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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period from to .
Commission file number 1-12040
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SUN HEALTHCARE GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 85-0410612
(State of Incorporation) (I.R.S. Employer Identification No.)
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101 SUN LANE, NE
ALBUQUERQUE, NEW MEXICO 87109
(505) 821-3355
(Address and telephone number of Registrant)
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share, New York Stock Exchange
and Preferred Stock Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
On March 26, 1997, Sun Healthcare Group, Inc. had 49,130,217 outstanding
shares of Common Stock. Of those, 39,434,107 shares of Common Stock were held by
nonaffiliates. The aggregate market value of such Common Stock held by
nonaffiliates, based on the average of the high and low sales prices of such
shares on the New York Stock Exchange on March 26, 1997, was approximately
$571,795,000.
Documents Incorporated by Reference:
Portions of Sun Healthcare Group, Inc.'s definitive Proxy Statement
for the 1997 Annual Meeting of Shareholders
are incorporated by Reference into Part III of this Form 10-K.
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SUN HEALTHCARE GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX
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PART I
Item 1. Business..................................................................................... 1
Item 2. Properties................................................................................... 16
Item 3. Legal Proceedings............................................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 20
Executive Officers of the Registrant......................................................... 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 23
Item 6. Selected Financial Data...................................................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................... 26
Item 8. Financial Statements and Supplementary Data.................................................. 44
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures...................................................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 45
Item 11. Executive Compensation....................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 45
Item 13. Certain Relationships and Related Transactions............................................... 45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 45
Signatures................................................................................................ 55
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PART I
ITEM 1. BUSINESS
GENERAL
Sun Healthcare Group, Inc., through its direct and indirect subsidiaries
(collectively referred to herein as "Sun" or the "Company"), is a leading
provider of long-term, subacute and related specialty healthcare services. At
December 31, 1996, the Company operated 160 long-term and subacute care
facilities with 19,321 licensed beds in 19 states in the United States and 75
long-term care facilities with 3,420 registered beds in the United Kingdom. In
addition, the Company provides rehabilitation therapy, respiratory therapy,
temporary therapy staffing services, and pharmaceutical products and services,
to both affiliated and nonaffiliated facilities in the United States, and
outpatient therapy in Canada.
The Company's long-term and subacute care facilities provide a broad range
of healthcare services, including nursing care, subacute care, therapy and other
specialized services such as care to patients with Alzheimer's disease. The
Company's long-term and subacute care facility operations have experienced
significant growth since the Company's inception in 1989. This growth has been
primarily from acquisitions of long-term and subacute care facilities. The
Company believes its long-term and subacute care operations provide it with a
platform for expanding its therapy and pharmaceutical businesses to affiliated
and nonaffiliated long-term and subacute care facilities. In addition, the
Company believes that its expertise in operating long-term and subacute care
facilities enables it to provide its therapy and pharmaceutical services more
effectively and efficiently than providers without such operating expertise.
The Company currently offers physical, occupational and speech therapy
("rehabilitation therapy"), through Sundance Rehabilitation Corporation
("Sundance") and respiratory therapy through Golden Care, Inc. ("Golden Care"),
to patients in affiliated and nonaffiliated long-term and subacute care
facilities. At December 31, 1996, the Company provided therapy services to 911
facilities in 42 states, 759 of which were operated by nonaffiliated parties and
152 of which were affiliated facilities.
Through CareerStaff Unlimited, Inc. ("CareerStaff"), the Company is a
nationwide provider of temporary therapy staffing. CareerStaff provides
therapists skilled in the areas of physical, occupational and speech therapy
primarily to hospitals and nursing home contract service providers. At December
31, 1996, CareerStaff provided temporary therapy staffing services in 36 states.
At December 31, 1996, the Company, through Sunscript Pharmacy Corporation
("Sunscript"), operated 18 pharmacies that provided pharmaceutical products and
services to a total of 437 long-term and subacute care facilities in 21 states,
325 of which were operated by nonaffiliated parties and 112 of which were
affiliated facilities. In addition, the Company operated six pharmacies in the
United Kingdom at December 31, 1996.
INDUSTRY OVERVIEW
The long-term care industry encompasses a broad range of related specialty
healthcare services provided to the elderly and to other patients with medically
complex needs who can be cared for outside of the acute care hospital
environment and generally cannot be efficiently and effectively cared for at
home. Long-term and subacute care facilities offer skilled nursing care, routine
rehabilitation therapy and other support services, primarily to elderly
patients. Long-term and subacute care facilities may also provide a broad range
of specialized healthcare services such as care for patients with Alzheimer's
disease and subacute care. Subacute care includes those services provided to
patients with medically complex conditions who require ongoing medical and
nursing supervision and access to specialized equipment and services, but do not
require many of the other services provided by an acute care hospital. The
Company believes that the demand for the services provided by long-term and
subacute care facilities will increase substantially during the next decade due
primarily to demographic trends, advances in medical technology
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and the impact of cost containment measures by government and private pay
sources. At the same time, government restrictions and high construction and
start-up costs are expected to limit the supply of long-term and subacute care
facilities.
Ancillary services such as therapy and pharmaceutical services increase
long-term and subacute care facility profitability by expanding the range of
services provided at such facilities. Therapy services provided by the Company
primarily consist of rehabilitation and respiratory therapy services.
Pharmaceutical services include dispensing pharmaceuticals for such purposes as
infusion therapy, pain management, antibiotic therapy and parenteral nutrition.
Additional services include providing consultant pharmacists and assistance in
preparation of billing documentation. These ancillary services have
significantly greater operating margins than the margins associated with the
provision of routine services to patients at long-term and subacute care
facilities. Also, the increased use of long-term and subacute care facilities as
alternatives to acute care facilities has greatly increased the demand for such
ancillary services. This trend has created greater markets for the Company's
therapy and pharmacy services to nonaffiliated long-term and subacute care
facilities.
The temporary staffing industry has grown rapidly over the last several
years. Temporary rehabilitation therapy staffing is increasingly becoming a
valuable tool for managing personnel costs and for meeting specialized or
fluctuating employment requirements, particularly as healthcare providers engage
in corporate downsizing. Effective use of temporary personnel enables businesses
to reduce fixed overhead and addresses the growing costs and difficulty of
hiring, training, laying off and redeploying permanent full-time workers.
The long-term care industry in the United Kingdom is currently undergoing
significant change. As a result of demographic trends and recent United Kingdom
legislation and policy, the Company believes there is a growing demand for
long-term care, including more highly specialized and higher quality care. The
Company believes that supply is not keeping pace with demand and that such
demand, along with limited access to capital, is promoting industry
consolidation. These factors are placing significant burdens on small, local
operators, thereby providing, in the Company's view, opportunities for larger,
better-financed long-term care providers such as the Company.
DEMOGRAPHIC TRENDS. The primary consumers of long-term and subacute care
services in the United States and the United Kingdom are persons over 65 years
of age. The Company believes that increases in the number of people in such age
group will continue to result in increased demand for long-term and subacute
care services.
IMPACT OF COST CONTAINMENT MEASURES. In response to rapidly rising
healthcare costs, governmental and private pay sources in the United States have
adopted cost containment measures that have reduced average lengths of hospital
stays. The federal government has acted to curtail increases in healthcare costs
under Medicare by limiting acute care hospital reimbursement for specific
services to predetermined fixed amounts. Under this payment system,
reimbursement for acute care hospital services is based on regional and national
rates established for diagnosis-related groups regardless of length of stay. In
addition, private insurers have begun to limit reimbursement to predetermined
"reasonable charges," while managed care organizations such as health
maintenance organizations ("HMOs") and preferred provider organizations are
attempting to limit hospitalization costs by negotiating discounted rates for
hospital services and by monitoring and reducing hospital utilization. As a
result, average hospital stays have been shortened, with many patients being
discharged despite a continuing need for nursing care. For many of these
patients, home healthcare is not a viable alternative because of the complexity
of medical services and equipment required. Many of the long-term and subacute
care facilities operated by the Company are able to provide these services,
especially rehabilitation and respiratory therapy and pharmaceutical services.
In addition, the facilities that provide these services are able to do so at a
significantly lower cost than acute care hospitals, due to their lower capital
costs, overhead and salary levels.
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LIMITS ON SUPPLY OF LONG-TERM AND SUBACUTE CARE FACILITIES. The
construction of long-term and subacute care facilities and the addition of beds
or services in existing facilities is regulated in most states in which the
Company operates. Many states have implemented health plans that either limit
construction of new long-term and subacute care facilities or limit the number
of long-term beds and thus effectively limit the number of new facilities that
can be constructed. High construction costs and start-up expenses also act to
constrain growth in the number of facilities. See "--Government Regulation" and
"--Competition."
INDUSTRY CONSOLIDATION. Recently, the long-term and subacute care industry
in the United States has been subject to competitive pressures that have
resulted in a trend towards consolidation of smaller, local operators into
larger, more established regional or national operators. Increasing complexity
of medical services provided, growing regulatory and compliance requirements and
increasingly complicated reimbursement systems have resulted in consolidation of
operators who lack the sophisticated management information systems, operating
efficiencies and financial resources to compete efficiently and effectively.
LONG-TERM AND SUBACUTE CARE SERVICES--UNITED STATES
As of December 31, 1996, the Company owned, leased or managed, through its
subsidiaries in the United States, 160 licensed long-term and subacute care
facilities with 19,321 licensed beds located in 19 states. Each long-term and
subacute care facility is located near at least one general acute care hospital,
and the Company has entered into transfer agreements with local hospitals to
accept patients discharged from such hospitals.
BASIC PATIENT AND ANCILLARY SERVICES. The Company's long-term and subacute
care facilities provide inpatient skilled nursing and custodial services as well
as rehabilitative, restorative and transitional medical services. The Company
provides 24-hour nursing care in these facilities by registered nurses, licensed
practical nurses and certified nursing aides. The Company also provides a broad
range of support services including rehabilitation therapy, dietary services,
therapeutic recreational activities, social services, housekeeping and laundry
services and pharmaceutical and medical supplies.
SPECIALIZED SERVICES. Specialized healthcare services are those provided to
patients with medically complex needs. These services typically generate higher
profit margins than those associated with the provision of routine patient
services because of the higher reimbursement rates associated with caring for
patients with complex medical conditions. At December 31, 1996, the Company
provided therapy services for Medicare patients at 155 of its 160 long-term and
subacute care facilities. Such services are provided to Medicare patients within
distinct units at these facilities. At December 31, 1996, the Company provided
specialized care for patients with Alzheimer's disease at 43 of its 160
long-term and subacute care facilities under the supervision of specially
trained skilled nursing staff. These facilities also provide therapeutic
recreation and social services personnel. The Company's Alzheimer's program
includes an individually planned activities program, counseling, sensory
stimulation and a family support group.
SUBACUTE CARE. The Company defines subacute care as a minimum of four and
one-half nursing hours and one hour of therapy per patient day. Subacute care
includes those services provided to patients with medically complex conditions
who require ongoing medical and nursing supervision and access to specialized
equipment and services, but do not require many of the other services provided
by an acute care hospital. Services in this category include ventilator and
oxygen care, HIV care, intravenous therapy, complex wound care, traumatic brain
injury care, post-stroke care and hospice care. The Company has the ability to
provide subacute services at most of its long-term care facilities. In addition,
the Company operates 45 Phoenix Units, which are free-standing dedicated
subacute care units within long-term care facilities. The subacute care units
represent, in some cases, a substantial portion of the total beds in the
facility; in other cases, these units represent a smaller portion of overall
facility capacity. The Company plans to expand its provision of subacute care to
other long-term care facilities. The Company believes that there is significant
demand for subacute care and that this sector of the healthcare market offers
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opportunities for growth. By offering a continuum of subacute healthcare
services, the Company is able to respond to a broad spectrum of patient clinical
needs and payor cost containment objectives.
LONG-TERM CARE SERVICES--UNITED KINGDOM
As of December 31, 1996, the Company, through its wholly owned subsidiary,
Exceler Healthcare Group PLC ("Exceler"), operated 75 long-term care facilities
with 3,420 registered beds in the United Kingdom. During 1995 and 1996, the
Company acquired a 29% ownership interest in Ashbourne PLC ("Ashbourne"), a
long-term care provider in the United Kingdom. The Company acquired the
remaining 71% of Ashbourne in January 1997. At December 31, 1996, Ashbourne
operated 49 long-term care facilities with 3,583 registered beds in the United
Kingdom.
BASIC RESIDENT AND ANCILLARY SERVICES. Basic resident services include
those typically provided to residents in nursing homes with respect to
activities of daily living and general medical needs. The Company provides
24-hour nursing and personal care by registered nurses and care assistants in
all of its facilities. The Company also provides a broad range of support
services, including dietary services, therapeutic recreational activities,
social services, housekeeping and laundry services, pharmaceutical and medical
supplies and routine therapy.
SPECIALIZED SERVICES. The Company currently offers various specialized
services at certain of its nursing homes, including day care, care for the young
physically disabled, care for elderly mentally infirm residents and
post-operative care. These services typically generate higher profit margins
than those associated with the provision of routine patient services. Day care
services provide elderly members of the community with facilities focused on
their personal care, recreation and stimulation. The care of the young
physically disabled involves occupational therapy in addition to basic services.
Certain of the Company's homes provide care for elderly mentally infirm
residents, including those with Alzheimer's disease.
Additional financial information regarding the Company's operations in the
United Kingdom is included in Note 17 to the Company's Consolidated Financial
Statements.
THERAPY SERVICES
The Company provided therapy services in 42 states as of December 31, 1996.
These services primarily consist of rehabilitation and respiratory therapy
services. These services were provided by approximately 6,700 therapists to 152
affiliated and 759 nonaffiliated long-term and subacute care facilities as of
December 31, 1996.
TEMPORARY THERAPY STAFFING
In June 1995, the Company acquired CareerStaff, which is the one of the
largest provider of temporary therapy staffing with a nationwide network of
offices. CareerStaff provides licensed therapists skilled in the areas of
physical, occupational and speech therapy primarily to hospitals and nursing
home contract service providers, with a growing emphasis towards home healthcare
providers. As of December 31, 1996, CareerStaff had on assignment approximately
1,900 therapists working out of 20 offices providing temporary rehabilitation
therapist staffing in major metropolitan areas and 10 offices specializing in
placements of temporary travelling therapists in smaller cities and rural areas.
The Company believes that CareerStaff complements the Company's rehabilitation
therapy services operations by enabling the Company to provide temporary therapy
staffing services for Sun's rehabilitation contracts with both affiliated and
nonaffiliated facilities.
For the years ended December 31, 1996, 1995 and 1994, hospitals represented
approximately 47%, 49% and 49%, respectively, of CareerStaff's revenues, and
nursing home contract service providers represented approximately 22%, 23% and
31%, respectively, of CareerStaff's revenues. Although CareerStaff continues to
derive the majority of its revenues from hospitals and nursing home contract
service providers, an increasing percentage of CareerStaff's revenues has been
derived from home healthcare agencies.
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PHARMACEUTICAL SERVICES
The Company commenced its pharmaceutical business in 1993. At December 31,
1996, the Company operated fifteen pharmacies, three in-house long-term care
pharmacies, one supply distribution center and one pharmaceutical billing and
consulting center which together provided pharmaceutical products and services
to 437 long-term and subacute care facilities in 21 states, 325 of which were
operated by nonaffiliated parties. The Company acquired its first regional
pharmacy in the United Kingdom in the fourth quarter of 1995 and acquired five
additional pharmacies in the United Kingdom during 1996.
Pharmaceutical services include dispensing pharmaceuticals for such purposes
as infusion therapy, pain management, antibiotic therapy and parenteral
nutrition. Additional services include providing consultant pharmacists and
assistance in preparation of billing documentation. These services are typically
provided to nonaffiliated and affiliated facilities, including subacute and
skilled nursing care facilities, assisted living facilities, group houses,
correctional facilities, mental health facilities and home healthcare companies.
The Company intends to pursue opportunities to expand its pharmaceutical
business through acquisitions and internal growth both in the United States and
in the United Kingdom.
ASSISTED LIVING
The Company has committed $47,000,000 to the development of a number of
assisted living facilities which are intended to serve the elderly who do not
need the full-time nursing care provided by long-term and subacute care
facilities but who do need some assistance with the activities of daily living.
See "Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ACQUISITIONS
In February 1997, the Company agreed to acquire Retirement Care Associates,
Inc. ("Retirement Care"), an operator of 107 skilled nursing facilities and
assisted living centers, and its 65% owned subsidiary, Contour Medical, Inc.
("Contour"), a national provider of medical/surgical supplies. In addition, the
Company agreed to acquire the remaining 35% of Contour not presently owned by
Retirement Care. The acquisition of Contour is expected to be accounted for as a
purchase. The Retirement Care and Contour transactions are expected to close in
the second half of 1997. The acquisition of Retirement Care is expected to be
accounted for as a pooling of interests. The agreements call for the Company to
issue 0.6625 shares of common stock in exchange for each outstanding share of
Retirement Care common stock (subject to adjustment as provided in the
agreement) and for the Company to pay $8.50 per share in cash, stock or a
combination of cash and stock (at the election of the Company) for each
outstanding share of Contour common stock not presently owned by Retirement
Care.
Additional significant acquisitions include (i) the acquisition of the
remaining 71% interest in Ashbourne, a long-term care provider in the United
Kingdom, during the first quarter of 1997 for L67,300,000 ($110,100,000) in
cash, which followed the Company's acquisition of a 29% ownership interest in
Ashbourne during 1996 and 1995 for approximately $36,048,000 in cash, (ii) the
acquisition of APTA Healthcare ("APTA") on December 15, 1996 for L13,733,000
($23,545,000 as of December 31, 1996), (iii) the acquisition of CareerStaff, a
provider of temporary therapy staffing, in June 1995, for 6,080,600 shares of
Common Stock, which had a market value of approximately $107,100,000 at the date
of acquisition, (iv) the acquisition of Golden Care, a respiratory therapy
company, in May 1995, for 2,106,904 shares of Common Stock and options to
purchase an additional 234,100 shares of Common Stock, which had a market value
of approximately $40,000,000 at the date of acquisition, (v) the acquisition of
100% of the stock of Exceler, a long-term care provider in the United Kingdom,
in September 1994 and February 1995 for an aggregate purchase price of
$18,640,000 in cash and (vi) the acquisition of Columbia Health Care, Inc., a
Canadian provider of outpatient rehabilitation therapy services, in November
1995 for
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approximately $8,500,000 in cash and warrants to purchase 500,000 shares of
common stock at an exercise price of $15.375 per share. Acquisitions present
problems of integrating the acquired operations into existing operations.
Expansion through the use of leases and management agreements has permitted
the Company to increase the size of its operations and earnings capacity without
significant capital expenditures, although in certain cases payments have been
required in connection with the restructuring of lease arrangements, and it is
common for a security deposit or a letter of credit to be required at the
inception of a lease term. In addition, in certain cases the Company is required
to expend significant sums immediately following acquisitions to finance such
facilities' operations until payments are received from payor sources for
services rendered by the Company. The Company has also in the past made and
expects to continue to make acquisitions through the use of its own stock as
consideration, thereby avoiding expenditure of cash. Regulatory approval is
generally required in connection with the Company's assumption of operating
responsibility for new facilities.
The Company continually evaluates opportunities to acquire or develop its
healthcare operations, including but not limited to its therapy and
pharmaceutical businesses. In evaluating opportunities, management considers,
among other factors, location (including synergies with existing Company
operations), demographics, price, the availability of financing on acceptable
terms (including lease terms and the ability to use Common Stock as acquisition
consideration), the competitive and regulatory environment and the opportunity
to improve performance through the implementation of the Company's operating
strategy.
The Company is continuously discussing with third parties the possible
acquisition of long-term and subacute care facilities and other healthcare
operations. Such acquisitions are often initiated and completed over a short
period of time. While the Company regularly considers and evaluates
opportunities for expansion and is engaged in discussions with various parties
regarding acquisitions which, if completed, would be material, it does not have
any firm agreements with respect to material acquisitions or expansion except
for the Company's acquisition of RCA and Contour as previously discussed.
Potential acquisition candidates generally include companies or facilities in
geographic proximity to facilities operated by the Company, those with similar
operations or those that fit within the Company's operating strategy. In
addition, the Company intends to continue to explore international acquisitions,
particularly in Europe. Subject to the requirements of Delaware law and the New
York Stock Exchange, the Company's stockholders will have no advance opportunity
to evaluate the merits and risks of future acquisitions. There can be no
assurance that any future acquisitions will be completed or that the Company's
historical rate of growth in assets, revenues or net earnings will be sustained.
Acquisitions present problems of integrating the acquired operations with
existing operations, including the loss of key personnel and institutional
memory of the acquired business, difficulty in integrating corporate,
accounting, financial reporting and management information systems and strain on
existing levels of personnel to operate such acquired businesses. In addition,
certain assumptions regarding the financial condition of an acquired business
may later prove to be incorrect. For example, a significant percentage of the
receivables of the acquired company may ultimately prove to be uncollectible,
which may result in significant write-offs. The Company's net earnings for the
years ended December 31, 1995 and 1994 were adversely impacted by problems
associated with integrating the operations of The Mediplex Group, Inc.
("Mediplex"), which was acquired by the Company in June 1994, including the
write-off during 1995 and 1994 of certain Mediplex receivables from periods
prior to the acquisition and an impairment loss during 1995 related to the
goodwill associated with six of the forty facilities acquired in the Mediplex
acquisition. In addition, net earnings for the year ended December 31, 1996 were
adversely affected by certain negative revenue adjustments and write-offs of
certain accounts receivables associated with Mediplex. These adjustments were
primarily the result of changes in accounting estimates based on events
occurring in 1996. Mediplex is the most significant acquisition undertaken by
the Company to date, and the acquisition of Mediplex allowed the Company to
expand its long-term and subacute care businesses. See
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"Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations." The Company's ability to manage its growth effectively will
require it to continue to improve its corporate accounting, financial reporting
and management information systems, and to attract, train, motivate and manage
its employees effectively. There can be no assurance that the Company will be
able to successfully integrate acquired operations or to successfully manage any
growth; failure to do so effectively and on a timely basis could have a material
adverse effect upon the Company's financial condition and results of operations.
If the Company is unable to effectively integrate the operations of an
acquired entity with the Company's existing operations, the Company may elect to
divest some or all of the acquired operations. In the second quarter of 1996 the
Company sold its ambulatory surgery subsidiary. The Company's decision to sell
its ambulatory surgery subsidiary was influenced in part by the marketplace's
resistance to the integration of subacute care with ambulatory surgery.
REVENUE SOURCES
The Company derives its revenues from a combination of (i) state Medicaid
programs for indigent patients, (ii) the Federal Medicare program for certain
elderly and disabled patients, (iii) private payment sources, which includes
payments for therapy and pharmaceutical services provided to nonaffiliated long-
term and subacute care facilities, (iv) foreign operations in the United Kingdom
and Canada and (v) other miscellaneous sources. Such private pay sources may
themselves derive all or a portion of their revenues from Medicaid and/or
Medicare.
The following table sets forth the percentage of total revenues by payor
source for the Company for the periods indicated:
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YEAR ENDED DECEMBER 31,
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SOURCES OF REVENUES 1996 1995 1994
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Medicaid..................................................................................... 31% 34% 40%
Medicare..................................................................................... 23 23 20
Private pay and other (1).................................................................... 41 41 39
Foreign operations........................................................................... 5 2 1
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(1) Includes revenues from therapy services, which includes payments for
rehabilitation and respiratory therapy, temporary therapy staffing services
and pharmaceutical services provided to nonaffiliated long-term and subacute
facilities and not directly charged to Medicaid or Medicare. Such private
pay sources may themselves derive all or a portion of their revenues from
Medicaid and/or Medicare.
UNITED STATES REVENUE SOURCES
The Company's revenues from long-term and subacute care services are
determined by a number of factors, including: (i) the licensed bed capacity of
its facilities, (ii) the occupancy rates of its facilities, (iii) the mix of
patients and the rates of reimbursement among payor categories (Medicaid,
Medicare and private pay and other) and (iv) the extent to which subacute care
and certain ancillary services available in the Company's facilities are
utilized by the patients and paid for by the respective payor sources. The
Company utilizes reimbursement specialists and retains outside reimbursement
consultants to monitor both Medicaid and Medicare regulatory developments and to
assist in compliance with all program requirements with a view to obtaining all
lawful reimbursement.
MEDICAID. The Medicaid program is a program created by the Social Security
Act to benefit indigent persons who are aged, blind or disabled. Payment is made
under state-administered reimbursement programs governed by Federal guidelines.
Although Medicaid programs vary from state to state, typically they provide for
fixed rate payments to healthcare providers at levels designed to compensate an
efficiently
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and economically operated facility. Reimbursement rates are typically determined
by the state from "cost reports" filed annually by each facility, on a
prospective or retrospective basis. Under most state Medicaid programs,
individual facilities are reimbursed on a prospective rate system, subject to
retroactive adjustment. Under a prospective system, per diem rates are
established (generally on an annual basis) based upon certain historical costs
of providing services during the prior year, adjusted to reflect factors such as
inflation and any additional services required to be performed. Retroactive
adjustments, if any, are based on a recomputation of the applicable
reimbursement rate following an audit of cost reports. Providers must accept
reimbursement from Medicaid as payment in full for the services rendered. The
provider may not bill the patient for services covered by the Medicaid program
but may bill the patient for noncovered services. There can be no assurance that
Medicaid reimbursement will be sufficient to cover actual costs incurred by the
Company with respect to Medicaid services rendered. State Medicaid plans also
require that providers must be subject to governmental audit to ensure the
propriety of costs incurred, which are used as the basis for payments.
Most of the Company's facilities participate in the Medicaid program. The
Company's facilities in Arizona participate in the Arizona Health Care Cost
Containment System Program (the "AHCCCS Program"), which is operated under a
Federal Medicaid waiver. The AHCCCS Program is an alternative to the
conventional Medicaid program. The AHCCCS Program provides Federal financial
assistance for care it provides to needy individuals who would be eligible for
Medicaid in any other state. The AHCCCS Program is designed primarily to secure
healthcare on a capitated basis under contracts awarded to qualified bidders,
but it also pays some contractors on a fee-for-service basis when capitated
contracts are impractical. The Company negotiates the rates of reimbursement
with the county in which services are provided, on either a capitated or
fee-for-service basis, depending on the county. Under the AHCCCS Program,
nursing facility services are covered for eligible patients of all ages.
Certain states, including Massachusetts, are studying methods for reducing
expenses under their Medicaid programs, which initiatives could have an adverse
effect on applicable Medicaid rates. Connecticut has undertaken a study of
acuity levels and is considering changes in its reimbursement system to take
levels of acuity into account for the reimbursement of nursing costs. The
Company cannot currently determine the potential effect of any such changes.
MEDICARE. Medicare is a federally funded and administered health insurance
program that provides coverage for beneficiaries who require certain intensive
rehabilitation therapy services or skilled nursing and certain related medical
services, such as rehabilitation therapy, pharmaceuticals, medical supplies and
ancillary, diagnostic and other necessary services of the type provided by
skilled nursing facilities. Medicare inpatient benefits are not available for
patients requiring intermediate and custodial levels of care. In general,
Medicare payments for skilled nursing services and rehabilitative care are based
on allowable costs. With certain exceptions, Medicare pays on an interim basis,
subject to year-end cost settlement. Each facility receives interim payments
during the year. Total incurred costs are later adjusted upward or downward to
reflect actual allowable direct and indirect costs of services based on the
submission of a cost report at the end of each year. If allowable cost is less
than the interim payments, depending on the effective date of the adjustment,
the Company could be required to refund prospectively the excess of amounts it
receives over such allowable costs. If such refund were required to be made, it
would be due shortly following notice from Medicare, and would likely require
the Company to borrow under its revolving credit facility. There can be no
assurance that Medicare reimbursement will be sufficient to cover actual costs
incurred by the Company with respect to Medicare services rendered. As of
December 31, 1996, 155 of the Company's 160 long-term and subacute care
facilities in the United States (or 97% of such facilities) were certified to
receive payment for costs incurred while providing benefits covered under
Medicare.
Medicare reimbursement for services provided in skilled nursing facilities
is based upon the lesser of (i) actual allowable routine and ancillary operating
costs and capital costs or (ii) charges. Facilities that have been in operation
longer than three full cost reporting periods are subject to limits on their
actual
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routine per diem costs. The routine service cost limits, which are regionally
adjusted for labor costs, are required to be updated annually by HCFA. However,
these limits were frozen by HCFA for its past three fiscal years ended September
30, 1995. The freeze expired on October 1, 1995. However, no new cost limits
have been published.
Hospitals that provide acute care are paid for non-physician services to
Medicare inpatients under the federal prospective payment system ("PPS"), under
which payments are based on standard amounts adjusted for the patient's
diagnosis without regard to the hospital's actual inpatient operating costs.
Medicare payments for inpatient services provided by rehabilitation and
psychiatric hospitals or units that meet the requirements to be exempted from
the PPS are generally reimbursed on a reasonable cost basis, subject to certain
limits and exceptions. Medicare payment for most outpatient ancillary services
provided in non-acute care facilities is based upon the lesser of reasonable
costs or charges.
Rehabilitation hospitals or units in acute care hospitals must meet certain
eligibility requirements for exclusion from PPS. Rehabilitation hospitals must
show that they provided services to an inpatient population of whom at least 75%
required intensive rehabilitative services for the treatment of conditions that
fell within ten specified categories of injury and disease. The rehabilitation
facilities meeting these requirements are reimbursed by Medicare for their
portion of the actual allowable operating and capital costs for the first three
full cost reporting periods under current or previous ownership. After this
period, the facilities will be subject to limits on their actual operating costs
per discharge. The cost limits were imposed under regulations adopted under the
Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). The TEFRA limit is
determined based upon actual Medicare allowable operating costs per discharge
incurred in a base year, and is updated annually by an amount approved by HCFA.
The annual payment update reflects changes in the hospital market basket and
budgetary policy. Rehabilitation facilities subject to TEFRA limits will be
reimbursed the lesser of their actual allowable operating and capital costs or
the TEFRA limit plus capital costs. If a facility's actual allowable operating
costs are less than the TEFRA limit, it will receive in addition to its actual
costs an "incentive" payment which is equivalent to the lesser of 50% of the
difference between the TEFRA amount and actual operating costs or 5% of the
TEFRA amount.
The Company's respiratory therapy subsidiary derives a significant
percentage of its net revenues and net operating earnings from the provision of
respiratory therapy services and related supplies, equipment and medical gases
to beneficiaries of the Medicare and Medicaid programs who reside in long-term
and subacute care facilities. In general, long-term and subacute care facilities
that contract with an outside provider for the furnishing of respiratory therapy
services are reimbursed under Part A of the Medicare program through the annual
facility cost reporting process. Reimbursement is made under Medicare's
reasonable cost principles, subject to salary equivalency guidelines that
operate as cost limits. Respiratory therapy services furnished under a contract
with an outside provider are Medicare covered services and reimbursable under
Medicare Part A only if furnished by a "transfer hospital" with which the
long-term and subacute care facility has entered into a "transfer agreement."
Golden Care has entered into contracts with a number of hospitals that
participate in the Federal Medicare program and the hospitals have established
transfer agreements with a number of skilled nursing facilities. Pursuant to
Golden Care's contract, the hospitals rent necessary respiratory therapy
equipment from Golden Care and receive comprehensive and specific management
services from Golden Care. The hospitals pay Golden Care monthly rental payments
for the equipment, and certain other fees for the management, administrative and
other related services that Golden Care renders. Golden Care also has entered
into contracts with a number of skilled nursing facilities to provide necessary
medical supplies, medical gases and respiratory therapy equipment, pursuant to a
fee schedule. The skilled nursing facilities pay Golden Care upon receipt of the
medical supplies and medical gases and monthly for the necessary respiratory
therapy equipment.
Current Medicare regulations that apply to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for the
rehabilitation and respiratory therapy and pharmaceutical services that it
provides to
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affiliated facilities. These related party regulations require that, among other
things, (i) the Company's rehabilitation and respiratory and pharmaceutical
subsidiaries must each be a bona fide separate organization; (ii) a substantial
part of the rehabilitation and respiratory therapy services or pharmaceutical
services, as the case may be, of the relevant subsidiary must be transacted with
nonaffiliated entities, and there is an open, competitive market for the
relevant services; (iii) rehabilitation and respiratory therapy services and
pharmaceutical services, as the case may be, are services that commonly are
obtained by long-term and subacute care facilities from other organizations and
are not a basic element of patient care ordinarily furnished directly to
patients by such long-term and subacute care facilities; and (iv) the prices
charged to the Company's long-term and subacute care facilities by its
rehabilitation and respiratory therapy services subsidiaries and pharmaceutical
subsidiary are in line with the charges for such services in the open market and
no more than the prices charged by its rehabilitation and respiratory therapy
services and pharmaceutical subsidiaries under comparable circumstances to
nonaffiliated long-term and subacute care facilities. The related party
regulations do not indicate a specific level of services that must be provided
to nonaffiliated entities in order to satisfy the "substantial part" requirement
of such regulations. In instances where this issue has been litigated by others,
the final determination of the appropriate threshold to satisfy the "substantial
portion" requirement has varied.
Net revenues from rehabilitation therapy services provided to nonaffiliated
facilities represented 66%, 64% and 67% of total rehabilitation services net
revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
Respiratory therapy services provided to nonaffiliated facilities represented
55% and 64% of total respiratory therapy services net revenues for the year
ended December 31, 1996 and the period from the date of acquisition of Golden
Care on May 5, 1995 to December 31, 1995, respectively. The Company's
respiratory therapy operations did not provide services to affiliated facilities
prior to the acquisition of Golden Care on May 5, 1995. Net revenues from
pharmaceutical services billed to nonaffiliated facilities represented 78%, 78%
and 81% of total pharmaceutical services revenues for the years ended December
31, 1996, 1995 and 1994. The Company believes that it satisfies the requirements
of the related party regulations regarding nonaffiliated business. Consequently,
it has claimed and received reimbursement under Medicare for rehabilitation and
respiratory therapy and pharmaceutical services provided to patients in its own
facilities at a higher rate than if it did not satisfy these requirements. If
the Company were deemed not to have satisfied these regulations, the
reimbursement that the Company receives for rehabilitation and respiratory
therapy and pharmaceutical services provided to its own facilities would be
materially and adversely affected. If, upon audit by Federal or state
reimbursement agencies, such agencies find that these regulations have not been
satisfied, and if, after appeal, such findings are sustained, the Company could
be required to refund some or all of the difference between its cost of
providing these services and the higher amount actually received. While the
Company believes that it has satisfied and will continue to satisfy these
regulations, there can be no assurance that its position would prevail if
contested by relevant reimbursement agencies. The Company believes that it will
be able to integrate the Retirement Care operations so as to remain in
compliance with these regulations; however, in order to so comply the Company
may be required to restrict the number of Retirement Care facilities to which
the Company provides therapy and pharmacy services. The foregoing statements
with respect to the Company's ability to satisfy these regulations are forward
looking and could be affected by a number of factors, including the
interpretation of Medicare regulations by Federal or state reimbursement
agencies and the Company's ability to provide services to nonaffiliated
facilities.
PRIVATE PAY SOURCES. Private pay revenues include payments from individuals
who pay directly for services without governmental assistance, revenues from
nonaffiliated facilities, served by the Company's ancillary therapy and pharmacy
operations, commercial insurers, Blue Cross organizations, HMOs, preferred
provider organizations, workers' compensation programs and other similar payment
sources. Payments from these private pay sources may be charge-based, cost-based
or based on periodically renewable contracts negotiated with these payors. Some
medical conditions treated with rehabilitation therapy services are covered by
liability insurance, rather than health benefits policies. In such cases,
reimbursement rates are established on a case-by-case basis.
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Although the level of charges by the Company to private patients in its
facilities is not subject to the same regulatory control as with Medicaid or
Medicare, its charges are still generally limited to customary and reasonable
charges for such healthcare services. In addition, many managed care
organizations and other non-governmental payors are under pressure to contain or
reduce costs through increasing case management review of services, lowering
reimbursement rates and negotiating reduced contract pricing.
THERAPY SERVICES TO NONAFFILIATES. Revenues from therapy services to
nonaffiliates are derived from the Company's therapy business which provides
rehabilitation and respiratory therapy, and respiratory products and supplies,
to patients at long-term and subacute care facilities not operated by the
Company. In general, payments for these therapy services are received directly
from the long-term care facilities, which in turn are paid by Medicare or other
payors. Revenues from therapy services provided to affiliated facilities are
included in the Medicaid, Medicare and private pay sources of revenues of the
Company. The Company's charges to nonaffiliates, though not directly regulated,
are effectively limited by regulatory reimbursement policies imposed on the
long-term and subacute care facilities that receive these therapy services, as
well as competitive market factors. The Company's contracts with the
nonaffiliated facilities are generally terminable on 30 to 60 days' notice, so
that if reimbursement policies changed in such a way that contract therapy rates
owed by such facilities to the Company exceeded reimbursement paid by Medicare
or other payors to such facilities, they would be able to terminate their
contractual relationships with the Company. In addition, in substantially all
instances, the Company may be contractually required to indemnify the
nonaffiliated facility for amounts it has been paid which are subsequently
disallowed by Medicare.
CareerStaff revenues are included in the Private and Other category, since
all CareerStaff revenues are derived from billings to facilities served, rather
than directly from Medicare or Medicaid; although Medicare or Medicaid may
reimburse the facilities for the cost of services provided to CareerStaff.
PHARMACEUTICAL SERVICES TO NONAFFILIATES. Revenues from the Company's
pharmaceutical services are derived from the provision of such services to
patients at long-term and subacute care facilities, most of which are not
operated by the Company. The Company enters into non-exclusive contracts with
nonaffiliated facilities, and personnel at such facilities submit prescriptions
to the Company on behalf of patients at such facilities. The Company is in most
cases paid directly by Medicare, Medicaid or private pay sources, and not by the
long-term care facility. The amounts that can be charged for prescriptions are
often limited by Medicaid regulations.
UNITED KINGDOM REVENUE SOURCES
The Company derives its revenues in the United Kingdom from a combination of
(i) income support payments by the United Kingdom Department of Social Security
(the "DSS"), (ii) local authority payments and (iii) private payor sources.
DSS INCOME SUPPORT. The majority of residents in nursing homes in the
United Kingdom are funded by income support payments by the DSS. DSS income
support is paid without any assessment of care need. Under the DSS income
support system, if an individual had less than L8,000 in assets and insufficient
income to cover the cost of home care, that individual is eligible for DSS
income support for nursing home care. A single set of national rates is applied
throughout the United Kingdom (except in London where an additional premium is
payable). DSS income support levels are reviewed annually and generally are
increased with United Kingdom inflation rates. Residents receiving income
support who entered homes before April 1993 will continue to have their fees
paid until they die or leave the nursing home. Consequently, the funding changes
introduced by the Community Care Act will take effect gradually as those who
receive payments from the DSS under the pre-April 1993 system are replaced by
residents who now receive local authority funding.
LOCAL AUTHORITY FUNDING. Since implementation of the Community Care Act, if
an individual is assessed by a local authority as requiring nursing home care,
the local authority will place that individual in a nursing home with which it
has contracted (or a home of the individual's choice) and will recover from
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the resident any income which he or she may have to cover such costs. In
addition, local authorities may place a charge over a resident's property and
recover the fees for nursing home care from the proceeds of the sale following
the death of the spouse. The local authority is free to contract with any
nursing home and may agree to any fee with the operator of the nursing home. In
practice, most local authorities have used the level of DSS income support
payments as a benchmark against which to set their fees. As a result, local
authority rates are likely to rise in line with DSS income support payments.
Some local authorities, however, have been willing to pay a higher fee for
higher dependency residents or higher quality nursing homes. An individual may
choose to go to a different nursing home than the one offered by the local
authority, provided the extra cost, or "top up," if any, is borne by the
individual or by a third party. Approximately 30% of the Company's residents
receiving income support or local authority funding pay such "top up" payments.
PRIVATE PAYOR SOURCES. Privately funded residents typically pay
approximately 10% more than DSS or local authority-funded residents. The Company
believes that the financial resources of the elderly are projected to increase
in the future. As a result, there is likely to be a decrease in the number of
people who are eligible for local authority funding or DSS income support. The
majority of privately funded residents pay for the cost of nursing home care
with the proceeds from the sale of their home. Health insurance and other
financial products that provide financing for long-term nursing care are in
their infancy in the United Kingdom and it is unlikely that these products will
account for a significant portion of nursing home revenues in the near future.
GOVERNMENT REGULATION
The healthcare industry is subject to substantial federal, state and local
regulation. The various layers of governmental regulation affect the Company's
business by controlling its growth, requiring licensure or certification of its
facilities, regulating the use of its properties and controlling reimbursement
to the Company for services provided. See "Revenue Sources." Licensing,
certification and other applicable governmental regulations vary from
jurisdiction to jurisdiction, are revised periodically, and vary among the
nursing home, therapy and pharmacy operations.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Among the proposals under consideration are cost controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, and requirements that all businesses offer health insurance
coverage to their employees. It is not clear at this time whether any proposals
will be adopted, or, if adopted, what effect, if any, such proposals would have
on the Company's business. There can be no assurance that currently proposed or
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the financial results or operations of the Company.
In 1993, the Health Care Financing Administration ("HCFA") issued a
directive to fiscal intermediaries that administer the Medicare reimbursement
policies to review costs incurred by providers of occupational therapy and
speech therapy provided by contract suppliers such as the Company's
rehabilitation therapy subsidiary. Although HCFA has published salary
equivalency guidelines for contract physical therapy and respiratory therapy,
guidelines for occupational therapy and speech therapy have not yet been
published in final form. Implementation of speech and occupational salary
equivalency guidelines in accord with draft proposals of HCFA could directly or
indirectly limit reimbursement for certain of the Company's occupational and
speech therapy services. Reimbursement for such services is currently evaluated
under Medicare's reasonable cost principles.
In 1995, and periodically since then, HCFA has provided information to
intermediaries for their use in determining reasonable costs for occupational
and speech therapy. The information set forth in such directives, although not
intended to impose limits on reasonable costs for speech therapy and
occupational therapy, suggests that fiscal intermediaries should carefully
review costs which appear to be in excess of
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what a "prudent buyer" would pay for those services. While the effect of these
directives is still uncertain, they are a factor considered by such
intermediaries in evaluating the reasonableness of amounts paid by providers for
the services of the Company's rehabilitation therapy subsidiary. These
directives will become obsolete for cost reporting periods beginning after
salary equivalency guidelines for all therapies are finalized. In addition, some
intermediaries also require facilities to justify the cost of contract
therapists versus employed therapists as an aspect of the "prudent buyer"
analysis. Accordingly, the "prudent buyer" analyses could result in lower
reimbursement rates and a corresponding decrease in net revenues of the Company.
With respect to rehabilitation therapy services provided to affiliated
facilities, a retroactive adjustment of Medicare reimbursement could be made for
some prior periods. An adjustment of reimbursement rates with respect to therapy
services provided to nonaffiliated facilities could result in indemnity claims
against the Company, based on the terms of substantially all of the Company's
existing contracts with such facilities, for payments previously made by such
facilities to the Company that are reduced by Medicare in the audit process. The
Company derives a significant percentage of its net earnings from the provision
of therapy services; a change in reimbursement rates resulting from
implementation of this directive or a reduction in reimbursement as a result of
a change in application of reasonable cost guidelines could have a material
adverse affect on the Company's financial condition and results of operations,
depending on the rates adopted and the Company's costs for providing these
services.
Additional measures are likely to be adopted in the future as Federal and
state governments attempt to control escalating healthcare costs. Any reductions
in reimbursement levels under Medicaid, Medicare or private payor programs and
any changes in applicable government regulations or interpretations of programs
are subject to statutory and regulatory changes, retroactive rate adjustments to
incurred costs, administrative rulings and government funding restrictions, all
of which may materially affect the rate of payment to facilities and the
Company's therapy and pharmaceutical businesses. There can be no assurance that
payments under government or private payor programs will remain at levels
comparable to present levels or will be adequate to cover the costs of providing
services to patients eligible for assistance under such programs. Significant
decreases in utilization of therapy services and limits on reimbursement for
therapy services could have a material adverse effect on the Company's financial
condition and results of operations.
Many of the states in which the Company operates have adopted CON statutes
applicable to the services provided by the Company. Such statues provide
generally that, prior to the construction of new beds, the addition of new
services or the making of certain capital expenditures exceeding defined levels,
a state agency must determine that a need exists for such proposed activities.
Failure to obtain the necessary state approval can result in the inability to
provide the service, operate the facility or complete the addition or other
change, and can also result in the imposition of sanctions or adverse action in
respect of the facility's license and reimbursement.
All of the Company's long-term and subacute care facilities in the United
States are licensed under applicable state law where licensure is required. As
of December 31, 1996, 155 of the Company's 160 long-term and subacute care
facilities in the United States (or 97% of such facilities) were certified to
receive benefits provided under Medicare, and 157 (or 99% of such facilities)
were approved as providers under Medicaid. Both initial and continuing
qualification of a facility to participate in the Medicaid or Medicare program
depend upon many factors, including accommodations, equipment, services, patient
care, safety, personnel, physical environment and adequate policies, procedures
and controls. In order to participate in the Medicare program, a facility must
be licensed and certified as a provider of skilled nursing services. Effective
October 1, 1990, the Omnibus Budget Reconciliation Act of 1987 eliminated the
different certification standards for "skilled" and "intermediate care" nursing
facilities under the Medicaid program in favor of a single "nursing facility"
standard. This standard requires, among other things, that the Company have at
least one registered nurse on each day shift and one licensed nurse on each
other shift, and increases training requirements for nurse's aides by requiring
a minimum number of training hours and a certification test before a nurse's
aide can commence work. States continue to be required to certify that nursing
facilities provide "skilled care" in order to obtain Medicare reimbursement.
Licensing,
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certification and other applicable standards vary from jurisdiction to
jurisdiction and are revised periodically. State agencies survey all long-term
care facilities on a regular basis to determine whether such facilities are in
compliance with the requirements for participation in government sponsored third
party payor programs.
The Company believes that its facilities are in substantial compliance with
the various Medicare and Medicaid regulatory requirements of certification.
However, in the ordinary course of its business, the Company receives notices of
deficiencies for failure to comply with various regulatory requirements. The
Company reviews such notices and seeks to take appropriate corrective action. In
most cases, the Company and the reviewing agency will agree upon the measures to
be taken to bring the facility into compliance. In some cases or upon repeat
violations, the reviewing agency has the authority to impose fines, temporarily
suspend admission of new patients to the facility, suspend or decertify from
participation in the Medicare or Medicaid programs and, in extreme
circumstances, revoke a facility's license. These actions would adversely affect
a facility's ability to continue to operate, the ability of the Company to
provide certain services and the facility's eligibility to participate in the
Medicare or Medicaid programs.
Certain of the Company's long-term and subacute care facilities have
received notices in the past from state agencies that, as a result of certain
alleged deficiencies, the agencies were assessing fines or were taking steps to
decertify the facility from participation in Medicare and Medicaid programs.
However, the deficiencies were remedied before any facilities were decertified.
To date, none of the Company's facilities has had its license or certification
revoked.
The Company's therapy and pharmaceutical businesses provide Medicare and
Medicaid covered services and products to long-term and subacute care facilities
under arrangements with both affiliated and nonaffiliated long-term and subacute
care facilities. Under these arrangements, the Company's therapy subsidiary
bills and is paid by the long-term and subacute care facility for the services
actually rendered and the details of billing the Medicare and Medicaid programs
are handled directly by the long-term and subacute care facility. With certain
exceptions, the Company's pharmaceutical subsidiary bills, and is paid by,
Medicare, Medicaid or the private pay source directly. As a result, the
Company's therapy business generally (including Sundance and CareerStaff) is not
Medicare and Medicaid certified and does not enter into provider agreements with
the Medicare and Medicaid programs, but the Company's pharmaceutical business
does participate in the Medicare and Medicaid programs.
Various state and federal laws regulate the relationship between providers
of healthcare services and physicians, including employment or service
contracts, and investment relationships. These laws include the broadly worded
Fraud and Abuse Provisions of the Medicare and Medicaid statutes, which prohibit
various transactions involving Medicare or Medicaid covered patients or
services. Violations of these provisions may result in civil or criminal
penalties for individuals or entities and/or exclusion from participation in the
Medicare and Medicaid programs. For example, conviction of abusive or fraudulent
behavior with respect to one facility could subject other facilities under
common control or ownership to exclusion from participation in the Medicare and
Medicaid programs. For example, conviction of abusive or fraudulent behavior
with respect to one facility could subject other facilities under common control
or ownership to exclusion from participation in the Medicare and Medicaid
programs. The full extent of the application of these provisions is not
presently known. However, the Company believes that it has not entered into any
relationship with physicians or other healthcare providers that might be
considered to fall within the coverage of the Fraud and Abuse Provisions and
other related state and federal laws. The Company believes that it will be able
to arrange its future business relationships so as to comply with the Fraud and
Abuse Provisions or any safe harbor guidelines issued pursuant thereto.
All states have adopted a "patient's bill of rights" that sets forth
standards dealing with such issues as using the least restrictive treatment,
patient confidentiality, allowing patient access to the telephone and mail,
allowing the patient to see a lawyer and requiring the patient to be treated
with dignity. In addition, the Company, as an operator of health care
facilities, is subject to various federal, state and local consumer protection
laws.
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By virtue of the Company's ownership of Exceler and APTA and an ownership
interest in Ashbourne, certain of the operations from which the Company may
derive income are subject to national and local regulations in the United
Kingdom, including The Community Care Act 1990 and The Registered Homes Act
1984, as well as various zoning, health and safety, reimbursement and general
corporate regulations.
The Company also is subject to federal, state and local laws, regulations
and ordinances that govern activities or operations that may have adverse
environmental effects (such as the generation, handling, storage and disposal of
medical and hazardous wastes) or impose liability for the costs of remediation
of contaminated property in certain circumstances without regard to fault. The
Company could incur liability under such laws for the activities of former
operators of facilities acquired by the Company. Certain of the Company's
operations routinely involve the handling of medical wastes, some of which are
or may become regulated as hazardous substances. The Company has not incurred,
and does not expect to incur, any significant expenditures or liabilities for
environmental matters. As a result, the Company believes that its environmental
obligations will not materially affect the Company.
COMPETITION
The Company operates in a highly competitive industry. The nature of
competition varies by location. Its facilities generally operate in communities
that are also served by similar facilities operated by others. Some competing
facilities are located in buildings that are newer than those operated by the
Company and provide services not offered by the Company, and some are operated
by entities having greater financial and other resources and longer operating
histories than the Company. In addition, some facilities are operated by
nonprofit organizations or government agencies supported by endowments,
charitable contributions, tax revenues and other resources not available to the
Company. Some hospitals that either currently provide long-term and subacute
care services or are converting their under-utilized facilities into long-term
and subacute care facilities are also a potential source of competition to the
Company. The Company also competes with other companies in providing
rehabilitation therapy services and pharmaceutical products and services to the
long term care industry and in employing and retaining qualified therapists and
other medical personnel. Many of these competing companies have greater
financial and other resources than the Company.
The Company competes with other facilities based on key competitive factors
such as its reputation for the quality and comprehensiveness of care provided;
the commitment and expertise of its staff; the innovativeness of its treatment
programs; local physician and hospital support; marketing programs; charges for
services; and the physical appearance, location and condition of its facilities.
The range of specialized services, together with the price charged for services,
are also competitive factors in attracting patients from large referral sources.
There is limited, if any, competition in price with respect to Medicaid and
Medicare patients, because revenues for services to such patients are strictly
controlled and based on fixed rates and uniform cost reimbursement principles.
See "Revenue Sources."
The Company may also face competition from other facilities, hospitals or
healthcare companies when it initiates a CON project or seeks to acquire a CON
or a facility covered by an existing CON. CON programs affect the opportunity to
develop or acquire new facilities by creating a regulatory system that can be
used by competitors to delay the implementation of growth strategies. CON laws,
applicable in many of the states in which the Company's facilities are located,
also currently restrict the number of facilities that can compete with the
Company in such states.
EMPLOYEES
As of December 31, 1996, the Company had approximately 35,900 full-time and
part-time employees. Of this total, there were approximately 22,400 employees at
the long-term and subacute care facilities in the United States, 2,500 employees
at the long-term care facilities in the United Kingdom, 6,400 employees involved
in providing rehabilitation therapy services in the United States, 300 employees
providing rehabilitation therapy services in Canada, 700 employees at the
pharmaceutical operations in the United
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States, 2,200 employees in the temporary therapy staffing business, 700
employees of hospitals who are managed by the Company and provide respiratory
therapy services and 700 employees at the corporate and regional offices.
Certain of the Company's employees in Connecticut, Massachusetts, California,
Washington and New Mexico are covered by collective bargaining contracts. The
Company believes it has satisfactory relationships with the unions that
represent its employees, but it cannot predict the effect of continued union
representation or organizational activities on its future activities.
Although the Company believes it is able to employ sufficient nurses and
therapists to provide its services, a shortage of healthcare professional
personnel in any of the geographic areas in which it operates could affect the
Company's ability to recruit and retain qualified employees and could increase
its operating costs. The Company competes with other healthcare providers for
both professional and service employees and with non-healthcare providers for
service employees.
INSURANCE
Healthcare companies are subject to medical professional liability, personal
injury and other liability claims that are customary risks inherent in the
operation of health facilities and are generally covered by insurance. The
Company maintains property, liability and professional liability insurance
policies in amounts and with such coverages and deductibles that are deemed
appropriate by management, based upon historical claims, industry standards and
the nature and risks of its business. The Company also requires that physicians
practicing at its facilities carry medical professional liability insurance to
cover their respective individual professional liabilities.
The Company has self-insured the healthcare risks of employees who have
elected coverage under the Company-sponsored plans. Workers' compensation
coverage is effected through self-insurance, retrospective or high-deductible
insurance policies or other hybrid policies which vary by the states in which
the Company operates except that the Company's long-term and subacute care
subsidiary is a non-subscriber to the workers' compensation program in Texas.
The costs of paying for healthcare and workers' compensation claims can
fluctuate depending on the type and number of claims in any given period.
ITEM 2. PROPERTIES
FACILITIES. Most of the Company's long-term and subacute care facilities
are subject to long-term operating leases, subleases, or management agreements.
The Company considers its properties to be in good operating condition and
suitable for the purposes for which they are being used. The Company's
facilities that are leased are subject to long-term operating leases or
subleases, the terms of which range from 6 to 23 years, and require the Company,
among other things, to fund all applicable capital expenditures, taxes,
insurance and maintenance costs. The Company's rights as lessee or sublessee
could be subject to termination upon a foreclosure by the underlying mortgage
lender or termination by the lessor. The annual rent payable under each of the
leases generally increases based on a fixed percentage (generally 2 to 3%) and,
in some instances, based on increases in revenues or income and reimbursement
rates or number of occupied beds. Many of the leases contain renewal options to
extend the term for between 5 to 40 consecutive years. Thirty-four of the
Company's facilities are leased from Meditrust. The Meditrust leases generally
provide for a fixed annual 2.5% increase over the prior year's rent and have
initial terms expiring between 2004 and 2008 with renewal options for five
consecutive five year terms. The Meditrust leases contain cross-default
provisions, so that a default under any one of the Meditrust leases may trigger
a default under all mortgages and leases financed by Meditrust. Seventeen of the
Company's long-term and subacute care facilities are subject to management
agreements, which generally provide the Company with management fees based on a
percentage of the revenues of the managed facility and may also include a fixed
fee component.
At December 31, 1996, the Company had an aggregate of $32,712,000 of
outstanding mortgages with Meditrust which contain cross-default provisions with
all of such mortgages and leases also financed by Meditrust.
16
<PAGE>
FACILITIES IN THE UNITED STATES. The following table sets forth certain
information concerning the long-term and subacute care facilities owned, leased
or managed by the Company in the United States as of December 31, 1996. Unless
otherwise indicated, all facilities listed below are leased by the Company.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
STATE FACILITIES LICENSED BEDS (1)
- -------------------------------------------------------------------------------- ---------- -----------------
<S> <C> <C>
Massachusetts (2)............................................................... 35 4,574
Texas........................................................................... 22 2,705
Washington (3).................................................................. 21 1,924
California (4).................................................................. 17 2,185
Connecticut (5)................................................................. 15 2,159
Arizona......................................................................... 10 1,527
Illinois........................................................................ 9 980
Idaho (6)....................................................................... 9 813
New Jersey (7).................................................................. 5 766
New Mexico...................................................................... 4 277
Florida (3)..................................................................... 3 390
Oklahoma........................................................................ 2 135
Oregon.......................................................................... 2 195
Colorado (3).................................................................... 1 117
Kentucky........................................................................ 1 55
Louisiana....................................................................... 1 177
Maryland........................................................................ 1 170
Indiana......................................................................... 1 95
Iowa............................................................................ 1 77
--- ------
160 19,321
--- ------
--- ------
</TABLE>
- ------------------------
(1) "Licensed Beds" refers to the number of beds for which a license has been
issued, which may vary in some instances from licensed beds available for
use.
(2) Includes three facilities owned and two facilities managed by the Company.
(3) Includes one facility owned by the Company.
(4) Includes fourteen facilities managed by the Company.
(5) Includes one facility managed by the Company and is the holder by assignment
of an opion to acquire this facility.
(6) Includes three facilities owned by the Company.
(7) Includes one facility managed by the Company.
See "Item 13--Certain Relationships and Related Transactions" for a
description of certain relationships between the Company and certain of its
executive officers and directors with respect to leases for certain of the above
facilities in the United States.
17
<PAGE>
FACILITIES IN THE UNITED KINGDOM. The following table sets forth certain
information concerning the long-term care facilities owned or leased by the
Company as of December 31, 1996. Unless otherwise indicated, all facilities
listed below are leased by the Company.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF REGISTERED
COUNTY FACILITIES BEDS(1)
- -------------------------------------------------------------------------------- ---------- -----------------
<S> <C> <C>
Nottinghamshire (2)............................................................. 12 459
West Midlands (3)............................................................... 12 542
Leicestershire (4).............................................................. 5 219
Derbyshire (4).................................................................. 4 176
Merseyside (5).................................................................. 4 226
Tyne and Wear (6)............................................................... 4 188
Berkshire (7)................................................................... 3 112
Greater Manchester (4).......................................................... 3 115
London (6)...................................................................... 3 175
Owent........................................................................... 3 119
Staffordshire (5)............................................................... 3 154
Clwyd (4)....................................................................... 2 89
Londonderry..................................................................... 2 96
South Yorkshire (5)............................................................. 2 143
Armagh (5)...................................................................... 1 41
Cambridgeshire (5).............................................................. 1 19
Cheshire (5).................................................................... 1 40
Down............................................................................ 1 40
Essex (5)....................................................................... 1 50
Humberside...................................................................... 1 86
Midglamoargan................................................................... 1 60
Newry........................................................................... 1 39
Norfolk (5)..................................................................... 1 13
Shropshire...................................................................... 1 65
Suffolk (5)..................................................................... 1 15
Warwickshire (5)................................................................ 1 35
West Yorkshire.................................................................. 1 104
--
-----
75 3,420
--
--
-----
-----
</TABLE>
- ------------------------
(1) "Registered Beds" refers to the number of beds for which a register has been
issued, which may vary in some instances from registered beds available for
use.
(2) Includes four facilities owned by the Company.
(3) Includes ten facilities owned by the Company.
(4) Includes two facilities owned by the Company.
(5) Includes one facility owned by the Company.
(6) Includes three facilities owned by the Company.
(7) Includes two facilities owned and one facility managed by the Company.
CONSTRUCTION OF HEALTHCARE FACILITIES IN THE UNITED KINGDOM. The Company
intends to complete construction of seven facilities in the United Kingdom
through its wholly owned subsidiary Sun Healthcare Group International, Ltd. The
aggregate number of beds for these seven projects is 992 and the estimated
aggregate capital cost of these seven facilities is approximately L7,300,000
($12,500,000) as of December 31, 1996.
18
<PAGE>
PHARMACEUTICAL SERVICES. As of December 31, 1996, the Company operated
fifteen pharmacies and three in-house long-term care pharmacies in 21 states,
six pharmacies in the United Kingdom, one supply distribution center and one
pharmaceutical billing and consulting center.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions and administrative
proceedings and is subject to various claims arising in the ordinary course of
business. The Company does not believe that the ultimate disposition of these
matters will have a material adverse effect on the financial position or results
of operations of the Company.
Prior to the Company's acquisition of CareerStaff, a holder of CareerStaff's
common stock filed a lawsuit (the "CareerStaff Litigation") as a purported class
action against CareerStaff and the directors of CareerStaff alleging breach of
fiduciary duty in entering into a merger agreement with the Company and against
the Company alleging that the Company aided and abetted the alleged breach of
fiduciary duty by the CareerStaff directors. The CareerStaff Litigation was
voluntarily dismissed without prejudice on May 8, 1996.
On June 30, 1995, two civil class action complaints were filed against the
Company and certain of its current and former directors and officers in the
United States District Court for the District of New Mexico. Two more
complaints, based on the same underlying events, were filed on August 30, 1995.
On October 6 and October 10, 1995, two additional complaints were filed, also
based on the same underlying events. These six complaints were consolidated by a
court order dated November 27, 1995 and an amended class action complaint,
captioned IN RE SUN HEALTHCARE GROUP, INC. LITIGATION (the "Complaint"), was
filed in the United States District Court for the District of New Mexico on
January 26, 1996. The Complaint was purportedly brought on behalf of all persons
who either purchased shares of the Company's common stock between October 26,
1994 and June 27, 1995, or who exchanged their shares of common stock of
CareerStaff for shares of the Company's common stock pursuant to a merger
agreement between CareerStaff and the Company. The Complaint alleges that
defendants misrepresented or failed to disclose material facts about the United
States Department of Health and Human Services' Office of Inspector General
("OIG") investigation and about the Company's operations and financial results,
which plaintiffs contend artificially inflated the price of the Company's
securities.
In October 1996, the Company reached an agreement in principle to settle
these class action lawsuits for $24,000,000 which the Company funded in the
fourth quarter of 1996. The settlement is subject to the execution of definitive
documentation and court approval. The Company received $9,000,000 from its
directors and officers liability insurance carrier for its claim submitted in
connection with the settlement in March 1997.
On or about January 23, 1996, two former stockholders of Golden Care filed a
lawsuit (the "Golden Care Litigation") against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of Indiana. Plaintiffs allege, among other things, that the Company did
not disclose material facts concerning the investigation by the OIG and that the
Company's financial results were misstated. The Complaint purports to state
claims, INTER ALIA, under Federal and state securities laws and for breach of
contract, including a breach of the registration rights agreement pursuant to
which the Company agreed to register the shares being registered for resale by
such former Golden Care stockholders. Plaintiffs purport to seek recission,
unspecified compensatory damages, punitive damages and other relief. By Order
dated October 11, 1996, the court granted in part and denied in part defendants'
motion to dismiss. The Company believes it has meritorious defenses to the
Complaint. There can be no assurance that the Golden Care Litigation will not
have an impact on the Company's accounting for the merger.
On September 8, 1995, a derivative action was filed in the United States
District Court for the District of New Mexico, captioned BRICKELL PARTNERS V.
TURNER, ET AL. The complaint was not served on any defendant. On June 19, 1996,
an amended complaint alleging breach of fiduciary duty by certain current and
former of the Company's directors and officers based on substantially the same
events as those set forth in the above
19
<PAGE>
described securities class actions was filed and subsequently served on the
defendants. On August 5, 1996, the District Court dismissed this action without
prejudice for failure to serve the defendants within the required time period.
Brickell Partners filed a new complaint, alleging the same claims, on August 19,
1996. Defendants have moved to dismiss the new complaint. The Company believes
it has meritorious defenses to the new complaint.
The Company believes the Golden Care Litigation and the derivative action
will not have a material adverse impact on its financial condition or results of
operations, although the unfavorable resolution of any of these actions in any
reporting period could have a material adverse impact on the Company's results
of operations for that period. The foregoing statements with respect to the
possible outcomes of the Golden Care Litigation and the derivative action are
forward looking and could be affected by a number of factors, including judicial
interpretations of applicable law, the uncertainties and risks inherent in any
litigation, particularly a jury trial, the existence, scope and number of any
subsequently filed complaints, the scope of insurance coverage, and the outcome
of the OIG investigation and all factors that could affect that outcome.
In January 1995, the Company learned that it was the subject of a pending
Federal investigation. The investigating agencies are the United States
Department of Health and Human Services' Office of Inspector General and the
United States Department of Justice. The government is still in the process of
collecting information. The Company has cooperated and continues to cooperate
with the investigation.
At this time, the Company understands that the investigation includes a
review of whether the Company's rehabilitation therapy subsidiary properly
provided and/or billed for concurrent therapy services and whether it provided
unnecessary or unordered services to residents of skilled nursing facilities.
The Company understands that the investigation also includes a review of whether
its long-term care subsidiary properly disclosed its relationship with the
Company's rehabilitation therapy subsidiary and properly sought reimbursement
for services provided by that subsidiary.
The Company is unable to determine at this time when the investigation will
be concluded or what its
precise scope might be. If there have been improper practices or the
investigation is broader in scope than the Company currently understands it to
be, depending on the nature and extent of such impropriety, the investigation
could result in the imposition of civil, administrative, or criminal fines,
penalties, or restitutionary relief, and may have a negative impact on the
Company. From time to time the negative publicity surrounding the investigation
has slowed the Company's success in obtaining additional outside contracts in
the rehabilitation therapy business, which has resulted in higher than required
therapist staffing levels, and has affected the private pay enrollment in
certain inpatient facilities. Based on its current understanding of the
investigation, however, the Company does not believe that the outcome of the
investigation will have a material adverse effect on the Company's financial
condition or results of operations. The foregoing statements with respect to the
outcome of the investigation are forward looking and could be affected by a
number of factors, including the actual scope of the investigation, the
government's factual findings and the interpretation of Federal statutes and
regulations by the government and Federal courts.
In 1996, the Connecticut Attorney General's office and the Connecticut
Department of Social Services ("DSS") began investigating whether Medicaid cost
reports for 1993 and 1994 submitted to the DSS by the Company's long-term care
subsidiary contained false and misleading fiscal information. Based on its
current understanding of the investigation, the Company believes the
investigation will not have a material adverse effect on the Company's financial
condition or results of operations. The foregoing statement with regard to the
outcome of this investigation is forward looking and could be affected by a
number of factors, including the factual findings and interpretation of
applicable laws and regulations by the Attorney General and the DSS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
20
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 26, 1997 were as follows:
Andrew L. Turner, age 50, is Chairman of the Board of Directors, President
and Chief Executive Officer of the Company. Mr. Turner has served in each of
these capacities for the Company since its formation. Mr. Turner is also the
founder of the Company and has overseen the development of the Company's
business since its inception in 1989. Mr. Turner was also a founder and
previously served as Chief Operating Officer of Horizon Healthcare Corporation,
a healthcare services provider, from 1986 to 1989. Prior to 1986, Mr. Turner
served as a Senior Vice President of Operations of The Hillhaven Corporation
("Hillhaven"). Mr. Turner has over 20 years of experience in the long-term care
industry.
Robert D. Woltil, age 42, became a director of the Company in March 1996.
Mr. Woltil became the Senior Vice President for Financial Services and Chief
Financial Officer of the Company in February 1996. From 1982 to January 1996,
Mr. Woltil served in various capacities for Beverly Enterprises, Inc.
("Beverly"), a healthcare services provider. From May 1995 until January 1996.
Mr. Woltil was President and Chief Executive Officer of Pharmacy Corporation of
America, a subsidiary of Beverly. From 1992 to May 1995, Mr. Woltil was the
Chief Financial Officer of Beverly, and from 1990 to 1992, Mr. Woltil was the
Vice President--Financial Planning and Control for Beverly. Mr. Woltil is also a
certified public accountant.
Robert A. Levin, age 42, became a director of the Company in April 1993 and
has served as the Secretary of Sun from April 1993 to October 1996. Effective
January 1, 1996, Mr. Levin became the Senior Vice President for Rehabilitation
Services. This position includes responsibility for all therapy services of the
Company, including those of Sundance Rehabilitation Company ("Sundance"), the
Company's rehabilitation therapy subsidiary. From January 1991 to December 1995,
Mr. Levin was the President and Chief Operating Officer of Sundance. Previously
Mr. Levin was Vice President of National Accounts for Medline Industries, Inc.,
a manufacturer and distributor of medical supplies.
Warren C. Schelling, age 43, became a Director of the Company in October
1996. Mr. Schelling became the Senior Vice President for the Pharmaceutical
Services Division effective January 1, 1996. This position includes
responsibility for all of the Company's pharmaceutical services, including those
of Sunscript Pharmacy Corporation ("Sunscript"), the Company's pharmacy
subsidiary. From July 1994 to December 1995, Mr. Schelling was the President of
Sunscript. Prior to joining the Company, Mr. Schelling was the President and
Chief Operating Officer of HPI Health Care Services, Inc. a subsidiary of
Diagnostek, Inc., which provides pharmacy management services to hospitals,
HMOs, long-term care facilities and health systems, from January 1993 to July
1994. From January 1994 to July 1994, Mr. Schelling also served as the Executive
Vice President/Pharmacy Services Officer at Diagnostek, Inc. From September 1985
to January 1993, Mr. Schelling was a manager in HPI Health Care Services, Inc.
Mark G. Wimer, age 43, became a Director of the Company in July 1993. Mr.
Wimer became the Senior Vice President of Inpatient Services effective January
1, 1996. This position includes responsibility for all inpatient services of the
Company, including those of Sunrise Healthcare Corporation ("Sunrise"), the
Company's subsidiary responsible for operations of the Company's long-term care
facilities. Mr. Wimer previously served as the President of Sunrise effective
July 1, 1993 until December 1995. From February 1988 to July 1993, Mr. Wimer was
President and Chief Executive Officer of Franciscan Eldercare Corporation, a
non-profit organization that develops and manages long-term care facilities.
From November 1984 through February 1988, Mr. Wimer was Regional Vice President
of Operations for Hillhaven and had responsibility for management of long-term
care facilities for such company in Washington, Oregon, Idaho and Montana.
Julie Collins, age 49, became Senior Vice President of Administrative
Services in January 1, 1996. This position is responsible for overseeing
corporate communications, human resources, risk management, training and
corporate office facilities management. From September 1994 to December 1995,
Ms. Collins was the Vice President Human Resources. Prior to joining the
Company, Ms. Collins was the Vice President of Human Resources and Support
Services for St. Joseph Health System in Atlanta, Georgia
21
<PAGE>
from 1993 to 1994. From July 1991 to September 1993, Ms. Collins had been the
Vice President of Sunrise. From 1990 to 1991, Ms. Collins was Director of Human
Resources for Sheperd Spinal Center in Atlanta, Georgia.
Susan M. LaBelle, age 44, became Senior Vice President--SunSolution Division
in January 1997. This position is responsible for developing a marketing program
to integrate all of the Company's ancillary services. From July 1994 to December
1996, Ms. LaBelle was Vice President of Marketing at Baxter Healthcare
Corporation, a manufacturer and distributor of medical products. From July 1989
to July 1994, Ms. LaBelle was Director of Marketing at McGaw, Inc., a
manufacturer and distributor of medical products.
Robert F. Murphy, age 43, became Senior Vice President and the General
Counsel of the Company in November 1995 and Secretary of the Company in October
1996. From 1986 to 1995 Mr. Murphy served in several capacities as an officer
and legal counsel to FHP International Corporation, most recently as Vice
President and Associate General Counsel. Previously Mr. Murphy was in private
practice beginning in 1978.
Warren H. McInteer, age 37, became Vice President of Mergers & Acquisitions
in August 1995. Mr. McInteer became the Treasurer of the Company in June 1995.
Prior to joining the company, Mr. McInteer was the Vice President of Financial
Planning for Continental Medical Systems ("Continental") in Mechanicsburg,
Pennsylvania, from 1993 to 1995. From 1985 to 1993, Mr. McInteer was a
management consultant for Price Waterhouse working from offices in Baltimore,
London and Philadelphia.
William C. Warrick, age 34, became Vice President, Corporate Controller in
March 1994. From July 1991 to March 1994, Mr. Warrick directed financial
reporting for Continental. From July 1990 to June 1991, Mr. Warrick held a
similar position with McCrory Stores, a retail chain store company. Previously
Mr. Warrick was an accountant with KPMG Peat Marwick. Mr. Warrick is a certified
public accountant.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE COMPANY
The Company's common stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "SHG." The following table shows the high and low sales
prices for the common stock as reported by the NYSE for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter............................................. $28.13 $23.00
Second Quarter............................................ 27.13 12.25
Third Quarter............................................. 16.38 12.25
Fourth Quarter............................................ 14.75 9.13
1996
First Quarter............................................. $14.25 $11.25
Second Quarter............................................ 15.63 12.88
Third Quarter............................................. 14.63 11.63
Fourth Quarter............................................ 13.63 11.50
</TABLE>
There were approximately 2,977 holders of record as of March 26, 1997 of the
Company's common stock.
The Company has not paid nor declared any dividends on its common stock
since its inception and anticipates that its future earnings will be retained to
finance the continuing development of its business. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, the success of the Company's
business activities, regulatory and capital requirements, the general financial
condition of the Company and general business conditions. The Company is
restricted from paying dividends under its revolving credit facility. See "Item
7--Management's Discussion and Analysis of Financial Condition and Result of
Operations-- Liquidity and Capital Resources."
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 have been derived from the
Company's Consolidated Financial Statements. The financial data set forth below
should be read in connection with "Item 7--Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Consolidated Financial Statements and related notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996(3) 1995(4)(5) 1994 1993 1992
---------- ---------- --------- -------- --------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Total net revenues.......................................... $1,316,308 $1,135,508 $ 673,354 $230,815 $135,733
Earnings before pro forma income taxes and extraordinary
loss...................................................... 52,466 12,794 36,807 22,710 7,258
Earnings (loss) before extraordinary item (1)............... 21,536 (20,568) 19,561 13,463 4,373
Extraordinary item.......................................... -- (3,413) -- -- --
---------- ---------- --------- -------- --------
Net earnings (loss) (1)..................................... $ 21,536 $ (23,981) $ 19,561 $ 13,463 $ 4,373
---------- ---------- --------- -------- --------
---------- ---------- --------- -------- --------
Net earnings (loss) per common and common equivalent share
(1)(2):
Before extraordinary loss................................... $ 0.46 $ (0.43) $ 0.61 $ 0.72 $ 0.29
Extraordinary loss.......................................... -- (0.07) -- -- --
---------- ---------- --------- -------- --------
Net earnings................................................ $ 0.46 $ (0.50) $ 0.61 $ 0.72 $ 0.29
---------- ---------- --------- -------- --------
---------- ---------- --------- -------- --------
Weighted average number of common and common equivalent
shares.................................................... 46,840 47,419 31,830 18,608 14,902
Working capital............................................. $ 211,582 $ 237,147 $ 197,150 $ 45,451 $ 2,057
Total assets................................................ 1,229,426 1,042,503 1,054,223 110,488 27,760
Long-term debt, net of current portion...................... 483,453 348,460 398,534 11,967 1,365
Stockholders' equity........................................ 572,137 569,042 550,449 70,361 8,232
</TABLE>
- ------------------------
(1) Results for the year ended December 31, 1995 and prior years represent pro
forma amounts to include pro forma taxes of CareerStaff and Golden Care
prior to their conversions to be taxed as C corporations, which occurred in
June 1994 and May 1995, respectively.
(2) See Note 1(o) to the Company's Consolidated Financial Statements for net
earnings (loss) per share information. Also, pro forma net earnings per
share data for the years ended December 31, 1993 and 1992, are calculated
based upon the number of shares of the Company's common stock issued upon
the formation of Sun Healthcare Group, Inc. on April 15, 1993, which placed
under the control of a single corporation all of the Company's operations
and the appropriate weighted average number of shares of the Company's
common stock for common stock transactions of the Company subsequent to the
Company's preincorporation agreement dated as of April 13, 1993, and also
include the appropriate weighted average number of shares of the Company's
common stock for common stock transactions of CareerStaff and Golden Care
for the years ended December 31, 1993 and 1992.
(3) Results for the year ended December 31, 1996 include a $24,000,000 charge
recognized by the Company to settle certain of the lawsuits brought by
shareholders and, as a reduction of this settlement charge, $9,000,000 which
was received from the Company's directors and officers' liability insurance
carrier in connection with the settlement (see Note (14) to the Consolidated
Financial Statements). In addition, in 1996, the Company recorded additional
expenses of $4,250,000 related to monitoring and responding to the
continuing investigation by the United States Department of Health and Human
Services' Office of Inspector General ("OIG") and to responding to the
remaining
24
<PAGE>
shareholder litigation related to the announcement of the OIG investigation.
The charges to not contain any estimated amounts for settlement of the OIG
investigation or remaining shareholder litigation matters.
(4) Results for the year ended December 31, 1995 include a charge of $3,256,000
in connection with the payment of an inducement fee to effect the conversion
in January 1995 of $39,449,000 of the 6 1/2% Convertible Subordinated
Debentures and an extraordinary charge of $3,413,000, net of the related tax
benefit, in connection with the tender offer of the 11 3/4% Senior
Subordinated Notes. (See Note (6) to the Consolidated Financial Statements).
(5) Also included in results for the year ended December 31, 1995 is $5,800,000
of transaction-related merger costs incurred in connection with the merger
of the Company with CareerStaff and Golden Care (see Note (2) to the
Consolidated Financial Statements), a $59,000,000 impairment loss recorded
by the Company which primarily relates to goodwill associated with six of
the forty facilities acquired in the acquisition of Mediplex (see Note
(1(g)) to the Consolidated Financial Statements), $4,006,000 related to
averting a strike and negotiating new contracts for certain unionized homes
in Connecticut, and a charge of $5,505,000 related to monitoring and
responding to the investigation by the OIG and legal fees resulting from the
shareholder litigation.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, through its direct and indirect subsidiaries (hereinafter
collectively referred to as "the Company"), is a provider of long-term, subacute
and related specialty healthcare services, including rehabilitation and
respiratory therapy services and pharmaceutical services. Long-term care and
subacute care services and outpatient therapy services are provided through
affiliated facilities. Therapy services and pharmaceutical services are provided
in both affiliated and nonaffiliated facilities located in the United States.
The Company also provides long-term care and pharmaceutical services in the
United Kingdom and outpatient rehabilitation therapy services in Canada.
The Company's strategy is to increase profitability through the provision of
ancillary services such as rehabilitation and respiratory therapy services and
pharmaceutical services to both affiliated and nonaffiliated facilities. These
services have significantly higher margins than the margins associated with
routine services provided to residents of facilities. The Company's earnings
growth has historically resulted from its acquisition of long-term and subacute
care facilities ("facilities"), use of its long-term care and subacute care
operations as a base for expansion of ancillary services, provision of ancillary
services to nonaffiliated facilities and expansion of ancillary services through
acquisitions.
The Company's results of operations for the years ended December 31, 1996,
1995 and 1994 reflect the acquisition of facilities, the growth of the Company's
existing facility operations, the expansion of the Company's therapy service
operations and temporary therapy staffing services, and the growth of the
Company's pharmaceutical service operations. In June 1995, the Company merged
with CareerStaff Unlimited, Inc. ("CareerStaff"), a provider of temporary
staffing of physical, occupational and speech therapists to the healthcare
industry, and in May 1995, the Company merged with Golden Care, Inc. ("Golden
Care"), a provider of respiratory therapy services to facilities. Both
transactions were accounted for as poolings of interest. The Company acquired
The Mediplex Group, Inc. ("Mediplex") in June 1994, which was accounted for as a
purchase.
In February 1997, the Company agreed to acquire Retirement Care Associates,
Inc. ("Retirement Care"), an operator of 107 skilled nursing facilities and
assisted living centers, and its 65% owned subsidiary, Contour Medical, Inc.
("Contour"), a national provider of medical/surgical supplies. In addition, the
Company agreed to acquire the remaining 35% of Contour not presently owned by
Retirement Care. The acquisition of Contour is expected to be accounted for as a
purchase. These transactions are expected to close in the second half of 1997.
The acquisition of Retirement Care is expected to be accounted for as a pooling
of interests. In January 1997, the Company acquired the portion not previously
owned by the Company of Ashbourne PLC, an operator of 49 nursing and residential
support facilities in the United Kingdom.
At December 31, 1996, the Company operated 160 facilities with 19,321
licensed beds in the United States and 75 facilities with 3,420 licensed beds in
the United Kingdom.
At December 31, 1995, the Company operated 131 facilities with 15,921
licensed beds in the United States and 28 facilities with 1,437 licensed beds in
the United Kingdom. In 1996, the Company acquired 32 facilities in the United
States and 43 facilities in the United Kingdom, resulting in a total increase of
3,874 and 1,750 licensed beds in the United States and United Kingdom,
respectively. In addition, in 1996 the Company developed and opened four
facilities in the United Kingdom with a total of 230 licensed beds.
At December 31, 1994, the Company operated 115 facilities with 13,904
licensed beds in the United States and 18 facilities with 840 licensed beds in
the United Kingdom. In 1995, the Company acquired twelve facilities in the
United States and eight facilities in the United Kingdom, resulting in a total
increase of 1,295 and 484 licensed beds in the United States and United Kingdom,
respectively. In addition, in 1995 the Company developed and opened four
facilities in the United States and two in the United Kingdom, with 525 and 111
licensed beds in the United States and United Kingdom, respectively. In 1994,
the
26
<PAGE>
Company acquired 60 facilities with 7,652 licensed beds, including 36 facilities
with 5,317 licensed beds at December 31, 1994, through the acquisition of
Mediplex. In August 1994, the Company acquired a 68% interest in Exceler Health
Care Group PLC ("Exceler"), a United Kingdom corporation. The Company acquired
the remaining 32% interest in Exceler in February 1995.
The Company's therapy service operations include the provision of physical,
occupational and speech therapy, the provision of respiratory care, and the
distribution of related equipment and supplies. The Company entered the
respiratory therapy service business through its May 1995 merger with Golden
Care. As of December 31, 1996, the Company provided its therapy services to 759
nonaffiliated facilities, an increase of 116 facilities from the 643
nonaffiliated facilities serviced at December 31, 1995.
The Company entered the temporary therapy staffing service business through
its June 1995 merger with CareerStaff. The Company had 20, 18 and 14 division
offices at December 31, 1996, 1995 and 1994, respectively. During the twelve
months ended December 31, 1996, the Company provided a total of 2,402,000
temporary therapy staffing hours, an increase of 403,000 hours from the
1,999,000 temporary therapy staffing hours provided during the twelve months
ended December 31, 1995.
The Company's pharmaceutical service operations include the provision of
pharmaceuticals and the distribution of related supplies. As of December 31,
1996, the Company operated fifteen regional pharmacies, three in-house long-term
care pharmacies, six pharmacies in the United Kingdom, one supply distribution
center and one pharmaceutical billing and consulting center.
The Company's foreign operations, in addition to the nursing home facilities
in the United Kingdom, include the provision of outpatient therapy services in
Canada through the Company's acquisition of Columbia Health Care Inc.
("Columbia") in 1995 and pharmaceutical services in the United Kingdom.
The following table sets forth certain operating data for the Company as of
the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Long-term and Subacute Care Facility Operations
Long-term and subacute care facilities:
Domestic operations (including managed facilities)..................... 160 131 115
Foreign operations..................................................... 75 28 18
--------- --------- ---------
Total................................................................ 235 159 133
--------- --------- ---------
--------- --------- ---------
Licensed beds:
Domestic operations (including managed facilities)..................... 19,321 15,921 13,904
Foreign operations..................................................... 3,420 1,437 840
--------- --------- ---------
Total................................................................ 22,741 17,358 14,744
--------- --------- ---------
--------- --------- ---------
Therapy Service Operations:
Nonaffiliated facilities served.......................................... 759 643 513
Affiliated facilities served............................................. 152 125 108
--------- --------- ---------
Total................................................................ 911 768 621
--------- --------- ---------
--------- --------- ---------
Temporary Therapy Staffing Service Operations:
Hours billed to nonaffiliates (in thousands)............................. 2,402 1,999 1,158
--------- --------- ---------
--------- --------- ---------
Pharmaceutical Operations:
Nonaffiliated facilities served.......................................... 325 271 136
Affiliated facilities served............................................. 112 101 76
--------- --------- ---------
Total................................................................ 437 372 212
--------- --------- ---------
--------- --------- ---------
</TABLE>
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount and percentages of certain
elements of total net revenues for the periods presented (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term and subacute care services.......... $ 826,780 63% $ 759,459 67% $ 476,146 71%
Therapy services to nonaffiliates............. 220,592 17 170,154 15 106,144 16
Temporary therapy staffing services to
nonaffiliates................................ 116,818 9 96,500 9 55,258 8
Pharmaceutical services to nonaffiliates...... 70,673 5 51,409 5 20,427 3
Foreign operations............................ 60,985 4 27,072 2 6,196 1
Ambulatory surgery............................ 11,857 1 26,197 2 7,260 1
Management fees and other..................... 8,603 1 4,717 -- 1,923 --
------------ --------- ------------ --------- ---------- ---------
Total net revenues........................ $ 1,316,308 100% $ 1,135,508 100% $ 673,354 100%
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
</TABLE>
Revenues for long-term and subacute care services include revenues billed to
patients for therapy and pharmaceutical services provided by the Company's
affiliated operations. Revenues for therapy services provided to affiliated
facilities were $113,925,000, $92,177,000 and $45,157,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Revenues provided to affiliated
facilities for pharmaceutical services were $19,503,000, $14,187,000 and
$4,900,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
28
<PAGE>
The following table presents the percentage of total net revenues
represented by certain items for the Company for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Total net revenues........................................................... 100% 100% 100%
--------- --------- ---------
Costs and expenses:
Operating.................................................................. 84.2 81.9 82.1
Corporate general and administrative....................................... 4.7 4.5 4.7
Provision for losses on accounts receivable................................ 1.1 1.3 4.1
Depreciation and amortization.............................................. 2.6 2.4 1.8
Interest, net.............................................................. 2.0 1.9 1.5
Conversion expense......................................................... -- 0.3 0.3
Merger expenses............................................................ -- 0.5 --
Strike costs............................................................... -- 0.4 --
Investigation and litigation costs......................................... 1.5 0.5 --
Impairment loss............................................................ -- 5.2 --
--------- --------- ---------
Total costs and expenses................................................. 96.1 98.9 94.5
--------- --------- ---------
Earnings before income taxes and extraordinary loss.......................... 3.9 1.1 5.5
Income taxes(1).............................................................. 2.3 2.9 2.6
--------- --------- ---------
Net earnings (loss) before extraordinary loss(1)............................. 1.6 (1.8) 2.9
Extraordinary loss........................................................... -- (0.3) --
--------- --------- ---------
Net earnings (loss)(1)....................................................... 1.6% (2.1)% 2.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Results for the years ended December 31, 1995 and 1994 represent pro forma
amounts to include pro forma taxes of CareerStaff and Golden Care prior to
their conversion to be taxed as C Corporations, which occurred in June 1994
and May 1995, respectively.
The results of the Company's ambulatory surgery operations are immaterial to
the Company's consolidated results and, therefore, this discussion excludes the
Company's ambulatory surgery operations. The Company sold its ambulatory surgery
subsidiary in the second quarter of 1996.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1995
Total net revenues for the year ended December 31, 1996 increased 16% from
$1,135,508,000 for the year ended December 31, 1995 to $1,316,308,000.
Net revenues from long-term and subacute care services were negatively
impacted in the fourth quarter of 1996 by certain changes in accounting
estimates for third-party settlements (see "Effects From Changes in
Reimbursement" and Note 1(d) to the Consolidated Financial Statements). In the
fourth quarter of 1996, the Company recorded negative revenue adjustments
totaling approximately $23,047,000 resulting from changes in accounting
estimates of amounts realizable from third-party payors. These changes in
accounting estimates primarily arose out of the cost reporting settlement
process in the latter part of 1996, including the settlement of outstanding
Medicare cost reports and the results of Medicare and Medicaid cost report
audits. Amounts pertaining to prior quarters are not material to the results
previously reported for those quarters. Approximately $19,400,000 of the
adjustments related to changes in estimates out of the settlement of prior
years' cost reports including $11,100,000 of adjustments from the Company's
Mediplex facilities. Some of the issues, as resolved in the settled cost
reports, have a continuing impact on recorded revenue rates and therefore will
negatively affect future operating results. However, the Company does not expect
this impact to materially affect future periods. After considering these
adjustments, net revenues increased 9% from $759,459,000 for the year ended
December 31, 1995 (which
29
<PAGE>
was adversely affected by the factors noted below) to $826,780,000 for the year
ended December 31, 1996. Approximately $82,632,000 of this increase resulted
from 18 leased or owned facilities acquired during the year ended December 31,
1996 and 16 facilities acquired or opened at various times during the year ended
December 31, 1995. Net revenues for facilities opened before January 1, 1995
decreased $15,311,000 due to the negative revenue adjustments previously
discussed and the sale of three of these facilities during 1996. The sold
facilities contributed $17,735,000 of the decrease.
Net revenues from therapy services to nonaffiliated facilities increased 30%
from $170,154,000 for the year ended December 31, 1995, to $220,592,000 for the
year ended December 31, 1996 primarily as a result of an increase in the number
of nonaffiliated facilities served from 643 facilities at December 31, 1995 to
759 facilities at December 31, 1996.
Net revenues from temporary therapy staffing services to nonaffiliated
facilities increased 21% from $96,500,000 for the year ended December 31, 1995
to $116,818,000 for the year ended December 31, 1996 primarily as a result of an
increase in service hours billed to nonaffiliates from 1,999,000 hours in 1995
to 2,402,000 hours in 1996. The increase in service hours billed was primarily
attributable to the increase of services at division offices open for over one
year and to new offices established through acquisitions.
Net revenues from pharmaceutical services to nonaffiliated facilities
increased 37% from $51,409,000 for the year ended December 31, 1995 to
$70,673,000 for the year ended December 31, 1996. The growth in net revenues was
primarily a result of the increase in the number of nonaffiliated facilities
served from 271 at December 31, 1995 to 325 at December 31, 1996. The increase
in nonaffiliated facilities served was the result of the opening and acquisition
of pharmacies during 1996 and 1995 and the increase in the number of
nonaffiliated facilities served by pharmacies open prior to January 1, 1995.
Net revenues from foreign operations increased 125% from $27,072,000 for the
year ended December 31, 1995 to $60,985,000 for the year ended December 31,
1996. Net revenue growth of $17,997,000 was attributable to the acquisition of
Columbia, a provider of outpatient rehabilitation therapy in Canada, during
November 1995. The remaining net revenue increase of $15,916,000 was
attributable to the 47 facilities acquired or opened in the United Kingdom
during the year ended December 31, 1996 and the 10 facilities acquired or opened
in the United Kingdom during the year ended December 31, 1995.
Operating expenses, which includes rent expense of $91,666,000 and
$73,727,000 for the years ended December 31, 1996 and 1995, respectively,
increased 19% from $929,493,000 for the year ended December 31, 1995 to
$1,107,821,000 for the year ended December 31, 1996. The increase resulted
primarily from the net increase of 62 leased or owned facilities during the year
ended December 31, 1996 and 26 leased or owned facilities during the year ended
December 31, 1995 and the growth in therapy and temporary therapy staffing
services. Operating expenses as a percentage of net revenues increased from
81.9% for the year ended December 31, 1995 to 84.2% for the year ended December
31, 1996. This increase was primarily attributable to negative revenue
adjustments recorded by the Company during the fourth quarter of 1996 (as
discussed above). In addition, the increase can also be attributed to newly
developed facilities opened during 1996 and 1995, which, during the start-up
period, have experienced lower operating margins as the Company implements its
operating strategies, and to increased operating costs without a corresponding
increase in billing rates due to competitive pressures. Seasonal declines in
therapist productivity during the holiday season in the fourth quarter also
contributed to the decrease. The Company's operating costs during the holiday
season remained relatively constant despite temporary revenue reductions due to
the reduced number of business days during the fourth quarter in 1996 as
compared to 1995.
Corporate general and administrative expenses, which include regional costs
related to the supervision of operations, increased 21% from $51,468,000 for the
year ended December 31, 1995 to $62,085,000 for the year ended December 31,
1996. As a percentage of net revenues, corporate general and administrative
expenses increased from 4.5% for the year ended December 31, 1995 to 4.7% for
the year ended December 31, 1996. The increase was primarily due to expansion of
the Company's corporate infrastructure to support the operations of fourteen
facilities in California for which the Company entered into a
30
<PAGE>
management agreement during the third quarter of 1996. The increase was also due
to an increase in costs relating to the expansion of the Company's corporate
infrastructure to support the developing foreign operations and implementation
of new business strategies.
The provision for losses on accounts receivable increased 2% from
$14,623,000 for the year ended December 31, 1995 to $14,970,000 for the year
ended December 31, 1996. As a percentage of net revenues, provision for losses
on accounts receivable decreased from 1.3% for the year ended December 31, 1995
to 1.1% for the year ended December 31, 1996. In 1995, $7,608,000 of Mediplex
accounts receivable were written-off, of which $3,549,000 represented accounts
receivable existing at the date of the acquisition of Mediplex. The write-offs
of Mediplex accounts receivable in 1995 were primarily the result of the
difficulties the Company experienced in integrating Mediplex's accounting and
management information systems which hampered collection efforts, changes in
estimates of amounts realizable from third-party payors (see "Effects from
Changes in Reimbursement") and the recognition of losses on balances retained
from the disposition of five of Mediplex's psychiatric care and substance abuse
facilities and related outpatient centers on September 30, 1995. In 1996, the
Company continued to experience higher than expected write-offs of patient
accounts receivable primarily at its Mediplex facilities and recorded an
additional provision for losses on accounts receivable of approximately
$6,550,000. In addition, in 1996 the Company increased its accounts receivable
reserve in response to a slowdown in collections from nonaffiliated facilities
for therapy services due to delays in payment by the nonaffiliated facilities'
Medicare fiscal intermediaries (see "Liquidity and Capital Resources").
Depreciation and amortization increased 22% from $27,734,000 for the year
ended December 31, 1995 to $33,817,000 for the year ended December 31, 1996. As
a percentage of net revenues, depreciation and amortization expense remained
relatively constant at 2.6% and 2.4% for the years ended December 31, 1996 and
1995, respectively.
Net interest expense increased 19% from $21,829,000 for the year ended
December 31, 1995 to $25,899,000 for the year ended December 31, 1996. The
increase is primarily related to borrowings associated with the repurchase of
2,030,116 shares of the Company's outstanding common stock and purchase of a
9.9% interest in OmniCell Technologies, Inc. ("OmniCell"). Each of these
acquisitions was financed by borrowings under the Company's revolving credit
facility. As a percentage of net revenues, interest expense remained relatively
constant at 2.0% and 1.9% for the years ended December 31, 1996 and 1995,
respectively.
In 1996, the Company reached an agreement in principle to settle certain of
the class-action lawsuits brought by shareholders for $24,000,000 and
recognized, as a reduction of the settlement cost, a $9,000,000 claim from its
directors and officers liability insurance carrier. Although the Company funded
the settlement payment in 1996, the Company did not receive payment from its
insurance carrier until March 1997. In addition, in 1996 the Company accrued
additional charges and expenses of $4,250,000 related to monitoring and
responding to the continuing investigation by the U.S. Department of Health and
Human Services' Office of Inspector General ("OIG") and responding to the
remaining shareholder litigation filed after the announcement of the OIG
investigation. In 1995, the Company also recorded charges and expenses of
$5,505,000 related to monitoring and responding to the continuing investigation
by the OIG and legal fees resulting from shareholder litigation. The 1995
charges also included costs incurred by the Company in connection with financing
activities which were not concluded due to negative publicity resulting from the
OIG investigation. The charges do not contain any estimated amounts for
settlement of the OIG investigation or remaining shareholder litigation matters
(see "Effects from Changes in Reimbursement" and "Litigation").
