<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 1-10968
LIVING CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2012902
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15415 KATY FREEWAY
SUITE 800
HOUSTON, TEXAS
77094
(Address of principal executive offices)
(Zip Code)
(281) 578-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
There were 19,505,289 shares outstanding of the issuer's only class of common
stock as of January 30, 1997.
The Exhibit Index is located on page 12.
<PAGE> 2
LIVING CENTERS OF AMERICA, INC.
AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Not applicable
Item 2. Not applicable
Item 3. Not applicable
Item 4. Not applicable
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
</TABLE>
<PAGE> 3
PART 1 FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
-----------------------
1996 1995
<S> <C> <C>
NET REVENUES
Nursing home revenue:
Net patient services $ 182,684 $ 188,370
Other 1,337 2,546
Non-nursing home revenue:
Pharmacy services 46,603 25,473
Therapy services 47,670 52,988
Medical supplies and other 1,908 1,003
--------- ---------
280,202 270,380
COSTS AND EXPENSES:
Salaries and wages 111,435 114,154
Employee benefits 24,276 24,932
Nursing, dietary and other supplies 13,479 15,543
Ancillary services 54,215 40,948
General and administrative 39,703 40,308
Depreciation and amortization 9,903 9,379
Provision for bad debts 5,509 3,793
--------- ---------
258,520 249,057
--------- ---------
INCOME FROM OPERATIONS 21,682 21,323
INTEREST EXPENSE, NET:
Interest expense 5,124 4,129
Interest income (1,070) (1,009)
--------- ---------
4,054 3,120
--------- ---------
INCOME BEFORE INCOME TAXES
AND EQUITY EARNINGS/MINORITY
INTEREST 17,628 18,203
PROVISION FOR INCOME TAXES 7,240 7,302
--------- ---------
INCOME BEFORE EQUITY EARNINGS/
MINORITY INTEREST 10,388 10,901
EQUITY EARNINGS/MINORITY INTEREST (63) (2)
--------- ---------
NET INCOME $ 10,325 $ 10,899
========= =========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 19,599 20,360
========= =========
EARNINGS PER SHARE $ 0.53 $ 0.54
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE> 4
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,322 $ 21,394
Receivables (less allowances of $29,600 and $22,783) 231,844 204,462
Notes receivable, net 3,756 3,756
Supplies 16,005 16,582
Prepaid expenses 4,568 6,450
Deferred income taxes 19,644 19,644
Other (including patient trust funds of $3,090 and $3,768) 8,964 9,273
--------- ---------
TOTAL CURRENT ASSETS 306,103 281,561
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 368,437 359,137
Furniture, fixtures and equipment 107,903 104,363
Leased property under capital leases 12,551 12,551
--------- ---------
488,891 476,051
Less accumulated depreciation 193,491 186,333
--------- ---------
295,400 289,718
GOODWILL, NET 193,720 188,508
RESTRICTED INVESTMENTS 34,786 31,040
INVESTMENT IN UNCONSOLIDATED AFFILIATE 70 3,016
NOTES RECEIVABLE, NET 10,498 10,780
OTHER ASSETS 20,805 17,111
--------- ---------
$ 861,382 $ 821,734
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 5,862 $ 13,746
Accounts payable 60,475 60,210
Accrued payroll and related expenses 61,767 60,089
Accrued property taxes 4,796 4,995
Patient trust funds 3,090 3,768
Accrued income taxes payable 19,050 16,921
Other accrued expenses 17,683 20,741
--------- ---------
TOTAL CURRENT LIABILITIES 172,723 180,470
LONG-TERM DEBT, NET OF CURRENT MATURITIES 295,270 262,702
LONG-TERM INSURANCE RESERVES 30,649 26,093
MINORITY INTERESTS 171 289
DEFERRED INCOME TAXES AND OTHER NONCURRENT LIABILITIES 22,652 22,865
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $ .01; 4,650,000 shares authorized;
none issued -- --
Series A - Junior participating preferred stock, par
value $.01; 350,000 authorized and
reserved; none issued -- --
Common stock, par value $ .01; 75,000,000 shares
authorized; 20,267,920 shares issued 203 203
Capital surplus 228,137 228,171
Retained earnings 131,058 120,733
Unrealized gain (loss) on securities available-for-sale 176 (18)
Treasury stock at cost - 762,631 and 767,053 shares (19,657) (19,774)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 339,917 329,315
--------- ---------
$ 861,382 $ 821,734
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 5
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain Treasury Stock
------------------- Capital Retained (Loss) on --------------------
Shares Amount Surplus Earnings Securities Shares Amount Total
-------- -------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 20,267 $ 203 $ 228,171 $ 120,733 ($ 18) 767 ($ 19,774) $ 329,315
Net income 10,325 10,325
Funding of options exercised
under 1992 Employee Stock
Option Plan, net of tax (34) (4) 117 83
Unrealized gain on
securities available-for-sale 194 194
------ -------- --------- --------- --------- --- --------- ---------
BALANCE, DECEMBER 31, 1996 20,267 $ 203 $ 228,137 $ 131,058 $ 176 763 ($19,657) $ 339,917
====== ======== ========== ========= ========= === ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE> 6
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(unaudited)
Three Months
Ended December 31,
---------------------
1996 1995
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,325 $ 10,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,903 9,379
Income taxes deferred (392) (1,536)
Equity earnings/minority interest 63 2
Provision for bad debts 5,509 3,793
Changes in noncash working capital:
Receivables (30,885) (18,868)
Supplies 590 (681)
Receivable from affiliates - (36)
Prepayments, including insurance 1,898 4,484
Other current assets 309 (547)
Accounts payable (238) (14,140)
Accrued expenses and other current liabilities (497) 13,931
Changes in long-term insurance reserves 4,556 3,212
Other (199) (64)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 942 9,828
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisitions and investments (11,629) (2,102)
Purchases of property and equipment (11,298) (6,024)
Disposals of property, equipment and
other assets 935 135
Restricted investments (3,552) 873
Additions to notes receivable (142) (109)
Collections on notes receivable 424 238
Other 23 (332)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (25,239) (7,321)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 34
Net draws under credit line 24,972 6,225
Repayment of long-term debt (830) (8,147)
Funding of options under 1992 employee stock
purchase plan and employee benefit plans 83 133
Other -- (14)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 24,225 (1,769)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (72) 738
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,394 17,886
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,322 $ 18,624
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 7
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Living Centers of America, Inc. (the "Company" or "Living Centers"),
engages in the operation of long-term care facilities, specialty health care
services, pharmacy and rehabilitation services through its operating
subsidiaries. The Company's operations are geographically concentrated and
specifically focused in key markets, including Texas, North Carolina, and
Colorado. The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries and exclude all significant
intercompany transactions.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for annual financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. These financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended September 30, 1996
filed with the Securities and Exchange Commission on Form 10-K, Annual Report,
file No. 33-44726.
NOTE 2. LONG-TERM DEBT
The covenants governing the 1996 Bank Credit Facility and the notes with
SouthTrust Bank and Variable Annuity Life provide for the maintenance of
various financial ratios. The Company is in compliance with the terms of all
such covenants. These covenants also limit the Company's ability to pay
dividends. At December 31, 1996 these restrictions effectively limited
dividend payments to no more than $19.6 million. Even though the covenants of
the 1996 Bank Credit Facility permit the payment of dividends as described
above, the Company does not presently intend to pay any such dividends.
A summary of total debt as of December 31, 1996 is as follows (in
thousands):
<TABLE>
<S> <C>
Bank Credit Facility . . . . . . . . . . . . . . . . . $ 257,000
SouthTrust Bank of Alabama, NA . . . . . . . . . . . . 20,000
Variable Annuity Life Insurance Company . . . . . . . 10,000
NationsBank of Texas, NA . . . . . . . . . . . . . . . 2,075
Mortgage notes . . . . . . . . . . . . . . . . . . . . 1,343
Other notes payable . . . . . . . . . . . . . . . . . 6,960
Obligations under capital leases . . . . . . . . . . . 3,754
----------
301,132
Less short-term notes payable and current portion . . . (5,862)
----------
Total long-term debt . . . . . . . . . . . . . . . . . $ 295,270
==========
</TABLE>
7
<PAGE> 8
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. EARNINGS PER COMMON SHARE
The following table presents a reconciliation of the number of weighted
average common shares used in computing primary earnings per share (in
thousands):
<TABLE>
<CAPTION>
Three Months
Ended December 31,
---------------------------
1996 1995
------- -------
<S> <C> <C>
Common shares outstanding, end of
period . . . . . . . . . . . . . . . 19,505 20,268
Effect of using weighted average
shares outstanding . . . . . . . . . (3) (62)
Effect of using treasury stock method
on stock options and warrants . . . 97 154
------- -------
Shares used in computing earning per
share . . . . . . . . . . . . . . . 19,599 20,360
======= =======
</TABLE>
NOTE 4. CASH INTEREST AND TAXES
Total cash interest paid during the three months ended December 31, 1996
and 1995 was $5.6 million and $2.4 million, respectively. Cash taxes paid
during the three months ended December 31, 1996 and 1995 were $5.5 million and
$1.0 million, respectively.
NOTE 5. RESTRUCTURING PLAN
During fiscal year 1996, the Company finalized a plan originating in June
1995 to restructure the operations and exit certain activities of American
Rehabilitation Services, Inc. ("ARS"), its rehabilitation subsidiary. This
plan includes centralization of billing and collection, closing or downsizing
unprofitable clinics and offsite contracts, and staff reductions of
approximately 300 employees in both corporate overhead and field management.
This plan resulted in an increase to the original purchase price of the
acquisition by $10.1 million and included an accrual for estimated exit costs
of $4.4 million related to termination/severance for displaced employees and
$4.2 million related to future lease costs for abandoned real property.
Through December 31, 1996 ARS has charged $2.3 million against the accrual for
termination/severance for approximately 275 displaced employees and $0.8
million against the accrual for future lease costs. The restructuring is
expected to be completed during the second quarter of fiscal 1997.
NOTE 6. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
NOTE 7. CONTINGENCIES
The Company is a party to various legal proceedings. The Company believes
that there are no material pending legal proceedings which are not adequately
covered by insurance or related reserves.
In October 1996 the Company entered into a master lease arrangement
providing for the acquisition, development, and construction of skilled
nursing and assisted living facilities for a total amount not to exceed $100.0
million. The lease is an unconditional "triple net" lease for all facilities
covered for a period of seven years. The Company guarantees a substantial
portion of the residual value of the facilities covered and has an option to
purchase the facilities at any time prior to the maturity date. At December
31, 1996 approximately $2.1 million of this arrangement was utilized.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides a diverse range of services in the health care
continuum including long-term health care, rehabilitation therapy, and
pharmaceutical services. Services provided at the Company's long-term care
facilities, which comprise approximately 66% of the Company's total revenue,
include long-term nursing services and specialty care services including
assisted living services, subacute care, and care for individuals with
Alzheimer's disease. The Company is currently expanding or developing
additional specialty care services such as hospice care, geriatric physician
management services, and home health care.
RESULTS OF OPERATIONS
The following table sets forth certain data from the statement of income
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net Revenues:
Nursing home 65.7% 70.6%
Non-nursing home:
Pharmacy 16.6 9.4
Therapy 17.0 19.6
Other 0.7 0.4
----- -----
100.0 100.0
----- -----
Costs and Expenses:
Salaries and wages 39.8 42.3
Employee benefits 8.7 9.2
Nursing, dietary, and other supplies 4.8 5.7
Ancillary services 19.3 15.1
General and administrative 14.2 14.9
Depreciation and amortization 3.5 3.5
Provision for bad debts 2.0 1.4
----- -----
92.3 92.1
----- -----
Income from operations 7.7 7.9
Interest expense, net 1.4 1.2
----- -----
Income before income taxes and equity earnings/
minority interest 6.3 6.7
Provision for income taxes 2.6 2.7
----- -----
Income before equity earnings/minority interest 3.7 4.0
Equity earnings/minority interest -- --
----- -----
Net income 3.7% 4.0%
===== =====
</TABLE>
9
<PAGE> 10
Nursing home revenues are derived from two basic sources: routine services
($147.4 million or 80.1% in the first quarter of fiscal 1997) and ancillary
services ($36.6 million or 19.9% in the first quarter of fiscal 1997) and are a
function of occupancy rates in the long-term care facilities and the payor mix.
Occupancy rates, as identified in the following table, decreased in the first
quarter of fiscal 1997 due to the divestiture of DevCon in the fourth quarter
of fiscal 1996 and an increase in hospital-operated skilled units, assisted
living facilities, and other alternative care providers in key markets. The
Company has invested in the marketing and managed care areas and has
implemented an aggressive marketing program to increase census and improve
quality mix.
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------
1996 1995
<S> <C> <C>
Weighted average licensed bed count 23,322 25,676
Total average residents 19,442 21,749
Average occupancy 83.4% 84.7%
</TABLE>
Payor mix is the source of payment for the services provided and consists
of private pay, Medicare and Medicaid. Private pay includes revenue from
individuals who pay directly for services without government assistance,
managed care companies, commercial insurers, health maintenance organizations,
and Veteran's administration contractual payments.
Reimbursement rates from government sponsored programs, such as Medicare
and Medicaid, are strictly regulated and subject to funding appropriations from
federal and state governments. To the extent unfavorable changes in economic
conditions impact payments under governmental or third-party payor programs,
the Company would be adversely affected. Revenues derived from the Company's
pharmacy and therapy groups are also influenced by payor mix. The table below
presents the approximate percentage of the Company's net patient revenues
derived from the various sources of payment for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------
1996 1995
<S> <C> <C>
Private pay 34.1% 32.6%
Medicare 24.3% 24.0%
Medicaid 41.6% 43.4%
</TABLE>
The increasing trend in the percentage of revenues derived from private
pay and Medicare sources is primarily attributable to the growth in the
Company's pharmacy and therapy operations. The revenue from these operations,
which is primarily generated from private pay and Medicare sources, results in
a reduction of the percentage of net revenue derived from the Medicaid program.
In addition, average reimbursement rates for Medicare patients have increased
more rapidly than for Medicaid residents primarily due to the higher
reimbursement rates associated with the increase in acuity levels. Although
cost reimbursement for Medicare residents generates a higher level of revenue
per patient day, profitability is not proportionally increased due to the
additional costs associated with the required higher level of care and other
services for such residents.
FIRST QUARTER OF FISCAL 1997 COMPARED TO FIRST QUARTER OF FISCAL 1996.
Net revenues comprising nursing home and non-nursing home operations totaled
$280.2 million for the quarter ended December 31, 1996 an increase of $9.8
million or 3.6 %, as compared to the same period for fiscal 1996. Nursing home
operations contributed $8.3 million of the increase, which includes rate
increases of $7.1 million, higher ancillary service billings resulting from the
improvement in mix, primarily Medicare, of $3.2 million and a reduction of $2.0
million as a result of lower average occupancy. Divestitures, primarily the
disposition of the DevCon operations in the fourth quarter of fiscal 1996,
lowered nursing home revenue by $15.2 million. Non-nursing home operations
contributed $16.7 million of the increase, consisting of an increase of $21.1
million for pharmacy services, a decrease of $5.3 million for therapy services,
and an increase of $0.9 million from medical supplies and other services. The
acquisition of pharmacies subsequent to the first quarter of fiscal 1996
primarily caused the increase in pharmacy services and the closure of
approximately 30 clinics during fiscal 1996 that no longer met the Company's
financial or operating objectives resulted in a decrease in therapy services.
The increase in medical supplies and other services is primarily due to the
purchase of a controlling interest in Heart of America Hospice in October 1996.
10
<PAGE> 11
Costs and expenses totaled $258.5 million for the quarter ended December
31, 1996, an increase of $9.5 million or 3.8%, as compared to the same period
for fiscal 1996. Payroll, ancillary, and general and administrative costs
increased $5.0, $13.6, and $2.5 million, respectively, excluding divested
operations. The increase in ancillary services is primarily the result of
higher pharmaceutical costs related to the increase in pharmacy services
revenue. Bad debt expense increased $1.8 million primarily due to focus
Medicare billing reviews in Texas for therapy services and the increase in
pharmacy revenues which have a higher provision for bad debts. Divestitures,
primarily DevCon, reduced total expenses by $13.9 million.
Net interest expense totaled $4.1 million for the quarter ended December
31, 1996, an increase of $0.9 million as compared to the same period for fiscal
1996. The increase reflects interest expense on the additional debt incurred
to purchase $20.0 million of the Company's common stock late in fiscal 1996,
and acquisitions, investments, and other capital expenditures during the
quarter.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents were $21.3 million at December 31, 1996, and
working capital was $133.4 million, an increase of $32.3 million during the
first quarter of fiscal 1997. Net income of $10.3 million, non-cash items
totaling $15.1 million, and other working capital changes were substantially
offset by an increase in receivables of $30.1 million. The increase in
receivables was primarily attributable to acquisitions ($1.3 million), timing
of collections of Medicare cost reports and other rate adjustments ($4.9
million), an increase in average days outstanding, net of allowance, ($10.6
million) and revenue increases ($10.1 million).
Cash used in investing activities was $25.2 million in the first quarter
of fiscal 1997, as compared to $7.3 million in the first quarter of fiscal
1996. Investing activities for the first quarter 1997 included the purchase of
an additional 33% in Heart of America Hospice ($2.0 million), three pharmacy
related acquisitions ($5.2 million), construction of four assisted living
facilities and the expansion of existing facilities ($2.0 million), and routine
capital expenditures. Capital commitments on the four assisted living
facilities remaining under construction and expansion of existing long-term
care facilities totaled $8.3 million at December 31, 1996. These commitments
are expected to be funded by cash from operations or the Bank Credit Facility.
Financing activities provided $24.2 million during the first fiscal
quarter of 1997 and were primarily used for acquisitions, investments, and
other capital expenditures.
During the quarter the Company finalized a lease arrangement providing for
up to $100.0 million to be used as a funding mechanism for future skilled
nursing and assisted living facility acquisitions, development, and
construction. At December 31, 1996, $2.1 million of this arrangement was
utilized.
The Company's long-term strategy in managing working capital is to
maintain substantial available commitments under bank credit agreements or
other financial agreements to finance short-term capital requirements in excess
of internally generated cash.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
Number Number
------- ------
<S> <C> <C>
10.1 Lease between FBTC Leasing Corp., as lessor, and Living Centers
Holding Company as lessee 15
Participation Agreement among Living Centers Holding Company,
as Lessee, FBTC Leasing Corp., a New York corporation, as
Lessor, The Chase Manhattan Bank, as Agent for the Lenders 47
Guarantee made by Living Centers of America, Inc. a Guarantor in
Favor of The Chase Manhattan Bank, as Agent 87
10.2 Employment Agreement between Living Centers of America, Inc. and
James P. Dorn 118
10.3 Employment Agreement between Living Centers of America, Inc. and
Ronald W. Fleming 133
11 Statement re: Computation of Per Share Earnings 148
27 Financial Data Schedule 150
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended December 31, 1996.
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
LIVING CENTERS OF AMERICA, INC.
(Registrant)
January 30, 1997
By: /s/ Charles B. Carden
--------------------------------
Charles B. Carden
Executive Vice President and
Chief Financial Officer
By: /s/ Ronald W. Fleming
--------------------------------
Ronald W. Fleming
Controller and
Chief Accounting Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Number
------- ------
<S> <C> <C>
10.1 Lease between FBTC Leasing Corp., as lessor, and Living Centers
Holding Company as lessee 15
Participation Agreement among Living Centers Holding Company,
as Lessee, FBTC Leasing Corp., a New York corporation, as
Lessor, The Chase Manhattan Bank, as Agent for the Lenders 47
Guarantee made by Living Centers of America, Inc. a Guarantor in
Favor of The Chase Manhattan Bank, as Agent 87
10.2 Employment Agreement between Living Centers of America, Inc. and
James P. Dorn 118
10.3 Employment Agreement between Living Centers of America, Inc. and
Ronald W. Fleming 133
11 Statement re: Computation of Per Share Earnings 148
27 Financial Data Schedule 150
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Lease between FBTC Leasing Corp., as Lessor,
and Living Centers Holding Company as Lessee
Participation Agreement among
Living Centers Holding Company, as Lessee,
FBTC Leasing Corp., a New York corporation,
as Lessor,
The Chase Manhattan Bank, as Agent for the Lenders
Guarantee made by Living Centers of America, Inc. a
Guarantor in favor of The Chase Manhattan Bank
as Agent
14
<PAGE> 2
===============================================================================
LEASE
between
FBTC LEASING CORP.,
as Lessor,
and
LIVING CENTERS HOLDING COMPANY
as Lessee
____________________________
Dated as of October 10, 1996
____________________________
This Lease is subject to a security interest in favor of The Chase Manhattan
Bank, as agent (the "Agent"), under a Credit Agreement, dated as of October 10,
1996 among FBTC Leasing Corp., the Lenders, and the Agent, as amended or
supplemented. This Lease has been executed in several counterparts. To the
extent, if any, that this Lease constitutes chattel paper (as such term is
defined in the Uniform Commercial Code of the State where the Properties are
located, no security interest in this Lease may be created through the transfer
or possession of any counterpart other than the original counterpart containing
the receipt therefor executed by the Agent on the signature page hereof.
15
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------
SECTION 2. PROPERTY AND TERM . . . . . . . . . . . . . . . . . . . . 1
2.1 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------
2.2 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
2.3 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----
2.4 Lease Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------
SECTION 3. RENT . . . . . . . . . . . . . . . . . . . . . . . . 1
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----
3.2 Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
3.3 Performance on a Non-Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------------------------
SECTION 4. UTILITY CHARGES . . . . . . . . . . . . . . . . . . . . . 2
4.1 Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------
SECTION 5. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . 3
5.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---------------
SECTION 6. NET LEASE . . . . . . . . . . . . . . . . . . . . . . 3
6.1 Net Lease; No Setoff; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------------
6.2 No Termination or Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------------------------
SECTION 7. OWNERSHIP OF PROPERTY . . . . . . . . . . . . . . . . . . . 4
7.1 Ownership of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------------------
SECTION 8. CONDITION OF PROPERTY . . . . . . . . . . . . . . . . . . . 5
8.1 Condition of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------------------
8.2 Possession and Use of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------------------
SECTION 9. COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . 6
9.1 Compliance with Legal Requirements and Insurance Requirements . . . . . . . . . . . . . . . . 6
-------------------------------------------------------------
SECTION 10. . . . . . . . . . . . . . . . . . . . . . . . . . 6
10.1 Maintenance and Repair; Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------
10.2 Right of Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------
10.3 Environmental Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------------
</TABLE>
16
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 11. MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . 8
11.1 Modifications, Substitutions and Replacements . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------------------------------
SECTION 12. TITLE . . . . . . . . . . . . . . . . . . . . . . . 9
12.1 Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
12.2 Grants and Releases of Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------------
SECTION 13. PERMITTED CONTESTS . . . . . . . . . . . . . . . . . . . . 10
13.1 Permitted Contests Other Than in Respect of Impositions . . . . . . . . . . . . . . . . . . . 10
-------------------------------------------------------
SECTION 14. INSURANCE . . . . . . . . . . . . . . . . . . . . . . 10
14.1 Public Liability and Workers' Compensation Insurance . . . . . . . . . . . . . . . . . . . . 10
----------------------------------------------------
14.2 Hazard and Other Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------------------
14.3 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------
SECTION 15. CONDEMNATION AND CASUALTY . . . . . . . . . . . . . . . . . . 12
15.1 Casualty and Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------------------
15.2 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------
SECTION 16. LEASE TERMINATION . . . . . . . . . . . . . . . . . . . . 14
16.1 Termination upon Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------------------
16.2 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----------
SECTION 17. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 14
17.1 Lease Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------------
17.2 Final Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------------------
17.3 Lease Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--------------
17.4 Waiver of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------------
17.5 Assignment of Rights Under Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------------------------
17.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------
17.7 Covenant Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------------
SECTION 18. LESSOR'S RIGHT TO CURE . . . . . . . . . . . . . . . . . . . 19
18.1 Lessor's Right to Cure Lessee's Lease Defaults . . . . . . . . . . . . . . . . . . . . . . . 19
----------------------------------------------
SECTION 19. LEASE TERMINATION . . . . . . . . . . . . . . . . . . . . 19
19.1 Provisions Relating to Lessee's Termination of this Lease or Exercise of Purchase Option . . 19
----------------------------------------------------------------------------------------
19.2 Aggregate Tranche A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------------
SECTION 20. PURCHASE OPTION . . . . . . . . . . . . . . . . . . . . . 20
20.1 Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------
20.2 Maturity Date Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------------
20.3 Obligation to Purchase All Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------------------------
</TABLE>
17
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 21. SALE OF PROPERTY . . . . . . . . . . . . . . . . . . . . 20
21.1 Sale Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------
21.2 Application of Proceeds of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------------------------
21.3 Indemnity for Excessive Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------------
21.4 Appraisal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------------
21.5 Certain Obligations Continue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------------------
SECTION 22. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . 22
22.1 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------
SECTION 23. RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . 23
23.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------
SECTION 24. SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . . . . . . 23
24.1 Subletting and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------------------
24.2 Subleases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------
SECTION 25. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . 23
25.1 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------------------
SECTION 26. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . 24
26.1 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------
SECTION 27. ACCEPTANCE OF SURRENDER . . . . . . . . . . . . . . . . . . . 24
27.1 Acceptance of Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------------
SECTION 28. NO MERGER OF TITLE . . . . . . . . . . . . . . . . . . . . 24
28.1 No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------------
SECTION 29. NOTICES . . . . . . . . . . . . . . . . . . . . . . . 24
29.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------
SECTION 30. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 25
30.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------
30.2 Amendments and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------------------
30.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------
30.4 Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------------------------
30.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------
30.6 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------
30.7 Limitations on Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------------------
30.8 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------------
30.9 Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------
31.1 Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------
Exhibits
- --------
Exhibit A Lease Supplement
Exhibit B Memorandum of Lease
</TABLE>
18
<PAGE> 6
LEASE (this "Lease"), dated as of October 10, 1996, between FBTC
LEASING CORP., a New York corporation, having its principal office at Two World
Trade Center, New York, New York 10048, as lessor (the "Lessor"), and LIVING
CENTERS HOLDING COMPANY, a Delaware corporation, having its principal office
at 15415 Katy Freeway, Suite 800, Houston, Texas 77094, as lessee (the
"Lessee").
In consideration of the mutual agreements herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not
otherwise defined in this Lease shall have the respective meanings specified in
Annex A to the Participation Agreement dated as of the date hereof among
Lessee, Lessor, Agent and the Lenders named therein.
SECTION 2. PROPERTY AND TERM
2.1 Property. Subject to the terms and conditions
hereinafter set forth and contained in the respective Lease Supplement relating
to each Property, Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, each Property.
2.2 Lease Term. The Property is leased for the Term,
unless extended or earlier terminated in accordance with the provisions of this
Lease.
2.3 Title. Each Property is leased to Lessee without any
representation or warranty, express or implied, by Lessor and subject to the
rights of parties in possession, the existing state of title (including the
Permitted Exceptions) and all applicable Legal Requirements. Lessee shall in
no event be excused in its obligation to pay Rent for any defect in title to
the Property.
2.4 Lease Supplements. On each Property Closing Date,
Lessee and Lessor shall each execute and deliver a Lease Supplement for the
Property to be leased on such date in substantially the form of Exhibit A
hereto and thereafter such Property shall be subject to the terms of this
Lease.
SECTION 3. RENT
3.1 Rent. (a) On each applicable Payment Date occurring
after the termination of the Construction Period for a Property and on any date
when this Lease shall terminate, Lessee shall pay the Basic Rent attributable
to such Property.
(b) Basic Rent shall be due and payable in lawful money of
the United States and shall be paid by wire transfer of immediately available
funds on or before the due date
19
<PAGE> 7
therefor to such account or accounts at such bank or banks or to such other
Person or in such other manner as Lessor shall from time to time direct.
(c) Neither Lessee's inability or failure to take
possession of all, or any portion, of the Property when delivered by Lessor,
nor Lessor's inability or failure to deliver all or any portion of the Property
to Lessee, whether or not attributable to any act or omission of Lessee or any
act or omission of Lessor, or for any other reason whatsoever, shall delay or
otherwise affect Lessee's obligation to pay Rent in accordance with the terms
of this Lease.
3.2 Supplemental Rent. (a) Lessee shall pay to Lessor or
the Person entitled thereto any and all Supplemental Rent promptly as the same
shall become due and payable, and if Lessee fails to pay any Supplemental Rent,
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall
pay to Lessor as Supplemental Rent, among other things, on demand, to the
extent permitted by applicable Legal Requirements, interest at the applicable
Overdue Rate on any installment of Basic Rent not paid when due for the period
for which the same shall be overdue and on any payment of Supplemental Rent not
paid when due or demanded by Lessor for the period from the due date or the
date of any such demand, as the case may be, until the same shall be paid. The
expiration or other termination of Lessee's obligations to pay Basic Rent
hereunder shall not limit or modify the obligations of Lessee with respect to
Supplemental Rent. Unless expressly provided otherwise in this Lease or any
other Operative Agreement, in the event of any failure on the part of Lessee to
pay and discharge any Supplemental Rent as and when due, Lessee shall also
promptly pay and discharge any fine, penalty, interest or cost which may be
assessed or added for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
(b) Lessee shall make a payment of Supplemental Rent equal
to the Maximum Residual Guarantee Amount in accordance with Section 21.1(c).
3.3 Performance on a Non-Business Day. If any payment is
required hereunder on a day that is not a Business Day, then such payment shall
be due on the next succeeding Business Day.
SECTION 4. UTILITY CHARGES
4.1 Utility Charges. Lessee shall pay, or cause to be
paid, all charges for electricity, power, gas, oil, water, telephone, sanitary
sewer service and all other rents and utilities used in or on each Property
during the Term. Lessee shall be entitled to receive any credit or refund with
respect to any utility charge paid by Lessee and the amount of any credit or
refund received by Lessor on account of any utility charges paid by Lessee, net
of the costs and expenses incurred by Lessor in obtaining such credit or
refund, shall be promptly paid over to Lessee. All charges for utilities
imposed with respect to the Property for a billing period during which this
Lease expires or terminates shall be adjusted and prorated on a daily basis
between Lessor and Lessee, and each party shall pay or reimburse the other for
each party's pro rata share thereof.
20
<PAGE> 8
SECTION 5. QUIET ENJOYMENT
5.1 Quiet Enjoyment. So long as no Lease Event of Default
shall have occurred and be continuing, Lessee shall peaceably and quietly have,
hold and enjoy each Property for the Term, free of any claim or other action by
Lessor or anyone rightfully claiming by, through or under Lessor with respect
to any matters arising from and after the Lease Commencement Date.
SECTION 6. NET LEASE
6.1 Net Lease; No Setoff; Etc. This Lease shall constitute
a net lease and, notwithstanding any other provision of this Lease, it is
intended that Basic Rent and Supplemental Rent shall be paid without
counterclaim, setoff, deduction or defense of any kind and without abatement,
suspension, deferment, diminution or reduction of any kind, and Lessee's
obligation to pay all such amounts is absolute and unconditional. The
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected for any reason, including, without limitation,
to the maximum extent permitted by law: (a) any defect in the condition,
merchantability, design, construction, quality or fitness for use of any
portion of any Property, or any failure of any Property to comply with all
Legal Requirements, including any inability to occupy or use any Property by
reason of such non-compliance; (b) any damage to, abandonment, loss,
contamination of or Release from or destruction of or any requisition or taking
of any Property or any part thereof, including eviction; (c) any restriction,
prevention or curtailment of or interference with any use of any Property or
any part thereof, including eviction; (d) any defect in title to or rights to
any Property or any Lien on such title or rights or on any Property; (e) any
change, waiver, extension, indulgence or other action or omission or breach in
respect of any obligation or liability of or by Lessor, Agent or any Lender;
(f) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceedings relating to Lessee, Lessor,
Agent, any lender or any other Person, or any action taken with respect to this
Lease by any trustee or receiver of Lessee, Lessor, Agent, any lender or any
other Person, or by any court, in any such proceeding; (g) any claim that
Lessee has or might have against any Person, including Lessor, Agent or any
Lender; (h) any failure on the part of Lessor to perform or comply with any of
the terms of this Lease, any other Operative Agreement or of any other
agreement; (i) any invalidity or unenforceability or disaffirmance against or
by Lessee of this Lease or any provision hereof or any of the other Operative
Agreements or any provision of any thereof; (j) the impossibility of
performance by Lessee, Lessor or both; (k) any action by any court,
administrative agency or other Governmental Authority; any restriction,
prevention or curtailment of or any interference with the construction on or
any use of any Property or any part thereof; or (m) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing, whether or not
Lessee shall have notice or knowledge of any of the foregoing. This Lease
shall be noncancellable by Lessee for any reason whatsoever except as expressly
provided herein, and Lessee, to the extent permitted by Legal Requirements,
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate or surrender this Lease, or to any diminution, abatement or reduction
of Rent payable by Lessee hereunder. If for any reason whatsoever this Lease
shall be terminated in whole or in part by operation of law or otherwise,
except as otherwise expressly provided herein, Lessee shall, unless prohibited
by Legal Requirements, nonetheless pay to Lessor (or, in the case of
Supplemental Rent, to whomever shall be entitled thereto) an amount equal to
each Rent payment at the time and in the manner that such payment would have
become due and payable under the terms of this
21
<PAGE> 9
Lease if it had not been terminated in whole or in part, and in such case, so
long as such payments are made and no Lease Event of Default shall have
occurred and be continuing, Lessor will deem this Lease to have remained in
effect. Each payment of Rent made by Lessee hereunder shall be final and,
absent manifest error in the computation of the amount thereof, Lessee shall
not seek or have any right to recover all or any part of such payment from
Lessor, Agent or any party to any agreements related thereto for any reason
whatsoever. Lessee assumes the sole responsibility for the condition, use,
operation, maintenance, and management of the Property and Lessor shall have no
responsibility in respect thereof and shall have no liability for damage to the
property of Lessee or any subtenant of Lessee on any account or for any reason
whatsoever.
