EXHIBIT 10.30
AGREEMENT FOR
DEVELOPMENT AND
OPERATION OF
SKILLED NURSING FACILITIES
BY AND AMONG
FOUNTAIN VIEW, INC.,
A DELAWARE CORPORATION
AND
BAYLOR HEALTH CARE SYSTEM,
A TEXAS NONPROFIT CORPORATION
TABLE OF CONTENTS
PAGE
RECITALS.................................................................. 2
ARTICLE I DEFINITIONS................................................ 3
1.1 Definitions........................................... 3
ARTICLE II DEVELOPMENT OF SNFS WITHIN THE
DEVELOPMENT TERRITORY...................................... 8
2.1 Development Phases ................................... 8
2.1.1 Site Selection................................. 9
2.1.2 Market Study................................... 9
2.1.3 Preliminary Architectural Plan................. 10
2.1.4 Budget and Financial Pro Forma................. 10
2.1.5 Financing...................................... 10
2.1.6 Final Architectural Plans...................... 11
2.1.7 Selection of Contractor........................ 11
2.1.8 Project Management and Supervision............. 12
2.1.9 Operational Matters............................ 13
2.2 Responsibility for Performance........................ 13
2.3 Reasonable Efforts.................................... 13
2.4 Differences of Opinion................................ 14
2.5 Payment of Expenses................................... 14
2.6 Exclusivity........................................... 15
ARTICLE III COMPENSATION............................................ 16
3.1 Consideration for Services............................ 16
3.1.1 Development Fee................................ 16
3.1.2 Fair Market Value of Development Fee Warrants.. 17
3.1.3 Terms of Development Fee Warrants.............. 17
3.1.4 Material Change of Ownership................... 18
3.1.4.1 Prior to Lease Commitment............. 18
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3.1.4.2 After Lease Commitment.................. 19
3.2 Payment of Consideration................................ 20
3.3 License to Use Baylor Name.............................. 20
ARTICLE IV DEVELOPMENT OF SNFS OUTSIDE THE
DEVELOPMENT TERRITORY........................................ 20
4.1 Development Assistance.................................. 20
4.2 Consideration........................................... 21
4.2.1 Prior to Material Change of Ownership............ 21
4.2.2 Material Change of Ownership or Sixth Anniversary 22
4.2.3 Inadequate Operating Period...................... 23
4.3 General................................................. 23
ARTICLE V LEASE OF SNFS................................................ 23
5.1 Operating Lease......................................... 23
5.2 Takeover of Lease....................................... 24
5.3 Baylor Assumption of Fountain View Lease................ 25
5.3.1 Off Campus Facility.............................. 25
5.3.2 Baylor-Related Facility.......................... 26
5.4 Determination of Fair Market Value...................... 26
5.5 Leasehold Mortgage...................................... 27
5.6 Inspection.............................................. 27
ARTICLE VI QUALITY ASSURANCE COMMITTEES; MEDICAL DIRECTOR............... 28
6.1 Quality Assurance Committee............................. 28
6.2 Responsibilities of Q.A. Committees..................... 28
6.3 Failure to Follow Recommendations....................... 29
6.4 Regional Medical Director .............................. 30
ARTICLE VII CHANGE OF CONTROL............................................ 31
7.1 Definitions............................................. 31
7.2 Notice of Take Back..................................... 32
7.3 Consideration........................................... 33
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7.4 Termination of Rights and Interests..................... 34
ARTICLE VIII TERMINATION OF LICENSE AGREEMENT;
LOSS OF BAYLOR NAME....................................... 34
8.1 Change of Control....................................... 34
8.2 Loss of Licensure or Certification...................... 36
8.3 Clinical Privileges, Quality Assurance and Other Matters 36
8.4 Obligation to Terminate Lease........................... 37
8.5 Toll Period............................................. 38
8.6 Single Obligation to Pay................................ 38
ARTICLE IX REPRESENTATIONS OF BAYLOR................................. 39
9.1 Organization; Standing.................................. 39
9.2 Authority............................................... 39
9.3 No Violation............................................ 39
9.4 Consents and Approvals of Governmental Authorities...... 40
9.5 Statements; Books and Records........................... 40
9.6 Litigation.............................................. 40
9.7 Judgments and Orders.................................... 40
ARTICLE X REPRESENTATIONS OF FOUNTAIN VIEW.......................... 41
10.1 Organization; Standing................................. 41
10.2 Authority.............................................. 41
10.3 No Violation........................................... 41
10.4 Consents and Approvals of Governmental Authorities..... 42
10.5 Statements; Books and Records.......................... 42
10.6 Litigation............................................. 42
10.7 Judgments and Orders................................... 42
ARTICLE XI TERM AND TERMINATION...................................... 43
11.1 Term................................................... 43
11.2 Termination for Material Breach........................ 43
11.3 Termination on Bankruptcy.............................. 43
11.4 Termination or Failure to Approve Use of Mark.......... 44
11.5 Effect of Termination.................................. 44
ARTICLE XII MISCELLANEOUS............................................. 44
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12.1 Delegation to Affiliates............................. 44
12.2 Jeopardy............................................. 45
12.3 Proprietary Information/Trade Secrets................ 46
12.4 Amendments........................................... 46
12.5 Headings............................................. 47
12.6 Governing Law........................................ 47
12.7 Arbitration.......................................... 47
12.7.1 Binding Arbitration.......................... 47
12.7.2 Selection of Arbitrator...................... 48
12.7.3 No Litigation................................ 48
12.7.4 Arbitration Hearing.......................... 49
12.7.5 Law Governing Arbitration.................... 49
12.8 Entire Agreement..................................... 49
12.9 Notices.............................................. 50
12.10 No Third Party Beneficiary Rights.................... 51
12.11 Further Assurances................................... 51
12.12 Severability......................................... 51
12.13 Exhibits............................................. 51
12.14 Health Laws.......................................... 51
12.15 Referral Policy...................................... 52
12.16 Attorney Fees........................................ 52
12.17 Counterparts......................................... 52
12.18 Waiver............................................... 52
12.19 Assignments and Sublicenses.......................... 52
12.20 Binding Effect....................................... 53
12.21 Public Announcement.................................. 54
12.22 Construction......................................... 54
12.23 No Relationships..................................... 54
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AGREEMENT FOR DEVELOPMENT
AND OPERATION OF SKILLED NURSING FACILITIES
This AGREEMENT FOR DEVELOPMENT AND OPERATION OF SKILLED NURSING FACILITIES
("Agreement") is made and entered into this 4th day of May, 1998, by and between
Fountain View, Inc., a Delaware corporation ("Fountain View") and Baylor Health
Care System, a Texas nonprofit corporation ("Baylor"). Fountain View and Baylor
are hereinafter collectively referred to as the "Parties" and individually
referred to as a "Party."
RECITALS
A. Fountain View owns or operates long-term care facilities and other
ancillary service providers in California, Texas and Arizona.
B. Baylor owns and operates or controls general acute care hospitals and
other health care facilities, including outpatient service centers and medical
office buildings, in the State of Texas.
C. Fountain View desires to expand its operations in the State of Texas by
developing and operating free-standing skilled nursing facilities ("SNFs")
convenient to Baylor hospitals and other health care facilities.
D. Baylor and Fountain View desire to enter into a long-term agreement for
the development of SNFs convenient to Baylor hospitals and other health care
facilities in the State of Texas.
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AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and conditions set forth herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions. As used herein, and unless the context clearly indicates
-----------
another meaning, the following words and phrases shall have the meanings set
forth below:
1.1.1 "Affiliate" shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with another
Person. As used in this definition, the term "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, through the ownership of voting securities,
partnership interests or otherwise.
1.1.2 "Agreement" shall mean this Agreement for Development and
Operation of Skilled Nursing Facilities by and between Fountain View and Baylor.
1.1.3 "Baylor" shall mean Baylor Health Care System, a Texas
nonprofit corporation.
1.1.4 "Baylor Facility" shall mean a general acute care hospital or
other health care facility, including an outpatient service center and a medical
office building, that is
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owned and operated by Baylor or an Affiliate of Baylor and is located in the
Development Territory.
1.1.5 "Development Costs" shall mean all costs and expenses incurred
in connection with the acquisition of a Development Site and the development and
construction of a SNF including: (a) costs of acquisition of real property and
preparation of the property for construction including off-site improvements;
(b) costs of labor, materials, supplies and equipment incorporated into the SNF;
(c) payments made to contractors and subcontractors pursuant to the terms of any
contractor's agreement or otherwise relating to the Development Site and the
SNF; (d) title insurance premiums (including endorsements); (e) survey charges;
(f) engineering fees; (g) architectural fees; (h) real estate taxes and
assessments during the period of construction; (i) insurance premiums during the
period of construction; (j) utility costs incurred after the Parties' agreement
on and acquisition of a Development Site and prior to the Permanent Financing
Close Date for the SNF; (k) legal and accounting fees in connection with the
acquisition of the Development Site and the development and construction of the
SNF; (1) construction period interest on advances under the construction loan;
(m) costs for environmental surveys and related matters; and (n) other expenses
reflected on the budget for the development project which are, in accordance
with generally accepted accounting principles, capital expenditures. For
purposes hereof, the "period of construction" includes the time from acquisition
of a Development Site through completion of the SNF.
1.1.6 "Development Fee Warrants" shall mean warrants in Fountain
View that are granted as all or part of a License and Development Fee in
accordance with Article III of this Agreement.
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1.1.7 "Development Site" shall mean a location in Texas within the
Development Territory on which the Parties are considering the development,
construction, and operation of a SNF.
1.1.8 "Development Territory" shall mean counties of Dallas, Denton,
Collin, Kaufman, Tarrant, Johnson, Ellis and Rockwall in the State of Texas.
1.1.9 "EBITDA" shall mean earnings before interest, taxes,
depreciation, and amortization, calculated in accordance with generally accepted
accounting principles consistently applied.
1.1.10 "Execution Date" shall mean the date of this Agreement set
forth on the first page hereof.
1.1.11 "Fountain View" shall mean Fountain View, Inc., a Delaware
corporation.
1.1.12 "Fountain View Enterprise Value" shall mean as of the date
such value is to be determined (the "SNF Value Date"); (a) if Fountain View
common stock is publicly traded on a national securities exchange or on NASDAQ
on the SNF Value Date, the average of the closing prices of Fountain View's
common stock for the ten trading days immediately prior to the SNF Valid Date
multiplied by the number of shares of Fountain View common stock then issued and
outstanding; (b) if Fountain View is not a publicly traded company on the SNF
Value Date, but an offer has been approved and/or accepted by the Fountain View
Board of Directors, Robert Snukal, Sheila Snukal, William Scott, Heritage,
and/or their Affiliates, or any of them, as may be necessary to create a binding
obligation for the sale by Robert Snukal, Sheila Snukal, William Scott,
Heritage, and/or their Affiliates, or any of them, of more than fifty percent
(50%) of Fountain View's then-issued and outstanding common stock to an
unaffiliated third party on an arms-length basis, (i) the price per share for
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such common stock being purchased pursuant to such sale, multiplied by (ii) the
number of then-issued and outstanding shares of Fountain View stock; (c) if, as
of the SNF Value Date, neither subparagraphs (a) or (b) are applicable, the
Fountain View Enterprise Value shall be determined by agreement or appraisal as
follows: The Parties shall meet and confer in good faith for a period of at
least thirty (30) days after the SNF Value Date to determine a mutually
agreeable Fountain View Enterprise Value. If the Parties mutually agree on a
value, the Parties shall document the basis for the determination of that value.
In the event the Parties cannot agree on a value within such time period, each
Party shall appoint an appraiser experienced in valuing companies comparable to
Fountain View. The two (2) appraisers shall meet, for a period not to exceed the
thirty (30) days, to establish a Fountain View Enterprise Value. In the event
the appraisers cannot agree on such a value within such time period, and the
higher of the two valuations is not more than 110% of the lower of the two
valuations, the Fountain View Enterprise Value shall be the average of the two
valuations. If the higher of the two valuations is more than 110% of the lower
of the two valuations, the appraisers shall promptly select a third appraiser
who shall deliver his or her determination of the Fountain View Enterprise Value
to the Parties within thirty (30) days of his or her selection. The Fountain
View Enterprise Value shall equal the average of (a) the valuation of the third
appraiser and (b) the valuation of the first two appraisers which is closest in
amount to the valuation of the third appraiser; provided, however, that if the
amount of the valuation of the third appraiser is equidistant from the amount of
each of the other two valuations, the Fountain View Enterprise Value shall be
the value determined by the third appraiser.
1.1.13 "Health Laws" shall mean applicable provisions of the federal
Social Security Act (including the federal Medicare and Medicaid Anti-Fraud and
Abuse Amendments (42 U.S.C. (S)1320a 7, 7a and 7b), the Texas Medical Practice
Act (Article 4495b
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of the Texas Revised Civil Statutes), and the Texas Illegal Remuneration Law
(Texas Health & Safety Code (S) 161.091), as such laws may now exist or be
amended hereafter,
1.1.14 "Heritage" shall mean Heritage Fund II, L.P.
1.1.15 "License and Development Fee" shall mean the fee payable to
Baylor in connection with the use of the name "Baylor" and the development of a
SNF in accordance with Article III of this Agreement.
1.1.16 "Material Change of Ownership in Fountain View" shall mean any
transaction or series of transactions that results in all of William Scott,
Robert Snukal, Sheila Snukal, Heritage, and their Affiliates owning in the
aggregate less than fifty percent (50%) of the issued and outstanding equity
interests (on a fully-diluted basis, assuming the conversion or exercise of all
securities convertible into or exercisable for equity interests) in Fountain
View. For purposes of this Section 1.1.16 only, the determination of whether
such Persons own less than fifty percent (50%) of the equity interests of
Fountain View shall be measured with respect to: (a) such Persons' equity
interest in the parent entity of Fountain View, if Fountain View shall become
directly or indirectly wholly-owned by such parent entity; (b)such Persons'
equity interest in the successor entity to Fountain View or the parent of such
successor entity, if Fountain View shall be merged or consolidated into such
successor entity in any merger or consolidation; and (c) such Persons' equity
interest in the successor entity to Fountain View's assets or the parent of such
successor entity, if Fountain View shall transfer all or substantially all of
its assets to such successor entity.
1.1.17 "Net Revenue" shall mean gross revenue less contractual
allowances, as determined in accordance with generally accepted accounting
principles consistently applied.
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1.1.18 "Permanent Financing Close Date" shall mean the date by which
the permanent or take-out financing for a SNF that has been developed under this
Agreement is funded and all proceeds of the financing have been disbursed
(except for hold backs for tenant finish and similar items) in accordance with
the terms and conditions applicable to the financing, and Fountain View has
executed a lease for the SNF.
1.1.19 "Person" shall mean any natural person, corporation,
partnership, limited liability company, trust, or other entity.
1.1.20 "SNF" shall mean an independently licensed skilled nursing
facility.
1.1.21 "SNF Enterprise Value" shall mean the product of (a) the
Fountain View Enterprise Value divided by Fountain View's consolidated EBITDA
for the fiscal twelve months ending on the last day of the latest fiscal
calendar quarter ending prior to the SNF Value Date as determined by Fountain
View's external auditors, multiplied by (b) the EBITDA, as determined by
Fountain View's external auditors, for the SNF for the latest four consecutive
full fiscal quarters during which the SNF has been in operation, or, if the SNF
has not been in operation for four consecutive full fiscal quarters, but has
been in operation for at least two consecutive full fiscal quarters, the
annualized EBITDA, as determined by Fountain View's external auditors, for each
full fiscal quarter during which the SNF has been in operation. A SNF shall be
deemed to be in operation on the date it admits its first patient.