The Company incurred a nonrecurring charge of $3,256,000 in connection with
the payment of an inducement fee to effect the conversion in January 1995 of
$39,449,000 of the 6 1/2% Convertible Debentures. In addition, in 1995 the
Company recorded an extraordinary charge of $3,413,000, net of the related
31
<PAGE>
tax benefit, in connection with the tender offer, completed in January 1995, for
$78,698,000 principal amount of the 11 3/4% Senior Subordinated Notes. No
similar charges were recorded during 1996.
In connection with the mergers with CareerStaff and Golden Care, the Company
recognized $5,800,000 of transaction related merger costs in the second quarter
of 1995. These included advisor fees and transitional costs related to
consolidating operations. No similar charges were recorded during 1996.
During 1995, the Company recorded charges and expenses of $4,006,000 related
to averting a strike and negotiating new contracts for certain unionized nursing
homes in Connecticut. No similar charges were recorded during 1996.
The Company periodically evaluates the carrying value of goodwill along with
any other related long-lived assets in relation to the future undiscounted cash
flows of the underlying businesses to assess recoverability. The Company adopted
Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
on December 31, 1995. Under SFAS 121, an impairment loss is recognized if the
sum of the expected long-term cash flows is less than the carrying amount of the
goodwill and other assets being evaluated. The difference between the carrying
amount of the goodwill and other assets being evaluated and the estimated fair
market value of the assets represents the impairment loss. The Company
determines fair value using certain multiples of earnings before interest,
taxes, depreciation and amortization based on current prices for comparable
assets. The impairment loss, as determined by SFAS 121, of $59,000,000 recorded
by the Company primarily relates to the goodwill associated with six of the
forty facilities acquired in the Mediplex acquisition. The impairment loss at
these six facilities was the result of the following circumstances: (i) three
facilities were organized by the Service Employees International Union
subsequent to the acquisition resulting in significantly higher labor costs;
(ii) two facilities experienced significant declines in private pay census and
revenues due to, in one instance, funding reductions in certain programs
providing private pay patients and, in the other instance, the opening of two
new facilities by competitors; and (iii) the remaining facility received lower
than expected Medicaid rates from the State of Connecticut and due to the high
acuity of the patients treated at the facility, reimbursement was not adequate.
If the Company had not elected early adoption of SFAS 121, the impairment loss
would have been based solely on the difference between the assets carrying value
and cumulative long-term cash flows which would have resulted in a loss of
$48,900,000. The operations of the impaired facilities are not material to the
consolidated earnings or cash flows of the Company, and therefore, management
does not expect future operating results of the impaired facilities to have a
material adverse effect on the Company's financial condition or results of
operations. However, the impaired facilities are experiencing marginal or
negative cash flows. As they are leased under long-term operating leases, the
Company expects that this trend will continue until it can implement measures to
turn around their performance or to dispose of the facilities.
The Company's effective tax rate was 41% for the year ended December 31,
1996 after excluding the investigation and litigation charge, and was unchanged
from the pro forma effective tax rate for the year ended December 31, 1995 after
excluding the conversion fee, the merger expenses, the impairment loss and the
deferred tax charge relating to the conversion of Golden Care from a S
corporation to a C corporation upon merging with the Company. The pro forma
provision for income taxes for the year ended December 31, 1995 reflects tax
expense that would have been recorded if Golden Care had been subject to and
liable for Federal and state income taxes as a C corporation prior to the
termination of its S corporation status in May 1995.
Net earnings were $21,536,000 for the year ended December 31, 1996 as
compared to a pro forma net loss of $23,981,000 for the year ended December 31,
1995. Net earnings decreased 26% from net earnings of $53,601,000 before the
extraordinary loss for early extinguishment of debt, the conversion fee, the
merger expenses, the strike, the investigation and litigation costs, the
impairment loss, and the deferred tax charge (the "extraordinary or unusual
charges") for the year ended December 31, 1995 to $42,375,000 for the year ended
December 31, 1996 before the investigation and litigation charge. As a
percentage of net
32
<PAGE>
revenues, net earnings were 3.2% for the year ended December 31, 1996 before the
investigation and litigation charge, as compared to 4.7% for the year ended
December 31, 1995 before the extraordinary or unusual charges. The decrease was
primarily due to the revenue adjustments recorded by the Company's long-term and
subacute care services (discussed above).
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Total net revenues for the year ended December 31, 1995 increased from the
year ended December 31, 1994 by $462,154,000, a 69% increase, to $1,135,508,000.
Net revenues from long-term and subacute care services, which includes
revenues generated from therapy and pharmaceutical services provided at the
Company's facilities, increased from $476,146,000 for the year ended December
31, 1994 to $759,459,000 for the year ended December 31, 1995, a 60% increase.
Approximately $220,672,000 or 78% of this increase in long-term and subacute
care net revenues is a direct result of the inclusion of a full year's revenues
from 40 facilities which were acquired in the Mediplex acquisition on June 23,
1994 including the opening of four additional facilities in 1995 for which
Mediplex had obtained Certificates of Need prior to the acquisition.
Approximately $41,910,000 or 15% of this increase results from 36 facilities,
acquired since December 31, 1993. The remaining net revenue increase of
$20,731,000 is primarily attributable to an increase in revenue per patient day
and an increase in occupancy levels since December 31, 1994 on a same facility
basis for the 55 facilities in operation all of fiscal 1995 and 1994. The
increase in revenue per patient day was a result of payor rate increases and the
Company's focus on expanding its subacute services.
Net revenues from therapy services to nonaffiliated facilities increased 60%
from $106,144,000 for the year ended December 31, 1994 to $170,154,000 for the
year ended December 31, 1995, primarily as a result of the increased services to
nonaffiliated facilities from 513 facilities at December 31, 1994 to 643
facilities at December 31, 1995.
Net revenues from temporary therapy staffing services to nonaffiliated
facilities increased 75% from $55,258,000 for the year ended December 31, 1994
to $96,500,000 for the year ended December 31, 1995, primarily as a result of
the increased service hours billed to nonaffiliates from 1,157,535 hours in 1994
to 1,999,092 hours in 1995. The increase in service hours billed is attributable
primarily to the expansion of services at division offices open for over one
year and to new offices established through acquisitions.
Net revenues from pharmaceutical services to nonaffiliated facilities
increased 152% from $20,427,000 for the year ended December 31, 1994 to
$51,409,000 for the year ended December 31, 1995. The growth in net revenues is
primarily the result of the inclusion of a full year's revenues in pharmacy
services revenues from the opening or acquisition of eight regional pharmacies
during 1994 and the opening or acquisition of three regional pharmacies during
1995. The growth in net revenues is also a result of the increase in services to
nonaffiliated facilities from 136 at December 31, 1994 to 271 at December 31,
1995.
Net revenues from foreign operations increased 337% from $6,196,000 for the
year ended December 31, 1994 to $27,072,000 for the year ended December 31,
1995. The growth in net revenues was attributable to the acquisition of Exceler
and the increase in the number of long-term care facilities operated by Exceler
from 18 as of December 31, 1994 to 28 as of December 31, 1995.
During the second half of 1995, the rate of growth of the Company's earnings
was negatively affected by the following factors:
DELAYED REVENUE RECOGNITION. Anticipated Medicare payments and rate
adjustments were delayed as a result of the required change of fiscal
intermediaries from Blue Cross of New Mexico to Blue Cross of Texas. The
announced change slowed the processing of requests for exceptions to the
Medicare established routine cost limitations for reimbursement, which in turn
led to delayed revenue recognition. In addition, the change led to delays in
receipt of payments resulting in increased borrowings under the Company's
revolving credit facility and additional interest expense.
33
<PAGE>
REIMBURSEMENT RATES. In July 1995, the states of Illinois and Connecticut
instituted lower than expected Medicaid reimbursement rates for long-term care
providers. These new rates remained in effect until June of 1996. During this
period, the Company operated eight facilities in Illinois and eighteen
facilities in Connecticut.
GOVERNMENT INVESTIGATION. The Company's rehabilitation therapy subsidiary
is under investigation by the OIG (See "Effects From Changes in Reimbursement").
The Company believes that in the second half of 1995 the negative publicity
surrounding the OIG investigation slowed the Company's success in obtaining
additional outside contracts in its rehabilitation therapy business, which
resulted in higher than required therapist staffing levels and affected the
private patient enrollment at certain inpatient facilities.
In addition, during the third and fourth quarters of 1995, the Company was
negotiating a new labor contract with employees at the Company's eight unionized
facilities in Connecticut who were represented by the Service Employees
International Union ("SEIU"). The Company reached a settlement with the SEIU on
November 2, 1995, and averted a possible labor union strike. However, due to the
additional cost of preparing for a possible labor union strike and negotiating a
settlement, along with the related adverse publicity, the Company temporarily
experienced higher operating costs and a decline in census at certain facilities
in the third and fourth quarters of 1995. The Company recorded a charge in the
fourth quarter of certain costs related to the negotiations and strike
preparation (as discussed below).
Operating expenses, which includes rent expense of $73,727,000 and
$43,626,000 for the year ended December 31, 1995 and 1994, respectively, were
$929,493,000 for the year ended December 31, 1995 and $552,662,000 for the year
ended December 31, 1994, an increase of 68%. The increase resulted primarily
from the acquisition and development of 26 facilities and the growth in therapy
and temporary staffing services. Operating expenses as a percentage of net
revenues decreased from 82.1% for the year ended December 31, 1994 to 81.9% for
the year ended December 31, 1995, which can be attributed to the growth in
therapy services, temporary therapy staffing services, pharmaceutical services
and subacute care services, which have higher operating margins than the margins
associated with routine long-term care services. These gains were partially
offset by costs associated with the change in fiscal intermediaries, lower than
expected Medicaid reimbursement rates (as discussed above) and the negative
publicity surrounding the investigation by the OIG.
Corporate general and administrative expenses, which include regional costs
related to the supervision of operations, increased from $31,633,000 for the
year ended December 31, 1994 to $51,468,000 for the year ended December 31,
1995, an increase of 63%. As a percentage of net revenues, corporate general and
administrative expenses were 4.5% and 4.7% for the years ended December 31, 1995
and 1994, respectively.
The provision for losses on accounts receivable was $14,623,000 for the year
ended December 31, 1995, as compared to $27,632,000 for the year ended December
31, 1994. The decrease in the provision reflects the write-off in the fourth
quarter of 1994 of $23,446,000 of Mediplex accounts receivable (as discussed
below). In 1995, an additional $7,608,000 of Mediplex accounts receivable were
written-off, of which $3,549,000 represented accounts receivable existing at the
date of acquisition. The additional write-offs of Mediplex accounts receivable
in 1995 were primarily the result of the difficulties the Company experienced in
integrating Mediplex's accounting and management information systems which
hampered collection efforts, changes in estimates of amounts realizable from
third-party payors (see "Effects from Changes in Reimbursement") and the
recognition of losses on balances retained from the disposition of five of
Mediplex's psychiatric care and substance abuse facilities and related
outpatient centers on September 30, 1995. The provision for losses on accounts
receivable excluding the write-off of Mediplex accounts receivable in the fourth
quarter of 1994 and the fourth quarter of 1995 described above was $7,015,000
and $4,186,000 for the years ended December 31, 1995 and 1994, respectively. As
a percentage of net revenues, the provision for losses on accounts receivable
excluding the write-off of the Mediplex
34
<PAGE>
accounts receivable described above remained constant at 0.6% for the years
ended December 31, 1995 and 1994.
The provision for losses on accounts receivable recorded in the fourth
quarter of 1994 attributable to Mediplex accounts receivable represented
approximately 27% of the balances acquired in June 1994 and approximately 3% of
the total consideration paid in the acquisition (including debt assumed). The
portion of the 1994 provision for losses on accounts receivable attributable to
Mediplex accounts receivable existing at the date of acquisition was comprised
of $8,709,000 related to patient balances and $14,737,000 related to third-party
payor settlement amounts including Medicare and Medicaid government payors. In
acquiring Mediplex, the Company relied upon Mediplex's public filings with the
Securities and Exchange Commission. After the acquisition, as the integration of
revenue systems of the Company and Mediplex proceeded, the Company determined
that the reserve for uncollectible balances previously set by Mediplex was not
consistent with reserve levels deemed appropriate under the Company's reserve
policies and that additional reserves were required for contractual adjustments
to patient billings. In addition, the Company determined that certain of the
former Mediplex policies regarding accounts receivable from third-party payors
were inconsistent with the Company's policies and that certain third-party
receivables would not be reimbursed in light of applicable regulatory
determinations. It also became apparent from the Company's review of the
historical records that the Company would be unable to collect certain accounts.
Accordingly, management determined that certain patient balances acquired in the
acquisition of Mediplex were uncollectible, certain third-party receivables
recorded by Mediplex prior to the acquisition exceeded final settlements, and
certain liabilities existed for amounts claimed in excess of reimbursable
amounts. This resulted in the determination that $23,446,000 of such accounts
receivable existing at the date of the acquisition were impaired as of the
fourth quarter of 1994 or earlier.
Depreciation and amortization for the year ended December 31, 1995 totaled
$27,734,000 compared to $11,797,000 for the year ended December 31, 1994, an
increase of 135%. As a percentage of net revenues, depreciation and amortization
expense increased from 1.8% in the year ended December 31, 1994 to 2.4% for the
year ended December 31, 1995. The increases are primarily due to the inclusion
of a full year of amortization of goodwill related to the acquisition of
Mediplex and the other acquisitions accounted for as purchases and the
additional depreciation of owned facilities acquired through the Mediplex and
Exceler acquisitions.
Net interest expense for the year ended December 31, 1995 totaled
$21,829,000 compared to $10,548,000 for the year ended December 31, 1994, an
increase of 107%. As a percentage of net revenues, interest expense increased
from 1.5% for the year ended December 31, 1994 to 1.9% for the year ended
December 31, 1995. The increase is due to the issuance of the 6% Convertible
Debentures on March 1, 1994, the additional interest expense associated with the
outstanding debt of Mediplex assumed in the acquisition of Mediplex and to
increases in borrowings under the Company's revolving credit facility primarily
to fund acquisitions, capital expenditures and the debt tender offer referred to
below. In addition, as previously discussed, the required change in fiscal
intermediaries delayed rate adjustments and payments, resulting in increased
borrowings under the Company's revolving credit facility.
The Company incurred a nonrecurring charge of $3,256,000 in connection with
the payment of an inducement fee to effect the conversion in January 1995 of
$39,449,000 of the 6 1/2% Convertible Debentures, and in August 1994, the
Company incurred a similar charge of $2,275,000 related to the conversion of
$24,377,000 of the 6 1/2% Convertible Debentures. In addition, in 1995 the
Company recorded an extraordinary charge of $3,413,000, net of the related tax
benefit, in connection with the tender offer, completed in January 1995, for
$78,698,000 principal amount of the 11 3/4% Senior Subordinated Notes.
In connection with the mergers with CareerStaff and Golden Care, the Company
recognized $5,800,000 of transaction related merger costs in the second quarter
of 1995. These included advisor fees and transitional costs related to
consolidating operations.
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During 1995, the Company recorded charges and expenses of $4,006,000 related
to averting a strike and negotiating new contracts for certain unionized nursing
homes in Connecticut. The Company has also recorded charges and expenses of
$5,505,000 related to monitoring and responding to the continuing investigation
by the OIG and legal fees resulting from shareholder litigation. The litigation
charge also includes costs incurred by the Company in its intended debt offering
which was aborted due to the negative publicity resulting from the OIG
investigation. The negative publicity prevented the Company from obtaining an
acceptable interest rate. The charges do not contain any estimated amounts for
settlement of the OIG or shareholder matters.
The Company recorded an impairment loss, as determined by SFAS 121, of
$59,000,000 during 1995 (as described above).
Pro forma effective tax rates were 41% for the year ended December 31, 1995,
after excluding the conversion fee, the merger expenses, the impairment loss and
the deferred tax charge relating to the conversion of Golden Care from a S to a
C corporation upon merging with the Company as compared to 44% for the year
ended December 31, 1994, after excluding the conversion fee. The pro forma
provision for income taxes reflects tax expense that would have been recorded if
CareerStaff and Golden Care had been subject to and liable for Federal and state
income taxes as C corporations prior to the terminations of their S corporation
status in June 1994 and May 1995, respectively. The decrease in the effective
tax rate is due to the reduced impact of the nondeductible portion of goodwill
recorded in connection with the acquisition of Mediplex and a more favorable mix
of state income than the prior year.
The pro forma net loss was $23,981,000 for the year ended December 31, 1995
as compared to the pro forma net earnings of $19,561,000 for the year ended
December 31, 1994. Pro forma net earnings before the extraordinary loss for
early extinguishment of debt for the year ended December 31, 1995, excluding the
conversion fee, the merger expenses, the strike, the investigation and
litigation costs, the impairment loss and the deferred tax charge, increased
145% to $53,601,000 from pro forma net earnings of $21,836,000 for the year
ended December 31, 1994, excluding the conversion fee. Pro forma net earnings
before the extraordinary loss for early extinguishment of debt and excluding the
conversion fees, the merger expenses, the strike, the investigation and
litigation costs, the impairment loss and the deferred tax charge as a
percentage of net revenues were 4.7% as compared to 3.2% for the year ended
December 31, 1995 and 1994, respectively. The increase is primarily due to a
reduction in the provision for losses on accounts receivable (as described
above) in 1995 as compared to 1994 and to the decrease in the effective tax rate
during the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $211,582,000,
including cash and cash equivalents of $14,880,000, as compared to working
capital of $237,147,000, including cash and cash equivalents of $23,102,000 at
December 31, 1995. For the year ended December 31, 1996, net cash provided by
operations was $26,812,000 compared to net cash provided by operations for the
year ended December 31, 1995 of $6,786,000. The net cash provided by operations
for the year ended December 31, 1996 reflects the Company's growth in net
earnings and reduced Federal and state tax payments due to realization of
certain deferred tax assets. This was offset by the net cash used for operations
to fund an increase in accounts receivable and payment of the $24,000,000
shareholder litigation settlement (as described below).
The Company's accounts receivable have increased since January 1, 1996.
Accounts receivable increased in part because of the growth in the therapy and
pharmaceutical services businesses since December 31, 1995; however, accounts
receivable for rehabilitation services to nonaffiliates have increased by
$26,968,000 since December 31, 1995 to $78,833,000 at December 31, 1996, and
continue to increase disproportionately to the growth in revenue of that line of
business. Collections of therapy services receivables from nonaffiliated
facilities have slowed because payment is primarily dependent upon such
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facilities' receipt of payment from fiscal intermediaries which, in some
instances, have been delayed because fiscal intermediaries are conducting
reviews of such facilities' therapy claims. As a result, the Company has
increased its provision for losses on accounts receivable (see "Results of
Operations").
Accounts receivable also increased during the year ended December 31, 1996
due to the increased number of filings for requests for additional reimbursement
of costs based on exceptions to the Medicare established routine cost
limitations for reimbursement ("RCLs") for which payment has been delayed
pending settlement of the respective cost reports. These exceptions are
permitted under the Medicare regulations to reimburse providers for the costs of
treating higher acuity patients than are routinely seen in a long-term care
facility. Included in net revenues are amounts related to exceptions to the RCLs
of $12,268,000 and $8,862,000 for the years ended December 31, 1996 and 1995,
respectively. These amounts represent management's estimate, based on its prior
experience, of amounts that will ultimately be approved and paid by its fiscal
intermediaries. Accounts receivable include requests for exceptions to the RCLs
of $19,119,000 and $11,115,000 as of December 31, 1996 and 1995, respectively.
Amounts realizable are subject to final settlement of the respective cost
reports. (See "Effects from Changes in Reimbursement").
Other significant operating uses of cash for the year ended December 31,
1996 were payments of $29,293,000 for interest and net payments totaling
$7,608,000 for income taxes.
In 1996, the Company reached an agreement in principle to settle certain of
the class-action lawsuits brought by shareholders for $24,000,000 which was paid
during the fourth quarter of 1996. The Company recognized as a reduction of the
settlement cost a $9,000,000 claim from its directors and officers liability
insurance carrier. The Company received payment from its insurance carrier in
March 1997. In addition, in 1996 the Company accrued additional charges and
expenses of $4,250,000 related to monitoring and responding to the continuing
OIG investigation and responding to the remaining shareholder litigation filed
after the announcement of the OIG investigation. In 1995, the Company recorded
charges and expenses of $5,505,000 related to monitoring and responding to the
continuing investigation by the OIG and legal fees resulting from shareholder
litigation. (See Note 14 to the Consolidated Financial Statements). The 1995
charges also included costs incurred by the Company in connection with financing
activities which were not concluded due to negative publicity resulting from the
OIG investigation. The charges do not contain any estimated amounts for
settlement of the OIG investigation or remaining shareholder litigation matters
(see "Effects from Changes in Reimbursement" and "Litigation"). As of December
31, 1996, the Company had recorded costs totaling approximately $4,200,000 which
had not been paid as of December 31, 1996.
The Company incurred $76,223,000 and $73,497,000 in capital expenditures for
the years ended December 31, 1996 and 1995, respectively. Substantially all such
expenditures during the year ended December 31, 1996 were for the continued
development and construction of one facility in the United States and ten new
facilities in the United Kingdom, the construction of two new corporate office
buildings and routine capital expenditures. These expansions were financed
through borrowings under the Company's revolving credit facility and from
amounts previously classified as restricted cash. The Company had capital
expenditure commitments, as of December 31, 1996, under various contracts,
including approximately $10,400,000 in the United States and L7,300,000
($12,500,000 as of December 31, 1996) in the United Kingdom. These include
contractual commitments to improve existing facilities and to develop and
construct one and seven facilities in the United States and United Kingdom,
respectively.
The Company paid $65,405,000 and $48,167,000 for acquisitions during the
years ended December 31, 1996 and 1995, respectively. The Company also paid
$10,174,000 and $25,874,000 for the acquisition of minority interest investments
in Ashbourne PLC ("Ashbourne") in the years ended December 31, 1996 and 1995,
respectively, and paid $25,332,000 for the acquisition of a 9.9% investment in
OmniCell during the year ended December 31, 1996. During the year ended December
31, 1996, the Company acquired the ownership of, the leasehold rights to, or the
management of eleven long-term care facilities in the United
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Kingdom and six long-term care facilities in the United States. In addition, the
Company sold the leasehold rights to three long-term care facilities in the
United States facilities during 1996. The Company also acquired eleven
outpatient rehabilitation clinics in Canada and six pharmacies in the United
Kingdom.
On February 18, 1997, the Company signed definitive agreements with each of
Retirement Care and Contour, under which the Company agreed to acquire
Retirement Care and its approximately 65% owned subsidiary, Contour. The
agreements call for the Company to issue 0.6625 shares of common stock in
exchange for each outstanding share of Retirement Care common stock (subject to
adjustment as provided in the agreement) and for the Company to pay $8.50 per
share in cash, stock or a combination of cash and stock (at the election of the
Company) for the remaining 35% of Contour not presently owned by Retirement
Care. The acquisition of Retirement Care is expected to be accounted for as a
pooling of interests and the acquisition of Contour is expected to be accounted
for as a purchase.
Subsequent to December 31, 1996, the Company will pay L13,733,000
($23,545,000 as of December 31, 1996) which is the consideration due to former
shareholders of APTA Healthcare PLC ("APTA") (see Note 2 to the Consolidated
Financial Statements). In addition, the Company completed the acquisition of all
the outstanding shares of Ashbourne. The cost of acquiring the remaining shares
not held by the Company as of December 31, 1996, was approximately L67,300,000
($110,100,000), excluding acquisition expenses and the cost of purchasing
Ashbourne management options. In addition, subsequent to December 31, 1996, the
Company acquired the operations of nine long-term care and assisted living
facilities for $12,000,000 plus the assumption of all the facilities' leases. In
connection with this acquisition, the Company agreed to provide financing of
$5,800,000 to the owner of the nine facilities for expansion of certain of the
facilities. Both acquisitions were funded by borrowings under the Company's
revolving credit facility.
The Company conducts business outside of the United States, in the United
Kingdom and in Canada. The foreign operations account for 4% of the Company's
total net revenues during the year ended December 31, 1996 and 16% of the
Company's consolidated total assets as of December 31, 1996. Because of the
Company's foreign growth strategies, the Company does not expect to repatriate
funds invested overseas and, therefore, foreign currency transaction exposure is
not normally hedged. Exceptional planned foreign currency cash flow
requirements, such as acquisitions overseas, are hedged selectively to prevent
fluctuations in the anticipated foreign currency value. Changes in the net worth
of the Company's foreign subsidiaries arising from currency fluctuations are
accumulated in the translation adjustments component of stockholders' equity.
In June 1996, the Company completed the sale of all of the outstanding stock
of SunSurgery Corporation, its ambulatory surgery subsidiary, for approximately
$27,900,000 in cash and the assumption of $5,600,000 in debt by the buyer. As of
the date of the sale, SunSurgery Corporation had approximately $3,100,000 in
cash which was retained by the buyer.
In 1996, the Company sold three of its long-term and subacute care
facilities for $11,934,000 including the assumption of debt totaling $3,168,000
and leased them back under fifteen year leases. Also in 1996, the Company,
through its United Kingdom subsidiary, sold ten of its long-term care facilities
for $25,837,000 and leased them back under twelve year leases. These
transactions produced no material gain or loss.
Subsequent to December 31, 1996, the Company sold three of its long-term and
subacute care facilities for approximately $13,200,000 in cash and approximately
$5,800,000 in the assumption of debt and leased them back under fourteen year
leases.
In October 1996, the Company entered into a Fourth Amended and Restated
Credit Agreement (the "Credit Facility") with certain banks, including
NationsBank of Texas, N.A. as administrative lender. The Credit Facility
provides up to $490,000,000 in a revolving line of credit and letters of credit.
The Credit Facility expires on October 28, 2001, and is collateralized by a
pledge of the stock of the majority of the
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Company's subsidiaries. Borrowings bear interest at either the prevailing prime
rate or the LIBOR rate plus 0.5% to 1.5%, depending on the Company's
consolidated debt to cash flow coverage ratio. The Credit Facility, among other
things, (i) requires the Company to maintain certain financial ratios, (ii)
restricts the Company's ability to incur debt and liens, make investments,
liquidate or dispose of assets, merge with another corporation, create or
acquire subsidiaries, and make acquisitions, and (iii) prohibits the payment of
dividends, the acquisition of treasury stock and the prepayment or modification
of certain debts of the Company. The Company had $279,300,000 of outstanding
borrowings and $18,272,000 of outstanding standby letters of credit under the
Credit Facility at December 31, 1996.
The Company has $32,712,000 of mortgages with Meditrust as of December 31,
1996, which contain less restrictive covenants than the Credit Facility and
which include cross default provisions with all of such mortgages and
thirty-four leases also financed by Meditrust. The Company also is the obligor
on an outstanding letter of credit for $3,921,000 as of December 31, 1996, to
guarantee outstanding debt obligations of $3,850,000 for a partnership through
which the Company acquired a 50% interest. The partnership owns a long-term care
facility which is leased to a third party operator.
The Company has agreed to lend $47,000,000, through a revolving subordinated
credit agreement ("Revolving Credit Agreement") to a developer of assisted
living facilities for the development, construction and operation of assisted
living facilities. The advances are subject to certain conditions including
availability of mortgage financing for 50% of the cost of each project and
approval of each project by the Company. At December 31, 1996, five assisted
living facilities were under development which would require funding by the
Company totaling approximately $24,300,000, of which $9,000,000 had been
advanced. The developer is in the process of obtaining mortgage financing. If
mortgage financing is not obtained, the Company will be obligated to fund 100%
of these five projects for approximately $51,700,000. The Company's advances
under the Revolving Credit Agreement will be subordinate to the mortgage
financing. A subsidiary of the Company has an option to purchase each assisted
living facility after it becomes operational.
The Company's ongoing capital requirements relate to the costs associated
with its facilities under construction, routine capital expenditures, advances
under the Revolving Credit Agreement, potential acquisitions and implementation
of growth strategies.
The Company believes that its current borrowing capacity under its Credit
Facility and cash from operations will be sufficient to satisfy its working
capital needs, facilities under construction, routine capital expenditures,
advances under the Revolving Credit Agreement, current debt service obligations
and to fund potential conversions of 6 1/2% Convertible Debentures. The Company
anticipates that it will fund its construction commitments as well as its
requirements relating to future growth through (i) the available borrowing
capacity under the Credit Facility, (ii) the use of operating leases and common
stock in the future as a means of acquiring facilities and new operations, (iii)
the availability of sale-leaseback financing through real estate investment
trusts and other financing sources and (iv) the sale of securities in the public
or private capital markets. However, there can be no assurance that the Company
may not require additional sources of financing in the next twelve months,
particularly if it pursues acquisitions requiring significant cash
consideration. Even if the Company does not have an immediate need for
additional financing, it may seek to access the public or private capital
markets if it believes that conditions are favorable. However, the Company's
access to the public or private markets may be adversely affected by the status
of the OIG investigation. In addition, such acquisitions or additional
financings may require approval of the various lenders under the Company's
Credit Facility. If such sources of financing are not available, the Company may
not be able to pursue growth opportunities as actively as it has in the past,
and may be required to alter certain of its operating strategies.
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EFFECTS FROM CHANGES IN REIMBURSEMENT
The Company derives a substantial percentage of its total revenues from
Medicare, Medicaid and private insurance. The Company's financial condition and
results of operations may be affected by the revenue reimbursement process,
which in the Company's industry is complex and can involve lengthy delays
between the time that revenue is recognized and the time that reimbursement
amounts are settled. Net revenues realizable under third-party payor agreements
are subject to change due to examination and retroactive adjustment by payors
during the settlement process. Payors may disallow in whole or in part requests
for reimbursement based on determinations that certain costs are not
reimbursable or reasonable or because additional supporting documentation is
necessary. The Company recognizes revenues from third-party payors and accrues
estimated settlement amounts in the period in which the related services are
provided. The Company estimates these settlement balances by making
determinations based on its prior settlement experience. Differences between the
net amounts accrued and subsequent settlements are recorded in operations at the
time of settlement. The majority of third-party payor balances are settled two
to three years following the provision of services. The Company's financial
condition and results of operations may also be affected by the timing of
reimbursement payments and rate adjustments from third-party payors. The Company
has from time to time experienced delays in receiving reimbursement from
intermediaries.
The Company's growth strategy relies heavily on the acquisition of long-term
and subacute care facilities. Regardless of the legal form of the acquisition,
the Medicare and Medicaid Programs often require that the Company assume certain
obligations relating to the reimbursement paid to the former operators of the
facilities. For example, the Company may be responsible for any final cost
report settlements or findings in the examination process which result in the
recoupment from the Company of reimbursement previously paid to the former owner
if the former owner is unable to meet its repayment obligations.
The Company recently learned that a fiscal intermediary and a Medicaid
agency in one of the states in which the Company operates may be examining cost
reports filed by a predecessor operator of several facilities acquired in the
Mediplex acquisition. If, as a result of any such examination, it is concluded
that overpayments to the predecessor operator were made, the Company, as the
current operator of such facilities, may be held financially responsible for any
such overpayments. However, at this time the Company is unable to predict the
outcome of any such examination.
Various cost containment measures adopted by governmental and private pay
sources have begun to restrict the scope and amount of reimbursable healthcare
expenses and limit increases in reimbursement rates for medical services. Any
reductions in reimbursement levels under Medicaid, Medicare or private payor
programs and any changes in applicable government regulations or interpretations
of existing regulations could significantly affect the Company's profitability.
Furthermore, government programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and government
funding restrictions, all of which may materially affect the rate of payment to
the Company's facilities and its therapy and pharmaceutical businesses. There
can be no assurance that payments under governmental or private payor programs
will remain at levels comparable to present levels or will be adequate to cover
the costs of providing services to patients eligible for assistance under such
programs. Significant decreases in utilization and limits on reimbursement could
have a material adverse effect on the Company's financial condition and results
of operations, including the possible impairment of certain assets.
In 1993, the Health Care Financing Administration ("HCFA") issued a
directive to fiscal intermediaries that administer the Medicare reimbursement
policies to review costs incurred by providers of occupational therapy and
speech therapy provided by contract suppliers such as the Company's
rehabilitation therapy subsidiary. Although HCFA has published salary
equivalency guidelines for contract physical therapy and respiratory therapy,
guidelines for occupational therapy and speech therapy have not
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yet been published in final form. Implementation of speech and occupational
salary equivalency guidelines in accord with draft proposals of HCFA could
directly or indirectly limit reimbursement for certain of the Company's
occupational and speech therapy services. Reimbursement for such services is
currently evaluated under Medicare's reasonable cost principles.
In 1995, and periodically since then, HCFA has provided information to
intermediaries for their use in determining reasonable costs for occupational
and speech therapy. The information set forth in such directives, although not
intended to impose limits on reasonable costs for speech therapy and
occupational therapy, suggest that fiscal intermediaries should carefully review
costs which appear to be in excess of what a "prudent buyer" would pay for those
services. While the effect of these directives is still uncertain, they are a
factor considered by such intermediaries in evaluating the reasonableness of
amounts paid by providers for the services of the Company's rehabilitation
therapy subsidiary. These directives will become obsolete for cost reporting
periods beginning after salary equivalency guidelines for all therapies are
finalized. In addition, some intermediaries also require facilities to justify
the cost of contract therapists versus employed therapists as an aspect of the
"prudent buyer" analysis. Accordingly, the "prudent buyer" analyses could result
in lower reimbursement rates and a corresponding decrease in net revenues of the
Company. With respect to rehabilitation therapy services provided to affiliated
facilities, a retroactive adjustment of Medicare reimbursement could be made for
some prior periods. An adjustment of reimbursement rates with respect to therapy
services provided to nonaffiliated facilities could result in indemnity claims
against the Company, based on the terms of substantially all of the Company's
existing contracts with such facilities, for payments previously made by such
facilities to the Company that are reduced by Medicare in the audit process. The
Company derives a significant percentage of its net earnings from the provision
of therapy services; a change in reimbursement resulting from implementation of
this directive or a reduction in reimbursement rates as a result of a change in
application of reasonable cost guidelines could have a material adverse affect
on the Company's financial condition and results of operations, depending on the
rates adopted and the Company's costs for providing these services.
Current Medicare regulations that apply to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for the
rehabilitation and respiratory therapy and pharmaceutical services that it
provides to Company-operated facilities. These Medicare regulations require
that, among other things, a substantial part of the rehabilitation and
respiratory therapy services or pharmaceutical services, as the case may be, of
the relevant subsidiary be transacted with nonaffiliated entities in order for
the Company to receive reimbursement for services provided to Company-operated
facilities at the rates applicable to services provided to nonaffiliated
entities. The Medicare regulations do not indicate a specific level of services
that must be provided to nonaffiliated entities in order to satisfy the
"substantial part" requirement of such regulations. In instances where this
issue has been litigated by others, the final determination of the appropriate
threshold to satisfy the "substantial portion" requirement has varied.
Net revenues from rehabilitation therapy services provided to nonaffiliated
facilities represented 66% and 64% of total rehabilitation services net revenues
for the years ended December 31, 1996 and 1995, respectively. Respiratory
therapy services provided to nonaffiliated facilities represented 55% and 64% of
total respiratory therapy services net revenues for the year ended December 31,
1996 and the period from the date of acquisition of Golden Care on May 5, 1995
to December 31, 1995, respectively. The Company's respiratory therapy operations
did not provide services to affiliated facilities prior to the acquisition of
Golden Care on May 5, 1995. Net revenues from pharmaceutical services billed to
nonaffiliated facilities represented 78% of total pharmaceutical services
revenues for the years ended December 31, 1996 and 1995. The Company believes
that it satisfies the requirements of these regulations regarding nonaffiliated
business. Consequently, it has claimed and received reimbursement under Medicare
for rehabilitation and respiratory therapy and pharmaceutical services provided
to patients in its own facilities at a higher rate than if it did not satisfy
these requirements. If the Company were deemed to not have satisfied these
regulations, the reimbursement that the Company receives for rehabilitation and
respiratory therapy and
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pharmaceutical services provided to its own facilities would be materially and
adversely affected. If, upon audit by Federal or state reimbursement agencies,
such agencies find that these regulations have not been satisfied, and if, after
appeal, such findings are sustained, the Company could be required to refund
some or all of the difference between its cost of providing these services and
the higher amount actually received. While the Company believes that it has
satisfied and will continue to satisfy these regulations, there can be no
assurance that its position would prevail if contested by relevant reimbursement
agencies. The foregoing statements with respect to the Company's ability to
satisfy these regulations are forward looking and could be affected by a number
of factors, including the interpretation of Medicare regulations by Federal or
state reimbursement agencies and the Company's ability to provide services to
nonaffiliated facilities.
The Company's subsidiaries, including those which provide subacute and
long-term care, rehabilitation and respiratory therapy and pharmaceutical
services, are engaged in industries which are extensively regulated. As such, in
the ordinary course of business, the operations of these subsidiaries are
continuously subject to state and Federal regulatory scrutiny, supervision and
control. Such regulatory scrutiny often includes inquiries, investigations,
examinations, audits, site visits and surveys, some of which may be non-routine.
In addition to being subject to the direct regulatory oversight of state and
Federal regulatory agencies, these industries are frequently subject to the
regulatory supervision of fiscal intermediaries. Fiscal intermediaries are
agents of HCFA who interpret and implement applicable laws and regulations and
make decisions about the appropriate reimbursement to be paid under Medicare and
Medicaid. The Company's subsidiaries are subject to the oversight of several
different intermediaries. Those different intermediaries have taken varying
interpretations of the applicable laws and regulations. The lack of uniformity
in the interpretation and implementation of such laws and regulations reflects
in part the fact that the statutory standards are subject to interpretation and
the manuals which are published and utilized by HCFA and the intermediaries in
performing their regulatory functions are often not sufficiently specific to
provide clear guidance in the areas which are the subject of regulatory
scrutiny.
It is the policy of the Company to comply with all applicable laws and
regulations, and the Company believes that its subsidiaries are in substantial
compliance with all material laws and regulations which are applicable to their
businesses. However, given the extent to which the interpretation and
implementation of applicable laws and regulations varies and the lack of clear
guidance in the areas which are the subject of regulatory scrutiny, there can be
no assurance that the business activities of the Company's subsidiaries will not
from time to time become the subject of regulatory scrutiny, or that such
scrutiny will not result in interpretations of applicable laws or regulations by
government regulators or intermediaries which differ materially from those taken
by the Company's subsidiaries.
In January 1995, the Company learned that it was the subject of a pending
Federal investigation. The investigating agencies are the United States
Department of Health and Human Services' Office of Inspector General and the
United States Department of Justice. The government is still in the process of
collecting information. The Company has cooperated and continues to cooperate
with the investigation.
At this time, the Company understands that the investigation includes a
review of whether the Company's rehabilitation therapy subsidiary properly
provided and/or billed for concurrent therapy services and whether it provided
unnecessary or unordered services to residents of skilled nursing facilities.
The Company understands that the investigation also includes a review of whether
its long-term care subsidiary properly disclosed its relationship with the
Company's rehabilitation therapy subsidiary and properly sought reimbursement
for services provided by that subsidiary.
The Company is unable to determine at this time when the investigation will
be concluded or what its precise scope might be. If there have been improper
practices or the investigation is broader in scope that the Company currently
understands it to be, depending on the nature and extent of such impropriety,
the
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investigation could result in the imposition of civil, administrative, or
criminal fines, penalties, or restitutionary relief, and may have a negative
impact on the Company. From time to time the negative publicity surrounding the
investigation has slowed the Company's success in obtaining additional outside
contracts in the rehabilitation therapy business, which has resulted in higher
than required therapist staffing levels, and has affected the private pay
enrollment in certain inpatient facilities. Based on its current understanding
of the investigation, however, the Company does not believe that the outcome of
the investigation will have a material adverse effect on the Company's financial
condition or results of operations. The foregoing statements with respect to the
outcome of the investigation are forward looking and could be affected by a
number of factors, including the actual scope of the investigation, the
government's factual findings and the interpretation of Federal statutes and
regulations by the government and federal courts.
In 1996, the Connecticut Attorney General's office and the Connecticut
Department of Social Services ("DSS") began investigating whether Medicaid cost
reports for 1993 and 1994 submitted to the DSS by the Company's long-term care
subsidiary contained false and misleading fiscal information. Based on its
current understanding of the investigation, the Company believes the
investigation will not have a material adverse effect on the Company's financial
condition or results of operations. The foregoing statement with regard to the
outcome of this investigation is forward looking and could be affected by a
number of factors, including factual findings and interpretation of applicable
laws and regulations by the Attorney General and the DSS.
LITIGATION
Prior to the Company's acquisition of CareerStaff, a holder of CareerStaff's
common stock filed a lawsuit (the "CareerStaff Litigation") as a purported class
action against CareerStaff and the directors of CareerStaff alleging breach of
fiduciary duty in entering into a merger agreement with the Company and against
the Company alleging that the Company aided and abetted the alleged breach of
fiduciary duty by the CareerStaff directors. The CareerStaff Litigation was
voluntarily dismissed without prejudice on May 8, 1996.
On June 30, 1995, two civil class action complaints were filed against the
Company and certain of its current and former directors and officers in the
United States District Court for the District of New Mexico. Two more
complaints, based on the same underlying events, were filed on August 30, 1995.
On October 6 and October 10, 1995, two additional complaints were filed, also
based on the same underlying events. These six complaints were consolidated by a
court order dated November 27, 1995 and an amended class action complaint,
captioned IN RE SUN HEALTHCARE GROUP, INC. LITIGATION (the "Complaint"), was
filed in the United States District Court for the District of New Mexico on
January 26, 1996. The Complaint was purportedly brought on behalf of all persons
who either purchased shares of the Company's common stock between October 26,
1994 and June 27, 1995, or who exchanged their shares of common stock of
CareerStaff for shares of the Company's common stock pursuant to a merger
agreement between CareerStaff and the Company. The Complaint alleges that
defendants misrepresented or failed to disclose material facts about the OIG
investigation and about the Company's operations and financial results, which
plaintiffs contend artificially inflated the price of the Company's securities.
In October 1996, the Company reached an agreement in principle to settle
these class action lawsuits for $24,000,000 which the Company funded in the
fourth quarter of 1996. The settlement is subject to the execution of definitive
documentation and court approval. The Company received $9,000,000 from its
directors and officers liability insurance carrier for its claim submitted in
connection with the settlement in March 1997.
On or about January 23, 1996, two former stockholders of Golden Care filed a
lawsuit (the "Golden Care Litigation") against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of Indiana. Plaintiffs allege, among other things, that the Company did
not disclose material facts concerning the OIG investigation and that the
Company's financial results were
43
<PAGE>
misstated. The Complaint purports to state claims, INTER ALIA, under Federal and
state securities laws and for breach of contract, including a breach of the
registration rights agreement pursuant to which the Company agreed to register
the shares being registered for resale by such former Golden Care stockholders.
Plaintiffs purport to seek recission, unspecified compensatory damages, punitive
damages and other relief. By Order dated October 11, 1996, the court granted in
part and denied in part defendants' motion to dismiss. The Company believes it
has meritorious defenses to the Complaint. There can be no assurance that the
Golden Care Litigation will not have an impact on the Company's accounting for
the merger.
On September 8, 1995, a derivative action was filed in the United States
District Court for the District of New Mexico, captioned BRICKELL PARTNERS V.
TURNER, ET AL. The complaint was not served on any defendant. On June 19, 1996,
an amended complaint alleging breach of fiduciary duty by certain current and
former of the Company's directors and officers based on substantially the same
events as those set forth in the above described securities class actions was
filed and subsequently served on the defendants. On August 5, 1996, the District
Court dismissed this action without prejudice for failure to serve the
defendants within the required time period. Brickell Partners filed a new
complaint, alleging the same claims, on August 19, 1996. Defendants have moved
to dismiss the new complaint. The Company believes it has meritorious defenses
to the new complaint.
The Company believes the Golden Care Litigation and the derivative action
will not have a material adverse impact on its financial condition or results of
operations, although the unfavorable resolution of any of these actions in any
reporting period could have a material adverse impact on the Company's results
of operations for that period. The foregoing statements with respect to the
possible outcomes of the Golden Care Litigation and the derivative action are
forward looking and could be affected by a number of factors, including judicial
interpretations of applicable law, the uncertainties and risks inherent in any
litigation, particularly a jury trial, the existence, scope and number of any
subsequently filed complaints, the scope of insurance coverage, and the outcome
of the OIG investigation and all factors that could affect that outcome.
EFFECTS OF INFLATION
Healthcare costs have been rising and are expected to continue to rise at a
rate higher than that anticipated for consumer goods as a whole. The Company's
operations could be adversely affected if it experiences significant delays in
receiving reimbursement rate increases from Medicaid and Medicare sources for
its labor and other costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Item 8 is contained in the Company's
consolidated financial statements and financial statement schedules and are set
forth herein beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
To be incorporated by reference to the Company's definitive 1997 Proxy
Statement. Certain information relating to the executive officers of the Company
appears on pages 21 through 22 herein.
ITEM 11. EXECUTIVE COMPENSATION
To be incorporated by reference to the Company's definitive 1997 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To be incorporated by reference to the Company's definitive 1997 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To be incorporated by reference to the Company's definitive 1997 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
(i) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings (Loss) for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity as of December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994
(All other financial statement schedules required by Rule 5-04 of Regulation
S-X are not applicable or the required information is included in the audited
financial statements.)
(b) Reports on Form 8-K
Report dated August 15, 1996 reporting the acquisition of certain accounts
receivable inventory, fixed assets and the assumption of liabilities to certain
contracts and leases from BDO Dunwoody Limited, in its capacity as Court
appointed Receiver and Manager of International Managed Health Care Inc.
45
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
2.1(1) Preincorporation Agreement dated as of April 13, 1993 between Sun and Andrew L. Turner, Nora L.
Turner and Elizabeth L. Keefer, as Trustee of Turner's Children's Trust No. 3
2.2(2)(7) Agreement and Plan of Merger dated January 27, 1994, by and among Sun, Sun Acquisition Corporation,
The Mediplex Group, Inc., Abraham D. Gosman and Andrew L. Turner, as amended. Filed without
schedules attached.
2.3(2) Asset Sale Agreement dated January 27, 1994 by and among Mediplex, Abraham D. Gosman and Sun
2.4(1) Plan or Reorganization and Merger Agreement by and between Honorcare Corporation, Don A. Karchmer,
Thomas E. Stewart, John E. Bingaman and James W. Campbell, Sun and Sunrise
2.5(15) Agreement and Plan of Merger dated as of April 27, 1995 by and between Golden Care, Inc., Golden
Acquisition Corporation and Sun
2.6(15) First Amendment to Agreement and Plan of Merger dated as of May 4, 1995 by and between Golden Care,
Inc., Golden Acquisition Corporation and Sun
2.7(16) Agreement and Plan of Merger dated March 30, 1995 by and between Sun, Sun Acquisition Corporation
and CareerStaff Unlimited, Inc.
2.8(16) First Amendment to Agreement and Plan of Merger dated April 7, 1995 by and between Sun, Sun
Acquisition Corporation and CareerStaff Unlimited, Inc.
2.9(15) Second Amendment to Agreement and Plan of Merger dated May 11, 1995 by and between Sun, Sun
Acquisition Corporation and CareerStaff Unlimited, Inc.
2.10(13) Share Purchase Agreement dated as of November 30, 1995 among Sun, Columbia Health Care Inc. and the
Vendors named therein. Schedule 14: Form of Warrant
2.11(10) Investment and Shareholders' Agreement between Sun Healthcare Group, Inc., Sun Healthcare Group
International Ltd., Exceler Health Care Group PLC, Guernroy Limited, John Ernest Moreton, The
Alexanders and the Optionholders relating to Exceler Health Care Group PLC, dated September 7,
1994
2.12(14) Deed of Amendment and Instrument relating to Exceler Health Care Group PLC dated February 15, 1995
2.13(24) Agreement and Plan of Merger and Reorganization, dated as of February 17, 1997 among Sun Healthcare
Group, Inc., Peach Acquisition Corporation and Retirement Care Associates, Inc.
2.14(24) Agreement and Plan of Merger and Reorganization, dated as of February 17, 1997 among Sun Healthcare
Group, Inc., Nectarine Acquisition Corporation and Contour Medical, Inc.
3.1(1) Certificate of Incorporation of Sun
3.2(1)(9) Bylaws of Sun, as amended
3.3(21) Certificate of Amendment to Certificate of Incorporation of Sun dated April 15, 1993
3.4(6) Certificate of Amendment to Certificate of Incorporation of Sun dated June 23, 1994
4.1(3) Fiscal Agency Agreement dated as of March 1, 1994 between Sun and NationsBank of Texas, N.A., as
Fiscal Agent
4.2(6) Amended and Restated Indenture, dated October 1, 1994, among Sun, The Mediplex Group, Inc. and Fleet
Bank of Massachusetts, N.A. as Trustee (Sun 6% Convertible Subordinated Debentures due 2004)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
4.3(6) Amended and Restated First Supplemental Indenture to Amended and Restated Indenture, dated October
1, 1994, among Sun, The Mediplex Group, Inc. and Fleet Bank of Massachusetts, N.A. as Trustee
(Mediplex 6'% Convertible Subordinated Debentures due 2003)
<S> <C>
4.4(17) Form of Rights Agreement, dated as of June 2, 1995, between Sun and Boatmen's Trust Company, which
includes the form of Certificate of Designations for the Series A Preferred Stock as Exhibit A,
the form of Right Certificate as Exhibit B and the form of Summary of Preferred Stock Purchase
Rights as Exhibit C.
4.5(18) First Amendment to Rights Agreement, dated as of August 11, 1995, amending the Rights Agreement,
dated as of June 2, 1995, between Sun and Boatmen's Trust Company
10.1(4) Lease Agreement dated as of August 31, 1986, by and between Karan Associates ("Lessee") and Campbell
Care of Wylie, Inc., Assignment of Lease dated November 20, 1989 by and between Campbell Care of
Wylie, Inc. and Honorcare Corporation ("Lessee"), with First Lease Addendum dated August 31, 1986,
Second Addendum dated January 9, 1987, Third Addendum dated November 30, 1989 and Fourth Addendum
dated July 12, 1993, and Assignment Agreement dated as of July 13, 1993, by and between Honorcare
Corporation ("Assignor") and Sun Healthcare Corporation ("Assignee") (Hillcrest Manor Nursing
Center)
10.2(21) Lease Agreement for West Magic Care Center dated as of August 1, 1987, between Skyview Associates
("Lessor") and Don Bybee and A. Keith Holloway ("Lessee")
10.3(1) Sublease, Assumption and Consent Agreement for Coronado Care Center dated as of May 31, 1990, among
Phoenix Nursing Home Limited Partnership ("Lessor"), Horizon Healthcare Corporation
("Lessee/Sublessor") and Sunrise ("Sublessee") pursuant to a Lease dated December 18, 1987 between
Lessor and Lessee (Lease attached as Exhibit)
10.4(1) Lease Agreement for East Mesa Care Center dated as of September 30, 1990, between East Mesa
Associates Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.5(1) Assignment and Assumption of Lease with Consent of Lessor for Torrington Extend-A-Care Center dated
as of November 1, 1990, between Beverly Enterprises Connecticut, Inc. ("Assignor/ Lessee"), Turner
Enterprises, Inc. ("Assignee"), Andrew L. Turner and Nora Turner ("Guarantors"), Harvey J. Angell
and Zev Karkomi ("Special Guarantors") and Beverly Investment Properties, Inc. ("Lessor") (Lease
attached)
10.6(1) Lease Agreement for Mercer Island Care Center dated as of July, 1991, among Mercer View Convalescent
Center, Tenants-in-Common ("Lessor"), Sunrise ("Lessee") and Andrew L. Turner and Nora Turner,
husband and wife ("Guarantor")
10.7(1) Lease Agreement for Bayside Health and Rehabilitation Center dated as of July 26, 1991, between
Bellingham Associates Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.8(4) Lease Agreement for the Coronado Care Center addition, dated as of August 30, 1991, by and between
Phoenix Nursing Home Limited Partnership II ("Lessor") and Sunrise ("Lessee")
10.9(1) Lease Agreement for Whispering Pines Care Center and Valley Rehabilitation Center dated as of
October 1, 1991, between Belle Mountain Associates Limited Partnership ("Lessor") and Sunrise
("Lessee")
10.10(1) Lease Agreement for Menlo Park Healthcare Center dated as of November 1, 1991, between Oregon
Associates Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.11(1) Sublease Agreement for Hillside Living Center d/b/a Hillside Healthcare Center dated as of March 1,
1992, between Elite Care Corporation ("Sublessor") and Turner Enterprises, Inc. ("Sublessee")
(Lease attached as Exhibit)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.12(1) Sublease Agreement for Crown Manor Living Center d/b/a Crown Manor Healthcare Center dated as of
March 1, 1992, between Elite Care Corporation ("Sublessor") and Turner Enterprises, Inc.
("Sublessee") (Lease attached as Exhibit)
<S> <C>
10.13(1) Sublease Agreement for Colonial Manor Living Center d/b/a Colonial Manor Healthcare Center dated as
of March 1, 1992, between Elite Care Corporation ("Sublessor") and Turner Enterprises, Inc.
("Sublessee") (Lease attached as Exhibit)
10.14(1) Sublease Agreement for Douglas Living Center d/b/a Douglas Healthcare Center dated as of March 1,
1992, between Elite Care Corporation ("Sublessor") and Turner Enterprises, Inc. ("Sublessee")
(Lease attached as Exhibit)
10.15(1) Lease Agreement for Columbia View Nursing Home dated as of June 30, 1992, between Columbia
Associates Limited Partnership ("Lessor") and Turner Enterprises, Inc. ("Lessee")
10.16(1) Lease Agreement for Adams House Healthcare Center dated as of October 1, 1992, between Adams
Connecticut Associates Limited Partnership ("Lessor") and Turner Enterprises, Inc. ("Lessee")
10.17(1) Lease Agreement for San Juan Care Center and Burton Care Center dated as of October 31, 1992, by and
between Zev Karkomi and Jerold Ruskin (collectively, the "Lessors") and Sunrise ("Lessee")
10.18(1) Lease Agreement for Park Villa Convalescent Center dated as of April 1, 1993, between LTC
Properties, Inc. ("Lessor") and Sunrise ("Lessee")
10.19(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates ("Lessor") and
Honorcare Corporation ("Lessee"), with Assignment Agreement dated as of July 13, 1993 by and
between Honorcare Corporation ("Assignor") and Sun Healthcare Corporation ("Assignee") (Angelina
Facility)
10.20(4) Lease Agreement dated as of July 13, 1993, by and between July Associates IV ("Lessor") and
Honorcare Corporation ("Lessee"), with Assignment Agreement dated as of July 13, 1993, by and
between Honorcare Corporation ("Assignor") and Sun Healthcare Corporation ("Assignee") (Park
Plaza)
10.21(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates ("Lessor") and
Honorcare Corporation ("Lessee"), with Assignment Agreement dated as of July 13, 1993, by and
between Honorcare Corporation ("Assignor") and Sun Healthcare Corporation ("Assignee") (Wells)
10.22(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates ("Lessor") and
Honorcare Corporation ("Lessee"), with Assignment Agreement dated as of July 13, 1993, by and
between Honorcare Corporation ("Assignor") and Sun Healthcare Corporation ("Assignee") (Pineywood)
10.23(4) Lease Agreement dated as of July 13, 1993, by and between Golden Age Associates ("Lessor") and
Honorcare Corporation ("Lessee") (Golden Age)
10.24(4) Lease Agreement dated as of July 13, 1993, by and between July Associates III ("Lessor") and
Honorcare Corporation ("Lessee") (High Plains)
10.25(8) Lease Agreement dated as of July 30, 1993 between Zev Karkomi, Thunderbird Associated Limited
Partnership and Sunrise Healthcare Corporation
10.26(8) Lease Agreement dated as of September 22, 1993, as amended, between Carlinville Associates and
Sunrise Healthcare Corporation
10.27(5) Lease Agreement dated October 1993, by and between Salem Associates, Ltd. ("Lessor") and Sunrise
("Lessee") (Doctors Nursing Home)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.28(5) Lease Agreement dated as of December 6, 1993, by and between Massachusetts Nursing Homes Limited
Partnership ("Lessor") and Sunrise ("Lessee")
<S> <C>
10.29(4) Lease Assignment and Transfer of Operations Agreement dated as of December 30, 1993, by and between
HEA of New Mexico, Inc. and Sunrise (Lease attached) (Country Life Manor)
10.30(4) Lease Agreement dated as of January 1, 1994, by and between October Associates ("Lessor") and
Sunrise ("Lessee") (Stanton Nursing Home)
10.31(4) Lease Agreement dated as of January 1, 1994, by and between Whitewright Associates ("Lessor") and
Sunrise ("Lessee") (Campbell Care of Whitewright)
10.32(4) Lease Agreement dated as of January 1, 1994, by and between October Associates ("Lessor") and
Sunrise ("Lessee") (Valley Mills Care Center)
10.33(4) Lease Agreement dated as of January 1, 1994, by and between October Associates ("Lessor") and
Sunrise ("Lessee") (Moody Care Center)
10.34(7) Lease Agreement dated as of April 26, 1994, by and between Sumner Nursing Home, L.L.C. and Sunrise
10.35(6) Lease Agreement by and between Bellingham II Associates Limited Partnership and Sunrise Healthcare
Corporation, dated May 31, 1994
10.36(6) Amendment and Restatement of Facility Lease Agreement [Lenox Hill]--Meditrust of Lynn, Inc. and
Mediplex Rehabilitation of Massachusetts, Inc., dated June 23, 1994
10.37(6) Amendment and Restatement of Facility Lease Agreement [Northampton]--New England Finance Corporation
and Mediplex Rehabilitation of Massachusetts, Inc., dated June 23, 1994
10.38(6) Amendment and Restatement of Facility Lease Agreement [Woodcrest]--Meditrust and Mediplex of New
Jersey, Inc., dated June 23, 1994
10.39(6) Amendment and Restatement of Facility Lease Agreement [Westport]--Meditrust and Mediplex of
Connecticut, Inc., dated June 23, 1994
10.40(6) Amendment and Restatement of Facility Lease Agreement [Newton]--Meditrust and Mediplex of
Massachusetts, Inc., dated June 23, 1994
10.41(6) Amendment and Restatement of Facility Lease Agreement [Wilmington]--Meditrust and Mediplex of
Massachusetts, Inc,, dated June 23, 1994
10.42(6) Amendment and Restatement of Facility Lease Agreement [Stamford] by and between
G-WZ of Stamford, Inc. and Meditrust Mortgage Investments, Inc., dated June 23, 1994
10.43(6) Amendment and Restatement of Facility Lease Agreement [Cheshire]--Meditrust and Mediplex of
Connecticut, Inc., dated June 23, 1994
10.44(6) Amendment and Restatement of Facility Lease Agreement [East Longmeadow]-- Meditrust and Quality
Nursing Care of Massachusetts, Inc., dated June 23, 1994
10.45(6) Amendment and Restatement of Facility Lease Agreement [Wethersfield]--Meditrust and Mediplex of
Connecticut, Inc., dated June 23, 1994
10.46(6) Amendment and Restatement of Facility Lease Agreement [Danbury]--Meditrust and Mediplex of
Connecticut, Inc., dated June 23, 1994
10.47(6) Amendment and Restatement of Facility Lease Agreement [Manatee]--Meditrust and Manatee Springs
Nursing Center, Inc., dated June 23, 1994
10.48(6) Amendment and Restatement of Facility Lease Agreement [Camden]--Plaza Medical Nursing Facility and
P.M.N.F. Management, Inc., dated June 23, 1994
10.49(6) Facility Lease Agreement [Washington]--Pacific Finance Corporation and Sunrise Healthcare
Corporation, dated June 23, 1994
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.50(6) Amendment and Restatement of Facility Lease Agreement [Darien]--New England Finance Corporation and
Mediplex of Connecticut, Inc., dated June 23, 1994
<S> <C>
10.51(6) Amendment and Restatement of Facility Lease Agreement [Randolph]--Meditrust and Mediplex of
Massachusetts, Inc., dated June 23, 1994
10.52(6) Amendment and Restatement of Facility Lease Agreement [Peabody]--Meditrust and Mediplex of
Massachusetts, Inc., dated June 23, 1994
10.53(6) Amendment and Restatement of Facility Lease Agreement [Newington]--Meditrust and Mediplex of
Connecticut, Inc., dated June 23, 1994
10.54(6) Amendment and Restatement of Facility Lease Agreement [Beverly]--Meditrust and Mediplex of
Massachusetts, Inc., dated June 23, 1994
10.55(6) Facility Lease Agreement [Weymouth]--Meditrust of Massachusetts, Inc. and Mediplex of Massachusetts,
Inc., dated June 23, 1994
10.56(6) Amendment and Restatement of Facility Lease Agreement [Lexington]--Meditrust and Mediplex of
Massachusetts, Inc., dated June 23, 1994
10.57(6) Amendment and Restatement of Facility Lease Agreement [Michigan]--Meditrust Tri-States, Inc. and
Mediplex of Ohio, Inc., dated June 23, 1994
10.58(6) Amendment and Restatement of Facility Lease Agreement [Christian Hill]--Meditrust of Massachusetts,
Inc. and Mediplex Rehabilitation of Massachusetts, Inc., dated June 23, 1994
10.59(6) Amendment and Restatement of Facility Lease Agreement [Arkansas]--Meditrust of Benton, Inc. and
Mediplex Management of Texas, Inc., dated June 23, 1994
10.60(6) Amendment and Restatement of Facility Lease Agreement [Holyoke]--Meditrust of Massachusetts, Inc.
and Mediplex Rehabilitation of Massachusetts, Inc., dated June 23, 1994
10.61(6) Amendment and Restatement of Facility Lease Agreement [Southern Connecticut], dated June 23, 1994,
between New England Finance Corporation and Mediplex of Connecticut, Inc.
10.62(6) Amendment and Restatement of Facility Lease Agreement [Southbury], dated June 23, 1994, between New
England Finance Corporation and Mediplex of Connecticut, Inc.
10.63(6) Facility Lease Agreement [Bowling Green], dated June 23, 1994, between Meditrust of Kentucky, Inc.
and Mediplex of Kentucky, Inc.
10.64(6) Facility Lease Agreement [Milford], dated June 23, 1994, between Meditrust of Connecticut, Inc. and
Mediplex of Connecticut, Inc.
10.65(6) Lease and Security Agreement by and between Nationwide Health Properties, Inc. and Sunrise
Healthcare Corporation, dated September 1, 1994
10.66(6) Lease Agreement by and between Sumner Hills L.L.C. and Sunrise Healthcare Corporation, dated
September 9, 1994
10.67(20) Lease Agreement for Wheeler Care Center, dated as of July 24, 1995, by and between Wheeler
Healthcare Associates, L.L.C., a Texas limited liability company ("Lessor") and Sunrise Healthcare
Corporation ("Lessee").
10.68(20) Agreement with Respect to and Second Amendment of Lease Agreement, dated as of September 1, 1995, by
and between Massachusetts Nursing Homes Limited Partnership ("Lessor") and Sunrise Healthcare
Corporation ("Lessee").
10.69(20) Third Amendment of Lease Agreement, dated as of September 1, 1995, by and between Massachusetts
Nursing Homes Limited Partnership ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.70(20) Lease Agreement for Clifton Care Center, dated as of September 13, 1995, between Missouri Associates
("Lessor") and Sunrise Healthcare Corporation ("Lessee").
<S> <C>
10.71(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust of Massachusetts,
Inc. ("Lessor") and New Bedford Nursing Center, Inc. ("Lessee") (Guaranty of Sun attached as
Exhibit).
10.72(20) Facility Sublease Agreement, dated as of September 30, 1995, by and between Meditrust of New Jersey,
Inc., as Sublessor, and West Jersey/Mediplex Rehabilitation Limited Partnership (Guaranty of Sun
attached as Exhibit).
10.73(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust of Massachusetts,
Inc. ("Lessor") and Mediplex of Massachusetts, Inc. ("Lessee") (Guaranty of Sun attached as
Exhibit).
10.74(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust of Massachusetts,
Inc. ("Lessor") and Sundance Rehabilitation Corporation ("Lessee") (Guaranty of Sun attached as
Exhibit).
10.75(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust of Massachusetts,
Inc. ("Lessor") and Mediplex of Concord, Inc. ("Lessee") (Guaranty of Sun attached as Exhibit).
10.76(20) Indemnity Agreement (New Bedford), dated as of September 30, 1995, by and among New Bedford Nursing
Center, Inc. ("Seller"), Sun and Meditrust of Massachusetts, Inc. ("Buyer").
10.77(20) Indemnity Agreement (Marlton), dated as of September 30, 1995, by and among West Jersey/Mediplex
Rehabilitation Limited Partnership, as Assignor, Sun and Meditrust of New Jersey, Inc., as
Assignee.
10.78(20) Indemnity Agreement (Concord), dated as of September 30, 1995, by and among Mediplex of
Massachusetts, Inc. ("Seller"), and Meditrust of Massachusetts, Inc. ("Buyer").
10.79(20) Indemnity Agreement (Concord-1B), dated as of September 30, 1995, by and among Sundance
Rehabilitation Corporation ("Seller"), Sun and Meditrust of Massachusetts, Inc. ("Buyer").
10.80(20) Indemnity Agreement (Concord--2A & 2B), dated as of September 30, 1995, by and among Mediplex of
Concord, Inc. ("Seller"), Sun and Meditrust of Massachusetts, Inc. ("Buyer").
10.81(20) Indemnity Agreement (Oradell), dated as of September 30, 1995, by and among Bergen Eldercare, Inc.
("Seller"), Sun and Meditrust of New Jersey, Inc. ("Buyer").
10.83(21) First Amendment to Lease Agreement for West Magic Care Center dated as of January 1, 1996, between
Skyview Associates ("Lessor") and Sunrise Healthcare Corporation ("Lessee")
10.84(21) Unconditional Guaranty of Lease dated as of January 1, 1996, between Sun Healthcare Group, Inc.
("Guarantor") and Skyview Associates ("Lessor")
10.85* Lease Agreement for Heritage Heights dated as of March 1, 1996, by and between Tor Associates
("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.86* Unconditional Guaranty of Lease dated March 1, 1996, by and between Sun Healthcare Group, Inc.
("Guarantor) and Tor Associates ("Lessor").
10.87(21) Omnibus Amendment to Facility Lease Agreements, dated as of March 28, 1996, by and between certain
subsidiaries of The Mediplex Group, Inc. and certain subsidiary of Sun.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.88(23) Second Amendment to Lease, dated as of June 1, 1996, by and between East Mesa Associates Limited
Partnership ("Lesser") and Sunrise Healthcare Corporation ("Lessee").
<S> <C>
10.89(22) Lease Agreement dated July 1, 1996 between Oak/Jones, Inc. and Sunrise Healthcare Corporation for
Oaks Health & Rehabilitation Center.
10.90(22) Lease Agreement dated July 1, 1996 between Oak/Jones, Inc. and Sunrise Healthcare Corporation for
Jones Health & Rehabilitation Center.
10.91(23) First Amendment to Lease dated as of August 1, 1996, by and between Sumner Nursing Home, L.L.C.
("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.92(23) Sub-Sublease Agreement, dated as of August 22, 1996, by and between Yuba Nursing Homes, Inc.
("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.93* Lease Agreement for Casa del Sol Nursing Home dated as of November 26, 1996, by and between Raton
Property Limited Company ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.94* Lease Agreement for Blue Mountain Convalescent Center dated as of November 30, 1996, by and between
Washington Associates ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.95* Unconditional Guaranty of Lease dated as of November 30, 1996, by and between Sun Healthcare Group,
Inc. ("Guarantor"), and Washington Associates ("Lessor").
10.96* Lease Agreement for Magic Valley Manor dated as of November 30, 1996, by and between Idaho
Associates L.L.C. ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.97* Lease Agreement for Payette Lakes Care Center dated as of November 30, 1996, by and between Idaho
Associates L.L.C. ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.98* Lease Agreement for Valley Rehabilitation and Living Center dated as of November 30, 1996, by and
between Idaho Associates L.L.C. ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.99* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun Healthcare Group, Inc.
("Guarantor") to Idaho Associates, L.L.C. ("Lessor") relating to Magic Valley Manor.
10.100* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun Healthcare Group, Inc.
("Guarantor") to Idaho Associates, L.L.C. ("Lessor") relating to Payette Lakes Care Center.
10.101* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun Healthcare Group, Inc.
("Guarantor") to Idaho Associates, L.L.C. ("Lessor") relating to Valley Rehabilitation and Living
Center.
10.102(4) Form of Management Agreement between GF/Massachusetts, Inc. and Sunrise
10.103(6) Amendment and Restatement of Loan Agreement [Brookline] by and between Mediplex of Massachusetts,
Inc. and Meditrust Mortgage Investments, Inc., dated June 23, 1994
10.104(6) Amendment and Restatement of Loan Agreement [Columbus] by and between Mediplex Rehabilitation of
Massachusetts, Inc. and Meditrust Mortgage Investments, Inc., dated June 23, 1994
10.105(6) Loan Agreement [Denver] by and between Mediplex of Colorado, Inc. and Valley View Psychiatric
Services, Inc. and Meditrust Mortgage Investments, Inc., dated June 23, 1994
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------ ----------------------------------------------------------------------------------------------------
10.106(21) Omnibus Amendment to Loan Agreements, dated as of March 28, 1996, by and between certain
subsidiaries of The Mediplex Group, Inc. and certain subsidiaries of Sun.
<S> <C>
10.107(22) Fourth Amended and Restated Credit Agreement among Sun Healthcare Group, Inc., The Mediplex Group,
Inc., certain lenders, certain co-agents, and NationsBank of Texas, N.A., as Administrative
Lender, dated October 29, 1996.
10.108* First Amendment to Fourth Amended and Restated Credit Agreement among Sun Healthcare Group, Inc.,
The Mediplex Group, Inc., certain lenders, certain co-agents, and NationsBank of Texas N.A., as
Administrative Lender, dated December 2, 1996.
10.109(14) First Amendment to Sun 1992 Director Stock Option Plan
10.110(1) Sun 1993 Combined Incentive and Nonqualified Stock Option Plan
10.111(1) Sun 1993 Directors Stock Option Plan
10.112(14) Amendments to Sun 1993 Combined Incentive and Nonqualified Stock Option Plan
10.113(21) Sun 1995 Non-Employee Directors' Stock Option Plan
10.114(21) Sun Employee Stock Purchase Plan
10.115(21) 1996 Combined Incentive and Nonqualified Stock Option Plan
10.116(1) Tax Indemnity Agreement between Sun, Sundance Rehabilitation Corporation, Turner Enterprises, Inc.
and Andrew L. Turner and Nora L. Turner
10.117(1) Form of Indemnity Agreement between Sun and each of Sun's Directors before July 3, 1996
10.118* Form of Indemnity Agreement between Sun and each of Sun's Directors from and after July 3, 1996
10.119(1) Employment Agreement between Sun and Andrew L. Turner
10.120(1) Agreement as of May 5, 1993, between Sundance Rehabilitation Corporation and Andrew L. Turner
10.121(4) Employment Agreement between Sun and John E. Bingaman
10.122(6) Termination of Employment Agreement and Consulting Agreement by and between Sun Healthcare Group and
John E. Bingaman
10.123* Severance Agreement between Sun and Andrew L. Turner dated January 1, 1997
10.124* Form of Severance Agreement entered into between Sun and Julie Collins, Susan LaBelle, Robert Levin,
Robert Murphy, Warren Schelling, Mark Wimer and Robert Woltil
11.1* Computation of Earnings Per Share
21.1* Subsidiaries of the Registrant
23.1* Consent of Arthur Andersen LLP
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
(1) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-62670) on Form S-1.
(2) Incorporated by reference from exhibits to the Company's Form 8-K dated
January 27, 1994.
(3) Incorporated by reference from exhibits to the Company's Form 8-K dated
March 11, 1994.
(4) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(5) Incorporated by reference from exhibits to the Company's Form 10-Q/A-1 for
the quarter ended September 30, 1993.
53
<PAGE>
(6) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1994.
(7) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77522) on Form S-1.
(8) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77272) on Form S-4.
(9) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77870) on Form S-1.
(10) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-82296) on Form S-1.
(11) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-85194) on Form S-1.
(12) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-90248) on Form S-1.
(13) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-96240) on Form S-3.
(14) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(15) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended March 31, 1995.
(16) Incorporated by reference to the Company's Form 8-K filed April 12, 1995.
(17) Incorporated by reference from exhibits to the Company's Form 8-A filed
June 6, 1995.
(18) Incorporated by reference from exhibits to the Company's Form 8-A/A-1 filed
August 17, 1995.
(19) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1995.
(20) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(21) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended March 31, 1996.
(22) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(23) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1996.
(24) Incorporated by reference from exhibits to the Company's Form 8-K dated
February 17, 1997.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUN HEALTHCARE GROUP, INC.
By /s/ ANDREW L. TURNER
-----------------------------------------
Andrew L. Turner
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCH 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ANDREW L. TURNER Chairman of the Board of
- ------------------------------ Directors, President, and March 27, 1997
Andrew L. Turner Chief Executive Officer
Senior Vice President
/s/ ROBERT D. WOLTIL Financial Services and
- ------------------------------ Chief Financial Officer March 27, 1997
Robert D. Woltil and Director (Principal
Financial Officer
Vice President and
/s/ WILLIAM C. WARRICK Corporate Controller
- ------------------------------ (Principal Accounting March 27, 1997
William C. Warrick Officer
/s/ JOHN E. BINGAMAN
- ------------------------------ Director March 20, 1997
John E. Bingaman
/s/ ZEV KARKOMI
- ------------------------------ Director March 27, 1997
Zev Karkomi
/s/ ROBERT A. LEVIN
- ------------------------------ Director March 27, 1997
Robert A. Levin
/s/ MARTIN G. MAND
- ------------------------------ Director March 19, 1997
Martin G. Mand
/s/ WARREN C. SCHELLING
- ------------------------------ Director March 27, 1997
Warren C. Schelling
/s/ LOIS SILVERMAN
- ------------------------------ Director March 27, 1997
Lois Silverman
/s/ JAMES R. TOLBERT
- ------------------------------ Director March 27, 1997
James R. Tolbert
/s/ MARK G. WIMER
- ------------------------------ Director March 27, 1997
Mark G. Wimer
/s/ R. JAMES WOOLSEY
- ------------------------------ Director March 27, 1997
R. James Woolsey
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Sun Healthcare Group, Inc.:
We have audited the accompanying consolidated balance sheets of SUN
HEALTHCARE GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1996 and 1995, and the related consolidated statements of earnings (loss),
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sun Healthcare Group, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
February 27, 1997
F-1
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 14,880 $ 23,102
Restricted cash..................................................................... 2,236 1,914
Accounts receivable, net of allowance for doubtful accounts of $16,877 and $11,035
in 1996 and 1995, respectively.................................................... 282,268 236,797
Other receivables................................................................... 33,430 29,976
Prepaids and other assets........................................................... 17,618 18,300
Deferred tax asset.................................................................. 12,716 27,098
------------ ------------
Total current assets.............................................................. 363,148 337,187
------------ ------------
Property and equipment, net........................................................... 305,720 201,132
Restricted cash....................................................................... -- 8,132
Goodwill, net......................................................................... 432,505 421,660
Other assets, net..................................................................... 115,056 62,856
Deferred tax asset.................................................................... 12,997 11,536
------------ ------------
Total assets...................................................................... $ 1,229,426 $ 1,042,503
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 28,982 $ 10,417
Accounts payable.................................................................... 39,180 33,000
Accrued compensation and benefits................................................... 32,612 23,742
Workers' compensation accrual....................................................... 7,863 6,339
Payable to APTA shareholders........................................................ 23,545 --
Other accrued liabilities........................................................... 19,384 26,542
------------ ------------
Total current liabilities......................................................... 151,566 100,040
------------ ------------
Long-term debt, net of current portion................................................ 483,453 348,460
Other long-term liabilities........................................................... 14,813 17,052
Deferred income taxes................................................................. 4,760 2,634
------------ ------------
Total liabilities................................................................. 654,592 468,186
------------ ------------
Minority interest..................................................................... 2,697 5,275
Commitments and contingencies......................................................... -- --
Stockholders' equity:
Preferred stock of $.01 par value, authorized 5,000,000 shares, none issued......... -- --
Common stock of $.01 par value, authorized 100,000,000 shares, 51,142,729 and
47,916,367 shares issued and outstanding at December 31, 1996 and 1995,
respectively...................................................................... 511 479
Additional paid-in capital.......................................................... 611,434 568,054
Retained earnings................................................................... 22,313 777
Cumulative translation adjustment................................................... 3,718 (268)
------------ ------------
637,976 569,042
------------ ------------
Less:
Common stock held in treasury, at cost, 2,030,116 shares as of December 31,
1996............................................................................ 25,069 --
Grantor stock trust, at market, 3,019,993 shares at December 31, 1996............. 40,770 --
------------ ------------
Total stockholders' equity...................................................... 572,137 569,042
------------ ------------
Total liabilities and stockholders' equity...................................... $ 1,229,426 $ 1,042,503
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Total net revenues........................................................ $ 1,316,308 $ 1,135,508 $ 673,354
Cost and expenses:
Operating............................................................... 1,107,821 929,493 552,662
Corporate general and administrative.................................... 62,085 51,468 31,633
Provision for losses on accounts receivable............................. 14,970 14,623 27,632
Depreciation and amortization........................................... 33,817 27,734 11,797
Interest, net........................................................... 25,899 21,829 10,548
Conversion expense...................................................... -- 3,256 2,275
Merger expenses......................................................... -- 5,800 --
Strike costs............................................................ -- 4,006 --
Investigation and litigation costs...................................... 19,250 5,505 --
Impairment loss......................................................... -- 59,000 --
------------ ------------ ----------
Total costs and expenses.............................................. 1,263,842 1,122,714 636,547
------------ ------------ ----------
Earnings before income taxes and extraordinary loss....................... 52,466 12,794 36,807
Income taxes.............................................................. 30,930 33,132 14,688
------------ ------------ ----------
Net earnings (loss) before extraordinary loss........................... 21,536 (20,338) 22,119
Extraordinary loss from early extinguishment of debt, net of income tax
benefit of $2,372....................................................... -- (3,413) --
------------ ------------ ----------
Net earnings (loss)....................................................... $ 21,536 ($ 23,751) $ 22,119
------------ ------------ ----------
------------ ------------ ----------
Pro forma data:
Historical earnings before income taxes and extraordinary loss.......... $ 12,794 $ 36,807
Pro forma income taxes.................................................. 33,362 17,246
------------ ----------
Pro forma net earnings (loss) before extraordinary loss................. (20,568) 19,561
Extraordinary loss...................................................... (3,413) --
------------ ----------
Pro forma net earnings (loss)........................................... ($ 23,981) $ 19,561
------------ ----------
------------ ----------
Net earnings (loss) per common and common equivalent share:
Net earnings (loss) before extraordinary loss........................... $ 0.46 ($ 0.43) $ 0.61
Extraordinary loss...................................................... -- (0.07) --
------------ ------------ ----------
Net earnings (loss)..................................................... $ 0.46 ($ 0.50) $ 0.61
------------ ------------ ----------
------------ ------------ ----------
Weighted average number of common and common equivalent shares
outstanding............................................................. 46,840 47,419 31,830
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- ---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 21,536 $ (23,751) $ 22,119
Adjustments to reconcile net earnings (loss) to net cash provided by (used for)
operating activities--
Extraordinary loss............................................................ -- 5,785 --
Conversion expense............................................................ -- 3,256 2,275
Litigation settlement......................................................... (4,750) -- --
Depreciation and amortization................................................. 33,817 27,734 11,797
Provision for losses on accounts receivable................................... 14,970 14,623 27,632
Impairment loss............................................................... -- 59,000 --
Other, net.................................................................... (2,032) (2,220) (908)
Changes in operating assets and liabilities:
Accounts receivable......................................................... (57,059) (90,887) (76,929)
Other current assets........................................................ (6,696) 970 (4,521)
Other current liabilities................................................... 3,262 (6,334) (10,029)
Income taxes payable........................................................ 23,764 18,610 (7,758)
----------- ---------- -----------
Net cash provided by (used for) operating activities.......................... 26,812 6,786 (36,322)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net....................................................... (76,223) (73,497) (37,862)
Transfer of restricted cash..................................................... -- -- 16,054
Acquisitions, net of cash acquired.............................................. (65,405) (48,167) (128,378)
Purchase of minority interest in Ashbourne PLC.................................. (10,174) (25,874) --
Purchase of minority interest in OmniCell Technologies, Inc..................... (25,332) -- --
Net proceeds from sale of SunSurgery Corporation................................ 24,828 -- --
Proceeds from operations and sale of assets held for sale....................... (3,810) 36,878 (2,186)
Proceeds from sale and leaseback of property and equipment...................... 34,603 105,534 --
Other assets expenditures....................................................... (20,676) (22,648) (3,507)
----------- ---------- -----------
Net cash used for investing activities........................................ (142,189) (27,774) (155,879)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings....................................................... 137,155 185,299 145,055
Long-term debt repayments....................................................... (4,273) (115,730) (88,163)
Transfer of restricted cash..................................................... -- -- 667
Repurchase of 11 3/4% Senior Subordinated Notes due 2002........................ -- (89,370) --
Conversion of Mediplex 6 1/2% Convertible Subordinated Debentures due 2003...... -- (16,859) (10,681)
Net proceeds from issuance of common stock...................................... 1,582 2,976 216,608
Purchases of treasury stock..................................................... (25,069) -- --
Other financing activities...................................................... (1,776) (1,429) --
Distribution of prior S corporation earnings.................................... -- (333) (8,889)
----------- ---------- -----------
Net cash provided by (used for) financing activities.......................... 107,619 (35,446) 254,597
----------- ---------- -----------
Effect of exchange rate on cash and cash equivalents.............................. (464) 798 --
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents.............................. (8,222) (55,636) 62,396
Cash and cash equivalents at beginning of year.................................... 23,102 78,738 16,342
----------- ---------- -----------
Cash and cash equivalents at end of year.......................................... $ 14,880 $ 23,102 $ 78,738
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------------ PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK
----------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 21,066 $ 210 $ 57,697 $ 12,454 -- --
Distribution of prior S corporation
earnings.................................... -- -- 218 (5,954) -- --
Reclassification of retained earnings as
additional paid-in capital to reflect change
in tax status of CareerStaff................ -- -- 454 (454) -- --
Common stock offerings........................ 10,662 107 205,402 -- -- --
Common stock issued pursuant to the
acquisition of Mediplex and related
transactions................................ 11,250 112 213,629 -- -- --
Common stock issued in connection with other
acquisitions................................ 14 -- 150 -- -- --
Additional consideration recorded for the
excess of the fair value over the exercise
price of the Mediplex stock options assumed
in connection with the acquisition.......... -- -- 14,473 -- -- --
Issuance of common stock for employee
benefits.................................... 1,051 11 11,088 -- -- --
Conversion of 6 1/2% Convertible Subordinated
Debentures due 2003......................... 978 10 18,503 -- -- --
Foreign currency translation adjustment....... -- -- -- -- 220 --
Net earnings.................................. -- -- -- 22,119 -- --
----------- ----- ----------- ----------- ------ -----------
Balance at December 31, 1994.................. 45,021 450 521,614 28,165 220 --
----------- ----- ----------- ----------- ------ -----------
Distribution of prior S corporation
earnings.................................... -- -- -- (333) -- --
Reclassification of retained earnings as
additional paid-in capital to reflect the
change in tax status of Golden Care, Inc.... -- -- 3,908 (3,908) -- --
Common stock issued in connection with
immaterial poolings......................... 690 7 174 604 -- --
Common stock issued in connection with other
acquisitions................................ 339 3 8,231 -- -- --
Additional consideration recorded for the fair
value of warrants issued in connection with
the Columbia acquisition.................... -- -- 1,095 -- -- --
Issuance of common stock for employee
benefits.................................... 283 3 2,973 -- -- --
Conversion of 6 1/2% Convertible Subordinated
Debentures due 2003......................... 1,583 16 30,059 -- -- --
Foreign currency translation adjustment....... -- -- -- -- (488) --
Net loss...................................... -- -- -- (23,751) -- --
----------- ----- ----------- ----------- ------ -----------
Balance at December 31, 1995.................. 47,916 479 568,054 777 (268) --
----------- ----- ----------- ----------- ------ -----------
Purchase of treasury stock.................... -- -- -- -- -- (25,069)
Common stock issued in connection with
acquisitions................................ 71 1 960 -- -- --
Issuance of common stock in connection with
establishment of the Grantor Stock Trust.... 3,050 30 37,670 -- -- --
Issuance of common stock from the Grantor
Stock Trust................................. -- -- -- -- -- --
Adjustment to market value of common stock
held by the Grantor Stock Trust............. -- -- 3,445 -- -- --
Issuance of common stock for employee
benefits.................................... 106 1 1,206 -- -- --
Tax benefit of stock options exercised........ -- -- 99 -- -- --
Foreign currency translation adjustment....... -- -- -- -- 3,986 --
Net earnings.................................. -- -- -- 21,536 -- --
----------- ----- ----------- ----------- ------ -----------
Balance at December 31, 1996.................. 51,143 $ 511 $ 611,434 $ 22,313 $ 3,718 ($ 25,069)
----------- ----- ----------- ----------- ------ -----------
----------- ----- ----------- ----------- ------ -----------
<CAPTION>
GRANTOR
STOCK
TRUST TOTAL
--------- ---------
<S> <C> <C>
Balance at December 31, 1993.................. -- $ 70,361
Distribution of prior S corporation
earnings.................................... -- (5,736)
Reclassification of retained earnings as
additional paid-in capital to reflect change
in tax status of CareerStaff................ -- --
Common stock offerings........................ -- 205,509
Common stock issued pursuant to the
acquisition of Mediplex and related
transactions................................ -- 213,741
Common stock issued in connection with other
acquisitions................................ -- 150
Additional consideration recorded for the
excess of the fair value over the exercise
price of the Mediplex stock options assumed
in connection with the acquisition.......... -- 14,473
Issuance of common stock for employee
benefits.................................... -- 11,099
Conversion of 6 1/2% Convertible Subordinated
Debentures due 2003......................... -- 18,513
Foreign currency translation adjustment....... -- 220
Net earnings.................................. -- 22,119
--------- ---------
Balance at December 31, 1994.................. -- 550,449
--------- ---------
Distribution of prior S corporation
earnings.................................... -- (333)
Reclassification of retained earnings as
additional paid-in capital to reflect the
change in tax status of Golden Care, Inc.... -- --
Common stock issued in connection with
immaterial poolings......................... -- 785
Common stock issued in connection with other
acquisitions................................ -- 8,234
Additional consideration recorded for the fair
value of warrants issued in connection with
the Columbia acquisition.................... -- 1,095
Issuance of common stock for employee
benefits.................................... -- 2,976
Conversion of 6 1/2% Convertible Subordinated
Debentures due 2003......................... -- 30,075
Foreign currency translation adjustment....... -- (488)
Net loss...................................... -- (23,751)
--------- ---------
Balance at December 31, 1995.................. -- 569,042
--------- ---------
Purchase of treasury stock.................... -- (25,069)
Common stock issued in connection with
acquisitions................................ -- 961
Issuance of common stock in connection with
establishment of the Grantor Stock Trust.... (37,700) --
Issuance of common stock from the Grantor
Stock Trust................................. 375 375
Adjustment to market value of common stock
held by the Grantor Stock Trust............. (3,445) --
Issuance of common stock for employee
benefits.................................... -- 1,207
Tax benefit of stock options exercised........ -- 99
Foreign currency translation adjustment....... -- 3,986
Net earnings.................................. -- 21,536
--------- ---------
Balance at December 31, 1996.................. ($ 40,770) $ 572,137
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
(a) NATURE OF BUSINESS
Sun Healthcare Group, Inc., through its direct and indirect subsidiaries
("Sun" or the "Company"), is a provider of long-term, subacute and related
specialty healthcare services including rehabilitation and respiratory therapy
services and pharmaceutical services. Long-term and subacute care and outpatient
therapy services are provided through Company-operated facilities. Therapy
services and pharmaceutical services are provided both in Company-operated and
in other nonaffiliated facilities located in the United States. The Company also
provides long-term care and pharmaceutical services in the United Kingdom and
outpatient rehabilitation therapy services in Canada.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its greater than 50% owned subsidiaries. Investments in affiliates, in which
the Company owns 20% to 50%, are carried on the equity method. Investments in
companies owned less than 20% are carried at cost. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(c) CASH EQUIVALENTS
The Company considers all highly liquid, unrestricted investments with
original maturities of three months or less to be cash equivalents. Cash
equivalents are stated at cost.
(d) NET REVENUES
Net revenues consist of patient revenues, therapy services revenues,
temporary therapy staffing services revenues and pharmaceutical services
revenues. Net revenues are recognized as services are provided. Net patient
revenues are recorded net of provisions for discount arrangements with
commercial payors and contractual allowances with third-party payors, primarily
Medicare and Medicaid. Net revenues realizable under third-party payor
agreements are subject to change due to examination and retroactive adjustment.
Estimated third-party payor settlements are recorded in the period the related
services are rendered. Differences between the net amounts accrued and
subsequent settlements are recorded in operations at the time of settlement, of
which the majority is settled in two to three years.
The Company has submitted to the Health Care Financing Administration
("HCFA") various requests for exceptions to the Medicare established routine
cost limitations for reimbursement ("RCLs"). These exceptions are permitted
under the Medicare regulations to allow providers to treat higher acuity
patients. Included in net revenues are amounts related to exceptions to the RCLs
of $12,268,000, $8,862,000 and $103,000 for the years ended December 31, 1996,
1995 and 1994 respectively. These amounts are net of adjustments to record
management's estimate of amounts that will ultimately be approved by HCFA.
Accounts receivable include requests for exceptions to the RCLs of $19,119,000
and $11,115,000 at December 31, 1996 and 1995, respectively. Amounts realizable
are subject to final settlement of the respective cost reports. Differences
between the net amounts accrued and subsequent settlements are recorded in
operations at the time of settlement.
F-6
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
(CONTINUED)
(e) ACCOUNTS RECEIVABLE
The Company receives payment for services rendered from Federal and state
governments under the Medicare and Medicaid programs and private pay payors,
including third party insurers, workers' compensation plans, healthcare
providers and individuals. The following table summarizes the percent of
accounts receivable by payor category as of December 31:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Government...................................................................... 44% 51%
Private and other............................................................... 56 49
--- ---
100 100
--- ---
--- ---
</TABLE>
Management does not believe that there are any credit risks associated with
receivables from governmental agencies. Private and other receivables consist of
receivables from a large number of payors involved in diverse activities and
subject to differing economic conditions, which do not represent any
concentrated credit risks to the Company. In certain instances, however, the
collection of amounts from healthcare providers for therapy services has slowed
because payment is primarily dependent upon such facilities' receipt of payment
from fiscal intermediaries which, in some instances, have been delayed because
fiscal intermediaries are conducting reviews of such facilities' request for
reimbursement.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals or improvements
are capitalized, whereas ordinary maintenance and repairs are expensed as
incurred. Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the assets as follows: buildings and
improvements -- 5 to 40 years; leasehold improvements -- the shorter of the
estimated useful lives of the assets or the life of the lease; equipment -- 3 to
20 years.
The Company capitalizes certain costs associated with developing and
acquiring healthcare facilities and related outpatient programs. Capitalized
costs include direct incremental investigation, negotiation, development,
acquisition and preconstruction costs; indirect and general expenses related to
such activities are expensed as incurred. Preconstruction costs include the
direct costs of securing control of the development site, obtaining the
requisite certificate of need and other approvals, as well as the direct costs
of preparing for actual development and construction. The capitalized costs are
transferred to construction in progress and depreciable asset categories as
construction is begun and completed, respectively. The Company capitalizes
interest directly related to the development and construction of new facilities
as a cost of the related asset.
(g) GOODWILL/IMPAIRMENT LOSS
The excess of the purchase price over the fair value of the net assets of
the businesses acquired by the Company is amortized using the straight-line
method over periods ranging from 20 to 40 years. Accumulated amortization of
such costs was $28,889,000 and $18,721,000 as of December 31, 1996 and 1995,
respectively.
The Company periodically evaluates the carrying value of goodwill along with
any other related long-lived assets in relation to the future undiscounted cash
flows of the underlying businesses to assess recoverability. The Company adopted
Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
on December 31, 1995. Under SFAS 121, an impairment loss is recognized if the
sum of the expected long-
F-7
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
(CONTINUED)
term cash flows is less than the carrying amount of the goodwill and other
assets being evaluated. The difference between the carrying amount of the
goodwill and other assets being evaluated and the estimated fair market value of
the assets represents the impairment loss. The Company determines fair value
using certain multiples of earnings before interest, taxes, depreciation and
amortization based on current prices for comparable assets.
The impairment loss, as determined by SFAS 121, of $59,000,000 recorded by
the Company in 1995 primarily relates to the goodwill associated with six of the
forty facilities acquired in the Mediplex acquisition. The impairment loss at
these six facilities was the result of the following circumstances: (i) three
facilities were organized by the Service Employees International Union
subsequent to the acquisition resulting in significantly higher labor costs;
(ii) two facilities experienced significant declines in private pay census and
revenues due to, in one instance, funding reductions in certain programs
providing private pay patients and, in the other instance, the opening of two
new facilities by competitors; and (iii) the remaining facility received lower
than expected Medicaid rates from the State of Connecticut and due to the high
acuity of the patients treated at the facility, reimbursement was not adequate.
If the Company had not elected early adoption of SFAS 121 during 1995, the
impairment loss would have been based solely on the difference between the
assets carrying value and cumulative long-term cash flows which would have
resulted in a loss of $48,900,000. The operations of the impaired facilities are
not material to the consolidated earnings or cash flows of the Company, and
therefore, management does not expect future operating results of the impaired
facilities to have a material adverse effect on the Company's financial
condition or results of operations. However, the impaired facilities are
experiencing marginal or negative cash flows. As they are leased under long-term
operating leases, the Company expects that this trend will continue until it can
implement measures to turn around their performance or to dispose of the
facilities.
(h) OTHER ASSETS
Costs incurred in obtaining debt financing are amortized as interest expense
over the terms of the related indebtedness. The Company amortizes preopening
costs (start-up costs related to new facilities, specialty units within a
facility, new rehabilitation regions and pharmacies) over a period ranging from
one year (for costs not reimbursed by third-party payors) to five years (for
costs reimbursed by third-party payors, including the Medicare and Medicaid
programs). Other assets also includes equity and cost-based investments (see
Note 2).
(i) WORKERS' COMPENSATION INSURANCE
Workers' compensation coverage is effected through self-insurance or
retrospective and high deductible insurance policies and other hybrid policies
which vary by the states in which the Company operates. Provisions for estimated
settlements are provided in the period of the related coverage. Differences
between the amounts accrued and subsequent settlements are recorded in
operations in the year of settlement.
(j) INVESTIGATION AND LITIGATION COSTS
In 1996, the Company reached an agreement in principle to settle certain
class-action lawsuits brought by shareholders for $24,000,000 and recognized, as
a reduction of the settlement cost, a $9,000,000 claim from its directors and
officers liability insurance carrier for its claim submitted in connection with
the settlement. In addition, in 1996 the Company recorded additional charges and
expenses of $4,250,000 related to monitoring and responding to the continuing
investigation by the U.S. Department of Health
F-8
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
(CONTINUED)
and Human Services' Office of Inspector General ("OIG") and responding to the
remaining shareholder litigation filed after the announcement of the OIG
investigation. In 1995, the Company recorded charges and expenses of $5,505,000
related to monitoring and responding to the continuing OIG investigation and
legal fees resulting from shareholder litigation (see Note 14). The 1995 charges
also included costs incurred by the Company in connection with financing
activities which were not concluded due to negative publicity resulting from the
OIG investigation. The charges do not contain any estimated amounts for
settlement of the OIG investigation or remaining shareholder litigation matters.