6.2 No Termination or Abatement. Lessee shall remain
obligated under this Lease in accordance with its terms and shall not take any
action to terminate, rescind or avoid this Lease, notwithstanding any action
for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein. Lessee
hereby waives all right (i) to terminate or surrender this Lease, except as
otherwise expressly provided herein, or (ii) to avail itself of any abatement,
suspension, deferment, reduction, setoff, counterclaim or defense with respect
to any Rent. Lessee shall remain obligated under this Lease in accordance with
its terms and Lessee hereby waives any and all rights now or hereafter
conferred by statute or otherwise to modify or to avoid strict compliance with
its obligations under this Lease. Notwithstanding any such statute or
otherwise, Lessee shall be bound by all of the terms and conditions contained
in this Lease.
SECTION 7. OWNERSHIP OF PROPERTY
7.1 Ownership of the Property. (a) Lessor and Lessee
intend that (i) for financial accounting purposes with respect to Lessee (A)
this Lease will be treated as an "operating lease" pursuant to Statement of
Financial Accounting Standards (SFAS) No. 13, as amended, (B) Lessor will be
treated as the owner and lessor of the Property and (C) Lessee will be treated
as the lessee of the Property, but (ii) for federal, state and local income tax
and all other purposes (A) this Lease will be treated as a financing
arrangement, (B) the Lenders will be treated as senior lenders making loans to
Lessee in an amount equal to the Loans, which Loans will be secured by the
Property, (C) Lessor will be treated as a subordinated lender making a loan to
Lessee in an amount equal to the Lessor Contribution, which loan is secured by
the Property, and (D) Lessee will be treated as the owner of the Property and
will be entitled to all tax benefits ordinarily available to an owner of
property like the Property for such tax purposes.
(b) Lessor and Lessee further intend and agree that, for
the purpose of securing Lessee's obligations for the repayment of the
above-described loans, (i) this Lease shall also be deemed to be a security
agreement and financing statement within the meaning of Article 9 of the
Uniform Commercial Code and a real property mortgage or deed of trust, as
applicable; (ii) the Lease provided for in Section 2 shall be deemed a grant of
a security interest in and a mortgage lien on the Lessee's right, title and
interest in the Properties (including the right to exercise all remedies as are
contained in the applicable Mortgage and
22
<PAGE> 10
Memorandum of Lease upon the occurrence of a Lease Event of Default) and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, investments, securities or other property, whether in the form of cash,
investments, securities or other property, for the benefit of the Lessor to
secure the Lessee's payment of all amounts owed by the Lessee under this Lease
and the other Operative Agreements and Lessor holds title to the Properties so
as to create and grant a first lien and prior security interest in each
Property (A) pursuant to this Lease for the benefit of the Agent under the
Assignment of Lease, to secure to the Agent the obligations of the Lessee under
the Lease and (B) pursuant to the Mortgages to secure to the Agent the
obligations of the Lessor under the Mortgages and the Notes; (iii) the
possession by Lessor or any of its agents of notes and such other items of
property as constitute instruments, money, negotiable documents or chattel
paper shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iv) notifications to Persons holding such property, and
acknowledgements, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of Lessee shall be deemed to have been given
for the purpose of perfecting such security interest under applicable law.
Lessor and Lessee shall, to the extent consistent with this Lease, take such
actions as may be necessary to ensure that, if this Lease were deemed to create
a security interest in the Properties in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the
Basic Term. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
Agent, or any Lender has provided or will provide tax, accounting or legal
advice to Lessee regarding this Lease, the Operative Agreements or the
transactions contemplated hereby and thereby, or made any representations or
warranties concerning the tax, accounting or legal characteristics of the
Operative Agreements, and that Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Operative Agreements as it deems
appropriate.
(c) Lessor and Lessee further intend and agree that in the
event of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or
statute of the United States of America or any State or Commonwealth thereof
affecting Lessee or Lessor, the transactions evidenced by this Lease shall be
regarded as loans made by an unrelated third party lender to Lessee.
SECTION 8. CONDITION OF PROPERTY
8.1 Condition of the Property. LESSEE ACKNOWLEDGES AND
AGREES THAT IT IS RENTING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY LESSOR AND SUBJECT TO (A) THE
EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF,
(C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT
SHOW AND (D) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE
HEREOF. NONE OF LESSOR, THE AGENT AND ANY LENDER HAS MADE OR SHALL BE DEEMED
TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED,
INCLUDING THE CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL CONDITION, OR ANY
ENVIRONMENTAL OR HAZARDOUS MATERIAL CONDITION) OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS
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TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR
FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND NONE OF LESSOR, THE AGENT AND
ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR
THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL
REQUIREMENT.
8.2 Possession and Use of the Property. Each Property
shall be used in a manner consistent with the Agency Agreement and, after the
Completion Date for the Property, as a skilled nursing or assisted living
Facility. Lessee shall pay, or cause to be paid, all charges and costs
required in connection with the use of the Properties. Lessee shall not commit
or permit any waste of any Property or any part thereof.
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance
Requirements. Subject to the terms of Section 13 relating to permitted
contests, Lessee, at its sole cost and expense, shall (a) comply in all
material respects with all Legal Requirements (including all Environmental
Laws) and Insurance Requirements relating to each Property, including the use,
construction, operation, maintenance, repair and restoration thereof, whether
or not compliance therewith shall require structural or extraordinary changes
in the Improvements or interfere with the use and enjoyment of each Property,
and (b) procure, maintain and comply in all material respects with all
licenses, permits, orders, approvals, consents and other authorizations
required for the construction, renovation, use, maintenance and operation of
each Property and for the use, operation, maintenance, repair and restoration
of the Improvements.
SECTION 10. MAINTENANCE AND REPAIR
10.1 Maintenance and Repair; Return. (a) Lessee, at its
sole cost and expense, shall maintain each Property in good condition (ordinary
wear and tear excepted) and make all necessary repairs thereto, of every kind
and nature whatsoever, whether interior or exterior, ordinary or extraordinary,
structural or nonstructural or foreseen or unforeseen, in each case in
substantial compliance with all Legal Requirements and Insurance Requirements
and on a basis reasonably consistent with the operation and maintenance of
commercial properties comparable in type and location to the applicable
Property subject, however, to the provisions of Section 15 with respect to
Condemnation and Casualty.
(b) Lessor shall under no circumstances be required to
build any improvements on any Property, make any repairs, replacements,
alterations or renewals of any nature or description to any Property, make any
expenditure whatsoever in connection with this Lease or maintain any Property
in any way. Lessor shall not be required to maintain, repair or rebuild all or
any part of any Property, and Lessee waives the right to (i) require Lessor to
maintain, repair, or rebuild all or any part of any Property, or (ii) make
repairs at
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the expense of Lessor pursuant to any Legal Requirement, Insurance Requirement,
contract, agreement, covenants, condition or restriction at any time in effect.
(c) Lessee shall, upon the expiration or earlier
termination of the Term with respect to a Property, vacate, surrender and
transfer such Property to Lessor, at Lessee's own expense, free and clear of
all Liens other than (i) Liens of the types described in clause (i) of the
definition of Permitted Liens, (ii) Liens of the type described in clause (ii)
of the definition of Permitted Exceptions and (iii) Lessor Liens, in as good
condition as they were on the applicable Property Closing Date or, if later,
the Completion Date in respect of such Property, ordinary wear and tear
excepted, and in compliance with all Legal Requirements and the other
requirements of this Lease (and in any event without (x) any asbestos installed
or maintained in any part of such Property, (y) any polychlorinated byphenyls
(PCBs) in, on or used, stored or located at such Property, and (z) any other
Hazardous Substances in violation of Applicable Environmental Laws). Lessee
shall cooperate with any independent purchaser of such Property in order to
facilitate the ownership and operation by such purchaser of such Property after
such expiration or earlier termination of the Term, including providing all
books, reports and records regarding the maintenance, repair and ownership of
such Property and all data and technical information relating thereto, granting
or assigning all licenses necessary for the operation and maintenance of such
Property and cooperating in seeking and obtaining all necessary licenses,
permits and approvals of Governmental Authorities. Lessee shall have also paid
the total cost for the completion of all Modifications commenced prior to such
expiration or earlier termination of the Term. The obligation of Lessee under
this Section 10.1(c) shall survive the expiration or termination of this Lease.
10.2 Right of Inspection. Lessor may, at reasonable times
and with reasonable prior notice, enter upon, inspect and examine at its own
cost and expense (unless a Lease Event of Default exists, in which case the
out-of-pocket costs and expenses of Lessor shall be paid by Lessee), any
Property. Upon request of the Agent, Lessee shall furnish to Lessor
statements, no more than once per year, accurate in all material respects,
regarding the condition and state of repair of each Property. Lessor shall
have no duty to make any such inspection or inquiry and shall not incur any
liability or obligation by reason of not making any such inspection or inquiry.
10.3 Environmental Inspection. Upon surrender of possession
of each Property, or not more than 120 days nor less than 30 days prior to the
Expiration Date (unless Lessee has previously irrevocably exercised the
Purchase Option), Lessee shall, at its sole cost and expense, provide to Lessor
a report by an environmental consultant selected by Lessee and reasonably
satisfactory to Lessor certifying that Hazardous Substances have not at any
time during the Term been generated, used, treated or stored on, transported to
or from, Released at, on or from or deposited at or on such Property, and no
portion of such Property has been used for such purposes other than (i) as
necessary to use, operate, maintain, repair and restore such Property and (ii)
in full compliance with all Environmental Laws. If such is not the case, the
report shall set forth a remedial response plan relating to such Property
(which remedial response plan, if required by any Environmental Law or
Governmental Authority, shall be approved by the appropriate Governmental
Authority). Such remedial response plan shall include, but shall not be
limited to, plans for full response, remediation, removal, or other corrective
action, and the protection, or mitigative action associated with the
protection, of natural resources including wildlife, aquatic species, and
vegetation associated with such
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Property, as required by all applicable Environmental Laws. If such report
includes a remedial response plan, Lessee shall promptly deposit funds in
escrow with the Agent sufficient to ensure the full execution and
implementation of such plan.
SECTION 11. MODIFICATIONS
11.1 Modifications, Substitutions and Replacements. (a) So
long as no Lease Event of Default has occurred and is continuing, Lessee, at
its sole cost and expense, may at any time and from time to time make
alterations, renovations, improvements and additions to a Property or any part
thereof (collectively, "Modifications"); provided, that: (i) except for any
Modification required to be made pursuant to a Legal Requirement or an
Insurance Requirement, no Modification, individually, or when aggregated with
any (A) other Modification or (B) grant, dedication, transfer or release
pursuant to Section 12.2, shall impair the value of such Property or the
utility or useful life of such Property from that which existed immediately
prior to such Modification; (ii) the Modification shall be performed
expeditiously and in a good and workmanlike manner; (iii) Lessee shall comply
with all Legal Requirements (including all Environmental Laws) and Insurance
Requirements applicable to the Modification, including the obtaining of all
permits and certificates of occupancy, and the structural integrity of such
Property shall not be adversely affected; (iv) Lessee shall maintain or cause
to be maintained builders' risk insurance at all times when a Modification is
in progress; (v) subject to the terms of Section 13 relating to permitted
contests, Lessee shall pay all costs and expenses and discharge any Liens
arising with respect to the Modification; (vi) such Modifications shall comply
with Sections 8.2 and 10.1 and shall not change the primary character of such
Property; and (vii) no Improvements shall be demolished, except to the extent
such demolition does not impair the value, utility or useful life of such
Property. All Modifications (other than those that may be readily removed
without impairing the value, utility or remaining useful life of such Property)
shall remain part of the realty and shall be subject to this Lease, and title
thereto shall immediately vest in Lessor. So long as no Lease Event of Default
has occurred and is continuing, Lessee may place upon a Property any inventory,
trade fixtures, machinery, equipment or other property belonging to Lessee or
third parties and may remove the same at any time during the term of this
Lease; provided that such inventory, trade fixtures, machinery, equipment or
other property, or their respective operations, do not impair the value,
utility or remaining useful life of such Property.
(b) Following the Completion Date with respect to any
Property, Lessee shall notify Lessor of the undertaking of any construction,
repairs or alterations to the Property the cost of which is anticipated to
exceed $500,000. Prior to undertaking any such construction or alterations
costing in excess of such amount, Lessee shall deliver to Lessor (i) a brief
narrative of the work to be done and a copy of the plans and specifications
relating to such work; and (ii) an Officer's Certificate stating that such work
when completed will not impair the value, utility or remaining life of such
Property. Lessor, by itself or its agents, shall have the right, but not the
obligation, from time to time to inspect such construction to ensure that the
same is completed consistent with the plans and specifications.
(c) Following the Completion Date with respect to any
Property, Lessee shall not without the consent of Lessor undertake any
construction or alterations to such Property if
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such construction or alterations cannot, in the reasonable judgement of Agent,
be completed on or prior to the date that is twelve months prior to the
Expiration Date.
SECTION 12. TITLE
12.1 Warranty of Title. (a) Lessee agrees that, except as
otherwise provided herein and subject to the terms of Section 13 relating to
permitted contests, Lessee shall not directly or indirectly create or allow to
remain, and shall promptly discharge at its sole cost and expense, any Lien,
defect, attachment, levy, title retention agreement or claim upon any Property
or any Modifications or any Lien, attachment, levy or claim with respect to the
Rent or with respect to any amounts held by the Agent pursuant to the Credit
Agreement, other than Permitted Liens. Lessee shall promptly notify Lessor in
the event it receives knowledge that a Lien (other than a Permitted Lien or a
Lessor Lien) exists with respect to the Property unless Lessee promptly removes
such Lien.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to or for
the performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any Property
or any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT
BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
PROPERTY.
12.2 Grants and Releases of Easements. Provided that no
Lease Event of Default shall have occurred and be continuing and subject to the
provisions of Sections 8, 9, 10 and 11, Lessor hereby consents to the following
actions by Lessee, in the name and stead of Lessor, but at Lessee's sole cost
and expense: (a) the granting (prior to the Lien of the Mortgage) of
easements, licenses, rights-of-way and other rights and privileges in the
nature of easements reasonably necessary or desirable for the construction,
use, repair, renovation or maintenance of any Property as herein provided; (b)
the release (free and clear of the Lien of the Mortgage) of existing easements
or other rights in the nature of easements which are for the benefit of any
Property; (c) the dedication or transfer (prior to the Lien of the Mortgage) of
unimproved portions of any Property for road, highway or other public purposes;
(d) the execution of petitions to have any Property annexed to any municipal
corporation or utility district; and (e) the execution of amendments to any
covenants and restrictions affecting any Property; provided, that in each case
Lessee shall have delivered to Lessor an Officer's Certificate stating that:
(i) such grant, release, dedication or transfer does not impair the value of
utility or remaining useful life of the applicable Property, (ii) such grant,
release, dedication or transfer is necessary in connection with the
construction, use, maintenance, alteration, renovation or improvement of the
applicable Property, (iii) Lessee shall remain obligated under this Lease and
under any instrument executed by Lessee consenting to the assignment of
Lessor's interest in this Lease as security for indebtedness, in each such case
in accordance with their terms, as though such grant, release, dedication or
transfer, had not been effected and (iv) Lessee shall pay and perform any
obligations of Lessor under such grant, release,
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dedication or transfer. Without limiting the effectiveness of the foregoing,
provided that no Lease Event of Default shall have occurred and be continuing,
Lessor shall, upon the request of Lessee, and at Lessee's sole cost and
expense, execute and deliver any instruments necessary or appropriate to
confirm any such grant, release, dedication or transfer to any Person permitted
under this Section.
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of
Impositions. Except to the extent otherwise provided for in Section 12.2 of
the Participation Agreement, Lessee, on its own or on Lessor's behalf but at
Lessee's sole cost and expense, may contest, by appropriate administrative or
judicial proceedings conducted in good faith and with due diligence, the
amount, validity or application, in whole or in part, of any Legal Requirement,
or utility charges payable pursuant to Section 4.1 or any Lien, attachment,
levy, encumbrance or encroachment, and Lessor agrees not to pay, settle or
otherwise compromise any such item, provided that (a) the commencement and
continuation of such proceedings shall suspend the collection thereof from, and
suspend the enforcement thereof against the applicable Properties, Lessor, the
Agent and the Lenders; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on any Property and no part of any Property nor
any Rent would be in any danger of being sold, forfeited, lost or deferred; (c)
at no time during the permitted contest shall there be a risk of the imposition
of criminal liability or civil liability on Lessor, the Agent or any Lender for
failure to comply therewith; and (d) in the event that, at any time, there
shall be a material risk of extending the application of such item beyond the
earlier of the Maturity Date and the Expiration Date for the applicable
Property, then Lessee shall deliver to Lessor an Officer's Certificate
certifying as to the matters set forth in clauses (a), (b) and (c) of this
Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and other documents as may reasonably be
required in connection with any such contest and, if reasonably requested by
Lessee, shall join as a party therein at Lessee's sole cost and expense.
SECTION 14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance.
During the Term, Lessee shall procure and carry, at Lessee's sole cost and
expense, commercial general liability insurance for claims for injuries or
death sustained by persons or damage to property while on each Property. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by owners of similar properties and that are in accordance
with normal industry practice, provided that Lessee shall be permitted to
self-insure such liability up to $1,000,000. The policy shall be endorsed to
name Lessor, the Agent and the Lenders as additional insureds. The policy
shall also specifically provide that the policy shall be considered primary
insurance which shall apply to any loss or claim before any contribution by any
insurance which Lessor, the Agent or the Lenders may have in force. Lessee
shall, in the operation of the Property, comply with the applicable workers'
compensation laws and protect Lessor against any liability under such laws.
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14.2 Hazard and Other Insurance. (a) During the Term,
Lessee shall keep each Property insured against loss or damage by fire and
other risks on terms and in amounts that are no less favorable than insurance
maintained by owners of similar properties, that are in accordance with normal
industry practice, are in amounts equal to the actual replacement cost of the
Improvements. So long as no Lease Event of Default exists, any loss payable
under the insurance policy required by this Section will be paid to and
adjusted solely by Lessee, subject to Section 15. So long as no Lease Event of
Default exists, any loss payable under any title insurance policy covering any
Property will be paid to and adjusted solely by Lessee, subject to Section 15.
(b) If at any time during the Term the area in which any
Property is located is designated a "flood-prone" area pursuant to the Flood
Disaster Protection Act of 1973 or any amendments or supplements thereto, then
Lessee shall comply with the National Flood Insurance Program as set forth in
the Flood Disaster Protection Act of 1973, as may be amended. In addition,
Lessee will fully comply with the requirements of the National Flood Insurance
Act of 1968 and the Flood Disaster Protection Act of 1973, as each may be
amended from time to time, and with any other Legal Requirement, concerning
flood insurance to the extent that it apply to any Property.
14.3 Coverage. (a) Lessee shall furnish Lessor and the
Agent with certificates showing the insurance required under Sections 14.1 and
14.2 to be in effect and naming Agent, the Lenders and the Lessor as an
additional insured with respect to liability insurance and showing the
mortgagee endorsement required by Section 14.3(c). All such insurance shall be
at the cost and expense of Lessee. Such certificates shall include a provision
in which the insurer agrees to provide thirty (30) days' advance written notice
by the insurer to Lessor and the Agent in the event of cancellation or
modification of such insurance. If a Lease Event of Default has occurred and
is continuing and Lessor so requests, Lessee shall deliver to Lessor copies of
all insurance policies required by this Lease.
(b) Lessee agrees that the insurance policy or policies
required by this Lease shall include an appropriate clause pursuant to which
such policy shall provide that it will not be invalidated should Lessee waive,
in writing, prior to a loss, any or all rights of recovery against any party
for losses covered by such policy. Lessee hereby waives any and all such
rights against Lessor, the Agent and the Lenders to the extent of payments made
under such policies.
(c) All insurance policies required by Section 14.2 shall
include a "New York" or standard form mortgagee endorsement in favor of the
Agent and, if available, the Lessor.
(d) Neither Lessor nor Lessee shall carry separate
insurance concurrent in kind or form or contributing in the event of loss with
any insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in
force which would apply to a loss covered under Lessee's policy and (ii) each
such insurance policy will not cause Lessee's insurance required under this
Lease to be subject to a coinsurance exception of any kind.
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(e) Lessee shall pay as they become due all premiums for
the insurance required by this Lease, shall renew or replace each policy prior
to the expiration date thereof and shall promptly deliver to Lessor and the
Agent certificates for renewal and replacement policies.
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the
provisions of this Section 15 and Section 16 (in the event Lessee delivers, or
is obligated to deliver, a Termination Notice), and prior to the occurrence and
continuation of a Lease Default, Lessee shall be entitled to receive (and
Lessor hereby irrevocably assigns to Lessee all of Lessor's right, title and
interest in) any award, compensation or insurance proceeds to which Lessee or
Lessor may become entitled by reason of their respective interests in a
Property (i) if all or a portion of such Property is damaged or destroyed in
whole or in part by a Casualty or (ii) if the use, access, occupancy, easement
rights or title to such Property or any part thereof is the subject of a
Condemnation; provided, however, if a Lease Default shall have occurred and be
continuing such award, compensation or insurance proceeds shall be paid
directly to Lessor or, if received by Lessee, shall be held in trust for
Lessor, and shall be paid over by Lessee to Lessor, and provided further that
in the event of any Casualty or Condemnation, the estimated cost of restoration
of which is in excess of $1,000,000, any such award, compensation or insurance
proceeds shall be paid directly to Lessor, or if received by Lessee, shall be
held in trust for Lessor and shall be paid over by Lessee to Lessor.
(b) So long as no Lease Event of Default has occurred and
is continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof; provided that if the estimated cost of restoration of the
Property or the payment on account of such title defect is in excess of
$1,000,000, then Lessor shall be entitled to participate in any such proceeding
or action. At Lessee's reasonable request, and at Lessee's sole cost and
expense, Lessor and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that this
Lease shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessor or Lessee shall receive notice of a Casualty
or a possible Condemnation of a Property or any interest therein, Lessor or
Lessee, as the case may be, shall give notice thereof to the other and to the
Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by
Lessee or Lessor of a Condemnation, Lessee shall, not later than thirty (30)
days after such occurrence, deliver to Lessor and the Agent an Officer's
Certificate stating that either (i) (x) such Casualty is not a Significant
Casualty or (y) such Condemnation is neither a Total Condemnation nor a
Significant Condemnation and that this Lease shall remain in full force and
effect with respect to the applicable Property and, at Lessee's sole cost and
expense, Lessee shall promptly and diligently restore the applicable Property
in accordance with the terms of Section 15.1(e) or (ii) this Lease shall
terminate with respect to the applicable Property in accordance with Section
16.1.
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(e) If pursuant to this Section 15.1, this Lease shall
continue in full force and effect following a Casualty or Condemnation with
respect to the affected Property, Lessee shall, at its sole cost and expense,
promptly and diligently repair any damage to the applicable Property caused by
such Casualty or Condemnation in conformity with the requirements of Sections
10.1 and 11.1 using the as-built plans and specifications for the applicable
Property (as modified to give effect to any subsequent Modifications, any
Condemnation affecting the Property and all applicable Legal Requirements) so
as to restore the applicable Property to the same condition, operation,
function and value as existed immediately prior to such Casualty or
Condemnation. In such event, title to the applicable Property shall remain
with Lessor.
(f) In no event shall a Casualty or Condemnation with
respect to which this Lease remains in full force and effect under this Section
15.1 affect Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in
Section 15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with
respect to a Property or Lessee receives notice of a Condemnation with respect
to a Property, and following such Casualty or Condemnation, such Property
cannot reasonably be restored on or before the date which is twelve months
prior to the Maturity Date to substantially the same condition as existed
immediately prior to such Casualty or Condemnation or before such day such
Property is not in fact so restored, then Lessee shall exercise its Purchase
Option with respect to such Property on the next Payment Date or irrevocably
agree in writing to exercise the Maturity Date Purchase Option with respect to
such Property, and in either such event such remaining Casualty or Condemnation
proceeds shall be paid to the Agent, which shall pay such funds to Lessee upon
the closing of the purchase of such Property.
15.2 Environmental Matters. (a) Promptly upon Lessee's
actual knowledge of the presence of Hazardous Substances in any portion of a
Property in concentrations and conditions that constitute an Environmental
Violation, Lessee shall notify Lessor in writing of such condition. In the
event of such Environmental Violation, Lessee shall, not later than thirty (30)
days after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor and the Agent an Officer's Certificate and a Termination
Notice with respect to such Property pursuant to Section 16.1, if applicable,
or, at Lessee's sole cost and expense, promptly and diligently undertake any
response, clean up, remedial or other action necessary to remove, cleanup or
remediate the Environmental Violation in accordance with the terms of Section
9.1. If Lessee does not deliver a Termination Notice with respect to such
Property pursuant to Section 16.1, Lessee shall, upon completion of remedial
action by Lessee, cause to be prepared by an environmental consultant
reasonably acceptable to Lessor a report describing the Environmental Violation
and the actions taken by Lessee (or its agents) in response to such
Environmental Violation, and a statement by the consultant that the
Environmental Violation has been remedied in full compliance with applicable
Environmental Laws.
(b) In addition, Lessee shall provide to Lessor, within
five (5) Business Days of receipt, copies of all written communications with
any Governmental Authority relating to any Environmental Law in connection with
any Property. Lessee shall also promptly provide such detailed reports of any
such environmental claims as reasonably may be requested by Lessor and the
Agent.
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SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) If Lessor or
Lessee shall have received notice of a Total Condemnation, then Lessee shall be
obligated, within thirty (30) days after Lessee receives notice thereof, to
deliver a written notice in the form described in Section 16.2(a) (a
"Termination Notice") of the termination of this Lease with respect to the
applicable Property.
(b) If either: (i) Lessee or Lessor shall have received
notice of a Condemnation, and Lessee shall have delivered to Lessor an
Officer's Certificate that such Condemnation is a Significant Condemnation; or
(ii) a Casualty occurs, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Casualty is a Significant Casualty; or (iii) an
Environmental Violation occurs or is discovered and Lessee shall have delivered
to Lessor an Officer's Certificate stating that, in the reasonable, good-faith
judgment of Lessee, the cost to remediate the same will exceed 10% of the
Property Cost of such Property; then, Lessee shall, simultaneously with the
delivery of the Officer's Certificate pursuant to the preceding clause (i),
(ii) or (iii), deliver a Termination Notice with respect to the affected
Property.
16.2 Procedures. (a) A Termination Notice shall contain:
(i) notice of termination of this Lease with respect to the affected Property
on a date not more than thirty (30) days after Lessor's receipt of such
Termination Notice (the "Termination Date"); (ii) a binding and irrevocable
agreement of Lessee to pay the Termination Value and purchase such Property on
such Termination Date and (iii) the Officer's Certificate described in Section
16.1(b).
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, plus all amounts owing in
respect of Rent for such Property (including Supplemental Rent) theretofore
accruing and Lessor shall convey such Property to Lessee (or Lessee's designee)
all in accordance with Section 19.1.
SECTION 17. DEFAULT
17.1 Lease Events of Default. If any one or more of the
following events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to make payment of (i) any Basic Rent
or any Supplemental Rent representing amounts owed under the Credit
Agreement or the other Credit Documents within five (5) Business Days
after the same has become due and payable or (ii) any Maximum Residual
Guarantee Amount, Purchase Option Price or Termination Value after the
same has become due and payable; or
(b) Lessee shall fail to make payment of any other
Supplemental Rent due and payable within five (5) Business Days after
receipt of notice thereof; or
(c) Lessee shall fail to maintain insurance as required by
Section 14; or
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(d) (i) subject to the limitations contained in Section
17.7 as to the Lessee only, Lessee or any Guarantor shall fail to
observe or perform any term, covenant or condition of Lessee or such
Guarantor, respectively, under this Lease, the Participation
Agreement, the Guarantee or any other Operative Agreement to which it
is a party (other than those set forth in Section 17.1(a), (b) or (c)
hereof) and such default shall remain unremedied for a period of 30
days, provided that such 30 day period shall be extended (up to a
maximum period of 180 days) as to defaults which cannot be cured with
the payment of money but are curable though not reasonably capable of
cure within such 30 day period, provided that Lessee has commenced to
cure such default prior to the end of such 30 day period and
prosecutes such cure to completion or (ii) any representation or
warranty by Lessee or any Guarantor, respectively, set forth in this
Lease, the Guaranty or in any other Operative Agreement or in any
document entered into in connection herewith or therewith or in any
document, certificate or financial or other statement delivered in
connection herewith or therewith shall be false or inaccurate in any
material way; or
(e) an Agency Agreement Event of Default shall have
occurred and be continuing; or
(f) Lessee or any Guarantor shall (i) admit in writing its
inability to pay its debts generally as they become due, (ii) file a
petition under the United States bankruptcy laws or any other
applicable insolvency law or statute of the United States of America
or any State or Commonwealth thereof, (iii) make a general assignment
for the benefit of its creditors, (iv) consent to the appointment of a
receiver of itself or the whole or any substantial part of its
property, (v) fail to cause the discharge of any custodian, trustee or
receiver appointed for Lessee or any such Guarantor or the whole or a
substantial part of its property within ninety (90) days after such
appointment, or (vi) file a petition or answer seeking or consenting
to reorganization under the United States bankruptcy laws or any other
applicable insolvency law or statute of the United States of America
or any State or Commonwealth thereof; or
(g) insolvency proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof shall be filed against Lessee or any Guarantor and not
dismissed within ninety (90) days from the date of its filing, or a
court of competent jurisdiction shall enter an order or decree
appointing, without its consent of, a receiver of Lessee or any
Guarantor or the whole or a substantial part of its property, and such
order or decree shall not be vacated or set aside within ninety (90)
days from the date of the entry thereof; or
(h) a Credit Agreement Event of Default shall have occurred
and be continuing; or
(i) an event of default under the Corporate Credit
Agreement shall have occurred and be continuing;
then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18.1, terminate this
Lease by giving Lessee five (5) days
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notice of such termination, and this Lease shall terminate. Lessee shall, to
the fullest extent permitted by law, pay as Supplemental Rent all costs and
expenses incurred by or on behalf of Lessor, including fees and expenses of
counsel, as a result of any Lease Event of Default hereunder.
17.2 Final Liquidated Damages. If a Lease Event of Default
shall have occurred and be continuing, Lessor shall have the right to recover,
by demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor,
as and for final liquidated damages, but exclusive of the indemnities payable
under Section 13 of the Participation Agreement, and in lieu of all damages
beyond the date of such demand the sum of (a) the Termination Value, plus (b)
all other amounts owing in respect of Rent and Supplemental Rent theretofore
accruing under this Lease. Upon payment of the amount specified pursuant to
the first sentence of this Section 17.2, Lessee shall be entitled to receive
from Lessor, at Lessee's request and cost, an assignment of Lessor's right,
title and interest in the Properties, in each case in recordable form and
otherwise in conformity with local custom and free and clear of the Lien of all
mortgages (including the Mortgages) and any Lessor Liens. Lessee (or Lessee's
designee) shall execute and deliver to Lessor an assumption of all of Lessor's
obligations under the Ground Leases, if any. The Properties shall be conveyed
to Lessee (or Lessee's designee) "AS IS" and in their then present physical
condition. If any statute or rule of law shall limit the amount of such final
liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law;
provided, that Lessee shall not be entitled to receive an assignment of
Lessor's interest under the Ground Leases, if any, or in the Properties unless
Lessee shall have paid in full the Termination Value of each of the Properties.
