.
3. Proceeding under this deed of trust, filing suit for foreclosure, or
pursuing any other remedy will not constitute an election of remedies.
4. This lien shall remain superior to liens later created even if the
time of payment of all or part of the note is extended or part of the property
is released.
5. If any portion of the note cannot be lawfully secured by this deed of
trust, payments shall be applied first to discharge that portion.
6. Grantor assigns to Beneficiary all sums payable to or received by
Grantor from condemnation of all or part of the property, from private sale in
lieu of condemnation, and from damages caused by public works or constructions
on or near the property. After deducting any expenses incurred, including
attorney's fees, Beneficiary may release any remaining sums to Grantor or apply
such sums to reduce the note. Beneficiary shall not be liable for failure to
collect or to exercise diligence in collecting any such sums.
7. Grantor assigns to Beneficiary absolutely, not only as collateral, all
present and future rent and other income and receipts from the property.
Grantor warrants and validity and enforceability of the assignment. Grantor
may, as Beneficiary's licensee, collect rent and other income and receipts as
long as Grantor is not in default under the note or this deed of trust. Grantor
will apply all rent and other income and receipts to payment of the note and
performance of this deed of trust, but if the rent and other income and receipts
exceed the amount due under the note and deed of trust, Grantor may retain the
excess. If Grantor defaults in payment of the note or performance of this deed
of trust, Beneficiary may terminate Grantor's license to collect and then as
Grantor's agent may rent the property if it is vacant and collect all rent and
other income and receipts. Beneficiary neither has nor assumes any obligations
as lessor or landlord with respect to any occupancy of the property.
Beneficiary may exercise Beneficiary's rights and remedies under this paragraph
without taking possession of the property. Beneficiary shall apply all rent and
other income and receipts collected under this paragraph first to expenses
incurred in exercising Beneficiary's rights and remedies and then to Grantor's
obligations under the note and this Deed of Trust in the order determined by
Beneficiary. Beneficiary is not required to act under this paragraph, and
acting under this paragraph does not waive any of Beneficiary's other rights or
remedies. If Grantor becomes a voluntary or involuntary bankrupt, Beneficiary's
filing a proof of claim in bankruptcy will be tantamount to the appointment of a
receiver under Texas Law.
8. Interest on the debt secured by this deed of trust shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that maximum
amount shall be credited on the principal of the debt or, if that has been paid,
refunded. On
<PAGE>
any acceleration or required or permitted prepayment, any such excess shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the principal of the debt, or if the principal of the debt has been
paid, refunded. This provision overrides other provisions in this and all other
instruments concerning the debt.
9. When the context requires, singular nouns and pronouns include the
plural.
10. The term note includes all sums secured by this deed of trust.
11. This deed of trust shall bind, inure to the benefit of, and be
exercised by successors in interest of all parties.
12. If Grantor and Maker are not the same person, the term Grantor shall
include maker.
13. In the event of any sale either judicial or voluntary, of the property
above described, or any part thereof, Beneficiary shall have the right at
Beneficiary's option to declare the entire indebtedness hereby secured due and
payable.
14. The note hereby secured may from time to time be renewed or extended
by the Holder of Holders thereof, and in any such case all the provisions of
this Deed of Trust, and the lien hereof, shall remain in full force with the
same effect as if said note had originally been made to mature at such extended
time or times.
15. Should any portion of the indebtedness evidenced by the above
described note not be secured by a valid lien hereunder on the above described
property, then all payments made on said note shall be applied to the payment of
the unsecured portion thereof until such unsecured portion, and interest thereon
shall have been paid.
16. It is agreed that the lien hereby created shall take precedence over
and be a prior lien to any other lien of any character whether vendor's
materialmen's or mechanic's lien hereafter created on the above described
property. In the event the proceeds of the indebtedness secured hereby as set
forth herein are used to pay off and satisfy any liens heretofore existing on
said property, then Beneficiary is, and shall be subrogated to all of the
rights, liens and remedies of the holders of the indebtedness so paid.
17. It is agreed that an extension, or extensions, may be made of the time
of payment of all, or any part, of the indebtedness secured hereby. Any part of
the above described real property may be released from this lien without
altering or affecting the priority of the lien created by this Deed of Trust in
favor of any junior encumbrancer, mortgage or purchaser, or any person acquiring
an interest in the property hereby conveyed, or any part thereof. It is the
intention of the parties hereto to preserve this lien on the property herein
described and all improvements thereon, and that may be hereafter constructed,
first and superior to any liens that may be placed thereon, or that may be
fixed, given or imposed by law thereon after the execution of this instrument
notwithstanding any such extension of the time of payment, or the release of a
portion of said property from this lien.
18. This Deed of Trust is also intended to be a security
<PAGE>
agreement pursuant to the Texas Business and Commerce Code as to all property
described above other than the realty, which under applicable law, may be made
subject to a security interest. Grantor hereby grants to the Beneficiary a
security interest in said property (also herein described as "goods"). Grantor
agrees to execute and deliver financing statements covering said goods from time
to time and in such form as the Beneficiary may require to perfect a security
interest with respect to said goods. Grantor shall pay all costs of filing such
statements and renewals and releases thereof and shall pay all reasonable costs
and expenses of any record searches for financing statements which Beneficiary
may reasonably require. Without the prior written consent of the Beneficiary,
Grantor shall not create or suffer to be created any other security interest in
said goods including replacements and additions thereto. Upon default in
payment of the indebtedness secured hereby when due or declared due, the
Beneficiary shall have the remedies of a secured party under the Texas Business
and Commerce Code and, at the Beneficiary's option, may also invoke the remedies
provided in this Deed of Trust as to such goods. In the event of a foreclosure
sale under this Deed of Trust, Grantor agrees that all the real and personal
property may be sold as a whole at Beneficiary's option and that said goods need
not be present at the place of sale.
19. This Deed of Trust covers goods which are or are to become fixtures
related to the real estate described herein. This Deed of Trust, as to such
goods, is intended as a financing statement to be filed in the Real Estate
Records of the County where the real property is located.
20. The lien hereby created is secondary and inferior to that particular
deed of trust dated August 31, 1988, recorded in Volume 711, Page 612 of the
deed of Trust Records of Fayette County, Texas, securing a note of even date
therewith in the original principal sum of $2,000,000.00, and the obligation to
pay said indebtedness has been assumed by Grantor. In the event of any default
under the terms of said indebtedness or any renewal or extension thereof, or in
the event of any default under any instrument securing said indebtedness, the
note hereby secured, at the option of the holder thereof, may be declared
immediately due and payable. It is further agreed that Beneficiary shall not be
required to release this lien until the above mentioned first lien indebtedness
has been paid in full, and in the event of any default under the terms of said
first lien indebtedness, Beneficiary may cure any such default, shall be
subrogated to the rights of the holder of such first lien indebtedness and this
deed of trust shall secure the Beneficiary for the repayment of any advances
made by Beneficiary. All such payments made by Beneficiary under the first lien
indebtedness shall be due and repayable immediately from Grantors, with interest
at the rate of eighteen percent (18%) per annum due from the date of any advance
being made.
<PAGE>
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
----------------------
Derwin Williams, Vice President-
Finance, Chief Financial Officer
(Acknowledgment)
THE STATE OF Texas *
----------
*
COUNTY OF Neuces *
--------------
This instrument was acknowledged before me on the 30th day of
----------
September, 1994, by Derwin Williams, Vice President-Finance, Chief Financial
- ---------
Officer, Summit Care Corporation, a California corporation.
[Signature]
---------------------------------
Notary Public, State of _____________
My Commission Expires:___________
________________________________
Typed or Printed Name
PREPARED IN THE LAW OFFICES OF:
MARVIN J WANNER
SORRELL ANDERSON LEHRMAN WANNER & THOMAS
1200 AMERICAN BANK PLAZA
CORPUS CHRISTI TX 78475
AFTER RECORDING:
RETURN TO:
ROBERT ANDERSON
1100 AMERICAN BANK
CORPUS CHRISTI, TX 78475
RE: LEONARD AND CATHERINE MAY
MAY ENTERPRISES, INC.
<PAGE>
SECURITY AGREEMENT
DATE: September 30, 1994
DEBTOR: Summit Care Corporation, a California corporation
DEBTOR'S MAILING ADDRESS (INCLUDING COUNTY): 2600 W. Magnolia Blvd., Burbank,
California 91505
SECURED PARTY: Leonard May and Catherine May
SECURED PARTY'S MAILING ADDRESS (INCLUDING COUNTY): 4733A Baldwin, Corpus
Christi, Texas 78408
CLASSIFICATION OF COLLATERAL: Equipment, inventory, accounts, general
intangibles
COLLATERAL (INCLUDING ALL ACCESSIONS): All personal property used in or arising
from the operation of nursing home facility in Seguin, Texas
OBLIGATION NOTE:
DATE: Even date herewith
AMOUNT: $3,000,000.00
PAYEE: Leonard May and Catherine May
MAKER: Summit Care Corporation
FINAL MATURITY DATE: Eighty Four (84) months from date
TERMS OF PAYMENT: As provided in said note
Subject to the terms of this agreement, Debtor grants to Secured Party a
security interest in the collateral and all its proceeds to secure payment and
performance of Debtor's obligation in this security agreement and all renewals
and extensions of any of the obligation.
DEBTOR'S WARRANTIES
1. Financing Statement. Except for that in favor of Secured Party, no
financing statement covering the collateral is filed in any public office.
2. Ownership. Debtor owns the collateral and has the authority to grant
this security interest. Ownership is free from any setoff, claim, restriction,
lien, security interest, or encumbrance except this security interest and liens
for taxes not yet due.
3. Fixtures and Accessions. None of the collateral is
<PAGE>
affixed to real estate, is an accession to any goods, is commingled with other
goods, or will become a fixture, accession, or part of a product or mass with
other goods except as expressly provided in this agreement.
4. Financial Statements. All information about Debtor's financial
condition provided to Secured Party was accurate when submitted, as will be any
information subsequently provided.
DEBTOR'S COVENANTS
1. Protection of Collateral. Debtor will defend the collateral against
all claims and demands adverse to Secured Party's interest in it and will keep
it free from all liens except those for taxes not yet due and from all security
interests except this one. The collateral will remain in Debtor's possession or
control at all times, except as otherwise provided in this agreement. Debtor
will maintain the collateral in good condition and protect it against misuse,
abuse, waste, and deterioration except for ordinary wear and tear resulting from
its intended use.
2. Insurance. Debtor will insure the collateral in accord with Secured
Party's reasonable requirements regarding choice of carrier, casualties insured
against, and amount of coverage. Policies will be written in favor of Debtor and
Secured Party according to their respective interests or according to Secured
Party's other requirements. All policies will provide that Secured Party will
receive at least ten days' notice before cancellation, and the policies or
certificates evidencing them will be provided to Secured Party when issued.
Debtor assumes all risk of loss and damage to the collateral to the extent of
any deficiency in insurance coverage. Debtor irrevocably appoints Secured Party
at attorney-in-fact to collect any return, unearned premiums, and proceeds of
any insurance on the collateral and to endorse any draft or check deriving from
the policies and made payable to debtor.
3. Secured Party's Costs. Debtor will pay all expenses incurred by
Secured Party in obtaining, preserving, perfecting, defending, and enforcing
this security interest or the collateral and in collecting or enforcing the
note. Expenses for which Debtor is liable include, but are not limited to,
taxes, assessments, reasonable attorney's fees, and other legal expenses. These
expenses will bear interest from the dates of payments at the highest rate
stated in notes that are part of the obligation, and Debtor will pay Secured
Party this interest on demand at a time and place reasonably specified by
Secured Party. These expenses and interest will be part of the obligation and
will be recoverable as such in all respects.
4. Additional Documents. Debtor will sign any papers that Secured Party
considers necessary to obtain, maintain and perfect this security interest or to
comply with any relevant law.
5. Notice of Changes. Debtor will immediately notify Secured Party of
any material change in the collateral; change in Debtor's name, address or
location; change in any matter warranted or represented in this agreement;
change that may affect this security interest; and any event of default.
<PAGE>
6. Use and Removal of Collateral. Debtor will use the collateral
primarily according to the stated classification unless Secured Party consents
otherwise in writing. Debtor will not permit the collateral to be affixed to
any real estate, to become an accession to any goods, to be commingled with
other goods, or to become a fixture, accession, or part of a product or mass
with other goods, except as expressly provided in this agreement.
7. Sale. Debtor will not sell, transfer, or encumber any of the
collateral without the prior written consent of Secured Party.
RIGHTS AND REMEDIES OF SECURED PARTY
1. Generally. Secured Party may exercise the following rights and
remedies either before or after default:
a. take control of any proceeds of the collateral;
b. release any collateral in Secured Party's possession to any
debtor, temporarily or otherwise;
c. take control of any funds generated by the collateral, such as
refunds from and proceeds of insurance, and reduce any part of the obligation
accordingly or permit Debtor to use such funds to repair or replace damaged or
destroyed collateral covered by insurance; and
d. demand, collect, convert, redeem, settle, compromise, receipt
for, realize on, adjust, sue for, and foreclose on the collateral either in
Secured Party's or Debtor's name, as Secured Party desires.
2. Insurance. If Debtor fails to maintain insurance as required by this
agreement or otherwise by Secured Party, then that will protect only Secured
Party. If Secured Party purchases Secured Party may purchase single-interest
Insurance Coverage this insurance, its premiums will become part of the
obligation.
EVENTS OF DEFAULT
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of any obligation,
covenant, or liability in any written agreement between Debtor and Secured Party
or in any other transaction secured by this agreement;
2. if any warranty, covenant, or representation made to Secured Party by
or on behalf of Debtor provides to have been false in any material respect when
made;
3. if a receiver is appointed for Debtor or any of the collateral;
4. if the collateral is assigned for the benefit of creditors or, to the
extent permitted by law, if bankruptcy or insolvency proceedings commence
against or by any of these parties: Debtor; any partnership of which Debtor is a
general partner; and any maker, drawer, acceptor, endorser, guarantor, surety,
accommodation party, or other person liable on or for any part of the
obligation;
5. if any financing statement regarding the collateral but not related to
this security interest and not favoring Secured Party is filed;
6. if any lien attaches to any of the collateral;
<PAGE>
7. if any of the collateral is lost, stolen, damaged, or destroyed,
unless it is promptly replaced with collateral of like quality or restored to
its former condition.
REMEDIES OF SECURED PARTY ON DEFAULT
During the existence of any event of default, Secured Party may declare the
unpaid principal and earned interest of the obligation immediately due in whole
or in part, enforce the obligation, and exercise any rights and remedies granted
by the Texas Uniform Commercial Code or by this agreement, including the
following:
1. require Debtor to deliver to Secured Party all books and records
relating to the collateral;
2. require Debtor to assemble the collateral and make it available to
Secured Party at a place reasonably convenient to both parties;
3. take possession of any of the collateral and for this purpose enter
any premises where it is located if this can be done without breach of the
peace;
4. sell, lease or otherwise dispose of any of the collateral in accord
with the rights, remedies, and duties of a secured party under chapters 2 and 9
of the Texas Uniform Commercial Code after giving notice as required by those
chapters; unless the collateral threatens to decline speedily in value, is
perishable, or would typically be sold on a recognized market, Secured Party
will give Debtor reasonable notice of any public sale of the collateral or of a
time after which it may be otherwise disposed of without further notice to
Debtor; in this event, notice will be deemed reasonable if it is mailed, postage
prepaid, to Debtor at the address specified in this agreement at least ten days
before any public sale or ten days before the time when the collateral may be
otherwise disposed of without further notice to Debtor;
5. surrender any insurance policies covering the collateral and receive
the unearned premium;
6. apply any proceeds from disposition of the collateral after default in
the manner specified in chapter 9 of the Texas Uniform Commercial Code,
including payment of Secured Party's reasonable attorney's fees and court
expenses; and
7. if disposition of the collateral leaves the obligation unsatisfied,
collect the deficiency from Debtor.
GENERAL PROVISIONS
1. Parties Bound. Secured Party's rights under this agreement shall
inure to the benefit of its successors and assigns. Assignment of any part of
the obligation and delivery by Secured Party of any part of the collateral will
fully discharge Secured Party from responsibility for that part of the
collateral. If Debtor is more than one, all their representations, warranties,
and agreements are joint and several. Debtor's obligations under this agreement
shall bind Debtor's personal representatives, successors and assigns.
2. Waiver. Neither delay in exercise nor partial exercise
<PAGE>
of any of Secured Party's remedies or rights shall waive further exercise of
those remedies or rights. Secured Party's failure to exercise remedies or
rights does not waive subsequent exercise of those remedies or rights. Secured
Party's waiver of any default does not waive further default. Secured Party's
waiver of any right in this agreement or of any default is binding only if it is
in writing. Secured party may remedy any default without waiving it.
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, Secured Party may perform those obligations and be reimbursed by
Debtor on demand at the place where the notice is payable for any sums so paid,
including attorney's fees and other legal expenses, plus interest on those sums
from the dates of payment at the rate stated in the note for matured, unpaid
amounts. The sum to be reimbursed shall be secure by this security agreement.
4. Interest Rate. Interest included in the obligation shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law: any interest in excess of that maximum
amount shall be credited to the principal of the obligation or, if that has been
paid, refunded. On any acceleration or required or permitted prepayment of the
obligation, any such excess shall be canceled automatically as of the
acceleration or prepayment or, if already paid, credited on the principal amount
of the obligation or, if the principal amount has been paid, refunded. This
provision overrides other provisions in this and all other instruments
concerning the obligation.
5. Modifications. No provisions of this agreement shall be modified or
limited except by written agreement.
6. Severability. The unenforceability of any provision of this agreement
will not affect the enforceability or validity of any other provision.
7. After-Acquired Consumer Goods. This security interest shall attach to
after-acquired consumer goods only to the extent permitted by law.
8. Applicable law. This agreement will be construed according to Texas
laws.
9. Place of Performance. This agreement is to be performed in the county
of Security Party's mailing address.
10. Financing Statement. A carbon, photographic, or other reproduction of
this agreement or any financing statement covering the collateral is sufficient
as a financing statement.
11. Presumption of Truth and Validity. If the collateral is sold after
default, recital in the bill of sale or transfer will be prima facie evidence of
their truth, and all prerequisites to the sale specified by this agreement and
by the Texas Uniform Commercial Code will be presumed satisfied.
12. Singular and Plural. When the context requires, singular nouns and
pronouns include the plural.
13. Priority of Security Interest. This security interest shall neither
affect nor be affected by any other security for any of the obligation. Neither
extensions of any of the obligation nor releases of any of the collateral will
affect the priority or
<PAGE>
validity of this security interest with reference to any third person.
14. Cumulative Remedies. Foreclosure of this security interest by suit
does not limit Secured Party's remedies, including the right to sell the
collateral under the terms of this agreement. All remedies of Secured Party may
be exercised at the same or different times, and no remedy shall be a defense to
any other. Secured Party's rights and remedies include all those granted by law
or otherwise, in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as Debtor's agent is
coupled with an interest and will survive any disability of Debtor.
16. Attachments Incorporated. The addendum indicated below is attached to
this agreement and incorporated into it for all purposes:
(x) addendum relating to accounts, inventory, documents, chattel paper,
and general intangibles.
( ) addendum relating to instruments
SECURED PARTY:
/s/ Leonard May
-----------------------------
Leonard May
/s/ Catherine May
-----------------------------
Catherine May
DEBTOR:
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
----------------------------
Derwin L. Williams
----------------------------
Its Vice President-Financial
---------------------------
<PAGE>
ADDENDUM TO SECURITY AGREEMENT
(Accounts, Inventory, Documents, Chattel Paper, and
General Intangibles)
DATE: September 30, 1994
DEBTOR: Summit Care Corporation
SECURED PARTY: Leonard May and Catherine May
DATE OF SECURITY AGREEMENT: even date herewith
The collateral includes one or more of these classifications: accounts,
inventory, document, chattel paper, and general intangibles; this addendum
covering that collateral applies to and is incorporated into the security
agreement to which it is attached.
DEBTOR'S WARRANTY
No account debtors or other obligors whose debts or obligations are part of
the collateral have any right to setoffs, counterclaims, or adjustments or any
defenses in connection with their debts or obligations.
DEBTOR'S COVENANTS
1. Information and Inspection. At the time and in the form specified by
Secured Party, Debtor will furnish Secured party any requested information
related to the collateral, which may include:
a. all information necessary to identify any of the collateral; and
b. shipping and delivery receipts evidencing the shipment of goods,
and invoices evidencing receipt of and payment for inventory in
collateral.
Debtor will also allow Secured Party to inspect the collateral at any time and
place and to inspect and copy all records relating to the collateral and the
obligation, as long as these are accomplished without breach of the peace.
2. Parties Liable on the Collateral. Debtor will preserve the liability
of all obligors on the collateral, preserve the priority of all security for the
collateral, and deliver to Secured Party the original certificates of title on
all motor vehicles included in the collateral.
3. Modification of Collateral. Without the written consent of Secured
Party, Debtor will not agree to any modification of terms in any writing related
to the collateral.
4. Delivery of Receipts to Secured Party. On Secured Party's demand
Debtor will deposit all payments received as proceeds of collateral in a special
bank account designated by Secured Party, who alone will have power of
withdrawal. Debtor will deposit the
<PAGE>
payments on receipt, in the form received, and with any necessary endorsements
as security for the obligation. Secured Party may make any endorsements in
Debtor's name and behalf. Between receiving and depositing these payments
Debtor will not mingle them with any of Debtor's other funds or property but
will hold them separate and in an express trust for Secured Party. Secured
Party shall apply all or part of these funds against the obligation.
5. Rejected Goods and Unpaid Accounts. If the collateral includes
inventory or accounts, then unless notified otherwise in writing by Secured
Party, Debtor will:
a. inform Secured Party immediately of the rejection of goods, delay
in delivery or performance, or claim made in regard to any
collateral;
b. as trustee for Secured Party, keep returned goods segregated from
Debtor's other property until Secured Party has been paid the
amount loaned against the related account and deliver the goods on
demand to Secured Party; and
c. pay Secured Party the unpaid amount of any account in collateral
under any of these conditions: if the account is not paid when due;
if purchaser rejects the goods or services covered by the account;
or if Secured Party rejects the account as unsatisfactory. Secured
Party may retain the account in collateral and may charge any
deposit account of Debtor with the unpaid amount.
6. Records of Collateral. Debtor will maintain accurate books and
records covering the collateral and showing the assignment of accounts in
collateral to Secured Party. Only undisputed and unpaid amounts will be shown
as owed to Debtor on the books and any assignment schedule.
7. Disposition of Collateral. If the collateral included inventory but
not accounts, Debtor will immediately notify Secured Party of the disposition of
any inventory and that Debtor's expense will either assign to Secured Party a
first priority security interest in any resulting account, chattel paper, or
instrument or deliver to Secured Party cash in the amount of the sale price.
Debtor will not sell, lease, or otherwise dispose of any collateral except in
the ordinary course of business without the prior written consent of Secured
Party.
8. Accounts. Each account in the collateral will represent the valid,
legally enforceable obligations of third parties and will not be evidenced by
any instrument or chattel paper.
9. Location of Accounts and Inventory. Debtor will notify Secured Party
in writing of the location of records of accounts in collateral, of the
locations of inventory in collateral, and, prior to the change, of any change in
these locations. Absent this notice, Debtor's records of accounts and inventory
will be kept at Debtor's mailing address specified in this agreement.
10. Consumer Credit. If any collateral or proceeds include obligations of
third parties to Debtor, the transactions creating those obligations will
conform in all respects to applicable state and federal consumer credit law.
11. Chattel Paper. By means satisfactory to Secured Party,
<PAGE>
Debtor has perfected or will perfect a security interest in goods covered by
chattel paper in collateral.
12. Possession of Collateral. By delivering a copy of this agreement to
the broker, seller, or other person in possession of collateral that is chattel
paper or documents Secured Party will effectively notify that person of Secured
Party's interest in the collateral. Delivery of the copy of the agreement will
also constitute Debtor's instruction to deliver to Secured Party certificates or
other evidence of the collateral as soon as it is available. Debtor will
immediately deliver to Secured Party all chattel paper and documents that are
collateral as soon as it is available. Debtor will immediately deliver to
Secured Party all chattel paper and documents that are collateral in Debtor's
possession. If that collateral is hereafter acquired, Debtor will deliver it to
secured party immediately following acquisition and either endorse it to Secured
Party's order or give Secured Party appropriate executed powers.
13. Uncertificated Securities. If the collateral is uncertificated
securities, Secured Party's delivery of a copy of this agreement to the
financial intermediary on whose books the Debtor's interest in the collateral
appears will effectively notify the financial intermediary of Secured Party's
interest in the collateral and will constitute Debtor's instruction that the
issuer of the securities register their pledge to Secured Party. Debtors agrees
to do everything required by Secured Party to complete the transfer and
perfection of this security interest.
RIGHTS AND REMEDIES OF SECURED PARTY.
1. General. After default Secured Party may exercise any or all of these
rights and remedies:
a. Contact account debtors directly to verify information furnished by
Debtor;
b. notify obligors on the collateral to pay Secured Party directly;
c. take control of all proceeds of and payments on any collateral and
apply them against the obligation; and
d. as Debtor's agent endorse any documents or chattel paper that is
collateral or that represents proceeds of collateral.
2. Liability. Secured Party has no obligation to collect any account and
will not be liable for failure to collect any account or for any act or omission
on the part of Secured Party or Secured Party's officers, agents, or employees,
except willful misconduct.
SECURED PARTY:
/s/ Leonard May
---------------------------------
Leonard May
<PAGE>
/s/ Catherine May
---------------------------------
Catherine May
DEBTOR:
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
--------------------------------
Derwin L. Williams
--------------------------------
Its Vice President-Finance
--------------------------------
<PAGE>
Exhibit 10.18
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT entered into this 19th day of July, 1991, by and
between LLOYD HOBBS of Dallas, Texas, as LESSOR, and LEONARD MAY ENTERPRISES,
INC., and LEONARD and CATHERINE MAY, of Corpus Christi, Texas as LESSEES,
W-I-T-N-E-S-S-E-T-H:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessees, and the
Lessees have hired and taken from the Lessor, the following described property,
consisting of one, 100-bed nursing home, commonly known as Line Oak Nursing
Center of George West, Texas, located on the premises in George West, Texas,
more particularly described in Exhibit "A" attached hereto, including all
furniture, fixtures and equipment located therein, more particularly described
in Exhibit "A" attached hereto, including all furniture, fixtures and equipment
located therein, more particularly described in Exhibit "B" attached hereto, to
have and to hold the same for the period of years and upon the terms and
conditions hereinafter stated:
1. The term of this Lease shall be for the period of fifteen (15)
years, commencing February 15, 1993 and ending February 14, 2007.
2. The rental shall be as follows: When the 100-bed home is
completed, furnished and ready for occupancy, the rental will be 29,164.85 , per
month, representing one and one-eighth percent (1-1/8%) per month of the total
cost to Lessor, including construction, land, furnishings, all expenses incurred
during construction, including legal fees, taxes and insurance, interim
interest, travel and etc., incurred before commencement of the Lease.
The monthly rental will be paid to Lloyd Hobbs at P. O. Box 126, Fort
Smith, Arkansas 72902, or to such other place as may be directed in writing,
payable monthly in advance for the term of the Lease.
<PAGE>
-2-
3. Lessees agree to pay all taxes, general or special, assessed
against the land, buildings and personal property. An escrow for taxes is
required; therefore, an escrow payment of One Thousand Dollars ($1,000.00) per
month will be deposited with the Lessor for payment of taxes. This escrow
payment will be adjusted annually, to cover the taxes as levied against the real
and personal property by all taxing authorities, using the previous year as a
guide.
4. The Lessees shall be responsible for and pay for, fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least, replacement value. The insurance policy
shall designate Lessor as a named insured and loss payee. If Lessees fail or
neglect to provide this insurance as required, Lessor may obtain same and add
the premium cost to the next lease payment due.
5. In the event of partial destruction of the building and contents
(that is, destruction of less than half, in value of the building and contents)
by fire or other casualty, then the Lessees shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the destruction. Any insurance proceeds, in the event of loss, will be
escrowed with Owner of the building. Owner will pay bills incurred, from
insurance proceeds, to repair damages as presented by repair contractors. If
repairs cost more than insurance proceeds, Lessee will be obligated to pay the
difference from Lessee's own funds. If destruction is 50% or more, of value,
Lessor shall be entitled to the insurance proceeds and shall at his option,
restore the premises as above provided or cancel the Lease. In the event of
destruction of 50% or more of value Lessor shall advise Lessees, within sixty
(60) days following the destruction, of his election in this regard.
6. In the event of a taking of all or of part of the land and
buildings as a result of eminent domain, condemnation or other governmental
taking, the consideration paid therefor shall be paid to the Lessor, and from
the date of payment of such consideration, the rental amount shall abate and be
reduced in proportion to the
<PAGE>
-3-
relation of the amount of the consideration to $2,000,000.00 in value.
7. Lessees shall, as long as this Lease remains in effect, procure and
keep in effect, general public liability insurance against claims for bodily
injury or death occurring upon, in or about the demised premises and on, in or
about the adjoining streets and passageways, with limits of not less than
$3,000,000.00, any one person or incident. Lessee shall also provide for
mal-practice insurance. Lessor shall be a named insured on all policies.
8. Lessees agree that they will at all times, during the term of this
Lease or any extension thereof, indemnify, protect, defend and save harmless,
the Lessor, against any and all claims, costs, charges, liabilities, or expenses
arising from damage or injury, actual or claimed, of whatever kind or character,
to property or persons occurring in or about the demised premises, streets,
sidewalks, passageways, parking lots, and alleys adjacent thereto, and agree to
resist or defend such action or proceedings, and cause the same to be defended
at their expense.
9. The premises shall be used as a licensed nursing home and for no
other purpose, without the written consent of Lessor. Lessees agree to maintain
the entire premises, including buildings, drives, parking area, furniture,
furnishings, fixtures, equipment and decoration in good and tenantable repair
and condition. Lessees shall, at their expense, repair or replace items as may
be necessary to comply with this covenant, and such that the premises shall at
all times, qualify for and remain, licensed as, at least, a "medicare skilled"
100-bed nursing home under the laws and regulations of the United States and of
the State of Texas. A reduction in, or loss of, this or equivalent license
rating, in the event license ratings are changed, will be considered a default
in this Lease.
10. Lessees, with the prior written consent of the Lessor, which
consent shall not be unreasonably withheld, shall have the right to make such
additions, alterations, changes and improvements on the demised premises as
Lessees shall deem necessary or desirable; provided that no such addition,
alteration, change or improvement
<PAGE>
-4-
shall be made which will weaken the structural strength of the building,
diminish its utility or value, and all additions, alterations, changes and
improvements shall be made in a workmanlike manner in full compliance with all
building laws and ordinances applicable thereto, and shall become part thereto
upon termination of this Lease. Lessees may erect and maintain such signs upon
the premises as they may desire, and as may be permitted by laws or ordinances
pertaining thereto, but at their sole expense and responsibility.
11. Lessees shall keep the demised premises in a clean, safe and
sanitary condition, and shall comply with all municipal, county, state and
federal laws and regulations governing the conduct of the activities conducted,
suffered or permitted by the Lessees on the demised premises and the Lessees
shall obtain appropriate permits from all such authorities when required.
12. After three (3) years from the commencement date of this Lease,
Lessees shall have the right to sub-lease any or all of the leased premises,
with the prior written consent of Lessor, first obtained, which consent will not
be unreasonably withheld, provided that the Lessees will remain liable for the
performance of the covenants and obligations of this Lease. If the property is
sub-leased, the Lessor will have the right to a reasonable adjustment in the
rent.
13. Lessees agree to permit Lessor, or his authorized representative
to enter the demised premises at all reasonable times during usual business
hours for the purpose of inspecting the same, provided that this shall not be
construed to obligate Lessor to notify Lessees of any defect observed therein.
14. Lessees shall not do or suffer anything to be done whereby the
demised premises, or any part thereof, may be encumbered by a mechanic's or
similar lien, and in the event such a lien is filed against the demised
premises, or any part thereof, purporting to be for or on account of any labor
done or material or services furnished in connection with any work in or about
the demised premises, Lessees shall discharge the same of record within ten days
after the date of such claim, or if Lessees desire to contest the validity or
amount
<PAGE>
-5-
of such claim, they may do so provided that they first post security acceptable
to Lessor, fully indemnifying Lessor and the premises from any claim, charge, or
demand arising from such claim or expenses incurred in connection therewith.
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessees:
a. The Lessees shall fail or neglect to pay the rentals when
due, or to pay any other sums of money which they are required by this Lease to
pay, and such non-payment shall continue on the tenth day after written notice
of the same has been posted to Lessees. In the event of default of this Lease,
Lessee's will forfeit any rights, or ownership of contracts and ownership of
Certificate of Need at this location, with the State of Texas or the United
States Government, to Lessor.
b. The Lessees shall fail, refuse or neglect to perform or
observe any other covenant required of them herein, and such non-performance
or non-observance shall continue on the thirtieth (30th) day (unless a later
date be stated in the notice) after written notice of the same has been posted
to the Lessees.
c. This Lease, or the premises itself, or any property of the
Lessees is levied upon by process of law, and such levy be not completely
discharged, or secured to the satisfaction of the Lessor, within fifteen (15)
days after service of the process.
d. Lessees become involved in financial difficulties as
evidenced by (1) an admission in writing of their inability to pay their debts
generally as they become due, (2) becoming petitioner in any voluntary debtor or
bankruptcy proceedings, whether asking arrangement, composition, reorganization,
liquidation or other relief, suspension or modification of their obligations,
(3) becoming a party respondent to any involuntary proceeding the purpose of
which is to subject the assets of the Lessees to the control of a court of
creditor's committee (4) making an assignment of all or of a substantial part of
their property for the benefit of their creditors, or (5) seeking, consenting to
or failing to avert the appointment of a receiver or a trustee for all or a
substantial part of their property, or of the demised premises, or of their
interest in this
<PAGE>
-6-
Lease.
16. If an event of default occurs, Lessor shall have the option to:
a. Terminate this Lease by service of written notice of
termination, and Lessees' right to the possession of the premises shall cease
upon the date stated in such notice, without prejudice to Lessors' right to
recover all sums due as of the date possession is surrendered, plus any damage
or loss suffered on or prior to such date, including any expenses such as court
costs, attorney's fees and similar expenses incurred by Lessor in recovering
possession, rent, and/or damages due from Lessees; or
b. Re-enter and take possession of the premises without further
demand or notice, and expel Lessees, or those claiming under it, and remove the
effects of both, or either (forcibly if necessary) without being deemed guilty
of any manner of trespass and without prejudice to Lessor's further rights under
this Lease. In such event, the obligations of the Lessees under this Lease
shall continue, but Lessor may from time to time upon such terms and conditions,
and for such bona fide rental as they may be able reasonably to negotiate, sub-
let the premises for the account of Lessees, and all sums received by Lessor
shall be credited to the account of Lessees, less all reasonable expenses
actually incurred by Lessor, including, but not limited to brokerage fees,
advertising expense, preparation, including re-decoration, of the premises for
sub-letting, legal expenses cost of performing such of Lessees' obligations as
Lessor finds it necessary to perform at his expense and all other items
necessary and proper to procure suitable tenants for the premises. Lessees shall
remain liable to Lessor for any deficiency between the amounts properly credited
to Lessees, and the amount due Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant
to subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessees are then obligated, Lessor shall have the right forthwith to demand and
recover from Lessees, the present value of the difference between the amount to
be
<PAGE>
-7-
received by Lessor under the new sub-lease, and the amount which would have been
payable by Lessees under this Lease for the remainder of the term hereof, plus
the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession
pursuant to subparagraph (b) above, Lessor may at any time thereafter, upon
written notice to Lessees, terminate this Agreement in all respects, and in such
event, Lessees shall have no further liability, obligation or responsibility
after the date of such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing his right under this Lease, Lessees
now expressly agree that no indulgence or extension, waiver or forgiveness,
variation by practice, nor any neglect or abstention by Lessor in strictly
enforcing the covenants of Lessees on any one or more occasions shall ever be
deemed a waiver of or estoppel against the right of Lessor to insist upon strict
compliance with each and every covenant herein, without any further or special
notice or warning, the existence of a covenant in this Lease and the provisions
of this paragraph, being deemed adequate notice of the rights of the Lessor. No
property belonging to the Lessees shall ever be removed from the premises at any
time when there exists any default in the payment of any part of the rent due
under this Lease, nor after notice of default in the performance of any other
covenant or obligation assumed herein by Lessees.
17. Lessees agree to execute any instrument reasonably required by Lessor
reflecting attornment to their prior interest which may be required by Lessor in
connection with mortgaging their interest in the demised premises, and/or
refunding or refinancing in the future of any mortgage which Lessor may place
upon the premises, subject to right of Option of even date herewith.
18. Upon any termination of this Lease, whether by Lapse of time,
cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessees shall surrender immediately, possession of the demised
premises and all buildings and improvements then on the same to Lessor in good
and tenantable repair, reasonable
<PAGE>
-8-
wear and tear and damage from fire or other casualty or peril excepted. If
possession be not immediately surrendered, Lessor, with or without process of
Law, may forthwith re-enter said premises and repossess the same, and expel and
remove therefrom, using such force as may be necessary, all persons and
property, without being deemed guilty of any unlawful act and without prejudice
to any other legal remedy available to Lessor.
19. Lessor has the right to assign all or any part of this Lease.
Lessor will notify Lessee in the event of an Assignment.
20. It is the intention of the parties that this is to be a net, net,
net Lease.
21. In the event a certificate of need is later issued, Lessees agree
to assign an undivided one-half interest in the Certificate of Need issued to
_________________________________ dated ____________________________, to the
Lessor as part of the consideration for leasing. Lessees agree that if a default
on this Lease occurs, resulting in foreclosure or assignment, Lessees remaining
interest in the Certificate of Need will be assigned to Lessor immediately and
forthwith.
22. This Lease shall be construed and interpreted in accordance with
the laws of the State of Texas.
23. Any notice or demand required or permitted by law or by any of
the provisions of this Lease shall be in writing. All notices or demands by
Lessor to or upon Lessees shall be deemed to have been properly given when sent
by certified mail, addressed to Leonard May Enterprises, Inc., and Leonard and
Catherine May, 4733-A Baldwin, Corpus Christi, Texas 78408, or such other place
as Lessees may from time to time, designate in a written notice to Lessor; and
to Lessor by Lessees, addressed to Lloyd Hobbs, P. 0. Box 126, Fort Smith,
Arkansas 72902, or at such other place as Lessor may from time to time,
designate in a written notice to Lessees.
24. This Lease and all provisions herein shall be binding upon and
inure to the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
25. Time is of the essence in this Lease.
<PAGE>
-9-
IN WITNESS WHEREOF the parties have caused this instrument to be
properly executed the day and year first above written.
/s/ Lloyd Hobbs
--------------------------------------
Lloyd Hobbs - Lessor
LEONARD MAY ENTERPRISES, INC.
/s/ Leonard May
--------------------------------------
Leonard May - Lessee
ATTEST:
/s/ Catherine May
- ----------------------
Secretary
/s/ Leonard May
--------------------------------------
Leonard May - Individually
Lessee
/s/ Catherine May
--------------------------------------
Catherine May - Individually
Lessee
ACKNOWLEDGMENT
--------------
STATE OF ARKANSAS
COUNTY OF SEBASTIAN
On this the 19th day of July, 1991, before me the undersigned
officer, personally appeared Lloyd Hobbs, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
[SIGNATURE APPEARS HERE]
--------------------------------------
Notary Public
My Commission Expires:
November 1, 2000
- ----------------------
<PAGE>
-10-
ACKNOWLEDGMENT
--------------
STATE OF TEXAS
COUNTY OF NUECES
On this the 24th day of July, 1991, before me, the undersigned officer,
personally appeared Leonard May, who acknowledged himself to be the President of
Leonard May Enterprises, Inc., a corporation, and that he, as such president,
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as
president.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Flo Chubbs
--------------------------------
Notary Public
My Commission Expires:
[NOTARY PUBLIC SEAL APPEARS HERE]
7-30-94
- ---------------------------
STATE OF TEXAS
COUNTY OF NUECES
On this the 24th day of July, 1991, before me the undersigned officer
personally appeared Leonard May and Catherine May, known to me to be the persons
whose names are subscribed to the within instrument and acknowledged that they
executed the same for the purposes therein contained.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Flo Chubbs
--------------------------------
Notary Public
My Commission Expires:
[NOTARY PUBLIC SEAL APPEARS HERE]
7-30-94
- ---------------------------
<PAGE>
EXHIBIT "A"
The following described lands and premises situated in
Live Oak County, Texas, To-Wit:
Being a tract of land containing 6.74 acres, more or less, being that
same called 6.76 acre tract conveyed by Billy Ross Smith s/p/a William
Ross Smith and wife, Neldine Smith, To E. Ross Harris, Trustee, by deed
dated January 14, 1982, recorded in Volume 344, Page 60 of the Deed
Records of Live Oak County, Texas, out of the Cameron County School
land Survey No. 32, A-145, within the city limits of George West,
Texas, and being more particularly described as follows:
BEGINNING at a concrete monument at the east corner of said called 6.76
acre tract for the east corner of the tract herein described, also
being a point in the southwestern boundary of U.S. Highway No. 281,
also being the north corner of the Striebeck Addition, whence, a
concrete post at the east corner of said Striebeck Addition and the
north corner of the Texas Department of Highways and Public
Transportation property bears S 38 degrees 48' E 430.19 feet;
THENCE S 54 degrees 19' W 807.49 feet with the fence along the
southeast line of said called 6.76 acre tract and the northwest line of
said Striebeck Addition to an iron pipe in the same at the south corner
of said called 6.76 acre tract for the south corner of this tract;
THENCE N 35 degrees 38' W 366.33 feet with fence along the southwest
line of said called 6.76 acre tract to an iron pipe at the west corner
thereof for the west corner of this tract, also being the south corner
of a 14.7 acre tract conveyed by Billy Ross Smith and wife, Neldine
Smith to Bednorz Chevrolet-Olds, Inc. by deed dated December 7, 1976,
recorded in Volume 276, Page 52 of said Deed Records;
THENCE N 54 degrees 18' E 799.66 feet with the fence along the common
line of said called 6.76 acre tract and said 14.7 acre tract to an iron
pipe at the east corner of said 14.7 acre tract and the north corner of
said called 6.76 acre tract for the north corner of this tract, being a
point in the southwestern boundary of said Highway;
THENCE S 35 degrees 45' E 234.08 feet with the fence along said highway
boundary to an iron rod set for an angle point in same for a corner of
this tract;
THENCE 5 38 degrees 48' E 132.72 feet continuing with the fence along
said highway boundary to the PLACE OF BEGINNING.
AND
BEING a tract of land containing 1.10 acres, more or less, being a
strip of land sixty (60) feet wide along the entire length of 14.7 acre
tract conveyed by Billy Ross Smith and wife, Neldine Smith, to Bednorz
Chevrolet-Olds, Inc., by deed dated December 7, 1976, recorded in
Volume 276, Page 52, of the Deed Records of Live Oak County, Texas, out
of the Cameron County School Land Survey No. 32, A-145, within the
City limits of George West, Texas, and being more particularly
described as follows:
BEGINNING at an iron pipe at the east corner of said 14.7 acre tract
for the east corner of the tract herein described, being the north
corner of a 6.74 acre tract described this
<PAGE>
date, also being a point in the southwestern boundary of U.S. Highway No. 281;
THENCE S 54 degrees 18' W 799.66 feet with the fence along the common line of
said 6.74 acre tract to an iron pipe at the west corner thereof for the south
corner of this tract.
THENCE N 35 degrees 43' W 60.00 feet with the fence along the southwest line of
said 14.7 acre tract to an iron rod set in same for the west corner of this
tract;
THENCE N 54 degrees 18' E 799.63 feet to an iron rod set in the fence along the
northeast line of said 14.7 acre tract for the north corner of this tract, being
a point in the southwestern boundary of U.S. Highway No. 281;
THENCE S 35 degrees 45' E 60.00 feet with the fence along the northeast line of
said 14.7 acre tract and said highway boundary to the PLACE OF BEGINNING.
<PAGE>
OPTION AGREEMENT
----------------
FOR AND IN CONSIDERATION of the sum of Ten Dollars cash in hand paid,
receipt of which is hereby acknowledged, and for other good and valuable
considerations, LLOYD HOBBS, of Dallas, Texas, hereinafter called "Grantor",
does hereby give and grant unto Leonard and Catherine May of Corpus Christi,
Texas, an option to purchase the following described real estate, together with
all improvements now or hereafter constructed upon the same, and including all
personal property shown upon Exhibit "B" attached hereto, and in addition, any
renewals, substitutions, replacements or additions thereto, which may be on the
premises and belonging to Grantor at the time of the exercise of this Option,
To-Wit:
Legal description attached hereto as Exhibit "A".
All upon the following terms and conditions.
1. This Option may be exercised by Grantees at the end of the
144 month period, after the 100 bed nursing home is complete and occupied and
144 monthly rental payments have been made of $__________ each, conditioned upon
the Grantees, their successors or assigns being in possession of the home at the
time of exercise, and upon the express condition and understanding that the
Grantees herein have fully performed all of the terms and conditions contained
in a certain Lease Agreement dated the 19th day of July, 1991, to be kept and
performed by the Lessees therein and more particularly are current in the
payment of all sums due under the terms of said Lease Agreement. If at any time,
the above Lease shall be terminated, this Option will immediately become null
and void. This Option may be exercised by means of Grantees giving written
notice by certified mail, return receipt requested, of such election to Lloyd
Hobbs, P. O. Box 126, Fort Smith, Arkansas 72902, or such other place as may be
directed in writing, accompanied by $10,000.00 earnest money deposit. The
earnest money deposit will be applied on the purchase price if purchase is
concluded.
2. The price for the assets to be sold shall be ___________________
__________________, being the same as the original cost to Lloyd Hobbs.
<PAGE>
-2-
The purchase price is payable in cash unless a financing agreement is
worked out at the time of purchase with Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of execution of this Agreement, and such as may
thereafter be placed upon the premises by way of substitution for or addition to
such furniture, furnishings, fixtures and equipment, less any furniture and
equipment removed or replaced during the Lease term by Lessor or Lessee.
3. Upon receipt of notice of intent to exercise this Option, Grantor
shall promptly furnish to Grantees, a Warranty Deed, subject only to recorded
easements, rights-of-way, mineral interests and etc. Recorded easements and
restrictions shall not be deemed to impair title.
4. Closing shall be at a time and place mutually agreeable. In the
absence of agreement, Grantor may obligate Grantees to perform by giving written
notice that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. Grantees shall
designate some place in Austin or Corpus Christi, Texas, at which they will
appear prepared to perform, and Grantor shall have ten (10) business days after
receipt of such demand in which to execute and deliver the documents required by
this Option. If Grantor fails, neglects or refuses to perform, Grantees shall
have the right to seek specific performance of this Option.
5. This Option may not be assigned by Grantees without the written
consent of the Grantor.
6. Notices required or permitted by this Option may be given to
Grantor by certified mail, return receipt requested, addressed to Lloyd Hobbs at
P. O. Box 126, Fort Smith, Arkansas 72902, and to Grantees by certified mail,
return receipt requested to Leonard and Catherine May, 4733-A Baldwin Boulevard,
Corpus Christi, Texas 78408. Either party may change the person to whom or the
place to which notice is to be given by written request.
<PAGE>
7. This Agreement shall be binding upon the heirs, legal
representatives, successors and assigns of the parties hereto.
/s/ Lloyd Hobbs
------------------------------
Lloyd Hobbs - Grantor
/s/ Leonard May
------------------------------
Leonard May - Grantee
Individual
/s/ Catherine May
------------------------------
Catherine May - Grantee
Individual
<PAGE>
EXHIBIT A
GUADALUPE VALLEY NURSING CENTER
1210 EASTWOOD
SEGUIN, TEXAS 78155
5.188 ACRE TRACT
------------------
Field notes describing 5.188 acre tract situated in the John Sowell Survey,
A-35, Seguin, Guadalupe County, Texas. Said 5.188 acre tract Is part of a tract
------ ---------
called 15.97 acres in conveyance from Maxine Hahn, et all, to Mary Louise Orr
recorded in Volume 472 at page 180 of the Deed Records of said county and being
described by metes and bounds, as follows:
BEGINNING at a two-way fence corner marking the southwest corner of the tract
herein described, same being the southeast corner of a tract called 60 x 415.5
feet in conveyance from Virginia Bergfleld, et vir, to A.I.
Orr. et ux. recorded in volume 313 at page 360;
THENCE with the fence along the west line of the tract herein described. same
being a segment of the common line of said 15.97 acre and said 60 x 415.5 foot
strip, as follows:
N 04 degrees 55' 49" W, 331.93 foot to a fence post and; N 11 degrees
02' 34" W. 99.71 feet to a two-way fence corner marking the northwest
corner of the tract herein described;
THENCE with the north line of the tract herein described, S 89 degrees 34'13" E,
557.85 feet to the northeast corner of the tract herein described. Said point
bears, S 37 degrees 34' 51" W. 288.63 feet and N 89 degrees 34' 13" W. 30 feet
from a 1/2 inch diameter iron stake found marking the northeast corner of said
15.97 acre tract;
THENCE with the east line of the tract herein described, as follows:
S 00 degrees 25' 47" W. 380.78 feet to a 1/2 inch diameter iron stake
found and;
S 45 degrees 25' 47" W, 70.71 feet to a 1/2 inch diameter iron stake
found marking the southeast corner of the tract herein described and
lying in a fence along the common line of said 15.97 acre tract and the
north line of F.M. Highway No.466 (Capote Road);
THENCE with the common line of the tract herein described and said north line
of Capote Road, as follows:
N 89 degrees 34' 13" W, 237.00 feet to a 1/2 Inch diameter iron stake
found and;
N 88 degrees 53' 49" W. 220,02 feet to the place of beginning and
containing 5.188 acres of land.
<PAGE>
0.325 ACRE TRACT
Field notes describing 0.325 acre tract situated in the John Sowell Survey,
A-35, Seguin, Guadalupe County, Texas, Said 0.325 acre tract is part of a tract
called 15.97 acres in conveyance from Maxine Halm, et al, to Marie Louise Orr
recorded in volume 472 at page 180 of the Deed Records of said county and being
described by metes and bounds, as follows:
BEGINNING at a 1/2 inch diameter Iron stake set marking the northeast corner of
the tract herein described. Said iron stake bears, S 37 degrees 34'S1" W,
288.63 feet from a 1/2 inch diameter iron stake found marking the northeast
corner of said 15.97 acre tract;
THENCE with the east line of the tract herein described, S 00 degrees 25' 47"
W, 430.78 feet to a 1/2 inch diameter Iron stake set marking the southeast
corner of the tract herein described and lying in the fence along the common
line of said 15.97 acre tract and F.M. Highway No. 466 (Capote Road). Said iron
stake bears, N 89 degrees 36' 35" W. 1209.69 feet from a concrete monument found
marking the Intersection of the northwest line of State Highway No. 123 Bypass
and the north line of F.M, Highway 466;
THENCE with the south line of the tract herein described, same being a segment
of the common line of said 15.97 acre tract and said north line of Capote Road,
N 89 34' 13" W, 80.00 feet to a 1/2 inch diameter iron stake found marking the
southwest corner of the tract herein described. Said Iron stake bears, S 88
degrees 53'49" E. 220.02 feet and S 89 degrees 34' 13" E, 237.00 feet from a
two-way fence corner marking the Southeast corner of & tract called 60 x 415.5
feet recorded in volume 313 at page 376;
THENCE with the west line of the tract herein described, into said 15.97 acre
tract, N 45 degrees 25' 47" E, 70.71 feet to a 1/2 inch diameter iron stake
found and N 00 degrees 25' 47" E, 380.78 feet to the northwest corner of the
tract herein described. Said point bears. S 89 degrees 34' 13" E. 557.85 feet
from a two-way fence corner marking the northeast corner of said 60 x 415.5
foot lot;
THENCE with the north line of the tract herein described, S 89 degrees 34' 13"E,
30 feet to the place of beginning and containing 0.325 acre of land.
<PAGE>
ACKNOWLEDGMENT
THE STATE OF ARKANSAS *
*
COUNTY OF Sebastian *
This instrument was acknowledged before me on September 30,
1994, by C. David Curry, President of S & H, Inc., a Arkansas corporation, on
behalf of said corporation.
/s/ Shirley S. Wolfe
--------------------------------------
Notary Public, State of Arkansas
Typed Notary Name Shirley S. Wolfe
My commission expires November 1, 2000
<PAGE>
State of California
----------
County of Los Angeles
-----------
On 9/29/94 Before me /s/ Joan Smelser Notary Public
------- -------------------------------
Date Name, Title of Officer - E.G., "Jane Doe, Notary Public"
personally appeared /s/ William Scott
------------------------------
NAME(S) OF SIGNER(S)
[X]personally known to me - OR - [ ] proved to me on the basis of satisfactory
evidence to be the person whose name
[SEAL OF NOTARY PUBLIC, is subscribed to the within instrument
CALIFORNIA, LOS ANGELES and acknowledged to me that he executed
COUNTY APPEARS HERE] the same in his authorized capacity, and
that by his signature on the instrument
the person or the entity upon behalf of
which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Joan P. Smelser
---------------------------
SIGNATURE OF NOTARY
====== OPTIONAL SECTION =========
CAPACITY CLAIMED BY SIGNER
Though statute does not require the Notary to fill in the data below, doing
so may prove invaluable to persons relying on the document.
[ ] INDIVIDUAL
[ ] CORPORATE OFFICER(S)
-------------------------------
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:
--------------------
--------------------------
--------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- ---------------------------------
- ---------------------------------
=============================== OPTIONAL SECTION ===========================
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT
THE DOCUMENT DESCRIBED AT RIGHT: -----------------
NUMBER OF PAGES DATE OF DOCUMENT
- ------------------------------- ------ ----
Though the data requested here is
not required by law, it could SIGNER(S) OTHER THAN NAMED ABOVE
prevent fraudulent reattachment ----------
of this form.
<PAGE>
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30, 1994, by
Leonard May, President of Leonard May Enterprises, Inc., a Texas corporation,
on behalf of said corporation.
/s/ Aurora N. Zambrano
----------------------------------------
[SEAL OF NOTARY REPUBLIC Notary Public, State of Texas
APPEARS HERE] Typed Notary Name
My commission expires
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on the 30th day of
September, 1994, by Leonard May.
/s/ Aurora N. Zambrano
----------------------------------------
[SEAL OF NOTARY REPUBLIC Notary Public, State of Texas
APPEARS HERE] Printed Notary Name
My commission expires
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on the 30th day of
September, 1994, by Catherine May.
/s/ Aurora N. Zambrano
----------------------------------------
Notary Public, State of Texas
[SEAL OF NOTARY REPUBLIC Printed Notary Name
APPEARS HERE] My commission expires
<PAGE>
CONSENT TO ASSIGNMENT OF LEASEHOLD ESTATE
OF LIVE OAK NURSING CENTER, GEORGE WEST TEXAS
On JULY 19, 1991, LEONARD MAY ENTERPRISES, INC., and Leonard May and
Catherine May entered into a Lease Agreement as Lessees, with Lloyd Hobbs, the
Owner (Lessor) of the Live Oak Nursing Center in George West, Texas. Legal
Description attached as "Exhibit "A".
Now comes SUMMIT CARE CORPORATION of Burbank, California, agreeing to
assume and perform all of the terms, covenants and conditions, as Lessee, under
this Lease, and further agreeing to keep the Certificate and License in full
force and effect during the term of this Lease.
This Lease will be considered in default if the Lessee (Summit Care
Corporation) shall fail or neglect to pay the rentals when due, or to pay any
other sums of money which they are required by this Lease to pay, and such
non-payment shall continue on the tenth day after written notice of the same has
been posted to Lessees. In the event of default of this Lease, Lessee will
forfeit and transfer any rights, or ownership of contracts and ownership of the
Certificate of Need at this location, with the State of Texas or the United
States Government, to Lessor.
Summit Care Corporation (Lessee) agrees to assume all other terms,
covenants and conditions of this Lease as originally written and amended.
Leonard May and Catherine May agree to remain liable to the Lessor on
this Lease if Summit Care Corporation should default.
Subject to the above terms and conditions, and any other terms and
conditions of the Lease, Lloyd Hobbs hereby agrees to consent to the Assignment
of this Lease and Option of the Live Oak Nursing Center in George West, Texas to
Summit Care Corporation.
The next rental payment of $29,164.85 will be due August 15, 1994 and
monthly thereafter through February 14, 2008.
The Option may be exercised on January 15, 2003, provided one hundred
forty-four (144) lease payments have been made and the lease is in full force
and effect. The option price will be Two Million Five Hundred Ninety-Two
Thousand Four Hundred Thirty-Three Dollars and Seventy Cents ($2,592,433.70).
<PAGE>
WITNESS our hands this 15th day of August, 1994.
SUMMIT CARE CORPORATION
BY: /s/ [SIGNATURE APPEARS HERE]
--------------------------------
President
ATTEST
/s/ [SIGNATURE APPEARS HERE]
- ------------------------------
Secretary
LEONARD MAY ENTERPRISES, INC.
By: /s/ Leonard May
--------------------------------
President
ATTEST:
/s/ Catherine May
- ------------------------------
Secretary
/s/ Leonard May
--------------------------------
Leonard May
Individually
/s/ Catherine May
--------------------------------
Catherine May
Individually
/s/ Lloyd Hobbs
--------------------------------
Lloyd Hobbs
AFTER RECORDING
RETURN TO:
FRANK S. OSEN
ATTORNEY AT LAW
9454 WILSHIRE BLVD.
SUITE 800
BEVERLY HILLS, CA
90212--2988
RE: SUMMIT CARE CORP.
<PAGE>
EXHIBIT "A"
The following described lands and premises situated in
Live Oak County, Texas, To-Wit:
Being a tract of land containing 6.74 acres, more or less, being that
same called 6.76 acre tract conveyed by Billy Ross Smith s/p/a William
Ross Smith and wife, Neldine Smith, To E. Ross Harris, Trustee, by deed
dated January 14, 1982, recorded in Volume 344, Page 60 of the Deed
Records of Live Oak County, Texas, out of the Cameron County School
land Survey No. 32, A-145, within the city limits of George West,
Texas, and being more particularly described as follows:
BEGINNING at a concrete monument at the east corner of said called 6.76
acre tract for the east corner of the tract herein described, also
being a point in the southwestern boundary of U.S. Highway No. 281,
also being the north corner of the Striebeck Addition, whence, a
concrete post at the east corner of said Striebeck Addition and the
north corner of the Texas Department of Highways and Public
Transportation property bears S 38 degrees 48' E 430.19 feet;
THENCE S 54 degrees 19' W 807.49 feet with the fence along the
southeast line of said called 6.76 acre tract and the northwest line of
said Striebeck Addition to an iron pipe in the same at the south corner
of said called 6.76 acre tract for the south corner of this tract;
THENCE N 35 degrees 38' W 366.33 feet with fence along the southwest
line of said called 6.76 acre tract to an iron pipe at the west corner
thereof for the west corner of this tract, also being the south corner
of a 14.7 acre tract conveyed by Billy Ross Smith and wife, Neldine
Smith to Bednorz Chevrolet-Olds, Inc. by deed dated December 7, 1976,
recorded in Volume 276, Page 52 of said Deed Records;
THENCE N 54 degrees 18' E 799.66 feet with the fence along the common
line of said called 6.76 acre tract and said 14.7 acre tract to an iron
pipe at the east corner of said 14.7 acre tract and the north corner of
said called 6.76 acre tract for the north corner of this tract, being a
point in the southwestern boundary of said Highway;
THENCE S 35 degrees 45' E 234.08 feet with the fence along said highway
boundary to an iron rod set for an angle point in same for a corner of
this tract;
THENCE S 38 degrees 48' E 132.72 feet continuing with the fence along
said highway boundary to the PLACE OF BEGINNING.
AND
BEING a tract of land containing 1.10 acres, more or less, being a
strip of land sixty (60) feet wide along the entire length of 14.7 acre
tract conveyed by Billy Ross Smith and wife, Neldine Smith, to Bednorz
Chevrolet-Olds, Inc., by deed dated December 7, 1976, recorded in
Volume 276, Page 52, of the Deed Records of Live Oak County, Texas, out
of the Cameron County School Land Survey No. 32, A-145, within the
City limits of George West, Texas, and being more particularly
described as follows:
BEGINNING at an iron pipe at the east corner of said 14.7 acre tract
for the east corner of the tract herein described, being the north
corner of a 6.74 acre tract described this
<PAGE>
date, also being a point in the southwestern boundary of U.S. Highway
No. 281;
THENCE S 54 degrees 18' W 799.66 feet with the fence along the common
line of said 6.74 acre tract to an iron pipe at the west corner thereof
for the south corner of this tract.
THENCE N 35 degrees 43' W 60.00 feet with the fence along the southwest
line of said 14.7 acre tract to an iron rod set in same for the west
corner of this tract;
THENCE N 54 degrees 18' E 799.63 feet to an iron rod set in the fence
along the northeast line of said 14.7 acre tract for the north corner
of this tract, being a point in the southwestern boundary of U.S.
Highway No. 281;
THENCE S 35 degrees 45' E 60.00 feet with the fence along the northeast
line of said 14.7 acre tract and said highway boundary to the PLACE OF
BEGINNING.
<PAGE>
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on Sept. 30, 1994, by
Leonard May, President of Leonard May Enterprises, Inc., a Texas corporation, on
behalf of said corporation.
[NOTARY SEAL APPEARS HERE] /s/ Aurora N. Zambrano
---------------------------------------
Notary Public, State of Texas
Typed Notary Name
----------------------
My commission expires
------------------
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on the 30 day of
September, 1994, by Leonard May.
[NOTARY SEAL APPEARS HERE] /s/ Aurora N. Zambrano
---------------------------------------
Notary Public, State of Texas
Printed Notary Name
--------------------
My commission expires
------------------
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on the 30 day of
September, 1994, by Catherine May.
[NOTARY SEAL APPEARS HERE] /s/ Aurora N. Zambrano
---------------------------------------
Notary Public, State of Texas
Printed Notary Name
--------------------
My commission expires
------------------
<PAGE>
State of California
----------
County of Los Angeles
-----------
On 9/29/94 before me, /s/ Joan Smelser Notary Public
------- -------------------------------
Date NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared /s/ William Scott
------------------------------
NAME(S) OF SIGNER(S)
[X]personally known to me - OR - [ ] proved to me on the basis of satisfactory
evidence to be the person whose name
[SEAL OF NOTARY PUBLIC, is subscribed to the within instrument
CALIFORNIA, LOS ANGELES and acknowledged to me that he executed
COUNTY APPEARS HERE] the same in his authorized capacity, and
that by his signature on the instrument
the person, or the entity upon behalf of
which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Joan P. Smelser
---------------------------
SIGNATURE OF NOTARY
====== OPTIONAL SECTION =========
CAPACITY CLAIMED BY SIGNER
Though statute does not require the Notary to fill in the data below, doing
so may prove invaluable to persons relying on the document.
[ ] INDIVIDUAL
[ ] CORPORATE OFFICER(S)
-------------------------------
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:
--------------------
--------------------------
--------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- ---------------------------------
- ---------------------------------
=============================== OPTIONAL SECTION ===========================
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT
THE DOCUMENT DESCRIBED AT RIGHT: -----------------
NUMBER OF PAGES DATE OF DOCUMENT
- ------------------------------- ------ --------
Though the data requested here is
not required by law, it could SIGNER(S) OTHER THAN NAMED ABOVE
prevent fraudulent reattachment -------------
of this form.
<PAGE>
ACKNOWLEDGMENT
THE STATE OF ARKANSAS *
*
COUNTY OF Sebastian *
This instrument was acknowledged before me on September 30,
1994, by Lloyd Hobbs.
/s/ Shirley S. Wolfe
---------------------------------------
Notary Public State of Arkansas
Typed Notary Name Shirley S. Wolfe
----------------------
My commission expires November 1, 2000
------------------
<PAGE>
ASSIGNMENT OF LEASE WITH OPTION TO PURCHASE
-------------------------------------------
This Agreement is made this 30th day of September, 1994, by and
between LEONARD MAY ENTERPRISES, INC., a Texas corporation, and LEONARD MAY and
CATHERINE MAY, hereinafter called "Assignor", and Summit Care Corporation,
hereinafter called "Assignee".
Recitals
A. LLOYD HOBBS, as Lessor, and Assignor as Lessee, executed a
lease (the "Lease") on July 19, 1991. By the terms of the Lease, [a copy of
which is attached hereto as Exhibit 1], upon the property therein described
("Property") was leased to Assignor as Lessee for a term of fifteen (15) years
commencing on February 15, 1993, and ending on February 14, 2007, and an Option
Agreement [copy of which is attached hereto as Exhibit 2]; and
B. Assignor now desires to assign the Lease and the Option to
Purchase to Assignee, and Assignee desires to accept the assignment thereof.
THEREFORE, Assignor and Assignee agree as follows:
Assignment
For value received, receipt of which is hereby acknowledged,
Assignor hereby assigns and transfers to Assignee all of its right, title and
interest in and to the Lease and the Option to Purchase hereinbefore described,
and Assignee hereby agrees to and does accept the assignment, and Assignee
expressly assumes and agrees to keep, perform, and fulfill all the terms,
covenants, conditions, and obligations required to be kept, performed, and
<PAGE>
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th,
1994, by Catherine May.
[NOTARY SEAL APPEARS HERE] /s/ Odette Garza
--------------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th,
1994, by Derwin L. Williams, Vice President-Finance of Summit Care Corporation,
a California corporation, on behalf of said corporation.
[NOTARY SEAL APPEARS HERE] /s/ Odette Garza
----------------------------------------
Notary Public, State of Texas
AFTER RECORDING RETURN TO:
FRANK S. OSEN
ATTORNEY AT LAW
9454 WILSHIRE BLVD.
SUITE 800
BEVERLY HILLS, CA
90212-2988
RE: SUMMIT CARE CORP.
<PAGE>
fulfilled by Assignor as Lessee thereunder, including the making of all payments
due to or payable on behalf of Lessor under said Lease when due and payable.
Executed at Corpus Christi, Texas, on the day and year first
above written.
ASSIGNOR
LEONARD MAY ENTERPRISES, INC.
By /s/ Leonard May
-----------------------------------
Leonard May, President
/s/ Leonard May
-----------------------------------
Leonard May
/s/ Catherine May
-----------------------------------
Catherine May
<PAGE>
ASSIGNEE
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
----------------------------------
DERWIN L. WILLIAMS
----------------------------------
Its VICE PRESIDENT - FINANCE
-------------------------------
<PAGE>
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th,
1994, by Leonard May, President of Leonard May Enterprises, Inc., a Texas
corporation, on behalf of said corporation.
/s/ Odette Garza
[NOTARY SEAL APPEARS HERE] ---------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th,
1994, by Leonard May.
/s/ Odette Garza
[NOTARY SEAL APPEARS HERE] ---------------------------------
Notary Public, State of Texas
<PAGE>
ASSIGNMENT AND
--------------
ASSUMPTION OF LEASE
-------------------
This Assignment and Assumption of Lease Agreement ("Assignment") dated
as of the 1st day of September, 1997, is entered into by and between Summit Care
Corporation, a California corporation ("Assignor") and Summit Care Texas, L.P.,
a Texas limited partnership ("Assignee").
RECITALS
--------
WHEREAS, on September 1, 1997, Assignor conveyed all of its assets to
Assignee, in accordance with the terms and conditions of that certain
Conveyance, Contribution and Bill of Sale effective September 1, 1997;
WHEREAS, Assignor is a party to that certain Lease Agreement dated
July 19, 1991 by and between Lloyd Hobbs, as lessor, and Leonard May
Enterprises, Inc., Leonard and Catherine May, as lessees, and that certain
Option Agreement by and between Lloyd Hobbs and Leonard and Catherine May, as
assigned by that certain Assignment of Lease with Option to Purchase dated
September 30, 1994 by and between Leonard May Enterprises, Inc., Leonard and
Catherine May, collectively as assignor, and Summit Care Corporation, as
assignee, as consented to by Lloyd Hobbs, as lessor, and evidenced by that
certain Consent to Assignment of Leasehold Estate of Live Oak Nursing Center,
George West Texas dated August 15, 1994 by and among Summit Care Corporation,
Leonard May Enterprises, Inc., Leonard May, Catherine May and Lloyd Hobbs, as
further assigned by Lloyd Hobbs to Hobbs & Curry Family Limited Partnership (the
"Lease" and the "Option Agreement" respectively);
WHEREAS, the parties desire to enter into this Assignment to further
evidence the transfer by Assignor to Assignee and Assignee's assumption of all
rights and obligations of Assignor arising under the Lease and the Option
Agreement; and
<PAGE>
WHEREAS, pursuant to and in accordance with Section 12 of the Lease,
Hobbs & Curry Family Limited Partnership, as lessor, has consented to the
assignment by Assignor of the Lease to Assignee as set forth in that certain
Letter Agreement dated January 3, 1997 from Summit Care Corporation and signed
by Hobbs & Curry Family Limited Partnership on January 15, 1997.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. The recitals set forth above are incorporated herein for all
purposes.
2. Assignor does hereby irrevocably transfer and assign to Assignee
all of its rights, interest, liabilities, obligations and duties arising under
the Lease and the Option Agreement and Assignee hereby assumes and agrees to
pay, perform and discharge when due all of the liabilities, obligations, and
duties of Assignor arising under the Lease and the Option Agreement.
3. The parties hereby agree to perform, execute and/or deliver or
cause to be performed, executed and/or delivered any and all such further
agreements and assurances as either of the parties hereto may reasonably require
to consummate the transaction contemplated hereunder.
4. All notices to Lessee under the Lease and the Option Agreement
shall be addressed to Assignee at the following address:
2600 W. Magnolia Boulevard,
P.O. Box 1486
Burbank, California 91505-3130
2
<PAGE>
IN WITNESS WHEREOF, each party has caused this Assignment to be duly
executed and delivered in its name and on its behalf, as of the date first above
written.
SUMMIT CARE CORPORATION,
a California corporation
By: /s/ John Farber
-----------------------------------
Name: JOHN FARBER
---------------------------------
Title: SECRETARY
--------------------------------
SUMMIT CARE TEXAS, L.P.,
a Texas limited partnership
By: Summit Care Texas Management, Inc.,
its general partner
By: /s/ John Farber
-------------------------------
Name: JOHN FARBER
-----------------------------
Title: SECRETARY
----------------------------
3
<PAGE>
Hobbs & Curry Family Limited Partnership executes this Assignment to
evidence its consent to and approval of this Assignment including the assignment
of the Option Agreement by Assignor to Assignee.
CONSENTED TO, APPROVED AND ACCEPTED:
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
4
<PAGE>
EXHIBIT 10.19
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT entered into this 28 day of February 1989, by and
-- --------
between LLOYD HOBBS of Dallas, Texas, as LESSOR, and LEONARD MAY ENTERPRISES,
INC., and LEONARD and CATHERINE MAY of Corpus Christi, Texas as LESSEES,
W-I-T-N-E-S-S-E-T-H:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessees, and the
Lessees have hired and taken from the Lessor, the following described property,
consisting of one, 120-bed nursing home, commonly known as Guadalupe Valley
Nursing Center of Sequin, Texas, located on the premises in Sequin, Texas, more
particularly described in Exhibit "A" attached hereto, including all furniture,
fixtures and equipment located therein, more particularly described in Exhibit
"B" attached hereto, to have and to hold the same for the period of years and
upon the terms and conditions hereinafter stated:
1. The term of this Lease shall be for the period of fifteen (15)
years, commencing April 15, 1990 and ending April 14, 2004.
2. The rental shall be as follows: When the 120-bed home is completed,
furnished and ready for occupancy, the rental will be $34,115.25, per month,
representing one and one-eighth percent (1-1/8%) per month of the total cost to
Lessor, including construction, land, furnishing, all expenses incurred during
construction including legal fees, taxes and insurance, interim interest, travel
and etc., incurred before commencement of the Lease.
It is contemplated by an Earnest Money Contract and Extension between
Larry Voegtle and Assigns (Buyer) and Mary Bergeld Or (Seller) , whereby
purchaser of the property agrees to construct a street, or partial street along
the East side of the property. When this construction is completed by the
Lessor/Owner, the cost of the construction including interim interest during
construction, shall be amortized as Lease payments by the Lessees, on the same
basis as the original Lease.
The monthly rental will be paid to Lloyd Hobbs at P. 0. Box 126, Fort
Smith, Arkansas 72902, or to such other palce as may be directed in writing,
payable monthly in advance for the term of the Lease.
<PAGE>
-2-
3. Lessees agree to pay all taxes, general or special, assessed
against the land, buildings and personal property. An escrow for taxes is
required; therefore, an escrow payment of One Thousand Dollars ($1,000.00) per
month will be deposited with the Lessor for payment of taxes. This escrow
payment will be adjusted annually, to cover the taxes as levied against the real
and personal property by all taxing authorities, using the previous year as a
guide.
4. The Lessees shall be responsible for and pay for, fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least, replacement value. The insurance policy
shall designate Lessor as a named insured and loss payee. If Lessees fail or
neglect to provide this insurance as required, Lessor may obtain same and add
the premium cost to the next lease payment due.
5. In the event of partial destruction of the building and contents
(that is, destruction of less than half, in value of the building and contents)
by fire or other casualty, then the Lessees shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the destruction. Any insurance proceeds, in the event of loss, will be
escrowed with Owner of the building. Owner will pay bills incurred, from
insurance proceeds, to repair damages as presented by repair contractors. If
repairs cost more than insurance proceeds, Lessee will be obligated to pay the
difference from Lessee's own funds. If destruction is 50%, or more, of value,
Lessor shall be entitled to the insurance proceeds and shall at it's option,
restore the premises as above provided or cancel the Lease. In the event of
destruction of 50% or more of value, Lessor shall advise Lessees, within sixty
(60) days following the destruction, of his election in this regard.
6. In the event of a taking of all or of part of the land and
buildings as a result of eminent domain, condemnation or other governmental
taking, the consideration paid therefor shall be paid to the Lessor, and from
the date of payment of such consideration, the rental amount shall abate and be
reduced in proportion to the relation of the amount of the consideration to
$2,000,000.00 in value.
<PAGE>
-3-
7. Lessees shall, as long as this Lease remains in effect, procure and
keep in effect, general public liability insurance against claims for bodily
injury or death occurring upon, in or about the demised premises and on, in or
about the adjoining streets and passageways, with limits of not less than
$3,000,000.00, any one person or incident. Lessee shall also provide for mal-
practice insurance. Lessor shall be a named insured on all policies.
8. Lessees agree that they will at all times, during the term of this
Lease or any extension thereof, indemnify, protect, defend and save harmless,
the Lessor, against any and all claims, costs, charges, liabilities, or expenses
arising from damage or injury, actual or claimed, of whatever kind or character,
to property or persons occurring in or about the demised premises, streets,
sidewalks, passageways, parking lots, and alleys adjacent thereto, and agree to
resist or defend such action or proceedings, and cause the same to be defended
at their expense.
9. The premises shall be used as a licensed nursing home and for no
other purpose, without the written consent of Lessor. Lessees agree to maintain
the entire premises, including buildings, drives, parking area, furniture,
furnishings, fixtures, equipment and decoration in good and tenantable repair
and condition. Lessees shall, at their expense, repair or replace items as may
be necessary to comply with this covenant, and such that the premises shall at
all times, qualify for and remain, licensed as, at least, a "medicare skilled"
120-bed nursing home under the laws and regulations of the United States and of
the State of Texas. A reduction in, or loss of, this or equivalent license
rating, in the event license ratings are changed, will be considered a default
in this lease.
10. Lessees, with the prior written consent of the Lessor, which
consent shall not be unreasonably withheld, shall have the right to make such
additions, alterations, changes and improvements on the demised premises as
Lessees shall deem necessary or desirable; provided that no such addition,
alteration, change or improvement shall be made which will weaken the structural
strength of the building, diminish its utility or value, and all additions,
<PAGE>
-4-
alterations, changes and improvements shall be made in a workmanlike manner in
full compliance with all building laws and ordinances applicable thereto, and
shall become part thereto upon termination of this Leave. Lessees may erect and
maintain such signs upon the premises as they may desire, and as may be
permitted by laws or ordinances pertaining thereto, but at their sole expense
and responsibility.
11. Lessees shall keep the demised premises in a clean, safe and
sanitary condition, and shall comply with all municipal, county, state and
federal laws and regulations governing the conduct of the activities conducted,
suffered or permitted by the Lessees on the demised premises and the Lessees
shall obtain appropriate permits from all such authorities when required.
12. Lessees shall have the right to sub-lease any or all of the
leased premises, with the prior written consent of Lessor, first obtained, which
consent will not be unreasonably withheld, provided that the Lessees will remain
liable for the performance of the covenants and obligations of this Lease. If
the property is sub-leased, the Lessor will have the right to a reasonable
adjustment in the rent.
13. Lessees agree to permit Lessor, or it's authorized representative
to enter the demised premises at all reasonable times during usual business
hours for the purpose of inspecting the same, provided that this shall not be
construed to obligate. Lessor to notify Lessees of any defect observed therein.
14. Lessees shall not do or suffer anything to be done whereby the
demised premises, or any part thereof, may be encumbered by a mechanic's or
similar lien, and in the event such a lien is filed against the demised
premises, or any part thereof, purporting to be for or on account of any labor
done or material or services furnished in connection with any work in or about
the demised premises, Lessees shall discharge the same of record within ten days
after the date of such claim, or if Lessees desire to contest the validity or
amount of such claim, they may do so provided that they first post security
acceptable to Lessor, fully indemnifying Lessor and the premises from any claim,
charge, or demand arising from such claim or expenses incurred in connection
therewith.
<PAGE>
-5-
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessees:
a. The Lessees shall fail or neglect to pay the rentals when due,
or to pay any other sums of money which they are required by this Lease to pay,
and such non-payment shall continue on the tenth day after written notice of the
same has been posted to Lessees. In the event of default of this Lease, Lessee's
will forfeit any rights, or ownership of contracts and ownership of Certificate
of Need at this location, with the State of Texas or the United States
Government, to Lessor.
b. The Lessees shall fail, refuse or neglect to perform or observe
any other covenant required of them herein, and such non-performance or non-
observance shall continue on the thirtieth (30th) day (unless a later date be
stated in the notice) after written notice of the same has been posted to the
Lessees.
c. This Lease, or the premises itself, or any property of the
Lessees is levied upon by process of law, and such levy be not completely
discharged, or secured to the satisfaction of the Lessor, within fifteen (15)
days after service of the process.
d. Lessees become involved in financial difficulties as evidenced
by (1) an admission in writing of their inability to pay their debts generally
as they become due, (2) becoming petitioner in any voluntary debtor or
bankruptcy proceedings, whether asking arrangement, composition, reorganization,
liquidation or other relief suspension or modification of their obligations, (3)
becoming a party respondent to any involuntary proceeding the purpose of which
is to subject the assets of the Lessees to the control of a court of creditor's
committee (4) making an assignment of all or of a substantial part of their
property for the benefit of their creditors, or (5) seeking, consenting to or
failing to avert the appointment of a receiver or a trustee for all or a
substantial part of their property, or of the demised premises, or of their
interest in this Lease.
16. If an event of default occurs, Lessor shall have the
<PAGE>
-6-
option to:
a. Terminate this Lease by service of written notice of
termination, and Lessees' right to the possession of the premises shall cease
upon the date stated in such notice, without prejudice to Lessors' right to
recover all sums due as of the date possession is surrendered, plus any damage
or loss suffered on or prior to such date, including any expenses such as court
costs, attorney's fees and similar expenses incurred by Lessor in recovering
possession, rent, and/or damages due from Lessees; or
b. Re-enter and take possession of the premises without further
demand or notice, and expel Lessees, or those claiming under it, and remove the
effects of both, or either (forcibly if necessary) without being deemed guilty
of any manner of trespass and without prejudice to Lessor's further rights under
this Lease. In such event, the obligations of the Lessees under this Lease shall
continue, but Lessor may from time to time upon such terms and conditions, and
for such bona fide rental as they may be able reasonably to negotiate, sub-let
the premises for the account of Lessees, and all sums received by Lessor shall
be credited to the account of Lessees, less all reasonable expenses actually
incurred by Lessor, including, but not limited to brokerage fees advertising
expense, preparation including re-decoration of the premises for sub-letting,
legal expenses, cost of performing such of Lessees obligations as Lessor finds
it necessary to perform at it's expense, and all other items necessary and
proper to procure suitable tenants for the premises. Lessees shall remain liable
to Lessor for any deficiency between the amounts properly credited to Lessees,
and the amount due Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant to
subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessees are then obligated, Lessor shall have the right forthwith to demand and
recover from Lessees, the present value of the difference between the amount to
be received by Lessor under the new sub-lease, and the amount which would have
been payable by Lessees under this Lease for the
<PAGE>
-7-
remainder of the term hereof, plus the expenses of Lessor as defined above.
d. Notwithstanding any election by XXXXXXXX possession pursuant to
subparagraph (b) above, Lessor may at any time thereafter, upon written notice
to Lessees, terminate this Agreement in all respects, and in such event, Lessees
shall have no further liability, obligation or responsibility after the date of
such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing it's right under this Lease, Lessees
now expressly agree that no indulgence or extension, waiver or forgiveness,
variation by practice, nor any neglect or abstention by Lessor in strictly
enforcing the covenants of Lessees on any one or more occasions shall ever be
deemed a waiver of or estoppel against the right of Lessor to insist upon strict
compliance with each and every covenant herein, without any further or special
notice or warning, the existence of a covenant in this Lease and the provisions
of this paragraph, being deemed adequate notice of the rights of the Lessor. No
property belonging to the Lessees shall ever be removed from the premises at any
time when there exists any default in the payment of any part of the rent due
under this Lease, nor after notice of default in the performance of any other
covenant or obligation assumed herein by Lessees.
17. Lessees agree to execute any instrument reasonably required by
Lessor reflecting attornment to their prior interest which may be required by
Lessor in connection with mortgaging their interest in the demised premises,
and/or refunding or refinancing in the future of any mortgage which Lessor may
place upon the premises, subject to right of Option of even date herewith.
18. Upon any termination of this Lease, whether by lapse of time,
cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessees shall surrender immediately, possession of the demised
premises and all buildings and improvements then on the same to Lessor in good
and tenantable repair,
<PAGE>
-8-
reasonable wear and tear and damage from fire or other casualty or peril
excepted. If possession be not immediately surrendered, Lessor XXXXXXXXXXXXXX
said premises and repossess the same, and expel and remove therefrom, using such
force as may be necessary, all persons and property, without being deemed guilty
of any unlawful act and without prejudice to any other legal remedy available to
Lessor.
19. Lessor has the right to assign all or any part of this Lease.
Lessor will notify Lessee in the event of an Assignment.
20. It is the intention of the parties that this is to be a net, net,
net Lease.
21. In the event a certificate of need is later issued, Lessees agree
to assign an undivided one-half interest in the Certificate of Need issued to
Leonard May Enterprises Inc., dated October 1989, to the Lessor as part of the
- ---------------------------- ------------
consideration for leasing. Lessees agree that if a default on this Lease occurs,
resulting in foreclosure or assignment, Lessees remaining interest in the
Certificate of Need will be assigned to Lessor immediately and forthwith.
22. This Lease shall be construed and interpreted in accordance with
the laws of the State of Texas.
23. Any notice or demand required or permitted by law or by any of the
provisions of this Lease shall be in writing. All notices or demands by Lessor
to or upon Lessee shall be deemed to have been properly given when sent by
certified mail, addressed to Leonard May Enterprises, Inc., and Leonard and
Catherine May, 4733A Baldwin, Corpus Christi, Texas 78408, or such other place
as Lessees may from time to time, designate in a written notice to Lessor; and
to Lessor by Lessees, addressed to Lloyd Hobbs, P. 0. Box 126, Fort Smith,
Arkansas 72902, or at such other place as Lessor may from time to time,
designate in a written notice to Lessees.
24. This Lease and all provisions herein shall be binding upon and
inure to the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
<PAGE>
-9-
25. Time is of the essence in this Lease.
XXXXXXXXXX be properly executed the day and year first above written.
/s/ Lloyd Hobbs
------------------------------------------
Lloyd Hobbs - Lessor
LEONARD MAY ENTERPRISES, INC.
ATTEST: /s/ Leonard May
/s/ Catherine May ------------------------------------------
- -------------------- Leonard May - Lessee
Secretary
/s/ Leonard May
------------------------------------------
Leonard May - Individually Lessee
/s/ Catherine May
------------------------------------------
Catherine May - Individually Lessee
ACKNOWLEDGMENT
--------------
STATE OF ARKANSAS
--------
COUNTY OF XXXXXXX
-------
On this the 28th day of February, 1989, before me the undersigned
---- --------
officer, personally appeared Lloyd Hobbs, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
/s/ [SIGNATURE APPEARS HERE]
------------------------------------------
Notary Public
My Commission Expires:
12/1/90
- -----------------------
<PAGE>
-10-
ACKNOWLEDGMENT
--------------
STATE OF XXXXXXXXX
---------
COUNTY OF XXXXXXXX
--------
On this the 23 day of February 1989, before me the undersigned
-- --------
officer, personally appeared Leonard May, who acknowledged himself to be the
President of Leonard May Enterprises, Inc., a corporation, and that he, as such
president, being authorized so to do, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by himself as
president.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Flo A. Chubbs
------------------------------------------
Notary Public
My Commission Expires:
7-30-90
- -----------------------
STATE OF TEXAS
-----
COUNTY OF XXXXXX
------
On this the 23 day of February, 1989, before me the undersigned
-- --------
officer, personally appeared Leonard May and Catherine May, known to me to be
the persons whose names are subscribed to the within instrument and acknowledged
that they executed the same for the purposes therein contained.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Flo A. Chubbs
------------------------------------------
Notary Public
My Commission Expires:
7-30-90
- -----------------------
<PAGE>
EXHIBIT A
5.188 ACRE TRACT
----------------
Field notes describing 5.188 acre tract situated in the John Sowell Survey,
A-35, Seguin, Guadalupe County, Texas. Said 5.188 acre tract is part of a tract
called 15.97 acres in conveyance from Maxine Halm, et al, to Mary Louise Orr
recorded in volume 472 at page 180 of the Deed Records of said county and being
described by metes and bounds, as follows:
BEGINNING at a two-way fence corner marking the southwest corner of the tract
herein described, same being the southeast corner of a tract called 60 x 415.5
feet in conveyance from Virginia Bergfield, et vir, to A.I. Orr, et ux, recorded
in volume 313 at page 360;
THENCE with the fence along the west line of the tract herein described, same
being a segment of the common line of said 15.97 acre and said 60 x 415.5 foot
strip, as follows:
N 04(degrees)55'49" W, 331.93 feet to a fence post and;
N 11(degrees)02'34" W, 99.71 feet to a two-way fence corner marking
the northwest corner of the tract herein described;
THENCE with the north line of the tract herein described, S 89(degrees)34'13" E,
557.85 feet to the northeast corner of the tract herein described. Said point
bears, S 37(degrees)34'51" W, 288.63 feet and N 89(degrees)34'13" W, 30 feet
from a 1/2 inch diameter iron stake found marking the northeast corner of said
15.97 acre tract;
THENCE with the east line of the tract herein described, as follows:
S 00(degrees)25'47" W, 380.78 feet to a 1/2 inch diameter iron stake
found and;
S 45(degrees)25'47" W, 70.71 feet to a 1/2 inch diameter iron stake
found marking the southeast corner of the tract herein described and
lying in a fence along the common line of said 15.97 acre tract and the
north line of F.M. Highway No.466 (Capote Road);
THENCE with the common line of the tract herein described and said north line of
Capote Road, as follows:
N 89(degrees)34'13" W, 237.00 feet to a 1/2 inch diameter iron stake
found and;
N 88(degrees)53'49" W, 220.02 feet to the place of beginning and
containing 5.188 acres of land.
<PAGE>
ASSIGNMENT OF LEASE
-------------------
Lessor. Lloyd Hobbs, of Dallas Texas, and Lessee Leonard May
Enterprises, Inc. and Leonard and Catherine May of Corpus Christi, Texas, hereby
agree to an assignment of that certain Lease, dated February 28, 1989, between
Lloyd Hobbs, as Lessor and Leonard May Enterprises, Inc. and Leonard and
Catherine May of Corpus Christi, Texas, as Lessees, covering the nursing home in
Sequin, Texas known as Guadalupe Valley Nursing Center, (legal description
attached)
Lloyd Hobbs to S & H, Inc., an Arkansas Corporation, at 4120 Rogers
Avenue, Fort Smith, Arkansas 72902.
S & H, Inc. agrees to accept the assets and liabilities of the Lessor
and to perform the Lease, as if it were the original Lessor.
The Lessee agrees to pay the rent and perform its obligations of the
Lease to S & H, Inc., as Lessor.
Executed this 6th day of June, 1989.
S & H, INC.
/s/ Lloyd Hobbs
-----------------------------------
Lloyd Hobbs - President
Assignee-Lessor
/s/ Lloyd Hobbs
-----------------------------------
Lloyd Hobbs - Assignor
LEONARD MAY ENTERPRISES, INC.
/s/ Leonard May
-----------------------------------
Leonard May - President
Lessee
ATTEST:
/s/ Catherine May
- --------------------------
Secretary
/s/ Leonard May
-----------------------------------
Leonard May - Individually
Lessee
/s/ Catherine May
-----------------------------------
Catherine May - Individually
Lessee
<PAGE>
EXHIBIT 2
OPTION AGREEMENT
----------------
For and in consideration of the sum of Ten Dollars cash in hand paid,
receipt of which is hereby acknowledged, and for other good and valuable
considerations , LLOYD HOBBS, of Dallas, Texas, hereinafter called "Grantor",
does hereby give and grant unto
LEONARD MAY ENTERPRISES, INC.
- --------------------------------------------------------------------------------
and Leonard and Catherine May of Corpus Christi, Texas, an option to purchase
the following described real estate, together with all improvements now or
hereafter constructed upon the same, and including all personal property shown
upon Exhibit "B" attached hereto, and in addition, any renewals, substitutions,
replacements or additions thereto, which may be on the premises and belonging to
Grantor at the time of the exercise of this Option, To-Wit:
Legal description attached hereto as Exhibit "A".
All upon the following terms and conditions:
1. This Option may be exercised by Grantees at the end of the 120 month
period after the 120 bed nursing home is complete and occupied and 120 monthly
rental payments have been made of ____________ each, conditioned upon the
Grantees, their successors or assigns being in possession of the home at the
time of exercise, and upon the express condition and understanding that the
Grantees herein have fully performed all of the terms and conditions contained
in a certain Lease Agreement dated the 28 day of Feb, 1989, to be kept and
performed by the Lessees therein and more particularly, are current in the
payment of all sums due under the terms of said Lease Agreement. If at any time,
the above Lease shall be terminated, this Option will immediately become null
and void. This Option may be exercised by means of Grantees giving written
notice by certified mail, return receipt requested, of such election to Lloyd
Hobbs, at P. O. Box 126, Fort Smith, Arkansas, 72902, or such other place as may
be directed in writing, accompanied by $10,000.00 earnest money deposit. The
earnest money deposit will be applied on the purchase price if purchase is
concluded.
2. The price for the assets to be sold shall be __________________, being
the same as the original cost to Lloyd Hobbs. The purchase price is payable in
cash unless a financing agreement is worked out at the time of purchase with
Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of execution of this Agreement, and such as may
thereafter be placed upon the premises by way of substitution for or addition to
such furniture, furnishings, fixtures and equipment, less any furniture and
equipment removed or replaced during the Lease term by Lessor or Lessee.
<PAGE>
-2-
3. Upon receipt of notice of intent to exercise this Option, Grantor
shall promptly furnish to Grantees, a Warranty Deed, subject only to recorded
easements, rights-of-way, mineral interests ??????????????????????????????????
to impair title.
4. Closing shall be at a time and place mutually agreeable. In the
absence of agreement, Grantor may obligate Grantees to perform by giving written
notice that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. Grantees shall
designate some place in Austin or Corpus Christi, Texas, at which they will
appear prepared to perform, and Grantor shall have ten (10) business days after
receipt of such demand in which to execute and deliver the documents required by
this Option. If Grantor fails, neglects or refuses to perform, Grantees shall
have the right to seek specific performance of this Option.
5. This Option may not be assigned by Grantees without the written consent
of the Grantor.
6. Notices required or permitted by this Option may be given to Grantor by
certified mail, return receipt requested, addressed to Lloyd Hobbs at P. O. Box
126, Fort Smith, Arkansas, 72902, and to Grantees by certified mail, return
receipt requested to Leonard and Catherine May, ______________________________,
4733-A. Baldwin Blvd., Corpus Christi, Texas, 78408. Either party may change the
person to whom or the place to which notice is to be given by written request.
7. This Agreement shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
/s/ Lloyd Hobbs
--------------------------------
Lloyd Hobbs - Grantor
LEONARD MAY ENTERPRISES, INC.
/s/ Leonard May
--------------------------------
Leonard May - Grantee
/s/ Leonard May
--------------------------------
Leonard May, Individually
/s/ Catherine May
--------------------------------
Catherine May, Individually
<PAGE>
EXHIBIT 3
FIRST AMENDMENT TO OPTION
This Amendment to Option entered into this 1st day of February, 1991,
amending the Option agreement dated February 28, 1989 on Guadalupe Valley
Nursing Center between Lloyd Hobbs, as Grantor, later assigned to S & H, Inc.,
and
Leonard May Enterprises, Inc., Leonard May and Catherine May as Grantees.
S & H, INC., entered into an option to sell Guadalupe Valley Nursing
Center in Sequin, Texas, to Leonard and Catherine May for $3,032,465.94 after
120 rental payments of $34,115.25 have been made.
Now, Lessor and Lessees have agreed to add an addition of thirty-two
(32) beds to the Seguin, Texas home, increasing the monthly rent by 6,204.75 per
month, making the rent 40,320.00 per month. After 120 total rent payments, the
amended option price will be increased to 3,584,000.39, exercisable after 120
total rent payments are made. The option price will be increased by the cost of
the thirty-two (32) bed addition.
All other parts of the Option, dated February 28, 1989, will remain
the same as originally written.
S & H, INC.
/s/ C. David Curry
---------------------------------------
C. David Curry, President - Grantor
ATTEST:
/s/ Janice H. Powell
- -------------------------------
SECRETARY
LEONARD MAY ENTERPRISES, INC.
/s/ Leonard May
---------------------------------------
Leonard May, President - Grantee
ATTEST:
/s/ Catherine J. May
- -------------------------------
Secretary
/s/ Leonard May
---------------------------------------
Leonard May, Individually - Grantee
/s/ Catherine J. May
---------------------------------------
Catherine May, Individually - Grantee
<PAGE>
THE STATE OF TEXAS *
*
????????
This instrument was acknowledged before me on September 30th, 1994, by
Derwin L. Williams, Vice President - Finance of Summit Care Corporation, a
California corporation, on behalf of said corporation.
[NOTARY PUBLIC SEAL /s/ Odette Garza
APPEARS HERE] --------------------------------
Notary Public, State of Texas
AFTER RECORDING RETURN TO:
FRANK S. OSEN
ATTORNEY AT LAW
9454 WILSHIRE BLVD.
SUITE 800
BEVERLY HILLS, CA
90212-2988
RE: SUMMIT CARE CORP.
<PAGE>
ASSIGNMENT OF LEASE WITH OPTION TO PURCHASE
-------------------------------------------
This Agreement is made this 30th day of September, 1994, by and
between LEONARD MAY ENTERPRISES, INC., a Texas corporation, and LEONARD MAY and
CATHERINE MAY, hereinafter called "Assignor", and Summit Care Corporation,
hereinafter called "Assignee".
Recitals
A. LLOYD HOBBS, as Lessor, and Assignor as Lessee, executed a lease
(the "Lease") on February 28, 1989. By the terms of the Lease, [a copy of which
is attached hereto as Exhibit 1], upon the property therein described
("Property") was leased to Assignor as Lessee for a term of fifteen (15) years
commencing on April 15, 1990, and ending on April 14, 2004, and an option to
purchase the Property (the "Option to Purchase") on the terms set forth in
Option Agreement and Amendment to Option Agreement [copies of which are attached
hereto as Exhibits 2 and 3, respectively].
B. Assignor now desires to assign the Lease and the Option to
Purchase to Assignee, and Assignee desires to accept the assignment thereof.
THEREFORE, Assignor and Assignee agree as follows:
Assignment
For value received, receipt of which is hereby acknowledged, Assignor
hereby assigns and transfers to Assignee all of its right, title and interest in
and to the Lease and the Option to Purchase hereinbefore described, and Assignee
hereby agrees to and does accept the assignment, and Assignee expressly assumes
and
<PAGE>
agrees to keep, perform, and fulfill all the terms, covenants, conditions, and
obligations required to be kept, performed, and ???????????????????????????????
all payments due to or payable on behalf of Lessor under said Lease when due and
payable.
Executed at Corpus Christi, Texas, on the day and year first above
written.
ASSIGNOR
LEONARD MAY ENTERPRISES, INC.
By /s/ Leonard May
-------------------------------------
Leonard May, President
/s/ Leonard May
-------------------------------------
Leonard May
/s/ Catherine May
-------------------------------------
Catherine May
<PAGE>
ASSIGNEE
??????????????????????
By /s/ Derwin L. Williams
---------------------------------
Derwin L. Williams
---------------------------------
Its Vice President-Finance
------------------------------
<PAGE>
ACKNOWLEDGMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994,
by Leonard May, President of Leonard May Enterprises, Inc., a Texas corporation,
on behalf of said corporation.
[NOTARY PUBLIC SEAL /s/ Odette Garza
APPEARS HERE] --------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994,
by Leonard May.
[NOTARY PUBLIC SEAL /s/ Odette Garza
APPEARS HERE] --------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994,
by Leonard May.
[NOTARY PUBLIC SEAL /s/ Odette Garza
APPEARS HERE] --------------------------------
Notary Public, State of Texas
<PAGE>
CONSENT TO ASSIGNMENT OF LEASEHOLD ESTATE
OF GUADALUPE VALLEY NURSING CENTER, SEGUIN, TEXAS
On February 28, 1989, Leonard May Enterprises, Inc., and Leonard and
Catherine May entered into a Lease Agreement as Lessees, with Lloyd Hobbs, the
Owner (Lessor) of the Guadalupe Valley Nursing Center in Seguin, Texas. Legal
Description attached as "Exhibit "A".
On June 6, 1989, Lloyd Hobbs assigned his interest in Guadalupe Valley
Nursing Center to S & H, Inc.
The Lease Agreement, dated February 28, 1989, was amended by First
Amendment, dated February 1, 1991, which increased the original monthly rental
payments from Thirty-Four Thousand One Hundred Fifteen Dollars and Twenty-Five
Cents ($34,115.25) each, to Forty Thousand Three Hundred Twenty Dollars
(40,320.00), each.
Now comes SUMMIT CARE CORPORATION of Burbank, California, agreeing to
assume and perform all of the terms, covenants and conditions, as Lessee, under
this Lease, and further agreeing to keep the Certificate and License in full
force and effect during the term of this Lease.
This Lease will be considered in default if the Lessee (Summit Care
Corporation) shall fail or neglect to pay the rentals when due, or to pay any
other sums of money which they are required by this Lease to pay, and such
non-payment shall continue on the tenth day after written notice of the same has
been posted to Lessees. In the event of default of this Lease, Lessee will
forfeit and transfer any rights, or ownership of contracts and ownership of the
Certificate of Need at this location, with the State of Texas or the United
States Government, to Lessor
Summit Care Corporation (Lessee) agrees to assume all other terms,
covenants and conditions of this Lease as originally written and amended.
Leonard May and Catherine May agree to remain liable to the Lessor on
this Lease if Summit Care Corporation should default.
Subject to the above terms and conditions, and any other terms and
conditions of the Lease, S & H, Inc. hereby agrees to consent to the Assignment
of this Lease and Option of the Guadalupe Valley Nursing Center in Seguin, Texas
to Summit Care Corporation.
The next rental payment of $40,320.00 will be due August 15, 1994 and
<PAGE>
monthly thereafter through April 14, 2005.
The Option may be exercised on ?????? 15, 2000, ???????? twenty
??????? lease payments have been made and the lease is in full force in effect.
The amended option price will be Three Million Five Hundred Eighty-Four Thousand
Dollars and Thirty-nine Cents ($3,584,000.39).
WITNESS our hands this 15th day of August, 1994.
SUMMIT CARE CORPORATION
BY: /s/ [ILLEGIBLE SIGNATURE]
----------------------------------
President
ATTEST:
/s/ [ILLEGIBLE SIGNATURE]
- -----------------------------
Secretary
LEONARD MAY ENTERPRISES, INC.
BY: /s/ Leonard May
----------------------------------
President
ATTEST:
/s/ Catherine May
- -----------------------------
Secretary
/s/ Leonard May
----------------------------------
Leonard May
/s/ Catherine May
----------------------------------
Catherine May
S & H, INC.
/s/ C. David Curry
----------------------------------
C. David Curry - President
AFTER RECORDING
RETURN TO:
FRANK S. OSEN
ATTEST: ATTORNEY AT LAW
9454 WILSHIRE BLVD.
SUITE 800
/s/ Janice H. Powell BEVERLY HILLS, CA
- ----------------------------- 90212-2988
Secretary
RE: SUMMIT CARE CORP.
<PAGE>
ASSIGNMENT AND
--------------
ASSUMPTION OF LEASE
-------------------
This Assignment and Assumption of Lease Agreement ("Assignment") dated
as of the 1st day of September, 1997, is entered into by and between Summit
Care Corporation, a California corporation ("Assignor") and Summit Care Texas,
L.P., a Texas limited partnership ("Assignee").
RECITALS
--------
WHEREAS, on September 1, 1997, Assignor conveyed all of its assets to
Assignee, in accordance with the terms and conditions of that certain
Conveyance, Contribution and Bill of Sale effective September 1, 1997;
WHEREAS, Assignor is a party to that certain Lease Assignment dated
February 28, 1989 by and between Lloyd Hobbs, as lessor, and Leonard May
Enterprises, Inc., and Leonard and Catherine May, as lessees, as assigned by
that certain Assignment of Lease dated June 6, 1989 by and among S&H, Inc., as
assignee, Lloyd Hobbs, as assignor, Leonard May Enterprises, Inc., Leonard May
and Catherine May, that certain Option Agreement between Lloyd Hobbs and Leonard
May Enterprises, Inc. and Leonard and Catherine May, as amended by that certain
First Amendment to Option dated February 1, 1991 by and among S&H, Inc., Leonard
May Enterprises, Inc., Leonard May and Catherine May, as assigned by that
certain Assignment of Lease with Option to Purchase dated September 30, 1994 by
and among Leonard May Enterprises, Inc., Leonard May and Catherine May,
collectively as assignor, and Summit Care Corporation, as assignee, as consented
to by S&H, Inc., as lessor, and evidenced by that certain Consent to Assignment
of Leasehold Estate of
<PAGE>
Guadalupe Valley Nursing Center, Seguin, Texas dated August 15, 1994 by and
among Summit Care Corporation, Leonard May Enterprises, Inc., Leonard May,
Catherine May and S&H, Inc. (the "Lease" and the "Option Agreement"
respectively);
WHEREAS, the parties desire to enter into this Assignment to further
evidence the transfer by Assignor to Assignee and Assignee's assumption of all
rights and obligations of Assignor arising under the Lease and the Option
Agreement; and
WHEREAS, pursuant to and in accordance with Section 12 of the Lease,
S&H, Inc., as lessor, has consented to Assignor's assignment of the Lease as
evidenced by that certain Letter Agreement dated January 3, 1997 from Assignor
and signed by S&H, Inc. on January 15, 1997.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. The recitals set forth above are incorporated herein for all
purposes.
2. Assignor does hereby irrevocably transfer and assign to Assignee all
of its rights, interest, liabilities, obligations and duties arising under the
Lease and the Option Agreement and Assignee hereby assumes and agrees to pay,
perform and discharge when due all of the liabilities, obligations, and duties
of Assignor arising under the Lease and the Option Agreement.
3. The parties hereby agree to perform, execute and/or deliver or cause
to be performed, executed and/or delivered any and all such further agreements
and assurances as either of the parties hereto may reasonably require to
consummate the transaction contemplated hereunder.
4. All notices to Lessee under the Lease and the Option Agreement shall
be addressed to Assignee at the following address:
2
<PAGE>
2600 W. Magnolia Boulevard,
P.O. Box 1486
Burbank, California 91505-3130
IN WITNESS WHEREOF, each party has caused this Assignment to be duly
executed and delivered in its name and on its behalf, as of the date first above
written.
SUMMIT CARE CORPORATION
a California corporation
By: /s/ John Farber
--------------------------------------
Name: JOHN FARBER
------------------------------------
Title: SECRETARY
-----------------------------------
SUMMIT CARE TEXAS, L.P.,
a Texas limited partnership
By: Summit Care Texas Management, Inc.,
its general partner
By: /s/ John Farber
--------------------------------------
Name: JOHN FARBER
------------------------------------
Title: SECRETARY
-----------------------------------
3
<PAGE>
S&H, Inc. executes this Assignment to evidence its consent and approval
to this Assignment including the assignment of the Option Agreement by Assignor
to Assignee.
CONSENTED TO, APPROVED AND ACCEPTED:
S&H, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
4
<PAGE>
EXHIBIT 10.22
AGREEMENT OF PURCHASE AND SALE OF ASSETS
-----------------------------------------
INTRODUCTION AND RECITALS
This Agreement of Purchase and Sale of Assets (the "Agreement") is made and
entered into this 24th day of November, 1997, by and between Robert Crone-South
Texas Health Care, Inc., a Texas corporation ("Seller") and Summit Care Texas,
LP, a Texas limited partnership or its affiliated nominee, ("Buyer" or "Summit
Care").
RECITALS
--------
WHEREAS, Seller is:
(i) The lessee of a certain One Hundred and Ninety Four (194)-bed
nursing facility, commonly known as Briarcliff Nursing and
Rehabilitation Center, located at 3201 North Ware Road, McAllen,
Texas 78501, more particularly described on Exhibit 1.01(a)(i)
hereto and hereby incorporated herein by reference (the "Facility"),
pursuant to a lease, dated July 1, 1993, by and between Seller, as
"Lessee" and Lloyd Hobbs, as "Lessor," as amended by that certain
First Amendment to Lease, dated April 9, 1996, (collectively the
"Lease"), between Seller and Hobbs & Curry Family Limited
Partnership, a Texas partnership and successor-in-interest to Lloyd
Hobbs, as "Lessor," copies of which are also attached as part
Exhibit 1.01(a)(i) hereto and hereby incorporated herein by
reference (hereinafter, the term "Owner" shall be used to refer to
both Lloyd Hobbs and to Hobbs & Curry Family Limited Partnership
during their respective ownership of the Facility); and
(ii) A party to that certain "Option Agreement," dated August 2, 1992, as
amended by that certain Amendment to Option Agreement, dated April
9, 1996 (collectively the "Option Agreement"), copies of which are
attached as Exhibit 1.01(a)(ii) hereto and hereby incorporated
herein by reference, whereby Owner has granted Seller an option to
purchase fee title to the Facility, exercisable on the terms therein
set forth; and
(iii) The fee owner of a certain parcel of vacant land comprising
approximately 1.8 acres, situated adjacent to the Facility (the
"Adjacent Land"), more particularly described on Exhibit
1.01(a)(iii) hereto and hereby incorporated herein by reference,
subject to that certain deed of trust dated October 26, 1995 ("Trust
Deed"), to Allen Shields, as "Trustee," a copy of which is also
attached as part of Schedule 1.01(a) (iii) hereto and hereby
incorporated by reference; and
<PAGE>
(iv) The owner or lessee of all supplies, machinery, equipment, fixtures,
inventory and all other items of personal property utilized in the
operation of all of the foregoing, as hereinafter defined; and
WHEREAS, the Seller desires to sell and assign Buyer desires to purchase
and assume the Seller's interest in the Facility, and the Assets of Seller, as
more fully defined herein, on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and for other good and valuable consideration, the parties agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF ASSETS
---------------------------
1.01 Description of Assets. Subject to the terms and conditions of this
---------------------
Agreement, as of the Closing Date, as defined in Article IX herein, Seller shall
convey, assign and transfer to Buyer and Buyer shall accept good and
indefeasible title to the following assets as the same may exist on the Closing
Date (collectively referred to as the "Assets").