(k) STRIKE COSTS
During 1995, the Company recorded charges and expenses of $4,006,000 related
to averting a strike and negotiating new contracts for certain unionized nursing
homes in Connecticut.
(l) INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes.
Prior to converting to C corporations, CareerStaff and Golden Care had
elected S corporation status whereby income taxes are paid by the stockholders
rather than by the entities. Accordingly, there is no provision for income taxes
in the financial statements for these entities to the extent such income or loss
was includable by the stockholders in their personal income tax returns (see
Note 9).
(m) FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period are included in
the cumulative foreign currency translation adjustment account in stockholders'
equity.
(n) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Financial Accounting Standards
Board Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
was issued in 1995 and the Company has adopted the disclosure requirements of
SFAS 123 (see Note 12).
F-9
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
(CONTINUED)
(o) NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per common and common equivalent share is based upon the
weighted average number of common shares outstanding during the period including
the common stock transactions of CareerStaff and Golden Care plus the effect, if
dilutive, of the number of incremental shares of common stock contingently
issuable upon exercise of stock options.
Fully diluted net earnings per share in periods of earnings, if dilutive, is
determined on the assumption that the 6% Debentures and the 6 1/2% Debentures
were converted as of the dates of issuance and acquisition on March 1, 1994, and
June 23, 1994, respectively. Net earnings is adjusted for the interest on the
debentures, net of interest related to additional assumed borrowings to fund the
cash consideration on conversion of the 6 1/2% Debentures and the related income
tax benefits. In periods of loss, fully diluted net earnings per share is based
upon the weighted average number of common shares outstanding during the period.
(p) FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in the 1995 and 1994 consolidated financial statements and
notes have been reclassified to conform to the 1996 presentation.
(2) MERGERS AND ACQUISITIONS
On December 15, 1996, a wholly owned subsidiary of the Company acquired all
of the capital stock of APTA Healthcare PLC ("APTA"), which as of the date of
acquisition provided healthcare services to patients through 32 nursing
facilities in the United Kingdom. Pursuant to the acquisition, the Company will
pay L13,733,000 ($23,545,000 as of December 31, 1996) which is the consideration
due to former stockholders of APTA. The acquisition was accounted for as a
purchase and became unconditional according to United Kingdom law on December
15, 1996 and, therefore, the results of APTA's operations have been included in
the Company's consolidated financial statements from the date of acquisition on
December 15, 1996. The fair market value of assets acquired, including goodwill
of $17,900,000, was $72,700,000 and liabilities assumed totaled $49,200,000. The
acquisition of APTA is immaterial to the results of the Company and, therefore,
pro forma information is not provided. Also in 1996, the Company purchased a
9.9% investment in OmniCell Technologies, Inc. ("OmniCell") for $25,332,000.
In 1995, the Company acquired a total minority interest of 20% in Ashbourne
PLC, an operator of nursing homes in the United Kingdom, for $25,874,000. In
1996, the Company acquired an additional minority interest of 9% in Ashbourne
PLC for $10,174,000. Subsequent to December 31, 1996, the Company acquired the
remaining shares of Ashbourne PLC for approximately L67,300,000 ($110,100,000),
excluding acquisition expenses and the cost of purchasing Ashbourne management
options.
On June 21, 1995, a wholly owned subsidiary of the Company merged with and
into CareerStaff Unlimited, Inc. ("CareerStaff"). CareerStaff provides temporary
staffing of physical, occupational and speech therapists to the healthcare
industry. Under the terms of the merger agreement, the Company issued 6,080,600
shares of its common stock in exchange for all the outstanding common stock of
F-10
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
CareerStaff. The merger was accounted for as a pooling of interests and,
accordingly, the Company's financial statements have been restated to include
the accounts and operations of CareerStaff for periods prior to the merger.
On May 5, 1995, a wholly owned subsidiary of the Company merged with and
into Golden Care, Inc. ("Golden Care"). Golden Care provides respiratory therapy
services to long-term and subacute care facilities. Under the terms of the
merger agreement, the Company issued 2,106,904 shares of its common stock in
exchange for all of the outstanding common stock of Golden Care. In connection
with the merger, Golden Care terminated its S corporation status and recorded a
deferred income tax provision of $1,487,000. The merger was accounted for as a
pooling of interests and, accordingly, the Company's financial statements have
been restated to include the accounts and operations of Golden Care for periods
prior to the merger.
In connection with the mergers of the Company with CareerStaff and Golden
Care, the Company recognized $5,800,000 of merger costs. These costs include
transaction costs and advisory fees and transitional costs related to
consolidating operations.
Separate results of the combining entities for periods prior to combination
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995(1) 1994
------------ ----------
(UNAUDITED)
<S> <C> <C>
Net Revenues:
Sun......................................................................... $ 1,086,985 $ 603,337
CareerStaff................................................................. 45,116 55,258
Golden Care................................................................. 4,022 14,759
Less: Intercompany revenues................................................. (615) --
------------ ----------
$ 1,135,508 $ 673,354
------------ ----------
------------ ----------
Net Earnings (Loss):
Sun......................................................................... $ (26,644) $ 13,859
CareerStaff................................................................. 2,319 3,881
Golden Care................................................................. 574 4,379
------------ ----------
$ (23,751) $ 22,119
------------ ----------
------------ ----------
Pro Forma Net Earnings (Loss) (see Note 9):
Sun......................................................................... $ (26,644) $ 13,859
CareerStaff................................................................. 2,319 3,094
Golden Care................................................................. 344 2,608
------------ ----------
$ (23,981) $ 19,561
------------ ----------
------------ ----------
</TABLE>
- ------------------------
(1) Sun results for the twelve months ended December 31, 1995 include the
results of CareerStaff and Golden Care and the elimination of the
intercompany revenues for the period following the consummation of each of
the mergers.
In November 1995, the Company acquired 75% of the common stock of Columbia
Health Care Inc. ("Columbia") for $8,500,000. The Company has agreed to purchase
the remaining shares in three to five years based on a multiple of Columbia's
earnings. In addition, the Company issued warrants to former
F-11
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
owners of Columbia to purchase 500,000 shares of the Company's common stock with
an exercise price of $15.375 per share which had a value of $1,095,000 at the
date of acquisition. As of December 31, 1996, the warrants were exercisable and,
if unexercised, would expire in approximately four years. The Columbia
acquisition was accounted for as a purchase. The effects of the Ashbourne PLC
and the Columbia acquisitions, individually and in the aggregate, are immaterial
to the results of the Company and, therefore, pro forma information is not
provided.
On June 23, 1994, the Company, through a wholly owned subsidiary, acquired
all of the outstanding capital stock of Mediplex, which as of June 23, 1994
provided long-term and subacute healthcare services to patients through 36
inpatient facilities, six ambulatory surgery centers and related outpatient
programs. Pursuant to the acquisition, the Company issued 11,249,544 shares of
the Company's common stock and paid approximately $106,482,000 in cash to the
stockholders of Mediplex. The acquisition was accounted for as a purchase and,
accordingly, the results of Mediplex's operations have been included in the
Company's consolidated financial statements from the date of acquisition. The
fair market value of assets acquired, including goodwill of $426,542,000, was
$761,548,000 and liabilities assumed totaled $397,560,000.
Concurrent with the execution of the acquisition agreement between the
Company and Mediplex, the Company entered into a restructuring agreement (the
"Meditrust Restructuring") with Meditrust, a healthcare real estate investment
trust that is Mediplex's principal landlord and lender, to obtain the consent of
Meditrust to the Mediplex acquisition as required under the terms of the
existing leases and mortgages between Mediplex and Meditrust. Pursuant to the
Meditrust Restructuring, the Company entered into a guaranty agreement relating
to all leases and loans with Meditrust, restructured the terms of all existing
leases and entered into new leases for certain facilities, restructured certain
Mediplex debt arrangements, purchased three facilities for $115,000,000 of which
$41,000,000 was paid in cash and $74,000,000 was financed through mortgages,
received $11,000,000 pursuant to a mortgage entered into on a rehabilitation
hospital and received $41,570,000 through four sale and leaseback transactions.
Also, concurrent with the acquisition of Mediplex, certain Mediplex assets were
sold to and certain Mediplex liabilities were assumed by the former Chairman of
the Board, Chief Executive Officer and principal stockholder of Mediplex. The
consideration received by the Company for these assets was $23,486,000 in cash
and 1,137,683 shares of the Company's common stock. These related transactions
were included in the purchase accounting for the acquisition of Mediplex.
As a result of the Mediplex acquisition, the Company acquired four
psychiatric facilities, four substance abuse treatment facilities, certain
outpatient clinics and three transitional living facilities, including three
former substance abuse or psychiatric care facilities which had been closed by
Mediplex in 1992 and 1993 (See Note 5). Prior to the Mediplex acquisition, these
facilities had experienced declines in revenues and occupancy rates. In
addition, certain of these facilities were not in geographic areas consistent
with the Company's regional management structure. In view of the operating
trends and the Company's desire to focus on its primary lines of business,
management decided to dispose of these facilities and units and developed a plan
of disposition, which was approved by the Board of Directors in the third
quarter of 1994. Accordingly, in connection with the acquisition of Mediplex,
these assets were recorded at their estimated net realizable value and
additional goodwill of approximately $16,000,000 has been recorded to provide
for the estimated costs related to the disposal and operating results during the
holding period.
In September 1994, the Company, through its wholly owned subsidiary, Sun
Healthcare Group International Ltd. ("SHGI"), acquired for approximately
$12,400,000, a 68% interest in Exceler Health
F-12
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
Care Group PLC ("Exceler"), an operator of long-term care nursing homes
throughout the United Kingdom. Simultaneously, Exceler acquired all of the
outstanding shares of Forest Health Care Limited ("Forest") for approximately
$7,100,000. The acquisition was accounted for by the purchase method of
accounting. The sellers of Forest received an additional $2,400,000 during 1995
as required under the terms of the purchase agreement. In February 1995, the
Company purchased the remaining 32% interest in Exceler for approximately
$4,700,000 in cash and deferred purchase payments of $474,000 which was paid in
1995 and $1,066,000 which was paid in 1996.
(3) DISPOSITION
In June 1996, the Company completed the sale of all of the outstanding stock
of SunSurgery Corporation, its ambulatory surgery subsidiary, for approximately
$27,900,000 in cash and the assumption of $5,600,000 in debt by the buyer. As of
the date of sale, SunSurgery Corporation had approximately $3,100,000 in cash
which was retained by the buyer. The sale resulted in no material gain or loss
to the Company.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Land............................................................................ $ 21,983 $ 12,358
Buildings and improvements...................................................... 148,530 79,868
Leasehold improvements.......................................................... 52,630 33,433
Equipment....................................................................... 76,812 55,031
Construction in progress........................................................ 34,097 37,353
---------- ----------
Total....................................................................... 334,052 218,043
Less accumulated depreciation and amortization.................................. (28,332) (16,911)
---------- ----------
Property and equipment, net................................................. $ 305,720 $ 201,132
---------- ----------
---------- ----------
</TABLE>
In 1996, the Company sold three of its long-term and subacute care
facilities for $11,934,000 including the assumption of debt totaling $3,168,000
and leased them back under fifteen year leases. Also in 1996, the Company,
through its United Kingdom subsidiary, sold ten of its long-term care facilities
for $25,837,000 and leased them back under twelve year leases. These
transactions produced no material gain or loss.
In 1995, the Company sold five of its long-term and subacute care facilities
for $69,988,000 and leased them back under ten year leases. Also in 1995, the
Company, through its United Kingdom subsidiary, sold fifteen of its long-term
care facilities for $35,546,000 and leased them back under twelve year leases.
These transactions produced no material gain or loss.
(5) ASSETS HELD FOR SALE
As discussed in Note 2, as a result of the acquisition of Mediplex, the
Company acquired certain facilities providing psychiatric, substance abuse and
transitional living services. On September 30, 1995, the Company sold five of
the operating psychiatric care and substance abuse treatment facilities, all of
the related outpatient facilities and a transitional living facility for a sales
price of $39,900,000 consisting of
F-13
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) ASSETS HELD FOR SALE (CONTINUED)
cash and the assumption of indebtedness secured by one of the facilities. The
sale of the transitional living facility was completed in 1996 at a net cost to
the Company of $3,810,000. As part of the sale, the Company provided a five-year
$12,500,000 working capital line of credit to the buyer, which is secured by the
accounts receivable of the facilities sold and is restricted to a borrowing base
determined by the amount of accounts receivable of the facilities. Under the
terms of the working capital line of credit, principal is due in full on
September 30, 2000 and interest accrues at either LIBOR plus 2.5% or Prime plus
1.5%. As of December 31, 1996, $12,500,000 had been advanced on the working
capital line of credit. In 1995, the Company subleased two operating
transitional living facilities and sold the working capital of these facilities
to the current administrator of one of these facilities, who has assumed
responsibility for approximately 60% of the Company's obligations under the
present leases and will pay the Company a total of $13,400,000 over the term of
such leases. Also in 1995, the Company completed the sale of two of the closed
facilities for $2,000,000 and $2,500,000, respectively. As of December 31, 1996,
the Company continues to own an interest in a substance abuse facility which was
closed in 1992.
The results of operations of these facilities, including the gain on the
sale of certain facilities, were as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD JUNE 24,
YEAR ENDED 1994 THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Net revenues..................................................... $ 63,236 $ 38,281
------- -------
Loss from operations before income taxes......................... 3,527 1,936
Income tax benefit............................................... 1,425 762
------- -------
Loss from assets held for sale................................... $ 2,102 $ 1,174
------- -------
------- -------
</TABLE>
F-14
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revolving Line of Credit (see below)............................................ $ 279,300 $ 177,600
Convertible Subordinated Debentures due 2004, interest at 6% per annum.......... 83,300 83,300
Convertible Subordinated Debentures due 2003, interest at 6 1/2% per annum,
includes unamortized premium of $2,728 and $3,142 as of December 31, 1996 and
1995, respectively............................................................. 25,137 25,566
Senior Subordinated Notes due 2002, interest at 11 3/4% per annum, includes
unamortized premium of $126 and $131 as of December 31, 1996 and 1995,
respectively................................................................... 6,287 6,292
Mortgage notes payable due at various dates through 2005, interest at rates from
10% to 14%, collateralized by various facilities............................... 34,939 35,375
Mortgage notes payable in pound sterling and due at various dates through 2017,
interest at 1% to 4% plus the FHBR rate ("Finance House Base Rate"),
collateralized by various facilities in the United Kingdom..................... 31,543 10,332
Revolving line of credit with a bank due 1997, payable in pound sterling with
interest at a rate of 1.75% plus the FHBR rate, collateralized by the assets of
various facilities............................................................. 20,309 4,582
Industrial Revenue Bonds due 2016, interest at 10.25%, collateralized by a
rehabilitation hospital........................................................ 4,000 4,060
Notes payable to a bank due 1998, interest at prime rate less .25%,
collateralized by the assets of the ambulatory surgery centers................. -- 5,096
Obligations under capital lease agreements, imputed interest at rates ranging
from 5.4% to 12.47%; due through 1999, collateralized by the assets of various
facilities and leased equipment................................................ 24,270 2,937
Other long-term debt............................................................ 3,350 3,737
---------- ----------
Total long-term debt............................................................ 512,435 358,877
Less current portion............................................................ (28,982) (10,417)
---------- ----------
Long-term debt, net of current portion.......................................... $ 483,453 $ 348,460
---------- ----------
---------- ----------
</TABLE>
Annual maturities for the next five years at December 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 28,982
1998.............................................................. 8,805
1999.............................................................. 5,526
2000.............................................................. 5,293
2001.............................................................. 225,156
Thereafter........................................................ 238,673
---------
$ 512,435
---------
---------
</TABLE>
In October 1996, the Company entered into a Fourth Amended and Restated
Credit Agreement (the "Credit Facility") with certain banks, including
NationsBank of Texas, N.A. as administrative lender. The
F-15
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT (CONTINUED)
Credit Facility provides up to $490,000,000 in a revolving line of credit and
letters of credit. The Credit Facility expires on October 28, 2001 and is
collateralized by a pledge of the stock of the majority of the Company's
subsidiaries. Borrowings bear interest at either the prevailing prime rate or
the LIBOR rate plus 0.5% to 1.5% depending on the Company's consolidated debt to
cash flow coverage ratio. The Credit Facility, among other things, (i) requires
the Company to maintain certain financial ratios, (ii) restricts the Company's
ability to incur debt and liens, make investments, liquidate or dispose of
assets, merge with another corporation, create or acquire subsidiaries, and make
acquisitions, and (iii) prohibits the payment of dividends, the acquisition of
treasury stock and the prepayment or modification of certain debts of the
Company. The Company had $279,300,000 of outstanding borrowings and $18,272,000
of outstanding standby letters of credit under the Credit Facility at December
31, 1996.
On March 1, 1994, the Company issued $83,300,000 aggregate principal amount
of 6% Convertible Subordinated Debentures due 2004 (the "6% Debentures") which
are convertible into shares of the Company's common stock at a conversion price
of $21.84 per share, subject to adjustment under certain conditions. The Company
received net proceeds of approximately $80,600,000 from the offering. Part of
the net proceeds was used to pay a portion of the cash consideration for the
acquisition of Mediplex. The 6% Debentures are redeemable by the Company at par,
in whole or in part, after March 1, 1997.
Holders of the 6 1/2% Convertible Subordinated Debentures due 2003 (the
"6 1/2% Debentures") are entitled under the indenture to receive the Mediplex
acquisition consideration in respect of each share of Mediplex common stock into
which the 6 1/2% Debentures would have been convertible at the time of the
acquisition of Mediplex. The Company has agreed to be a co-obligor of the 6 1/2%
Debentures. In January 1995, $39,449,000 of the 6 1/2% Debentures were
converted. Pursuant to the conversion terms under the indenture, the Company
paid $13,603,000 and issued 1,582,905 shares of the Company's common stock to
the converting holder. In addition, the Company paid accrued interest plus a
conversion fee of $3,256,000 to the converting holder, which was expensed in the
first quarter of 1995, to induce conversion. In August 1994, $24,377,000 of the
6 1/2% Debentures were converted into 978,136 shares of the Company's common
stock. Pursuant to the conversion terms under the indentures, the Company paid
$8,406,000 to the converting holder. In addition, the Company paid accrued
interest plus a conversion fee of $2,275,000 to the converting holder to induce
conversion, which was expensed in the third quarter of 1994. Conversion of the
remaining $22,409,000 of outstanding 6 1/2% Debentures would require the
issuance of an additional 899,170 shares of the Company's common stock and a
payment of $7,727,000 in cash pursuant to the conversion terms under the
indenture relating to the 6 1/2% Debentures.
In January 1995, the Company completed a tender offer for $78,698,000 of the
11 3/4% Senior Subordinated Notes due 2002 (the "11 3/4% Notes") at a price of
$1,120 per $1,000 of principal amount of the notes. The Company recorded an
extraordinary loss, net of related tax benefits, of $3,413,000 as a result of
the extinguishment of such debt. Concurrent with the tender offer, the Company
deleted by amendment certain covenants contained in the original indenture that
restricted the Company from fully integrating Mediplex into its operations. In
addition, the amendments modified certain provisions relating to mergers and
consolidations and events of default. In conjunction with the amendments, the
Company became a co-obligor on the 11 3/4% Notes.
The Company has $32,712,000 of mortgages with Meditrust as of December 31,
1996, which contain less restrictive covenants than the Credit Facility and
which include cross default provisions with all of such mortgages and leases
also financed by Meditrust. The Company also is the obligor on an outstanding
letter of credit with a bank of $3,921,000 as of December 31, 1996, to guarantee
outstanding debt obligations of
F-16
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT (CONTINUED)
$3,850,000 for a partnership through which the Company acquired a 50% interest.
The partnership owns a long-term care facility which is leased to a third-party
operator.
In connection with the acquisition of Mediplex, the Company acquired,
through Mediplex, an interest rate hedge swap agreement with a commercial bank,
having a total notional principal amount of $100,000,000 and expiring in 1999.
This agreement called for the payment of variable rate interest by the Company
in return for the assumption by the other contracting party of a fixed rate
cost. For the period beginning June 23, 1994 and ending June 30, 1995, the
Company received a fixed rate of interest of 6.60% and paid interest at the 90
day LIBOR rate (5.0% for the three months ended October 14, 1994, 5.625% for the
three months ended January 17, 1995, and 6.25% for the three months ended April
12, 1995 and for the period ended June 30, 1995). The Company terminated the
transaction on June 30, 1995 and received cash proceeds of $1,680,000 in
connection with such termination. The resulting gain is being amortized over the
original hedge period as an adjustment to interest expense.
(7) COMMITMENTS AND CONTINGENCIES
(a) LEASE COMMITMENTS
The Company has various noncancelable operating leases for facilities with
initial lease terms generally ranging from 5 to 23 years and renewal options of
5 to 40 years. Certain of the lease agreements provide for payment escalations
coincident with increases in certain economic indices.
Future minimum lease payments under noncancelable operating leases at
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 90,078
1998.............................................................. 89,654
1999.............................................................. 90,604
2000.............................................................. 91,182
2001.............................................................. 86,978
Thereafter........................................................ 463,344
---------
$ 911,840
---------
---------
</TABLE>
Several leases contain contingent rental provisions based on operating
results. Rent expense totaled $91,666,000, $73,727,000 and $43,626,000 in 1996,
1995 and 1994, respectively, including contingent rentals of approximately
$131,000, $182,000 and $254,000 during 1996, 1995 and 1994, respectively.
The Company leases or subleases 58 facilities from affiliates of two
directors of the Company as of December 31, 1996, which is included in the
information above. The aggregate lease expense for these facilities was
approximately $16,703,000, $13,800,000 and $12,800,000 in 1996, 1995 and 1994,
respectively. Future minimum lease commitments related to these facilities total
approximately $175,000,000 at December 31, 1996. The Company's management
believes the terms of all of the foregoing leases are as favorable to the
Company as those that could have been obtained from nonrelated parties.
F-17
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(b) CONSTRUCTION COMMITMENTS
The Company has capital expenditure commitments, as of December 31, 1996,
under various contracts, including approximately $10,400,000 in the United
States and L7,300,000 ($12,500,000 as of December 31, 1996) in the United
Kingdom. These include contractual commitments to improve existing facilities
and to develop and construct one and seven new long-term and subacute care
facilities in the United States and United Kingdom, respectively.
(c) FINANCING COMMITMENTS
The Company has agreed to lend $47,000,000, through a revolving subordinated
credit agreement ("Revolving Credit Agreement") to a developer of assisted
living facilities for the development, construction and operation of assisted
living facilities. The advances are subject to certain conditions including
availability of mortgage financing for 50% of the cost of each project and
approval of each project by the Company. At December 31, 1996, five assisted
living facilities were under development which would require funding by the
Company totaling approximately $24,300,000, of which $9,000,000 had been
advanced. The developer is in the process of obtaining mortgage financing. If
mortgage financing is not obtained, the Company will be obligated to fund 100%
of these five projects for approximately $51,700,000. The Company's advances
under the Revolving Credit Agreement will be subordinate to the mortgage
financing. A subsidiary of the Company has an option to purchase each assisted
living facility after it becomes operational.
(d) LITIGATION
The Company is a party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. The Company does not believe that the ultimate disposition of these
matters will have a material adverse effect on the financial condition results
of operations of the Company (see Notes 1(j) and 14).
(e) OTHER
The Company recently learned that a fiscal intermediary and a Medicaid
agency in one of the states in which the Company operates may be examining cost
reports filed by a predecessor operator of several facilities acquired in the
Mediplex acquisition. If, as a result of any such examination, it is concluded
that overpayments to the predecessor operator were made, the Company, as the
current operator of such facilities, may be held financially responsible for any
such overpayments. However, at this time the Company is unable to predict the
outcome of any such examination.
F-18
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
Income tax expense (benefit) on earnings before extraordinary loss consists
of the following for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................................. $ 12,790 $ (212) $ 16,829
State................................................................ 4,835 (102) 3,362
--------- --------- ---------
17,625 (314) 20,191
--------- --------- ---------
Deferred:
Federal.............................................................. 11,037 27,744 (4,894)
State................................................................ 2,268 5,702 (609)
--------- --------- ---------
13,305 33,446 (5,503)
--------- --------- ---------
Total.............................................................. $ 30,930 $ 33,132 $ 14,688
--------- --------- ---------
--------- --------- ---------
</TABLE>
Actual tax expense differs from the "expected" tax expense on earnings
before extraordinary loss, computed by applying the U.S. Federal corporate
income tax rate of 35% to pretax net earnings before extraordinary loss of the
Company as follows for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense........................................ $ 18,363 $ 4,478 $ 12,882
Adjustments in income taxes resulting from:
Amortization of goodwill............................................. 3,045 3,235 1,492
Impairment loss...................................................... -- 15,452 --
Increase in valuation allowance...................................... 7,615 3,038 --
Conversion fee....................................................... -- 1,139 796
Merger expenses...................................................... -- 1,199 --
S corporation earnings not taxable to the Company
(at Federal rates)................................................. -- (230) (2,251)
State income tax expense, net of Federal income tax benefit.......... 4,617 3,332 1,730
Loss on sale of subsidiary stock..................................... (2,458) -- --
Recognition of deferred income taxes for former S corporations....... -- 1,487 --
Other................................................................ (252) 2 39
--------- --------- ---------
$ 30,930 $ 33,132 $ 14,688
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) were comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Provision for losses on accounts receivable................................... $ 8,045 $ 14,851
Accrued liabilities........................................................... 3,629 8,788
Property and equipment........................................................ 3,270 10,650
Intangible assets............................................................. 8,154 8,190
Carryforward of deductions limited by Internal Revenue Code Section 382....... 9,222 6,380
Write-down of assets held for sale and reserve for estimated costs of disposal
and future operating losses................................................. 5,714 7,989
Deferred income............................................................... 2,275 2,771
Alternative minimum tax credit................................................ 425 899
Shareholder settlement........................................................ 7,571 --
Capital loss carryforward..................................................... 1,573 --
State net operating loss carryforwards........................................ 5,156 --
Other......................................................................... 523 263
---------- ----------
55,557 60,781
---------- ----------
Less valuation allowance:
Federal....................................................................... (24,843) (18,526)
State......................................................................... (3,810) (2,512)
---------- ----------
(28,653) (21,038)
---------- ----------
Total deferred tax asset........................................................ 26,904 39,743
---------- ----------
Deferred tax liabilities:
Changes in certain subsidiaries' methods of accounting for income taxes from
cash to accrual basis....................................................... (1,191) (1,109)
Property and equipment attributable to United Kingdom operations.............. (4,760) (2,634)
---------- ----------
(5,951) (3,743)
---------- ----------
Deferred tax asset, net......................................................... $ 20,953 $ 36,000
---------- ----------
---------- ----------
</TABLE>
Various subsidiaries have state net operating loss ("NOL") carryforwards
totaling $94,292,000 with expiration dates through the year 2011. In addition,
the Company has a capital loss carryforward of approximately $4,000,000 which
will expire in 2001. Because there is a risk that certain of these NOL and
capital loss carryforwards may expire unutilized, a valuation allowance has been
established against them.
In connection with the deferred tax assets acquired in the acquisition of
Mediplex, the Company recorded an $18,000,000 valuation allowance. Accordingly,
any tax benefits recognized in future periods attributable to this portion of
the valuation allowance will be allocated to reduce goodwill. The $7,615,000
increase in the valuation allowance in 1996 relates to realization of tax
deductible shareholder settlement costs and capital loss carryforwards.
Upon merging with the Company on May 5, 1995, Golden Care terminated its S
Corporation status for Federal and state income tax purposes. In connection with
this termination, the Company recorded a deferred income tax provision and
liability of $1,487,000.
F-20
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) PRO FORMA INCOME TAXES--(UNAUDITED)
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings to present taxes on
the results of operations of CareerStaff for the period from January 1, 1994
through June 22, 1994, and Golden Care for the period January 1, 1995 through
May 5, 1995 and for the year ended December 31, 1994 on the basis that is
required upon their change in tax status from S corporation to C corporation.
These amounts ($230,000 and $2,558,000 in 1995 and 1994, respectively) are equal
to the required Federal and state income tax provisions that would have been
recorded if these entities had not elected S corporation status and were subject
to and liable for Federal and state income taxes as C corporations prior to each
of the companies' termination of their S corporation status. CareerStaff
terminated its S corporation status for Federal and state income tax purposes on
June 22, 1994. Golden Care terminated its S corporation status upon merging with
the Company on May 5, 1995. In connection with Golden Care's termination of its
S Corporation status, the Company recorded a deferred income tax provision and
liability of $1,487,000 in the second quarter of 1995. The Company distributed a
total of $333,000 and $8,889,000 in 1995 and 1994, respectively, of prior S
corporation earnings to stockholders for certain of these tax obligations.
(10) SUPPLEMENTARY INFORMATION RELATING TO STATEMENTS OF CASH FLOWS
Supplementary information for the consolidated statements of cash flows is
set forth below (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year ended December 31 for:
Interest, net of $2,472, $2,839 and $3,705 capitalized during 1996,
1995 and 1994, respectively........................................ $ 26,821 $ 26,951 $ 10,942
Income taxes......................................................... 7,608 12,150 22,446
</TABLE>
The Company's acquisitions during 1996 and 1995, the Company's acquisition
of Mediplex on June 23, 1994, the related transactions and other acquisitions
during 1994 and other related transactions and acquisitions involved the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- -----------
<S> <C> <C> <C>
Fair value of assets acquired....................................... $ 145,652 $ 66,575 $ 785,694
Liabilities assumed................................................. (55,741) (9,079) (443,575)
Payable to APTA shareholders........................................ (23,545) -- --
Fair value of stock and warrants issued............................. (961) (9,329) (213,741)
---------- --------- -----------
Cash payments made, net of cash received from others................ $ 65,405 $ 48,167 $ 128,378
---------- --------- -----------
---------- --------- -----------
</TABLE>
In January 1995, the Company issued 1,582,905 shares of its common stock
upon the conversion of $39,449,000 principal amount of 6 1/2% Debentures and in
August 1994, the Company issued 978,136 shares of its common stock upon the
conversion of $24,377,000 principal amount of 6 1/2% Debentures (see Note 6).
F-21
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................... $ 14,880 $ 14,880 $ 23,102 $ 23,102
Long-term debt, including current portion.................... (512,435) (510,400) (358,877) (352,843)
</TABLE>
The cash and cash equivalents carrying amount approximates fair value
because of the short maturity of these instruments. The fair value of the
Company's long-term debt was estimated based on the quoted market prices for the
same or similar issues or on the current rates offered to the Company for debt
of the same remaining maturities.
(12) CAPITAL STOCK
(a) SALE OF COMMON SHARES
SUN
In connection with the Company's acquisition of Mediplex in June 1994, the
Company issued 4,472,420 shares of its common stock in a public offering
resulting in net proceeds of $83,605,000. In December 1994, the Company
completed a public stock offering of 5,365,000 shares of its common stock
resulting in net proceeds of $111,878,000.
CAREERSTAFF
Prior to the Company's merger with CareerStaff, CareerStaff in June 1994
completed an initial public stock offering of 824,600 equivalent shares of Sun's
common stock resulting in net proceeds of approximately $9,526,000.
(b) COMMON STOCK REPURCHASE
In the first quarter of 1996, the Company repurchased 2,030,116 shares of
its outstanding common stock at a cost, including commissions, of $25,069,000.
(c) STOCK OPTION PLANS
STOCK INCENTIVE PLANS
The Company has stock option plans for certain employees, officers, and
consultants of the Company which provide for the grant of nonqualified and
incentive stock options. The Board of Directors or a committee appointed by the
Board of Directors determines the vesting schedule and the option price which is
generally not to be less than the fair market value per share of the Company's
common stock at the date of grant. Options granted prior to March 1996 generally
vest at the end of three years and expire ten years from the date of grant.
Options granted during and after March 1996 generally vest ratably over three
years and expire ten years from the date of grant. At December 31, 1996, options
for 2,829,099 shares were outstanding, options for 350,500 shares were vested
and 2,845,000 shares were available for future grants under the stock option
plans for officers, certain employees, and consultants. Exercise prices of
outstanding options to purchase shares of the Company's common stock range from
$9.50 to $24.00.
F-22
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) CAPITAL STOCK (CONTINUED)
DIRECTOR STOCK OPTION PLANS
The Company has stock option plans for nonemployee directors, which provide
for the grant of nonqualified options. Each nonemployee director serving as a
director at the time of the Company's initial public offering received at the
time of the initial public offering an initial grant of options for 20,000
shares and annual grants for each of three years thereafter of options for 7,500
shares. Each grant had an exercise price equal to the initial public offering
price of $11.00 per share, a vesting period of one year and an expiration date
ten years after the date of grant. Nonemployee directors who began serving after
the Company's initial public offering receive an initial grant of options for
5,000 shares and annual grants of options for 1,000 shares for each year
thereafter at a price not less than the fair market value of the Company's
common stock at the date of grant. Beginning in 1997, all nonemployee directors
will receive an annual grant of options for 1,000 shares at a price not less
than fair market value of the Company's common stock at the date of grant. The
grants of options for 1,000 and 5,000 shares vest ratably over four years
beginning after the first anniversary of the date of grant and expire ten years
after the date of grant. At December 31, 1996, options for 80,500 shares were
outstanding, options for 61,250 shares were vested and 177,000 shares were
available for future grant under the stock option plans for nonemployee
directors. Exercise prices of outstanding options to purchase shares of common
stock range from $9.50 to $15.75.
1997 STOCK INCENTIVE PLAN
In the first quarter of 1997, the Board of Directors adopted the 1997 Stock
Incentive Plan (the "Plan"). Awards made under the Plan may be in the form of
stock options, stock appreciation rights, stock awards, performance share
awards, or other stock-based awards. The Plan is intended to replace the
existing stock option plans for executives, and awards currently outstanding
under those plans were not affected. The Plan reserves 4,500,000 shares for
awards. Subsequent to December 31, 1996, the Company awarded an aggregate of
776,000 shares of restricted stock to nine senior executives, which will be
expensed over the vesting period. Approximately 105,000 of the restricted shares
vested immediately. The remaining restricted stock awards vest ratably over the
remaining four to five years. These restricted stock awards are subject to
defeasance if the Plan is not approved by the shareholders.
MEDIPLEX OPTION PLANS
In connection with the acquisition of Mediplex, the Company assumed and
converted the outstanding Mediplex stock options under existing plans into
options to purchase a total of 1,704,500 shares of the Company's common stock
with exercise prices ranging from $6.75 to $18.50. As of December 31, 1996,
options to purchase 355,228 shares of common stock, of which 301,478 were
exercisable, were outstanding with exercise prices ranging from $7.75 to $17.63.
The difference between the fair market value of the Company's common stock at
the date of the acquisition and the exercise price of the assumed options was
accounted for as additional consideration in the acquisition. The fair market
value approximated the intrinsic value of the Company's common stock and the
difference between the two valuations had the intrinsic value been used would
not have been material to net earnings or to net equity as of the date of the
acquisition.
CAREERSTAFF OPTION PLANS
In connection with the CareerStaff merger, the Company assumed and converted
the outstanding CareerStaff stock options granted in 1995 and 1994 under
existing plans into options to purchase a total of 302,386 shares of the
Company's common stock with exercise prices ranging from $12.96 to $22.47. As of
F-23
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) CAPITAL STOCK (CONTINUED)
December 31, 1996, all of the outstanding options to purchase a total of 82,802
shares of the Company's common stock were exercisable at exercise prices ranging
from $12.96 to $22.47.
The following is a summary of the status of the Company's Stock Incentive
Plans, the Director Stock Option Plans and the assumed Mediplex and CareerStaff
Option Plans as of December 31, 1996, 1995 and 1994, and changes during the
years ending on those dates is presented below (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- -------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 3,648 $ 16.12 3,007 $ 15.79 737 $ 12.27
Granted
Price equals fair value................ 441 13.74 1,508 16.82 1,863 20.13
Price is less than fair value.......... 15 11.00 23 11.00 23 11.00
Options assumed in connection with the
acquisition of Mediplex................. -- -- -- -- 1,705 10.42
Exercised................................ (106) 11.09 (283) 12.78 (1,051) 10.41
Cancelled................................ (650) 16.54 (607) 17.07 (270) 15.46
----- ----- ---------
Outstanding at year-end.................. 3,348 15.91 3,648 16.12 3,007 15.79
----- ----- ---------
----- ----- ---------
Options exercisable at year-end.......... 796 11.53 628 11.62 337 10.93
----- ----- ---------
----- ----- ---------
Options available for future grant....... 3,022 330 1,148
----- ----- ---------
----- ----- ---------
Weighted average fair value of options
granted during the year................. $ 5.41 $ 7.04
----- -----
----- -----
</TABLE>
The fair value of each option granted in 1996 and 1995 is estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: (i) zero dividend yield; (ii) expected volatility
of 41%; (iii) risk-free interest rates of 5.37% and 6.22% for the years ended
December 31, 1996 and 1995, respectively, and (iv) expected life of four years.
Had compensation cost for the Company's 1996 and 1995 options grants been
determined consistent with SFAS 123 (see Note 1(n)) which establishes fair value
as the measurement basis for stock-based awards, the Company's net earnings and
net earnings per share for 1996 and 1995 would approximate the pro forma amounts
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss)........................................... $ 21,536 $ 19,548 $ (23,981) $ (25,229)
Net earnings (loss) per share................................. $ 0.46 $ 0.42 $ (0.50) $ (0.53)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to options granted prior
to 1995, and additional option grants in future years are anticipated.
F-24
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) CAPITAL STOCK (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED
NUMBER WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
OUTSTANDING REMAINING CONTRACTUAL EXERCISE OUTSTANDING AT EXERCISE
RANGE OF EXERCISE PRICE AT 12/31/96 LIFE PRICE 12/31/96 PRICE
- ------------------------------------- ------------- --------------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 7.75 - $10.13...................... 745 5.5 $ 9.68 294 $ 9.90
11.00 - 15.84...................... 897 7.7 12.88 462 12.06
16.07 - 19.00...................... 979 7.8 18.30 34 16.69
20.50 - 24.00...................... 727 7.9 22.81 6 22.50
----- ---
3,348 7.3 15.91 796 11.53
----- ---
----- ---
</TABLE>
OPTIONS ISSUED IN CONNECTION WITH THE GOLDEN CARE MERGER
The Company issued options to purchase a total of 234,100 shares of the
Company's common stock with a total exercise price of $500,000 as part of the
consideration in the Company's merger with Golden Care. These options represent
10% of the total shares of the Company's common stock issued in connection with
the Golden Care merger. These options replaced options granted to an employee in
1994 under an employment agreement in which former Golden Care stockholders
granted an option to an employee to acquire 10% of their holdings. All such
options vested as of the date of the merger.
(d) GRANTOR STOCK TRUST
In the first quarter of 1996, the Company sold 3,050,000 newly issued shares
of the Company's common stock to a newly established Grantor Stock Trust
("Trust") for approximately $37,700,000. The Trust was created to fund future
obligations under certain of the Company's benefit plans. The sale of the shares
was recorded as an increase in stockholders' equity with a corresponding
reduction for the value of the shares held by the Trust. As employee benefits
are satisfied, the number and value of shares held by the Trust is reduced and
stockholders' equity correspondingly increases. As of December 31, 1996, the
Trust held 3,019,993 shares of the Company's common stock.
The Trust delivered a promissory note for approximately $37,700,000 to the
Company. The cash portion of the purchase price of approximately $31,000
represents the par value of the shares of the Company's common stock sold to the
Trust. Amounts owed by the Trust will be repaid periodically with cash received
from the Company or will be forgiven by the Company thereby enabling the release
of shares from the Trust to satisfy the Company's obligations for certain
employee benefit plans.
(13) PREFERRED STOCK PURCHASE RIGHTS
On June 2, 1995, the Board of Directors declared a dividend of one preferred
stock purchase right ("Right") for each outstanding share of common stock of the
Company for stockholders of record on June 15, 1995 and for all future issuances
of common stock. The Rights are currently not exercisable or transferable apart
from the common stock and have no voting rights. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Preferred Stock, par value $0.01 per share. The Rights become
exercisable ten business days following the date a person or group of affiliated
persons acquires 15% or more of the Company's common stock, or announces a
tender or exchange offer which would result in the beneficial ownership by a
person or group of affiliated person of
F-25
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) PREFERRED STOCK PURCHASE RIGHTS (CONTINUED)
15% or more of the outstanding Company's common stock. The Rights also become
exercisable if any person, who is the beneficial owner of 15% or more of the
Company's common stock as of the date of record, acquires an additional 1% or
more of the outstanding Company's common stock. The Rights may be redeemed by
the Company at a price of $.001 per Right before their expiration on June 2,
2005.
In the event that the Company is acquired in a merger or other business
combination or certain other events occur, provision shall be made so that each
holder of a Right, excluding the Rights beneficially owned by the acquiring
persons, shall have the right to receive, upon exercise thereof at the then
current exercise price, that number of shares of common stock of the surviving
company which at the time of such transaction will have a market value of two
times the exercise price of the Right.
(14) OTHER EVENTS
(a) GOVERNMENT INVESTIGATION
The Company is the subject of a pending Federal investigation by the OIG and
the United States Department of Justice. At this time, the Company understands
that the investigation includes a review of whether the Company's rehabilitation
therapy subsidiary properly provided and/or billed for concurrent therapy
services and whether it provided unnecessary or unordered services to residents
of skilled nursing facilities. The Company understands that the investigation
also includes a review of whether its long-term care subsidiary properly
disclosed its relationship with the Company's rehabilitation therapy subsidiary
and properly sought reimbursement for services provided by that subsidiary.
The Company is unable to determine at this time when the investigation will
be concluded or what its precise scope might be. If there have been improper
practices or the investigation is broader in scope than the Company currently
understands it to be, depending on the nature and extent of such impropriety,
the investigation could result in the imposition of civil, administrative, or
criminal fines, penalties, or restitutionary relief, and may have a negative
impact on the Company. Based on its current understanding of the investigation,
however, the Company does not believe that the outcome of the investigation will
have a material adverse effect on the Company's financial condition or results
of operations.
(b) LITIGATION
Prior to the Company's acquisition of CareerStaff, a holder of CareerStaff's
common stock filed a lawsuit (the "CareerStaff Litigation") as a purported class
action against CareerStaff and the directors of CareerStaff alleging breach of
fiduciary duty in entering into a merger agreement with the Company and against
the Company alleging that the Company aided and abetted the alleged breach of
fiduciary duty by the CareerStaff directors. The CareerStaff Litigation was
voluntarily dismissed without prejudice on May 8, 1996.
On June 30, 1995, two civil class-action complaints were filed against the
Company and certain of its current and former directors and officers in the
United States District Court for the District of New Mexico. Two more
complaints, based on the same underlying events, were filed on August 30, 1995.
On October 6 and October 10, 1995, two additional complaints were filed, also
based on the same underlying events. These six complaints were consolidated by a
court order dated November 27, 1995 and an amended class action complaint,
captioned IN RE SUN HEALTHCARE GROUP, INC. LITIGATION (the "Complaint"), was
filed in the United States District Court for the District of New Mexico on
January 26, 1996. The Complaint was purportedly brought on behalf of all persons
who either purchased shares of the Company's common stock between October 26,
1994 and June 27, 1995, or who exchanged their shares of common stock of
F-26
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) OTHER EVENTS (CONTINUED)
CareerStaff for shares of the Company's common stock pursuant to a merger
agreement between CareerStaff and the Company. The Complaints allege that
defendants misrepresented or failed to disclose material facts about the OIG
investigation and about the Company's operations and financial results, which
plaintiffs contend artificially inflated the price of the Company's securities.
In October 1996, the Company reached an agreement in principle to settle
these class action lawsuits which resulted in the Company recording a
$24,000,000 pretax charge relating to the settlement. The settlement is subject
to the execution of definitive documentation and court approval. The Company
will receive $9,000,000 from its director and officers liability insurance
carrier for its claims submitted in connection with the settlement.
On or about January 23, 1996, two former stockholders of Golden Care filed a
lawsuit (the "Golden Care Litigation") against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of Indiana. Plaintiffs allege, among other things, that the Company did
not disclose material facts concerning the OIG investigation and that the
Company's financial results were misstated. The Complaint purports to state
claims, INTER ALIA, under Federal and state securities laws and for breach of
contract, including a breach of the registration rights agreement pursuant to
which Sun agreed to register the shares for resale by such former Golden Care
stockholders. Plaintiffs purport to seek recission, unspecified compensatory
damages, punitive damages and other relief. By Order dated October 11, 1996, the
court granted in part and denied in part defendants' motion to dismiss. The
Company believes it has meritorious defenses to the Complaint. There can be no
assurance that the Golden Care Litigation will not have an impact on the
Company's accounting for the merger.
The Company believes the Golden Care Litigation will not have a material
adverse impact on its financial condition or results of operations, although the
unfavorable resolution of any of these actions in any reporting period could
have a material adverse impact on the Company's results of operations for that
period.
(15) SUMMARIZED FINANCIAL INFORMATION
The Company acquired Mediplex on June 23, 1994 and became a co-obligor with
Mediplex with respect to the 6 1/2% Debentures and the 11 3/4% Debentures
subsequent to the acquisition (see Notes 2 and 6). Summarized financial
information of Mediplex is provided below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Current assets.................................................................. $ 103,629 $ 130,794
Noncurrent assets............................................................... 429,555 461,592
Current liabilities............................................................. 11,910 34,823
Noncurrent liabilities.......................................................... 83,370 91,150
Due to parent................................................................... 205,306 168,222
</TABLE>
F-27
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
The results of operations of Mediplex subsequent to the date of acquisition
by Sun are labeled "Company," and the financial position and results of
operations of Mediplex for the period prior to the acquisition by Sun are
labeled "Predecessor."
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY COMPANY JANUARY 1,
YEAR ENDED YEAR ENDED JUNE 24, 1994 TO 1994 JUNE 23,
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 1994
----------------- ----------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............................. $ 457,748 $ 448,254 $ 205,300 $ 221,640
-------- -------- -------- -------------
Costs and expenses....................... 438,799 436,930 217,572 208,455
Impairment loss.......................... -- 52,621 -- --
-------- -------- -------- -------------
Earnings (loss) before intercompany
charges, income taxes and extraordinary
loss.................................... 18,949 (41,297) (12,272) 13,185
Intercompany charges(1).................. 50,133 35,005 -- --
-------- -------- -------- -------------
Earnings (loss) before income taxes and
extraordinary loss...................... (31,184) (76,302) (12,272) 13,185
Income taxes (benefit)................... (9,757) (7,432) (8,909) 3,645
-------- -------- -------- -------------
Net earnings (loss) before extraordinary
loss.................................... (21,427) (68,870) (3,363) 9,540
Extraordinary loss, net of income tax
benefit................................. -- (3,413) -- --
-------- -------- -------- -------------
Net earnings (loss)...................... $ (21,427) $ (72,283) $ (3,363) $ 9,540
-------- -------- -------- -------------
-------- -------- -------- -------------
</TABLE>
- ------------------------
(1) Through various intercompany agreements entered into by Sun and Mediplex,
Sun provides management services, licenses the use of its trademarks and
acts on behalf of Mediplex to make financing available for its operations.
Sun charged Mediplex for management services totaling $29,003,000 and
$20,478,000 for the years ended December 31, 1996 and 1995, respectively. On
September 30, 1995, Sun and Mediplex finalized licensing agreements and
financing agreements which were effective January 1, 1995. Royalty fees
charged to Mediplex for the years ended December 31, 1996 and 1995, for the
use of Sun trademarks were $6,681,000 and $4,725,000, respectively.
Intercompany interest charged to Mediplex for the years ended December 31,
1996 and 1995, for advances from Sun was $14,449,000 and $9,802,000,
respectively. During 1994, Sun did not charge Mediplex for these same
services.
F-28
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited consolidated quarterly financial information follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER(3) QUARTER(4)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net revenues............................................ $ 320,291 $ 325,452 $ 340,508 $ 330,057
Earnings (loss) before income taxes........................... 25,565 27,276 4,231 (4,606)
Net earnings (loss)........................................... 15,339 16,366 (5,562) (4,607)
Net earnings (loss) per share
Fully diluted(2)............................................ $ 0.31 $ 0.34 $ (0.12) $ (0.10)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER(5) QUARTER(6) QUARTER QUARTER(7)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net revenues............................................ $ 256,734 $ 278,980 $ 289,273 $ 310,521
Earnings (loss) before income taxes and extraordinary loss.... 20,013 19,306 27,359 (53,884)
Net earnings (loss) before extraordinary loss................. 10,826 8,741 16,415 (56,320)
Net earnings (loss) before extraordinary loss(1).............. 10,541 8,796 16,415 (56,320)
Extraordinary loss............................................ (3,413) -- -- --
----------- ----------- ----------- -----------
Net earnings (loss)(1)........................................ $ 7,128 $ 8,796 $ 16,415 $ (56,320)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss) per share
Fully diluted(1)(2)
Net earnings (loss) per share before extraordinary
loss(1)(2).............................................. $ 0.21 $ 0.18 $ 0.33 ($ 1.18)
Extraordinary loss........................................ (0.06) -- -- --
----------- ----------- ----------- -----------
Net earnings (loss)(1)(2)................................. $ 0.15 $ 0.18 $ 0.33 ($ 1.18)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) A provision for pro forma income taxes has been reflected in the
consolidated quarterly financial information for periods in which certain
entities were not subject to Federal and state income taxes (See Note 9).
(2) Earnings per share are computed independently for each of the quarters
presented (See Note 1(o)).
(3) The third quarter of 1996 includes a $24,000,000 charge to settle certain of
the lawsuits brought by shareholders (see Note 14).
(4) The fourth quarter of 1996 includes a net $4,750,000 benefit which consists
of $9,000,000 the Company will receive from its director and officers
liability insurance carrier and a $4,250,000 charge related to continuing
litigations and investigation costs (see Note 14).
(5) The first quarter of 1995 includes a charge of $3,256,000 in connection with
a payment of an inducement fee to effect the conversion in January 1995 of
$39,449,000 of the 6 1/2 Debentures. This quarter also includes an
extraordinary charge of $3,413,000, net of the related tax benefit, in
connection with the tender offer of the 11 3/4 Notes. (See Note 6).
F-29
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
(6) The second quarter of 1995 includes $5,800,000 of transaction related merger
costs incurred in connection with the merger of the Company with CareerStaff
and Golden Care (see Note 2).
(7) The fourth quarter of 1995 includes a $59,000,000 impairment loss recorded
by the Company which primarily relates to goodwill associated with six of
the forty facilities acquired in the acquisition of Mediplex (see Note
1(g)). The quarter also includes a charge of $4,006,000 relating to averting
a strike and negotiating new contracts for certain unionized homes in
Connecticut and a charge of $5,505,000 relating to monitoring and responding
to the investigation by the OIG and legal fees resulting from the
shareholder litigation. (See Notes 1(j) and 1(k)).
(17) GEOGRAPHIC SEGMENT INFORMATION
The Company operates predominantly in the long-term care segment of the
healthcare industry. The Company is a provider of long-term, subacute and
related ancillary care services to nursing home patients.
In addition to the services provided in the United States, the Company
provides services in the United Kingdom and Canada.
A summary of the Company's operations by geographic area is presented below
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
UNITED UNITED
STATES KINGDOM CANADA CONSOLIDATED
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Net revenues.................................................... $ 1,255,323 $ 42,156 $ 18,829 $1,316,308
Operating profits............................................... 74,894 2,179 (382) 76,691
Equity in earnings of Ashbourne................................. 1,674
Interest expense, net........................................... 25,899
------------
Consolidated earnings before income taxes....................... 52,466
------------
------------
Total assets.................................................... 1,033,804 168,578 27,044 1,229,426
Capital expenditures............................................ 56,962 18,699 562 76,223
Depreciation and amortization................................... 30,436 1,851 1,530 33,817
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
UNITED UNITED
STATES KINGDOM CANADA CONSOLIDATED
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Net revenues.................................................... $ 1,108,436 $ 26,240 $ 832 $1,135,508
Operating profits............................................... 30,430 3,561 (181) 33,810
Equity in earnings of Ashbourne................................. 813
Interest expense, net........................................... 21,829
------------
Consolidated earnings before income taxes....................... 12,794
------------
------------
Total assets.................................................... 952,191 76,607 13,705 1,042,503
Capital expenditures............................................ 61,901 11,565 31 73,497
Depreciation and amortization................................... 25,771 1,854 109 27,734
</TABLE>
Revenues from foreign operations and identifiable assets of foreign
operations were immaterial to the Company in 1994.
F-30
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) SUBSEQUENT EVENTS
On February 18, 1997, the Company signed definitive agreements with each of
Retirement Care Associates, Inc. ("Retirement Care") and Contour Medical, Inc.
("Contour"), under which the Company agreed to acquire Retirement Care and its
approximately 65% owned subsidiary, Contour. The agreements call for the Company
to issue 0.6625 shares of common stock in exchange for each outstanding share of
Retirement Care common stock (subject to adjustment as provided in the
agreement) and for the Company to pay $8.50 per share in cash, stock or a
combination of cash and stock (at the election of the Company) for the remaining
35% of Contour not presently owned by Retirement Care. The acquisition of
Retirement Care is expected to be accounted for as a pooling of interests and
the acquisition of Contour is expected to be accounted for as a purchase.
F-31
<PAGE>
SCHEDULE II
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
----------------------------
COLUMN B ADDITIONS COLUMN E
----------- ---------------------------- COLUMN D -----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO ----------- BALANCE AT
- ------------------------------------------------ BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE (1) DESCRIBE PERIOD
- ------------------------------------------------ ----------- ----------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts................. $ 11,035 $ 14,970 $ 1,394 ($ 10,522) $ 16,877
----------- ----------- ------ ----------- -----------
----------- ----------- ------ ----------- -----------
Year ended December 31, 1995:
Allowance for doubtful accounts................. $ 9,508 $ 14,623 $ 743 ($ 13,839) $ 11,035
----------- ----------- ------ ----------- -----------
----------- ----------- ------ ----------- -----------
Year ended December 31, 1994:
Allowance for doubtful accounts................. $ 1,129 $ 27,632 $ 5,934 ($ 25,187) $ 9,508
----------- ----------- ------ ----------- -----------
----------- ----------- ------ ----------- -----------
</TABLE>
- ------------------------
(1) Represents the allowance for doubtful accounts of acquired entities at the
date of acquisition.
F-32
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
<S> <C> <C>
2.1(1) Preincorporation Agreement dated as of April 13, 1993 between Sun and Andrew L.
Turner, Nora L. Turner and Elizabeth L. Keefer, as Trustee of Turner's
Children's Trust No. 3
2.2(2)(7) Agreement and Plan of Merger dated January 27, 1994, by and among Sun, Sun
Acquisition Corporation, The Mediplex Group, Inc., Abraham D. Gosman and Andrew
L. Turner, as amended. Filed without schedules attached.
2.3(2) Asset Sale Agreement dated January 27, 1994 by and among Mediplex, Abraham D.
Gosman and Sun
2.4(1) Plan or Reorganization and Merger Agreement by and between Honorcare Corporation.
Don A. Karchmer, Thomas E. Stewart, John E. Bingaman and James W. Campbell, Sun
and Sunrise
2.5(15) Agreement and Plan of Merger dated as of April 27, 1995 by and between Golden
Care, Inc., Golden Acquisition Corporation and Sun
2.6(15) First Amendment to Agreement and Plan of Merger dated as of May 4, 1995 by and
between Golden Care, Inc., Golden Acquisition Corporation and Sun
2.7(16) Agreement and Plan of Merger dated March 30, 1995 by and between Sun, Sun
Acquisition Corporation and CareerStaff Unlimited, Inc.
2.8(16) First Amendment to Agreement and Plan of Merger dated April 7, 1995 by and between
Sun, Sun Acquisition Corporation and CareerStaff Unlimited, Inc.
2.9(15) Second Amendment to Agreement and Plan of Merger dated May 11, 1995 by and between
Sun, Sun Acquisition Corporation and CareerStaff Unlimited, Inc.
2.10(13) Share Purchase Agreement dated as of November 30, 1995 among Sun, Columbia Health
Care Inc. and the Vendors named therein. Schedule 14: Form of Warrant
2.11(10) Investment and Shareholders' Agreement between Sun Healthcare Group, Inc., Sun
Healthcare Group International Ltd., Exceler Health Care Group PLC, Guernroy
Limited, John Ernest Moreton, The Alexanders and the Optionholders relating to
Exceler Health Care Group PLC, dated September 7, 1994
2.12(14) Deed of Amendment and Instrument relating to Exceler Health Care Group PLC dated
February 15, 1995
2.13(24) Agreement and Plan of Merger and Reorganization, dated as of February 17, 1997
among Sun Healthcare Group, Inc., Peach Acquisition Corporation and Retirement
Care Associates, Inc.
2.14(24) Agreement and Plan of Merger and Reorganization, dated as of February 17, 1997
among Sun Healthcare Group, Inc., Nectarine Acquisition Corporation and Contour
Medical, Inc.
3.1(1) Certificate of Incorporation of Sun
3.2(1)(9) Bylaws of Sun, as amended
3.3(21) Certificate of Amendment to Certificate of Incorporation of Sun dated April 15,
1993
3.4(6) Certificate of Amendment to Certificate of Incorporation of Sun dated June 23,
1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
4.1(3) Fiscal Agency Agreement dated as of March 1, 1994 between Sun and NationsBank of
Texas, N.A., as Fiscal Agent.
<S> <C> <C>
4.2(6) Amended and Restated Indenture, dated October 1, 1994, among Sun, The Mediplex
Group, Inc. and Fleet Bank of Massachusetts, N.A. as Trustee
4.3(6) Amended and Restated First Supplemental Indenture to Amended and Restated
Indenture, dated October 1, 1994, among Sun, The Mediplex Group, Inc. and Fleet
Bank of Massachusetts, N.A. as Trustee (6 1/2% Convertible Subordinated
Debentures due 2003)
4.4(17) Form of Rights Agreement, dated as of June 2, 1995, between Sun and Boatmen's
Trust Company, which includes the form of Certificate of Designations for the
Series A Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit
B and the form of Summary of Preferred Stock Purchase Rights as Exhibit C.
4.5(18) First Amendment to Rights Agreement, dated as of August 11, 1995, amending the
Rights Agreement, dated as of June 2, 1995, between Sun and Boatmen's Trust
Company
10.1(4) Lease Agreement dated as of August 31, 1996, by and between Karan Associates
("Lessee") and Campbell Care of Wylie, Inc., Assignment of Lease dated November
20, 1989 by and between Campbell Care of Wylie, Inc., and Honorcare Corporation
("Lessee"), with First Lease Addendum dated August 31, 1986, Second Addendum
dated January 9, 1987, Third Addendum dated November 30, 1989 and Fourth
Addendum dated July 12, 1993, and Assignment Agreement dated as of July 13,
1993, by and between Honorcare Corporation ("Assignor") and Sun Healthcare
Corporation ("Assignee") (Hillcrest Manor Nursing Center)
10.2(21) Lease Agreement for West Magic Care Center dated as of August 1, 1987, between
Skyview Associates ("Lessor") and Don Bybee and A. Keith Holloway ("Lessee")
10.3(1) Sublease, Assumption and Consent Agreement for Coronado Care Center dated as of
May 31, 1990, among Phoenix Nursing Home Limited Partnership ("Lessor"), Horizon
Healthcare Corporation ("Lessee/ Sublessor") and Sunrise ("Sublessee") pursuant
to a Lease dated December 18, 1987 between Lessor and Lessee (Lease attached as
Exhibit)
10.4(1) Lease Agreement for East Mesa Care Center dated as of September 30, 1990, between
East Mesa Associates Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.5(1) Assignment and Assumption of Lease with Consent of Lessor for Torrington
Extend-A-Care Center dated as of November 1, 1990, between Beverly
Enterprises-Connecticut, Inc. ("Assignor/Lessee"), Turner Enterprises, Inc.
("Assignee"), Andrew L. Turner and Nora Turner ("Guarantors"), Harvey J. Angell
and Zev Karkomi ("Special Guarantors") and Beverly Investment Properties, Inc.
("Lessor") (Lease attached)
10.6(1) Lease Agreement for Mercer Island Care Center dated as of July, 1991, among Mercer
View Convalescent Center, Tenants-in-Common ("Lessor"), Sunrise ("Lessee") and
Andrew L. Turner and Nora Turner, husband and wife ("Guarantor")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.7(1) Lease Agreement for Bayside Health and Rehabilitation Center dated as of July 26,
1991, between Bellingham Associates Limited Partnership ("Lessor") and Sunrise
("Lessee")
<S> <C> <C>
10.8(4) Lease Agreement for the Coronado Care Center addition, dated as of August 30,
1991, by and between Phoenix Nursing Home Limited Partnership II ("Lessor") and
Sunrise ("Lessee")
10.9(1) Lease Agreement for Whispering Pines Care Center and Valley Rehabilitation Center
dated as of October 31, 1991, between Belle Mountain Associates Limited
Partnership ("Lessor") and Sunrise ("Lessee")
10.10(1) Lease Agreement for Menlo Park Healthcare Center dated as of November 1, 1991,
between Oregon Associates Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.11(1) Sublease Agreement for Hillside Living Center d/b/a Hillside Healthcare Center
dated as of March 1, 1992, between Elite Care Corporation ("Sublessor") and
Turner Enterprises, Inc. ("Sublessee") (Lease attached as Exhibit)
10.12(1) Sublease Agreement for Crown Manor Living Center d/b/a Crown Manor Healthcare
Center dated as of March 1, 1992, between Elite Care Corporation ("Sublessor")
and Turner Enterprises, Inc. ("Sublessee") (Lease attached as Exhibit)
10.13(1) Sublease Agreement for Colonial Manor Living Center d/b/a Colonial Manor
Healthcare Center dated as of March 1, 1992, between Elite Care Corporation
("Sublessor") and Turner Enterprises, Inc. ("Sublessee") (Lease attached as
Exhibit)
10.14(1) Sublease Agreement for Douglas Living Center d/b/a Douglas Healthcare Center dated
as of March 1, 1992, between Elite Care Corporation ("Sublessor") and Turner
Enterprises, Inc. ("Sublessee") (Lease attached as Exhibit)
10.15(1) Lease Agreement for Columbia View Nursing Home dated as of June 30, 1992, between
Columbia Associates Limited Partnership ("Lessor") and Turner Enterprises, Inc.
("Lessee")
10.16(1) Lease Agreement for Adams House Healthcare Center dated as of October 1, 1992,
between Adams Connecticut Associates Limited Partnership ("Lessor") and Turner
Enterprises, Inc. ("Lessee")
10.17(1) Lease Agreement for San Juan Care Center and Burton Care Center dated as of
October 31, 1992, by and between Zev Karkomi and Jerold Ruskin (collectively,
the "Lessors") and Sunrise ("Lessee")
10.18(1) Lease Agreement for Park Villa Convalescent Center dated as of April 1, 1993,
between LTC Properties, Inc. ("Lessor") and Sunrise ("Lessee")
10.19(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates
("Lessor") and Honorcare Corporation ("Lessee"), with Assignment Agreement dated
as of July 13, 1993 by and between Honorcare Corporation ("Assignor") and Sun
Healthcare Corporation ("Assignee") (Angelina Facility)
10.20(4) Lease Agreement dated as of July 13, 1993, by and between July Associates IV
("Lessor") and Honorcare Corporation ("Lessee"), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare Corporation ("Assignor") and Sun
Healthcare Corporation ("Assignee") (Park Plaza)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.21(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates
("Lessor") and Honorcare Corporation ("Lessee"), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare Corporation ("Assignor") and Sun
Healthcare Corporation ("Assignee") (Wells)
<S> <C> <C>
10.22(4) Lease Agreement dated as of July 13, 1993, by and between Angelina Associates
("Lessor") and Honorcare Corporation ("Lessee"), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare Corporation ("Assignor") and Sun
Healthcare Corporation ("Assignee") (Pineywood)
10.23(4) Lease Agreement dated as of July 13, 1993, by and between Golden Age Associates
("Lessor") and Honorcare Corporation ("Lessee") (Golden Age)
10.24(4) Lease Agreement dated as of July 13, 1993, by and between July Associates III
("Lessor") and Honorcare Corporation ("Lessee") (High Plains)
10.25(8) Lease Agreement dated as of July 30, 1993 between Zev Karkomi, Thunderbird
Associated Limited Partnership and Sunrise Healthcare Corporation
10.26(8) Lease Agreement dated as of September 22, 1993, as amended, between Carlinville
Associates and Sunrise Healthcare Corporation
10.27(5) Lease Agreement dated October 1993, by and between Salem Associates, Ltd.
("Lessor") and Sunrise ("Lessee") (Doctors Nursing Home)
10.28(5) Lease Agreement dated as of December 6, 1993, by and between Massachusetts Nursing
Homes Limited Partnership ("Lessor") and Sunrise ("Lessee")
10.29(4) Lease Assignment and Transfer of Operations Agreement dated as of December 30,
1993, by and between HEA of New Mexico, Inc. and Sunrise (Lease attached)
(Country Life Manor)
10.30(4) Lease Agreement dated as of January 1, 1994, by and between October Associates
("Lessor") and Sunrise ("Lessee") (Stanton Nursing Home)
10.31(4) Lease Agreement dated as of January 1, 1994, by and between Whitewright Associates
("Lessor") and Sunrise ("Lessee") (Campbell Care of Whitewright)
10.32(4) Lease Agreement dated as of January 1, 1994, by and between October Associates
("Lessor") and Sunrise ("Lessee") (Valley Mills Care Center)
10.33(4) Lease Agreement dated as of January 1, 1994, by and between October Associates
("Lessor") and Sunrise ("Lessee") (Moody Care Center)
10.34(7) Lease Agreement dated as of April 26, 1994, by and between Sumner Nursing Home,
L.L.C. and Sunrise
10.35(6) Lease Agreement by and between Bellingham II Associates Limited Partnership and
Sunrise Healthcare Corporation, dated May 31, 1994
10.36(6) Amendment and Restatement of Facility Lease Agreement [Lenox Hill]-- Meditirust of
Lynn, Inc. and Mediplex Rehabilitation of Massachusetts, Inc., dated June 23,
1994
10.37(6) Amendment and Restatement of Facility Lease Agreement [Northampton]--New England
Finance Corporation and Mediplex Rehabilitation of Massachusetts, Inc., dated
June 23, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.38(6) Amendment and Restatement of Facility Lease Agreement [Woodcrest]-- Meditrust and
Mediplex of New Jersey, Inc., dated June 23, 1994
<S> <C> <C>
10.39(6) Amendment and Restatement of Facility Lease Agreement [Westport]-- Meditrust and
Mediplex of Connecticut, Inc., dated June 23, 1994
10.40(6) Amendment and Restatement of Facility Lease Agreement [Newton]-- Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.41(6) Amendment and Restatement of Facility Lease Agreement [Wilmington]--Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.42(6) Amendment and Restatement of Facility Lease Agreement [Stamford] by and between
G-WZ of Stamford, Inc. and Meditrust Mortgage Investments, Inc., dated June 23,
1994
10.43(6) Amendment and Restatement of Facility Lease Agreement [Cheshire]-- Meditrust and
Mediplex of Connecticut, Inc., dated June 23, 1994
10.44(6) Amendment and Restatement of Facility Lease Agreement [East Longmeadow]--Meditrust
and Quality Nursing Care of Massachusetts, Inc., dated June 23, 1994
10.45(6) Amendment and Restatement of Facility Lease Agreement [Wethersfield]--Meditrust
and Mediplex of Connecticut, Inc., dated June 23, 1994
10.46(6) Amendment and Restatement of Facility Lease Agreement [Danbury]-- Meditrust and
Mediplex of Connecticut, Inc., dated June 23, 1994
10.47(6) Amendment and Restatement of Facility Lease Agreement [Manatee]-- Meditrust and
Manatee Springs Nursing Center, Inc., dated June 23, 1994
10.48(6) Amendment and Restatement of Facility Lease Agreement [Camden]-- Plaza Medical
Nursing Facility and P.M.N.F. Management, Inc., dated June 23, 1994
10.49(6) Facility Lease Agreement [Washington]--Pacific Finance Corporation and Sunrise
Healthcare Corporation, dated June 23, 1994
10.50(6) Amendment and Restatement of Facility Lease Agreement [Darien]--New England
Finance Corporation and Mediplex of Connecticut, Inc., dated June 23, 1994
10.51(6) Amendment and Restatement of Facility Lease Agreement [Randolph]-- Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.52(6) Amendment and Restatement of Facility Lease Agreement [Peabody]-- Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.53(6) Amendment and Restatement of Facility Lease Agreement [Newington]-- Meditrust and
Mediplex of Connecticut, Inc., dated June 23, 1994
10.54(6) Amendment and Restatement of Facility Lease Agreement [Beverly]-- Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.55(6) Facility Lease Agreement [Weymouth]--Meditrust of Massachusetts, Inc. and Mediplex
of Massachusetts, Inc., dated June 23, 1994
10.56(6) Amendment and Restatement of Facility Lease Agreement [Lexington]-- Meditrust and
Mediplex of Massachusetts, Inc., dated June 23, 1994
10.57(6) Amendment and Restatement of Facility Lease Agreement [Michigan]-- Meditrust
TriStates, Inc. and Mediplex of Ohio, Inc., dated June 23, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.58(6) Amendment and Restatement of Facility Lease Agreement [Christian Hill]--Meditrust
of Massachusetts, Inc. and Mediplex Rehabilitation of Massachusetts, Inc., dated
June 23, 1994
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10.59(6) Amendment and Restatement of Facility Lease Agreement [Arkansas]-- Meditrust of
Benton, Inc. and Mediplex Management of Texas, Inc., dated June 23, 1994
10.60(6) Amendment and Restatement of Facility Lease Agreement [Holyoke]-- Meditrust of
Massachusetts, Inc. and Mediplex Rehabilitation of Massachusetts, Inc., dated
June 23, 1994
10.61(6) Amendment and Restatement of Facility Lease Agreement [Southern Connecticut],
dated June 23, 1994, between New England Finance Corporation and Mediplex of
Connecticut, Inc.
10.62(6) Amendment and Restatement of Facility Lease Agreement [Southbury], dated June 23,
1994, between New England Finance Corporation and Mediplex of Connecticut, Inc.
10.63(6) Facility Lease Agreement [Bowling Green], dated June 23, 1994, between Meditrust
of Kentucky, Inc. and Mediplex of Kentucky, Inc.
10.64(6) Facility Lease Agreement [Milford], dated June 23, 1994, between Meditrust of
Connecticut, Inc. and Mediplex of Connecticut, Inc.
10.65(6) Lease and Security Agreement by and between Nationwide Health Properties, Inc. and
Sunrise Healthcare Corporation, dated September 1, 1994
10.66(6) Lease Agreement by and between Sumner Hills L.L.C. and Sunrise Healthcare
Corporation, dated September 9, 1994
10.67(20) Lease Agreement for Wheeler Care Center, dated as of July 24, 1995, by and between
Wheeler Healthcare Associates, L.L.C., a Texas limited liability company
("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.68(20) Agreement with Respect to and Second Amendment of Lease Agreement, dated as of
September 1, 1995, by and between Massachusetts Nursing Homes Limited
Partnership ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.69(20) Third Amendment of Lease Agreement, dated as of September 1, 1995, by and between
Massachusetts Nursing Homes Limited Partnership ("Lessor") and Sunrise
Healthcare Corporation ("Lessee").
10.70(20) Lease Agreement for Clifton Care Center, dated as of September 13, 1995, between
Missouri Associates ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.71(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust
of Massachusetts, Inc. ("Lessor") and New Bedford Nursing Center, Inc.
("Lessee") (Guaranty of Sun attached as Exhibit).
10.72(20) Facility Sublease Agreement, dated as of September 30, 1995, by and between
Meditrust of New Jersey, Inc., as Sublessor, and West Jersey/ Mediplex
Rehabilitation Limited Partnership (Guaranty of Sun attached as Exhibit).
10.73(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust
of Massachusetts, Inc. ("Lessor") and Mediplex of Massachusetts, Inc. ("Lessee")
(Guaranty of Sun attached as Exhibit).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.74(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust
of Massachusetts, Inc. ("Lessor") and Sundance Rehabilitation Corporation
("Lessee") (Guaranty of Sun attached as Exhibit).
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10.75(20) Facility Lease Agreement, dated as of September 30, 1995, by and between Meditrust
of Massachusetts, Inc. ("Lessor") and Mediplex of Concord, Inc. ("Lessee")
(Guaranty of Sun attached as Exhibit).
10.76(20) Indemnity Agreement (New Bedford), dated as of September 30, 1995, by and among
New Bedford Nursing Center, Inc. ("Seller"), Sun and Meditrust of Massachusetts,
Inc. ("Buyer").
10.77(20) Indemnity Agreement (Marlton), dated as of September 30, 1995, by and among West
Jersey/Mediplex Rehabilitation Limited Partnership, as Assignor, Sun and
Meditrust of New Jersey, Inc., as Assignee.
10.78(20) Indemnity Agreement (Concord), dated as of September 30, 1995, by and among
Mediplex of Massachusetts, Inc. ("Seller"), and Meditrust of Massachusetts, Inc.
("Buyer").
10.79(20) Indemnity Agreement (Concord-1B), dated as of September 30, 1995, by and among
Sundance Rehabilitation Corporation ("Seller"), Sun and Meditrust of
Massachusetts, Inc. ("Buyer").
10.80(20) Indemnity Agreement (Concord-2A & 2B), dated as of September 30, 1995, by and
among Mediplex of Concord, Inc. ("Seller"), Sun and Meditrust of Massachusetts,
Inc. ("Buyer").
10.81(20) Indemnity Agreement (Oradell), dated as of September 30, 1995, by and among Bergen
Eldercare, Inc. ("Seller"), Sun and Meditrust of New Jersey, Inc. ("Buyer").
10.83(21) First Amendment to Lease Agreement for West Magic Care Center dated as of January
1, 1996, between Skyview Associates ("Lessor") and Sunrise Healthcare
Corporation ("Lessee")
10.84(21) Unconditional Guaranty of Lease dated as of January 1, 1996, between Sun
Healthcare Group, Inc. ("Guarantor") and Skyview Associates ("Lessor")
10.85* Lease Agreement for Heritage Heights dated as of March 1, 1996, by and between Tor
Associates ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
10.86* Unconditional Guaranty of Lease dated March 1, 1996, by and between Sun Healthcare
Group, Inc. ("Guarantor") and Tor Associates ("Lessor").
10.87(21) Omnibus Amendment to Facility Lease Agreements, dated as of March 28, 1996, by and
between certain subsidiaries of The Mediplex Group, Inc. and certain subsidiary
of Sun.
10.88(23) Second Amendment to Lease, dated as of June 1, 1996, by and between East Mesa
Associates Limited Partnership ("Lesser") and Sunrise Healthcare Corporation
("Lessee").
10.89(22) Lease Agreement dated July 1, 1996 between Oak/Jones, Inc. and Sunrise Healthcare
Corporation for Oaks Health & Rehabilitation Center.
10.90(22) Lease Agreement dated July 1, 1996 between Oak/Jones, Inc. and Sunrise Healthcare
Corporation for Jones Health & Rehabilitation Center.
10.91(23) First Amendment to Lease dated as of August 1, 1996, by and between Sumner Nursing
Home, L.L.C. ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.92(23) Sub-Sublease Agreement, dated as of August 22, 1996, by and between Yuba Nursing
Homes, Inc. ("Lessor") and Sunrise Healthcare Corporation ("Lessee").
<S> <C> <C>
10.93* Lease Agreement for Casa del Sol Nursing Home dated as of November 26, 1996, by
and between Raton Property Limited Company ("Lessor") and Sunrise Healthcare
Corporation ("Lessee").
10.94* Lease Agreement for Blue Mountain Convalescent Center dated as of November 30,
1996, by and between Washington Associates ("Lessor") and Sunrise Healthcare
Corporation ("Lessee").
10.95* Unconditional Guaranty of Lease dated as of November 30, 1996, by and between Sun
Healthcare Group, Inc. ("Guarantor"), and Washington Associates ("Lessor").
10.96* Lease Agreement for Magic Valley Manor dated as of November 30, 1996, by and
between Idaho Associates L.L.C. ("Lessor") and Sunrise Healthcare Corporation
("Lessee").
10.97* Lease Agreement for Payette Lakes Care Center dated as of November 30, 1996, by
and between Idaho Associates L.L.C. ("Lessor") and Sunrise Healthcare
Corporation ("Lessee").
10.98* Lease Agreement for Valley Rehabilitation and Living Center dated as of November
30, 1996, by and between Idaho Associates L.L.C. ("Lessor") and Sunrise
Healthcare Corporation ("Lessee").
10.99* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun
Healthcare Group, Inc. ("Guarantor") to Idaho Associates, L.L.C. ("Lessor")
relating to Magic Valley Manor.
10.100* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun
Healthcare Group, Inc. ("Guarantor") to Idaho Associates, L.L.C. ("Lessor")
relating to Payette Lakes Care Center.
10.101* Unconditional Guaranty of Lease dated as of November 30, 1996 given by Sun
Healthcare Group, Inc. ("Guarantor") to Idaho Associates, L.L.C. ("Lessor")
relating to Valley Rehabilitation and Living Center.
10.102(4) Form of Management Agreement between GF/Massachusetts, Inc. and Sunrise
10.103(6) Amendment and Restatement of Loan Agreement [Brookline] by and between Mediplex of
Massachusetts, Inc. and Meditrust Mortgage Investments, Inc., dated June 23,
1994
10.104(6) Amendment and Restatement of Loan Agreement [Columbus] by and between Mediplex
Rehabilitation of Massachusetts, Inc. and Meditrust Mortgage Investments, Inc.,
dated June 23, 1994
10.105(6) Loan Agreement [Denver] by and between Mediplex of Colorado, Inc. and Valley View
Psychiatric Services, Inc. and Meditrust Mortgage Investments, Inc., dated June
23, 1994
10.106(21) Omnibus Amendment to Loan Agreements, dated as of March 28, 1996, by and between
certain subsidiaries of The Mediplex Group, Inc. and certain subsidiaries of
Sun.
10.107(22) Fourth Amended and Restated Credit Agreement among Sun Healthcare Group, Inc., The
Mediplex Group, Inc., certain lenders, certain co-agents, and NationsBank of
Texas, N.A., as Administrative Lender, dated October 29, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- --------------
10.108* First Amendment to Fourth Amended and Restated Credit Agreement among Sun
Healthcare Group, Inc., The Mediplex Group, Inc., certain lenders, certain
co-agents, and NationsBank of Texas N.A., as Administrative Lender, dated
December 2, 1996.
<S> <C> <C>
10.109(14) First Amendment to Sun 1992 Director Stock Option Plan
10.110(1) Sun 1993 Combined Incentive and Nonqualified Stock Option Plan
10.111(1) Sun 1993 Directors Stock Option Plan
10.112(14) Amendments to Sun 1993 Combined Incentive and Nonqualified Stock Option Plan
10.113(21) Sun 1995 Non-Employee Directors' Stock Option Plan
10.114(21) Sun Employee Stock Purchase Plan
10.115(21) 1996 Combined Incentive and Nonqualified Stock Option Plan
10.116(1) Tax Indemnity Agreement between Sun, Sundance Rehabilitation Corporation, Turner
Enterprises, Inc. and Andrew L. Turner and Nora L. Turner
10.117(1) Form of Indemnity Agreement between Sun and each of Sun's Directors before July 3,
1996
10.118* Form of Indemnity Agreement between Sun and each of Sun's Directors from and after
July 3, 1996
10.119(1) Employment Agreement between Sun and Andrew L. Turner
10.120(1) Agreement as of May 5, 1993, between Sundance Rehabilitation Corporation and
Andrew L. Turner
10.121(4) Employment Agreement between Sun and John E. Bingaman
10.122(6) Termination of Employment Agreement and Consulting Agreement by and between Sun
Healthcare Group and John E. Bingaman
10.123* Severance Agreement between Sun and Andrew L. Turner dated January 1, 1997
10.124* Form of Severance Agreement entered into between Sun and Julie Collins, Susan
LaBelle, Robert Levin, Robert Murphy, Warren Schelling, Mark Wimer and Robert
Woltil
11.1* Computation of Earnings Per Share
21.1* Subsidiaries of the Registrant
23.1* Consent of Arthur Andersen LLP
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
(1) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-62670) on Form S-1.
(2) Incorporated by reference from exhibits to the Company's Form 8-K dated
January 27, 1994.
(3) Incorporated by reference from exhibits to the Company's Form 8-K dated
March 11, 1994.
(4) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(5) Incorporated by reference from exhibits to the Company's Form 10-Q/A-1 for
the quarter ended September 30, 1993.
(6) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1994.
(7) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77522) on Form S-1.
<PAGE>
(8) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77272) on Form S-4.
(9) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-77870) on Form S-1.
(10) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-82296) on Form S-1.
(11) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-85194) on Form S-1.
(12) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-90248) on Form S-1.
(13) Incorporated by reference from exhibits to the Company's Registration
Statement (No. 33-96240) on Form S-3.
(14) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(15) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended March 31, 1995.
(16) Incorporated by reference to the Company's Form 8-K filed April 12, 1995.
(17) Incorporated by reference from exhibits to the Company's Form 8-A filed
June 6, 1995.
(18) Incorporated by reference from exhibits to the Company's Form 8-A/A-1
filed August 17, 1995.
(19) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1995.
(20) Incorporated by reference from exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(21) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended March 31, 1996.
(22) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(23) Incorporated by reference from exhibits to the Company's Form 10-Q for the
quarter ended September 30, 1996.
(24) Incorporated by reference from exhibits to the Company's Form 8-K dated
February 17, 1997.
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of March 1, 1996, by and
between TOR ASSOCIATES, an Illinois limited partnership (hereinafter referred to
as "Lessor"), and SUNRISE HEALTHCARE CORPORATION, a New Mexico Corporation
("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee, as successor in interest to Turner
Enterprises, Inc, which in turn was the assignee of Beverly Enterprises-
Connecticut, Inc. are parties to that certain Lease Agreement dated March 1,
1986, as amended by Amendment to Lease Agreement (the "Lease Amendment")
dated November 1, 1990, and as further amended by that certain Lease
Amendment dated October 31, 1994 (collectively, the "Original Lease"), with
respect to that long-term care facility commonly known as Heritage Heights
located at 22 Hospital Avenue, Danbury, Connecticut and more particularly
described on EXHIBIT A attached hereto (the "Facility") (the Facility,
together with any improvements now or hereafter located thereon and all
easements, tenements, heridaments and appurtenances thereto are hereinafter
referred to as the "Demised Premises"); and
WHEREAS, the Original Lease provides that if Lessee does not exercise its
option to purchase the Demised Premises as provided for therein, Lessee shall be
obligated to enter into the New Lease with Lessor (as defined in the Original
Lease) at the expiration of the Original Term (as defined in the Original
Lease); and
WHEREAS, the Original Lease, upon execution of this Lease by the parties
hereto, will, subject to Section 34.21, automatically terminate and be of no
further force and effect; and
WHEREAS, Lessor desires to lease the Demised Premises and Personal Property
to the Lessee and the Lessee desires to lease the Demised Premises and Personal
Property (as hereinafter defined) from Lessor; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
<PAGE>
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and all
agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation,
those items set forth on Exhibit B attached hereto and made a part hereof),
other than such furniture, fixtures, equipment and supplies that persons
other than the Lessor may own or that the Lessee may lease from persons
other than the Lessor, or that the Lessee may place on the Demised Premises
other than as replacements for personal property unless such personal
property is required for the operation of the nursing home located on the
Demised Premises, in which case it shall be part of the Personal Property
and be owned by the Lessor.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing on
the Commencement Date as hereafter defined, and on each anniversary of the
Commencement Date thereafter, except that if the Commencement Date is other
than the first day of a calendar month, then the first Lease Year shall be
the period from the Commencement Date through the date twelve (12) months
after the last day of the calendar month in which the Commencement Date
occurs, and each subsequent Lease Year shall be the period of twelve (12)
months following the last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Lessee, its successors and assigns, to be paid, kept and performed, does
hereby lease unto Lessee the Demised Premises together with the Personal
Property to be used in and upon the Demised Premises for the Term hereinafter
specified, for use and operation therein and thereon of a skilled and/or
intermediate care nursing home, in full compliance with all the rules and
regulations and minimum standards applicable thereto, as
- 2 -
<PAGE>
prescribed by the State of Connecticut and such other governmental
authorities having jurisdiction thereof and having no less than one hundred
fifty (150) beds and for any other purpose authorized by Lessor in writing
and for no other purpose.
ARTICLE III - OF LEASE
3.1 The initial Term of this Lease shall be for a period of ten (10)
years commencing on March 1, 1996 (said date is hereafter referred to is the
"Commencement Date"), and expiring on February 28, 2006 unless sooner
terminated or extended as hereinafter provided (the "Initial Term").
3.2 Lessee shall have and is hereby granted the right and option to extend
the Initial Term of this Lease for a period of five (5) Lease Years (the
"Extended Term") upon and subject to all the terms, provisions and conditions
hereof, except that Rent, as hereinafter defined, payable with respect to each
Lease Year of the Extended Term shall be the amount set forth in SECTION 4.1.
The first Lease Year of the Extended Term shall commence upon the day next
following the expiration of the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised only
if Lessee is not in default under this Lease at the time of exercise and at the
time of expiration of the Initial Term and, further, only if there is not at
either time an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the date of
expiration of the Initial Term.
The Initial Term, as it may be extended by the Extended Term, is
hereinafter collectively known as the "Term".
As used in this Article III, the term default shall mean an "Event of
Default" as defined in Article XIX of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or as
Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to
be made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual rent of $450,000.00,
payable in equal monthly installments of $37,500.00;
- 3 -
<PAGE>
(ii) For the second Lease Year an annual rent of $463,500.00
payable in equal monthly installments of $38,625.00;
(iii) For the third Lease Year an annual rent of $477,405.00,
payable in equal monthly installments of $39,783.75;
(iv) For the fourth lease year an annual rent of $491,727.15,
payable in equal monthly installments of $40,977.26;
(v) For the fifth Lease Year an annual rent of $506,478.96,
payable in equal monthly installments of $42,206.58;
(vi) For the sixth Lease Year an annual rent of $521,673.33,
payable in equal monthly installments of $43,472.78;
(vii) For the seventh Lease Year an annual rent of
$537,323.53, payable in equal monthly installments of $44,776.96;
(viii) For the eighth Lease Year an annual rent of
$553,443.24, payable in equal monthly installments of $46,120.27;
(ix) For the ninth Lease Year an annual rent of $570,046.54,
payable in equal monthly installments of $47,503.88; and
(x) For the tenth Lease Year an annual rent of $587,147.93,
payable in equal monthly installments of $48,928.99.
If Lessee validly exercises the extension option set forth in SECTION
3.2 hereof, during the Extended Term, Lessee shall pay to Lessor, or as Lessor
shall direct, as fixed annual rental for the Demised Premises and Personal
Property over and above all other and additional payments to be made by Lessee
as provided in this Lease the following amounts:
(i) For the first Lease Year of the Extended Term, an annual
rent of $604,762.37 ($50,396.86 monthly);
(ii) For the second Lease Year of the Extended Term, an annual
rent of $622,905.24 ($51,908.77) monthly;
(iii) For the third Lease Year of the Extended Term, an
annual rent of $641,592.40 ($53,466.03 monthly);
- 4 -
<PAGE>
(iv) For the fourth Lease Year of the Extended Term, an annual
rent of $660,840.17 ($55,070.01 monthly); and
(iv) For the fifth Lease Year of the Extended Term, an annual
rent of $680,665.38 ($56,722.11 monthly).
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the rent for the
month and a pro rata portion of all tax, insurance and other deposits provided
for in this Lease. All fixed annual rental payments shall be made in equal
monthly installments and shall be paid in advance on the first (1st) day of each
month (Together with all tax and insurance deposits required in this Lease).
Unless otherwise notified in writing, all checks shall be made payable to Lessor
and shall be sent c/o Tor Associates, 2 North LaSalle Street, Suite 1901,
Chicago, IL 60602.
Fixed annual rent (as hereinafter defined) shall be referred to herein
as "rent".
4.2 This Lease is and shall be deemed and construed to be a "pure net" or
"triple-net" lease and the rent specified herein shall be net to the Lessor in
each year during the Term of this Lease. The Lessee shall pay all costs,
expenses and obligations of every kind whatsoever relating to the Demised
Premises which may arise or become due during the Term of this Lease, except for
any principal and interest payments and other costs owed by Lessor relating to
any Mortgage (defined below) (collectively, "Additional Rent"). Lessee does
hereby indemnify the Lessor against any and all such costs, expenses and
obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due
and payable as in this Lease provided, a late charge of 3% per month on the
sums so overdue shall become immediately due and payable to Lessor as
liquidated damages for Lessee's failure to make prompt payment and said late
charges shall be payable on the first day of the month next succeeding the
month during which such late charges become payable. If non-payment of any
late charges shall occur, Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law in
the case of non-payment of Rent. No failure by Lessor to insist upon the
strict performance by Lessee of Lessee's obligations to pay late charges
shall constitute a waiver by Lessor of its rights to enforce the provisions
of this Article in any instance thereafter occurring.
- 5 -
<PAGE>
ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
6.1 Lessee will pay or cause to be paid, as provided herein, as
additional rent, before any fine, penalty, interest or cost may be added
thereto for the non-payment thereof, all taxes, assessments, licenses and
permit fees, charges for public utilities, and all governmental charges,
general and special, ordinary and extraordinary, foreseen and unforeseen, of
any kind and nature whatsoever which during the Term of this Lease may have
been, or may be assessed, levied, confirmed, imposed upon or become due and
payable out of or in respect of, or become a lien on the Demised Premises
and/or Personal Property or any part thereof (hereinafter collectively
referred to as "Taxes and Assessments").
6.2 Lessee shall be solely responsible for any and all Taxes and
Assessments assessed or levied against the Demised Premises or the Personal
Property for the periods prior to the Commencement Date all in accordance with
the terms of the Original Lease. Any Taxes and Assessments relating to a fiscal
period of any authority, a part of which is included within the Term of this
Lease and a part of which is included in a period of time after the Term of this
Lease, shall be adjusted pro rata between Lessor and Lessee and each party shall
be responsible for its pro rata share of any such Taxes and Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, estate, succession or
inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being
forfeited or lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust, cash or other security satisfactory to Lessor in an amount
equal to not less than the amount of such Taxes and Assessments which
at such time shall be actually due and payable, and such additional
amounts reasonably required by Lessor and any Mortgagee (as
hereinbelow defined) of Lessor from time to time, together with all
interest and penalties in connection therewith and all charges that
may or might be assessed against or become a charge on the Demised
Premises or any part thereof in such proceedings.
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Unless Lessor agrees otherwise, the cash so deposited shall not bear
interest and the cash or securities so deposited shall be held by Lessor until
the Demised Premises or any part thereof shall have been released and discharged
and shall thereupon be returned to the Lessee, less the amount of any loss,
cost, damage and reasonable expense that Lessor or any Mortgagee has sustained
in connection with the Taxes and Assessments so contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay the
amount of such Taxes and Assessments or part thereof as finally determined in
such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith, and such payment, at
Lessee's request, shall be made by Lessor out of the amount deposited with
respect to such Taxes and Assessments as aforesaid. In the event such amount
is insufficient, then the balance due shall be paid by Lessee.
6.6 Lessor shall not be required to join in any proceedings referred to
in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in
the name of Lessor, in which event Lessor shall join in such proceedings or
permit the same to be brought in its name. Lessor shall not ultimately be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings, and Lessee will indemnify and save
harmless Lessor from any such costs and expenses. Lessee shall be entitled
to any refund of any Taxes and Assessments and penalties or interest thereon
received by Lessor but previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for
real estate or personal property taxes imposed upon the Demised Premises or
Personal Property or otherwise, then Lessee shall be responsible for the
payment of such tax.
ARTICLE VII - TAX AND INSURANCE DEPOSITS
7.1 Lessee shall be required to make deposits for annual real estate
taxes and, will make monthly deposits with Lessor, of an amount equal to one
twelfth (1/12) of the annual real estate taxes or such greater amount as may
be required by any mortgagee. Said deposits shall be due and payable on the
first day of each month as additional rent, shall not bear interest and shall
be held by Lessor and/or a mortgagee of the Lessor to pay the real estate
taxes as they become due and payable. If the total of the monthly payments
as made under this Article shall be insufficient to pay the real estate taxes
when due, then Lessee shall on demand pay Lessor the amount necessary to make
up the deficiency, and if appropriate, Lessee shall receive a credit against
the next monthly tax escrow payment coming due in an amount equal to said
deficiency payment.
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ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled
care and/or intermediate care nursing home and for no other purpose. Lessee
shall at all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of Connecticut and
any other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified
skilled and/or intermediate care nursing home facility with no less than one
hundred fifty (150) licensed beds.
8.2 Lessee will not suffer any act to be done or any condition to exist
on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable
any insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by
all governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than one hundred fifty (150) licensed beds with licenses,
certifications, and provider agreements in full force and good standing.
All the Demised Premises, with the improvements located thereon, and all the
Personal Property shall be surrendered in good order, condition and repair,
ordinary wear and tear excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of this
Lease, maintain property insurance provided by a Causes of Loss-Special Form
or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor. Such insurance shall, at all times,
be maintained in an amount equal to the full replacement cost of the Demised
Premises and the Personal Property or in such other amount as may be required
by Lessor and any Mortgagee of the Demised Premises but at all times, in an
amount sufficient to prevent Lessor and Lessee from becoming co-insurers
under applicable provisions of the insurance policies. As used herein, the
term "full replacement cost" shall mean coverage for the actual replacement
cost of the Demised Premises and the Personal Property requiring replacement
from time to time which, if not agreed upon by Lessor and Lessee, shall be
determined by an appraiser, engineer, architect or contractor reasonably
selected by Lessor. Such insurance shall at all times be payable to Lessor
and Lessee as their interests may appear, and shall contain a loss-payable
clause to the holder of any Mortgage to which this Lease shall be subject and
subordinate, as said Mortgagee's interest may appear. All such policies of
insurance shall provide that:
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(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of
Lessor or Lessee, which might otherwise result in forfeiture of insurance;
and
(b) A standard Mortgagee clause in favor of any Mortgagee, and shall
contain, if obtainable, a waiver of the insurer's right of subrogation
against funds paid under the standard Mortgagee endorsement which are to be
used to pay the cost of any repairing, rebuilding, restoring or replacing.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or
property damage occurring upon, in or about the Demised Premises. Such
insurance to have limits of not less than $1,000,000 each occurrence and
$3,000,000 general aggregate and an excess or umbrella liability policy of
not less than $5,000,000 each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee to
change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder.
9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten
(10) days after Lessor's request therefore, Lessee shall deliver to Lessor
copies of all insurance policies then being carried by Lessee pursuant to
this Article 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due during
the period of the business interruption at the Facility (the "Business
Interruption Period");
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(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
In lieu of the foregoing, Lessee may, at its option, obtain and
maintain a blanket insurance policy in an amount sufficient to provide the
coverage described in this Section 9.5.
All proceeds of any business interruption insurance shall be applied,
first, to the payment of any and all fixed rental payments for the Business
Interruption Period; second, to the payment of any Taxes and Assessments and
insurance deposits required to be deposited for the Business Interruption
Period; and, thereafter, after all necessary repairing, rebuilding, restoring or
replacing has been completed as required by the pertinent Articles of this Lease
and the pertinent sections of any mortgage, any remaining balance of such
proceeds shall be paid over to the Lessee.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed
to be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon shall immediately be
payable by Lessee to Lessor, with interest thereon at a rate which is the lesser
of fifteen percent (15%) per annum or the maximum rate permitted by law from
date thereof until paid, and in addition, Lessee shall reimburse Lessor for
Lessor's reasonable expenses in enforcing or performing such covenants,
including reasonable attorney's fees. Any such costs or expenses incurred or
payments made by the Lessor shall be deemed to be Additional Rent payable by
Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment shall
in no way constitute a waiver of, or a limitation upon, Lessor's other rights
hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of this
Lease but only to the extent such Mortgagee is entitled under the terms of its
Mortgage.