17.3 Lease Remedies. Lessor and Lessee intend that for
commercial law and bankruptcy law purposes, this Lease will be treated as a
financing arrangement, as set forth in Section 7. If, as a result of
applicable state law, which cannot be waived, this Lease is deemed to be a
lease of the Properties, rather than a financing arrangement, and Lessor is
unable to enforce the remedies set forth in Section 17.2, the following
remedies shall be available to Lessor:
(a) Surrender of Possession. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days
written notice, surrender to Lessor possession of the Property and Lessee shall
quit the same. Lessor may enter upon and repossess the Property by such means
as are available at law or in equity, and may remove Lessee and all other
Persons and any and all personal property and Lessee's equipment and personalty
and severable Modifications from the Property. Lessor shall have no liability
by reason of any such entry, repossession or removal performed in accordance
with applicable law.
(b) Reletting. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessor may, but shall be under no
obligation to, relet all, or any portion, of the Property, for the account of
Lessee or otherwise, for such term or terms (which may be greater or less than
the period which would otherwise have constituted the balance of the Term) and
on such conditions (which may include concessions or free rent) and for such
purposes as Lessor may determine, and Lessor may collect, receive and retain
the rents resulting from such reletting.
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Lessor shall not be liable to Lessee for any failure to relet the Property or
for any failure to collect any rent due upon such reletting.
(c) Damages. None of (i) the termination of this Lease
pursuant to Section 17.1; (ii) the repossession of the Property; or (iii)
except to the extent required by applicable law, the failure of Lessor to relet
all, or any portion, of the Property, the reletting of all or any portion
thereof, nor the failure of Lessor to collect or receive any rentals due upon
any such reletting shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. If any Lease Event of Default shall have occurred and be continuing
and notwithstanding any termination of this Lease pursuant to Section 17.1,
Lessee shall forthwith pay to Lessor all Basic Rent and other sums due and
payable hereunder to and including the date of such termination. Thereafter,
on the days on which the Basic Rent or Supplemental Rent, as applicable, are
payable under this Lease or would have been payable under this Lease if the
same had not been terminated pursuant to Section 17.1 and until the end of the
Term or what would have been the Term in the absence of such termination,
Lessee shall pay Lessor, as current liquidated damages (it being agreed that it
would be impossible accurately to determine actual damages) an amount equal to
the Basic Rent and Supplemental Rent that are payable under this Lease or would
have been payable by Lessee hereunder if this Lease had not been terminated
pursuant to Section 17.1, less the net proceeds, if any, which are actually
received by Lessor with respect to the period in question of any reletting of
the Property or any portion thereof; provided that Lessee's obligation to make
payments of Basic Rent and Supplemental Rent under this Section 17.4 shall
continue only so long as Lessor shall not have received the amounts specified
in Section 17.5 or Section 17.6. In calculating the amount of such net
proceeds from reletting, there shall be deducted all of Lessor's, the Agent's
and any Lenders' expenses in connection therewith, including repossession
costs, brokerage commissions, fees and expenses for counsel and any necessary
repair or alteration costs and expenses incurred in preparation for such
reletting. To the extent Lessor receives any damages pursuant to this Section
17.4, such amounts shall be regarded as amounts paid on account of Rent.
(d) Acceleration of Rent. If a Lease Event of Default
shall have occurred and be continuing, and this Lease shall not have been
terminated pursuant to Section 17.1, and whether or not Lessor shall have
collected any current liquidated damages pursuant to Section 17.3(c), Lessor
may upon written notice to Lessee accelerate all payments of Basic Rent due
hereunder and, upon such acceleration, Lessee shall immediately pay Lessor, as
and for final liquidated damages and in lieu of all current liquidated damages
on account of such Lease Event of Default beyond the date of such acceleration
(it being agreed that it would be impossible accurately to determine actual
damages) an amount equal to the sum of (a) all Basic Rent (assuming interest at
a rate per annum equal to the Overdue Rate), as applicable, due from the date
of such acceleration until the end of the Term, plus (b) the Maximum Residual
Guarantee Amount that would be payable under Section 21.1(c) assuming the
proceeds of the sale pursuant to such Section 21.1(c) are equal to zero, which
sum is then discounted to present value at a rate equal to the rate then being
paid on United States treasury securities with maturities corresponding to the
then remaining Term. Following payment of such amount by Lessee, Lessee will
be permitted to stay in possession of the Property for the remainder of the
Term, subject to the terms and conditions of this Lease, including the
obligation to pay Supplemental Rent, provided that no further Lease Event of
Default shall occur and be continuing, following which Lessor shall have all
the rights and remedies set
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forth in this Section 17 (but not including those set forth in this Section
17.3). If any statute or rule of law shall limit the amount of such final
liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
17.4 Waiver of Certain Rights. If this Lease shall be
terminated pursuant to Section 17.1, Lessee waives, to the fullest extent
permitted by law, (a) any notice of re-entry or the institution of legal
proceedings to obtain re-entry or possession; (b) any right of redemption,
re-entry or repossession; (c) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt; and (d) any other
rights which might otherwise limit or modify any of Lessor's rights or remedies
under this Section 17.
17.5 Assignment of Rights Under Contracts. If a Lease Event
of Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's
demand immediately assign, transfer and set over to Lessor all of Lessee's
right, title and interest in and to each agreement executed by Lessee in
connection with the construction, renovation, development, use or operation of
the Property (including all right, title and interest of Lessee with respect to
all warranty, performance, service and indemnity provisions), as and to the
extent that the same relate to the construction renovation, and operation of
the Property.
17.6 Remedies Cumulative. The remedies herein provided
shall be cumulative and in addition to (and not in limitation of) any other
remedies available at law, equity or otherwise including any mortgage
foreclosure remedies contained in the Memorandum of Lease.
17.7 Covenant Defaults.
(a) The occurrence of any event which would give rise to a
Lease Default or Lease Event of Default pursuant to Section 17.1(d)
for the failure by the Lessee to observe or perform any term, covenant
or condition of Lessee under this Lease or the Participation Agreement
relating to a specific Property (a "Covenant Default") shall not be
deemed to be a Lease Default or a Lease Event of Default so long as
the following conditions shall be satisfied:
(i) such Covenant Default does not relate to the
breach by the Lessee of any of its obligations under this
Lease or the other Operative Agreements with respect to any
environmental matters or Environmental Claims;
(ii) such Covenant Default shall not have a
Material Adverse Effect;
(iii) there is no material risk that such Covenant
Default will cause any lien (other than a Permitted Exception)
to attach to a Property or subject the Lessor or any Lender to
any criminal liability;
(iv) there shall not at any time exist Covenant
Defaults relating to Properties which have an aggregate
Property Cost in excess of the lesser of (a) 10% of the
Property Costs of all of the Properties and (b) $7,500,000 and
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(v) the Lessee shall have delivered to Lessor an
Officer's Certificate stating that, in reasonable, good faith
judgment of Lessee, (a) the cost to remediate all such
Covenant Defaults will not exceed $3,000,000 and (b) the costs
to remediate any Covenant Default on a specific Property will
not exceed 10% of the Property Cost of such Property.
(b) If (i) each of the foregoing conditions set forth in
Section 17.7(a) shall not be satisfied or (ii) such Covenant Default
shall not be cured prior to the date which is twelve months prior to
the Maturity Date, a Lease Event of Default shall be deemed to have
occurred.
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults.
Lessor, without waiving or releasing any obligation or Lease Event of Default,
may (but shall be under no obligation to) remedy any Lease Event of Default for
the account and at the sole cost and expense of Lessee, including the failure
by Lessee to maintain any insurance required by Section 14, and may, to the
fullest extent permitted by law, and notwithstanding any right of quiet
enjoyment in favor of Lessee, enter upon any Property for such purpose and take
all such action thereon as may be necessary or appropriate therefor. No such
entry shall be deemed an eviction of Lessee. All out-of-pocket costs and
expenses so incurred (including the fees and expenses of counsel), together
with interest thereon at the Overdue Rate from the date on which such sums or
expenses are paid by Lessor, shall be paid by Lessee to Lessor on demand as
Supplemental Rent.
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this
Lease or Exercise of Purchase Option. In connection with any termination of
this Lease with respect to any Property pursuant to the terms of Section 16.2,
or in connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is to terminate with respect
to the applicable Property or upon the Expiration Date with respect to the
applicable Property, and upon tender by Lessee of the amounts set forth in
Section 16.2(b), 20.1 or 20.2, as applicable:
(a) Lessor shall execute and deliver to Lessee (or to
Lessee's designee) at Lessee's cost and expense an assignment of
Lessor's entire interest in the applicable Properties, in each case in
recordable form and otherwise in conformity with local custom and free
and clear of the Lien of the applicable Mortgage and any Lessor Liens;
and
(b) The applicable Property shall be conveyed to Lessee "AS
IS" and in then present physical condition.
19.2 Aggregate Tranche A Percentage. Notwithstanding any
other provision of this Lease or the other Operative Agreements, (i) the Lessee
shall not be permitted to
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terminate this Lease with respect to a Property pursuant to Section 16 or
exercise its Purchase Option with respect to a Property pursuant to Section
20.1 and (ii) Lessee shall not permit a Property to be sold pursuant to Section
21.1(b) and Lessor shall not be obligated to accept a bid and sell a Property
pursuant to Section 21.1(b) if, in the case of either clause (i) or (ii) above,
the Aggregate Tranche A Percentage, after giving effect to the termination of
the Lease with respect to such Property, would be less than 82.50%.
SECTION 20. PURCHASE OPTION
20.1 Purchase Option. At any time prior to the commencement
of the Marketing Period and provided that neither the Agent nor any Lender has
commenced foreclosure proceedings or other proceedings initiating a sale of a
Property under any of the Mortgages, Lessee shall have the option (exercisable
by giving Lessor irrevocable written notice (the "Purchase Notice") of Lessee's
election to exercise such option not less than ten (10) days prior to the date
of purchase pursuant to such option) to purchase one or more of the Properties
on the date specified in such Purchase Notice at a price equal to the
Termination Value (the "Purchase Option Price") (which the parties do not
intend to be a "bargain" purchase price) of such Property. If Lessee exercises
its option to purchase one or more of the Properties pursuant to this Section
20.1 (the "Purchase Option"), Lessor shall transfer to Lessee or Lessee's
designee all of Lessor's right, title and interest in and to such Property as
of the date specified in the Purchase Notice upon receipt of the Purchase
Option Price and all Rent and other amounts then due and payable under this
Lease and any other Operative Agreement, in accordance with Section 19.1.
20.2 Maturity Date Purchase Option. Not less than twelve
months prior to the Maturity Date, Lessee may give Lessor and Agent irrevocable
written notice (the "Maturity Date Election Notice") that Lessee is electing to
exercise the Maturity Date Purchase Option. If Lessee does not give a Maturity
Date Election Notice on or before the date twelve months prior to the Maturity
Date, then Lessee shall be obligated to remarket the Properties pursuant to
Section 21.1. If Lessee has elected to exercise the Maturity Date Purchase
Option, then on the Maturity Date Lessee shall pay to Lessor an amount equal to
the Termination Value for all the Properties (which the parties do not intend
to be a "bargain" purchase price) and, upon receipt of such amount plus all
Rent and other amounts then due and payable under this Lease and any other
Operative Agreement, Lessor shall transfer to Lessee or Lessee's designee all
of Lessor's right, title and interest in and to the Properties in accordance
with Section 19.1.
20.3 Obligation to Purchase All Properties. If on the date
which is twelve months prior to the Maturity Date the then Termination Value of
all the Properties (including any Substitute Property) is less than the Maximum
Purchase Option Amount, then the Lessee shall be required to exercise its
Purchase Option on the Maturity Date with respect to all remaining Properties.
SECTION 21. SALE OF PROPERTY
21.1 Sale Procedure. (a) With respect to each Property, at
the expiration of the Term, unless Lessee shall have elected to purchase such
Property and has paid the Purchase Option Price with respect thereto, or
otherwise terminated this Lease with respect
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thereto and paid the Termination Value with respect thereto, Lessee shall (i)
pay to Lessor the Maximum Residual Guarantee Amount for such Property, and (ii)
sell such Property to one or more third parties for cash in accordance with
Section 21.1(b).
(b) During the Marketing Period, Lessee, as nonexclusive
broker for Lessor, shall use its best efforts to obtain bids for the cash
purchase of each Property being sold for the highest price available, shall
notify Lessor promptly of the name and address of each prospective purchaser
and the cash price which each prospective purchaser shall have offered to pay
for such Property and shall provide Lessor with such additional information
about the bids and the bid solicitation procedure as Lessor may request from
time to time. Lessor may reject any and all bids and may assume sole
responsibility for obtaining bids by giving Lessee written notice to that
effect; provided, however, that notwithstanding the foregoing, Lessor may not
reject a bid if such bid is greater than or equal to the sum of the Limited
Recourse Amount and all costs and expenses referred to in Section 21.1(i) and
is a bona fide offer by a third party purchaser who is not an Affiliate of
Lessee. If the price which a prospective purchaser shall have offered to pay
for all or any of the Properties is less than the sum of the Limited Recourse
Amount and all costs and expenses referred to in Section 21.1(i), Lessor may
elect to retain the Property by giving Lessee at least two Business Days' prior
written notice of Lessor's election to retain the Property, and upon receipt of
such notice, Lessee shall surrender the Property to Lessor pursuant to Section
10.1(c). Unless Lessor shall have elected to retain the Property pursuant to
the preceding sentence, Lessor shall sell the Property free of any Lessor Liens
attributable to it, without recourse or warranty, for cash to the purchaser or
purchasers identified by Lessee or Lessor, as the case may be. Lessee shall
surrender the Property so sold to each purchaser in the condition specified in
Section 10.1.
(c) On each date during the Marketing Period on which a
Property is sold pursuant to Section 21.1(b), and on the Maturity Date with
respect to any Properties remaining unsold, Lessee shall pay to Lessor the
Maximum Residual Guarantee Amount for such Property.
21.2 Application of Proceeds of Sale. Lessor shall apply
the proceeds of sale of each Property in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor for the payment
of all reasonable costs and expenses incurred by Lessor in connection
with the sale; and
(ii) SECOND, the balance shall be paid to the Agent to be
applied pursuant to the provisions of the Credit Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the
sale described in Section 21.1(b) with respect to any Property, less all
expenses incurred by Lessor in connection with such sale, shall be less than
the Limited Recourse Amount for such Property at the time of such sale and if
it shall have been determined (pursuant to the Appraisal Procedure) that the
Fair Market Sales Value of such Property shall have been impaired by greater
than expected wear and tear during the Term, Lessee shall pay to Lessor within
ten (10) days after receipt of Lessor's written statement (i) the amount of
such excess wear and tear determined by the Appraisal Procedure or (ii) the
amount of the Net Sale Proceeds Shortfall, whichever amount is less.
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21.4 Appraisal Procedure. For determining the Fair Market
Sales Value of a Property or any other amount which may, pursuant to any
provision of any Operative Agreement, be determined by an appraisal procedure,
Lessor and Lessee shall use the following procedure (the "Appraisal
Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as
to such amount for a period of ten (10) days from commencement of the Appraisal
Procedure, and if they cannot agree within ten (10) days, then two qualified
appraisers, one chosen by Lessee and one chosen by Lessor, shall mutually agree
thereupon, but if either party shall fail to choose an appraiser within twenty
(20) days after notice from the other party of the selection of its appraiser,
then the appraisal by such appointed appraiser shall be binding on Lessee and
Lessor. If the two appraisers cannot agree within twenty (20) days after both
shall have been appointed, then a third appraiser shall be selected by the two
appraisers or, failing agreement as to such third appraiser within thirty (30)
days after both shall have been appointed, by the American Arbitration
Association. The decisions of the three appraisers shall be given within
twenty (20) days of the appointment of the third appraiser and the decision of
the appraiser most different from the average of the other two shall be
discarded and such average shall be binding on Lessor and Lessee; provided that
if the highest appraisal and the lowest appraisal are equidistant from the
third appraisal, the third appraisal shall be binding on Lessor and Lessee.
The fees and expenses of all of the appraisers shall be paid by the Lessee.
21.5 Certain Obligations Continue. During the Marketing
Period, the obligation of Lessee to pay Rent with respect to each Property
(including the installment of Basic Rent due on the Maturity Date) shall
continue undiminished until payment in full to Lessor of the sale proceeds, the
Maximum Residual Guarantee Amount, if any, the amount due under Section 21.3,
if any, and all other amounts due to Lessor with respect to the Property.
Lessor shall have the right, but shall be under no duty, to solicit bids, to
inquire into the efforts of Lessee to obtain bids or otherwise to take action
in connection with any such sale, other than as expressly provided in this
Section 21.
SECTION 22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason remain in
possession of a Property after the expiration or earlier termination of this
Lease (unless the Property is conveyed to Lessee), such possession shall be as
a tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to such Property and Lessee shall
continue to pay Basic Rent at an annual rate equal to the rate payable
hereunder immediately preceding such expiration or earlier termination;
provided, however, that from and after the sixtieth (60th) day Lessee shall
remain in possession of such Property after such expiration or earlier
termination, Lessee shall pay Basic Rent at an annual rate equal to two hundred
percent (200%) of the Basic Rent payable hereunder immediately preceding such
expiration or earlier termination. Such Basic Rent shall be payable from time
to time upon demand by Lessor. During any period of tenancy at sufferance,
Lessee shall, subject to the second preceding sentence, be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
tenants at sufferance, to continue its occupancy and use of the Property.
Nothing contained in this Section 22 shall constitute the consent, express or
implied, of Lessor to the holding over
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of Lessee after the expiration or earlier termination of this Lease as to any
Property and nothing contained herein shall be read or construed as preventing
Lessor from maintaining a suit for possession of any Property or exercising any
other remedy available to Lessor at law or in equity.
SECTION 23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in
the enjoyment and beneficial use of the Property as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Lessee, and Lessor shall in no event be answerable or
accountable therefor.
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Lessee may not assign this
Lease or any of its rights or obligations hereunder in whole or in part other
than to any Guarantor, provided that notwithstanding any such assignment,
Lessee shall not be released and shall remain obligated for all of its
obligations under this Lease and the other Operative Agreements. Lessee may,
without the consent of Lessor, sublease the Property or a portion thereof to
any Person. No sublease or other relinquishment of possession of the Property
shall in any way discharge or diminish any of Lessee's obligations to Lessor
hereunder and Lessee shall remain directly and primarily liable under this
Lease as to the Property, or any portion thereof, so sublet. Any sublease of
the Property shall be made subject to and subordinate to this Lease and to the
rights of Lessor hereunder, and shall expressly provide for the surrender of
the Property after a Lease Event of Default hereunder and such sublease shall
expressly provide for termination at or prior to the Expiration Date.
24.2 Subleases. Promptly following the execution and
delivery of any sublease permitted by this Section 24, Lessee shall deliver a
copy of such executed sublease to Lessor and the Agent.
SECTION 25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates. At any time and from time to
time upon not less than twenty (20) days' prior request by Lessor, the Lessee
shall furnish to the Lessor a certificate signed by an individual having the
office of vice president or higher in the Certifying Party certifying that this
Lease is in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the modifications); the dates to which the
Basic Rent and Supplemental Rent have been paid; to the best knowledge of the
signer of such certificate, whether or not the Lessor is in default under any
of its obligations hereunder (and, if so, the nature of such alleged default);
and such other matters under this Lease as the Lessor may reasonably request.
Any such certificate furnished pursuant to this Section 25 may be relied upon
by the Lessor, and any existing or prospective mortgagee, purchaser or lender,
and any accountant or auditor, of, from or to the Lessor (or any Affiliate
thereof).
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SECTION 26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist
upon the strict performance of any term hereof or to exercise any right, power
or remedy upon a default hereunder, and no acceptance of full or partial
payment of Rent during the continuance of any such default, shall constitute a
waiver of any such default or of any such term. To the fullest extent
permitted by law, no waiver of any default shall affect or alter this Lease,
and this Lease shall continue in full force and effect with respect to any
other then existing or subsequent default.
SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender. Except as otherwise expressly
provided in this Lease, no surrender to Lessor of this Lease or of all or any
portion of the Property or of any interest therein shall be valid or effective
unless agreed to and accepted in writing by Lessor and, prior to the payment or
performance of all obligations under the Credit Documents, the Agent, and no
act by Lessor or the Agent or any representative or agent of Lessor or the
Agent, other than a written acceptance, shall constitute an acceptance of any
such surrender.
SECTION 28. NO MERGER OF TITLE
28.1 No Merger of Title. There shall be no merger of this
Lease or of the leasehold estate created hereby by reason of the fact that the
same Person may acquire, own or hold, directly or indirectly, in whole or in
part, (a) this Lease or the leasehold estate created hereby or any interest in
this Lease or such leasehold estate, (b) the fee estate in the Property, except
as may expressly be stated in a written instrument duly executed and delivered
by the appropriate Person, or (c) a beneficial interest in Lessor.
SECTION 29. NOTICES
29.1 Notices. Unless otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests
and other communications required or permitted by the terms hereof to be given
to any Person shall be given in writing by nationally recognized courier
service and any such notice shall become effective one Business Day after
delivery to such nationally recognized courier service specifying overnight
delivery and shall be directed to the address of such Person as indicated:
If to Lessee:
Living Centers Holding Company
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attn: Mr. Boyd Gentry
Telecopy No.: (713) 578-4735
42
<PAGE> 30
If to Lessor:
FBTC Leasing Corp.
Two World Trade Center
New York, New York 10048
Attn: Mr. Carl Marcantonio
Telecopy No.: (212) 321-9408
with a copy to the Agent:
The Chase Manhattan Bank
270 Park Avenue
New York, New York
Attn: Global Lease Finance
Telecopy No.: (212) 270-2132
or such additional parties and/or other address as such party may hereafter
designate.
SECTION 30. MISCELLANEOUS
30.1 Miscellaneous. Anything contained in this Lease to the
contrary notwithstanding, all claims against and liabilities of Lessee or
Lessor arising from events commencing prior to the expiration or earlier
termination of this Lease shall survive such expiration or earlier termination.
If any term or provision of this Lease or any application thereof shall be
declared invalid or unenforceable, the remainder of this Lease and any other
application of such term or provision shall not be affected thereby. If any
right or option of Lessee provided in this Lease, including any right or option
described in Sections 15, 16, 22 or 21, would, in the absence of the limitation
imposed by this sentence, be invalid or unenforceable as being in violation of
the rule against perpetuities or any other rule of law relating to the vesting
of an interest in or the suspension of the power of alienation of property,
then such right or option shall be exercisable only during the period which
shall end twenty-one (21) years after the date of death of the last survivor of
the descendants of Franklin D. Roosevelt, the former President of the United
States, Henry Ford, the deceased automobile manufacturer, and John D.
Rockefeller, the founder of the Standard Oil Company, known to be alive on the
date of the execution and delivery of this Lease.
30.2 Amendments and Modifications. Neither this Lease nor
any provision hereof may be amended, waived, discharged or terminated except by
an instrument in writing signed by Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions
of this Lease shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
43
<PAGE> 31
30.4 Headings and Table of Contents. The headings and table
of contents in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
30.5 Counterparts. This Lease may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
30.6 GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS
LOCATED.
30.7 Limitations on Recourse. The parties hereto agree that
the Lessor shall have no personal liability whatsoever to the Lessee or its
respective successors and assigns for any claim based on or in respect of this
Lease or any of the other Operative Agreements or arising in any way from the
transactions contemplated hereby or thereby; provided, however, that the Lessor
shall be personally liable (a) for its own willful misconduct or gross
negligence, (b) for liabilities that result from its breach of any of its
covenants, agreements or obligations set forth in or from any misrepresentation
of Lessor in any of the Operative Agreements, (c) for any Tax based on or
measured by any fees, commission or compensation received by it for acting as
the Lessor as contemplated by the Operative Agreements or (d) as the other
Operative Agreements expressly provide that the Lessor shall have personal
liability. It is understood and agreed that, except as provided in the
preceding proviso: (i) the Lessor shall have no personal liability under any
of the Operative Agreements as a result of acting pursuant to and consistent
with any of the Operative Agreements; (ii) all obligations of the Lessor to the
Lessee are solely nonrecourse obligations and shall be enforceable solely
against the interest of the Lessor in the Properties; and (iii) all such
personal liability of the Lessor is expressly waived and released as a
condition of, and as consideration for, the execution and delivery of the
Operative Agreements by the Lessor.
30.8 Memorandum of Lease. This Lease shall not be recorded,
but Lessor and Lessee shall, upon the execution and delivery of each Lease
Supplement, execute and deliver a memorandum of this Lease (a "Memorandum of
Lease") substantially in the form of Exhibit B and otherwise in form suitable
for recording under the laws of the jurisdiction in which the Property covered
by such Memorandum of Lease is located, which memorandum shall be recorded at
Lessee's sole cost and expense.
30.9 Priority. On and prior to the Maturity Date, the
Mortgages shall be subject and subordinate to this Lease and following the
Maturity Date, the Mortgages, at the sole election of the Agent, shall be
senior to this Lease without any further act by any Person.
44
<PAGE> 32
SECTION 31.
31.1 Ground Lease. During the Basic Term, Lessee shall
observe and perform all of the obligations of Lessor under any Ground Lease
(including the payment of all rent and other amounts thereunder) and, in
connection therewith, shall, prior to the occurrence and continuation of a
Lease Event of Default, have the benefit of all of Lessor's rights as lessee
under any Ground Lease.
45
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
LIVING CENTERS HOLDING COMPANY
By: /s/ Boyd P. Gentry
---------------------------
Name: Boyd P. Gentry
Title: Vice President
FBTC LEASING CORP.
By: /s/ Akihiro Hashimoto
---------------------------
Name: Akihiro Hashimoto
Title: Treasurer
46
<PAGE> 34
================================================================================
PARTICIPATION AGREEMENT
among
LIVING CENTERS HOLDING COMPANY,
as Lessee,
FBTC LEASING CORP.,
a New York corporation,
as Lessor,
THE CHASE MANHATTAN BANK,
as Agent for the
Lenders,
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH,
CREDIT LYONNAIS NEW YORK BRANCH and THE FUJI BANK,
LIMITED (HOUSTON AGENCY),
as Co-Agents
and
THE LENDERS PARTIES HERETO
______________________________
Dated as of October 10, 1996
______________________________
47
<PAGE> 35
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
Page
----
SECTION 1. THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. LESSOR CONTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Lessor Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Allocated Lessor Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. SUMMARY OF THE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1. Operative Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2. Property Purchase and Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3. Construction of Improvements; Lease of Improvements. . . . . . . . . . . . . . . . . . . . . . . . 3
3.4. Aggregate Tranche A Percentage; Maximum Residual Guarantee Amount . . . . . . . . . . . . . . . . 3
SECTION 4. THE CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1. Initial Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2. Subsequent Funding Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5. FUNDING OF ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2. Procedures for Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. CONDITIONS OF THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1. Conditions to Loans and Lessor Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2. Conditions to the Lessor's and the Lenders' Obligations to Make Advances to pay Property
Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3. Conditions to the Lessor's and the Lenders' Obligations to Make Advances to pay Project Costs
for Construction on any Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1. Representations and Warranties of Lessor on the Initial Closing Date . . . . . . . . . . . . . . . 12
7.2. Representations and Warranties of the Lessee on the Initial Closing Date. . . . . . . . . . . . . . 14
7.3. Representations and Warranties of the Lessee on Property Closing Dates . . . . . . . . . . . . . . 18
7.4. Representations and Warranties of the Lessee Upon each Funding Date . . . . . . . . . . . . . . . 21
</TABLE>
xlviii
<PAGE> 36
<TABLE>
Caption>
Page
----
<S> <C>
SECTION 8. PAYMENT OF CERTAIN EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2. Brokers' Fees and Stamp Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3. Certain Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4. Credit Agreement and Related Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.5. Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9. OTHER COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1. Covenants of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2. Repayment of Certain Amounts on Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3. Amendment of Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4. Proceeds of Casualty or Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10. CREDIT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1. Lessee's Credit Agreement Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 11. TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1. Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.2. Effect of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2. General Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.1. Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2. No Broker, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.5. Amendments and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.6. Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.7. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.10. Rights of Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
xlix
<PAGE> 37
<TABLE>
Caption>
Page
----
<S> <C> <C>
13.12. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.13. No Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.14. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Exhibits
- --------
Exhibit A-1 Form of Mortgage and Security Agreement
Exhibit A-2 Form of Deed of Trust and Security Agreement
Exhibit B Form of Assignment of Leases
Exhibit C Form of Requisition
Exhibit D-1 Form of Opinion of Local Counsel
</TABLE>
l
<PAGE> 38
PARTICIPATION AGREEMENT, dated as of October 10, 1996 (this
"Agreement"), among LIVING CENTERS HOLDING COMPANY, a Delaware corporation (the
"Lessee"); FBTC LEASING CORP., a New York corporation (the "Lessor"); THE CHASE
MANHATTAN BANK, a New York banking corporation, as agent (in such capacity, the
"Agent") for the Lenders, THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK
BRANCH, CREDIT LYONNAIS NEW YORK BRANCH and THE FUJI BANK, LIMITED (HOUSTON
AGENCY), as co-agents (each such co-agent, individually, a "Co-Agent";
collectively, the "Co-Agents") and each of the financial institutions listed on
the signature pages hereof (each, a "Lender"; collectively, the "Lenders").
Capitalized terms used but not otherwise defined in this Agreement shall have
the meanings set forth in Annex A hereto.
Preliminary Statement
---------------------
In consideration of the mutual agreements herein contained and
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. THE LOANS.
The Lenders have agreed to make loans to the Lessor in an
aggregate principal amount of up to $67,000,000 in order for the Lessor to
acquire the Properties, to develop and construct the Improvements (if such
Property is not a Completed Property) in accordance with the Construction
Contract and the Agency Agreement, and to pay other Project Costs, and in
consideration of the receipt of the proceeds of such Loans, the Lessor will
issue the Tranche A Notes and the Tranche B Notes.
The Loans shall be made and the Notes shall be issued pursuant
to the Credit Agreement. Pursuant to this Agreement and the Credit Agreement,
the Loans will be made to the Lessor from time to time at the request of the
Lessee for the purpose of providing funds to the Lessor to acquire one or more
parcels of Land, and, if such Property is not a Completed Property, to
construct the Improvements in accordance with the Plans and Specifications.
The Loans and the obligations of the Lessor under the Credit
Agreement shall be secured by, inter alia, (i) a first priority assignment of
the Lease, granted pursuant to the Assignment of Leases and consented to by the
Lessee pursuant to the Consent to Assignment (in each case in the respective
forms set forth in Exhibit B hereto), (ii) a first priority assignment of the
Agency Agreement, granted pursuant to the Contract Assignment and consented to
by the Construction Agent pursuant to the Consent to Contract Assignment; and
(iii) a first priority mortgage lien on each Property pursuant to a Mortgage in
the form set forth on Exhibit A-1 or Exhibit A-2 hereto, as applicable.
The obligations of the Lessor under the Credit Agreement shall
be guaranteed by each of the Guarantors to the extent provided in the
Guarantee.
51
<PAGE> 39
SECTION 2. LESSOR CONTRIBUTION.
2.1. Lessor Contribution. Subject to the terms and
conditions of this Agreement, and in reliance on the representations and
warranties of each of the parties hereto contained herein or made pursuant
hereto, on each Funding Date the Lessor shall make an equity contribution
(each, a "Lessor Contribution") in an amount equal to 3% of the amount of the
Advance requested by the Construction Agent in the Requisition for such Funding
Date. The aggregate amount of Lessor Contributions made by the Lessor shall
not exceed the Lessor Commitment. The Lessor shall use the Lessor
Contributions to pay a portion of the Project Costs simultaneously and pro rata
with the fundings by the Lenders.
2.2. Allocated Lessor Yield. With respect to each
Construction Period Property, on each date which is one Business Day prior to
any date on which the Lessor is entitled to a payment on account of the Lessor
Yield, the Construction Agent shall be deemed to have requested that the Lessor
make a Lessor Contribution in an amount equal to the Lessor Yield due and
payable on such date with respect to the Construction Period Properties solely
for the purpose of paying such Lessor Yield which is then due and payable.
SECTION 3. SUMMARY OF THE TRANSACTIONS.
3.1. Operative Agreements. On the Initial Closing Date,
each of the respective parties thereto shall execute and deliver this
Agreement, the Lease, the Construction Contract, the Agency Agreement, the
Notes, the Guarantee, the Credit Agreement, the Contract Assignment, the
Consent to Contract Assignment and such other documents, instruments,
certificates and opinions of counsel as agreed to by the parties hereto.