ARTICLE II
DEVELOPMENT OF SNFS WITHIN THE DEVELOPMENT TERRITORY
----------------------------------------------------
2.1 Development Phases. Through the Representatives (as defined in Section
------------------
2.2 hereof), from time to time during the term of this Agreement, the Parties
shall collaborate with
8
respect to the development, construction, and operation of SNFs on Development
Sites. Each such project shall include numerous phases, including, without
limitation, those set forth below in Section 2.1.1 through 2.1.8, each of which
phases shall be completed consecutively in the order listed unless otherwise
agreed by the Parties in writing or as indicated below. To the extent SNFs are
developed pursuant to this Agreement, each Development Site for a SNF, and the
improvements constructed thereon pursuant to this Agreement shall be owned by
Baylor or by a third party designated or approved by Baylor; Fountain View will
be the lessee/operator of the SNF and the owner of the business operated in the
SNF. Either Party may withdraw from participation in a particular project on a
Development Site during any development phase without penalty; although the
withdrawing Party may be responsible for obligations it has incurred or agreed
to prior to such withdrawal, subject to the other provisions of this Agreement,
including, without limitation. Section 2.5 hereof.
2.1.1 Site Selection. Either Party may propose a Development Site to
--------------
the other Party at any time during the term hereof by giving notice (each, a
"Development Site Notice") to such other Party in accordance with the notice
provisions of this Agreement. Within fifteen (15) days of receipt of the
Development Site Notice, such other Party shall arrange to meet with the
noticing Party to discuss and approve or reject the proposed Development Site in
writing. Either Party may reject a Development Site with or without cause, and
neither Party shall have any liability to the other for so rejecting a
Development Site.
2.1.2 Market Study. Immediately upon the receipt by a Party of a
------------
Development Site Notice, the Representatives shall begin to develop or cause to
be developed a market study of the communities that will be served by the SNF if
constructed on the Development Site. Each such study shall include, without
limitation: (a) an assessment of the service needs of the communities in which
the Development Site is located; (b) the nature and type of payors for
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health care services operating in such communities; (c) the patient populations
by payor categories residing in such communities; and (d) the quality and volume
of services, patient mix, payor mix, and case mix of other SNFs in the
applicable service area (to the extent reasonably available). Such market study
shall be completed, presented to the Representatives, in writing, and approved
or disapproved by the Representatives in writing within thirty (30) days of the
receipt by a Party of a Development Site Notice.
2.1.3 Preliminary Architectural Plan. Immediately following the
------------------------------
approval of a Development Site, the Representatives shall meet to select and
commission a mutually acceptable architect licensed in the State of Texas to
prepare preliminary architectural plans or "line drawings" for the SNF proposed
to be developed on the applicable Development Site. The Representatives shall
receive and review the line drawings, authorize any necessary modifications
thereto, and agree in writing upon the final version thereof, within thirty (30)
days of the approval of the applicable Development Site.
2.1.4 Budget and Financial Pro Forma. Immediately following the
------------------------------
approval of a market study, the Representatives shall begin preparing, or cause
to be prepared, a budget and pro-forma financial statement for the development,
construction and operation of the SNF proposed for the Development Site. Such
budget and pro-forma financial statement shall be completed and approved or
disapproved in writing by the Representatives within thirty (30) days of the
approval of the applicable market study and shall include, without limitation, a
line item-by-item estimate of the costs of developing and constructing the SNF,
including the Development Costs, and the costs of preparing it for operation,
and the projected revenues and expenses associated with the first five (5) years
of operation of the SNF.
2.1.5 Financing. Within thirty (30) days of the approval of a market
---------
study, the Representatives shall prepare, or cause to be prepared, such
materials and information as may
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be necessary to submit to prospective lenders for the financing of the
acquisition and development of the Development Site and the construction and
take-out financing for the SNF to be constructed on the applicable Development
Site. In connection with the preparation of such materials and information, the
Representatives shall agree upon and identify in writing the potential source of
the construction and take-out financing, which may be Baylor or a third party,
and set forth in writing the nature of the lessor-lessee arrangement between the
owner of the SNF, as lessor, and Fountain View, as lessee. The Representatives
shall submit the materials and information to the potential sources of
financing, negotiate with the sources responding, approve or disapprove of the
financing, and select the source of the financing and finalize the terms of the
financing in a binding loan commitment or similar document within thirty (30)
days of completion of such materials and information. Neither Baylor nor any of
its Affiliates will be required to guarantee all or any portion of any financing
or undertake any representations or warranties with respect to any project or
financing involving a SNF which neither Baylor nor any of its Affiliates owns,
and shall have no liability with respect thereto except for ancillary contracts
or leases executed by Baylor or an Affiliate of Baylor.
2.1.6 Final Architectural Plans. Within thirty (30) days of the
-------------------------
securing of the financing for the applicable SNF, the Representatives shall
select and commission an architect licensed in the State of Texas (which may be
the same Person as prepared the line drawings), to develop definitive
architectural plans and specifications. The Representatives shall review such
plans and specifications, authorize any necessary modifications thereto and
agree upon the final version thereof in writing, within one hundred twenty (120)
days of receipt of such plans from such Person.
2.1.7 Selection of Contractor. Within sixty (60) days of completion
-----------------------
of the architectural plans and specifications, the Representatives shall solicit
bids from and select a
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general contractor to construct the SNF on the applicable Development Site. The
Representatives shall negotiate the construction contract with the bidder
selected, and ensure that the contract is executed by the appropriate parties,
within ninety (90) days of the selection of the contractor.
2.1.8 Project Management and Supervision. Baylor shall have primary
----------------------------------
responsibility for: (a) acquiring or arranging the acquisition of each
Development Site; (b) supervising the development of each Development Site and
the construction of each of the SNFs developed hereunder; (c) monitoring
compliance with each applicable acquisition construction/development and related
contract; (d) monitoring contractor and subcontractor compliance with their
contractual obligations to (i) comply with all applicable deed and plat
restrictions and all applicable building, zoning, subdivision, land-use, health,
sanitation, environmental protection and other applicable federal, state and
local laws and regulations, and (ii) obtain all licenses, permits, approvals,
anthorizations and certifications from local, state and federal governmental
agencies required for the development and construction of the SNF; (e) providing
any and all information reasonably available to it which is necessary to
complete construction of the SNF; (f) preparing the SNF for commencing
operations; and (g) resolving in a commercially reasonable manner, as determined
by Baylor in the exercise of its business discretion, disputes and problems
arising under the site acquisition, development and construction contracts.
Fountain View shall assist Baylor in fulfilling such obligations, including the
provision of the services of a Fountain View construction representative. Baylor
shall reimburse Fountain View for all actual and reasonable costs, fees, and
business expenses of the Fountain View construction representative incurred in
assisting Baylor in connection with construction of the SNF, provided such
expenses are included in the budget for the project
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approved by the Parties, within thirty (30) days of receiving Fountain View's
invoice therefor, together with supporting documentation reasonably satisfactory
to Baylor.
2.1.9 Operational Matters. Fountain View shall have primary
-------------------
responsibility for: (a) obtaining all licenses and permits from all applicable
government agencies required for operating the property as a SNF after
completion of construction; (b) obtaining certification from all applicable
government agencies required for reimbursement for health care services rendered
at the SNF; (c) selecting the management information system and other business
systems to be installed in the SNF and used in its operations; (d) recruiting,
interviewing and hiring the professional and lay staff for the SNF; (e)
developing the governing rules and regulations and operational policies for the
SNF; and (f) otherwise enabling the operation of the SNF to commence timely in
accordance with applicable law and good business practice.
2.2 Responsibility for Performance. Except as provided in Sections 2.1.8
------------------------------
and 2.1.9, the duties provided for in Section 2.1 shall be performed jointly by
one (1) representative designated by Baylor in writing and one (1)
representative designated by Fountain View in writing (each, a "Representative",
and collectively, "Representatives"). The Representatives shall meet, in good
faith, when and as necessary to timely perform such duties. Fulfillment of such
duties shall require the mutual agreement of the Representatives which shall be
reduced to writing. The Representative designated by a Party may be changed at
any time by written notice to the other Party.
2.3 Reasonable Efforts. The Parties shall use commercially reasonable
------------------
efforts to complete each act and make each decision in Section 2.1.1 through
2.1.7 of this Article II within the specified time frames. In the event the
Parties are unable to complete any act or make any decision within the specified
time frame, but have not reached an impasse concerning such act
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or decision, the Parties shall use commercially reasonable efforts to make such
decision or complete such act as quickly as is reasonably possible.
2.4 Differences of Opinion. In the event the Representatives cannot agree
----------------------
on a particular matter, Baylor may proceed with the construction of the SNF with
another Person, provided, however, Baylor may do so only on substantially the
same terms and conditions as were presented to and rejected by Fountain View,
including the terms and conditions relating to the development phase or phases
at which Fountain View indicated its rejection and all prior development phases,
but not including terms and conditions not presented to and rejected by Fountain
View and which occur after the development phase at which Fountain View
indicated its rejection but not otherwise. In the event of any material change
in the terms or conditions rejected by Fountain View, Baylor may not proceed
with the construction project with another Person until Baylor has first given
Fountain View written notice specifying in reasonable detail each change in such
terms or conditions, and Fountain View has refused to accept, or agreed to
proceed with Baylor on, such changed terms or conditions. Fountain View shall
advise Baylor in writing of its election within thirty (30) days of receipt of
such notice, with failure to notify or notify timely constituting a rejection by
Fountain View.
2.5 Payment of Expenses. Except as provided in Section 2.1.8 hereof, each
-------------------
Party shall be solely responsible for any and air fees, costs and expenses it
incurs in performing its obligations under Sections 2.1, 2.2, 2.3, and 2.4
hereof. Baylor shall be responsible for paying all fees, costs and expenses
associated with all third parties involved in the development of a Development
Site and the construction of a SNF thereon (but excluding costs incurred in
Section 2.1.9 and otherwise for the operation of the SNF), including, without
limitation, all Development Costs; provided, however, that Baylor shall be
entitled to recoup its actual "out-of-pocket expenses" for such fees, costs and
expenses including Development Costs) from
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the construction or take-out financing. In the event the construction project is
abandoned for any reason, Baylor shall not be entitled to reimbursement from
Fountain View or any Fountain View Affiliate for any portion of such fees, costs
and or expenses. For purposes of this Section 2.5, Baylor's out-of-pocket costs
shall not include any overhead, general or internal costs or allocations of
Baylor, or any of its Affiliates; provided, however, that Baylor's out-of-pocket
expenses shall include, but not be limited to: (a) fees paid by Baylor to its
Affiliates (i) for the development and completion of a market study as provided
in Section 2.1.2 above, (ii) the preparation of a preliminary architectural plan
as provided in Section 2.1.3 above, (iii) the preparation of final architectural
plans as provided in Section 2.1.6 above, and (iv) similar fees for specific
services performed or goods provided which are not in the nature of overhead,
general or internal costs; and (b) any costs, fees or expenses reimbursed to
Fountain View pursuant to Section 2.1.8.
2.6 Exclusivity. For the period commencing on the Execution Date and
-----------
ending on the tenth anniversary of the Execution Date or earlier termination of
this Agreement or all rights of Fountain View under the License Agreement (as
defined in Section 3.3 of this Agreement), neither Party, nor any Affiliate of a
Party, shall participate in the development, construction, or operation
(including operations as a lessee of a SNF facility or under a management
contract) of a new SNF within the Development Territory except as provided in
this Agreement. For purposes of this Agreement, the Term "new SNF" means a SNF
that has not been built, and on which construction has not begun, as of the
Execution Date.
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ARTICLE III
COMPENSATION
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3.1 Consideration for Services. As consideration for the license to use
--------------------------
Baylor's name discussed in Section 3.3 hereof and the services Baylor renders
hereunder in connection with the acquisition of Development Sites and the
development of and construction of SNFs on such sites. Fountain View shall pay
Baylor a License and Development Fee for each such SNF, as described below. The
License and Development Fee for a SNF shall be payable at the time specified in
Section 3.2 hereof; provided, however, that a License and Development Fee for a
SNF shall not be due or payable until Fountain View has executed a lease under
which it shall become the lessee of the SNF as provided in Article V of this
Agreement, which execution shall not be unreasonably withheld or delayed.
3.1.1 Development Fee. The License and Development Fee for a SNF
---------------
shall equal eight percent (8%) of the Development Costs applicable to the SNF.
Subject to the provisions of Section 3.1.4, the License and Development Fee for
a SNF shall be payable in Development Fee Warrants, cash, or a combination of
Development Fee Warrants and cash, such that the fair market value of the
warrants, at the time they are granted, if any, plus the amount of cash, if any,
shall be equal to the amount of the License and Development Fee. The portion, if
any, of each License and Development Fee to be paid in Development Fee Warrants
and the portion be paid in cash shall be at the sole discretion of Baylor;
provided, however, that the fair market value of the Development Fee Warrants as
determined under Section 3.1.2, granted as part of the License and Development
Fee for a SNF, shall not exceed 0.3% of fully diluted common equity of Fountain
View as of that date.
16
3.1.2 Fair Market Value of Development Fee Warrants. In the event
---------------------------------------------
Baylor elects to have a portion of any License and Development Fee paid in
warrants, the Parties shall, within thirty (30) days of Baylor providing
Fountain View with written notice of such election, attempt to agree on the fair
market value of the warrants. In the event the Parties do not agree on the fair
market value of the warrants within such time frame, the Parties shall mutually
select to establish the fair market value of the warrants a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm, with documented expertise in valuing the securities of
publicly and privately held health care companies. The decision of the firm
selected by the Parties shall be final and binding on the Parties. In the event
the Parties cannot agree on a firm to value the warrants, each Party shall
designate a firm that meets the above criteria, which, in turn, shall designate
a third firm (the "Designated Firm") which meets the above criteria. The
Designated Firm shall determine the fair market value of the warrants, and its
decision shall be final and binding on the Parties. If the Parties mutually
agree on the fair market value of the warrants, the Parties shall document the
basis for the determination, which shall include analysis of independent
verifiable market data and information.
3.1.3 Terms of Development Fee Warrants. Any Development Fee Warrants
---------------------------------
granted hereunder shall entitle Baylor to purchase a specified number of shares
of Series C common stock in Fountain View at $.01 per share, such that the fair
market value on the date of grant of the shares of Series C common stock to be
issued in connection with such Development Fee Warrants shall equal the portion
of the applicable Development Fee which Baylor has elected to receive in
Development Fee Warrants. Any Development Fee Warrants shall first be
exercisable on the date granted, and shall expire on the tenth anniversary of
the date granted. As a condition precedent to the grant of any Development Fee
Warrants, Baylor
17
shall execute a counterpart signature page agreeing that all shares to be issued
under the Development Fee Warrants shall be subject to the Stockholder's
Agreement dated March 27, 1998, among Fountain View and its stockholders and
such other related documents as Fountain View may reasonably require.
3.1.4 Material Change of Ownership
----------------------------
3.1.4.1 Prior to Lease Commitment. Notwithstanding any other
-------------------------
provision of this Agreement, in the event a Material Change of Ownership in
Fountain View shall occur after the commencement of the development of a SNF
project on a Development Site, and prior to the earlier of the: (a) Permanent
Financing Close Date with respect to such SNF project; (b) the date on which
Fountain View shall have executed a lease for such SNF; or (c) the date on which
Fountain View shall have executed a binding commitment to lease such SNF,
Fountain View may, at its sole discretion, elect to proceed with the development
of the SNF in accordance with the terms and conditions of this Agreement, or may
elect not to so proceed with the SNF project. If Fountain View elects to proceed
with the development of the SNF, but Fountain View and Baylor are unable to
agree on a matter as discussed in Section 2.4 of this Agreement, the provisions
of Section 2.4 shall apply. If Fountain View elects not to proceed with the
development of the SNF, (a) Fountain View shall reimburse Baylor for such
Development Costs incurred by Baylor in connection with such project as Baylor
may elect by providing Fountain View with written notice of such election
within thirty (30) days of Fountain View's election not to proceed, provided if
Baylor elects to be reimbursed from Fountain View for any Development Costs,
Baylor shall convey, transfer and deliver to Fountain View at no further cost or
expense to Fountain View, all of Baylor's right, title, and interest in and to
such property, real or personal, tangible or intangible, as was acquired by
Baylor for the Development Costs reimbursed by Fountain View, and (b) Fountain
View shall have no further
18
obligation with respect to such project, including, without limitation, the
payment of a License and Development Fee or any other fee to Baylor. Baylor and
Fountain View shall execute such documents and take such further acts as may be
reasonable and necessary to effectuate any conveyance, transfer and delivery of
property pursuant to this Section 3.1.4.1. Fountain View shall make a separate
election with respect to each SNF to which this Section 3.1.4.1 is applicable.