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ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the
Demised Premises (including the grounds, sidewalks and curbs abutting the
same) and the Personal Property in good order and condition without waste and
in suitable state of repair at least comparable to that which existed
immediately prior to the Commencement Date (ordinary wear and tear excepted,
subject to Lessee's obligation to repair and replace the same in accordance
with the terms of this Lease), and will make or cause to be made, as and when
the same shall become necessary, all structural and nonstructural, exterior
and interior, replacing, repairing and restoring necessary to that end. All
replacing, repairing and restoring required of Lessee shall be (in the
reasonable opinion of Lessor) of quality at least equal to the original work
and shall be in compliance with all standards and requirements of law,
licenses and municipal ordinances necessary to operate the Demised Premises
as a Medicare and Medicaid certified skilled and/or intermediate care nursing
home having no less than one hundred fifty (150) licensed beds.
11.2 Any items of Personal Property that are uneconomical to repair shall
be replaced by new items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be
removed from the Demised Premises except in connection with repair or
replacement of such items. Lessee may place additional property on the
Demised Premises (not required for the replacement of the Personal Property)
and such additional property shall be and remain the property of Lessee.
Lessee shall remove such additional property upon termination or expiration
of this Lease provided that Lessee shall make such necessary repairs or
replacements as may be required in order to return the Demised Premises to
the condition which existed prior to the removal of the additional property.
11.3 Provided that Lessee is not in default under the Lease, Lessee shall
have the right, at any time and from time to time, to remove and dispose of
any Personal Property which may have become obsolete or unfit for use, or
which is no longer useful in the operation of the Demised Premises, provided
Lessee promptly replaces any such Personal Property so removed or disposed of
with other personal property free of any security interest, lien or
encumbrance. Said personal property shall be of the same character and shall
be at least equal in usefulness and quality as any such Personal Property so
removed or disposed of, and such replacement property shall automatically
become the property of and shall belong to the Lessor, and Lessee shall
execute such bills of sale or other documents reasonably requested by Lessor
to vest the ownership of such personal property in Lessor. Notwithstanding
the foregoing, Lessee shall have the right to place leased Personal Property
on the Demised Premises provided that the payments due under such leases do
not exceed $4,000 per year. In the event Lessee desires to place leased
personal property on the Demised Premises having annual payments in excess of
the amount provided for herein, Lessee shall advise Lessor in writing and
Lessor shall use its reasonable best efforts to seek the approval of the
Facility Mortgagee or an amendment of the Facility Mortgage with respect
thereto.
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ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by
fire or other casualty (any such event being called a "Casualty"), Lessee
shall promptly replace, repair and restore the same as nearly as possible to
its condition immediately prior to such Casualty, in accordance with all of
the terms, covenants and conditions and other requirements of this Lease and
any applicable mortgage; provided, however, that in the event of a Casualty
occurring during the last six (6) months of the Initial Term or the last six
(6) months of any Extended Term or a Casualty resulting from an earthquake,
flood, nuclear accident or war which is not covered by insurance maintained
by Lessee and which renders the Demised Premises unsuitable for use as a
nursing home, in the reasonable opinion of Lessor and Lessee, then Lessee
shall have the right to terminate this Lease upon forty-five (45) days
written notice to Lessor. If applicable, the Demised Premises and the
Personal Property shall be so replaced, repaired and restored as to be of at
least equal value and substantially the same character as prior to such
Casualty. If the estimated cost of any such restoring, replacing or
repairing is Fifty Thousand Dollars and no/100 ($50,000.00) or more, the
plans and specifications for same shall be first submitted to and approved in
writing by Lessor, which approval shall not be unreasonably withheld, and, if
reasonably required by Lessor, Lessee shall immediately select an independent
architect, approved by Lessor who shall be in charge of such repairing,
restoring or replacing. Lessee covenants that it will give to Lessor prompt
written notice of any Casualty affecting the Demised Premises or the personal
property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30) days
after approval of the plans and specifications whichever is later, Lessee
shall commence to restore the Demised Premises and Lessee shall complete the
same within 180 days thereafter, provided, however, that in the case of
damage or destruction which cannot with due diligence be repaired within said
180 day period, Lessee shall have an additional period of time, not to exceed
180 additional days, to complete the reconstruction, provided Lessee is
proceeding promptly and with due diligence to complete the restoration.
Lessee may utilize all insurance proceeds available for any such repair or
restoration, subject to the terms of Section 11A.3 hereof and any required
approval of any Facility Mortgagee. Lessee's obligation to make rent
payments and to pay all other charges required by this Lease shall not be
abated during the period of the repair or restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received
from such insurance proceeds is sufficient to complete such work or (ii) if
there is an amount required in excess of the amount received from such
insurance proceeds, either said excess amount has been expended by Lessee or
that Lessee has deposited such excess funds with Lessor or has satisfied
Lessor that it has such funds available to it so that, in either case, the
total amount available will be sufficient to complete such repairing,
rebuilding, restoring or replacing in accordance with the provisions of any
Mortgage and any plans and specifications submitted in connection therewith,
free from any liens or encumbrances of any kind whatsoever and the funds
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held by Lessor shall be disbursed only upon the presentment of architect's or
general contractor's certificates, waivers of lien, contractor's sworn
statements, and other evidence of cost and payments as may be reasonably
required by Lessor or any Facility Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part of the Demised Premises or any portion thereof or allow it to
be removed or demolished, without the prior written consent of the Lessor,
which consent shall not be unreasonably withheld. Lessee further agrees that
it will not make, authorize or permit to be made any changes or alterations
in or to the Demised Premises without first obtaining Lessor's written
consent thereto, which consent shall not be unreasonably withheld. All
alterations, improvements and additions to the Demised Premises shall be in
quality and class at least equal to the original work and shall become the
property of the Lessor and shall meet all building and fire codes, and all
other applicable codes, rules, regulations, laws and ordinances. Nothing
herein shall be deemed or construed to require Lessee to obtain Lessor's
consent to non-structural changes or alterations such as painting, the
replacement of wallcoverings or the replacement of floor coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than one
hundred fifty (150) licensed beds, which may be applicable to the Personal
Property and the Demised Premises and including, but not limited to, the
sidewalks, alleyways, passageways, vacant land, parking spaces, curb cuts, curbs
adjoining the Demised Premises, which are under Lessee's control, whether or not
such law, ordinance, order, rules, regulation or requirement shall necessitate
structural changes or improvements.
13.2 Lessee shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a Medicare and
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Medicaid certified skilled and/or intermediate care nursing home having no
less than one hundred fifty (150) licensed beds, and the Demised Premises
shall be qualified to participate in the Medicare and Medicaid reimbursement
programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and surveys, administrative proceedings and/or court actions
from all state, federal and local governmental bodies regarding the Demised
Premises or the nursing home operated thereon. Lessee shall notify Lessor
within twenty-four (24) hours after receipt thereof of any notice from any
governmental agency terminating or suspending or threatening termination or
suspension of any license, permit, provider agreement or certification relating
to the Demised Premises or the nursing home operated thereon.
13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
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14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property, Lessee shall have the right to contest such lien or
charge, provided, Lessee within thirty (30) days after notice of the filing
thereof, will cause the same to be discharged of record or in lieu thereof to
secure Lessor against said lien by deposit with Lessor of such security as
may be reasonably demanded by Lessor to protect against such lien. If Lessee
shall fail to cause such lien to be discharged within the period aforesaid,
or to otherwise secure Lessor as aforesaid, then in addition to any other
right or remedy, Lessor may, upon ten (10) days notice, but shall not be
obligated to, discharge the same either by paying the amount claimed to be
due or by processing the discharge of such lien by deposit or by bonding
proceedings. Any amount so paid by Lessor and all costs and expenses
incurred by Lessor in connection therewith, together with interest thereon at
a rate which is the lesser of fifteen percent (15%) per annum or the maximum
rate permitted by law, shall constitute Additional Rent payable by Lessee
under this Lease and shall be paid by Lessee to Lessor on demand. Except as
herein provided, nothing contained herein shall in any way empower Lessee to
do or suffer any act which can, may or shall cloud or encumber Lessor's or
any Facility Mortgagee's interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience
to the Lessee and to the residents of the Facility as may reasonably be
possible under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to enter and inspect the Demised Premises to
the extent such Mortgagee is entitled to do so under the terms of its Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
use by act of any public authorities, then this Lease shall terminate as of the
date possession is taken by the condemnor. If all or substantially all of the
Demised Premises shall be taken, the net proceeds of any condemnation award,
settlement or compromise for the Demised Premises taken shall belong to Lessor;
provided, however, Lessee shall
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have the right to pursue a separate award for the value of Lessee's interest
in the Demised Premises as long as such separate award does not diminish the
award, settlement or compromise paid to Lessor; and provided, further, that
Lessee shall be solely entitled to any amount awarded for the value of
Lessee's property located on the Demised Premises in accordance with Section
11.1. For the purposes of this paragraph "substantially all of the Demised
Premises leased hereunder" shall be deemed to have been taken if upon the
taking of less than the whole of the Demised Premises that portion of the
Demised Premises not so taken shall not by itself be adequate for the conduct
therein of Lessee's business, in the reasonable judgment of Lessor and
Lessee, subject further to the rights of Lessor's Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to 75 or less,
Lessee shall have the right to terminate this Lease by written notice to Lessor
within thirty (30) days following the issuance of the condemnation order or
conveyance of the property, whichever is earlier. If Lessee does not elect to
terminate this Lease, Lessor shall hold in trust that portion, if any, of such
award, settlement or compromise which shall be allocable to consequential damage
to buildings and improvements not taken, and Lessor shall pay out such portion
to Lessee to reimburse Lessee for the cost of restoring the Demised Premises as
a complete structural unit, as such restoration work progresses in accordance
with the procedure for making insurance proceeds available for restoration,
repair or rebuilding as set forth in Article XIA hereof. In the event of a
partial condemnation which does not result in a termination of this Lease, the
annual rent rate payable under paragraph 4.1 hereof shall be reduced to such
amount as Lessor and Lessee agree is fair and equitable taking into
consideration the number of operational beds remaining after such taking as
compared to the number of operational beds on the Commencement Date.
ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised Premises and has found the same satisfactory. Lessee acknowledges
that the Personal Property and the Demised Premises are the property of Lessor
and that Lessee has the leasehold rights as set forth in the terms and
conditions of this Lease.
As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the
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nature, in all respects, of the Demised Premises, including (but not by
way of limitation); the soil and geology thereof, the waters thereof and
thereunder; the drainage thereof; the manner of construction and the
condition and state of repair and lack of repair of all improvements of
every nature; the nature, provisions and effect of all health, fire,
zoning, building, subdivision and all other use and occupancy laws,
ordinances, and regulations applicable thereto; and the nature and extent
of the rights of others with respect thereto, whether by way of
reversion, easement, right of way, prescription, adverse possession,
profit, servitude, lease, tenancy, lien, encumbrance, license, contract,
reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has
no duty to be informed with respect to, any of the matters set forth in
the preceding sentence. Lessee hereby accepts the Demised Premises as
suitable and adequate in all respects for the conduct of the business and
the uses of the Demised Premises contemplated under the provisions of the
Lease. Notwithstanding the foregoing, Lessor represents that it has no
actual knowledge of anything related to the foregoing which would cause
the Demised Premises to be materially inadequate for its permitted use
hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to
Lessor's title as it was acquired from its seller, including all rights,
rights of way, easements, profits, servitudes, reservations, restrictions,
conditions, exceptions, reversions, possibilities of reverter, liens,
encumbrances, occupancies, tenancies, licenses, clouds, claims and defects,
known and unknown and whether of record or not. In the event of any defect
in Lessor's title to the Demised Premises which shall require that Lessee
vacate the Demised Premises, then in such event this Lease shall be
terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including
(but not limited to) the requirements of any inspection or examination by
Lessee of the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any part thereof or the
taking of the Demised Premises or any part thereof by condemnation, requisition
or otherwise for any reason; (ii) any restriction or prevention of or
interference with any use of the Demised Premises or any part thereof including
any restriction or interference with or circumstance which prevents the use of
the Demised Premises as contemplated by Paragraph 8.1; (iii) any frustration of
Lessee's purposes hereunder, for any claim which Lessee has or might have
against Lessor; or (iv) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing. However, nothing shall preclude Lessee from
bringing a separate action and Lessee is not waiving other rights and remedies
not waived herein.
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ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease or
in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest
in the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee, other than to Andrew
L. Turner or an entity controlled by Andrew L. Turner or a wholly owned
subsidiary of Lessee or of Lessee's parent corporation Sun Healthcare Group,
Inc. without the prior written consent of the Lessor, which consent shall not
be unreasonably withheld. Any violation or breach or attempted violation or
breach of the provisions of this Article by Lessee, or any acts inconsistent
herewith shall vest no right, title or interest herein or hereunder or in the
Demised Premises, in any such transferee or assignee; and Lessor may, at its
exclusive option, terminate this Lease and invoke the provisions of this
Lease relating to default. Lessor acknowledges and agrees that the sale of
equity or debt securities in Lessee or Lessee's parent corporation shall in
no event constitute an assignment or transfer of this Lease or of an interest
hereunder provided Lessee remains a wholly owed subsidiary of Sun Healthcare
Group, Inc.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the
Lessor under the provisions of this Lease, when such failure shall
continue for a period of ten (10) days;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of
this Lease (other than as set forth in Sections 19.1(3) and 19.1(4),
if such failure or violation shall not be cured within thirty (30)
days after notice thereof by Lessor to Lessee, subject, however, to
the provisions of Section 19.2 hereof;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the
Demised Premises of fifty percent (50%) or more of the patients
located in the nursing home;
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(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage
relating to the Demised Premises of which Lessee has been made aware
and with which Lessee has agreed to comply if such failure or
violation shall not be cured within twenty (20) days (or such lesser
period as may be provided in the mortgage) after notice thereof by
Lessor to Lessee, subject, however, to the provisions of Section 19.2
hereof;
(5) The voluntary transfer by Lessee of 10 or more patients
located in the Demised Premises if such transfer is not for reasons
relating to the health and well being of the patients that were
transferred or such other reasons as may be permitted by state or
federal law, such as nonpayment of stay or the welfare of other
residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the
Personal Property previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against the property of Lessee which is not discharged or stayed by
action of Lessee contesting same, within ninety (90) days after such
levy or attachment (provided if the stay is vacated or ended, this
paragraph shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary
dissolution of the Lessee or for its adjudication as a bankrupt or
insolvent, or for the appointment of a receiver of the property of
Lessee, and said proceedings are not dismissed and any receiver,
trustee or liquidator appointed therein is not discharged within
ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or
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demand from any governmental authority, or any officer acting on
behalf thereof, of any violation of any law, order, ordinance, rule
or regulation with respect to the operation of the nursing home
located on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental
authority, or any officer acting on behalf thereof, of any law, order,
ordinance, rule or regulation pertaining to the operation of the
nursing home located on Demised Premises, and within ten (10) days
prior to the expiration of any time permitted by such authority for
such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to
Lessee for the operation of a skilled and/or intermediate care nursing
home within the Demised Premises, having no less than one hundred
fifty (150) licensed beds, or (ii) decertify the nursing home operated
in the Demised Premises from participation in the Medicaid
reimbursement program, which is not either appealed by Lessee and
stayed while Lessee's appeal thereof is pending, or revoked or
rescinded by the applicable governmental authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof; and
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease Guaranty
or the untruth of any representations or warranties made therein.
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have
given to Lessee a written notice specifying a situation which, as
hereinbefore provided, must be remedied by Lessee within a certain time
period, and, if for causes beyond Lessee's control, it would not reasonably
be possible for Lessee to remedy such situation within such period, then,
provided Lessee immediately upon receipt of such notice shall advise Lessor
in writing of Lessee's intention to institute, and shall, as soon as
reasonably possible thereafter, duly institute, and thereafter diligently
prosecute to completion, all steps necessary to remedy such situation and
shall remedy the same, and provided that any license or certification
necessary for the operation of the Demised Premises, as a nursing facility is
not affected thereby, this Lease and the Term and estate hereby granted shall
not expire and terminate at the expiration of such time period as otherwise
hereinbefore provided, except that in no event shall Lessee have more than
sixty (60) additional days to remedy any such situation in the manner set
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forth herein, or such longer period of time granted by any governmental
agency having jurisdiction over the Facility.
ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee, Lessor
may, if it so elects, upon ten (10) days prior written notice to Lessee of
such election, and with or without any demand whatsoever upon Lessee,
forthwith terminate this Lease and Lessee's right to possession of the
Demised Premises, or, at the option of the Lessor, terminate Lessee's right
to possession of the Demised Premises without terminating this Lease. Upon
any such termination of this Lease, or upon any such termination of Lessee's
right to possession without termination of this Lease, Lessee shall vacate
the Demised Premises immediately, and shall quietly and peaceably deliver
possession thereof to the Lessor, and Lessee hereby grants to the Lessor full
and free license to enter into and upon the Demised Premises in such event
with or without process of law and to repossess the Demised Premises and
Personal Property as the Lessor's former estate. In the event of any such
termination of this Lease, the Lessor shall again have possession and
enjoyment of the Demised Premises and Personal Property to the extent as if
this Lease had not been made, and thereupon this Lease and everything herein
contained on the part of Lessee to be done and performed shall cease and
terminate, all, however, without prejudice to and without relinquishing the
rights of the Lessor to Rent (which, upon such termination of this Lease and
entry of Lessor upon the Demised Premises, shall, in any event, be the right
to receive Rent due up to the time of such entry) or any other right given to
the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to terminate this Lease or to terminate Lessee's right to possession of the
Demised Premises, then all licenses, certifications, permits and
authorizations issued by any governmental agency, body or authority in
connection with or relating to the Demised Premises and the nursing home
operated thereon shall be deemed to be assigned to Lessor, to the extent
permitted by law. Lessor shall also have the right to continue to utilize
the telephone number and name (other than the name "Sunrise Healthcare") used
by Lessee in connection with the operation of the nursing home located on the
Demised Premises. This Lease shall be deemed and construed as an assignment
for purposes of vesting in Lessor, all right, title and interest in and to:
(i) all licenses, certifications, permits and authorizations obtained in
connection with the operation of the nursing home located on the Demised
Premises; and (ii) the name and telephone number used in connection with the
operation of the nursing home located on the Demised Premises. Lessee
hereby agrees to take such other action and execute such other documents as
may be necessary in order to vest in Lessor all right, title and interest to
the items specified herein, to the extent permitted by law.
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21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so to elect, and the Lessor elects to terminate Lessee's right to
possession only, without terminating this Lease, Lessor may, at its option,
enter into the Demised Premises, remove Lessee's signs and other evidences of
tenancy and take and hold possession thereof as in the foregoing paragraph
21.2 of this Article provided, without such entry and possession terminating
this Lease or releasing Lessee, in whole or in part, from Lessee's obligation
to pay the Rent hereunder for the full remaining Term of this Lease, and in
any such case, Lessee shall pay to Lessor a sum equal to the entire amount of
the Rent reserved hereunder and required to be paid by Lessee up to the time
of such termination of the right of possession plus any other sums then due
hereunder. Upon and after entry into possession without termination of this
Lease, Lessor may attempt to relet the Demised Premises or any part thereof
for the account of Lessee for such rent, or shall operate the nursing home
located on the Demised Premises for such time and upon such terms as Lessor
in its sole discretion shall determine. In any such case, Lessor may make
repairs, alterations and additions in or to the Demised Premises, and
redecorate the same to the extent deemed desirable by Lessor, and Lessee
shall, upon demand, pay the reasonable cost thereof, together with Lessor's
reasonable expenses of reletting. If the consideration collected by Lessor
upon any such reletting is not sufficient to pay monthly the full amount of
rent reserved in this Lease, together with the reasonable costs of repairs,
alterations, additions, redecorating and Lessor's expenses, Lessee shall pay
to the Lessor the amount of each monthly deficiency upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment of
rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to
possession only, as hereinabove provided. Upon such termination of the Lease
or at any time after such termination of Lessee's right to possession, Lessor
may recover from Lessee and Lessee shall pay to Lessor as damages, whether or
not Lessor shall have collected any current monthly deficiencies under the
foregoing paragraph, and in lieu of such current deficiencies after the date
of demand for such damages, the amount thereof found to be due by a court of
competent jurisdiction, which amount thus found may be equal to:
(a) the remainder, if any, of rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the rent reserved for what would have been the remainder of the
Term of this Lease together with charges to be paid by Lessee under
the Lease; over
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(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal
Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any partners, officers, directors, managers, members, directors, agents or
employees of Lessor be liable under any express or implied covenant, agreement
or provisions of this Lease, for any damages whatsoever to Lessee beyond
Lessor's interest in the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures, accounts receivable or other property of any kind belonging
to Lessee and located at or related to the Demised Premises. Such lien is
granted for the purpose of securing the payments of rents, charges, penalties,
and damages herein covenanted to be paid by Lessee, and for the purpose of
securing the performance of all of Lessee's obligations under this Lease. Such
lien shall be in addition to all rights to Lessor given and provided by law but
shall only be exercised by Lessor after the occurrence of an Event of Default
which is not cured within any applicable cure period. This Lease shall
constitute a security agreement under the Uniform Commercial Code granting
Lessor a security interest in any furnishings, equipment, fixtures, accounts
receivable or other personal property of any kind
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belonging to Lessee and located at or related to the Demised Premises. If
required by Lessor, Lessee shall execute financing statements for filing
under the Uniform Commercial Code reflecting the security interest granted
under this section. Upon Lessee's written request, Lessor shall
subordinate its lien under this Section 24.1, solely as to accounts
receivable, to a lien granted by Lessee to a third party lender securing a
loan made by such lender to Lessee to provide working capital for the
operation of the Leased Property as a nursing home in accordance with this
Lease.
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee. agrees
to protect, indemnify, defend and save harmless the Lessor from and against
any and all claims, demands and causes of action of any nature whatsoever for
injury to or death of persons or loss of or damage to property, occurring
during the Term on the Demised Premises or, to the extent the same are under
Lessee's control, any adjoining sidewalks, streets or ways, or in any manner
growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future
sewer system, or the use of any adjoining sidewalks, streets or ways which
are under Lessee's control during the Term of this Lease, and Lessee further
agrees to pay any reasonable attorneys' fees and expenses incident to the
defense by Lessor of any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages
or deeds of trust now or hereafter in force and affecting the Demised
Premises (or any portion thereof) and/or the Personal Property, and to all
renewals, modifications, consolidations, replacements and extensions thereof
(any such Mortgage or deed of trust, as it may be renewed, modified,
consolidated, replaced or extended is hereinafter referred to as a
"Mortgage", and the holder or beneficiary of a Mortgage is hereinafter
referred to as a "Mortgagee". Lessee agrees to execute, acknowledge and
deliver upon demand such further instruments subordinating this Lease to any
such Mortgage, or other liens or encumbrances as shall be desired by Lessor;
provided, that Lessor shall use all due diligence to deliver to Lessee a
nondisturbance agreement from any such Mortgagee, in form reasonably
satisfactory to such Mortgagee. Lessee further agrees that promptly after
receipt of a request from any Mortgagee made at any time prior to foreclosure
of its Mortgage, Lessee shall execute, acknowledge and deliver to such
Mortgagee any instrument as such Mortgagee may reasonably request whereby
Lessee agrees to subordinate and attorn to such Mortgagee, at such
Mortgagee's election, after the foreclosure of its Mortgage or its acceptance
of a deed in lieu of foreclosure. Lessee agrees further that any Mortgagee
shall have the right to subordinate its Mortgage and its rights thereunder to
this Lease,
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except that such Mortgagee shall be entitled to expressly exclude
from such subordination the Mortgagee's rights, if any, to insurance proceeds
and eminent domain awards in the event of a loss or casualty or eminent
domain taking of the Demised Premises or any portion thereof. If such
Mortgagee executes and records an instrument which purports to effect a
partial or complete subordination of its Mortgage to this Lease, any rights
of such Mortgagee to insurance proceeds or eminent domain awards which are
expressly excluded from such subordination shall remain superior to the
rights of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Anything in this Lease contained to the contrary notwithstanding,
Lessee shall at all times and in all respects fully, timely and faithfully
comply with and observe each and all of the conditions, covenants, and
provisions required on the part of the Lessor and of which Lessee has
received notice under any Mortgage (and to any renewals, modifications,
extensions, replacements and/or consolidations thereof) to which this Lease
is subordinate or to which it later may become subordinate, including,
without limitation, such conditions, covenants and provisions thereof as
relate to the care, maintenance, repair, insurance, restoration, preservation
and condemnation of the Demised Premises, notwithstanding that such
conditions, covenants and provisions may require compliance and observance to
a standard or degree in excess of that required by the provisions of this
Lease, or may require performance not required by the provisions of this
Lease, and shall not do or permit to be done anything which would constitute
a breach of or default under any obligation of the Lessor under any such
mortgage, it being the intention hereof that Lessee shall so comply with and
observe each and all of such covenants, conditions and provisions of any such
Mortgage affecting the Demised Premises so that it will at all times be in
good standing and there will not be any default on the part of the Lessor
thereunder. However, nothing in this Article contained shall be construed to
obligate Lessee to pay any part of the principal or interest secured by any
Mortgage or to perform any obligation imposed on Lessor thereunder which is
not delegable by Lessor by the terms thereof. Lessee further covenants and
agrees that Lessee shall give any Mortgagee notice of any Lessor default
under this Lease, and if Lessor fails to cure such default, such Mortgagee
shall have an additional reasonable time to cure any such default on Lessor's
behalf.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease, and not
otherwise paid by Lessee to Lessor pursuant to Section 7.1, shall be paid by the
Lessee or as directed by Lessor.
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ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
law now or hereafter in effect which may terminate this Lease or give or purport
to give Lessee any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any such proceedings are brought
against the Lessor under such Mortgage or the holder of any such Mortgage, and
agrees that this Lease shall not be affected in any way whatsoever by any such
proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico, and is authorized to transact business in
the State of Connecticut; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite
corporate action to authorize the execution, delivery and performance of
this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
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(a) Lessor is a limited partnership duly organized and validly
existing under the laws of the State of Illinois; and
(b) Subject to the conditions set forth in Section 34.1, Lessor has
full power and authority to enter into this Lease and to carry out the
transactions contemplated herein.
ARTICLE XXXI - SECURITY DEPOSIT
31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of
this Lease pay to Lessor, as a security deposit the sum of Ninety Five
Thousand and 00/100 Dollars ($95,000.00), payable on the first day of the
Term. Said security deposit may be applied by Lessor for the purpose of
curing any default or defaults of Lessee hereunder, in which event Lessee
shall replenish said deposit in full by promptly paying to Lessor the amount
so applied. Lessor shall not pay any interest on said deposit, except as
required by law. If Lessee has not defaulted hereunder and Lessor has not
applied said deposit to cure a default, then said deposit, or such applicable
portion thereof, shall be paid to Lessee within thirty (30) days after the
termination of this Lease. Said deposit shall not be deemed an advance
payment of Rent or a measure of Lessor's damages for any default hereunder by
Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the
operations of the Demised Premises and nursing home operated thereon for such
annual fiscal period which shall be prepared by or on behalf of Lessee, and
which shall contain a balance sheet and detailed income and expense statement
(collectively called "Financial Statements"), and copies of all Medicaid and
Medicare cost reports as filed with the governmental authority, as of the end
of the fiscal year. In addition, Lessee shall furnish Lessor, within 10 days
following filing, a copy of its or its parent corporation's federal income
tax return if it does not file separate returns for the preceding year. Each
such statement shall be certified as being true and correct by an officer of
Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request
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by Lessor, Lessee shall make available for inspection by Lessor or its
designee, during reasonable business hours, the said records and books of
account covering the entire business operations of Lessee on the Demised
Premises.
ARTICLE XXXIII -
TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty
within sixty (60) or fewer days' notice or which Lessor requests be
assigned to Lessor or its designee pursuant to this Article 33;
(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for
periods on or prior to the Closing Date) entered in connection with the
Demised Premises to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises,
running to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical
records as provided by law and confidentiality requirements), books,
records, files and other business records attributable to the business or
operations of the Demised Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of
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the Demised Premises, to the extent assignable by Lessee (excluding the
right to any payments for periods prior to the Closing Date) any and all
patient trust fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the
Demised Premises as a long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name
of the business conducted thereon and all telephone numbers presently in
use therein but specifically excluding the name "Sunrise Healthcare" or any
Sunrise policy or procedure manuals, forms or systems.
33.2 Lessee shall be responsible for, and pay all accrued expenses with
respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the
Demised Premises for the period through 12:00 a.m. on the Closing Date.
Lessor shall be responsible for and pay all accrued expenses with respect to
the Demised Premises accruing on or after 12:01 a.m. on the day after the
Closing Date and shall be entitled to receive and retain all revenues from
the Demised Premises accruing on or after the Closing Date. Within fifteen
(15) business days after the Closing Date, the following adjustments and
prorations shall be determined as of the Closing Date and the party to whom
payment is owed shall receive said payment within said fifteen (15) day
period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in
which the Closing Date occurs, the proration of such taxes shall be
estimated at the Closing Date based upon reasonable information available
to the parties, including information disclosed by the local tax office or
other public information, and an adjustment shall be made when actual
figures are published or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date. The obligation for wages and the obligation, if any, to pay
to employees of the Demised Premises accrued vacation and sick leave pay or
employee severance pay or other accrued benefits which may be payable as
the result of any termination of any employee on or prior to the Closing
Date for the period prior to the Closing Date shall remain the Lessee's
obligation after the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received
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by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of
insurance premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and deposits, maintenance charges and service
charges shall be prorated between Lessee and Lessor as of the Closing Date.
Lessee shall, if possible, obtain final utility meter readings as of the
Closing Date. To the extent that information for any such proration is not
available on the Closing Date, Lessee and Lessor shall effect such
proration within ninety (90) days after the Closing Date or as soon
thereafter as such information becomes available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance
premiums; and (ii) any other sums being held by Lessor for the benefit of
Lessee provided that any such sums are not needed to pay costs and expenses
which relate to the period prior to the Closing Date, in accordance with
the applicable provisions of this Lease.
(g) Subject to the terms of Article XXXI hereof, Lessee shall receive
a credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation. Such transfer and delivery shall be in accordance
with all applicable laws, rules and regulations concerning the transfer of
medical records and other types of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with
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an accounting of all funds belonging to patients at the Demised Premises which
are held by Lessee in a custodial capacity. Such accounting shall set forth the
names of the patients for whom such funds are held, the amounts held on behalf
of each such patient and the Lessee's warranty that, to the actual current
knowledge of Lessee, the accounting is true, correct and complete. Additionally,
Lessee, in accordance with all applicable rules and regulations, shall make all
necessary arrangements to transfer such funds to a bank account designated by
Lessor, and Lessor shall in writing acknowledge receipt of and expressly assume
all the Lessee's financial and custodial obligations with respect thereto.
Notwithstanding the foregoing, Lessee will indemnify and hold Lessor harmless
from all liabilities, claims and demands, including reasonable attorney's fees,
in the event the amount of funds, if any, transferred to Lessor's bank account
as provided above, did not represent the full amount of the funds then or
thereafter shown to have been delivered to Lessee as custodian that remain
undisbursed for the benefit of the patient for whom such funds were deposited,
or with respect to any matters relating to patient funds which accrue during the
Term of this Lease.
33.5 For the period commencing on the Closing Date and ending on the date
Lessor or its designee obtains all appropriate state or other governmental
licenses and certifications required to operate the Demised Premises as a
Medicare and Medicaid certified nursing home, Lessee shall enter into a
management agreement with Lessor or Lessor's designee whereby Lessor or its
designee shall have the right to operate the Demised Premises, on a triple net
basis, and shall be entitled to all revenues of the Demised Premises during such
period, and to use any and all licenses, certifications and provider agreements
issued to Lessee by any federal, state or other governmental authority for such
operation of the Demised Premises, if permitted by such governmental
authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other
receivables of Lessee, whether derived from operation of the Demised Premises
or otherwise, shall remain the property of Lessee after the Closing Date.
Lessee shall retain full responsibility for the collection thereof. Lessor
shall assume responsibility for the billing and collection of payment on
account of services rendered by it on and after the Closing Date. In order to
facilitate Lessee's collection efforts, Lessee agrees to deliver to Lessor,
within a reasonable time after the Closing Date, a schedule identifying all
of those private pay balances owing for the month prior to the Closing Date
and Lessor agrees to apply any payments received which are specifically
designated as being applicable to services rendered prior to the Closing Date
to reduce the pre-Closing balances of said patients by promptly remitting
said payments to Lessee. In the event payments specifically indicate that
they relate to services rendered post-Closing, such payments shall be
retained by Lessor. In the event no designation is made, such payments shall
be applied one-half to Lessee's accounts receivable and one-half to Lessor's
accounts receivable. Lessor shall cooperate with Lessee in Lessee's
collection of its pre-Closing accounts receivable. Lessor shall have no
liability for uncollectible receivables and shall not be obligated to bear
any expense as a result of such activities on behalf of Lessee. Subject to
the provisions of Article 24 hereof, Lessor shall remit to Lessee or its
assignee those portions of any payments received by Lessor which are
specifically designated as repayment or reimbursement received by Lessor
arising out of cost reports filed for the cost reporting
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<PAGE>
periods ending prior to the Closing Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or
Medicaid on the Closing Date will, under current regulations, be paid by
Medicare or Medicaid directly to Lessee for services rendered at the
Demised Premises prior to the Closing Date allocated on the per diem basis.
Said payments shall be the sole responsibility of Lessee and, except as
provided in Section 33.6(B) below, Lessor shall in no way be liable
therefore. After the Closing Date, Lessor and Lessee shall each have the
right to review supporting books, records and documentation that are in the
possession of the other relating to Medicaid or Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents
reimbursement with respect to services provided at the Demised Premises
prior to the Closing Date, Lessor agrees that it shall remit such payments
to Lessee. Payments by Lessor to Lessee shall be accompanied by a copy of
the appropriate remittance advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to
the Closing Date such other instruments, documents and materials, as the
other may reasonably request in order to effectuate the consummation of the
transaction contemplated herein. The obligations hereunder shall survive
termination or expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest,
penalties and reasonable attorney's fees, costs and expenses) (hereinafter
collectively "the Claims") which any of them may suffer as a result of the
breach by the other party in the performance of any of its commitments,
covenants, or obligations under this Article 33. Lessee does further agree
to indemnify, defend and hold harmless Lessor from any such Claims or with
respect to any suits, arbitration proceedings, administrative actions or
investigations which relate to the use by Lessee of the Demised Premises
prior to the Closing Date or any liability which may arise from operation by
Lessee of the Demised Premises as a nursing home prior to the Closing Date or
any amounts recaptured under Title XIX based upon applicable
Medicare/Medicaid Recapture Regulations. Lessor does further agree to
indemnify, defend and hold harmless Lessee from any such Claims or with
respect to any suits, arbitration proceedings, administrative actions or
investigations which relate to the ownership of the Demised Premises by
Lessor or the use of the Demised Premises by Lessor or the operation by
Lessor of the nursing home located thereon after the Closing Date. The
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rights of Lessor under this paragraph are without prejudice to any other
remedies not inconsistent herewith which Lessor may have against Lessee
pursuant to the terms of this Lease and the rights of Lessee hereunder are
subject to Section 22.1 hereof.
33.10 Anything to the contrary contained in this Article 33
notwithstanding, in the event the termination of this Lease is due to a
default by Lessee, none of the provisions of this Article 33 shall in any way
limit, reduce, restrict or modify the rights granted to Lessor pursuant to
Articles 21, 23, and 24 of this Lease. If the termination of this Lease is a
result of an Event of Default, then to the extent any monies are due to
Lessee pursuant to this Article 33, such sums shall be applied by Lessor to
any damages suffered by Lessor as a result of Lessee's Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including Taxes
and Assessments and all other charges herein provided, and upon observing and
keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of
a default of payment when due, the Lessor shall be entitled to all of the
remedies available at law or equity, or under this Lease, for the nonpayment
of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent
under the terms of this Lease, or the failure on the part of Lessor to object
to any such action taken by Lessee without Lessor's consent, shall not be
deemed a waiver by Lessor of its rights to require such consent for any
further similar act by Lessee, and Lessee hereby expressly covenants and
warrants that as to all matters requiring Lessor's consent under the terms of
this Lease, Lessee shall secure such consent for each and every happening of
the event requiring such consent, and shall not claim any waiver on the part
of Lessor of the requirement to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did not
deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any
of the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's
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fees, the amount of which shall be fixed by the court and shall be made a
part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of the
Term this Lease with the consent of Lessor, Lessee shall become a tenant on a
month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental,
for the period of such month-to-month tenancy, in an amount equal to twice
the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address
set forth below:
If to Lessor: Tor Associates
c/o Karell Capital Ventures, Inc.
Suite 1901
2 North LaSalle Street
Chicago, Illinois 60602
ATTN: Mr. Zev Karkomi and
Mr. Harvey Angell
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
ATTN: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute and
deliver a Memorandum of Lease in recordable form so that the same may be
recorded by either party.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there
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have been modifications, that the same is in full force and effect as
modified, and stating the modifications), the dates to which rent has been
paid, the amount of the Security Deposit held by Lessor, and whether the
Lease is then in default or whether any events have occurred which, with the
giving of notice or the passage of time, or both, could constitute a default
hereunder, it being intended that any such statement delivered pursuant to
this paragraph may be relied upon by any prospective assignee, Mortgagee or
purchaser of the fee interest in the Demised Premises or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically
expressing or importing covenants and conditions were used in each separate
provision hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to
Articles referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify
or discharge it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification or discharge is sought. This Lease cannot be changed orally or
terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit
of the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons, firm or firms, corporation or
corporations, entity or entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision shall be valid and
be enforceable to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to the
Demised Premises, the grantor or the person who is divested of title shall be
entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of the
grantor or the person who is divested of title thereafter accruing hereunder
and shall then be the Lessor under this Lease. Notwithstanding anything to
the contrary provided in this Lease, if Lessor or any successor in
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interest of Lessor shall be an individual, partnership, corporation, trust,
tenant in common or Mortgagee, there shall be absolutely no personal
liability on the part of any individual or member of Lessor or any
stockholder, director, officer, employee, partner or trustee of Lessor with
respect to the terms, covenants or conditions of this Lease, and Lessee shall
look solely to the interest of Lessor in the Demised Premises for the
satisfaction of each and every remedy which Lessee may have for the breach of
this Lease; such exculpation from personal liability to be absolute and
without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of any
of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not
be construed to be a waiver or relinquishment of any such covenant,
agreement, term, condition or option and the same shall be and remain in full
force and effect.
34.19 This Lease may be executed in counterparts, each of which shall be
deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of Connecticut.
34.21 Notwithstanding anything contained herein to the contrary, the
covenants, agreements, obligations, liabilities, terms and provisions of the
Original Lease, which, pursuant to the Original Lease, expressly survive the
expiration or termination of the Original Lease, shall survive the
termination of the Original Lease pursuant hereto and are hereby incorporated
herein by reference.
(Signature Page to Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
TOR ASSOCIATES, SUNRISE HEALTHCARE
an Illinois limited partnership CORPORATION,
a New Mexico corporation
TOR L.L.C., an Illinois limited
liability company, its general partner
By: By:
--------------------------- --------------------------------
Its: Its:
--------------------------- --------------------------------
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<PAGE>
UNCONDITIONAL GUARANTY OF LEASE
THIS UNCONDITIONAL GUARANTY OF LEASE (this "Guaranty") dated as of
this 1st day of March, 1996, is given by Sun Healthcare Group, Inc., a
Delaware corporation ("Guarantor") to Tor Associates, an Illinois limited
partnership ("Lessor").
I
RECITALS
1.1 DESCRIPTION OF LEASE. Lessor and Sunrise Healthcare Corporation, a
New Mexico corporation ("Lessee"), having entered into that certain Lease of
even date herewith (the "Lease") of the nursing home facility commonly known
as Heritage Heights Care center located in Danbury, Connecticut.
1.2 INDUCEMENT. Guarantor is the sole shareholder of Lessee, and
accordingly, Guarantor hereby acknowledges that the Lease will economically
benefit Guarantor.
II
THE GUARANTY
2.1 GUARANTY. Guarantor hereby absolutely and unconditionally
guarantees:
(a) The prompt payment of each installment of fixed annual rent and
Additional Rent (as defined in the Lease) when and as the same become due
under the terms of the Lease;
(b) The prompt payment of all other sums payable by Lessee to
Lessor or any other person under the terms of the Lease, including,
without limitation, tax and any other deposits required under the
terms of the Lease and damages due to default by Lessee under the Lease;
and
(c) The full and timely performance of each and every other
obligation of Lessee under the Lease;
for which Guarantor shall be jointly and severally liable with Lessee (the
items described in clauses (a), (b) and (c) above are hereinafter referred
to as the "Guarantor's Obligations").
2.2 Guarantor absolutely and unconditionally covenants and agrees that,
in the event that Lessee is unable to, or does not, pay, perform or satisfy
any of the obligations or liabilities of Lessee under the Lease (the
"Lessee's Liabilities") in a full and timely manner, for any reason,
including,
<PAGE>
without limitation, the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition, or readjustment of, or other similar proceedings
affecting, the status, composition, identity, existence, assets or
obligations of Lessee, or the disaffirmance or termination of any of the
Lessee's Liabilities in or as a result of any such proceedings, Guarantor
shall pay, perform or satisfy the Lessee's Liabilities and that no such
occurrence shall in any way reduce or affect the Guarantor's Obligations
hereunder. Upon the occurrence of a default in the prompt payment, timely
performance and satisfaction in full of Lessee's Liabilities, all of the
Guarantor's Obligations shall, at the election of Lessor, become immediately
due and payable, provided, however, that nothing herein shall be construed as
granting Lessor any greater rights or remedies against Guarantor as a result
of a breach by Lessee of its obligations under the Lease than Lessor has
against Lessee as a result thereof under the terms of the Lease.
2.3 Guarantor shall be directly and primarily liable, jointly and
severally with Lessee, for all of the foregoing. Lessor's rights under this
Guaranty shall be exercisable by action against Guarantor or joined with any
action against Lessee. Lessor need not proceed against Lessee as security
for Lessee's Liabilities or exhaust its remedies against Lessee or exercise
any of the other remedies available to Lessor under the Lease, prior to,
concurrently with or after proceeding against Guarantor to collect the full
amount of the Guarantor's Obligations hereunder. In the event that Lessor
may have collected all or any part of Lessee's Liabilities and a claim for
repayment of all or any part thereof is made against Lessor, the liability of
Guarantor hereunder as to the amount so collected but subject to such claim
shall not be discharged or affected.
III
OTHER PROVISIONS
3.1 ACTIONS BY LESSOR NOT TO AFFECT LIABILITY. The liability of
Guarantor hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Lease by lapse of time or otherwise (all of which are hereby authorized by
Guarantor) or a release or limitation of the liability of Lessee or
Lessee's estate under the Lease in any bankruptcy or insolvency proceeding;
(b) Any extension in the time for making any payment due under
the Lease or acceptance of partial payment or performance from Lessee;
(c) The acceptance or release by Lessor of any additional
security for the performance of Lessee's obligations under the Lease;
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(d) The failure during any period of time whatsoever of Lessor
to attempt to collect any amount due under the Lease from Lessee or to
exercise any remedy available under such Lease or any other security
instrument given as security for performance of the same, in the event of a
default in the performance by Lessee of the terms of the Lease;
(e) Lessor's consent to any assignment or successive assignments of
the Lease, or any subletting or successive subletting of the Demised
Premises (as defined in the Lease);
(f) Any assignment or successive assignments of Lessor's interest
under the Lease (whether absolute or as collateral);
(g) Lessor's consent to any changed, expanded or different use
of any or all of the Demised Premises;
(h) The assertion by Lessor against Lessee of any rights or
remedies reserved or granted to Lessor under the Lease, including the
commencement by Lessor of any proceedings against Lessee; or
(i) Any dealings, transactions or other matter occurring between
Lessor and Lessee;
whether or not Guarantor shall have knowledge or have been notified of or agreed
to any of the foregoing.
3.2 WAIVERS. Guarantor hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and notice
of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in Section 3.1 hereof;
(c) Any and all claims or defenses based upon lack of diligence
in:
(i) collection of any amount the payment of which is guaranteed
hereby;
(ii) protection of any collateral or other security for the
Lease;
(iii) realization upon any other security given for the
Lease; or
(iv) the discharge, liquidation or reorganization of Lessee
in bankruptcy or the rejection of the Lease by Lessee
or a trustee in bankruptcy.
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(d) Any and all defenses of suretyship;
3.3 NATURE OF REMEDIES. No delay or omission on the part of Lessor
in the exercise of any right or remedy hereunder shall operate as a waiver
thereof. All remedies of Lessor hereunder shall be in addition to, and
exercisable consecutively or concurrently in any combination with, any and all
remedies available to Lessor by operation of law or under the Lease, and Lessor
may exercise its remedies hereunder without the necessity of any notice to
Lessee or Guarantor of nonpayment, nonobservance, nonperformance or other
default by Lessee under the Lease.
3.4 COSTS OF COLLECTION. Notwithstanding any provision of this
Guaranty to the contrary, in the event of the enforcement of this Guaranty by
Lessor, Lessor shall be entitled to collect from Guarantor, Lessor's costs of
collection, including, without limitation, reasonable attorneys' fees.
3.5 MECHANIC'S LIENS OR OTHER LIENS. Notwithstanding any provision
of this Guaranty to the contrary, in the event that any mechanic's liens,
laborer's and/or materialman's claims (collectively, the "Mechanic's Liens") are
filed against the Leased Property (as defined in the Lease), or any part
thereof, and not paid or discharged by Lessee in accordance with the terms of
the Lease, Lessor shall be entitled pursuant to this Guaranty to collect from
Guarantor from and after the expiration or earlier termination of the Lease, the
total aggregate amount of such unpaid or undischarged Mechanic's Liens.
3.6 NO SUBROGATION. Guarantor shall not be subrogated to any of the
rights of Lessor under the Lease, or in or to the Demised Premises or to any
other rights of Lessor by reason of any of the provisions of this Guaranty or by
reason of the performance by Guarantor of any of its obligations hereunder and
Guarantor shall look solely to Lessee for recoupment of any costs or expenses
incurred by Guarantor in performing its obligations hereunder.
3.7 ASSIGNMENT. This Guaranty shall not be assignable by Guarantor
but shall be binding upon the successors to and legal representatives of
Guarantor. This Guaranty shall be assignable by Lessor and shall inure to the
benefit of its successors and assigns.
3.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Illinois. To induce Lessor to accept this Guaranty, Guarantor irrevocably
agrees that, subject to Lessor's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS GUARANTY, SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
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<PAGE>
3.9 SEVERABILITY. If any term, restriction or covenant of this Guaranty
is deemed illegal or unenforceable, all other terms, restrictions and
circumstances subject hereto shall remain unaffected to the extent permitted
by law; and if any application of any term, restriction or covenant to any
person or circumstances is deemed illegal, the application of such term,
restriction or covenant to other persons and circumstances shall remain
unaffected to the extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC., a Delaware
corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address:
5600 Wyoming Blvd. N.E.
Suite 140
Albuquerque, NM 87109
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<PAGE>
EXHIBIT 10.93
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of November 26, 1996, by
and between RATON PROPERTY LIMITED COMPANY, a New Mexico limited liability
company (hereinafter referred to as "Lessor"), and SUNRISE HEALTHCARE
CORPORATION, a New Mexico Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessee has entered into a contract (the "Contract") with Real
Property Services Corp. ("Seller") to purchase a certain tract of land
located in the State of New Mexico and more particularly described in EXHIBIT
A attached hereto and made a part hereof, which tract of land is improved
with a seventy (70) bed nursing home facility and a ten (10) unit assisted
living facility commonly known as Casa del Sol Nursing Home (which tract and
nursing home and assisted living facility, together with any other
improvements now or hereafter located on the tract and all easements,
tenements, hereditaments and appurtenances thereto are hereinafter
collectively referred to as the "Demised Premises"); and
WHEREAS, pursuant to the Contract, Lessor shall acquire the furnishings,
furniture, equipment and fixtures to be used in or about the Demised Premises
(hereinafter collectively referred to as the "Personal Property"); and
WHEREAS, contemporaneously with the purchase and sale of the Demised
Premises and the Personal Property, Lessor desires to lease the Demised
Premises and Personal Property to Lessee and Lessee desires to lease the
Demised Premises and Personal Property from Lessor; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
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WHEREAS, the parties hereto have agreed to the terms and conditions of
this Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and
all agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation,
those items set forth on EXHIBIT B attached hereto and made a part hereof),
other than such furniture, fixtures, equipment and supplies that persons
other than the Lessor may own or that the Lessee may lease from persons other
than the Lessor or that are purchased by Lessee other than as replacements
for Personal Property.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing
on the Commencement Date as hereafter defined, and on each anniversary of the
Commencement Date thereafter, except that if the Commencement Date is other
than the first day of a calendar month, then the first Lease Year shall be
the period from the Commencement Date through the date twelve (12) months
after the last day of the calendar month in which the Commencement Date
occurs, and each subsequent Lease Year shall be the period of twelve (12)
months following the last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements
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hereinafter reserved, mentioned and contained on the part of the Lessee, its
successors and assigns, to be paid, kept and performed, does hereby lease
unto Lessee the Demised Premises together with the Personal Property to be
used in and upon the Demised Premises for the Term hereinafter specified, for
use and operation therein and thereon of a skilled and/or intermediate care
nursing home and assisted living facility, in full compliance with all the
rules and regulations and minimum standards applicable thereto, as prescribed
by the State of New Mexico and such other governmental authorities having
jurisdiction thereof and having no less than seventy (70) skilled and/or
intermediate care beds and ten (10) assisted living units and for any other
purpose authorized by Lessor in writing and for no other purpose.
ARTICLE III - TERM OF LEASE
3.1 Except as expressly provided below, the term of this Lease shall be
for a period of ten (10) years commencing on the Commencement Date
(hereinafter defined), unless sooner terminated or extended as hereinafter
provided (the "Initial Term"). The "COMMENCEMENT DATE" shall mean the date
the last of the following has occurred:
(i) Lessee has received a commitment from Commonwealth Land Title
Insurance Company for issuance of a leasehold owner's title policy in the
amount of Two Million Seven Hundred Thousand and No/100 Dollars
($2,700,000.00) free of all liens and encumbrances other than (a) standard
exceptions, (b) non-delinquent taxes and assessments, (c) easements,
restriction and rights of way that will not adversely affect Lessee's
operation of the Demised Premises as a nursing home in accordance with
Article II, above;
(ii) Lessee obtains all appropriate state or other governmental
licenses and certifications required to operate the Demised Premises,
including, without limitation, as a Medicare and Medicaid certified skilled
nursing home; and
(iii) Lessee shall have been given possession of the Demised Premises.
Once the Commencement Date has been established, the parties shall sign a
Commencement Date memorandum setting forth that date.
3.2 Lessee shall have and is hereby granted the right and option to
extend the Initial Term of this Lease for an extended term (the "First
Extended Term") of five (5) Lease Years upon and subject to all the terms,
provisions and conditions hereof, except that Rent, as hereinafter defined,
payable with respect to each Lease Year of the First Extended Term shall be
the amount set forth in Section 4.1. The first Lease Year of
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the First Extended Term shall commence upon the day next following the
expiration of the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised
only if Lessee is not in default under this Lease at the time of exercise and
at the time of expiration of the Initial Term, and, further, only if there is
not at either time an event or occurrence which with the passage of time or
giving of notice, or both, would constitute a default hereunder, and said
option shall be exercised by Lessee giving to Lessor written notice of
Lessee's election so to do not less than twelve (12) full calendar months
prior to the date of expiration of the Initial Term.
3.3 Provided Lessee shall have exercised the option contained in Section
3.2 above, Lessee shall and Lessee is hereby granted the right and option to
extend this Lease for an additional Extended Term (the "Second Extended
Term") of five (5) Lease Years upon and subject to all the terms, provisions
and conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the Second Extended Term shall be the amount
set forth in Section 4.1 hereof. The first Lease Year of the Second Extended
Term shall commence on the day next following the expiration of the First
Extended Term.
The option granted pursuant to this Section 3.3 may be exercised
only if Lessee is not in default under the Lease at the time of exercise and
at the time of the expiration of the First Extended Term, and, further, only
if there is not then an event or occurrence which with the passage of time or
giving of notice, or both, would constitute a default hereunder, and said
option shall be exercised by Lessee giving to Lessor written notice of
Lessee's election so to do not less than twelve (12) full calendar months
prior to the expiration of the First Extended Term. Furthermore, Lessee's
option granted pursuant to this Section 3.3 may be exercised only if Lessee
also contemporaneously exercises its options to extend pursuant to Section
3.3 of each of the Other Leases.
Notwithstanding the foregoing, Lessor acknowledges and agrees that the
Rent for the First Extended Term and the Second Extended Term may not be known
by Lessor at the time that Lessee is required to exercise its respective renewal
options. Accordingly, in the event Lessor has not advised Lessee of the First
Extended Term Rent at least thirteen (13) months prior to the date of the
expiration of the Initial Term or the Second Extended Term Rent at least
thirteen (13) months prior to the expiration of the First Extended Term, Lessee
shall have the right to exercise the renewal right provided for herein subject
to the right to rescind the same on written notice to Lessor delivered within
thirty (30) days after Lessor advises Lessee in writing as to the First
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Extended Term Rent or the Second Extended Term Rent, as the case may be (the
"Rent Notice"), which Rent Notice shall be delivered by Lessor to Lessee as
soon as practicable after the debt service for the First Extended Term or the
Second Extended Term, as the case may be, has been
determined but in no event less than one hundred and eighty (180) days prior
to the commencement of the First Extended Term or the Second Extended Term,
as the case may be.
The Initial Term, as it may be extended by the First Extended Term
and the Second Extended Term, is hereinafter collectively known as the "Term".
As used in this Article 3, the term default shall mean an "Event of
Default" as defined in Article 19 of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or as
Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to
be made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual Rent of $292,000.00,
payable in equal monthly installments of $24,333.33;
(ii) For the second Lease Year and each subsequent Lease Year
(of the Initial Term or any Extended Lease Term) an amount equal to the prior
Lease Year's Rent multiplied by 1.5 times the increase, if any, in the Cost
of Living Index (as hereinafter defined) in effect on September 1st of the
current Lease Year over the Cost of Living Index in effect on September 1st
of the preceding Lease Year; provided, however, that in no event will the
increase in Rent from one Lease Year to the next be greater than two and
one-half percent (2.5%) of the sum of the prior Lease Year's Rent nor shall
such Rent decrease from the prior Lease Year; and
(iii) The Cost of Living Index is defined as the Consumer Price
Index for All Urban Consumers, U.S. City Average (1982-1984 = 100), published
by the BLS, or such other renamed index. If the BLS changes the publication
frequency of the Cost of Living Index so that a Cost of Living Index is not
available to make a cost-of-living adjustment as specified herein, the
cost-of-living adjustment shall be based on the percentage difference between
the Cost of Living Index for the closest
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preceding month for which a Cost of Living Index is available and Cost of
Living Index for the comparison month is required by this Lease. If the BLS
changes the base reference period for the Cost of Living Index from 1982-84 =
100, the cost-of-living adjustment shall be determined with the use of such
conversion formula or table as may be published by the BLS. If the BLS
otherwise substantially revises, or ceases publication of the Cost of Living
Index, then a substitute index for determining cost-of-living adjustments,
issued by the BLS or by a reliable governmental or other nonpartisan
publication, shall be reasonably selected by Lessor and Lessee.
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the Rent for
the month and a pro rata portion of all tax, insurance and other deposits
provided for in this Lease. All fixed annual rental payments shall be made
in equal monthly installments and shall be paid in advance on the first (1st)
day of each month (together with all tax and insurance deposits required in
this Lease). Unless otherwise notified in writing, all checks shall be made
payable to Lessor and shall be sent c/o Karell Capital Ventures, Inc., Two
North LaSalle Street, Suite 1901, Chicago, Illinois 60602.
The Rent set forth in this Article 4 is based, in part, upon the
debt service of the permanent first mortgage financing on the Demised
Premises ("Initial Financing"). In the event that the debt service payable
on Lessor's mortgage financing in effect on the date that the First Extended
Term commences is more or less that the debt service on the Initial
Financing, the Rent due during the First Extended Term shall be adjusted
according to the following formula: The annual Rent due during the first
year of the First Extended Term shall be increased or decreased in an amount
equal to the difference between (i) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
in effect on the first day of the First Extended Term, and (ii) the annual
debt service on the indebtedness secured by the first mortgage encumbering
the Demised Premises in effect on the day of the Initial Financing; provided,
however, that the amount of principal to be used in making the calculations
shall not exceed the original principal amount of the loan encumbering the
Demised Premises concurrent with Lessor's acquisition of the Demised
Premises. The subsequent annual increases as provided in Article 4.1 above
for the remainder of the First Extended Term shall be calculated on the
Annual Rent payable during the first year of the First Extended Term as so
adjusted.
In the event that the debt service payable on Lessor's mortgage
financing in effect on the date that the Second Extended Term commences is
more or less than the debt service on Lessor's mortgage financing in effect
on the date the First Extended Term commences, the Rent due during the Second
Extended Term shall be adjusted according to the following formula: the
annual Rent due during the first year of the Second Extended Term shall be
increased or decreased in an amount equal to the difference between (i) the
annual debt service on the indebtedness secured by the
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first mortgage encumbering the Demised Premises in effect on the first
day of the Second Extended Term, and (ii) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
on the date that the First Extended Term commences; provided, however, that
the amount of principal to be used in making the calculation shall not exceed
the original principal amount of the loan encumbering the Demised Premises
concurrent with Lessor's acquisition of the Demised Premises. The subsequent
annual increases as provided in Article 4.1 above for the remainder of the
Second Extended Term shall be calculated on the annual rent payable during
the first year of the Second Extended Term as so adjusted.
4.2 This Lease is and shall be deemed and construed to be a "pure net"
or "triple-net" lease and the Rent specified herein shall be net to the
Lessor in each year during the Term of this Lease. The Lessee shall pay all
costs, expenses and obligations of every kind whatsoever relating to the
Demised Premises which may arise or become due during the Term of this Lease,
except for any principal and interest payments and other costs owed by Lessor
relating to any Mortgage (defined below) and Landlord's general overhead and
administrative expenses (collectively, "Additional Rent"). Lessee does
hereby indemnify the Lessor against any and all such costs, expenses and
obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due
and payable as in this Lease provided, a late charge of 3% per month on the
sums so overdue shall become immediately due and payable to Lessor as
liquidated damages for Lessee's failure to make prompt payment and said late
charges shall be payable on the first day of the month next succeeding the
month during which such late charges become payable. If non-payment of any
late charges shall occur, Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law in
the case of non-payment of Rent. No failure by Lessor to insist upon the
strict performance by Lessee of Lessee's obligations to pay late charges
shall constitute a waiver by Lessor of its rights to enforce the provisions
of this Article in any instance thereafter occurring.
ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
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6.1 Lessee will pay or cause to be paid, as provided herein, as
additional Rent, before any fine, penalty, interest or cost may be added
thereto for the non-payment thereof, all taxes, assessments, licenses and
permit fees, charges for public utilities, and all governmental charges,
general and special, ordinary and extraordinary, foreseen and unforeseen, of
any kind and nature whatsoever which during the Term of this Lease may have
been, or may be assessed, levied, confirmed, imposed upon or become due and
payable out of or in respect of, or become a lien on the Demised Premises
and/or Personal Property or any part thereof (hereinafter collectively
referred to as "Taxes and Assessments").
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the Term of this Lease and a
part of which is included in a period of time before or after the Term of
this Lease, shall be adjusted pro rata between Lessor and Lessee and each
party shall be responsible for its pro rata share of any such Taxes and
Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, business license,
estate, succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being forfeited or
lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust, cash or other security satisfactory to Lessor in an amount equal to
not less than the amount of such Taxes and Assessments which at such time
shall be actually due and payable, and such additional amounts reasonably
required by Lessor and any Mortgagee (as hereinbelow defined) of Lessor from
time to time, together with all interest and penalties in connection
therewith and all charges that may or might be assessed against or become a
charge on the Demised Premises or any part thereof in such proceedings, or,
if required by the taxing authority, an amount deposited in trust with the
taxing authority during the pendency of any contest in lieu of any additional
charge against the Demised Premises until resolution of the contest.
Unless Lessor agrees otherwise, the cash so deposited with Lessor
shall not bear interest and the cash or securities so deposited shall be held by
Lessor until
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the Demised Premises or any part thereof shall have been released and
discharged and shall thereupon be returned to the Lessee, less the amount of
any loss, cost, damage and reasonable expense that Lessor or any Mortgagee
has sustained in connection with the Taxes and Assessments so contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay
the amount of such Taxes and Assessments or part thereof as finally
determined in such proceedings, the payment of which may have been deferred
during the prosecution of such proceedings, together with any costs, fees,
interest, penalties or other liabilities in connection therewith, and such
payment, at Lessee's request, shall be made by Lessor out of the amount
deposited with respect to such Taxes and Assessments as aforesaid. In the
event such amount is insufficient, then the balance due shall be paid by
Lessee.
6.6 Lessor shall not be required to join in any proceedings referred to
in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in
the name of Lessor, in which event Lessor shall join in such proceedings or
permit the same to be brought in its name. Lessor shall not ultimately be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings, and Lessee will indemnify and save
harmless Lessor from any such costs and expenses. Lessee shall be entitled
to any refund of any Taxes and Assessments and penalties or interest thereon
received by Lessor but previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for
real estate or personal property taxes imposed upon the Demised Premises or
Personal Property or otherwise, then Lessee shall be responsible for the
payment of such tax.
ARTICLE VII - TAX DEPOSITS
7.1 Lessee shall be required to make deposits for annual Taxes and
Assessments and, will make monthly deposits with Lessor, of an amount equal
to one twelfth (1/12) of the annual Taxes and Assessments or such greater
amount as may be required by any Mortgagee. Said deposits shall be due and
payable on the first day of each month as additional Rent, shall not bear
interest and shall be held by Lessor and/or a mortgagee of the Lessor to pay
the real estate taxes as they become due and payable. If the total of the
monthly payments as made under this Article shall be insufficient to pay the
Taxes and Assessments when due, then Lessee shall on demand pay Lessor the
amount necessary to make up the deficiency, and if
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appropriate, Lessee shall receive a credit against the next monthly
tax escrow payment coming due in an amount equal to said deficiency payment.
ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled
care and/or intermediate care nursing home and for no other purpose. Lessee
shall at all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of New Mexico and
any other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified
skilled and/or intermediate care nursing home facility with no less than
seventy (70) licensed, and Medicaid certified beds and ten (10) assisted
living units.
8.2 Lessee will not suffer any act to be done or any condition to exist
on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable
any insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by
all governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than seventy (70) licensed and Medicaid certified beds and as
a ten (10) unit assisted living facility all with licenses, certifications,
and provider agreements in full force and good standing. All the Demised
Premises, with the improvements located thereon, and all the Personal
Property shall be surrendered in good order, condition and repair, ordinary
wear and tear excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of this
Lease, maintain property insurance provided by a Causes of Loss-Special Form
or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor, not to be unreasonably withheld.
Such insurance shall, at all times, be maintained in an amount equal to the
full replacement cost of the Demised Premises
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and the Personal Property or in such lesser amount as may be required by
Lessor and any Mortgagee of the Demised Premises but at all times, in an
amount sufficient to prevent Lessor and Lessee from becoming co-insurers
under applicable provisions of the insurance policies. As used herein, the
term "full replacement cost" shall mean coverage for the actual replacement
cost of the Demised Premises and the Personal Property requiring replacement
from time to time which, if not agreed upon by Lessor and Lessee, shall be
determined by an appraiser, engineer, architect or contractor reasonably
selected by Lessor. Upon request by Lessee, Lessor will provide Lessee with
information in its possession which is reasonably necessary to establish the
value of the Demised Premises. Such insurance shall at all times be payable
to Lessor and Lessee as their interests may appear, and shall contain a
loss-payable clause to the holder of any Mortgage to which this Lease shall
be subject and subordinate (in accordance with Article 26 herein) , as said
Mortgagee's interest may appear. All such policies of insurance shall provide
that:
(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor
or Lessee, which might otherwise result in forfeiture of insurance; and
(b) A standard Mortgagee clause in favor of any Mortgagee, and
shall contain, if obtainable, a waiver of the insurer's right of subrogation
against funds paid under the standard Mortgagee endorsement which are to be
used to pay the cost of any repairing, rebuilding, restoring or replacing.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or property
damage occurring upon, in or about the Demised Premises. Such insurance to
have limits of not less than $1,000,000 each occurrence and $3,000,000
general aggregate and an excess or umbrella liability policy of not less than
$5,000,000 each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee to
change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder. Notwithstanding the
foregoing, Lessee shall not be required to add coverage for damage to the
Demised Premises resulting from earthquake or flood as covered losses unless the
Demised Premises is classified
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as an earthquake or flood prone area by an authority having jurisdiction over
the Demised Premises and such authority recommends such insurance.
9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten
(10) days after Lessor's request therefore, Lessee shall deliver to Lessor
copies of all insurance policies then being carried by Lessee pursuant to
this Article 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due
during the period of the business interruption at the Facility (the "Business
Interruption Period");
(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
All proceeds of any business interruption insurance shall be
applied, first, to the payment of any and all fixed rental payments for the
Business Interruption Period; second, to the payment of any Taxes and
Assessments and insurance deposits required to be deposited for the Business
Interruption Period; and, thereafter, after all necessary repairing,
rebuilding, restoring or replacing has been completed as required by the
pertinent Articles of this Lease and the pertinent sections of any mortgage,
any remaining balance of such proceeds shall be paid over to the Lessee.
In lieu of the foregoing but subject to the terms and conditions of
this Article 9, Lessee may, at its option, obtain and maintain a blanket
insurance policy in an amount sufficient to provide all or part of the
coverage described in this Article 9.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
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10.1 Should Lessee fail to perform any of its covenants herein agreed to
be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon shall immediately be
payable by Lessee to Lessor, with interest thereon at a rate which is the
lesser of fifteen percent (15%) per annum or the maximum rate permitted by
law from date thereof until paid, and in addition, Lessee shall reimburse
Lessor for Lessor's reasonable expenses in enforcing or performing such
covenants, including reasonable attorney's fees. Any such costs or expenses
incurred or payments made by the Lessor shall be deemed to be Additional Rent
payable by Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment
shall in no way constitute a waiver of, or a limitation upon, Lessor's other
rights hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of
this Lease but only to the extent such Mortgagee is entitled under the terms
of its Mortgage and the provisions of any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the
Demised Premises (including the grounds, sidewalks and curbs abutting the
same) and the Personal Property in good order and condition without waste and
in suitable state of repair at least comparable to that which existed
immediately prior to the Commencement Date (ordinary wear and tear excepted,
subject to Lessee's obligation to repair and replace the same in accordance
with the terms of this Lease), and will make or cause to be made, as and when
the same shall become necessary, all structural and nonstructural, exterior
and interior, replacing, repairing and restoring necessary to that end. All
replacing, repairing and restoring required of Lessee shall be (in the
reasonable opinion of Lessor) of quality at least equal to the original work
and shall be in compliance with all standards and requirements of law,
licenses and municipal ordinances necessary to operate the Demised Premises
as a Medicare and Medicaid certified skilled and/or intermediate care nursing
home having no less than seventy (70) licensed, and Medicaid certified beds
and ten (10) assisted living units.
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11.2 Any items of Personal Property that are uneconomical to repair shall
be replaced by new items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be removed
from the Demised Premises except in connection with repair or replacement of
such items. Lessee may place additional property on the Demised Premises (not
required for the replacement of the Personal Property) and such additional
property shall be and remain the property of Lessee. Lessee shall remove such
additional property upon termination or expiration of this Lease provided that
Lessee shall make such necessary repairs or replacements as may be required in
order to return the Demised Premises to the condition which existed prior to the
removal of the additional property.
11.3 Provided there is not an Event of Default by Lessee under this
Lease, Lessee shall have the right, at any time and from time to time, to remove
and dispose of any Personal Property which may have become obsolete or unfit for
use, or which is no longer useful in the operation of the Demised Premises,
provided Lessee promptly replaces any such Personal Property so removed or
disposed of with other personal property free of any security interest, lien or
encumbrance. Said personal property shall be of the same character and shall be
at least equal in usefulness and quality as any such Personal Property so
removed or disposed of, and such replacement property shall automatically become
the property of and shall belong to the Lessor, and Lessee shall execute such
bills of sale or other documents reasonably requested by Lessor to vest the
ownership of such personal property in Lessor. Notwithstanding the foregoing,
Lessee shall have the right to place leased Personal Property on the Demised
Premises provided that the payments due under such leases do not exceed $4,000
per year. In the event Lessee desires to place leased personal property on the
Demised Premises having annual payments in excess of the amount provided for
herein, Lessee shall advise Lessor in writing and Lessor shall use its
reasonable best efforts to seek the approval of the Mortgagee or an amendment of
the Mortgage with respect thereto.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by fire
or other casualty (any such event being called a "Casualty"), Lessee shall
promptly replace, repair and restore the same as nearly as possible to its
condition immediately prior to such Casualty, in accordance with all of the
terms, covenants and conditions and other requirements of this Lease and any
applicable Mortgage and in accordance with any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage; provided,
however, that in the event of a Casualty occurring during the last six (6)
months of the Term or a Casualty resulting from an earthquake, flood, nuclear
accident or war which is not covered by insurance maintained by Lessee
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and which renders the Demised Premises unsuitable for use as a nursing home, in
the reasonable opinion of Lessor and Lessee, then Lessee shall have the right to
terminate this Lease upon forty-five (45) days written notice to Lessor. If
applicable, the Demised Premises and the Personal Property shall be so replaced,
repaired and restored as to be of at least equal value and substantially the
same character as prior to such Casualty. If the estimated cost of any such
restoring, replacing or repairing is Fifty Thousand Dollars and no/100
($50,000.00) or more, the plans and specifications for same shall be first
submitted to and approved in writing by Lessor, which approval shall not be
unreasonably withheld, and, if reasonably required by Lessor, Lessee shall
immediately select an independent architect, approved by Lessor who shall be in
charge of such repairing, restoring or replacing. Lessee covenants that it will
give to Lessor prompt written notice of any Casualty affecting the Demised
Premises or the personal property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30)
days after approval of the final plans and specifications (including by
Mortgagee and any governmental or quasi-governmental agency or entity exercising
jurisdiction), issuance of a building permit and any other necessary permits and
licenses for commencement of construction, whichever is later, Lessee shall
commence to restore the Demised Premises and Lessee shall complete the same
within 180 days thereafter, provided, however, that in the case of damage or
destruction which cannot with due diligence be repaired within said 180 day
period, Lessee shall have an additional period of time, not to exceed 180
additional days, to complete the reconstruction, provided Lessee is proceeding
promptly and with due diligence to complete the restoration. Lessee may utilize
all insurance proceeds available for any such repair or restoration, subject to
the terms of Section 11A.3 hereof and any required approval of any Mortgagee.
Lessee's obligation to make Rent payments and to pay all other charges required
by this Lease shall not be abated during the period of the repair or
restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received from
such insurance proceeds is sufficient to complete such work or (ii) if there is
an amount required in excess of the amount received from such insurance
proceeds, either said excess amount has been expended by Lessee or that Lessee
has deposited such excess funds with Lessor or has satisfied Lessor that it has
such funds available to it so that, in either case, the total amount available
will be sufficient to complete such repairing, rebuilding, restoring or
replacing in accordance with the provisions of any Mortgage and any plans and
specifications submitted in connection therewith, free from any liens or
encumbrances of any kind whatsoever and the funds held by Lessor shall be
disbursed periodically during construction, but not more than once every thirty
(30) days after the presentment of architect's or general contractor's
certificates, waivers of lien, contractor's sworn statements, and other evidence
of cost and
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payments as may be reasonably required by Lessor or any Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part of the Demised Premises or any portion thereof or allow it to be
removed or demolished, without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld. Except as required by law, Lessee
further agrees that it will not make, authorize or permit to be made any changes
or alterations in or to the Demised Premises without first obtaining Lessor's
written consent thereto, which consent shall not be unreasonably withheld. All
alterations, improvements and additions to the Demised Premises shall be in
quality and class at least equal to the original work and shall become the
property of the Lessor and shall meet all building and fire codes, and all other
applicable codes, rules, regulations, laws and ordinances. Nothing herein shall
be deemed or construed to require Lessee to obtain Lessor's consent to
non-structural changes or alterations such as painting, the replacement of
wallcoverings or the replacement of floor coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
seventy (70) licensed and Medicaid certified beds and as an assisted living
facility having no less than ten (10) licensed assisted living units, which may
be applicable to the Personal Property and the Demised Premises and including,
but not limited to, the sidewalks, alleyways, passageways, vacant land, parking
spaces, curb cuts, curbs adjoining the Demised Premises, which are under
Lessee's control, whether or not such law, ordinance, order, rules, regulation
or requirement shall necessitate structural changes or improvements.
13.2 Lessee shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing
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and in full force and effect all necessary licenses, permits and certifications
required by any governmental authority for the purpose of maintaining and
operating on the Demised Premises a Medicare and Medicaid certified skilled
and/or intermediate care nursing home having no less than seventy (70) licensed
and Medicaid certified beds, and no less than ten (10) assisted living units and
the Demised Premises shall be qualified to participate in the Medicare and
Medicaid reimbursement programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever Rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and surveys, administrative proceedings and/or court actions
from all state, federal and local governmental bodies regarding the Demised
Premises or the nursing home operated thereon. Lessee shall notify Lessor
within twenty-four (24) hours after receipt thereof of any notice from any
governmental agency terminating or suspending or threatening termination or
suspension of any license, permit, provider agreement or certification relating
to the Demised Premises or the nursing home operated thereon.
13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee
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will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property, Lessee shall have the right to contest such lien or charge,
provided, Lessee within thirty (30) days after notice of the filing thereof,
will cause the same to be discharged of record or in lieu thereof to secure
Lessor against said lien by either (i) deposit with Lessor of such security as
may be reasonably demanded by Lessor to protect against such lien, or (ii) post
a release bond in form and amount as required by applicable law and as otherwise
satisfactory to Lessor. If Lessee shall fail to cause such lien to be
discharged within the period aforesaid, or to otherwise secure Lessor as
aforesaid, then in addition to any other right or remedy, Lessor may, upon ten
(10) days notice, but shall not be obligated to, discharge the same either by
paying the amount claimed to be due or by processing the discharge of such lien
by deposit or by bonding proceedings. Any amount so paid by Lessor and all
costs and expenses incurred by Lessor in connection therewith, together with
interest thereon at a rate which is the lesser of fifteen percent (15%) per
annum or the maximum rate permitted by law, shall constitute Additional Rent
payable by Lessee under this Lease and shall be paid by Lessee to Lessor on
demand. Except as herein provided, nothing contained herein shall in any way
empower Lessee to do or suffer any act which can, may or shall cloud or encumber
Lessor's or any Mortgagee's interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience to
the Lessee and to the residents of the Facility as may reasonably be possible
under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to enter and inspect the Demised Premises to
the
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extent such Mortgagee is entitled to do so under the terms of its Mortgage and
to the extent consistent with any subordination, nondisturbance and attornment
agreement then in effect for such Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
use by act of any public authorities, then this Lease shall terminate as of the
date possession is taken by the condemnor. If all or substantially all of the
Demised Premises shall be taken, the net proceeds of any condemnation award,
settlement or compromise for the Demised Premises taken shall belong to Lessor;
provided, however, Lessee shall have the right to pursue a separate award for
the value of Lessee's interest in the Demised Premises as long as such separate
award does not diminish the award, settlement or compromise paid to Lessor; and
provided, further, that Lessee shall be solely entitled to any amount awarded
for the value of Lessee's property located on the Demised Premises in accordance
with Section 11.1 and any amount for relocation and loss of business as long as
such separate award does not diminish the award. For the purposes of this
paragraph "substantially all of the Demised Premises leased hereunder" shall be
deemed to have been taken if upon the taking of less than the whole of the
Demised Premises that portion of the Demised Premises not so taken shall not by
itself be adequate for the conduct therein of Lessee's business, in the
reasonable judgment of Lessor and Lessee, subject further to the rights of
Lessor's Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to sixty-three
(63) or less, Lessee shall have the right to terminate this Lease by written
notice to Lessor within thirty (30) days following the issuance of the
condemnation order or conveyance of the property, whichever is earlier. If
Lessee does not elect to terminate this Lease, Lessor shall hold in trust that
portion, if any, of such award, settlement or compromise which shall be
allocable to consequential damage to buildings and improvements not taken, and
Lessor shall pay out such portion to Lessee to reimburse Lessee for the cost of
restoring the Demised Premises as a complete structural unit, as such
restoration work progresses in accordance with the procedure for making
insurance proceeds available for restoration, repair or rebuilding as set forth
in Article 11A hereof. In the event of a partial condemnation which does not
result in a termination of this Lease, the annual Rent rate payable under
paragraph 4.1 hereof shall be reduced to such amount as Lessor and Lessee agree
is fair and equitable taking into consideration the number of operational beds
remaining after such taking as compared to the number of operational beds on the
Commencement Date.
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ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised Premises and has found the same satisfactory. Lessee acknowledges
that the Personal Property and the Demised Premises are the property of Lessor
and that Lessee has the leasehold rights as set forth in the terms and
conditions of this Lease.
As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the nature, in all respects, of the Demised Premises, including (but not by
way of limitation); the soil and geology thereof, the waters thereof and
thereunder; the drainage thereof; the manner of construction and the condition
and state of repair and lack of repair of all improvements of every nature; the
nature, provisions and effect of all health, fire, zoning, building, subdivision
and all other use and occupancy laws, ordinances, and regulations applicable
thereto; and the nature and extent of the rights of others with respect thereto,
whether by way of reversion, easement, right of way, prescription, adverse
possession, profit, servitude, lease, tenancy, lien, encumbrance, license,
contract, reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has no duty
to be informed with respect to, any of the matters set forth in the preceding
sentence. Lessee hereby accepts the Demised Premises as suitable and adequate
in all respects for the conduct of the business and the uses of the Demised
Premises contemplated under the provisions of the Lease. Notwithstanding the
foregoing, Lessor represents that it has no actual knowledge of anything related
to the foregoing which would cause the Demised Premises to be materially
inadequate for its permitted use hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to Lessor's
title as it was acquired from its seller, including all rights, rights of way,
easements, profits, servitudes, reservations, restrictions, conditions,
exceptions, reversions, possibilities of reverter, liens, encumbrances,
occupancies, tenancies, licenses, clouds, claims and defects, known and unknown
and whether of record or not. In the event of any defect
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in Lessor's title to the Demised Premises by which a third party's paramount fee
ownership of the Demised Premises requires that Lessee vacate the Demised
Premises, then in such event this Lease shall be terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including (but
not limited to) the requirements of any inspection or examination by Lessee of
the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any part thereof or the
taking of the Demised Premises or any part thereof by condemnation, requisition
or otherwise for any reason; (ii) any restriction or prevention of or
interference with any use of the Demised Premises or any part thereof including
any restriction or interference with or circumstance which prevents the use of
the Demised Premises as contemplated by Paragraph 8.1; (iii) any frustration of
Lessee's purposes hereunder, for any claim which Lessee has or might have
against Lessor; or (iv) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing. However, nothing shall preclude Lessee from
bringing a separate action and Lessee is not waiving other rights and remedies
not waived herein.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease
or in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest in
the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee (other than to Andrew L.
Turner or an entity controlled by Andrew L. Turner or a wholly owned subsidiary
of Lessee or of Lessee's parent corporation Sun Healthcare Group, Inc.) without
the prior written consent of the Lessor, which consent shall not be unreasonably
withheld. Any violation or breach or attempted violation or breach of the
provisions of this Article by Lessee, or any acts inconsistent herewith shall
vest no right, title or interest herein or hereunder or in the Demised Premises,
in any such transferee or assignee; and Lessor may, at its exclusive option,
terminate this Lease and invoke the provisions of this Lease relating to
default. Lessor acknowledges and agrees that the sale of equity or debt
securities in Lessee or Lessee's parent corporation shall in no event constitute
an assignment or transfer of this Lease or of an interest hereunder provided
Lessee remains a wholly owed subsidiary of Sun Healthcare Group, Inc.
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ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the Lessor under
the provisions of this Lease, when such failure shall continue for a period of
ten (10) days following written notice to Lessee;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of this Lease
(other than as set forth in Sections 19.1(3) and 19.1(4), if such failure or
violation shall not be cured within thirty (30) days after notice thereof by
Lessor to Lessee;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty percent (50%) or more of the patients located in the nursing
home;
(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage relating to the
Demised Premises of which Lessee has been made aware and with which Lessee has
agreed to comply if such failure or violation shall not be cured within twenty
(20) days (or such lesser period as may be provided in the Mortgage) after
notice thereof by Lessor to Lessee;
(5) The voluntary transfer by Lessee of ten percent (10%) or
more of the patients located in the Demised Premises if such transfer is not for
reasons relating to the health and well being of the patients that were
transferred or such other reasons as may be permitted by state or federal law,
such as nonpayment of stay or the welfare of other residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the Personal Property
previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against the property of Lessee which is not discharged or stayed by action of
Lessee
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contesting same, within ninety (90) days after such levy or attachment (provided
if the stay is vacated or ended, this paragraph shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is not
discharged within ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or demand from any
governmental authority, or any officer acting on behalf thereof, of any
violation of any law, order, ordinance, rule or regulation with respect to the
operation of the nursing home located on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental authority, or
any officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of the nursing home located on Demised
Premises, and within ten (10) days prior to the expiration of any time
permitted by such authority for such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises, having no less than seventy (70) licensed beds and ten (10)
assisted living units, or (ii) decertify the nursing home operated in the
Demised Premises from participation in the Medicare or Medicaid reimbursement
program, which is not either appealed by Lessee and stayed while Lessee's appeal
thereof is pending, or revoked or rescinded by the applicable governmental
authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof;
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease Guaranty; or
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have given
to Lessee a
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written notice specifying a situation which, as hereinbefore provided, must be
remedied by Lessee within a certain time period, and, if for causes beyond
Lessee's control, it would not reasonably be possible for Lessee to remedy such
situation within such period, then, provided Lessee immediately upon receipt of
such notice shall advise Lessor in writing of Lessee's intention to institute,
and shall, as soon as reasonably possible thereafter, duly institute, and
thereafter diligently prosecute to completion, all steps necessary to remedy
such situation and shall remedy the same, and provided that any license or
certification necessary for the operation of the Demised Premises, as a nursing
facility is not affected thereby, this Lease and the Term and estate hereby
granted shall not expire and terminate at the expiration of such time period as
otherwise hereinbefore provided, except that in no event shall Lessee have more
than ninety (90) additional days to remedy any such situation in the manner set
forth herein, or such longer period of time granted by any governmental agency
having jurisdiction over the Facility.
ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee,
Lessor may, if it so elects, upon written notice to Lessee of such election,
forthwith terminate this Lease and Lessee's right to possession of the Demised
Premises, or, at the option of the Lessor, terminate Lessee's right to
possession of the Demised Premises without terminating this Lease. Upon any
such termination of this Lease, or upon any such termination of Lessee's right
to possession without termination of this Lease, Lessee shall vacate the Demised
Premises immediately, and shall quietly and peaceably deliver possession thereof
to the Lessor, and Lessee hereby grants to the Lessor full and free license to
enter into and upon the Demised Premises in such event with or without process
of law and to repossess the Demised Premises and Personal Property as the
Lessor's former estate. In the event of any such termination of this Lease, the
Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to Rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive Rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to
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terminate this Lease or to terminate Lessee's right to possession of the Demised
Premises, then all licenses, certifications, permits and authorizations issued
by any governmental agency, body or authority in connection with or relating to
the Demised Premises and the nursing home operated thereon shall be deemed to be
assigned to Lessor, to the extent permitted by law. Lessor shall also have the
right to continue to utilize the telephone number and name (other than the name
"Sunrise Healthcare" or similar name) used by Lessee in connection with the
operation of the nursing home located on the Demised Premises. This Lease shall
be deemed and construed as an assignment for purposes of vesting in Lessor, all
right, title and interest in and to: (i) all licenses, certifications, permits
and authorizations obtained in connection with the operation of the nursing home
located on the Demised Premises; and (ii) the name and telephone number used in
connection with the operation of the nursing home located on the Demised
Premises (other than the name "Sunrise Healthcare" or similar name). Lessee
hereby agrees to take such other action and execute such other documents as may
be necessary in order to vest in Lessor all right, title and interest to the
items specified herein, to the extent permitted by law.
21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so to elect, and the Lessor elects to terminate Lessee's right to
possession only, without terminating this Lease, Lessor may, at its option,
enter into the Demised Premises, remove Lessee's signs and other evidences of
tenancy and take and hold possession thereof as in the foregoing paragraph 21.2
of this Article provided, without such entry and possession terminating this
Lease or releasing Lessee, in whole or in part, from Lessee's obligation to pay
the Rent hereunder for the full remaining Term of this Lease, and in any such
case, Lessee shall pay to Lessor a sum equal to the entire amount of the Rent
reserved hereunder and required to be paid by Lessee up to the time of such
termination of the right of possession plus any other sums then due hereunder.
Upon and after entry into possession without termination of this Lease, Lessor
may attempt to relet the Demised Premises or any part thereof for the account of
Lessee for such Rent, or shall operate the nursing home located on the Demised
Premises for such time and upon such terms as Lessor in its sole discretion
shall determine. In any such case, Lessor may make repairs, alterations and
additions in or to the Demised Premises, and redecorate the same to the extent
deemed desirable by Lessor, and Lessee shall, upon demand, pay the reasonable
cost thereof, together with Lessor's reasonable expenses of reletting. If the
consideration collected by Lessor upon any such reletting is not sufficient to
pay monthly the full amount of Rent reserved in this Lease, together with the
reasonable costs of repairs, alterations, additions, redecorating and Lessor's
expenses, Lessee shall pay to the Lessor the amount of each monthly deficiency
upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment
of Rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to possession
only, as hereinabove
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provided. Upon such termination of the Lease or at any time after such
termination of Lessee's right to possession, Lessor may recover from Lessee and
Lessee shall pay to Lessor as damages, whether or not Lessor shall have
collected any current monthly deficiencies under the foregoing paragraph, and in
lieu of such current deficiencies after the date of demand for such damages, the
amount thereof found to be due by a court of competent jurisdiction, which
amount thus found may be equal to:
(a) the remainder, if any, of Rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the Rent reserved for what would have been the remainder of the Term of this
Lease together with charges to be paid by Lessee under the Lease; over
(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any shareholders, officers, directors, managers, members, agents or employees of
Lessor be liable under any express or implied covenant, agreement or provisions
of this Lease, for any damages whatsoever to Lessee beyond Lessor's interest in
the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
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23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures or other tangible property of any kind belonging to Lessee
and located in or about the Demised Premises. Such lien is granted for the
purpose of securing the payments of rents, charges, penalties, and damages
herein covenanted to be paid by Lessee, and for the purpose of securing the
performance of all of Lessee's obligations under this Lease. Such lien shall be
in addition to all rights to Lessor given and provided by law but shall only be
exercised by Lessor after the occurrence of an Event of Default which is not
cured within any applicable cure period. This Lease shall constitute a security
agreement under the Uniform Commercial Code granting Lessor a security interest
in any furnishings, equipment, fixtures or other tangible personal property
(subject to the terms of Article 11 herein) of any kind belonging to Lessee and
located in or about the Demised Premises. If required by Lessor, Lessee shall
execute financing statements for filing under the Uniform Commercial Code
reflecting the security interest granted under this section.
Notwithstanding anything to the contrary contained in this Section
24.1, in the event all or substantially all of the Demised Premises is sublet,
assigned or transferred or a controlling number of the outstanding shares in
Lessee is sold, assigned or otherwise transferred (other than to Andrew L.
Turner or a wholly owned subsidiary of Lessee or of Lessee's parent corporation
Sun Healthcare Group, Inc.) with the prior written consent of Lessor in
accordance with Section 18.1 of this Lease, this Lease shall at such time
constitute a security agreement under the Uniform Commercial Code granting
Lessor a security interest in any accounts receivable of Lessee's successor
related to the Demised Premises, and at such time, Lessee's successor shall
execute a security agreement and financing statements for filing under the
Uniform Commercial Code reflecting a security interest in said accounts
receivable.
ARTICLE XXV - INDEMNIFICATION
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25.1 To the extent insurance proceeds do not cover same, Lessee.
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to property,
occurring during the Term on the Demised Premises or, to the extent the same are
under Lessee's control, any adjoining sidewalks, streets or ways, or in any
manner growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future sewer
system, or the use of any adjoining sidewalks, streets or ways which are under
Lessee's control during the Term of this Lease, and Lessee further agrees to pay
any reasonable attorneys' fees and expenses incident to the defense by Lessor of
any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages or
deeds of trust now or hereafter in force and affecting the Demised Premises (or
any portion thereof) and/or the Personal Property, and to all renewals,
modifications, consolidations, replacements and extensions thereof (any such
Mortgage or deed of trust, as it may be renewed, modified, consolidated,
replaced or extended is hereinafter referred to as a "Mortgage", and the holder
or beneficiary of a Mortgage is hereinafter referred to as a "Mortgagee"),
provided that, for other than Existing Mortgages (as defined below), Lessee
receives a subordination, nondisturbance and attornment agreement in a
commercially reasonable form satisfactory to such Mortgagee. Lessee agrees to
execute, acknowledge and deliver upon demand such further instruments
subordinating this Lease to any such Mortgage, or other liens or encumbrances as
shall be desired by Lessor; provided, that Lessee receives a subordination,
nondisturbance and attornment agreement, in a commercially reasonable form
satisfactory to such Mortgagee. Furthermore, in connection with any mortgage
loan pertaining to the Demised Premises existing as of the date of this Lease
(an "Existing Mortgage"), Lessor agrees to use all commercially reasonable
efforts to deliver to Lessee a nondisturbance agreement from the current
Mortgagee in a form reasonably satisfactory to such Mortgagee on the
Commencement Date or as soon as possible thereafter. Lessee further agrees that
promptly after receipt of a request from any Mortgagee made at any time prior to
foreclosure of its Mortgage, Lessee shall execute, acknowledge and deliver to
such Mortgagee any instrument as such Mortgagee may reasonably request whereby
Lessee agrees to subordinate and attorn to such Mortgagee, at such Mortgagee's
election, after the foreclosure of its Mortgage or its acceptance of a deed in
lieu of foreclosure, provided that Lessee concurrently receives
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a nondisturbance agreement in commercially reasonable form satisfactory to such
Mortgagee. Lessee agrees further that any Mortgagee shall have the right to
subordinate its Mortgage and its rights thereunder to this Lease, except that
such Mortgagee shall be entitled to expressly exclude from such subordination
the Mortgagee's rights, if any, to insurance proceeds and eminent domain awards
in the event of a loss or casualty or eminent domain taking of the Demised
Premises or any portion thereof. If such Mortgagee executes and records an
instrument which purports to effect a partial or complete subordination of its
Mortgage to this Lease, any rights of such Mortgagee to insurance proceeds or
eminent domain awards which are expressly excluded from such subordination shall
remain superior to the rights of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Subject to the terms of any subordination, nondisturbance and
attornment agreement which may be in effect, and anything in this Lease
contained to the contrary notwithstanding, Lessee shall at all times and in all
respects fully, timely and faithfully comply with and observe each and all of
the conditions, covenants, and provisions required on the part of the Lessor and
of which Lessee has received notice under any Mortgage (and to any renewals,
modifications, extensions, replacements and/or consolidations thereof) to which
this Lease is subordinate or to which it later may become subordinate,
including, without limitation, such conditions, covenants and provisions thereof
as relate to the care, maintenance, repair, insurance, restoration, preservation
and condemnation of the Demised Premises, notwithstanding that such conditions,
covenants and provisions may require compliance and observance to a standard or
degree in excess of that required by the provisions of this Lease, or may
require performance not required by the provisions of this Lease, and shall not
do or permit to be done anything which would constitute a breach of or default
under any obligation of the Lessor under any such mortgage, it being the
intention hereof that Lessee shall so comply with and observe each and all of
such covenants, conditions and provisions of any such Mortgage affecting the
Demised Premises so that it will at all times be in good standing and there will
not be any default on the part of the Lessor thereunder. However, nothing in
this Article contained shall be construed to obligate Lessee to pay any part of
the principal or interest secured by any Mortgage or to perform any obligation
imposed on Lessor thereunder which is not delegable by Lessor by the terms
thereof. Lessee further covenants and agrees that Lessee shall give any
Mortgagee notice of any Lessor default under this Lease, and if Lessor fails to
cure such default, such Mortgagee shall have an additional reasonable time to
cure any such default on Lessor's behalf.
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ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease (except for
any payments resulting from Lessor's failure to comply with the terms of the
Mortgage), and not otherwise paid by Lessee to Lessor pursuant to Section 7.1,
shall be paid by the Lessee or as directed by Lessor.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
law now or hereafter in effect which may terminate this Lease or give or purport
to give Lessee any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any such proceedings are brought
against the Lessor under such Mortgage or the holder of any such Mortgage, and
agrees that this Lease shall not be affected in any way whatsoever by any such
proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
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ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite corporate
action to authorize the execution, delivery and performance of this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
(a) Lessor is a limited liability company duly organized and validly
existing under the laws of the State of New Mexico; and
(b) Lessor has full power and authority to enter into this Lease and
to carry out the transactions contemplated herein.
ARTICLE XXXI - SECURITY DEPOSIT
31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of this
Lease pay to Lessor, as a security deposit the sum of Seventy Three Thousand and
No/100 Dollars ($73,000.00), payable on the first day of the Term. Said
security deposit may be applied by Lessor for the purpose of curing any default
or defaults of Lessee hereunder, in which event Lessee shall replenish said
deposit in full by promptly paying to Lessor the amount so applied. Lessor
shall not pay any interest on said deposit, except as required by law. If
Lessee has not defaulted hereunder and Lessor has not applied said deposit to
cure a default, then said deposit, or such applicable portion thereof, shall be
paid to Lessee within thirty (30) days after the termination of this Lease.
Said deposit shall not be deemed an advance payment of Rent or a measure of
Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the operations
of the
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Demised Premises and nursing home operated thereon for such annual fiscal period
which shall be prepared by or on behalf of Lessee, and which shall contain a
balance sheet and detailed income and expense statement (collectively called
"Financial Statements"), and copies of all Medicaid and Medicare cost reports as
filed with the governmental authority, as of the end of the fiscal year. In
addition, Lessee shall furnish Lessor, within 10 days following filing, a copy
of its or its parent corporation's federal income tax return if it does not file
separate returns for the preceding year. Each such statement shall be certified
as being true and correct by an officer of Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request by Lessor, Lessee shall
make available for inspection by Lessor or its designee, during reasonable
business hours, the said records and books of account covering the entire
business operations of Lessee on the Demised Premises.
ARTICLE XXXIII - TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty within
sixty (60) or fewer days' notice or which Lessor requests be assigned to Lessor
or its designee pursuant to this Article 33;
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(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for periods
on or prior to the Closing Date) entered in connection with the Demised Premises
to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises, running
to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical records
as provided by law and confidentiality requirements), books, records, files and
other business records attributable to the business or operations of the Demised
Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of the Demised Premises, to the extent assignable by Lessee (excluding the right
to any payments for periods prior to the Closing Date) any and all patient trust
fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the Demised
Premises as a long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name of
the business conducted thereon and all telephone numbers presently in use
therein but specifically excluding the name "Sunrise Healthcare" or similar
name, or any Sunrise policy or procedure manuals, forms or systems, or other
confidential or proprietary information.