3.2. Property Purchase and Lease. (a) On each Property
Closing Date and subject to the terms and conditions of this Agreement and the
Credit Agreement (i) the Lessor will make a Lessor Contribution in accordance
with Section 2 hereof, (ii) the Lenders will make loans in accordance with
Section 5 hereof and the terms and provisions of the Credit Agreement, (iii)
the Lessor will purchase all right, title and interest in and to each Property
identified by the Construction Agent pursuant to the Agency Agreement with
respect to such Property Closing Date, and (iv) the Lessor will simultaneously
lease (or sublease, as the case may be) all of its right, title and interest in
the Property to the Lessee by delivering a Lease Supplement pursuant to the
Lease.
(b) On each Property Closing Date, the Lessee shall certify
to the Agent on the Property Closing Certificate, delivered pursuant to Section
6.2(a), the Maximum Residual Guarantee Amount for each Property being acquired
on such Property Closing Date. The Maximum Residual Guarantee Amount so
certified shall be the Maximum Residual Guarantee Amount for such Properties
for the duration of the Term.
52
<PAGE> 40
(c) No Property Closing Date shall occur after the sixth
anniversary of the Initial Closing Date.
3.3. Construction of Improvements; Lease of Improvements.
(a) On each Property Closing Date (provided such Property is not a Completed
Property), the Lessor and Lessee will execute and deliver an Agency Agreement
Supplement, dated as of such Property Closing Date, pursuant to which the
Lessee will agree to act as Construction Agent and to perform the Lessor's
obligations under the Construction Contract in connection with the completion
of the construction of the Improvements on such Property.
(b) On each Property Closing Date or the Construction
Commencement Date, if later, provided that the applicable Property Closing
Certificate indicates that the cost of the Land is greater than or equal to 25%
of the Property Cost for such Property (a "Twenty-Five Percent Property"), the
Lessor and the Lessee shall execute and deliver an additional Lease Supplement
pursuant to which the Lessor will lease (or sublease, as the case may be) all
of its right, title and interest in such Improvements to the Lessee.
Notwithstanding that the Improvements on a Twenty-Five Percent Property
(whether existing on the date of acquisition of the Land or to be constructed
pursuant to the Agency Agreement) may be leased by a separate Lease Supplement,
the term "Property" shall include the Land and the Improvements.
(c) If the Property Closing Certificate indicates that the
cost of the Land is less than 25% of the Property Cost, no additional Lease
Supplement will be required to be delivered and the Land and the Improvements
will be leased on the Property Closing Date under the Lease Supplement
delivered pursuant to Section 6.2(d) and the term "Property" will be deemed to
mean Land and Improvements.
(d) On each Property Closing Date, the Lessor and Lessee will
execute and deliver a Memorandum of Lease which will be recorded in the real
estate records in the county where such Property is located.
3.4. Aggregate Tranche A Percentage; Maximum Residual Guarantee Amount.
(a) Notwithstanding any other provision of this Agreement or
the other Operative Agreements, the Lessee and the Lessor agree that in no
event shall the Lessor acquire and lease pursuant to the execution and delivery
of a Lease Supplement any Property if the Aggregate Tranche A Percentage after
giving effect to the acquisition and lease pursuant to the execution and
delivery of a Lease Supplement of such Property would be less than 82.5%.
(b) Notwithstanding any other provision of this Agreement
or the other Operative Agreements, the Lessee and the Lessor agree that in no
event shall the Lessor acquire and lease pursuant to the execution and delivery
of a Lease Supplement any Property if the Maximum Residual Guarantee Amount
with respect to such Property would be less than
53
<PAGE> 41
80% of Budgeted Total Property Costs with respect to such Property upon the
acquisition of such Property.
SECTION 4. THE CLOSINGS.
4.1. Initial Closing Date. All documents and instruments
required to be delivered on the Initial Closing Date shall be delivered at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York, or at such other location as may be determined by the Agent and the
Lessee.
4.2. Subsequent Funding Dates. The Lessee shall deliver to
the Lessor and the Agent a Requisition appropriately completed, in connection
with each Funding Date.
SECTION 5. FUNDING OF ADVANCES.
5.1. General. To the extent funds have been made available
to the Borrower under the Credit Agreement, such funds, along with the Lessor
Contributions, will be applied by the Construction Agent from time to time in
accordance with the terms and conditions of this Agreement and the other
Operative Agreements in order to: (i) allow the Lessor, at the direction of
the Lessee, to acquire the Land in accordance with the terms of this Agreement
and the other Operative Agreements; (ii) allow the Lessor, on behalf of the
Lessee, to pay Transaction Expenses; (iii) permit the Construction Agent to
construct the Improvements (provided that such Property is not a Completed
Property) in accordance with the Plans and Specifications and the terms of the
Construction Contract, the Agency Agreement, the Lease and the other Operative
Agreements; and (iv) pay all other Project Costs.
5.2. Procedures for Funding. (a) Not less than three
Business Days prior to each proposed Funding Date, the Construction Agent shall
deliver to the Lessor and the Agent, a requisition (a "Requisition"),
appropriately completed, in the form of Exhibit C hereto.
(b) Each Requisition shall: (i) be irrevocable; and (ii)
request funds in an amount of at least $500,000 (or such lesser amount as shall
be equal to the total aggregate of the Available Commitments plus the Available
Lessor Commitment at such time) for the payment of Property Acquisition Costs
or other Project Costs which have previously been incurred and were not the
subject of and funded pursuant to a prior Requisition, in each case as
specified in the Requisition.
(c) So long as no Default or Event of Default has occurred
and is continuing and subject to the satisfaction of the conditions set forth
in Sections 6.1, 6.2 and/or 6.3, as applicable, on each Funding Date (i) the
Lenders shall make Loans to the Lessor in an aggregate amount equal to 97% of
the funds specified in any Requisition, up to an aggregate principal amount
equal to the aggregate Available Commitments; (ii) the Lessor shall make a
Lessor Contribution in an amount equal to 3% of the funds specified in any
Requisition, up to an amount equal to the Available Lessor Commitment; and
(iii) the total amount of such Loans
54
<PAGE> 42
and Lessor Contribution made on such date shall be paid to the Disbursement
Account, provided, however, amounts requested to be disbursed into the
Disbursement Account may be used to pay Project Costs reasonably anticipated by
the Construction Agent to be incurred within 60 days of the applicable Funding
Date. There shall in no event be an amount in excess of $2,600,000 in the
Disbursement Account and the Agent shall at all times retain the right to
demand that funds remaining in the Disbursement Account, after outstanding
checks have cleared, be immediately returned to the Agent for distribution to
the Lenders and the Lessor. So long as no Default or Event of Default has
occurred and is continuing and subject to the satisfaction of the conditions
set forth in Sections 6.1, 6.2 and/or 6.3, as applicable, on each date on which
the Construction Agent is required to pay Project Costs the Construction Agent
shall cause funds to be disbursed from the Disbursement Account to pay such
Project Costs. The Construction Agent may cause funds on account in the
Disbursement Account to be invested in Permitted Investments.
5.3. Substitute Properties. Neither the Lessor nor any
Lender shall have any commitment to fund any amount in excess of the principal
amount of Loans outstanding on the last day of the fourth Loan Year. If,
however, during the fifth or sixth Loan Years, the Lessee purchases one or more
Properties pursuant to the provisions of the Lease and the Loans are prepaid in
accordance with Section 2.5 of the Credit Agreement, the Lessee may cause the
Lessor to purchase one or more substitute Properties (each, a "Substitute
Property", collectively, the "Substitute Properties"), provided that (a) the
Property Cost with respect to each Substitute Property may not be in excess of
the Property Cost of the Property for which it is being substituted, (b) the
aggregate Property Cost of all Substitute Properties may not exceed 20% of the
aggregate Property Cost of all of the Properties on the last day of the fourth
Loan Year, provided, however, any Substitute Property which is purchased by the
Lessor in substitution of a Property previously purchased by the Lessee in
order to cure an existing Covenant Default (as evidenced by an Officer's
Certificate of the Lessee) shall not be considered a Substitute Property for
the purposes of the foregoing limitation contained in this clause (b) and (c)
all of the conditions to the making of Advances and Lessor Contributions
contained in this Agreement, the Credit Agreement and any other Operative
Agreement shall have been satisfied on or prior to the applicable Funding Date.
SECTION 6. CONDITIONS OF THE CLOSINGS AND ADVANCES
6.1. Conditions to Loans and Lessor Contributions. The
agreement of each Lender to make Loans and the Lessor to make Lessor
Contributions, is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loans and Lessor Contribution, of the
following conditions precedent:
(a) Operative Agreements. Each of the Operative
Agreements shall have been duly authorized, executed,
acknowledged and delivered by the parties thereto and shall be
in full force and effect, and no default shall exist
thereunder (both before and after giving effect to the
transactions contemplated by the Operative Agreements), and
the Agent, the Lenders and the Lessor shall have received a
fully executed copy of each
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of the Operative Agreements (other than the Notes of which the
Agent shall have received the originals thereof);
(b) Taxes. All taxes, fees and other charges in
connection with the execution, delivery, and, where
applicable, recording, filing and registration of the
Operative Agreements shall have been paid or provisions for
such payment shall have been made to the satisfaction of the
Agent and the Lessor;
(c) Governmental Approvals. All necessary (or, in the
reasonable opinion of the Agent, the Lessor and their
respective counsel, advisable) Governmental Actions, in each
case required by any law or regulation enacted, imposed or
adopted on or after the date hereof or by any change in fact
or circumstances since the date hereof, shall have been
obtained or made and be in full force and effect;
(d) Litigation. No action or proceeding shall have
been instituted, nor to the knowledge of the Lessee shall any
action or proceeding be threatened before any Governmental
Authority, nor shall any order, judgment or decree have been
issued or proposed to be issued by any Governmental Authority
(i) to set aside, restrain, enjoin or prevent the full
performance of this Agreement, any other Operative Agreement
or any of the transactions contemplated hereby or thereby or
(ii) which is reasonably likely to have a Material Adverse
Effect;
(e) Legal Requirements. In the reasonable opinion of
the Agent, the Lessor and their respective counsel, the
transactions contemplated by the Operative Agreements do not
and will not violate in any respect any Legal Requirements and
do not and will not subject the Agent, any Lender or the
Lessor to any adverse regulatory prohibitions or constraints;
(f) Corporate Proceedings of the Lessee and the
Guarantors. On the Initial Closing Date, the Agent and the
Lessor shall have received a copy of the resolutions or
minutes, in form and substance satisfactory to the Agent and
the Lessor, of the Board of Directors of each of the Lessee
and the Guarantors authorizing the execution, delivery and
performance of this Agreement, the Guaranty and the other
Operative Agreements to which they are parties, certified by
the Secretary or an Assistant Secretary of the Lessee and each
Guarantor as of the Initial Closing Date, which certificate
shall be in form and substance satisfactory to the Agent and
the Lessor and shall state that the resolutions or minutes
thereby certified have not been amended, modified, revoked or
rescinded;
(g) Lessee and Guarantor Incumbency Certificate. On
the Initial Closing Date, the Agent and the Lessor shall have
received a certificate of the Lessee and each Guarantor, dated
the Initial Closing Date, as to the incumbency and signature
of the officers of the Lessee and such Guarantor executing any
Operative Agreement satisfactory in form and substance to the
Agent and the Lessor, executed by the
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President or any Vice President and the Secretary or any
Assistant Secretary of the Lessee and such Guarantor;
(h) Lessor Incumbency Certificate. On the Initial
Closing Date, the Agent and the Lessee shall have received a
certificate of the Lessor, dated the Initial Closing Date, as
to the incumbency and signature of the officers of the Lessor
executing any Operative Agreements satisfactory in form and
substance to the Agent and the Lessee, executed by a Vice
President and the Secretary or an Assistant Secretary of the
Lessor;
(i) Corporate Proceedings of the Lessor. On the
Initial Closing Date, the Agent and the Lessee shall have
received a copy of the resolutions, in form and substance
satisfactory to the Agent and the Lessee, of the Board of
Directors of the Lessor authorizing the execution, delivery
and performance of the Operative Agreements to which it is a
party, certified by the Secretary or an Assistant Secretary of
the Lessor as of the Initial Closing Date, which certificate
shall be in form and substance satisfactory to the Agent and
the Lessee and shall state that the resolutions thereby
certified have not been amended, modified, revoked or
rescinded;
(j) Corporate Documents. On the Initial Closing Date
the Agent and the Lessor shall have received true and complete
copies of the articles of incorporation and by-laws of the
Lessee and each Guarantor, certified as of the Initial Closing
Date as complete and correct copies thereof by the Secretary
or an Assistant Secretary of the Lessee and such Guarantor;
(k) Consents, Licenses and Approvals. The Agent and
the Lessor shall have received a certificate of the Vice
President of the Lessee stating that all consents,
authorizations and filings required to consummate the
transaction contemplated by this Agreement have been obtained
and are in full force and effect, and each such consent,
authorization and filing shall be in form and substance
reasonably satisfactory to the Agent and the Lessor;
(l) Fees. The Agent and the Arranger shall have
received the fees to be paid on the Initial Closing Date
pursuant to the Fee Letter and the Lessor shall have received
the upfront fees agreed to between the Lessor and Living
Centers to be paid on the Initial Closing Date, which fees
shall not be paid using the proceeds of the Loans or Lessor
Contributions;
(m) Legal Opinions. On the Initial Closing Date (i)
the Agent, the Lenders and the Lessor shall have received the
executed legal opinion of Corporate Associate General Counsel
of Living Centers and Mayor, Day, Caldwell & Keeton, LLP,
special counsel to the Lessee and the Guarantors; and
(ii) The Agent and the Lessee shall have received
the executed legal opinion of Mayor, Brown & Platt, counsel to
the Lessor;
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(n) Insurance. The Agent and the Lessor shall have
received evidence in form and substance satisfactory to them
that all of the requirements of Section 14 of the Lease shall
have been satisfied;
(o) Representations and Warranties. The
representations and warranties of the Lessor, the Lessee and
each of the Guarantors contained herein and in each of the
other Operative Agreements shall be true and correct in all
material respects on and as of such Funding Date as if made on
and as of such Funding Date;
(p) Performance of Operative Agreements. The parties
hereto (other than the Lenders) shall have performed their
respective agreements contained herein and in the other
Operative Agreements on or prior to each such Funding Date;
(q) Default. There shall not have occurred and be
continuing any Default or Event of Default under any of the
Operative Agreements and no Default or Event of Default under
any of the Operative Agreements will have occurred after
giving effect to the Advance requested by such Requisition;
and
(r) Material Adverse Change. As of such Funding Date,
there shall not have occurred any Material Adverse Change.
6.2. Conditions to the Lessor's and the Lenders' Obligations
to Make Advances to pay Property Acquisition Costs.
The obligations of the Lessor to make each Lessor
Contribution, and of the Lenders to make Loans to the Lessor, on a Property
Closing Date for the purpose of providing funds to the Lessor necessary to
acquire a Property are subject to the satisfaction or waiver of the following
conditions precedent:
(a) Requisition; Property Closing Certificate. The
Agent shall have received (i) a fully executed counterpart of
the Requisition dated as of such Property Closing Date (but
delivered at least two Business Days prior to the Property
Closing Date), appropriately completed; and (ii) a Property
Closing Certificate dated as of such Property Closing Date,
appropriately completed;
(b) Deed; Ground Lease. There shall have been delivered to
the Lessor (i) a bargain and sale deed with a covenant against
grantor's acts (or local equivalent) (a "Deed"), in form and
substance appropriate for recording with the applicable
Governmental Authorities, with respect to each Property (and
all Improvements located thereon) being purchased on such
Property Closing Date, conveying fee simple title to such
Property to the Lessor, subject only to the Permitted
Exceptions, or (ii) a Ground Lease with respect to each
Property being ground leased on such Property Closing Date
(such Ground Lease, or a Memorandum of Ground Lease, as
appropriate under applicable Legal Requirements, to be in form
and substance appropriate for recording with the applicable
Governmental Authorities), and the Agent and the Lessor shall
have
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received a fully executed counterpart of such Ground Lease
and, if applicable, such Memorandum of Ground Lease;
(c) Title; Location. Title to all of the Properties
shall conform to the representations and warranties set forth
in Section 7.4(g) and each Property shall be located in the
United States;
(d) Lease Supplement and Memorandum of Lease. The
Lessee shall have delivered a Lease Supplement and a
Memorandum of Lease executed by the Lessee and the Lessor with
respect to each Property being acquired on such Property
Closing Date to the Agent;
(e) Mortgage. The Lessee shall have recorded in the
real estate records of the county where each Property is
located an original of the Mortgage executed by the Lessor and
Lessee with respect to each Property being acquired on such
Property Closing Date;
(f) Assignment of Lease. The Lessee shall have
recorded in the real estate records of the county where each
Property is located an original of an Assignment of Lease
executed by the Lessor with respect to each Property being
acquired on such Property Closing Date;
(g) Consent to Assignment of Lease. The Lessee shall
have delivered to the Agent a consent to the Assignment of
Lease executed by the Lessee with respect to each Property
being acquired on such Property Closing Date;
(h) Environmental Audit. (i) The Agent, the Lenders
and the Lessor shall have received not less than 10 days prior
to such Property Closing Date an Environmental Audit with
respect to each Property being acquired on such Property
Closing Date, prepared by an environmental engineer (the
"Environmental Engineer") reasonably satisfactory to the Agent
and the Lessor and the results of the Environmental Audit
shall be in form and substance reasonably satisfactory to the
Agent, the Lenders and the Lessor; and
(ii) the Agent, the Lenders and the Lessor shall have
received letters from the Environmental Engineer stating,
among other things, that the Agent, the Lenders and the
Lessor may rely on the Environmental Audit with respect to
each Property being acquired on such Property Closing Date
which were prepared by such firm as if they were originally
addressed to them in all respects;
(i) Appraisal. The Agent, the Lenders and the Lessor
shall have received an Appraisal of each Property being
acquired on such Property Closing Date and such Appraisal
shall indicate a value (assuming Completion of the
Improvements on such Property) of at least six times the
amount of the Tranche B Loans which will be allocable to such
Property (based on the Budgeted Total Property Costs for such
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Property as of such Property Closing Date or the Property
Cost, a applicable) and otherwise be in form and substance
reasonably acceptable to each Lender and the Lessor;
(j) Survey. The Agent, the Lenders and the Lessor
shall have received, and the Title Company shall have
received, a survey of each Property being acquired on such
Property Closing Date, certified to the Agent, the Lenders,
the Lessor and the Title Company in a manner satisfactory to
them, dated as of a date within ninety days of the Property
Closing Date, by an independent professionally licensed land
surveyor satisfactory to the Agent and the Lessor, which
survey shall be made in accordance with the Minimum Standard
Detail Requirements for Land Title Surveys jointly established
and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and,
without limiting the generality of the foregoing, there shall
be surveyed and shown on such survey the following: (i) the
locations on such Property of all the buildings, structures
and other improvements, if any, and the established building
setback lines; (ii) the lines of streets abutting such
Property; (iii) all access and other easements appurtenant to
such Property; (iv) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar
encumbrances affecting such Property, whether recorded,
apparent from a physical inspection of the Property or
otherwise known to the surveyor; (v) any encroachments on any
adjoining property by the building, structures and
improvements on such Property; and (vi) if such Property is
described as being on a filed map, a legend relating the
survey to said map;
(k) Mortgagee's Title Insurance Policy. With respect
to each Property being acquired on such Property Closing Date,
the Agent shall have received with respect to the Mortgage a
mortgagee's title policy or marked up unconditional binder for
such insurance dated the Property Closing Date; such policy
shall (i) be in an amount equal to the aggregate amount shown
on the Budget for such Property (with a pending disbursements
clause, if applicable) or if such Property is a Completed
Property, in the amount of the Acquisition Cost of such
Property; (ii) be issued at ordinary rates; (iii) insure that
the Mortgage insured thereby creates a valid first Lien on
such Property, free and clear of all defects and encumbrances,
except Permitted Exceptions; (iv) name the Agent for the
benefit of the Lenders as the insured thereunder; (v) be in
the form of ALTA Loan Policy - 1970 (Amended 10/17/70), if
available or another form of lenders' policy customarily used
in commercial transactions in the jurisdiction where such
Property is located; (vi) contain comprehensive, zoning,
access, subdivision, tax lot, revolving credit and such other
endorsements and affirmative coverage as the Agent may
reasonably request (if available and customarily issued in the
jurisdiction where the Property is located); and (vii) be
issued by the Title Company; the Agent shall have received
evidence reasonably satisfactory to it that all premiums in
respect of such policy, and all charges for any mortgage
recording tax with respect to the Mortgage have been paid or
provision made therefor;
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(l) Owner's Title Insurance Policy. The Lessor shall
have received an owner's title policy, or marked up
unconditional binder for such insurance, dated the Property
Closing Date for each Property being acquired on such Property
Closing Date; and the Lessor shall have received evidence
reasonably satisfactory to it that all premiums in respect of
such policy have been paid or provision made therefor;
(m) Agency Agreement Supplement. The Lessee shall
have delivered an Agency Agreement Supplement executed by the
Lessee and the Lessor with respect to each Property (other
than any Completed Properties) being acquired on such Property
Closing Date to the Agent;
(n) Recorded Documents. The Agent and the Lessor
shall have received a legible copy of all recorded documents
referred to, or listed as exceptions to title in, the title
policy referred to above;
(o) Legal Opinions. With respect to (i) any Property
or (ii) any group of Properties which are acquired on the same
Property Closing Date or from the same seller and are located
in the same state, and which Property or group of Properties
have an estimated aggregate Property Cost in excess of $5
million, the Agent, the Lenders and the Lessor shall have
received an executed legal opinion of local counsel to the
Lessee and the Guarantors for each state in which such
Property or Properties are located, substantially in the form
of Exhibit D-1 hereto; and
(p) Actions to Perfect Liens. The Agent and the
Lessor shall have received evidence in form and substance
satisfactory to it that all filings, recordings, registrations
and other actions, including the filing of duly executed
Lender Financing Statements and Lessor Financing Statements,
the Mortgage, and the Memorandum of Lease, necessary or, in
the reasonable opinion of the Agent or the Lessor, desirable
to perfect the Liens created by the Security Documents shall
have been completed.
6.3. Conditions to the Lessor's and the Lenders' Obligations
to Make Advances to pay Project Costs for Construction on any Property. The
obligations of the Lessor to make each Lessor Contribution, and of the Lenders
to make Loans to the Lessor on a Funding Date for the purpose of providing
funds to the Lessor necessary to pay for the construction of the Improvements
or the payment of Transaction Costs or other Project Costs (other than Property
Acquisition Costs) are subject to the satisfaction or waiver of the following
conditions precedent:
(a) Performance of Obligations. The parties hereto
shall have performed their respective agreements contained
herein and in the other Operative Agreements on or prior to
such Funding Date;
(b) Requisition. The Agent shall have received a
fully executed counterpart of the Requisition, appropriately
completed;
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(c) Title. Title to all of the Properties shall
conform to the representations set forth in Section 7.4(g);
(d) Budget in Balance. Based upon the Construction
Budgets, the Available Commitments and the Available Lessor
Commitment will be sufficient to complete the Improvements for
which the Requisition relates on such Properties.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1. Representations and Warranties of Lessor on the Initial
Closing Date. Lessor represents and warrants to each of the other parties
hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. Lessor is a duly organized
and validly existing corporation in good standing under the
laws of the State of New York and has the power and authority
to carry on its business as now conducted and to enter into
and perform its obligations under this Agreement, each
Operative Agreement to which it is or will be a party and each
other agreement, instrument and document executed and
delivered or to be executed and delivered by it in connection
with or as contemplated by each such Operative Agreement.
(b) Authorization; No Conflict. The execution,
delivery and performance of each Operative Agreement to which
it is or will be a party has been duly authorized by all
necessary action on its part and neither the execution and
delivery thereof by the Lessor, nor the consummation of the
transactions contemplated thereby by the Lessor, nor
compliance by it with any of the terms and provisions thereof
(i) requires or will require any approval of (which approval
has not been obtained) any party or approval or consent of any
trustee or holders of any indebtedness or obligations of the
Lessor (ii) contravenes or will contravene any Legal
Requirement applicable to or binding on it as of the date
hereof, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation
of any Lessor Lien upon the Property or any of the
Improvements, any indenture, mortgage, chattel mortgage, deed
of trust, conditional sales contract, bank loan or credit
agreement or other agreement or instrument to which it or its
properties may be bound or (iv) does or will require any
Governmental Action by any Governmental Authority.
(c) Enforceability, etc. Each Operative Agreement to
which it is or will be a party has been duly executed and
delivered by it and constitutes, or upon execution and
delivery will constitute, a legal, valid and binding
obligation enforceable against it in accordance with the terms
thereof, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally
and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
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(d) Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Lessor,
threatened by or against the Lessor (a) with respect to any of
the Operative Agreements or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably
be expected to have a material adverse effect on the assets,
liabilities, operations, business or financial condition of
the Lessor.
(e) Assignment. Lessor has not assigned or
transferred any of its right, title or interest in or under
the Lease, any other Operative Agreement or any of the
Properties, except in accordance with the Operative
Agreements.
(f) No Default. The Lessor is not in default under or
with respect to any of its Contractual Obligations in any
respect which could have a material adverse effect on the
assets, liabilities, operations, business or financial
condition of the Lessor. No Default or Event of Default under
the Operative Agreements attributable to it has occurred and
is continuing.
(g) Use of Proceeds. The proceeds of the Loans and
the Lessor Contribution shall be applied by the Lessor solely
in accordance with the provisions of the Operative Agreements.
(h) Chief Place of Business. The Lessor's chief place
of business, chief executive office and office where the
documents, accounts and records relating to the transactions
contemplated by this Agreement and each other Operative
Agreement are kept are located at Two World Trade Center, New
York, New York.
(i) Federal Reserve Regulations. The Lessor is not
engaged principally in, and does not have as one of its most
important activities, the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board), and no part of the
proceeds of the Loans will be used by it to purchase or carry
any margin stock or to extend credit to others for the purpose
of purchasing or carrying any such margin stock or for any
purpose that violates, or is inconsistent with, the provisions
of Regulations G, T, U or X of the Board.
(j) Investment Company Act. The Lessor is not an
"investment company" or a company controlled by an "investment
company" within the meaning of the Investment Company Act.
(k) Securities Act. Neither the Lessor nor any Person
authorized by the Lessor to act on its behalf has offered or
sold any interest in the Property or the Notes, or in any
similar security or interest relating to the Property, or in
any security the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering
as the offering of the aforementioned securities to, or
solicited any offer to acquire any of the same from, any
Person other than, in the case of the Notes, the Agent, and
neither the Lessor nor any Person authorized by the Lessor to
act on its
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behalf will take any action which would subject the issuance
or sale of any interest in the Properties or the Notes to the
provisions of Section 5 of the Securities Act or require the
qualification of any Operative Agreement under the Trust
Indenture Act of 1939, as amended.
(l) ERISA. The Lessor is making the Lessor
Contribution contemplated to be made by it hereunder in the
ordinary course of its business, and no part of such amount
constitutes the assets of any Employee Benefit Plan.
(m) Lessor Liens. The Property is free and clear
of all Lessor Liens.
7.2. Representations and Warranties of the Lessee on the
Initial Closing Date. The Lessee represents and warrants to each of the other
parties hereto as of the Initial Closing Date as follows:
(a) Corporate Existence; Subsidiaries. The Lessee is
a corporation duly organized, validly existing, and in good
standing under the laws of Delaware and in good standing and
qualified to do business in each jurisdiction where its
ownership or lease of property or conduct of its business
requires such qualification and where a failure to be
qualified would reasonably be expected to cause a Material
Adverse Effect. Each Subsidiary of the Lessee is a
corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation
and in good standing and qualified to do business in each
jurisdiction where its ownership or lease of property or
conduct of its business requires such qualification and where
a failure to be qualified would reasonably be expected to
cause a Material Adverse Effect.
(b) Corporate Power. The execution, delivery, and
performance by the Lessee of this Agreement and the other
Operative Agreements to which the Lessee is a party and the
consummation of the transactions contemplated hereby and
thereby (a) are within the Lessee's corporate powers, (b) have
been duly authorized by all necessary corporate action, (c) do
not contravene (i) the Lessee's certificate or articles, as
the case may be, of incorporation or by-laws or (ii) any law
or any contractual restriction binding on or affecting the
Lessee, the contravention of which would reasonably be
expected to cause a Material Adverse Effect and (d) will not
result in or require the creation or imposition of any Lien
prohibited by this Agreement.
(c) Authorization and Approvals. No
authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the
due execution, delivery and performance by the Lessee of this
Agreement or the other Operative Agreements to which the
Lessee is a party.
(d) Enforceable Obligations. This Agreement and the
other Operative Agreements to which the Lessee is a party have
been duly executed and delivered by the Lessee. Each
Operative Agreement to which the Lessee is a party is the
legal, valid, and binding obligation of the Lessee enforceable
against the Lessee in accordance
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with its terms, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization,
moratorium, or similar law affecting creditors' rights
generally and by general principles of equity (whether
considered in proceeding at law or in equity).
(e) Litigation. There is no pending or, to the best
knowledge of the Lessee, threatened action or proceeding
affecting the Lessee or any of its Subsidiaries before any
court, Governmental Agency or arbitrator, which would
reasonably be expected to have a Material Adverse Effect or
which purports to affect the legality, validity, binding
effect or enforceability of this Agreement or any other
Operative Agreement or the consummation of any of the
transactions contemplated hereby or thereby.
(f) Investment Company Act. Neither the Lessee nor
any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(g) Public Utility Holding Company Act. Neither the
Lessee nor any of its Subsidiaries is a "holding company", or
a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(h) No Defaults. The Lessee is not in default under
or with respect to any contract, agreement, lease or other
instrument to which the Lessee is a party and which would
reasonably be expected to have a Material Adverse Effect. To
the knowledge of a Responsible Officer of the Lessee, the
Lessee has not received any notice of default under any
contract, agreement, lease or other instrument to which the
Lessee is a party which is continuing and which, if not cured,
would reasonably be expected to have a Material Adverse
Effect.
(ii) No Default has occurred and is continuing.
(i) Environmental Condition. (i) The Lessee (A) has
obtained all Environmental Permits necessary for the ownership
and operation of its material properties and the conduct of
its business of which the failure to obtain would reasonably
be expected to have a Material Adverse Effect; (B) has been
and is in compliance with all terms and conditions of such
Environmental Permits and with all other material requirements
of applicable Environmental Laws of which the failure to
comply would reasonably be expected to have a Material Adverse
Effect; (C) has not received notice of any violation or
alleged violation of any Environmental Law or Environmental
Permit the violation of which would reasonably be expected to
have a Material Adverse Effect; and (D) is not subject to any
actual or contingent Environmental Claim, which Environmental
Claim would reasonably be expected to have a Material Adverse
Effect.
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(ii) To the knowledge of any Responsible Officer of the
Lessee, none of the present or previously owned or operated
property of the Lessee, wherever located, (A) has been placed
on or proposed to be placed on the National Priorities List,
the Comprehensive Environmental Response Compensation
Liability Information System list, or their state or local
analogs, or have been otherwise designated, listed, or
identified as a potential site for removal, remediation,
cleanup, closure, restoration, reclamation, or other response
activity under any Environmental Laws; (B) is subject to a
Lien, arising under or in connection with any Environmental
Laws, that attaches to any revenues or to any property owned
or operated by the Lessee, wherever located, which Lien would
reasonably be expected to have a Material Adverse Effect; or
(C) has been the site of any Release of Hazardous Substances
or Hazardous Wastes from present or past operations which has
caused at the site or at any third-party site any condition
that has resulted in or would reasonably be expected to result
in the need for Response that would have a Material Adverse
Effect.
(iii) Without limiting the foregoing, the present and,
to the best knowledge of any Responsible Officer of the
Lessee, future liability, if any, of the Lessee, which would
reasonably be expected to arise in connection with
requirements under Environmental Laws will not have a Material
Adverse Effect.
(j) Permits, Licenses, etc. The Lessee possesses all
permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade names rights and
copyrights which the failure to possess could reasonably be
expected to have a Material Adverse Effect. The Lessee
manages and operates its business in accordance with all
applicable Legal Requirements which the failure to so manage
or operate would reasonably be expected to have a Material
Adverse Effect.
(k) Health Care Regulatory Matters. (i) To the
knowledge of any Responsible Officer of the Lessee, all
necessary steps have been or are being taken to secure the
renewal of any Health Facility License, Medicaid Provider
Agreement or Medicare Provider Agreement issued with respect
to any Facility which the failure to renew could reasonably be
expected to have a Material Adverse Effect and that is to
expire within 60 days after the date of this Agreement, and
there is no reasonable basis known to any Responsible Officer
of the Lessee that any such renewal will not be obtained.