3.1.4.2 After Lease Commitment. Notwithstanding any other provision
----------------------
of this Agreement, in the event a Material Change of Ownership occurs after
Fountain View executes a binding commitment to lease a SNF which is being
developed under this Agreement, and before the Permanent Financing Close Date
applicable to such SNF, Fountain View may, at its sole discretion, elect as
follows: (a) Fountain View may elect to proceed with the development of the SNF
in accordance with the terms and conditions of this Agreement (excluding the
remainder of this Section 3.1.4.2); or (b) Fountain View may elect to proceed
under the terms and conditions of this Agreement, except that Fountain View
shall pay to Baylor the License and Development Fee for the SNF in cash only (at
the time specified in Section 3.2 hereof) and Baylor shall not then have the
option of receiving any portion of such License and Development Fee in
Development Fee Warrants. If Fountain View elects to proceed under clause (b) of
the preceding sentence, Baylor may, at its sole discretion, notify Fountain View
in writing within fifteen (15) days of being advised by Fountain View of such
election that it demands some or all of the License and Development Fee
applicable to the SNF be paid in Development Fee Warrants. Fountain View shall
then have the option, in its sole discretion, to agree to proceed with the
development of the SNF under this Agreement, and to pay some or all of the
License and Development Fee in Development Fee Warrants as demanded by Baylor in
accordance with the provisions of this Article III, or to reject Baylor's
demand, in
19
which case (a) Fountain View shall have no further obligation with respect to
such SNF under this Agreement, including without limitation, the payment of a
License and Development Fee or any other fee to Baylor, and (b) Baylor may
proceed with the development and construction of the SNF by itself or with a
third party, subject to applicable law and other applicable agreements. Baylor
and Fountain View shall make the elections described under this Section
separately with respect to each SNF to which this Section is applicable.
3.2 Payment of Consideration. Baylor shall be paid the License and
------------------------
Development Fee applicable to a SNF on the Permanent Financing Close Date for
such SNF. Fountain View shall have no obligation to pay Baylor any License and
Development Fee for a SNF unless and until the Permanent Financing Close Date
for the SNF has occurred.
3.3 License to Use Baylor Name. Baylor and Fountain View shall enter into
--------------------------
a servicemark sublicense agreement, in substantially the form attached hereto as
Exhibit A ("License Agreement"), pursuant to which Baylor shall license to
Fountain View the use of the Baylor name in connection with the operation of the
SNF's developed on or within one mile of Baylor Facilities hereunder, subject to
and upon all of the terms and conditions of the License Agreement.
ARTICLE IV
DEVELOPMENT OF SNFS OUTSIDE THE DEVELOPMENT TERRITORY
-----------------------------------------------------
4.1 Development Assistance. From time to time during the term of this
----------------------
Agreement, Baylor may become aware of non-Baylor hospitals and health care
facilities operating outside of the Development Territory that desire to develop
and construct SNFs in their respective service areas. If Baylor becomes aware of
any such situation, it may (but shall not be obligated
20
to) advise Fountain View thereof in writing, and, if requested in writing by
Fountain View, introduce the parties. If Fountain View pursues the opportunity,
and enters into an arrangement with a non-Baylor hospital or other health care
facility to develop, construct and lease a SNF, Fountain View shall offer Baylor
the opportunity to assist in the development of such SNF, on definitive terms
and conditions to be negotiated at the time.
4.2 Consideration.
-------------
4.2.1 Prior to Material Change of Ownership. In the event Baylor and
-------------------------------------
Fountain View agree pursuant to Section 4.1 above on the development assistance
to be provided by Baylor in connection with the development of a SNF outside of
the Development Territory (each, a "Non-Baylor SNF"), and Baylor provides such
development assistance, Fountain View shall grant Baylor warrants to purchase
shares of Series C common stock in Fountain View for each Non-Baylor SNF so
developed on the terms and conditions set forth in Section 4.2 of this
Agreement. Subject to the terms of Sections 4.2.2, 4.2.3, and 4.2.4 hereof, the
warrants shall be granted following the close of the first full fiscal year
during which the Non-Baylor SNF's EBITDA for such fiscal year (the "Facility-
Level EBITDA") is greater than or equal to ten percent (10%) of such SNF's Net
Revenue for such fiscal year (which fiscal year shall be referred to hereinafter
as the "Valuation Year"), all as determined by Fountain View's external
auditors, and shall be granted as soon as possible after such determination is
made. Subject to the terms of Section 4.2.2, 4.2.3, and 4.2.4, the warrants
shall entitle Baylor to purchase such number of shares of Series C common stock
of Fountain View, at a price of $.01 per share, which is equal to the product of
(a) twice the Facility-Level EBITDA divided by $677 million, multiplied by
(b) the number of shares of Fountain View common stock issued and outstanding
on the date the warrants are granted.
21
4.2.2 Material change of Ownership or Sixth Anniversary. In the event
-------------------------------------------------
either: (a) a Material Change of Ownership in Fountain View; or (b) the sixth
anniversary of the Execution Date shall occur, after the date on which a Non-
Baylor SNF accepts its first patient, but prior to the completion of the
Valuation Year for such SNF, Fountain View, shall compensate Baylor for its
development assistance with respect to such project which compensation shall, at
the election of Fountain View, be: (a) in accordance with the terms of Section
4.2.1 hereof; or (b) in accordance with the following terms:
(i) Fountain View shall grant Baylor warrants, as
described below, as soon as practicable following the date (the "Terminal Date")
which is the earlier of the date on which the Material Change of Ownership
occurs or the sixth anniversary of the Execution Date.
(ii) The warrants shall entitle Baylor to purchase such
number of shares of Fountain View Series C common stock, at $.Ol per share,
which is equal to the product of (a) twice the EBITDA, if any, for the Non-
Baylor SNF for the prior four (4) full fiscal quarters immediately preceding
the Terminal Date divided by $677 million, multiplied by (b) the number of
shares of Fountain View common stock issued and outstanding on the date the
warrants are granted.
(iii) In the event the Terminal Date occurs after a Non-
Baylor SNF has been operating for two (2) full fiscal quarters, but fewer than
four (4) full fiscal quarters, the EBITDA for the SNF to be used in the formula
in subparagraph (ii) of this section shall be equal to the annualized EBITDA for
the SNF from the date on which the SNF began operating to and including the
Terminal Date. A SNF shall be deemed to begin operating on the date it admits
its first patient.
22
4.2.3 Inadequate Operating Period. Notwithstanding any other
---------------------------
provision of this Agreement, Baylor shall not be entitled to any compensation
with respect to a Non-Baylor SNF if a Terminal Date occurs and such SNF has not
been operating for at least two full fiscal quarters on the terminal Date.
4.3 General. Any warrants granted under this Article IV shall expire on
-------
the tenth anniversary of the date on which they were granted. Baylor shall have
the right, at its expense and not more often than once each year with respect to
each Non-Baylor SNF, using representatives of its choosing, to audit the books
and records of Fountain View relating to such SNF in connection with the
determination of Facility-Level EBITDA and Net Revenue, and Fountain View agrees
to cooperate reasonably in the conduct of any such audit. As a condition
precedent to the issuance of any warrants under this Article IV, Baylor shall
execute a counterpart signature page agreeing that all shares to be issued under
the Development Fee Warrants shall be subject to the Stockholder's Agreement
dated March 27, 1998, among Fountain View and its stockholders and such other
documents as Fountain View may reasonably require.
ARTICLE V
LEASE OF SNFS
-------------
5.1 Operating Lease. If Baylor is the owner of the applicable SNF
---------------
constructed under this Agreement, the Parties shall negotiate and enter into an
operating lease, pursuant to which Fountain View shall operate such SNF.
Although each such operating lease shall be negotiated separately, each such
lease shall include terms that substantially comply with the following: (a) the
annual rent payable under the lease shall be paid in monthly installments equal
to the
23
monthly finance costs of the SNF plus a reasonable rate of return to be agreed
upon by Fountain View and Baylor at the time the lease is negotiated; (b) the
lease shall be "triple net" (i.e., lessee shall pay taxes and assessments, and
for maintenance, repairs, insurance and utilities); (c) the term of each lease
shall be ten (10) years with three (3) ten (10) year renewal options, at the
option of Fountain View, provided that the rent and other terms and conditions
applicable with respect to the renewal options shall be set forth in the lease
when the lease is first executed; (d) the lease shall not be terminable by
either party except; (i) for a material breach that remains uncured after a
reasonable period of time as is customary in arm's-length commercial leases for
comparable facilities in the Development Territory; (ii) if the SNF's operating
license or Medicare or Medicaid certification is suspended or removed after it
had been obtained by the SNF and Fountain View is unable to restore the license
or certification within one hundred twenty (120) days of its suspension or
removal; or (iii) if Baylor elects pursuant to a provision of this Agreement to
take over such lease and succeed to Fountain View's rights and interests under
such lease; and (e) the lease shall contain such other terms, conditions,
representations, warranties and indemnities as are usual and customary for
arm's-length leases in the applicable community.
5.2 Takeover of Lease. If Baylor is not the owner of the applicable SNF
-----------------
constructed under this Agreement, and the SNF is located on a Development Site,
Fountain View shall use commercially reasonable efforts to include in its
operating lease with the applicable lessor provisions that: (a) require such
lessor to notify Baylor in the event that Fountain View is in breach of the
operating lease and has not cured that breach within a reasonable period of time
and, therefore, that the lessor plans to terminate the lease; and (b) would
allow Baylor the opportunity, but not the obligation, to take over Fountain
View's position under the lease, in each instance where it is provided for in
this Development Agreement, subject to the rights of
24
any lenders to Fountain View in the event (i) of such termination, or (ii) that
the SNF's operating license or Medicare or Medicaid certification is suspended
or removed and Fountain View is unable to restore the license or certification
within one hundred twenty (120) days of such suspension or renewal. Baylor shall
be entitled to participate in the negotiations with respect to each operating
lease regarding provisions affecting Baylor's rights under this section.
5.3 Baylor Assumption of Fountain View Lease.
----------------------------------------
5.3.1 Off Campus Facility. In the event the operating license or the
-------------------
Medicare or Medicaid certification of a SNF that is leased to Fountain View by
Baylor or a Baylor Affiliate and that is located in the Development Territory
but is not located within one mile of a Baylor Facility, is suspended or
removed after it has been obtained and Fountain View is unable to restore the
license or certification within the time period specified in Section 5.1 above,
Baylor may; (a) provide written notice to Fountain View of its desire to
terminate such lease in which Baylor is the lessor or to take over a lease, and
succeed to all of Fountain View's rights and interests thereunder, in which
Baylor or a Baylor Affiliate is not the lessor (the "Section 5.3 Notice");
(b)pay Fountain View the then-current fair market value of the business and
operation of the applicable SNF operated as a going concern (as calculated
below) (the "Fair Market Value"); (c) become solely responsible for the
operation of the SNF from and after (i) the effective date of termination of the
operating lease of a SNF leased to Fountain View by Baylor or a Baylor
Affiliate; or (ii) the date on which Baylor takes over Fountain View's position
under a lease where Baylor or a Baylor Affiliate is not the lessor, without
waiver of any rights of Baylor or the lessor against Fountain View for its acts
or omissions causing such event; and (d) indemnify Fountain View and its
officers, directors, employees, and agents from and against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, actions, suits and
damages (collectively "Losses"), including, without limitation, interest and
penalties,
25
reasonable attorney's fees and costs, and all amounts paid in settlement,
arising from or with respect to such subsequent operation of the SNF; except to
the extent Fountain View's acts or omissions contribute to the Losses. Baylor
shall pay Fountain View such Fair Market Value, in fall, within ninety (90) days
of the determination thereof, as provided below.
5.3.2 Baylor-Related Facility. In the event the operating license or
-----------------------
Medicare or Medicaid certification of a SNF that: (a) has been developed under
this Agreement; (b) is located on or within one (1) mile of a Baylor Facility;
and (c) is leased to Fountain View by Baylor, a Baylor Affiliate, or any other
Person, is suspended or removed after it has been obtained and Fountain View is
unable to restore the license or certification within the time period specified
in Section 5.1 above, Baylor may; (a) terminate the lease between Fountain View
and Baylor or a Baylor Affiliate in accordance with its terms; or (b) replace
Fountain View as the lessee under a lease with a third party, and take over and
succeed to all of Fountain View's rights and interests in such lease, and Baylor
shall have no obligation under this Agreement to make any payment to Fountain
View as a consequence of such termination or replacement. Fountain View does not
hereby waive any rights it may have under any lease or other agreement, or under
law, to payment from Baylor or otherwise.
5.4 Determination of Fair Market Value. The Parties shall meet and
----------------------------------
confer in good faith for a period of at least sixty (60) days after Baylor
provides a Section 5.3 Notice to determine a mutually agreeable Fair Market
Value for the applicable SNF. In the event the Parties cannot agree on a value
within such time period, each Party shall appoint an appraiser experienced in
valuing SNFs or comparable health care facilities in the applicable geographic
area. The two (2) appraisers shall meet, for a period not to exceed thirty (30)
days, to establish a Fair Market Value for the SNF. In the event the appraisers
cannot agree on such a value within such time period, and the higher of the two
valuations is not more than 110% of the
26
lower of the two valuations, the Fair Market Value shall be the average of the
two valuations. If the higher of the two valuations is more than 110% of the
lower of the two valuations, the appraisers shall promptly select a third
appraiser who shall deliver his or her determination of the Fair Market Value of
the SNF to the Parties within thirty (30) days of his or her selection. The Fair
Market Value shall equal the average of (a) the valuation of the third
appraiser, and (b) the valuation of the first two appraisers which is closest in
amount to the valuation of the third appraiser; provided, however, that if the
amount of the valuation of the third appraiser is equidistant from the amount of
each of the other two valuations, the Fair Market Value shall be the Fair Market
Value determined by the third appraiser. In determining the Fair Market Value of
a SNF which Baylor or a Baylor Affiliate owns and has leased to Fountain View,
the fact that Baylor or its Affiliate shall own the SNF, including its
operations unencumbered by a lease after the lease with Fountain View is
terminated, shall be taken into account. If the Parties mutually agree on a
Fair Market Value, the Parties shall document the basis for the determination of
the Fair Market Value.
5.5 Leasehold Mortgage. Baylor and Fountain View shall use commercially
------------------
reasonable efforts to obtain a mortgage on any leasehold on a SNF developed
under this Agreement in favor of Fountain View's lenders in the event so
requested by such lenders.
5.6 Inspection. Fountain View shall permit duly authorized
----------
representatives of Baylor to inspect the premises of Fountain View and the SNFs
developed under this Agreement in the Development Territory at all reasonable
times, upon reasonable request for purposes of ascertaining or determining
compliance with the terms of this Agreement. Upon request of Baylor, Fountain
View shall cause the officers, employees, agents, attorneys, contractors and
accountants of Fountain View and of each such SNF to meet with representatives
of Baylor,
27
cooperate fully with such representatives and respond to all questions and
inquiries of such representatives with respect to the operation of such SNFs.
ARTICLE VI
QUALITY ASSURANCE COMMITTEES; MEDICAL DIRECTOR
----------------------------------------------
6.1 Quality Assurance Committee. The Parties shall establish a separate
---------------------------
quality assurance committee ("Q.A. Committee") for each SNF developed in the
Development Territory pursuant to this Agreement. Each committee shall consist
of three (3) persons appointed by Baylor ("Baylor Members") and (3) three
persons appointed by Fountain View ("Fountain View Members"). The Baylor Members
shall include at least one (1) licensed physician and one (1) registered nurse.
Each Q.A. Committee shall meet at least monthly, and shall be available to meet
immediately if the need so arises, Each Q.A. Committee shall serve in an
advisory capacity and make recommendations to the Board of Directors of the
applicable SNF. Each such recommendation shall require a majority vote of the
Q.A. Committee. The Board of Directors of each SNF shall have the discretion to
accept or reject the recommendations of the Q.A. Committee.