33.2 Lessee shall be responsible for, and pay all accrued expenses
with respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the Demised
Premises for the period through 12:00 a.m. on the Closing Date. Lessor shall be
responsible for and pay all accrued expenses with respect to the Demised
Premises accruing on or after 12:01 a.m. on the day after the Closing Date and
shall be entitled to receive and retain all revenues from the Demised Premises
accruing on or after the Closing Date. Within
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fifteen (15) business days after the Closing Date, the following adjustments and
prorations shall be determined as of the Closing Date and the party to whom
payment is owed shall receive said payment within said fifteen (15) day period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in which
the Closing Date occurs, the proration of such taxes shall be estimated at the
Closing Date based upon reasonable information available to the parties,
including information disclosed by the local tax office or other public
information, and an adjustment shall be made when actual figures are published
or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date. The obligation for wages and the obligation, if any, to pay to
employees of the Demised Premises accrued vacation and sick leave pay or
employee severance pay or other accrued benefits which may be payable as the
result of any termination of any employee on or prior to the Closing Date for
the period prior to the Closing Date shall remain the Lessee's obligation after
the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of insurance
premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and deposits, maintenance charges and service charges
shall be prorated between Lessee and Lessor as of the Closing Date. Lessee
shall, if possible, obtain final utility meter readings as of the Closing Date.
To the extent that information for any such proration is not available on the
Closing Date, Lessee and Lessor shall effect such proration within ninety (90)
days after the Closing Date or as soon thereafter as such information becomes
available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance premiums;
and (ii) any other sums being held by Lessor for the benefit of Lessee provided
that any such sums are not needed to pay costs and expenses which relate to the
period prior to the Closing Date, in accordance with the applicable provisions
of this Lease.
(g) Subject to the terms of Article 31 hereof, Lessee shall receive a
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credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation or other confidential or proprietary information.
Such transfer and delivery shall be in accordance with all applicable laws,
rules and regulations concerning the transfer of medical records and other types
of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with an accounting of all funds belonging to patients at the
Demised Premises which are held by Lessee in a custodial capacity. Such
accounting shall set forth the names of the patients for whom such funds are
held, the amounts held on behalf of each such patient and the Lessee's warranty
that, to the actual current knowledge of Lessee, the accounting is true, correct
and complete. Additionally, Lessee, in accordance with all applicable rules and
regulations, shall make all necessary arrangements to transfer such funds to a
bank account designated by Lessor, and Lessor shall in writing acknowledge
receipt of and expressly assume all the Lessee's financial and custodial
obligations with respect thereto. Notwithstanding the foregoing, Lessee will
indemnify and hold Lessor harmless from all liabilities, claims and demands,
including reasonable attorney's fees, in the event the amount of funds, if any,
transferred to Lessor's bank account as provided above, did not represent the
full amount of the funds then or thereafter shown to have been delivered to
Lessee as custodian that remain undisbursed for the benefit of the patient for
whom such funds were deposited, or with respect to any matters relating to
patient funds which accrue during the Term of this Lease.
33.5 For the period commencing upon an Event of Default hereunder and
Lessor's election to terminate this Lease as provided in Article 21 and ending
on the date Lessor or its designee obtains all appropriate state or other
governmental licenses and certifications required to operate the Demised
Premises as a Medicare and
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Medicaid certified nursing home, Lessee shall enter into a management agreement
with Lessor or Lessor's designee whereby Lessor or its designee shall have the
right to operate the Demised Premises, on a triple net basis, and shall be
entitled to all revenues of the Demised Premises during such period, and to use
any and all licenses, certifications and provider agreements issued to Lessee by
any federal, state or other governmental authority for such operation of the
Demised Premises, if permitted by such governmental authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other receivables
of Lessee, whether derived from operation of the Demised Premises or otherwise,
shall remain the property of Lessee after the Closing Date. Lessee shall retain
full responsibility for the collection thereof. Lessor shall assume
responsibility for the billing and collection of payment on account of services
rendered by it on and after the Closing Date. In order to facilitate Lessee's
collection efforts, Lessee agrees to deliver to Lessor, within a reasonable time
after the Closing Date, a schedule identifying all of those private pay balances
owing for the month prior to the Closing Date and Lessor agrees to apply any
payments received which are specifically designated as being applicable to
services rendered prior to the Closing Date to reduce the pre-Closing balances
of said patients by promptly remitting said payments to Lessee. In the event
payments specifically indicate that they relate to services rendered
post-Closing, such payments shall be retained by Lessor. In the event no
designation is made, such payments shall be applied one-half to Lessee's
accounts receivable and one-half to Lessor's accounts receivable. Lessor shall
cooperate with Lessee in Lessee's collection of its pre-Closing accounts
receivable. Lessor shall have no liability for uncollectible receivables and
shall not be obligated to bear any expense as a result of such activities on
behalf of Lessee. Subject to the provisions of Article 24 hereof, Lessor shall
remit to Lessee or its assignee those portions of any payments received by
Lessor which are specifically designated as repayment or reimbursement received
by Lessor arising out of cost reports filed for the cost reporting periods
ending prior to the Closing Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or Medicaid
on the Closing Date will, under current regulations, be paid by Medicare or
Medicaid directly to Lessee for services rendered at the Demised Premises prior
to the Closing Date allocated on the per diem basis. Said payments shall be the
sole responsibility of Lessee and, except as provided in Section 33.7(b) below,
Lessor shall in no way be liable therefor. After the Closing Date, Lessor and
Lessee shall each have the right to
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review supporting books, records and documentation that are in the possession of
the other relating to Medicaid or Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents reimbursement
with respect to services provided at the Demised Premises prior to the Closing
Date, Lessor agrees that it shall remit such payments to Lessee. Payments by
Lessor to Lessee shall be accompanied by a copy of the appropriate remittance
advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing Date such other instruments, documents and materials, as the other may
reasonably request in order to effectuate the consummation of the transaction
contemplated herein. The obligations hereunder shall survive termination or
expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest, penalties
and reasonable attorney's fees, costs and expenses) (hereinafter collectively
"the Claims") which any of them may suffer as a result of the breach by the
other party in the performance of any of its commitments, covenants, or
obligations under this Article 33. Lessee does further agree to indemnify,
defend and hold harmless Lessor from any such Claims or with respect to any
suits, arbitration proceedings, administrative actions or investigations which
relate to the use by Lessee of the Demised Premises prior to the Closing Date or
any liability which may arise from operation by Lessee of the Demised Premises
as a nursing home prior to the Closing Date or any amounts recaptured under
Title XIX based upon applicable Medicare/Medicaid Recapture Regulations. Lessor
does further agree to indemnify, defend and hold harmless Lessee from any such
Claims or with respect to any suits, arbitration proceedings, administrative
actions or investigations which relate to the ownership of the Demised Premises
by Lessor or the use of the Demised Premises by Lessor or the operation by
Lessor of the nursing home located thereon after the Closing Date. The rights
of the parties under this paragraph are without prejudice to any other remedies
not inconsistent herewith which the parties may have pursuant to the terms of
this Lease, provided the rights of Lessee hereunder are subject to Section 22.1
hereof.
33.10 Anything to the contrary contained in this Article 33
notwithstanding, in the event the termination of this Lease is due to a default
by Lessee, none of the provisions of this Article 33 shall in any way limit,
reduce, restrict or modify the rights granted to Lessor pursuant to Articles 21,
23, and 24 of this Lease. If the termination of this Lease is a result of an
Event of Default, then to the
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extent any monies are due to Lessee pursuant to this Article 33, such sums shall
be applied by Lessor to any damages suffered by Lessor as a result of Lessee's
Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including
Taxes and Assessments and all other charges herein provided, and upon observing
and keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of a
default of payment when due, the Lessor shall be entitled to all of the remedies
available at law or equity, or under this Lease, for the nonpayment of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent under
the terms of this Lease, or the failure on the part of Lessor to object to any
such action taken by Lessee without Lessor's consent, shall not be deemed a
waiver by Lessor of its rights to require such consent for any further similar
act by Lessee, and Lessee hereby expressly covenants and warrants that as to all
matters requiring Lessor's consent under the terms of this Lease, Lessee shall
secure such consent for each and every happening of the event requiring such
consent, and shall not claim any waiver on the part of Lessor of the requirement
to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did
not deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of
the Term this Lease with the consent of Lessor, Lessee shall become a tenant on
a
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month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental, for
the period of such month-to-month tenancy, in an amount equal to one hundred
fifty percent (150%) the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address set
forth below:
If to Lessor: Raton Property Limited Company
c/o Karell Capital Ventures, Inc.
Suite 1901
Two North LaSalle Street
Chicago, Illinois 60602
Attention: Mr. Craig Bernfield
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
Attention: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute
and deliver a Memorandum of Lease in recordable form so that the same may be
recorded by either party and the costs thereof shall be borne by the party
requesting recordation of the Memorandum.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the
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same is in full force and effect as modified, and stating the modifications),
the dates to which Rent has been paid, the amount of the Security Deposit held
by Lessor, and whether the Lease is then in default or whether any events have
occurred which, with the giving of notice or the passage of time, or both, could
constitute a default hereunder, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
assignee, Mortgagee or purchaser of the fee interest in the Demised Premises or
of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to Articles
referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought. This Lease cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit of
the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be
held invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision shall be valid and be
enforceable to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to
the Demised Premises, the grantor or the person who is divested of title shall
be entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and
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the grantee or the person who otherwise succeeds to title shall be deemed to
have assumed the covenants and obligations of the grantor or the person who is
divested of title thereafter accruing hereunder and shall then be the Lessor
under this Lease. Notwithstanding anything to the contrary provided in this
Lease, if Lessor or any successor in interest of Lessor shall be an individual,
partnership, corporation, trust, tenant in common or Mortgagee, there shall be
absolutely no personal liability on the part of any individual or member of
Lessor or any stockholder, director, officer, employee, partner or trustee of
Lessor with respect to the terms, covenants or conditions of this Lease, and
Lessee shall look solely to the interest of Lessor in the Demised Premises for
the satisfaction of each and every remedy which Lessee may have for the breach
of this Lease; such exculpation from personal liability to be absolute and
without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of
any of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not be
construed to be a waiver or relinquishment of any such covenant, agreement,
term, condition or option and the same shall be and remain in full force and
effect.
34.19 This Lease may be executed in counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of New Mexico.
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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
RATON PROPERTY LIMITED COMPANY, SUNRISE HEALTHCARE
a New Mexico limited liability CORPORATION, a New Mexico company
corporation
By:_____________________ By:_____________________
Its: Manager Its:_____________________
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EXHIBIT A
Legal Description
43
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EXHIBIT B
To be completed within thirty (30) days of Commencement Date
44
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LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of November 30, 1996, by and
between WASHINGTON ASSOCIATES, an Illinois limited partnership (hereinafter
referred to as "Lessor"), and SUNRISE HEALTHCARE CORPORATION, a New Mexico
Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor is the owner of a certain tract of land located in the
State of Washington and more particularly described in EXHIBIT A attached hereto
and made a part hereof, which tract of land is improved with a one hundred
twenty three (123) bed nursing facility commonly known as Blue Mountain
Convalescent Center located at 1200 South East Twelfth Street, College Place,
Washington (which tract and nursing home facility, together with any other
improvements now or hereafter located on the tract and all easements, tenements,
hereditaments and appurtenances thereto are hereinafter collectively referred to
as the "Demised Premises"); and
WHEREAS, Lessor, pursuant to the terms of a certain Lease Agreement dated
December 31, 1986 (the "Original Lease"), leased the Demised Premises to Horizon
Health Systems, L.P.; and
WHEREAS, Horizon Health Systems, L.P., pursuant to the terms of a Sublease,
Assumption and Consent Agreement dated December 31, 1988, subleased the Demised
Premises to Lessee;
WHEREAS, the Original Lease provides for a lease term which expires
December 31, 1996;
WHEREAS, Lessor desires to continue to lease the Demised Premises to Lessee
and Lessee desires to continue to lease the Demised Premises from Lessor
pursuant to the terms and conditions of this Lease; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and all
agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation,
those items set forth on EXHIBIT B attached hereto and made a part hereof),
other than such furniture, fixtures, equipment and supplies that persons
other than the Lessor may own or that the Lessee may lease from persons
<PAGE>
other than the Lessor or that are purchased by Lessee other than as
replacements for Personal Property.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing on
the Commencement Date as hereafter defined, and on each anniversary of the
Commencement Date thereafter, except that if the Commencement Date is other
than the first day of a calendar month, then the first Lease Year shall be
the period from the Commencement Date through the date twelve (12) months
after the last day of the calendar month in which the Commencement Date
occurs, and each subsequent Lease Year shall be the period of twelve (12)
months following the last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Lessee, its successors and assigns, to be paid, kept and performed, does hereby
lease unto Lessee the Demised Premises together with the Personal Property to be
used in and upon the Demised Premises for the Term hereinafter specified, for
use and operation therein and thereon of a skilled and/or intermediate care
nursing home, in full compliance with all the rules and regulations and minimum
standards applicable thereto, as prescribed by the State of Washington and such
other governmental authorities having jurisdiction thereof and having no less
than one hundred twenty three (123) beds and for any other purpose authorized by
Lessor in writing and for no other purpose.
ARTICLE III - TERM OF LEASE
3.1 Except as expressly provided below, the term of this Lease shall be
for a period of ten (10) years commencing on January 1, 1997, (said date is
hereafter referred to as the "Commencement Date"), and expiring on December 31,
2006, unless sooner terminated or extended as hereinafter provided (the "Initial
Term").
3.2 Lessee shall have and is hereby granted the right and option to extend
the Initial Term of this Lease for an extended term (the "First Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the First Extended Term shall be the amount set
forth in Section 4.1. The first Lease Year of the First Extended Term shall
commence upon the day next following the expiration of the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised only
if Lessee is not in default under this Lease at the time of exercise and at the
time of expiration of the Initial Term, and, further, only if there is not at
either time an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the date of
expiration of the Initial Term.
3.3 Provided Lessee shall have exercised the option contained in Section
3.2 above, Lessee shall and Lessee is hereby granted the right and option to
extend this Lease for an additional Extended Term (the "Second Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except
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that Rent, as hereinafter defined, payable with respect to each Lease Year of
the Second Extended Term shall be the amount set forth in Section 4.1 hereof.
The first Lease Year of the Second Extended Term shall commence on the day next
following the expiration of the First Extended Term.
The option granted pursuant to this Section 3.3 may be exercised only
if Lessee is not in default under the Lease at the time of exercise and at the
time of the expiration of the First Extended Term, and, further, only if there
is not then an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the expiration of the
First Extended Term.
Notwithstanding the foregoing, Lessor acknowledges and agrees that the
Rent for the First Extended Term and the Second Extended Term may not be known
by Lessor at the time that Lessee is required to exercise its respective renewal
options. Accordingly, in the event Lessor has not advised Lessee of the First
Extended Term Rent at least thirteen (13) months prior to the date of the
expiration of the Initial Term or the Second Extended Term Rent at least
thirteen (13) months prior to the expiration of the First Extended Term, Lessee
shall have the right to exercise the renewal right provided for herein subject
to the right to rescind the same on written notice to Lessor delivered within
thirty (30) days after Lessor advises Lessee in writing as to the First Extended
Term Rent or the Second Extended Term Rent, as the case may be (the "Rent
Notice"), which Rent Notice shall be delivered by Lessor to Lessee as soon as
practicable after the debt service for the First Extended Term or the Second
Extended Term, as the case may be, has been determined but in no event less than
one hundred and eighty (180) days prior to the commencement of the First
Extended Term or the Second Extended Term, as the case may be.
The Initial Term, as it may be extended by the First Extended Term and
the Second Extended Term, is hereinafter collectively known as the "Term".
As used in this ARTICLE 3, the term default shall mean an "Event of
Default" as defined in ARTICLE 19 of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or
as Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to be
made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual Rent of $439,079.40,
payable in equal monthly installments of $36,589.95;
(ii) For the second Lease Year and each subsequent Lease Year (of
the Initial Term or any Extended Lease Term) an amount equal to the
prior Lease Year's Rent multiplied by 1.5 times the increase, if any,
in the Cost of Living Index (as hereinafter defined) in effect on
October 1st of the current Lease Year over the Cost of Living Index in
effect on October 1st of the preceding Lease Year; provided, however,
that in no event will the increase in Rent from one Lease Year to the
next be greater than two and one-half percent (2.5%) of the sum of the
prior Lease Year's Rent nor shall such Rent decrease from the prior
Lease Year; and
(iii) The Cost of Living Index is defined as the Consumer
Price
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Index for All Urban Consumers, U.S. City Average (1982-1984 = 100),
published by the BLS, or such other renamed index. If the BLS changes
the publication frequency of the Cost of Living Index so that a Cost
of Living Index is not available to make a cost-of-living adjustment
as specified herein, the cost-of-living adjustment shall be based on
the percentage difference between the Cost of Living Index for the
closest preceding month for which a Cost of Living Index is available
and Cost of Living Index for the comparison month is required by this
Lease. If the BLS changes the base reference period for the Cost of
Living Index from 1982-84 = 100, the cost-of-living adjustment shall
be determined with the use of such conversion formula or table as may
be published by the BLS. If the BLS otherwise substantially revises,
or ceases publication of the Cost of Living Index, then a substitute
index for determining cost-of-living adjustments, issued by the BLS or
by a reliable governmental or other nonpartisan publication, shall be
reasonably selected by Lessor and Lessee.
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the Rent for the
month and a pro rata portion of all tax, insurance and other deposits provided
for in this Lease. All fixed annual rental payments shall be made in equal
monthly installments and shall be paid in advance on the first (1st) day of each
month (together with all tax and insurance deposits required in this Lease).
Unless otherwise notified in writing, all checks shall be made payable to Lessor
and shall be sent c/o Washington Associates, Two North LaSalle Street, Suite
1901, Chicago, Illinois 60602.
The Rent set forth in this ARTICLE 4 is based, in part, upon the debt
service of the permanent first mortgage financing on the Demised Premises
("Initial Financing"). In the event that the debt service payable on Lessor's
mortgage financing in effect on the date that the First Extended Term commences
is more or less that the debt service on the Initial Financing, the Rent due
during the First Extended Term shall be adjusted according to the following
formula: The annual Rent due during the first year of the First Extended Term
shall be increased or decreased in an amount equal to the difference between (i)
the annual debt service on the indebtedness secured by the first mortgage
encumbering the Demised Premises in effect on the first day of the First
Extended Term, and (ii) the annual debt service on the indebtedness secured by
the first mortgage encumbering the Demised Premises in effect on the day of the
Initial Financing; provided, however, that the amount of principal to be used in
making the calculations shall not exceed the original principal amount of the
loan encumbering the Demised Premises concurrent with Lessor's acquisition of
the Demised Premises. The subsequent annual increases as provided in ARTICLE
4.1 above for the remainder of the First Extended Term shall be calculated on
the Annual Rent payable during the first year of the First Extended Term as so
adjusted.
In the event that the debt service payable on Lessor's mortgage
financing in effect on the date that the Second Extended Term commences is more
or less than the debt service on Lessor's mortgage financing in effect on the
date the First Extended Term commences, the Rent due during the Second Extended
Term shall be adjusted according to the following formula: the annual Rent due
during the first year of the Second Extended Term shall be increased or
decreased in an amount equal to the difference between (i) the annual debt
service on the indebtedness secured by the first mortgage encumbering the
Demised Premises in effect on the first day of the Second Extended Term, and
(ii) the annual debt service on the indebtedness secured by the first mortgage
encumbering the Demised Premises on the date that the First Extended Term
commences; provided, however, that the amount of principal to be used in making
the calculation shall not exceed the original principal amount of the loan
encumbering the Demised Premises concurrent with Lessor's acquisition of the
Demised Premises. The subsequent annual increases as provided in ARTICLE 4.1
above for the remainder of the Second Extended Term shall be calculated on the
annual rent payable during the first year of the Second Extended Term as so
adjusted.
4.2 This Lease is and shall be deemed and construed to be a "pure net" or
"triple-net" lease and the Rent specified herein shall be net to the Lessor in
each year during the Term of this Lease. The Lessee shall pay
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all costs, expenses and obligations of every kind whatsoever relating to the
Demised Premises which may arise or become due during the Term of this Lease,
except for any principal and interest payments and other costs owed by Lessor
relating to any Mortgage (defined below) and Landlord's general overhead and
administrative expenses (collectively, "Additional Rent"). Lessee does hereby
indemnify the Lessor against any and all such costs, expenses and obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee
to Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due and
payable as in this Lease provided, a late charge of 3% per month on the sums so
overdue shall become immediately due and payable to Lessor as liquidated damages
for Lessee's failure to make prompt payment and said late charges shall be
payable on the first day of the month next succeeding the month during which
such late charges become payable. If non-payment of any late charges shall
occur, Lessor shall have, in addition to all other rights and remedies, all the
rights and remedies provided for herein and by law in the case of non-payment of
Rent. No failure by Lessor to insist upon the strict performance by Lessee of
Lessee's obligations to pay late charges shall constitute a waiver by Lessor of
its rights to enforce the provisions of this Article in any instance thereafter
occurring.
ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
6.1 Lessee will pay or cause to be paid, as provided herein, as
additional Rent, before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, all taxes, assessments, licenses and permit fees,
charges for public utilities, and all governmental charges, general and special,
ordinary and extraordinary, foreseen and unforeseen, of any kind and nature
whatsoever which during the Term of this Lease may have been, or may be
assessed, levied, confirmed, imposed upon or become due and payable out of or in
respect of, or become a lien on the Demised Premises and/or Personal Property or
any part thereof (hereinafter collectively referred to as "Taxes and
Assessments").
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the Term of this Lease and a part
of which is included in a period of time after the Term of this Lease, shall be
adjusted pro rata between Lessor and Lessee and each party shall be responsible
for its pro rata share of any such Taxes and Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, business license, estate,
succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being
forfeited or lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust,
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cash or other security satisfactory to Lessor in an amount equal to
not less than the amount of such Taxes and Assessments which at such
time shall be actually due and payable, and such additional amounts
reasonably required by Lessor and any Mortgagee (as hereinbelow
defined) of Lessor from time to time, together with all interest and
penalties in connection therewith and all charges that may or might be
assessed against or become a charge on the Demised Premises or any
part thereof in such proceedings, or, if required by the taxing
authority, an amount deposited in trust with the taxing authority
during the pendency of any contest in lieu of any additional charge
against the Demised Premises until resolution of the contest.
Unless Lessor agrees otherwise, the cash so deposited with Lessor
shall not bear interest and the cash or securities so deposited shall be held by
Lessor until the Demised Premises or any part thereof shall have been released
and discharged and shall thereupon be returned to the Lessee, less the amount of
any loss, cost, damage and reasonable expense that Lessor or any Mortgagee has
sustained in connection with the Taxes and Assessments so contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay
the amount of such Taxes and Assessments or part thereof as finally determined
in such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith, and such payment, at
Lessee's request, shall be made by Lessor out of the amount deposited with
respect to such Taxes and Assessments as aforesaid. In the event such amount is
insufficient, then the balance due shall be paid by Lessee.
6.6 Lessor shall not be required to join in any proceedings referred
to in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in the
name of Lessor, in which event Lessor shall join in such proceedings or permit
the same to be brought in its name. Lessor shall not ultimately be subjected to
any liability for the payment of any costs or expenses in connection with any
such proceedings, and Lessee will indemnify and save harmless Lessor from any
such costs and expenses. Lessee shall be entitled to any refund of any Taxes
and Assessments and penalties or interest thereon received by Lessor but
previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed
or imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for real
estate or personal property taxes imposed upon the Demised Premises or Personal
Property or otherwise, then Lessee shall be responsible for the payment of such
tax.
ARTICLE VII - TAX DEPOSITS
7.1 Lessee shall be required to make deposits for annual Taxes and
Assessments and, will make monthly deposits with Lessor, of an amount equal to
one twelfth (1/12) of the annual Taxes and Assessments or such greater amount as
may be required by any Mortgagee. Said deposits shall be due and payable on the
first day of each month as additional Rent, shall not bear interest and shall be
held by Lessor and/or a mortgagee of the Lessor to pay the real estate taxes as
they become due and payable. If the total of the monthly payments as made under
this Article shall be insufficient to pay the Taxes and Assessments when due,
then Lessee shall on demand pay Lessor the amount necessary to make up the
deficiency, and if appropriate, Lessee shall receive a credit against the next
monthly tax escrow payment coming due in an amount equal to said deficiency
payment.
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ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled care
and/or intermediate care nursing home and for no other purpose. Lessee shall at
all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of Washington and any
other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified skilled
and/or intermediate care nursing home facility with no less than one hundred
twenty three (123) licensed, and Medicaid certified beds.
8.2 Lessee will not suffer any act to be done or any condition to
exist on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable any
insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by all
governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than one hundred twenty three (123) licensed, and Medicaid
certified beds with licenses, certifications, and provider agreements in full
force and good standing. All the Demised Premises, with the improvements
located thereon, and all the Personal Property shall be surrendered in good
order, condition and repair, ordinary wear and tear excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of
this Lease, maintain property insurance provided by a Causes of Loss-Special
Form or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor, not to be unreasonably withheld. Such
insurance shall, at all times, be maintained in an amount equal to the full
replacement cost of the Demised Premises and the Personal Property or in such
lesser amount as may be required by Lessor and any Mortgagee of the Demised
Premises but at all times, in an amount sufficient to prevent Lessor and Lessee
from becoming co-insurers under applicable provisions of the insurance policies.
As used herein, the term "full replacement cost" shall mean coverage for the
actual replacement cost of the Demised Premises and the Personal Property
requiring replacement from time to time which, if not agreed upon by Lessor and
Lessee, shall be determined by an appraiser, engineer, architect or contractor
reasonably selected by Lessor. Upon request by Lessee, Lessor will provide
Lessee with information in its possession which is reasonably necessary to
establish the value of the Demised Premises. Such insurance shall at all times
be payable to Lessor and Lessee as their interests may appear, and shall contain
a loss-payable clause to the holder of any Mortgage to which this Lease shall be
subject and subordinate (in accordance with ARTICLE 26 herein) , as said
Mortgagee's interest may appear. All such policies of insurance shall provide
that:
(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of
Lessor or Lessee, which might otherwise result in forfeiture of insurance;
and
(b) A standard Mortgagee clause in favor of any Mortgagee, and shall
contain, if obtainable, a waiver of the insurer's right of subrogation
against funds paid under the standard Mortgagee endorsement which are to be
used to pay the cost of any repairing, rebuilding, restoring or replacing.
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9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or
property damage occurring upon, in or about the Demised Premises. Such
insurance to have limits of not less than $1,000,000 each occurrence and
$3,000,000 general aggregate and an excess or umbrella liability policy of
not less than $5,000,000 each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee to
change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder. Notwithstanding the
foregoing, Lessee shall not be required to add coverage for damage to the
Demised Premises resulting from earthquake or flood as covered losses unless the
Demised Premises is classified as an earthquake or flood prone area by an
authority having jurisdiction over the Demised Premises and such authority
recommends such insurance.
9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten (10)
days after Lessor's request therefore, Lessee shall deliver to Lessor copies of
all insurance policies then being carried by Lessee pursuant to this ARTICLE 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due during
the period of the business interruption at the Facility (the "Business
Interruption Period");
(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
All proceeds of any business interruption insurance shall be applied,
first, to the payment of any and all fixed rental payments for the Business
Interruption Period; second, to the payment of any Taxes and Assessments and
insurance deposits required to be deposited for the Business Interruption
Period; and, thereafter, after all necessary repairing, rebuilding, restoring or
replacing has been completed as required by the pertinent Articles of this Lease
and the pertinent sections of any mortgage, any remaining balance of such
proceeds shall be paid over to the Lessee.
In lieu of the foregoing but subject to the terms and conditions of
this ARTICLE 9, Lessee may, at its option, obtain and maintain a blanket
insurance policy in an amount sufficient to provide all or part of the coverage
described in this ARTICLE 9.
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ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed
to be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon shall immediately be
payable by Lessee to Lessor, with interest thereon at a rate which is the lesser
of fifteen percent (15%) per annum or the maximum rate permitted by law from
date thereof until paid, and in addition, Lessee shall reimburse Lessor for
Lessor's reasonable expenses in enforcing or performing such covenants,
including reasonable attorney's fees. Any such costs or expenses incurred or
payments made by the Lessor shall be deemed to be Additional Rent payable by
Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment shall
in no way constitute a waiver of, or a limitation upon, Lessor's other rights
hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of this
Lease but only to the extent such Mortgagee is entitled under the terms of its
Mortgage and the provisions of any subordination, nondisturbance and attornment
agreement which may be in effect for such Mortgage.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the Demised
Premises (including the grounds, sidewalks and curbs abutting the same) and the
Personal Property in good order and condition without waste and in suitable
state of repair at least comparable to that which existed immediately prior to
the Commencement Date (ordinary wear and tear excepted, subject to Lessee's
obligation to repair and replace the same in accordance with the terms of this
Lease), and will make or cause to be made, as and when the same shall become
necessary, all structural and nonstructural, exterior and interior, replacing,
repairing and restoring necessary to that end. All replacing, repairing and
restoring required of Lessee shall be (in the reasonable opinion of Lessor) of
quality at least equal to the original work and shall be in compliance with all
standards and requirements of law, licenses and municipal ordinances necessary
to operate the Demised Premises as a Medicare and Medicaid certified skilled
and/or intermediate care nursing home having no less than one hundred twenty
three (123) licensed, and Medicaid certified beds.
11.2 Any items of Personal Property that are uneconomical to repair shall
be replaced by new items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be removed
from the Demised Premises except in connection with repair or replacement of
such items. Lessee may place additional property on the Demised Premises (not
required for the replacement of the Personal Property) and such additional
property shall be and remain the property of Lessee. Lessee shall remove such
additional property upon termination or expiration of this Lease provided that
Lessee shall make such necessary repairs or replacements as may be required in
order to return the Demised Premises to the condition which existed prior to the
removal of the additional property.
11.3 Provided there is not an Event of Default by Lessee under this
Lease, Lessee shall have the right, at any time and from time to time, to remove
and dispose of any Personal Property which may have become obsolete or unfit for
use, or which is no longer useful in the operation of the Demised Premises,
provided Lessee promptly replaces any such Personal Property so removed or
disposed of with other personal property free of any
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security interest, lien or encumbrance. Said personal property shall be of the
same character and shall be at least equal in usefulness and quality as any such
Personal Property so removed or disposed of, and such replacement property shall
automatically become the property of and shall belong to the Lessor, and Lessee
shall execute such bills of sale or other documents reasonably requested by
Lessor to vest the ownership of such personal property in Lessor.
Notwithstanding the foregoing, Lessee shall have the right to place leased
Personal Property on the Demised Premises provided that the payments due under
such leases do not exceed $4,000 per year. In the event Lessee desires to place
leased personal property on the Demised Premises having annual payments in
excess of the amount provided for herein, Lessee shall advise Lessor in writing
and Lessor shall use its reasonable best efforts to seek the approval of the
Mortgagee or an amendment of the Mortgage with respect thereto.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by fire
or other casualty (any such event being called a "Casualty"), Lessee shall
promptly replace, repair and restore the same as nearly as possible to its
condition immediately prior to such Casualty, in accordance with all of the
terms, covenants and conditions and other requirements of this Lease and any
applicable Mortgage and in accordance with any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage; provided,
however, that in the event of a Casualty occurring during the last six (6)
months of the Term or a Casualty resulting from an earthquake, flood, nuclear
accident or war which is not covered by insurance maintained by Lessee and which
renders the Demised Premises unsuitable for use as a nursing home, in the
reasonable opinion of Lessor and Lessee, then Lessee shall have the right to
terminate this Lease upon forty-five (45) days written notice to Lessor. If
applicable, the Demised Premises and the Personal Property shall be so replaced,
repaired and restored as to be of at least equal value and substantially the
same character as prior to such Casualty. If the estimated cost of any such
restoring, replacing or repairing is Fifty Thousand Dollars and no/100
($50,000.00) or more, the plans and specifications for same shall be first
submitted to and approved in writing by Lessor, which approval shall not be
unreasonably withheld, and, if reasonably required by Lessor, Lessee shall
immediately select an independent architect, approved by Lessor who shall be in
charge of such repairing, restoring or replacing. Lessee covenants that it will
give to Lessor prompt written notice of any Casualty affecting the Demised
Premises or the personal property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30)
days after approval of the final plans and specifications (including by
Mortgagee and any governmental or quasi-governmental agency or entity exercising
jurisdiction), issuance of a building permit and any other necessary permits and
licenses for commencement of construction, whichever is later, Lessee shall
commence to restore the Demised Premises and Lessee shall complete the same
within 180 days thereafter, provided, however, that in the case of damage or
destruction which cannot with due diligence be repaired within said 180 day
period, Lessee shall have an additional period of time, not to exceed 180
additional days, to complete the reconstruction, provided Lessee is proceeding
promptly and with due diligence to complete the restoration. Lessee may utilize
all insurance proceeds available for any such repair or restoration, subject to
the terms of Section 11A.3 hereof and any required approval of any Mortgagee.
Lessee's obligation to make Rent payments and to pay all other charges required
by this Lease shall not be abated during the period of the repair or
restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received from
such insurance proceeds is sufficient to complete such work or (ii) if there is
an amount required in excess of the amount received from such insurance
proceeds, either said excess amount has been expended by Lessee or that Lessee
has deposited such excess funds with Lessor or has satisfied Lessor that it has
such funds available to it so that, in either case, the total amount available
will be sufficient to complete such repairing, rebuilding, restoring or
replacing in accordance with the provisions of any Mortgage and any plans and
specifications submitted in connection therewith, free from any liens or
encumbrances of any kind whatsoever and the funds
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held by Lessor shall be disbursed periodically during construction, but not more
than once every thirty (30) days after the presentment of architect's or general
contractor's certificates, waivers of lien, contractor's sworn statements, and
other evidence of cost and payments as may be reasonably required by Lessor or
any Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part of the Demised Premises or any portion thereof or allow it to be
removed or demolished, without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld. Except as required by law, Lessee
further agrees that it will not make, authorize or permit to be made any changes
or alterations in or to the Demised Premises without first obtaining Lessor's
written consent thereto, which consent shall not be unreasonably withheld. All
alterations, improvements and additions to the Demised Premises shall be in
quality and class at least equal to the original work and shall become the
property of the Lessor and shall meet all building and fire codes, and all other
applicable codes, rules, regulations, laws and ordinances. Nothing herein shall
be deemed or construed to require Lessee to obtain Lessor's consent to non-
structural changes or alterations such as painting, the replacement of
wallcoverings or the replacement of floor coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than one
hundred twenty three (123) licensed, and Medicaid certified beds, which may be
applicable to the Personal Property and the Demised Premises and including, but
not limited to, the sidewalks, alleyways, passageways, vacant land, parking
spaces, curb cuts, curbs adjoining the Demised Premises, which are under
Lessee's control, whether or not such law, ordinance, order, rules, regulation
or requirement shall necessitate structural changes or improvements.
13.2 Lessee shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than one
hundred twenty three (123) licensed, and Medicaid certified beds, and the
Demised Premises shall be qualified to participate in the Medicare and Medicaid
reimbursement programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever Rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and surveys, administrative proceedings and/or court actions
from all state, federal and local governmental bodies regarding the Demised
Premises or the nursing home operated thereon. Lessee shall notify Lessor
within twenty-four (24) hours after receipt thereof of any notice from any
governmental agency terminating or suspending or threatening termination or
suspension of any license, permit, provider agreement or certification relating
to the Demised Premises or the nursing home operated thereon.
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13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property, Lessee shall have the right to contest such lien or charge,
provided, Lessee within thirty (30) days after notice of the filing thereof,
will cause the same to be discharged of record or in lieu thereof to secure
Lessor against said lien by either (i) deposit with Lessor of such security as
may be reasonably demanded by Lessor to protect against such lien, or (ii) post
a release bond in form and amount as required by applicable law and as otherwise
satisfactory to Lessor. If Lessee shall fail to cause such lien to be
discharged within the period aforesaid, or to otherwise secure Lessor as
aforesaid, then in addition to any other right or remedy, Lessor may, upon ten
(10) days notice, but shall not be obligated to, discharge the same either by
paying the amount claimed to be due or by processing the discharge of such lien
by deposit or by bonding proceedings. Any amount so paid by Lessor and all
costs and expenses incurred by Lessor in connection therewith, together with
interest thereon at a rate which is the lesser of fifteen percent (15%) per
annum or the maximum rate permitted by law, shall constitute Additional Rent
payable by Lessee under this Lease and shall be paid by Lessee to Lessor on
demand. Except as herein provided, nothing contained herein shall in any way
empower Lessee to do or suffer any act which can, may or shall cloud or encumber
Lessor's or any Mortgagee's interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and
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Personal Property will cause as little inconvenience to the Lessee and to the
residents of the Facility as may reasonably be possible under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to enter and inspect the Demised Premises to
the extent such Mortgagee is entitled to do so under the terms of its Mortgage
and to the extent consistent with any subordination, nondisturbance and
attornment agreement then in effect for such Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
use by act of any public authorities, then this Lease shall terminate as of the
date possession is taken by the condemnor. If all or substantially all of the
Demised Premises shall be taken, the net proceeds of any condemnation award,
settlement or compromise for the Demised Premises taken shall belong to Lessor;
provided, however, Lessee shall have the right to pursue a separate award for
the value of Lessee's interest in the Demised Premises as long as such separate
award does not diminish the award, settlement or compromise paid to Lessor; and
provided, further, that Lessee shall be solely entitled to any amount awarded
for the value of Lessee's property located on the Demised Premises in accordance
with Section 11.1 and any amount for relocation and loss of business as long as
such separate award does not diminish the award. For the purposes of this
paragraph "substantially all of the Demised Premises leased hereunder" shall be
deemed to have been taken if upon the taking of less than the whole of the
Demised Premises that portion of the Demised Premises not so taken shall not by
itself be adequate for the conduct therein of Lessee's business, in the
reasonable judgment of Lessor and Lessee, subject further to the rights of
Lessor's Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to sixty (60)
or less, Lessee shall have the right to terminate this Lease by written notice
to Lessor within thirty (30) days following the issuance of the condemnation
order or conveyance of the property, whichever is earlier. If Lessee does not
elect to terminate this Lease, Lessor shall hold in trust that portion, if any,
of such award, settlement or compromise which shall be allocable to
consequential damage to buildings and improvements not taken, and Lessor shall
pay out such portion to Lessee to reimburse Lessee for the cost of restoring the
Demised Premises as a complete structural unit, as such restoration work
progresses in accordance with the procedure for making insurance proceeds
available for restoration, repair or rebuilding as set forth in ARTICLE 11A
hereof. In the event of a partial condemnation which does not result in a
termination of this Lease, the annual Rent rate payable under paragraph 4.1
hereof shall be reduced to such amount as Lessor and Lessee agree is fair and
equitable taking into consideration the number of operational beds remaining
after such taking as compared to the number of operational beds on the
Commencement Date.
ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised Premises and has found the same satisfactory. Lessee acknowledges
that the Personal Property and the Demised Premises are the property of Lessor
and that Lessee has the leasehold rights as set forth in the terms and
conditions of this Lease.
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As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the nature, in all respects, of the Demised Premises, including (but
not by way of limitation); the soil and geology thereof, the waters thereof
and thereunder; the drainage thereof; the manner of construction and the
condition and state of repair and lack of repair of all improvements of
every nature; the nature, provisions and effect of all health, fire,
zoning, building, subdivision and all other use and occupancy laws,
ordinances, and regulations applicable thereto; and the nature and extent
of the rights of others with respect thereto, whether by way of reversion,
easement, right of way, prescription, adverse possession, profit,
servitude, lease, tenancy, lien, encumbrance, license, contract,
reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has no
duty to be informed with respect to, any of the matters set forth in the
preceding sentence. Lessee hereby accepts the Demised Premises as suitable
and adequate in all respects for the conduct of the business and the uses
of the Demised Premises contemplated under the provisions of the Lease.
Notwithstanding the foregoing, Lessor represents that it has no actual
knowledge of anything related to the foregoing which would cause the
Demised Premises to be materially inadequate for its permitted use
hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to
Lessor's title as it was acquired from its seller, including all rights,
rights of way, easements, profits, servitudes, reservations, restrictions,
conditions, exceptions, reversions, possibilities of reverter, liens,
encumbrances, occupancies, tenancies, licenses, clouds, claims and defects,
known and unknown and whether of record or not. In the event of any defect
in Lessor's title to the Demised Premises by which a third party's
paramount fee ownership of the Demised Premises requires that Lessee vacate
the Demised Premises, then in such event this Lease shall be terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including
(but not limited to) the requirements of any inspection or examination by
Lessee of the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any part thereof or the
taking of the Demised Premises or any part thereof by condemnation, requisition
or otherwise for any reason; (ii) any restriction or prevention of or
interference with any use of the Demised Premises or any part thereof including
any restriction or interference with or circumstance which prevents the use of
the Demised Premises as contemplated by Paragraph 8.1; (iii) any frustration of
Lessee's purposes hereunder, for any claim which Lessee has or might have
against Lessor; or (iv) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing. However, nothing shall preclude Lessee from
bringing a separate action and Lessee is not waiving other rights and remedies
not waived herein.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease
or in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest in
the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee (other than to Andrew L.
Turner or an entity controlled by Andrew L. Turner or a wholly owned subsidiary
of Lessee or of Lessee's parent corporation Sun Healthcare Group, Inc.) without
the
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prior written consent of the Lessor, which consent shall not be unreasonably
withheld. Any violation or breach or attempted violation or breach of the
provisions of this Article by Lessee, or any acts inconsistent herewith shall
vest no right, title or interest herein or hereunder or in the Demised Premises,
in any such transferee or assignee; and Lessor may, at its exclusive option,
terminate this Lease and invoke the provisions of this Lease relating to
default. Lessor acknowledges and agrees that the sale of equity or debt
securities in Lessee or Lessee's parent corporation shall in no event constitute
an assignment or transfer of this Lease or of an interest hereunder provided
Lessee remains a wholly owed subsidiary of Sun Healthcare Group, Inc.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the
Lessor under the provisions of this Lease, when such failure shall
continue for a period of ten (10) days following written notice to
Lessee;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of
this Lease (other than as set forth in Sections 19.1(3) and 19.1(4),
if such failure or violation shall not be cured within thirty (30)
days after notice thereof by Lessor to Lessee;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the
Demised Premises of fifty percent (50%) or more of the patients
located in the nursing home;
(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage
relating to the Demised Premises of which Lessee has been made aware
and with which Lessee has agreed to comply if such failure or
violation shall not be cured within twenty (20) days (or such lesser
period as may be provided in the Mortgage) after notice thereof by
Lessor to Lessee;
(5) The voluntary transfer by Lessee of ten percent (10%) or
more of the patients located in the Demised Premises if such transfer
is not for reasons relating to the health and well being of the
patients that were transferred or such other reasons as may be
permitted by state or federal law, such as nonpayment of stay or the
welfare of other residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the
Personal Property previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against
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the property of Lessee which is not discharged or stayed by action of
Lessee contesting same, within ninety (90) days after such levy or
attachment (provided if the stay is vacated or ended, this paragraph
shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary
dissolution of the Lessee or for its adjudication as a bankrupt or
insolvent, or for the appointment of a receiver of the property of
Lessee, and said proceedings are not dismissed and any receiver,
trustee or liquidator appointed therein is not discharged within
ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or demand
from any governmental authority, or any officer acting on behalf
thereof, of any violation of any law, order, ordinance, rule or
regulation with respect to the operation of the nursing home located
on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental
authority, or any officer acting on behalf thereof, of any law, order,
ordinance, rule or regulation pertaining to the operation of the
nursing home located on Demised Premises, and within ten (10) days
prior to the expiration of any time permitted by such authority for
such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to
Lessee for the operation of a skilled and/or intermediate care nursing
home within the Demised Premises, having no less than one hundred
twenty three (123) licensed beds, or (ii) decertify the nursing home
operated in the Demised Premises from participation in the Medicare or
Medicaid reimbursement program, which is not either appealed by Lessee
and stayed while Lessee's appeal thereof is pending, or revoked or
rescinded by the applicable governmental authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof; or
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease
Guaranty.
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have given
to Lessee a written notice specifying a situation which, as hereinbefore
provided, must be remedied by Lessee within a certain time period, and, if for
causes beyond Lessee's control, it would not reasonably be possible for Lessee
to remedy such situation within such period, then, provided Lessee immediately
upon receipt of such notice shall advise Lessor in writing of Lessee's intention
to institute, and shall, as soon as reasonably possible thereafter, duly
institute, and thereafter diligently prosecute to completion, all steps
necessary to remedy such situation and shall remedy the same, and provided that
any license or certification necessary for the operation of the Demised
Premises, as a nursing facility is not affected thereby, this Lease and the Term
and estate hereby granted shall not expire and terminate at the expiration of
such
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time period as otherwise hereinbefore provided, except that in no event shall
Lessee have more than ninety (90) additional days to remedy any such situation
in the manner set forth herein, or such longer period of time granted by any
governmental agency having jurisdiction over the Facility.
ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee,
Lessor may, if it so elects, upon written notice to Lessee of such election,
forthwith terminate this Lease and Lessee's right to possession of the Demised
Premises, or, at the option of the Lessor, terminate Lessee's right to
possession of the Demised Premises without terminating this Lease. Upon any
such termination of this Lease, or upon any such termination of Lessee's right
to possession without termination of this Lease, Lessee shall vacate the Demised
Premises immediately, and shall quietly and peaceably deliver possession thereof
to the Lessor, and Lessee hereby grants to the Lessor full and free license to
enter into and upon the Demised Premises in such event with or without process
of law and to repossess the Demised Premises and Personal Property as the
Lessor's former estate. In the event of any such termination of this Lease, the
Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to Rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive Rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to terminate this Lease or to terminate Lessee's right to possession of the
Demised Premises, then all licenses, certifications, permits and authorizations
issued by any governmental agency, body or authority in connection with or
relating to the Demised Premises and the nursing home operated thereon shall be
deemed to be assigned to Lessor, to the extent permitted by law. Lessor shall
also have the right to continue to utilize the telephone number and name (other
than the name "Sunrise Healthcare" or similar name) used by Lessee in connection
with the operation of the nursing home located on the Demised Premises. This
Lease shall be deemed and construed as an assignment for purposes of vesting in
Lessor, all right, title and interest in and to: (i) all licenses,
certifications, permits and authorizations obtained in connection with the
operation of the nursing home located on the Demised Premises; and (ii) the name
and telephone number used in connection with the operation of the nursing home
located on the Demised Premises (other than the name "Sunrise Healthcare" or
similar name). Lessee hereby agrees to take such other action and execute such
other documents as may be necessary in order to vest in Lessor all right, title
and interest to the items specified herein, to the extent permitted by law.
21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so to elect, and the Lessor elects to terminate Lessee's right to
possession only, without terminating this Lease, Lessor may, at its option,
enter into the Demised Premises, remove Lessee's signs and other evidences of
tenancy and take and hold possession thereof as in the foregoing paragraph 21.2
of this Article provided, without such entry and possession terminating this
Lease or releasing Lessee, in whole or in part, from Lessee's obligation to pay
the Rent hereunder for the full remaining Term of this Lease, and in any such
case, Lessee shall pay to Lessor a sum equal to the entire amount of the Rent
reserved hereunder and required to be paid by Lessee up to the time of such
termination of the right of possession plus any other sums then due hereunder.
Upon and after entry into possession without termination of this Lease, Lessor
may attempt to relet the Demised Premises or any part thereof for the account of
Lessee for such Rent, or shall operate the nursing home located on the Demised
Premises for such time and upon such terms as Lessor in its sole discretion
shall determine. In any such case, Lessor may make repairs, alterations and
additions in or to the Demised Premises, and redecorate the same to the extent
deemed desirable by Lessor, and
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Lessee shall, upon demand, pay the reasonable cost thereof, together with
Lessor's reasonable expenses of reletting. If the consideration collected by
Lessor upon any such reletting is not sufficient to pay monthly the full amount
of Rent reserved in this Lease, together with the reasonable costs of repairs,
alterations, additions, redecorating and Lessor's expenses, Lessee shall pay to
the Lessor the amount of each monthly deficiency upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment
of Rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to possession
only, as hereinabove provided. Upon such termination of the Lease or at any time
after such termination of Lessee's right to possession, Lessor may recover from
Lessee and Lessee shall pay to Lessor as damages, whether or not Lessor shall
have collected any current monthly deficiencies under the foregoing paragraph,
and in lieu of such current deficiencies after the date of demand for such
damages, the amount thereof found to be due by a court of competent
jurisdiction, which amount thus found may be equal to:
(a) the remainder, if any, of Rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the Rent reserved for what would have been the remainder of the
Term of this Lease together with charges to be paid by Lessee under
the Lease; over
(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal
Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any shareholders, officers, directors, managers, members, agents or employees of
Lessor be liable under any express or implied covenant, agreement or provisions
of this Lease, for any damages whatsoever to Lessee beyond Lessor's interest in
the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be
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construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures or other tangible property of any kind belonging to Lessee
and located in or about the Demised Premises. Such lien is granted for the
purpose of securing the payments of rents, charges, penalties, and damages
herein covenanted to be paid by Lessee, and for the purpose of securing the
performance of all of Lessee's obligations under this Lease. Such lien shall be
in addition to all rights to Lessor given and provided by law but shall only be
exercised by Lessor after the occurrence of an Event of Default which is not
cured within any applicable cure period. This Lease shall constitute a security
agreement under the Uniform Commercial Code granting Lessor a security interest
in any furnishings, equipment, fixtures, or other tangible personal property
(subject to the terms of ARTICLE 11 herein) of any kind belonging to Lessee and
located in or about the Demised Premises. If required by Lessor, Lessee shall
execute financing statements for filing under the Uniform Commercial Code
reflecting the security interest granted under this section.
Notwithstanding anything to the contrary contained in this Section
24.1, in the event all or substantially all of the Demised Premises or the Lease
is sublet, assigned or transferred, or a controlling number of the outstanding
shares in Lessee is sold, assigned or otherwise transferred (other than to
Andrew L. Turner or an entity controlled by Andrew L. Turner or a wholly owned
subsidiary of Lessee or of Lessee's parent corporation Sun Healthcare Group,
Inc.) with the prior written consent of the Lessor in accordance with Section
18.1 of this Lease, this Lease shall at such time only constitute a security
agreement under the Uniform Commercial Code granting Lessor a security interest
in any accounts receivable of Lessee's successor related to the Demised Premises
and at such time, Lessee's successor shall execute a security agreement and
financing statements for filing under the Uniform Commercial Code reflecting a
security interest in said accounts receivable.
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee.
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to property,
occurring during the Term on the Demised Premises or, to the extent the same are
under Lessee's control, any adjoining sidewalks, streets or ways, or in any
manner growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future sewer
system, or the use of any adjoining sidewalks, streets or ways which are under
Lessee's control during the Term of this Lease, and Lessee further agrees to pay
any reasonable attorneys' fees and expenses incident to the defense by Lessor of
any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages or
deeds of trust now or hereafter in force and affecting the Demised Premises (or
any portion thereof) and/or the Personal Property, and to all renewals,
modifications, consolidations, replacements and extensions thereof (any such
Mortgage or deed of trust, as it may be renewed, modified, consolidated,
replaced or extended is hereinafter referred to as a "Mortgage", and the holder
or beneficiary of a
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Mortgage is hereinafter referred to as a "Mortgagee"), provided that, for other
than Existing Mortgages (as defined below), Lessee receives a subordination,
nondisturbance and attornment agreement in a commercially reasonable form
satisfactory to such Mortgagee. Lessee agrees to execute, acknowledge and
deliver upon demand such further instruments subordinating this Lease to any
such Mortgage, or other liens or encumbrances as shall be desired by Lessor;
provided, that Lessee receives a subordination, nondisturbance and attornment
agreement, in a commercially reasonable form satisfactory to such Mortgagee.
Furthermore, in connection with any mortgage loan pertaining to the Demised
Premises existing as of the date of this Lease (an "Existing Mortgage"), Lessor
agrees to use all commercially reasonable efforts to deliver to Lessee a
nondisturbance agreement from the current Mortgagee in a form reasonably
satisfactory to such Mortgagee on the Commencement Date or as soon as possible
thereafter. Lessee further agrees that promptly after receipt of a request from
any Mortgagee made at any time prior to foreclosure of its Mortgage, Lessee
shall execute, acknowledge and deliver to such Mortgagee any instrument as such
Mortgagee may reasonably request whereby Lessee agrees to subordinate and attorn
to such Mortgagee, at such Mortgagee's election, after the foreclosure of its
Mortgage or its acceptance of a deed in lieu of foreclosure, provided that
Lessee concurrently receives a nondisturbance agreement in commercially
reasonable form satisfactory to such Mortgagee. Lessee agrees further that any
Mortgagee shall have the right to subordinate its Mortgage and its rights
thereunder to this Lease, except that such Mortgagee shall be entitled to
expressly exclude from such subordination the Mortgagee's rights, if any, to
insurance proceeds and eminent domain awards in the event of a loss or casualty
or eminent domain taking of the Demised Premises or any portion thereof. If
such Mortgagee executes and records an instrument which purports to effect a
partial or complete subordination of its Mortgage to this Lease, any rights of
such Mortgagee to insurance proceeds or eminent domain awards which are
expressly excluded from such subordination shall remain superior to the rights
of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Subject to the terms of any subordination, nondisturbance and
attornment agreement which may be in effect, and anything in this Lease
contained to the contrary notwithstanding, Lessee shall at all times and in all
respects fully, timely and faithfully comply with and observe each and all of
the conditions, covenants, and provisions required on the part of the Lessor and
of which Lessee has received notice under any Mortgage (and to any renewals,
modifications, extensions, replacements and/or consolidations thereof) to which
this Lease is subordinate or to which it later may become subordinate,
including, without limitation, such conditions, covenants and provisions thereof
as relate to the care, maintenance, repair, insurance, restoration, preservation
and condemnation of the Demised Premises, notwithstanding that such conditions,
covenants and provisions may require compliance and observance to a standard or
degree in excess of that required by the provisions of this Lease, or may
require performance not required by the provisions of this Lease, and shall not
do or permit to be done anything which would constitute a breach of or default
under any obligation of the Lessor under any such mortgage, it being the
intention hereof that Lessee shall so comply with and observe each and all of
such covenants, conditions and provisions of any such Mortgage affecting the
Demised Premises so that it will at all times be in good standing and there will
not be any default on the part of the Lessor thereunder. However, nothing in
this Article contained shall be construed to obligate Lessee to pay any part of
the principal or interest secured by any Mortgage or to perform any obligation
imposed on Lessor thereunder which is not delegable by Lessor by the terms
thereof. Lessee further covenants and agrees that Lessee shall give any
Mortgagee notice of any Lessor default under this Lease, and if Lessor fails to
cure such default, such Mortgagee shall have an additional reasonable time to
cure any such default on Lessor's behalf.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease (except for
any payments resulting from Lessor's failure to comply with the terms of the
Mortgage), and not otherwise paid by Lessee to Lessor pursuant to Section 7.1,
shall be paid by
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the Lessee or as directed by Lessor.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
law now or hereafter in effect which may terminate this Lease or give or purport
to give Lessee any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any such proceedings are brought
against the Lessor under such Mortgage or the holder of any such Mortgage, and
agrees that this Lease shall not be affected in any way whatsoever by any such
proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico, and is authorized to transact business in
the State of Washington; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite
corporate action to authorize the execution, delivery and performance of
this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
(a) Lessor is a limited partnership duly organized and validly
existing under the laws of the State of Illinois; and
(b) Lessor has full power and authority to enter into this Lease and
to carry out the transactions contemplated herein.
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ARTICLE XXXI - SECURITY DEPOSIT
31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of this
Lease pay to Lessor, as a security deposit the sum of One Hundred Nine Thousand
Seven Hundred Sixty Nine and 85/100 Dollars ($109,769.85), payable on the first
day of the Term. Said security deposit may be applied by Lessor for the purpose
of curing any default or defaults of Lessee hereunder, in which event Lessee
shall replenish said deposit in full by promptly paying to Lessor the amount so
applied. Lessor shall not pay any interest on said deposit, except as required
by law. If Lessee has not defaulted hereunder and Lessor has not applied said
deposit to cure a default, then said deposit, or such applicable portion
thereof, shall be paid to Lessee within thirty (30) days after the termination
of this Lease. Said deposit shall not be deemed an advance payment of Rent or a
measure of Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the operations
of the Demised Premises and nursing home operated thereon for such annual fiscal
period which shall be prepared by or on behalf of Lessee, and which shall
contain a balance sheet and detailed income and expense statement (collectively
called "Financial Statements"), and copies of all Medicaid and Medicare cost
reports as filed with the governmental authority, as of the end of the fiscal
year. In addition, Lessee shall furnish Lessor, within 10 days following
filing, a copy of its or its parent corporation's federal income tax return if
it does not file separate returns for the preceding year. Each such statement
shall be certified as being true and correct by an officer of Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request by Lessor, Lessee shall
make available for inspection by Lessor or its designee, during reasonable
business hours, the said records and books of account covering the entire
business operations of Lessee on the Demised Premises.
ARTICLE XXXIII -
TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
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(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty
within sixty (60) or fewer days' notice or which Lessor requests be
assigned to Lessor or its designee pursuant to this ARTICLE 33;
(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for
periods on or prior to the Closing Date) entered in connection with the
Demised Premises to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises,
running to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical
records as provided by law and confidentiality requirements), books,
records, files and other business records attributable to the business or
operations of the Demised Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of the Demised Premises, to the extent assignable by Lessee (excluding the
right to any payments for periods prior to the Closing Date) any and all
patient trust fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the
Demised Premises as a long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name
of the business conducted thereon and all telephone numbers presently in
use therein but specifically excluding the name "Sunrise Healthcare" or
similar name, or any Sunrise policy or procedure manuals, forms or systems,
or other confidential or proprietary information.
33.2 Lessee shall be responsible for, and pay all accrued expenses
with respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the Demised
Premises for the period through 12:00 a.m. on the Closing Date. Lessor shall be
responsible for and pay all accrued expenses with respect to the Demised
Premises accruing on or after 12:01 a.m. on the day after the Closing Date and
shall be entitled to receive and retain all revenues from the Demised Premises
accruing on or after the Closing Date. Within fifteen (15) business days after
the Closing Date, the following adjustments and prorations shall be determined
as of the Closing Date and the party to whom payment is owed shall receive said
payment within said fifteen (15) day period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in
which the Closing Date occurs, the proration of such taxes shall be
estimated at the Closing Date based upon reasonable information available
to the parties, including information disclosed by the local tax office or
other public information, and an adjustment shall be made when actual
figures are published or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date.
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The obligation for wages and the obligation, if any, to pay to employees of
the Demised Premises accrued vacation and sick leave pay or employee
severance pay or other accrued benefits which may be payable as the result
of any termination of any employee on or prior to the Closing Date for the
period prior to the Closing Date shall remain the Lessee's obligation after
the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of
insurance premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and deposits, maintenance charges and service
charges shall be prorated between Lessee and Lessor as of the Closing Date.
Lessee shall, if possible, obtain final utility meter readings as of the
Closing Date. To the extent that information for any such proration is not
available on the Closing Date, Lessee and Lessor shall effect such
proration within ninety (90) days after the Closing Date or as soon
thereafter as such information becomes available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance
premiums; and (ii) any other sums being held by Lessor for the benefit of
Lessee provided that any such sums are not needed to pay costs and expenses
which relate to the period prior to the Closing Date, in accordance with
the applicable provisions of this Lease.
(g) Subject to the terms of ARTICLE 31 hereof, Lessee shall receive a
credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation or other confidential or proprietary information.
Such transfer and delivery shall be in accordance with all applicable laws,
rules and regulations concerning the transfer of medical records and other types
of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with an accounting of all funds belonging to patients at the
Demised Premises which are held by Lessee in a custodial capacity. Such
accounting shall set forth the names of the patients for whom such funds are
held, the amounts held on behalf of each such patient and the Lessee's warranty
that, to the actual current knowledge of Lessee, the accounting is true, correct
and complete. Additionally, Lessee, in accordance with all applicable rules and
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regulations, shall make all necessary arrangements to transfer such funds to a
bank account designated by Lessor, and Lessor shall in writing acknowledge
receipt of and expressly assume all the Lessee's financial and custodial
obligations with respect thereto. Notwithstanding the foregoing, Lessee will
indemnify and hold Lessor harmless from all liabilities, claims and demands,
including reasonable attorney's fees, in the event the amount of funds, if any,
transferred to Lessor's bank account as provided above, did not represent the
full amount of the funds then or thereafter shown to have been delivered to
Lessee as custodian that remain undisbursed for the benefit of the patient for
whom such funds were deposited, or with respect to any matters relating to
patient funds which accrue during the Term of this Lease.
33.5 For the period commencing upon an Event of Default hereunder and
Lessor's election to terminate this Lease as provided in ARTICLE 21 and ending
on the date Lessor or its designee obtains all appropriate state or other
governmental licenses and certifications required to operate the Demised
Premises as a Medicare and Medicaid certified nursing home, Lessee shall enter
into a management agreement with Lessor or Lessor's designee whereby Lessor or
its designee shall have the right to operate the Demised Premises, on a triple
net basis, and shall be entitled to all revenues of the Demised Premises during
such period, and to use any and all licenses, certifications and provider
agreements issued to Lessee by any federal, state or other governmental
authority for such operation of the Demised Premises, if permitted by such
governmental authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other receivables
of Lessee, whether derived from operation of the Demised Premises or otherwise,
shall remain the property of Lessee after the Closing Date. Lessee shall retain
full responsibility for the collection thereof. Lessor shall assume
responsibility for the billing and collection of payment on account of services
rendered by it on and after the Closing Date. In order to facilitate Lessee's
collection efforts, Lessee agrees to deliver to Lessor, within a reasonable time
after the Closing Date, a schedule identifying all of those private pay balances
owing for the month prior to the Closing Date and Lessor agrees to apply any
payments received which are specifically designated as being applicable to
services rendered prior to the Closing Date to reduce the pre-Closing balances
of said patients by promptly remitting said payments to Lessee. In the event
payments specifically indicate that they relate to services rendered post-
Closing, such payments shall be retained by Lessor. In the event no designation
is made, such payments shall be applied one-half to Lessee's accounts receivable
and one-half to Lessor's accounts receivable. Lessor shall cooperate with
Lessee in Lessee's collection of its pre-Closing accounts receivable. Lessor
shall have no liability for uncollectible receivables and shall not be obligated
to bear any expense as a result of such activities on behalf of Lessee. Subject
to the provisions of ARTICLE 24 hereof, Lessor shall remit to Lessee or its
assignee those portions of any payments received by Lessor which are
specifically designated as repayment or reimbursement received by Lessor arising
out of cost reports filed for the cost reporting periods ending prior to the
Closing Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or
Medicaid on the Closing Date will, under current regulations, be paid by
Medicare or Medicaid directly to Lessee for services rendered at the
Demised Premises prior to the Closing Date allocated on the per diem basis.
Said payments shall be the sole responsibility of Lessee and, except as
provided in Section 33.7(b) below, Lessor shall in no way be liable
therefor. After the Closing Date, Lessor and Lessee shall each have the
right to review supporting books, records and documentation that are in the
possession of the other relating to Medicaid or Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents
reimbursement with respect to services
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provided at the Demised Premises prior to the Closing Date, Lessor agrees
that it shall remit such payments to Lessee. Payments by Lessor to Lessee
shall be accompanied by a copy of the appropriate remittance advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing Date such other instruments, documents and materials, as the other may
reasonably request in order to effectuate the consummation of the transaction
contemplated herein. The obligations hereunder shall survive termination or
expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest, penalties
and reasonable attorney's fees, costs and expenses) (hereinafter collectively
"the Claims") which any of them may suffer as a result of the breach by the
other party in the performance of any of its commitments, covenants, or
obligations under this ARTICLE 33. Lessee does further agree to indemnify,
defend and hold harmless Lessor from any such Claims or with respect to any
suits, arbitration proceedings, administrative actions or investigations which
relate to the use by Lessee of the Demised Premises prior to the Closing Date or
any liability which may arise from operation by Lessee of the Demised Premises
as a nursing home prior to the Closing Date or any amounts recaptured under
Title XIX based upon applicable Medicare/Medicaid Recapture Regulations. Lessor
does further agree to indemnify, defend and hold harmless Lessee from any such
Claims or with respect to any suits, arbitration proceedings, administrative
actions or investigations which relate to the ownership of the Demised Premises
by Lessor or the use of the Demised Premises by Lessor or the operation by
Lessor of the nursing home located thereon after the Closing Date. The rights
of the parties under this paragraph are without prejudice to any other remedies
not inconsistent herewith which the parties may have pursuant to the terms of
this Lease, provided the rights of Lessee hereunder are subject to Section 22.1
hereof.
33.10 Anything to the contrary contained in this ARTICLE 33
notwithstanding, in the event the termination of this Lease is due to a default
by Lessee, none of the provisions of this ARTICLE 33 shall in any way limit,
reduce, restrict or modify the rights granted to Lessor pursuant to ARTICLES 21,
23, and 24 of this Lease. If the termination of this Lease is a result of an
Event of Default, then to the extent any monies are due to Lessee pursuant to
this ARTICLE 33, such sums shall be applied by Lessor to any damages suffered by
Lessor as a result of Lessee's Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including
Taxes and Assessments and all other charges herein provided, and upon observing
and keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of a
default of payment when due, the Lessor shall be entitled to all of the remedies
available at law or equity, or under this Lease, for the nonpayment of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent under
the terms of this Lease, or the failure on the part of Lessor to object to any
such action taken by Lessee without Lessor's consent, shall not be deemed a
waiver by Lessor of its rights to require such consent for any further similar
act by Lessee, and Lessee hereby expressly covenants and warrants
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that as to all matters requiring Lessor's consent under the terms of this Lease,
Lessee shall secure such consent for each and every happening of the event
requiring such consent, and shall not claim any waiver on the part of Lessor of
the requirement to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did
not deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of
the Term this Lease with the consent of Lessor, Lessee shall become a tenant on
a month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental, for
the period of such month-to-month tenancy, in an amount equal to one hundred
fifty percent (150%) the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address set
forth below:
If to Lessor: Washington Associates
c/o Karell Capital Ventures, Inc.
Suite 1901
Two North LaSalle Street
Chicago, Illinois 60602
Attention: Mr. Craig Bernfield
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
Attention: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute
and deliver a Memorandum of Lease in recordable form so that the same may be
recorded by either party and the costs thereof shall be borne by the party
requesting recordation of the Memorandum.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the
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same is in full force and effect as modified, and stating the modifications),
the dates to which Rent has been paid, the amount of the Security Deposit held
by Lessor, and whether the Lease is then in default or whether any events have
occurred which, with the giving of notice or the passage of time, or both, could
constitute a default hereunder, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
assignee, Mortgagee or purchaser of the fee interest in the Demised Premises or
of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to Articles
referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought. This Lease cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit of
the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be
held invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision shall be valid and be
enforceable to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to
the Demised Premises, the grantor or the person who is divested of title shall
be entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of the
grantor or the person who is divested of title thereafter accruing hereunder and
shall then be the Lessor under this Lease. Notwithstanding anything to the
contrary provided in this Lease, if Lessor or any successor in interest of
Lessor shall be an individual, partnership, corporation, trust, tenant in common
or Mortgagee, there shall be absolutely no personal liability on the part of any
individual or member of Lessor or any stockholder, director, officer, employee,
partner or trustee of Lessor with respect to the terms, covenants or conditions
of this Lease, and Lessee shall look solely to the interest of Lessor in the
Demised Premises for the satisfaction of each and every remedy which Lessee may
have for the breach of this Lease; such exculpation from personal liability to
be absolute and without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of
any of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not be
construed to be a waiver or relinquishment of any such covenant, agreement,
term, condition or option and the same shall be and remain in full force and
effect.
34.19 This Lease may be executed in counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
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34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
WASHINGTON ASSOCIATES, SUNRISE HEALTHCARE CORPORATION,
an Illinois limited partnership a New Mexico corporation
By: Washington L.L.C., an Illinois limited
liability company
Its: general partner
By: By:
----------------------------------- ------------------------------
Zev Karkomi, Manager
By:
---------------------------------
Harvey Angell, Manager
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EXHIBIT B
To be completed within thirty (30) days of Commencement Date
<PAGE>
UNCONDITIONAL GUARANTY OF LEASE
THIS UNCONDITIONAL GUARANTY OF LEASE (this "Guaranty") dated as of this
30th day of November, 1996, is given by SUN HEALTHCARE GROUP, INC., a Delaware
corporation ("Guarantor") to WASHINGTON ASSOCIATES, an Illinois limited
partnership ("Lessor").
I
RECITALS
1.1 DESCRIPTION OF LEASE. Lessor and Sunrise Healthcare Corporation, a
New Mexico corporation ("Lessee"), having entered into that certain Lease of
even date herewith (the "Lease") of the nursing home facility commonly known as
Blue Mountain Convalescent Center located at 1200 South Twelfth Street, College
Place, Washington.
1.2 INDUCEMENT. Guarantor is the sole shareholder of Lessee, and
accordingly, Guarantor hereby acknowledges that the Lease will economically
benefit Guarantor.
II
THE GUARANTY
2.1 GUARANTY. Guarantor hereby absolutely and unconditionally guarantees:
(a) The prompt payment of each installment of fixed annual rent and
Additional Rent (as defined in the Lease) when and as the same become due under
the terms of the Lease;
(b) The prompt payment of all other sums payable by Lessee to Lessor
or any other person under the terms of the Lease including, without limitation,
tax and any other deposits required under the terms of the Lease and damages due
to default of Lessee under the Lease; and
(c) The full and timely performance of each and every other
obligation of Lessee under the Lease;
for which Guarantor shall be jointly and severally liable with Lessee (the items
described in clauses (a), (b) and (c) above are hereinafter referred to as the
"Guarantor's Obligations").
2.2 Guarantor absolutely and unconditionally covenants and agrees that, in
the event that Lessee is unable to, or does not, pay, perform or satisfy any of
the obligations or liabilities of Lessee under the Lease (the "Lessee's
Liabilities") in a full and timely manner, for any reason, including, without
limitation, the liquidation, dissolution, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition, or readjustment of, or other similar proceedings affecting, the
status, composition, identity, existence, assets or obligations of Lessee, or
the disaffirmance or termination of any of the Lessee's Liabilities in or as a
result of any such proceedings, Guarantor shall pay, perform or satisfy the
Lessee's Liabilities and that no such occurrence shall in any way reduce or
affect the Guarantor's Obligations hereunder. Upon the occurrence of a default
in the prompt payment, timely performance and satisfaction in full of Lessee's
Liabilities, all of the Guarantor's Obligations shall, at the election of
Lessor, become immediately due and payable, provided, however, that nothing
herein shall be construed as granting Lessor any greater rights or remedies
against Guarantor as a result of a breach by Lessee of its obligations under the
Lease than Lessor has against Lessee as a result thereof under the terms of the
Lease.
<PAGE>
2.3 Guarantor shall be directly and primarily liable, jointly and
severally with Lessee, for all of the foregoing. Lessor's rights under this
Guaranty shall be exercisable by action against Guarantor or joined with any
action against Lessee. Lessor need not proceed against Lessee as security for
Lessee's Liabilities or exhaust its remedies against Lessee or exercise any of
the other remedies available to Lessor under the Lease, prior to, concurrently
with or after proceeding against Guarantor to collect the full amount of the
Guarantor's Obligations hereunder. In the event that Lessor may have collected
all or any part of Lessee's Liabilities and a claim for repayment of all or any
part thereof is made against Lessor, the liability of Guarantor hereunder as to
the amount so collected but subject to such claim shall not be discharged or
affected.
III
OTHER PROVISIONS
3.1 ACTIONS BY LESSOR NOT TO AFFECT LIABILITY. The liability of Guarantor
hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the Lease
by lapse of time or otherwise (all of which are hereby authorized by Guarantor)
or a release or limitation of the liability of Lessee or Lessee's estate under
the Lease in any bankruptcy or insolvency proceeding;
(b) Any extension in the time for making any payment due under the
Lease or acceptance of partial payment or performance from Lessee;
(c) The acceptance or release by Lessor of any additional security
for the performance of Lessee's obligations under the Lease;
(d) The failure during any period of time whatsoever of Lessor to
attempt to collect any amount due under the Lease from Lessee or to exercise any
remedy available under such Lease or any other security instrument given as
security for performance of the same, in the event of a default in the
performance by Lessee of the terms of the Lease;
(e) Lessor's consent to any assignment or successive assignments of
the Lease, or any subletting or successive subletting of the Demised Premises
(as defined in the Lease);
(f) Any assignment or successive assignments of Lessor's interest
under the Lease (whether absolute or as collateral);
(g) Lessor's consent to any changed, expanded or different use of any
or all of the Demised Premises;
(h) The assertion by Lessor against Lessee of any rights or remedies
reserved or granted to Lessor under the Lease, including the commencement by
Lessor of any proceedings against Lessee; or
(i) Any dealings, transactions or other matter occurring between
Lessor and Lessee;
whether or not Guarantor shall have knowledge or have been notified of or agreed
to any of the foregoing.
3.2 WAIVERS. Guarantor hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and notice of
protest, and all other
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<PAGE>
notices whatsoever, including, without limitation, notice of any event or
matter described in Section 3.1 hereof;
(c) Any and all claims or defenses based upon lack of diligence in:
(i) collection of any amount the payment of which is guaranteed
hereby;
(ii) protection of any collateral or other security for the
Lease;
(iii) realization upon any other security given for the
Lease; or
(iv) the discharge, liquidation or reorganization of Lessee in
bankruptcy or the rejection of the Lease by Lessee or a trustee in bankruptcy.
(d) Any and all defenses of suretyship;
3.3 NATURE OF REMEDIES. No delay or omission on the part of Lessor in the
exercise of any right or remedy hereunder shall operate as a waiver thereof.
All remedies of Lessor hereunder shall be in addition to, and exercisable
consecutively or concurrently in any combination with, any and all remedies
available to Lessor by operation of law or under the Lease, and Lessor may
exercise its remedies hereunder without the necessity of any notice to Lessee or
Guarantor of nonpayment, nonobservance, nonperformance or other default by
Lessee under the Lease.
3.4 COSTS OF COLLECTION. Notwithstanding any provision of this Guaranty
to the contrary, in the event of the enforcement or interpretation of this
Guaranty the prevailing party shall be entitled to collect its costs of
collection, including, without limitation, reasonable attorneys' fees.
3.5 MECHANIC'S LIENS OR OTHER LIENS. Notwithstanding any provision of
this Guaranty to the contrary, in the event that any mechanic's liens, laborer's
and/or materialman's claims (collectively, the "Mechanic's Liens") are filed
against the Leased Property (as defined in the Lease), or any part thereof, and
not paid or discharged by Lessee in accordance with the terms of the Lease, or
the Guarantor does not either (i) deposit with Lessor such security as may be
reasonably demanded by Lessor to protect against such lien, or (ii) post a
release bond in form and amount as required by applicable law and as otherwise
satisfactory to Lessor, Lessor shall be entitled pursuant to this Guaranty to
collect from Guarantor from and after the expiration or earlier termination of
the Lease, the total aggregate amount of such unpaid or undischarged Mechanic's
Liens.
3.6 SUBORDINATION OF RIGHTS OF SUBROGATION. Guarantor's rights of
subrogation, shall be subordinated to the rights of Lessor under the Lease and
the performance by Guarantor of the Lessee's Liabilities hereunder, and until
such performance of Lessee's Liabilities, Guarantor shall have no such right of
subrogation. Guarantor's execution and performance under this Guaranty shall
not, however, waive Guarantor's rights of subrogation to proceed against Lessee
following Guarantor's satisfaction and performance of Lessee's Liabilities.
3.7 ASSIGNMENT. This Guaranty shall not be assignable by Guarantor but
shall be binding upon the successors to and legal representatives of Guarantor.
This Guaranty shall be assignable by Lessor and shall inure to the benefit of
its successors and assigns.
3.8 GOVERNING LAW. Consent to Jurisdiction. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Illinois. To induce Lessor to accept this Guaranty, Guarantor irrevocably
agrees that, subject to lessor's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS GUARANTY, SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE
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<PAGE>
MADE BY REGISTERED MAIL DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
UPON ACTUAL RECEIPT THEREOF.
3.9 SEVERABILITY. If any term, restriction or covenant of this Guaranty
is deemed illegal or unenforceable, all other terms, restrictions and
circumstances subject hereto shall remain unaffected to the extent permitted by
law; and if any application of any term, restriction or covenant to any person
or circumstances is deemed illegal, the application of such term, restriction or
covenant to other persons and circumstances shall remain unaffected to the
extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC., a Delaware corporation
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Address:
101 Sun Lane NE
Albuquerque, NM 87109
Attention: Mr. Andrew Turner
with copies to:
101 Sun Lane NE
Albuquerque, NM 87109
Attention: Law Department
General Counsel
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<PAGE>
Magic Valley Manor
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of November 30, 1996, by and
between IDAHO ASSOCIATES, L.L.C., an Illinois limited liability company
(hereinafter referred to as "Lessor"), and SUNRISE HEALTHCARE CORPORATION, a New
Mexico Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessee is currently negotiating a contract (the "Contract") with
Beverly Health and Rehabilitation Services, Inc. and Beverly Enterprises -
Idaho, Inc. (collectively, "Seller") to purchase a certain tract of land located
in the State of Idaho and more particularly described in EXHIBIT A attached
hereto and made a part hereof, which tract of land is improved with a forty (40)
bed nursing home facility commonly known as Magic Valley Manor located at 210
North Idaho Street, Wendell, Idaho(which tract and nursing home facility,
together with any other improvements now or hereafter located on the tract and
all easements, tenements, hereditaments and appurtenances thereto are
hereinafter collectively referred to as the "Demised Premises");
WHEREAS, upon satisfaction of certain conditions precedent, the right to
purchase the Demised Premises will be assigned by Lessee to Lessor pursuant to
an Assignment of Purchase and Sale Agreement (the "Assignment"); and
WHEREAS, pursuant to the Contract, Lessee is negotiating to purchase, and
will , pursuant to the Assignment, assign to Lessor the rights to purchase the
furnishings, furniture, equipment and fixtures to be used in or about the
Demised Premises (hereinafter collectively referred to as the "Personal
Property"); and
WHEREAS, contemporaneously with the purchase and sale of the Demised
Premises and the Personal Property, Lessor desires to lease the Demised Premises
and Personal Property to Lessee and Lessee desires to lease the Demised Premises
and Personal Property from Lessor; and
WHEREAS, simultaneous with the execution of this Lease, Lessor is also
entering into Leases with Lessee for the sixty-four (64) bed nursing home
facility commonly known as Payette Lakes Care Center located at 201 Floyd
Street, McCall, Idaho, and the one hundred twenty-seven (127) bed nursing home
facility commonly known as Valley
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<PAGE>
Rehabilitation and Living Center located at 1014 Burrell Avenue, Lewiston,
Idaho (collectively, hereinafter referred to as the "Other Leases"); and
WHEREAS, Lessee hereby acknowledges and agrees that Lessor, as
consideration and inducement for entering into this Lease, requires that this
Lease provide that a default under the Other Leases shall constitute a default
under this Lease and that without such a "cross default" provision Lessor would
not execute this Lease; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and all
agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation, those
items set forth on EXHIBIT B attached hereto and made a part hereof), other than
such furniture, fixtures, equipment and supplies that persons other than the
Lessor may own or that the Lessee may lease from persons other than the Lessor
or that are purchased by Lessee other than as replacements for Personal
Property.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing on
the Commencement Date as hereafter defined, and on each anniversary of the
Commencement Date thereafter, except that if the Commencement Date is other than
the
2
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first day of a calendar month, then the first Lease Year shall be the period
from the Commencement Date through the date twelve (12) months after the last
day of the calendar month in which the Commencement Date occurs, and each
subsequent Lease Year shall be the period of twelve (12) months following the
last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Lessee, its successors and assigns, to be paid, kept and performed, does hereby
lease unto Lessee the Demised Premises together with the Personal Property to be
used in and upon the Demised Premises for the Term hereinafter specified, for
use and operation therein and thereon of a skilled and/or intermediate care
nursing home, in full compliance with all the rules and regulations and minimum
standards applicable thereto, as prescribed by the State of Idaho and such other
governmental authorities having jurisdiction thereof and having no less than
forty (40) beds and for any other purpose authorized by Lessor in writing and
for no other purpose.
ARTICLE III - TERM OF LEASE
3.1 Except as expressly provided below, the term of this Lease shall be
for a period of ten (10) years commencing on the Commencement Date (hereinafter
defined), unless sooner terminated or extended as hereinafter provided (the
"Initial Term"). The "COMMENCEMENT DATE" shall mean the date the last of the
following has occurred:
(i) Lessee has received a commitment from Commonwealth Land Title
Insurance Company for issuance of a leasehold owner's title policy in the
amount of One Million One Hundred Fifty Thousand and No/100 Dollars
($1,150,000.00) free of all liens and encumbrances other than (a) standard
exceptions, (b) non-delinquent taxes and assessments, (c) easements,
restriction and rights of way that will not adversely affect Lessee's
operation of the Demised Premises as a nursing home in accordance with
Article II, above;
(ii) Lessee obtains all appropriate state or other governmental
licenses and certifications required to operate the Demised Premises, including,
without limitation, as a Medicare and Medicaid certified skilled nursing home;
and
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(iii) Lessee shall have been given possession of the Demised Premises.
Once the Commencement Date has been established, the parties shall sign a
Commencement Date memorandum setting forth that date.
3.2 Lessee shall have and is hereby granted the right and option to extend
the Initial Term of this Lease for an extended term (the "First Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the First Extended Term shall be the amount set
forth in Section 4.1. The first Lease Year of the First Extended Term shall
commence upon the day next following the expiration of the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised only
if Lessee is not in default under this Lease at the time of exercise and at the
time of expiration of the Initial Term, and, further, only if there is not at
either time an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the date of
expiration of the Initial Term. Furthermore, Lessee's option granted pursuant
to this Section 3.2 may be exercised only if Lessee also contemporaneously
exercises its options to extend pursuant to Section 3.2 of each of the Other
Leases.
3.3 Provided Lessee shall have exercised the option contained in Section
3.2 above, Lessee shall and Lessee is hereby granted the right and option to
extend this Lease for an additional Extended Term (the "Second Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the Second Extended Term shall be the amount set
forth in Section 4.1 hereof. The first Lease Year of the Second Extended Term
shall commence on the day next following the expiration of the First Extended
Term.
The option granted pursuant to this Section 3.3 may be exercised only
if Lessee is not in default under the Lease at the time of exercise and at the
time of the expiration of the First Extended Term, and, further, only if there
is not then an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the expiration of the
First Extended Term. Furthermore, Lessee's option granted pursuant to this
Section 3.3 may be exercised only if Lessee also contemporaneously exercises its
options to extend pursuant to Section 3.3 of each of the Other Leases.
Notwithstanding the foregoing, Lessor acknowledges and agrees that the
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Rent for the First Extended Term and the Second Extended Term may not be known
by Lessor at the time that Lessee is required to exercise its respective renewal
options. Accordingly, in the event Lessor has not advised Lessee of the First
Extended Term Rent at least thirteen (13) months prior to the date of the
expiration of the Initial Term or the Second Extended Term Rent at least
thirteen (13) months prior to the expiration of the First Extended Term, Lessee
shall have the right to exercise the renewal right provided for herein subject
to the right to rescind the same on written notice to Lessor delivered within
thirty (30) days after Lessor advises Lessee in writing as to the First Extended
Term Rent or the Second Extended Term Rent, as the case may be (the "Rent
Notice"), which Rent Notice shall be delivered by Lessor to Lessee as soon as
practicable after the debt service for the First Extended Term or the Second
Extended Term, as the case may be, has been determined but in no event less than
one hundred and eighty (180) days prior to the commencement of the First
Extended Term or the Second Extended Term, as the case may be.
The Initial Term, as it may be extended by the First Extended Term and
the Second Extended Term, is hereinafter collectively known as the "Term".
As used in this Article 3, the term default shall mean an "Event of
Default" as defined in Article 19 of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or
as Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to be
made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual Rent of $120,750.00,
payable in equal monthly installments of $10,062.50;
(ii) For the second Lease Year and each subsequent Lease Year (of
the Initial Term or any Extended Lease Term) an amount equal to the prior Lease
Year's Rent multiplied by 1.5 times the increase, if any, in the Cost of Living
Index (as hereinafter defined) in effect on September 1st of the current Lease
Year over the Cost of Living Index in effect on September 1st of the preceding
Lease Year; provided, however, that in no event will the increase in Rent from
one Lease Year to the next be greater than two and one-half percent (2.5%) of
the sum of the prior Lease Year's Rent nor shall such Rent decrease from the
prior Lease Year; and
(iii) The Cost of Living Index is defined as the Consumer
Price
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Index for All Urban Consumers, U.S. City Average (1982-1984 = 100), published
by the BLS, or such other renamed index. If the BLS changes the publication
frequency of the Cost of Living Index so that a Cost of Living Index is not
available to make a cost-of-living adjustment as specified herein, the
cost-of-living adjustment shall be based on the percentage difference between
the Cost of Living Index for the closest preceding month for which a Cost of
Living Index is available and Cost of Living Index for the comparison month
is required by this Lease. If the BLS changes the base reference period for
the Cost of Living Index from 1982-84 = 100, the cost-of-living adjustment
shall be determined with the use of such conversion formula or table as may
be published by the BLS. If the BLS otherwise substantially revises, or
ceases publication of the Cost of Living Index, then a substitute index for
determining cost-of-living adjustments, issued by the BLS or by a reliable
governmental or other nonpartisan publication, shall be reasonably selected
by Lessor and Lessee.
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the Rent for the
month and a pro rata portion of all tax, insurance and other deposits provided
for in this Lease. All fixed annual rental payments shall be made in equal
monthly installments and shall be paid in advance on the first (1st) day of each
month (together with all tax and insurance deposits required in this Lease).
Unless otherwise notified in writing, all checks shall be made payable to Lessor
and shall be sent c/o Idaho Associates, L.L.C., Two North LaSalle Street, Suite
1901, Chicago, Illinois 60602.
The Rent set forth in this Article 4 is based, in part, upon the debt
service of the permanent first mortgage financing on the Demised Premises
("Initial Financing"). In the event that the debt service payable on Lessor's
mortgage financing in effect on the date that the First Extended Term commences
is more or less that the debt service on the Initial Financing, the Rent due
during the First Extended Term shall be adjusted according to the following
formula: The annual Rent due during the first year of the First Extended Term
shall be increased or decreased in an amount equal to the difference between (i)
the annual debt service on the indebtedness secured by the first mortgage
encumbering the Demised Premises in effect on the first day of the First
Extended Term, and (ii) the annual debt service on the indebtedness secured by
the first mortgage encumbering the Demised Premises in effect on the day of the
Initial Financing; provided, however, that the amount of principal to be used in
making the calculations shall not exceed the original principal amount of the
loan encumbering the Demised Premises concurrent with Lessor's acquisition of
the Demised Premises. The subsequent annual increases as provided in Article
4.1 above for the remainder of the First Extended Term shall be calculated on
the Annual Rent payable during the first year of the First Extended Term as so
adjusted.
In the event that the debt service payable on Lessor's mortgage
financing in effect on the date that the Second Extended Term commences is more
or less than the debt service on Lessor's mortgage financing in effect on the
date the First Extended Term
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commences, the Rent due during the Second Extended Term shall be adjusted
according to the following formula: the annual Rent due during the first
year of the Second Extended Term shall be increased or decreased in an amount
equal to the difference between (i) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
in effect on the first day of the Second Extended Term, and (ii) the annual
debt service on the indebtedness secured by the first mortgage encumbering
the Demised Premises on the date that the First Extended Term commences;
provided, however, that the amount of principal to be used in making the
calculation shall not exceed the original principal amount of the loan
encumbering the Demised Premises concurrent with Lessor's acquisition of the
Demised Premises. The subsequent annual increases as provided in Article 4.1
above for the remainder of the Second Extended Term shall be calculated on
the annual rent payable during the first year of the Second Extended Term as
so adjusted.
4.2 This Lease is and shall be deemed and construed to be a "pure net" or
"triple-net" lease and the Rent specified herein shall be net to the Lessor in
each year during the Term of this Lease. The Lessee shall pay all costs,
expenses and obligations of every kind whatsoever relating to the Demised
Premises which may arise or become due during the Term of this Lease, except for
any principal and interest payments and other costs owed by Lessor relating to
any Mortgage (defined below) and Landlord's general overhead and administrative
expenses (collectively, "Additional Rent"). Lessee does hereby indemnify the
Lessor against any and all such costs, expenses and obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee
to Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due and
payable as in this Lease provided, a late charge of 3% per month on the sums so
overdue shall become immediately due and payable to Lessor as liquidated damages
for Lessee's failure to make prompt payment and said late charges shall be
payable on the first day of the month next succeeding the month during which
such late charges become payable. If non-payment of any late charges shall
occur, Lessor shall have, in addition to all other rights and remedies, all the
rights and remedies provided for herein and by law in the case of non-payment of
Rent. No failure by Lessor to insist upon the strict performance by Lessee of
Lessee's obligations to pay late charges shall constitute a waiver by Lessor of
its rights to enforce the provisions of this Article in any instance thereafter
occurring.
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ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
6.1 Lessee will pay or cause to be paid, as provided herein, as
additional Rent, before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, all taxes, assessments, licenses and permit fees,
charges for public utilities, and all governmental charges, general and special,
ordinary and extraordinary, foreseen and unforeseen, of any kind and nature
whatsoever which during the Term of this Lease may have been, or may be
assessed, levied, confirmed, imposed upon or become due and payable out of or in
respect of, or become a lien on the Demised Premises and/or Personal Property or
any part thereof (hereinafter collectively referred to as "Taxes and
Assessments").
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the Term of this Lease and a part
of which is included in a period of time before or after the Term of this Lease,
shall be adjusted pro rata between Lessor and Lessee and each party shall be
responsible for its pro rata share of any such Taxes and Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, business license, estate,
succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being forfeited or
lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust, cash or other security satisfactory to Lessor in an amount equal to not
less than the amount of such Taxes and Assessments which at such time shall be
actually due and payable, and such additional amounts reasonably required by
Lessor and any Mortgagee (as hereinbelow defined) of Lessor from time to time,
together with all interest and penalties in connection therewith and all charges
that may or might be assessed against or become a charge on the Demised Premises
or any part thereof in such proceedings, or, if required by the taxing
authority, an amount deposited in trust with the taxing authority during the
pendency of any contest in lieu of any additional charge against the Demised
Premises until resolution of the contest.
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Unless Lessor agrees otherwise, the cash so deposited with Lessor
shall not bear interest and the cash or securities so deposited shall be held by
Lessor until the Demised Premises or any part thereof shall have been released
and discharged and shall thereupon be returned to the Lessee, less the amount of
any loss, cost, damage and reasonable expense that Lessor or any Mortgagee has
sustained in connection with the Taxes and Assessments so contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay
the amount of such Taxes and Assessments or part thereof as finally determined
in such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith, and such payment, at
Lessee's request, shall be made by Lessor out of the amount deposited with
respect to such Taxes and Assessments as aforesaid. In the event such amount is
insufficient, then the balance due shall be paid by Lessee.
6.6 Lessor shall not be required to join in any proceedings referred
to in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in the
name of Lessor, in which event Lessor shall join in such proceedings or permit
the same to be brought in its name. Lessor shall not ultimately be subjected to
any liability for the payment of any costs or expenses in connection with any
such proceedings, and Lessee will indemnify and save harmless Lessor from any
such costs and expenses. Lessee shall be entitled to any refund of any Taxes
and Assessments and penalties or interest thereon received by Lessor but
previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed
or imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for real
estate or personal property taxes imposed upon the Demised Premises or Personal
Property or otherwise, then Lessee shall be responsible for the payment of such
tax.
ARTICLE VII - TAX DEPOSITS
7.1 Lessee shall be required to make deposits for annual Taxes and
Assessments and, will make monthly deposits with Lessor, of an amount equal to
one twelfth (1/12) of the annual Taxes and Assessments or such greater amount as
may be required by any Mortgagee. Said deposits shall be due and payable on the
first day of each month as additional Rent, shall not bear interest and shall be
held by Lessor and/or a mortgagee of the Lessor to pay the real estate taxes as
they become due and payable. If the total of the monthly payments as made under
this Article shall be insufficient to pay the Taxes and Assessments when due,
then Lessee shall on demand pay Lessor the
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amount necessary to make up the deficiency, and if appropriate, Lessee shall
receive a credit against the next monthly tax escrow payment coming due in an
amount equal to said deficiency payment.
ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled care
and/or intermediate care nursing home and for no other purpose. Lessee shall at
all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of Idaho and any
other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified skilled
and/or intermediate care nursing home facility with no less than forty (40)
licensed, and Medicaid certified beds.
8.2 Lessee will not suffer any act to be done or any condition to
exist on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable any
insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by all
governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than forty (40) licensed, and Medicaid certified beds with
licenses, certifications, and provider agreements in full force and good
standing. All the Demised Premises, with the improvements located thereon, and
all the Personal Property shall be surrendered in good order, condition and
repair, ordinary wear and tear excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of
this Lease, maintain property insurance provided by a Causes of Loss-Special
Form or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor, not to be unreasonably withheld. Such
insurance shall, at all times, be maintained in an amount equal to the full
replacement cost of the Demised Premises and the Personal Property or in such
lesser amount as may be required by Lessor and any Mortgagee of the
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Demised Premises but at all times, in an amount sufficient to prevent Lessor
and Lessee from becoming co-insurers under applicable provisions of the
insurance policies. As used herein, the term "full replacement cost" shall
mean coverage for the actual replacement cost of the Demised Premises and the
Personal Property requiring replacement from time to time which, if not
agreed upon by Lessor and Lessee, shall be determined by an appraiser,
engineer, architect or contractor reasonably selected by Lessor. Upon
request by Lessee, Lessor will provide Lessee with information in its
possession which is reasonably necessary to establish the value of the
Demised Premises. Such insurance shall at all times be payable to Lessor and
Lessee as their interests may appear, and shall contain a loss-payable clause
to the holder of any Mortgage to which this Lease shall be subject and
subordinate (in accordance with Article 26 herein) , as said Mortgagee's
interest may appear. All such policies of insurance shall provide that:
(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor or
Lessee, which might otherwise result in forfeiture of insurance; and
(b) A standard Mortgagee clause in favor of any Mortgagee, and shall
contain, if obtainable, a waiver of the insurer's right of subrogation against
funds paid under the standard Mortgagee endorsement which are to be used to pay
the cost of any repairing, rebuilding, restoring or replacing.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or property
damage occurring upon, in or about the Demised Premises. Such insurance to have
limits of not less than $1,000,000 each occurrence and $3,000,000 general
aggregate and an excess or umbrella liability policy of not less than $5,000,000
each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee to
change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder. Notwithstanding the
foregoing, Lessee shall not be required to add coverage for damage to the
Demised Premises resulting from earthquake or flood as covered losses unless the
Demised Premises is classified as an earthquake or flood prone area by an
authority having jurisdiction over the Demised Premises and such authority
recommends such insurance.
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9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten (10)
days after Lessor's request therefore, Lessee shall deliver to Lessor copies of
all insurance policies then being carried by Lessee pursuant to this Article 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due during
the period of the business interruption at the Facility (the "Business
Interruption Period");
(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
All proceeds of any business interruption insurance shall be applied,
first, to the payment of any and all fixed rental payments for the Business
Interruption Period; second, to the payment of any Taxes and Assessments and
insurance deposits required to be deposited for the Business Interruption
Period; and, thereafter, after all necessary repairing, rebuilding, restoring or
replacing has been completed as required by the pertinent Articles of this Lease
and the pertinent sections of any mortgage, any remaining balance of such
proceeds shall be paid over to the Lessee.