(ii) There are no proceedings pending, or, to the
best of the Lessee's knowledge, threatened by any Governmental
Authority seeking nor, to the knowledge of any Responsible
Officer of the Lessee, has the Lessee taken any action to the
effect of which would be to adversely modify, revoke,
withdraw, or suspend any CON, Health Facility License,
Medicaid Provider Agreement, Medicare Provider Agreement,
Medicare Certification or Medicaid Certification in a manner
that would reasonably be expected to have a Material Adverse
Effect. To the Lessee's knowledge, there is no decision to
fail to renew or deny payments under any Medicaid Provider
Agreement or Medicare Provider Agreement which failure or
denial would reasonably be expected to have a Material Adverse
Effect.
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(l) Lease. Upon the execution and delivery of each
Lease Supplement to the Lease, (i) the Lessee will have
unconditionally accepted the Property subject to the Lease
Supplement, and will have a valid and subsisting leasehold
interest in the Property and (ii) no offset will exist with
respect to any Rent or other sums payable under the Lease.
7.3. Representations and Warranties of the Lessee on
Property Closing Dates. The Lessee hereby represents and warrants as of each
Property Closing Date as follows:
(a) Representations and Warranties; No Default. The
representations and warranties of the Construction Agent, the
Lessee and the Guarantors set forth in the Operative
Agreements are true and correct and to the best of Lessee's
knowledge, the representations and warranties of the Lessor
are true and correct on and as of such date as if made on and
as of such date. To the best of Lessee's knowledge, the
Lessor is in compliance with its respective obligations under
the Operative Agreements. The Construction Agent, the Lessee
and the Guarantors are in compliance with their respective
obligations under the Operative Agreements and there exists no
Default or Event of Default under any of the Operative
Agreements. No Default or Event of Default will occur under
any of the Operative Agreements as a result of, or after
giving effect to, the Advance requested by the Requisition on
such Property Closing Date.
(b) Authorization by the Lessee. The execution and
delivery of each Lease Supplement, Memorandum of Lease,
Consent to Assignment and other Operative Agreement delivered
by the Lessee on such Property Closing Date and the
performance of the obligations of the Lessee under each such
Lease Supplement, Memorandum of Lease, Consent to Assignment
and other Operative Agreements have been duly authorized by
all requisite corporate action of the Lessee.
(c) Execution and Delivery by the Lessee. Each Lease
Supplement, Memorandum of Lease, Consent to Assignment and
other Operative Agreement delivered on such Property Closing
Date by the Lessee have been duly executed and delivered by
the Lessee.
(d) Valid and Binding Obligations. Each Lease
Supplement, Memorandum of Lease, Consent to Assignment and
other Operative Agreement delivered by the Lessee on such
Property Closing Date is a legal, valid and binding obligation
of the Lessee, enforceable against the Lessee in accordance
with its respective terms.
(e) Recording of Documents. Each of the Deed, the
Lease Supplement, the Memorandum of Lease, the Assignment of
Lease, the Consent to the Assignment of Lease and the Mortgage
delivered on such Property Closing Date will be filed for
recordation with the appropriate Governmental Authorities in
the order set forth in this paragraph, and the UCC Financing
Statements with respect to the Property being acquired will be
filed with the appropriate Governmental Authorities.
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(f) Priority of Liens. (i) Upon proper recordation,
each Mortgage, each Assignment of Lease and each Memorandum of
Lease delivered on such Property Closing Date, will constitute
a valid and perfected first lien on each applicable Property
and the Improvements located thereon in an amount not less
than the Property Cost with respect to such Property, subject
only to the Permitted Exceptions, and (ii) upon proper filing,
the Lessor Financing Statements will protect the Lessor's
interest under the Lease to the extent the Lease is a security
agreement governed by Article 9 of the Uniform Commercial
Code.
(g) Flood Zone. No portion of any Property being
acquired by the Lessor on such Property Closing Date is
located in an area identified as a special flood hazard area
by the Federal Emergency Management Agency or other applicable
agency, or if any such Property is located in an area
identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, then
flood insurance has been obtained for such Property in
accordance with Section 14.2(b) of the Lease and in accordance
with the National Flood Insurance Act of 1968, as amended.
(h) Insurance Coverage. The Lessee maintains
insurance coverage for each Property being acquired by the
Lessor on such Property Closing Date which meets the
requirements of Section 14.1 of the Lease and all of such
coverage is in full force and effect.
(i) Legal Requirements. Each Property being acquired
by the Lessor on such Property Closing Date complies with all
Legal Requirements (including all zoning and land use laws and
Environmental Laws) in all material respects.
(j) Consents, etc. All material consents, licenses
and building permits required by all Legal Requirements for
construction, completion, occupancy and operation, as to be
operated by Lessee or Lessee's sublessees, of each Property
being acquired on such Property Closing Date, to the extent
such consents, licenses and building permits are required to
have been obtained on or before such Property Closing Date,
have been obtained and are in full force and effect.
(k) Utilities. All utility services and facilities
necessary for the use of the Improvements existing, or to be
constructed, on the Land (including gas, electrical, water and
sewage services and facilities) will be available to the
Property on or prior to the Outside Completion Date.
(l) Environmental Matters. To the best knowledge
of the Lessee or Construction Agent:
(i) the Property being acquired on the Property
Closing Date does not contain any Hazardous Substances
in amounts or concentrations which (a) constitute a
violation of, or (b) would give rise to liability
under, any Environmental Law.
(ii) the Property and all operations at the
Property are in compliance in all material respects
with all applicable Environmental Laws, and there is no
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contamination at, on or under the Property or violation
of any Environmental Law with respect to the Property
or the business operated by Lessee or any of its
Subsidiaries at the Property (the "Business") that
would constitute a violation of any applicable
Environmental Law.
(iii) neither the Lessee nor any of its
Subsidiaries has received any written notice of
violation, alleged violation, non-compliance, liability
or potential liability regarding compliance with
Environmental Laws with regard to the Property, nor
does the Lessee have knowledge that any such notice
will be received or is being threatened.
(iv) Hazardous Substances have not been
transported or disposed of from the Property in
violation of any Environmental Law, nor have any
Hazardous Substances been generated, treated, stored or
disposed of at, on or under the Property in violation
of any applicable Environmental Law.
(v) no judicial proceeding or governmental or
administrative action is pending or, to the best
knowledge of the Lessee, threatened, under any
Environmental Law to which the Lessee or any Subsidiary
is named as a party with respect to the Property, nor
are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding
under any Environmental Law with respect to the
Property or the Business.
(vi) there has been no Release of Hazardous
Substances at or from the Property, or arising from or
related to the operations of the Lessee or any
Subsidiary in connection with the Property, in
violation of or in amounts or in a manner that could
reasonably be expected to give rise to any material
liability under any Environmental Laws.
(m) Title to the Properties. Upon the
acquisition of each Property on such Property Closing Date,
the Lessor will have marketable title to the Property in fee
simple, subject only to the Permitted Exceptions. Upon the
acquisition of each Property on such Property Closing Date,
the Lessor will have the right to grant the Mortgage on the
Property. The Lessor will at all times have marketable title
to the Building and any other Improvements, subject only to
Permitted Exceptions.
(n) Conditions Precedent in Operative Agreements.
All conditions precedent contained in this Agreement and in
the other Operative Agreements to the acquisition of the
Property being acquired on such Property Closing Date by the
Lessor have been satisfied in full.
7.4. Representations and Warranties of the Lessee Upon each
Funding Date. The Lessee hereby represents and warrants as of each Funding
Date as follows:
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(a) Representations and Warranties; No Default. The
representations and warranties of the Construction Agent, the
Lessee and the Guarantors set forth in the Operative
Agreements are true and correct and to the best of Lessee's
knowledge, the representations and warranties of the Lessor
are true and correct, on and as of such date as if made on and
as of such date. To the best of Lessee's knowledge, the
Lessor is in compliance with its respective obligations under
the Operative Agreements and there exists no Default or Event
of Default under any of the Operative Agreements. The
Construction Agent, the Lessee and the Guarantors are in
compliance with their respective obligations under the
Operative Agreements and there exists no Default or Event of
Default under any of the Operative Agreements. No Default or
Event of Default will occur under any of the Operative
Agreements as a result of, or after giving effect to, the
Advance requested by the Requisition on such date.
(b) Priority of Liens. Each Mortgage, Supplement to
the Assignment of Lease and Memorandum of Lease constitutes a
valid and perfected first lien on each applicable Property and
the Improvements located thereon in an amount not less than
the Property Cost with respect to such Property, subject only
to Permitted Exceptions.
(c) Execution and Delivery by the Construction Agent.
The execution and delivery of each Operative Agreement
delivered by the Construction Agent on such date and the
performance of the Construction Agent's obligations under each
Agency Agreement Supplement and other Operative Agreement have
been duly authorized by all requisite corporate action of the
Construction Agent.
(d) Agency Agreement Supplements. Each Operative
Agreement delivered by the Construction Agent on such date has
been duly executed and delivered by the Construction Agent.
(e) Valid and Binding Obligations of the Lessee and
the Construction Agent. Each Operative Agreement delivered by
the Lessee and the Construction Agent on such date is a legal,
valid and binding obligation of the Lessee and the
Construction Agent, enforceable against the Lessee and the
Construction Agent in accordance with its terms.
(f) Insurance. The Construction Agent has obtained
insurance coverage covering the Property which meets the
requirements of the Agency Agreement, the Lease and the other
Operative Agreements before commencing construction, repairs
or Modifications, as the case may be, and such coverage is in
full force and effect.
(g) Property-Related Matters. The Property, as
improved in accordance with the Plans and Specifications, will
comply in all material respects with all Legal Requirements
(including all applicable zoning and land use laws and
Environmental Laws) and Insurance Requirements. The Plans
and Specifications have been or will be prepared so as to
comply with all applicable Legal Requirements (including all
applicable Environmental Laws and building, planning, zoning
and fire codes) and upon completion of the applicable
Improvements in accordance with the Plans and Specifications,
such Improvements on the Property will not encroach in any
manner onto any adjoining land (except as permitted by
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express written easements or variance) and such Improvements
and the use thereof by the Lessee and its agents, assignees,
employees, invitees, lessees, licensees and tenants will
comply in all material respects with all applicable Legal
Requirements (including all applicable Environmental Laws and
building, planning, zoning and fire codes). There is no
action, suit or proceeding (including any proceeding in
condemnation or eminent domain or under any applicable
Environmental Law) pending or, to the best knowledge of Lessee
threatened which adversely affects the title to, or materially
affects the use, operation or value of, the Properties. No
fire or other casualty with respect to the Properties has
occurred which fire or other casualty has had a material
adverse effect on the Lessee's ability to perform its
obligations under the Agency Agreement and the other Operative
Agreements. All utilities serving the Properties, or proposed
to serve the Properties in accordance with the Plans and
Specifications, are located in, and in the future will be
located in, and vehicular access to the Improvements on each
of the Properties is provided by, either public rights-of-way
abutting the Property or Appurtenant Rights. All applicable
material licenses, approvals, authorizations, consents,
permits (including, without limitation, building, demolition
and environmental permits, licenses, approvals, authorizations
and consents), easements and rights-of-way, including proof of
dedication, required for (i) the use, treatment, storage,
transport, disposal or disposition of any Hazardous Substance
on, at, under or from the Properties during the construction
of the Improvements thereon and the use and operation of the
Improvements following such construction, (ii) the
construction of the Improvements in accordance with the Plans
and Specifications and the Agency Agreement and (iii) the use
and operation of the Improvements following such construction
as permitted pursuant to the Lease have been obtained, to the
extent necessary at the time of this representation, from the
appropriate Governmental Authorities having jurisdiction or
from private parties.
(h) Lease Requirements. The Improvements, when
completed, will comply in all material respects with all
requirements and conditions set forth in the Lease and all
other conditions and requirements of the Operative Documents.
(i) Conditions Precedent contained in the Operative
Agreements. All conditions precedent contained in this
Agreement and in the other Operative Agreements relating to
the relevant Advance have been satisfied in full.
(j) Projected Completion Value. The Property Cost of
each Improvement as established by the Construction Budget
shall not exceed an amount equal to the Projected Completion
Value.
SECTION 8. PAYMENT OF CERTAIN EXPENSES.
Lessee agrees, for the benefit of the Lessor, the Agent, the Co-Agents
and each of the Lenders, to:
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8.1. Transaction Expenses. (a) On the Initial Closin
Date, pay, or cause to be paid, all fees, expenses and disbursements of each
of the Lessor's and the Agent's counsel in connection with the transactions
contemplated by the Operative Agreements and incurred in connection with such
Initial Closing Date, including all Transaction Expenses, and all other expenses
in connection with such Initial Closing Date, including all expenses relating to
all fees, taxes and expenses for the recording, registration and filing of
documents.
(b) On each Property Closing Date, pay, or cause to be
paid, all fees, expenses and disbursements of each of the
Lessor's and the Agent's counsel in connection with the
transactions contemplated by the Operative Agreements and
incurred in connection with such Property Closing Date,
including all Transaction Expenses arising from such Property
Closing Date, and all other expenses in connection with such
Property Closing Date, including all expenses relating to each
Appraisal, and all fees, taxes and expenses for the recording,
registration and filing of documents.
8.2. Brokers' Fees and Stamp Taxes. Pay or cause to be
paid brokers' fees and any and all stamp, transfer and other similar taxes, fees
and excises, if any, including any interest and penalties, which are payable in
connection with the transactions contemplated by this Agreement and the other
Operative Agreements.
8.3. Certain Fees and Expenses. Pay or cause to bepaid
(i) all costs and expenses incurred by the Lessee, the Agent or the Lessor in
entering into any future amendments or supplements with respect to any of the
Operative Agreements, whether or not such amendments or supplements are
ultimately entered into, or giving or withholding of waivers of consents hereto
or thereto, which have been requested by the Lessee, and (ii) all costs and
expenses incurred by the Lessor, the Lessee, or the Agent in connection with any
purchase of any Property by the Lessee pursuant to Article XX of the Lease.
8.4. Credit Agreement and Related Obligations. (a)
Pay, before the due date thereof, all costs and expenses (other than principal
and interest on the Loans, but including breakage costs and interest on overdue
amounts pursuant to Section 2.8(c) of the Credit Agreement or otherwise)
required to be paid by the Lessor under the Credit Agreement, the Mortgage, the
Assignment of Lease and the Contract Assignment.
(b) Pay the Agent all fees specified in the Fee Letter
at the time and in the manner required by the Fee Letter,
which fees may not be paid by using the proceeds of the Loans
or Lessor Contribution.
8.5. Facility Fees. (a) Pay to the Agent for
the account of each Lender the Facility Fee on each Facility Fee Payment Date.
(b) Pay to the Lessor a facility fee (the "Lessor
Facility Fee"), computed at a rate per annum equal to the
product of (i) the Lessor Commitment and (ii) the Applicable
Margin, payable quarterly in arrears on each Facility Fee
Payment Date. The Lessor Facility Fee shall be calculated on
the basis of a 365- (or 366-, as the case may be) day year for
the
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actual days elapsed. If all or a portion of the Lessor
Facility Fee shall not be paid when due, such overdue amount
shall bear interest, payable by the Lessee on demand, at a
rate per annum equal to the rate described in the definition
of Lessor Yield plus 2%, from the date of such non-payment
until such amount is paid in full (as well after as before
judgment).
SECTION 9. OTHER COVENANTS AND AGREEMENTS.
9.1. Covenants of the Lessor. The Lessor hereby
agrees that so long as this Agreement is in effect:
(a) Discharge of Liens. The Lessor will not
create or permit to exist at any time, and will, at its own
cost and expense, promptly take such action as may be
necessary duly to discharge, or to cause to be discharged, all
Lessor Liens on the Property attributable to it; provided,
however, that the Lessor shall not be required to so discharge
any such Lessor Lien while the same is being contested in good
faith by appropriate proceedings diligently prosecuted so long
as such proceedings shall not involve any material danger of
impairment of the Liens of the Security Documents or of the
sale, forfeiture or loss of, and shall not interfere with the
use or disposition of, any Property or title thereto or any
interest therein or the payment of Rent.
(b) No Voluntary Bankruptcy. The Lessor shall
not (i) commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
arrangement, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (ii) seek
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial benefit of its
creditors; and the Lessor shall not take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in this paragraph.
(c) Change of Chief Place of Business. The
Lessor shall give prompt notice to the Lessee and the Agent if
the Lessor's chief place of business or chief executive
office, or the office where the records concerning the
accounts or contract rights relating to the Property are kept,
shall cease to be located at Two World Trade Center, New York,
New York or if it shall change its name.
(d) Loan Documents. Provided that no Event of
Default is continuing, none of the Lenders, the Lessor, the
Lessee nor the Agent shall consent to or permit any amendment,
supplement, waiver or other modification of the terms and
provisions of the Credit Agreement, the Notes or the Security
Documents, in each case without the prior written consent of
the Lessee.
(e) Compliance with Operative Agreements. The
Lessor shall at all times observe and perform all of the
covenants, conditions and obligations required to be performed
by it under each Operative Agreement to which it is a party.
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9.2. Repayment of Certain Amounts on Maturity
Date. The Lessor and the Agent hereby agree that if (i) on the Maturity Date
(after giving effect to all payments made by the Lessee under the Lease and the
application of all sales proceeds pursuant to Section 8 of the Credit Agreement)
there remains any outstanding principal or accrued and unpaid principal under
the Tranche B Notes (the aggregate amount of such outstanding principal, the
"Tranche B Deficit") and (ii) during the Marketing Period the Lessor has
received any Marketing Period Equity Return, then on the Maturity Date the
Lessor shall pay to the Agent an amount up to the amount of the Tranche B
Deficit, but in no event greater than the Marketing Period Equity Return
received by it.
9.3. Amendment of Certain Documents. The
Agent, for itself and on behalf of the Lenders, hereby agrees for the benefit of
the Lessor that it will not amend, alter or otherwise modify, or consent to any
amendment, alteration or modification of, the Lease (including the definitions
of any terms used in such document) without the prior written consent of the
Lessor, if such amendment, alteration or modification would materially and
adversely affect the interests of the Lessor. Provisions requiring consent,
include any amendment, alteration or modification that would release the Lessee
from any of its obligations in respect of the payment of Basic Rent,
Supplemental Rent, Termination Value, Maximum Residual Guarantee Amount or the
Purchase Option Price or any other payments in respect of the Properties as set
forth in the Lease, or reduce the amount of, or change the time or manner of
payment of, obligations of the Lessee as set forth in the Lease, or create or
impose any obligation on the part of the Lessor under the Lease, or extend or
shorten the duration of the Term, or modify the provisions of this Section 9.3.
9.4. Proceeds of Casualty or Condemnation.
The Lessor agrees, for the benefit of the Agent and the Lenders, that if at any
time the Lessor receives any proceeds as a result, directly or indirectly, of
any Casualty or Condemnation with respect to the Property which the Lessor is
entitled to retain and hold in accordance with the terms of the Lease, the
Lessor agrees that it will promptly deposit such amounts in an account with the
Agent. The Lessor also agrees that it will execute and deliver such documents
and instruments as the Agent may request in order to grant the Agent, for the
benefit of the Lenders, a valid and perfected, first priority security interest
in such proceeds.
SECTION 10. CREDIT AGREEMENT.
10.1. Lessee's Credit Agreement Rights.
Notwithstanding anything to the contrary contained in the Credit Agreement,
the Agent, the Lessee and the Lessor hereby agree that:
(a) the Lessee shall have the right to give
the notice referred to in Section 2.3 of the Credit Agreement;
(b) the Lessee shall have the right to
convert or continue Loans in accordance with Section 2.6 of
the Credit Agreement;
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(c) the Lessee shall receive copies of all
notices delivered to the Lessor under the Credit Agreement and
the other Operative Agreements and such notices shall not be
effective until received;
(d) the Lessee shall have the right to select
Interest Periods in accordance with the terms of the Credit
Agreement;
(e) the Lessee shall have the right to give
notice of prepayment of the Loans in accordance with the
Credit Agreement;
(f) the Lessee shall have the right to cure, to
the extent susceptible to a cure, any Default or Event of
Default of the Lessor under the Credit Agreement;
(g) the Lessee shall have the right to approve
any successor Agent pursuant to Section 7.9 of the Credit
Agreement;
(h) the Lessee shall have the right, on behalf of
the Lessor, to select any person or persons (including the
Lessee) to whom funds may be paid at the discretion of the
Lessor in accordance with Sections 8.1 and 8.2 of the Credit
Agreement;
(i) the Lessee shall have the right to consent to
any assignment by a Lender if required pursuant to Section 9.5
of the Credit Agreement; and
(j) the Lessee shall have the right to designate
the portion of the Loans on which interest is due and payable
for purposes of the definitions of "Allocated Interest" and
"Allocated Lessor Yield";
(k) the Lessee shall have the right to request
that another lending office be designated pursuant to Section
2.15 of the Credit Agreement;
(l) the Lessee shall have the obligation to
notify the Agent of the amounts or information specified in
Section 5.8 of the Credit Agreement; and
(m) without limiting the foregoing clauses (a)
through (l), and in addition thereto, (x) the Lessor shall not
exercise any right under the Credit Agreement without giving
the Lessee at least ten (10) Business Days' prior written
notice (or such shorter period as may be required but in no
case less than two (2) Business Days) and, following such
notice, the Lessor shall take such action, or forbear from
taking such action, as the Lessee shall direct and (y) the
Lessee shall have the right to exercise any other right of the
Lessor under the Credit Agreement upon not less than two (2)
Business Days' prior written notice from the Lessee to the
Lessor.
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SECTION 11. TRANSFER OF INTEREST.
11.1. Restrictions on Transfer. (a) The Lessor may
not, directly or indirectly, assign, convey or otherwise transfer any of its
right, title or interest in or to any of the Properties without the consent of
the Agent, the Required Lenders and the Lessee, which consent shall not be
unreasonably withheld or delayed. Any transfer by the Lessor as above provided,
shall be effected pursuant to an agreement in form and substance reasonably
satisfactory to the Agent, the Required Lenders, the Lessor, the Lessee and
their respective counsel; provided, however, that no such consent for any such
transfer shall be required if, in the Lessor's sole discretion, the continued
ownership of the Properties, or any part thereof, would violate or conflict with
any Requirement of Law or interpretation thereof, provided, further, however, in
such event, Lessor may only transfer its interest in the Properties upon not
less than 30 days prior written notice to the Agent (who will notify the
Lenders) and the Lessee and only to an institutional investor whose net worth is
at least $50,000,000 or whose obligations under the Operative Agreements are
guaranteed by an entity whose net worth is at least $50,000,000.
(b) In the event that the Lessor shall be in
breach of any of its material obligations under the Operative
Agreements which breach continues uncured for a period of 30
days or more after written notice thereof by the Lessee or the
Agent, then at the request of the Lessee, the Lessor shall
promptly transfer and assign its interest in the Properties to
a third party, reasonably acceptable to the Agent and the
Required Lenders, designated by the Lessee. If the Agent has
obtained knowledge of a default by the Lessor, it shall notify
the Lessee of such default.
11.2. Effect of Transfer. From and after any transfer
effected in accordance with this Section 11, the transferor shall be released,
to the extent of such transfer, from its liability hereunder and under the other
documents to which it is a party in respect of obligations to be performed on or
after the date of such transfer. Upon any transfer byr the Lessor as above
provided, any such transferee shall assume the obligations of the Lessor, and
the Lessor, and shall be deemed the "Lessor" for all purposes of such documents
andn on each reference herein to the transferor shall thereafter be deemed a
reference to such transferee for all purposes, except as provided in the
preceding sentence. Notwithstanding anye transfer of all or a portion of the
transferor's interest as provided in this Section 11, the transferor shall be
entitled to all benefits accrued and all rights vested prior to such transfer
including rights to indemnification under any such document.
SECTION 12. INDEMNIFICATION.
12.1. General Indemnity. The Lessee, whether or not
any of the transactions contemplated hereby shall be consummated, hereby
assumes liability for and agrees to defend, indemnify and hold harmless each
Indemnified Person on an After Tax Basis from and against any Claims which may
be imposed on, incurred by or asserted against an Indemnified Person in any way
relating to or arising or alleged to arise out of (a) the financing,
refinancing,
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purchase, acceptance, rejection, ownership, design, construction, delivery,
acceptance, nondelivery, leasing, subleasing, possession, use, operation,
repair, modification, transportation, condition, sale, return, repossession
(whether by summary proceedings or otherwise), or any other disposition of the
Property or any part thereof; (b) any latent or other defects in any property
whether or not discoverable by an Indemnified Person or the Lessee; (c) a
violation of Environmental Laws, Environmental Claims or other loss of or damage
relating to the Properties; (d) the Operative Agreements, or any transaction
contemplated thereby; (e) any breach by the Lessee of any of its representations
or warranties under the Operative Agreements or failure by the Lessee to perform
or observe any covenant or agreement to be performed by it under any of the
Operative Agreements; and (f) personal injury, death or property damage relating
to the Properties, including Claims based on strict liability in tort; but in
any event excluding (x) Claims to the extent such Claims arise solely out of
events occurring after the expiration of the Term and after the Lessee's
discharge of all its obligations under the Lease or (y) Claims to the extent
such Claims arise solely out of the gross negligence or willful misconduct of an
Indemnified Person. The Lessee shall be entitled to control, and shall assume
full responsibility for the defense of any Claim; provided, however, that the
Lessor and the Agent named in such Claim, may each retain separate counsel at
the expense of the Lessee in the event of and to the extent of a conflict or a
potential conflict. The Lessee and each Indemnified Person agree to give each
other prompt written notice of any Claim hereby indemnified against but the
giving of any such notice by an Indemnified Person shall not be a condition to
the Lessee's obligations under this Section 12.1, except to the extent failure
to give such notice materially prejudices Lessee's rights hereunder. After an
Indemnified Person has been fully indemnified for a Claim pursuant to this
Section 12.1, and so long as no Event of Default under the Lease shall have
occurred and be continuing, the Lessee shall be subrogated to any right of such
Indemnified Person with respect to such Claim. None of the Indemnified Persons
shall settle a Claim without the consent of the Lessee, which consent shall not
be unreasonably withheld or delayed.
12.2. General Tax Indemnity. (a) The Lessee shall pay
and assume liability for, and does hereby agree to indemnify, protect and defend
the Property and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis. Each Tax Indemnitee further agrees to comply
with recommendations made by the Lessee regarding techniques to minimize Taxes
indemnifiable hereunder, provided that (i) the Lessee agrees to make payments to
(or otherwise indemnify) such Tax Indemnitee against any cost or expense arising
from instituting the Lessee's recommendations and (ii) such Tax Indemnitee
determines in its reasonable discretion that such recommendations will not have
an adverse impact on such Tax Indemnitee.
(b) Provided that no Event of Default has
occurred and is continuing, if any Tax Indemnitee obtains a
refund or a reduction in a liability (but only if such
reduction relates to a Tax not otherwise indemnifiable
hereunder and has not been taken into account in determining
the amount of a payment on an After Tax Basis) as a result of
any Imposition paid or reimbursed by the Lessee (in whole or
in part), such Tax Indemnitee shall promptly pay to the Lessee
the lesser of (x) the amount of such refund or reduction in
liability and (y) the
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amount previously so paid or advanced by the Lessee, in each
case net of reasonable expenses not already paid or reimbursed
by the Lessee.
(c) (i) Subject to the terms of Section 12.2(g),
the Lessee shall pay or cause to be paid all Impositions
directly to the taxing authorities where feasible and
otherwise to the Tax Indemnitee, as appropriate, and the
Lessee shall at its own expense, upon such Tax Indemnitee's
reasonable request, furnish to such Tax Indemnitee copies of
official receipts or other satisfactory proof evidencing such
payment.
(ii) In the case of Impositions for which no
contest is conducted pursuant to Section 12.2(g) and which the
Lessee pays directly to the taxing authorities, the Lessee
shall pay such Impositions prior to the latest time permitted
by the relevant taxing authority for timely payment. In the
case of Impositions for which the Lessee reimburses a Tax
Indemnitee, the Lessee shall do so within thirty (30) days
after receipt by the Lessee of demand by such Tax Indemnitee
describing in reasonable detail the nature of the Imposition
and the basis for the demand (including the computation of the
amount payable), but in no event shall the Lessee be required
to pay such reimbursement prior to thirty (30) days before the
latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which a
contest is conducted pursuant to Section 12.2(g), the Lessee
shall pay such Impositions or reimburse such Tax Indemnitee
for such Impositions, to the extent not previously paid or
reimbursed pursuant to subsection (a), prior to the latest
time permitted by the relevant taxing authority for timely
payment after conclusion of all contests under Section
12.2(g).
(iii) Impositions imposed for a billing period
during which the Lease expires or terminates with respect to
the Property (unless the Lessee has exercised the Purchase
Option with respect to the Properties) shall be adjusted and
prorated by the Agent on a daily basis between the Lessee and
the Lessor, whether or not such Imposition is imposed before
or after such expiration or termination and each party shall
pay or reimburse the other for each party's pro rata share
thereof.
(iv) At the Lessee's request, the amount of any
indemnification payment by the Lessee pursuant to subsection
(a) shall be verified and certified by an independent public
accounting firm mutually acceptable to the Lessee and the Tax
Indemnitee. The fees and expenses of such independent public
accounting firm shall (i) in the case of the Trust Company or
the Lessor, be paid by the Lessee, and (ii) in the case of all
other Tax Indemnitees, be paid by the Lessee unless such
verification shall result in an adjustment in the Lessee's
favor of 10% or more of the payment as computed by such Tax
Indemnitee, in which case such fee shall be paid by such Tax
Indemnitee.
(d) (i) The Lessee shall be responsible for
preparing and filing any real and personal property or ad
valorem tax returns in respect of the Property. In case any
other report or tax return shall be required to be made with
respect to any obligations of the Lessee under or arising out
of subsection (a) and of which the Lessee has knowledge, the
Lessee, at its sole cost and expense, shall notify the
relevant Tax Indemnitee of such requirement and
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except if such Tax Indemnitee notifies the Lessee that such
Person intends to file such report or return) (A) to the
extent required or permitted by and consistent with Legal
Requirements, make and file in its own name such return,
statement or report; and (B) in the case of any other such
return, statement or report required to be made in the name of
such Tax Indemnitee, advise such Tax Indemnitee of such fact
and prepare such return, statement or report for filing by
such Tax Indemnitee or, where such return, statement or report
shall be required to reflect items in addition to any
obligations of the Lessee under or arising out of subsection
(a), provide such Tax Indemnitee at the Lessee's expense with
information sufficient to permit such return, statement or
report to be properly made with respect to any obligations of
the Lessee under or arising out of subsection (a). Such Tax
Indemnitee shall, upon the Lessee's request and at the
Lessee's expense, provide any data maintained by such Tax
Indemnitee (and not otherwise within the control of the
Lessee) with respect to the Property which the Lessee may
reasonably require to prepare any required tax returns or
reports;
(e) If directly as a result of the payment or
reimbursement by the Lessee of any expenses of the Lessor, the
Lessor or any of its Affiliates, shall suffer a net increase (
taking into account any available credits or deductions) in
any federal, state or local income tax liability, the Lessee
shall indemnify the Lessor or its respective Affiliates
(without duplication of any indemnification required by
subsection (a)) on an After Tax Basis for the amount of such
increase. The calculation of any such net increase shall take
into account any current or future tax savings realized or
reasonably expected to be realized by the Lessor or such
Affiliate, in respect thereof, as well as any interest,
penalties and additions to tax payable by the Lessor or such
Affiliate, in respect thereof;
(f) As between the Lessee and the Lessor, the
Lessee shall be responsible for, and the Lessee shall
indemnify and hold harmless the Lessor (without duplication of
any indemnification required by subsection (a)) on an After
Tax Basis against, any obligation for United States
withholding taxes imposed in respect of the interest payable
on the Notes to the extent, but only to the extent, Lessor has
actually paid funds to a taxing authority with respect to such
withholding taxes (and, if the Lessor receives a demand for
such payment from any taxing authority, the Lessee shall
discharge such demand on behalf of the Lessor).
Notwithstanding the foregoing, the Lessee shall not be
responsible for any obligation for United States withholding
taxes imposed in respect of the interest payable on the Notes
or in respect of the Lessor Yield to the extent the Lessor is
not a United States person for purposes of the Code;
(g) (i) If a written claim is made against any
Impositions Indemnitee or if any proceeding shall be commenced
against such Impositions Indemnitee (including a written
notice of such proceeding), for any Impositions, such
Impositions Indemnitee shall promptly notify Lessee in writing
and shall not take action with respect to such claim or
proceeding without the consent of Lessee for thirty (30) days
after the receipt of such notice by Lessee; provided, that, in
the case of any such claim or proceeding, if action shall be
required by law regulation to be taken prior to the end of
such 30-day period, such Impositions Indemnitee shall, in such
notice to Lessee, inform Lessee, and no action shall be taken
with respect to
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such claim or proceeding without the consent of Lessee before
the end of such shorter period; provided, further, that the
failure of such Impositions Indemnitee to give the notices
referred to this sentence shall not diminish Lessee's
obligation hereunder except to the extent such failure
adversely affects the ability of the Lessee to contest all or
part of such claim.