(a) All of Seller's right, title and interest in and to the
Facility, including without limitation, the real property, structures, fixtures,
paving, surfacing and improvements therein (collectively referred to as the
"Premises"), which real property is more particularly described on Exhibit
1.01(a)(i) attached hereto, and which shall be conveyed to Buyer pursuant to an
assignment of Seller's interest in the Lease and Option Agreement, with the
written consent of the Owner thereto;
(b) All personal property, except supplies, as defined below, such
as furniture, fixtures, vehicles, and equipment located in and upon the Premises
as of the Closing or used in the operation of the Premises as a nursing facility
(the "Personal Property"), more particularly described on Exhibit 1.01(b)
attached hereto;
(c) Seller's interest in any and all leases, contracts, service
contracts and other agreements used in the operation of the Facility which Buyer
has expressly agreed to assume in addition to the Lease and Option Agreement,
copies of which are attached hereto as set forth in Exhibit 1.01(c) ("the
Contracts");
(d) Seller's interest in any and all patient records and agreements,
personnel records, provider agreements, records of inspection of the Facility by
local, state and federal agencies, records of construction, architectural plans
of the improvements on the Premises, including as built plans and surveys,
construction
2
<PAGE>
contracts and specifications, as such presently exist in and upon the Premises;
(e) All of Seller's right, title and interest in and to the use of the
name "Briarcliff Nursing and Rehabilitation Center";
(f) All of Seller's right, title and interest in and to any and all
drugs, medicines, foods, linens or other supplies used in connection with the
operation of the Facility, but in any event not less than the normal and usual
operating compliment of supplies necessary to last ten (10) days in the ordinary
course of Seller's business operations at the Facility (the "Supplies"); and
(g) All of Seller's right, title and interest in and to any and all
licenses, permits and authorizations obtained in connection with the operation
of the Facility which are transferable, copies of which are attached hereto as
Exhibit 1.01(g).
1.02 Liabilities and Assets Excluded. The following tangible and
-------------------------------
intangible assets and liabilities of Seller are being retained by Seller and are
expressly excluded from the Assets being Purchased by or transferred to Buyer:
(a) Seller's cash on hand, or in bank accounts and investments;
(b) Seller's accounts receivable as of the Closing Date;
(c) All of Seller's leases, contracts, service contracts or other
commitments, if any, not expressly assumed by Buyer as provided on Exhibit
1.01(c) hereto;
(d) Any and all property of patients held by Seller as security for or
in lieu of payment for Seller's accounts receivable;
(e) Any and all debts, obligations or liabilities of Seller relating
to the Assets, unless expressly assumed herein by Buyer on Exhibit 1.01(c)
attached hereto;
(f) Any and all liabilities of Seller for injuries, damages, acts or
omissions relating to the Facility or the Assets prior to the Closing Date;
(g) Any and all claims of or obligations to the United States under
the Medicare Program, or to the State of Texas under the Medicaid Program, or
other third-party payors, arising out of the operations of the Assets prior to
the Closing Date;
3
<PAGE>
(h) Any and all federal and state tax liabilities including for sales
tax payable with respect to periods prior to the Closing and sales, use or
excise tax payable with respect to the within transaction and the assets
transferred hereunder;
(i) Seller's proprietary computer software, and those proprietary
forms and manuals owned by or developed for Seller for use at the Facility; and
(k) All other items of personal property set forth on Exhibit 1.02
hereto (collectively, the "Excluded Assets").
ARTICLE II
----------
PURCHASE PRICE
--------------
The purchase price (the "Purchase Price") which Buyer agrees to pay and
Seller agrees to accept for the Assets is Three Million Nine Hundred Thousand
Dollars ($3,900,000.00), to be paid to Seller in accordance with the provisions
of this Article II.
2.01 Earnest Money Deposit. Seller acknowledges that Buyer has deposited
---------------------
the sum of One Hundred Thousand Dollars ($100,000.00) as an earnest money
deposit ("Deposit") with Wanda Keller, Senior Vice President and Escrow Officer,
First American Title Company, Houston, Texas ("Escrow Holder"), to be held in an
interest-bearing escrow account pending the Closing and subject to the terms and
conditions of this Agreement, to be applied to the payment of the Purchase Price
at Closing. The Deposit and all interest accrued thereon shall be refundable in
full to Buyer upon written request of Buyer for any reason delivered on or
before September 16, 1997, and thereafter shall be refundable to Buyer should
the contemplated transaction fail to close on or before October 31, 1997, for
any reason other than the default of Buyer hereunder, and as provided by Section
7.18 of this Agreement.
2.02 Cash. Buyer shall pay in immediately available funds to Seller the
----
cash portion of the Purchase Price by wire deposit to Seller at Closing, less
the Deposit and all accrued interest thereon and less the Adjustment Retention
Fund (as provided in Section 2.04 below).
2.03 Adjustments. The Purchase Price shall be adjusted upward within
-----------
forty-five (45) days of the Closing as of the Effective Date to the extent, if
any, that Buyer derives a benefit from any prepaid items of Seller, including,
but not limited to taxes, expenses and insurance and to the extent Buyer
succeeds to Seller's position with respect to Seller's deposits for utilities,
such as telephone, water, gas, electricity or sewer. The Purchase Price shall be
adjusted downward within forty five (45) days of Closing as of the Effective
Date to the extent that Seller has not fully paid and discharged all payables,
charges, expenses, costs,
4
<PAGE>
taxes or assessments accruing on or before the Effective Date, including
employee vacation pay or for other employee benefit programs of Seller. All
adjustments at or after Closing shall be in cash.
2.04 Adjustment Retention Fund. Escrow Holder shall retain, from the cash
-------------------------
portion of the Purchase Price payable to Seller at Closing, the sum of Twenty
Thousand Dollars ($20,000.00) as a retention fund (the "Adjustment Retention
Fund") from which Escrow Holder shall, upon instructions from Buyer and Seller,
deduct adjustments to the Purchase Price, if any, to be made following the
Closing. The Adjustment Retention Fund, less any such adjustments, shall be
delivered to Seller and all adjustments shall be delivered to Buyer no later
than forty-five (45) days following the Closing Date.
2.05 Prorations, Credits, Costs. The following items shall be apportioned
--------------------------
and prorated as of the Closing Date:
(a) Property Taxes. General county, city and school taxes on a
--------------
fiscal year basis for the Premises and for the personal property (including
taxes impounded with Mortgage lenders).
(b) Insurance. There shall be no proration of Seller's prepaid
---------
insurance premiums as Buyer shall provide its own insurance coverage. Seller
shall be entitled to receive any refunds of any such prepaid insurance premiums.
(c) Rents, Utilities and Deposits. All rents, utilities shall be
-----------------------------
paid to the Closing Date by Seller. Seller shall be entitled to a refund for any
utility deposits.
(d) Employee Sick, Holiday, Vacation Pay, Etc. Seller shall credit
-----------------------------------------
to Buyer against the Purchase Price a sum equal to the equivalent of employee
wages for all employee vacation pay or other employee benefits earned or accrued
prior to the Closing Date. Such credit shall reduce the cash payment required of
Buyer at Closing as provided in Section 2.02 above.
(e) Closing Costs. Buyer shall pay for the cost of recordation of
-------------
the Assignment of Lease and the Assignment of Option Agreement. Buyer and Seller
shall each pay fifty percent (50%) of the statutory cost of a leasehold title
insurance policy with the survey exception removed. Buyer and Seller shall each
pay fifty percent (50%) for the cost of the survey and Seller shall pay any
transfer tax applicable to recordation of the Assignment of Lease or the
Assignment of Option Agreement, any recordation fees for other instruments
required to clear title hereunder, and any sales or use taxes, if applicable, to
this transaction. Personal and real property taxes will be prorated as of the
Closing Date.
5
<PAGE>
(f) Employer's Taxes. Seller shall be responsible for all business,
----------------
occupation, withholding, FICA, unemployment and similar taxes of any kind,
including both the employer's and employee's portion of any such tax, relating
to any period prior to the Closing Date, including taxes on employee sick,
holiday and vacation pay.
(g) Prepaid Services. Any advance payments made by residents of the
----------------
Facility for services to be rendered after the Closing Date shall be paid to
Buyer at Closing.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer as of the Execution Date and
the Closing Date (the truth and accuracy of which shall constitute a condition
precedent to Buyer's obligations hereunder) as follows:
3.01 Organization. Seller is a duly organized and validly existing Texas
------------
subchapter S corporation, and is in good standing in the State of Texas. Seller
has full power and authority to own and lease its properties and to carry on its
business as presently conducted. Robert Crone and Kelly Baily are the sole
shareholders of Seller.
3.02 Authority. The execution, delivery and performance of this Agreement
---------
has been duly authorized by the Seller in accordance with its articles of
incorporation and bylaws and no further action by Seller will be required to
make this Agreement valid and binding upon Seller in accordance with its terms.
Except as provided on Exhibit 3.02 attached hereto, the execution, delivery and
performance of this Agreement will not cause any default in or breach of any
provisions of any applicable law, rules or regulations, or any indenture,
mortgage, loan agreement, contract, lease or other instrument to which Seller is
a party or by which it or any of its property or assets are bound.
3.03 Financial Statements. Exhibit 3.03 attached hereto sets forth the
--------------------
unaudited balance sheets and operating statements of Seller for the eight (8)
months ended August 31, 1997 and shall be updated at Closing to include the nine
(9) ending on September 30, 1997, and unaudited financial statements compiled
and reviewed by Jody Turner, Seller's accountant, for the same period
(collectively, the "Financial Statements"). The Financial Statements attached
hereto as Exhibit 3.03 have been prepared in accordance with generally accepted
accounting principles consistently followed and fairly present the operating
position of the Facility as of the respective dates and the results of
operations for the respective periods indicated. Seller agrees to cooperate with
Buyer and use its best efforts in furnishing any
6
<PAGE>
financial information of Seller required by Buyer for filing with the Securities
and Exchange Commission after Closing.
3.04 Tax Returns. Within the times and in the manner prescribed by law,
-----------
Seller has filed all federal, state and local tax returns required by law and
has paid all taxes, assessments, and penalties due and payable. The provisions
for taxes reflected in Seller's Financial Statements, are adequate for any and
all county, school and local property taxes for the period ending on the date of
the most recent balance sheet and for all prior periods, whether or not
disputed. There are no present disputes as to taxes of any nature payable by
Seller.
3.05 Absence of Changes. Except as provided on Exhibit 3.05, since the
------------------
date of the latest Financial Statements of Seller, there has not been any
material change in the financial condition or operations of Seller, except
changes in the ordinary course of business.
3.06 Liabilities. Exhibit 3.06 to this Agreement contains a true and
-----------
complete schedule of all known liabilities and obligations of Seller except
those incurred in the ordinary course of business. Seller acknowledges that
Buyer shall not be obligated for any liabilities or obligations of Seller of any
kind or nature in connection with this Agreement, whether absolute, accrued,
contingent, known, unknown or otherwise, except for liabilities of Seller which
Buyer has expressly agreed to assume as provided on Exhibit 1.01(c) and Seller
hereby indemnifies and holds Buyer harmless from any such liabilities not so
assumed.
3.07 Title to Property. Seller is the lessee of the Property subject only
-----------------
to the Permitted Exceptions provided for in paragraph 5.01, Seller will deliver
to Buyer at Closing good and marketable leasehold title to the Property. Seller
is in possession of all Property leased from others.
3.08 Condition of Property. To the best of Seller's knowledge and except
---------------------
as provided on Exhibit 3.08 attached hereto, as of the Closing Date, the
Premises and personal property of Seller being conveyed or assigned herein will
be in good operating condition and repair, subject only to ordinary wear and
tear. Seller shall disclose to Buyer on Exhibit 3.08 any known material defect
or deficiency with regard to the structure, soil, fixtures or equipment of the
Premises which would materially impair the use or value of the Premises, and any
known material defect or deficiency with regard to the plumbing, electrical,
mechanical or other system of the Premises which would materially impair the use
or value of the Premises.
3.09 Real Property Description and Zoning. Exhibit 1.01(a) to this
------------------------------------
Agreement is a legal description of the Premises leased by Seller and included
in this transaction. To the best of Seller's
7
<PAGE>
knowledge, the zoning of each parcel of property described on, Exhibit 1.01(a)
permits the existing improvements as constituted and the continuation of the
business presently being conducted on each such parcel.
3.10 Encroachments. To the best of Seller's knowledge, there are no
-------------
encroachments onto the Property except as may be revealed by the Survey, and all
improvements constituting part of such real properties located thereon are
entirely located on the real properties being conveyed or transferred to Buyer
pursuant to this Agreement without encroachment on any other property
whatsoever, and none of such improvements encroach upon any known easement or
right of way affecting such real property. As a condition to Closing, Buyer and
Seller shall each pay fifty percent (50%) of the cost of a real property survey
of the Property, by a registered land surveyor in the State of Texas, in a form
reasonably satisfactory to Buyer, certifying such facts which shall be attached
hereto as Exhibit 3.10.
3.11 Personal Property Description. Exhibit 1.01(b) to this Agreement is
-----------------------------
a schedule of machinery, equipment, furniture, supplies, vehicles, tools, and
other tangible personal property owned by, in the possession of, or used by
Seller in connection with the business now being conducted at the Facility
(except fixtures and inventories of Supplies and items excluded pursuant to this
Agreement). Except as provided on Exhibit 3.11 or on the list of Contracts
attached as Exhibit 1.01(c), no personal property used by Seller in connection
with the Facility or the business conducted thereon is held under a security
agreement, conditional sales contract, lease, or other title retention or
security arrangement or is located other than in the possession of Seller at the
Facility. Exhibit 1.02 lists personal property on the premises of the Facility
which is excluded from sale and which may be removed from the Facility by Seller
at any time prior to or after the Closing Date, except that all such items shall
be removed within five (5) business days of request by Buyer after the Closing
Date.
3.12 Contracts, Leases, Commitments. Except as provided on Exhibit
------------------------------
1.01(c) as of the date of Closing, there will be no contracts, agreements, or
commitments of any kind relating to the business at the Facility which will
affect Buyer on the Premises subsequent to the Closing Date, other than those
that can be terminated on thirty (30) days, notice, without penalty or further
payment. Seller is not a party to, nor is the Premises bound by any agreement
that is materially adverse to the business as presently conducted at the
Facility or those that have been excluded from sale by mutual written agreement
of the parties and for which Seller shall remain liable.
3.13 Defaults. The execution and delivery of this Agreement and the
--------
consummation of the transactions contemplated hereby will not result in any of
the following: (1) any violation or breach of
8
<PAGE>
any term or provision of this Agreement; (2) a default or an event that with
notice or lapse of time or both, would result in a default, breach, adverse
modification or violation of any lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, deed of trust, or any other
agreement, instrument or arrangement to which Seller is a party or by which
Seller or the Premises is or may be bound; (3) an event that would permit any
party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of Seller or the Facility, or; (4) the creation
or imposition of any lien, charge or encumbrance on any of the Property.
3.14 Adverse Claims, Litigation and Proceedings. Except as shown on
------------------------------------------
Exhibit 3.14, Seller knows of no material claims by creditors or other parties
against Seller, actual or contingent, direct or indirect, liquidated or
unliquidated, or otherwise affecting Seller, at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
which involve the possibility of any judgment or liability not fully covered by
casualty or liability insurance or for which provision for payment has not been
made or which would impose any liability on Buyer or the Facility. Seller is not
in default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitration or governmental department,
commission, board, bureau, agency or instrumentality. Seller is not aware of any
pending or potential condemnation action with respect to the property to be
transferred hereby. Seller acknowledges that Buyer shall not be obligated for
any liabilities or obligations of Seller of any kind or nature in connection
with this Agreement, whether absolute, accrued, contingent, known, unknown or
otherwise, except for liabilities of Seller which Buyer has expressly agreed to
assume as provided herein and Seller hereby indemnifies and holds Buyer harmless
from any such liabilities not so assumed.
3.15 Labor Relations, Employment Policies and Benefits. Seller is not a
-------------------------------------------------
party to nor is it bound by any employment contracts, collective bargaining
agreements, pension, bonus, profit sharing, stock option or other agreements or
arrangements for the benefit of or relating to its employees. Seller agrees to
save, indemnify and hold Buyer harmless of and from any and all liability,
responsibility, loss, cost or expense of any nature whatsoever, arising out of
or relating to any of Seller's employment policies for all periods prior to the
Closing Date. Seller acknowledges that, except to the extent required by law, or
to the extent disclosed by Seller and assumed by Buyer, Buyer is not assuming
any of Seller's obligations to its employees. Attached as a part of Exhibit 3.15
hereto are copies of Seller's vacation and holiday policies and all other
employment policies and practices not set out in those policies, to which Seller
is a party or by which Seller may be bound, and Seller is not in default under
9
<PAGE>
any of them. There have been no claims of default, and, to the best knowledge of
Seller, there are no facts or conditions which, by their existence or on notice,
will result in a default under these policies. Except as set forth in Exhibit
3.15 hereto, there has been no union election or material organizational
activity affecting the employees of Seller. Except as described in Exhibit 3.15,
there is not, to Seller's knowledge, any pending or threatened labor dispute or
work stoppage affecting Seller's business. Exhibit 3.15 attached hereto sets
forth a list of all employees of Seller at the Facility and a schedule of their
rates of pay, length of employment, and earned (and accrued, if any) vacation
and sick leave benefits, as of the Closing Date. Such earned and accrued
vacation and sick leave benefits shall be calculated for each employee on a true
accrual basis (to include both earned and unearned benefits).
3.16 Compliance with Laws, Regulations and Licensure.
-----------------------------------------------
(a) Seller has complied with and is not in violation of applicable
federal, state or local statutes, laws or regulations (including, without
limitation, any applicable building, zoning, or other law, ordinance or
regulation affecting the Premises) in the operation of the Facility as now
conducted. To Seller's knowledge, except as set forth in the most recent survey
and certification inspection reports and plan of correction on the Facility,
which are attached hereto as Exhibit 3.16, there have been no notices of
violation of any applicable law, order, ordinance, rule, regulation or
requirement, or of any covenant, condition or restriction affecting or relating
to the use of occupancy of the Premises issued by any governmental agency having
jurisdiction over the Premises or by any other person entitled to enforce the
same. To the best of Seller's knowledge, Seller shall have fully complied at its
sole expense prior to Closing with the requirements of any outstanding plan of
correction formulated in response to any inspection survey, with the exception
of those items listed on the latest survey and plan of correction, attached as
Exhibit 3.16 hereto, which Buyer agrees to review and, unless Buyer notifies
Seller to the contrary on or before September 16, 1997, which Buyer agrees to
correct at Buyer's expense.
(b) Seller has obtained and is not currently in violation under all
permits, licenses, provider agreements and other authorizations required by
Seller for the operation of the Facility as now conducted, all of which are in
full force and effect. There is no suit, action, administrative, or other
proceeding, or governmental investigation pending or threatened to withdraw or
revoke such permits, licenses, provider agreements or other authorizations.
10
<PAGE>
(c) The Facility is currently licensed as follows: 194 beds, of
which 120 are licensed Medicaid, 36 are licensed Medicare/Medicaid, and 38 are
Private.
3.17 Cost Reports. Seller shall deliver to Buyer prior to Closing copies
------------
of Seller's last three (3) fiscal year cost reports, as filed with and audited
by desk audit by the appropriate Medicare and Medicaid agencies. To the extent
either or both of the Medicare or Medicaid reimbursement Programs have not
audited the last three (3) fiscal year cost reports filed with the respective
agency, Seller shall, in addition, deliver to Buyer a copy of the most recently
audited cost report for each reimbursement program, such copy to include a copy
of the audit report and all adjustments made pursuant to or subsequent to the
said audit. Seller shall prepare and file with the appropriate Medicare and
Medicaid agencies its final cost reports in respect to its operation of the
Facility as soon as practicable after the Closing Date. In the event the federal
or state agencies making payments to Seller for services performed prior to the
Closing Date make any claim for reimbursement of overpayment occurring for any
such period, then Seller agrees to save, indemnify and hold Buyer harmless from
and against any and all loss, damage, injury or expense incurred by Buyer
because of any such claim, or in the event that a claim is made against Buyer in
respect to the right to reimbursement for periods prior to the Closing Date. It
is specifically contemplated by the parties that indemnification shall include,
without limitation, any liability under Section 1128A of the Social Security
Act, as amended. If, following the transfer of licensure, Buyer receives payment
from any federal or state agency which represents reimbursement in respect to
underpayments made to Seller for services rendered prior to the Closing Date,
then Buyer shall promptly remit such payments to Seller.
3.18 Insurance. Exhibit 3.18 contains a description of all insurance
---------
policies held by Seller concerning the Premises and the business as now
conducted. All the insurance policies are in the respective principal amounts as
set forth on Exhibit 3.18 and Seller has maintained continuously, without gaps
in coverage for the five (5) years preceding the Closing Date insurance as
described Exhibit 3.18. Seller shall obtain, if necessary, tail coverage for any
gap in coverage for occurrences up to the Closing Date.
3.19 Patient Trust Accounts. Exhibit 3.19 contains a true, correct, and
----------------------
complete accounting, properly reconciled as of the Closing Date, of all patient
trust funds held by Seller in respect to the Facility.
3.20 Average Patient Census. Attached hereto as Exhibit 3.20 are true and
----------------------
correct summaries of the current patient census ("Census") of the Facility
showing the sources of payments (i.e.
11
<PAGE>
Medicare, Medicaid, private or other) for each of the last two (2) years of
Seller.
3.21 Full Disclosure. Seller has disclosed all facts, information, events
---------------
and transactions relating to the Facility and the assets transferred herein, to
the best of its knowledge and ability. Seller has made no representation which
it knows to be false or inaccurate or which it knows contains or will contain
any untrue statement of a material fact or omit any material fact necessary to
make the statements contained herein misleading. Seller shall make such
additions, corrections and supplements to the Exhibits as are necessary up to
the Closing Date to make disclosures complete in all respects.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as of the Execution Date and
the Closing Date (the truth and accuracy of which shall constitute a condition
precedent to Seller's obligations hereunder) as follows:
4.01 Organization. Buyer is a limited partnership duly organized, validly
------------
existing and in good standing under the laws of the State of Texas, having full
power and authority to enter into this Agreement and to perform its obligations
hereunder. Buyer is in good standing or authorized to do business in the State
of Texas.
4.02 Authority. The execution, performance and delivery of this Agreement
---------
by Buyer has been duly authorized by Buyer and no further action of Buyer will
be required in order to make this Agreement valid and binding upon Buyer in
accordance with its terms and conditions. This Agreement will not violate or
breach Buyer's constituting instruments, any contract to which Buyer is a party
or by which Buyer may be bound, or any judgment, ruling or court order
purporting to bind Buyer.
4.03 Third Party Consults. Except for licensure and other normal
--------------------
approvals for a transaction of this type, this purchase and sale is not subject
to approval or consent of any governmental or regulatory authority and no such
consent or approval is required as a condition to the validity or enforceability
of the obligations of Buyer hereunder.
4.04 Litigation. Buyer is not aware of any litigation pending, threatened
----------
or anticipated involving Buyer which would or might materially, adversely,
directly or indirectly affect the enforceability of this Agreement or the
ability of Buyer to perform its obligations hereunder.
12
<PAGE>
ARTICLE V
---------
CONDUCT OF SELLER PRIOR TO CLOSING
----------------------------------
Seller hereby covenants and agrees as follows (the fulfillment of which
constitutes a condition precedent to Buyer's performance hereunder):
5.01 Title Insurance Commitment. Not later than thirty (30) days prior to
--------------------------
Closing, Buyer shall obtain a title insurance commitment with respect to the
Premises (Texas Department of Insurance promulgated form) attached hereto as
Exhibit 5.01, issued by such title insurer as is agreed upon by the parties.
Buyer shall have twenty (20) days from the date of receipt of title commitment
to examine the condition of Seller's title. If Buyer determines title to be
defective, Buyer shall notify Seller, in writing, within said twenty (20) day
period of its objections to title. Seller shall have fifteen (15) days from
receipt of such notice to remove the defects of title at Seller's expense. If
Seller is unable to remove them within the aforesaid period, Buyer shall have
the option of (a) accepting title in its defective condition or, (b) terminating
this Agreement, whereupon Buyer and Seller shall be released of all further
obligations hereunder and the Deposit, with all accrued interest, shall be
returned to Buyer. Seller shall use its best efforts to correct any defects of
title within the applicable time period, including applying Purchase Price
proceeds reasonably required to remove the disapproved items and, if necessary,
by filing law suits. Any exceptions to or conditions upon or defects of title as
reflected in said Title insurance commitment which (a) are not specifically and
timely objected to by Buyer; or (b) which after objection are waived by Buyer,
shall be deemed to be Permitted Exceptions and Buyer agrees to accept title at
Closing with all Permitted Exceptions.
5.02 Survey; Environmental Report Study. Not later than twenty (20) days
----------------------------------
prior to Closing, Buyer shall receive a survey of the Premises identified on
Exhibit 1.01 certified by a registered surveyor, sufficient to remove the survey
exception from the aforementioned title insurance policy. The survey shall
indicate all setbacks, structures, easements, encroachments, routes of access
and dimensions. If the survey indicates an encroachment or violates the terms of
this Agreement, the encroachment or violation shall be resolved or accepted in
the manner specified in paragraph 5.01 above for removing defects of title.
Concurrently with obtaining the survey, Buyer shall obtain at Buyer's expense, a
Phase I Environmental Study ("Environmental Study") with respect to the
Premises. If the Environmental Study indicates a problem it shall be resolved or
accepted in the manner set forth in Paragraph 5.01 above.
5.03 UCC Clearance. Within fifteen (15) days after the date hereof,
-------------
Seller shall deliver to Buyer an appropriate certificate from the Uniform
Commercial Code filing officer of the State of
13
<PAGE>
Texas with respect to the Personal Property to be transferred herein, showing
all existing creditors of Seller having a security interest in any of such
Personal Property.
5.04 Conduct of Business. Prior to the Closing Date, Seller shall carry
-------------------
on its business substantially in the manner as previously carried out at the
Facility in its ordinary course, including doing the following:
(a) Seller shall, to the best of its ability, maintain the goodwill
of suppliers, distributors, residents, employees, and others having a business
relationship with Seller;
(b) Seller shall, to the best of its ability, perform all
maintenance and repairs necessary to keep the Facility in good operating
condition and repair, including maintaining supplies and inventory at levels
consistent with Seller's operations in the ordinary course of business;
(c) Except with the prior approval of Buyer, Seller shall not enter
into or terminate any agreements, leases, or commitments, except in the ordinary
course of business;
(d) Seller shall maintain an average occupancy rate and patient mix
at the Facility consistent with the representations made by Seller in Section
3.20 above;
(e) Except in the ordinary course of business, Seller shall not
increase the rate of compensation payable to become payable to Seller's
employees;
(f) Seller shall not execute any union agreement with any collective
bargaining unit or union representatives without Buyer's prior consent;
(g) Seller shall maintain all permits, licenses and other
authorizations required for the lawful operation of the Facility;
(h) Seller shall not sell or remove any of the Property on the
Premises without Buyer's prior approval except in the ordinary course of
business or those items listed on Exhibit 1.02;
(i) Seller shall not implement any new employment agreements, bonus
plans, employee benefit plans, etc. without Buyer's prior written approval; and
(j) Seller shall not change its personnel policies without Buyer's
prior written approval.
14
<PAGE>
5.05 Feasibility Inspection of Premises. The exhibits were not available
----------------------------------
for the Buyer's review and approval prior to execution of this Agreement.
Therefore, Buyer and Seller agree that the following dates shall govern with
respect to the Buyer's review and approval of exhibits and Facility. On or
before September 1, 1997 shall be the date for all of Seller's preliminary
exhibits. Buyer shall have until September 16, 1997, at 5:00 p.m., Central
Standard Time, (the "Feasibility Period") to review, approve and inspect the
Facility, Assets, exhibits and all of the books and records maintained at the
Facility relevant to the operation of the Facility. Buyer shall maintain strict
confidentiality of all information obtained during its inspection. Buyer shall
have the right to terminate this Agreement if it is not satisfied with any
material aspect of the condition of the Assets, including but not limited to,
the Property, Premises, Personal Property and operations of the Facility at the
end of the Feasibility Period. Buyer's failure to terminate this Agreement on or
before the expiration of the Feasibility Period shall be deemed as Buyer's
agreement to proceed to Closing. Exhibits that state information as of the
Closing Date will be amended three (3) days before the Closing Date and
substituted on the Closing Date.
5.06 Insurance. Seller shall maintain until Closing all existing
---------
insurance policies covering the Facility and the Premises, including those
policies listed on Exhibit 3.18 attached hereto.
5.07 Accounts Payable. Seller shall pay all accounts payable at the
----------------
Facility for goods received prior to the Closing Date, the liability for which
has been incurred by Seller.
ARTICLE VI
----------
BUYER'S CONDUCT PRIOR TO CLOSING
--------------------------------
6.01 Licensure. Buyer shall use its best efforts and due diligence to
---------
obtain a license from the Department of Human Services of the State of Texas
authorizing Buyer to operate the Facility as presently represented to be
licensed and to obtain Medicare and Medicaid certification and provider
agreements thereunder.
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
------------------------------------------------
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before Closing, of all of the conditions set forth in this
Article VII. Buyer may waive any or all of these conditions in whole or in part
without prior notice; provided that no such waiver shall constitute a waiver by
Buyer of any of its other rights or remedies at law or in equity if Seller shall
be in default of any of its representations, warranties or covenants under this
Agreement.
15
<PAGE>
7.01 Certificate Regarding the Accuracy of Representations. Except as
-----------------------------------------------------
provided otherwise on an exhibit attached hereto, all representations of Seller
in this Agreement or in any written statement delivered to Buyer under this
Agreement shall be true at Closing as though made again at that time. A
certificate of Seller dated the Closing Date executed by an officer of Seller
shall be provided to Buyer at Closing to certify the same.
7.02 Good Standing Certificate. Seller shall deliver to Buyer a
-------------------------
certificate of good standing issued by the Secretary of State of Texas.
7.03 UCC Clearance. Seller shall deliver an appropriate certificate from
-------------
the Uniform Commercial Code filing officer of the State of Texas with respect to
the Personal Property to be transferred herein, showing all existing creditors
of Seller having a security interest in any of such Personal Property. All such
security interests shall be released prior to Closing or through escrow at
Closing.
7.04 Opinion of Seller's Counsel. Seller shall deliver a favorable
---------------------------
opinion of counsel to Seller, dated the Closing Date, in form and substance
satisfactory to Buyer, stating that (i) the instruments of conveyance,
assignment and transfer of the Property delivered by Seller to Buyer hereunder
have been duly authorized, executed and delivered, and are legal, valid and
effective for the purpose of conveying to Buyer Seller's, good and marketable
title to the Property; (ii) except as may be specified by such counsel, counsel
does not know of any litigation, proceeding or governmental investigation
pending or threatened against or relating to the Facility, Seller or the
Property, nor of any basis for any such litigation, proceeding or governmental
investigations; (iii) all proceedings required by law or by this Agreement to be
taken by Seller in connection with the transactions contemplated hereunder have
been duly and validly taken; (iv) Seller has complete and unrestricted corporate
power to convey, assign and deliver to Buyer all of the Property, and the
conveyance and transfer of the Property has been duly authorized by Seller's
Board of Directors and are not Contrary to Seller's articles of incorporation or
bylaws; (v) such Counsel has no knowledge of any defects in the title to any of
the Property, or of any claims asserted by others of rights or interests in such
Property, and there are no restrictions upon the vesting of title to the
Property in Buyer; (vi) no consent or approval of any third party not obtained
and in effect on the Closing Date is required to vest good and indefeasible
title to the Property in Buyer or to consummate the transactions contemplated
hereunder; (vii) such counsel has no knowledge or belief that would lead such
counsel to doubt the veracity of any of the covenants, representations or
warranties of Seller in this Agreement; and (viii) as to such other matters as
Buyer may reasonably request. In rendering the opinion, such counsel may rely as
to factual matters on certificates of Seller's
16
<PAGE>
officers and upon such other evidence as such counsel may deem necessary or
appropriate.
7.05 Consents. All third parties whose consents or authorizations are
--------
required in order to convey and transfer to Buyer unencumbered, good and
marketable title to the Property shall have given such consents or
authorizations in writing.
7.06 Seller's Compliance. Seller shall have performed satisfied and
-------------------
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by Seller.
7.07 Actions, Suits, Proceedings. No action, suit or proceeding before
---------------------------
any court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted on or before the Closing Date.
7.08 Title Insurance. At the Closing, there shall be delivered to Buyer,
---------------
as the insured, a standard Texas Department of Insurance promulgated form
extended coverage policy of title insurance, with endorsements sufficient to
remove the survey exception and other standard exceptions, in the amount of the
Purchase Price, issued by a qualified title insurance company, as provided in
Section 5.01 above, insuring Buyer as the fee owner of the Premises, showing as
exceptions only the permitted exceptions.
7.09 Survey; Environmental Study. Buyer and Seller shall each pay fifty
---------------------------
percent (50%) of the cost of a boundary line survey of the Premises acceptable
to Buyer and sufficient to remove the survey exception from the aforementioned
policy of title insurance showing the location of all structures, improvements,
rights of way, easements, setbacks, encroachments, access, dimensions, and other
matters affecting the Premises; prepared by a registered land surveyor and a, at
Buyer's expense, a Phase I Environmental Study, both of which shall comply with
the requirements of Section 5.02 hereof.
7.10 Licenses, Permits. Seller and Buyer agree that Buyer shall have
-----------------
obtained in its name all permits, licenses and other governmental approvals
required for the operation of the Facility before the Effective Date, including,
but not limited to, the following: written approval or a waiver of the need for
such approval pursuant to Certificate of Need or Capital Expenditure Review
(Section 1122 of the Social Security Act, as amended), or any federal or state
Successor legislation, and a license issued by the State Department of Health to
operate the Facility with the same licensed bed capacity of the Facility as set
forth herein.
17
<PAGE>
7.11 Provider Agreements, Approvals, Certification. Buyer shall be
---------------------------------------------
satisfied that, if applied for, signed provider agreements, new provider
numbers, and all appropriate Medicaid and Medicare approvals and certification,
if any, shall be obtainable.
7.12 Correction, Improvements. All corrections or improvements required
------------------------
to be made to the improvements, to the Property by any federal, state or local
governmental agency or by any third party payor to effect transfer of licensure,
the Premises and all provider agreements to Buyer at Closing shall be made or
performed in accordance with Section 3.16 hereof prior to Closing. If such
corrections or improvements are due to deficiencies cited prior to the Closing
Date, they shall be made at Seller's expense. If Seller elects not to make the
required corrections or improvements, Buyer may terminate this Agreement and
receive a refund of Deposit, or accept the Facility without such corrections or
improvements and proceed to Closing. If such corrections or improvements are due
to deficiencies cited after the Closing Date, they shall be made at the expense
of Buyer.
7.13 List of Seller's Creditors. The Seller shall furnish to the Buyer,
--------------------------
in accordance with the requirements of the Uniform Commercial Code, a list of
Seller's existing creditors, signed and sworn to by an officer of the Seller
containing the names and business addresses of all existing creditors of the
Seller, with the amounts due to each creditor, and also the names of all persons
who are known to the Seller to assert claims against it even though such claims
are disputed. The Seller understands that, in accordance with the provisions of
the Uniform Commercial Code, the Buyer intends to deliver or send appropriate
notice to all the persons shown on the list of creditors furnished by the Seller
and to other persons, if any, who are known to the Buyer to hold or assert
claims against the Seller. The Seller will cooperate with the Buyer in all
matters relating to such notice and will furnish any additional information that
may be required by the Buyer to satisfy the statutory provisions in this regard.
7.14 Tax and Assessment Clearance Certificate. Seller shall provide to
----------------------------------------
Buyer a certificate from the applicable taxing and assessing authorities as
Buyer may reasonably request as evidence that all property tax liabilities and
assessments of Seller accruing for all tax years prior to the current tax year,
have been fully satisfied or provision for such satisfaction has been made.
7.15 Exterminator's Report. Seller shall have delivered to Buyer an
---------------------
exterminator's certification attached hereto as Exhibit 7.15, to the effect that
there is no evidence of infestation or infection of structurally damaging pests
or organisms nor damage to the Facility caused by same. If such exists, repair
and treatment shall be done prior to the Closing Date at the sole expense of
Seller.
18
<PAGE>
7.16 Seller's Noncompete Agreement. Robert Crone and any members of his
-----------------------------
immediate family who are presently involved in the operation of the Facility,
shall have executed and delivered their Non-Competition Agreements, the form of
which is attached as Exhibit 9.01(c) whereby they agree that they will not
directly or indirectly compete with Buyer in the County of Hidalgo, Texas for a
term of seven (7) years following the Closing Date.
7.17 Extraordinary Events. There shall not have been (i) any suspension
--------------------
of trading in or limitation on prices for securities generally on any national
securities exchange, or (ii) the declaration or a bank moratorium or any
suspension of payment of banks, or (iii) the commencement of armed hostilities
or other national or international calamity directly involving the United States
which directly and materially affects the business or Property of the Seller.
7.18 Concurrent Sale of Adjacent Land To Buyer. Prior to the Closing,
-----------------------------------------
Buyer and Seller shall have entered into a binding and definitive mutual written
agreement whereby Seller agrees to sell its fee interest in the Adjacent Land to
Buyer and Buyer agrees to purchase Seller's interest in the Adjacent Land. Buyer
shall further have satisfied itself that the Adjacent Land may be purchased by
Buyer on such terms and conditions as therein contained. Buyer's purchase of the
Adjacent Land shall take place concurrently with the Closing. Notwithstanding
anything to the contrary contained in this Agreement, if this condition is not
satisfied at Closing, at Closing Buyer may, at its sole discretion and upon
written notice to Seller and Escrow Holder, elect not to purchase the Facility
and Buyer shall thereupon be entitled to receive a return of its Deposit, plus
all accrued interest thereon.
ARTICLE VIII
------------
CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
--------------------------------------------
The obligations of Seller under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below in
this Article VIII. Seller may waive any or all of these conditions in whole or
in part without prior notice, provided, however, that no such waiver of a
condition shall constitute a waiver by Seller of any of its other rights or
remedies, at law or in equity, if Buyer shall be in default of any its
representations, warranties or covenants under this Agreement.
8.01 Accuracy of Representations and Warranties. Except as otherwise
------------------------------------------
permitted by this Agreement, all representations and warranties by Buyer in this
Agreement or in any written statement delivered by Buyer under this Agreement
shall be true on and as of the Closing as though made at that time.
19
<PAGE>
8.02 Good Standing Certificate. Buyer shall deliver a good standing
-------------------------
certificate issued by the Secretary of State of the State of Texas and of each
other state in which Buyer transacts business.
8.03 Opinion of Buyer's Counsel. Buyer shall deliver an opinion of
--------------------------
counsel to Buyer, dated the Closing Date, and in form and substance satisfactory
to Seller, stating that (i) Buyer is a corporation duly incorporated in the
state of its incorporation or a partnership validly existing and authorized to
do business in the State of Texas, (ii) that Buyer has complete and unrestricted
power to transact the purchase of the Property hereunder and that the purchase
of said Property has been duly authorized by Buyer's Board of Directors and is
not contrary to Buyer's articles of incorporation, bylaws or partnership
agreement, if applicable; (iii) such counsel has no knowledge or belief that
would lead such counsel to doubt the veracity of any of the covenants,
warranties or representations of Buyer in this Agreement; and (iv) as to such
other matters as Seller may reasonably request. In rendering the opinion, such
counsel may rely as to factual matters on certificates of Buyer's officers and
upon such other evidence as such counsel may deem necessary or appropriate.
8.04 Buyer's Compliance. Buyer shall have performed, satisfied and
------------------
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Buyer.
8.05 Actions, Suits, Proceedings. No action, suit or proceeding before
---------------------------
any court or governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation shall have been instituted
on or before the Closing Date.
ARTICLE IX
----------
CLOSING
-------
The Closing of this Agreement shall take place at the offices of Hidalgo
County Abstract and Title, at 4900 N. Tenth Street, Suite E-2, McAllen, Texas,
78504 at 10:00 a.m. local time, on or before Monday, November 24, 1997, to be
effective as of 12:00 a.m., local time, December 1, 1997 (the "Closing Date" or
"Closing"). The parties hereto may by mutual consent expressed in writing fix
another time to be the Closing Date or another location for the Closing. In the
event the conditions precedent to the closing of this transaction listed in
Articles VII and VIII hereof have not occurred in time to allow the Closing to
take place on the Closing Date, the transaction shall close as soon thereafter
as possible and such Closing shall be effective as of that date and time. The
Parties hereto agree to use their best efforts to ensure that the transaction
closes on the Closing Date as specified herein or as soon thereafter as
possible. If the Closing has not occurred on or
20
<PAGE>
prior to December 1, 1997, either party may, by written notice to the other,
terminate this transaction without liability to the other providing the party
giving notice is not then in default.
9.01 Seller's Obligations at Closing. At the Closing, in addition to
-------------------------------
having satisfied the conditions precedent provided in Article VII, Seller shall
deliver or cause to be delivered to Buyer:
(a) For all real property and interests in real property, an
Assignment of Lease, sufficient to convey to Buyer all of Seller's right to any
options to purchase the Facility, as contained in the Lease, with the written
consent of the Owner, properly executed and acknowledged, conforming to and
conveying the agreed state of the title, in recordable form as shall be
reasonably acceptable to Buyer;
(b) For all Personal Property, a general warranty bill of sale with
full covenants of warranty, in the form set forth on Exhibit 9.01(b) hereto,
properly executed and acknowledged, conforming to the terms of this Agreement;
for all supplies, a general warranty bill of sale in the form set forth on
Exhibit 9.01(b) hereto, properly executed and acknowledged, and conforming to
the terms of this Agreement (the "Bills of Sale") ;
(c) A Non-Competition Agreement, the form of which is attached as
Exhibit 9.01(c), executed by Seller;
(d) For all leases, maintenance contracts, service contracts and
other agreements which are transferable, an assignment of Seller's interest (the
"Assignment", in the form set forth on Exhibit 9.01(d) hereto, properly executed
and acknowledged, and conforming to the terms of this Agreement;
(e) A Schedule of Seller's Accounts Receivable as of the Closing
Date;
(f) A list of all present employees, their rates of pay, length of
employment, and vacation, holiday and sick leave accruals as of the Effective
Date;
(g) All other Exhibits to this Agreement which are required to be
updated by Seller to the Closing Date; and
(h) Seller, at any time before or after the Closing Date, will
execute, acknowledge, and deliver any further assignments, conveyances, and
other assurances, documents, and instruments of transfer, reasonably requested
by Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Buyer for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all of the Property to be
21
<PAGE>
conveyed or transferred by this Agreement. If requested by Buyer, Seller further
agrees to prosecute or otherwise enforce in their name for the benefit of Buyer
any claims, rights or benefits that are transferred to Buyer by this Agreement
and that require, in Buyer's opinion, prosecution or enforcement of claims,
rights or benefits, and such prosecution or enforcement under this paragraph
shall be solely at Buyer's expense, unless the prosecution or enforcement is
made necessary by a breach of this Agreement by Seller. On the Closing Date,
Seller shall put Buyer into full possession and enjoyment of the Property.
9.02 Buyer's Obligations at Closing. At the Closing, in addition to
------------------------------
having satisfied the conditions precedent provided in Article VIII, Buyer shall
deliver or cause to be delivered to Sellers:
(a) The Purchase Price specified in Article II hereof and all costs
and expenses payable by or under the terms of this Agreement (see (b) and (e)
attached);
(b) All documents, required of Buyer by the Title Company for
issuance of the Owner's title policy to be issued at the Closing; and
(c) The certificates and opinion of Counsel set forth in Article
VIII hereof.
ARTICLE X
---------
POST-CLOSING OBLIGATIONS OF PARTIES
-----------------------------------
10.01 Post-Closing Obligations of Seller. Subsequent to the Closing Date,
----------------------------------
in addition to that provided above, Seller covenants and agrees as follows:
(a) Accounts Payable. Seller is responsible for payment of all
----------------
accounts payable that have accrued from or in connection with the operation of
the Facility for any period prior to the Closing Date. Seller, therefore, agrees
to save, indemnify and hold Buyer harmless from any and all loss, damage, injury
or expense incurred by Buyer as a result of Seller's non-payment of such
accounts payable.
(b) Survival of Representations. All statements contained in any
---------------------------
certificate or other instrument delivered by or on behalf of Seller pursuant
hereto, or in connection with the transactions contemplated hereby, shall be
deemed representations of Seller. All representations of Seller shall survive
for one (1) year following the Closing.
22
<PAGE>
(c) Records. Seller agrees to make available to Buyer all current
-------
patient accounts and current patient financial records which may reasonably be
required by Buyer.
10.02 Post-Closing Obligations of Buyer. Subsequent to the Closing Date,
---------------------------------
in addition to that provided above, Buyer covenants and agrees as follows:
(a) Assumption of Leases, Contracts and Commitments. Buyer agrees to
-----------------------------------------------
assume and be bound by all of the terms and provisions of the Contracts referred
to in Exhibit 1.01(c) hereof. Buyer shall indemnify and hold Seller harmless
from any matter or loss, damage, injury or expense related to the performance
of, services rendered, or goods sold under or pursuant to such Contracts after
the Closing Date;
(b) Accounts Receivable. Buyer agrees that the Accounts Receivable
-------------------
of Seller as of the Closing Date are not being transferred or sold hereunder
(the "Accounts Receivable"). At Closing, Seller will deliver a Schedule of the
Accounts Receivable, acknowledged by Buyer, which will list said Accounts
Receivable by Patient. Those receipts from patients designated on such schedule
of Accounts Receivable will be paid by Buyer to Seller up to the total account
for each such patient so listed that are attributable to the period of Seller's
operation of the Facility prior to the Closing Date. Buyer acknowledges that
whereas room and board charges are billed in advance, miscellaneous services are
billed in arrears. Buyer, therefore, agrees to cooperate with Seller in billing
and collecting miscellaneous services provided by Seller prior to the Closing
Date. Buyer and Seller agree that, for patients continuing as patients in the
Facility after the Closing Date, payments made shall be first applied to past
due charges unless otherwise agreed for specified accounts or indicated on the
payment itself. It is understood that Buyer is agreeing merely to receive
payments on Seller's Accounts Receivable and not to actively collect same. As to
Seller's Accounts Receivable that have not been collected at the end of the
ninety (90) day collection period, Seller thereafter shall collect such Accounts
Receivable for its own account and Buyer shall have no further responsibility
therefor, except that Buyer agrees to promptly forward any payments received by
Buyer on Seller's account, to Seller;
(c) Patient Trust Accounts. Buyer acknowledges that Seller will
----------------------
transfer all of its patient trust accounts to Buyer as of the Closing Date,
which patient trust accounts are attached as Exhibit 3.19 hereto. With respect
to such patient trust accounts, Buyer agrees to assume custody of such accounts
and deal with them in a fiduciary capacity required by law;
23
<PAGE>
(d) Maintenance of Patient Records. Buyer understands that all the
------------------------------
Seller's current patient records are being transferred hereunder to Buyer, as
required by law, and with respect to all current patient records, Buyer agrees
to diligently maintain such records as prescribed by law and to allow Seller or
its agents or representatives to reasonably examine such records relating to the
period of Seller's operation of the Facility from time to time and to make
copies thereof at Seller's expense; and
(e) Survival of Representations. All statements contained in any
---------------------------
certificate or other instrument delivered by or on behalf of Buyer pursuant
hereto, or in connection with the transaction contemplated hereby, shall be
deemed representations of Buyer. All representations, warranties and covenants
made by Buyer shall survive the Closing.
ARTICLE XI
----------
INDEMNIFICATION
---------------
11.01 Indemnity by Seller. Seller hereby agrees to indemnify, defend and
-------------------
hold Buyer harmless from and against any and all claims, demands, obligations,
losses, liabilities, damages, recoveries and deficiencies, including interest,
penalties and reasonable attorneys' fees, costs and expenses, which Buyer may
suffer as a result of the untruth of any of the representations made herein, or
any default by Seller in the performance of any of its commitments, covenants or
conditions under this Agreement, or for any liabilities which may arise from
operation or ownership of the Property by Seller prior to the Effective Date.
For the purposes hereof, any representation shall be deemed to be inaccurate if
it omits to state any fact which is necessary in order to make the statements
contained therein not false or misleading. The rights of Buyer under this
Section 11.01 are without prejudice to any other remedies not inconsistent
herewith which Buyer may have against Seller.
Seller hereby indemnifies and agrees to defend and hold Buyer harmless from
any and all claims, demands, obligations, losses, liabilities, damages,
recoveries and deficiencies except as stated in Section 3.16(a) (including
interest, penalties, reasonable attorneys' fees, costs and expenses) which Buyer
may suffer as a result of Seller's failure to file cost reimbursement reports
with all written proposed audit adjustments to such cost reports for the period
of its operation of the Facility, or its failure to correct any deficiencies
with respect to such reports, or its failure to accurately compute and bill
charges for reimbursement which results in liability for any overcharge, or as a
result of any liability arising pursuant to Section 1128A of the Social Security
Act for the period of its operation of the Facility. This indemnification shall
survive for a term of one (1) year from the Closing date.
24
<PAGE>
11.02 Indemnity by Buyer. Buyer hereby agrees to indemnify, defend and
------------------
hold Seller harmless from and against any and all claims, demands, obligations,
losses, liabilities including interest, penalties and reasonable attorneys'
fees, costs and expenses, which Seller may suffer as a result of the untruth of
any of the representations or warranties of Buyer herein or given pursuant
hereto, or any default by Buyer in the performance of any of its commitments,
covenants or conditions under this Agreement, or for any liabilities which may
arise from operation or ownership of the Property by Buyer from and after the
Closing Date. For the purposes hereof, any representation shall be deemed to be
inaccurate if it omits to state any fact which is necessary in order to make the
statements contained therein not false or misleading. The rights of Seller under
this Section 11.02 are without prejudice to any other remedies not inconsistent
herewith which Seller may have against Buyer.
11.03 Contested Claims. Upon receiving notice of a claim for
----------------
indemnification, the receiving party shall be entitled to defend, compromise, or
otherwise contest such claim at its own cost and expenses. In the event the
notifying party determines that it may, in light of such claim, be subject to
any loss, damage or expense, the notifying party shall have the right, but not
the obligation, to participate at its own expense in the defense, compromise or
contest of such claim; provided, however, the receiving party shall be entitled
to control such defense unless the notifying party assumes all liability
thereof.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
12.01 Legal Expenses. If any legal action or other proceeding is brought
--------------
for the enforcement of this Agreement, or because of an alleged or actual
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys, fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
12.02 Expenses. Each of the parties shall pay all costs and expenses
--------
incurred or to be incurred by it in negotiating and preparing this Agreement and
in carrying out the transactions contemplated herein, except as otherwise
provided herein.
12.03 Assignment. Neither this Agreement nor the rights, duties or
----------
obligations arising hereunder shall be assignable or delegable by either party
without the express prior written consent of the other, which consent will not
unreasonably be withheld; provided, however, that Buyer may assign this
Agreement or its rights, duties or obligations hereunder to a wholly-owned
25
<PAGE>
subsidiary of Buyer, or to a corporation which is a member of an affiliated
group of companies of which Buyer is the common parent corporation (within the
meaning of Section 1540 of the Internal Revenue Code, as amended) which group is
permitted to file a consolidated federal income tax return. Neither shall the
restriction on assignment or delegation apply to a merger or consolidation
involving Buyer and any other corporation. In the event of such a permitted
assignment, Buyer shall not be released from its obligations hereunder without
the express written consent of Seller, nor shall a notation be deemed to have
occurred without such written consent. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Buyer and Seller and their respective permitted successors and assigns.
Seller hereby further consents in advance to an assignment by Buyer to a real
estate investment trust.
12.04 Parties in Interest. Nothing in this Agreement, whether express or
-------------------
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than Buyer and Seller and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligations or liability of any third persons to any
party to this Agreement, nor shall any provisions give any third persons any
right of subrogation or action over or against any party of this Agreement.
12.05 Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing, and shall be deemed to have been duly given when
personally delivered or, if mailed, seventy-two (72) hours after mailing the
said notice, registered or certified mail, postage prepaid, return receipt
requested, and properly addressed as follows:
To Buyer (if by mail): Summit Care Corporation
2600 W. Magnolia Blvd.
Burbank, California 95107-2100
Attn: President or
Chairman of the Board
With Copies to: Frank S. Osen, Esq.
9454 Wilshire Boulevard
Suite 800
Beverly Hills, CA 90210
To Seller: Robert Crone -
South Texas Health Care, Inc.
3201 North Ware Road
McAllen, Texas 78501
Attn: Robert Crone, President
26
<PAGE>
With Copies to: Larry W. Langley, Esq.
Akin, Gump, Strauss,
Hauer, Feld, LLP
816 Congress Avenue
Austin, Texas 78701
or at such other address as either party may by like notice designate to the
other in writing.
12.06 Applicable Law. This Agreement shall be construed and enforced in
--------------
accordance with the laws of the State of Texas.
12.07 Counterparts. This Agreement may be executed simultaneously in one
------------
or more Counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.08 Effect of Captions. The captions of section and subsections of this
------------------
Agreement have been inserted solely for convenience and reference, and shall not
control or effect the meaning or construction of any of the provisions of this
Agreement.
12.09 Entire Agreement; Modification; Waiver. This Agreement and the
--------------------------------------
exhibits hereto, constitute the entire Agreement between Seller, on the one
hand, and Buyer, on the other, pertaining to the subject matter contained in it
and supersedes all prior agreements, representations and all understandings of
the parties. No supplement, modification or amendment of this Agreement shall be
binding unless expressed as such and executed in writing by Buyer and Seller. No
waiver of any of the provisions of this Agreement shall be deemed to be or shall
constitute a waiver of any other provisions hereof, whether or not similar, nor
shall any such waiver constitute a continuing waiver. No waiver shall be binding
unless expressed as such in a document executed by the party making the waiver.
12.10 Publicity. Seller agrees to consult with Buyer concerning any notice
---------
to employees, patients, families, referral sources or government agencies
concerning the transactions contemplated by this Agreement. All other notices to
third parties and all other publicity concerning the transactions contemplated
by this Agreement shall be jointly planned, mutually coordinated and released by
and between Buyer and Seller. Buyer shall make no public disclosure without
Seller's consent which may not be unnecessarily withheld or delayed. None of the
parties shall act unilaterally in this regard without the prior written approval
of the other; however, the approval shall not be unreasonably withheld.
27
<PAGE>
12.11 Risk of Loss. Seller shall bear the risk of loss or damage to the
------------
Premises from fire or other casualty until the Closing Date. In the event of any
material damage to or destruction of the Premises by fire or other casualty,
whether or not insured, or the taking of all or any material part of the
Premises by power of eminent domain or deed in lieu thereof, prior to the
Closing Date, Buyer may, at its option and, as its sole and exclusive remedy,
either (a) terminate this Agreement and all rights and obligations hereunder, in
which event all funds and documents deposited by Buyer into the Escrow shall be
returned promptly to Buyer and all documents and other items deposited by Seller
into the Escrow shall be returned promptly to Seller, or (b) elect to proceed
with the purchase of the Premises, in which event Seller shall deliver
possession of the Premises to Buyer at the close of the Escrow together with (i)
all insurance proceeds received by Seller in connection with such damage or
destruction and (ii) an assignment of all rights and claims of Seller under any
applicable insurance policies. Should Buyer elect to proceed with the purchase
of the Premises as provided in the foregoing subclause (b), Seller agrees to
fully cooperate with and assist Buyer in adjusting any loss and perfecting and
pursuing any claim under any applicable insurance policy. For purposes of this
Agreement, the phrase "material" damage to or destruction of the Premises shall
mean any damage to or destruction of any part of the Premises, the effect of
which would materially impair the current use and operation of the Premises.
12.13 Broker and Professional Fees. Tesch & Associates ("Tesch") are the
----------------------------
only brokers in this transaction. Buyer agrees to pay any brokerage commission
claimed to be due from Tesch with respect to this transaction. Tesch is acting
as agent for the Buyer and does not represent the interests of any other party
hereto.
12.14 Waiver of Deceptive Trade Practices - Consumer Protection Act. Buyer
-------------------------------------------------------------
represents, covenants and agrees that Buyer is not in a significantly disparate
bargaining position. Further, Buyer represents, warrants and agrees that Buyer
is represented by legal counsel in seeking or acquiring goods or services, other
than the purchase or lease of a family residence occupied or to be occupied as
Buyer's residence, by a purchase or a lease for a consideration paid or to be
paid that exceeds $500,000.00. Finally, Buyer represents, warrants, and agrees
that it waives all of the provisions of the Deceptive Trade Practices - Consumer
28
<PAGE>
Protection Act, other than Section 17.555, by this express provision in this
written contract signed by both Buyer and Buyer's legal counsel.
/s/ Derwin L. Williams
-------------------------
Buyer
/s/ Frank S. Osen
-------------------------
Buyer's Legal Counsel
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
In the Presence of SELLER
ROBERT CRONE-SOUTH TEXAS
HEALTH CARE, INC.,
a Texas Subchapter S corporation
By: /s/ Robert J. Crone
-------------------
President
BUYER
SUMMIT CARE TEXAS, L.P.,
a Texas limited partnership
By:Summit Care Texas Management,
Inc.,a Texas corporation
and sole general partner
By: /s/ Derwin L. Williams
----------------------
Sr. V.P. Finance
----------------
[Title]
29
<PAGE>
EXHIBIT LIST
Page
----
1.01(a)(i) Facility Legal Description and Lease
1.01(a)(ii) Facility Option Agreement
1.01(a)(iii) Adjacent Land Legal Description
and Trust Deed
1.01(b) Personal Property
1.01(c) Contracts
1.01(g) Transferable Licenses and Permits
1.02 Excluded Assets
3.02 Authority Exceptions
3.03 Financial Statements
3.05 Changes
3.06 Liabilities
3.08 Condition of Property
3.10 Survey
3.11 Personal Property Leases; Liens
3.14 Adverse Claims; Litigation
3.15 Labor; Vacation and Holiday Policies
3.15 Employee List
3.16 Current Inspection Reports
3.17 Cost Reports
3.18 Description of Insurance Policies
3.19 Schedule of Patient Trust Accounts
3.20 Current Patient Census
5.01 Title Commitment
7.01 Certificate of Seller
7.02 Seller's Good Standing Certificate
7.03 UCC Clearance
7.04 Opinion of Seller's Counsel
7.05 Consents of Third Parties(i)
7.14 Tax Clearance Certificate
7.15 Exterminator's Report
8.03 Opinion of Buyer's Counsel
9.01(a) Form of Assignment of Lease
9.01(b) Form of Bills of Sale
9.01(c) Form of Seller's Non-Compete Agreement
9.01(F) Seller's Accounts Receivable
30
<PAGE>
AMERICAN TITLE COMPANY
SF 355545-A
--------
CLOSER 157 W. KELLER
--------------
CONSENT TO ASSIGNMENT OF LEASEHOLD ESTATE OF
BRIARCLIFF NURSING & REHABILITATION CENTER, MCALLEN, TEXAS
On August 12, 1992, Robert Crone/South Texas Healthcare, Inc., entered into
a Lease Agreement as Lessee, with Lloyd Hobbs, as Lessor (Owner) of the
Briarcliff Nursing & Rehabilitation Center, in McAllen, Texas. Legal Description
attached as Exhibit "A".
On January 1, 1995, Lloyd Hobbs assigned all his right, title and interest
in the Lease Agreement to Hobbs & Curry Family Limited Partnership, and on April
19, 1997 this Lease was amended to add a seventy-four bed addition and increase
the monthly rental payment.
Now comes Summit Care Texas, L.P., whose address is 2600 West Magnolia
Boulevard, Burbank, California 95107-2100 agreeing to assume and perform all of
the terms, covenants and conditions, as Lessee under this Lease and further
agreeing to keep the Certificate and License in full force and effect during the
term of the Lease. Summit Care specifically acknowledges the escalation
provision of Paragraph 2 of the Lease Agreement.
The Lease will be considered in default if the Lessee (Summit Care) shall
fail or neglect to pay the rentals when due, or to pay any other sums of money
which they are required by this Lease to pay, and such non-payment shall
continue on the tenth day after written notice of the same has been posted to
Lessees. In the event of default of this Lease, Lessee will forfeit and transfer
any rights, or ownership of contracts and ownership of the Certificate of Need
at this location, with the State of Texas or the United States Government, to
Lessor.
Summit Care Texas, L.P. ("Lessee") agrees to assume all other terms,
covenants and conditions of this Lease as originally written and amended.
Robert Crone/South Texas Healthcare, Inc. agrees to remain liable to the
Lessor on this Lease if Summit Care should default.
Subject to the above terms and conditions, any other terms and conditions
of the Lease, Hobbs & Curry Family Limited Partnership hereby agrees to consent
to the Assignment of this Lease and Option on the Briarcliff Nursing &
Rehabilitation Center, McAllen, Texas to Summit Care Texas, L.P.
The next rental payment of $53,218.75 will be due December 1st, 1997 and
monthly thereafter.
The Option may be exercised on October 1, 2003, provided the lease payments
are current and the Lease is in full force and effect. The amended option price
will be Four Million Seven Hundred Thousand Dollars ($4,700,000.00).
<PAGE>
WITNESS OUR HANDS this 20th day of November, 1997.
SUMMIT CARE, TEXAS, L.P.
By: /s/ DERWIN L. WILLIAMS
--------------------------
NAME: Derwin L. Williams
Title: Sr. V.P. Finance
Date: 11/24/97
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
By: /s/ ROBERT CRONE
----------------
Robert Crone, President
Date: 11/24/97
HOBBS AND CURRY FAMILY LIMITED
PARTNERSHIP
By. /s/ C. DAVID CURRY
--------------
Name: C. David Curry
Title: General Partner
Date: November 20, 1997
2
<PAGE>
EXHIBIT "A"
Lot One (1), PRIMO SUBDIVISION No. 2, an Addition to the City of McAllen,
Hidalgo County, Texas; according to map or plat thereof recorded in Volume 31,
Page 40B, Map Records, Hidalgo County, Texas.
<PAGE>
ACKNOWLEDGEMENT
STATE OF ARKANSAS
COUNTY OF SEBASTIAN
On this the 20th day of November, 1997, before me, the undersigned officer,
personally appeared C. David Curry, known to me to be the person whose name is
subscribed to the within Consent To Assignment of Leasehold Estate of Briarcliff
Nursing & Rehabilitation Center, McAllen, Texas, and acknowledged that he
executed the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
[SIG]
-----------------------
Notary Public
My Commission expires:
November 1, 2000
[SEAL]
<PAGE>
THE STATE OF TEXAS )
COUNTY OF HIDALGO )
This instrument was acknowledged before me this 24th day of November, 1997,
by DERWIN L. WILLIAMS, SR. V.P. FINANCE, of SUMMIT CARE TEXAS, L.P., a Texas
Limited Partnership.
WANDA KELLER
[SEAL] MY COMMISSON EXPIRES
August 19, 2000
/s/ WANDA KELLER
----------------
NOTARY PUBLIC, STATE OF TEXAS
THE STATE OF TEXAS )
COUNTY OF HIDALGO )
This instrument was acknowledged before me on this 24th day of November,
1997, by ROBERT J. CRONE, PRESIDENT of ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC.
WANDA KELLER
[SEAL] MY COMMISSON EXPIRES
August 19, 2000
/s/ WANDA KELLER
----------------
NOTARY PUBLIC, STATE OF TEXAS
AFTER RECORDING RETURN TO:
AMERICAN TITLE CO. OF HOUSTON
SPRING OFFICE - BRANCH
25317 I-45 NORTH
THE WOODLANDS, TEXAS 77380
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement entered into this 9th day of April, 1996,
amending the Lease Agreement dated August 12, 1992, on Briarcliff Nursing &
Rehabilitation Center of McAllen, Texas between Lloyd G. Hobbs as Lessor and
ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC., as Lessee. Lloyd G. Hobbs assigned
his interest in this lease agreement to Hobbs & Curry Family Limited Partnership
on January 1, 1995.
Now, Lessor and Lessees have agreed to add seventy-four beds to the
Briarcliff Nursing & Rehabilitation Center, making a total of 194 beds. Lessor
and Lessee have also agreed to increase the monthly rent by Nineteen Thousand
Nine Hundred Sixty-Seven Dollars and Fifty-Eight Cents ($19,967.58) per month
beginning when construction of the addition is complete and is ready for
occupancy.
Lessor is presently paying $30,027.81 per month rental on the original 120
beds and the increase of $19,967.58 for the addition would make a total monthly
rental payment of $49,995.39, until such time as there is an increase in the
Medicaid rates. It is expressly understood by both parties that the escalation
clause in Paragraph 2 of the Lease Agreement will prevail and that this
escalation clause will pertain to the total of 194 beds, after completion of the
addition, and that any increase in Medicaid rates will increase the monthly
rental payments accordingly for the balance of the lease term.
All other terms of the Lease Agreement, dated August 12, 1992, will remain
the same as originally written.
Witness our hands this 9th day of April, 1996.
HOBBS & CURRY FAMILY LIMITED
PARTNERSHIP
/s/ LLOYD HOBBS
---------------
Lloyd Hobbs, General Partner
Lessor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ ROBERT CRONE
----------------
Robert Crone, President, Lessee
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT entered into this 12th day of August, 1992, by and
between LLOYD HOBBS as LESSOR, and ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC.,
213 North 40th, McAllen, TX 78501, as LESSEE,
WITNESSETH:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessee and Lessee
has hired and taken from the Lessor, the following described property,
consisting of one, 120-bed nursing home, commonly known as Briarcliff Nursing &
Rehabilitation Center of McAllen, Texas, located on the premises in Hidalgo
County, Texas, more particularly described in Exhibit "A" attached hereto,
including all furniture, fixtures and equipment located therein, provided and
installed by Lessor, paid for by Lessor, more particularly described in Exhibit
"B" attached hereto, to have and to hold the same for the period of years and
upon the terms and conditions hereinafter stated:
1. The term of this Lease shall be for the period of Fifteen (15) years,
commencing July 1, 1993 and ending June 30, 2008.
2. The rental shall be Twenty-Eight Thousand Four Hundred Seventy-Six
Dollars ($28,476.00) per month, payable in advance on or before the first day of
each month, except the rent shall be reduced to Twenty-Three Thousand Four
Hundred Seventy-Six Dollars ($28,476.00) for the first three (3) months of the
Lease, then back to $28,476.00 per month for the balance of the term of the
Lease, plus escalation as provided below. If the Lease shall commence on a day
other than the first day of the month, the rent will be pro-rated for the first
month. The rental payment will be mailed to Lloyd Hobbs, P.O. Box 126, Fort
Smith, Arkansas 72902, or to such other address as may be directed in writing.
The escalation clause is based upon increases in the Medicaid rates of 13.7% of
the Texas 207 Tile rates, times 120 beds times 30.4 average days per month and
shall be adjusted on the first day of the month following the effective date of
each and every rate increase. As an example, the 207 Texas Tile rate is now
$56.62 per day, times 120 beds, equals $6,794.40, times 365 days, equals
$2,479,958.00. $28,478 per month rent times 12 equals $341,712 annual rent.
$341,712 divided by $2,479,956 equals 13.7% of any 207 Tile rate increase, times
50%.
3. Lessee agrees to pay all taxes, general or special, assessed against
the land, buildings and personal property, from the time the property is deeded
to Lessor forward. An escrow for taxes is required; therefore, an escrow payment
of $1,500.00
<PAGE>
forward. An escrow for taxes is required; therefore, an escrow payment of
$1,500.00 per month will be deposited with the Lessor for payment of taxes. This
escrow payment will be adjusted annually, to cover the taxes as levied against
the real and personal property by all taxing authorities using the previous year
as a guide.
4. The Lessee shall be responsible for and pay for fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least replacement value. The Insurance policy
shall designate Lessor and Lessee as named insured and loss payee, as their
interests may appear. If Lessee fails or neglects to provide this insurance as
required, Lessor may obtain same and add the premium cost to the next lease
payment due.
5. In the event of partial destruction of the building and contents (that
is, destruction of less than half, in value of the building and contents) by
fire or other casualty, then the Lessee shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the destruction. Any insurance proceeds, in the event of loss, will be
escrowed with Owner of the building. Owner will pay bills incurred, as directed
by Lessee, from insurance proceeds, to repair damages as presented by repair
contractors. If repairs cost more than insurance proceeds Lessee will be
obligated to pay the difference from Lessee's own funds. If destruction is fifty
percent (50%) or more, of value, Lessor shall be entitled to the insurance
proceeds and shall, at his option, restore the premises as above provided or
cancel the Lease. In the event of destruction of fifty percent (50%) or more of
value, Lessor shall advise Lessee, within thirty (30) days following the
destruction, of his election in this regard.
6. In the event of a taking of all or of part of the land and buildings
as a result of eminent domain, condemnation or other governmental taking, the
consideration paid therefore shall be paid to the Lessor, and from the date of
payment of such consideration, the rental amount shall abate and be reduced in
proportion to the relation of the amount of the consideration to $2,400,000.00
in value.
7. Lessee shall, as long as this Lease remains in effect, procure and
keep in effect, general public liability insurance against claims for bodily
injury or death occurring upon, in or about the demised premises, and on, in or
about the adjoining streets and passageways, with limits of not less than
$3,000,000.00 any one person or incident. Lessee shall also provide for
malpractice insurance. Lessor shall be a
2
<PAGE>
named insured on all policies.
8. Lessee agrees that it will at all times, during the term of this Lease
or any extension thereof, indemnify, protect, defend and save harmless, the
Lessor, against any and all claims, costs, charges, liabilities, or expenses
arising from damage or injury, actual or claimed, of whatever kind or character,
to property or persons occurring in or about the demised premises, streets,
sidewalks, passageways, parking lots, and alleys adjacent thereto, and agree to
resist or defend such action or proceedings, and cause the same to be defended
at his expense.
9. The premises shall be used as a licensed nursing home and for no other
purpose without the written consent of Lessor, Lessee agrees to maintain the
entire premises, including buildings, drives, parking area, furniture, fixtures,
equipment, and decoration in good and tenable repair and condition. Lessee
shall, at its expense, repair or replace items as may be necessary to comply
with this covenant, and such that the premises shall at all times qualify for
and remain, licensed as, at least an ICF II or private pay for a 120-bed nursing
home under the laws and regulations of the United States and the State of Texas.
A reduction in, or loss of, this or equivalent license rating, in the event
license ratings are changed, will be considered a default in this Lease.
10. Lessee, with the prior written consent of the Lessor, which consent
shall not be unreasonably withheld, shall have the right to make such additions,
alterations, changes and improvements on the demised premises as Lessee shall
deem necessary or desirable; provided that no such addition, alteration, change
or improvement shall be made which will weaken the structural strength of the
building, deminish its utility or value, and all additions, alterations, changes
and improvements shall be made in a workmanlike manner in full compliance with
all building laws and ordinances applicable thereto, and shall become part
thereto upon termination of this Lease. Lessee may erect and maintain such signs
upon the premises as they may desire, and as may be permitted by laws or
ordinances pertaining thereto, but at its sole expense and responsibility.
11. Lessee shall keep the demised premises in a clean, safe and sanitary
condition, and shall comply with all municipal, county, state and federal laws
and regulations governing the conduct of the activities conducted, suffered or
permitted by the Lessee on the demised premises and the Lessee shall obtain
appropriate permits from all such authorities required.
3
<PAGE>
shall have the right to sub-lease any or all of the leased premises, with the
prior written consent of Lessor, first obtained, which consent will not be
unreasonably withheld, provided that the Lessee will remain liable for the
performance of the covenants and obligations of this Lease. If the property is
sub-leased, the Lessor will have the right to a reasonable adjustment in the
rent.
13. Lessee agrees to permit Lessor, or his authorized representative to
enter the demised premises at all reasonable times during usual business hours
for the purpose of inspecting the same, provided that this shall not be
construed to obligate Lessor to notify Lessee of any defect observed therein.
14. Lessee shall not do or suffer anything to be done whereby the demised
premises, or any part thereof, may be encumbered by a mechanic's or similar
lien, and in the event such lien is filed against the demised premises, or any
part thereof, purporting to be for or on account of any labor done or material
or services furnished in connection with any work in or about the demised
premises, Lessee shall discharge the same of record within ten days after the
date of such claim, or if Lessee desires to contest the validity or amount of
such claim, they may do so provided that they first post security acceptable to
Lessor, fully indemnifying Lessor and the premises from any claim, charge, or
demand arising from such claim or expenses incurred in connection therewith.
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessee:
a. The Lessee shall fail or neglect to pay the rentals when due, or
to pay any other sums of money which it is required by this Lease to pay, and
such non-payment shall continue on the tenth day after written notice of the
same has been posted to Lessee. In the event of default of this Lease, Lessee
will forfeit any rights, or ownership of contracts and ownership of Certificate
of Need at this location, with the State of Texas or the United States
Government, to Lessor, and will assign all its rights in the Medicaid or
Medicare Contract to Lessor without any cost to Lessor.
b. The Lessee shall fail, refuse or neglect to perform or observe any
other covenant required of it herein, and such non-performance or non-observance
shall continue on the thirtieth (30th) day (unless a later date be slated in the
notice) after written notice of the same has been posted to the Lessee.
c. This Lease, or the premises itself, or any property of the Lessee
is levied upon the process of law, and such levy be not completely discharged or
secured to the
4
<PAGE>
upon by process of law, and such levy by not completely discharged, or secured
to the satisfaction of the Lessor, within fifteen (15) days after service of the
process.
d. Lessee becomes involved in financial difficulties as evidenced by
(1) an admission in writing of its inability to pay its debts generally as they
become due, (2)becoming petitioner in any voluntary debtor or bankruptcy
proceedings, whether asking arrangement, composition, reorganization,liquidation
or other relief, suspension or modification of their obligations, (3) becoming a
party respondent to any involuntary proceeding the purpose of which is to
subject the assets of the Lessees to the control of a court of creditor's
committee, (4) making an assignment of all or of a substantial part of their
property for the benefit of their creditors, or (5) seeking, consenting to, or
failing to avert the appointment of a receiver or a trustee for all or a
substantial part of its property, or of the demised premises, or of its interest
in this Lease.
16. If an event of default occurs, Lessor shall have the option to:
a. Terminate this Lease by service of written notice of termination,
and Lessees right to the possession of the premises shall cease upon the date
stated in such notice, without prejudice to Lessors' right to recover all sums
due as of the date possession is surrendered, plus any damage or loss suffered
on or prior to such date, including any expenses such as court costs, attorney's
fees and similar expenses incurred by Lessor in recovering possession, rent,
and/or damages due from Lessee; or
b. Re-enter and take possession of the premises without further
demand or notice, and expel Lessee, or those claiming under it, and remove the
effects of both, or either (forcibly if necessary) without being deemed guilty
of any manner of trespass and without prejudice to Lessor's further rights under
this Lease. In such event, the obligations of the Lessee under this Lease shall
continue, but Lessor may from time to time upon such terms and conditions, and
for such bona fide rental as it may be able reasonably to negotiate, sub-let the
premises for the account of Lessee, and all sums received by Lessor shall be
credited to the account of Lessee, and all sums received by Lessor shall be
credited to the account of Lessee, less all reasonable expenses actually
incurred by Lessor, including, but not limited to brokerage fees, advertising
expense, preparation including re-decoration, of the premises for sub-letting,
legal expenses, cost of performing such of Lessees obligations as Lessor finds
it necessary to perform at his expense and all other items necessary and proper
to procure suitable
5
<PAGE>
tenants for the premises. Lessee shall remain liable to Lessor for any
deficiency between the amounts properly credited to Lessee, and the amount due
Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant to
subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessee is then obligated, Lessor shall have the right forthwith to demand and
recover from Lessee, the present value of the difference between the amount to
be received by Lessor under the new sub-lease, and the amount which would have
been payable by Lessee under this Lease for the remainder of the term hereof,
plus the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession
pursuant to subparagraph (b) above, Lessor may at any time thereafter, upon
written notice to Lessee, terminate this Agreement in all respects, and in such
event, Lessee shall have no further liability, obligation or responsibility
after the date of such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing his right under this Lease, Lessee now
expressly agrees that no indulgence or extension, waiver or forgiveness,
variation by practice, nor any neglect or abstention by Lessor in strictly
enforcing the covenants of Lessee on any one or more occasions shall ever be
deemed a waiver of or estoppel against the right of Lessor to insist upon strict
compliance with each and every covenant herein, without any further or special
notice or warning, the existence of a covenant in this Lease and the provisions
of this paragraph being deemed adequate notice of the rights of the Lessor. No
property belonging to the Lessee shall ever be removed from the premises at any
time when there exists any default in the performance of any other covenant or
obligation assumed herein by Lessee.
17. Lessee agrees to execute any instrument reasonably required by Lessor
reflecting attornment to its prior interest which may be required by Lessor in
connection with mortgaging their interest in the demised premises, and/or
refunding or refinancing in the future of any mortgage which Lessor may place
upon the premises, subject to right of option of even date herewith.
18. Upon any termination of this Lease, whether by lapse of time,
cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessees shall surrender, immediately, possession of the demised
premises and all buildings and
6
<PAGE>
improvements then on the same, to Lessor in good and tenantable repair,
reasonable wear and damage from fire or other casualty or peril excepted. If
possession be not immediately surrendered, Lessor, with or without process of
Law may forthwith re-enter said premises and repossess the same, all persons and
property, without being deemed guilty of any unlawful act and without prejudice
to any other legal remedy available to Lessor.
19. Lessor has the right to assign all or any part of this Lease. Lessor
will notify Lessee in the event of an Assignment.
20. It is the intention of the parties that this is to be a net, net net
Lease.
21. Lessee agrees that if a default on this Lease occurs, resulting in
foreclosure or assignment, Lessees interest in the certificate of need will be
assigned to Lessor immediately and forthwith, at no cost to Lessor.
22. This Lease shall be construed and interpreted in accordance with the
laws of the State of Texas.
23. Any notice or demand required or permitted by law or by any of the
provisions of this Lease shall be in writing. All notices or demands by Lessor
to or upon Lessee shall be deemed to have been properly given when sent by
certified mail, addressed to Lessee, Robert Crone/South Texas Healthcare, Inc.,
213 North 40th, McAllen, TX 78501, or such other place as Lessee may from time
to time, designate in a written notice to Lessor; and to Lessor by Lessee,
addressed to Lloyd Hobbs, P.O. Box 126, Fort Smith, Arkansas 72902, or at such
other place as Lessor may from time to time, designate in a written notice to
Lessee.
24. This Lease and all provisions herein shall be binding upon and inure to
the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
25. Time is of the essence in this Lease.
IN WITNESS WHEREOF the parties have caused this instrument to be properly
executed the day and year first above written.
/s/ LLOYD HOBBS
---------------
Lloyd Hobbs, Lessor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ ROBERT CRONE
----------------
Robert Crone, President, Lessee
7
<PAGE>
Exhibit A
McAllen, Texas
The East 425.0 fee of the North 375.0 feet of the South 734.55 feet of Lot
125, La Lomita Irrigation & Construction Company's Subdivision, of Porciones 61,
62 and 63, Hidalgo County, Texas, as per map or plat thereof recorded in Volume
24, Page 68, Deed Records, Hidalgo County, Texas, and described as follows:
BEGINNING at a point on the East line of Lot 125, North 8 degrees 42 minutes 30
seconds East, 359.55 feet from the Southeast corner of Lot 125, for the
Southeast corner of the following described tract of land, said point being in
North Ware Road (F.M. #2220);
THENCE, with the East line of Lot 125, in Ware Road, North 8 degrees 42 minutes
30 seconds East, 375.0 feet to a point, for the Northeast corner hereof; said
point being on the projection of the South line of Gardenia Avenue;
THENCE, with he South line of Gardenia Avenue and its projection, North 81
degrees 17 minutes 30 seconds West, at 40.91 feet pass an iron pin on the West
line of North Road and at 425.0 feet an iron pin on the East line of North 38th
Street, for the Northwest corner hereof;
THENCE, with the East line of North 38th Street, and its Southerly projection,
South 8 degrees 42 minutes 30 seconds West, 375.00 feet to a point, for the
Southwest corner hereof;
THENCE, parallel to the South line of Lot 125, South 81 degrees 17 minutes 30
seconds East, at 384.09 feet pass an iron pin on the West line of North Ware
Road and at 425.0 feet the PLACE OF BEGINNING, containing 3.66 acres of land,
more or less, of which the East 10.91 feet, comprising 0.35 acre, lies in North
Ware Road (F.M. #2220).
EDWARDS ABSTRACT AND TITLE CO.
<PAGE>
OPTION AGREEMENT
For and in consideration of the sum of ten dollars cash in hand paid,
receipt of which is hereby acknowledged and for other good and valuable
considerations, LLOYD HOBBS, hereinafter called "Grantor", does hereby give and
grant unto Robert Crone/South Texas Healthcare, Inc., 214 North 40th, McAllen,
TX 78501, together with all improvements now or hereafter constructed upon the
same, and including all personal property shown upon Exhibit "B" attached
hereto, and in addition, any renewals, substitutions, replacements or additions
thereto, which may be on the premises and belonging to Grantor at the time of
the exercise of this Option, To-Wit:
Legal description attached hereto as exhibit "A".
1. This Option may be exercised by Grantees at any time after one hundred
Twenty (120) payments have been paid, provided all lease payments are current,
conditioned upon the Grantees, their successors or assigns being in possession
of the home at the time of exercise and upon the express condition and
understanding that the Grantees herein have fully performed all of the terms and
conditions contained in that certain Lease Agreement dated the 12th day of
August, 1992, to be kept and performed by the Lessees therein and more
particularly are current in the payment of all sums due under the terms of said
Lease Agreement. If at any time, the above Lease shall be terminated, this
Option will immediately become null and void. This Option may be exercised by
means of Grantee giving written notice by certified mail, return receipt
requested, of such election to Lessor, Lloyd Hobbs, Box 126, Fort Smith, AR
72902 or at such other place as may be directed in writing, accompanied by
$10,000.00 earnest money deposit. The earnest money deposit will be applied on
the purchase price if purchase is concluded.
2. The price for the assets to be sold shall be Two Million Four Hundred
Thousand Dollars ($2,400,000.00). The purchase price is payable in cash unless a
financing arrangement is worked out at the time of purchase with Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of beginning of this Lease, and such as may thereafter
be placed upon the
1
<PAGE>
FIRST AMENDMENT TO OPTION
This Amendment to Option entered into this 9th day of April, 1996, amending
the Option Agreement dated August 12, 1992, on Briarcliff Nursing &
Rehabilitation Center of McAllen, Texas between LLOYD G. HOBBS, as Grantor, and
ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC., as Grantee. Lloyd G. Hobbs assigned
his Interest in this Option to Hobbs & Curry Family Limited Partnership on
January 1, 1995.
Now, Grantor and Grantee have agreed to add seventy-four beds to the
Briarcliff Nursing & Rehabilitation Center, making a total of 194 beds. Grantor
and Grantee have also agreed to increase the Option Price for this nursing home
as follows:
The Option is amended to state that the Option may be exercised by Grantee
at any time after eighty-four (84) monthly rental payments have been paid which
would include the increased rental payments for the new addition. For example,
if the first monthly rental payment to include the new addition is made on
October 1, 1996, then the option could be exercised on October 1, 2003,
providing all 84 payments had been paid. The option price will be $4,700,000.00
All other terms of the Option Agreement, dated August 12, 1992, will remain
the same as originally written.
Witness our hands this 9th day of April, 1996.
HOBBS & CURRY FAMILY LIMITED
PARTNERSHIP
/s/ LLOYD HOBBS
---------------
Lloyd Hobbs, General Partner
Grantor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ ROBERT CRONE
----------------
Robert Crone, President, Grantee
<PAGE>
premises by way of substitution for or addition to such furniture, furnishings,
fixtures and equipment, less any furniture and equipment removed for replacement
during the Lease term by Lessor or Lessee.
3. Upon receipt of notice of intent to exercise this Option, Grantor
shall promptly furnish to Grantees, a Warranty Dead, subject only to recorded
easements, rights-of-way, mineral interests and etc. Recorded easements and
restrictions shall not be deemed to impair title.
4. Closing shall be at a time and place mutually agreeable. In the
absence of agreement, Grantor may obligate Grantees to perform by giving written
notice that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. If purchase price
is not tendered or other arrangements made within the ten-day period, the option
will be null and void and the $10,000.00 earnest money deposit will be
considered liquidated damages and the Lease will continue in force, except no
option will be in force and effect. Grantees shall designate some place in Fort
Smith, Arkansas at which they will appear prepared to perform, and Grantor shall
have ten (10) business days after receipt of such demand in which to execute and
deliver the documents required by this Option. If Grantor fails, neglects or
refuses to perform, Grantees shall have the right to seek specific performance
of this Option.
5. This Option may not be assigned by Grantees without the written
consent of the Grantor, which consent will not be unreasonably withheld.
Notices required or permitted by this Option may be given to Grantor by
certified mail, return receipt requested, addressed to Lloyd Hobbs, P. O. Box
126, Fort Smith, Arkansas 72902 and to Grantees by certified mail, return
receipt requested, to Robert Crone/South Texas Healthcare, Inc., 213 North 40th,
McAllen, TX 78601. Either party may change the person to whom or the place to
which notice is to be given by written request.
This Agreement shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
2
<PAGE>
Dated this 12th day of August, 1992.
/s/ Lloyd Hobbs
-------------------------------
Lloyd Hobbs, Grantor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ Robert Crone
-------------------------------
Robert Crone, President-Grantee
3
<PAGE>
NON-COMPETE AGREEMENT
This Non-Compete Agreement (the "Agreement") is entered into this 24th day
of November, 1997 by and among Summit Care Texas, LP, a Texas limited
partnership ("Summit Care") and Robert Crone, an individual and resident of the
State of Texas (hereinafter referred to as "Seller")
RECITALS
A. Summit Care and Seller have entered into an Agreement of Purchase and
Sale of Assets (the "Purchase Agreement"), whereby Seller has agreed to sell to
Summit Care that certain One Hundred and Ninety Four (194)-bed nursing facility,
commonly known as Briarcliff Nursing and Rehabilitation Center, located at 3201
North Ware Road, in the City of McAllen, County of Hidalgo, State of Texas, more
particularly described on Exhibit A hereto and herein incorporated by reference
(the "Facility"). The terms and provisions of the Purchase Agreement are hereby
incorporated herein as if set forth in full. All capitalized, undefined terms
used herein shall have the meanings given to them in the Agreement.
B. Seller has knowledge and expertise in the ownership and operation of
nursing homes.
C. Summit Care intends to operate the Facility and real property held and
operated by Seller and sold to Summit Care as a nursing home.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein, the parties hereto agree as follows:
1. For good and valuable consideration, the receipt of which is hereby
acknowledged, Seller agrees for seven (7) calendar years following the Closing
Date of the Agreement not to compete with Summit Care within the County of
Hidalgo, State of Texas.
2. For purposes of this Agreement, Seller shall be deemed to be in
competition with Summit Care if Seller either separately or jointly, owns,
operates, or has a direct or indirect interest in the operation of a Nursing
Home (which, for purposes of this Agreement shall mean, a facility engaged in
the provision of long
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<PAGE>
term care, an extended care facility, assisted living facility, retirement
center or any similar facility) or the provision of any service or ancillary
service that is provided in the operation of the Facility during the term of
this Agreement, in the County of Hidalgo; or if Seller engages in the operation
of a Nursing Home or the provision of long term care in Hidalgo County as an
affiliate, investor, officer, director, administrator, employee, consultant,
agent, or in any other material capacity.
3. Seller also covenants that he shall not during the term hereof,
solicit Summit Care's or its affiliates' patients or current employees for the
purpose of providing long term care, long term care, or any other medical
services, and will not hire any of said employees for the provision of services
associated with a Nursing Home, long term care, or any other medical services.
4. For purposes of this Agreement a "current employee" is defined to
mean any person who has been employed by Summit Care for at least four hundred
(400) hours during any continuous one hundred twenty (120) day period within the
past twelve (12) months preceding any particular date in question during the
term of this Agreement.
5. Seller acknowledges that the restrictions in this Agreement are
reasonable, as to substance, geographical area and duration, for the protection
of Summit Care. Nonetheless, if a court finds this covenant not to compete to be
too broad, said court shall have the ability to narrow the substance,
geographical area or duration to the extent necessary for the covenant to become
reasonable and enforceable. If Seller knowingly or intentionally violates this
section, Summit Care may exercise any or all remedies provided by law, including
but not limited to a temporary restraining order without notice and without
bond, temporary injunction without bond, and a permanent injunction without bond
in addition to other equitable or legal remedies, if any, Summit Care may have
against Seller or others acting in concert with Seller. In addition to and
without waiving other remedies available to Summit Care under law or pursuant to
this Section, Summit Care may require Seller to account and remit to Summit an
amount equal to one hundred and fifty percent (150%) of all gross fees earned by
Seller from such customers and patients as liquidated damages for such breach.
6. This Agreement shall not be changed or canceled without the express
written consent of Summit Care and shall be binding upon and shall inure to the
benefit of the heirs, successors and assigns of the parties.
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<PAGE>
7. This Agreement shall last for a term of seven (7) calendar years from
the date hereof and shall be construed and interpreted in accordance with the
laws of the state of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
SUMMIT CARE TEXAS, LP
a Texas limited partnership
By: /s/ Derwin L. Williams
----------------------
The Sr. V.P. Finance
----------------------
of its General Partner
Summit Care Management, Inc.
------------------------------
a California Corporation
SELLER
/s/ Robert Crone
------------------------------
Robert Crone
______________________________
[Signature]
------------------------------
Family Member
______________________________
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<PAGE>
BILL OF SALE FOR PERSONAL PROPERTY
Robert Crone-South Texas Health Care, Inc., a Texas corporation ("SELLER"),
in consideration of Ten Dollars ($10. 00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
does hereby grant, bargain, sell, convey and transfer to Summit Care Texas, LP,
a Texas limited partnership or its affiliated nominee, ("BUYER" or "SUMMIT
CARE"), all right, title and interest, as of December 1, 1997, in and to, all
and singular, the following:
(1) all existing personal property such as furniture, fixtures, and
equipment (the "Personal Property") including, but not limited to the items
listed on Exhibit "A" attached hereto which are presently located on the real
property of and/or used in connection with the ownership, maintenance or
operation of the facility more particularly described in Exhibit "B" attached
hereto (the "Facility"), other than that Personal property specifically excluded
under the terms of the Agreement of Purchase and Sale of Assets dated November
24, 1997, by and between Buyer and Seller (the "Purchase Agreement"); and
(2) all licenses, occupancy agreements, certificates, permits,
accreditation, registrations and authorizations of all federal, state and local
governmental or regulatory authorities, or other agreements providing for the
use or occupancy of, the Facility and Personal Property (to the extent each may
be transferred).
(3) any and all plans, drawings, specifications, surveys, engineering
reports, and other technical descriptions owned or held by Seller which relate
in any way to the design, construction, ownership, use, maintenance, service, or
operation of the Facility or the Personal property to the extent any of the
above are transferable.
(4) all rights, title, and interest in and to the names and the telephone
numbers for the Facility set forth on Exhibit "A" hereto.
TO HAVE AND TO HOLD, all and singular, the Personal Property hereby sold,
assigned, transferred and conveyed to Buyer, its successors and assigns, to and
for its own use and benefit.
Seller hereby represents and warrants to Buyer that Seller is the owner of
said Personal Property, that Seller has full right,
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<PAGE>
power and authority to sell said Personal Property and to make this Bill of
Sale, and that said Personal Property is not encumbered. Subject to the
foregoing limitations, representations and warranties, and to the
representations and warranties contained in the Purchase Agreement, the Personal
Property is hereby conveyed by Seller to Buyer. Seller does hereby bind itself,
its successors and assigns and the heirs, executors, administrators and assigns
of Seller, to forever WARRANT AND DEFEND the title to the said Personal property
unto the said Buyer and its successor and assigns; against every person
whosoever lawfully claiming, or declaiming the same, or any part thereof.
Signed this twenty-fourth (24th) day of November, 1997, to be effective as
of the first (1st) day of December, 1997.
IN THE PRESENCE OF:
ROBERT CRONE-SOUTH TEXAS
HEALTHCARE, INC.
________________________
/s/ ROBERT CRONE
----------------
Robert Crone
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<PAGE>
BILL OF SALE FOR SUPPLIES
Robert Crone-South Texas Health Care, Inc., a Texas corporation ("SELLER"),
as owner of certain supplies used in the operation of the facility more
particularly described in Exhibit "A" hereto for Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, does hereby grant, sell and transfer unto Summit Care Texas, LP, a
Texas limited partnership or its affiliated nominee, ("BUYER" or "SUMMIT") , the
Personal property more particularly set forth and described on Exhibit "B"
attached hereto and incorporated herein by reference.
To have and to hold the same to BUYER and its successors and assigns for
their use forever.
SELLER hereby covenants and warrants to the BUYER that it is the lawful
owner of said goods; that said goods are free and clear from all encumbrances
except as set forth; and that SELLER has the right to sell the same.
IN WITNESS WHEREOF, SELLER has executed this Bill of Sale on November 24,
1997, to be effective as of the first (1st) day of December, 1997.
IN THE PRESENCE OF: SELLER:
ROBERT CRONE-SOUTH TEXAS
HEALTHCARE, INC.
_______________________
/s/ ROBERT CRONE
----------------
Robert Crone
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<PAGE>
EXHIBIT 10.23
LEASE
FOR
ALEXANDRIA CONVALESCENT HOSPITAL
<PAGE>
LEASE
FOR
ALEXANDRIA CONVALESCENT HOSPITAL
1. PARTIES
-------
This Lease dated November 2, 1992, is made by and between
Alexandria Convalescent Investments, a partnership ("Lessor") and
Robert M. Snukal, Sheila S. Snukal, Manuel Padama and Clair
Padama ("Tenant").
2. DESCRIPTION OF FACILITY
-----------------------
Lessor hereby leases to Tenant and Tenant leases from Lessor, upon the
terms and conditions set forth herein, the real property and improvements
commonly known as 1515 North Alexandria Avenue, Los Angeles, California 90027,
on which there is presently a 177-bed skilled nursing facility known as
Alexandria Convalescent Hospital, as described in Exhibit "1" hereto (the
"Premises"), and all of the furniture, furnishings, fixtures and equipment
presently being used in the operation of the Premises, as listed in Exhibit "2"
hereto (the "Equipment"). The Premises and Equipment are hereinafter
collectively referred to as the "Facility."
3. TENANT'S ACCEPTANCE OF FACILITY
-------------------------------
3.1 Tenant's Investigation. Tenant acknowledges that
----------------------
(a) Tenant has conducted its own independent investigation concerning the
condition use, operation, licensing certification, economics and all other
aspects of the Facility, and accepts the condition revealed by such
investigation; (b) Tenant has been supplied with and reviewed the 1992 survey by
the Department of Social Services of the County of Los Angeles; (c) Tenant is
satisfied with the results of such investigations. Lessor agrees that the
Facility shall be in good operational condition, ordinary wear and tear
accepted, as of November 1, 1992, and in compliance with all material laws and
regulations; provided that Lessor shall not be responsible for the cost of
compliance with any physical plant requirements unless the Lessor was notified
to comply by any governmental authority prior to the Commencement Date. If
Tenant does not give Lessor written notice of non-compliance with this warranty
within three months following the Commencement Date, correction of that non-
compliance shall be the obligation of Tenant at Tenant's sole cost and expense.
3.2 Acceptance of Premises. Tenant hereby accepts the Premises and
----------------------
Equipment in its condition existing as of the commencement date of this Lease or
the date that Tenant takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises and any
easements, covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto.
3.3 Changes in Conditions. Lessor shall not be responsible for any
---------------------
change of condition in the Facility; and the rent, additional rent and any
amount 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 Facility, any change in the condition or use
thereof, and damage occurring thereto, or the existence of any violation of any
laws or regulations of any governmental authority.
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<PAGE>
4. TERM
----
The term of this Lease shall be for twenty (20) years commencing on
November 1, 1992 ("Commencement Date") and ending on October 31, 2012 unless
sooner terminated as provided in this Lease.
5. SECURITY DEPOSIT
----------------
5.1 Upon execution of this Lease Tenant shall deposit
$42,480 with Lessor as initial security for Tenant's faithful performance of
Tenant's obligations under this Lease. If Tenant fails to pay rent or other
amount due under this Lease or otherwise defaults with respect to any provision
of this Lease, Lessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Lessor may become obligated by reason of
Tenant's default, or to compensate Lessor for any loss or damage which Lessor
may suffer thereby. If Lessor so uses or applies all or any portion of said
deposit, Tenant shall, within fifteen days after written demand therefor,
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount hereinabove stated, and Tenant's failure to do so shall be a
material breach of this Lease. If Tenant performs all of Tenant's obligations
under this Lease, said deposit, or so much thereof as has not been applied by
Lessor, shall be returned to Tenant (or, at Lessor's option, to the last
assignee, if any, of Tenant's interest under this Lease) after Tenant has
vacated the Premises at the expiration of the term. No trust relationship is
created herein between Lessor and Tenant with respect to the security deposit.
Lessor may commingle the security deposit with other funds of Lessor. Lessor
shall not be obligated to pay any interest to Tenant in connection with the said
security deposit.
6. RENT
----
6.1 Minimum Monthly Rent. Tenant shall pay to Lessor on the first day
--------------------
of each month of the term minimum monthly rent, in advance, without deduction,
abatement, setoff, prior notice or demand, in the amount of $42,480, subject to
adjustment as set forth in this Section 6. Rent for any partial month shall be
pro-rated at the rate of 1/30th of the then current rent per day.
6.2 Rent Adjustment.
---------------
(a) As used herein:
(i) "Adjustment Date" shall mean November 1 of each year
of the term commencing November 1, 1994;
(ii) "Base Date" shall mean August 1 of the calendar year
preceding the Adjustment Date;
(iii) "Comparison Date" means August 1 of the calendar year
of the Adjustment Date.
(iv) "Percentage Increase of Medi-Cal" shall mean the
annual percentage of increase in the daily bed rate applicable to a 177-bed
skilled nursing facility pursuant to the provisions of the Medi-Cal Act, .
Sections 14000 et. seq., of the California Welfare and Institutions Code and any
--- ----
regulations promulgated with respect thereto, in excess of the daily bed rate
applicable to the Facility on the Base Date, equal to a fraction, the numerator
of which is the applicable daily bed rate on the Comparison Date less the daily
bed rate on the Base Date and the denominator of which is the daily bed rate on
the Base Date.
(v) "Bed(s)" shall mean the number of beds for which the
Facility is licensed as of the Adjustment Date but not less than the number of
beds for which the Facility was licensed as of the Commencement Date.
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<PAGE>
(b) The minimum monthly rent shall be increased on each Adjustment
Date for the period commencing on such Adjustment Date to the next succeeding
Adjustment Date by an amount equal to the minimum monthly rent for the 12-month
period preceding the Adjustment Date multiplied by the Percentage Increase of
the Medi-Cal rate. However, in no case shall the minimum monthly rent be less
than the rent for the month preceding the adjustment.
(c) In the event that the program of compensation under the Medi-Cal
Act is modified, or if the Act is superseded by other legislation, the
Percentage Increase of Medi-Cal shall be determined by substituting therefor a
number reasonably related to the modification or change in the law so as to most
nearly reflect the intent of the parties as of the date of execution of this
Lease. Any dispute regarding the same shall be determined by reference, in
accordance with Paragraph 25.20 of this Lease.
6.3 Medi-Cal Pass-Throughs.
----------------------
(a) The parties acknowledge it is possible that as part of any new
rate the State of California may require that a specific amount of money be
spent for a specific purpose, which purpose was not specifically previously
required, and that the Tenant will have no discretion on how that part of the
rate is used. That type of requirement has occurred from time to time in the
past and is referred to as a pass-through requirement. For example, the State
may require that facilities provide more nursing hours per patient day than are
currently required or that a specific increase in wages be paid to employees;
and the State may provide an additional amount in the rate for those specific
purposes and mandate that the licensee spend the money that is added to the rate
for the specific purposes so indicated. In the event the State of California
adds any amount to the rate of payment for services that consists of a pass-
through amount, the parties agree that two thirds (2/3) of the pass-through
increase shall not be included in the Percentage Increase in Medi-Cal for
purposes of the rent adjustment pursuant to paragraph 6.2; provided, however, to
the extent that Tenant shall demonstrate to Lessor that Tenant is not receiving
any benefits from pass-through increase, then, the entire pass-through increase
shall not be included for purposes of computing the Percentage Increase in Medi-
Cal for purposes of the rent adjustment in the applicable year.
(b) In the event of any dispute regarding the proper interpretation
of this provision regarding pass-through amounts, it shall be resolved by
reference to a certified public accountant to be designated by mutual agreement
of Lessor and Tenant ("Accountant") . The Accountant shall be authorized to
render a decision after reviewing all relevant documents and after holding a
hearing in such a manner as he determines is necessary to render a decision to
resolve any dispute. The prevailing party shall be entitled to receive
reasonable attorneys' fees, if so ordered by the Accountant. The Accountant
shall consider the respective positions of the parties before the resolution of
the dispute in the decision that he renders in determining who is the prevailing
party and what reasonable attorneys' fees and costs should be awarded as part of
his decision. If the parties are not able to agree on the Accountant within
fourteen days after either party gives notice to the other of its desire to
resolve such dispute by reference to an accountant then, the matter shall be
determined by reference pursuant to paragraph 25.20 of this Lease.
6.4 Net Lease. The rent shall be in addition to all other payments to
---------
be made by Tenant as provided in this Lease. It is the purpose and intent of
Lessor and Tenant that the rent shall be absolutely net to Lessor so that this
Lease shall yield net to Lessor the rent specified in this Section 6 in each
month during the term of this Lease and Lessor shall have no obligation or
liability to pay any amounts in connection with the ownership,
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<PAGE>
operation or management of the Facility or any part thereof, whether for real
and personal property taxes, or insurance premiums of any kind, or maintenance
or repairs of any kind, or license fees. All costs and expenses, including
without limitation taxes, assessments, insurance premiums, maintenance, license
fees and obligations of every kind and nature whatsoever relating to the use,
management of the Premises by Tenant and the use, management and conduct on the
Premises of a skilled care nursing home facility which may accrue or become due
during or out of the term or any renewal thereof shall be paid by Tenant and
Lessor shall be indemnified and saved harmless by Tenant from and against the
same.
7. ADDITIONAL CONSIDERATION
------------------------
As additional consideration for the execution of this Lease, Tenant shall
pay to Lessor $150,000 upon execution of this Lease, which amount shall not
apply to any rent, security deposit or other amount payable by Tenant under this
Lease and shall not be refundable by Lessor to Tenant under any circumstances
except the failure of Lessor to deliver possession of the Facility to . Tenant
on the Commencement Date or such later date as Tenant accepts possession
thereof.
8. RIGHT OF FIRST REFUSAL
----------------------
8.1 In the event that during the term of this Lease, Lessor desires to
sell the Facility to a person or entity other than a Related Party as defined
below, Lessor shall give Tenant notice of the price and terms on which Lessor
proposes to sell the Facility. Tenant shall have 10 days in which to notify
Lessor of Tenant's desire to purchase the Facility at such price and on such
terms. In the event that Tenant does not so notify Lessor, Lessor may sell the
Facility to a person or entity other than Tenant on the same terms or terms more
favorable to Lessor. The right granted to Tenant pursuant to this paragraph 8
expire at the expiration of the term of this Lease or the sooner termination
thereof. As used herein, "Related Party" shall mean one of the Lessors, a
descendant of one of the Lessors, a trust for the benefit of one of the Lessors
or the spouse or descendants of a Lessor, or a corporation, partnership or other
entity beneficially owned or controlled by one of the Lessors or the spouse or
descendants of a Lessor.
8.2 In the event that Lessor elects to structure the sale to Tenant as
part of an exchange pursuant to Section 1031 of the Internal Revenue Code,
Tenant shall cooperate with Lessor within the above time table with respect to
an exchange, at no expense to Tenant. Until the sale to Tenant is completed,
the terms of this Lease shall remain in full force and effect.
9. TAXES
-----
9.1 Real Property Taxes. In addition to the rent specified in paragraph
-------------------
6 of this Lease, Tenant shall pay all real property taxes and assessments levied
or assessed against the Premises during the term of this Lease in the following
manner:
(a) Lessor shall furnish Tenant with a copy of the annual tax bill for
the Premises. At least ten (10) days prior to the delinquency date of each real
property tax installment, Tenant shall pay the amount of the payment to Lessor.
(b) Any special assessments that may be bonded that are levied against
the Premises during the term of this Lease 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 payable by Tenant under this
paragraph 9.
(c) The taxes and assessments levied against the Premises during the
first and last years of this Lease or any renewal or extension of this Lease
shall be prorated between
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<PAGE>
Lessor and Tenant for purposes of this paragraph as of 12:01 A.M. on the date of
commencement and termination, respectively, of this Lease or any renewal or
extension of this Lease.
9.2 Impound Account. If Lessor's lender requires Lessor to impound real
---------------
property taxes on a periodic basis during the term, Tenant, on notice from
Lessor indicating this requirement, shall pay a sum of money towards its
liability under this Lease to Lessor on a periodic basis in accordance with the
lender's requirements. Lessor shall impound the tax payments received from
Tenant in accordance with the requirements of its lender .
9.3 Definition of "Real Property Tax". As used herein, the term "real
---------------------------------
property tax" shall include any form of assessment, license fee, commercial rent
tax, levy, penalty, or tax (other than income, inheritance or estate taxes),
imposed by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as against any legal
or equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom or as against Lessor's business of leasing the Premises 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 of
which was previously included within the definition of real property tax.
9.4 Personal Property Taxes. Tenant shall pay all taxes, assessments,
-----------------------
license fees, and other charges ("taxes") 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. Said taxes shall be paid by Tenant in equal monthly installments on the
first (1st) day of each month during the term to the Lessor, who shall furnish a
copy of the annual tax bill to the Tenant upon receipt. The monthly tax
payments made by Tenant shall be adjusted for any increases or decreases in the
taxes during the term. Taxes shall be prorated between Tenant and Lessor in the
manner provided for real property taxes in paragraph 9.1(c).
9.5 Right to Contest Taxes. Tenant shall have the right, at Tenant's
----------------------
sole cost and expense, to protest or contest, in the name of Lessor or
otherwise, any tax or assessment, or any increase in any tax or assessment,
levied on the Premises, but Tenant must pay any tax or assessment before it
becomes delinquent.
10. USE
---
10.1 Skilled Nursing Facility. Lessor is leasing the Facility to Tenant
------------------------
for the purpose of operating a 177-bed skilled nursing facility on the Premises.
Tenant shall not use any part of the Facility for any other purpose without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld by Lessor.