In lieu of the foregoing but subject to the terms and conditions of
this Article 9, Lessee may, at its option, obtain and maintain a blanket
insurance policy in an amount sufficient to provide all or part of the coverage
described in this Article 9.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed
to be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon
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shall immediately be payable by Lessee to Lessor, with interest thereon at a
rate which is the lesser of fifteen percent (15%) per annum or the maximum
rate permitted by law from date thereof until paid, and in addition, Lessee
shall reimburse Lessor for Lessor's reasonable expenses in enforcing or
performing such covenants, including reasonable attorney's fees. Any such
costs or expenses incurred or payments made by the Lessor shall be deemed to
be Additional Rent payable by Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment shall
in no way constitute a waiver of, or a limitation upon, Lessor's other rights
hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of this
Lease but only to the extent such Mortgagee is entitled under the terms of its
Mortgage and the provisions of any subordination, nondisturbance and attornment
agreement which may be in effect for such Mortgage.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the Demised
Premises (including the grounds, sidewalks and curbs abutting the same) and the
Personal Property in good order and condition without waste and in suitable
state of repair at least comparable to that which existed immediately prior to
the Commencement Date (ordinary wear and tear excepted, subject to Lessee's
obligation to repair and replace the same in accordance with the terms of this
Lease), and will make or cause to be made, as and when the same shall become
necessary, all structural and nonstructural, exterior and interior, replacing,
repairing and restoring necessary to that end. All replacing, repairing and
restoring required of Lessee shall be (in the reasonable opinion of Lessor) of
quality at least equal to the original work and shall be in compliance with all
standards and requirements of law, licenses and municipal ordinances necessary
to operate the Demised Premises as a Medicare and Medicaid certified skilled
and/or intermediate care nursing home having no less than forty (40) licensed,
and Medicaid certified beds.
11.2 Any items of Personal Property that are uneconomical to repair shall
be replaced by new items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be removed
from the Demised Premises except in connection with repair or replacement of
such items. Lessee may place additional property on the Demised Premises (not
required for the replacement of the
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Personal Property) and such additional property shall be and remain the
property of Lessee. Lessee shall remove such additional property upon
termination or expiration of this Lease provided that Lessee shall make such
necessary repairs or replacements as may be required in order to return the
Demised Premises to the condition which existed prior to the removal of the
additional property.
11.3 Provided there is not an Event of Default by Lessee under this
Lease, Lessee shall have the right, at any time and from time to time, to remove
and dispose of any Personal Property which may have become obsolete or unfit for
use, or which is no longer useful in the operation of the Demised Premises,
provided Lessee promptly replaces any such Personal Property so removed or
disposed of with other personal property free of any security interest, lien or
encumbrance. Said personal property shall be of the same character and shall be
at least equal in usefulness and quality as any such Personal Property so
removed or disposed of, and such replacement property shall automatically become
the property of and shall belong to the Lessor, and Lessee shall execute such
bills of sale or other documents reasonably requested by Lessor to vest the
ownership of such personal property in Lessor. Notwithstanding the foregoing,
Lessee shall have the right to place leased Personal Property on the Demised
Premises provided that the payments due under such leases do not exceed $4,000
per year. In the event Lessee desires to place leased personal property on the
Demised Premises having annual payments in excess of the amount provided for
herein, Lessee shall advise Lessor in writing and Lessor shall use its
reasonable best efforts to seek the approval of the Mortgagee or an amendment of
the Mortgage with respect thereto.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by fire
or other casualty (any such event being called a "Casualty"), Lessee shall
promptly replace, repair and restore the same as nearly as possible to its
condition immediately prior to such Casualty, in accordance with all of the
terms, covenants and conditions and other requirements of this Lease and any
applicable Mortgage and in accordance with any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage; provided,
however, that in the event of a Casualty occurring during the last six (6)
months of the Term or a Casualty resulting from an earthquake, flood, nuclear
accident or war which is not covered by insurance maintained by Lessee and which
renders the Demised Premises unsuitable for use as a nursing home, in the
reasonable opinion of Lessor and Lessee, then Lessee shall have the right to
terminate this Lease upon forty-five (45) days written notice to Lessor. If
applicable, the Demised Premises and the Personal Property shall be so replaced,
repaired and restored as to be of at least equal value and substantially the
same character as prior to such Casualty. If the estimated cost of any
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such restoring, replacing or repairing is Fifty Thousand Dollars and no/100
($50,000.00) or more, the plans and specifications for same shall be first
submitted to and approved in writing by Lessor, which approval shall not be
unreasonably withheld, and, if reasonably required by Lessor, Lessee shall
immediately select an independent architect, approved by Lessor who shall be
in charge of such repairing, restoring or replacing. Lessee covenants that it
will give to Lessor prompt written notice of any Casualty affecting the
Demised Premises or the personal property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30)
days after approval of the final plans and specifications (including by
Mortgagee and any governmental or quasi-governmental agency or entity exercising
jurisdiction), issuance of a building permit and any other necessary permits and
licenses for commencement of construction, whichever is later, Lessee shall
commence to restore the Demised Premises and Lessee shall complete the same
within 180 days thereafter, provided, however, that in the case of damage or
destruction which cannot with due diligence be repaired within said 180 day
period, Lessee shall have an additional period of time, not to exceed 180
additional days, to complete the reconstruction, provided Lessee is proceeding
promptly and with due diligence to complete the restoration. Lessee may utilize
all insurance proceeds available for any such repair or restoration, subject to
the terms of Section 11A.3 hereof and any required approval of any Mortgagee.
Lessee's obligation to make Rent payments and to pay all other charges required
by this Lease shall not be abated during the period of the repair or
restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received from
such insurance proceeds is sufficient to complete such work or (ii) if there is
an amount required in excess of the amount received from such insurance
proceeds, either said excess amount has been expended by Lessee or that Lessee
has deposited such excess funds with Lessor or has satisfied Lessor that it has
such funds available to it so that, in either case, the total amount available
will be sufficient to complete such repairing, rebuilding, restoring or
replacing in accordance with the provisions of any Mortgage and any plans and
specifications submitted in connection therewith, free from any liens or
encumbrances of any kind whatsoever and the funds held by Lessor shall be
disbursed periodically during construction, but not more than once every thirty
(30) days after the presentment of architect's or general contractor's
certificates, waivers of lien, contractor's sworn statements, and other evidence
of cost and payments as may be reasonably required by Lessor or any Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part
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of the Demised Premises or any portion thereof or allow it to be removed or
demolished, without the prior written consent of the Lessor, which consent
shall not be unreasonably withheld. Except as required by law, Lessee
further agrees that it will not make, authorize or permit to be made any
changes or alterations in or to the Demised Premises without first obtaining
Lessor's written consent thereto, which consent shall not be unreasonably
withheld. All alterations, improvements and additions to the Demised
Premises shall be in quality and class at least equal to the original work
and shall become the property of the Lessor and shall meet all building and
fire codes, and all other applicable codes, rules, regulations, laws and
ordinances. Nothing herein shall be deemed or construed to require Lessee to
obtain Lessor's consent to non-structural changes or alterations such as
painting, the replacement of wallcoverings or the replacement of floor
coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
forty (40) licensed, and Medicaid certified beds, which may be applicable to the
Personal Property and the Demised Premises and including, but not limited to,
the sidewalks, alleyways, passageways, vacant land, parking spaces, curb cuts,
curbs adjoining the Demised Premises, which are under Lessee's control, whether
or not such law, ordinance, order, rules, regulation or requirement shall
necessitate structural changes or improvements.
13.2 Lessee shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
forty (40) licensed, and Medicaid certified beds, and the Demised Premises shall
be qualified to participate in the Medicare and Medicaid reimbursement programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever Rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and
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surveys, administrative proceedings and/or court actions from all state,
federal and local governmental bodies regarding the Demised Premises or the
nursing home operated thereon. Lessee shall notify Lessor within twenty-four
(24) hours after receipt thereof of any notice from any governmental agency
terminating or suspending or threatening termination or suspension of any
license, permit, provider agreement or certification relating to the Demised
Premises or the nursing home operated thereon.
13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property,
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Lessee shall have the right to contest such lien or charge, provided, Lessee
within thirty (30) days after notice of the filing thereof, will cause the
same to be discharged of record or in lieu thereof to secure Lessor against
said lien by either (i) deposit with Lessor of such security as may be
reasonably demanded by Lessor to protect against such lien, or (ii) post a
release bond in form and amount as required by applicable law and as
otherwise satisfactory to Lessor. If Lessee shall fail to cause such lien to
be discharged within the period aforesaid, or to otherwise secure Lessor as
aforesaid, then in addition to any other right or remedy, Lessor may, upon
ten (10) days notice, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by processing the discharge
of such lien by deposit or by bonding proceedings. Any amount so paid by
Lessor and all costs and expenses incurred by Lessor in connection therewith,
together with interest thereon at a rate which is the lesser of fifteen
percent (15%) per annum or the maximum rate permitted by law, shall
constitute Additional Rent payable by Lessee under this Lease and shall be
paid by Lessee to Lessor on demand. Except as herein provided, nothing
contained herein shall in any way empower Lessee to do or suffer any act
which can, may or shall cloud or encumber Lessor's or any Mortgagee's
interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience to
the Lessee and to the residents of the Facility as may reasonably be possible
under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to enter and inspect the Demised Premises to
the extent such Mortgagee is entitled to do so under the terms of its Mortgage
and to the extent consistent with any subordination, nondisturbance and
attornment agreement then in effect for such Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
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use by act of any public authorities, then this Lease shall terminate as of
the date possession is taken by the condemnor. If all or substantially all
of the Demised Premises shall be taken, the net proceeds of any condemnation
award, settlement or compromise for the Demised Premises taken shall belong
to Lessor; provided, however, Lessee shall have the right to pursue a
separate award for the value of Lessee's interest in the Demised Premises as
long as such separate award does not diminish the award, settlement or
compromise paid to Lessor; and provided, further, that Lessee shall be solely
entitled to any amount awarded for the value of Lessee's property located on
the Demised Premises in accordance with Section 11.1 and any amount for
relocation and loss of business as long as such separate award does not
diminish the award. For the purposes of this paragraph "substantially all of
the Demised Premises leased hereunder" shall be deemed to have been taken if
upon the taking of less than the whole of the Demised Premises that portion
of the Demised Premises not so taken shall not by itself be adequate for the
conduct therein of Lessee's business, in the reasonable judgment of Lessor
and Lessee, subject further to the rights of Lessor's Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to twenty (20)
or less, Lessee shall have the right to terminate this Lease by written notice
to Lessor within thirty (30) days following the issuance of the condemnation
order or conveyance of the property, whichever is earlier. If Lessee does not
elect to terminate this Lease, Lessor shall hold in trust that portion, if any,
of such award, settlement or compromise which shall be allocable to
consequential damage to buildings and improvements not taken, and Lessor shall
pay out such portion to Lessee to reimburse Lessee for the cost of restoring the
Demised Premises as a complete structural unit, as such restoration work
progresses in accordance with the procedure for making insurance proceeds
available for restoration, repair or rebuilding as set forth in Article 11A
hereof. In the event of a partial condemnation which does not result in a
termination of this Lease, the annual Rent rate payable under paragraph 4.1
hereof shall be reduced to such amount as Lessor and Lessee agree is fair and
equitable taking into consideration the number of operational beds remaining
after such taking as compared to the number of operational beds on the
Commencement Date.
ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised
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Premises and has found the same satisfactory. Lessee acknowledges that the
Personal Property and the Demised Premises are the property of Lessor and
that Lessee has the leasehold rights as set forth in the terms and conditions
of this Lease.
As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the nature, in all respects, of the Demised Premises, including (but not by
way of limitation); the soil and geology thereof, the waters thereof and
thereunder; the drainage thereof; the manner of construction and the condition
and state of repair and lack of repair of all improvements of every nature; the
nature, provisions and effect of all health, fire, zoning, building, subdivision
and all other use and occupancy laws, ordinances, and regulations applicable
thereto; and the nature and extent of the rights of others with respect thereto,
whether by way of reversion, easement, right of way, prescription, adverse
possession, profit, servitude, lease, tenancy, lien, encumbrance, license,
contract, reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has no duty
to be informed with respect to, any of the matters set forth in the preceding
sentence. Lessee hereby accepts the Demised Premises as suitable and adequate
in all respects for the conduct of the business and the uses of the Demised
Premises contemplated under the provisions of the Lease. Notwithstanding the
foregoing, Lessor represents that it has no actual knowledge of anything related
to the foregoing which would cause the Demised Premises to be materially
inadequate for its permitted use hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to Lessor's
title as it was acquired from its seller, including all rights, rights of way,
easements, profits, servitudes, reservations, restrictions, conditions,
exceptions, reversions, possibilities of reverter, liens, encumbrances,
occupancies, tenancies, licenses, clouds, claims and defects, known and unknown
and whether of record or not. In the event of any defect in Lessor's title to
the Demised Premises by which a third party's paramount fee ownership of the
Demised Premises requires that Lessee vacate the Demised Premises, then in such
event this Lease shall be terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including (but
not limited to) the requirements of any inspection or examination by Lessee of
the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any
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part thereof or the taking of the Demised Premises or any part thereof by
condemnation, requisition or otherwise for any reason; (ii) any restriction
or prevention of or interference with any use of the Demised Premises or any
part thereof including any restriction or interference with or circumstance
which prevents the use of the Demised Premises as contemplated by Paragraph
8.1; (iii) any frustration of Lessee's purposes hereunder, for any claim
which Lessee has or might have against Lessor; or (iv) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing. However, nothing
shall preclude Lessee from bringing a separate action and Lessee is not
waiving other rights and remedies not waived herein.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease
or in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest in
the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee (other than to Andrew L.
Turner or an entity controlled by Andrew L. Turner or a wholly owned subsidiary
of Lessee or of Lessee's parent corporation Sun Healthcare Group, Inc.) without
the prior written consent of the Lessor, which consent shall not be unreasonably
withheld. Any violation or breach or attempted violation or breach of the
provisions of this Article by Lessee, or any acts inconsistent herewith shall
vest no right, title or interest herein or hereunder or in the Demised Premises,
in any such transferee or assignee; and Lessor may, at its exclusive option,
terminate this Lease and invoke the provisions of this Lease relating to
default. Lessor acknowledges and agrees that the sale of equity or debt
securities in Lessee or Lessee's parent corporation shall in no event constitute
an assignment or transfer of this Lease or of an interest hereunder provided
Lessee remains a wholly owed subsidiary of Sun Healthcare Group, Inc.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the Lessor under
the provisions of this Lease, when such failure shall continue for a period of
ten (10) days following written notice to Lessee;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of this Lease
(other than as set
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forth in Sections 19.1(3) and 19.1(4), if such failure or violation shall not
be cured within thirty (30) days after notice thereof by Lessor to Lessee;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty percent (50%) or more of the patients located in the nursing
home;
(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage relating to the
Demised Premises of which Lessee has been made aware and with which Lessee has
agreed to comply if such failure or violation shall not be cured within twenty
(20) days (or such lesser period as may be provided in the Mortgage) after
notice thereof by Lessor to Lessee;
(5) The voluntary transfer by Lessee of ten percent (10%) or
more of the patients located in the Demised Premises if such transfer is not for
reasons relating to the health and well being of the patients that were
transferred or such other reasons as may be permitted by state or federal law,
such as nonpayment of stay or the welfare of other residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the Personal Property
previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against the property of Lessee which is not discharged or stayed by action of
Lessee contesting same, within ninety (90) days after such levy or attachment
(provided if the stay is vacated or ended, this paragraph shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is not
discharged within ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or demand from any
governmental
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authority, or any officer acting on behalf thereof, of any violation of any
law, order, ordinance, rule or regulation with respect to the operation of
the nursing home located on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental authority, or
any officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of the nursing home located on Demised
Premises, and within ten (10) days prior to the expiration of any time
permitted by such authority for such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises, having no less than forty (40) licensed beds, or (ii)
decertify the nursing home operated in the Demised Premises from participation
in the Medicare or Medicaid reimbursement program, which is not either appealed
by Lessee and stayed while Lessee's appeal thereof is pending, or revoked or
rescinded by the applicable governmental authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof;
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease Guaranty; or
(16) An "Event of Default" occurs under either of the Other
Leases.
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have given
to Lessee a written notice specifying a situation which, as hereinbefore
provided, must be remedied by Lessee within a certain time period, and, if for
causes beyond Lessee's control, it would not reasonably be possible for Lessee
to remedy such situation within such period, then, provided Lessee immediately
upon receipt of such notice shall advise Lessor in writing of Lessee's intention
to institute, and shall, as soon as reasonably possible thereafter, duly
institute, and thereafter diligently prosecute to completion, all steps
necessary to remedy such situation and shall remedy the same, and provided that
any license or certification necessary for the operation of the Demised
Premises, as a nursing facility is not affected thereby, this Lease and the Term
and estate hereby granted shall not expire and terminate at the expiration of
such time period as otherwise hereinbefore provided, except that in no event
shall Lessee have more than ninety (90) additional days to remedy any such
situation in the manner set forth herein, or such longer period of time granted
by any governmental agency having jurisdiction over the Facility.
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ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee,
Lessor may, if it so elects, upon written notice to Lessee of such election,
forthwith terminate this Lease and Lessee's right to possession of the Demised
Premises, or, at the option of the Lessor, terminate Lessee's right to
possession of the Demised Premises without terminating this Lease. Upon any
such termination of this Lease, or upon any such termination of Lessee's right
to possession without termination of this Lease, Lessee shall vacate the Demised
Premises immediately, and shall quietly and peaceably deliver possession thereof
to the Lessor, and Lessee hereby grants to the Lessor full and free license to
enter into and upon the Demised Premises in such event with or without process
of law and to repossess the Demised Premises and Personal Property as the
Lessor's former estate. In the event of any such termination of this Lease, the
Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to Rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive Rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to terminate this Lease or to terminate Lessee's right to possession of the
Demised Premises, then all licenses, certifications, permits and authorizations
issued by any governmental agency, body or authority in connection with or
relating to the Demised Premises and the nursing home operated thereon shall be
deemed to be assigned to Lessor, to the extent permitted by law. Lessor shall
also have the right to continue to utilize the telephone number and name (other
than the name "Sunrise Healthcare" or similar name) used by Lessee in connection
with the operation of the nursing home located on the Demised Premises. This
Lease shall be deemed and construed as an assignment for purposes of vesting in
Lessor, all right, title and interest in and to: (i) all licenses,
certifications, permits and authorizations obtained in connection with the
operation of the nursing home located on the Demised Premises; and (ii) the name
and telephone number used in connection with the operation of the nursing home
located on the Demised Premises (other than the name "Sunrise Healthcare" or
similar name). Lessee hereby agrees to take such other action and execute such
other documents as may be necessary in order to vest in Lessor all right, title
and interest to the items specified herein, to the extent permitted by law.
21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so
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to elect, and the Lessor elects to terminate Lessee's right to possession
only, without terminating this Lease, Lessor may, at its option, enter into
the Demised Premises, remove Lessee's signs and other evidences of tenancy
and take and hold possession thereof as in the foregoing paragraph 21.2 of
this Article provided, without such entry and possession terminating this
Lease or releasing Lessee, in whole or in part, from Lessee's obligation to
pay the Rent hereunder for the full remaining Term of this Lease, and in any
such case, Lessee shall pay to Lessor a sum equal to the entire amount of the
Rent reserved hereunder and required to be paid by Lessee up to the time of
such termination of the right of possession plus any other sums then due
hereunder. Upon and after entry into possession without termination of this
Lease, Lessor may attempt to relet the Demised Premises or any part thereof
for the account of Lessee for such Rent, or shall operate the nursing home
located on the Demised Premises for such time and upon such terms as Lessor
in its sole discretion shall determine. In any such case, Lessor may make
repairs, alterations and additions in or to the Demised Premises, and
redecorate the same to the extent deemed desirable by Lessor, and Lessee
shall, upon demand, pay the reasonable cost thereof, together with Lessor's
reasonable expenses of reletting. If the consideration collected by Lessor
upon any such reletting is not sufficient to pay monthly the full amount of
Rent reserved in this Lease, together with the reasonable costs of repairs,
alterations, additions, redecorating and Lessor's expenses, Lessee shall pay
to the Lessor the amount of each monthly deficiency upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment
of Rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to possession
only, as hereinabove provided. Upon such termination of the Lease or at any time
after such termination of Lessee's right to possession, Lessor may recover from
Lessee and Lessee shall pay to Lessor as damages, whether or not Lessor shall
have collected any current monthly deficiencies under the foregoing paragraph,
and in lieu of such current deficiencies after the date of demand for such
damages, the amount thereof found to be due by a court of competent
jurisdiction, which amount thus found may be equal to:
(a) the remainder, if any, of Rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the Rent reserved for what would have been the remainder of the Term of this
Lease
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together with charges to be paid by Lessee under the Lease; over
(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any shareholders, officers, directors, managers, members, agents or employees of
Lessor be liable under any express or implied covenant, agreement or provisions
of this Lease, for any damages whatsoever to Lessee beyond Lessor's interest in
the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures or other tangible property of any kind belonging to Lessee
and located in or about the Demised Premises. Such lien is granted for the
purpose of securing the payments of rents, charges, penalties, and damages
herein covenanted to be paid by Lessee, and for the purpose of securing the
performance of all of Lessee's obligations under this Lease. Such lien shall be
in addition to all rights to Lessor given and provided by law but shall only be
exercised
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by Lessor after the occurrence of an Event of Default which is not cured
within any applicable cure period. This Lease shall constitute a security
agreement under the Uniform Commercial Code granting Lessor a security
interest in any furnishings, equipment, fixtures or other tangible personal
property (subject to the terms of Article 11 herein) of any kind belonging to
Lessee and located in or about the Demised Premises. If required by Lessor,
Lessee shall execute financing statements for filing under the Uniform
Commercial Code reflecting the security interest granted under this section.
Notwithstanding anything to the contrary contained in this Section
24.1, in the event all or substantially all of the Demised Premises is sublet,
assigned or transferred or a controlling number of the outstanding shares in
Lessee is sold, assigned or otherwise transferred (other than to Andrew L.
Turner or a wholly owned subsidiary of Lessee or of Lessee's parent corporation
Sun Healthcare Group, Inc.) with the prior written consent of Lessor in
accordance with Section 18.1 of this Lease, this Lease shall at such time
constitute a security agreement under the Uniform Commercial Code granting
Lessor a security interest in any accounts receivable of Lessee's successor
related to the Demised Premises, and at such time, Lessee's successor shall
execute a security agreement and financing statements for filing under the
Uniform Commercial Code reflecting a security interest in said accounts
receivable.
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee.
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to property,
occurring during the Term on the Demised Premises or, to the extent the same are
under Lessee's control, any adjoining sidewalks, streets or ways, or in any
manner growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future sewer
system, or the use of any adjoining sidewalks, streets or ways which are under
Lessee's control during the Term of this Lease, and Lessee further agrees to pay
any reasonable attorneys' fees and expenses incident to the defense by Lessor of
any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages or
deeds of trust now
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or hereafter in force and affecting the Demised Premises (or any portion
thereof) and/or the Personal Property, and to all renewals, modifications,
consolidations, replacements and extensions thereof (any such Mortgage or
deed of trust, as it may be renewed, modified, consolidated, replaced or
extended is hereinafter referred to as a "Mortgage", and the holder or
beneficiary of a Mortgage is hereinafter referred to as a "Mortgagee"),
provided that, for other than Existing Mortgages (as defined below), Lessee
receives a subordination, nondisturbance and attornment agreement in a
commercially reasonable form satisfactory to such Mortgagee. Lessee agrees
to execute, acknowledge and deliver upon demand such further instruments
subordinating this Lease to any such Mortgage, or other liens or encumbrances
as shall be desired by Lessor; provided, that Lessee receives a
subordination, nondisturbance and attornment agreement, in a commercially
reasonable form satisfactory to such Mortgagee. Furthermore, in connection
with any mortgage loan pertaining to the Demised Premises existing as of the
date of this Lease (an "Existing Mortgage"), Lessor agrees to use all
commercially reasonable efforts to deliver to Lessee a nondisturbance
agreement from the current Mortgagee in a form reasonably satisfactory to
such Mortgagee on the Commencement Date or as soon as possible thereafter.
Lessee further agrees that promptly after receipt of a request from any
Mortgagee made at any time prior to foreclosure of its Mortgage, Lessee shall
execute, acknowledge and deliver to such Mortgagee any instrument as such
Mortgagee may reasonably request whereby Lessee agrees to subordinate and
attorn to such Mortgagee, at such Mortgagee's election, after the foreclosure
of its Mortgage or its acceptance of a deed in lieu of foreclosure, provided
that Lessee concurrently receives a nondisturbance agreement in commercially
reasonable form satisfactory to such Mortgagee. Lessee agrees further that
any Mortgagee shall have the right to subordinate its Mortgage and its rights
thereunder to this Lease, except that such Mortgagee shall be entitled to
expressly exclude from such subordination the Mortgagee's rights, if any, to
insurance proceeds and eminent domain awards in the event of a loss or
casualty or eminent domain taking of the Demised Premises or any portion
thereof. If such Mortgagee executes and records an instrument which purports
to effect a partial or complete subordination of its Mortgage to this Lease,
any rights of such Mortgagee to insurance proceeds or eminent domain awards
which are expressly excluded from such subordination shall remain superior to
the rights of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Subject to the terms of any subordination, nondisturbance and
attornment agreement which may be in effect, and anything in this Lease
contained to the contrary notwithstanding, Lessee shall at all times and in all
respects fully, timely and faithfully comply with and observe each and all of
the conditions, covenants, and provisions required on the part of the Lessor and
of which Lessee has received notice under any Mortgage (and to any renewals,
modifications, extensions, replacements and/or consolidations
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thereof) to which this Lease is subordinate or to which it later may become
subordinate, including, without limitation, such conditions, covenants and
provisions thereof as relate to the care, maintenance, repair, insurance,
restoration, preservation and condemnation of the Demised Premises,
notwithstanding that such conditions, covenants and provisions may require
compliance and observance to a standard or degree in excess of that required
by the provisions of this Lease, or may require performance not required by
the provisions of this Lease, and shall not do or permit to be done anything
which would constitute a breach of or default under any obligation of the
Lessor under any such mortgage, it being the intention hereof that Lessee
shall so comply with and observe each and all of such covenants, conditions
and provisions of any such Mortgage affecting the Demised Premises so that it
will at all times be in good standing and there will not be any default on
the part of the Lessor thereunder. However, nothing in this Article
contained shall be construed to obligate Lessee to pay any part of the
principal or interest secured by any Mortgage or to perform any obligation
imposed on Lessor thereunder which is not delegable by Lessor by the terms
thereof. Lessee further covenants and agrees that Lessee shall give any
Mortgagee notice of any Lessor default under this Lease, and if Lessor fails
to cure such default, such Mortgagee shall have an additional reasonable time
to cure any such default on Lessor's behalf.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease (except for
any payments resulting from Lessor's failure to comply with the terms of the
Mortgage), and not otherwise paid by Lessee to Lessor pursuant to Section 7.1,
shall be paid by the Lessee or as directed by Lessor.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
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law now or hereafter in effect which may terminate this Lease or give or purport
to give Lessee any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any such proceedings are brought
against the Lessor under such Mortgage or the holder of any such Mortgage, and
agrees that this Lease shall not be affected in any way whatsoever by any such
proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico, and is authorized to transact business in the
State of Idaho; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite corporate
action to authorize the execution, delivery and performance of this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
(a) Lessor is a limited liability company duly organized and validly
existing under the laws of the State of Illinois; and
(b) Lessor has full power and authority to enter into this Lease and
to carry out the transactions contemplated herein.
ARTICLE XXXI - SECURITY DEPOSIT
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31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of this
Lease pay to Lessor, as a security deposit the sum of Fifty Thousand Three
Hundred Twelve and 50/100 Dollars ($50,312.50), payable on the first day of the
Term. Said security deposit may be applied by Lessor for the purpose of curing
any default or defaults of Lessee hereunder, in which event Lessee shall
replenish said deposit in full by promptly paying to Lessor the amount so
applied. Lessor shall not pay any interest on said deposit, except as required
by law. If Lessee has not defaulted hereunder and Lessor has not applied said
deposit to cure a default, then said deposit, or such applicable portion
thereof, shall be paid to Lessee within thirty (30) days after the termination
of this Lease. Said deposit shall not be deemed an advance payment of Rent or a
measure of Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the operations
of the Demised Premises and nursing home operated thereon for such annual fiscal
period which shall be prepared by or on behalf of Lessee, and which shall
contain a balance sheet and detailed income and expense statement (collectively
called "Financial Statements"), and copies of all Medicaid and Medicare cost
reports as filed with the governmental authority, as of the end of the fiscal
year. In addition, Lessee shall furnish Lessor, within 10 days following
filing, a copy of its or its parent corporation's federal income tax return if
it does not file separate returns for the preceding year. Each such statement
shall be certified as being true and correct by an officer of Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request by Lessor, Lessee shall
make available for inspection by Lessor or its designee, during reasonable
business hours, the said records and books of account covering the entire
business operations of Lessee on the Demised Premises.
ARTICLE XXXIII - TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
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33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty within
sixty (60) or fewer days' notice or which Lessor requests be assigned to Lessor
or its designee pursuant to this Article 33;
(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for periods
on or prior to the Closing Date) entered in connection with the Demised Premises
to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises, running
to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical records
as provided by law and confidentiality requirements), books, records, files and
other business records attributable to the business or operations of the Demised
Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of the Demised Premises, to the extent assignable by Lessee (excluding the right
to any payments for periods prior to the Closing Date) any and all patient trust
fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the Demised
Premises as a
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long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name of
the business conducted thereon and all telephone numbers presently in use
therein but specifically excluding the name "Sunrise Healthcare" or similar
name, or any Sunrise policy or procedure manuals, forms or systems, or other
confidential or proprietary information.
33.2 Lessee shall be responsible for, and pay all accrued expenses
with respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the Demised
Premises for the period through 12:00 a.m. on the Closing Date. Lessor shall be
responsible for and pay all accrued expenses with respect to the Demised
Premises accruing on or after 12:01 a.m. on the day after the Closing Date and
shall be entitled to receive and retain all revenues from the Demised Premises
accruing on or after the Closing Date. Within fifteen (15) business days after
the Closing Date, the following adjustments and prorations shall be determined
as of the Closing Date and the party to whom payment is owed shall receive said
payment within said fifteen (15) day period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in which
the Closing Date occurs, the proration of such taxes shall be estimated at the
Closing Date based upon reasonable information available to the parties,
including information disclosed by the local tax office or other public
information, and an adjustment shall be made when actual figures are published
or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date. The obligation for wages and the obligation, if any, to pay to
employees of the Demised Premises accrued vacation and sick leave pay or
employee severance pay or other accrued benefits which may be payable as the
result of any termination of any employee on or prior to the Closing Date for
the period prior to the Closing Date shall remain the Lessee's obligation after
the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of insurance
premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and
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deposits, maintenance charges and service charges shall be prorated between
Lessee and Lessor as of the Closing Date. Lessee shall, if possible, obtain
final utility meter readings as of the Closing Date. To the extent that
information for any such proration is not available on the Closing Date,
Lessee and Lessor shall effect such proration within ninety (90) days after
the Closing Date or as soon thereafter as such information becomes available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance premiums;
and (ii) any other sums being held by Lessor for the benefit of Lessee provided
that any such sums are not needed to pay costs and expenses which relate to the
period prior to the Closing Date, in accordance with the applicable provisions
of this Lease.
(g) Subject to the terms of Article 31 hereof, Lessee shall receive a
credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation or other confidential or proprietary information.
Such transfer and delivery shall be in accordance with all applicable laws,
rules and regulations concerning the transfer of medical records and other types
of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with an accounting of all funds belonging to patients at the
Demised Premises which are held by Lessee in a custodial capacity. Such
accounting shall set forth the names of the patients for whom such funds are
held, the amounts held on behalf of each such patient and the Lessee's warranty
that, to the actual current knowledge of Lessee, the accounting is true, correct
and complete. Additionally, Lessee, in accordance with all applicable rules and
regulations, shall make all necessary arrangements to transfer such funds to a
bank account designated by Lessor, and Lessor shall in writing acknowledge
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receipt of and expressly assume all the Lessee's financial and custodial
obligations with respect thereto. Notwithstanding the foregoing, Lessee will
indemnify and hold Lessor harmless from all liabilities, claims and demands,
including reasonable attorney's fees, in the event the amount of funds, if
any, transferred to Lessor's bank account as provided above, did not
represent the full amount of the funds then or thereafter shown to have been
delivered to Lessee as custodian that remain undisbursed for the benefit of
the patient for whom such funds were deposited, or with respect to any
matters relating to patient funds which accrue during the Term of this Lease.
33.5 For the period commencing upon an Event of Default hereunder and
Lessor's election to terminate this Lease as provided in Article 21 and ending
on the date Lessor or its designee obtains all appropriate state or other
governmental licenses and certifications required to operate the Demised
Premises as a Medicare and Medicaid certified nursing home, Lessee shall enter
into a management agreement with Lessor or Lessor's designee whereby Lessor or
its designee shall have the right to operate the Demised Premises, on a triple
net basis, and shall be entitled to all revenues of the Demised Premises during
such period, and to use any and all licenses, certifications and provider
agreements issued to Lessee by any federal, state or other governmental
authority for such operation of the Demised Premises, if permitted by such
governmental authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other receivables
of Lessee, whether derived from operation of the Demised Premises or otherwise,
shall remain the property of Lessee after the Closing Date. Lessee shall retain
full responsibility for the collection thereof. Lessor shall assume
responsibility for the billing and collection of payment on account of services
rendered by it on and after the Closing Date. In order to facilitate Lessee's
collection efforts, Lessee agrees to deliver to Lessor, within a reasonable time
after the Closing Date, a schedule identifying all of those private pay balances
owing for the month prior to the Closing Date and Lessor agrees to apply any
payments received which are specifically designated as being applicable to
services rendered prior to the Closing Date to reduce the pre-Closing balances
of said patients by promptly remitting said payments to Lessee. In the event
payments specifically indicate that they relate to services rendered
post-Closing, such payments shall be retained by Lessor. In the event no
designation is made, such payments shall be applied one-half to Lessee's
accounts receivable and one-half to Lessor's accounts receivable. Lessor shall
cooperate with Lessee in Lessee's collection of its pre-Closing accounts
receivable. Lessor shall have no liability for uncollectible receivables and
shall not be obligated to bear any expense as a result of such activities on
behalf of Lessee. Subject to the provisions of Article 24 hereof, Lessor shall
remit to Lessee or its assignee those portions of any payments received by
Lessor which are specifically designated as repayment or reimbursement received
by Lessor arising out
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of cost reports filed for the cost reporting periods ending prior to the
Closing Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or Medicaid
on the Closing Date will, under current regulations, be paid by Medicare or
Medicaid directly to Lessee for services rendered at the Demised Premises prior
to the Closing Date allocated on the per diem basis. Said payments shall be the
sole responsibility of Lessee and, except as provided in Section 33.7(b) below,
Lessor shall in no way be liable therefor. After the Closing Date, Lessor and
Lessee shall each have the right to review supporting books, records and
documentation that are in the possession of the other relating to Medicaid or
Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents reimbursement
with respect to services provided at the Demised Premises prior to the Closing
Date, Lessor agrees that it shall remit such payments to Lessee. Payments by
Lessor to Lessee shall be accompanied by a copy of the appropriate remittance
advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing Date such other instruments, documents and materials, as the other may
reasonably request in order to effectuate the consummation of the transaction
contemplated herein. The obligations hereunder shall survive termination or
expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest, penalties
and reasonable attorney's fees, costs and expenses) (hereinafter collectively
"the Claims") which any of them may suffer as a result of the breach by the
other party in the performance of any of its commitments, covenants, or
obligations under this Article 33. Lessee does further agree to indemnify,
defend and hold harmless Lessor from any such Claims or with respect to any
suits, arbitration proceedings, administrative actions or investigations which
relate to the use by Lessee of the Demised Premises prior to the Closing Date or
any liability which may arise from operation by Lessee of the Demised Premises
as a nursing home prior to the Closing Date or any amounts recaptured under
Title XIX based upon applicable Medicare/Medicaid Recapture Regulations. Lessor
does further agree to indemnify, defend and hold harmless Lessee from any such
Claims or with respect to any suits, arbitration proceedings, administrative
actions or investigations which relate to the ownership of the Demised Premises
by Lessor or the use of the Demised
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Premises by Lessor or the operation by Lessor of the nursing home located
thereon after the Closing Date. The rights of the parties under this
paragraph are without prejudice to any other remedies not inconsistent
herewith which the parties may have pursuant to the terms of this Lease,
provided the rights of Lessee hereunder are subject to Section 22.1 hereof.
33.10 Anything to the contrary contained in this Article 33
notwithstanding, in the event the termination of this Lease is due to a default
by Lessee, none of the provisions of this Article 33 shall in any way limit,
reduce, restrict or modify the rights granted to Lessor pursuant to Articles 21,
23, and 24 of this Lease. If the termination of this Lease is a result of an
Event of Default, then to the extent any monies are due to Lessee pursuant to
this Article 33, such sums shall be applied by Lessor to any damages suffered by
Lessor as a result of Lessee's Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including
Taxes and Assessments and all other charges herein provided, and upon observing
and keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of a
default of payment when due, the Lessor shall be entitled to all of the remedies
available at law or equity, or under this Lease, for the nonpayment of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent under
the terms of this Lease, or the failure on the part of Lessor to object to any
such action taken by Lessee without Lessor's consent, shall not be deemed a
waiver by Lessor of its rights to require such consent for any further similar
act by Lessee, and Lessee hereby expressly covenants and warrants that as to all
matters requiring Lessor's consent under the terms of this Lease, Lessee shall
secure such consent for each and every happening of the event requiring such
consent, and shall not claim any waiver on the part of Lessor of the requirement
to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did
not deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
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34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of
the Term this Lease with the consent of Lessor, Lessee shall become a tenant on
a month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental, for
the period of such month-to-month tenancy, in an amount equal to one hundred
fifty percent (150%) the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address set
forth below:
If to Lessor: Idaho Associates, L.L.C.
c/o Karell Capital Ventures, Inc.
Suite 1901
Two North LaSalle Street
Chicago, Illinois 60602
Attention: Mr. Craig Bernfield
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
Attention: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute
and deliver a Memorandum of Lease in recordable form so that the same may be
recorded by
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either party and the costs thereof shall be borne by the party requesting
recordation of the Memorandum.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified, and
stating the modifications), the dates to which Rent has been paid, the amount of
the Security Deposit held by Lessor, and whether the Lease is then in default or
whether any events have occurred which, with the giving of notice or the passage
of time, or both, could constitute a default hereunder, it being intended that
any such statement delivered pursuant to this paragraph may be relied upon by
any prospective assignee, Mortgagee or purchaser of the fee interest in the
Demised Premises or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to Articles
referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought. This Lease cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit of
the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be
held invalid or
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unenforceable, the remaining terms and provisions of this Lease shall not be
affected thereby, but each term and provision shall be valid and be
enforceable to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to
the Demised Premises, the grantor or the person who is divested of title shall
be entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of the
grantor or the person who is divested of title thereafter accruing hereunder and
shall then be the Lessor under this Lease. Notwithstanding anything to the
contrary provided in this Lease, if Lessor or any successor in interest of
Lessor shall be an individual, partnership, corporation, trust, tenant in common
or Mortgagee, there shall be absolutely no personal liability on the part of any
individual or member of Lessor or any stockholder, director, officer, employee,
partner or trustee of Lessor with respect to the terms, covenants or conditions
of this Lease, and Lessee shall look solely to the interest of Lessor in the
Demised Premises for the satisfaction of each and every remedy which Lessee may
have for the breach of this Lease; such exculpation from personal liability to
be absolute and without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of
any of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not be
construed to be a waiver or relinquishment of any such covenant, agreement,
term, condition or option and the same shall be and remain in full force and
effect.
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34.19 This Lease may be executed in counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of Idaho.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
IDAHO ASSOCIATES, L.L.C., SUNRISE HEALTHCARE
an Illinois limited liability CORPORATION, a New Mexico
company corporation
By:_____________________ By:_____________________
Its:____________________ Its:____________________
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EXHIBIT A
Legal Description
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EXHIBIT B
To be completed within thirty (30) days of Commencement Date
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Payette Lakes Care Center
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of November 30, 1996, by and
between IDAHO ASSOCIATES, L.L.C., an Illinois limited liability company
(hereinafter referred to as "Lessor"), and SUNRISE HEALTHCARE CORPORATION, a New
Mexico Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessee is currently negotiating a contract (the "Contract") with
Beverly Health and Rehabilitation Services, Inc. and Beverly Enterprises -
Idaho, Inc. (collectively, "Seller") to purchase a certain tract of land located
in the State of Idaho and more particularly described in EXHIBIT A attached
hereto and made a part hereof, which tract of land is improved with a sixty-four
(64) bed nursing home facility commonly known as Payette Lakes Care Center
located at 201 Floyd Street, McCall, Idaho (which tract and nursing home
facility, together with any other improvements now or hereafter located on the
tract and all easements, tenements, hereditaments and appurtenances thereto are
hereinafter collectively referred to as the "Demised Premises");
WHEREAS, upon satisfaction of certain conditions precedent, the right to
purchase the Demised Premises will be assigned by Lessee to Lessor pursuant to
an Assignment of Purchase and Sale Agreement (the "Assignment"); and
WHEREAS, pursuant to the Contract, Lessee is negotiating to purchase, and
will , pursuant to the Assignment, assign to Lessor the rights to purchase the
furnishings, furniture, equipment and fixtures to be used in or about the
Demised Premises (hereinafter collectively referred to as the "Personal
Property"); and
WHEREAS, contemporaneously with the purchase and sale of the Demised
Premises and the Personal Property, Lessor desires to lease the Demised Premises
and Personal Property to Lessee and Lessee desires to lease the Demised Premises
and Personal Property from Lessor; and
WHEREAS, simultaneous with the execution of this Lease, Lessor is also
entering into Leases with Lessee for the one hundred twenty-seven (127) bed
nursing home facility commonly known as Valley Rehabilitation and Living Center
located at 1014 Burrell Avenue, Lewiston, Idaho, and the forty (40) bed nursing
home facility commonly known as
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Magic Valley Manor located at 210 North Idaho
Street, Wendell, Idaho (collectively, hereinafter referred to as the "Other
Leases"); and
WHEREAS, Lessee hereby acknowledges and agrees that Lessor, as
consideration and inducement for entering into this Lease, requires that this
Lease provide that a default under the Other Leases shall constitute a default
under this Lease and that without such a "cross default" provision Lessor would
not execute this Lease; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and all
agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation, those
items set forth on EXHIBIT B attached hereto and made a part hereof), other than
such furniture, fixtures, equipment and supplies that persons other than the
Lessor may own or that the Lessee may lease from persons other than the Lessor
or that are purchased by Lessee other than as replacements for Personal
Property.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing on
the Commencement Date as hereafter defined, and on each anniversary of the
Commencement Date thereafter, except that if the Commencement Date is other than
the
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first day of a calendar month, then the first Lease Year shall be the period
from the Commencement Date through the date twelve (12) months after the last
day of the calendar month in which the Commencement Date occurs, and each
subsequent Lease Year shall be the period of twelve (12) months following the
last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Lessee, its successors and assigns, to be paid, kept and performed, does hereby
lease unto Lessee the Demised Premises together with the Personal Property to be
used in and upon the Demised Premises for the Term hereinafter specified, for
use and operation therein and thereon of a skilled and/or intermediate care
nursing home, in full compliance with all the rules and regulations and minimum
standards applicable thereto, as prescribed by the State of Idaho and such other
governmental authorities having jurisdiction thereof and having no less than
sixty-four (64) beds and for any other purpose authorized by Lessor in writing
and for no other purpose.
ARTICLE III - TERM OF LEASE
3.1 Except as expressly provided below, the term of this Lease shall be
for a period of ten (10) years commencing on the Commencement Date (hereinafter
defined), unless sooner terminated or extended as hereinafter provided (the
"Initial Term"). The "COMMENCEMENT DATE" shall mean the date the last of the
following has occurred:
(i) Lessee has received a commitment from Commonwealth Land Title
Insurance Company for issuance of a leasehold owner's title policy in the
amount of One Million Seven Hundred Thousand and No/100 Dollars
($1,700,000.00) free of all liens and encumbrances other than (a) standard
exceptions, (b) non-delinquent taxes and assessments, (c) easements,
restriction and rights of way that will not adversely affect Lessee's
operation of the Demised Premises as a nursing home in accordance with
Article II, above;
(ii) Lessee obtains all appropriate state or other governmental
licenses and certifications required to operate the Demised Premises, including,
without limitation, as a Medicare and Medicaid certified skilled nursing home;
and
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(iii) Lessee shall have been given possession of the Demised Premises.
Once the Commencement Date has been established, the parties shall sign a
Commencement Date memorandum setting forth that date.
3.2 Lessee shall have and is hereby granted the right and option to extend
the Initial Term of this Lease for an extended term (the "First Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the First Extended Term shall be the amount set
forth in Section 4.1. The first Lease Year of the First Extended Term shall
commence upon the day next following the expiration of the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised only
if Lessee is not in default under this Lease at the time of exercise and at the
time of expiration of the Initial Term, and, further, only if there is not at
either time an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the date of
expiration of the Initial Term. Furthermore, Lessee's option granted pursuant
to this Section 3.2 may be exercised only if Lessee also contemporaneously
exercises its options to extend pursuant to Section 3.2 of each of the Other
Leases.
3.3 Provided Lessee shall have exercised the option contained in Section
3.2 above, Lessee shall and Lessee is hereby granted the right and option to
extend this Lease for an additional Extended Term (the "Second Extended Term")
of five (5) Lease Years upon and subject to all the terms, provisions and
conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the Second Extended Term shall be the amount set
forth in Section 4.1 hereof. The first Lease Year of the Second Extended Term
shall commence on the day next following the expiration of the First Extended
Term.
The option granted pursuant to this Section 3.3 may be exercised only
if Lessee is not in default under the Lease at the time of exercise and at the
time of the expiration of the First Extended Term, and, further, only if there
is not then an event or occurrence which with the passage of time or giving of
notice, or both, would constitute a default hereunder, and said option shall be
exercised by Lessee giving to Lessor written notice of Lessee's election so to
do not less than twelve (12) full calendar months prior to the expiration of the
First Extended Term. Furthermore, Lessee's option granted pursuant to this
Section 3.3 may be exercised only if Lessee also contemporaneously exercises its
options to extend pursuant to Section 3.3 of each of the Other Leases.
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Notwithstanding the foregoing, Lessor acknowledges and agrees that the
Rent for the First Extended Term and the Second Extended Term may not be known
by Lessor at the time that Lessee is required to exercise its respective renewal
options. Accordingly, in the event Lessor has not advised Lessee of the First
Extended Term Rent at least thirteen (13) months prior to the date of the
expiration of the Initial Term or the Second Extended Term Rent at least
thirteen (13) months prior to the expiration of the First Extended Term, Lessee
shall have the right to exercise the renewal right provided for herein subject
to the right to rescind the same on written notice to Lessor delivered within
thirty (30) days after Lessor advises Lessee in writing as to the First Extended
Term Rent or the Second Extended Term Rent, as the case may be (the "Rent
Notice"), which Rent Notice shall be delivered by Lessor to Lessee as soon as
practicable after the debt service for the First Extended Term or the Second
Extended Term, as the case may be, has been determined but in no event less than
one hundred and eighty (180) days prior to the commencement of the First
Extended Term or the Second Extended Term, as the case may be.
The Initial Term, as it may be extended by the First Extended Term and
the Second Extended Term, is hereinafter collectively known as the "Term".
As used in this Article 3, the term default shall mean an "Event of
Default" as defined in Article 19 of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or
as Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to be
made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual Rent of $178,500.00,
payable in equal monthly installments of $14,875.00;
(ii) For the second Lease Year and each subsequent Lease Year
(of the Initial Term or any Extended Lease Term) an amount equal to the prior
Lease Year's Rent multiplied by 1.5 times the increase, if any, in the Cost
of Living Index (as hereinafter defined) in effect on September 1st of the
current Lease Year over the Cost of Living Index in effect on September 1st
of the preceding Lease Year; provided, however, that in no event will the
increase in Rent from one Lease Year to the next be greater than two and
one-half percent (2.5%) of the sum of the prior Lease Year's Rent nor shall
such Rent decrease from the prior Lease Year; and
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(iii) The Cost of Living Index is defined as the Consumer
Price Index for All Urban Consumers, U.S. City Average (1982-1984 = 100),
published by the BLS, or such other renamed index. If the BLS changes the
publication frequency of the Cost of Living Index so that a Cost of Living
Index is not available to make a cost-of-living adjustment as specified
herein, the cost-of-living adjustment shall be based on the percentage
difference between the Cost of Living Index for the closest preceding month
for which a Cost of Living Index is available and Cost of Living Index for
the comparison month is required by this Lease. If the BLS changes the base
reference period for the Cost of Living Index from 1982-84 = 100, the
cost-of-living adjustment shall be determined with the use of such conversion
formula or table as may be published by the BLS. If the BLS otherwise
substantially revises, or ceases publication of the Cost of Living Index,
then a substitute index for determining cost-of-living adjustments, issued by
the BLS or by a reliable governmental or other nonpartisan publication, shall
be reasonably selected by Lessor and Lessee.
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the Rent for the
month and a pro rata portion of all tax, insurance and other deposits provided
for in this Lease. All fixed annual rental payments shall be made in equal
monthly installments and shall be paid in advance on the first (1st) day of each
month (together with all tax and insurance deposits required in this Lease).
Unless otherwise notified in writing, all checks shall be made payable to Lessor
and shall be sent c/o Idaho Associates, L.L.C., Two North LaSalle Street, Suite
1901, Chicago, Illinois 60602.
The Rent set forth in this Article 4 is based, in part, upon the debt
service of the permanent first mortgage financing on the Demised Premises
("Initial Financing"). In the event that the debt service payable on Lessor's
mortgage financing in effect on the date that the First Extended Term commences
is more or less that the debt service on the Initial Financing, the Rent due
during the First Extended Term shall be adjusted according to the following
formula: The annual Rent due during the first year of the First Extended Term
shall be increased or decreased in an amount equal to the difference between (i)
the annual debt service on the indebtedness secured by the first mortgage
encumbering the Demised Premises in effect on the first day of the First
Extended Term, and (ii) the annual debt service on the indebtedness secured by
the first mortgage encumbering the Demised Premises in effect on the day of the
Initial Financing; provided, however, that the amount of principal to be used in
making the calculations shall not exceed the original principal amount of the
loan encumbering the Demised Premises concurrent with Lessor's acquisition of
the Demised Premises. The subsequent annual increases as provided in Article
4.1 above for the remainder of the First Extended Term shall be calculated on
the Annual Rent payable during the first year of the First Extended Term as so
adjusted.
In the event that the debt service payable on Lessor's mortgage
financing in effect on the date that the Second Extended Term commences is more
or less than the
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debt service on Lessor's mortgage financing in effect on the date the First
Extended Term commences, the Rent due during the Second Extended Term shall
be adjusted according to the following formula: the annual Rent due during
the first year of the Second Extended Term shall be increased or decreased in
an amount equal to the difference between (i) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
in effect on the first day of the Second Extended Term, and (ii) the annual
debt service on the indebtedness secured by the first mortgage encumbering
the Demised Premises on the date that the First Extended Term commences;
provided, however, that the amount of principal to be used in making the
calculation shall not exceed the original principal amount of the loan
encumbering the Demised Premises concurrent with Lessor's acquisition of the
Demised Premises. The subsequent annual increases as provided in Article 4.1
above for the remainder of the Second Extended Term shall be calculated on
the annual rent payable during the first year of the Second Extended Term as
so adjusted.
4.2 This Lease is and shall be deemed and construed to be a "pure net" or
"triple-net" lease and the Rent specified herein shall be net to the Lessor in
each year during the Term of this Lease. The Lessee shall pay all costs,
expenses and obligations of every kind whatsoever relating to the Demised
Premises which may arise or become due during the Term of this Lease, except for
any principal and interest payments and other costs owed by Lessor relating to
any Mortgage (defined below) and Landlord's general overhead and administrative
expenses (collectively, "Additional Rent"). Lessee does hereby indemnify the
Lessor against any and all such costs, expenses and obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due
and payable as in this Lease provided, a late charge of 3% per month on the
sums so overdue shall become immediately due and payable to Lessor as
liquidated damages for Lessee's failure to make prompt payment and said late
charges shall be payable on the first day of the month next succeeding the
month during which such late charges become payable. If non-payment of any
late charges shall occur, Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law in
the case of non-payment of Rent. No failure by Lessor to insist upon the
strict performance by Lessee of Lessee's obligations to pay late charges
shall constitute a waiver by Lessor of its rights to enforce the provisions
of this Article in any instance thereafter occurring.
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ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
6.1 Lessee will pay or cause to be paid, as provided herein, as
additional Rent, before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, all taxes, assessments, licenses and permit fees,
charges for public utilities, and all governmental charges, general and special,
ordinary and extraordinary, foreseen and unforeseen, of any kind and nature
whatsoever which during the Term of this Lease may have been, or may be
assessed, levied, confirmed, imposed upon or become due and payable out of or in
respect of, or become a lien on the Demised Premises and/or Personal Property or
any part thereof (hereinafter collectively referred to as "Taxes and
Assessments").
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the Term of this Lease and a part
of which is included in a period of time before or after the Term of this Lease,
shall be adjusted pro rata between Lessor and Lessee and each party shall be
responsible for its pro rata share of any such Taxes and Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, business license, estate,
succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being forfeited or
lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust, cash or other security satisfactory to Lessor in an amount equal to not
less than the amount of such Taxes and Assessments which at such time shall be
actually due and payable, and such additional amounts reasonably required by
Lessor and any Mortgagee (as hereinbelow defined) of Lessor from time to time,
together with all interest and penalties in connection therewith and all charges
that may or might be assessed against or become a charge on the Demised Premises
or any part thereof in such proceedings, or, if required by the taxing
authority, an amount deposited in trust with the taxing authority during the
pendency of any contest in lieu of any additional charge against the Demised
Premises until resolution of the contest.
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Unless Lessor agrees otherwise, the cash so deposited with Lessor
shall not bear interest and the cash or securities so deposited shall be held by
Lessor until the Demised Premises or any part thereof shall have been released
and discharged and shall thereupon be returned to the Lessee, less the amount of
any loss, cost, damage and reasonable expense that Lessor or any Mortgagee has
sustained in connection with the Taxes and Assessments so contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay the
amount of such Taxes and Assessments or part thereof as finally determined in
such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith, and such payment, at
Lessee's request, shall be made by Lessor out of the amount deposited with
respect to such Taxes and Assessments as aforesaid. In the event such amount
is insufficient, then the balance due shall be paid by Lessee.
6.6 Lessor shall not be required to join in any proceedings referred to
in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in
the name of Lessor, in which event Lessor shall join in such proceedings or
permit the same to be brought in its name. Lessor shall not ultimately be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings, and Lessee will indemnify and save
harmless Lessor from any such costs and expenses. Lessee shall be entitled
to any refund of any Taxes and Assessments and penalties or interest thereon
received by Lessor but previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for
real estate or personal property taxes imposed upon the Demised Premises or
Personal Property or otherwise, then Lessee shall be responsible for the
payment of such tax.
ARTICLE VII - TAX DEPOSITS
7.1 Lessee shall be required to make deposits for annual Taxes and
Assessments and, will make monthly deposits with Lessor, of an amount equal to
one twelfth (1/12) of the annual Taxes and Assessments or such greater amount as
may be required by any Mortgagee. Said deposits shall be due and payable on the
first day of each month as additional Rent, shall not bear interest and shall be
held by Lessor and/or a mortgagee of the Lessor to pay the real estate taxes as
they become due and payable. If the total of the monthly payments as made under
this Article shall be insufficient to pay the Taxes and Assessments when due,
then Lessee shall on demand pay Lessor the
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amount necessary to make up the deficiency, and if appropriate, Lessee shall
receive a credit against the next monthly tax escrow payment coming due in an
amount equal to said deficiency payment.
ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled
care and/or intermediate care nursing home and for no other purpose. Lessee
shall at all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of Idaho and any
other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified
skilled and/or intermediate care nursing home facility with no less than
sixty-four (64) licensed, and Medicaid certified beds.
8.2 Lessee will not suffer any act to be done or any condition to exist
on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable
any insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by
all governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than sixty-four (64) licensed, and Medicaid certified beds
with licenses, certifications, and provider agreements in full force and
good standing. All the Demised Premises, with the improvements located
thereon, and all the Personal Property shall be surrendered in good order,
condition and repair, ordinary wear and tear excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of this
Lease, maintain property insurance provided by a Causes of Loss-Special Form
or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor, not to be unreasonably withheld.
Such insurance shall, at all times, be maintained in an amount equal to the
full replacement cost of the Demised Premises and the Personal Property or in
such lesser amount as may be required by Lessor and any Mortgagee of the
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Demised Premises but at all times, in an amount sufficient to prevent Lessor
and Lessee from becoming co-insurers under applicable provisions of the
insurance policies. As used herein, the term "full replacement cost" shall
mean coverage for the actual replacement cost of the Demised Premises and the
Personal Property requiring replacement from time to time which, if not
agreed upon by Lessor and Lessee, shall be determined by an appraiser,
engineer, architect or contractor reasonably selected by Lessor. Upon
request by Lessee, Lessor will provide Lessee with information in its
possession which is reasonably necessary to establish the value of the
Demised Premises. Such insurance shall at all times be payable to Lessor and
Lessee as their interests may appear, and shall contain a loss-payable clause
to the holder of any Mortgage to which this Lease shall be subject and
subordinate (in accordance with Article 26 herein) , as said Mortgagee's
interest may appear. All such policies of insurance shall provide that:
(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor or
Lessee, which might otherwise result in forfeiture of insurance; and
(b) A standard Mortgagee clause in favor of any Mortgagee, and shall
contain, if obtainable, a waiver of the insurer's right of subrogation against
funds paid under the standard Mortgagee endorsement which are to be used to pay
the cost of any repairing, rebuilding, restoring or replacing.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or property
damage occurring upon, in or about the Demised Premises. Such insurance to have
limits of not less than $1,000,000 each occurrence and $3,000,000 general
aggregate and an excess or umbrella liability policy of not less than $5,000,000
each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee to
change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder. Notwithstanding the
foregoing, Lessee shall not be required to add coverage for damage to the
Demised Premises resulting from earthquake or flood as covered losses unless the
Demised Premises is classified as an earthquake or flood prone area by an
authority having jurisdiction over the Demised Premises and such authority
recommends such insurance.
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9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten
(10) days after Lessor's request therefore, Lessee shall deliver to Lessor
copies of all insurance policies then being carried by Lessee pursuant to
this Article 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due during
the period of the business interruption at the Facility (the "Business
Interruption Period");
(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
All proceeds of any business interruption insurance shall be applied,
first, to the payment of any and all fixed rental payments for the Business
Interruption Period; second, to the payment of any Taxes and Assessments and
insurance deposits required to be deposited for the Business Interruption
Period; and, thereafter, after all necessary repairing, rebuilding, restoring or
replacing has been completed as required by the pertinent Articles of this Lease
and the pertinent sections of any mortgage, any remaining balance of such
proceeds shall be paid over to the Lessee.
In lieu of the foregoing but subject to the terms and conditions of
this Article 9, Lessee may, at its option, obtain and maintain a blanket
insurance policy in an amount sufficient to provide all or part of the coverage
described in this Article 9.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed
to be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon
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shall immediately be payable by Lessee to Lessor, with interest thereon at a
rate which is the lesser of fifteen percent (15%) per annum or the maximum
rate permitted by law from date thereof until paid, and in addition, Lessee
shall reimburse Lessor for Lessor's reasonable expenses in enforcing or
performing such covenants, including reasonable attorney's fees. Any such
costs or expenses incurred or payments made by the Lessor shall be deemed to
be Additional Rent payable by Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment shall
in no way constitute a waiver of, or a limitation upon, Lessor's other rights
hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of this
Lease but only to the extent such Mortgagee is entitled under the terms of its
Mortgage and the provisions of any subordination, nondisturbance and attornment
agreement which may be in effect for such Mortgage.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the Demised
Premises (including the grounds, sidewalks and curbs abutting the same) and the
Personal Property in good order and condition without waste and in suitable
state of repair at least comparable to that which existed immediately prior to
the Commencement Date (ordinary wear and tear excepted, subject to Lessee's
obligation to repair and replace the same in accordance with the terms of this
Lease), and will make or cause to be made, as and when the same shall become
necessary, all structural and nonstructural, exterior and interior, replacing,
repairing and restoring necessary to that end. All replacing, repairing and
restoring required of Lessee shall be (in the reasonable opinion of Lessor) of
quality at least equal to the original work and shall be in compliance with all
standards and requirements of law, licenses and municipal ordinances necessary
to operate the Demised Premises as a Medicare and Medicaid certified skilled
and/or intermediate care nursing home having no less than sixty-four (64)
licensed, and Medicaid certified beds.
11.2 Any items of Personal Property that are uneconomical to repair shall
be replaced by new items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be removed
from the Demised Premises except in connection with repair or replacement of
such items. Lessee may place additional property on the Demised Premises (not
required for the replacement of the
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Personal Property) and such additional property shall be and remain the
property of Lessee. Lessee shall remove such additional property upon
termination or expiration of this Lease provided that Lessee shall make such
necessary repairs or replacements as may be required in order to return the
Demised Premises to the condition which existed prior to the removal of the
additional property.
11.3 Provided there is not an Event of Default by Lessee under this
Lease, Lessee shall have the right, at any time and from time to time, to
remove and dispose of any Personal Property which may have become obsolete or
unfit for use, or which is no longer useful in the operation of the Demised
Premises, provided Lessee promptly replaces any such Personal Property so
removed or disposed of with other personal property free of any security
interest, lien or encumbrance. Said personal property shall be of the same
character and shall be at least equal in usefulness and quality as any such
Personal Property so removed or disposed of, and such replacement property
shall automatically become the property of and shall belong to the Lessor,
and Lessee shall execute such bills of sale or other documents reasonably
requested by Lessor to vest the ownership of such personal property in
Lessor. Notwithstanding the foregoing, Lessee shall have the right to place
leased Personal Property on the Demised Premises provided that the payments
due under such leases do not exceed $4,000 per year. In the event Lessee
desires to place leased personal property on the Demised Premises having
annual payments in excess of the amount provided for herein, Lessee shall
advise Lessor in writing and Lessor shall use its reasonable best efforts to
seek the approval of the Mortgagee or an amendment of the Mortgage with
respect thereto.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by fire
or other casualty (any such event being called a "Casualty"), Lessee shall
promptly replace, repair and restore the same as nearly as possible to its
condition immediately prior to such Casualty, in accordance with all of the
terms, covenants and conditions and other requirements of this Lease and any
applicable Mortgage and in accordance with any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage; provided,
however, that in the event of a Casualty occurring during the last six (6)
months of the Term or a Casualty resulting from an earthquake, flood, nuclear
accident or war which is not covered by insurance maintained by Lessee and which
renders the Demised Premises unsuitable for use as a nursing home, in the
reasonable opinion of Lessor and Lessee, then Lessee shall have the right to
terminate this Lease upon forty-five (45) days written notice to Lessor. If
applicable, the Demised Premises and the Personal Property shall be so replaced,
repaired and restored as to be of at least equal value and substantially the
same character as prior to such Casualty. If the estimated cost of any
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such restoring, replacing or repairing is Fifty Thousand Dollars and no/100
($50,000.00) or more, the plans and specifications for same shall be first
submitted to and approved in writing by Lessor, which approval shall not be
unreasonably withheld, and, if reasonably required by Lessor, Lessee shall
immediately select an independent architect, approved by Lessor who shall be
in charge of such repairing, restoring or replacing. Lessee covenants that it
will give to Lessor prompt written notice of any Casualty affecting the
Demised Premises or the personal property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30)
days after approval of the final plans and specifications (including by
Mortgagee and any governmental or quasi-governmental agency or entity exercising
jurisdiction), issuance of a building permit and any other necessary permits and
licenses for commencement of construction, whichever is later, Lessee shall
commence to restore the Demised Premises and Lessee shall complete the same
within 180 days thereafter, provided, however, that in the case of damage or
destruction which cannot with due diligence be repaired within said 180 day
period, Lessee shall have an additional period of time, not to exceed 180
additional days, to complete the reconstruction, provided Lessee is proceeding
promptly and with due diligence to complete the restoration. Lessee may utilize
all insurance proceeds available for any such repair or restoration, subject to
the terms of Section 11A.3 hereof and any required approval of any Mortgagee.
Lessee's obligation to make Rent payments and to pay all other charges required
by this Lease shall not be abated during the period of the repair or
restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received from
such insurance proceeds is sufficient to complete such work or (ii) if there is
an amount required in excess of the amount received from such insurance
proceeds, either said excess amount has been expended by Lessee or that Lessee
has deposited such excess funds with Lessor or has satisfied Lessor that it has
such funds available to it so that, in either case, the total amount available
will be sufficient to complete such repairing, rebuilding, restoring or
replacing in accordance with the provisions of any Mortgage and any plans and
specifications submitted in connection therewith, free from any liens or
encumbrances of any kind whatsoever and the funds held by Lessor shall be
disbursed periodically during construction, but not more than once every thirty
(30) days after the presentment of architect's or general contractor's
certificates, waivers of lien, contractor's sworn statements, and other evidence
of cost and payments as may be reasonably required by Lessor or any Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part
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of the Demised Premises or any portion thereof or allow it to be
removed or demolished, without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld. Except as required by law, Lessee
further agrees that it will not make, authorize or permit to be made any changes
or alterations in or to the Demised Premises without first obtaining Lessor's
written consent thereto, which consent shall not be unreasonably withheld. All
alterations, improvements and additions to the Demised Premises shall be in
quality and class at least equal to the original work and shall become the
property of the Lessor and shall meet all building and fire codes, and all other
applicable codes, rules, regulations, laws and ordinances. Nothing herein shall
be deemed or construed to require Lessee to obtain Lessor's consent to
non-structural changes or alterations such as painting, the replacement of
wallcoverings or the replacement of floor coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
sixty-four (64) licensed, and Medicaid certified beds, which may be applicable
to the Personal Property and the Demised Premises and including, but not limited
to, the sidewalks, alleyways, passageways, vacant land, parking spaces, curb
cuts, curbs adjoining the Demised Premises, which are under Lessee's control,
whether or not such law, ordinance, order, rules, regulation or requirement
shall necessitate structural changes or improvements.
13.2 Lessee shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
sixty-four (64) licensed, and Medicaid certified beds, and the Demised Premises
shall be qualified to participate in the Medicare and Medicaid reimbursement
programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever Rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and
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surveys, administrative proceedings and/or court actions from all state,
federal and local governmental bodies regarding the Demised Premises or the
nursing home operated thereon. Lessee shall notify Lessor within twenty-four
(24) hours after receipt thereof of any notice from any governmental agency
terminating or suspending or threatening termination or suspension of any
license, permit, provider agreement or certification relating to the Demised
Premises or the nursing home operated thereon.
13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property,
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Lessee shall have the right to contest such lien or charge, provided, Lessee
within thirty (30) days after notice of the filing thereof, will cause the
same to be discharged of record or in lieu thereof to secure Lessor against
said lien by either (i) deposit with Lessor of such security as may be
reasonably demanded by Lessor to protect against such lien, or (ii) post a
release bond in form and amount as required by applicable law and as
otherwise satisfactory to Lessor. If Lessee shall fail to cause such lien to
be discharged within the period aforesaid, or to otherwise secure Lessor as
aforesaid, then in addition to any other right or remedy, Lessor may, upon
ten (10) days notice, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by processing the discharge
of such lien by deposit or by bonding proceedings. Any amount so paid by
Lessor and all costs and expenses incurred by Lessor in connection therewith,
together with interest thereon at a rate which is the lesser of fifteen
percent (15%) per annum or the maximum rate permitted by law, shall
constitute Additional Rent payable by Lessee under this Lease and shall be
paid by Lessee to Lessor on demand. Except as herein provided, nothing
contained herein shall in any way empower Lessee to do or suffer any act
which can, may or shall cloud or encumber Lessor's or any Mortgagee's
interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience to
the Lessee and to the residents of the Facility as may reasonably be possible
under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to enter and inspect the Demised Premises to
the extent such Mortgagee is entitled to do so under the terms of its Mortgage
and to the extent consistent with any subordination, nondisturbance and
attornment agreement then in effect for such Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
use by act of any public
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authorities, then this Lease shall terminate as of the date possession is
taken by the condemnor. If all or substantially all of the Demised Premises
shall be taken, the net proceeds of any condemnation award, settlement or
compromise for the Demised Premises taken shall belong to Lessor; provided,
however, Lessee shall have the right to pursue a separate award for the value
of Lessee's interest in the Demised Premises as long as such separate award
does not diminish the award, settlement or compromise paid to Lessor; and
provided, further, that Lessee shall be solely entitled to any amount awarded
for the value of Lessee's property located on the Demised Premises in
accordance with Section 11.1 and any amount for relocation and loss of
business as long as such separate award does not diminish the award. For the
purposes of this paragraph "substantially all of the Demised Premises leased
hereunder" shall be deemed to have been taken if upon the taking of less than
the whole of the Demised Premises that portion of the Demised Premises not so
taken shall not by itself be adequate for the conduct therein of Lessee's
business, in the reasonable judgment of Lessor and Lessee, subject further to
the rights of Lessor's Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to thirty-two
(32) or less, Lessee shall have the right to terminate this Lease by written
notice to Lessor within thirty (30) days following the issuance of the
condemnation order or conveyance of the property, whichever is earlier. If
Lessee does not elect to terminate this Lease, Lessor shall hold in trust that
portion, if any, of such award, settlement or compromise which shall be
allocable to consequential damage to buildings and improvements not taken, and
Lessor shall pay out such portion to Lessee to reimburse Lessee for the cost of
restoring the Demised Premises as a complete structural unit, as such
restoration work progresses in accordance with the procedure for making
insurance proceeds available for restoration, repair or rebuilding as set forth
in Article 11A hereof. In the event of a partial condemnation which does not
result in a termination of this Lease, the annual Rent rate payable under
paragraph 4.1 hereof shall be reduced to such amount as Lessor and Lessee agree
is fair and equitable taking into consideration the number of operational beds
remaining after such taking as compared to the number of operational beds on the
Commencement Date.
ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised
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Premises and has found the same satisfactory. Lessee acknowledges that the
Personal Property and the Demised Premises are the property of Lessor and
that Lessee has the leasehold rights as set forth in the terms and conditions
of this Lease.
As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the nature, in all respects, of the Demised Premises, including (but not by
way of limitation); the soil and geology thereof, the waters thereof and
thereunder; the drainage thereof; the manner of construction and the condition
and state of repair and lack of repair of all improvements of every nature; the
nature, provisions and effect of all health, fire, zoning, building, subdivision
and all other use and occupancy laws, ordinances, and regulations applicable
thereto; and the nature and extent of the rights of others with respect thereto,
whether by way of reversion, easement, right of way, prescription, adverse
possession, profit, servitude, lease, tenancy, lien, encumbrance, license,
contract, reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has no duty
to be informed with respect to, any of the matters set forth in the preceding
sentence. Lessee hereby accepts the Demised Premises as suitable and adequate
in all respects for the conduct of the business and the uses of the Demised
Premises contemplated under the provisions of the Lease. Notwithstanding the
foregoing, Lessor represents that it has no actual knowledge of anything related
to the foregoing which would cause the Demised Premises to be materially
inadequate for its permitted use hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to Lessor's
title as it was acquired from its seller, including all rights, rights of way,
easements, profits, servitudes, reservations, restrictions, conditions,
exceptions, reversions, possibilities of reverter, liens, encumbrances,
occupancies, tenancies, licenses, clouds, claims and defects, known and unknown
and whether of record or not. In the event of any defect in Lessor's title to
the Demised Premises by which a third party's paramount fee ownership of the
Demised Premises requires that Lessee vacate the Demised Premises, then in such
event this Lease shall be terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including (but
not limited to) the requirements of any inspection or examination by Lessee of
the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any part thereof or the
taking of the Demised Premises or any
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part thereof by condemnation, requisition or otherwise for any reason; (ii)
any restriction or prevention of or interference with any use of the Demised
Premises or any part thereof including any restriction or interference with
or circumstance which prevents the use of the Demised Premises as
contemplated by Paragraph 8.1; (iii) any frustration of Lessee's purposes
hereunder, for any claim which Lessee has or might have against Lessor; or
(iv) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing. However, nothing shall preclude Lessee from bringing a separate
action and Lessee is not waiving other rights and remedies not waived herein.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease
or in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest in
the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee (other than to Andrew L.
Turner or an entity controlled by Andrew L. Turner or a wholly owned subsidiary
of Lessee or of Lessee's parent corporation Sun Healthcare Group, Inc.) without
the prior written consent of the Lessor, which consent shall not be unreasonably
withheld. Any violation or breach or attempted violation or breach of the
provisions of this Article by Lessee, or any acts inconsistent herewith shall
vest no right, title or interest herein or hereunder or in the Demised Premises,
in any such transferee or assignee; and Lessor may, at its exclusive option,
terminate this Lease and invoke the provisions of this Lease relating to
default. Lessor acknowledges and agrees that the sale of equity or debt
securities in Lessee or Lessee's parent corporation shall in no event constitute
an assignment or transfer of this Lease or of an interest hereunder provided
Lessee remains a wholly owed subsidiary of Sun Healthcare Group, Inc.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the Lessor under
the provisions of this Lease, when such failure shall continue for a period of
ten (10) days following written notice to Lessee;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of this Lease
(other than as set
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forth in Sections 19.1(3) and 19.1(4), if such failure or violation shall not
be cured within thirty (30) days after notice thereof by Lessor to Lessee;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty percent (50%) or more of the patients located in the nursing
home;
(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage relating to the
Demised Premises of which Lessee has been made aware and with which Lessee has
agreed to comply if such failure or violation shall not be cured within twenty
(20) days (or such lesser period as may be provided in the Mortgage) after
notice thereof by Lessor to Lessee;
(5) The voluntary transfer by Lessee of ten percent (10%) or
more of the patients located in the Demised Premises if such transfer is not for
reasons relating to the health and well being of the patients that were
transferred or such other reasons as may be permitted by state or federal law,
such as nonpayment of stay or the welfare of other residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the Personal Property
previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against the property of Lessee which is not discharged or stayed by action of
Lessee contesting same, within ninety (90) days after such levy or attachment
(provided if the stay is vacated or ended, this paragraph shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is not
discharged within ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or demand from any
governmental
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authority, or any officer acting on behalf thereof, of any violation of any
law, order, ordinance, rule or regulation with respect to the operation of
the nursing home located on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental authority, or
any officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of the nursing home located on Demised
Premises, and within ten (10) days prior to the expiration of any time
permitted by such authority for such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises, having no less than sixty-four (64) licensed beds, or (ii)
decertify the nursing home operated in the Demised Premises from participation
in the Medicare or Medicaid reimbursement program, which is not either appealed
by Lessee and stayed while Lessee's appeal thereof is pending, or revoked or
rescinded by the applicable governmental authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof;
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease Guaranty; or
(16) An "Event of Default" occurs under either of the Other
Leases.
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have given
to Lessee a written notice specifying a situation which, as hereinbefore
provided, must be remedied by Lessee within a certain time period, and, if for
causes beyond Lessee's control, it would not reasonably be possible for Lessee
to remedy such situation within such period, then, provided Lessee immediately
upon receipt of such notice shall advise Lessor in writing of Lessee's intention
to institute, and shall, as soon as reasonably possible thereafter, duly
institute, and thereafter diligently prosecute to completion, all steps
necessary to remedy such situation and shall remedy the same, and provided that
any license or certification necessary for the operation of the Demised
Premises, as a nursing facility is not affected thereby, this Lease and the Term
and estate hereby granted shall not expire and terminate at the expiration of
such time period as otherwise hereinbefore provided, except that in no event
shall Lessee have more than ninety (90) additional days to remedy any such
situation in the manner set forth herein, or such longer period of time granted
by any governmental agency having jurisdiction over the Facility.
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ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee,
Lessor may, if it so elects, upon written notice to Lessee of such election,
forthwith terminate this Lease and Lessee's right to possession of the Demised
Premises, or, at the option of the Lessor, terminate Lessee's right to
possession of the Demised Premises without terminating this Lease. Upon any
such termination of this Lease, or upon any such termination of Lessee's right
to possession without termination of this Lease, Lessee shall vacate the Demised
Premises immediately, and shall quietly and peaceably deliver possession thereof
to the Lessor, and Lessee hereby grants to the Lessor full and free license to
enter into and upon the Demised Premises in such event with or without process
of law and to repossess the Demised Premises and Personal Property as the
Lessor's former estate. In the event of any such termination of this Lease, the
Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to Rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive Rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to terminate this Lease or to terminate Lessee's right to possession of the
Demised Premises, then all licenses, certifications, permits and authorizations
issued by any governmental agency, body or authority in connection with or
relating to the Demised Premises and the nursing home operated thereon shall be
deemed to be assigned to Lessor, to the extent permitted by law. Lessor shall
also have the right to continue to utilize the telephone number and name (other
than the name "Sunrise Healthcare" or similar name) used by Lessee in connection
with the operation of the nursing home located on the Demised Premises. This
Lease shall be deemed and construed as an assignment for purposes of vesting in
Lessor, all right, title and interest in and to: (i) all licenses,
certifications, permits and authorizations obtained in connection with the
operation of the nursing home located on the Demised Premises; and (ii) the name
and telephone number used in connection with the operation of the nursing home
located on the Demised Premises (other than the name "Sunrise Healthcare" or
similar name). Lessee hereby agrees to take such other action and execute such
other documents as may be necessary in order to vest in Lessor all right, title
and interest to the items specified herein, to the extent permitted by law.
21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so
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to elect, and the Lessor elects to terminate Lessee's right to possession
only, without terminating this Lease, Lessor may, at its option, enter into
the Demised Premises, remove Lessee's signs and other evidences of tenancy
and take and hold possession thereof as in the foregoing paragraph 21.2 of
this Article provided, without such entry and possession terminating this
Lease or releasing Lessee, in whole or in part, from Lessee's obligation to
pay the Rent hereunder for the full remaining Term of this Lease, and in any
such case, Lessee shall pay to Lessor a sum equal to the entire amount of the
Rent reserved hereunder and required to be paid by Lessee up to the time of
such termination of the right of possession plus any other sums then due
hereunder. Upon and after entry into possession without termination of this
Lease, Lessor may attempt to relet the Demised Premises or any part thereof
for the account of Lessee for such Rent, or shall operate the nursing home
located on the Demised Premises for such time and upon such terms as Lessor
in its sole discretion shall determine. In any such case, Lessor may make
repairs, alterations and additions in or to the Demised Premises, and
redecorate the same to the extent deemed desirable by Lessor, and Lessee
shall, upon demand, pay the reasonable cost thereof, together with Lessor's
reasonable expenses of reletting. If the consideration collected by Lessor
upon any such reletting is not sufficient to pay monthly the full amount of
Rent reserved in this Lease, together with the reasonable costs of repairs,
alterations, additions, redecorating and Lessor's expenses, Lessee shall pay
to the Lessor the amount of each monthly deficiency upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment
of Rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to possession
only, as hereinabove provided. Upon such termination of the Lease or at any time
after such termination of Lessee's right to possession, Lessor may recover from
Lessee and Lessee shall pay to Lessor as damages, whether or not Lessor shall
have collected any current monthly deficiencies under the foregoing paragraph,
and in lieu of such current deficiencies after the date of demand for such
damages, the amount thereof found to be due by a court of competent
jurisdiction, which amount thus found may be equal to:
(a) the remainder, if any, of Rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the Rent reserved for what would have been the remainder of the Term of this
Lease
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together with charges to be paid by Lessee under the Lease; over
(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any shareholders, officers, directors, managers, members, agents or employees of
Lessor be liable under any express or implied covenant, agreement or provisions
of this Lease, for any damages whatsoever to Lessee beyond Lessor's interest in
the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures or other tangible property of any kind belonging to Lessee
and located in or about the Demised Premises. Such lien is granted for the
purpose of securing the payments of rents, charges, penalties, and damages
herein covenanted to be paid by Lessee, and for the purpose of securing the
performance of all of Lessee's obligations under this Lease. Such lien shall be
in addition to all rights to Lessor given and provided by law but shall only be
exercised
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by Lessor after the occurrence of an Event of Default which is not cured
within any applicable cure period. This Lease shall constitute a security
agreement under the Uniform Commercial Code granting Lessor a security
interest in any furnishings, equipment, fixtures or other tangible personal
property (subject to the terms of Article 11 herein) of any kind belonging to
Lessee and located in or about the Demised Premises. If required by Lessor,
Lessee shall execute financing statements for filing under the Uniform
Commercial Code reflecting the security interest granted under this section.
Notwithstanding anything to the contrary contained in this Section
24.1, in the event all or substantially all of the Demised Premises is sublet,
assigned or transferred or a controlling number of the outstanding shares in
Lessee is sold, assigned or otherwise transferred (other than to Andrew L.
Turner or a wholly owned subsidiary of Lessee or of Lessee's parent corporation
Sun Healthcare Group, Inc.) with the prior written consent of Lessor in
accordance with Section 18.1 of this Lease, this Lease shall at such time
constitute a security agreement under the Uniform Commercial Code granting
Lessor a security interest in any accounts receivable of Lessee's successor
related to the Demised Premises, and at such time, Lessee's successor shall
execute a security agreement and financing statements for filing under the
Uniform Commercial Code reflecting a security interest in said accounts
receivable.
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee.
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to property,
occurring during the Term on the Demised Premises or, to the extent the same are
under Lessee's control, any adjoining sidewalks, streets or ways, or in any
manner growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future sewer
system, or the use of any adjoining sidewalks, streets or ways which are under
Lessee's control during the Term of this Lease, and Lessee further agrees to pay
any reasonable attorneys' fees and expenses incident to the defense by Lessor of
any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages or
deeds of trust now
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or hereafter in force and affecting the Demised Premises (or any portion
thereof) and/or the Personal Property, and to all renewals, modifications,
consolidations, replacements and extensions thereof (any such Mortgage or
deed of trust, as it may be renewed, modified, consolidated, replaced or
extended is hereinafter referred to as a "Mortgage", and the holder or
beneficiary of a Mortgage is hereinafter referred to as a "Mortgagee"),
provided that, for other than Existing Mortgages (as defined below), Lessee
receives a subordination, nondisturbance and attornment agreement in a
commercially reasonable form satisfactory to such Mortgagee. Lessee agrees
to execute, acknowledge and deliver upon demand such further instruments
subordinating this Lease to any such Mortgage, or other liens or encumbrances
as shall be desired by Lessor; provided, that Lessee receives a
subordination, nondisturbance and attornment agreement, in a commercially
reasonable form satisfactory to such Mortgagee. Furthermore, in connection
with any mortgage loan pertaining to the Demised Premises existing as of the
date of this Lease (an "Existing Mortgage"), Lessor agrees to use all
commercially reasonable efforts to deliver to Lessee a nondisturbance
agreement from the current Mortgagee in a form reasonably satisfactory to
such Mortgagee on the Commencement Date or as soon as possible thereafter.
Lessee further agrees that promptly after receipt of a request from any
Mortgagee made at any time prior to foreclosure of its Mortgage, Lessee shall
execute, acknowledge and deliver to such Mortgagee any instrument as such
Mortgagee may reasonably request whereby Lessee agrees to subordinate and
attorn to such Mortgagee, at such Mortgagee's election, after the foreclosure
of its Mortgage or its acceptance of a deed in lieu of foreclosure, provided
that Lessee concurrently receives a nondisturbance agreement in commercially
reasonable form satisfactory to such Mortgagee. Lessee agrees further that
any Mortgagee shall have the right to subordinate its Mortgage and its rights
thereunder to this Lease, except that such Mortgagee shall be entitled to
expressly exclude from such subordination the Mortgagee's rights, if any, to
insurance proceeds and eminent domain awards in the event of a loss or
casualty or eminent domain taking of the Demised Premises or any portion
thereof. If such Mortgagee executes and records an instrument which purports
to effect a partial or complete subordination of its Mortgage to this Lease,
any rights of such Mortgagee to insurance proceeds or eminent domain awards
which are expressly excluded from such subordination shall remain superior to
the rights of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Subject to the terms of any subordination, nondisturbance and
attornment agreement which may be in effect, and anything in this Lease
contained to the contrary notwithstanding, Lessee shall at all times and in all
respects fully, timely and faithfully comply with and observe each and all of
the conditions, covenants, and provisions required on the part of the Lessor and
of which Lessee has received notice under any Mortgage (and to any renewals,
modifications, extensions, replacements and/or consolidations
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thereof) to which this Lease is subordinate or to which it later may become
subordinate, including, without limitation, such conditions, covenants and
provisions thereof as relate to the care, maintenance, repair, insurance,
restoration, preservation and condemnation of the Demised Premises,
notwithstanding that such conditions, covenants and provisions may require
compliance and observance to a standard or degree in excess of that required
by the provisions of this Lease, or may require performance not required by
the provisions of this Lease, and shall not do or permit to be done anything
which would constitute a breach of or default under any obligation of the
Lessor under any such mortgage, it being the intention hereof that Lessee
shall so comply with and observe each and all of such covenants, conditions
and provisions of any such Mortgage affecting the Demised Premises so that it
will at all times be in good standing and there will not be any default on
the part of the Lessor thereunder. However, nothing in this Article
contained shall be construed to obligate Lessee to pay any part of the
principal or interest secured by any Mortgage or to perform any obligation
imposed on Lessor thereunder which is not delegable by Lessor by the terms
thereof. Lessee further covenants and agrees that Lessee shall give any
Mortgagee notice of any Lessor default under this Lease, and if Lessor fails
to cure such default, such Mortgagee shall have an additional reasonable time
to cure any such default on Lessor's behalf.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease (except for
any payments resulting from Lessor's failure to comply with the terms of the
Mortgage), and not otherwise paid by Lessee to Lessor pursuant to Section 7.1,
shall be paid by the Lessee or as directed by Lessor.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
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law now or hereafter in effect which may terminate this Lease or give or
purport to give Lessee any right of election to terminate this Lease or to
surrender possession of the Demised Premises in the event any such
proceedings are brought against the Lessor under such Mortgage or the holder
of any such Mortgage, and agrees that this Lease shall not be affected in any
way whatsoever by any such proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico, and is authorized to transact business in the
State of Idaho; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite corporate
action to authorize the execution, delivery and performance of this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
(a) Lessor is a limited liability company duly organized and validly
existing under the laws of the State of Illinois; and
(b) Lessor has full power and authority to enter into this Lease and
to carry out the transactions contemplated herein.
ARTICLE XXXI - SECURITY DEPOSIT
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31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of this
Lease pay to Lessor, as a security deposit the sum of Seventy-Four Thousand
Three Hundred Seventy-Five and No/100 Dollars ($74,375.00), payable on the first
day of the Term. Said security deposit may be applied by Lessor for the purpose
of curing any default or defaults of Lessee hereunder, in which event Lessee
shall replenish said deposit in full by promptly paying to Lessor the amount so
applied. Lessor shall not pay any interest on said deposit, except as required
by law. If Lessee has not defaulted hereunder and Lessor has not applied said
deposit to cure a default, then said deposit, or such applicable portion
thereof, shall be paid to Lessee within thirty (30) days after the termination
of this Lease. Said deposit shall not be deemed an advance payment of Rent or a
measure of Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the operations
of the Demised Premises and nursing home operated thereon for such annual fiscal
period which shall be prepared by or on behalf of Lessee, and which shall
contain a balance sheet and detailed income and expense statement (collectively
called "Financial Statements"), and copies of all Medicaid and Medicare cost
reports as filed with the governmental authority, as of the end of the fiscal
year. In addition, Lessee shall furnish Lessor, within 10 days following
filing, a copy of its or its parent corporation's federal income tax return if
it does not file separate returns for the preceding year. Each such statement
shall be certified as being true and correct by an officer of Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request by Lessor, Lessee shall
make available for inspection by Lessor or its designee, during reasonable
business hours, the said records and books of account covering the entire
business operations of Lessee on the Demised Premises.
ARTICLE XXXIII - TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
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33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty within
sixty (60) or fewer days' notice or which Lessor requests be assigned to Lessor
or its designee pursuant to this Article 33;
(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for periods
on or prior to the Closing Date) entered in connection with the Demised Premises
to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises, running
to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical records
as provided by law and confidentiality requirements), books, records, files and
other business records attributable to the business or operations of the Demised
Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of the Demised Premises, to the extent assignable by Lessee (excluding the right
to any payments for periods prior to the Closing Date) any and all patient trust
fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the Demised
Premises as a
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long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name of
the business conducted thereon and all telephone numbers presently in use
therein but specifically excluding the name "Sunrise Healthcare" or similar
name, or any Sunrise policy or procedure manuals, forms or systems, or other
confidential or proprietary information.
33.2 Lessee shall be responsible for, and pay all accrued expenses
with respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the Demised
Premises for the period through 12:00 a.m. on the Closing Date. Lessor shall be
responsible for and pay all accrued expenses with respect to the Demised
Premises accruing on or after 12:01 a.m. on the day after the Closing Date and
shall be entitled to receive and retain all revenues from the Demised Premises
accruing on or after the Closing Date. Within fifteen (15) business days after
the Closing Date, the following adjustments and prorations shall be determined
as of the Closing Date and the party to whom payment is owed shall receive said
payment within said fifteen (15) day period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in which
the Closing Date occurs, the proration of such taxes shall be estimated at the
Closing Date based upon reasonable information available to the parties,
including information disclosed by the local tax office or other public
information, and an adjustment shall be made when actual figures are published
or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date. The obligation for wages and the obligation, if any, to pay to
employees of the Demised Premises accrued vacation and sick leave pay or
employee severance pay or other accrued benefits which may be payable as the
result of any termination of any employee on or prior to the Closing Date for
the period prior to the Closing Date shall remain the Lessee's obligation after
the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of insurance
premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and
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deposits, maintenance charges and service charges shall be prorated between
Lessee and Lessor as of the Closing Date. Lessee shall, if possible, obtain
final utility meter readings as of the Closing Date. To the extent that
information for any such proration is not available on the Closing Date,
Lessee and Lessor shall effect such proration within ninety (90) days after
the Closing Date or as soon thereafter as such information becomes available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance premiums;
and (ii) any other sums being held by Lessor for the benefit of Lessee provided
that any such sums are not needed to pay costs and expenses which relate to the
period prior to the Closing Date, in accordance with the applicable provisions
of this Lease.
(g) Subject to the terms of Article 31 hereof, Lessee shall receive a
credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation or other confidential or proprietary information.
Such transfer and delivery shall be in accordance with all applicable laws,
rules and regulations concerning the transfer of medical records and other types
of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with an accounting of all funds belonging to patients at the
Demised Premises which are held by Lessee in a custodial capacity. Such
accounting shall set forth the names of the patients for whom such funds are
held, the amounts held on behalf of each such patient and the Lessee's warranty
that, to the actual current knowledge of Lessee, the accounting is true, correct
and complete. Additionally, Lessee, in accordance with all applicable rules and
regulations, shall make all necessary arrangements to transfer such funds to a
bank account designated by Lessor, and Lessor shall in writing acknowledge
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receipt of and expressly assume all the Lessee's financial and custodial
obligations with respect thereto. Notwithstanding the foregoing, Lessee will
indemnify and hold Lessor harmless from all liabilities, claims and demands,
including reasonable attorney's fees, in the event the amount of funds, if any,
transferred to Lessor's bank account as provided above, did not represent the
full amount of the funds then or thereafter shown to have been delivered to
Lessee as custodian that remain undisbursed for the benefit of the patient for
whom such funds were deposited, or with respect to any matters relating to
patient funds which accrue during the Term of this Lease.
33.5 For the period commencing upon an Event of Default hereunder and
Lessor's election to terminate this Lease as provided in Article 21 and ending
on the date Lessor or its designee obtains all appropriate state or other
governmental licenses and certifications required to operate the Demised
Premises as a Medicare and Medicaid certified nursing home, Lessee shall enter
into a management agreement with Lessor or Lessor's designee whereby Lessor or
its designee shall have the right to operate the Demised Premises, on a triple
net basis, and shall be entitled to all revenues of the Demised Premises during
such period, and to use any and all licenses, certifications and provider
agreements issued to Lessee by any federal, state or other governmental
authority for such operation of the Demised Premises, if permitted by such
governmental authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other receivables
of Lessee, whether derived from operation of the Demised Premises or otherwise,
shall remain the property of Lessee after the Closing Date. Lessee shall retain
full responsibility for the collection thereof. Lessor shall assume
responsibility for the billing and collection of payment on account of services
rendered by it on and after the Closing Date. In order to facilitate Lessee's
collection efforts, Lessee agrees to deliver to Lessor, within a reasonable time
after the Closing Date, a schedule identifying all of those private pay balances
owing for the month prior to the Closing Date and Lessor agrees to apply any
payments received which are specifically designated as being applicable to
services rendered prior to the Closing Date to reduce the pre-Closing balances
of said patients by promptly remitting said payments to Lessee. In the event
payments specifically indicate that they relate to services rendered
post-Closing, such payments shall be retained by Lessor. In the event no
designation is made, such payments shall be applied one-half to Lessee's
accounts receivable and one-half to Lessor's accounts receivable. Lessor shall
cooperate with Lessee in Lessee's collection of its pre-Closing accounts
receivable. Lessor shall have no liability for uncollectible receivables and
shall not be obligated to bear any expense as a result of such activities on
behalf of Lessee. Subject to the provisions of Article 24 hereof, Lessor shall
remit to Lessee or its assignee those portions of any payments received by
Lessor which are specifically designated as repayment or reimbursement received
by Lessor arising out
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of cost reports filed for the cost reporting periods ending prior to the
Closing Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or Medicaid
on the Closing Date will, under current regulations, be paid by Medicare or
Medicaid directly to Lessee for services rendered at the Demised Premises prior
to the Closing Date allocated on the per diem basis. Said payments shall be the
sole responsibility of Lessee and, except as provided in Section 33.7(b) below,
Lessor shall in no way be liable therefor. After the Closing Date, Lessor and
Lessee shall each have the right to review supporting books, records and
documentation that are in the possession of the other relating to Medicaid or
Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents reimbursement
with respect to services provided at the Demised Premises prior to the Closing
Date, Lessor agrees that it shall remit such payments to Lessee. Payments by
Lessor to Lessee shall be accompanied by a copy of the appropriate remittance
advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing Date such other instruments, documents and materials, as the other may
reasonably request in order to effectuate the consummation of the transaction
contemplated herein. The obligations hereunder shall survive termination or
expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest, penalties
and reasonable attorney's fees, costs and expenses) (hereinafter collectively
"the Claims") which any of them may suffer as a result of the breach by the
other party in the performance of any of its commitments, covenants, or
obligations under this Article 33. Lessee does further agree to indemnify,
defend and hold harmless Lessor from any such Claims or with respect to any
suits, arbitration proceedings, administrative actions or investigations which
relate to the use by Lessee of the Demised Premises prior to the Closing Date or
any liability which may arise from operation by Lessee of the Demised Premises
as a nursing home prior to the Closing Date or any amounts recaptured under
Title XIX based upon applicable Medicare/Medicaid Recapture Regulations. Lessor
does further agree to indemnify, defend and hold harmless Lessee from any such
Claims or with respect to any suits, arbitration proceedings, administrative
actions or investigations which relate to the ownership of the Demised
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Premises by Lessor or the use of the Demised Premises by Lessor or the
operation by Lessor of the nursing home located thereon after the Closing
Date. The rights of the parties under this paragraph are without prejudice
to any other remedies not inconsistent herewith which the parties may have
pursuant to the terms of this Lease, provided the rights of Lessee hereunder
are subject to Section 22.1 hereof.