(ii) If, within thirty (30) days of receipt of
such notice from the Impositions Indemnitee (or such shorter
period as the Impositions Indemnitee has noticed Lessee is
required by law or regulation for the Impositions Indemnitee
to commence such contest), Lessee shall request in writing
that such Impositions Indemnitee contest such Imposition, the
Impositions Indemnitee shall, at the expense of Lessee, in
good faith conduct and control such contest (including by
pursuit of appeals) relating to the validity, applicability or
amount of such impositions (provided, however, that (A) if
such contest can be pursued independently from any other
proceeding involving a tax liability of such Impositions
Indemnitee, the Impositions Indemnitee, at Lessee's request,
shall allow Lessee to conduct and control such contest and (B)
in the case of any contest that Lessee is not entitled to
control, the Impositions Indemnitee may request Lessee to
conduct and control such contest if possible or permissible
under applicable law or regulation) by, in the sole discretion
of the Person conducting and controlling such contest, (1)
resisting payment thereof, (2) not paying the same except
under protest, if protest is necessary and proper, (3) if the
payment be made, using reasonable efforts to obtain a refund
thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably
requested by Lessee from time to time.
(iii) The party controlling any contest shall
consult in good faith with the non- controlling party and
shall keep the non-controlling party reasonably informed as to
the conduct of such contest; provided that all decisions
ultimately shall be made in the sole discretion of the
controlling party. The parties agree that an Impositions
Indemnitee may at any time decline to take further action with
respect to the contest of any Imposition and may settle such
contest if such Impositions Indemnitee shall waive its rights
to any indemnity from Lessee that otherwise would be payable
in respect of such claim (and any future claim by any taxing
authority with respect to other taxable periods that are
based, in whole or in part, upon the resolution of such claim)
and shall pay to Lessee any amount previously paid or advanced
by Lessee pursuant to this Section 12.2 by way of
indemnification or advance for the payment of an Imposition,
and no other then future liability of the Lessee is likely
with respect to such Imposition.
(iv) Notwithstanding the foregoing provisions of
this Section 12.2, an Impositions Indemnitee shall not be
required to take any action and Lessee shall not be permitted
to contest any Impositions in its own name or that of the
Impositions Indemnitee unless (A) Lessee shall pay to such
Impositions Indemnitee on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Impositions
Indemnitee actually incurs in connection with contesting such
Impositions, including, without limitation, all reasonable
legal, accounting and investigatory fees and disbursements,
(B) in the case of a claim that must be pursued in the name of
an Impositions Indemnitee (or an Affiliate thereof), the
amount of the potential indemnity (taking into account all
similar or logically related claims that have been or could be
raised in any audit involving such Impositions Indemnitee for
which Lessee
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may be liable to pay an indemnity under this Section 12.2) is
less than $1,000,000, unless the pursuit of such contest is in
a manner mutually satisfactory to the Imposition Indemnitee
and the Lessee, but in no event shall such right prevent the
Lessee from prosecuting or continuing such contest, (C) the
Impositions Indemnitee shall have reasonably determined that
the action to be taken will not result in any material danger
of sale, forfeiture or loss of any Property, or any part
thereof or interest therein, will not interfere with the
payment of Rent, and will not result in risk of criminal
liability, (D) if such contest shall involve the payment of
the Imposition prior to the contest, Lessee shall provide to
the Impositions Indemnitee an interest-free advance in an
amount equal to the Imposition that the Impositions Indemnitee
is required to pay (with no additional net after-tax cost to
such Impositions Indemnitee), (E) in the case of a claim that
must be pursued in the name of an Impositions Indemnitee (or
an Affiliate thereof), Lessee shall have provided to such
Impositions Indemnitee an opinion of independent tax counsel
selected by the Lessee and reasonably satisfactory to such
Imposition Indemnitee stating that a reasonable basis exists
to contest such claim (or, in the case of an appeal of an
adverse determination, an opinion of such counsel to the
effect that there is substantial authority for the position
asserted in such appeal) and (F) no Event of Default shall
have occurred and be continuing.
SECTION 13. MISCELLANEOUS.
13.1. Survival of Agreements. The representations,
warranties, covenants, indemnities and agreements of the parties provided for in
the Operative Agreements, and the parties' obligations under any and all
thereof, shall survive the execution and delivery of this Agreement, the
transfer of the Property to the Lessor, the construction of any Improvements,
any disposition of any interest of the Lessor in the Property or the
Improvements, the payment of the Notes and any disposition thereof and shall be
and continue in effect notwithstanding any investigation made by any party and
the fact that any party may waive compliance with any of the other terms,
provisions or conditions of any of the Operative Agreements. Except as
otherwise expressly set forth herein or in other Operative Agreements, the
indemnities of the parties provided for in the Operative Agreements shall
survive the expiration or termination of any thereof.
13.2. No Broker, etc. Each of the parties hereto
represents to the others that it has not retained or employed any broker, finder
or financial adviser to act on its behalf in connection with this Agreement, nor
has it authorized any broker, finder or financial adviser retained or employed
by any other Person so to act, except for the Arranger, the fees of which shall
be paid by the Lessee. Any party who is in breach of this representation shall
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
13.3. Notices. Unless otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests and
other communications required or permitted by the terms hereof to be given to
any Person shall be given in writing by nationally recognized courier service
and any such notice shall become effective five Business Days after
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being deposited in the mails, certified or registered with appropriate postage
prepaid or one Business Day after delivery to a nationally recognized courier
service specifying overnight delivery and shall be directed to the address of
such Person as indicated:
If to the Lessee, to it at:
Living Centers Holding Company
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attn: Mr. Boyd P. Gentry
Telecopy No.: (713) 578-4735
If to the Lessor, to it at:
FBTC Leasing Corp.
Two World Trade Center
New York, New York 10048
Attn: Mr. Carl Marcantonio
Telecopy No.: (212) 775-7276
If to the Agent, to it at:
The Chase Manhattan Bank
Agent Bank Services
140 East 45th Street
New York, New York 10017
Attn: Janet Belden
Telecopy No.: (212) 622-0002
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: C. Tanner Rose, Jr., Esq.
Telecopy No.: (212) 455-2502
From time to time any party may designate a new address for purposes of notice
hereunder by notice to each of the other parties hereto.
13.4. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
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13.5. Amendments and Termination. Neither this
Agreement nor any of the terms hereof may be terminated, amended, supplemented,
waived or modified except by an instrument in writing signed by the party
against which the enforcement of the termination, amendment, supplement, waiver
or modification shall be sought. This Agreement may be terminated by an
agreement signed in writing by the Lessor, the Lessee, the Agent and the
Lenders.
13.6. Headings, etc.. The Table of Contents and
headings of the various Sections and Subsections of this Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
13.7. Parties in Interest. Except as expressly
provided herein, none of the provisions of this Agreement are intended for the
benefit of any Person except the parties hereto.
13.8. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
13.9. Severability. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13.10. Rights of Lessee. Notwithstanding any
provision of the Operative Agreements, if at any time all obligations (i) of the
Lessor under the Credit Agreement and the Security Documents and (ii) of the
Lessee under the Operative Agreements have in each case been satisfied or
discharged in full, then the Lessee shall be entitled to (a) terminate the Lease
(to the extent not previously terminated) and (b) receive all amounts then held
under the Operative Agreements and all proceeds with respect to the Property.
Upon the fulfillment of the obligations contained in clauses (i) and (ii) above,
the Lessor shall transfer to the Lessee all of its right, title and interest in
and to the Property (to the extent not previously transferred to the Lessee in
accordance with the Lease) and any amounts or proceeds referred to in the
foregoing clause (b) shall be paid over to the Lessee.
13.11. Further Assurances. The parties hereto shall
promptly cause to be taken, executed, acknowledged or delivered, at the sole
expense of the Lessee, all such further acts, conveyances, documents and
assurances as the other parties may from time to time reasonably request in
order to carry out and effectuate the intent and purposes of this Agreement, the
other Operative Agreements and the transactions contemplated hereby and thereby
(including, without limitation, the preparation, execution and filing of any and
all Uniform Commercial Code financing statements and other filings or
registrations which the parties hereto may from time to time request to be filed
or effected). The Lessee, at its own
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expense, shall take such action as may be reasonably requested in order to
maintain and protect all security interests provided for hereunder or under any
other Operative Agreement.
13.12. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
13.13. No Representation or Warranty. Nothing
contained herein, in any other Operative Agreement or in any other materials
delivered to the Lessee in connection with the transactions contemplated hereby
or thereby shall be deemed a representation or warranty by the Agent or the
Arranger or any of their Affiliates as to the proper accounting treatment or tax
treatment that should be afforded to the Lease and the Lessor's ownership of the
Properties and the Agent expressly disclaims any representation or warranty with
respect to such matters.
13.14. Confidentiality. Each of the Agent, the
Lessor and each Lender agrees that it will use its best efforts not to disclose
without the prior consent of Living Centers (other than to its subsidiaries and
affiliates conducting business related to the making and syndication of loans
and its and such subsidiaries and affiliates' employees, auditors or counsel or
to another Lender if the disclosing Lender or the disclosing Lender's holding or
parent company in its sole discretion determines that any such party should have
access to such information) any information with respect to any Guarantor which
is furnished pursuant to this Agreement or any other Operative Agreement and
which is designated by such party furnishing such information to the Lenders in
writing as confidential, provided that the Agent, the Lessor or any Lender may
disclose any such information (a) as has become generally available to the
public, (b) as may be required or appropriate in any report, statement, or
testimony submitted to any municipal, state or federal regulatory body having or
claiming to have jurisdiction over such Lender or to the Federal Reserve Board
or the FDIC or similar organizations (whether in the United States or
elsewhere), (c) as may be required or appropriate in response to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Lender, and (e) to the
prospective transferee or participant in connection with any contemplated
transfer of any of the Notes or any interest therein by the Person disclosing
such information, provided that such prospective transferee or participant
executes an agreement with such Guarantor containing provisions substantially
identical to those contained in this Section.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
LIVING CENTERS HOLDING COMPANY
By: /s/ Boyd P. Gentry
---------------------------------------
Name: Boyd P. Gentry
Title: Vice President
FBTC LEASING CORP., as Lessor
By: /s/ Akihiro Hashimoto
---------------------------------------
Name: Akihiro Hashimoto
Title: Treasurer
THE CHASE MANHATTAN BANK, as Agent and a Lender
By: /s/ Dawn Lee Lum
---------------------------------------
Name: Dawn Lee Lum
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH, as a Lender
By: /s/ Satoru Otsubo
---------------------------------------
Name: Satoru Otsubo
Title: Joint General Manager
CREDIT LYONNAIS NEW YORK BRANCH, as a Lender
and Co-Agent
By: /s/ F. Tavangar
---------------------------------------
Name: Farboud Tavangar
Title: Vice President
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THE FUJI BANK, LIMITED (HOUSTON AGENCY), as a
Lender
By: /s/ Nate Ellis
---------------------------------------
Name: Nate Ellis
Title: Vice President & Joint Manager
THE SANWA BANK, LIMITED, DALLAS AGENCY, as a
Lender
By: /s/ R. Blake Wright
---------------------------------------
Name: R. Blake Wright
Title: Vice President
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GUARANTEE
GUARANTEE dated as of October 10, 1996 made by LIVING CENTERS
OF AMERICA, INC., a Delaware corporation ("Living Centers") and the other
guarantors which are signatories hereto (Living Centers and each such
guarantor, individually, a "Guarantor"; collectively, the "Guarantors"), in
favor of THE CHASE MANHATTAN BANK, as agent (in such capacity, the "Agent") for
the lenders (the "Lenders") parties to the Credit Agreement, dated as of the
date hereof (as amended, supplemented, extended or otherwise modified from time
to time, the "Credit Agreement"), among FBTC LEASING CORP. (the "Borrower"),
the Lenders and the Agent.
Preliminary Statement
Pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans (the "Loans") to the Borrower upon the terms and subject
to the conditions set forth therein, to be evidenced by the notes issued by the
Borrower under the Credit Agreement. The Borrower has entered into the Credit
Agreement for the purpose of facilitating the financing, with the proceeds of
the Loans, of the acquisition of the Properties and the construction of
Improvements thereon, which shall, in turn, be leased to Living Centers Holding
Company (the "Lessee") under a Lease pursuant to which Borrower is Lessor.
The Loans will be made from time to time at the request of the
Construction Agent in consideration for the agreement of the Construction
Agent, for the benefit of the Borrower, to perform its obligations under the
Agency Agreement. Each Guarantor is an Affiliate of the Lessee and will derive
substantial direct and indirect benefit from the Lenders making the Loans. It
is a condition precedent to the obligation of the Lenders to make their
respective Loans to the Borrower under the Credit Agreement that each Guarantor
shall have executed and delivered this Guarantee to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective Loans to the Borrower under the Credit
Agreement, each Guarantor hereby agrees with the Agent, for the ratable benefit
of the Lenders, as follows:
1. Defined Terms; Calculations and Computations. Capitalized
terms not otherwise defined herein shall have the meanings set forth on Annex A
to the Participation Agreement dated as of the date hereof among the Lessee,
the Lessor, the Agent, and the Lenders.
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88
2. Guarantee (a) Subject to the provisions of Section 2(b)
and without duplication, the Guarantors hereby jointly and severally
unconditionally and irrevocably guarantee to the Agent, for the ratable benefit
of the Lenders and their respective successors, indorsees, transferees and
assigns, (i) the prompt and complete payment and performance by the Borrower
when due (whether at the stated maturity, by acceleration or otherwise) of each
of the following: the unpaid principal of and interest on the Notes and all
other obligations and liabilities of the Borrower to the Agent or the Lenders
(including interest accruing at the then applicable rate provided in the Credit
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in the Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter incurred, which may arise under, out of, or in connection with,
the Credit Agreement, the Notes, the other Operative Agreements or any other
document made, delivered or given in connection therewith, whether on account
of principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including all reasonable fees and disbursements of
counsel to the Agent or to the Lenders that are required to be paid by the
Borrower pursuant to the terms of the Credit Agreement or any other Operative
Agreement) and (ii) the prompt and complete payment by the Lessee when due
(whether at stated maturity, by acceleration or otherwise) of all amounts
payable by the Lessee under any of the Operative Agreements (including
indemnities and Facility Fees) to the Agent and/or the Lenders and the Lessor
(each and all of the above obligations described in clauses (i) and (ii) above,
collectively, the "Guaranteed Obligations").
(b) Anything herein or in any other Operative Agreement to
the contrary notwithstanding, no Guarantor shall at any time be required to
make any payment hereunder in respect of the principal of any Tranche B Loans
unless at such time a Lease Event of Default has occurred and is continuing.
The maximum liability of each Guarantor hereunder shall in no event exceed the
amount which can be guaranteed by each Guarantor under applicable federal and
state laws relating to the insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all expenses
(including all reasonable fees and disbursements of counsel) which may be paid
or incurred by the Agent or any Lender in enforcing, or obtaining advice of
counsel in respect of, any rights with respect to, or collecting, any or all of
the Guaranteed Obligations and/or enforcing any rights with respect to, or
collecting against, such Guarantor under this Guarantee. This Guarantee shall
remain in full force and effect until the Guaranteed Obligations and all
amounts owing hereunder are paid in full and the Commitments are terminated,
notwithstanding that from time to time prior thereto the Borrower or the Lessee
may be free from any Guaranteed Obligations.
(d) No payment or payments made by the Borrower, any
Guarantor or any other Person or received or collected by the Agent or any
Lender from the Borrower, any Guarantor or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of
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89
the Guaranteed Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment or payments remain liable for the Guaranteed
Obligations until the Guaranteed Obligations and all amounts owing hereunder
are paid in full and the Commitments are terminated.
(e) Each Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Agent or any Lender on account
of its liability hereunder, it will notify the Agent in writing that such
payment is made under this Guarantee for such purpose.
3. Right of Set-off. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of an Event of Default, the Agent and each Lender is hereby authorized at any
time or from time to time, without presentment, demand, protest or other notice
of any kind to the Borrower, any Guarantor or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and apply
any and all deposits (general or special) and any other Debt at any time held
or owing by the Agent or such Lender (including by branches and agencies of the
Agent or such Lender wherever located) to or for the credit or the account of
any Guarantor against and on account of the obligations and liabilities of any
Guarantor hereunder or under any of the other Operative Agreements, and all
other claims of any nature or description arising out of or connected with this
Guarantee or any other Operative Agreement, irrespective of whether the Agent
or such Lender shall have made any demand hereunder.
4. No Subrogation. Notwithstanding any payment or payments
made by any Guarantor hereunder or any set-off or application of funds of such
Guarantor by any Lender, no Guarantor shall be entitled to exercise or enforce
any subrogation rights of the Agent or any Lender against the Borrower or any
other Guarantor or any collateral security or guarantee or right of offset held
by the Agent or any Lender for the payment of the Guaranteed Obligations, nor
shall any Guarantor seek or be entitled to seek any contribution or
reimbursement from the Borrower or any other Guarantor in respect of payments
made by any Guarantor hereunder, until all amounts owing to the Agent and the
Lenders by the Borrower on account of the Guaranteed Obligations and all
amounts owing hereunder are paid in full and the Commitments are terminated.
If any amount shall be paid to any Guarantor on account of such subrogation
rights at any time when all of the Guaranteed Obligations and all amounts owing
hereunder shall not have been paid in full or the Commitments shall not have
been terminated, such amount shall be held by such Guarantor in trust for the
Agent and the Lenders, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the Agent in
the exact form received by such Guarantor (duly indorsed by such Guarantor to
the Agent, if required), to be applied against the Guaranteed Obligations,
whether matured or unmatured, in such order as the Agent may determine.
5. Amendments, etc. with respect to the Guaranteed
Obligations; Waiver of Rights. Each Guarantor shall remain obligated hereunder
notwithstanding that, without any reservation of rights against such Guarantor
and without notice to or further assent by such
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Guarantor, any demand for payment of any of the Guaranteed Obligations made by
the Agent or any Lender may be rescinded by such party and any of the
Guaranteed Obligations continued, and the Guaranteed Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended,
modified, accelerated, compromised, waived, surrendered or released by the
Agent or any Lender, and the Credit Agreement, the Participation Agreement and
the other Operative Agreements may be amended, modified, supplemented or
terminated, in whole or in part, as the Agent (or the Required Lenders, as the
case may be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Agent or any Lender for
the payment of the Guaranteed Obligations may be sold, exchanged, waived,
surrendered or released. Neither the Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by
it as security for the Guaranteed Obligations or for this Guarantee or any
property subject thereto. When making any demand hereunder against any
Guarantor, the Agent or any Lender may, but shall be under no obligation to,
make a similar demand on the Borrower or any other Guarantor, and any failure
by the Agent or any Lender to make any such demand or to collect any payments
from the Borrower or any other Guarantor or any release of the Borrower or any
such other Guarantor shall not relieve any Guarantor, and shall not impair or
affect the rights and remedies, express or implied, or as a matter of law, of
the Agent or any Lender against such Guarantor. For the purposes hereof
"demand" shall include the commencement and continuance of any legal
proceedings.
6. Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Guaranteed Obligations and notice of or proof of reliance by the Agent
or any Lender upon this Guarantee or acceptance of this Guarantee; the
Guaranteed Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon this Guarantee; and all dealings between the Borrower and each
Guarantor, on the one hand, and the Agent and the Lenders, on the other hand,
with respect to the Guaranteed Obligations, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this Guarantee. Each
Guarantor waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Borrower or such Guarantor with respect
to the Guaranteed Obligations. Each Guarantor understands and agrees that this
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or
enforceability of the Credit Agreement or any other Operative Agreement, any of
the Guaranteed Obligations or any other collateral security therefor or
guarantee or right of offset with respect thereto at any time or from time to
time held by the Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower or any Guarantor against the Agent
or any Lender, (c) any non-recourse provision contained in any Operative
Agreement, or (d) any other circumstance whatsoever (with or without notice to
or knowledge of the Borrower or such Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for
the Guaranteed Obligations, or of any Guarantor under this Guarantee, in
bankruptcy or in any other instance. When pursuing its rights and remedies
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hereunder against any Guarantor, the Agent and any Lender may, but shall be
under no obligation to, pursue such rights and remedies as it may have against
the Borrower or any other Person or against any collateral security or
guarantee for the Guaranteed Obligations or any right of offset with respect
thereto, and any failure by the Agent or any Lender to pursue such other rights
or remedies or to collect any payments from the Borrower or any such other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower or any such
other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Agent and the Lenders against such Guarantor. This
Guarantee shall remain in full force and effect and be binding in accordance
with and to the extent of its terms upon each Guarantor and the successors and
assigns thereof, and shall inure to the benefit of the Agent and the Lenders,
and their respective successors, indorsees, transferees and assigns, until all
the Guaranteed Obligations and the obligations of each Guarantor under this
Guarantee shall have been satisfied by payment in full and the Commitments
shall be terminated, notwithstanding that from time to time during the term of
the Credit Agreement the Borrower may be free from any Guaranteed Obligations.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
8. Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Agent without set-off or counterclaim in U.S.
Dollars at the office of the Agent located at 270 Park Avenue, New York, New
York 10017.
9. Representations, Warranties. In order to induce the
Lenders to enter into the Credit Agreement and to make the Loans, each
Guarantor hereby represents and warrants to the Agent and each Lender hereto as
of the Initial Closing Date and as of each Funding Date as follows:
Section 9.1. Corporate Existence; Compliance with Law;
Subsidiaries. Each Guarantor is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation and in good standing and qualified to do business in
each jurisdiction where its ownership or lease of property or conduct
of its business requires such qualification and where a failure to be
qualified would reasonably be expected to cause a Material Adverse
Effect and is in compliance with all Requirements of Law except where
the failure to so comply would not reasonably be expected to have a
Material Adverse Effect. Living Centers has no Subsidiaries on the
date of this Agreement other than the Subsidiaries listed on the
attached Schedule 9.1, and Schedule 9.1 lists the jurisdiction of
incorporation and the address of the principal office of each such
Subsidiary existing on the date of this Agreement.
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Section 9.2. Corporate Power. The execution, delivery,
and performance by each Guarantor of this Agreement and the other
Operative Agreements to which any of them is a party and the
consummation of the transactions contemplated hereby and thereby (a)
are within the Guarantors' corporate powers, (b) have been duly
authorized by all necessary corporate action, (c) do not contravene
(i) any such Guarantor's certificate or articles, as the case may be,
of incorporation or by-laws or (ii) any law or any contractual
restriction binding on or affecting any such Guarantor, the
contravention of which would reasonably be expected to cause a
Material Adverse Effect and (d) will not result in or require the
creation or imposition of any Lien prohibited by this Agreement.
Section 9.3. Authorization and Approvals. No
authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due
execution, delivery and performance by any Guarantor of this Agreement
or the other Operative Agreements to which any of them is a party.
Section 9.4. Enforceable Obligations. This Agreement and
the other Operative Agreements to which any Guarantor is a party have
been duly executed and delivered by such Guarantor. Each Operative
Agreement is the legal, valid, and binding obligation of each
Guarantor which is a party to it enforceable against each such
Guarantor in accordance with its terms, except as such enforceability
may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, or similar law affecting creditors' rights
generally and by general principles of equity (whether considered in
proceeding at law or in equity).
Section 9.5. Financial Statements; No Material Adverse
Change. (i) The balance sheets of Living Centers and its
Subsidiaries as at September 30, 1995, and the related statements of
income, cash flow, and retained earnings of Living Centers and its
Subsidiaries for the fiscal year then ended, copies of which have been
furnished to each Lender, and the balance sheets of Living Centers and
its Subsidiaries as at June 30, 1996, and the related statements of
income and cash flow of Living Centers and its Subsidiaries for the
nine months then ended, duly certified by an authorized financial
officer of Living Centers, copies of which have been furnished to each
Lender, fairly present, subject, in the case of said balance sheets as
at June 30, 1996 and said statements of income and cash flow for the
nine months then ended, to year-end audit adjustments and the absence
of footnotes, the financial condition of Living Centers and its
Subsidiaries as at such dates and the results of the operations of
Living Centers and its Subsidiaries for the periods ended on such
dates, and such balance sheets and statements of income, cash flow,
and retained earnings were prepared in accordance with GAAP.
(ii) No Material Adverse Change has occurred since
June 30, 1996.
Section 9.6. True and Complete Disclosure. No
representation, warranty, or other statement made by the Guarantors
(or on behalf of any Guarantor) in this
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Agreement or any other Operative Agreement or in any other document or
certificate furnished to the Agent, the Lessor or the Lenders, or any
of them, by or on behalf of the Lessee or Living Centers in connection
with the transaction contemplated by the Operative Agreements contains
any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made as of the date
of this Agreement the effect of which would reasonably be expected to
have a Material Adverse Effect. There is no fact known to any
Responsible Officer of any Guarantor on the date of this Agreement and
on the Effective Date that has not been disclosed to the Lenders which
would reasonably be expected to have a Material Adverse Effect. All
projections, estimates, and pro forma financial information furnished
by the Guarantors or on behalf of the Guarantors were prepared on the
basis of assumptions, data, information, tests, or conditions believed
to be reasonable at the time such projections, estimates, and pro
forma financial information were furnished.
Section 9.7. Litigation. Except as otherwise disclosed to
the Lenders in Schedule 1 hereto after the date of this Agreement,
there is no pending or, to the best knowledge of the Guarantors,
threatened action or proceeding affecting any Guarantor or any of its
Subsidiaries before any court, Governmental Authority or arbitrator,
which would reasonably be expected to have a Material Adverse Effect
or which purports to affect the legality, validity, binding effect or
enforceability of this Agreement or any other Operative Agreement or
the consummation of any of the transactions contemplated hereby or
thereby.
Section 9.8. Investment Company Act. None of the
Guarantors nor any of their Subsidiaries is an "investment company" or
a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
Section 9.9. Public Utility Holding Company Act. None of
the Guarantors nor any of their Subsidiaries is a "holding company",
or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Section 9.10. Taxes. (i) Reports and Payments. All
Returns required to be filed by or on behalf of Living Centers, its
Subsidiaries, or any member of the Controlled Group (hereafter
collectively called the "Tax Group") have been duly filed on a timely
basis or appropriate extensions have been obtained and such Returns
are and will be true, complete and correct, except where the failure
to so file would not be reasonably expected to have a Material Adverse
Effect; and all Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto will have been paid in
full on a timely basis, and no other Taxes will be payable by the Tax
Group with respect to items or periods covered by such Returns, except
in each case to the extent of (i) reserves reflected in the Financial
Statements, (ii) taxes that are being contested in good faith, or
(iii) such Taxes, the failure to pay which would not have a
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Material Adverse Effect. The reserves for accrued Taxes reflected in
the financial statements delivered to the Lenders under this Agreement
are adequate in the aggregate for the payment of all unpaid Taxes,
whether or not disputed, for the period ended as of the date thereof
and for any period prior thereto, and for which the Tax Group may be
liable in its own right, as withholding agent or as a transferee of
the assets of, or successor to, any Person, except for such Taxes or
reserves therefor, the failure to pay or provide for which does not
and could not have a Material Adverse Effect.
(ii) Taxes Definition. "Taxes" in this clause (j) shall mean
all taxes, charges, fees, levies, or other assessments imposed by any
federal, state, local, or foreign taxing authority, including without
limitation, income, gross receipts, excise, real or personal property,
sales, occupation, use, service, leasing, environmental, value added,
transfer, payroll, and franchise taxes (and including any interest,
penalties, or additions to tax attributable to or imposed on with
respect to any such assessment).
(iii) Returns Definition. "Returns" in this clause (j) shall
mean any federal, state, local, or foreign report, estimate,
declaration of estimated Tax, information statement or return relating
to, or required to be filed in connection with, any Taxes, including
any information return or report with respect to backup withholding or
other payments of third parties.
Section 9.11. Pension Plans. No Termination Event has
occurred with respect to any Plan, and each Plan has complied with and
been administered in all material respects in accordance with
applicable provisions of ERISA and the Code. No "accumulated funding
deficiency" (as defined in Section 302 of ERISA) has occurred and
there has been no excise tax imposed under Section 4971 of the Code.
To the knowledge of any Responsible Officer of Living Centers, no
Reportable Event has occurred with respect to any Multiemployer Plan,
and each Multiemployer Plan has complied with and been administered in
all material respects with applicable provisions of ERISA and the
Code. The present value of all benefits vested under each Plan (based
on the assumptions used to fund such Plan) did not, as of the last
annual valuation date applicable thereto, exceed the value of the
assets of such Plan allocable to such vested benefits in any amount
that would reasonably be expected to have a Material Adverse Effect.
Neither Living Centers nor any member of the Controlled Group has had
a complete or partial withdrawal from any Multiemployer Plan for which
there is any material withdrawal liability. As of the most recent
valuation date applicable thereto, neither Living Centers nor any
member of the Controlled Group has received notice that any
Multiemployer Plan is insolvent or in reorganization. Based upon GAAP
existing as of the date of this Agreement and current factual
circumstances, Living Centers has no reason to believe that the annual
cost during the term of this Agreement to Living Centers or any of its
Subsidiaries for post-retirement benefits to be provided to the
current and former employees of Living Centers or any of its
Subsidiaries under welfare benefit plans (as defined in Section 3(1)
of ERISA) could, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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Section 9.12. No Burdensome Restrictions; No Defaults.
(i) Neither the Guarantors nor any of their Subsidiaries is a party to
any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate
restriction or provision of applicable Legal Requirement which would
reasonably be expected to have a Material Adverse Effect. No
Guarantor is in default under or with respect to any contract,
agreement, lease or other instrument to which any Guarantor is a party
and which would reasonably be expected to have a Material Adverse
Effect. To the knowledge of any Responsible Officer of any Guarantor,
no Guarantor has received any notice of default under any contract,
agreement, lease or other instrument to which such Guarantor is a
party which is continuing and which, if not cured, would reasonably be
expected to have a Material Adverse Effect.
(ii) No Default has occurred and is continuing.
Section 9.13. Environmental Condition. The Guarantors and
their Subsidiaries, taken as a whole, (A) have obtained all
Environmental Permits necessary for the ownership and operation of
their respective material properties and the conduct of their
respective businesses of which the failure to obtain would reasonably
be expected to have a Material Adverse Effect; (B) have been and are
in compliance with all terms and conditions of such Environmental
Permits and with all other material requirements of applicable
Environmental Laws of which the failure to comply would reasonably be
expected to have a Material Adverse Effect; (C) have not received
notice of any violation or alleged violation of any Environmental Law
or Environmental Permit the violation of which would reasonably be
expected to have a Material Adverse Effect; and (D) are not subject to
any actual or contingent Environmental Claim, which Environmental
Claim would reasonably be expected to have a Material Adverse Effect.
To the knowledge of any Responsible Officer of any Guarantor,
none of the present or previously owned or operated property of any
Guarantor or of any of such Guarantor's present or former
Subsidiaries, wherever located, (A) has been placed on or proposed to
be placed on the National Priorities List, the Comprehensive
Environmental Response Compensation Liability Information System list,
or their state or local analogs, or have been otherwise designated,
listed, or identified as a potential site for removal, remediation,
cleanup, closure, restoration, reclamation, or other response activity
under any Environmental Laws; (B) is subject to a Lien, arising under
or in connection with any Environmental Laws, that attaches to any
revenues or to any property owned or operated by any Guarantor or any
of such Guarantor's Subsidiaries, wherever located, which Lien would
reasonably be expected to have a Material Adverse Effect; or (C) has
been the site of any Release of Hazardous Substances or Hazardous
Wastes from present or past operations which has caused at the site or
at any third-party site any condition that has resulted in or would
reasonably be expected to result in the need for Response that would
have a Material Adverse Effect.
Without limiting the foregoing, the present and, to the best
knowledge of any Responsible Officer of any Guarantor, future
liability, if any, of the Guarantors and their Subsidiaries, taken as
a whole, which would reasonably be expected to arise in
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connection with requirements under Environmental Laws will not have a
Material Adverse Effect.
Section 9.14. Permits, Licenses, etc. The Guarantors and
their Subsidiaries possess all permits, licenses, patents, patent
rights or licenses, trademarks, trademark rights, trade names rights
and copyrights which the failure to possess could reasonably be
expected to have a Material Adverse Effect. The Guarantors and their
Subsidiaries manage and operate their business in accordance with all
applicable Legal Requirements which the failure to so manage or
operate would reasonably be expected to have a Material Adverse
Effect.