10.2 Licensing.
---------
(a) Tenant shall maintain at all times during the Lease Term and
any extensions or holdover period all governmental licenses, permits and
authorizations necessary for the operation of a licensed skilled nursing
facility in the City of Los Angeles, County of Los Angeles, State of California,
and shall comply with all applicable governmental regulations as they may from
time to time exist (including Medicare and Medi-Cal provider regulations) .
Tenant shall not, without the prior consent of Lessor, make any change in the
license category or status of any part of the Facility or alter, change or
reduce the potential occupancy of the Facility* Tenant shall not undertake any
act nor suffer or permit any change in the configuration of the
*other than as required by governmental regulation. Consent shall not be
required for the establishment of a medi-care distinct part or sub-acute care
unit.
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<PAGE>
Facility which would alter, change or reduce the potential occupancy of the
Facility.
(b) Tenant acknowledges that a license is required to operate the
Premises as a skilled nursing facility; the existing license to operate the
Premises is not transferable; and Tenant will have to obtain its own license to
operate a skilled nursing facility on the Premises. The failure of Tenant to
obtain any required permit, license or other authorization shall not affect
Tenant's obligations under this Lease.
(c) Until Tenant obtains its own license to operate the Facility,
as a condition to the execution of this Lease, Alexandria Convalescent Hospital,
a partnership ("Operator") shall contract with Tenant or a corporation wholly
owned by Tenant ("Manager") to manage the Facility under Operator's existing
license on the terms and conditions specified in the Management Agreement
between the Manager and Operator. Manager shall be responsible for any and all
losses which may be sustained and for all expenses incurred by Manager arising
from or relating to the Facility. Manager shall, to the extent consistent with
the Management Agreement, conduct its management activities in its own name,
incurring all debts, liabilities and payroll costs on its own behalf, and not on
behalf of Operator or Lessor. If Tenant is not the Operator, Tenant shall
personally guarantee the Management Agreement.
10.3 Long-Term Arrangements. Tenant shall not, without the written
----------------------
consent of Lessor, which shall not be unreasonably withheld, enter into any care
agreement, lease or other term arrangement other than month-to-month, nor accept
any prepaid rent, fees, deposits or other compensation from or on behalf of any
occupant or resident for any term of occupancy or residency in excess of ninety
days; provided, however, that in no event shall Tenant enter into any agreement
or accept any funds except in accordance with all applicable laws and
governmental regulations.
10.4 Notice of Damage. Tenant shall promptly inform Lessor in writing
----------------
of any damage or destruction to any part of the Facility in excess of $25,000,
and of any notice or claim or violation of any law, governmental rule or
regulation or other matter concerning the Facility.
10.5 Access to Books and Records. Lessor shall have reasonable access
---------------------------
during normal business hours to Tenant's books and records pertaining to
licenses, the patient census, and funds due or received from governmental
agencies, insurance carriers or private parties with respect to periods prior to
the Commencement Date, regardless of when such funds may actually be received.
10.6 Compliance with Law.
-------------------
(a) Tenant shall not use the Facility or permit anything to be done
on the Premises which will in any way conflict with any law or governmental
regulations or with the requirements of any duly constituted public authority or
of any board of fire underwriters or other similar body relating to the
condition, use, or occupancy of the Facility. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Lessor is a party or not, that Tenant has violated any such law,
governmental regulation or requirement shall be conclusive of that fact. Tenant
shall not allow the Premises to be used for any unlawful or objectionable
purpose, nor shall Tenant cause, maintain, or permit any nuisance on or about
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises nor shall Tenant conduct any auction upon the Premises.
(b) Tenant shall operate the Facility in compliance with all
Material state, Federal and Local laws and regulations including but not limited
to Title 22 and shall promptly correct any such non-compliance upon receipt of
notes
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<PAGE>
thereof from any governmental agency or from Lessor. Tenant acknowledges that a
skilled nursing facility is a unique facility and that a violation of
governmental requirements with respect to such unique facility can cause severe
damage to such facility, including but not limited to the reputation, goodwill
and economic viability of such facility. Therefore, Tenant acknowledges and
agrees that the failure of Tenant to perform its obligations and duties under
this paragraph 10 is a material breach and default under this Lease, that such
failure may result in substantial injury and damage to Lessor, and that in
addition to Lessor's other remedies provided by law or under this Lease, Tenant
shall be liable to Lessor for any and all damages, whether direct or
consequential that may be suffered, incurred or sustained by Lessor on account
of such breach or default including, but not limited to, reasonable attorney's
fees, injury and damage to the name and reputation of the Facility or Lessor.
10.7 Insurance Hazards. No use shall be made or permitted to be made of
-----------------
the Facility or any part thereof, nor acts done, which will cause the
cancellation of any insurance policy covering the Facility, or any part thereof,
nor shall Tenant sell, or permit to be kept, used, or sold, in or about the
Premises any article which may be prohibited by the standard form of fire
insurance policies. Tenant shall, at its sole cost and expense, comply with any
and all requirements pertaining to the Facility, of 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 said Facility or the operations thereof.
10.8 Occupancy.
---------
Throughout the entire term of this Lease, Tenant shall use Tenant's
best efforts to maintain the patient census in the Facility at substantially
full capacity.
11. MAINTENANCE, REPAIRS AND ALTERATIONS
------------------------------------
11.1 Tenant's Obligations.
--------------------
(a) Except as provided in paragraph 3.1, Tenant shall keep in good
order, condition and repair the Premises and every part thereof, structural and
nonstructural (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 plumbing
heating, air conditioning (Tenant shall procure and maintain, at Tenant's
expense, an air conditioning system maintenance contract), ventilating
electrical, lighting facilities and equipment within the Premises, fixtures,
walls (interior and exterior), foundations, ceilings roofs (interior and
exterior), floors, windows, doors, plate glass and skylights located within the
Premises, and all landscaping, driveways, parking lots, fences and signs located
on the Premises and sidewalks and parkways adjacent to the Premises.
(b) Tenant shall, at its sole cost and expense, during the term of
this Lease keep and maintain all of the Equipment in good working order,
condition and repair. Tenant shall have the right to install on the Premises
any and all equipment and fixtures which Tenant desires to install thereon and
which are necessary or convenient to Tenant's use of the Premises as a skilled
nursing facility. All such property so installed by Tenant shall remain
Tenant's property (other than as replacements for personal property as provided
below) and, provided Tenant is not in default hereunder, may be removed by
Tenant as provided in this Lease. Tenant shall not remove the Equipment or any
part thereof or replacement therefor, including without limitation personal
property purchased by Tenant, without the prior written consent of Lessor.
Tenant shall purchase and
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<PAGE>
replace with substitutes of equal or higher quality any worn out or broken items
of Equipment as the same may occur from time to time throughout the term of this
Lease, at Tenant's sole cost and expense. Items so replaced by Tenant shall be
and remain the property of Lessor. Tenant agrees, upon written request from
Lessor, to execute any and all documents reasonably necessary to assist Lessor
to fully evidence Lessor's ownership of the Equipment property.
(c) Tenant shall make all repairs, alterations, replacements and
additions to the Facility necessary to obtain and maintain licensing as a 177-
bed skilled nursing facility and certification of the Facility as a 177-bed
skilled nursing provider under Medi-Cal and Medicare legislation during the
entire Lease term. However, in the event during the Lease Term, improvements to
the Facility are required in order to maintain licensing as a 177-bed skilled
nursing facility and such improvements are physically not capable of being made,
or are prohibited by the laws regulating the use of the Premises, Tenant shall
not be required to make such improvements to the extent the same are physically
incapable of being made or prohibited, but, the Lease shall remain in full force
and effect and the rent hereunder shall not be abated. Tenant expressly assumes
the risk of any change in the laws applicable to the Facility.
11.2 Lessor Has No Obligation. Lessor shall have no obligation to
------------------------
repair, replace or maintain the Equipment or Premises. Tenant expressly waives
the benefit of Civil Code Sections 1941 and 1942 or any other statute which
would otherwise permit Tenant to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Equipment and
Premises in good order, condition and repair.
11.3 Lessor's Rights. If Tenant fails to perform Tenant's obligations
---------------
under this Paragraph 11, Lessor may but shall not be required to enter the
Premises and make such repairs and replacements, and the cost thereof together
with interest at the rate of 10% per annum shall become due and payable as
additional rent to Lessor, together with Tenant's next rent payment.
11.4 Alterations.
-----------
(a) Tenant shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding $50,000
in cost. As used in this paragraph 11.4 the term "Utility Installation" shall
mean bus ducting, power panels, wiring, fluorescent fixtures, space heaters,
conduits, air conditioning and plumbing. Lessor may require that Tenant remove
any or all of said alterations, improvements, additions or Utility Installations
at the expiration of the term, and restore the Premises to their prior
condition. Lessor may require Tenant to provide Lessor, at Tenant's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Tenant make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Tenant remove any or all of such at Tenant's sole expense. Lessor agrees that
the original Tenant whose signatures appear on this Lease together with any
Tenant Related Party as defined in paragraph 18.2, shall not be required to
provide a lien and completion bond for any improvement under this paragraph
11.1(a) if the cost of such improvement is less than $100,000.
(b) Notwithstanding the foregoing, Tenant may make Cosmetic
Alterations to the Premises without Lessor's approval. As used herein, the term
"Cosmetic Alterations" shall mean painting or the installation of wall
coverings, floor cover-
-8-
<PAGE>
ings, window coverings, lighting fixtures, moldings or ceiling tiles.
(c) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Tenant shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent the consent
shall be deemed conditioned upon Tenant acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Tenant with all
conditions of said permit in a prompt and expeditious manner.
(d) 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
materialmen's lien against the Premises or any interest therein. Tenant shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of non-
responsibility in or on 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 expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Tenant shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to 150% of such contested lien claim
or demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Tenant to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall reasonably determine that there is a conflict of
interest arising from the representation of Lessor and Tenant by the same
attorneys or that Lessor is not fully insured against all liability arising from
such claim. Any dispute arising out of Tenant's liability for Lessor's
attorney's fees and costs pursuant to this paragraph shall be determined by
reference in accordance with paragraph 25.20 of this Lease.
(e) Unless Lessor requires their removal, as set forth in paragraph
11.4(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Tenant),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this paragraph 11.4(e), Tenant's personal
property and equipment, other than replacements of the Equipment as provided in
paragraph 11.1 and 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 subject to the provisions of paragraph 12.
12. SURRENDER ON TERMINATION
------------------------
12.1 Tenant shall vacate and surrender the Facility and any additions to
or replacements thereof in good order and repair, ordinary wear and tear
excepted, in a condition acceptable to all governing or licensing authorities
and the Tenant shall remove all of its personal property and equipment therefrom
so that Lessor can take possession of the Facility not later than noon on the
day upon which this Lease or any extension thereof expires, or any sooner
termination of this Lease.
12.2 Subject to the provisions of paragraph 11.4(d), Tenant may at any
time prior to or upon the termination of this Lease or any renewal or extension
thereof, remove from the Premises, Tenant's own personal property and equipment,
excepting any and all alterations, improvements, additions and replacements of
and to the Facility, or any Utility Installations, provided,
-9-
<PAGE>
however, that such property owned by Tenant is removed without substantial
injury to the Facility. No injury shall be considered substantial if it is
properly corrected at Tenant's expense prior to the expiration or sooner
termination of this Lease by restoration to the condition that existed prior to
the installation of such property. Any such property not removed shall become
the property of Lessor.
12.3 At the expiration of the term of this Lease or upon its sooner
termination, Tenant, or the corporation, partnership or other entity licensed to
manage the Facility ("Tenant/Manager") shall contract with Lessor or Lessor's
designee to manage the facility under Tenant/Manager's then-existing License on
the same terms and conditions as those specified in paragraph 10.2(c) of this
Lease and in the Management Agreement referred to in said paragraph.
13. UTILITIES
---------
Tenant shall pay prior to delinquency all charges for water, gas,
electricity, waste disposal and all other utilities supplied to the Premises.
No failure or interruption of utilities shall entitle Tenant to terminate this
Lease or withhold rent or other sums due hereunder.
14. INDEMNITY
---------
14.1 Indemnity by Tenant. Tenant shall indemnify and hold Lessor and
-------------------
Operator 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
Facility, 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, or
elsewhere. Tenant shall further indemnify and hold Lessor and Operator 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, attorney's fees, expense, and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon. In the event any action or proceeding is brought
against Lessor or Operator by reason of any such claim, Lessor or Operator shall
promptly notify Tenant of same. Tenant upon notice from Lessor or Operator shall
defend same at Tenant's expense by counsel satisfactory to Lessor and Operator.
Tenant, as a material part of the consideration to Lessor and Operator, hereby
assumes all risk of damage to property or injury to persons in, upon, or about
the Premises arising from any cause and, subject to the provisions of paragraph
14.2, Tenant hereby waives all claims in respect thereof against Lessor.
14.2 Indemnity by Lessor. Lessor shall indemnify and hold Tenant
-------------------
harmless from and against any and all claims of liability for any injury or
damage to any person or property arising from Lessor's use of the Premises prior
to the inception of this Lease, or from the conduct of Lessor's business, or
from any activity, work or thing done, permitted or suffered by Lessor, its
agents, contractors, employees, lessees other than Tenant, or anyone, in or
about the Premises, or elsewhere, prior to the inception of this Lease. In the
event any action or proceeding is brought against Tenant by reason of any such
claim, Lessor upon notice from Tenant shall defend same at Lessor's expense by
counsel satisfactory to Tenant.
14.3 Exemption of Lessor from Liability. Neither Lessor nor Operator
----------------------------------
shall be liable for injury to Tenant, Tenant's business or loss of income
therefrom or for damage which may be sustained by the person, goods, wares,
merchandise, or property of Tenant, its employees, invitees, customers,
residents, agents, or contractors, or any other person in or about the Premises,
from any cause whatsoever, excepting that caused by Lessor's or Operator's
willful malfeasance.
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<PAGE>
15. INSURANCE
---------
15.1 Required Coverage. Tenant shall keep the Facility and the operation
-----------------
of the Premises insured throughout the Lease term against the following:
(a) Loss or damage by fire, vandalism, malicious mischief, special
extended perils (all risk), and such other risks as may be included in the
broadest form of extended coverage insurance, from time to time available in
amounts sufficient to prevent Lessor 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 of the then full replacement cost;
(b) Loss or damage from leakage of sprinkler systems now or hereafter
installed on the Premises in an amount not less than one hundred percent of the
then full replacement cost;
(c) Loss or damage by explosion of steam boilers, pressure vessels,
or similar apparatus on the Premises, in such limits with respect to any one
accident as may be reasonably requested by Lessor from time to time;
(d) Loss of rental, under a rental value insurance policy covering
risk of loss due to the occurrence of any on the hazards described in the
preceding subparagraphs of this paragraph 15.1, in an amount sufficient to
prevent the Lessor from becoming a co-insurer, but in any event, in an amount
not less than one hundred percent (100%) of the then full basic rental income of
twelve (12) months, including all other charges to be paid hereunder, such
policy or policies to be obtained and paid for by Tenant as frequently as
required.
(e) Claims for personal injury and 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 Facility and all
areas appurtenant thereto with a combined single limit of not less than
$4,000,000 or in such other reasonable additional amounts requested by Lessor
from time to time.
(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;
(g) Any and all risks covered by a full coverage policy of worker's
compensation insurance under the laws of the State of California.
(h) Against all risks under a full coverage policy of incidental
malpractice insurance or other such insurance covering the operation of
Premises, with such limits as may from time to time be reasonably requested by
Lessor, which limits shall be $5,000,000 as of commencement of the term.
15.2 Full Replacement Cost. The term "full replacement cost" shall mean
---------------------
the full replacement cost, including demolition cost, but excluding foundations.
Lessor and Tenant shall, from time to time, but not more often than every other
year, determine the full replacement cost. If Lessor and Tenant cannot agree
among themselves as to the full replacement cost, then, upon notice from either
Lessor or Tenant, the full replacement cost shall be determined by reference in
accordance with paragraph 25.20.
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<PAGE>
15.3 Named Insured.
-------------
All policies of insurance shall name Lessor and Tenant as the
insureds, as their respective interests may appear. At the request of Lessor,
any insurance policy shall be made payable to the holders of any security
interests, mortgages or deeds of trust to which this Lease is at any time
subordinate, as the interests of such holders may appear.
15.4 Miscellaneous Requirements of Policies.
--------------------------------------
(a) All insurance required by this Lease shall be effected under
enforceable policies issued by insurers of recognized responsibility licensed to
do business in the State of California and maintaining during the policy term a
"General Policy Holders Rating" of at least B+ viii, or such other rating as may
be required by any lender having a lien against the Premises. If Tenant cannot
obtain any required insurance or any other insurance required under this Lease,
Lessor shall have the right but not the obligation to obtain such insurance. If
Lessor obtains such insurance, Tenant shall reimburse Lessor on presentation to
Tenant of the invoice for the insurance.
(b) Except as otherwise set forth herein, all policies shall contain
an agreement by the insurers (i) that any loss shall be payable to Lessor and
Tenant or the holders of any security interests, mortgages or deeds of trust to
which this Lease is subordinate, as the interests of such holders may appear,
notwithstanding any act or negligence of Tenant which might otherwise result in
the forfeiture of such insurance; (ii) that such policies shall not be canceled
or modified except after 30 days' written notice to Lessor and to the holders of
any mortgages or deeds of trust to whom loss may be payable; and (iii) that the
coverage shall not be affected by the performance of any work in or about the
Premises.
(c) 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 which would be
provided under a separate policy covering only the Facility.
15.5 Tenant's Obligations, Rights and Remedies of Lessor.
---------------------------------------------------
(a) Tenant agrees that it will pay all insurance premiums promptly
and furnish Lessor with satisfactory evidence of such payment within 10 days
after such premium becomes due. If Tenant fails to obtain such insurance, pay
such premiums when due, or furnish satisfactory evidence of payment, then Lessor
may but shall not be required to place such insurance or pay the premiums, and
in the event of such payment by Lessor, the amount paid may, at the option of
Lessor, be added as additional rent to the next installment of rent due from
Tenant or to any subsequent installment and shall be collectible as additional
rent. In the event that Tenant continues in effect any of Lessor's insurance
policies, the premiums on such policies shall be pro-rated between Lessor and
Tenant as of the Commencement Date, and Tenant shall pay Lessor in cash for
Tenant's share of such premiums within 3 days after Lessor notifies Tenant of
the amount to be paid by Tenant.
(b) Tenant shall deliver a binder all insurance policies to Lessor
not later than 10 days from the Commencement Date, together with evidence that
all premiums have been paid, and thereafter, upon renewal, Tenant shall deliver
satisfactory evidence to Lessor that the premiums for the next ensuing period on
such insurance policies have been paid.
(c) Within 10 days after the expiration of any policy, Tenant shall
deliver the original renewal policy to Lessor, or Lessor may but shall not be
required to order such
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<PAGE>
insurance and charge the cost to Tenant to be added as additional rent to the
next installment of rent due from Tenant or to any subsequent installment.
(d) Premiums for insurance covering the Facility which Tenant elects
to Maintain during the first and last year of this Lease or any renewal or
extension of this Lease shall be prorated between Lessor and Tenant, as of 12:00
A.M. on the Commencement Date and Termination Date, respectively, of this Lease
or any renewal or extension of this Lease.
15.6 Waiver of Subrogation. Tenant and Lessor each hereby waive all rights
---------------------
of recovery against the other, or against the officers, employees, agents and
representatives of the other, or against Operator for loss 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 damage.
15.7 No Representation of Adequate Coverage. Lessor makes no
--------------------------------------
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Tenant's property or obligations under this Lease.
16. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, NO RENT ABATEMENT
-------------------------------------------------------------
16.1 Obligation to Rebuild. In the event that all or part of the Facility
---------------------
is damaged or destroyed, partially or totally, from any cause whatsoever whether
or not such damage or destruction is covered by any insurance required to be
maintained under Paragraph 15.1 hereof, then Tenant shall replace, repair,
restore and rebuild the Facility to its condition existing immediately prior to
such damage or destruction and this Lease shall remain in full force and effect.
Such replacement, repair, restoration and rebuilding (all of which are herein
called "repair") shall be commenced within a reasonable time after such damage
or destruction has occurred and shall be diligently pursued to completion.
16.2 Insurance Proceeds. The proceeds of any insurance maintained under
------------------
Paragraph 15.1(a), (b), (c) or (f) hereof shall be made available to Tenant for
payment of costs and expense of repair, provided however, that such proceeds may
be made available to Tenant subject to reasonable conditions, including, but not
limited to architect's certification of cost, retention of a percentage of such
proceeds pending recordation of a notice of completion and a lien and completion
bond to insure against mechanic's or materialmen's liens arising out of the
repair and to insure completion of the repair, all at the expense of Tenant. In
the event the insurance proceeds are insufficient to cover the cost of repair,
then any amounts required over the amount of the insurance proceeds received
that are required to complete said repair shall be paid by Tenant.
16.3 Abatement of Rent. Notwithstanding the partial or total destruction
-----------------
of the Premises or any part thereof, and notwithstanding whether the casualty is
insured or not, there shall be no abatement of rent or of any other obligation
of Tenant hereunder by reason of such damage or destruction unless the Lease is
terminated by virtue of any other provision of this Lease.
16.4 Waiver. Tenant waives the provisions of California Civil Code
------
Sections 1932(2) and 1933(4) and any other statutes which relate to termination
of leases when the property leased is destroyed and agrees that such event shall
be governed by the terms of this Lease.
17. CONDEMNATION
------------
17.1 If any part of the Premises shall be taken or condemned for a
public or quasi-public use, and a part thereof
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<PAGE>
remains which is susceptible of occupation, this Lease shall terminate as to the
part so taken as of the date title vests in the condemnor, and the rent payable
hereunder shall be adjusted so that for the remainder of the Lease Term, Tenant
shall be required to pay 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 Premises is unreasonably diminished,
either Lessor or Tenant shall have the option to terminate this Lease as of the
date when title to the part so condemned vests in the condemnor, by written
notice to the other within 10 days after title vests in the condemnor.
17.2 If all of the Premises, or such part thereof be taken or condemned so
that there does not remain a portion susceptible for occupation hereunder, as
above-described, 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 which does not relate to Tenant's personal property shall go to the
Lessor, and the Tenant shall have no claim thereto, and the Tenant hereby
irrevocably assigns and transfers to the Lessor any right to compensation or
damages to which the Tenant may become entitled during the term hereof by reason
of the condemnation of all or any part of the Premises. In the event that Lessor
and Tenant do not agree upon the allocation, the matter shall be submitted to
judicial reference, and the award shall be allocated as the referee shall
determine.
17.3 Each party waives the provisions of California Code of Civil
Procedure Section 1265.130 allowing either party to petition the Superior Court
to terminate this Lease in the event of a partial taking of the Premises.
18. RESTRICTION ON ASSIGNMENT, SUBLETTING, HYPOTHECATION AND OTHER TRANSFER
-----------------------------------------------------------------------
18.1 Lessor's Consent Required. Tenant shall not voluntarily or by
------------------------- ----------------------------------
operation of law assign, transfer, mortgage. pledge, encumber. or sublet
- ------------------------------------------------------------------------
("Transfer") any part of Tenant's interest in this Lease or in the Premises.
- ----------------------------------------------------------------------------
Equipment or any part thereof, without Lessor's prior written consent. which
- ----------------------------------------------------------------------------
Lessor shall not unreasonably withhold. Lessor hereby agrees to consent to any
- --------------------------------------
commercially reasonable assignee or sublessee, if the following conditions are
met:
(a) Tenant shall submit to Lessor with any request for an
assignment or sublease, the agreement of the proposed assignee or
sublessee to assume all of Tenant's obligations under this Lease;
(b) Tenant shall submit complete financial statements for
the proposed assignee or sublessee, evidencing a tangible net worth
of at least $3,000,000; and
(c) The Chief Executive Officer and/or Chief operating officer of the
division of the proposed assignee and/or sublessee that intends to
operate the Facility shall have a minimum of five years experience in
the ownership, management or operation of skilled nursing facilities.
In the event the proposed Tenant meets the above-referenced conditions, Lessor
shall consent to said assignment and/or subletting to the proposed Tenant. Upon
receipt of Lessor's approval, Tenant may Transfer Tenant's interest to the
proposed transferee, but Tenant shall remain personally liable under this Lease.
Any attempted Transfer without such consent shall be void and shall constitute a
breach of this Lease.
18.2 Transfer to Tenant Related Party. Subject to paragraph 18.3,
--------------------------------
Tenant may Transfer the Facility or Tenant's interest in any corporation,
unincorporated association or
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<PAGE>
partnership which holds this Lease to a Tenant Related Party subject to the
condition that Tenant shall give written notice to Lessor in advance of any such
Transfer, which notice shall include copies of the assignment, sublease, or
other writing evidencing the transfer. As used herein a Tenant Related Party
shall mean one of the Tenants, a descendant of one of the Tenants, a trust for
the benefit of one of the Tenants or the spouse or descendants of a Tenant, or a
corporation, partnership or other entity that is beneficially owned in its
entirety by one of the Tenants, or the spouse or descendants of a Tenant.
18.3 No Release of Tenant. Regardless of Lessor's consent, no
--------------------
Transfer shall release Tenant from Tenant's obligations under this Lease. The
acceptance-of rent by Lessor from any other person shall not be deemed to be a
waiver by Lessor of any provision hereof. Consent to one Transfer shall not be
deemed consent to any subsequent Transfer. In the event of default by any
subtenant, assignee or successor of Tenant in the performance of any of the
terms hereof, Lessor may proceed directly against Tenant without the necessity
of exhausting remedies against said subtenant, assignee or successor. Lessor
may consent to subsequent assignments or subletting of this Lease or amendments
or modifications to this Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their consent
thereto and such action shall not relieve Tenant of liability under this Lease.
18.4 Attorney's Fees. In the event Tenant shall assign the Lease or
---------------
sublet the Facility or request the consent of Lessor to any assignment or
subletting or if Tenant shall request the consent of Lessor for any act Tenant
proposes to do then Tenant shall pay Lessor's reasonable attorney's fees
incurred in connection therewith, such attorney's fees not to exceed $2,500 for
each such request.
18.5 Form of Consent. Each Transfer, assignment, subletting,
---------------
license, concession agreement, mortgage and hypothecation to which there has
been consent shall be by an instrument in writing in form satisfactory to
Lessor, and shall be executed by the parties thereto who shall agree in writing
for the benefit of Lessor 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 Lessor. Failure to first obtain in
writing Lessor's consent or failure to comply with the provisions of this
paragraph shall operate to prevent any such Transfer, assignment, subletting,
license, concession agreement or hypothecation from becoming effective.
Assignments and subletting permitted under paragraph 18.2 to related parties
shall nonetheless be documented in a writing whereby each assignee, and each
shareholder of a corporate assignee, shall assume and be bound by all of the
terms, covenants and conditions of this Lease applicable to the Tenant.
18.6 Transfer of Ownership. If Tenant or any sublessee, or assignee
---------------------
or successor in interest of Tenant hereunder is a corporation or is an
unincorporated association or partnership, the transfer, assignment, or
hypothecation of any stock or interest in such corporation, association, or
partnership in the aggregate in excess of twenty-five percent (25%) shall be
deemed a Transfer within the meaning and provisions of this paragraph 18.1.
19. DEFAULT
-------
19.1 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) 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 notice has been given to Tenant.
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<PAGE>
(b) Abandonment and vacation of the Premises or the Equipment.
(c) Failure to perform any other provision of this Lease if the
failure to perform is not cured within 15 days after notice has been given to
Tenant. If the nature of Tenants' default is such that more than 30 days are
reasonably required for its cure, then it shall not be deemed to be a breach of
this Lease by Tenant if Tenant commences such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion.
(d) (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 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 30 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 30 days.
(e) The discovery by Lessor that any financial Statement given to
Lessor by Tenant, any assignee of Tenant, any subtenant of Tenant, any successor
in interest of Tenant or any guarantor of Tenant's obligation hereunder, and any
of them, was materially false.
(f) Notwithstanding any other provisions of this Lease, the failure
of Tenant to comply with any provision of the Lease, if such failure
substantially jeopardizes the continued licensing or certification of the
Facility or its certification as either a Medicare or Medi-Cal provider and if,
within 72 hours after written notice thereof from Lessor to Tenant, Tenant shall
not have either (i) cured such failure; or (ii) obtained an injunction or other
order preventing revocation or suspension of licensing or decertification of the
Facility; or (iii) provided Lessor with assurances reasonably satisfactory to
Lessor that the Facility will not be subject to license suspension or revocation
or decertification as a result of such failure or alleged failure.
19.2 Lessor's Remedies. In the event of a default by Tenant under
-----------------
this Lease, Lessor shall have the following remedies; these remedies are not
exclusive; they are cumulative and are in addition to any remedies now or later
allowed by law and in addition to any other rights and remedies of Lessor under
any provision of this Lease:
(a) Re-Entry Without Termination. Lessor shall have the immediate
----------------------------
right of re-entry and may remove Tenant and any or 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.
(i) Should Lessor elect to re-enter, as herein provided, or
should it take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, Lessor may either terminate this Lease or Lessor may
from time to time, without terminating this Lease, re-let the Premises, 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 Lessor in his sole discretion may deem
advisable with the right to make repairs to said Premises and Equipment upon
each such re-letting.
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<PAGE>
(ii) Tenant shall be liable immediately to pay to Lessor:
(1) All costs Lessor incurs in re-letting the Facility,
including, without limitation, broker's commissions, expenses of remodeling the
Facility required by the re-letting, but only insofar as such remodeling is
necessary to restore the Premises to their condition at the inception of this
Lease, reasonable wear and tear excepted, expenses of repairing the Facility and
like costs. Re-letting can be for a period shorter or longer than the remaining
term of this Lease; and
(2) 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 Facility for such re-letting, payable monthly.
(iii) At the option of Lessor, rents received by such Lessor from
such re-letting shall be applied: First, to the payment of any indebtedness,
other than rent due hereunder from Tenant to Lessor; second, to the payment of
any costs and expenses of such re-letting and of such repairs; third, to the
payment of rent due and unpaid hereunder and the residue, if any, shall be held
by Lessor and applied in payment of future rent as the same may become due and
payable hereunder.
(iv) If Tenant has been credited with any rent received by such
re-letting under this paragraph 19.2, and such rent shall not be promptly paid
to Lessor by the new tenant, or if such rentals received from such re-letting
under this paragraph 19.2 during any month be less than that to be paid during
that month by Tenant hereunder, Tenant shall pay any such deficiency to Lessor.
Such deficiency shall be calculated and paid monthly.
(v) No such re-entry or taking possession of said Premises by
Lessor shall be construed as an election on Lessor's part to terminate this
Lease unless 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, Lessor may at any time
thereafter elect to terminate this Lease for such previous breach.
(b) Termination. Lessor may terminate this Lease and Tenant's right
-----------
to possession of the Facility, or any part thereof, at any time. No act by
Lessor other than giving written notice to Tenant shall be required to terminate
this Lease. Acts of maintenance, efforts to relet the Facility, or the
appointment of a receiver on Lessor's initiative to protect Lessor's interest
under this Lease shall not constitute a termination of Tenant's right to
possession. On termination, Lessor has the right to recover from Tenant: (i)
The worth, at the time of the award of the unpaid rent that had been earned at
the time of termination of this Lease; (ii) 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; (iii)
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; (iv) Any other
amount, and court costs, necessary to compensate Lessor for all detriment
proximately caused by Tenant's default; and (v) "The worth, at the time of the
award", as used in subparagraph (i) and (ii) of this paragraph 19.2(b) 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 referred to in subparagraph (iii) of this
paragraph 19.2(b), 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%).
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<PAGE>
(d) Cure at Tenant's Expense. Lessor can cure any default at Tenant's
------------------------
expense. If Lessor at any time, by reason of Tenant's default, pays any sum or
does any act that requires the payment of any sum, the sum paid by Lessor shall
be due immediately from Tenant to Lessor at the time the sum is paid, and if
paid at a later date shall bear interest at the maximum rate allowed by law from
the date the sum is paid by Lessor until Lessor is reimbursed by Tenant. The
sum, together with interest on it, shall be additional rent.
19.3 Default by Lessor.
-----------------
(a) Lessor shall not be in default unless Lessor fails to perform
obligations required of Lessor within a reasonable time, but in no event later
than thirty (30) days after written notice by Tenant to Lessor, specifying
wherein Lessor has failed to perform such obligation; provided, however, that if
the nature of Lessor's obligation is such that more than thirty (30) days are
required for performance then Lessor shall not be in default if Lessor commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
(b) Provided that Tenant has paid rent or other sums required to be
paid by it and in the event any mortgage 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 Lessor's wrongful failure to make any
interest or principal payment due thereunder, then and in such event Tenant
shall have the right, but not the obligation, to pay such sum as may be required
to bring such indebtedness current and pay any foreclosure costs in connection
therewith, and to set off the amount so paid against the next ensuing
installments of minimum monthly rent due from Tenant to Lessor. Thereafter, all
such rent shall be paid directly to Lessor.
19.4 Late Charges. Tenant hereby acknowledges that late payment by
------------
Tenant to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, Tenant shall pay to Lessor a late charge equal to six
percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will incur
by reason of late payment by Tenant. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
20. BOOKS, RECORDS AND CENSUS
-------------------------
20.1 Tenant shall keep and maintain on the Premises records covering
all occupants in the Facility that a the Facility is required to maintain by or
under Medicare, Medi-Cal or any other governmental authority, for a period of at
least seven (7) years, and Tenant shall cause all its assignees, subtenants,
licensees and agents to do the same.
20.2 Tenant shall provide Lessor, upon Lessor's reasonable request, a
Certified Census Report setting forth percentage of occupancy in the Facility.
21. ABANDONMENT OF FACILITY
-----------------------
Tenant shall not vacate or abandon the Facility or cease operating a
skilled nursing business thereon. If Tenant shall abandon, vacate or surrender
the Facility, or be dispossessed by
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<PAGE>
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 Lessor.
22. TRANSFER OF LESSOR'S INTEREST
-----------------------------
The term "Lessor" as used in this Lease so far as covenants and obligations
on the part of the Lessor 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 Lessor
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 Lessor contained in this Lease
thereafter to be performed, provided that any funds in the hands of such Lessor
or the then Grantor at the time of such transfer, in which the Tenant has an
interest, shall be turned over to the Grantee and any amount then due and
payable to the Tenant by the Lessor 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 Lessor under this
Lease, it being intended hereby that the covenants and obligations contained in
this Lease on the part of the Lessor shall, subject to the aforesaid, be binding
on the Lessor, its successors and assigns, only during and in respect of their
respective successive periods of ownership.
23. INVENTORY AND PRORATIONS
------------------------
23.1 In the event Tenant collects any rentals from Medicare, Medi-Cal, any
insurance carrier, or third-party payor on behalf of residents of the Facility
for any period prior to the Commencement Date, Tenant shall immediately deliver
such checks or drafts to Lessor without depositing the same in any account of
Tenant. In the event Tenant receives any checks that include payment for periods
both before and after the Commencement Date, Tenant may deposit such checks and
deliver to Lessor, Tenant's check for the portion relating to the period before
the Commencement Date, together with a copy of the remittance advice or other
document from the payor of the check received by Tenant, identifying the payor
and indicating the period which the check is intended to cover and the patient
for whom the payment is made. In the event Tenant collects any other rentals
from or on behalf of residents of the Facility, Tenant may apply such payment
first to any amount then due and owing by the resident or occupant of the
Facility to Lessor for the period before the Commencement Date; and any such
payment for periods before the Commencement Date shall immediately be paid by
Tenant to Lessor. Tenant agrees to cooperate with Lessor in the collection of
any amounts owing to Lessor for the use or occupancy of the Facility prior to
the Commencement Date.
23.2 Lessor and Tenant shall cause an inventory of all food, stock and
other disposable goods and supplies on the Premises to be taken on November 1,
1992, and Lessor shall cause same to be transferred to Tenant, at Lessor's cost,
or at the cost of the lessee of the Premises prior to the inception of this
Lease. Tenant shall pay such amount to Lessor on November 1, 1992, together with
Tenant's prorated share of insurance premiums, if any, on policies to be
maintained by Tenant and heretofore paid by Lessor.
23.3 Lessor shall credit Tenant with that portion of the rentals collected
by Lessor from residents of the Facility for any portion of the month of
November, 1992. Tenant shall be entitled to utilize such credit as an offset
against its obligation to Lessor under paragraph 23.1. Any unused credit may
then be applied to offset Tenant's minimum monthly rent obligation to Lessor.
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<PAGE>
23.4 Lessor shall pay all accrued salary and other benefits due to
employees of the Facility through October 31, 1992. Tenant shall pay all
salary, vacation and other benefits due to employees of the Facility beginning
on November 1, 1992. Tenant shall pay all accrued vacation to employees of the
Facility that is payable to an employee on or after November 1, 1992; and,
Lessor shall reimburse Tenant for the portion thereof applicable to the period
prior to November 1, 1992.
24. UNDERTAKING FOR EQUIPMENT LIENS
-------------------------------
Within ten (10) days after the commencement of the term of this Lease,
Tenant shall deliver to Lessor a written bond or undertaking by an insurance
company licensed to do business in California with a rating not less than that
provided in paragraph 15.4(a), with liability in the amount of $250,000, which
shall insure Lessor against and provide for the payment of any lien, encumbrance
or mortgage securing the Equipment made by Tenant or any other claim against the
Equipment arising from Tenant's conduct. Nothing in this paragraph shall be
construed as a consent to the mortgage, pledge, encumbrance or other
hypothecation of the Equipment by Tenant. Said undertaking shall be in the form
attached hereto as Exhibit if "3." In the event a form of undertaking is not
attached as Exhibit "3," the form of undertaking shall be subject to the
approval of Lessor, which approval shall not be unreasonably withheld.
25. GENERAL PROVISIONS
------------------
25.1 Estoppel Certificate.
--------------------
(a) Tenant shall at any time upon not less than 10 days' prior
written notice from Lessor execute 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, and (ii) acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Lessor hereunder, or specifying such defaults if
any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor; (ii) that there are
no uncured defaults in Lessor's performance; and (iii) that not more than one
month's rent has been paid in advance, or such failure may be considered by
Lessor as a default by Tenant under this Lease.
25.2 Severability. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
25.3 Interest and Late Charges on Past-Due Obligations. Except as
-------------------------------------------------
expressly herein provided, any amount due to Lessor not paid within ten days
after the date that it is due shall bear interest at the rate of 10% per annum
from the date that the payment was due. Acceptance of any late payment by
Lessor shall in no way constitute a waiver of Tenant's default with respect to
such overdue amount or any interest due thereon, nor prevent Lessor from
exercising any of its rights and remedies hereunder. If Lessor elects to have
the rent collected by a bank, any rent not paid when due shall bear interest as
set forth herein. Payment of such interest shall not excuse or cure any default
by Tenant under this Lease.
25.4 Time of Essence. Time is of the essence of this Lease.
---------------
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<PAGE>
25.5 Captions. Article and paragraph captions are not a part
--------
hereof.
25.6 Incorporation of Prior Agreements; Amendments. This Lease contains
---------------------------------------------
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement, memorandum or understanding pertaining to any such matter shall
be effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification.
25.7 No Brokers. Tenant hereby acknowledges that there are no real estate
----------
broker or any after brokers in connection with this transaction.
25.8 Notices. Any notice to be given hereunder shall be in writing and may
-------
be given by personal delivery or by certified mail, and shall be deemed
sufficiently given if addressed to Tenant or to Lessor at each of the addresses
noted below. Either party may by notice to the other specify a different address
for notice purposes.
If to Lessor: Alexandria Convalescent Investments
c/o Salamon Mandel
316 North Las Palmas Avenue
Los Angeles, California 90004
With a copy to: Gold, Marks, Ring & Pepper
1800 Ave of the Stars, Suite 300
Los Angeles, California 90067
Attn: Elliot L. Shelton, Esq.
If to Tenant: Robert M. Snukal, Sheila S. Snukal,
Manuel Padama, Clair Padama
1515 North Alexandria Avenue
Los Angeles, California 90027
With a copy to: David B. Bloom, Esq.
3328 Wilshire Boulevard, 9th Floor Los
Angeles, California 90010
25.9 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 by the
other party of the same or any other provision. Lessor's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Lessor 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 Lessor's knowledge of the preceding breach at
the time of acceptance of such rent.
25.10 Recording. Tenant shall not record this Lease or any memorandum
---------
thereof.
25.11 Holding Over. If Tenant remains in possession of the Facility after
------------
the expiration of the Lease term without the express written consent of Lessor,
such occupancy shall be a tenancy from month-to-month at a rental in the amount
150% of the last monthly rent plus all other charges payable hereunder, and upon
all the terms hereof applicable to a month-to-month tenancy.
25.12 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.
25.13 Covenants and Conditions. Each provision of this Lease performable by
------------------------
Tenant shall be deemed both a covenant and condition.
25.14 Binding Effect; Choice of Law. Subject to any provisions hereof
-----------------------------
restricting assignment or subletting by Tenant, this Lease shall bind the
parties, their personal representa-
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<PAGE>
tives, successors and assigns. This Lease shall be governed by the laws of the
State of California.
25.15 Subordination.
-------------
(a) This Lease, at Lessor'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, and extensions 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 perform
all of the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms.
(b) Tenant agrees to execute any documents required to effectuate
such subordination and, if Tenant fails to do so within 10 days after written
demand, Tenant irrevocably appoints Lessor as Tenant's attorney in fact to do so
in Tenant's name.
(c) In the event of foreclosure or the exercise of the power of sale
under any deed of trust made by Lessor covering the Premises, Tenant shall
attorn to the purchaser upon any such foreclosure or sale and recognize such
purchaser as Lessor under this Lease, provided such purchaser expressly agrees
in writing to be bound by the terms of this Lease.
25.16 Lessor's Access. Lessor and Lessor's agents shall have the right to
---------------
enter the Premises at reasonable times for the purpose of inspecting the
Premises and Equipment, showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to the
Premises or to the building of which they are a part as Lessor may deem
necessary or desirable. Lessor may at any time place on or about the Premises
any ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises any
ordinary "For Lease" signs, all without rebate of rent or liability to Tenant.
25.17 Merger. The voluntary or other surrender of this Lease by
------
Tenant, a mutual cancellation thereof, or a termination by Lessor, shall not
work a merger and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
25.18 Quiet Possession. Upon Tenant paying the rent and observing
----------------
and performing all of Tenant's obligations under this Lease, Tenant shall have
quiet possession of the Premises for the entire Lease Term, subject to all of
the provisions of this Lease.
25.19 Provisions to be Construed Neutrally. This Lease has been
------------------------------------
prepared jointly by Lessor and Tenant; and the terms, conditions, recitals and
other provisions hereof shall not be interpreted or construed in favor of either
party hereto but shall be interpreted and construed neutrally between the
parties.
25.20 Judicial Reference. Ally claim or dispute under this Lease that is to
------------------
be submitted to judicial reference shall be resolved by a general reference
pursuant to California Code of Civil Procedure Section 638. This reference
agreement provision shall be specifically enforceable. The claim or dispute
shall be resolved by a referee under an order of general reference to try all
issues of fact and law, whether legal or equitable, to be chosen by counsel for
the parties from a list of retired superior court judges furnished by the Los
Angeles Superior Court, with all parties hereby waiving any right to a trial by
jury. If counsel are unable to agree upon a particular retired judge within 10
days after receipt by one party of a demand from the
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<PAGE>
other party for judicial reference, then the referee shall be
appointed by the court in accordance with Code of Civil Procedure
Section 640, with each party entitled to only one disqualification
pursuant to Code of Civil Procedure Section 170.6. The prevailing
party shall be entitled to receive as part of the referee's award all
reasonable attorneys' fees and costs actually incurred, plus interest
at the Bank of America Reference Rate plus one point from the date of
the claim. The judgment entered upon the decision of the referee shall
be subject to all post-trial procedures and to appeal.
25.21 Agreement Not to Compete. Salamon Mandel, one of the
------------------------
partners of Lessor and Operator, agrees that for a period of seven
years, from November 1, 1992 to October 30, 1999, Salamon Mandel shall
not act as the manager or administrator of any skilled nursing or
board and care facility within a radius of five miles in any direction
of the Facility. Notwithstanding the foregoing, it is agreed that it
will not be a breach of this agreement if Salamon Mandel owns or has a
beneficial interest in the owner or operator of other skilled nursing
or board and care facilities, within said five-mile radius. In
consideration of the agreement made by Salamon Mandel pursuant to this
paragraph, Tenant shall pay to Salamon Mandel the sum of $350,000,
payable in installments of $50,000 per year, commencing on November 1,
1992 and continuing on November 1 of each year to and including
November 1, 1998. Tenant acknowledges and agrees that its payment
obligation under this paragraph 25.21 is an absolute obligation and
such obligation to make payments hereunder shall continue
notwithstanding the death or disability of Mandel or upon the
occurrence of any other circumstance or event, including but not
limited to the termination of this Lease or a Transfer of this Lease
by Tenant. In all events Tenant shall continue to make payments due
and owing to Salamon Mandel or his successors pursuant to this
paragraph 25.21, as the case may be, on such dates as such payments
would otherwise be made pursuant to this paragraph. As additional
consideration to Tenant pursuant to this paragraph, Benjamin Mandel
agrees that he shall be bound by this paragraph to the same extent as
Salamon Mandel; provided, however, that Tenant shall not unreasonably
withhold its consent if Benjamin Mandel requests Tenant's consent to
be the manager or administrator of a specific skilled nursing or board
and care facility within a five mile radius of the Facility; and
provided further that Tenant's consent thereto shall not release
Tenant from any payment obligation under this paragraph.
25.22 Joint and Several Liability. If the Tenant under this Lease
---------------------------
is more than one person, corporation, partnership or other entity, the
obligations of such persons, corporations, partnerships or other
entities as Tenant under this Lease are joint and several. A separate
action may be brought or prosecuted against anyone of such persons,
corporations, partnerships or other entities that is a Tenant under
this Lease without bringing or prosecuting an action against any other
person, corporation, partnership or other entity that is a Tenant
under this Lease regardless if any other person, corporation,
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<PAGE>
partnership or other entity that is a Tenant is joined in the action.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AS OF THE DATE FIRST SET
FORTH ABOVE.
NOTICE TO TENANTS: THIS LEASE CONTAINS PROHIBITIONS AND RESTRICTIONS
UPON ASSIGNMENT, SUBLEASE, HYPOTHECATION AND OTHER TRANSFER OF THE
PREMISES, EQUIPMENT OR THE TENANT'S INTEREST IN THIS LEASE. SEE
SECTION 18.
"Lessor" "Tenant"
ALEXANDRIA CONVALESCENT
INVESTMENTS, a partnership /s/ Robert M. Snukal
--------------------------------
ROBERT M. SNUKAL
By: /s/ Salamon Mandel
-------------------------------
Salamon Mandel, Partner /s/ Sheila S. Snukal
--------------------------------
SHEILA S. SNUKAL
By: /s/ Frieda Mandel
-------------------------------
Frieda Mandel, Partner /s/ Manuel Padama
--------------------------------
MANUEL PADAMA
By: /s/ David Weiss
-------------------------------
David Weiss, Partner /s/ Clair Padama
--------------------------------
CLAIR PADAMA
By: /s/ Miriam Weiss
-------------------------------
Miriam Weiss, Partner
By: /s/ Jacob Kasirer
-------------------------------
Jacob Kasirer, Partner
By: /s/ Rose Kasirer
-------------------------------
Rose Kasirer, Partner
CONSENT TO AGREEMENT NOT TO COMPETE
-----------------------------------
Salamon Mandel and Benjamin Mandel consent and agree to be bound by paragraph
25.21 of this Lease.
/s/ Salamon Mandel
--------------------------------
Salamon Mandel
--------------------------------
Benjamin Mandel
-24-
<PAGE>
EXHIBIT 1
LEGAL DESCRIPTION
-----------------
The real property in the City of Los Angeles, County of Los
Angeles, State of California, described as:
Lots 27, 28, 30, 43, 44, 45 and 46 of The Keystone Tract as
per map recorded in Book 6, Page 97 of Maps in the Office of
the County Recorder of said County.
-25-
<PAGE>
EXHIBIT 2
EQUIPMENT
---------
[TO BE ADDED]
-26-
<PAGE>
EXHIBIT "3"
UNDERTAKING
-----------
[TO BE ADDED]
-27-
<PAGE>
L E A S E
(ALEXANDRIA CONVALESCENT HOSPITAL)
TABLE OF CONTENTS
Page
----
1. PARTIES................................................................. 1
2. DESCRIPTION OF.......................................................... 1
3. TENANT'S ACCEPTANCE OF FACILITY......................................... 1
3.1 Tenant's Investigation............................................ 1
3.2 Acceptance of Premises............................................ 1
3.3 Changes in Conditions............................................. 2
4. TERM.................................................................... 2
5. SECURITY DEPOSIT........................................................ 2
6. RENT.................................................................... 2
6.1 Minimum Monthly Rent.............................................. 2
6.2 Rent Adjustment................................................... 2
6.3 Medi-Cal Pass-Throughs............................................ 3
6.4 Net Lease......................................................... 3
7. ADDITIONAL CONSIDERATION................................................ 4
8. RIGHT OF FIRST REFUSAL.................................................. 4
9. TAXES................................................................... 4
9.1 Real Property Taxes............................................... 4
9.2 Impound Account................................................... 5
9.3 Definition of "Real Property Tax"................................. 5
9.4 Personal Property Taxes........................................... 5
9.5 Right to Contest Taxes............................................ 5
10. USE..................................................................... 5
10.1 Skilled Nursing Facility.......................................... 5
10.2 Licensing......................................................... 5
10.3 Long-Term Arrangements............................................ 6
10.4 Notice of Damage.................................................. 6
10.5 Access to Books and Records....................................... 6
10.6 Compliance with Law............................................... 7
10.7 Insurance Hazards................................................. 7
10.8 Occupancy......................................................... 7
11. MAINTENANCE, REPAIRS AND ALTERATIONS.................................... 7
11.1 Tenant's Obligations.............................................. 7
11.2 Lessor Has No Obligation.......................................... 8
11.3 Lessor's Rights................................................... 8
11.4 Alterations....................................................... 8
12. SURRENDER ON TERMINATION................................................ 9
13. UTILITIES............................................................... 10
14. INDEMNITY............................................................... 10
14.1 Indemnity by Tenant............................................... 10
14.2 Indemnity by Lessor............................................... 10
14.3 Exemption of Lessor from Liability................................ 10
15. INSURANCE............................................................... 11
15.1 Required Coverage................................................. 11
15.2 Full Replacement Cost............................................. 11
15.3 Named Insured..................................................... 12
15.4 Miscellaneous Requirements of Policies............................ 12
15.5 Tenant's Obligations, Rights and Remedies of
Lessor............................................................ 12
15.6 Waiver of Subrogation............................................. 13
15.7 No Representation of Adequate Coverage............................ 13
-28- 10/29/92
<PAGE>
Page
----
16. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, NO RENT
ABATEMENT.............................................................. 13
16.1 Obligation to Rebuild............................................ 13
16.2 Insurance Proceeds............................................... 13
16.3 Abatement of Rent................................................ 13
16.4 Waiver........................................................... 13
17. CONDEMNATION........................................................... 14
18. RESTRICTION ON ASSIGNMENT, SUBLETTING,
HYPOTHECATION AND OTHER TRANSFER....................................... 14
18.1 Lessor's Consent Required........................................ 14
18.2 Transfer to Tenant Related Party................................. 14
18.3 No Release of Tenant............................................. 15
18.4 Attorney's Fees.................................................. 15
18.5 Form of Consent.................................................. 15
18.6 Transfer of Ownership............................................ 15
19. DEFAULT................................................................ 15
19.1 Tenant's Default................................................. 15
19.2 Lessor's Remedies................................................ 16
19.3 Default by Lessor................................................ 18
19.4 Late Charges..................................................... 18
20. BOOKS, RECORDS AND CENSUS.............................................. 18
21. ABANDONMENT OF FACILITY................................................ 18
22. TRANSFER OF LESSOR'S INTEREST.......................................... 19
23. INVENTORY AND PRORATIONS............................................... 19
24. UNDERTAKING FOR EQUIPMENT LIENS........................................ 20
25. GENERAL PROVISIONS..................................................... 20
25.1 Estoppel Certificate............................................ 20
25.2 Severability.................................................... 20
25.3 Interest and Late Charges on Past-Due
Obligations..................................................... 20
25.4 Time of Essence................................................. 20
25.5 Captions........................................................ 20
25.6 Incorporation of Prior Agreements;
Amendments...................................................... 20
25.7 No Brokers...................................................... 20
25.8 Notices......................................................... 21
25.9 Waivers......................................................... 21
25.10 Recording....................................................... 21
25.11 Holding Over.................................................... 21
25.12 Cumulative Remedies............................................. 21
25.13 Covenants and Conditions........................................ 21
25.14 Binding Effect; Choice of Law................................... 21
25.15 Subordination................................................... 21
25.16 Lessor's Access................................................. 22
25.17 Merger.......................................................... 22
25.18 Quiet Possession................................................ 22
25.19 Provisions to be Construed Neutrally............................ 22
25.20 Judicial Reference.............................................. 22
25.21 Agreement Not To Compete........................................ 23
25.22 Joint and Several Liability..................................... 23
-29- 10/29/92
<PAGE>
Consent, Agreement, and Acknowledgment
--------------------------------------
July 30, 1997
To: Alexandria Convalescent Investments, A General Partnership
Dear Gentlemen:
My wife and I are the owners of 100% of the capital stock of Alexandria
Convalescent Hospital Inc., a California corporation ("Alexandria"). We are also
the owners of 100% of all interest in that certain lease agreement between
yourselves and Robert M. Snukal, Sheila S. Snukal, Manuel Padama and Claire
Padama, who are commonly referred to as Tenants, in that lease agreement dated
November 2, 1992. We have previously purchased from Manuel Padama and Claire
Padama all right, title, and interest to said lease from them, however, nothing
set forth herein shall serve to release, waive, or otherwise affect the ability
of the Lessor to proceed against them. Alexandria is a party to a Stock Purchase
and Contribution Agreement (the "Agreement"). Pursuant to the terms of the
Agreement at the time of closing, ownership of 100% of Alexandria's capital
stock will be transferred (the "Transfer") to Fountain View Holdings, Inc, a
Delaware corporation ("Holdings"), which will be a wholly-owned subsidiary of
Fountain View, Inc., a Delaware corporation ("Fountain View"). In addition, in
connection with the transactions contemplated by the Agreement, we will assign
our interests in the Lease to Alexandria (together with the Transfer, the
"Assignment"). Immediately after the consummation of the transactions
contemplated by the Agreement, my wife and myself will retain voting and
operational control of Alexandria, we will control the Board of Directors of
Fountain View by electing three of the five proposed Directors of Fountain View,
and we will continue to lead Alexandria's management team, and Robert Snukal
will continue as the Chief Executive Officer of Alexandria, Holdings, and
Fountain View. The Board of Directors shall be comprised of myself, my wife, and
a third individual to be nominated by us; the other two seats on the Board of
Directors will be nominees of Heritage Fund II Investment Corporation, who will
own 49.9% of the common stock of Fountain View, Inc. Further, my wife and I will
retain ownership and voting control of 50.1% of the common stock of Fountain
View, Inc.
Pursuant to Section 18 and its related parts of the Lease Agreement dated
November 2, 1992, (the "Lease") between Alexandria Convalescent Investments, A
General Partnership as Lessor ("Lessor") and myself and my wife as Lessees
("Lessees"), your written consent is required to the Assignment referred to
herein. Further, by their signature to this document and in connection with your
consenting to the Assignment, Holdings and Fountain View,
<PAGE>
agree to assume all of the terms, covenants, conditions, and obligations of the
Lessee to be performed under the Lease, upon the Closing. We, therefore, would
appreciate you executing this Consent, Agreement and Acknowledgment with respect
to the following:
1. A true and correct copy of the Lease between Robert and Sheila Snukal,
as the surviving Lessees, and Alexandria Convalescent Investments, A
General Partnership, as Lessor, dated November 2, 1992, as attached
hereto as Exhibit "A."
2. As of the date hereof, (i) there exist no known defaults by any of the
Lessees, (ii) Lessees are in full compliance with the terms of the
Lease and (iii) the Lease is in effect as of the date hereof.
3. We hereby consent to the Assignment, effective as of the date hereof,
provided however, that in no event shall Lessees, Alexandria, Robert
and Sheila Snukal, be released from Lessees' obligations under the
Lease, and they agree that they will continue to be primarily
obligated on the Lease and that in the event of a breach or default
thereunder, Lessor may commence legal proceedings against any of
Lessees, without first proceeding against any Assignee.
4. In connection with the consent to be given by the Lessor, with respect
to this Consent, Agreement and Acknowledgment, the Lessees shall pay
the reasonable attorneys' fees of counsel for Alexandria Convalescent
Investments, A General Partnership.
5. Contemporaneous with the execution of this Consent, Agreement and
Acknowledgment, you have received from Herman Muennichow, certified
public accountant, a statement evidencing that Holdings and Fountain
View, shall, at the time of the Closing, have a tangible net worth of
at least three million dollars ($3,000,000.00) as provided for in
Section 18.1(b) of the Lease.
<PAGE>
6. The execution by the Lessor of this Consent, Agreement and
Acknowledgment shall not be deemed a consent to any further sublease
or assignment by the parties hereto.
Alexandria Convalescent
Hospital, Inc.
/s/ Robert Snukal By: /s/ Robert Snukal
- ------------------- -----------------------------
Robert Snukal Robert Snukal, President
Fountain View Holdings, Inc.,
/s/ Sheila Snukal a Delaware corporation
- -------------------
Sheila Snukal
By: /s/ Robert Snukal
-----------------------------
Robert Snukal, President
Fountain View, Inc.,
a Delaware corporation
By: /s/ Robert Snukal
-----------------------------
Robert Snukal, President
Based on the truth of the facts, representations, and statements set forth
herein, by Alexandria, Robert and Sheila Snukal, Fountain View Holdings, Inc., a
Delaware corporation, and Fountain View, Inc., a Delaware corporation, as well
as the representations made by Herman Muennichow, certified public accountant,
we agree to and consent to the Assignment referred to herein.
Executed this 30th day of July, 1997.
Alexandria Convalescent Investments,
A General Partnership
By: [SIGNATURE APPEARS HERE]
----------------------------
By: [SIGNATURE APPEARS HERE]
----------------------------
By: [SIGNATURE APPEARS HERE]
----------------------------
<PAGE>
EXHIBIT 10.24
OFFICE LEASE
Between
DOUGLAS EMMETT JOINT VENTURE, a California general partnership
as Landlord
and
THE FOUNTAIN VIEW MANAGEMENT GROUP, a California corporation
as Tenant
Dated
February 1, 1995
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: February 1, 1995
Landlord: DOUGLAS EMMETT JOINT VENTURE, a
California general partnership
Tenant: THE FOUNTAIN VIEW MANAGEMENT
GROUP, a California corporation
- --------------------------------------------------------------------------------
Section
- -------
1.1 Premises: 11900 Olympic Boulevard, Suite 680
Los Angeles, CA 90064
1.2 Rentable Area of Premises: 5,877 approximate square feet
1.2 Usable Area of Premises: 5,110 approximate square feet
(See Section 1.2 of the Lease.)
1.3 Term: Five 5 years
Commencement: April 1, 1995
Expiration: March 31, 2000
2.1 Annual Fixed Rent: $112,838.40
2.1 Monthly Fixed Rent: $ 9,403.20 (See Section 2.1 of the
Lease.)
2.2 Cost of Living Index: N/A
C.P.I. Base Index: N/A
2.2 Date of First Increase: N/A
2.2 Frequency of Increase: N/A
3.1 Tenant's Share: 5.28%
3.2 Base Year for Operating Expenses: 1995
6.1 Use of Premises: General Office Use
16.1 Tenant's Address for Notices: 11900 Olympic Boulevard, Suite 680
Los Angeles, CA 90064
Contact:
Telephone No.:
16.1 Landlord's Address for Notices: DOUGLAS EMMETT JOINT VENTURE
c/o DOUGLAS, EMMETT & COMPANY
12121 Wilshire Boulevard, Suite 910
Los Angeles, CA 90025
22.6 Security Deposit: $ 9,403.20
The foregoing Basic Lease Information is hereby incorporated into and made a
part of the Lease. The Sections of the Lease identified above in the margin are
those Sections where references to particular Basic Lease Information initially
appear. Each such reference shall incorporate the applicable Basic Lease
Information. In the event of any conflict between any Basic Lease Information
and the Lease, the latter shall control.
ii
<PAGE>
OFFICE LEASE
TABLE OF CONTENTS
Article Page
1 Demise of Premises and Term ....................................1
2 Rent ...........................................................2
3 Additional Rent ................................................3
4 Ethics .........................................................5
5 Landlord's Rights ..............................................5
6 Use of Premises ................................................5
7 Tenant's Property ..............................................6
8 Utilities ......................................................6
9 Various Covenants ..............................................7
10 Compliance with Laws ..........................................10
11 Assignment and Subletting .....................................10
12 Damage by Fire, Etc. ..........................................12
13 Condemnation ..................................................14
14 Accidents to Sanitary and Other Systems .......................15
15 Mortgage Subordination; Attornment ............................15
16 Notices .......................................................16
17 Right to Perform Tenant's Covenants, Etc. .....................16
18 Estoppel Certificates .........................................17
19 Events of Default .............................................17
20 Damages; Remedies; Re-Entry by Landlord; Etc. .................19
21 Insurance .....................................................21
22 Miscellaneous .................................................22
23 Quiet Enjoyment ...............................................25
24 No Light, Air or View Easement ................................25
25 Intentionally Omitted .........................................25
26 Parking .......................................................25
27 Option to Extend Term .........................................26
Signatures ............................................................27
EXHIBITS
Exhibit A - Suite Plan
Exhibit B - Construction Agreement
Exhibit C - Rules and Regulations
iii
<PAGE>
OFFICE LEASE
LEASE, dated February 1, 1995, between DOUGLAS EMMETT JOINT VENTURE, a
California general partnership having an office at 12121 Wilshire Boulevard,
Suite 910, Los Angeles, CA 90025 ("Landlord"), and THE FOUNTAIN VIEW MANAGEMENT
GROUP, a California corporation having an office at 11900 Olympic Boulevard,
Suite 680, Los Angeles, CA 90064 ("Tenant").
ARTICLE 1
Demise of Premises and Term
Section 1.1. Demise. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord, subject to the covenants and agreements contained in this Lease,
Suite Number 680 (the "Premises") on the 6th floor, in the building (the
"Building") located at 11900 Olympic Boulevard, Los Angeles, CA 90064, which
Premises are shown outlined on Exhibit A attached hereto and are improved or are
to be improved by Landlord with the leasehold improvements described in the
Construction Agreement, a copy of which is attached hereto, marked Exhibit B,
and incorporated herein by reference.
Section 1.2. Area. In that the Premises are to be reconstructed the parties
agree that a recalculation of the Rentable Area of the Premises shall be made by
Landlord's architect (or Stevenson Systems, Inc., or other qualified
professional firm selected by Landlord) in accordance with the standards set
forth by the Building Owners and Managers Association when the exact location of
demising walls is established. Such determination as approved by Landlord and
advised to Tenant shall be determinative unless patently unreasonable. Once the
Rentable Area of the Premises is so established and advised to Tenant it shall
become a part of this Lease. Landlord and Tenant acknowledge and agree that the
Rentable Area or Usable Area of the Premises and total Building Area may
actually be more or less than the figures stated herein; Landlord and Tenant
agree, however, that even though such figures may be inaccurate, that for all
purposes of the Lease, the figures stated herein shall be conclusively deemed to
be the Rentable Area, or Usable Area of the Premises and total Building Area, as
the case may be. Rentable Area herein is calculated as 1.15 times estimated
Usable Area, regardless of what actual common areas of the Building may be, or
whether they may be more or less than 15% of the total estimated Usable Area of
the Building. The basis of this calculation of 1.15 times estimated Usable Area
is to provide a general basis for comparison and pricing of this space in
relation to other spaces in the market area.
Section 1.3. Term. The term of this Lease shall commence when Landlord has
substantially completed construction of the mutually agreed upon tenant
improvements pursuant to the provisions of Exhibit B, or on April 1, 1995 (the
"Term Commencement Date"), whichever occurs last, and shall end, unless sooner
terminated as herein provided, on March 31, 2000 provided, however, that the
termination date of the Lease shall be extended to reflect the full term. The
parties shall immediately execute an amendment to the Lease stating the date of
commencement of the term when it is ascertained. If for any reason (including
Landlord's inability to complete the tenant improvements, if any, which it
specifically agrees to make pursuant to Exhibit B) Landlord is unable to deliver
possession of the Premises to Tenant on the Term Commencement Date, this Lease
shall not be void or voidable nor shall Landlord be liable to Tenant for any
damage resulting therefrom, but, in that event, the rent reserved and covenanted
to be paid herein shall not commence until possession of the Premises is
available for occupancy by Tenant, and no such failure to give possession on the
date of commencement of the term shall in any way affect the obligations of
Tenant hereunder.
<PAGE>
Tenant's taking possession of the Premises on the commencement of the term shall
constitute Tenant's acknowledgement that the Premises are in good condition. If
possession of the Premises is not tendered by Landlord within one hundred twenty
(120) days after the original time set for the Term Commencement Date, then
Landlord and Tenant shall each have the right to terminate this Lease by notice
to the other as provided herein; if such possession is not tendered within three
hundred sixty (360) days after the original time set for the Term Commencement
Date, then this Lease, and the rights and obligations of Landlord and Tenant
hereunder, shall terminate automatically and without the necessity for further
documentation. If Tenant, with Landlord's consent, takes possession prior to the
Term Commencement Date, then Tenant shall do so subject to all of the covenants
and conditions hereof.
ARTICLE 2
Rent
Section 2.1. Fixed Rent; Additional Rent. The rent shall consist of (a) fixed
rent at the rate of $112,838.40 per annum, commencing as of the Term
Commencement Date, payable in equal monthly installments of $9,403.20 in advance
on the first day of each and every calendar month until the end of the term
(apportioned for the first month if the Term Commencement Date shall be other
than the first day of a calendar month and for the last month if this Lease
expires on a day other than the last day of a calendar month), plus (b)
additional rent as provided in Article 3 and elsewhere in this Lease. Rent shall
be paid to Landlord at its office or at such other place(s) as Landlord shall
designate to Tenant, in lawful money of the United States of America. Each
reference in this Lease to "fixed rent" shall mean the annual amount thereof
owing for the Premises as specified in this Section 2.1. On the date of the
execution of this Lease, Tenant shall pay to Landlord the first month's fixed
rent due hereunder and the Security Deposit referred to in Section 22.6 herein.
Should the Rentable Area of the Premises be increased or decreased pursuant to
Section 1.2 of the Lease then, effective at the commencement of the Lease term,
the initial Monthly Fixed Rent and annual Fixed Rent shall be recalculated based
on $1.60 per rentable square foot per month.
Section 2.2. Adjustment. Intentionally omitted.
Section 2.3. Certain Taxes. Tenant shall reimburse Landlord upon demand for any
and all taxes, surcharges, levies, assessments, fees and charges payable by
Landlord (other than a profits tax, or imposts of a personal nature, charged or
levied against Landlord) whether or not now customary or within the
contemplation of Landlord and Tenant: (a) upon, measured by or reasonably
attributable to (i) the cost or value of Tenant's equipment, furniture, fixtures
and other personal property located in the Premises or (ii) the cost or value of
any leasehold improvements in or to the Premises made at Tenant's expense
irrespective of whether title to such improvements shall be in Tenant or
Landlord, (b) upon or measured by any rent payable hereunder, including, without
limitation, any gross income tax, gross receipts tax, or excise tax levied by
the City or County of Los Angeles or any other governmental body with respect to
the receipt of such rent (computed as if such rent were the only income of
Landlord); (c) upon or with respect to the possession, leasing, operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or (d) upon this transaction or any document to
which Tenant is a party creating or transferring an interest in the Premises. In
the event that it shall not be lawful for Tenant so to reimburse Landlord, the
rent payable to Landlord under this Lease shall be revised to net the Landlord
the same rent after imposition of any such tax as would have been payable to
Landlord prior to the imposition of any such tax.
2
<PAGE>
Section 2.4. Manner of Payment. Tenant shall pay fixed rent and additional rent
as and when the same shall become due and payable, without demand therefor, and
without any abatement, set off or deduction whatsoever except as may be
expressly provided in this Lease. Failure of Landlord to submit statements to
Tenant for such fixed rent or additional rent, including the failure of Landlord
to provide to Tenant a calculation of the adjustment as provided in the
Escalation Statement referred to in Article 3 herein, shall not be deemed to be
a waiver of Tenant's requirements to pay such sums as herein provided; failure
of Tenant to pay additional rent as provided herein shall constitute a default
under the terms hereof in like manner as failure to pay fixed rent when due.
Section 2.5. Certain Adjustments. If the term of this Lease commences other than
on January 1 or expires or terminates other than on December 31, or in the event
of any change in the size of the Premises or of any abatement of fixed rent (or
additional rent payable pursuant to Article 3) during a calendar year, any
amount payable by Tenant or Landlord during such year shall be adjusted
proportionately on a daily basis, and the obligation to pay such amount shall
survive the expiration or earlier termination of this Lease.
ARTICLE 3
Additional Rent
Section 3.1. Certain Definitions. As used in this Lease:
(a) "Escalation Statement" means a statement by Landlord, setting forth the
amount payable by Tenant or by Landlord, as the case may be, for a specified
calendar year pursuant to this Article 3.
(b) "Operating Expenses" means the following in a referenced calendar year
calculated assuming the Building is at least ninety-five percent (95%) occupied:
all costs of management, operation, maintenance, and repair of the Building and
shall include the following costs by way of illustration but not limitation:
water and sewer charges; any and all insurance premiums; license, permit and
inspection fees; air conditioning (including repair of same); heat; light; power
and other utilities; steam; labor; cleaning and janitorial services; guard
services; supplies; materials; equipment and tools; and management fees,
including an allowance to Landlord for Landlord's supervision and management. It
shall also include the cost or portion thereof of any capital improvements made
to the Building by Landlord during the term of this Lease, (i) that reduces
other direct expenses, that were made to the Building by Landlord after the date
of this Lease, or (ii) that are required under any governmental law or
regulation that was not applicable to the Building at the time it was
constructed, which costs or allocable portion thereof to be amortized over a
reasonable period as Landlord shall determine together with interest on the
unamortized balance at the rate of ten percent (10%) per annum or such higher
rate as may have been paid by Landlord on funds borrowed for the purpose of
construction of such capital improvement. Operating Expenses shall include all
general and special real estate taxes, special assessments and other ad valorem
taxes, rates, levies and assessments paid upon or in respect of the Building and
personal property used by Landlord in the operation thereof for a calendar year
(or portion thereof) to any governmental or quasi-governmental authority, and
all taxes specifically imposed in lieu of any such taxes (but excluding taxes
referred to in Section 2.3 for which Tenant or other tenants in the Building are
liable) including fees of counsel and experts, reasonably incurred by, or
reimbursable by Landlord in connection with any application for a reduction in
the assessed valuation of the Building and/or the land thereunder or for
a judicial review thereof.
(c) "Tenant's Share" means 5.28%. The "Tenant's Share" percentage set forth in
this Subparagraph 3.1.(c) shall be adjusted appropriately if the Useable Area of
the Premises is
3
<PAGE>
increased or decreased pursuant to Section 1.2 of the Lease, or pursuant to
other written agreement of Landlord and Tenant, with the numerator being the
newly calculated Useable Area of the Premises.
Section 3.2. Operating Expenses. If the Operating Expenses for any calendar year
during this Lease term (including the year in which this Lease expires or is
otherwise terminated), commencing with the calendar year 1996, have increased
over the Operating Expenses for the calendar year 1995 (the "Base Year"), then
within fifteen (15) days after Landlord furnishes Tenant with an Escalation
Statement relating to such calendar year Tenant shall, in the case of an
increase, pay to Landlord as additional rent for such calendar year an amount
equal to the product obtained by multiplying such increase by Tenant's Share.
Landlord may, at or after the start of any calendar year, subsequent to the
calendar year 1995, notify Tenant of the amount which Landlord estimates will be
Tenant's monthly share of any such increase in Operating Expenses for such
calendar year over the Base Year and the amount thereof shall be added to the
monthly fixed rent payments required to be made by Tenant in such year. If
Tenant's Share of any such increase in rent payable hereunder as shown on the
Escalation Statement is greater or less than the total amounts actually billed
to and paid by Tenant during the year covered by such statement, then within
thirty (30) days thereafter, Tenant shall pay in cash any sums owed Landlord or,
if applicable, Tenant shall receive a credit against any rental next accruing
for any sum owed Tenant.
Notwithstanding anything to the contrary in this Section 3.2 of the Lease, if,
in any calendar year following the Base Year (a "Subsequent Year"), a new item
of expense (e.g. earthquake insurance, concierge), is included in Operating
Expenses which was not included in the Base Year Operating Expenses, then the
cost of such new item shall be added to the Base Year Operating Expenses for
purposes of determining the additional rent payable pursuant to this Section 3.2
for such Subsequent Year. The same amount shall continue to be included in Base
Year Operating Expenses for each Subsequent Year thereafter such that the
additional charges for such Subsequent Year shall include the increase in the
cost of such new item over the first Subsequent Year in which it appeared as an
Operating Expense provided, however, that if in any Subsequent Year thereafter
such new item is not included in Operating Expenses, no such addition shall be
made to Base Year Operating Expenses. Conversely, if, in any Subsequent Year, an
item of expense as determined by Landlord in its sole discretion is no longer
included in Operating Expenses that was included the Base Year Operating
Expenses, then the cost of such item shall be deleted from the Base Year
Operating Expenses for purposes of determining the additional rent payable
pursuant to this Section 3.2 for such Subsequent Year. The same amount shall
continue to be deleted from the Base Year Operating Expenses for each Subsequent
Year thereafter that the item is not included provided, however, that if such
item is again included in any Subsequent Year, then the item shall be added back
to the Base Year Operating Expenses.
Section 3.3. Other Additional Rent. Certain individual items of cost or expense
may in the determination of Landlord be separately charged and billed to Tenant
by Landlord, either alone or in conjunction with another party or parties, if
they are deemed by Landlord to apply solely to Tenant or solely to Tenant and
such other party or parties, and shall be paid as Additional Rent, regardless of
Tenant's Share. Such allocations by Landlord shall be binding on Tenant unless
unreasonable.
4
<PAGE>
ARTICLE 4
Ethics
Section 4.1. Ethics. Landlord and Tenant agree to conduct their business or
practice in compliance with any appropriate and applicable codes of professional
or business practice.
ARTICLE 5
Landlord's Rights
Section 5.1. Landlord's Rights. Landlord reserves the following rights: (a) to
designate all sources furnishing sign painting or lettering; (b) to constantly
have pass keys to the Premises; (c) to grant to anyone the exclusive right to
conduct any particular business or undertaking in the Building; (d) to enter the
Premises at any reasonable time with reasonable notice except in the event of an
emergency for inspections, repairs, alterations or additions to the Premises or
the Building or to exhibit the Premises to others, to affix and display "For
Rent" signs, and for any purpose whatsoever related to the safety, protection,
preservation or improvement of the Premises, the Building, or Landlord's
interest, without being deemed guilty of an eviction or disturbance of Tenant's
use and possession, and without being liable in any manner to Tenant on account
thereof; (e) at any time, and from time to time, whether at the instance of
Tenant or pursuant to governmental requirements, at Landlord's expense, to make
repairs, alterations, additions, improvements or decorating, whether structural
or otherwise, in or to the Building, or any part thereof, including the
Premises. Without limiting the generality of the foregoing rights, Landlord
shall specifically have the right to remove, alter, improve or rebuild the lobby
of the Building as the same is presently or shall hereafter be constituted, or
any part or parts thereof. Landlord shall not be liable to Tenant for any
expense, injury, loss or damage resulting from any work so done in or about the
Premises or the Building or any adjacent or nearby building, land, street or
alley, all claims against Landlord for any and all such liability being hereby
expressly released by Tenant unless in the event of Landlord's negligence or
willful misconduct. In connection with making repairs, alterations, decorating,
additions or improvements under the terms of this Section, Landlord shall have
the right to access through the Premises as well as the right to take into and
upon and through said Premises or any other part of the Building all materials
that may be required to make such repairs, alterations, decorating, additions or
improvements, as well as the right in the course of such work to close
entrances, doors, corridors, elevators, or other building facilities, or
temporarily to abate the operation of such facilities, without being deemed or
held guilty of an eviction of Tenant and without liability for damages to
Tenant's property, business or person and without liability to Tenant by reason
of interference with the business of Tenant or inconvenience or annoyance to
Tenant or the customers of Tenant. The rent reserved herein shall in no wise
abate while said repairs, alterations, decorating, additions or improvements are
being made and Tenant shall not be entitled to maintain any set-off or counter-
claim for damages of any kind against Landlord by reason thereof, all such
claims being hereby expressly released by Tenant unless in the event of
Landlord's negligence or willful misconduct. However, all such work shall be
done in such manner as to cause Tenant the least inconvenience practicable.
ARTICLE 6
Use of Premises
Section 6.1. Use. The Premises shall be used for purposes specified in the Basic
Lease Information and no other.
Section 6.2. Exclusive Use. Tenant's use of the Premises shall not conflict with
other exclusive use provisions in current leases (or with exclusive use
provisions in future leases,
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which do not, when made, conflict with Tenant's actual and specifically
permitted use of the Premises).
ARTICLE 7
Tenant's Property
Section 7.1. Tenant's Property. All fixtures, equipment, improvements and
installations attached to, or built into, the Premises at the commencement of or
during the term of this Lease shall be and remain part of the Premises and be
deemed the property of Landlord.
Section 7.2. Perimeter Walls; Etc. All the perimeter walls of the Premises, any
balconies, terraces or roofs adjacent to the Premises (including any flagpoles
or other installations on said walls, balconies, terraces or roofs) and any
space in and/or adjacent to the Premises used for shafts, stairways, pipes,
conduits, ducts, mail chutes, conveyors, pneumatic tubes, electric or other
utilities, sinks, fan rooms or other Building facilities, and the use thereof,
as well as access thereto through the Premises (at and for such times as shall
not unreasonably interfere with the Tenant's business) for the purposes of such
use and the operation, improvement, replacement, addition, repair, maintenance
or decoration thereof or of the Building, are expressly reserved to Landlord.
ARTICLE 8
Utilities
Section 8.1. Utilities. Landlord agrees to furnish the Premises while Tenant is
not in default under any of the provisions of this Lease, and subject to the
regulations of the Building, with: heat and air conditioning during normal
business hours, the usual janitorial services, lighting replacement (for
building standard lights), normal water and electric current for lighting and
ordinary business machines, such as typewriters and such other equipment and
office machines that do not result in an over standard use of the existing
electrical system. Except for copying machines which Tenant may install in the
Premises at Tenant's expense, and for which Landlord will assume the cost of
additional electric current to be used by such machines, Tenant will not without
the written consent of Landlord use any apparatus or device in the Premises,
including but without limitation thereto, electronic data processing machines,
punch card machines, special lighting, and machines using current in excess of
five (5) kilowatts per hour of rated capacity or requiring voltage other than
120 volts, single-phase, which use will in any way increase the amount of
electricity, water, steam, or compressed air usually furnished or supplied for
use of the Premises as office space; nor connect with electric current, except
through existing electrical outlets in the Premises, or water pipes or air pipes
(if any there be), any apparatus or device for the purpose of using electrical
current or water or air.
If Tenant shall require water or electric current in excess of that usually
furnished or supplied for use of the Premises as office space, wherein customary
use shall be deemed to include one (1) private bathroom and one (1) kitchen sink
within the Premises, Tenant shall first procure the consent of Landlord to use
thereof, which Landlord may refuse and Landlord may cause a water meter or
electric current meter to be installed in the Premises so as to measure the
amount of water and electric current consumed for any such other use. The cost
of any such meters and of installation, maintenance, and repair thereof shall be
paid for by Tenant and Tenant agrees to pay to Landlord promptly upon demand
therefor by Landlord for all such water and electric current consumed, as shown
by said meters at the rates charged for such services by the local public
utility furnishing the same, plus any additional expense incurred in keeping
account of the water and electric current so consumed. Furthermore, should
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Tenant require heat and air conditioning during times other than during normal
business hours as defined, from time to time, in Exhibit "C" attached hereto,
said usage is available to Tenant on an as-needed basis by activating a switch
within the Premises and shall be at Tenant's sole cost and expense, which shall
be an amount equal to the Landlord's cost plus twenty-five percent (25%).
Tenant shall also be responsible for and shall pay Landlord any additional costs
incurred because of the failure of the heating, ventilation and air conditioning
(HVAC) equipment and systems to perform their function due to arrangement of
partitioning in the Premises or changes or alterations thereto or from occupancy
of the Premises exceeding one person for every one hundred and twenty-five (125)
square feet of the demised Premises, or from failure of Tenant to keep all HVAC
vents within the Premises free of obstruction.
Section 8.2. Landlord's Liability. Landlord shall in no manner be liable for
any failure, inadequacy or defect in the character or supply of any utilities
which it is obligated to or does furnish to the Premises except for actual
damage suffered by Tenant by reason of any such failure, inadequacy or defect
caused by the negligence of Landlord.
ARTICLE 9
Various Covenants
Section 9.1. Various Covenants. Tenant shall:
(a) take good care of the Premises, keep clean any portion of the Premises
which Landlord is not obligated to clean, and pay the cost of any injury, damage
or breakage done by Tenant or by its employees, licensees or invitees (other
than any damage with respect to which Tenant is relieved from liability pursuant
to Section 12.2). Tenant hereby waives all right to make repairs at Landlord's
expense under the provisions of Section 1932(l), 1941 and 1942 of the Civil Code
of California, and instead, all improvements, repairs and/or maintenance
expenses incurred on the Premises shall be at the expense of Tenant and shall be
considered as part of the consideration for rental;
(b) not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building or injure or annoy them or use or allow the Premises to be used
for any improper, immoral or objectionable purpose, nor shall Tenant cause,
commit or maintain or permit any nuisance or waste, in, on, or about the
Premises. Tenant shall not use the Premises in any manner that in Landlord's
judgment would adversely affect or interfere with any services required to be
furnished by Landlord to Tenant or to any other tenant or occupant of the
Building, or with the proper and economical rendition of any such service;
(c) observe and comply with the rules and regulations set forth in Exhibit C
and such other and further reasonable rules and regulations which Landlord at
any time may make and communicate to Tenant and which, in the reasonable
judgment of Landlord, shall be necessary or desirable for the operation,
maintenance, reputation or appearance of the Building; provided however, that in
the case of any conflict between the provisions of this Lease and any such rule
or regulation, the provisions of this Lease shall control;
(d) make no claim against Landlord and Landlord shall not be liable or
responsible in any way for, and Tenant hereby waives all claims against Landlord
with respect to or arising out of: injury or damage to any person or property in
or about the Premises by or from any cause whatsoever, and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
from the roof, walls, basement or other portion of the Premises or the
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Building, or caused by gas, fire, oil, electricity or any cause whatsoever in,
on, or about the Premises or the Building or the complex of which it is a part
of any part thereof, provided such injury or damage is not caused by Landlord's
or its agents negligence or willful misconduct;
Tenant shall hold Landlord harmless from and defend Landlord against any
and all claims or liability for any damage to any property or injury, illness or
death of any person: (i) occurring in, on, or about the Premises or any part
thereof, and (ii) occurring in, on, or about any facilities (including, without
prejudice to the generality of the term "facilities", elevators, stairways,
passageways or hallways) the use of which Tenant may have in conjunction with
other tenants of the Building, when such injury or damage shall be caused in
part or in whole by the act, neglect, fault of, or omission of any duty with
respect to the same, by Tenant, its agents, servants, employees, or invitees;
(e) make no alteration, change, addition, improvement, repair or replacement
in, to, or about, the Premises (a "Tenant Change") without the prior consent of
Landlord, and then only by Tenant or reputable contractors, and in a manner,
upon the terms and at times approved by Landlord, which consent and approval
shall not be unreasonably withheld. Any such alteration, addition, or
improvement to the Premises, except movable furniture and trade fixtures, shall
at once become a part of the realty and belong to Landlord. When applying for
any such consent, Tenant shall furnish complete plans and specifications and a
building permit covering the desired additions or alterations. Tenant shall pay
to Landlord upon demand a fee of seven and one-half percent (7.5%) of the cost
of any alteration, addition, or improvements to compensate Landlord for the cost
of review and approval of the plans and specifications. In the event Landlord
consents to the making of any such alteration, addition, or improvement by
Tenant, the same shall be made by Tenant at Tenant's sole cost and expense and
any contractor or person selected by Tenant to make the same must first be
approved in writing by Landlord. Tenant shall also obtain at its expense such
indemnification and/or bonds against, liens, costs, and damages and such
completion, performance and/or payment bonds, as Landlord considers necessary
with respect to such construction work. Tenant shall give Landlord at least
fifteen (15) days prior written notice of commencement of any work of
construction, alteration, maintenance, repair, replacement, installation,
removal or decoration undertaken by or for the Tenant in connection with the
Premises and such work shall be completed in accordance with the plans and
specifications approved by Landlord, shall be carried out in a good workmanlike
and prompt manner, shall comply with all applicable laws, regulations, orders or
requirements of any competent authority, and shall be subject to supervision by
Landlord or its employees, agents or contractors. If any alterations, additions
or improvements made by Tenant result in Landlord being required to make any
alterations to other portions of the Building in order to comply with any
applicable statutes, ordinances or regulations (e.g., "handicap ordinances")
then Tenant shall reimburse Landlord upon demand for all costs and expenses
incurred by Landlord in making such alterations. Upon the expiration or sooner
termination of the term as herein provided, Tenant shall upon demand by
Landlord, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions, or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall forthwith and with all
due diligence at its sole cost and expense repair and restore the Premises to
their original condition, reasonable wear and tear excepted;
(f) make no contract or employ any labor in connection with the maintenance,
cleaning or other servicing of the Premises (a "Tenant Service") without the
prior consent of Landlord, which consent shall not be unreasonably withheld;
(g) not permit the use of any contractors, workmen, labor, material or
equipment in the performance of any Tenant Change or Tenant Service if the
thereof, in Landlord's
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reasonable judgment, would disturb harmony with any trade engaged in performing
other work, labor or services in or about the Building;
(h) promptly and duly pay all costs and expenses incurred for or in connection
with any Tenant Change or Tenant Service, and discharge within 10 days by
payment, bonding or otherwise as provided by law any mechanic's or other lien
created against the Building or the Land in connection with any Tenant Change or
Tenant Service. Landlord reserves and shall have the right to enter upon the
Premises for the purpose of posting and maintaining such notices on the Premises
as may be necessary to protect Landlord against mechanic's, materialmen's or
other liens and any other notices that may be proper and necessary;
(i) not violate, or permit the violation of, any condition imposed by the
standard fire insurance policy issued for office buildings in the City or County
in which the Building is located, and not do, suffer or permit anything to be
done, or keep, suffer or permit anything to be kept, in the Premises which would
increase the fire or other casualty insurance rate on the Building or property
therein, or which would result in insurance companies of good standing refusing
to insure the Building or any such property in amounts and against risks as
reasonably determined by Landlord from time to time; provided, however, that if
insurance is available Tenant shall not be in default hereunder if Tenant shall
pay to Landlord the amount of any increase in the insurance premiums resulting
from any increase in the insurance rate;
(j) agree that no representations, except as contained herein or endorsed
hereon, have been made to Tenant respecting the conditions of the Premises and
the taking of possession of the Premises by Tenant shall be conclusive evidence
as against Tenant that the Premises are now in a tenantable and good condition;
(k) at the expiration or any earlier termination of this Lease as to all or a
portion of the Premises, (i) terminate its occupancy of, and quit and surrender
to Landlord, the Premises broom-clean and in the same condition as received
except for (aa) ordinary wear and tear, (bb) loss or damage by fire or other
casualty which shall not have been occasioned by the fault or neglect of Tenant
and (cc) any other loss or damage with respect to which Tenant is relieved from
liability pursuant to Section 12.2 and (ii) upon request by Landlord, remove any
Tenant's Property;
(l) indemnify and save harmless Landlord and its partners, officers,
directors, agents and employees (collectively, "Indemnitees") from and against
all liability (statutory or otherwise), claims, suits, demands, damages,
judgments, costs, interest and expenses (including counsel fees and
disbursements incurred in the defense thereof) to which any Indemnitee may
(except insofar as it arises out of the fault or neglect of such Indemnitee) be
subject or suffer whether by reason of any claim for, any injury to, or death
of, any person or persons or damage to property (including any loss of use
thereof) or otherwise and arising from or in connection with the use by Tenant
of; or from any work or anything whatsoever done by Tenant (or any of its
officers, directors, agents, contractors, employees, licensees or invitees) in,
any part of the Premises (other than by Landlord or its agents or contractors)
during the term of this Lease or during the period of time, if any, prior to the
Term Commencement Date with respect to such part that Tenant may have been given
access to for the purpose of occupancy or doing work, or arising from any
condition of the Premises due to or resulting from any default by Tenant in the
keeping, observance or performance of any covenant or agreement contained in
this Lease or from any fault or neglect of Tenant or any of its officers,
directors, agents, contractors, employees, licensees or invitees.
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ARTICLE 10
Compliance With Laws
Section 10.1 Compliance with Laws. Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any laws, statutes, and ordinances and all rules, orders or regulations of any
governmental authority or of the Board of Fire Underwriters (or any successor
thereto), at any time duly issued and in force, attributable to the use or
manner of use by Tenant of the Premises or any part thereof and Tenant shall at
its sole cost and expense promptly comply with all laws, statutes, ordinances
and all rules, orders or regulations of any governmental authority or of the
Board of Fire Underwriters; provided, however, that nothing contained in this
Section 10.1 shall require Tenant to make any structural changes unless the same
are necessitated by reason of the use by Tenant of the Premises for purposes
other than office purposes. 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 so violated any laws, statutes, ordinances
or governmental rules, regulations or requirements, shall be conclusive of such
violation as between Landlord and Tenant.
ARTICLE 11
Assignment and Subletting
Section 11.1. Prohibition of Assignment, Etc. Tenant shall not, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld (a) assign, mortgage, pledge, encumber or otherwise transfer this
Lease, the term and estate hereby granted or any interest hereunder; (b) permit
the Premises or any part thereof to be utilized by anyone other than Tenant
(whether as concessionaire, franchisee, licensee, permittee or otherwise) or (c)
except as hereinafter provided, sublet or offer or advertise for subletting the
Premises or any part thereof. Any assignment, mortgage, pledge, encumbrance,
transfer or sublease without Landlord's consent shall be voidable and, at
Landlord's election, shall constitute a default. If Tenant is a corporation, any
dissolution, merger, consolidation, or other reorganization of Tenant, or the
sale or other transfer of a controlling percentage of the capital stock of
Tenant or the sale of fifty percent (50%) or more of the value of the assets of
Tenant, shall be deemed a voluntary assignment. The phrase "controlling
percentage" means the ownership of, and the right to vote stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding, and entitled to vote for the
election of directors. The preceding two sentences shall not apply to
corporations the stock of which is traded through an exchange or over the
counter. If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law of any partner or partners owning fifty
percent (50%) or more of the partnership, or the dissolution of the partnership,
shall be deemed a voluntary assignment. If Tenant consists of more than one
person, a purported assignment, voluntary, involuntary, or by operation of law,
by any one of the persons executing this Lease shall be deemed a voluntary
assignment. If at any time or from time to time during the term of this Lease,
Tenant desires to assign this Lease or any interest therein, then at least
thirty (30) days prior to the date when Tenant desires the assignment to be
effective, Tenant shall give written notice to Landlord setting forth the name,
address, and business of the proposed assignee, information (including
references) concerning the character of the proposed assignee, the effective
date of the assignment, and all the material terms and conditions of the
proposed assignment. Any such consent by Landlord shall not release Tenant from
any of Tenant's obligations hereunder or be deemed to be a consent to any
subsequent hypothecation, assignment, subletting, occupation or use by another
person. This Lease shall not, nor shall any interest herein, be assignable as to
the interest of Tenant by operation of law without the written consent of
Landlord.
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Section 11.2. Subletting, Etc. If at any time or from time to time during the
term of this Lease, Tenant desires to sublet all or any part of the Premises,
then at least thirty (30) days prior to the date when Tenant desires the
subletting to be effective, Tenant shall give notice to Landlord setting forth
the name, address and business of the proposed subleasee, information (including
references) concerning the character of the proposed subleasee, a detailed
description of the space proposed to be sublet, any rights of the proposed
subtenant to use Tenant's improvements, the effective date of the proposed
subletting, and all the material terms and conditions of the proposed
subletting. Tenant shall be free to sublet such space to any third party subject
to the following conditions:
(a) The sublease shall be on the same terms set forth in the notice given to
Landlord;
(b) No sublease shall be made without the prior written consent of Landlord,
which consent Landlord agrees will not unreasonably be withheld as to a
subletting of the entire Premises;
(c) No sublease shall be valid and no subleasee shall take possession of the
Premises subleased until an executed counterpart of such sublease has been
delivered to Landlord;
(d) No subleasee shall have a right further to sublet this Lease;
(e) The proposed subleasee shall be a person or entity whose character and
business, in Landlord's good faith judgment, are consistent with the character
and standard of the building;
(f) The proposed subleasee, in Landlord's good faith judgment, shall be
financially responsible and capable of meeting the rent payment and other
financial obligations under the proposed sublease;
(g) One-half of any net profits received by Tenant as a result of such
subletting (wherein net profits shall take into account Tenant's rent and
additional rent costs paid to Landlord as well as its leasing costs to sublet
such space such as rent abatement, leasing commissions, marketing costs,
leasehold improvements and attorney fees which leasing costs shall be amortized
over the term of the sublease) whether denominated rentals under the sublease,
or otherwise, which exceed, in the aggregate, the total sums which Tenant is
obligated to pay Landlord under this Lease (prorated to reflect obligations
allocable to that portion of the Premises subject to such sublease) shall be
payable to Landlord as additional rental under this Lease without affecting or
reducing any other obligation of Tenant hereunder. Tenant shall deliver to
Landlord a statement within thirty (30) days after the end of each calendar year
in which any part of the term of this Lease occurs specifying as to such
calendar year, and within thirty (30) days after the expiration or earlier
termination of the term of this Lease specifying with respect to the elapsed
portion of the calendar year in which such expiration or termination occurs,
each sublease in effect during the period covered by such statement and, as to
each such sublease, (a) the date of its execution and delivery, the number of
square feet of the Rentable Area demised thereby and the term hereof, and (b) a
computation in reasonable detail showing (i) the amounts (if any) paid and
payable by Tenant to Landlord pursuant to this Section with respect to such
sublease for the period covered by such statement and (ii) the amounts (if any)
paid and payable by Tenant to Landlord pursuant to this Section with respect to
any payments received from a subleasee during such period but which relate to an
earlier period.
Section 11.3 Tenant's Obligations, Etc. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant's obligation or alter the primary
liability of Tenant to pay the rental and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rental by Landlord from any
other person shall not be deemed to be a waiver by
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Landlord of any provision hereof. Consent to one assignment or subletting shall
not be deemed consent to any subsequent assignment or subletting. In the event
of default by any assignee of Tenant or any successor of Tenant in the
performance of any of the terms hereof, Landlord may proceed directly against
Tenant without the necessity of exhausting remedies against such assignee or
successor. Landlord may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining its
or their consent thereto and such action shall not relieve Tenant of liability
under this Lease.
In the event Tenant shall assign or sublet the Premises or request the consent
of Landlord to any assignment or subletting or if Tenant shall request the
consent of Landlord for any act that Tenant proposes to do, then Tenant shall
pay Landlord's reasonable attorneys' fees incurred in connection therewith,
which shall not exceed S750.O0.
ARTICLE 12
Damage By Fire, Etc.
Section 12.1. Damage Generally. If any part of the Premises or the Building
shall be damaged by fire, earthquake, act of God, or any other casualty, Tenant
shall give prompt notice thereof to Landlord and Landlord shall, if such damage
can with reasonable diligence be repaired within one hundred twenty (120) days,
repair such damage in a manner and at times which do not unreasonably interfere
with Tenant's use of the Premises, and this Lease shall not be void or voidable.
If any part of the Premises shall be rendered untenantable by reason of such
damage, the fixed rent payable hereunder (and additional rent payable pursuant
to Article 3) shall be appropriately abated for the period from the date of such
damage to the date when such part of the Premises shall have been made
tenantable unless:
(a) Landlord shall make available to Tenant, during the period of such repair
other space in the Building which in the Tenant's reasonable opinion is suitable
for the temporary conduct of Tenant's business; or
(b) such fire or other casualty shall have resulted from the fault or neglect
of Tenant or its employees, licensees or invitees. Landlord shall not be liable
for any inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the undertaking of such repair.
Landlord shall have no obligation to carry insurance of any kind on Tenant's
goods, furniture or furnishings or on Tenant's Property, and Landlord shall not
be obligated to repair any damage thereto or to replace the same.
In the event such repairs cannot with reasonable diligence be made within 120
days after such damage or if such damage results from the fault or neglect of
Tenant or its employees, licensees or invitees, Landlord may, at its option upon
written notice to Tenant within thirty (30) days after the date of such
casualty, repair such damage within a reasonable time, in which case the fixed
rent and additional rent described in Article 3 shall be abated as provided
above, and this Lease shall otherwise continue in full force and effect. In the
event Landlord does not so elect to make such repairs or such repairs cannot be
made under such laws and regulations, this Lease may be terminated at the option
of either party by written notice to the other party given not less than thirty-
one (31) nor more than sixty (60) days after the date of such damage. In the
event that the Building is destroyed to the extent of not less than thirty-three
and one-third percent (33-1/3%) of the replacement cost thereof, Landlord may
elect to terminate this Lease, whether the Premises be injured or not. A total
destruction of the Building shall terminate this Lease.
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Landlord shall not be required to repair any injury or damage by fire,
earthquake, act of God, or any other casualty, or to make any repairs or
replacements, of any improvements installed in the Premises by or for Tenant,
except for the portion of such improvements the cost of which was borne by
Landlord and Tenant shall, at Tenant's sole cost and expense, repair and restore
its portion of such improvements. Tenant hereby waives the provisions of
California Civil Code Sections 1932(2) and 1933(4) and the provisions of any
successor or other law of like import. If the Premises are to be repaired under
this Section, Landlord shall repair at his cost any injury or damage to the
Building itself. Tenant shall pay the cost of repairing any other tenant
improvements in the Premises.
Tenant at its cost shall maintain on its personal property, tenant improvements,
and alterations, in, on, or about the Premises, a policy of standard fire and
extended coverage insurance, with vandalism and malicious mischief endorsements,
to the extent of at least one hundred percent (100%) of their full replacement
value. The proceeds from any such policy shall be used by Tenant for the
replacement of personal property or the restoration of tenant improvements or
alterations.
The Building in which the Premises is located is a steel-frame office building,
and Landlord and Tenant understand and acknowledge that latent damage, including
cracks in the steel joints and supporting columns of the Building may have
occurred during the earthquake that occurred in the vicinity of the Building on
January 17, 1994. The City of Los Angeles has considered and continues to
consider imposing certain requirements for inspection, testing and/or repair, if
necessary, to steel-frame buildings within the City of Los Angeles that may have
been damaged structurally by the aforesaid earthquake. Landlord hereby advises
Tenant that Landlord has consulted with Brandow & Johnston Associates, who were
the structural engineers assisting in connection with the construction of the
Building, and have retained Englekirk & Sabol, Consulting Engineers.
In the event that during the term of this Lease additional inspections, testing
and/or repairs or reconstruction is required by the City of Los Angeles or other
governmental authority, or in the event that Landlord elects to undertake any
such inspection, testing or repairs or reconstruction (collectively the "Work")
upon the recommendation of its engineers, Landlord shall give notice thereof to
Tenant and shall use its best efforts not to unreasonably interfere with
Tenant's use of the Premises in connection with the Work. If any part of the
Premises shall be rendered untenatable by reason of such Work by Landlord, the
fixed rent payable hereunder (and additional rent payable pursuant to Article 3
and parking charges) shall be proportionately abated for the period from the
commencement of such Work to the date when such untenantable part of the
Premises shall be again tenantable. Tenant agrees that Tenant shall cooperate
fully with Landlord in connection with the Work and shall make the Premises
available for the Work upon request by Landlord. If available and if requested
by Tenant, Landlord shall make available to Tenant during the period of such
Work other space in the Building which in the Tenant's reasonable opinion is
suitable for the temporary conduct of Tenant's business; however, if such
temporary space is smaller than the Premises, then Tenant shall pay monthly
fixed rent and additional rent for the temporary space based upon their then
existing rate per rentable square foot for the Premises times the number of
rentable square feet in the temporary space. Under no circumstances shall Tenant
have the right to terminate this Lease as a result of the Work by Landlord as
provided herein. Tenant shall have no claim against Landlord for any
interruption, interference or disruption of the business conducted by Tenant at
the Premises as a result of the Work and hereby releases Landlord from any claim
which Tenant may have against Landlord arising from or relating to, directly or
indirectly, the performance of the Work by Landlord.
Section 12.2. Release. Landlord hereby releases Tenant from any liability which
Tenant might otherwise have to Landlord for any damage to the Building or the
Premises by fire or
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other casualty to the extent that damage is completely insured by Landlord under
a policy or policies of insurance permitting such release by Landlord. This
provision shall not operate to release Tenant for liability to the extent of the
deductible portion of Landlord's insurance.
Section 12.3. Express Agreement. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the Building or the
Premises by fire or other casualty, and any law which purports to govern the
rights of Landlord and Tenant in such a contingency in the absence of express
agreement, and any successor or other law of like import, shall have no
application.
ARTICLE 13
Condemnation
Section 13.1. Condemnation. In the event that the whole of the Premises is
lawfully condemned or taken in any manner for any public or quasi-public use,
this Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the earlier of the date of vesting of title in such condemnation
or taking or the date of taking of possession by the condemning authority. In
the event that only a part of the Premises shall be so condemned or taken, then
the term and estate hereby granted with respect to such part shall forthwith
cease and terminate as of the earlier of the date of vesting of title in such
condemnation or taking or the date of taking of possession by the condemning
authority, and the fixed rent payable hereunder (and additional rent payable
pursuant to Article 3) shall be appropriately abated for the period from the
date of such vesting of title to the date specified in this Lease for the
expiration of the term hereof. If only a part of the Building shall be so
condemned or taken, then Landlord shall, or to the extent of the proceeds of the
condemnation payable to Landlord and with reasonable diligence, restore the
remaining portion of the Premises as nearly as practicable to its condition
prior to such condemnation or taking; provided, that if such proceeds constitute
less than ninety percent (90%) of Landlord's estimate of the cost of rebuilding
or restoration, then Landlord may terminate this Lease on notice to Tenant.
Section 13.2. Award. In the event of any condemnation or taking of all or a part
of the Building, Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including any award made for the value of the estate
vested by this Lease in Tenant, and Tenant hereby assigns to Landlord any and
all right, title and interest of Tenant now or hereafter arising in or to any
such award or any part thereof, and Tenant shall be entitled to receive no part
of such award; provided, however, that nothing shall preclude Tenant from
intervening in any such condemnation proceeding to claim or receive from the
condemning authority any compensation to which Tenant may otherwise lawfully be
entitled in such case in respect of Tenant's property or for moving to a new
location.
Section 13.3 Condemnation for a Limited Period. Notwithstanding the provisions
of Section 13.1 and 13.2, if all or any portion of the Premises shall be
condemned or taken for governmental occupancy for a limited period, this Lease
shall not terminate, there shall be no abatement of fixed or additional rent
payable hereunder and Tenant shall be entitled to receive the entire award
therefor (whether paid as damages, rent or otherwise) unless the period of
governmental occupancy extends beyond the expiration of this Lease, in which
case Landlord shall be entitled to such part of such award as shall be properly
allocable to the cost of restoration of the Premises, and the balance of such
award shall be apportioned between Landlord and Tenant as of the date of such
expiration. If the termination of such governmental occupancy is prior to
expiration of this Lease, Tenant shall, to the extent an award has been made for
the purpose after application for and diligent pursuit of such award
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by Tenant, restore the Premises as nearly as possible to the condition in which
they were prior to the condemnation or taking.
ARTICLE 14
Accidents To Sanitary And Other Systems
Section 14.1 Damaged or Defective Systems. Tenant shall give to Landlord prompt
notice of any damage to, or defective condition in, any part or appurtenance of
the Building's sanitary, electrical, heating, air conditioning, ventilating or
other systems serving, located in or passing through, the Premises, and the
damage or defective condition shall be remedied by Landlord with reasonable
diligence; provided, however, that if such damage or defective condition (other
than any such damage with respect to which Tenant is relieved from liability
pursuant to Section 12.2) was caused by, or is attributed to, Tenant Changes or
the unreasonable or improper use of such system by Tenant or its employees,
licensees or invitees, the cost of the remedy thereof shall be paid by Tenant
upon demand. Tenant shall not be entitled to claim any damages arising from any
such damage or defective condition unless the same shall have been caused by the
negligence of Landlord in the operation or maintenance of the Premises or the
Building and the same shall not have been remedied by Landlord with reasonable
diligence after notice thereof by Tenant to Landlord; and Tenant shall not be
entitled to claim any eviction by reason of any such damage or defective
condition unless the same shall have been caused by the negligence of Landlord
in the operation or maintenance of the Premises or the Building and shall have
rendered the Premises untenantable and the Premises shall not have been made
tenantable by Landlord within a reasonable time after notice thereof by Tenant
to Landlord.
ARTICLE 15
Mortgage Subordination; Attornment
Section 15.1. Subordination. This Lease and the term and estate hereby granted
are and shall be subject and subordinate to the lien of each mortgage which may
now or at any time hereafter affect Landlord's interest in the Building and/or
the land thereunder (an "underlying mortgage"), regardless of the interest rate,
the terms of repayment, the use of the proceeds or any other provision of any
such mortgage. Tenant shall from time to time execute and deliver such
instruments as Landlord or the holder of any such mortgage may reasonably
request to confirm the subordination provided in this Section 15.1.
Section 15.2. Attornment. Tenant confirms that if by reason of a default under
an underlying mortgage the interest of Landlord in the Premises is terminated,
Tenant shall attorn to the holder of the reversionary interest in the Premises
and shall recognize such holder as Tenant's landlord under this Lease. Tenant
shall execute and deliver, at any time and from time to time, upon the request
of Landlord or of the holder of an underlying mortgage any instrument which may
be necessary or appropriate to evidence such attornment and Tenant hereby
irrevocably appoints Landlord or such holder as its attorney-in-fact to execute
and deliver for and on behalf of Tenant any such instrument.
ARTICLE 16
Notices
Section 16.1. Notices. Any notice, consent, approval, agreement, certification,
request, bill, demand, statement, acceptance or other communication hereunder (a
"notice") shall be in writing and shall have been duly given or furnished if
delivered personally or mailed in a
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postpaid envelope registered, certified or otherwise, with or without return
receipt) addressed to Landlord as set forth in the Basic Lease Information and
to Tenant at the Premises (or Tenant's address in the Basic Lease Information
if mailed prior to Tenant's occupancy of the Premises), or to such other address
or addressee as either party may designate by a notice given pursuant hereto.
Tenant hereby appoints as its agent to receive the service of all dispossessory
or distraint proceedings and notices thereunder the person in charge of or
occupying the Premises at the time, and if no person shall be in charge of or
occupy the same, then such service may be made by attaching the same to the main
entrance of the Premises.