6.2 Responsibilities of Q.A. Committees. Each Q.A. Committee shall be
-----------------------------------
responsible for:
(a) reviewing all certification, licensure and accreditation
survey reports for the SNF;
(b) recommending quality assurance parameters, protocols and
guidelines;
(c) reviewing critical pathways;
28
(d) conducting periodic quality assurance reviews and
outcomes analyses;
(e) making recommendations regarding quality improvement;
and
(f) engaging in such other quality-related activities as may
be requested by the applicable SNF Board of Directors.
6.3 Failure to Follow Recommendations. In the event the Baylor Members
---------------------------------
believe that a particular recommendation regarding quality assurance or quality
improvement at the applicable SNF to be materially important to Baylor's
reputation or the operation of the SNF, and either the recommendation is not
adopted by a majority of the Q.A. Committee, or the Board of Directors of the
applicable SNF rejects the recommendation, the Baylor Members and the Fountain
View Members shall meet and confer in good faith for such period of time as is
necessary, but not to exceed thirty (30) days, to thoroughly evaluate the
recommendation desired by the Baylor Members. To the extent practicable, input
from industry representatives and experts relating to the particular issue at
hand shall be obtained and considered during the meet and confer process.
In the event the meet and confer process is unsuccessful, (a) Fountain
View shall have the first option of agreeing to adopt the recommendation,
provided that Baylor shall be solely responsible for paying for all costs and
expenses reasonably incurred by Fountain View in implementing such
recommendation; and (b) Baylor shall have the second option to purchase the SNF
on the terms discussed below, provided that Baylor shall notify Fountain View in
writing of its intent to exercise this option within thirty (30) days of
receiving written notice from Fountain View that it will not exercise its first
option hereunder, and that Baylor's option shall terminate if such notice is not
given timely. If neither Fountain View nor Baylor exercises
29
its option under the preceding sentence, then Fountain View shall have no
obligation to implement the recommendation desired by Baylor.
In the event Baylor elects to exercise its option to purchase all of
Fountain View's rights and interests with respect to a SNF under this section,
Baylor shall pay Fountain View, within ninety (90) days of notice of the
exercise of such option, as follows:
(a) If the SNF has been in operation for at least thirty-six (36)
consecutive months, the purchase price paid by Baylor shall be
125% of the then-current SNF Enterprise Value of the SNF, less
the outstanding principal balance of any Fountain View debt
assumed by Baylor in acquiring the SNF.
(b) If the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole
discretion, (i) Baylor shall pay Fountain View a purchase price
of 125% of the then-current SNF Enterprise Value of the SNF less
the outstanding principal balance of any Fountain View debt
assumed by Baylor in acquiring its SNF, or (ii) Baylor shall
return unexercised to Fountain View all Development Fee Warrants
granted to Baylor in connection with such SNF, and pay to
Fountain View the amount of the License and Development Fee, if
any, for such SNF paid to Baylor by Fountain View in cash and not
from the proceeds of the permanent financing for such SNF.
6.4 Regional Medical Director. During the term of this Agreement, Fountain
-------------------------
View shall employ or engage a Regional Medical Director with appropriate medico-
administrative responsibilities relating to SNFs operated by Fountain View
located in Texas (the "Texas SNFs"). The Regional Medical Director shall be
subject to Baylor's reasonable concurrence,
30
and shall be employed or engaged (whether directly or indirectly through the
Regional Medical Director's employer) pursuant to a written agreement (the
"Regional Medical Director Agreement") approved by Baylor, which will not be
unreasonably withheld. The Regional Medical Director shall serve in addition to,
and not in lieu of, the medical directors of the individual SNFs. The Regional
Medical Director shall have access to all Texas SNFs and personnel thereof. The
fees and expenses of or for the Regional Medical Director shall be paid by
Fountain View in accordance with the Regional Medical Director Agreement. Unless
the Parties otherwise agree, it is anticipated that the Regional Medical
Director shall perform services under the Regional Medical Director Agreement
one day each week and shall not be compensated more than Fifty Thousand Dollars
($50,000.00) per year.
ARTICLE VII
CHANGE OF CONTROL
-----------------
7.1 Definitions.
-----------
7.1.1 As used in this Agreement, "Change of Control" means the
occurrence of any of the following:
(a) Prior to an initial public offering of common stock of
Fountain View pursuant to a registration statement under the Securities Act of
1933, as amended, in which at least 20% of the common stock of Fountain View is
sold (a "Qualified IPO"), (i) Heritage and its Affiliates (which, as used in
this definition, shall include all Management Stockholders (as that term is
defined in the Stockholders Agreement dated as of March 27, 1998 among Fountain
View, Heritage and others) and for purposes of this clause (i) only shall
include Baylor and its Affiliates, cease to control the vote of voting
securities of Fountain View having the
31
power (contractual or otherwise) to elect a majority of the directors of
Fountain View, or (ii) Heritage and its Affiliates cease to beneficially own
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) at least 20% of the issued and
outstanding common stock of Fountain View: or
(b) After a Qualified IPO (i) a change in the membership of the board
of directors of Fountain View occurs during any period of 12 consecutive months
after which a majority of the board of directors is comprised of persons who are
not Qualified Directors or (ii) a Person, entity or group (within the meaning of
Rule 13d-5 promulgated under the Exchange Act) other than Heritage and its
Affiliates beneficially owns an aggregate percent of the combined voting power
of Fountain View's then-outstanding securities entitled to vote for the election
of directors of Fountain View which is greater than the aggregate percent of
such combined voting power beneficially owned by Heritage, Baylor and their
respective Affiliates. As used herein, a "Qualified Director" is a person who
was (x) director at the beginning of such 12-month period, or (y) was approved
by Heritage, Baylor or an Affiliate or by a permitted transferee or successor of
Baylor, Heritage or one of their Affiliates (but not including Management
Stockholders in the definition of "Affiliate" for this definition, and voting
for the election of a person as a director will be deemed to be approval); or
(c) Fountain View or any of its Affiliates transfers or makes a
verbal or written agreement or letter of intent to transfer any SNF developed
hereunder within the Development Territory (as used in this subsection,
"transfer" means a sale, lease, transfer, sublease or other disposition of an
SNF or a transfer, assignment or subcontracting of Fountain View's rights or
obligations to operate an SNF, other than as expressly provided for in this
Agreement and other than to a Person which is directly or indirectly wholly
owned by Fountain View).
32
7.2 Notice of Take Back. In the event of a Change of Control pursuant to
-------------------
Section 7.1.1, as between Baylor and Fountain View, Baylor may: (a) terminate
the lease or leases between Fountain View and Baylor or any Baylor Affiliate for
the SNF or SNFs involved; or (b) replace Fountain View as the lessee under the
lease or leases between Fountain View any third party for the SNF or SNFs
involved, and take over and succeed to all of Fountain View's rights and
interests in such lease or leases. Fountain View shall promptly give written
notice to Baylor of each and every actual or potential change of Control of
Fountain View during the term of this Agreement, and of the effective date of
the Change of Control. Within thirty (30) days of the effective date of a Change
of Control under Section 7.1.1(a) or 7.1.1(b), Baylor shall advise Fountain View
in writing as to whether it will take back any one or more SNFs located in the
Development Territory and developed under this Agreement. In the event Baylor
elects to take back any SNF located on or within one(1) mile of a Baylor
Facility, it shall be obligated to take back all SNFs located in the Development
Territory and developed under this Agreement that are located on or within one
(1) mile of a Baylor Facility. Within thirty (30) days of the effective date of
a Change of Control pursuant to Section 7.1.1(c) hereof, Baylor shall notify
Fountain View in writing as to whether it will take back the applicable SNF. If
Baylor elects or is obligated to take back a SNF under this Section 7.2,
Fountain View shall have a reasonable period of time, not to exceed ninety (90)
days after receipt of the notice from Baylor provided for herein, to vacate such
SNF. Fountain View shall cooperate reasonably with Baylor in connection with the
transition of the SNF.
7.3 Consideration. Baylor shall pay to Fountain View for each SNF which it
-------------
elects or is obligated to take back from Fountain View pursuant to Section 7.2
hereof, within ninety (90) days of the determination of the SNF Enterprise
Value, therefor:
33
(a) if the SNF has been in operation for at least thirty-six (36)
consecutive months, the purchase price paid by Baylor shall be 125% of the then-
current SNF Enterprise Value of the SNF, less the outstanding principal balance
of any Fountain View debt assumed by Baylor in acquiring the SNF.
(b) if the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole discretion, (i)
Baylor shall pay Fountain View a purchase price of 125% of the then-current SNF
Enterprise Value of the SNF less the outstanding principal balance of any
Fountain View debt assumed by Baylor in acquiring the SNF, or (ii) Baylor shall
return unexercised to Fountain View all Development Fee Warrants granted to
Baylor in connection with such SNF, and pay to Fountain View the amount of the
License and Development Fee, if any, for such SNF paid to Baylor by Fountain
View in cash and not from the proceeds of the permanent financing for such SNF.
7.4 Termination of Rights and Interests. If and when Baylor, under this
-----------------------------------
Agreement, terminates a lease for a SNF developed hereunder, or takes over a
lease for any such SNF and succeeds to Fountain View's rights and interests
thereunder, Fountain View shall thereafter have no further rights or interests
in such SNF.
ARTICLE VIII
TERMINATION OF LICENSE AGREEMENT; LOSS OF BAYLOR NAME
-----------------------------------------------------
8.1 Change of Control. If, as a result of a Change of Control under
-----------------
Section 7.1.1(a) or 7.1.1(b), Baylor elects to exercise its right under Section
18.b of the License Agreement to terminate the License Agreement in whole or in
part, and/or to require Fountain View to discontinue the use of the Baylor name
in connection with the operation of a SNF developed under this Agreement and
located in the Development Territory and on or within one (1) mile
34
of a Baylor Facility, Baylor shall be obligated to pay Fountain View the
consideration set forth in Section 7.3 for each and every SNF developed under
this Agreement and located in the Development Territory on or within one mile of
a Baylor Facility. If, as a result of a Change of Control under Section
7.1.1(a), (b) or (c), or the occurrence of an event described in Section 18.j
of the License Agreement, Baylor exercises its right under the License Agreement
to require Fountain View to discontinue use of the Baylor name in connection
with the operation of one or more SNFs developed under this Agreement and
located in the Development Territory within one mile of a Baylor Facility,
Baylor shall be obligated to pay Fountain View the consideration set forth in
Section 7.3 for each and every such SNF. If, as a result of a Change of Control
under Section 7.1.1(c), or the occurrence of an event described in Section 18.j
of the License Agreement. Baylor exercises its right under the License Agreement
to require Fountain View to discontinue use of the Baylor name in connection
with the operation of one or more SNFs developed under this Agreement located
within the Development Territory but not located within one mile of a Baylor
Facility, Baylor shall have the right to terminate any or all of the leases for
such SNFs or take over any or all of the leases for such SNFs and succeed to
Fountain View's rights and interests thereunder, at the consideration set forth
at Section 7.3. Baylor shall notify Fountain View within thirty (30) days of
the applicable effective date of the change of Control as to whether Baylor
shall exercise its rights under the License Agreement with respect to the SNFs
affected thereby. All payments by Baylor required under this Section 8.1 shall
be made within ninety (90) days of the effective date of the applicable Change
of Control. Fountain View shall cooperate reasonably with Baylor in connection
with the termination of any or all SNFs
35
8.2 Loss of Licensure or Certification
----------------------------------
In the event Baylor exercises its right under the License Agreement to
terminate the License Agreement in whole or in part, and/or to require Fountain
View to discontinue using Baylor's name in connection with one or more SNFs
developed under this Agreement and located within the Development Territory, and
the basis for Baylor's action is that each such SNF (for purposes of this
Section 8.2, each a "Section 8.2 SNF") has failed to comply with Section
3(b)(ii) or (iii) (pertaining to licensure, and Medicare and Medicaid
certification), or 3(c) of the License Agreement, or terminates the License
Agreement pursuant to Section 18.c or d. thereof, Baylor shall pay to Fountain
View with respect to each Section 8.2 SNF the Fair Market Value of the SNF
unless the second to last sentence of this Section 8.2 is applicable. The Fair
Market Value of a Section 8.2 SNF shall be determined as set forth in Section
5.4 hereof, except that the meet and confer process described therein shall
commence on the date Fountain View receives the notice from Baylor that the
License Agreement or Fountain View's license to use Baylor's name has been
terminated as to such Section 8.2 SNF, and shall terminate sixty (60) days
thereafter. Notwithstanding the provisions of this Section, Baylor shall not be
required to pay Fountain View the Fair Market Value of a Section 8.2 SNF or
because of a breach of paragraph 3(c)(ii) or (iii) of the License Agreement
where Baylor has terminated Fountain View's lease of, or replaced Fountain View
as lessee under a third party lease of, the Section 8.2 SNF as described in
Section 5.3.2 of this Agreement. Any payment from Baylor to Fountain View under
this Section 8.2 shall be made within ninety (90) days of the applicable
determination of Fair Market Value.
8.3 Clinical Privileges, Quality Assurance and Other Matters.
--------------------------------------------------------
In the event Baylor exercises its right under the License Agreement to
terminate the License Agreement in whole or in part, and/or to require Fountain
View to discontinue using
36
Baylor's name in connection with one or more SNFs developed under this Agreement
and located within the Development Territory, and the basis for Baylor's action
is that each such SNF (each a "Section 8.3 SNF") has failed to comply with
Section 3(a) or 3(b)(i) or (iv) of the License Agreement, or Baylor terminates
the License Agreement pursuant to Section 18.a, g, h or i thereof, Baylor shall
with respect to each Section 8.3 SNF:
(a) if the SNF has been in operation for at least thirty-six (36)
consecutive months, Baylor shall pay Fountain View 125% of the then-current SNF
Enterprise Value of the SNF, less the outstanding principal balance of any
Fountain View debt assumed by Baylor in acquiring the SNF.
(b) if the SNF has not been in operation for thirty-six (36)
consecutive months, at Fountain View's option, in its sole discretion, (i)
Baylor shall pay Fountain View 125% of the then-current SNF Enterprise Value of
the SNF less the outstanding principal balance of any Fountain View debt assumed
by Baylor in acquiring its SNF, or (ii) Baylor shall return unexercised to
Fountain View all Development Fee Warrants granted to Baylor in connection with
such SNF, and pay to Fountain View the amount of the License and Development
Fee, if any, for such SNF paid to Baylor by Fountain View in cash and not from
the proceeds of the permanent financing for such SNF.
Any payment or return of Development Fee Warrants to be made by Baylor
to Fountain View under this Section 8.3 shall be made within ninety (90) days of
the date on which Baylor notifies Fountain View that the License Agreement or
Fountain View's license to use Baylor's name has been terminated with respect
to such SNF.
8.4 Obligation to Terminate Lease. In the event Baylor exercises its
-----------------------------
right under the License Agreement to terminate the License Agreement in whole or
in part, and/or to require Fountain View to discontinue using Baylor's name in
connection with one or more SNFs
37
developed under this Agreement and located within the Development Territory and
on or within one (1) mile of a Baylor Facility, Baylor also shall
simultaneously: (a) terminate, or ensure termination, of the lease for the SNF
with Baylor or a Baylor Affiliate; or (b) as between Baylor and Fountain View,
replace Fountain View as the lessee under the lease for the SNF between Fountain
View and an unrelated third Person.
8.5 Toll Period. In the event the License Agreement is terminated pursuant
-----------
to Section 18.a.iv thereof, Fountain View shall have ninety (90) days after the
effective date of termination to remove the attachment, execution of judgement
or process resulting in such termination ("Toll Period"). In the event Fountain
View removes such attachment, execution of judgement or process during the Toll
Period, the License Agreement shall be automatically reinstated, unless an event
has occurred during the Toll Period that has resulted in an automatic or
optional termination hereunder and such termination has occurred. During the
Toll Period, this Agreement shall remain in effect, and Fountain View shall
continue to operate the affected SNFs, provided, however, that any right or
obligation of Baylor hereunder to repurchase or cancel or replace Fountain View
as a lessee under a lease for a SNF shall be stayed until the expiration of the
Toll Period.