Section 9.15. Health Care Regulatory Matters. To the
knowledge of any Responsible Officer of any Guarantor, all necessary
steps have been or are being taken to secure the renewal of any Health
Facility License, Medicaid Provider Agreement or Medicare Provider
Agreement issued with respect to any Facility which the failure to
renew could reasonably be expected to have a Material Adverse Effect
and that is to expire within 60 days after the date of this Agreement,
and there is no reasonable basis known to any Responsible Officer of
any Guarantor or their Subsidiaries that any such renewal will not be
obtained.
There are no proceedings pending, or, to the best of
any Guarantor's knowledge, threatened by any Governmental Authority
seeking nor, to the knowledge of any Responsible Officer of the
Guarantors or any of their Subsidiaries, has any such Guarantor or any
of its Subsidiaries taken any action to the effect of which would be
to adversely modify, revoke, withdraw, or suspend any CON, Health
Facility License, Medicaid Provider Agreement, Medicare Provider
Agreement, Medicare Certification or Medicaid Certification in a
manner that would reasonably be expected to have a Material Adverse
Effect. To the Guarantors' knowledge, there is no decision to fail to
renew or deny payments under any Medicaid Provider Agreement or
Medicare Provider Agreement which failure or denial would reasonably
be expected to have a Material Adverse Effect.
10. Affirmative Covenants of the Guarantor. Living Centers
hereby covenants and agrees that so long as this Guarantee is in effect and
until the Commitments have terminated and the Guaranteed Obligations and all
amounts owing hereunder are paid in full:
Section 10.1. Compliance with Laws, Etc. Living Centers will
comply, and cause each of its Subsidiaries to comply, with all Legal
Requirements of which the failure to comply would reasonably be
expected to have a Material Adverse Effect. Without limiting the
generality and coverage of the foregoing, Living Centers shall comply,
and shall cause each of its Subsidiaries to comply, in all material
respects, with all Environmental Laws and, in all material respects,
all laws, regulations, or directives with respect to equal employment
opportunity and employee safety in all jurisdictions in which Living
Centers, or any of its Subsidiaries do business; provided, however,
that this Section 10.1 shall not prevent Living Centers, or any of its
Subsidiaries, in good faith and with reasonable diligence, from
contesting the validity
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or application of any such laws or regulations by appropriate legal
proceedings. All requirements to comply with Legal Requirements
relating to the Properties shall be governed by the Lease and the
other Operative Agreements (other than this Guarantee).
Section 10.2. Maintenance of Insurance. Living Centers will
maintain, and cause each of its Subsidiaries to maintain, insurance
with responsible and reputable insurance companies or associations in
such amounts and covering such risks as are usually carried by
companies engaged in similar businesses and owning similar properties
in the same general areas in which Living Centers or such Subsidiary
operates, provided that Living Centers or such Subsidiary may
self-insure to the extent and in the manner normal for similarly
situated companies of like size, type and financial condition that are
part of a group of companies under common control. All requirements
concerning insurance as it relates to the Properties shall be governed
by the Lease.
Section 10.3. Preservation of Corporate Existence, Etc.
Living Centers will preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each such
Subsidiary to qualify and remain qualified, as a foreign corporation
in each jurisdiction in which qualification is necessary or desirable
in view of its business and operations or the ownership of its
properties, and, in each case, where failure to qualify or preserve
and maintain its rights and franchises would reasonably be expected to
have a Material Adverse Effect; provided, however, that nothing
contained in this Section 10.3 shall prevent any transaction permitted
by Section 11.4.
Section 10.4. Payment of Taxes, Etc. Living Centers will pay
and discharge, and cause each of its Subsidiaries to pay and
discharge, before the same shall become delinquent and which the
failure to timely pay or discharge would reasonably be expected to
have a Material Adverse Effect, (a) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or
profits or Property that are material in amount, prior to the date on
which penalties attach thereto and (b) all lawful claims that are
material in amount which, if unpaid, might by law become a Lien upon
its property; provided, however, that neither Living Centers nor any
such Subsidiary shall be required to pay or discharge any such tax,
assessment, charge, levy, or claim which is being contested in good
faith and by appropriate proceedings, and with respect to which
reserves in conformity with GAAP have been provided. All requirements
concerning taxes as they relate to the Properties shall be governed by
the Lease and the Participation Agreement.
Section 10.5. Visitation Rights. At any reasonable time
and from time-to-time and so long as any visit or inspection will not
interfere with patients' rights or unreasonably interfere with Living
Center's or any of its Subsidiaries operations, upon reasonable
notice, Living Centers will, and will cause its Subsidiaries to,
permit the Agent and any Lender or any of its agents or
representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit and
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inspect at its reasonable discretion the properties of, Living Centers
and any such Subsidiary, to discuss the affairs, finances and accounts
of Living Centers and any such Subsidiary with any of their respective
officers or directors.
Section 10.6. Reporting Requirements. Living Centers will
furnish to the Agent and each Lender:
(a) Defaults. As soon as possible and in any
event within five Business Days after the occurrence of any
Default by the Lessee or any Guarantor or any of Living
Centers' wholly-owned Subsidiaries relating to the Lease or
any other Operative Agreement, which Default is known to a
Responsible Officer of Living Centers and is continuing on the
date of such statement, a statement of an authorized financial
officer of Living Centers setting forth the details of such
Default and the actions which Living Centers has taken and
proposes to take with respect thereto;
(b) Quarterly Financials. As soon as available
and in any event not later than 45 days after the end of each
of the first three quarters of each fiscal year of Living
Centers, the balance sheets of Living Centers and its
Subsidiaries as of the end of such quarter and the statements
of income and cash flows of Living Centers and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
all in reasonable detail and duly certified with respect to
such statements (subject to year-end audit adjustments) by an
authorized financial officer of Living Centers as having been
prepared in accordance with GAAP, together with a compliance
certificate duly executed by a Responsible Officer in
substantially the form of the attached Exhibit A;
(c) Annual Financials. As soon as available and
in any event not later than 90 days after the end of each
fiscal year of Living Centers, a copy of the annual audit
report for such year for Living Centers and its Subsidiaries,
including therein balance sheets of Living Centers and its
Subsidiaries as of the end of such fiscal year and statements
of income and retained earnings and of cash flows of Living
Centers and its Subsidiaries for such fiscal year, in each
case certified by Ernst & Young or other nationally recognized
independent certified public accountants or other independent
certified public accountants of recognized standing acceptable
to the Agent and including any management letters delivered by
such accountants to Living Centers in connection with such
audit, together with a compliance certificate duly executed by
a Responsible Officer in substantially the form of the
attached Exhibit A;
(d) Securities Law Filings. Promptly and in any
event within 15 days after the sending or filing thereof,
copies of all proxy material, reports and other information
which Living Centers or any of its Subsidiaries sends to or
files with the United States Securities and Exchange
Commission or sends to any shareholder of Living Centers;
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(e) Termination Events. As soon as possible and
in any event (i) within 30 days after Living Centers knows or
has reason to know that any Termination Event described in
clause (a) of the definition of Termination Event with respect
to any Plan has occurred, and (ii) within 10 days after any
Responsible Officer of Living Centers knows or has reason to
know that any other Termination Event with respect to any Plan
has occurred, a statement of a Responsible Officer of Living
Centers describing such Termination Event and the action, if
any, which Living Centers or such Affiliate proposes to take
with respect thereto;
(f) Termination of Plans. Promptly and in any
event within two Business Days after the knowledge of any
Responsible Officer of Living Centers of receipt thereof by
Living Centers or any member of the Controlled Group from the
PBGC, copies of each notice received by Living Centers or any
such member of the Controlled Group of the PBGC's intention to
terminate any Plan or to have a trustee appointed to
administer any Plan;
(g) Other ERISA Notices. Promptly and in any
event within five Business Days after the knowledge of any
Responsible Officer of Living Centers of receipt thereof by
Living Centers or any member of the Controlled Group from a
Multiemployer Plan sponsor, a copy of each notice received by
Living Centers or any member of the Controlled Group
concerning the imposition of withdrawal liability pursuant to
Section 4202 of ERISA in an amount that could reasonably be
expected to have a Material Adverse Effect;
(h) Environmental Notices. Promptly upon the
knowledge of any Responsible Officer of Living Centers of
receipt thereof by Living Centers or any of its Subsidiaries,
a copy of any form of notice, summons or citation received
from the EPA, or any other Governmental Authority directly
engaged in protection of the Environment, concerning (i)
material violations or alleged violations of Environmental
Laws, which seeks to impose liability therefor and which,
based upon information reasonably available to Living Centers
at the time or after such violation, would reasonably be
expected to have a Material Adverse Effect, (ii) any action or
omission on the part of Living Centers or any of its
Subsidiaries in connection with Hazardous Waste or Hazardous
Substances which, based upon information reasonably available
to Living Centers at the time of such receipt, would
reasonably be expected to have a Material Adverse Effect,
(iii) any notice of potential responsibility under CERCLA
which would reasonably be expected to have a Material Adverse
Effect, or (iv) concerning the filing of a Lien other than a
Permitted Lien upon, against or in connection with Living
Centers, its present or former Subsidiaries, or any of their
leased or owned material property, wherever located, which
would reasonably be expected to have a Material Adverse
Effect. In the event of a conflict between the foregoing
provisions and the provisions of the Lease regarding
environmental issues effecting any Property, the provisions of
the Lease shall govern;
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(i) Other Governmental Notices. Promptly and in
any event within five Business Days after receipt thereof by
Living Centers or any Subsidiary and the knowledge of such
receipt by a Responsible Officer of Living Centers or any
inside counsel of Living Centers, (i) a copy of any notice,
summons, citation, or proceeding seeking to adversely modify
in any material respect, revoke, or suspend any CON, Health
Facility License, Medicaid Provider Agreement, Medicare
Provider Agreement, Medicaid Certification, or Medicare
Certification in a manner that would reasonably be expected to
have a Material Adverse Effect and (ii) any revocation or
involuntary termination of any Medicaid Provider Agreement,
Medicare Provider Agreement, Medicaid Certification, or
Medicare Certification that would reasonably be expected to
have a Material Adverse Effect;
(j) Material Changes. Prompt written notice of
any condition or event of which any Responsible Officer of
Living Centers has knowledge, which condition or event has
resulted or could reasonably be expected to result in (i) a
Material Adverse Change or Material Adverse Effect or (ii) a
breach of or noncompliance with any term, condition, or
covenant of any contract to which Living Centers or any of its
Subsidiaries is a party or by which they or their properties
may be bound, which breach or noncompliance would reasonably
be expected to have a Material Adverse Effect;
(k) Disputes, etc. Prompt written notice of any
claims, proceedings, or disputes, or to the knowledge of any
Responsible Officer of Living Centers threatened, or affecting
Living Centers, or any of its Subsidiaries which, if adversely
determined, could reasonably be expected to have a Material
Adverse Effect; and
(l) Other Information. Such other information
respecting the business or properties, or the condition or
operations, financial or otherwise, of Living Centers, or any
of its Subsidiaries, as any Lender through the Agent may from
time-to-time reasonably request.
Section 10.7. Maintenance of Property. Living Centers shall,
and shall cause each of its Subsidiaries to, (a) maintain all of its
property necessary or useful in the proper conduct of its business in
good working order and condition, except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect and
(b) not knowingly or willfully permit the commission of waste or other
injury, or the occurrence of pollution, contamination or any other
condition in, on or about the owned or operated property involving the
Environment that would reasonably be expected to have a Material
Adverse Effect. The provisions regarding maintenance as it relates to
the Properties shall be governed by the Lease.
Section 10.8. Additional Guaranties. Upon the creation or
acquisition after the Initial Closing Date of any Material Subsidiary
or promptly after any Subsidiary which is not a Guarantor becomes a
Material Subsidiary, Living Centers will cause such
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Material Subsidiary to become a party to this Guarantee and to provide
such evidence of corporate authority to enter into such Guarantee as
the Agent may reasonably request; provided that as of the last day of
any fiscal quarter Living Centers and the other Guarantors shall have
at least 85% of Living Centers' Tangible Net Assets on such day and at
least 85% of Living Centers' EBITDA for the four fiscal quarters
ending on such day. A "Living Centers Material Subsidiary" is any
Subsidiary of Living Centers which on the date of its acquisition or
formation or on any quarter end after the date of this Guarantee (a)
has EBITDA for the four fiscal quarters ending immediately preceding
such date equal to or greater than 5% of Living Centers' EBITDA for
such period or (b) Tangible Net Assets equal to or greater than 5% of
Living Centers' Tangible Net Assets.
11. Negative Covenants. Living Centers hereby agrees
that so long as this Guarantee is in effect and until the Commitments have
terminated and the Guaranteed Obligations and all amounts owing hereunder are
paid in full:
Section 11.1. Liens, Etc. Living Centers will not create,
assume, incur or suffer to exist, or permit any of its Subsidiaries to
create, assume, incur, or suffer to exist, any Lien on or in respect
of any of its property whether now owned or hereafter acquired, or
assign any right to receive income, except that Living Centers and its
Subsidiaries may create, incur, assume or suffer to exist Liens:
(a) securing the obligations under the Operative
Agreements or obligations under the Corporate Credit Agreement
and documents relating thereto;
(b) for taxes, assessments or governmental
charges or levies on property of Living Centers or any other
Guarantor to the extent not required to be paid pursuant to
Sections 10.1 and 10.4;
(c) imposed by law, such as landlords',
carriers', warehousemen's and mechanics' liens and other
similar Liens arising in the ordinary course of business
securing obligations which are not overdue for a period of
more than 30 days or which are being contested in good faith
and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of Living Centers
and its Subsidiaries in accordance with GAAP;
(d) arising in the ordinary course of business
out of pledges or deposits under workers' compensation laws,
unemployment insurance, old age pensions or other social
security or retirement benefits, or similar legislation or to
secure public or statutory obligations of Living Centers or
any of its Subsidiaries;
(e) Liens securing purchase money Debt, Capital
Leases, and acquired Debt permitted under Section 11.2(k);
provided that (i) in the case of purchase money Debt and
Capital Leases, each such Lien only encumbers the
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property acquired in connection with the creation of such Debt
or Capital Lease and all proceeds therefrom and (ii) the fair
market value of the collateral securing any such Debt may
exceed the outstanding principal amount of such Debt only to
the extent such excess is within customary commercial bank
lending and collateralization requirements;
(f) securing Debt listed on the attached Schedule
11.1; provided that the Debt of Living Centers or any
Subsidiary of Living Centers secured by such Liens shall not
be renewed, refinanced or extended if the amount of such Debt
so renewed is greater than the outstanding amount of such Debt
on the date of this Agreement;
(g) arising from litigation and which are
effectively stayed from execution and would not otherwise
cause a Default to occur;
(h) in the nature of utility easements, building
restrictions, and such other encumbrances or charges against
real property as are of a nature generally existing with
respect to properties of a similar character and which do not
in any material way affect the marketability of the same or
interfere with the use thereof in the business of Living
Centers or its Subsidiaries; and
(i) in the nature of any interest or title of a
lessor in assets being leased to Living Centers or one of its
Subsidiaries.
Section 11.2. Debts, Guaranties and Other Obligations.
Living Centers will not, and will not permit any of its Subsidiaries
to, create, assume, suffer to exist or in any manner become or be
liable in respect of any Debt except:
(a) Debt of Living Centers and its Subsidiaries
under the Operative Agreements and under the Corporate Credit
Agreement and documents relating thereto as of the date of
this Guarantee;
(b) unsecured Debt listed on the attached
Schedule 11.2 and all renewals, extensions, rearrangements or
refinancings of any such credit arrangements on terms and for
amounts substantially similar to the terms and amounts
existing as of the date of this Guarantee;
(c) intercompany Debt owed (i) by any
wholly-owned Subsidiary of Living Centers (other than a
Nonprofit Subsidiary) to Living Centers; (ii) by Living
Centers to any of its wholly-owned Subsidiaries; and (iii) any
wholly-owned Subsidiary of Living Centers to another
wholly-owned Subsidiary of Living Centers;
(d) unsecured borrowings at a market rate of
interest with maturities of less than 180 days of Living
Centers not otherwise permitted by the preceding paragraphs
(a), (b), and (c) in an aggregate outstanding principal
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amount not to exceed at any time the lesser of (i)
$100,000,000.00 or (ii) the amount by which the Tranche A
Commitments exceeds the sum of the outstanding Tranche A
Advances, Letter of Credit Exposure, and Competitive Advances
(as each such term is defined in the Corporate Credit
Agreement);
(e) Debt secured by the Liens permitted pursuant
to paragraph (f) of Section 11.1;
(f) current liabilities for the financing of
Living Centers' and its Subsidiaries' insurance premiums;
(g) Living Centers' guaranty under the Contract
to Lease and Surviving Master Agreement for Leases of Mayer,
Trustee Nursing Homes dated as of May 1, 1994 among Living
Centers, Living Centers of Texas, Inc., and Clarence Mayer,
Trustee of the repayment of the residual value of the premises
leased thereby;
(h) guaranties (i) by Living Centers'
Subsidiaries of any Debt of Living Centers permitted by this
Section 11.2 and (ii) by Living Centers of its wholly-owned
Subsidiaries' Debt permitted by this Section 11.2;
(i) reimbursement obligations of Living Centers
in respect of any surety bonds or letters of credit otherwise
permitted under this Guarantee issued to secure payment of any
insurance premiums, regulatory obligations, or trust fund
obligations for Living Centers or any of its Subsidiaries;
(j) unfunded vested liabilities under any Plan
that would not reasonably be expected to have a Material
Adverse Effect;
(k) Debt incurred in connection with the purchase
of any property, Capital Leases, and Debt assumed in
connection with any Acquisition Expenditure in an aggregate
outstanding principal amount not to exceed at any time the
greater of (i) $75,000,000.00 or (ii) 15% of Living Centers'
Net Worth at such time; and
(l) Subordinated Debt in an aggregate outstanding
principal amount not to exceed at any time $150,000,000.00.
Section 11.3. Agreements Restricting Liens and Distributions.
Living Centers will not, nor will it permit any of its Subsidiaries
to, enter into any agreement (other than a Credit Document) which (a)
except with respect to specific property encumbered to secure payment
of Debt related to such property, imposes restrictions greater than
those under this Guarantee upon the creation or assumption of any Lien
upon its properties, revenues or assets, whether now owned or
hereafter acquired or (b) limits Restricted Payments to or any advance
by any of Living Centers' Subsidiaries to Living Centers.
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Section 11.4. Merger or Consolidation; Asset Sales. Living
Centers will not, and will not permit any of its Subsidiaries to,
(a) merge or consolidate with or into any other
Person, except that (i) Living Centers may merge with any of
its wholly-owned Subsidiaries and (ii) any of Living Centers'
wholly-owned Subsidiaries may merge with another of Living
Centers' wholly-owned Subsidiaries, provided that immediately
after giving effect to any such proposed transaction no
Default would exist and in the case of any such merger to
which Living Centers is a party, Living Centers is the
surviving corporation or
(b) sell, lease, transfer, or otherwise dispose
of any asset (including stock of a Subsidiary) other than the
Devcon Stock Sale or the sale of certain assets acquired in
connection with Project QC if the fair market value of such
asset plus the fair market value of all assets (including
stock of a Subsidiary) disposed of during the four fiscal
quarters immediately preceding the date of such asset sale
would exceed 5% of Tangible Net Assets of Living Centers;
provided that, for sales of assets in a single transaction or
in a related series of transactions with a fair market value
in excess in $15,000,000.00, the Agent shall have received a
Compliance Certificate demonstrating pro forma financial
covenant compliance, including adjustments to Living Centers'
EBITDA for such divested assets.
Upon the closing of any transaction permitted by this Section 11.4
involving a Guarantor (other than Living Centers) the shares of stock
of which is sold or that does not survive a merger, such Guarantor
shall automatically be released from its obligations under its
Guarantee, and, if requested by Living Centers, the Agent, on its
behalf and the behalf of the Lenders, shall execute a release of such
Guarantor from its Guarantee in favor of the Lenders.
Section 11.5. Restricted Payments. Neither Living Centers
nor any of its subsidiaries will make or pay any Restricted Payment if
a Default exists or would result therefrom.
Section 11.6. Investments. Living Centers will not, and will
not permit any of its Subsidiaries to, make or permit to exist any
loans, advances or capital contributions to, or make any investment
in, or purchase or commit to purchase any stock or other securities or
evidences of indebtedness of or interests in any Person, except the
following:
(a) the purchase of Liquid Investments;
(b) trade and customer accounts receivable which
are for goods furnished or services rendered in the ordinary
course of business and are payable in accordance with
customary trade terms;
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(c) ordinary course of business contributions,
loans or advances to, or investments in, (i) a direct or
indirect Subsidiary of Living Centers, other than a Nonprofit
Subsidiary or (ii) Living Centers;
(d) Living Centers' ownership of the stock
of any Nonprofit Subsidiary;
(e) other capital investments not otherwise
permitted by this Section 11.6 in an aggregate amount of such
investments outstanding at any time not to exceed
$5,000,000.00;
(f) holding of notes receivable included on
Living Centers' balance sheet at June 30, 1996 or received in
connection with asset sales permitted by Section 11.4 or
acquired in connection with acquisitions by Living Centers
permitted by Section 11.7; and
(g) Acquisition Expenditures permitted under
Section 11.7.
Section 11.7. Acquisition Expenditures. Except for up to
$25,000,000.00 of aggregate cash consideration paid during any
consecutive four fiscal quarter period for all purchases of facilities
which have been leased by Living Centers or any of its Subsidiaries
for at least three years, Living Centers shall not and shall not
permit any of its Subsidiaries to make any Acquisition Expenditure,
unless (a) such Acquisition Expenditure is made in substantially the
same or complementary lines of business of Living Centers and does not
violate any other provision of this Guarantee; (b) except for Project
QC, (i) the aggregate cash consideration paid during any four
consecutive four fiscal quarter period plus (ii) assumptions of Debt
for all Acquisition Expenditures made during such period does not
exceed (A) $100,000,000.00 plus (B) an amount not less than zero, but
equal to (1) the Net Cash Proceeds received from asset sales permitted
by Section 11.4 during such period minus (2) the total automatic
Commitment reductions made under Section 2.05(b) of the Corporate
Credit Agreement during such period; (c) at the time of such
Acquisition Expenditure no Default has occurred and is continuing or
would occur upon the consummation of such acquisition; (d) for
Acquisition Expenditures in excess of $15,000,000.00, the Agent shall
have received a Compliance Certificate demonstrating pro forma
financial covenant compliance, including adjustments to Living
Centers' EBITDA for such acquired business; and (e) immediately
following the making of such Acquisition Expenditure, the aggregate
amount of the Commitments (as defined in the Corporate Credit
Agreement) exceeds (as defined in the Corporate Credit Agreement) the
aggregate outstanding principal amount of the Advances (as defined in
the Corporate Credit Agreement), the Letter of Credit Exposure, and
the outstanding principal amount of Debt permitted by Section 11.2(d)
by at least $25,000,000.00.
Section 11.8. Affiliate Transactions. Except as expressly
permitted elsewhere in this Guarantee or as contemplated by the Lease
or other Operative Agreements, Living Centers will not, and will not
permit any of its Subsidiaries to, make, directly
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or indirectly: (a) any investment in any Affiliate (other than a
wholly-owned Subsidiary of Living Centers); (b) any transfer, sale,
lease, assignment or other disposal of any assets to any such
Affiliate or any purchase or acquisition of assets from any such
Affiliate; or (c) any arrangement or other transaction directly or
indirectly with or for the benefit of any such Affiliate (including
guaranties and assumptions of obligations of an Affiliate); provided
that Living Centers and its Subsidiaries (i) may enter into any
arrangement or other transaction with any such Affiliate providing for
the leasing of property, the rendering or receipt of services or the
purchase or sale of inventory and other assets in the ordinary course
of business if the monetary or business consideration arising
therefrom would be substantially as advantageous to Living Centers and
its Subsidiaries as the monetary or business consideration which it
would obtain in a comparable arm's length transaction with a Person
not such an Affiliate and (ii) may maintain the arrangements listed on
the attached Schedule 11.8.
Section 11.9. Compliance with ERISA. Living Centers will
not, and will not permit any of its Subsidiaries to, (a) terminate any
Plan so as to result in any material (in the opinion of the Required
Lenders) liability of Living Centers or any of its Affiliates to the
PBGC or (b) permit to exist any occurrence of any Reportable Event (as
defined in Title IV of ERISA), or any other event or condition, which
presents a material (in the opinion of the Required Lenders) risk of
such a termination by the PBGC of any Plan under Section 4042 of
ERISA.
Section 11.10. Cash Flow Ratio. Living Centers will not
permit the ratio of (a) its Cash Flow as of the end of any fiscal
quarter for the four fiscal quarters then ended to (b) Interest
Expense for such period plusits current maturities of long-term debt
as of the last day of such period plus its Lease Expense as of the
last day of such period to be less than 1.30.
Section 11.11. Leverage Ratio. Living Centers will not permit
its Leverage Ratio as of the last day of any fiscal quarter to be
greater than 3.25.
Section 11.12. Net Worth. Living Centers will not permit its
Net Worth to be less than $295,000,000.00 plus 75% of its cumulative
positive Net Income for each fiscal quarter after March 31, 1996
(excluding Net Income for any fiscal quarter for which Net Income is
negative) plus 50% of the increase of Net Worth caused by any issuance
of capital stock after March 31, 1996.
Section 11.13. Indemnification Agreement. Living Centers
shall not agree to amend any provision of the Indemnification
Agreement if such amendment would increase Living Centers' obligations
under the Indemnification Agreement.
12. Authority of Agent. Each Guarantor acknowledges that the
rights and responsibilities of the Agent under this Guarantee with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guarantee shall, as between the
Agent and the Lenders, be governed by the Credit Agreement and by such other
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agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and each Guarantor, the Agent shall be conclusively
presumed to be acting as agent for the Lenders with full and valid authority so
to act or refrain from acting, and no Guarantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.
13. Notices. All notices, requests and demands to or upon
the Agent, any Lender or any Guarantor to be effective shall be in writing
(including by telecopy or telex), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered by hand,
or three Business Days after being deposited in the mail, postage prepaid, or,
in the case of telecopy notice, confirmation of receipt received, or, in the
case of telex notice, when sent, answerback received, addressed as follows:
(a) if to the Agent or any Lender, at its address or
transmission number for notices provided in Section 9.2 of the Credit
Agreement; and
(b) if to any Guarantor, at its address or transmission
number for notices set forth below.
The Agent, each Lender and each Guarantor may change its
address and transmission numbers for notices by notice in the manner provided
in this Section 9.2 of the Credit Agreement.
14. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Guarantee represents the agreement of
each Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Agent or any Lender relative to the subject
matter hereof not reflected herein.
16. Amendments in Writing; No Waiver; Cumulative Remedies
(a) None of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except as provided in Section 9.1 of the
Credit Agreement.
(b) Neither the Agent nor any Lender shall by any act (except
by a written instrument pursuant to Section 16(a) hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent or such Lender would otherwise have on any future
occasion.
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(c) The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
17. Section Headings. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
18. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of each Guarantor and shall inure to the
benefit of the Agent and the Lenders and their successors and assigns.
19. SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH GUARANTOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ALL LEGAL
ACTIONS OR PROCEEDINGS RELATING TO THIS GUARANTEE OR ANY OTHER
OPERATIVE AGREEMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK,
AND THE APPELLATE COURTS THEREOF AND WAIVES THE RIGHT TO REMOVE ANY
SUCH ACTION OR PROCEEDING TO ANY FEDERAL COURT;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURT, WAIVES ANY OBJECTION THAT IT MAY HAVE NOW OR
HEREAFTER TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT AND WAIVES ANY OBJECTION THAT SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT WAS BROUGHT IN AN INCONVENIENT FORUM AND AGREES NOT TO
PLEAD, CLAIM OR ASSERT THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT MAY BE EFFECTED BY MAILING A COPY THEREOF
BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID TO, OR BY PERSONAL SERVICE AT, ITS ADDRESS SET
FORTH HEREIN OR SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT HERETO, WHETHER OR NOT SUCH ADDRESS BE WITHIN THE
JURISDICTION OF ANY SUCH COURT;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF THE AGENT (AND NOT OF GUARANTORS) TO SUE IN
ANY OTHER JURISDICTION; AND
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(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION 19 ANY
SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES.
(b) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
GUARANTEE OR ANY OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
(c) TO THE EXTENT ANY PROPERTY IS LOCATED IN THE STATE OF
CALIFORNIA, EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES THE
RIGHT TO ASSERT, ARGUE OR RAISE, IN ANY ACTION BROUGHT BY THE AGENT AGAINST ANY
GUARANTOR UNDER THIS GUARANTEE, THAT THE AGENT OR THE LENDERS STRUCTURED THE
TRANSACTION CONTEMPLATED BY THE OPERATIVE AGREEMENTS IN SUCH A MANNER PRIMARILY
TO CIRCUMVENT THE CALIFORNIA ONE-FORM-OF-ACTION AND ANTI-DEFICIENCY LAWS,
INCLUDING CALIFORNIA CODE OF CIVIL PROCEDURE Sections 580a, 580b, 580d AND
726.
(d) To the extent any Property is located in the State of
California, each Guarantor hereby waives all of such Guarantor's rights of
subrogation and reimbursement and any other rights and defenses available to
such Guarantor by reason of California Civil Code Sections 2787 to 2855,
inclusive, including (a) any defenses such Guarantor may have to the
obligations undertaken by such Guarantor in this Guaranty by reason of an
election of remedies by Lender, and (b) any rights or defenses such Guarantor
may have by reason of protection afforded to Borrower with respect to the
obligations guaranteed hereby pursuant to the antideficiency or other laws of
the State of California limiting or discharging Borrower's indebtedness,
including California Code of Civil Procedure Section 580a, 580b, 580d or 726.
Each Guarantor's waiver of defenses under clause (a) above is made even though
an election of remedies by Lender, such as a nonjudicial foreclosure with
respect to security for a guaranteed obligation, destroys such Guarantor's
rights of subrogation and reimbursement against Borrower by the operation of
California Code of Civil Procedure Section 580d or otherwise. The foregoing
waivers shall not be deemed a waiver of the defense that the Obligations have
been paid or the Commitments reduced.
20. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
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IN WITNESS WHEREOF, the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
LIVING CENTERS OF AMERICA, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
PROGRESSIVE CARE CENTERS OF AMERICA,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
AMERICAN GERIATRIC MANAGEMENT SERVICES,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LIVING CENTERS LTCP DEVELOPMENT COMPANY
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
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BRIAN CENTER HEALTH &
RETIREMENT/WALLACE, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER HEALTH &
REHABILITATION/TAMPA, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER NURSING CARE/POWDER
SPRINGS, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER MANAGEMENT
CORPORATION
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER NURSING CARE/
HICKORY, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
111
<PAGE> 99
112
BRIAN CENTER NURSING CARE/
AUSTELL, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER OF CENTRAL COLUMBIA,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
MED-CARE SALES AND RENTALS, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
REHABILITY HEALTH SERVICES, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
GULF COAST PHYSICAL THERAPY
GROUP, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
112
<PAGE> 100
113
THERACARE HOME HEALTH AGENCY,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LCA HOSPICE SERVICES CORPORATION
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
TOICA, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LC MANAGEMENT COMPANY
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LCR, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
113
<PAGE> 101
114
LIVING CENTERS - SOUTHEAST
DEVELOPMENT CORPORATION
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER OF ASHEBORO, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER HEALTH &
RETIREMENT/ALLEGHANY, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER HEALTH &
RETIREMENT/BASTIAN, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
BRIAN CENTER NURSING
CARE/FINCASTLE, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
114
<PAGE> 102
115
DEVCON HOLDING COMPANY
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LIVING CENTER - SOUTHEAST, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
AMERICAN PHARMACEUTICAL SERVICES,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LIVING CENTERS OF TEXAS, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LIVING CENTERS - ROCKY MOUNTAIN,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
115
<PAGE> 103
116
LIVING CENTERS - EAST, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
LIVING CENTERS HOLDING COMPANY
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
WORKHEALTH HEALTHCARE
MANAGEMENT, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
AMERICAN REHABILITATION SERVICES,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
AMERICAN REHABILITATION
MANAGEMENT, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
116
<PAGE> 104
117
AMERICAN THERAPY SERVICES, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
THERAPY MANAGEMENT INNOVATIONS,
INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
QUEST REHAB, LLC
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
MED-THERAPY REHABILITATION
SERVICES, INC.
By: /s/ Boyd P. Gentry
------------------
Name: Boyd P. Gentry
Title: Vice President
Address for Notices:
c/o Living Centers of America, Inc.