ARTICLE 17
Right to Perform Tenant's Covenants, Etc.
Section 17.1. Tenant's Default. If Tenant defaults under this Lease, Landlord
may cure the same at the expense of Tenant:
(a) immediately and without notice in the case of emergency or in case such
default unreasonably interferes with the use by any other tenant in the Building
or with the efficient operation of the Building or will result in a violation of
law or in a cancellation of an insurance policy maintained by Landlord, and
(b)in any other case if such default continues after fifteen (15) days from
the date of the giving by Landlord to Tenant of notice of Landlord's intention
so to perform the same, or, in the case of such a default which for causes
beyond Tenant's reasonable control cannot with due diligence be cured within
such fifteen (15) day period, such fifteen (15) day period shall be deemed
extended if Tenant:
(i) shall immediately upon the receipt of such notice advise Landlord of
Tenant's intention to institute all steps necessary to cure such default, and
(ii) shall institute and thereafter with reasonable dispatch prosecute to
completion all steps necessary to cure the same.
Section 17.2. Certain Payments. Bills for all reasonable costs and expenses
incurred by Landlord in connection with any performance by it under Section 17.1
shall be payable on demand, and shall be deemed additional rent hereunder.
Section 17.3. Certain Waivers. If Tenant is in default in payment of fixed rent
or additional rent, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by Tenant are to be credited, and Landlord may
apply any payments made by Tenant to any items Landlord sees fit.
Section 17.4. Certain Rent. If any cost, expense, charge, amount or sum (other
than fixed rent) payable by Tenant as provided in this Lease is not paid when
due, the same shall be due and payable by Tenant as additional rent hereunder.
Section 17.5. Interest, Etc. Every installment of rent and every other payment
due hereunder from Tenant to Landlord which shall not be paid within ten (10)
days after the same shall have become due and payable shall bear interest at the
rate of twelve percent (12%) per annum, or if a higher rate is legally
permissible, at the highest rate legally permitted from the date that the same
became due and payable and until paid, whether or not demand be made therefor.
Tenant acknowledges that late payment by Tenant to Landlord of rent and every
other payment due hereunder will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs
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include, without limitation, processing and accounting charges and late charges
that may be imposed on Landlord by the terms of any encumbrance and note secured
by any encumbrance covering the Premises. Therefore, if any installment of rent
and other payment due hereunder from Tenant is not received by Landlord within
five (5) days after written notice is given to Tenant of when same is due,
Tenant shall pay to Landlord on demand an additional sum equal to five percent
(5%) of the overdue amount as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. Acceptance of any late charge shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord.
ARTICLE 18
Estoppel Certificates
Section 18.1. Estoppel Certificates. At any time and from time to time but on
not less than ten (10) days prior written request by Landlord, Tenant will
execute, acknowledge and deliver to Landlord, promptly upon request, a
certificate certifying:
(a) that this Lease is unmodified and in full force and effect (or, if there
have been modifications, that this Lease is in full force and effect, as
modified, and stating the date and nature of each modification);
(b) the date, if any, to which rental and other sums payable hereunder have
been paid;
(c) that no notice has been received by Tenant of any default which has not
been cured, except as to defaults specified in the certificate;
(d) that Landlord is not in default under this Lease or, if so, specifying
such default; and
(e) such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Building or any part thereof.
If Tenant fails to deliver the certificate within ten (10) days, the Tenant
irrevocably constitutes and appoints Landlord as its special attorney-in-fact to
execute and deliver the certificate to any third party.
ARTICLE 19
Events of Default
Section 19.1. Events of Default. This Lease and the terms and estate hereby
granted are subject to the limitation that:
(a) in case Tenant shall default in the parent of any fixed rent or additional
rent on any date upon which the same becomes due, or
(b) in case Tenant shall abandon or vacate the Premises, or
(c) in case Tenant shall default in the keeping, observance or performance of
any covenant or agreement set forth in Article 6 or in paragraph (e), (h) or (i)
of Section 9.1, and if such
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default shall continue and shall not be cured by Tenant within three (3) days
after Landlord shall have given to Tenant a notice specifying the same, or
(d) in case Tenant shall default in the keeping, observance or performance of
any covenant or agreement including any provisions of the rules and regulations
referred to in Section 9.1 (c) (other than a default of the character referred
to in paragraphs (a) (b)or (c) of this Section 19.1), and if such default shall
continue and shall not be cured by Tenant within fifteen (15) days after
Landlord shall have given to Tenant a notice specifying the same, or, in the
case of such a default which for causes beyond Tenant's reasonable control
(including occupancy of a subleasee) cannot with due diligence be cured within
such period of fifteen (15) days, if Tenant (i) shall not, promptly upon the
giving of such notice, advise the Landlord of Tenant's intention duly to
institute all steps necessary to cure such default or (ii) shall not duly
institute and thereafter diligently prosecute to completion all steps
(including, if appropriate, legal proceedings against a defaulting subleasee)
necessary to cure the same, or
(e) in case Tenant shall (i) apply for or consent to the appointment of, or
the taking of possession by a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as such debts become
due, (iii) make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under federal bankruptcy laws (as now or hereafter in
effect), (v) file a petition seeking to take advantage of any other law relating
to bankruptcy, insolvency, reorganization, winding up, or composition or
adjustment of debts, (vi) fail to controvert in a timely or appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
under such bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing, or
(f) in case a proceeding or case shall be commenced, without the application
or consent of Tenant, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, winding up, or composition or
readjustment of debts, of Tenant, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of Tenant or of all or a substantial part of
its assets, (iii) similar relief in respect of Tenant under any law relating to
bankruptcy, insolvency, reorganization, winding up, or composition or adjustment
of debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of thirty (30) days, or an
order for relief against Tenant shall be entered in an involuntary case under
such bankruptcy laws,
then, in any of such cases, Tenant shall be deemed to have committed a material
default under this Lease and Landlord shall, in addition to any other remedies
available to it at law or in equity, be entitled to give to Tenant a notice of
intention to end the term of this Lease at the expiration of three (3) days from
the date of the giving of such notice, and, in the event such notice is given,
this Lease and the term and estate hereby granted (whether or not the Term
Commencement Date shall have theretofore occurred) shall terminate upon the
expiration of such three (3) days with the same effect as if the last of such
three (3) days were the expiration of the term of this Lease, but Tenant shall
remain liable for damages as provided herein or pursuant to law. If the term
"Tenant", as used in this Lease, refers to more than one person, then, as used
in this Section 19.1, such term shall be deemed to include all of such persons
or any one of them; if any of the obligations of Tenant under this Lease is
guaranteed, the term "Tenant", as used in paragraphs (e) and (f) of this Section
19.1, shall be deemed to include also the guarantor or, if there be more than
one guarantor, all or any one of them; and if this Lease shall have been
assigned, the term "Tenant", as used in paragraphs (a) through (f), inclusive,
of this Section 19.1, shall be deemed to include the assignee and the assignor
of either of them under any such assignment unless Landlord shall, in connection
with such
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assignment, release the assignor from any further liability under this Lease,
in which event the term "Tenant", as used in said subparagraphs, shall not
include the assignor so released.
ARTICLE 20
Damages; Remedies; Re-Entry By Landlord; Etc.
Section 20.1 Damages. In the event of any termination of this Lease pursuant
to Article 19 (a "Default Termination"),
(a) Landlord may recover from Tenant the total of:
(i) the worth at the time of award of the unpaid fixed rent and
additional rent earned to the date of such Default Termination;
(ii) the worth at the time of award of the amount by which the unpaid
fixed rent and additional rent which would have been earned after the
date of such Default Termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided;
(iii) the worth at the time of award of the amount by which the
unpaid fixed rent and additional rent which would have been earned for
the balance of the term of this Lease after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided;
(iv) any other amount necessary to compensate Landlord for all of the
detriment proximately caused by Tenant's failure to observe or perform
any of its covenants and agreements under this Lease or which in the
ordinary course of events would be likely to result therefrom, including,
without limitation, the payment of the reasonable expenses incurred or
paid by Landlord in re-entering and securing possession of the Premises
and in the reletting thereof (including, without limitation, altering and
preparing the Premises for new tenants and brokers' commission); and
(v) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time under
applicable California laws.
(b) The "worth at the time of award" is computed (i) in paragraphs (a)(i)
and (ii) above, by allowing interest at the rate of ten percent (10%) per
annum (but in no event in excess of the maximum rate permitted by law) and
(ii) in paragraph (a)(iii) above, by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).
(c) For purposes of computing unpaid rental which would have accrued and
become payable under this Lease, unpaid rental shall consist of the sum of:
(i) the total fixed rent for the balance of the term, plus
(ii) a computation of the Tenant's Share of additional rent due under
the Lease including, without limitation, Tenant's share of operating
expenses (including real estate taxes) for the balance of the term. For
purposes of computing increases such additional rent for the calendar
year of the default and each future calendar year in the term shall be
assumed to be equal to the additional rent for the calendar year prior to
the year in which default occurs compounded at a rate equal to the mean
average rate of inflation for the preceding five calendar years as
determined by the United States Department of Labor,
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Bureau of Labor Statistics Consumer Price Index (All Urban Consumers, all
items, 1982-84 equals 100) for the metropolitan area or region of which Los
Angeles, California is a part. If such index is discontinued or revised, the
average rate of inflation shall be determined by reference to the index
designated as the successor or substitute index by the government of the
United States.
Section 20.2. Re-Entry by Landlord.
(a) In the event of any Default Termination or if any default specified in
paragraphs (a) through (f) of Section 19.1 shall have occurred and be continuing
beyond the period of grace (if any) therefor, Landlord or Landlord's authorized
representatives may re-enter the Premises and remove all persons and all
property therefrom either by summary dispossess proceedings or by any suitable
action or proceeding at law, without being liable to indictment, prosecution or
damages therefor, and repossess and enjoy the Premises. No re-entry or
repossession of the Premises by Landlord or its representatives under this
Section 20.2 shall be construed as an election to terminate this Lease unless a
notice of such election is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction. The words "re-enter", "re-entry"
and "re-entering" as used herein are not restricted to their technical legal
meanings.
(b) In the event any default specified in paragraphs (a) through (f) of
Section 19.1 shall have occurred and be continuing beyond the period of grace
(if any) therefor, then if Landlord does not elect to terminate this Lease
Landlord may, from time to time and without terminating this Lease, enforce all
its rights and remedies under this Lease, including the right to recover the
fixed rent and additional rent as the same becomes payable by Tenant hereunder.
In the event Landlord so elects, Tenant shall have the right to sublet the
Premises or any part thereof upon obtaining Landlord's prior consent (which
consent Landlord agrees will not be unreasonably withheld) and upon first
complying with the provisions of Section 11. So long as Landlord is exercising
this remedy it will not terminate Tenant's right to possession of the Premises,
but it may engage in the acts permitted by Section 1951.4(c) of the California
Civil Code.
(c) If Tenant abandons the Premises in breach of this Lease, Landlord shall
have the right to relet the Premises or any part thereof on such terms and
conditions and at such rentals as Landlord in its sole discretion may deem
advisable, with the right to make alterations and repairs in and to the Premises
necessary to reletting. If Landlord so elects to relet, then gross rentals
received by Landlord from the reletting shall be applied: first, to the payment
of the reasonable expenses incurred or paid by the Landlord in re-entering and
securing possession of the Premises and in the reletting thereof (including,
without limitation, altering and preparing the Premises for new tenants and
brokers' commissions); second, to the payment of the fixed rent and additional
rent payable by Tenant hereunder; and third, the remainder, if any, to be
retained by Landlord and applied to the payment of future fixed rent and
additional rent as the same become due. Should the gross rentals received by
Landlord from the reletting be insufficient to pay in full the sums stated in
clauses first and second above, Tenant shall, upon demand, pay the deficiency to
Landlord.
Section 20.3. Certain Waivers. Tenant waives and surrenders all right and
privilege which it might have under or by reason of any present or future law to
redeem the Premises or to have a continuance of this Lease for the term hereof
after Tenant is dispossessed or ejected therefrom by process of law or under the
terms of this Lease. Tenant also waives the provisions of any law relating to
notice and/or delay in levy of execution in case of an eviction or dispossession
for nonpayment of rent, and of any successor or other law of like import.
Section 20.4. Cumulative Remedies. The remedies of Landlord provided for in this
Lease are cumulative and are not intended to be exclusive of any other remedies
to which Landlord
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may be lawfully entitled. The exercise by Landlord of any remedy to which it is
entitled shall not preclude or hinder the exercise of any other such remedy.
ARTICLE 21
Insurance
Section 21.1 Landlord Obligation: Fire Insurance. Landlord agrees to and shall,
within ten (10) days from the date hereof, secure from a good and responsible
company or companies doing insurance business in the State of California, and
maintain during the entire term of this Lease, fire and extended coverage
insurance in an amount not less than eighty percent (80%) of the value of the
leased building and other improvements on the leased premises.
Section 21.2. Tenant Obligations. In addition to the requirements of Section
12.1 herein, Tenant agrees to and shall, within ten (10) days from the date
hereof, secure from a good and responsible company or companies doing business
in the State of California, and maintain during the entire term of this Lease,
comprehensive general liability insurance; including contractual liability in a
minimum amount of five hundred thousand dollars ($500,000.00) for loss from an
accident resulting in bodily injury to or death of one person and one million
dollars ($1,000,000.00) for any one occurrence and one hundred thousand dollars
($100,000.00) for loss from an accident resulting in damage to or destruction of
property.
Section 21.3. Additional Insureds. Tenant agrees that Landlord shall be named as
an additional insured on the aforementioned policies of insurance, shall
specifically include the liability assumed hereunder by Tenant (provided the
amount of such insurance shall not be construed to limit the liability of Tenant
hereunder), and shall provide that it is primary insurance and not excess over
or contributory with any other valid, existing new applicable insurance in force
for or on behalf of Landlord. The policy shall not eliminate cross-liability and
shall contain a severability of interest clause.
Section 21.4. Subrogation Waiver. Tenant and Landlord agree that in the event of
loss due to any of the perils for which they have agreed to provide insurance,
that each party shall look solely to its insurance for recovery. Landlord and
Tenant hereby grant to each other, on behalf of any insurer providing insurance
to either of them with respect to the demised premises, a waiver of any right of
subrogation which any such insurer of one party may acquire against the other by
virtue of payment of any loss under such insurance.
Section 21.5. Proof of Coverage. Upon request, the parties shall each give the
other written notice thereof together with a certified copy of the certificate
of insurance for the appropriate policies.
Section 21.6. Protection Against Cancellation. Upon request, proof must also be
given by each party to the other, pursuant to Section 21.5 hereof, that each of
the policies provided for in this Section expressly provides that the policy
shall not be cancelled or altered without thirty (30) days' prior written notice
to the other party.
Section 21.7. Failure to Secure. If either party at any time during the term
hereof should fail to secure or maintain the foregoing insurance, the other
party shall be permitted to obtain such insurance in the defaulting party's name
or as the agent of the defaulting party and shall be compensated by the
defaulting party for the cost of the insurance premiums. The defaulting party
shall pay the other interest on paid insurance premiums at the rate of ten
percent (10%) per annum computed from the date written notice is received that
the premiums have been paid.
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Sections 21.8 Proceeds. Proceeds from any such policy or policies shall be
payable to both Landlord and Tenant as their respective interests may appear.
ARTICLE 22
Miscellaneous
Section 22.1. Limitation of Landlord's Liability. The covenants and agreements
on the part of the Landlord to be performed under this Lease shall not be
binding upon Landlord herein named with respect to any period subsequent to the
transfer of its interest in the Building or the Land, and in the event of such
transfer such covenants and agreements shall thereafter be binding upon each
transferee of such interest, but only with respect to the period beginning with
the date of such transfer and ending with the date of subsequent transfer to
such interest.
Section 22.2. Entire Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection therewith and neither party and no agent or
representative thereof has made or is making, and neither party in executing
and delivering this Lease is relying upon, any warranties or representations,
except to the extent set forth in this Lease. All understandings and
agreements heretofore had between Landlord and Tenant relating to the leasing of
the Premises are merged in this Lease, which alone fully and completely
expresses their agreement The Riders (if any) and Exhibits annexed to this Lease
and the Construction Agreement are hereby incorporated herein and made a part
hereof.
Section 22.3. No Waiver; Etc. The failure of Landlord or Tenant to insist in any
instance upon the strict keeping, observance or performance of any covenant or
agreement contained in this Lease or to exercise any election herein contained
shall not be construed as a waiver or relinquishment for the future of such
covenant or agreement, but the same shall continue and remain in full force and
effect. No waiver or modification by either Landlord or Tenant of any covenant
or agreement contained in this Lease shall be deemed to have been made unless
the same is in writing executed by the party whose rights are being waived or
modified. No surrender of possession of any part of the Premises shall release
Tenant from any of its obligations hereunder unless accepted in writing by
Landlord. The receipt and retention by Landlord, and the payment by Tenant, of
fixed rent or additional rent with knowledge of the breach of any covenant or
agreement contained in this Lease shall not be deemed a waiver of such breach by
either Landlord or Tenant.
Section 22.4. Severability. If any covenant or agreement of this Lease or the
application thereof to any person or circumstance shall be held to be invalid or
unenforceable, then and in each such event the remainder of this Lease or the
application of such covenant or agreement to any other person or any other
circumstance shall not be thereby affected, and each covenant and agreement
hereof shall remain valid and enforceable to the fullest extent permitted by
law.
Section 22.5. Broker. Tenant represents that it has dealt with no broker in
connection with this Lease other than JON DOUGLAS COMMERCIAL BROKERAGE and THE
SEELEY COMPANY, and Tenant shall hold Landlord harmless from and against any and
all liability, loss, damage, expense, claim, action, demand, suit or obligation
arising out of or relating to a breach by Tenant of such representation.
Section 22.6. Security Deposit. Tenant shall at all times maintain on deposit
with Landlord cash in the amount of $9,403.20 as security for the full and
faithful observance and performance of all of the covenants and agreements of
this Lease to be observed or performed by Tenant (expressly including, without
limitation, the payment as and when due of the fixed
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rent, additional rent and any other sums or damages payable by Tenant hereunder)
and the payment of any and all other damages for which Tenant shall be liable by
reason of any act or omission contrary to any of said covenants or agreements.
If at any time Tenant shall be in default in the payment of any such fixed rent,
additional rent and/or any other sums or damages or shall otherwise be in
default in the observance or performance of any of the covenants or agreements
of this Lease to be observed or performed by Tenant, then, at Landlord's
election, the cash on deposit with it as aforesaid may be applied by Landlord to
the payment of the fixed rent, additional rent and other sums or damages in
respect of which Tenant is so in default and/or, if Tenant is otherwise in
default in the observing or performing as aforesaid of any of the covenants or
agreements of this Lease, said cash on deposit may be applied by Landlord to the
payment of such costs and expenses as Landlord shall incur in curing any such
default. If as a result of any such application of any such cash, the amount of
cash so on deposit with Landlord shall at any time be less than that hereinabove
specified, Tenant shall within ten (10) days after demand therefor deposit with
Landlord additional cash in an amount equal to the deficiency and Tenant's
failure to do so shall be a material breach of this Lease. If, at the expiration
of the term of this Lease, all of such fixed rent, additional rent, or other
sums or damages, costs or expenses shall have been paid by Tenant to Landlord
and Tenant shall not be in default in the observance or performance of any other
covenant or agreement of this Lease, then Landlord shall return to Tenant,
without interest, all or such part of the cash, if any, then on deposit with
Landlord pursuant to this Section 22.6. Landlord shall have the right to
commingle such cash with its general assets and, unless otherwise required by
law, Landlord shall not be obligated to pay Tenant interest thereon.
Should the Rentable Area of the Premises be increased or decreased pursuant to
Section 1.2 of the Lease, then, effective at the commencement of the Lease term,
the Security Deposit shall be recalculated based on $1.60 per rentable square
foot per month.
Section 22.7. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of California
Section 22.8. Successors and Assigns. Subject to Section 11, the covenants and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant, their respective successors and assigns and all persons
claiming by, through or under them.
Section 22.9. Submission of Lease. No contractual or other rights shall exist
between Landlord and Tenant with respect to the Premises until both have
executed and delivered this Lease, notwithstanding that rental deposits have
been received by Landlord and notwithstanding that Landlord has delivered to
Tenant an unexecuted copy of this Lease. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not constitute a
reservation of or an option for the Tenant to lease, or otherwise create any
interest by Tenant in the Premises or any other premises situated in the
Building. Execution of this Lease by Tenant and its return to Landlord shall not
be binding upon Landlord, notwithstanding any time interval, until Landlord has
in fact executed and delivered this Lease to Tenant.
Sections 22.10. Captions. The captions in this Lease are for convenience only
and shall not in any way limit or be deemed to construe or interpret the terms
and provisions hereof.
Section 22.11. Time of the Essence. Time is of the essence of this Lease and of
all provisions hereof, except in respect to the delivery of possession of the
Premises at the commencement of the term hereof.
Section 22.12. Singular and Plural, Etc. The words "Landlord" and "Tenant", as
used herein, shall include the plural as well as the singular. Words used in the
masculine gender
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include the feminine and neuter. If there be more than one Landlord or Tenant
the obligations hereunder imposed upon Landlord and Tenant shall be joint and
several.
Section 22.13. Warranty of Authority. If Tenant signs as a corporation or a
partnership, each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized and existing
entity, that Tenant has and is qualified to do business in California, that
Tenant has full right and authority to enter into this Lease, and that each and
both of the persons signing on behalf of Tenant are authorized to do so. Upon
Landlord's request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties.
Section 22.14. No Representations or Warranties. Neither Landlord nor Landlord's
agents or attorneys have made any representations or warranties with respect to
the Premises, the Building or this Lease, except as expressly set forth herein,
and no rights, easements or licenses are or shall be acquired by Tenant by
implication or otherwise.
Section 22.15. No Joint Venture, Etc. This Lease shall not be deemed or
construed to create or establish any relationship of partnership or joint
venture or similar relationship or arrangement between Landlord and Tenant
hereunder.
Section 22.16. Tenant's Obligations At Its Sole Cost and Expense. Intentionally
omitted.
Section 22.17. Attorneys' Fees. In the event of litigation between Landlord and
Tenant arising out of or relating to this Agreement, the prevailing party in
such litigation shall be entitled to receive its costs (not limited to court
costs), expenses and reasonable attorneys' fees from the non-prevailing party as
the same may be awarded by the court
Section 22.18. Holding Over. If Tenant holds over after the expiration or
earlier termination of this Lease without the express written consent of
Landlord, the tenancy shall be construed to be a tenancy from month-to-month on
terms and conditions herein specified so far as applicable, except for the fixed
rent which shall be specified by a thirty day notice in writing by Landlord to
Tenant. Such fixed rent, as adjusted from time to time, shall be paid during the
time which Tenant retains possession of the Premises. The acceptance of such
rent shall not waive any of Landlord's rights or remedies with respect to such
holding over and shall not be deemed to be a consent by Landlord to Tenant's
occupancy or possession of the Premises.
Section 22.19. No Merger. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an assignment to it of any or all
such subleases or subtenancies.
Section 22.20. Hazardous Waste. Tenant specifically agrees not to engage or
permit at any time, any operations or activities upon, or any use or occupancy
of the Premises, or any portion thereof, for the purpose of or in any way
involving the handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal (whether legal or illegal,
accidental or intentional) of any hazardous substances, materials or wastes, or
any wastes regulated under any local, state or federal law other than those
which are incidental to the operation of its office. Tenant during the term
hereof will remain in full compliance with all applicable laws governing its use
and occupancy of the property including, without limitation, the handling,
manufacturing, treatment, storage, disposal, discharge, use, and transportation
of hazardous substances, materials or wastes, and any wastes REGULATED under any
local, state or federal law. Tenant will remain in full
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compliance with the terms and conditions of all permits and licenses issued to
it by any governmental authority on account of any or all of its activities on
the Premises.
Section 22.21. Disclosure. Landlord and Tenant acknowledge that principals of
Landlord have a financial interest in the Jon Douglas Company, San Vicente
Escrow, Equity Title, Jon Douglas Financial, Douglas Emmett Realty Advisors, and
P.L.E. Builders.
ARTICLE 23
Quiet Enjoyment
Section 23.1. Quiet Enjoyment. Tenant, upon keeping, observing and performing
all of the covenants and agreements of this Lease on its part to be kept,
observed and performed, shall lawfully and quietly hold, occupy and enjoy the
Premises during the term of this Lease, subject, however, to the covenants,
agreements, terms, provisions and conditions of this Lease and to the
underlying mortgages to which this Lease is subject and subordinate, as
hereinbefore set forth.
ARTICLE 24
No Light, Air or View Easement
Section 24.1. No Light, Air or View Easement. Any diminution or shutting off of
light, air or view by any structure which is now or may hereafter be erected on
lands adjacent to the Building shall in no way affect this Lease or impose any
liability on Landlord. Noise, dust or vibration or other ordinary incidents to
new construction of improvements on lands adjacent to the Building, whether or
not by Landlord, shall in no way affect this Lease or impose any liability on
Landlord.
ARTICLE 25
Relocation
Section 25.1. Relocation. Intentionally omitted.
ARTICLE 26
Parking
Section 26.1. Parking. Landlord to provide Tenant with space to park up to three
(3) cars per 1,000 useable square feet in the Premises on a monthly basis at the
prevailing monthly parking rate in effect, which may change from time to time.
Such parking may be unassigned or as assigned by Landlord, which shall be in the
absolute discretion of Landlord, unless otherwise specifically agreed to in
writing between Landlord and Tenant. Guests and invitees of Tenant shall have
the right to use in common with guests and invitees of other tenants of the
Building the transient parking facilities of the Building at posted parking
rates or at such other rate as may be agreed upon from time to time between
Landlord and Tenant in writing. This usage as well as monthly parking shall be
subject to the rates, rules and regulations, and any other charges of Landlord
for such parking facilities which may be established or altered by Landlord at
any time or from time to time during the term hereof including, without
limitation, any and all fees or taxes assessed to Landlord relating to parking.
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ARTICLE 27
Option to Extend Term
Section 27.1. Option to Extend Term. Tenant is given the option to extend the
term for a 5-year period ("Extended Term") following expiration of the initial
term, by giving written notice of exercise of the option ("Option Notice") to
Landlord at least nine (9) months before the expiration of the term. Commencing
on the first day of the Extended Term Tenant shall pay Landlord ninety-five
percent (95%) of the fair market value of the Premises for the extended Term.
The fair market value shall include but not be limited to all economic benefits
to Landlord such as monthly rent, periodic rent adjustments, expense
reimbursements, and all other monetary consideration, exclusive of any and all
concessions being given in the market place, which constitutes a part of the
fair market value of the Premises at the time of the expiration of the initial
term of the Lease that is chargeable for similar use for comparable space in the
geographic area of the Premises.
If Tenant is in default on the date of giving the Option Notice, the Option
Notice shall be totally ineffective, or if Tenant is in default on the date the
Extended Term is to commence, the Extended Term shall not commence and this
Lease shall expire at the end of the initial term.
The parties shall have 30 days after Landlord receives the Option Notice in
which to agree on fair market value during the Extended Term If the parties
agree on the fair market value for the Extended Term during that period, they
shall immediately execute an amendment to the Lease stating the fair market
value.
If the parties are unable to agree on the fair market value for the Extended
Term within that period, then within 10 days after the expiration of that period
each party, at its cost and by giving notice to the other party, shall appoint a
real estate appraiser with at least 5 years full-time commercial appraisal
experience in the area in which the Premises are located to appraise and set the
fair market value for the Extended Term. If the two appraisers are appointed by
the parties as stated in this paragraph, they shall meet promptly and attempt to
set the fair market value for the Extended Term. If they are unable to agree
within 30 days after the second appraiser has been appointed, they shall attempt
to elect a third appraiser meeting the qualifications stated in this paragraph
within 10 days after the last day the two appraisers are given to set the fair
market value. Each of the parties shall bear one half of the cost of appointing
the third appraiser and of paying the third appraiser's fee. The third
appraiser, however selected, shall be a person who has not previously acted in
any capacity for either party.
Within 30 days after the selection of the third appraiser, a majority of the
appraisers shall set the fair market value for the Extended Term. If a majority
of the appraisers are unable to set the fair market value within the stipulated
period of time, the three appraisals shall be added together and their total
divided by three; the resulting quotient shall be the fair market value for the
Premises during the Extended Term.
In setting the fair market value for the Extended Term, the appraiser or
appraisers shall consider the use to which the Premises are restricted under
this Lease, and shall not consider the highest and best use for the Premises
without regard to the restriction on use of the Premises contained in this
Lease.
If, however, the low appraisal and/or the high appraisal are/is more than 10%
lower and/or higher than the middle appraisal, the low appraisal and/or the high
appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by two;
the resulting quotient shall be the fair market value for
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the Premises during the Extended Term. If both the low appraisal and the high
appraisal are disregarded as stated in this paragraph, the middle appraisal
shall be the fair marker value for the Premises during the Extended Term.
After the fair market value for the Extended Term has been set, the appraisers
shall immediately notify the parties. If Tenant objects to the fair market value
that has been set, Tenant shall have the right to have this Lease expire at the
end of the term, provided that Tenant pays all the costs in connection with the
appraisal procedure that set the fair market value. Tenant's election to allow
this Lease to expire at the end of the term must be exercised within 10 days
after receipt of notice from the appraisers of the fair market value for the
Extended Term. If Tenant does not exercise its election within the 10-day
period, the term of this Lease shall be extended as provided in this paragraph.
Tenant shall have no other right to extend the term beyond the Extended Term.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
LANDLORD: TENANT:
DOUGLAS EMMETT JOINT VENTURE, a THE FOUNTAIN VIEW MANAGEMENT
California general partnership GROUP, a California corporation
By: DOUGLAS, EMMETT & COMPANY, By: /s/ Signature appears here
its agent ----------------------------
Its:
By: /s/ Kenneth M Panzer By: President
---------------------------- ----------------------------
Kenneth M. Panzer Its:
Dated: 3.30.95 Dated: March 30, 95
---------------------------- ----------------------------
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[DIAGRAM OF SIXTH FLOOR APPEARS HERE]
6th Floor
Suite 680
Rentable Area of Premises: 5,877 approximate square feet
Useable Area of Premises: 5,110 approximate square feet
(See Section 1.2 of the Lease.)
Exhibit A - Suite Plan
<PAGE>
EXHIBIT B
CONSTRUCTION AGREEMENT
CONSTRUCTION PERFORMED BY LANDLORD
1. Landlord, through its general contractor, shall provide Tenant with a
turnkey build out pursuant to a mutually agreeable space plan and Landlord's
approval of final construction costs. Landlord's contractor shall furnish and
install within the Premises those items of general construction, (the
"Improvements"), shown on the final Plans and Specifications approved by
Landlord and Tenant pursuant to the Schedule of Approvals below, in compliance
with all applicable codes and regulations.
2. (a) Prior to commencing any such work for Tenant's account, Landlord
shall approve a written statement of the final construction costs for the
Improvements, including contractor's overhead and profit and all fees, and also
including a Landlord Administration Fee of seven and one-half percent (7.5%). In
the event Landlord does not approve the final construction costs, then Landlord
and Tenant shall use their best efforts to come to agreement on the final
construction costs. If, however, Landlord and Tenant unable to agree. on the
final construction costs, then this Lease shall terminate upon written notice
from Landlord to Tenant with no liability to either party.
(b) After Landlord has approved the final construction costs, Landlord
shall bear the costs of the Improvements for space planning, engineering,
contracting, labor and material, and permits.
3. (a) Tenant, through Landlord's architect or space planner, shall furnish
all architectural and engineering specifications required for the construction
of the Improvements. Tenant shall provide instructions to Landlord's architect
or space planner to complete the Plans and Specifications in accordance with the
Schedule of Approvals set forth in Paragraphs below.
(b) All Plans and Specifications referred to herein are subject to
Landlord's approval, which Landlord agrees shall not be unreasonably withheld.
4. (a) Any work not shown in the final approved construction Plans and
Specifications or included in the Improvements such as, but not limited to,
telephone service, or furnishings, which are beyond the scope of work as defined
in the final approved Plans and Specifications, shall be performed at Tenant's
sole cost and expense. Furthermore, such work shall be subject to Landlord's
policies and schedules of Landlord's contractor and shall be conducted in such a
way as to not unreasonably hinder or delay the work of Improvements.
(b) Should Tenant perform such work, Tenant's suppliers and contractors
shall be approved by Landlord prior to the commencement of their work and shall
be subject to Landlord's administrative control and supervision. Landlord shall
give reasonable access to suppliers and contractors so as to achieve timely
completion and occupancy.
(c) Tenant shall bear the cost of the Improvements in excess of the final
approved Plans and Specifications, such funds having previously been deposited
with Landlord as follows. Tenant agrees to pay Landlord within five (5) working
clays after being presented with a cost estimate of such work to be performed
which is beyond the final approved Plans and Specifications. Within thirty (30)
business days following payment of the final billing of Landlord's contractor
any difference between the actual cost and the original cost estimate will be
settled. Excess funds deposited by Tenant will be promptly returned or any
shortfall in the amount due to Landlord will be promptly paid by Tenant within
that period with a ten percent (10%) retention being held until Tenant is
reasonably satisfied.
<PAGE>
5. Tenant shall use its best efforts subject to events beyond its control to
maintain the following Schedule of Approvals for the provision of information,
in order to meet Landlord's completion date.
Event Time
- ----- ----
(a) Tenant meets with Landlord's 3 business days from Tenant's receipt of
space planner. executed Lease by Landlord.
(b) Deadline for space plan 3 business days after receipt from
approval. Landlord's space planner.
(c) Deadline for notifying Landlord 5 business days after space plan approval
of Tenant selection of finishes date.
and material other than
building standard specifications.
(d) Approval by Tenant of final 5 business days after Tenant's receipt of
Plans and Specifications Plans and Specifications from Landlord.
(e) Deadline for Tenant's approval 5 business days after Tenant's receipt
of Landlord's cost estimate of cost estimate of Landlord.
of Improvements.
6. Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Premises or the Building
or with respect to the suitability of either for the conduct of Tenant's
business except that the Building is suitable for general office purposes. The
taking of possession of the Premises by Tenant shall conclusively establish that
the Premises and the Building were at such time in good, sanitary order,
condition and repair; provided, however, that nothing herein shall modify
Landlord's obligation to fully complete the Building and Premises in accordance
with the Lease and to correct any construction defects of which Landlord is
notified in writing within one (1) year following the Term Commencement Date, or
such longer period as may be covered by warranties obtained by Tenant from
contractor or subcontractor.
7. Landlord's contractor, at the contractor's sole cost and expense, shall
obtain and maintain public liability and workmen's compensation insurance
adequate to fully protect Tenant as well as Landlord from and against any and
all liability for death or injury to persons or damage to property caused in or
about or by reason of the construction of any work which is Landlord's
obligation hereunder. Tenant agrees at Tenant's expense to obtain and maintain
public liability and workmen's compensation insurance adequate to fully protect
Landlord as well as Tenant from and against any and all liability for death or
injury to persons or damage to property caused in or about or by reason of the
construction of any work which is Tenant's obligation and beyond the scope of
Landlord's work.
2
<PAGE>
LANDLORD: TENANT:
DOUGLAS EMMETT JOINT VENTURE, a THE FOUNTAIN VIEW MANAGEMENT
California general partnership GROUP, a California corporation
By: DOUGLAS, EMMETT & COMPANY, By: [SIGNATURE APPEARS HERE]
its agent ------------------------
Its:
By: /s/ Kenneth M Panzer By: President
-------------------------- ------------------------
Kenneth M. Panzer Its:
Dated: 3-30-95 Dated: March 30, 1995
-------------------------- ------------------------
3
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, lobby, garage, elevators, stairways, and public
corridors shall be used only as a means of ingress and egress and shall remain
unobstructed at all times. The entrance and exit doors of all suites are to be
kept closed at all times except as required for orderly passage to and from a
suite. Loitering in any part of the Building or obstruction of any means of
ingress or egress shall not be permitted. Doors and windows shall not be covered
or obstructed. No TENANT and no employees or invitee of any tenant shall go up
on the roof of the Building except such roof or portion thereof as may be
contiguous to the premises or a particular tenant and is designated in writing
by Landlord as a roof-deck or roof-garden area.
2. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damaging result from the violation of this rule
shall be borne by the TENANT who, or whose employees or invitees, shall have
caused it. Walls, floors and ceilings shall not be defaced in any way and no one
shall be permitted to mark, drive nail, screw or drill into, paint, or in any
way mar any building surface, except that pictures, certificates, licenses, and
similar items normally used in TENANT'S business may be carefully attached to
the walls by TENANT in a manner to be prescribed by LANDLORD. Upon removal of
such items by LANDLORD, any damage to the walls or other surfaces except minor
nail holes shall be repaired by TENANT. TENANT shall not be responsible for any
damage resulting from normal wear and tear, or for any damage previously agreed
upon in writing.
3. No awning, shade, sign, advertisement or notice shall be inscribed, painted
or affixed on or to any part of the outside or inside of the Building. Drapes
may be installed by tenants provided they are of such color, material, and
construction and installation as may be prescribed by LANDLORD. All tenant
identification on public corridor doors will be installed by LANDLORD for
Tenant, but the cost shall be paid by TENANT. No lettering or signs other than
the name of the TENANT will be permitted on public corridor doors, with the size
and type of letters to be prescribed by LANDLORD. There shall be no solicitation
of any of the other tenants of the Building. The Directory of the Building will
be provided exclusively for the display of the name and location of TENANT
only, and LANDLORD reserves the right to exclude all other names therefrom and
to make a charge for each and every name which TENANT may desire to be placed
upon such Directory and to which LANDLORD may consent. All requests for listing
of tenants on Directory of the Building must be submitted to the Office of the
Building in writing. LANDLORD reserves the right to approve or disapprove all
listing requests.
4. Electric wiring of every kind and telephone outlets shall be installed in
a manner as will be prescribed by LANDLORD. The location of convenience outlets,
electric light outlets and telephone outlets shall be approved by LANDLORD, but
the cost of installation thereof shall be borne by TENANT.
5. The weight, size and position of all safes and other unusually heavy objects
used or placed in the Building shall be prescribed by LANDLORD, and shall in all
cases stand on metal plates of such size as shall be prescribed by LANDLORD.
LANDLORD will not be responsible for loss or damage to any such property from
any cause. The repair of any damage done to the Building or property therein by
putting or taking out or maintaining such safes or other unusually heavy objects
shall be paid for by TENANT.
6. The carrying in or out of freight, furniture or bulky material of any
description must take place during such hours as LANDLORD may from time to time
reasonably determine. The installation and moving of such freight, furniture or
bulky material shall be made upon previous notice to the superintendent or
Office of the Building and the persons employed by the TENANT for such work must
be reasonably acceptable to LANDLORD. TENANT may, subject to the provisions of
the immediate preceding sentence, move freight, furniture, bulky matter and
other material in or out of the premises on Saturdays between the hours of 8:00
A.M. and 6:00 P.M.
<PAGE>
provided Tenant pays the additional costs, if any, incurred by LANDLORD for
elevator operators, security guards and other expenses arising by reason of such
move by TENANT.
7. No TENANT shall use or keep in the Premises or the Building any kerosene,
gasoline of flammable or combustible fluid or material other than limited
quantities thereof reasonably necessary for the operation or maintenance of
office equipment. No improper noises, vibrations, or odors will be permitted in
the Building nor shall any persons be permitted to interfere in any way with
tenants or those having business with them. No person will be permitted to bring
or keep within the Building any animal, bird or bicycle. Each TENANT shall store
its trash and garbage within its Premises. No material shall be placed in the
trash boxes or receptacles if such material is of such nature that it may not be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the City of Los Angeles without being in violation of any
law or ordinance governing such disposal. All garbage and refuse disposal shall
be made only through entry ways and elevators provided for such purposes and at
such times as LANDLORD shall designate. No person shall be employed by TENANT to
do janitor work in any part of said Building without the written consent of
LANDLORD. LANDLORD reserves the right to exclude or expel from the Building any
person who in the judgment of LANDLORD is intoxicated or under the influence of
liquor or drugs or who shall, in any manner, do any act in violation of the
Rules and Regulations of said Building.
8. The storage of goods, wares, or merchandise on the Premises will not be
permitted except in areas specifically designated by LANDLORD for storage. No
auction, public or private, will be permitted in the Premises. Articles of
unusual size or weight are not permitted in the Building, unless permitted by
LANDLORD in writing.
9. The requirements of TENANT will be attended to only upon application at the
Office of the Building. LANDLORD's employees shall not perform any work or do
anything outside of their regular duties unless under special instruction from
the Office of the Building, and no such employee shall admit any person (TENANT
or otherwise) to any office without specific instructions from the Office of the
Building.
10. LANDLORD will furnish each TENANT with two keys to each door lock in the
Premises. LANDLORD may make a reasonable charge for these and any additional
keys. No TENANT shall have keys made, No TENANT shall alter any lock or install
a new or additional lock or bolts on any door of its Premises without the prior
written consent of LANDLORD. TENANT shall in each case furnish LANDLORD with a
key for any such lock. Each TENANT upon the termination of its tenancy, shall
deliver to LANDLORD all keys to doors in the Building which shall have been
furnished to TENANT.
11. All construction or maintenance work of any kind done in TENANT'S suite may
only be performed by contractors approved by LANDLORD, in writing, prior to
commencement of work. LANDLORD agrees not to unreasonably withhold its consent.
12. The cost of repairing any damage of any kind caused by any TENANT, its
employees, guests, agents or invitees whether by negligence, carelessness or for
any other reason shall be paid for by TENANT.
13. Canvassing, peddling, soliciting and distribution of handbills or any other
written materials in the Building are prohibited and each TENANT shall cooperate
to prevent the same.
14. Except with the prior written consent of LANDLORD, no TENANT shall sell, or
permit the sale at retail of newspapers, magazines, periodicals, theater tickets
or any other goods or merchandise to the general public in or on the Premises
nor shall any TENANT carry on or permit or allow any employee or other person to
carry on the business of stenography, typewriting or any similar business in or
from the Premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the Premises of any TENANT be used
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for manufacturing of any kind, or any business or activity other than that
specifically provided for in such TENANT'S Lease.
15. LANDLORD shall have the right, exercisable without notice and without
liability to any TENANT, to change the name and street address of the Building.
16. No TENANT shall obtain for use in the Premises, ice, drinking water, food,
beverage, towel or other similar services except at such reasonable hours and
under such reasonable regulations as may be fixed by LANDLORD.
17. No TENANT shall install any radio or television antenna, loudspeaker or
other device on the roof or the exterior walls of the Building. No awnings, air
conditioning units or other projections shall be attached to the outside walls
or windowsills of the Building or otherwise project from the Building, without
the prior written consent of LANDLORD.
18. LANDLORD shall furnish heating and air conditioning during normal business
hours which are defined as 7:00 a.m. to 6:00 p.m., Monday through Friday, and
8:00 a.m. to 1:00 p.m. on Saturday, holidays excepted.
19. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. LANDLORD
reserves the right to change or rescind any one or more of these Rules and
Regulations or to make such other and further reasonable Rules amid Regulations
as in LANDLORD'S judgment may from time to time be necessary for the management,
safety, care and cleanliness of the Premises, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein. LANDLORD shall not be responsible to TENANT herein or to any other
person for the non-observance or violation of the Rules and Regulations and to
have agreed to abide by them as a condition to TENANT'S occupancy of the space
herein leased.
LANDLORD: TENANT:
DOUGLAS EMMETT JOINT VENTURE, a THE FOUNTAIN VIEW MANAGEMENT
California general partnership GROUP, a California Co
By: DOUGLAS, EMMETT & COMPANY, By: /s/ Signature appears here
its agent --------------------------
Its:
By: /s/ Kenneth M. Panzer By: President
-------------------------- --------------------------
Kenneth M. Panzer
Dated: 3-30-95 Dated: March 30, 1995
-------------------------- --------------------------
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<PAGE>
EXHIBIT 10.25
ORIGINAL
3 OF 3
FRESNO-BROWNING OFFICE CENTRE
OFFICE BUILDING LEASE
(Excludes Utilities and Janitorial)
LEASE AGREEMENT
1. PARTIES AND BASIC LEASE PROVISIONS. This lease, dated for reference
purposes only December 18 1996, is made by and between M.D. BAUTISTA
----------------
DEVELOPMENTS, a California corporation (herein called "Landlord") and
LOCOMOTION THERAPY, INC. (herein called "Tenant"), pursuant to the terms
-----------------------
of which Landlord hereby leases the Premises described in Article 2 of this
Lease to Tenant on the following Basic Lease Terms and the additional terms
provisions set forth in Articles 2 through 35 hereof.
(a) Building Name: Fresno-Browning Office Centre; Address: 5690 N. Fresno
----
Street; Suite #110.
----
(b) Tenants total net rentable area of Premises: approximately 1,832 square
-----
feet.
(c) Base year: the calendar year N/A.
---
(d)
(e)
(f) Base Rent: $1.25 per square foot (s.f.) per month for the first twelve
----- ------
(12) months, as provided in Article 5. Paragraph (b), Article 5 are
----
inapplicable.
(g) The term of this Lease shall be for 12 months, commencing on the 1st
-- ---
day of January 1997, and ending on the 31st day of December 1997.
------------ ---- -------------
(h) Projected commencement date: January 1, 1997.
---------------
(i) Security Deposit: $ N/A ; payable N/A
------- ----------------------------------
(j) Permitted use: Chiropractic medicine, physical therapy, and general
----------------------------------------------------
office uses.
-----------
(k) Tenant's public liability insurance shall have liability limits of not
less than $1,000,000 combined single limits per occurrence
(l) Broker(s): FORTUNE ASSOCIATES
------------------
(m) Space plan approval date: N/A , 19 .
------------- --
(n) Address for notices:
TENANT: LANDLORD:
LOCOMOTION THERAPY, INC. M.D. BAUTISTA DEVELOPMENTS
861 Village Oaks Drive, Suite 100 7567 Road 28
Covina, CA 91724 Madera, CA 93637
Telephone: (818) 331-8199 Telephone: (209) 227-5834
Fax (818)331-8199 Fax (209)674-5384
(o) Additional Provisions (if any):
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The foregoing Basic Lease Provisions are supplemented in Articles 2 through
Articles 35 inclusive of this lease. IN WITNESS WHEREOF, the parties hereto have
executed this lease, consisting of the foregoing provisions and Articles 2
through 35 which follow, together with the Exhibit(s) and Addendum(s) listed
below (unless lined out) are incorporated herein by this reference, as of the
date first above written.
a) Exhibit "A" - Site Plan of Project
b) Exhibit "B" - Commencement of Term Notice
c) Exhibit "C" - Tenant Improvement Work Letter
d) Exhibit "D" - Rule and Regulations
e) Exhibit "E" - Guarantee of Lease
f) Exhibit "F" - Tenant Estoppel Certificate
g) Addendum "A" - Hazardous Waste
h) Addendum "B" - Rent Schedule
TENANT: LANDLORD:
LOCOMOTION THERAPY, INC. M.D. BAUTISTA DEVELOPMENTS,
a California corporation
BY: /s/ Keith Abrahams By: /s/ Michael D. Bautista
------------------------------------ ---------------------------------
Keith Abrahams, CEO Michael D. Bautista, President
Date of execution: 12/31/91 Date of execution: 12/19/96
---------------------- ------------------
2
<PAGE>
2. PREMISES.
(a) Landlord does hereby lease to Tenant and Tenant does hereby lease from
Landlord that certain office space (herein called "Premises")
indicated on Exhibit "A" attached hereto and hereby reference thereto
made a part hereof. For the purpose of this Lease, it is agreed that
this Premises has approximately 1,832 square feet of net rentable area
-----
being situated on that certain building known as Building "F" and 5690
- ----
N. Fresno Street, Suite #110 Fresno, CA 93710.
----
(b) The term "net rentable area" as used in this Lease shall mean (I) in
the case of a full floor (single-tenant floor) all floor area measured
from the outside surface of the outer wall of the building to the
outside surface of the opposite outer wall, excluding only the areas
("service areas") within the outside walls used for building stairs,
fire towers, elevator shafts, pipe shafts and vertical ducts (but
including any such areas which are for the specific use of the Tenant,
including but not limited to special stairs or elevators and (ii) in
the case of a partial floor (multi-tenant floor), all floor areas
within the outside surface of the outer wall enclosing the Premises
and measured to the mid-point devoted to corridors, elevator foyers,
restrooms, mechanical rooms, janitorial closets, vending areas and
other similar facilities (herein called "common areas") of the floor
on which the Premises are located, and also including the
proportionate part of the common areas located on such floor based
upon the ratio which the rentable area of the Premises, (other than
the Tenant's pro rata portion of the common area) bears to the
aggregate net rentable area (other than common area) on such floor. No
deductions from the net rentable area are made for columns or
projections necessary to the Building. The "net rentable area" of the
Premises shall not be adjusted for minor variations resulting from
actual construction and completion of the Premises so long as such
work is done in accordance with terms and provision of this lease.
(c) Said Lease is subject to the terms, covenants and conditions herein
set forth and the Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said
terms, covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of said performance.
3. TERM. The term of this Lease shall be for the period of months set forth
in paragraph (g) of the Basic Lease Provisions measured from the first day
of the first full calendar month following the commencement of the term.
4. POSSESSION.
(a) If the Landlord cannot deliver possession of the said Premises to the
Tenant at the commencement of the term hereof, this Lease shall not be
void or voidable, nor shall Landlord be liable to Tenant for any loss
or damage resulting therefrom, but in that event, all rent shall be
abated during the period between the commencement of said term and the
time when Landlord delivers possession and the term of this lease
shall be extended by a period equal to the period of such delay, if
any.
(b) In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession
shall not advance the termination date hereinabove provided, unless
Landlord shall require such advancement.
(c) In the event of early and/or late possession of the Premises, Tenant
shall, at Landlord's sole discretion, execute Exhibit "B" attached
hereto and made a part hereof and in accordance with paragraph (a) and
(b) of this Article 4.
(d) In no event shall the commencement of this Lease commence later than
the 1st day of the first full calendar month following completion of
the Premises.
5. BASE RENT.
(a) Time and Manner of Payment. Tenant agrees to pay Landlord as Base Rent
without prior notice or demand, the amount as specified in paragraph
(f) of the Basic Lease Provisions on or before the first day of the
first calendar month of the term hereof and a like sum on or before
the first day of each and every successive calendar month thereafter
during the term hereof, except that the first month's rent shall be
paid upon the execution hereof. Rent for any period during the term
hereof which is for less than one (1) month shall be a prorated
portion of the monthly installment herein, based upon a thirty (30)
day month. Said rent shall be paid to Landlord, without deduction or
offset, in lawful money of the United States of America, which shall
be legal tender at the time of payment in accordance with Article 31
(c) hereof.
(b) Cost of Living Increases. The Base Rent shall be increased at the
times specified in Paragraph (f) of the Basic Lease Provisions in
proportion to the increase in the index which has occurred between the
first month of the Lease Term and the month in which the rent is to be
increased. Landlord shall notify Tenant of each increase by delivering
a written statement setting forth the Index for the first month of the
Lease Term, the Index for the month in which the Base Rent is to be
increased, the percentage increase between those two indices, and the
new amount of the Base Rent. The Base Rent shall not be reduced from
the previous adjusted Base Rent by reason of any decrease in the
index. Tenant shall pay the new Base Rent from its effective date
until the next periodic increase. Landlord's notice may be given after
the effective date of the increase since the Index for the appropriate
month may be unavailable on the effective date. In such event, Tenant
shall pay Landlord the necessary rental adjustment for the months
elapsed between the effective date of the increase and Landlord's
notice of such increase within ten (10) days after Landlord's notice.
If the format or components of the index are materially changed after
the date of Lease, Landlord shall notify Tenant of the substituted
index which shall be used to calculate the increase in the Base Rent
unless Tenant objects in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, the substitute Index
shall be determined in accordance with the rules and regulations of
the American Arbitration Association. The cost of such arbitration
shall be borne equally by Landlord and Tenant.
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<PAGE>
6. CONSTRUCTION OF TENANT IMPROVEMENTS. The property is leased "as is",
excepting that prior to commencement hereunder Landlord shall complete the
construction of Tenant's interior improvements to the Premises in
accordance with the provisions of Exhibit "C" attached hereto and made a
part hereof. Landlord has agreed to contribute a tenant improvement
allowance of N/A per useable square foot, including designing, engineering,
permits and fees. Tenant agrees to pay cash for all overages in excess of
the N/A allowance immediately upon commencement of construction of such
improvements.
7. SECURITY DEPOSIT. Tenant, contemporaneously with the execution of this
Lease, shall deposit with Landlord forthwith the amount set forth in
paragraph (i) of the Basic Lease Provisions. Said deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the
terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any
provisions of this Lease, including but not limited to the provisions
relating to the payment of rent, Landlord may (but shall not be required
to) use, apply or retain all or any part of this security deposit for the
payment of any rent or any other sum in default, or for the payment of any
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of
said deposit is to be used or applied, Tenant shall within five (5) days
after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this security deposit separate from
its general funds, and Tenant shall not be entitled to interest on such
deposit If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any balance
thereof shall be returned to Tenant (or, at Landlord's option, to the last
assignee of Tenant's interest hereunder) at the expiration of the Lease
term. In the event of termination of Landlord's interest in this lease,
Landlord shall transfer said deposit to Landlord's successor in interest.
8. OPERATING EXPENSE ADJUSTMENTS.
(a) For the purpose of this Article, the following terms are defined as
follows:
Base Year: The calendar years as specified in paragraph (c) of the
Basic Lease Provisions.
Comparison Year: Each calendar year of the term after the Base Year.
Direct Expenses: All direct costs of operation and maintenance, as
determined by standard accounting practices, and shall include the
following costs by way illustration, but not limited to: real property
taxes and assessments; rent taxes; gross receipt taxes; water and
sewer charges; common area utility and common area janitorial
services; insurance premiums; labor; costs incurred in the management
of the Building, if any; air conditioning and heating; elevator
maintenance; supplies; materials; equipment and tools; including
maintenance, costs, and upkeep of all parking and common areas.
("Direct Expenses" shall not include depreciation of the Building of
which the Premises are a part or equipment therein, executive salaries
or real estate broker's commissions.)
Interest Expense: Defined as interest on the primary loan secured by
the property at the commencement lease which may be subject to rate
reviews or adjustments. (Interest Expense shall not include points or
fees relating to financing.)
If the Direct and Interest Expenses paid or incurred by the Landlord
for the Comparison Year on account of the operation or maintenance of
the Building of which the Premises are a part are in excess of the
Direct and interest Expenses paid or incurred for the Base Year, then
the Tenant shall pay the percentage amount of the increase set forth
in paragraph (d) of the Basic Lease Provisions. This percentage is
that portion of the total rentable area of the Building occupied by
the Tenant hereunder. Landlord shall endeavor to give to Tenant on or
before the first day of March of each year following the respective
Comparison Year a statement of the increase in rent payable by Tenant
hereunder, but failure of Landlord to give such statement such
statement by said date shall not constitute a waiver by Landlord of
its right to require an increase in rent. Upon receipt of the
statement for the first Comparison Year, Tenant shall pay in full the
total amount of increase due for the first Comparison Year, and in
addition for the then current year, the amount of any such increase
shall be used as an estimate for said current year and this amount
shall be divided by twelve (12) equal monthly installments and Tenant
shall pay to Landlord, concurrently with the regular monthly rent
payment next due following the receipt of such statement, an amount
equal to one (1) monthly installment multiplied by the number of
months from January in the calendar year in which statement is
submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular
monthly rent payments for the balance of that calendar year and shall
continue until the next Comparisons Year's statement is rendered. If
the next or any succeeding Comparison Year results in a greater
increase in Direct and Interest Expenses, then upon receipt of a
statement from Landlord, Tenant shall pay a lump sum equal to such
total increase. In Direct and Interest Expenses over the Base Year,
less total of the monthly installments of estimated increases paid in
the previous calendar year for which comparison is then being made to
the Base Year; and the estimated monthly installments to be paid for
the next year, following said Comparison Year, shall be adjusted to
reflect such increase. If in any Comparison Year the Tenants share of
Direct and Interest Expense be less than the preceding year, then upon
receipt of Landlord's statement, any overpayment made by Tenant on the
monthly installment basis provided above shall be credited towards the
next monthly rent falling due and the estimated monthly installments
of Direct and Interest Expenses to be paid shall be adjusted to
reflect such lower Direct and Interest Expenses for the most current
Comparison Year.
Even though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's share of Direct and
Interest Expenses for the year in which this Lease terminates, Tenant
shall immediately
4
<PAGE>
pay any increase due over the estimated expenses paid and conversely
any overpayment made in the event said expenses decrease shall be
immediately rebated by Landlord to Tenant. Notwithstanding anything
contained in this Article, the rent payable by Tenant shall in no
event be less than the rent specified in Paragraph (f) of the Basic
Lease Provisions.
(b) If the Lease sets forth an Expense Stop as specified in Paragraph (e)
of the Basic Lease Provisions, then during the term, Tenant shall be
liable for Tenant's proportionate share of any actual Direct Expenses
which exceed the amount of the Expense Stop. Tenant shall make current
payments of such excess costs during the term in the same manner as is
provided for payment of Excess Expenses under the applicable
provisions of Paragraph (a) hereinabove. Tenant's proportionate share
of any actual excess interest expense shall be calculated pursuant
only to the provision of paragraph (a) hereof.
9. UTILITY AND JANITORIAL SERVICES.
(a) Tenant shall be solely responsible for and promptly pay all charges
for heat, water, gas, electricity or any other utility used, consumed
or provided in, or furnished, or attributable to the leased premises
as specified in Paragraph (b), Article 19 of this lease.
(b) Tenant shall be solely responsible for and promptly pay all charges
for janitorial services or any other special related services to the
leased Premises.
10. USE. Tenant shall use the Premises for the purposes as specified in
Paragraph j) in the Basic Lease Provisions and shall not use or permit the
Premises to be used for any other purposes without the prior written
consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Premises,
not bring or keep anything therein which will in anyway increase the
existing rate of or affect any fire or other insurance upon the Building or
any of its contents, or cause cancellation of any insurance policy covering
said Building or any part thereof or any of its contents. Tenant shall not
do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of
the Building or injure or annoy them or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or
about the Premises.
11. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any
law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall, at its sole
cost and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted
relating to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's
improvement or acts.
12. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part
thereof without the written consent of Landlord first had and obtained and
any alterations, additions or improvements to or of said Premises
including, but not limited to, wall covering, paneling, and built-in
cabinet work, but excepting movable furniture and trade fixtures, shall on
the expiration of the term become a part of the realty and belong to the
Landlord and shall be surrendered with the Premises. In the event Landlord
consents to the making of any alterations, additions or improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenants sole cost
and expense, and any contractor or person selected by Tenant to make the
same must first be approved by the Landlord.
13. REPAIRS.
(a) By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the reasonable control of Tenant and
ordinary wear and tear excepted. Tenant shall, upon the expiration or
sooner termination of this Lease hereof, surrender the Premises to the
Landlord in good condition, ordinary wear and tear and damage from
causes beyond the reasonable control of the Tenant excepted. Except as
specifically provided in an addendum, if any, to this Lease, Landlord
shall have no obligation whatsoever to alter, remodel, improve,
repair, decorate, or paint the Premises or any part thereof and the
parties hereto affirm that Landlord has made no representations to
Tenant respecting this condition of the Premises or the Building
except as specifically herein set forth.
(b) Notwithstanding the provision of Article 13(a) hereinabove, Landlord
shall repair and maintain structural portions of the Building
including the basic plumbing, air conditioning, heating, and
electrical systems installed or furnished by Landlord, unless such
maintenance and repairs are caused in part or in whole by the act,
neglect, fault or omission of any duty by the Tenant, its agents,
servants, employees or invitees, in which case Tenant shall pay to
Landlord the reasonable cost of such maintenance and repairs. Except
as provide in Article 24 hereof, there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the
building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at
Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
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14 LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by Tenant. Landlord
may require, at Landlord's sole option, that Tenant shall provide to
Landlord, at Tenant's sole cost and expense, a lien and completion bond in
an amount equal to one and one-half (1 1/2) times any and all materialmen's
liens and to insure completion of the work. Tenant shall give Landlord no
less than twenty (20) days prior written notice before commencing
construction of any kind on the Premises so that Landlord may post notice
of nonresponsibility within ten (10) days thereafter in accordance with
Section 3094 of the California Civil Code.
15. ASSIGNMENT AND SUBLETTING. Tenant shall not, either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet the said
Premises or any part thereof, or suffer any other person (the employees,
agents, servants and invitees of Tenant excepted) to occupy or use the said
Premises, or any portion thereof, without the written consent of Landlord
first had and obtained, which consent shall not be unreasonably withheld,
and a consent to one assignment, subletting, occupation or use by any other
person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. Any such assignment or
subletting without such consent shall be void and shall, at the option of
the Landlord, constitute a default under this Lease.
(a) If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of the partner owning 51% or more
of the partnership, or the dissolution of the partnership, shall be
deemed a voluntary assignment.
(b) If Tenant is a corporation, any dissolution, merger, consolidation, or
other reorganization of Tenant or the sale or other transfer of a
control-percentage of the capital stock of Tenant, or sale of 51% of
the value of the assets of Tenant, shall be deemed a voluntary
assignment. The phrase "controlling percentage" means the ownership of
and the right to vote, stock possessing at least 51% of the total
combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. This
paragraph shall not apply to corporations, the stock of which is
traded through an exchange or over the counter.
16. HOLD HARMLESS. Tenant shall indemnify and hold Landlord harmless against
and from any and all claims arising from Tenant's use of the Premises for
the conduct of its business or from any activity, work, or other thing
done, permitted or suffered by the Tenant in or about the Building, and
shall further indemnify and hold Landlord harmless against and from any and
all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this Lease,
or from any breach of default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising
from any act negligence of the Tenant, or any officer, agent, employee,
guest or invitee of Tenant, and from all and against all costs, attorney's
fees, expenses and liabilities incurred in or about any such claim or any
action or proceeding brought thereon. In any such case, action or
proceeding brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, shall defend the same at Tenant's expense by
counsel. Tenant, as material part of the consideration to Landlord hereby,
assumes all risks of damage to property or injury to persons in, upon or
about the Premises, from any cause other than Landlord's negligence, and
Tenant hereby waives all claims in respect thereof against Landlord.
Landlord or its agent shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any
property by theft or otherwise, nor for any injury to or damage to persons
or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Building or
from the pipes, appliances or plumbing works therein or from the roof,
street, or subsurface or from any other place resulting from dampness or
any other cause whatsoever, unless caused by or due to the negligence of
Landlord, its agents, servants or employees. Landlord or its agents shall
not be liable for interference with or loss of business by Tenant. Tenant
shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
17. SUBROGATION. As long as their respective insures so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against
each other for any loss insured by fire, extended coverage and other
property insurance policies existing for the benefit of the respective
parties. Each party shall obtain any special endorsements, if required by
their insurer, to evidence compliance with the aforementioned waiver.
18. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of the Lease a policy of Broad Form Comprehensive
Public Liability Insurance insuring Landlord and Tenant against any
liability arising out of the ownership, use, occupancy, or maintenance of
the Premises and all areas appurtenant thereto. The limit of said insurance
shall not, however, limit the liability of the Tenant hereunder. Tenant may
carry said insurance under a blanket policy providing, however, said
insurance by Tenant shall have a Landlord's protective liability attached
thereto. If Tenant shall fail to procure and maintain said insurance,
Landlord may, but shall not be required to procure and maintain same, but
at the expense of Tenant. Insurance required hereunder shall be in
companies rated A +AAA or better in "Best's Insurance Guide".
Tenant shall deliver to the Landlord prior to occupancy of Premise
copies of policies of liability insurance required hereunder or certificate
evidencing the existence and the amounts of such insurance with loss
payable clauses satisfactory to Landlord. Certificates of renewals thereof
evidencing the continued existence of such insurance shall be delivered to
the Landlord at least thirty (30) days prior to the expiration date of any
such insurance. No policy shall be cancelable or subject to reduction of
coverage except after thirty (30) days prior written notice to Landlord.
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The Public Liability Insurance required of Tenant hereunder shall have
liability limits as set forth in Paragraph (k) of the Basic Lease
Provisions. Such coverage shall be increased periodically to those limits
then currently recommended by the Building Owners and Management
Association, or if such organization ceases to exists, then by a comparable
organization. Tenant shall also carry such other insurance as Landlord may
reasonably require, including Worker's Compensation insurance, or plate
glass insurance if the Premises are located on the first floor of the
Building. Landlord shall replace, at the expense of Tenant, any and all
plate and other glass damaged or broken from any cause in and about the
Lease Premises.
19. SERVICE AND UTILITIES.
(a) Provided that Tenant is not in default hereunder, Landlord agrees to
furnish to the Premises Monday through Saturday, 7 a.m. to 7 p.m.,
which may be adjusted from time to time by Landlord's sole discretion,
and subject to the rules and regulations of the Building of which the
Premises are a part, electricity for normal lighting and fractional
horsepower office machines, heat and air conditioning required in
Landlord's judgement for the comfortable use and occupation of the
Premises, and common area janitorial service. Landlord shall also
maintain and keep lighted the common stairs, common entries and toilet
rooms in the Building of which the Premises are a part. Landlord shall
not be liable for, and Tenant shall not be entitled to, any reduction
of rental by reason of Landlord's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs,
strikes, lockouts, or other labor disturbances or labor disputes of
any character, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord. Landlord shall not be
liable under any circumstances for a loss of or injury to property,
however occurring, through or in connection with or incidental to
failure to furnish any of the foregoing, unless caused by or due to
the negligence or intentional misconduct of Landlord, its agents,
servants or employees.
Tenant will not, without written consent of Landlord, use any
apparatus or device in the Premises, including, but without limitation
thereto, electronic data processing machines, punch card machines, and
machines using in excess of 120 volts, which will in any way increase
the amount of electricity usually furnished or supplied for the use of
the Premises as general office space. If Tenant shall require water or
electric current in excess of that usually furnished or supplied for
the use of the Premises as general office space, Tenant shall first
procure the written consent of Landlord to the use thereof and
Landlord may cause a water meter or electrical current meter to be
installed in the Premises. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid for by the
Tenant, and Tenant agrees to pay to Landlord promptly upon demand
therefore by Landlord for all such water and electric current consumed
as shown by said meter, at the rates charged for such services by the
local public utility furnishing the same, plus any additional expense
incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate
made by a utility company or electrical engineer.
(b) Tenant shall pay to Landlord as Additional Rent during the term hereof
Tenant's pro rata share, in the percentage set forth in Paragraph (d)
of the Basic Lease Provisions, of all utility services, including
without limitation, gas, water, electricity, sewer charges, heating
and air conditioning incurred by Landlord in the operation of the
Building of which the Premises are a part and which is not separately
metered to Tenant or other tenants of the Building. Payment therefor
shall be due ten (10) days after Landlord shall have billed Tenant for
such services. Landlord may bill Tenant monthly for the estimated
monthly costs of such services on an annual basis which such estimate
Tenant shall pay each month as Additional Rent. At the expiration of
each Calendar Year, Landlord shall provide Tenant with an accounting
of the actual costs of such utilities and Tenant shall pay the amount,
if any, by which Tenant's pro rata share of such costs exceed the
estimated costs theretofore paid by Tenant. If Tenant's pro rata share
is less than such estimated costs, the amount thereof shall be
credited against Tenant's next payments of estimated utility charges.
If any such utilities are separately metered to the Premises, Tenant
shall pay for the cost thereof directly to the utility supplier.
20. PROPERTY TAXES. Tenant shall pay, or cause to be paid before delinquency,
any and all taxes levied or assessed and which become payable during the
term hereof upon all Tenant's leasehold improvements, equipment, furniture,
fixtures, and personal property located in the Premises; except that which
has been paid for by Landlord and is the standard of the Building. In the
event any or all of Tenant's leasehold improvements, equipment, furniture,
fixtures and personal property shall be assessed and taxed with the
Building, Tenant shall pay to Landlord its share of such taxes within ten
(10) days after delivery to Tenant by Landlord of a statement in writing
setting forth the amount of taxes applicable to Tenant's property.
21. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate.
Landlord reserves the right from time to time to make all reasonable
modifications to said rules. The additions and modifications to those rules
shall be binding upon Tenant upon delivery of a copy of them to Tenant.
Landlord shall not be responsible to Tenant for the nonperformance of any
said rules by any other tenants or occupants.
22. HOLDING OVER. If Tenant holds over with the consent of the Landlord, the
rent, which shall be payable in advance shall be 125% applicable at the
date of expiration. However, if Tenant holds over without the consent of
Landlord, it is agreed that the rental value of the Premises during such
period of unlawful holding over shall be 150% applicable at the date of
expiration. If Tenant unlawfully holds over, Tenant shall indemnify and
hold Landlord harmless from all loss or
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liability, including any claim made by any successor Tenant founded upon
Tenant's failure to timely surrender the Premises.
23. ENTRY BY LANDLORD. Landlord reserves and shall have the right to enter the
Premises, inspect the same and supply any service to be provided by
Landlord to Tenant hereunder, to submit said Premises to prospective
purchasers or Tenants, to post notices of nonresponsibility, and to alter,
improve or repair the Premises and any portion of the Building of which the
Premises are a part that Landlord may deem necessary or desirable without
abatement of rent and may for that purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work
to be performed, always providing that the entrance to the Premises shall
not be blocked thereby, and further providing that the business of the
Tenant shall not be intervened with unreasonably. Tenant hereby waives any
claim for damages or for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby, unless caused by or due to
the negligence or intentional misconduct of Landlord, its agents, servants
or employees. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may
deem proper to open said doors in an emergency in order to obtain entry to
the Premises without liability to Tenant, except for any failure to
exercise due care for Tenant's property. Any entry to the premises obtained
by Landlord by any of said means or otherwise shall not under any
circumstances be construed or deemed to be a forceable or unlawful entry
into or a detainer of the Premises or an eviction of Tenant from the
Premises or any portion thereof.
24. RECONSTRUCTION: In the event the Premises of the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this
Lease shall remain in full force and effect, except that Tenant shall be
entitled to a proportionate reduction of the rent while such repairs are
being made, such proportionate reduction to be based upon the extent to
which the making of such repairs shall materially interfere with the
business carried on by Tenant in the Premises. If the damage is due to the
fault or neglect of Tenant or its employees, there shall be no abatement of
rent.
In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by
fire and extended coverage insurance, then Landlord shall forthwith repair
the same, provided the extent of the destruction be less than ten (10%)
percent of the then full replacement cost of the Premises or the Building
of which the Premises are a part. In the event the destruction of the
Premises or the Building is to an extent greater than ten (10%) percent of
the full replacement cost, then Landlord shall have the option: (1) to
repair or restore such damage, this Lease continuing in full force and
effect, but the rent to be proportionately reduced as hereinabove in this
Article provided; or (2) give notice to Tenant at any time within sixty
(60) days after such damage terminating this Lease as of the date specified
in such notice, which date shall not be less than thirty (30) and no more
than sixty (60) days after the giving of such notice. In the event of
giving such notice this Lease shall expire and all interest of the Tenant
in the Premises shall terminate on the date or specified in such notice and
the Rent, reduced by a proportionate amount, based upon the extent, if any,
to which such damage materially interfered with the business carried on or
by the Tenant in the Premises, shall be paid up to the date of said such
termination.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered
under this Article occurs during the last twelve (12) months of the term of
this Lease or any extension thereof.
Landlord shall not be required to repair any injury or damage by fire
or other cause, or to make any repairs or replacement of any panels,
decoration, office fixtures, railing, floor covering, partitions, or any
other property installed in the Premises by Tenant.
25. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder as and when due where such
failure shall continue for a period of ten (10) days after written
notice thereof by Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by
the Tenant, other than described in Article 25(b) above, where such
failure shall continue or a period of thirty (30) days after written
notice thereof by Landlord to Tenant; provided; however, that if the
nature of Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to
be in default if Tenant commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to
completion.
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt, or petition of
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); or the appointment of a trustee or
a 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 thirty (30) days; or 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 in thirty (30) days.
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26. REMEDIES IN DEFAULT. In the event of any such material default or breach
by Tenant, Landlord may at any time thereafter, with or without notice,
demand, and without limiting Landlord in the exercise of a right or remedy
which Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such
event, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default including, but not
limited to, the cost of recovering possession of the Premises
(expenses of relating, including necessary renovation and alteration
of the Premises, reasonable attorney's fees, any real estate
commission actually paid); the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the
amount of such rental loss for the same period that Tenant proves
could be reasonably avoided; that portion of the leasing commission
paid by Landlord and applicable to the unexpired term of this Lease.
Unpaid installments of rent or other sums shall bear interest from the
date due at the rate of ten (10%) percent per annum. In the event
Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the Premises and recovering from
Tenant the amount specified is this paragraph, or (b) proceeding under
the provisions of the following Article 26(b).
(b) Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to
collect rent when due. During the period Tenant is in default,
Landlord can enter the Premises and relet them, or any part of them,
to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, without limitation, brokers' commissions,
expenses of remodeling the Premises required by the reletting, and
like costs. Reletting can be for a period shorter or longer than the
remaining term of this Lease. Tenant shall pay to Landlord the rent
due under this Lease on the dates the rent is due, less the rent the
Landlord receives from any reletting. No act by Landlord allowed by
this paragraph shall terminate this Lease unless Landlord notifies
Tenant that Landlord elects to terminate this Lease. After Tenant's
default and for as long as Landlord does not terminate Tenant's right
to possession of the Premises, if Tenant obtains Landlord's consent,
Tenant shall have the right to assign or sublet its interest in this
Lease, but Tenant shall not be released from liability. Landlord's
consent to a proposed assignment or subletting shall not be
unreasonably withheld. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of ten (10%) percent per
annum.
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decision of the state in which the Premises are
located.
27. EMINENT DOMAIN, If more than twenty-five (25%) percent of the Premises
shall be taken or appropriated by any public or quasi-public authority
under the power, of eminent domain, either party hereto shall have the
right, at its option, to terminate this Lease, and Landlord shall be
entitled to any and all income, rent, award, or any interest therein
whatsoever which may be paid or made in connection with such public or
quasi-public use or purpose, and Tenant shall have no claim against
Landlord for the value of any expired term of this Lease. If either less
than or more than twenty-five (25%) percent of the Premises is taken, and
neither party elects to terminate as herein provided, the rental thereafter
to be paid shall be equitably reduced. If any part of the Building other
than the Premises may be so taken or appropriated, Landlord shall have the
right at its option to terminate this Lease and shall be entitled to the
entire award as above provided.
28. TENANT ESTOPPEL CERTIFICATE. Within ten (10) days after written request
from Landlord, Tenant shall execute and deliver to Landlord or Landlord's
designee, a written statement certifying, (a) that this Lease is unmodified
and in full force and effect, or is in full force and effect as modified in
a form substantially similar to the form of Exhibit "F" attached hereto and
stating the modifications; (b) the amount of Base Rent and the date to
which Base Rent and additional rent have been paid in advance; (c) the
amount of any security deposited with Landlord; and (d) that Landlord is
not in default hereunder or, if Landlord is claimed to be in default,
stating the nature of any claimed default. Any such statement may be relied
upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall, at Landlord's
election, be a default under this Lease and shall also be conclusive upon
Tenant that: (1) this Lease is in full force and effect and has not been
modified except as represented by Landlord; (2) there are no uncured
defaults in Landlord's performance and that Tenant has no right of offset,
counter-claim or deduction against rent; (3) not more than one months rent
has been paid in advance.
29. PARKING. Tenant shall have the right to use in common with other tenants or
occupants of the Building the parking facilities of the Building, subject
to the rules and regulations of Landlord for such parking facilities which
may be established or altered by Landlord at any time or from time to time
during the term hereof.
30. AUTHORITY OF PARTIES.
(a) Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease
on behalf of said corporation in accordance with a duly adopted
resolution of the board of directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease
is binding upon said corporation in accordance with its terms.
(b) Limited Partnerships. If the Landlord herein is a limited partnership,
it is understood and agreed that any claims by Tenant or Landlord
shall be limited to the assets of the limited partnership, and
furthermore, Tenant expressly waives
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any and all rights to proceed against the individual partners or the
officers, directors or shareholders of any corporate partner, except
to the extent of their interest in said limited partnership.
31. GENERAL PROVISIONS. All rents and other sums payable by Tenant to Landlord
shall be paid to Landlord at his business office as specified in paragraph
(n) of the Basic Lease Provisions or any other place as Landlord may
hereafter designate in writing.
(a) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a
part hereof.
(b) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term,
covenant or condition on any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed a waiver
of any preceding breach by Tenant of any term, covenant or condition
of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of the acceptance of such rent.
(c) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be
in writing. All notices and demands by the Landlord to the Tenant
shall be sent by United States Mail, postage prepaid, addressed to the
Tenant as specified in Paragraph (n), Article 1 of the Basic Lease
Provisions, or to such other place as Tenant may from time to time
designate in a notice to the Landlord. All notices and demands by the
Tenant to the Landlord shall be sent by United States Mail, postage
prepaid, addressed to the Landlord as specified in Paragraph (n),
Article 1 of the Basic Lease Provisions or to such other person or
place as the Landlord may from time to time designate in a notice to
the Tenant.
(d) Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several.
(e) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
(f) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(g) Successors and Assigns. The covenant and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the
parties hereto.
(h) Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the
other party.
(i) Quiet Possession. Upon Tenant paying the rent reserved 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 quiet possession of the Premises for the entire term
hereof, subject to all the provisions of this Lease.
(j) Late Charges. In the event that Tenant shall fail to pay Landlord
within ten (10) days of the date when due any payment owing to
Landlord pursuant to the terms of this Lease, said late payment shall
bear interest at the rate of ten (10%) percent per annum from the date
due and payable until same shall have been fully paid and in addition.
(k) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by
the parties hereto or their respective successors in interest. This
Lease shall not be effective or binding upon any party until fully
executed by both parties hereto.
(l) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in
doing so, if such inability or delay is caused by reason of strike,
labor troubles, acts of God, or any other cause beyond the reasonable
control of the Landlord.
(m) Attorney's Fees. In the event of any action or proceeding brought by
either party against the other under this Lease, the prevailing party
shall be entitled to recover all costs and expenses including fees of
its attorneys in such action or proceeding in such amount as the court
may adjudge reasonable attorney's fees.
(n) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved
of all liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act,
occurrence or omission occurring after the consummation of such sale;
and the purchaser, at such sale or any subsequent sale of the
Premises, shall be deemed, without any further agreement between the
parties or their successors in interest or between the parties and any
such purchaser, to have assumed and agreed to carry out any and all of
the covenants and obligations of the Landlord under this Lease.
(o) Subordination, Attornment. Upon request of the Landlord, Tenant will,
in writing, subordinate its rights hereunder to the lien of any first
mortgage or first deed of trust to any bank, insurance company or
other lending institution, now or hereafter in force against the land
and Building of which the Premises are a part, and upon any buildings
hereafter placed upon the land which the Premises are a part, and to
all advances made or hereafter to be made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or
deed of trust made by the Landlord covering the Premises, the Tenant
shall attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as the Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding,
and so long as Tenant is not in default hereunder, this Lease shall
remain in full force and effect for the fill term hereof.
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(p) Name. Tenant shall not use the name of the Building or the development
in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premise.
(q) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate
any other provision hereof and such other provision shall remain in
full force and effect.
(r) 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.
(s) Choice of Law. This Lease shall be governed by the laws of the state
in which the Premises are located.
(t) Signs and Auctions. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior
written consent.
32. BROKERS. Tenant warrants that it has had no dealing with any broker or
agents in connection with the negotiation of this Lease, excepting only as
specified in Paragraph (I) of the Basic Lease Provisions, and it knows of
no other real estate broker or agent who is entitled to a commission in
connection with this Lease.
33. MODIFICATION FOR LENDER. If in connection with obtaining financing for the
Building the Lender shall request reasonable modifications in this Lease as
a condition to such financing, Tenant will not unreasonably withhold,
delay, or defer its consent thereto, provided that such modifications do
not increase the obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created.
34. PERSONAL PROPERTY. Upon the expiration of its term, or upon any earlier
termination of its Lease, Tenant shall quit and surrender possession of
said Premises to Landlord in the same condition as upon delivery of
possession to Tenant hereunder, reasonable wear and tear and damage by acts
of God, the elements and unavoidable casualty excepted. Before surrendering
possession of said Premises, Tenant shall, without expense to Landlord,
remove or cause to be removed from said Premises all signs, furnishings,
equipment, trade fixtures, merchandise and other personal property
installed or placed therein, and all debris and rubbish, and Tenant shall
repair all damage to said Premises resulting from such removal. If Tenant
fails to remove any signs, furnishings, equipment, etc. within ten (10)
days after the expiration or termination of this Lease, then Landlord may,
as its sole option (1) treat Tenant as a holdover, in which event the
paragraph of this Lease regarding Holding Over shall apply, (2) deem any or
all of such items abandoned and the sole property of Landlord, and (3)
remove any and all such items and dispose of same in any manner.
35. HAZARDOUS WASTE. Attached as Addendum "A" to this Lease is a notice
regarding potential liability of Landlord and Tenant under federal and
state laws regarding the regulation and clean-up of hazardous wastes and
underground storage tanks. Tenant is urged to review the notice and to
consult with Tenant's attorneys if Tenant has any questions or concerns
about potential liability under those laws.
The parties hereto have executed this Lease at the place and on the
dates specified on Page 1, Article I of the Basic Lease Provisions and as
executed herein below.
If this Lease has been filled in, it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made
by the Landlord, its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Lease or the transactions relating
thereto.
TENANT LANDLORD
LOCOMOTION THERAPY, INC. M.D. BAUTISTA DEVELOPMENTS
a California corporation
By: /s/ Keith Abraham By: /s/ Michael D. Bautista
------------------------ ------------------------------
Keith Abraham's, CEO Michael D. Bautista, President
861 Village Oaks Drive, Suite #100 7567 Road 28
Covina, CA 91724 Madera, CA 93637
Telephone: (818) 331-8199 Telephone: (209) 227-5834
Fax (818) 332-9909 Fax (209) 674-5384
Date of execution 12/31 1996 Date of execution 12/19 1996
-------- -- -------- --
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ADDENDUM "A"
NOTICE TO OWNERS, BUYERS AND TENANTS
REGARDING HAZARDOUS WASTES OR SUBSTANCES
AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in
the last few years in an effort to develop controls over the use, storage,
handling, clean-up, removal and disposal of hazardous wastes or substances. Some
of these laws and regulations, such as, for example, the so called "Superfund
Act", provide for broad liability schemes wherein an owner, tenant or other user
of the property may be liable for clean-up costs and damages regardless of
fault. Other laws and regulations set standards for the handling of asbestos or
establish requirements for the use, modification, abandonment or closing of
underground storage tanks.
It is not practical, or possible to list all such laws and regulations in
this Notice. Therefore, owners, buyers and Tenants are urged to consult legal
counsel to determine their respective rights and liabilities with respect to the
issues described in this Notice as well as all other aspects of the proposed
transaction. If hazardous wastes or substances have been, or are going to be
used, stored, handled or disposed of on the property, or if the property has or
may have underground storage tanks, it is essential that legal and technical
advice be obtained to determine, among other things, what permits and approvals
have been or may be required, if any, the estimated costs and expenses
associated with the use, storage, handling, clean-up, removal or disposal of the
hazardous wastes or substances, and what contractual provisions are necessary or
desirable. It may also be important to obtain expert assistance for site
investigations and building inspections. The past uses of the property may
provide valuable information as to the likelihood of hazardous wastes or
substances, or underground storage tanks being on the property.
Notwithstanding the above, Landlord has complied with the City of Fresno
various permit processes; and owners, buyers, and Tenants may request copies of
related documentation.
The term "hazardous wastes or substances" is used in this Notice in its
very broadest sense and includes, but is not limited to, petroleum based
products, paints and solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonium compounds, asbestos, PCBs and other chemical products.
Hazardous wastes or substance and underground storage tanks may be present on
all types of real property. This Notice is therefore meant to apply to any
transaction involving any type of real property, whether improved or unimproved.
<PAGE>
LOCOMOTION THERAPY, INC. December 18, 1996
ADDENDUM "B"
1. BASE RENT:
The aggregate monthly rent schedule as provided in paragraph (f) of the
Basic Lease Provisions 9 is as follows:
Months 1 through 12: $2,290.00
TENANT'S INITIALS_________ LANDLORD'S INITIALS_________
<PAGE>
EXHIBIT "A"
[MAP OF CONCEPT SITE PLAN N FOR M D BAUTISTA DEVELOPMENTS APPEARS HERE]
<PAGE>
EXHIBIT "B"
COMMENCEMENT OF TERM NOTICE
To: M.D. BAUTISTA DEVELOPMENTS Date:_________________
Re: Lease dated:________________ 19__, between M.D. BAUTISTA DEVELOPMENTS,
a California corporation, (Landlord), and ________________________________
_____________________________________________________ (Tenant), concerning
Suite ____ located at______ N. Fresno Street, Fresno, CA 93710
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1) That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the subject Lease, and that
there is no deficiency in construction.
2) That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the term
of said Lease shall commence as of ______________________ 19__, for a
term of ______ months, ending on ______________, 19__.
3) That in accordance with the subject Lease, rental commencement to
accrue on _______ 19__.
4) If the commencement date of the subject Lease is other than the first
day of the month, the first billing will contain a pro rata
adjustment. Each billing thereafter shall be for the full amount of
the monthly installment as provided for in said Lease.
5) Rent is due and payable in accordance with the subject Lease. Your
rent checks should be made payable to M.D. BAUTISTA DEVELOPMENTS at
516 W. Shaw Avenue, Suite 200, Fresno, CA 93704.
AGREED AND ACCEPTED
TENANT: LANDLORD:
M.D. BAUTISTA DEVELOPMENTS,
a California corporation
By: By:
----------------------------------- -----------------------------------
Michael D. Bautista, President
By:
-----------------------------------
Address: Address:
------------------------------ ------------------------------
- -------------------------------------- --------------------------------------
Telephone: ( ) Telephone: ( )
--- --------------- --- ---------------
Date of execution: , 19 Date of execution: , 19
------------- -- ------------- --
<PAGE>
EXHIBIT "C"
TENANT IMPROVEMENTS WORK LETTER
(Per the attached approved space plan)
a) Paint or clean walls.
b) Patch holes in walls throughout suite.
c) Steam clean carpets
APPROVED
TENANT: LANDLORD:
M.D. BAUTISTA DEVELOPMENTS,
- -------------------------------- a California corporation
By:
-----------------------------
By: By: /s/ Michael D. Bautista
----------------------------- ---------------------------------
Michael D. Bautista, President
<PAGE>
EXHIBIT "D"
RULES and REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed of affixed on or to any part of the outside
of the building without the written consent of Landlord first had and
obtained, and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by
Landlord.
Tenant shall not place anything or allow anything to be placed near
the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; provided, however, that Landlord may furnish and
install a Building standard window covering at all exterior windows. Tenant
shall not, without prior consent of Landlord, cause or otherwise sunscreen
any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises without the written
consent of Landlord.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees,
shall have caused it.
5. Tenant shall have the right to install in or upon the Premises any and all
equipment related to Tenant's normal use of the Premises, provided,
however, that Tenant shall not overload the floor of the Premises or in any
way deface the Premises or any part thereof No boring, cutting or stringing
of wires or laying of linoleum or other similar floor coverings shall be
permitted except with the prior written consent of the Landlord and as the
Landlord may direct.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same
into or out of the Building shall be done at such time and in such a manner
as Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the times and manner of moving the same in and
out of the Building. Safes or other heavy objects shall, if considered
necessary by Landlord, stand on supports of such thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for
loss of or damage to any such safe or property from any cause and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at the expense of the Tenant. There shall not be
used in any space, or in the public halls of the Building, either by any
tenant or others, any hand trucks except those with rubber tires and side
guards.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the Building by reason of noise, odors, and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animal or bird be brought in or kept in or
about the Premises or Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, other
than those for consumption by Tenant, its agents, employees, and invitees,
nor shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method
of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of the Landlord. The location of telephones,
call boxes and other office equipment affixed to the Premises shall be
subject to the approval of Landlord.
1
<PAGE>
No Tenant shall make or permit to be made any unseemly or disturbing noises
or disturb or interfere with occupants of this or neighboring building or
premises or those having business with them whether by the use of any
musical instrument, radio, phonograph, unusual noise, or in any other way.
No Tenant shall throw anything out of the doors or down the passageways.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:p.m. and 7:00 a.m. the following day, access to the Buildings or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the
person or employee of the Building in charge and has a pass or is properly
identified. The Landlord shall in no case be liable for damages for any
error with regard to the admissions to or exclusions from the Building of
any person. In case of invasion, mob, riot, public excitement, or other
commotion, the Landlord reserves the right to prevent access to the
Building during the continuance of same by closing of the doors or
otherwise for the safety of the tenants and protection of property in the
Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgement of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the Rules and Regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the premises without the written consent of
the Landlord.
14. Landlord shall have the right, without notice and without liability to
Tenant, to change the name and street address to the Building of which
Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
or Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building, and public facilities, and heating and air conditioning, as
well as facilities furnished for the common use of the tenants, in such a
manner as it deems best for the benefit of the tenants generally.
18. Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care and caution
that all water faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the Building, and all electricity and
gas shall likewise be carefully shut off, so as to prevent waste or damage,
and for any default or carelessness Tenant shall make good all injuries
sustained by other tenants or occupants or Landlord of the Building or
Tenant.
19. Tenant agrees that it shall comply with all fire and security regulations
that may be issued from time to time by Landlord and Tenant also shall
provide Landlord with the name of a designated employee or employees to
represent Tenant in all matters pertaining to such fire or security
regulations.
2
<PAGE>
EXHIBIT "E"
GUARANTEE OF LEASE
WHEREAS, a certain lease (the "Lease") has been, or will be, executed by
and between M.D. BAUTISTA DEVELOPMENTS, a California corporation, therein and
herein referred to as "Landlord", and _________________________________________
therein and herein referred to as "Tenant", covering that certain "Premises" (as
described in the lease) in the City of Fresno, County of Fresno, State of
California; and
WHEREAS, Landlord requires, as a condition to its execution of the lease,
that the certain undersigned guarantees the full performance of the obligations
of Tenant thereunder; and
WHEREAS, the undersigned is desirous that Landlord enter into the lease
with Tenant;
NOW, THEREFORE, in consideration of the execution of the lease by Landlord,
the undersigned (hereinafter referred to as "Guarantor") hereby unconditionally
guarantees the full performance of each and all of the terms, covenants, and
conditions of the Lease to be kept and performed by Tenant, including the
payment of all rentals and other charges to accrue thereunder. This covenant and
agreement on the part of guarantor is herein referred to as the "Guarantee".
Guarantor further agrees as follows:
1) This Guarantee shall continue in favor of Landlord notwithstanding any
extension, modification, or alteration of the lease (or any security of
Tenant's obligations under the Lease held by Landlord), by and between the
parties thereto, or their successors or assigns and notwithstanding any
assignment of the Lease, with or without the consent of Landlord, and no
extension, modification, alteration or assignment thereof shall in any
manner release or discharge Guarantor, and Guarantor hereby consents
thereto.
2) This Guarantee will continue unchanged by any bankruptcy, reorganization or
insolvency of Tenant of any successor assignee thereof or by any
disaffirmance or abandonment by a trustee of Tenant, and is not contingent
upon the genuineness, validity, or enforceability of the Lease or the
security for Tenant's obligations thereunder. Guarantor hereby assigns to
Landlord any rights Guarantor may have to file a claim and proof of claim
in any bankruptcy or similar proceeding of Tenant and any awards or
payments thereon to which Guarantor would otherwise be entitled.
3) Landlord may, without notice, assign this Guarantee in whole or in part,
and no assignment or transfer of this Guarantee shall operate to extinguish
or diminish the liability of Guarantor hereunder.
4) The liability of Guarantor hereunder shall be primary, and in any right of
action which shall accrue to Landlord under the Lease, Landlord may, at its
option, proceed against Guarantor without having commenced any action or
having obtained any judgement against Tenant. Guarantor further agrees that
Landlord may proceed against Tenant and the same shall not constitute a
discharge of Guarantor, and further that the exercise of certain rights
hereunder may affect or eliminate Guarantor's right of subrogation against
Tenant and that not withstanding the foregoing, Landlord may exercise any
of its rights hereunder.
5) Guarantor shall pay all costs and other expenses incurred by Landlord
(including attorney's fees) in any collection or attempted collection
related to the obligation hereby guaranteed, or in enforcing this Guarantee
against Guarantor, individually or jointly. All sums due hereunder to be
paid by Guarantor to Landlord shall bear interest from the date payment is
due at the maximum rate of interest allowable under law.
6) The use of the singular herein shall include the plural. The obligation of
two or more parties shall be joint and several. The terms and provisions of
this Guarantee shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties herein named.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
executed on the ____ day of ________________ 19__.
GUARANTOR:
By:
------------------------------
By:
------------------------------
<PAGE>
EXHIBIT "F"
ESTOPPEL CERTIFICATE
DATE:_________
TO: ______________________________
__________________________________
__________________________________
__________________________________
Re:__________________________
_____________________________
_____________________________
Fresno-Browning Office Centre
_____________________________
_____________________________
Dear__________________:
The undersigned, as Tenant under that certain Lease (the "Lease")
dated_________ 19__, made with M.D. Bautista Developments, a California
corporation, as Landlord, does hereby certify:
1) The copy of the Lease attached hereto as Exhibit "A" is a true and complete
copy of the Lease and, except as attached thereto, there are no amendments,
modifications or extensions of or to the Lease and the Lease is now in full
force and effect.
2) Our Premises under the foregoing Lease have been completed in accordance
with the terms of the Lease and we have accepted possession of said
Premises, and we now occupy same.
3) Rental commenced on __________ , 19__, and the present status of payments
is as follows:
Current Monthly Rental: $_________
Prepaid Rent: $_________ to__________, 19__
Security Deposit: $_________
4) There exists no defenses or offsets to enforcement of the Lease by the
landlord and, so far as known, the Landlord is not, as of the date hereof,
in default in the performance of the Lease, nor has the Landlord committed
any breach thereof, nor has any event occurred which, with the passage of
time or the giving of notice, or both, would constitute a default or breach
by the Landlord.
We understand and acknowledge hereby that you are relying on the above
representations of the undersigned in advancing funds secured by the land,
buildings, improvements and leases; and do hereby warrant and affirm to and
for your benefit, and that of your successors and assigns, that each of the
foregoing representations is true, correct and complete as of the date
hereof.
TENANT
By:
---------------------------
Date:
-------------------------
<PAGE>
Recording Requested by )
Law Offices of Gary W. Sanders )
500 North State College Boulevard )
Suite 1220 )
Orange, California 92668 )
(714) 634-4211 )
________________________________________________________________________________
Space above line for recorder's use
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
AND LESSOR'S ESTOPPEL AND CONSENT
ELMCREST CONVALESCENT HOSPITAL
This Assignment and Assumption of Lease Agreement and Lessor's Estoppel and
Consent ("Assignment and Consent") is made on the 31st day of May 1990, by and
among Care Enterprises West, a Utah corporation ("Assignor"), Wilshire Care
Center, Inc., a California corporation ("Assignee"), and Jay-Gar Associates
("Lessor"), who agree as follows:
1. This Assignment and Consent is made with reference to the following
facts and objectives:
a. Assignor is the successor tenant under a written Lease dated
November 15, 1977, by and between Lessor's predecessor in interest, Convalescent
Management Corporation, as landlord and Elmcrest Convalescent Center, Inc., a
California corporation (the "Original Lessee") as tenant, for the premises
described therein to wit: that certain real property located at 3111 Santa Anita
Avenue, El Monte, California, more particularly described in Exhibit "A"
attached hereto and incorporated herein by this reference, together with the
improvements thereon, including that facility commonly known as Elmcrest
Convalescent Hospital (the
1
<PAGE>
"Premises"). The tenant's interest under said Lease was subsequently assigned by
the Original Lessee to Sunflower Convalescent Corp. under that certain
"Agreement" dated April 1, 1980 between and among Lessor, the Original Lessee
Sunflower Convalescent Corp., Cecil Mayes and Robert Stanley, and was further
assigned to Assignor's predecessor in interest, North American Health Care,
Inc., pursuant to that certain "Assignment of Lease" dated March 25, 1981
between Sunflower Convalescent Corporation and North American Health Care, Inc.
Said Lease was amended by a First Amendment to Lease dated November 15, 1977
between Convalescent Hospital Management Corp. as landlord and the Original
Lessee as tenant, and was further amended under the terms of the above-
referenced "Agreement" dated April 1, 1980. Further still, said Lease was
amended in 1988 under the terms of an Agreement to Invalidate Exercise of Option
and to Amend Lease. By execution hereof the Assignee hereby acknowledges receipt
of a copy of the Lease and each Amendment.
2. This Assignment and Consent shall be effective immediately upon
execution by all parties hereto.
3. Assignor assigns and transfers to Assignee all its right, title and
interest in the Lease, and Assignee accepts the assignment and assumes and
agrees to perform, as a direct obligation to Lessor, all of the provisions of
the Lease from the effective date of this Assignment and Consent.
2
<PAGE>
4. Lessor's consent to this Assignment and Consent shall not operate or be
construed as a consent to any subsequent assignment or subletting and shall
not act as a release of Assignor's obligations under the Lease.
5. Lessor acknowledges that Lessor now holds the sum of $16,400.00 as a
security deposit under the terms of the Lease to be applied subject to the
provisions of the Lease. Assignor releases all claims to that sum, and such sum
shall be held by Lessor for the benefit of Assignee, subject to the provisions
of the Lease and this Assignment and Consent.
6. If any party commences an action against an other arising out of or in
connection with this Assignment and Consent, the prevailing party or parties
shall be entitled to recover from the losing party or parties reasonable
attorneys' fees and costs of suit.
7. Upon the effectiveness of this Assignment and Assumption of Lease
Agreement, the official address for any notices to be given under the Lease
shall be as follows:
Lessor: Jay-Gar Associates
c/o Robert M. Blakey, Esq.
11 Golden Shore, Suite 410
Long Beach, California 90802
Tenant: Wilshire Care Center, Inc.
_________________
_________________
with a copy to:
Care Enterprises West
2742 Dow Avenue
Tustin, California 92680
Attn: General Counsel
3
<PAGE>
8. Subject to the provisions of the Lease, this Assignment and Consent
shall be binding on and inure to the benefit of the parties and their successors
and assigns.
Executed as of the date first written above.
ASSIGNOR: ASSIGNEE:
CARE ENTERPRISES WEST, WILSHIRE CARE CENTER,
a Utah corporation INC., a California corporation
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ Robert Stanley
---------------------------- ----------------------------
Its: Its: President
BY: /s/ [SIGNATURE ILLEGIBLE] By: /s/ Claire Padama
---------------------------- ----------------------------
Its: Its: Secretary
4
<PAGE>
STATE OF CALIFORNIA )
)
COUNTY OF ORANGE )
On May 21, 1990 before me, the undersigned, a Notary Public in and for
said State, personally appeared Douglas Drumwright personally known to me or
proved to me on the basis of satisfactory evidence to be the person who executed
the within Instrument as the _________________ President, and Charles Mack
personally known to me on the basis of satisfactory evidence to be the person
who executed the within instrument as the _________________ Secretary of the
Corporation that executed the within instrument and acknowledged to me that such
corporation executed the within instrument pursuant to its by-laws or a
resolution of its board of directors.
WITNESS my hand and official seal.
[SEAL] /s/ Reid A. Shibata
------------------------------
NOTARY PUBLIC
STATE OF CALIFORNIA )
)
COUNTY OF ORANGE )
On 5-21-90, before me, the undersigned, a Notary Public in and for said
State, personally appeared Robert Snukal personally known to me or proved to me
on the basis of satisfactory evidence to be the person who executed the within
Instrument as the _________________ President, and Claire Padama personally
known to me on the basis of satisfactory evidence to be the person who executed
the within instrument as the _______________ Secretary of the Corporation that
executed the within instrument and acknowledged to me that such corporation
executed the within instrument pursuant to its by-laws or a resolution of its
board of directors.
WITNESS my hand and official seal.
[SEAL] /s/ Lorraine Asselin
------------------------------
NOTARY PUBLIC
5
<PAGE>
LESSOR'S ESTOPPEL AND CONSENT
Lessor hereby certifies to the Assignor and the Assignee that the following
information is true and correct as of the date hereof:
1. The Lease remains in full force and effect and has not been further
amended or modified. Prior to this Assignment and Consent, Assignor is the
current tenant under the Lease.
2. No default by the Assignor under the Lease has occurred and is
continuing which, with the giving of notice or the lapse of time or both, will
constitute a default thereunder on the part of Assignor. Lessor is not in
default in the performance or observance of any of its obligations under the
Lease.
3. The rent and all other charges payable by the Assignor under the terms
of the Lease for the period through May 1990 have been paid.
4. Lessor is the fee owner of the leased premises.
5. Assignor has no claim against Lessor for any security deposit or
prepaid rent except as provided in Paragraph 6 of this Consent and except for a
security deposit in the amount of $16,400.
6. Lessor hereby consents to the assignment by Assignor to Assignee of
Assignor's interests under the Lease and consents to Assignee becoming the
tenant thereunder, pursuant to the terms of this Assignment and Consent.
Executed as of the date first above written:
LESSOR:
JAY-GAR ASSOCIATES,
a limited partnership
/s/ Gary Kading
------------------------------
By: General Partner
6
<PAGE>
STATE OF CALIFORNIA )
)
COUNTY OF LOS ANGELES )
On this 11th day of May, in the year 1990, before me, the undersigned, a
Notary Public in and for said State, personally appeared Gary Kading, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person that executed this instrument, on behalf of the partnership and
acknowledged to me that the partnership executed it.
WITNESS my hand and official seal.
[SEAL] /s/ Diane Popovich
-----------------------
NOTARY PUBLIC
STATE OF CALIFORNIA )
)
COUNTY OF LOS ANGELES ) SS.
On this 11/th/ day of May, in the year 1990, before me, the undersigned, a
Notary Public in and for said County and State, personally appeared JACK JAY
JACOBS, personally known to me (or proved to me on the basis of satisfactory
evidence) to be general partners of the partnership that executed the within
instrument, and acknowledged to me that such partnership executed the same.
Signature /s/ Diane Popovich [SEAL]
-------------------------
DIANE POPOVICH
- -----------------------------------
Name (Typed or Printed)
Notary Public in and for said County and State
FOR NOTARY SEAL OR STAMP
7
<PAGE>
EXHIBIT A
DESCRIPTION: COUNTY OF LOS ANGELES, STATE OF CALIFORNIA.
PARCEL 1:
That portion of fractional Southwest quarter of the Southwest quarter of Section
21, Township 1 South, Range 11 West, San Bernardino Meridian in the city of El
Monte, according to the official plat of said land filed in the District Land
Office January 7, 1868, described as follows:
Beginning at the Northeasterly corner of Lot 13 of the William Slack Tract, as
per map recorded in Book 16 Page 69 of Maps, in the office of the county
recorder of said county; thence along the Northerly line of said Lot 13, South
85 degrees 59' 50" West 104.06 feet to the true point of beginning, thence North
0 degrees East 180.00 feet to the most Westerly Southwesterly corner of the land
described in the deed to the medical center of El Monte, recorded on December 5,
1951 as Instrument No. 743 in Book 37774 Page 172, Official Records of said
county; thence along the lines of said land, South 89 degrees 39' 35" East 60.00
feet; thence parallel with the Westerly line of the land shown as Parcel 1 on
Licensed Surveyor's Map filed in Book 29 Page 38 of Record of Surveys of said
county, South 0 degrees 22' 15" West to a point in the Northerly line of said
Lot 13 of the William Slack Tract; thence along said Northerly line, South 85
degrees 59' 50" West 60.00 feet, more or less to the true point of beginning.
PARCEL 2:
That portion of fractional Southwest quarter of the Southwest quarter of Section
21, Township 1 South, Range 11 West, San Bernardino Meridian, in
<PAGE>
LEASE
-----
THIS LEASE is made November 15, 1977, between CONVALESCENT HOSPITAL
MANAGEMENT CORPORATION, a California corporation, successor by merger with
ELMCREST CONVALESCENT HOSPITALS, INC. ("Landlord") and ELMCREST CONVALESCENT
CENTER, INC., a California corporation ("Tenant") who agree as follows:
RECITALS: This lease is made with reference to the following facts and
objectives:
A. Landlord is the owner of the premises and personal property
described in paragraph 1 below.
B. Tenant desires to lease the premises and personal property from
Landlord pursuant to the provisions stated in this lease.
C. Tenant wishes to lease the premises and personal property for
purposes of operating a ninety-six (96) bed skilled nursing facility.
1. Description: Landlord leases to Tenant and Tenant leases from Landlord
-----------
the real property described in Exhibit A attached hereto, commonly known as
ELMCREST CONVALESCENT HOSPITAL, (the "Premises") and that certain personal
property located or hereafter located on the premises and described in Exhibit B
attached hereto (the "personal property").
-1-
<PAGE>
2. Term: The term of this lease shall be for approximately twenty (20)
----
years expiring, unless sooner terminated, at midnight, December 31, 1997. The
date on which this lease becomes effective, as set forth in paragraph 30 hereof,
shall be the "commencement date" of the term of this lease. Upon determination
of the commencement date, the same shall be inserted in the blank space provided
below in this paragraph and shall be initialed by the parties hereto.
The commencement date of this lease is __________ .
3. Acceptance of Premises: Tenant's taking possession of the premises on
----------------------
commencement of the term shall constitute Tenant's acknowledgement that the
premises are in good condition.
4. Rent:
----
A. Tenant shall pay to Landlord a minimum monthly rent, without
deduction, setoff, prior notice or demand, as follows: $8,200.00 per month
B. The monthly rental designated is for a calendar month. Rental is due
on the 25th day of each month; however, rent for the month in which the term of
this lease commences shall be due on the commencement date. If the lease term
commences on a day other than the first day of a month, minimum monthly rent for
such partial month shall be prorated at the rate of 1/30th of the minimum
monthly rent per day.
C. All rent shall be paid to Landlord at the address to which notices
to Landlord are given.
-2-
<PAGE>
D. Minimum monthly rental hereunder shall be adjusted in accordance
with the following:
(1) As used herein:
(a) "Index" shall mean the revised Consumer Price Index for
Urban Wage Earners, etc., all items - Series A, Los Angeles-Long Beach,
California 1967=100 published by the Bureau of Labor Statistics of the U. S.
Department of Labor;
(b) "Base Date" shall mean commencement date;
(c) "Adjustment Date" shall mean each third anniversary of the
Base Date, except the first adjustment date which shall be the fifth
anniversary of the Base Date;
(d) "Percentage Increase of Index" shall mean the percentage of
increase in the Index on the adjustment date equal to a fraction the
numerator of which shall be the Index on such Adjustment date less the Index
on the Base Date and the denominator of which shall be the Index on the
Base Date;
(e) "Percentage Increase of Medi-Cal shall mean the percentage
of increase in the daily bed rate applicable to a ninety-six (96) bed
skilled nursing facility established pursuant to the provisions of the Medi-
Cal Act, Sections 14000 et. seq., of the Welfare and institutions of
California, in excess of the daily bed rate applicable to the premises on
the base date, equal to a fraction the
-3-
<PAGE>
numerator of which shall be the applicable daily bed rate on such Adjustment
Date less the daily bed rate on the Base Date and the denominator of which
shall be the daily bed rate on the Base Date.