8.6 Single Obligation to Pay. In the event that more than one provision of
------------------------
this Agreement obligates Baylor to make a payment to Fountain View for a SNF
developed in connection with Baylor's (a) terminating a lease between Fountain
View and Baylor or a Baylor Affiliate; or (b) replacing Fountain View as the
lessee under the lease between Fountain View and a third party and taking over
and succeeding to Fountain View's rights and interests under such lease, Baylor
shall be obligated to pay Fountain View only once hereunder for each such
SNF.
38
ARTICLE IX
REPRESENTATIONS OF BAYLOR
-------------------------
As an inducement to Fountain View to enter into this Agreement, Baylor
makes the following representations to Fountain View:
9.1 Organization; Standing. Baylor is a nonprofit corporation validly
---------------------
existing and in good standing under the laws of the State of Texas and has full
corporate power and authority to own and lease its properties and assets and to
carry on its business as now being conducted, and has the full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
9.2 Authority. The execution, delivery and performance by Baylor of this
---------
Agreement have been duly authorized and approved by all necessary action of
Baylor. This Agreement has been duly executed and delivered by, and constitutes
the valid, binding and enforceable obligation of Baylor, except to the extent
that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally, and except as enforcement thereof is subject to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity).
9.3 No Violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated hereby, by Baylor will:
(a) violate any provision of the Articles of Incorporation or Bylaws of Baylor;
(b) be in conflict with, constitute a default under, or create a right of
termination or cancellation under any material agreement or material commitment
to which Baylor is a party, or by which it or any of its assets or properties
are bound; (c) cause the acceleration of the maturity of, or change any
financial term of, any
39
material debt or material obligation of Baylor; or (d) require the consent of
any third party not otherwise contemplated herein.
9.4 Consents and Approvals of Governmental Authorities. Except as
--------------------------------------------------
otherwise provided herein, no consent, order, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution or delivery of this
Agreement or the performance by Baylor of this Agreement.
9.5 Statements; Books and Records. To the best knowledge of Baylor,
-----------------------------
no written statement (financial or otherwise) delivered to Fountain View in
connection with the execution and delivery of this Agreement contains any
material misstatement or omission of a material fact.
9.6 Litigation. There is no claim, litigation, proceeding
----------
(administrative or otherwise), investigation or controversy pending or, to
Baylor's knowledge, threatened, before any court, governmental agency, bureau,
instrumentality or arbitration panel against or involving Baylor which could
have a material adverse impact on the business of Baylor taken as a whole or the
ability of Baylor to consummate the transactions contemplated herein. Baylor is
not actually aware of any basis for any claim against it which might result in
any such litigation, proceeding, investigation or controversy.
9.7 Judgments and Orders. Baylor is not subject to any judgment,
--------------------
order, writ, injunction or decree of any court, arbitration panel, or
governmental authority, which could have a material adverse impact on the
business of Baylor taken as a whole, or on its ability to consummate the
transactions contemplated herein.
40
ARTICLE X
REPRESENTATIONS OF FOUNTAIN VIEW
--------------------------------
As an inducement to Baylor to enter into this Agreement, Fountain
View makes the following representations to Baylor:
10.1 Organization; Standing. Fountain View is a corporation validly
----------------------
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to own and lease its properties and assets
and to carry on its business as now being conducted, and has the full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
10.2 Authority. The execution, delivery and performance by Fountain View
---------
of this Agreement have been duly authorized and approved by all necessary action
of Fountain View. This Agreement has been duly executed and delivered by, and
constitutes the valid, binding and enforceable obligation of Fountain View,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and except as
enforcement thereof is subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding at law or in equity).
10.3 No Violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated hereby, by Fountain View
will: (a) violate any provision of the Certificate of Incorporation or Bylaws of
Fountain View; (b) be in conflict with, constitute a default under, or create a
right of termination or cancellation under any material agreement or material
commitment to which Fountain View is a party or by which it or any of its assets
or properties are bound; (c) cause the acceleration of the maturity of, or
change any
41
financial term of, any material debt or material obligation of Fountain View; or
(d) require the consent of any third party not otherwise contemplated herein.
10.4 Consents and Approvals of Governmental Authorities. Except as
---------------------------------------------------
otherwise provided herein, no consent, order, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution or delivery of this
Agreement or the performance by Fountain View of this Agreement.
10.5 Statements; Books and Records. To the best knowledge of Fountain
-----------------------------
View no written statement (financial or otherwise) delivered to Baylor in
connection with the execution and delivery of this Agreement contains any
material misstatement or omission of a material fact.
10.6 Litigation. There is no claim, litigation, proceeding (administrative
----------
or otherwise), investigation or controversy pending or, to Fountain View's
knowledge, threatened, before any court, governmental agency, bureau,
instrumentality or arbitration panel against or involving Fountain View which
could have a material adverse impact on the business of Fountain View taken as a
whole or the ability of Fountain View to consummate the transactions
contemplated herein, Fountain View is not actually aware of any basis for any
claim against it which might result in any such litigation, proceeding,
investigation or controversy.
10.7 Judgments and Orders. Fountain View is not subject to any judgment,
--------------------
order, writ, injunction or decree of any court, arbitration panel, or
governmental authority, which could have a material adverse impact on the
business of Fountain View taken as a whole, or on its ability to consummate the
transactions contemplated herein.
42
ARTICLE XI
TERM AND TERMINATION
--------------------
11.1 Term. The term of this Agreement shall commence on the Effective
----
Date, and shall continue until the latest date on which any lease for a SNF
developed under this Agreement shall terminate.
11.2 Termination for Material Breach. Section 2.6 of this Agreement may
-------------------------------
be terminated by either Party upon the material breach of any material term or
provision hereof by the other Party, upon thirty (30) days written notice from
the non-breaching Party to the breaching Party specifying the breach with
particularity. The above notwithstanding, if the breaching Party cures the
breach within such thirty (30) day period to the reasonable satisfaction of the
non-breaching Party, or, if a cure cannot be effected within such thirty (30)
day period, commences a cure and thereafter diligently pursues same to
completion, Section 2.6 of this Agreement shall not terminate and shall remain
in full force and effect.
11.3 Termination on Bankruptcy. Either Party may terminate Section 2.6 of
-------------------------
this Agreement, upon written notice to the other Party, in the event of the
institution against such other Party of any proceeding under federal or state
law for the relief of debtors, including the filing of a voluntary or
involuntary petition in bankruptcy, or the adjudication of such other Party as
insolvent or bankrupt, or the assignment of such other Party's property for the
benefit of creditors, or the appointment of a receiver, trustee or conservator
of any substantial portion of such other Party's assets, or the seizure by a
sheriff, receiver, trustee or conservator of any substantial portion of such
other Party's assets; and the failure, in the case of any of these events, of
such other Party to obtain dismissal of the proceeding or removal of the
conservator, receiver, or trustee within thirty (30) days after the occurrence
of the event.
43
11.4 Termination or Failure to Approve Use of Mark. Either party may
---------------------------------------------
terminate this Agreement in its entirety if Baylor University fails to approve
the use of the mark ("BAYLOR HEALTH CARE SYSTEM") by Fountain View in accordance
with the terms of the License Agreement within one hundred eighty (180) days of
the Execution Date.
11.5 Effect of Termination. From and after the effective date of
---------------------
termination of Section 2.6 of this Agreement, the Parties shall no longer be
obligated to (a) collaborate with respect to the development, construction and
operation of any new SNF in the Development Territory under Section 2.1 (but may
continue to comply with the Sections 2.1.1 through 2.1.8 and 2.2 through 2.5
with respect to any SNF the Parties had agreed to develop prior to the effective
date of termination of Section 2.6.); or perform under Section 4.1 with respect
to any opportunity outside of the Development Territory of which Baylor had not
yet apprised Fountain View.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Delegation to Affiliates. Any duty or obligation of either Party
------------------------
under this Agreement may be delegated to and performed by an Affiliate,
operating unit or division of such Party, provided that each Party shall remain
obligated to perform the terms of this Agreement notwithstanding any such
delegation, and provided further that the License Agreement may be delegated
only in accordance with the terms of the License Agreement. The above
notwithstanding, Fountain View may delegate its right to lease and operate a SNF
developed under this Agreement, only to a Person that is directly or indirectly
wholly owned by Fountain View. To the extent rights of first refusal or similar
rights or options in favor of a Party would
44
arise hereunder as a result of the actions or duties of the other Party, such
rights shall arise as a result of similar actions or duties of such other
Party's Affiliates.
12.2 Jeopardy. In the event the performance by either Party of any term,
--------
covenant or provision of this Agreement jeopardizes: (a) the licensure of any
Baylor Facility or a SNF developed hereunder; (b) the participation in Medicare,
Medicaid or other reimbursement or payment program by a Baylor Facility or a SNF
developed hereunder; (c) the full accreditation of a Baylor Facility or a SNF
developed hereunder by the Joint Commission on Accreditation of Healthcare
Organizations or any other state or nationally recognized accreditation
organization; (d) the tax-exempt status of Baylor or any of its Affiliates or
the ability of Baylor or any of its Affiliates to obtain or maintain tax-exempt
financing; or (e) if for any other reason said performance should be in
violation of any statute, ordinance, or otherwise be deemed illegal, or be
deemed unethical by any recognized authority (collectively, "Jeopardy Events"),
then the Parties shall use their best efforts to meet forthwith and attempt to
negotiate an amendment to this Agreement to remove or negate the effect of the
Jeopardy Event. In the event the Parties are unable to negotiate such an
amendment within thirty (30) days following written notice by either Party to
the other Party of the Jeopardy Event, then the provisions of this Agreement
that give rise to the Jeopardy Event shall be ineffective only to the extent
that they are in contravention of applicable law or otherwise give rise to the
Jeopardy Event, without invalidating the remaining provisions of this Agreement,
unless the same should defeat an essential business purpose of this Agreement,
in which case: (a) if such termination will remove or negate the Jeopardy Event;
or (b) if such termination will not remove or negate the Jeopardy Event, the
provisions of Sections 5.3 and 5.4 shall apply, either Party shall have the
right to terminate this Agreement effective upon providing written notice to the
other Party.
45
12.3 Proprietary Information/Trade Secrets. At all times during the term
-------------------------------------
hereof and following the expiration or earlier termination of this Agreement,
all respective trade secrets and proprietary and confidential information of the
Parties, including, without limitation, all respective forms of contracts and
other business documents or information of the Parties, whether currently or in
the future developed or maintained by the Parties and including any and all
deletions, additions, modifications and amendments thereto (collectively,
"Proprietary Information"), shall be the exclusive, sole and absolute property
of the Party which owns such property. The Parties acknowledge and agree that
the Parties have developed said Proprietary Information at significant expense,
and that said Proprietary Information is not available for review or use by
members of the public. All Proprietary Information shall remain confidential and
proprietary and constitute valuable trade secrets. Except in the ordinary course
of performing its obligations under this Agreement and except upon the other
Party's prior written consent, neither Party shall disclose to anyone, use, copy
or take any such Proprietary Information of the other Party for its own benefit
(or the benefit of any of its Affiliates) or gain either during the term of this
Agreement or at any time after the termination hereof. Upon any expiration or
earlier termination of this Agreement for any reason, both Parties shall not,
and shall cause their Affiliates and related parties not to, without the prior
written consent of the other Party, take or use any of the other Party's
Proprietary Information, and shall return to the other Party all of the other
Party's Proprietary Information in its (or any of its Affiliates') possession or
control. Nothing in this Agreement shall prohibit the disclosure of any document
or information as may be required by law or in connection with a securities
offering, or to either Party's legal counsel or potential or existing financing
sources.
12.4 Amendments. This Agreement may only be amended or modified by a
----------
writing executed by a duly authorized officer of each Party.
46
12.5 Headings. The subject headings of the Articles and Sections of this
--------
Agreement are included for convenience only, and shall not affect the
construction or interpretation of any of the provisions hereof.
12.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Texas.
12.7 Arbitration.
-----------
12.7.1 Binding Arbitration. In the event of a dispute arising out of
-------------------
or relating to this Agreement, including, without limitation, claims with
respect to breach of contract, tort, obligation of good faith and fair dealing
and fiduciary duties, or any other related claim or cause of action which may
arise or be asserted under any federal, state, local or foreign statutory,
regulatory or common law, then, upon notice by any party to the other parties
(an "Arbitration Notice") and to the Dallas, Texas office of the American
Arbitration Association ("AAA"), the controversy or dispute shall be submitted
to a sole arbitrator who is independent and impartial, for binding arbitration
in Dallas, Texas, in accordance with AAA's Commercial Arbitration Rules (the
"Rules") then in effect, as modified or supplemented hereby. The parties agree
that they will faithfully observe this Agreement and the Rules and that they
will abide by and perform any award rendered by the arbitrator. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16 (or by
the same principles enunciated by such Act in the event it may not be
technically applicable), to the extent that the such Act addresses matters not
addressed in this Agreement or the Rules. The award or judgment of the
arbitrator shall be final and binding on all parties and judgment upon the award
or judgment of the arbitrator may be entered and enforced by any court having
jurisdiction. If any party becomes the subject of a bankruptcy, receivership or
other similar proceeding under the laws of the United States of America, any
state or commonwealth or any other nation or political subdivision thereof,
then,
47
to the extent permitted or not prohibited by applicable law, any factual or
substantive legal issues arising in or during the pendency of any such
proceeding shall be subject to all of the foregoing mandatory arbitration
provisions and shall be resolved in accordance therewith. The agreements
contained herein have been given for valuable consideration, are coupled with an
interest and are not intended to be executory contracts. The fees and expenses
of the arbitrator will be shared equitably (as determined by the arbitrator) by
all parties engaged in the dispute or controversy.
12.7.2 Selection of Arbitrator. Promptly after the Arbitration Notice
-----------------------
is given, AAA will select five (5) possible arbitrators, to whom AAA will give
the identities of the parties and the general nature of the controversy. If any
of those arbitrators disqualifies himself or declines to serve, AAA shall
continue to designate potential arbitrators until the parties have five to
select from. After the panel of five potential arbitrators has been completed, a
summary of the background of each of the potential arbitrators will be given to
each of the parties, and the parties will have a period of ten (10) days after
receiving the summaries in which to attempt to agree upon the arbitrator to
conduct the arbitration. If the parties are unable to agree upon an arbitrator,
then one of the parties shall notify AAA and the other party, and within five
(5) days from such notice each party shall strike two names from the list and
advise AAA of the two names stricken. After expiration of the strike period, if
all but one candidate has been stricken the remaining one will be the
arbitrator, but, if two or more have not been stricken, AAA shall select the
arbitrator from one of those not stricken. The decision of AAA with respect to
the selection of the arbitrator will be final and binding in such case.
12.7.3 No Litigation. No litigation or other proceeding may ever be
-------------
instituted at any time in any court or before any administrative agency or body
for the purpose of adjudicating, interpreting or enforcing any of the rights or
obligations of the parties hereto
48
or any rights or obligations relating to the subject matter hereof, whether or
not covered by the express terms of this Agreement, or for the purpose of
adjudicating a breach or determination of the validity of this Agreement, or for
the purpose of appealing any decision of an arbitrator, except a proceeding
instituted (i) for the purpose of having the award or judgment of an arbitrator
entered and enforced Or (ii) to seek an injunction or restraining order (but not
damages in connection therewith) in circumstances where such relief is
available. No punitive, exemplary or consequential damages may ever be awarded
by the arbitrator or anyone else, and each of the parties hereby waives any and
all rights to make, claim or recover any such damages.
12.7.4 Arbitration Hearing. Within ten (10) days after the selection
-------------------
of the arbitrator, the parties and their counsel will appear before the
arbitrator at a place and time designated by the arbitrator for the purpose of
each party making a one hour or less presentation and summary of the case.
Thereafter, the arbitrator will set dates and times for additional hearings in
accordance with the Rules until the proceeding is concluded. The desire and goal
of the parties is, and the arbitrator will be advised that this goal should be,
to conduct and conclude the arbitration proceeding as expeditiously as possible.
If any party or his counsel fails to appear at any hearing, the arbitrator shall
be entitled to reach a decision based on the evidence which has been presented
to him by the parties who did appear.
12.7.5 Law Governing Arbitration. If the parties have not selected the
-------------------------
governing law by agreement, the arbitrator shall make a decision about the
governing law or laws, and his judgment with respect thereto shall be binding.