33.10 Anything to the contrary contained in this Article 33
notwithstanding, in the event the termination of this Lease is due to a default
by Lessee, none of the provisions of this Article 33 shall in any way limit,
reduce, restrict or modify the rights granted to Lessor pursuant to Articles 21,
23, and 24 of this Lease. If the termination of this Lease is a result of an
Event of Default, then to the extent any monies are due to Lessee pursuant to
this Article 33, such sums shall be applied by Lessor to any damages suffered by
Lessor as a result of Lessee's Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including
Taxes and Assessments and all other charges herein provided, and upon observing
and keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of a
default of payment when due, the Lessor shall be entitled to all of the remedies
available at law or equity, or under this Lease, for the nonpayment of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent under
the terms of this Lease, or the failure on the part of Lessor to object to any
such action taken by Lessee without Lessor's consent, shall not be deemed a
waiver by Lessor of its rights to require such consent for any further similar
act by Lessee, and Lessee hereby expressly covenants and warrants that as to all
matters requiring Lessor's consent under the terms of this Lease, Lessee shall
secure such consent for each and every happening of the event requiring such
consent, and shall not claim any waiver on the part of Lessor of the requirement
to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did
not deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
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34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of
the Term this Lease with the consent of Lessor, Lessee shall become a tenant on
a month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental, for
the period of such month-to-month tenancy, in an amount equal to one hundred
fifty percent (150%) the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address set
forth below:
If to Lessor: Idaho Associates, L.L.C.
c/o Karell Capital Ventures, Inc.
Suite 1901
Two North LaSalle Street
Chicago, Illinois 60602
Attention: Mr. Craig Bernfield
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
Attention: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute
and deliver a Memorandum of Lease in recordable form so that the same may be
recorded by
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either party and the costs thereof shall be borne by the party requesting
recordation of the Memorandum.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified, and
stating the modifications), the dates to which Rent has been paid, the amount of
the Security Deposit held by Lessor, and whether the Lease is then in default or
whether any events have occurred which, with the giving of notice or the passage
of time, or both, could constitute a default hereunder, it being intended that
any such statement delivered pursuant to this paragraph may be relied upon by
any prospective assignee, Mortgagee or purchaser of the fee interest in the
Demised Premises or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to Articles
referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought. This Lease cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit of
the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be
held invalid or
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unenforceable, the remaining terms and provisions of this Lease shall not be
affected thereby, but each term and provision shall be valid and be
enforceable to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to
the Demised Premises, the grantor or the person who is divested of title shall
be entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of the
grantor or the person who is divested of title thereafter accruing hereunder and
shall then be the Lessor under this Lease. Notwithstanding anything to the
contrary provided in this Lease, if Lessor or any successor in interest of
Lessor shall be an individual, partnership, corporation, trust, tenant in common
or Mortgagee, there shall be absolutely no personal liability on the part of any
individual or member of Lessor or any stockholder, director, officer, employee,
partner or trustee of Lessor with respect to the terms, covenants or conditions
of this Lease, and Lessee shall look solely to the interest of Lessor in the
Demised Premises for the satisfaction of each and every remedy which Lessee may
have for the breach of this Lease; such exculpation from personal liability to
be absolute and without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of
any of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not be
construed to be a waiver or relinquishment of any such covenant, agreement,
term, condition or option and the same shall be and remain in full force and
effect.
34.19 This Lease may be executed in counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of Idaho.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
IDAHO ASSOCIATES, L.L.C., SUNRISE HEALTHCARE
an Illinois limited liability CORPORATION, a New Mexico
company corporation
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By:_____________________ By:_____________________
Its:____________________ Its:____________________
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EXHIBIT A
Legal Description
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EXHIBIT B
To be completed within thirty (30) days of Commencement Date
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Valley Rehabilitation and Living Center
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of November 30, 1996, by
and between IDAHO ASSOCIATES, L.L.C., an Illinois limited liability company
(hereinafter referred to as "Lessor"), and SUNRISE HEALTHCARE CORPORATION, a
New Mexico Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessee is currently negotiating a contract (the "Contract") with
Beverly Health and Rehabilitation Services, Inc. and Beverly Enterprises
- -Idaho, Inc. (collectively, "Seller") to purchase a certain tract of land
located in the State of Idaho and more particularly described in EXHIBIT A
attached hereto and made a part hereof, which tract of land is improved with
a one hundred twenty-seven (127) bed nursing home facility commonly known as
Valley Rehabilitation and Living Center located at 1014 Burrell Avenue,
Lewiston, Idaho (which tract and nursing home facility, together with any
other improvements now or hereafter located on the tract and all easements,
tenements, hereditaments and appurtenances thereto are hereinafter
collectively referred to as the "Demised Premises");
WHEREAS, upon satisfaction of certain conditions precedent, the right to
purchase the Demised Premises will be assigned by Lessee to Lessor pursuant
to an Assignment of Purchase and Sale Agreement (the "Assignment"); and
WHEREAS, pursuant to the Contract, Lessee is negotiating to purchase, and
will, pursuant to the Assignment, assign to Lessor the rights to purchase
the furnishings, furniture, equipment and fixtures to be used in or about the
Demised Premises (hereinafter collectively referred to as the "Personal
Property"); and
WHEREAS, contemporaneously with the purchase and sale of the Demised
Premises and the Personal Property, Lessor desires to lease the Demised
Premises and Personal Property to Lessee and Lessee desires to lease the
Demised Premises and Personal Property from Lessor; and
WHEREAS, simultaneous with the execution of this Lease, Lessor is also
entering into Leases with Lessee for the sixty-four (64) bed nursing home
facility commonly known as Payette Lakes Care Center located at 201 Floyd
Street, McCall, Idaho, and the forty
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(40) bed nursing home facility commonly known as Magic Valley Manor located
at 210 North Idaho Street, Wendell, Idaho (collectively, hereinafter referred
to as the "Other Leases"); and
WHEREAS, Lessee hereby acknowledges and agrees that Lessor, as
consideration and inducement for entering into this Lease, requires that this
Lease provide that a default under the Other Leases shall constitute a
default under this Lease and that without such a "cross default" provision
Lessor would not execute this Lease; and
WHEREAS, Sun Healthcare Group, Inc., a Delaware corporation (the
"Guarantor") will execute and deliver to Lessor that certain Unconditional
Guaranty of Lease (the "Lease Guaranty") dated of even date herewith,
guarantying the performance of all of the obligations of Lessee under this
Lease; and
WHEREAS, the parties hereto have agreed to the terms and conditions of
this Lease.
NOW THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article, for all purposes this Lease and
all agreements supplemental hereto, have the meaning herein specified.
(a) "Demised Premises" shall mean the real estate described in
EXHIBIT A and all improvements located thereon.
(b) "Personal Property" shall mean all furniture, fixtures and
equipment located on the Demised Premises (including, without limitation,
those items set forth on EXHIBIT B attached hereto and made a part hereof),
other than such furniture, fixtures, equipment and supplies that persons
other than the Lessor may own or that the Lessee may lease from persons other
than the Lessor or that are purchased by Lessee other than as replacements
for Personal Property.
(c) "Leased Property" shall mean the Demised Premises and the
Personal Property.
(d) "Lease Year" shall mean a twelve (12) month period commencing on
the Commencement Date as hereafter defined, and on each anniversary of the
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Commencement Date thereafter, except that if the Commencement Date is other
than the first day of a calendar month, then the first Lease Year shall be
the period from the Commencement Date through the date twelve (12) months
after the last day of the calendar month in which the Commencement Date
occurs, and each subsequent Lease Year shall be the period of twelve (12)
months following the last day of the prior Lease Year.
(e) All other terms shall be as defined in other sections of this
Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of the
Lessee, its successors and assigns, to be paid, kept and performed, does
hereby lease unto Lessee the Demised Premises together with the Personal
Property to be used in and upon the Demised Premises for the Term hereinafter
specified, for use and operation therein and thereon of a skilled and/or
intermediate care nursing home, in full compliance with all the rules and
regulations and minimum standards applicable thereto, as prescribed by the
State of Idaho and such other governmental authorities having jurisdiction
thereof and having no less than one hundred twenty-seven (127) beds and for
any other purpose authorized by Lessor in writing and for no other purpose.
ARTICLE III - TERM OF LEASE
3.1 Except as expressly provided below, the term of this Lease shall be
for a period of ten (10) years commencing on the Commencement Date
(hereinafter defined), unless sooner terminated or extended as hereinafter
provided (the "Initial Term"). The "COMMENCEMENT DATE" shall mean the date
the last of the following has occurred:
(i) Lessee has received a commitment from Commonwealth Land Title
Insurance Company for issuance of a leasehold owner's title policy in the
amount of Four Million Four Hundred Thousand and No/100 Dollars
($4,400,000.00) free of all liens and encumbrances other than (a) standard
exceptions, (b) non-delinquent taxes and assessments, (c) easements,
restriction and rights of way that will not adversely affect Lessee's
operation of the Demised Premises as a nursing home in accordance with
Article II, above;
(ii) Lessee obtains all appropriate state or other governmental
licenses and certifications required to operate the Demised Premises,
including, without limitation, as
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a Medicare and Medicaid certified skilled nursing home; and
(iii) Lessee shall have been given possession of the Demised Premises.
Once the Commencement Date has been established, the parties shall sign a
Commencement Date memorandum setting forth that date.
3.2 Lessee shall have and is hereby granted the right and option to
extend the Initial Term of this Lease for an extended term (the "First
Extended Term") of five (5) Lease Years upon and subject to all the terms,
provisions and conditions hereof, except that Rent, as hereinafter defined,
payable with respect to each Lease Year of the First Extended Term shall be
the amount set forth in Section 4.1. The first Lease Year of the First
Extended Term shall commence upon the day next following the expiration of
the Initial Term.
The option granted pursuant to this Section 3.2 may be exercised
only if Lessee is not in default under this Lease at the time of exercise and
at the time of expiration of the Initial Term, and, further, only if there is
not at either time an event or occurrence which with the passage of time or
giving of notice, or both, would constitute a default hereunder, and said
option shall be exercised by Lessee giving to Lessor written notice of
Lessee's election so to do not less than twelve (12) full calendar months
prior to the date of expiration of the Initial Term. Furthermore, Lessee's
option granted pursuant to this Section 3.2 may be exercised only if Lessee
also contemporaneously exercises its options to extend pursuant to Section
3.2 of each of the Other Leases.
3.3 Provided Lessee shall have exercised the option contained in Section
3.2 above, Lessee shall and Lessee is hereby granted the right and option to
extend this Lease for an additional Extended Term (the "Second Extended
Term") of five (5) Lease Years upon and subject to all the terms, provisions
and conditions hereof, except that Rent, as hereinafter defined, payable with
respect to each Lease Year of the Second Extended Term shall be the amount
set forth in Section 4.1 hereof. The first Lease Year of the Second Extended
Term shall commence on the day next following the expiration of the First
Extended Term.
The option granted pursuant to this Section 3.3 may be exercised
only if Lessee is not in default under the Lease at the time of exercise and
at the time of the expiration of the First Extended Term, and, further, only
if there is not then an event or occurrence which with the passage of time or
giving of notice, or both, would constitute a default hereunder, and said
option shall be exercised by Lessee giving to Lessor written notice of
Lessee's election so to do not less than twelve (12) full calendar months
prior to the expiration of the First Extended Term. Furthermore, Lessee's
option granted pursuant to this Section 3.3 may be exercised only if Lessee
also contemporaneously exercises its options to extend pursuant to Section
3.3 of each of the Other Leases.
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Notwithstanding the foregoing, Lessor acknowledges and agrees that
the Rent for the First Extended Term and the Second Extended Term may not be
known by Lessor at the time that Lessee is required to exercise its
respective renewal options. Accordingly, in the event Lessor has not advised
Lessee of the First Extended Term Rent at least thirteen (13) months prior to
the date of the expiration of the Initial Term or the Second Extended Term
Rent at least thirteen (13) months prior to the expiration of the First
Extended Term, Lessee shall have the right to exercise the renewal right
provided for herein subject to the right to rescind the same on written
notice to Lessor delivered within thirty (30) days after Lessor advises
Lessee in writing as to the First Extended Term Rent or the Second Extended
Term Rent, as the case may be (the "Rent Notice"), which Rent Notice shall be
delivered by Lessor to Lessee as soon as practicable after the debt service
for the First Extended Term or the Second Extended Term, as the case may be,
has been determined but in no event less than one hundred and eighty (180)
days prior to the commencement of the First Extended Term or the Second
Extended Term, as the case may be.
The Initial Term, as it may be extended by the First Extended Term
and the Second Extended Term, is hereinafter collectively known as the "Term".
As used in this Article 3, the term default shall mean an "Event of
Default" as defined in Article 19 of this Lease.
ARTICLE IV - RENT
4.1 Throughout the Term of this Lease, Lessee shall pay to Lessor, or as
Lessor shall direct, as fixed annual rental ("Rent") for the Demised Premises
and the Personal Property over and above all other and additional payments to
be made by Lessee as provided in this Lease the following amounts:
(i) For the first Lease Year, an annual Rent of $462,000.00,
payable in equal monthly installments of $38,500.00;
(ii) For the second Lease Year and each subsequent Lease Year
(of the Initial Term or any Extended Lease Term) an amount equal to the prior
Lease Year's Rent multiplied by 1.5 times the increase, if any, in the Cost
of Living Index (as hereinafter defined) in effect on September 1st of the
current Lease Year over the Cost of Living Index in effect on September 1st
of the preceding Lease Year; provided, however, that in no event will the
increase in Rent from one Lease Year to the next be greater than two and
one-half percent (2.5%) of the sum of the prior Lease Year's Rent nor shall
such Rent decrease from the prior Lease Year; and
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(iii) The Cost of Living Index is defined as the Consumer Price
Index for All Urban Consumers, U.S. City Average (1982-1984 = 100), published
by the BLS, or such other renamed index. If the BLS changes the publication
frequency of the Cost of Living Index so that a Cost of Living Index is not
available to make a cost-of-living adjustment as specified herein, the
cost-of-living adjustment shall be based on the percentage difference between
the Cost of Living Index for the closest preceding month for which a Cost of
Living Index is available and Cost of Living Index for the comparison month
is required by this Lease. If the BLS changes the base reference period for
the Cost of Living Index from 1982-84 = 100, the cost-of-living adjustment
shall be determined with the use of such conversion formula or table as may
be published by the BLS. If the BLS otherwise substantially revises, or
ceases publication of the Cost of Living Index, then a substitute index for
determining cost-of-living adjustments, issued by the BLS or by a reliable
governmental or other nonpartisan publication, shall be reasonably selected
by Lessor and Lessee.
In the event the Commencement Date shall be other than the first day
of the month, Lessee shall pay to Lessor a pro rata portion of the Rent for
the month and a pro rata portion of all tax, insurance and other deposits
provided for in this Lease. All fixed annual rental payments shall be made
in equal monthly installments and shall be paid in advance on the first (1st)
day of each month (together with all tax and insurance deposits required in
this Lease). Unless otherwise notified in writing, all checks shall be made
payable to Lessor and shall be sent c/o Idaho Associates, L.L.C., Two North
LaSalle Street, Suite 1901, Chicago, Illinois 60602.
The Rent set forth in this Article 4 is based, in part, upon the
debt service of the permanent first mortgage financing on the Demised
Premises ("Initial Financing"). In the event that the debt service payable
on Lessor's mortgage financing in effect on the date that the First Extended
Term commences is more or less that the debt service on the Initial
Financing, the Rent due during the First Extended Term shall be adjusted
according to the following formula: The annual Rent due during the first
year of the First Extended Term shall be increased or decreased in an amount
equal to the difference between (i) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
in effect on the first day of the First Extended Term, and (ii) the annual
debt service on the indebtedness secured by the first mortgage encumbering
the Demised Premises in effect on the day of the Initial Financing; provided,
however, that the amount of principal to be used in making the calculations
shall not exceed the original principal amount of the loan encumbering the
Demised Premises concurrent with Lessor's acquisition of the Demised
Premises. The subsequent annual increases as provided in Article 4.1 above
for the remainder of the First Extended Term shall be calculated on the
Annual Rent payable during the first year of the First Extended Term as so
adjusted.
In the event that the debt service payable on Lessor's mortgage
financing in effect on the date that the Second Extended Term commences is more
or less than the
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debt service on Lessor's mortgage financing in effect on the date the First
Extended Term commences, the Rent due during the Second Extended Term shall
be adjusted according to the following formula: the annual Rent due during
the first year of the Second Extended Term shall be increased or decreased in
an amount equal to the difference between (i) the annual debt service on the
indebtedness secured by the first mortgage encumbering the Demised Premises
in effect on the first day of the Second Extended Term, and (ii) the annual
debt service on the indebtedness secured by the first mortgage encumbering
the Demised Premises on the date that the First Extended Term commences;
provided, however, that the amount of principal to be used in making the
calculation shall not exceed the original principal amount of the loan
encumbering the Demised Premises concurrent with Lessor's acquisition of the
Demised Premises. The subsequent annual increases as provided in Article 4.1
above for the remainder of the Second Extended Term shall be calculated on
the annual rent payable during the first year of the Second Extended Term as
so adjusted.
4.2 This Lease is and shall be deemed and construed to be a "pure net"
or "triple-net" lease and the Rent specified herein shall be net to the
Lessor in each year during the Term of this Lease. The Lessee shall pay all
costs, expenses and obligations of every kind whatsoever relating to the
Demised Premises which may arise or become due during the Term of this Lease,
except for any principal and interest payments and other costs owed by Lessor
relating to any Mortgage (defined below) and Landlord's general overhead and
administrative expenses (collectively, "Additional Rent"). Lessee does
hereby indemnify the Lessor against any and all such costs, expenses and
obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due
and payable as in this Lease provided, a late charge of 3% per month on the
sums so overdue shall become immediately due and payable to Lessor as
liquidated damages for Lessee's failure to make prompt payment and said late
charges shall be payable on the first day of the month next succeeding the
month during which such late charges become payable. If non-payment of any
late charges shall occur, Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law in
the case of non-payment of Rent. No failure by Lessor to insist upon the
strict performance by Lessee of Lessee's obligations to pay late charges
shall constitute a waiver by Lessor of its rights to enforce the provisions
of this Article in any instance thereafter occurring.
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ARTICLE VI- PAYMENT OF TAXES AND ASSESSMENTS
6.1 Lessee will pay or cause to be paid, as provided herein, as
additional Rent, before any fine, penalty, interest or cost may be added
thereto for the non-payment thereof, all taxes, assessments, licenses and
permit fees, charges for public utilities, and all governmental charges,
general and special, ordinary and extraordinary, foreseen and unforeseen, of
any kind and nature whatsoever which during the Term of this Lease may have
been, or may be assessed, levied, confirmed, imposed upon or become due and
payable out of or in respect of, or become a lien on the Demised Premises
and/or Personal Property or any part thereof (hereinafter collectively
referred to as "Taxes and Assessments").
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the Term of this Lease and a
part of which is included in a period of time before or after the Term of
this Lease, shall be adjusted pro rata between Lessor and Lessee and each
party shall be responsible for its pro rata share of any such Taxes and
Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, business license,
estate, succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith, but only after payment of such Taxes and
Assessments, unless such payment would operate as a bar to such contest or
interfere materially with the prosecution thereof, in which event, Lessee may
postpone or defer such payment only if:
(1) Neither the Demised Premises nor any part thereof would by
reason of such postponement or deferment be in danger of being forfeited or
lost; and
(2) Lessee shall have deposited with Lessor, to be held in
trust, cash or other security satisfactory to Lessor in an amount equal to
not less than the amount of such Taxes and Assessments which at such time
shall be actually due and payable, and such additional amounts reasonably
required by Lessor and any Mortgagee (as hereinbelow defined) of Lessor from
time to time, together with all interest and penalties in connection
therewith and all charges that may or might be assessed against or become a
charge on the Demised Premises or any part thereof in such proceedings, or,
if required by the taxing authority, an amount deposited in trust with the
taxing authority during the pendency of any contest in lieu of any additional
charge against the Demised Premises until resolution of the contest.
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Unless Lessor agrees otherwise, the cash so deposited with Lessor
shall not bear interest and the cash or securities so deposited shall be held
by Lessor until the Demised Premises or any part thereof shall have been
released and discharged and shall thereupon be returned to the Lessee, less
the amount of any loss, cost, damage and reasonable expense that Lessor or
any Mortgagee has sustained in connection with the Taxes and Assessments so
contested.
6.5 Upon the termination of any such proceedings, Lessee shall pay the
amount of such Taxes and Assessments or part thereof as finally determined in
such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith, and such payment, at
Lessee's request, shall be made by Lessor out of the amount deposited with
respect to such Taxes and Assessments as aforesaid. In the event such amount
is insufficient, then the balance due shall be paid by Lessee.
6.6 Lessor shall not be required to join in any proceedings referred to
in this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in
the name of Lessor, in which event Lessor shall join in such proceedings or
permit the same to be brought in its name. Lessor shall not ultimately be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings, and Lessee will indemnify and save
harmless Lessor from any such costs and expenses. Lessee shall be entitled
to any refund of any Taxes and Assessments and penalties or interest thereon
received by Lessor but previously reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, whether partially or totally in lieu of or as a substitute for
real estate or personal property taxes imposed upon the Demised Premises or
Personal Property or otherwise, then Lessee shall be responsible for the
payment of such tax.
ARTICLE VII - TAX DEPOSITS
7.1 Lessee shall be required to make deposits for annual Taxes and
Assessments and, will make monthly deposits with Lessor, of an amount equal to
one twelfth (1/12) of the annual Taxes and Assessments or such greater amount as
may be required by any Mortgagee. Said deposits shall be due and payable on the
first day of each month as additional Rent, shall not bear interest and shall be
held by Lessor and/or a mortgagee of the Lessor to pay the real estate taxes as
they become due and payable. If the total of the monthly payments as made under
this Article shall be insufficient to pay the Taxes and Assessments when due,
then Lessee shall on demand pay Lessor the
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amount necessary to make up the deficiency, and if appropriate, Lessee shall
receive a credit against the next monthly tax escrow payment coming due in an
amount equal to said deficiency payment.
ARTICLE VIII - OCCUPANCY
8.1 During the Term of this Lease, the Demised Premises shall be used
and occupied by Lessee for and as a Medicare and Medicaid certified skilled
care and/or intermediate care nursing home and for no other purpose. Lessee
shall at all times maintain in good standing and full force all the licenses,
certifications and provider agreements issued by the State of Idaho and any
other applicable state or federal governmental agencies, permitting the
operation on the Demised Premises of a Medicare and Medicaid certified
skilled and/or intermediate care nursing home facility with no less than one
hundred twenty-seven (127) licensed, and Medicaid certified beds.
8.2 Lessee will not suffer any act to be done or any condition to exist
on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable
any insurance then in force on the Demised Premises.
8.3 Except as otherwise specifically provided in this Lease, upon
termination of this Lease for any reason, Lessee will return to Lessor the
Demised Premises qualified and sufficient for licensing and certification by
all governmental agencies having jurisdiction over the Demised Premises as a
Medicare and Medicaid certified skilled and/or intermediate care nursing home
having no less than one hundred twenty-seven (127) licensed, and Medicaid
certified beds with licenses, certifications, and provider agreements in
full force and good standing. All the Demised Premises, with the
improvements located thereon, and all the Personal Property shall be
surrendered in good order, condition and repair, ordinary wear and tear
excepted.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the Term of
this Lease, maintain property insurance provided by a Causes of Loss-Special
Form or similar form. Such insurance shall include an endorsement for increased
cost of construction. Such insurance shall be obtained from a responsible
company or companies approved by Lessor, not to be unreasonably withheld. Such
insurance shall, at all times, be maintained in an amount equal to the full
replacement cost of the Demised Premises and the Personal Property or in such
lesser amount as may be required by Lessor and any Mortgagee of the
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Demised Premises but at all times, in an amount sufficient to prevent Lessor
and Lessee from becoming co-insurers under applicable provisions of the
insurance policies. As used herein, the term "full replacement cost" shall
mean coverage for the actual replacement cost of the Demised Premises and the
Personal Property requiring replacement from time to time which, if not
agreed upon by Lessor and Lessee, shall be determined by an appraiser,
engineer, architect or contractor reasonably selected by Lessor. Upon
request by Lessee, Lessor will provide Lessee with information in its
possession which is reasonably necessary to establish the value of the
Demised Premises. Such insurance shall at all times be payable to Lessor and
Lessee as their interests may appear, and shall contain a loss-payable clause
to the holder of any Mortgage to which this Lease shall be subject and
subordinate (in accordance with Article 26 herein) , as said Mortgagee's
interest may appear. All such policies of insurance shall provide that:
(a) They are carried in favor of the Lessor, Lessee and any
Mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor
or Lessee, which might otherwise result in forfeiture of insurance; and
(b) A standard Mortgagee clause in favor of any Mortgagee, and
shall contain, if obtainable, a waiver of the insurer's right of subrogation
against funds paid under the standard Mortgagee endorsement which are to be
used to pay the cost of any repairing, rebuilding, restoring or replacing.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be
issued and shall maintain during the Term of this Lease:
(a) Commercial general liability insurance, including the Lessor as
an additional insured, insuring against claims for bodily injury or property
damage occurring upon, in or about the Demised Premises. Such insurance to
have limits of not less than $1,000,000 each occurrence and $3,000,000
general aggregate and an excess or umbrella liability policy of not less than
$5,000,000 each occurrence and $5,000,000 aggregate; and
(b) Hospital Professional Liability insurance in the amount of
$1,000,000 each occurrence and $3,000,000 aggregate.
Lessor may, from time to time, or any Mortgagee may reasonably require Lessee
to change the amount or type of insurance, or to add or substitute additional
coverages, required to be maintained by Lessee hereunder. Notwithstanding
the foregoing, Lessee shall not be required to add coverage for damage to the
Demised Premises resulting from earthquake or flood as covered losses unless
the Demised Premises is classified as an earthquake or flood prone area by an
authority having jurisdiction over the Demised Premises and such authority
recommends such insurance.
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9.3 All policies of insurance shall provide that they shall not be
canceled, terminated, reduced or materially modified without at least twenty
(20) days prior written notice to Lessor and any Mortgagee.
9.4 An original certificate of insurance for all insurance policies
required by this Article shall be delivered to Lessor at least five (5) days
prior to the Commencement Date at any time and from time to time within ten
(10) days after Lessor's request therefore, Lessee shall deliver to Lessor
copies of all insurance policies then being carried by Lessee pursuant to
this Article 9.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
(a) The aggregate of the cost of all Taxes and Assessments due
during the period of the business interruption at the Facility (the "Business
Interruption Period");
(b) The cost of all insurance premiums for insurance required to be
carried by Lessee, with respect to the Demised Premises, for the Business
Interruption Period; and
(c) The aggregate of the amount of the fixed monthly rental for the
Business Interruption Period.
All proceeds of any business interruption insurance shall be
applied, first, to the payment of any and all fixed rental payments for the
Business Interruption Period; second, to the payment of any Taxes and
Assessments and insurance deposits required to be deposited for the Business
Interruption Period; and, thereafter, after all necessary repairing,
rebuilding, restoring or replacing has been completed as required by the
pertinent Articles of this Lease and the pertinent sections of any mortgage,
any remaining balance of such proceeds shall be paid over to the Lessee.
In lieu of the foregoing but subject to the terms and conditions of
this Article 9, Lessee may, at its option, obtain and maintain a blanket
insurance policy in an amount sufficient to provide all or part of the
coverage described in this Article 9.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed
to be performed, subject to applicable cure periods, if any, set forth in
Section 19.1 herein with respect to any such failure to perform, Lessor may
elect, but shall not be required, to make such payment or perform such
covenants, and all sums so expended by Lessor thereon
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shall immediately be payable by Lessee to Lessor, with interest thereon at a
rate which is the lesser of fifteen percent (15%) per annum or the maximum
rate permitted by law from date thereof until paid, and in addition, Lessee
shall reimburse Lessor for Lessor's reasonable expenses in enforcing or
performing such covenants, including reasonable attorney's fees. Any such
costs or expenses incurred or payments made by the Lessor shall be deemed to
be Additional Rent payable by Lessee and collectible as such by Lessor.
10.2 Performance of and/or payment to discharge said Lessee's
obligations shall be optional with Lessor and such performance and payment
shall in no way constitute a waiver of, or a limitation upon, Lessor's other
rights hereunder.
10.3 Lessee hereby acknowledges and agrees that any Mortgagee shall have
the right but not the obligation to perform any covenants and pay any amounts
which Lessee has failed to so perform or pay as required under the terms of
this Lease but only to the extent such Mortgagee is entitled under the terms
of its Mortgage and the provisions of any subordination, nondisturbance and
attornment agreement which may be in effect for such Mortgage.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will keep and maintain, or cause to be kept and maintained, the
Demised Premises (including the grounds, sidewalks and curbs abutting the
same) and the Personal Property in good order and condition without waste and
in suitable state of repair at least comparable to that which existed
immediately prior to the Commencement Date (ordinary wear and tear excepted,
subject to Lessee's obligation to repair and replace the same in accordance
with the terms of this Lease), and will make or cause to be made, as and when
the same shall become necessary, all structural and nonstructural, exterior
and interior, replacing, repairing and restoring necessary to that end. All
replacing, repairing and restoring required of Lessee shall be (in the
reasonable opinion of Lessor) of quality at least equal to the original work
and shall be in compliance with all standards and requirements of law,
licenses and municipal ordinances necessary to operate the Demised Premises
as a Medicare and Medicaid certified skilled and/or intermediate care nursing
home having no less than one hundred twenty-seven (127) licensed, and
Medicaid certified beds.
11.2 Any items of Personal Property that are uneconomical to repair
shall be replaced by new items of like kind and all replacement items shall
become part of the Personal Property. No items of Personal Property shall be
removed from the Demised Premises except in connection with repair or
replacement of such items. Lessee may place additional property on the
Demised Premises (not required for the replacement of the
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Personal Property) and such additional property shall be and remain the
property of Lessee. Lessee shall remove such additional property upon
termination or expiration of this Lease provided that Lessee shall make such
necessary repairs or replacements as may be required in order to return the
Demised Premises to the condition which existed prior to the removal of the
additional property.
11.3 Provided there is not an Event of Default by Lessee under this
Lease, Lessee shall have the right, at any time and from time to time, to
remove and dispose of any Personal Property which may have become obsolete or
unfit for use, or which is no longer useful in the operation of the Demised
Premises, provided Lessee promptly replaces any such Personal Property so
removed or disposed of with other personal property free of any security
interest, lien or encumbrance. Said personal property shall be of the same
character and shall be at least equal in usefulness and quality as any such
Personal Property so removed or disposed of, and such replacement property
shall automatically become the property of and shall belong to the Lessor,
and Lessee shall execute such bills of sale or other documents reasonably
requested by Lessor to vest the ownership of such personal property in
Lessor. Notwithstanding the foregoing, Lessee shall have the right to place
leased Personal Property on the Demised Premises provided that the payments
due under such leases do not exceed $4,000 per year. In the event Lessee
desires to place leased personal property on the Demised Premises having
annual payments in excess of the amount provided for herein, Lessee shall
advise Lessor in writing and Lessor shall use its reasonable best efforts to
seek the approval of the Mortgagee or an amendment of the Mortgage with
respect thereto.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 In the event that any part of the improvements located on the
Demised Premises or the Personal Property shall be damaged or destroyed by
fire or other casualty (any such event being called a "Casualty"), Lessee
shall promptly replace, repair and restore the same as nearly as possible to
its condition immediately prior to such Casualty, in accordance with all of
the terms, covenants and conditions and other requirements of this Lease and
any applicable Mortgage and in accordance with any subordination,
nondisturbance and attornment agreement which may be in effect for such
Mortgage; provided, however, that in the event of a Casualty occurring during
the last six (6) months of the Term or a Casualty resulting from an
earthquake, flood, nuclear accident or war which is not covered by insurance
maintained by Lessee and which renders the Demised Premises unsuitable for
use as a nursing home, in the reasonable opinion of Lessor and Lessee, then
Lessee shall have the right to terminate this Lease upon forty-five (45) days
written notice to Lessor. If applicable, the Demised Premises and the
Personal Property shall be so replaced, repaired and restored as to be of at
least equal value and substantially the same character as prior to such
Casualty. If the estimated cost of any
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such restoring, replacing or repairing is Fifty Thousand Dollars and no/100
($50,000.00) or more, the plans and specifications for same shall be first
submitted to and approved in writing by Lessor, which approval shall not be
unreasonably withheld, and, if reasonably required by Lessor, Lessee shall
immediately select an independent architect, approved by Lessor who shall be
in charge of such repairing, restoring or replacing. Lessee covenants that it
will give to Lessor prompt written notice of any Casualty affecting the
Demised Premises or the personal property or any portion thereof.
11A.2 Within thirty (30) days after a casualty or within thirty (30) days
after approval of the final plans and specifications (including by Mortgagee
and any governmental or quasi-governmental agency or entity exercising
jurisdiction), issuance of a building permit and any other necessary permits
and licenses for commencement of construction, whichever is later, Lessee
shall commence to restore the Demised Premises and Lessee shall complete the
same within 180 days thereafter, provided, however, that in the case of
damage or destruction which cannot with due diligence be repaired within said
180 day period, Lessee shall have an additional period of time, not to exceed
180 additional days, to complete the reconstruction, provided Lessee is
proceeding promptly and with due diligence to complete the restoration.
Lessee may utilize all insurance proceeds available for any such repair or
restoration, subject to the terms of Section 11A.3 hereof and any required
approval of any Mortgagee. Lessee's obligation to make Rent payments and to
pay all other charges required by this Lease shall not be abated during the
period of the repair or restoration.
11A.3 No sums shall be disbursed by Lessor toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Lessor that either (i) the amount received
from such insurance proceeds is sufficient to complete such work or (ii) if
there is an amount required in excess of the amount received from such
insurance proceeds, either said excess amount has been expended by Lessee or
that Lessee has deposited such excess funds with Lessor or has satisfied
Lessor that it has such funds available to it so that, in either case, the
total amount available will be sufficient to complete such repairing,
rebuilding, restoring or replacing in accordance with the provisions of any
Mortgage and any plans and specifications submitted in connection therewith,
free from any liens or encumbrances of any kind whatsoever and the funds held
by Lessor shall be disbursed periodically during construction, but not more
than once every thirty (30) days after the presentment of architect's or
general contractor's certificates, waivers of lien, contractor's sworn
statements, and other evidence of cost and payments as may be reasonably
required by Lessor or any Mortgagee.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building
which is part
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of the Demised Premises or any portion thereof or allow it to be removed or
demolished, without the prior written consent of the Lessor, which consent
shall not be unreasonably withheld. Except as required by law, Lessee
further agrees that it will not make, authorize or permit to be made any
changes or alterations in or to the Demised Premises without first obtaining
Lessor's written consent thereto, which consent shall not be unreasonably
withheld. All alterations, improvements and additions to the Demised
Premises shall be in quality and class at least equal to the original work
and shall become the property of the Lessor and shall meet all building and
fire codes, and all other applicable codes, rules, regulations, laws and
ordinances. Nothing herein shall be deemed or construed to require Lessee to
obtain Lessor's consent to non-structural changes or alterations such as
painting, the replacement of wallcoverings or the replacement of floor
coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS
AND ORDINANCES/ENVIRONMENTAL COMPLIANCE
13.1 Throughout the Term of this Lease, Lessee, at its sole cost and
expense, will obey, observe and promptly comply with all present and future
laws, ordinances, orders, rules, regulations and requirements of any federal,
state and municipal governmental agency or authority having jurisdiction over
the Demised Premises and the operation thereof as a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
one hundred twenty-seven (127) licensed, and Medicaid certified beds, which
may be applicable to the Personal Property and the Demised Premises and
including, but not limited to, the sidewalks, alleyways, passageways, vacant
land, parking spaces, curb cuts, curbs adjoining the Demised Premises, which
are under Lessee's control, whether or not such law, ordinance, order, rules,
regulation or requirement shall necessitate structural changes or
improvements.
13.2 Lessee shall likewise observe and comply with the requirements of
all policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good
standing and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a Medicare and Medicaid
certified skilled and/or intermediate care nursing home having no less than
one hundred twenty-seven (127) licensed, and Medicaid certified beds, and the
Demised Premises shall be qualified to participate in the Medicare and
Medicaid reimbursement programs.
13.4 Upon request, Lessee will deliver or mail to Lessor wherever Rent
is then paid, in form required for notices, copies of all exit interviews,
inspection reports and
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surveys, administrative proceedings and/or court actions from all state, federal
and local governmental bodies regarding the Demised Premises or the nursing home
operated thereon. Lessee shall notify Lessor within twenty-four (24) hours
after receipt thereof of any notice from any governmental agency terminating or
suspending or threatening termination or suspension of any license, permit,
provider agreement or certification relating to the Demised Premises or the
nursing home operated thereon.
13.5 Lessee shall have the right upon written notice thereof to the
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, the validity or application of any law, regulation or rule mentioned
herein, and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and no lien or charge would thereby be imposed
upon or satisfied out of the Demised Premises and further provided that the
effectiveness and good standing of any license, certificate or permit affecting
the Demised Premises or the nursing home operated thereon would continue in full
force and effect during the period of such contest.
13.6 Lessee shall not generate, dispose of, release, use, handle,
possess or store any hazardous substances upon the Demised Premises except in
accordance with applicable laws, rules and regulations. Lessee shall at its
sole cost and expense promptly remove or clean up any hazardous substances
introduced onto the Demised Premises by Lessee or with its permission or at its
sufferance. Such removal or cleanup shall be in compliance with all applicable
laws and regulations. Lessee hereby agrees to indemnify and hold Lessor
harmless and agrees to defend Lessor from all losses, damages, claims,
liabilities and fines, including costs and reasonable attorneys' fees, of any
nature whatsoever in connection with the actual or alleged presence upon the
Demised Premises of any hazardous substances introduced by Lessee or with its
permission or at its sufferance.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Lessee will not create or permit to be created or to remain, and
Lessee will discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or, except as provided for in
Section 11.3 any conditional sale, security agreement or chattel mortgage, or
otherwise, which might be or become a lien, encumbrance or charge upon the
Demised Premises or any part thereof or the income therefrom or the Personal
Property, for work or materials or personal property furnished or supplied to,
or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or
charged to Lessee shall at any time be filed against the Demised Premises or
Personal Property,
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Lessee shall have the right to contest such lien or charge, provided, Lessee
within thirty (30) days after notice of the filing thereof, will cause the same
to be discharged of record or in lieu thereof to secure Lessor against said lien
by either (i) deposit with Lessor of such security as may be reasonably demanded
by Lessor to protect against such lien, or (ii) post a release bond in form and
amount as required by applicable law and as otherwise satisfactory to Lessor.
If Lessee shall fail to cause such lien to be discharged within the period
aforesaid, or to otherwise secure Lessor as aforesaid, then in addition to any
other right or remedy, Lessor may, upon ten (10) days notice, but shall not be
obligated to, discharge the same either by paying the amount claimed to be due
or by processing the discharge of such lien by deposit or by bonding
proceedings. Any amount so paid by Lessor and all costs and expenses incurred
by Lessor in connection therewith, together with interest thereon at a rate
which is the lesser of fifteen percent (15%) per annum or the maximum rate
permitted by law, shall constitute Additional Rent payable by Lessee under this
Lease and shall be paid by Lessee to Lessor on demand. Except as herein
provided, nothing contained herein shall in any way empower Lessee to do or
suffer any act which can, may or shall cloud or encumber Lessor's or any
Mortgagee's interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours and upon reasonable
notice, Lessor and/or its authorized representatives shall have the right to
enter and inspect the Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience to
the Lessee and to the residents of the Facility as may reasonably be possible
under the circumstances.
15.3 Lessee hereby acknowledges and agrees that any Mortgagee shall
have the right but not the obligation to enter and inspect the Demised Premises
to the extent such Mortgagee is entitled to do so under the terms of its
Mortgage and to the extent consistent with any subordination, nondisturbance and
attornment agreement then in effect for such Mortgage.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any public
use by act of any public
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authorities, then this Lease shall terminate as of the date possession is taken
by the condemnor. If all or substantially all of the Demised Premises shall be
taken, the net proceeds of any condemnation award, settlement or compromise for
the Demised Premises taken shall belong to Lessor; provided, however, Lessee
shall have the right to pursue a separate award for the value of Lessee's
interest in the Demised Premises as long as such separate award does not
diminish the award, settlement or compromise paid to Lessor; and provided,
further, that Lessee shall be solely entitled to any amount awarded for the
value of Lessee's property located on the Demised Premises in accordance with
Section 11.1 and any amount for relocation and loss of business as long as such
separate award does not diminish the award. For the purposes of this paragraph
"substantially all of the Demised Premises leased hereunder" shall be deemed to
have been taken if upon the taking of less than the whole of the Demised
Premises that portion of the Demised Premises not so taken shall not by itself
be adequate for the conduct therein of Lessee's business, in the reasonable
judgment of Lessor and Lessee, subject further to the rights of Lessor's
Mortgagee.
In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to sixty-three
(63) or less, Lessee shall have the right to terminate this Lease by written
notice to Lessor within thirty (30) days following the issuance of the
condemnation order or conveyance of the property, whichever is earlier. If
Lessee does not elect to terminate this Lease, Lessor shall hold in trust that
portion, if any, of such award, settlement or compromise which shall be
allocable to consequential damage to buildings and improvements not taken, and
Lessor shall pay out such portion to Lessee to reimburse Lessee for the cost of
restoring the Demised Premises as a complete structural unit, as such
restoration work progresses in accordance with the procedure for making
insurance proceeds available for restoration, repair or rebuilding as set forth
in Article 11A hereof. In the event of a partial condemnation which does not
result in a termination of this Lease, the annual Rent rate payable under
paragraph 4.1 hereof shall be reduced to such amount as Lessor and Lessee agree
is fair and equitable taking into consideration the number of operational beds
remaining after such taking as compared to the number of operational beds on the
Commencement Date.
ARTICLE XVII - RENT ABSOLUTE
17.1 The Personal Property and the Demised Premises are let and leased
subject to the rights, if any of patients currently residing in the Demised
Premises and the state of the title thereof as of the date the Lessor acquires
title from its seller, to any state of facts which an accurate survey or
physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereover. Lessee has examined the Personal Property and
the Demised Premises and has found the same satisfactory. Lessee acknowledges
that the Personal Property and the Demised
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Premises are the property of Lessor and that Lessee has the leasehold rights as
set forth in the terms and conditions of this Lease.
As a material inducement to Lessor in the making of and entry into
this Lease, Lessee hereby expressly agrees as follows:
(a) It is the responsibility of the Lessee to be fully acquainted
with the nature, in all respects, of the Demised Premises, including (but not by
way of limitation); the soil and geology thereof, the waters thereof and
thereunder; the drainage thereof; the manner of construction and the condition
and state of repair and lack of repair of all improvements of every nature; the
nature, provisions and effect of all health, fire, zoning, building, subdivision
and all other use and occupancy laws, ordinances, and regulations applicable
thereto; and the nature and extent of the rights of others with respect thereto,
whether by way of reversion, easement, right of way, prescription, adverse
possession, profit, servitude, lease, tenancy, lien, encumbrance, license,
contract, reservation, condition, right of re-entry, possibility of reverter,
sufferance or otherwise. Lessor makes no representation as to, and has no duty
to be informed with respect to, any of the matters set forth in the preceding
sentence. Lessee hereby accepts the Demised Premises as suitable and adequate
in all respects for the conduct of the business and the uses of the Demised
Premises contemplated under the provisions of the Lease. Notwithstanding the
foregoing, Lessor represents that it has no actual knowledge of anything related
to the foregoing which would cause the Demised Premises to be materially
inadequate for its permitted use hereunder.
(b) Lessee expressly covenants and agrees that it hereby takes this
Lease and the leasehold estate hereby established upon and subject to Lessor's
title as it was acquired from its seller, including all rights, rights of way,
easements, profits, servitudes, reservations, restrictions, conditions,
exceptions, reversions, possibilities of reverter, liens, encumbrances,
occupancies, tenancies, licenses, clouds, claims and defects, known and unknown
and whether of record or not. In the event of any defect in Lessor's title to
the Demised Premises by which a third party's paramount fee ownership of the
Demised Premises requires that Lessee vacate the Demised Premises, then in such
event this Lease shall be terminated.
(c) Lessee hereby expressly waives any and all rights which it might
otherwise have against Lessor by reason of any of the foregoing, including (but
not limited to) the requirements of any inspection or examination by Lessee of
the Demised Premises.
Except as otherwise expressly provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Lessee hereunder
shall not be released, discharged or otherwise affected, by reason of: (i) any
damage to or destruction of the Demised Premises or any part thereof or the
taking of the Demised Premises or any
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part thereof by condemnation, requisition or otherwise for any reason; (ii) any
restriction or prevention of or interference with any use of the Demised
Premises or any part thereof including any restriction or interference with or
circumstance which prevents the use of the Demised Premises as contemplated by
Paragraph 8.1; (iii) any frustration of Lessee's purposes hereunder, for any
claim which Lessee has or might have against Lessor; or (iv) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing. However,
nothing shall preclude Lessee from bringing a separate action and Lessee is not
waiving other rights and remedies not waived herein.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the Term of the Lease, Lessee shall not assign this Lease
or in any manner whatsoever sublet, assign or transfer all or any part of the
Demised Premises or in any manner whatsoever transfer or assign an interest in
the Demised Premises or any interest in the Lessee or sell or assign a
controlling number of the outstanding shares in Lessee (other than to Andrew L.
Turner or an entity controlled by Andrew L. Turner or a wholly owned subsidiary
of Lessee or of Lessee's parent corporation Sun Healthcare Group, Inc.) without
the prior written consent of the Lessor, which consent shall not be unreasonably
withheld. Any violation or breach or attempted violation or breach of the
provisions of this Article by Lessee, or any acts inconsistent herewith shall
vest no right, title or interest herein or hereunder or in the Demised Premises,
in any such transferee or assignee; and Lessor may, at its exclusive option,
terminate this Lease and invoke the provisions of this Lease relating to
default. Lessor acknowledges and agrees that the sale of equity or debt
securities in Lessee or Lessee's parent corporation shall in no event constitute
an assignment or transfer of this Lease or of an interest hereunder provided
Lessee remains a wholly owed subsidiary of Sun Healthcare Group, Inc.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of
Default (herein an "Event of Default") on the part of the Lessee:
(1) The failure of Lessee to pay when due any Rent, or any part
thereof, or any other sum or sums of money due or payable to the Lessor under
the provisions of this Lease, when such failure shall continue for a period of
ten (10) days following written notice to Lessee;
(2) The failure of Lessee to perform, or the violation by Lessee
of, any of the other covenants, terms, conditions or provisions of this Lease
(other than as set
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forth in Sections 19.1(3) and 19.1(4), if such failure or violation shall not be
cured within thirty (30) days after notice thereof by Lessor to Lessee;
(3) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty percent (50%) or more of the patients located in the nursing
home;
(4) The failure of Lessee to comply, or the violation by Lessee
of, any of the terms, conditions or provisions of any Mortgage relating to the
Demised Premises of which Lessee has been made aware and with which Lessee has
agreed to comply if such failure or violation shall not be cured within twenty
(20) days (or such lesser period as may be provided in the Mortgage) after
notice thereof by Lessor to Lessee;
(5) The voluntary transfer by Lessee of ten percent (10%) or
more of the patients located in the Demised Premises if such transfer is not for
reasons relating to the health and well being of the patients that were
transferred or such other reasons as may be permitted by state or federal law,
such as nonpayment of stay or the welfare of other residents of the Facility;
(6) The failure of Lessee to replace, within thirty (30) days
after notice by Lessor to Lessee, a substantial portion of the Personal Property
previously removed by Lessee;
(7) The making by Lessee of an assignment for the benefit of
creditors;
(8) The levying of a writ of execution or attachment on or
against the property of Lessee which is not discharged or stayed by action of
Lessee contesting same, within ninety (90) days after such levy or attachment
(provided if the stay is vacated or ended, this paragraph shall again apply);
(9) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is not
discharged within ninety (90) days after the institution of said proceedings;
(10) The sale of the interest of Lessee in the Demised Premises
or any portion thereof under execution or other legal process;
(11) The failure of Lessee to give notice to Lessor not less than
ten (10) days after receipt by Lessee of any notice, claim or demand from any
governmental
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authority, or any officer acting on behalf thereof, of any violation of any law,
order, ordinance, rule or regulation with respect to the operation of the
nursing home located on the Demised Premises;
(12) The failure on the part of Lessee during the Term of this
Lease to cure or abate any violation claimed by any governmental authority, or
any officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of the nursing home located on Demised
Premises, and within ten (10) days prior to the expiration of any time
permitted by such authority for such cure or abatement;
(13) institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises, having no less than one hundred twenty-seven (127) licensed
beds, or (ii) decertify the nursing home operated in the Demised Premises from
participation in the Medicare or Medicaid reimbursement program, which is not
either appealed by Lessee and stayed while Lessee's appeal thereof is pending,
or revoked or rescinded by the applicable governmental authority;
(14) The abandonment of the Demised Premises by Lessee, other
than as a result of the damage or destruction or taking thereof;
(15) The failure of the Guarantor to perform, or the violation by
the Guarantor of, any of the covenants set forth in the Lease Guaranty; or
(16) An "Event of Default" occurs under either of the Other
Leases.
19.2 Except for default by Lessee in the payment of Rent or any
additional payment required hereunder, in any case where Lessor shall have given
to Lessee a written notice specifying a situation which, as hereinbefore
provided, must be remedied by Lessee within a certain time period, and, if for
causes beyond Lessee's control, it would not reasonably be possible for Lessee
to remedy such situation within such period, then, provided Lessee immediately
upon receipt of such notice shall advise Lessor in writing of Lessee's intention
to institute, and shall, as soon as reasonably possible thereafter, duly
institute, and thereafter diligently prosecute to completion, all steps
necessary to remedy such situation and shall remedy the same, and provided that
any license or certification necessary for the operation of the Demised
Premises, as a nursing facility is not affected thereby, this Lease and the Term
and estate hereby granted shall not expire and terminate at the expiration of
such time period as otherwise hereinbefore provided, except that in no event
shall Lessee have more than ninety (90) additional days to remedy any such
situation in the manner set forth herein, or such longer period of time granted
by any governmental agency having jurisdiction over the Facility.
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ARTICLE XX - (INTENTIONALLY OMITTED)
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee,
Lessor may, if it so elects, upon written notice to Lessee of such election,
forthwith terminate this Lease and Lessee's right to possession of the Demised
Premises, or, at the option of the Lessor, terminate Lessee's right to
possession of the Demised Premises without terminating this Lease. Upon any
such termination of this Lease, or upon any such termination of Lessee's right
to possession without termination of this Lease, Lessee shall vacate the Demised
Premises immediately, and shall quietly and peaceably deliver possession thereof
to the Lessor, and Lessee hereby grants to the Lessor full and free license to
enter into and upon the Demised Premises in such event with or without process
of law and to repossess the Demised Premises and Personal Property as the
Lessor's former estate. In the event of any such termination of this Lease, the
Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to Rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive Rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 In the event of any Event of Default and Lessor's election either
to terminate this Lease or to terminate Lessee's right to possession of the
Demised Premises, then all licenses, certifications, permits and authorizations
issued by any governmental agency, body or authority in connection with or
relating to the Demised Premises and the nursing home operated thereon shall be
deemed to be assigned to Lessor, to the extent permitted by law. Lessor shall
also have the right to continue to utilize the telephone number and name (other
than the name "Sunrise Healthcare" or similar name) used by Lessee in connection
with the operation of the nursing home located on the Demised Premises. This
Lease shall be deemed and construed as an assignment for purposes of vesting in
Lessor, all right, title and interest in and to: (i) all licenses,
certifications, permits and authorizations obtained in connection with the
operation of the nursing home located on the Demised Premises; and (ii) the name
and telephone number used in connection with the operation of the nursing home
located on the Demised Premises (other than the name "Sunrise Healthcare" or
similar name). Lessee hereby agrees to take such other action and execute such
other documents as may be necessary in order to vest in Lessor all right, title
and interest to the items specified herein, to the extent permitted by law.
21.3 If Lessee abandons the Demised Premises or otherwise entitles
Lessor so
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to elect, and the Lessor elects to terminate Lessee's right to possession only,
without terminating this Lease, Lessor may, at its option, enter into the
Demised Premises, remove Lessee's signs and other evidences of tenancy and take
and hold possession thereof as in the foregoing paragraph 21.2 of this Article
provided, without such entry and possession terminating this Lease or releasing
Lessee, in whole or in part, from Lessee's obligation to pay the Rent hereunder
for the full remaining Term of this Lease, and in any such case, Lessee shall
pay to Lessor a sum equal to the entire amount of the Rent reserved hereunder
and required to be paid by Lessee up to the time of such termination of the
right of possession plus any other sums then due hereunder. Upon and after entry
into possession without termination of this Lease, Lessor may attempt to relet
the Demised Premises or any part thereof for the account of Lessee for such
Rent, or shall operate the nursing home located on the Demised Premises for such
time and upon such terms as Lessor in its sole discretion shall determine. In
any such case, Lessor may make repairs, alterations and additions in or to the
Demised Premises, and redecorate the same to the extent deemed desirable by
Lessor, and Lessee shall, upon demand, pay the reasonable cost thereof, together
with Lessor's reasonable expenses of reletting. If the consideration collected
by Lessor upon any such reletting is not sufficient to pay monthly the full
amount of Rent reserved in this Lease, together with the reasonable costs of
repairs, alterations, additions, redecorating and Lessor's expenses, Lessee
shall pay to the Lessor the amount of each monthly deficiency upon demand.
21.4 Lessee's liability to Lessor for damages for default in payment
of Rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to possession
only, as hereinabove provided. Upon such termination of the Lease or at any time
after such termination of Lessee's right to possession, Lessor may recover from
Lessee and Lessee shall pay to Lessor as damages, whether or not Lessor shall
have collected any current monthly deficiencies under the foregoing paragraph,
and in lieu of such current deficiencies after the date of demand for such
damages, the amount thereof found to be due by a court of competent
jurisdiction, which amount thus found may be equal to:
(a) the remainder, if any, of Rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
(b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
(c) the excess, if any, of:
(i) the present value, discounted at the rate of 10% per annum,
of the Rent reserved for what would have been the remainder of the Term of this
Lease
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together with charges to be paid by Lessee under the Lease; over
(ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such damages
are to be proved shall validly limit the amount thereof to an amount less than
the amount above agreed upon, Lessor shall be entitled to the maximum amount
allowable under such statute or rule of law.
ARTICLE XXII - LIABILITY OF LESSOR
22.1 It is expressly agreed by the parties that in no case shall Lessor,
any shareholders, officers, directors, managers, members, agents or employees of
Lessor be liable under any express or implied covenant, agreement or provisions
of this Lease, for any damages whatsoever to Lessee beyond Lessor's interest in
the Demised Premises.
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms
of this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case of
any breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
ARTICLE XXIV - SECURITY FOR RENT
24.1 Lessor shall have a first lien paramount to all others on every
right and interest of Lessee in and to this Lease, and on any furnishings,
equipment, fixtures or other tangible property of any kind belonging to Lessee
and located in or about the Demised Premises. Such lien is granted for the
purpose of securing the payments of rents, charges, penalties, and damages
herein covenanted to be paid by Lessee, and for the purpose of securing the
performance of all of Lessee's obligations under this Lease. Such lien shall be
in addition to all rights to Lessor given and provided by law but shall only be
exercised
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by Lessor after the occurrence of an Event of Default which is not cured within
any applicable cure period. This Lease shall constitute a security agreement
under the Uniform Commercial Code granting Lessor a security interest in any
furnishings, equipment, fixtures or other tangible personal property (subject to
the terms of Article 11 herein) of any kind belonging to Lessee and located in
or about the Demised Premises. If required by Lessor, Lessee shall execute
financing statements for filing under the Uniform Commercial Code reflecting the
security interest granted under this section.
Notwithstanding anything to the contrary contained in this Section
24.1, in the event all or substantially all of the Demised Premises is sublet,
assigned or transferred or a controlling number of the outstanding shares in
Lessee is sold, assigned or otherwise transferred (other than to Andrew L.
Turner or a wholly owned subsidiary of Lessee or of Lessee's parent corporation
Sun Healthcare Group, Inc.) with the prior written consent of Lessor in
accordance with Section 18.1 of this Lease, this Lease shall at such time
constitute a security agreement under the Uniform Commercial Code granting
Lessor a security interest in any accounts receivable of Lessee's successor
related to the Demised Premises, and at such time, Lessee's successor shall
execute a security agreement and financing statements for filing under the
Uniform Commercial Code reflecting a security interest in said accounts
receivable.
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee.
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to property,
occurring during the Term on the Demised Premises or, to the extent the same are
under Lessee's control, any adjoining sidewalks, streets or ways, or in any
manner growing out of or connected with the use and occupation of the Demised
Premises by Lessee, its officers, agents, employees or invitees, or Lessee's
maintenance of the condition thereof, or the use of any existing or future sewer
system, or the use of any adjoining sidewalks, streets or ways which are under
Lessee's control during the Term of this Lease, and Lessee further agrees to pay
any reasonable attorneys' fees and expenses incident to the defense by Lessor of
any such claims, demands or causes of action.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and
Personal Property) shall be subject and subordinate to any and all mortgages or
deeds of trust now
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or hereafter in force and affecting the Demised Premises (or any portion
thereof) and/or the Personal Property, and to all renewals, modifications,
consolidations, replacements and extensions thereof (any such Mortgage or deed
of trust, as it may be renewed, modified, consolidated, replaced or extended is
hereinafter referred to as a "Mortgage", and the holder or beneficiary of a
Mortgage is hereinafter referred to as a "Mortgagee"), provided that, for other
than Existing Mortgages (as defined below), Lessee receives a subordination,
nondisturbance and attornment agreement in a commercially reasonable form
satisfactory to such Mortgagee. Lessee agrees to execute, acknowledge and
deliver upon demand such further instruments subordinating this Lease to any
such Mortgage, or other liens or encumbrances as shall be desired by Lessor;
provided, that Lessee receives a subordination, nondisturbance and attornment
agreement, in a commercially reasonable form satisfactory to such Mortgagee.
Furthermore, in connection with any mortgage loan pertaining to the Demised
Premises existing as of the date of this Lease (an "Existing Mortgage"), Lessor
agrees to use all commercially reasonable efforts to deliver to Lessee a
nondisturbance agreement from the current Mortgagee in a form reasonably
satisfactory to such Mortgagee on the Commencement Date or as soon as possible
thereafter. Lessee further agrees that promptly after receipt of a request from
any Mortgagee made at any time prior to foreclosure of its Mortgage, Lessee
shall execute, acknowledge and deliver to such Mortgagee any instrument as such
Mortgagee may reasonably request whereby Lessee agrees to subordinate and attorn
to such Mortgagee, at such Mortgagee's election, after the foreclosure of its
Mortgage or its acceptance of a deed in lieu of foreclosure, provided that
Lessee concurrently receives a nondisturbance agreement in commercially
reasonable form satisfactory to such Mortgagee. Lessee agrees further that any
Mortgagee shall have the right to subordinate its Mortgage and its rights
thereunder to this Lease, except that such Mortgagee shall be entitled to
expressly exclude from such subordination the Mortgagee's rights, if any, to
insurance proceeds and eminent domain awards in the event of a loss or casualty
or eminent domain taking of the Demised Premises or any portion thereof. If
such Mortgagee executes and records an instrument which purports to effect a
partial or complete subordination of its Mortgage to this Lease, any rights of
such Mortgagee to insurance proceeds or eminent domain awards which are
expressly excluded from such subordination shall remain superior to the rights
of Lessee.
ARTICLE XXVII - LESSEE'S FAITHFUL COMPLIANCE WITH MORTGAGES
27.1 Subject to the terms of any subordination, nondisturbance and
attornment agreement which may be in effect, and anything in this Lease
contained to the contrary notwithstanding, Lessee shall at all times and in all
respects fully, timely and faithfully comply with and observe each and all of
the conditions, covenants, and provisions required on the part of the Lessor and
of which Lessee has received notice under any Mortgage (and to any renewals,
modifications, extensions, replacements and/or consolidations
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thereof) to which this Lease is subordinate or to which it later may become
subordinate, including, without limitation, such conditions, covenants and
provisions thereof as relate to the care, maintenance, repair, insurance,
restoration, preservation and condemnation of the Demised Premises,
notwithstanding that such conditions, covenants and provisions may require
compliance and observance to a standard or degree in excess of that required by
the provisions of this Lease, or may require performance not required by the
provisions of this Lease, and shall not do or permit to be done anything which
would constitute a breach of or default under any obligation of the Lessor under
any such mortgage, it being the intention hereof that Lessee shall so comply
with and observe each and all of such covenants, conditions and provisions of
any such Mortgage affecting the Demised Premises so that it will at all times be
in good standing and there will not be any default on the part of the Lessor
thereunder. However, nothing in this Article contained shall be construed to
obligate Lessee to pay any part of the principal or interest secured by any
Mortgage or to perform any obligation imposed on Lessor thereunder which is not
delegable by Lessor by the terms thereof. Lessee further covenants and agrees
that Lessee shall give any Mortgagee notice of any Lessor default under this
Lease, and if Lessor fails to cure such default, such Mortgagee shall have an
additional reasonable time to cure any such default on Lessor's behalf.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax, insurance or other reserve required by the holder of any
Mortgage against the Demised Premises during the Term of this Lease (except for
any payments resulting from Lessor's failure to comply with the terms of the
Mortgage), and not otherwise paid by Lessee to Lessor pursuant to Section 7.1,
shall be paid by the Lessee or as directed by Lessor.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon
the part of the Lessor herein in the performance of any of the terms and
conditions of any Mortgage which results in the estate of the Lessor thereunder
being terminated by summary dispossession proceedings or otherwise, Lessee will
attorn to the then holder of such Mortgage or the purchaser in such foreclosure
proceedings, as the case may be, and will recognize such holder of the Mortgage
or such purchaser as the Lessor under this Lease. Lessee covenants and agrees to
execute and deliver, at any time and from time to time, upon the request of
Lessor or of the holder of such Mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule of
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law now or hereafter in effect which may terminate this Lease or give or purport
to give Lessee any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any such proceedings are brought
against the Lessor under such Mortgage or the holder of any such Mortgage, and
agrees that this Lease shall not be affected in any way whatsoever by any such
proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any Mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the Mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the Mortgage, to deduct the amounts expended by Lessee
to cure such defaults, together with interest thereon from the date of payment
by Lessee at a rate which is the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the next succeeding rental payment or
payments due under this Lease, and such deductions shall not constitute a
default under this Lease.
ARTICLE XXX - REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
(a) Lessee is a corporation organized and validly existing under the
laws of the State of New Mexico, and is authorized to transact business in the
State of Idaho; and
(b) Lessee has full corporate right and power to enter into, or
perform its obligations under this Lease and has taken all requisite corporate
action to authorize the execution, delivery and performance of this Lease.
30.2 Lessor represents, warrants and covenants to Lessee as follows:
(a) Lessor is a limited liability company duly organized and validly
existing under the laws of the State of Illinois; and
(b) Lessor has full power and authority to enter into this Lease and
to carry out the transactions contemplated herein.
ARTICLE XXXI - SECURITY DEPOSIT
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31.1 As additional security for the faithful and prompt performance of
its obligations hereunder, Lessee shall concurrently with the execution of this
Lease pay to Lessor, as a security deposit the sum of One Hundred Ninety-Two
Thousand Five Hundred and No/100 Dollars ($192,500.00), payable on the first day
of the Term. Said security deposit may be applied by Lessor for the purpose of
curing any default or defaults of Lessee hereunder, in which event Lessee shall
replenish said deposit in full by promptly paying to Lessor the amount so
applied. Lessor shall not pay any interest on said deposit, except as required
by law. If Lessee has not defaulted hereunder and Lessor has not applied said
deposit to cure a default, then said deposit, or such applicable portion
thereof, shall be paid to Lessee within thirty (30) days after the termination
of this Lease. Said deposit shall not be deemed an advance payment of Rent or a
measure of Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - FINANCIAL STATEMENTS
32.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor full and complete financial statements of the operations
of the Demised Premises and nursing home operated thereon for such annual fiscal
period which shall be prepared by or on behalf of Lessee, and which shall
contain a balance sheet and detailed income and expense statement (collectively
called "Financial Statements"), and copies of all Medicaid and Medicare cost
reports as filed with the governmental authority, as of the end of the fiscal
year. In addition, Lessee shall furnish Lessor, within 10 days following
filing, a copy of its or its parent corporation's federal income tax return if
it does not file separate returns for the preceding year. Each such statement
shall be certified as being true and correct by an officer of Lessee.
32.2 Within thirty (30) days after each calendar quarter, Lessee shall
furnish to Lessor copies of all Financial Statements for the Demised Premises
prepared by Lessee for the preceding calendar quarter.
32.3 At all times, Lessee shall keep and maintain full and correct
records and books of account of the operations of Lessee in the Demised Premises
and records and books of account of the entire business operations of Lessee in
accordance with sound accounting practices. Upon request by Lessor, Lessee shall
make available for inspection by Lessor or its designee, during reasonable
business hours, the said records and books of account covering the entire
business operations of Lessee on the Demised Premises.
ARTICLE XXXIII - TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE
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33.1 The date on which this Lease either terminates pursuant to its
Terms or is terminated by either party whether pursuant to a right granted to it
hereunder or otherwise shall be referred to as the "Closing Date" in this
Article. On the Closing Date, this Lease shall be deemed and construed as an
absolute assignment for purposes of vesting in Lessor or Lessor's designee all
of Lessee's right, title and interest in and to the following intangible
property which is now or hereafter used in connection with the operation of the
Demised Premises (the "Intangibles") and an assumption by Lessor of Lessee's
obligations under the Intangibles other Intangibles from and after the Closing
Date; provided that from and after the Closing Date, Lessee shall indemnify,
defend and hold harmless Lessor against any claims, losses, costs or damages,
including reasonable attorneys' fees incurred or arising by reason of Lessee's
obligations under the Intangibles prior to the Closing Date:
(a) service contracts for the benefit of the Demised Premises to
which Lessee is a party, and which can be terminated without penalty within
sixty (60) or fewer days' notice or which Lessor requests be assigned to Lessor
or its designee pursuant to this Article 33;
(b) any provider agreements with Medicare, Medicaid or any other
third-party payor programs (excluding the right to any reimbursement for periods
on or prior to the Closing Date) entered in connection with the Demised Premises
to the extent assignable by Lessee;
(c) all licenses, permits, accreditations, and certificates of
occupancy issued by any federal, state, municipal or quasi-governmental
authority for the use, maintenance or operation of the Demised Premises, running
to or in favor of Lessee, to the extent assignable by Lessee;
(d) all documents, charts, personnel records, property manuals,
resident/patient records and lists maintained with respect to the Demised
Premises (subject to the resident's rights to access to his/her medical records
as provided by law and confidentiality requirements), books, records, files and
other business records attributable to the business or operations of the Demised
Premises to the extent assignable by Lessee;
(e) all existing agreements with residents and any guarantors thereof
of the Demised Premises, to the extent assignable by Lessee (excluding the right
to any payments for periods prior to the Closing Date) any and all patient trust
fund accounts;
(f) all assignable guaranties and warranties in favor of Lessee with
respect to the Demised Premises and/or the Personal Property;
(g) all other assignable intangible property not enumerated herein
which is now or hereafter used in connection with the operation of the Demised
Premises as a
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long-term care facility; and
(h) At Lessors option, the business of the Lessee as conducted at the
Demised Premises as a going concern, including but not limited to the name of
the business conducted thereon and all telephone numbers presently in use
therein but specifically excluding the name "Sunrise Healthcare" or similar
name, or any Sunrise policy or procedure manuals, forms or systems, or other
confidential or proprietary information.
33.2 Lessee shall be responsible for, and pay all accrued expenses
with respect to the Demised Premises and Personal Property accruing before 12:00
a.m. on the Closing Date and shall be entitled to all revenues from the Demised
Premises for the period through 12:00 a.m. on the Closing Date. Lessor shall be
responsible for and pay all accrued expenses with respect to the Demised
Premises accruing on or after 12:01 a.m. on the day after the Closing Date and
shall be entitled to receive and retain all revenues from the Demised Premises
accruing on or after the Closing Date. Within fifteen (15) business days after
the Closing Date, the following adjustments and prorations shall be determined
as of the Closing Date and the party to whom payment is owed shall receive said
payment within said fifteen (15) day period:
(a) Real estate taxes, ad valorem taxes, school taxes, assessments
and personal property, intangible and use taxes, if any. If the actual ad
valorem taxes are not available on the Closing Date for the tax year in which
the Closing Date occurs, the proration of such taxes shall be estimated at the
Closing Date based upon reasonable information available to the parties,
including information disclosed by the local tax office or other public
information, and an adjustment shall be made when actual figures are published
or otherwise become available.
(b) Lessee will terminate the employment of all employees on the
Closing Date. The obligation for wages and the obligation, if any, to pay to
employees of the Demised Premises accrued vacation and sick leave pay or
employee severance pay or other accrued benefits which may be payable as the
result of any termination of any employee on or prior to the Closing Date for
the period prior to the Closing Date shall remain the Lessee's obligation after
the Closing Date.
(c) Lessor shall receive a credit equal to any advance payments
received by Lessee from patients of the Demised Premises to the extent
attributable to periods following the Closing Date.
(d) The present insurance coverage on the Demised Premises shall be
terminated as of the Closing Date and there shall be no proration of insurance
premiums.
(e) All other income from, and expenses of, the Demised Premises
(other than Mortgage interest and principal), including but not limited to
public utility charges and
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deposits, maintenance charges and service charges shall be prorated between
Lessee and Lessor as of the Closing Date. Lessee shall, if possible, obtain
final utility meter readings as of the Closing Date. To the extent that
information for any such proration is not available on the Closing Date, Lessee
and Lessor shall effect such proration within ninety (90) days after the Closing
Date or as soon thereafter as such information becomes available.
(f) Lessee shall receive a credit equal to (i) any sums held in
escrow by Lessor or the holder of any Mortgage for taxes or insurance premiums;
and (ii) any other sums being held by Lessor for the benefit of Lessee provided
that any such sums are not needed to pay costs and expenses which relate to the
period prior to the Closing Date, in accordance with the applicable provisions
of this Lease.
(g) Subject to the terms of Article 31 hereof, Lessee shall receive a
credit for any security deposit made pursuant to this Lease.
(h) Lessor shall receive a credit for any amounts due from Lessee
pursuant to the terms of this Lease, including payments due to third party
vendors, which are paid by Lessor on behalf of Lessee.
(i) Lessee shall be and will remain responsible for any employee's
severance pay and accrued benefits which may be payable as a result of any
termination of an employee's employment on or prior to the Closing Date.
33.3 All necessary arrangements shall be made to provide possession of
the Demised Premises to Lessor on the Closing Date, at which time of possession
Lessee shall, to the extent permitted by law, deliver to Lessor all medical
records, patient records and other personal information concerning all patients
residing at the Demised Premises as of the Closing Date and other relevant
records used or developed in connection with the business conducted at the
Demised Premises other than Lessee's corporate business records, manuals, forms
and systems documentation or other confidential or proprietary information.
Such transfer and delivery shall be in accordance with all applicable laws,
rules and regulations concerning the transfer of medical records and other types
of patient records.
33.4 Within fifteen (15) days following the Closing Date, Lessee shall
provide Lessor with an accounting of all funds belonging to patients at the
Demised Premises which are held by Lessee in a custodial capacity. Such
accounting shall set forth the names of the patients for whom such funds are
held, the amounts held on behalf of each such patient and the Lessee's warranty
that, to the actual current knowledge of Lessee, the accounting is true, correct
and complete. Additionally, Lessee, in accordance with all applicable rules and
regulations, shall make all necessary arrangements to transfer such funds to a
bank account designated by Lessor, and Lessor shall in writing acknowledge
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receipt of and expressly assume all the Lessee's financial and custodial
obligations with respect thereto. Notwithstanding the foregoing, Lessee will
indemnify and hold Lessor harmless from all liabilities, claims and demands,
including reasonable attorney's fees, in the event the amount of funds, if any,
transferred to Lessor's bank account as provided above, did not represent the
full amount of the funds then or thereafter shown to have been delivered to
Lessee as custodian that remain undisbursed for the benefit of the patient for
whom such funds were deposited, or with respect to any matters relating to
patient funds which accrue during the Term of this Lease.
33.5 For the period commencing upon an Event of Default hereunder and
Lessor's election to terminate this Lease as provided in Article 21 and ending
on the date Lessor or its designee obtains all appropriate state or other
governmental licenses and certifications required to operate the Demised
Premises as a Medicare and Medicaid certified nursing home, Lessee shall enter
into a management agreement with Lessor or Lessor's designee whereby Lessor or
its designee shall have the right to operate the Demised Premises, on a triple
net basis, and shall be entitled to all revenues of the Demised Premises during
such period, and to use any and all licenses, certifications and provider
agreements issued to Lessee by any federal, state or other governmental
authority for such operation of the Demised Premises, if permitted by such
governmental authorities.
33.6 All cash, checks and cash equivalents at the Demised Premises and
deposits in bank accounts (other than patient trust accounts) relating to the
Demised Premises on the Closing Date shall remain Lessee's property after the
Closing Date. All accounts receivable, loans receivable and other receivables
of Lessee, whether derived from operation of the Demised Premises or otherwise,
shall remain the property of Lessee after the Closing Date. Lessee shall retain
full responsibility for the collection thereof. Lessor shall assume
responsibility for the billing and collection of payment on account of services
rendered by it on and after the Closing Date. In order to facilitate Lessee's
collection efforts, Lessee agrees to deliver to Lessor, within a reasonable time
after the Closing Date, a schedule identifying all of those private pay balances
owing for the month prior to the Closing Date and Lessor agrees to apply any
payments received which are specifically designated as being applicable to
services rendered prior to the Closing Date to reduce the pre-Closing balances
of said patients by promptly remitting said payments to Lessee. In the event
payments specifically indicate that they relate to services rendered
post-Closing, such payments shall be retained by Lessor. In the event no
designation is made, such payments shall be applied one-half to Lessee's
accounts receivable and one-half to Lessor's accounts receivable. Lessor shall
cooperate with Lessee in Lessee's collection of its pre-Closing accounts
receivable. Lessor shall have no liability for uncollectible receivables and
shall not be obligated to bear any expense as a result of such activities on
behalf of Lessee. Subject to the provisions of Article 24 hereof, Lessor shall
remit to Lessee or its assignee those portions of any payments received by
Lessor which are specifically designated as repayment or reimbursement received
by Lessor arising out
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of cost reports filed for the cost reporting periods ending prior to the Closing
Date.
33.7 With respect to residents in the Demised Premises on the Closing
Date, Lessor and Lessee agree as follows:
(a) With respect to Medicare and Medicaid residents, Lessor and
Lessee agree that payment for in-house residents covered by Medicare or Medicaid
on the Closing Date will, under current regulations, be paid by Medicare or
Medicaid directly to Lessee for services rendered at the Demised Premises prior
to the Closing Date allocated on the per diem basis. Said payments shall be the
sole responsibility of Lessee and, except as provided in Section 33.7(b) below,
Lessor shall in no way be liable therefor. After the Closing Date, Lessor and
Lessee shall each have the right to review supporting books, records and
documentation that are in the possession of the other relating to Medicaid or
Medicare payments.
(b) If, following the Closing Date, Lessor receives payment from any
state or federal agency or third-party payor which represents reimbursement
with respect to services provided at the Demised Premises prior to the Closing
Date, Lessor agrees that it shall remit such payments to Lessee. Payments by
Lessor to Lessee shall be accompanied by a copy of the appropriate remittance
advice.
33.8 In addition to the obligations required to be performed hereunder
by Lessee and Lessor at the Closing Date, Lessee and Lessor agree to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing Date such other instruments, documents and materials, as the other may
reasonably request in order to effectuate the consummation of the transaction
contemplated herein. The obligations hereunder shall survive termination or
expiration of the Lease.
33.9 Lessee and Lessor each, for itself, its successors and assigns
hereby indemnifies and agrees to defend and hold the other and its successors
and assigns harmless from any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including interest, penalties
and reasonable attorney's fees, costs and expenses) (hereinafter collectively
"the Claims") which any of them may suffer as a result of the breach by the
other party in the performance of any of its commitments, covenants, or
obligations under this Article 33. Lessee does further agree to indemnify,
defend and hold harmless Lessor from any such Claims or with respect to any
suits, arbitration proceedings, administrative actions or investigations which
relate to the use by Lessee of the Demised Premises prior to the Closing Date or
any liability which may arise from operation by Lessee of the Demised Premises
as a nursing home prior to the Closing Date or any amounts recaptured under
Title XIX based upon applicable Medicare/Medicaid Recapture Regulations. Lessor
does further agree to indemnify, defend and hold harmless Lessee from any such
Claims or with respect to any suits, arbitration proceedings, administrative
actions or investigations which relate to the ownership of the Demised
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Premises by Lessor or the use of the Demised Premises by Lessor or the operation
by Lessor of the nursing home located thereon after the Closing Date. The
rights of the parties under this paragraph are without prejudice to any other
remedies not inconsistent herewith which the parties may have pursuant to the
terms of this Lease, provided the rights of Lessee hereunder are subject to
Section 22.1 hereof.
33.10 Anything to the contrary contained in this Article 33
notwithstanding, in the event the termination of this Lease is due to a default
by Lessee, none of the provisions of this Article 33 shall in any way limit,
reduce, restrict or modify the rights granted to Lessor pursuant to Articles 21,
23, and 24 of this Lease. If the termination of this Lease is a result of an
Event of Default, then to the extent any monies are due to Lessee pursuant to
this Article 33, such sums shall be applied by Lessor to any damages suffered by
Lessor as a result of Lessee's Event of Default.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the fixed Rent, Additional Rent including
Taxes and Assessments and all other charges herein provided, and upon observing
and keeping the covenants, agreements, terms and conditions of this Lease on its
part to be performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises during the Term of this Lease, and subject to its terms,
without hindrance by Lessor or by any other person or persons claiming under
Lessor.
34.2 All payments to be made by the Lessee hereunder, whether or not
designated as Rent, shall be deemed Additional Rent, so that in the event of a
default of payment when due, the Lessor shall be entitled to all of the remedies
available at law or equity, or under this Lease, for the nonpayment of Rent.
34.3 It is understood and agreed that the granting of any consent by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent under
the terms of this Lease, or the failure on the part of Lessor to object to any
such action taken by Lessee without Lessor's consent, shall not be deemed a
waiver by Lessor of its rights to require such consent for any further similar
act by Lessee, and Lessee hereby expressly covenants and warrants that as to all
matters requiring Lessor's consent under the terms of this Lease, Lessee shall
secure such consent for each and every happening of the event requiring such
consent, and shall not claim any waiver on the part of Lessor of the requirement
to secure such consent.
34.4 Lessee and Lessor each represent to the other party that it did
not deal with any broker in connection with this Lease, and hereby indemnifies
the other party against the claims or demands of any broker claimed through a
relationship with it.
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34.5 If an action shall be brought to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.
34.6 Should Lessee hold possession hereunder after the expiration of
the Term this Lease with the consent of Lessor, Lessee shall become a tenant on
a month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Lessee shall pay Lessor a monthly rental, for
the period of such month-to-month tenancy, in an amount equal to one hundred
fifty percent (150%) the last rental specified.
34.7 Any notice, or demand required to be given by either party to the
other shall be in writing and shall be sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) United States
registered/certified mail, return receipt requested or (d) prepaid telecopy,
telegram, telex or fax, addressed to the other party hereto at the address set
forth below:
If to Lessor: Idaho Associates, L.L.C.
c/o Karell Capital Ventures, Inc.
Suite 1901
Two North LaSalle Street
Chicago, Illinois 60602
Attention: Mr. Craig Bernfield
Telephone: (312) 855-0930
Fax No.: (312) 855-1684
If to Lessee: Sunrise Healthcare Corporation
101 Sun Lane N.E.
Albuquerque, New Mexico 87109
Attention: Mr. Andrew Turner
Telephone: (505) 821-3355
Fax No.: (505) 822-0747
or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification. Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
34.8 Upon demand by either party, Lessor and Lessee agree to execute
and deliver a Memorandum of Lease in recordable form so that the same may be
recorded by
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either party and the costs thereof shall be borne by the party requesting
recordation of the Memorandum.
34.9 Each party agrees any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified, and
stating the modifications), the dates to which Rent has been paid, the amount of
the Security Deposit held by Lessor, and whether the Lease is then in default or
whether any events have occurred which, with the giving of notice or the passage
of time, or both, could constitute a default hereunder, it being intended that
any such statement delivered pursuant to this paragraph may be relied upon by
any prospective assignee, Mortgagee or purchaser of the fee interest in the
Demised Premises or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed
to be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be
deemed to include any termination thereof by expiration or pursuant to Articles
referring to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and
any executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought. This Lease cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit of
the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be
held invalid or
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unenforceable, the remaining terms and provisions of this Lease shall not be
affected thereby, but each term and provision shall be valid and be enforceable
to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to
the Demised Premises, the grantor or the person who is divested of title shall
be entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of the
grantor or the person who is divested of title thereafter accruing hereunder and
shall then be the Lessor under this Lease. Notwithstanding anything to the
contrary provided in this Lease, if Lessor or any successor in interest of
Lessor shall be an individual, partnership, corporation, trust, tenant in common
or Mortgagee, there shall be absolutely no personal liability on the part of any
individual or member of Lessor or any stockholder, director, officer, employee,
partner or trustee of Lessor with respect to the terms, covenants or conditions
of this Lease, and Lessee shall look solely to the interest of Lessor in the
Demised Premises for the satisfaction of each and every remedy which Lessee may
have for the breach of this Lease; such exculpation from personal liability to
be absolute and without any exception, whatsoever.
34.18 The failure of either party to insist on strict performance of
any of the covenants, agreements, terms, and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not be
construed to be a waiver or relinquishment of any such covenant, agreement,
term, condition or option and the same shall be and remain in full force and
effect.
34.19 This Lease may be executed in counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute but
one and the same instrument.
34.20 This Lease shall be governed by and construed in accordance with
the laws of the State of Idaho.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed
by persons authorized so to do on behalf of each of them respectively the day
and year just above written.
LESSOR: LESSEE:
IDAHO ASSOCIATES, L.L.C., SUNRISE HEALTHCARE
an Illinois limited liability CORPORATION, a New Mexico
company corporation
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By:_____________________ By:_____________________
Its:____________________ Its:____________________
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EXHIBIT A
Legal Description
42
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EXHIBIT B
To be completed within thirty (30) days of Commencement Date
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Magic Valley Manor
UNCONDITIONAL GUARANTY OF LEASE
THIS UNCONDITIONAL GUARANTY OF LEASE (this "Guaranty") dated as of this
30th day of November, 1996, is given by SUN HEALTHCARE GROUP, INC., a Delaware
corporation ("Guarantor") to IDAHO ASSOCIATES, L.L.C., an Illinois limited
liability company ("Lessor").
I
RECITALS
1.1 DESCRIPTION OF LEASE. Lessor and Sunrise Healthcare Corporation, a
New Mexico corporation ("Lessee"), having entered into that certain Lease of
even date herewith (the "Lease") for a forty (40) bed nursing home facility
commonly known as Magic Valley Manor located at 210 North Idaho Street, Wendell,
Idaho.
1.2 INDUCEMENT. Guarantor is the sole shareholder of Lessee, and
accordingly, Guarantor hereby acknowledges that the Lease will economically
benefit Guarantor.
II
THE GUARANTY
2.1 GUARANTY. Guarantor hereby absolutely and unconditionally guarantees:
(a) The prompt payment of each installment of fixed annual rent and
Additional Rent (as defined in the Lease) when and as the same become due
under the terms of the Lease;
(b) The prompt payment of all other sums payable by Lessee to Lessor
or any other person under the terms of the Lease, including, without
limitation, tax and any other deposits required under the terms of the
Lease and damages due to default by Lessee under the Lease; and
(c) The full and timely performance of each and every other
obligation of Lessee under the Lease;
for which Guarantor shall be jointly and severally liable with Lessee (the items
described
<PAGE>
in clauses (a), (b) and (c) above are hereinafter referred to as the
"Guarantor's Obligations").
2.2 Guarantor absolutely and unconditionally covenants and agrees that, in
the event that Lessee is unable to, or does not, pay, perform or satisfy any of
the obligations or liabilities of Lessee under the Lease (the "Lessee's
Liabilities") in a full and timely manner, for any reason, including, without
limitation, the liquidation, dissolution, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition, or readjustment of, or other similar proceedings affecting, the
status, composition, identity, existence, assets or obligations of Lessee, or
the disaffirmance or termination of any of the Lessee's Liabilities in or as a
result of any such proceedings, Guarantor shall pay, perform or satisfy the
Lessee's Liabilities and that no such occurrence shall in any way reduce or
affect the Guarantor's Obligations hereunder. Upon the occurrence of a default
in the prompt payment, timely performance and satisfaction in full of Lessee's
Liabilities, all of the Guarantor's Obligations shall, at the election of
Lessor, become immediately due and payable, provided, however, that nothing
herein shall be construed as granting Lessor any greater rights or remedies
against Guarantor as a result of a breach by Lessee of its obligations under the
Lease than Lessor has against Lessee as a result thereof under the terms of the
Lease.
2.3 Guarantor shall be directly and primarily liable, jointly and
severally with Lessee, for all of the foregoing. Lessor's rights under this
Guaranty shall be exercisable by action against Guarantor or joined with any
action against Lessee. Lessor need not proceed against Lessee as security for
Lessee's Liabilities or exhaust its remedies against Lessee or exercise any of
the other remedies available to Lessor under the Lease, prior to, concurrently
with or after proceeding against Guarantor to collect the full amount of the
Guarantor's Obligations hereunder. In the event that Lessor may have collected
all or any part of Lessee's Liabilities and a claim for repayment of all or any
part thereof is made against Lessor, the liability of Guarantor hereunder as to
the amount so collected but subject to such claim shall not be discharged or
affected.
III
OTHER PROVISIONS
3.1 ACTIONS BY LESSOR NOT TO AFFECT LIABILITY. The liability of
Guarantor hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Lease by lapse of time or otherwise (all of which are hereby authorized by
Guarantor) or a release or limitation of the liability of Lessee or
Lessee's estate under the Lease in any bankruptcy or insolvency proceeding;
<PAGE>
(b) Any extension in the time for making any payment due under
the Lease or acceptance of partial payment or performance from Lessee;
(c) The acceptance or release by Lessor of any additional
security for the performance of Lessee's obligations under the Lease;
(d) The failure during any period of time whatsoever of Lessor
to attempt to collect any amount due under the Lease from Lessee or to
exercise any remedy available under such Lease or any other security
instrument given as security for performance of the same, in the event of a
default in the performance by Lessee of the terms of the Lease;
(e) Lessor's consent to any assignment or successive assignments of
the Lease, or any subletting or successive subletting of the Demised
Premises (as defined in the Lease);
(f) Any assignment or successive assignments of Lessor's interest
under the Lease (whether absolute or as collateral);
(g) Lessor's consent to any changed, expanded or different use
of any or all of the Demised Premises;
(h) The assertion by Lessor against Lessee of any rights or
remedies reserved or granted to Lessor under the Lease, including the
commencement by Lessor of any proceedings against Lessee; or
(i) Any dealings, transactions or other matter occurring between
Lessor and Lessee;
whether or not Guarantor shall have knowledge or have been notified of or agreed
to any of the foregoing.
3.2 WAIVERS. Guarantor hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and notice
of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in Section 3.1 hereof;
(c) Any and all claims or defenses based upon lack of diligence
in:
(i) collection of any amount the payment of which is guaranteed
<PAGE>
hereby;
(ii) protection of any collateral or other security for the
Lease;
(iii) realization upon any other security given for the
Lease; or
(iv) the discharge, liquidation or reorganization of Lessee in
bankruptcy or the rejection of the Lease by Lessee or a trustee in
bankruptcy.
(d) Any and all defenses of suretyship;
3.3 NATURE OF REMEDIES. No delay or omission on the part of Lessor
in the exercise of any right or remedy hereunder shall operate as a waiver
thereof. All remedies of Lessor hereunder shall be in addition to, and
exercisable consecutively or concurrently in any combination with, any and all
remedies available to Lessor by operation of law or under the Lease, and Lessor
may exercise its remedies hereunder without the necessity of any notice to
Lessee or Guarantor of nonpayment, nonobservance, nonperformance or other
default by Lessee under the Lease.
3.4 COSTS OF COLLECTION. Notwithstanding any provision of this
Guaranty to the contrary, in the event of the enforcement or interpretation of
this Guaranty by the prevailing party shall be entitled to collect its costs of
collection, including, without limitation, reasonable attorneys' fees.
3.5 MECHANIC'S LIENS OR OTHER LIENS. Notwithstanding any provision
of this Guaranty to the contrary, in the event that any mechanic's liens,
laborer's and/or materialman's claims (collectively, the "Mechanic's Liens") are
filed against the Leased Property (as defined in the Lease), or any part
thereof, and not paid or discharged by Lessee in accordance with the terms of
the Lease, or the Guarantor does not either (i) deposit with Lessor such
security as may be reasonably demanded by Lessor to protect against such lien,
or (ii) post a release bond in form and amount as required by applicable law and
as otherwise satisfactory to Lessor, Lessor shall be entitled pursuant to this
Guaranty to collect from Guarantor from and after the expiration or earlier
termination of the Lease, the total aggregate amount of such unpaid or
undischarged Mechanic's Liens.
3.6 SUBORDINATION OF RIGHTS OF SUBROGATION. Guarantor's rights of
subrogation, shall be subordinated to the rights of Lessor under the Lease and
the performance by Guarantor of the Lessee's Liabilities hereunder, and until
such performance of Lessee's Liabilities, Guarantor shall have no such right of
subrogation. Guarantor's execution and performance under this Guaranty shall
not, however, waive Guarantor's rights of subrogation to proceed against Lessee
following Guarantor's satifaction and performance of Lessee's Liabilities.
<PAGE>
3.7 ASSIGNMENT. This Guaranty shall not be assignable by Guarantor
but shall be binding upon the successors to and legal representatives of
Guarantor. This Guaranty shall be assignable by Lessor and shall inure to the
benefit of its successors and assigns.
3.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Illinois. To induce Lessor to accept this Guaranty, Guarantor irrevocably
agrees that, subject to Lessor's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS GUARANTY, SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
3.9 SEVERABILITY. If any term, restriction or covenant of this
Guaranty is deemed illegal or unenforceable, all other terms, restrictions and
circumstances subject hereto shall remain unaffected to the extent permitted by
law; and if any application of any term, restriction or covenant to any person
or circumstances is deemed illegal, the application of such term, restriction or
covenant to other persons and circumstances shall remain unaffected to the
extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC., a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
Address:
101 Sun Lane N.E.
Albuquerque, NM 87109
Attention: Mr. Andrew Turner
<PAGE>
with copies to:
101 Sun Lane N.E.
Albuquerque, NM 87109
Attention: Law Department
General Counsel
<PAGE>
Payette Lakes Care Center
UNCONDITIONAL GUARANTY OF LEASE
THIS UNCONDITIONAL GUARANTY OF LEASE (this "Guaranty") dated as of this
30th day of November, 1996, is given by SUN HEALTHCARE GROUP, INC., a Delaware
corporation ("Guarantor") to IDAHO ASSOCIATES, L.L.C., an Illinois limited
liability company ("Lessor").
I
RECITALS
1.1 DESCRIPTION OF LEASE. Lessor and Sunrise Healthcare Corporation, a
New Mexico corporation ("Lessee"), having entered into that certain Lease of
even date herewith (the "Lease") for a sixty-four (64) bed nursing home facility
commonly known as Payette Lakes Care Center located at 201 Floyd Street, McCall,
Idaho.
1.2 INDUCEMENT. Guarantor is the sole shareholder of Lessee, and
accordingly, Guarantor hereby acknowledges that the Lease will economically
benefit Guarantor.
II
THE GUARANTY
2.1 GUARANTY. Guarantor hereby absolutely and unconditionally guarantees:
(a) The prompt payment of each installment of fixed annual rent and
Additional Rent (as defined in the Lease) when and as the same become due
under the terms of the Lease;
(b) The prompt payment of all other sums payable by Lessee to Lessor
or any other person under the terms of the Lease, including, without
limitation, tax and any other deposits required under the terms of the
Lease and damages due to default by Lessee under the Lease; and
(c) The full and timely performance of each and every other
obligation of Lessee under the Lease;
for which Guarantor shall be jointly and severally liable with Lessee (the items
described
<PAGE>
in clauses (a), (b) and (c) above are hereinafter referred to as the
"Guarantor's Obligations").
2.2 Guarantor absolutely and unconditionally covenants and agrees that, in
the event that Lessee is unable to, or does not, pay, perform or satisfy any of
the obligations or liabilities of Lessee under the Lease (the "Lessee's
Liabilities") in a full and timely manner, for any reason, including, without
limitation, the liquidation, dissolution, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition, or readjustment of, or other similar proceedings affecting, the
status, composition, identity, existence, assets or obligations of Lessee, or
the disaffirmance or termination of any of the Lessee's Liabilities in or as a
result of any such proceedings, Guarantor shall pay, perform or satisfy the
Lessee's Liabilities and that no such occurrence shall in any way reduce or
affect the Guarantor's Obligations hereunder. Upon the occurrence of a default
in the prompt payment, timely performance and satisfaction in full of Lessee's
Liabilities, all of the Guarantor's Obligations shall, at the election of
Lessor, become immediately due and payable, provided, however, that nothing
herein shall be construed as granting Lessor any greater rights or remedies
against Guarantor as a result of a breach by Lessee of its obligations under the
Lease than Lessor has against Lessee as a result thereof under the terms of the
Lease.
2.3 Guarantor shall be directly and primarily liable, jointly and
severally with Lessee, for all of the foregoing. Lessor's rights under this
Guaranty shall be exercisable by action against Guarantor or joined with any
action against Lessee. Lessor need not proceed against Lessee as security for
Lessee's Liabilities or exhaust its remedies against Lessee or exercise any of
the other remedies available to Lessor under the Lease, prior to, concurrently
with or after proceeding against Guarantor to collect the full amount of the
Guarantor's Obligations hereunder. In the event that Lessor may have collected
all or any part of Lessee's Liabilities and a claim for repayment of all or any
part thereof is made against Lessor, the liability of Guarantor hereunder as to
the amount so collected but subject to such claim shall not be discharged or
affected.
III
OTHER PROVISIONS
3.1 ACTIONS BY LESSOR NOT TO AFFECT LIABILITY. The liability of
Guarantor hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Lease by lapse of time or otherwise (all of which are hereby authorized by
Guarantor) or a release or limitation of the liability of Lessee or
Lessee's estate under the Lease in any bankruptcy or insolvency proceeding;
<PAGE>
(b) Any extension in the time for making any payment due under
the Lease or acceptance of partial payment or performance from Lessee;
(c) The acceptance or release by Lessor of any additional
security for the performance of Lessee's obligations under the Lease;
(d) The failure during any period of time whatsoever of Lessor
to attempt to collect any amount due under the Lease from Lessee or to
exercise any remedy available under such Lease or any other security
instrument given as security for performance of the same, in the event of a
default in the performance by Lessee of the terms of the Lease;
(e) Lessor's consent to any assignment or successive assignments of
the Lease, or any subletting or successive subletting of the Demised
Premises (as defined in the Lease);
(f) Any assignment or successive assignments of Lessor's interest
under the Lease (whether absolute or as collateral);
(g) Lessor's consent to any changed, expanded or different use
of any or all of the Demised Premises;
(h) The assertion by Lessor against Lessee of any rights or
remedies reserved or granted to Lessor under the Lease, including the
commencement by Lessor of any proceedings against Lessee; or
(i) Any dealings, transactions or other matter occurring between
Lessor and Lessee;
whether or not Guarantor shall have knowledge or have been notified of or agreed
to any of the foregoing.