(2) The minimum monthly rental set forth hereinabove shall be
increased on each Adjustment Date by an amount equal to said minimum monthly
rental amount multiplied by (1) the Percentage Increase of Index, or (2)
the Percentage Increase of Medi-Cal rate, whichever percentage is lesser. In
no case shall the minimum monthly rent be less than the applicable minimum
monthly rent set forth in subparagraph A above. And in no case shall the
increase of minimum monthly rent on any adjustment date exceed $600.00 per
month.
(3) In the event the Index shall hereafter be Converted to a
different standard reference base or otherwise revised, the determination of
the Percentage Increase of the Index shall be made with the use of such
conversion factor, formulae or table for converting the Index as may be
published by the Bureau of Labor Statistics, or if the Bureau shall not
publish the same, then with the use of such conversion factor, formulae or
tables as may be published by the Irving Fisher Index or any other
nationally recognized publisher of similar statistical information.
(4) In the event that the program of compensation under the Medi-
cal Act is modified, or if the Act is superseded by other legislation, the
Percentage Increase of Medi-Cal Rate shall be determined by substituting
therefor a number reasonably related to the modification or change
-4-
<PAGE>
in the law so as to most nearly reflect the intent of the parties as of the
date of execution of this lease. Any dispute regarding same shall be
determined by arbitration in accordance with the then prevailing rules of
the American Arbitration Association. However, if the Medi-Cal program
existing at the commencement date changes to a form of cost reimbursement
program under which rental, as a specific item, is limited to a specific
maximum amount, rental hereunder shall be that maximum amount as the same
may exist from time to time but not less than $8,200.00 per month.
E. Tenant acknowledges that late payment by Tenant to Landlord of rent
will cause Landlord to incur costs not contemplated by this lease, the exact
amount of such costs being extremely difficult and impracticable to fix. Such
costs include, without limitation, processing and accounting charges and late
charges that may be imposed on Landlord by the terms of any encumbrance and note
secured by any encumbrance covering the premises. Therefore, if any installment
of rent due from Tenant is not received by Landlord when due, Tenant shall pay
to Landlord an additional sum of five percent (5%) of the overdue rent as a late
charge. The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of late payment by
Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's
default with respect to the overdue amount, nor prevent Landlord from exercising
any of the other rights and remedies available to Landlord. No late charge shall
accrue unless and until Tenant is in default as provided in paragraph 16 hereof.
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F. The monthly rental provided above shall be in addition to and over
and above all other payments to be made by Tenant as hereinafter provided. It is
the purpose and intent of Landlord and Tenant that the rental provided herein
shall be absolutely net to Landlord so that this lease shall yield net to
Landlord the rent specified above in each month during the term of this lease.
Excluding secured obligations of Landlord affecting the premises and/or personal
property, all costs, expenses and obligations of every kind and nature
whatsoever relating to the premises and personal property which may arise or
become due during or out of the term or any renewal term of this lease shall be
paid by Tenant and Landlord shall be indemnified and saved harmless by Tenant
from and against the same.
5. Security Deposit: On the commencement date of this lease, Tenant shall
----------------
deposit with Landlord $16,400.00, which shall serve as a security deposit for
the performance by Tenant of the provisions of this lease. If Tenant is in
default, Landlord can use the security deposit, or any portion of it, to cure
the default or to compensate Landlord for all damage sustained by Landlord
resulting from Tenant's default. Tenant shall immediately on demand pay the
Landlord a sum equal to the portion of the security deposit expended or applied
by Landlord as provided in this paragraph so as to maintain the security deposit
in the total sum of the security deposit, ($16,400.00). If Tenant is not in
default at the expiration or termination of this lease, Landlord shall return
the security deposit to Tenant.
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Landlord's obligations with respect to the security deposit are those of a
debtor and not a trustee. Landlord can maintain the security deposit separate
and apart from Landlord's general funds, or can comingle the security deposit
with Landlord's general and other funds.
Landlord shall not be required to pay Tenant interest on the security
deposit.
6. Taxes and Assessments:
---------------------
A. Personal Property Taxes: Tenant shall pay before delinquency all
taxes, assessments, license fees, and other charges ("personal property taxes")
that are levied and assessed against the personal property installed or located
in or on the premises, and that become payable during the term. Tenant shall
furnish Landlord with satisfactory evidence of these payments promptly following
such payments.
B. Real Property Taxes: Tenant shall pay all real property taxes and
general and special assessments ("real property taxes") levied and assessed
against the premises during the term.
C. Landlord shall use its best efforts to cause the tax bills to be
sent directly to Tenant from the tax collector. Should Landlord not be able to
make such arrangements, Landlord shall each year notify Tenant of the real
property taxes and personal property taxes, and immediately on receipt of the
tax bill(s) shall furnish Tenant with a copy thereof. Tenant shall pay the
respective taxes not later than three (3) days before
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the taxing authority's delinquency date as to each installment, and shall
furnish Landlord with satisfactory evidence of these payments promptly following
such payments.
D. If Landlord's lender requires Landlord to impound real property
taxes on a periodic basis during the term, Tenant, on notice from Landlord
indicating this requirement, shall pay a sum of money toward its liability under
this paragraph to Landlord on a periodic basis in accordance with the lender's
requirements. Landlord shall impound the tax payments received from Tenant in
accordance with the requirements of lender. Further, in the event that Tenant
defaults in the payment of any installment of taxes Tenant shall, upon written
demand of Landlord, deposit with Landlord on the first day of each month a sum
equal to 1/11 of the total real property taxes assessed against the premises for
the last preceding tax year, and/or 1/11 of total personal property taxes
assessed against the personal property for the last preceding tax year, which
sums shall be used solely by Landlord toward payment of such taxes.
E. Tenant's liability to pay real and personal property taxes shall be
prorated on the basis of a 365 day year to account for any fractional portion of
a fiscal tax year included in the term at its commencement and expiration.
F. Tenant at its cost shall have the right, at any time, to seek a
reduction in the assessed valuation of the premises or to contest any real
property taxes that are to be paid by Tenant. If Tenant seeks a reduction or
contests the real property taxes, the failure on Tenant's part to pay the real
property
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taxes shall not constitute a default as long as Tenant complies with the
provisions of this subparagraph F.
Landlord shall not be required to join in any proceeding or contest
brought by Tenant unless the provisions of any law require that the proceeding
or contest be brought by or in the name of Landlord or any owner of the
premises. In that case Landlord shall join in the proceeding or contest or
permit it to be brought in Landlord's name as long as Landlord is not required
to bear any cost. Tenant, on final determination of the proceeding or contest,
shall immediately pay or discharge any decision or judgment rendered, together
with all costs, charges, interest, and penalties incidental to the decision or
judgment.
If Tenant does not pay the real property taxes when due and Tenant
seeks a reduction or contests them as provided in this subparagraph F, before
the commencement of the proceeding or contest Tenant shall furnish to Landlord a
surety bond issued by an insurance company qualified to do business in
California. The amount of the bond shall equal 125% of the total amount of real
property taxes in dispute. The bond shall hold Landlord and the premises
harmless from any damage arising out of the proceeding or contest and shall
insure the payment of any judgment that may be rendered. In lieu of a surety
bond Tenant may provide other security satisfactory to Landlord, at Landlord's
sole discretion.
G. Tenant shall, in addition to all other sums, pay all fees for
inspection and examination of the premises from and after the commencement of
the term, charged by any public authority having jurisdiction therein. In
addition, Tenant shall reimburse Landlord for any and all business taxes imposed
upon Landlord
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by the State of California and/or any political subdivision thereof which is
based or measured, in whole or in part, by rents received or other amounts
charged by Landlord under this lease; provided, however, that Tenant shall only
be responsible for the amount of such business tax actually paid by Landlord.
Tenant shall not be required to pay any municipal, county, state, or federal
income or franchise taxes of Landlord, or any municipal, county, state, or
federal estate, succession, inheritance, or transfer taxes of Landlord.
H. Tenant shall not be required to pay any municipal, county, state, or
federal income or franchise taxes of Landlord, or any municipal, county, state,
or federal estate, succession, inheritance, or transfer taxes of Landlord. If at
any time during the term the State of California or any political subdivision of
the state, including any county, city, city and county, public corporation,
district, or any other political entity or public corporation of this state,
levies or assesses against Landlord a tax, fee, or excise on rents, on the
square footage of the premises, on the act of entering into this lease, or on
the occupancy of Tenant, or any other tax, fee, or excise, however described, as
a direct substitution in whole or in part for, or in addition to, any real
property taxes, Tenant shall pay before delinquency that tax, fee, or excise on
rents. Tenant's share of any such tax, fee, or excise shall be substantially the
same as Tenant's proportionate share of real property taxes as provided in this
lease.
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7. Use:
---
A. Tenant shall use the premises for a licensed skilled nursing
facility and for no other use without Landlord's consent. Landlord agrees not to
unreasonably withhold its consent to related healthcare uses.
B. Tenant's use of the premises as provided in this lease shall be
in accordance with the following:
(1) Tenant shall not do, bring, or keep anything on or about the
premises that will cause a cancellation of any insurance covering the
premises.
(2) Tenant shall cause the premises to be and remain licensed by
the appropriate governmental agency as a skilled nursing facility (or other
use to which Landlord has consented) containing the maximum number of beds
legally available under license, and shall maintain such license during the
term of this lease. Tenant shall cause the premises to conform to the
requirements and provisions of all applicable laws, rules, regulations and
ordinances concerning the premises or Tenant's use of the premises
including, without limitation, the obligation at Tenant's cost to alter,
maintain or restore the premises in compliance and conformity with all laws
relating to the condition, use or occupancy of the premises during the
term. Tenant shall deliver to Landlord promptly following receipt of same
(1), copies of all inspection reports by applicable governmental agencies
and/or their intermediaries together with Tenant's plan of correction
(where applicable) as to each such report; and (2), copies of all
complaints by patients, together
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with copies of all documents and correspondence relating thereto.
(3) Tenant shall not use the premises in any manner that will
constitute waste, nuisance, or unreasonable annoyance to owners or
occupants of adjacent properties.
(4) Tenant shall not do anything on the premises that will cause
damage to the premises. The premises shall not be overloaded. No machinery,
apparatus or other appliance shall be used or operated in or on the
premises that will in any manner injure, vibrate or shake the premises.
(5) Tenant shall make all payrolls promptly when due, respecting
all personnel at the premises; and shall file all payroll tax returns and
pay such taxes promptly and before delinquency.
8. Maintenance:
------------
A. Except as expressly provided otherwise in this lease, Tenant
shall, at its sole cost and expense, maintain the premises including the
building and improvements thereon, the parking area and service areas, the
approaches thereto and appurtenances thereof, including all adjacent sidewalks
and alleys, in good order and repair during the term of this lease. Landlord
shall not have any responsibility to maintain the premises. Tenant waives the
provisions of Civil Code (S)(S)1941 and 1942 with respect to Landlord's
obligation for tenantability of the premises and Tenant's right to make repairs
and deduct the expenses
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of such repairs from rent.
B. Tenant shall, at its sole cost and expense, during the term of this
lease keep and maintain all the personal property in good order and repair.
Tenant shall have the right to install on the premises any and all equipment and
fixtures which Tenant desires to install thereon and which are necessary or
convenient to Tenant's use of the premises as a skilled nursing facility. All
such property so installed by Tenant (other than as replacements for personal
property as provided below) shall be and remain Tenant's property and may be
removed by Tenant as provided in this lease. Tenant shall not remove the
personal property or any part thereof from the premises without the prior
written consent of Landlord. Tenant shall replace with suitable substitutes any
worn out or broken items of personal property as the same may occur from time to
time throughout the term of this lease, at Tenant's expense. Items so replaced
by Tenant shall become the property of Landlord. Tenant agrees, upon written
request from Landlord, to execute for filing a form UCC-l Financing Statement
listing Tenant as "debtor" and Landlord as "secured party" with respect to the
personal property on the premises and listed on Exhibit B.
C. Tenant accepts the premises and personal property in their "as is"
condition and Tenant shall make all repairs, alterations, replacements and
additions necessary to obtain and maintain licensing as a skilled nursing
facility and certification of the facility as a provider under Medi-Cal and
Medicare legislation during the entire term of this lease.
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<PAGE>
9. Alterations: Tenant shall not make any alterations to the premises
-----------
without Landlord's prior consent. Any alterations made shall remain on and be
surrendered with the premises on expiration or termination of the term, except
that Landlord can elect within thirty (30) days before expiration of the term,
or within five (5) days after the termination of the term, to require Tenant to
remove any alterations that Tenant has made to the premises unless otherwise
agreed by Landlord at the time the alteration is approved. If Landlord so
elects, Tenant at its cost shall restore the premises to the condition
designated by Landlord in its election, before the last day of the term, or
within thirty (30) days after notice of election is given, whichever is later.
Landlord shall notify Tenant at the time any consent by Landlord is given as to
whether Landlord shall require removal at expiration of the term.
If Tenant makes any alterations to the premises as provided in this
paragraph, the alterations shall not be commenced until five (5) days after
Landlord has received notice from Tenant stating the date the installation of
the alterations is to commence so that Landlord can post and record an
appropriate notice of nonresponsibility.
10. Mechanics' Liens: Tenant shall pay all costs for construction done by
----------------
it or caused to be done by it on the premises as permitted by this lease. Tenant
shall keep the premises free and clear of all mechanics' liens resulting from
construction done by or for Tenant.
Tenant shall have the right to contest the correctness or the validity
of any such lien if, immediately on demand by
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<PAGE>
Landlord, Tenant procures and records a lien release bond issued by a
corporation authorized to issue surety bonds in California in an amount equal to
one and one-half times the amount of the claim of lien. The bond shall meet the
requirements of Civil Code Section 3143 or any successor statutes thereto and
shall provide for the payment of any sum that the claimant may recover on the
claim (together with costs of suit, if it recovers in the action).
11. Utilities and Services: Tenant shall make all arrangements for and pay
----------------------
for all utilities and services furnished to or used by it, including, without
limitation, gas, electricity, water, telephone service, and trash collection,
and for all connection charges.
12. Indemnity and Exculpation; Insurance:
------------------------------------
A. This lease is made upon the express condition that Landlord is to
be free from all liability and claims for damages (except for breach of lease by
Landlord or its willful conduct or omission), by reason of any injury to any
person or persons, including Tenant, or property of any kind whatsoever and to
whomsoever belonging, including Tenant, from any cause or causes, while in,
upon, or in any way connected with the premises and all portions thereof, the
sidewalks adjacent thereto, and the personal property thereon, during the term
of this lease, or any extension hereof, or occupancy thereof by Tenant. Subject
to the terms of this lease (and except for breach of lease by
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<PAGE>
Landlord or its willful conduct or omission), Tenant hereby agrees, during the
term of this lease, to indemnify and save Landlord harmless from and against any
and all claims, demands, obligations, liabilities, cause or causes of action by
reason of the condition, the use or misuses of the personal property, and/or the
condition of the premises and the approaches and appurtenances thereto,
including all adjacent sidewalks, alleys, and the parking area.
B. Tenant hereby agrees that Landlord shall not be liable, except for
Landlord's breach of this lease or its willful conduct or omission, for injury
to Tenant's business or any loss of income therefrom or for damages to the
goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, patients, customers, or any other person in or about the premises, nor
shall Landlord be liable for injury to the person of Tenant, Tenant's employees,
agents, invitees, or patients, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same, or from
any other cause, whether the said damage or injury results from conditions
arising upon the premises or elsewhere and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Tenant.
C. Tenant at its cost shall take out and keep in force during the term
of this lease public liability and property
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damage insurance, malpractice insurance, and owned and non-owned automobile
liability insurance in an amount not less than $1,000,000.00 combined single
limits, insuring against all liability of Tenant and its authorized
representatives arising out of and in connection with Tenant's use or occupancy
of the premises, and insuring Landlord with respect to the ownership,
maintenance, operation and use or occupancy of the premises, including the sole
negligence and strict liability of Landlord. All such insurance shall insure
performance by Tenant of the indemnity provisions of this paragraph. Both
parties shall be named as additional insureds, and, the policy shall contain
cross-liability (if readily obtainable in the market), personal injury and
contractual liability endorsements.
D. Not more frequently than each three (3) years, if, in the opinion of
Landlord's lender or of the insurance consultant retained by Landlord, the
amount of public liability and property damage insurance coverage at that time
is not adequate, Tenant shall increase the insurance coverage as required by
either Landlord's lender or Landlord's insurance consultant.
E. Tenant at its cost shall maintain on all its personal property,
tenant's improvements, and alterations, in, on, or about the premises, a policy
of standard fire and extended coverage insurance, with vandalism and malicious
mischief endorsements, to the extent of at least 100% of their full replacement
value. The proceeds from any such policy shall be used by Tenant for the
replacement of personal property or the restoration of tenant's improvements or
alterations.
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F. Tenant at its cost shall maintain on all the personal property
described on Exhibit B, and all replacements thereof, and on the building and
other improvements that are a part of the premises, during the term of this
lease, a policy or policies of fire insurance with vandalism and malicious
mischief special extended coverage (not applicable to personal property),
sprinkler leakage and earthquake sprinkler leakage endorsements. The property to
be insured under this paragraph shall be continually insured to value (not less
that 90% average clause, 25% for sprinkler leakage and earthquake sprinkler
leakage), and the policy or policies shall be written to provide replacement
cost insurance. The insurance policy or policies shall be issued in the names of
Landlord, Tenant, and Landlord's lender, as their interests appear. In case this
lease is terminated, the insurance policy and all rights under it or the
insurance proceeds shall be assigned to Landlord at Landlord's election, and
Tenant shall be credited with pro rata returned premiums and dividends. Tenant
shall pay the premiums for maintaining the insurance required hereunder while
the lease is in force. If Landlord's lender requires Landlord to impound
insurance premiums on a periodic basis during the term, Tenant, on notice from
Landlord indicating this requirement, shall pay a sum of money toward its
liability under this paragraph to Landlord on a periodic basis in accordance
with the lender's requirements. Landlord shall impound the insurance premiums
received from Tenant in accordance with the requirements of the lender.
G. In order to assure that the building and other improvements to be
insured hereunder are continually insured
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to value with replacement cost insurance, the full replacement value of the
insurable improvements shall be determined by the company issuing the insurance
policy at the time the policy is initially obtained. Not more frequently than
once every three years either party shall have the right to notify the other
party that it elects to have the replacement value redetermined by an insurance
company, or by appraisal. The redetermination shall be made promptly and in
accordance with the rules and practices of the Board of Fire Underwriters, or a
like board recognized and generally accepted by the insurance industry and each
party shall be promptly notified of the results by the company. The insurance
policy shall be adjusted according to the determination.
If the insurance company refuses to redetermine value upon request,
then the parties shall engage a qualified appraiser to determine full
replacement value of the insurable improvements, the cost of which shall be paid
by Tenant.
H. Tenant at its cost shall maintain rent or rental value fire insurance
including extended coverage, vandalism and malicious mischief special extended
coverage, sprinkler leakage and earthquake sprinkler leakage endorsements in an
amount equal to twelve (12) months rent, as the same may be adjusted from time
to time, plus the estimated annual cost of taxes and the annual premiums for
insurance policies required to be carried by Tenant hereunder. Such insurance
shall name Landlord and Tenant as coinsureds as their respective interests may
appear and shall provide for monthly payments to Landlord to the extent
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of Tenant's monthly obligations hereunder plus such amounts of ????? and
insurance premiums as would be payable to Landlord if the ???? were being
impounded monthly.
I. The parties release each other, and their respective authorized
representatives, from any claims for damage to any portion or to the premises
and to the fixtures, personal property, Tenant's improvements and alterations of
either Landlord or Tenant in or on the premises that are caused by or result
from risks insured against under any insurance policies carried by the parties
and in force at the time of any such damage.
Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
Neither party shall be liable to the other for any damage caused by fire or any
of the risks insured against under any insurance policy required by this lease.
If any insurance policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of subrogation,
the party undertaking to obtain the insurance shall notify the other party of
this fact. The other party shall have a period of ten (10) days after receiving
the notice either to place the insurance with a company that is reasonably
satisfactory to the other party and that will carry the insurance with a waiver
of subrogation, or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If the
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insurance cannot be obtained or the party in whose favor a waiver of subrogation
is desired refuses to pay the additional premium charged, the other party is
relieved of the obligation to obtain a waiver of subrogation rights with respect
to the particular insurance involved.
J. All the insurance required under this lease shall:
(1) Be issued by insurance companies authorized to do business in
the State of California, with a policy-holders and financial rating of at
least A:Class Xl status as rated in the most recent edition of Best's Key-
Rating Guide;
(2) Be issued as a primary policy; however, Tenant may carry the
insurance under blanket policy if the policy specifically provides that the
amount of insurance required under this lease will be in no way prejudiced
by other losses covered by the policy; and
(3) Contain an endorsement requiring thirty (30) days written
notice from the insurance company to both parties and Landlord's lender
before cancellation or change in the coverage, scope, or amount of any
policy; but if not obtainable, ten (10) day notice shall be acceptable.
K. Each policy, or a certificate of the policy together with evidence
of payment of premiums, shall be deposited with Landlord at the commencement
date, and on renewal of the policy not less that twenty (20) days before
expiration of the term of the policy.
L. Deductible provisions contained in any insurance policy required by
this lease shall be for the account of and payable by Tenant.
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13. Destruction
-----------
A. If, during the term, the premises are totally or partially
destroyed from a risk covered by the insurance described in paragraph 12,
rendering the premises totally or partially inaccessible or unusable, Tenant
shall restore the premises to substantially the same condition as they were in
immediately before destruction, whether or not the insurance proceeds are
sufficient to cover the actual cost of restoration. Such destruction shall not
terminate this lease. If the existing laws do not permit the restoration, either
party can terminate this lease immediately by giving notice to the other party.
B. If, during the term, the premises are totally or partially
destroyed from a risk not covered by the insurance described in paragraph 12,
rendering the premises totally or partially inaccessible or unusable, Tenant
shall restore the premises to substantially the same condition as they were in
immediately before destruction. Such destruction shall not terminate this lease.
If the existing laws do not permit the restoration, either party can terminate
this lease immediately by giving notice to the other party. If the cost of
restoration exceeds $10,000.00, Tenant can elect to terminate this lease by
giving notice to Landlord within fifteen (15) days after determining the
restoration cost and replacement value. If Tenant elects to terminate this
lease, Landlord, within fifteen (15) days after receiving Tenant's notice to
terminate, can elect to pay the difference between $10,000.00 and the actual
cost of restoration, in which case Tenant shall restore the premises. On
Landlord's
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making its election to contribute, each party shall deposit immediately the
amount of its contribution with the insurance trustee provided for in
subparagraph D. If the destruction does not exceed $10,000.00, Tenant shall
immediately deposit the cost of restoration with the insurance trustee as
provided in subparagraph D.
C. If, during the term, the premises are destroyed from a risk covered
by the insurance described in paragraph 12, and the total amount of loss does
not exceed $2,500.00, Tenant shall make the loss adjustment with the insurance
company insuring the loss. The proceeds shall be paid directly to Tenant for
the sole purpose of making the restoration of the premises in accordance with
subparagraph F.
D. If, during the term, the premises are destroyed from a risk covered
by the insurance described in paragraph 12, and the total amount of loss exceeds
$2,500.00, Tenant shall, with Landlord's approval, make the loss adjustment with
the insurance company insuring the loss, and on receipt of the proceeds, the
parties shall immediately pay them to Safeco Title Insurance Company ("insurance
trustee") or such other company as the parties may agree upon to act as
insurance trustee hereunder.
E. If the premises are destroyed from a risk not covered by the
insurance described in paragraph 12, and Tenant has the obligation to restore
the premises as provided in subparagraph B of this paragraph, both parties shall
deposit with the insurance trustee their respective contributions toward the
cost of restoration. All sums deposited with the insurance trustee
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(including insurance proceeds) shall be held for the following purposes and the
insurance trustee shall have the following powers and duties:
(1) The sums shall be paid in installments by the insurance trustee
to the contractor retained by Tenant as construction progresses, for payment
of the cost of restoration. A 10% retention fund shall be established that
will be paid to the contractor on completion of restoration, payment of all
costs, expiration of all applicable lien periods, and proof that the
premises are free of all mechanics' liens and lienable claims.
(2) Payments shall be made on presentation of certificates or
vouchers from the architect, engineer, or other inspection agency retained
by Tenant showing the amount due. If the insurance trustee, or Landlord, in
its reasonable discretion, determines that the certificates or vouchers are
being improperly approved, either shall have the right to appoint an
architect, engineer, or inspection agency to supervise construction and to
make payments on certificates or vouchers approved by such person retained
by the insurance trustee. The reasonable expenses and charges of the person
retained by the Landlord or insurance trustee shall be paid out of the trust
fund.
(3) If after deposit by the parties of all sums required by this
paragraph, the sums held by the insurance trustee are not sufficient to pay
the actual cost of restoration, Tenant and/or Landlord (as applicable) shall
deposit
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the amount of the deficiency with the insurance trustee within twenty (20)
days after request by the insurance trustee indicating the amount of the
deficiency.
(4) Insurance proceeds not disbursed by the insurance trustee
after restoration has been completed and final payment has been made to
Tenant's contractor shall be delivered within fifteen (15) days (after
demand made by either party on the insurance trustee, with a copy to
Landlord's lender) by the insurance trustee to Landlord's lender and shall
be applied by Landlord's lender to reduce the loan.
(5) Any undisbursed funds after compliance with the provisions of
this paragraph shall be delivered to Landlord. All actual costs and charges
of the insurance trustee shall be paid by Tenant from the insurance proceeds
to the extent such sums are available.
(6) If the insurance trustee resigns or for any reason is unwilling
to act or continue to act, Landlord shall substitute a new trustee in the
place of the designated insurance trustee. The new trustee shall be a
company engaged in the business of construction disbursement control, or a
trust company, doing business in the County of Los Angeles.
F. Promptly following the date that Tenant is obligated to restore the
premises, Tenant at its cost shall prepare final plans and specifications and
working drawings complying with applicable laws that will be necessary for
restoration of the premises. The plans and specifications and working drawings
shall be subject to approval by Landlord. Landlord shall have
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thirty (30) days after receipt of the plans and specifications and working
drawings to either approve or disapprove the plans and specifications and
working drawings and return them to Tenant. If Landlord disapproves the plans
and specifications and working drawings, Landlord shall notify Tenant of its
objections and Landlord's proposed solution to each objection. Tenant
acknowledges that the plans and specifications and working drawings shall be
subject to approval of the appropriate government bodies and that they will be
prepared in such a manner as to obtain that approval.
G. The restoration shall be accomplished as follows:
(1) Tenant shall complete the restoration within 120 working days
after final plans and specifications and working drawings have been approved
by the appropriate government bodies and all required permits have been
obtained (subject to a reasonable extension for delays resulting from causes
beyond Tenant's reasonable control).
(2) Tenant shall retain a licensed contractor that is bondable.
The contractor shall be required to carry public liability and property
damage insurance, standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, during the period of
construction. Such insurance shall contain waiver of subrogation clause in
favor of Landlord and Tenant.
(3) Tenant shall notify Landlord of the date of commencement of the
restoration at least ten days before commencement of the restoration to
enable Landlord
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to post and record notices of nonresponsibility. The contractor retained by
Tenant shall not commence construction until a completion bond and a labor
and materials bond have been delivered to Landlord to insure completion of
the construction.
(4) Tenant shall accomplish the restoration in a manner that will
cause the least inconvenience, annoyance, and disruption of the premises.
(5) On completion of the restoration Tenant shall immediately
record a notice of completion in the county in which the premises are
located.
(6) The restoration shall not be commenced until sums sufficient to
cover the cost of restoration are placed with the insurance trustee as
provided in subparagraph E.
H. In case of destruction, there shall be no abatement or reduction of
rent.
I. If destruction to the premises occurs during the last year of the
term, Landlord can terminate this lease by giving notice to Tenant not more than
thirty (30) days after the destruction.
J. Tenant waives the provisions of Civil Code 1932(2) and Civil Code
1933(4) with respect to any destruction of the premises.
K. The provisions of this paragraph assume that the insurance
proceeds, in the event of an insurable loss, are made available to the parties
for the purpose of restoration of the premises. In the event that Landlord's
lender refuses to make
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the proceeds available for such purpose, having the right to do so, and/or as a
condition of making the proceeds available, alters the terms of any obligations
secured by mortgage or deed of trust affecting the premises so as to materially
change the cost of or the manner in which such obligation may be paid or
discharged, Landlord shall have the right to terminate this lease by giving
notice to Tenant not more than fifteen (15) days after determination of such
condition(s).
14. Condemnation:
------------
A. Wherever used in this paragraph, the following words shall have
the definitions and meanings hereinafter set forth:
(1) "Condemnation": Any action or proceeding brought for the
purpose of any taking of the fee of the premises or any part thereof by
competent authority as a result of the exercise of the power of eminent
domain, including a voluntary sale to such authority either under threat
of condemnation or while such action or proceeding is pending.
(2) "Vesting Date": The event and date of vesting of title to
the fee of the premises or any part thereof in the competent authority
pursuant to condemnation.
B. If all of the premises shall be taken in condemnation, this
lease shall terminate at the Vesting Date and the minimum rent and additional
rent under this lease shall be apportioned to the date of such termination.
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C. If less than all of the premises shall be taken in condemnation,
Landlord and Tenant mutually shall determine, within a reasonable time after the
Vesting Date, whether the remaining buildings and improvements and building
equipment (after necessary repairs and reconstruction to constitute them a
complete architectural unit) can economically and feasibly be used by Tenant.
If it is determined by mutual agreement or by arbitration that the
remaining buildings and improvements and building equipment cannot economically
and feasibly be used by Tenant, Landlord or Tenant at their election may
terminate this lease on ten (10) days notice to the other party to such effect,
given within thirty (30) days after such determination, and the minimum rent and
additional rent under this lease shall be apportioned to the date of
termination.
D. If this lease shall terminate pursuant to the provisions of
subparagraphs B and C, the entire condemnation award shall be apportioned and
paid in the following order of priority:
(1) Landlord first shall be entitled to its expenses and costs
(including reasonable counsel fees) in connection with the condemnation.
(2) Landlord shall then be entitled to the sum of the following:
(a) $325,000.00; plus
(b) An amount equal to the principal reduction of all obligations
(existing at the commencement date)
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secured by encumbrances, liens, and/or security interests affecting both the
real and personal property prospectively from the commencement date of the term
of this lease to the date of taking; plus
(c) Amounts sufficient to pay the demands of the holder(s) of said
secured obligations (which shall be paid to the persons or firms entitled
thereto).
(d) The items under D(2) (a), (b) and (c) above shall be increased 1)
by any sums expended by Landlord from its own funds for the benefit of Tenant
and/or the premises/personal property for which it has not otherwise been
reimbursed; and/or 2) any new obligation(s) secured by the premises and/or
personal property to the extent that the proceeds of same were used to either
satisfy any prior secured obligation(s) affecting the premises or personal
property and/or for the benefit of Tenant and/or the premises/personal property.
(3) Tenant shall next be entitled to an amount equal to the then value of
its leasehold estate under this lease, plus the costs of any leasehold
improvements paid for by Tenant as depreciated from the date of completion to
the date of taking and its expenses and costs (including reasonable counsel
fees) in connection with the condemnation.
(4) The balance of the award shall be paid to Landlord. Any controversy or
claim arising out of, or relating to, this subparagraph shall be settled by
arbitration in accordance with the then prevailing rules of the American
Arbitration Association.
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E. If, in the case of a partial taking, this lease shall not
terminate, as provided in subparagraph C, it shall continue in full force and
effect as to the portion of the premises not taken and Landlord, at Landlord's
expense, shall commence and proceed with reasonable promptness and diligence to
repair or reconstruct the remaining buildings and improvements and building
equipment to a complete architectural unit; and the entire condemnation award
shall be to Landlord.
F. If this lease shall not terminate, as provided in subparagraph C,
the annual minimum rent thereafter required to be paid hereunder shall be
reduced by an amount which will reasonably reflect the results of such taking on
Tenant's operations. Any controversy arising out of, or relating to, this
paragraph shall be settled by arbitration in accordance with the then prevailing
rules of the American Arbitration Association.
G. Each party waives the provisions of Code of Civil Procedure
S1265.130 allowing either party to petition the superior court to terminate this
lease in the event of a partial taking of the premises, and waives such other
provisions of law as may be in conflict herewith.
15. Assignment and Subletting:
-------------------------
A. Tenant shall not voluntarily assign or encumber its interest in
this lease or in the premises or personal property, or sublease all or any part
of the premises or personal property, or allow any other person or entity
(except Tenant's agents, invitees and patients) to occupy or use all or any part
-31-
<PAGE>
of the premises or personal property, without first obtaining Landlord's
consent. Any assignment, encumbrance, or sublease without Landlord's consent
shall be voidable and, at Landlord's election, shall constitute a default. No
consent to any assignment, encumbrance, or sublease shall constitute a further
waiver of the provisions of this paragraph. Landlord agrees not to unreasonably
withhold its consent. If Tenant is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, of partner or partners owning
51% or more of the partnership, or the dissolution of the partnership, shall be
deemed a voluntary assignment. If Tenant consists of more than one person, a
purported assignment, voluntary, involuntary, or by operation of law, from a
majority of persons to the others shall be deemed a voluntary assignment. If
Tenant is a corporation, any dissolution, merger, consolidation, or other
reorganization of Tenant, or (except by the voluntary act of Landlord) the sale
or other transfer of a controlling percentage of the capital stock of Tenant, or
the sale of 51% of the value of the assets of Tenant, shall be deemed a
voluntary assignment. The phrase "controlling percentage" means the ownership
of, and the right to vote, stock possessing at least 51% of the total combined
voting power of all classes of Tenant's capital stock issued, outstanding, and
entitled to vote for the election of directors.
B. No interest of Tenant in this lease shall be assignable by
operation of law (including, without limitation, the transfer of this lease by
testacy or intestacy). Each of the following acts shall be considered an
involuntary assignment:
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(1) If tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding under
the Bankruptcy Act in which Tenant is the bankrupt;
(2) If a writ of attachment or execution is levied on this lease;
(3) If, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the premises.
C. An involuntary assignment shall constitute a default by Tenant
and Landlord shall have the right to elect to terminate this lease, in which
case this lease shall not be treated as an asset of Tenant. If a writ of
attachment or execution is levied on this lease, Tenant shall have ten (10) days
in which to cause the attachment or execution to be removed. If any involuntary
proceeding in bankruptcy is brought against Tenant, or if a receiver is
appointed, Tenant shall have sixty (60) days in which to have the involuntary
proceeding dismissed or the receiver removed.
D. Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this lease, all rent from any subletting
of all or a part of the premises as permitted by this lease, and Landlord, as
assignee and as attorney-in-fact for Tenant, or a receiver for tenant appointed
on Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent.
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16. Defaults, Remedies:
------------------
A. The occurrence of any one or more of the following events shall
constitute a default and breach of this lease by Tenant:
(1) Failure to pay rent when due, if the failure continues for
five (5) days after notice has been given to Tenant;
(2) Abandonment of the premises (failure to occupy and operate
the premises for twelve (12) hours shall be deemed an abandonment);
(3) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this lease to be observed or
performed by Tenant, other than described in paragraph (1) above, where
such failure shall continue for a period of thirty (30) days after receipt
of written notice thereof from Landlord to Tenant; provided, however, that
if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be
in default if Tenant commences such cure within said thirty (30) day period
and thereafter diligently prosecutes such cure to completion;
(4) The filing of execution or occurrence of:
(a) a petition in bankruptcy by or against the Tenant, unless
cured or removed within sixty (60) days;
(b) a petition or answer by Tenant seeking a reorganization,
arrangement, composition, readjustment, liquidation, dissolution or other
relief of the same or different kind under any provision of the Bankruptcy
Act;
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(c) adjudication of Tenant as a bankrupt or insolvent;
(d) an assignment of all or substantially all of Tenant's assets
for the benefit of creditors;
(e) a petition or other proceeding, except by Landlord, its
agents or affiliates, by or against Tenant, for, or the appointment of, a
trustee, receiver, or liquidator of Tenant with respect to all or
substantially all of its property; provided, however, that Tenant shall not
be in default if Tenant cures or removes such a petition or proceeding
within sixty (60) days;
(f) a petition or other proceeding by or against Tenant for its
dissolution or liquidation, or the taking of possession of the property of
Tenant by any governmental authority in connection with dissolution or
liquidation, provided, however, that Tenant shall not be in default if
Tenant cures or removes such a petition or proceeding within sixty (60)
days;
(g) the taking by any person, except by Landlord or its agents
or affiliates, of the leasehold created hereby or any part thereof upon
execution, or other process of law or equity.
(5) Notwithstanding any other provisions of this lease, the failure
by Tenant to comply with any of the provisions of the lease, if such
failure (in the reasonable and good faith judgment of Landlord) places in
imminent jeopardy the continued licensing of the premises as a skilled
nursing facility and/or its certification as either a MediCal or Medicare
provider and if, within twenty-four (24)
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hours after written notice thereof from Landlord to Tenant, Tenant shall
not have either 1) cured such failure, or 2) obtained an injunction or
other order preventing revocation or suspension of licensing and/or
decertification of the premises by virtue of such failure or alleged
failure, or 3) provided Landlord with other reasonable assurances that the
premises will not be subject to license suspension or revocation and/or
decertification as a result of such failure or alleged failure.
(6) Notices given under this paragraph 16 shall specify the
alleged default and the applicable lease provisions, and shall demand that
Tenant perform the provisions of this lease or pay the rent that is in
arrears, as the case may be, within the applicable period of time, or quit
the premises. No such notice shall be deemed a forfeiture or a termination
of this lease unless Landlord so elects in the notice.
B. Landlord shall have the following remedies without further notice
to Tenant if Tenant commits a default. These remedies are not exclusive; they
are cumulative in addition to any remedies now or later allowed by law:
(1) Landlord can continue this lease in full force and effect,
and the lease will continue in effect as long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the right
to collect rent when due. During the period Tenant is in default, Landlord
can enter the premises and relet them, or any part of them, to third
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parties for Tenant's account. Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the premises,
including, without limitation, brokers' commissions, expenses of remodeling
the premises required by the reletting, and like costs. Reletting can be
for a period shorter or longer than the remaining term of this lease.
Tenant shall pay to Landlord the rent due under this lease on the dates the
rent is due, less the rent Landlord receives from any reletting. No act by
Landlord allowed by this paragraph shall terminate this lease unless
Landlord notifies Tenant that Landlord elects to terminate this lease.
(2) Landlord can terminate Tenant's right to possession of the
premises at any time. No act by Landlord other than giving notice to Tenant
shall terminate this lease. Acts of maintenance, efforts to relet the
premises, or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this lease shall not 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;
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(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.
"The worth, at the time of the award," as used in (a) and (b) of this
subparagraph B(2) is to be computed by allowing interest at the rate of 10%
per annum. "The worth, at the time of the award," as referred to in (c) of
this subparagraph B(2) 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 1%.
(3) If Tenant is in default of this lease Landlord shall have the right
to have a receiver appointed to collect rent and conduct Tenant's business.
Neither the filing of a petition for the appointment of a receiver nor the
appointment itself shall constitute an election by Landlord to terminate
this lease.
(4) Landlord, at any time after Tenant commits a default, can cure the
default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum,
the sum paid by Landlord shall be due immediately from Tenant to Landlord
at the time the sum is paid, and if repaid at
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a later date, shall bear interest at the rate of 10% per annum from the
date the sum is paid by Landlord until Landlord is reimbursed by Tenant.
The sum, together with interest on it, shall be additional rent.
17. Signs: Tenant at its cost shall have the right to place,
-----
construct, and maintain on the premises one or more signs advertising its
business at the premises. Any sign that Tenant has the right to place,
construct, and maintain shall comply with all laws, and Tenant shall obtain any
approval required by such laws. Landlord makes no representation with respect
to Tenant's ability to obtain such approval.
18. Right of Entry:
--------------
A. Landlord and its authorized representatives shall
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have the right to enter the premises at all reasonable times for any of the
following purposes:
(1) To determine whether the premises are in good condition and
whether Tenant is complying with its obligations under this lease;
(2) To do any necessary maintenance and to make any restoration to
the premises that Landlord has the right or obligation to perform; nothing
herein contained shall constitute an obligation on the part of Landlord to
maintain or restore the premises or any part thereof;
(3) To serve, post, or keep posted any notices required or allowed
under the provisions of this lease;
(4) To post "for sale" signs at any time during the term, and to
post "for rent" or "for lease" signs during the last six (6) months of the
term, or during any period while Tenant is in default;
(5) To show the premises to prospective brokers, agents, buyers,
tenants, or persons interested in an exchange, at any time during the term;
and
(6) To shore the foundations, footings, and walls of the building
and other improvements that are a part of the premises and to erect
scaffolding and protective barricades around and about the premises, but not
so as to prevent entry to the premises, and to do any other act or thing
necessary for the safety or preservation of the premises if any excavation
or other construction is undertaken or is about to be undertaken on any
adjacent property or nearby street. Landlord's right under this provision
extends to the owner of the adjacent property on which excavation or
construction
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is to take place and the adjacent property owner's authorized
representatives, and nothing herein contained shall constitute an obligation
on the part of Landlord to maintain or restore the premises or any part
thereof.
B. Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry on the premises as provided in this paragraph, except damage
resulting from the negligent or intentional acts or omissions of Landlord or its
authorized representatives.
C. Tenant shall not be entitled to an abatement or reduction of rent if
Landlord exercises any rights reserved in this paragraph. Landlord shall
conduct its activities on the premises as allowed in this paragraph in a manner
that will cause the least possible inconvenience, annoyance, or disturbance to
Tenant.
19. Subordination; Estoppel:
-----------------------
A. This lease is and shall be prior to any encumbrance recorded after
the date of this lease, and any encumbrance now of record (but only if such
priority is approved in writing by the holder of such present encumbrance),
affecting the premises. If, however, a lender requires that this lease be
subordinate to any such encumbrance, this lease shall be subordinate to that
encumbrance, if Landlord first obtains from the lender a written agreement that
provides substantially the following:
"As long as Tenant performs its obligations under this lease, no
forclosure of, deed given in lieu of foreclosure
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of, or sale under, the encumbrance, and no steps of procedures taken under
the encumbrance, shall affect Tenant's rights under this lease."
B. Prior to the expiration of the time within which the option to
purchase may be exercised, (1) the premises and personal property shall not be
encumbered for an amount in excess of the option price provided in paragraph 31;
and (2) the total sum of monthly payments required to service all obligations
secured by the premises and personal property shall not exceed the monthly
installment of rent under this lease as the same may exist from time to time
during such period.
C. Tenant shall attorn to any purchaser at any foreclosure sale, or to
any grantee or transferee designated in any deed given in lieu of foreclosure.
Tenant shall execute upon demand any and all documents required by lender to
accomplish the purposes of this paragraph.
D. Each party, within ten (10) days after notice from the other party,
shall execute and deliver to the other party, in recordable form, a certificate
stating that this lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modifications. The certificate
also shall state the amount of monthly rent then applicable, the dates to which
the rent has been paid in advance, and the amount of any security deposit or
prepaid rent. Failure to deliver the certificate within the ten (10) days shall
be conclusive upon the party failing to deliver the certificate for the benefit
of the party requesting the certificate and any successor to the party
requesting the certificate, that this lease is in full force and effect and has
not been modified except as may be represented by the party requesting the
certificate. If a party fails to deliver the certificate within the
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ten (10) days, the party failing to deliver the certificate irrevocably
constitutes and appoints the other party as its special attorney-in-fact to
execute and deliver the certificate to any third party.
20. Notices: Any notice, demand, request, consent, approval, or
-------
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by prepaid, first-class mail. Any notice, demand, request, consent,
approval, or communication that either party desires or is required to give to
the other party shall be addressed to the other party at the address appearing
on the signature page of this lease. Either party may change its address by
notifying the other party of the change of address. Notice shall be deemed
communicated within twenty-four (24) hours from the time of mailing if mailed as
provided in this paragraph. Copies addressed to Landlord shall also be sent to
ROBERT M. BLAKEY, 5202 East Second Street, Long Beach, California 90803. Copies
addressed to Tenant shall also be sent to ROBERT STANLEY, 1840 Park Newport,
Newport Beach, California 92660; CECIL MAYS, 3355 Via Lido, Newport Beach,
California 92660; and RAYMOND MARKS, c/o Elmcrest Convalescent Hospital, 10521
Bodger, El Monte, California 91733.
Landlord agrees to send to the guarantor(s) of this lease copies of all
notices which it may give to the Tenant.
21. Waiver:
------
A. No delay or omission in the exercise of any right or remedy of
Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver.
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B. The receipt and acceptance by Landlord of delinquent rent shall not
constitute a waiver of any other default; it shall constitute only a waiver of
timely payment for the particular rent payment involved.
C. No act or conduct of Landlord including, without limitation, the
acceptance of the keys to the premises, shall constitute an acceptance of the
surrender of the premises by Tenant before the expiration of the term. Only a
notice from Landlord to Tenant shall constitute acceptance of the surrender of
the premises and accomplish a termination of the lease.
D. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
E. Any waiver by Landlord of any default must be in writing and shall
not be a waiver of any other default concerning the same or any other provision
of the lease.
22. Recordation; Quitclaim: This lease shall not be recorded, except that
----------------------
if either party requests the other party to do so, the parties shall execute a
memorandum of lease in recordable form. Tenant shall execute and deliver to
Landlord on the expiration or termination of this lease, immediately on
Landlord's request, a quitclaim deed to the premises in recordable form
designating Landlord as transferee.
23. Sale or Transfer of Premises:
----------------------------
A. If Landlord sells or transfers the premises, Landlord, on
consummation of the sale or transfer, shall be released
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from any liability thereafter accruing under this lease. If any security deposit
or prepaid rent has been paid by Tenant, Landlord can transfer the security
deposit or prepaid rent to Landlord's successor and on such transfer Landlord
shall be discharged from any further liability in reference to the security
deposit or prepaid rent.
B. If Landlord determines to sell all or any part of the premises or
personal property, Landlord shall notify Tenant of the terms on which Landlord
will be willing to sell. If Tenant, within fifteen (15) days after receipt of
Landlord's notice, indicates in writing its agreement to purchase that being
offered for sale by Landlord on the terms stated in Landlord's notice, Landlord
shall sell and convey same to Tenant on the terms stated in the notice. If
Tenant does not indicate its agreement within fifteen (15) days, Landlord
thereafter shall have the right to sell and convey said property to a third
party on the same terms stated in the notice. If Landlord does not sell and
convey said property within ninety (90) days, any further transaction shall be
deemed a new determination by Landlord to sell and convey same and the
provisions of this paragraph shall be applicable.
It is expressly recognized that Landlord proposes to convey the
premises and personal property to JAY-GAR ASSOCIATES, a limited partnership,
promptly following the commencement date; and such conveyance is expressly
excepted from the provisions of this subparagraph B.
C. If Tenant purchases all of the premises and personal property,
this lease shall terminate on the date title vests in Tenant, and Landlord shall
remit to Tenant all prepaid
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and unearned rent and remaining lease deposit. If Tenant purchases a part of
the premises and/or personal property, 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 and personal
property before the purchase bears to the value of the premises and personal
property covered by the lease immediately after the purchase.
24. Attorneys' Fees:
---------------
A. If either party becomes a party to any litigation concerning this
lease, the premises, the building or other improvements in which the premises
are located, and/or the personal property, by reason of any act or omission of
the other party or its authorized representatives, the party that causes the
other party to become involved in the litigation shall be liable to that party
for reasonable attorneys' fees and court costs incurred by it in the litigation.
B. If either party commences an action against the other party arising
out of or in connection with this lease, the prevailing party shall be entitled
to have and recover from the losing party reasonable attorneys' fees and court
costs of suit.
25. Financial Statements: During the term of this lease, Tenant shall
--------------------
provide Landlord a copy of a true and complete financial statement reflecting
Tenant's operations at the premises for each month for which Landlord requests
such statements from Tenant.
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26. Licensing: Except as may be otherwise permitted hereunder, Tenant shall
---------
maintain at all times during the term hereof and any extensions or holdover
period all governmental licenses, permits and authorizations necessary for the
establishment and operation of a ninety-six (96) bed skilled nursing facility in
the city of El Monte, county of Los Angeles, State of California, qualified
under laws as they may from time to time exist including qualification as a
provider under Medi-Cal and Medicare legislation. Tenant shall not, without the
prior consent of Landlord, effect any change in the license category or license
status of the premises or any part thereof; and Landlord agrees not to
unreasonably withhold its consent.
The parties recognize that the premises contain two six-bed wards which
have been permitted, in the past, by waiver from the Department of Health. No
representation is made by Landlord as to Tenant's ability to continue to obtain
such waiver. If through no fault of Tenant, the appropriate governmental
authority reduces the number of licensed beds to less that ninety-six (96),
Tenant shall be permitted to maintain the lesser number of beds, but such
reduction shall not change or modify the rental provided in this lease nor any
other obligations of Tenant hereunder.
27. Surrender of Premises; Holding Over:
-----------------------------------
A. On expiration or ten (10) days after termination of the term, Tenant
shall surrender to Landlord the personal property and the premises, and all
Tenant's improvements and alterations thereto, in good condition (except for
ordinary wear and tear occurring after the last necessary maintenance made
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by Tenant and destruction to the premises covered by paragraph 13, except for
alterations that Tenant has the right to remove or is obligated to remove under
the provisions of paragraph 9.
B. If Tenant fails to surrender the premises and/or personal property
to Landlord on expiration or ten (10) days after termination of the term as
required by this paragraph, Tenant shall hold Landlord harmless from all damages
resulting from Tenant's failure to surrender the premises and/or personal
property, including, without limitation, claims made by a succeeding tenant
resulting from Tenant's failure to surrender the premises and/or personal
property.
C. If Tenant, with Landlord's consent, remains in possession of the
premises and/or personal property after expiration or termination of the term,
or after the date in any notice given by Landlord to Tenant terminating this
lease, such possession by Tenant shall be deemed to be a month-to-month tenancy
terminable on thirty (30) days' notice given at any time by either party. All
provisions of this lease except those pertaining to term shall apply to the
month-to-month tenancy.
28. Options to Renew: Provided Tenant is not then in default hereunder,
----------------
Tenant is hereby granted an option to renew this lease for an additional period
of five (5) years on expiration of the term of this lease under the same terms,
conditions and covenants (so far as applicable) as herein contained, including
rental adjustment as provided in paragraph 4. The option shall be exercised by
written notice, setting forth Tenant's election to exercise the option,
delivered to Landlord not less than one hundred eighty (180) days prior to the
expiration of
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the term hereof. And, provided that Tenant is not then in default hereunder,
Tenant is hereby granted an additional option to renew this lease for an
additional period of five (5) years on expiration of the preceding option period
under the same terms, conditions and covenants (so far as applicable) as herein
contained, including rental adjustment as provided in paragraph 4, to be
exercised by written notice thereof delivered to Landlord not less than one
hundred eighty (180) days prior to the expiration of the first option period of
five (5) years. The second option to renew is conditioned upon the exercise of
the first option to renew; and should Tenant fail to exercise the first option
hereunder, the second option to renew shall thereupon terminate and be of no
further force or effect.
29. Personal Guaranty: The obligations of Tenant are being personally
-----------------
guaranteed by CECIL MAYS, ROBERT STANLEY, and RAYMOND MARKS, pursuant to written
guaranty attached to this lease.
30. Condition of Lease: This lease is expressly conditioned upon, and will
------------------
become effective and operative only upon, the occurrence of the following:
A. Tenant obtaining a health facilities license for the premises from
the California Department of Health on or before January 31, 1978; and
B. The transfer of all of the issued and outstanding capital stock of
Landlord from WYNDON CORPORATION, a California corporation to JACK J. JACOBS and
GARY KADING, or their nominee, on or before said date.
-49-
<PAGE>
If both conditions have not occurred by January 31, 1978, then this
lease shall be void and of no further effect, without liability on the part of
either party to the other.
31. Option to Purchase:
------------------
A. Landlord hereby grants to Tenant the option to purchase the
premises and the personal property from Landlord for a one (1) year period
between January 1, 1988 and December 31, 1988. Such option may be exercised by
Tenant giving written notice of such exercise to Landlord not later than sixty
(60) days prior to the expiration of the option period. The sale and purchase of
the premises and personal property shall occur not later than sixty (60) days
after the date of such notice. The premises may not be purchased separately from
the personal property nor the personal property separately from the premises.
Any exercise of an option by Tenant shall be deemed to be an exercise of the
option to purchase both the premises and the personal property. Tenant's right
to exercise the option hereunder is conditioned upon Tenant not being in
default at the time of exercise of option.
B. The combined purchase price for the premises and personal property
shall be the sum of the following: $850,000.00 (the "minimum option price"),
plus one-half (1/2) the "Percentage Increase of Index" (as that term in
hereinafter defined) times the minimum option price. The term "Index" shall
mean the index described in subparagraph D (l) (a) of paragraph 4: and
"Percentage Increase of Index", as used in this paragraph, shall mean the
percentage of increase in the Index on the date that the option is exercised
equal to a fraction, the numerator of which shall be the Index on such exercise
date less the Index
-50-
<PAGE>
on the commencement date of this lease, and the denominator of which shall be
the Index on the commencement date of this lease. In no event shall the
purchase price be less than $850,000.00. Should Tenant fail to exercise this
option within the time and in the manner herein provided, this option shall
terminate upon expiration of the option period and Tenant shall have no further
rights of any kind or nature whatsoever in this option or in the premises and
personal property except pursuant to the provisions of this lease excluding this
paragraph.
C. Within five (5) days after the notice of exercise of option, an
escrow shall be opened at an escrow company mutually satisfactory to the
parties. Upon opening escrow, Tenant shall deposit in cash therein the sum of
$10,000.00 and shall deposit the balance of the down payment in cash therein at
least two (2) days before the date set for closing. The then existing balance
of the security deposit being held by Landlord shall be credited to Tenant's
account in reduction of cash through escrow required of Tenant so that the
balance of the down payment (but not the initial $10,000.00) shall be reduced by
the then balance of the security deposit.
The down payment shall be twenty-five percent (25%) of the purchase
price and shall be paid in cash as provided above. The balance of the purchase
price shall be paid in such manner as to allow Landlord to take advantage of the
installment sale provisions of the Internal Revenue Code. The balance of the
purchase price, that is, the total purchase price less the down payment shall
be paid by assumption by Tenant of the then
-51-
<PAGE>
existing encumbrances affecting the premises and/or personal property and the
remaining balance shall be represented by a purchase money note secured by deed
of trust on the premises in favor of Landlord, and a security interest in the
personal property, the purchase money note bearing interest at one and one-half
percent (1 1/2%) over the then prime interest rate being charged by Bank of
America, N.T. & S.A., Los Angeles, California (but not higher than the maximum
rate then permitted by law, if any), which note shall be payable in equal
monthly installments of principal and interest amortized over a twenty (20) year
period, but with all sums due and payable at the end of fifteen (15) years from
close of escrow. All costs of assumption of existing encumbrances shall be paid
by tenant. Tenant shall not have the right to pay more than twenty-nine percent
(29%) of the total purchase price during the calendar year in which escrow
closes, but shall pay accrued interest only on the purchase money note monthly
during the year in which escrow closes, if Landlord requests. The purchase money
note shall contain a "Due on Sale" provision in the event of a transfer or
conveyance by Tenant of any interest in the premises.
D. The above provisions contemplate that the holder(s) of the then
existing encumbrance(s) will consent, at the time of exercise of option, to the
assumption of the loan(s) by the Tenant, if such consent is required. Should the
consent be deemed by Landlord to be required and should the holder of any such
encumbrance not consent, this lease shall continue in full force and effect
except that Tenant's right to purchase the premises
-52-
<PAGE>
and personal property shall be expressly conditioned upon Tenant agreeing to
????? ??? all changes in the terms of the obligations being assumed as may be
required by the holder(s) thereof as a condition of consenting to such
assumption, the Tenant paying all costs of assumption and Tenant assuming the
then existing encumbrance(s) under such new terms and conditions; or, in the
alternative, Tenant refinancing the premises at its own expense but subject to
the limitations and provisions contained in this paragraph 31.
E. Interest on the purchase money note shall be endorsed to close of
escrow. Because of "net" nature of this lease, it will not be necessary to
prorate taxes, insurance, and other items which are being paid by Tenant
pursuant to other provisions of this lease. Rental shall be prorated to close of
escrow.
F. Landlord shall deliver to Tenant an executed grant deed in recordable
form conveying the premises. Title to the premises and personal property shall
be conveyed by Landlord to Tenant subject to all items of record including then
existing encumbrances, and the new purchase money encumbrance.
G. At close of escrow, escrow holder must be prepared to have issued by a
title insurance company authorized to do business in California a joint
protection CLTA standard coverage policy of title insurance in the amount of
that portion of the purchase price allocated to the premises insuring Landlord's
encumbrance on the premises and insuring title to the premises vested in Tenant
subject only to the matters set forth
-53-
<PAGE>
in subparagraph F above. The cost of the title policy referred to
above shall be paid one-half by each party, and charges of
escrow and all other closing costs shall be paid in accordance with
the custom of escrow practice in Los Angeles County.
H. If the building or other improvements that are part of the
premises are totally or partially destroyed between the date Tenant
exercises the option to purchase and the date set for close of escrow,
Tenant shall restore the premises pursuant to paragraph 13.
Destruction shall not affect this option, the date set for the close
of escrow, or the purchase price of the premises unless this lease
terminates as a result of the destruction pursuant to paragraph 13.
If the lease terminates, this option shall also terminate unless
Tenant otherwise agrees in writing to complete the purchase.
I. Tenant shall not assign its interest, or any portion of its
interest, in the option granted by this paragraph without Landlord's
written consent.
J. On close of escrow, this lease shall terminate and the parties
shall be released from all liabilities and obligations under this
lease.
K. If Tenant fails to exercise the option in the manner herein
provided, and within the time provided, Tenant shall, upon demand of
Landlord, execute and deliver to Landlord a quitclaim deed or other
document reasonably satisfactory to Landlord reflecting the fact that
Tenant's option to purchase has expired and is no longer of any force
or effect.
-54-
<PAGE>
32. Miscellaneous:
-------------
A. Time is of the essence of each provision of this lease.
B. If either party is a corporation, that party shall
deliver to the other party on execution of this lease a certified copy
of a resolution of its board of directors authorizing the execution
of this lease and naming the officers that are authorized to execute
this lease on behalf of the corporation.
C. This lease shall be binding on and inure to the benefit
of the parties and their successors, except as provided in paragraph
15.
D. Each party represents that it has not had dealings with
any real estate broker, finder, or other person, with respect to this
lease in any manner. Each party shall hold harmless the other party
from all damages resulting from any claims that may be asserted
against the other party by any broker, finder, or other person, with
whom the other party has or purportedly has dealt.
E. All exhibits referred to are attached to this lease and
incorporated by reference.
F. All provisions, whether covenants or conditions, on the
part of Tenant shall be deemed to be both covenants and conditions.
G. Except for the lease guaranty and other collateral
documents executed concurrently herewith, this lease contains all the
agreements of the parties and cannot be amended or modified except by
a written agreement.
-55-
<PAGE>
33. Definitions: As used in this lease; the following words and
-----------
phrases shall have the following meanings:
Alteration - any addition or change to, or modification of, the
----------
premises made by Tenant including, without limitation, fixtures, but
excluding Tenant's personal property.
Authorized representative - any officer, agent, employee or
-------------------------
independent contractor retained or employed by either party,
acting within authority given him by that party.
Encumbrance - any deed of trust, mortgage, or other written
-----------
security device or agreement affecting the premises and/or personal
property, and the note or other obligation secured by it, that
constitutes security for the payment of a debt or performance of an
obligation.
Hold harmless - to defend and indemnify from all liability,
-------------
losses, penalties, damages as defined here, costs, expenses
(including without limitation, attorneys' fees), causes of action,
claims, or judgments arising out of or related to any damage, as
defined here, to any person or property.
Law - any judicial decision, statute, constitution, ordinance,
---
resolution, regulation, rule, administrative order, or other
requirement of any municipal, county, state, federal, or other
government agency or authority having jurisdiction over the parties or
the premises, or both, in effect either at the time of execution of
the lease or at any time during the term, including, without
limitation, any regulation or order of a quasi-official entity or
body.
Lender - the beneficiary, mortgagee, secured party, or other
------
holder of an encumbrance, as defined above.
-56-
<PAGE>
Rent - minimum monthly rent, additional rent, security deposit,
----
real and personal property taxes and assessments, insurance,
utilities and other similar charges payable by Tenant to Landlord or
payable by Tenant to a third person and required by the provisions of
this lease.
Restoration - the reconstruction, rebuilding, rehabilitation,
-----------
and repairs that are necessary to return destroyed portions of the
premises and other property to substantially the same physical
condition as they were in immediately before the destruction.
Successor - assignee, transferee, personal representative, heir,
---------
or other person or entity succeeding lawfully, and pursuant to the
provisions of this lease, to the rights or obligations of either
party.
Tenant's improvements - any addition to or modification of the
---------------------
premises made by Tenant during the term including, without limitation,
fixtures.
34. Captions: The captions of this lease shall have no effect on
--------
its interpretation.
35. Singular and Plural: When required by the context of this
-------------------
lease, the singular shall include plural.
36. Joint and Several Obligations: "Party" shall mean Landlord
-----------------------------
or Tenant; and if more than one person or entity is Landlord or
Tenant, the obligations imposed on that party shall be joint and
several.
-57-
<PAGE>
37. Severability: The unenforceability, invalidity, or
------------
illegality of any provision shall not render the other provisions
unenforceable, invalid, or illegal.
38. Legal Impossibility: Should performance hereunder by Tenant
-------------------
be rendered legally impossible at any time during the term hereof on
account of governmental action not precipitated by or in any way
resulting from acts or omissions of Tenant, Tenant shall be excused
from further performance hereunder. However, laws or other
governmental acts making performance hereunder unprofitable, more
difficult, or more expensive shall not excuse performance by Tenant.
CONVALESCENT HOSPITAL MANAGEMENT
CORPORATION, a California corporation
By /s/ W.B. Turner
------------------------------
President
By /s/ Steven Roc
------------------------------
c/o Robert M. Blakey
5202 East Second St.
Long Beach, Ca. 90803
"Landlord"
ELMCREST CONVALESCENT CENTER,
INC., a California corporation
By [SIGNATURE ILLEGIBLE]
------------------------------
By ______________________________
c/o Elmcrest Convalescent Hospital
10521 Bodger
El Monte, Ca. 91733
"Tenant"
-58-
<PAGE>
EXHIBIT A
DESCRIPTION: COUNTY OF LOS ANGELES, STATE OF CALIFORNIA.
PARCEL 1:
That portion of fractional Southwest quarter of the Southwest quarter of
Section 21, Township 1 South, Range 11 West, San Bernardino Meridian, in
the city of El Monte, according to the official plat of said land filed in the
District Land Office January 7, 1868, described as follows:
Beginning at the Northeasterly corner of Lot 13 of the William Slack Tract, as
per map recorded in Book 16 Page 69 of Maps, in the office of the county
recorder of said county; thence along the Northerly line of said Lot 13, South
85 degrees 59' 50" West 104.06 feet to the true point of beginning; thence North
0 22' East 18O.00 feet to the most Westerly Southwesterly corner of the land
described in the deed to the medical center of El Monte, recorded on December 5,
1951 as Instrument No. 743 in Book 37774 Page 172, Official Records of said
county; thence along the lines of said land, South 89 degrees 39' 35" East 60.00
feet; thence parallel with the Westerly line of the land shown as Parcel 1 on
Licensed Surveyor's Map filed in Book 29 Page 38 of Record of Surveys of said
county, South 0 degrees 22' 15" West to a point in the Northerly line, South 85
degrees 59' 50" West 60.00 feet, more or less, to the true point of beginning.
PARCEL 2:
That portion of fractional Southwest quarter of the Southwest quarter of
Section 21, Township 1 South, Range 11 West, San Bernardino Meridian, in the
city of El Monte, according to the official plat of said land filed in the
District Land office January 1, 1868, described as follows:
Beginning at a point in the Westerly line of Janta Anita Street, 80 feet wide,
as described in proceedings for condemnation in case No. 256040, Superior Court
of said county, distant thereon, South 5 degrees 48' 10" East 55.04 feet from
the first angle point in said Westerly line Northerly from Garvey Avenue; thence
along said Westerly line South 5 degrees 48' 10" East 128.48 feet to the
beginning of a tangent curve concave northwesterly and having a radius of 15
feet; thence Southwesterly along said curve 23.94 feet; thence South 85 degrees
36' 20" West 27.50 feet to the beginning of a tangent curve concave Northerly
having a radius of 470 feet; thence Westerly along said curve 139.29 feet;
thence North 77 degrees 22' 50" West 9.10 feet to the beginning of a tangent
curve concave Southerly having a radius of 530, feet; thence Westerly along said
curve 54.62 feet; thence North 46 degrees 59' 50" East 4.58 feet; thence North 6
degrees degrees 02" 10" West 104.03 feet; thence North 85 degrees 29' 50" East
237.58 feet, more or less, to the point of beginning.
Elmcrest Convalescent Hospital
Exhibit A - Page 1 of 1
<PAGE>
EXHIBIT B
PAGE. 1 INVENTORY
Oct 26 1977
Elmcrest Convalescent Hospital
10521 Bodger St. Elmonte Calif.
ADMINISTRATORS OFFICE
1- Desk
1- Chair Large (Uphol)
2- Chairs Small
1 Coffee Table (Wood.)
1 Metal Cabinet Large (2 Doors)
1 Metal Bookshelf Small
1 File Cabinet Portable.
BOOKEEPERS OFFICE
1- Desk
1- Chair
2- File Cabinets (4 Draws Each)
3- File Cabinets 2 Draw's (Each)
1- Table Oak
1- Copy Machine
1- Adding Machine (Singer)
1- Typewriter (Smith Corona)
2- Tables (Portable)
<PAGE>
PAGE 2 LOBBY
1 - Desk
1 - Desk Chair
1 - Typewriter (IBM)
1 - File Cabinet 2 Draw Metal
3 - Chairs
1 - Table Coffee (Wood)
1 - Table Round (Marble)
1 - Bench Padded
1 - Lamp
3 - Pictures
2 - Stand Type Ashtrays
FRONT DINING ROOM
6 - Tables (Round)
14 - Chairs (Dining Straight Back)
4 - Chairs (Metal Padded)
1 - Chair Arm
1 - Tv Color Table Model Zenith
1 - Display Case Glass 9ft.
1 - Piano
1 - Desk Small Wood
SMALL NURSES LOUNGE
1. AM FM Radio Tape Player (Petrasonic)
1. AMP 3M Co. With (2 Microphones)
1. Elect Timer (For Music Regulation)
1. Lockers For NRS (58 Seperate Drawers)
1. Couch
1. Chair
1. Coffee Table
<PAGE>
PAGE 3 BEAUTY SHOP
1 Hair Dryer Portable
1 Hair Dryer (Chair Type)
1 Tilt Chair
1 Scale Small Continental
1 Mirror Large
1 Clock Large (wall)
TIME CLOCK ROOM
1 Time Clock - Cinncinatti
1 Refrigerator Admiral Small
MED ROOM
1 Small Refrigerator (For Medicine)
1 Fan
2 Medicine Carts (3 shelves) wheels
1 Stool Metal
1 Steel Box (Emergency Drugs)
2 Extension Cords 50ft. (For Emerg)
1 Metal Box (For Disaster)
<PAGE>
PAGE 4 CENTRAL SUPPLY ROOM
1 SET SHELVES 5 SHELVES
1 SCALE WITH RAMP WHEELCHAIRS (HEALTHOMETER)
1 AUTO CLAVE STERILIZER PELTON & CRANE
MODEL M-C
1 HEAT LAMP
1 MEDICINE CART
5 SETS CRUTCHES
1 SMALL PORT CART
BACK LOUNGE
3 TABLES METAL
10 CHAIRS
ACTIVITIES OFFICE
2 CHAIRS METAL
1 DESK
1 STEEL CABINET 2 DOORS
1 ADDING MACHINE UNDERWOOD
1 TYPEWRITER SMITH CORONA
1 SET SHELVES 5
1 SMALL TABLE
DOCTORS EXAM ROOM
1 EXAMINATION TABLE
1 SMALL TABLE
1 SMALL CHEST
2 CHAIRS
<PAGE>
PAGE 5 REAR TUB ROOM
1 GURNEY LARGE WHEELS
1 LIFT FOR PATIENTS TO TUB
1 STEP STOOL
DIRECTOR NURSES OFFICE
1 DESK
2 CHAIRS OFFICE TYPE
1 SCALE SMALL STEP TYPE
NURSES STATION
5 CHAIRS METAL SWIVEL TYPE
1 DESK
2 PORTABLE CHART HOLDERS
MED RECORDS ROOM (CLOSET)
1 FILE CABINET 4 DRAWERS
LINEN ROOM
1 LARGE HAMPER (WHEELS)
4 LINEN CARTS METAL (WHEELS)
<PAGE>
PAGE 6 DINING ROOM
1 DINING TABLE
6 DINING CHAIRS HIGH BACK STRAIGHT
6 REGULAR METAL CHAIRS
1 WALL CLOCK
1 SMALL CABINET
KITCHEN
1 STEAM TABLE
1 STOVE 2 OVENS
2 FREEZERS UPRIGHT 1-2 DOOR 1-3 DOOR
1 ICE MACHINE SCOTSMAN
1 BLENDER LARGE WARING
1 BLENDER SMALL HAMILTON BEACH
3 TOASTERS 2- MARY PROCTOR 1 ASTRA
1 PORTABLE COFFEE VRN
1 LARGE MIXER HOBART
1 STEEL TABLE FOOD PREPERATION
1 EVAPORATOR COOLER WINDOW TYPE
7 LARGE CARTS (TRAYS)
4 SMALL CARTS (FOODS)
DISHWASHING ROOM
1 AUTOMATIC DISHWASHER (GENERAL ELECTRIC)
1 REFRIGERATOR 2 DOOR ADMIRAL
1 FREEZER SHAFFER
<PAGE>
PAGE 7 LAUNDRY ROOM
2 WASHING MACHINES (GENERAL ELECT)
1 DRYER (CISSELL)
1 LARGE SORTING TABLE WOOD
MOP ROOM
5 BUCKETS
8 MOPS
1 50 FT HOSE
DIRTY LINEN ROOM
9 PLASTIC CANS W LIDS
9 HOLDERS RACKS W WHEELS
1 WASHING MACHINE FOR PARTS
MAINTENANCE SHOP
HOUSEKEEPING SUPPLY ROOM
1 TOOLS
3 SETS SHELVES
3 LADDERS
1 SET METAL DRAWERS 21 DRAWERS
1 LARGE VACUME VESTAL
1 SMALL VACUME CLEANOMATIC
1 SHAMPOO MACHINE - VESTAL
1 BUFFER - ADVANCE 17 INCH
1 WATER VACUME LARGE ON WHEELS (JIRO)
2 DOLLYS (CARTS)
1 COFFEE TABLE
1 BENCH (WOOD)
1 STOOL
<PAGE>
CONSENT TO ASSIGNMENT AND AGREEMENT
This Consent to Assignment and Agreement (this "Agreement") is executed
and effective as of this 30th day of July, 1997, by and among Jay-Gar
Associates, a California limited partnership ("Landlord") and Elmcrest
Convalescent Hospital, Inc., a California corporation formerly known as Wilshire
Care Center, Inc. and doing business as Elmcrest Convalescent Hospital and
Montebello Convalescent Hospital ("Tenant").
RECITALS:
--------
WHEREAS, Landlord is the current lessor under that certain Lease
Agreement dated November 15, 1977 (as amended as of the date hereof, the
"Lease") between Lessor's predecessor in interest, Convalescent Hospital
Management Corporation, and Tenant covering and affecting that certain skilled
nursing facility located at 311 Santa Anita Avenue, El Monte, California (the
"Leased Premises");
WHEREAS, Robert and Sheila Snukal (collectively the "Snukals") own one
hundred percent (100%) of the capital stock representing one hundred percent
(100%) of the voting power of Tenant;
WHEREAS, Tenant, the Snukals, Heritage Fund II Investment Corporation
("Heritage") and certain other companies owned by the Snukals have entered into
a Stock Purchase and Contribution Agreement dated July 24, 1997 pertaining to
the reorganization of Tenant and the other companies owned by the Snukals (the
"Stock Purchase Agreement");
WHEREAS, pursuant to the Stock Purchase Agreement, effective upon the
consummation of the transactions contemplated therein, possession of one hundred
percent (100%) of the total combined voting power of all classes of Lessee's
capital stock issued, outstanding and entitled to vote for the election of
directors will be transferred to Fountain View Holdings, Inc., a Delaware
corporation ("Holdings"), which will be a wholly-owned subsidiary of Fountain
View, Inc., a Delaware corporation ("Fountain View");
WHEREAS, further pursuant to the Stock Purchase Agreement Guarantor,
Holdings, Tenant and other related entities will enter into a credit arrangement
pursuant to which Tenant shall guarantee the indebtedness of affiliates of
Guarantor, Holdings and Tenant and pledge its property as collateral for such
Indebtedness;
WHEREAS, pursuant to the Stock Purchase Agreement, the Snukals, Heritage
and others shall enter into a Stockholders Agreement (the "Stockholders
Agreement") pursuant to which, inter alla, the rights pertaining to the make up
----- ----
of the board of directors of Fountain View and the election of Fountain View
directors shall be determined;
<PAGE>
WHEREAS, under Section 15 of the Lease, either (i) a dissolution,
merger, consolidation or other reorganization of Tenant or a transfer of a
controlling percentage of the capital stock of Tenant or (ii) an assignment or
encumbrance of the Leased Premises or Tenant's personal property constitutes a
voluntary assignment by the Tenant (the "Voluntary Assignment") requiring the
prior written consent of Landlord;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Consent to Transaction. Subject to the terms and conditions set
----------------------
forth herein, Landlord hereby consents to the Voluntary Assignment of the Lease
and the Tenant's interest in the Leased Premises to be effected by the
transactions contemplated by the Stock Purchase Agreement.
2. No Release. Notwithstanding the Voluntary Assignment of the Lease
----------
and the Leased Premises, Tenant is and shall remain fully liable to Landlord for
each and all of the Tenant's obligations under the Lease.
3. Expenses. Tenant agrees to pay the expenses, including without
--------
limitation attorneys' fees and expenses, incurred by Landlord in connection with
Landlord's consent to the Voluntary Assignment of the Lease effected by the
above described stock transactions, which expenses shall not exceed $3,500.
4. Conditions Precedent. The consent by Landlord to the Voluntary
--------------------
Assignment is conditioned upon the occurrence of each of the following events
and circumstances:
(a) as of the effective date of the Voluntary Assignment,
Tenant is not in default under the Lease;
(b) Tenant shall have paid to Landlord the sum required to
be paid by it pursuant to Section 3 above;
(c) Tenant shall have obtained from the appropriate federal
and California health care regulatory agencies all consents, approvals, licenses
and certifications, if any, required because of the change in control of Tenant
that will occur as a result of the consummation of the above described stock
transactions; and
(d) Fountain View shall execute and deliver to Landlord its
written guaranty of the Tenant's obligations under the Lease in form and
substance satisfactory to Landlord.
5. Acknowledgements by Landlord. Landlord hereby acknowledges as
----------------------------
follows:
a) A true and correct copy of the Lease is attached as Exhibit A hereto;
---------
2
<PAGE>
b) As of the date hereof, to the knowledge of Landlord, there exists no
default by Tenant under the Lease and Tenant is in full compliance with the
terms thereof.
6. Binding Effect. This Agreement is binding on and shall operate
--------------
to the benefit of Tenant and Landlord and their respective successors and
assigns.
7. Ratification. The parties hereto hereby acknowledge, ratify and
------------
confirm that the Lease is, and shall remain, in full force and effect.
8. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws and decisions of the State of California without
regard to its rules pertaining to the conflict of laws.
9. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties regarding the subject matter hereof.
10. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement is executed as of the date first set
forth above.
"LANDLORD"
JAY-GAR ASSOCIATES.
a California limited partnership
By: /s/ Gary Kading
-----------------------
Gary Kading, General Partner
"TENANT"
ELMCREST CONVALESCENT HOSPITAL.
a California corporation
By: /s/ Robert Snukal
-----------------------------
Its: President
----------------------------
3
<PAGE>
EXHIBIT 10.27
MONUMENT HILL
GENERAL WARRANTY DEED
THE STATE OF TEXAS *
* KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF FAYETTE *
That HOBBS & CURRY FAMILY LIMITED PARTNERSHIP, an Arkansas limited
partnership of 200 North Greenwood Avenue, P.O. Box 126, Fort Smith, Arkansas
72902, for Ten Dollars ($10.00) and other valuable consideration to the
undersigned paid by the grantees herein named, the receipt of which is hereby
acknowledged, have GRANTED, SOLD AND CONVEYED, and by these presents do GRANT,
SELL AND CONVEY unto SUMMIT CARE TEXAS, L. P., a Texas Limited Partnership, of
the City of Burbank, State of California, all the interest in and to the
following described real property in Fayette County Texas, to-wit:
Legal Description attached as Exhibit "A"
THIS conveyance is made and accepted, SUBJECT TO, any and all covenants,
conditions, restrictions, easements, and/or reservations which may appear of
record in said County Clerk's Office of Fayette County, Texas, affecting the
herein described property.
Grantor, for the consideration and subject to the reservations from and
exceptions to conveyance and warranty, grants, sells, and conveys to Grantee the
property, together with all and singular the rights and appurtenances thereto in
any wise belonging, to have and to hold it to Grantee, Grantee's heirs,
executors, administrators, successors, or assigns forever. Grantor hereby binds
Grantor and Grantor's heirs, executors, administrators, and successors to
warrant and forever defend all and singular the property to Grantee and
Grantee's heirs, executors, administrators, successors, and assigns, against
every person whomsoever lawfully claiming or to claim the same or any part
thereof, except as to the reservations from and exceptions to conveyance and
warranty.
When the context requires, singular nouns and pronouns include the plural.
EXECUTED 11th day of September, 1997.
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
/s/ C. David Curry
--------------------------------------------------------
C. David Curry, General Partner
AFTER RECORDING RETURN TO:
SUMMIT CARE TEXAS, L.P.
2600 W. MAGNOLIA BLVD.
BURBANK, CA 91505
1
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF ARKANSAS
COUNTY OF SEBASTIAN
On this the 11/th/ day of September 1997, before me, the undersigned
officer, personally appeared C. David Curry, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
/s/ Shirley A. Wolfe
-----------------------------
Notary Public
My Commission expires:
November 1, 2000
2
<PAGE>
EXHIBIT "A"
Legal Description
LaGrange, Texas
All that certain tract or parcel of land containing 3.398 acres situated in the
David Berry League, A-15, in Fayette County, Texas, and being a part of that
tract described as 38.362 acres in a deed from Bill D. Nolen, et ux, to Oak
Manor, Inc., dated February 25, 1986, and recorded in Volume 713, Page 594, of
the Deed Records of Fayette County, Texas, said 3.398 acre tract also being more
particularly described by metes and bounds as follows:
BEGINNING at an iron set at the intersection of the West right-of-way line of
U.S. Highway 77 and the North right-of-way line of State Spur Highway 92 for the
Southeast corner of the tract herein described, and the Place of Beginning;
THENCE along the North right-of-way line of said Spur 92 with a curve to the
left (Curve Data: Radius = 1,472.40 feet; Delta = 15(degrees) 10' 24" left; and
Chord = North 68(degrees) 10' 14" West, 388.79 feet) an arc distance of 389.93
feet to an iron set for the Southwest corner of the tract herein described;
THENCE North 21(degrees) 24' OO" East, departing said right-of-way line, 241.66
feet to an iron set for the most Westerly Northwest corner of the tract herein
described;
THENCE North 69(degrees) 43' 17" East, 221.98 feet to an iron set for an angle
point in the North line of the tract herein described;
THENCE South 70(degrees) 16' 00" East, 120.00 feet to an iron set for an angle
point in the North line of the tract herein described;
THENCE South 28(degrees) 17' 52" East, 236.69 feet to an iron set in the West
right-of-way line of U. S. Highway 77 for the Northeast corner of the tract
herein described;
THENCE along said right-of-way line with a curve to the left (Curve Data: Radius
= 518.33 feet; Delta = 07(degrees) 44' 37" left; and Chord = South 29(degrees)
14' 19" West, 70.00 feet) an arc distance of 70.05 feet to an iron set for the
P.T. of said curve;
THENCE South 25(degrees) 22' 00" West, 9.80 feet along said West right-of-way
line to an iron set for an angle point in same;
THENCE South 26(degrees) 12' 00" West, 72.30 feet along said West right-of-way
line to an iron set for another angle point;
THENCE South 55(degrees) 12' 00" West, 110.00 feet along said right-of-way line
to the Place of Beginning and containing 3.398 acres of land.
SUBJECT TO an undivided 1/2 royalty (being equal to not less than an undivided
1/16) of all this oil, gas and other minerals as fully described in that deed
from Robert E. Lucey, Roman Catholic Archbishop of San Antonio, to Frisch Aufi
Inc., dated February 25, 1965, recorded in Volume 369, Pages 468-474, Deed
Records of Fayette County, Texas.
<PAGE>
-2-
THENCE along said right-of-way line with a curve to the left (Curve Data: Radius
= 518.33 feet; Delta = 07(degrees) 44' 37" left: and Chord = South 29(degrees)
14' 19" West, 70.00 feet) an arc distance of 70.05, feet to an iron set for the
P.T. of said curve;
THENCE South 25(degrees) 22' 00" West, 9.80 feet along said West right-of-way
line to an iron set for an angle point in same;
THENCE South 26(degrees) 12' 00" West, 72.30 feet along said West right-of-way
line to an iron set for another angle point;
THENCE South 55(degrees) 12' 00" West, 110.00 feet along said right-of-way line
to the Place of Beginning and containing 3.398 acres of land.
SUBJECT TO an undivided 1/2 royalty (being equal to not less than an undivided
1/16) of all the oil, gas and other minerals as fully described in that deed
from Robert E. Lucey, Roman Catholic Archbishop of San Antonio, to Frisch Aufi
Inc., dated February 25, 1965, recorded in Volume 369, Pages 468-474, Deed
Records of Fayette County, Texas.
SUBJECT TO that general utility easement reserved to Frisch Aufi Inc. in its
deed to Richard G. Cernosek, January 31, 1969, recorded in Volume 407, Page 170,
Deed Records of Fayette County, Texas.
SUBJECT TO building restrictions as shown in deed from Frisch Aufi Inc. to
Richard G. Cernosek, dated January 31, 1969, recorded in Volume 407, Page 170,
Deed Records of Fayette County, Texas.
SUBJECT TO that reservation unto Bill D. Nolen, D.O., et ux, of an undivided
one-half (1/2) of the oil, gas and minerals, and an undivided one-half (1/2) of
the royalties payable thereon, as more fully set forth in that deed from Bill D.
Nolen, D.O., et ux, to Oak Manor, Inc., dated February 25, 1986, as recorded in
Volume 713, Page 594, of the Deed Records of Fayette County, Texas.
<PAGE>
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
That HOBBS & CURRY FAMILY LIMITED PARTNERSHIP, for and in consideration of
Ten Dollars (10.00) and other good and valuable consideration to it in hand paid
by SUMMIT CARE TEXAS, L.P., the receipt of which is hereby acknowledged, does
hereby bargain, sell, convey, assign, transfer and deliver unto SUMMIT CARE
CORPORATION, its successors and assigns, all the furniture, furnishings,
fixtures, and equipment located in, on or about the premises of the nursing
home, known as Monument Hill Nursing Center, located at 100 Spur & 100 Spur 92,
LaGrange, Fayette County, Texas.
TO HAVE AND TO HOLD the said goods unto the said SUMMIT CARE CORPORATION,
its successors and assigns to its use forever.
AND HOBBS & CURRY FAMILY LIMITED PARTNERSHIP, hereby covenants with the
grantee that it is the lawful owner of the said goods and chattels; that they
are free from all encumbrances; that it has the right to sell the same as
aforesaid; that it will warrant and defend the same against the lawful claims
and demands of all persons.
IN WITNESS WHEREOF, the undersigned has executed this Bill of Sale
this 11/th/ day of September, 1997.
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
/s/ C. David Curry
----------------------------------------
C. David Curry, General Partner
<PAGE>
NON-FOREIGN AFFIDAVIT
BEFORE ME, the undersigned, came in person, C. David Curry, Managing
General Partner of Hobbs & Curry Family Limited Partnership, an Arkansas limited
partnership (the "Seller"), who on oath and under penalty of perjury affirms and
says that:
The Seller is the owner of a fee simple interest in the property described
on Exhibit "A" attached hereto and by this reference made a part hereof; and
The Seller's taxpayer identification number (federal employer
identification number) is 71-0765774; and
Neither the Seller nor any of its officers is a foreign corporation,
foreign partnership, foreign trust, or foreign estate (as those terms are
defined in the Internal Revenue Code of the regulations promulgated thereunder);
and
The principal place of business of the Seller is 200 North Greenwood
Avenue, P.O. Box 126, Fort Smith, Arkansas 72902, and
That the undersigned is fully authorized and qualified to make this
Affidavit on behalf of the Seller; and
That the undersigned understands that this affidavit may be disclosed to
the Internal Revenue Service and that any false statement made herein is subject
to punishment by fine, imprisonment, or both.
Executed as of this 11/th/ day of September, 1997.
/s/ C. David Curry,
----------------------------------------
C. David Curry, Managing General Partner
Hobbs & Curry Family Limited Partnership
Sworn to and subscribed before me this 11th day of September, 1997.
/s/ Shirley A. Wolfe
--------------------------------
Notary Public
My Commission Expires: November 1, 2000
<PAGE>
MANAGING GENERAL PARTNER'S CERTIFICATE
The undersigned, as Managing General Partner of Hobbs & Curry Family
Limited Partnership (the "Partnership"), does hereby certify that attached
hereto is a true and correct copy of the Unanimous Written Consent Action of the
General Partners of Hobbs & Curry Family Limited Partnership adopted by the
General Partners of the Partnership as of June 23,1997.
/s/ C. David Curry
-------------------------------------------
C. David Curry
Managing General Partner,
Hobbs & Curry Family Limited Partnership
Dated: September 11, 1997
<PAGE>
CERTIFICATE OF AUTHORITY
OF
GENERAL PARTNERS
OF
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
The undersigned, being all of the general partners of HOBBS & CURRY FAMILY
LIMITED PARTNERSHIP, an Arkansas Limited partnership, hereby certify the
following:
THAT Hobbs & Curry Family Limited Partnership is an Arkansas Limited
partnership, registered as a foreign limited partnership in the State of Texas;
THAT the specific purposes of the Partnership is the buying, selling,
owning, operating, managing, leasing, and investing and reinvesting in, real and
personal property of all kinds and nature, to engage in all activities related
thereto, and to consolidate the ownership and management of Partnership
Properties;
THAT the General Partners, by majority vote, shall have full, exclusive and
complete discretion to manage and control, and shall make all decisions
affecting the Partnership business. The General Partners, by majority vote,
shall have full authority to take any action necessary for the day to day
management of the Partnership;
THAT any action of the General Partners by "majority vote" means a vote of
a majority of the number of General Partners;
THAT Limited Partners do not have the right and are not allowed to take
part in the management or control of the Partnership, or to sign for or to bind
the Partnership, and that such power is vested solely and exclusively in the
General Partners;
THAT C. David Curry has been elected Managing General Partner by majority
vote of the General Partners.
IN WITNESS WHEREOF, the General Partners of the Partnership have executed
this Certificate of Authority as of the 11/th/ day of September 1997.
GENERAL PARTNERS:
/s/ C. David Curry
-----------------------------------
C. David Curry
/s/ Janice H. Powell
-----------------------------------
Janice H. Powell
/s/ Cheryl Lynn Curry Weidman
-----------------------------------
Cheryl Lynn Curry Weidman
<PAGE>
UNANIMOUS WRITTEN CONSENT ACTION
OF THE GENERAL PARTNERS
OF
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
The undersigned, being all of the general partners of HOBBS & CURRY FAMILY
LIMITED PARTNERSHIP, an Arkansas Limited partnership (the "Partnership"), hereby
consent to and take the following actions and adopt the following resolutions on
behalf of the Partnership pursuant to the terms of the Partnership Agreement:
WHEREAS, the general Partners of the Partnership have agreed to sell all of
its right, title and interest in and to that certain real estate located at 100
Spur & 100 Spur 92, LaGrange, Fayette County, Texas, known as Monument Hill
Nursing Center, (the "Property"), to Summit Care Corporation, pursuant to the
terms of that General Warranty Deed and Bill of Sale, and various other
documents, copies of each of which have been provided to each of the general
partners and
WHEREAS, the General Partners of the Partnership will accept the purchase
price of $1,871,170.20 as set forth in the Option Agreement dated October 20,
1986, as amended, August 1, 1988, which purchase price shall be paid in cash at
the closing of the sale of the Property.
NOW, THEREFORE, BE IT RESOLVED, that the agreements and transactions set
forth above and any and all documents, exhibits and transactions contemplated
thereby, having been read, are hereby approved by the General Partners on behalf
of the Partnership and adopted and C. David Curry, as Managing General Partner
of the Partnership, is hereby authorized and directed to execute and deliver
such agreements, and the other General Partners are each hereby authorized to
attest (if necessary) Mr. Curry's signature on such agreements, including, but
not limited to that certain Warranty Deed and any other documents related to the
sale of the Property, in the name of and on behalf of the Partnership, subject
to such changes, insertions or omissions as the General Partners executing the
same shall deem necessary or appropriate and to take any and all further actions
and to execute, acknowledge, seal and file any and all instruments and documents
deemed necessary or proper in connection therewith to effect the transactions or
changes contemplated thereby;
FURTHER RESOLVED, that Mr. Curry, and if necessary, the other General
Partners of the Partnership are hereby authorized to take such further actions
as are deemed necessary or appropriate by any of them to carry out the terms of
the foregoing resolutions, including, without limitation, the execution of such
other instruments and documents that such General Partners deem necessary or
appropriate, all upon such terms and conditions as such General Partners deem
1
<PAGE>
necessary or appropriate; and
FURTHER RESOLVED, that the Managing General Partner of the Partnership is
hereby directed to file a copy of this Written Consent Action with the minutes
of the proceedings of the Partnership.
This Written Consent Action may be executed in counterparts, each of which
shall constitute an original and all of which together shall constitute one and
the same Written Consent Action.
IN WITNESS WHEREOF, the General Partners of the Partnership have executed
this Written Consent Action as of the 11/th/ day of September, 1997.
GENERAL PARTNERS:
/s/ C. David Curry
-----------------------------------
C. David Curry
/s/ Janice H. Powell
-----------------------------------
Janice H. Powell
/s/ Cheryl Lynn Curry Weidman
-----------------------------------
Cheryl Lynn Curry Weidman
2
<PAGE>
ASSIGNMENT OF LEASE
-------------------
AND
---
OPTION AGREEMENT
----------------
This Assignment of Lease and Option Agreement is entered into as of the
first day of September, 1997, by and between Summit Care Corporation, a
California corporation ("SCC") and Summit Care Texas, L.P., a Texas limited
partnership ("SCTLP"), with respect to the following facts:
RECITALS
--------
1. SCC is the lessee of Monument Hill Nursing Center, in La Grange, Texas,
more particularly described on Exhibit "A" hereto (the "Property"), pursuant to
a Consent to Assignment of Leasehold Estate, dated August 15, 1994, recorded in
Volume 906, Page 645, Deed Records of Fayette County, Texas, whereby SCC assumed
the rights and obligations under that certain Lease Agreement for the Property,
dated October 20, 1986, ("Lease").
2. Pursuant to that certain Assignment of Lease with Option to Purchase
dated September 30, 1994, recorded in Volume 906, Page 628, Deed Records of
Fayette County, Texas, SCC has also succeeded to the rights and title of the
"Optionee" under that certain Option Agreement for the Property, dated October
20, 1986 ("Option").
AGREEMENT
---------
1. SCC hereby assigns all of its right, title and interest in and to the
Lease and the Option to SCTLP.
1
<PAGE>
2. SCTLP hereby agrees to assume and perform all of the terms, covenants
and conditions of the Lease and the Option, each as originally written
and amended.
3. Hobbs & Curry Family Limited Partnership, as successor-in-interest to
Lloyd Hobbs, hereby consents to the assignment of the Lease and
Options to the Property to SCTLP.
WITNESS OUR HANDS this 11/th/ (__) day of September, 1997.
SUMMIT CARE CORPORATION
By: /s/ David G. Schumacher, Jr.
------------------------------------
David G. Schumacher, Jr.
President
SUMMIT CARE TEXAS, L.P.,
a Texas Limited Partnership
By: SUMMIT CARE TEXAS
MANAGEMENT, INC.,
a Texas Corporation and
Sole General Partner
By: /s/ John Farber
------------------------------------
John Farber
Vice President and Secretary
HOBBS & CURRY FAMILY LIMITED PARTNERSHIP
a Texas Limited Partnership
By: /s/ C. David Curry
------------------------------------
2
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On this the eleventh (11/th/) day of September, 1997, before me the
undersigned officer, personally appeared David G. Schumacher, Jr., who
acknowledged himself to be the President of Summit Care Corporation, and that
he, as such President, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
partnership, by himself as President.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Doris A. Spieker
------------------------------------
Notary Public
My Commission Expires:
5-17-99 [STAMP APPEARS HERE]
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On this the eighth (8/th/) day of September, 1997, before me the
undersigned officer, personally appeared John Farber, who acknowledged himself
to be the Vice-President and Secretary of Summit Care Texas Management, Inc., a
Texas Corporation and Sole General Partner, and that he, as such Vice-President
and Secretary, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the partnership by
himself as Vice-President and Secretary.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Doris A. Spieker
-----------------------------------
Notary Public
My Commission Expires:
5-17-99 [STAMP APPEARS HERE]
3
<PAGE>
STATE OF ARKANSAS
COUNTY OF SEBASTIAN
On this the Eleventh (11/th) day of September, 1997, before me undersigned
officer, personally appeared ____________________, who acknowledged himself to
be the General Partner of Hobbs & Curry Family Limited Partnership, that he, as
such General Partner, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
partnership by himself as General Partner.
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Shirley A. Wolfe
----------------------------------
Notary Public
My Commission Expires:
November 1, 2000
- --------------------------
4
<PAGE>
TAX CERTIFICATE
This certificate issued by FAYETTE COUNTY APPRAISAL DISTRICT
or the taxing entities: FAYETTE COUNTY (GFA)
ROAD & BRIDGE FUND (RFM)
LA GRANGE ISD (SLG)
Through 96 Tax Year FAYETTE COUNTY WCID (WMH)
- --------------------------------------------------------------------------------
Property ID: R47408 Owner ID: 53627
Account Num: 40-0015-0631000-011 HOBBS & CURRY FAMILY LIMITED
??????? AUF ACRES, ACRES 3.398, COMM - PARTNERSHIP
MONUMENT HILL NURSING CENTER P 0 BOX 126
FORT SMITH, AR 72902
- --------------------------------------------------------------------------------
This document is to certify that after a careful check of the tax records of
this office, the following current or delinquent taxes, penalties, and interest
are due on the property for the taxing entities described above:
??tity Year Statement Tax Due Disc./P&I Att. Fee Total Due
-----------
Total Due on All Bills if Paid Before 10/01/97: $0.00
GFA Taxes Paid for 1996: $1,615.33
RFM Taxes Paid for 1996: $1,410.00
SLG Taxes Paid for 1996: $17,546.96
WMH Taxes Paid for 1996: $7,650.72
*** End of Tax Certificate ***
- --------------------------------------------------------------------------------
If applicable, the above described property is receiving special valuation based
on its use. Additional rollback taxes which may become due based on the
provisions of the special valuation are not indicated in this document.
This certificate does not clear abuse of granted exemptions as defined in
Section 11.43, Paragraph (i) of the Texas Property Tax Code.
- --------------------------------------------------------------------------------
/s/Barbara Genzer RTA Date of Issue: 09/03/97
- ----------------------------------
Signature of Authorized Officer of
Tax Office
Requested by BOTTS TITLE COMPANY
?? fee collected.
Page 1
<PAGE>
BUYERS ACCEPTANCE AND AFFIDAVIT
LEGAL DESCRIPTION:
3.398 acres of land situated in the David Berry League, A-15 Fayette
County, Texas.
Before me, the undersigned authority, personally appeared:
SUMMIT CARE TEXAS, L.P., A TEXAS LIMITED PARTNERSHIP
Being the person(s) who subscribed hereto, under oath, deposes and states:
THAT, undersigned acknowledges and certifies that, prior to final closing
and disbursement of funds, the undersigned has been notified of and furnished
with the following:
(XXX) Copy of Commitment for Title Insurance dated 08/15/97;
(XXX) Copy of instruments containing restrictions, if any;
(XXX) Copy of recorded easements, if any;
(XXX) Copy of additional exceptions to title, if any.
THAT, in consideration of the issuance of an Owner's Policy of Title
Insurance, as currently promulgated by the Texas Department of Insurance to the
undersigned, issued in the amount of $150,000.00 and insuring the title to the
property described in the attached Commitment for Title Insurance the
undersigned acknowledges that said title policy will be subject to the standard
printed terms, conditions and stipulations and the exceptions as stated in said
Commitment for Title Insurance.
SURVEY
( ) THAT, the undersigned acknowledges receipt of a copy of the survey of the
property dated prepared by and accepts same subject to any
encroachments and/or protrusions shown thereon and hereby agrees to save and
hold harmless AMERICAN TITLE COMPANY OF HOUSTON, its underwriter and the Lender,
from any and all costs, damages and expenses in any way arising from the
existence of any encroachments, protrusions, easements, limitations and/or
conditions, and does hereby release AMERICAN TITLE COMPANY OF HOUSTON, its
underwriter and the Lender from any liabilities arising in any manner therefrom,
including but not limited to, court costs and attorneys fees.
(XX) THAT, the undersigned acknowledges that NO survey of the subject property
was furnished in this transaction and the undersigned accepts\02
RIGHTS OF PARTIES IN POSSESSION WAIVER
THAT, the undersigned waives an inspection of the subject property by
AMERICAN TITLE COMPANY OF HOUSTON, its agents and/or employees, and accepts the
Owner Policy of Title Insurance SUBJECT TO RIGHTS OF PARTIES IN POSSESSION; and
undersigned has inspected the subject property and has made satisfactory
arrangements to obtain possession.
ACCEPTANCE OF PROPERTY
THAT, the undersigned has inspected said property personally and/or through
professionals which the undersigned has selected. The results of the inspections
are satisfactory and the undersigned accepts the property in its "AS IS"
condition. All repairs required to be made under the terms
<PAGE>
of the Earnest Money Contract have been satisfactorily completed.
THAT, the undersigned acknowledges that the Real Estate Agents and/or
Brokers, Lenders, and AMERICAN TITLE COMPANY OF HOUSTON, and its underwriter
have not made any warranties or representations as to the condition of the
subject property, and accordingly, the undersigned releases and holds them
harmless from and all liability in regard to the same.
Notwithstanding anything to the contrary contained in the Earnest Money
Contract, Buyer hereby specifically waives any right to object to matters
disclosed in the title commitment, survey plat, and any other matter to which
Buyer may have a right to object as provided in the Earnest Money Contract
applicable to this transaction.
/s/ John Farber
- ------------------------------------ ------------------------------------
SUMMIT CARE TEXAS, L.P., A TEXAS
LIMITED PARTNERSHIP
BY: John Farber, Secretary
-------------------------------
- ------------------------------------ ------------------------------------
SWORN AND SUBSCRIBED BEFORE ME ON THIS 15th DAY OF SEPTEMBER, l997, BY SUMMIT
CARE TEXAS, L.P., A TEXAS LIMITED PARTNERSHIP BY John Farber, its Secretary
/s/ Doris A. Spieker
----------------------------------------
NOTARY PUBLIC, STATE OF CALIFORNIA
[LOGO] DORIS A. SPIEKER
----------------------------------------
NOTARY'S PRINTED NAME
COMMISSION EXPIRES: 5/17/99
17
<PAGE>
AGREEMENT ON ADJUSTMENTS OF PRORATIONS
AND PAYOFFS, AND
DISBURSEMENT AUTHORIZATION STATEMENT
BUYER AND SELLER OR BORROWER HEREBY ACKNOWLEDGE THAT THE INFORMATION USED TO
PREPARE THE CLOSING STATEMENT IN THIS TRANSACTION WAS ASSEMBLED BY AMERICAN
TITLE COMPANY OF HOUSTON FROM THIRD PARTY SOURCE OR ARE ESTIMATES BASED ON THE
BEST INFORMATION AVAILABLE. AMERICAN TITLE COMPANY OF HOUSTON DOES NOT MAKE ANY
REPRESENTATIONS AND HAS NO RESPONSIBILITY OR LIABILITY CONCERNING THE ACCURACY
OR COMPLETENESS OF THIS INFORMATION.
BUYER AND SELLER OR BORROWER UNDERSTAND AND ACKNOWLEDGE THAT TAX AND INSURANCE
PRORATIONS AND RESERVES ARE BASED ON ESTIMATED FIGURES. IN THE EVENT THE
ESTIMATED FIGURES USED FOR ANY CALCULATION PROVES TO HAVE BEEN INACCURATE, BUYER
AND SELLER AGREE THAT AMERICAN TITLE COMPANY OF HOUSTON HAS NO LIABILITY OR
OBLIGATION TO CORRECT ANY DISCREPANCIES THAT MAY RESULT. FURTHER BUYER AND
SELLER AGREE THAT THE RESOLUTION OF ANY DISCREPANCIES MUST BE SETTLED DIRECTLY
BETWEEN THEMSELVES.
SELLER OR BORROWER ACKNOWLEDGE THAT LOAN PAYOFF INFORMATION WAS SUPPLIED BY THE
NOTE HOLDER. IN THE EVENT THE AMOUNT OF SUCH PAYOFF FURNISHED TO AMERICAN TITLE
COMPANY OF HOUSTON IS INCORRECT OR INCORRECTLY CALCULATED, SELLER OR BORROWER
AGREE TO PAY SUCH LOAN IN FULL WITHIN 24 HOURS AFTER BEING ADVISED OF THE
REQUIRED AMOUNT BY AMERICAN TITLE COMPANY OF HOUSTON OR THE HOLDER OF THE NOTE.
BUYER AGREES THAT ANY ADJUSTMENTS IN THE AMOUNT OF TAXES PAID BY BUYER TO
BUYER'S LENDER, OR HELD IN ESCROW BY BUYER'S LENDER FOR PAYMENTS OF TAXES WILL
BE ADJUSTED BETWEEN BUYER AND SAID LENDER. SELLER AND AMERICAN TITLE COMPANY OF
HOUSTON HAVE NO LIABILITY OR RESPONSIBILITY THEREOF.
BUYER AGREES THAT THE OWNERS TITLE POLICY WILL CONTAIN AN EXCEPTION TO TAXES DUE
TO "SUBSEQUENT ASSESSMENTS FOR THE PRIOR YEARS DUE TO CHANGE IN LAND USAGE OR
OWNERSHIP". IN THE EVENT THAT SOME OR ALL OF THE PROPERTY IS CURRENTLY SUBJECT
TO REDUCED TAXATION DUE TO DESIGNATION AS "OPEN SPACE OR "AGRICULTURAL USE", OR
IS CURRENTLY EXEMPT FROM TAXATION, AND SAID PROPERTY IS SUBSEQUENTLY ASSESSED
FOR ROLL-BACK TAXES BECAUSE OF CHANGE IN LAND USE OR OWNERSHIP OF THE PROPERTY,
BUYER AND SELLER AGREE THAT THEY WILL PAY ALL ROLLBACK TAXES ASSESSED AGAINST
THE PROPERTY, FOR ALL PERIODS TO THE DATE HEREOF. THE BUYER AND SELLER WILL
AGREE AMONG THEMSELVES REGARDING THEIR RESPECTIVE OBLIGATIONS AND AMERICAN TITLE
COMPANY OF HOUSTON SHALL HAVE NO RESPONSIBILITY FOR RESOLUTION OF THEIR
RESPECTIVE RIGHTS OR FOR PAYMENT OF THE ROLL-BACK TAXES.
BUYER AND SELLER OR BORROWER AGREE THAT IN THE EVENT THAT THE AMOUNT OF
ESTIMATED TAXES FURNISHED TO THE TITLE COMPANY IS INACCURATE, THEY JOINTLY AND
SEVERALLY AGREE TO PAY TO AMERICAN TITLE COMPANY OF HOUSTON OR THE APPROPRIATE
TAXING AUTHORITIES THE AMOUNT REQUIRED TO PAY SUCH TAXES IN FULL, INCLUDING ALL
PENALTY AND INTEREST WITHIN 10 DAYS OF BEING ADVISED OF SUCH REQUIRED AMOUNTS.
BUYER AND SELLER OR BORROWER AGREE TO INDEMNIFY AMERICAN TITLE COMPANY OF
HOUSTON FOR ALL COSTS RESULTING FROM UNPAID TAXES, INCLUDING COURT COSTS AND
ATTORNEY'S FEES AND ALL EXPENSES RELATED THERETO.
BUYER AND SELLER OR BORROWER HEREBY AUTHORIZE AMERICAN TITLE COMPANY OF HOUSTON
TO MAKE EXPENDITURES AND DISBURSEMENTS AS SHOWN ON THE CLOSING STATEMENT AND
APPROVES THE SAME FOR PAYMENT. THE BUYER ALSO ACKNOWLEDGES THE RECEIPT OF LOAN
FUNDS, IF APPLICABLE, IN AN AMOUNT SHOWN ON THE CLOSING STATEMENT.
<PAGE>
AMERICAN TITLE COMPANY OF HOUSTON MAY SUPPLY A COPY OF THIS STATEMENT TO ANY
REAL ESTATE AGENT OR LENDER INVOLVED IN THIS TRANSACTION, AND BUYER AND SELLER,
ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT.
THE PROVISIONS HEREOF SHALL SURVIVE THE CLOSING AND FUNDING OF THE TRANSACTION
REFERRED TO HEREIN AND SHALL NOT BE MERGED THEREIN, SHALL BE BINDING UPON THE
UNDERSIGNED, THEIR SUCCESSORS AND ASSIGNS, AND SHALL INSURE TO THE BENEFIT OF
THE NAMED PARTIES, THEIR SUCCESSORS AND ASSIGNS.
EXECUTED ON THE 11th DAY OF SEPTEMBER, 1997.
SELLER: PURCHASER:
/s/ C. David Curry /s/ John Farber
- ----------------------------- -------------------------------------
HOBBS & CURRY FAMILY SUMMIT CARE TEXAS, L.P., A TEXAS
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
- -------------------------- -------------------------------------
<PAGE>
OPTION AGREEMENT
----------------
For and in consideration of the sum of ten dollars cash in hand paid,
receipt of which is hereby acknowledged and for other good and valuable
considerations, LLOYD HOBBS, hereinafter called "Grantor", does hereby give and
grant unto Robert Crone/South Texas Healthcare, Inc., 214 North 40th, McAllen,
TX 78501, together with all improvements now or hereafter constructed upon the
same, and including all personal property shown upon Exhibit "B" attached
hereto, and in addition, any renewals, substitutions, replacements or additions
thereto, which may be on the premises and belonging to Grantor at the time of
the exercise of this Option,
To-Wit:
Legal description attached hereto as exhibit "A".