12.8 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the Parties relating to the subject matter hereof and supersedes all prior oral
and written understandings and agreements between the Parties with respect to
such subject matter.
49
12.9 Notices. All notices, demands, requests, consents, approvals or other
-------
communications (collectively, "Notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement shall be in writing
and may be personally served, delivered by telecopier or overnight delivery
service, or deposited in the United States mail, registered or certified, return
receipt requested, postage prepaid, addressed as follows:
if to Baylor: William Carter
Baylor Health Care System
Wadley Tower, Suite 150
3600 Gaston Avenue
Dallas, Texas 75246
FAX: (214) 820-4908
with a copy to: Robert Cook
Senior Vice President
Baylor Health Care System
340 Worth Street
Suite 610
Dallas, Texas 74246
FAX: (214) 820-1535
if to Fountain View: Robert Snukal
Fountain View Management
11900 W, Olympic Blvd., Suite 680
Los Angeles, California 90064
FAX: (310) 571-0364
50
with a copy to: William Scott, Chairman
Chief Executive Officer and President
Fountain View, Inc.
2600 W. Magnolia Boulevard
Burbank, California 91505
FAX: (818) 841-5847
Any Notice sent by mail shall be deemed given three (3) days after deposit in
the United States mail, as set forth above. Notices delivered in person, by
telecopy or by overnight delivery service shall be deemed to have been given
when delivered to the applicable address or received applicable telecopier
station.
12.10 No Third Party Beneficiary Rights. The obligations created by this
---------------------------------
Agreement shall be enforceable only by the Parties to this Agreement. No
provision of this Agreement is intended to, nor shall be construed to, create
any rights for the benefit of or to be enforceable by any third party.
12.11 Further Assurances. Each Party agrees to execute and deliver such
------------------
documents and instruments and take such actions as are reasonably necessary to
carry out the full intent and purpose of this Agreement
12.12 Severability. The terms and provisions of this Agreement shall be
------------
deemed severable and if any portion thereof shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the Parties.
12.13 Exhibits. All exhibits and schedules attached hereto and referred to
--------
herein are hereby incorporated herein as though fully set forth at length.
12.14 Health Laws. The Parties enter into this Agreement with the intent
-----------
of conducting their relationship in full compliance with applicable state, local
and federal law, including, but not limited to, the Health Laws. Notwithstanding
any unanticipated effect of any of the
51
provisions herein, no party to this Agreement will intentionally conduct itself
under the terms of this Agreement in a manner to constitute a violation of the
Health Laws.
12.15 Referral Policy. Nothing contained in this Agreement shall require
---------------
(directly or indirectly, explicitly or implicitly) either party to refer or
direct any patients to the other party or to use the other party's facilities
as a precondition to receiving the benefits set forth herein.
12.16 Attorney Fees. Should any Party institute any action or proceeding
-------------
to enforce this Agreement, or any provision hereof, or for damages by reason of
any alleged breach of this Agreement, or of any provision hereof, or for a
declaration of rights hereunder, the prevailing Party in any such action or
proceeding shall be entitled to receive from the other Party all costs and
expenses, including attorneys fees, incurred by the prevailing Party in
connection with such action or proceeding.
12.17 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall constitute an original but all of which together shall constitute
but one and the same instrument.
12.18 Waiver. No waiver of any term, provision or condition of this
------
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a continuing waiver of such term, provision or
condition, or as a waiver of any other term, provision or condition of this
Agreement, which approval will not be unreasonably withheld or delayed.
12.19 Assignments and Sublicenses. Fountain View shall not assign,
---------------------------
sublicense or delegate any rights or obligations under this Agreement either by
contract, assignment, sublicense or sale of assets or by operation of law by
virtue of a merger, consolidation or conversion in which Fountain View is not
the survivor, a liquidation, a dissolution or another similar transaction;
provided that Fountain View may assign its rights and delegate its duties and
52
obligations under this Agreement to a wholly owned Person that executes an
agreement inuring to the benefit of Baylor pursuant to which such Person agrees
to be bound by all of the terms hereof, and Fountain View and such Person agree
to be jointly and severally liable and responsible for the performance of all of
the duties and obligations of Fountain View hereunder: and provided, further,
that a merger or consolidation of Fountain View with or into another Person
("Target") shall not be deemed to be a breach of the foregoing prohibition so
long as (a) the principal business of the Target is the health care industry;
(b) the Target is not wholly owned or majority owned by another Person (unless
after giving effect to such merger or consolidation such other Person no longer
owns more than twenty percent (20%) of the survivor of the merger or
consolidation (or such lesser amount as may be necessary to avoid the
application of clause (ii) of Section 7.1.1(b)); (c) promptly after such merger
or consolidation the name of the survivor is "Fountain View"; (d) after giving
effect to such merger or consolidation, no Change of Control has occurred; and
(e) if the Target is a Person whose shares or other equity interests are
publicly traded and, immediately before such merger or consolidation, Section
7.1.1(a) is the applicable section for purposes of determining whether a Change
of Control has occurred, then, after such merger or consolidation, Section
7.1.1(a) shall continue to be the applicable section and the fact that Fountain
View becomes a company whose shares are publicly traded by virtue of the merger
or consolidation shall not be deemed to be a "Qualified IPO" for purposes of
the definition of "Change or Control". As used herein the term "wholly owned"
means that all, and the term "majority owned" means that more than fifty percent
(50%) of the equity interests, member interests, partnership interests and
voting interests of the Person are owned by one other Person.
12.20 Binding Effect. This Agreement shall be binding on the Parties, and
--------------
their successors and permitted assigns.
53
12.21 Public Announcement. Any press release or other public announcement
-------------------
regarding the execution of this Agreement or relating to the transactions
contemplated hereby shall be mutually approved in advance by the Parties, which
approval shall not be unreasonably withheld or delayed.
12.22 Construction. This Agreement shall be construed reasonably to carry
------------
out its intent without presumption against or in favor of either party.
12.23 No Relationships. It is mutually understood and agreed to by each
----------------
Party that this Agreement and the transactions contemplated hereby do not, and
are not intended to nor shall be construed to, create an agency, joint venture
or partnership relationship between the Parties. Neither Party is authorized to
take any action which may bind the other Party, without such other Party's prior
written consent (except as otherwise specifically provided herein).
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Execution Date.
"FOUNTAIN VIEW" "BAYLOR"
Fountain View, Inc. Baylor Health Care System
By: /s/ William C. Scott By: _______________________________
-------------------------------
Its: Chairman Its:_______________________________
------------------------------
54
12.21 Public Announcement. Any press release or other public announcement
-------------------
regarding the execution of this Agreement or relating to the transactions
contemplated hereby shall be mutually approved in advance by the Parties, which
approval shall not be unreasonably withheld or delayed.
12.22 Construction. This Agreement shall be construed reasonably to carry
------------
out its intent without presumption against or in favor of either party.
12.23 No Relationships. It is mutually understood and agreed to by each
----------------
Party that this Agreement and the transactions contemplated hereby do not, and
are not intended to nor shall be construed to, create an agency, joint venture
or partnership relationship between the Parties. Neither Party is authorized to
take any action which may bind the other Party, without such other Party's prior
written consent (except as otherwise specifically provided herein).
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Execution Date.
"FOUNTAIN VIEW" "BAYLOR"
FOUNTAIN VIEW, INC. BAYLOR HEALTH CARE SYSTEM
By:__________________ By: /s/ William S. Carter
-------------------------
Its: ________________ Its: Vice President
------------------------
54
EXHIBIT "A"
----------
TO
AGREEMENT FOR DEVELOPMENT
AND OPERATION OF
SKILLED NURSING FACILITIES
EXHIBIT "A" TO DEVELOPMENT AGREEMENT
------------------------------------
SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
THIS SERVICE MARK SUBLICENSE AGREEMENT (hereinafter, the "AGREEMENT") is
entered into this 4th day of May, 1998, by and between Baylor Health Care System
(hereinafter, "BHCS"), a Texas non-profit corporation, with its principal office
in Dallas, Texas and Fountain View, Inc. (hereinafter, "FOUNTAIN VIEW"), a
Delaware corporation, having a place of business at 11900 Olympic Boulevard,
Suite 680, Los Angeles, California 90064 (hereinafter BHCS and Fountain View are
collectively called the "Parties").
R E C I T A L S:
- - - - - - - -
Pursuant to the terms of a Settlement Agreement dated May 15, 1990, (such
Agreement, as the same may be modified or supplemented by additional license
agreements or other agreements to include additional uses with the name "Baylor"
pursuant to the terms of Section 18 thereof and Section 7 hereof, being herein
called the "BAYLOR UNIVERSITY LICENSE") between BHCS, and Baylor University (the
"LICENSOR"), BHCS, as Licensee, has the right to use the mark(s) identified on
Exhibit A attached hereto, except that BHCS is the owner of the right to use the
mark known as the "Baylor Flame" referred to on Exhibit A (the mark(s)
identified on Exhibit A and any other use of the name "Baylor" which is
approved as an additional use by BHCS by Licensor pursuant to the Baylor
University License and approved by BHCS for use by Fountain View pursuant to the
terms hereof are herein collectively called the "MARKS" and individually each
called a "MARK"). A copy of the May 15, 1990 Settlement Agreement has been
supplied to Fountain View.
The Parties are contemporaneously herewith executing an Agreement for
Development and Operation of Skilled Nursing Facilities (as the same may be
amended from to time, herein called the "DEVELOPMENT AGREEMENT") for the purpose
of setting forth certain rights and obligations of the Parties relating to the
development and operation of independently licensed skilled nursing facilities
convenient to BHCS hospitals (the skilled nursing facilities or other health-
care facilities developed and built pursuant to the Development Agreement with
respect to which BHCS specifically grants the right to use the name "Baylor"
being herein called the "FACILITIES").
Now, therefore, in consideration of the premises and the mutual agreements,
covenants and provisions contained herein, and other valuable consideration, the
sufficiency of all of which are hereby acknowledged, the Parties agree as
follows:
1. License. Subject to the terms and conditions of the Baylor University
--------
License, BHCS hereby grants to Fountain View a non-exclusive, non-
transferable (except as expressly provided herein), right to use the Marks
strictly in accordance with the terms of this Agreement, in conjunction
with the development and management by Fountain View of the Facilities.
This License includes federal, state, and common law rights, during the
term of this Agreement. Such management by Fountain View may be performed
directly by Fountain View or may be effected through direct everyday
control of other business entities by Fountain View.
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 1 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
Fountain View shall not sublicense the Marks to any other Entity nor
use the Marks in conjunction with any facilities or business
operations other than the Facilities.
2. Royalties. The consideration for the sublicense and rights granted
---------
hereunder is included within the License and Development Fee payable
to BHCS pursuant to the Development Agreement.
3. Quality of Services. Because of Fountain View's history of providing
-------------------
high quality products and services, BHCS trusts and relies on Fountain
View to maintain such high quality. Fountain View agrees that it will
at all time offer high quality services in the Facilities using the
Marks.
a. If BHCS determines that the quality of any or all of the services
or products being offered, provided or sold in one or more
Facilities using any Mark is unacceptable to BHCS, it will have
the right to specifically notify Fountain View in writing of the
changes which will be necessary to attain an acceptable level of
quality, and, thereafter, BHCS will follow the processes set
forth in Article VI of the Development Agreement. If BHCS
purchases the subject Facility or Facilities pursuant to Article
VI of the Development Agreement, BHCS shall be entitled to
terminate this Agreement and the obligations of BHCS and the
rights of Fountain View hereunder with respect to such Facility
or Facilities.
b. Fountain View shall be deemed to be in compliance with the
foregoing provisions and its services and the products used or
sold by it shall be deemed to be at an acceptable level of
quality so long as each of the following is complied with:
i. Fountain View uses commercially reasonable efforts to have
each Facility accredited by the Joint Commission on
Accreditation of Healthcare Organizations (or a similar
body with like stature) as soon as practicable and
thereafter maintains such accreditation so long as it is
commercially reasonable to maintain it;
ii. Fountain View obtains and maintains all necessary licenses,
operating permits or certificates of authority required by
the State of Texas or any other governmental authority which
are necessary for Fountain View to have the continuing right
to operate each Facility;
iii. The Facilities are certified to provide services to Medicare
and Medicaid patients; and
iv. The standards for granting clinical privileges to physicians
at the Facilities are reasonably comparable to those at
hospitals in BHCS's system.
________________________________________________________________________________
SERVICE MARK SUBLICENSE AGREEMENT
PAGE 2 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
c. In addition to the foregoing, with respect to the Facilities:
i. Fountain View will adopt, maintain and follow a mission statement
and value statements for service to patients and to the community
which are comparable to those of hospitals in BHCS's system;
ii. Abortion on demand will not be provided; and
iii. The serving of alcoholic beverages at any Facility will not be
permitted except to the extent prescribed by a physician with
clinical privileges at the Facility in question; provided that,
so long as Fountain View maintains written policies which are
communicated on a regular basis to its employees and to
physicians and others utilizing each Facility and which Fountain
View uses commercially reasonable efforts to enforce, then
Fountain View will not be deemed to be in breach of this covenant
by virtue of a violation of such policies by someone without the
prior knowledge, or acquiescence of senior management.
4. Use of the Marks. Prior to any use or distribution of any material (or any
----------------
significant modifications of previously approved materials) bearing any of
the Marks, Fountain View shall provide BHCS with a description of the
proposed manner of use and samples of all goods, literature, brochures,
signs, stationery, presentations, correspondence and advertising material
prepared by Fountain View bearing the Marks (collectively, "MATERIALS") and
shall promptly provide such additional information with respect thereto as
BHCS may reasonably request. Any proposed uses or materials submitted for
approval must be accompanied by a notice specifically referring to this
Agreement and to this paragraph and specifically advising BHCS of the time
period stated herein. BHCS shall have a period of 2l days after receipt of
such materials accompanied by the proper notice in which to reject the
sample and the proposed use. If BHCS requests additional information, the
21-day period will be extended by the number of days between the day BHCS
requests such additional information and the day the additional information
is received by BHCS. In the absence of rejection within such 21-day period,
or upon earlier written acceptance, Fountain View may deem the sample
approved. When using the Marks under this Agreement, Fountain View
undertakes to comply in all material respects with all laws pertaining to
trademarks in force at any time within the United States, including,
without limitation, compliance with marking requirements.
5. Inspection. Fountain View will permit duly authorized representatives of
----------
BHCS to inspect the premises of Fountain View and any or all of the
Facilities at all reasonable times, for the purposes of ascertaining or
determining compliance with the terms hereof. Upon the request of BHCS,
Fountain View will cause the officers, employees, agents, attorneys,
contractors and accountants of Fountain View and of each of its
subsidiaries to meet with representatives of BHCS, cooperative fully with
such representatives and respond to all questions and inquiries of such
representatives with respect to the operation of the Facilities and the use
of the Marks.
________________________________________________________________________________
SERVICE MARK SUBLICENSE AGREEMENT
PAGE 3 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
6. Goodwill and Ownership of Marks.
-------------------------------
a. Fountain View shall use the Marks only upon the terms and conditions
contained herein. The use of the name "Baylor" and all Marks, and any
changes, derivations, additions, approximations and deceptively
similar names and all goodwill accruing to the use thereof, shall
remain the property of, and inure to the benefit of, Licensor and/or
BHCS, and Fountain View disclaims any right or interest therein or to
the goodwill derived therefrom.
b. Fountain View acknowledges Licensor's and/or BHCS's ownership of and
all right, title and interest in and to the name "Baylor" and the
Marks and any registrations that have issued or may issue thereon, and
Fountain View agrees that it will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to
impair any part of such right, title and interest. In connection with
the use of the Marks, Fountain View shall not in any manner represent
that it has any ownership in the Marks or registrations thereof, and
the Parties hereto acknowledge that any use of the Marks, including
all good will associated therewith, shall inure to the benefit of
Licensor and BHCS.
c. Fountain View agrees (i) that any and all additional trademark or
service mark rights which may be acquired by Fountain View or any of
its Affiliates, employees or agents and which are changes,
derivations, additions, approximations or deceptively similar names to
the Marks are and shall be the absolute and exclusive property of BHCS
and/or Licensor, (ii) that Fountain View will, and will cause its
Affiliates, employees and agents to, execute all such assignments,
trademark or service mark applications and other documents and
pleadings that may be requested by BHCS or Licensor to confirm the
foregoing, and (iii) that Fountain View hereby appoints BHCS as its
attorney-in-fact to execute all such assignments, applications and
other documents for and on behalf of Fountain View. As used in this
Agreement, (A) "AFFILIATE" means any person or Entity which, directly
or indirectly, controls or is controlled by or is under common control
with another person or Entity, and, as used in this definition, the
term "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect
to any person or Entity, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or
policies of such person or Entity, through the ownership of voting
securities, partnership interests or otherwise, and (B) "ENTITY" means
any corporation, limited liability company, association, partnership,
organization, trust, joint venture or other legal entity.