15415 Katy Freeway, Suite 800
Houston, Texas 77094
117
<PAGE> 1
EXHIBIT 10.2
Employment Agreement between Living Centers
of America, Inc. and James P. Dorn
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is between the undersigned individual ("Employee") and
LC MANAGEMENT COMPANY ("LC Management"), a wholly owned subsidiary of Living
Centers of America, Inc. ("LCA").
R E C I T A L S:
A. LCA, through its operating subsidiaries, is an operator of
long-term health care centers, Progressive Care Centers providing subacute
care, Alzheimer's care centers, assisted living centers, retirement apartments,
centers and programs for people with mental retardation and developmental
disabilities, and a company providing pharmaceutical services and supplies.
B. LCA and LC Management have a proprietary interest in its
business methods, opportunities, operations and systems which include, but are
not limited to, internal financial and operating reports and data, strategic
plans, business acquisition and development opportunities, policy and procedure
manuals, management information programs and systems, financial forms and
information, supplier and vendor information, accounting forms and procedures,
personnel policies and information on the needs of residents, clients and
patients and their families, and the financial condition of LCA all of which
information ("Corporation Information") not publicly disclosed is considered by
LCA and LC Management and recognized by Employee to be confidential.
C. LC Management intends to employ or continue to employ Employee
in a position where Employee will have access to this Corporate Information,
and therefore, LCA will be vulnerable to unfair post-employment competition by
Employee.
<PAGE> 3
D. In consideration of the severance and other employment
benefits provided for herein, Employee is willing to enter into this Agreement
with LC Management as a condition of employment.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows effective the day and date set opposite their signatures below:
ARTICLE 1.
Term of Employment
Employee acknowledges that LC Management has the right to terminate
Employee's employment at any time for any reason whatsoever; provided, however,
that any termination by LC Management for reasons other than "good and
sufficient cause," as defined in Article 2., Paragraph E below, shall result in
the severance benefits described in Article 2 below, to become due in
accordance with the terms of this Agreement. Employee further acknowledges
that the severance payments made and other benefits provided by LC Management
are in full satisfaction of any claims that Employee may have against LC
Management resulting from LC Management's exercise of its right to terminate
Employee's employment, except for those fringe benefits which are intended to
survive termination such as the rights to receive payments pursuant to
retirement plans and similar rights.
ARTICLE 2.
Severance Benefits
If Employee's employment with LC Management is terminated by LC
Management for any reason other than "good and sufficient cause," Employee
shall be entitled to the following severance benefits:
-2-
<PAGE> 4
A. Severance Pay: Employee shall receive severance payments
equivalent to Employee's base salary in effect at the time of termination for
the number of months set forth below:
<TABLE>
<CAPTION>
Years of Living Centers Continuous Service
Completed from Last Hire Date
-----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 7 8 9 10 or more
<CAPTION>
Months of Severance Pay
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 8 10 12 14 16 18 20 22 24
</TABLE>
B. Other Severance Benefits:
(1) Group medical and life insurance coverages shall continue
under then prevailing terms as long as severance payments are being made to
Employee. Deductions for Employee's share of the premiums will be made from
Employee's severance payments. Group medical coverage provided during such
period shall be applied against LC Management's obligation to continue group
medical coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA"). Upon termination of group medical and life insurance coverage,
Employee may convert, at his cost, to individual policies.
(2) Employee shall receive payment at the Employee's then
prevailing rate, for Employee's earned, but unused, and accrued vacation days
through the date of termination.
(3) Employee's eligibility to receive or participate in all other
benefit and compensation plans, including, but not limited to Management
Incentive Bonus, Long Term Disability, Retirement Savings, and Stock Option
Plans, shall terminate as of the effective
-3-
<PAGE> 5
date of Employee's termination except as provided otherwise hereunder or under
the terms of a particular benefit or compensation plan.
C. Change of Control of the Employer. In addition to the
Severance Pay and Other Severance Benefits provided for in Paragraphs A and B,
immediately above, in the event of a "change of control" of LCA and either the
Employee's (a) involuntary termination or (b) "voluntary termination for good
cause in anticipation of, during or after a change of control";
(1) The Employee shall be entitled to receive a lump sum payment
from LC Management of an amount equal to twelve (12) month's salary, which
shall be the Employee's base salary in effect at the date of termination plus
Employee's base bonus for Employee's grade as of the date of termination as set
forth in LCA's policy statement on the Management Incentive Bonus Program; and
(2) All stock options granted to Employee under the Living Centers
of America, Inc. 1992 Stock Option Plan, as amended (the "Option Plan"), as of
the date of termination shall "vest" and become exercisable, as that term is
defined in the Option Plan, as of the termination date, and Employee shall
thereupon have all rights applicable thereto as set forth in the Option Plan
pertaining to Employee's Stock Options.
For purposes of this Agreement, "voluntary termination for good cause
in anticipation of, during or after a change of control" shall mean Employee's
electing to terminate his employment with LC Management as a result of an
adverse change in title or working responsibilities of the Employee within the
six (6) month time period before and the twelve (12) month time period after a
"change of control." For purposes of this Paragraph C,
-4-
<PAGE> 6
"change of control" is the occurrence of one or more of the following events:
(I) any person or entity, together with all associates of such person or
entity, becomes the owner, beneficial or otherwise, of 30% or more of the then
outstanding common stock of LCA, or (ii) during any two (2) year period,
directors of LCA serving at the beginning of such period cease for any reason
to constitute a majority of the directors serving, unless the election of at
least 75% of the new directors was approved by at least 75% of the directors in
office immediately prior to the election.
D. Right to Terminate Severance Pay and Benefits. If Employee is
terminated by LC Management for reasons other than "good and sufficient cause,"
as that term is defined in Section E of this Article 2, Employee will receive
the severance payments and benefits described in Paragraphs A, B and C of this
Article 2. Notwithstanding the foregoing, if Employee commences other
employment while receiving such severance payments and benefits said severance
payments and benefits shall cease as of the date Employee commences such other
employment, but in no event shall the severance payments and benefits provided
in Paragraphs A and B of this Article 2 be terminated prior to Employee's
receiving severance payments and benefits for a two (2) month period. However,
if Employee commences other employment and the base salary Employee is paid in
the course of the other employment is less than the base salary Employee
received from LC Management at Employee's termination, LC Management shall pay
to Employee the difference in said base salaries each month for the remaining
number of months Employee would otherwise be entitled to severance pay as
provided in Section A of this Article 2 at the commencement of said other
employment, starting with the first full month after Employee commences said
-5-
<PAGE> 7
other employment. Notwithstanding the foregoing, in the event of a "change of
control" of LCA and either the Employee's (a) involuntary termination or (b)
"voluntary termination for good cause in anticipation of, during or after a
change of control" and if Employee commences other employment while receiving
severance payments and benefits described in Paragraphs A, B and C of this
Article 2, said severance payments and benefits shall not cease as of the date
Employee commences such other employment, and shall continue pursuant to
Paragraph A of this Article 2. LC Management reserves the right to terminate
all continuing severance payments and benefits described in Paragraphs A and B
of this Article 2 if Employee violates any of the non-disclosure covenants set
forth in Article 3 or any of the non-competition covenants set forth in Article
4 below.
E. "Good and Sufficient Cause" Defined. Termination for
"good and sufficient cause" shall include termination for such things as fraud
or dishonesty, willful failure to perform assigned duties, willful violation of
LCA's Business Conduct Policy, or intentionally working against the best
interests of LCA.
F. Termination for Good and Sufficient Cause. If Employee's
employment with LC Management is terminated by LC Management for "good and
sufficient cause" as that term is defined in Section E of this Article 2,
Employee will not receive the severance payments and benefits described in
Paragraphs A, B, C, and D of this Article 2.
G. Voluntary Termination by Employee. If Employee voluntary
terminates his/her employment with LC Management Company, (and said termination
is other than "voluntary termination for good cause in anticipation of, during
or after a change of control"
-6-
<PAGE> 8
as defined in this agreement), Employee will not receive the severance payments
and benefits described in Paragraphs A, B, C, and D of this Article 2.
H. Parachute Payment. If the Employee is liable for the payment
of any excise tax (the "Basic Excise Tax") because of Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor or
similar provision, with respect to any payments or benefits received or to be
received from LC Management or any successor to LC Management, whether provided
under this Agreement or otherwise, LC Management shall pay the Employee an
amount (the "Special Reimbursement") which, after payment by the Employee (or
on the Employee's behalf) of any federal, state and local taxes applicable
thereto, including, without limitation, any further excise tax under such
Section 4999 of the Code, on, with respect to or resulting from the Special
Reimbursement, equals the net amounts of the Basic Execise Tax.
I. Survival. The provisions of this Article 2 shall survive the
termination of Employee's employment with LC Management.
ARTICLE 3
Non-Disclosure Agreement
Employee acknowledges and recognizes that in the course of Employee's
employment, Employee has had and will continue to have or will have access to
Corporate Information; and that LC Management may provide and confide to
Employee Corporation Information, techniques and methods of operation developed
at great expense by LCA, all of which Employee recognizes to be unique assets
of LCA. Employee agrees that Employee shall not, during or after the term of
employment, directly or indirectly, in any manner utilize,
-7-
<PAGE> 9
appropriate, disclose, communicate, divulge, copy or relate to any person,
firm, corporation, association or other entity, except where required by law,
or use or make use of any such Corporate Information, any such techniques or
methods of operation; data of any kind; or any information relating to
strategic plans, revenues, costs, profits or the financial condition of LCA,
which is not generally known to the public or recognized as standard practice
in the industry in which LCA is or shall be engaged. The provisions of this
Article 3 shall survive the termination of Employee's employment with LC
Management.
ARTICLE 4
Non-Competition Agreement
A. Duration; Applicability. Subject to the provisions of
Paragraphs B and E below, Employee agrees that for a period of two (2) years
following Employee's voluntary termination of Employee's employment with LC
Management (other than "voluntary termination for good cause in anticipation
of, during or after a change of control" as defined in this Agreement), or
Employee's termination by LC Management for "good and sufficient cause" as that
term is defined in Section E of Article 2 of this Agreement, employee shall
not, without LC Management's prior written permission, which may be withheld by
LC Management in its sole discretion, directly or indirectly, on Employee's
behalf or on behalf of any other person, firm, corporation, association or
other entity, engage in, or in any way be employed by, connected with,
concerned with, involved with, consult for or negotiate for, or acquire or
maintain any ownership interest in any business or activity which is the same,
similar to or competitive with that conducted by, or engaged in by the LCA
operating subsidiary, indicated on Schedule A, which is attached hereto and
incorporated by reference
-8-
<PAGE> 10
herein as if reproduced verbatim for which Employee primarily provided
services. Employee and LC Management agree that Employee, for purposes of the
application of Paragraph A of this Article 4, primarily provides services to
the LCA operating subsidiary listed on Schedule A. If Employee's employment
with LC Management is terminated by LC Management for any reason other than
"good and sufficient cause" as that term is defined in Section E of Article 2
of this Agreement, the provisions of this Article 4 shall not apply to Employee
and shall not be enforced as against Employee.
B. Area. The provisions set forth in Paragraph A. above shall
apply to any area within a 25 miles radius of any center, or facility, or
location operated by the operating subsidiary of LCA indicated on Schedule A
hereof.
C. Non-Piracy. Employee further agrees that Employee shall not
for a period of two (2) years following the termination of Employee's
employment for any reason, directly or indirectly, or through third parties,
for himself or for others, at any time in any manner, induce or attempt to
influence any employees of any subsidiary of LCA to terminate their employment
with such subsidiary, nor shall Employee have an interest in, directly or
indirectly, any entity which shall, with Employee's direct or indirect
participation, induce or attempt to influence any employee of any subsidiary of
LCA to terminate their employment with such subsidiary.
D. Remedies. Employee acknowledges that in the event of any
violation or threatened violation by Employee of the provisions set forth in
Article 3 or this Article 4, LCA will sustain serious, irreparable, continuing
and substantial harm and damage to its business, the extent of which will be
difficult to determine and impossible to remedy by an
-9-
<PAGE> 11
action at law for money damages. Accordingly, Employee agrees that, in the
event of such violation or threatened violation by Employee, LCA shall be
entitled to an injunction preventing such violation or threatened violation
before trial from any court of competent jurisdiction as a matter of course in
addition to and not in lieu of any and all such other legal and equitable
remedies as may be available to LCA. Should any court of competent
jurisdiction determine, consistent with the established precedent of the forum
jurisdiction, that the public policy of such jurisdiction requires a more
limited restriction in geographic area, duration, nature of restricted
activities, or any combination thereof, it would be in furtherance of the
intentions of the parties hereto for the court to so interpret and construe the
terms of this Article 4 to apply only to the extent of such more limited
restrictions.
E. Survival. The provisions of this Article 4 shall survive the
termination of Employee's employment with LC Management.
ARTICLE 5
Miscellaneous
A. Definition. As used throughout this Agreement, "LC
Management" shall include all subsidiaries of LCA, affiliates, and any
corporation, joint venture, or other entity in which LCA or its subsidiaries or
affiliates has an equity interest in excess of ten percent (10%).
B. Gender. Reference to the masculine gender shall include the
feminine gender.
C. Supersede. This Agreement shall supersede and substitute for
any previous employment or severance agreement between Employee and LCA or LC
Management, and is entered into in consideration of the mutual undertakings of
the parties, the cancellation
-10-
<PAGE> 12
of all previous agreements, and the release of the parties of their respective
rights and obligations under any previous employment or severance agreement,
excepting only such rights and obligations which by their nature are intended
to survive termination or cancellation of such employment agreement.
D. Hire Date. Employee and LC Management acknowledge that for
purpose of Article 2, Employee's last hire date with LC Management is that date
provided in Schedule B hereof, which is attached hereto and incorporated by
reference herein as if reproduced verbatim.
E. Binding Effect. The respective rights and obligations of LC
Management and the Employee under this Employment Agreement shall inure to the
benefit of and shall be binding upon LCA, LC Management and the Employee and
the respective successors and assigns of LCA and LC Management. This
Employment Agreement shall not be assignable by the Employee, but shall inure
to the benefit of Employee's heirs, legal and personal representatives. As
used herein, the term "successors and assigns" shall include any corporation or
corporations which acquire all or substantially all of the assets and
businesses of LCA whether by purchase, merger, consolidation or otherwise,
including without limitation a surviving corporation upon a "change in control"
as defined herein.
F. Arbitration. Any dispute under this Employment Agreement,
except for those arising under Articles 3 and 4 hereof, shall be resolved by
arbitration. The arbitration shall be conducted in Houston, Texas, under the
auspices of the American Arbitration Association and under its rules for
commercial arbitrations generally. The prevailing party in such proceedings
shall be entitled to its costs and attorneys' fees.
-11-
<PAGE> 13
G. Applicable Law. This Employment Agreement shall be
interpreted and construed in accordance with the laws of the State of Texas.
It is understood and agreed that LCA will benefit from the covenants
and agreements of Employee hereunder, and, therefore by its execution hereof,
guarantees the performance by LC Management of its obligations and agreements
hereunder.
IN WITNESS WHEREOF, LC Management, LCA and the Employee have executed
this Employment Agreement in duplicate originals as of the date first above
written.
Date: February 4, 1997 By: /s/ James Dorn
-------------------- ----------------------------
"EMPLOYEE"
LC MANAGEMENT COMPANY
Date: February 4, 1997 By: /s/ Boyd P. Gentry
------------------- -----------------------
"LC MANAGEMENT"
LIVING CENTERS OF AMERICA, INC.
Date: February 4, 1997 By: /s/ Edward Kuntz
------------------- -------------------------
"LCA"
-12-
<PAGE> 14
SCHEDULE A
LCA Operating subsidiary for which Employee primarily provides services:
LC Management Company
- ------------------------------
-13-
<PAGE> 15
SCHEDULE B
Employee's last hire date: March 4, 1996
-----------------------
-14-
<PAGE> 1
Exhibit 10.3
Employment Agreement between Living Centers
of America, Inc. and Ronald W. Fleming
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is between the undersigned individual ("Employee") and
LC MANAGEMENT COMPANY ("LC Management"), a wholly owned subsidiary of Living
Centers of America, Inc. ("LCA").
R E C I T A L S:
A. LCA, through its operating subsidiaries, is an operator
of long-term health care centers, Progressive Care Centers providing subacute
care, Alzheimer's care centers, assisted living centers, retirement apartments,
centers and programs for people with mental retardation and developmental
disabilities, and a company providing pharmaceutical services and supplies.
B. LCA and LC Management have a proprietary interest in its
business methods, opportunities, operations and systems which include, but are
not limited to, internal financial and operating reports and data, strategic
plans, business acquisition and development opportunities, policy and procedure
manuals, management information programs and systems, financial forms and
information, supplier and vendor information, accounting forms and procedures,
personnel policies and information on the needs of residents, clients and
patients and their families, and the financial condition of LCA all of which
information ("Corporation Information") not publicly disclosed is considered by
LCA and LC Management and recognized by Employee to be confidential.
C. LC Management intends to employ or continue to employ
Employee in a position where Employee will have access to this Corporate
Information, and therefore, LCA will be vulnerable to unfair post-employment
competition by Employee.
<PAGE> 3
D. In consideration of the severance and other employment
benefits provided for herein, Employee is willing to enter into this Agreement
with LC Management as a condition of employment.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows effective the day and date set opposite their signatures below:
ARTICLE 1.
Term of Employment
Employee acknowledges that LC Management has the right to terminate
Employee's employment at any time for any reason whatsoever; provided, however,
that any termination by LC Management for reasons other than "good and
sufficient cause," as defined in Article 2., Paragraph E below, shall result in
the severance benefits described in Article 2 below, to become due in
accordance with the terms of this Agreement. Employee further acknowledges
that the severance payments made and other benefits provided by LC Management
are in full satisfaction of any claims that Employee may have against LC
Management resulting from LC Management's exercise of its right to terminate
Employee's employment, except for those fringe benefits which are intended to
survive termination such as the rights to receive payments pursuant to
retirement plans and similar rights.
ARTICLE 2.
Severance Benefits
If Employee's employment with LC Management is terminated by LC
Management for any reason other than "good and sufficient cause," Employee
shall be entitled to the following severance benefits:
-2-
<PAGE> 4
A. Severance Pay: Employee shall receive severance payments
equivalent to Employee's base salary in effect at the time of termination for
the number of months set forth below:
<TABLE>
<CAPTION>
Years of Living Centers Continuous Service
Completed from Last Hire Date
-----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 7 8 9 10 or more
<CAPTION>
Months of Severance Pay
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 8 10 12 14 16 18 20 22 24
</TABLE>
B. Other Severance Benefits:
(1) Group medical and life insurance coverages shall continue
under then prevailing terms as long as severance payments are being made to
Employee. Deductions for Employee's share of the premiums will be made from
Employee's severance payments. Group medical coverage provided during such
period shall be applied against LC Management's obligation to continue group
medical coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA"). Upon termination of group medical and life insurance coverage,
Employee may convert, at his cost, to individual policies.
(2) Employee shall receive payment at the Employee's then
prevailing rate, for Employee's earned, but unused, and accrued vacation days
through the date of termination.
(3) Employee's eligibility to receive or participate in all
other benefit and compensation plans, including, but not limited to Management
Incentive Bonus, Long Term Disability, Retirement Savings, and Stock Option
Plans, shall terminate as of the effective
-3-
<PAGE> 5
date of Employee's termination except as provided otherwise hereunder or under
the terms of a particular benefit or compensation plan.
C. Change of Control of the Employer. In addition to the
Severance Pay and Other Severance Benefits provided for in Paragraphs A and B,
immediately above, in the event of a "change of control" of LCA and either the
Employee's (a) involuntary termination or (b) "voluntary termination for good
cause in anticipation of, during or after a change of control";
(1) The Employee shall be entitled to receive a lump sum
payment from LC Management of an amount equal to twelve (12) month's salary,
which shall be the Employee's base salary in effect at the date of termination
plus Employee's base bonus for Employee's grade as of the date of termination
as set forth in LCA's policy statement on the Management Incentive Bonus
Program; and
(2) All stock options granted to Employee under the Living
Centers of America, Inc. 1992 Stock Option Plan, as amended (the "Option
Plan"), as of the date of termination shall "vest" and become exercisable, as
that term is defined in the Option Plan, as of the termination date, and
Employee shall thereupon have all rights applicable thereto as set forth in the
Option Plan pertaining to Employee's Stock Options.
For purposes of this Agreement, "voluntary termination for good cause
in anticipation of, during or after a change of control" shall mean Employee's
electing to terminate his employment with LC Management as a result of an
adverse change in title or working responsibilities of the Employee within the
six (6) month time period before and the twelve (12) month time period after a
"change of control." For purposes of this Paragraph C,
-4-
<PAGE> 6
"change of control" is the occurrence of one or more of the following events:
(I) any person or entity, together with all associates of such person or
entity, becomes the owner, beneficial or otherwise, of 30% or more of the then
outstanding common stock of LCA, or (ii) during any two (2) year period,
directors of LCA serving at the beginning of such period cease for any reason
to constitute a majority of the directors serving, unless the election of at
least 75% of the new directors was approved by at least 75% of the directors in
office immediately prior to the election.
D. Right to Terminate Severance Pay and Benefits. If
Employee is terminated by LC Management for reasons other than "good and
sufficient cause," as that term is defined in Section E of this Article 2,
Employee will receive the severance payments and benefits described in
Paragraphs A, B and C of this Article 2. Notwithstanding the foregoing, if
Employee commences other employment while receiving such severance payments and
benefits said severance payments and benefits shall cease as of the date
Employee commences such other employment, but in no event shall the severance
payments and benefits provided in Paragraphs A and B of this Article 2 be
terminated prior to Employee's receiving severance payments and benefits for a
two (2) month period. However, if Employee commences other employment and the
base salary Employee is paid in the course of the other employment is less than
the base salary Employee received from LC Management at Employee's termination,
LC Management shall pay to Employee the difference in said base salaries each
month for the remaining number of months Employee would otherwise be entitled
to severance pay as provided in Section A of this Article 2 at the commencement
of said other employment, starting with the first full month after Employee
commences said
-5-
<PAGE> 7
other employment. Notwithstanding the foregoing, in the event of a "change of
control" of LCA and either the Employee's (a) involuntary termination or (b)
"voluntary termination for good cause in anticipation of, during or after a
change of control" and if Employee commences other employment while receiving
severance payments and benefits described in Paragraphs A, B and C of this
Article 2, said severance payments and benefits shall not cease as of the date
Employee commences such other employment, and shall continue pursuant to
Paragraph A of this Article 2. LC Management reserves the right to terminate
all continuing severance payments and benefits described in Paragraphs A and B
of this Article 2 if Employee violates any of the non-disclosure covenants set
forth in Article 3 or any of the non-competition covenants set forth in Article
4 below.
E. "Good and Sufficient Cause" Defined. Termination for
"good and sufficient cause" shall include termination for such things as fraud
or dishonesty, willful failure to perform assigned duties, willful violation of
LCA's Business Conduct Policy, or intentionally working against the best
interests of LCA.
F. Termination for Good and Sufficient Cause. If Employee's
employment with LC Management is terminated by LC Management for "good and
sufficient cause" as that term is defined in Section E of this Article 2,
Employee will not receive the severance payments and benefits described in
Paragraphs A, B, C, and D of this Article 2.
G. Voluntary Termination by Employee. If Employee voluntary
terminates his/her employment with LC Management Company, (and said termination
is other than "voluntary termination for good cause in anticipation of, during
or after a change of control"
-6-
<PAGE> 8
as defined in this agreement), Employee will not receive the severance payments
and benefits described in Paragraphs A, B, C, and D of this Article 2.
H. Parachute Payment. If the Employee is liable for the
payment of any excise tax (the "Basic Excise Tax") because of Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any successor or
similar provision, with respect to any payments or benefits received or to be
received from LC Management or any successor to LC Management, whether provided
under this Agreement or otherwise, LC Management shall pay the Employee an
amount (the "Special Reimbursement") which, after payment by the Employee (or
on the Employee's behalf) of any federal, state and local taxes applicable
thereto, including, without limitation, any further excise tax under such
Section 4999 of the Code, on, with respect to or resulting from the Special
Reimbursement, equals the net amounts of the Basic Execise Tax.
I. Survival. The provisions of this Article 2 shall survive
the termination of Employee's employment with LC Management.
ARTICLE 3
Non-Disclosure Agreement
Employee acknowledges and recognizes that in the course of Employee's
employment, Employee has had and will continue to have or will have access to
Corporate Information; and that LC Management may provide and confide to
Employee Corporation Information, techniques and methods of operation developed
at great expense by LCA, all of which Employee recognizes to be unique assets
of LCA. Employee agrees that Employee shall not, during or after the term of
employment, directly or indirectly, in any manner utilize,
-7-
<PAGE> 9
appropriate, disclose, communicate, divulge, copy or relate to any person,
firm, corporation, association or other entity, except where required by law,
or use or make use of any such Corporate Information, any such techniques or
methods of operation; data of any kind; or any information relating to
strategic plans, revenues, costs, profits or the financial condition of LCA,
which is not generally known to the public or recognized as standard practice
in the industry in which LCA is or shall be engaged. The provisions of this
Article 3 shall survive the termination of Employee's employment with LC
Management.
ARTICLE 4
Non-Competition Agreement
A. Duration; Applicability. Subject to the provisions of
Paragraphs B and E below, Employee agrees that for a period of two (2) years
following Employee's voluntary termination of Employee's employment with LC
Management (other than "voluntary termination for good cause in anticipation
of, during or after a change of control" as defined in this Agreement), or
Employee's termination by LC Management for "good and sufficient cause" as that
term is defined in Section E of Article 2 of this Agreement, employee shall
not, without LC Management's prior written permission, which may be withheld by
LC Management in its sole discretion, directly or indirectly, on Employee's
behalf or on behalf of any other person, firm, corporation, association or
other entity, engage in, or in any way be employed by, connected with,
concerned with, involved with, consult for or negotiate for, or acquire or
maintain any ownership interest in any business or activity which is the same,
similar to or competitive with that conducted by, or engaged in by the LCA
operating subsidiary, indicated on Schedule A, which is attached hereto and
incorporated by reference
-8-
<PAGE> 10
herein as if reproduced verbatim for which Employee primarily provided
services. Employee and LC Management agree that Employee, for purposes of the
application of Paragraph A of this Article 4, primarily provides services to
the LCA operating subsidiary listed on Schedule A. If Employee's employment
with LC Management is terminated by LC Management for any reason other than
"good and sufficient cause" as that term is defined in Section E of Article 2
of this Agreement, the provisions of this Article 4 shall not apply to Employee
and shall not be enforced as against Employee.
B. Area. The provisions set forth in Paragraph A. above
shall apply to any area within a 25 miles radius of any center, or facility, or
location operated by the operating subsidiary of LCA indicated on Schedule A
hereof.
C. Non-Piracy. Employee further agrees that Employee shall
not for a period of two (2) years following the termination of Employee's
employment for any reason, directly or indirectly, or through third parties,
for himself or for others, at any time in any manner, induce or attempt to
influence any employees of any subsidiary of LCA to terminate their employment
with such subsidiary, nor shall Employee have an interest in, directly or
indirectly, any entity which shall, with Employee's direct or indirect
participation, induce or attempt to influence any employee of any subsidiary of
LCA to terminate their employment with such subsidiary.
D. Remedies. Employee acknowledges that in the event of any
violation or threatened violation by Employee of the provisions set forth in
Article 3 or this Article 4, LCA will sustain serious, irreparable, continuing
and substantial harm and damage to its business, the extent of which will be
difficult to determine and impossible to remedy by an
-9-
<PAGE> 11
action at law for money damages. Accordingly, Employee agrees that, in the
event of such violation or threatened violation by Employee, LCA shall be
entitled to an injunction preventing such violation or threatened violation
before trial from any court of competent jurisdiction as a matter of course in
addition to and not in lieu of any and all such other legal and equitable
remedies as may be available to LCA. Should any court of competent
jurisdiction determine, consistent with the established precedent of the forum
jurisdiction, that the public policy of such jurisdiction requires a more
limited restriction in geographic area, duration, nature of restricted
activities, or any combination thereof, it would be in furtherance of the
intentions of the parties hereto for the court to so interpret and construe the
terms of this Article 4 to apply only to the extent of such more limited
restrictions.
E. Survival. The provisions of this Article 4 shall survive
the termination of Employee's employment with LC Management.
ARTICLE 5
Miscellaneous
A. Definition. As used throughout this Agreement, "LC
Management" shall include all subsidiaries of LCA, affiliates, and any
corporation, joint venture, or other entity in which LCA or its subsidiaries or
affiliates has an equity interest in excess of ten percent (10%).
B. Gender. Reference to the masculine gender shall include
the feminine gender.
C. Supersede. This Agreement shall supersede and substitute
for any previous employment or severance agreement between Employee and LCA or
LC Management, and is entered into in consideration of the mutual undertakings
of the parties, the cancellation
-10-
<PAGE> 12
of all previous agreements, and the release of the parties of their respective
rights and obligations under any previous employment or severance agreement,
excepting only such rights and obligations which by their nature are intended
to survive termination or cancellation of such employment agreement.
D. Hire Date. Employee and LC Management acknowledge that
for purpose of Article 2, Employee's last hire date with LC Management is that
date provided in Schedule B hereof, which is attached hereto and incorporated
by reference herein as if reproduced verbatim.
E. Binding Effect. The respective rights and obligations of
LC Management and the Employee under this Employment Agreement shall inure to
the benefit of and shall be binding upon LCA, LC Management and the Employee
and the respective successors and assigns of LCA and LC Management. This
Employment Agreement shall not be assignable by the Employee, but shall inure
to the benefit of Employee's heirs, legal and personal representatives. As
used herein, the term "successors and assigns" shall include any corporation or
corporations which acquire all or substantially all of the assets and
businesses of LCA whether by purchase, merger, consolidation or otherwise,
including without limitation a surviving corporation upon a "change in control"
as defined herein.
F. Arbitration. Any dispute under this Employment
Agreement, except for those arising under Articles 3 and 4 hereof, shall be
resolved by arbitration. The arbitration shall be conducted in Houston, Texas,
under the auspices of the American Arbitration Association and under its rules
for commercial arbitrations generally. The prevailing party in such
proceedings shall be entitled to its costs and attorneys' fees.
-11-
<PAGE> 13
G. Applicable Law. This Employment Agreement shall be
interpreted and construed in accordance with the laws of the State of Texas.
It is understood and agreed that LCA will benefit from the covenants
and agreements of Employee hereunder, and, therefore by its execution hereof,
guarantees the performance by LC Management of its obligations and agreements
hereunder.
IN WITNESS WHEREOF, LC Management, LCA and the Employee have executed
this Employment Agreement in duplicate originals as of the date first above
written.
Date: February 10, 1997 By: /s/ Ronald Fleming
-------------------- -----------------------------
"EMPLOYEE"
LC MANAGEMENT COMPANY
Date: February 10, 1997 By: /s/ Sydney Boone
-------------------- -----------------------------
"LC MANAGEMENT"
LIVING CENTERS OF AMERICA, INC.
Date: February 10, 1997 By: /s/ Susan Thomas Whittle
-------------------- -----------------------------
"LCA"
-12-
<PAGE> 14
SCHEDULE A
LCA Operating subsidiary for which Employee primarily provides services:
LC Management
- -----------------------
-13-
<PAGE> 15
SCHEDULE B
Employee's last hire date: December 18, 1989
--------------------
-14-
<PAGE> 1
Exhibit 11
Statement re: Computation of Per Share Earnings
<PAGE> 2
EXHIBIT 11
LIVING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
---------------------------------------
1996 1995
<S> <C> <C>
ASSUMING FULL DILUTION (a)
Net Income $10,325 $10,899
======= =======
Applicable Common Shares:
Weighted average shares outstanding
during the period 19,502 20,206
Weighted average shares issuable
upon exercise of common stock
options using the treasury stock
method 97 154
Weighted average shares issuable
upon exercise of warrants using
the treasury stock method - -
------- -------
Total shares 19,599 20,360
======= =======
Earnings per share (fully diluted) $0.53 $0.54
======= =======
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K, item 601
(b) (11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in less than 3% dilution.
149
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 21,322
<SECURITIES> 0
<RECEIVABLES> 261,444
<ALLOWANCES> 29,600
<INVENTORY> 16,005
<CURRENT-ASSETS> 306,103
<PP&E> 488,891
<DEPRECIATION> 193,491
<TOTAL-ASSETS> 861,382
<CURRENT-LIABILITIES> 172,723
<BONDS> 295,270
0
0
<COMMON> 203
<OTHER-SE> 339,714
<TOTAL-LIABILITY-AND-EQUITY> 861,382
<SALES> 280,202
<TOTAL-REVENUES> 280,202
<CGS> 0
<TOTAL-COSTS> 258,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,628
<INCOME-TAX> 7,240
<INCOME-CONTINUING> 10,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