1. This Option may be exercised by Grantees at any time after one hundred
Twenty (120) payments have been paid, provided all lease payments are current,
conditioned upon the Grantees, their successors or assigns being in possession
of the home at the time of exercise and upon the express condition and
understanding that the Grantees herein have fully performed all of the terms and
conditions contained in that certain Lease Agreement dated the 12th day of
August, 1992, to be kept and performed by the Lessees therein and more
particularly are current in the payment of all sums due under the terms of said
Lease Agreement. If at any time, the above Lease shall be terminated, this
Option will immediately become null and void. This Option may be exercised by
means of Grantee giving written notice by certified mail, return receipt
requested, of such election to Lessor, Lloyd Hobbs, Box 126, Fort Smith, AR
72902 or at such other place as may be directed in writing, accompanied by
$10,000.00 earnest money deposit. The earnest money deposit will be applied on
the purchase price if purchase is concluded.
2. The price for the assets to be sold shall be Two Million Four Hundred
Thousand Dollars ($2,400,000.00). The purchase price is payable in cash unless a
financing arrangement is worked out at the time of purchase with Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of beginning of this Lease, and such as may thereafter
be placed upon the
1
<PAGE>
premises by way of substitution for or addition to such furniture, furnishings,
fixtures and equipment, less any furniture and equipment removed for replacement
during the Lease term by Lessor or Lessee.
3. Upon receipt of notice of intent to exercise this Option, Grantor shall
promptly furnish to Grantees, a Warranty Deed, subject only to recorded
easements, rights-of-way, mineral interests and etc. Recorded easements and
restrictions shall not be deemed to impair title.
4. Closing shall be at a time and place mutually agreeable. In the absence
of agreement, Grantor may obligate Grantees to perform by giving written notice
that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. If purchase price
is not tendered or other arrangements made within the ten-day period, the option
will be null and void and the $10,000.00 earnest money deposit will be
considered liquidated damages and the Lease will continue in force, except no
option will be in force and effect. Grantees shall designate some place in Fort
Smith, Arkansas at which they will appear prepared to perform, and Grantor shall
have ten (10) business days after receipt of such demand in which to execute and
deliver the documents required by this Option. If Grantor fails, neglects or
refuses to perform, Grantees shall have the right to seek specific performance
of this Option.
5. This Option may not be assigned by Grantees without the written consent
of the Grantor, which consent will not be unreasonably withheld.
Notices required or permitted by this Option may be given to Grantor by
certified mail, return receipt requested, addressed to Lloyd Hobbs, P.O. Box
126, Fort Smith, Arkansas 72902 and to Grantees by certified mail, return
receipt requested, to Robert Crone/South Texas Healthcare, Inc., 213 North 40th
McAllen, TX 78501. Either party may change the person to whom or the place to
which notice is to be given by written request.
This Agreement shall be binding upon the heirs, legal representatives,
successors and assigns Of the parties hereto
2
<PAGE>
Dated this 12th day of August, 1992.
/s/ Lloyd Hobbs
---------------------------------
Lloyd Hobbs, Grantor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ Robert Crone
---------------------------------
Robert Crone, President - Grantee
3
<PAGE>
Certified Copy
Botts Title Co.
Monument Hill /s/ Kim Sella
- ------------- By ------------------------
FA 94-024
AMERICAN TITLE COMPANY
OF 307857.R
--------
CLOSER UK 280
------
94- 8198
ASSIGNMENT OF LEASE WITH OPTION TO PURCHASE
-------------------------------------------
This Agreement is made this 30th day of September, 1994, by and between
LEONARD MAY and CATHERINE MAY, hereinafter called "Assignor", and Summit Care
Corporation, hereinafter called "Assignee".
Recitals
A. LLOYD HOBBS, as Lessor, and LESLIE J. GREIVE and DELORES GREIVE as
Lessee, executed a lease (the "Lease") on October 20, 1986, which lease was
assigned to LEONARD MAY and CATHERINE MAY by Assignment dated September 1, 1988.
By the terms of the Lease and Assignment, [a copy of which Lease is attached
hereto as Exhibit 1], upon the property therein described ("Property") was
leased to Assignor as Lessee for a term of fifteen (15) years commencing on
September 15, 1987, and ending on September 14, 2002, and an option to purchase
the Property (the "Option to Purchase") on the terms set forth in Option
Agreement [copy of which is attached hereto as Exhibit 2].
B. Assignor now desires to assign the Lease and the Option to Purchase
to Assignee, and Assignee desires to accept the assignment thereof.
THEREFORE, Assignor and Assignee agree as follows:
Assignment
For value received, receipt of which is hereby acknowledged, Assignor
hereby assigns and transfers to Assignee all of its right, title and interest in
and to the Lease and the Option
<PAGE>
to Purchase hereinbefore described, and Assignee hereby agrees to and does
accept the assignment, and Assignee expressly assumes and agrees to keep,
perform, and fulfill all the terms, covenants, conditions, and obligations
required to be kept, performed, and fulfilled by Assignor as Lessee thereunder,
including the making of all payments due to or payable on behalf of Lessor under
said Lease when due and payable.
Executed at Corpus Christi, Texas, on the day and year first above
written.
ASSIGNOR
/s/ Leonard May
-------------------------------------
Leonard May
/s/ Catherine May
-------------------------------------
Catherine May
24
<PAGE>
ASSIGNEE
SUMMIT CARE CORPORATION
By /s/ Derwin L. Williams
-------------------------------------
Derwin L. Williams
-------------------------------------
Its Vice President - Finance
----------------------------------
<PAGE>
VOL. 906 PAGE 631
ACKNOWLEDGEMENT
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994, by
Leonard May.
/s/ Mary Ann Hernandez
[LOGO] -----------------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994, by
Catherine May.
/s/ Mary Ann Hernandez
[LOGO] -----------------------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
*
COUNTY OF NUECES *
This instrument was acknowledged before me on September 30th, 1994, by
DERWIN L. WILLIAMS, VICE PRES FINANCE of Summit Care Corporation, a California
corporation, on behalf of said corporation.
Wanda Keller
[LOGO] -----------------------------------------
Notary Public State of Texas
AFTER RECORDING RETURN TO: FRANK S. OSEN
ATTORNEY AT LAW
9454 WILSHIRE BLVD.
SUITE 800
BEVERLY HILLS, CA
90212-2988
RE: SUMMIT CARE CORP.
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT entered into this 20 day of October, 1986, by and
between LLOYD HOBBS of Dallas, Texas, as LESSOR, and MONUMENT HILL NURSING
CENTER, INC., LESLIE J. and DELORES GREIVE, of Flatonia, Texas as LESSEES,
W-I-T-N-E-S-S-E-T-H:
THAT for and in consideration of the covenants herein contained and the rent
hereby reserved, the Lessor has hereby let and rented to Lessees, and the
Lessees have hired and taken from the Lessor, the following described property,
consisting of one, 112-bed nursing home, commonly known as Monument Hill Nursing
Center of LaGrange, Texas, located on the premises in LaGrange, Texas, more
particularly described in Exhibit "A" attached hereto, including all furniture,
fixtures and equipment located therein, more particularly described in Exhibit
"B" attached hereto, to have and to hold the same for the period of years and
upon the terms and conditions hereinafter stated:
1. The term of this Lease shall be for the period of fifteen (15) years,
commencing Sept 15, 1987 and ending Sept 14, 2002.
2. The rental shall be as follows: When the 112 bed home is completed,
furnished and ready for occupancy, the rental will be 18,174,31 per month,
representing one percent (1%) per month of the total cost to Lessor, including
construction, land, furnishings, all expenses incurred during construction,
legal fees, taxes and insurance, interim interest, etc., incurred before
commencement of the Lease.
The monthly rental will be paid to Lloyd Hobbs at P. O. Box 126, Fort Smith,
Arkansas 72902, or to such other place as may be directed in writing, payable
monthly in advance for the term of the Lease.
27
<PAGE>
3. Lessees agree to pay all taxes, general or special, assessed against
the land, buildings and personal property. An escrow for taxes is required;
therefore, an escrow payment of SIX HUNDRED DOLLARS ($600.00) per month will be
deposited with the Lessor for payment of taxes. This escrow payment will be
adjusted annually, to cover the taxes as levied against the real and personal
property by all taxing authorities, using the previous year as a guide.
4. The Lessees shall be responsible for and pay for, fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least, replacement value. The insurance policy
shall designate Lessor as a named insured and loss payee. If Lessees fail or
neglect to provide this insurance as required, Lessor may obtain same and add
the premium cost to the next lease payment due.
5. In the event of partial destruction of the building and contents (that
is, destruction of less than half, in value of the building and contents) by
fire or other casualty, then the Lessees shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the destruction. Any insurance proceeds, in the event of loss, will be
escrowed with Owner of the building. Owner will pay bills incurred, from
insurance proceeds, to repair damages as presented by repair contractors. If
repairs cost more than insurance proceeds, Lessee will be obligated to pay the
difference from Lessee's own funds. If destruction is 50%, or more, of value,
Lessor shall be entitled to the insurance proceeds and shall at it's option,
restore the premises as above provided or cancel the Lease. In the event of
destruction of 50% or more of value, Lessor shall advise Lessees, within sixty
(60) days following the destruction, of its election in this regard.
6. In the event of a taking of all or of part of the land and buildings as
a result of eminent domain, condemnation or other governmental taking, the
consideration paid therefor shall be paid to the Lessor, and from the date of
payment of such consideration, the rental amount shall abate and be reduced in
proportion to the relation of the amount of the consideration to $1,500,000.00
in value.
28
<PAGE>
7. Lessees shall, as long as this Lease remains in effect, procure and keep
in effect, general public liability insurance against claims for bodily injury
or death occurring upon, in or about the demised premises, and on, in or about
the adjoining streets and passageways, with limits of not less than
$3,000,000.00 any one person or incident. Lessee shall also provide for
malpractice insurance. Lessor shall be a named insured on all policies.
8. Lessees agree that they will at all times, during the term of this Lease
or any extension thereof, indemnify, protect, defend and save harmless, the
Lessor, against any and all claims, costs, charges, liabilities, or expenses
arising from damage or injury, actual or claimed, of whatever kind or character,
to property or persons occurring in or about the demised premises, streets,
sidewalks, passageways, parking lots, and alleys adjacent thereto, and agree to
resist or defend such action or proceedings, and cause the same to be defended
at their expense.
9. The premises shall be used as a licensed nursing home and for no other
purpose without the written consent of Lessor. Lessees agree to maintain the
entire premises, including buildings, drives, parking area, furniture,
furnishings, fixtures, equipment and decoration in good and tenantable repair
and condition. Lessees shall, at their expense, repair or replace items as may
be necessary to comply with this covenant, and such that the premises shall at
all times qualify for and remain, licensed as, at least, an ICF III for 112 bed
nursing home under the laws and regulations of the United States and of the
State of Texas. A reduction in, or loss of, this or equivalent license rating,
in the event license ratings are changed, will be considered a default in this
Lease.
10. Lessees, with the prior written consent of the Lessor, which consent
shall not be unreasonably withheld, shall have the right to make such additions,
alterations, changes and improvements on the demised premises as Lessees shall
deem necessary or desirable; provided that no such addition, alteration, change
or improvement shall be made which will weaken the structural strength of the
building, diminish its utility or value, and all additions,
29
<PAGE>
-4-
alterations, changes and improvements shall be made in a workman-like manner in
full compliance with all building laws and ordinances applicable thereto, and
shall become part thereto upon termination of this Lease. Lessees may erect and
maintain such signs upon the premises as they may desire, and as may be
permitted by laws or ordinances pertaining thereto, but at their sole expense
and responsibility.
11. Lessees shall keep the demised premises in a clean, safe and sanitary
condition, and shall comply with all municipal, county, state and federal laws
and regulations governing the conduct of the activities conducted, suffered or
permitted by the Lessees on the demised premises and the Lessees shall obtain
appropriate permits from all such authorities when required.
12. Lessees shall have the right to sub-lease any or all of the leased
premises, with the prior written consent of Lessor, first obtained, which
consent will not be unreasonably withheld, provided that the Lessees will remain
liable for the performance of the covenants and obligations of this Lease. If
the property is sub-leased, the Lessor will have the right to a reasonable
adjustment in the rent.
13. Lessees, agree to permit Lessor, or it's authorized representative to
enter the demised premises at all reasonable times during usual business hours
for the purpose of inspecting the same, provided that this shall not be
construed to obligate Lessor to notify Lessees of any defect observed therein.
14. Lessees shall not do or suffer anything to be done whereby the demised
premises, or any part thereof, may be encumbered by a mechanic's or similar
lien, and in the event such a lien is filed against the demised premises, or any
part thereof, purporting to be for or on account of any labor done or material
or services furnished in connection with any work in or about the demised
premises, Lessees shall discharge the same of record within ten days after the
date of such claim, or if Lessees desire to contest the validity or amount of
such claim, they may do so provided that they first post security acceptable to
Lessor, fully indemnifying Lessor and the premises from any claim, charge, or
demand arising from such claim or expenses incurred in connection therewith.
<PAGE>
-5-
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessees:
a. The Lessees shall fail or neglect to pay the rentals when due, or
to pay any other sums of money which they are required by this Lease to pay, and
such non-payment shall continue on the tenth day after written notice of the
same has been posted to Lessees. In the event of default of this Lease, Lessee's
will forfeit any rights, or ownership of contracts and ownership of Certificate
of Need at this location, with the State of Texas or the United States
Government, to Lessor.
b. The Lessees shall fail, refuse or neglect to perform or observe any
other covenant required of them herein, and such non-performance or non-
observance shall continue on the thirtieth (30th) day (unless a later date be
stated in the notice) after written notice of the same has been posted to the
Lessees.
c. This Lease, or the premises itself, or any property of the Lessees
is levied upon by process of law, and such levy be not completely discharged, or
secured to the satisfaction of the Lessor, within fifteen (15) days after
service of the process.
d. Lessees become involved in financial difficulties as evidenced by
(1) an admission in writing of their inability to pay their debts generally as
they become due, (2) becoming petitioner in any voluntary debtor or bankruptcy
proceedings, whether asking arrangement, composition, reorganization,
liquidation or other relief, suspension or modification of their obligations
(3) becoming a party respondent to any involuntary proceeding the purpose of
which is to subject the assets of the Lessees to the control of a court of
creditor's committee (4) making am assignment of all or of a substantial part of
their property for the benefit of their creditors, or (5) seeking, consenting to
or failing to avert the appointment of a receiver or a trustee for all or a
substantial part of their property, or of the demised premises, or of their
interest in this Lease.
16. If an event of default occurs, Lessor shall have the
<PAGE>
-6-
option to:
a. Terminate this Lease by service of written notice of termination, and
Lessees' right to the possession of the premises shall cease upon the date
stated in such notice, without prejudice to Lessors' right to recover all sums
due as of the date possession is surrendered, plus any damage or loss suffered
on or prior to such date, including any expenses such as court costs, attorney's
fees and similar expenses incurred by Lessor in recovering possession, rent,
and/or damages due from Lessees; or
b. Re-enter and take possession of the premises without further demand
or notice, and expel Lessees, or those claiming under it, and remove the effects
of both, or either (forcibly if necessary) without being deemed guilty of any
manner of trespass and without prejudice to Lessor's further rights under this
Lease. In such event, the obligations of the Lessees under this Lease shall
continue, but Lessor may from time to time upon such terms and conditions, and
for such bona fide rental as they may be able reasonably to negotiate, sub-let
the premises for the account of Lessees, and all sums received by Lessor shall
be credited to the account of Lessees, less all reasonable expenses actually
incurred by Lessor, including, but not limited to brokerage fees, advertising
expense, preparation including re-decoration of the premises for sub-letting,
legal expenses, cost of performing such of Lessees' obligations as Lessor finds
it necessary to perform at it's expense, and all other items necessary and
proper to procure suitable tenants for the premises. Lessees shall remain liable
to Lessor for any deficiency between the amounts properly credited to Lessees,
and the amount due Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant to
subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessees are then obligated, Lessor shall have the right forthwith to demand and
recover from Lessees, the present value of the difference between the amount to
be received by Lessor under the new sub-lease, and the amount which would have
been payable by Lessees under this Lease for the
<PAGE>
-7-
remainder of the term hereof, plus the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession pursuant
to subparagraph (b) above, Lessor may at any time thereafter, upon written
notice to Lessees, terminate this Agreement in all respects, and in such event,
Lessees shall have no further liability, obligation or responsibility after the
date of such termination.
e. In order that Lessor may be indulgent when it deems the circumstances
warrant without prejudicing it's right under this Lease, Lessees now expressly
agree that no indulgence or extension, waiver or forgiveness, variation by
practice, nor any neglect or abstention by Lessor in strictly enforcing the
covenants of Lessees on any one or more occasions shall ever be deemed a waiver
of or estoppel against the right of Lessor to insist upon strict compliance with
each and every covenant herein, without any further or special notice or
warning the existence of a covenant in this Lease and the provisions of this
paragraph, being deemed adequate notice of the rights of the Lessor. No property
belonging to the Lessees shall ever be removed from the premises at any time
when there exists any default in the payment of any part of the rent due under
this Lease, nor after notice of default in the performance of any other covenant
or obligation assumed herein by Lessees.
17. Lessees agree to execute any instrument reasonably required by Lessor
reflecting attornment to their prior interest which may be required by Lessor in
connection with mortgaging their interest in the demised premises, and/or
refunding or re-financing in the future of any mortgage which Lessor may place
upon the premises.
18. Upon any termination of this Lease, whether by lapse of time,
cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessees shall surrender immediately, possession of the demised
premises and all buildings and improvements then on the same to Lessor in good
and tenantable repair,
<PAGE>
-8-
reasonable wear and tear and damage from fire or other casualty or peril
excepted. If possession be not immediately surrendered Lessor, with or without
process of Law, may forthwith re-enter said premises and repossess the same, and
expel and remove therefrom, using such force as may be necessary, all persons
and property, without being deemed guilty of any unlawful act and without
prejudice to any other legal remedy available to Lessor.
19. Lessor has the right to assign all or any part of this Lease.
20. It is the intention of the parties that this is to be a net, net, net
Lease.
21. At the time of execution of this Lease, Lessees agree to assign an
undivided one-half interest in the Certificate of Need, issued to
____________________________________________________ , dated
_______________________________ , to the Lessor as part of the consideration for
leasing. Lessees agree that if a default on this Lease occurs, resulting in
foreclosure or assignment, Lessees remaining interest in the Certificate of Need
will be assigned to Lessor immediately and forthwith.
22. This Lease shall be construed and interpreted in accordance with the
laws of the State of Texas.
23. Any notice or demand required or permitted by law or by any of the
provisions of this Lease shall be in writing. All notices or demands by Lessor
to or upon Lessees shall be deemed to have been properly given when sent by
certified mail, addressed to Leslie J. and Delores Greive, Monument Hill Nursing
Center, Inc., P.O. Box 509, Flatonia, Texas 78941, or at such other place as
Lessees may from time to time, designate in a written notice to Lessor; and to
Lessor by Lessees, addressed to Lloyd Hobbs, P.O. Box 126, Fort Smith,
Arkansas 72902, or at such other place as Lessor may from time to time,
designate in a written notice to Lessees.
24. This Lease and all provisions herein shall be binding upon and inure to
the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
<PAGE>
-9-
25. Time is of the essence in this Lease.
IN WITNESS WHEREOF the parties have caused this instrument to be properly
executed the day and year first above written.
/s/ Lloyd Hobbs
----------------------------------
Lloyd Hobbs - Lessor
MONUMENT HILL NURSING CENTER, INC.
/s/ Leslie J. Greive
----------------------------------
Leslie J. Greive, President
Lessee
ATTEST:
/s/ Dolores Grieve
- ----------------------------------
Dolores Greive - Secretary
/s/ Leslie J. Greive
----------------------------------
Leslie J. Greive
/s/ Dolores Greive
----------------------------------
Dolores Greive
<PAGE>
-10-
ACKNOWLEDGEMENT
---------------
STATE OF ______________
COUNTY OF _________________
On this the ________ day of ___________________ , 1986, before me the
undersigned officer, personally appeared Lloyd Hobbs, known to me to be the
person whose name is subscribed to the within instrument and acknowledged that
he executed the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
________________________________________
Notary Public
My Commission Expires:
________________________________
STATE OF TEXAS
COUNTY OF FAYETTE
On this, the 17th day of October, 1986, before me the undersigned officer,
personally appeared Leslie J. Greive, who acknowledged himself to be the
President of Monument Hill Nursing Center, Inc., a corporation, and that he, as
such President, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as President
In Witness Whereof, I hereunto set my hand and official seal.
/s/ Evelyn Pritchard
-----------------------------------
Notary Public
My Commission Expires:
7-21-88
- -----------------------
STATE OF TEXAS
COUNTY OF FAYETTE
On this the 17th day of October 1986, before me the undersigned officer,
personally appeared Leslie J. Greive and Delores Greive, known to me to be the
persons whose names are subscribed to the within instrument and acknowledged
that they executed the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
/s/ Evelyn Pritchard
-----------------------------------
Notary Public
My Commission Expires:
7-21-88
- ----------------------
<PAGE>
Page 1 of 2 pages
EXHIBIT A
All that certain tract or parcel of land containing 3.398 acres situated in the
David Berry League, A-15, in Fayette County, Texas, and being a part of that
tract described as 38.362 acres in a deed from Bill D. Nolen, et ux, to Oak
Manor Inc., dated February 25, 1986, and recorded in Volume 713, Page 594, of
the Deed Records of Fayette Counnty, Texas, said 3.398 acre tract also being
more particularly described by metes and bounds as follows:
BEGINNING at an iron set at the intersection of West right-of-way line of U. S.
Highway 77 and the North right-of-way line of State Spur Highway 92 for the
Southeast corner of the tract herein described, and the Place of Beginning;
THENCE along the North right-of-way line of said Spur 92 with a curve to the
left (Curve Data Radius = 1,472.40 feet; Delta = 15(degrees) 10' 24" left: and
Chord = North 68(degrees) 10' 14" West, 388.79 feet) an arc distance of 389.93
feet to an iron set for the Southwest corner of the tract herein described;
THENCE North 21(degrees) 24' 00" East, departing said right-of-way line, 241.66
feet to an iron set for the most Westerly Northwest corner of the tract herein
described;
THENCE North 69(degrees) 43' 17" East 221.98 feet to an iron set for an angle
point in the North line of the tract herein described;
THENCE South 70(degrees) 16' 00" East, 120.00 feet to an iron set for an angle
point in the North line of the tract herein described;
THENCE South 28(degrees) 17' 52" East, 236.69 feet to an iron set in the West
right-of-way line of U. S. Highway 77 for the Northeast corner of the tract
herein described;
THENCE along said right-of-way line with a curve to the left (Curve Data:
Radius = 518.33 feet; Delta = 07(degrees) 44' 37" left: and Chord = South
29(degrees) 14' 19" West, 70.00 feet) an arc distance of 70.05 feet to an iron
set for the P.T. of said curve:
THENCE South 25(degrees) 22' 00" West, 9.80 feet along said West right-of-way
line to an iron set for an angle point in same;
THENCE South 26(degrees) 12' 00" West, 72.30 feet along said West right-of-way
line to an iron set for another angle point;
THENCE South 55(degrees) 12' 00" West, 110.00 feet along said right-of-way line
to the Place of Beginning and containing 3.398 acres of land.
SUBJECT TO an undivided 1/2 royalty (being equal to not less than an undivided
1/16) of all the oil, gas and other minerals as fully described in that deed
from Robert E. Lucey, Roman Catholic Archbishop of San Antonio, to Frisch Aufi
Inc., dated February 25, 1965, recorded in Volume 369, Pages 468-474, Deed
Records of Fayette County, Texas.
<PAGE>
Page 2 of 2 pages
SUBJECT TO that general utility easement reserved to Frisch Aufi Inc. in its
deed to Richard G. Cernosek, dated January 31, 1969, recorded in Volume 407,
Page 170, Deed Records of Fayette County, Texas.
SUBJECT TO building restrictions as shown in deed from Frisch Aufi Inc. to
Richard G. Cernosek, dated January 31, 1969, recorded in Volume 407, Page 170,
Deed Records of Fayette County, Texas.
SUBJECT TO that reservation unto Bill D. Nolen D.O., et ux, of an undivided one-
half (1/2) of the oil, gas and minerals, and an undivided one-half (1/2) of the
royalties payable thereon, as more fully set forth in that deed from Bill D.
Nolen, D.O., et ux, to Oak Manor, Inc., dated February 25, 1986 as recorded in
Volume 713, Page 594, of the Deed Records of Fayette County, Texas.
<PAGE>
OPTION AGREEMENT
----------------
For and in consideration of the sum of Ten Dollars cash in hand paid,
receipt of which is hereby acknowledged, and for other good on valuable
considerations, LLOYD HOBBS, of Dallas, Texas, hereinafter called "Grantor",
does hereby give and grant unto Monument Hill Nursing Center, Inc, or Leslie and
Dolores Greive of Flatonia, Texas, an option to purchase the following described
real estate, together with all improvements now or hereafter constructed upon
the same, and including all personal property shown upon Exhibit "D" attached
hereto, and in addition, any renewals, substitutions replacements or additions
thereto, which, may be on the premises and belonging to Grantor at the time
of the exercise of this Option, To-Wit:
Legal description attached hereto as Exhibit "A".
All upon the following terms and conditions:
1. This Option may be exercised by Grantees at the end of the 120 month
period after the 112 bed nursing home is complete and occupied and 120 monthly
rental payments have been made of /8/74.31 each, conditioned upon the Grantees,
their successors or assigns being in possession of the home at the time of
exercise, and upon the express condition and understanding that the Grantees
herein have fully performed all of the terms and conditions contained in a
certain Lease Agreement dated the 20th day of October, 1986, to be kept and
performed by the Lessees therein and more particularly, are current in the
payment of all sums due under the terms of said Lease Agreement. If at any time,
the above Lease shall be terminated, this Option will immediately become null
and void. This Option may be exercised by, means of Grantees giving Written
notice by certified mail, return receipt requested, of such election to Lloyd
Hobbs, at P. O. Box 126, Fort Smith, Arkansas 72902, or such other place as may
be directed in writing, accompanied by $10,000.00 earnest money deposit. The
earnest money deposit will be applied on the purchase price if purchase is
concluded.
2. The price for the assets to be sold shall be ____________ 1,817,431?,
being the same as the original cost to
EXHIBIT 2
<PAGE>
-2-
Lloyd Hobbs. The purchase price is payable in cash unless a financing
arrangement is worked out at the time of purchase with Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of execution of this Agreement, and such as may
thereafter be placed upon the premises by way of substitution for or addition to
such furniture, furnishings, fixtures and equipment, less any furniture and
equipment removed or replaced during the Lease term by Lessor or Lessee.
3. Upon receipt of notice of intent to exercise this Option, Grantor shall
promptly furnish to Grantees, a Warranty Deed, subject only to recorded
easements, rights-of-way, mineral interests and etc. Recorded easements and
restrictions shall not be deemed to impair title.
4. Closing shall be at a time and place mutually agreeable. In the absence
of agreement, Grantor may obligate Grantees to perform by giving written notice
that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. Grantees shall
designate some place in Austin or Flatonia, Texas at which they will appear
prepared to perform, and Grantor shall have ten (10) business days after receipt
of such demand in which to execute and deliver the documents required by this
Option. If Grantor fails, neglects or refuses to perform, Grantees shall have
the right to seek specific performance of this Option.
5. This Option may not be assigned by Grantees without the written consent
of the Grantor.
6. Notices required or permitted by this Option may be given to Grantor by
certified mail, return receipt requested, addressed to Lloyd Hobbs at P. O. Box
126, Fort Smith, Arkansas 72902 and to Grantees by certified mail, return
receipt requested to Leslie and Dolores Greive, Monument Hill Nursing Center,
Inc., P. O. Box 509, Flatonia, Texas 78941. Either party may change the person
<PAGE>
-3-
VOL. 906 PAGE 646
to whom or the place to which notice is to be given by written request.
7. This Agreement shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
/s/ Lloyd Hobbs
----------------------------------
Lloyd Hobbs - Grantor
MONUMENT HILL NURSING CENTER, INC.
/s/ Leslie J. Greive
----------------------------------
Leslie J. Greive - President
Grantee
ATTEST:
/s/ Dolores Greive
- --------------------------------
Dolores Greive - Secretary
/s/ Leslie J. Greive
----------------------------------
Leslie J. Greive
/s/ Dolores Greive
----------------------------------
Delores Greive
<PAGE>
EXHIBIT "A"
Legal Description
LaGrange, Texas
All that certain tract or parcel of land containing 3.398 acres situated in the
David Berry League, A-15, in Fayette County, Texas and being a part of that
tract described 38.362 acres in a deed from Bill D. Nolen, et ux, to Oak Manor,
Inc., dated February 25, 1986, and recorded in Volume 713, Page 594, of the Deed
Records of Fayette, county, Texas, said 3.398 acre tract also being more
particularly described by metes and bounds as follows:
BEGINNING at an iron set at the intersection of West right-of-way line of U.S.
6. Highway 77 and the North right-of-way line of State Spur Highway 92 for the
Southeast corner of the tract herein described, and the Place of Beginning;
THENCE along the North right-of-way line of said Spur 92 with a curve to the
left (Curve Data: Radius = 1,472.40 feet: Delta = 15' 10' 24" left, and Chord =
North 68' 10' 14" West, 388.79 feet) an arc distance of 309.93 feet to an iron
set for the Southwest corner of the tract herein described:
THENCE North 21' 24' 00" East, departing said right-of-way line, 241.66 feet
to an iron set for the most Westerly Northwest corner of the tract herein
described,
THENCE North 69' 43' 17'; East, 221.98 feet to an iron set for an angle point
in the North line of the tract herein described;
THENCE South 70' 16' 00" East, 120.00 feet to an iron set for an angle point in
the North line of the tract herein described;
THENCE South 28' 17' 52" East, 236.69 feet to an iron set in the west right-of-
way line of U. S. Highway 77 for the Northeast corner of the tract herein
described;
THENCE along said right-of-way line with a curve to the left (Curve Data
Radius = 518.33. feet(Delta = 07' 44' 37" left, and Chord = South 29' 14' 19"
West, 70.00 feet) an arc distance of 70.05 feet to an iron set for the P.T. of
said curve;
THENCE South 25' 22' 00" West, 9.80 feet along said West right-of-way line to an
iron set for an angle point in same;
THENCE South 26' 12' 00" West, 72.30 feet along said West right-of-way line to
an iron set for another angle point;
THENCE South 55' 12' 00" West, 110.00 feet along said right-of-way line to the
Place of Beginning and containing 3.398 acres of land.
SUBJECT TO an undivided 1/2 royalty (being equal to not less than an undivided
1/16) of all the oil, gas and other minerals as fully described in that deed
from Robert E. Lucey, Roman Catholic Archbishop of San Antonio, to Frisch Aufi
Inc., dated February 25, 1965, recorded in Volume 369, Pages 468-474, Deed
Records of Fayette County, Texas.
<PAGE>
-2-
THENCE along said right-of-way line with a curve to the left (Curve Data Radius
= 510.33 feet, Delta = 07' 44' 37" left; and Chord = South 29' 14' 19" West,
70.00 feet) an arc distance of 70.05, feet to an iron set for the P.T. of said
curve;
THENCE South 25' 22' 00" West, 9.80 feet along said West right-of-way line to an
iron set, for an angle point in same;
THENCE South 26' 12' 00" west, 72.30 feet along said West right-of-way line to
an iron set for another angle point;
THENCE South 55' 12' West, 110.00 test along said right-of-way line to the Place
of Beginning and containing 3.398 acres of land.
SUBJECT TO an undivided 1/2 royalty (being equal to not less than an undivided
1/16) of all the oil, gas and other minerals as fully described in that deed
from Robert E. Lucey, Roman Catholic Archbishop of San Antonio, to Frisch Aufi
Inc., dated February 25, 1965, recorded in Volume 369, Pages 468-474, Deed
Records of Fayette County, Texas.
SUBJECT TO that general utility easement reserved to Frisch Aufi Inc. in its
-----------
deed to Richard G. Cernosek January 31, 1969, recorded in Volume 407, Page 170,
Deed Records of Fayette County, Texas.
SUBJECT TO building restrictions as shown in deed from Frisch Aufi Inc. to
Richard G. Cernosek, dated January 31, 1969, recorded in Volume 407, Page 170,
Deed Records of Fayette Counnty, Texas.
SUBJECT TO that reservation unto Bill D. Nolen, D.O., et ux, of an undivided
one-half (1/2) of the oil, gas and minerals, and an undivided one-half (1/2) of
the royalties Payable thereon, as more fully set forth in that deed from Bill D.
Nolen, D.O., et ux, to Oak Manor Inc. dated February 25, 1986, as recorded in
Volume 713, Pegs 594, of the Deed Records of Fayette County, Texas.
/s/ La Grange
FILED FOR RECORD
At 1.30 O'clock p.m. $49.00 Pd.
The 5th, Day of October, 1994 Hand To: Botts Title Company
IRENE PRATKA
_____________________________
Clerk County Court, Fayette County, Texas
By Susan Cherry Deputy
------------
SUSAN CHERRY
RECORDED THIS THE 11th DAY OF October A.D., 1994 AT 3:15 O'CLOCK P.M.
IRENE PRATKA, COUNTY CLERK BY Anne Beran DEPUTY
----------------------
ANNE BERAN
<PAGE>
EXHIBIT 10.28
1/15/98
COMANCHE TRAIL
LEASE
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT entered into this tenth day of April, 1990, by and
between LLOYD G. HOBBS, of Dallas, Texas, as LESSOR and SELECT CARE ENTERPRISES,
INC., P.O. BOX 202042 Austin, Texas 78720-2047, as LESSEE, WITNESSETH:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessee and Lessee
has hired and taken from the Lessor, the following described property,
consisting of one 120-bed nursing home, commonly known as Scenic Mountain
Nursing Center, Howard County, Big Spring, Texas, more particularly described in
Exhibit "A" attached hereto, including all furniture, fixtures and equipment
located therein, provided and installed by Lessee, more particularly described
in Exhibit "B" attached hereto, to have and to hold the same for the period of
years and upon the terms and conditions hereinafter stated:
1. The term of this Lease shall be for the period of fifteen (15) years,
commencing April 15, 1991 and ending April 14, 2006.
2. The rental shall be $22,000.00 per month for year one, $24,750.00 per
month for years two through fifteen per month, payable in advance on or before
the fifteenth day of each month. If the Lease shall commence on a day other than
the fifteenth day of the month, the rent will be pro-rated for the first month.
The rental payment will be mailed to Lloyd G. Hobbs, P.O. Box 126, Fort Smith,
Arkansas, 72902, or to such other address as may be directed in writing.
3. Lessee agrees to pay all taxes, general or special, assessed against the
land, buildings and personal property, from the time the property is deeded to
Lessor forward. An escrow for taxes is required; therefore, an escrow payment of
Seven hundred fifty dollars ($750) per month will be deposited with the Lessor
for payment of taxes. This escrow payment will be adjusted annually, to cover
the taxes as levied against the real and personal property by all taxing
authorities using the previous year as a guide.
4. The Lessee shall be responsible for and pay for fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least replacement value. The insurance policy
shall designate Lessor and Lessee as named insureds and loss payees, as their
interests may appear. If Lessee fails or neglects to provide this insurance as
required, Lessor may obtain same and add the premium cost to the next lease
payment due.
5. In the event of partial destruction of the building and contents (that
is, destruction of less than half, in value of the building and contents) by
fire or other casualty, then the Lessee shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the des-
<PAGE>
-2-
truction. Any insurance proceeds, in the event of loss, will be escrowed with
Owner of the building. Owner will pay bills incurred, as directed by Lessee,
from insurance proceeds, to repair damages as presented by repair contractors.
If repairs cost more than insurance proceeds, Lessee will be obligated to pay
the difference from Lessee's own funds. If destruction is fifty per cent (50%)
or more, of value, Lessor shall be entitled to the insurance proceeds and shall,
at its option, restore the premises as above provided or cancel the Lease. In
the event of destruction of fifty per cent (50%) or more of value, Lessor shall
advise Lessee, within thirty (30) days following the destruction, of his
election in this regard.
6. In the event of a taking of all or of part of the land and buildings as
a result of eminent domain, condemnation or other governmental taking, the
consideration paid therefor shall be paid to the Lessor, and from the date of
payment of such consideration, the rental amount shall abate and be reduced in
proportion to the relation of the amount of the consideration to $2,200,000 in
value.
7. Lessee shall, as long as this Lease remains in effect, pro-cure and keep
in effect, general public liability insurance against claims for bodily injury
or death occurring upon, in or about the demised premises, and on, in or about
the adjoining streets and passageways, with limits of not less than $3,000,000
any one person or incident. Lessee shall also provide for malpractice
insurance. Lessor shall be a named insured on all policies.
8. Lessee agrees that it will at all times, during the term of this Lease
or any extension thereof, indemnify, protect, defend and save harmless, the
Lessor, against any and all claims, costs, charges, liabilities, or expenses
arising from damage or injury, actual or claimed, of whatever kind or character,
to property or persons occurring in or about the demised premises, streets,
sidewalks, passageways, parking lots, and alleys adjacent thereto, and agree to
resist or defend such action or proceedings, and cause the same to be defended
at its expense.
9. The premises shall be used as a licensed nursing home and for no other
purpose without the written consent of Lessor. Lessee agrees to maintain the
entire premises, including buildings, drives, parking area, furniture, fixtures,
equipment, and decoration in good and tenantable repair and condition. Lessee
shall, at its expense, repair or replace items as may be necessary to comply
with this covenant, and such that the premises shall at all times qualify for
and remain, licensed as, at least an ICF III for a 120-bed nursing home under
the laws and regulations of the United States and the State of Texas. A
reduction in, or loss of, this or equivalent license rating, in the event
license ratings are changed, will be considered a default in this Lease.
10. Lessee, with the prior written consent of the Lessor, which consent
shall not be unreasonably withheld, shall have the right to make such additions,
alterations, changes and improvements on the
<PAGE>
-3-
demised premised as Lessee shall deem necessary or desirable; provided that no
such addition, alteration, change or improvement shall be made which will weaken
the structural strength of the building, dimish its utility or value, and all
additions, alterations, changes and improvements shall be made in a workmanlike
manner in full compliance with all building laws and ordinances applicable
thereto, and shall become part thereto upon termination of this Lease. Lessee
may erect and maintain such signs upon the premises as they may desire, and as
may be permitted by laws or ordinances pertaining thereto, but at its sole
expense and responsibility.
11. Lessee shall keep the demised premises in a clean, safe and sanitary
condition, and shall comply with all municipal, county, state and federal laws
and regulations governing the conduct of the activities conducted, suffered or
permitted by the Lessee on the demised premises and the Lessee shall obtain
appropriate permits from all such authorities required.
12. Lessee shall have the right to sub-lease, or assign, any or all of the
leased premises, with the prior written consent of Lessor, first obtained, which
consent will not be unreasonably withheld, provided that the Lessee will remain
liable for the performance of the covenants and obligations of this Lease.
13. Lessee agrees to permit Lessor, or his authorized representative to
enter the demised premises at all reasonable times during usual business hours
for the purpose of inspecting the same, provided that, this shall not be
construed to obligate Lessor to notify Lessee of any defect observed therein.
14. Lessee shall not do or suffer anything to be done whereby the demised
premises, or any part thereof, may be encumbered by a mechanic's or similar
lien, and in the event such a lien is filed against the demised premises, or any
part thereof, purporting to be for or on account of any labor done or material
or services furnished in connection with any work in or about the demised
premises, Lessee shall discharge the same of record within ten (10) days after
the date of such claim, or if Lessee desires to contest the validity or amount
of such claim, it may do so provided that it first posts security acceptable to
Lessor, fully indemnifying Lessor and the premises from any claim, charge, or
demand arising from such claim or expenses incurred in connection therewith.
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessee:
a. The Lessee shall fail or neglect to pay the rentals when due, or to
pay any other sum of money which they are required by this Lease to pay, and
such non-payment shall continue on the tenth day after written notice of the
same has been posted to Lessee. In the event of default of this Lease, Lessee's
will forfeit any rights, or ownership of contracts and ownership of Certificate
of
<PAGE>
-4-
Need at this location, with the State of Texas or the United States Government,
to Lessor.
b. The Lessee shall fail, refuse or neglect to perform or observe any
other covenant required of them herein, and such non-performance or non-
observance shall continue on the thirtieth (30th) day (unless a later date be
stated in the notice) after written notice of the same has been posted to the
Lessee.
c. This Lease, or the premises itself, or any property of the Lessee is
levied upon by process of law, and such levy be not completely discharged, or
secured to the satisfaction of the Lessor, within fifteen (15) days after
service of the process.
d. Lessee becomes involved in financial difficulties as evidenced by
(1) an admission in writing of their inability to pay their debts generally as
they become due, (2) becoming petitioner in any voluntary debtor or bankruptcy
proceedings, whether asking arrangement, composition, reorganization,
liquidation, or other relief, suspension or modification of their obligations,
(3) becoming a party respondent to any involuntary proceeding the purpose of
which is to subject the assets of the Lessee to the control of a court of
creditor's committee, (4) making an assignment of all or of a substantial part
of their property for the benefit of their creditors, or (5) seeking,
consenting to or failing to avert the appointment of a receiver or a trustee for
all or a substantial part of their property, or of the demised premises, or of
their interest in this Lease.
16. If an event of default occurs, Lessor shall have the option to:
a. Terminate this Lease by service of written notice of termination,
and Lessee's right to the possession of the premises shall cease upon the date
stated in such notice, without prejudice to Lessor's right to recover all sums
due as of the date possession is surrendered, plus any damage or loss suffered
on or prior to such date, including any expenses such as court costs, attorneys'
fees and similar expenses incurred by Lessor in recovering possession, rent
and/or damages due from Lessee; or
b. Re-enter and take possession of the premises without further demand
or notice, and expel Lessee, or those claiming under it, and remove the effects
of both, or either (forcibly if necessary) without being deemed guilty of any
manner of trespass and without prejudice to Lessor's further rights under this
Lease. In such event, the obligations of the Lessee under this Lease shall
continue, but Lessor may from time to time upon such terms and conditions, and
for such bona fide rental as they may be able reasonably to negotiate, sublet
the premises for the account of Lessee, and all sums received by Lessor shall be
credited to the account of Lessee class all reasonable expenses actually
incurred by Lessor, including, but not limited to brokerage fees, advertising
expense, preparation including re-decoration of the premises for sub-letting,
legal expenses, cost of performing
<PAGE>
-5-
such of Lessees' obligations as Lessor finds it necessary to perform at it's
expense, and all other items necessary and proper to procure suitable tenants
for the premises. Lessee shall remain liable to Lessor for any deficiency
between the amounts properly credited to Lessee and the amount due Lessor under
this Lease.
c. If Lessor, after taking possession of the premises pursuant to
subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessee is then obligated, Lessor shall have the right forthwith to demand and
recover from Lessee, the present value of the difference between the amount to
be received by Lessor under the new sub-lease, and the amount which would have
been payable by Lessee under this Lease for the remainder of the term hereof,
plus the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession pursuant
to subparagraph (b) above, Lessor may at any time thereafter, upon written
notice to Lessee, terminate this Agreement in all respects, and in such event,
Lessee shall have no further liability, obligation or responsibility after the
date of such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing it's right under this Lease, Lessee
now expressly agrees that no indulgence or extension, waiver or forgiveness,
variation by practice, nor any neglect or abstention by Lessor in strictly
enforcing the covenants of Lessee on any one or more occasions shall ever be
deemed a waiver of or estoppel against the right of Lessor to insist upon strict
compliance with each and every covenant herein, without any further or special
notice or warning, the existence of a covenant in this Lease and the provisions
of this paragraph, being deemed adequate notice of the rights of the Lessor. No
property belonging to the Lessee shall ever be removed from the premises at any
time when there exists any default in the payment of any part of the rent due
under this Lease, nor after notice of default in the performance of any other
covenant or obligation assumed herein by Lessee.
17. Lessee agrees to execute any instrument reasonably required by Lessor
reflecting attornment to their prior interest which may be required by Lessor
in-connection with mortgaging their interest in the demised premises, and/or
refunding or refinancing in the future of any mortgage which Lessor may place
upon the premises.
18. Upon any termination or expiration of this Lease, whether by lapse of
time, cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessee shall surrender immediately possession of the demised premises
and all buildings and improvements including FP&E, then on the same to Lessor
and enantable repair, reasonable wear and tear and damage from fire or other
casualty or peril excepted. If possession be not immediately surrendered, Lessor
with or without process of Law, may forthwith re-enter said premises and
repossess the same, and expel and remove therefrom, using such force as may be
necessary, all persons and property, without being deemed
<PAGE>
-6-
guilty of any unlawful act and without prejudice to any other legal remedy
available to Lessor.
19. Lessor has the right to assign all or any part of this Lease.
20. Lessee is hereby granted an option to purchase these facilities
including land, improvements, furniture and equipment and reassignment of one-
half interest in the Certificate of Need, ten years after commencement of Lease
and after one hundred twenty (120) rental payments have been made, and before
the Lease expires or is terminated, provided Lessee is not in default on the
Lease. The purchase price will be Two Million Five Hundred Thousand Dollars
($2,500,000), payable in cash at closing, unless a financing arrangement is
worked out. Upon notification to Lessor of exercise of this option, accompanied
by a $10,000 earnest money check, which will be applied to purchase price at
closing, Lessor will provide a title binder for inspection of Lessee, with
policy to follow at closing, showing property free and clear from all liens.
Closing will be within sixty (60) days of receipt of notice of exercise. If
option is exercised, purchaser agrees to accept the title with all easements as
shown on the survey or plat, and mineral rights previously conveyed.
21. A one-half (1/2) interest in the Certificate of Need, first issued to
Lessee, is hereby assigned to Lessor for as long as this Lease is in effect, to
be reassigned to Lessee if Option is exercised.
22. It is the intention of the parties that this is to be a net, net, net
Lease.
23. At the time of the execution of this Lease, Lessee agrees to assign an
undivided one-half interest in the Certificate of Need, to Lessor as part of the
consideration for leasing. Lessee agrees that if a default on this Lease occurs,
resulting in foreclosure or assignment, Lessee's remaining interest in the
Certificate of Need will be assigned to Lessor immediately and forthwith.
24. This Lease shall be construed and interpreted in accordance with the
laws of the state of Texas.
25. Any notice or demand required or permitted by law or by any provisions
of this Lease shall be in writing. All notices or demands by Lessor to or upon
Lessee shall be deemed to have been properly given when sent by Certified
Mail, addressed to Select Care Enterprises, Inc., P.O. Box 202042, Austin,
Texas 78720-2047, or at such other place as Lessee may from time to time
designate in a written notice to Lessor; and to Lessor by Lessee, addressed to
Lloyd G. Hobbs, P.O. Box 126, Fort Smith, Arkansas 72902, or at such other
place as Lessor may from time to time designate in a written notice to Lessee.
26. This Lease and all provisions herein shall be binding upon and inure to
the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
27. Time is of the essence in this Lease.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have caused this instrument to be properly
executed this day and year first above written.
/s/ Lloyd G. Hobbs
-------------------------------------
Lloyd G. Hobbs, Lessor
/s/ Larry J.Voegtle, President
--------------------------------------
Select Care Enterprises, Inc., Lessee
Larry J. Voegtle, President
ATTEST:
/s/ Grady E. Wooldridge
- ------------------------------
Grady E. Wooldridge, Secretary
Performance of this Lease is hereby guaranteed, jointly and severally, by
the following stockholders of the Lessee corporation, being:
/s/ Larry J. Voegtle
- ------------------------
Larry J. Voegtle
/s/ Grady E. Wooldridge
- ------------------------
Grady E. Wooldridge
/s/ Delores J. Milligan
- ------------------------
Delores J. Milligan
<PAGE>
FIRST ADDENDUM TO LEASE
-----------------------
This First Addendum to Lease is made to amend that certain Lease Agreement,
dated the Tenth day of April, 1990, between LLOYD G. HOBBS, of Dallas, Texas As
Lessor, and SELECT CARE ENTERPRISES, INC., of Austin, Texas as Lessee.
Paragraph Two, Page One of this Lease Agreement shall be changed to read as
follows:
"The lease rental shall be $24,135.00 per month, for the first twelve
(12) months, beginning May 15, 1991. Beginning May 15, 1992, the
monthly rental shall increase to $26,885.00 per month for Seventy-two
(72) months. Beginning May 15, 1998, the monthly rental will decrease
to $24,750.00 per month for the balance of the lease term. Rental
payments will be mailed to Lloyd Hobbs, P. O. Box 126, Fort Smith, AR
72902, or to such other address as may be directed in writing."
All other terms of the Lease to remain as originally written. This First
Addendum to Lease executed and attached to the original Lease, dated this 16th
day of May, 1991.
/s/ Lloyd G. Hobbs
------------------------------
Lloyd G. Hobbs - Lessor
SELECT CARE ENTERPRISES, INC.
By: /s/ Larry J. Voegtre
---------------------------
Larry J. Voegtre
President - Lessee
ATTEST:
/s/ [SIGNATURE ILLEGIBLE]
- ----------------------------
Secretary
<PAGE>
ASSIGNMENT AND
--------------
ASSUMPTION OF LEASE
-------------------
This Assignment and Assumption of Lease Agreement ("Assignment") dated as
of the 1st day of September, 1997, is entered into by and between Summit Care
Corporation, a California corporation ("Assignor") and Summit Care Texas, L.P.,
a Texas limited partnership ("Assignee").
RECITALS
--------
WHEREAS, on September 1, 1997, Assignor conveyed all of its assets to
Assignee, in accordance with the terms and conditions of that certain
Conveyance, Contribution and Bill of Sale effective September 1, 1997;
WHEREAS, Assignor is a party to that certain Lease Agreement dated April
10, 1990 by and between Lloyd Hobbs, as lessor, and Select Care Enterprises,
Inc., as lessee, as amended by that certain First Addendum to Lease dated May
16, 1991 between Lloyd Hobbs and Select Care Enterprises, Inc., as assigned by
that certain Assignment of Lease with Option to Purchase dated December 1, 1994
between Select Care Enterprises, Inc., as assignor, and Summit Care Corporation,
as assignee, as consented to by Lloyd Hobbs, as landlord, and evidenced by that
certain Consent to Assignment of Lease dated December 2, 1994, and as further
assigned by Lloyd Hobbs, as landlord, to Hobbs & Curry Family Limited
Partnership ("Lease");
WHEREAS, the parties desire to enter into this Assignment to further
evidence the transfer by Assignor to Assignee and Assignee's assumption of all
rights and obligations of Assignor arising under the Lease; and
WHEREAS, pursuant to and in accordance with Section 12 of the Lease, Hobbs
& Curry Family Limited Partnership, as landlord, has consented to Assignor's
assignment of the Lease to
<PAGE>
Assignee as evidenced by that certain Letter Agreement dated January 3, 1997
from Assignor and signed by Hobbs & Curry Family Limited Partnership on January
15, 1997.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. The recitals set forth above are incorporated herein for all purposes.
2. Assignor does hereby irrevocably transfer and assign to Assignee all of
its rights, interest, liabilities, obligations and duties arising under the
Lease and Assignee hereby assumes and agrees to pay, perform and discharge when
due all of the liabilities, obligations, and duties of Assignor arising under
the Lease.
3. The parties hereby agree to perform, execute and/or deliver or cause to
be performed, executed and/or delivered any and all such further agreements and
assurances as either of the parties hereto may reasonably require to consummate
the transaction contemplated hereunder.
4. All notices to Lessee under the Lease shall be addressed to Assignee at
the following address:
2600 W. Magnolia Boulevard,
P.O. Box 1486
Burbank, California 91505-3130
IN WITNESS WHEREOF, each party has caused this Assignment to be duly
executed and delivered in its name and on its behalf, as of the date first above
written.
2
<PAGE>
SUMMIT CARE CORPORATION,
a California corporation
By: /s/ John Farber
---------------------------------------
Name: JOHN FARBER
-------------------------------------
Title: SECRETARY
------------------------------------
SUMMIT CARE TEXAS, L.P.,
a Texas limited partnership
By: Summit Care Texas Management, Inc.,
its general partner
By: /s/ John Farber
---------------------------------
Name: JOHN FARBER
-------------------------------
Title: SECRETARY
------------------------------
3
<PAGE>
ASSIGNMENT OF LEASE with OPTION TO PURCHASE
and
LESSOR'S CONSENT TO ASSIGNMENT of LEASE
<PAGE>
AGREEMENT OF LEASE WITH OPTION TO PURCHASE
This Agreement is made this 1st day of December, 1994, by and between
SELECT CARE ENTERPRISES, INC., a Texas corporation, hereinafter called
"Assignor", and SUMMIT CARE CORPORATION, hereinafter called "Assignee".
RECITALS
A. LLOYD G. HOBBS, as Lessor, and Assignor as Lessee, executed a
lease ("the Lease") on April 10, 1990 as amended by First Addendum to Lease
dated May 16, 1991. By the terms of the Lease as amended (copies of which
are attached hereto as Exhibit "A"), upon the property therein described
("Property") was leased to Assignor as Lessee for a term of fifteen (15)
years commencing on April 15, 1991 and ending on April 14, 2006, with an
option to purchase the property (the "Option to Purchase") on the terms set
forth in Section 20 of the Lease; and
B. Assignor now desires to assign the Lease and amendment and the
Option to Purchase to Assignee, and Assignee desires to accept the
assignment thereof.
THEREFORE, Assignor and Assignee agree as follows:
ASSIGNMENT
For value received, receipt of which is hereby acknowledged, effective
December 1, 1994 at 12:01 a.m., Assignor hereby assigns and transfers to
Assignee all of its right, title and interest in and to the Lease and First
Addendum thereto and the Option to Purchase hereinbefore described, and
Assignee hereby agrees to and does accept the assignment, and Assignee
expressly assumes and agrees to keep, perform, and fulfill all the terms,
covenants, conditions, and obligations required to be kept, performed, and
fulfilled by Assignor as Lessee thereunder, including the making of all
payments due to or payable on behalf of Lessor under said Lease when due
and payable.
<PAGE>
Executed at Clyde, Texas on the day and year first above written.
ASSIGNOR
SELECT CARE ENTERPRISES, INC.
BY: /s/ Deloris Milligan
------------------------------
Deloris Milligan, President
ASSIGNEE
SUMMIT CARE CORPORATION
BY: /s/ Derwin L. Williams
------------------------------
Derwin L. Williams,
Vice President
THE STATE OF TEXAS S
COUNTY Of CALLAHAN S
This instrument was acknowledged before me on the 6th of December,
1994 by DELORIS MILLIGAN, President of Select Care Enterprises, Inc., a
Texas corporation, on behalf of said corporation.
[STAMP APPEARS HERE] /s/ Leslie Lee
------------------------------------
Notary Public, State of Texas
Name Printed:
Comm. Exp.:
THE STATE 0F CALIFORNIA S
COUNTY OF ORANGE S
This instrument was acknowledged before me on the 2nd day of December,
1994 by DERWIN L. WILLIAMS, Vice President of Summit Care Corporation, a
California corporation, on behalf of said corporation.
[STAMP APPEARS HERE] /s/ Julia A. Judy
------------------------------------
Notary Public, State of California
Name Printed: Julia A. Judy
Comm. Exp.: 3-4-96
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT entered into this tenth day of April, 1990, by and
between LLOYD G. HOBBS, of Dallas, Texas, as LESSOR and SELECT CARE
ENTERPRISES, INC., P. O. Box 202042 Austin, Texas 78720-2047, as LESSEE,
WITNESSETH:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessee and
Lessee has hired and taken from the Lessor, the follow described property,
consisting of one 120-bed nursing home, commonly known as Scenic Mountain
Nursing Center, Howard County, Big Spring, Texas, more particularly
described in Exhibit "A" attached hereto, including all furniture, fixtures
and equipment located therein, provided and installed by Lessee, more
particularly described in Exhibit "B" attached hereto, to have and to hold
the same for the period of years and upon the terms and conditions
hereinafter stated:
1. The term of this Lease shall be for the period of fifteen (15)
years, commencing April 15, 1991 and ending April 14, 2006.
2. The rental shall be $22,000.00 per month for year one, $24,750.00
per month for years two through fifteen. per month, payable in advance on or
before the fifteenth day of each month. If the Lease shall commence on a day
other than the fifteenth day of the month, the rent will be pro-rated for
the first month. The rental payment will be mailed to Lloyd G. Hobbs, P. O.
Box 126, Fort Smith, Arkansas, 72902, or to such other address as may be
directed in writing.
3. Lessee agrees to pay all taxes, general or special, assessed
against the land, buildings and personal property, from the time the
property is deeded to Lessor forward. An escrow for taxes is required;
therefore, an escrow payment of Seven hundred fifty dollars ($750) per month
will be deposited with the Lessor for payment of taxes. This escrow payment
will be adjusted annually, to cover the taxes as levied against the real and
personal property by all taxing authorities using the previous year as a
guide.
4. The Lessee shall be responsible for and pay for fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least replacement value. The insurance policy
shall designate Lessor and Lessee as named insureds and loss payees, as
their interests may appear. If Lessee fails or neglects to provide this
insurance as required, Lessor may obtain same and add the premium cost to
the next lease payment due.
5. In the event of partial destruction of the building and contents
(that is, destruction of less than half, in value of the building and
contents) by fire or other casualty, then the Lessee shall be entitled to
the insurance proceeds and shall be obligated to restore the premises,
including furniture, furnishings, fixtures and equipment, to at least as
good condition as it was, prior to the des-
<PAGE>
-2-
truction. Any insurance proceeds, in the event of loss, will he escrowed
with Owner of the building. Owner will pay bills incurred, as directed by
Lessee, from insurance proceeds, to repair damages as presented by repair
contractors. If repairs cost more than insurance proceeds, Lessee will be
obligated to pay the difference from Lessee's own funds. If destruction is
fifty per cent (50%) or more, of value, Lessor shall be entitled to the
insurance proceeds and shall, at its option, restore the premises as above
provided or cancel the Lease. In the event of destruction of fifty per cent
(50%) or more of value, Lessor shall advise Lessee, within thirty (30) days
following the destruction, of his election in this regard.
6. In the event of a taking of all or of part of the land and
buildings as a result of eminent domain, condemnation or other governmental
taking, the consideration paid therefor shall be paid to the Lessor, and
from the date of payment of such consideration, the rental amount shall
abate and be reduced in proportion to the relation of the amount of the
consideration to $2,200,000 in value.
7. Lessee shall, as long as this Lease remains in effect, procure
and keep in effect, general public liability insurance against claims for
bodily injury or death occurring upon, in or about the demised premises,
and on, in or about the adjoining streets and passage-ways, with limits of
not less than $3,000,000 any one person or incident. Lessee shall also
provide for malpractice insurance. Lessor shall be a named insured on all
policies.
8. Lessee agrees that it will at all times, during the term of this
Lease or any extension thereof, indemnify, protect, defend and save
harmless, the Lessor, against any and all claims, costs, charges,
liabilities, or expenses arising from damage or injury, actual or claimed,
of whatever kind or character, to property or persons occurring in or about
the demised premises, streets, sidewalks, passageways, parking lots, and
alleys adjacent thereto, and agree to resist or defend such action or
proceedings, and cause the same to be defended at its expense.
9. The premises shall be used as a licensed nursing home and for no
other purpose without the written consent of Lessor. Lessee agrees to
maintain the entire premises, including buildings, drives, parking area,
furniture, fixtures, equipment, and decoration in good and tenantable
repair and condition. Lessee shall, at its expense, repair or replace items
as may be necessary to comply with this covenant, and such that the
premises shall at all times qualify for and remain, licensed as, at least
an ICF III for a 120-bed nursing home under the laws and regulations of the
United States and the State of Texas. A reduction in, or loss of, this or
equivalent license rating, in the event license ratings are changed, will
be considered a default in this Lease.
10. Lessee, with the prior written consent of the Lessor, which
consent shall not be unreasonably withheld, shall have the right to make
such additions, alterations, changes and improvements on the
<PAGE>
-3-
demised premises as Lessee shall deem necessary or desirable; provided that
no such addition, alteration, change or improvement shall be made which
will weaken the structural strength of the building, dimish its utility or
value, and all additions, alterations, changes and improvements shall be
made in a workmanlike manner in full compliance with all building laws and
ordinances applicable thereto, and shall become part thereto upon
termination of this Lease. Lessee may erect and maintain such signs upon
the premises as they may desire, and as may be permitted by laws or
ordinances pertaining thereto, but at its sole expense and responsibility.
11. Lessee shall keep the demised premises in a clean, safe and
sanitary condition, and shall comply with all municipal, county, state and
federal laws and regulations governing the conduct of the activities
conducted, suffered or permitted by the Lessee on the demised premises and
the Lessee shall obtain appropriate permits from all such authorities
required.
12. Lessee shall have the right to sub-lease, or assign, any or all
of the leased premises, with the prior written consent of Lessor, first
obtained, which consent will not be unreasonably withheld, provided that
the Lessee will remain liable for the performance of the covenants and
obligations of this Lease.
13. Lessee agrees to permit Lessor, or his authorized representative
to enter the demised premises at all reasonable times during usual business
hours for the purpose of inspecting the same, provided that this shall not
be construed to obligate Lessor to notify Lessee of any defect observed
therein.
14. Lessee shall not do or suffer anything to be done whereby the
demised premises, or any part thereof, may be encumbered by a mechanic's or
similar lien, and in the event such a lien is filed against the demised
premises, or any part thereof, purporting to be for or on account of any
labor done or material or services furnished in connection with any work in
or about the demised premises, Lessee shall discharge the same of record
within ten (10) days after the date of such claim, or if Lessee desires to
contest the validity or amount of such claim, it may do so provided that it
first posts security acceptable to Lessor, fully indemnifying Lessor and
the premises from any claim, charge, or demand arising from such claim or
expenses incurred in connection therewith.
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessee:
a. The Lessee shall fail or neglect to pay the rentals when
due, or to pay any other sum of money which they are required by this Lease
to pay, and such non-payment shall continue on the tenth day after written
notice of the same has been posted to Lessee. In the event of default of
this Lease, Lessee's will forfeit any rights, or ownership of contracts and
ownership of Certificate of
<PAGE>
-4-
Need at this location, with the State of Texas or the United States
Government, to Lessor.
b. The Lessee shall fail, refuse or neglect to perform or observe
any other covenant required of them herein, and such non-performance or
non-observance shall continue on the thirtieth (30th) day (unless a later
date be stated in the notice) after written notice of the same has been
posted to the Lessee.
c. This Lease, or the premises itself, or any property of the Lessee
is levied upon by process of law, and such levy be not completely
discharged, or secured to the satisfaction of the Lessor, within fifteen
(15) days after service of the process.
d. Lessee becomes involved in financial difficulties as evidenced by
(1) an admission in writing of their inability to pay their debts generally
as they become due, (2) becoming petitioner in any voluntary debtor or
bankruptcy proceedings, whether asking arrangement, composition,
reorganization, liquidation, or other relief, suspension or modification of
their obligations, (3) becoming a party respondent to any involuntary
proceeding the purpose of which is to subject the assets of the Lessee to
the control of a court of creditor's committee, (4) making an assignment of
all or of a substantial part of their property for the benefit of their
creditors, or (5) seeking, consenting to or failing to avert the
appointment of a receiver or a trustee for all or a substantial part of
their property, or of the demised premises, or of their interest in this
Lease.
16. If an event of default occurs, Lessor shall have the option to:
a. Terminate this Lease by service of written notice of
termination, and Lessee's right to the possession of the premises shall
cease upon the date stated in such notice, without prejudice to Lessor's
right to recover all sums due as of the date possession is surrendered,
plus any damage or loss suffered on or prior to such date, including any
expenses such as court costs, attorneys' fees and similar expenses
incurred by Lessor in recovering possession, rent and/or damages due from
Lessee; or
b. Re-enter and take possession of the premises without further
demand or notice, and expel Lessee, or those claiming under it, and remove
the effects of both, or either (forcibly if necessary) without being deemed
guilty of any manner of trespass and without prejudice to Lessor's further
rights under this Lease. In such event, the obligations of the Lessee
under this Lease shall continue, but Lessor may from time to time upon such
terms and conditions, and for such bona fide rental as they may be able
reasonably to negotiate, sublet the premises for the account of Lessee, and
all sums received by Lessor shall be credited to the account of Lessee,
less all reasonable expenses actually incurred by Lessor, including, but
not limited to brokerage fees, advertising expense, preparation including
re-decoration of the premises for sub-letting, legal expenses, cost of
performing
<PAGE>
-5-
such of Lessees' obligations as Lessor finds it necessary to perform at
it's expense, and all other items necessary and proper to procure suitable
tenants for the premises. Lessee shall remain liable to Lessor for any
deficiency between the amounts properly credited to Lessee and the amount
due Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant
to subparagraph (b) above, is unable to make a bona fide sublease with a
new tenant for a term which equals or exceeds the balance of the period for
which Lessee is then obligated, Lessor shall have the right forthwith to
demand and recover from Lessee, the present value of the difference between
the amount to be received by Lessor under the new sub-lease, and the amount
which would have been payable by Lessee under this Lease for the remainder
of the term hereof, plus the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession
pursuant to subparagraph (b) above, Lessor may at any time thereafter, upon
written notice to Lessee, terminate this Agreement in all respects, and
in such event, Lessee shall have no further liability, obligation or
responsibility after the date of such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing it's right under this Lease,
Lessee now expressly agrees that no indulgence or extension, waiver or
forgiveness, variation by practice, nor any neglect or abstention by Lessor
in strictly enforcing the covenants of Lessee on any one or more occasions
shall ever be deemed a waiver of or estoppel against the right of Lessor to
insist upon strict compliance with each and every covenant herein, without
any further or special notice or warning, the existence of a covenant in
this Lease and the provisions of this paragraph, being deemed adequate
notice of the rights of the Lessor. No property belonging to the Lessee
shall ever be removed from the premises at any time when there exists any
default in the payment of any part of the rent due under this Lease, nor
after notice of default in the performance of any other covenant or
obligation assumed herein by Lessee.
17. Lessee agrees to execute any instrument reasonably required by
Lessor reflecting attornment to their prior interest which may be required
by Lessor in connection with mortgaging their interest in the demised
premises, and/or refunding or refinancing in the future of any mortgage
which Lessor may place upon the premises.
18. Upon any termination or expiration of this Lease, whether
by lapse of time, cancellation pursuant to an election provided for
therein, forfeiture, or otherwise, Lessee shall surrender immediately,
possession of the demised premises and all buildings and improvements
including FF&E, then on the same to Lessor in good and tenantable repair,
reasonable wear and tear and damage from fire or other casualt or peril
excepted. If possession be not immediately surrendered, Less with or
without process of Law, may forthwith re-enter said premises and reposses
the same, and expel and remove therefrom, using such force as may be
necessary, all persons and property, without being deemed
<PAGE>
-6-
guilty of any unlawful act and without prejudice to any other legal remedy
available to Lessor.
19. Lessor has the right to assign all or any part of this Lease.
20. Lessee is hereby granted an option to purchase these facilities
including land, improvements, furniture and equipment and reassignment of
one-half interest in the Certificate of Need, ten years after commencement
of Lease and after one hundred twenty (120) rental payments have been made,
and before the Lease expires or is terminated, provided Lessee is not in
default on the Lease. The purchase price will be Two Million Five Hundred
Thousand Dollars ($2,500,000), payable in cash at closing, unless a
financing arrangement is worked out. Upon notification to Lessor of
exercise of this option, accompanied by a $10,000 earnest money check,
which will be applied to purchase price at closing, Lessor will provide a
title binder for inspection of Lessee, with policy to follow at closing,
showing property free and clear from all liens. Closing will be within
sixty (60) days of receipt of notice of exercise. If option is exercised,
purchaser agrees to accept the title with all easements as shown on the
survey or plat, and mineral rights previously conveyed.
21. A one-half (1/2) interest in the Certificate of Need, first
issued to Lessee, is hereby assigned to Lessor for as long as this Lease is
in effect, to be reassigned to Lessee if Option is exercised.
22. It is the intention of the parties that this is to be a net, net,
net Lease.
23. At the time of the execution of this Lease, Lessee agrees to
assign an undivided one-half interest in the Certificate of Need, to Lessor
as part of the consideration for leasing. Lessee agrees that if a default
on this Lease occurs, resulting in foreclosure or assignment, Lessee's
remaining interest in the Certificate of Need will be assigned to Lessor
immediately and forthwith.
24. This Lease shall be construed and interpreted in accordance with
the laws of the state of Texas.
25. Any notice or demand required or permitted by law or by any
provisions of this Lease shall be in writing. All notices or demands by
Lessor to or upon Lessee shall be deemed to have been properly given when
sent by Certified Mail, address Box 202047, Austin, Texas Care
Enterprises, Inc., P. O. or at such other place as Lessee may from time to
time designate in a written notice to Lessor; and to Lessor by Lessee,
addressed to Lloyd G. Hobbs, P. O. Box 126, Fort Smith, Arkansas 72902, or
at such other place as Lessor may from time to time designate in a written
notice to Lessee.
26. This Lease and all provisions herein shall be binding upon
and inure to the benefit of the parties hereto, their heirs, legal
representatives, successors and assigns.
27. Time is of the essence in this Lease.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have caused this instrument to be
properly executed this day and year first above written.
/s/ Lloyd G. Hobbs
----------------------------------------
Lloyd G. Hobbs, Lessor
/s/ Larry J. Voegtle President
----------------------------------------
Select Care Enterprises, Inc., Lessee
Larry J. Voegtle, President
ATTEST:
/s/ Grady E. Wooldridge
- -------------------------------
Grady E. Wooldridge, Secretary
Performance of this Lease is hereby guaranteed, jointly and severally,
by the following stockholders the Lessee corporation, being:
/s/ Larry J. Voegtle
- -------------------------------
Larry J. Voegtle
/s/ Grady E. Wooldridge
- -------------------------------
Grady E. Wooldridge
/s/ Delores J. Milligan
- -------------------------------
Delores J. Milligan
<PAGE>
FIRST ADDENDUM TO LEASE
-----------------------
This First Addendum to Lease is made to amend that certain Lease
Agreement, dated the Tenth day of April, 1990, between LLOYD G. HOBBS, of
Dallas, Texas As Lessor, and SELECT CARE ENTERPRISES, INC., of Austin,
Texas as Lessee.
Paragraph Two, Page One of this Lease Agreement shall be changed to
read as follows:
"The lease rental shall be $24,135.00 per month, for the first
twelve (12) months, beginning May 15, 1991. Beginning May 15,
1992, the monthly rental shall increase to $26,885.00 per month
for Seventy-two (72) months. Beginning May 15, 1998, the monthly
rental will decrease to $24,750.00 per month for the balance of
the lease term. Rental payments will be mailed to Lloyd Hobbs, P.
O. Box 126, Fort Smith, AR 72902, or to such other address as may
be directed in writing."
All other terms of the Lease to remain as originally written. This
First Addendum to Lease executed and attached to the original Lease,
dated this 16th day of May, 1991.
/s/ Lloyd G. Hobbs
--------------------------------
Lloyd G. Hobbs - Lessor
SELECT CARE ENTERPRISES, INC.
By: /s/ Larry J. Voegtle
----------------------------
Larry J. Voegtle
President - Lessee
ATTEST:
[SIGNATURE ILLEGIBLE]
- ------------------------------
Secretary
<PAGE>
BEING ? 4.02 core tract of land out of the SW/4 of Section 12, Block 33, T-1-S.
?? P. RR. Co. Survey, Howard County, Texas, described by metes one bounds as
follows:
BEGINNING at o RR spike set in the intersection of the West Right-Of-Way line of
Parkway Road (60.0 Right-Of-Way) one the North line of o 15.0 inches wide
East-West ??ey. City of Big Spring in the SW/4 of Section 12, Block 33, T-1-S,
T.& P. RR. Co. Survey, Howard County, Texas for the SE corner of this tract from
???? the SW corner of said Section 12 bears S. 15 inches 16 inches E. 1640.0
inches and S. 74 inches 44 inches W.2550.0 inches
HENCE S. 74 inches 44 inches W. ???? the North line of said East-West, ??ey.
357.? to a 1/2 inches ?? found for the SE corner of a 2.0 ?ccre tract one for
the SW corner of the tract
HENCE N. 5?? ?? W. 424.5? to a concrete rail found in the South Right-Of-Way
line of Wesson Road 75? Right-Of-Way) ?? NE corner of said 2.0 core tract and
for ??? NW corner of this tract
HENCE N. 65 inches 51 inches E. along the South Right-Of-Way line of said Wesson
Road, 3915 to a 5/8 ?? ?? in the West Right-Of-Way line of said Parkway Road,
for the NE corner of this tract.
HENCE S. 15 inches 16 inches E. along the West Right-Of-Way line of said Parkway
Road ??5 inches to the PLACE OF BEGINNING
Containing 175111.2 Source Feet ?? 4.02 Acres of Land
<PAGE>
CONSENT TO ASSIGNMENT OF LEASE
WHEREAS, on or about April 10, 1990, LLOYD G. HOBBS entered into a Lease
Agreement with SELECT CARE ENTERPRISES, INC. as amended by "First Addendum to
Lease" dated May 16, 1991 covering the Nursing Home and certain contents thereof
located in Big Spring, Howard County, Texas, located on certain Real Property
attached hereto as Exhibit "A" .
AND WHEREAS, SELECT CARE ENTERPRISES, INC. desires to assign all of its
right, title, and interest in and to said Lease and purchase option contained
therein to SUMMIT CARE CORPORATION.
AND WHEREAS, LLOYD G. HOBBS desires to express his consent to said
assignment and purchase option contained therein; it is, therefore agreed as
follows:
THAT in and for the value of - - TEN AND NO/100 DOLLARS - -($10.00) and
other good and valuable consideration, LLOYD G. HOBBS agrees and consents to
SELECT CARE ENTERPRISES, INC. is assignment of the Lease with purchase option
dated April 10, 1990, as amended by "First Addendum to Lease" dated May 16, 1991
on the above referenced property, both real and personal, between LLOYD G. HOBBS
and SELECT CARE ENTERPRISES, INC., attached hereto as Exhibit "A", to SUMMIT
CARE CORPORATION effective as of 12:01 a.m. on December 1, 1994.
****
- ----
EXECUTED this 2nd day of December, 1994.
/s/ Lloyd G. Hobbs
---------------------------
Lloyd G. Hobbs
THE STATE OF ARKANSAS S
COUNTY OF SEBASTIAN S
-----------
This instrument was acknowledged before me on the 2nd day of December, 1994
by LLOYD G. HOBBS.
/s/ Shirley S. Wolfe
--------------------------------
Notary Public State of Arkansas
Name Printed: Shirley S. Wolfe
Comm. Exp.: November 1, 2000
**** The next rental payment is due December 15, 1994 in the
---- amount of $26,885.00, plus $3,422.00 escrow for taxes, or a
total of $30,307.00 due December 15 and monthly thereafter.
<PAGE>
ALAMO TITLE INSURANCE
OF TEXAS
G.F. No. 1676-94
-------
Policy No. COMMITMENT
----------
Continuation of Schedule A:
-
EXHIBIT "A"
A 4.02 acre tract, more or less, out of SW/4 of Section 12, Block 33. T-1-S, T&P
RR Co. Survey, Howard County, Texas, described by metes and bounds as follows:
Beginning at a 1/2 inch I.R. in the intersection of the West right-of-way line
of Parkway Road and the North line of a 15.0 foot wide East-West alley out of
said Section 12, for the SE corner Of this tract; from whence the SW corner of
said Section 12 bears S 15"16' E. 1640.0 feet and S 74"44' W 2580.0 feet;
THENCE S 74"44' W with the North line of said East-West alley, 387.9 feet to a
1/2 inch I.R. the SE corner of a 2.0 acre tract in the name of Church of Jesus
Christ of Latter Day Saints; and the SW corner of this tract;
THENCE N 15"16' W 424.8 feet to a 1/2 inch I.R. in the South right-of-way line
of Wasson Road, the NE corner of said 2.0 acre tract and the NW corner of this
tract;
THENCE N 66"51' E with the South right-of-way line of said Wasson Road, 391.6
feet to a 1/2 inch I.R. in the West right-of-way line of said Parkway Road,
for the NE corner of this tract;
THENCE S 15"16' E 478.5 feet to the PLACE OF BEGINNING.
<PAGE>
EXHIBIT 10.29
LEASE
for
Woodland Convalescent Center
(formerly known as Corbin Convalescent Center)
7120 Corbin Avenue
Reseda, California 91335
between
UNI-CAL ASSOCIATES,
a California limited partnership
"Landlord"
and
SUMMIT CARE CALIFORNIA, INC.,
a California corporation
"Tenant"
Commencement Date: February 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS................................................ 1
ARTICLE 2 DESCRIPTION................................................ 4
ARTICLE 3 TERM....................................................... 4
ARTICLE 4 WARRANTIES................................................. 4
ARTICLE 5 RENT....................................................... 5
ARTICLE 6 SECURITY DEPOSIT........................................... 9
ARTICLE 7 TAXES AND ASSESSMENTS...................................... 10
ARTICLE 8 USE........................................................ 13
ARTICLE 9 MAINTENANCE................................................ 17
ARTICLE 10 ALTERATIONS................................................ 19
ARTICLE 11 MECHANIC'S LIENS........................................... 19
ARTICLE 12 UTILITIES AND SERVICES .................................... 21
ARTICLE 13 INDEMNITY AND EXCULPATION.................................. 21
ARTICLE 14 INSURANCE.................................................. 23
ARTICLE 15 CONDEMNATION............................................... 29
ARTICLE 16 DESTRUCTION................................................ 31
ARTICLE 17 ASSIGNMENT AND SUBLETTING.................................. 38
ARTICLE 18 DEFAULTS; REMEDIES......................................... 44
ARTICLE 19 SIGNS...................................................... 51
ARTICLE 20 RIGHT OF ENTRY............................................. 51
ARTICLE 21 SUBORDINATION; ESTOPPEL; CERTIFICATION..................... 53
ARTICLE 22 WAIVER..................................................... 54
ARTICLE 23 SALE OR TRANSFER OF PREMISES............................... 55
ARTICLE 24 FINANCIAL STATEMENTS AND OPERATING INFORMATION............. 55
ARTICLE 25 LICENSING.................................................. 57
ARTICLE 26 SURRENDER OF PREMISES; HOLDING OVER........................ 57
ARTICLE 27 PRESERVATION OF PATIENT RECORDS............................ 58
ARTICLE 28 PATIENT CARE; CENSUS....................................... 58
ARTICLE 29 OPTION TO EXTEND TERM...................................... 59
ARTICLE 30 MISCELLANEOUS.............................................. 60
</TABLE>
EXHIBITS:
Exhibit A - Description of Real Property
Exhibit B - Description of Personal Property
<PAGE>
L E A S E
WOODLAND CONVALESCENT CENTER
This lease ("Lease") is entered into as of January 16, 1995, between UNI-
CAL ASSOCIATES, a California limited partnership ("Landlord") and SUMMIT CARE
CALIFORNIA, INC., a California corporation ("Tenant"), with reference to the
following background facts:
A. Landlord owns the premises hereinafter described, together with certain
fixtures and equipment located at the premises and described on Exhibit B
---------
attached hereto.
B. Tenant currently leases the premises described below pursuant to an
existing lease which expires January 31, 1995.
C. Tenant desires to lease the premises and personal property from
Landlord pursuant to the provisions of this Lease, for the purpose of operating
a skilled nursing facility.
D. Landlord is entering into this Lease in reliance upon the particular
skills, knowledge and experience of Tenant in the operation of healthcare
facilities.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
As used in this Lease, the following words and phrases shall have the
following meanings:
1.1 "Alteration" - any addition, change or modification, structural and
nonstructural, to the Premises (as such term is
<PAGE>
defined in Section 2.1 below) made by Tenant including, without limitation,
fixtures, but excluding Tenant's personal property.
1.2 "Authorized Representative" - any officer, agent, employee or
independent contractor retained or employed by either party, acting within
authority, actual or apparent, given him by that party.
1.3 "Encumbrance" - any land sale contract, deed of trust, mortgage, or
other written security device or agreement affecting the Premises and/or
Personal Property (as such term is defined in Section 2.1 below), and the note
or other obligation secured by it, that constitutes security for the payment of
a debt or performance of an obligation.
1.4 "Hazardous Substances" - as defined in Section 8.2.6 of this Lease.
1.5 "Hold harmless" - to defend and indemnify from all liability, losses,
penalties, damages, costs, expenses (including, without limitation, attorneys'
fees), causes of action, claims, or judgments arising out of or related to any
damage to any person or property.
1.6 "Landlord" - Uni-Cal Associates, a California limited partnership, its
successors, and any person or entity succeeding to the rights of Landlord by
reason of an ownership interest or a security interest in the Facility (as
defined in Section 2.1 below) including, without limitation, any Lender of
Landlord.
1.7 "Law" - any judicial decision, statute, constitution, ordinance,
resolution, regulation, rule, administrative order, or other requirement of any
municipal, county, state, federal, or other government agency or authority
having jurisdiction over the parties or the Facility, or both, in effect whether
at the time of
2
<PAGE>
execution of the Lease or at any time during the term, including, without
limitation, any regulation or order of a quasi-official entity or body,
including any Medicare or Medicaid fiscal intermediary.
1.8 "Lease Year" - the twelve-month period commencing on the Commencement
Date (as defined in Section 3.1 below) and on each succeeding anniversary of the
Commencement Date during the term (and any extended term) of the Lease.
1.9 "Lender" - a beneficiary, mortgagee, secured party, or other holder
of an Encumbrance in the Facility or any part thereof.
1.10 "Rent" - monthly rent, additional rent, late fees, security deposit,
utility charges, real and personal property taxes and assessments, insurance
premiums, and all other charges payable by Tenant to Landlord or any third
person pursuant to the provisions of this Lease.
1.11 "Restoration" - the reconstruction, rebuilding, rehabilitation and
repairs that are necessary to return damaged or destroyed portions of the
Facility and other property to substantially the same physical condition as they
were in immediately before the damage or destruction.
1.12 "Successor" - any assignee, transferee, personal representative,
heir, or other person or entity succeeding lawfully, and pursuant to the
provisions of this Lease, to the rights and obligations of either party.
1.13 "Tenant's Improvements" - any material addition to or modification of
the Premises made by Tenant during the term, including, without limitation,
fixtures.
3
<PAGE>
ARTICLE 2
DESCRIPTION
2.1 Subject to the terms and conditions contained herein, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the real property
located at 7120 Corbin Avenue, Reseda, California 91355 and more fully described
in Exhibit A attached hereto, together with all improvements now or hereafter
---------
located thereon, commonly known as the Woodland Convalescent Center (the
"Premises") and that certain personal property described on Exhibit B attached
---------
hereto and located in the Premises and any replacements thereof (the "Personal
Property"). The Premises and Personal Property are sometimes hereinafter
collectively referred to as the "Facility."
2.2 Landlord is informed that the Facility is presently licensed by the
state of California to operate 157 skilled nursing beds and is certified and
participates as a provider under Medicare and Medi-Cal legislation and
regulations. Reference hereinafter to the "Licensed Facility" shall mean the
Facility as so licensed and certified.
ARTICLE 3
TERM
3.1 The term of this Lease shall commence on February 1, 1995
("Commencement Date") and shall terminate at midnight on January 31, 2005.
ARTICLE 4
WARRANTIES
4.1 LANDLORD HAS MADE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, NOR DOES LANDLORD MAKE ANY HEREIN REGARDING THE CONDITION OF THE
FACILITY OR ANY PART THEREOF INCLUDING WITHOUT
4
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LIMITATION THE STRUCTURAL SOUNDNESS THEREOF, THE PRESENCE OR ABSENCE OF
HAZARDOUS SUBSTANCES OR THE FACILITY'S FITNESS FOR ANY PARTICULAR USE OR
OCCUPANCY. LANDLORD SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND/OR WARRANTIES
WITH RESPECT TO THE VACATION OF THE FACILITY BY THE PRIOR OPERATOR AS DEFINED
BELOW. LANDLORD FURTHER HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND/OR
WARRANTIES, BOTH EXPRESS AND IMPLIED IN LAW, WITH RESPECT TO THE CONDITION,
HABITABILITY, OR SUITABILITY OF THE FACILITY, OR ANY PART THEREOF, FOR THE USE
AND PURPOSES PERMITTED HEREUNDER OR ANY OTHER PURPOSE, AND LANDLORD DOES NOT
REPRESENT OR WARRANT THAT THE FACILITY OR ANY PART THEREOF COMPLIES WITH ANY
LAWS RELATING TO THE USES AND OCCUPANCY THEREOF. TENANT FULLY UNDERSTANDS THAT
THERE MAY BE CERTAIN ALTERATIONS, REPAIRS AND REPLACEMENTS REQUIRED TO CAUSE THE
FACILITY TO COMPLY WITH APPLICABLE LAW (AS THE SAME MAY BE MODIFIED FROM TIME TO
TIME THROUGHOUT THE TERM HEREOF) AND FOR THE CONTINUED LICENSING AND/OR
CERTIFICATION OF THE FACILITY, AND TENANT SHALL BE FULLY RESPONSIBLE FOR THE
COST OF AND FOR EFFECTUATING ANY AND ALL ALTERATIONS, REPAIRS AND REPLACEMENTS
REQUIRED TO BE MADE TO CAUSE THE FACILITY TO COMPLY WITH APPLICABLE LAW AND FOR
THE CONTINUED LICENSING AND CERTIFICATION OF THE FACILITY AS WELL AS ALL
ALTERATIONS, REPAIRS AND REPLACEMENTS REQUIRED TO MAINTAIN AND PRESERVE THE
FACILITY IN THE CONDITION CALLED FOR HEREIN. TENANT ACKNOWLEDGES THAT LANDLORD
IS NOT RESPONSIBLE FOR AND TENANT SHALL HOLD LANDLORD HARMLESS IN CONNECTION
WITH ANY SUCH ALTERATIONS, REPAIRS AND REPLACEMENTS TO THE FACILITY FOR ANY
REASON WHATSOEVER.
Initials of Tenant: ___________
ARTICLE 5
RENT
5.1 Tenant shall pay to Landlord a monthly rent ("Base Monthly Rent")
during each month of the term hereof, without deduction, setoff, prior notice or
demand. Base Monthly Rent for the first Lease Year (sometimes referred to herein
as "Initial Base
5
<PAGE>
Monthly Rent") is Thirty Four Thousand Five Hundred Forty Dollars ($34,540), and
is subject to increase as set forth below.
5.2 Base Monthly Rent shall be paid in advance on the first day of each
month commencing with the month in which the term of this Lease commences. If
the Lease term commences on a day other than the first day of a month, Base
Monthly Rent for such partial month shall be prorated at the rate of 1/30th of
the Base Monthly Rent per day.
5.3 All Rent shall be paid to Landlord in care of Nigro, Karlin & Segal,
10100 Santa Monica Boulevard, 13th Floor, Los Angeles, California 90067 or at
such other address as may be designated by Landlord from time to time in writing
to Tenant. Rent not paid when due shall bear interest from the date due until
paid at the maximum rate permitted by law, or if no maximum rate is applicable,
at the rate of 18% per annum.
5.4 Tenant acknowledges that late payment of Rent will cause Landlord to
incur damages and costs not contemplated by this Lease, the exact amount of
which would be extremely difficult and impracticable to ascertain. Such costs
include, without limitation, processing and accounting charges, administrative
costs, loss of use of funds and late charges that may be imposed on Landlord by
the terms of any Encumbrance. Therefore, if any installment of Rent is not
received by Landlord within five (5) days after notice that the same is
delinquent, Tenant shall pay to Landlord an additional sum equal to five percent
(5%) of the overdue Rent as a late charge, unless applicable law requires a
lesser late charge, in which case Tenant shall pay the maximum late charge
permitted by law. The parties agree that this late charge represents a fair and
reasonable estimate of the additional costs that Landlord will incur by reason
of late payment by Tenant. Acceptance of any late charge shall not constitute a
waiver of Tenant's default with respect to the overdue amount, nor prevent
Landlord from exercising
6
<PAGE>
any of the other rights and remedies available to Landlord hereunder, at law or
in equity.
5.5 Tenant hereby agrees that if Tenant fails to pay Rent or any other sum
required to be paid by Tenant hereunder within the five-day grace period for any
two consecutive months, or for any three months during a Lease Year, Rent
hereunder for the remaining term of the Lease shall be automatically adjusted to
be quarterly rental, payable in advance, commencing on the first day of the
month following such consecutive late month, or the third late month in a Lease
Year quarter, and continuing thereafter for the remaining term of the Lease on a
quarterly basis in advance. Time is strictly of the essence with respect to the
provisions of this Article.
5.6 Base Monthly Rent provided in this Lease, as the same may be increased
pursuant to the terms hereof, shall be in addition to all other payments to be
made by Tenant as provided herein. It is the purpose and intent of Landlord and
Tenant that the Base Monthly Rent provided herein shall be absolutely net to
Landlord so that this Lease shall yield net to Landlord the Base Monthly Rent
specified in this Lease in each month during the term of this Lease and, except
as otherwise specifically provided herein, Landlord shall have no obligation or
liability to pay any amounts in connection with the ownership, operation and/or
management of the Facility or any part thereof, including but not limited to
real and personal property taxes, insurance premiums, maintenance, including but
not limited to structural or exterior maintenance, license fees, and any costs
incurred by Landlord or for which Landlord is responsible by virtue of the
existence of any financing on the Facility (including but not limited to any tax
imposed on a Lender by reason of its having made a loan to Landlord but not
including points, fees, or other costs incurred in making a new loan or
refinancing an existing loan), of any kind or nature whatsoever, but
specifically excluding payments of principal, interest and
---------
7
<PAGE>
other costs and fees associated with Encumbrances for which Landlord is liable.
Excluding payments of principal, interest and other costs and fees associated
with Encumbrances for which Landlord is liable, all costs and expenses
including, without limitation, taxes, assessments, insurance premiums,
maintenance, license fees and obligations of every kind and nature whatsoever
relating to the use and/or management of the Facility by Tenant which may accrue
or become due during or out of the term or any renewal thereof shall be paid by
Tenant and Landlord shall be indemnified and held harmless by Tenant from and
against the same.
5.7 The Base Monthly rent shall be increased as follows:
5.7.1 The Initial Base Monthly Rent set forth in Section 5.1 shall be
increased for the second Lease Year (that is, the Lease Year commencing February
1, 1996) by a sum equal to three percent (3%) of the Initial Base Monthly Rent.
Base Monthly Rent for each successive Lease Year throughout the term hereof (as
the same may be extended pursuant to Section 29 below) shall be increased
annually by a sum equal to three percent (3%) of the Base Monthly Rent in effect
for the last month of the immediately preceding Lease Year as the same may have
been adjusted pursuant to Section 5.7.2 below ("Prior Year's Rent").
5.7.2 The parties agree that the Initial Base Monthly Rent has been
determined by taking into account the number of beds ("Licensed Beds") for which
the Facility is licensed as of the date of this Lease. If and so often as the
number of Licensed Beds increases during the term of this Lease, then, effective
as of the date of each such increase, (i) then current Base Monthly Rent (as the
same may have previously increased under this Lease, whether as the result of
any prior increase in Licensed Beds or otherwise) shall be increased by a
percentage equal to such percentage increase in Licensed Beds, and (ii) for
purposes of determining Base Monthly Rent for the succeeding Lease Year in
accord-
8
<PAGE>
ance with Section 5.7.1 above, the Base Monthly Rent as adjusted pursuant to
this Section 5.7.2 shall be deemed the Prior Year's Rent. In no event shall Base
Monthly Rent decrease as the result of a decrease in the number of Licensed
Beds. The increases in Base Monthly Rent contemplated by this Section 5.7.2
shall be in addition to and not in lieu of the increases contemplated by Section
5.7.1 above.
ARTICLE 6
SECURITY DEPOSIT
6.1 Landlord is presently holding the amount of Thirty Seven Thousand
Dollars ($37,000) (the "Security Deposit") previously deposited by Tenant's
wholly owned subsidiary, Summit Care-California, Inc., which Security Deposit
shall continue to serve as security for the full and timely performance by
Tenant of the provisions of this Lease and shall not be deemed advance rental.
If Tenant defaults in respect of any of the terms, covenants, provisions or
agreements of this Lease, including but not limited to the payment of Rent,
Landlord may, but shall not be obligated to, use, apply or retain the Security
Deposit, or any portion of it, to cure the default or to compensate Landlord for
all damage sustained by Landlord resulting from Tenant's default. Upon demand by
Landlord, Tenant shall immediately pay Landlord a sum equal to the portion of
the Security Deposit used, applied or retained by Landlord as provided herein so
as to maintain the Security Deposit in its total original sum. The Security
Deposit shall be the property of Landlord. However, at the expiration or
termination of this Lease, Landlord shall return the Security Deposit to Tenant
at that time unless Tenant is in default, in which event the Security Deposit
shall be returned after the default has been cured, or at Landlord's election,
the Security Deposit shall be used to cure the default, and the unused portion,
if any, shall then be returned to Tenant. Landlord may, in its
9
<PAGE>
discretion, either maintain the security deposit separate and apart from
Landlord's general funds, or commingle the Security Deposit with Landlord's
general and other funds.
6.2 Landlord shall not be required to pay Tenant interest on the Security
Deposit.
6.3 If Landlord transfers or otherwise terminates its interest in the
Facility, Landlord shall be relieved of further liability respecting the
Security Deposit or any part thereof upon assumption of such liability by its
transferee.
ARTICLE 7
TAXES AND ASSESSMENTS
7.1 Tenant shall be responsible for the payment of all taxes, assessments,
license fees, and other charges ("Personal Property Taxes") that are levied and
assessed against all personal property, including but not limited to leasehold
improvements, furniture, fixtures and equipment installed, whether by Landlord
or Tenant, or located in or about the Premises, which taxes accrue during the
term, regardless of when the same may be payable.
7.2 Tenant shall be responsible for the payment of all real property
taxes, assessments and levies, both general and special ("Real Property Taxes")
which are or are hereafter levied, assessed, or are otherwise imposed, against
the Premises during the term, regardless of when the same may be payable.
7.3 If Landlord's Lender requires Landlord to impound Personal Property
Taxes and/or Real Property Taxes on a periodic basis during the term of this
Lease, Tenant, upon notice from Landlord indicating this requirement, shall pay
a sum of money toward its liability under this Article 7 on a periodic basis in
10
<PAGE>
accordance with such Lender's requirements, and Landlord shall impound such sums
in accordance with such Lender's requirements. If Tenant defaults in the payment
of any installment of Personal Property Taxes or Real Property Taxes, Tenant
shall thereafter during the term of this Lease pay to Landlord (or to Landlord's
Lender, as Landlord may direct), together with and in addition to the monthly
payments of rental and other payments payable under the terms of this Lease, on
the dates set forth herein for the making of monthly rental payments, until the
end of the term, a sum, as estimated by Landlord, equal to the Personal Property
Taxes and Real Property Taxes (collectively "Taxes") next due on the Facility
and any personal property located therein divided by the number of months to
elapse before one month prior to the date when such Taxes will become
delinquent, such sums to be held by Landlord to pay such Taxes. Such payments,
hereinafter referred to as "Reserves", are to be held without any allowance of
interest or dividend to Tenant and need not be kept separate and apart from
other funds of Landlord. All payments mentioned in this section and all payments
to be made under the Lease shall be added together and the aggregate amount
thereof shall be paid by Tenant each month in a single payment. The arrangement
provided for in this section is solely for the added protection of Landlord and
entails no responsibility on Landlord's part beyond the allowing of due credit,
without interest, for the sums actually received by it; provided, however, that
if Tenant shall have timely met its obligations to pay all sums required
hereunder, Landlord shall be liable for any penalties incurred by reason of
Landlord's failure to pay Taxes when due and Landlord shall credit Tenant for
the amount of any such penalties paid by Tenant. Upon assignment of the Lease by
Landlord, any funds on hand shall be turned over to the successor and any
responsibility of the assignor with respect thereto shall terminate. If the
total of the Reserves hereof shall exceed the amount of payments actually
applied by Landlord, such excess may be credited by Landlord on subsequent
payments to be made by Tenant or, at the option of Landlord, refunded to Tenant
or its
11
<PAGE>
successors. If, however, the Reserves shall not be sufficient to pay the sums
required when the same shall become due and payable, Tenant shall immediately
deposit with Landlord the full amount of any such deficiency. If there shall be
a default under any of the provisions of this Lease, Landlord may use, apply or
retain, to cure such default and to compensate Landlord for all damage sustained
by Landlord as a result of such default, at any time, all or any part of the
Reserves held by Landlord, and upon demand of Landlord, Tenant shall immediately
deposit with Landlord a sum equal to the portion of the Reserves so used,
applied or retained by Landlord. If there shall be a default under any of the
provisions of this Lease, Landlord may apply, at any time, the balance then
remaining in the funds accumulated under this Section 7.3, less such sums as
will become due and payable for the upcoming tax liability, against the amounts
due and payable under the Lease.
7.4 Tenant's liability to pay Taxes shall be prorated on the basis of a
365-day year to account for any fractional portion of a tax year included in the
term at its commencement and expiration. Prorations shall be based on
assessments and Tenant shall pay such prorations when the prorated tax
installment becomes due.
7.5 Tenant shall have the right to contest or review by legal proceeding,
or in such other manner as it may deem suitable (which, if instituted, Tenant
shall conduct promptly at its own expense, and free of any expense to Landlord,
and if necessary, in the name of Landlord) any Taxes. Tenant may defer payment
of a contested item upon condition that, before instituting any such proceeding,
Tenant shall furnish to Landlord, or to any Lender Landlord may designate,
security reasonably satisfactory to Landlord and such Lender sufficient to cover
the amount of any Taxes. Notwithstanding the furnishing of any such security,
Tenant shall promptly pay such contested item if at any time the Facility or any
part thereof shall be in danger of being sold or forfeited. The
12
<PAGE>
legal proceeding herein referred to shall include an appropriate proceeding to
review tax assessments and appeals from any judgment, decree, or order in
connection therewith, but such proceeding shall be commenced as soon as possible
after the assessment of any contested item and shall be prosecuted to final
adjudication with dispatch. If there shall be any refund with respect to any
contested item based on a payment by Tenant, Tenant shall be entitled to such
refund to the extent of such payment.
7.6 Tenant shall, in addition to all other sums, pay all fees for
inspection and examination of the Facility during the term hereof which are
charged by any public authority having jurisdiction therein.
7.7 Tenant shall not be required to pay any municipal, county, state, or
federal income or franchise taxes of Landlord, or any municipal, county, state,
or federal estate, succession, inheritance, or (except as provided below)
transfer taxes of Landlord. If at any time during the term, the state in which
the Facility is located or any political subdivision of such state, including
any county, city, public corporation, district, or any other political entity or
public corporation of such state, levies or assesses against Landlord a tax,
fee, or excise on (1) rents, (2) the square footage of the Premises, (3) the act
of entering into this Lease, or (4) the occupancy of Tenant, or levies or
assesses against Landlord any other tax, fee, or excise, however described,
including, without limitation, a so-called value added tax, as a direct
substitution in whole or in part for, or in addition to, any Real Property
Taxes, Tenant shall pay before delinquency that tax, fee, or excise.
Notwithstanding the above, if a transfer tax is payable to any governmental
agency or agencies as a result of this Lease, Tenant shall, to the extent
permitted by law, pay the same directly to the taxing authority or authorities
when it is due, or at Landlord's election, Tenant shall pay same to Landlord
within ten (10)
13
<PAGE>
days after notice to Tenant from Landlord, and in such event, Landlord shall pay
the tax following receipt from Tenant.
ARTICLE 8
USE
8.1 Tenant shall use the Facility for a licensed skilled nursing facility
and for no other use without Landlord's prior written consent, which consent may
be withheld in Landlord's sole and absolute discretion.
8.2 Tenant's use of the Facility as provided in this Lease shall be in
accordance with the following:
8.2.1 Tenant shall not do, bring, or keep, or permit to be done,
brought or kept, anything in, on or about the Premises that may cause an
invalidation or cancellation of any insurance covering the Facility, and Tenant
shall comply with all requirements imposed by any company issuing such
insurance.
8.2.2 Tenant shall cause the Facility to be and remain licensed and
certified by the applicable state and/or local governmental agencies as the
Licensed Facility, and shall maintain such license(s) and certifications during
the term of this Lease. At Tenant's sole expense, Tenant shall cause the
Facility to conform to the requirements and provisions of all applicable laws
concerning the use of the Facility as licensed including, without limitation,
the obligation at Tenant's sole cost to alter, maintain, replace or restore the
Facility or any part thereof in compliance and conformity with all laws relating
to the condition, use or occupancy of the Facility as licensed. Tenant shall
deliver to Landlord, promptly following receipt thereof, copies of all "A" and
"B" Citations respecting the Facility issued during the term hereof and, if
reasonably required by any Lender or proposed lender, copies of any other
inspection reports respecting the Facility
14
<PAGE>
issued during the term hereof by any and all governmental agencies which conduct
inspections thereof.
8.2.3 Tenant shall not use the Facility in any manner that will
constitute nuisance, waste to the Facility, or cause unreasonable annoyance to
owners or occupants of adjacent properties.
8.2.4 Tenant shall not do or permit to be done anything on the
Premises that will cause damage to the Facility or any part thereof. The
Premises shall not be overloaded with furniture, equipment or machinery in such
manner that damage is caused to the Premises or any part thereof. No machinery,
apparatus or other appliance shall be used or operated in, on or about the
Premises that will in any manner injure the Facility or any part thereof.
8.2.5 Tenant shall pay all payrolls promptly when due respecting
all personnel at the Facility, and shall file all governmental reports required
pursuant thereto (including, without limitation, payroll tax returns) and shall
pay such taxes promptly and before delinquency.
8.2.6(a) Tenant shall not bring, release, use, generate, manufacture,
store or dispose of, or permit to be brought, released, used, generated,
manufactured, stored or disposed of, on, under or about the Facility, or
transfer or permit to be transferred to or from the Facility, any asbestos,
asbestos containing materials, flammable explosives, radioactive materials,
hazardous wastes, toxic substances or related materials (collectively "Hazardous
Substances"). There is excluded from this prohibition Hazardous Substances of
the type commonly used in nursing homes in the state in which the Facility is
located, subject to the condition that they are used, stored and disposed of in
accordance with all applicable law. As used in this Lease, Hazardous Substances
15
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shall include, but not be limited to, substances defined as "hazardous
substances", "hazardous materials", or "toxic substances" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.; the Clean Water Act, 33 U.S.C. Section 466 et seq.;
the Safe Drinking Water Act, 14 U.S.C. Section 1401 et seq.; the Superfund
Amendment and Reauthorization Act of 1986, Public Law 99-499, 100 Stat. 1613;
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as amended;
and those materials and substances of a similar nature regulated or restricted
under any other laws now existing or hereafter adopted, and in regulations
adopted and publications promulgated pursuant to said laws.
(b) If Tenant knows, or has reasonable cause to believe, that a
Hazardous Substance, or a condition involving or relating to the same, has come
to be located in, on or about the Facility, other than as previously consented
to by Landlord, Tenant shall immediately give written notice of such fact to
Landlord.
(c) Tenant shall, at its sole cost and expense, promptly take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the clean-up of any contamination of, and for
the maintenance, security and or monitoring of, the Facility, the elements
surrounding the same, or neighboring properties, that was caused or materially
contributed to by Tenant, relating to or involving any Hazardous Substances
brought onto and/or released from the Facility.
(e) Tenant shall indemnify, protect, defend and hold Landlord, its
agents, employees, partners (including, in the case of a corporate partner, such
corporation's shareholders, officers and directors) and Lenders, and the
Facility, harmless from and against any and all damages, liabilities, judgments,
costs, claims,
16
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liens, expenses, penalties and attorneys' and consultants' fees arising out of
or involving (i) any Hazardous Substances brought onto and/or released or
threatened to be released from or onto the Facility by any person during the
term of Tenant's tenancy at the Facility, including its tenancy at the Facility
prior to the term of this Lease and its tenancy at the Facility during the term
of this Lease and/or (ii) Tenant's failure to perform any of its obligations
under this Section 8.2.6. Tenant's obligations hereunder shall include, but not
be limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Tenant, and the cost of investigation,
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and 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.
8.2.7 Tenant shall comply with, and the leasehold created by this
Lease is subject to, all covenants, conditions, restrictions, easements and
rights of way affecting the Premises.
ARTICLE 9
MAINTENANCE
9.1 Tenant shall, at its sole cost and expense, at all times during the
term of this Lease, maintain the Premises and every part thereof in good, clean
working order, condition and repair including, without limitation, the
structural portions of the building and improvements thereon, the interior and
exterior thereof, foundations, roofs, plate glass, wiring, plumbing, heat and
air conditioning units, mechanical systems, parking and service areas,
landscaping, the approaches thereto and appurtenances thereof, including all
adjacent sidewalks and alleys. Tenant's
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obligation to maintain the Premises shall specifically include, without
limitation, the obligation to make any and all repairs and to repaint and/or
restain all painted and wood surfaces and restripe the parking areas as
required. Landlord shall not have any responsibility to maintain the Premises or
any part thereof including, without limitation, any structural or mechanical
maintenance, repair or replacement. Tenant waives all rights under any laws
which may provide for Tenant's right to make repairs and deduct the expenses of
such repairs from rent or to withhold rent or terminate the Lease based upon the
condition of the Premises.
9.2 Tenant shall, at its sole cost and expense, at all times during the
term of this Lease, keep and maintain all the Personal Property including
furniture, fixtures and equipment, in good working order, condition and repair.
Tenant shall have the right to install on the Premises any and all equipment and
fixtures which Tenant desires to install thereon and which are necessary or
convenient to Tenant's use of the Premises as permitted herein, without the
consent of Landlord. All such property so installed by Tenant shall remain
Tenant's property (other than replacements for Personal Property as provided
below) and, provided Tenant is not in default hereunder, may be removed by
Tenant as provided in this Lease. Except as provided below, Tenant shall not
remove the Personal Property and/or replacements thereof or any part thereof
from the Premises, without the prior written consent of Landlord. Tenant shall
purchase and replace with substitutes of equal or higher quality any worn out or
broken items of Personal Property required to be on the Premises for continued
licensing and/or certification as the same may occur from time to time
throughout the term of this Lease at Tenant's sole cost and expense. Items
being replaced by Tenant may be removed without Landlord's prior consent and
shall become the property of Tenant, and items replacing same shall be and
remain the property of Landlord subject to removal only with consent until in
turn replaced. Tenant agrees, upon written request from Landlord, to execute any
and all
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documents necessary to assist Landlord to fully evidence Landlord's ownership of
the Personal Property.
9.3 Tenant shall, throughout the term of this Lease, make all repairs,
alterations, replacements and additions to the Facility required by law and/or
as necessary to obtain and maintain licensing and certification as the Licensed
Facility.
ARTICLE 10
ALTERATIONS
10.1 Tenant shall not make or allow to be made any Alterations to the
Premises or any part thereof in excess of $50,000 during any Lease Year without
Landlord's prior written consent. Any Alterations made shall remain on and be
surrendered with the Premises on expiration or termination of the term. Failure
of Landlord to respond within ten (10) days after Tenant notifies Landlord of
its request for Landlord's consent to Alterations shall be deemed consent.
Landlord's consent shall not be necessary for emergency repairs, or Alterations
required for continued licensing and/or certification of the Facility.
10.2 Except in the event of emergency Alteration, if Tenant makes any
Alterations to the Premises as provided in this Article, the Alterations shall
not be commenced until at least ten (10) days after Landlord has received notice
from Tenant stating the date the installation of the Alterations is to commence.
If any structural modifications are to be made, then to the extent applicable,
the provisions of Sections 16.9 and 16.10 shall apply to any requested
Alterations as if the Alteration project was a Restoration. Landlord may impose
such further conditions to its consent as it deems reasonably necessary.
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ARTICLE 11
MECHANIC'S LIENS
11.1 Tenant shall pay, when due, all costs for construction done by it or
caused to be done by it on the Premises. Tenant shall keep the Premises free and
clear of all mechanic's liens and other liens by reason of work, labor, services
or materials supplied or claimed to have been supplied to or for Tenant, or
anyone holding the Premises or any part thereof through or under Tenant.