7. New Uses of "Baylor". Fountain View acknowledges that BHCS does not have
--------------------
the right to use the name "Baylor" generally and that, pursuant to the
Baylor University License, before Fountain View or BHCS can undertake any
use of the name other than the precise mark(s) shown on Exhibit "A" hereto
(a "NEW USE"), consent must be obtained from Licensor. Whenever Fountain
View desires to undertake a New Use, it will submit the details of the
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 4 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
New Use to BHCS, and, if BHCS approves such New Use, BHCS will submit the
same to Licensor, and, if Licensor approves such New Use, the same will be
added to Exhibit "A" hereto by supplement executed by Fountain View and
BHCS and become a "Mark" hereunder for all purposes, with such
modifications to the terms hereof with respect to such New Use as Licensor
may require. Attached hereto as Exhibit "B" is a form of Trademark License
Agreement which Licensor has required BHCS to execute in the past, and BHCS
will use reasonable efforts to obtain a similar Trademark License Agreement
from Licensor with respect to New Uses hereunder.
8. Other Duties and Warranties of Fountain View.
--------------------------------------------
a. Fountain View shall comply with all relevant federal, state and local
laws and regulations in the operation of the Facilities.
b. Fountain View shall comply with all of the terms, covenants and
obligations in the Development Agreement which are applicable to it.
c. Fountain View shall cooperate with BHCS, including providing any
necessary samples, specimens or affidavits of use, as required by BHCS
to meet BHCS's obligations for registration and maintenance of the
Marks and/or to comply with the terms of the Baylor University
License.
d. Fountain View shall make proper use of the Marks in accordance with
accepted trademark practice.
e. Fountain View shall not, and shall cause its Affiliates over whom it
has control and its officers, employees, agents and attorneys not to,
do or take any action disrupting, attacking or in any way impairing
the right, title and interest of Licensor and BHCS to the Marks or the
validity or enforceability of the Marks.
9. Indemnity. BHCS assumes no liability to Fountain View or to any third
---------
parties with respect to the products or services provided by Fountain View
in facilities utilizing the Marks, and Fountain View agrees to and shall
indemnify, defend and hold harmless BHCS and Licensor, and each of their
officers, employees, agents, trustees and directors from and against any
and all claims, demands, losses, costs, expenses, obligations, liabilities,
actions, suits and damages, including, without limitation, reasonable
attorney fees and costs, which may be asserted against BHCS or Licensor or
any of their officers, employees, agents, trustees and directors, or which
any of them shall suffer or incur, which arise out of, result from or
relate to the provision of services and/or the use or sale of products in
Facilities using the Marks.
10. Partnership; Agency. This Agreement is not intended to create and may not
-------------------
be interpreted as creating a partnership, joint venture, agency,
employment, master and servant or other similar relationship between BHCS
and Fountain View or between Fountain View and Licensor, and no
representation to the contrary is binding upon BHCS or Licensor.
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 5 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
11. Assignments; Sublicenses. Fountain View shall not assign, sublicense or
------------------------
delegate any rights or obligations under this Agreement either by contract,
assignment, sublicense or sale of assets or by operation of law by virtue
of a merger, consolidation or conversion in which Fountain View is not the
survivor, a liquidation, a dissolution or another similar transaction;
provided that Fountain View may assign its rights and delegate its duties
and obligations under this Agreement to a wholly owned Subsidiary if
Fountain View and such Subsidiary execute an agreement inuring to the
benefit of BHCS and Licensor pursuant to which such Subsidiary agrees to be
bound by all of the terms hereof and Fountain View and such Subsidiary
agree to be jointly and severally liable and responsible for the
performance of all of the duties and obligations of Fountain View
hereunder; and provided, further, that a merger or consolidation of
Fountain View with or into another Entity ("TARGET") will not be deemed to
be a breach of the foregoing prohibition so long as (a) the principal
business of the Target is the health care industry, (b) the Target is not a
majority or wholly owned subsidiary of another Entity (unless, after giving
effect to such merger or consolidation such other Entity no longer owns
more than 20% of the survivor of the merger or consolidation (or such
lesser amount as may be necessary to avoid the application of clause (ii)
of subparagraph B of the definition of "Change of Control" in Section 18
hereof), (c) promptly after such merger or consolidation, the name of the
survivor is "Fountain View", (d) after giving effect to such merger or
consolidation, no Change of Control has occurred and (e), if the Target is
an entity whose shares or other equity interests are publicly traded and,
immediately before such merger or consolidation, subparagraph A of the
definition of "Change of Control" is the applicable subparagraph for
purposes of determining whether a Change of Control has occurred, then,
after such merger or consolidation, subparagraph A will continue to be the
applicable subparagraph and the fact that Fountain View becomes a company
whose shares are publicly traded by virtue of the merger or consolidation
will not be deemed to be a "Qualified IPO" for purposes of the definition
of "Change of Control". Any references to mergers, consolidations or
similar transactions elsewhere in this Agreement, in the Development
Agreement or in other documents shall not be deemed to be an implicit or
explicit modification of the foregoing prohibition. As used herein, "WHOLLY
OWNED SUBSIDIARY" means any Entity with respect to which Fountain View owns
all of the equity interests, member interests, partnership interests and
voting interests.
12. Third Parties. Except as set forth or referred to herein, nothing in this
-------------
Agreement is intended or shall be construed to confer upon or give to any
party other than the Parties hereto and Licensor and their successors and
assigns any rights or remedies under or by reason of this Agreement.
13. Notice of Infringement. Fountain View shall promptly notify BHCS in
----------------------
writing, upon Fountain View obtaining any knowledge of infringement, or
possible infringement, of any of the Marks. BHCS shall have no obligation
to take any action, but should BHCS take action, Fountain View will fully
cooperate with BHCS.
14. Notices. Any notices or other communications required or permitted to be
-------
given pursuant to this Agreement must be (i) given in writing and
personally delivered or mailed by
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 6 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
prepaid first class mail or (ii) made by facsimile transmission to the
party to whom such notice or communication is directed, to the address or
facsimile number of such party stated below (or otherwise provided to or
obtained by the sending party), with a copy to the other persons indicated.
Additionally, the party giving any notice (whether by personal delivery,
mail or facsimile) shall be obligated to telephone the persons indicated
below (at the telephone number of such party stated below (or otherwise
provided to or obtained by the sending party)) on the same day the notice
is sent or delivered and tell them (or leave them a message) that a
particular notice has been delivered, mailed or sent by facsimile. Any
notice to be mailed or personally delivered may be mailed or delivered to
the principal offices of the party to whom such notice is addressed. Any
such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is mailed or personally
delivered or, if transmitted by facsimile, on the day that such notice is
transmitted. Any party may change its address, telephone number or
facsimile number for purposes of this Agreement by giving notice of such
change to the other parties pursuant to this Section.
If to BHCS Office of General Counsel
Baylor Health Care System
3409 Worth Street, Suite 650
Dallas, Texas 75246
Telephone: (214) 820-4898
Facsimile: (214) 820-1535
with a copy to: Kenneth L. Stewart, Esq.
Fulbright & Jaworski L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
Telephone: (214) 855-8060
Facsimile: (214) 855-8200
If to Fountain View: Robert Snukal
Fountain View, Inc.
11900 Olympic Boulevard
Suite 680
Los Angeles, California 90064
Telephone: (310) 571-0351
Facsimile: (310) 571-0364
- --------------------------------------------------------------------------------
SERVICE MARK SUBLICENSE AGREEMENT
PAGE 7 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
with a copy to: William Scott, Chairman
Fountain View, Inc.
2600 W. Magnolia Boulevard
Burbank, California 91505
Telephone: (818) 841-8750
Facsimile: (818) 841-5847
15. Entire Agreement; Amendments. This Agreement, the Development Agreement,
----------------------------
and any documents or agreements mentioned herein or therein encompass the
entire agreement and understanding between the Parties hereto with respect
to the subject matter hereof. This Agreement may not be altered, amended or
modified, nor may any of its provisions be waived, except by an instrument
in writing signed by both BHCS and Fountain View, or, in the case of an
asserted waiver, by the party against whom the waiver is sought to be
enforced.
16. Severability. If any of the provisions of this Agreement are determined to
------------
be invalid or unenforceable, such invalidity or unenforceability will not
invalidate or render unenforceable the remainder of this Agreement, but
rather the entire Agreement will be construed as if not containing the
particular invalid or unenforceable provision or provisions, and the rights
and obligations of the Parties hereto shall be construed and enforced
accordingly. The Parties hereto acknowledge that if any provision of this
Agreement is determined to be invalid or unenforceable, it is their desire
and intention that such provision be reformed and construed in such manner
that it will, to the maximum extent practicable, be deemed to be valid and
enforceable.
17. Term. This Agreement shall be effective from the date signed until
----
terminated.
18. Termination. This Agreement shall terminate or may be terminated, in whole
-----------
or in part, as follows, with the consequences, if any, specified in the
Development Agreement:
a. This Agreement shall be terminated automatically and immediately upon
the happening of any of the following events (except to the extent
termination as a result of the occurrence of any of such events is
restricted or proscribed by law):
i. The approval by the board of directors of Fountain View or any
significant subsidiary of Fountain View of the filing of a
voluntary petition under the Federal Bankruptcy Code;
ii. The filing of a voluntary or involuntary petition under the
Federal Bankruptcy Code by or against Fountain View or any
significant subsidiary of Fountain View
iii. any assignment for the benefit of creditors of Fountain View or
any significant subsidiary,
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 8 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
iv. any attachment, levy, execution of judgment or process against
Fountain View or any significant subsidiary which would have a
material adverse effect on Fountain View and its subsidiaries as
a whole, or
v. A termination of BHCS's rights with respect to the Marks under
the Baylor University License.
b. BHCS may, at its option, terminate (i) this entire Agreement and the
rights of Fountain View hereunder, upon the occurrence of a Change of
Control (hereinafter defined) under subparagraph A. or B. of the
definition of Change of Control, or (ii) this Agreement and the rights
of Fountain View hereunder with respect to the Facility in question
upon the occurrence of a Change of Control under subparagraph C of
such definition, and any such termination will become effective
immediately after BHCS or Licensor gives notice to Fountain View of
such termination.
c. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility, upon the
occurrence of a violation of paragraph 3.c.ii or 3.c.iii hereof in
such Facility, which termination will become effective immediately
after BHCS or Licensor gives notice to Fountain View of such
termination.
d. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility on or after the
120th day after a loss, expiration or forfeiture by Fountain View of
any of its licenses, operating permits or certificates of authority
issued by the State of Texas or any other governmental authority which
results or will result in a loss of the right to operate all or a
significant part of such Facility, unless each such lost, expired or
forfeited license, operating permit or certificate of authority is
renewed or reinstated to the reasonable satisfaction of BHCS prior to
the end of such 120-day period.
e. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, with respect to this entire Agreement if and
when the entire Development Agreement is terminated, which termination
will become effective immediately after BHCS or Licensor gives notice
to Fountain View of such termination.
f. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, with respect to any Facility which BHCS has
elected to assume control of and/or purchased pursuant to the
Development Agreement, which termination will become effective
immediately after BHCS or Licensor gives notice to Fountain View of
such termination.
g. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder if Fountain View takes any action prohibited
by, or fails to take an action required by, the Baylor University
License which results in, or creates a substantial
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 9 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
risk of, the loss by BHCS of material rights under the Baylor
University License or a material impairment or loss of Licensor's
rights with respect to the Marks, which termination will become
effective at the end of the 15th day after BHCS or Licensor gives
notice to Fountain View of its intention to terminate unless there has
been a cure satisfactory to Licensor and BHCS which eliminates such
risk, loss and/or impairment.
h. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility at which Fountain
View fails or refuses to comply with any policies or procedures now in
effect or hereafter adopted or modified which BHCS deems to be
material and which are applicable generally to hospitals or other
health care facilities operated by BHCS and its Affiliates, and such
failure and/or refusal continues for a period of 120 days after BHCS
has given notice thereof to Fountain View.
i. BHCS may, at its option, terminate this Agreement and the rights of
Fountain View hereunder, if a material failure or refusal by Fountain
View to perform its duties and obligations hereunder which are not
otherwise covered by the foregoing provisions occurs, and such failure
and/or breach continues without cure to the reasonable satisfaction of
BHCS for a period of 120 days after BHCS has given notice thereof to
Fountain View.
j. Baylor may, at its option, terminate this Agreement and the rights of
Fountain View hereunder with respect to any Facility if any wholly
owned Subsidiary to which Fountain View has made an assignment or
delegation permitted by Section 11 hereof of any of Fountain View's
rights and/or obligations ceases to be a wholly owned Subsidiary,
which termination will become effective immediately after BHCS gives
notice to Fountain View of such termination.
Upon termination of this Agreement in any manner, Fountain View will cease and
desist from all use of the Marks in any way, and will deliver to BHCS, or its
duly authorized representatives, all material and papers upon which the Marks
appear, and furthermore, Fountain View will not at any time adopt or use without
BHCS's prior consent, any word, logo or mark which is likely to be similar to
or confusingly similar to the Marks.
In the event of a termination pursuant to Section 18.a.iv., if, during the
period of 90 days after such termination, Fountain View fully and completely
eliminates and obtains a dismissal and release of the attachment, execution of
judgment or process, Fountain View shall be entitled to reinstate this Agreement
if no other events have occurred which would result in automatic or optional
termination hereunder. In the event of a termination pursuant to Section 18.j.,
if, during the period of 15 days after such termination, Fountain View fully and
completely eliminates the breach, this Agreement shall be automatically
reinstated if no other events have occurred which have resulted in automatic or
optional termination hereunder and this Agreement has in fact been terminated as
a result thereof..
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 10 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
As used in this Agreement, "CHANGE OF CONTROL" means the occurrence of any of
the following:
A. prior to an initial public offering of common stock of Fountain View
(after a merger or consolidation with a Private Company which is
permitted under Section 11 hereof, "Fountain View", as used herein,
means the successor in such merger or consolidation) pursuant to a
registration statement under the Securities Act of 1933, as amended,
in which at least 20% of the common stock of Fountain View is sold (a
"Qualified IPO"), (i) Heritage and its Affiliates (which, as used in
this definition, shall include Management Stockholders (as that term
is defined in the Stockholders Agreement dated as of March 27, 1998
among Fountain View, Heritage and others)) and Baylor and its
Affiliates cease to control the vote of voting securities of Fountain
View having the power (contractual or otherwise) to elect a majority
of the directors of Fountain View, or (ii) Heritage and its Affiliates
cease to beneficially own (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) at least 20% of the issued and outstanding common
stock of Fountain View; or
B. after a Qualified IPO, (i) a change in the membership of the board of
directors of Fountain View occurs during any period of 12 consecutive
months after which a majority of the board of directors is comprised
of persons who are not Qualified Directors or (ii) a person, entity or
group (within the meaning of Rule 13d-5 promulgated under the
Exchange Act) other than Heritage and its Affiliates beneficially
owns an aggregate percent of the combined voting power of Fountain
View's then outstanding securities entitled to vote for the election
of directors of Fountain View which is greater than the aggregate
percent of such combined voting power beneficially owned by Heritage,
Baylor and their Affiliates (as used herein, a "Qualified Director" is
a person who was (x) a director at the beginning of such 12-month
period, or (y) was approved by Heritage, BHCS or an Affiliate or by a
permitted transferee or successor of BHCS, Heritage or one of their
Affiliates (but not including Management Stockholders in the
definition of "Affiliate" for this definition), and voting for the
election of a person as a director will be deemed to be approval); or
C. Fountain View or any of its affiliates transfers or makes a verbal or
written agreement or letter of intent to transfer any Facility which
uses the Baylor name (as used in this subsection, "transfer" means a
sale, lease, transfer, sublease or other disposition of a Facility or
a transfer, assignment or subcontracting of Fountain View's rights or
obligations to operate a Facility) other than as expressly permitted
by the Development Agreement and other than transfers to a wholly
owned Subsidiary.