3.2 WAIVERS. Guarantor hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and notice
of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in Section 3.1 hereof;
(c) Any and all claims or defenses based upon lack of diligence
in:
(i) collection of any amount the payment of which is guaranteed
<PAGE>
hereby;
(ii) protection of any collateral or other security for the
Lease;
(iii) realization upon any other security given for the
Lease; or
(iv) the discharge, liquidation or reorganization of Lessee in
bankruptcy or the rejection of the Lease by Lessee or a trustee in
bankruptcy.
(d) Any and all defenses of suretyship;
3.3 NATURE OF REMEDIES. No delay or omission on the part of Lessor
in the exercise of any right or remedy hereunder shall operate as a waiver
thereof. All remedies of Lessor hereunder shall be in addition to, and
exercisable consecutively or concurrently in any combination with, any and all
remedies available to Lessor by operation of law or under the Lease, and Lessor
may exercise its remedies hereunder without the necessity of any notice to
Lessee or Guarantor of nonpayment, nonobservance, nonperformance or other
default by Lessee under the Lease.
3.4 COSTS OF COLLECTION. Notwithstanding any provision of this
Guaranty to the contrary, in the event of the enforcement or interpretation of
this Guaranty by the prevailing party shall be entitled to collect its costs of
collection, including, without limitation, reasonable attorneys' fees.
3.5 MECHANIC'S LIENS OR OTHER LIENS. Notwithstanding any provision
of this Guaranty to the contrary, in the event that any mechanic's liens,
laborer's and/or materialman's claims (collectively, the "Mechanic's Liens") are
filed against the Leased Property (as defined in the Lease), or any part
thereof, and not paid or discharged by Lessee in accordance with the terms of
the Lease, or the Guarantor does not either (i) deposit with Lessor such
security as may be reasonably demanded by Lessor to protect against such lien,
or (ii) post a release bond in form and amount as required by applicable law and
as otherwise satisfactory to Lessor, Lessor shall be entitled pursuant to this
Guaranty to collect from Guarantor from and after the expiration or earlier
termination of the Lease, the total aggregate amount of such unpaid or
undischarged Mechanic's Liens.
3.6 SUBORDINATION OF RIGHTS OF SUBROGATION. Guarantor's rights of
subrogation, shall be subordinated to the rights of Lessor under the Lease and
the performance by Guarantor of the Lessee's Liabilities hereunder, and until
such performance of Lessee's Liabilities, Guarantor shall have no such right of
subrogation. Guarantor's execution and performance under this Guaranty shall
not, however, waive Guarantor's rights of subrogation to proceed against Lessee
following Guarantor's satifaction and performance of Lessee's Liabilities.
<PAGE>
3.7 ASSIGNMENT. This Guaranty shall not be assignable by Guarantor
but shall be binding upon the successors to and legal representatives of
Guarantor. This Guaranty shall be assignable by Lessor and shall inure to the
benefit of its successors and assigns.
3.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Illinois. To induce Lessor to accept this Guaranty, Guarantor irrevocably
agrees that, subject to Lessor's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS GUARANTY, SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
3.9 SEVERABILITY. If any term, restriction or covenant of this
Guaranty is deemed illegal or unenforceable, all other terms, restrictions and
circumstances subject hereto shall remain unaffected to the extent permitted by
law; and if any application of any term, restriction or covenant to any person
or circumstances is deemed illegal, the application of such term, restriction or
covenant to other persons and circumstances shall remain unaffected to the
extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC., a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
Address:
101 Sun Lane N.E.
Albuquerque, NM 87109
Attention: Mr. Andrew Turner
<PAGE>
with copies to:
101 Sun Lane N.E.
Albuquerque, NM 87109
Attention: Law Department
General Counsel
<PAGE>
Valley Rehabilitation and Living Center
UNCONDITIONAL GUARANTY OF LEASE
THIS UNCONDITIONAL GUARANTY OF LEASE (this "Guaranty") dated as of this
30th day of November, 1996, is given by SUN HEALTHCARE GROUP, INC., a Delaware
corporation ("Guarantor") to IDAHO ASSOCIATES, L.L.C., an Illinois limited
liability company ("Lessor").
I
RECITALS
1.1 DESCRIPTION OF LEASE. Lessor and Sunrise Healthcare Corporation, a
New Mexico corporation ("Lessee"), having entered into that certain Lease of
even date herewith (the "Lease") for a one hundred twenty-seven (127) bed
nursing home facility commonly known as Valley Rehabilitation and Living Center
located at 1014 Burrell Avenue, Lewiston, Idaho.
1.2 INDUCEMENT. Guarantor is the sole shareholder of Lessee, and
accordingly, Guarantor hereby acknowledges that the Lease will economically
benefit Guarantor.
II
THE GUARANTY
2.1 GUARANTY. Guarantor hereby absolutely and unconditionally guarantees:
(a) The prompt payment of each installment of fixed annual rent and
Additional Rent (as defined in the Lease) when and as the same become due
under the terms of the Lease;
(b) The prompt payment of all other sums payable by Lessee to Lessor
or any other person under the terms of the Lease, including, without
limitation, tax and any other deposits required under the terms of the
Lease and damages due to default by Lessee under the Lease; and
(c) The full and timely performance of each and every other
obligation of Lessee under the Lease;
<PAGE>
for which Guarantor shall be jointly and severally liable with Lessee (the items
described in clauses (a), (b) and (c) above are hereinafter referred to as the
"Guarantor's Obligations").
2.2 Guarantor absolutely and unconditionally covenants and agrees that, in
the event that Lessee is unable to, or does not, pay, perform or satisfy any of
the obligations or liabilities of Lessee under the Lease (the "Lessee's
Liabilities") in a full and timely manner, for any reason, including, without
limitation, the liquidation, dissolution, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition, or readjustment of, or other similar proceedings affecting, the
status, composition, identity, existence, assets or obligations of Lessee, or
the disaffirmance or termination of any of the Lessee's Liabilities in or as a
result of any such proceedings, Guarantor shall pay, perform or satisfy the
Lessee's Liabilities and that no such occurrence shall in any way reduce or
affect the Guarantor's Obligations hereunder. Upon the occurrence of a default
in the prompt payment, timely performance and satisfaction in full of Lessee's
Liabilities, all of the Guarantor's Obligations shall, at the election of
Lessor, become immediately due and payable, provided, however, that nothing
herein shall be construed as granting Lessor any greater rights or remedies
against Guarantor as a result of a breach by Lessee of its obligations under the
Lease than Lessor has against Lessee as a result thereof under the terms of the
Lease.
2.3 Guarantor shall be directly and primarily liable, jointly and
severally with Lessee, for all of the foregoing. Lessor's rights under this
Guaranty shall be exercisable by action against Guarantor or joined with any
action against Lessee. Lessor need not proceed against Lessee as security for
Lessee's Liabilities or exhaust its remedies against Lessee or exercise any of
the other remedies available to Lessor under the Lease, prior to, concurrently
with or after proceeding against Guarantor to collect the full amount of the
Guarantor's Obligations hereunder. In the event that Lessor may have collected
all or any part of Lessee's Liabilities and a claim for repayment of all or any
part thereof is made against Lessor, the liability of Guarantor hereunder as to
the amount so collected but subject to such claim shall not be discharged or
affected.
III
OTHER PROVISIONS
3.1 ACTIONS BY LESSOR NOT TO AFFECT LIABILITY. The liability of
Guarantor hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Lease by lapse of time or otherwise (all of which are hereby authorized by
Guarantor) or a release or limitation of the liability of Lessee or
Lessee's estate under the Lease in
<PAGE>
any bankruptcy or insolvency proceeding;
(b) Any extension in the time for making any payment due under
the Lease or acceptance of partial payment or performance from Lessee;
(c) The acceptance or release by Lessor of any additional
security for the performance of Lessee's obligations under the Lease;
(d) The failure during any period of time whatsoever of Lessor
to attempt to collect any amount due under the Lease from Lessee or to
exercise any remedy available under such Lease or any other security
instrument given as security for performance of the same, in the event of a
default in the performance by Lessee of the terms of the Lease;
(e) Lessor's consent to any assignment or successive assignments of
the Lease, or any subletting or successive subletting of the Demised
Premises (as defined in the Lease);
(f) Any assignment or successive assignments of Lessor's interest
under the Lease (whether absolute or as collateral);
(g) Lessor's consent to any changed, expanded or different use
of any or all of the Demised Premises;
(h) The assertion by Lessor against Lessee of any rights or
remedies reserved or granted to Lessor under the Lease, including the
commencement by Lessor of any proceedings against Lessee; or
(i) Any dealings, transactions or other matter occurring between
Lessor and Lessee;
whether or not Guarantor shall have knowledge or have been notified of or agreed
to any of the foregoing.
3.2 WAIVERS. Guarantor hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and notice
of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in Section 3.1 hereof;
(c) Any and all claims or defenses based upon lack of diligence
in:
<PAGE>
(i) collection of any amount the payment of which is
guaranteed hereby;
(ii) protection of any collateral or other security for the
Lease;
(iii) realization upon any other security given for the
Lease; or
(iv) the discharge, liquidation or reorganization of Lessee in
bankruptcy or the rejection of the Lease by Lessee or a trustee in
bankruptcy.
(d) Any and all defenses of suretyship;
3.3 NATURE OF REMEDIES. No delay or omission on the part of Lessor in
the exercise of any right or remedy hereunder shall operate as a waiver
thereof. All remedies of Lessor hereunder shall be in addition to, and
exercisable consecutively or concurrently in any combination with, any and
all remedies available to Lessor by operation of law or under the Lease, and
Lessor may exercise its remedies hereunder without the necessity of any
notice to Lessee or Guarantor of nonpayment, nonobservance, nonperformance or
other default by Lessee under the Lease.
3.4 COSTS OF COLLECTION. Notwithstanding any provision of this Guaranty
to the contrary, in the event of the enforcement or interpretation of this
Guaranty by the prevailing party shall be entitled to collect its costs of
collection, including, without limitation, reasonable attorneys' fees.
3.5 MECHANIC'S LIENS OR OTHER LIENS. Notwithstanding any provision of
this Guaranty to the contrary, in the event that any mechanic's liens,
laborer's and/or materialman's claims (collectively, the "Mechanic's Liens")
are filed against the Leased Property (as defined in the Lease), or any part
thereof, and not paid or discharged by Lessee in accordance with the terms of
the Lease, or the Guarantor does not either (i) deposit with Lessor such
security as may be reasonably demanded by Lessor to protect against such
lien, or (ii) post a release bond in form and amount as required by
applicable law and as otherwise satisfactory to Lessor, Lessor shall be
entitled pursuant to this Guaranty to collect from Guarantor from and after
the expiration or earlier termination of the Lease, the total aggregate
amount of such unpaid or undischarged Mechanic's Liens.
3.6 SUBORDINATION OF RIGHTS OF SUBROGATION. Guarantor's rights of
subrogation, shall be subordinated to the rights of Lessor under the Lease
and the performance by Guarantor of the Lessee's Liabilities hereunder, and
until such performance of Lessee's Liabilities, Guarantor shall have no such
right of subrogation. Guarantor's execution and performance under this
Guaranty shall not, however, waive Guarantor's rights of subrogation to
proceed against Lessee following Guarantor's satifaction and performance
<PAGE>
of Lessee's Liabilities.
3.7 ASSIGNMENT. This Guaranty shall not be assignable by Guarantor but
shall be binding upon the successors to and legal representatives of
Guarantor. This Guaranty shall be assignable by Lessor and shall inure to
the benefit of its successors and assigns.
3.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Illinois. To induce Lessor to accept this Guaranty, Guarantor irrevocably
agrees that, subject to Lessor's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED
TO THIS GUARANTY, SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY
OF CHICAGO, STATE OF ILLINOIS. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY
AND STATE AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE SIGNATURE
PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL
RECEIPT THEREOF.
3.9 SEVERABILITY. If any term, restriction or covenant of this Guaranty
is deemed illegal or unenforceable, all other terms, restrictions and
circumstances subject hereto shall remain unaffected to the extent permitted
by law; and if any application of any term, restriction or covenant to any
person or circumstances is deemed illegal, the application of such term,
restriction or covenant to other persons and circumstances shall remain
unaffected to the extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC., a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
Address:
101 Sun Lane N.E.
<PAGE>
Albuquerque, NM 87109
Attention: Mr. Andrew Turner
with copies to:
101 Sun Lane N.E.
Albuquerque, NM 87109
Attention: Law Department
General Counsel
<PAGE>
FIRST AMENDMENT TO FOURTH AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
(this "First Amendment"), dated as of December 2, 1996, is entered into among
Sun Healthcare Group, Inc., a Delaware corporation ("Sun"), The Mediplex
Group, Inc. a Massachusetts corporation ("Mediplex") (Sun and Mediplex are
collectively referred to herein as "Borrowers"), the banks listed on the
signature pages hereto (collectively, "Lenders"), the co-agents listed on the
signature pages hereto (collectively, the "Co-Agents"), and NationsBank of
Texas, N.A., as Administrative Lender (in said capacity, "Administrative
Lender").
BACKGROUND
Borrowers, Lenders, Co-Agents and Administrative Lender heretofore
entered into that certain Fourth Amended and Restated Credit Agreement, dated
as of October 29, 1996 (as amended, renewed, extended or modified, the
"Credit Agreement"; the terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit
Agreement).
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
Borrowers, Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. Commencing upon the satisfaction of
the conditions of effectiveness set forth in Section 3 of this First
Amendment, the following Sections of the Credit Agreement shall be amended to
read as follows:
(a) The definition of "EBITDAR" set forth in Section 1.1 of the Credit
Agreement shall be amended to read in its entirety as follows:
"EBITDAR" shall mean, for any period, determined in accordance with
GAAP on a consolidated basis for the Parent on its Subsidiaries, the sum of
(a) pre-tax net income (excluding therefrom (i) any items of extraordinary
gain, including net gains on the sale of assets other than asset sales in
the ordinary course of business, (ii) any items of extraordinary loss,
including net losses on the sale of assets other than asset sales in the
ordinary course of business, (iii) payments after the Agreement Date to the
Convertible Bondholders as an inducement for the conversion of a portion of
the Convertible Bonds, such payments not to exceed $3,000,000 in aggregate
amount, and (iv) for the fiscal quarter and year ended December 31, 1995,
non-cash charges related to the write-off of goodwill and uncollectible
accounts receivable acquired with the acquisition of Mediplex and Honorcare
Healthcare Management, Inc., not to exceed $67,000,000 in aggregate
amount), plus (b) interest expense, whether or not capitalized (including
interest expense pursuant to Capitalized Lease Obligations), Depreciation,
amortization and lease expense pursuant to Operating Leases, in each case
for the four fiscal quarters immediately preceding the date of calculation,
plus (c) any insurance proceeds received or paid in connection with the
Parent's agreement to
<PAGE>
settle certain securities class-action lawsuits filed
in 1995 relating to the Parent's disclosure of the Office of Inspector
General's investigations and the operating results of fiscal years 1994 and
1995 and related issues. For purpose of the calculation of EBITDAR with
respect to assets not owned at all times during the four fiscal quarters
immediately preceding the date of determination, EBITDAR shall be adjusted,
on a pro forma basis, to (i) include the EBITDAR attributable to an
Acquisition which occurred during any such fiscal quarter for the twelve
month period preceding the date of determination, provided the Acquisition
Consideration for such Acquisition in excess of $20,000,000 and (ii)
exclude the EBITDAR of any asset or group of related amounts disposed of in
one transaction or a series of related transactions during any such fiscal
quarter for the twelve month period preceding the date of determination,
provided the consideration received from the disposition of such asset or
group of related assets is in excess of $20,000,000.
(b) The following definitions shall be added to Section 1.1 of the
Credit Agreement:
"APTA" shall mean APTA Healthcare PLC, a United Kingdom corporation.
"APTA ACQUISITION" shall mean the Parent's Acquisition of APTA, as an
indirect Foreign Subsidiary.
"APTA OFFER" shall mean the offer by Exceler Health Care Group, PLC
for the outstanding shares of capital stock of APTA pursuant to the
Offer Document related thereto.
"ASHBOURNE ACQUISITION" shall mean the Parent's Acquisition of
Ashbourne PLC, a United Kingdom corporation, as an indirect Foreign
Subsidiary.
(c) The second sentence of Section 2.16(a) is hereby amended to read in
its entirety as follows:
No Letter of Credit shall have an expiration date (including all rights of
renewal) later than the earlier of (i) the Maturity Date or (ii) one year
after the date of issuance thereof; PROVIDED, HOWEVER, the Letters of
Credit issued in connection with the APTA Offer may have an expiration date
(including all rights of renewal) not later than the Maturity Date.
(d) Section 7.1(i) of the Credit Agreement shall be amended to read in
its entirety as set forth below:
(i) Guaranties by the Borrowers and Indebtedness pursuant to letters of
credit in respect of obligations of Foreign Subsidiaries as lessees under
Operating Leases (such Guaranty obligation to be calculated as an amount
equal to the product of rental expense for the four fiscal quarters
immediately preceding the date of calculation subject to the terms of the
Guaranty multiplied by six), provided (x) the aggregate amount of such
Guaranties and
2
<PAGE>
letters of credit incurred after December 2, 1996, together
with Investments made after December 2, 1996, pursuant to SECTION 7.3(j)
which are not in entities organized under the laws of the United States or
any state thereof and Acquisition Consideration for all Foreign
Subsidiaries acquired after December 2, 1996, pursuant to SECTION 7.5(c)
hereof (excluding, in each case, the APTA Acquisition and the Ashbourne
Acquisition), shall not exceed $35,000,000 and (y) the aggregate amount of
any such individual Guaranty incurred after December 2, 1996 shall not
exceed $20,000,000; and
(e) Section 7.3(j) of the Credit Agreement shall be amended to read in
its entirety as follows:
(j) other Investments made after the Agreement Date primarily related to
the business of providing healthcare services, including nursing care,
rehabilitation therapy and other specialized healthcare services, the
consideration for which does not exceed $35,000,000 in aggregate amount;
provided, however, to the extent that any Investments made pursuant to this
SECTION 7.3(j) are in entities which are not organized under the laws of
the United States or any state thereof, (x) the aggregate amount of such
Investments made after December 2, 1996, in entities not organized under
the laws of the United States or any State thereof, together with the
aggregate Acquisition Consideration for all Foreign Subsidiaries acquired
after December 2, 1996, pursuant to SECTION 7.5(c) hereof and obligations
incurred after December 2, 1996, in respect of Guaranties and letters of
credit pursuant to SECTION 7.1(i) hereof (excluding, in each case, the APTA
Acquisition and the Ashbourne Acquisition), shall not exceed $35,000,000
and (y) no individual Investment made after December 2, 1996, in entities
not organized under the laws of the United States or any State thereof
shall exceed $20,000,000.
(f) Section 7.5(c) of the Credit Agreement shall be amended to read in
its entirety as follows:
(c) Acquisition of a Foreign Subsidiary, unless (x) the Acquisition
Consideration for all such Acquisitions occurring after December 2, 1996,
together with the aggregate amount of obligations incurred after December
2, 1996, in respect of Guaranties and letter of credit pursuant to SECTION
7.1(i) hereof and Investments made after December 2, 1996, pursuant to
SECTION 7.3(j) which are not in entities organized under the laws of the
United States or any state thereof (excluding, in each case, the APTA
Acquisition and the Ashbourne Acquisition), does not exceed $35,000,000,
(y) the Acquisition Consideration for any single such Acquisition
(excluding the APTA Acquisition and the Ashbourne Acquisition) does not
exceed $20,000,000, and (z) to the extent such Foreign Subsidiary is not a
Subsidiary of a Foreign Subsidiary, an amount of the capital stock of such
Foreign Subsidiary necessary to cause the Administrative Lender to have a
security interest in and pledge of, all of the capital stock of, or other
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<PAGE>
equity interest in, such Foreign Subsidiary owned by the pledgor or such
lesser amount such that in any case not more than 66% of all of the capital
stock of, or other equity interest in, such Foreign Subsidiary, shall be
pledged pursuant to a Foreign Subsidiary Pledge Agreement.
2. REPRESENTATIONS AND WARRANTIES TRUE: NO EVENT OF DEFAULT. By its
execution and delivery hereof, each Borrower represents and warrants that, as
of the date hereof and after giving effect to the amendments contemplated by
the foregoing Section 1:
(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default
or an Event of Default;
(c) Each Borrower has full power and authority to execute and deliver
this First Amendment, and this First Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of such
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable debtor relief laws and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action by, notice to,
or filing with, any governmental authority or other Person, is required for
the execution, delivery or performance by Borrowers of this First Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be
effective as of December 2, 1996, subject to the following:
(a) Administrative Lender shall have received counterparts of this First
Amendment executed by a number of Lenders sufficient to constitute the
Determining Lenders;
(b) Administrative Lender shall have received counterparts of this First
Amendment executed by each Borrower;
(c) Administrative Lender shall have received, for the ratable benefit
of the Lenders, an amendment fee equal to .05% of each Lender's Commitment;
and
(d) Administrative Lender shall have received, in form and substance
satisfactory to Administrative Lender and its counsel, such other documents,
certificates and instruments as Administrative Lender shall require.
4. REFERENCE TO THE CREDIT AGREEMENT.
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<PAGE>
(a) Upon the effectiveness of this First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as affected and
amended by this First Amendment.
(b) This Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
5. COSTS, EXPENSES AND TAXES. Borrowers jointly and severally agree to
pay on demand all costs and expenses of Administrative Lender in connection
with the preparation, reproduction, execution and delivery of this First
Amendment and the other instruments and documents to be delivered hereunder
(including the reasonable fees and out-of-pocket expenses of counsel for
Administrative Lender with respect thereto and with respect to advising
Administrative Lender as to its rights and responsibilities under the Credit
Agreement, as amended by this First Amendment).
6. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
7. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
and shall be binding upon Borrowers and each Lender and their respective
successors and assigns.
8. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of
this First Amendment for any other purpose.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
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5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as the date first above written.
BORROWERS: SUN HEALTHCARE GROUP, INC.
By: _________________________________________
Name: __________________________________
Title: _________________________________
THE MEDIPLEX GROUP, INC.
By: _________________________________________
Name: __________________________________
Title: _________________________________
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<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ________ day of ______________
(the "Agreement"), by and between Sun Healthcare Group, Inc., a Delaware
corporation ("Company"), and ______________________ ("Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and indemnification against
risks of claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, neither Indemnitee nor the Company regards statutory
indemnification protection as adequate; and
WHEREAS, it is reasonable, prudent and necessary for the Company to
contractually obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee presently serves the Company as a Director; and
WHEREAS, Indemnitee is willing to continue to serve as a Director and to
consider taking on additional service for or on behalf of the Company on the
condition that he be so indemnified on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. INDEMNIFICATION - GENERAL. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as in effect from time to time. The rights of Indemnitee
provided under the proceeding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
Section 2. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 2 if, by reason of an Indemnification Event (as
hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section
2, Indemnitee shall be indemnified
<PAGE>
against all Expenses, judgements, penalties, fines, and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not unreasonably be withheld) actually and reasonably incurred
by him or on his behalf in connection with such Proceeding or any claim,
issue, or matter therein, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful.
Section 3. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 3
if, by reason of an Indemnification Event, he is, or is threatened to be made, a
party to any threatened, pending, or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section 3, Indemnitee shall be indemnified against all Expenses and, to the
fullest extent permitted by Delaware law, amounts paid in settlement (if such
settlement is approved in advance by the Company, which approval shall not
unreasonably be withheld), in each case to the extent actually and reasonably
incurred by him or on his behalf in connection with such Proceeding or any
claim, issue or matter therein if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; PROVIDED, HOWEVER, that no indemnification shall be made in respect of
any claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company and its stockholders in the performance of Indemnitee's
duty to the Company and its stockholders unless and only to the extent that the
court in which such action or proceeding is or was pending shall determine that
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity, and then only to the extent that the court
shall determine.
Section 4. CONTRIBUTION. If, when Indemnitee has met the applicable
standard of conduct, the indemnification provisions set forth in Section 2 or 3,
as the case may be, should, under applicable law, be to any extent
unenforceable, then the Company agrees that it shall be treated as though it is
or was a party to the threatened, pending or completed Proceeding in which
Indemnitee is or was involved and that the Company shall contribute to the
amounts paid or payable by Indemnitee as a result of such Expenses, judgments in
third-party proceedings, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
Indemnitee on the other or (ii) if the allocation provided in clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and Indemnitee on the other in
connection with such action or inaction, or alleged action or inaction, as well
as any other relevant equitable considerations.
For purposes of this Section 4, the relative benefit to the Company shall
be deemed to be the benefits accruing to it and to all its directors, officers,
employees and agents (other than Indemnitee), as a group and treated as one
entity, and the relative benefit to Indemnitee shall be deemed to be an amount
not greater than Indemnitee's yearly base salary or director's compensation from
the Company during the first year in which the action or inaction, or alleged
action or inaction, forming the basis for the threatened, pending or
contemplated suit, action or proceeding was alleged to have occurred plus the
amount, if any, of monetary benefit and other consideration received by
Indemnity in the transaction(s) that gave rise to such suit, action or
proceeding. The relative fault shall be
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<PAGE>
determined by reference to, among other things, the fault of the Company and
all of its directors, officers, employees and agents (other than Indemnitee),
as a group and treated as one entity, and such group's relative intent,
knowledge, access to information and opportunity to have altered or prevented
the action or inaction, or alleged action or inaction, forming the basis for
the threatened, pending or contemplated Proceeding, and Indemnitee's relative
fault in light of such factors on the other hand.
Section 5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
(a) Notwithstanding any other provision of this agreement, to the extent that
Indemnitee is, by reason of an Indemnification Event, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues, or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue, or matter.
(b) If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the claims, damages,
judgments, fines or amounts paid in settlement by Indemnitee in connection with
an Indemnification Event specified in Section 2 or 3, as the case may be, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
The party or parties making the determination shall determine the portion (if
less than all) of such claims, damages, judgments, fines or amounts paid in
settlement for which Indemnitee is entitled to indemnification under this
Agreement.
(c) For purposes of this Section and without limitation, the termination
of any claim, issue, or matter in such a Proceeding by abandonment, withdrawal,
running of limitations, or by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue, or matter.
Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of an Indemnification Event, a witness in any Proceeding to which
Indemnitee is not a party, he shall be indemnified against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
Section 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to, during, or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by a
written undertaking (which shall be accepted by or on behalf of the Company
without reference to the financial ability of Indemnitee to make repayment, and
without the pledging of any security by Indemnitee) by or on behalf of
Indemnitee to repay any Expenses advanced if, as and when it shall ultimately be
determined that
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<PAGE>
Indemnitee is not entitled to be indemnified against such Expenses, or in the
case of advancement of Expenses in connection with a Proceeding in which
Indemnitee seeks recovery upon any of the insurance policies described in
Section 12(b) below, if, as and to the extent that Indemnitee is
unsuccessful, on the merits or otherwise, therein. If indemnitee seeks
advancement of Expenses in connection with any of the types of threatened,
pending, or completed Proceedings covered by the provisions of this
Agreement, Indemnitee, in order to obtain such advances, must submit a
written request for Indemnification pursuant to Section 8(a) below in
addition to a statement or statements requesting such advances or advances.
Notwithstanding any other provision of this Agreement, if Indemnitee requests
an adjudication or an award in arbitration pursuant to the provisions of
Section 11(a) below in order to establish his entitlement to indemnification
or advancement of Expenses, any determination made pursuant to Section 8(b)
of this Agreement that Indemnitee is not entitled to indemnification or to
receive advancement of Expenses shall not be binding and Indemnitee shall not
be required to reimburse the Company for any Expense advance unless and until
a final judicial determination or award in arbitration is made with respect
thereto as to which all rights of appeal therefrom have been exhausted or
lapsed.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under Section 2 and 3 of this Agreement,
Indemnitee shall submit to the Company (Attn.: General Counsel) a written
request, including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the
first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
as soon as possible: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be made by
the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided below in clause (ii)); or (ii) if a Change
of Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
(B) if a quorum of the Board of Directors consisting of Disinterested Directors
is not obtainable or, even if obtainable, such quorum of Disinterested Directors
so directs, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee; or (C) by the
stockholders of the Company and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons, or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such persons, persons, or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
cost or expenses (including attorney fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons, or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to
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<PAGE>
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a
Change of Control shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless the Indemnitee shall request that such selection be made
by the Board of Directors, in which event the preceding sentence shall apply),
and Indemnitee shall give written notice to the Company advising it of the
identity of the Independent Counsel so selected. In either event, Indemnitee or
the Company, as the case may be, may, within ten (10) days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; PROVIDED,
HOWEVER, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 18(f) of this Agreement, and the objection shall
set forth with particularity the factual basis of such assertion. If such
written objection is so made and substantiated, the Independent Counsel so
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within twenty (20) days after submission by Indemnitee of a written request for
indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 8(c), including, without
limitation, those of Indemnitee, regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 11(e) of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 9. COSTS. All the costs of making the determination require by
Section 8 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible for paying (i) all
reasonable expenses incurred by Indemnitee to enforce this Agreement, including,
but not limited to, the costs incurred by Indemnitee to obtain court-ordered
indemnification pursuant to Section 11, regardless of the outcome of any such
application or proceeding, and (ii) all costs of defending any suits or
investigation or proceedings challenging payments to Indemnitee under this
Agreement.
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<PAGE>
Section 10. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In
making a determination with respect to entitlement to indemnification hereunder,
the person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons, or entity of
any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue, or matter
therein, by judgment, order, settlement, or conviction, or upon a plea of NOLO-
CONTENDERE or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Indemnitee's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan shall be deemed to be conduct that Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company.
(d) For purposes of any determination hereunder, Indemnitee shall be
deemed to have acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action was based on (i) the records or books of
account of the Company or another enterprise, including financial statements,
(ii) information supplied to him by the officers of the Company or another
enterprise in the course of their duties, (iii) the advice of legal counsel for
the Company or another enterprise in the course of their duties, (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 10 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 10(d) shall not be deemed to limit in any way the
other circumstances in which Indemnitee may be deemed to have met the applicable
standard of conduct set forth in Section 2 or 3, as the case may be.
Section 11. REMEDIES OF INDEMNITEE. (a) In the event that: (i) a
determination is made pursuant to Section 8 of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement, (ii) advancement of
Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no
determination of entitlement to indemnification shall have been made pursuant to
Section 8(b) of this Agreement within 60 days after receipt by the Company of
the written request for indemnification, (iv) payment of indemnification is not
made pursuant to Section 5 or 6 of this Agreement within ten (10) days after
receipt by the Company of a written request therefor, or (v) payment of
indemnification is not made within ten (10) days after a determination has been
made
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<PAGE>
that Indemnitee is entitled to indemnification, Indemnitee shall be entitled
to request an adjudication in an appropriate court of the State of Delaware,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement or Expenses. Alternatively, Indemnitee, at
his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Indemnitee shall commence such proceeding seeking
an adjudication or an award in arbitration within one year following the date
on which Indemnitee first has the right to commence such proceeding pursuant
to this Section 11(a); PROVIDED, HOWEVER, that the foregoing time limitation
shall not apply in respect of a proceeding brought by Indemnitee to enforce
his rights under Section 5 of this Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 11 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 11, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b) of
this Agreement that Indemnitee is entitled to indemnification or advancement of
Expenses, as the case may be, the Company shall be bound by such determination
in any judicial proceeding or arbitration commenced pursuant to this Section 11.
(d) The Company shall be precluded from asserting any judicial proceeding
or arbitration commenced pursuant to the provisions of Section 11(a) that
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) It is the intent of the Company that Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
Indemnitee hereunder. Accordingly, if it should appear to Indemnitee that the
Company has failed to comply with any of its obligations under this Agreement or
in the event that the Company or any other person takes any action to declare
this Agreement void or unenforceable, or institutes any action, suit or
proceeding designed (or having the effect of being designed) to deny or to
recover from, Indemnitee the benefits intended to be provided to Indemnitee
hereunder, the Company irrevocably authorized Indemnitee from time to time to
retain counsel of his choice, at the expense of the Company as hereafter
provided, to represent Indemnitee in connection with the initiation or defense
of any litigation or other legal action, whether by or against the Company or
any director, officer, stockholder or other person affiliated with the Company,
in any jurisdiction. Regardless of the outcome thereof, but subject to
Indemnitee having acted in good faith, the Company shall pay and be solely
responsible for any and all expenses (of the type described in Section 18(e) of
this Agreement) incurred by Indemnitee (i) as a result of the Company's failure
to perform this Agreement or any provision thereof or (ii) as a result of the
Company's or any person's
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contesting the validity or enforceability of this Agreement or any provision
thereof as aforesaid.
Section 12. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the
Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise, both as to actions in his official
capacity and as to actions in another capacity while holding such office, and
shall continue after Indemnitee has ceased to be a director or officer of the
Company and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that to the extent Indemnitee otherwise would
have any greater right to indemnification and/or advancement of expenses under
any provision of the Certificate of Incorporation or the Bylaws of the Company,
Indemnitee shall be deemed to have such greater right pursuant to this
Agreement; and, provided, further, that to the extent that any change is made to
the Delaware law (whether by legislative action or judicial decision), the
Certificate of Incorporation and/or the Bylaws that permits any greater right to
indemnification and/or advancement of expenses than that provided under this
Agreement as of the date hereof, Indemnitee shall be deemed to have such greater
right pursuant to this Agreement. No amendment, alteration, or repeal of this
Agreement or of any provision hereof shall limit or restrict any right of
Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in connection with an Indemnifiable Event prior to such
amendment, alteration, or repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise which such person serves at
the request of the Company, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee, or agent under such
policy or policies. If, at the time of the receipt of a notice of a claim
pursuant to Section 8 hereof, the Company has director's and officer's liability
insurance in effect, the Company shall give prompt notice of the commencement of
such proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies. The Company shall have no obligation to obtain or maintain such
insurance.
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(c) In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement, or otherwise.
Section 13. SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any Proceeding described in Sections 2
or 3 hereof, or in defense of any claim, issue or matter therein, he shall be
indemnified against Expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal thereof. For
purposes of this Section 13, the term "successful on the merits or otherwise"
shall include, but not be limited to, (i) any termination, withdrawal or
dismissal (with or without prejudice) of any claim, action, suit or proceeding
against Indemnitee without any express finding of liability or guilt against
him, (ii) the expiration of 180 days after the making of any claim or threat of
an action, suit or proceeding without the institution of the same and without
any promise of payment or payment made to induce a settlement or (iii) the
settlement of any action, suit or proceeding under Section 2 or 3, as the case
may be, pursuant to which Indemnitee pays less than $25,000.
Section 14. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, or agent
of the Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of any Proceeding then
pending in respect of which Indemnitee is granted any rights of indemnification
or advancement of expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 11 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors and assigns and
shall survive the death, disability or incapacity of the Indemnitee or the
termination of the Indemnitee's service as a director or officer of the Company
and shall inure to the benefit of Indemnitee and his heirs, executors, and
administrators.
Section 15. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal, or unenforceable for any reason
whatsoever: (a) the validity, legality, and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal, or unenforceable, that is not itself invalid, illegal, or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal, or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
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Section 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 18. DEFINITION. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company occurring
after the Effective Date of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (1) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act, as amended) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities without the prior approval of at least two-thirds of
the members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) there occurs a proxy contest, or the
Company is a party to a merger, consolidation, sale of assets, plan of
liquidation, or other reorganization as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 18, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors.
(b) "Indemnification Event" means any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent, or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent, or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust, or other
enterprise, and also means anything done or not done by Indemnitee in or related
to any such capacity.
(c) "Disinterested Director" means a director of the Company who is not
and was not a party, or threatened to be made a party, to the Proceeding in
respect of which indemnification is sought by Indemnitee.
(d) "Effective Date" means the date this Agreement is mutually accepted by
the parties.
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(e) "Expenses" shall include all reasonable attorney fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding, together with any and all applicable sales, gross receipts, and
similar taxes thereon.
(f) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of Delaware corporation law and neither presently
is, nor in the immediately proceeding five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person, who, under the applicable standards of
professional conduct then prevailing under the law of the State of Delaware,
would be precluded from representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
(g) "Proceeding" includes any action, suit, arbitration, alternative
dispute resolution mechanism, inquiry, investigation, administrative hearing or
any other proceeding, whether civil, criminal, administrative, or investigative,
whether instituted by the Company or any other party, except one (i) initiated
by Indemnitee pursuant to Section 11 of this Agreement to enforce his rights
under this Agreement, or (ii) initiated by Indemnitee prior to a Change in
Control, unless authorized in advance by the Board of Directors of the Company.
For purposes of Sections 5 and 7 of this Agreement, the term "Proceeding" shall
be deemed to include, without limitation, an action in which Indemnitee seeks
recovery upon any of the insurance policies described in Section 12(b) above.
Section 19. MODIFICATION AND WAIVER. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions thereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees to notify the
Company in writing within a reasonable time after being served with any summons,
citation, subpoena, complaint, indictment, information, or other document
relating to any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder.
Section 21. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
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(a) If to Indemnitee, to:
(name)
(address)
(b) If to the Company, to:
Sun Healthcare Group, Inc.
Attn.: General Counsel
101 Sun Lane N.E.
Albuquerque, NM 87109
or to such other address as may have been furnished for such purpose and in the
manner provided in this Section 21 to Indemnitee by the Company or to the
Company by Indemnitee, as the case may be.
Section 22. GOVERNING LAW/CONSENT TO JURISDICTION. The parties agree
that this Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware, without giving effect to
principles of conflict of laws. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the state of Delaware
for all purposes in connection with any action, suit or proceeding which arises
out of or relates to this Agreement.
Section 23. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in certain instances federal law or public policy may override
applicable state law and prohibit the Company from indemnifying its directors
and officers under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC")
has taken the position that indemnification is not permissible for liabilities
arising under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
Section 24. LIMITATIONS TO RIGHTS OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. Except as otherwise provided in Sections 9 and 11 of this Agreement,
Indemnitee shall not be entitled to indemnification or advancement of expenses
under this Agreement:
(a) with respect to any action, suit or proceeding initiated, brought
or made by Indemnitee (i) against the Company, unless a Change in Control
(as defined in Section 18 (a) of this Agreement) shall have occurred, or
(ii) against any person other than the Company, unless approved in advance
by the Board of Directors of the Company;
(b) for expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) which
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have been paid directly to Indemnitee by an insurance carrier under a
policy of officers' and directors' liability insurance maintained by the
Company;
(c) for expenses or the payment of profits arising from the purchase
and sale by Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
similar successor statute; and
(d) if it shall be determined by final judgment by a court having
jurisdiction in the matter that such indemnification is not lawful.
Section 25. SELECTION OF COUNSEL. If a change in control shall not
have occurred, in the event the Company shall be obligated under Sections 2 or 3
hereof to pay the expenses of any Proceeding against Indemnitee, the Company
shall be entitled to assume the defense of such Proceeding, with counsel
approved by Indemnitee (which shall not unreasonably withhold such approval),
upon the delivery to Indemnitee of written notice of its election so to do.
After delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided, that, (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized in writing by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense and shall have
notified the Company in writing thereof, (C) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between Indemnitee and other
indemnitee of the Company being represented by counsel retained by the Company
in the same proceeding and shall have notified the Company in writing thereof or
(D) the Company shall not, in fact, have employed counsel to assume the defense
of such proceeding, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company.
Section 26. MISCELLANEOUS. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
SUN HEALTHCARE GROUP, INC.
a Delaware corporation
By:
-------------------------------------
Andrew L. Turner, President
INDEMNITEE
-------------------------------------
(Name)
(Title)
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January 1, 1997
Mr. Andrew L. Turner
9 Sandia Heights Dr., N.E.
Albuquerque, NM 87122
SEVERANCE AGREEMENT
Dear Andy:
The following sets forth our agreement regarding the terms and conditions
that will apply in the event of the termination of your employment as an officer
and employee of Sun Healthcare Group, Inc. (the "COMPANY"). Capitalized words
which are not otherwise defined herein shall have the meanings assigned to such
words in Section 7 of this Agreement.
1. TERM OF THE SEVERANCE AGREEMENT. The term of the severance
protections under this Agreement (the "TERM") shall commence on October 21, 1996
(the "EFFECTIVE DATE") and shall continue so long as you are employed by the
Company. Notwithstanding the foregoing, in the event of a Change in Control
during the Term, the two-year period commencing on the Change in Control Date
shall be referred to herein as the "CHANGE IN CONTROL TERM."
2. EFFECT OF TERMINATION.
(a) INVOLUNTARY TERMINATION.
(i) ACCRUED COMPENSATION AND BENEFITS. In the event of your Involuntary
Termination during the Term or during the Change in Control Term, the Company
shall pay you within 15 days of the date of such Involuntary Termination the
full amount of any earned but unpaid salary through the date of such Involuntary
Termination, plus a cash payment (calculated on the basis of your salary at the
rate then in effect) for all unused paid time off which you may have earned as
of the date of such Involuntary Termination and a cash payment for any
unreimbursed expenses. The Company shall also pay you within 15 days of the
date of such Involuntary Termination, in accordance with current policy, a pro
rata portion of your annual bonus compensation for the year in which your
Involuntary Termination occurs, determined by multiplying the bonus
compensation received by you in the preceding year by a fraction, the numerator
of which shall be the number of calendar
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Mr Andrew L. Turner
Page 2
days in the year in which your Involuntary Termination occurs that precede such
Involuntary Termination, and the denominator of which shall be the total number
of days in such year.
(ii) SEVERANCE PAYMENT. In the event of your Involuntary Termination
during the Term or the Change in Control Term, the Company shall also pay you an
additional amount (the "SEVERANCE PAYMENT") as set forth in either Section
2(a)(ii)(A) or Section 2(a)(ii)(B) below. The Severance Payment shall be in
lieu of any other severance payments which you are entitled to receive under any
other severance pay plan or arrangement sponsored by the Company and its
subsidiaries.
(A) INVOLUNTARY TERMINATION DURING THE TERM. In the event of
your Involuntary Termination during the Term, the Company shall pay you,
within 15 days of the date of such Involuntary Termination, a Severance
Payment equal to two (2) times your salary at the rate then in effect.
Notwithstanding the foregoing, your right to receive the Severance Payment
described in this Section 2(a)(ii)(A) shall be conditioned upon your
execution of a release in favor of the Company, which shall not be
inconsistent with the terms of this Agreement, and which is not revoked by
you within the revocation period specified therein.
(B) INVOLUNTARY TERMINATION ON OR AFTER THE CHANGE IN CONTROL
DATE. In the event of your Involuntary Termination on or after the Change
in Control Date, the Company shall pay you, within 15 days of the date of
such Involuntary Termination, a Severance Payment equal to three (3) times
your salary at the rate then in effect.
(iii) BENEFIT PAYMENT. In the event of your Involuntary Termination, you
and your eligible dependents shall continue to be eligible to participate during
the Benefit Continuation Period (as hereinafter defined) in the medical, dental,
health, life and other fringe benefit plans and arrangements applicable to you
immediately prior to your Involuntary Termination on the same terms and
conditions in effect for you and your dependents immediately prior to such
Involuntary Termination. For purposes of the previous sentence, "BENEFIT
CONTINUATION PERIOD" means the period beginning on the date of such Involuntary
Termination and ending on the earlier to occur of (A) (1) in the event of your
Involuntary Termination during the Term, the second anniversary of the date of
such Involuntary Termination or (2) in the event of your Involuntary Termination
on or after the Change in Control Date, the third anniversary of the date of
such Involuntary Termination, and (B) the date that you and your dependents are
eligible and elect coverage under the plans of a subsequent employer which
provide substantially equivalent or greater benefits to you and your dependents.
(b) OTHER TERMINATIONS. In the event that your employment with the
Company terminates during the Term or the Change in Control Term, other than due
to your Involuntary Termination, the Company shall pay you the full amount of
any earned but unpaid salary through the date of such termination, plus a cash
payment (calculated on the basis of your salary at the rate then in effect) for
all unused paid time off which you may
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Mr Andrew L. Turner
Page 3
have earned as of the date of such termination, you shall immediately
relinquish the right to any additional payments or benefits from the Company
under this Agreement.
(c) NO MITIGATION OR OFFSET. You shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by you as the result of
employment by another employer or by pension benefits paid by the Company or
another employer after the date of termination or otherwise except as
specifically provided in clause (B) of the last sentence of Section 2(a)(iii).
3. ADDITIONAL PAYMENTS.
(a) GROSS-UP PAYMENT. Notwithstanding anything herein to the contrary,
if it is determined that any Change in Control Payment would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "EXCISE TAX"), then you shall be
entitled to an additional payment (a "GROSS-UP PAYMENT") in an amount that will
place you in the same after-tax economic position that you would have enjoyed if
the Excise Tax had not applied to the Change in Control Payment. The amount of
the Gross-Up Payment shall be determined by the Accounting Firm using such
formula as the Accounting Firm deems appropriate. No Gross-Up Payment shall be
payable hereunder if the Accounting Firm determines that the Change in Control
Payments are not subject to an Excise Tax.
(b) DETERMINATION OF GROSS-UP PAYMENT. Subject to the provisions of
Section 3(c), all determinations required under this Section 3, including
whether a Gross-Up Payment is required, the amount of the Change in Control
Payments constituting excess parachute payments, and the amount of the Gross-Up
Payment, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to you and the Company within fifteen days of the
change in the ownership or effective control of the Company or in the ownership
of a substantial portion of the assets of the Company (within the meaning of
such terms under Section 280G of the Code), your date of termination or any
other date reasonably requested by you or the Company on which a determination
under this Section 3 is necessary or advisable. The Company shall pay to you
the initial Gross-Up Payment within 5 days of the receipt by you and the Company
of the Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by you, the Company shall cause the Accounting Firm to
provide you and the Company with an opinion that the Company has substantial
authority under the Code and Regulations not to report an Excise Tax on your
federal income tax return. Any determination by the Accounting Firm shall be
binding upon you and the Company. If the initial Gross-Up Payment is
insufficient to cover the amount of the Excise Tax that is ultimately determined
to be owing by you with respect to any Change in Control Payment (hereinafter an
"UNDERPAYMENT"), the Company, after exhausting its remedies under Section 3(c)
below, shall promptly pay to you an additional Gross-Up Payment in respect of
the Underpayment.
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Mr Andrew L. Turner
Page 4
(c) PROCEDURES. You shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after you know of such claim and shall apprise the Company of the
nature of the claim and the date on which the claim is requested to be paid.
You agree not to pay the claim until the expiration of the thirty-day period
following the date on which you notify the Company, or such shorter period
ending on the date the Taxes with respect to such claim are due (the "NOTICE
PERIOD"). If the Company notifies you in writing prior to the expiration of the
Notice Period that it desires to contest the claim, you shall: (i) give the
Company any information reasonably requested by the Company relating to the
claim, (ii) take such action in connection with the claim as the Company may
reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably acceptable to you, (iii) cooperate with the Company
in good faith in contesting the claim, and (iv) permit the Company to
participate in any proceedings relating to the claim. You shall permit the
Company to control all proceedings related to the claim and, at its option,
permit the Company to pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
such claim. If requested by the Company, you agree either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner and
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts
as the Company shall determine; PROVIDED, HOWEVER, that, if the Company directs
you to pay such claim and pursue a refund, the Company shall advance the amount
of such payment to you on an after-tax and interest-free basis (the "ADVANCE").
The Company's control of the contest related to the claim shall be limited to
the issues related to the Gross-Up Payment and you shall be entitled to settle
or contest, as the case may be, any other issues raised by the Internal Revenue
Service or other taxing authority. If the Company does not notify you in
writing prior to the end of the Notice Period of its desire to contest the
claim, the Company shall pay to you an additional Gross-Up Payment in respect of
the excess parachute payments that are the subject of the claim, and you agree
to pay the amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(d) REPAYMENTS. If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance relates,
you shall pay the Company the amount of the refund (together with any interest
paid or credited thereon after Taxes applicable thereto). If, after receipt by
you of an Advance, a determination is made that you shall not be entitled to any
refund with respect to the claim and the Company does not promptly notify you of
its intent to contest the denial of refund, then the amount of the Advance shall
not be required to be repaid by you and the amount thereof shall offset the
amount of the additional Gross-Up Payment then owing to you.
(e) FURTHER ASSURANCES. The Company shall indemnify you and hold you
harmless, on an after-tax basis, from any costs, expenses, penalties, fines,
interest or other liabilities ("LOSSES") incurred by you with respect to the
exercise by the Company of any of
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Mr Andrew L. Turner
Page 5
its rights under this Section 3, including, without limitation, any Losses
related to the Company's decision to contest a claim or any imputed income to
you resulting from any Advance or action taken on your behalf by the Company
hereunder. The Company shall pay all legal fees and expenses incurred under
this Section 3, and shall promptly reimburse you for the reasonable expenses
incurred by you in connection with any actions taken by the Company or required
to be taken by you hereunder. The Company shall also pay all of the fees and
expenses of the Accounting Firm, including, without limitation, the fees and
expenses related to the opinion referred to in Section 3(b).
4. PROTECTION OF THE COMPANY'S INTERESTS.
(a) NON-COMPETITION COVENANTS. You acknowledge that the services you
render to the Company and its direct and indirect affiliates (collectively,
"Affiliates") are of a special and unusual character with a unique value to the
Company and the Affiliates, the loss of which cannot be adequately compensated
by damages in an action at law. In view of the foregoing, and due to the
confidential information obtained by or disclosed to you and as a material
inducement to the Company to enter into this Agreement and to pay to you the
compensation provided for herein, you covenant and agree with Company that
during the term of your employment by the Company and for a period of two (2)
years after you cease to be employed by the Company for any reason, you will
not, except as otherwise authorized by this Agreement, compete with the Company
or any affiliate of the Company, solicit the business of any patient or customer
of the Company or of any affiliate thereof, or directly or indirectly solicit
for employment any of the employees of the Company or its Affiliates. For
purposes of this Section 4(a):
As used in this Section 4(a), the term "compete" means engaging in any
manner whatsoever in the same or any similar business as the Company or any of
its Affiliates within a geographic area of 50 miles of any office, branch, or
healthcare or other facility of the Company or any of its Affiliates, or any
other location at which the Company or any of its Affiliates provides services
to patients or customers, including, without limitation, as a proprietor,
partner, investor, shareholder, director, officer, employee, consultant,
independent contractor, or otherwise, other than as a passive investor owning
less than a five percent (5%) equity interest in any one entity or enterprise;
As used in this Section 4(a), the term "patients or customers" means all
persons to whom the Company or any of its Affiliates has sold or provided any
product or service, whether or not for compensation, w cease to be employed by
the Company.
The Company and you may, from time to time during the term of this
Agreement, jointly execute an instrument or instruments which set forth
exceptions to the non-competition covenants set forth in this Paragraph.
In the event that any provision of Paragraphs 8 or 9 above relating to time
period or geographical area restrictions shall be declared by a court of
competent jurisdiction to exceed
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Mr Andrew L. Turner
Page 6
the maximum restrictions which the court deems reasonable and enforceable, those
such restrictions as shall be deemed reasonable and enforceable by the court
shall become and thereafter be the maximum restriction in such regard, and such
restriction or restrictions shall remain enforceable to the fullest extent
permitted by such court.
(b) NO INTERFERENCE. During the Restricted Period, you shall not,
whether for your own account or for the account of any other individual,
partnership, firm, corporation or other business organization (other than the
Company), intentionally solicit, endeavor to entice away from the Company, or
otherwise interfere with the relationship of the Company with, any person who is
employed by or otherwise engaged to perform services for the Company or any
person or entity who is, or was within the then most recent twelve-month period,
a customer, client or supplier of the Company.
(c) CONFIDENTIALITY. You hereby covenant and agree that you will not at
any time, except in performance of your obligations to the Company hereunder or
with the prior written consent of the Board, directly or indirectly disclose to
any person any secret or confidential information that you may learn or have
learned by reason of your association with the Company. The term "CONFIDENTIAL
INFORMATION" means any information not previously disclosed to the public or to
the trade by the Company's management with respect to the Company's products,
facilities and methods, trade secrets and other intellectual property, systems,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Company's productperty. You hereby confirm that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by you relating to the
business of the Company shall be and remain the property of the Company. Upon
the termination of your employment with the Company for any reason or upon the
request of the Company at any time, you shall promptly deliver to the Company,
and shall not without the consent of the Board retain copies of, any written
materials not previously made available to the public, or records and documents
made by you or coming into your possession concerning the business or affairs of
the Company.
(e) RELIEF. Without intending to limit the remedies available to the
Company, you acknowledge that a breach of any of the covenants contained in this
Section 4 may result in material irreparable injury to the Company for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, the Company shall be entitled to obtain a temporary restraining
order and/or a preliminary or permanent injunction restraining you from engaging
in activities prohibited by this Section 4 or such other relief as may be
required to specifically enforce any of the covenants in this Section 4.
5. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse you on
an after-tax basis for all costs and expenses (including, without limitation,
court costs and reasonable legal fees and expenses which reflect common practice
with respect to the matters involved) incurred by you as a result of any claim,
action or proceeding (i) arising out of
<PAGE>
Mr Andrew L. Turner
Page 7
your termination of employment during the Term or the Change in Control Term,
(ii) contesting, disputing or enforcing any right, benefits or obligations under
this Agreement or (iii) arising out of or challenging the validity, advisability
or enforceability of this Agreement or any provision thereof; PROVIDED, HOWEVER,
that this provision shall not apply if the relevant trier-of-fact determines
that your claim or position was frivolous and without reasonable foundation.
6. SUCCESSORS; BINDING AGREEMENT.
(a) ASSUMPTION BY SUCCESSOR. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company (and may
require any subsidiary of the Company to which you have devoted a substantial
portion of your business time that is being spun off) expressly to assume and to
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place; PROVIDED, HOWEVER, that no such assumption shall relieve the Company of
its obligations hereunder. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets (or subsidiary that is spun off in a public offering) as aforesaid, which
assumes and agrees to perform this Agreement by operation of law or otherwise.
(b) ENFORCEABILITY; BENEFICIARIES. This Agreement shall be binding upon
and inure to the benefit of you (and your personal representatives and heirs)
and the Company and any organization which succeeds to substantially all of the
business or assets of the Company, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of the Company or
otherwise, including, without limitation, as a result of a Change in Control or
by operation of law. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agrto your estate.
7. DEFINITIONS. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
"ACCOUNTING FIRM" shall mean Arthur Andersen LLP, or, if such firm is
unable or unwilling to perform such calculations, such other national accounting
firm as shall be designated by agreement between you and the Company.
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall mean a termination of your employment during the Term which
is a result of (i) your felony conviction, (ii) a determination by the Board
that you have violated any of the protective covenants set forth in Section 4 of
this Agreement or (iii) your
<PAGE>
Mr Andrew L. Turner
Page 8
continued failure substantially to perform the duties reasonably requested by
the Company (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from a resignation by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, and which performance is not substantially
corrected by you within 10 days of receipt of such demand; PROVIDED, HOWEVER,
that, during the Change in Control Term, any such failure shall not constitute
Cause unless such failure is willful. For purposes of the previous sentence,
no act or failure to act on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company.
A "CHANGE IN CONTROL" shall be deemed to have occurred if there is a
"change in control" of the Company within the meaning of Section 280G of the
Code and the Regulations; or
(i) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended
(the "1934 ACT")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company (an "ACQUIRING
PERSON"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 33-1/3% of the
then outstanding voting stock of the Company;
(ii) the shareholders of the Company and a majority of the
non-employee directors of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66-2/3% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;
(iii) the shareholders of the Company approve a plan of
reorganization (other than a reorganization or liquidation under the United
States Bankruptcy Code or complete liquidation of the Company) or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets;
(iv) during any period of two consecutive years (beginning on or
after the Effective Date), individuals who at the beginning of such period
constitute the Board and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose election by the
Board or nomination for election by the Company's shareholders was approved
by a vote of at least a majority of the directors then still in office who
either were directors at the beginning of the period or whose
<PAGE>
Mr Andrew L. Turner
Page 9
election or nomination for election was previously so approved, no longer
constitute a majority of the Board;
PROVIDED, HOWEVER, that notwithstanding parts (i), (ii), (iii) and (iv) of this
definition, a Change in Control shall not be deemed to have occurred in the
event of
(x) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct the business or
businesses formerly conducted by the Company; or
(y) any transaction undertaken for the purpose of
reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the
Company's capital stock.
and PROVIDED FURTHER, that notwithstanding anything in this definition to the
contrary, a Change in Control shall not be deemed to have occurred in the event
of any business combination with _________, unless the Board determines
otherwise.
"CHANGE IN CONTROL DATE" shall mean date on which the Change in Control
occurs; PROVIDED, that if your employment with the Company terminates prior to
the Change in Control Date and it is reasonably demonstrated that your
termination of employment (i) was at the request of the third party who has
taken steps reasonably calculated to effect the Change in Control or (ii)
otherwise arose in connection with or in anticipation of the Change in Control,
then Change in Control Date shall mean the date immediately prior to the date of
your termination of employment.
"CHANGE IN CONTROL PAYMENT" means (i) any amount due or paid to you under
this Agreement, (ii) any amount that is due or paid to you under any plan,
program or arrangement of the Company and its subsidiaries (including, without
limitation, the Equity Plans), and (iii) any amount or benefit that is due or
payable to you under this Agreement or under any plan, program or arrangement of
the Company and its subsidiaries not otherwise covered under clause (i) or (ii)
hereof which must reasonably be taken into account under Section 280G of the
Code and the Regulations in determining the amount of the "parachute payments"
received by you, including, without limitation, any amounts which must be taken
into account under the Code and Regulations as a result of (A) the acceleration
of the vesting of any option, restricted stock or other equity award granted
under the Equity Plans or otherwise, (B) the acceleration of the time at which
anyeverance or other amounts that are payable to you.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and any
successor provisions thereto.
"COMMON STOCK" shall mean the common stock of the Company.
<PAGE>
Mr Andrew L. Turner
Page 10
"DISABILITY" shall mean your inability to engage in substantial gainful
activity by reason of any medically determinable mental or physical impairment
which can be expected to result in death or which has lasted or can be expected
to last a continuous period of not less than 12 months.
"EQUITY AWARDS" shall mean options, restricted stock or other grants or
awards which consist of, or relate to, equity securities of the Company and
which have been granted to you under the Equity Plans. For purposes of this
Agreement, Equity Awards shall also include any securities acquired upon the
exercise of an option, warrant or similar right that constitutes an Equity
Award.
"EQUITY PLAN CHANGE IN CONTROL" shall mean a change in control of the
Company as defined in the applicable Equity Plan.
"EQUITY PLANS" shall mean any equity-based incentive plan or arrangement
adopted by the Company.
"GOOD REASON" shall mean a resignation of your employment during the Term
or the Change in Control Term as a result of any of the following:
(i) (A) During the Term, a meaningful and detrimental alteration
in your position or the nature or status of your responsibilities, or a
meaningful and detrimental change in your reporting responsibilities or
titles, as in effect immediately prior to your termination of employment,
or (B) during the Change in Control Term, a meaningful and detrimental
alteration in your position or the nature or status of your
responsibilities, or a meaningful and detrimental change in your reporting
responsibilities or titles, as in effect immediately prior to the Change in
Control Date;
(ii) A reduction by the Company in your annual base salary as in
effect immediately prior to your termination of employment; a reduction in
your target annual bonus (expressed as a percentage of base salary) as in
effect immediately prior to your termination of employment; or a failure by
the Company to provide you with any other form of compensation or benefit
being provided to you immediately prior to your termination of employment;
PROVIDED, THAT, in the event of your resignation following a Change in
Control of the Company, any such reduction in your salary, target annual
bonus or any other form of compensation or benefit from the rate or level
in effect immediately prior to the Change in Control Date shall constitute
Good Reason;
(iii) The relocation of the office of the Company outside of
Albuquerque, New Mexico; or a significant increase in the amount of time
that you are required to travel for business purposes;
<PAGE>
Mr Andrew L. Turner
Page 11
(iv) The failure of the Company to obtain an agreement reasonably
satisfactory to you from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6(a) hereof;
(vii) Any termination of your employment which is not effected
pursuant to the terms of this Agreement; or
(viii) A material breach by the Company of the provisions of this
Agreement;
PROVIDED, HOWEVER, that an event described above in clause (ii) or (viii) shall
not constitute Good Reason unless it is communicated by you to the Company in
writing and is not corrected by the Company in a manner which is reasonably
satisfactory to you (including full retroactive correction with respect to any
monetary matter) within 10 days of the Company's receipt of such written notice
from you.
"INVOLUNTARY TERMINATION" shall mean (i) your termination of employment by
the Company and its subsidiaries during the Term or the Change in Control Term
other than for Cause or Disability or (ii) your resignation of employment with
the Company and its subsidiaries during the Term or the Change in Control Term
for Good Reason.
"REGULATIONS" shall mean the proposed, temporary and final regulations
under Section 280G of the Code or any successor provision thereto.
"TAXES" shall mean the federal, state and local income taxes to which you
are subject at the time of determination, calculated on the basis of the highest
marginal rates then in effect, plus any additional payroll or withholding taxes
to which you are then subject.
8. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Chief Executive Officer of the Company, with a copy to the General Counsel of
the Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
9. MISCELLANEOUS.
(a) AMSCHARGE IS AGREED TO IN WRITING. NO WAIVER BY EITHER PARTY HERETO
AT ANY TIME OF ANY BREACH BY THE OTHER PARTY HERETO OF, OR COMPLIANCE WITH, ANY
CONDITION OR PROVISION OF THIS AGREEMENT TO BE PERFORMED BY SUCH OTHER PARTY
SHALL BE DEEMED A WAIVER OF SIMILAR OR DISSIMILAR PROVISIONS OR CONDITIONS AT
THE SAME OR AT ANY PRIOR OR SUBSEQUENT TIME. NO AGREEMENTS OR REPRESENTATIONS,
ORAL OR OTHERWISE, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT MATTER HEREOF
HAVE BEEN MADE BY EITHER PARTY WHICH ARE NOT EXPRESSLY SET FORTH IN THIS
<PAGE>
Mr Andrew L. Turner
Page 12
AGREEMENT AND THIS AGREEMENT SHALL SUPERSEDE ALL PRIOR AGREEMENTS, NEGOTIATIONS,
CORRESPONDENCE, UNDERTAKINGS AND COMMUNICATIONS OF THE PARTIES, ORAL OR WRITTEN,
WITH RESPECT TO THE SUBJECT MATTER HEREOF; PROVIDED, HOWEVER, THAT, EXCEPT AS
EXPRESSLY SET FORTH HEREIN, THIS AGREEMENT SHALL NOT SUPERSEDE THE TERMS OF
EQUITY AWARDS PREVIOUSLY GRANTED TO YOU.
(B) VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(d) WITHHOLDING. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local withholding taxes.
(e) SOURCE OF PAYMENTS. All payments provided under this Agreement,
other than payments made pursuant to a plan which provides otherwise, shall be
paid in cash from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure
payment. You will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder. To the extent that an than the right of an unsecured creditor of the
Company.
(f) HEADINGS. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
(g) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters covered
hereby and supersedes all prior agreements and understandings of the parties
with respect to the subject matter hereof.
(h) GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of New
Mexico applicable to contracts entered into and performed in such State.
* * * *
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
<PAGE>
Mr Andrew L. Turner
Page 13
SUN HEALTHCARE GROUP, INC.
By
------------------------------------------
Lois E. Silverman
Chairperson, Compensation Committee
Agreed to as of this 1st day of January, 1997.
- ------------------------------------
Andrew L. Turner
<PAGE>
[DATE]
[NAME]
9800 Greenbrier N.E.
Albuquerque, NM 87111
SEVERANCE AGREEMENT
Dear [NAME]:
The following sets forth our agreement regarding the terms and conditions
that will apply in the event of the termination of your employment as an officer
and employee of Sun Healthcare Group, Inc. (the "COMPANY"). Capitalized words
which are not otherwise defined herein shall have the meanings assigned to such
words in Section 7 of this Agreement.
1. TERM OF THE SEVERANCE AGREEMENT. The term of the severance
protections under this Agreement (the "TERM") shall commence on [DATE] (the
"EFFECTIVE DATE") and shall continue so long as you are employed by the Company.
Notwithstanding the foregoing, in the event of a Change in Control during the
Term, the two-year period commencing on the Change in Control Date shall be
referred to herein as the "CHANGE IN CONTROL TERM."
2. EFFECT OF TERMINATION.
(a) INVOLUNTARY TERMINATION.
(i) ACCRUED COMPENSATION AND BENEFITS. In the event of your Involuntary
Termination during the Term or during the Change in Control Term, the Company
shall pay you within 15 days of the date of such Involuntary Termination the
full amount of any earned but unpaid salary through the date of such Involuntary
Termination, plus a cash payment (calculated on the basis of your salary at the
rate then in effect) for all unused paid time off which you may have earned as
of the date of such Involuntary Termination and a cash payment for any
unreimbursed expenses. The Company shall also pay you within 15 days of the
date of such Involuntary Termination, in accordance with current policy, a pro
rata portion of your annual bonus compensation for the year in which your
Involuntary Termination occurs, determined by multiplying the bonus compensation
received by you in
<PAGE>
the preceding year by a fraction, the numerator of which shall be the number of
calendar days in the year in which your Involuntary Termination occurs that
precede such Involuntary Termination, and the denominator of which shall be the
total number of days in such year.
(ii) SEVERANCE PAYMENT. In the event of your Involuntary Termination
during the Term or the Change in Control Term, the Company shall also pay you an
additional amount (the "SEVERANCE PAYMENT") as set forth in either Section
2(a)(ii)(A) or Section 2(a)(ii)(B) below. The Severance Payment shall be in
lieu of any other severance payments which you are entitled to receive under any
other severance pay plan or arrangement sponsored by the Company and its
subsidiaries.
(A) INVOLUNTARY TERMINATION DURING THE TERM. In the event of
your Involuntary Termination during the Term, the Company shall pay you,
within 15 days of the date of such Involuntary Termination, a Severance
Payment equal to two (2) times your salary at the rate then in effect.
Notwithstanding the foregoing, your right to receive the Severance Payment
described in this Section 2(a)(ii)(A) shall be conditioned upon your
execution of a release in favor of the Company, which shall not be
inconsistent with the terms of this Agreement, and which is not revoked by
you within the revocation period specified therein.
(B) INVOLUNTARY TERMINATION ON OR AFTER THE CHANGE IN CONTROL
DATE. In the event of your Involuntary Termination on or after the Change
in Control Date, the Company shall pay you, within 15 days of the date of
such Involuntary Termination, a Severance Payment equal to three (3) times
your salary at the rate then in effect.
(iii) BENEFIT PAYMENT. In the event of your Involuntary Termination, you
and your eligible dependents shall continue to be eligible to participate during
the Benefit Continuation Period (as hereinafter defined) in the medical, dental,
health, life and other fringe benefit plans and arrangements applicable to you
immediately prior to your Involuntary Termination on the same terms and
conditions in effect for you and your dependents immediately prior to such
Involuntary Termination. For purposes of the previous sentence, "BENEFIT
CONTINUATION PERIOD" means the period beginning on the date of such Involuntary
Termination and ending on the earlier to occur of (A) (1) in the event of your
Involuntary Termination during the Term, the second anniversary of the date of
such Involuntary Termination or (2) in the event of your Involuntary Termination
on or after the Change in Control Date, the third anniversary of the date of
such Involuntary Termination, and (B) the date that you and your dependents are
eligible and elect coverage under the plans of a subsequent employer which
provide substantially equivalent or greater benefits to you and your dependents.
(b) OTHER TERMINATIONS. In the event that your employment with the
Company terminates during the Term or the Change in Control Term, other than due
to your Involuntary Termination, the Company shall pay you the full amount of
any earned but unpaid salary through the date of such termination, plus a cash
payment (calculated on the basis of your salary at the rate then in effect) for
all unused paid time off which you may have earned as of the date of such
termination, you shall immediately relinquish the right to any additional
payments or benefits from the Company under this Agreement.
<PAGE>
(c) NO MITIGATION OR OFFSET. You shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by you as the result of
employment by another employer or by pension benefits paid by the Company or
another employer after the date of termination or otherwise except as
specifically provided in clause (B) of the last sentence of Section 2(a)(iii).
3. ADDITIONAL PAYMENTS.
(a) GROSS-UP PAYMENT. Notwithstanding anything herein to the contrary,
if it is determined that any Change in Control Payment would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "EXCISE TAX"), then you shall be
entitled to an additional payment (a "GROSS-UP PAYMENT") in an amount that will
place you in the same after-tax economic position that you would have enjoyed if
the Excise Tax had not applied to the Change in Control Payment. The amount of
the Gross-Up Payment shall be determined by the Accounting Firm using such
formula as the Accounting Firm deems appropriate. No Gross-Up Payment shall be
payable hereunder if the Accounting Firm determines that the Change in Control
Payments are not subject to an Excise Tax.
(b) DETERMINATION OF GROSS-UP PAYMENT. Subject to the provisions of
Section 3(c), all determinations required under this Section 3, including
whether a Gross-Up Payment is required, the amount of the Change in Control
Payments constituting excess parachute payments, and the amount of the Gross-Up
Payment, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to you and the Company within fifteen days of the
change in the ownership or effective control of the Company or in the ownership
of a substantial portion of the assets of the Company (within the meaning of
such terms under Section 280G of the Code), your date of termination or any
other date reasonably requested by you or the Company on which a determination
under this Section 3 is necessary or advisable. The Company shall pay to you
the initial Gross-Up Payment within 5 days of the receipt by you and the Company
of the Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by you, the Company shall cause the Accounting Firm to
provide you and the Company with an opinion that the Company has substantial
authority under the Code and Regulations not to report an Excise Tax on your
federal income tax return. Any determination by the Accounting Firm shall be
binding upon you and the Company. If the initial Gross-Up Payment is
insufficient to cover the amount of the Excise Tax that is ultimately determined
to be owing by you with respect to any Change in Control Payment (hereinafter an
"UNDERPAYMENT"), the Company, after exhausting its remedies under Section 3(c)
below, shall promptly pay to you an additional Gross-Up Payment in respect of
the Underpayment.
(c) PROCEDURES. You shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after you know of such claim and shall apprise the Company of the
nature of the claim and the date on which the claim is requested to be paid.
You agree not to pay the claim until the expiration of the thirty-day period
following the date on which you notify the Company, or such shorter period
<PAGE>
ending on the date the Taxes with respect to such claim are due (the "NOTICE
PERIOD"). If the Company notifies you in writing prior to the expiration of the
Notice Period that it desires to contest the claim, you shall: (i) give the
Company any information reasonably requested by the Company relating to the
claim, (ii) take such action in connection with the claim as the Company may
reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably acceptable to you, (iii) cooperate with the Company
in good faith in contesting the claim, and (iv) permit the Company to
participate in any proceedings relating to the claim. You shall permit the
Company to control all proceedings related to the claim and, at its option,
permit the Company to pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
such claim. If requested by the Company, you agree either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner and
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts
as the Company shall determine; PROVIDED, HOWEVER, that, if the Company directs
you to pay such claim and pursue a refund, the Company shall advance the amount
of such payment to you on an after-tax and interest-free basis (the "ADVANCE").
The Company's control of the contest related to the claim shall be limited to
the issues related to the Gross-Up Payment and you shall be entitled to settle
or contest, as the case may be, any other issues raised by the Internal Revenue
Service or other taxing authority. If the Company does not notify you in
writing prior to the end of the Notice Period of its desire to contest the
claim, the Company shall pay to you an additional Gross-Up Payment in respect of
the excess parachute payments that are the subject of the claim, and you agree
to pay the amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(d) REPAYMENTS. If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance relates,
you shall pay the Company the amount of the refund (together with any interest
paid or credited thereon after Taxes applicable thereto). If, after receipt by
you of an Advance, a determination is made that you shall not be entitled to any
refund with respect to the claim and the Company does not promptly notify you of
its intent to contest the denial of refund, then the amount of the Advance shall
not be required to be repaid by you and the amount thereof shall offset the
amount of the additional Gross-Up Payment then owing to you.
(e) FURTHER ASSURANCES. The Company shall indemnify you and hold you
harmless, on an after-tax basis, from any costs, expenses, penalties, fines,
interest or other liabilities ("LOSSES") incurred by you with respect to the
exercise by the Company of any of its rights under this Section 3, including,
without limitation, any Losses related to the Company's decision to contest a
claim or any imputed income to you resulting from any Advance or action taken on
your behalf by the Company hereunder. The Company shall pay all legal fees and
expenses incurred under this Section 3, and shall promptly reimburse you for the
reasonable expenses incurred by you in connection with any actions taken by the
Company or required to be taken by you hereunder. The Company shall also pay
all of the fees and expenses of the Accounting Firm, including, without
limitation, the fees and expenses related to the opinion referred to in
Section 3(b).
4. PROTECTION OF THE COMPANY'S INTERESTS.
<PAGE>
(a) NO COMPETING EMPLOYMENT. As long as you are employed by the Company
and continuing for (i) two years after the termination of your employment for
any reason during the Term or (ii) two years after the termination of your
employment, other than due to your Involuntary Termination, on or after the
Change in Control Date (such period being referred to hereinafter as the
"RESTRICTED PERIOD"), you shall not, unless you receive the prior written
consent of the Board, directly or indirectly, own an interest in, manage,
operate, join, control, lend money or render financial or other assistance to or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any individual, partnership, firm,
corporation or other business organization or entity that competes with the
Company (other than an entity that began competing with the Company after your
termination of employment); PROVIDED, HOWEVER, that this Section 4(a) shall not
proscribe your ownership, either directly or indirectly, of less than five
percent of any class of securities which are listed on a national securities
exchange or quoted on the automated quotation system of the National Association
of Securities Dealers, Inc.; and PROVIDED FURTHER, that this Section 4(a) shall
not proscribe your employment by an entity that competes with the Company in a
capacity which does not facilitate the generation of operating revenue.
(b) NO INTERFERENCE. During the Restricted Period, you shall not,
whether for your own account or for the account of any other individual,
partnership, firm, corporation or other business organization (other than the
Company), intentionally solicit, endeavor to entice away from the Company, or
otherwise interfere with the relationship of the Company with, any person who is
employed by or otherwise engaged to perform services od, a customer, client or
supplier of the Company.
(c) CONFIDENTIALITY. You hereby covenant and agree that you will not at
any time, except in performance of your obligations to the Company hereunder or
with the prior written consent of the Board, directly or indirectly disclose to
any person any secret or confidential information that you may learn or have
learned by reason of your association with the Company. The term "CONFIDENTIAL
INFORMATION" means any information not previously disclosed to the public or to
the trade by the Company's management with respect to the Company's products,
facilities and methods, trade secrets and other intellectual property, systems,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Company's products), business plans, prospects or opportunities.
(d) EXCLUSIVE PROPERTY. You hereby confirm that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by you relating to the
business of the Company shall be and remain the property of the Company. Upon
the termination of your employment with the Company for any reason or upon the
request of the Company at any time, you shall promptly deliver to the Company,
and shall not without the consent of the Board retain copies of, any written
materials not previously made available to the public, or records and documents
made by you or coming into your possession concerning the business or affairs of
the Company.
(e) RELIEF. Without intending to limit the remedies available to the
Company, you acknowledge that a breach of any of the covenants contained in this
Section 4 may result in material irreparable injury to the Company for which
there is no adequate remedy at law, that
<PAGE>
it will not be possible to measure damages for such injuries precisely and that,
in the event of such a breach or threat thereof, the Company shall be entitled
to obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining you from engaging in activities prohibited by this
Section 4 or such other relief as may be required to specifically enforce any of
the covenants in this Section 4.
5. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse you on
an after-tax basis for all costs and expenses (including, without limitation,
court costs and reasonable legal fees and expenses which reflect common practice
with respect to the matters involved) incurred by you as a result of any claim,
action or proceeding (i) arising out of your termination of employment during
the Term or the Change in Control Term, (ii) contesting, disputing or enforcing
any right, benefits or obligations under this Agreement or (iii) arising out of
or challenging the validity, advisability or enforceability of this Agreement or
any provision thereof; PROVIDED, HOWEVER, that this provision shall not apply if
the relevant trier-of-fact determines that your claim or position was frivolous
and without reasonable foundation.
6. SUCCESSORS; BINDING AGREEMENT.
(a) ASSUMPTION BY SUCCESSOR. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company (and may
require any subsidiary of the Company to which you have devoted a substantial
portion of your business time that is being spun off) expressly to assume and to
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place; PROVIDED, HOWEVER, that no such assumption shall relieve the Company of
its obligations hereunder. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets (or subsidiary that is spun off in a public offering) as aforesaid, which
assumes and agrees to perform this Agreement by operation of law or otherwise.
(b) ENFORCEABILITY; BENEFICIARIES. This Agreement shall be binding upon
and inure to the benefit of you (and your personal representatives and heirs)
and the Company and any organization which succeeds to substantially all of the
business or assets of the Company, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of the Company or
otherwise, including, without limitation, as a result of a Change in Control or
by operation of law. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreo your estate.
7. DEFINITIONS. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
"ACCOUNTING FIRM" shall mean Arthur Andersen LLP, or, if such firm is
unable or unwilling to perform such calculations, such other national accounting
firm as shall be designated by agreement between you and the Company.
<PAGE>
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall mean a termination of your employment during the Term which
is a result of (i) your felony conviction, (ii) a determination by the Board
that you have violated any of the protective covenants set forth in Section 4 of
this Agreement or (iii) your continued failure substantially to perform the
duties reasonably requested by the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from a resignation by you for Good
Reason) after a written demand for substantial performance is delivered to you
by the Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, and which
performance is not substantially corrected by you within 10 days of receipt of
such demand; PROVIDED, HOWEVER, that, during the Change in Control Term, any
such failure shall not constitute Cause unless such failure is willful. For
purposes of the previous sentence, no act or failure to act on your part shall
be deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Company.
A "CHANGE IN CONTROL" shall be deemed to have occurred if there is a
"change in control" of the Company within the meaning of Section 280G of the
Code and the Regulations; or
(i) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended
(the "1934 ACT")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company (an "ACQUIRING
PERSON"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 33-1/3% of the
then outstanding voting stock of the Company;
(ii) the shareholders of the Company and a majority of the
non-employee directors of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66-2/3% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;
(iii) the shareholders of the Company approve a plan of
reorganization (other than a reorganization or liquidation under the United
States Bankruptcy Code or complete liquidation of the Company) or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets;
(iv) during any period of two consecutive years (beginning on or
after the Effective Date), individuals who at the beginning of such period
constitute the Board and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose election by the
Board or nomination for election by the Company's shareholders was approved
by a vote of at least a majority of the directors then still in office who
either were directors at the beginning of the period or whose
<PAGE>
election or nomination for election was previously so approved, no longer
constitute a majority of the Board;
PROVIDED, HOWEVER, that notwithstanding parts (i), (ii), (iii) and (iv) of this
definition, a Change in Control shall not be deemed to have occurred in the
event of
(x) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct the business or
businesses formerly conducted by the Company; or
(y) any transaction undertaken for the purpose of
reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the
Company's capital stock.
and PROVIDED FURTHER, that notwithstanding anything in this definition to the
contrary, a Change in Control shall not be deemed to have occurred in the event
of any business combination with _________, unless the Board determines
otherwise.
"CHANGE IN CONTROL DATE" shall mean date on which the Change in Control
occurs; PROVIDED, that if your employment with the Company terminates prior to
the Change in Control Date and it is reasonably demonstrated that your
termination of employment (i) was at the request of the third party who has
taken steps reasonably calculated to effect the Change in Control or (ii)
otherwise arose in connection with or in anticipation of the Change in Control,
then Change in Control Date shall mean the date immediately prior to the date of
your termination of employment.
"CHANGE IN CONTROL PAYMENT" means (i) any amount due or paid to you under
this Agreement, (ii) any amount that is due or paid to you under any plan,
program or arrangement of the Company and its subsidiaries (including, without
limitation, the Equity Plans), and (iii) any amount or benefit that is due or
payable to you under this Agreement or under any plan, program or arrangement of
the Company and its subsidiaries not otherwise covered under clause (i) or (ii)
hereof which must reasonably be taken into account under Section 280G of the
Code and the Regulations in determining the amount of the "parachute payments"
received by you, including, without limitation, any amounts which must be taken
into account under the Code and Regulations as a result of (A) the acceleration
of the vesting of any option, restricted stock or other equity award granted
under the Equity Plans or otherwise, (B) the acceleration of the time at which
anyeverance or other amounts that are payable to you.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and any
successor provisions thereto.
"COMMON STOCK" shall mean the common stock of the Company.
"DISABILITY" shall mean your inability to engage in substantial gainful
activity by reason of any medically determinable mental or physical impairment
which can be expected to result in death or which has lasted or can be expected
to last a continuous period of not less than 12 months.
<PAGE>
"EQUITY AWARDS" shall mean options, restricted stock or other grants or
awards which consist of, or relate to, equity securities of the Company and
which have been granted to you under the Equity Plans. For purposes of this
Agreement, Equity Awards shall also include any securities acquired upon the
exercise of an option, warrant or similar right that constitutes an Equity
Award.
"EQUITY PLAN CHANGE IN CONTROL" shall mean a change in control of the
Company as defined in the applicable Equity Plan.
"EQUITY PLANS" shall mean any equity-based incentive plan or arrangement
adopted by the Company.
"GOOD REASON" shall mean a resignation of your employment during the Term
or the Change in Control Term as a result of any of the following:
(i) (A) During the Term, a meaningful and detrimental alteration in
your position or the nature or status of your responsibilities, or a
meaningful and detrimental change in your reporting responsibilities or
titles, as in effect immediately prior to your termination of employment,
or (B) during the Change in Control Term, a meaningful and detrimental
alteration in your position or the nature or status of your
responsibilities, or a meaningful and detrimental change in your reporting
responsibilities or titles, as in effect immediately prior to the Change in
Control Date;
(ii) A reduction by the Company in your annual base salary as in
effect immediately prior to your termination of employment; a reduction in
your target annual bonus (expressed as a percentage of base salary) as in
effect immediately prior to your termination of employment; or a failure by
the Company to provide you with any other form of compensation or benefit
being provided to you immediately prior to your termination of employment;
PROVIDED, THAT, in the event of your resignation following a Change in
Control of the Company, any such reduction in your salary, target annual
bonus or any other form of compensation or benefit from the rate or level
in effect immediately prior to the Change in Control Date shall constitute
Good Reason;
(iii) The relocation of the office of the Company outside of
Albuquerque, New Mexico; or a significant increase in the amount of time
that you are required to travel for business purposes;
(iv) The failure of the Company to obtain an agreement reasonably
satisfactory to you from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6(a) hereof;
(vii) Any termination of your employment which is not effected
pursuant to the terms of this Agreement; or
(viii) A material breach by the Company of the provisions of this
Agreement;
<PAGE>
PROVIDED, HOWEVER, that an event described above in clause (ii) or (viii) shall
not constitute Good Reason unless it is communicated by you to the Company in
writing and is not corrected by the Company in a manner which is reasonably
satisfactory to you (including full retroactive correction with respect to any
monetary matter) within 10 days of the Company's receipt of such written notice
from you.
"INVOLUNTARY TERMINATION" shall mean (i) your termination of employment by
the Company and its subsidiaries during the Term or the Change in Control Term
other than for Cause or Disability or (ii) your resignation of employment with
the Company and its subsidiaries during the Term or the Change in Control Term
for Good Reason.
"REGULATIONS" shall mean the proposed, temporary and final regulations
under Section 280G of the Code or any successor provision thereto.
"TAXES" shall mean the federal, state and local income taxes to which you
are subject at the time of determination, calculated on the basis of the highest
marginal rates then in effect, plus any additional payroll or withholding taxes
to which you are then subject.
8. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Chief Executive Officer of the Company, with a copy to the General Counsel of
the Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
9. MISCELLANEOUS.
(a) AMENDMENTS, WAIVERS, ETC. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
Agreement shall supersede all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, with respect to
the subject matter hereof; PROVIDED, HOWEVER, that, except as expressly set
forth herein, this Agreement shall not supersede the terms of Equity Awaision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
(d) WITHHOLDING. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local withholding taxes.
(e) SOURCE OF PAYMENTS. All payments provided under this Agreement,
other than payments made pursuant to a plan which provides otherwise, shall be
paid in cash from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure
payment. You will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder. To the extent that any person acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
(f) HEADINGS. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
(g) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters covered
hereby and supersedes all prior agreements and understandings of the parties
with respect to the subject matter hereof.
(h) GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of New
Mexico applicable to contracts entered into and performed in such State.
* * * *
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
SUN HEALTHCARE GROUP, INC.
By
------------------------------------------
Andrew L. Turner
President
Agreed to as of this ____ day of _____, 199_ .
- --------------------------------------
[NAME]
<PAGE>
Exhibit 11.1
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(In thousands, except per share data)
<S> <C> <C> <C>
Shares outstanding at beginning of period 47,916 45,021 21,066
Weighted average shares issued pursuant to:
Common stock offering -- -- 3,325
Acquisition agreements 66 694 5,887
Employee benefit plans 80 182 412
Conversion of 6-1/2% Convertible
Subordinated Debentures due 2003 -- 1,522 348
Weighted average shares repurchased (1,702) -- --
Dilutive effect of outstanding stock options 480 -- 792
------- -------- -------
Weighted average number of common and
common equivalent shares outstanding 46,840 47,419 31,830
------- -------- -------
------- -------- -------
Net earnings (loss) before extraordinary loss on
early extinguishment of debt (1) $21,536 ($20,568) $19,561
Extraordinary loss -- (3,413) --
------- -------- -------
Net earnings (loss) (1) $21,536 ($23,981) $19,561
------- -------- -------
------- -------- -------
Net earnings (loss) before extraordinary loss per common
and common equivalent share (1) $0.46 ($0.43) $0.61
Extraordinary loss -- (0.07) --
------- -------- -------
Net earnings (loss) per common and common
equivalent share (1) $0.46 ($0.50) $0.61
------- -------- -------
------- -------- -------
</TABLE>
(1) For financial reporting purposes, a pro forma provision for income
taxes has been reflected in the computation of earnings (loss) per share
to present taxes on the results of operations of CareerStaff for the
period from January 1, 1994 to June 22, 1994 and of Golden Care for the
twelve months ended December 31, 1994 and for the period from January 1,
1995 to May 5, 1995, as if these entities had not elected S corporation
status and were subject to and liable for Federal and state income taxes
prior to termination of their S corporation status. CareerStaff
terminated its S corporation status on June 22, 1994. Golden Care
terminated its S corporation status for Federal and state income tax
purposes upon merging with the Company on May 5, 1995.
<PAGE>
As of 3/27/97
SUN HEALTHCARE GROUP, INC. SUBSIDIARIES
Jurisdiction of
Incorporation
---------------
Sun Healthcare Group, Inc. Delaware
- - CareerStaff Unlimited, Inc. Delaware
- CareerStaff HSR, Inc. Delaware
- CareerStaff Management, Inc. Delaware
- Healthcare Staff Resources, Inc. Texas
- HSR Management, Inc. Delaware
- PRI, Inc. Delaware
- P.U. Management, Inc. Texas
- - Columbia Health Care, Inc. Canada
- Accident Rehabilitation Center, Inc. Ontario
- Aqua Rehabilitation, Inc. Ontario
- Argus Sports Clinic, Inc. Ontario
- Canadian Injury Recover Clinic (Ottawa) Ltd. Ontario
- Columbia Centre for Rehabilitation, Inc. Ontario
- Columbia Rehabilitation Centre (B.C.) Inc. British Columbia
- Community Therapists Inc. British Columbia
- Early Treatment Centre for Industiral Injuries, Inc. Ontario
- Pelham Rehabilitation Associates, Inc. Ontario
- Rehabilitation and Occupational Health Associates
of Canada, Inc. Alberta
- Western Occupational Rehabilitation Centre
(Calgary) Ltd. Alberta
- The St. Catherines Clinic Limited Partnership Ontario
- 1066145 Ontario Inc. (inactive) Ontario
- 2817381 Canada Inc. Canada
- 995478 Ontario Limited Ontario
- - Four Seasons Health Care Management, Inc. Delaware
- - Golden Care, Inc. Indiana
- - SunBridge, Inc. New Mexico
- - SunChoice Medical Supply, Inc. New Mexico
<PAGE>
- - Sundance Rehabilitation Corporation Connecticut
- Kentucky Outpatient Rehabilitation Facility,
Bowling Green Kentucky
- Special Medical Services, Inc. Texas
- Sundance Outpatient Rehabilitation Corporation Arizona
- - Sun Healthcare Group International Limited England/Wales
- APTA Healthcare plc England/Wales
- APTA Healthcare (Birmingham) plc England/Wales
- Friday House Limited England/Wales
- Integrated Rehab. Services Limited England/Wales
- Lusby Webber Limited England/Wales
- Oaklands Nursing Home Limited England/Wales
- Wyncroft House Limited England/Wales
- APTA Healthcare (Nottingham) Limited England/Wales
- APTA Healthcare (UK) Limited England/Wales
- Watercrest Developments Limited England/Wales
- Ashbourne PLC Scotland
- Elders Pharmacies Ltd. (51% holding) Scotland
- Ashbourne Homes PLC Scotland
- Ashbourne Homes (Developments) Ltd. Scotland
- Ashbourne Finance Ltd. Scotland
- Elders PLC Scotland
- Hi-Care Homes (Markfield) Ltd. England/Wales
- Larstrike Ltd. England/Wales
- Midfield Lodge Ltd. England/Wales
- Openlink Ltd. England/Wales
- Sedbury Park Ltd. England/Wales
- Uniscript Ltd. England/Wales
- Zek Estates Ltd. England/Wales
- Exceler Health Care Group plc England/Wales
* Cairncroft Limited (50% holding in Cairncroft
Partnership) England/Wales
* Community Care Management Services Limited England/Wales
* Exceler Healthcare Services Limited England/Wales
* Exceler Ireland Limited England/Wales
* Firmprior Limited England/Wales
* Forest Healthcare Limited England/Wales
* Glyndbourne Limited Isle of Man
* Gradeindex Limited England/Wales
* Hemsworth Park Health Care Limited England/Wales
* Modelfuture Limited England/Wales
* Noblerevel Limited England/Wales
* Pooltown Homes Limited England/Wales
-2-
<PAGE>
* Printdemand Limited England/Wales
* Tan-y-Bryn Limited England/Wales
* Trimbit Limited England/Wales
- Manor Nursing Homes Limited (intermediate
holding) England/Wales
- Sunscript UK Limited England/Wales
* Park Chemist (Liverpool) Limited England/Wales
* West End Pharmacy Limited England/Wales
- SunChoice UK Ltd. England/Wales
- - Sunmark of New Mexico, Inc. New Mexico
- - SunQuest Consulting, Inc. New Mexico
- -
- - Sunrise Healthcare Corporation New Mexico
- Clipper Home of North Conway, Inc. New Hampshire
- Clipper Home of Portsmouth, Inc. New Hampshire
- Clipper Home of Rochester, Inc. New Hampshire
- Clipper Home of Wolfeboro, Inc. New Hampshire
- Goodwin's Nursing Home, Inc. New Hampshire
- Honorcare Management Company, Inc. Oklahoma
- Langdon Place of Dover, Inc. New Hampshire
- Langdon Place of Nashua, Inc. New Hampshire
- Langdon Place of Exeter, Inc. New Hampshire
- Living Services, Inc. Washington
- Nursing Home, Inc. Washington
- Sunrise Healthcare of Colorado, Inc. Colorado
- Sunrise Healthcare of Florida, Inc. Florida
- Sunrise Rehab of Colorado, Inc. Colorado
- - Sunscript Pharmacy Corporation New Mexico
- Health Factors, Inc. Florida
* Pharmacy Factors of California, Inc. California
* Pharmacy Factors of Florida, Inc. Florida
* Pharmacy Factors of Texas, Inc. Texas
- - The Mediplex Group, Inc. Massachusetts
- Bergen Eldercare, Inc. New Jersey
- Community Re-Entry Services of Cortland, Inc. Delaware
- G-WZ of Stamford, Inc. Connecticut
- HTA of New Jersey, Inc. New Jersey
- LTC Staffinders, Inc. Connecticut
- Manatee Springs Nursing Center, Inc. Florida
- Mediplex Atlanta Rehabilitation Institute, Inc. Georgia
- Mediplex Management, Inc. Massachusetts
-3-
<PAGE>
- Mediplex Management of Hamilton, Inc. New Jersey
- Mediplex Management of New Jersey, Inc. New Jersey
- Mediplex Management of Palm Beach County, Inc. Florida
- Mediplex Management of Port St. Lucie, Inc. Florida
- Mediplex Management of Texas, Inc. Texas
- Mediplex of Colorado, Inc. Colorado
- Mediplex of Connecticut, Inc. Connecticut
- Mediplex of Kentucky, Inc. Kentucky
- Mediplex of Maryland, Inc. Maryland
- Mediplex of Massachusetts, Inc. Massachusetts
* Mediplex of Concord, Inc. Massachusetts
- Mediplex of New Hampshire, Inc. New Hampshire
* Bay Colony Health Service, Inc. Massachusetts
- Mediplex of New Jersey, Inc. New Jersey
* P.M.N.F. Management, Inc. New Jersey
- Mediplex of New York, Inc. New York
- Mediplex of Ohio, Inc. Ohio
- Mediplex of Tennessee, Inc. Tennessee
- Mediplex of Virginia, Inc. Virginia
- Mediplex Properties, Inc. Massachusetts
- Mediplex Rehabilitation of Massachusetts, Inc. Massachusetts
- Mediscript, Inc. Delaware
- Neurotrauma Rehab, Inc. Maryland
- New Bedford Acquisition Corp. Massachusetts
* New Bedford Nursing Center, Inc. Massachusetts
- Oakview Treatment Centers of Kansas, Inc. Kansas
- Quality Care Holding Corp. Massachusetts
* Quality Care of New Jersey, Inc. New Jersey
* Quality Nursing Care of Massachusetts, Inc. Massachusetts
- Spofford Land, Inc New Hampshire
- Sun Care Corp. Delaware
- SUNSPECTRUM Outpatient Rehabilitation - Concord,
Inc. Massachusetts
- Valley View Psychiatric Services, Inc. Colorado
- Worcester Nursing Center, Inc. Massachusetts
-4-
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K into Sun Healthcare Group,
Inc. and Subsidiaries previously filed Registration Statements on Form S-8 (No.
33-80540, No. 33-93692 and No. 333-03058).
Albuquerque, NM
March 26, 1997 ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SUN
HEALTHCARE GROUP, INC. DECEMBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,880
<SECURITIES> 0
<RECEIVABLES> 282,268
<ALLOWANCES> 16,877
<INVENTORY> 0
<CURRENT-ASSETS> 363,148
<PP&E> 334,052
<DEPRECIATION> 28,332
<TOTAL-ASSETS> 1,229,426
<CURRENT-LIABILITIES> 151,566
<BONDS> 483,453
0
0
<COMMON> 511
<OTHER-SE> 571,626
<TOTAL-LIABILITY-AND-EQUITY> 1,229,426
<SALES> 0
<TOTAL-REVENUES> 1,316,308
<CGS> 0
<TOTAL-COSTS> 1,107,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,970
<INTEREST-EXPENSE> 25,899
<INCOME-PRETAX> 52,466
<INCOME-TAX> 30,930
<INCOME-CONTINUING> 21,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,536
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