11.2 If Tenant shall, in good faith, contest the validity of any such
lien, then Tenant shall, at its sole cost and expense, indemnify, defend and
hold harmless Landlord, its agents, employees, partners (including, in the case
of a corporate partner, such corporation's shareholders, officers and directors)
and Lenders, and the Facility against the same and shall pay and satisfy any
adverse judgment that may be rendered thereon before the enforcement thereof
against such parties or the Facility. Tenant shall furnish to Landlord a surety
bond satisfactory to Landlord in an amount equal to one and one-half times the
amount of the contested lien, indemnifying Landlord against liability for the
same, as required by law for the holding of the Facility free from the effect of
such lien or claim, or such other reasonable security as may be required by
Landlord or its Lender. In addition, Landlord may require Tenant to pay
Landlord's actual and reasonable attorneys' fees and costs in participating in
such action if Landlord shall reasonably decide it is in its best interest to do
so.
11.3 If Tenant shall fail to discharge any such lien within twenty (20)
days of its being filed or fails to furnish reasonable security therefor as may
be required by Landlord or Landlord's Lender, then, in addition to any other
right or remedy of Landlord resulting from Tenant's said default, Landlord may,
but shall not
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be obligated to, discharge the same either by paying the amount claimed to be
due or by procuring the discharge of such lien by giving security or in such
other manner as is or may be prescribed by law or practice of the state in which
the Facility is located. Tenant shall repay to Landlord, as additional rent, on
demand, all sums disbursed or deposited by Landlord pursuant to the foregoing
provisions of this section plus interest thereon at the then maximum rate of
interest permitted by law, or if no maximum rate then applies, at the rate of
18% per annum. Nothing contained herein shall imply any consent or agreement on
the part of Landlord to subject Landlord's estate to liability under any
mechanic's or other lien law.
ARTICLE 12
UTILITIES AND SERVICES
12.1 Tenant shall make all arrangements for, and prior to delinquency pay
for, all utilities and services furnished to the Facility or used by it,
including, without limitation, gas, electricity, water, telephone service, and
trash collection, and for all connection charges and deposits required by any of
said utilities. Landlord shall not be liable for any interruption in the
provision of any such utility services to the Facility.
ARTICLE 13
INDEMNITY AND EXCULPATION
13.1 Tenant hereby agrees to defend, indemnify and hold harmless Landlord,
its partners (including the shareholders, officers and directors of any
corporate partner), agents, employees, successors and Lenders (for purposes of
this Article, the foregoing shall be referred to collectively as "Landlord") and
the Facility from each and every claim, demand, lien, loss, penalty, cost
(including attorneys' fees and costs of litigation), judgment and damage of any
kind or nature whatsoever at any time
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made by reason of any injury or death to any person or persons, including
Tenant, or damage or destruction to property of any kind whatsoever and to
whomsoever belonging including, without limitation, Tenant, from any cause or
causes, (including without limitation Tenant's arranging or failure to arrange
for competent medical care, or to render competent dietary and sanitary care to
patients and occupants), resulting or arising directly or indirectly, out of
Tenant's possession, occupancy, maintenance, repair and/or use of the Facility,
the conduct of Tenant's business at the Facility, any act, omission or neglect
of Tenant, its agents, contractors, employees or invitees, any default or breach
by Tenant in the performance of its obligations hereunder, or the condition, use
or misuse of the Facility and the approaches and appurtenances thereto,
including, without limitation, all adjacent sidewalks, alleys, and the parking
area. The foregoing shall include without limitation the defense or pursuit of
any claim or any action or proceeding involved therein, and whether or not (in
the case of claims made against Landlord) litigated and/or reduced to judgment,
and whether well founded or not. Excluded from Tenant's obligations set forth in
this section are damages which are the sole, direct and proximate result of
Landlord's gross negligence, willful acts or omissions, or Landlord's material
breach of this Lease, except to the extent that insurance coverage for
Landlord's protection is required by the provisions of Article 14.
13.2 Tenant hereby agrees that Landlord (as such term is defined for
purposes of Section 13.1 above) and the Facility shall not be liable for, and
Tenant hereby agrees during the term of this Lease to defend, indemnify and hold
harmless Landlord and the Facility from and against any and all claims, demands,
obligations, liabilities, penalties, cause or causes of action and any and all
costs and expenses, including, without limitation, attorneys' fees and costs of
litigation, which arise out of or are incurred in connection with, injury to
Tenant's business or any loss of income
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therefrom or for damages to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, agents, invitees, patients, occupants, or any other
person in or about the Facility, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same, or from
any other cause, whether the said damage or injury results from conditions
arising at the Facility or elsewhere and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Tenant.
Excluded from Tenant's obligations set forth in this section are damages which
are the sole, direct and proximate result of Landlord's negligence, willful acts
or omissions, or Landlord's material breach of this Lease, except to the extent
that insurance coverage for Landlord's protection is required by the provisions
of Article 14.
ARTICLE 14
INSURANCE
14.1 Tenant, at its sole cost and expense, shall maintain at all times
during the term of this Lease comprehensive public liability and property damage
insurance, hospital (professional liability) insurance, and owned and non-owned
automobile liability insurance in an amount of not less than $2,000,000 combined
single limits, insuring against bodily injury and/or death to persons, damages
to property and all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the Facility,
and insuring Landlord and its Lenders with respect to the ownership,
maintenance, operation and use or occupancy of the Facility, including, without
limitation, the sole negligence and strict liability of Landlord. All such
insurance shall insure performance by Tenant of the indemnity provisions of this
Lease. Both parties and any Lender designated by Landlord
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shall be named as additional insureds, and the policy shall contain personal
injury and contractual liability endorsements. A "claims made" insuring form
shall not be used.
14.2 Not more frequently than every three (3) years, if in the sole
discretion of any Lender or the reasonable and good faith opinion of Landlord
the amount of public liability and property damage insurance coverage at that
time should be increased, or if the insurance requirements of this Lease should
be expanded or otherwise modified, Tenant shall increase or modify the insurance
coverage as required by any Lender or Landlord and, in such event, Tenant's
monthly insurance impound amount, if any, shall be increased accordingly.
14.3 Tenant, at its sole cost and expense, shall maintain at all times
during the term of this Lease on all Tenant's personal property, Improvements
and Alterations in, on, or about the Premises, a policy of insurance with "all
risks" or "special form" coverage of direct physical loss, including flood (if
the Premises are located within a flood plain) and earthquake. Such insurance
shall contain a replacement cost endorsement to the extent of 100% of their full
replacement value. The proceeds from any such policy shall be used by Tenant for
the replacement of personal property or the restoration of Tenant's Improvements
or Alterations, subject to the rights of any lender.
14.4 At all times during the term of this Lease, Tenant at its sole cost
and expense shall maintain on all the Personal Property described in Exhibit B,
---------
and all replacements thereof, and on the building and other improvements that
are a part of the Premises, during the term of this Lease a policy or policies
of insurance with "all risks" or "special form" coverage of direct physical
loss, including flood (if the Premises are located within a flood plain) and
earthquake. Such insurance shall contain sprinkler
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leakage coverage and earthquake sprinkler leakage endorsements. The property to
be insured under this section shall be continually insured in an amount not less
than 100% current replacement cost, provide for replacement cost valuation in
the event of an insured loss, and contain not less than a 90% average clause,
25% for earthquake sprinkler leakage. Tenant shall obtain a stipulated amount
endorsement from the insurance carrier if such endorsement is available. The
policy shall also contain provisions for, or endorsements shall be obtained for,
earthquake sprinkler leakage, demolition cost coverage of not less that ten
percent (10%) of the face amount of hazard insurance carried on the building and
other improvements, contingent liability from operation of building laws
coverage (to cover an undamaged portion of an insured improvements that is
required to be removed), and increased cost of construction coverage (for
upgrading to current building codes, if necessary). The insurance policy or
policies shall insure both Landlord and Tenant, as their interests appear, with
lender endorsements as required by any Lender. In case this Lease is terminated,
the insurance policy (if other than blanket) and all rights under it or the
insurance proceeds shall be assigned to Landlord or its Lender(s) at Landlord's
or any Lender's election. Tenant shall pay the premiums for maintaining the
insurance required hereunder while the Lease is in force. If (1) any Lender
requires Landlord to escrow (impound) insurance premiums on a periodic basis
during the term, or (2) in the event Tenant has defaulted in performance of any
material provisions of this Article 14, Tenant, on notice from Landlord
indicating this requirement shall pay sums of money toward its liability under
this Article 14 to Landlord on a periodic basis in accordance with (1) the
Lender's requirements, or (2) Landlord's requirements, as applicable.
14.5 In order to assure that the building and other improvements that are
part of the Premises and the Personal Property are continually insured to their
full value with replacement cost insurance, the full replacement value of the
insurable improvements
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shall be determined by the company issuing the insurance policy at the time the
policy is initially obtained. Not more frequently than once every three (3)
years, or sooner if required by any Lender, Landlord shall have the right to
notify Tenant that it elects to have the replacement value redetermined by an
insurance company, or by appraisal. The redetermination shall be made promptly
and in accordance with Marshall & Swift or similar appraisal company recognized
and generally accepted by the insurance industry, and each party shall be
promptly notified of the results by the company. The insurance policy shall be
adjusted according to the determination. Tenant shall be obligated to forthwith
increase the insurance coverage and pay the premiums therefor in accordance
with any such determination.
14.6 At all times during the term of this Lease, Tenant at its sole cost
and expense shall maintain rent or rental value "all risks" or "special form"
coverage of direct physical loss including earthquake and flood (if in a flood
plain) and also including sprinkler leakage coverage and earthquake sprinkler
leakage endorsements, in an amount equal to nine (9) months' Base Monthly Rent,
as the same may be adjusted from time to time, plus the estimated annual cost of
real and personal property taxes and assessments and the annual premiums for
insurance policies required to be carried by Tenant hereunder. Such insurance
shall name Landlord and Tenant as insureds as their respective interests may
appear and shall provide for monthly payments to Landlord to the extent of
Tenant's monthly obligations hereunder plus such amounts of taxes and insurance
premiums as would be payable to Landlord if the same were being impounded
monthly. Such insurance shall provide for 60% contribution or coinsurance, or
stipulated amount if this clause if reasonably available.
14.7 The parties release each other, and their respective owners,
officers, directors, partners (including the shareholders, officers and
directors of any corporate partners) and agents, from
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any claims for damage to any person or to the Facility or any part thereof,
Tenant's Improvements, and alterations of either Landlord or Tenant in, on or
about the Premises, that are caused by or result from risks insured against
under any insurance policies carried by the parties and in force at the time of
any such damage. Each party shall cause each insurance policy obtained by it to
provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by any
policy. Neither party shall be liable to the other for any damage caused by fire
or any of the risks insured against under any insurance policy required by this
Lease. If any insurance policy cannot be obtained with a waiver of subrogation,
or is obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of subrogation,
the party undertaking to obtain the insurance shall notify the other party of
this fact. The other party shall have a period of ten (10) days after receiving
the notice either to place the insurance with a company that is reasonably
satisfactory to the other party (and, in the case of insurance required to be
carried by Tenant hereunder, complying with the provisions of Section 14.8
below) and that will carry the insurance with a waiver of subrogation, or to
agree to pay the additional premium if such a policy is obtainable at additional
cost. If the insurance cannot be obtained or the party in whose favor a waiver
of subrogation is desired refuses to pay the additional premium charged, the
other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect to the particular insurance involved.
14.8 All insurance policies required under this Lease shall:
14.8.1 Be issued by insurance companies authorized to do business
in the state in which the Facility is located with a policyholders and financial
rating of at least A:Class X status (or such other status as may be acceptable
to Landlord in Landlord's
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sole discretion) as rated in the most recent edition of Best's Reports Guide;
14.8.2 Be issued as a primary policy; however, Tenant may carry the
insurance under a blanket policy if the policy specifically provides that the
amount of insurance required under this Lease will be in no way prejudiced by
other losses covered by the policy; and
14.8.3 Contain an endorsement requiring thirty (30) days written
notice from the insurance company to all parties including, without limitation,
Landlord's Lenders, before cancellation or material change in the coverage,
scope, or amount of any policy.
14.9 The policy, or a certificate of the policy itemizing all coverages
and extensions of coverage along with a copy (not certified) of the policy and
evidence of payment of premiums, shall be deposited with Landlord at the
Commencement Date, and on renewal of the policy, not less than twenty (20) days
before expiration of the term of the policy. Landlord (and Landlord's Lenders,
if required) shall be named as an insured (or additional insured) in the policy
and all renewals and replacements thereof.
14.10 Deductible or retention provisions per loss contained for all
insurance policies required by this Lease shall be for the account of and
payable by Tenant and shall not exceed an aggregate amount of $5,000, except for
the earthquake coverage deductible, which shall be subject to Landlord's
reasonable approval.
14.11 Subject to the provisions of Article 16, the proceeds from any and
all hazard insurance policies carried by Landlord shall be used solely for the
purpose of repair, reconstruction, remodeling and replacement of the Facility or
any part thereof
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damaged or destroyed, and shall be held by Landlord in trust for such purposes.
14.12 In the event Tenant does not maintain any of the foregoing policies
of insurance, Landlord may, but shall not be obligated to, pay the premiums
therefor, and such amounts plus interest at the maximum rate permitted by law,
or if no maximum rate applies, at the rate of 18% per annum, from the date
Landlord paid until the date of reimbursement shall be additional rent due
hereunder and payable on the next payment date for monthly rent. Landlord's
election to make said payments shall not be deemed a waiver of any other
remedies, or an election of remedies by Landlord, nor as liquidated damages.
14.13 Tenant, at its sole cost and expense, shall further obtain and
maintain adequate worker's compensation insurance (or evidence of an adequate
self-insurance program if permitted by the laws of the state in which the
Facility is located) covering all workmen, employees, servants and others
engaged in or upon the Premises.
ARTICLE 15
CONDEMNATION
15.1 Definitions:
15.1.1 "Condemnation" means (1) the exercise of any governmental or
governmentally-derived power, whether by legal proceedings or otherwise, by a
Condemnor (as defined below), and (2) a voluntary sale or transfer by Landlord
to any Condemnor, either under threat of condemnation or while legal proceedings
for condemnation are pending.
15.1.2 "Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
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15.1.3 "Award" means all compensation, sums, or anything of value
awarded, paid, or received on a total or partial Condemnation.
15.1.4 "Condemnor" means any public or quasi-public authority, or
private entity or individual, having the power of Condemnation.
15.2 If during the term there is any taking of all or any part of the
Premises or any interest in this Lease by Condemnation, the rights and
obligations of the parties shall be determined pursuant to the provisions of
this Article 15.
15.3 If the Premises are totally taken by Condemnation, this Lease shall
terminate on the Date of Taking.
15.4 If the Premises are partially taken by Condemnation, this Lease shall
remain in effect, except that Tenant can elect to terminate this Lease if the
remaining portion of the building or other improvements or the parking area that
are a part of the Premises is rendered unsuitable for Tenant's continued use of
the Premises. If Tenant elects to terminate this Lease, Tenant must exercise its
right to terminate by giving notice ("Termination Notice") to Landlord within
thirty (30) days after the nature and extent of the taking have been finally
determined. The Termination Notice shall state the date of termination, which
date shall not be earlier than thirty (30) days nor later than ninety (90) days
after Tenant has notified Landlord of its election to terminate (except that
this Lease shall terminate on the Date of Taking if the Date of Taking falls on
a date before the date of termination as designated by Tenant in the Termination
Notice). If Tenant does not terminate this Lease within the thirty (30) day
period, this Lease shall continue in full force and effect, except that Base
Monthly Rent shall be reduced pursuant to Section 15.5 below.
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15.5 If any portion of the Premises (other than that portion consisting of
land upon which no buildings, improvements, parking areas, driveways, walkways
or recreation areas are located, hereinafter referred to as Excluded Premises)
is taken by Condemnation and this Lease remains in full force and effect, on the
date of taking the Base Monthly Rent shall be reduced by an amount that is in
the same ratio to Base Monthly Rent as the value of the area of the portion of
the Premises taken (but excluding therefrom the area of the Excluded Premises)
bears to the total value of the Premises immediately before the Date of Taking.
If any portion of the Excluded Premises is taken by Condemnation and this Lease
remains in full force and effect, and if such taking materially and adversely
affects the operation of the Facility, Tenant shall be entitled to an equitable
abatement of Base Monthly Rent in a total amount not exceeding the cost of
replacing the Excluded Premises by acquiring rights in off-site improvements,
but such abatement shall be reduced by any benefit received by Tenant from such
taking by way of increased or extraordinary payments from governmental agencies
or otherwise.
15.6 If there is a partial taking of the Premises and this Lease remains
in full force and effect, Landlord at its cost shall accomplish all necessary
restoration. Base Monthly Rent shall be abated or reduced during the period from
the date of taking until the completion of restoration, but all other
obligations of Tenant under this Lease shall remain in full force and effect.
The abatement or reduction of Base Monthly Rent shall be based on the extent to
which the restoration interferes with Tenant's use of the Premises. If the award
is not sufficient to pay for restoration, Landlord may elect to furnish the
deficiency, or Landlord may elect to terminate this Lease, at Landlord's
discretion, in which latter event, Tenant may elect to furnish the deficiency by
written notice to Landlord within ten (10) days following Landlord's notice to
Tenant of Landlord's election to terminate hereunder, and upon
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Landlord's receipt of such notice and the deficiency, Landlord shall accomplish
all necessary restoration.
15.7 If the Lease remains in full force and effect, the entire Award shall
belong to and be paid to Landlord. If the Lease terminates, the Award shall
belong to and be paid to Landlord, except that Tenant shall receive from the
award any sum awarded for relocation, plus any sum awarded for Tenant's
Improvements or Alterations made to the Premises by Tenant in accordance with
this Lease, which Tenant's Improvements or Alterations Tenant has the right to
remove from the Premises pursuant to the provisions of this Lease but elects not
to remove.
ARTICLE 16
DESTRUCTION
16.1 If during the term the Premises or any part thereof are totally or
partially destroyed from a risk required to be covered by the insurance
described in Article 14 of this Lease, Tenant shall restore the Premises to
substantially the same condition as they were in immediately before destruction,
whether or not the insurance proceeds are sufficient to cover the actual cost of
restoration. Such destruction shall not terminate this Lease. If the existing
laws do not permit the restoration, either party can terminate this Lease
immediately by giving notice to the other party.
16.2 Subject to the provisions set forth below, if during the term the
Premises or any part thereof are totally or partially destroyed from a risk not
required to be covered by the insurance described in Article 14 of this Lease,
Tenant shall restore the Premises to substantially the same condition as they
were in immediately before destruction. Such destruction shall not terminate
this Lease. If the existing laws do not permit the restoration, either party can
terminate this Lease immediately by giving
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notice to the other party. If the cost of restoration exceeds Three Hundred
Thousand Dollars ($300,000) (the "Replacement Limit"), Tenant can elect to
terminate this Lease by giving notice to Landlord within twenty (20) days after
determining the restoration cost or replacement cost, which Tenant agrees to
promptly and diligently obtain. If Tenant elects to terminate this Lease,
Landlord, within thirty (30) days after receiving Tenant's notice to terminate,
can elect to pay the actual cost of restoration in excess of the Replacement
Limit, in which case Tenant shall restore the Premises. On Landlord's making its
election to contribute, each party shall deposit immediately the amount of its
contribution with the Insurance Trustee provided for in Section 16.6 below. If
the cost of restoration does not exceed the Replacement Limit, Tenant shall
immediately deposit the cost of restoration with the Insurance Trustee.
16.3 As used in Sections 16.4 and 16.12 hereof:
16.3.1 "Index" shall mean the Consumer Price Index for All Urban
Consumers, Los Angeles/Anaheim/Riverside Metropolitan Area, 1982-1984 = 100,
published by the Bureau of Labor Statistics of the U.S. Department of Labor.
16.3.2 "Adjustment Date" shall mean each anniversary of the
Commencement Date during the term of this Lease.
16.3.3 "Percentage Change of Index" shall mean the percentage of
increase or decrease in the Index on the Adjustment Date equal to a fraction,
the numerator of which shall be the Index on such Adjustment Date less the Index
on the Commencement Date, and the denominator of which shall be the Index on the
Commencement Date. In the event the Index shall hereafter be converted to a
different standard reference base or otherwise revised, the Index for each
Adjustment Date shall be the one reported in the U.S. Department of Labor's
newest comprehensive official index then in
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use and most nearly answering the description of the foregoing Index. If it is
calculated from a base different from 1982-1984 = 100, the determination of
Percentage Increase of Index shall be made using a formula supplied by the
Bureau of Labor Statistics, or if the Bureau shall not publish the same, it
shall be determined by using any other nationally recognized publisher of
similar statistical information on which the parties may agree. If they are
unable to agree within thirty (30) days after demand by either party, a
substitute index shall, on application of either party, be selected by the chief
officer of the San Francisco regional office of the Bureau, or its successor.
16.4 The Replacement Limit figure set forth above in Section 16.2 shall be
increased or decreased, as appropriate, on each Adjustment Date for the Lease
Year commencing on such Adjustment Date by an amount equal to such figure
multiplied by the Percentage Change of Index.
16.5 If during the term any portion of the Premises are damaged or
destroyed from a risk covered by the insurance described in Article 14 of this
Lease, and the total amount of loss does not exceed $5,000, Tenant shall make
the loss adjustment with the insurance company insuring the loss. The proceeds
shall be paid directly to Tenant for the sole purpose of making the restoration
of the Premises in accordance with Sections 16.9 et seq. of this Lease.
16.6 If during the term any portion of the Premises are damaged or
destroyed from a risk covered by the insurance described in Article 14 of this
Lease, and the total amount of loss exceeds $5,000, Tenant shall, with
Landlord's approval, make the loss adjustment with the insurance company
insuring the loss, and on receipt of the proceeds, the parties shall immediately
pay them to a bank, savings and loan association, or other person or company
furnishing construction disbursement control services acceptable to
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Landlord ("Insurance Trustee") to act as insurance trustee hereunder.
16.7 All sums ("Trust Funds") deposited with the Insurance Trustee
(including insurance proceeds) shall be held for the following purposes and the
Insurance Trustee shall have the following powers and duties:
16.7.1 The Trust Funds shall be paid in installments by the Insurance
Trustee to the contractor retained by Tenant as construction progresses, for
payment of the cost of restoration. A 10% retention fund shall be established
that will be paid to the contractor on the last to occur of (i) completion of
restoration, (ii) payment of all costs thereof, (iii) receipt of all necessary
governmental inspection approvals, (iv) expiration of all applicable lien
periods, and (v) proof that the Premises are free of all mechanics' liens and
lienable claims.
16.7.2 Payments shall be made on presentation of certificates or
vouchers from the architect, engineer, or other inspection agency retained by
the Insurance Trustee or Tenant showing the amount due. If the Insurance
Trustee, or Landlord, in its reasonable discretion, determines that the
certificates or vouchers are being improperly approved, either shall have the
right to appoint an architect, engineer, or inspection agency to supervise
construction and to make payments only on certificates or vouchers approved by
such person. The expenses and charges of the person retained by Landlord or
Insurance Trustee shall be paid out of the Trust Funds.
16.7.3 If after deposit by the parties of all sums required by this
Article 16, the sums held by the Insurance Trustee are not sufficient to pay the
actual cost of restoration, Tenant and/or Landlord (as applicable) shall deposit
the amount of the deficiency with the Insurance Trustee within seven (7) days
after
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request by the Insurance Trustee indicating the amount of the deficiency.
16.7.4 Insurance proceeds not disbursed by the Insurance Trustee
after restoration has been completed and final payment has been made to Tenant's
contractor shall be delivered within seven (7) days (after demand made by either
party on the Insurance Trustee, with a copy to Landlord's Lender) by the
Insurance Trustee to Landlord's Lender and shall be applied by Landlord's Lender
to reduce the balance of the loan held by the Lender.
16.7.5 Any undisbursed funds after compliance with the provisions of
this Article 16 shall be delivered to Landlord. All actual costs and charges of
the Insurance Trustee shall be paid by Tenant.
16.7.6 If the Insurance Trustee resigns or for any reason is
unwilling to act or continue to act, the parties shall jointly substitute a new
trustee meeting the requirements of Section 16.6 above in the place of the
designated Insurance Trustee.
16.8 If Landlord is required to or elects to restore the Premises as
provided in this Article 16, Landlord shall not be required to restore Tenant's
Improvements, Alterations, trade fixtures, equipment or personal property, such
excluded items being the sole responsibility of Tenant to restore.
16.9 Promptly following the date that Tenant is obligated to restore the
Premises, Tenant at its cost shall prepare final plans and specifications and
working drawings (collectively "Plans") complying with applicable laws that will
be necessary for restoration of the Premises. The Plans shall be subject to
approval by Landlord. Landlord shall have twenty (20) days after receipt of the
Plans to either approve or disapprove the Plans and return them to
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Tenant. If Landlord disapproves the Plans, Landlord shall notify Tenant of its
objections, and Tenant shall submit required Plans responding to Landlord's
objections. The process shall continue until Landlord has approved the Plans.
Any unresolved controversy arising out of or relating to this Section 16.9 shall
be settled by arbitration in accordance with the then-prevailing rules of the
American Arbitration Association, and judgment upon the award may be entered in
any Court having jurisdiction thereof. Tenant acknowledges that the Plans shall
be subject to approval of the appropriate government bodies and that they will
be prepared in such a manner as to obtain that approval.
16.10 The restoration shall be accomplished as follows:
16.10.1 Tenant shall complete the restoration as promptly as
possible after final Plans have been approved by Landlord and all appropriate
government bodies and all required permits have been obtained (subject to a
reasonable extension for delays resulting from causes beyond Tenant's reasonable
control).
16.10.2 Tenant shall retain a licensed general contractor that is
bondable. The contractor shall be required to carry public liability and
workers' compensation insurance, and such other coverages as may be reasonably
required by Landlord or its Lender, during the period of construction. Landlord,
Landlord's Lender if required and Tenant shall be named as additional insured's
on the contractor's general liability insurance policy. Such insurance shall
contain a waiver of subrogation clause in favor of Landlord and Tenant. The
contract for restoration between Tenant and its contractor shall be approved by
Landlord, in advance, which approval shall not be unreasonably withheld. During
restoration, Tenant, at its sole cost and expense, shall take out a course of
construction policy that includes Landlord (and Landlord's Lender, if required)
as an insured. Such policy shall provide for "special form" perils coverage, but
shall exclude
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earthquake, in an amount sufficient to protect an estimated amount to complete
the restoration, including transit and installation coverage.
16.10.3 Tenant shall notify Landlord of the date of commencement of
the restoration at least ten (10) days before commencement of the restoration.
The contractor retained by Tenant shall not commence construction until a
performance bond and a labor and material payment bond in the full amount of the
cost of restoration have been delivered to Landlord to insure completion of the
construction.
16.10.4 Tenant shall accomplish the restoration in a manner that
will cause the least inconvenience, annoyance, and disruption to the Premises.
16.10.5 Prior to commencement of construction of the restoration and
upon completion of the restoration, Tenant shall immediately furnish Landlord
evidence satisfactory to Landlord that the restoration complies with all
applicable statutes, ordinances, codes and law and that all necessary and
applicable permits and approvals have been obtained for the restoration.
16.10.6 The restoration shall not be commenced until sums sufficient
to cover the cost of restoration are placed with the Insurance Trustee.
16.11 In case of damage or destruction to the Premises or any part thereof,
there shall be no abatement or reduction of Rent.
16.12 If damage or destruction to the Premises occurs during the last Lease
Year of the term, the cost of repairing which exceeds Fifty Thousand Dollars
($50,000), (the "Termination Limit"), either party may terminate this Lease by
giving notice to the other not more than thirty (30) days after the event of
damage
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or destruction. The Termination Limit figure set forth herein shall be increased
or decreased, as appropriate, on each Adjustment Date by an amount equal to such
figure multiplied by the Percentage Change in Index (as defined in Section 16.3
above).
16.13 The provisions of this Article 16 assume that the insurance proceeds,
in the event of an insurable loss, are made available to the parties for the
purpose of restoration of the Premises. In the event that Landlord's Lender(s)
refuse(s) to make the proceeds available for such purpose, having the right to
do so, and/or as a condition of making the proceeds available alter(s) the terms
of any obligations secured by encumbrance(s) affecting the Premises so as to
materially change the cost of or the manner in which such obligation(s) is/are
to be paid or discharged, Landlord shall have the right to terminate this Lease
by giving notice to Tenant not later than thirty (30) days after determination
of such condition(s).
ARTICLE 17
ASSIGNMENT AND SUBLETTING
17.1 Tenant shall not voluntarily assign or otherwise transfer or encumber
its interest in this Lease or in the Premises, including but not limited to,
entering into a management agreement or contract with anyone to operate the
Facility (collectively an "assignment"), or sublease all or any part of the
Premises or allow any other person or entity (except Tenant's agents, invitees
and patients) to occupy or use all or any part of the Premises (collectively a
"sublease"), without first obtaining Landlord's written consent. Any assignment
or sublease without Landlord's written consent shall be voidable and, at
Landlord's election, shall constitute a default under this Lease. No consent to
any assignment or sublease shall constitute consent to any future assignment,
encumbrance or sublease or a further waiver of the provisions of this Article
17. If Tenant is a partnership, a withdrawal or
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change, voluntary, involuntary, or by operation of law, of a partner or partners
owning 51% or more of the partnership, or the dissolution of the partnership,
shall be deemed a voluntary assignment. If Tenant consists of more than one
person, a purported assignment, voluntary, involuntary, or by operation of law,
from a majority of persons to the others shall be deemed a voluntary assignment.
If Tenant is a corporation, any dissolution, merger, consolidation, or other
reorganization of Tenant, or (except by the voluntary act of Landlord) the sale
or other transfer of a controlling percentage of the capital stock of Tenant, or
the sale of 51% of the value of the assets of Tenant, shall be deemed a
voluntary assignment; provided, however, that the assignment of this Lease to a
subsidiary corporation of Tenant shall not require the consent of Landlord so
long as prior to or concurrently with such assignment, Landlord shall be
provided with written notice of the same and any guarantor of this Lease shall
confirm to Landlord in writing its continuing liability under its guaranty of
this Lease, notwithstanding such assignment; and provided, further, that a
transfer of control of any public parent corporation of Tenant shall not require
the consent of Landlord. The phrase "controlling percentage" means the ownership
of, and the right to vote, stock possessing at least 51% of the total combined
voting power of all classes of Tenant's capital stock issued, outstanding, and
entitled to vote for the election of directors. Consent of Landlord to an
assignment or sublease shall not be unreasonably withheld, provided that it
shall be reasonable for Landlord to condition its consent upon any of the
following factors:
17.1.1 At the time of Tenant's request for Landlord's consent to such
assignment or subletting, and upon the effective date of such assignment or
subletting, Tenant is not in default in the performance and observance of any of
the covenants and conditions of this Lease;
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17.1.2 The proposed assignee or sublessee of Tenant shall expressly
assume in writing all of Tenant's obligations under this Lease; and
17.1.3 The proposed assignee or sublessee shall be reputable person
or entity of good character, having sufficient experience, assets and income, in
Landlord's reasonable judgment, to bear the financial responsibilities of Tenant
under this Lease. Tenant shall provide Landlord with data on the proposed
assignee or sublessee sufficient to enable Landlord to evaluate and consider
such proposed assignee's or sublessee's background, experience, reputation,
ability to perform its obligations, financial responsibility, credit rating,
capitalization and such other factors as Landlord shall deem relevant. Tenant
shall also furnish to Landlord in writing all of the terms and conditions upon
which the proposed assignment or sublease is to be made.
17.2 Notwithstanding anything to the contrary contained herein, Landlord's
acceptance of rent from any person or entity other than Tenant shall not be
deemed, in and of itself, to be a waiver of any of the provisions of this Lease
or a consent to an assignment or subletting.
17.3 No sublease entered into by Tenant shall be effective unless and until
it has been approved in writing by Landlord. In entering into any sublease,
Tenant shall use only such form of sublease as is satisfactory to Landlord, and
once approved by Landlord, such sublease shall not be changed or modified
without Landlord's prior written consent.
17.4 Any assignee or sublessee shall, by reason of entering into an
assignment or sublease under this Lease, be deemed, for the benefit of Landlord,
to have assumed and agreed to conform and comply with each and every obligation
under this Lease to be performed by Tenant other than such obligations as are
contrary to or incon-
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sistent with provisions contained in an assignment or sublease to which Landlord
has expressly consented in writing.
17.5 If Tenant's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease (and Landlord's consent thereto)
shall not be effective unless said guarantors give their written consent to such
assignment or sublease and the terms thereof and acknowledge their continued
liability hereunder.
17.6 The consent by Landlord to any assignment or sublease shall not
release Tenant or guarantor(s) (if any) from their obligations under this Lease
and/or any guaranties or alter the primary liability of Tenant or guarantor(s)
to pay the Rent and perform and comply with all of the obligations of Tenant to
be performed under this Lease.
17.7 If Tenant requests Landlord to consent to a proposed assignment or
sublease, Tenant shall pay to Landlord (whether or not consent is ultimately
given) a reasonable sum not exceeding (i) fifteen percent (15%) of one month's
then-current Base Monthly Rent in the case of an assignment or sublease between
Tenant and any parent or subsidiary corporation of Tenant, or (ii) one-half of
one month's then-current Base Monthly Rent in the case of any other assignment
or sublease, on account of Landlord's costs, expenses and attorneys' fees in
connection with such request.
17.8 No interest of Tenant in this Lease shall be assignable by operation
of law (including, without limitation, the transfer of this Lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment:
17.8.1 If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding under the
Bankruptcy Code in which Tenant is the debtor;
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17.8.2 If a writ of attachment or execution is levied on this Lease;
17.8.3 If, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the Premises.
17.9 An involuntary assignment shall constitute a default by Tenant and
Landlord shall have the right to elect to terminate this Lease, in which case
this Lease shall not be treated as an asset of Tenant. If a writ of attachment
or execution is levied on this Lease, Tenant shall have sixty (60) days in which
to cause the attachment or execution to be removed.
17.10 Bankruptcy:
17.10.1 If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), any and all monies or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code.
17.10.2 If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment setting forth (i)
the name and address of such person, (ii) all of the terms and conditions of
such offer, and (iii) the adequate assurance to be provided Landlord to assure
such person's further performance under the Lease, including, without
limitation, the assurance referred to in Section 365(f)(3)(B) of the Bankruptcy
Code, shall be given to Landlord by
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Tenant no later than twenty (20) days after receipt by Tenant, but in any event
no later than ten (10) days prior to the date that Tenant shall make application
to a court of competent jurisdiction for authority and approval to enter into
such assignment and assumption, and Landlord shall thereupon have the prior
right and option, to be exercised by notice to Tenant given at any time prior to
the effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment of this Lease.
17.10.3 Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such assignee shall upon
demand execute and deliver to Landlord an instrument confirming such assumption.
17.11 Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this Lease, all payments of Rent from
any subletting of all or part of the Premises as permitted by this Lease;
however, Landlord's security interest in such Rent payments is limited to the
extent of Tenant's payment obligations under this Lease. Landlord, as successor
and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on
Landlord's application, may collect such Rent and apply it toward Tenant's
obligations under this Lease. However, until the occurrence of an act of default
by Tenant, Tenant shall have the right to collect such Rent. Nothing herein is
intended to abrogate or affect the provisions of Section 17.8.
17.12 Following the consent to an assignment or sublease, Landlord may,
but shall not be obligated to, consent to subsequent
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subleases or assignments of the sublease or any amendments or modifications
thereto without notifying Tenant, any guarantors, or any other persons liable on
the Lease or any sublease and without obtaining their consent, and such action
shall not relieve such persons from liability under this Lease or any sublease.
ARTICLE 18
DEFAULTS; REMEDIES
18.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
18.1.1 Failure to pay Rent or any other sums required to be paid
under this Lease when due if the failure continues for five (5) days after
notice of delinquency; provided, however, that any such notice shall be in lieu
of, and not in addition to, any notice of default required under applicable law.
18.1.2 Abandonment, except for emergencies, of the Facility
(failure to operate the Facility for eight (8) consecutive hours shall be deemed
an abandonment); vacation of the Facility due to acts of God, natural
catastrophes, war, riot or other similar events beyond Tenant's control, shall
not be deemed an abandonment.
18.1.3 Tenant or any guarantor of Tenant's obligations hereunder
fails to pay its debts as they become due, or admits in writing its inability to
pay its debts, or makes a general assignment for the benefit of creditors.
18.1.4 Commencement by Tenant or any guarantor of Tenant's
obligations hereunder of any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of
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debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property.
18.1.5 Tenant or any guarantor of Tenant's obligations hereunder taking
any corporate action to authorize any of the actions set forth above.
18.1.6 Commencement of any case, proceeding or other action against Tenant
or any guarantor of Tenant's obligations hereunder seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action (i) results in the entry of an order for relief
against it which is not fully stayed within seven (7) business days after entry
thereof or (ii) remains undismissed for a period of sixty (60) days.
18.1.7 Notwithstanding any other provisions of this Lease, the failure of
Tenant to comply with any of the provisions of the Lease or any other act or
omission by Tenant (whether occurring at the Facility or elsewhere) which, in
the reasonable and good faith judgment of Landlord, places in imminent jeopardy
the continued licensing and/or certification of the Facility as then currently
licensed, and/or its certification as either a Medicare or Medicaid provider (if
then currently certified as such), and if, within twenty-four (24) hours after
written notice thereof from Landlord to Tenant, Tenant shall not have either (1)
cured such failure, or (2) obtained an injunction or other order preventing
revocation or suspension of licensing and/or decertification of the Facility by
virtue of such failure or alleged failure, or (3) provided Landlord with
assurances
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satisfactory to Landlord that the Facility will not be subject to license
suspension or revocation and/or decertification as a result of such failure or
alleged failure.
18.1.8 Notwithstanding any other provisions of this Lease, a release,
generation or disposal of Hazardous Substances from the Premises or onto the
Premises, except in accordance with law.
18.1.9 Failure by Tenant to observe or perform any other covenants,
conditions, or provisions of this Lease to be observed or performed by Tenant
(except where a different period of time is specified in this Lease) where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant. If the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, Tenant shall
not be deemed to be in default if Tenant commences such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to completion.
18.2 REMEDIES. Landlord shall have the following remedies without
further notice to Tenant if Tenant commits a default. These remedies are not
exclusive and are in addition to any other remedies provided hereunder or
allowed at law or equity:
18.2.1 Landlord can continue this Lease in full force and effect,
and the Lease will continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect Rent
and other amounts from Tenant when due. During the period Tenant is in default,
Landlord can enter the Facility and relet it, or any part of it, to third
parties for Tenant's account. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Facility, including, without
limitation, brokers' commissions, expenses of remodeling the Facility required
by the reletting, and attor-
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neys' fees incurred in connection with repossession and reletting of the
Facility. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Tenant shall pay to Landlord the Rent due under this lease
on the dates the Rent is due, less the Rent Landlord receives from any
reletting. No act by Landlord allowed by this paragraph shall terminate this
Lease unless Landlord notifies Tenant in writing that Landlord elects to
terminate this Lease. After Tenant's default and for as long as Landlord does
not terminate Tenant's right to possession of the Facility, if Tenant obtains
Landlord's consent, Tenant shall have the right to assign or sublet its interest
in this Lease, but Tenant shall not be released from liability. Landlord's
consent to a proposed assignment or subletting shall not be unreasonably
withheld.
18.2.2 Landlord can terminate Tenant's right to possession of the Facility
at any time. No act by Landlord other than giving written notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the Facility, or
the appointment of a receiver on Landlord's initiative to protect Landlord's
interests under this Lease shall not 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;
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(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.
"The worth at the time of the award" as used in (a) and (b) of this paragraph
18.2.2 is to be computed by allowing interest at 10% per annum. "The worth at
the time of the award" as referred to in (c) of this paragraph 18.2.2 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 1%.
18.2.3 If Tenant is in default of this Lease Landlord shall have
the right to have a receiver appointed to collect rent and conduct Tenant's
business. Neither the filing of a petition for the appointment of a receiver nor
the appointment itself shall constitute an election by Landlord to terminate
this Lease.
18.2.4 If Landlord elects to relet the Facility as provided in this
Section 18.2, Rent that Landlord receives from reletting shall be applied to the
payment of: First, any indebtedness from Tenant to Landlord other than Rent due
from Tenant; second, all costs, including for maintenance, incurred by Landlord
in reletting; and third, Rent due and unpaid under this Lease. After deducting
the payments referred to in this paragraph, any sum remaining from the Rent
Landlord receives from reletting shall be held by Landlord and applied in
payment of future Rent as Rent becomes due under this Lease. In no event shall
Tenant be entitled to any excess Rent received by Landlord. If, on the date
Rent is due under this Lease, the Rent received from the reletting is less than
the Rent due on that date, Tenant shall pay to Landlord, in
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addition to the remaining Rent due, all costs, including for maintenance,
Landlord incurred in reletting that remain after applying the Rent received from
the reletting as provided in this Section 18.2.
18.2.5 In the event of a material default under Section 18.1.8 above,
Landlord may, in addition to all other remedies which it may pursue, elect to
shut down Tenant's operations and require cleanup of the contamination at
Tenant's expense while still enforcing the remaining terms of this Lease. In
such event, Landlord shall have no liability to Tenant for any damages arising
out of the shutdown of operation. If Landlord elects to terminate the Lease on
account of such default, Landlord shall be entitled to collect as an item of its
damages cost of cleanup of the contamination.
18.2.6 Landlord, at any time after Tenant commits a default, can cure
the default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord at the
time the sum is paid, and if repaid at a later date, shall bear interest at the
rate of 10% per annum, from the date the sum is paid by Landlord until Landlord
is reimbursed by Tenant.
18.2.7 In the event that the Facility is excluded from participating
in the Medicaid program for the state in which the Facility is located, such
exclusion shall be deemed a breach of this Lease unless such exclusion is as a
result of the imposition of a change in regulations that affects all providers,
or a class of providers, generally. In addition to all remedies available to
Landlord under the Lease and under applicable law, Landlord shall have the
right, following written demand to Tenant, to require Tenant to deliver
possession of the Facility to Landlord or to a nursing home operator of
Landlord's choice, and Tenant agrees to
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promptly comply with any such demand. Unless expressly set forth by Landlord
in writing, no such demand, nor change of possession pursuant thereto, shall be
deemed a termination of this Lease or a release of Tenant from any of its
obligations under the Lease. Unless and until this Lease (or the Guaranty, as
the case may be) is terminated by Landlord, Tenant and each guarantor of
Tenant's performance, shall remain liable under the terms of this Lease and such
Guaranty respectively. It is agreed that an action excluding the Facility from
participation in a Medicaid program shall not be deemed to have occurred until
such action is final in the sense that all appeal rights have expired. No action
to exclude shall be deemed to have occurred unless the period of exclusion
exceeds sixty (60) days.
18.2.8 Should Landlord require Tenant to deliver possession of the
Facility to Landlord or to another nursing home operator following a breach of
the Lease by Tenant, Tenant agrees to fully cooperate with Landlord and/or such
new operator in effecting a transition in the operation of the Facility that
will least disrupt the continuing operation and the comfort and welfare of the
patients. Such cooperation shall include, to the extent deemed necessary by
Landlord and permitted under applicable law, permission by Tenant for such new
operator (1) to operate for his own account under Tenant's license pursuant to a
management agreement, and (2) to bill under Tenant's Medicare and Medicaid
numbers, until new licenses and provider agreements are obtained.
18.3 If Landlord is in default of this Lease, and as a consequence
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of (1) the proceeds of sale received by voluntary sale of, or
on execution of the judgment against, the right, title and interest of Landlord
in the Facility or (2) Rent or other income from the Facility receivable by
Landlord. Neither Landlord nor any of the partners comprising any partnership
designated as Landlord (including, in the case of a
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corporate partner, the shareholders, directors and officers thereof) shall be
personally liable for any deficiency.
ARTICLE 19
SIGNS
19.1 Subject to Landlord's prior written approval, Tenant at its cost
shall have the right to place, construct, and maintain on the Premises one or
more signs advertising its business at the Premises. Any sign that Tenant has
the right to place, construct, and maintain shall comply with all laws,
ordinances, regulations and covenants, conditions and restrictions affecting the
Premises, and Tenant shall obtain any approval required thereby. Landlord makes
no representation with respect to Tenant's ability to obtain such approval.
Upon the expiration or sooner termination of this Lease, Tenant shall, at the
option of Landlord, either remove any signs erected by Tenant and repair the
Premises to the same condition it was in prior to the installation or
construction of the sign(s), or leave such signs in place for Landlord's
benefit. Upon expiration or termination of this Lease, Tenant hereby consents to
the use by Landlord, at Landlord's election, of the name of the Facility and
Tenant hereby presently assigns to Landlord the right, title and interest of
Tenant in the name of the Facility, provided that as long as Tenant is not in
default hereunder and/or until the expiration or termination of this Lease,
Landlord consents to Tenant's use of said name and signs for the benefit of the
Facility. Said name shall not be changed without Landlord's prior written
consent.
ARTICLE 20
RIGHT OF ENTRY
20.1 Landlord and its authorized representatives shall have the right to
enter the Premises at all reasonable times in order to:
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20.1.1 Determine whether the Facility is in good condition and
whether Tenant is complying with its obligations under this Lease;
20.1.2 Do any necessary maintenance and to make any restoration to
the Premises that Landlord has the right or may have the obligation to perform;
provided, that nothing herein contained shall constitute an obligation on the
part of Landlord or its designated representative to maintain or restore the
Premises or any part thereof;
20.1.3 Serve, post, or keep posted any notices required or allowed
under the provisions of this Lease or applicable law;
20.1.4 Post "for rent" or "for lease" signs during the last six (6)
months of the term, or during any period while Tenant is in default; and
20.1.5 Upon not less than 48 hours prior notice to Tenant, show the
Premises to prospective brokers, agents, buyers, tenants, or persons interested
in an exchange, eat any time during the term; provided, that Tenant shall use
reasonable efforts to exercise the foregoing right in a manner which imposes the
least disruption on Tenant's operations at the Facility.
20.2 Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry on the Premises as provided in this Article 20, except damage
resulting from the negligent or intentional acts or omissions of Landlord or its
authorized representatives.
20.3 Tenant shall not be entitled to an abatement or reduction of Rent or
any part thereof if Landlord exercises any rights
53
<PAGE>
reserved in this Article 20. Landlord shall conduct its activities on the
Premises as allowed in this Article 20 in a manner that will cause as little
inconvenience, annoyance, or disturbance to Tenant as reasonably practicable.
ARTICLE 21
SUBORDINATION; ESTOPPEL; CERTIFICATION
21.1 This Lease is and shall be subordinate to any Encumbrance now or
hereafter recorded affecting all or any part of the Premises including all
advances made or to be made thereunder, and all renewals, replacements,
consolidations and extensions thereof. Such subordination is effective without
any further act of Tenant. Tenant shall from time to time, on request of
Landlord, execute and deliver any documents or instruments that may be required
by a Lender to effectuate any subordination. If Tenant fails to execute and
deliver any such documents or instruments, Tenant irrevocably constitutes and
appoints Landlord as Tenant's special attorney-in-fact to execute and deliver
any such documents or instruments.
21.2 Notwithstanding the above, if a Lender requires that this Lease be
subordinate to any such encumbrance, this Lease shall be subordinate to that
Encumbrance if Landlord obtains from the Lender a written agreement providing,
substantially, that as long as Tenant performs its obligations under this Lease,
no foreclosure of, deed given in lieu of foreclosure of, or sale under the
Encumbrance shall affect Tenant's rights under this Lease. Such agreement shall
further provide that the provisions of this Lease concerning disposition of
insurance proceeds on destruction of Premises, and disposition of condemnation
awards, shall prevail over any conflicting provisions in the Encumbrance.
21.3 Tenant shall attorn to any purchaser at any foreclosure sale, or
to any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute upon demand any and
54
<PAGE>
all documents required by Lender(s) to accomplish the purpose of this Article
21.
21.4 Either party hereto ("Obligated Party"), within ten (10) days after
notice from the other party hereto (the "Requesting Party") shall execute and
deliver to the Requesting Party a certificate in recordable form stating that
this Lease is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modifications. The certificate also shall
state the amount of Base Monthly Rent then applicable, the dates to which the
Base Monthly Rent has been paid in advance, and the amount of any security
deposit or prepaid Rent. Failure to deliver the certificate within the ten (10)
days shall be conclusive upon the Obligated Party that this Lease is in full
force and effect and has not been modified, that no Base Monthly Rent other than
for the current month has been paid in advance, that the security deposit is in
the amount set forth in this Lease and that there is no other prepaid Rent, all
except as may be represented otherwise by Landlord in the certificate. If the
Obligated Party fails to deliver the certificate within the ten (10) days, the
Obligated Party irrevocably constitutes and appoints the Requesting Party as its
special attorney-in-fact to execute and deliver the certificate to any third
party.
ARTICLE 22
WAIVER
22.1 No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver.
22.2 The receipt and acceptance by Landlord of delinquent Rent or any
other amounts due hereunder shall not constitute a waiver of such default or any
other default or a waiver to demand timely performance in the future.
55
<PAGE>
22.3 No act or conduct of Landlord including, without limitation, the
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the term. Only a
written notice from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of the Lease.
22.4 Either party's consent to or approval of any act by the other
requiring such party's consent or approval shall not be deemed to waive or
render unnecessary such party's consent to or approval of any subsequent act by
the other.
22.5 Any waiver by Landlord or Tenant of any default must be in writing
and shall not be a waiver of any other default concerning the same or any other
provision of the Lease.
ARTICLE 23
SALE OR TRANSFER OF PREMISES
23.1 If Landlord sells or transfers the Facility or any interests therein,
Landlord, on consummation of the sale or transfer, shall be released from any
liability thereafter accruing under this Lease provided the transferee assumes
all obligations of Landlord hereunder.
ARTICLE 24
FINANCIAL STATEMENTS AND OPERATING INFORMATION
24.1 During the term of this Lease, Tenant shall provide Landlord a copy
of (i) Tenant's and each of Tenant's guarantors hereunder true and complete
income statements, prepared by an independent certified public accountant in
accordance with generally accepted accounting principles, reflecting Tenant's
and such guarantors' operations as a whole, for each fiscal year of
56
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Tenant falling totally or partially within the term of this Lease, (ii) balance
sheets as of the end of each fiscal year prepared in like manner for Tenant and
each of Tenant's guarantors hereunder as a whole, and (iii) an operating
statement reflecting Tenant's operations at the Premises for each fiscal year
prepared in a like manner, which statements shall be delivered to Landlord
within ninety (90) days following the expiration of Tenant's fiscal year.
Notwithstanding the foregoing, in the event that Tenant does not regularly
employ its independent certified public accountants to prepare, audit or review
the operating statements for the Premises, Tenant shall deliver its internally
prepared operating statements for the Premises prepared in accordance with
generally accepted accounting principles and certified as true and correct by
Tenant. In addition, Tenant shall provide Landlord a copy of (i) Tenant's and
each of Tenant's guarantors' quarterly income statement reflecting Tenant's and
each such guarantor's operations as a whole for each calendar quarter falling
totally or partially within the term of this Lease together, (ii) a balance
sheet as of the end of each such quarter for Tenant and each such guarantor as a
whole, and (iii) an operating statement reflecting Tenant's operations at the
Premises for each such quarter, which shall be delivered to Landlord within
thirty (30) days following the expiration of each calendar quarter and which
statements shall be prepared in accordance with generally accepted accounting
principles and certified as true and correct by Tenant. With each of the
foregoing income statements and balance sheets furnished by Tenant, statements
of cash flow for the same periods for the Premises and for Tenant as a whole
shall also be provided to Landlord.
24.2 For any period that Tenant is not operating the Premises, and the
same are being operated by a permitted subtenant or successor of Tenant (other
than an assignee of this Lease), Tenant shall obtain financial statements of
such subtenant/successor equivalent to those required of Tenant pursuant to
Section 24.1 above not less often than quarterly, and shall
57
<PAGE>
forward copies of same to Landlord promptly upon receipt. Nothing herein shall
relieve Tenant from the obligation to furnish the financial statements required
pursuant to Section 24.1 above.
24.3 From time to time during the term of this Lease, upon the written
request of Landlord, Tenant shall provide Landlord with a census report
detailing current and projected occupancy for the Facility including information
regarding Medicare and Medicaid reimbursements. Such reports shall be delivered
to Landlord within ten (10) days following Landlord's request for the same.
ARTICLE 25
LICENSING
25.1 Tenant shall maintain at all times during the term hereof and any
extensions or holdover period all governmental licenses, permits and
authorizations necessary for the establishment and operation of the Licensed
Facility in the city, county and state in which the Facility is located, and
shall qualify and comply with all applicable laws as they may from time to time
exist, including those applicable to certification and participation as a
provider under Medicare and Medicaid legislation and regulations. Tenant shall
not, without the prior written consent of Landlord (which it agrees not to
unreasonably withhold), effect any change in the license category or status of
the Facility or any part thereof.
ARTICLE 26
SURRENDER OF PREMISES; HOLDING OVER
26.1 On the earlier to occur of the expiration of the term hereof or ten
(10) days after sooner termination of the term, Tenant shall surrender to
Landlord the Facility and all Tenant's Improvements and Alterations thereto in
good condition, free of all violations and citations, and fit for use by
Landlord as the
58
<PAGE>
Licensed Facility (except for ordinary wear and tear and insured casualty),
excluding alterations that Tenant has the right to remove or is obligated to
remove under the provisions of Article 10, but including, without limitation,
any and all patients, patient records, and any and all documents of every kind
whatsoever necessary to enable Landlord to continue operation and including at
least a three (3) day supply of necessary inventory and operational items.
26.2 If Tenant fails to surrender the Facility as required by this Article
26, Tenant shall hold Landlord harmless from all damages resulting from Tenant's
failure to surrender the Facility, including, without limitation, claims made by
a succeeding tenant resulting from Tenant's failure to surrender the Facility.
26.3 If Tenant, with Landlord's written consent, remains in possession of
the Facility after expiration or termination of the term, or after the date in
any notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on thirty
(30) days notice given at any time by either party. All provisions of this Lease
except those pertaining to term, option to extend (if any), and option to
purchase (if any) shall apply to the month-to-month tenancy.
26.4 Tenant shall fully cooperate with Landlord in turning the Facility
over to Landlord so as to assure to Landlord and patients uninterrupted patient
care.
59
<PAGE>
ARTICLE 27
PRESERVATION OF PATIENT RECORDS
27.1 Tenant shall preserve all patient charts and records as required by
applicable law and deliver them to Landlord on expiration or sooner termination
of this Lease.
ARTICLE 28
PATIENT CARE; CENSUS
28.1 Tenant shall take all steps appropriate to maintain a high level of
quality patient care, and to promote and maintain a high patient census at the
Facility consistent with law and ethical standards governing the operation of
nursing homes. Except as otherwise permitted by law, Tenant shall not transfer
patients from the Facility except for reasons of health, family request and/or
convenience or request of the patient, and shall not transfer patients to
another facility or facilities owned or operated directly or indirectly by
Tenant, or in which Tenant has any interest, except in cases where an
alternative facility is not available, or pursuant to a request by the patient
or family.
ARTICLE 29
OPTION TO EXTEND
29.1 Tenant is given the option ("First Option") to extend the term of
this Lease on all the provisions contained in this Lease (inclusive of the
provisions concerning the increases in Base Monthly Rent as set forth in Section
5 above) for a single five (5) year period ("First Extended Term") immediately
following expiration of the initial term of the Lease (the "Initial Term"), by
giving notice of exercise of the First Option ("Option Notice") to Landlord at
least nine (9) months but not more than one (1) year before the expiration of
the Initial Term. However, if Tenant is in default on the date of giving of the
Option Notice, the Option
60
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Notice shall be totally ineffective; if Tenant is in default on the date the
First Extended Term is to commence, the First Extended Term shall not commence
and this Lease shall expire at the end of the Initial Term. If Tenant timely
exercises the First Option, Tenant is given the further option ("Second Option")
to extend the term on all the provisions contained in this Lease (inclusive of
the provisions concerning the increases in Base Monthly Rent as set forth in
Section 5 above) for a second five (5) year period ("Second Extended Term")
following expiration of the First Extended Term, by giving notice of exercise of
the Second Option to Landlord at least nine (9) months but not more than one (1)
year before the expiration of the First Extended Term. However, if Tenant is in
default on the date of giving the Option Notice, the Option Notice shall be
totally ineffective; if Tenant is in default on the date the Second Extended
Term is to commence, the Second Extended Term shall not commence and this Lease
shall expire at the end of the First Extended Term. The First Extended Term and
the Second Extended Term are sometimes hereinafter referred to individually as
an "Option Term" and collectively as the "Option Terms."
29.2 Tenant shall have no other right to extend the term beyond the Second
Extended Term.
ARTICLE 30
MISCELLANEOUS
30.1 Time is of the essence of each provision of this Lease.
30.2 Each party represents that it has not had dealings with any real
estate broker, finder, or other person, with respect to this Lease in any
manner. Each party shall hold harmless the other party from all damages
resulting from any misrepresentations hereunder.
61
<PAGE>
30.3 All exhibits referred to are attached to this Lease and
incorporated by reference.
30.4 All provisions, whether covenants or conditions on the part of
Tenant, shall be deemed to be both covenants and conditions.
30.5 This Lease together with the Lease Guaranty attached hereto (if any)
contains all the agreements of the parties and cannot be amended or modified
except by a written agreement.
30.6 Any notice, demand, request, consent, approval or communication that
either party desires or is required to give to the other party or any other
person shall be in writing and either served personally or sent by registered or
certified United States mail, or by courier mail. Any notice, demand, request,
consent, approval or communication that either party desires or is required to
give to the other party shall be addressed to the other party at the address
appearing on the signature page of this Lease. Either party may change its
address by notifying the other party of the change of address. Notice shall be
deemed communicated within three (3) business days from the time of deposit in
the United States mail if mailed as provided in this section, or upon delivery
if delivered personally or by courier mail.
30.7 In the event of default hereunder by either party, and the other
party engages an attorney to prepare a notice or notices and/or to otherwise
communicate with the defaulting party, then the defaulting party shall be liable
to the other party for its reasonable attorneys' fees incurred by it for such
services.
30.8 If any party brings an action or proceeding to enforce the terms
hereof or declare rights hereunder, the prevailing party (as hereinafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such
62
<PAGE>
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. Landlord shall be entitled to attorneys' fees, costs and
expenses incurred in the preparation and service of notices of default and
consultations in connection therewith if such default or resulting breach is
cured by Tenant or if such notices are ultimately adjudged to be valid. If
either party or its authorized representatives ("Passive Party") becomes a party
to any litigation concerning the Lease, or the Facility, by reason of any act or
omission of the other party or its authorized representatives ("Active Party")
and not by any act or omission of the Passive Party or any act or omission of
its authorized representatives, the Active Party shall be liable to the Passive
Party for reasonable attorneys' fees and court costs incurred by the Passive
Party in that litigation.
30.9 This document shall, in all respects, be governed by the laws of the
state in which the Facility is located applicable to agreements executed and to
be wholly performed within such state. Nothing contained herein shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision contained herein and any
present or future statute, law, ordinance or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but the
provision of this Lease which is affected shall be curtailed and limited only to
the extent necessary to bring it within the requirements of the law without
invalidating or affecting the remaining provisions of this Lease.
63
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30.10 Each of the parties hereto shall execute and deliver any and all
additional papers, documents, and other assurances, and shall do any and all
acts and things reasonably necessary in connection with the performance of their
obligations hereunder and to carry out the intent of the parties hereto.
30.11 No amendment, change or modification of this document shall be valid
unless in writing and signed by all of the parties hereto.
30.12 All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their successors
except as provided in Article 17.
30.13 This document 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 be one and the same instrument.
30.14 The captions appearing at the commencement of the articles hereof
are descriptive only and for convenience in reference. Should there be any
conflict between any such caption and the article, the article and not such
caption shall control and govern in the construction of this document.
30.15 As long as Tenant is not in default of any of the terms, covenants
and conditions of this Lease, Landlord covenants that Tenant, during the term
hereof, shall have the quiet use and enjoyment of the Facility.
30.16 In the event that this Lease or any other financial obligation owed
at present or in the future by Tenant to Landlord shall have been or will be
guaranteed, such guaranty (the "Guaranty") shall be in the form attached hereto
and shall be delivered to Landlord concurrently with the execution and delivery
of this
64
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Lease by Tenant. Any guaranty executed concurrently herewith or subsequent to
the date hereof shall be deemed a material part of the consideration for
Landlord's execution of this Lease. In the event that any guarantor under the
Guaranty is or becomes bankrupt or insolvent, makes an assignment for the
benefit of creditors, or institutes or is the subject of any proceeding under
the Bankruptcy Act or other similar law for the protection of creditors (or, if
the guarantor is a partnership or consists of more than one person or entity, if
any partner or the partnership or other such person or entity is or becomes
bankrupt or insolvent, institutes any such proceeding, or makes an assignment
for the benefit of creditors), then Landlord shall have the option to terminate
this Lease upon thirty (30) days written notice unless Tenant, within such
thirty-day period, provides Landlord with either (1) a substitute or additional
guarantor satisfactory to Landlord and Landlord's Lender(s), or (2) adequate
assurance of the performance of each and every obligation of Tenant hereunder,
satisfactory to Landlord and Landlord's Lender.
30.17 In the event that Tenant is not an individual(s), the persons
executing this Lease on behalf of Tenant represent and warrant to Landlord that
(1) if Tenant is a partnership, Tenant's partnership agreement authorizes such
persons to execute this Lease on behalf of Tenant, and (2) if Tenant is a
corporation, such persons are executing this Lease pursuant to a resolution of
Tenant's board of directors. Concurrently with Tenant's execution of this Lease,
Tenant shall deliver to Landlord a copy of Tenant's partnership agreement, or
statement of partnership, or certificate of limited partnership, or certified
copy of a board of directors resolution, as the case may be, confirming the
foregoing authority.
30.18 Whenever under any provision of this Lease or any exhibit thereto,
Tenant shall be obligated to make any payment or expenditure, or to do any act
or thing, or to incur any liability whatsoever, and Tenant fails, refuses or
neglects to perform as
65
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herein provided, Landlord shall be entitled but shall not be obligated to make
such payment or expenditure, or do any such act or thing, or to incur any such
liability, all on behalf of and at the cost and for the account of Tenant,
together with interest at the maximum rate of interest permitted by law, or if
no maximum rate then applies, at the rate of 18% per annum.
66
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SIGNATURE PAGE FOR LEASE OF WOODLAND CONVALESCENT CENTER DATED AS OF JANUARY 16,
1995 BETWEEN UNI-CAL ASSOCIATES (LANDLORD) AND SUMMIT CARE OF CALIFORNIA, INC.
(TENANT)
"Landlord"
UNI-CAL ASSOCIATES, L.P.,
a California limited partnership
/s/ Martin Jacobs
---------------------------------
Martin Jacobs, General Partner
/s/ Gary Kading
---------------------------------
Gary Kading, General Partner
Address: c/o Nigro, Karlin and Segal
10100 Santa Monica Boulevard
13th Floor
Los Angeles, CA 90067
Attention: Michael D. Karlin, CPA
With a copy to:
Rosenfeld & Wolff
A Professional Corporation
2049 Century Park East, Suite 600
Los Angeles, CA 90067
Attention: Steven G. Wolff, Esq.
"Tenant"
SUMMIT CARE OF CALIFORNIA, INC.,
a California corporation
By: [SIGNATURE ILLEGIBLE]
------------------------------
Its: President
----------------------------
Address: 2600 West Magnolia Boulevard
Burbank, California 91505
67
<PAGE>
[LETTERHEAD OF CHRISTENSEN, WHITE, MILLER, FINK, JACOBS, GLASER & SHAPIRO
APPEARS HERE]
December 11, 1995
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
- ------------------------
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates
Woodland Convalescent Center
----------------------------
Ladies and Gentlemen:
As you know, we represent Uni-Cal Associates, a California limited
partnership. Pursuant to the Lease for the above referenced facility, monthly
rent for the twelve (12) month period commencing February 1, 1996 will increase
by three percent (3%) from $34,540.00 to $35,576.20.
As usual, the address for payment of all remittances is: Uni-Cal
Associates, c/o Nigro, Karlin & Segal, 10100 Santa Monica Boulevard, Suite
1,300, Los Angeles, California 90067.
Very truly yours,
/s/ Paul R. Rosenbaum
---------------------
Paul R. Rosenbaum
for Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro
PRR/ad
cc: Summit Care Corporation (via certified mail)
Mr. Gary Kading
Peter M. Weil, Esq.
Ms. Sheryl Thompson
Ms. Suzanne Sullivan
<PAGE>
[LETTERHEAD OF CHRISTENSEN, WHITE, MILLER, FINK, JACOBS, GLASER & SHAPIRO
APPEARS HERE]
December 11, 1995
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
- ------------------------
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates
Woodland Convalescent Center
----------------------------
Ladies and Gentlemen:
As you know, we represent Uni-Cal Associates, a California limited
partnership. Pursuant to the Lease for the above referenced facility, monthly
rent for the twelve (12) month period commencing February 1, 1996 will increase
by three percent (3%) from $34,540.00 to $35,576.20.
As usual, the address for payment of all remittances is: Uni-Cal
Associates, c/o Nigro, Karlin & Segal, 10100 Santa Monica Boulevard, Suite 1300,
Los Angeles, California 90067.
Very truly yours,
/s/ Paul R. Rosenbaum
-----------------------
Paul R. Rosenbaum
for Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro
PRR/ad
cc: Summit Care Corporation (via certified mail)
Mr. Gary Kading
Peter M. Weil, Esq.
Ms. Sheryl Thompson
Ms. Suzanne Sullivan
<PAGE>
[LETTERHEAD OF NIGRO, KARLIN & SEGAL APPEARS HERE]
December 16, 1996
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates, L.P.
Woodland Convalescent Center
Dear sir or madam:
In connection with financing requirements, we are requesting from you the
following documents:
a) Financial statements for the above facility for
the calendar years 1994 and 1995 (or for
fiscal years ending in 1994 and 1995)
b) The most recent financial statement for the
above facility rendered in 1996.
If you have any problems complying with the above or have questions that need to
be answered, please notify us with 10 days of receipt of this letter.
Thank you for your cooperation in this matter.
Very truly yours,
/s/ Samuel I. Weisz
Samuel I. Weisz
cc: Mr. Gary Kading
Carolyn Jordan, Esq.
Mr. Michael D. Karlin, CPA
<PAGE>
[LETTERHEAD OF CHRISTENSEN, WHITE, MILLER, FINK, JACOBS, GLASER & SHAPIRO
APPEARS HERE]
December 13, 1996
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
------------------------
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates -
Woodland Convalescent Center, Reseda, California
------------------------------------------------
Dear Tenant:
As you are aware, we represent Uni-Cal Associates, a California limited
partnership. Pursuant to the lease for the above referenced facility, Base
Monthly Rent for the twelve (12) month period commencing February 1, 1997
shall increase by three percent (3%) from $35,576.20 to $36,643.49.
As usual, the address for payment of all remittances are: Uni-Cal
Associates, c/o Nigro, Karlin & Segal, 10100 Santa Monica Boulevard, Suite
1300, Los Angeles, California 90067.
Very truly yours,
/s/ Paul R. Rosenbaum
--------------------------
Paul R. Rosenbaum
for Christensen, Miller, Fink, Jacobs,
Glaser, Weil & Shapiro, LLP
PRR/lvl
cc: Mr. Gary Kading
Summit Care Corporation (via certified mail)
Alisa J. Freundlich, Esq.
Michael D. Karlin, CPA
Ms. Candace Dziubinski
Ms. Suzanne Sullivan
<PAGE>
<TABLE>
<CAPTION>
-----------
SUMMIT CARE CORPORATION W A R N I N G CHECK NO.
------------------------------------------------------ -----------
<S> <C> <C> <C>
2600 Magnolia Boulevard DO NOT CASH UNLESS YOU CAN VERIFY THE WORDS SAFE ON 29-7 59092
Burbank, CA 91505 THE FACE & SECURITY WATER MARK ON THE BACK HOLD AT A --------
(818) 841-8750 45 DEGREE ANGLE TOWARD OR AWAY FROM LIGHT, OR MARK WITH 213
THE EDGE OF A COIN OR DARK HIGHLIGHTER.
------------ -------------
KEY BANK OF NEW YORK DATE AMOUNT
66 SOUTH PEARL STREET ------------ -------------
ALBANY, NEW YORK 12207 2/24/97 *** 36643.49
------------ -------------
THIRTY-SIX THOUSAND SIX HUNDRED FORTY-THREE DOLLARS AND FORTY-NINE
CENTS
PAY UNI-CAL ASSOC.C/O NIGRO, KARLIN & SEGAL /s/ [SIGNATURE ILLEGIBLE]
TO THE 10100 STA MONICA BL, ----------------------------
ORDER ATT: IRIS KARNI Authorized Signature
OF STE# 1300 L.A. CA 90067
/s/ [SIGNATURE ILLEGIBLE]
----------------------------
Authorized Signature
-----------------------------------
DATE CHECK NO. SUMMIT CARE CORPORATION
----------------------------------- 2600 Magnolia Boulevard
2/24/97 59092 Burbank, CA 91505
-------------------------------------------------------- (818)841-8750 PAGE 1
VENDOR NAME
--------------------------------------------------------
UNI-CAL ASSOC.C/O NIGRO, KARLIN & SEGAL
--------------------------------------------------------
INVOICE DATE INVOICE NO. CO.CODE VOUCHER AMOUNT
-----------------------------------------------------------------------------------------------------------------
3/01/97 RENT CJ CJ 61478 36643.49
</TABLE>
<PAGE>
SUMMIT CARE CORPORATION
2600 W. Magnolia Boulevard, Burbank, California 91505-3031
(818) 841-8750 . FAX (818) 841-5847
January 3, 1997
Mr. Samuel I. Weisz
Nigro, Karlin & Segal
10100 Santa Monica Blvd.
Suite 1300
Los Angeles, CA 90067
Re: Uni-Cal Associates, L.P.
Woodland Convalescent Center
Dear Mr. Weisz:
Per your letter to us of December 16, 1996, attached please find the following
documentation:
a) Financial statements for Woodland Care Center for the fiscal years
1994 and 1995, and
b) The most recent financial statement for Woodland Care Center dated
November, 1996.
If you have any questions, please do not hesitate to give us a call.
Sincerely,
SUMMIT CARE CORPORATION
/s/ Melodye Stok
- -----------------
Melodye Stok,
Vice President-Controller
and Chief Accounting Officer
MS:das
Attachment
cc: Mr. Gary Kading
Carolyn Jordan, Esq.
Mr. Michael D. Karlin, CPA
<PAGE>
<TABLE>
<CAPTION>
PAGE 1
CL43
FUNCTIONAL COA CJ W 0 0 D L A N D
PROCESS #: 07
I N C 0 M E S T A T E M E N T
1 2 P E R I O D S E N D E D 0 6 / 3 0 / 9 4
******************* CURRENT ************************ *************** Y E A R T 0 D A T E *************
OVER ACTUAL BUDGET OVER ACTUAL BUDGET
ACTUAL BUDGET UNDER PPD PPD ACTUAL BUDGET UNDER PPD PPD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
424040 384364 39676 97.48 81.16 ROOM AND BOARD REVENUE 4958948 4649819 309129 93.54 86.66
204106 169958 34148 46.92 38.54 ANCILLARY REVENUE 2669407 2067835 601572 50.35 38.54
12003 2494 950? 2.16 .57 OTHER INCOME 57951 29928 28023 1.09 .56
56175 79767- 135942 12.91 18.09- DEDUCTIONS FROM REVENUE 1340049- 960823- 379226- 25.28- 17.91-
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
696324 477049 219275 160.07 108.18 TOTAL REVENUE 6346257 5786759 559498 119.70 107.85
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
DIRECT EXPENSE
113027 97099 15928 25.98 22.02 ANCILLARY EXPENSES 1458083 1181364 276179 27.50 22.02
10160 2492 7668 2.34 .57 OTHER EXPENSES 47599 29904 17695 .90 .56
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
123187 99591 23596 28.32 22.59 TOTAL DIRECT COSTS 1505682 1211268 294414 28.40 22.58
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
573137 377458 195679 131.15 85.59 GROSS PROFIT 4840575 4575491 265084 91.30 85.27
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
OPERATING EXPENSES
175303 175456 153- 40.30 39.79 SALARIES AND WAGES 2108726 2093484 15242 39.78 39.02
11791 55775 43978- 2.7l 12.65 BENEFITS 618410 726145 107735- 11.66 15.53
12136 13525 1389- 2.79 3.07 SUPPLIES 156308 164402 8094- 2.95 3.06
14281 14112 169 3.28 3.20 FOOD 169915 171693 1778- 3.21 3.20
12522 12?80 42 2.88 2.83 UTILITIES 163146 154050 9096 3.08 2.87
3553 4?35 582- .82 .94 PURCHASED SERVICES 45143 49620 4477- .85 .92
51447- 11?72 63119 11.83- 2.65 OTHER OPERATING EXPENSES 64690 140064 75314- 1.22 2.61
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
178145 287155 109010- 40.95 65.13 TOTAL OPERATING EXPENSES 3326338 3499458 173120 62.75 65.21
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
394992 90303 304689 90.80 20.46 OPERATING 1NCOME 1514237 1076033 438204 28.55 20.06
- ------ -------- ------- ------- -------- -------- ------- ------ ------ ------
FIXED EXPENSES
6573 6424 149 1.51 1.46 DEPRECIATION AND AMORTIZATION 83289 77088 6201 1.57 1.44
24076 23975 101 5.53 5.44 RENT 287821 287700 121 5.43 5.36
1983 2?26 643- .46 .60 INSURANCE 23607 29602 5995- .45 .55
1991 1844 141 .46 .42 TAXES 22912 22128 784 .43 .41
24133 24133 0 5.55 5.47 OVERHEAD ALLOCATION 289596 289596 0 5.46 5.40
- -------- ------- ------- ------- -------- -------- ------- ------ ------ ------
58756 59102 246- 13.51 13.39 TOTAL FIXED EXPENSES 707225 706114 1111 13.34 13.16
- -------- ------- ------- ------- -------- -------- ------- ------ ------ ------
336236 31301 304935 77.29 7.07 NET INCOME(LOSS) BEFORE TAX 807012 369919 437093 15.21 6.90
- -------- ------- ------- ------- -------- -------- ------- ------ ------ ------
336236 31301 304935 77.29 7.07 NET INCOME(LOSS) AFTER TAX 807012 369919 437093 15.21 6.90
$$$$$$ $$$$$$$ $$$$$$$ $$$$$$$ $$$$$$$$ $$$$$$$$ $$$$$$$ $$$$$$ $$$$$$ $$$$$$
4350 4410 FACTOR FOR PPD 53015 53655
$$$$$$$ $$$$$$$$ $$$$$$ $$$$$
DATE RUN ??/04/?? TIME 23.??.23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GL4351 Page 2
FUNCTIONAL COA
PROCESS #: 07 CJ W00DLAND
INC0ME STATEMENT
12 PERIODS ENDED 06/30/94
******************C U R R E N T ****************** *************** Y E A R T 0 D A T E *************
OVER ACTUAL BUDGET OVER ACTUAL BUDGET
ACTUAL BUDGET UNDER PPD PPD ACTUAL BUDGET UNDER PPD PPD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
446489 438434 8055 102.85 98.08 ROOM AND BOARD REVENUE 5213077 5299744 86667- 98.84 97.45
232243 198598 33645 53.50 44.43 ANCILLARY REVENUE 2712788 2416362 296426 51.43 44.43
2570 4203 1633- .59 .94 OTHER INCOME 42487 51130 8643- .81 .94
84979- 115215- 30236 19.58- 25.78- DEDUCTIONS FROM REVENUE 1475943- 1391168- 84775- 27.98- 25.58-
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
596323 526020 70303 137.36 117.67 TOTAL REVENUE 6492409 6376068 116341 123.10 117.24
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
DIRECT EXPENSE
145766 109272 36494 33.58 24.45 ANCILLARY EXPENSES 1591880 1329532 262348 30.18 24.45
29 3352 3323- .01 .75 OTHER EXPENSES 31607 40787 9180- .60 .75
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
145795 112524 33171 33.59 25.20 TOTAL DIRECT COSTS 1623487 1370319 253168 30.78 25.20
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
450528 413396 37132 103.77 92.47 GROSS PROFIT 4868922 5005749 136827- 92.32 92.04
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
OPERATING EXPENSES
187098 190202 3104- 43.10 42.55 SALARIES AND WAGES 2195879 2269442 73563- 41.63 41.73
41992 53466 13474- 9.67 12.41 BENEFITS 595264 718308 123044- 11.29 13.21
14752 15801 1049- 3.40 3.53 SUPPLIES 179697 192073 12376- 3.41 3.53
14030 14528 498- 3.23 3.25 FOOD 172840 176761 3921- 3.28 3.25
11405 15070 3665- 2.63 3.37 UTILITIES 142978 169102 26124- 2.71 3.11
4217 5420 1203- .97 1.21 PURCHASED SERVICES 54481 65040 10559- 1.03 1.20
11297 11820 523- 2.60 2.64 OTHER OPERATING EXPENSES 120429 141840 21411- 2.28 2.61
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
284791 303307 23516- 65.60 68.96 TOTAL OPERATING EXPENSES 3461568 3732566 270998- 65.63 68.64
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
165737 105089 60648 38.17 23.51 OPERATING INCOME 1407354 1273183 134171 26.69 23.40
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
FIXED EXPENSES
6015 8?80 2265- 1.39 1.85 DEPRECIATION AND AMORTIZATION 81975 92782 10807- 1.55 1.71
35040 2??26 10114 8.07 5.58 RENT 343729 294112 49617 6.52 5.41
1565 2445 880- .36 .55 INSURANCE 22044 27576 5532- .42 .51
1884 1938 54- .43 .43 TAXES 22935 23256 321- .43 .43
25704 25704 0 5.92 5.75 OVERHEAD ALLOCATION 308448 308448 0 5.85 5.67
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
70208 6?293 6915 16.17 14.16 TOTAL FIXED EXPENSES 779131 746174 32957 14.77 13.73
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
95529 41796 53733 22.00 9.35 NET INCOME(LOSS) BEFORE TAX 628223 527009 101214 11.92 9.67
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
95529 41796 53733 22.00 9.35 NET INCOME(LOSS) AFTER TAX 628223 527009 101214 11.92 9.67
$$$$$$ $$$$$$ $$$$$$ $$$$$$ $$$$$$ $$$$$$$ $$$$$$$ $$$$$$$$ $$$$$$ $$$$$
4341 4470 FACTOR FOR PPD 52744 54387
$$$$$$ $$$$$$ $$$$$$ $$$$$$
</TABLE>
DATE RUN 7/13/95 TIME 22.48.20
<PAGE>
<TABLE>
<CAPTION>
GL4351 Page 1
FUNCTIONAL COA
PROCESS #: 07 CJ W 0 0 D L A N D
I N C 0 M E S T A T E M E N T
5 P E R I O D S E N D E D 1 1 / 3 0 / 9 4
******************C U R R E N T ****************** ************* Y E A R T 0 D A T E *************
OVER ACTUAL BUDGET OVER ACTUAL BUDGET
ACTUAL BUDGET UNDER PPD PPD ACTUAL BUDGET UNDER PPD PPD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
433780 487114 53334- 103.92 115.16 ROOM AND BOARD REVENUE 2425144 2484281 59137- 113.48 115.16
190780 268080 77300- 45.71 53.38 ANCILLARY REVENUE 1239747 1367205 127458- 58.01 63.38
2600 2876 276- .62 .68 OTHER INCOME 10425 14671 4246- .49 .68
113820- 157795- 43975 27.27- 37.3O- DEDUCTIONS FROM REVENUE 689322- 797402- 108080 32.26- 36.96-
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
513340 600275 86935- 122.98 141.92 TOTAL REVENUE 2985994 3068755 82761- 139.72 142.26
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
DIRECT EXPENSE
98019 150232 52213- 23.48 35.52 ANCILLARY EXPENSES 711091 766190 55099- 33.28 35.52
2380 2623 243- .57 .62 OTHER EXPENSES 8345 13379 5034- .39 .62
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
100399 152855 52456- 24.05 36.14 TOTAL DIRECT COSTS 719436 779569 60133- 33.67 36.14
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
412941 447420 34479- 98.93 105.78 GROSS PROFIT 2266558 2289186 22628- 106.05 106.12
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
OPERATING EXPENSES
197953 200241 2288- 47.43 47.34 SALARIES AND WAGES 1000414 1013860 13446- 46.81 47.00
50668 52515 1847- 12.14 12.41 BENEFITS 233673 248797 15124- 10.93 11.53
14712 14805 93- 3.52 3.50 SUPPLIES 80194 75396 4798 3.75 3.49
13863 13959 96- 3.32 3.30 FOOD 71481 71190 291 3.34 3.30
10426 12547 2121- 2.50 2.97 UTILITIES 57959 64820 6861- 2.71 3.00
3510 3705 195- .84 .88 PURCHASED SERVICES 19308 18525 783 .90 .86
1501 1480 21 .36 .35 PROVISION FOR DOUBTFUL ACCOUNTS 4415 7550 3135- .21 .35
3329 2369 960 .80 .56 INSURANCE 16689 11644 5045 .78 .54
1984 1984 0 .48 .47 TAXES 9920 9920 0 .46 .46
12883 12480 403 3.09 2.95 OTHER OPERATING EXPENSES 61906 62400 494- 2.90 2.89
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
310829 316085 5256- 74.48 71.73 TOTAL OPERATING EXPENSES 1555959 1584102 28143- 72.79 73.42
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
102112 131335 29223- 24.45 ?1.05 OPERATING INCOME 710599 705084 5515 33.26 32.70
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
FIXED EXPENSES
8567 9377 810- 2.05 2.22 DEPRECIATION AND AMORTIZATION 50403 41646 8757 2.36 1.93
35576 36226 650- 8.52 8.56 RENT 178531 181130 2599- 8.35 8.40
21258 21258 0 5.09 5.03 OVERHEAD ALLOCATION 106290 106290 0 4.97 4.93
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
65401 66861 1460- 15.66 15.81 TOTAL FIXED EXPENSES 335224 329066 6158 15.68 15.26
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
36711 64474 27763- 8.79 15.24 NET INCOME(LOSS) BEFORE TAX 375375 376018 643- 17.58 17.44
- ------ ------ ----- ------ ------ ------- ------- ------ ------ ------
36711 64474 27763- 8.79 15.24 NET INCOME(LOSS) AFTER TAX 375375 376018 643- 17.58 17.44
$$$$$$ $$$$$$ $$$$$ $$$$$$ $$$$$$ $$$$$$$ $$$$$$$ $$$$$$ $$$$$$ $$$$$$
4174 4230 FACTOR FOR PPD 21370 21573
$$$$$$ $$$$$$ $$$$$$ $$$$$$
</TABLE>
DATE RUN 12/15/96 TIME 19.12.42
<PAGE>
[LETTERHEAD OF NIGRO, KARLIN & SEGAL APPEARS HERE]
December 16, 1996
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates, L.P.
Woodland Convalescent Center
Dear sir or madam:
In connection with financing requirements, we are requesting from you the
following documents:
a) Financial statements for the above facility for the calendar years
1994 and 1995 (or for fiscal years ending in 1994 and 1995)
b) The most recent financial statement for the above facility
rendered in 1996.
If you have any problems complying with the above or have questions that need to
be answered, please notify us with 10 days of receipt of this letter.
Thank you for your cooperation in this matter.
Very truly yours,
/s/ Samuel I. Weisz
Samuel I. Weisz
cc: Mr. Gary Kading
Carolyn Jordan, Esq.
Mr. Michael D. Karlin, CPA
<PAGE>
[LETTERHEAD OF NIGRO, KARLIN & SEGAL APPEARS HERE]
December 16, 1996
Summit Care - California, Inc.
2600 West Magnolia Boulevard
Burbank, California 91505
Re: Uni-Cal Associates, L.P.
Woodland Convalescent Center
Dear sir or madam:
In connection with financing requirements, we are requesting from you the
following documents:
a) Financial statements for the above facility
for the calendar years 1994 and 1995 (or for
fiscal years ending in 1994 and 1995)
b) The most recent financial statement for the
above facility rendered in 1996.
If you have any problems complying with the above or have questions that need to
be answered, please notify us with 10 days of receipt of this letter.
Thank you for your cooperation in this matter.
Very truly yours,
/s/ Samuel I. Weisz
Samuel I. Weisz
cc: Mr. Gary Kading
Carolyn Jordan, Esq.
Mr. Michael D. Karlin, CPA
<PAGE>
EXHIBIT 10.30
AGREEMENT FOR
DEVELOPMENT AND
OPERATION OF
SKILLED NURSING FACILITIES
BY AND AMONG
FOUNTAIN VIEW, INC.,
A DELAWARE CORPORATION
AND
BAYLOR HEALTH CARE SYSTEM,
A TEXAS NONPROFIT CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS.................................................................. 2
ARTICLE I DEFINITIONS................................................ 3
1.1 Definitions........................................... 3
ARTICLE II DEVELOPMENT OF SNFS WITHIN THE
DEVELOPMENT TERRITORY...................................... 8
2.1 Development Phases ................................... 8
2.1.1 Site Selection................................. 9
2.1.2 Market Study................................... 9
2.1.3 Preliminary Architectural Plan................. 10
2.1.4 Budget and Financial Pro Forma................. 10
2.1.5 Financing...................................... 10
2.1.6 Final Architectural Plans...................... 11
2.1.7 Selection of Contractor........................ 11
2.1.8 Project Management and Supervision............. 12
2.1.9 Operational Matters............................ 13
2.2 Responsibility for Performance........................ 13
2.3 Reasonable Efforts.................................... 13
2.4 Differences of Opinion................................ 14
2.5 Payment of Expenses................................... 14
2.6 Exclusivity........................................... 15
ARTICLE III COMPENSATION............................................ 16
3.1 Consideration for Services............................ 16
3.1.1 Development Fee................................ 16
3.1.2 Fair Market Value of Development Fee Warrants.. 17
3.1.3 Terms of Development Fee Warrants.............. 17
3.1.4 Material Change of Ownership................... 18
3.1.4.1 Prior to Lease Commitment............. 18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.1.4.2 After Lease Commitment.................. 19
3.2 Payment of Consideration................................ 20
3.3 License to Use Baylor Name.............................. 20
ARTICLE IV DEVELOPMENT OF SNFS OUTSIDE THE
DEVELOPMENT TERRITORY........................................ 20
4.1 Development Assistance.................................. 20
4.2 Consideration........................................... 21
4.2.1 Prior to Material Change of Ownership............ 21
4.2.2 Material Change of Ownership or Sixth Anniversary 22
4.2.3 Inadequate Operating Period...................... 23
4.3 General................................................. 23
ARTICLE V LEASE OF SNFS................................................ 23
5.1 Operating Lease......................................... 23
5.2 Takeover of Lease....................................... 24
5.3 Baylor Assumption of Fountain View Lease................ 25
5.3.1 Off Campus Facility.............................. 25
5.3.2 Baylor-Related Facility.......................... 26
5.4 Determination of Fair Market Value...................... 26
5.5 Leasehold Mortgage...................................... 27
5.6 Inspection.............................................. 27
ARTICLE VI QUALITY ASSURANCE COMMITTEES; MEDICAL DIRECTOR............... 28
6.1 Quality Assurance Committee............................. 28
6.2 Responsibilities of Q.A. Committees..................... 28
6.3 Failure to Follow Recommendations....................... 29
6.4 Regional Medical Director .............................. 30
ARTICLE VII CHANGE OF CONTROL............................................ 31
7.1 Definitions............................................. 31
7.2 Notice of Take Back..................................... 32
7.3 Consideration........................................... 33
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
7.4 Termination of Rights and Interests..................... 34
ARTICLE VIII TERMINATION OF LICENSE AGREEMENT;
LOSS OF BAYLOR NAME....................................... 34
8.1 Change of Control....................................... 34
8.2 Loss of Licensure or Certification...................... 36
8.3 Clinical Privileges, Quality Assurance and Other Matters 36
8.4 Obligation to Terminate Lease........................... 37
8.5 Toll Period............................................. 38
8.6 Single Obligation to Pay................................ 38
ARTICLE IX REPRESENTATIONS OF BAYLOR................................. 39
9.1 Organization; Standing.................................. 39
9.2 Authority............................................... 39
9.3 No Violation............................................ 39
9.4 Consents and Approvals of Governmental Authorities...... 40
9.5 Statements; Books and Records........................... 40
9.6 Litigation.............................................. 40
9.7 Judgments and Orders.................................... 40
ARTICLE X REPRESENTATIONS OF FOUNTAIN VIEW.......................... 41
10.1 Organization; Standing................................. 41
10.2 Authority.............................................. 41
10.3 No Violation........................................... 41
10.4 Consents and Approvals of Governmental Authorities..... 42
10.5 Statements; Books and Records.......................... 42
10.6 Litigation............................................. 42
10.7 Judgments and Orders................................... 42
ARTICLE XI TERM AND TERMINATION...................................... 43
11.1 Term................................................... 43
11.2 Termination for Material Breach........................ 43
11.3 Termination on Bankruptcy.............................. 43
11.4 Termination or Failure to Approve Use of Mark.......... 44
11.5 Effect of Termination.................................. 44
ARTICLE XII MISCELLANEOUS............................................. 44
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C>
12.1 Delegation to Affiliates............................. 44
12.2 Jeopardy............................................. 45
12.3 Proprietary Information/Trade Secrets................ 46
12.4 Amendments........................................... 46
12.5 Headings............................................. 47
12.6 Governing Law........................................ 47
12.7 Arbitration.......................................... 47
12.7.1 Binding Arbitration.......................... 47
12.7.2 Selection of Arbitrator...................... 48
12.7.3 No Litigation................................ 48
12.7.4 Arbitration Hearing.......................... 49
12.7.5 Law Governing Arbitration.................... 49
12.8 Entire Agreement..................................... 49
12.9 Notices.............................................. 50
12.10 No Third Party Beneficiary Rights.................... 51
12.11 Further Assurances................................... 51
12.12 Severability......................................... 51
12.13 Exhibits............................................. 51
12.14 Health Laws.......................................... 51
12.15 Referral Policy...................................... 52
12.16 Attorney Fees........................................ 52
12.17 Counterparts......................................... 52
12.18 Waiver............................................... 52
12.19 Assignments and Sublicenses.......................... 52
12.20 Binding Effect....................................... 53
12.21 Public Announcement.................................. 54
12.22 Construction......................................... 54
12.23 No Relationships..................................... 54
</TABLE>
- iv -
<PAGE>
AGREEMENT FOR DEVELOPMENT
AND OPERATION OF SKILLED NURSING FACILITIES
This AGREEMENT FOR DEVELOPMENT AND OPERATION OF SKILLED NURSING FACILITIES
("Agreement") is made and entered into this 4th day of May, 1998, by and between
Fountain View, Inc., a Delaware corporation ("Fountain View") and Baylor Health
Care System, a Texas nonprofit corporation ("Baylor"). Fountain View and Baylor
are hereinafter collectively referred to as the "Parties" and individually
referred to as a "Party."
RECITALS
A. Fountain View owns or operates long-term care facilities and other
ancillary service providers in California, Texas and Arizona.
B. Baylor owns and operates or controls general acute care hospitals and
other health care facilities, including outpatient service centers and medical
office buildings, in the State of Texas.
C. Fountain View desires to expand its operations in the State of Texas by
developing and operating free-standing skilled nursing facilities ("SNFs")
convenient to Baylor hospitals and other health care facilities.
D. Baylor and Fountain View desire to enter into a long-term agreement for
the development of SNFs convenient to Baylor hospitals and other health care
facilities in the State of Texas.
2
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and conditions set forth herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used herein, and unless the context clearly indicates
-----------
another meaning, the following words and phrases shall have the meanings set
forth below:
1.1.1 "Affiliate" shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with another
Person. As used in this definition, the term "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, through the ownership of voting securities,
partnership interests or otherwise.
1.1.2 "Agreement" shall mean this Agreement for Development and
Operation of Skilled Nursing Facilities by and between Fountain View and Baylor.
1.1.3 "Baylor" shall mean Baylor Health Care System, a Texas
nonprofit corporation.
1.1.4 "Baylor Facility" shall mean a general acute care hospital or
other health care facility, including an outpatient service center and a medical
office building, that is
3
<PAGE>
owned and operated by Baylor or an Affiliate of Baylor and is located in the
Development Territory.
1.1.5 "Development Costs" shall mean all costs and expenses incurred
in connection with the acquisition of a Development Site and the development and
construction of a SNF including: (a) costs of acquisition of real property and
preparation of the property for construction including off-site improvements;
(b) costs of labor, materials, supplies and equipment incorporated into the SNF;
(c) payments made to contractors and subcontractors pursuant to the terms of any
contractor's agreement or otherwise relating to the Development Site and the
SNF; (d) title insurance premiums (including endorsements); (e) survey charges;
(f) engineering fees; (g) architectural fees; (h) real estate taxes and
assessments during the period of construction; (i) insurance premiums during the
period of construction; (j) utility costs incurred after the Parties' agreement
on and acquisition of a Development Site and prior to the Permanent Financing
Close Date for the SNF; (k) legal and accounting fees in connection with the
acquisition of the Development Site and the development and construction of the
SNF; (1) construction period interest on advances under the construction loan;
(m) costs for environmental surveys and related matters; and (n) other expenses
reflected on the budget for the development project which are, in accordance
with generally accepted accounting principles, capital expenditures. For
purposes hereof, the "period of construction" includes the time from acquisition
of a Development Site through completion of the SNF.
1.1.6 "Development Fee Warrants" shall mean warrants in Fountain
View that are granted as all or part of a License and Development Fee in
accordance with Article III of this Agreement.
4
<PAGE>
1.1.7 "Development Site" shall mean a location in Texas within the
Development Territory on which the Parties are considering the development,
construction, and operation of a SNF.
1.1.8 "Development Territory" shall mean counties of Dallas, Denton,
Collin, Kaufman, Tarrant, Johnson, Ellis and Rockwall in the State of Texas.
1.1.9 "EBITDA" shall mean earnings before interest, taxes,
depreciation, and amortization, calculated in accordance with generally accepted
accounting principles consistently applied.
1.1.10 "Execution Date" shall mean the date of this Agreement set
forth on the first page hereof.
1.1.11 "Fountain View" shall mean Fountain View, Inc., a Delaware
corporation.
1.1.12 "Fountain View Enterprise Value" shall mean as of the date
such value is to be determined (the "SNF Value Date"); (a) if Fountain View
common stock is publicly traded on a national securities exchange or on NASDAQ
on the SNF Value Date, the average of the closing prices of Fountain View's
common stock for the ten trading days immediately prior to the SNF Valid Date
multiplied by the number of shares of Fountain View common stock then issued and
outstanding; (b) if Fountain View is not a publicly traded company on the SNF
Value Date, but an offer has been approved and/or accepted by the Fountain View
Board of Directors, Robert Snukal, Sheila Snukal, William Scott, Heritage,
and/or their Affiliates, or any of them, as may be necessary to create a binding
obligation for the sale by Robert Snukal, Sheila Snukal, William Scott,
Heritage, and/or their Affiliates, or any of them, of more than fifty percent
(50%) of Fountain View's then-issued and outstanding common stock to an
unaffiliated third party on an arms-length basis, (i) the price per share for
5
<PAGE>
such common stock being purchased pursuant to such sale, multiplied by (ii) the
number of then-issued and outstanding shares of Fountain View stock; (c) if, as
of the SNF Value Date, neither subparagraphs (a) or (b) are applicable, the
Fountain View Enterprise Value shall be determined by agreement or appraisal as
follows: The Parties shall meet and confer in good faith for a period of at
least thirty (30) days after the SNF Value Date to determine a mutually
agreeable Fountain View Enterprise Value. If the Parties mutually agree on a
value, the Parties shall document the basis for the determination of that value.
In the event the Parties cannot agree on a value within such time period, each
Party shall appoint an appraiser experienced in valuing companies comparable to
Fountain View. The two (2) appraisers shall meet, for a period not to exceed the
thirty (30) days, to establish a Fountain View Enterprise Value. In the event
the appraisers cannot agree on such a value within such time period, and the
higher of the two valuations is not more than 110% of the lower of the two
valuations, the Fountain View Enterprise Value shall be the average of the two
valuations. If the higher of the two valuations is more than 110% of the lower
of the two valuations, the appraisers shall promptly select a third appraiser
who shall deliver his or her determination of the Fountain View Enterprise Value
to the Parties within thirty (30) days of his or her selection. The Fountain
View Enterprise Value shall equal the average of (a) the valuation of the third
appraiser and (b) the valuation of the first two appraisers which is closest in
amount to the valuation of the third appraiser; provided, however, that if the
amount of the valuation of the third appraiser is equidistant from the amount of
each of the other two valuations, the Fountain View Enterprise Value shall be
the value determined by the third appraiser.
1.1.13 "Health Laws" shall mean applicable provisions of the federal
Social Security Act (including the federal Medicare and Medicaid Anti-Fraud and
Abuse Amendments (42 U.S.C. (S)1320a 7, 7a and 7b), the Texas Medical Practice
Act (Article 4495b
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of the Texas Revised Civil Statutes), and the Texas Illegal Remuneration Law
(Texas Health & Safety Code (S) 161.091), as such laws may now exist or be
amended hereafter,
1.1.14 "Heritage" shall mean Heritage Fund II, L.P.
1.1.15 "License and Development Fee" shall mean the fee payable to
Baylor in connection with the use of the name "Baylor" and the development of a
SNF in accordance with Article III of this Agreement.
1.1.16 "Material Change of Ownership in Fountain View" shall mean any
transaction or series of transactions that results in all of William Scott,
Robert Snukal, Sheila Snukal, Heritage, and their Affiliates owning in the
aggregate less than fifty percent (50%) of the issued and outstanding equity
interests (on a fully-diluted basis, assuming the conversion or exercise of all
securities convertible into or exercisable for equity interests) in Fountain
View. For purposes of this Section 1.1.16 only, the determination of whether
such Persons own less than fifty percent (50%) of the equity interests of
Fountain View shall be measured with respect to: (a) such Persons' equity
interest in the parent entity of Fountain View, if Fountain View shall become
directly or indirectly wholly-owned by such parent entity; (b)such Persons'
equity interest in the successor entity to Fountain View or the parent of such
successor entity, if Fountain View shall be merged or consolidated into such
successor entity in any merger or consolidation; and (c) such Persons' equity
interest in the successor entity to Fountain View's assets or the parent of such
successor entity, if Fountain View shall transfer all or substantially all of
its assets to such successor entity.
1.1.17 "Net Revenue" shall mean gross revenue less contractual
allowances, as determined in accordance with generally accepted accounting
principles consistently applied.
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1.1.18 "Permanent Financing Close Date" shall mean the date by which
the permanent or take-out financing for a SNF that has been developed under this
Agreement is funded and all proceeds of the financing have been disbursed
(except for hold backs for tenant finish and similar items) in accordance with
the terms and conditions applicable to the financing, and Fountain View has
executed a lease for the SNF.
1.1.19 "Person" shall mean any natural person, corporation,
partnership, limited liability company, trust, or other entity.
1.1.20 "SNF" shall mean an independently licensed skilled nursing
facility.
1.1.21 "SNF Enterprise Value" shall mean the product of (a) the
Fountain View Enterprise Value divided by Fountain View's consolidated EBITDA
for the fiscal twelve months ending on the last day of the latest fiscal
calendar quarter ending prior to the SNF Value Date as determined by Fountain
View's external auditors, multiplied by (b) the EBITDA, as determined by
Fountain View's external auditors, for the SNF for the latest four consecutive
full fiscal quarters during which the SNF has been in operation, or, if the SNF
has not been in operation for four consecutive full fiscal quarters, but has
been in operation for at least two consecutive full fiscal quarters, the
annualized EBITDA, as determined by Fountain View's external auditors, for each
full fiscal quarter during which the SNF has been in operation. A SNF shall be
deemed to be in operation on the date it admits its first patient.
ARTICLE II
DEVELOPMENT OF SNFS WITHIN THE DEVELOPMENT TERRITORY
----------------------------------------------------
2.1 Development Phases. Through the Representatives (as defined in Section
------------------
2.2 hereof), from time to time during the term of this Agreement, the Parties
shall collaborate with
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respect to the development, construction, and operation of SNFs on Development
Sites. Each such project shall include numerous phases, including, without
limitation, those set forth below in Section 2.1.1 through 2.1.8, each of which
phases shall be completed consecutively in the order listed unless otherwise
agreed by the Parties in writing or as indicated below. To the extent SNFs are
developed pursuant to this Agreement, each Development Site for a SNF, and the
improvements constructed thereon pursuant to this Agreement shall be owned by
Baylor or by a third party designated or approved by Baylor; Fountain View will
be the lessee/operator of the SNF and the owner of the business operated in the
SNF. Either Party may withdraw from participation in a particular project on a
Development Site during any development phase without penalty; although the
withdrawing Party may be responsible for obligations it has incurred or agreed
to prior to such withdrawal, subject to the other provisions of this Agreement,
including, without limitation. Section 2.5 hereof.
2.1.1 Site Selection. Either Party may propose a Development Site to
--------------
the other Party at any time during the term hereof by giving notice (each, a
"Development Site Notice") to such other Party in accordance with the notice
provisions of this Agreement. Within fifteen (15) days of receipt of the
Development Site Notice, such other Party shall arrange to meet with the
noticing Party to discuss and approve or reject the proposed Development Site in
writing. Either Party may reject a Development Site with or without cause, and
neither Party shall have any liability to the other for so rejecting a
Development Site.
2.1.2 Market Study. Immediately upon the receipt by a Party of a
------------
Development Site Notice, the Representatives shall begin to develop or cause to
be developed a market study of the communities that will be served by the SNF if
constructed on the Development Site. Each such study shall include, without
limitation: (a) an assessment of the service needs of the communities in which
the Development Site is located; (b) the nature and type of payors for
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health care services operating in such communities; (c) the patient populations
by payor categories residing in such communities; and (d) the quality and volume
of services, patient mix, payor mix, and case mix of other SNFs in the
applicable service area (to the extent reasonably available). Such market study
shall be completed, presented to the Representatives, in writing, and approved
or disapproved by the Representatives in writing within thirty (30) days of the
receipt by a Party of a Development Site Notice.
2.1.3 Preliminary Architectural Plan. Immediately following the
------------------------------
approval of a Development Site, the Representatives shall meet to select and
commission a mutually acceptable architect licensed in the State of Texas to
prepare preliminary architectural plans or "line drawings" for the SNF proposed
to be developed on the applicable Development Site. The Representatives shall
receive and review the line drawings, authorize any necessary modifications
thereto, and agree in writing upon the final version thereof, within thirty (30)
days of the approval of the applicable Development Site.
2.1.4 Budget and Financial Pro Forma. Immediately following the
------------------------------
approval of a market study, the Representatives shall begin preparing, or cause
to be prepared, a budget and pro-forma financial statement for the development,
construction and operation of the SNF proposed for the Development Site. Such
budget and pro-forma financial statement shall be completed and approved or
disapproved in writing by the Representatives within thirty (30) days of the
approval of the applicable market study and shall include, without limitation, a
line item-by-item estimate of the costs of developing and constructing the SNF,
including the Development Costs, and the costs of preparing it for operation,
and the projected revenues and expenses associated with the first five (5) years
of operation of the SNF.
2.1.5 Financing. Within thirty (30) days of the approval of a market
---------
study, the Representatives shall prepare, or cause to be prepared, such
materials and information as may
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be necessary to submit to prospective lenders for the financing of the
acquisition and development of the Development Site and the construction and
take-out financing for the SNF to be constructed on the applicable Development
Site. In connection with the preparation of such materials and information, the
Representatives shall agree upon and identify in writing the potential source of
the construction and take-out financing, which may be Baylor or a third party,
and set forth in writing the nature of the lessor-lessee arrangement between the
owner of the SNF, as lessor, and Fountain View, as lessee. The Representatives
shall submit the materials and information to the potential sources of
financing, negotiate with the sources responding, approve or disapprove of the
financing, and select the source of the financing and finalize the terms of the
financing in a binding loan commitment or similar document within thirty (30)
days of completion of such materials and information. Neither Baylor nor any of
its Affiliates will be required to guarantee all or any portion of any financing
or undertake any representations or warranties with respect to any project or
financing involving a SNF which neither Baylor nor any of its Affiliates owns,
and shall have no liability with respect thereto except for ancillary contracts
or leases executed by Baylor or an Affiliate of Baylor.
2.1.6 Final Architectural Plans. Within thirty (30) days of the
-------------------------
securing of the financing for the applicable SNF, the Representatives shall
select and commission an architect licensed in the State of Texas (which may be
the same Person as prepared the line drawings), to develop definitive
architectural plans and specifications. The Representatives shall review such
plans and specifications, authorize any necessary modifications thereto and
agree upon the final version thereof in writing, within one hundred twenty (120)
days of receipt of such plans from such Person.
2.1.7 Selection of Contractor. Within sixty (60) days of completion
-----------------------
of the architectural plans and specifications, the Representatives shall solicit
bids from and select a
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general contractor to construct the SNF on the applicable Development Site. The
Representatives shall negotiate the construction contract with the bidder
selected, and ensure that the contract is executed by the appropriate parties,
within ninety (90) days of the selection of the contractor.
2.1.8 Project Management and Supervision. Baylor shall have primary
----------------------------------
responsibility for: (a) acquiring or arranging the acquisition of each
Development Site; (b) supervising the development of each Development Site and
the construction of each of the SNFs developed hereunder; (c) monitoring
compliance with each applicable acquisition construction/development and related
contract; (d) monitoring contractor and subcontractor compliance with their
contractual obligations to (i) comply with all applicable deed and plat
restrictions and all applicable building, zoning, subdivision, land-use, health,
sanitation, environmental protection and other applicable federal, state and
local laws and regulations, and (ii) obtain all licenses, permits, approvals,
anthorizations and certifications from local, state and federal governmental
agencies required for the development and construction of the SNF; (e) providing
any and all information reasonably available to it which is necessary to
complete construction of the SNF; (f) preparing the SNF for commencing
operations; and (g) resolving in a commercially reasonable manner, as determined
by Baylor in the exercise of its business discretion, disputes and problems
arising under the site acquisition, development and construction contracts.
Fountain View shall assist Baylor in fulfilling such obligations, including the
provision of the services of a Fountain View construction representative. Baylor
shall reimburse Fountain View for all actual and reasonable costs, fees, and
business expenses of the Fountain View construction representative incurred in
assisting Baylor in connection with construction of the SNF, provided such
expenses are included in the budget for the project
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approved by the Parties, within thirty (30) days of receiving Fountain View's
invoice therefor, together with supporting documentation reasonably satisfactory
to Baylor.
2.1.9 Operational Matters. Fountain View shall have primary
-------------------
responsibility for: (a) obtaining all licenses and permits from all applicable
government agencies required for operating the property as a SNF after
completion of construction; (b) obtaining certification from all applicable
government agencies required for reimbursement for health care services rendered
at the SNF; (c) selecting the management information system and other business
systems to be installed in the SNF and used in its operations; (d) recruiting,
interviewing and hiring the professional and lay staff for the SNF; (e)
developing the governing rules and regulations and operational policies for the
SNF; and (f) otherwise enabling the operation of the SNF to commence timely in
accordance with applicable law and good business practice.