19. Jurisdiction. This Agreement shall be construed in accordance and be
------------
governed by the laws of the State of Texas and of the United States of
America.
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 11 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
20. Arbitration.
-----------
a. Binding Arbitration. In the event of a dispute arising out of or
-------------------
relating to this Agreement, including, without limitation, claims with
respect to breach of contract, tort, obligation of good faith and fair
dealing and fiduciary duties, then, upon notice by any Party to the
other parties (an "Arbitration Notice") and to the Dallas, Texas
office of American Arbitration Association ("AAA") (which is presently
13455 Noel Road, 1750 Two Galleria Tower, Dallas, Texas 75240
[telephone (972) 702-8222); facsimile (972) 490-9008), the controversy
or dispute shall be submitted to a sole arbitrator who is independent
and impartial, for binding arbitration in Dallas, Texas, in accordance
with AAA's Commercial Arbitration Rules (the "RULES") then in effect
as modified or supplemented hereby. The parties agree that they will
faithfully observe this Agreement and the Rules and that they will
abide by and perform any award rendered by the arbitrator. The
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16 (or by the same principles enunciated by such Act in the
event it may not be technically applicable), to the extent that such
Act addresses matters not addressed in this Agreement or the Rules.
The award or judgment of the arbitrator shall be final and binding on
all parties and judgment upon the award or judgment of the arbitrator
may be entered and enforced by any court having jurisdiction. If any
Party becomes the subject of a bankruptcy, receivership or other
similar proceeding under the laws of the United States of America, any
state or commonwealth or any other nation or political subdivision
thereof, then, to the extent permitted or not prohibited by applicable
law, any factual or substantive legal issues arising in or during the
pendency of any such proceeding shall be subject to all of the
foregoing mandatory arbitration provisions and shall be resolved in
accordance therewith. The agreements contained herein have been given
for valuable consideration, are coupled with an interest and are not
intended to be executory contracts. The fees and expenses of the
arbitrator will be shared equitably (as determined by the arbitrator)
by all parties engaged in the dispute or controversy.
b. Selection of Arbitrator. Promptly after the Arbitration Notice is
-----------------------
given, AAA will select five (5) possible arbitrators, to whom AAA will
give the identities of the parties and the general nature of the
controversy. If any of those arbitrators disqualifies himself or
declines to serve, AAA shall continue to designate potential
arbitrators until the parties have five to select from. After the
panel of five potential arbitrators has been completed, a summary of
the background of each of the potential arbitrators will be given to
each of the parties, and the parties will have a period of 10 days
after receiving the summaries in which to attempt to agree upon the
arbitrator to conduct the arbitration. If the parties are unable to
agree upon an arbitrator, then one of the parties shall notify AAA and
the other Party, and, within five days from such notice, each Party
shall strike two names from the list and advise AAA of the two names
stricken. After expiration of the strike period, if all but one
candidate has been stricken, the remaining one will be the arbitrator,
but, if two or more have not been stricken, AAA shall select the
arbitrator from one of those not stricken. The decision
- --------------------------------------------------------------------------------
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 12 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
of AAA with respect to the selection of the arbitrator will be final
and binding in such case.
c. No Litigation: No litigation or other proceeding may ever be
-------------
instituted at any time in any court or before any administrative
agency or body for the purpose of adjudicating, interpreting or
enforcing any of the rights or obligations of the parties hereto or
any rights or obligations relating to the subject matter hereof;
whether or not covered by the express terms of this Agreement, or for
the purpose of adjudicating a breach or determination of the validity
of this Agreement, or for the purpose of appealing any decision of an
arbitrator, except a proceeding instituted (i) for the purpose of
having the award or judgment of an arbitrator entered and enforced or
(ii) to seek an injunction or restraining order (but not damages in
connection therewith) in circumstances where such relief is available.
No punitive, exemplary or consequential damages may ever be awarded by
the arbitrator or anyone else, and each of the parties hereby waives
any and all rights to make, claim or recover any such damages.
d. Arbitration Hearing. Within 10 days after the selection of the
-------------------
arbitrator, the parties and their counsel will appear before the
arbitrator at a place and time designated by the arbitrator for the
purpose of each Party making a one hour or less presentation and
summary of the case. Thereafter, the arbitrator will set dates and
times for additional hearings in accordance with the Rules until the
proceeding is concluded. The desire and goal of the parties is, and
the arbitrator will be advised that his goal should be, to conduct and
conclude the arbitration proceeding as expeditiously as possible. If
any Party or his counsel fails to appear at any hearing, the
arbitrator shall be entitled to reach a decision based on the evidence
which has been presented to him by the parties who did appear.
e. Law Governing Arbitration. If the parties have not selected the
-------------------------
governing law by agreement, the arbitrator shall make a decision about
the governing law or laws, and his judgment with respect thereto shall
be binding.
[SIGNATURE PAGES FOLLOW]
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 13 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute this Agreement effective as of the date and in the
capacities shown below.
FOUNTAIN VIEW, INC. BAYLOR HEALTH CARE SYSTEM
By: ____________________ By: /s/ William S. Carter
----------------------------
Name: Name: William S. Carter
Title: Title: Executive Vice President
STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
On this 4th day of May, 1998, personally appeared William Carter, Executive
Vice President of Baylor Health Care System who acknowledged that he executed
the foregoing Agreement on behalf of Baylor Health Care System and pursuant to
authority duly received.
[SEAL APPEARS HERE]
/s/ Jeri Gail Belton
-------------------------------------------
Notary Public in and for the State of Texas
Printed Name:______________________________
Commission Expires:________________________
STATE OF CALIFORNIA (S)
COUNTY OF LOS ANGELES (S)
On this 4th day of May, 1998 personally appeared William Scott, Chairman of
FOUNTAIN VIEW, INC., who acknowledged that he executed the foregoing Agreement
on behalf of FOUNTAIN VIEW, INC. and pursuant to authority duly received.
_________________________________________________
Notary Public in and for the State of California
SEAL Printed Name: ___________________________________
Commission Expires:______________________________
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700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 14 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute this Agreement effective as of the date and in the
capacities shown below.
FOUNTAIN VIEW, INC BAYLOR HEALTH CARE SYSTEM
By: /s/ William C. Scott By: ___________________________
--------------------------
Name: William C. Scott Name:
Title: Chairman Title:
STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
On this 4th day of May, 1998 personally appeared William Carter, Executive Vice
President of Baylor Health Care System who acknowledged that he executed the
foregoing Agreement on behalf of Baylor Health Care System and pursuant to
authority duly received.
FOUNTAIN VIEW, INC.
______________________________________________
Notary Public in and for the State of Texas
SEAL Printed Name:_________________________________
Commission Expires:___________________________
STATE OF CALIFORNIA (S)
COUNTY OF LOS ANGELES (S)
On this 4th day of May, 1998 personally appeared William Scott, Chairman of
FOUNTAIN VIEW, INC., who acknowledged that he executed the foregoing Agreement
on behalf of FOUNTAIN VIEW, INC. and pursuant to authority duly received.
/s/ Debra J. Bowlian
----------------------------------------------
Notary Public in and for the State of California
SEAL Printed Name: DEBRA J. BOWLIAN
---------------------------------
Commission Expires: SEPTEMBER 24, 1999
---------------------------
[NOTARY SEAL APPEARS HERE]
________________________________________________________________________________
700052.07 SERVICE MARK SUBLICENSE AGREEMENT
PAGE 14 OF 14 BAYLOR HEALTH CARE SYSTEMS TO FOUNTAIN VIEW
EXHIBIT A
TO
SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
MARK REGISTRATION NO.
- ---- ---------------
BAYLOR HEALTH CARE SYSTEM Reg. No. 1,515,737
BAYLOR "FLAME" (FOR PURPOSES Reg. No. 1,512,040
OF THIS AGREEMENT, ONLY WHEN
USED WITH "BAYLOR HEALTH CARE SYSTEM")
(A DEPICTION OF THE FLAME FOLLOWS):
TRADEMARK LICENSE AGREEMENT
This License Agreement is between Baylor University (hereinafter referred
to as BAYLOR), with its principal office in Waco, Texas, 76798, and Baylor
Health Care System (hereinafter referred to as LICENSEE), with its principal
place of business at 3201 Worth Street, Dallas, Texas 75226.
In consideration of the mutual promises contained in this Agreement, BAYLOR
and LICENSEE agree as follows:
1. BACKGROUND
----------
1.1 Over the years, BAYLOR and LICENSEE have had an ongoing relationship,
and BAYLOR has licensed LICENSEE to use certain names and marks.
1.2 BAYLOR and LICENSEE entered into a Settlement Agreement dated May 15,
1990 (hereinafter referred to as the SETTLEMENT AGREEMENT) relating to use and
licensing of certain trademarks and service marks (hereinafter "mark(s)"). This
License Agreement is subject to all terms and conditions of the SETTLEMENT
AGREEMENT, and nothing in this License Agreement is intended to modify or
supersede the SETTLEMENT AGREEMENT.
1.3 As provided in the SETTLEMENT AGREEMENT, LICENSEE has sought written
approval by BAYLOR to use the mark(s) identified on Exhibit A attached hereto.
2. LICENSE GRANT
-------------
2.1 BAYLOR grants to LICENSEE an exclusive license to use the mark(s)
identified on Exhibit A, for the products or services or both reflected in
Exhibit A. The license continues until terminated pursuant to paragraph 4.1 or
4.2 below.
2.2 All use of the mark(s) licensed hereunder inures to the benefit of
BAYLOR.
2.3 LICENSEE acknowledges that ownership of all right, title, and interest
to the mark(s) licensed hereunder remains vested solely in BAYLOR, and LICENSEE
disclaims any right or interest therein or the goodwill derived therefrom.
3. QUALITY CONTROL
---------------
3.1 Because of the long relationship between BAYLOR and LICENSEE, and
LICENSEE's history of providing high quality products and services under marks
licensed from BAYLOR, BAYLOR has come to trust and rely on LICENSEE to maintain
such high quality. LICENSEE agrees that it shall at all times offer high quality
products and services under the mark(s) licensed hereunder.
3.2 If BAYLOR finds that the quality of any product or service being
offered or sold under this License Agreement is unacceptable to BAYLOR, it shall
have the right to specifically notify LICENSEE in writing of the changes which
will be necessary to attain an acceptable level of quality. LICENSEE agrees that
upon such notice, it shall make such changes within a reasonable period of time,
and shall thereafter maintain an acceptable level of quality.
3.3 BAYLOR shall have the right to ascertain whether the products and
services offered or sold under this License Agreement are of an acceptable level
of quality, and LICENSEE shall cooperate in BAYLOR's exercise of this right.
3.4 LICENSEE shall, before it sells or distributes any product, packaging
or promotional material bearing any mark licensed hereunder, furnish to BAYLOR,
free of cost, for its approval, a sample of each product, packaging or
promotional material. BAYLOR has two weeks from receipt of each such sample in
which to reject the sample, and if it is rejected by BAYLOR, LICENSEE may not
use it. In absence of rejection within said two week period, or upon earlier
written acceptance, LICENSEE may deem the sample approved by BAYLOR.
3.5 LICENSEE agrees to make proper use of the mark(s) licensed hereunder
in accordance with accepted trademark practice.
---------------------------------
Baylor Health Care System/ EXHIBIT "B" TO
Baylor Rehabilitation System SERVICE MARK SUBLICENSE AGREEMENT
---------------------------------
4. TERMINATION
-----------
4.1 In the event LICENSEE fails to comply with any of its obligations owed
to BAYLOR under this License Agreement, BAYLOR may serve on LICENSEE a notice of
default, specifying the nature of default. If the default is not cured within a
reasonable time (not to exceed 120 calendar days) after service of the notice of
default, BAYLOR may then immediately terminate this License Agreement by serving
a notice of termination.
4.2 This License Agreement automatically terminates in the event of
termination of the licenses and permissions granted by BAYLOR to LICENSEE under
the SETTLEMENT AGREEMENT.
5. EFFECT OF TERMINATION
---------------------
5.1 In the event of termination of this License Agreement pursuant to
paragraph 4.1 above, LICENSEE has 120 days to phase out and discontinue all use
of the mark(s) identified on Exhibit A, and thereafter may not use said mark(s).
5.2 In the event of termination of this License Agreement pursuant to
paragraph 4.2 above, the terms of the SETTLEMENT AGREEMENT shall govern
discontinuance of use by LICENSEE.
6. NON-ASSIGNABILITY
-----------------
The license granted herein to LICENSEE is not assignable or transferable
except with the prior written consent of BAYLOR. Subject to the preceding
sentence, this License Agreement is binding upon the inures to the benefit of
BAYLOR and LICENSEE and their respective successors and assigns.
7. INDEMNITY/HOLD HARMLESS
-----------------------
7.1 LICENSEE agrees that it is wholly responsible for all products and
services offered and sold by it under the mark(s) licensed hereunder, and that
BAYLOR has no liability for any such products and services.
7.2 LICENSEE indemnifies and holds harmless BAYLOR and the officers,
employees and agents thereof, from any claims, demands, causes of action, and
damages, including reasonable attorneys' fees, caused by or arising out of use
of any mark licensed hereunder, or workmanship, material or design of any
product or service offered by LICENSEE under any mark licensed hereunder,
including without limitation, claims or actions for product liability and patent
or copyright infringement.
8. NOTICES
-------
All notices or demands required or permitted hereunder must be in writing
and are deemed given when delivered in person or sent by United States mail,
first class, certified or registered, return receipt requested, with all postage
prepaid, addressed as follows:
To BAYLOR: Robert B. Sloan, Jr., President
Baylor University
P.O. Box 97096
Waco, Texas 76796-7096
To LICENSEE: Boone Powell, Jr., F.A.C.H.A., President
Baylor Health Care System
P.O. Box 26265
Dallas, Texas 75226
or to such other person or address as the party to receive notice may specify by
notice to the other party.
9. STATUS OF PARTIES
-----------------
This License Agreement is not intended to create, and may not be
interpreted or construed as creating, a partnership, joint venture, agency,
employment, master and servant, or similar relationship between BAYLOR and
LICENSEE, and no representation to the contrary is binding upon BAYLOR.
10. MISCELLANEOUS
-------------
Baylor Health Care System/
Baylor Rehabilitation System
2
10.1 BAYLOR and LICENSEE intend all provisions of this License Agreement
to be enforced to the fullest extent permitted by law. If, however, any
provision of this License Agreement is held to be illegal, invalid, or
unenforceable under present or future law, such provision is fully severable and
this License Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision were never a part hereof, and the remaining
provisions remain in full force and effect and are not affected by the illegal,
invalid or unenforceable provision or by its severance.
10.2 This License Agreement is made in the State of Texas and for all
purposes is governed by and construed in accordance with the laws of said State.
10.3 LICENSEE may not, directly or indirectly, do or take any action
disrupting, attacking, or in any way impairing BAYLOR's right, title and
interest to the mark(s) licensed hereunder.
10.4 This License Agreement may not be altered, amended, or rescinded, nor
may any of its provisions be waived, except by an instrument in writing signed
by both BAYLOR and LICENSEE or, in the case of an asserted waiver, by the party
against whom the waiver is sought to be enforced.
11. EFFECTIVE DATE
--------------
This License Agreement is effective as of the 24/th/ day of July 1997.
EXECUTED by BAYLOR and LICENSEE on this day and year first above written, in
duplicate copies, each of which shall be deemed an original.
BAYLOR UNIVERSITY
By: /s/ Robert B. Sloan, Jr.
------------------------
Robert B. Sloan, Jr.
President
BAYLOR HEALTH CARE SYSTEM
BY: /s/ Boone Powell, Jr.
------------------------
Boone Powell, Jr.
President
3