2.2 Responsibility for Performance. Except as provided in Sections 2.1.8
------------------------------
and 2.1.9, the duties provided for in Section 2.1 shall be performed jointly by
one (1) representative designated by Baylor in writing and one (1)
representative designated by Fountain View in writing (each, a "Representative",
and collectively, "Representatives"). The Representatives shall meet, in good
faith, when and as necessary to timely perform such duties. Fulfillment of such
duties shall require the mutual agreement of the Representatives which shall be
reduced to writing. The Representative designated by a Party may be changed at
any time by written notice to the other Party.
2.3 Reasonable Efforts. The Parties shall use commercially reasonable
------------------
efforts to complete each act and make each decision in Section 2.1.1 through
2.1.7 of this Article II within the specified time frames. In the event the
Parties are unable to complete any act or make any decision within the specified
time frame, but have not reached an impasse concerning such act
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or decision, the Parties shall use commercially reasonable efforts to make such
decision or complete such act as quickly as is reasonably possible.
2.4 Differences of Opinion. In the event the Representatives cannot agree
----------------------
on a particular matter, Baylor may proceed with the construction of the SNF with
another Person, provided, however, Baylor may do so only on substantially the
same terms and conditions as were presented to and rejected by Fountain View,
including the terms and conditions relating to the development phase or phases
at which Fountain View indicated its rejection and all prior development phases,
but not including terms and conditions not presented to and rejected by Fountain
View and which occur after the development phase at which Fountain View
indicated its rejection but not otherwise. In the event of any material change
in the terms or conditions rejected by Fountain View, Baylor may not proceed
with the construction project with another Person until Baylor has first given
Fountain View written notice specifying in reasonable detail each change in such
terms or conditions, and Fountain View has refused to accept, or agreed to
proceed with Baylor on, such changed terms or conditions. Fountain View shall
advise Baylor in writing of its election within thirty (30) days of receipt of
such notice, with failure to notify or notify timely constituting a rejection by
Fountain View.
2.5 Payment of Expenses. Except as provided in Section 2.1.8 hereof, each
-------------------
Party shall be solely responsible for any and air fees, costs and expenses it
incurs in performing its obligations under Sections 2.1, 2.2, 2.3, and 2.4
hereof. Baylor shall be responsible for paying all fees, costs and expenses
associated with all third parties involved in the development of a Development
Site and the construction of a SNF thereon (but excluding costs incurred in
Section 2.1.9 and otherwise for the operation of the SNF), including, without
limitation, all Development Costs; provided, however, that Baylor shall be
entitled to recoup its actual "out-of-pocket expenses" for such fees, costs and
expenses including Development Costs) from
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the construction or take-out financing. In the event the construction project is
abandoned for any reason, Baylor shall not be entitled to reimbursement from
Fountain View or any Fountain View Affiliate for any portion of such fees, costs
and or expenses. For purposes of this Section 2.5, Baylor's out-of-pocket costs
shall not include any overhead, general or internal costs or allocations of
Baylor, or any of its Affiliates; provided, however, that Baylor's out-of-pocket
expenses shall include, but not be limited to: (a) fees paid by Baylor to its
Affiliates (i) for the development and completion of a market study as provided
in Section 2.1.2 above, (ii) the preparation of a preliminary architectural plan
as provided in Section 2.1.3 above, (iii) the preparation of final architectural
plans as provided in Section 2.1.6 above, and (iv) similar fees for specific
services performed or goods provided which are not in the nature of overhead,
general or internal costs; and (b) any costs, fees or expenses reimbursed to
Fountain View pursuant to Section 2.1.8.
2.6 Exclusivity. For the period commencing on the Execution Date and
-----------
ending on the tenth anniversary of the Execution Date or earlier termination of
this Agreement or all rights of Fountain View under the License Agreement (as
defined in Section 3.3 of this Agreement), neither Party, nor any Affiliate of a
Party, shall participate in the development, construction, or operation
(including operations as a lessee of a SNF facility or under a management
contract) of a new SNF within the Development Territory except as provided in
this Agreement. For purposes of this Agreement, the Term "new SNF" means a SNF
that has not been built, and on which construction has not begun, as of the
Execution Date.
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ARTICLE III
COMPENSATION
------------
3.1 Consideration for Services. As consideration for the license to use
--------------------------
Baylor's name discussed in Section 3.3 hereof and the services Baylor renders
hereunder in connection with the acquisition of Development Sites and the
development of and construction of SNFs on such sites. Fountain View shall pay
Baylor a License and Development Fee for each such SNF, as described below. The
License and Development Fee for a SNF shall be payable at the time specified in
Section 3.2 hereof; provided, however, that a License and Development Fee for a
SNF shall not be due or payable until Fountain View has executed a lease under
which it shall become the lessee of the SNF as provided in Article V of this
Agreement, which execution shall not be unreasonably withheld or delayed.
3.1.1 Development Fee. The License and Development Fee for a SNF
---------------
shall equal eight percent (8%) of the Development Costs applicable to the SNF.
Subject to the provisions of Section 3.1.4, the License and Development Fee for
a SNF shall be payable in Development Fee Warrants, cash, or a combination of
Development Fee Warrants and cash, such that the fair market value of the
warrants, at the time they are granted, if any, plus the amount of cash, if any,
shall be equal to the amount of the License and Development Fee. The portion, if
any, of each License and Development Fee to be paid in Development Fee Warrants
and the portion be paid in cash shall be at the sole discretion of Baylor;
provided, however, that the fair market value of the Development Fee Warrants as
determined under Section 3.1.2, granted as part of the License and Development
Fee for a SNF, shall not exceed 0.3% of fully diluted common equity of Fountain
View as of that date.
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3.1.2 Fair Market Value of Development Fee Warrants. In the event
---------------------------------------------
Baylor elects to have a portion of any License and Development Fee paid in
warrants, the Parties shall, within thirty (30) days of Baylor providing
Fountain View with written notice of such election, attempt to agree on the fair
market value of the warrants. In the event the Parties do not agree on the fair
market value of the warrants within such time frame, the Parties shall mutually
select to establish the fair market value of the warrants a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm, with documented expertise in valuing the securities of
publicly and privately held health care companies. The decision of the firm
selected by the Parties shall be final and binding on the Parties. In the event
the Parties cannot agree on a firm to value the warrants, each Party shall
designate a firm that meets the above criteria, which, in turn, shall designate
a third firm (the "Designated Firm") which meets the above criteria. The
Designated Firm shall determine the fair market value of the warrants, and its
decision shall be final and binding on the Parties. If the Parties mutually
agree on the fair market value of the warrants, the Parties shall document the
basis for the determination, which shall include analysis of independent
verifiable market data and information.
3.1.3 Terms of Development Fee Warrants. Any Development Fee Warrants
---------------------------------
granted hereunder shall entitle Baylor to purchase a specified number of shares
of Series C common stock in Fountain View at $.01 per share, such that the fair
market value on the date of grant of the shares of Series C common stock to be
issued in connection with such Development Fee Warrants shall equal the portion
of the applicable Development Fee which Baylor has elected to receive in
Development Fee Warrants. Any Development Fee Warrants shall first be
exercisable on the date granted, and shall expire on the tenth anniversary of
the date granted. As a condition precedent to the grant of any Development Fee
Warrants, Baylor
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shall execute a counterpart signature page agreeing that all shares to be issued
under the Development Fee Warrants shall be subject to the Stockholder's
Agreement dated March 27, 1998, among Fountain View and its stockholders and
such other related documents as Fountain View may reasonably require.
3.1.4 Material Change of Ownership
----------------------------
3.1.4.1 Prior to Lease Commitment. Notwithstanding any other
-------------------------
provision of this Agreement, in the event a Material Change of Ownership in
Fountain View shall occur after the commencement of the development of a SNF
project on a Development Site, and prior to the earlier of the: (a) Permanent
Financing Close Date with respect to such SNF project; (b) the date on which
Fountain View shall have executed a lease for such SNF; or (c) the date on which
Fountain View shall have executed a binding commitment to lease such SNF,
Fountain View may, at its sole discretion, elect to proceed with the development
of the SNF in accordance with the terms and conditions of this Agreement, or may
elect not to so proceed with the SNF project. If Fountain View elects to proceed
with the development of the SNF, but Fountain View and Baylor are unable to
agree on a matter as discussed in Section 2.4 of this Agreement, the provisions
of Section 2.4 shall apply. If Fountain View elects not to proceed with the
development of the SNF, (a) Fountain View shall reimburse Baylor for such
Development Costs incurred by Baylor in connection with such project as Baylor
may elect by providing Fountain View with written notice of such election
within thirty (30) days of Fountain View's election not to proceed, provided if
Baylor elects to be reimbursed from Fountain View for any Development Costs,
Baylor shall convey, transfer and deliver to Fountain View at no further cost or
expense to Fountain View, all of Baylor's right, title, and interest in and to
such property, real or personal, tangible or intangible, as was acquired by
Baylor for the Development Costs reimbursed by Fountain View, and (b) Fountain
View shall have no further
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obligation with respect to such project, including, without limitation, the
payment of a License and Development Fee or any other fee to Baylor. Baylor and
Fountain View shall execute such documents and take such further acts as may be
reasonable and necessary to effectuate any conveyance, transfer and delivery of
property pursuant to this Section 3.1.4.1. Fountain View shall make a separate
election with respect to each SNF to which this Section 3.1.4.1 is applicable.
3.1.4.2 After Lease Commitment. Notwithstanding any other provision
----------------------
of this Agreement, in the event a Material Change of Ownership occurs after
Fountain View executes a binding commitment to lease a SNF which is being
developed under this Agreement, and before the Permanent Financing Close Date
applicable to such SNF, Fountain View may, at its sole discretion, elect as
follows: (a) Fountain View may elect to proceed with the development of the SNF
in accordance with the terms and conditions of this Agreement (excluding the
remainder of this Section 3.1.4.2); or (b) Fountain View may elect to proceed
under the terms and conditions of this Agreement, except that Fountain View
shall pay to Baylor the License and Development Fee for the SNF in cash only (at
the time specified in Section 3.2 hereof) and Baylor shall not then have the
option of receiving any portion of such License and Development Fee in
Development Fee Warrants. If Fountain View elects to proceed under clause (b) of
the preceding sentence, Baylor may, at its sole discretion, notify Fountain View
in writing within fifteen (15) days of being advised by Fountain View of such
election that it demands some or all of the License and Development Fee
applicable to the SNF be paid in Development Fee Warrants. Fountain View shall
then have the option, in its sole discretion, to agree to proceed with the
development of the SNF under this Agreement, and to pay some or all of the
License and Development Fee in Development Fee Warrants as demanded by Baylor in
accordance with the provisions of this Article III, or to reject Baylor's
demand, in
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which case (a) Fountain View shall have no further obligation with respect to
such SNF under this Agreement, including without limitation, the payment of a
License and Development Fee or any other fee to Baylor, and (b) Baylor may
proceed with the development and construction of the SNF by itself or with a
third party, subject to applicable law and other applicable agreements. Baylor
and Fountain View shall make the elections described under this Section
separately with respect to each SNF to which this Section is applicable.
3.2 Payment of Consideration. Baylor shall be paid the License and
------------------------
Development Fee applicable to a SNF on the Permanent Financing Close Date for
such SNF. Fountain View shall have no obligation to pay Baylor any License and
Development Fee for a SNF unless and until the Permanent Financing Close Date
for the SNF has occurred.
3.3 License to Use Baylor Name. Baylor and Fountain View shall enter into
--------------------------
a servicemark sublicense agreement, in substantially the form attached hereto as
Exhibit A ("License Agreement"), pursuant to which Baylor shall license to
Fountain View the use of the Baylor name in connection with the operation of the
SNF's developed on or within one mile of Baylor Facilities hereunder, subject to
and upon all of the terms and conditions of the License Agreement.
ARTICLE IV
DEVELOPMENT OF SNFS OUTSIDE THE DEVELOPMENT TERRITORY
-----------------------------------------------------
4.1 Development Assistance. From time to time during the term of this
----------------------
Agreement, Baylor may become aware of non-Baylor hospitals and health care
facilities operating outside of the Development Territory that desire to develop
and construct SNFs in their respective service areas. If Baylor becomes aware of
any such situation, it may (but shall not be obligated
20
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to) advise Fountain View thereof in writing, and, if requested in writing by
Fountain View, introduce the parties. If Fountain View pursues the opportunity,
and enters into an arrangement with a non-Baylor hospital or other health care
facility to develop, construct and lease a SNF, Fountain View shall offer Baylor
the opportunity to assist in the development of such SNF, on definitive terms
and conditions to be negotiated at the time.
4.2 Consideration.
-------------
4.2.1 Prior to Material Change of Ownership. In the event Baylor and
-------------------------------------
Fountain View agree pursuant to Section 4.1 above on the development assistance
to be provided by Baylor in connection with the development of a SNF outside of
the Development Territory (each, a "Non-Baylor SNF"), and Baylor provides such
development assistance, Fountain View shall grant Baylor warrants to purchase
shares of Series C common stock in Fountain View for each Non-Baylor SNF so
developed on the terms and conditions set forth in Section 4.2 of this
Agreement. Subject to the terms of Sections 4.2.2, 4.2.3, and 4.2.4 hereof, the
warrants shall be granted following the close of the first full fiscal year
during which the Non-Baylor SNF's EBITDA for such fiscal year (the "Facility-
Level EBITDA") is greater than or equal to ten percent (10%) of such SNF's Net
Revenue for such fiscal year (which fiscal year shall be referred to hereinafter
as the "Valuation Year"), all as determined by Fountain View's external
auditors, and shall be granted as soon as possible after such determination is
made. Subject to the terms of Section 4.2.2, 4.2.3, and 4.2.4, the warrants
shall entitle Baylor to purchase such number of shares of Series C common stock
of Fountain View, at a price of $.01 per share, which is equal to the product of
(a) twice the Facility-Level EBITDA divided by $677 million, multiplied by
(b) the number of shares of Fountain View common stock issued and outstanding
on the date the warrants are granted.
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4.2.2 Material change of Ownership or Sixth Anniversary. In the event
-------------------------------------------------
either: (a) a Material Change of Ownership in Fountain View; or (b) the sixth
anniversary of the Execution Date shall occur, after the date on which a Non-
Baylor SNF accepts its first patient, but prior to the completion of the
Valuation Year for such SNF, Fountain View, shall compensate Baylor for its
development assistance with respect to such project which compensation shall, at
the election of Fountain View, be: (a) in accordance with the terms of Section
4.2.1 hereof; or (b) in accordance with the following terms:
(i) Fountain View shall grant Baylor warrants, as
described below, as soon as practicable following the date (the "Terminal Date")
which is the earlier of the date on which the Material Change of Ownership
occurs or the sixth anniversary of the Execution Date.
(ii) The warrants shall entitle Baylor to purchase such
number of shares of Fountain View Series C common stock, at $.Ol per share,
which is equal to the product of (a) twice the EBITDA, if any, for the Non-
Baylor SNF for the prior four (4) full fiscal quarters immediately preceding
the Terminal Date divided by $677 million, multiplied by (b) the number of
shares of Fountain View common stock issued and outstanding on the date the
warrants are granted.
(iii) In the event the Terminal Date occurs after a Non-
Baylor SNF has been operating for two (2) full fiscal quarters, but fewer than
four (4) full fiscal quarters, the EBITDA for the SNF to be used in the formula
in subparagraph (ii) of this section shall be equal to the annualized EBITDA for
the SNF from the date on which the SNF began operating to and including the
Terminal Date. A SNF shall be deemed to begin operating on the date it admits
its first patient.
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4.2.3 Inadequate Operating Period. Notwithstanding any other
---------------------------
provision of this Agreement, Baylor shall not be entitled to any compensation
with respect to a Non-Baylor SNF if a Terminal Date occurs and such SNF has not
been operating for at least two full fiscal quarters on the terminal Date.
4.3 General. Any warrants granted under this Article IV shall expire on
-------
the tenth anniversary of the date on which they were granted. Baylor shall have
the right, at its expense and not more often than once each year with respect to
each Non-Baylor SNF, using representatives of its choosing, to audit the books
and records of Fountain View relating to such SNF in connection with the
determination of Facility-Level EBITDA and Net Revenue, and Fountain View agrees
to cooperate reasonably in the conduct of any such audit. As a condition
precedent to the issuance of any warrants under this Article IV, Baylor shall
execute a counterpart signature page agreeing that all shares to be issued under
the Development Fee Warrants shall be subject to the Stockholder's Agreement
dated March 27, 1998, among Fountain View and its stockholders and such other
documents as Fountain View may reasonably require.
ARTICLE V
LEASE OF SNFS
-------------
5.1 Operating Lease. If Baylor is the owner of the applicable SNF
---------------
constructed under this Agreement, the Parties shall negotiate and enter into an
operating lease, pursuant to which Fountain View shall operate such SNF.
Although each such operating lease shall be negotiated separately, each such
lease shall include terms that substantially comply with the following: (a) the
annual rent payable under the lease shall be paid in monthly installments equal
to the
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monthly finance costs of the SNF plus a reasonable rate of return to be agreed
upon by Fountain View and Baylor at the time the lease is negotiated; (b) the
lease shall be "triple net" (i.e., lessee shall pay taxes and assessments, and
for maintenance, repairs, insurance and utilities); (c) the term of each lease
shall be ten (10) years with three (3) ten (10) year renewal options, at the
option of Fountain View, provided that the rent and other terms and conditions
applicable with respect to the renewal options shall be set forth in the lease
when the lease is first executed; (d) the lease shall not be terminable by
either party except; (i) for a material breach that remains uncured after a
reasonable period of time as is customary in arm's-length commercial leases for
comparable facilities in the Development Territory; (ii) if the SNF's operating
license or Medicare or Medicaid certification is suspended or removed after it
had been obtained by the SNF and Fountain View is unable to restore the license
or certification within one hundred twenty (120) days of its suspension or
removal; or (iii) if Baylor elects pursuant to a provision of this Agreement to
take over such lease and succeed to Fountain View's rights and interests under
such lease; and (e) the lease shall contain such other terms, conditions,
representations, warranties and indemnities as are usual and customary for
arm's-length leases in the applicable community.
5.2 Takeover of Lease. If Baylor is not the owner of the applicable SNF
-----------------
constructed under this Agreement, and the SNF is located on a Development Site,
Fountain View shall use commercially reasonable efforts to include in its
operating lease with the applicable lessor provisions that: (a) require such
lessor to notify Baylor in the event that Fountain View is in breach of the
operating lease and has not cured that breach within a reasonable period of time
and, therefore, that the lessor plans to terminate the lease; and (b) would
allow Baylor the opportunity, but not the obligation, to take over Fountain
View's position under the lease, in each instance where it is provided for in
this Development Agreement, subject to the rights of
24
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any lenders to Fountain View in the event (i) of such termination, or (ii) that
the SNF's operating license or Medicare or Medicaid certification is suspended
or removed and Fountain View is unable to restore the license or certification
within one hundred twenty (120) days of such suspension or renewal. Baylor shall
be entitled to participate in the negotiations with respect to each operating
lease regarding provisions affecting Baylor's rights under this section.
5.3 Baylor Assumption of Fountain View Lease.
----------------------------------------
5.3.1 Off Campus Facility. In the event the operating license or the
-------------------
Medicare or Medicaid certification of a SNF that is leased to Fountain View by
Baylor or a Baylor Affiliate and that is located in the Development Territory
but is not located within one mile of a Baylor Facility, is suspended or
removed after it has been obtained and Fountain View is unable to restore the
license or certification within the time period specified in Section 5.1 above,
Baylor may; (a) provide written notice to Fountain View of its desire to
terminate such lease in which Baylor is the lessor or to take over a lease, and
succeed to all of Fountain View's rights and interests thereunder, in which
Baylor or a Baylor Affiliate is not the lessor (the "Section 5.3 Notice");
(b)pay Fountain View the then-current fair market value of the business and
operation of the applicable SNF operated as a going concern (as calculated
below) (the "Fair Market Value"); (c) become solely responsible for the
operation of the SNF from and after (i) the effective date of termination of the
operating lease of a SNF leased to Fountain View by Baylor or a Baylor
Affiliate; or (ii) the date on which Baylor takes over Fountain View's position
under a lease where Baylor or a Baylor Affiliate is not the lessor, without
waiver of any rights of Baylor or the lessor against Fountain View for its acts
or omissions causing such event; and (d) indemnify Fountain View and its
officers, directors, employees, and agents from and against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, actions, suits and
damages (collectively "Losses"), including, without limitation, interest and
penalties,
25
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reasonable attorney's fees and costs, and all amounts paid in settlement,
arising from or with respect to such subsequent operation of the SNF; except to
the extent Fountain View's acts or omissions contribute to the Losses. Baylor
shall pay Fountain View such Fair Market Value, in fall, within ninety (90) days
of the determination thereof, as provided below.
5.3.2 Baylor-Related Facility. In the event the operating license or
-----------------------
Medicare or Medicaid certification of a SNF that: (a) has been developed under
this Agreement; (b) is located on or within one (1) mile of a Baylor Facility;
and (c) is leased to Fountain View by Baylor, a Baylor Affiliate, or any other
Person, is suspended or removed after it has been obtained and Fountain View is
unable to restore the license or certification within the time period specified
in Section 5.1 above, Baylor may; (a) terminate the lease between Fountain View
and Baylor or a Baylor Affiliate in accordance with its terms; or (b) replace
Fountain View as the lessee under a lease with a third party, and take over and
succeed to all of Fountain View's rights and interests in such lease, and Baylor
shall have no obligation under this Agreement to make any payment to Fountain
View as a consequence of such termination or replacement. Fountain View does not
hereby waive any rights it may have under any lease or other agreement, or under
law, to payment from Baylor or otherwise.
5.4 Determination of Fair Market Value. The Parties shall meet and
----------------------------------
confer in good faith for a period of at least sixty (60) days after Baylor
provides a Section 5.3 Notice to determine a mutually agreeable Fair Market
Value for the applicable SNF. In the event the Parties cannot agree on a value
within such time period, each Party shall appoint an appraiser experienced in
valuing SNFs or comparable health care facilities in the applicable geographic
area. The two (2) appraisers shall meet, for a period not to exceed thirty (30)
days, to establish a Fair Market Value for the SNF. In the event the appraisers
cannot agree on such a value within such time period, and the higher of the two
valuations is not more than 110% of the
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lower of the two valuations, the Fair Market Value shall be the average of the
two valuations. If the higher of the two valuations is more than 110% of the
lower of the two valuations, the appraisers shall promptly select a third
appraiser who shall deliver his or her determination of the Fair Market Value of
the SNF to the Parties within thirty (30) days of his or her selection. The Fair
Market Value shall equal the average of (a) the valuation of the third
appraiser, and (b) the valuation of the first two appraisers which is closest in
amount to the valuation of the third appraiser; provided, however, that if the
amount of the valuation of the third appraiser is equidistant from the amount of
each of the other two valuations, the Fair Market Value shall be the Fair Market
Value determined by the third appraiser. In determining the Fair Market Value of
a SNF which Baylor or a Baylor Affiliate owns and has leased to Fountain View,
the fact that Baylor or its Affiliate shall own the SNF, including its
operations unencumbered by a lease after the lease with Fountain View is
terminated, shall be taken into account. If the Parties mutually agree on a
Fair Market Value, the Parties shall document the basis for the determination of
the Fair Market Value.
5.5 Leasehold Mortgage. Baylor and Fountain View shall use commercially
------------------
reasonable efforts to obtain a mortgage on any leasehold on a SNF developed
under this Agreement in favor of Fountain View's lenders in the event so
requested by such lenders.
5.6 Inspection. Fountain View shall permit duly authorized
----------
representatives of Baylor to inspect the premises of Fountain View and the SNFs
developed under this Agreement in the Development Territory at all reasonable
times, upon reasonable request for purposes of ascertaining or determining
compliance with the terms of this Agreement. Upon request of Baylor, Fountain
View shall cause the officers, employees, agents, attorneys, contractors and
accountants of Fountain View and of each such SNF to meet with representatives
of Baylor,
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cooperate fully with such representatives and respond to all questions and
inquiries of such representatives with respect to the operation of such SNFs.
ARTICLE VI
QUALITY ASSURANCE COMMITTEES; MEDICAL DIRECTOR
----------------------------------------------
6.1 Quality Assurance Committee. The Parties shall establish a separate
---------------------------
quality assurance committee ("Q.A. Committee") for each SNF developed in the
Development Territory pursuant to this Agreement. Each committee shall consist
of three (3) persons appointed by Baylor ("Baylor Members") and (3) three
persons appointed by Fountain View ("Fountain View Members"). The Baylor Members
shall include at least one (1) licensed physician and one (1) registered nurse.
Each Q.A. Committee shall meet at least monthly, and shall be available to meet
immediately if the need so arises, Each Q.A. Committee shall serve in an
advisory capacity and make recommendations to the Board of Directors of the
applicable SNF. Each such recommendation shall require a majority vote of the
Q.A. Committee. The Board of Directors of each SNF shall have the discretion to
accept or reject the recommendations of the Q.A. Committee.
6.2 Responsibilities of Q.A. Committees. Each Q.A. Committee shall be
-----------------------------------
responsible for:
(a) reviewing all certification, licensure and accreditation
survey reports for the SNF;
(b) recommending quality assurance parameters, protocols and
guidelines;
(c) reviewing critical pathways;
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(d) conducting periodic quality assurance reviews and
outcomes analyses;
(e) making recommendations regarding quality improvement;
and
(f) engaging in such other quality-related activities as may
be requested by the applicable SNF Board of Directors.
6.3 Failure to Follow Recommendations. In the event the Baylor Members
---------------------------------
believe that a particular recommendation regarding quality assurance or quality
improvement at the applicable SNF to be materially important to Baylor's
reputation or the operation of the SNF, and either the recommendation is not
adopted by a majority of the Q.A. Committee, or the Board of Directors of the
applicable SNF rejects the recommendation, the Baylor Members and the Fountain
View Members shall meet and confer in good faith for such period of time as is
necessary, but not to exceed thirty (30) days, to thoroughly evaluate the
recommendation desired by the Baylor Members. To the extent practicable, input
from industry representatives and experts relating to the particular issue at
hand shall be obtained and considered during the meet and confer process.
In the event the meet and confer process is unsuccessful, (a) Fountain
View shall have the first option of agreeing to adopt the recommendation,
provided that Baylor shall be solely responsible for paying for all costs and
expenses reasonably incurred by Fountain View in implementing such
recommendation; and (b) Baylor shall have the second option to purchase the SNF
on the terms discussed below, provided that Baylor shall notify Fountain View in
writing of its intent to exercise this option within thirty (30) days of
receiving written notice from Fountain View that it will not exercise its first
option hereunder, and that Baylor's option shall terminate if such notice is not
given timely. If neither Fountain View nor Baylor exercises
29
<PAGE>
its option under the preceding sentence, then Fountain View shall have no
obligation to implement the recommendation desired by Baylor.
In the event Baylor elects to exercise its option to purchase all of
Fountain View's rights and interests with respect to a SNF under this section,
Baylor shall pay Fountain View, within ninety (90) days of notice of the
exercise of such option, as follows:
(a) If the SNF has been in operation for at least thirty-six (36)
consecutive months, the purchase price paid by Baylor shall be
125% of the then-current SNF Enterprise Value of the SNF, less
the outstanding principal balance of any Fountain View debt
assumed by Baylor in acquiring the SNF.
(b) If the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole
discretion, (i) Baylor shall pay Fountain View a purchase price
of 125% of the then-current SNF Enterprise Value of the SNF less
the outstanding principal balance of any Fountain View debt
assumed by Baylor in acquiring its SNF, or (ii) Baylor shall
return unexercised to Fountain View all Development Fee Warrants
granted to Baylor in connection with such SNF, and pay to
Fountain View the amount of the License and Development Fee, if
any, for such SNF paid to Baylor by Fountain View in cash and not
from the proceeds of the permanent financing for such SNF.
6.4 Regional Medical Director. During the term of this Agreement, Fountain
-------------------------
View shall employ or engage a Regional Medical Director with appropriate medico-
administrative responsibilities relating to SNFs operated by Fountain View
located in Texas (the "Texas SNFs"). The Regional Medical Director shall be
subject to Baylor's reasonable concurrence,
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<PAGE>
and shall be employed or engaged (whether directly or indirectly through the
Regional Medical Director's employer) pursuant to a written agreement (the
"Regional Medical Director Agreement") approved by Baylor, which will not be
unreasonably withheld. The Regional Medical Director shall serve in addition to,
and not in lieu of, the medical directors of the individual SNFs. The Regional
Medical Director shall have access to all Texas SNFs and personnel thereof. The
fees and expenses of or for the Regional Medical Director shall be paid by
Fountain View in accordance with the Regional Medical Director Agreement. Unless
the Parties otherwise agree, it is anticipated that the Regional Medical
Director shall perform services under the Regional Medical Director Agreement
one day each week and shall not be compensated more than Fifty Thousand Dollars
($50,000.00) per year.
ARTICLE VII
CHANGE OF CONTROL
-----------------
7.1 Definitions.
-----------
7.1.1 As used in this Agreement, "Change of Control" means the
occurrence of any of the following:
(a) Prior to an initial public offering of common stock of
Fountain View pursuant to a registration statement under the Securities Act of
1933, as amended, in which at least 20% of the common stock of Fountain View is
sold (a "Qualified IPO"), (i) Heritage and its Affiliates (which, as used in
this definition, shall include all Management Stockholders (as that term is
defined in the Stockholders Agreement dated as of March 27, 1998 among Fountain
View, Heritage and others) and for purposes of this clause (i) only shall
include Baylor and its Affiliates, cease to control the vote of voting
securities of Fountain View having the
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power (contractual or otherwise) to elect a majority of the directors of
Fountain View, or (ii) Heritage and its Affiliates cease to beneficially own
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) at least 20% of the issued and
outstanding common stock of Fountain View: or
(b) After a Qualified IPO (i) a change in the membership of the board
of directors of Fountain View occurs during any period of 12 consecutive months
after which a majority of the board of directors is comprised of persons who are
not Qualified Directors or (ii) a Person, entity or group (within the meaning of
Rule 13d-5 promulgated under the Exchange Act) other than Heritage and its
Affiliates beneficially owns an aggregate percent of the combined voting power
of Fountain View's then-outstanding securities entitled to vote for the election
of directors of Fountain View which is greater than the aggregate percent of
such combined voting power beneficially owned by Heritage, Baylor and their
respective Affiliates. As used herein, a "Qualified Director" is a person who
was (x) director at the beginning of such 12-month period, or (y) was approved
by Heritage, Baylor or an Affiliate or by a permitted transferee or successor of
Baylor, Heritage or one of their Affiliates (but not including Management
Stockholders in the definition of "Affiliate" for this definition, and voting
for the election of a person as a director will be deemed to be approval); or
(c) Fountain View or any of its Affiliates transfers or makes a
verbal or written agreement or letter of intent to transfer any SNF developed
hereunder within the Development Territory (as used in this subsection,
"transfer" means a sale, lease, transfer, sublease or other disposition of an
SNF or a transfer, assignment or subcontracting of Fountain View's rights or
obligations to operate an SNF, other than as expressly provided for in this
Agreement and other than to a Person which is directly or indirectly wholly
owned by Fountain View).
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7.2 Notice of Take Back. In the event of a Change of Control pursuant to
-------------------
Section 7.1.1, as between Baylor and Fountain View, Baylor may: (a) terminate
the lease or leases between Fountain View and Baylor or any Baylor Affiliate for
the SNF or SNFs involved; or (b) replace Fountain View as the lessee under the
lease or leases between Fountain View any third party for the SNF or SNFs
involved, and take over and succeed to all of Fountain View's rights and
interests in such lease or leases. Fountain View shall promptly give written
notice to Baylor of each and every actual or potential change of Control of
Fountain View during the term of this Agreement, and of the effective date of
the Change of Control. Within thirty (30) days of the effective date of a Change
of Control under Section 7.1.1(a) or 7.1.1(b), Baylor shall advise Fountain View
in writing as to whether it will take back any one or more SNFs located in the
Development Territory and developed under this Agreement. In the event Baylor
elects to take back any SNF located on or within one(1) mile of a Baylor
Facility, it shall be obligated to take back all SNFs located in the Development
Territory and developed under this Agreement that are located on or within one
(1) mile of a Baylor Facility. Within thirty (30) days of the effective date of
a Change of Control pursuant to Section 7.1.1(c) hereof, Baylor shall notify
Fountain View in writing as to whether it will take back the applicable SNF. If
Baylor elects or is obligated to take back a SNF under this Section 7.2,
Fountain View shall have a reasonable period of time, not to exceed ninety (90)
days after receipt of the notice from Baylor provided for herein, to vacate such
SNF. Fountain View shall cooperate reasonably with Baylor in connection with the
transition of the SNF.
7.3 Consideration. Baylor shall pay to Fountain View for each SNF which it
-------------
elects or is obligated to take back from Fountain View pursuant to Section 7.2
hereof, within ninety (90) days of the determination of the SNF Enterprise
Value, therefor:
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(a) if the SNF has been in operation for at least thirty-six (36)
consecutive months, the purchase price paid by Baylor shall be 125% of the then-
current SNF Enterprise Value of the SNF, less the outstanding principal balance
of any Fountain View debt assumed by Baylor in acquiring the SNF.
(b) if the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole discretion, (i)
Baylor shall pay Fountain View a purchase price of 125% of the then-current SNF
Enterprise Value of the SNF less the outstanding principal balance of any
Fountain View debt assumed by Baylor in acquiring the SNF, or (ii) Baylor shall
return unexercised to Fountain View all Development Fee Warrants granted to
Baylor in connection with such SNF, and pay to Fountain View the amount of the
License and Development Fee, if any, for such SNF paid to Baylor by Fountain
View in cash and not from the proceeds of the permanent financing for such SNF.
7.4 Termination of Rights and Interests. If and when Baylor, under this
-----------------------------------
Agreement, terminates a lease for a SNF developed hereunder, or takes over a
lease for any such SNF and succeeds to Fountain View's rights and interests
thereunder, Fountain View shall thereafter have no further rights or interests
in such SNF.
ARTICLE VIII
TERMINATION OF LICENSE AGREEMENT; LOSS OF BAYLOR NAME
-----------------------------------------------------
8.1 Change of Control. If, as a result of a Change of Control under
-----------------
Section 7.1.1(a) or 7.1.1(b), Baylor elects to exercise its right under Section
18.b of the License Agreement to terminate the License Agreement in whole or in
part, and/or to require Fountain View to discontinue the use of the Baylor name
in connection with the operation of a SNF developed under this Agreement and
located in the Development Territory and on or within one (1) mile
34
<PAGE>
of a Baylor Facility, Baylor shall be obligated to pay Fountain View the
consideration set forth in Section 7.3 for each and every SNF developed under
this Agreement and located in the Development Territory on or within one mile of
a Baylor Facility. If, as a result of a Change of Control under Section
7.1.1(a), (b) or (c), or the occurrence of an event described in Section 18.j
of the License Agreement, Baylor exercises its right under the License Agreement
to require Fountain View to discontinue use of the Baylor name in connection
with the operation of one or more SNFs developed under this Agreement and
located in the Development Territory within one mile of a Baylor Facility,
Baylor shall be obligated to pay Fountain View the consideration set forth in
Section 7.3 for each and every such SNF. If, as a result of a Change of Control
under Section 7.1.1(c), or the occurrence of an event described in Section 18.j
of the License Agreement. Baylor exercises its right under the License Agreement
to require Fountain View to discontinue use of the Baylor name in connection
with the operation of one or more SNFs developed under this Agreement located
within the Development Territory but not located within one mile of a Baylor
Facility, Baylor shall have the right to terminate any or all of the leases for
such SNFs or take over any or all of the leases for such SNFs and succeed to
Fountain View's rights and interests thereunder, at the consideration set forth
at Section 7.3. Baylor shall notify Fountain View within thirty (30) days of
the applicable effective date of the change of Control as to whether Baylor
shall exercise its rights under the License Agreement with respect to the SNFs
affected thereby. All payments by Baylor required under this Section 8.1 shall
be made within ninety (90) days of the effective date of the applicable Change
of Control. Fountain View shall cooperate reasonably with Baylor in connection
with the termination of any or all SNFs
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8.2 Loss of Licensure or Certification
----------------------------------
In the event Baylor exercises its right under the License Agreement to
terminate the License Agreement in whole or in part, and/or to require Fountain
View to discontinue using Baylor's name in connection with one or more SNFs
developed under this Agreement and located within the Development Territory, and
the basis for Baylor's action is that each such SNF (for purposes of this
Section 8.2, each a "Section 8.2 SNF") has failed to comply with Section
3(b)(ii) or (iii) (pertaining to licensure, and Medicare and Medicaid
certification), or 3(c) of the License Agreement, or terminates the License
Agreement pursuant to Section 18.c or d. thereof, Baylor shall pay to Fountain
View with respect to each Section 8.2 SNF the Fair Market Value of the SNF
unless the second to last sentence of this Section 8.2 is applicable. The Fair
Market Value of a Section 8.2 SNF shall be determined as set forth in Section
5.4 hereof, except that the meet and confer process described therein shall
commence on the date Fountain View receives the notice from Baylor that the
License Agreement or Fountain View's license to use Baylor's name has been
terminated as to such Section 8.2 SNF, and shall terminate sixty (60) days
thereafter. Notwithstanding the provisions of this Section, Baylor shall not be
required to pay Fountain View the Fair Market Value of a Section 8.2 SNF or
because of a breach of paragraph 3(c)(ii) or (iii) of the License Agreement
where Baylor has terminated Fountain View's lease of, or replaced Fountain View
as lessee under a third party lease of, the Section 8.2 SNF as described in
Section 5.3.2 of this Agreement. Any payment from Baylor to Fountain View under
this Section 8.2 shall be made within ninety (90) days of the applicable
determination of Fair Market Value.
8.3 Clinical Privileges, Quality Assurance and Other Matters.
--------------------------------------------------------
In the event Baylor exercises its right under the License Agreement to
terminate the License Agreement in whole or in part, and/or to require Fountain
View to discontinue using
36
<PAGE>
Baylor's name in connection with one or more SNFs developed under this Agreement
and located within the Development Territory, and the basis for Baylor's action
is that each such SNF (each a "Section 8.3 SNF") has failed to comply with
Section 3(a) or 3(b)(i) or (iv) of the License Agreement, or Baylor terminates
the License Agreement pursuant to Section 18.a, g, h or i thereof, Baylor shall
with respect to each Section 8.3 SNF:
(a) if the SNF has been in operation for at least thirty-six (36)
consecutive months, Baylor shall pay Fountain View 125% of the then-current SNF
Enterprise Value of the SNF, less the outstanding principal balance of any
Fountain View debt assumed by Baylor in acquiring the SNF.
(b) if the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole discretion, (i)
Baylor shall pay Fountain View 125% of the then-current SNF Enterprise Value of
the SNF less the outstanding principal balance of any Fountain View debt assumed
by Baylor in acquiring its SNF, or (ii) Baylor shall return unexercised to
Fountain View all Development Fee Warrants granted to Baylor in connection with
such SNF, and pay to Fountain View the amount of the License and Development
Fee, if any, for such SNF paid to Baylor by Fountain View in cash and not from
the proceeds of the permanent financing for such SNF.
Any payment or return of Development Fee Warrants to be made by Baylor
to Fountain View under this Section 8.3 shall be made within ninety (90) days of
the date on which Baylor notifies Fountain View that the License Agreement or
Fountain View's license to use Baylor's name has been terminated with respect
to such SNF.
8.4 Obligation to Terminate Lease. In the event Baylor exercises its
-----------------------------
right under the License Agreement to terminate the License Agreement in whole or
in part, and/or to require Fountain View to discontinue using Baylor's name in
connection with one or more SNFs
37
<PAGE>
developed under this Agreement and located within the Development Territory and
on or within one (1) mile of a Baylor Facility, Baylor also shall
simultaneously: (a) terminate, or ensure termination, of the lease for the SNF
with Baylor or a Baylor Affiliate; or (b) as between Baylor and Fountain View,
replace Fountain View as the lessee under the lease for the SNF between Fountain
View and an unrelated third Person.
8.5 Toll Period. In the event the License Agreement is terminated pursuant
-----------
to Section 18.a.iv thereof, Fountain View shall have ninety (90) days after the
effective date of termination to remove the attachment, execution of judgement
or process resulting in such termination ("Toll Period"). In the event Fountain
View removes such attachment, execution of judgement or process during the Toll
Period, the License Agreement shall be automatically reinstated, unless an event
has occurred during the Toll Period that has resulted in an automatic or
optional termination hereunder and such termination has occurred. During the
Toll Period, this Agreement shall remain in effect, and Fountain View shall
continue to operate the affected SNFs, provided, however, that any right or
obligation of Baylor hereunder to repurchase or cancel or replace Fountain View
as a lessee under a lease for a SNF shall be stayed until the expiration of the
Toll Period.
8.6 Single Obligation to Pay. In the event that more than one provision of
------------------------
this Agreement obligates Baylor to make a payment to Fountain View for a SNF
developed in connection with Baylor's (a) terminating a lease between Fountain
View and Baylor or a Baylor Affiliate; or (b) replacing Fountain View as the
lessee under the lease between Fountain View and a third party and taking over
and succeeding to Fountain View's rights and interests under such lease, Baylor
shall be obligated to pay Fountain View only once hereunder for each such
SNF.
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ARTICLE IX
REPRESENTATIONS OF BAYLOR
-------------------------
As an inducement to Fountain View to enter into this Agreement, Baylor
makes the following representations to Fountain View:
9.1 Organization; Standing. Baylor is a nonprofit corporation validly
---------------------
existing and in good standing under the laws of the State of Texas and has full
corporate power and authority to own and lease its properties and assets and to
carry on its business as now being conducted, and has the full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
9.2 Authority. The execution, delivery and performance by Baylor of this
---------
Agreement have been duly authorized and approved by all necessary action of
Baylor. This Agreement has been duly executed and delivered by, and constitutes
the valid, binding and enforceable obligation of Baylor, except to the extent
that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally, and except as enforcement thereof is subject to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity).
9.3 No Violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated hereby, by Baylor will:
(a) violate any provision of the Articles of Incorporation or Bylaws of Baylor;
(b) be in conflict with, constitute a default under, or create a right of
termination or cancellation under any material agreement or material commitment
to which Baylor is a party, or by which it or any of its assets or properties
are bound; (c) cause the acceleration of the maturity of, or change any
financial term of, any
39
<PAGE>
material debt or material obligation of Baylor; or (d) require the consent of
any third party not otherwise contemplated herein.
9.4 Consents and Approvals of Governmental Authorities. Except as
--------------------------------------------------
otherwise provided herein, no consent, order, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution or delivery of this
Agreement or the performance by Baylor of this Agreement.
9.5 Statements; Books and Records. To the best knowledge of Baylor,
-----------------------------
no written statement (financial or otherwise) delivered to Fountain View in
connection with the execution and delivery of this Agreement contains any
material misstatement or omission of a material fact.
9.6 Litigation. There is no claim, litigation, proceeding
----------
(administrative or otherwise), investigation or controversy pending or, to
Baylor's knowledge, threatened, before any court, governmental agency, bureau,
instrumentality or arbitration panel against or involving Baylor which could
have a material adverse impact on the business of Baylor taken as a whole or the
ability of Baylor to consummate the transactions contemplated herein. Baylor is
not actually aware of any basis for any claim against it which might result in
any such litigation, proceeding, investigation or controversy.
9.7 Judgments and Orders. Baylor is not subject to any judgment,
--------------------
order, writ, injunction or decree of any court, arbitration panel, or
governmental authority, which could have a material adverse impact on the
business of Baylor taken as a whole, or on its ability to consummate the
transactions contemplated herein.
40
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ARTICLE X
REPRESENTATIONS OF FOUNTAIN VIEW
--------------------------------
As an inducement to Baylor to enter into this Agreement, Fountain
View makes the following representations to Baylor:
10.1 Organization; Standing. Fountain View is a corporation validly
----------------------
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to own and lease its properties and assets
and to carry on its business as now being conducted, and has the full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
10.2 Authority. The execution, delivery and performance by Fountain View
---------
of this Agreement have been duly authorized and approved by all necessary action
of Fountain View. This Agreement has been duly executed and delivered by, and
constitutes the valid, binding and enforceable obligation of Fountain View,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and except as
enforcement thereof is subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding at law or in equity).
10.3 No Violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated hereby, by Fountain View
will: (a) violate any provision of the Certificate of Incorporation or Bylaws of
Fountain View; (b) be in conflict with, constitute a default under, or create a
right of termination or cancellation under any material agreement or material
commitment to which Fountain View is a party or by which it or any of its assets
or properties are bound; (c) cause the acceleration of the maturity of, or
change any
41
<PAGE>
financial term of, any material debt or material obligation of Fountain View; or
(d) require the consent of any third party not otherwise contemplated herein.
10.4 Consents and Approvals of Governmental Authorities. Except as
---------------------------------------------------
otherwise provided herein, no consent, order, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution or delivery of this
Agreement or the performance by Fountain View of this Agreement.
10.5 Statements; Books and Records. To the best knowledge of Fountain
-----------------------------
View no written statement (financial or otherwise) delivered to Baylor in
connection with the execution and delivery of this Agreement contains any
material misstatement or omission of a material fact.
10.6 Litigation. There is no claim, litigation, proceeding (administrative
----------
or otherwise), investigation or controversy pending or, to Fountain View's
knowledge, threatened, before any court, governmental agency, bureau,
instrumentality or arbitration panel against or involving Fountain View which
could have a material adverse impact on the business of Fountain View taken as a
whole or the ability of Fountain View to consummate the transactions
contemplated herein, Fountain View is not actually aware of any basis for any
claim against it which might result in any such litigation, proceeding,
investigation or controversy.
10.7 Judgments and Orders. Fountain View is not subject to any judgment,
--------------------
order, writ, injunction or decree of any court, arbitration panel, or
governmental authority, which could have a material adverse impact on the
business of Fountain View taken as a whole, or on its ability to consummate the
transactions contemplated herein.
42
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ARTICLE XI
TERM AND TERMINATION
--------------------
11.1 Term. The term of this Agreement shall commence on the Effective
----
Date, and shall continue until the latest date on which any lease for a SNF
developed under this Agreement shall terminate.
11.2 Termination for Material Breach. Section 2.6 of this Agreement may
-------------------------------
be terminated by either Party upon the material breach of any material term or
provision hereof by the other Party, upon thirty (30) days written notice from
the non-breaching Party to the breaching Party specifying the breach with
particularity. The above notwithstanding, if the breaching Party cures the
breach within such thirty (30) day period to the reasonable satisfaction of the
non-breaching Party, or, if a cure cannot be effected within such thirty (30)
day period, commences a cure and thereafter diligently pursues same to
completion, Section 2.6 of this Agreement shall not terminate and shall remain
in full force and effect.
11.3 Termination on Bankruptcy. Either Party may terminate Section 2.6 of
-------------------------
this Agreement, upon written notice to the other Party, in the event of the
institution against such other Party of any proceeding under federal or state
law for the relief of debtors, including the filing of a voluntary or
involuntary petition in bankruptcy, or the adjudication of such other Party as
insolvent or bankrupt, or the assignment of such other Party's property for the
benefit of creditors, or the appointment of a receiver, trustee or conservator
of any substantial portion of such other Party's assets, or the seizure by a
sheriff, receiver, trustee or conservator of any substantial portion of such
other Party's assets; and the failure, in the case of any of these events, of
such other Party to obtain dismissal of the proceeding or removal of the
conservator, receiver, or trustee within thirty (30) days after the occurrence
of the event.
43
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11.4 Termination or Failure to Approve Use of Mark. Either party may
---------------------------------------------
terminate this Agreement in its entirety if Baylor University fails to approve
the use of the mark ("BAYLOR HEALTH CARE SYSTEM") by Fountain View in accordance
with the terms of the License Agreement within one hundred eighty (180) days of
the Execution Date.
11.5 Effect of Termination. From and after the effective date of
---------------------
termination of Section 2.6 of this Agreement, the Parties shall no longer be
obligated to (a) collaborate with respect to the development, construction and
operation of any new SNF in the Development Territory under Section 2.1 (but may
continue to comply with the Sections 2.1.1 through 2.1.8 and 2.2 through 2.5
with respect to any SNF the Parties had agreed to develop prior to the effective
date of termination of Section 2.6.); or perform under Section 4.1 with respect
to any opportunity outside of the Development Territory of which Baylor had not
yet apprised Fountain View.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Delegation to Affiliates. Any duty or obligation of either Party
------------------------
under this Agreement may be delegated to and performed by an Affiliate,
operating unit or division of such Party, provided that each Party shall remain
obligated to perform the terms of this Agreement notwithstanding any such
delegation, and provided further that the License Agreement may be delegated
only in accordance with the terms of the License Agreement. The above
notwithstanding, Fountain View may delegate its right to lease and operate a SNF
developed under this Agreement, only to a Person that is directly or indirectly
wholly owned by Fountain View. To the extent rights of first refusal or similar
rights or options in favor of a Party would
44
<PAGE>
arise hereunder as a result of the actions or duties of the other Party, such
rights shall arise as a result of similar actions or duties of such other
Party's Affiliates.
12.2 Jeopardy. In the event the performance by either Party of any term,
--------
covenant or provision of this Agreement jeopardizes: (a) the licensure of any
Baylor Facility or a SNF developed hereunder; (b) the participation in Medicare,
Medicaid or other reimbursement or payment program by a Baylor Facility or a SNF
developed hereunder; (c) the full accreditation of a Baylor Facility or a SNF
developed hereunder by the Joint Commission on Accreditation of Healthcare
Organizations or any other state or nationally recognized accreditation
organization; (d) the tax-exempt status of Baylor or any of its Affiliates or
the ability of Baylor or any of its Affiliates to obtain or maintain tax-exempt
financing; or (e) if for any other reason said performance should be in
violation of any statute, ordinance, or otherwise be deemed illegal, or be
deemed unethical by any recognized authority (collectively, "Jeopardy Events"),
then the Parties shall use their best efforts to meet forthwith and attempt to
negotiate an amendment to this Agreement to remove or negate the effect of the
Jeopardy Event. In the event the Parties are unable to negotiate such an
amendment within thirty (30) days following written notice by either Party to
the other Party of the Jeopardy Event, then the provisions of this Agreement
that give rise to the Jeopardy Event shall be ineffective only to the extent
that they are in contravention of applicable law or otherwise give rise to the
Jeopardy Event, without invalidating the remaining provisions of this Agreement,
unless the same should defeat an essential business purpose of this Agreement,
in which case: (a) if such termination will remove or negate the Jeopardy Event;
or (b) if such termination will not remove or negate the Jeopardy Event, the
provisions of Sections 5.3 and 5.4 shall apply, either Party shall have the
right to terminate this Agreement effective upon providing written notice to the
other Party.
45
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12.3 Proprietary Information/Trade Secrets. At all times during the term
-------------------------------------
hereof and following the expiration or earlier termination of this Agreement,
all respective trade secrets and proprietary and confidential information of the
Parties, including, without limitation, all respective forms of contracts and
other business documents or information of the Parties, whether currently or in
the future developed or maintained by the Parties and including any and all
deletions, additions, modifications and amendments thereto (collectively,
"Proprietary Information"), shall be the exclusive, sole and absolute property
of the Party which owns such property. The Parties acknowledge and agree that
the Parties have developed said Proprietary Information at significant expense,
and that said Proprietary Information is not available for review or use by
members of the public. All Proprietary Information shall remain confidential and
proprietary and constitute valuable trade secrets. Except in the ordinary course
of performing its obligations under this Agreement and except upon the other
Party's prior written consent, neither Party shall disclose to anyone, use, copy
or take any such Proprietary Information of the other Party for its own benefit
(or the benefit of any of its Affiliates) or gain either during the term of this
Agreement or at any time after the termination hereof. Upon any expiration or
earlier termination of this Agreement for any reason, both Parties shall not,
and shall cause their Affiliates and related parties not to, without the prior
written consent of the other Party, take or use any of the other Party's
Proprietary Information, and shall return to the other Party all of the other
Party's Proprietary Information in its (or any of its Affiliates') possession or
control. Nothing in this Agreement shall prohibit the disclosure of any document
or information as may be required by law or in connection with a securities
offering, or to either Party's legal counsel or potential or existing financing
sources.
12.4 Amendments. This Agreement may only be amended or modified by a
----------
writing executed by a duly authorized officer of each Party.
46
<PAGE>
12.5 Headings. The subject headings of the Articles and Sections of this
--------
Agreement are included for convenience only, and shall not affect the
construction or interpretation of any of the provisions hereof.
12.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Texas.
12.7 Arbitration.
-----------
12.7.1 Binding Arbitration. In the event of a dispute arising out of
-------------------
or relating to this Agreement, including, without limitation, claims with
respect to breach of contract, tort, obligation of good faith and fair dealing
and fiduciary duties, or any other related claim or cause of action which may
arise or be asserted under any federal, state, local or foreign statutory,
regulatory or common law, then, upon notice by any party to the other parties
(an "Arbitration Notice") and to the Dallas, Texas office of the American
Arbitration Association ("AAA"), the controversy or dispute shall be submitted
to a sole arbitrator who is independent and impartial, for binding arbitration
in Dallas, Texas, in accordance with AAA's Commercial Arbitration Rules (the
"Rules") then in effect, as modified or supplemented hereby. The parties agree
that they will faithfully observe this Agreement and the Rules and that they
will abide by and perform any award rendered by the arbitrator. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16 (or by
the same principles enunciated by such Act in the event it may not be
technically applicable), to the extent that the such Act addresses matters not
addressed in this Agreement or the Rules. The award or judgment of the
arbitrator shall be final and binding on all parties and judgment upon the award
or judgment of the arbitrator may be entered and enforced by any court having
jurisdiction. If any party becomes the subject of a bankruptcy, receivership or
other similar proceeding under the laws of the United States of America, any
state or commonwealth or any other nation or political subdivision thereof,
then,
47
<PAGE>
to the extent permitted or not prohibited by applicable law, any factual or
substantive legal issues arising in or during the pendency of any such
proceeding shall be subject to all of the foregoing mandatory arbitration
provisions and shall be resolved in accordance therewith. The agreements
contained herein have been given for valuable consideration, are coupled with an
interest and are not intended to be executory contracts. The fees and expenses
of the arbitrator will be shared equitably (as determined by the arbitrator) by
all parties engaged in the dispute or controversy.
12.7.2 Selection of Arbitrator. Promptly after the Arbitration Notice
-----------------------
is given, AAA will select five (5) possible arbitrators, to whom AAA will give
the identities of the parties and the general nature of the controversy. If any
of those arbitrators disqualifies himself or declines to serve, AAA shall
continue to designate potential arbitrators until the parties have five to
select from. After the panel of five potential arbitrators has been completed, a
summary of the background of each of the potential arbitrators will be given to
each of the parties, and the parties will have a period of ten (10) days after
receiving the summaries in which to attempt to agree upon the arbitrator to
conduct the arbitration. If the parties are unable to agree upon an arbitrator,
then one of the parties shall notify AAA and the other party, and within five
(5) days from such notice each party shall strike two names from the list and
advise AAA of the two names stricken. After expiration of the strike period, if
all but one candidate has been stricken the remaining one will be the
arbitrator, but, if two or more have not been stricken, AAA shall select the
arbitrator from one of those not stricken. The decision of AAA with respect to
the selection of the arbitrator will be final and binding in such case.
12.7.3 No Litigation. No litigation or other proceeding may ever be
-------------
instituted at any time in any court or before any administrative agency or body
for the purpose of adjudicating, interpreting or enforcing any of the rights or
obligations of the parties hereto
48
<PAGE>
or any rights or obligations relating to the subject matter hereof, whether or
not covered by the express terms of this Agreement, or for the purpose of
adjudicating a breach or determination of the validity of this Agreement, or for
the purpose of appealing any decision of an arbitrator, except a proceeding
instituted (i) for the purpose of having the award or judgment of an arbitrator
entered and enforced Or (ii) to seek an injunction or restraining order (but not
damages in connection therewith) in circumstances where such relief is
available. No punitive, exemplary or consequential damages may ever be awarded
by the arbitrator or anyone else, and each of the parties hereby waives any and
all rights to make, claim or recover any such damages.
12.7.4 Arbitration Hearing. Within ten (10) days after the selection
-------------------
of the arbitrator, the parties and their counsel will appear before the
arbitrator at a place and time designated by the arbitrator for the purpose of
each party making a one hour or less presentation and summary of the case.
Thereafter, the arbitrator will set dates and times for additional hearings in
accordance with the Rules until the proceeding is concluded. The desire and goal
of the parties is, and the arbitrator will be advised that this goal should be,
to conduct and conclude the arbitration proceeding as expeditiously as possible.
If any party or his counsel fails to appear at any hearing, the arbitrator shall
be entitled to reach a decision based on the evidence which has been presented
to him by the parties who did appear.
12.7.5 Law Governing Arbitration. If the parties have not selected the
-------------------------
governing law by agreement, the arbitrator shall make a decision about the
governing law or laws, and his judgment with respect thereto shall be binding.
12.8 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the Parties relating to the subject matter hereof and supersedes all prior oral
and written understandings and agreements between the Parties with respect to
such subject matter.
49
<PAGE>
12.9 Notices. All notices, demands, requests, consents, approvals or other
-------
communications (collectively, "Notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement shall be in writing
and may be personally served, delivered by telecopier or overnight delivery
service, or deposited in the United States mail, registered or certified, return
receipt requested, postage prepaid, addressed as follows:
if to Baylor: William Carter
Baylor Health Care System
Wadley Tower, Suite 150
3600 Gaston Avenue
Dallas, Texas 75246
FAX: (214) 820-4908
with a copy to: Robert Cook
Senior Vice President
Baylor Health Care System
340 Worth Street
Suite 610
Dallas, Texas 74246
FAX: (214) 820-1535
if to Fountain View: Robert Snukal
Fountain View Management
11900 W, Olympic Blvd., Suite 680
Los Angeles, California 90064
FAX: (310) 571-0364
50
<PAGE>
with a copy to: William Scott, Chairman
Chief Executive Officer and President
Fountain View, Inc.
2600 W. Magnolia Boulevard
Burbank, California 91505
FAX: (818) 841-5847
Any Notice sent by mail shall be deemed given three (3) days after deposit in
the United States mail, as set forth above. Notices delivered in person, by
telecopy or by overnight delivery service shall be deemed to have been given
when delivered to the applicable address or received applicable telecopier
station.
12.10 No Third Party Beneficiary Rights. The obligations created by this
---------------------------------
Agreement shall be enforceable only by the Parties to this Agreement. No
provision of this Agreement is intended to, nor shall be construed to, create
any rights for the benefit of or to be enforceable by any third party.
12.11 Further Assurances. Each Party agrees to execute and deliver such
------------------
documents and instruments and take such actions as are reasonably necessary to
carry out the full intent and purpose of this Agreement
12.12 Severability. The terms and provisions of this Agreement shall be
------------
deemed severable and if any portion thereof shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the Parties.
12.13 Exhibits. All exhibits and schedules attached hereto and referred to
--------
herein are hereby incorporated herein as though fully set forth at length.
12.14 Health Laws. The Parties enter into this Agreement with the intent
-----------
of conducting their relationship in full compliance with applicable state, local
and federal law, including, but not limited to, the Health Laws. Notwithstanding
any unanticipated effect of any of the
51
<PAGE>
provisions herein, no party to this Agreement will intentionally conduct itself
under the terms of this Agreement in a manner to constitute a violation of the
Health Laws.
12.15 Referral Policy. Nothing contained in this Agreement shall require
---------------
(directly or indirectly, explicitly or implicitly) either party to refer or
direct any patients to the other party or to use the other party's facilities
as a precondition to receiving the benefits set forth herein.
12.16 Attorney Fees. Should any Party institute any action or proceeding
-------------
to enforce this Agreement, or any provision hereof, or for damages by reason of
any alleged breach of this Agreement, or of any provision hereof, or for a
declaration of rights hereunder, the prevailing Party in any such action or
proceeding shall be entitled to receive from the other Party all costs and
expenses, including attorneys fees, incurred by the prevailing Party in
connection with such action or proceeding.
12.17 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall constitute an original but all of which together shall constitute
but one and the same instrument.
12.18 Waiver. No waiver of any term, provision or condition of this
------
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a continuing waiver of such term, provision or
condition, or as a waiver of any other term, provision or condition of this
Agreement, which approval will not be unreasonably withheld or delayed.
12.19 Assignments and Sublicenses. Fountain View shall not assign,
---------------------------
sublicense or delegate any rights or obligations under this Agreement either by
contract, assignment, sublicense or sale of assets or by operation of law by
virtue of a merger, consolidation or conversion in which Fountain View is not
the survivor, a liquidation, a dissolution or another similar transaction;
provided that Fountain View may assign its rights and delegate its duties and
52
<PAGE>
obligations under this Agreement to a wholly owned Person that executes an
agreement inuring to the benefit of Baylor pursuant to which such Person agrees
to be bound by all of the terms hereof, and Fountain View and such Person agree
to be jointly and severally liable and responsible for the performance of all of
the duties and obligations of Fountain View hereunder: and provided, further,
that a merger or consolidation of Fountain View with or into another Person
("Target") shall not be deemed to be a breach of the foregoing prohibition so
long as (a) the principal business of the Target is the health care industry;
(b) the Target is not wholly owned or majority owned by another Person (unless
after giving effect to such merger or consolidation such other Person no longer
owns more than twenty percent (20%) of the survivor of the merger or
consolidation (or such lesser amount as may be necessary to avoid the
application of clause (ii) of Section 7.1.1(b)); (c) promptly after such merger
or consolidation the name of the survivor is "Fountain View"; (d) after giving
effect to such merger or consolidation, no Change of Control has occurred; and
(e) if the Target is a Person whose shares or other equity interests are
publicly traded and, immediately before such merger or consolidation, Section
7.1.1(a) is the applicable section for purposes of determining whether a Change
of Control has occurred, then, after such merger or consolidation, Section
7.1.1(a) shall continue to be the applicable section and the fact that Fountain
View becomes a company whose shares are publicly traded by virtue of the merger
or consolidation shall not be deemed to be a "Qualified IPO" for purposes of
the definition of "Change or Control". As used herein the term "wholly owned"
means that all, and the term "majority owned" means that more than fifty percent
(50%) of the equity interests, member interests, partnership interests and
voting interests of the Person are owned by one other Person.
12.20 Binding Effect. This Agreement shall be binding on the Parties, and
--------------
their successors and permitted assigns.
53
<PAGE>
12.21 Public Announcement. Any press release or other public announcement
-------------------
regarding the execution of this Agreement or relating to the transactions
contemplated hereby shall be mutually approved in advance by the Parties, which
approval shall not be unreasonably withheld or delayed.
12.22 Construction. This Agreement shall be construed reasonably to carry
------------
out its intent without presumption against or in favor of either party.
12.23 No Relationships. It is mutually understood and agreed to by each
----------------
Party that this Agreement and the transactions contemplated hereby do not, and
are not intended to nor shall be construed to, create an agency, joint venture
or partnership relationship between the Parties. Neither Party is authorized to
take any action which may bind the other Party, without such other Party's prior
written consent (except as otherwise specifically provided herein).
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Execution Date.
"FOUNTAIN VIEW" "BAYLOR"
Fountain View, Inc. Baylor Health Care System
By: /s/ William C. Scott By: _______________________________
-------------------------------
Its: Chairman Its:_______________________________
------------------------------
54
<PAGE>
12.21 Public Announcement. Any press release or other public announcement
-------------------
regarding the execution of this Agreement or relating to the transactions
contemplated hereby shall be mutually approved in advance by the Parties, which
approval shall not be unreasonably withheld or delayed.
12.22 Construction. This Agreement shall be construed reasonably to carry
------------
out its intent without presumption against or in favor of either party.
12.23 No Relationships. It is mutually understood and agreed to by each
----------------
Party that this Agreement and the transactions contemplated hereby do not, and
are not intended to nor shall be construed to, create an agency, joint venture
or partnership relationship between the Parties. Neither Party is authorized to
take any action which may bind the other Party, without such other Party's prior
written consent (except as otherwise specifically provided herein).
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Execution Date.
"FOUNTAIN VIEW" "BAYLOR"
FOUNTAIN VIEW, INC. BAYLOR HEALTH CARE SYSTEM
By:__________________ By: /s/ William S. Carter
-------------------------
Its: ________________ Its: Vice President
------------------------
54
<PAGE>
EXHIBIT "A"
----------
TO
AGREEMENT FOR DEVELOPMENT
AND OPERATION OF
SKILLED NURSING FACILITIES
EXHIBIT "A" TO DEVELOPMENT AGREEMENT
------------------------------------
<PAGE>
SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
THIS SERVICE MARK SUBLICENSE AGREEMENT (hereinafter, the "AGREEMENT") is
entered into this 4th day of May, 1998, by and between Baylor Health Care System
(hereinafter, "BHCS"), a Texas non-profit corporation, with its principal office
in Dallas, Texas and Fountain View, Inc. (hereinafter, "FOUNTAIN VIEW"), a
Delaware corporation, having a place of business at 11900 Olympic Boulevard,
Suite 680, Los Angeles, California 90064 (hereinafter BHCS and Fountain View are
collectively called the "Parties").
R E C I T A L S:
- - - - - - - -
Pursuant to the terms of a Settlement Agreement dated May 15, 1990, (such
Agreement, as the same may be modified or supplemented by additional license
agreements or other agreements to include additional uses with the name "Baylor"
pursuant to the terms of Section 18 thereof and Section 7 hereof, being herein
called the "BAYLOR UNIVERSITY LICENSE") between BHCS, and Baylor University (the
"LICENSOR"), BHCS, as Licensee, has the right to use the mark(s) identified on
Exhibit A attached hereto, except that BHCS is the owner of the right to use the
mark known as the "Baylor Flame" referred to on Exhibit A (the mark(s)
identified on Exhibit A and any other use of the name "Baylor" which is
approved as an additional use by BHCS by Licensor pursuant to the Baylor
University License and approved by BHCS for use by Fountain View pursuant to the
terms hereof are herein collectively called the "MARKS" and individually each
called a "MARK"). A copy of the May 15, 1990 Settlement Agreement has been
supplied to Fountain View.
The Parties are contemporaneously herewith executing an Agreement for
Development and Operation of Skilled Nursing Facilities (as the same may be
amended from to time, herein called the "DEVELOPMENT AGREEMENT") for the purpose
of setting forth certain rights and obligations of the Parties relating to the
development and operation of independently licensed skilled nursing facilities
convenient to BHCS hospitals (the skilled nursing facilities or other health-
care facilities developed and built pursuant to the Development Agreement with
respect to which BHCS specifically grants the right to use the name "Baylor"
being herein called the "FACILITIES").
Now, therefore, in consideration of the premises and the mutual agreements,
covenants and provisions contained herein, and other valuable consideration, the
sufficiency of all of which are hereby acknowledged, the Parties agree as
follows:
1. License. Subject to the terms and conditions of the Baylor University
--------
License, BHCS hereby grants to Fountain View a non-exclusive, non-
transferable (except as expressly provided herein), right to use the Marks
strictly in accordance with the terms of this Agreement, in conjunction
with the development and management by Fountain View of the Facilities.
This License includes federal, state, and common law rights, during the
term of this Agreement. Such management by Fountain View may be performed
directly by Fountain View or may be effected through direct everyday
control of other business entities by Fountain View.
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 1 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
Fountain View shall not sublicense the Marks to any other Entity nor
use the Marks in conjunction with any facilities or business
operations other than the Facilities.
2. Royalties. The consideration for the sublicense and rights granted
---------
hereunder is included within the License and Development Fee payable
to BHCS pursuant to the Development Agreement.
3. Quality of Services. Because of Fountain View's history of providing
-------------------
high quality products and services, BHCS trusts and relies on Fountain
View to maintain such high quality. Fountain View agrees that it will
at all time offer high quality services in the Facilities using the
Marks.
a. If BHCS determines that the quality of any or all of the services
or products being offered, provided or sold in one or more
Facilities using any Mark is unacceptable to BHCS, it will have
the right to specifically notify Fountain View in writing of the
changes which will be necessary to attain an acceptable level of
quality, and, thereafter, BHCS will follow the processes set
forth in Article VI of the Development Agreement. If BHCS
purchases the subject Facility or Facilities pursuant to Article
VI of the Development Agreement, BHCS shall be entitled to
terminate this Agreement and the obligations of BHCS and the
rights of Fountain View hereunder with respect to such Facility
or Facilities.
b. Fountain View shall be deemed to be in compliance with the
foregoing provisions and its services and the products used or
sold by it shall be deemed to be at an acceptable level of
quality so long as each of the following is complied with:
i. Fountain View uses commercially reasonable efforts to have
each Facility accredited by the Joint Commission on
Accreditation of Healthcare Organizations (or a similar
body with like stature) as soon as practicable and
thereafter maintains such accreditation so long as it is
commercially reasonable to maintain it;
ii. Fountain View obtains and maintains all necessary licenses,
operating permits or certificates of authority required by
the State of Texas or any other governmental authority which
are necessary for Fountain View to have the continuing right
to operate each Facility;
iii. The Facilities are certified to provide services to Medicare
and Medicaid patients; and
iv. The standards for granting clinical privileges to physicians
at the Facilities are reasonably comparable to those at
hospitals in BHCS's system.
________________________________________________________________________________
SERVICE MARK SUBLICENSE AGREEMENT
PAGE 2 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
c. In addition to the foregoing, with respect to the Facilities:
i. Fountain View will adopt, maintain and follow a mission statement
and value statements for service to patients and to the community
which are comparable to those of hospitals in BHCS's system;
ii. Abortion on demand will not be provided; and
iii. The serving of alcoholic beverages at any Facility will not be
permitted except to the extent prescribed by a physician with
clinical privileges at the Facility in question; provided that,
so long as Fountain View maintains written policies which are
communicated on a regular basis to its employees and to
physicians and others utilizing each Facility and which Fountain
View uses commercially reasonable efforts to enforce, then
Fountain View will not be deemed to be in breach of this covenant
by virtue of a violation of such policies by someone without the
prior knowledge, or acquiescence of senior management.
4. Use of the Marks. Prior to any use or distribution of any material (or any
----------------
significant modifications of previously approved materials) bearing any of
the Marks, Fountain View shall provide BHCS with a description of the
proposed manner of use and samples of all goods, literature, brochures,
signs, stationery, presentations, correspondence and advertising material
prepared by Fountain View bearing the Marks (collectively, "MATERIALS") and
shall promptly provide such additional information with respect thereto as
BHCS may reasonably request. Any proposed uses or materials submitted for
approval must be accompanied by a notice specifically referring to this
Agreement and to this paragraph and specifically advising BHCS of the time
period stated herein. BHCS shall have a period of 2l days after receipt of
such materials accompanied by the proper notice in which to reject the
sample and the proposed use. If BHCS requests additional information, the
21-day period will be extended by the number of days between the day BHCS
requests such additional information and the day the additional information
is received by BHCS. In the absence of rejection within such 21-day period,
or upon earlier written acceptance, Fountain View may deem the sample
approved. When using the Marks under this Agreement, Fountain View
undertakes to comply in all material respects with all laws pertaining to
trademarks in force at any time within the United States, including,
without limitation, compliance with marking requirements.
5. Inspection. Fountain View will permit duly authorized representatives of
----------
BHCS to inspect the premises of Fountain View and any or all of the
Facilities at all reasonable times, for the purposes of ascertaining or
determining compliance with the terms hereof. Upon the request of BHCS,
Fountain View will cause the officers, employees, agents, attorneys,
contractors and accountants of Fountain View and of each of its
subsidiaries to meet with representatives of BHCS, cooperative fully with
such representatives and respond to all questions and inquiries of such
representatives with respect to the operation of the Facilities and the use
of the Marks.
________________________________________________________________________________
SERVICE MARK SUBLICENSE AGREEMENT
PAGE 3 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
6. Goodwill and Ownership of Marks.
-------------------------------
a. Fountain View shall use the Marks only upon the terms and conditions
contained herein. The use of the name "Baylor" and all Marks, and any
changes, derivations, additions, approximations and deceptively
similar names and all goodwill accruing to the use thereof, shall
remain the property of, and inure to the benefit of, Licensor and/or
BHCS, and Fountain View disclaims any right or interest therein or to
the goodwill derived therefrom.
b. Fountain View acknowledges Licensor's and/or BHCS's ownership of and
all right, title and interest in and to the name "Baylor" and the
Marks and any registrations that have issued or may issue thereon, and
Fountain View agrees that it will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to
impair any part of such right, title and interest. In connection with
the use of the Marks, Fountain View shall not in any manner represent
that it has any ownership in the Marks or registrations thereof, and
the Parties hereto acknowledge that any use of the Marks, including
all good will associated therewith, shall inure to the benefit of
Licensor and BHCS.
c. Fountain View agrees (i) that any and all additional trademark or
service mark rights which may be acquired by Fountain View or any of
its Affiliates, employees or agents and which are changes,
derivations, additions, approximations or deceptively similar names to
the Marks are and shall be the absolute and exclusive property of BHCS
and/or Licensor, (ii) that Fountain View will, and will cause its
Affiliates, employees and agents to, execute all such assignments,
trademark or service mark applications and other documents and
pleadings that may be requested by BHCS or Licensor to confirm the
foregoing, and (iii) that Fountain View hereby appoints BHCS as its
attorney-in-fact to execute all such assignments, applications and
other documents for and on behalf of Fountain View. As used in this
Agreement, (A) "AFFILIATE" means any person or Entity which, directly
or indirectly, controls or is controlled by or is under common control
with another person or Entity, and, as used in this definition, the
term "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect
to any person or Entity, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or
policies of such person or Entity, through the ownership of voting
securities, partnership interests or otherwise, and (B) "ENTITY" means
any corporation, limited liability company, association, partnership,
organization, trust, joint venture or other legal entity.
7. New Uses of "Baylor". Fountain View acknowledges that BHCS does not have
--------------------
the right to use the name "Baylor" generally and that, pursuant to the
Baylor University License, before Fountain View or BHCS can undertake any
use of the name other than the precise mark(s) shown on Exhibit "A" hereto
(a "NEW USE"), consent must be obtained from Licensor. Whenever Fountain
View desires to undertake a New Use, it will submit the details of the
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
New Use to BHCS, and, if BHCS approves such New Use, BHCS will submit the
same to Licensor, and, if Licensor approves such New Use, the same will be
added to Exhibit "A" hereto by supplement executed by Fountain View and
BHCS and become a "Mark" hereunder for all purposes, with such
modifications to the terms hereof with respect to such New Use as Licensor
may require. Attached hereto as Exhibit "B" is a form of Trademark License
Agreement which Licensor has required BHCS to execute in the past, and BHCS
will use reasonable efforts to obtain a similar Trademark License Agreement
from Licensor with respect to New Uses hereunder.
8. Other Duties and Warranties of Fountain View.
--------------------------------------------
a. Fountain View shall comply with all relevant federal, state and local
laws and regulations in the operation of the Facilities.
b. Fountain View shall comply with all of the terms, covenants and
obligations in the Development Agreement which are applicable to it.
c. Fountain View shall cooperate with BHCS, including providing any
necessary samples, specimens or affidavits of use, as required by BHCS
to meet BHCS's obligations for registration and maintenance of the
Marks and/or to comply with the terms of the Baylor University
License.
d. Fountain View shall make proper use of the Marks in accordance with
accepted trademark practice.
e. Fountain View shall not, and shall cause its Affiliates over whom it
has control and its officers, employees, agents and attorneys not to,
do or take any action disrupting, attacking or in any way impairing
the right, title and interest of Licensor and BHCS to the Marks or the
validity or enforceability of the Marks.
9. Indemnity. BHCS assumes no liability to Fountain View or to any third
---------
parties with respect to the products or services provided by Fountain View
in facilities utilizing the Marks, and Fountain View agrees to and shall
indemnify, defend and hold harmless BHCS and Licensor, and each of their
officers, employees, agents, trustees and directors from and against any
and all claims, demands, losses, costs, expenses, obligations, liabilities,
actions, suits and damages, including, without limitation, reasonable
attorney fees and costs, which may be asserted against BHCS or Licensor or
any of their officers, employees, agents, trustees and directors, or which
any of them shall suffer or incur, which arise out of, result from or
relate to the provision of services and/or the use or sale of products in
Facilities using the Marks.
10. Partnership; Agency. This Agreement is not intended to create and may not
-------------------
be interpreted as creating a partnership, joint venture, agency,
employment, master and servant or other similar relationship between BHCS
and Fountain View or between Fountain View and Licensor, and no
representation to the contrary is binding upon BHCS or Licensor.
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
11. Assignments; Sublicenses. Fountain View shall not assign, sublicense or
------------------------
delegate any rights or obligations under this Agreement either by contract,
assignment, sublicense or sale of assets or by operation of law by virtue
of a merger, consolidation or conversion in which Fountain View is not the
survivor, a liquidation, a dissolution or another similar transaction;
provided that Fountain View may assign its rights and delegate its duties
and obligations under this Agreement to a wholly owned Subsidiary if
Fountain View and such Subsidiary execute an agreement inuring to the
benefit of BHCS and Licensor pursuant to which such Subsidiary agrees to be
bound by all of the terms hereof and Fountain View and such Subsidiary
agree to be jointly and severally liable and responsible for the
performance of all of the duties and obligations of Fountain View
hereunder; and provided, further, that a merger or consolidation of
Fountain View with or into another Entity ("TARGET") will not be deemed to
be a breach of the foregoing prohibition so long as (a) the principal
business of the Target is the health care industry, (b) the Target is not a
majority or wholly owned subsidiary of another Entity (unless, after giving
effect to such merger or consolidation such other Entity no longer owns
more than 20% of the survivor of the merger or consolidation (or such
lesser amount as may be necessary to avoid the application of clause (ii)
of subparagraph B of the definition of "Change of Control" in Section 18
hereof), (c) promptly after such merger or consolidation, the name of the
survivor is "Fountain View", (d) after giving effect to such merger or
consolidation, no Change of Control has occurred and (e), if the Target is
an entity whose shares or other equity interests are publicly traded and,
immediately before such merger or consolidation, subparagraph A of the
definition of "Change of Control" is the applicable subparagraph for
purposes of determining whether a Change of Control has occurred, then,
after such merger or consolidation, subparagraph A will continue to be the
applicable subparagraph and the fact that Fountain View becomes a company
whose shares are publicly traded by virtue of the merger or consolidation
will not be deemed to be a "Qualified IPO" for purposes of the definition
of "Change of Control". Any references to mergers, consolidations or
similar transactions elsewhere in this Agreement, in the Development
Agreement or in other documents shall not be deemed to be an implicit or
explicit modification of the foregoing prohibition. As used herein, "WHOLLY
OWNED SUBSIDIARY" means any Entity with respect to which Fountain View owns
all of the equity interests, member interests, partnership interests and
voting interests.
12. Third Parties. Except as set forth or referred to herein, nothing in this
-------------
Agreement is intended or shall be construed to confer upon or give to any
party other than the Parties hereto and Licensor and their successors and
assigns any rights or remedies under or by reason of this Agreement.
13. Notice of Infringement. Fountain View shall promptly notify BHCS in
----------------------
writing, upon Fountain View obtaining any knowledge of infringement, or
possible infringement, of any of the Marks. BHCS shall have no obligation
to take any action, but should BHCS take action, Fountain View will fully
cooperate with BHCS.
14. Notices. Any notices or other communications required or permitted to be
-------
given pursuant to this Agreement must be (i) given in writing and
personally delivered or mailed by
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
prepaid first class mail or (ii) made by facsimile transmission to the
party to whom such notice or communication is directed, to the address or
facsimile number of such party stated below (or otherwise provided to or
obtained by the sending party), with a copy to the other persons indicated.
Additionally, the party giving any notice (whether by personal delivery,
mail or facsimile) shall be obligated to telephone the persons indicated
below (at the telephone number of such party stated below (or otherwise
provided to or obtained by the sending party)) on the same day the notice
is sent or delivered and tell them (or leave them a message) that a
particular notice has been delivered, mailed or sent by facsimile. Any
notice to be mailed or personally delivered may be mailed or delivered to
the principal offices of the party to whom such notice is addressed. Any
such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is mailed or personally
delivered or, if transmitted by facsimile, on the day that such notice is
transmitted. Any party may change its address, telephone number or
facsimile number for purposes of this Agreement by giving notice of such
change to the other parties pursuant to this Section.
If to BHCS Office of General Counsel
Baylor Health Care System
3409 Worth Street, Suite 650
Dallas, Texas 75246
Telephone: (214) 820-4898
Facsimile: (214) 820-1535
with a copy to: Kenneth L. Stewart, Esq.
Fulbright & Jaworski L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
Telephone: (214) 855-8060
Facsimile: (214) 855-8200
If to Fountain View: Robert Snukal
Fountain View, Inc.
11900 Olympic Boulevard
Suite 680
Los Angeles, California 90064
Telephone: (310) 571-0351
Facsimile: (310) 571-0364
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SERVICE MARK SUBLICENSE AGREEMENT
PAGE 7 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
with a copy to: William Scott, Chairman
Fountain View, Inc.
2600 W. Magnolia Boulevard
Burbank, California 91505
Telephone: (818) 841-8750
Facsimile: (818) 841-5847
15. Entire Agreement; Amendments. This Agreement, the Development Agreement,
----------------------------
and any documents or agreements mentioned herein or therein encompass the
entire agreement and understanding between the Parties hereto with respect
to the subject matter hereof. This Agreement may not be altered, amended or
modified, nor may any of its provisions be waived, except by an instrument
in writing signed by both BHCS and Fountain View, or, in the case of an
asserted waiver, by the party against whom the waiver is sought to be
enforced.
16. Severability. If any of the provisions of this Agreement are determined to
------------
be invalid or unenforceable, such invalidity or unenforceability will not
invalidate or render unenforceable the remainder of this Agreement, but
rather the entire Agreement will be construed as if not containing the
particular invalid or unenforceable provision or provisions, and the rights
and obligations of the Parties hereto shall be construed and enforced
accordingly. The Parties hereto acknowledge that if any provision of this
Agreement is determined to be invalid or unenforceable, it is their desire
and intention that such provision be reformed and construed in such manner
that it will, to the maximum extent practicable, be deemed to be valid and
enforceable.
17. Term. This Agreement shall be effective from the date signed until
----
terminated.
18. Termination. This Agreement shall terminate or may be terminated, in whole
-----------
or in part, as follows, with the consequences, if any, specified in the
Development Agreement:
a. This Agreement shall be terminated automatically and immediately upon
the happening of any of the following events (except to the extent
termination as a result of the occurrence of any of such events is
restricted or proscribed by law):
i. The approval by the board of directors of Fountain View or any
significant subsidiary of Fountain View of the filing of a
voluntary petition under the Federal Bankruptcy Code;
ii. The filing of a voluntary or involuntary petition under the
Federal Bankruptcy Code by or against Fountain View or any
significant subsidiary of Fountain View
iii. any assignment for the benefit of creditors of Fountain View or
any significant subsidiary,
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
iv. any attachment, levy, execution of judgment or process against
Fountain View or any significant subsidiary which would have a
material adverse effect on Fountain View and its subsidiaries as
a whole, or
v. A termination of BHCS's rights with respect to the Marks under
the Baylor University License.
b. BHCS may, at its option, terminate (i) this entire Agreement and the
rights of Fountain View hereunder, upon the occurrence of a Change of
Control (hereinafter defined) under subparagraph A. or B. of the
definition of Change of Control, or (ii) this Agreement and the rights
of Fountain View hereunder with respect to the Facility in question
upon the occurrence of a Change of Control under subparagraph C of
such definition, and any such termination will become effective
immediately after BHCS or Licensor gives notice to Fountain View of
such termination.
c. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility, upon the
occurrence of a violation of paragraph 3.c.ii or 3.c.iii hereof in
such Facility, which termination will become effective immediately
after BHCS or Licensor gives notice to Fountain View of such
termination.
d. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility on or after the
120th day after a loss, expiration or forfeiture by Fountain View of
any of its licenses, operating permits or certificates of authority
issued by the State of Texas or any other governmental authority which
results or will result in a loss of the right to operate all or a
significant part of such Facility, unless each such lost, expired or
forfeited license, operating permit or certificate of authority is
renewed or reinstated to the reasonable satisfaction of BHCS prior to
the end of such 120-day period.
e. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, with respect to this entire Agreement if and
when the entire Development Agreement is terminated, which termination
will become effective immediately after BHCS or Licensor gives notice
to Fountain View of such termination.
f. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, with respect to any Facility which BHCS has
elected to assume control of and/or purchased pursuant to the
Development Agreement, which termination will become effective
immediately after BHCS or Licensor gives notice to Fountain View of
such termination.
g. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder if Fountain View takes any action prohibited
by, or fails to take an action required by, the Baylor University
License which results in, or creates a substantial
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 9 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
risk of, the loss by BHCS of material rights under the Baylor
University License or a material impairment or loss of Licensor's
rights with respect to the Marks, which termination will become
effective at the end of the 15th day after BHCS or Licensor gives
notice to Fountain View of its intention to terminate unless there has
been a cure satisfactory to Licensor and BHCS which eliminates such
risk, loss and/or impairment.
h. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility at which Fountain
View fails or refuses to comply with any policies or procedures now in
effect or hereafter adopted or modified which BHCS deems to be
material and which are applicable generally to hospitals or other
health care facilities operated by BHCS and its Affiliates, and such
failure and/or refusal continues for a period of 120 days after BHCS
has given notice thereof to Fountain View.
i. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, if a material failure or refusal by Fountain
View to perform its duties and obligations hereunder which are not
otherwise covered by the foregoing provisions occurs, and such failure
and/or breach continues without cure to the reasonable satisfaction of
BHCS for a period of 120 days after BHCS has given notice thereof to
Fountain View.
j. Baylor may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility if any wholly
owned Subsidiary to which Fountain View has made an assignment or
delegation permitted by Section 11 hereof of any of Fountain View's
rights and/or obligations ceases to be a wholly owned Subsidiary,
which termination will become effective immediately after BHCS gives
notice to Fountain View of such termination.
Upon termination of this Agreement in any manner, Fountain View will cease and
desist from all use of the Marks in any way, and will deliver to BHCS, or its
duly authorized representatives, all material and papers upon which the Marks
appear, and furthermore, Fountain View will not at any time adopt or use without
BHCS's prior consent, any word, logo or mark which is likely to be similar to
or confusingly similar to the Marks.
In the event of a termination pursuant to Section 18.a.iv., if, during the
period of 90 days after such termination, Fountain View fully and completely
eliminates and obtains a dismissal and release of the attachment, execution of
judgment or process, Fountain View shall be entitled to reinstate this Agreement
if no other events have occurred which would result in automatic or optional
termination hereunder. In the event of a termination pursuant to Section 18.j.,
if, during the period of 15 days after such termination, Fountain View fully and
completely eliminates the breach, this Agreement shall be automatically
reinstated if no other events have occurred which have resulted in automatic or
optional termination hereunder and this Agreement has in fact been terminated as
a result thereof..
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
As used in this Agreement, "CHANGE OF CONTROL" means the occurrence of any of
the following:
A. prior to an initial public offering of common stock of Fountain View
(after a merger or consolidation with a Private Company which is
permitted under Section 11 hereof, "Fountain View", as used herein,
means the successor in such merger or consolidation) pursuant to a
registration statement under the Securities Act of 1933, as amended,
in which at least 20% of the common stock of Fountain View is sold (a
"Qualified IPO"), (i) Heritage and its Affiliates (which, as used in
this definition, shall include Management Stockholders (as that term
is defined in the Stockholders Agreement dated as of March 27, 1998
among Fountain View, Heritage and others)) and Baylor and its
Affiliates cease to control the vote of voting securities of Fountain
View having the power (contractual or otherwise) to elect a majority
of the directors of Fountain View, or (ii) Heritage and its Affiliates
cease to beneficially own (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) at least 20% of the issued and outstanding common
stock of Fountain View; or
B. after a Qualified IPO, (i) a change in the membership of the board of
directors of Fountain View occurs during any period of 12 consecutive
months after which a majority of the board of directors is comprised
of persons who are not Qualified Directors or (ii) a person, entity or
group (within the meaning of Rule 13d-5 promulgated under the
Exchange Act) other than Heritage and its Affiliates beneficially
owns an aggregate percent of the combined voting power of Fountain
View's then outstanding securities entitled to vote for the election
of directors of Fountain View which is greater than the aggregate
percent of such combined voting power beneficially owned by Heritage,
Baylor and their Affiliates (as used herein, a "Qualified Director" is
a person who was (x) a director at the beginning of such 12-month
period, or (y) was approved by Heritage, BHCS or an Affiliate or by a
permitted transferee or successor of BHCS, Heritage or one of their
Affiliates (but not including Management Stockholders in the
definition of "Affiliate" for this definition), and voting for the
election of a person as a director will be deemed to be approval); or
C. Fountain View or any of its affiliates transfers or makes a verbal or
written agreement or letter of intent to transfer any Facility which
uses the Baylor name (as used in this subsection, "transfer" means a
sale, lease, transfer, sublease or other disposition of a Facility or
a transfer, assignment or subcontracting of Fountain View's rights or
obligations to operate a Facility) other than as expressly permitted
by the Development Agreement and other than transfers to a wholly
owned Subsidiary.
19. Jurisdiction. This Agreement shall be construed in accordance and be
------------
governed by the laws of the State of Texas and of the United States of
America.
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
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<PAGE>
20. Arbitration.
-----------
a. Binding Arbitration. In the event of a dispute arising out of or
-------------------
relating to this Agreement, including, without limitation, claims with
respect to breach of contract, tort, obligation of good faith and fair
dealing and fiduciary duties, then, upon notice by any Party to the
other parties (an "Arbitration Notice") and to the Dallas, Texas
office of American Arbitration Association ("AAA") (which is presently
13455 Noel Road, 1750 Two Galleria Tower, Dallas, Texas 75240
[telephone (972) 702-8222); facsimile (972) 490-9008), the controversy
or dispute shall be submitted to a sole arbitrator who is independent
and impartial, for binding arbitration in Dallas, Texas, in accordance
with AAA's Commercial Arbitration Rules (the "RULES") then in effect
as modified or supplemented hereby. The parties agree that they will
faithfully observe this Agreement and the Rules and that they will
abide by and perform any award rendered by the arbitrator. The
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16 (or by the same principles enunciated by such Act in the
event it may not be technically applicable), to the extent that such
Act addresses matters not addressed in this Agreement or the Rules.
The award or judgment of the arbitrator shall be final and binding on
all parties and judgment upon the award or judgment of the arbitrator
may be entered and enforced by any court having jurisdiction. If any
Party becomes the subject of a bankruptcy, receivership or other
similar proceeding under the laws of the United States of America, any
state or commonwealth or any other nation or political subdivision
thereof, then, to the extent permitted or not prohibited by applicable
law, any factual or substantive legal issues arising in or during the
pendency of any such proceeding shall be subject to all of the
foregoing mandatory arbitration provisions and shall be resolved in
accordance therewith. The agreements contained herein have been given
for valuable consideration, are coupled with an interest and are not
intended to be executory contracts. The fees and expenses of the
arbitrator will be shared equitably (as determined by the arbitrator)
by all parties engaged in the dispute or controversy.
b. Selection of Arbitrator. Promptly after the Arbitration Notice is
-----------------------
given, AAA will select five (5) possible arbitrators, to whom AAA will
give the identities of the parties and the general nature of the
controversy. If any of those arbitrators disqualifies himself or
declines to serve, AAA shall continue to designate potential
arbitrators until the parties have five to select from. After the
panel of five potential arbitrators has been completed, a summary of
the background of each of the potential arbitrators will be given to
each of the parties, and the parties will have a period of 10 days
after receiving the summaries in which to attempt to agree upon the
arbitrator to conduct the arbitration. If the parties are unable to
agree upon an arbitrator, then one of the parties shall notify AAA and
the other Party, and, within five days from such notice, each Party
shall strike two names from the list and advise AAA of the two names
stricken. After expiration of the strike period, if all but one
candidate has been stricken, the remaining one will be the arbitrator,
but, if two or more have not been stricken, AAA shall select the
arbitrator from one of those not stricken. The decision
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<PAGE>
of AAA with respect to the selection of the arbitrator will be final
and binding in such case.
c. No Litigation: No litigation or other proceeding may ever be
-------------
instituted at any time in any court or before any administrative
agency or body for the purpose of adjudicating, interpreting or
enforcing any of the rights or obligations of the parties hereto or
any rights or obligations relating to the subject matter hereof;
whether or not covered by the express terms of this Agreement, or for
the purpose of adjudicating a breach or determination of the validity
of this Agreement, or for the purpose of appealing any decision of an
arbitrator, except a proceeding instituted (i) for the purpose of
having the award or judgment of an arbitrator entered and enforced or
(ii) to seek an injunction or restraining order (but not damages in
connection therewith) in circumstances where such relief is available.
No punitive, exemplary or consequential damages may ever be awarded by
the arbitrator or anyone else, and each of the parties hereby waives
any and all rights to make, claim or recover any such damages.
d. Arbitration Hearing. Within 10 days after the selection of the
-------------------
arbitrator, the parties and their counsel will appear before the
arbitrator at a place and time designated by the arbitrator for the
purpose of each Party making a one hour or less presentation and
summary of the case. Thereafter, the arbitrator will set dates and
times for additional hearings in accordance with the Rules until the
proceeding is concluded. The desire and goal of the parties is, and
the arbitrator will be advised that his goal should be, to conduct and
conclude the arbitration proceeding as expeditiously as possible. If
any Party or his counsel fails to appear at any hearing, the
arbitrator shall be entitled to reach a decision based on the evidence
which has been presented to him by the parties who did appear.
e. Law Governing Arbitration. If the parties have not selected the
-------------------------
governing law by agreement, the arbitrator shall make a decision about
the governing law or laws, and his judgment with respect thereto shall
be binding.
[SIGNATURE PAGES FOLLOW]
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 13 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute this Agreement effective as of the date and in the
capacities shown below.
FOUNTAIN VIEW, INC. BAYLOR HEALTH CARE SYSTEM
By: ____________________ By: /s/ William S. Carter
----------------------------
Name: Name: William S. Carter
Title: Title: Executive Vice President
STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
On this 4th day of May, 1998, personally appeared William Carter, Executive
Vice President of Baylor Health Care System who acknowledged that he executed
the foregoing Agreement on behalf of Baylor Health Care System and pursuant to
authority duly received.
[SEAL APPEARS HERE]
/s/ Jeri Gail Belton
-------------------------------------------
Notary Public in and for the State of Texas
Printed Name:______________________________
Commission Expires:________________________
STATE OF CALIFORNIA (S)
COUNTY OF LOS ANGELES (S)
On this 4th day of May, 1998 personally appeared William Scott, Chairman of
FOUNTAIN VIEW, INC., who acknowledged that he executed the foregoing Agreement
on behalf of FOUNTAIN VIEW, INC. and pursuant to authority duly received.
_________________________________________________
Notary Public in and for the State of California
SEAL Printed Name: ___________________________________
Commission Expires:______________________________
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 14 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute this Agreement effective as of the date and in the
capacities shown below.
FOUNTAIN VIEW, INC BAYLOR HEALTH CARE SYSTEM
By: /s/ William C. Scott By: ___________________________
--------------------------
Name: William C. Scott Name:
Title: Chairman Title:
STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
On this 4th day of May, 1998 personally appeared William Carter, Executive Vice
President of Baylor Health Care System who acknowledged that he executed the
foregoing Agreement on behalf of Baylor Health Care System and pursuant to
authority duly received.
FOUNTAIN VIEW, INC.
______________________________________________
Notary Public in and for the State of Texas
SEAL Printed Name:_________________________________
Commission Expires:___________________________
STATE OF CALIFORNIA (S)
COUNTY OF LOS ANGELES (S)
On this 4th day of May, 1998 personally appeared William Scott, Chairman of
FOUNTAIN VIEW, INC., who acknowledged that he executed the foregoing Agreement
on behalf of FOUNTAIN VIEW, INC. and pursuant to authority duly received.
/s/ Debra J. Bowlian
----------------------------------------------
Notary Public in and for the State of California
SEAL Printed Name: DEBRA J. BOWLIAN
---------------------------------
Commission Expires: SEPTEMBER 24, 1999
---------------------------
[NOTARY SEAL APPEARS HERE]
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 14 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
<PAGE>
EXHIBIT A
TO
SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
MARK REGISTRATION NO.
- ---- ---------------
BAYLOR HEALTH CARE SYSTEM Reg. No. 1,515,737
BAYLOR "FLAME" (FOR PURPOSES Reg. No. 1,512,040
OF THIS AGREEMENT, ONLY WHEN
USED WITH "BAYLOR HEALTH CARE SYSTEM")
(A DEPICTION OF THE FLAME FOLLOWS):
<PAGE>
TRADEMARK LICENSE AGREEMENT
This License Agreement is between Baylor University (hereinafter referred
to as BAYLOR), with its principal office in Waco, Texas, 76798, and Baylor
Health Care System (hereinafter referred to as LICENSEE), with its principal
place of business at 3201 Worth Street, Dallas, Texas 75226.
In consideration of the mutual promises contained in this Agreement, BAYLOR
and LICENSEE agree as follows:
1. BACKGROUND
----------
1.1 Over the years, BAYLOR and LICENSEE have had an ongoing relationship,
and BAYLOR has licensed LICENSEE to use certain names and marks.
1.2 BAYLOR and LICENSEE entered into a Settlement Agreement dated May 15,
1990 (hereinafter referred to as the SETTLEMENT AGREEMENT) relating to use and
licensing of certain trademarks and service marks (hereinafter "mark(s)"). This
License Agreement is subject to all terms and conditions of the SETTLEMENT
AGREEMENT, and nothing in this License Agreement is intended to modify or
supersede the SETTLEMENT AGREEMENT.
1.3 As provided in the SETTLEMENT AGREEMENT, LICENSEE has sought written
approval by BAYLOR to use the mark(s) identified on Exhibit A attached hereto.
2. LICENSE GRANT
-------------
2.1 BAYLOR grants to LICENSEE an exclusive license to use the mark(s)
identified on Exhibit A, for the products or services or both reflected in
Exhibit A. The license continues until terminated pursuant to paragraph 4.1 or
4.2 below.
2.2 All use of the mark(s) licensed hereunder inures to the benefit of
BAYLOR.
2.3 LICENSEE acknowledges that ownership of all right, title, and interest
to the mark(s) licensed hereunder remains vested solely in BAYLOR, and LICENSEE
disclaims any right or interest therein or the goodwill derived therefrom.
3. QUALITY CONTROL
---------------
3.1 Because of the long relationship between BAYLOR and LICENSEE, and
LICENSEE's history of providing high quality products and services under marks
licensed from BAYLOR, BAYLOR has come to trust and rely on LICENSEE to maintain
such high quality. LICENSEE agrees that it shall at all times offer high quality
products and services under the mark(s) licensed hereunder.
3.2 If BAYLOR finds that the quality of any product or service being
offered or sold under this License Agreement is unacceptable to BAYLOR, it shall
have the right to specifically notify LICENSEE in writing of the changes which
will be necessary to attain an acceptable level of quality. LICENSEE agrees that
upon such notice, it shall make such changes within a reasonable period of time,
and shall thereafter maintain an acceptable level of quality.
3.3 BAYLOR shall have the right to ascertain whether the products and
services offered or sold under this License Agreement are of an acceptable level
of quality, and LICENSEE shall cooperate in BAYLOR's exercise of this right.
3.4 LICENSEE shall, before it sells or distributes any product, packaging
or promotional material bearing any mark licensed hereunder, furnish to BAYLOR,
free of cost, for its approval, a sample of each product, packaging or
promotional material. BAYLOR has two weeks from receipt of each such sample in
which to reject the sample, and if it is rejected by BAYLOR, LICENSEE may not
use it. In absence of rejection within said two week period, or upon earlier
written acceptance, LICENSEE may deem the sample approved by BAYLOR.
3.5 LICENSEE agrees to make proper use of the mark(s) licensed hereunder
in accordance with accepted trademark practice.
---------------------------------
Baylor Health Care System/ EXHIBIT "B" TO
Baylor Rehabilitation System SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
<PAGE>
4. TERMINATION
-----------
4.1 In the event LICENSEE fails to comply with any of its obligations owed
to BAYLOR under this License Agreement, BAYLOR may serve on LICENSEE a notice of
default, specifying the nature of default. If the default is not cured within a
reasonable time (not to exceed 120 calendar days) after service of the notice of
default, BAYLOR may then immediately terminate this License Agreement by serving
a notice of termination.
4.2 This License Agreement automatically terminates in the event of
termination of the licenses and permissions granted by BAYLOR to LICENSEE under
the SETTLEMENT AGREEMENT.
5. EFFECT OF TERMINATION
---------------------
5.1 In the event of termination of this License Agreement pursuant to
paragraph 4.1 above, LICENSEE has 120 days to phase out and discontinue all use
of the mark(s) identified on Exhibit A, and thereafter may not use said mark(s).
5.2 In the event of termination of this License Agreement pursuant to
paragraph 4.2 above, the terms of the SETTLEMENT AGREEMENT shall govern
discontinuance of use by LICENSEE.
6. NON-ASSIGNABILITY
-----------------
The license granted herein to LICENSEE is not assignable or transferable
except with the prior written consent of BAYLOR. Subject to the preceding
sentence, this License Agreement is binding upon the inures to the benefit of
BAYLOR and LICENSEE and their respective successors and assigns.
7. INDEMNITY/HOLD HARMLESS
-----------------------
7.1 LICENSEE agrees that it is wholly responsible for all products and
services offered and sold by it under the mark(s) licensed hereunder, and that
BAYLOR has no liability for any such products and services.
7.2 LICENSEE indemnifies and holds harmless BAYLOR and the officers,
employees and agents thereof, from any claims, demands, causes of action, and
damages, including reasonable attorneys' fees, caused by or arising out of use
of any mark licensed hereunder, or workmanship, material or design of any
product or service offered by LICENSEE under any mark licensed hereunder,
including without limitation, claims or actions for product liability and patent
or copyright infringement.
8. NOTICES
-------
All notices or demands required or permitted hereunder must be in writing
and are deemed given when delivered in person or sent by United States mail,
first class, certified or registered, return receipt requested, with all postage
prepaid, addressed as follows:
To BAYLOR: Robert B. Sloan, Jr., President
Baylor University
P.O. Box 97096
Waco, Texas 76796-7096
To LICENSEE: Boone Powell, Jr., F.A.C.H.A., President
Baylor Health Care System
P.O. Box 26265
Dallas, Texas 75226
or to such other person or address as the party to receive notice may specify by
notice to the other party.
9. STATUS OF PARTIES
-----------------
This License Agreement is not intended to create, and may not be
interpreted or construed as creating, a partnership, joint venture, agency,
employment, master and servant, or similar relationship between BAYLOR and
LICENSEE, and no representation to the contrary is binding upon BAYLOR.
10. MISCELLANEOUS
-------------
Baylor Health Care System/
Baylor Rehabilitation System
2
<PAGE>
10.1 BAYLOR and LICENSEE intend all provisions of this License Agreement
to be enforced to the fullest extent permitted by law. If, however, any
provision of this License Agreement is held to be illegal, invalid, or
unenforceable under present or future law, such provision is fully severable and
this License Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision were never a part hereof, and the remaining
provisions remain in full force and effect and are not affected by the illegal,
invalid or unenforceable provision or by its severance.
10.2 This License Agreement is made in the State of Texas and for all
purposes is governed by and construed in accordance with the laws of said State.
10.3 LICENSEE may not, directly or indirectly, do or take any action
disrupting, attacking, or in any way impairing BAYLOR's right, title and
interest to the mark(s) licensed hereunder.
10.4 This License Agreement may not be altered, amended, or rescinded, nor
may any of its provisions be waived, except by an instrument in writing signed
by both BAYLOR and LICENSEE or, in the case of an asserted waiver, by the party
against whom the waiver is sought to be enforced.
11. EFFECTIVE DATE
--------------
This License Agreement is effective as of the 24/th/ day of July 1997.
EXECUTED by BAYLOR and LICENSEE on this day and year first above written, in
duplicate copies, each of which shall be deemed an original.
BAYLOR UNIVERSITY
By: /s/ Robert B. Sloan, Jr.
------------------------
Robert B. Sloan, Jr.
President
BAYLOR HEALTH CARE SYSTEM
BY: /s/ Boone Powell, Jr.
------------------------
Boone Powell, Jr.
President
3
<PAGE>
EXHIBIT 10.31
Pursuant to Instruction 2 to Item 601 of Regulation S-K, this exhibit is
not being filed because it is substantially identical to Exhibit 10.25. The only
difference is that the Tenant is On Track Physical Threrapy, Inc.
<PAGE>
EXHIBIT 12.1
FOUNTAIN VIEW, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
SIX MONTHS ENDED
ACTUAL JUNE 30,
---------------------------------- ---------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
------ ------ ------ ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes........... $2,510 $4,594 $2,640 $3,878 $5,563 $(7,276) $3,985 $1,353 $ (665)
Fixed charges:
Interest expense...... 307 355 332 278 1,164 23,324 30 6,219 11,199
Portion of rent repre-
senting interest..... 1,334 1,339 1,315 1,299 1,258 2,251 626 894 1,135
------ ------ ------ ------ ------ ------- ------ ------ -------
Total fixed charges..... 1,641 1,694 1,647 1,577 2,422 25,575 656 7,113 12,334
------ ------ ------ ------ ------ ------- ------ ------ -------
Income (loss) before
income taxes and fixed
charges................ $4,151 $6,288 $4,287 $5,455 $7,985 $18,299 $4,641 $8,466 $11,669
====== ====== ====== ====== ====== ======= ====== ====== =======
Ratio of earnings to
fixed charges.......... 2.5 3.7 2.6 3.5 3.3 (1) 7.1 1.2 (1)
</TABLE>
(1) Earnings were insufficient to cover proforma fixed charges by $7,276 and
$665 for the year ended December 31, 1997, and the six months ended June
30, 1998, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 11, 1998, with respect to the consolidated
financial statements of Fountain View, Inc. for the three years ended December
31, 1997 and the related financial statement schedule, and our report dated
August 22, 1997 with respect to the consolidated financial statements of
Summit Care Corporation for the three years ended June 30, 1997 included in
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-57279) and
related Prospectus of Fountain View, Inc. for the registration of $120,000,000
of 11 1/4% Senior Subordinated Notes.
/s/ Ernst & Young LLP
Los Angeles, California
August 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001055468
<NAME> FOUNTAIN VIEW INC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 2,551 3,725
<SECURITIES> 0 0
<RECEIVABLES> 16,961 65,299
<ALLOWANCES> (1,152) (6,761)
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,503 18,189
<PP&E> 6,755 261,731
<DEPRECIATION> (2,481) (5,529)
<TOTAL-ASSETS> 25,941 408,555
<CURRENT-LIABILITIES> 9,842 53,018
<BONDS> 28,335 239,619
0 15,000
0 0
<COMMON> 2 11
<OTHER-SE> (12,238) 70,048
<TOTAL-LIABILITY-AND-EQUITY> 25,941 408,555
<SALES> 67,905 88,369
<TOTAL-REVENUES> 67,905 88,369
<CGS> 0 0
<TOTAL-COSTS> 60,783 0
<OTHER-EXPENSES> 0 71,263
<LOSS-PROVISION> 395 9,534
<INTEREST-EXPENSE> 1,164 6,219
<INCOME-PRETAX> 5,563 1,353
<INCOME-TAX> 1,951 541
<INCOME-CONTINUING> 3,612 812
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 517
<CHANGES> 0 0
<NET-INCOME> 3,617 295
<EPS-PRIMARY> 18.06 (.09)
<EPS-DILUTED> 18.06 (.09)
</TABLE>
